Fitch Affirms Highwoods Properties, Inc.'s IDR at 'BBB-'; Outlook Stable

Highwoods Properties, Inc.

--Issuer Default Rating (IDR) at 'BBB-';

--Preferred stock at 'BB+'.

Highwoods Realty Limited Partnership

--IDR at 'BBB-';

--Senior unsecured notes at 'BBB-';

--Unsecured revolving credit facility at 'BBB-'.

The Rating Outlook is Stable.

The affirmations center on the strength of HIW's credit metrics,
supported by a solid liquidity position, and improved debt service
coverage and leverage ratios. The ratings also reflect the company's
well laddered lease expiration schedule and unencumbered real estate
asset coverage of unsecured debt, which at 2.6 times (x) as of June 30,
2009, provides ample protection to unsecured bondholders.

HIW's debt to recurring operating EBITDA at June 30, 2009, was 5.6x,
improved from 6.3x at Dec. 31, 2008, and much improved from 7.0x at Dec.
31, 2007. The company's solid fixed charge coverage ratio (defined as
recurring operating EBITDA less capital expenditures and straight-line
rents, divided by interest expense, capitalized interest and
distributions on preferred stock) was 2.0x for the twelve months ended
June 30, 2009, up from 1.7x at Dec. 31, 2008 and 1.4x at Dec. 31, 2007.

HIW is an office real estate investment trust (REIT) that owns
properties primarily in the Sunbelt area of the Southeastern United
States, and Fitch believes that operating fundamentals are likely to
continue to deteriorate, placing some pressure on the company's leverage
and coverage metrics. However, on a projected basis, Fitch believes that
HIW's metrics will likely remain strong for the 'BBB-' rating.

While same store NOI declined for the first two quarters of 2009 by 4.5%
and 3.1%, respectively, the well laddered lease expiration schedule
should provide steady revenues over the next two years. Fitch marked the
4.5% and 12.3% of leases expiring in 2009 and 2010, respectively, to
estimated market rates and determined that a -0.8% and -2.5% decline in
revenues would occur, presuming occupancy levels remained unchanged.
Fitch projects 2009 and 2010 debt to recurring operating EBITDA to be
5.6x and 5.7x, respectively, and fixed charge coverage ratios of 2.1x
for both 2009 and 2010, given expectations of reduced capital
expenditures, due to higher tenant lease renewal rates.

HIW's strong liquidity position further supports the rating
affirmations. As of June 30, 2009, the company had a liquidity surplus
(cash, availability under its revolving credit facility, expected
retained cash flows from operating activities less debt maturities and
expected capital expenditures through Dec. 31, 2011) of over $200
million. Fitch notes that if HIW's revolving credit facility, which
matures in May 2010, were reduced by one third, the company would have a
$57 million liquidity surplus.

Further, HIW has a manageable debt maturity schedule with one unsecured
term loan coming due in 2011 and debt secured by portfolios of assets
due in 2012 and 2013. Refinance risk on the secured assets is mitigated
by low loan to values, and HIW has the choice of refinancing smaller
pools of assets or encumbering the portfolio depending on the appetite
of the secured debt lenders.

While HIW engages in development, development in process is not a
significant portion of gross depreciable property (2% as of June 30,
2009) and the properties in process of development are currently 62%
pre-leased. HIW is appropriately capitalized at the 'BBB' rating
category at 1.0x as of June 30, 2009, improved from 0.9x as of Dec. 31,
2008.

In addition, the financial covenants in the company's unsecured debt
agreements do not limit Highwoods' financial flexibility.

Fitch's credit concerns revolve around the weakening operating
fundamentals of HIW's core and more challenged markets (e.g., Raleigh,
Tampa and Atlanta). The company's presence in primarily less
supply-constrained secondary markets will provide a challenge for HIW
over the next couple of years to maintain consistent fixed charge
coverage levels. Each of these markets has weakening fundamentals,
generally due to oversupply of office space as well as some new supply
expected to be added in the next few years.

A one notch difference between HIW's IDR and its preferred stock is
consistent with Fitch's criteria for corporate entities with an IDR of
'BBB-'. Based on Fitch's criteria report, 'Equity Credit for Hybrids &
Other Capital Securities', the company's preferred stock is 75%
equity-like and 25% debt-like since the its preferred stock is perpetual
and has no covenants, but has a cumulative deferral option. Total debt
plus 25% of preferred stock to recurring operating EBITDA and debt plus
25% of preferred stock to undepreciated book capital were 5.6x and
42.2%, respectively, as of June 30, 2009.

The following factors may have a positive impact on HIW's ratings:

--Maintaining a healthy liquidity surplus;

--Maintaining fixed charge coverage above 2.0x (for the twelve months
ended June 30, 2009, fixed charge coverage was 2.0x);

--Total debt to recurring operating EBITDA remaining below 6.0x. (for
the twelve months ended June 30, 2009, leverage was 5.6x);

--Demonstrated access to the unsecured debt markets.

Going forward, the following factors may have a negative impact on HIW's
ratings:

--If fixed charge coverage declines below 1.8x;

--If leverage increases above 6.5x;

--If the gross book value of unencumbered operating real estate assets
to unsecured debt falls below 2.0x (as of June 30, 2009, this ratio was
2.63x).

Founded in 1978, Highwoods Properties, Inc. is a Raleigh-based REIT in
the business of providing leasing, management, development, construction
and other customer-related services for its properties and for third
parties. At June 30, 2009, the company wholly owned 307 in-service
office, industrial and retail properties; 96 rental residential units;
580 acres of undeveloped land suitable for future development, of which
490 acres are considered core holdings; and an additional six properties
under development.

Additional information is available at www.fitchratings.com.

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SOURCE: Fitch Ratings

Fitch Ratings 
Kimberly Chan, +1-212-908-0346 
Taqim Spradley, +1-212-908-0291 
Sandro Scenga, +1-212-908-0278 (Media Relations) 
sandro.scenga@fitchratings.com

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