================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20543
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED March 31, 1998
COMMISSION FILE NO. 1-11706
CARRAMERICA REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
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Maryland 52-1796339
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1700 Pennsylvania Avenue, N.W., Washington, D.C. 20006
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(Address or principal executive office) (Zip code)
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(202) 624-7500
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Registrant's telephone number, including area code
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N/A
------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
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Number of shares outstanding of each of the registrant's
classes of common stock, as of May 15, 1998:
Common Stock, par value $.01 per share: 71,620,019
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
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<PAGE>
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I: Financial Information
- ------------------------------
Item 1. Financial Statements
Condensed consolidated balance sheets of CarrAmerica Realty Corporation and
subsidiaries as of March 31, 1998 (unaudited) and December 31, 1997.......................4
Condensed consolidated statements of operations of CarrAmerica Realty Corporation
and subsidiaries for the three
months ended March 31, 1998 and 1997 (unaudited)..........................................5
Condensed consolidated statements of cash flows of CarrAmerica Realty Corporation
and subsidiaries for the three
months ended March 31, 1998 and 1997 (unaudited)..........................................6
Notes to condensed consolidated financial statements......................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................................15
Part II: Other Information
- --------------------------
Item 1. Legal Proceedings........................................................................25
Item 2. Changes in Securities....................................................................25
Item 3. Defaults Upon Senior Securities..........................................................25
Item 4. Submission of Matters to a Vote of Security Holders......................................25
Item 5. Other Information........................................................................25
Item 6. Exhibits and Reports on Form 8-K.........................................................25
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The information furnished in the accompanying condensed consolidated
balance sheets, condensed consolidated statements of operations and condensed
consolidated statements of cash flows of CarrAmerica Realty Corporation and
subsidiaries (the Company) reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the aforementioned financial
statements for the interim periods.
The aforementioned financial statements should be read in conjunction
with the notes to the financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
3
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of March 31,1998 and December 31, 1997
- --------------------------------------------------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Assets
Rental property (note 2):
Land $ 599,276 $ 557,536
Buildings 1,793,123 1,692,389
Tenant improvements 138,936 131,527
Furniture, fixtures and equipment 22,810 15,571
---------- ----------
2,554,145 2,397,023
Less - accumulated depreciation (194,424) (184,266)
---------- ----------
Total rental property 2,359,721 2,212,757
Land held for development 98,678 81,647
Construction in progress 254,865 210,829
Cash and cash equivalents 24,871 23,845
Restricted cash and cash equivalents (note 2) 31,355 18,049
Accounts and notes receivable 43,396 38,321
Investments 70,330 20,128
Accrued straight-line rents 29,544 33,212
Tenant leasing costs, net 24,502 19,473
Deferred financing costs, net 15,235 6,899
Prepaid expenses and other assets, net 92,130 78,900
---------- ----------
$3,044,627 $2,744,060
========== ==========
Liabilities, Minority Interest, and Stockholders' Equity
Liabilities:
Mortgages and notes payable (note 2) 1,309,878 1,028,946
Accounts payable and accrued expenses 57,023 67,311
Rent received in advance and security deposits 26,025 20,151
---------- ----------
Total liabilities 1,392,926 1,116,408
Minority interest (note 3) 91,076 74,955
Stockholders' equity (note 4):
Preferred Stock, $.01 par value, authorized 15,000,000 shares:
Series A Cumulative Convertible Redeemable Preferred Stock, $.01 par value,
780,000 shares issued and outstanding at March 31, 1998, and December
31, 1997 with an aggregate liquidation preference of $19.5 million. 8 8
Series B, C and D Cumulative Redeemable Preferred Stock, outstanding
8,800,000 shares at March 31, 1998 and December 31, 1997, with an aggregate
liquidation preference of $400.0 million. 88 88
Common Stock, $.01 par value, authorized 90,000,000 shares, issued and
outstanding 60,005,986 shares at March 31, 1998 and 59,993,778 shares at
December 31, 1997. 600 600
Additional paid in capital 1,628,977 1,629,214
Cumulative dividends in excess of net income (69,048) (77,213)
---------- ----------
Total stockholders' equity 1,560,625 1,552,697
---------- ----------
Commitments and Contingencies (Note 6) $3,044,627 $2,744,060
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended March 31, 1998
- --------------------------------------------------------------------------------
(Unaudited and in thousands, except per common share amounts)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Real estate operating revenue:
Rental revenue:
Minimum base rent $ 85,383 56,525
Recoveries from tenants 11,576 6,949
Parking and other tenant charges 3,370 2,815
-------- ------
Total rental revenue 100,329 66,289
Executive suites revenue 15,648 --
Real estate service income 2,990 4,178
-------- ------
Total revenue 118,967 70,467
-------- ------
Real estate operating expenses:
Property operating expenses:
Operating expenses 23,214 17,266
Real estate taxes 9,302 6,377
Interest expense 17,161 11,257
Executive suites operating expenses 13,854 --
General and administrative 6,439 5,156
Depreciation and amortization 23,643 15,916
-------- ------
Total operating expenses 93,613 55,972
-------- ------
Real estate operating income 25,354 14,495
-------- ------
Other operating income (expense):
Interest Income 1,017 542
Equity in earnings (losses) of unconsolidated partnerships 754 (61)
Gain on sale of assets (note 5) 25,931 --
-------- ------
Total other operating income 27,702 481
-------- ------
Net operating income before minority interest 53,056 14,976
Minority interest (note 3) (8,547) (1,717)
-------- ------
Net income $ 44,509 13,259
======== ======
Basic net income per common share $ 0.60 $ 0.26
======== =======
Diluted net income per share $ 0.59 $ 0.26
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 44,509 13,259
--------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciaton and amortization 23,643 15,916
Minority interest in income 8,547 1,717
Equity in (earnings) losses of unconsolidated partnerships (754) 61
Loss on write-off of assets -- 211
Increase in accounts and notes receivable (5,075) (2,425)
Decrease (increase) in accrued straight-line rents 3,668 (1,521)
Additions to tenant leasing costs (2,556) (4,069)
Decrease (Increase) in prepaid expenses and other assets 15,551 (3,889)
Increase (decrease) in accounts payable and accrued expenses (10,288) 4,435
Increase in rent received in advance and security deposits 5,874 3,972
--------- ---------
Total adjustments 38,610 14,408
--------- ---------
Net cash provided by operating activities 83,119 27,667
--------- ---------
Cash flows from investing activities:
Acquisition of executive suites assets (28,397) --
Additions to rental property (8,242) (7,232)
Acquisitions of rental property (107,299) (135,379)
Additions to land held for development (71,918) (6,340)
Additions to construction in progress (71,506) (31,128)
Distributions from unconsolidated partnerships 777 54
Investments in unconsolidated partnerships (50,224) (608)
Decrease (increase) in restricted cash and cash equivalents (13,306) 480
Proceeds from disposition of rental property 31,287 --
--------- ---------
Net cash used by investing activities $(318,828) $(180,153)
--------- ---------
Cash flows from financing activities:
Net proceeds from sales of common and preferred stock (256) 136,111
Net borrowings on unsecured credit facility 90,000 55,000
Proceeds from issuance of unsecured notes 200,000 --
Net proceeds from exercise of options 23 1,219
Repayment of mortgages payable (15,068) (14,589)
Loan to investment venture -- (125)
Contributions from minority interests 10,227 --
Dividends paid (36,344) (22,081)
Additions to deferred financing costs (9,194) (1,007)
Distributions to minority interests (2,653) (2,231)
--------- ---------
Net cash provided by financing activities 236,735 152,297
--------- ---------
Increase (decrease) in unrestricted cash and cash equivalents 1,026 (189)
Unrestricted cash and cash equivalents, beginning of the period 23,845 27,637
--------- ---------
Unrestricted cash and cash equivalents, end of the period $ 24,871 27,448
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $5,377 and
$1,670 for the three months ended March 31, 1998 and 1997, respectively) $ 21,839 11,181
========= =========
Supplemental disclosure of noncash investing and financing activities:
During the three month periods ended March 31, 1998 and 1997, the Company
funded a portion of the aggregate purchase price of its property
acquisitions by assuming $6.0 million and $39.2 million of debt and
liabilities, respectively, and by issuing $9.8 million and $4.7 million,
respectively, of Units.
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(1) Description of Business and Summary of Significant Accounting Policies
(a) Business
CarrAmerica Realty Corporation (the "Company") is a
self-administered and self-managed equity real estate
investment trust ("REIT"), organized under the laws of
Maryland, which owns, develops, acquires and operates office
properties. The Company's office properties are located
primarily in 16 suburban markets across the United States.
(b) Basis of Presentation
The accounts of the Company and its majority-owned
subsidiaries are consolidated in the accompanying financial
statements. The Company uses the equity method of accounting
for its investments in and earnings and losses of
unconsolidated partnerships not controlled by the Company.
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities, revenues and expenses, and the disclosure of
contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(c) Interim Financial Statements
The information furnished reflects all adjustments which are,
in the opinion of management, necessary to reflect a fair
presentation of the results for the interim periods, and all
such adjustments are of a normal, recurring nature.
(d) Rental Property
Rental property is recorded at cost less accumulated
depreciation (which is less than the net realizable value of
the rental property). Depreciation is computed on the
straight-line basis over the estimated useful lives of the
assets, as follows:
Base Building.............................30 to 50 years
Building components.......................7 to 20 years
Tenant improvements.......................Terms of the leases
or useful lives,
whichever is shorter
Furniture, fixtures and equipment.........5 to 15 years
Expenditures for maintenance and repairs are charged to
operations as incurred. Significant renovations are
capitalized.
The Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets.
(e) Development Property
Land held for development and construction in progress is
carried at cost. Specifically identifiable direct and indirect
acquisition, development and construction costs are
capitalized including, where applicable, salaries and related
costs, real estate taxes, interest and certain
pre-construction costs essential to the development of a
property.
(f) Tenant Leasing Costs
Fees and costs incurred in the successful negotiation of
leases have been deferred and are being amortized on a
straight-line basis over the terms of the respective leases.
7
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(g) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to
obtain financing and are being amortized over the terms of the
respective loans on a basis which approximates the interest
method.
(h) Goodwill, Real Estate Service Contracts and Other Intangibles
Real estate service contracts and other intangible assets
represent the purchase price of net assets of real estate
service operations acquired and are amortized on the
straight-line basis over the expected lives of the respective
real estate service contracts. Goodwill which represents the
excess of purchase price over the fair value of net assets
acquired in the acquisition of OmniOffices, is amortized on
the straight-line basis over 30 years. The Company assesses
the recoverability of these intangible assets by determining
whether the balance can be recovered over its remaining life
through undiscounted future operating cash flows of the
related assets or operations acquired. The amount of
impairment loss, if any, is measured as the amount by which
the carrying amount of the assets exceeds the fair value of
the assets. The assessment of the recoverability of these
intangible assets will be impacted if estimated future
operating cash flows are not achieved.
(i) Fair Value of Financial Instruments
The carrying amount of the following financial instruments
approximates fair value because of their short-term maturity:
cash and cash equivalents; accounts and notes receivable;
accounts payable and accrued expenses.
(j) Revenue Recognition
The Company reports base rental revenue for financial
statement purposes straight-line over the terms of the
respective leases. Accrued straight-line rents represent the
amount that straight-line rental revenue exceeds rents
collected in accordance with the lease agreements. Management,
considering current information and events regarding the
tenants' ability to fulfill their lease obligations, considers
accrued straight-line rents to be impaired if it is probable
that the Company will be unable to collect all rents due
according to the contractual lease terms. If accrued
straight-line rents associated with a tenant are considered to
be impaired, the amount of the impairment is measured based on
the present value of expected future cash flows. Impairment
losses, if any, are recorded through a loss on the write-off
of assets. Cash receipts on impaired accrued straight-line
rents are applied to reduce the remaining outstanding balance
and as rental revenue, thereafter.
The Company earns real estate service revenue for certain
properties it manages, leases and develops for third parties
and revenue from its executive suites business. Such revenue
is recognized as earned.
(k) New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 130, "Reporting Comprehensive Income," which
requires an enterprise to display comprehensive income and its
components in a financial statement to be included in an
enterprise's full set of financial statements. Comprehensive
income represents a measure of all changes in equity of an
enterprise that result from recognized transactions and other
economic events for the period other than transactions with
owners in their capacity as owners. Comprehensive income
includes net income and such items as foreign currency items
and certain unrealized gains and losses. This standard is
effective for the Company's fiscal year 1998 and requires
prior years' comparative financial statements to be
reclassified to reflect the provisions of this standard. The
Company currently has no components of other comprehensive
income.
8
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(l) Income and Other Taxes
The Company qualifies as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended. A REIT will
generally not be subject to federal income taxation on that
portion of its income that qualifies as REIT taxable income to
the extent that it distributes at least 95 percent of its
taxable income to its shareholders and complies with certain
other requirements. Accordingly, no provision has been made
for federal income taxes for the Company and certain of its
subsidiaries in the accompanying consolidated financial
statements.
Certain subsidiaries, organized as partnerships, of the
Company are subject to District of Columbia franchise taxes.
Franchise taxes are recorded as general and administrative
expenses in the accompanying consolidated financial
statements.
CarrAmerica Development, Inc. ("CarrAmerica Development"), the
Company's development subsidiary, Carr Real Estate Services,
Inc. ("Carr Services, Inc."), the Company's real estate
service subsidiary, and OmniOffices, Inc. ("OmniOffices"), the
Company's executive suites subsidiary, file separate tax
returns and are subject to federal, state and local income
taxes. The Company has adopted the asset and liability method
of accounting for income taxes for these subsidiaries. Under
the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases and to operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized in income in the period of the enactment date. The
income taxes and the effect of the asset and liability method
of the accounting for income taxes for these subsidiaries, are
insignificant to the financial statements of the Company.
(m) Hedging Transactions
From time to time, the Company enters into interest rate lock
and collar agreements that are designed to hedge against the
impact of interest rate fluctuations on certain of the
Company's existing and probable future long-term debt
instruments. Because these agreements qualify for hedge
accounting treatment, any gains or losses are recognized as
adjustments to interest expense over the lives of the
underlying debt instruments. For hedge agreements that are
terminated early or that are associated with anticipated
future debt instruments, gains or losses are deferred until
those debt instruments are entered into. If the Company
determines it is no longer probable that the Company will
enter into an anticipated debt instrument, any related
deferred gains or losses are recognized in the current period.
9
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(n) Per Share Data and Dividends
Effective December 31, 1997, the Company adopted the
provisions of SFAS No. 128 "Earnings Per Share." SFAS No. 128
supersedes APB No. 15 and specifies computation, presentation
and disclosure requirements for EPS and requires restatement
of prior years' comparative EPS amounts. The following is a
reconciliation of the numerators and denominators of the basic
and diluted EPS computations for income before extraordinary
item:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
-------------------- --------------------
Income Per Income Per
(000's) Shares Share (000's) Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 35,718 59,997 $0.60 $ 12,498 47,254 $ 0.26
Effect of Dilutive
Securities
Stock Options -- 233 -- -- 222 --
Series A Preferred
Stock 361 780 -- -- -- --
Units in
CarrAmerica
Realty, LP 896 1,778 -- -- -- --
-------- ------ ----- -------- ------ -------
Diluted EPS $ 36,975 62,788 $0.59 $ 12,498 47,476 $ 0.26
======== ====== ======== ======
</TABLE>
Income before extraordinary item has been reduced by preferred
stock dividends of $8,791 and $761 for the three month periods
ending March 31, 1998 and 1997, respectively.
The effects of units and Series A Preferred Stock are not
included in the computation of diluted EPS for a given year if
their effect is antidilutive.
(o) Cash Equivalents
For the purposes of reporting cash flows, the Company
considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash
equivalents.
(2) Mortgages, Unsecured Notes and Credit Facility
The Company's mortgages payable, unsecured notes and credit facilities
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Fixed rate mortgages $ 575,577 $ 590,645
Unsecured credit facility 249,500 159,500
Notes payable 9,801 3,801
Senior unsecured notes 475,000 275,000
----------- -----------
$ 1,309,878 $ 1,028,946
=========== ===========
</TABLE>
Mortgages payable are collateralized by certain rental properties and
generally require monthly principal and/or interest payments. Mortgages
payable mature at various dates from June 1998 through July 2019. The
weighted average interest rate of mortgages payable was 8.2% at March
31, 1998 and 8.1% at December 31, 1997. A mortgage payable of $27.6
million at March 31, 1998 is held by Carr Redmond Corporation, a
wholly-owned subsidiary of the Company, which owns the Redmond East
office campus.
10
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
The Company also has a $450.0 million unsecured credit facility with
Morgan Guaranty Trust Company of New York (Morgan), as agent for a
group of banks. At March 31, 1998, the credit facility bore interest,
as selected by the Company, at either (i) the higher of the prime rate
or the Federal Funds Rate for such day or (ii) an interest rate equal
to 90 basis points above the 30 day London Interbank Offered Rate
(LIBOR). The Company has predominately selected interest rates equal to
.90 percent above the 30 day LIBOR rate. The credit facility matures in
September 2000.
In February 1998, the Company sold senior unsecured notes in the
aggregate principal amount of $200 million of its long-term debt, in
the form of $100 million of 6.625% notes due in 2005 and $100 million
of 6.875% notes due in 2008. The Company's senior unsecured notes
contain various covenants with which the Company must comply, including
but not limited to: limits on the aggregate amount of indebtedness the
Company may have outstanding on a consolidated basis; limits on the
aggregate amount of secured indebtedness the Company may have
outstanding on a consolidated basis; and, limits on the Company's
required debt service payments. The senior unsecured notes are
unconditionally guaranteed by CarrAmerica Realty, L.P.
The annual maturities of debt as of March 31, 1998 are summarized as
follows (in thousands):
1998 $ 28,972
1999 40,467
2000 298,725(1)
2001 101,148
2002 42,288
2003 & thereafter 798,278(2)
----------
$1,309,878
==========
(1) Includes $249.5 million outstanding as of March 31,
1998 under the Company's $450 million unsecured line
of credit.
(2) Includes $475 million of senior unsecured notes, $150
million of which matures in 2004, $100 million of
which matures in 2005, $125 million of which matures
in 2007, and $100 million of which matures in 2008.
(3) Minority Interest
In conjunction with the formation of the Company and its majority-owned
subsidiary, Carr Realty, L.P., persons contributing interests in
properties to Carr Realty, L.P. had the right to elect to receive
either common stock of the Company or Units in Carr Realty, L.P. In
addition, the Company has acquired certain assets since its formation
by issuing distribution paying Units and non-distribution paying Units
of Carr Realty, L.P. and CarrAmerica Realty, L.P. The non-distribution
paying Units are not entitled to any distributions until they
automatically convert into distribution paying Units at various dates
in the future. Each distribution paying Unit, subject to certain
restrictions, may be redeemed for either one share of common stock or,
at the option of the Company, cash equal to the fair market value of a
share of common stock at the time of the redemption. When a Unitholder
redeems a distribution paying Unit for a share of common stock or cash,
minority interest is reduced and the Company's investment in Carr
Realty, L.P. or CarrAmerica Realty, L.P., as the case may be, is
increased. During the three month period ended March 31, 1998, 12,208
dividend paying Units, of Carr Realty, L.P. and CarrAmerica Realty,
L.P., were redeemed for common stock of the Company.
11
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
The following table sets forth the common stock and preferred stock
which is convertible into common stock of the Company and Units of Carr
Realty, L.P. and CarrAmerica Realty, L.P. (in thousands):
<TABLE>
<CAPTION>
Convertible Distribution Non-Distribution
Common Stock Preferred Stock Paying Units Paying Units
Outstanding Outstanding Outstanding Outstanding
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding as of:
March 31, 1998 60,006 780 6,014 540
December 31, 1997 59,994 780 5,699 540
====== === ===== ===
Weighted average for
the three months ended:
March 31, 1998 59,997 780 5,938 540
March 31, 1997 47,254 1,740 4,938 540
====== ===== ===== ===
</TABLE>
Minority interest in the accompanying consolidated financial statements
relates primarily to holders of Units.
(4) Preferred Stock
The Company is authorized to issue 15,000,000 shares of Preferred
Stock. On October 25, 1996, the Company issued 1,740,000 shares of
Series A Cumulative Convertible Redeemable Preferred Stock ("Series A
Preferred Stock") at $25 per share. Dividends for the Series A
Preferred Stock are cumulative from the date of issuance and are
payable quarterly in arrears in an amount per share equal to the
greater of (1) $1.75 per share per annum, or (2) the cash dividend paid
on the number of shares, or portion thereof, of the Company's common
stock into which a share of Series A Preferred Stock is convertible.
The Series A Preferred Stock has a liquidation preference of $25 per
share. After April 25, 1997, each share of Series A Preferred Stock
became convertible, at the option of the holder, into one share of the
Company's common stock, subject to certain conversion adjustments. As
of March 31, 1998, 960,000 shares of Series A Preferred Stock had been
converted into the Company's common stock. After October 25, 1999, each
outstanding share of Series A Preferred Stock is redeemable at the
Company's option, at $25 per share, plus accrued and unpaid dividends.
As of March 31, 1998, the following additional preferred stock issued
by the Company was outstanding:
<TABLE>
<CAPTION>
Liquidation
Shares Issue Date Preference Dividend Rate
---------------------- -------------- -------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Series B 8,000,000 August 1997 $ 25.00 8.57%
Series C 6,000,000 November 1997 $ 25.00 8.55%
Series D 2,000,000 December 1997 $ 25.00 8.45%
</TABLE>
Series C and D shares listed above are Depositary Shares, each
representing a 1/10 fractional interest in a share of preferred stock.
Dividends for the Series B, C and D shares are cumulative from the date
of issuance and are payable quarterly in arrears on the last day of
February, May, August and November of each year. These preferred shares
are redeemable at the option of the Company not prior to the following
dates:
Series B - August 12, 2002
Series C - November 6, 2002
Series D - December 19, 2002
12
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(5) Gain on Sale of Assets
The Company disposed of assets that are inconsistent with its long-term
strategic or return objectives or where market conditions for sale are
favorable. The proceeds were redeployed into other office properties
(utilizing tax-deferred exchanges where possible). During the first
quarter of 1998, the Company disposed of one property. The Company
recognized a gain totaling $25.9 million on this disposition.
(6) Commitments and Contingencies
At March 31, 1998, the Company is contingentally liable on letters of
credit amounting to approximately $1.4 million for various completion
escrows and on performance bonds amounting to approximately $10.1
million to ensure completion of required public improvements on its
construction projects.
On March 16, 1998, the Company entered into a forward treasury
agreement on a notional amount of $25.0 million, based on the 10-year
treasury bill at 5.593% interest rate. The Company entered into this
agreement in order to hedge against the impact that interest rate
fluctuations may have on debt instruments the Company intends to issue
in the future. As of March 31, 1998, the Company's has an insignificant
unrealized gain on this agreement.
On March 9, 1998, the Company entered into a forward treasury agreement
on a notional amount of $25.0 million, based on the 10-year treasury
bill at 5.725% interest rate. The Company entered into this agreement
in order to hedge against the impact that interest rate fluctuations
may have on debt instruments the Company intends to issue in the
future. As of March 31, 1998, the Company's unrealized loss on this
agreement is $.2 million.
On March 4, 1998, the Company entered into a forward treasury agreement
on a notional amount of $75.0 million, based on the 10-year treasury
bill at 5.823% interest rate. The Company entered into this agreement
in order to hedge against the impact that interest rate fluctuations
may have on debt instruments the Company intends to issue in the
future. As of March 31, 1998, the Company's unrealized loss on this
agreement is $1.1 million.
(7) Subsequent Events
From April 1 to May 15, 1998, the Company, through its subsidiary
OmniOffices, Inc., acquired the operations of executive suites
businesses for approximately $94.8 million in cash plus warrants to
purchase stock of OmniOffices, Inc. The businesses include 40 centers
with 2,500 suites located in ten major markets.
From April 1, 1998, to May 15, 1998, the Company acquired ten office
properties. In addition, since April 1, 1998, the Company has acquired
land which is expected to support the future development of 120,000
square feet. The Company paid $83.1 million to purchase the properties
and land. These acquisitions added to the Company's holdings as
follows:
Buildable
Square Feet
of Land Held
# of Square for
Region Buildings Feet Development
------ --------- ---- -----------
Pacific Region 10 623,000 --
Mountain Region -- -- 120,000
-- ------- -------
Total 10 623,000 120,000
== ======= =======
13
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
In April 1998, the Company completed three equity offerings. The
Company completed the offering of 3,450,000 shares of common stock to
the public and a concurrent sale of 1,478,571 shares of common stock to
SC-USREALTY, raising net proceeds of $142 million. In addition, the
Company sold 1,178,947 shares of common stock to Merrill Lynch &
Company ("Merrill Lynch"), for deposit in a unit investment trust which
raised net proceeds of $33 million. Concurrent with the sale to Merrill
Lynch, the Company sold 505,263 shares to SC-USREALTY, raising net
proceeds of $15 million.
The Company also sold 5,000,000 shares of common stock to Merrill Lynch
in a forward equity offering raising net proceeds of $147 million. In
connection with this offering, the Company and Merrill Lynch entered
into an agreement to adjust the total number of shares of common stock
sold by the Company to Merrill Lynch (or adjust the aggregate purchase
price for such shares) in the event of a change in the trading price
above or below $30.00 through April 2, 1999. Pursuant to an interim
settlement mechanism, the Company may periodically deposit shares of
common stock in a Merrill Lynch collateral account if the Company's
stock price falls below $30.00.
In April 1998, OmniOffices entered into an unsecured revolving credit
facility with borrowing capacity of $125.0 million. The facility bears
interest, as selected by OmniOffices, at either (i) the higher of the
prime rate or the Federal Funds Rate for such day or (ii) an interest
rate equal to 105 basis points above LIBOR. The facility has a term of
three years maturing in April 2001. The facility is unconditionally
guaranteed by the Company. As of May 15, 1998, OmniOffices had $69.4
million outstanding on this credit facility and $55.6 million available
for draw.
14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is based primarily on the Consolidated
Financial Statements of CarrAmerica Realty Corporation and its subsidiaries (the
"Company") as of March 31, 1998 and December 31, 1997, and for the three months
ended March 31, 1998 and 1997. The comparability of the periods is significantly
impacted by acquisitions made during 1998 and 1997. As of March 31, 1997, the
Company owned 230 properties. This number grew to 258 as of March 31, 1998.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These consolidated
financial statements include all adjustments which are, in the opinion of
management, necessary to reflect a fair statement of the periods presented, and
all such adjustments are of a normal, recurring nature.
RESULTS OF OPERATIONS - Three Months Ended March 31, 1998 and 1997
Real Estate Operating Revenue. Total real estate operating revenue increased
$48.5 million, or 68.8%, to $119.0 million for the three months ended March 31,
1998 as compared to $70.5 million for the three months ended March 31, 1997. The
increase in revenue was primarily attributable to a $34.0 million and a $14.5
million increase in rental revenue and other real estate operating revenue,
respectively. The Company experienced net growth in its rental revenue as a
result of its acquisitions, and development properties placed in service net of
disposition, which together contributed approximately $33.4 million of
additional rental revenue in the three month period ended March 31, 1998. Rental
revenue from properties that were fully operational throughout both periods
increased by approximately $.7 million primarily due to increased occupancy in
these properties. Other real estate operating revenue increased by $14.5
million, or 446.1%, for the three months ended March 31, 1998 to $18.6 million
as compared to $4.1 million for the three months ended March 31, 1997, primarily
as a result of executive office suites revenue earned by OmniOffices, which
acquired the assets of OmniOffices Group, Inc. in August 1997.
Real Estate Operating Expenses. Total real estate operating expenses increased
$37.6 million for the three months ended March 31, 1998, or 67.2%, to $93.6
million as compared to $56.0 million for the three months ended March 31, 1997.
The net increase in operating expenses was attributable to a $8.9 million
increase in property operating expenses, a $5.9 million increase in interest
expense, the addition of $13.8 million in executive office suites operating
expenses associated with OmniOffices, a $1.3 million increase in general and
administrative expenses, and a $7.7 million increase in depreciation and
amortization. Property operating expenses increased primarily as a result of
property acquisitions, with property operating expenses from properties that
were fully operational in both periods remaining unchanged. The increase in the
Company's interest expense is primarily related to borrowings for acquisitions.
The addition of executive office suites operating expenses is a result of the
acquisition of the assets of OmniOffices Group, Inc. by OmniOffices. in August
1997. The increase in general and administrative expenses is predominately a
result of the addition of new staff to implement the Company's business
strategy. 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 $27.2 million
for the three months ended March 31, 1998, to $27.7 million as compared to $.5
million for the three months ended March 31, 1997, primarily due to the gain
recognized on the disposition of 267,000 square feet of office space.
15
<PAGE>
Net Income. Net income of $44.5 million was earned for the three months ended
March 31, 1998 as compared to $13.3 million during the three months ended March
31, 1997. 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 $55.4 million,
or 200.4%, to $83.1 million for the three months ended March 31,1998 as compared
to $27.7 million for the three months ended March 31, 1997, primarily as a
result of the acquisitions made by the Company. Net cash used by investing
activities increased $138.6 million, to $318.8 million for the three months
ended March 31, 1998 as compared to $180.2 million for the three months ended
March 31, 1997, primarily as a result of capital deployed by the Company for
acquisitions of office properties, land held for future development and
construction in progress. Net cash provided by financing activities increased
$84.4 million, to $236.7 million for the three months ended March 31, 1998 as
compared to $152.3 million for the three months ended March 31, 1997, primarily
as a result of borrowings on the unsecured credit facility and the issuance of
unsecured notes, net of repayments of mortgages payable and dividends paid to
the common and preferred stockholders.
LIQUIDITY AND CAPITAL RESOURCES
The Company seeks to create and maintain a capital structure that will
enable it to diversify its capital sources and thereby allow the Company to
obtain additional capital from a number of different sources, including
additional equity offerings of common and/or preferred stock, public and private
debt financings, and, where appropriate, asset dispositions. Management believes
that the Company will have access to the capital resources necessary to expand
and develop its business, to fund its operating and administrative expenses, to
continue debt service obligations, to pay dividends in accordance with REIT
requirements, to acquire additional properties and land, and to pay for
construction in progress in both the short and long term.
The Company has three investment grade ratings. Duff & Phelps Credit
Rating Co. (DCR) and Standard & Poors (S&P) have each assigned their BBB rating
to prospective senior unsecured debt offerings of the Company and their BBB-
rating to prospective cumulative preferred stock offerings of the Company.
Moody's Investor Service (Moody's) has assigned its Baa3 rating to prospective
senior unsecured debt offerings of the Company and its Ba2 rating to prospective
cumulative preferred stock offerings of the Company.
The Company's total indebtedness at March 31, 1998 was $1.310 billion,
of which $249.5 million, or 19.0%, bears a LIBOR-based floating interest rate.
Currently, the unsecured credit facility bears interest at 90 basis points over
LIBOR. The Company's mortgage payable fixed rate indebtedness bears an effective
weighted average interest rate of 8.2% at March 31, 1998 and has a weighted
average term to maturity of 5.0 years. Based upon the Company's total market
capitalization at March 31, 1998 of $3.730 billion (the common stock price was
$30.00 per share; the total shares of common stock, convertible preferred stock
and Units outstanding was 67,339,338 and the aggregate liquidation value of the
cumulative redeemable preferred stock was $400 million), the Company's debt
represented 35.1% of its total market capitalization. The Company has a $450.0
million unsecured credit facility with a current borrowing capacity of $313.6
million. As of May 15, 1998, the Company had $68.0 million outstanding and
$245.6 million available for draw under this unsecured credit facility.
In the first quarter of 1998, the Company began developing a plan to
address Year 2000 issues and began converting its computer systems to be Year
2000 compliant. The plan provides for the conversion efforts to be completed
prior to the end of 1999 for both the Company's financial and property related
systems. The Year 2000 issues are the result of computer programs being written
using two digits rather than four to define the applicable year. The Company
believes that through its commitment to maintaining the highest level of systems
support and by working closely with vendors providing services to the Company's
properties, it will, through the normal course of business, convert all systems
users to Year 2000 compliant equipment prior to the end of 1999. The Company
estimates the costs associated with implementation of the plan will not be
significant to the Company's financial statements.
16
<PAGE>
The Company will require capital to invest in its existing portfolio of
operating assets for major capital projects such as large-scale renovations,
routine capital expenditures and deferred maintenance on certain properties
recently acquired and tenant related capital expenditures, such as tenant
improvements and allowances and leasing commissions. The Company intends to use
cash flow from operations and its unsecured revolving credit facility to meet
its working capital needs for its existing portfolio of operating assets.
The Company will also require a substantial amount of capital for
development projects currently underway and planned for the future. As of April
1998, the Company had 49 development projects underway which are expected to
require a total investment by the Company of approximately $620.0 million. As
part of the Company's ordinary course of business, the Company is also pursuing
certain portfolio acquisitions, which, if consummated, would require a
substantial amount of capital. The Company intends to use cash flow from
operations, its unsecured, revolving credit facility and the Company's access to
public and private equity and debt markets to meet its capital needs for
development projects and potential future acquisitions.
Net cash provided by operating activities was $83.1 million for the
three months ended March 31, 1998, compared to $27.7 million for the three
months ended March 31, 1997. The increase in net cash provided by operating
activities was primarily a result of acquisitions made by the Company. The
Company's investing activities used approximately $318.8 million and $180.2
million for the three months ended March 31,1998 and 1997, respectively. The
Company's investment activities included the acquisitions of office buildings,
executive office suites businesses, and land held for future development and
additions to construction in process of approximately $279.1 million for the
three months ended March 31, 1998, as compared to $172.8 million in acquisitions
during the same period in 1997. Additionally, the Company invested approximately
$8.2 million and $7.2 million in its existing real estate assets for the three
months ended March 31, 1998 and 1997, respectively. Net of distributions to the
Company's stockholders and minority interests, the Company's financing
activities provided net cash of $275.7 million and $176.6 million for the three
months ended March 31, 1998 and 1997, respectively. For the three months ended
March 31,1998, the Company raised $200.0 million through the sale of unsecured
notes which was used to repay amounts outstanding under its unsecured credit
facility and to fund acquisitions. The Company also drew amounts from its
unsecured credit facility during 1998 to finance its acquisitions and other
investing activities. For the three months ended March 31, 1998, the Company's
net borrowings on its unsecured credit facility were approximately $90.0
million.
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. The
Company expects to fund capital expenditures, including tenant concession
packages, building renovations and construction costs, from (i) available funds
from operations, (ii) existing capital reserves, and (iii) if necessary, credit
facilities established with third party lenders. If these sources of funds are
insufficient, the Company's ability to make expected distributions may be
adversely impacted. As of March 31, 1998, the Company had cash of $56.2 million,
of which $31.4 million was restricted.
The Company's dividends are paid quarterly. Amounts accumulated for
distribution are primarily invested by the Company in short-term investments
that are collateralized by securities of the United States Government or certain
of its agencies.
17
<PAGE>
Management believes that the Company will have access to the capital
resources necessary to expand and develop its business. The Company may seek to
obtain funds through additional equity offerings or debt offerings 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 future acquisitions of office properties.
Effective March 19,1998, the Company has adopted the Emerging Issues
Task Force's Issue 97-11, "Accounting for Internal Costs Relating to Real Estate
Property Acquisitions." Issue 97-11 states that internal costs from acquiring
operating property should be expensed as incurred. Costs that have been
capitalized in the Company's financial statements through March 19, 1998
amounted to $.7 million. The Company believes that this will not have a material
effect on the Company's operations.
The Company believes that funds from operations is helpful to investors
as a measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to incur and
service debt, to make capital expenditures and to fund other cash needs. 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 calculates its Funds From Operations by combining the Funds From
Operations from its real estate operations, calculated in accordance with
NAREIT's definition of Funds From Operations, and the earnings before
depreciation, amortization and deferred taxes ("EBDADT") of the Company's
executive suite business, excluding operating losses from centers under
development. The Company's funds from operations may not be comparable to funds
from operations reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. Funds from operations does not
represent net income or cash flow generated from operating activities in
accordance with generally accepted accounting principles and, as such, should
not be considered an alternative to net income as an indication of the Company's
performance or to cash flow as a measure of liquidity or the Company's ability
to make distributions.
18
<PAGE>
The following table provides the calculation of the Company's funds
from operations:
(in thousands):
Three Months
Ended March 31,
-----------------
1998 1997
---- ----
Net operating income before minority interest
and extraordinary items $ 53,056 14,976
Adjustments to derive funds from operations:
Add:
Depreciation and amortization 23,055 15,016
Losses associated with executive
suites centers under development 493 --
Deduct:
Minority interests' (non Unitholders)
share of depreciation, amortization and
net income (110) (291)
Gain on sale of assets (25,931) --
-------- ------
Funds from operations before allocation to
the minority Unitholders 50,563 29,701
Less: Funds from operations allocable to the
minority Unitholders (3,706) (2,866)
-------- ------
Funds from operations allocable
to CarrAmerica Realty Corporation 46,857 26,835
Less: Preferred stock dividends (1) (8,791) --
-------- ------
Funds from operations attributable
to common shareholders: $ 38,066 26,835
======== ======
(1) Includes dividends of $361 on shares of Series A Preferred Stock
which are convertible into common shares.
Changes in funds from operations are largely attributable to changes in net
income between the periods, as previously discussed.
19
<PAGE>
Building And Lease Information
The following table sets forth certain information about each operating property
owned by the Company as of March 31,1998:
<TABLE>
<CAPTION>
Company's Net
Effective Rentable
Property Area Percent
Property Ownership (square feet)(1) Leased(2)
- -------- --------- ---------------- ---------
Consolidated Properties
- -----------------------
<S> <C> <C> <C>
SOUTHEAST REGION
Downtown Washington, D.C.:
International Square (3 Properties) 100.0% 1,018,313 89.2%
1730 Pennsylvania Avenue 100.0 229,292 99.3
2550 M Street 100.0 187,931 89.8
1775 Pennsylvania Avenue (3) 100.0 143,981 98.5
900 19th Street 100.0 100,907 85.5
1747 Pennsylvania Avenue 89.7 (4) 152,119 89.8
1255 23rd Street 75.0 (5) 304,538 97.3
Suburban Washington, D.C.:
One Rock Spring Plaza (3) 100.0 205,298 100.0
Tycon Courthouse 100.0 416,195 99.0
Three Ballston Plaza 100.0 302,875 100.0
Sunrise Corporate Center (3 Properties) 100.0 260,643 99.9
Parkway One 100.0 87,842 100.0
Suburban Atlanta:
Veridian (22 Properties) 100.0 187,842 85.0
Glenridge 100.0 64,052 72.9
Century Springs West 100.0 94,747 98.2
Holcomb Place 100.0 72,823 100.0
DeKalb Tech (5 Properties) 100.0 163,159 76.2
Midori 100.0 99,900 100.0
Crestwood 100.0 88,186 98.3
Parkwood 100.0 144,038 74.5
Lakewood 100.0 80,338 98.2
The Summit 100.0 178,382 86.6
Triangle Parkway (3 Properties) 100.0 82,102 100.0
2400 Lake Park 100.0 99,534 99.3
680 Engineering Drive 100.0 62,154 100.0
Embassy Row (3 Properties) 100.0 463,846 93.3
Waterford Center 100.0 82,678 79.4
Florida,
Boca Raton:
Peninsula Plaza 100.0 160,081 94.2
Presidential Circle 100.0 281,266 88.4
------- ----
Southeast Region Subtotal 5,815,062 92.8
PACIFIC REGION
Southern California,
Orange County/Los Angeles:
Scenic Business Park (4 Properties) 100.0 139,012 100.0
Harbor Corporate Park (4 Properties) 100.0 148,733 91.5
Plaza PacifiCare 100.0 104,377 100.0
Katella Corporate Center 100.0 79,917 95.6
Warner Center (12 Properties) 100.0 342,866 97.3
South Coast Executive Center (2 Properties) 100.0 160,301 100.0
Warner Premier 100.0 61,553 100.0
Westlake Corporate Center (2 Properties) 100.0 71,645 89.5
Von Karman 100.0 103,713 58.8
2600 W. Olive 100.0 145,304 95.7
Bay Technology Center (2 Properties) 100.0 107,480 100.0
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Company's Net
Effective Rentable
Property Area Percent
Property Ownership (square feet)(1) Leased(2)
- -------- --------- ---------------- ---------
<S> <C> <C> <C>
Southern California,
San Diego:
Del Mar Corporate Plaza (2 Properties) 100.0% 123,142 100.0%
Wateridge Pavilion 100.0 62,194 100.0
Lightspan 100.0 64,800 100.0
Century Park II (3 Properties) 100.0 198,306 100.0
Northern California,
San Francisco Bay Area:
CarrAmerica Corporate Center (6 Properties) 100.0 957,737 95.3
Sunnyvale Research Plaza (3 Properties) 100.0 126,000 100.0
Rio Robles (7 Properties) 100.0 368,178 100.0
Valley Business Park II (6 Properties) 100.0 161,040 100.0
Bayshore Centre (2 Properties) 100.0 195,249 100.0
Rincon Centre (3 Properties) 100.0 201,178 100.0
Valley Centre II (4 Properties) 100.0 212,082 100.0
Valley Office Centre (2 Properties) 100.0 68,731 100.0
Valley Centre (2 Properties) 100.0 102,291 100.0
Valley Business Park I (2 Properties) 100.0 67,784 100.0
3745 North First Street 100.0 67,582 100.0
3571 North First Street 100.0 116,000 100.0
Mission Plaza (2 Properties) 100.0 102,687 100.0
North San Jose Technology Park (4 Properties) 100.0 299,233 100.0
Foster City Technology Center (2 Properties) 100.0 66,869 100.0
150 River Oaks 100.0 100,024 100.0
Amador/Rinconada (3 Properties) 100.0 134,476 100.0
Amador III 100.0 82,944 100.0
Arroyo Center (2 Properties) 100.0 104,741 100.0
San Mateo I 100.0 70,000 100.0
San Mateo II and III (2 Properties) 100.0 135,353 99.5
900-910 East Hamilton (2 Properties) 100.0 351,811 100.0
Hacienda West 99.7 (11) 205,724 95.6
Sunnyvale Technology Centre 99.7 (11) 165,520 100.0
Baytech Business Park 100.0 300,000 100.0
Northern California,
Sacramento:
1860 Howe Avenue 100.0 98,992 87.6
University Office Park (2 Properties) 100.0 121,255 97.1
Capital Corporate Center (5 Properties) 100.0 94,670 93.5
Suburban Portland:
RadiSys Corporate Headquarters 100.0 80,525 100.0
RadiSys II 100.0 45,655 100.0
Suburban Seattle:
Redmond East (10 Properties) 100.0 398,030 99.9
Willow Creek 100.0 96,179 100.0
Canyon Park Business Center (6 Properties) 100.0 246,565 100.0
Canyon Park Commons 100.0 95,290 100.0
Redmond Hilltop 100.0 43,046 100.0
--------- -----
Pacific Region Subtotal 7,996,784 97.4
CENTRAL REGION
Austin, Texas:
Great Hills Plaza 100.0 135,333 100.0
Balcones Center 100.0 75,761 73.2
Park North (2 Properties) 100.0 128,071 89.1
City View Centre (3 Properties) 100.0 135,170 85.7
Tower of the Hills (2 Properties) 100.0 165,322 96.5
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Company's Net
Effective Rentable
Property Area Percent
Property Ownership (square feet)(1) Leased(2)
- -------- --------- ---------------- ---------
<S> <C> <C> <C>
Suburban Chicago:
Parkway North (2 Properties) 100.0% 508,292 100.0%
Unisys (2 Properties) 100.0 360,059 88.9
The Crossings (2 Properties) 100.0 296,624 90.2
Bannockburn I & II (2 Properties) 100.0 209,860 100.0
Bannockburn IV 100.0 108,469 97.5
Summit Oaks 100.0 91,601 91.6
Dallas, Texas:
Greyhound 100.0 92,890 100.0
Search Plaza 100.0 151,262 97.9
Quorum North 100.0 114,030 93.4
Quorum Place 100.0 176,278 95.8
Cedar Maple Plaza (3 Properties) 100.0 112,968 91.8
Tollhill East & West (2 Properties) 100.0 241,155 93.2
Two Mission Park 100.0 76,962 59.6
Citymark 99.7 (11) 206,475 85.6
5000 Quorum 100.0 161,008 98.5
------- ----
Central Region Subtotal 3,547,590 93.2
MOUNTAIN REGION
Southeast Denver:
Harlequin Plaza (2 Properties) 100.0 327,956 97.2
Quebec Court I & II (2 Properties) 100.0 287,294 100.0
Greenwood Center 100.0 75,866 86.5
Quebec Center (3 Properties) 100.0 106,849 96.1
Panorama Corporate Center I 100.0 100,542 98.7
JD Edwards 100.0 189,087 100.0
Panorama II 100.0 100,916 91.8
Phoenix, Arizona:
Camelback Lakes (2 Properties) 100.0 199,029 99.8
Pointe Corridor IV 100.0 178,762 94.1
Highland Park 100.0 78,019 51.8
The Grove at Black Canyon 100.0 104,187 95.2
US West (4 Properties) 100.0 532,506 100.0
Salt Lake City, Utah:
Sorenson Research Park (5 Properties) 100.0 285,144 99.1
Wasatch Corporate Center (3 Properties) 100.0 178,098 100.0
------- -----
Mountain Region Subtotal 2,744,255 96.7%
--------- ----
TOTAL CONSOLIDATED PROPERTIES: 20,103,691
----------
WEIGHTED AVERAGE 95.3%
----
Unconsolidated Properties
- --------------------------
Downtown Washington, D.C.:
1717 Pennsylvania Avenue 50.0% (6) 184,446 99.3%
AARP Headquarters 24.0 (7) 477,394 99.8
Bond Building 15.0 (8) 162,097 100.0
Willard Office/Hotel 5.0 (9) 242,787 96.6
Suburban Washington, D.C.:
Booz-Allen & Hamilton Building 50.0 (10) 222,989 100.0
---------- -----
TOTAL UNCONSOLIDATED PROPERTIES: 1,289,713
---------
WEIGHTED AVERAGE 99.2%
----
ALL OPERATING PROPERTIES
TOTAL: 21,393,404
==========
WEIGHTED AVERAGE 95.5%
====
</TABLE>
22
<PAGE>
- ----------
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as
of March 31, 1998.
(3) The Company owns the improvements on the property and has a leasehold
interest in all or a portion of the underlying land.
(4) The Company holds a general and limited partner interest in a
partnership that owns the property.
(5) The Company holds a 50% joint venture interest in the joint venture
that owns this property and a 50% joint venture interest in another
joint venture, which holds the remaining 50% interest in the joint
venture that owns the property. As a result of preferential rights to
annual distributions from another venture, the Company will receive
distributions of less than 75% (but in no event less than 50%) of the
total amount distributed with respect to this property in each year
until the preferential distribution requirements are satisfied, but
will receive 100% of any subsequent distributions during the year until
its aggregate distributions equal 75% of the cumulative distributions
with respect to the property since inception of the partnership.
Thereafter, the Company will receive 75% of the distributions made
during the year with respect to the property. Upon sale of the
property, the Company will receive 75% of the distributions until the
Company receives its preference amount, 50% until the remaining
venturer receives its preference amount, and 75% of the distributions
thereafter.
(6) The Company holds a 50% interest in the limited liability company that
owns the property and serves as the entity's managing member.
(7) The Company holds an effective 24% interest in the property by virtue
of a 48% general partner interest in a partnership that owns a 50%
general partner interest in the property.
(8) The Company holds an effective 15% interest in the property by virtue
of a 30.6% limited partner interest in a partnership that has a 49%
limited partner interest in the property.
(9) The Company holds an effective 5% interest in the property by virtue of
a 7.85% limited partner interest in a partnership that owns a 63.7%
limited partner interest in the property. The partnership in which the
Company holds an interest owns the improvements on the property and has
a leasehold interest in the underlying land.
(10) The Company holds a 50% joint venture interest, and is the managing
partner.
(11) The Company holds an effective 99.7% interest in these properties by
virtue of a 100% interest in a limited liability company that owns a 1%
general partnership in a partnership that owns the properties as well
as a 98.7% limited partnership interest in the same partnership.
The following table sets forth a schedule of the lease expirations for
leases in place as of March 31, 1998 in each of the next ten years beginning
with 1998 and thereafter for the 258 operating office properties whose results
are consolidated in the financial statements of the Company, assuming that no
tenants exercise renewal options:
Net Percent of
Rentable Area Leased Square
Subject to Footage
Year Expiring Represented
of Lease Leases (1) by Expiring
Expiration (square feet) Leases
---------- ------------- ------
1998 2,260,000 11.8%
1999 2,009,000 10.5
2000 2,608,000 13.6
2001 2,294,000 12.0
2002 2,603,000 13.6
2003 1,853,000 9.7
2004 1,273,000 6.6
2005 744,000 3.9
2006 1,234,000 6.4
2007 and thereafter 2,274,000 11.9
- ----------------------
(1) Excludes 952,000 square feet of space that was vacant as of March 31,
1998.
23
<PAGE>
Building and Lease Information. The following table sets forth certain
lease-related information for the consolidated operating properties presented in
order to show downtown Washington, D.C. operating properties separate from other
operating properties. The table presents leases that commenced during the twelve
month period from April 1, 1997 to March 31, 1998, excluding the leases for
operating properties that were executed prior to the date of acquisition:
<TABLE>
<CAPTION>
Calculated on a Weighted Average Basis
----------------------------------------------------------------------
Operating Properties,
Downtown
Washington, D.C. Tenant Base
(9 Properties) Total Improvements Rent Lease Leasing
Square & Cash per Life Abatements Commission
Feet Allowances per Square in in Per Square
Type of Lease Leased Square Foot Foot Years Months Foot
- ------------- ------ ----------- ---- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Office 152,655 $ 10.18 $ 29.15 5.5 0.5 $ 2.25
Retail 19,263 0.00 27.84 5.1 0.8 1.59
-------
Total/Weighted Average 171,918 9.04 29.01 5.5 0.6 2.18
======= ======== ======= === === =======
New leases or
expansion space 151,722 $ 10.17 $ 29.15 5.7 0.6 $ 2.30
Renewals of existing
tenants' space 20,196 0.55 27.94 3.6 0.0 1.28
-------
Total/Weighted Average 171,918 9.04 29.01 5.5 0.6 2.18
======= ======== ======= === === =======
<CAPTION>
Calculated on a Weighted Average Basis
----------------------------------------------------------------------
Operating Properties,
Downtown
Washington, D.C. Tenant Base
(249 Properties) Total Improvements Rent Lease Leasing
Square & Cash per Life Abatements Commission
Feet Allowances per Square in in Per Square
Type of Lease Leased Square Foot Foot Years Months Foot
- ------------- ------ ----------- ---- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Office 3,934,012 $ 4.05 $ 16.69 5.9 0.3 $ 1.08
Retail 1,205 0.00 4.55 1.1 0.0 0.00
---------
Total/Weighted Average 3,935,217 4.05 16.68 5.9 0.3 1.08
========= ======= ======= === === =======
New leases or
expansion space 2,560,559 $ 5.18 $ 16.49 5.8 0.5 $ 1.62
Renewals of existing
tenants' space 1,374,658 1.95 17.05 6.0 0.0 0.08
---------
Total/Weighted Average 3,935,217 4.05 16.68 5.9 0.3 1.08
========= ======= ======= === === =======
</TABLE>
24
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
10.1 First Amendment to Third Amended and Restated Agreement of
Limited Partnership of Carr Realty, L.P. dated January 22,
1998.
10.2 Second Amendment to Third Amended and Restated Agreement of
Limited Partnership of Carr Realty, L.P. dated February 17,
1998.
27 Financial Data Schedule
b. Reports on Form 8-K
-------------------
a. Current Report on Form 8-K filed on February 5, 1998
regarding certain supplemental data included in the Company's
press release dated February 5, 1998.
b. Current Report on Form 8-K/A filed on February 10, 1998
regarding certain supplemental data included in the Company's
press release dated February 5, 1998.
c. Current Report on Form 8-K filed by CarrAmerica Realty, L.P.
on February 18, 1998 regarding Historical Summaries of
Operating Revenue and Expenses for the nine months ended
September 30, 1997 (unaudited) and the year ended December
31, 1996 and the proforma condensed consolidated balance
sheet (unaudited) at September 30, 1997 for San Mateo II and
III and proforma condensed consolidated statements of
operations for nine months ended September 30, 1997
(unaudited) and for the year ended December 31, 1996.
d. Current Report on Form 8-K filed on February 18, 1998
regarding proforma condensed consolidated balance sheet
(unaudited) at September 30, 1997 and proforma condensed
consolidated statements of operations for nine months ended
September 30, 1997 (unaudited) and for the year ended
December 31, 1996.
e. Current Report on Form 8-K filed by CarrAmerica Realty, L.P.
on February 18, 1998 regarding historical summaries of
Operating Revenue and Expenses for the nine months ended
September 30, 1997 (unaudited) and the year ended December
31, 1996 for Canyon Park Commons.
f. Current Report on Form 8-K filed by CarrAmerica Realty, L.P.
on February 23, 1998 regarding Historical Summaries of
Operating Revenue and Expenses for the nine months ended
September 30, 1997 (unaudited) and the year ended December
31, 1996 for Tower of the Hills.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARRAMERICA REALTY CORPORATION
/s/ Thomas A. Carr
- -----------------------------
Thomas A. Carr, President and
Chief Executive Officer
/s/ Brian K. Fields
- ----------------------------------------
Brian K. Fields, Chief Financial Officer
Date: May 15, 1998
26
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
10.1 First Amendment to Third Amended and Restated Agreement of
Limited Partnership of Carr Realty, L.P. dated January 22, 1998.
10.2 Second Amendment to Third Amended and Restated Agreement of
Limited Partnership of Carr Realty, L.P. dated February 17, 1998.
27 Summary Data Schedule
</TABLE>
27
Exhibit 10.1
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CARR REALTY, L.P.
THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF CARR REALTY, L.P. (this "First Amendment"), dated January 22,
1998, is entered into by CarrAmerica Realty Corporation, a Maryland corporation,
as general partner (the "General Partner") of Carr Realty, L.P. (the
"Partnership"), for itself and on behalf of the limited partners of the
Partnership (including the General Partner), and the persons listed on Schedule
A hereto (each, a "Contributor").
WHEREAS, on the date hereof, each Contributor is receiving Class C units of
limited partnership interest ("Class C Units") in the Partnership in exchange
for such Contributor's limited partnership interest in Square 24 Associates, a
District of Columbia limited partnership in which the Partnership is the sole
general partner, pursuant to a closing under a certain Contribution Agreement by
and between the Partnership and such Contributor;
WHEREAS, under the authority granted to the General Partner pursuant to
Section 4.2.A. of the Third Amended and Restated Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement"), the General
Partner desires to amend the Partnership Agreement (i) to conform the Redemption
Right with respect to Class C Units to that with respect to Class A Units, (ii)
to admit each Contributor as an Additional Limited Partner of the Partnership,
and (iii) to amend and restate Exhibit A to the Partnership Agreement to reflect
the admission of each Contributor as an Additional Limited Partner and the
holder of a specified number of Class C Units; and
WHEREAS, each Contributor is agreeing to become, upon execution hereof, a
party to the Partnership Agreement and to be bound by all of the terms,
conditions and other provisions of the Partnership Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement as
follows:
1. Section 4.2.F.(3) hereby is amended by deleting such Section 4.2.F.(3)
in its entirety.
<PAGE>
2. Under the authority granted to the General Partner by Section 4.2.A., in
accordance with the requirements of Section 4.2.F.(5), and pursuant to certain
Contribution Agreements, dated as of various dates in January 1997, by and
between Carr Realty, L.P. and certain partners in Square 24 Associates, Exhibit
A hereby is amended by replacing such Exhibit A with the Exhibit A attached to
this First Amendment, and each Contributor hereby is admitted to the Partnership
as an Additional Limited Partner holding Class C Units.
3. Each Contributor hereby agrees to become a party to the Partnership
Agreement and to be bound by all of the terms, conditions and other provisions
of the Partnership Agreement.
* * * *
All capitalized terms used in this First Amendment and not otherwise
defined shall have the meanings assigned in the Partnership Agreement. Except as
modified herein, all terms and conditions of the Partnership Agreement shall
remain in full force and effect, which terms and conditions the General Partner
hereby ratifies and affirms.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this First Amendment as of
the date first set forth above.
CARRAMERICA REALTY CORPORATION,
as General Partner of Carr Realty, L.P.
and on behalf of existing Limited Partners
By: /s/ Debra A. Volpicelli
-----------------------------------------
Name: Debra A. Volpicelli
-----------------------------------------
Title: Treasurer and Controller
-----------------------------------------
CONTRIBUTORS
By: /s/ Brian K. Fields
-----------------------------------------
Name: Brian K. Fields
-----------------------------------------
As Attorney-in-Fact for each of the
Holders listed on Schedule A attached
hereto
Exhibit 10.2
SECOND AMENDMENT TO
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CARR REALTY, L.P.
THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF CARR REALTY, L.P. (this "Second Amendment"), dated February 17,
1998, is entered into by CarrAmerica Realty Corporation, a Maryland corporation,
as general partner (the "General Partner") of Carr Realty, L.P. (the
"Partnership"), and the parties listed on Schedule A hereto (each, a
"Contributor").
WHEREAS, on the date hereof, each Contributor is receiving Class C units of
limited partnership interest in the Partnership in exchange for such
Contributor's limited partnership interest in Square 24 Associates, a District
of Columbia limited partnership in which the Partnership is the sole general
partner, pursuant to a closing under a certain Contribution Agreement by and
between the Partnership and such Contributor; and
WHEREAS, each Contributor is agreeing to become, upon execution hereof, a
party to the Partnership Agreement and to be bound by all of the terms,
conditions and other provisions of the Partnership Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement as
follows:
1. Each Contributor hereby agrees to become a party to the Partnership
Agreement and to be bound by all of the terms, conditions and other provisions
of the Partnership Agreement.
2. Under the authority granted to the General Partner by Section 4.2.A., in
accordance with the requirements of Section 4.2.F.(5), and pursuant to certain
Contribution Agreements, dated as of January ___, 1998, by and between Carr
Realty, L.P. and certain partners in Square 24 Associates, Exhibit A hereby is
amended by replacing such Exhibit A with the Exhibit A attached to this Second
Amendment, and each Contributor hereby is admitted to the Partnership as an
Additional Limited Partner holding Class C Units.
* * * *
All capitalized terms used in this Second Amendment and not otherwise
defined shall have the meanings assigned in the Partnership Agreement. Except as
modified herein, all terms and conditions of the Partnership Agreement shall
remain in full force and effect, which terms and conditions the General Partner
hereby ratifies and affirms.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Second Amendment as
of the date first set forth above.
CARRAMERICA REALTY CORPORATION,
as General Partner of Carr Realty, L.P.
and on behalf of existing Limited Partners
By: /s/ Karen B. Dorigan
-----------------------------------------
Name: Karen B. Dorigan
-----------------------------------------
Title: Senior Vice President
-----------------------------------------
CONTRIBUTORS
By: /s/ Karen B. Dorigan
-----------------------------------------
Name: Karen B. Dorigan
-----------------------------------------
As Attorney-in-Fact for each of the
Holders listed on Schedule A attached
hereto
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED
BALANCE SHEET AS OF MARCH 31, 1998 AND FROM CARRAMERICA REALTY CORPORATION
AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1998
</LEGEND>
<CIK> 0000893577
<NAME> CarrAmerica Realty Corp
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 56,226
<SECURITIES> 0
<RECEIVABLES> 43,396
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,554,145
<DEPRECIATION> 194,424
<TOTAL-ASSETS> 3,044,627
<CURRENT-LIABILITIES> 0
<BONDS> 1,309,878
0
96
<COMMON> 600
<OTHER-SE> 1,559,929
<TOTAL-LIABILITY-AND-EQUITY> 3,044,627
<SALES> 0
<TOTAL-REVENUES> 118,967
<CGS> 0
<TOTAL-COSTS> 93,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 53,056
<INCOME-TAX> 0
<INCOME-CONTINUING> 53,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,509
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.59
<FN>
<F1>
Notes & accounts receivable are presented net of allowance for doubtful
accounts as the allowance is immaterial.
</FN>
</TABLE>
