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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 MARCH 31, 1999
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COMMISSION FILE NO. 000-22741
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CARRAMERICA REALTY, L.P.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 52-1976308
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
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 May 17, 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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I: Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets of CarrAmerica Realty, L.P.
and subsidiary as of March 31, 1999 (unaudited) and December 31, 1998................................4
Condensed consolidated statements of operations of CarrAmerica Realty, L.P. and subsidiary for the
three months ended March 31, 1999 and 1998 (unaudited) ..............................................5
Condensed consolidated statements of cash flows of CarrAmerica Realty, L.P. and subsidiary for the
three months ended March 31, 1999 and 1998 (unaudited) ..............................................6
Notes to condensed consolidated financial statements (unaudited)...............................7 to 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................................13 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
</TABLE>
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 March 31, 1999 and December 31, 1998
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
Assets
- ------
Rental property (note 2):
Land $ 108,038 107,596
Buildings 534,214 529,127
Tenant improvements 36,758 35,209
Furniture, fixtures, and equipment 741 665
--------- ---------
679,751 672,597
Less - accumulated depreciation (38,726) (32,546)
--------- ---------
Total rental property 641,025 640,051
Land held for development 22,817 19,044
Construction in progress 92,641 70,939
Cash and cash equivalents 4,755 3,268
Restricted cash and cash equivalents (note 2) 986 1,236
Accounts and notes receivable 10,227 10,536
Investments 3,305 8,621
Accrued straight-line rents 9,034 8,180
Tenant leasing costs, net 10,968 11,092
Deferred financing costs, net 226 337
Prepaid expenses and other assets, net 2,262 1,755
--------- ---------
$ 798,246 775,059
========= =========
Liabilities and Partners' Capital
- ---------------------------------
Liabilities:
Mortgages and notes payable (note 2) $ 299,110 299,949
Note payable to affiliate (note 2) 28,924 28,996
Accounts payable and accrued expenses 16,508 13,920
Due to affiliates 14,816 --
Rent received in advance and security deposits 5,597 5,387
--------- ---------
Total liabilities 364,955 348,252
Partners' capital:
General partner 4,373 4,302
Limited partners 428,918 422,505
--------- ---------
Total partners' capital 433,291 426,807
Commitments and contingencies
--------- ---------
$ 798,246 775,059
========= =========
</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 March 31, 1999 and 1998
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
1999 1998
-------- ---------
Real estate operating revenue:
Rental revenue:
Minimum base rent $ 23,557 20,098
Recoveries from tenants 3,963 3,072
Other tenant charges 726 592
-------- --------
Total rental revenue 28,246 23,762
Cost reimbursements 676 538
-------- --------
Total revenue 28,922 24,300
-------- --------
Real estate operating expenses:
Property operating expenses:
Operating expenses 6,764 5,233
Real estate taxes 2,802 2,238
Interest expense 4,258 3,451
General and administrative 1,320 1,141
Depreciation and amortization 6,804 5,117
-------- --------
Total operating expenses 21,948 17,180
-------- --------
Real estate operating income 6,974 7,120
-------- --------
Other operating income:
Interest income 266 247
-------- --------
Total other operating income 266 247
-------- --------
Net operating income
before loss on sales of assets 7,240 7,367
Loss on sale of assets (183) (416)
-------- --------
Net income $ 7,057 6,951
======== ========
Net income attributable to general partner $ 71 70
======== ========
Net income attributable to limited partners $ 6,986 6,881
======== ========
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
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(Unaudited and in thousands)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,057 6,951
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 6,804 5,117
Loss on sale of assets 183 416
Loss on write-off of assets 38 --
Changes in assets and liabilities, net of acquisitions and dispositions:
Decrease (increase) in accounts and notes receivable 309 (1,367)
Increase in accrued straight-line rents (854) (1,319)
Additions to tenant leasing costs (374) (654)
Decrease (increase) in prepaid expenses and other assets (544) 287
Increase (decrease) in accounts payable and accrued expenses 2,405 (807)
Increase in due to affiliates 14,816 35,227
Increase in rent received in advance and security deposits 210 33
-------- --------
Total adjustments 22,993 36,933
-------- --------
Net cash provided by operating activities 30,050 43,884
-------- --------
Cash flows from investing activities:
Additions to rental property (528) (3,345)
Acquisitions of rental property -- (17,390)
Additions to land held for development (3,774) (10,639)
Additions to construction in process (28,444) (13,450)
Distributions from unconsolidated partnerships 6,725 --
Investments in unconsolidated partnerships (1,409) --
Decrease (increase) in restricted cash and cash equivalents 250 (264)
-------- --------
Net cash used by investing activities (27,180) (45,088)
-------- --------
Cash flows from financing activities:
Capital contributions -- 17,197
Capital distributions (573) (560)
Net borrowings (repayments) on unsecured line of credit 1,000 (1,000)
Repayments on notes and mortgages payable (1,911) (13,325)
Additions to deferred financing costs 101 --
-------- --------
Net cash provided (used) by financing activities (1,383) 2,312
-------- --------
Increase in cash and cash equivalents 1,487 1,108
Unrestricted cash and cash equivalents, beginning of the period 3,268 3,584
-------- --------
Unrestricted cash and cash equivalents, end of the period $ 4,755 4,692
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest of $ 1,769
and $769 for the three months ended March 31, 1999 and 1998,
respectively $ 3,867 3,822
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<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 March 31, 1999, the Partnership owned 59 operating
properties, ten properties under development and land expected
to support the future development of 1.4 million 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 March 31, 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
March 31, 1999 and December 31, 1998, and various other
individuals and entities which collectively owned an
approximate 12% interest in the Partnership at March 31, 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.
7
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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(2) Mortgages and Note Payable
The Partnership's mortgages payable and credit facility are summarized
as follows (in thousands):
March 31, December 31,
1999 1998
--------- ------------
Fixed rate mortgages $ 157,360 159,199
Fixed rate note payable to affiliate 28,924 28,996
Unsecured credit facility 141,750 140,750
--------- ---------
$ 328,034 328,945
========= =========
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 May 1999 through
May 2017.
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 March 31, 1999, CarrAmerica and the Partnership had $133.3
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 $28.9 million and $29.0 million at
March 31, 1999 and December 31, 1998, respectively.
8
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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The annual maturities of debt as of March 31, 1999 are summarized as
follows (in thousands):
1999............................. $ 15,881
2000............................. 16,214
2001............................. 174,304(1)
2002............................. 9,656
2003............................. 20,464
2004 and Thereafter.............. 91,515(2)
--------
$328,034
========
(1) Includes $ 141.7 million outstanding as of March 31,
1999 under the Company's $450.0 million unsecured line
of credit.
(2) Includes approximately $26.4 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.
9
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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(3) Acquisition and Development Activities
From January 1, 1999 to March 31, 1999, the Partnership acquired land
for an aggregate purchase price of $ 2.2 million. Costs incurred during
the three months ended March 31, 1999 for properties under construction
were $28.4 million. As of March 31, 1999, the Partnership had 10 office
properties under construction.
(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 represents net income
excluding depreciation and amortization on real estate assets and loss
on sale of assets.
10
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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<TABLE>
<CAPTION>
(In millions) As of and for the quarter ended
March 31, 1999
----------------------------------------------------
Real Estate
Property Development Other
Operations Operations Operations Total
----------- ----------- ---------- ------
<S> <C> <C> <C> <C>
Operating revenue................... $ 28.2 -- 0.7 $ 28.9
Segment expense..................... 9.6 -- 1.3 10.9
------ ------ ------ ------
Net segment revenue........... 18.6 -- (0.6) 18.0
Interest expense.................... 4.0 (1.8) 2.1 4.3
Other income........................ -- -- 0.3 0.3
------ ------ ------ ------
Funds from operations......... $ 14.6 1.8 (2.4) 14.0
====== ====== ====== ------
Adjustments to net operating income
before loss on sale of assets:
Depreciation and amortization. (6.8)
------
Net operating income before loss
on sale of assets.................. $ 7.2
======
Total assets.................. $669.0 115.4 13.8 $798.2
Expenditures for long-lived
assets....................... $ 0.9 32.2 -- $ 33.1
</TABLE>
11
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Segment Information - (Continued)
<TABLE>
<CAPTION>
(In millions) As of and for the quarter ended
March 31, 1998
----------------------------------------------------
Real Estate
Property Development Other
Operations Operations Operations Total
----------- ----------- ---------- ------
<S> <C> <C> <C> <C>
Operating revenue................... $ 23.8 -- 0.5 $ 24.3
Segment expense..................... 7.5 -- 1.1 8.6
------ ------ ------ ------
Net segment revenue........... 16.3 -- (0.6) 15.7
Interest expense.................... 3.6 (0.8) 0.6 3.4
Other income........................ -- -- 0.2 0.2
------ ------ ------ ------
Funds from operations........... $ 12.7 0.8 (1.0) 12.5
====== ====== ====== ------
Adjustments to net operating income
before loss on sale of assets:
Depreciation and amortization. (5.1)
------
Net operating income before loss
on sale of assets................. $ 7.4
======
Total assets.................. $ 623.3 48.0 9.4 $680.7
Expenditures for long-lived
assets...................... $ 21.4 24.1 -- $ 45.5
</TABLE>
12
<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 March 31, 1999 and
December 31, 1998, and for the three months ended March 31, 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 March 31, 1999, the Partnership owned 59 properties. Between April 1, 1998
and March 31, 1999, the Partnership acquired 3 properties, placed into service 4
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 MARCH 31, 1999 AND 1998
Real Estate Property Operations
Operating Revenue. Total real estate property operating revenue
increased $4.4 million, or 18.5%, to $28.2 million for the three months ended
March 31, 1999 as compared to $23.8 million for the three months ended March 31,
1998. The Partnership experienced net growth in its rental revenue as a result
of its acquisitions and development properties placed in service, which together
contributed approximately $3.0 million of additional rental revenue in 1998.
Rental revenue from properties that were fully operational throughout both
periods increased by approximately $1.4 million primarily due to increased
occupancy in these properties.
Segment Expense. Real estate property operating expenses increased $2.1
million to $9.6 million for the three months ended March 31,1999, from $7.5
million for the three months ended March 31, 1998. The Partnership experienced
net growth in its segment expense primarily as a result of property
acquisitions and development properties placed in service, which together
contributed approximately $1.5 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 $0.6
million.
Interest Expense. Interest increased $0.4 million due to the
acquisition of properties which were subject to existing mortgage debt.
Total Assets. The increase of $45.7 million or 7.3% in total assets
from March 31,1998 to March 31,1999 is primarily as a result of acquisitions of
real estate and development properties placed in service.
Development Operations
Interest Expense. Interest capitalization related to construction in
progress increased $1.0 million to $1.8 million for the three months ended March
31, 1999 from $0.8 million for the three months ended March 31, 1998, primarily
as a result of the increase in construction dollars expended.
13
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
Total Assets. Total assets increased $67.4 million to $115.4 million at
March 31, 1999 from $48.0 million at March 31, 1998, primarily as a result of an
increase in construction starts from 1998 to 1999.
Other Operations
Operating Revenue. Operating revenue increased $0.2 million to $0.7
million for the three months ended March 31, 1999 as compared to $0.5 million
for the three months ended March 31, 1998, primarily as a result of an increase
in reimbursements from an affiliate related to certain services provided to the
affiliates by Partnership personnel.
Segment Expenses. Segment expenses increased $0.2 million to $1.3
million for the three months ended March 31, 1999 as compared to $1.1 million
for the three months ended March 31, 1998, primarily as a result of the addition
of staff 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.
Other Income. Other income was comparable between periods.
Total Assets. Total assets increased $4.4 million to $13.8 million at
March 31, 1999 as compared to $9.4 million at March 31, 1998, primarily as a
result of an investment in an unconsolidated partnership.
Liquidity and Capital Resources
The Partnership's total indebtedness at March 31, 1999 was $328.0
million, of which $141.8 million, or 43.2%, bore a LIBOR-based floating interest
rate. The Partnership's fixed rate indebtedness bore an effective weighted
average interest rate of 8.2% at March 31, 1999 and had a weighted average term
to maturity of 7.7 years. At March 31, 1999, the total book value of the
Partnership's assets was $798.2 million. The Partnership's debt as a percentage
of total book value of its assets was 41.1% at March 31, 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 for the three months ended
March 31, 1999 was 5.8%. Currently, the unsecured credit facility bears interest
at 90 basis points over 30 day LIBOR.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
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, deferred maintenance on certain
properties recently acquired 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 596,000
square feet under leases expiring, representing 11.5% of total leased space. The
Partnership expects expenditures for deferred maintenance on recently acquired
properties to decrease in subsequent years as the emphasis of the Partnership's
growth shifts from acquiring existing office properties to developing new
properties. The Partnership anticipates that this shift from acquiring
properties to developing properties will increase its need for short-term
borrowings.
The Partnership will require a substantial amount of capital for
development projects currently underway and planned for the future. As of March
31, 1999, the Partnership had ten development projects underway, which are
expected to require a total investment by the Partnership of $154.6 million. As
of March 31, 1999, the Partnership had expended $108.3 million of these costs.
The Partnership expects to meet these anticipated capital needs through
the use of its unsecured line of credit (as described above), through advances
from CarrAmerica, prudent 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 capital. As of March 31, 1999, the Partnership had cash of $5.7 million,
of which $1.0 was restricted.
Net cash provided by operating activities was $30.0 million during the
three months ended March 31,1999, compared to $43.9 million during the three
months ended March 31, 1998. The decrease in net cash provided by operating
activities was primarily a result of amounts due to affiliates. The
Partnership's investing activities used approximately $27.2 million and $45.1
million during the three months ended March 31, 1999 and 1998, respectively. The
Partnership's investment activities included the acquisition of land held for
future development and additions to construction in process of approximately
$32.2 million during the three months ended March 31, 1999. The Partnership's
investment activities included acquisitions of rental property and land for
future development and additions to construction in process of approximately
$41.5 million during the three months ended March 31, 1998. Additionally, the
Partnership invested approximately $0.5 million and $3.3
15
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
million in its existing real estate assets during 1999 and 1998. Net of
distributions to the Partnership's partners, the Partnership's financing
activities used net cash of $0.8 million during the three months ended March 31,
1999 compared to net cash provided of $2.9 million during the three months ended
March 31, 1998. During the three months ended March 31, 1999, the Partnership's
net borrowings under its unsecured credit facility were approximately $1.0
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.
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. CarrAmerica
expects CTA will continue to assist the Project Managers, as needed, 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
16
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
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
continues to identify substantially all of the major components of its property
and business operations systems, which may be vulnerable to the Year 2000 issue.
In terms of Property Operations, CarrAmerica is conducting 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) are
compared to CTA's existing embedded systems database to determine the status of
Year 2000 compliance if it is not already known by CarrAmerica. If relevant
information is not contained in the existing database, the system is 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 systems Year 2000 compliance and any available
remedies. As of the fourth quarter of 1998, inventory of CarrAmerica's operating
properties was complete. Assessment of 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 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 second and third quarter of 1999. In
addition, during the fourth quarter of 1998 and the first quarter of 1999,
CarrAmerica continued communicating with other significant hardware, software
and other material services providers, requesting 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. 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 intends to complete 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 will first evaluate applications, systems and equipment. If a
potential Year 2000 problem is identified, CarrAmerica will take steps to
attempt to remediate the problem and, where applicable, test 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.
17
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership
- --------------------------------------------------------------------------------
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 April 30, 1999, CarrAmerica
has incurred approximately $2.7 million in costs for its Year 2000 program.
CarrAmerica currently estimates that it will incur additional costs, which are
not expected to exceed approximately $1.9 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.
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 March 31, 1999:
<TABLE>
<CAPTION>
Partnership's Net
Effective Rentable
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 89.4% 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 99.5 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 84.3 1
Park North 100.0 132,744 95.3 2
City View Centre 100.0 136,183 100.0 3
Riata 4, 5, 8 100.0 274,118 89.7 3
Tower of the Hills 100.0 166,099 98.1 2
City View Center 100.0 128,716 100.0 1
Chicago:
Bannockburn I & II 100.0 210,860 100.0 2
Bannockburn IV 100.0 108,469 100.0 1
Dallas, Texas:
Quorum North 100.0 115,845 88.6 1
Quorum Place 100.0 177,873 92.8 1
Cedar Maple Plaza 100.0 113,011 96.2 3
Tollhill East & West 100.0 241,487 91.5 2
Two Mission Park 100.0 77,731 89.9 1
5000 Quorum 100.0 159,549 96.2 1
Royal Ridge A 100.0 144,835 100.0 1
Denver:
Harlequin Plaza 100.0 329,028 98.3 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 92.0 3
Panorama Corporate Center I 100.0 100,881 98.4 1
Panorama II 100.0 100,916 96.7 1
Phoenix, Arizona:
US West 100.0 532,506 100.0 4
Concord Place 100.0 134,557 87.7 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
--------- ----- --
TOTAL CONSOLIDATED PROPERTIES: 5,356,774 59
========= ==
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 March 31, 1999.
19
<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 March 31, 1999:
<TABLE>
<CAPTION>
Net Rentable Percent of Leased
Area Subject to Square Footage
Expiring Leases Represented by
Year of Lease Expiration (square feet) (1) Expiring Leases
------------------------ ----------------- ---------------
<S> <C> <C>
1999 596,000 11.5%
2000 445,000 8.6
2001 866,000 16.7
2002 626,000 12.1
2003 672,000 13.0
2004 584,000 11.3
2005 24,000 0.4
2006 180,000 3.4
2007 618,000 11.9
2008 and thereafter 576,000 11.1
</TABLE>
(1) Excludes 170,000 square feet of vacant space.
20
<PAGE>
Quantitative and Qualitative Disclosures 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 Annual Report on Form 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
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
/s/ Philip L. Hawkins
- -------------------------------------------------------------------------
Philip L. Hawkins, Managing Director and Vice President
Date: May 17, 1999
23
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARRAMERICA
REALTY, L.P. BALANCE SHEET AS OF MARCH 31, 1999 AND FROM CARRAMERICA REALTY,
L.P. STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999.
</LEGEND>
<CIK> 0001040554
<NAME> CarrAmerica LP
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.000
<CASH> $5,741
<SECURITIES> 0
<RECEIVABLES> 10,227
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 679,751
<DEPRECIATION> 38,726
<TOTAL-ASSETS> 798,246
<CURRENT-LIABILITIES> 0
<BONDS> 328,034
0
0
<COMMON> 0
<OTHER-SE> 433,291
<TOTAL-LIABILITY-AND-EQUITY> 798,246
<SALES> 0
<TOTAL-REVENUES> 28,922
<CGS> 0
<TOTAL-COSTS> 21,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,057
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,057
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Notes & accounts receivable are presented net of allowance for doubtful
accounts as the allowance is immaterial.
</FN>
</TABLE>
