<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20543
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED September 30, 1999
------------------
COMMISSION FILE NO. 000-22741
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CARRAMERICA REALTY, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1976308
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1850 K Street, N.W., Washington, D.C. 20006
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(Address or principal executive office) (Zip code)
Registrant's telephone number, including area code (202) 729-1000
--------------
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Number of Partnership Units outstanding of each of the registrant's
classes of Partnership Units as of November 12, 1999
14,362,217
- --------------------------------------------------------------------------------
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 twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
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<PAGE>
Index
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Page
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Part I: Financial Information
- -----------------------------
Item 1. Financial Statements
Condensed consolidated balance sheets of CarrAmerica Realty, L.P.
and subsidiary as of September 30, 1999 (unaudited) and
December 31, 1998................................................. 4
Condensed consolidated statements of operations of CarrAmerica
Realty, L.P. and subsidiary for the three months ended
September 30, 1999 and 1998 (unaudited)........................... 5
Condensed consolidated statements of operations of CarrAmerica
Realty, L.P. and subsidiary for the nine months ended
September 30, 1999 and 1998 (unaudited)........................... 6
Condensed consolidated statements of cash flows of CarrAmerica
Realty, L.P. and subsidiary for the nine months ended
September 30, 1999 and 1998 (unaudited)........................... 7
Notes to condensed consolidated financial statements
(unaudited).................................................. 8 to 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 14 to 20
Item 3: Quantitative and Qualitative Disclosures About Market Risk........ 21
Part II: Other Information
- --------------------------
Item 6. Exhibits and Reports on Form 8-K.................................. 22
2
<PAGE>
Part I
------
ITEM 1. FINANCIAL INFORMATION
---------------------
The information furnished in the accompanying condensed consolidated
balance sheets, condensed consolidated statements of operations and condensed
consolidated statements of cash flows of CarrAmerica Realty, L.P. and subsidiary
(the "Partnership") reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the aforementioned financial
statements for the interim periods.
The aforementioned financial statements should be read in conjunction with
the notes to such financial statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations.
3
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
As of September 30, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- -----------------
(unaudited)
<S> <C> <C>
Assets
- ------
Rental property:
Land $119,148 $107,596
Buildings 597,448 529,127
Tenant improvements 57,657 35,209
Furniture, fixtures, and equipment 868 665
------------------ -----------------
775,121 672,597
Less -- accumulated depreciation (50,829) (32,546)
------------------ -----------------
Total rental property 724,292 640,051
Land held for development 17,352 19,044
Construction in progress 13,717 70,939
Cash and cash equivalents 9,683 3,268
Restricted cash and cash equivalents 1,898 1,236
Accounts and notes receivable 20,526 10,536
Investments 7,417 8,621
Accrued straight-line rents 10,031 8,180
Tenant leasing costs, net 15,451 11,092
Deferred financing costs, net 299 337
Prepaid expenses and other assets, net 801 1,755
------------------ -----------------
$821,467 $775,059
================== =================
Liabilities and Partners' Capital
- ---------------------------------
Liabilities:
Mortgages and notes payable $299,065 $299,949
Note payable to affiliate 28,850 28,996
Accounts payable and accrued expenses 39,246 13,920
Rent received in advance and security deposits 5,821 5,387
------------------ -----------------
Total liabilities 372,982 348,252
Partners' capital:
General partner 4,537 4,302
Limited partners 443,948 422,505
------------------ -----------------
Total partners' capital 448,485 426,807
------------------ -----------------
$821,467 $775,059
================== =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
For the Three Months Ended September 30, 1999 and 1998
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Real estate operating revenue:
Rental revenue:
Minimum base rent $26,655 $21,774
Recoveries from tenants 3,764 2,793
Other tenant charges 3,294 341
------------------ ------------------
Total rental revenue 33,713 24,908
Cost reimbursements 1,083 873
Other Income -- 137
------------------ ------------------
Total operating revenue 34,796 25,918
------------------ ------------------
Real estate operating expenses:
Property operating expenses:
Operating expenses 7,841 6,597
Real estate taxes 3,290 2,118
Interest expense 5,747 4,240
General and administrative 1,723 1,375
Depreciation and amortization 9,916 6,024
------------------ ------------------
Total operating expenses 28,517 20,354
------------------ ------------------
Real estate operating income 6,279 5,564
Other income:
Interest income 498 272
------------------ ------------------
Total other income 498 272
------------------ ------------------
Net income before gain on sale of assets 6,777 5,836
Gain on sale of assets 1,614 5,526
------------------ ------------------
Net income $ 8,391 $11,362
================== ==================
Net income attributable to general partner $ 84 $ 114
================== ==================
Net income attributable to limited partners $ 8,307 $11,248
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
For the Three Months Ended September 30, 1999 and 1998
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Real estate operating revenue:
Rental revenue:
Minimum base rent $74,431 $63,616
Recoveries from tenants 12,222 9,533
Other tenant charges 4,457 1,122
------------------ ------------------
Total rental revenue 91,110 74,271
Cost reimbursements 2,963 2,284
Other Income -- 137
------------------ ------------------
Total operating revenue 94,073 76,692
------------------ ------------------
Real estate operating expenses:
Property operating expenses:
Operating expenses 21,368 18,096
Real estate taxes 9,173 6,857
Interest expense 14,363 11,992
General and administrative 4,703 3,642
Depreciation and amortization 23,866 16,751
------------------ ------------------
Total operating expenses 73,473 57,338
------------------ ------------------
Real estate operating income 20,600 19,354
Other income:
Interest income 1,174 746
------------------ ------------------
Total other income 1,174 746
------------------ ------------------
Net income before gain on sale of assets 21,774 20,100
Gain on sale of assets 1,678 5,033
------------------ ------------------
Net income $23,452 $25,133
================== ==================
Net income attributable to general partner $ 235 $ 251
================== ==================
Net income attributable to limited partners $23,217 $24,882
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
<TABLE>
<CAPTION>
1999 1998
--------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,452 $ 25,133
-------------- -----------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 23,866 16,751
Gain on sale of assets (1,678) (5,033)
Change in assets and liabilities, net of acquisitions
and dispositions:
Decrease (increase) in accounts and notes receivable (9,990) 1,513
Increase in accrued straight-line rents (1,851) (4,128)
Additions to tenant leasing costs (649) (1,935)
(Increase) decrease in prepaid expenses and other assets 819 (423)
Increase in accounts payable and accrued expenses 25,417 20,473
Increase in rent received in advance and security deposits 434 377
-------------- -----------------
Total adjustments 36,368 27,595
-------------- -----------------
Net cash provided by operating activities 59,820 52,728
-------------- -----------------
Cash flows from investing activities:
Acquisition and additions to rental property (4,460) (32,110)
Additions to land held for development (6,980) (21,638)
Additions to construction in progress (67,129) (82,475)
Distributions from unconsolidated partnerships 6,725 --
Contributions to unconsolidated partnerships (5,521) --
Increase in restricted cash and cash equivalents (662) (13,716)
Proceeds from sales of rental property 27,426 32,348
-------------- -----------------
Net cash used by investing activities (50,601) (117,591)
-------------- -----------------
Cash flows from financing activities:
Capital contributions -- 18,583
Capital distributions (1,774) (1,705)
Net borrowings on unsecured line of credit -- 67,500
Proceeds from refinance of existing mortgages 5,058 --
Repayments on notes and mortgages payable (6,088) (16,728)
Additions to deferred financing costs -- (7)
-------------- -----------------
Net cash (used) provided by financing activities (2,804) 67,643
-------------- -----------------
Increase in cash and cash equivalents 6,415 2,780
Unrestricted cash and cash equivalents, beginning of the period 3,268 3,584
-------------- -----------------
Unrestricted cash and cash equivalents, end of the period $ 9,683 $ 6,364
============== =================
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest of $4,460
and $3,098 for the nine months ended September 30, 1999 and
1998, respectively. $ 13,851 $ 12,354
============== =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(1) Description of Business and Summary of Significant Accounting Policies
(a) Business
CarrAmerica Realty, L.P. (the "Partnership") is a Delaware limited
partnership formed on March 6, 1996 to own, acquire, develop, and
operate office buildings across the United States. At September 30,
1999, the Partnership owned 66 operating properties (6 million square
feet), four properties under development (267,000 square feet), and
land expected to support the future development of 946,000 square feet
of office space. At December 31, 1998, the Partnership owned 59
operating properties and twelve properties under development. The
properties are located in Austin, Denver, Dallas, Salt Lake City,
Chicago, Phoenix, Seattle, San Diego, San Francisco Bay Area and
Orange County/Los Angeles.
The Partnership's general partner is CarrAmerica Realty GP Holdings,
Inc. (the "General Partner"), a wholly-owned subsidiary of CarrAmerica
Realty Corporation ("CarrAmerica"), a self-administered and self-
managed real estate investment trust. The General Partner owned a 1%
interest in the Partnership at September 30, 1999 and December 31,
1998. The Partnership's limited partners are CarrAmerica Realty LP
Holdings, Inc., a wholly-owned subsidiary of CarrAmerica, which owned
an approximate 87% interest in the Partnership at September 30, 1999
and December 31, 1998, and various other individuals and entities
which collectively owned an approximate 12% interest in the
Partnership at September 30, 1999 and December 31, 1998.
(b) Basis of Presentation
The accounts of the Partnership and its wholly-owned subsidiary are
consolidated in the accompanying financial statements. The
Partnership uses the equity method of accounting for its investments
in unconsolidated partnerships not controlled by the Partnership.
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities,
revenues and expenses, and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
(2) Mortgages and Note Payable
The Partnership's mortgages payable and credit facility are summarized as
follows (in thousands):
September 30, December 31,
1999 1998
------------- ------------
Fixed rate mortgages $158,315 $159,199
Fixed rate note payable to affiliate 28,850 28,996
Unsecured credit facility 140,750 140,750
-------- --------
$327,915 $328,945
======== ========
Fixed rate mortgages payable are collateralized by certain rental
properties and generally require monthly principal and/or interest
payments. The mortgages mature at various dates from November 2000 through
May 2017.
8
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
CarrAmerica and the Partnership also have a $450 million unsecured credit
facility payable to Morgan Guaranty Trust Company of New York, as agent for
a group of banks. The credit facility matures in August 2001. At September
30, 1999, CarrAmerica and the Partnership had $169 million available for
draw under the credit facility.
The unsecured credit facility contains a number of financial and other
covenants with which the Partnership must comply including, but not limited
to, covenants relating to ratios of annual EBITDA (Earnings before
Interest, Taxes, Depreciation and Amortization) to interest expense, annual
EBITDA to debt service, and total debt to tangible fair market value of
CarrAmerica and the Partnership's assets, and restrictions on the ability
of CarrAmerica to make dividend distributions in excess of 90% of funds
from operations. Availability under the unsecured credit facility is also
limited to a specified percentage of the Partnership's unsecured
properties.
On May 24, 1996, the Partnership entered into a $30 million loan agreement
with CarrAmerica. The note payable bears interest at 8.5% and requires
monthly principal and interest payments of $242 thousand. The loan matures
on May 31, 2011. The note is secured by certain office properties and
other assets of the Partnership. The outstanding balance of the note
payable to affiliate was $28.8 million and $29.0 million at September 30,
1999 and December 31, 1998, respectively.
The annual maturities of debt as of September 30, 1999 are summarized as
follows (in thousands):
1999.......................... $ 2,040
2000.......................... 16,224
2001.......................... 173,342(1)
2002.......................... 9,908
2003.......................... 20,621
2004 and Thereafter........... 105,780(2)
--------
$327,915
========
(1) Includes $140.7 million outstanding as of September 30, 1999
under CarrAmerica's $450.0 million unsecured line of credit.
(2) Includes approximately $28.8 million outstanding on the
Partnership's loan from CarrAmerica.
Restricted cash and cash equivalents consists primarily of escrow deposits
required by lenders to be used for future building renovations, tenant
improvements or as collateral for letters of credit.
(3) Acquisition and Development Activities
From January 1, 1999 to September 30, 1999, the Partnership acquired land
for an aggregate purchase price of $3.4 million. Costs incurred during the
nine months ended September 30, 1999 for properties under construction were
$67.1 million. As of September 30, 1999, the Partnership had 4 office
properties under construction.
9
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(4) Segment Information
The Partnership's reportable operating segment is real estate property
operations. Other business activity and operating segments that are not
reportable are included in other operations.
The Partnership's operating segments performance is measured using funds
from operations. Funds from operations represent net income excluding
depreciation and amortization on real estate assets and gain (loss) on sale
of assets.
<TABLE>
<CAPTION>
(In millions) For the three months ended
September 30, 1999
-----------------------------------
Real Estate
Property Other
Operations Operations Total
----------- ---------- -----
<S> <C> <C> <C>
Operating revenue.......................... $33.7 1.1 $34.8
Segment expense............................ 11.1 1.7 12.8
----- ------ -----
Net segment revenue.................. 22.6 (.6) 22.0
Interest expense........................... 1.3 4.4 5.7
Other income............................... .2 .2 .4
----- ------ -----
Funds from operations................ $21.5 (4.8) 16.7
===== ====== -----
Adjustments:
Depreciation and amortization......... (9.9)
-----
Net income before gain on sale of assets... $ 6.8
=====
</TABLE>
10
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Segment information - (continued)
<TABLE>
<CAPTION>
(In millions) For the three months ended
September 30, 1998
-----------------------------------
Real Estate
Property Other
Operations Operations Total
----------- ---------- -----
<S> <C> <C> <C>
Operating revenue....................... $24.9 1.0 $25.9
Segment expense......................... 8.7 1.4 10.1
----- ---- -----
Net segment revenue............... 16.2 (.4) 15.8
Interest expense........................ 2.7 1.5 4.2
Other income............................ -- .2 .2
------ ---- -----
Funds from operations............. $13.5 (1.7) 11.8
====== ==== -----
Adjustments:
Depreciation and amortization...... (6.0)
-----
Net income before gain on sale
of assets.............................. $ 5.8
=====
</TABLE>
11
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Segment information - (continued)
<TABLE>
<CAPTION>
(In millions) For the nine months ended
September 30, 1999
------------------------------------
Real Estate
Property Other
Operations Operations Total
----------- ---------- ------
<S> <C> <C> <C>
Operating revenue......................... $91.1 3.0 $ 94.1
Segment expense........................... 30.5 4.7 35.2
---- ------
Net segment revenue................. 60.6 (1.7) 58.9
Interest expense.......................... 9.4 4.9 14.3
Other income.............................. .2 .9 1.1
----- ---- ------
Funds from operations............... $51.4 (5.7) 45.7
===== ==== ------
Adjustments:
Depreciation and amortization........ (23.9)
------
Net income before gain on sale of assets.. $ 21.8
======
</TABLE>
12
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Segment Information - (Continued)
<TABLE>
<CAPTION>
(In millions) For the nine months ended
September 30, 1998
------------------------------------
Real Estate
Property Other
Operations Operations Total
----------- ---------- ------
<S> <C> <C> <C>
Operating revenue........................ $74.3 2.4 $ 76.7
Segment expense.......................... 25.0 3.6 28.6
---- ------
Net segment revenue................ 49.3 (1.2) 48.1
Interest expense......................... 8.6 3.4 12.0
Other income............................. -- .8 .8
----- ---- ------
Funds from operations.............. $40.7 (3.8) 36.9
===== ==== ------
Adjustments:
Depreciation and amortization....... (16.8)
------
Net income before gain on sale of
assets.................................. $ 20.1
======
</TABLE>
13
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion is based primarily on the Condensed Consolidated
Financial Statements of the Partnership as of September 30, 1999 and December
31, 1998, and for the three and nine months ended September 30, 1999 and 1998.
This information should be read in conjunction with the accompanying condensed
consolidated financial statements and notes thereto. These financial statements
include all adjustments, which are in the opinion of management, necessary to
reflect a fair presentation of the results for the interim periods, and all such
adjustments are of a normal, recurring nature. The comparability of these
periods is impacted by acquisitions and dispositions made during 1999 and 1998.
As of September 30, 1999, the Partnership owned 66 properties. Between October
1, 1998 and September 30, 1999, the Partnership acquired 2 properties, placed
into service 11 properties, and disposed of 5 properties.
The Partnership's reportable operating segment is real estate property
operations. Other business activities and operating segments that are not
reportable are included in other operations.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Real Estate Property Operations
Operating Revenue. Total real estate property operating revenue increased
$8.8 million to $33.7 million for the three months ended September 30, 1999 as
compared to $24.9 million for the three months ended September 30, 1998. The
Partnership experienced net growth in its rental revenue as a result of
development properties placed in service which contributed approximately $7.1
million of additional rental revenue in 1999. Rental revenue from properties
that were fully operational throughout both periods increased by approximately
$1.7 million primarily due to increased occupancy in these properties.
Segment Expense. Real estate property operating expenses increased $2.4
million to $11.1 million for the three months ended September 30, 1999, from
$8.7 million for the three months ended September 30, 1998. The Partnership
experienced net growth in its segment expense primarily as a result of
development properties placed in service which contributed approximately
$1.2 million of additional operating expenses in 1999. The Partnership also
experienced an increase in property operating expenses from properties that
were fully operational in both periods of approximately $1.2 million.
Other Operations
Operating Revenue. Operating revenue increased $0.1 million to $1.1
million for the three months ended September 30, 1999 as compared to $1.0
million for the three months ended September 30, 1998, primarily as a result of
an increase in cost reimbursements from an affiliate for services provided.
Segment Expenses. Segment expenses increased $0.4 million to $1.7 million
for the three months ended September 30, 1999 as compared to $1.3 million for
the three months ended September 30, 1998, primarily as a result of the
addition of staff and other costs necessary to implement the Partnership's
business strategy.
Interest Expense. The $2.9 million increase in the Partnership's interest
expense is primarily related to borrowings on the Company's line of credit
necessary to fund acquisitions and development commitments.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Real Estate Property Operations
Operating Revenue. Total real estate property operating revenue increased
$16.8 million to $91.1 million for the nine months ended September 30, 1999 as
compared to $74.3 million for the nine months ended September 30, 1998. The
Partnership experienced net growth in its rental revenue as a result of
development properties placed in service which contributed approximately $12.9
million of additional rental revenue in 1999. Rental revenue from properties
that were fully operational throughout both periods increased by approximately
$3.9 million primarily due to increased occupancy in these properties from 95.7%
to 96.5%.
Segment Expense. Real estate property operating expenses increased $5.5
million to $30.5 million for the nine months ended September 30, 1999, from $25
million for the nine months ended September 30, 1998. The Partnership
experienced net growth in its segment expense primarily as a result of
development properties placed in service which contributed approximately $4.9
million of additional expense in 1999. The Partnership also experienced an
increase in property operating expenses from properties that were fully
operational in both periods of approximately $0.6 million.
Other Operations
Operating Revenue. Operating revenue increased $0.6 million to $3.0
million for the nine months ended September 30, 1999 as compared to $2.4 million
for the nine months ended September 30, 1998, primarily as a result of an
increase in cost reimbursements from an affiliate for services provided.
Segment Expenses. Segment expenses increased $1.1 million to $4.7 million
for the nine months ended September 30, 1999 as compared to $3.6 million for the
nine months ended September 30, 1998, primarily as a result of the addition of
staff and other costs necessary to implement the Partnership's business
strategy.
Interest Expense. The $1.5 million increase in the Partnership's interest
expense is primarily related to borrowings on the Company's line of credit
necessary to fund acquisitions and development commitments.
Liquidity and Capital Resources
The Partnership's total indebtedness at September 30, 1999 was $327.9
million, of which $140.8 million, or 42.9%, bore a LIBOR-based floating interest
rate. The Partnership's fixed rate indebtedness bore an effective weighted
average interest rate of 8.1% at September 30, 1999 and had a weighted average
term to maturity of 6.9 years. At September 30, 1999, the total book value of
the Partnership's assets was $821.5 million. The Partnership's debt as a
percentage of total book value of its assets was 39.9% at September 30, 1999.
CarrAmerica has a $450.0 million unsecured credit facility with full borrowing
capacity under which the Partnership is jointly and severally liable. The
weighted average interest rate under the unsecured credit facility at September
30, 1999 was 6.1%. Currently, the unsecured credit facility bears interest at
90 basis points over 30 day LIBOR.
The Partnership will require capital to invest in its existing portfolio of
operating assets for major capital projects such as large-scale renovations,
routine capital expenditures, and tenant related capital expenditures such as
tenant improvements and allowances and leasing commissions. The Partnership's
capital requirements for tenant related capital expenditures are dependent upon
a number of factors, including square feet of expiring leases, tenant retention
ratios and whether the expiring leases are in central business district
properties or suburban
15
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
properties. For the remainder of 1999, the Partnership has 259,000 square feet
under leases expiring, representing 4.5% of total leased space.
The Partnership will require capital for development projects currently
underway and planned for the future. As of September 30, 1999, the Partnership
had four development projects underway, which are expected to require a total
investment by the Partnership of $36.6 million. As of September 30, 1999, the
Partnership had expended $24.4 million of these costs.
The Partnership expects to meet these anticipated capital needs through
operating cash flow, the use of its unsecured line of credit, advances from
CarrAmerica, refinancing of certain properties, targeted use of joint ventures,
and from the disposition of certain properties. Currently, the Partnership has
one property under contract of sale. This property is expected to produce net
proceeds of approximately $9.2 million. Due to the uncertainty in the
disposition and related due diligence process, there can be no assurance that
this sale will close or that the Partnership will achieve the expected net
proceeds.
The Partnership intends to use cash flow from operations, its unsecured
revolving line of credit facility and the proceeds from the disposition of
assets to meet its working capital needs for its existing portfolio of operating
assets. The Partnership anticipates that adequate cash will be available to
fund its operating and administrative expenses, continuing debt service
obligations and the payment of distributions in both the short term and long
term. However, the Partnership's ability to access additional capital necessary
to support the current development program is largely dependent on CarrAmerica's
ability to access additional capital. As of September 30, 1999, the Partnership
had cash of $11.6 million, of which $1.9 million was restricted.
Net cash provided by operating activities was $59.8 million during the nine
months ended September 30, 1999, compared to $52.7 million during the nine
months ended September 30, 1998. The increase in net cash provided by operating
activities was primarily a result of an increase in amounts due to affiliates.
The Partnership's investing activities used approximately $50.6 million and
$117.6 million during the nine months ended September 30, 1999 and 1998,
respectively. The Partnership's investment activities included acquisitions of
rental property, additions to land held for future development and additions to
construction in progress totaling approximately $78.4 million during the nine
months ended September 30, 1999. Similar investment activities totaled
approximately $136.2 million during the nine months ended September 30, 1998.
Net of distributions to the Partnership's partners, the Partnership's financing
activities used net cash of $1.0 million during the nine months ended September
30, 1999 compared to net cash provided of $69.3 million during the nine months
ended September 30, 1998 as a result of capital contributions of $18.5 million
and net borrowings from the unsecured line of credit of $67.5 million less
principal payments on debt of $16.7 million.
The Partnership's distributions are paid quarterly. Amounts accumulated
for distribution are primarily invested by the Partnership in short-term
investments that are collateralized by securities of the United States
Government or certain of its agencies.
16
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
Year 2000 Compliance
The Year 2000 issue results from a programming convention in which computer
programs use two digits rather than four to define the applicable year.
Software and hardware may recognize a date using "00" as the year 1900, rather
than the year 2000. Such an inability of computer programs to recognize a year
that begins with "20" could result in business or building system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including, among other things, a temporary inability to process
transactions, send invoices or engage in other normal business activities.
The Partnership is addressing its Year 2000 issues through participation in
CarrAmerica's Year 2000 initiative. CarrAmerica has undertaken a comprehensive
program to address the Year 2000 issue. In the second quarter of 1998,
CarrAmerica expanded its program and appointed a Year 2000 Steering Committee to
manage centrally its Year 2000 compliance program (known internally as "Project
2000"). The Steering Committee includes representatives of senior level
management representing a wide array of the organization and is charged with
overseeing CarrAmerica's comprehensive action plan designed to address Year 2000
issues.
During the second quarter of 1998, CarrAmerica's Steering Committee engaged
the independent consulting firm of Computer Technology Associates, Inc. ("CTA")
to serve as the Project Manager for Project 2000. During the first quarter of
1999 and after completion of the assessment phase, CTA's role as Project Manager
was modified and CarrAmerica designated two full-time employees as the Project
Managers to oversee the remainder of Project 2000. As of the second quarter
CarrAmerica ended its engagement of CTA and does not anticipate the need to use
CTA's services during the remainder of Project 2000.
Project 2000 is organized into two areas of concentration: (i) Property
Operations Embedded Systems and (ii) Internal Business Operations Technology.
The Property Operations segment of the program focuses primarily on equipment
and systems present in CarrAmerica's operating properties that may contain
embedded microprocessor technology (such as elevators and HVAC systems). The
Internal Business Operations segment focuses primarily on CarrAmerica's
information technology, operating systems (such as billing, accounting and
financial reporting systems) and certain systems of CarrAmerica's major
vendors and material service providers. As described below, Project 2000
involves (i) the assessment of the Year 2000 problems that may affect
CarrAmerica, (ii) the development of remedies to address the problems
discovered in the assessment phase, (iii) the testing of such remedies and
(iv) the preparation of contingency plans to deal with the potential failure
of important and critical systems.
Assessment. During the course of its assessment phase, CarrAmerica
identified substantially all of the major components of its property and
business operations systems that may be vulnerable to the Year 2000 issue. In
terms of Property Operations, CarrAmerica conducted a comprehensive inventory of
all the buildings' systems and equipment. Systems were risk ranked (1-3) based
upon each system's importance to the properties' operations. Those systems
classified as level 2 or 3 (the highest levels of importance) were compared to
CTA's existing embedded systems database to determine the status of Year 2000
compliance if it was not already known by CarrAmerica. If relevant information
was not contained in the existing database, the system was then identified for
processing through vendor management coordinated by CTA. Vendor management
involved concentrated communication with the vendor in an attempt to determine
the status of a system's Year 2000 compliance and any available remedies. As of
the fourth quarter of 1998, inventory of CarrAmerica's then existing operating
properties was complete. Assessment of these property operations was complete
as of the end of the first quarter of 1999.
In terms of Internal Business Operations Technology, team leaders have been
selected from each business unit and market office to assist in identifying
software, hardware and external interfaces which may be vulnerable to Year 2000
issues. Inventorying of both core
17
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
business units and all market offices was substantially completed by the end of
the fourth quarter of 1998. A routine application upgrade of CarrAmerica's
primary billing and accounting software was complete as of the end of the first
quarter of 1999. The vendor of the software has received the Information
Technology Association of America (ITAA) 2000 Certification and represents that
the system is Year 2000 ready, and CarrAmerica tested the system during the
third quarter of 1999. In addition, CarrAmerica continued to communicate with
other significant hardware, software and other material services providers and
requested them to provide CarrAmerica with detailed, written information
concerning existing or anticipated Year 2000 compliance of their systems insofar
as the systems relate to such parties' business activities with CarrAmerica.
Relying upon information received from its other service providers, CarrAmerica
rated providers as favorable or unfavorable as to their Year 2000 compliance. As
of the third quarter of 1999, substantially all of CarrAmerica's critical
service providers stated they are currently ready or will be ready before
12/31/99 for the Year 2000. Based upon these ratings CarrAmerica is developing
contingencies and identifying back up vendors in the event any significant
provider should fail to be Year 2000 compliant. CarrAmerica expects to continue
to communicate with these vendors throughout 1999.
Remediation and Testing Phase. Based upon the results of its assessment
efforts, CarrAmerica initiated remediation and testing activities.
CarrAmerica completed remediation on important and critical systems by the end
of the second quarter of 1999. Selective validation testing of systems has been
completed during the third quarter of 1999. The activities conducted during the
remediation and testing phase were intended to provide assurance from both the
Property Operation and the Internal Business perspectives that critical and
important applications, systems and equipment will be substantially Year 2000
compliant on a timely basis. In this phase, CarrAmerica first evaluated
applications, systems and equipment. If a potential Year 2000 problem was
identified, CarrAmerica took steps to attempt to remediate the problem and,
where applicable, has tested to confirm that the remediating changes were
effective and will not adversely affect the functionality of that application.
After the various applications, system components and equipment had undergone
remediation and testing phases, CarrAmerica, where applicable, conducted
integrated testing for the purpose of demonstrating functional integrated
systems operations.
Contingency Plans. CarrAmerica continues to update contingency plans to
handle its most reasonably likely worst case Year 2000 scenarios. CarrAmerica
completed its determination of worst case scenarios after it had received and
analyzed responses to the inquiries it had made of third parties. CarrAmerica
expects to complete all contingency plans by the end of the November of 1999.
Costs Related to the Year 2000 Issue. As of September 30, 1999,
CarrAmerica has incurred approximately $4.3 million in costs for its Year 2000
program. CarrAmerica currently estimates that it will incur additional costs,
which are not expected to exceed approximately $0.6 million, to complete its
Year 2000 compliance work. CarrAmerica believes that a portion of these costs
may be recoverable from tenants but has not determined at this time the extent
to which such recovery can be realized. CarrAmerica also has not yet made a
final determination on the portion of these expenditures that will be allocated
to the Partnership.
Risks Related to the Year 2000 Issue. Although CarrAmerica's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
CarrAmerica's and the Partnership's business and operations, the actual effects
of the Year 2000 issue and the success or failure of CarrAmerica's efforts
described above cannot be known until the year 2000. Failure by CarrAmerica and
the Partnership, their major vendors, other material service providers and
material clients to address adequately their respective Year 2000 issues in a
timely manner (insofar as such issues relate to CarrAmerica's business) could
have a material adverse effect on CarrAmerica's business, results of operations
and financial condition.
18
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
Building and Lease Information
The following table sets forth certain information about each operating property
owned by the Partnership as of September 30, 1999:
<TABLE>
<CAPTION>
Partnership's Net
Effective Property Rentable Area Percent Number of
Property Ownership (square feet)(1) Leased(2) Buildings
- -------- ------------------ ---------------- --------- ---------
<S> <C> <C> <C> <C>
Consolidated Properties
- -----------------------
Southern California,
Orange County/Los Angeles:
South Coast Executive Center 100.0% 161,787 91.5% 2
2600 W. Olive 100.0 144,831 100.0 1
Bay Technology Center 100.0 107,481 100.0 2
Southern California,
San Diego:
Jaycor 100.0 105,358 100.0 1
Northern California,
San Francisco Bay Area:
San Mateo I 100.0 70,000 100.0 1
San Mateo II and III 100.0 141,404 97.9 2
Seattle:
Canyon Park Commons 100.0 95,290 100.0 1
Austin, Texas:
Great Hills Plaza 100.0 135,333 100.0 1
Balcones Center 100.0 74,978 86.5 1
Park North 100.0 132,744 93.9 2
City View Centre 100.0 136,183 100.0 3
Riata 2, 4, 5, 8, 9 100.0 403,435 93.4 5
Tower of the Hills 100.0 166,061 97.0 2
City View Center 100.0 128,716 100.0 1
Riata Crossing 1, 2, 3 100.0 265,177 100.0 3
Chicago:
Bannockburn I & II 100.0 211,124 100.0 2
Bannockburn IV 100.0 108,469 100.0 1
Dallas, Texas:
Quorum North 100.0 115,801 87.9 1
Quorum Place 100.0 170,964 91.0 1
Cedar Maple Plaza 100.0 113,127 96.1 3
Two Mission Park 100.0 77,721 91.6 1
5000 Quorum 100.0 159,549 96.5 1
Royal Ridge A & B 100.0 247,239 100.0 2
Commons at Las Colinas 1, 3 100.0 380,764 97.6 2
Denver:
Harlequin Plaza 100.0 329,100 93.5 2
Quebec Court I & II 100.0 287,294 100.0 2
Greenwood Center 100.0 76,128 97.6 1
Quebec Center 100.0 106,865 95.5 3
Panorama Corporate Center I 100.0 100,881 98.1 1
Panorama II 100.0 100,916 98.2 1
Phoenix, Arizona:
US West 100.0 532,506 100.0 4
Concord Place 100.0 133,555 88.8 1
Salt Lake City, Utah:
Sorenson Research Park 100.0 285,869 98.2 5
Wasatch Corporate Center 100.0 178,098 100.0 3
Wasatch Corporate Center 18 100.0 49,727 97.4 1
--------- ----- --
TOTAL CONSOLIDATED PROPERTIES: 6,034,475 66
--------- ==
WEIGHTED AVERAGE 96.8%
=====
</TABLE>
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
September 30, 1999.
19
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
The following table sets out a schedule of the lease expiration for leases in
place at those properties owned as of September 30, 1999:
<TABLE>
<CAPTION>
Net Rentable
Area Subject to Expiring Percent of Leased Square
Leases Footage Represented by
Year of Lease Expiration (square feet) (1) Expiring Leases
- ------------------------ ------------------------- ------------------------
<S> <C> <C>
1999 259,000 4.5%
2000 396,000 6.9
2001 608,000 10.5
2002 1,036,000 18.0
2003 802,000 13.9
2004 773,000 13.4
2005 170,000 3.0
2006 168,000 2.9
2007 618,000 10.7
2008 and thereafter 937,000 16.2
---------
5,767,000
=========
</TABLE>
(1) Excludes 267,000 square feet of vacant space.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Partnership and its affiliates or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: national and local economic,
business and real estate conditions that will, among other things, affect demand
for office properties, availability and creditworthiness of tenants, the level
of lease rents and the availability of financing for both tenants and the
Partnership, adverse changes in the real estate markets, including, among other
things, competition with other companies, risks of real estate acquisition and
development (including the failure of pending acquisitions to close and pending
developments to be completed on time and within budget), actions, strategies and
performance of affiliates that the Partnership may not control, governmental
actions and initiatives, and environmental/safety requirements.
20
<PAGE>
Quantitative and Qualitative Disclosure About Market Risk
- --------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes in the Partnership's market risk have occurred since the
filing of the Partnership's Form Annual Report on 10-K for the year ended
December 31, 1998.
21
<PAGE>
Part II
OTHER INFORMATION
- -----------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
10.1 Amendment to Fourth Amended and Restated Revolving Credit
Agreement dated as of August 31, 1999 by and among CarrAmerica
Realty Corporation, CarrAmerica Realty, L.P., Carr Realty, L.P.,
Morgan Guaranty Trust Corporation and the other banks listed
therein (incorporated by reference to Exhibit 10.1 of
CarrAmerica Realty Corporation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
22
<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.
CARRAMERICA REALTY, L.P.
a Delaware Limited Partnership
By: CarrAmerica Realty GP Holdings, Inc.,
its general partner
/s/ Thomas A. Carr
- ------------------------------------------------
Thomas A. Carr, President and
Chief Executive Officer
/s/ Richard F. Katchuk
- ------------------------------------------------
Richard F. Katchuk, Chief Financial Officer
Date: November 15, 1999
23
<PAGE>
Exhibit Index
-------------
Exhibit Description Page
- ------- ----------- ----
27 Financial Data Schedule 25
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARRAMERICA
REALTY, L.P. BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND FROM CARRAMERICA REALTY,
L.P. STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,581
<SECURITIES> 0
<RECEIVABLES> 20,526
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 775,121
<DEPRECIATION> 50,829
<TOTAL-ASSETS> 821,467
<CURRENT-LIABILITIES> 0
<BONDS> 327,915
0
0
<COMMON> 0
<OTHER-SE> 448,485
<TOTAL-LIABILITY-AND-EQUITY> 821,467
<SALES> 0
<TOTAL-REVENUES> 94,073
<CGS> 0
<TOTAL-COSTS> 73,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,452
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,452
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
