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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 June 30, 1999
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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
incorporation or organization) Identification Number)
- ------------------------------- ----------------------
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) 729-7500
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N/A
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(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 August 16, 1999:
14,362,217
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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
Page
----
Part I: Financial Information
- -----------------------------
Item 1. Financial Statements
Condensed consolidated balance sheets of CarrAmerica
Realty, L.P. and subsidiary as of June 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 June 30, 1999 and 1998 (unaudited) ......................5
Condensed consolidated statements of operations of
CarrAmerica Realty, L.P. for the six months ended
June 30, 1999 and 1998 (unaudited) ...................................6
Condensed consolidated statements of cash flows of
CarrAmerica Realty, L.P. and subsidiary for the six
months ended June 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 21
Item 3: Quantitative and Qualitative Disclosures About Market
Risk.................................................................22
Part II: Other Information
- --------------------------
Item 6. Exhibits and Reports on Form 8-K.....................................23
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 June 30, 1999 and December 31, 1998
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(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
Assets
- ------
Rental property:
Land $ 114,169 107,596
Buildings 568,139 529,127
Tenant improvements 44,353 35,209
Furniture, fixtures, and equipment 792 665
--------- -------
727,453 672,597
Less - accumulated depreciation (45,098) (32,546)
--------- -------
Total rental property 682,355 640,051
Land held for development 16,408 19,044
Construction in progress 74,795 70,939
Cash and cash equivalents 6,732 3,268
Restricted cash and cash equivalents 1,271 1,236
Accounts and notes receivable 18,702 10,536
Investments 4,818 8,621
Accrued straight-line rents 9,841 8,180
Tenant leasing costs, net 12,545 11,092
Deferred financing costs, net 295 337
Prepaid expenses and other assets, net 2,766 1,755
--------- -------
$ 830,528 775,059
========= =======
Liabilities and Partners' Capital
- ---------------------------------
Liabilities:
Mortgages and notes payable $ 311,148 299,949
Note payable to affiliate 28,775 28,996
Accounts payable and accrued expenses 43,627 13,920
Rent received in advance and security deposits 6,288 5,387
--------- -------
Total liabilities 389,838 348,252
Partners' capital:
General partner 4,453 4,302
Limited partners 436,237 422,505
--------- -------
Total partners' capital 440,690 426,807
--------- -------
$ 830,528 775,059
========= =======
</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 June 30, 1999 and 1998
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
1999 1998
-------- ------
Real estate operating revenue:
Rental revenue:
Minimum base rent $ 24,218 21,744
Recoveries from tenants 4,495 3,668
Other tenant charges 437 189
-------- ------
Total rental revenue 29,150 25,601
Cost reimbursements 1,204 872
-------- ------
Total operating revenue 30,354 26,473
-------- ------
Real estate operating expenses:
Property operating expenses:
Operating expenses 6,763 6,266
Real estate taxes 3,081 2,501
Interest expense 4,358 4,301
General and administrative 1,660 1,127
Depreciation and amortization 7,145 5,609
-------- ------
Total operating expenses 23,007 19,804
-------- ------
Real estate operating income 7,347 6,669
Other income:
Interest income 410 227
-------- ------
Total other income 410 227
-------- ------
Net income before gain (loss) on
sale of assets 7,757 6,896
Gain (loss) on sale of assets 247 (77)
-------- ------
Net income $ 8,004 6,819
======== ======
Net income attributable to general partner $ 80 68
======== ======
Net income attributable to limited partners $ 7,924 6,751
======== ======
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Consolidated Statements of Operations
For the Six Months Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
1999 1998
-------- ------
Real estate operating revenue:
Rental revenue:
Minimum base rent $ 47,775 41,842
Recoveries from tenants 8,458 6,740
Other tenant charges 1,163 781
-------- ------
Total rental revenue 57,396 49,363
Cost reimbursements 1,880 1,410
-------- ------
Total operating revenue 59,276 50,773
-------- ------
Real estate operating expenses:
Property operating expenses:
Operating expenses 13,527 11,499
Real estate taxes 5,883 4,739
Interest expense 8,616 7,752
General and administrative 2,980 2,268
Depreciation and amortization 13,949 10,726
-------- ------
Total operating expenses 44,955 36,984
-------- ------
Real estate operating income 14,321 13,789
Other income:
Interest income 676 474
-------- ------
Total other income 676 474
-------- ------
Net income before gain (loss)
on sale of assets 14,997 14,263
Gain (loss) on sale of assets 64 (493)
-------- ------
Net income $ 15,061 13,770
======== ======
Net income attributable to general partner $ 151 138
======== ======
Net income attributable to limited partners $ 14,910 13,632
======== ======
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,061 13,770
--------- -------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 13,949 10,726
(Gain) loss on sale of assets (64) 493
Loss on write-off of assets 82 329
Change in assets and liabilities, net of acquisitions and dispositions:
Increase in accounts and notes receivable (8,166) (356)
Increase in accrued straight-line rents (1,661) (2,832)
Additions to tenant leasing costs (2,674) (1,429)
(Increase) in prepaid expenses and other assets (1,011) (489)
Increase in accounts payable and accrued expenses 29,707 9,733
Increase in rent received in advance and security deposits 901 234
--------- -------
Total adjustments 31,063 16,409
--------- -------
Net cash provided by operating activities 46,124 30,179
--------- -------
Cash flows from investing activities:
Acquisition and additions to rental property (47,786) (24,576)
Additions to land held for development (3,146) (11,024)
Additions to construction in progress (11,142) (34,499)
Distributions from unconsolidated partnerships 6,725 --
Contributions to unconsolidated partnerships (2,922) --
(Increase) in restricted cash and cash equivalents (35) (500)
Proceeds from sales of rental property 5,846 --
--------- -------
Net cash used by investing activities (52,460) (70,599)
--------- -------
Cash flows from financing activities:
Capital contributions -- 17,197
Capital distributions (1,178) (1,132)
Net borrowings on unsecured line of credit 10,000 40,500
Proceeds from refinance of existing mortgages 4,873 --
Repayments on notes and mortgages payable (3,895) (15,042)
Additions to deferred financing costs -- (5)
--------- -------
Net cash provided by financing activities 9,800 41,518
--------- -------
Increase in cash and cash equivalents 3,464 1,098
Unrestricted cash and cash equivalents, beginning of the period 3,268 3,584
--------- -------
Unrestricted cash and cash equivalents, end of the period $ 6,732 4,682
========= =======
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest of
$3,787 and $1,670 for the six months ended June 30, 1999
and 1998, respectively $ 7,964 7,728
========= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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(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 June 30, 1999, the Partnership owned 63 operating
properties, nine properties under development and land
expected to support the future development of 944,000 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 June 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
June 30, 1999 and December 31, 1998, and various other
individuals and entities which collectively owned an
approximate 12% interest in the Partnership at June 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):
June 30, December 31,
1999 1998
--------- ------------
Fixed rate mortgages $ 160,398 159,199
Fixed rate note payable to affiliate 28,775 28,996
Unsecured credit facility 150,750 140,750
--------- -------
$ 339,923 328,945
========= =======
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 August 1999
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 June 30, 1999, CarrAmerica and the Partnership had $179.3
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
June 30, 1999 and December 31, 1998, respectively.
The annual maturities of debt as of June 30, 1999 are summarized as
follows (in thousands):
1999............................. $ 4,041
2000............................. 16,225
2001............................. 183,330(1)
2002............................. 9,907
2003............................. 20,643
2004 and Thereafter.............. 105,777(2)
---------
$ 339,923
=========
(1) Includes $150.7 million outstanding as of June 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 June 30, 1999, the Partnership acquired land
for an aggregate purchase price of $3.1 million. Costs incurred during
the six months ended June 30, 1999 for properties under construction
were $11.1 million. As of June 30, 1999, the Partnership had 9 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 segments are real estate
property operations and development 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
June 30, 1999
-------------------------------------------------------
Real Estate
Property Development Other
Operations Operations Operations Total
----------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Operating revenue......................... $ 29.2 -- 1.2 $ 30.4
Segment expense........................... 9.8 -- 1.7 11.5
------- ------ ---- -------
Net segment revenue.................. 19.4 -- (0.5) 18.9
Interest expense.......................... 4.1 (2.0) 2.3 4.4
Other income.............................. -- -- 0.4 0.4
------- ------ ---- -------
Funds from operations................ $ 15.3 2.0 (2.4) 14.9
======= ====== ==== -------
Adjustments:
Depreciation and amortization........ (7.1)
-------
Net income before gain (loss)
on sale of assets....................... $ 7.8
=======
</TABLE>
10
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Segment Information - (Continued)
(In millions) For the three months ended
June 30, 1998
-------------------------------------------------------
Real Estate
Property Development Other
Operations Operations Operations Total
----------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Operating revenue......................... $ 25.6 -- 0.9 $ 26.5
Segment expense........................... 8.8 -- 1.1 9.9
------- ------ ---- -------
Net segment revenue.................. 16.8 -- (0.2) 16.6
Interest expense.......................... 4.1 (0.9) 1.1 4.3
Other income.............................. -- -- 0.2 0.2
------- ------ ---- -------
Funds from operations................ $ 12.7 0.9 (1.1) 12.5
======= ====== ==== -------
Adjustments:
Depreciation and amortization........ (5.6)
-------
Net income before gain (loss)
on sale of assets....................... $ 6.9
=======
</TABLE>
11
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Segment Information - (Continued)
(In millions) For the six months ended
June 30, 1999
-------------------------------------------------------
Real Estate
Property Development Other
Operations Operations Operations Total
----------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Operating revenue......................... $ 57.4 -- 1.9 $ 59.3
Segment expense........................... 19.4 -- 3.0 22.4
------- ------ ---- -------
Net segment revenue.................. 38.0 -- (1.1) 36.9
Interest expense.......................... 8.1 (3.8) 4.3 8.6
Other income.............................. -- -- 0.6 0.6
------- ------ ---- -------
Funds from operations................ $ 29.9 3.8 (4.8) 28.9
======= ====== ==== -------
Adjustments:
Depreciation and amortization........ (13.9)
-------
Net income before gain (loss)
on sale of assets...................... $ 15.0
=======
</TABLE>
12
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Segment Information - (Continued)
(In millions) For the six months ended
June 30, 1998
-------------------------------------------------------
Real Estate
Property Development Other
Operations Operations Operations Total
----------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Operating revenue......................... $ 49.4 -- 1.4 $ 50.8
Segment expense........................... 16.2 -- 2.3 18.5
------- ------ ---- -------
Net segment revenue.................. 33.2 -- (0.9) 32.3
Interest expense.......................... 7.7 (1.7) 1.8 7.8
Other income.............................. -- -- 0.5 0.5
------- ------ ---- -------
Funds from operations................ $ 25.5 1.7 (2.2) 25.0
======= ====== ==== -------
Adjustments:
Depreciation and amortization........ (10.7)
-------
Net income before gain (loss)
on sale of assets....................... $ 14.3
=======
</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 June 30, 1999 and
December 31, 1998, and for the three and six months ended June 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 June 30, 1999, the Partnership owned 63 properties. Between July 1,
1998 and June 30, 1999, the Partnership acquired 2 properties, placed into
service 9 properties, and disposed of 3 properties.
The Partnership's reportable operating segments are real estate
property operations and development operations. Other business activities and
operating segments that are not reportable are included in other operations.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Real Estate Property Operations
Operating Revenue. Total real estate property operating revenue
increased $3.6 million to $29.2 million for the three months ended June 30, 1999
as compared to $25.6 million for the three months ended June 30, 1998. The
Partnership experienced net growth in its rental revenue as a result of
development properties placed in service which contributed approximately $1.5
million of additional rental revenue in 1999. Rental revenue from properties
that were fully operational throughout both periods increased by approximately
$2.1 million primarily due to increased occupancy in these properties.
Segment Expense. Real estate property operating expenses increased $1.0
million to $9.8 million for the three months ended June 30, 1999, from $8.8
million for the three months ended June 30, 1998. The Partnership experienced
net growth in its segment expense primarily as a result of development
properties placed in service which contributed approximately $0.5 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 $0.5 million.
Development Operations
Interest Expense. Interest capitalization related to construction in
progress increased $1.1 million to $2.0 million for the three months ended June
30, 1999 from $0.9 million for the three months ended June 30, 1998, primarily
as a result of the increase in construction dollars expended.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
Other Operations
Operating Revenue. Operating revenue increased $0.3 million to $1.2
million for the three months ended June 30, 1999 as compared to $0.9 million for
the three months ended June 30, 1998, primarily as result of an increase in cost
reimbursements from an affiliate for services provided.
Segment Expenses. Segment expenses increased $0.6 million to $1.7
million for the three months ended June 30, 1999 as compared to $1.1 million for
the three months ended June 30, 1998, primarily as a result of the addition of
staff necessary to implement the Partnership's business strategy.
Interest Expense. The $1.2 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.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Real Estate Property Operations
Operating Revenue. Total real estate property operating revenue
increased $8.0 million to $57.4 million for the six months ended June 30, 1999
as compared to $49.4 million for the six months ended June 30, 1998. The
Partnership experienced net growth in its rental revenue as a result of
development properties placed in service which contributed approximately $4.5
million of additional rental revenue in 1999. Rental revenue from properties
that were fully operational throughout both periods increased by approximately
$3.5 million primarily due to increased occupancy in these properties.
Segment Expense. Real estate property operating expenses increased $3.2
million to $19.4 million for the six months ended June 30,1999, from $16.2
million for the six months ended June 30, 1998. The Partnership experienced net
growth in its segment expense primarily as a result of development properties
placed in service which contributed approximately $2.1 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 $1.1 million.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
Development Operations
Interest Expense. Interest capitalization related to construction in
progress increased $2.1 million to $3.8 million for the six months ended June
30, 1999 from $1.7 million for the six months ended June 30, 1998, primarily as
a result of the increase in construction dollars expended.
Other Operations
Operating Revenue. Operating revenue increased $0.5 million to $1.9
million for the six months ended June 30, 1999 as compared to $1.4 million for
the six months ended June 30, 1998, primarily as a result of an increase in
cost reimbursements from an affiliate for services provided.
Segment Expenses. Segment expenses increased $0.7 million to $3.0
million for the six months ended June 30, 1999 as compared to $2.3 million for
the six months ended June 30, 1998, primarily as a result of the addition of
staff necessary to implement the Partnership's business strategy.
Interest Expense. The $2.5 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 June 30, 1999 was $339.9
million, of which $150.8 million, or 44.4%, bore a LIBOR-based floating interest
rate. The Partnership's fixed rate indebtedness bore an effective weighted
average interest rate of 8.1% at June 30, 1999 and had a weighted average term
to maturity of 6.5 years. At June 30, 1999, the total book value of the
Partnership's assets was $830.5 million. The Partnership's debt as a percentage
of total book value of its assets was 40.9% at June 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 June 30, 1999 was 5.9%.
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 properties. During 1999, the
Partnership has 499,000 square feet under leases expiring, representing 11.5% of
total leased space.
16
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
The Partnership will require capital for development projects currently
underway and planned for the future. As of June 30, 1999, the Partnership had
nine development projects underway, which are expected to require a total
investment by the Partnership of $154.6 million. As of June 30, 1999, the
Partnership had expended $104.8 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 in the Dallas market. This property is
expected to produce net proceeds of approximately $23.1 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 June 30, 1999, the Partnership had cash of $8.0
million, of which $1.3 million was restricted.
Net cash provided by operating activities was $46.1 million during the
six months ended June 30, 1999, compared to $30.2 million during the six months
ended June 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 $52.5 million and $70.6
million during the six months ended June 30, 1999 and 1998, respectively. The
Partnership's investment activities included the acquisitions of rental
property, additions to land held for future development and additions to
construction in progress totalling approximately $62.1 million during the six
months ended June 30, 1999. The Partnership's investment activities include
acquisitions of rental property, additions to land held for future development
and additions to construction in progress totalling of approximately $70.1
million during the six months ended June 30, 1998. Net of distributions to the
Partnership's partners, the Partnership's financing activities generated net
cash of 11.0 million during the six months ended June 30, 1999 compared to net
cash provided of $42.7 million during the six months ended June 30, 1998. During
the six months ended June 30, 1999, the Partnership's net borrowings under its
unsecured credit facility were approximately $10.0 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.
17
<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 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
is 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.
18
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
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 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
expects to test 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. 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 has 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 these systems is
scheduled to be completed during the third quarter of 1999. The activities
conducted during the remediation and testing phase are 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 evaluates applications, systems and equipment. If a potential
Year 2000 problem is identified, CarrAmerica takes steps to attempt to remediate
the problem and, where applicable, tests to confirm that the remediating changes
are effective and have not adversely affected the functionality of that
application. After the various applications, system components and equipment
have undergone remediation and testing phases, CarrAmerica, where applicable,
will conduct integrated testing for the purpose of demonstrating functional
integrated systems operations.
Contingency Plans. CarrAmerica has started updating contingency plans
to handle its most reasonably likely worst case Year 2000 scenarios, which it is
in the process of continuing to identify. CarrAmerica intends to complete its
determination of worst case scenarios after it has received and analyzed
responses to substantially all of the inquiries it has made of third parties.
CarrAmerica expects to complete contingency plans by the end of the third
quarter of 1999.
Costs Related to the Year 2000 Issue. As of June 30, 1999, CarrAmerica
has incurred approximately $4.2 million in costs for its Year 2000 program.
CarrAmerica currently estimates that it will incur additional costs, which are
not expected to exceed approximately $0.7 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 determined 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 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 its 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.
19
<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 June 30, 1999:
<TABLE>
<CAPTION>
Partnership's Net
Effective Rentable Number
Property Area Percent of
Property Ownership (square feet)(1) Leased(2) Buildings
- -------- --------- ---------------- --------- ---------
Consolidated Properties
- -----------------------
<S> <C> <C> <C> <C>
Southern California,
Orange County/Los Angeles:
South Coast Executive Center 100.0% 161,310 92.4% 2
2600 W. Olive 100.0 146,018 100.0 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 99.1 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 84.6 1
Park North 100.0 132,744 94.1 2
City View Centre 100.0 136,183 100.0 3
Riata 4, 5, 8 100.0 274,118 93.7 3
Tower of the Hills 100.0 166,099 97.1 2
City View Center 100.0 128,716 100.0 1
Riatta Crossing 1,3 100.0 163,558 100.0 2
Chicago:
Bannockburn I & II 100.0 210,860 100.0 2
Bannockburn IV 100.0 108,469 100.0 1
Dallas, Texas:
Quorum North 100.0 115,821 88.7 1
Quorum Place 100.0 177,873 90.1 1
Cedar Maple Plaza 100.0 113,011 96.4 3
Tollhill East & West 100.0 238,140 89.8 2
Two Mission Park 100.0 77,731 89.7 1
5000 Quorum 100.0 159,549 96.1 1
Royal Ridge A & B 100.0 247,239 100.0 2
Denver:
Harlequin Plaza 100.0 329,028 98.0 2
Quebec Court I & II 100.0 287,294 100.0 2
Greenwood Center 100.0 76,068 97.6 1
Quebec Center 100.0 106,865 94.7 3
Panorama Corporate Center I 100.0 100,881 99.7 1
Panorama II 100.0 100,916 97.3 1
Phoenix, Arizona:
US West 100.0 532,506 100.0 4
Concord Place 100.0 133,555 88.4 1
Salt Lake City, Utah:
Sorenson Research Park 100.0 285,869 99.7 5
Wasatch Corporate Center 100.0 178,098 100.0 3
Wasatch Corporate Center 18 100.0 29,884 100.0 1
--------- ----- ---
TOTAL CONSOLIDATED PROPERTIES: 5,648,247 63
========= ===
WEIGHTED AVERAGE 97.2%
=====
</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
June 30, 1999.
20
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
The following table sets outs a schedule of the lease expiration for
leases in place at those properties owned as of June 30, 1999:
Net Rentable Percent of Leased
Area Subject to Square Footage
Expiring Leases Represented by
Year of Lease Expiration (square feet)(1) Expiring Leases
------------------------ ---------------- ----------------
1999 499,000 11.5%
2000 454,000 8.6
2001 726,000 16.7
2002 865,000 12.1
2003 748,000 13.0
2004 660,000 11.3
2005 153,000 0.4
2006 180,000 3.4
2007 618,000 11.9
2008 and thereafter 588,000 11.1
(1) Excludes 157,000 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.
21
<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.
22
<PAGE>
Part II
OTHER INFORMATION
- -----------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
23
<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: August 16, 1999
24
<PAGE>
Exhibit Index
-------------
Exhibit Description Page
- ------- ----------- ----
27 Financial Data Schedule 26
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CARRAMERICA REALTY, L.P. BALANCE SHEET AS OF JUNE 30, 1999 AND FROM CARRAMERICA
REALTY, L.P. STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999.
</LEGEND>
<CIK> 1040554
<NAME> CarrAmerica Realty, L.P.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Jun-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 8,003
<SECURITIES> 0
<RECEIVABLES> 18,702
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 727,453
<DEPRECIATION> 45,098
<TOTAL-ASSETS> 830,528
<CURRENT-LIABILITIES> 0
<BONDS> 339,932
0
0
<COMMON> 0
<OTHER-SE> 440,690
<TOTAL-LIABILITY-AND-EQUITY> 830,528
<SALES> 0
<TOTAL-REVENUES> 59,276
<CGS> 0
<TOTAL-COSTS> 44,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,061
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,061
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
