<SUBMISSION>
<ACCESSION-NUMBER>0000931763-01-501480
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>1
<PERIOD>20010630
<FILING-DATE>20010814
<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>1712112
</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>d10q.txt
<DESCRIPTION>FORM 10-Q
<TEXT>
<PAGE>

================================================================================

                      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, 2001

                       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)

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


                              __________________


     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 53,817,223 shares outstanding as of July 27, 2001.

================================================================================
<PAGE>

                          HIGHWOODS PROPERTIES, INC.

              QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2001

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                          Page
                                                                                                                          ----
PART I    FINANCIAL INFORMATION
<S>                                                                                                                     <C>
Item 1.   Financial Statements........................................................................................    3

          Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000.......................................    4

          Consolidated Statements of Income for the three and six months ended June 30, 2001 and 2000.................    5

          Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2001......................    6

          Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000.......................    7

          Notes to Consolidated Financial Statements..................................................................    9

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.......................   12

          Results of Operations.......................................................................................   12

          Liquidity and Capital Resources.............................................................................   13

          Recent Developments.........................................................................................   15

          Possible Environmental Liabilities..........................................................................   15

          Compliance with the Americans with Disabilities Act.........................................................   16

          Funds From Operations and Cash Available for Distributions..................................................   16

          Disclosure Regarding Forward-Looking Statements.............................................................   18

          Property Information........................................................................................   20

          Inflation...................................................................................................   28

Item 3.   Quantitative and Qualitative Disclosures About Market Risk..................................................   29

PART II   OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security Holders.........................................................   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 2000 Annual Report on Form 10-K.

                                       3
<PAGE>

                          HIGHWOODS PROPERTIES, INC.

                          CONSOLIDATED BALANCE SHEETS
                            (dollars in thousands)


<TABLE>
<CAPTION>
                                                                                                         June 30,     December 31,
                                                                                                           2001           2000
                                                                                                           ----           ----
                                                                                                        (Unaudited)
                                             ASSETS
<S>                                                                                                    <C>             <C>
Real estate assets, at cost:
    Land and improvements.......................................................................       $     423,705   $   421,270
    Buildings and tenant improvements...........................................................           2,850,270     2,742,946
    Development in process......................................................................             128,790        87,622
    Land held for development...................................................................             150,938       145,598
    Furniture, fixtures and equipment...........................................................              12,527        11,433
                                                                                                       -------------   -----------

                                                                                                           3,566,230     3,408,869
    Less--accumulated depreciation..............................................................            (330,858)     (280,610)
                                                                                                       -------------   -----------
    Net real estate assets......................................................................           3,235,372     3,128,259
Property held for sale..........................................................................              57,937       127,824
Cash and cash equivalents.......................................................................              30,113       104,780
Restricted cash.................................................................................               2,295         2,192
Accounts receivable, net........................................................................              22,795        24,003
Advances to related parties.....................................................................                  --        27,560
Notes receivable................................................................................              61,325        80,918
Accrued straight-line rents receivable..........................................................              45,146        39,295
Investment in unconsolidated affiliates.........................................................              75,484        78,423
Other assets:
    Deferred leasing costs......................................................................              95,574        83,269
    Deferred financing costs (Se Notes 3 and 4).................................................              26,185        43,110
    Prepaid expenses and other..................................................................               9,807        11,878
                                                                                                       --------------  -----------
                                                                                                             131,566       138,257
    Less--accumulated amortization..............................................................             (52,018)      (49,909)
                                                                                                       -------------   -----------
        Other assets, net.......................................................................              79,548        88,348
                                                                                                       -------------   -----------
Total Assets....................................................................................       $   3,610,015   $ 3,701,602
                                                                                                       =============   ===========


                              LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and notes payable.....................................................................       $   1,655,459   $ 1,587,019
Accounts payable, accrued expenses and other liabilities........................................              92,937       109,824
                                                                                                       -------------   -----------
    Total Liabilities...........................................................................           1,748,396     1,696,843
Minority interest...............................................................................             213,197       213,214


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 104,945 shares outstanding at June 30, 2001 and 125,000
      shares issued and outstanding at December 31, 2000........................................             104,945       125,000
    8% Series B Cumulative Redeemable Preferred Shares (liquidation preference $25 per share),
      6,900,000 shares issued and outstanding at June 30, 2001 and December 31, 2000............             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, 2001 and December 31, 2000..............             100,000       100,000
Common stock, $.01 par value, 200,000,000 authorized shares; 53,817,223 shares issued and
 outstanding at June 30, 2001 and 58,124,205 shares issued and outstanding at December 31, 2000.                 538           581
Additional paid-in capital......................................................................           1,399,404     1,506,161
Distributions in excess of net earnings.........................................................            (114,702)     (110,209)
Accumulated other comprehensive loss (See Notes 3 and 4)........................................             (10,227)           --
Deferred compensation--restricted stock.........................................................              (4,036)       (2,488)
                                                                                                       -------------   -----------
    Total Stockholders' Equity..................................................................           1,648,422     1,791,545
                                                                                                       -------------   -----------
Total Liabilities and Stockholders' Equity......................................................       $   3,610,015   $ 3,701,602
                                                                                                       =============   ===========
</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                     Six Months
                                                                             Ended June 30,                   Ended June 30,
                                                                         ----------------------        ------------------------
                                                                           2001           2000            2001           2000
                                                                     -------------   ----------     --------------     ---------
<S>                                                                  <C>               <C>          <C>                <C>
Revenue:
    Rental property.........................................          $ 126,194        $ 137,719    $   254,815       $   273,620
    Equity in earnings of unconsolidated affiliates.........              1,592              944          2,425             1,887
    Interest and other income...............................              7,780            6,458         15,593            10,773
                                                                      ---------        ----------   -----------       -----------
Total Revenue...............................................            135,566          145,121        272,833           286,280

Operating expenses:
    Rental property.........................................             38,363           41,427         75,272            80,888
    Depreciation and amortization...........................             29,117           29,362         58,323            57,690
    Interest expense:
         Contractual........................................             26,253           27,775         54,574            54,822
         Amortization of deferred financing costs...........                675              577          1,340             1,298
                                                                      ---------        ----------   -----------       -----------
                                                                         26,928           28,352         55,914            56,120

    General and administrative..............................              5,451            5,443         10,663            10,539
                                                                      ---------        ----------   -----------       -----------
          Income before gain/(loss) on disposition of land
          and depreciable assets, minority interest and
          extraordinary item................................             35,707           40,537         72,661            81,043
Gain/(loss) on disposition of land and depreciable assets...              5,670          (26,062)        12,741           (19,116)
                                                                      ---------        ---------    -----------       -----------
         Income before minority interest and
         extraordinary item.................................             41,377           14,475         85,402            61,927

Minority interest...........................................             (5,095)          (1,822)       (10,346)           (7,842)
                                                                      ---------        ---------    -----------       -----------
         Income before extraordinary item...................             36,282           12,653         75,056            54,085

Extraordinary item--loss on early extinguishment of debt....               (325)            (839)          (518)           (1,034)
                                                                      ---------        ---------    -----------       -----------
         Net income.........................................             35,957           11,814         74,538            53,051
Dividends on preferred stock................................             (7,929)          (8,145)       (16,074)          (16,290)
                                                                      ---------        ---------    -----------       -----------
         Net income available for common shareholders.......          $  28,028        $   3,669    $    58,464       $    36,761
                                                                      =========        =========    ===========       ===========


Net income per common share--basic:
    Income before extraordinary item........................          $    0.53        $    0.08    $      1.07       $      0.63

    Extraordinary item--loss on early extinguishment
       of debt..............................................              (0.01)           (0.01)         (0.01)            (0.01)
                                                                      ---------        ---------    -----------       -----------
    Net income..............................................          $    0.52        $    0.07    $      1.06       $      0.62
                                                                      ---------        =========    ===========       ===========
    Weighted average shares outstanding--basic..............             53,927           59,293         55,153            59,850
                                                                      =========        =========    ===========       ===========

Net income per common share--diluted:
    Income before extraordinary item........................          $    0.52        $    0.08    $      1.06       $      0.63
    Extraordinary item--loss on early extinguishment
       of debt..............................................              (0.01)           (0.01)         (0.01)            (0.01)
                                                                      ---------        ---------    -----------       -----------
    Net income..............................................          $    0.51        $    0.07    $      1.05       $      0.62
                                                                      ---------        =========    ===========       ===========
    Weighted average shares outstanding--diluted............             54,318           59,608         55,542            60,055
                                                                      =========        =========    ===========       ===========
Distributions declared per common share.....................                .57             .555           1.14              1.11
                                                                      =========        =========    ===========       ===========
</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, 2001
               (Unaudited and in thousands except share amounts)


<TABLE>
<CAPTION>
                                                                                                                     Accumulated
                               Number of                                                Additional                      Other
                                 Common    Common   Series A    Series B    Series D     Paid-In        Deferred    Comprehensive
                                 Shares    Stock   Preferred   Preferred   Preferred     Capital      Compensation      Loss
                                 ------    -----   ---------   ---------   ---------     -------      ------------      ----
<S>                            <C>         <C>     <C>          <C>        <C>          <C>           <C>           <C>
Balance at December 31,
  2000.....................    58,124,205   $ 581  $ 125,000   $ 172,500   $ 100,000     $1,506,161     $  (2,488)   $       --

Issuance of Common
  Stock....................        21,481      --         --          --          --            602            --           --
Common Stock
  Dividends................            --      --         --          --          --             --            --           --
Preferred Stock
  Dividends................            --      --         --          --          --             --            --           --
Issuance of restricted
  stock....................        81,137      --         --          --          --          2,028        (2,028)          --
Amortization of deferred
  compensation.............            --      --         --          --          --             --           480           --
Repurchase of Common
  Stock....................    (4,409,600)    (43)        --          --          --       (110,941)           --           --
Repurchase of Preferred
Stock......................            --      --    (20,055)         --          --          1,554

Net Income.................            --      --         --          --          --             --            --           --
Reclassification of
  derivative instruments...            --      --         --          --          --             --            --      (10,227)
                               ----------  ------  ---------   ---------    --------     ----------  ------------    ---------

Balance at June 30,
  2001.....................    53,817,223  $  538  $ 104,945   $ 172,500   $ 100,000     $1,399,404      $ (4,036)   $ (10,227)
                               ==========  ======  =========   =========   =========     ==========  ============    =========

<CAPTION>
                                   Distributions
                                   in excess of
                                        Net
                                     Earnings         Total
                                     --------         -----
<S>                              <C>               <C>
Balance at December 31,
  2000.....................       $ (110,209)      $1,791,545

Issuance of Common
  Stock....................               --              602
Common Stock
  Dividends................          (62,957)         (62,957)
Preferred Stock
  Dividends................          (16,074)         (16,074)
Issuance of restricted
  stock....................               --               --
Amortization of deferred
  compensation.............               --              480
Repurchase of Common
  Stock....................               --         (110,984)
Repurchase of Preferred
Stock......................                           (18,501)

Net Income.................           74,538           74,538
Reclassification of
  derivative instruments...               --          (10,227)
                                  ----------       ----------

Balance at June 30,
  2001.....................       $ (114,702)      $1,648,422
                                  ==========       ==========
</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,
                                                                                                               --------
                                                                                                          2001          2000
                                                                                                          ----          ----
<S>                                                                                                      <C>          <C>
Operating activities:
Net income...........................................................................................   $  74,538     $   53,051
Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization....................................................................      59,663         58,988
    Amortization of deferred compensation............................................................         480            227
    Minority interest................................................................................      10,346          7,842
    Equity in earnings of unconsolidated affiliates..................................................      (2,425)        (1,887)
(Gain)/loss on disposition of land and depreciable assets............................................     (12,741)        19,116
Loss on early extinguishment of debt.................................................................         518          1,034
Transition adjustment upon adoption of FASB 133......................................................         556            ---
Loss on ineffective portion of derivative instruments................................................         428            ---
Changes in operating assets and liabilities..........................................................     (14,326)        (3,827)
                                                                                                        ---------     ----------
         Net cash provided by operating activities...................................................     117,037        134,544
                                                                                                        ---------     ----------
Investing activities:
Additions to real estate assets......................................................................    (140,630)      (126,256)
Proceeds from disposition of real estate assets......................................................     105,500        216,443
Repayment of advances to subsidiaries................................................................      27,560          1,921
Distributions from unconsolidated affiliates.........................................................       4,350          3,180
Investments in notes receivable......................................................................      18,918         15,145
Other investing activities...........................................................................      (9,920)       (34,685)
                                                                                                        ---------     ----------
         Net cash provided by investing activities...................................................       5,778         75,748
                                                                                                        ---------     ----------

Financing activities:
Distributions paid on common stock and common units..................................................     (71,603)       (76,241)
Dividends paid on preferred stock....................................................................     (16,074)       (16,290)
Loss on early extinguishment of debt.................................................................        (518)        (1,034)
Borrowings on mortgages and notes payable............................................................       8,780         72,442
Repayments on mortgages and notes payable............................................................     (92,671)       (89,028)
Borrowings on revolving loans........................................................................     215,000        279,500
Repayments on revolving loans........................................................................    (103,500)      (314,500)
Net proceeds from the sale of common stock...........................................................       2,157            707
Net change in deferred financing costs...............................................................        (164)          ( 86)
Repurchase of stock and units........................................................................    (138,889)       (55,549)
Other................................................................................................         ---           (202)
                                                                                                        ---------     ----------
         Net cash used in financing activities.......................................................    (197,482)      (200,281)
                                                                                                        ---------     ----------
Net (decrease)/increase in cash and cash equivalents.................................................     (74,667)        10,011
Cash and cash equivalents at beginning of the period.................................................     104,780         34,496
                                                                                                        ---------     ----------
Cash and cash equivalents at end of the period.......................................................   $  30,113     $   44,507
                                                                                                        =========     ==========

Supplemental disclosure of cash flow information:
Cash paid for interest...............................................................................   $  61,837     $   68,306
                                                                                                        =========     ==========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       7
<PAGE>

                          HIGHWOODS PROPERTIES, INC.

              CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
                         (Unaudited and in thousands)

Supplemental disclosure of non-cash investing and financing activities

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

<TABLE>
<CAPTION>
                                                                                                          Six Months Ended
                                                                                                              June 30,
                                                                                                              --------
                                                                                                         2001          2000
                                                                                                         ----          ----
                                                                                                     (Unaudited)   (Unaudited)
<S>                                                                                                 <C>             <C>
Assets:
Notes receivable ..................................................................................   $   675       $    ---
Cash and cash equivalents..........................................................................     1,074            ---
Rental property and equipment, net.................................................................    48,646          1,356

Liabilities:
Accounts payable, accrued expenses and other liabilities...........................................     2,084            ---
Mortgages and notes payable........................................................................    48,831            ---
                                                                                                      -------       --------
     Net assets....................................................................................   $  (520)      $  1,356
                                                                                                      =======       ========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       8
<PAGE>

                          HIGHWOODS PROPERTIES, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 June 30, 2001
                                  (Unaudited)

1.   BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of the Company
and the Operating Partnership and their wholly owned affiliates. All significant
intercompany balances and transactions have been eliminated.

     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.

     Minority interest in the Company represents Common Units owned by various
individuals and entities other than 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 of Common Stock outstanding (including common share
equivalents). In addition, minority interest includes equity of consolidated
real estate partnerships which are owned by various individuals and entities
other than the Company.

     Certain amounts in the June 30, 2000 financial statements have been
reclassified to conform to the June 30, 2001 presentation. These
reclassifications had no material effect on net income or stockholders' equity
as previously reported.

     The accompanying financial information has not been audited, but in the
opinion of management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of our financial position, results of
operations and cash flows have been made. For further information, refer to the
financial statements and notes thereto included in our 2000 Annual Report on
Form 10-K.


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, 2001 and 2000.

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                          Three Months                      Six Months
                                                         Ended June 30,                   Ended June 30,
                                                   --------------------------       --------------------------
                                                      2001            2000             2001            2000
                                                   ---------      -----------       ----------     -----------
                                                         (in thousands)                    (in thousands)
<S>                                               <C>             <C>               <C>            <C>
Rental Income:
Office segment............................        $  104,044      $   112,032       $  209,812     $   223,449
Industrial segment........................            11,933           12,281           23,513          24,028
Retail segment............................             8,653            9,069           18,355          17,473
Apartment segment.........................             1,564            4,337            3,135           8,670
                                                  ----------      -----------       ----------     -----------
   Total rental income....................        $  126,194      $   137,719       $  254,815     $   273,620
                                                  ==========      ===========       ==========     ===========
Net operating income:
Office segment............................        $   71,400      $    77,215       $  145,898     $   155,314
Industrial segment........................             9,989           10,295           19,837          20,075
Retail segment............................             5,584            6,267           12,175          12,213
Apartment segment.........................               858            2,515            1,633           5,130
                                                  ----------      -----------       ----------     -----------
   Total net operating income.............        $   87,831      $    96,292       $  179,543     $   192,732
                                                  ----------      -----------       ----------     -----------

Reconciliation to income before minority
   interest and extraordinary item:
Equity in income of unconsolidated affiliates     $    1,592      $       944       $    2,425     $     1,887
Gain/(loss) on disposition of  land and
   depreciable assets.....................             5,670          (26,062)          12,741         (19,116)
Interest and other income.................             7,780            6,458           15,593          10,773
Interest expense..........................           (26,928)         (28,352)         (55,914)        (56,120)
General and administrative expenses.......            (5,451)          (5,443)         (10,663)        (10,539)
Depreciation and amortization.............           (29,117)         (29,362)         (58,323)        (57,690)
                                                  ----------      -----------       ----------     -----------
Income before minority interest and
   extraordinary item.....................        $   41,377      $    14,475       $   85,402     $    61,927
                                                  ==========      ===========       ==========     ===========

Total assets:
Office segment............................        $2,708,324      $ 2,872,033       $2,708,324     $ 2,872,033
Industrial segment........................           398,740          410,855          398,740         410,855
Retail segment............................           258,135          287,412          258,135         287,412
Apartment segment.........................            39,607          114,528           39,607         114,528
Corporate and other.......................           205,209          198,911          205,209         198,911
                                                  ----------      -----------       ----------     -----------
Total assets..............................        $3,610,015      $ 3,883,739       $3,610,015     $ 3,883,739
                                                  ==========      ===========       ==========     ===========
</TABLE>


3.   DERIVATIVE FINANCIAL INSTRUMENTS

     On January 1, 2001, we adopted Financial Accounting Standards Board
Statement (SFAS) No. 133/138, "Accounting for Derivative Instruments and Hedging
Activities," as amended. This Statement 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 Accumulated Other
Comprehensive Loss ("AOCL") until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value is recognized in
earnings. In connection with the adoption of SFAS 133/138 in January 2001, we
recorded a net transition adjustment of $555,962 of unrealized loss in interest
and other income and a net transition adjustment of $125,000 in AOCL. Adoption
of the standard also resulted in our recognizing $127,000 of derivative
instrument liabilities and a reclassification of approximately $10.6 million of
deferred financing costs from past cashflow hedging relationships from other
assets to AOCL.

     Our interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cashflows and to lower overall borrowing
costs. To achieve these objectives, 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
these derivatives for trading or speculative purposes.

     All of our derivatives are designated as cashflow hedges (i.e., hedging the
exposure of variability in expected future cash flows that is attributable to a
particular risk) at June 30, 2001. The effective portion of the cumulative loss
on the derivative instruments was $10.2 million at June 30, 2001 and is reported
as a component of AOCL in shareholders' equity and recognized into earnings in
the same period or periods during which the hedged transaction affects earnings
(as the underlying debt is paid down). We expect that the portion of the
cumulative loss recorded in AOCL at June 30, 2001 associated with the derivative
instruments which will be recognized within the next 12 months will be
approximately $1.6 million. The ineffective portion of

                                       10
<PAGE>

our derivatives' changes in fair value has resulted in a loss of $984,000 for
the six months ended June 30, 2001 and is included in interest and other income
on the Consolidated Statements of Income at June 30, 2001.

     Derivative liabilities totaling approximately $844,000 related to our
interest rate swap, cap and collar agreements, with a notional amount of $99.5
million, are recorded in other accounts payable, accrued expenses and other
liabilities in the Consolidated Balance Sheets at June 30, 2001. The fair value
of our interest rate swap, cap and collar agreements was ($844,000) at June 30,
2001 and is based on individual market values as calculated monthly using a
published forward curve for the floating portion and the agreed upon fixed rate
for the fixed portion of the interest rate swap, cap and collar agreements.


4.   ACCUMULATED OTHER COMPREHENSIVE LOSS

     Accumulated other comprehensive loss represents net income plus the results
of certain non-shareholders' equity changes not reflected in the Consolidated
Statements of Income. The components of accumulated other comprehensive loss are
as follows:

<TABLE>
<CAPTION>
                                                                                                     Six Months Ended
                                                                                                         June 30,
                                                                                                 -----------------------
                                                                                                   2001            2000
                                                                                                 --------        -------
<S>                                                                                              <C>             <C>
Net Income................................................................................       $ 74,538        $ 53,051
Accumulated other comprehensive loss:
   Unrealized derivative gains/(losses) on cashflow hedges................................           (414)            ---
   Reclassification of past hedging relationships.........................................        (10,597)            ---
   Amortization of past hedging relationships.............................................            784             ---
                                                                                                 --------        --------
     Total accumulated comprehensive loss.................................................        (10,227)            ---

     Total comprehensive income...........................................................       $ 64,311        $ 53,051
                                                                                                 ========        ========
</TABLE>

                                       11
<PAGE>

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, 2001. Revenues from rental operations decreased
$11.5 million, or 8.4% from $137.7 million for the three months ended June 30,
2000 to $126.2 million for the comparable period in 2001. The decrease is
primarily a result of the disposition and contribution of 4.7 million square
feet of wholly owned office, industrial and retail properties and 1,160
apartment units, offset in part by the acquisition of 740,000 square feet of
wholly owned office, industrial and retail properties and the completion of 2.1
million square feet of development activity during the last six months of 2000
and the first six months of 2001. Our in-service portfolio decreased from 38.5
million square feet at June 30, 2000 to 36.7 million square feet at June 30,
2001. Same property revenues, which are the revenues of the 465 in-service
properties and 725 apartment units owned on April 1, 2000, increased 3.1% for
the three months ended June 30, 2001, compared to the same three months in 2000.

         During the three months ended June 30, 2001, 192 leases representing
937,000 square feet of office, industrial and retail space were executed at an
average rate per square foot which was 4.9% higher than the average rate per
square foot on the expired leases.

         Interest and other income increased $1.3 million, or 20.0% from $6.5
million for the three months ended June 30, 2000 to $7.8 million for the
comparable period in 2001. The increase was a result of an increase in interest
income, and leasing, development and management fees, partly offset by an
adjustment related to the adoption of FASB 133.

         Rental operating expenses decreased $3.0 million, or 7.2% from $41.4
million for the three months ended June 30, 2000 to $38.4 million for the
comparable period in 2001. The decrease is primarily a result of the disposition
and contribution of 4.7 million square feet of wholly owned office, industrial
and retail properties and 1,160 apartment units, offset in part by the
acquisition of 740,000 square feet of wholly owned office, industrial and retail
properties and the completion of 2.1 million square feet of development activity
during the last six months of 2000 and the first six months of 2001. Rental
operating expenses as a percentage of related revenues was 30.4% for the three
months ended June 30, 2001 and 30.1% for the three months ended June 30, 2000.

         Depreciation and amortization for the three months ended June 30, 2001
and 2000 totaled $29.1 million and $29.4 million, respectively. The decrease of
$0.3 million, or 1.0% is due to a decrease in depreciable assets over the prior
year. Interest expense decreased $1.5 million, or 5.3% from $28.4 million for
the three months ended June 30, 2000 to $26.9 million for the comparable period
in 2001. The decrease is attributable to a decrease in outstanding debt and
weighted average interest rates for the entire quarter of 2001 partly offset by
a decrease in capitalized interest in 2001. Interest expense for the three
months ended June 30, 2001 and 2000 included $675,000 and $577,000,
respectively, of amortization of deferred financing costs and the costs related
to our interest rate hedge contracts. General and administrative expenses was
4.0% of total revenue for the three months ended June 30, 2001 and 3.7% for the
comparable period in 2000.

         Net income before minority interest and extraordinary item equaled
$41.4 million and $14.5 million for the three months ended June 30, 2001 and
2000, respectively. The Company's net income allocated to minority interest
totaled $5.1 million and $1.8 million for the three months ended June 30, 2001
and 2000, respectively. The Company recorded $7.9 million in preferred stock
dividends for the three months ended June 30, 2001 and $8.1 million in preferred
stock dividends for the six months ended June 30, 2000.

     Six Months Ended June 30, 2001. Revenues from rental operations decreased
$18.8 million, or 6.9% from $273.6 million for the six months ended June 30,
2000 to $254.8 million for the comparable period in 2001. The decrease is
primarily a result of the disposition and contribution of 4.7 million square
feet of wholly owned office, industrial and retail properties and 1,160
apartment units, offset in part by the acquisition of 740,000 square feet of
wholly owned office properties and the completion of 2.1 million square feet of
development activity during the last six months of 2000 and the first six months
of 2001. Our in-service portfolio decreased from 38.5 million square feet at
June 30, 2000 to 36.7 million square feet at June 30, 2001. Same property
revenues, which are the revenues of the 454

                                       12
<PAGE>

in-service properties and 725 apartment units owned on January 1, 2000,
increased 2.8% for the six months ended June 30, 2001, compared to the same six
months in 2000.

     During the six months ended June 30, 2001, 360 leases representing 2.1
million square feet of office, industrial and retail space were executed at an
average rate per square foot which was 6.5% higher than the average rate per
square foot on the expired leases.

     Interest and other income increased $4.8 million, or 44.4% from $10.8
million for the six months ended June 30, 2000 to $15.6 million for the
comparable period in 2001. The increase was a result of an increase in interest
income and leasing, development and management fees, partly offset by an
adjustment related to the adoption of FASB 133.

     Rental operating expenses decreased $5.6 million, or 6.9%, from $80.9
million for the six months ended June 30, 2000 to $75.3 million for the
comparable period in 2001. The decrease is primarily a result of the disposition
and contribution of 4.7 million square feet of wholly owned office, industrial
and retail properties and 1,160 apartment units, offset in part by the
acquisition of 740,000 square feet of wholly owned office properties and the
completion of 2.1 million square feet of development activity during the last
six months of 2000 and the first six months of 2001. Rental operating expenses
as a percentage of related revenues was 29.6% for the six months ended June 30,
2001 and 2000.

     Depreciation and amortization for the six months ended June 30, 2001 and
2000 totaled $58.3 million and $57.7 million, respectively. The increase of $0.6
million, or 1.0%, is due to an increase in tenant improvements in 2000 and 2001,
partly offset by a decrease in depreciable assets from 2000 to 2001. Interest
expense decreased $0.3 million, or 0.5%, from $56.1 million for the six months
ended June 30, 2000 to $55.8 million for the comparable period in 2001. The
decrease is attributable to a decrease in outstanding debt and weighted average
interest rates for the six months ended June 30, 2001, partly offset by a
decrease in capitalized interest in 2001. Interest expense for the six months
ended June 30, 2001 and 2000 included $1.3 million of amortization of deferred
financing costs and the costs related to our interest rate hedge contracts.
General and administrative expenses increased from 3.7% of total revenue for the
six months ended June 30, 2000 to 3.9% for the comparable period in 2001.

     Income before minority interest and extraordinary item was $85.4 million
and $61.9 million for the six months ended June 30, 2001 and 2000, respectively.
The Company's net income allocated to minority interest totaled $10.3 million
and $7.8 million for the six months ended June 30, 2001 and 2000, respectively.
The Company recorded $16.1 million in preferred stock dividends for the six
months ended June 30, 2001 and $16.3 million in preferred stock dividends for
the six months ended June 30, 2000.

Liquidity and Capital Resources

     Statement of Cash Flows. For the six months ended June 30, 2001, the
Company generated $117.0 million in cash flows from operating activities and
$5.8 million in investing activities (primarily as a result of dispositions of
real estate assets, collection of notes receivable and repayments from
subsidiaries, partly offset by additions to real estate assets). These combined
cash flows of $123.0 million were used during the quarter to partly fund
financing activities of $197.5 million, primarily consisting of the repurchase
of Common Stock, Common Units and Preferred Stock and the payment of
distributions.

     Capitalization. Our total indebtedness at June 30, 2001 totaled $1.7
billion and was comprised of $593.0 million of secured indebtedness with a
weighted average interest rate of 7.8% and $1.1 billion of unsecured
indebtedness with a weighted average interest rate of 7.1%. Except as stated
below, all of the mortgage and notes payable outstanding at June 30, 2001 were
either fixed rate obligations or variable rate obligations covered by interest
rate hedge contracts. Approximately $76.3 million of floating rate notes were
not covered by interest rate hedge contracts on June 30, 2001.

     Based on the Company's total market capitalization of $3.7 billion at June
30, 2001 (at the June 30, 2001 stock price of $26.65 and assuming the redemption
for shares of Common Stock of the 7.6 million Common Units of minority interest
in the Operating Partnership), the Company's debt represented approximately
45.1% 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 $300.0 million
unsecured revolving loan (the "Revolving Loan") bear interest at

                                       13
<PAGE>

variable rates. Our long-term debt, which consists of long-term financings and
the issuance of debt securities, typically bears interest at fixed rates. In
addition, we have assumed fixed rate and variable rate debt in connection with
acquiring properties. Our interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower our
overall borrowing costs. To achieve these objectives, from time to time we enter
into interest rate hedge contracts such as collars, swaps, caps and treasury
lock agreements in order to mitigate our interest rate risk with respect to
various debt instruments. We do not hold or issue these derivative contracts for
trading or speculative purposes.

     The following table sets forth information regarding our interest rate
hedge contracts as of June 30, 2001:

<TABLE>
<CAPTION>
                                                                                                              Fair
                                    Notional        Maturity                                                 Market
Type of Hedge                        Amount           Date           Reference Rate        Fixed Rate         Value
-------------                        ------           ----           --------------        ----------         -----
<S>                                 <C>             <C>          <C>                       <C>             <C>
Swap...........................     $19,504         06/10/02     1-Month LIBOR + 0.75%     6.95%           $(413,903)
Collar.........................     $80,000         10/15/01     1-Month LIBOR             5.60-6.25%      $(430,022)
</TABLE>

     The interest rate on our variable rate debt is adjusted at one-month
intervals, subject to settlements under these contracts. Net payments made to
counterparties under interest rate hedge contracts were $214,853 during the
first six months of 2001 and were recorded as increases to interest expense.

     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 $75.0 million of our existing
development activity. We expect to fund our short-term liquidity needs through a
combination of:

     .    borrowings under our Revolving Loan (approximately $160.0 million was
          available at June 30, 2001);

     .    the issuance of secured debt;

     .    the selective disposition of non-core assets; and

     .    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 or the
incurrence of other debt.

                                       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 Repurchases. On May 31, 2001, we completed our previously announced
10.0 million share and unit repurchase program pursuant to which we repurchased
shares of Common Stock and Common Units at a weighted average price of $24.19
and a total purchase price of $241.9 million. In addition, on April 25, 2001, we
announced that our board of directors has authorized the repurchase of up to an
additional 5.0 million shares of Common Stock and Common Units. As of July 27,
2001, we have repurchased 81,622 shares of Common Stock and Common Units at a
weighted average purchase price of $24.99 per share and a total purchase price
of $2.0 million under this new repurchase program. Separately, on June 19, 2001,
we repurchased in a privately negotiated transaction 20,055 Series A Preferred
Shares at $922.50 per share, for a total purchase price of $18.5 million.

     Disposition Activity. During the six months ended June 30, 2001, we sold
approximately 164,000 rentable square feet of office properties, 1,160 apartment
units and 98.8 acres of development land for gross proceeds of $105.5 million.
In addition, we currently have 326,000 rentable square feet of wholly owned
properties and 413 apartment units under contract for sale in various
transactions totaling $75.4 million. These transactions are subject to customary
closing conditions, including due diligence and documentation, and are expected
to close at various times throughout 2001. However, we can provide no assurance
that all or parts of these transactions will be consummated.

         As of August 10, 2001, we expect to use a portion of the cash proceeds
from our recent and pending disposition activity to reinvest in tax-deferred
exchange transactions under Section 1031 of the Internal Revenue Code. We expect
to reinvest up to $14.2 million of the cash proceeds from completed disposition
activity and up to $64.7 million of the cash proceeds from pending 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

                                       15
<PAGE>

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 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.


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

                                       16
<PAGE>

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 depreciable assets, 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. This 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 month period ended
June 30, 2000 and 2001 are summarized in the following table (in thousands):

<TABLE>
<CAPTION>
                                                                    Three Months Ended            Six Months Ended
                                                                         June 30,                     June 30,
                                                                 -------------------------     ----------------------
                                                                    2001          2000            2001         2000
                                                                 ----------   ------------     ----------   ---------
<S>                                                              <C>         <C>              <C>          <C>
Funds from operations:
Income before minority interest and extraordinary item.....     $    41,377   $  14,475        $ 85,402     $ 61,927
Add/(Deduct):
  Dividends on preferred stock.............................          (7,929)     (8,145)        (16,074)     (16,290)
  Transition adjustment upon adoption of FAS 133...........              --          --             556           --
  (Gain)/loss on disposition of land and depreciable
    assets.................................................          (5,670)     26,062         (12,741)      19,116
  Gain on disposition of land..............................             537          --           1,563           --
  Depreciation and amortization............................          29,117      29,362          58,323       57,690
  Depreciation on unconsolidated affiliates................           1,912         920           3,904        1,798
                                                                -----------   ---------        --------     --------
    Funds from operations..................................          59,344      62,674         120,933      124,241
Cash available for distribution:
Add/(Deduct):
  Rental income from straight-line rents...................          (3,550)     (3,995)         (6,652)      (7,795)
  Amortization of deferred financing costs.................             675         577           1,340        1,298
  Non-incremental revenue generating capital
   expenditures (1):
    Building improvements paid.............................          (2,014)     (2,296)         (3,087)      (3,665)
    Second generation tenant improvements paid.............          (4,021)     (5,048)         (7,776)      (9,830)
    Second generation lease commissions paid...............          (3,541)     (3,678)         (8,328)      (6,809)
                                                                -----------   ---------        --------     --------
      Cash available for distribution......................     $    46,893   $  48,234        $ 96,430     $ 97,440
                                                                ===========   =========        ========     ========
Weighted average common shares/common units
  outstanding - basic (2)..................................          61,571      68,043          62,826       68,649
                                                                ===========   =========        ========     ========
Weighted average common shares/common units
  outstanding - diluted (2)................................          61,962      68,358          63,215       68,854
                                                                ===========   =========        ========     ========

Dividend payout ratios:
  Funds from operations....................................            59.5%       60.5%           59.6%        61.5%
                                                                ===========   =========        ========     ========
  Cash available for distribution..........................            75.3%       78.7%           74.7%        78.4%
                                                                ===========   =========        ========     ========
</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, 2001, the Company's Board of Directors declared a dividend for
the second quarter ended June 30, 2001 of $0.585 per share ($2.34 on an
annualized basis) payable on August 23, 2001 to stockholders of record on August
10, 2001.


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:

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

     .  the financial condition of our tenants could deteriorate;

                                       18
<PAGE>

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

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

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

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

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

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

     .  we could lose key executive officers; and

     .  our southeastern 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
wholly owned in-service and development properties (excluding apartment units)
as of June 30, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                                                  Rentable     Percent Leased/
June 30, 2001                                                                                    Square Feet     Pre-Leased
-------------                                                                                    -----------     ----------
<S>                                                                                           <C>              <C>
In-Service:
     Office.................................................................................     24,639,000          93%
     Industrial.............................................................................     10,396,000          93%
     Retail (1).............................................................................      1,628,000          95%
                                                                                               ------------      ------
     Total or Weighted Average..............................................................     36,663,000          93%
                                                                                               ============      ======
Development:
Completed--Not Stabilized
     Office.................................................................................      1,019,000          51%
     Industrial.............................................................................        184,000          21%
     Retail.................................................................................             --          --
                                                                                               ------------      ------

     Total or Weighted Average..............................................................      1,203,000          47%
                                                                                               ============      ======
In Process
     Office.................................................................................      1,669,000          61%
     Industrial.............................................................................        258,000           9%
     Retail.................................................................................         20,000          72%
                                                                                               ------------      ------
     Total or Weighted Average..............................................................      1,947,000          54%
                                                                                               ============      ======
Total:
     Office.................................................................................     27,327,000
     Industrial.............................................................................     10,838,000
     Retail (1).............................................................................      1,648,000
                                                                                               ------------
     Total or Weighted Average..............................................................     39,813,000
                                                                                               ============

<CAPTION>
                                                                                                  Rentable     Percent Leased/
June 30, 2000                                                                                    Square Feet      Pre-Leased
-------------                                                                                    -----------      ----------
<S>                                                                                           <C>              <C>
In-Service:
     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
                                                                                               ============
</TABLE>

___________

(1)  Excludes basement space.

                                       20
<PAGE>

     As of June 30, 2001, we were developing 24 suburban office properties, 4
industrial properties and 1 retail property totaling 3.2 million rentable square
feet of office and industrial space. The following table summarizes these
development projects. In addition to the properties described in this table, we
are developing with our joint venture partners five additional properties
totaling 660,000 rentable square feet. At June 30, 2001, these five development
projects had an aggregate budgeted cost of $99.7 million and were 60.0% pre-
leased.


In-Process


<TABLE>
<CAPTION>
                                                     Rentable
                                                      Square      Estimated      Cost at     Pre-Leasing   Estimated    Estimated
           Name                      Market            Feet          Cost        6/30/01    Percentage(1)  Completion Stabilization
           ----                      ------            ----          ----        -------    -------------- ---------- -------------
                                                                     ($ in thousands)
<S>                              <C>                 <C>           <C>           <C>        <C>            <C>         <C>
Office:
Highwoods Preserve V             Tampa                185,000      $  27,633     $ 22,936        100%          3Q01        3Q01
Met Life Building at
   Brookfield(2)                 Greenville           117,000         13,220        8,058         75%          3Q01        4Q01
Romac                            Tampa                128,000         18,582       12,288        100%          4Q01        4Q01
Verizon Wireless(2)              Greenville           193,000         16,356        7,745        100%          1Q02        1Q02
International Place 3            Memphis              214,000         34,272       12,821        100%          2Q02        2Q02
1825 Century Center              Atlanta              101,000         16,254          570        100%          3Q02        3Q02
Highwoods Center III at
   Tradeport(2)                  Atlanta               43,000          4,037          825        100%          4Q01        3Q02
Hickory Trace                    Nashville             52,000          5,933        5,145         15%          3Q01        3Q02
Centre Green Four(2)             Research Triangle    100,000         11,764        7,351         --           3Q01        3Q02
Shadow Creek II(2)               Memphis               81,000          8,750        3,870         --           4Q01        4Q02
Highwoods Park at Jefferson
   Village(2)                    Piedmont Triad       101,000          9,839        4,704         --           4Q01        4Q02
GlenLake I(2)                    Research Triangle    158,000         22,417       12,733         --           4Q01        4Q02
Seven Springs I(2)               Nashville            131,000         15,556        8,164         --           1Q02        1Q03
Innslake(2)                      Richmond              65,000          7,214        2,604        100%          4Q01        1Q03
                                                    ---------      ---------     --------     ------
In-Process Office Total or
   Weighted Average                                 1,669,000      $ 211,827     $109,814         61%
                                                    =========      =========     ========     ======

Industrial:
Newpoint IV                      Atlanta              136,000      $   5,288     $  1,762         --           3Q01        3Q02
Tradeport Place IV               Atlanta              122,000          4,447        3,152         18%          3Q01        3Q02
                                                    ---------      ---------     --------     ------
In-Process Industrial Total or
   Weighted Average                                   258,000      $   9,735     $  4,914          9%
                                                    =========      =========     ========     ======

Retail:
Plaza Redevelopment (Granada
   Shops)                        Kansas City           20,000      $   4,680     $  1,402         72%          4Q01        4Q01
                                                    ---------      ---------     --------   --------
In-Process Retail Total or
   Weighted Average                                    20,000      $   4,680     $  1,402         72%
                                                    =========      =========     ========   ========
Total or Weighted Average of
   all In-Process Development
   Projects                                         1,947,000      $ 226,242     $116,130         54%
                                                    =========      =========     ========   ========
</TABLE>

________________

(1)  Letters of intent comprise 5% of the Total Pre-Leasing Percentage.
(2)  We are developing these properties for a third party and own an option to
     purchase each property.

                                       21
<PAGE>

Completed--Not Stabilized

<TABLE>
<CAPTION>
                                                 Rentable
                                                  Square        Estimated       Cost at     Pre-Leasing   Estimated  Estimated
           Name                 Market            Feet             Cost        6/30/01     Percentage(1) Completion Stabilization
           -----                -------           -----            ----        --------    ------------- ---------- -------------
                                                                    ($ in thousands)
<S>                       <C>                    <C>            <C>           <C>         <C>            <C>        <C>
Office:
Deerfield III             Atlanta                  54,000      $    5,276     $  4,309             --         4Q00       4Q01
Shadow Creek              Memphis                  80,000           8,989        7,912             75%        4Q00       4Q01
380 Park Place            Tampa                    82,000           9,675        9,104             92%        1Q01       4Q01
Highwoods Plaza           Tampa                    66,000           7,505        6,601             37%        4Q00       1Q02
Cool Springs II           Nashville               205,000          22,718       18,192             19%        2Q01       2Q02
Highwoods Tower II        Research Triangle       167,000          25,134       22,161             75%        1Q01       2Q02
Centre Green Two          Research Triangle        97,000          11,596        9,036             31%        2Q01       2Q02
ParkWest One              Research Triangle        46,000           4,364        3,192             55%        2Q01       2Q02
North Shore Commons A     Richmond                115,000          13,084       12,624             62%        2Q01       3Q02
Stony Point III           Richmond                107,000          11,425        9,997             69%        2Q01       3Q02
                                             ------------      ----------     --------        -------
Office Total or Weighted
   Average                                      1,019,000      $  119,766     $103,128             51%
                                             ============      ==========     ========        =======
Industrial:
Holden Road               Piedmont Triad           64,000      $    2,014     $  2,467             60%        1Q01       3Q01
Enterprise Center I       Piedmont Triad          120,000           3,807        3,310             --         4Q00       4Q01
                                             ------------      ----------     --------        -------
Industrial Total or
Weighted Average                                  184,000      $    5,821     $  5,777             21%
                                             ============      ==========     ========        =======

Total or Weighted
   Average of all
   Completed-Not
Stabilized
    Development Projects                        1,203,000      $  125,587    $ 108,905             47%
                                             ------------      ----------    ---------        -------
Total or Weighted
   Average of all
   Development Projects                         3,150,000      $  351,829    $ 225,035             52%
                                             ============      ==========    =========        =======
</TABLE>


______________

(1)    Letters of intent comprise 5% of the Total Pre-Leasing Percentage.

                                       22
<PAGE>

<TABLE>
<CAPTION>

                                                                   Rentable
                                                                    Square            Estimated         Pre-Leasing
                                                                     Feet                Cost          Percentage(1)
                                                                     ----                ----          -------------
                                                                                  (in thousands)
<S>                                                                <C>                 <C>             <C>
Development Analysis

 Summary by Estimated Stabilization Date:
     Third Quarter 2001.....................................         249,000           $  29,647              90%
     Fourth Quarter 2001....................................         601,000              64,229              61%
     First Quarter 2002.....................................         259,000              23,861              84%
     Second Quarter 2002....................................         729,000              98,084              59%
     Third Quarter 2002.....................................         776,000              72,232              41%
     Fourth Quarter 2002....................................         340,000              41,006              --
     First Quarter 2003.....................................         196,000              22,770              33%
                                                                   ---------           ---------           -----
        Total or Weighted Average...........................       3,150,000           $ 351,829              52%
                                                                   =========           =========           =====
Summary by Market:
     Atlanta ...............................................         456,000           $  35,302              36%
     Greenville.............................................         310,000              29,576              91%
     Kansas City............................................          20,000               4,680              72%
     Memphis                                                         375,000              52,011              73%
     Nashville..............................................         388,000              44,207              12%
     Piedmont Triad.........................................         285,000              15,660              13%
     Research Triangle......................................         568,000              75,275              32%
     Richmond...............................................         287,000              31,723              73%
     Tampa..................................................         461,000              63,395              90%
                                                                   ---------           ---------           -----
        Total or Weighted Average...........................       3,150,000           $ 351,829              52%
                                                                   =========           =========           =====

     Build-to-Suit..........................................         821,000           $ 113,097             100%
     Multi-Tenant...........................................       2,329,000             238,732              34%
                                                                   ---------           ---------           -----
        Total or Weighted Average...........................       3,150,000           $ 351,829              52%
                                                                   =========           =========           =====

<CAPTION>
                                                                   Average
                                                                   Rentable            Average
                                                                    Square            Estimated         Pre-Leasing
                                                                    Feet                 Cost         Percentage(1)
                                                                    -----                ----         -------------
                                                                                     (in thousands)
<S>                                                                <C>             <C>                <C>
Per Property Type:
     Office.................................................         112,000           $  13,816              58%
     Industrial.............................................         110,500               3,889              14%
     Retail.................................................          20,000               4,680              72%
                                                                   ---------           ---------           -----
     All....................................................         108,621           $  12,132              52%
                                                                   =========           =========           =====
</TABLE>


_______________

(1)  Letters of intent comprise 5% of the Total pre-leasing percentage.

                                       23
<PAGE>

         The following table sets forth certain information about leasing
activities at our wholly owned in-service properties (excluding apartment units)
for the three months ended June 30 and March 31, 2001 and December 31 and
September 30, 2000.

<TABLE>
<CAPTION>
                                                                              Office Leasing Statistics
                                                                              -------------------------
                                                                                 Three Months Ended
                                                                                 ------------------
                                                        6/30/01         3/31/01          12/31/00          9/30/00         Average
                                                        -------         -------          --------          -------         -------
<S>                                                   <C>              <C>             <C>              <C>             <C>
Net Effective Rents Related to Re-Leased Space:
Number of lease transactions (signed leases)......            155              132             199              174             165
Rentable square footage leased....................        773,415          941,419       1,187,466        1,056,239         989,635
Average per rentable square foot over the lease
  term:
  Base rent.......................................    $     16.36      $     17.73     $     17.51      $     15.23     $     16.71
  Tenant improvements.............................          (1.17)           (1.13)          (1.14)           (1.21)          (1.16)
  Leasing commissions.............................          (0.67)           (0.57)          (0.59)           (0.40)          (0.56)
  Rent concessions................................          (0.03)           (0.01)          (0.03)           (0.03)          (0.03)
                                                      -----------      -----------     -----------      -----------     -----------
  Effective rent..................................          14.49            16.02           15.75            13.59           14.96
  Expense stop (1)................................          (3.37)           (2.96)          (4.73)           (4.03)          (3.77)
                                                      -----------      -----------     -----------      -----------     -----------
  Equivalent effective net rent...................    $     11.12      $     13.06     $     11.02      $      9.56     $     11.19
                                                      ===========      ===========     ===========      ===========     ===========
Average term in years.............................            4.9              5.3             4.6              4.9             4.9
                                                      ===========      ===========     ===========      ===========     ===========

Capital Expenditures Related to Re-Leased Space:
Tenant Improvements:
  Total dollars committed under signed leases.....    $ 5,052,983      $ 7,103,609     $ 7,273,031      $ 6,676,576     $ 6,526,550
  Rentable square feet............................        773,415          941,419       1,187,466        1,056,239         989,635
                                                      -----------      -----------     -----------      -----------     -----------
  Per rentable square foot........................    $      6.53      $      7.55     $      6.12      $      6.32     $      6.59
                                                      ===========      ===========     ===========      ===========     ===========

Leasing Commissions:
  Total dollars committed under signed leases.....    $ 1,991,418      $ 3,361,410     $ 2,873,345      $ 1,910,278     $ 2,534,113
  Rentable square feet............................        773,415          941,419       1,187,466        1,056,239         989,635
                                                      -----------      -----------     -----------      -----------     -----------
  Per rentable square foot........................    $      2.57      $      3.57     $      2.42      $      1.81     $      2.56
                                                      ===========      ===========     ===========      ===========     ===========

Total:
  Total dollars committed under signed leases.....    $ 7,044,401      $10,465,020     $10,146,377        8,586,853     $ 9,060,663
  Rentable square feet............................        773,415          941,419       1,187,466        1,056,239         989,635
                                                      -----------      -----------     -----------      -----------     -----------
  Per rentable square foot........................    $      9.11      $     11.12     $      8.54      $      8.13     $      9.16
                                                      ===========      ===========     ===========      ===========     ===========

Rental Rate Trends:
Average final rate with expense pass throughs.....    $     14.84      $     15.05     $     15.83      $     14.30     $     15.00
Average first year cash rental rate...............    $     15.54      $     16.04     $     16.38      $     14.96     $     15.73
                                                      -----------      -----------     -----------      -----------     -----------
Percentage increase...............................            4.7%             6.6%            3.5%             4.6%            4.9%
                                                      ===========      ===========     ===========      ===========     ===========
</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
                                                                                    ------------------
                                                          6/30/01           3/31/01        12/31/00         9/30/00         Average
                                                          -------           -------        --------         -------         -------
<S>                                                       <C>              <C>             <C>             <C>           <C>
Net Effective Rents Related to Re-Leased Space:
Number of lease transactions (signed leases).........            23               27               31              31            28
Rentable square footage leased.......................       153,507          190,663          355,947         349,079       262,299
Average per rentable square foot over the lease term:
  Base rent..........................................     $    5.84         $   5.88        $    5.29       $    4.54     $    5.39
  Tenant improvements................................         (0.27)           (0.20)           (0.29)          (0.32)        (0.27)
  Leasing commissions................................         (0.15)           (0.09)           (0.15)          (0.15)        (0.14)
  Rent concessions...................................           0.0             0.00              0.0             0.0          0.00
                                                          ---------         --------        ---------       ---------     ---------
  Effective rent.....................................          5.42             5.59             4.85            4.07          4.98
  Expense stop (1)...................................         (0.49)           (0.74)            (0.3)          (0.23)        (0.44)
                                                          ---------         --------        ---------       ---------     ---------
  Equivalent effective net rent......................     $    4.93         $   4.85        $    4.55       $    3.84     $    4.54
                                                          =========         ========        =========       =========     =========

  Average term in years..............................           2.5              2.5              2.7             3.6           2.8
                                                          =========         ========        =========       =========     =========

Capital Expenditures Related to Re-Leased Space:
Tenant Improvements:
  Total dollars committed under signed leases........     $ 175,777         $ 91.304        $ 412,679       $ 510,520     $ 297,570
  Rentable square feet...............................       153,507          190,663          355,947         349,079       262,299
                                                          ---------         --------        ---------       ---------     ---------
  Per rentable square foot...........................     $    1.15         $   0.48             1.16       $    1.46     $    1.13
                                                          =========         ========        =========       =========     =========

Leasing Commissions:
  Total dollars committed under signed leases........     $  63,679         $ 61,239        $ 145,117       $ 167,772     $ 109,452
  Rentable square feet...............................       153,507          190,663          355,947         349,079       262,299
                                                          ---------         --------        ---------       ---------     ---------
  Per rentable square foot...........................     $    0.41         $   0.32        $    0.41       $    0.48     $    0.42
                                                          =========         ========        =========       =========     =========
Total:
  Total dollars committed under signed leases........     $ 239,456         $152,542        $ 557,796       $ 678,292     $ 407,022
  Rentable square feet...............................       153,507          190,663          355,947         349,079       262,299
                                                          ---------         --------        ---------       ---------     ---------
  Per rentable square foot...........................     $    1.56         $   0.80        $    1.57       $    1.94     $    1.55
                                                          =========         ========        =========       =========     =========

Rental Rate Trends:
Average final rate with expense pass throughs........     $    5.73         $   4.89        $    4.92       $    4.11     $    4.91
Average first year cash rental rate..................     $    5.75         $   5.06        $    5.23       $    4.51     $    5.14
                                                          ---------         --------        ---------       ---------     ---------
Percentage increase..................................           0.4%             3.4%             6.3%            9.6%          4.5%
                                                          =========         ========        =========       =========     =========
</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
                                                                                     ------------------
                                                            6/30/01        3/31/01       12/31/00         9/30/00        Average
                                                            -------        -------       --------         --------       -------
<S>                                                        <C>           <C>             <C>              <C>           <C>
Net Effective Rents Related to Re-Leased Space:
Number of lease transactions (signed leases).............         14              9             15               21            15
Rentable square footage leased...........................     21,072         38,618         35,057           53,217        36,991
Average per rentable square foot over the lease term:
  Base rent..............................................  $   22.84      $   29.31      $   24.07        $   22.26     $   24.62
  Tenant improvements....................................      (0.66)         (1.86)         (1.90)           (1.26)        (1.42)
  Leasing commission.....................................      (0.57)         (0.29)         (0.49)           (0.58)        (0.48)
  Rent concessions.......................................       0.00          (0.22)          0.00            (0.03)        (0.06)
                                                           ---------      ---------      ---------        ---------     ---------
  Effective rent.........................................      21.61          26.94          21.68            20.39         22.66
  Expense stop (1).......................................       0.00           0.00           0.00             0.00          0.00
                                                           ---------      ---------      ---------        ---------     ---------
  Equivalent effective net rent..........................  $   21.61      $   26.94      $   21.68        $   20.39     $   22.66
                                                           =========      =========      =========        =========     =========
  Average term in years..................................        5.3            9.3            6.7              7.6           7.2
                                                           =========      =========      =========        =========     =========

Capital Expenditures Related to Re-Leased Space:
Tenant Improvements:
  Total dollars committed under signed leases............  $ 121,713      $ 729,480      $ 655,301        $ 600,136     $ 526,658
  Rentable square feet...................................     21,072         38,618         35,057           53,217        36,991
                                                           ---------      ---------      ---------        ---------     ---------
  Per rentable square foot...............................  $    5.78      $   18.89      $   18.69        $   11.28     $   14.24
                                                           =========      =========      =========        =========     =========

Leasing Commissions:
  Total dollars committed under signed leases............  $  61,537      $  93,045      $  66,986        $ 143,269     $  91,209
  Rentable square feet...................................     21,072         38,618         35,057           53,217        36,991
                                                           ---------      ---------      ---------        ---------     ---------
  Per rentable square foot...............................  $    2.92      $    2.41      $    1.91        $    2.69     $    2.47
                                                           =========      =========      =========        =========     =========

Total:
  Total dollars committed under signed leases............  $ 183,249      $ 822,525      $ 722,287        $ 743,406     $ 617,867
  Rentable square feet...................................     21,072         38,618         35,057           53,217        36,991
                                                           ---------      ---------      ---------        ---------     ---------
  Per rentable square foot...............................  $    8.70      $   21.30      $   20.60        $   13.97     $   16.70
                                                           ==========     =========      =========        =========     =========

Rental Rate Trends:
Average final rate with expense pass throughs............  $   17.99      $   12.91      $   18.41        $   13.85      $  15.79
Average first year cash rental rate......................  $   21.51      $   19.70      $   22.57        $   19.40      $  20.80
                                                           ---------      ---------      ---------        ---------     ---------
Percentage increase......................................       19.6%          52.6%          22.6%            40.1%         31.7%
                                                           =========      =========      =========        =========     =========
</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 at our wholly
owned in-service properties (excluding apartment units) as of June 30, 2001,
assuming no tenant exercises renewal options.


Office Properties:

<TABLE>
<CAPTION>
                                                           Percentage of                                         Percentage of
                                                           Leased Square     Annual Rents      Average Annual    Leased Rents
         Year of                        Total Rentable        Footage            Under        Rental Rate Per     Represented
          Lease              Number      Square Feet      Represented by       Expiring       Square Foot for     By Expiring
       Expiration           of Leases      Expiring       Expiring Leases      Lease (1)       Expirations(1)       Leases
       -----------          ---------      --------       ---------------      ---------       --------------       ------
                                                                              (in thousands)
<S>                         <C>           <C>              <C>                 <C>              <C>                  <C>
Remainder of 2001........       291         1,260,498               5.4%        $  21,387            $ 16.97            5.3%
2002.....................       587         3,253,381              13.9%           54,925              16.88           13.8%
2003.....................       558         3,719,252              16.0%           62,888              16.91           15.8%
2004.....................       407         2,751,890              11.8%           49,038              17.82           12.2%
2005.....................       422         3,073,860              13.2%           52,935              17.22           13.2%
2006.....................       219         2,426,243              10.4%           41,860              17.25           10.4%
2007.....................        57         1,128,307               4.8%           17,754              15.74            4.4%
2008.....................        63         1,594,191               6.8%           24,838              15.58            6.2%
2009.....................        19           714,403               3.1%           12,105              16.94            3.0%
2010.....................        47         1,585,627               6.8%           27,768              17.51            6.9%
2011 and thereafter......       205         1,815,546               7.8%           35,226              19.40            8.8%
                              -----        ----------             ------        ---------            -------          ------
                              2,875        23,323,198             100.0%        $ 400,724            $ 17.18          100.0%
                              =====        ==========             ======        =========            =======          ======
</TABLE>



Industrial Properties:

<TABLE>
<CAPTION>
                                                             Percentage of                                       Percentage of
                                                             Leased Square     Annual Rents     Average Annual    Leased Rents
         Year of                          Total Rentable        Footage            Under        Rental Rate Per    Represented
          Lease                  Number    Square Feet      Represented by       Expiring       Square Foot for    by Expiring
       Expiration              of Leases    Expiring       Expiring Leases      Leases(1)      Expirations(1)       Leases
       -----------             ---------    --------       ---------------      ---------      --------------       ------
                                                                               (in thousands)
<S>                          <C>            <C>            <C>                   <C>             <C>                 <C>
Remainder of 2001..........      68         1,217,255              12.6%        $   5,085            $  4.18           11.0%
2002.......................     118         1,849,649              19.1%            8,204               4.44           17.7%
2003.......................      89         1,098,740              11.4%            6,039               5.50           13.0%
2004.......................      72         2,132,957              22.1%            9,056               4.25           19.5%
2005.......................      42           684,591               7.1%            4,076               5.95            8.8%
2006.......................      23           496,125               5.1%            3,142               6.33            6.8%
2007.......................      13         1,081,566              11.2%            4,714               4.36           10.2%
2008.......................       7           241,961               2.5%            1,326               5.48            2.9%
2009.......................       6           268,813               2.8%            1,923               7.15            4.2%
2010.......................       4           182,746               1.9%            1,057               5.78            2.3%
2011 and thereafter........      29           410,248               4.2%            1,690               4.12            3.6%
                                ---         ---------             ------        ---------            -------          ------
                                471         9,664,651             100.0%        $  46,312            $  4.79          100.0%
                                ===         =========             ======        =========            =======          ======
</TABLE>

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

                                       27
<PAGE>

Retail Properties:


<TABLE>
<CAPTION>
                                                                Percentage of                                          Percentage of
                                                                Leased Square      Annual Rents      Average Annual     Leased Rents
          Year of                           Total Rentable         Footage            Under         Rental Rate Per     Represented
           Lease                 Number      Square Feet       Represented by        Expiring       Square Foot for     by Expiring
        Expiration             of Leases       Expiring        Expiring Leases      Leases(1)        Expirations(1)        Leases
        -----------            ---------       --------        ---------------      ---------        --------------        ------
                                                                                  (in thousands)
<S>                            <C>          <C>                <C>                 <C>              <C>                <C>
Remainder of 2001........            24          69,466               4.5%          $  1,997            $  28.75              6.0%
2002.....................            41         103,999               6.8%             1,688               16.23              5.1%
2003.....................            42         107,311               7.0%             2,479               23.10              7.5%
2004.....................            37         215,604              14.1%             2,737               12.69              8.3%
2005.....................            40          95,532               6.2%             2,645               27.69              8.0%
2006.....................            28          85,718               5.6%             2,124               24.78              6.4%
2007.....................            19          76,254               5.0%             1,601               21.00              4.8%
2008.....................            19         112,174               7.3%             3,601               32.10             10.9%
2009.....................            20         168,523              11.0%             3,198               18.98              9.7%
2010.....................            17          94,138               6.2%             2,567               27.27              7.8%
2011 and thereafter......            29         401,308              26.3%             8,451               21.06             25.5%
                               --------      ----------            ------           --------            --------           ------
Total:                              316       1,530,027             100.0%          $ 33,088            $  21.63            100.0%
                               ========      ==========            ======           ========            ========           ======


<CAPTION>
                                                                Percentage of                                          Percentage of
                                                                Leased Square      Annual Rents      Average Annual     Leased Rents
          Year of                           Total Rentable         Footage            Under         Rental Rate Per     Represented
           Lease                 Number      Square Feet       Represented by        Expiring       Square Foot for     by Expiring
        Expiration             of Leases       Expiring        Expiring Leases      Leases(1)        Expirations(1)        Leases
        -----------            ---------       --------        ---------------      ---------        --------------        ------
                                                                                  (in thousands)
<S>                            <C>          <C>                <C>                 <C>              <C>                <C>
Remainder of 2001........           383       2,547,219               7.4%          $ 28,469            $  11.18              5.9%
2002.....................           746       5,207,029              15.1%            64,817               12.45             13.5%
2003.....................           689       4,925,303              14.3%            71,406               14.50             15.0%
2004.....................           516       5,100,451              14.8%            60,831               11.93             12.7%
2005.....................           504       3,853,983              11.2%            59,656               15.48             12.4%
2006.....................           270       3,008,086               8.7%            47,126               15.67              9.8%
2007.....................            89       2,286,127               6.6%            24,069               10.53              5.0%
2008.....................            89       1,948,326               5.6%            29,765               15.28              6.2%
2009.....................            45       1,151,739               3.3%            17,226               14.96              3.6%
2010.....................            68       1,862,511               5.4%            31,392               16.85              6.5%
2011 and thereafter......           263       2,627,102               7.6%            45,367               17.27              9.4%
                               --------      ----------            ------           --------            --------           ------
                                  3,662      34,517,876             100.0%          $480,124            $  13.91            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, 2001, the Company had
approximately $76.3 million of variable rate debt outstanding that was not
protected by interest rate hedge contracts. If the weighted average interest
rate on this variable rate debt is 100 basis points higher or lower during the
12 months ended June 30, 2002, our interest expense would be increased or
decreased approximately $763,000. In addition, as of June 30, 2001, we had $80.0
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 $80.0 million of debt.

     Interest Rate Hedge Contracts. For a discussion of our interest rate hedge
contracts in effect at June 30, 2001, 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, 2001 would increase by approximately $438,000. If interest rates decrease by
100 basis points, the aggregate fair market value of these interest rate hedge
contracts as of June 30, 2001 would decrease by approximately $1.3 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 4.  Submission of Matters to a Vote of Security Holders

       On May 15, 2001, 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         Abstain
------                                        ----------      ----------      ----------
<S>                                           <C>             <C>             <C>
(A)  Election of Directors
     Edward J. Fritsch...................     39,888,013           --          7,551,673
     William E. Graham, Jr...............     46,507,587           --            932,099
     Lawrence S. Kaplan..................     46,508,464           --            931,222
     L. Glenn Orr, Jr....................     46,510,731           --            928,955
(B)  Ratify appointment of Ernst & Young,
     LLP as independent auditors.........     47,181,780         185,386          72,519
</TABLE>

Item 6.  Exhibits and Reports On Form 8-K

         (b)  Reports on Form 8-K

         On April 27, 2001, we filed a Current Report on Form 8-K reporting
under Items 5 and 7 that we had essentially completed our previously announced
10.0 million share and unit repurchase program and that our board of directors
had authorized the repurchase of up to an additional 5.0 million shares of
Common Stock and Common Units.

                                       30
<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

                                          By:    /s/ CARMAN J. LIUZZO
                                             -----------------------------------
                                                     Carman J. Liuzzo
                                                  Chief Financial Officer
                                                (Principal Accounting Officer)


Date: August 14, 2001

                                       31

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