<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 September 30, 2002

                        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 53,387,085 shares outstanding as of October 31, 2002.

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

<PAGE>

                           HIGHWOODS PROPERTIES, INC.

            QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2002

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                              ----
<S>        <C>                                                                                                <C>
PART I     FINANCIAL INFORMATION

Item 1.    Financial Statements.........................................................................       3

           Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001...................       4

           Consolidated Statements of Income for the three and nine months ended September 30, 2002
               and 2001.................................................................................       5

           Consolidated Statements of Stockholders' Equity for the nine months ended
               September 30, 2002.......................................................................       6

           Consolidated Statements of Cash Flows for the nine months ended September 30, 2002
               and 2001.................................................................................       7

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

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of
               Operations...............................................................................      15

           Disclosure Regarding Forward-Looking Statements..............................................      15

           Overview.....................................................................................      15

           Critical Accounting Policies.................................................................      16

           Results of Operations........................................................................      19

           Liquidity and Capital Resources..............................................................      23

           Recent Developments..........................................................................      27

           Impact of Recently Issued Accounting Standards...............................................      28

           Funds From Operations and Cash Available for Distributions...................................      28

           Property Information.........................................................................      30

           Inflation....................................................................................      39

Item 3.    Quantitative and Qualitative Disclosures About Market Risk...................................      40

Item 4.    Controls and Procedures......................................................................      40

PART II    OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K.............................................................      41
</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 2001 Annual Report on Form 10-K.

                                       3

<PAGE>

                           HIGHWOODS PROPERTIES, INC.
                           Consolidated Balance Sheets
                                ($ in thousands)

<TABLE>
<CAPTION>
                                                                                      SEPTEMBER 30,  DECEMBER 31,
                                                                                          2002           2001
                                                                                      -----------    -----------
                                                                                       (Unaudited)
<S>                                                                                   <C>            <C>
ASSETS
Real estate assets, at cost:
   Land and improvements........................................................      $   428,852    $   420,922
   Buildings and tenant improvements............................................        2,890,638      2,827,825
   Development in process.......................................................           40,018        108,122
   Land held for development....................................................          174,002        153,468
   Furniture, fixtures and equipment............................................           20,479         19,398
                                                                                      -----------    -----------
                                                                                        3,553,989      3,529,735
   Less - accumulated depreciation..............................................         (448,994)      (374,623)
                                                                                      -----------    -----------
   Net real estate assets.......................................................        3,104,995      3,155,112
Property held for sale..........................................................          139,972        212,590
Cash and cash equivalents.......................................................           13,998            576
Restricted cash.................................................................            2,702          5,685
Accounts receivable, net........................................................           18,327         23,659
Advances to related parties.....................................................              971            788
Notes receivable................................................................           31,914         43,761
Accrued straight-line rents receivable..........................................           50,191         49,078
Investment in unconsolidated affiliates.........................................           80,825         83,393
Other assets:
   Deferred leasing costs.......................................................          106,821         95,761
   Deferred financing costs.....................................................           25,964         26,121
   Prepaid expenses and other...................................................           13,400         10,461
                                                                                      -----------    -----------
                                                                                          146,185        132,343
   Less - accumulated amortization..............................................          (71,125)       (58,699)
                                                                                      -----------    -----------
     Other assets, net..........................................................           75,060         73,644
                                                                                      -----------    -----------
Total Assets....................................................................      $ 3,518,955    $ 3,648,286
                                                                                      ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and notes payable.....................................................      $ 1,626,362    $ 1,719,230
Accounts payable, accrued expenses and other liabilities........................          131,087        120,235
                                                                                      -----------    -----------
   Total Liabilities............................................................        1,757,449      1,839,465
Minority interest...............................................................          191,114        203,181
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), 104,945 shares issued and outstanding at September 30, 2002
and
December 31, 2001...............................................................          104,945        104,945
8% Series B Cumulative Redeemable Preferred Shares (liquidation preference $25
per share), 6,900,000 shares issued and outstanding at September 30, 2002 and
December 31, 2001...............................................................          172,500        172,500
8% Series D Cumulative Redeemable Preferred Shares (liquidation preference $250
per share), 400,000 shares issued and outstanding at September 30, 2002 and
December 31, 2001...............................................................          100,000        100,000
Common stock, $.01 par value, 200,000,000 authorized shares; 53,387,085 and
52,891,822 shares issued and outstanding at September 30, 2002 and
December 31, 2001, respectively.................................................              534            529
Additional paid-in capital......................................................        1,389,595      1,376,546
Distributions in excess of net earnings.........................................         (182,719)      (135,878)
Accumulated other comprehensive loss............................................          (10,418)        (9,441)
Deferred compensation--restricted stock.........................................           (4,045)        (3,561)
                                                                                      -----------    -----------
   Total Stockholders' Equity...................................................        1,570,392      1,605,640
                                                                                      -----------    -----------
Total Liabilities and Stockholders' Equity......................................      $ 3,518,955    $ 3,648,286
                                                                                      ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>


                           HIGHWOODS PROPERTIES, INC.
                        Consolidated Statements of Income
             (Unaudited and $ in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED         NINE MONTHS ENDED
                                                                     SEPTEMBER 30,             SEPTEMBER 30,
                                                               ------------------------   ------------------------
                                                                   2002         2001          2002         2001
                                                               -----------  -----------   -----------   ----------
<S>                                                             <C>          <C>            <C>          <C>
Rental revenue..............................................    $  117,369   $  119,544     $ 351,043    $ 361,745

OPERATING EXPENSES:
   Rental property..........................................        37,051       35,765       109,224      107,038
   Depreciation and amortization............................        31,522       27,879        91,840       83,958
   Interest expense:
     Contractual............................................        27,522       26,381        80,673       80,955
     Amortization of deferred financing costs...............           347          324         1,027        1,664
                                                                ----------   ----------     ---------    ---------
                                                                    27,869       26,705        81,700       82,619

General and administrative..................................         4,147        4,784        14,858       15,447

OTHER INCOME/(EXPENSES):
   Interest and other income................................         2,829        5,070         8,912       20,438
   Equity in earnings of unconsolidated affiliates..........         1,259        3,241         6,298        5,666
   Nonrecurring litigation reserve..........................        (2,700)          --        (2,700)          --
   Nonrecurring compensation expense........................        (3,700)          --        (3,700)          --
                                                                ----------   ----------     ---------    ---------
                                                                    (2,312)       8,311         8,810       26,104
                                                                ----------   ----------     ---------    ---------
     Income before gain on disposition of land and
       depreciable assets, minority interest, discontinued
       operations and extraordinary item....................        14,468       32,722        62,231       98,787
   Gain on disposition of land and depreciable assets.......         3,599        3,357        12,045       16,098
                                                                ----------   ----------     ---------    ---------
     Income before minority interest, discontinued operations
       and extraordinary item...............................        18,067       36,079        74,276      114,885
Minority interest...........................................        (2,216)      (4,476)       (8,977)     (13,997)
                                                                ----------   ----------     ---------    ---------
   Income from continuing operations........................        15,851       31,603        65,299      100,888
DISCONTINUED OPERATIONS:
   Income from discontinued operations, net of minority
    interest................................................         1,741        2,386         5,918        8,157
   Loss on sale of discontinued operations, net of
    minority interest.......................................        (3,280)          --        (1,394)          --
                                                                ----------   ----------     ---------    ---------
                                                                    (1,539)       2,386         4,524        8,157
                                                                ----------   ----------     ---------    ---------

   Net income before extraordinary item.....................        14,312       33,989        69,823      109,045
Extraordinary item--loss on early extinguishment of debt....          (378)          --          (378)        (518)
                                                                ----------   ----------     ---------    ---------
   Net income...............................................        13,934       33,989        69,445      108,527
Dividends on preferred stock................................        (7,713)      (7,713)      (23,139)     (23,787)
                                                                ----------   ----------     ---------    ---------
   Net income available for common shareholders.............    $    6,221   $   26,276     $  46,306    $  84,740
                                                                ==========   ==========     =========    =========

NET INCOME PER COMMON SHARE--BASIC:
   Income from continuing operations........................    $     0.16   $     0.45     $    0.79    $    1.41
   Income/(loss) from discontinued operations...............    $    (0.03)  $     0.04     $    0.09    $    0.15
   Extraordinary item--loss on early extinguishment of debt.    $    (0.01)  $       --     $   (0.01)   $   (0.01)
                                                                ----------   ----------     ----------   ---------
   Net income...............................................    $     0.12   $     0.49     $    0.87    $    1.55
                                                                ==========   ==========     =========    =========
   Weighted average shares outstanding--basic...............        53,388       53,748        53,171       54,680
                                                                ==========   ==========     =========    =========

NET INCOME PER COMMON SHARE--DILUTED:
   Income from continuing operations........................    $     0.16   $     0.45     $    0.79    $    1.40
   Income/(loss) from discontinued operations...............    $    (0.03)  $     0.04     $    0.08    $    0.15
   Extraordinary item--loss on early extinguishment of debt.    $    (0.01)  $       --     $   (0.01)   $   (0.01)
                                                                 -----------  ----------     ----------   ---------
   Net income...............................................    $     0.12   $     0.49     $    0.86    $    1.54
                                                                ==========   ==========     =========    =========
   Weighted average shares outstanding--diluted.............        53,604       54,169        53,544       55,074
                                                                ==========   ==========     =========    =========
Distributions declared per common share.....................         0.585        0.585          1.76         1.73
                                                                ==========   ==========     =========    =========
</TABLE>

           See accompanying notes to consolidated financial statements

                                       5

<PAGE>


                           HIGHWOODS PROPERTIES, INC.
                 Consolidated Statements of Stockholders' Equity
                  For the Nine Months Ended September 30, 2002
       (Unaudited and $ in thousands, except for number of common shares)

<TABLE>
<CAPTION>
                                                                                               ACCUMULATED
                                                                                                 OTHER
                           NUMBER OF                                       ADDITIONAL  DEFERRED COMPRE-   DISTRIBUTIONS
                            COMMON   COMMON  SERIES A  SERIES B   SERIES D  PAID-IN    COMPEN-  HENSIVE   IN EXCESS OF
                            SHARES    STOCK  PREFERRED PREFERRED PREFERRED  CAPITAL    SATION     LOSS    NET EARNINGS      TOTAL
                          ---------- ------- --------- --------- --------- ----------  -------  --------  -------------  ----------

<S>                       <C>           <C>  <C>        <C>      <C>       <C>         <C>      <C>       <C>            <C>
Balance at
  December 31, 2001       52,891,822    529  $ 104,945  $172,500 $ 100,000 $1,376,546  $(3,561) $ (9,441) $    (135,878) $1,605,640

Issuance of
  Common Stock               235,625      2          -         -         -      5,324        -         -              -       5,326

Conversion of Common
  Units to Common Stock      257,121      3          -         -         -      7,471        -         -              -       7,474

Common Stock
  Dividends                        -      -          -         -         -          -        -         -        (93,147)    (93,147)

Preferred Stock
  Dividends                        -      -          -         -         -          -        -         -        (23,139)    (23,139)

Issuance of restricted
  stock                       49,124      -          -         -         -      1,428   (1,428)        -              -           -

Amortization of deferred
  compensation                     -      -          -         -         -          -      944         -              -         944

Retirement of
  Common Stock               (46,607)     -          -         -         -     (1,174)       -         -              -      (1,174)

Net Income                         -      -          -         -         -          -        -         -         69,445      69,445

Other comprehensive
  loss                             -      -          -         -         -          -        -      (977)             -        (977)
                          ---------- ------  ---------  -------- --------- ----------  -------  --------  -------------  ----------
Balance at
  September 30, 200       53,387,085    534  $ 104,945  $172,500 $ 100,000 $1,389,595  $(4,045) $(10,418) $    (182,719) $1,570,392
                          ========== ======  =========  ======== ========= ==========  =======  ========  =============  ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       6

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                                                                   -------------------------------
                                                                                        2002            2001
                                                                                      ---------      ---------
<S>                                                                                   <C>            <C>
OPERATING ACTIVITIES:
Net income......................................................................      $  69,445      $ 108,527
Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation and amortization................................................         95,761         89,490
   Amortization of deferred compensation........................................            944            755
   Minority interest............................................................          9,593         15,166
   Equity in earnings of unconsolidated affiliates..............................         (6,298)        (5,666)
Gain on disposition of land and depreciable assets..............................        (10,468)       (16,098)
Write off of accrued straight line rent.........................................          3,110             --
Loss on early extinguishment of debt............................................            378            518
Transition adjustment upon adoption of FASB 133.................................             --            556
Loss on ineffective portion of derivative instruments...........................             --            428
Changes in operating assets and liabilities.....................................          8,708        (17,426)
                                                                                      ---------      ---------
     Net cash provided by operating activities..................................        171,173        176,250
                                                                                      ---------      ---------

INVESTING ACTIVITIES:
Additions to real estate assets and deferred leasing costs......................        (98,856)      (202,879)
Proceeds from disposition of real estate assets.................................        164,403        157,000
Repayment of advances to subsidiaries...........................................             --         27,560
Distributions from unconsolidated affiliates....................................          7,409          6,866
Investments in notes receivable.................................................         11,847         26,878
Other investing activities......................................................            476          1,352
                                                                                      ---------      ---------
     Net cash provided by investing activities..................................         85,279         16,777
                                                                                      ---------      ---------

FINANCING ACTIVITIES:
Distributions paid on common stock and common units.............................       (105,825)      (107,611)
Dividends paid on preferred stock...............................................        (23,139)       (23,787)
Payment of prepayment penalties.................................................           (378)          (518)
Borrowings on mortgages and notes payable.......................................         34,942         12,780
Repayments on mortgages and notes payable.......................................        (75,305)      (100,187)
Borrowings on revolving loans...................................................        255,500        349,000
Repayments on revolving loans...................................................       (332,500)      (220,000)
Net proceeds from the sale of common stock......................................          5,326            817
Net change in deferred financing costs..........................................          1,725            155
Repurchase of stock and units...................................................         (3,376)      (155,308)
                                                                                      ---------      ---------
     Net cash used in financing activities......................................       (243,030)      (244,659)
                                                                                      ---------      ---------
Net increase/(decrease) in cash and cash equivalents............................         13,422        (51,632)
Cash and cash equivalents at beginning of the period............................            576        104,780
                                                                                      ---------      ---------
Cash and cash equivalents at end of the period..................................      $  13,998      $  53,148
                                                                                      =========      =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest..........................................................      $  81,724      $  83,972
                                                                                      =========      =========
</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, the net assets acquired subject to
mortgage notes payable and other non-cash equity transactions:

<TABLE>
<CAPTION>
                                                                                  NINE MONTHS ENDED SEPTEMBER 30,
                                                                                  -------------------------------
                                                                                        2002            2001
                                                                                      ---------      ---------
<S>                                                                                   <C>            <C>
Assets:
Notes receivable................................................................      $      --      $     675
Accounts receivable.............................................................            154             --
Cash and cash equivalents.......................................................            729          6,880
Rental property and equipment, net..............................................         37,098         58,012
Investment in unconsolidated affiliates.........................................         (1,174)            --
                                                                                      ---------      ---------
                                                                                         36,807         65,567
                                                                                      =========      =========

Liabilities:
Mortgages and notes payable.....................................................         24,495         58,545
Accounts payable, accrued expenses and other liabilities........................         14,163          7,241
                                                                                      ---------      ---------
                                                                                         38,658         65,786
                                                                                      =========      =========
Equity:.........................................................................         (1,851)          (219)
                                                                                      =========      =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       8

<PAGE>

                           HIGHWOODS PROPERTIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2002
                                   (Unaudited)

1.   DESCRIPTION OF THE COMPANY

     Highwoods Properties, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") that operates in the
southeastern and midwestern United States. The Company's wholly-owned assets
include: 502 in-service office, industrial and retail properties; 213 apartment
units; 1,251 acres of undeveloped land suitable for future development; and an
additional eight properties under development.

     The Company conducts substantially all of its activities through, and
substantially all of its interests in the properties are held directly or
indirectly by, Highwoods Realty Limited Partnership (the "Operating
Partnership"). The Company is the sole general partner of the Operating
Partnership. At September 30, 2002, the Company owned 88.3% of the common
partnership interests ("Common Units") in the Operating Partnership. Limited
partners (including certain officers and directors of the Company) own the
remaining Common Units. Holders of Common Units may redeem them for the cash
value of one share of the Company's common stock, $.01 par value (the "Common
Stock"), or, at the Company's option, one share of Common Stock.

     When a Common Unit holder redeems a Common Unit for a share of Common Stock
or cash, the minority interest will be reduced and the Company's share in the
Operating Partnership will be increased. The Common Units owned by the Company
are not redeemable for cash.

2.   BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of the Company
and the Operating Partnership and their majority-controlled affiliates. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements. For a more complete discussion of our
critical accounting policies, see also "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting Policies".

     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 in the Operating
Partnership owned by various individuals and entities other than the Company.
Per share information is calculated using the weighted average number of shares
outstanding (including common share equivalents). In addition, minority interest
includes equity of consolidated real estate partnerships, which are owned by
various individuals and entities and not the Company.

     Certain amounts in the September 30, 2001 and December 31, 2001 financial
statements have been reclassified to conform to the September 30, 2002
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 2001 Annual Report on
Form 10-K.

                                       9

<PAGE>

                           HIGHWOODS PROPERTIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

2.   BASIS OF PRESENTATION - Continued

     Non-recurring litigation reserve was $2.7 million for the three months
ended September 30, 2002, and was a result of an accrual of $2.7 million to
increase our reserves for the probable and estimated losses related to various
legal proceedings arising in the ordinary course of business and from previously
completed mergers and acquisitions.

     Non-recurring compensation was $3.7 million for the three months ended
September 30, 2002, and was related to the exercise of options that occurred
during the first and second quarters of 2002. When an option holder elected to
exercise options, in lieu of issuing new shares upon exercise of the option and
then repurchasing shares on the open market, we settled the option exercise by
paying the option holder the net difference in cash between the strike price and
the market value of the underlying shares. Such exercises were previously
recorded as adjustments to stockholders' equity. However, the effect of such
exercises should have been recorded as compensation expense under FASB
Interpretation No. 44 (Accounting For Certain Transactions Involving Stock
Options, An Interpretation of APB Opinion No. 25). Had we issued the shares to
the option holder, received the cash for the strike price and then repurchased
the shares in the market, we would not record any compensation expense.
Management believes the impact of this non-recurring charge has had no material
effect on net income or stockholders' equity during the first six months of 2002
as previously reported. In addition, management believes the impact of APB 25
would not have had a material effect on financial statements for prior periods.
Commencing during the third quarter of 2002, we discontinued the practice of
settling option exercises by paying the option holder the net difference in cash
between the strike price and the market value of the underlying shares. In the
event we decide to repurchase shares after an option exercise, we will require
the option holder to pay the cash for the strike price and then separately
repurchase a corresponding number of shares in the market under our stock
repurchase program.

                                       10

<PAGE>

                           HIGHWOODS PROPERTIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

3.   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.

     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 nine months ended September 30, 2002 and 2001 ($ in
thousands):

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED           NINE MONTHS ENDED
                                                                  SEPTEMBER 30,               SEPTEMBER 30,
                                                               2002         2001            2002         2001
                                                            -----------  -----------    -----------  -----------
<S>                                                         <C>          <C>            <C>          <C>
RENTAL INCOME (A):
Office segment                                              $    96,409  $    96,142    $   287,627  $   291,021
Industrial segment                                               10,529       11,623         31,893       35,137
Retail segment                                                   10,083        8,970         30,380       27,325
Apartment segment                                                   348        2,809          1,143        8,262
                                                            -----------  -----------    -----------  -----------
   Total rental income                                      $   117,369  $   119,544    $   351,043  $   361,745
                                                            ===========  ===========    ===========  ===========
NET OPERATING INCOME (A):
Office segment                                              $    64,308  $    66,560    $   193,924  $   202,748
Industrial segment                                                8,372        9,612         25,985       29,450
Retail segment                                                    7,494        6,077         21,442       18,252
Apartment segment                                                   144        1,530            468        4,257
                                                            -----------  -----------    -----------  -----------
   Total Net Operating Income                               $    80,318  $    83,779    $   241,819  $   254,707
                                                            -----------  -----------    -----------  -----------
RECONCILIATION TO INCOME BEFORE GAIN ON DISPOSITION
   OF LAND AND DEPRECIABLE ASSETS, MINORITY INTEREST,
   DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM:
Equity in earnings of unconsolidated affiliates             $     1,259  $     3,241    $     6,298        5,666
Interest and other income                                         2,829        5,070          8,912       20,438
Nonrecurring litigation reserve                                  (2,700)          --         (2,700)          --
Nonrecurring compensation expense                                (3,700)          --         (3,700)          --
Interest expense                                                (27,869)     (26,705)       (81,700)     (82,619)
General and administrative expenses                              (4,147)      (4,784)       (14,858)     (15,447)
Depreciation and amortization                                   (31,522)     (27,879)       (91,840)     (83,958)
                                                            -----------  -----------    -----------  -----------
   Income before gain on disposition of land and
     depreciable assets, minority interest, discontinued
     operations and extraordinary item                      $    14,468  $    32,722    $    62,231  $    98,787
                                                            ===========  ===========    ===========  ===========

TOTAL ASSETS:
Office segment                                              $ 2,725,012  $ 2,781,068    $ 2,725,012  $ 2,781,068
Industrial segment                                              326,578      334,796        326,578      334,796
Retail segment                                                  285,373      274,581        285,373      274,581
Apartment segment                                                12,218       11,285         12,218       11,285
Corporate and other                                             169,774      223,796        169,774      223,796
                                                            -----------  -----------    -----------  -----------
   Total Assets                                             $ 3,518,955  $ 3,625,526    $ 3,518,955  $ 3,625,526
                                                            ===========  ===========    ===========  ===========
</TABLE>

----------
(A)  Net of discontinued operations.

                                       11

<PAGE>

                           HIGHWOODS PROPERTIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

4.   INVESTMENTS IN UNCONSOLIDATED AFFILIATES

     During the past several years, we have formed various joint ventures with
unrelated investors. We have retained minority equity interests ranging from
12.50% to 50.00% in these joint ventures. As required by GAAP, we have accounted
for our joint venture activity using the equity method of accounting, as we do
not control these joint ventures. As a result, the assets and liabilities of our
joint ventures are not included on our balance sheet.

     On June 26, 2002, we acquired our joint venture partner's interest in
MG-HIW Rocky Point, LLC, which owned Harborview Plaza, to bring our ownership
interest in that entity to 100.0%. At that time, we consolidated the assets and
liabilities, and recorded income and expenses on a consolidated basis. The net
income related to this joint venture until the date of purchase is included in
`Total net income' in the table below.

     On September 11, 2002, we contributed Harborview Plaza to SF-HIW Harborview
Plaza, LP, a newly formed limited partnership, in exchange for a 20.0% limited
partnership interest. The assets, liabilities and net income from the SF-HIW
Harborview Plaza, LP are included in the table below.

     As of September 30, 2002, our joint ventures have approximately $593.4
million of outstanding debt. All of the joint venture debt is non-recourse to us
except (1) in the case of customary exceptions pertaining to such matters as
misuse of funds, environmental conditions and material misrepresentations and
(2) with respect to $2.5 million of construction debt related to the MG-HIW
Metrowest II, LLC, which has been guaranteed by us subject to a pro rata
indemnity from our joint venture partner. Our partner in SF-HIW Harborview
Plaza, LP has the right to put its 80% equity interest in the partnership to us
for cash at anytime during the one year period commencing on September 11, 2014.
The value of the equity interest will be determined based upon the then fair
market value of SF-HIW Harborview Plaza, LP's assets and liabilities. Selected
financial data for our unconsolidated affiliates for the nine months ended
September 30, 2002 and 2001 is presented below ($ in thousands):

<TABLE>
<CAPTION>
                                                                                     OWNERSHIP PERCENTAGE
                                                                                    ----------------------
                                                                                      2002            2001
                                                                                    ------         -------
<S>                                                                                  <C>             <C>
     Board of Trade Investment Company.....................................          49.00%          49.00%
     Dallas County Partners I, LP..........................................          50.00           50.00
     Dallas County Partners II, LP.........................................          50.00           50.00
     Dallas County Partners III, LP........................................          50.00           50.00
     Fountain Three........................................................          50.00           50.00
     Kessinger/Hunter, LLC.................................................          30.00           30.00
     4600 Madison Associates, LP...........................................          12.50           12.50
     Highwoods DLF 98/29, LP...............................................          22.81           22.81
     Highwoods DLF 97/26 DLF 99/32, LP.....................................          42.93           42.93
     RRHWoods, LLC.........................................................          50.00           50.00
     Highwoods-Markel Associates, LLC......................................          50.00           50.00
     MG-HIW, LLC...........................................................          20.00           20.00
     MG-HIW Peachtree Corners, LLC.........................................          50.00           50.00
     MG-HIW Rocky Point, LLC...............................................             --           50.00
     MG-HIW Metrowest I, LLC...............................................          50.00           50.00
     MG-HIW Metrowest II, LLC..............................................          50.00           50.00
     Concourse Center Associates, LLC......................................          50.00              --
     Plaza Colonnade, LLC..................................................          50.00              --
     SF-HIW Harborview Plaza, LP...........................................          20.00              --
</TABLE>

<TABLE>
<CAPTION>
                                                                                SEPTEMBER 30,  SEPTEMBER 30,
                                                                                    2002           2001
                                                                                ----------     -----------
<S>                                                                             <C>            <C>
     Total assets..........................................................     $  924,155     $   903,458
     Total debt............................................................        593,359         568,625
     Total liabilities.....................................................        617,781         601,072
</TABLE>

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED              NINE MONTHS ENDED
                                                        SEPTEMBER 30,                    SEPTEMBER 30,
                                                   ------------------------       ------------------------
                                                      2002           2001           2002            2001
                                                      ----           ----           ----            ----
<S>                                                <C>            <C>             <C>            <C>
     Total net income.......................       $   5,055      $   9,558       $ 22,058       $  19,392
</TABLE>

                                       12

<PAGE>

                           HIGHWOODS PROPERTIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

5.   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 the derivative 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.

     On the date that we enter into a derivative contract, we designate the
derivative as (1) a hedge of the variability of cash flows that are to be
received or paid in connection with a recognized liability (a "cash flow"
hedge), or (2) an instrument that is held as a non-hedge derivative. Changes in
the fair value of highly effective cash flow hedges, to the extent that the
hedge is effective, are recorded in AOCL, until earnings are affected by the
hedged transaction (i.e. until periodic settlements of a variable-rate liability
are recorded in earnings). Any hedge ineffectiveness (which represents the
amount by which the changes in the fair value of the derivative exceed the
variability in the cash flows of the transaction) is recorded in current-period
earnings. Changes in the fair value of non-hedging instruments are reported in
current-period earnings.

     We formally document all relationships between hedging instruments and
hedged items, as well as the risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as cash flow hedges to (1) specific assets and
liabilities on the balance sheet or (2) forecasted transactions. We also assess
and document, both at the hedging instrument's inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows associated with the hedged items.
When we determine that a derivative is not (or has ceased to be) highly
effective as a hedge, we discontinue hedge accounting prospectively.

     During the nine months ended September 30, 2002, we had an interest rate
swap and an interest rate collar each mature, resulting in a debit to interest
rate derivative liability and an offsetting credit to AOCL of $411,000.

     As of September 30, 2002, we have two $24.0 million treasury lock
agreements related to an anticipated five-year fixed rate financing with two
financial counterparties, which effectively lock the five-year treasury rate at
3.72%. These treasury lock agreements are designated as cashflow hedges and the
effective portion of the cumulative loss on the derivative instruments was $2.5
million at September 30, 2002 and is being reported as a component of AOCL in
stockholders' equity. These costs will be recognized into earnings in the same
period or periods during which the hedged transaction affects earnings (as the
underlying debt is paid down).

     Derivative liabilities totaling approximately $2.5 million related to our
treasury lock agreements, with a notional amount of $48.0 million, are recorded
in accounts payable, accrued expenses and other liabilities in the Consolidated
Balance Sheets at September 30, 2002. The fair value of our interest rate swap,
cap and collar agreements was $(2.5) million at September 30, 2002.

                                       13

<PAGE>

                           HIGHWOODS PROPERTIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

5.   DERIVATIVE FINANCIAL INSTRUMENTS - Continued

     At September 30, 2002, approximately $7.9 million of deferred financing
costs from past cash flow hedging instruments remain in AOCL. These costs will
be recognized into earnings as the underlying debt is repaid. We expect that the
portion of the cumulative loss recorded in AOCL at September 30, 2002 associated
with the derivative instruments, which will be recognized within the next 12
months, will be approximately $1.6 million.

6.   OTHER COMPREHENSIVE INCOME/(LOSS)

     Other comprehensive income/(loss) represents net income plus the results of
certain non-stockholders' equity changes not reflected in the Consolidated
Statements of Income. The components of other comprehensive income/(loss) are as
follows ($ in thousands):

<TABLE>
<CAPTION>
                                                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                                                                       2002              2001
                                                                                    ----------       ----------
<S>                                                                                 <C>              <C>
Net Income......................................................................    $   69,445       $  108,527
Accumulated other comprehensive income/(loss):
   Unrealized derivative losses on cashflow hedges..............................        (2,134)            (514)
   Reclassification of past hedging relationships...............................            --          (10,597)
   Amortization of past hedging relationships...................................         1,157            1,175
                                                                                    ----------       ----------
     Total other comprehensive loss ............................................          (977)          (9,936)
                                                                                    ----------       ----------
     Total comprehensive income.................................................    $   68,468       $   98,591
                                                                                    ==========       ==========
</TABLE>

7.   DISCONTINUED OPERATIONS AND THE IMPAIRMENT OF LONG-LIVED ASSETS

     As of January 1, 2002, we adopted Financial Accounting Standards Board
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," ("SFAS 144") and the appropriate amounts are disclosed separately under
income from discontinued operations on the consolidated income statement. Below
represents the income statement and net carrying value of the properties sold
and held for sale at September 30, 2002 (which account for 2,148,446 rentable
square feet and 88 units) as a result of our capital recycling program and
included in income from discontinued operations for the three and nine months
ended September 30, 2002 and 2001 (in thousands):

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED         NINE MONTHS ENDED
                                                                     SEPTEMBER 30,             SEPTEMBER 30,
                                                                -----------------------     ----------------------
                                                                   2002         2001          2002         2001
                                                                ----------   ----------     ---------    ---------
<S>                                                             <C>          <C>            <C>          <C>
Total revenue                                                   $    5,460   $    6,286     $  16,669    $  19,125
Rental operating expenses                                           (1,985)      (1,932)       (5,831)      (5,931)
Depreciation and amortization                                       (1,305)      (1,624)       (3,921)      (3,868)
Interest Expense                                                      (200)          --          (200)          --
                                                                ----------   ----------     ---------    ---------
   Income before loss on disposition of depreciable assets
     and minority interest                                           1,970        2,730         6,717        9,326
Loss on disposition of depreciable assets                           (3,712)          --        (1,577)          --
                                                                ----------   ----------     ---------    ---------
   Income/(loss) before minority interest                           (1,742)       2,730         5,140        9,326
Minority interest                                                      203         (344)         (616)      (1,169)
                                                                ----------   ----------     ---------    ---------
   Income/(loss) from discontinued operations                   $   (1,539)  $    2,386     $   4,524    $   8,157
                                                                ==========   ==========     =========    =========
Net carrying value                                              $  123,350   $  153,297     $ 123,350    $ 153,297
                                                                ==========   ==========     =========    =========
</TABLE>

     In addition, in accordance with SFAS 144, we have determined that as of
September 30, 2002, the carrying value of three office properties held will not
be recovered from their projected undiscounted future operating cash flows. We
have recognized a $4.5 million impairment loss, which is included in the gain on
the sale of land and depreciable assets in the consolidated statements of income
for the three and nine months ended September 30, 2002.

                                       14

<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.

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 this section and under the
heading "Business". 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:

     .    speculative development activity by our competitors in our existing
          markets could result in an excessive supply of office, industrial and
          retail properties relative to tenant demand;

     .    the financial condition of our tenants could deteriorate;

     .    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 re-lease 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 and midwestern markets may suffer additional declines
          in economic growth or may not recover as fully or as quickly as
          expected.

     This list of risks and uncertainties, however, is not intended to be
exhaustive. You should also review the other cautionary statements we make in
"Business - Risk Factors" set forth in our 2001 Annual Report.

     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.

OVERVIEW

     We are a self-administered and self-managed equity REIT that began
operations through a predecessor in 1978. Since the Company's initial public
offering in 1994, we have evolved into one of the largest owners and operators
of suburban office, industrial and retail properties in the southeastern and
midwestern United States. At September 30, 2002, we:

     .    owned 502 in-service office, industrial and retail properties,
          encompassing approximately 38.0 million rentable square feet;

     .    owned an interest (50.0% or less) in 78 in-service office and
          industrial properties, encompassing

                                       15

<PAGE>

          approximately 7.7 million rentable square feet and 418 apartment
          units;

     .    owned 1,251 acres (and have agreed to purchase an additional eight
          acres over the next year) of undeveloped land suitable for future
          development;

     .    owned eight development properties, encompassing approximately 824,000
          rentable square feet; and

     .    owned an interest (50.0% or less) in one development property,
          encompassing 285,000 rentable square feet.

     The following summarizes our capital recycling program since the beginning
of 2000:

<TABLE>
<CAPTION>
                                                                     NINE MONTHS
                                                                        ENDED           YEAR ENDED     YEAR ENDED
                                                                 September 30, 2002        2001           2000
                                                                 ------------------     ----------     ----------
<S>                                                                      <C>               <C>           <C>
OFFICE, INDUSTRIAL AND RETAIL PROPERTIES
   (rentable square feet in thousands)
     Dispositions (1).........................................            (856)             (268)        (4,743)
     Contributions to Joint Ventures (1)......................            (205)             (118)        (2,199)
     Developments Placed In-Service...........................           1,614             1,351          3,480
     Acquisitions.............................................             205                72            669
                                                                       -------           -------        -------
     Net Change in Wholly-owned
       In-Service Properties..................................             758             1,037         (2,793)
                                                                       =======           =======        =======

APARTMENT PROPERTIES
   (in units)
     Dispositions.............................................              --            (1,672)            --
                                                                       =======           =======        =======
</TABLE>

----------
(1) Excludes wholly-owned development projects sold or contributed to joint
ventures.

     In addition to the above property activity, we repurchased $3.4 million,
$147.4 million and $100.2 million of Common Stock and Common Units during 2002,
2001 and 2000, respectively, and $18.5 million of Preferred Stock during 2001.
This represents aggregate repurchases of $269.5 million of Common Stock, Common
Units and Preferred Stock since January 1, 2000.

     The Company conducts substantially all of its activities through, and
substantially all of its interests in the properties are held directly or
indirectly by, the Operating Partnership. The Company is the sole general
partner of the Operating Partnership. At September 30, 2002, the Company owned
88.3% of the Common Units in the Operating Partnership.

CRITICAL ACCOUNTING POLICIES

     Our discussion and analysis of financial condition and results of
operations is based upon our Consolidated Financial Statements contained
elsewhere in this Quarterly Report. Our Consolidated Financial Statements
include the accounts of the Company and the Operating Partnership and their
majority-controlled affiliates. For a discussion of our accounting policies with
respect to our investments in joint ventures, see "Investments in Joint
Ventures". The preparation of financial statements in conformity with GAAP
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses for the reporting period. Actual results could differ from
our estimates.

     The estimates used in the preparation of our Consolidated Financial
Statements are more fully described in Note (1) to our audited Consolidated
Financial Statements for the year ended December 31, 2001, included in our 2001
Form 10-K. However, certain of our significant accounting policies are
considered critical accounting policies due to the increased level of
assumptions used or estimates made in determining their impact on our
Consolidated Financial Statements presented for any interim period. Management
has reviewed our critical accounting policies and estimates with the audit
committee of the Company's board of directors.

     We consider our critical accounting policies to be those used in the
determination of the reported amounts and

                                       16

<PAGE>

disclosure related to the following:

     .    Impairment of long-lived assets;

     .    Allowance for doubtful accounts;

     .    Capitalized costs;

     .    Fair value of derivative instruments;

     .    Rental revenue; and

     .    Investments in joint ventures.

     Impairment of long-lived assets. Real estate and leasehold improvements are
classified as long-lived assets held for sale or as long-lived assets to be held
and used. In accordance with Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we record
assets held for sale at the lower of the carrying amount or fair value less cost
to sell. The impairment loss is the amount by which the carrying amount exceeds
the fair value less cost to sell. With respect to assets classified as held and
used, we periodically review these assets to determine whether our carrying
amount will be recovered from their undiscounted future operating cash flows and
we recognize an impairment loss to the extent we believe the carrying amount is
not recoverable. Our determination of future operating cash flows requires us to
make assumptions related to future rental rates, tenant concessions, operating
expenditures, property taxes and capital improvements. If our assumptions prove
incorrect and our estimates of future operating cash flows are materially
overstated, we could be required to recognize future impairment losses on our
properties.

     Allowance for doubtful accounts. Accounts receivable are reduced by an
allowance for amounts that may become uncollectible in the future. Our
receivable balance is comprised primarily of rents and operating cost recoveries
due from tenants as well as accrued rental rate increases to be received over
the life of the existing leases. We regularly evaluate the adequacy of our
allowance for doubtful accounts considering such factors as the credit quality
of our tenants, delinquency of payment, historical trends and current economic
conditions. Actual results may differ from these estimates under different
assumptions or conditions. If our assumptions regarding the collectibility of
accounts receivables prove incorrect, we could experience write-offs of accounts
receivable or accrued straight-line rents receivable in excess of our allowance
for doubtful accounts.

     Capitalized costs. Expenditures directly related to both the development of
real estate assets and the leasing of properties are included in net real estate
assets and are stated at cost in the consolidated balance sheets. The
development expenditures include pre-construction costs essential to the
development of properties, development and construction costs, interest costs,
real estate taxes, salaries and other costs incurred during the period of
development. The leasing expenditures include all general and administrative
costs, including salaries incurred in connection with successfully securing
leases on the properties. Estimated costs related to unsuccessful leases are
expensed as incurred. If our assumptions regarding the successful efforts of
development and leasing are incorrect, the resulting adjustments could impact
earnings.

     Fair value of derivative instruments. In the normal course of business, we
are exposed to the effect of interest rate changes. We limit our exposure by
following established risk management policies and procedures including the use
of derivatives. To mitigate our exposure to unexpected changes in interest
rates, derivatives are used primarily to hedge against rate movements on our
related debt. We are required to recognize all derivatives as either assets or
liabilities in the consolidated balance sheets and to measure those instruments
at fair value. Changes in fair value will affect either stockholders' equity or
net income depending on whether the derivative instrument qualifies as a hedge
for accounting purposes.

     To determine the fair value of derivative instruments, we use a variety of
methods and assumptions that are based on market conditions and risks existing
at each balance sheet date. For the majority of financial instruments, including
most derivatives, standard market conventions and techniques such as discounted
cash flow analysis, option pricing modes, replacement cost and termination cost
are used to determine fair value. All methods of assessing fair value result in
a general approximation of value, and such value may never actually be realized.

                                       17

<PAGE>

     Rental revenue. Rental revenue is comprised of base rent, including
termination fees, recoveries from tenants and parking and other income. In
accordance with GAAP, base rental revenue is recognized on a straight-line basis
over the terms of the respective leases. This means that, with respect to a
particular lease, actual amounts billed in accordance with the lease during any
given period may be higher or lower than the amount of rental revenue recognized
for the period. Accrued straight-line rents receivable represents the amount by
which straight-line rental revenue exceeds rents currently billed in accordance
with lease agreements. Recoveries from tenants represent reimbursements for
certain costs as provided in the lease agreements. These costs generally include
real estate taxes, utilities, insurance, common area maintenance and other
recoverable costs.

     Investments in joint ventures. Our investments in unconsolidated affiliates
consist of one corporation, nine limited liability companies, four limited
partnerships and two general partnerships. We account for our investments in
unconsolidated affiliates under the equity method of accounting as we exercise
significant influence, but do not control these entities. Our unconsolidated
corporation is controlled by an unrelated third party that owns more than 50% of
the outstanding voting stock. We have a 50% or less ownership interest in the
unconsolidated limited liability companies and, under the terms of the various
operating agreements, do not have any participating rights. We have a 50% or
less ownership interest in the unconsolidated limited partnerships and general
partnerships. Although we have an interest in two unconsolidated general
partnerships and are the general partner in three of the unconsolidated limited
partnerships, under the terms of the various partnership agreements, we do not
have control of the major operating and financial policies of these
unconsolidated partnerships.

     These investments are initially recorded at cost, as investments in
unconsolidated affiliates, and are subsequently adjusted for equity in earnings
and cash contributions and distributions. Any difference between the carrying
amount of these investments on our balance sheet and the underlying equity in
net assets is amortized as an adjustment to equity in earnings of unconsolidated
affiliates over the life of the property, generally 40 years.

     From time to time, we contribute real estate assets to an unconsolidated
joint venture in exchange for a combination of cash and an equity interest in
the venture. We record a partial gain on the contribution of the real estate
assets to the extent of the third party investor's interest and record a
deferred gain to the extent of our continuing interest in the unconsolidated
joint venture.

     In connection with the MG-HIW, LLC joint venture, we have guaranteed Miller
Global, our partner who has an 80.0% interest in the joint venture, a minimum
internal rate of return on $50.0 million of their equity. If the minimum
internal rate of return is not achieved upon the sale of the assets or winding
up of the joint venture, Miller Global would receive a disproportionately
greater interest of the cash proceeds related to the assets subject to the
internal rate of return guarantee. Based upon the current and forecasted
operating performance of the assets and our estimate of the residual value of
the subject assets, the estimated internal rate of return for Miller Global with
respect to their equity is not less than the minimum required return. As a
result, we do not currently expect that our interest in the joint venture will
be adjusted upon the sale of the subject assets or the winding up of the joint
venture as a result of the internal rate of return guarantee. However, if our
assumptions and estimates prove incorrect, Miller Global could receive a greater
interest of the cash proceeds from any such sale or winding up.

                                       18

<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth information regarding our results of
operations for the three and nine months ended September 30, 2002 and 2001 ($ in
millions):

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED               NINE MONTHS ENDED
                                                          SEPTEMBER 30,                   SEPTEMBER 30,
                                                          -------------                   -------------
                                                         2002      2001     $ Change      2002     2001     $ Change
                                                       --------  --------   --------   --------  -------    --------
<S>                                                    <C>       <C>        <C>        <C>       <C>        <C>
Rental revenue ......................................  $  117.4  $  119.5   $  (2.1)   $  351.0  $ 361.7    $ (10.7)

Operating expenses:
   Rental property...................................      37.1      35.8       1.3       109.2    107.0        2.2
   Depreciation and amortization.....................      31.5      27.9       3.6        91.8     84.0        7.8
   Interest expense:
     Contractual.....................................      27.5      26.4       1.1        80.7     80.9       (0.2)
     Amortization of deferred financing costs........       0.4       0.3       0.1         1.0      1.7       (0.7)
                                                       --------  --------   -------    --------  -------    -------
                                                           27.9      26.7       1.2        81.7     82.6       (0.9)
   General and administrative........................       4.1       4.7      (0.6)       14.9     15.4       (0.5)
Other Income/(Expenses):
   Interest and other income.........................       2.8       5.1      (2.3)        8.9     20.4      (11.5)
   Equity in earnings of unconsolidated affiliates...       1.3       3.2      (1.9)        6.3      5.7        0.6
   Nonrecurring litigation reserve...................      (2.7)      --       (2.7)       (2.7)      --       (2.7)
   Nonrecurring compensation expense.................      (3.7)      --       (3.7)       (3.7)      --       (3.7)
                                                       --------  -------    -------    --------  -------    -------
                                                           (2.3)      8.3     (10.6)        8.8     26.1      (17.3)
                                                       --------  --------   -------    --------  -------    -------

   Income before gain on disposition of land and
       depreciable assets, minority interest,
       discontinued operations and extraordinary item      14.5      32.7     (18.2)       62.2     98.8      (36.6)
   Gain on disposition of land and depreciable assets       3.6       3.4       0.2        12.1     16.1       (4.0)
                                                       --------  --------   -------    --------  -------    -------
   Income before minority interest, discontinued
       operations and extraordinary item.............      18.1      36.1     (18.0)       74.3    114.9      (40.6)
Minority interest....................................      (2.2)     (4.5)      2.3        (9.0)   (14.0)       5.0
                                                       --------  --------   -------    --------  -------    -------
   Income from continuing operations.................      15.9      31.6     (15.7)       65.3    100.9      (35.6)
Discontinued operations:
   Income from discontinued operations, net of
     minority interest...............................       1.7       2.4      (0.7)        5.9      8.1       (2.2)
   Loss on sale of discontinued operations, net of
     minority interest...............................      (3.3)      --       (3.3)       (1.4)      --       (1.4)
                                                       --------  -------    -------    --------  -------    -------
                                                           (1.6)      2.4      (4.0)        4.5      8.1       (3.6)
                                                       --------  --------   -------    --------  -------    -------

   Net income before extraordinary item..............      14.3      34.0     (19.7)       69.8    109.0      (39.2)
Extraordinary item -- loss on early extinguishment
   of debt...........................................      (0.4)      --       (0.4)       (0.4)    (0.5)       0.1
                                                       --------  -------    -------    --------  -------    -------
   Net income........................................      13.9      34.0     (20.1)       69.4    108.5      (39.1)
Dividends on preferred stock.........................      (7.7)     (7.7)       --       (23.1)   (23.8)       0.7
                                                       --------  --------   -------    --------  -------    -------
   Net income available for common
     shareholders....................................  $    6.2  $   26.3   $ (20.1)   $   46.3  $  84.7    $ (38.4)
                                                       ========  ========   =======    ========  =======    =======
</TABLE>

     Three Months Ended September 30, 2002. Revenues from rental operations
decreased $2.1 million, or 1.8%, to $117.4 million for the three months ended
September 30, 2002 from $119.5 million for the three months ended September 30,
2001. The decrease was primarily due to a decrease in the average occupancy
rates from 92.7% in the third quarter of 2001 to 86.3% in the third quarter of
2002. Slightly offsetting the decrease was an increase in rental revenues as a
result of an increase in our property portfolio in 2002 as a result of our
capital recycling program, which included 1.6 million rentable square feet of
properties that were placed in service during 2002. Our in-service wholly-owned
portfolio increased from 36.9 million rentable square feet at September 30, 2001
to 38.0 million rentable square feet at September 30, 2002.

     Same property rental revenue, recorded in accordance with GAAP, generated
from the 475 in-service properties wholly-owned on January 1, 2001, decreased
$4.2 million, or 3.6%, for the three months ended September 30, 2002, compared
to the three months ended September 30, 2001. Same store straight-line rent
decreased $1.1 million as a result of lower occupancy with fewer new leases
recording straight-line rent and the impact from straight-lining of

                                       19

<PAGE>

rents on existing tenants discussed generally in our critical accounting
policies. Same store rental revenues excluding straight-line rent and
termination fees decreased $4.2 million, or 3.7%. This decrease is a result of
lower same store average occupancy, which declined from 92.5% in the third
quarter of 2001 to 86.8% in the third quarter of 2002.

     During the three months ended September 30, 2002, 242 second generation
leases representing 1.5 million square feet of office, industrial and retail
space were executed at an average rate per square foot, which was 9.3% lower
than the average rate per square foot on the previous leases.

     Rental operating expenses (real estate taxes, utilities, insurance, repairs
and maintenance and other property-related expenses) increased $1.3 million, or
3.6%, to $37.1 million for the three months ended September 30, 2002 from $35.8
million for the three months ended September 30, 2001. This increase was
primarily a result of increases in real estate taxes, primarily due to higher
property tax assessments, utilities and small increases in various other rental
expenses in the third quarter of 2002, offset by lower occupancy relative to
variable operating expenses. Rental operating expenses as a percentage of
related rental revenues increased to 31.6% for the three months ended September
30, 2002 from 30.0% for the three months ended September 30, 2001. The increase
was primarily due to an increase in rental operating expenses related to the
increase in real estate taxes and a decrease in rental revenues related to lower
average occupancy during the three months ended September 30, 2002.

     Same property rental property expenses, which are the expenses of the 475
in-service properties wholly-owned on January 1, 2001, increased $456,000, or
1.3%, for the three months ended September 30, 2002, compared to the three
months ended September 30, 2001. This increase was primarily a result of
increases in real estate taxes, primarily due to higher property tax
assessments, utilities and small increases in various other rental expense
accounts in the third quarter of 2002.

     Depreciation and amortization for the three months ended September 30, 2002
and 2001 totaled $31.5 million and $27.9 million, respectively. The increase of
$3.6 million, or 12.9%, was due to an increase in the amortization of leasing
commissions and tenant improvements and an increase in depreciation expense
related to buildings placed in service during 2001 and 2002, partly offset by a
decrease in the depreciation expense as a result of dispositions during 2002 and
2001.

     Interest expense increased $1.2 million, or 4.5%, to $27.9 million for the
three months ended September 30, 2002 from $26.7 million for the three months
ended September 30, 2001. The increase was attributable to a decrease in
capitalized interest during the three months ended September 30, 2002, offset by
a decrease in weighted average interest rates during the three months ended
September 30, 2002. Interest expense for the three months ended September 30,
2002 and 2001 included $347,000 and $324,000, respectively, of amortization of
deferred financing costs. Capitalized interest for the three months ended
September 30, 2002 and 2001 was $1.7 million and $4.0 million, respectively.

     General and administrative expenses as a percentage of rental revenue,
interest and other income, and equity in earnings of unconsolidated affiliates
was 3.4% in the third quarter of 2002 and 3.7% in the third quarter of 2001.
The increase is primarily due to a non-recurring increase in management fee
expense related to certain executives that provide management services to the
Operating Partnership. These executives are employees of the Company, which is
the managing general partner of the Operating Partnership.

     Interest and other income decreased $2.3 million, or 45.1%, to $2.8 million
for the three months ended September 30, 2002 from $5.1 million for the three
months ended September 30, 2001. The decrease primarily resulted from a decrease
in development fee income and a decrease in interest income in the three months
ended September 30, 2002 due to the collection of notes receivable during 2001
and 2002.

     Equity in earnings of unconsolidated affiliates decreased $1.9 million, or
59.4%, to $1.3 million for the three months ended September 30, 2002 from $3.2
million for the three months ended September 30, 2001. The decrease was
attributable to an accrual made in 2001 by the Iowa joint ventures to reflect
reimbursements for real estate taxes paid in 2001 and years prior. In 2002,
these payments have been accounted for when they have been received.

     Non-recurring litigation reserve was $2.7 million for the three months
ended September 30, 2002, and was a result of an accrual of $2.7 million to
increase our reserves for the probable and estimated losses related to various
legal proceedings arising in the ordinary course of business and from previously
completed mergers and acquisitions.

                                       20

<PAGE>

     Non-recurring compensation was $3.7 million for the three months ended
September 30, 2002, and was related to the exercise of options that occurred
during the first and second quarters of 2002. When an option holder elected to
exercise options, in lieu of issuing new shares upon exercise of the option and
then repurchasing shares on the open market, we settled the option exercise by
paying the option holder the net difference in cash between the strike price and
the market value of the underlying shares. Such exercises were previously
recorded as adjustments to stockholders' equity. However, the effect of such
exercises should have been recorded as compensation expense under FASB
Interpretation No. 44 (Accounting For Certain Transactions Involving Stock
Options, An Interpretation of APB Opinion No. 25). Had we issued the shares to
the option holder, received the cash for the strike price and then repurchased
the shares in the market, we would not record any compensation expense.
Management believes the impact of this non-recurring charge has had no material
effect on net income or stockholders' equity during the first six months of 2002
as previously reported. In addition, management believes the impact of APB 25
would not have had a material effect on financial statements for prior periods.
Commencing during the third quarter of 2002, we discontinued the practice of
settling option exercises by paying the option holder the net difference in cash
between the strike price and the market value of the underlying shares. In the
event we decide to repurchase shares after an option exercise, we will require
the option holder to pay the cash for the strike price and then separately
repurchase a corresponding number of shares in the market under our stock
repurchase program.

     Income before gain on disposition of land and depreciable assets, minority
interest, discontinued operations and extraordinary item equaled $14.5 million
and $32.7 million for the quarters ended September 30, 2002 and 2001,
respectively. The Company's net income allocated to minority interest totaled
$2.2 million and $4.5 million for the quarters ended September 30, 2002 and
2001, respectively. The Company recorded $7.7 million in preferred stock
dividends for each of the quarters ended September 30, 2002 and 2001,
respectively.

     Gain on disposition of land and depreciable assets increased $242,000, or
5.9%, to $3.6 million for the quarter ended September 30, 2002 from $3.4 million
for the quarter ended September 30, 2001. In the third quarter of 2001, the
majority of the gain was comprised of a gain of approximately $4.1 million
related to the disposition of 512 apartment units, partly offset by a loss of
approximately $126,000 related to the disposition of 579,515 rentable square
feet of office properties and by a loss of approximately $538,000 related to the
disposition of 77 acres of land. In the third quarter of 2002, the gain
primarily consisted of $2.7 million of additional gain that resulted from the
sale of a building during the second quarter of 2002 that had not been entirely
recorded during that period due to an error in the consolidation process and a
gain of approximately $741,000 related to the disposition of 25 acres of land.

     Income from discontinued operations, net of minority interest, decreased
from $2.4 million for the three months ended September 30, 2001 to $1.7 million
for the three months ended September 30, 2002. The decrease was a result of the
decrease in income from discontinued operations for properties sold during 2002.

     Loss on sale of discontinued operations, net of minority interest, was $3.3
million during the three months ended September 30, 2002, which represented an
impairment charge related to two properties held for sale at September 30, 2002.

     Nine Months Ended September 30, 2002. Revenues from rental operations
decreased $10.7 million, or 3.0%, to $351.0 million for the nine months ended
September 30, 2002 from $361.7 million for the nine months ended September 30,
2001. The decrease was primarily due to a decrease in the average occupancy
rates from 93.4% for the nine months ended September 30, 2001 to 87.5% for the
nine months ended September 30, 2002. In addition, we wrote off approximately
$3.1 million of accrued straight-line rent receivables from WorldCom and its
affiliates during the second quarter of 2002. Our in-service wholly-owned
portfolio increased from 36.9 million rentable square feet at September 30, 2001
to 38.0 million rentable square feet at September 30, 2002.

     Same property rental revenue, recorded in accordance with GAAP, generated
from the 475 wholly-owned in-service properties on January 1, 2001, decreased
$13.9 million for the nine months ended September 30, 2002 compared to the nine
months ended September 30, 2001. Same store straight-line rent decreased $6.3
million as a result of the $3.1 million write-off of bankrupt tenant WorldCom's
accrued straight-line rent receivable, lower occupancy with fewer new leases
recording straight-line rent and the impact from straight lining of rents on
existing tenants discussed generally in our critical accounting policies. Same
store revenues excluding straight-line rent and termination fees decreased $9.5
million, or 2.8%. This decrease is a result of lower same store average
occupancy, which declined from 93.2% in the first nine months of 2001 to 87.7%
in the first nine months of 2002.

                                       21

<PAGE>

     During the nine months ended September 30, 2002, 586 second generation
leases representing 4.0 million square feet of office, industrial and retail
space were executed at an average rate per square foot which was 4.8% lower than
the average rate per square foot on the previous leases.

     Rental operating expenses (real estate taxes, utilities, insurance, repairs
and maintenance and other property-related expenses) increased $2.2 million, or
2.1%, to $109.2 million for the nine months ended September 30, 2002 from $107.0
million for the nine months ended September 30, 2001. The increase was primarily
a result of an increase in real estate taxes in the first nine months of 2002,
primarily due to higher property tax assessments, utilities and small increases
in various other rental expenses in 2002, offset by lower occupancy relative to
variable operating expenses. Rental operating expenses as a percentage of
related rental revenues increased to 31.1% for the nine months ended September
30, 2002 from 29.6% for the nine months ended September 30, 2001. The increase
was primarily due to an increase in rental operating expenses related to the
increase in real estate taxes and a decrease in rental revenues related to lower
average occupancy during the nine months ended September 30, 2002.

     Same property rental property expenses, which are the expenses of the 475
in-service properties wholly-owned on January 1, 2001, remained consistent for
the nine months ended September 30, 2002, compared to the nine months ended
September 30, 2001.

     Depreciation and amortization for the nine months ended September 30, 2002
and 2001 totaled $91.8 million and $84.0 million, respectively. The increase of
$7.8 million, or 9.3%, was due to an increase in the amortization of leasing
commissions and tenant improvements and an increase in depreciation expense
related to buildings placed in service during 2001 and 2002, partly offset by a
decrease in the depreciation expense as a result of dispositions during 2002 and
2001.

     Interest expense decreased $919,000, or 1.1%, to $81.7 million for the nine
months ended September 30, 2002 from $82.6 million for the nine months ended
September 30, 2001. The decrease was primarily attributable to the decrease in
the weighted average interest rates for the nine months ended September 30,
2002, partly offset by an increase in the average outstanding debt for the nine
months ended September 30, 2002 and a decrease in capitalized interest during
the nine months ended September 30, 2002. Interest expense for the nine months
ended September 30, 2002 and 2001 included $1.0 million and $1.7 million,
respectively, of amortization of deferred financing costs. The decrease in
amortization of deferred financing costs from September 30, 2001 to September
30, 2002 was related to loan fees which were amortized fully during 2001.
Capitalized interest for the nine months ended September 30, 2002 and 2001 was
$8.3 million and $11.0 million, respectively.

     General and administrative expenses as a percentage of rental revenue,
interest and other income, and equity in earnings of unconsolidated affiliates
was 4.1% and 4.0% in the first nine months of 2002 and 2001, respectively. The
increase is primarily due to a non-recurring increase in management fee expense
related to certain executives that provide management services to the Operating
Partnership. These executives are employees of the Company, which is the
managing general partner of the Operating Partnership. The increase is partly
offset by a decrease in revenue due to lower average occupancy during the nine
months ended September 30, 2002 and 2001.

     Interest and other income decreased $11.5 million, or 56.4%, to $8.9
million for the nine months ended September 30, 2002 from $20.4 million for the
nine months ended September 30, 2001. The decrease primarily resulted from a
decrease in leasing and development fee income in the nine months ended
September 30, 2002 and a decrease in interest income in the nine months ended
September 30, 2002 due to lower average cash balances (during 2001, we had
higher cash balances as a result of proceeds from dispositions related to our
capital recycling program that were ultimately used in our stock repurchase
program) and the collection of notes receivable during 2001 and 2002.

     Equity in earnings of unconsolidated affiliates increased $632,000, or
10.5%, to $6.3 million for the nine months ended September 30, 2002 from $5.7
million for the nine months ended September 30, 2001. The increase was primarily
a result of earnings from certain joint ventures formed with unrelated investors
in 2002.

     Non-recurring litigation reserve was $2.7 million for the nine months ended
September 30, 2002, and was a result of an accrual of $2.7 million to increase
our reserves for the probable and estimated losses related to various legal
proceedings arising in the ordinary course of business and from previously
completed mergers and acquisitions.

     Non-recurring compensation was $3.7 million for the nine months ended
September 30, 2002, and was related to the exercise of options that occurred
during the first and second quarters of 2002. When an option holder elected

                                       22

<PAGE>

to exercise options, in lieu of issuing new shares upon exercise of the option
and then repurchasing shares on the open market, we settled the option exercise
by paying the option holder the net difference in cash between the strike price
and the market value of the underlying shares. Such exercises were previously
recorded as adjustments to stockholders' equity. However, the effect of such
exercises should have been recorded as compensation expense under FASB
Interpretation No. 44 (Accounting For Certain Transactions Involving Stock
Options, An Interpretation of APB Opinion No. 25). Had we issued the shares to
the option holder, received the cash for the strike price and then repurchased
the shares in the market, we would not have been required to record any
compensation expense. Management believes the impact of this non-recurring
charge has had no material effect on net income or stockholders' equity during
the first six months of 2002 as previously reported. In addition, management
believes the impact of APB 25 would not have had a material effect on financial
statements for prior periods. Commencing during the third quarter of 2002, we
discontinued the practice of settling option exercises by paying the option
holder the net difference in cash between the strike price and the market value
of the underlying shares. In the event we decide to repurchase shares after an
option exercise, we will require the option holder to pay the cash for the
strike price and then separately repurchase a corresponding number of shares in
the market under our stock repurchase program.

     Income before gain on disposition of land and depreciable assets, minority
interest, discontinued operations and extraordinary item equaled $62.2 million
and $98.8 million for the nine months ended September 30, 2002 and 2001,
respectively. The Company's net income allocated to minority interest totaled
$9.0 million and $14.0 million for the nine months ended September 30, 2002 and
2001, respectively. The Company recorded $23.1 million and $23.8 million in
preferred stock dividends for each of the nine months ended September 30, 2002
and 2001, respectively. The decrease was a result of the $18.5 million
repurchase by the Company of its preferred stock during 2001.

     Gain on disposition of land and depreciable assets decreased $4.0 million,
or 24.8%, to $12.1 million for the nine months ended September 30, 2002 from
$16.1 million for the nine months ended September 30, 2001. In the first nine
months of 2001, the majority of the gain was comprised of a gain of
approximately $15.6 million related to the disposition of 1,672 apartment units
and a gain of approximately $1.0 million related to the disposition of 160 acres
of land, partly offset by a loss of approximately $508,000 related to the
disposition of 795,331 rentable square feet of office properties. In the first
nine months of 2002, the majority of the gain was comprised of a gain of
approximately $14.8 million related to the disposition of 533,263 rentable
square feet of office properties and a gain of approximately $6.5 million
related to the disposition of 78 acres of land and other non-revenue producing
assets, partly offset by an impairment loss of approximately $9.1 million.

     Income from discontinued operations, net of minority interest, decreased
from $8.2 million for the nine months ended September 30, 2001 to $5.9 million
for the nine months ended September 30, 2002. The decrease was a result of the
decrease in income from discontinued operations for properties sold during 2002.

     Loss on sale of discontinued operations, net of minority interest, was $1.4
million for the nine months ended September 30, 2002. This amount was comprised
of an impairment charge of $4.0 million related to properties held for sale at
September 30, 2002 offset by gains in aggregate of approximately $2.6 million
related to the disposition of 331,747 rentable square feet.

LIQUIDITY AND CAPITAL RESOURCES

     Statement of Cash Flows. The following table sets forth the changes in the
Company's cash flows from the first nine months of 2001 as compared to the first
nine months of 2002 ($ in thousands):

<TABLE>
<CAPTION>
                                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                                                   -------------------------------
                                                                       2002             2001           CHANGE
                                                                  -----------       -----------      ----------
<S>                                                               <C>               <C>              <C>
     Cash Provided By Operating Activities                        $   171,173       $   176,250      $   (5,077)
     Cash Provided By Investing Activities                             85,279            16,777          68,502
     Cash Used in Financing Activities                               (243,030)         (244,659)          1,629
</TABLE>

     The decrease in cash provided by operating activities was primarily the
result of (1) a decrease in average occupancy rates for our wholly-owned
portfolio; (2) our capital recycling program; and (3) a decrease in interest
income and development and leasing income in the first nine months of 2002. In
addition, the level of net cash provided by operating activities is also
affected by the timing of receipt of revenues and payment of expenses.

                                       23

<PAGE>

     The increase in cash provided by investing activities was primarily a
result of a decrease of $104.0 million in additions to real estate assets in the
first nine months of 2002, partly offset by a decrease of $15.0 million in the
investments in notes receivable from the first nine months of 2001 to the first
nine months of 2002 and a decrease in the collection of advances from
subsidiaries of $27.6 million from the first nine months of 2001 to the first
nine months of 2002.

     The decrease in cash used in financing activities was primarily a result of
a decrease of $151.9 million in the repurchase of Common Stock and Common Units
from the first nine months of 2001 to the first nine months of 2002, a decrease
of $2.4 million in distributions paid on Common Stock, Common Units and
Preferred Stock during 2002 and an increase in net proceeds from the sale of
Common Stock of $4.5 million during 2002. These decreases were partially offset
by an increase in repayments of $87.6 million and a decrease in borrowings of
$71.3 million on the unsecured revolving loan, mortgages and notes payable
during 2002.

     Capitalization. Based on our total market capitalization of $3.42 billion
at September 30, 2002 (at the September 30, 2002 stock price of $23.40 and
assuming the redemption for shares of Common Stock of the 7.0 million Common
Units of minority interest in the Operating Partnership), our debt represented
approximately 47.6% of our total market capitalization. Our total indebtedness
at September 30, 2002 was $1.62 billion and was comprised of $523.4 million of
secured indebtedness with a weighted average interest rate of 7.9% and $1.1
billion of unsecured indebtedness with a weighted average interest rate of 6.5%.
We do not intend to reserve funds to retire existing secured or unsecured debt
upon maturity. For a more complete discussion of our long-term liquidity needs,
see "Current and Future Cash Needs."

     The following table sets forth the maturity schedule of our mortgages and
notes payable as of September 30, 2002 ($ in thousands):

<TABLE>
<CAPTION>
                                                   ----------------------------------------------------------------
                                                                                WITHIN       WITHIN       WITHIN
                                                                   WITHIN         2-3          4-5       6 OR MORE
                                                      TOTAL        1 YEAR        YEARS        YEARS        YEARS
                                                   -----------  -----------  -----------  -----------   -----------
<S>                                                <C>          <C>          <C>          <C>           <C>
Fixed Rate Debt:
     Unsecured:
         MOPPRS (1)............................    $   125,000  $         -  $         -  $         -   $   125,000
         Put Option Notes (2)..................        100,000            -            -            -       100,000
         Notes.................................        706,500            -      246,500      110,000       350,000
     Secured:
         Mortgages and loans payable...........        517,859       10,044       90,467       90,461       326,887
                                                   -----------  -----------  -----------  -----------   -----------
     Total Fixed Rate Debt.....................      1,449,359       10,044      336,967      200,461       901,887
                                                   -----------  -----------  -----------  -----------   -----------

Variable Rate Debt:
     Unsecured:
         Term Loan.............................         20,000            -       20,000            -             -
         Revolving Loan........................        151,500            -      151,500            -             -
     Secured:
         Revolving Loan........................          1,129        1,129            -            -             -
         Mortgage loan payable.................          4,374          247          538        3,589             -
                                                   -----------  -----------  -----------  -----------   -----------
     Total Variable Rate Debt..................        177,003        1,376      172,038        3,589             -
                                                   -----------  -----------  -----------  -----------   -----------

Total Mortgages and Notes payable..............    $ 1,626,362  $    11,420  $   509,005  $   204,050   $   901,887
                                                   ===========  ===========  ===========  ===========   ===========
</TABLE>

----------
(1)  On February 2, 1998, the Operating Partnership sold $125.0 million of
     MandatOry Par Put Remarketed Securities ("MOPPRS") due February 1, 2013.
     The MOPPRS bear an interest rate of 6.835% from the date of issuance
     through January 31, 2003. After January 31, 2003, the interest rate to
     maturity on the MOPPRS will be 5.715% plus the applicable spread determined
     as of January 31, 2003. In connection with the initial issuance of the
     MOPPRS, a counter party was granted a remarketing option to purchase the
     MOPPRS from the holders thereof on January 31, 2003 at 100.0% of the
     principal amount. If the counter party elects not to exercise this option,
     the Operating Partnership would be required to repurchase the MOPPRS from
     the holders on January 31, 2003 at 100.0% of the principal amount plus
     accrued and unpaid interest.

(2)  On June 24, 1997, a trust formed by the Operating Partnership sold $100.0
     million of Exercisable Put Option Securities due June 15, 2004 ("X-POS"),
     which represent fractional undivided beneficial interests in the trust. The
     assets of the trust consist

                                       24

<PAGE>

     of, among other things, $100.0 million of Exercisable Put Option Notes due
     June 15, 2011 (the "Put Option Notes"), issued by the Operating
     Partnership. The Put Option Notes bear an interest rate of 7.19% from the
     date of issuance through June 15, 2004. After June 15, 2004, the interest
     rate to maturity on the Put Option Notes will be 6.39% plus the applicable
     spread determined as of June 15, 2004. In connection with the initial
     issuance of the Put Option Notes, a counter party was granted an option to
     purchase the Put Option Notes from the trust on June 15, 2004 at 100.0% of
     the principal amount. If the counter party elects not to exercise this
     option, the Operating Partnership would be required to repurchase the Put
     Option Notes from the Trust on June 15, 2004 at 100.0% of the principal
     amount plus accrued and unpaid interest.

     The mortgage and loans payable and the secured revolving loan were secured
by real estate assets with an aggregate carrying value of $907.3 million at
September 30, 2002.

     The Operating Partnership's unsecured notes of $931.5 million bear interest
rates ranging from 6.8% to 8.1%, with interest payable semi-annually in arrears.
The premium and discount related to the issuance of the unsecured notes is being
amortized over the life of the respective notes as an adjustment to interest
expense. All of the unsecured notes, except for the MOPPRS and Put Option Notes,
are redeemable at any time prior to maturity at our option, subject to certain
conditions including the payment of make-whole amounts.

     We currently have a $300.0 million unsecured revolving loan (with $151.5
million outstanding at September 30, 2002) that matures in December 2003 and a
$55.2 million secured revolving loan (with $1.1 million outstanding at September
30, 2002) that matures in March 2003. Our unsecured revolving loan also includes
a $150.0 million competitive sub-facility. Depending upon the corporate credit
ratings assigned to us from time to time by the various rating agencies, our
unsecured revolving loan bears variable rate interest at a spread above LIBOR
ranging from 0.70% to 1.55% and our secured revolving loan bears variable rate
interest at a spread above LIBOR ranging from 0.55% to 1.50%. We currently have
a credit rating of BBB- assigned by Standard & Poor's, a credit rating of BBB-
assigned by Fitch Inc. and a credit rating of Baa2 assigned by Moody's Investor
Service. As a result, interest currently accrues on borrowings under our
unsecured revolving loan at an average rate of LIBOR plus 95 basis points and
under our secured revolving loan at an average rate of LIBOR plus 85 basis
points. In addition, we are currently required to pay an annual facility fee
equal to .20% of the total commitment under the unsecured revolving loan.

     The terms of each of our revolving loans and indenture that governs our
outstanding notes require us to comply with various operating and financial
covenants and performance ratios. We are currently in compliance with all such
requirements.

     Joint Ventures. During the past several years, we have formed various joint
ventures with unrelated investors. We have retained minority equity interests
ranging from 12.5% to 50.0% in these joint ventures. As required by GAAP, we
have accounted for our joint venture activity using the equity method of
accounting, as we do not control these joint ventures. As a result, the assets
and liabilities of our joint ventures are not included on our balance sheet. As
of September 30, 2002, our joint ventures have approximately $593.4 million of
outstanding debt. All of the joint venture debt is non-recourse to us except (1)
in the case of customary exceptions pertaining to such matters as misuse of
funds, environmental conditions and material misrepresentations and (2) with
respect to $2.5 million of construction debt related to the MG-HIW Metrowest II,
LLC, which has been guaranteed by us subject to a pro rata indemnity from our
joint venture partner. Our partner in SF-HIW Harborview Plaza, LP has the right
to put its 80% equity interest in the partnership to us in cash at anytime
during the one year period commencing on September 11, 2014. The value of the
equity interest will be determined based upon the then fair market value of
SF-HIW Harborview Plaza, LP's assets and liabilities.

     Interest Rate Hedging Activities. To meet in part our long-term liquidity
requirements, we borrow funds at a combination of fixed and variable rates.
Borrowings under our two revolving loans bear interest at variable rates. Our
long-term debt, which consists of long-term financings and the unsecured
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. As of September 30, 2002, we have two $24.0 million
treasury lock agreements related to an anticipated five-year fixed rate
financing with two financial counterparties, which effectively lock the
five-year treasury rate at 3.72%. We do not hold or issue these derivative
contracts for trading or speculative purposes.

                                       25

<PAGE>

     The interest rate on all of our variable rate debt is adjusted at one- and
three-month intervals, subject to settlements under these contracts. We also
enter into treasury lock agreements from time to time in order to limit our
exposure to an increase in interest rates with respect to future debt offerings.
Net payments made to counterparties under interest rate hedge contracts were
$415,051 during the nine months ended September 30, 2002 and were recorded as
additional interest expense.

     Current and Future Cash Needs. Historically, rental revenue has been the
principal source of funds to meet our short-term liquidity requirements, which
primarily consist of operating expenses, debt service, stockholder distributions
and ordinary course 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
properties except for the $3.2 million renovation of Tampa Bay Park and the $7.9
million general and non-recurring renovations at Country Club Plaza. In
addition, we could incur tenant improvements and lease commissions related to
any releasing of space currently leased by WorldCom and US Air (see "Recent
Developments") and the redevelopment of the EPA site in Research Commons.

     In addition to the requirements discussed above, our short-term (within the
next 12 months) liquidity requirements also include the funding of approximately
$15.2 million of our existing development activity and first generation tenant
improvements and lease commissions on properties placed in service that are not
fully leased. See "Business - Development Activity." We expect to fund our
short-term liquidity requirements through a combination of working capital, cash
flows from operations and the following:

          .    borrowings under our unsecured revolving loan (up to $149.0
               million of availability as of November 8, 2002);

          .    borrowings under our secured revolving loan (up to $55.2 million
               of availability as of November 8, 2002);

          .    the selective disposition of non-core assets;

          .    the sale or contribution of some of our wholly-owned properties,
               development projects and development land to strategic joint
               ventures to be formed with unrelated investors, which will have
               the net effect of generating additional capital through such sale
               or contributions; and

          .    the issuance of secured debt (at September 30, 2002, we had $2.8
               billion of unencumbered real estate assets at cost).

     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 two revolving loans and long-term
unsecured debt. We remain committed to maintaining a flexible 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 unsecured revolving loan. We do not intend to
reserve funds to retire existing secured or unsecured indebtedness upon
maturity. Instead, we will seek to refinance such debt at maturity or retire
such debt through the issuance of equity or debt securities.

     We anticipate that our available cash and cash equivalents and cash flows
from operating activities, 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 payments may be adversely
affected.

     Distributions to Stockholders. To maintain its qualification as a REIT, the
Company must distribute to stockholders at least 90.0% 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

                                       26

<PAGE>

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.

     Share and Unit Repurchase Program. On April 25, 2001, we announced that the
Company's Board of Directors authorized the repurchase of up to an additional
5.0 million shares of Common Stock and Common Units. As of October 29, 2002,
under the new repurchase program, the Company had repurchased 1.4 million shares
of Common Stock and Common Units at a weighted average purchase price of $24.59
per share and a total purchase price of $34.6 million. In determining whether or
not to repurchase additional capital stock, we will consider, among other
factors, the effect of repurchases on our liquidity and the price of our Common
Stock.

     Disposition and Joint Venture Activity. As part of our ongoing capital
recycling program, during the nine months ended September 30, 2002, we sold
856,000 rentable square feet of office properties and 101.7 acres of development
land for gross proceeds of $164.4 million. At September 30, 2002, we had
1,610,575 square feet of office properties and 112.8 acres of land under letter
of intent or contract for sale in various transactions with a carrying value of
$140.0 million. These transactions are subject to customary closing conditions,
including due diligence and documentation, and are expected to close during the
fourth quarter of 2002. However, we can provide no assurance that all or parts
of these transactions will be consummated. During the third quarter, we recorded
a $3.8 million impairment reserve related to two properties and two land parcels
that we expect to sell.

     On June 26, 2002, we acquired our joint venture partner's interest in
MG-HIW Rocky Point, LLC, which owned Harborview Plaza, to bring our ownership
interest in that entity to 100.0%. At that time, we consolidated the assets and
liabilities, and recorded income and expenses on a consolidated basis.

     On September 11, 2002, we contributed Harborview Plaza to SF-HIW Harborview
Plaza, LP, a newly formed limited partnership, in exchange for a 20.0% limited
partnership interest.

RECENT DEVELOPMENTS

     WorldCom Bankruptcy. On July 21, 2002, WorldCom filed a voluntary petition
with the United States Bankruptcy Court seeking relief under Chapter 11 of the
United States Bankruptcy Code. We currently have 13 leases encompassing 982,921
square feet in eight locations with WorldCom and its affiliates, including four
leases encompassing 828,467 square feet in four locations with Intermedia
Communications, with an average remaining lease term of 7.8 years. Based on
September 2002 rental revenue, our annualized rental revenue from these leases
is $17.4 million, or approximately 3.7% of our total annualized rental revenue.
Approximately 185,000 square feet of the space leased by Intermedia has not yet
been upfitted or occupied and we estimate that a substantial portion of the
remaining Intermedia space currently appears to be significantly under-utilized.
During the third quarter of 2002, WorldCom rejected one lease encompassing 3,601
square feet that was due to expire in July 2003. As a result of this rejection,
we will file a proof of claim totaling approximately $65,000, which represents
the total amount of future rental payments remaining on the lease term.

     In addition, our joint venture with Miller Global ("MG-HIW, LLC") has 11
leases encompassing 38,624 square feet in four locations with WorldCom and its
affiliates, including three leases encompassing 4,703 square feet in two
locations with Intermedia Communications, with lease expirations ranging from
2002 to 2007. We have a 20.0% ownership in this joint venture and, based on
September 2002 rental revenue, our proportionate share of the annualized rental
revenue generated from these leases is $197,165.

     Approximately 81.5% of the annualized rental revenue related to our leases
with WorldCom and its affiliates, including our pro rata share of the annualized
rental revenue related to MG-HIW, LLC, is derived from properties in Tampa. The
remainder of this revenue is derived from properties in Greenville, South
Carolina, Richmond, Raleigh, Orlando and Nashville. WorldCom and its affiliates
are current on base rental payments through November 30, 2002. Since June 30,
2002, we have recorded rental revenue from WorldCom and its affiliates on a cash
basis, rather than on a straight-line basis.

     Due to the inherent uncertainties of the bankruptcy process, we are not
able to predict the impact of WorldCom's bankruptcy on its leasing and occupancy
of our properties or on our financial condition and results of operations.

     U.S. Airways Bankruptcy. On August 11, 2002, US Airways Group Inc. filed a
voluntary petition with the United States Bankruptcy Court seeking relief under
Chapter 11 of the United States Bankruptcy Code. We currently have seven leases
encompassing 414,059 square feet with US Airways and its affiliates with an
average

                                       27

<PAGE>

remaining lease term of 5.1 years as of September 30, 2002. Based on September
2002 rental revenue, our annualized rental revenue from these leases is $6.9
million, or approximately 1.5% of our total annualized rental revenue.
Approximately 55,000 square feet of space is currently being sub-leased by US
Airways to a third party and we estimate that the balance of the space is
approximately 75 percent utilized by US Airways as a reservation call center and
for certain revenue accounting and information technology functions. All of the
414,059 square feet of space is located in Winston-Salem, North Carolina.

     US Airways is current on base rental payments through November 30, 2002,
except for pre-petition rent in the amount of $185,428 from August 1, 2002 up to
the date of the US Airways bankruptcy filing, which was August 11, 2002. We have
an accrued straight line rent receivable from US Airways in the amount of
$500,508 as of September 30, 2002.

     Due to the inherent uncertainties of the bankruptcy process, we are not
able to predict the impact of US Airways' bankruptcy on its leasing and
occupancy of our properties or on our financial condition and results of
operations.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment of disposal of long-lived assets.
This standard harmonizes the accounting for impaired assets and resolves some of
the implementation issues as originally described in SFAS No. 121. We adopted
SFAS No. 144 in the first quarter of 2002. Income from discontinued operations,
net of minority interest and the gain/(loss) on sale of discontinued operations,
net of minority interest, for properties meeting the criteria in accordance with
SFAS No. 144 are reflected in the consolidated statements of income as
discontinued operations for all periods presented.

     In April, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections", which rescinds Statement No. 4, which required all gains and
losses from extinguishment of debt to be aggregated, and if material, classified
as an extraordinary item, net of related income tax effect. The provisions of
SFAS No. 145 related to the rescission of Statement No. 4 are effective for
financial statements issued for fiscal years after May 15, 2002. We will adopt
SFAS No. 145 in the fourth quarter of 2002. We do not anticipate that the
adoption of this statement will have a material effect on our results of
operations.

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 GAAP. It should not be considered as an alternative to net income as
an indicator of our operating performance or to cash flows as a measure of
liquidity. FFO does not measure whether cash flow is sufficient to fund all cash
needs, including principal amortization, capital improvements and distributions
to stockholders. Further, FFO as disclosed by other REITs may not be comparable
to our calculation of FFO, as described below. FFO and cash available for
distributions should not be considered as alternatives to net income as an
indication of our performance or to cash flows as a measure of liquidity.

     FFO equals income from continuing operations before minority interest
(computed in accordance with GAAP) excluding gains (or losses) from debt
restructuring and sales of depreciable property and dividends paid to preferred
shareholders, plus depreciation and amortization. In addition, FFO includes both
recurring and non-recurring operating results and income/(loss) from
discontinued operations. As a result, non-recurring items that are not defined
as "extraordinary" under GAAP are reflected in the calculation of FFO.

     Cash available for distribution is defined as funds from operations
increased by the amortization of deferred financing activities and reduced by
rental income from straight-line rents and non-revenue enhancing capital
expenditures for building improvements and tenant improvements and lease
commissions related to second generation space.

                                       28

<PAGE>

     FFO and cash available for distribution for the three and nine month
periods ended September 30, 2002 and 2001 are summarized in the following table
(in thousands):

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED          NINE MONTHS ENDED
                                                                      SEPTEMBER 30,              SEPTEMBER 30,
                                                                -----------------------   -------------------------
                                                                    2002         2001         2002         2001
                                                                 ---------    ---------     --------     ---------
<S>                                                              <C>          <C>           <C>          <C>
FUNDS FROM OPERATIONS:
Income before gain on disposition of land and depreciable
   assets, minority interest, discontinued operations and
   extraordinary item.....................................       $  14,468    $  32,722     $ 62,231     $  98,787
Add/(Deduct):
     Dividends to preferred shareholders..................          (7,713)      (7,713)     (23,139)      (23,787)
     Prepayment penalties - unconsolidated sub............             325           --          325            --
     Transition adjustment upon adoption of FAS 133.......              --           --           --           556
     Income from discontinued operations..................           1,970        2,730        6,715         9,326
     (Loss)/gain on disposition of land...................             741         (538)       6,498         1,025
     Depreciation and amortization........................          32,827       29,503       95,761        87,826
     Depreciation on unconsolidated affiliates............           2,432        1,911        7,065         5,815
                                                                 ---------    ---------     --------     ---------
       Funds from operations..............................          45,050       58,615      155,456       179,548

CASH AVAILABLE FOR DISTRIBUTION:
Add/(Deduct):
     Rental income from straight-line rents...............          (1,222)      (2,701)      (2,540)       (8,947)
     Non-recurring compensation expense...................           3,700           --        3,700            --
     Non-recurring litigation reserve.....................           2,700           --        2,700            --
     Amortization of deferred financing costs.............             347          324        1,027         1,664
     Non-incremental revenue generating capital
     expenditures (1):
       Building improvements paid.........................          (1,740)      (2,872)      (4,861)       (5,959)
       Second generation tenant improvements paid.........          (5,824)      (4,834)     (12,735)      (12,610)
       Second generation lease commissions paid...........          (3,694)      (2,867)      (9,353)      (11,195)
                                                                 ---------    ---------     --------     ---------
         Cash available for distribution..................       $  39,317    $  45,665     $133,394     $ 142,501
                                                                 =========    =========     ========     =========
Weighted average shares/units outstanding - basic (2).....          60,436       61,363       60,357        62,333
                                                                 =========    =========     ========     =========
Weighted average shares/units outstanding - diluted (2)...          60,653       61,783       60,730        62,727
                                                                 =========    =========     ========     =========
DIVIDEND PAYOUT RATIOS:
     Funds from operations................................            78.8%        61.7%        68.6%         60.3%
                                                                 =========    =========     ========     =========
     Cash available for distribution......................            90.2%        79.1%        79.9%         75.9%
                                                                 =========    =========     ========     =========
</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 Common Unit and per share basis; therefore, the per share
     information is unaffected by conversion.

                                       29

<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 September 30, 2002 and 2001:

<TABLE>
<CAPTION>
                                                       SEPTEMBER 30, 2002                SEPTEMBER 30, 2001
                                                   --------------------------       ----------------------------
                                                                     PERCENT                            PERCENT
                                                      RENTABLE       LEASED/            RENTABLE        LEASED/
                                                     SQUARE FEET   PRE-LEASED          SQUARE FEET    PRE-LEASED
                                                     -----------   ----------          -----------    ----------
<S>                                                 <C>                 <C>            <C>                 <C>
IN-SERVICE:
     Office                                         25,861,000          86.3%          24,829,000          92.9%
     Industrial                                     10,468,000          86.2%          10,396,000          92.3%
     Retail (1)                                      1,650,000          95.4%           1,628,000          95.1%
                                                    ----------         -----           ----------         -----
       Total or Weighted Average                    37,979,000          86.7%          36,853,000          92.7%
                                                    ==========         =====           ==========         =====

DEVELOPMENT:
     Completed--Not Stabilized
     Office                                            568,000          17.3%           1,188,000          62.1%
     Industrial                                        136,000          29.0%             184,000          37.2%
     Retail                                             20,000          90.0%                  --            --
                                                    ----------         -----           ----------         -----
       Total or Weighted Average                       724,000          21.5%           1,372,000          58.8%
                                                    ==========         =====           ==========         =====

     In Process
     Office (2)                                        100,000          42.0%           1,285,000          52.5%
     Industrial (2)                                     60,000          20.0%             258,000          47.3%
     Retail                                                 --            --               20,000          90.0%
                                                    ----------         -----           ----------         -----
       Total or Weighted Average                       160,000          33.8%           1,563,000          52.1%
                                                    ==========         =====           ==========         =====

TOTAL:
     Office                                         26,529,000                         27,302,000
     Industrial                                     10,664,000                         10,838,000
     Retail (1)                                      1,670,000                          1,648,000
                                                    ----------                         ----------
       Total or Weighted Average                    38,863,000                         39,788,000
                                                    ==========                         ==========

SAME STORE:
     Office                                         23,408,000          87.7%          21,076,000          92.7%
     Industrial                                     10,041,000          86.3%           9,694,000          91.7%
     Retail (1)                                      1,650,000          95.4%           1,450,000          95.0%
                                                    ----------         -----           ----------         -----
       Total or Weighted Average                    35,099,000          87.2%          32,220,000          92.5%
                                                    ==========         =====           ==========         =====
</TABLE>

----------
(1) Excludes Kansas City's basement space.
(2) Includes projects that we have an option to purchase.

                                       30

<PAGE>

     The following table sets forth information concerning the 20 largest
customers of our wholly-owned properties as of September 30, 2002 ($ in
thousands):

<TABLE>
<CAPTION>
                                                                                  PERCENT OF TOTAL      AVERAGE
                                         NUMBER      RENTAL         ANNUALIZED       ANNUALIZED     REMAINING LEASE
TENANT                                  OF LEASES  SQUARE FEET  RENTAL REVENUE(1) RENTAL REVENUE(1)  TERM IN YEARS
------                                  ---------  -----------  -----------------------------------  -------------
<S>                                        <C>      <C>              <C>                 <C>              <C>
Intermedia Communications/
   WorldCom (2).....................       13         982,921        $ 17,396            3.70%             7.8
AT&T................................       10         854,992          14,046            2.99              5.4
Federal Government..................       59         688,320          13,664            2.91              5.0
Capital One Services................        6         587,188          10,208            2.17              5.9
Caterpillar Financial Services......        1         300,901           7,899            1.68             12.4
PricewaterhouseCoopers..............        7         307,158           7,038            1.50              7.4
US Air..............................        7         414,059           6,909            1.47              5.1
State of Georgia....................       10         356,993           6,783            1.44              6.3
Sara Lee............................        9       1,198,534           4,523            0.96              2.7
Bell South..........................       11         212,011           4,396            0.93              1.6
IBM.................................        5         203,802           4,260            0.91              3.0
Northern Telecom, Inc...............        1         246,000           3,235            0.69              5.4
Lockton Companies, Inc..............        1         127,485           3,117            0.66             12.4
Bank of America.....................       23         152,017           2,998            0.64              2.6
Volvo...............................        5         214,783           2,979            0.63              6.8
International Paper Co..............       10         121,174           2,887            0.61              0.3
Hartford Insurance..................        6         134,021           2,886            0.61              3.5
Business Telecom, Inc...............        4         145,497           2,832            0.60              2.5
T-Mobile USA, Inc...................        3         120,561           2,808            0.60              3.7
Ford Motor Company..................        2         129,158           2,661            0.57              7.2
                                          ---       ---------        --------           -----             ----
Total...............................      193       7,497,575        $123,525           26.27%             5.9
                                          ===       =========        ========           =====             ====
</TABLE>

(1) Annualized Rental Revenue is September 2002 rental revenue (base rent plus
    operating expense pass throughs) multiplied by 12.
(2) Since June 30, 2002, we have recorded rental revenue from WorldCom and its
    affiliates on a cash basis, rather than on a straight-line basis.

                                       31

<PAGE>

     As of September 30, 2002, we were developing six suburban office
properties, two industrial properties and one retail property totaling 884,000
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 a joint venture partner one additional
property totaling 285,000 rentable square feet. At September 30, 2002, this one
development project had an aggregate anticipated total investment of $69.0
million and was 59.0% pre-leased.

IN-PROCESS

<TABLE>
<CAPTION>
                                                          ANTICIPATED
                                                RENTABLE     TOTAL        INVESTMENT    PRE-LEASING    ESTIMATED     ESTIMATED
PROPERTY                    MARKET             SQUARE FEET INVESTMENT     AT 09/30/02   PERCENTAGE(1)  COMPLETION  STABILIZATION(2)
--------                    ------             ----------- -----------    -----------   -------------  ----------  ----------------
                                                             ($ in thousands)
<S>                         <C>                   <C>      <C>              <C>             <C>           <C>           <C>
OFFICE:
801 Raleigh Corporate
   Center                   Research Triangle     100,000  $  12,016        $ 9,050         42%           4Q02          2Q04
                                                ---------  ---------        -------       ----
In-Process Office
   Total or Weighted
   Average                                        100,000  $  12,016        $ 9,050         42%
                                                =========  =========        =======       ====

INDUSTRIAL:
Tradeport V (3)             Atlanta                60,000  $   2,913        $ 1,420         20%           4Q02          4Q03
                                                ---------  ---------        -------       ----
In-Process Industrial
   Total or Weighted
   Average                                         60,000  $   2,913        $ 1,420         20%
                                                =========  =========        =======       ====

Total or Weighted
   Average of all
   In-Process
   Development Projects                           160,000  $  14,929        $10,470         34%
                                                =========  =========        =======       ====
</TABLE>

----------
(1)  Letters of intent comprise 4.5% of the total pre-leasing percentage.
(2)  We generally consider a development project to be stabilized upon the
     earlier of the first date such project is at least 95% occupied or one year
     from the date of completion.
(3)  We are developing this property for a third party and own an option to
     purchase.

                                       32

<PAGE>

COMPLETED--NOT STABILIZED (3)

<TABLE>
<CAPTION>
                                                 ANTICIPATED
                                       RENTABLE     TOTAL     INVESTMENT   PRE-LEASING    ESTIMATED     ESTIMATED
PROPERTY             MARKET           SQUARE FEET INVESTMENT  AT 09/30/02  PERCENTAGE(1)  COMPLETION  STABILIZATION(2)
--------             ------           ----------- ----------  -----------  -------------  ----------  ----------------
                                                    ($ in thousands)
<S>                  <C>                 <C>      <C>          <C>             <C>           <C>           <C>
OFFICE:
Seven Springs I      Nashville           131,000  $  15,556    $ 13,048        12%           1Q02          1Q03
1501 Highwoods
   Boulevard         Piedmont Triad       98,000     11,290      10,156         4            4Q01          1Q03
Centre Green Four    Research Triangle   100,000     11,764       9,613         0            4Q01          2Q03
GlenLake I           Research Triangle   158,000     22,417      19,457        40            4Q01          2Q03
Shadow Creek II      Memphis              81,000      8,750       7,110        19            4Q01          4Q03
                                       ---------  ---------    --------      ----

Completed-Not
   Stabilized Office
   Total or Weighted
   Average                               568,000  $  69,777    $ 59,384        17%
                                       =========  =========    ========      ====

Industrial:
Newpoint IV          Atlanta             136,000  $   5,288    $  4,875        29%           4Q01          1Q03
                                       ---------  ---------    --------      ----
Completed-Not
   Stabilized
   Industrial
   Total or
   Weighted Average                      136,000  $   5,288    $  4,875        29%
                                       =========  =========    ========      ====

Retail:
Granada Shops        Kansas City          20,000  $   5,020    $  4,120        90%           4Q01          2Q03
                                       ---------  ---------    --------      ----
Completed-Not
   Stabilized Retail
   Total or Weighted
   Average                                20,000  $   5,020    $  4,120        90%
                                       =========  =========    ========      ====

Total or Weighted
   Average of all
   Completed-
   Not Stabilized
   Development
   Projects                              724,000  $  80,085    $ 68,379        22%
                                       =========  =========    ========      ====

Total or Weighted
   Average of all
   Development Projects                  884,000  $  95,014    $ 78,849        24%
                                       =========  =========    ========      ====
</TABLE>

----------
(1)  Letters of intent comprise 4.5% of the total pre-leasing percentage.
(2)  We generally consider a development project to be stabilized upon the
     earlier of the first date such project is at least 95% occupied or one year
     from the date of completion.
(3)  These properties contributed an aggregate of $61,000 in Net Operating
     Income (Property Revenue - Property Expense) in the third quarter of 2002.

                                       33

<PAGE>

DEVELOPMENT ANALYSIS

<TABLE>
<CAPTION>
                                                                                        ANTICIPATED
                                                                         RENTABLE          TOTAL         PRE-LEASING
                                                                        SQUARE FEET     INVESTMENT       PERCENTAGE(1)
                                                                        -----------     ----------       -------------
                                                                                     ($ in thousands)
<S>                                                                        <C>          <C>                  <C>
Summary by Estimated Stabilization Date:
     First Quarter 2003...........................................         365,000      $  32,134            15%
     Second Quarter 2003..........................................         278,000         39,201            29%
     Fourth Quarter 2003..........................................         141,000         11,663            19%
     Second Quarter 2004..........................................         100,000         12,016            42%
                                                                         ---------      ---------           ---
     Total or Weighted Average....................................         884,000      $  95,014            24%
                                                                         =========      =========           ===

Summary by Market:
     Atlanta......................................................         196,000      $   8,201            26%
     Kansas City..................................................          20,000          5,020            90%
     Memphis......................................................          81,000          8,750            19%
     Nashville....................................................         131,000         15,556            12%
     Piedmont Triad...............................................          98,000         11,290             4%
     Research Triangle............................................         358,000         46,197            29%
                                                                         ---------      ---------           ---
     Total or Weighted Average....................................         884,000      $  95,014            24%
                                                                         =========      =========           ===

     Build-to-Suit................................................              --      $      --            --%
     Multi-Tenant.................................................         884,000         95,014            24%
                                                                         ---------      ---------           ---
     Total or Weighted Average....................................         884,000      $  95,014            24%
                                                                         =========      =========           ===

<CAPTION>

                                                                         AVERAGE          AVERAGE
                                                                         RENTABLE      ANTICIPATED
                                                                          SQUARE           TOTAL           AVERAGE
                                                                           FEET         INVESTMENT       PRE-LEASING(1)
                                                                          --------       --------        --------------
                                                                                      ($ in thousands)
<S>                                                                        <C>           <C>                 <C>
Average Per Property By Type:
     Office.......................................................         111,333       $ 13,632            21%
     Industrial...................................................          98,000          4,101            26%
     Retail.......................................................          20,000          5,020            90%
                                                                          --------       --------           ---
     Weighted Average.............................................          98,222       $ 10,557            24%
                                                                          ========       ========           ===
</TABLE>

----------
(1) Letters of intent comprise 4.5% of the total pre-leasing percentage.

                                       34

<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 September 30, June 30 and March 31, 2002 and December 31,
2001.

<TABLE>
<CAPTION>
                                                             OFFICE LEASING STATISTICS THREE MONTHS ENDED
                                                   ----------------------------------------------------------------
                                                     9/30/02       6/30/02      3/31/02     12/31/01      AVERAGE
                                                   -----------  -----------  -----------  -----------   -----------
<S>                                                <C>          <C>          <C>          <C>           <C>
NET EFFECTIVE RENTS RELATED TO RE-LEASED SPACE:
Number of lease transactions (signed leases)...            184          162          110          116           143
Rentable square footage leased.................        882,115      874,467      417,102      437,454       652,785
Average per rentable square foot over the
   lease term:
   Base rent...................................    $     17.26  $     16.86  $     16.83  $     17.85   $     17.20
   Tenant improvements.........................          (1.06)       (0.86)       (0.98)       (1.19)        (1.02)
   Leasing commissions.........................          (0.60)       (0.56)       (0.78)       (0.97)        (0.73)
   Rent concessions............................          (0.22)       (0.14)       (0.15)       (0.11)        (0.16)
                                                   -----------  -----------  -----------  -----------   -----------
   Effective rent..............................    $     15.38  $     15.30  $     14.92  $     15.58   $     15.29
   Expense stop(1).............................          (5.54)       (5.17)       (5.17)       (4.50)        (5.10)
                                                   -----------  -----------  -----------  -----------   -----------
   Equivalent effective net rent...............    $      9.84  $     10.13  $      9.75  $     11.08   $     10.20
                                                   ===========  ===========  ===========  ===========   ===========
Average term in years..........................            3.6          4.1          4.1          4.6           4.1
                                                   ===========  ===========  ===========  ===========   ===========

CAPITAL EXPENDITURES RELATED TO RE-LEASED SPACE:
Tenant Improvements:
   Total dollars committed under
   signed leases...............................    $ 4,396,259  $ 3,481,988  $ 2,031,231  $ 2,647,115   $ 3,139,148
   Rentable square feet........................        882,115      874,467      417,102      437,454       652,785
                                                   -----------  -----------  -----------  -----------   -----------
   Per rentable square foot....................    $      4.98  $      3.98  $      4.87  $      6.05   $      4.81
                                                   ===========  ===========  ===========  ===========   ===========
Leasing Commissions:
   Total dollars committed under
   signed leases...............................    $ 1,352,691  $ 1,272,854  $   984,220  $ 1,277,523   $ 1,221,822
   Rentable square feet........................        882,115      874,467      417,102      437,454       652,785
                                                   -----------  -----------  -----------  -----------   -----------
   Per rentable square foot....................    $      1.53  $      1.46  $      2.36  $      2.92   $      1.87
                                                   ===========  ===========  ===========  ===========   ===========
Total:
   Total dollars committed under
   signed leases...............................    $ 5,748,950  $ 4,754,842  $ 3,015,450  $ 3,924,637   $ 4,360,970
   Rentable square feet........................        882,115      874,467      417,102      437,454       652,785
                                                   -----------  -----------  -----------  -----------   -----------
   Per rentable square foot....................    $      6.52  $      5.44  $      7.23  $      8.97   $      6.68
                                                   ===========  ===========  ===========  ===========   ===========
</TABLE>

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

                                       35

<PAGE>

<TABLE>
<CAPTION>
                                                                 INDUSTRIAL LEASING STATISTICS THREE MONTHS ENDED
                                                         ----------------------------------------------------------------
                                                           9/30/02       6/30/02      3/31/02     12/31/01     Average
                                                         -----------  -----------  -----------  -----------   -----------

<S>                                                      <C>          <C>          <C>          <C>           <C>
NET EFFECTIVE RENTS RELATED TO RE-LEASED SPACE:
Number of lease transactions (signed leases)...                   45           32           15           31            31
Rentable square footage leased.................              593,188    1,005,765       78,844      894,865       643,166
Average per rentable square foot over the
   lease term:
   Base rent...................................          $      4.37  $      3.58  $      6.95  $      3.52   $      4.61
   Tenant improvements.........................                (0.23)       (0.29)       (1.10)       (0.24)        (0.47)
   Leasing commissions.........................                (0.14)       (0.14)       (0.21)       (0.10)        (0.15)
   Rent concessions............................                (0.02)       (0.03)          --           --         (0.01)
                                                         -----------  -----------  -----------  -----------   -----------
   Effective rent..............................          $      3.98  $      3.12  $      5.64  $      3.18   $      3.98
   Expense stop (1)............................                (0.39)       (0.09)       (0.72)       (0.18)        (0.35)
                                                         -----------  -----------  -----------  -----------   -----------
   Equivalent effective net rent...............          $      3.59  $      3.03  $      4.92  $      3.00   $      3.63
                                                         ===========  ===========  ===========  ===========   ===========
Average term in years..........................                  1.6          6.3          4.1          2.2           3.6
                                                         ===========  ===========  ===========  ===========   ===========

CAPITAL EXPENDITURES RELATED TO RE-LEASED SPACE:
Tenant Improvements:
   Total dollars committed under
   signed leases ..............................          $   522,115  $ 2,088,547  $   386,263  $   661,591   $   914,629
   Rentable square feet........................              593,188    1,005,765       78,844      894,865       643,166
                                                         -----------  -----------  -----------  -----------   -----------
   Per rentable square foot....................          $      0.88  $      2.08  $      4.90  $      0.74   $      1.42
                                                         ===========  ===========  ===========  ===========   ===========
Leasing Commissions:
   Total dollars committed under
   signed leases ..............................          $   141,694  $   797,939  $    44,100  $   257,010   $   310,186
   Rentable square feet........................              593,188    1,005,765       78,844      894,865       643,166
                                                         -----------  -----------  -----------  -----------   -----------
   Per rentable square foot....................          $      0.24  $      0.79  $      0.56  $      0.29   $      0.48
                                                         ===========  ===========  ===========  ===========   ===========
Total:
   Total dollars committed under
   signed leases ..............................          $   663,809  $ 2,886,486  $   430,363  $   918,601   $ 1,224,815
   Rentable square feet........................              593,188    1,005,765       78,844      894,865       643,166
                                                         -----------  -----------  -----------  -----------   -----------
   Per rentable square foot....................          $      1.12  $      2.87  $      5.46  $      1.03   $      1.90
                                                         ===========  ===========  ===========  ===========   ===========
</TABLE>

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

                                       36

<PAGE>

<TABLE>
<CAPTION>
                                                                   RETAIL LEASING STATISTICS THREE MONTHS ENDED
                                                         ----------------------------------------------------------------
                                                           9/30/02       6/30/02      3/31/02     12/31/01       AVERAGE
                                                         -----------  -----------  -----------  -----------   -----------
<S>                                                      <C>          <C>          <C>          <C>           <C>
Net Effective Rents Related to Re-Leased Space:
Number of lease transactions (signed leases)...                   13           13           12           12            13
Rentable square footage leased.................               28,267       52,527       59,649       26,019        41,616
Average per rentable square foot over the
   lease term:
   Base rent...................................          $     20.14  $     18.15  $     25.66  $     15.75   $     19.93
   Tenant improvements.........................                (0.60)       (1.83)       (1.87)       (0.63)        (1.23)
   Leasing commissions.........................                (0.88)       (0.65)       (0.35)       (0.82)        (0.68)
   Rent concessions............................                   --        (0.03)       (0.02)          --         (0.01)
                                                         -----------  -----------  -----------  -----------   -----------
   Effective rent..............................          $     18.66  $     15.64  $     23.42  $      14.30  $     18.01
   Expense stop (1)............................                   --        (1.02)          --           --         (0.26)
                                                         -----------  -----------  -----------  -----------   -----------
   Equivalent effective net rent...............          $     18.66  $     14.62  $     23.42 $       14.30   $    17.75
                                                         ===========  ===========  ===========  ===========   ===========
Average term in years..........................                  5.6          7.0          6.5          6.7           6.4
                                                         ===========  ===========  ===========  ===========   ===========

Capital Expenditures Related to Re-leased Space:
Tenant Improvements:
   Total dollars committed under
   signed leases ..............................          $   121,500  $ 1,077,825  $   738,605  $   148,860   $   521,698
   Rentable square feet........................               28,267       52,527       59,649       26,019        41,616
                                                         -----------  -----------  -----------  -----------   -----------
   Per rentable square foot....................          $      4.30  $     20.52  $     12.38  $      5.72   $     12.54
                                                         ===========  ===========  ===========  ===========   ===========
Leasing Commissions:
   Total dollars committed under
   signed leases ..............................          $    91,405  $   151,268  $    61,981  $    73,314   $    94,492
   Rentable square feet........................               28,267       52,527       59,649       26,019        41,616
                                                         -----------  -----------  -----------  -----------   -----------
   Per rentable square foot....................          $      3.23  $      2.88  $      1.04  $      2.82   $      2.27
                                                         ===========  ===========  ===========  ===========   ===========
Total:
   Total dollars committed under
   signed leases ..............................          $   212,905  $ 1,229,093  $   800,586  $   222,174   $   616,189
   Rentable square feet........................               28,267       52,527       59,649       26,019        41,616
                                                         -----------  -----------  -----------  -----------   -----------
   Per rentable square foot....................          $      7.53  $     23.40  $     13.42  $      8.54   $     14.81
                                                         ===========  ===========  ===========  ===========   ===========
</TABLE>

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

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

                                       37

<PAGE>

     The following tables set forth scheduled lease expirations at our wholly
owned in-service properties (excluding apartment units) as of September 30,
2002, assuming no tenant exercises renewal options.

OFFICE PROPERTIES:

<TABLE>
<CAPTION>
                                                                                      AVERAGE         PERCENTAGE OF
                                                 PERCENTAGE OF                        ANNUAL          LEASED RENTS
                                RENTABLE            LEASED         ANNUAL RENTS     RENTAL RATE        REPRESENTED
              NUMBER OF        SQUARE FEET      SQUARE FOOTAGE         UNDER        PER SQUARE             BY
  LEASE        LEASES          SUBJECT TO       REPRESENTED BY       EXPIRING        FOOT FOR           EXPIRING
EXPIRING      EXPIRING       EXPIRING LEASES    EXPIRING LEASES     LEASES (1)      EXPIRATIONS          LEASES
--------      --------       ---------------    ---------------   --------------    -----------       -------------
                                                                 ($ in thousands)
<S>              <C>            <C>                   <C>            <C>               <C>                 <C>
   2002 (2)      319            1,173,528              5.2%          $ 20,902          $17.81               5.4%
   2003          569            3,385,788             15.1%            58,098           17.16              14.8%
   2004          502            2,896,061             12.9%            52,267           18.05              13.4%
   2005          502            3,285,499             14.8%            56,914           17.32              14.6%
   2006          308            2,793,578             12.5%            50,559           18.10              13.0%
   2007          191            1,825,640              8.2%            29,390           16.10               7.5%
   2008           94            1,919,826              8.6%            30,470           15.87               7.8%
   2009           30              768,022              3.4%            13,288           17.30               3.4%
   2010           41            1,418,672              6.3%            26,152           18.43               6.7%
   2011           38            1,155,693              5.2%            22,322           19.31               5.7%
Thereafter       126            1,751,987              7.8%            29,993           17.12               7.7%
               -----           ----------            -----           --------          ------             -----
               2,720           22,374,294            100.0%          $390,355          $17.45             100.0%
               =====           ==========            =====           ========          ======             =====
</TABLE>

INDUSTRIAL PROPERTIES:

<TABLE>
<CAPTION>
                                                                                      AVERAGE         PERCENTAGE OF
                                                 PERCENTAGE OF                        ANNUAL          LEASED RENTS
                                RENTABLE            LEASED         ANNUAL RENTS     RENTAL RATE        REPRESENTED
              NUMBER OF        SQUARE FEET      SQUARE FOOTAGE         UNDER        PER SQUARE             BY
  LEASE        LEASES          SUBJECT TO       REPRESENTED BY       EXPIRING        FOOT FOR           EXPIRING
EXPIRING      EXPIRING       EXPIRING LEASES    EXPIRING LEASES     LEASES (1)      EXPIRATIONS          LEASES
--------      --------       ---------------    ---------------   --------------    -----------       -------------
                                                                 ($ in thousands)
<S>              <C>            <C>                   <C>            <C>               <C>                 <C>
   2002 (3)       70              955,002             10.5%          $  4,047          $ 4.24               9.8%
   2003           95            1,135,693             12.5%             5,922            5.21              14.3%
   2004           97            2,522,192             27.8%             9,687            3.84              23.5%
   2005           66            1,109,012             12.2%             5,622            5.07              13.6%
   2006           35              744,758              8.2%             4,160            5.59              10.1%
   2007           27            1,311,658             14.4%             5,542            4.23              13.4%
   2008            7              214,340              2.4%             1,441            6.72               3.5%
   2009            8              318,813              3.5%             2,361            7.41               5.7%
   2010            3               46,508              0.5%               348            7.48               0.8%
   2011            2               35,475              0.4%               178            5.02               0.4%
Thereafter        20              691,120              7.6%             2,031            2.94               4.9%
                ----           ----------            -----           --------          ------             -----
                 430            9,084,571            100.0%          $ 41,339          $ 4.55             100.0%
                ====           ==========            =====           ========          ======             =====
</TABLE>

----------
(1)  Annual Rents Under Expiring Leases are September 2002 rental revenue (base
     rent plus operating expense pass-throughs) multiplied by 12.
(2)  Includes 137,000 square feet of leases that are a month-to-month basis, or
     0.5% of total annualized revenue. (3) Includes 160,000 square feet of
     leases that are a month-to-month basis, or 0.2% of total annualized
     revenue.

                                       38

<PAGE>

RETAIL PROPERTIES:

<TABLE>
<CAPTION>
                                                                                      AVERAGE         PERCENTAGE OF
                                                 PERCENTAGE OF                        ANNUAL          LEASED RENTS
                                RENTABLE            LEASED         ANNUAL RENTS     RENTAL RATE        REPRESENTED
              NUMBER OF        SQUARE FEET      SQUARE FOOTAGE         UNDER        PER SQUARE             BY
  LEASE        LEASES          SUBJECT TO       REPRESENTED BY       EXPIRING        FOOT FOR           EXPIRING
EXPIRING      EXPIRING       EXPIRING LEASES    EXPIRING LEASES     LEASES (1)      EXPIRATIONS          LEASES
--------      --------       ---------------    ---------------   --------------    -----------       -------------
                                                                 ($ in thousands)
<S>              <C>            <C>                   <C>            <C>               <C>                 <C>
   2002 (2)       26               79,423              5.0%          $  1,427          $17.97               3.7%
   2003           35               87,076              5.5%             2,094           24.05               5.4%
   2004           42              211,027             13.4%             2,824           13.38               7.3%
   2005           40               93,849              5.9%             2,748           29.28               7.1%
   2006           38              111,064              7.0%             2,784           25.07               7.2%
   2007           35              128,631              8.1%             2,451           19.05               6.3%
   2008           25              124,318              7.8%             4,309           34.66              11.2%
   2009           21              168,355             10.6%             3,304           19.63               8.6%
   2010           18               97,372              6.1%             2,872           29.50               7.4%
   2011           19              108,418              6.8%             2,584           23.83               6.7%
Thereafter        28              378,565             23.8%            11,241           29.69              29.1%
                ----           ----------            -----           --------          ------             -----
                 327            1,588,098            100.0%          $ 38,638          $24.33             100.0%
                ====           ==========            =====           ========          ======             =====
</TABLE>

TOTAL:

<TABLE>
<CAPTION>
                                                                                      AVERAGE         PERCENTAGE OF
                                                 PERCENTAGE OF                        ANNUAL          LEASED RENTS
                                RENTABLE            LEASED         ANNUAL RENTS     RENTAL RATE        REPRESENTED
              NUMBER OF        SQUARE FEET      SQUARE FOOTAGE         UNDER        PER SQUARE             BY
  LEASE        LEASES          SUBJECT TO       REPRESENTED BY       EXPIRING        FOOT FOR           EXPIRING
EXPIRING      EXPIRING       EXPIRING LEASES    EXPIRING LEASES     LEASES (1)      EXPIRATIONS          LEASES
--------      --------       ---------------    ---------------   --------------    -----------       -------------
                                                                 ($ in thousands)
<S>              <C>            <C>                   <C>            <C>               <C>                 <C>
   2002 (3)      415            2,207,953              6.7%          $ 26,376          $11.95               5.6%
   2003          699            4,608,557             14.0%            66,114           14.35              14.2%
   2004          641            5,629,280             17.1%            64,778           11.51              13.8%
   2005          608            4,488,360             13.6%            65,284           14.55              13.9%
   2006          381            3,649,400             11.0%            57,503           15.76              12.2%
   2007          253            3,265,929              9.9%            37,383           11.45               7.9%
   2008          126            2,258,484              6.8%            36,220           16.04               7.7%
   2009           59            1,255,190              3.8%            18,953           15.10               4.0%
   2010           62            1,562,552              4.7%            29,372           18.80               6.2%
   2011           59            1,299,586              3.9%            25,084           19.30               5.3%
Thereafter       174            2,821,672              8.5%            43,265           15.33               9.2%
               -----           ----------            -----           --------          ------             -----
               3,477           33,046,963            100.0%          $470,332          $14.23             100.0%
               =====           ==========            =====           ========          ======             =====
</TABLE>

----------
(1)  Annual Rents Under Expiring Leases are September 2002 rental revenue (base
     rent plus operating expense pass-throughs) multiplied by 12.
(2)  Includes 36,000 square feet of leases that are a month-to-month basis, or
     0.1% of total annualized revenue. (3) Includes 333,000 square feet of
     leases that are a month-to-month basis, or 0.7% of total annualized
     revenue.

INFLATION

     In the last five years, inflation has not had a significant impact on us
because of the relatively low inflation rate in our geographic areas of
operation. Most of the leases require the tenants to pay their share of
increases in operating expenses, including common area maintenance, real estate
taxes and insurance, thereby reducing our exposure to inflation.

                                       39

<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 our revolving loans
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. As of September 30, 2002, we have
two $24.0 million treasury lock agreements related to an anticipated five-year
fixed rate financing with two financial counterparties, which effectively lock
the five-year treasury rate at 3.72%. If interest rates increase by 100 basis
points, the aggregate fair market value of these interest rate hedge contracts
as of September 30, 2002 would increase by approximately $2.3 million. If
interest rates decrease by 100 basis points, the aggregate fair market value of
these interest rate hedge contracts as of September 30, 2002 would decrease by
approximately $2.4 million. We do not hold or issue these derivative contracts
for trading or speculative purposes.

     As of September 30, 2002, we had approximately $177.0 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 September 30, 2003, our
interest expense would be increased or decreased approximately $1.8 million. In
addition, as of September 30, 2002, our share of the joint venture variable rate
debt is $69.6 million, and is 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 September 30, 2003, equity in
earnings of unconsolidated affiliates would be increased or decreased by
approximately $697,000.

                         ITEM 4. CONTROLS AND PROCEDURES

     We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our annual and periodic reports
filed with the SEC is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms. These disclosure controls
and procedures are further designed to ensure that such information is
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, to allow timely decisions regarding
required disclosure.

     Based on the most recent evaluation, which was completed at September 30,
2002, our chief executive officer and chief financial officer believe that our
disclosure controls and procedures are effective. There have been no significant
changes in our internal controls or in other factors that could significantly
affect the internal controls subsequent to the date we completed our evaluation.

                                       40

<PAGE>

                           PART II--OTHER INFORMATION

                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

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

    99.1        Statement of Chief Executive Officer of Highwoods Properties
                Inc.
    99.2        Statement of Chief Financial Officer of Highwoods Properties
                Inc.

(b) Reports on Form 8-K

    We filed a Current Report on Form 8-K, dated August 15, 2002, reporting
    under Item 5 certain matters related to the bankruptcy of US Airways
    Group, Inc.

                                       41

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                   HIGHWOODS PROPERTIES, INC.

                                   By:           /s/ RONALD P. GIBSON
                                        ----------------------------------------
                                                  Ronald P. Gibson
                                        President and Chief Executive Officer


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

Date: November 14, 2002

                                       42

<PAGE>

                                  CERTIFICATION

I, Ronald P. Gibson, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Highwoods
         Properties Inc.;

     2.  Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         (a)  designed such disclosure controls and procedures to ensure that
              material information relating to the registrant, including its
              consolidated subsidiaries, is made known to us by others within
              those entities, particularly during the period in which this
              quarterly report is being prepared;

         (b)  evaluated the effectiveness of the registrant's disclosure
              controls and procedures as of a date within 90 days prior to the
              filing date of this quarterly report (the "Evaluation Date"); and

         (c)  presented in this quarterly report our conclusions about the
              effectiveness of the disclosure controls and procedures based on
              our evaluation as of the Evaluation Date;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         (a)  all significant deficiencies in the design or operation of
              internal controls which could adversely affect the registrant's
              ability to record, process, summarize and report financial data
              and have identified for the registrant's auditors any material
              weaknesses in internal controls; and

         (b)  any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and

     6.  The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:  November 14, 2002


   /s/ RONALD P. GIBSON
-------------------------------------
Ronald P. Gibson
President and Chief Executive Officer

                                       43

<PAGE>

                                  CERTIFICATION

I, Carman J. Liuzzo, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Highwoods
         Properties Inc.;

     2.  Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         (a)  designed such disclosure controls and procedures to ensure that
              material information relating to the registrant, including its
              consolidated subsidiaries, is made known to us by others within
              those entities, particularly during the period in which this
              quarterly report is being prepared;

         (b)  evaluated the effectiveness of the registrant's disclosure
              controls and procedures as of a date within 90 days prior to the
              filing date of this quarterly report (the "Evaluation Date"); and

         (c)  presented in this quarterly report our conclusions about the
              effectiveness of the disclosure controls and procedures based on
              our evaluation as of the Evaluation Date;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         (a)  all significant deficiencies in the design or operation of
              internal controls which could adversely affect the registrant's
              ability to record, process, summarize and report financial data
              and have identified for the registrant's auditors any material
              weaknesses in internal controls; and

         (b)  any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and

     6.  The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:  November 14, 2002


   /s/ CARMAN J. LIUZZO
--------------------------------------
Carman J. Liuzzo
Vice President and Chief Financial Officer

                                       44

