- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file Number 0-22741
CARRAMERICA REALTY, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1976308
------------------------------- ------------------------------------
(State or other Jurisdiction or (I.R.S. Employer Identification No.)
Incorporation or Organization)
1850 K STREET, N.W. 20006
WASHINGTON, D.C. ----------
---------------------------------------- (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (202) 729-7500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Partnership
Interest
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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 15, 1999, assuming that each unit of partnership interest has
the same value as a share of common stock of CarrAmerica Realty Corporation
(into which such units may be redeemed) the aggregate market value of the
1,777,587 units of partnership interest held by non-affiliates of the registrant
was approximately $39.0 million, based upon the closing price of a share of
common stock of CarrAmerica Realty Corporation of $21.9375 on the New York Stock
Exchange composite tape on such date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
General
CarrAmerica Realty, L.P., a Delaware limited partnership (the
'Partnership'), was organized in March 1996 and its activities include the
acquisition, development, ownership and operation of office properties primarily
in select growth markets across the United States. The Partnership's portfolio,
as of March 15, 1999, consisted of (i) 59 operating properties containing
approximately 5.4 million rentable square feet of office space located in
Austin, Denver, Dallas, Salt Lake City, Chicago, Phoenix, San Diego, Seattle,
San Francisco Bay area and Orange County/Los Angeles (the 'Properties'), (ii)
twelve properties under construction that will contain approximately 1.1 million
square feet of office space, and (iii) land that is expected to support the
future development of up to 1.1 million square feet of office space. The
Properties owned as of December 31, 1998 were 96.8% leased as of that date. Each
of the Properties is wholly owned by the Partnership.
The Partnership is managed indirectly by CarrAmerica Realty Corporation, a
Maryland corporation (together with its subsidiaries, including the Partnership,
'CarrAmerica'). CarrAmerica indirectly serves as the sole general partner of the
Partnership and indirectly owned approximately 88% of the units of partnership
interest ('Units') in the Partnership as of March 15, 1999. CarrAmerica is a
real estate investment trust (a 'REIT') for federal income tax purposes and its
shares of common stock, $.01 par value per share ('Common Stock'), are listed on
the New York Stock Exchange under the symbol 'CRE.'
CarrAmerica is a fully integrated, self-administered and self-managed REIT
that focuses primarily on the acquisition, development, ownership and operation
of office properties in select growth markets across the United States. As of
March 15, 1999, CarrAmerica owned a greater than 50% interest in a portfolio of
286 operating office properties and 45 properties under construction. These 286
operating properties contain an aggregate of approximately 22.0 million square
feet of net rentable area and the 45 properties under construction will contain
approximately 3.8 million square feet. The operating properties as of December
31, 1998 were 96.7% leased as of that date, with approximately 2,400 tenants.
CarrAmerica and its predecessor, The Oliver Carr Company ('OCCO'), have
developed, owned and operated office buildings in the Washington, D.C.
metropolitan area for more than 36 years. In November 1995, CarrAmerica
announced a strategic alliance with a wholly-owned subsidiary of Security
Capital U.S. Realty (together with Security Capital U.S. Realty, 'SC-USREALTY'),
a European real estate operating Company which owns strategic positions in
selected real estate companies in the United States. As of March 15, 1999,
SC-USREALTY owned approximately 39.9% of the outstanding common stock of
CarrAmerica (36.2% on a fully diluted basis).
CarrAmerica organized and administers the Partnership as a means of
acquiring, developing, owning and operating certain properties within its
portfolio. All of the Partnership's properties, as well as its financial
condition and results of operations, are reported as part of the consolidated
properties, financial condition and results of operations of CarrAmerica. The
Partnership is required to report separately by means of this Annual Report on
Form 10-K and other periodic reports filed with the Securities and Exchange
Commission because it is the guarantor of certain publicly held debt of
CarrAmerica. As of December 31, 1998, approximately 20% of the total assets of
CarrAmerica were owned by the Partnership or its subsidiaries.
The Partnership is capitalized through the issuance of Units. CarrAmerica,
through its wholly-owned subsidiary, CarrAmerica Realty GP Holdings, Inc., a
Delaware corporation ('GP Holdings'), serves as the sole general partner of the
Partnership and owned a 1.0% general partner interest (in the form of Units) in
the Partnership as of March 15, 1999. In addition, CarrAmerica, through its
wholly-owned subsidiary, CarrAmerica Realty LP Holdings, Inc., a Delaware
corporation ('LP Holdings'), owned an approximate 87% limited partnership
interest (in the form of Units) in the Partnership as of March 15, 1999. The
remaining Units are owned by persons who received such Units in connection with
the contribution to the Partnership of interests in certain Properties. The
Partnership has approximately 115 employees, including approximately 85 on-site
employees.
1
<PAGE>
BUSINESS STRATEGY
The Partnership is an integral part of CarrAmerica, and its operations and
strategic direction are defined by CarrAmerica. CarrAmerica's primary business
objectives are to achieve long-term sustainable per share cash flow growth and
to maximize stockholder value through a strategy of (i) acquiring, developing,
owning and operating office properties primarily in markets throughout the
United States that exhibit strong, long-term growth characteristics and (ii)
maintaining and enhancing a national operating system that provides corporate
users of office space with a mix of products and services to meet their
workplace needs at both the national and local level.
The Partnership's major segments of operations include real estate property
operations and development operations. Real estate property operations include
the ownership of commercial real estate. Such operations comprise approximately
97% of the Partnership's revenues and approximately 86% of the Partnership's
assets. Development operations include the development of office space and the
buildout of tenant space. The Partnership's investment in development operations
represents approximately 12% of the Partnership's assets.
REAL ESTATE PROPERTY OPERATIONS
Core Markets. CarrAmerica has focused its acquisition and development
activity in markets of the United States, which generally possess strong
long-term growth characteristics. Within these markets, CarrAmerica is targeting
specific submarkets in which (i) operating costs for businesses are relatively
low, (ii) long-term population and job growth generally are expected to exceed
the national average, (iii) large, well-educated employment pools exist, and
(iv) barriers to entry exist for new supplies of office space. CarrAmerica has
established a local presence in each of its existing target markets through its
investment activity and through relationships established by its experienced
market officers. CarrAmerica's target markets include the following: Atlanta,
Austin, Chicago, Dallas, Denver, Boca Raton, Florida, Orange County/Los Angeles,
Phoenix, Portland, Oregon, Sacramento, Salt Lake City, San Diego, San Francisco
Bay area, Seattle and metropolitan Washington, D.C.
For each identified core market, CarrAmerica has established a set of
general guidelines and physical characteristics to evaluate investment
opportunities. All investment decisions are driven by real estate research,
focusing on variables such as composition of economic base rate, and composition
of job growth and office space supply and demand fundamentals.
As of December 31, 1998, the distribution of the Partnership's real estate
property operations (on a net rentable square foot basis) was as follows: 45% in
its Central region, primarily in Austin, Dallas and Chicago; 40% in its Mountain
region, primarily in Denver, Salt Lake City and Phoenix; and 15% in its Pacific
region, primarily in Seattle, and the California markets of San Mateo, Orange
County, Los Angeles and San Diego.
Operating Property Acquisitions. In November 1995, CarrAmerica implemented
a major initiative to acquire operating office properties in order to establish
the operating platform for its national business strategy. Between January 1,
1996 and October 31, 1998, CarrAmerica acquired 302 operating properties
containing approximately 20.3 million square feet of net rentable area,
resulting in an approximate 550% increase in the total square footage of
operating properties in which CarrAmerica has a majority interest. These
properties were acquired for an aggregate purchase price of approximately $2.5
billion. Since October 1998, CarrAmerica has not been focused on acquisitions as
a catalyst for growth.
National Operating System. As part of its business strategy, CarrAmerica
has developed and will continue to enhance a national operating system to
provide nationally coordinated customer service, marketing and development.
CarrAmerica's national operating system consists of three components: (i) a
Market Officer Group, currently consisting of 11 market officers focused on
developing and maintaining strong local relationships with CarrAmerica's
customers and the brokerage community and identifying investment opportunities
for CarrAmerica; (ii) a National Services Group, which is dedicated to marketing
CarrAmerica's office space to a targeted list of companies; and (iii) a National
Development Group, which is responsible for developing office properties,
build-to-suit facilities and business parks. CarrAmerica's national operating
system is designed to provide corporate users of office space with a mix of
products and services to meet their workplace needs at both the national and
local levels. CarrAmerica believes that through its existing portfolio of
operating properties,
2
<PAGE>
property development opportunities and land acquired and currently held for
future development, CarrAmerica can generate incremental demand through the
relocation and expansion needs of many of its customers, both within a single
core market and in multiple core markets.
Market Officer Group. The Market Officer Group currently consists of
11 market officers who cover the 15 core markets in which CarrAmerica currently
owns properties. These market officers are responsible for maximizing the
performance of CarrAmerica's properties in their markets and ensuring that the
needs of CarrAmerica's customers are consistently being met. Because they meet
with CarrAmerica's customers on a regular basis, market officers are cognizant
of and responsive to customers' relocation or expansion needs. The market
officers have extensive knowledge of local conditions in their respective
markets and, therefore, are invaluable in identifying attractive investment
opportunities in their markets. In addition, through their contact with
customers, market officers are well positioned to help the National Services
Group identify customers with new build-to-suit and multi-market requirements.
National Services Group. CarrAmerica established the National
Services Group in 1997. This group is responsible for marketing CarrAmerica's
properties, build-to-suit capabilities and the national scope of CarrAmerica's
operations to a targeted list of major corporate users. The National Services
Group acts as a primary point of contact for national customers, coordinating
all of the office space CarrAmerica offers and giving corporate customers the
opportunity to address their national space requirements efficiently and
economically.
National Development Group. The National Development Group is
responsible for developing office properties, build-to-suit facilities and
business parks. CarrAmerica's development team currently has over 70
professionals consisting of architects, engineers and construction professionals
across the United States who have an average of over 15 years of experience
developing office properties. This team of development professionals oversees
every aspect of CarrAmerica's land planning, building design, construction and
development of office properties, ensuring that all projects meet the same high
standards and uniform specifications in building design and systems. CarrAmerica
believes that the National Development Group's expertise has given CarrAmerica a
competitive edge in marketing its facilities and services to customers.
Asset Optimization. As a component of its business strategy, CarrAmerica
may dispose of assets that become inconsistent with its long-term strategic or
return objectives or where market conditions for disposition are favorable.
CarrAmerica then redeploys the proceeds of dispositions into other office
properties (utilizing tax-deferred exchanges where possible). Consistent with
this strategy, CarrAmerica disposed of 13 properties during 1998, containing
approximately 1.2 million square feet for approximately $180 million in value.
CarrAmerica recognized a gain of $38.2 million in conjunction with these
transactions. In addition, from January 1, 1999 through March 15, 1999,
CarrAmerica disposed of an additional 11 properties containing 795,000 square
feet for approximately $130 million in value, resulting in a gain of $11
million. CarrAmerica may consider disposing of additional properties or
interests in properties, some of which may be significant. CarrAmerica, however,
has agreed with SC-USREALTY to use its reasonable efforts to dispose of
properties only through tax-deferred exchanges (and CarrAmerica also is subject
to other similar restrictions with respect to certain properties acquired by the
Partnership and Carr Realty, L.P.), which may limit its flexibility in effecting
dispositions. In addition, tax laws applicable to REITs restrict CarrAmerica's
ability to dispose of certain properties.
DEVELOPMENT OPERATIONS
Development of office properties is an important component of CarrAmerica's
growth strategy as attractive acquisition opportunities diminish due to the
influx of capital into the office property market. CarrAmerica believes that
long-term investment returns resulting from properties it develops generally
will exceed those from properties it acquires, without the assumption of
significantly increased investment risks. CarrAmerica minimizes its development
risk by employing extensively trained and experienced development personnel, by
avoiding the assumption of entitlement risk in conjunction with land
acquisitions and by entering into guaranteed maximum price (GMP) construction
contracts with seasoned and credible contractors. Most importantly, CarrAmerica
carefully analyzes the supply and demand characteristics of a core market before
commencing inventory development in the market. In general, CarrAmerica will
only undertake inventory development (which excludes properties under
construction that have been substantially pre-leased) in markets with strong
real estate
3
<PAGE>
fundamentals, and then CarrAmerica generally will construct office buildings
attractive to a wide range of office users. CarrAmerica's research-driven
development program enables it to tailor its development activities in each core
market, from inventory development, to build-to-suit projects, to holding land
for future development. From January 1, 1997 to March 15, 1999, CarrAmerica
placed in service approximately 3.1 million square feet of office properties.
The total cost of these development properties was $436.5 million and
CarrAmerica expects that the first year stabilized unleveraged return of these
properties will be 11.6%. In addition, as of March 15, 1999, CarrAmerica had 45
properties under construction that will contain approximately 3.8 million square
feet of which 473,000 square feet had already been placed in service.
CarrAmerica believes that having a significant land inventory to support
future development provides it with a competitive advantage in responding to
customers' needs for office space in markets with low vacancy rates, barriers to
entry for new supplies of office space and increasing rental rates. In addition
to its portfolio of operating properties and projects currently under
development, CarrAmerica owned or controlled, as of March 15, 1999, land in 11
of its core markets that is expected to support future development of up to 5.6
million square feet.
RECENT DEVELOPMENTS
Acquisitions and Development
From January 1, 1998 to March 15, 1999, the Partnership invested
approximately $113.3 million ($73.7 million in cash and the assumption of $20.5
million of debt) in three operating properties containing approximately .4
million square feet and land which was expected to support the future
development of approximately 1.6 million square feet. During this period, the
Partnership had developed and placed into service six properties containing an
aggregate of approximately 649,000 square feet and placed under construction
nine properties which will contain an aggregate of approximately 888,000 square
feet. The table below provides certain information by market regarding the
operating properties acquired between January 1, 1998 and March 15, 1999:
<TABLE>
<CAPTION>
PURCHASE
PRICE NUMBER OF RENTABLE
REGION/MARKET (IN MILLIONS) PROPERTIES SQUARE FEET
- ------------------------------------------------------------------ ------------- ---------- -----------
<S> <C> <C> <C>
PACIFIC REGION
San Diego....................................................... $ 16.9 1 105,000
CENTRAL REGION
Dallas.......................................................... 17.4 1 160,000
MOUNTAIN REGION
Phoenix......................................................... 20.0 1 133,000
--
------------- -----------
Total........................................................ $ 54.3 3 398,000
--
--
------------- -----------
------------- -----------
</TABLE>
The following table provides certain information regarding the development
activity on the Partnership's land, all of which was acquired between January 1,
1998 and March 15, 1999:
<TABLE>
<CAPTION>
SQUARE FEET FUTURE
UNDER BUILDABLE
MARKET CONSTRUCTION SQUARE FOOTAGE
- -------------------------------------------------------------------------- ------------ --------------
<S> <C> <C>
Downtown Washington, D.C................................................ --(1) --
Austin.................................................................. 258,000 173,000
Dallas.................................................................. 337,000 608,000
------------ --------------
Total................................................................ 595,000 781,000
------------ --------------
------------ --------------
</TABLE>
- ------------------
(1) Excludes 229,000 square feet which was purchased in 1998, placed under
construction and subsequently contributed to a joint venture in which the
Partnership currently holds a 35% interest.
4
<PAGE>
FINANCING ACTIVITY
In December 1998, the Partnership entered into a joint venture with J.P.
Morgan & Co. to purchase and develop 1201 F Street in downtown Washington, D.C.
J.P. Morgan & Co. has become a 65% joint venture partner in the partnership that
owns the property and has committed to provide its pro-rata share of the
required expected capital of $71.8 million. In addition, Bank of America and
Mass Mutual have agreed to provide construction financing and permanent
financing for this project.
Also, during the fourth quarter, the 2600 West Olive property in Burbank,
California was refinanced for 10 years at a fixed rate of 6.75%.
In 1998, CarrAmerica raised $350 million through debt offerings which were
guaranteed by the Partnership.
RISK FACTORS
For a discussion of certain risks associated with an investment in
CarrAmerica and the Partnership, see 'Item 1--Business--The Company--Risk
Factors' in the 1998 CarrAmerica 10-K, which inforamtion is hereby incorporated
by reference.
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 CarrAmerica and the Partnership 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 CarrAmerica 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), governmental actions
and initiatives, and environmental/safety requirements.
ITEM 2. PROPERTIES
General. As of December 31, 1998, the Partnership owned 59 operating
office properties ranging from two to 12 stories each, located in ten target
markets across the United States. As of December 31, 1998, the Partnership also
owned 12 office properties under development. Except as disclosed in 'Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources,' the Partnership has no immediate
plans to renovate its operating office properties other than for routine capital
maintenance. The Partnership believes its properties are adequately covered by
insurance. The Partnership believes that, as a result of CarrAmerica's national
operating system, market research capabilities, access to capital, and
experience as an owner, operator and developer of office properties, the
Partnership will continue to be able to identify and consummate acquisition and
development opportunities and to operate its portfolio more effectively than
competitors without such capabilities. The Partnership, however, competes in
many of its core markets with other real estate operators, some of which may
have been active in such markets for a longer period than the Partnership.
5
<PAGE>
The following table sets forth certain information about each operating
property owned by the Partnership as of December 31, 1998:
<TABLE>
<CAPTION>
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET)(1) LEASED(2) (IN THOUSANDS) FOOT(4)
- ----------------------------------- ------ ----- ---------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED PROPERTIES
SOUTHERN CALIFORNIA,
ORANGE COUNTY/LOS ANGELES:
South Coast Executive Center..... 2 100.0% 161,310 90.7% $ 3,058 $20.90
2600 W. Olive.................... 1 100.0 145,474 95.7 3,543 25.46
Bay Technology Center............ 2 100.0 107,481 100.0 1,606 14.94
SOUTHERN CALIFORNIA,
SAN DIEGO:
Jaycor........................... 1 100.0 105,358 100.0 1,719 16.32
NORTHERN CALIFORNIA,
SAN FRANCISCO BAY AREA:
San Mateo I...................... 1 100.0 70,000 100.0 2,478 35.40
San Mateo II and III............. 2 100.0 141,404 97.2 3,778 27.51
SEATTLE:
Canyon Park Commons.............. 1 100.0 95,290 100.0 1,358 14.25
AUSTIN, TEXAS:
Great Hills Plaza................ 1 100.0 135,333 100.0 2,532 18.71
Balcones Center.................. 1 100.0 74,978 78.4 950 16.16
Park North....................... 2 100.0 132,744 95.3 2,101 16.62
City View Centre................. 3 100.0 136,183 100.0 2,237 16.42
Riata 4, 5, 8.................... 3 100.0 274,118 89.7 3,506 14.26
Tower of the Hills............... 2 100.0 166,099 98.1 2,476 15.19
City View Center................. 1 100.0 128,716 100.0 2,073 16.10
CHICAGO:
Bannockburn I & II............... 2 100.0 210,860 100.0 3,400 16.13
Bannockburn IV................... 1 100.0 108,469 100.0 1,707 15.74
DALLAS, TEXAS:
Quorum North..................... 1 100.0 115,845 88.6 1,860 18.12
Quorum Place..................... 1 100.0 179,303 92.4 2,706 16.34
Cedar Maple Plaza................ 3 100.0 113,011 96.1 2,144 19.73
Tollhill East & West............. 2 100.0 241,487 91.1 3,550 16.14
<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- ----------------------------------- ------------------------------------------------------------------
<S> <C>
CONSOLIDATED PROPERTIES
SOUTHERN CALIFORNIA,
ORANGE COUNTY/LOS ANGELES:
South Coast Executive Center..... State Compensation Insurance Fund (33%)
2600 W. Olive.................... The Walt Disney Company (89%)
Bay Technology Center............ AMRESCO (100%)
SOUTHERN CALIFORNIA,
SAN DIEGO:
Jaycor........................... Jaycor, Inc. (100%)
NORTHERN CALIFORNIA,
SAN FRANCISCO BAY AREA:
San Mateo I...................... Franklin Resources (100%)
San Mateo II and III............. Franklin Resources, Inc. (37%), Peoplesoft/Red Pepper (20%)
SEATTLE:
Canyon Park Commons.............. Microsoft (100%)
AUSTIN, TEXAS:
Great Hills Plaza................ Empire Funding (48%), Blue Cross (24%), Skjerven Morrill,
Machpherson (13%), Businesssuites (12%)
Balcones Center.................. Medianet (29%), Austin Diagnostic Clinic (15%)
Park North....................... CSC Continuum Inc. (36%)
City View Centre................. Holt, Rinehart & Winston (76%), Money Star Communications (16%)
Riata 4, 5, 8.................... Netsolve, Inc. (25%), Pervasive Software (25%), Alcatel USA, Inc.
(25%)
Tower of the Hills............... Texas Guaranteed Student (65%)
City View Center................. IXC Communications, Inc. (100%)
CHICAGO:
Bannockburn I & II............... IMC Global (38%), Deutsche Credit Corporation (36%)
Bannockburn IV................... Open Text (35%), Abbott Laboratories (12%), NY Life Insurance
(10%)
DALLAS, TEXAS:
Quorum North..................... Digital Matrix Systems (20%), HQ Dallas Quorum North (17%)
Quorum Place..................... VHASouthwest, Inc. (22%), Objectspace (16%)
Cedar Maple Plaza................ No Tenant Occupies More Than 10%
Tollhill East & West............. Digital Equipment Corporation (22%)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET)(1) LEASED(2) (IN THOUSANDS) FOOT(4)
- ----------------------------------- ------ ----- ---------- --------- -------------- ------------
Two Mission Park................. 1 100.0% 77,731 89.1% $ 985 $14.21
<S> <C> <C> <C> <C> <C> <C>
5000 Quorum...................... 1 100.0 160,222 92.2 2,361 15.99
Royal Ridge A.................... 1 100.0 144,835 100.0 2,571 17.75
SOUTHEAST DENVER:
Harlequin Plaza.................. 2 100.0 329,070 98.6 5,173 15.94
Quebec Court I & II.............. 2 100.0 287,294 100.0 4,021 14.00
Greenwood Center................. 1 100.0 75,866 100.0 1,456 19.19
Quebec Center.................... 3 100.0 106,865 92.1 1,470 14.95
Panorama Corporate Center I...... 1 100.0 100,881 100.0 2,062 20.44
Panorama II...................... 1 100.0 100,916 96.7 2,151 22.04
PHOENIX, ARIZONA:
US West.......................... 4 100.0 532,506 100.0 8,580 16.11
Concord Place.................... 1 100.0 133,287 100.0 2,463 18.70
SALT LAKE CITY, UTAH:
Sorenson Research Park........... 5 100.0 285,144 99.7 3,381 11.89
Wasatch Corporate Center......... 3 100.0 178,098 100.0 2,084 11.70
------ ---------- --------- -------------- ------------
TOTAL CONSOLIDATED PROPERTIES:..... 59 5,356,178 $ 87,540
------ ---------- --------------
---------- --------------
WEIGHTED AVERAGE................... 96.8% $16.89
--------- ------------
--------- ------------
<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- ----------------------------------- ------------------------------------------------------------------
Two Mission Park................. Macromedia, Inc. (26%), Bland Garvey and Taylor (16%)
<S> <<C>
5000 Quorum...................... No Tenant Occupies More Than 10%
Royal Ridge A.................... GTE North, Inc. (100%)
SOUTHEAST DENVER:
Harlequin Plaza.................. Travelers Insurance (17%), Bellco First Federal Credit Union
(13%), National Mortgage Corporation. (11%), Regis University
(10%)
Quebec Court I & II.............. Prime Star, Inc. (55%), Time Warner Communications (45%)
Greenwood Center................. General Motors Corporation (30%), Talisman Partners, Ltd (11%),
FDIC (11%)
Quebec Center.................... Gordon Gumeeson & Associates (12%), Walberg & Dagner (11%)
Panorama Corporate Center I...... Teleport Communications Group (70%), Sprint Spectrum, LP (11%)
Panorama II...................... Hartford Fire Insurance Company (38%), 3COM Corporation (18%),
Toyota Motor Credit Corporation (13%), Archstone Communities (11%)
PHOENIX, ARIZONA:
US West.......................... US West Business Resources (100%)
Concord Place.................... Peacock, Hislop, Staley & Given (16%), Horizon Real Estate Group
(11%)
SALT LAKE CITY, UTAH:
Sorenson Research Park........... Foundation Health Corporation (12%), Matrix Marketing, Inc. (34%),
Datachem Laboratories, Inc. (20%), Intel Corporation (14%), ITT
Educational Services (12%)
Wasatch Corporate Center......... Advanta Financial Corporation (28%), Achieve Global, Inc. (23%),
Fonix Corporation (14%), Tenfold Corporation (14%), Musicians
Friand, Inc. (12%)
TOTAL CONSOLIDATED PROPERTIES:.....
WEIGHTED AVERAGE...................
</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
December 31, 1998.
(3) Total annualized base rent equals total original base rent, including
historical contractual increases and excluding (i) percentage rents, (ii)
additional rent payable by tenants such as common area maintenance, real
estate taxes and other expense reimbursements, (iii) future contractual or
contingent rent escalations, and (iv) parking rents.
(4) Calculated as total annualized base rent divided by net rentable area
leased.
(5) Includes tenants leasing 10% or more of rentable square footage (with the
percentage of rentable square footage in parentheses).
7
<PAGE>
Occupancy, Average Rentals and Lease Expirations. As of December 31, 1998,
96.8% of the aggregate net rentable square footage in the Partnership's 59
operating office properties was leased. The following table sets forth the
percent leased and average annualized rent per leased square foot (excluding
storage space) for office and retail space combined for the past three years at
each of the dates indicated:
<TABLE>
<CAPTION>
AVERAGE
PERCENT ANNUALIZED RENT NUMBER OF
LEASED AT PER LEASED CONSOLIDATED
DECEMBER 31, YEAR END SQUARE FOOT(1) PROPERTIES
- ------------ --------- --------------- ------------
<S> <C> <C> <C>
1998 96.8% $ 19.33 59
1997 96.4 17.10 53
1996 89.7 13.93 25
</TABLE>
- ------------------
(1) Calculated as total annualized building operating revenue, including tenant
reimbursements for operating expenses and excluding parking and storage
revenue, divided by the total square feet, excluding storage, in the
building under lease at year end.
The following table sets forth a schedule of the lease expirations for
leases in place as of December 31, 1998 in each of the next ten years beginning
with 1999 and thereafter for the Partnership's 59 operating office properties,
assuming that no tenants exercise renewal options:
<TABLE>
<CAPTION>
PERCENT OF
NET ANNUAL TOTAL
NUMBER OF RENTABLE AREA BASE RENT ANNUAL
TENANTS SUBJECT TO UNDER BASE RENT
YEAR WITH EXPIRING EXPIRING REPRESENTED
OF LEASE EXPIRING LEASES(1) LEASES BY EXPIRING
EXPIRATION LEASES (SQUARE FEET) (IN THOUSANDS) LEASES
- ------------------------------------- --------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
1999................................. 158 716,000 $ 11,356 13.0%
2000................................. 106 453,000 8,568 9.8
2001................................. 134 859,000 14,657 16.7
2002................................. 68 614,000 11,961 13.7
2003................................. 95 649,000 10,670 12.2
2004................................. 30 549,000 9,484 10.8
2005................................. 2 23,000 510 .6
2006................................. 10 180,000 2,759 3.2
2007................................. 8 618,000 9,698 11.1
2008................................. 15 442,000 6,740 7.7
2009 and thereafter.................. 6 81,000 1,137 1.2
</TABLE>
- ------------------
(1) Excludes 172,000 square feet of space that was vacant as of December 31,
1998.
US West. Because the aggregate gross revenues of the four properties that
constitute US West were in excess of 10% of the Partnership's total gross
revenues for 1998, additional information regarding US West is provided below.
US West was developed in 1988. The complex includes four buildings, three
of which are located in Phoenix and one in Tucson. The Partnership has no
immediate plans to renovate US West (other than for routine capital maintenance)
and believes that US West is adequately covered by insurance.
As of December 31, 1998 and 1997, 100.0% of the rentable square footage in
the four buildings constituting US West was leased. The percent leased and
average annualized rent per leased square foot (excluding storage space) for the
prior three years for US West is not available because US West was purchased by
the Partnership in December 1997. At December 31, 1998 and 1997, U.S. West
Business Resources occupied 100% of the space (or approximately 532,500 square
feet) pursuant to a lease which expires in 2007. U.S. West has two five-year
options to extend their lease at the then prevailing market rates, provided
notice is given no later than July 1,
8
<PAGE>
2006 on the first option and July 1, 2011 on the second option. The current
annual base rent under this lease, excluding operating recoveries, is
approximately $8,580,000.
The aggregate tax basis of depreciable real property of the office
properties constituting US West for federal income tax purposes was
approximately $66.8 million as of December 31, 1998. Depreciation is computed on
the Modified Accelerated Cost Recovery System (MACRS) over the estimated useful
lives of the real property over 31.5 or 39 years. No personal property was
purchased with these office properties.
The current realty tax rate for the four buildings that constitute US West
range from $4.6965 to $10.4561 per $100 assessed value. The annual tax for the
four buildings range from approximately $247,000 to $786,000 based on assessed
values ranging from $3,516,000 to $9,908,000.
Mortgage Financing. As of December 31, 1998, certain of the Partnership's
59 operating office properties were subject to fixed rate mortgage indebtedness
in an aggregate principal amount of $188.2 million. The Partnership's fixed rate
mortgage debt bears an effective weighted average interest rate of 8.2% and a
weighted average maturity of 7.0 years (assuming loans callable before maturity
are called as early as possible). Certain information regarding fixed rate
mortgage indebtedness is set forth in the table below as of December 31, 1998:
<TABLE>
<CAPTION>
ESTIMATED
ANNUAL DEBT BALANCE DUE AT
INTEREST PRINCIPAL MATURITY SERVICE MATURITY
PROPERTY RATE BALANCE DATE (IN THOUSANDS) (IN THOUSANDS)
- -------------------------------------------- ------------- --------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
South Coast Executive Center................ 9.01% $ 10,127 5/31/99 $ 1,015 $ 10,103(1)
Quorum Place................................ 6.99 7,578 11/15/00 665 7,327(1)
Bannockburn I & II.......................... 9.52 19,554 8/31/01 2,801 16,912(1)
Quorum North................................ 8.27 6,566 12/10/01 640 6,258(1)
Jaycor...................................... 8.96 12,781 2/1/03 1,657 10,332(1)
Canyon Park Commons......................... 9.13 5,615 12/1/04 714 4,071(1)
US West..................................... 7.92 53,263 12/1/05 8,836 (2)
Concord Place............................... 7.75 7,646 1/1/06 725 6,438(1)
Wasatch Corporate Center.................... 8.15 12,654 1/2/07 1,220 10,569(1)
2600 West Olive............................. 6.75 19,152 1/1/09 1,293 19,152(1)
Harlequin Plaza and Quebec Court I & II(3).. 8.50 28,996 5/31/11 2,899 19,586(1)
Sorenson Research Park...................... 7.75 2,617 7/1/11 328 (2)
Sorenson Research Park...................... 8.88 1,646 5/1/17 182 (2)
----- --------- --------------
Total....................................... 8.21% $ 188,195 $ 22,975
----- --------- --------------
----- --------- --------------
</TABLE>
- ------------------
(1) Currently prepayable at the rates stated in the loan documents.
(2) Note will be fully repaid at maturity.
(3) Payable to CarrAmerica.
For additional information regarding the Company's office properties and
their operation, see 'Item 1, Business.'
ITEM 3. LEGAL PROCEEDINGS
The Partnership is party to a variety of legal proceedings arising in the
ordinary course of its business. All of these matters, taken together, are not
expected to have a material adverse impact on the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Units. As of December
31, 1998, there were 23 holders of record of Units. As of December 31, 1998,
there were no options or warrants to purchase Units outstanding. In addition, as
of December 31, 1998, there were no Units that were being, or have been publicly
proposed to be, publicly offered by the Partnership.
Each Unit held by persons other than GP Holdings or LP Holdings is (subject
to certain holding period limitations) redeemable for cash equal to the value of
a share of common stock of CarrAmerica or, at the option of GP Holdings, common
stock of CarrAmerica on a one-for-one basis. For a presentation of the high and
low trading prices of CarrAmerica's common stock for the last two years, see
'Item 5--Market for Registrant's Common Equity & Related Stockholder Matters' in
CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1998
(the '1998 CarrAmerica 10-K'), which information is hereby incorporated by
reference.
The Partnership has made regular quarterly distributions of $0.4625 per
Class A Unit from the first quarter of 1998 and $0.4375 per Class A Unit from
the second quarter of 1996 through the fouth quarter of 1997. The distributions
are prorated where appropriate to reflect ownership of Units for less than the
full period to which such distribution relates. A distribution of $0.4375 per
Class B Unit also was made for each of the second and third quarters of 1996.
The Partnership's ability to make distributions depends on a number of factors,
including its net cash provided by operating activities, capital commitments and
debt repayment schedules. Holders of Units are entitled to receive distributions
when, as and if declared by the Board of Directors of GP Holdings, its sole
general partner, out of any funds legally available for that purpose.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
for the Partnership as of and for the years ended December 31, 1998 and 1997, as
of December 31, 1996 and for the period from March 6, 1996 (date of inception)
to December 31, 1996.
The following selected financial and operating information should be read
in conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' included in this Form 10-K and the financial
statements and notes thereto included in this Form 10-K.
<TABLE>
<CAPTION>
March 6,
1996
(date of
inception)
through
YEAR ENDED Year Ended December 31,
DECEMBER 31, 1998 December 31, 1997 1996
----------------- ----------------- ------------
(amounts in thousands except Other Data)
<S> <C> <C> <C>
OPERATING DATA:
Real estate operating revenue.............................. $ 104,614 $ 60,469 $ 13,376
Real estate operating expenses:
Property operating expenses............................. 34,167 25,804 6,546
Interest expense........................................ 16,508 6,792 1,475
General and administrative expenses..................... 6,365 3,473 680
Depreciation and amortization........................... 23,877 13,146 3,148
Real estate operating income............................... 23,697 11,254 1,527
Net income................................................. 32,869 16,693 1,556
Cash distributions paid to Unit holders.................... 2,277 1,124 2,050
BALANCE SHEET DATA (AT PERIOD END):
Real estate, before accumulated depreciation............... 762,580 624,085 238,073
Total assets............................................... 775,059 636,568 241,217
Mortgages and notes payable................................ 328,945 241,715 51,744
Total Unit holders' (partners') capital.................... 426,807 377,632 180,933
OTHER DATA (AT PERIOD END):
Number of properties....................................... 59 53 25
Square footage............................................. 5,356,000 4,730,000 2,295,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is based primarily on the Consolidated Financial
Statements of the Partnership as of December 31, 1998 and 1997, and for the
years ended December 31, 1998 and 1997 and the period from March 6, 1996 (Date
of Inception) to December 31, 1996. The comparability of the periods is
significantly impacted by acquisitions and dispositions made during 1998, 1997
and 1996 and the Partnership not having a full 12 months of operations for the
period ended December 31, 1996, since the Partnership did not acquire any assets
until May 1996, with which to compare the 12 months ended December 31, 1997. As
of December 31, 1996 the Partnership owned 25 properties. This number grew to 53
properties by December 31, 1997 and 59 properties by December 31, 1998
respectively. This information should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
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.
11
<PAGE>
RESULTS OF OPERATIONS--1998 TO 1997
REAL ESTATE PROPERTY OPERATIONS
Operating Revenue. Total real estate property operating revenue increased
$43.2 million, or 74.7%, to $101.0 million for 1998 as compared to $57.8 million
for 1997. 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 $39.1 million of additional rental revenue in
1998. Rental revenue from properties that were fully operational throughout both
periods increased by approximately $4.1 million primarily due to increased
occupancy in these properties.
Segment Expense. Real estate property operating expenses increased $8.4
million to $34.2 million in 1998 from $25.8 million in 1997. 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 $7.7 million of additional expense in 1998. The
Partnership also experienced an increase in property operating expenses from
properties that were fully operational in both periods of approximately $.7
million.
Interest Expense. Interest expense increased $7.1 million due to the
acquisition of properties which were subject to existing mortgage debt.
Other Income. Other revenue generated by real estate property operations
increased $.1 million primarily due to increased interest income.
Total Assets. The increase of $75.0 million or 12.7% from 1997 to 1998 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 $2.0 million to $4.9 million in 1998 from $2.9 million in
1997 primarily as a result of the increase in construction dollars expended.
Total Assets. Total assets increased $54.4 million to $90.0 million in
1998 from $35.6 million in 1997, primarily as a result of an increase in
construction starts from 1997 to 1998.
OTHER OPERATIONS
Operating Revenue. Operating revenue increased $.9 million to $3.6 million
for 1998 as compared to $2.7 million for 1997, 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 $2.9 million, to $6.4 million
for 1998 as compared to $3.5 million for 1997, primarily as a result of the
addition of staff necessary to implement the Partnership's business strategy.
Interest Expense. The $4.6 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 increased $.6 million to $.8 million in 1998
from $.2 million in 1997 primarily as a result of interest income earned on a
note receivable from an affiliate.
Total Assets. Total assets increased $9.1 million, or 103.4%, to $17.9
million for 1998 as compared to $8.8 million for 1997, primarily as a result of
an $8.6 million investment in an unconsolidated partnership.
CONSOLIDATED CASH FLOWS
Net cash provided by operating activities increased $33.1 million, or
163.1%, to $53.3 million for 1998 as compared to $20.2 million for 1997,
primarily as a result of the acquisitions of operating properties. Net cash used
by investing activities decreased $79.3 million, to $136.2 million for 1998 as
compared to $215.5 million for 1997, primarily as a result of a reduction of
capital deployed by the Partnership for acquisitions of office
12
<PAGE>
properties. Net cash provided by financing activities decreased $113.8 million,
to $82.6 million for 1998 as compared to $196.4 million for 1997, primarily as a
result of a reduction of capital contributions.
RESULTS OF OPERATIONS--1997 TO 1996
REAL ESTATE PROPERTY OPERATIONS
Operating Revenue. Total real estate property operating revenue increased
$44.4 million to $57.8 million for 1997 as compared to $13.4 million for 1996.
This increase is due to a full 12 months of activity in 1997 as opposed to 8
months in 1996. In addition, the Partnership experienced net growth in its
rental revenue as a result of its acquisitions and development properties placed
in service, which together contributed the additional real estate operating
revenue in 1997.
Segment Expenses. Real estate property operating expenses increased $19.3
million to $25.8 million for 1997 as compared to $6.5 million for 1996. This
increase is due to a full 12 months of activity in 1997 as opposed to 8 months
in 1996. In addition, the Partnership experienced increases in operating
expenses as a result of its acquisitions and development properties placed in
service, which together contributed the additional real estate operating
expenses in 1997.
Interest Expense. Interest expense increased $6.9 million to $8.8 million
in 1997 from $1.9 million primarily as a result of properties acquired subject
to existing mortgage debt.
Other Income. Other income increased $.1 million primarily due to an
increase in interest income.
Total Assets. The increase of $374.5 million to $592.2 million in 1997
from $217.7 million in 1996 is primarily as a result of the Company's real
estate acquisitions.
DEVELOPMENT OPERATIONS
Interest Expense. Interest capitalization increased $2.5 million to $2.9
million in 1997 from $.4 million in 1996 primarily as a result of the increase
in construction dollars expended.
Total Assets. The increase of $13.9 million to $35.6 million in 1997 from
$21.7 million in 1996 is primarily as a result of an increase in construction
starts from 1996 to 1997.
OTHER OPERATIONS
Operating Revenue. Operating revenue increased $2.7 million for 1997,
primarily as a result of an increase in reimbursements from an affiliate related
to certain services the Partnership personnel provide to the affiliate.
Segment Expenses. Segment expenses increased $2.8 million, or 400.0%, to
$3.5 million for 1998 as compared to $.7 million for 1997, primarily as a result
of the addition of staff to implement the Partnership's business strategy.
Interest Expense. The increase of $.9 million in the Partnership's
interest expense is primarily as a result of the establishment of the
Partnership's line of credit which was used to fund acquisition and development
activity.
Other Income. The increase of $.2 million in other income in 1997 is
primarily as a result of increased interest income.
Total Assets. Increased $7.0 million to $8.8 million in 1997 from $1.8
million in 1996 primarily as a result of the issuance of a $5.9 million note
receivable.
CONSOLIDATED CASH FLOWS
Net cash provided by operating activities increased $10.8 million, or
114.7%, to $20.2 million for 1997 as compared to $9.4 million for 1996,
primarily as a result of the acquisitions of operating properties. Net cash used
by investing activities increased $15.4 million, to $215.5 million for 1997 as
compared to $200.1 million for 1996, primarily as a result of capital deployed
by the Partnership for acquisitions of office properties, land held
13
<PAGE>
for future development and construction in progress. Net cash provided by
financing activities increased $3.3 million, to $196.4 million for 1997 as
compared to $193.1 million for 1996, primarily as a result of net borrowings on
the unsecured credit facility.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's total indebtedness at December 31, 1998 was $328.9
million, of which $140.8 million, or 42.8%, bore a LIBOR-based floating interest
rate or Federal Funds rate. The Partnership's mortgage payable fixed rate
indebtedness bore an effective weighted average interest rate of 8.2% at
December 31, 1998 and had a weighted average term to maturity of 7.0 years. At
December 31, 1998, the total book value of the Partnership's assets was $775.1
million. The Partnership's debt as a percentage of total book value of its
assets was 40.6% at December 31, 1998. CarrAmerica has a $450.0 million
unsecured credit facility with a current borrowing capacity of $360.0 million
under which the Partnership is jointly and severally liable. The weighted
average interest rate under the unsecured credit facility for 1998 was 6.3%.
Currently, the unsecured credit facility bears interest at 90 basis points over
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 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 had 716,000 square feet of
leases expiring, representing 13.0% 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
December 31, 1998, the Partnership had 12 development projects underway, which
are expected to require a total investment by the Partnership of $152.5 million.
As of December 31, 1998, the Partnership had expended $82.2 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. As of March 15, 1999,
the Partnership had three properties under letter of intent and commencing due
diligence located in Dallas. These properties are expected to produce net
proceeds of approximately $35 million. Due to the uncertainty in the disposition
and related due diligence process, there can be no assurance that these sales
will close or that they 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. Current market conditions make CarrAmerica's traditional sources
of such capital, the equity and public debt markets, currently unattractive.
CarrAmerica believes that the alternative sources which it is currently
pursuing, namely refinancings, joint ventures and asset dispositions, will
provide it with the necessary capital until such time as the equity and public
debt markets improve. However, there can be no assurance that such an
improvement will occur in the near term. If CarrAmerica is not able to access
capital at attractive rates and the Partnership is not able to meet its cash
requirements through its traditional means, it may have to rely on working
capital advances from CarrAmerica at a time when CarrAmerica's cost of capital
causes such advances to be made at unattractive rates. As of December 31, 1998,
the Partnership had cash of $4.5 million, of which $1.2 million was restricted.
14
<PAGE>
Net cash provided by operating activities was $53.3 million during 1998,
compared to $20.2 million during 1997. The increase in net cash provided by
operating activities was primarily a result of acquisitions made by the
Partnership. The Partnership's investing activities used approximately $136.2
million and $215.5 million during 1998 and 1997, respectively. The Partnership's
investment activities included the acquisitions of office buildings and land
held for future development and additions to construction in process of
approximately $183.2 million during 1998, as compared to $263.1 million in
acquisitions during 1997. Additionally, the Partnership invested approximately
$19.3 million and $9.9 million in its existing real estate assets during 1998
and 1997, respectively. Net of distributions to the Partnership's partners, the
Partnership's financing activities provided net cash of $84.9 million and $197.5
million during 1998 and 1997, respectively. During 1998, the Partnership's
partners contributed $18.6 million to fund acquisitions. The Partnership also
drew amounts from its unsecured credit facility during 1998 to finance its
acquisitions and other investing activities. During 1998, the Partnership's net
borrowings of its unsecured credit facility were approximately $85.3 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.
Management believes that the Partnership will have access to the capital
resources necessary to expand and develop its business. The Partnership may seek
to obtain funds through contributions from CarrAmerica through its ability to
raise funds through contributions from CarrAmerica through its ability to raise
funds through equity offerings or debt offerings, in a manner consistent with
its intention to operate with a conservative borrowing policy. The Partnership
anticipates that adequate cash will be available to fund its operating and
administrative expenses, continuing debt service obligations, the payment of
dividends in accordance with REIT requirements in both the short term and long
term, and future acquisitions of office properties.
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.
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 microcontroller technology (such as elevators and HVAC systems). The
Internal Business Operations segment focuses primarily on CarrAmerica's
information technology, operating systems (such as billing, accounting and
financial reporting systems) and certain systems of CarrAmerica's major vendors
and material service providers. As described below, Project 2000 involves (i)
the assessment of the Year 2000 problems that may affect CarrAmercia, (ii) the
development of remedies to address the problems discovered in the assessment
phase, (iii) the selective testing of such remedies and (iv) the preparation of
contingency plans to deal with the potential failure of important and critical
systems.
15
<PAGE>
ASSESSMENT. During the course of its assessment phase, CarrAmerica
continued 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 conducted a comprehensive inventory
of all of its buildings' systems and equipment. Systems were risk ranked (1-3)
based upon each system's importance to the properties' operations. Those systems
classified as level 2 or 3 (the highest levels of importance) were compared to
CTA's existing embedded systems database to determine the status of Year 2000
compliance if it was not already known by CarrAmerica. If relevant information
was not contained in the existing database, the system was then identified for
processing through vendor management coordinated by CTA. Vendor management
involved concentrated communication with the vendor in an attempt to determine
the status of a system's Year 2000 compliance and any available remedies. As of
the fourth quarter of 1998, inventory of CarrAmerica's operating properties was
complete. Assessment of property operations was substantially complete as of
January 1999.
In terms of Internal Business Operations Technology, team leaders were
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. CarrAmerica's
primary billing and accounting software is currently undergoing a routine
application upgrade expected to be complete by 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 generally Year 2000 ready, and CarrAmerica expects to test the system during
the second 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 in so far 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 and fourth quarters 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 identifying. 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 December 31, 1998, CarrAmerica
has incurred approximately $.5 million in costs for its Year 2000 program.
CarrAmerica currently estimates that it will incur additional costs, which are
not expected to exceed approximately $4.5 million, to complete its Year 2000
compliance work. Of such additional costs, approximately $3.3 million are
expected to be incurred during 1999. 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.
16
<PAGE>
ACQUISITION AND DEVELOPMENT ACTIVITY
The following is a discussion of the Partnership's acquisition and
development activity during 1998. A more detailed discussion can be found in
'Item 1. Business--Recent Developments'.
During 1998, the Partnership acquired the following properties: in its
Pacific region, one property containing a total of approximately .1 million
square feet, for an aggregate purchase price of approximately $16.9 million; in
its Mountain region, one property containing a total of approximately .1 million
square feet, for an aggregate purchase price of approximately $20.0 million; and
in its Central region, one property containing a total of approximately .2
million square feet for an aggregate purchase price of approximately $17.4
million. The Partnership also acquired land for an aggregate purchase price of
$20.1 million that is expected to support the development of up to 1.4 million
square feet. In addition, the Partnership also acquired land for an aggregate
purchase price of $19.7 million that has been subsequently contributed to a
joint venture of which the Partnership currently holds a 35% interest. This land
is expected to support the development of up to .2 milion square feet of office
space.
As of December 31, 1998, the Partnership had 12 office properties under
construction: 164,000 square feet in its Mountain region and 966,000 square feet
in its Central region. Costs incurred during 1998 for properties under
construction were $127.2 million. An additional $70.3 million is expected to be
expended for completion of projects already under construction as of December
31, 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Increases in interest rates would increase our interest expense, which
would adversely affect cash flow. As of December 31, 1998, the Partnership has
$140.8 million outstanding under its line of credit that bears interest at a
floating rate and $159.2 of additional fixed rate mortgage debt. These mortgage
loans mature at various times through 2017. The Partnership also has a $29.0
million unsecured note due to CarrAmerica which matures in 2011.
The Partnership's future earnings, cash flow and fair values relevant to
financial instruments are dependent upon prevailing market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. The
Partnership manages its market risk by matching projected cash inflows from
operating activities, financing activities and investing activities with
projected cash outflows to fund debt payments, acquisitions, capital
expenditures, distributions, and other cash requirements. The Partnership does
not enter into derivative financial instruments to manage its market risk or for
trading purposes.
If the market rates of interest on the Partnership's variable rate debt
change by 10% (or approximately 56 basis points) the Partnership's interest
expense would change by approximately $0.8 million, assuming the amount
outstanding under the variable rate facility remains at $140.8 million, the
balance at December 31, 1998. Furthermore book value of this variable interest
credit facility approximates market value at December 31, 1998.
A change in interest rates generally does not impact future earnings and
cash flows for fixed rate debt instruments, but as fixed rate debt matures and
if additional debt is acquired to fund the repayments under maturing facilities,
future earnings and cash flows may be impacted by changes in interest rates.
This impact would be realized in the periods subsequent to debt maturities. The
following is a summary of the fixed rate debt maturities (in thousands):
<TABLE>
<S> <C>
1999......................................... $ 17,843
2000......................................... 16,229
2001......................................... 32,535
2002......................................... 9,660
2003......................................... 20,468
2004 & thereafter............................ 91,460
----------
$ 188,195
----------
----------
</TABLE>
17
<PAGE>
Assuming the repayments of fixed rate mortgages and the note to CarrAmerica
are made in accordance with the terms and conditions of the respective mortgages
and the note, a 10 percent change in the market interest rate for the respective
fixed rate debt instruments would change the fair value of the Partnership's
fixed rate debt by approximately $5.9 million. The fair market value of the
fixed rate debt instruments at December 31, 1998 was $195.4 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data included in this Annual
Report on Form 10-K are listed in Part IV, Item 14(a).
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. The Partnership is
managed by GP Holdings, as the sole general partner of the Partnership. The
following table sets forth certain information with respect to the directors and
executive officers of GP Holdings:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Thomas A. Carr....................................... 40 President and Director
Philip L. Hawkins.................................... 43 Managing Director, Vice President, and Director
</TABLE>
CarrAmerica is the sole stockholder of GP Holdings. The additional
information required by this item with respect to directors and executive
officers of CarrAmerica and GP Holdings is hereby incorporated by reference to
the material appearing under the heading 'Election of Directors (Proposal 1),'
in CarrAmerica's definitive proxy statement for the annual meeting of its
stockholders to be held on May 6, 1999 (the '1998 CarrAmerica Proxy Statement')
and under the headings 'Item 1. Business--The Company-- Directors of the
Company' and '--Executive Officers and Certain Key Employees of the Company,' in
the 1998 CarrAmerica 10-K, which information is hereby incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers. The Partnership is
managed by GP Holdings, as the sole general partner of the Partnership. GP
Holdings has not paid any compensation to its directors or officers. CarrAmerica
is the sole stockholder of GP Holdings. The information required by this item
with respect to CarrAmerica's executive officers is hereby incorporated by
reference to the material appearing in the 1998 CarrAmerica Proxy Statement
under the headings 'Executive Compensation,' which information is hereby by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 31, 1998,
regarding the beneficial ownership of Units by each person known by the
Partnership to be the beneficial owner of more than five percent of the
Partnership's outstanding Units. As of December 31, 1998, no director or
executive officer of GP Holdings or CarrAmerica beneficially owned any Units.
Each person named in the table has sole voting and investment power
18
<PAGE>
with respect to all Units shown as beneficially owned by such person, except as
otherwise set forth in the notes to the table.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND BUSINESS ADDRESS OF BENEFICIAL OWNER UNITS UNITS(1)
- ------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
CarrAmerica Realty Corporation...................................................... 12,584,630(2) 87.6%
CarrAmerica Realty LP Holdings, Inc................................................. 12,441,008 86.6%
1850 K Street, N.W.
Washington, D.C. 20006
</TABLE>
- ------------------
(1) Based on 14,362,217 Units outstanding as of December 31, 1998.
(2) Includes 12,441,008 Units held by LP Holdings and 143,622 Units held by GP
Holdings, each of which is a wholly owned subsidiary of CarrAmerica.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CarrAmerica Realty Services, Inc. ('CARSI'), a wholly owned subsidiary of
CarrAmerica, provides management and leasing services to all of the office
properties owned by the Partnership. During 1998, 1997 and 1996, the Partnership
incurred management fees of $3.0 million, $1.9 million and $.4 million,
respectively, for services performed by CARSI. Additionally, CARSI reimburses
the Partnership for certain services the Partnership's personnel provide to
CARSI. These reimbursements amounted to $2.9 million and $2.0 million in 1998
and 1997, respectively. In addition, CarrAmerica Development, Inc. ('CADI'),
also reimbursed the Partnership for certain services the Partnership personnel
provided to CADI. These reimbursements amounted to $.3 million and $.7 million
in 1998 and 1997, respectivley.
CarrAmerica pays on behalf of the Partnership certain administrative costs
and certain costs related to the acquisitions of properties which are billed to
the Partnership, and makes working capital advances to the Partnership. Amounts
due to CarrAmerica and its subsidiaries were $1.4 million at December 31, 1997
and $2.8 million at December 31, 1996.
During 1997, the Partnership sold land to CADI that will support the future
development of approximately four office properties for $5.9 million, which is
payable by a note between the Partnership and CADI.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the Index to Financial Statements and Schedule on
page F-1 of this Form 10-K.
(a)(2) Financial Statement Schedules
Reference is made to the Index to Financial Statements and Schedule on
page F-1 of this Form 10-K.
(a)(3) Exhibits
<TABLE>
<C> <S>
4.1 Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated May 9, 1997
(incorporated by reference to Exhibit 10.1 to CarrAmerica's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
4.2 First Amendment to Second Amended and Restated Agreement of Limited Partnership, dated October 6, 1997
(incorporated by reference to Exhibit 10.2 to CarrAmerica's Annual Report on Form 10-K for the year
ended December 31, 1997).
4.3 Second Amendment to Second Amended and Restated Agreement of Limited Partnership, dated October 6,
1997 (incorporated by reference to Exhibit 10.3 to CarrAmerica's Annual Report on Form 10-K for the
year ended December 31, 1997).
4.4 Third Amendment to Second Amended and Restated Agreement of Limited Partnership, dated October 6, 1997
(incorporated by reference to Exhibit 10.3 to CarrAmerica's Annual Report on Form 10-K for the year
ended December 31, 1997).
</TABLE>
19
<PAGE>
<TABLE>
<C> <S>
4.5 Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated December 31,
1998 (incorporated by reference to Exhibit 10.5 to CarrAmerica's Annual Report on Form 10-K for the
year ended December 31, 1998).
4.6 Indenture, dated as of July 1, 1997, by and among CarrAmerica, as Issuer, the Partnership, as
Guarantor, and Bankers Trust Company, as Trustee, relating to CarrAmerica's 7.20% Notes due 2004 and
7.375% Notes due 2007 (incorporated by reference to Exhibit 4.1 to CarrAmerica's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997).
4.7 Indenture, dated as of February 23, 1998, by and among CarrAmerica, as Issuer, the Partnership, as
Guarantor, and Bankers Trust Company, as Trustee, relating to CarrAmerica's 6.625% Notes due 2005 and
6.875% Notes due 2008 (incorporated by reference to Exhibit 4.2 to CarrAmerica's Annual Report on Form
10-K for the year ended December 31, 1997).
4.8 Indenture, dated as of October 1, 1998, by and among CarrAmerica, as Issuer, the Partnership, as
Guarantor, and Bankers Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the
CarrAmerica's Current Report on Form 8-K filed on October 2, 1998).
10.1 Stockholders Agreement, dated April 30, 1996, by and among CarrAmerica, Carr Realty, L.P., Security
Capital Holdings, S.A. and Security Capital U.S. Realty (incorporated by reference to Exhibit 2.2 of
Security Capital U.S. Realty's Schedule 13D dated April 30, 1996).
10.2 Fourth Amended and Restated Credit Agreement, dated August 27, 1998, by and among CarrAmerica, Carr
Realty, L.P., the Partnership, Morgan Guaranty Trust Company of New York, Commerzbank
Aktiengesellschaft, New York Branch, NationsBank, N.A., Wells Fargo Bank, National Association, Bank
of America National Trust and Savings Association, and the other banks listed therein (incorporated by
reference to Exhibit 10.1 to CarrAmerica's Annual Report on Form 10-Q for the quarter ended September
30, 1998.
10.3 Agreements of Purchase and Sale and Contribution Agreement dated September 30, 1997 by and among the
Partnership, Phoenixwest Associates, Ltd., Versailles Associates Limited Partnership, Lakeview 436
Associates Ltd., Pines Realty Associates, Ltd., and certain other parties thereto (incorporated by
reference to Exhibit 10.3 to the CarrAmerica's Annual Report on Form 10-K for the year ended December
31, 1998).
21.1 List of Subsidiaries.
23.1 Consent of KPMG LLP, dated March 31, 1999.
27 Financial Data Schedule.
99.1 Certificate of Incorporation of CarrAmerica GP Holdings, Inc. (incorporated by reference to Exhibit
99.1 to the Partnership's Registration Statement on Form 10/A, filed on October 1, 1997 (File No.
0-22741)).
99.2 Bylaws of CarrAmerica GP Holdings, Inc. (incorporated by reference to Exhibit 99.2 to the
Partnership's Registration Statement on Form 10/A, filed on October 1, 1997 (File No. 0-22741)).
99.3 'Item 1--Business--The Company--Risk Factors,' from CarrAmerica's Annual Report on Form 10-K for the
year ended December 31, 1998.
99.4 'Item 5--Market for Registrant's Common Equity & Related Stockholder Matters,' from CarrAmerica's
Annual Report on Form 10-K for the year ended December 31, 1998.
99.5 'Election of Directors (Proposal 1),' from CarrAmerica's Proxy Statement to be delivered to
CarrAmerica's stockholders in connection with CarrAmerica's 1999 Annual Meeting of Stockholders.
99.6 'Item 1--Business--The Company--Directors of the Company,' from CarrAmerica's Annual Report on Form
10-K for the year ended December 31, 1998.
99.7 'Item 1--Business--The Company--Executive Officers and Certain Key Employees of the Company,' from
CarrAmerica's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
</TABLE>
20
<PAGE>
<TABLE>
<C> <S>
99.8 'Executive Compensation,' from CarrAmerica's Proxy Statement to be delivered to CarrAmerica's
stockholders in connection with CarrAmerica's 1999Annual Meeting of Stockholders.*
</TABLE>
(b) Reports on Form 8-K
None
(c) Exhibits
The list of exhibits filed with this report is set forth in response to
Item 14(a)(3). The required exhibit index has been filed with the exhibits.
(d) Financial Statements
None.
- ----------------
* To be filed by amendment.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registration has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
District of Columbia on March 31, 1999.
CARRAMERICA REALTY, L.P.
a Delaware limited partnership
By: CarrAmerica Realty GP Holdings,
Inc.
General Partner
By: ________/s/ THOMAS A. CARR________
Thomas A. Carr
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSON ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 31, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------ ---------------------------------------
<C> <S>
/s/ THOMAS A. CARR President and Director
- ------------------------------------------------
Thomas A. Carr
/s/ PHILIP L. HAWKINS Managing Director, Vice President and
- ------------------------------------------------ Director
Philip L. Hawkins
</TABLE>
22
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
The following Consolidated Financial Statements and Schedule of CarrAmerica
Realty, L.P. and Subsidiary and the Independent Auditors' Reports thereon are
attached hereto:
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
<TABLE>
<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and 1997........................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and
the Period from March 6, 1996 (Date of Inception) to December 31, 1996............... F-3
Consolidated Statements of Partners' Capital for the Years Ended December 31, 1998,
1997 and the Period from March 6, 1996 (Date of Inception) to December 31, 1996...... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and
the Period from March 6, 1996 (Date of Inception) to December 31, 1996............... F-5
Notes to Consolidated Financial Statements............................................. F-6
Independent Auditors' Report........................................................... F-16
</TABLE>
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
Independent Auditors' Report........................................................... S-1
Schedule III: Consolidated Real Estate and Accumulated Depreciation as of December 31,
1998 for CarrAmerica Realty, L.P. and Subsidiary..................................... S-2
</TABLE>
All other schedules are omitted because they are not applicable, or because
the required information is included in the financial statements or notes
thereto.
F-1
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Rental property (notes 2 and 9):
Land............................................................................... $107,596 91,347
Buildings.......................................................................... 529,127 465,276
Tenant improvements................................................................ 35,209 12,496
Furniture, fixtures, and equipment................................................. 665 96
------------ ------------
672,597 569,215
Less--accumulated depreciation..................................................... (32,546) (13,360)
------------ ------------
Total rental property........................................................... 640,051 555,855
Land held for development (note 9)................................................... 19,044 10,526
Construction in progress (note 9).................................................... 70,939 44,344
Restricted and unrestricted cash and cash equivalents (note 2)....................... 4,504 5,085
Accounts and notes receivable (note 6)............................................... 10,536 11,757
Investments (note 12)................................................................ 8,621 --
Accrued straight-line rents.......................................................... 8,180 3,317
Tenant leasing costs, net of accumulated amortization of $1,924 in 1998 and $406 in
1997............................................................................... 11,092 3,439
Deferred financing costs, net of accumulated amortization of $14 in 1998............. 337 --
Prepaid expenses and other assets, net of accumulated depreciation and amortization
of $211 in 1998 and $46 in 1997.................................................... 1,755 2,245
------------ ------------
$775,059 636,568
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Mortgages and notes payable (note 2)................................................. $299,949 212,304
Note payable to affiliate (note 2)................................................... 28,996 29,411
Accounts payable and accrued expenses................................................ 13,920 12,591
Due to affiliates (note 6)........................................................... -- 1,386
Rent received in advance and security deposits....................................... 5,387 3,244
------------ ------------
Total liabilities............................................................... 348,252 258,936
Partners' capital (note 3):
General partner.................................................................... 4,302 3,787
Limited partners................................................................... 422,505 373,845
------------ ------------
Total partners' capital......................................................... 426,807 377,632
------------ ------------
Commitments and Contingencies (notes 4 and 8)
$775,059 636,568
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998,
1997, AND FOR THE PERIOD FROM MARCH 6, 1996 (DATE OF INCEPTION) TO DECEMBER 31,
1996
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
MARCH 6,
1996
(DATE OF
INCEPTION)
1997 THROUGH
DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Real estate operating revenue:
Rental revenue (note 4):
Minimum base rent................................................ $ 86,800 48,487 11,220
Recoveries from tenants.......................................... 12,670 8,043 1,790
Other tenant charges............................................. 1,518 1,232 366
------------ ------------ ------------
Total rental revenue........................................... 100,988 57,762 13,376
------------ ------------ ------------
Real estate service revenue......................................... 160 -- --
Cost reimbursements (note 6)........................................ 3,466 2,707 --
------------ ------------ ------------
Total revenue.................................................. 104,614 60,469 13,376
------------ ------------ ------------
Real estate operating expenses:
Property operating expenses:
Operating expenses............................................... 24,972 19,102 4,873
Real estate taxes................................................ 9,195 6,702 1,673
Interest expense.................................................... 16,508 6,792 1,475
General and administrative.......................................... 6,365 3,473 680
Depreciation and amortization....................................... 23,877 13,146 3,148
------------ ------------ ------------
Total operating expenses....................................... 80,917 49,215 11,849
------------ ------------ ------------
Real estate operating income................................... 23,697 11,254 1,527
Other operating income:
Interest income..................................................... 982 372 29
Gain on sales of assets (note 7).................................... 8,190 5,067 --
------------ ------------ ------------
Net income....................................................... $ 32,869 16,693 1,556
------------ ------------ ------------
------------ ------------ ------------
Net income attributable to general partner....................... $ 329 167 15
------------ ------------ ------------
Net income attributable to limited partners...................... $ 32,540 16,526 1,541
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31,
1998, 1997,
AND THE PERIOD FROM MARCH 6, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
GENERAL
PARTNER LIMITED PARTNERS
------------ ----------------------------
CARRAMERICA CARRAMERICA
REALTY GP REALTY LP
HOLDINGS, HOLDINGS, OTHER LIMITED
INC. INC. PARTNERS TOTAL
------------ ----------- ------------- --------
<S> <C> <C> <C> <C>
Capital contributions.................................... $1,814 161,620 17,993 181,427
Capital distributions.................................... (20) (1,924) (106) (2,050)
Net income............................................... 15 1,318 223 1,556
------------ ----------- ------------- --------
Partners' capital at December 31, 1996................... 1,809 161,014 18,110 180,933
Capital contributions.................................... 1,811 153,351 25,968 181,130
Capital distributions.................................... -- -- (1,124) (1,124)
Net income............................................... 167 14,312 2,214 16,693
------------ ----------- ------------- --------
Partners' capital at December 31, 1997................... 3,787 328,677 45,168 377,632
Capital contributions.................................... 186 18,397 -- 18,583
Capital distributions.................................... -- -- (2,277) (2,277)
Net income............................................... 329 28,426 4,114 32,869
------------ ----------- ------------- --------
Partners' capital at December 31, 1998................... $4,302 375,500 47,005 426,807
------------ ----------- ------------- --------
------------ ----------- ------------- --------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998,
1997
AND THE PERIOD FROM MARCH 6, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
MARCH 6, 1996
(DATE OF
INCEPTION)
THROUGH
1998 1997 DECEMBER 31, 1996
--------- --------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 32,869 16,693 1,556
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 23,877 13,146 3,148
Loss on write-off of assets........................................ 465 148 --
Changes in assets and liabilities:
Decrease (increase) in receivables................................. 1,221 (9,869) (1,816)
Increase in accrued straight-line rents............................ (5,269) (2,584) (805)
Additions to tenant leasing costs.................................. (2,531) (3,981) (916)
Decrease (increase) in prepaid expenses and other assets........... 533 (1,991) (277)
Increase in accounts payable and accrued expenses.................. 1,329 8,150 4,441
Increase (decrease) in due to affiliates........................... (1,386) (1,388) 2,774
Increase in rent received in advance and security deposits......... 2,143 1,919 1,325
--------- --------- -----------------
Total adjustments................................................ 20,382 3,550 7,874
--------- --------- -----------------
Net cash provided by operating activities........................ 53,251 20,243 9,430
--------- --------- -----------------
Cash flows from investing activities:
Additions to rental property......................................... (19,284) (9,892) (98)
Acquisitions of rental property...................................... (33,864) (196,295) (178,239)
Additions to land held for future development........................ (22,193) (10,049) (13,254)
Additions to construction in progress................................ (127,162) (56,761) (8,485)
Investments in unconsolidated partnerships........................... (8,621) -- --
Decrease (increase) in restricted cash and cash equivalents.......... 264 (1,500) --
Proceeds from disposition of rental property and land held for
development........................................................ 74,652 58,978 --
--------- --------- -----------------
Net cash used by investing activities............................ (136,208) (215,519) (200,076)
--------- --------- -----------------
Cash flows from financing activities:
Capital contributions................................................ 18,583 155,162 163,433
Net borrowings on unsecured line of credit........................... 85,250 53,500 2,000
Borrowings on notes payable to affiliates............................ -- -- 30,000
Repayments on notes and mortgages payable............................ (18,565) (1,647) (259)
Disposition of mortgage payable from sale of rental property......... -- (9,508) --
Additions to deferred financing costs................................ (351) -- --
Capital distributions................................................ (2,277) (1,124) (2,050)
--------- --------- -----------------
Net cash provided by financing activities........................ 82,640 196,383 193,124
--------- --------- -----------------
Increase (decrease) in cash and cash equivalents................. (317) 1,107 2,478
Cash and cash equivalents, beginning of the period..................... 3,585 2,478 --
--------- --------- -----------------
Cash and cash equivalents, end of the period........................... $ 3,268 3,585 2,478
--------- --------- -----------------
--------- --------- -----------------
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $4,894 in
1998, $2,909 in 1997 and $431 for the period March 6, 1996 to
December 31, 1996)................................................. $ 17,003 6,210 1,619
--------- --------- -----------------
--------- --------- -----------------
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
(a) During 1998, the Partnership funded a portion of the aggregate purchase
price of its property acquisitions by assuming $20.5 million of debt and
liabilities.
(b) During 1997, the Partnership funded a portion of the aggregate purchase
price of its property acquisitions by assuming $147.6 million of debt
and liabilities and by issuing $26.0 million of minority units in the
Partnership.
(c) For the period from March 6, 1996 to December 31, 1996, the Partnership
funded a portion of the aggregate purchase price of its property
acquisitions by assuming $20.0 million of debt and liabilities and $18.0
million of minority units in the Partnership.
See accompanying notes to consolidated financial statements
F-5
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 December 31, 1998, the Partnership owned
59 operating properties and twelve properties under development. The properties
are located in Austin, Chicago, Dallas, Denver, Orange County/Los Angeles,
Phoenix, San Francisco Bay area, Salt Lake City, San Diego and Seattle.
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
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 December 31, 1998, and various
other individuals and entities which collectively owned an approximate 12%
interest in the Partnership at 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.
(c) Rental Property
Rental property is recorded at cost less accumulated depreciation (which is
less than the net realizable value of the rental property). Depreciation is
computed on the straight-line basis over the estimated useful lives of the
assets, as follows:
<TABLE>
<S> <C>
Base Building........................................... 30 to 50 years
Building components..................................... 7 to 20 years
Tenant improvements..................................... Terms of the leases or useful lives, whichever is
shorter
Furniture, fixtures and equipment....................... 5 to 15 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations are capitalized.
The Partnership reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
The Partnership reviews its rental property to determine the point at which
the asset is under contract for sale, with contingencies waived and
nonrefundable earnest money posted. If an asset is subject to these conditions,
the asset is reclassified to 'Assets Available for Sale' and depreciation is
discontinued.
F-6
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
(d) Development Property
Land held for development and construction in progress are carried at cost.
Specifically identifiable direct and indirect, development, construction and
external acquisition costs are capitalized including, where applicable, salaries
and related costs, real estate taxes, interest and certain pre-construction
costs essential to the development of a property.
(e) Tenant Leasing Costs
Fees and costs incurred in the successful negotiation of leases have been
deferred and are being amortized on a straight-line basis over the terms of the
respective leases.
(f) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain
financing and are being amortized over the terms of the respective loans on a
basis which approximates the interest method.
(g) Fair Value of Financial Instruments
The carrying amount of the following financial instruments approximates
fair value because of their short-term maturity: cash and cash equivalents;
accounts and notes receivable; accounts payable and accrued expenses.
(h) Revenue Recognition
The Partnership reports base rental revenue for financial statement
purposes straight-line over the terms of the respective leases. Accrued
straight-line rents represent the amount that straight-line rental revenue
exceeds rents collected in accordance with the lease agreements. Management,
considering current information and events regarding the tenants' ability to
fulfill their lease obligations, considers accrued straight-line rents to be
impaired if it is probable that the Partnership will be unable to collect all
rents due according to the contractual lease terms. If accrued straight-line
rents associated with a tenant are considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows.
Impairment losses, if any, are recorded through a loss on the write-off of
assets. Cash receipts on impaired accrued straight-line rents are applied to
reduce the remaining outstanding balance and as rental revenue, thereafter.
(i) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, 'Accounting for Derivative Instruments and Hedging Activities', which
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Partnership has not yet determined the
impact of this pronouncement, if any.
(j) Income and Other Taxes
No provision has been made for federal and state income taxes because each
partner reports his or her share of the Partnership's taxable income or loss and
any available tax credits on his or her income tax return.
(k) Cash Equivalents
For the purposes of reporting cash flows, the Partnership considers all
highly liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
(l) Stock Option Plan
The Partnership is a participant in the CarrAmerica 1997 Stock Option and
Incentive Plan. Carr America and the Partnership accounted for their option
plans in accordance with the provisions of Accounting Principles Board ('APB')
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Compensation expenses would be recorded only if the current
market price of the underlying unit or stock on the date of grant exceeded the
exercise price.
F-7
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
(m) Segment Operations
In June 1997, the Financial Accounting Standards Board ('FASB') issued SFAS
No. 131, 'Disclosures about Segments of an Enterprise and Related Information,'
which requires a public entity to report selected information about operating
segments in financial reports issued to shareholders. It also establishes
standards for related disclosures about product and services, geographic areas
and major customers.
The Partnership has segmented its operations into real estate property
operations, development operations and other operations. Other operations
consist of other business activities and operating segments that are not
reportable.
(n) Reclassifications
Certain reclassifications of the prior years' amounts have been made to
conform to the current period's presentation.
(2) MORTGAGES PAYABLE AND NOTES PAYABLE
The Partnership's mortgages payable and credit facility are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Fixed rate mortgages................................................................. $159,199 156,804
Fixed rate note payable to affiliate................................................. 28,996 29,411
Unsecured credit facility............................................................ 140,750 55,500
------------ ------------
$328,945 241,715
------------ ------------
------------ ------------
</TABLE>
Mortgages payable are collateralized by certain rental properties and
generally require monthly principal and/or interest payments. Mortgages payable
mature at various dates from May 1999 through May 2017. The weighted average
interest rate of mortgages payable was 8.2% and 8.1% at December 31, 1998 and
1997, respectively.
CarrAmerica and the Partnership also have a $450.0 million unsecured credit
facility with Morgan Guaranty Trust Company of New York, as lead agent for a
group of banks. At December 31, 1998, the credit facility bore interest, as
selected by CarrAmerica, at either (i) the higher of the prime rate or the
Federal Funds Rate for such day or (ii) an interest rate equal to 90 basis
points above the 30 day London Interbank Offered Rate (LIBOR). CarrAmerica has
predominately selected interest rates equal to 90 basis points above the 30 day
LIBOR. The credit facility matures in August 2001. The weighted average
effective interest rate for 1998 was 6.3%. At December 31, 1998, CarrAmerica and
the Partnership had $61 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 $29.0
million and $29.4 million, at December 31, 1998 and December 31, 1997,
respectively.
F-8
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) MORTGAGES PAYABLE AND NOTES PAYABLE--(CONTINUED)
The annual maturities of debt as of December 31, 1998 are summarized as
follows (in thousands):
<TABLE>
<S> <C>
1999.......................................................... $ 17,843
2000.......................................................... 16,229
2001.......................................................... 173,285(1)
2002.......................................................... 9,660
2003.......................................................... 20,468
2004 & thereafter............................................. 91,460(2)
--------
$328,945
--------
--------
</TABLE>
- ------------------
(1) Includes $140.8 million outstanding as of December 31, 1998 under
CarrAmerica's $450.0 million unsecured line of credit.
(2) Includes approximately $26.9 million outstanding on the Partnership's loan
agreement with CarrAmerica.
Restricted and unrestricted cash and cash equivalents includes $1.2 million
of restricted cash at December 31, 1998, consisting primarily of escrow deposits
required by lenders to be used for future building renovations, tenant
improvements or as collateral for letters of credit.
Based on the borrowing rates available to the Partnership for fixed rate
mortgages and note payable with similar terms and average maturities, the
estimated fair value of the Partnership's mortgages at December 31, 1998 and
1997 was approximately $195.4 million and $194.4 million, respectively.
(3) PARTNERS' CAPITAL CONTRIBUTIONS, DISTRIBUTIONS, AND PARTICIPATION
PERCENTAGES
The Second Amended and Restated Agreement of Limited Partnership of the
Partnership, as amended (the 'Partnership Agreement'), details the rights of
ownership in the Partnership. Ownership in the Partnership is expressed in
partnership units ('Units'). Units currently are designated as Class A, B, C, D
or E Units. Class D Units have first preference, Class A and Class E Units
together have second preference and Class B Units have third preference as to
the allocation of Available Cash, as defined in the Partnership Agreement. Class
C units do not share in the allocation of Available Cash. Upon the third
anniversary of the date of issuance of Class C Units, they may be converted to
Class A Units based on a conversion factor described in the Partnership
Agreement. Class E Units have a special allocation of Partnership losses.
Upon the first anniversary of the date of issuance (or two years from the
date of issuance, in the case of Class D Units), each holder of Class A Units,
Class D Units or Class E Units may, subject to certain limitations, require that
the Partnership redeem his or her Units. Upon redemption, such holder will
receive, at the option of the Partnership, with respect to each Unit tendered,
either (i) cash in an amount equal to the market value of one share of
CarrAmerica common stock (subject to certain anti-dilution adjustments) or (ii)
one share of CarrAmerica common stock. In lieu of the Partnership redeeming
Class A, Class D or Class E Units for cash, CarrAmerica has the right to assume
directly and satisfy the redemption right of a Unit holder. Holders of Class B
Units and Class C Units are not entitled to exercise this redemption right.
The following Units were outstanding:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Class A Units............................................... 950,111 950,111 361,677
Class B Units............................................... 12,584,630 11,916,673 6,619,131
Class C Units............................................... 539,593 539,593 539,593
Class D Units............................................... 271,363 271,363 --
Class E Units............................................... 16,520 16,520 --
------------ ------------ ------------
14,362,217 13,694,260 7,520,401
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-9
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) LEASE AGREEMENTS
The following table summarizes future minimum base rent to be received
under noncancelable tenant leases and the percentage of total rentable space
under leases expiring each year, as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
FUTURE PERCENTAGE OF
MINIMUM TOTAL SPACE UNDER
RENT LEASES EXPIRING
-------- -----------------
<S> <C> <C>
1999..................................................................... $ 86,402 13.8%
2000..................................................................... 79,156 8.8
2001..................................................................... 69,882 16.6
2002..................................................................... 60,211 11.8
2003..................................................................... 45,565 12.5
2004 & thereafter........................................................ 115,813 36.5
--------
$457,029
--------
--------
</TABLE>
The leases also provide for additional rent based on increases in the
Consumer Price Index (CPI) and increases in operating expenses. These increases
are generally payable in equal installments throughout the year, based on
estimated increases, with any differences being adjusted in the succeeding year.
(5) STOCK OPTION PLANS
As of December 31, 1998, the Partnership participated in the CarrAmerica
1997 Stock Option and Incentive Plan for the purpose of attracting and retaining
executive officers and other key employees.
The 1997 Stock Option and Incentive Plan ('Stock Option Plan') allows for
the grant of options to purchase CarrAmerica's common stock at an exercise price
which is equal to the fair market value of the common stock at the date of
grant. The Stock Option Plan was approved by CarrAmerica's stockholders at its
Annual Meeting of Stockholders on May 8, 1997. At December 31, 1998, CarrAmerica
had options to purchase 7,200,000 shares of common stock authorized for grant
under the Stock Option Plan, of which 5,362,214 were reserved for issuance or
outstanding. All of the outstanding options have a 10-year term from the date of
grant. The majority of the outstanding options vest over a five-year period, 20%
per year, with the exception of 1,492,500 options which vest over a four-year
period, 25% per year, and 450,000 options which vest at the end of five years.
In November 1998 CarrAmerica granted to key executives 417,754 restricted
stock units under the 1997 Stock Option Plan, of which 31,332 restricted stock
units were granted to Partnership employees. The restricted stock units are
subject to a 5 year vesting schedule, at 20% per year. On each vesting, each
executive will receive, at CarrAmerica's option, stock, cash or a combination of
stock and cash equal to the value of the vested restricted stock unit on the
vesting date, plus an amount equal to the dividends that would have been paid
with respect to such shares since the date of grant had the shares been issued
on such date. The closing price of a share of common stock of CarrAmerica on the
grant date was $23.9375.
F-10
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) STOCK OPTION PLANS--(CONTINUED)
Stock option activity for the Partnership during 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at December 31, 1996............................................. -- --
Granted.................................................................. 50,517 $28.45
Exercised................................................................ -- --
Forfeited................................................................ 312 28.56
Expired.................................................................. -- --
--------- -------
Balance at December 31, 1997............................................. 50,205 $28.45
Granted.................................................................. 270,000 25.90
Exercised................................................................ -- --
Forfeited................................................................ -- --
Expired.................................................................. -- --
--------- -------
Balance at December 31, 1998............................................. 320,205 $26.30
--------- -------
--------- -------
</TABLE>
At December 31, 1998, the range of exercise prices for options issued to
employees of the Partnership was between $23.25 and $29.75 per share and the
weighted average remaining contractual life of outstanding options was 9.35
years.
At December 31, 1998, the number of options exercisable was 10,041 and the
weighted average exercise price of those options was $28.45 per share. At
December 31, 1997, none of the options were exercisable.
The following table summarizes certain information with regards to options
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING
RANGE OF NUMBER OF CONTRACTUAL LIFE WEIGHTED AVERAGE
EXERCISE PRICES SHARES EXERCISABLE (IN YEARS) EXERCISE PRICE
- --------------- ------------------ ---------------- ----------------
<S> <C> <C> <C>
$26.38--$29.25 10,041 8.27 $28.45
</TABLE>
(6) TRANSACTIONS WITH AFFILIATES
CarrAmerica Realty Services, Inc. ('CARSI'), a wholly-owned subsidiary of
CarrAmerica, provides management and leasing services to all of the office
properties owned by the Partnership. During 1998, 1997 and 1996, the Partnership
incurred management fees of $3.0 million, $1.9 million and $.4 million,
respectively, for services performed by CARSI. Additionally, CARSI reimburses
the Partnership for certain services the Partnership personnel provide to CARSI.
These reimbursements amounted to $2.9 million and $2.0 million in 1998 and 1997,
respectively. In addition, CarrAmerica Development, Inc. ('CADI'), also
reimbursed the Partnership for certain services the Partnership personnel
provided to CADI. These reimbursements amounted to $.3 million and $.7 million
in 1998 and 1997, respectively.
CarrAmerica pays on behalf of the Partnership certain administrative costs
and certain costs related to the acquisitions of properties which are billed to
the Partnership, and makes working capital advances to the Partnership. Amounts
due to CarrAmerica and its subsidiaries were $1.4 million at December 31, 1997
and $2.8 million at December 31, 1996.
During 1997, the Partnership sold land to CADI that will support the future
development of approximately four office properties for $5.9 million, which is
payable by a note between the Partnership and CADI.
F-11
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) GAIN ON SALE OF ASSETS
The Partnership has disposed of assets that are inconsistent with its
long-term strategic or return objectives or where market conditions for sale are
favorable. The proceeds of the sales were primarily redeployed into other office
properties (utilizing tax-deferred exchanges where possible). During 1998, the
Partnership disposed of three operating office properties. The Partnership
recognized gains totaling $8.2 million on these dispositions.
(8) COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Partnership is contingently liable on letters of
credit amounting to approximately $1.4 million for various completion escrows.
The Partnership participates in CarrAmerica's 401(k) plan for employees.
The Plan will match 50% of employee contributions up to the first 4% of an
employee's pay and will make a base contribution of 3% of pay for participants
who remain employed on December 31 (the end of the plan year). Partnership
contributions to the plan are subject to a five-year graduated vesting schedule.
Partnership contributions to the plan amounted to $73 thousand in 1998 and $41
thousand in 1997.
In the course of the Partnership's normal business activities, various
lawsuits, claims and proceedings have been or may be instituted or asserted
against the Partnership. Based on currently available facts, management believes
that the disposition of matters that are pending or asserted will not have a
material adverse effect on the consolidated financial position, results of
operations or liquidity of the Partnership.
During 1998 and 1997, the Partnership has unconditionally guaranteed
unsecured notes sold by CarrAmerica to institutional investors. The aggregate
principal amount of the unsecured notes is $625.0 million of long-term debt as
of December 31, 1998. These notes are in the form of $150 million of 6.625%
notes due in 2000, $150 million of 7.20% notes due in 2004, $100 million of
6.625% notes due in 2005, $125 million of 7.375% notes due in 2007 and $100
million of 6.875% notes due in 2008. The notes due in 2000, 2005 and 2008 were
issued in 1998. The notes due in 2004 and 2007 were issued in 1997.
CarrAmerica's senior unsecured notes contain various covenants with which
CarrAmerica must comply, including but not limited to: limits on the aggregate
amount of indebtedness CarrAmerica may have outstanding on a consolidated basis;
limits on the aggregate amount of secured indebtedness CarrAmerica may have
outstanding on a consolidated basis; and, limits on CarrAmerica's required debt
service payments.
(9) ACQUISITION AND DEVELOPMENT ACTIVITIES
During 1998, the Partnership acquired three operating office properties for
an aggregate purchase price of $54.3 million. Costs incurred during 1998 for
properties under construction were $127.2 million. As of December 31, 1998, the
Partnership had twelve office properties under construction.
During 1997, the Partnership acquired 30 operating office properties for an
aggregate purchase price of $343.2 million. Costs incurred during 1997 for
properties under construction were $56.8 million. In addition, CarrAmerica
contributed to the Partnership three operating office properties, one office
property under construction and options to acquire land which will support the
future development of approximately four office properties.
All acquisitions have been accounted for as purchases. Operations of
acquired properties have been included in the accompanying financial statements
from their respective dates of acquisition.
The following unaudited pro forma summary presents information as if the
Partnership's acquisitions and sales of properties through December 31, 1998 had
occurred at the beginning of 1997. The pro forma information is provided for
informational purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the Partnership.
F-12
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) ACQUISITION AND DEVELOPMENT ACTIVITIES--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA INFORMATION (UNAUDITED): 1998 1997
- --------------------------------------------------------------------------------- -------- -------
(IN THOUSANDS)
<S> <C> <C>
Total revenue.................................................................... $106,289 $96,150
Net income....................................................................... $ 32,955 $18,082
</TABLE>
(10) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly results of operations for 1998,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Real estate operating revenue......................................... $24,300 $26,473 $25,918 $27,923
------- ------- ------- -------
------- ------- ------- -------
Real estate operating income.......................................... $ 7,120 $ 6,669 $ 5,564 $ 4,344
------- ------- ------- -------
------- ------- ------- -------
Net income............................................................ $ 6,951 $ 6,819 $11,362 $ 7,737
------- ------- ------- -------
------- ------- ------- -------
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Real estate operating revenue......................................... $ 9,479 $13,540 $17,138 $20,312
------- ------- ------- -------
------- ------- ------- -------
Real estate operating income.......................................... $ 1,749 $ 2,690 $ 3,908 $ 2,907
------- ------- ------- -------
------- ------- ------- -------
Net income............................................................ $ 1,757 $ 2,738 $ 3,924 $ 8,274
------- ------- ------- -------
------- ------- ------- -------
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Real estate operating revenue......................................... $ -- $ 959 $ 6,216 $ 6,201
------- ------- ------- -------
------- ------- ------- -------
Real estate operating income.......................................... $ -- $ (19) $ 236 $ 1,310
------- ------- ------- -------
------- ------- ------- -------
Net income............................................................ $ -- $ (18) $ 241 $ 1,333
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
(11) INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
The Partnership owns a 35% interest in a development operation through an
unconsolidated partnership. This investment commenced in 1998. The condensed
financial information for the unconsolidated partnership is as follows:
DEVELOPMENT OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
BALANCE SHEETS 1998 1997
- ------------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
ASSETS --
Rental property, net............................................... $ 22,213 --
Cash and cash equivalents.......................................... 18,456 --
Other assets....................................................... 1,667 --
-------- --------
$ 42,336 --
-------- --------
-------- --------
</TABLE>
F-13
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) INVESTMENT IN UNCONSOLIDATED PARTNERSHIP--(CONTINUED)
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Notes payable.................................................... $ 18,350 --
Other liabilities................................................ 313 --
-------- --------
Total liabilities............................................. 18,663 --
Partners' Capital.................................................. 23,673 --
-------- --------
$ 42,336 --
-------- --------
-------- --------
STATEMENTS OF OPERATIONS 1998 1997 1996
------------------------ ---- ---- ----
Revenue........................... $ -- -- --
Other expenses.................... 197 -- --
----- ---- ----
Net loss..................... $(197) -- --
===== ==== ====
</TABLE>
(12) SEGMENT INFORMATION
The Partnership's reportable operating segments are real estate properly
operations and develpment operations. Other business activities 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 gain on sale of assets.
(In millions)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1998
--------------------------------------------------
REAL ESTATE
PROPERTY DEVELOPMENT OTHER
OPERATIONS OPERATIONS OPERATIONS TOTAL
----------- ----------- ---------- ------
<S> <C> <C> <C> <C>
Operating revenue................................................ $ 101.0 -- 3.6 104.6
Segment expense.................................................. $ 34.2 -- 6.4 40.6
----------- ----------- ---------- ------
Net segment revenue......................................... $ 66.8 -- (2.8) 64.0
Interest expense................................................. $ 15.9 (4.9) 5.5 16.5
Other income..................................................... $ 0.2 -- 0.8 1.0
----------- ----------- ---------- ------
Funds from operations....................................... $ 51.1 4.9 (7.5) 48.5
----------- ----------- ---------- ------
----------- ----------- ---------- ------
Adjustments to net income:
Depreciation and amortization............................... $(23.7)
Gain on sale of assets...................................... $ 8.2
------
Net income $ 32.9
------
------
Total assets................................................ $ 667.2 90.0 17.9 775.1
Expenditures for long-lived assets.......................... $ 84.8 149.4 -- 234.2
</TABLE>
F-14
<PAGE>
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1997
--------------------------------------------------
REAL ESTATE
PROPERTY DEVELOPMENT OTHER
OPERATIONS OPERATIONS OPERATIONS TOTAL
----------- ----------- ---------- ------
<S> <C> <C> <C> <C>
Operating revenue................................................ $ 57.8 -- 2.7 60.5
Segment expense.................................................. $ 25.8 -- 3.5 29.3
----------- ----------- ---------- ------
Net segment revenue......................................... $ 32.0 -- (0.8) 31.2
Interest expense................................................. $ 8.8 (2.9) 0.9 6.8
Other income..................................................... $ 0.1 -- 0.2 0.3
----------- ----------- ---------- ------
Funds from operations....................................... $ 23.3 2.9 (1.5) 24.7
----------- ----------- ---------- ------
----------- ----------- ---------- ------
Adjustments to net income:
Depreciation and amortization............................... $(13.1)
Gain on sale of assets...................................... $ 5.1
------
Net income $ 16.7
------
------
Total assets................................................ $ 592.2 35.6 8.8 636.6
Expenditures for long-lived assets.......................... $ 383.8 66.8 -- 450.6
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AND FOR
THE PERIOD FROM MARCH 6, 1996
(DATE OF INCEPTION) TO
DECEMBER 31, 1996
--------------------------------------------------
REAL ESTATE
PROPERTY DEVELOPMENT OTHER
OPERATIONS OPERATIONS OPERATIONS TOTAL
----------- ----------- ---------- ------
<S> <C> <C> <C> <C>
Operating revenue................................................ $ 13.4 -- -- 13.4
Segment expense.................................................. $ 6.5 -- 0.7 7.2
----------- ----------- ---------- ------
Net segment revenue......................................... $ 6.9 -- (0.7) 6.2
Interest expense................................................. $ 1.9 (0.4) -- 1.5
----------- ----------- ---------- ------
Funds from operations....................................... $ 5.0 0.4 (0.7) 4.7
----------- ----------- ---------- ------
----------- ----------- ---------- ------
Adjustments to net income:
Depreciation and amortization............................... $ (3.1)
------
Net income $ 1.6
------
------
Total assets................................................ $ 217.7 21.7 1.8 241.2
Expenditures for long-lived assets.......................... $ 217.1 21.8 -- 238.9
</TABLE>
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
The Partners CarrAmerica Realty, L.P.:
We have audited the accompanying consolidated balance sheets of CarrAmerica
Realty, L.P. and subsidiary as of December 31, 1998 and 1997 the related
consolidated statements of operations, partners' capital, and cash flows for the
years ended December 31, 1998 and 1997 and the period from March 6, 1996 (date
of inception) to December 31, 1996. These consolidated financial statements are
the responsibility of CarrAmerica Realty, L.P.'s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CarrAmerica
Realty, L.P. and subsidiary as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years ended December 31, 1998 and
1997 and the period from March 6, 1996 (date of inception) to December 31, 1996,
in conformity with generally accepted accounting principles.
KPMG LLP
Washington, D.C.
February 6, 1999
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
CARRAMERICA REALTY, L.P. AND SUBSIDIARY
The Partners CarrAmerica Realty, L.P.:
Under date of February 6, 1999, we reported on the consolidated balance
sheets of CarrAmerica Realty, L.P. and subsidiary as of December 31, 1998 and
1997, and the related consolidated statements of operations, partners' capital,
and cash flows for the years ended December 31, 1998 and 1997 and the period
from March 6, 1996 (date of inception) to December 31, 1996, which are included
in this Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule in this Form 10-K. This financial statement
schedule is the responsibility of CarrAmerica Realty, L.P.'s management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, this financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG
LLP
Washington, D.C.
February 6, 1999
S-1
<PAGE>
<TABLE>
<CAPTION>
CARRAMERCA REALTY, L.P. AND SUBSIDIARY
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C> <C>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
INITIAL COSTS PERIOD
---------------------- ----------------------
BUILDINGS COST CAPITALIZED BUILDINGS
(In thousands) AND SUBSEQUENT TO AND
PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION(1) LAND IMPROVEMENTS
- ------------------------------------------- ------------ ------- ------------ ---------------- ------- ------------
ORANGE COUNTY/LOS ANGELES:
South Coast Executive Center............. $ 10,127 3,324 17,212 811 3,388 17,959
2600 W. Olive............................ 19,152 3,855 25,054 2,709 3,904 27,714
Bay Technology Center.................... -- 2,442 11,164 128 2,462 11,272
SAN DIEGO:
Jaycor................................... 12,781 5,123 11,754 -- 5,123 11,754
SAN FRANCISCO BAY AREA:
San Mateo II and III..................... -- 9,723 15,556 659 9,817 16,121
San Mateo I.............................. -- 5,703 9,126 47 5,710 9,166
DENVER:
Quebec Center............................ -- 1,423 5,659 613 1,423 6,272
Greenwood Center......................... -- 289 6,619 505 289 7,124
Quebec Court I and II.................... 28,996(2) 2,368 19,819 9,142 2,371 28,958
Harlequin Plaza.......................... --(2) 4,746 21,344 4,562 4,748 25,904
Panorama Corporate Center I.............. -- 1,325 6,486 3,494 1,326 9,979
Panorama Corporate Center II............. -- 1,844 -- 9,043 1,939 8,948
SEATTLE:
Canyon Park Commons 1 and 2.............. 5,615 2,375 9,958 29 2,380 9,982
SALT LAKE CITY, UTAH:
Sorenson Research Park XI................ -- 1,490 -- 481 1,971 --
Sorenson Research Park................... 4,263 4,389 25,304 407 4,423 25,677
Sorenson Research Park X(3).............. -- 772 -- 2,439 -- 3,211
Wasatch Corporate Center................. 12,654 3,318 15,495 320 3,578 15,555
Wasatch Corporate Center 17 and 18(3).... -- 2,378 -- 6,072 -- 8,450
Wasatch Corporate Center 18.............. -- 258 -- 813 236 835
CHICAGO:
Bannockburn IV........................... -- 1,914 12,729 325 1,924 13,044
Bannockburn I and II..................... 19,554 3,448 22,928 1,082 3,472 23,986
AUSTIN, TEXAS:
Balcones Center.......................... -- 949 7,649 438 949 8,087
Great Hills Plaza........................ -- 1,680 13,545 207 1,680 13,752
Park North............................... -- 1,671 13,471 706 1,671 14,177
City View Centre......................... -- 1,718 13,854 1,060 1,720 14,912
Tower of the Hills....................... -- 1,633 13,625 273 1,634 13,897
<CAPTION>
CONSOLIDATED REAL E
<S> <C> <C> <C> <C>
(In thousands) ACCUMULATED DATE OF YEAR OF
PROPERTIES TOTAL DEPRECIATION CONSTRUCTION ACQUISITION
- ------------------------------------------- ------- ------------- ---------------- -----------
ORANGE COUNTY/LOS ANGELES:
South Coast Executive Center............. 21,347 1,337 1987 1996
2600 W. Olive............................ 31,618 1,420 1986 1997
Bay Technology Center.................... 13,734 391 1985 1997
SAN DIEGO:
Jaycor................................... 16,877 82 1989 1998
SAN FRANCISCO BAY AREA:
San Mateo II and III..................... 25,938 794 1985 1997
San Mateo I.............................. 14,876 369 1986 1997
DENVER:
Quebec Center............................ 7,695 769 1985 1996
Greenwood Center......................... 7,413 663 1982 1996
Quebec Court I and II.................... 31,329 2,556 1979/1980 1996
Harlequin Plaza.......................... 30,654 2,647 1981 1996
Panorama Corporate Center I.............. 11,305 1,182 N/A 1997
Panorama Corporate Center II............. 10,887 837 N/A 1997
SEATTLE:
Canyon Park Commons 1 and 2.............. 12,362 561 1988 1997
SALT LAKE CITY, UTAH:
Sorenson Research Park XI................ 1,971 -- N/A 1997
Sorenson Research Park................... 30,100 1,470 1988,1989,1993,
1995,1997 1997
Sorenson Research Park X(3).............. 3,211 -- N/A 1997
Wasatch Corporate Center................. 19,133 800 1996 1997
Wasatch Corporate Center 17 and 18(3).... 8,450 -- N/A 1997
Wasatch Corporate Center 18.............. 1,071 22 1998 1997
CHICAGO:
Bannockburn IV........................... 14,968 685 1988 1997
Bannockburn I and II..................... 27,458 1,628 1980 1997
AUSTIN, TEXAS:
Balcones Center.......................... 9,036 793 1985 1996
Great Hills Plaza........................ 15,432 1,110 1985 1996
Park North............................... 15,848 1,318 1981 1996
City View Centre......................... 16,632 1,552 1985 1996
Tower of the Hills....................... 15,531 499 1986 1997
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
CARRAMERCA REALTY, L.P. AND SUBSIDIARY
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
INITIAL COSTS PERIOD
---------------------- ----------------------
BUILDINGS COST CAPITALIZED BUILDINGS
(In thousands) AND SUBSEQUENT TO AND
PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION(1) LAND IMPROVEMENTS
- ------------------------------------------- ------------ ------- ------------ ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Riata Buildings 4, 5, 8, 9............... -- $ 4,490 -- 31,348 4,856 30,982
Riata Buildings 2, 3, 9(3)............... -- 2,245 -- 11,146 -- 13,391
Riata Buildings 1, 6, 7.................. -- 3,386 -- 1,703 5,089 --
City View Centre......................... -- 1,890 -- 13,693 2,107 13,476
Riata Crossing 4-6....................... -- 1,940 -- 83 2,023 --
Riata Crossing 1-3(3).................... -- 2,993 -- 7,356 -- 10,349
DALLAS, TEXAS:
Quorum North............................. 6,566 1,357 9,078 780 1,365 9,850
Quorum Place............................. 7,578 1,941 14,234 1,082 1,954 15,303
Tollhill East and West................... -- 2,603 19,086 1,604 2,612 20,681
Two Mission Park......................... -- 823 4,320 652 831 4,964
Cedar Maple Plaza........................ -- 1,220 10,982 411 1,225 11,388
Cedar Maple Plaza -- Land................ -- 520 -- 93 613 --
Royal Ridge A and B...................... -- 2,601 -- 15,747 2,718 15,630
Royal Ridge B(3)......................... -- 558 -- 2,024 -- 2,582
5000 Quorum.............................. -- 1,774 15,616 484 1,782 16,092
The Commons at Las Colinas 2............. -- 3,189 -- 377 3,566 --
The Commons at Las Colinas 1 and 3(3).... -- 6,801 -- 26,154 -- 32,955
Royal Ridge Phase II..................... -- 5,221 -- 561 5,782 --
PHOENIX, ARIZONA:
U.S. West................................ 53,263 18,517 74,069 786 18,642 74,730
Concord Place............................ 7,646 3,337 16,675 156 3,337 16,831
------------ ------- ------------ ------- ------- ------------
Total.................................... $188,195 137,564 462,411 162,605 126,640 635,940
------------
------------ -------
------- ------------
------------ -------
------- -------
------- ------------
------------
<CAPTION>
CONSOLIDATED REAL E
(In thousands) ACCUMULATED DATE OF YEAR OF
PROPERTIES TOTAL DEPRECIATION CONSTRUCTION ACQUISITION
- ------------------------------------------- ------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Riata Buildings 4, 5, 8, 9............... 35,838 986 1998 1996
Riata Buildings 2, 3, 9(3)............... 13,391 -- N/A 1996
Riata Buildings 1, 6, 7.................. 5,089 -- N/A 1996
City View Centre......................... 15,583 702 1998 1996
Riata Crossing 4-6....................... 2,023 -- N/A 1998
Riata Crossing 1-3(3).................... 10,349 -- N/A 1998
DALLAS, TEXAS:
Quorum North............................. 11,215 657 1983 1997
Quorum Place............................. 17,257 1,021 1981 1997
Tollhill East and West................... 23,293 1,315 1974 1997
Two Mission Park......................... 5,795 253 1983 1997
Cedar Maple Plaza........................ 12,613 782 1985 1997
Cedar Maple Plaza -- Land................ 613 -- N/A 1997
Royal Ridge A and B...................... 18,348 179 1998 1997
Royal Ridge B(3)......................... 2,582 -- N/A 1997
5000 Quorum.............................. 17,874 441 1984 1998
The Commons at Las Colinas 2............. 3,566 -- N/A 1998
The Commons at Las Colinas 1 and 3(3).... 32,955 -- N/A 1998
Royal Ridge Phase II..................... 5,782 -- N/A 1998
PHOENIX, ARIZONA:
U.S. West................................ 93,372 2,595 1988 1997
Concord Place............................ 20,168 130 1989 1998
------- ------
Total.................................... 762,580 32,546
-------
------- ------
------
</TABLE>
Depreciation and amortization of the investment in building and
improvements reflected in the statements of operations are calculated over the
estimated lives of the assets as follows:
<TABLE>
<S> <C>
Base Building 30 to 50 years
Building components 7 to 20 years
Tenant improvements Terms of leases or useful lives, whichever is shorter
Furniture, fixtures and equipment 5 to 15 years
</TABLE>
The aggregate cost for federal income tax purposes was approximately
$584,823 at December 31, 1998.
S-3
<PAGE>
The changes in total real estate assets and accumulated depreciation and
amortization for 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
ACCUMULATED
TOTAL REAL ESTATE ASSET DEPRECIATION
------------------------------- --------------------
1998 1997 1996 1998 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $ 624,085 238,073 -- Balance, beginning of period $ 13,360 3,104
Acquisitions 94,153 393,275 232,092
Improvements 122,086 53,640 5,981 Depreciation for the period 22,331 12,961
Sales, Retirements and Sales, Retirements and
write-offs (77,744) (60,903) -- write-offs (3,145) (2,705)
--------- --------- --------- --------- ---------
$ 762,580 624,085 238,073 $ 32,546 13,360
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
1996
---------
<S> <C>
Balance, beginning of period --
Acquisitions
Improvements 3,104
Sales, Retirements and
write-offs
---------
3,104
---------
---------
</TABLE>
- ------------------
Notes:
(1) Costs capitalized are offset by retirements and write-offs.
(2) Secured by Quebec Court I & II and Harlequin Plaza.
(3) Under construction as of December 31, 1998. Construction costs are shown
under buildings and improvements until completion. At that time, costs will
be allocated between land and buildings and improvements.
S-4
EXHIBIT 21.1
LIST OF SUBSIDIARIES
U.S. West, L.L.C.
1201 F Street, L.L.C.
Exhibit 23.1
ACCOUNTANT'S CONSENT
The Partners
CarrAmerica Realty, L.P.:
We consent to incorporation by reference in the registration statement (No.
333-22353) on Form S-3 of CarrAmerica Realty, L.P. of our report dated
February 6, 1999, relating to the consolidated balance sheets of CarrAmerica
Realty, L.P. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, partners' capital, and cash flows for each of the
years in the period from March 6, 1996 (date of inception) through December 31,
1998 and the related schedule, which report appears in the December 31, 1998,
annual report on Form 10-K of CarrAmerica Realty, L.P.
KPMG LLP
Washington, D.C.
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CARRAMERICA REALTY, L.P. AND SUBSIDIARY CONSOLIDATED BALANCE
SHEET AS OF DECEMBER 31, 1998 AND FROM CARRAMERICA REALTY, L.P. AND
SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1998
</LEGEND>
<CIK> 0001040554
<NAME> chefw$d5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 4,504
<SECURITIES> 0
<RECEIVABLES> 10,536
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 672,597
<DEPRECIATION> 32,546
<TOTAL-ASSETS> 775,059
<CURRENT-LIABILITIES> 0
<BONDS> 348,252
0
0
<COMMON> 0
<OTHER-SE> 426,807
<TOTAL-LIABILITY-AND-EQUITY> 775,059
<SALES> 0
<TOTAL-REVENUES> 104,614
<CGS> 0
<TOTAL-COSTS> 80,917
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 32,869
<INCOME-TAX> 0
<INCOME-CONTINUING> 32,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,869
<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>
Exhibit 99.3
ITEM 1--BUSINESS--THE COMPANY--RISK FACTORS
(from the Annual Report on Form 10-K of CarrAmerica Realty Corporation for the
year ended December 31, 1998)
RISK FACTORS
In addition to the other information in this document, you should consider
carefully the following risk factors in evaluating an investment in our
securities.
OUR PERFORMANCE IS SUBJECT TO RISKS ASSOCIATED WITH REAL ESTATE INVESTMENT
We are a real estate company that derives most of its income from the
ownership and operation of office buildings. There are a number of factors that
may adversely affect the income that our properties generate, including the
following:
Economic Downturns. Downturns in the national economy, or in regions or
localities where our properties are located, generally will negatively impact
the demand for office space.
Oversupply of Office Space. An oversupply of space in markets where we own
office properties making it more difficult for us to lease space at attractive
rental rates would typically cause rental rates and occupancies to decline.
Competitive Properties. If our properties are not as attractive to tenants
(in terms of rents, services or location) as other properties that are
competitive with ours, we could lose tenants to those properties, or could have
to reduce our rental rates to compensate for that disparity.
Renovation Costs. In order to maintain the quality of our office buildings
and successfully compete against other properties, we periodically have to spend
money to repair and renovate our properties.
Tenant Risk. Our performance depends on our ability to collect rent from
our tenants. While no tenant in our portfolio accounted for more than 5% of our
rental revenue as of December 31, 1998, the Company's financial position may be
adversely affected by financial difficulties experienced by a major tenant, or
by a number of smaller tenants, including bankruptcies, insolvencies or general
downturns in business.
Reletting Costs. As leases expire, we try to either relet the space to an
existing tenant or attract a new tenant to occupy the space. In either case, we
likely will incur significant costs in the process. In addition, if market rents
have declined since the time the expiring lease was entered into, the terms of
any new lease signed likely will not be as favorable to us as the terms of the
expiring lease, thereby reducing the income earned from that space.
Regulatory Costs. There are a number of government regulations, including
zoning and tax laws, that apply to the ownership and operation of office
buildings. Compliance with existing and newly adopted regulations often requires
us to spend a significant amount of money on our properties.
Fixed Nature of Costs. Most of the costs associated with owning and
operating an office building are not necessarily reduced when circumstances such
as market factors and competition cause a reduction in income from the property.
Environmental Problems Are Possible and Can Be Costly. Federal, state and
local laws and regulations relating to the protection of the environment may
require a current or previous owner or operator of real property to investigate
and clean up hazardous or toxic substances or petroleum product releases at the
property. The
1
<PAGE>
presence of or failure to clean up contamination may adversely affect our
ability to sell or lease a property or to borrow using a property as collateral.
Competition. A number of other major real estate investors with
significant capital compete with us. These competitors include publicly traded
REITs, private REITs, investment banking firms and private institutional
investment funds.
NEW DEVELOPMENTS AND ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED
Over the last few years, we have embarked on a major acquisition and
development program. In deciding whether to acquire or develop a particular
property, we made certain assumptions regarding the expected future performance
of that property. If a number of these new properties do not perform as
expected, our financial performance will be adversely affected.
While our acquisition pace has declined significantly, we remain very
active in developing office properties. New office property developments are
subject to a number of risks, including construction delays, complications in
obtaining necessary zoning, occupancy and other governmental permits, cost
overruns, financing risks, and the possible inability to meet expected occupancy
and rent levels. If any of these problems occur, development costs for a project
will increase, and there may be costs incurred for projects that are not
completed.
OUR USE OF DEBT SUBJECTS US TO VARIOUS FINANCING RISKS
While we believe that we have a conservative borrowing policy, we do
regularly borrow money to finance our business, particularly the acquisition and
development of properties. We generally incur unsecured debt, although in many
cases we will incur mortgage debt that is secured by one or more of our office
buildings. There are certain risks inherent in borrowing money, including the
following:
No Limitation on Debt Incurrence. The Company's organizational documents
do not limit the amount of debt the Company can incur. The degree of leverage of
the Company could have important consequences, including making it more
difficult for us to obtain additional financing in the future for business
needs, as well as making us more vulnerable to an economic downturn.
Possible Inability to Meet Scheduled Debt Payments. If our properties do
not perform as expected, our cash flow from our properties may not be enough to
make required principal and interest payments. If a property is mortgaged to
secure payment of indebtedness and we are unable to meet mortgage payments, the
holder of the mortgage or lender could foreclose on the property, resulting in
loss of income and asset value. An unsecured lender could also attempt to
foreclose on some of the Company's assets in order to receive payment.
Inability to Refinance Debt. In almost every case, very little of the
principal amount that we borrow is repaid prior to the maturity of the loan. We
generally expect to refinance that debt when it matures, although in some cases
we may pay off the loan. If principal amounts due at maturity cannot be
refinanced, extended or paid with proceeds of other capital transactions, such
as new equity capital, our cash flow will be insufficient in all years to repay
all maturing debt. Prevailing interest rates or other factors at the time of a
refinancing (such as possible reluctance of lenders to make commercial real
estate loans) may result in higher interest rates and increased interest
expense.
As a general matter, we use our line of credit and cash on hand received
from asset dispositions and joint ventures to finance our development and
acquisition activities, with the expectation that long-term permanent financing
will be obtained once the property is stabilized. If permanent debt or equity
financing is unavailable on acceptable terms in the future, it may significantly
restrict our development and acquisition programs.
Financial Covenants Could Adversely Affect Our Financial Condition. The
Company's credit facilities and the indentures under which the Company's senior
unsecured indebtedness is issued contain financial and operating covenants,
including coverage ratios and other limitations on the Company's ability to
incur secured and unsecured indebtedness, sell all or substantially all of its
assets and engage in mergers, consolidations and certain acquisitions. These
covenants may restrict the Company's ability to engage in transactions that
would otherwise be in the Company's best interests.
2
<PAGE>
OUR BUSINESS STRUCTURE HAS CERTAIN RISKS ASSOCIATED WITH IT
A Major Stockholder Has Influence on Our Operations. SC-USREALTY owned
approximately 39.9% of the outstanding shares of our common stock (36.2% on a
fully diluted basis) as of March 15, 1999. No other stockholder is permitted to
own more than 5% of our common stock, subject to certain exceptions. Under a
Stockholders Agreement with the Company, SC-USREALTY has the right to nominate
up to 40% of the directors. The Stockholders Agreement also gives SC-USREALTY
certain rights that limit our ability to take certain actions and limits our
ability to engage in certain transactions that may be in the best interests of
other stockholders. This situation results in SC-USREALTY having a substantial
influence over the affairs of the Company. This could potentially be
disadvantageous to other stockholders' interests, which may not converge with
the interests of SC-USREALTY.
Certain Officers and Directors May Have Interests that Conflict with the
Interests of Stockholders. Certain officers and members of the board of
directors of the Company own units of limited interest partnership in Carr
Realty, L.P., a partnership that owns some of the Company's properties. These
individuals may have personal interests that conflict with the interests of the
Company's stockholders with respect to business decisions affecting the Company
and Carr Realty, L.P., such as interests in the timing and pricing of property
sales or refinancings in order to obtain favorable tax treatment. The Company,
as the sole general partner of Carr Realty, L.P., has the exclusive authority to
determine whether and on what terms the partnership will sell or refinance an
individual property, but the effect of certain transactions on these unitholders
may influence decisions affecting these properties.
We May Not Be Able to Sell Properties When Appropriate. Real estate
property investments generally cannot be sold quickly. In addition, the tax laws
applicable to REITs restrict our ability to dispose of certain properties.
Therefore, we may be unable to vary our portfolio promptly in response to market
conditions, which may adversely affect our financial position.
Lack of Voting Control Over Some of Our Affiliates. While most of our
income is generated from the ownership and operation of our office buildings, we
own nonvoting interests in four affiliates that either currently produce or are
expected in the future to produce significant contributions to our income. Carr
Services, Inc. conducts management and leasing operations for third parties and
for office buildings in which we own less than a 100% interest. CarrAmerica
Development conducts fee-based development services for the Company and for
third parties. OmniOffices and Omni UK are engaged in the executive suites
business, providing short-term office space together with telephone answering,
data processing and other office support services. As of December 31, 1998, the
Company owned approximately 95% of the economic interest in each of these
companies through the ownership of nonvoting common stock. The voting stock of
each of these companies is owned by certain entities and individuals that have
some affiliation with the Company (or, in the case of Omni UK, by OmniOffices).
The Company owns nonvoting stock in these companies because the tax laws
applicable to REITs prohibit the Company from owning more than a 10% voting
interest. As a result, the Company has no right to elect the directors of these
companies, and its ability to influence their operations is limited. These
companies may engage in business activities that are not in the Company's best
interests.
We Depend On External Capital. To qualify as a REIT, we generally must
distribute to our stockholders each year at least 95% of our net taxable income.
Because of these distribution requirements, we likely will not be able to fund
all future capital needs, including capital for property development and
acquisitions, with income from operations. We therefore will have to rely on
third-party sources of capital, which may or may not be available on favorable
terms, if at all. Our access to third-party sources of capital depends on a
number of things, including the market's perception of our growth potential and
our current and potential future earnings.
CERTAIN FACTORS MAY INHIBIT CHANGES IN CONTROL OF THE COMPANY
Charter and By-law Provisions. Certain provisions of our charter and
by-laws may delay or prevent a change in control of the Company or other
transactions that could provide our common stockholders with a premium over the
then-prevailing market price of their common stock or that might otherwise be in
the best interests of our stockholders. These include a staggered board of
directors and the ability of our board of directors to authorize the issuance of
preferred stock without stockholder approval. Also, any future series of
preferred
3
<PAGE>
stock may have voting provisions that could delay or prevent a change in control
or other transaction that might involve a premium price or otherwise be in the
best interests of our stockholders.
Ownership Limit. In order to assist the Company in maintaining its
qualification as a REIT, the Company's charter contains certain provisions
generally limiting the ownership of shares of capital stock by any single
stockholder to 5% of the Company's outstanding common stock and/or 5% of any
class or series of preferred stock. The federal tax laws include complex stock
ownership and attribution rules that apply in determining whether a stockholder
exceeds the ownership limits. These rules may cause a stockholder to be treated
as owning stock that is actually owned by others, including family members and
entities in which the stockholder has an ownership interest. The board of
directors of the Company could waive this restriction if it were satisfied that
ownership in excess of these ownership limits would not jeopardize our status as
a REIT and the board otherwise decides that a waiver would be in the Company's
interests. Capital stock acquired or transferred in breach of the ownership
limit will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary.
Maryland Law Provisions. Certain provisions of Maryland law applicable to
the Company because it is a Maryland corporation prohibit 'business
combinations' with any person that beneficially owns ten percent or more of the
outstanding voting shares of the Company (an 'interested stockholder') or with
an affiliate of the interested stockholder. These prohibitions last for five
years after the most recent date on which the person became an interested
stockholder. After the five-year period, a business combination with an
interested stockholder must be approved by two super-majority stockholder votes
unless, among other conditions, the Company's common stockholders receive a
minimum price for their shares and the consideration is received in cash or in
the same form as previously paid by the interested stockholder for its common
shares. The Company's board of directors has opted out of these business
combination provisions. Consequently, the five-year prohibition and the
super-majority vote requirements will not apply to a business combination
involving the Company. The Company's board of directors may, however, repeal
this election in most cases and cause the Company to become subject to these
provisions in the future. Being subject to the provisions could delay or prevent
a change in control or other transaction involving the Company that might
involve a premium price or otherwise be in the best interests of the Company's
stockholders.
THE MARKET VALUE OF OUR SECURITIES CAN BE ADVERSELY AFFECTED BY MANY FACTORS
As with any public company, a number of factors may adversely influence the
public market price of our common stock, many of which are beyond our control.
These factors include: the level of institutional interest in the Company; the
perception of REITs generally, and REITs with portfolios similar to ours in
particular, by market professionals, and the attractiveness of securities of
REITs in comparison to other companies; our financial condition and performance,
and the market's perception of our growth potential and potential future cash
dividends; increases in market interest rates, which may lead investors to
demand a higher annual yield from distributions by the Company in relation to
the price paid for our stock; and the relatively low trading volume of shares of
REITs in general, which tends to exacerbate a market trend with respect to our
stock.
Sales of a substantial number of shares of our stock, or the perception
that such sales could occur, also could adversely affect prevailing market
prices for our stock. In addition to the possibility that we may sell shares of
our stock in a public offering at any time, we also may issue shares of common
stock upon redemption of units of interest held by third parties in affiliated
partnerships that we control, as well as upon exercise of stock options that we
grant to our employees and others. All of these shares will be available for
sale in the public markets from time to time. In addition, SC-USREALTY, our
largest stockholder (owning more than one-third of our shares), has the right to
sell its shares at any time, pursuant to registration rights granted to it in
connection with its original investment in the Company.
OUR STATUS AS A REIT MAY RESULT IN RISKS FOR INVESTORS
We believe that the Company has qualified for taxation as a REIT for
federal income tax purposes, and we plan to continue to operate so that the
Company meets the requirements for taxation as a REIT. If we qualify as a REIT,
we generally will not be subject to federal income tax on our income that we
distribute currently to our shareholders. Many of the REIT requirements,
however, are highly technical and complex. The determination that the Company is
a REIT requires an analysis of various factual matters and circumstances that
may not be
4
<PAGE>
totally within our control. For example, to qualify as a REIT, at least 95% of
our gross income must come from certain sources that are itemized in the REIT
tax laws. We also are required to distribute to our stockholders at least 95% of
our REIT taxable income (excluding capital gains). The fact that we hold certain
of our assets through partnerships and their subsidiaries further complicates
the application of the REIT requirements. Even a technical or inadvertent
mistake could jeopardize the Company's REIT status. Furthermore, Congress and
the IRS might make changes to the tax laws and regulations, and the courts might
issue new rulings, that make it more difficult, or impossible, for us to remain
qualified as a REIT.
If the Company fails to qualify as a REIT, it would be subject to federal
income tax at regular corporate rates. Also, unless the IRS granted the Company
relief under certain statutory provisions, it would remain disqualified as a
REIT for four years following the year it first failed to qualify. If we failed
to qualify as a REIT, we would have to pay significant income taxes and would
therefore have less money available for investments, debt service and dividends
to stockholders. This likely would have a significant adverse affect on the
value of our securities. In addition, we would no longer be required to pay any
dividends to stockholders.
Even if we qualify as a REIT, we are required to pay certain federal, state
and local taxes on our income and property. For example, if the Company has net
income from 'prohibited transactions,' that income will be subject to a 100%
tax. In general, prohibited transactions are sales or other dispositions of
property held primarily for sale to customers in the ordinary course of
business. The determination as to whether a particular sale is a prohibited
transaction is dependent on the facts and circumstances related to that sale.
While we have recently undertaken a significant number of asset sales, we do not
believe that those sales should be considered prohibited transactions, but there
can be no assurance that the IRS would not contend otherwise. In addition, any
net taxable income earned directly by some of our affiliates, including
OmniOffices, Carr Services, Inc. and CarrAmerica Development, is subject to
federal and state corporate income tax. Similarly, the income of our affiliate,
Omni UK, is subject to some foreign taxes.
Federal tax laws prohibit REITs from owning more than 10% of the
outstanding voting securities of any issuer that is not another REIT or a
'qualified REIT subsidiary.' The Clinton Administration's fiscal year 2000
budget proposal, announced February 1, 1999, includes a proposal that would
change the 10% voting securities test to a 10% vote or value test. Under the
proposal, a REIT would not be able to own more than 10% of the vote or value of
the outstanding securities of any corporation, except for a qualified REIT
subsidiary or another REIT. The proposal also contains an exception to the 5%
and 10% asset tests that would allow a REIT to have 'taxable REIT subsidiaries,'
including both 'qualified independent contractor subsidiaries,' which could
perform noncustomary and other currently prohibited services for tenants and
other customers, and 'qualified business subsidiaries,' which could undertake
third-party management and development activities as well as other non-real
estate related activities. Under the proposal, no more than 15% of a REIT's
total assets could consist of taxable REIT subsidiaries and no more than 5% of a
REIT's total assets could consist of qualified independent contractor
subsidiaries. Under the budget proposal, a taxable REIT subsidiary would not be
entitled to deduct any interest on debt funded directly or indirectly by the
REIT. This proposal would be effective after the date of enactment and a REIT
would be allowed to combine and convert existing corporate subsidiaries into
taxable REIT subsidiaries tax-free prior to a certain date. A transition period
would allow for conversion of existing corporate subsidiaries before the 10%
vote or value test would become effective. For the Company's taxable years after
the effective date of the proposal and after any applicable transition period,
the 10% vote or value test would apply to the Company's ownership in the
Company's operating subsidiaries, including OmniOffices not converted into
taxable REIT subsidiaries. It is presently uncertain whether any proposal
regarding REIT subsidiaries, including the budget proposal, will be enacted or,
if enacted, what the terms, including the effective date, of such proposal will
be.
OUR COMPANY IS NOT A SUITABLE INVESTMENT FOR FOREIGN INVESTORS
Our charter contains provisions generally preventing foreign investors
(other than SC-USREALTY and its affiliates) from acquiring additional shares of
the Company's capital stock if the acquisition would cause us to fail to qualify
as a domestically controlled REIT under the federal tax code. The application of
such provisions could prevent a foreign investor from acquiring stock or cause
stock that has been acquired to be reacquired automatically from the foreign
investor by a designated charitable trust. Accordingly, acquisition of our
capital stock would not likely be a suitable investment for foreign investors
other than SC-USREALTY.
5
<PAGE>
FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON THE COMPANY
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. We
have undertaken a comprehensive program to address the year 2000 issue. Although
our year 2000 efforts are intended to minimize the adverse effects of the year
2000 issue on its business operations, the actual effects of the year 2000 issue
and the success or failure of our efforts may not be known until the year 2000
and later. Failure by the Company 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 the Company's
business) could have a material adverse effect on our business, results of
operations and financial condition.
6
Exhibit 99.4
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER MATTERS
(from the Annual Report on Form 10-K of CarrAmerica Realty Corporation for the
year ended December 31, 1998)
The Company's common stock is listed on the New York Stock Exchange
('NYSE') under the symbol 'CRE'. As of March 15, 1999, there were 453
stockholders of record. The following table sets forth the high and low sale
prices of the Company's common stock as reported on the NYSE Composite Tape, and
the dividends per share of common stock paid for each full quarterly period
within the two most recent fiscal years:
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q FULL YEAR
------- ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
1998
HIGH.............................................. $31 11/16 30 5/8 30 1/8 25 1/4 31 11/16
LOW............................................... $28 7/16 26 1/2 19 7/16 19 19
DIVIDEND $ .4625 .4625 .4625 .4625 1.85
</TABLE>
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q FULL YEAR
------- ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
1997
High.............................................. $32 1/4 30 5/8 32 3/16 33 7/16 33 7/16
Low............................................... $28 1/4 26 1/4 27 3/4 28 1/4 26 1/4
Dividend.......................................... $ .4375 .4375 .4375 .4375 1.75
</TABLE>
The Company, in order to qualify as a REIT, is required to make
distributions (other than capital gain distributions) to its stockholders in
amounts at least equal to (i) the sum of (A) 95% of its 'REIT taxable income'
(computed without regard to the dividends paid deduction and its net capital
gain) and (B) 95% of the net income (after tax), if any, from foreclosure
property, minus (ii) the sum of certain items of non-cash income. The Company's
distribution strategy is to distribute what it believes is a conservative
percentage of its cash flow permitting the Company to retain funds for capital
improvements and other investments while funding its distributions.
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, nontaxable return of capital or a combination thereof.
Distributions that exceed the Company's current and accumulated
1
<PAGE>
earnings and profits (calculated for tax purposes) constitute a return of
capital rather than a dividend and reduce the stockholder's basis in his or her
shares of common stock. To the extent that a distribution exceeds both current
and accumulated earnings and profits and the stockholder's basis in his or her
shares, it will generally be treated as gain from the sale or exchange of that
stockholder's shares. The Company annually notifies stockholders of the
taxability of distributions paid during the preceding year.
The following table sets forth the taxability of common stock distributions
paid in 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Ordinary income........................................................... 92% 90%
Capital Gain.............................................................. -- --
Return of Capital......................................................... 8% 10%
</TABLE>
2
Exhibit 99.5
ELECTION OF DIRECTORS
(Proposal 1)
(from the Proxy Statement to be delivered to the stockholders of CarrAmerica
Realty Corporation in connection with that company's 1999 Annual Meeting of
Stockholders)
Board of Directors
The Board of Directors of the Company is divided into three classes,
with one-third of the directors scheduled to be elected by the stockholders
annually. Andrew F. Brimmer, Oliver T. Carr, Jr., and William D. Sanders have
been nominated by the Board of Directors for election as directors at the 1999
annual meeting of stockholders to fill terms expiring at the 2002 annual meeting
of stockholders. Timothy Howard and Ronald Blankenship have been nominated for
election as directors to fill terms expiring at the annual meeting of
stockholders in 2000. If elected, the nominees will hold office until the
expiration of their terms and until their successors are elected and qualified.
Nominees for Election to Terms Expiring in 2002
Andrew F. Brimmer, 72, has been a director of the Company since
February 1993. He has been President of Brimmer & Company, Inc., an economic and
financial consulting firm, since 1976. Dr. Brimmer is the Wilmer D. Barrett
Professor of Economics at the University of Massachusetts--Amherst. He also
serves as a director of BlackRock Investment Income Trust, Inc. (and other
funds); Borg-Warner Automotive, Inc.; and Airborne Express. From 1995 to 1998,
Dr. Brimmer served as chairman of the District of Columbia Financial Control
Board. He also was a member of the Board of Governors of the Federal Reserve
System from 1966 to 1974. Dr. Brimmer received a B.A. degree and a masters
degree in economics from the University of Washington and a Ph.D. in economics
from Harvard University. Dr. Brimmer is a member of the Audit Committee of the
Board of Directors.
Oliver T. Carr, Jr., 73, has been Chairman of the Board of Directors of
the Company since February 1993. He also served as Chief Executive Officer of
the Company from 1993 to 1997. Mr. Carr founded The Oliver Carr Company in 1962
and since that time has been its Chairman of the Board and a director. In
addition, Mr. Carr has served as President of The Oliver Carr Company since
February 1993. He was Chairman of the Board of Trustees of The George Washington
University from July 1988 until May 1995. Mr. Carr is the father of Thomas A.
Carr, the Company's current President and Chief Executive Officer. Mr. Carr is a
member of the Investment Committee and Executive Committee of the Board of
Directors.
William D. Sanders, 57, has been a director of the Company since May
1996. Mr. Sanders was nominated to the Board as a designee of Security Capital
U.S. Realty ("SC-USREALTY"), a major stockholder of the Company. He is the
founder and Chairman of Security Capital Group, an affiliate of SC-USREALTY. Mr.
Sanders retired on December 31, 1989 as Chief Executive Officer of LaSalle
Partners Limited, a firm he founded in 1968. Mr. Sanders is on the Board of
Directors of Security Capital European Realty; SC-USREALTY; and Storage USA,
Inc. Mr. Sanders is a former trustee and member of the executive committee of
the University of Chicago and a former trustee fellow of Cornell University. Mr.
Sanders received his Bachelor of Science degree from Cornell University. He is a
member of the Nominating Committee of the Board of Directors.
<PAGE>
Nominees for Election to Terms Expiring in 2000
Timothy Howard, 50, has been a director of the Company since August
1998. Mr. Howard has been the Executive Vice President and Chief Financial
Officer of Fannie Mae since 1990. Mr. Howard has held positions of increasing
responsibility with Fannie Mae since beginning with the company in 1982. Mr.
Howard received his Bachelor of Science and Masters in Economics degrees from
UCLA. He is a member of the Audit Committee and Executive Compensation Committee
of the Board of Directors.
Ronald Blankenship, 49, has been a director of the Company since August
1998. Mr. Blankenship was nominated to the Board as a designee of SC-USREALTY.
Mr. Blankenship has been the Vice Chairman and Chief Operating Officer of
Security Capital Group Incorporated since 1998. Previously, he was Managing
Director of Security Capital Group Incorporated from 1991 to 1998. Mr.
Blankenship is a director of Security Capital Group Incorporated and Storage
USA, Inc. He received his B.B.A. from the University of Texas at Austin. Mr.
Blankenship is a member of the Executive Compensation Committee of the Board of
Directors.
Incumbent Director--Term Expiring in 2000
A. James Clark, 71, has been a director of the Company since February
1993. He has been Chairman of the Board and President of Clark Enterprises,
Inc., a Bethesda, Maryland-based company involved in real estate,
communications, and commercial and residential construction, since 1972. Mr.
Clark is a Trustee Emeritus of the Johns Hopkins University and the Johns
Hopkins Board of Medicine. He is an Advisory Director of Potomac Electric Power
Company. Mr. Clark is also a member of the PGA Tour Golfcourse Properties
Advisory Board. An alumnus of the University of Maryland, Mr. Clark is a member
of the University's Board of Visitors and the school's Foundation. Mr. Clark is
a member of the Executive Committee, Executive Compensation Committee,
Investment Committee, and the Nominating Committee of the Board of Directors.
Incumbent Directors--Terms Expiring in 2001
Thomas A. Carr, 40, has been President and a director of the Company
since February 1993. In May 1997, Mr. Carr was elected Chief Executive Officer
of the Company, at which time he resigned as Chief Operating Officer of the
Company, a position he had held since April 1995. Prior to that time, Mr. Carr
had been the Company's Chief Financial Officer since February 1993. Mr. Carr is
a director of The Oliver Carr Company. He holds a Masters in Business
Administration degree from Harvard Business School, and a Bachelor of Arts
degree from Brown University. Mr. Carr is a member of the National Association
of Real Estate Investment Trusts; the Young Presidents Organization; the Federal
City Council; and the International Development Research Council. Mr. Carr is
the son of Oliver T. Carr, Jr., the Chairman of the Board of Directors of the
Company. He is a member of the Investment Committee and the Executive Committee
of the Board of Directors.
Caroline S. McBride, 45, has been a director of the Company since July
1996. Ms. McBride was nominated to the Board of Directors as a designee of
SC-USREALTY. Since March 1997, Ms. McBride has been Managing Director of
Security Capital Global Strategic Group, an affiliate of SC-USREALTY. From June
1996 to July 1997, Ms. McBride was Managing Director of Security Global Capital
Management Group. Prior thereto, from July 1978 to May 1996, Ms. McBride was
with IBM, where she was director of private market investments for the IBM
Retirement Fund from 1994 to 1996 and director of real estate investments for
the IBM Retirement Fund from 1992 to 1994. Ms. McBride is on the Board of
Directors of Storage USA, Inc.; BelmontCorp; CWS Communities Trust; and the Real
Estate Research Institute. Ms. McBride received her Masters in Business
Administration degree from New York University and a Bachelor of Arts degree
from Middlebury Col-
<PAGE>
lege. Ms. McBride is a member of the Investment Committee and the Audit
Committee of the Board of Directors.
Wesley S. Williams, Jr., 56, has been a director of the Company since
February 1993. Mr. Williams has been a partner of the law firm of Covington &
Burling, Washington, D.C., since 1975. He was adjunct professor of real estate
finance law at Georgetown University Law Center from 1971 to 1973 and is a
contributing author to several texts on banking law and on real estate finance
and investment. Mr. Williams is on the Editorial Advisory Board of the District
of Columbia Real Estate Reporter. Mr. Williams serves as a director of Blackstar
Communications, Inc.; Blackstar LLC; and the Federal Reserve Bank of Richmond,
Virginia. Mr. Williams is Co-Chairman of the Board of Directors and Co-CEO of
Lockhart Caribbean Corporation and its real estate, insurance, consumer finance,
and internet services subsidiaries. Mr. Williams is a member of the Executive
Committee of the Board of Trustees of Penn Mutual Life Insurance Company, of
which he is the Senior Trustee. He received B.A. and J.D. degrees from Harvard
University, an M.A. degree from the Fletcher School of Law and Diplomacy and an
LL.M. from Columbia University. Mr. Williams is a member of the Executive
Compensation Committee of the Board of Directors.
Committees of the Board of Directors; Meetings
Among the committees of the Board of Directors are a standing Audit
Committee, Executive Compensation Committee, Nominating Committee, Executive
Committee and Investment Committee. The Board of Directors also established an
Ad Hoc Compensation Committee during 1998. The functions performed by these
committees are described below.
Audit Committee. The Audit Committee makes recommendations concerning
the engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees of the independent public accountants, and reviews the
adequacy of the Company's internal accounting controls. The Audit Committee met
three times in 1998.
Executive Compensation Committee and Ad Hoc Compensation Committee. The
Executive Compensation Committee is comprised entirely of non-employee
directors, and is responsible for implementing and/or recommending to the Board
of Directors compensation policies applicable to the Company's executive
officers and for monitoring compliance with such policies. The Committee
determines the Chief Executive Officer's compensation and approves compensation
recommendations for the other executive officers of the Company as submitted by
the Chief Executive Officer. It also administers the Company's stock option and
restricted stock plans. The Ad Hoc Compensation Committee was a committee
comprised solely of directors who qualified as "outside directors" under Section
162(m) of the Internal Revenue Code. The Company's Board of Directors
established the Ad Hoc Compensation Committee to consider and make grants of
options on November 11, 1998 that otherwise would have been subject to a
limitation on deductibility under the Code. The Executive Compensation Committee
met six times in 1998 and took action by unanimous written consent twice. The Ad
Hoc Compensation Committee met one time in 1998.
Nominating Committee. The Nominating Committee was established to
consider and make recommendations to the Board of Directors regarding nominees
for election as members of the Board of Directors. In addition, the Nominating
Committee has the authority to review and approve compensation, benefits and
other forms of remuneration for non-employee directors. The Nominating Committee
is willing to consider nominees recommended by stockholders. Stockholders who
wish to suggest qualified candidates must comply with the advance notice
provisions and other requirements of Section 3.11 of the Company's by-laws. See
"Stockholder Proposals for 2000 Annual Meeting" below. The Nominating Committee
met once in 1998 and took action by unanimous consent once.
<PAGE>
Executive Committee. The Executive Committee may exercise the full
authority of the Board of Directors, except that the Executive Committee may not
amend the Company's charter or by-laws; adopt a plan of merger or consolidation;
recommend to stockholders the sale or lease of all or substantially all of the
Company's assets; elect directors; elect or remove officers; establish
compensation for executive officers; and/or declare dividends or authorize the
issuance of stock of the Company.
Investment Committee. The Investment Committee has the authority to
approve and authorize expenditures, agreements and other actions relating to the
acquisition and/or disposition of assets by the Company, the incurrence of
indebtedness by the Company or other encumbrances on the assets of the Company
or other matters treated as capital items and involving less than $100,000,000
for any single transaction or series of related transactions, so long as such
matters are consistent with the annual budget (as to amount and type of
transaction).
The Board of Directors held ten meetings during 1998 and took action by
unanimous written consent five times. None of the directors attended fewer than
75% of the aggregate of the number of meetings of the Board of Directors held
during the period he or she served on the Board and the number of meetings of
committees of the Board of Directors on which he or she served during the period
of service.
Compensation of Directors
The Company pays an annual retainer of $20,000 to directors who are not
employees of the Company. The Company also pays each non-employee director a fee
(plus out-of-pocket expenses) for attendance (in person or by telephone) at each
meeting of the Board of Directors and committee meeting held on a non-Board
meeting day. The Board of Directors meeting fee is $1,000 and the committee
meeting fee is $500. In addition, the chairman of each committee receives an
additional annual fee of $1,000.
The Company also compensates its non-employee directors through its
1995 Non-Employee Director Stock Option Plan. The plan provides for the grant of
3,000 options to purchase shares of common stock of the Company upon a
non-employee director's initial election to the Board. Assuming Proposal 4 is
approved by the stockholders, each continuing non-employee director will receive
a grant of options to purchase 7,500 shares of the Company's common stock
immediately following the election of directors at each annual meeting of the
Company's stockholders. The plan currently provides for an annual grant of 5,000
shares, and would continue to do so if Proposal 4 is not approved by the
stockholders.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file reports of ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission and the New York Stock Exchange. Executive officers,
directors and greater than ten percent stockholders are required by the SEC to
furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based on the Company's review of the copies of such forms it has
received and on written representations from certain reporting persons that they
were not required to file a Form 5 for the fiscal year, the Company believes
that its executive officers, directors and greater than ten percent stockholders
complied with all Section 16(a) filing requirements applicable to them with
respect to transactions during 1998, except that Robert E. Peterson, who at the
time was an executive officer of the Company, filed a Form 4 in an untimely
manner.
<PAGE>
Vote Required and Recommendation
The affirmative vote of a plurality of the votes cast at the annual
meeting will be required for the election of directors. A properly executed
proxy marked "Withhold Authority" with respect to the election of one or more
directors will not be voted with respect to the director or directors indicated,
although it will be counted for purposes of determining whether there is a
quorum. Accordingly, abstentions or broker non-votes as to the election of
directors will not affect the election of the candidates receiving the most
votes.
The Board of Directors of the Company recommends a vote FOR the
candidates named in this Proxy Statement as directors to hold office until the
expiration of the terms for which they have been nominated and until their
successors are elected and qualified. Should any one or more of these nominees
become unable to serve for any reason before the annual meeting, the Board of
Directors may designate a substitute nominee or nominees, in which event the
persons designated as proxy holders on the enclosed proxy will vote for the
election of such substitute nominee or nominees, or may reduce the number of
members of the Board of Directors.
Exhibit 99.6
ITEM 1--BUSINESS--THE COMPANY--DIRECTORS OF THE COMPANY
(from the Annual Report on Form 10-K of CarrAmerica Realty Corporation for the
year ended December 31, 1998)
The directors of the Company are divided into three classes, with
approximately one-third of the directors elected by the stockholders annually.
The Board of Directors of the Company currently consists of the following
persons:
Oliver T. Carr, Jr., 73, has been Chairman of the Board of Directors of the
Company since February 1993. He also served as Chief Executive Officer of the
Company from 1993 to 1997. Mr. Carr's term as a director of the Company expires
at the 1999 Annual Meeting of Stockholders and he has been renominated for
election by the stockholders at that meeting to serve another three-year term.
Mr. Carr founded The Oliver Carr Company in 1962 and since that time has been
its Chairman of the Board and a director. In addition, Mr. Carr has served as
President of The Oliver Carr Company since February 1993. He was Chairman of the
Board of Trustees of The George Washington University until May 1995. Mr. Carr
is the father of Thomas A. Carr, the Company's current President and Chief
Executive Officer, and Robert O. Carr, the President of Carr Urban Development,
Inc. Mr. Carr is a member of the Investment Committee and the Executive
Committee of the Board of Directors.
Thomas A. Carr, 40, has been President and a director of the Company since
February 1993. Mr. Carr's term as a director of the Company expires at the 2001
Annual Meeting of Stockholders. In May 1997, Mr. Carr was appointed Chief
Executive Officer of the Company, at which time he resigned as Chief Operating
Officer of the Company, a position he had held since April 1995. Prior to such
time, Mr. Carr was the Company's Chief Financial Officer from February 1993 to
April 1995. Mr. Carr is a director of The Oliver Carr Company. Mr. Carr holds a
Masters in Business Administration degree from Harvard Business School, and a
Bachelor of Arts degree from Brown University. Mr. Carr is a member of the
National Association of Real Estate Investment Trusts; the Young Presidents
Organization; the Federal City Council and the International Development
Research Council. Mr. Carr is the son of Oliver T. Carr, Jr. and the brother of
Mr. Robert O. Carr. Mr. Carr is a member of the Investment Committee and the
Executive Committee of the Board of Directors. In addition, Mr. Carr is a member
of management's Operating Committee and Investment Committee.
Ronald Blankenship, 49, was appointed as a director of the Company in
August 1998 to fill a vacancy until the 1999 Annual Meeting of Stockholders, and
has been nominated for election by the stockholders at that meeting to serve the
remainder of a term that expires at the 2000 Annual Meeting of Stockholders. Mr.
Blankenship was nominated to the Board as a designee of SC-USREALTY, a major
stockholder of the Company. Mr. Blankenship has been the Vice Chairman and Chief
Operating Officer of Security Capital Group Incorporated since May 1998.
Previously, Mr. Blankenship was Managing Director of Security Capital Group
Incorporated from March 1991 to May 1998. Mr. Blankenship is a director of
Security Capital Group Incorporated and Storage USA, Inc. He received his B.B.A.
from the University of Texas at Austin. Mr. Blankenship is a member of the
Executive Compensation Committee of the Board of Directors.
Andrew F. Brimmer, 72, has been a director of the Company since February
1993. Dr. Brimmer's term as a director of the Company expires at the 1999 Annual
Meeting of Stockholders and he has been renominated for election by the
stockholders at that meeting to serve another three-year term. He has been
President of Brimmer & Company, Inc., an economic and financial consulting firm,
since 1976. Dr. Brimmer is the Wilmer D. Barrett Professor of Economics at the
University of Massachusetts--Amherst. He also serves as a director of BlackRock
Investment Income Trust, Inc. (and other funds), Borg-Warner Automotive, Inc.,
and Airborne Express. From 1995 to 1998, Dr. Brimmer served as chairman of the
District of Columbia Financial Control Board. He also was a member of the Board
of Governors of the Federal Reserve System from 1966 through 1974. Dr. Brimmer
received a B.A. degree and a masters degree in economics from the University of
Washington and a Ph.D. in economics from Harvard University. Dr. Brimmer is a
member of the Audit Committee of the Board of Directors.
A. James Clark, 71, has been a director of the Company since February 1993.
Mr. Clark's term as a director of the Company expires at the 2000 Annual Meeting
of Stockholders. He has been Chairman of the Board and President of Clark
Enterprises, Inc., a Bethesda, Maryland-based company involved in real estate,
communications, and commercial and residential construction, since 1972. Mr.
Clark is a member of the University of Maryland Board of Visitors and
Foundation, and is a Trustee Emeritus of the Johns Hopkins University and the
Johns Hopkins Board of Medicine. He is also a member of the PGA Tour Golf Course
Properties Advisory Board and an advisory director of Potomac Electric Power
Company. Mr. Clark is a graduate
1
<PAGE>
of the University of Maryland. Mr. Clark is a member of the Investment
Committee, the Executive Committee, the Executive Compensation Committee, and
the Nominating Committee of the Board of Directors.
Timothy Howard, 50, was appointed as a director of the Company in August
1998 to fill a vacancy until the 1999 Annual Meeting of Stockholders, and has
been nominated for election by the stockholders at that meeting to serve the
remainder of a term that expires at the 2000 Annual Meeting of Stockholders. Mr.
Howard has been the Executive Vice President and Chief Financial Officer of
Fannie Mae since 1990. From 1988 to 1990, Mr. Howard was Executive Vice
President--Asset Management of Fannie Mae. Mr. Howard has held positions of
increasing responsibility with Fannie Mae since beginning with the company in
1982. Mr. Howard received his Bachelor of Science and Masters in Economics
degrees from UCLA. Mr. Howard is a member of the Audit Committee and the
Executive Compensation Committee of the Board of Directors.
Caroline S. McBride, 45, has been a director of the Company since July
1996. Ms. McBride's term as a director of the Company expires at the 2001 Annual
Meeting of Stockholders. Ms. McBride was nominated to the Board of Directors as
a designee of SC-USREALTY. Since March 1997, Ms. McBride has been a Managing
Director of Security Capital Global Strategic Group, an affiliate of
SC-USREALTY. From June 1996 to July 1997, Ms. McBride was Managing Director of
Security Global Capital Management Group. Prior thereto, from July 1978 to May
1996, Ms. McBride was with IBM, where she was director of private market
investments for the IBM Retirement Fund from 1994 to 1996 and director of real
estate investments for the IBM Retirement Fund from 1992 to 1994. Ms. McBride is
on the Board of Directors of Storage USA, Inc., BelmontCorp, CWS Communities
Trust and the Real Estate Research Institute. Ms. McBride received her Masters
in Business Administration degree from New York University and a Bachelor of
Arts degree from Middlebury College. Ms. McBride is a member of the Investment
Committee and the Audit Committee of the Board of Directors.
William D. Sanders, 57, has been a director of the Company since May 1996.
Mr. Sanders' term as a director of the Company expires at the 1999 Annual
Meeting of Stockholders and he has been renominated for election by the
stockholders at that meeting to serve another three-year term. Mr. Sanders was
nominated to the Board as a designee of SC-USREALTY. He is the founder and
Chairman of Security Capital Group, an affiliate of SC-USREALTY. Mr. Sanders
retired on December 31, 1989 as Chief Executive Officer of LaSalle Partners
Limited, a firm he founded in 1968. Mr. Sanders is on the Board of Directors of
Security Capital European Realty, SC-USREALTY, and Storage USA, Inc. Mr. Sanders
is a former trustee and member of the executive committee of the University of
Chicago and a former trustee fellow of Cornell University. Mr. Sanders received
his Bachelor of Science degree from Cornell University. Mr. Sanders is a member
of the Nominating Committee of the Board of Directors.
Wesley S. Williams, Jr., 56, has been a director of the Company since
February 1993. Mr. Williams' term as a director of the Company expires at the
2001 Annual Meeting of Stockholders. Mr. Williams has been a partner of the law
firm of Covington & Burling, Washington, D.C., since 1975. He was adjunct
professor of real estate finance law at Georgetown University Law Center from
1971 to 1973 and is a contributing author to several texts on banking law and on
real estate finance and investment. Mr. Williams is on the Editorial Advisory
Board of the District of Columbia Real Estate Reporter. Mr. Williams serves as a
director of Blackstar Communications, Inc.; Blackstar LLC; and the Federal
Reserve Bank of Richmond, Virginia. Mr. Williams is Co-Chairman of the Board of
Directors and Co-CEO of The Lockhart Caribbean Corporation and its real estate,
insurance, consumer finance, and internet services subsidiaries. Mr. Williams is
a member of the Executive Committee of the Board of Trustees of Penn Mutual Life
Insurance Company, of which he is the Senior Trustee. Mr. Williams received B.A.
and J.D. degrees from Harvard University, an M.A. degree from the Fletcher
School of Law and Diplomacy and an LL.M. from Columbia University. Mr. Williams
is a member of the Executive Compensation Committee of the Board of Directors.
2
Exhibit 99.7
ITEM 1--BUSINESS--THE COMPANY--EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES OF
THE COMPANY
(from the Annual Report on Form 10-K of CarrAmerica Realty Corporation for the
year ended December 31, 1998)
As of March 15, 1999, the Company's executive officers and key employees
(including certain executive officers and key employees of OmniOffices,
CarrAmerica Development and other affiliates of the Company) were as follows:
Kent C. Gregory, 48, has been the Company's Managing Director--National
Services since July 1997. Prior to that time, Mr. Gregory had been employed by
Opus, a real estate services company, since 1991, serving as Senior Vice
President of National Accounts. He holds a Masters in Business Administration
from Pace University and a Bachelor of Arts degree in Business Administration
from St. Thomas University. Mr. Gregory is a member of management's Operating
Committee and Investment Committee.
Philip L. Hawkins, 43, has been the Company's Chief Operating Officer since
October 1998. Prior to that time Mr. Hawkins served as the Company's Managing
Director--Asset Management since February 1996. Prior to that time, Mr. Hawkins
had been employed by LaSalle Partners Limited, a real estate services company,
since 1982, serving as Executive Vice President, Eastern Division, Asset
Management Group since 1995, Senior Vice President, Northeast Region, Asset
Management Group from 1990 to 1994, and in other asset management positions
prior to that time. Mr. Hawkins also was a director of LaSalle Partners Limited.
He holds a Masters in Business Administration from the University of Chicago
Graduate School of Business and a Bachelor of Arts degree from Hamilton College.
Mr. Hawkins is a member of management's Operating Committee and Investment
Committee. Mr. Hawkins serves as a director and officer of certain subsidiaries
and affiliates of the Company, including as a director of OmniOffices.
Richard F. Katchuk, 52, has been the Company's Chief Financial Officer
since February 1999. Prior to that time, Mr. Katchuk served as Chief Financial
Officer and Corporate Executive Vice President of Crestar Financial Corporation
since 1995. Prior to joining Crestar Financial Corporation, Mr. Katchuk was with
Banc One, serving as a Senior Vice President Corporate Finance from 1988 to
1995. Mr. Katchuk holds a Bachelor of Arts degree in Economics from Hobart &
William Smith Colleges. Mr. Katchuk is a member of management's Operating
Committee and Investment Committee.
Linda A. Madrid, 39, has been the Company's Managing Director, General
Counsel and Corporate Secretary since November 1998. Ms. Madrid had served as
the Company's Senior Vice President and General Counsel since March 1998. Prior
to that time, Ms. Madrid had been Senior Vice President, Managing Director of
Legal Affairs and Corporate Secretary of Riggs National Corporation/Riggs Bank
N.A. since February 1996 and Vice President and Litigation Manager from
September 1993 to January 1996. Prior to that time, Ms. Madrid practiced law in
several law firms in Washington, D.C. and served as Assistant General Counsel
for Amtrak. Ms. Madrid holds a J.D. from Georgetown University Law Center and a
Bachelor of Arts degree from Arizona State University. Ms. Madrid is a member of
management's Operating Committee.
Paul R. Adkins, 40, has been the Company's Senior Vice President, Market
Officer for Washington, D.C. since August 1996. Mr. Adkins has been with the
Company for over 17 years, including serving as Vice President of Acquisitions
from May 1994 to August 1996. Prior to that, Mr. Adkins served in a variety of
other capacities with the Company, with over 12 years in commercial real estate
leasing. Mr. Adkins is a member of the District of Columbia's Building Industry
Association and Northern Virginia's National Association of Industrial and
Office Parks. Mr. Adkins holds a Bachelor of Arts degree in Economics from
Bucknell University.
Steven N. Bralower, 50, has been Executive Vice President of Carr Real
Estate Services, Inc. ('Carr Services, Inc.'), an affiliate of the Company that
conducts management and leasing operations since January 1999, and Senior Vice
President of Carr Realty, L.P., a subsidiary of the Company, since May 1996. Mr.
Bralower was Senior Vice President of Carr Services, Inc. from 1993 to May 1996.
Mr. Bralower is a member of the Greater Washington Commercial Association of
Realtors. Mr. Bralower has been a member of the Georgetown University Law Center
adjunct faculty since 1987. Mr. Bralower holds a Bachelor of Arts degree from
Kenyon College.
1
<PAGE>
Robert L. Brumm, 47, has been a Senior Vice President of the Company since
February 1998. Prior to that Mr. Brumm had been Vice President, Human Resources
and Administration of the Company since May 1996. From 1993 to 1996, Mr. Brumm
held the same position with Carr Services, Inc. He is responsible for managing
the Human Resources, Risk Management, Training, and Office Management functions.
He has over 20 years of experience, including eight years with Mark Controls
Corporation and five years with the real estate division of Philip Morris, Inc.
Mr. Brumm received his Bachelors degree from California State University at Long
Beach.
Robert O. Carr, 49, has been President of Carr Urban Development, Inc., a
subsidiary of CarrAmerica Development, since June 1998, and Chairman of the
Board of Directors of Carr Services, Inc., since February 1993. Mr. Carr served
as a director of the Company from 1993 until 1997 and as President of Carr
Services, Inc. from 1993 to 1998. Mr. Carr is a director of The Oliver Carr
Company and, from 1987 until February 1993, served as its President and Chief
Executive Officer. Mr. Carr is a member of the Boards of Directors for the
Greater Washington Research Center, the Corcoran School of Art and the National
Cathedral School for Girls. Mr. Carr is also a member of the Greater Washington
Board of Trade, the Urban Land Institute and the D.C. Chamber of Commerce. Mr.
Carr holds a Bachelor of Arts degree from Trinity College. Mr. Carr is the son
of Oliver T. Carr, Jr. and the brother of Thomas A. Carr.
Clete Casper, 39, has been the Company's Vice President, Market Officer for
Seattle since July 1996. Mr. Casper has over 10 years of experience in real
estate and marketing. Mr. Casper's most recent experience includes one year as a
Senior Associate with CB Commercial Real Estate Group Inc., Seattle, Washington.
Prior to that, Mr. Casper was with Sabey Corporation in Seattle, Washington,
serving as Development Manager for four years and a Marketing Associate for five
years. Mr. Casper is a graduate of Washington State University.
John J. Donovan, Jr., 55, has been President of Carr Services, Inc., since
January 1999. Prior to that time, Mr. Donovan served as Senior Vice President of
Carr Services, Inc. from 1993 to 1998. He is a member of the Advisory Board for
Jubilee Enterprise of Greater Washington, the Economic Club of Washington, the
Greater Washington Board of Trade and the Greater Washington Commercial
Association of Realtors. Mr. Donovan holds a Bachelor of Arts degree from
Georgetown University.
Karen B. Dorigan, 34, has been a Senior Vice President of the Company since
May 1997. Prior to that, Ms. Dorigan was the Company's Vice President--Land Due
Diligence since January 1996. Prior to that time, Ms. Dorigan served for more
than nine years in a variety of capacities in the development business of The
Oliver Carr Company, including from February 1993 to January 1996 as a Vice
President. She is a past member of the Northern Virginia Building Industry
Association's Arlington Chapter Council. Ms. Dorigan holds a Bachelor of Science
degree in Economics from the University of Pennsylvania, Wharton School.
J. Thad Ellis, 38, has been the Company's Vice President, Market Officer
for Atlanta since November 1996. Mr. Ellis has over 15 years of experience in
real estate. Mr. Ellis' most recent experience includes 10 years with Peterson
Properties, where his primary responsibility was to oversee and coordinate
leasing and property management for the management services portfolio. Mr. Ellis
is a graduate of Washington & Lee University and is involved with the National
Association of Industrial and Office Parks and Atlanta's Chamber of Commerce and
is on the Advisory Board of Black's Guide.
Richard W. Greninger, 47, has been Senior VicePresident--Operations of the
Company since January 1998. Prior to that, Mr. Greninger had been the Senior
Vice President of Carr Services, Inc. since March 1995. Prior to that time, he
had been Vice President of Carr Services, Inc. since February 1993. During 1994,
Mr. Greninger served as President of the Greater Washington Apartment and Office
Building Association. Mr. Greninger has served as a director of both the
Institute of Real Estate Management and the Building Owners and Managers
Association. Mr. Greninger holds a Masters in Business Administration from the
University of Cincinnati and a Bachelor of Science degree from Ohio State
University.
Gary M. Kusin, 47, has been President and Chief Executive Officer of
OmniOffices since September 1998. Prior to that time, Mr. Kusin was co-founder
and Chairman of Laura Mercier Cosmetics. Prior to his launch of Laura Mercier
Cosmetics, Mr. Kusin was co-founder and President of Babbage's, Inc., a computer
software and video game retailing business. Mr. Kusin holds a Masters in
Business Administration degree from Harvard Business School and a Bachelor of
Arts degree from the University of Texas at Austin.
Austin W. Lehr, 37, has been the Company's Vice President, Market Officer
for Denver since July 1996. Mr. Lehr has over 14 years of experience in real
estate management, marketing, and development. Mr. Lehr's
2
<PAGE>
most recent experience includes four years as a Vice President with Southwest
Value Partners and Affiliates in Phoenix, Arizona. Prior to that, Mr. Lehr spent
four years with Draper and Kramer, lncorporated in Washington, D.C. as the
Director of Development and Marketing. Mr. Lehr is a Director of the Chapter of
NAIOP, a Director for Brokers for Battered Kids and a guest lecturer at
University of Colorado's Real Estate Center. Mr. Lehr holds a Masters of
Management degree from Northwestern University and a Bachelor of Arts degree
from Williams College.
Dwight L. Merriman, 38, has been the Company's Senior Vice President,
Market Officer for Southern California since 1996. Mr. Merriman has over 15
years of experience in real estate, operations, acquisitions, construction,
marketing and development. From 1995 to 1996 Mr. Merriman served as Vice
President with Security Capital Pacific Trust (an affiliate of SC-USREALTY) in
Irvine, California. Prior to that, Mr. Merriman spent 11 years with Overton,
Moore in Los Angeles, serving as the regional development and operating partner
for Orange County and Riverside County in the Southern California Market. Mr.
Merriman holds a Masters in Business Administration from the University of
California at Los Angeles and a Bachelors degree from the University of Southern
California.
Robert M. Milkovich, 39, has been the Company's Vice President, Market
Officer for Phoenix, Arizona since January 1998. Mr. Milkovich has over 14 years
of experience in real estate leasing. Mr. Milkovich's most recent experience
includes five years as the Assistant Vice President of leasing for Carr
Services, Inc. Mr. Milkovich holds a Bachelor of Science in Business
Administration from the University of Maryland.
Gerald J. O'Malley, 55, has been the Company's Vice President, Market
Officer for Chicago since July 1996. Mr. O'MalIey has over 32 years of
experience in real estate marketing. Mr. O'Malley's most recent experience
includes 10 years as founder and President of G. J. O'MaIIey & Company, a real
estate office leasing company. Mr. O'Malley holds a Bachelors of Business
Administration degree from Loyola University.
Jeffrey S. Pace, 36, has been the Company's Vice President, Market Officer
for Austin, Texas since May 1997. Mr. Pace has over 14 years of experience in
real estate marketing. Mr. Pace's most recent experience was with Trammell Crow
Company, where he served as Marketing Director. Prior to that time, Mr. Pace
held the position of Marketing Representative in the Dallas and Austin markets
for Carlisle Property Company, Stockton, Luedmann, French & West and Trammell
Crow Company from 1985 to 1997. Mr. Pace holds a Masters of Business
Administration from the University of Texas at Arlington and a Bachelor of
Science from the University of Texas at Austin.
James D. Peterson, 51, has been the Company's Vice President, Market
Officer for Florida since November 1996. Mr. Peterson has over 25 years of
experience in the real estate field. From 1993 to October 1996 Mr. Peterson
served as Vice President of Peterson Properties with responsibility for property
operations in Florida. Mr. Peterson is involved with the National Association of
Industrial and Office Parks and is a member of Boca Raton's Chamber of Commerce.
Mr. Peterson holds a Masters in Business Administration from University of Texas
at Austin and a Bachelor of Science degree in Economics from University of North
Carolina at Chapel Hill.
William H. Vanderstraaten, 38, has been the Company's Vice President,
Market Officer for Dallas since April 1997. Mr. Vanderstraaten has over 16 years
of experience in real estate development and leasing fields. Mr.
Vanderstraaten's most recent experience prior to working for the Company
includes eight years as Vice President--New Development for Harwood Pacific
Corporation in Dallas, Texas, where his primary responsibilities were directing
large scale development projects and coordinating leasing efforts for
portfolios. Mr. Vanderstraaten holds a Bachelor of Science degree in Business
Administration from Southern Methodist University.
Debra A. Volpicelli, 34, has been the Company's Treasurer and Controller
since May 1995. Prior to that time, Ms. Volpicelli had been the Company's Tax
Manager since February 1993. Ms. Volpicelli holds a Bachelor of Science degree
in Business Administration from Georgetown University and is a Certified Public
Accountant.
Joseph D. Wallace, 35, has been the Chief Financial Officer of OmniOffices
since January 1999. Prior to that time Mr. Wallace served as the Executive Vice
President of OmniOffices since October 1997. Prior to that time, Mr. Wallace had
served as the Company's Vice President--Building Due Diligence since January
1996 and was responsible for supervising building acquisition due diligence.
Prior to that time, Mr. Wallace had been the Company's Vice President of Asset
Management since February 1993. Mr. Wallace holds a Bachelor of Science degree
in Commerce from University of Virginia.
3
