Tenant bankruptcies are the lease of its worries.

• Author: Breznick, Alan
• Position: Money Matters

Executives of Raleigh-based Highwoods Properties Inc. (NYSE: HIW) are familiar with most of the peaks and valleys of real-estate markets. But now they're groping their way through unfamiliar terrain. For the first time since Highwoods became a real-estate investment trust in 1994, they're dealing with two of their biggest tenants in bankruptcy.

WorldCom, Highwoods' largest tenant, filed for Chapter 11 bankruptcy protection in July. US Airways, No. 8, did likewise in August. Together, they account for about 5% of its rental revenue. Both, along with Raleigh-based BTI Telecom, which ranks 18th among its tenants, are on Highwoods' "watch list" because of "what's going on with their respective businesses." Chief Financial Officer Carman Liuzzo wouldn't elaborate.

The bankruptcies have taken a bite out of earnings, but they hadn't affected revenue or Highwoods' healthy quarterly dividend of 58.5 cents a share. The REIT took a $3.1 million charge in the second quarter for future rent it might not get from WorldCom. But both WorldCom and US Airways have to pay current rent until they accept, reject or renegotiate their leases as part of restructuring. In late October, Highwoods executives weren't sure when that would happen.

If they reject the leases and move out, Highwoods can lease the space to someone else. But that might be easier said than...