<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1996
REGISTRATION NO. 333-04519
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CARRAMERICA REALTY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 52-1796339
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1700 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20006
(202) 624-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
THOMAS A. CARR
1700 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20006
(202) 624-7500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
-------------------------------
COPIES TO:
J. WARREN GORRELL, JR.
DAVID W. BONSER
HOGAN & HARTSON L.L.P.
COLUMBIA SQUARE
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004-1109
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Registration Statement and from time
to time as determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE AGGREGATE PRICE PER AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED (1) SECURITY (2) PRICE (2) FEE
- --------------------------- --------------- -------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Debt Securities
Preferred Stock
Common Stock
Common Stock Warrants $600,000,000 (3) $600,000,000 $206,897 (4)
=======================================================================================================
(Footnotes on the following page)
The Registrant hereby amends the Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
(Footnotes continued from previous page)
<FN>
(1) This Registration Statement also covers contracts which may be issued by
the Registrant under which the counterparty may be required to purchase
Debt Securities, Preferred Stock, Common Stock or Common Stock Warrants.
Such contracts would be issued with the Debt Securities, Preferred Stock,
Common Stock and/or Common Stock Warrants covered hereby. In addition,
Securities registered hereunder may be sold separately, together or as
units with other Securities registered hereunder.
(2) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for Common Stock or Preferred
Stock issued upon conversion of Debt Securities or Preferred Stock or upon
exercise of Common Stock Warrants registered hereunder, as the case may
be. The aggregate maximum offering price of all Securities issued pursuant
to this Registration Statement will not exceed $600,000,000.
(3) Omitted pursuant to General Instruction II.D of Form S-3 under the
Securities Act of 1993, as amended.
(4) Previously paid.
</FN>
</TABLE>
<PAGE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED JULY 11, 1996
PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED , 1996)
8,400,000 SHARES
[LOGO]
CARRAMERICA REALTY CORPORATION
COMMON STOCK
------------
CarrAmerica Realty Corporation (the "Company") is a publicly-traded real
estate investment trust (a "REIT") that focuses primarily on the acquisition,
development, ownership and operation of value office properties in select
suburban growth markets across the United States. As of June 30, 1996, the
Company owned interests in a portfolio of 57 operating office properties
containing approximately 8.4 million square feet of space.
All of the shares of common stock, par value $.01 per share ("Common Stock"),
offered hereby (the "Offering") are being sold by the Company. The Common Stock
is listed on the New York Stock Exchange ("NYSE") under the symbol "CRE." The
last reported sale price for the Common Stock on the NYSE on July 9, 1996 was
$24 per share. Subject to certain limited exceptions, ownership of more than 5%
of the Common Stock is restricted in order to preserve the Company's status as a
REIT for federal income tax purposes. See "Description of Common Stock --
Restrictions on Transfer" in the accompanying Prospectus.
A wholly owned subsidiary of Security Capital U.S. Realty (collectively,
"USRealty") currently owns 39% of the outstanding shares of Common Stock on a
fully diluted basis. The Company expects that USRealty will purchase 3,600,000
shares of Common Stock directly from the Company at the public offering price
simultaneously with the closing of the Offering. In addition, USRealty may
purchase up to 1,076,446 shares of Common Stock in the Offering at the public
offering price (which, combined with the direct purchase from the Company, would
result in an additional total investment by USRealty in the Company of up to
$112 million, assuming a public offering price of $24.00) in order to maintain
its 39% ownership interest in the Company on a fully diluted basis. No
underwriting discount will be applied to any shares purchased by USRealty
directly from the Company or in the Offering.
See "Risk Factors" beginning on page 3 of the accompanying Prospectus for a
discussion of certain factors relating to an investment in the Common Stock.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------------------------------------------------------
Price to Underwriting Proceeds to
Public Discount(1) Company(2)(3)
Per Share...... $ $ $
Total(2)(4).... $ $ $
-----------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) No underwriting discount will be applied to any of the 1,076,446 shares
that USRealty may purchase in the Offering; therefore, all of the proceeds
therefrom will be retained by the Company. Total Underwriting Discount and
Proceeds to Company assumes USRealty purchases all such shares.
(3) Before deducting expenses payable by the Company estimated at $1,500,000.
(4) The Company has granted the several Underwriters a 30-day option to
purchase up to 1,260,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively.
-------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
-------------------
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York, New York on or about
, 1996.
-------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
J.P. MORGAN & CO.
PRUDENTIAL SECURITIES INCORPORATED
LEGG MASON WOOD WALKER
INCORPORATED
WHEAT FIRST BUTCHER SINGER
-------------------
The date of this Prospectus Supplement is , 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus Supplement and the accompanying Prospectus or
incorporated herein and therein by reference. Unless indicated otherwise, the
information contained in this Prospectus Supplement assumes that the
Underwriters' over-allotment option is not exercised. As used herein, the term
"Company" includes CarrAmerica Realty Corporation, a Maryland corporation,
and/or one or more of its subsidiaries, as appropriate, and "Common Stock"
refers to the common stock, par value $.01 per share, of the Company.
THE COMPANY
The Company is a publicly-traded real estate investment trust (a "REIT") that
focuses primarily on the acquisition, development, ownership and operation of
value office properties in select suburban growth markets across the United
States. "Value office" property describes office space which combines the
elements of affordability, accessibility and flexibility with regard to customer
needs. As of June 30, 1996, the Company owned interests in a portfolio of 57
operating office properties (collectively, the "Properties") containing
approximately 8.4 million square feet of space. The Company also has entered
into agreements to acquire 27 additional office properties containing
approximately 1,499,000 square feet of space. The Company expects to close these
transactions within 60 days. As of June 30, 1996, the Company also provided
fee-based real estate services for properties containing in excess of 7.5
million square feet of office space that are owned by third parties.
On February 26, 1996, the stockholders of the Company approved the investment
by a wholly-owned subsidiary of Security Capital U.S. Realty (collectively,
"USRealty") of approximately $250 million in the Company (the "USRealty
Transaction"). The sale and issuance of 11,627,907 shares of Common Stock to
USRealty in a private sale transaction was consummated on April 30, 1996. As of
June 30, 1996, these shares represented a 39.0% ownership interest in the
Company on a fully diluted basis (after giving effect to the conversion of all
outstanding Units (as defined herein) into shares of Common Stock). Concurrently
with the closing of the USRealty Transaction, the Company changed its name from
Carr Realty Corporation to CarrAmerica Realty Corporation. The Company is the
exclusive strategic investment of USRealty in the commercial office property
business in the United States.
The Company and its predecessor, The Oliver Carr Company ("OCCO"), have
traditionally focused on the acquisition, development, ownership and operation
of office properties in the Washington, D.C. metropolitan area. In connection
with the USRealty Transaction, the Company is implementing a national business
strategy that includes acquiring, developing, owning and operating value office
properties throughout the United States in select suburban growth markets. The
Company seeks to provide value office space on a national scale to meet the
changing needs of corporate users of office space.
The Company's business strategy is responsive to the growing trend among
corporate office space users toward relocating their operations from central
business districts to suburban markets in order to reduce operating costs and to
improve their employees' quality of life. The resulting increase in demand for
suburban office space has not been met by a corresponding increase in supply;
rather, the volume of new office construction in suburban markets has declined
dramatically from the end of 1986 to the end of 1995. Office vacancy rates in
the national suburban office market have declined from 23.8% at the end of 1986
to 13.4% at the end of 1995, according to CB Commercial/Torto Wheaton Research,
while central business district vacancy rates have not similarly declined. The
Company is pursuing its business strategy initially by acquiring office
properties in suburban growth markets at what the Company believes are
attractive discounts to replacement cost. In the future, if acquisition costs
approach those of new office development, the Company will consider developing
value office properties in select suburban growth markets. Of the Company's 57
Properties, 38 have been acquired thus far in 1996 as part of the Company's
business strategy.
The Company's objective is to achieve long-term sustainable growth by
acquiring and developing value office properties in suburban markets throughout
the United States that exhibit strong growth characteristics. In particular, the
Company seeks markets in which operating costs for
S-3
<PAGE>
businesses are relatively low, long-term population and job growth are expected
to exceed the national average, and barriers to entry exist for new supply of
office space. In analyzing property acquisitions within target markets, the
Company looks for physical property characteristics that appeal to value office
users, including flexible floor plates, ample parking and proximity to major
transportation arteries. The Company believes that this approach enables it to
acquire office properties that offer customers affordability, accessibility and
flexibility.
The following table provides an overview of the Properties owned by the
Company as of June 30, 1996 and the markets in which they are located.
NUMBER OF APPROXIMATE
MARKET AREA PROPERTIES SQUARE FEET
- ------------------- ------------ --------------
Washington, D.C. 15 3,704,000
Northern Virginia 7 1,290,000
Northern
California 6 1,082,000
Southeast Denver 6 737,000
Suburban Chicago 2 514,000
Suburban Seattle 10 396,000
Southern
California 9 391,000
Suburban Maryland 1 205,000
Austin, Texas 1 119,000
------------ --------------
Total 57 8,438,000
============ ==============
RECENT DEVELOPMENTS
Acquisitions Activity. Consistent with the Company's strategy of acquiring
value office properties in suburban growth markets, the Company has
significantly expanded its portfolio of office properties in 1996, acquiring
thus far 38 office properties across the country for an aggregate purchase price
of approximately $367 million. In addition, the Company has entered into binding
contracts (subject to customary conditions and obtaining necessary third-party
consents) to acquire an additional 27 office properties for an aggregate
purchase price of approximately $191 million. The Company expects to close these
transactions within 60 days, although there can be no assurance that any such
acquisitions will be consummated. The 38 Properties were purchased at an average
capitalization rate of 10.8% (calculated by dividing the net operating income
generated by these Properties on a pro forma basis for the year ended December
31, 1995, including a deduction for management fees, by the consideration paid
for these Properties). This capitalization rate is not necessarily indicative of
the actual capitalization rate the Company will realize from these properties.
In addition, there can be no assurance that the capitalization rate with respect
to these property acquisitions will be attained with respect to future
acquisitions.
The following table summarizes the operating properties acquired by the
Company thus far in 1996 or which the Company currently has under contract to
acquire:
<TABLE>
<CAPTION>
DATE OF NUMBER OF APPROXIMATE
PROPERTIES TARGET MARKET ACQUISITION PROPERTIES SQUARE FEET
- -------------------------------- ------------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Scenic Business Park Southern California March 1996 4 138,000
Harbor Corporate Park Southern California March 1996 4 149,000
AT&T Center Northern California March 1996 6 1,082,000
Reston Quadrangle Northern Virginia March 1996 3 261,000
Harlequin Plaza and Quebec Court Southeast Denver May 1996 4 613,000
The Quorum Southeast Denver June 1996 2 124,000
Parkway North Center Suburban Chicago June 1996 2 514,000
Redmond East Business Campus Suburban Seattle June 1996 10 396,000
Plaza PacifiCare Building Southern California June 1996 1 104,000
Parkway One Northern Virginia June 1996 1 88,000
Norwood Tower Austin, Texas June 1996 1 119,000
Littlefield Portfolio Austin, Texas Pending 10 894,000
Warner Center Business Park Southern California Pending 12 343,000
Quebec Centre Southeast Denver Pending 3 107,000
Katella Corporate Center Southern California Pending 1 80,000
Greenwood Centre Southeast Denver Pending 1 75,000
Total 65 5,087,000
=== ==========
</TABLE>
S-4
<PAGE>
Financing Activity. In May 1996, the Company obtained an unsecured line of
credit from Morgan Guaranty Trust Company of New York in the amount of up to
$215 million (the "Line of Credit"). The Line of Credit, which has been utilized
to fund a portion of the Company's recent acquisitions, will be used to fund
future acquisitions. In addition, funds from the Line of Credit will be
available to finance future office property development and capital expenditures
and for working capital purposes. A portion of the proceeds of the Offering will
be used to repay amounts previously advanced under the Line of Credit, making
the full amount of the Line of Credit available immediately following the
Offering. Upon consummation of the Offering, the Company will have a
debt-to-total market capitalization ratio of 25.6% (assuming a Common Stock
price of $24.00 per share).
THE OFFERING
Common Stock Offered Hereby (1)................ 8,400,000
Common Stock Offered in Concurrent
USRealty Purchase (2)........................ 3,600,000
Common Stock Outstanding After the Offering
and the Concurrent USRealty Purchase ........ 37,200,469
Common Stock and Units Outstanding After the
Offering and the Concurrent USRealty
Purchase (3)................................. 41,837,805
Use of Proceeds................................ To repay outstanding indebted-
ness under the Line of Credit,
to fund acquisitions and for
general corporate purposes.
- -----------------
(1) See "Price Range of Common Stock and Dividend History" herein and
"Description of Common Stock" in the accompanying Prospectus. USRealty may
purchase up to 1,076,446 shares of Common Stock in the Offering at the
public offering price in order to maintain its 39% ownership interest in
the Company. See "Underwriting."
(2) The Company expects that USRealty will purchase 3,600,000 shares of Common
Stock directly from the Company at the public offering price
simultaneously with the closing of the Offering (the "Concurrent USRealty
Purchase"). See "Underwriting."
(3) "Units" are units of partnership interest in Carr Realty, L.P. and
CarrAmerica Realty, L.P. (the "Carr Partnerships") that are redeemable for
cash or, at the option of the Company, shares of Common Stock on a
one-for-one basis.
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial and operating information
for the Company as of and for the three months ended March 31, 1996 and 1995 and
as of and for the years ended December 31, 1995 and 1994. The selected financial
information as of and for the years ended December 31, 1995 and 1994 is derived
from the audited financial statements of the Company incorporated by reference
in the accompanying Prospectus. The selected financial information as of and for
the three months ended March 31, 1996 and 1995 is derived from unaudited
financial statements that, in the opinion of management, include all material
adjustments considered necessary for a fair presentation of the results of the
interim periods.
The following table also sets forth pro forma financial information for the
Company as of and for the three months ended March 31, 1996 and for the year
ended December 31, 1995, giving effect to (i) completion of the Offering and the
Concurrent USRealty Purchase, (ii) the closing of the USRealty Transaction
(which closed on April 30, 1996), (iii) the acquisition of office properties
that have been consummated since the beginning of each period presented and the
acquisition of 27 office properties that the Company expects to consummate in
the near future, and (iv) the repayment of $235 million of indebtedness
outstanding as of March 31, 1996. See "Pro Forma Financial Information."
S-5
<PAGE>
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."
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------- -----------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
--------- ---------- --------- ----------
1996 1996 1995 1995 1995 1994
---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REAL ESTATE OPERATING REVENUE:
RENTAL REVENUE ........................ $ 43,683 $ 25,350 $ 21,796 $ 172,443 $ 89,539 $ 82,665
REAL ESTATE SERVICE REVENUE............ 2,726 2,726 2,480 11,315 11,315 8,890
REAL ESTATE OPERATING EXPENSES:
PROPERTY OPERATING EXPENSES............ 14,354 8,991 7,519 56,407 31,579 29,707
INTEREST EXPENSE....................... 7,253 6,532 5,257 28,865 21,873 21,366
GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 3,259 2,748 2,609 12,648 10,711 9,535
DEPRECIATION AND AMORTIZATION.......... 10,420 5,484 4,385 40,857 18,495 14,419
NET INCOME.............................. 9,820 3,335 3,257 37,834 12,067(1) 12,097
DIVIDENDS PAID TO STOCKHOLDERS.......... N/A 5,914 5,803 N/A 23,344 20,204
PER SHARE DATA:
NET INCOME.............................. $ .26 $ .25 $ .25 $ 1.02 $ 0.90 $ 1.06
DIVIDENDS PAID TO STOCKHOLDERS.......... N/A .4375 .4375 N/A 1.75 1.75
WEIGHTED AVERAGE SHARES OUTSTANDING .... 38,350,676 13,523,628 13,269,334 38,114,041 13,338,080 11,387,030
BALANCE SHEET DATA (AT PERIOD END):
REAL ESTATE, BEFORE ACCUMULATED
DEPRECIATION........................... $ 1,038,291 $ 647,825 $ 431,728 $ 480,589 $ 429,537
TOTAL ASSETS............................ 1,044,173 635,358 411,265 458,860 407,948
MORTGAGES PAYABLE....................... 355,097 324,957 261,208 317,374 254,933
OTHER INDEBTEDNESS...................... 0 172,000 0 0 0
MINORITY INTEREST....................... 59,128 34,876 37,930 34,850 38,644
TOTAL STOCKHOLDERS' EQUITY.............. 614,696 93,507 103,791 95,543 106,042
OTHER DATA:
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................. $ 9,001 $ 7,972 $ 35,277 $ 29,908
NET CASH USED BY INVESTING ACTIVITIES... (169,496) (14,307) (81,635) (67,046)
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES............................. 171,511 (1,437) 37,113 32,652
FUNDS FROM OPERATIONS BEFORE MINORITY
INTEREST OF THE UNITHOLDERS OF CARR
PARTNERSHIPS (2)....................... 21,614 9,501 8,382 83,593 33,190(1) 30,640
WEIGHTED AVERAGE SHARES AND UNITS
OUTSTANDING (3)........................ 42,959,471 18,183,510 18,156,537 42,932,498 18,156,537 15,878,780
NUMBER OF PROPERTIES (AT PERIOD END).... 84 36 16 84 18 16
SQUARE FOOTAGE (AT PERIOD END).......... 9,937,000 6,479,000 4,006,000 9,937,000 4,626,000 4,006,000
- -------------------
<FN>
(1) Includes a non-recurring deduction of approximately $1.9 million related
to the termination of an agreement to acquire the development business of
The Evans Company.
(2) The Company believes that funds from operations is an appropriate measure
of the performance of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. In accordance with
the final National Association of Real Estate Investment Trusts (NAREIT)
White Paper on Funds From Operations as approved by the Board of Governors
of NAREIT on March 3, 1995, funds from operations represents net income
(loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring or sales
of property, plus depreciation and amortization of assets uniquely
significant to the real estate industry and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect
funds from operations on the same basis. The Company's funds from
operations in 1994 and for the three months ended March 31, 1995 have been
restated to conform to the new NAREIT definition of funds from operations.
Funds from operations does not represent net income or cash flow generated
from operating activities in accordance with generally accepted accounting
principles and should not be considered an alternative to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity or the Company's ability to make distributions.
(3) Includes shares of Common Stock outstanding plus Units that are redeemable
for cash or, at the option of the Company, shares of Common Stock on a
one-for-one basis.
</FN>
</TABLE>
S-6
<PAGE>
THE COMPANY
The Company is a publicly-traded REIT that focuses primarily on the
acquisition, development, ownership and operation of value office properties in
select suburban growth markets across the United States. "Value office" property
describes office space which combines the elements of affordability,
accessibility and flexibility with regard to customer needs. As of June 30,
1996, the Company owned interests in a portfolio of 57 operating office
properties containing approximately 8.4 million square feet of space. The
Company has also entered into agreements to acquire 27 additional office
properties containing approximately 1,499,000 square feet of space. The Company
expects to close these transactions within 60 days. As of June 30, 1996, the
Company also provided fee-based real estate services for properties containing
in excess of 7.5 million square feet of office space that are owned by third
parties.
The Company and its predecessor, OCCO, have traditionally focused on the
acquisition, development, ownership and operation of office properties in the
Washington, D.C. metropolitan area. In connection with the USRealty Transaction,
the Company is implementing a national business strategy that includes
acquiring, developing, owning and operating value office properties throughout
the United States in select suburban growth markets. See "-- Business Strategy"
below.
The Company's experienced staff of over 450 employees, including over 325
on-site building employees, provides a full range of real estate services. The
Company's principal executive offices are located at 1700 Pennsylvania Avenue,
N.W., Washington, D.C. 20006, and its telephone number is (202) 624-7500. The
Company was organized as a Maryland corporation on July 9, 1992.
BUSINESS STRATEGY
National Suburban Office Strategy. The Company believes that the office
sector of the real estate industry has been unable to effectively meet the needs
of a dynamically changing corporate America. The office sector has been
characterized, at the local level, by highly fragmented ownership and merchant
builders with a short-term investment horizon, and, at the national level, by
passive institutional investors who are not familiar with local markets. The
Company is implementing a national business strategy that includes acquiring,
developing, owning and operating value office properties throughout the United
States in select suburban growth markets. The Company seeks to provide value
office space on a national scale to meet the changing needs of corporate users
of office space.
The Company's business strategy is responsive to the growing trend among
corporate office space users toward relocating their operations from central
business districts to suburban markets in order to reduce operating costs and to
improve their employees' quality of life. The resulting increase in demand for
suburban office space has not been met by a corresponding increase in supply;
rather, the volume of new office construction in suburban markets has declined
dramatically from the end of 1986 to the end of 1995. Over the last several
years, positive net absorption has resulted in a decline in national office
vacancy rates in suburban markets from 23.8% at the end of 1986 to 13.4% at the
end of 1995. Vacancy rates in central business districts have not similarly
declined. The Company believes that the demand for suburban office space will
continue.
S-7
<PAGE>
The charts below show national office vacancy rates in suburban markets and
central business districts over the last 10 years and new office construction
starts and net absorption in suburban markets over the last 10 years.
CENTRAL BUSINESS DISTRICT (CBD) VS. SUBURBAN OFFICE VACANCY RATES
SUBURBAN OFFICE NEW CONSTRUCTION AND NET ABSORPTION
#############################################################################
IMAGE OMITTED
#############################################################################
Although positive net absorption declined in 1995 as compared to 1994, the
Company believes that this decline is attributable to, among other things,
severely constrained supply, leaving suburban office space users in certain
markets with little or no vacant space from which to select.
The Company is pursuing its business strategy initially by acquiring office
properties in suburban growth markets at what the Company believes are
attractive discounts to replacement cost. In the future, if acquisition costs
approach those of new office development, the Company will consider developing
value office properties in select suburban growth markets. Of the Company's 57
Properties, 38 have been acquired thus far in 1996 as part of the Company's
business strategy.
Target Market Selection. The Company's objective is to achieve long-term
sustainable growth by acquiring and developing value office properties in
suburban markets throughout the United States that exhibit strong growth
characteristics. In the office sector, the Company believes a key growth factor
is the projected employment growth within a particular market. The Company
generally is focusing its acquisition efforts in the Pacific, Mountain, Central
and Southeast regions of the country. In these regions, employment growth for
the years 1994 to 2004 is projected to be 18.4% (Pacific region), 33.6%
(Mountain region), 19.8% (Central region), and 34.8% (Southeast region), as
compared to the national average of 19.8%. (Source:
Cognetics, Inc.)
Within these general regions, the Company seeks markets in which operating
costs for businesses are relatively low, long-term population and job growth are
expected to exceed the national average, and barriers to entry exist for new
supply of office space. In addition, the Company targets markets that will
enable it to maintain an economically diverse tenant base to reduce the risk
that the Company's operations will be adversely affected by a single industry
recession. It also is important that a target market be large enough to permit
the Company to acquire a critical mass of properties in order to benefit from
certain operational economies of scale resulting from the geographic clustering
of properties. The Company analyzes its target markets on a quarterly basis to
determine if new office supply, or vacating office space, will materially impact
the supply/demand characteristics in the given markets.
Since commencing the implementation of its national business strategy, the
Company has acquired properties in the following markets: Northern California;
suburban Chicago; southeast Denver; suburban Seattle; Southern California;
Northern Virginia; and Austin, Texas. These markets fit within the Company's
identified parameters for target market selection and the Company's acquisitions
in these markets fall within its general acquisition guidelines. For a
discussion of each of these markets, see "Recent Developments." The Company also
is actively considering other markets in which it may acquire additional
properties.
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General Acquisition Guidelines. The Company has established a set of general
guidelines and physical characteristics to evaluate the acquisition
opportunities available to the Company within the Company's identified target
markets. These guidelines include (i) the purchase price of an office property
typically should be at a discount to the replacement cost of a comparable office
property, (ii) rents of existing tenants in the office property typically should
be at or below the current market rents for the given target market, and (iii)
an office property generally should be low-rise, with flexible floor plates that
are conducive to accommodating a variety of office space user needs. The Company
looks for office properties that have ample parking and that are
conveniently-located near amenities and major transportation arteries. The
Company uses its market officers, local brokers and real estate professionals
within its specific target markets to identify the best available locations
within a particular market. The Company believes that use of these guidelines
enables it to more efficiently identify, analyze and act upon acquisition
opportunities.
National Operating System. To execute its national office strategy, the
Company is creating a national operating system consisting of a network of
market officers and a national service and development program.
A key component of the Company's national operating system includes the
creation of a network of market officers in the Company's target markets where
office properties have been or will be acquired. The Company's market officers
are and will be seasoned real estate professionals knowledgeable about the local
real estate conditions in the target market where they are employed. Market
officers are primarily responsible for maximizing the performance of the
Company's office properties in their markets and ensuring that the needs of the
Company's customers are being met. Additionally, market officers are responsible
for identifying new investments in their market, although they do not commit or
deploy the Company's capital. All capital allocation decisions are made by the
Company's management investment committee. The Company recently hired market
officers for its suburban target markets in Southern California, suburban
Seattle and suburban Chicago.
The Company's national service program will provide uniform customer service
and performance standards for all of the Company's Properties. In addition, the
national service program will focus on building on the Company's established
relationships with corporate office space users to understand and be better able
to address the national real estate needs of major corporations. The Company's
national development program will identify build-to-suit and inventory
development opportunities where market conditions warrant such activities. The
Company's goal is to allocate approximately 5% of its capital to be invested in
land suitable for development; however, that percentage may change based on
market conditions.
To create and implement its national operating system, the Company has hired
several real estate professionals with national operational experience. The
Company expects to augment its management team with additional experienced
professionals to meet the requirements of its business strategy and growth
plans. On an interim basis, Security Capital Investment Research Incorporated,
an affiliate of Security Capital Group Incorporated (which is a substantial
shareholder of USRealty), is assisting the Company in sourcing acquisitions in
selected target markets as well as from national institutional owners and by
providing national and market-specific research support, including some of the
market data referred to in this Prospectus Supplement. The Company believes that
its agreement with Security Capital Investment Research Incorporated, which
provides for payment at specified hourly rates for services actually rendered,
is on terms at least as favorable as the Company could obtain from an unrelated
third party. As its national operating system matures, the Company expects that
all acquisition sourcing services will be provided by employees of the Company.
REAL ESTATE SERVICES
Historically, the Company has provided operational services for its
properties, and the Company intends, in the long term, to continue to do so.
Certain facts or circumstances, however, may require that the Company use
third-party real estate service providers for certain properties. In particular,
during a transitional period immediately following the acquisition of a
property, the Company may use a third-party real estate service provider. As of
June 30, 1996, the Company provided its own operational services for 41 of the
Properties. Fourteen of the 16 Properties for which the Company did not provide
operational services as of June 30, 1996 were recently acquired. The Company,
through certain manage-
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ment subsidiaries, provides fee-based real estate services for more than 35
office buildings in the Washington, D.C. metropolitan area for related and
unrelated parties.
RECENT DEVELOPMENTS
SECURITY CAPITAL U.S. REALTY TRANSACTION
On February 26, 1996, the stockholders of the Company approved the investment
by USRealty of approximately $250 million in the Company. The transaction was
effected through the sale and issuance of 11,627,907 shares of Common Stock to
USRealty in a private sale transaction that was consummated on April 30, 1996.
As of June 30, 1996, USRealty owned approximately 46.1% of the outstanding
Common Stock of the Company (39.0% on a fully diluted basis after giving effect
to the conversion of all outstanding Units into shares of Common Stock). In
connection with the USRealty Transaction, the Company also acquired
substantially all of the economic interest in the development business of OCCO,
providing the Company with resources to enable it to implement its national
development program. Concurrently with the closing of the USRealty Transaction,
the Company changed its name from Carr Realty Corporation to CarrAmerica Realty
Corporation.
The Company believes that it has derived a number of significant benefits
from the USRealty Transaction. The capital provided by USRealty enabled the
Company to pursue its national business strategy, as described above in "The
Company -- Business Strategy." In addition, the USRealty Transaction
substantially increased the Company's equity capitalization and reduced its
leverage, which the Company believes will enable it to have greater access to
the capital markets, enhancing the Company's ability to grow. The Company also
believes that it will benefit from its indirect affiliation with Security
Capital Group Incorporated and the access (through USRealty's representatives on
the Company's board of directors) to the market knowledge, operating experience
and research capabilities of Securital Capital Group Incorporated and its
affiliates. The Company is the exclusive strategic investment of USRealty in the
commercial office property business in the United States.
NEW ACQUISITIONS
Consistent with the Company's strategy of acquiring office properties in
suburban growth markets, the Company has significantly expanded its portfolio of
office properties in 1996, acquiring thus far 38 office properties across the
country for an aggregate purchase price of approximately $367 million. These
Properties were purchased at an average capitalization rate of 10.8% (calculated
by dividing the net operating income generated by these Properties on a pro
forma basis for the year ended December 31, 1995, including a deduction for
management fees, by the consideration paid for these Properties). This
capitalization rate is not necessarily indicative of the actual capitalization
rate the Company will realize from these properties. In addition, there can be
no assurance that the capitalization rate with respect to these property
acquisitions will be attained with respect to future acquisitions. The acquired
properties satisfy the Company's general acquisition guidelines as described in
"The Company -- Business Strategy" above. These properties have been acquired in
seven target markets, as described below. Information set forth below with
respect to market data has been provided by CB Commercial/Torto Wheaton
Research.
NORTHERN CALIFORNIA
AT&T Center. In March 1996, the Company acquired six office buildings in San
Francisco's East Bay Area for an aggregate purchase price of approximately $109
million in cash. The six buildings, which are known as the AT&T Center and were
built in 1988, contain approximately 1,082,000 square feet of space. The entire
portfolio is leased to AT&T. AT&T presently subleases 39% of the space of the
property to other users, including PeopleSoft, a human resources software
producer (181,000 square feet or 17% of the total space), GTE (71,000 square
feet or 8% of the total space) and Pacific Bell Mobile Systems (145,000 square
feet or 13% of the total space). The lease with AT&T expires on various dates in
1998 and 1999.
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The Company has entered into a letter of intent with AT&T to modify the
existing lease and to enter into a new lease for approximately 463,000 square
feet of office space and 26,000 square feet of storage space. The new AT&T
lease, if executed, would provide for the lease with respect to 213,000 square
feet to expire in December 2008, 140,000 square feet to expire in June 2006 and
110,000 square feet to expire in December 2003. The base office rental rate of
the proposed new lease would be $13.20 per square foot, triple net, which rental
rate would be increased at the end of each three-year period during the term of
the lease by the sum of 6% plus 200% of the consumer price index increase for
the prior three years (with the total not to exceed 12%). The initial base
storage rental rate of the proposed lease would be $6.60 per square foot. In
addition to the new AT&T lease, AT&T and the Company would modify their existing
lease, reducing the square footage covered by this lease to approximately
430,000 square feet. The lease would continue to expire on various dates in 1998
and 1999. All of this space is currently subleased by AT&T to sub-tenants, and
AT&T would assign the existing subleases to the Company. The sub-tenants' base
rental rates with respect to this space average approximately $5.66 per square
foot, triple net. In addition, AT&T would make a supplemental base rental rate
payment with respect to this space equal to approximately $6.40 per square foot,
triple net, over the life of the lease, resulting in a total rent payment with
respect to this space of approximately $12.06 per square foot. The existing
lease by AT&T of the remaining portion of the buildings (approximately 163,000
square feet, which includes the conference center facility and the cafeteria)
would be terminated. There can be no assurance that a binding agreement will be
reached with AT&T regarding a new lease or that, if a binding agreement is
reached, that it will be on the terms set forth above.
Market Description. San Francisco's East Bay has long been an area of strong
population and employment growth because of its diverse economy, relatively
affordable housing, and high quality transportation system. In addition, office
demand in the East Bay area has been strong because occupancy costs and taxes
are reasonable and a highly educated and diversified employment base resides in
the East Bay area. The San Francisco East Bay area office market contains
approximately 39 million square feet. Vacancy rates in this market were 16.4%,
16.0%, 14.2%, 12.3% and 11.2% as of December 31 in each of 1991 through 1995,
respectively. AT&T Center is located in the Pleasanton sub-market within the
East Bay area. This sub-market contains approximately 5 million square feet of
office space. Vacancy rates in this sub-market were 21.0%, 21.0%, 17.7%, 9.4%
and 5.6% as of December 31 in each of 1991 through 1995, respectively. The
Company believes the acquisition of AT&T Center positions the Company to take
advantage of the strategic growth opportunities in this dynamic market.
SUBURBAN CHICAGO
Parkway North Center. In June 1996, the Company acquired Parkway North
Center, an office park located in suburban Chicago, Illinois, for an aggregate
purchase price of approximately $80 million. The property currently includes two
office buildings, which were built in 1986 to 1989, containing approximately
514,000 square feet of office space. The Company also acquired additional land
which will support the development of up to 900,000 square feet of office space.
As part of the purchase price, the Company assumed approximately $29 million of
mortgage indebtedness that bears interest at an annual rate of 7.96% and matures
in December 2003. The office park was 93.7% leased as of May 31, 1996. The major
tenants at Parkway North Center include Alliant Foodservice, a food products
distributor (107,000 square feet or 21% of the total space), Fujisawa USA, a
pharmaceutical company (135,000 square feet or 26% of the total space), and
Clintec Nutrition Company, a manufacturer of dietary products (80,000 square
feet or 16% of the total space).
Market Description. Chicago is a proven corporate location with over fifty
Fortune 500 companies located in its downtown and suburban markets. Chicago is
expected to continue to attract office users due to its central location in the
United States, its diverse economy and strong infrastructure. The metropolitan
Chicago area office market contains approximately 187 million square feet.
Vacancy rates in this market were 17.6%, 19.3%, 18.8%, 16.9% and 15.2% as of
December 31 in each of 1991 through 1995, respectively. Parkway North Center is
located in Lake County, which has a significantly lower tax rate than
neighboring Cook County, and as a result the Lake County sub-market has
attracted a number of large corporate users. The Lake County sub-market contains
approximately 6 million square feet of office space. Vacancy rates in this
sub-market were 15.3%, 13.5%, 12.0%, 12.3% and 9.6% as of Decem-
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ber 31 in each of 1991 through 1995, respectively. The Company believes it is
important and consistent with its national office strategy that it has a
presence in the Chicago market because of the prevalence of corporate
headquarters of major national companies in the area.
SOUTHEAST DENVER
Harlequin Plaza and Quebec Court. In May 1996, the Company acquired four
office properties located in suburban southeast Denver, Colorado for aggregate
consideration of approximately $47 million. The four properties, known as
Harlequin Plaza North and South and Quebec Court I and II, contain approximately
613,000 square feet of office space. Harlequin Plaza was built in 1981 and
Quebec Court was built in 1979 and 1980. The consideration for these properties
was paid through a combination of cash and the issuance of Units. The properties
were 96.0% leased to 30 tenants as of May 31, 1996. The major tenants of the
portfolio include Intelligent Electronics, a reseller of computer products,
which leases the entire space at Quebec Court I (130,000 square feet), and Alert
Centre, a security monitoring company, which leases 106,000 square feet (or 68%
of the total space) at Quebec Court II.
The Quorum. In June 1996, the Company acquired two buildings known as The
Quorum in southeast Denver, Colorado for an aggregate purchase price of
approximately $10 million in cash. The properties, which were built in 1975,
contain an aggregate of approximately 124,000 square feet of office space. The
Company also acquired additional land which will support the development of up
to 100,000 square feet of office space. Of the 19 tenants in the two buildings,
the major tenants are Chatfield Dean & Company, a stock brokerage firm (27,000
square feet or 21% of the total space), and JRMK Company, Inc., a mortgage
brokerage firm (18,000 square feet or 15% of the total space). The buildings
were 80.8% leased as of May 31, 1996.
Market Description. Denver has experienced rapid population growth over the
past five years, primarily in the southern and western counties of Douglas,
Arapahoe and Jefferson because of their reasonable cost of living and housing.
The metropolitan Denver area office market contains approximately 64 million
square feet. Vacancy rates in this market were 21.1%, 19.1%, 15.9%, 12.8% and
11.8% as of December 31 in each of 1991 through 1995, respectively. Denver's
largest office sub-markets are its Central Business District and the Southeast
I-25 Corridor, which includes major office concentrations in the Denver Tech
Center, Inverness, Meridian and Greenwood Village. The Southeast I-25 Corridor
area office market contains approximately 20 million square feet of office
space. Vacancy rates in this sub-market were 18.2%, 16.9%, 12.4%, 9.7% and 6.1%
as of December 31 in each of 1991 through 1995, respectively. Harlequin Plaza
North and South and Quebec Court I and II are located in Greenwood Village. The
Quorum is located in the Denver Tech Center, across I-25 from Greenwood Village.
With the acquisition of The Quorum, in combination with Harlequin Plaza and
Quebec Court, the Company has made significant progress toward its objective of
obtaining critical mass in one of its target markets.
SUBURBAN SEATTLE
Redmond East Business Campus. In June 1996, the Company acquired Redmond East
Business Campus, an office park comprised of ten office properties in suburban
Seattle, Washington, for an aggregate purchase price of approximately $40
million in cash. As part of the purchase price, the Company assumed
approximately $28 million in debt that bears interest at an annual rate of
8.375% and matures in January 2006. The properties, which were built from 1988
to 1992, contain an aggregate of approximately 396,000 square feet of office
space. The buildings were 100% leased as of May 31, 1996 to 12 tenants. The two
largest tenants of the office park are Digital Systems International, a provider
of call center software (83,000 square feet or 21% of the total space), and
Incontrol Inc., a medical products company (65,000 square feet or 16% of the
total space).
Market Description. The Seattle metropolitan area has been dominated,
historically, by the aerospace, forest products, defense and international trade
industries. In the 1990's, however, the software, biotechnology, services and
tourism industries have provided growth for the Seattle metropolitan area,
primarily in the eastern suburban area of King County. The Seattle metropolitan
area office market contains approximately 51 million square feet. Vacancy rates
in this market were 13.8%, 13.2%, 13.0%, 12.3% and 9.3% as of
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December 31 in each of 1991 through 1995, respectively. Of Seattle's largest
sub-markets, the Bellevue sub-market has the lowest vacancy rate and has
experienced the most growth in recent years. This sub-market, where the Redmond
East Business Campus is located, is home to such large corporate users as
Microsoft, Nintendo and Eddie Bauer, and contains approximately 16 million
square feet of office space. Vacancy rates in this sub-market were 13.5%, 11.7%,
8.9%, 7.3% and 6.2% as of December 31 in each of 1991 through 1995,
respectively. The Company's acquisition of Redmond East Business Campus will
allow the Company to capitalize on the growing and diversifying suburban Seattle
market.
SOUTHERN CALIFORNIA
Scenic Business Park and Harbor Corporate Park. In March 1996, the Company
acquired eight office properties in Orange County, California for an aggregate
purchase price of approximately $15 million in cash. The four properties
comprising the Scenic Business Park were built in 1985 and contain a total of
138,000 square feet of office space and the four properties that comprise the
Harbor Corporate Park were built in 1987 and contain a total of 149,000 square
feet of office space. All eight buildings are well-located within a short
distance of Orange County's John Wayne Airport. The two office parks, located
five minutes apart, provide the Company with a strong presence in the Greater
Airport Area sub-market and provide excellent operating management economies of
scale. Scenic Business Park is 89.7% leased to six tenants, including FHP, Inc.,
a regional health maintenance organization that leases 70,000 square feet, or
51% of the total space. Harbor Corporate Park is 49.2% leased to 13 tenants,
including Infotech Development, a software developer (15,000 square feet or 10%
of the total space), and Texaco (17,000 square feet or 12% of the total space).
Plaza PacifiCare Building. In June 1996, the Company acquired the Plaza
PacifiCare Building, located in Cypress, California, for a purchase price of
approximately $10 million in cash. The building, which is in western Orange
County, was built in 1986, and contains approximately 104,000 square feet of
office space. The building is 100% leased to PacifiCare Health Systems, Inc.,
the ninth largest HMO in the United States, under a long-term lease.
Market Description. Orange County has rapidly evolved from a rural,
agricultural region to an urbanized high-technology center primarily because of
its strategic location and attractive quality of life. Orange County's office
market contains approximately 48 million square feet, with a vacancy rate of
21.5%, 18.7%, 16.1%, 16.6% and 14.6% as of December 31 in each of 1991 through
1995, respectively. Scenic Business Park and Harbor Corporate Park are located
in the Greater Airport Area sub-market, which is the largest office sub-market
in Orange County. This particular sub-market contains approximately 26 million
square feet of office space. Vacancy rates in this sub-market were 22.4%, 17.9%,
14.7%, 14.3% and 11.5% as of December 31 in each of 1991 through 1995,
respectively. The Company believes that its investments in Orange County will
position the Company to enjoy the benefits of the improving office supply/demand
characteristics in Southern California.
The Los Angeles metropolitan area office market contains approximately 158
million square feet of space and had a vacancy rate of 21.1%, 21.6%, 20.8%,
20.3% and 19.3% as of December 31 in each of 1991 through 1995, respectively.
The Warner Center Business Park, a probable acquisition described below, is
located in the Greater San Fernando Valley sub-market of Los Angeles, which
contains approximately 22 million square feet of office space. Vacancy rates in
this sub-market were 18.3%, 16.6%, 16.7%, 15.1% and 16.4% as of December 31 in
each of 1991 through 1995, respectively. Corporate office users in this
sub-market are heavily concentrated in the insurance and health care industries.
Additionally, while this sub-market historically has not had a heavy
concentration of tenants from the entertainment industry, an entertainment
company has recently leased a large block of space in this sub-market.
NORTHERN VIRGINIA
Reston Quadrangle. In March 1996, the Company acquired three office
properties located in Reston, Virginia (a suburb of Washington, D.C.) and known
as Reston Quadrangle. These properties, which contain approximately 261,000
square feet of office space, were acquired for an aggregate purchase price of
approximately $43 million in cash. The properties, which were built from 1987 to
1989, are located in a mature and established area along the Dulles Airport Toll
Road. The buildings were 99.8% leased to
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nine tenants as of May 31, 1996. Software AG of North America, Inc., a developer
of software for mainframe applications, is the largest tenant, occupying 173,000
square feet (or 66.4% of the total space) at the property.
Parkway One. In June 1996, the Company acquired Parkway One, a building
located in Herndon, Virginia, for a purchase price of approximately $7 million
in cash. The building contains approximately 88,000 square feet of office space
and was built in 1985. Parkway One has excellent access to the Dulles Toll Road
and Dulles International Airport. The two-story brick structure is 84.5% leased,
with commitments to lease the remainder of the space. The major tenant is EIS
International, Inc., a provider of call center software and systems, which
occupies 63,000 square feet or 71% of the total office space. The acquisition of
Parkway One, in combination with the Company's other properties in Northern
Virginia, should result in operational economies of scale for the Company.
Market Description. The Washington, D.C. metropolitan area office market
contains approximately 214 million square feet, with a vacancy rate of 9.6% as
of December 31, 1995. The Company has focused its recent acquisition efforts in
this area in the Northern Virginia sub-market of Washington, D.C., which
includes Tysons Corner, Reston and Herndon. This sub-market contains
approximately 88 million square feet of office space. Vacancy rates in this
sub-market were 18.4%, 15.7%, 13.1%, 10.3% and 7.1% as of December 31 in each of
1991 through 1995, respectively. Demand in Northern Virginia has been fueled by
high-technology government contractors, professional service firms, and the
telecommunications industry.
AUSTIN, TEXAS
Norwood Tower. In June 1996, the Company acquired Norwood Tower, an office
building located in the central business district of Austin, Texas, for an
aggregate purchase price of $7 million. The property, originally built in 1929
and recognized for its historic status, was renovated in 1982 and contains
approximately 119,000 square feet. The building was 84% leased as of June 30,
1996. The major tenants include the City of Austin (occupying 24,000 square feet
or 20% of the total space) and George, Donaldson & Ford, a law firm (occupying
21,000 square feet or 18% of the total space). The acquisition of this property
was negotiated as part of the negotiations to acquire the Littlefield Portfolio,
as described in "-- Probable Acquisitions" below.
Market Description. Austin's office market contains approximately 20 million
square feet, with a vacancy rate of 20.4%, 18.0%, 14.9%, 12.4%, and 11.2% as of
December 31 in each of 1991 through 1995, respectively. The Company is
concentrating its acquisitions of office properties and land in two of Austin's
suburban sub-markets, the Northwest and Southwest sub-markets. The Northwest
sub-market contains approximately 8 million square feet of office space. Vacancy
rates in this sub-market were 19.8%, 14.6%, 10.5%, 6.7%, and 5.9% as of December
31 in each of 1991 through 1995, respectively. The Southwest sub-market contains
approximately 3 million square feet of office space. Vacancy rates in this
sub-market were 14.9%, 8.1%, 5.9%, 4.4%, and 3.7% as of December 31 in each of
1991 through 1995, respectively. Austin's central business district sub-market
contains approximately 7 million square feet of office space. Vacancy rates in
this sub-market were 24.1%, 25.2%, 23.1%, 22.1%, and 19.8% as of December 31 in
each of 1991 through 1995, respectively. The acquisition of Norwood Tower and
the Littlefield Portfolio, a probable acquisition described below, will allow
the Company to achieve its objective of obtaining critical mass in the growing
Austin market.
PROBABLE ACQUISITIONS
The Company has entered into agreements to acquire an additional 27 office
properties containing a total of 1,499,000 square feet of office space for an
aggregate purchase price of approximately $191 million. In addition, the Company
has entered into agreements to acquire, or is negotiating to acquire, land or
options to acquire land which in the aggregate would support the development of
approximately 2,500,000 square feet of office space. In connection with one of
these potential land acquisitions, the Company is also negotiating to acquire an
office building currently under construction, which when completed will contain
approximately 106,000 square feet. There can be no assurance that any of these
transactions will be consummated.
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SOUTHERN CALIFORNIA
Warner Center Business Park. The Company has entered into a contract to
acquire the 12 buildings which comprise the Warner Center Business Park in
Woodland Hills, California, a suburb of Los Angeles, for an aggregate purchase
price of approximately $52 million in cash. As part of the purchase price, the
Company will assume approximately $26 million in debt that bears interest at an
annual rate of 7.4% and matures in December 2000. The properties, which are
located in the Greater San Fernando Valley sub-market and were built from 1981
to 1985, contain an aggregate of approximately 343,000 square feet of office
space. Closing of the transaction is currently scheduled for July 1996. Warner
Center Business Park is strategically located near the Ventura Freeway and the
405 Freeway, major transportation arteries in the San Fernando Valley area. As
part of the Warner Center mixed-use development, the project is well-served by
retail amenities and is located near affordable and executive housing. The
project is expected to be 95.3% leased at closing to major health care and
insurance companies in addition to other tenants. The United States Bankruptcy
Court is scheduled to commence occupancy of approximately 60,000 square feet, or
17% of the office space, in early July 1996. The closing of this transaction is
subject to certain closing conditions, and there can be no assurance that this
transaction will be consummated.
Katella Corporate Center. The Company has entered into a contract to acquire
Katella Corporate Center, a building located in Cypress, California, for a
purchase price of approximately $7 million in cash. The property is well-located
near the major transportation arteries in the area, high quality housing and
retail amenities. The building contains approximately 80,000 square feet of
office space and was built in 1982. The property is 98.2% leased as of June 30,
1996. Its major tenant is Friendly Hills Healthcare Network, an HMO subsidiary
of Caremark International which occupies approximately 15,000 square feet or 19%
of the total space. Closing of the transaction is currently scheduled for
mid-July 1996. The closing of this transaction is subject to approval of the
Company's Board of Directors and certain other closing conditions, and there can
be no assurance that this transaction will be consummated.
AUSTIN, TEXAS
Littlefield Portfolio. The Company has entered into contracts to acquire ten
properties, certain land and an option to acquire additional land in Austin,
Texas for an aggregate purchase price of approximately $100 million. The
consideration for these acquisitions will be paid through a combination of cash,
the assumption and immediate repayment of seller indebtedness, the issuance of
Units and the assumption of approximately $9.7 million in debt that bears
interest at an annual rate of 7.375% and matures in 1999. The ten properties
(the "Littlefield Portfolio") contain approximately 894,000 square feet of
space. Seven of the properties containing approximately 481,000 square feet of
space are located in suburban Austin's Northwest and Southwest sub-markets, and
three of the properties containing approximately 413,000 square feet of space
are located in Austin's central business district. As of June 30, 1996, the
properties were 78% leased to over 100 tenants, including such major tenants as
Holt, Reinhart & Wilson, a publishing company (occupying 103,000 square feet or
12% of the total space), First USA, a credit card service (occupying 65,000
square feet or 7% of the total space), and Blue Cross/Blue Shield, an insurance
company (occupying 32,000 square feet or 4% of the total space). In addition,
the transaction includes the acquisition of land which will support the
development of up to approximately 600,000 square feet of space in suburban
Austin's Northwest sub-market and up to approximately 130,000 square feet of
space in suburban Austin's Southwest sub-market, as well as an option to
purchase land which will support the development of approximately 750,000 square
feet of space in suburban Austin's Northwest sub-market. The Littlefield
Portfolio acquisition is subject to completion of due diligence, approval by the
Company's Board of Directors and certain seller-related and lender consents, and
there can be no assurance that this transaction will be consummated. Closing of
the transaction is currently scheduled for mid to late July 1996.
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Riata Land. The Company has entered into a contract to acquire 15.1 acres of
land in Austin, Texas for an aggregate purchase price of approximately $2
million. The land, which will support the development of up to approximately
220,000 square feet of office space, is located in suburban Austin's Northwest
sub-market just off Highway 183, a major transportation artery. This tract is
adjacent to land that is part of the Littlefield Portfolio acquisition described
above. The closing of this transaction is currently scheduled for late July 1996
and is subject to consummation of the Littlefield Portfolio acquisition. There
can be no assurance that this transaction will be consummated.
SOUTHEAST DENVER
Greenwood Centre. The Company has entered into a contract to acquire
Greenwood Centre, a building located in suburban southeast Denver, Colorado, for
an aggregate purchase price of approximately $7 million. The building, which was
built in 1985, contains approximately 75,000 square feet of office space and is
located in close proximity to the Company's six properties in the Southeast I-25
Corridor area office sub-market. Closing of the transaction is currently
scheduled for mid to late July 1996. As of June 30, 1996, the property was 94.2%
leased. The primary tenants in the building are General Motors (occupying
approximately 25,000 square feet or 33% of the total space) and Wakefield &
Associates (occupying approximately 10,000 square feet or 13% of the total
space). The closing of this transaction is subject to approval of the Company's
Board of Directors and certain other closing conditions, and there can be no
assurance that this transaction will be consummated.
Quebec Centre. The Company has entered into a contract to acquire three
office buildings which comprise Quebec Centre in suburban southeast Denver,
Colorado for an aggregate purchase price of approximately $7 million. Built in
1982, the buildings contain approximately 107,000 square feet of office space
and are located in close proximity to the Company's six properties in the
Southeast I-25 Corridor area office sub-market. Closing of the transaction is
currently scheduled for mid to late July 1996. As of June 30, 1996, the property
was 94.5% leased to approximately 30 tenants. The primary tenants in the
buildings are Gordon Gumerson, an engineering firm (occupying 12,000 square feet
or 11% of the total space), and Walberg & Dagner, an accounting firm (occupying
12,000 square feet or 11% of the total space). The closing of this transaction
is subject to approval of the Company's Board of Directors and certain other
closing conditions, and there can be no assurance that this transaction will be
consummated.
Additional Probable Acquisition. The Company is in final negotiations
regarding the proposed acquisition of a building currently under construction
and options to acquire certain land in suburban southeast Denver, Colorado for
an aggregate purchase price of approximately $17 million. The building, which is
expected to be completed in September 1996, will contain approximately 106,000
square feet of office space. The proposed transaction also includes options to
purchase an aggregate of approximately 42.5 acres of land adjacent to the
building being constructed which will support the development of up to
approximately 800,000 square feet of additional office space. The Company
expects to enter into a contract with the seller in mid-July 1996, subject to
completion of due diligence, approval by the Company's Board of Directors and
other customary closing conditions. There can be no assurance that this contract
will be entered into or that any transaction will be consummated.
The Company is continuing to aggressively pursue acquisitions in target
markets (including markets in which the Company currently does not own any
properties) that meet the Company's general acquisition guidelines for property
quality, market strength and investment return.
DOWNTOWN WASHINGTON, D.C. REAL ESTATE MARKET
Ten of the Company's consolidated properties (containing 2.4 million square
feet or 35% of the Company's consolidated portfolio as of June 30, 1996) are
located in the downtown Washington, D.C. office market. This office market,
which is comprised of 75 million square feet, had a vacancy rate of 10.6%,
10.3%, 9.3%, 8.4%, and 9.8% as of December 31 in each of 1991 through 1995,
respectively. The Company's downtown Washington, D.C. properties are generally
considered to be Class A/B+ properties. The Class A vacancy rate in Washington,
D.C. was 8.9% at December 31, 1995.
S-16
<PAGE>
In 1993 and 1994, the Washington, D.C. market had positive net absorption of
895,000 square feet and 669,000 square feet, respectively. In 1995, however,
Washington, D.C. experienced negative net absorption of 741,000 square feet
primarily as a result of the delivery of approximately 510,000 square feet of
new office space and the addition to availability of large and medium-sized
blocks of space. The Washington, D.C. office market is currently experiencing
healthy demand from law firms, professional service firms and associations;
however, the federal government continues to adhere to a moratorium established
in 1995 on leasing new space. Notwithstanding the Washington, D.C. market's
performance in the past year, the Company believes that the supply/demand
characteristics of the Washington, D.C. market will improve and that its
long-term growth prospects are strong.
FINANCING ACTIVITY
In May 1996, the Company entered into a revolving credit agreement with
Morgan Guaranty Trust Company of New York providing for unsecured borrowings of
up to $215 million. The Line of Credit, which has been utilized to fund a
portion of the Company's recent acquisitions, will be used to fund future
acquistions. In addition, funds from the Line of Credit will be available to
finance future office property development and capital expenditures and for
working capital purposes. The facility is scheduled to mature on July 30, 1998,
subject to a one-year extension if requested by the Company and approved by the
lenders. The Company is subject to a number of financial covenants under the
terms of the Line of Credit. See "Properties -- Debt Financing -- Line of
Credit." As of June 30, 1996, approximately $188 million was available for draw
under the Line of Credit, of which $134 million had been drawn by the Company.
The Line of Credit bore interest at the rate of 7.25% as of June 30, 1996.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby and the Concurrent USRealty Purchase are estimated to be
approximately $ million ($ million if the Underwriters' over-allotment option is
exercised in full), assuming that USRealty purchases 1,076,446 shares in the
Offering, as to which no underwriting discounts will be applied. The Company
intends to use $190 million of the net proceeds to fund acquisitions, either
through direct purchase or repayment of Line of Credit borrowings incurred to
fund acquisitions, and to use the remainder of the net proceeds to fund
acquisition activities and for general corporate purposes. Pending such uses,
the net proceeds may be invested in short-term, income-producing investments
such as commercial paper, government securities or money market funds that
invest in government securities.
Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan
Securities Inc., currently is the sole lender under the Line of Credit and is
expected to receive up to $190 million of the net proceeds from the Offering and
the Concurrent USRealty Purchase to repay acquisition-related indebtedness. See
"Underwriting." Thereafter, the Company expects the Line of Credit to be
available primarily to facilitate future acquisitions.
S-17
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The shares of Common Stock have been traded on the NYSE under the symbol
"CRE" since February 1993. As of June 21, 1996 there were 401 stockholders of
record. The following table sets forth the high and low sales prices per share
for the periods indicated as reported on the NYSE and the dividends per share
paid by the Company with respect to the periods noted.
CALENDAR
PERIOD HIGH LOW DIVIDENDS
- --------------- ------ ------ ------------
1994:
$ 24 $ 22
First Quarter. 1/2 1/8 $.4375
Second $ 23 $ 21
Quarter...... 7/8 1/2 $.4375
$ 21 $ 19
Third Quarter. 5/8 3/4 $.4375
Fourth $ 20 $ 17
Quarter...... 3/8 3/8 $.4375
1995:
$ 18 $ 17
First Quarter. 1/4 1/8 $.4375
Second $ 19 $ 16
Quarter...... 3/4 3/4 $.4375
$ 19 $ 17
Third Quarter. 3/4 1/4 $.4375
Fourth $ 24 $ 18
Quarter...... 5/8 1/2 $.4375
1996:
$ 24 $ 23
First Quarter. 3/4 7/8 $.4375
Second $ 25 $ 23
Quarter...... 1/4 3/4 (1)
(1) The dividend for the second quarter has not yet been declared. It is
anticipated that purchasers of Common Stock in the Offering, so long as
they are holders on the record date, would be entitled to receive the
dividend for the second quarter.
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 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 distributions paid in 1995, 1994 and 1993:
1995 1994 1993
----- ----- ------
Ordinary income ............................. 85% 75% 60%
Capital gain................................. -- -- --
Return of capital............................ 15% 25% 40%
S-18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 on an historical basis and on a pro forma basis, giving effect to (i)
completion of the Offering and the Concurrent USRealty Purchase, (ii) the
closing of the USRealty Transaction (which closed on April 30, 1996), (iii) the
acquisition of office properties that have been consummated since March 31, 1996
and the acquisition of 27 office properties that the Company expects to
consummate in the near future, and (iv) the repayment of $235 million of
indebtedness outstanding as of March 31, 1996.
MARCH 31, 1996
--------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
Debt ................................................. $496,957 $ 355,097
Other liabilities..................................... 10,018 15,252
Minority interest..................................... 34,876 59,128
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding (1)......... 0 0
Common Stock, $.01 par value, 30,000,000 shares
authorized; 13,547,492 issued and outstanding
(2)(3).............................................. 136 372
Additional paid-in capital........................... 127,376 648,947
Cumulative dividends paid in excess of net income ... (34,005) (34,623)
------------ -----------
Total stockholders' equity........................... 93,507 614,696
------------ -----------
Total capitalization................................ $635,358 $1,044,173
============ ===========
- -----------------
(1) On a pro forma basis, the number of authorized shares of Preferred Stock
increased to 15,000,000 effective April 29, 1996 in connection with the
USRealty Transaction.
(2) Does not include 4,649,954 shares of Common Stock reserved for possible
issuance upon redemption of issued and outstanding Units as of March 31,
1996, respectively.
(3) On a pro forma basis, the number of authorized shares of Common Stock
increased to 90,000,000 effective April 29, 1996 in connection with the
USRealty Transaction, and the number of shares of Common Stock issued and
outstanding increased to 37,175,399.
S-19
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following tables set forth pro forma financial information for the
Company as of and for the three months ended March 31, 1996 and for the year
ended December 31, 1995, after giving effect to (i) completion of the Offering
and the Concurrent USRealty Purchase, (ii) the closing of the USRealty
Transaction (which closed on April 30, 1996), (iii) the acquisition of office
properties that have been consummated since the beginning of the periods
presented and the acquisition of 27 office properties that the Company expects
to consummate in the near future, and (iv) the repayment of $235 million of
indebtedness outstanding as of March 31, 1996.
The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as
if the following transactions had been consummated on March 31, 1996: (a) the
purchase of the four office properties known as Harlequin Plaza North and South
and Quebec Court I and II; (b) the purchase of the two office buildings and
additional land which will support the development of up to 100,000 square feet
of office space comprising The Quorum; (c) the purchase of the two office
buildings and additional land which will support the development of up to
900,000 square feet of additional office space comprising the Parkway North
Center; (d) the purchase of the ten office properties comprising the Redmond
East Business Campus; (e) the purchase of the office building known as the Plaza
PacifiCare Building; (f) the purchase of the office building known as Parkway
One; (g) the purchase of the office building known as Norwood Tower; (h) the
purchase of the 12 office buildings comprising the Warner Center Business Park;
(i) the purchase of the ten buildings comprising the Littlefield Portfolio; (j)
the purchase of the office building known as Katella Corporate Center; (k) the
purchase of the office building known as Greenwood Centre; (l) the purchase of
the land known as Riata; (m) the purchase of the office building currently under
construction and options to purchase land located in suburban southeast Denver;
(n) the purchase of the three office buildings known as Quebec Centre; (o) the
USRealty Transaction; and (p) the Offering and the Concurrent USRealty Purchase.
The unaudited Pro Forma Condensed Consolidated Statements of Operations are
presented as if the following transactions had been consummated as of the
beginning of the respective periods: (a) the purchase of the office building
known as One Rock Spring Plaza; (b) the purchase of the office building known as
Tycon Courthouse; (c) the purchase of an additional 7.58% ownership interest in
Square 24 Associates, the partnership owning the office property located at 2445
M Street, Washington, D.C.; (d) the purchase of the four office properties
comprising the Scenic Business Park; (e) the purchase of the four office
properties comprising the Harbor Corporate Park; (f) the purchase of the six
office properties known as the AT&T Center; (g) the purchase of the three office
properties known as Reston Quadrangle; (h) the purchase of the four office
properties known as Harlequin Plaza North and South and Quebec Court I and II;
(i) the purchase of the two office buildings and additional land which will
support the development of up to 100,000 square feet of office space comprising
The Quorum; (j) the purchase of the two office buildings and additional land
which will support the development of up to 900,000 square feet of additional
office space comprising the Parkway North Center; (k) the purchase of the ten
office properties comprising the Redmond East Business Campus; (l) the purchase
of the office building known as the Plaza PacifiCare Building; (m) the purchase
of the office building known as Parkway One; (n) the purchase of the office
building known as Norwood Tower; (o) the purchase of the 12 office buildings
comprising the Warner Center Business Park; (p) the purchase of the ten
buildings comprising the Littlefield Portfolio; (q) the purchase of the office
building known as Katella Corporate Center; (r) the purchase of the office
building known as Greenwood Centre; (s) the purchase of the land known as Riata;
(t) the purchase of the office building under construction and options to
purchase land located in suburban southeast Denver; (u) the purchase of the
three office buildings known as Quebec Centre; (v) the USRealty Transaction; and
(w) the Offering and the Concurrent USRealty Purchase.
In management's opinion, all material adjustments necessary to reflect the
transactions described above are presented in the pro forma adjustments columns,
which are further described in the notes to the unaudited pro forma financial
information.
The unaudited Pro Forma Condensed Consolidated Balance Sheet and the
unaudited Pro Forma Condensed Consolidated Statements of Operations should be
read in conjunction with the Consolidated Financial Statements of the Company
and Notes thereto incorporated by reference in the accompanying Prospectus. The
unaudited pro forma Condensed Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position would have been at March 31,
1996, nor does it purport to represent the future financial position of the
Company. The unaudited Pro Forma Condensed Consolidated Statements of Operations
are not necessarily indicative of what actual results of operations of the
Company would have been assuming the purchase transactions, the USRealty
Transaction and the Offering and the Concurrent USRealty Purchase had been
consummated as of the beginning of the respective periods, nor do they purport
to represent the results of operations for future periods.
S-20
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------------------------------
OFFERING AND
CONCURRENT
ACQUIRED PROBABLE USREALTY USREALTY PRO FORMA
HISTORICAL(A) PROPERTIES(B) ACQUISITIONS(C) TRANSACTION(D) PURCHASE(E) CONSOLIDATED
------------- --------------- --------------- -------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Rental property, net........... $546,543 $ 199,252 (1) $ 191,214 (7) $ -- $ -- $ 937,009
Restricted and unrestricted
cash .......................... 22,289 (140,528)(2) (127,614)(8) 10,106 277,272 41,525
Other assets .................. 66,526 302 (3) -- (1,189) -- 65,639
-------- -------------- --------------- ------------ ---------- ---------
Total assets................. $635,358 $ 59,026 $ 63,600 $ 8,917 $ 277,272 $1,044,173
======== ============== =============== =========== ========= ========
LIABILITIES
Debt .......................... $496,957 $ 57,433 (4) $ 35,707 (9) $ (235,000) $ -- $ 355,097
Other liabilities ............. 10,018 1,313 (5) 3,921 (10) -- -- 15,252
-------- -------------- --------------- ----------- --------- --------
Total liabilities............ 506,975 58,746 39,628 (235,000) -- 370,349
-------- -------------- --------------- ----------- --------- --------
Minority interest ............. 34,876 280 (6) 23,972 (11) -- -- 59,128
-------- -------------- --------------- ----------- --------- --------
STOCKHOLDERS' EQUITY
Common stock .................. 136 -- -- 116 120 372
Additional paid-in capital ... 127,376 -- -- 244,419 277,152 648,947
Cumulative dividends paid in
excess of net income .......... (34,005) -- -- (618) -- (34,623)
-------- -------------- --------------- ----------- --------- --------
Total stockholders' equity... 93,507 -- -- 243,917 277,272 614,696
-------- -------------- --------------- ----------- --------- --------
Total liabilities and stock-
holders' equity............. $635,358 $ 59,026 $ 63,600 $ 8,917 $ 277,272 $1,044,173
======== ============== =============== =========== ========= ========
</TABLE>
S-21
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
ADJUSTMENTS (DOLLARS IN THOUSANDS):
(A) Reflects the Company's historical consolidated balance sheet as of March,
31, 1996.
(B) Reflects the acquisition of: (a) the four office properties, known as
Harlequin Plaza North and South and Quebec Court I and II; (b) the two
office buildings and additional land which will support the development of
up to 100,000 square feet of office space comprising The Quorum; (c) the
two office buildings and additional land which will support the
development of up to 900,000 square feet of additional gross rentable area
comprising the Parkway North Center; (d) the ten office properties
comprising the Redmond East Business Campus; (e) the office building known
as the Plaza PacifiCare Building; (f) the office building known as Parkway
One; and (g) the office building known as Norwood Tower. Pro forma
adjustments reflect:
(1) total acquisition costs of $199,252 ($46,952 related to Harlequin
Plaza North and South and Quebec Court I and II, $9,618 related to
The Quorum, $79,632 related to Parkway North Center, $39,610 related
to Redmond East Business Campus, $9,885 related to the Plaza
PacifiCare Building, $6,670 related to Parkway One, and $6,885
related to Norwood);
(2) cash payment of $140,528 for acquisition of properties;
(3) prepaid assets acquired ($702 related to the acquisition of Parkway
North Center) offset by the transfer of previously capitalized
acquisition costs ($400 related to the acquisition of Redmond East
Business Campus);
(4) the assumption of existing debt ($28,183 related to Redmond East
Business Campus and $29,250 related to Parkway North Center);
(5) the assumption of accounts payable and accrued expenses existing at
the time of acquisition ($230 related to Redmond East Business
Campus, $571 related to Parkway North Center, $242 related to The
Quorum, and $270 related to Parkway One); and
(6) the value of 11,452 Units of CarrAmerica Realty, L.P. issued in
connection with the purchase of Harlequin Plaza North and South and
Quebec Court I and II.
(C) Reflects anticipated effects of probable acquisitions of: (a) the 12
office buildings comprising the Warner Center Business Park; (b) the ten
buildings comprising the Littlefield Portfolio; (c) the building known as
Katella Corporate Center; (d) the building known as Greenwood Centre; (e)
the land known as Riata; (f) the office building under construction and
options to purchase land located in suburban southeast Denver; and (g) the
three office buildings known as Quebec Centre. Pro forma adjustments
reflect:
(7) total acquisition costs of $191,214 ($52,005 related to Warner
Center Business Park, $99,887 related to the Littlefield Portfolio,
$7,015 related to Katella Corporate Center, $6,940 related to
Greenwood Centre, $1,645 related to Riata, $16,634 related to the
office building under construction and options to purchase land
located in suburban southeast Denver; and $7,088 related to Quebec
Centre);
(8) cash payment of $127,614 for acquisition of properties;
(9) the assumption of existing debt ($26,000 related to Warner Center
Business Park and $9,707 related to the Littlefield Portfolio);
(10) required future payments related to the office building under
construction and options to purchase land located in suburban
southeast Denver discounted at 10 percent over 36 months; and
(11) the value of 597,009 Class A Units of CarrAmerica Realty, L.P. and
539,593 Class C Units of CarrAmerica Realty, L.P. proposed to be
issued in connection with the purchase of the Littlefield Portfolio.
(D) Reflects the issuance of 11,627,907 shares of Common Stock to USRealty in
exchange for cash of $249,614, reduced by fees related to the transaction
of $5,079 ($571 previously capitalized). The Company used $235,000 of the
proceeds to repay debt incurred related to recent acquisitions. Also
reflects the effect of the write-off of deferred financing costs ($618) of
the debt subsequently repaid.
(E) Reflects the effects of the Offering and the Concurrent USRealty Purchase
and the issuance of 8,400,000 and 3,600,000 shares of Common Stock,
respectively, in connection therewith at a price of $24.00 per share.
Transaction costs of $10,728 assume no underwriting discount with respect
to the 1,076,446 shares of Common Stock that USRealty may purchase in the
Offering.
S-22
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND THE YEAR ENDED DECEMBER 31,
1995
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1996
-----------------------------------------
Pro Forma Adjustments
---------------------
Offering and
Concurrent
Acquired Probable USRealty USRealty Pro Forma
Historical(A) Properties(B) Acquisitions(C) Transaction(D) Purchase(E) Consolidated
------------- ------------- --------------- -------------- ----------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE OPERATING REVENUE:
RENTAL REVENUE ............... $25,350 $ 13,197 (1) $ 5,136 (6) $ -- $ -- $43,683
REAL ESTATE SERVICE INCOME ... 2,726 -- -- -- -- 2,726
------------- -------------- ---------------- --------------- -------------- ---------------
TOTAL REVENUE ............... 28,076 13,197 5,136 -- -- 46,409
------------- -------------- ---------------- --------------- -------------- ---------------
REAL ESTATE OPERATING
EXPENSES:
PROPERTY OPERATING EXPENSES .. 8,991 3,215 (4) 2,148 (8) -- -- 14,354
INTEREST EXPENSE ............. 6,532 1,179 (2) 653 (10) (1,111)(11) -- 7,253
GENERAL AND ADMINISTRATIVE ... 2,748 349 (1) 162 (6) -- -- 3,259
DEPRECIATION AND AMORTIZATION 5,484 3,809 (3) 1,177 (7) (50)(12) -- 10,420
------------- -------------- ---------------- --------------- -------------- ---------------
TOTAL OPERATING EXPENSES .... 23,755 8,552 4,140 (1,161) -- 35,286
------------- -------------- ---------------- --------------- -------------- ---------------
REAL ESTATE OPERATING INCOME 4,321 4,645 996 1,161 -- 11,123
OTHER OPERATING INCOME ........ 404 4 (1) -- -- -- (13) 408
------------- -------------- ---------------- --------------- -------------- ---------------
NET OPERATING INCOME BEFORE
MINORITY INTEREST .......... 4,725 4,649 996 1,161 -- 11,531
MINORITY INTEREST ............. (1,390) (192)(5) (129)(9) -- -- (1,711)
-------------- ---------------- --------------- -------------- ---------------
NET INCOME .................. $ 3,335 $ 4,457 $ 867 $ 1,161 $ -- $ 9,820
============= ============== ================ =============== ============== ===============
NET INCOME PER COMMON SHARE
(F)........................... $ 0.25 $ 0.26
============= ===============
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended December 31, 1996
-----------------------------------------
Pro Forma Adjustments
---------------------
Offering and
Concurrent
Acquired Probable USRealty USRealty Pro Forma
Historical(A) Properties(B) Acquisitions(C) Transaction(D) Purchase(E) Consolidated
------------- ------------- --------------- -------------- ----------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE OPERATING REVENUE:
RENTAL REVENUE .................. $ 89,539 $62,746 (1) $20,158 (6) $ -- $ -- $172,443
REAL ESTATE SERVICE INCOME ...... 11,315 -- -- -- -- 11,315
------------- -------------- ---------------- --------------- -------------- ---------
TOTAL REVENUE .................. 100,854 62,746 20,158 -- -- 183,758
------------- -------------- ---------------- --------------- -------------- ---------
REAL ESTATE OPERATING EXPENSES:
PROPERTY OPERATING EXPENSES...... 31,579 16,480 (4) 8,348 (8) -- -- 56,407
INTEREST EXPENSE ................ 21,873 8,207 (2) 2,613 (10) (3,828)(11) -- 28,865
GENERAL AND ADMINISTRATIVE....... 10,711 1,065 (1) 872 (6) -- -- 12,648
DEPRECIATION AND AMORTIZATION.... 18,495 17,849 (3) 4,713 (7) (200)(12) -- 40,857
------------- -------------- ---------------- --------------- -------------- ---------
TOTAL OPERATING EXPENSES........ 82,658 43,601 16,546 (4,028) -- 138,777
REAL ESTATE OPERATING INCOME.... 18,196 19,145 3,612 4,028 -- 44,981
OTHER OPERATING INCOME (EXPENSES) (912) 19 (1) -- -- -- (13) (893)
------------- -------------- ---------------- --------------- -------------- ---------
NET OPERATING INCOME BEFORE
MINORITY INTEREST ............. 17,284 19,164 3,612 4,028 -- 44,088
MINORITY INTEREST ................ (5,217) (556)(5) (481)(9) -- -- (6,254)
------------- -------------- ---------------- --------------- -------------- ---------
NET INCOME ..................... $12,067 $18,608 $ 3,131 $4,028 $ -- $37,834
============= ============== ================ =============== ============== =========
NET INCOME PER COMMON SHARE (F) .. $ 0.90 $ 1.02
============= =========
</TABLE>
S-23
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND THE YEAR ENDED DECEMBER 31,
1995
(UNAUDITED)
Adjustments (dollars in thousands):
(A) Reflects the Company's historical consolidated statements of operations
for the three months ended March 31, 1996 and the year ended December 31,
1995.
(B) Pro forma adjustments for the purchases of the acquired properties
reflect:
(1) the historical operating activity of the properties acquired;
(2) the additional interest expense on the notes and line of credit and
interest expense on the assumed debt;
(3) the depreciation expense for the acquisitions based on the new
accounting basis for the rental property acquired;
(4) the historical operating activity of the rental property ($3,526 for
the three months ended March 31, 1996 and $17,978 in 1995) reduced
by the elimination of management fee expenses that will not be
incurred by the Company upon purchase of the properties ($311 for
the three months ended March 31, 1996 and $1,498 in 1995); and
(5) the minority interest share of earnings.
(C) Pro forma adjustments for the probable acquisitions reflect:
(6) the historical operating activity of the properties to be acquired;
(7) the depreciation expense for the potential acquisitions based on the
anticipated accounting basis for the rental property to be acquired;
(8) the historical operating activity of the rental property to be
acquired ($2,301 for the three months ended March 31, 1996 and
$9,094 in 1995) reduced by the elimination of management fee
expenses that will not be incurred by the Company upon purchase of
the properties ($153 for the three months ended March 31, 1996 and
$746 in 1995);
(9) the minority interest share in earnings of probable acquisitions;
and
(10) the additional interest expense on notes expected to be assumed in
connection with acquisitions.
(D) In connection with the repayment of debt related to recent acquisitions
with proceeds of the stock issuance, the Company incurred a loss on
write-off of deferred financing costs of $618. This nonrecurring cost was
charged to operations when incurred. This cost has not been included in
the pro forma statement of operations for the three months ended March 31,
1996 or for the year ended December 31, 1995. Pro forma adjustments for
the USRealty Transaction reflect:
(11) the reduction in interest expense associated with the subsequent
repayment of certain notes and lines of credit with the proceeds of
the USRealty Transaction; and
(12) the reduction in amortization expense resulting from the write-off
of deferred financing costs of the debt subsequently repaid.
(E) Pro forma adjustments for the Offering and the Concurrent USRealty
Purchase reflect:
(13) no adjustment reflecting the investment of $9,130 of the net
proceeds of the Offering and Concurrent USRealty Purchase.
(F) Based upon 38,350,676 and 38,114,041 pro forma shares of Common Stock
outstanding on a weighted average basis during the three months ended
March 31, 1996 and the year ended December 31, 1995, respectively. Net
income and weighted average shares outstanding have been adjusted for
certain minority interests which have a dilutive effect on earnings per
share.
S-24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the Consolidated
and Combined Financial Statements of the Company and Notes thereto incorporated
by reference in the accompanying Prospectus.
GENERAL
The following discussion is based primarily on the Consolidated Financial
Statements of the Company as of March 31, 1996, December 31, 1995 and December
31, 1994 and for the three months ended March 31, 1996 and 1995 and the years
ended December 31, 1995 and 1994.
RESULTS OF OPERATIONS--THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Real Estate Operating Revenue. Total real estate operating revenue increased
$3.8 million, or 15.7%, to $28.1 million for the three months ended March 31,
1996 as compared to $24.3 million for the three months ended March 31, 1995. The
increase in revenue was primarily attributable to a $3.6 million and a $.2
million increase in rental revenue and real estate service revenue,
respectively. The Company experienced net growth in its rental revenue as a
result of its acquisitions since the first quarter of 1995 which contributed
approximately $3.6 million of additional rental revenue in the three month
period ended March 31, 1996. Rental revenue contributed by properties that were
fully operating throughout both periods remained constant at approximately $21.8
million. Real estate service revenues from the Company's core service contracts
increased by $.2 million, or 9.9%, for the three months ended March 31, 1996 to
$2.7 million as compared to $2.5 million for the three months ended March 31,
1995. The increase was primarily as a result of an increase in leasing
commissions earned in the first quarter of 1996.
Real Estate Operating Expenses. Total real estate operating expenses
increased $4.0 million for the three months ended March 31, 1996, or 20.2%, to
$23.8 million as compared to $19.8 million for the three months ended March 31,
1995. The net increase in operating expenses was attributable to a $1.5 million
increase in property operating expenses, a $1.3 million increase in interest
expense, a $.1 million increase in general and administrative expenses, and a
$1.1 million increase in depreciation and amortization. The increase in property
operating expenses was primarily attributable to $1.2 million in operating
expenses associated with property acquisitions since the first quarter of 1995.
Exclusive of operating expenses attributable to new property acquisitions,
property operating expenses increased $.3 million, or 3.7%, for the three months
ended March 31, 1996 predominately as a result of higher real estate tax
assessments. The increase in the Company's interest expense is primarily related
to borrowings for acquisitions. The increase in general and administrative
expenses is predominately a result of the addition of new staff to implement the
Company's new business strategy and inflation. The increase in depreciation and
amortization is predominately a result of additional depreciation and
amortization on the Company's real estate acquisitions.
Other Operating Income (Expense). Other operating income increased $.2
million for the three months ended March 31, 1996 to $.4 million as compared to
$.2 million for the three months ended March 31, 1995, primarily due to the
addition of equity in earnings of CC-JM II Associates. The Company is a 50%
venturer in this entity that constructed the Booz-Allen & Hamilton Building,
which was placed in service in January 1996.
Net Income. Net income of $3.3 million was earned for the three months ended
March 31, 1996 as compared to $3.3 million during the three month period ended
March 31, 1995. The comparability of net income between the two periods is
impacted by the acquisitions the Company made and the other changes described
above.
Cash Flows. Net cash provided by operating activities increased $1.0 million,
or 12.9%, to $9.0 million for the three months ended March 31, 1996 as compared
to $8.0 million for the three months ended March 31, 1995, primarily as a result
of the acquisitions made by the Company. Net cash used by investing activities
increased $155.2 million, to $169.5 million for the three months ended March 31,
1996 as compared to $14.3 million for the three months ended March 31, 1995,
primarily as a result of capital deployed by the Company for acquisitions of
office properties. Net cash provided by financing activities increased $172.9
million to $171.5 million provided for the three months ended March 31, 1996 as
compared to $1.4 million used for the
S-25
<PAGE>
three months ended March 31, 1995, primarily as a result of the net borrowings
necessary for the Company's acquisitions.
RESULTS OF OPERATIONS--1995 AND 1994
Revenue. Total real estate operating revenue increased $9.3 million, or
10.2%, to $100.9 million in 1995 as compared to $91.6 million in 1994. The
increase in revenue was primarily attributable to a $6.9 million and a $2.4
million increase in rental revenue and real estate service revenue,
respectively. The Company experienced net growth in its rental revenue as a
result of its acquisitions which contributed approximately $8.1 million of
additional rental revenue in 1995. Rental revenue contributed by properties that
were fully operating throughout both periods declined by approximately $1.2
million, or 1.5%. These properties, all of which were located in downtown
Washington, D.C., experienced lower rental revenue in the aggregate during 1995
as a result of (a) lower occupancy rates, (b) the renegotiation of certain
tenants' leases resulting in lower rental rates, and (c) new leases entered into
by the Company at rates lower than the expiring leases' rental rates. The
Company experienced growth in its real estate service income of $1.7 million as
a result of its acquisition of real estate service contracts in 1995. In
addition, real estate service revenues from the Company's core service contracts
increased by $.7 million, or 8.2%, in 1995.
Operating Expenses. Total real estate operating expenses increased $7.7
million, or 10.2%, to $82.7 million as compared to $75.0 million in 1994. The
net increase in operating expenses was attributable to a $1.9 million increase
in property operating expenses, a $.5 million increase in interest expense, a
$1.2 million increase in general and administrative expenses, and a $4.1 million
increase in depreciation and amortization. The increase in property operating
expenses was primarily attributable to $2.4 million in operating expenses
associated with property acquisitions. Exclusive of operating expenses
attributable to new property acquisitions, property operating expenses decreased
$.5 million, or 1.9%, in 1995 predominately as a result of lower real estate tax
assessments. The increase in the Company's interest expense is primarily related
to borrowings for acquisitions. The increase in general and administrative
expenses is predominately a result of general and administrative expenses
associated with the real estate service contracts acquired in 1995 and
inflation. The increase in depreciation and amortization is predominately a
result of additional depreciation and amortization on the Company's real estate
and real estate service contract acquisitions.
Other Operating Income (Expense). In January 1996, the Company terminated an
agreement to acquire the development business of The Evans Company and, as a
result, recognized a $1.9 million non-recurring charge to its earnings in the
fourth quarter of 1995. The Company took this action in order to focus on
implementing its national growth strategy, focusing on value office properties.
Net Income. Net income of $12.1 million was earned during 1995 as compared to
$12.1 million during 1994. The comparability of net income between the two
periods is impacted by the acquisitions the Company made and the other changes
described above.
Cash Flows. Net cash provided by operating activities increased $5.4 million,
or 18.0%, to $35.3 million in 1995 as compared to $29.9 million in 1994,
primarily as a result of the acquisitions made by the Company. Net cash used by
investing activities increased $14.6 million, or 21.8%, to $81.6 million in 1995
as compared to $67.0 million in 1994, primarily as a result of capital deployed
by the Company for acquisitions of office properties and real estate service
contracts. Net cash provided by financing activities increased $4.5 million, or
13.7%, to $37.1 million in 1995 as compared to $32.6 million in 1994, primarily
as a result of the net borrowings for the Company's acquisitions.
PRO FORMA INFORMATION
Balance Sheet at March 31, 1996. On a pro forma basis, the Company's total
assets increased $408.8 million to $1,044.2 million. The increase resulted
primarily from the acquisition and probable acquisition of $390.5 million of
office properties and the addition of $9.1 million of cash from the Offering and
the Concurrent USRealty Purchase and $10.1 million of cash from the USRealty
Transaction. The Company has used and will use this cash for future acquisitions
and for general corporate purposes.
S-26
<PAGE>
Results of Operations for the Three Months Ended March 31, 1996. On a pro
forma basis, the Company's net income for the three months ended March 31, 1996
increased $6.5 million to $9.8 million. The pro forma adjustments reflect a $4.5
million increase in net income from the acquisition of office properties, a $.9
million increase in net income from probable acquisitions, and a $1.1 million
increase in net income from reduced interest and amortization expenses resulting
from the repayment of debt. The pro forma operating statement for the three
months ended March 31, 1996 does not reflect any earnings from the investment of
approximately $9.1 million in net proceeds of the Offering and the Concurrent
USRealty Purchase. Earnings per share of Common Stock for the three months ended
March 31, 1996, on a pro forma basis, were $.26 per share, which was $.01 per
share greater than the historical amount.
Results of Operations for the Year Ended December 31, 1995. On a pro forma
basis, the Company's net income for the year ended December 31, 1995 increased
$25.8 million to $37.8 million. The pro forma adjustments reflect an $18.6
million increase in net income from the acquisition of office properties, a $3.1
million increase in net income from probable acquisitions, and a $4.0 million
increase in net income from reduced interest and amortization expenses resulting
from the repayment of debt. The pro forma operating statement for the year ended
December 31, 1995 does not reflect any earnings from the investment of
approximately $9.1 million in net proceeds of the Offering and the Concurrent
USRealty Purchase. Earnings per share of Common Stock for the year ended
December 31, 1995, on a pro forma basis, were $1.02 per share, which was $.12
per share greater than the historical amount.
Pro Forma Indebtedness at March 31, 1996. On a pro forma basis, the Company's
consolidated indebtedness at March 31, 1996 was $355.1 million at a weighted
average interest rate of 8.3% and a weighted average term to maturity of 6.8
years. Based upon the Company's pro forma total market capitalization at March
31, 1996 of $1,386.5 million (based on a Common Stock price at that date of
$24.00 per share), the Company's pro forma debt at March 31, 1996 represented
25.6% of its pro forma total market capitalization. On a pro forma basis, the
Company's consolidated net indebtedness (indebtedness less existing cash) at
March 31, 1996 was $313.6 million and the Company's net total market
capitalization (total market capitalization less cash) at March 31, 1996 was
$1,345.0 million. The Company's pro forma ratio of net indebtedness to net total
market capitalization at March 31, 1996 was 23.3%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total indebtedness at June 30 and March 31, 1996 was $453.1 and
$497.0 million, respectively, of which $134.0 million and $235.0 million, or
29.6% and 47.3%, respectively, bore a LIBOR-based floating interest rate. The
decline in the indebtedness was attributable to the repayment of interim
indebtedness from the proceeds of the USRealty Transaction. Based upon the
Company's total market capitalization at June 30, 1996 and March 31, 1996 of
$1,169.2 million and $933.7 million, respectively (the Common Stock price was
$24.00 and $24.00 per share, respectively, and the total shares/Units
outstanding were 29,837,805 and 18,197,446, respectively), the Company's debt at
June 30 and March 31, 1996 represented 38.8% and 53.2%, respectively, of its
total market capitalization.
On May 22, 1996, the Company obtained a $215 million unsecured credit
facility from Morgan Guaranty Trust Company of New York. The Company intends to
use the Line of Credit to finance acquisitions and development activities, for
capital expenditures and for working capital purposes. As of June 30, 1996,
approximately $134 million had been advanced under the Line of Credit. Once the
outstanding amount of the Line of Credit has been repaid out of the net proceeds
of the Offering and the Concurrent USRealty Purchase, the Company will have
access to the maximum amount available under the Line of Credit. See "Properties
- -- Debt Financing -- Line of Credit."
The Company's operating properties require periodic investments of capital
for tenant-related capital expenditures and for general capital improvement
projects. Since 1993, the Company's capital investments in its properties have
been $37.14, $22.70, $19.19 and $11.68 per square foot leased for the period
from February 16, 1993 (inception of operations) to December 31, 1993, the years
ended December 31, 1994 and 1995, and the three months ended March 31, 1996,
respectively, for tenant-related capital expenditures for new leases and $5.00,
$2.09, $.65 and $.11 per square foot for general capital projects for the period
from February 16, 1993 (inception of operations) to December 31, 1993, the years
S-27
<PAGE>
ended December 31, 1994 and 1995, and the three months ended March 31, 1996,
respectively. As a result of large-scale renovations of certain of the Company's
Washington, D.C. properties, the Company's general capital expenditures during
this time were greater than what the Company expects to spend in the future on a
normalized basis. These renovations were undertaken to improve these properties'
market position and to bring the properties into compliance with certain new
local and federal laws. The Company expects that general capital expenditures
for its Washington, D.C. properties will decline in the future primarily because
most of the properties recently have been extensively renovated. The Company has
recently begun renovating several garages at its Washington, D.C. properties at
an estimated total cost of approximately $3.5 million, or $1.45 per square foot
of the Company's Washington, D.C. properties, to be spent over the next two
years. Exclusive of the garage renovations, general capital expenditures for the
Company's Washington, D.C. properties are expected to be approximately $1.0
million or less annually, or $.40 or less per square foot annually. With respect
to the Company's recent acquisitions in select suburban growth markets, the
Company expects that the annual capital expenditures for these properties will
be substantially less than the Company has incurred for its Washington, D.C.
properties. Based on current market conditions in its target markets, the
Company expects that tenant-related capital expenditures for its recent
acquisitions will be approximately $7.75 to $8.25 per square foot leased for
leases entered into in the next 12 months. The Company expects that this amount
should decline if market conditions in its target markets continue to improve.
The Company believes that general capital expenditures will average
approximately $.30 per square foot owned on an annual basis for its recent
acquisitions. The Company anticipates funding the capital requirements of its
Washington, D.C. properties and of its new acquisitions with cash flow from
operations and, if necessary, with proceeds from the Line of Credit.
The Company's estimates regarding capital expenditures set forth above are
forward-looking information representing the Company's best estimates based on
currently available information. As with any estimates, they are based on a
number of assumptions, any of which, if unrealized, could adversely affect the
accuracy of the estimates.
Net cash provided by operating activities was $9.0 million for the three
months ended March 31, 1996, compared to $8.0 million for the three months ended
March 31, 1995. The increase in net cash provided by operating activities was
primarily as a result of acquisitions made by the Company. The Company's
investing activities used approximately $169.5 million and $14.3 million for the
three months ended March 31, 1996 and 1995, respectively. The Company's
investment activities included the acquisitions of office buildings for
approximately $168.2 million for the three months ended March 31, 1996, as
compared to no acquisition activity in the first quarter of 1995. Additionally,
the Company invested approximately $1.0 million and $2.8 million in its existing
real estate assets for the three months ended March 31, 1996 and 1995,
respectively. Net of distributions to the Company's shareholders, the Company's
financing activities provided net cash of $177.4 million and $4.4 million for
the three months ended March 31, 1996 and 1995, respectively. For the three
months ended March 31, 1996, the Company borrowed approximately $180.0 million
to provide adequate capital for the Company's investing activities, as compared
to approximately $6.7 million for the three months ended March 31, 1995.
Rental revenue and real estate service revenue have been the principal
sources of capital to fund the Company's operating expenses, debt service and
capital expenditures, excluding non-recurring capital expenditures. The Company
believes that rental revenue and real estate service revenue will continue to
provide the necessary funds for its operating expenses and debt service. As
discussed above, the Company expects to fund capital expenditures from cash flow
from operations and the Line of Credit. If these sources of funds are
insufficient, the Company's ability to make expected distributions may be
adversely impacted. At March 31, 1996, the Company had cash of $22.3 million, of
which $2.1 million was restricted.
The Company's dividends are paid quarterly. Amounts accumulated for
distribution are predominantly invested by the Company in short-term investments
that are collateralized by securities of the United States Government or any of
its agencies.
Management believes that the Company will have access to the capital
resources necessary to expand and develop its business. Accordingly, the Company
may seek to obtain funds through additional equity
S-28
<PAGE>
offerings or debt financing in a manner consistent with its intention to operate
with a conservative borrowing policy. The Company 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 the funding of future
acquisitions and development of rental properties and capital expenditures.
The Company believes that funds from operations is an appropriate measure of
the performance of an equity REIT because industry analysts have accepted it as
a performance measure of equity REITs. In accordance with the final NAREIT White
Paper on Funds From Operations as approved by the Board of Governors of NAREIT
on March 3, 1995, funds from operations represents net income (loss) (computed
in accordance with generally accepted accounting principles), excluding gains
(losses) from debt restructuring or sales of property, plus depreciation and
amortization of assets uniquely significant to the real estate industry and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are calculated to
reflect funds from operations on the same basis. The Company's funds from
operations presented below conform to the new NAREIT definition of funds from
operations. Funds from operations does not represent net income or cash flows
generated from operating activities in accordance with generally accepted
accounting principles and should not be considered an alternative to net income
as an indication of the Company's performance or to cash flows as a measure of
liquidity or the Company's ability to make distributions.
The following table provides the calculation of the Company's funds from
operations on a pro forma and historical basis for the three months ended March
31, 1996 and for the year ended December 31, 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
--------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income before minority interest............ $11,531 $ 4,725 $ 44,088 $17,284
Adjustments to derive funds from operations:
Add: Depreciation and amortization............ 10,157 5,171 40,126 17,564
Deduct: Minority interests' (non-Unitholders)
share of depreciation, amortization and net
income....................................... (74) (395) (621) (1,658)
----------- ------------ ----------- -------------
Funds from operations before allocation to the
minority Unitholders ........................ 21,614 9,501 83,593 33,190
Less: Funds from operations allocable to the
minority Unitholders ........................ (2,652) (2,164) (10,229) (7,876)
----------- ------------ ----------- -------------
Funds from operations allocable to CarrAmerica
Realty Corporation............................ $18,962 $ 7,337 $ 73,364 $25,314
=========== ============ =========== =============
</TABLE>
Changes in funds from operations are largely attributable to changes in net
income between the periods as previously discussed.
S-29
<PAGE>
PROPERTIES
GENERAL
The following table sets forth certain lease-related information about each
Property as of May 31, 1996. For a discussion of the Properties acquired by the
Company in June 1996, see "Recent Developments."
<TABLE>
<CAPTION>
NET AVERAGE
COMPANY'S RENTABLE BASE RENT
NUMBER DATE BUILT EFFECTIVE AREA PER LEASED
OF OR PROPERTY (SQUARE PERCENT SQUARE
PROPERTY PROPERTIES REDEVELOPED OWNERSHIP FEET)(1) LEASED(2) FOOT(3)
-------- ---------- ----------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Properties
Washington, DC:
International Square.......................... 3
1850 K Street ............................... 1977 100.0% 375,897 86.6% $33.40
1825 Eye Street ............................. 1982 100.0 374,321 96.5 33.45
1875 Eye Street ............................. 1979 100.0 267,328 84.1 32.83
1730 Pennsylvania Avenue...................... 1 1972 100.0 229,429 96.4 37.90
2550 M Street................................. 1 1978 100.0 187,931 100.0 30.82
1775 Pennsylvania Avenue...................... 1 1975 100.0 143,981 99.1 22.03
900 19th Street............................... 1 1986 100.0 101,186 84.2 34.91
1747 Pennsylvania Avenue...................... 1 1970 89.7 152,396 78.0 31.00
1255 23rd Street.............................. 1 1983 75.0 304,433 70.1(4) 28.41
2445 M Street................................. 1 1986 74.0 266,902 90.9 28.06
Suburban Maryland:
One Rock Spring Plaza......................... 1 1989 100.0 205,298 94.7 22.23
Northern Virginia:
Tycon Courthouse.............................. 1 1983 100.0 415,158 96.4 19.14
Three Ballston Plaza.......................... 1 1991 100.0 302,797 99.1 22.94
Reston Quadrangle............................. 3 1987-89 100.0 261,175 99.8 20.48
Southern California:
Scenic Business Park.......................... 4 1985 100.0 137,436 89.7 10.50
Harbor Corporate Park......................... 4 1987 100.0 149,382 49.2 12.75
Northern California:
AT&T Center................................... 6 1988 100.0 1,082,032 100.0 14.95
Southeast Denver:
Harlequin Plaza............................... 2 1981 100.0 327,623 92.5 12.63
Quebec Court.................................. 2 1979/1980 100.0 285,829 100.0 9.43
--- ---------- ------ ------
Total Consolidated Properties/Weighted Average 34 5,570,534 92.4 $22.60
--- ---------- ------ ------
<PAGE>
PROPERTY MAJOR TENANTS (20% OR MORE OF SQUARE FEET)
-------- ------------------------------------------
<S> <C>
Consolidated Properties
Washington, DC:
International Square..........................
1850 K Street ............................... International Monetary Fund (25%)
1825 Eye Street ............................. International Monetary Fund (63%)
1875 Eye Street ............................. International Monetary Fund (39%)
Federal Deposit Insurance Corporation (52%);
1730 Pennsylvania Avenue...................... King & Spalding (26%)
2550 M Street................................. Patton Boggs (86%)
1775 Pennsylvania Avenue...................... Citibank, F.S.B. (81%)
900 19th Street............................... Potomac Capital Investment Corporation (42%)
1747 Pennsylvania Avenue...................... None occupying 20% or more
1255 23rd Street.............................. Seabury & Smith (20%)
2445 M Street................................. Wilmer, Cutler & Pickering (77%)
Suburban Maryland:
One Rock Spring Plaza......................... Sybase (27%); Caterair (22%)
Northern Virginia:
Tycon Courthouse.............................. None occupying 20% or more
Three Ballston Plaza.......................... CACI (50%); Eastman Kodak (20%)
Reston Quadrangle............................. Software AG (66%)
Southern California:
Scenic Business Park.......................... FHP, Inc. (51%)
Harbor Corporate Park......................... None occupying 20% or more
Northern California:
AT&T Center................................... AT&T (100%)
Southeast Denver:
Harlequin Plaza............................... None occupying 20% or more
Quebec Court.................................. Intelligent Electronics (45%);
Alert Centre (37%)
Total Consolidated Properties/Weighted Average.
</TABLE>
S-30
<PAGE>
<TABLE>
<CAPTION>
NET AVERAGE
COMPANY'S RENTABLE BASE RENT
NUMBER DATE BUILT EFFECTIVE AREA PER LEASED
OF OR PROPERTY (SQUARE PERCENT SQUARE
PROPERTY PROPERTIES REDEVELOPED OWNERSHIP FEET)(1) LEASED(2) FOOT(3)
-------- ---------- ----------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Unconsolidated Properties
Washington, DC(5):
AARP Headquarters.............................. 1 1991 24.0 477,187 99.1 34.99
Bond Building.................................. 1 1986 15.0 162,097 100.0 29.08
1776 Eye Street................................ 1 1988 5.0 212,738 97.2 35.15
Willard Office/Hotel........................... 1 1901/1986 5.0 242,787 97.5 39.55
1575 Eye Street................................ 1 1978 2.0 205,441 94.2 23.52
Northern Virginia:
Booz-Allen & Hamilton Building................. 1 1996 50.0 222,989 100.0% 14.40
-- ------- ----- -----
Total Unconsolidated Properties/Weighted
Average....................................... 6 1,523,239 98.2% $30.54
-- --------- ----- -----
Total All Properties/Weighted Average ......... 40 (6) 7,093,773 93.6% $24.39
== ========= ==== =====
Property Major Tenants (20% or more of square feet)
- -------- ------------------------------------------
<S> <C>
Unconsolidated Properties
Washington, DC(5):
AARP Headquarters.............................. American Association of Retired Persons (98%)
Bond Building.................................. General Services Administration Department
of Justice (93%)
1776 Eye Street................................ None occupying 20% or more
Willard Office/Hotel........................... Vinson & Elkins (27%)
1575 Eye Street................................ McKenna & Cuneo (60%)
Northern Virginia:
Booz-Allen & Hamilton Building................. Booz Allen & Hamilton (100%)
Total Unconsolidated Properties/Weighted
Average.......................................
Total All Properties/Weighted Average .........
- ---------------
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
May 31, 1996.
(3) Average base rent is based on executed and commenced leases as of May 31,
1996 and is the 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) As of May 31, 1996, a tenant vacated 80,000 square feet under an expiring
lease. The Company is in final negotiations to lease 53,000 square feet to
a new tenant with a lease commencement date of October 4, 1996.
(5) Excludes the Company's 50% interest in 1717 Pennsylvania Avenue, N.W., a
property undergoing redevelopment. The renovation at this property is
substantially complete, and the property is currently in lease-up. The
Company contemplates placing the property in service in the fall of 1996.
(6) Excludes 17 properties acquired subsequent to May 31, 1996.
</TABLE>
S-31
<PAGE>
TENANT INFORMATION
Lease Expirations. The following table sets forth a schedule of lease
expirations for executed leases as of May 31, 1996, for each of the 10 years
beginning with 1996, for each of the 34 Properties owned by the Company as of
May 31, 1996 and consolidated for financial statement purposes, assuming that no
tenants exercise renewal or early termination options:
<TABLE>
<CAPTION>
2006 and
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Thereafter
-------- --------- --------- --------- --------- -------- --------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DOWNTOWN WASHINGTON, DC:
INTERNATIONAL SQUARE
SQUARE FEET
EXPIRING........... 8,605 159,672 365,894 121,321 26,258 4,833 186,594 2,388 8,665 24,990 2,181
CURRENT BASE RENT PER
SQ. FT............... $ 27.32 $ 33.06 $ 34.66 $ 32.43 $ 30.89 $ 41.37 $ 31.81 $ 41.00 $ 31.93 $ 31.55 $ 40.28
1730 PENNSYLVANIA AVENUE
SQUARE FEET EXPIRING.. -- 3,951 128,804 3,528 5,048 -- 10,575 58,821 928 9,575 --
CURRENT BASE RENT PER
SQ. FT............... $ 0.00 $ 40.93 $ 37.84 $ 31.97 $ 31.00 $ 0.00 $ 41.07 $ 39.69 $ 32.00 $ 29.36 $ 0.00
2550 M STREET
SQUARE FEET EXPIRING.. -- -- 20,375 5,324 -- 1,004 161,228 -- -- -- --
CURRENT BASE RENT PER
SQ. FT.............. $ 0.00 $ 0.00 $ 21.77 $ 23.48 $ 0.00 $ 38.40 $ 32.16 $ 0.00 $ 0.00 $ 0.00 $ 0.00
1775 PENNSYLVANIA
SQUARE FEET EXPIRING.. -- 23,584 2,112 137 -- -- -- -- -- -- 116,834
CURRENT BASE RENT PER
SQ. FT............... $ 0.00 $ 15.17 $ 40.29 $ 93.60 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 23.00
900 19TH STREET
SQUARE FEET EXPIRING.. 55,857 997 1,332 2,420 -- -- 4,764 -- -- 9,852 9,984
CURRENT BASE RENT PER
SQ. FT............... $ 36.49 $ 35.00 $ 30.01 $ 22.67 $ 0.00 $ 0.00 $ 27.00 $ 0.00 $ 0.00 $ 33.66 $ 34.75
1747 PENNSYLVANIA AVENUE
SQUARE FEET EXPIRING... 19,420 12,366 17,511 6,440 12,366 13,343 2,579 -- -- -- 34,907
CURRENT BASE RENT PER
SQ. FT................ $ 29.90 $ 29.88 $ 24.42 $ 29.97 $ 36.60 $ 32.44 $ 26.08 $ 0.00 $ 0.00 $ 0.00 $ 33.33
1255 23RD STREET
SQUARE FEET EXPIRING... -- 2,764 6,911 -- 72,254 -- 4,479 -- 126,296 -- 783
CURRENT BASE RENT PER
SQ. FT............... $ 0.00 $ 22.00 $ 22.83 $ 0.00 $ 28.09 $ 0.00 $ 22.50 $ 0.00 $ 29.43 $ 0.00 $ 0.00
2445 M STREET
SQUARE FEET EXPIRING.. 4,392 17,503 7,363 2,078 -- 5,336 -- -- -- -- 205,816
CURRENT BASE RENT PER
SQ. FT............... $ 30.59 $ 38.77 $ 28.59 $ 26.38 $ 0.00 $ 31.86 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 27.00
TOTAL FOR DOWNTOWN
WASHINGTON, DC:
SQUARE FEET EXPIRING... 88,274 220,837 550,302 141,248 115,926 24,516 370,219 61,209 135,889 44,417 370,505
CURRENT WEIGHTED AVERAGE
BASE RENT PER SQ. FT.. $ 33.85 $ 31.43 $ 34.38 $ 31.77 $ 29.76 $ 34.32 $ 32.01 $ 39.74 $ 29.61 $ 31.55 $ 26.56
SUBURBAN MARYLAND:
ONE ROCK SPRING PLAZA
SQUARE FEET EXPIRING... 9,477 12,636 10,444 57,736 15,750 3,884 -- 5,733 69,769 9,025 --
CURRENT BASE RENT PER
SQ. FT................ $ 22.01 $ 21.73 $ 20.96 $ 24.26 $ 22.16 $ 21.00 $ 0.00 $ 22.29 $ 21.07 $ 21.15 $ 0.00
NORTHERN VIRGINIA:
TYCON COURTHOUSE
SQUARE FEET EXPIRING... 2,427 7,088 21,485 87,781 8,634 25,092 17,002 118,090 10,020 29,940 72,633
CURRENT BASE RENT PER
SQ. FT................ $ 19.79 $ 14.32 $ 20.43 $ 23.56 $ 15.90 $ 16.26 $ 24.13 $ 18.35 $ 18.02 $ 18.50 $ 15.79
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
2006 and
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Thereafter
-------- --------- --------- --------- --------- -------- --------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Three Ballston Plaza
Square Feet
Expiring....... -- 47,385 9,497 3,347 3,578 71,092 122,132 -- -- 13,582 29,402
Current Base Rent
Per Sq. Ft...... $ 0.00 $ 19.81 19.97 $ 21.50 $ 18.50 $ 28.74 $ 20.12 $ 0.00 $ 0.00 $ 16.25 $ 30.43
Reston Quadrangle
Square Feet
Expiring........ -- -- -- 2,590 46,645 29,561 1,749 -- -- 170,829 9,336
Current Base Rent
Per Sq. Ft..... $ 0.00 $ 0.00 $ 0.00 $ 18.65 $ 24.57 $ 25.78 $ 18.50 $ 0.00 $ 0.00 $ 18.64 $ 17.72
Total for Northern
Virginia:
Square Feet
Expiring........ 2,427 54,473 30,982 93,718 58,857 125,745 140,883 118,090 10,020 214,351 111,371
Current Weighted
Average Base Rent
Per Sq. Ft...... $ 19.79 $ 19.10 $ 20.29 $ 23.35 $ 22.93 $ 25.55 $ 20.58 $ 18.35 $ 18.02 $ 18.47 $ 19.82
Southern California:
Scenic Business Park
Square Feet
Expiring......... -- -- 3,629 30,619 62,157 10,331 -- 16,596 -- -- --
Current Base Rent
Per Sq. Ft....... $ 0.00 $ 0.00 $ 9.00 $ 11.06 $ 11.64 $ 8.78 $ 0.00 $ 6.60 $ 0.00 $ 0.00 $ 0.00
Harbor Corporate Park
Square Feet
Expiring......... 5,843 24,216 7,443 13,102 2,634 20,205 -- -- -- -- --
Current Base Rent
Per Sq. Ft....... $ 15.07 $ 13.21 $ 11.74 $ 13.83 $ 0.00 $ 12.87 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Total for Southern
California:
Square Feet
Expiring......... 5,843 24,216 11,072 43,721 64,791 30,536 -- 16,596 -- -- --
Current Weighted
Average Base Rent
Per Sq. Ft....... $ 15.07 $ 13.21 $ 10.84 $ 11.89 $ 11.17 $ 11.49 $ 0.00 $ 6.60 $ 0.00 $ 0.00 $ 0.00
Northern California:
AT&T Center
Square Feet
Expiring......... -- -- 827,209 254,823 -- -- -- -- -- -- --
Current Base Rent
Per Sq. Ft....... $ 0.00 $ 0.00 $ 14.79 $ 15.48 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Southeast Denver:
Harlequin Plaza
Square Feet
Expiring......... 5,694 62,193 16,801 104,536 4,041 52,868 -- 56,987 -- -- --
Current Base Rent
Per Sq. Ft....... $ 11.00 $ 10.29 $ 12.70 $ 12.47 $ 11.55 $ 16.62 $ 0.00 $ 11.97 $ 0.00 $ 0.00 $ 0.00
Quebec Court
Square Feet
Expiring......... -- -- -- -- -- 285,829 -- -- -- -- --
Current Base Rent
Per Sq. Ft....... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 9.43 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Total for Southeast
Denver:
Square Feet
Expiring......... 5,694 62,193 16,801 104,536 4,041 338,697 -- 56,987 -- -- --
Current Weighted
Average Base Rent
Per Sq. Ft....... $ 11.00 $ 10.29 $ 12.70 $ 12.47 $ 11.55 $ 10.55 $ 0.00 $ 11.97 $ 0.00 $ 0.00 $ 0.00
Total for Consolidated
Portfolio:
Square Feet
Expiring......... 111,715 374,355 1,446,810 695,782 259,365 523,378 511,102 258,615 215,678 267,793 481,876
Percent of Total
Square Footage... 2.2% 7.3% 28.1% 13.5% 5.0% 10.2% 9.9% 5.0% 4.2% 5.2% 9.4%
Current Weighted
Average Base Rent
Per Sq. Ft........$ 30.39 $ 24.62 $ 22.35 $ 19.90 $ 22.82 $ 15.40 $ 28.86 $ 21.34 $ 26.31 $ 20.73 $ 25.00
Total Annual Base Rent
Expiring (in
thousands).......$ 3,395 $ 9,216 $ 32,339 $ 13,845 $ 5,919 $ 8,061 $ 14,750 $ 5,519 $ 5,674 $ 5,552 $ 12,049
Percentage of Annual
Base Rent
Expiring......... 2.9% 7.9% 27.8% 11.9% 5.1% 6.9% 12.7% 4.7% 4.9% 4.8% 10.4%
</TABLE>
S-33
<PAGE>
Tenants by Industry. The following table breaks down by industry the tenants
at the 34 Properties that were owned by the Company as of May 31, 1996 and
consolidated for financial statement purposes:
PERCENT ANNUALIZED PERCENT
OF TOTAL BASE RENT OF TOTAL
SQUARE SQUARE (IN ANNUALIZED
INDUSTRY NAME FOOTAGE(1) FOOTAGE THOUSANDS) BASE RENT
- ------------- ---------- ------- ---------- ---------
Technology &
Communications.............. 1,672,736 32.5% $27,148 23.2%
Professional Services....... 1,016,635 19.8 28,802 24.6
Financial Services.......... 597,479 11.6 12,751 10.9
Quasi-Governmental.......... 446,815 8.7 14,917 12.7
Government Contractors ..... 228,441 4.4 4,783 4.1
Government (Federal &
State)...................... 197,057 3.8 6,169 5.3
Not-For-Profit.............. 131,474 2.6 3,138 2.6
Retail...................... 120,681 2.3 3,451 2.9
Other....................... 735,151 14.3 16,059 13.7
- ---------------
(1) Excludes vacant space of 424,065 square feet.
Ten Largest Tenants. The following table sets forth the ten largest tenants
at the 34 Properties that were owned by the Company as of May 31, 1996 and
consolidated for financial statement purposes:
<TABLE>
<CAPTION>
PERCENT PERCENT
OF TOTAL TOTAL OF TOTAL
PROPERTY SQUARE SQUARE ANNUALIZED ANNUALIZED
TENANT NAME NAME FOOTAGE FOOTAGE BASE RENT(1) BASE RENT
- ----------- ---- ------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C>
AT&T................................. AT&T Center 1,082,032 19.4% $16,180,627 13.6%
International Monetary Fund.......... International Square 432,310 7.8 14,627,148 12.2
Wilmer, Cutler & Pickering........... 2445 M Street 205,816 3.7 5,557,041 4.7
Software AG.......................... Reston Quadrangle 173,419 3.1 3,233,287 2.7
Patton Boggs......................... 2550 M Street 161,228 2.9 5,184,420 4.3
CACI................................. Three Ballston Plaza 152,720 2.7 3,072,728 2.6
Intelligent Electronics.............. Quebec Court 130,000 2.3 1,495,000 1.3
Federal Deposit Insurance 1730 Pennsylvania
Corporation.......................... Avenue 119,731 2.1 4,623,648 3.9
1775 Pennsylvania
Citibank............................. Avenue 116,834 2.1 2,686,921 2.3
Alert Centre......................... Quebec Court 105,820 1.9 952,380 0.8
</TABLE>
(1) Total annualized base rent is based on executed and commenced leases as of
May 31, 1996. 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.
S-34
<PAGE>
UNCONSOLIDATED PROPERTIES
The following table sets forth certain information related to the seven
Properties in which the Company has an equity investment (in thousands):
SELECTED OPERATING STATEMENT INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FUNDS FROM
DEPRECIATION NET OPERATIONS
COMPANY'S RENTAL & INTEREST AND OTHER INCOME CONTRIBUTION TO
PROPERTY OWNERSHIP OTHER REVENUE EXPENSE AMORTIZATION EXPENSES (LOSS) THE COMPANY(1)
-------- --------- ------------- ------- ------------ -------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
AARP Headquarters............. 24% $21,371 $12,593 $3,334 $ 6,114 $ (670) $639
1776 Eye Street............... 5 7,943 4,456 1,393 2,599 (504) 30
Willard Office/Hotel.......... 5 43,530 8,315 4,440 28,642 2,132 --
1575 Eye Street............... 2 5,759 2,329 538 2,239 652 --
Bond Building................. 15 5,281 3,620 1,643 1,592 (1,574) --
Booz-Allen & Hamilton
Building...................... 50 (2) (2) (2) (2) (2) --
1717 Pennsylvania Avenue ..... 50 (2) (2) (2) (2) (2) --
</TABLE>
SELECTED BALANCE SHEET INFORMATION
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
MATURITY OF
COMPANY'S RENTAL TOTAL MORTGAGE INTEREST MORTGAGE
PROPERTY OWNERSHIP PROPERTY, NET CASH ASSETS PAYABLE RATE PAYABLE
-------- --------- ------------- ---- ------ ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
AARP Headquarters............. 24% $112,792 $ 767 $136,291 $145,506 8.07% 7/31/02
1776 Eye Street............... 5 35,872 1,155 40,049 44,400 10.00 10/1/23
Willard Office/Hotel.......... 5 68,288 6,417 78,006 88,388 9.40 11/1/01
1575 Eye Street............... 2 8,684 3,319 12,839 22,861 10.15 9/10/21
Bond Building................. 15 9,344 261 16,669 37,934 9.53 11/1/96
Booz-Allen & Hamilton
Building...................... 50 26,833 3,039 33,596 24,675 7.00 8/1/13
1717 Pennsylvania Avenue ..... 50 (2) (2) 29,550 -- -- --
</TABLE>
- --------------
(1) Represents the Funds from Operations Contribution to the Company from each
property included in funds from operations before minority interest of
holders of Units as set forth in "Summary -- Summary Selected Financial
Information."
(2) Property was under development.
S-35
<PAGE>
HISTORICAL RECURRING CAPITAL EXPENDITURES, TENANT IMPROVEMENT COSTS AND TENANT
LEASING COSTS
The following table sets forth annual and per square foot recurring capital
expenditures, tenant improvement costs and tenant leasing costs attributable to
existing leased space for the period from February 16, 1993 (inception of
operations) to December 31, 1993, the years ended December 31, 1994 and 1995,
and the quarter ended March 31, 1996 for the Properties consolidated in the
Company's financial statements during the periods presented. In light of the
Company's change in business strategy away from downtown office buildings and
toward suburban office buildings, the Company believes that the historical
capital expenditures, tenant improvement costs and tenant leasing costs set
forth below are not indicative of the Company's future recurring capital
expenditures, tenant improvement costs and tenant leasing costs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
<TABLE>
<CAPTION>
1ST QUARTER
1993 1994 1995 1996
-------- ------- ------- -------------
<S> <C> <C> <C> <C>
Capital Expenditures:
Capital Expenditures (in thousands)............. $9,964 5,177 1,615 378
Per square foot................................. $ 5.00 2.09 .65 .11
Tenant Improvement Costs and Tenant Leasing
Costs:
Tenant Improvement Costs (in thousands)......... $8,510 5,524 2,582 681
Per square foot leased.......................... $32.22 19.65 15.72 8.01
Tenant Leasing Costs (in thousands) ............ $1,757 856 570 312
Per square foot leased.......................... $ 4.92 3.05 3.47 3.67
Total per square foot.......................... $37.14 22.70 19.19 11.68
</TABLE>
DEBT FINANCING
As of June 30, 1996, the Company had outstanding existing long-term
indebtedness in an aggregate principal amount of $453.1 million, of which $134.0
million (all of which represents draws under the Line of Credit), or 30%, bore
interest at a floating interest rate. At that date, the Company's fixed rate
debt bore a weighted average interest rate of 8.3% and had a weighted average
maturity of 6.8 years (assuming loans callable before maturity are called as
early as possible).
Mortgage Debt. The existing mortgage indebtedness on the 51 Properties that
were owned by the Company as of June 30, 1996 and consolidated for financial
statement purposes is set forth in the table below:
<TABLE>
<CAPTION>
PRINCIPAL
BALANCE ESTIMATED
AS OF ANNUAL DEBT BALANCE
6/30/96 SERVICE DUE AT
INTEREST (IN (IN MATURITY MATURITY
PROPERTY RATE THOUSANDS) THOUSANDS) DATE (IN THOUSANDS)
- -------- ---- ---------- ---------- ---- --------------
<S> <C> <C> <C> <C> <C>
International Square, 1730 Pennsylvania
Avenue and 1255 23rd Street (1) ....... 8.25% $183,500 $15,148 2/1/03 $170,169
900 19th Street......................... 8.25 17,102 1,656 7/15/19 (3) (3)
1747 Pennsylvania Ave .................. 9.50 15,752 1,730 7/10/17 (2) (2)
2445 M Street........................... 8.90 38,903 4,646 6/1/02 26,925
1775 Pennsylvania Ave .................. 7.50 6,408 586 2/1/99 6,109
Parkway North........................... 7.96 29,250 2,328 12/1/03 29,250
Redmond East............................ 8.38 28,182 2,648 1/1/06 $ 24,022
Total (4).............................. $319,097 $28,742
======== =======
</TABLE>
(1) Consists of four loans secured by these three Properties. Interest Rate
represents the weighted average interest rate on the four loans.
(2) Note is callable by the lender after June 30, 2002. The estimated
principal balance at June 30, 2002 will be $13,840,000.
(3) Note is callable by the lender after July 1, 2004. The estimated principal
balance at July 1, 2004 will be $14,262,000.
(4) Excludes debt to be assumed in connection with the acquisitions of Warner
Center and the Littlefield Portfolio. The Warner Center loan is in the
principal amount of approximately $26.0 million, bears interest at a rate
of 7.4% per annum and matures in December 2000. The Littlefield Portfolio
loan is in the principal amount of approximately $9.7 million, bears
interest at a rate of 7.4% per annum and matures in February 1999.
S-36
<PAGE>
Line of Credit. In May 1996, the Company entered into a revolving credit
agreement with Morgan Guaranty Trust Company of New York providing for unsecured
borrowings of up to $215 million. Availability under the Line of Credit is
limited to 50% of the Borrowing Base Properties, as defined in the credit
agreement. As of June 30, 1996, $188 million was available to be drawn under the
Line of Credit. Of that available amount, as of June 30, 1996, $134 million was
drawn under the Line of Credit.
Borrowings under the Line of Credit bear interest at a floating rate of 175
basis points over LIBOR (which rate will be reduced in the event the Company
obtains an investment grade rating on senior, long-term unsecured debt). The
Line of Credit contains a number of financial and other covenants with which the
Company 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 the Company's assets, and restrictions on the
ability of the Company to make dividend distributions in excess of 90% of funds
from operations.
S-37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key employees of the Company and their
positions and offices are set forth in the following table:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
---- --- --------------------------
<S> <C> <C>
Oliver T. Carr, Jr. ... 71 Chairman of the Board and Chief Executive Officer
Thomas A. Carr......... 37 President, Chief Operating Officer and Director
President of Carr Real Estate Services, Inc. and
Robert O. Carr......... 46 Director
David Bonderman........ 53 Director
Andrew F. Brimmer...... 69 Director
A. James Clark......... 68 Director
Douglas T. Healy....... 45 Director
Anthony R. Manno, Jr. . 43 Director
J. Marshall Peck....... 44 Director
George R. Puskar....... 52 Director
William D. Sanders .... 54 Director
Wesley S. Williams,Jr.. 53 Director
Brian K. Fields........ 36 Chief Financial Officer
Philip L. Hawkins...... 40 Managing Director of Asset Management
Robert G. Stuckey...... 34 Managing Director of Acquisitions and Development
Paul R. Adkins......... 37 Vice President -- Acquisitions
Andrea F. Bradley...... 36 Vice President, Secretary and General Counsel
Karen B. Dorigan....... 31 Vice President -- Land Due Diligence
Debra A. Volpicelli ... 32 Treasurer and Controller
Joseph D. Wallace...... 32 Vice President -- Building Due Diligence
Matthew L. Richardson . 36 Senior Vice President of Carr Development &
Construction, Inc.
Steven N. Bralower .... 46 Senior Vice President of Carr Realty, L.P.
John J. Donovan, Jr. .. 52 Senior Vice President of Carr Real Estate Services,
Inc.
Richard W. Greninger .. 44 Senior Vice President of Carr Real Estate Services,
Inc.
</TABLE>
S-38
<PAGE>
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to the Underwriters named
below, and each of the Underwriters for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), Dean Witter Reynolds Inc., J.P. Morgan
Securities Inc., Prudential Securities Incorporated, Legg Mason Wood Walker,
Incorporated and Wheat, First Securities, Inc. are acting as representatives
(the "Representatives") has severally agreed to purchase, the respective number
of shares of Common Stock set forth below opposite their respective names. The
Purchase Agreement provides that the obligations of the Underwriters are subject
to certain conditions precedent and that the Underwriters will be obligated to
purchase all of the shares of Common Stock if any are purchased.
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................
Dean Witter Reynolds Inc.................
J. P. Morgan Securities Inc..............
Prudential Securities Incorporated ......
Legg Mason Wood Walker, Incorporated ....
Wheat, First Securities, Inc.............
-----------
Total.............................. 8,400,000
===========
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of $per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $per share on sales to certain other dealers. After the Offering, the public
offering price, concession and discounts may be changed.
The Company has granted an option to the Underwriters, exercisable during the
30-day period after the date of this Prospectus Supplement, to purchase up to an
aggregate of 1,260,000 additional shares of Common Stock at the price to the
public set forth on the cover page of this Prospectus Supplement, less the
underwriting discount. The Underwriters may exercise this option only to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each Underwriter will be obligated, subject to certain conditions, to
purchase the number of additional shares of Common Stock proportionate to such
Underwriter's initial amount reflected in the foregoing table.
The Company and USRealty have agreed that for a period of 90 days from the
date of this Prospectus Supplement they will not, without prior and written
consent of the Representatives, offer, sell or otherwise dispose of any
securities or any security convertible into or exercisable for Common Stock
(except for issuances by the Company pursuant to stock option or dividend
reinvestment plans and certain other agreements).
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
The Company expects that USRealty will purchase 3,600,000 shares of Common
Stock from the Company at the public offering price simultaneously with the
closing of the Offering. In addition, USRealty may purchase up to 1,076,446
shares of Common Stock in the Offering at the public offering price (which,
combined with the direct purchase from the Company, would result in an
additional total investment by USRealty in the Company of up to $112 million,
assuming a public offering price of $24.00), in order to maintain its 39%
ownership interest in the Company (on a fully-diluted basis). No underwriting
discounts will be applied to the Concurrent USRealty Purchase or any purchases
of Common Stock by USRealty in the Offering, and the Company will retain the
entire proceeds therefrom. Following the Offering (and assuming each of the
foregoing purchases is consummated), USRealty will own approximately 44% of the
outstanding shares of Common Stock (39% on a fully diluted basis).
S-39
<PAGE>
Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment banking
and commercial banking services for the Company, for which customary
compensation has been received. Morgan Guaranty Trust Company of New York
("MGT"), as lender under the Line of Credit, is expected to receive up to $190
million of the net proceeds of the Offering and the Concurrent USRealty Purchase
(as described under "Use of Proceeds"). MGT is an affiliate of J.P.
Morgan Securities Inc.
Merrill Lynch from time to time provides investment banking and financial
advisory services to the Company. Merrill Lynch was paid a fee of $3.75 million
by the Company in April 1996 for financial advisory services provided by Merrill
Lynch to the Company in connection with the USRealty Transaction.
The Common Stock is listed on the NYSE under the symbol "CRE."
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock pursuant to this
Prospectus Supplement will be passed upon for the Company by Hogan & Hartson
L.L.P., Washington, D.C. Certain legal matters will be passed upon for the
Underwriters by Rogers & Wells, New York, New York.
S-40
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 11, 1996
PROSPECTUS
$600,000,000
CARRAMERICA REALTY CORPORATION
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK AND COMMON STOCK WARRANTS
--------------------------
CarrAmerica Realty Corporation (the "Company") may from time to time offer in
one or more series its (i) unsecured debt securities ("Debt Securities"), (ii)
preferred stock ("Preferred Stock"), (iii) common stock, $.01 par value ("Common
Stock"), and (iv) warrants exercisable for Common Stock ("Common Stock
Warrants"), with an aggregate public offering price of up to $600,000,000 (or
its equivalent based on the exchange rate at the time of sale) in amounts, at
prices and on terms to be determined at the time of offering. The Debt
Securities, Preferred Stock, Common Stock and Common Stock Warrants
(collectively, the "Offered Securities") may be offered, separately or together,
in separate series, in amounts, at prices and on terms to be described in one or
more supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, any terms for
redemption at the option of the Company or repayment at the option of the
holder, any terms for any sinking fund payments, any terms for conversion into
Preferred Stock or Common Stock of the Company, covenants and any public
offering price; (ii) in the case of Preferred Stock, the specific title and
stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any public offering price; (iii) in the case of Common Stock,
any public offering price; and (iv) in the case of Common Stock Warrants, the
specific title and aggregate number, the issue price and the exercise price. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may be
appropriate to preserve the status of the Company as a real estate investment
trust for federal income tax purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement with,
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of a Prospectus
Supplement describing the method and terms of the offering of such Securities.
See "Risk Factors" beginning on page 3 for certain factors relating to an
investment in the Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
--------------------------
The date of this Prospectus is _____, 1996
<PAGE>
THE COMPANY
CarrAmerica Realty Corporation (the "Company") is a publicly-traded real
estate investment trust (a "REIT") that focuses primarily on the acquisition,
development, ownership and operation of value office properties in select
suburban growth markets across the United States. The Company and its
predecessor, The Oliver Carr Company ("OCCO"), have traditionally focused on the
acquisition, development, ownership and operation of office properties in the
Washington, D.C. metropolitan area. In connection with the USRealty Transaction,
described below, the Company is implementing a national business strategy that
includes acquiring, developing, owning and operating value office properties
throughout the United States in select suburban growth markets. As of June 30,
1996, the Company owned interests in a portfolio of 57 operating office
properties (collectively, the "Properties") containing approximately 8.4 million
square feet of space.
On February 26, 1996, the stockholders of the Company approved the investment
by a wholly-owned subsidiary of Security Capital U.S. Realty (collectively,
"USRealty") of approximately $250 million in the Company (the "USRealty
Transaction"). The sale and issuance of 11,627,907 shares of the Company's
common stock, par value $.01 per share ("Common Stock"), to USRealty in a
private sale transaction was consummated on April 30, 1996.
The Company employed over 450 employees, including over 325 on-site building
employees, as of June 30, 1996.
The Company is a Maryland corporation that was formed in July 1992. The
principal executive offices of the Company are located at 1700 Pennsylvania
Avenue, Washington, D.C. 20006, and its telephone number is (202) 624-7500.
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RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
REAL ESTATE INVESTMENT RISKS
General. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate and the Company's
ability to service debt will depend in large part on the amount of income
generated, expenses incurred and capital expenditures required. The Company's
income from office properties may be adversely affected by a number of factors,
including the general economic climate and local real estate conditions, such as
an oversupply of, or a reduction in demand for, office space in the area and the
attractiveness of the properties to tenants. In addition, income from properties
and real estate values also are affected by such factors as the cost of
compliance with government regulation, including zoning and tax laws, the
potential for liability under applicable laws, interest rate levels and the
availability of financing. Certain significant expenditures associated with each
equity investment by the Company in a property (such as mortgage payments, if
any, real estate taxes and maintenance costs) also are generally not reduced
when circumstances cause a reduction in income from the property.
Debt Financing. The Company is subject to the risks associated with debt
financing, including the risk that the cash provided by the Company's operating
activities will be insufficient to meet required payments of principal and
interest, the risk of rising interest rates on the Company's floating rate debt,
the risk that the Company will not be able to prepay or refinance existing
indebtedness on its properties (which generally will not have been fully
amortized at maturity) or that the terms of such refinancing will not be as
favorable as the terms of existing indebtedness. In the event the Company is
unable to secure refinancing of such indebtedness on acceptable terms, the
Company might be forced to dispose of properties upon disadvantageous terms,
which might result in losses to the Company and might adversely affect the cash
flow available for distribution to equity holders or debt service. In addition,
if a property or properties are mortgaged to secure payment of indebtedness and
the Company is unable to meet mortgage payments, the mortgage securing the
property could be foreclosed upon by, or the property could be otherwise
transferred to, the mortgagee with a consequent loss of income and asset value
to the Company.
Renewal of Leases and Reletting of Space. The Company is subject to the risks
that upon expiration of leases for space located at its properties, the leases
may not be renewed, the space may not be relet or the terms of the renewal or
reletting (including the cost of required renovations or concessions to tenants)
may be less favorable than current lease terms. In particular, as of May 31,
1996, two of the Company's tenants leased space representing approximately 19%
and 8%, respectively, of the total square footage of the Properties pursuant to
leases that expire beginning in 1998. Although the Company has established an
annual budget for renovation and reletting costs that it believes are reasonable
in light of each property's situation, no assurance can be given that this
budget will be sufficient to cover these costs. If the Company is unable to
promptly relet or renew leases for all or substantially all of the space at its
properties, if the rental rates upon such renewal or reletting are significantly
lower than expected, or if the Company's reserves for these purposes prove
inadequate, then the Company's cash provided by operating activities and ability
to make expected distributions to shareholders or debt service payments could be
adversely affected.
Possible Environmental Liabilities. Under various Federal, state and local
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up certain hazardous
substances released at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by such parties in connection with the contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral. The owner or operator
of a site may be liable under common law to third parties for damages and
injuries resulting from environmental contamination emanating from the site. The
Company has not been noti-
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fied by any governmental authority of any material non-compliance, liability or
other claim in connection with any of its properties and the Company is not
aware of any other material environmental condition with respect to any of its
properties. No assurance, however, can be given that no prior owner created any
material environmental condition not known to the Company, that no material
environmental condition with respect to any property has occurred during the
Company's ownership thereof, or that future uses or conditions (including,
without limitation, changes in applicable environmental laws and regulations)
will not result in imposition of environmental liability.
CONFLICTS OF INTEREST
Certain members of the Company's board of directors (the "Board") and
officers own limited partnership interests ("Units") of Carr Realty, L.P. and,
thus, may have interests that conflict with shareholders with respect to
business decisions affecting the Company and Carr Realty, L.P. In particular, a
holder of Units may suffer different and/or more adverse tax consequences than
the Company upon the sale or refinancing of some of the properties as a result
of unrealized gain attributable to certain properties. These Unit holders and
the Company, therefore, may have different objectives regarding the appropriate
pricing and timing of any sale or refinancing of properties. Although the
Company, as the sole general partner of Carr Realty, L.P., has the exclusive
authority as to whether and on what terms to sell or refinance an individual
property, these Unit holders might seek to influence the Company not to sell or
refinance the properties, even though such sale might otherwise be financially
advantageous to the Company, or may seek to influence the Company to refinance a
property with a higher level of debt than would be in the best interests of the
Company. Although the Company believes that the change in operational structure
from an "UPREIT" to a "DownREIT" should reduce, over time, these potential
conflicts of interest, assets will continue to be owned by Carr Realty, L.P.,
diminishing the effects of this structural modification.
ACQUISITION AND DEVELOPMENT RISKS
The Company intends to continue acquiring and developing office properties in
markets where it believes that such acquisition or development is consistent
with the business strategies of the Company. Acquisitions entail risks that
investments will fail to perform in accordance with expectations and that
judgments with respect to the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property will prove inaccurate, as well as general investment risks associated
with any new real estate investment. See "Real Estate Investment Risks" above.
New office development also is subject to a number of risks, including
construction delays or cost overruns that may increase project costs, financing
risks as described above, the failure to meet anticipated occupancy or rent
levels, failure to receive required zoning, occupancy and other governmental
permits and authorizations and changes in applicable zoning and land use laws,
which may result in the incurrence of development costs in connection with
projects that are not pursued to completion. In addition, because the Company
must distribute 95% of its taxable income in order to maintain its qualification
as a REIT, the Company anticipates that new acquisitions and developments will
be financed primarily through periodic equity offerings, lines of credit or
other forms of secured or unsecured construction financing. If permanent debt or
equity financing is not available on acceptable terms to refinance such new
acquisitions or developments are undertaken without permanent financing, further
acquisitions or development activities may be curtailed or cash available for
distribution to shareholders or to meet debt service obligations may be
adversely affected.
CHANGE IN BUSINESS STRATEGY; RISKS ASSOCIATED WITH THE ACQUISITION OF
SUBSTANTIAL NEW PROPERTIES
The Company's move toward a more national business focus represents a
significant shift in the business strategy of the Company. Although the Board
believes that such a shift in strategy is warranted in light of the
opportunities that the USRealty Transaction represents, there is no assurance
that the Company's efforts to establish a national office REIT will be
successful.
Consistent with the Company's strategy of acquiring value office properties
in suburban growth markets, the Company has significantly expanded its portfolio
of office properties in 1996, acquiring thus
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far 38 office properties across the country for an aggregate purchase price of
approximately $367 million. These properties have a relatively short operating
history under the Company's management and they may have characteristics or
deficiencies unknown to the Company affecting their valuation or revenue
potential.
DEPENDENCE ON WASHINGTON, D.C. MARKET
Although the Company's business strategy is to move toward a more national
business focus, at June 30, 1996, the Company's consolidated Properties located
in downtown Washington, D.C. represented approximately 35% of the consolidated
Properties in terms of square footage. The Company's performance and its ability
to make expected distributions to stockholders could be adversely affected by
economic or other conditions in downtown Washington, D.C. that are beyond the
control of the Company.
SUBSTANTIAL OWNERSHIP OF COMMON STOCK
As of June 30, 1996, USRealty owned 46.1% of the outstanding shares of the
Company's common stock (39.0% of the common stock on a fully-diluted basis), and
USRealty has the right to nominate a proportionate number of the directors of
the Board based upon its ownership of stock on a fully-diluted basis, rounded
down to the nearest whole number (but in no event more than 40% of the
directors). As a result, USRealty is the largest single stockholder of the
Company, while no other stockholder is permitted to own more than 5% of the
Company's common stock, subject to certain exceptions set forth in the Articles
of Incorporation or approved by the Board. Although certain standstill
provisions preclude USRealty from increasing its percentage interest in the
Company for a period of at least five years (subject to certain exceptions) and
the Articles of Incorporation preclude it from increasing such percentage
interest thereafter, and USRealty agreed to certain limitations on its voting
rights with respect to its shares of Common Stock, USRealty nonetheless has a
substantial influence over the affairs of the Company as a result of the
USRealty Transaction. This concentration of ownership in one stockholder could
potentially be disadvantageous to other stockholders' interests. In addition, so
long as USRealty owns at least 25% of the outstanding Common Stock of the
Company on a fully diluted basis, USRealty will be entitled (except in certain
limited circumstances), upon compliance with certain specified conditions, to a
participation right to purchase or subscribe for, either as part of such
issuance or in a concurrent issuance, a total number of shares of Common Stock
or Preferred Stock, as the case may be, equal to up to 30% (or 35% in certain
circumstances) of the total number of shares or of Common Stock or Preferred
Stock, as applicable, proposed to be issued by the Company.
LIMITATIONS ON CORPORATE ACTIONS
In conjunction with the USRealty Transaction, the Company agreed to certain
limitations on its operations, including restrictions relating to incurrence of
additional indebtedness, retention of third-party managers for the Company's
properties, investments in properties other than office buildings, issuances of
Units by Carr Realty, L.P., and certain other matters. The Company may take
actions relating to these matters only with the consent of USRealty. In
addition, the Company has agreed to certain limitations on the amount of assets
that it owns indirectly through other entities and the manner in which it
conducts its business (including the types of assets that it can acquire and own
and the manner in which such assets are operated). These limitations, which are
intended to permit USRealty to comply with certain requirements of the Internal
Revenue Code and other countries' tax laws applicable to foreign investors,
limit somewhat the flexibility of the Company to structure transactions that
might otherwise be advantageous to the Company. Although the Company does not
believe that the limitations imposed on the Company's activities will materially
impair the Company's ability to conduct its business, there can be no assurance
that these limitations will not adversely affect the Company's operations in the
future.
MANAGEMENT, LEASING AND BROKERAGE RISKS
The Company is subject to the risks associated with the property management,
leasing and brokerage businesses. These risks include the risk that management
contracts or service agreements with third-party owners will be lost to
competitors, that a property will be sold and the Company will lose the
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contract, that contracts will not be renewed upon expiration or will not be
renewed on terms consistent with current terms and that leasing and brokerage
activity generally may decline. Each of these developments could adversely
affect the ability of the Company to make expected distributions to shareholders
or debt service payments.
LACK OF VOTING CONTROL OF OPERATING SUBSIDIARIES
The Company does not have voting control of Carr Real Estate Services, Inc.
("Carr Services, Inc."), Carr Real Estate Services of Northern Virginia, Inc.
("CRESNOVA") or Carr Development & Construction, Inc. ("Carr Development &
Construction") (collectively, the "Operating Subsidiaries"). The capital stock
of Carr Services, Inc., which conducts fee-based management and leasing in the
Washington, D.C. metropolitan area, is divided into two classes: voting common
stock, approximately 92% and 8% of which is held by The Oliver Carr Company
("OCCO") and Carr Realty, L.P., respectively, and nonvoting preferred stock,
approximately 95% and 5% of which is held by Carr Realty, L.P. and OCCO,
respectively. OCCO, as the holder of 92% of the voting common stock, has the
ability to elect the board of directors of Carr Services, Inc.
The capital stock of CRESNOVA, which conducts fee-based management and
leasing in northern Virginia, is divided into two classes: voting common stock,
92% and 8% of which is held by OCCO and Carr Realty, L.P., respectively, and
nonvoting common stock, 100% of which is held by Carr Realty, L.P. OCCO, as the
holder of 92% of the voting common stock, has the ability to elect the board of
directors of CRESNOVA.
The capital stock of Carr Development & Construction, Inc. which conducts
fee-based development, is divided into two classes: voting common stock, 99% and
1% of which is held by OCCO and the Company, respectively, and nonvoting common
stock, 96% and 4% of which is held by the Company and OCCO, respectively. OCCO,
as the holder of 99% of the voting common stock, has the ability to elect the
board of directors of Carr Development & Construction after the terms of the
initial directors expire.
Oliver T. Carr, Jr., who is Chairman of the Board and Chief Executive Officer
and a significant stockholder of the Company, beneficially owns a majority of
the voting stock of OCCO, which will control the election of directors of the
Operating Subsidiaries. Although neither the Company's right to receive
preferred distributions with respect to its preferred stock of Carr Services,
Inc. nor the terms of the promissory notes made by each of the Operating
Subsidiaries and held by Carr Realty, L.P. or the Company, as applicable, can be
changed by OCCO, the Company will not be able to elect directors of each of the
Operating Subsidiaries, and its ability to influence the day-to-day decisions of
the Operating Subsidiaries is limited. As a result, the board of directors and
management of each of the Operating Subsidiaries may implement business policies
or decisions that might not have been implemented by persons elected by the
Company and that are adverse to the interests of the Company or that lead to
adverse financial results, which could adversely impact the Company's operating
income and funds from operations.
CHANGES IN POLICIES
The major policies of the Company, including its policies with respect to
development, acquisitions, financing, growth, operations, debt capitalization
and distributions, are determined by its Board. Although it has no present
intention to do so, the board may amend or revise these and other policies from
time to time without a vote of the shareholders of the Company. A change in
these policies could adversely affect the Company's financial condition, results
of operations, funds available for distributions to shareholders, debt service
or the market price of the Securities. The Company cannot change its policy of
seeking to maintain its qualification as a REIT without the approval of the
holders of a majority of the Common Stock.
CERTAIN TAX RISKS
Tax Liabilities as a Consequence of the Failure to Qualify as a REIT. The
Company believes that it has operated so as to qualify and has qualified as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ended December 31, 1993, and intends to
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continue to so operate. No assurance, however, can be given that the Company has
so qualified or will be able to remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions as to
which there are only limited judicial and administrative interpretations.
Certain facts and circumstances that may be wholly beyond the Company's control
may affect its ability to qualify or to continue to qualify as a REIT. In
addition, no assurance can be given that new legislation, Treasury Regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to the qualification as a REIT or the Federal income
consequences of such qualification to the Company. If the Company fails to
qualify as a REIT, it will be subject to Federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. In addition, unless entitled to relief under certain statutory
provisions, the Company would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is lost. The
additional tax incurred in such event would significantly reduce the cash flow
available for distribution to shareholders and to meet debt service obligations.
See "Federal Income Tax Considerations -- Taxation of the Company."
REIT Distribution Requirements and Potential Impact of Borrowings. To obtain
the favorable tax treatment associated with qualifying as a REIT under the Code,
the Company generally is required each year to distribute to its shareholders at
least 95% of its net taxable income. See "Federal Income Tax
Considerations-Taxation of the Company (Annual Distribution Requirements)." In
addition, the Company will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of 85% of its ordinary income, 95% of its
capital gain net income and 100% of its undistributed income from prior years.
Differences in timing between the receipt of income, the payment of expenses and
the inclusion of such income and the deduction of such expenses in arriving at
taxable income (of the Company or Carr Realty, L.P.), or the effect of
nondeductible capital expenditures, the creation of reserves or required debt or
amortization payments, could require the Company, directly or through Carr
Realty, L.P., to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT. In such instances, the Company might need to borrow funds
in order to avoid adverse tax consequences even if management believed that then
prevailing market conditions were not generally favorable for such borrowings.
Other Tax Liabilities. Even if the Company qualifies as a REIT, the Company
and certain of its subsidiaries will be subject to certain Federal, state and
local taxes on its income and property. See "Federal Income Tax Considerations
- -- Taxation of the Company and Other Tax Considerations."
Consequences of Failure of the Carr Realty, L.P. to be Treated as a
Partnership. The Company believes that the Carr Realty, L.P. and each other
partnership and limited liability company in which it holds an interest are
properly treated as partnerships for Federal income tax purposes. See "Federal
Income Tax Considerations -- Other Tax Considerations (Effect of Tax Status of
Carr Realty, L.P. and Other Partnerships on REIT Status)." If the Internal
Revenue Service (the "IRS") were to challenge successfully the tax status of
Carr Realty, L.P., or any other partnership in which the Company holds an
interest, as a partnership for Federal income tax purposes, Carr Realty, L.P. or
the affected partnership would be taxable as a corporation. In such event, since
the value of the Company's ownership interest in Carr Realty, L.P. exceeds, and
the value of Carr Realty, L.P.'s ownership interest in the affected partnership
could exceed, 5% of the Company's assets, the Company could cease to qualify as
a REIT. See "Federal Income Tax Considerations -- Taxation of the Company (Asset
Tests)." In addition, the imposition of a corporate tax on Carr Realty, L.P. or
any of the other partnerships in which it holds an interest would reduce the
amount of funds available for distribution to the Company and its stockholders.
SPECIAL CONSIDERATIONS FOR FOREIGN INVESTORS
In order to assist the Company in qualifying as a "domestically controlled
REIT," the Articles of Incorporation contain certain provisions generally
preventing foreign investors (other than USRealty and its affiliates) from
acquiring additional shares of the Company's capital stock if, as a result of
such acquisition, the Company would fail to qualify as a "domestically
controlled REIT." See "Federal In
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come Tax Considerations -- Taxation of Holders of Common Stock -- Taxation of
Non-U.S. Shareholders." Accordingly, an acquisition of the Company's capital
stock would not likely be a suitable investment for Non-U.S. Shareholders other
than USRealty.
PRICE FLUCTUATIONS OF THE COMMON STOCK AND TRADING VOLUME; SHARES AVAILABLE
FOR FUTURE SALE
A number of factors may adversely influence the price of the Company's Common
Stock in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Common Stock to demand a higher annual yield from
distributions by the Company in relation to the price paid for Common Stock, the
relatively low daily trading volume of REITs in general, including the Common
Stock, and any inability of the Company to invest the proceeds of a future
offering of Securities in a manner that will increase earnings per share. Sales
of a substantial number of shares of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for shares.
The Company also may issue shares of Common Stock (subject to the Ownership
Limit, as defined below) upon redemption of Units issued in connection with the
formation of the Company and subsequent acquisitions. In addition, 1,416,900
shares of Common Stock of the Company have been issued or reserved for issuance
pursuant to stock and unit options, and these shares will be available for sale
in the public markets from time to time pursuant to exemptions from registration
requirements or upon registration. In connection with the USRealty Transaction,
the Company granted USRealty the right to require the Company to file, at any
time requested by USRealty, a registration statement under the Securities Act of
1933 covering all or any of the shares of Common Stock acquired by USRealty. No
prediction can be made about the effect that future sales of Common Stock will
have on the market prices of shares.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
In order to assist the Company in maintaining its qualification as a REIT,
the Articles of Incorporation contain certain provisions generally limiting the
ownership of shares of capital stock by any single shareholder to 5% of the
outstanding Common Stock and/or 5% of any class or series of Preferred Stock
(with exceptions for persons who received more than 5% of the equity of the
Company pursuant to the contribution of assets to the Company in connection with
the initial public offering of the Company and USRealty and its affiliates). The
Board could waive this restriction if it were satisfied that ownership in excess
of the above ownership limit would not jeopardize the Company's status as a REIT
and the Board otherwise decided such action would be in the best interests of
the Company. Capital stock acquired or transferred in breach of the limitation
will be automatically transferred to a trust for the benefit of a designated
charitable beneficiary. See "Description of Common Stock -- Restrictions on
Transfer" for additional information regarding the limits on ownership of shares
of capital stock.
RESTRICTIONS ON ACQUISITION AND CHANGE IN CONTROL
Various provisions of the Company's Articles of Incorporation, as amended
(the "Articles of Incorporation"), restrict the possibility for acquisition or
change in control of the Company, even if such acquisition or change in control
were in the shareholders' interest, including the Ownership Limit, the staggered
terms of the Company's directors and the ability of the Board to authorize the
issuance of preferred stock without stockholder approval.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds from the sale of the Offered Securities will be used for the
acquisition and development of additional office properties, as suitable
opportunities arise, for the repayment of certain outstanding indebtedness at
such time, for capital improvements to property and for working capital and
other general corporate purposes.
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RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the three months ending
March 31, 1996 was 1.64, and for the period from February 16, 1993 (commencement
of operations) to December 31, 1993 and for the years ended December 31, 1994
and 1995 was 1.75, 1.81, and 1.91 respectively.
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of income (loss) before gains
from sales of property and extraordinary items plus fixed charges. Fixed charges
consist of interest expense (including interest costs capitalized), the
amortization of debt issuance costs and rental expense deemed to represent
interest expense. There was no preferred stock outstanding for any of the
periods shown above. Accordingly, the ratio of earnings to combined fixed
charges and preferred stock dividends is identical to the ratio of earnings to
fixed charges.
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DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being offered
and the extent to which such general provisions may apply will be set forth in
the applicable indenture or in one or more indentures supplemental thereto and
described in a Prospectus Supplement relating to such Debt Securities. The forms
of the Senior Indenture (as defined herein) and the Subordinated Indenture (as
defined herein) have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Securities") or subordinated Debt
Securities ("Subordinated Securities"). The Debt Securities will be issued under
one or more indentures (the "Indentures"). Senior Securities and Subordinated
Securities will be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"). The Indentures will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the "TIA"). The
statements made under this heading relating to the Debt Securities and the
Indentures are summaries of the anticipated provisions thereof, do not purport
to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities. All section references appearing herein are
to sections of each Indenture unless otherwise indicated and capitalized terms
used but not defined below shall have the respective meanings set forth in each
Indenture.
The indebtedness represented by Subordinated Securities will be subordinated
in right of payment to the prior payment in full of the Senior Debt of the
Company as described under "Subordination."
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto and described in a Prospectus Supplement relating thereto,
the Debt Securities may be issued without limit as to aggregate principal
amount, in one or more series, in each case as established from time to time in
or pursuant to authority granted by a resolution of the Board of the Company or
as established in the applicable Indenture or in one or more indentures
supplemental to such Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series.
It is anticipated that each Indenture will provide that there may be more
than one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under an Indenture may resign or be removed with respect
to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a director of a trust under the
applicable Indenture separate and apart from the trust administered by any other
Trustee, and, except as otherwise indicated herein, any action described herein
to be taken by each Trustee may be taken by each such Trustee with respect to,
and only with respect to, the one or more series of Debt Securities for which it
is Trustee under the applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) The percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
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(4) If convertible in whole or in part into Common Stock or Preferred
Stock, the terms on which such Debt Securities are convertible, including
the initial conversion price or rate (or method for determining the same),
the portion that is convertible and the conversion period, and any
applicable limitations on the ownership or transferability of the Common
Stock or Preferred Stock receivable on conversion;
(5) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on which any such
interest will be payable, the regular record dates for such interest payment
dates, or the method by which such dates shall be determined, the persons to
whom such interest shall be payable, and the basis upon which interest shall
be calculated if other than that of a 360-day year of twelve 30-day months;
(8) The place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the Company in
respect of such Debt Securities and the applicable Indenture may be served;
(9) The period or periods within which, the price or prices at which
and the other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the Company
is to have such an option;
(10) The obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or periods
within which or the date and dates on which, the price or prices at which
and the other terms and conditions upon which such Debt Securities will be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(11) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificate or
book-entry form;
(15) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(16) The applicability, if any, of the defeasance and covenant
defeasance provisions of Article Fourteen of the applicable Indenture;
(17) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax, assessment
or governmental charge and, if so, whether the Company will have the option
to redeem such Debt Securities in lieu of making such payment; and
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(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto, the applicable Indenture will not contain any provisions
that would limit the ability of the Company to incur indebtedness or that would
afford Holders of Debt Securities protection in the event of a highly leveraged
or similar transaction involving the Company or in the event of a change of
control. Restrictions on ownership and transfers of the Company's Common Stock
and Preferred Stock are designed to preserve its status as a REIT and,
therefore, may act to prevent or hinder a change of control. See "Description of
Preferred Stock -- Restrictions on Ownership" and "Description of Common Stock
- -- Restrictions on Transfer." Reference is made to the applicable Prospectus
Supplement for information with respect to any deletions from, modifications of
or additions to the Events of Default or covenants of the Company that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States (Sections 301,
305, 306, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest Payment
Date with respect to a Debt Security ("Defaulted Interest") will forthwith cease
to be payable to the Holder on the applicable regular record date and may either
be paid to the person in whose name such Debt Security is registered at the
close of business on a special record date (the "Special Record Date") for the
payment of such Defaulted Interest to be fixed by the Trustee, notice whereof
shall be given to the Holder of such Debt Security not less than ten days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner, all as more completely described in the Indenture (Section 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee referred
to above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer or exchange thereof at
the corporate trust office of the applicable Trustee. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the applicable Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
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Neither the Company nor any Trustee shall be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
that has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Company will be permitted to consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity provided that (a) either the Company shall be the continuing entity, or
the successor entity (if other than the Company) formed by or resulting from any
such consolidation or merger or which shall have received the transfer of such
assets shall expressly assume payment of the principal of (and premium, if any)
and interest on all of the Debt Securities and the due and punctual performance
and observance of all of the covenants and conditions contained in each
Indenture; (b) immediately after giving effect to such transaction and treating
any indebtedness that becomes an obligation of the Company or any Subsidiary as
a result thereof as having been incurred by the Company or Subsidiary at the
time of such transaction, no Event of Default under the Indentures, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to each Trustee
(Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as described above under "Merger, Consolidation or Sale",
the Company will be required to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights (by articles of
incorporation, by-laws and statute) and franchises; provided, however, that the
Company shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of its business and that the loss thereof is not disadvantageous in any material
respect to the Holders of the Debt Securities.
Maintenance of Properties. The Company will be required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times (Section 1007); provided, however, that the Company shall
not be prevented from selling or otherwise disposing for value its properties in
the ordinary course of business.
Insurance. The Company will be required to, and will be required to cause
each of its Subsidiaries, defined below, to keep all of its insurable properties
insured against loss or damage at least equal to their then full insurable value
with insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, having a specified rating from a recognized insurance
rating service (Section 1008).
Payment of Taxes and Other Claims. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings (Section 1009).
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Provision of Financial Information. Whether or not the Company is subject to
Section 13 or 15(d) of the Exchange Act, the Company will be required, to the
extent permitted under the Exchange Act, to file with the Commission the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Sections 13 or 15(d) if
the Company were so subject (the "Financial Information"), such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Company would have been required so to file such
documents if the Company were so subject. The Company also will in any event (x)
within 15 days of each Required Filing Date (i) transmit by mail to all Holders
of Debt Securities, as their names and addresses appear in the Security
Register, without cost to such Holders, copies of the Financial Information and
(ii) file with the Trustee copies of the Financial Information, and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder (Section 1010).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Company and/or modifications to the covenants
described above with respect to any Debt Securities or series thereof, including
any covenants relating to limitations on incurrence of indebtedness or other
financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (i) default for
30 days in the payment of any installment of interest on any Debt Security of
such series; (ii) default in the payment of principal of (or premium, if any,
on) any Debt Security of such series at its maturity; (iii) default in making
any sinking fund payment as required for any Debt Security of such series; (iv)
default in the performance or breach of any other covenant or warranty of the
Company contained in the applicable Indenture (other than a covenant added to
the Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), continued for 60 days after written notice
as provided in the applicable Indenture; (v) default in the payment of an
aggregate principal amount exceeding $10,000,000 of any indebtedness of the
Company or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having occurred after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled; (vi) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary, as defined below, or either of its property; and (vii)
any other Event of Default provided with respect to a particular series of Debt
Securities (Section 501).
"Significant Subsidiary" means any Subsidiary that is a "significant
subsidiary" (within the meaning of Regulation S-X promulgated under the
Securities Act) of the Company.
"Subsidiary" means a corporation, partnership or entity such as a limited
liability company, in which a majority of the outstanding voting stock or
partnership interests, as the case may be, is owned or controlled, directly or
indirectly, by the Company or by one or more other Subsidiaries of the Company.
For the purposes of this definition, "voting stock" means stock having voting
power for the election of directors, or managers or other voting members of the
governing body of such entities, whether at all times or only so long as no
senior class of stock has such voting power by reason of any contingency. The
term "Subsidiary" does not include Carr Services, Inc., CRESNOVA, or Carr
Development & Construction as the Company does not own or control a majority of
the outstanding voting stock of such entities.
If an Event of Default under any Indenture with respect to Debt Securities of
any series at the time outstanding occurs and is continuing, then in every such
case the applicable Trustee or the Holders of not less than 25% of the principal
amount of the Outstanding Debt Securities of that series will have the
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right to declare the principal amount (or, if the Debt Securities of that series
are Original Issue Discount Securities or indexed securities, such portion of
the principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be) may rescind and annul such declaration
and its consequences if (a) the Company shall have deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture (Section
502). Each Indenture also will provide that the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the applicable Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby (Section 513).
Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such Holders (Section 601).
Each Indenture will provide that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the cases of failure of the
applicable Trustee, for 60 days, to act after it has received a written request
to institute proceedings in respect of an Event of Default from the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it (Section
507). This provision will not prevent, however, any Holder of Debt Securities
from instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under such Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under an Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the applicable Trustee, or of exercising any trust or
power conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining therein
(Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof (Section 1011).
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MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities issued under such Indenture which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, (a) change the stated maturity of the principal
of, or any installment of interest (or premium, if any) on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the place of payment, or the coin or
currency, for payment of principal or premium, if any, or interest on any such
Debt Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security; (e) reduce the
above-stated percentage of Outstanding Debt Securities of any series necessary
to modify or amend the applicable Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the applicable Indenture; or (f)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).
Modifications and amendments of an Indenture will be permitted to be made by
the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in the Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or elimination shall
become effective only when there are no Debt Securities Outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series, including the provisions and procedures,
if applicable, for the conversion of such Debt Securities into Common Stock or
Preferred Stock of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under an Indenture by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in an Indenture, provided that such action shall not
adversely affect the interests of Holders of Debt Securities of any series
issued under such Indenture in any material respect; or (x) to supplement any of
the provisions of an Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect (Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall
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be the U.S. dollar equivalent, determined on the issue date for such Debt
Security, of the principal amount (or, in the case of an Original Issue Discount
Security, the U.S. dollar equivalent on the issue date of such Debt Security of
the amount determined as provided in (i) above), (iii) the principal amount of
an indexed security that shall be deemed Outstanding shall be the principal face
amount of such indexed security at original issuance, unless otherwise provided
with respect to such indexed security pursuant to the applicable Indenture, and
(iv) Debt Securities owned by the Company or any other obligor upon the Debt
Securities or any affiliate of the Company or of such other obligor shall be
disregarded.
Each Indenture will contain provisions for convening meetings of the Holders
of Debt Securities of a series (Section 501). A meeting will be permitted to be
called at any time by the applicable Trustee, and also, upon request, by the
Company or the Holders of at least 10% in principal amount of the Outstanding
Debt Securities of such series, in any such case upon notice given as provided
in the Indenture. Except for any consent that must be given by the Holder of
each Debt Security affected by certain modifications and amendments of an
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with an Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the Holders of not less than a specified percentage in principal amount
of the Outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, each Indenture will provide that if
any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the Holders of a specified percentage in principal
amount of all Outstanding Debt Securities affected thereby, or the Holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
SUBORDINATION
The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Company will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include a
description of the indebtedness ranking senior to the Debt Securities, the
restrictions on payments to the Holders of such Debt Securities while a default
with respect to such senior indebtedness in continuing, the restrictions, if
any, on payments to the Holders of such Debt Securities following an Event of
Default, and provisions requiring Holders of such Debt Securities to remit
certain payments to holders of senior indebtedness.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may be permitted under the applicable Indenture to discharge
certain obligations to Holders of any series of Debt Securities issued
thereunder that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due and
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payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement and any
omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ("covenant defeasance") (Section
1403), in either case upon the irrevocable deposit by the Company with the
applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment to pay the principal of (and
premium, if any) and interest on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other things,
the Company has delivered to the applicable Trustee an opinion of counsel (as
specified in the applicable Indenture) to the effect that the Holders of such
Debt Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such opinion of counsel, in the case of defeasance, will
be required to refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable U.S. federal income tax law occurring after
the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations of
the United States of America or the government which issued the foreign currency
in which the Debt Securities of a particular series are payable, for the payment
of which its full faith and credit is pledged or (ii) obligations of a person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America or such government which issued the foreign currency in
which the Debt Securities of such series are payable, the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation of the
United States of America or such government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the Holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the Holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and
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does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security will be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or such cessation of usage based on the applicable market exchange
rate. "Conversion Event" means the cessation of use of (i) a currency, currency
unit or composite currency both by the government of the country which issued
such currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a foreign currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars.
In the event the Company effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of the
occurrence of any Event of Default other than the Event of Default described in
clause (iv) under "Events of Default, Notice and Waiver" with respect to certain
specified sections of Article Ten of each Indenture (which sections would no
longer be applicable to such Debt Securities as a result of such covenant
defeasance) or described in clause (vii) under "Events of Default, Notice and
Waiver" with respect to any other covenant as to which there has been covenant
defeasance, the amount in such currency, currency unit or composite currency in
which such Debt Securities are payable, and Government Obligations on deposit
with the applicable Trustee, will be sufficient to pay amounts due on such Debt
Securities at the time of their stated maturity but may not be sufficient to pay
amounts due on such Debt Securities at the time of the acceleration resulting
from such Default. However, the Company would remain liable to make payment of
such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the Holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.
REDEMPTION OF SECURITIES
The Indenture provides that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part, at the redemption price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption shall have been
made available on such redemption date, such Debt Securities will cease to bear
interest on the date fixed for such redemption specified in such notice, and the
only right of the Holders of the Debt Securities will be to receive payment of
the redemption price.
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Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Company's books and records, not
more than 60 nor less than 30 days prior to the date fixed for redemption. The
notice of redemption will specify, among other items, the redemption price and
the principal amount of the Debt Securities held by such Holder to be redeemed.
If the Company elects to redeem Debt Securities, it will notify the Trustee
at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all the Debt
Securities are to be redeemed, the Trustee shall select the Debt Securities to
be redeemed pro rata, by lot or in such manner as it shall deem fair and
appropriate.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the form
of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depository identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
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DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 15,000,000 shares of Preferred Stock. As
of June 30, 1996, there were no shares of Preferred Stock outstanding.
Under the Company's Articles of Incorporation, the Board may from time to
time establish and issue one or more series of Preferred Stock. The Board may
classify or reclassify any unissued Preferred Stock by setting or changing the
number, designation, preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption of such series (a "Designating Amendment").
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and the
Company's bylaws (the "Bylaws").
GENERAL
The Board is empowered by the Company's Articles of Incorporation to
designate and issue from time to time one or more series of Preferred Stock
without shareholder approval. The Board may determine the relative rights,
preferences and privileges of each series of Preferred Stock so issued. Because
the Board has the power to establish the preferences and rights of each series
of Preferred Stock, it may afford the holders of any series of Preferred Stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock. The Preferred Stock will, when issued, be fully paid
and nonassessable.
The Prospectus Supplement relating to any Preferred Stock offered thereby
will contain the specific terms thereof, including, without limitation:
(1) The title and stated value of such Preferred Stock;
(2) The number of such shares of Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock will
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(11) A discussion of federal income tax considerations applicable to
such Preferred Stock;
(12) The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(13) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
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(14) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior to such
Preferred Stock; (ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
on a parity with the Preferred Stock; and (iii) junior to all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock. The term "equity securities" does
not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board, out of assets of the Company legally
available for payment, cash dividends (or dividends in kind or in other property
if expressly permitted and described in the applicable Prospectus Supplement) at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend will be payable to holders of record as they
appear on the stock transfer books of the Company on such record dates as are
fixed by the Board.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board fails to declare a dividend
payable on a dividend payment date on any series of the Preferred Stock for
which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
Unless otherwise specified in the Prospectus Supplement, if any shares of
Preferred Stock of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock will be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock will in all cases bear to each other the same ratio that accrued
dividends per share on the Preferred Stock of such series (which will not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, will be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if such
series of Preferred Stock has a cumulative dividend, full cumulative dividends
on the Preferred Stock of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment
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thereof set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) will be declared or paid or set aside for payment or other
distribution upon the Common Stock, or any other capital stock of the Company
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation, nor will any Common Stock, or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such stock) by the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation).
If for any taxable year, the Company elects to designate as "capital gains
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of shares of beneficial
interest (the "Total Dividends"), then the portion of the Capital Gains Amount
that will be allocable to the holders of shares of Preferred Stock will be the
Capital Gains Amount multiplied by a fraction, the numerator of which shall be
the total dividends (within the meaning of the Code) paid or made available to
the holders of shares of Preferred Stock for the year and the denominator of
which shall be the Total Dividends.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that will be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
will not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock will
automatically and mandatorily be converted into the applicable capital stock of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all Preferred Stock of
any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the current dividend period and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no Preferred Stock of any series
shall be redeemed unless all outstanding Preferred Stock of such series are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of Preferred Stock of such series to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding Preferred Stock of such series. In
addition, unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of any series of
Preferred Stock have been or contemporaneously are declared and paid or declared
and
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a sum sufficient for the payment thereof set apart for payment for all past
dividends periods and the then current dividend period, and (ii) if such series
of Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred Stock of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, the Company will not purchase or
otherwise acquire directly or indirectly any Preferred Stock of such series
(except by conversion into or exchange for capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing will not prevent the
purchase or acquisition of Preferred Stock of such series to preserve the REIT
status of the Company or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice will state: (i) the redemption date; (ii) the number of
shares and series of Preferred Stock to be redeemed; (iii) the redemption price;
(iv) the place or places where certificates for such Preferred Stock are to be
surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all of the Preferred Stock of any series are to be
redeemed, the notice mailed to each such holder thereof will also specify the
number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment is made to
the holders of any Common Stock or any other class or series of capital stock of
the Company ranking junior to the Preferred Stock in the distribution of assets
upon any liquidation, dissolution or winding up of the Company, the holders of
each series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which will not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company will be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, accord-
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ing to their respective rights and preferences and in each case according to
their respective number of shares. For such purposes, the consolidation or
merger of the Company with or into any other corporation, trust or entity, or
the sale, lease or conveyance of all or substantially all of the property or
business of the Company, will not be deemed to constitute a liquidation,
dissolution or winding up of the Company.
VOTING RIGHTS
Holders of Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.
Whenever dividends on any Preferred Stock shall be in arrears for six or more
consecutive quarterly periods, the holders of such Preferred Stock (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of the Company at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Stock so in arrears (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if such series of Preferred Stock do not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of shares of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to the payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Company's
Articles of Incorporation or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, with respect to the occurrence of any of the Events set forth in (ii)
above, so long as the shares of Preferred Stock remain outstanding with the
terms thereof materially unchanged, taking into account that upon the occurrence
of an Event, the Company may not be the surviving entity, the occurrence of any
such Event will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of Preferred Stock and
provided further that (x) any increase in the amount of the authorized Preferred
Stock or the creation or issuance of any other series of Preferred Stock, or (y)
any increase in the amount of authorized shares of such series or any other
series of Preferred Stock, in each case ranking on a parity with or junior to
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, will not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Preferred Stock of such series shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock is
convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the Preferred Stock are convertible, the
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conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock -- Restrictions on
Transfer -- Ownership Limits," for the Company to qualify as a REIT under the
Code, not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year. To assist the
Company in meeting this requirement, the Articles of Incorporation provide that
no holder of Preferred Stock may own, or be deemed to own by virtue of certain
attribution provisions of the Code, more than 5% of any class or series of
Preferred Stock and/or more than 5% of the issued and outstanding shares of
Common Stock, subject to certain exceptions specified in the Articles of
Incorporation. See "Description of Common Stock -- Restrictions on Transfer --
Ownership Limits."
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth in
the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
GENERAL
The Company is authorized to issue 90,000,000 shares of Common Stock. The
outstanding Common Stock entitles the holder to one vote on all matters
presented to shareholders for a vote. Holders of Common Stock have no preemptive
rights. At June 30, 1996, there were 25,200,469 shares of Common Stock
outstanding.
Shares of Common Stock currently outstanding are listed for trading on the
New York Stock Exchange (the "NYSE"). The Company will apply to the NYSE to list
the additional Common Stock to be sold pursuant to any Prospectus Supplement,
and the Company anticipates that such shares will be so listed.
Subject to such preferential rights as may be granted by the Board in
connection with the future issuance of Preferred Stock, holders of Common Stock
are entitled to one vote per share on all matters to be voted on by stockholders
and are entitled to receive ratably such dividends as may be declared on the
Common Stock by the Board in its discretion from funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities and any liquidation
preference of the holders of Preferred Stock. Holders of Common Stock have no
subscription, redemption, conversion or preemptive rights. Matters submitted for
stockholder approval generally require a majority vote of the shares present and
voting thereon.
Advance Notice of Director Nominations and New Business. The Bylaws of the
Company provide that, with respect to an annual meeting of stockholders, the
proposal of business to be considered by stockholders may be made only (i) by or
at the direction of the Board or (ii) by a stockholder who is entitled to vote
at the meeting and who has complied with the advance notice procedures set forth
in the Bylaws. In addition, with respect to any meeting of stockholders,
nominations of persons for election to the Board may be made only (i) by or at
the direction of the Board or (ii) by any stockholder of the Company who is
entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
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RESTRICTIONS ON TRANSFER
Ownership Limits. The Company's Articles of Incorporation contain certain
restrictions on the number of shares of Common Stock that individual
shareholders may own. For the Company to qualify as a REIT under the Code, no
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year. The capital
stock also must be beneficially owned by 100 or more persons during at least 335
days of a taxable year or during a proportionate part of a shorter taxable year.
Because the Company intends to maintain its qualification as a REIT, the
Company's Articles of Incorporation contain certain restrictions on the
ownership and transfer of capital stock, including Common Stock, intended to
ensure compliance with these requirements.
Subject to certain exceptions specified in the Articles of Incorporation, no
holder may own, or be deemed to own by virtue of certain attribution provisions
of the Code, more than (A) 5% of the issued and outstanding shares of Common
Stock ("Common Stock Ownership Limit") and/or (B) more than 5% of any class or
series of Preferred Stock. (This limit, in addition to the Existing Holder
Limit, the Special Shareholder Limit, and the Non U.S. Shareholder Limit, all as
defined below, are referred to collectively herein as the "Ownership Limits.")
Existing Holders, including Clark Enterprises Inc., The Equitable Life Assurance
Society of the United States, Equitable Variable Life Insurance Company, FW
REIT, L.P., The Oliver Carr Company, Oliver T. Carr, Jr., or A. James Clark, are
not subject to the Common Stock Ownership Limit, but they are subject to special
ownership limitations (the "Existing Holder Limit"). Furthermore, USRealty and
its affiliates are not subject to the Common Stock Ownership Limit, but are
subject to a special ownership limit of 48% of the outstanding shares of Common
Stock and 48% of the outstanding shares of each class or series of preferred
stock of the Company (the "Special Shareholder Limit"). Furthermore, all holders
are prohibited from acquiring any capital stock if such acquisition would cause
five beneficial owners of capital stock to beneficially own in the aggregate
more than 50% in value of the outstanding capital stock.
In addition to the above restrictions on ownership of shares of capital stock
of the Company, in order to assist the Company in qualifying as a "domestically
controlled REIT," the Articles of Incorporation contain certain provisions
preventing any Non-U.S. Shareholder, as defined below (other than USRealty and
its affiliates), from acquiring additional shares of the Company's capital stock
if, as a result of such acquisition, the Company would fail to qualify as a
"domestically controlled REIT" (computed assuming that USRealty owns the maximum
percentage of the Company's capital stock that it is permitted to own under the
Special Shareholder Limit) ("Non-U.S. Shareholder Limit"). A Non-U.S.
Shareholder is a nonresident alien individual, foreign corporation, foreign
partnership and any other foreign shareholder. For a discussion of the taxation
of a Non-U.S. Shareholder and the requirements for the Company to qualify as a
"domestically controlled REIT, see "Federal Income Tax Considerations--Taxation
of Holders of Common Stock--Taxation of Non-U.S. Shareholders." The Company is
unlikely to be able to advise a prospective Non-U.S. Shareholder that its
purchase of any shares of the Company's capital stock would not violate this
prohibition, thereby subjecting such prospective Non-U.S. Shareholder to the
adverse consequences described below under "Violation of Ownership Limitations."
Accordingly, an acquisition of the Company's capital stock would not likely be a
suitable investment for Non-U.S. Shareholders other than USRealty.
The Board may increase the Ownership Limits from time to time, but may not do
so to the extent that after giving effect to such increase five beneficial
owners of shares of capital stock could beneficially own in the aggregate more
than 49.5% of the Company's outstanding shares of capital stock. The Board, in
its sole discretion, may waive the Ownership Limits with respect to a holder if
such holder's ownership will not then or in the future jeopardize the Company's
status as a REIT.
Violation of Ownership Limits. The Articles of Incorporation provide that, if
any holder of capital stock of the Company purports to transfer shares to a
person or there is a change in the capital structure of the Company and either
the transfer or the change in capital structure would result in the Company
failing to qualify as a REIT, or such transfer or the change in capital
structure would cause the trans-
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feree to hold shares in excess of the applicable Ownership Limit (including the
Non-U.S. Shareholder Limit), then the capital stock being transferred (or in the
case of an event other than a transfer, the capital stock beneficially owned)
that would cause one or more of the restrictions on ownership or transfer to be
violated will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary. The purported transferee of such shares shall
have no right to receive dividends or other distributions with respect to such
shares and shall have no right to vote such shares. Any dividends or other
distributions paid to such purported transferee prior to the discovery by the
Company that the shares have been transferred to a trust shall be paid upon
demand to the trustee of the trust for the benefit of the charitable
beneficiary. The trustee of the trust will have all rights to dividends with
respect to the shares of capital stock held in trust, which rights will be
exercised for the exclusive benefit of the charitable beneficiary. Any dividends
or distributions paid over to the trustee will be held in trust for the
charitable beneficiary. The trustee shall designate a transferee of such stock
so long as such shares of stock would not violate the Ownership Limitations in
the hands of such designated transferee. Upon the sale of such shares, the
purported transferee shall receive the lesser of (A) (i) the price per share
such purported transferee paid for the capital stock in the purported transfer
that resulted in the transfer of shares of capital stock to the trust, or (ii)
if the transfer or other event that resulted in the transfer of shares of
capital stock to the trust was not a transaction in which the purported record
transferee of shares of capital stock gave full value for such shares, a price
per share equal to the market price on the date of the purported transfer or
other event that resulted in the transfer of the shares to the trust, and (B)
the price per share received by the trustee from the sale or disposition of the
shares held in the trust.
All certificates representing Common Stock will bear a legend referring to
the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the Code
or regulations thereunder) of the issued and outstanding shares of Common Stock
must file a written notice with the Company containing the information specified
in the Articles of Incorporation no later than December 31 of each year. In
addition, each shareholder shall upon demand be required to disclose to the
Company in writing such information as the Company may request in good faith in
order to determine the Company's status as a REIT.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Stock is Boston EquiServe.
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DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common Stock.
Common Stock Warrants may be issued independently or together with any other
Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Common Stock Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will act solely
as an agent of the Company in connection with the Common Stock Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Stock Warrants. The following
sets forth certain general terms and provisions of the Common Stock Warrants
offered hereby. Further terms of the Common Stock Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (1) the title of such Common Stock
Warrants; (2) the aggregate number of such Common Stock Warrants; (3) the price
or prices at which such Common Stock Warrants will be issued; (4) the
designation, number and terms of the shares of Common Stock purchasable upon
exercise of such Common Stock Warrants; (5) the designation and terms of the
other Securities offered thereby with which such Common Stock Warrants are
issued and the number of such Common Stock Warrants issued with each such
Security offered thereby; (6) the date, if any, on and after which such Common
Stock Warrants and the related Common Stock will be separately transferable; (7)
the price at which each of the shares of Common Stock purchasable upon exercise
of such Common Stock Warrants may be purchased; (8) the date on which the right
to exercise such Common Stock Warrants shall commence and the date on which such
right shall expire; (9) the minimum or maximum number of such Common Stock
Warrants which may be exercised at any one time; (10) information with respect
to book entry procedures, if any; (11) a discussion of certain federal income
tax considerations; and (12) any other terms of such Common Stock Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Common Stock Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a description of certain Federal income tax consequences to
the Company and the holders of Common Stock, Preferred Stock and Common Stock
Warrants of the treatment of the Company as a REIT under applicable provisions
of the Code. The following discussion, which is not exhaustive of all possible
tax considerations, does not give a detailed discussion of any state, local or
foreign tax considerations. Nor does it discuss all of the aspects of Federal
income taxation that may be relevant to a prospective shareholder in light of
his or her particular circumstances or to certain types of shareholders
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
Federal income tax laws. As used in this section, the term "Company" refers
solely to CarrAmerica Realty Corporation.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
TAXATION OF THE COMPANY
General. The Company, which is considered a corporation for Federal income
tax purposes, has elected to be taxed as a REIT under Sections 856 through 860
of the Code effective as of its taxable year ended December 31, 1993. The
Company believes that it is organized and has operated in such a manner
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so as to qualify for taxation as a REIT under the Code, and the Company intends
to continue to operate in such a manner. No assurance, however, can be given
that the Company has operated in a manner so as to qualify as a REIT or that it
will continue to operate in such a manner in the future. Qualification and
taxation as a REIT depends upon the Company's ability to meet on a continuing
basis, through actual annual operating results, distribution levels and
diversity of stock ownership, the various qualification tests imposed under the
Code on REITs, some of which are summarized below. While the Company intends to
operate so that it qualifies as a RElT, given the highly complex nature of the
rules governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in circumstances of the Company, no assurance can
be given that the Company satisfies such tests or will continue to do so. See
"Failure to Qualify" below.
The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its shareholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on net income that it distributes
currently to shareholders. However, the Company will be subject to Federal
income tax on any income that it does not distribute and will be subject to
Federal income tax in certain circumstances on certain types of income even
though that income is distributed.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest; (3) that would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
(4) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons; (6) that during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities); and (7) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(l) through (4), inclusive, must be met during the entire taxable year and that
condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
The Company's Articles of Incorporation contain restrictions regarding the
transfer of its capital stock that are intended to assist the Company in
continuing to satisfy the stock ownership requirements described in (5) and (6)
above. See "Description of Common Stock-Restrictions on Transfer."
Income Tests. In order to maintain qualification as a REIT, there are three
gross income requirements that must be satisfied annually. First, at least 75%
of the REIT's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75% income test, and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions (related to the identity of the tenant, the computation of
the rent payable, and the nature of the property leased) are met. The Company
does not anticipate receiving rents in excess of 1% of gross revenue that fail
to meet these
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conditions. In addition, for rents received to qualify as "rents from real
property," the Company generally must not operate or manage the property or
furnish or render services to tenants, other than through an "independent
contractor" from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the Company are "usually or customarily rendered" in connection with
the rental space for occupancy only and are not otherwise considered "rendered
to the occupant." The Company will provide certain services with respect to the
properties through entities that do not satisfy the "independent contractor"
requirements described above. The Company has received a ruling from the IRS
that the provision of certain services will not cause the rents received with
respect to the properties to fail to qualify as "rents from real property."
Based upon the IRS ruling and its experience in the office rental markets in
which the Company's properties are located, the Company believes that all
services provided to tenants will be considered "usually or customarily
rendered" in connection with the rental of office space for occupancy, although
there is no assurance that the IRS will not contend otherwise. If the Company
contemplates providing services, either directly, or through another entity, in
the future that reasonably might be expected not to meet the "usual or
customary" standard, it will arrange to have such services provided by an
independent contractor from which the Company will receive no income.
The Company may receive fees in consideration of the performance of
management and administrative services with respect to properties that are not
owned entirely by the Company. A portion of such management and administrative
fees (corresponding to that portion of a property owned by a third party)
generally will not qualify under the 75% or 95% gross income tests. The Company
also may receive other types of income with respect to the properties that it
owns that will not qualify for the 75% or 95% gross income tests. The Company
believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, however, a tax would be imposed with respect to
the "excess net income"' attributable to the failure to satisfy the 75% and 95%
gross income tests.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets: (i) at least
75% of the value of the Company's total assets must be represented by "real
estate assets," cash, cash items and government securities; (ii) not more than
25% of the Company's total assets may be represented by securities other than
those in the 75% asset class; and (iii) of the investments included in the 25%
asset class, the value of any one issuer's securities (other than an interest in
a partnership, shares of a "qualified REIT subsidiary" or another REIT, but
including any unsecured debt of Carr Realty, L.P.) owned by the Company may not
exceed 5% of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities (other than
an interest in a partnership, shares of a "qualified REIT subsidiary" or another
REIT). By virtue of its ownership of Units, the Company will be considered to
own its pro rata share of the assets of Carr Realty, L.P., including the
securities of Carr Services, Inc., and CRESNOVA. (Carr Services, Inc., CRESNOVA
and Carr Development & Construction are referred to collectively herein as the
"Non-qualified REIT Subsidiaries.") Neither Carr Realty, L.P. nor the Company
will own more than 10% of the voting securities of any Non-qualified REIT
Subsidiary. In addition, the Company and its senior management believe that the
Company's pro rata share of the value of the securities of each of such
Non-qualified REIT Subsidiary and of any unsecured debt of Carr Realty, L.P.
owned by the Company will not exceed 5% of the total value of the Company's
assets. There can be no assurance, however, that the IRS might not contend
otherwise. Although the Company plans to take steps to ensure that it continues
to satisfy the 5% test, there can be no assurance that such steps will be
successful or will not require a reduction in the Company's overall interest in
one or more of the Non-qualified REIT Subsidiaries.
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Annual Distribution Requirements. To qualify as a REIT, the Company generally
must distribute to its shareholders at least 95% of its income each year. In
addition, the Company will be subject to tax on the undistributed amount at
regular capital gains and ordinary corporate tax rates and also may be subject
to a 4% excise tax on undistributed income in certain events.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT in
any taxable year, the Company will be subject to tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
TAXATION OF HOLDERS OF COMMON STOCK
Taxation of Taxable Domestic Shareholders. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic shareholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income, and
corporate shareholders will not be eligible for the dividends received deduction
as to such amounts. For purposes of determining whether distributions on the
shares of Common Stock are out of current or accumulated earnings and profits,
the earnings and profits of the Company will be allocated first to shares of
Preferred Stock, if any, and second to the shares of Common Stock. There can be
no assurance that the Company will have sufficient earnings and profits to cover
distributions on any shares of Preferred Stock. Distributions that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
its stock. However, corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. Distributions in excess of
current or accumulated earnings and profits will not be taxable to a shareholder
to the extent that they do not exceed the adjusted basis of the shareholder's
shares of Common Stock, but rather will reduce the adjusted basis of such shares
of Common Stock. To the extent that such distributions exceed the adjusted basis
of a shareholder's shares of Common Stock, they will be included in income as
long-term capital gain (or short-term capital gain if the shares of Common Stock
have been held for one year or less), assuming the shares of Common Stock are a
capital asset in the hands of the shareholder. In addition, any dividend
declared by the Company in October, November or December of any year payable to
a stockholder of record on a specific date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company during January
of the following calendar year. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of the Company.
In addition, distributions from the Company and gain from the disposition of
shares of Common Stock will not be treated as "passive activity" income and
therefore stockholders will not be able to apply losses from "passive
activities" to offset such income.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of shares of Common Stock equal to the difference between (i) the
amount of cash and the fair market value of any property received on such
disposition and (ii) the shareholder's adjusted basis of such shares of Common
Stock. Such gain or loss generally will constitute long-term capital gain or
loss if the shareholder has held such shares for more than one year. Loss upon a
sale or exchange of shares of Common Stock by a shareholder who has held such
shares of Common Stock for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.
Backup Withholding. The Company will report to its domestic shareholders and
the IRS the amount of dividends paid during each calendar year, and the amount
of tax withheld, if any, with respect thereto. Under the backup withholding
rules, a shareholder may be subject to backup withholding at the rate of 31%
with respect to dividends paid unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification
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number and certifies as to no loss of exemption from backup withholding. Amounts
withheld as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any shareholders who fail to
certify their non-foreign status to the Company. See "--Taxation of Non-U.S.
Shareholders" below. Additional issues may arise pertaining to information
reporting and backup withholding with respect to Non-U.S. Shareholders (persons
other than (i) citizens or residents of the United States, (ii) corporations,
partnerships or other entities created or organized under the laws of the United
States or any political subdivision thereof, and (iii) estates or trusts the
income of which is subject to United States Federal income taxation regardless
of its source) and Non-U.S. Shareholders should consult their tax advisors with
respect to any such information reporting and backup withholding requirements.
The Treasury Department has recently issued proposed regulations regarding
the withholding and information reporting rules discussed above. In general, the
proposed regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. If finalized in their current form, the
proposed regulations would generally be effective for payments made after
December 31, 1997, subject to certain transition rules.
Taxation of Tax-Exempt Shareholders. As a general rule, amounts distributed
to a tax-exempt entity do not constitute "unrelated business taxable income"
("UBTI"), and thus distributions by the Company to a stockholder that is a
tax-exempt entity should also not constitute UBTI, provided that the tax-exempt
entity has not financed the acquisition of its shares of Common Stock with
"acquisition indebtedness" within the meaning of the Code and the shares of
Common Stock is not otherwise used in an unrelated trade or business of the
tax-exempt entity. However, under the Revenue Reconciliation Act of 1993,
distributions by a REIT to a tax-exempt employee's pension trust that owns more
than 10 percent of the REIT will be treated as UBTI in an amount equal to the
percentage of gross income of the REIT that is derived from an "unrelated trade
or business" (determined as if the REIT were a pension trust) divided by the
gross income of the REIT for the year in which the dividends are paid. This rule
only applies, however, if (i) the percentage of gross income of the REIT that is
derived from an unrelated trade or business for the year in which the dividends
are paid is at least five percent, (ii) the REIT qualifies as a REIT only
because the pension trust is not treated as a single individual for purposes of
the "five-or-fewer rule" (see "--Taxation of the Company (Requirements for
Qualification)" above), and (iii) (A) one pension trust owns more than 25
percent of the value of the REIT or, (B) a group of pension trusts individually
holding more than 10 percent of the value of the REIT collectively own more than
50 percent of the value of the REIT. The Company currently does not expect that
this rule will apply.
Taxation of Non-U.S. Shareholders. The rules governing U.S. Federal income
taxation of Non-U.S. Shareholders are complex, and no attempt will be made
herein to provide more than a limited summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of U.S. Federal, state and local income tax laws with regard to an
investment in Common Stock, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a Non-U.S.
Shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis of
a Non-U.S. Shareholder's Common Stock, they will give rise to tax liability if
the Non-U.S. Shareholder would otherwise be subject to tax on any gain from the
sale or disposition of his Common Stock as described below (in which case they
also may be subject to a 30% branch profits tax if the shareholder is a foreign
corporation). If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current or accumulated
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earnings and profits, the entire distribution will be subject to withholding at
the rate applicable to dividends. However, the Non-U.S. Shareholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") at the
normal capital gain rates applicable to domestic shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Also, distributions subject to FIRPTA
may be subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Shareholder not entitled to treaty relief or exemption. The Company is required
by applicable Treasury Regulations to withhold 35% of any distribution that is
or could be designated by the Company as a capital gain dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. Following the USRealty Transaction, USRealty,
a Luxembourg corporation, holds approximately 46.5% in value of the securities
of the Company. In the event that USRealty and other stockholders of the Company
who are Non-U.S. Shareholders own collectively 50% or more, in value, of the
outstanding stock of the Company, the Company would cease to be a "domestically
controlled REIT."
If the Company does not qualify as a "domestically controlled REIT," a
Non-U.S. Shareholder's sale of securities of the Company generally still will
not be subject to U.S. tax under FIRPTA as a sale of a U.S. real property
interest, provided that (i) the securities are "regularly traded" (as defined by
the applicable Treasury regulations) on an established securities market, and
(ii) the selling Non-U.S. Shareholder held 5% or less of the Company's
outstanding securities at all times during a specified testing period. The
Company believes the Common Stock would be considered to be "regularly traded"
for this purpose, and the Company has no actual knowledge of any Non-U.S.
Shareholder (other than USRealty) that holds in excess of 5% of the Company's
stock. In order to assist the Company in qualifying as a "domestically
controlled REIT," the Articles of Incorporation contain certain provisions
preventing any Non-U.S. Shareholder (other than USRealty and its affiliates)
from acquiring additional shares of the Company's capital stock if, as a result
of such acquisition, the Company would fail to qualify as a "domestically
controlled REIT" (computed assuming that USRealty owns the maximum percentage of
the Company's capital stock that it is permitted to own under the Special
Shareholder Limit). The Company is unlikely to be able to advise a prospective
Non-U.S. Shareholder that its purchase of any shares of the Company's capital
stock would not violate this prohibition, thereby subjecting such prospective
Non-U.S. Shareholder to the adverse consequences described under "Description of
Common Stock--Restrictions on Transfer--Violation of Ownership Limitations."
Accordingly, an acquisition of the Company's capital stock would not likely be a
suitable investment for Non-U.S. Shareholders other than USRealty.
If the gain on the sale of Common Stock were to be subject to tax under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as
domestic shareholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals), and the purchaser of the Common Stock would be
required to withhold and remit to the IRS 10% of the purchase price.
Finally, Congress is considering legislation that could require the Company,
if it were not to qualify as a "domestically controlled REIT," to withhold and
remit to the IRS 10% of all distributions that are not treated either as
ordinary dividends or "capital gain dividends" and that are made to Non-U.S.
Shareholders who hold more than 5% of the Company's stock. The applicable
Non-U.S. Shareholder could seek a refund of such withheld amounts to the extent
the Non-U.S. Shareholder did not recognize taxable gain as a result of such
distribution.
34
<PAGE>
TAXATION OF HOLDERS OF PREFERRED STOCK OR COMMON STOCK WARRANTS
Additional Tax Consequences for Holders of Preferred Stock or Common Stock
Warrants. If the Company offers one or more series of Preferred Stock or Common
Stock Warrants, then there may be tax consequences for the holders of such
Securities not discussed herein. For a discussion of any such additional
consequences, see the applicable Prospectus Supplement.
OTHER TAX CONSIDERATIONS
Effect of Tax Status of Carr Realty, L.P. and Other Partnerships on REIT
Qualification. The Company believes that Carr Realty, L.P., CarrAmerica Realty,
L.P., and each other partnership and limited liability company in which it holds
an interest are properly treated as partnerships for tax purposes (and not as
associations taxable as corporations). If, however, either Carr Realty, L.P. or
CarrAmerica Realty, L.P. were treated as an association taxable as a
corporation, the Company would cease to qualify as a REIT. If any of the other
partnerships were treated as an association taxable as a corporation and the
Company's interest in such partnership exceeded 10% of the partnership's voting
interests or the value of such interest exceeded 5% of the value of the
Company's assets, the Company would cease to qualify as a REIT. Furthermore, in
such a situation, any partnership treated as a corporation would be subject to
corporate income taxes, and distributions from any such partnership to the
Company would be treated as dividends, which are not taken into account in
satisfying the 75% gross income test described above and which therefore could
make it more difficult for the Company to meet the 75% asset test described
above. Finally, in such a situation, the Company would not be able to deduct its
shares of any losses generated by any such partnership in computing its taxable
income.
Tax Allocations with Respect to the Properties. Carr Realty, L.P. was formed
by way of contributions of appreciated property. When property is contributed to
a partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes equal to the
adjusted basis of the contributing partner in the property, rather than a basis
equal to the fair market value of the property at the time of contribution (this
difference is referred to as "Book-Tax Difference"). The Carr Realty, L.P.
partnership agreement requires allocations of income, gain, loss and deduction
with respect to the contributed Property be made in a manner consistent with the
special rules in 704(c) of the Code and the regulations thereunder, which will
tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the life of Carr Realty, L.P. However, because of certain
technical limitations, the special allocation rules of Section 704(c) may not
always entirely eliminate the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed Properties in the hands of Carr Realty, L.P. could
cause the Company (i) to be allocated lower amounts of depreciation and other
deductions for tax purposes than would be allocated to the Company if all
Properties were to have a tax basis equal to their fair market value at the time
the Properties were contributed to Carr Realty, L.P., and (ii) possibly to be
allocated taxable gain in the event of a sale of such contributed Properties in
excess of the economic or book income allocated to the Company as a result of
such sale.
Non-Qualified REIT Subsidiaries. The Non-qualified REIT Subsidiaries do not
qualify as REITs and thus pay Federal, state and local income taxes (including
District of Columbia franchise tax) on their net income at normal corporate
rates. To the extent the Non-qualified REIT Subsidiaries are required to pay
Federal, state and local income taxes, the cash available for distribution to
stockholders will be reduced accordingly.
State and Local Taxes; District of Columbia Unincorporated Business Tax. The
Company and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the Federal income tax consequences
discussed above. In this regard, the District of Columbia imposes an
unincorporated business income tax, at the rate of 9.975%, on the "District of
Columbia taxable income" of partnerships doing business in the District of
Columbia. Because many of the Properties owned by Carr Realty, L.P. are located
in the District of Columbia, the Company's share of the "District of Columbia
taxable income" of Carr Realty, L.P. will be subject to this tax. Carr Realty,
L.P. has taken steps to attempt to reduce the amount of income that is
considered
35
<PAGE>
"District of Columbia taxable income," but it is likely that at least some
portion of the income attributable to the Properties located in the District of
Columbia will be subject to the District of Columbia tax. To the extent Carr
Realty, L.P. is required to pay the District of Columbia unincorporated business
income tax, the cash available for distribution to the Company and, therefore,
to its stockholders as dividends will be reduced accordingly. This tax would not
apply if the Company were to own and operate its assets directly, rather than
through Carr Realty, L.P.; however, the Company's ability to eliminate Carr
Realty, L.P. and thus own directly the assets currently owned by Carr Realty,
L.P. is severely limited.
PLAN OF DISTRIBUTION
GENERAL
The Company may sell Securities in or through underwriters for public offer
and sale by them, and also may sell Securities offered hereby to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell
Securities upon terms and conditions set forth in the applicable Prospectus
Supplement. In connection with the sale of the Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements to be entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its Subsidiaries
in the ordinary course of business.
36
<PAGE>
PARTICIPATION RIGHTS
In conjunction with the USRealty Transaction, so long as USRealty owns at
least 25% of the outstanding Common Stock of the Company on a fully diluted
basis, USRealty will be entitled (except in certain limited circumstances), upon
compliance with certain specified conditions, to a participation right to
purchase or subscribe for, either as part of such issuance or in a concurrent
issuance, a total number of shares of Common Stock or Preferred Stock, as the
case may be, equal to up to 30% (or 35% in certain circumstances) of the total
number of shares or of Common Stock or Preferred Stock, as applicable, proposed
to be issued by the Company. All purchases pursuant to such participation rights
will be at the same price and on the same terms and conditions as are applicable
to other purchasers hereunder.
LEGAL MATTERS
The legality of the Debt Securities, the Preferred Stock, the Common Stock
and the Common Stock Warrants offered hereby will be passed upon for the Company
by Hogan & Hartson L.L.P., Washington, D.C. Certain federal tax matters will be
passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements and financial statement schedule of the
Company and the combined financial statements of the Carr Group, each
incorporated herein by reference, have been incorporated in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected at the Public Reference Section maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
following regional offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Company's Common Stock are listed
on the New York Stock Exchange and such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005. The Commission
maintains a "web site" that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The address of such site is "http://www.sec.gov".
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance, reference is
made to the copy of such contract or documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
37
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1995;
2. The Company's Current Report on Form 8-K dated March 29, 1996 and
filed with the Commission on April 10, 1996 pursuant to the Exchange Act,
and a Form 8-K/A related thereto and filed with the Commission on May 14,
1996, relating to the purchase of AT&T Center located in Alameda County,
California;
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996;
4. The Company's Current Report on Form 8-K dated April 30, 1996 and
filed with the Commission on May 16, 1996 pursuant to the Exchange Act,
relating to the closing of the USRealty Transaction;
5. The Company's Current Report on Form 8-K dated May 24, 1996 and
filed with the Commission on May 24, 1996 pursuant to the Exchange Act,
relating to certain pro forma financial information;
6. The Company's Current Report on Form 8-K dated June 27, 1996 and
filed with the Commission on June 27, 1996 pursuant to the Exchange Act,
relating to the purchase of certain properties and the presentation of
certain historical financial information;
7. The Company's Current Report on Form 8-K dated July 10, 1996 and
filed with the Commission on July 10, 1996 pursuant to the Exchange Act,
relating to the proposed acquisition of certain properties; and
8. The Company's Current Report on Form 8-K dated July 11, 1996 and
filed with the Commission on July 11, 1996 pursuant to the Exchange Act,
relating to the presentation of certain historical financial information.
All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Written requests
for such copies should be addressed to Secretary, CarrAmerica Realty
Corporation, 1700 Pennsylvania Ave., N.W., Washington, D.C. 20006, telephone
number (202) 624-7500.
38
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement or the Prospectus in
connection with the offer made by this Prospectus Supplement and the Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Underwriters. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder and thereunder shall under any circumstance create an implication that
there has been no change in the affairs of the Company since the date hereof.
This Prospectus Supplement and the Prospectus do not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
-----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Prospectus Supplement Summary........... S-3
The Company............................. S-7
Recent Developments..................... S-10
Use of Proceeds......................... S-17
Price Range of Common Stock and
Dividend History........................ S-18
Capitalization.......................... S-19
Pro Forma Financial Information......... S-20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. S-25
Properties.............................. S-30
Management.............................. S-38
Underwriting............................ S-39
Legal Matters........................... S-40
Prospectus
The Company ............................ 2
Risk Factors ........................... 3
Use of Proceeds ........................ 8
Ratios of Earnings to Fixed Charges ... 9
Description of Debt Securities ......... 10
Description of Preferred Stock ......... 21
Description of Common Stock ............ 26
Description of Common Stock Warrants .. 29
Federal Income Tax Considerations ...... 29
Plan of Distribution ................... 36
Legal Matters .......................... 37
Experts ................................ 37
Available Information .................. 37
Incorporation of Certain Documents by
Reference............................... 38
</TABLE>
================================================================================
<PAGE>
================================================================================
8,400,000 SHARES
[LOGO]
CARRAMERICA REALTY CORPORATION
COMMON STOCK
------------
PROSPECTUS SUPPLEMENT
------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
J.P. MORGAN & CO.
PRUDENTIAL SECURITIES INCORPORATED
LEGG MASON WOOD WALKER
INCORPORATED
WHEAT FIRST BUTCHER SINGER
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses payable by the
Company in connection with the issuance and distribution of the securities being
registered:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee.............. $ 206,897
NASD filing fee .................. 30,500
Printing and Duplicating Expenses 600,000
Legal Fees and Expenses .......... 300,000
Accounting Fees and Expenses .... 250,000
Blue Sky Fees and Expenses ...... 10,000
Miscellaneous .................... 102,603
------------
Total........................... $1,500,000
============
</TABLE>
- --------
*To be supplied by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified under
Maryland and Delaware law, the charter and by-laws of the Company, the
partnership agreement of Carr Realty, L.P. and the partnership agreement of
CarrAmerica Realty, L.P.
The charter and by-laws of the Company require that the Company shall, to the
fullest extent permitted by Section 2-418 of the Maryland General Corporation
Law (the "MGCL") as in effect from time to time, indemnify any person who is or
was, or is the personal representative of a deceased person who was, a director
or officer of the Company against any judgments, penalties, fines, settlements
and reasonable expenses and any other liabilities; provided, that, unless
applicable law otherwise requires, indemnification shall be contingent upon a
determination, by the Board by a majority vote of a quorum consisting of
directors not, at the time, parties to the proceeding, or, if such a quorum
cannot be obtained, then by a majority vote of a committee of the Board
consisting solely of two or more directors not, at the time, parties to such
proceeding and who were duly designated to act in the matter by a majority vote
of the full Board in which the designated directors who are parties may
participate or by special legal counsel selected by and if directed by the Board
as set forth above, that indemnification is proper in the circumstances because
such director, officer, employee, or agent has met the applicable standard of
conduct prescribed by Section 2-418(b) of the MGCL.
Under Maryland law, a corporation formed in Maryland is permitted to limit,
by provision in its charter, the liability of directors and officers so that no
director or officer of the Company shall be liable to the Company or to any
shareholder for money damages except to the extent that (i) the director or
officer actually received an improper benefit in money, property or services,
for the amount of the benefit or profit in money, property or services actually
received, or (ii) a judgment or other final adjudication adverse to the director
or officer is entered in a proceeding based on a finding in a proceeding that
the director's or officer's action was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
The partnership agreements of Carr Realty, L.P. and CarrAmerica Realty, L.P.
also provide for indemnification of the Company and their officers and directors
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the partnership as set forth in the partnership agreements in
which any indemnitee may be involved, or is threatened to be involved, unless it
is established that (i) the act or mission of the indemnitee was material to the
matter giving rise
II-1
<PAGE>
to the proceeding and either was committed in bad faith or was the result of
active and deliberate dishonesty, (ii) the indemnitee actually received an
improper personal benefit in money, property or services, or (iii) in the case
of a criminal proceeding, the indemnitee had cause to believe that the act or
omission was unlawful. The termination of any proceeding by judgment, order or
settlement does not create a presumption that the indemnitee did not meet the
requisite standard of conduct set forth in the respective partnership agreement
section on indemnification. The termination of any proceeding by conviction or
upon a plea of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment creates a rebuttable presumption that the indemnitee
acted in a manner contrary to that specified in the indemnification section of
the partnership agreements. Any indemnification pursuant to one of the
partnership agreements may only be made out of the assets of that respective
partnership.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1+ -- Form of Purchase Agreement by and among CarrAmerica Realty
Corporation, CarrAmerica Realty L.P., Carr Realty L.P. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
3.1* -- Articles of Amendment and Restatement of Incorporation of the
Company, as amended
3.2* -- Amendment and Restatement of By-laws of the Company, as amended
4.1+. -- Form of Senior Indenture between the Company and Trustee
4.2+ -- Form of Subordinate Indenture between the Company and Trustee
5.1** -- Opinion of Hogan & Hartson L.L.P.
8.1** -- Opinion of Hogan & Hartson L.L.P. regarding certain tax matters
10.1+ -- Credit Agreement between the Company and Morgan Guaranty Trust
Company of New York
12.1** -- Computation of Ratio of Earnings to Fixed Charges
23.1. -- Consent of KMPG Peat Marwick, LLP
23.2** -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)
23.3** -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)
24.1+ -- Powers of Attorney
25.1** -- Statement of Eligibility of Trustee on Form T-1
</TABLE>
- ------------
* Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
** To be filed by amendment.
+ Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered
II-2
<PAGE>
would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in this registration
statement;
provided, however, that subparagraphs (i) and (ii) above do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the Offered Securities
offered herein, and the offering of such Offered Securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the Offered Securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the Offered Securities offered therein, and the offering of such
Offered Securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to existing provisions or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Washington, D.C., on July 11, 1996.
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By: /s/ Oliver T. Carr, Jr.
---------------------------
Oliver T. Carr, Jr.
Chairman of the Board of
Directors, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
below on July 11, 1996:
NAME TITLE
---- ------
/s/ Oliver T. Carr, Jr.
- ------------------------- Chairman of the Board, Chief Executive Officer and
Oliver T. Carr, Jr Director (principal executive officer)
/s/ Thomas A. Carr
- ------------------------- President, Chief Operating Officer and
Thomas A. Carr Director
/s/ Brian K. Fields
- ------------------------- Chief Financial Officer (principal financial officer
Brian K. Fields and principal accounting officer)
- -------------------------
David Bonderman Director
*
- -------------------------
Andrew F. Brimmer Director
*
- -------------------------
Robert O. Carr Director
*
- --------------------------
A. James Clark Director
*
- --------------------------
Douglas T. Healy Director
II-4
<PAGE>
NAME TITLE
---- -----
*
- --------------------------
Anthony R. Manno, Jr Director
- -------------------------
J. Marshall Peck Director
*
- -------------------------
George R. Puskar Director
*
- -------------------------
William D. Sanders Director
*
- -------------------------
Wesley S. Williams Director
*By /s/ Andrea F. Bradley
----------------------
Andrea F. Bradley
As Attorney-in-Fact
(See Exhibit 24.1)
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBIT NUMBERED PAGE
------- ---------------------- --------------
<S> <C> <C>
1.1+ -- Form of Purchase Agreement by and among CarrAmerica Realty
Corporation, CarrAmerica Realty L.P., Carr Realty L.P. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
3.1* -- Articles of Amendment and Restatement of Incorporation of the
Company, as amended
3.2* -- Amendment and Restatement of By-laws of the Company, as amended
4.1+. -- Form of Senior Indenture between the Company and Trustee
4.2+ -- Form of Subordinate Indenture between the Company and Trustee
5.1** -- Opinion of Hogan & Hartson L.L.P.
8.1** -- Opinion of Hogan & Hartson L.L.P. regarding certain tax matters
10.1+ -- Credit Agreement between the Company and Morgan Guaranty Trust
Company of New York
12.1** -- Computation of Ratio of Earnings to Fixed Charges
23.1. -- Consent of KMPG Peat Marwick, LLP
23.2** -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)
23.3** -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)
24.1+ -- Powers of Attorney
25.1** -- Statement of Eligibility of Trustee on Form T-1
</TABLE>
- ------------
* Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
** To be filed by amendment.
+ Previously filed.
Accountants' Consent
The Board of Directors
CarrAmerica Realty Corporation:
We consent to the use of our reports incorporated by reference in the
registration statement on Form S-3 of CarrAmerica Realty Corporation and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Washington, DC
July 11, 1996
<PAGE>
