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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20543
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED June 30, 1998
COMMISSION FILE NO. 1-11706
CARRAMERICA REALTY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1796339
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1850 K Street, N.W., Washington, D.C. 20006
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(Address or principal executive office) (Zip code)
Registrant's telephone number, including area code (202) 729-7500
--------------
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of each of the registrant's
classes of common stock, as of August 14, 1998:
Common Stock, par value $.01 per share: 71,722,035
- --------------------------------------------------------------------------------
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> <C>
Part I: Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets of CarrAmerica Realty Corporation and
subsidiaries as of June 30, 1998 (unaudited) and December 31, 1997........................4
Condensed consolidated statements of operations of CarrAmerica Realty Corporation
and subsidiaries for the three
months ended June 30, 1998 and 1997 (unaudited)...........................................5
Condensed consolidated statements of operations of CarrAmerica Realty Corporation
and subsidiaries for the six
months ended June 30, 1998 and 1997 (unaudited)...........................................6
Condensed consolidated statements of cash flows of CarrAmerica Realty Corporation
and subsidiaries for the six
months ended June 30, 1998 and 1997 (unaudited)...........................................7
Notes to condensed consolidated financial statements (unaudited)....................8 to 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................16 to 26
Part II: Other Information
Item 1. Legal Proceedings .......................................................................27
Item 2. Changes in Securities....................................................................27
Item 3. Defaults Upon Senior Securities..........................................................27
Item 4. Submission of Matters to a Vote of Security Holders......................................27
Item 5. Other Information........................................................................27
Item 6. Exhibits and Reports on Form 8-K...................................................27 to 28
</TABLE>
2
<PAGE>
Part I
Item 1. Financial Information
The information furnished in the accompanying condensed consolidated
balance sheets, condensed consolidated statements of operations and condensed
consolidated statements of cash flows of CarrAmerica Realty 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
June 30,1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except share amounts)
June 30, December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Assets
Rental property (note 2):
Land $ 642,544 557,536
Buildings 1,952,972 1,692,389
Tenant improvements 151,071 131,527
Furniture, fixtures and equipment 35,355 15,571
----------- -----------
2,781,942 2,397,023
Less - accumulated depreciation (216,704) (184,266)
----------- -----------
Total rental property 2,565,238 2,212,757
Land held for development 104,280 81,647
Construction in progress 313,442 210,829
Cash and cash equivalents 39,557 23,845
Restricted cash and cash equivalents (note 7) 40,081 18,049
Accounts and notes receivable 46,658 38,321
Investments 70,619 20,128
Accrued straight-line rents 33,429 33,212
Tenant leasing costs, net 28,706 19,473
Deferred financing costs, net 15,025 6,899
Prepaid expenses and other assets, net 238,603 78,900
----------- -----------
$ 3,495,638 2,744,060
=========== ===========
Liabilities, Minority Interest, and Stockholders' Equity
Liabilities:
Mortgages and notes payable (note 2) 1,393,964 1,028,946
Accounts payable and accrued expenses 90,501 67,311
Rent received in advance and security deposits 34,513 20,151
----------- -----------
Total liabilities 1,518,978 1,116,408
Minority interest (note 3) 90,916 74,955
Stockholders' equity (note 4):
Preferred Stock, $.01 par value, authorized 35,000,000 shares:
Series A Cumulative Convertible Redeemable Preferred Stock, $.01 par value,
780,000 shares issued and outstanding 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 with an aggregate liquidation preference of
$400.0 million. 88 88
Common Stock, $.01 par value, authorized 180,000,000 shares, issued and
outstanding 71,622,035 shares at June 30, 1998 and 59,993,778 shares at
December 31, 1997. 716 600
Additional paid in capital 1,965,118 1,629,214
Accumulated other comprehensive income 787 --
Cumulative dividends in excess of net income (80,973) (77,213)
----------- -----------
Total stockholders' equity 1,885,744 1,552,697
----------- -----------
Commitments and Contingencies (note 6) $ 3,495,638 2,744,060
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 1998 and 1997
- -------------------------------------------------------------------------------
(Unaudited and in thousands, except per common share amounts)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Operating revenue:
Rental revenue:
Minimum base rent $ 92,689 65,375
Recoveries from tenants 11,639 9,318
Parking and other tenant charges 2,636 2,995
--------- ---------
Total rental revenue 106,964 77,688
Executive suites revenue 34,661 --
Real estate service income 3,524 3,759
--------- ---------
Total revenue 145,149 81,447
--------- ---------
Operating expenses:
Property operating expenses:
Operating expenses 24,977 19,743
Real estate taxes 9,660 7,003
Interest expense 17,417 11,734
Executive suites operating expenses 29,567 --
General and administrative 8,041 5,176
Depreciation and amortization 26,236 18,267
--------- ---------
Total operating expenses 115,898 61,923
--------- ---------
Operating income 29,251 19,524
--------- ---------
Other operating income:
Interest Income 1,290 551
Equity in earnings of unconsolidated partnerships 1,714 123
Gain on sale of assets (note 5) 256 353
--------- ---------
Total other operating income 3,260 1,027
--------- ---------
Net operating income before minority interest 32,511 20,551
Minority interest (note 3) (2,404) (2,020)
--------- ---------
Net income $ 30,107 18,531
========= =========
Basic net income per common share $ 0.30 0.32
========= =========
Diluted net income per common share $ 0.30 0.32
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Six Months Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------
(Unaudited and in thousands, except per common share amounts)
1998 1997
---- ----
Operating revenue:
Rental revenue:
Minimum base rent $ 178,072 121,899
Recoveries from tenants 23,216 16,268
Parking and other tenant charges 6,005 5,810
--------- ---------
Total rental revenue 207,293 143,977
Executive suites revenue 50,309 --
Real estate service income 6,514 7,936
--------- ---------
Total revenue 264,116 151,913
--------- ---------
Operating expenses:
Property operating expenses:
Operating expenses 48,191 37,008
Real estate taxes 18,961 13,380
Interest expense 34,578 22,992
Executive suites operating expenses 43,441 --
General and administrative 14,461 10,332
Depreciation and amortization 49,879 34,183
--------- ---------
Total operating expenses 209,511 117,895
--------- ---------
Operating income 54,605 34,018
--------- ---------
Other operating income:
Interest Income 2,307 1,093
Equity in earnings of unconsolidated partnerships 2,468 63
Gain on sale of assets (note 5) 26,187 353
--------- ---------
Total other operating income 30,962 1,509
--------- ---------
Net operating income before minority interest 85,567 35,527
Minority interest (note 3) (10,951) (3,737)
--------- ---------
Net income $ 74,616 31,790
========= =========
Basic net income per common share $ 0.87 0.59
========= =========
Diluted net income per common share $ 0.87 0.58
========= =========
See accompanying notes to consolidated financial statements
6
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 74,616 31,790
--------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 49,879 34,183
Minority interest in income 10,951 3,737
Equity in earnings of unconsolidated partnerships (2,468) (63)
Loss on write-off of assets 486 323
Increase in accounts and notes receivable (8,337) (6,653)
Increase in accrued straight-line rents (217) (3,787)
Additions to tenant leasing costs (6,063) (6,815)
Decrease (Increase) in prepaid expenses and other assets 856 (11,247)
Increase in accounts payable and accrued expenses 23,190 14,832
Increase in rent received in advance and security deposits 14,362 2,093
--------- ---------
Total adjustments 82,639 26,603
--------- ---------
Net cash provided by operating activities 157,255 58,393
--------- ---------
Cash flows from investing activities:
Acquisition of executive suites assets (165,544) --
Additions to rental property (21,162) (14,974)
Acquisitions of rental property (261,995) (332,073)
Additions to land held for development (93,148) (81,386)
Additions to construction in progress (164,669) (63,498)
Distributions from unconsolidated partnerships 2,336 108
Investments in unconsolidated partnerships (50,358) (2,074)
Decrease (increase) in restricted cash and cash equivalents (22,032) 388
Proceeds from disposition of rental property 35,491 --
--------- ---------
Net cash used by investing activities (741,081) (493,509)
--------- ---------
Cash flows from financing activities:
Net proceeds from sales of common and preferred stock 335,922 344,448
Net borrowings on unsecured credit facility 164,500 143,000
Proceeds from issuance of unsecured notes 200,000 --
Net proceeds from exercise of options 41 1,363
Repayment of mortgages payable (18,449) (15,664)
Loan to investment venture -- (125)
Contributions from minority interests 10,465 350
Dividends paid (78,376) (47,801)
Additions to deferred financing costs (9,968) (1,168)
Distributions to minority interests (5,384) (4,433)
--------- ---------
Net cash provided by financing activities 598,751 419,970
--------- ---------
Effect of currency exchange rate change 787 --
--------- ---------
Increase (decrease) in unrestricted cash and cash equivalents 15,712 (15,146)
Unrestricted cash and cash equivalents, beginning of the period 23,845 27,637
--------- ---------
Unrestricted cash and cash equivalents, end of the period $ 39,557 12,491
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $12,572 and
$4,416 for the six months ended June 30, 1998 and 1997, respectively) $ 30,601 22,717
========= =========
Supplemental disclosure of noncash investing and financing activities:
During the six month periods ended June 30, 1998 and 1997, the Company funded
a portion of the aggregate purchase price of its property acquisitions by
assuming $19.0 million and $56.6 million of debt and liabilities,
respectively, and by issuing $10.0 million and $17.6 million, respectively, of Units.
</TABLE>
See accompanying notes to consolidated financial statements
7
<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 15 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:
<TABLE>
<S> <C>
Base Building.............................30 to 50 years
Building components.......................7 to 20 years
Tenant improvements.......................Terms of the leases or useful lives, whichever is shorter
Furniture, fixtures and equipment.........5 to 15 years
</TABLE>
Expenditures for maintenance and repairs are charged to
operations as incurred. Significant renovations are
capitalized.
The 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.
8
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(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.
(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 executive suite businesses, 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
9
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
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. For the three and six
month periods ended June 30, 1998, foreign currency
translation adjustments were $787, net of tax. Therefore,
comprehensive income was $30,894 and $75,403, respectively,
for the three and six month periods ended June 30, 1998.
In June 1998, the FASB issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities", which requires
that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective
for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company has not yet determined the impact of
this pronouncement.
(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 subsidiaries, OmniOffices, Inc. ("OmniOffices"), and
OmniOffices (UK) Limited (Omni-UK), the Company's executive
suites subsidiaries, file separate tax returns and are subject
to federal, state and local income taxes as well as certain
foreign 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.
10
<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 Three Months
Ended June 30, 1998 Ended June 30, 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 $ 21,222 70,722 $0 .30 $ 17,770 55,864 $ 0.32
Effect of Dilutive
Securities
Stock Options 173 184
------- ------ ------- ------
Diluted EPS $ 21,222 70,895 $0 .30 $ 17,770 56,048 $ 0.32
======= ====== ======= ======
</TABLE>
Income before extraordinary item has been reduced by preferred
stock dividends of $8,885 and $761 for the three month periods
ending June 30, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
Six Months Six Months
Ended June 30, 1998 Ended June 30, 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 $ 56,940 65,389 $0 .87 $ 30,268 51,583 $ 0.59
Effect of Dilutive
Securities Stock
Options 192 191
------- ------ -------- ------
Diluted EPS $ 56,940 65,581 $0 .87 $ 30,268 51,774 $ 0.58
======= ====== ======== ======
</TABLE>
Income before extraordinary item has been reduced by preferred
stock dividends of $17,676 and $1,522 for the six month
periods ending June 30, 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.
(p) Accumulated Other Comprehensive Income
The financial statements of Omni-UK, a foreign subsidiary,
have been prepared in the respective local currency and
translated into U.S. dollars based on the current exchange
rate at the end of the period for assets and liabilities and
at an average exchange rate for the period on the statement of
operations. Translation adjustments have no effect on net
income and are reflected in Stockholder's Equity as
accumulated other comprehensive income.
11
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
- -------------------------------------------------------------------------------
(2) Mortgages, Unsecured Notes and Credit Facilities
The Company's mortgages payable, unsecured notes and credit facilities
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Fixed rate mortgages $ 572,196 590,645
Unsecured credit facilities 324,000 159,500
Notes payable 22,768 3,801
Senior unsecured notes 475,000 275,000
---------- ---------
$ 1,393,964 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 December 1998 through July 2019.
The weighted average interest rate of mortgages payable was 8.2% at
June 30, 1998 and 8.1% at December 31, 1997. In compliance with the
terms of the mortgage instrument, a mortgage payable of $27.5 million
at June 30, 1998 is held by Carr Redmond Corporation, a wholly-owned
subsidiary of the Company, which owns the Redmond East office campus.
The Company 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 June 30, 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 basis
points above the 30 day LIBOR rate. The credit facility matures in
September 2000.
OmniOffices also has a $125.0 million unsecured credit facility with
Morgan. At June 30, 1998, the credit facility bore 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 the 30 day LIBOR. OmniOffices has predominately
selected interest rates equal to 105 basis points above the 30 day
LIBOR rate. The credit facility matures in April 2001. The facility is
unconditionally guaranteed by the Company.
The annual maturities of debt as of June 30, 1998 are summarized as
follows (in thousands):
1998 $ 27,000
1999 45,545
2000 299,145 (1)
2001 178,128 (2)
2002 42,322
2003 & thereafter 801,824 (3)
----------
$1,393,964
==========
(1) Includes $247 million outstanding as of June 30,
1998 under the Company's $450 million unsecured
line of credit.
(2) Includes $77 million outstanding as of June 30,
1998 under OmniOffices $125 million unsecured line
of credit.
(3) 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.
12
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
- -------------------------------------------------------------------------------
(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 and six month periods ended June 30, 1998,
2,268 and 14,476 dividend paying Units, respectively, of Carr Realty,
L.P. and CarrAmerica Realty, L.P., were redeemed for common stock of
the Company.
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 Non-
Preferred Distribution Distribution
Common Stock Stock Paying Units Paying Units
Outstanding Outstanding Outstanding Outstanding
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Outstanding as of:
June 30, 1998 71,622 780 6,016 540
December 31, 1997 59,994 780 5,699 540
====== === ===== ===
Weighted average for the
three months ended:
June 30, 1998 70,722 780 6,014 540
June 30, 1997 55,864 1,740 5,432 540
====== ===== ===== ===
Weighted average for the
six months ended:
June 30, 1998 65,389 780 5,976 540
June 30, 1997 51,583 1,740 5,187 540
====== ===== ===== ===
</TABLE>
Minority interest in the accompanying consolidated financial statements
relates primarily to holders of Units.
(4) Preferred Stock
The Company is authorized to issue up to 35,000,000 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 June 30, 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.
13
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
- -------------------------------------------------------------------------------
As of June 30, 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> <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
(5) Gain on Sale of Assets
The Company has disposed of certain assets that are inconsistent with
its long-term strategic or return objectives or where market conditions
for sale are favorable. The proceeds of the sales were redeployed into
other office properties (utilizing tax-deferred exchanges where
possible). During the first six months of 1998, the Company disposed of
one operating property and land that was being held for development.
The Company recognized a gain totaling $26.2 million on these
dispositions.
(6) Commitments and Contingencies
At June 30, 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 June 22, 1998, the Company entered into an interest rate hedge
agreement in the notional amount of $200.0 million at a rate of 9.5% in
order to hedge against the impact that interest rate fluctuations would
have on the interest rate attainable on the Company's line of credit.
As of June 30, 1998, unrealized gain/loss on the agreement was zero.
The Company has entered into the following forward treasury agreements.
The Company entered into these agreements in order to hedge against the
impact that interest rate fluctuations would have on debt instruments
the Company plans to issue in the future.
<TABLE>
<CAPTION>
Unrealized
Date Notional 10-Years Loss
of Amount Treasury @ 6-30-98
Agreement (in millions) Bill Rate (in millions)
------------------------ -------------- ------------------ --------------------
<S> <C> <C> <C> <C>
April 3, 1998 $ 25.0 5.513% $ 0.1
March 16, 1998 25.0 5.593 0.2
March 9, 1998 25.0 5.725 0.5
March 4, 1998 75.0 5.823 2.0
</TABLE>
14
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
- -------------------------------------------------------------------------------
(7) Subsequent Events
From July 1 to August 14, 1998, the Company, through its subsidiary
OmniOffices, Inc., acquired the operations of executive suites
businesses for approximately $17.9 million in cash. The businesses
include 11 centers with approximately 600 suites located in seven
markets.
From July 1 to August 14, 1998, the Company acquired seven office
properties. In addition, since July 1, 1998, the Company has acquired
land which is expected to support the future development of 1.9 million
square feet. The Company paid $62.6 million to purchase the properties
and land. These acquisitions added to the Company's holdings as
follows:
<TABLE>
<CAPTION>
Buildable
Square Feet of
# of Square Land Held for
Region Buildings Feet Development
---------------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
Pacific Region 7 206,000 289,000
Central Region -- -- 853,000
Mountain Region -- -- 792,000
------------- ------------- ----------------
Total 7 206,000 1,934,000
============= ============== ================
</TABLE>
In April 1998, the Company entered into a forward equity transaction.
In connection with this transaction, on August 10, 1998, the Company
posted $7.7 million as collateral for the settlement on the
transaction. The total amount currently posted as of August 14, 1998,
is $15.9 million.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
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 June 30, 1998 and December 31, 1997, and for the three and six
months ended June 30, 1998 and 1997. The comparability of the periods is
significantly impacted by acquisitions made during 1998 and 1997. As of June 30,
1997, the Company owned 209 properties. This number grew to 277 as of June 30,
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 June 30, 1998 and 1997
Operating Revenue. Total operating revenue increased $63.7 million, or 78.3%, to
$145.1 million for the three months ended June 30, 1998 as compared to $81.4
million for the three months ended June 30, 1997. The increase in revenue was
primarily attributable to a $29.3 million and a $34.4 million increase in rental
revenue and other 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 dispositions, which together contributed
approximately $26.2 million of additional rental revenue in the three month
period ended June 30, 1998. Rental revenue from properties that were fully
operational throughout both periods increased by approximately $3.1 million
primarily due to increased occupancy and rental rate increases. Other operating
revenue increased by $34.4 million, or 915.8%, for the three months ended June
30, 1998 to $38.2 million as compared to $3.8 million for the three months ended
June 30, 1997, primarily as a result of the executive office suites revenue
earned on the Company's acquisitions of executive suite businesses.
Operating Expenses. Total operating expenses increased $54.0 million for the
three months ended June 30, 1998, or 87.2%, to $115.9 million as compared to
$61.9 million for the three months ended June 30, 1997. The net increase in
operating expenses was attributable to a $7.8 million increase in property
operating expenses, a $5.7 million increase in interest expense, the addition of
$29.6 million in executive office suites operating expenses, a $2.9 million
increase in general and administrative expenses, and an $8.0 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 increasing approximately
$.5 million. 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 executive suite businesses.
The increase in general and administrative expenses is predominately a result of
the addition of new staff to implement the Company's business strategy and the
write-off of approximately $.7 million of costs associated with broken deal
costs. The increase in depreciation and amortization is predominately a result
of depreciation and amortization on the Company's real estate and executive
suite acquisitions.
Other Operating Income. Other operating income increased $2.3 million for the
three months ended June 30, 1998, to $3.3 million as compared to $1.0 million
for the three months ended June 30, 1997, primarily due to earnings from the
Company's additional investments in unconsolidated partnerships and the interest
income earned on increased cash balances.
16
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
Net Income. Net income of $30.1 million was earned for the three months ended
June 30, 1998 as compared to $18.5 million during the three months ended June
30, 1997. The comparability of net income between the two periods is impacted by
the acquisitions the Company made and the other changes described above.
Results of Operations - Six Months Ended June 30, 1998 and 1997
Operating Revenue. Total operating revenue increased $112.2 million, or 73.9%,
to $264.1 million for the six months ended June 30, 1998 as compared to $151.9
million for the six months ended June 30, 1997. The increase in revenue was
primarily attributable to a $63.3 million and a $48.9 million increase in rental
revenue and other 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 $58.1 million of additional rental revenue in the six month period
ended June 30, 1998. Rental revenue from properties that were fully operational
throughout both periods increased by approximately $5.2 million, primarily due
to rental rate increases. Other operating revenue increased by $48.9 million, or
616.0%, for the six months ended June 30, 1998 to $56.8 million as compared to
$7.9 million for the six months ended June 30, 1997, primarily as a result of
the executive office suites revenue earned on the Company's acquisitions of
executive suite businesses.
Operating Expenses. Total operating expenses increased $91.6 million for the six
months ended June 30, 1998, or 77.7%, to $209.5 million as compared to $117.9
million for the six months ended June 30, 1997. The net increase in operating
expenses was attributable to a $16.8 million increase in property operating
expenses, a $11.6 million increase in interest expense, the addition of $43.4
million in executive office suites operating expenses, a $4.1 million increase
in general and administrative expenses, and a $15.7 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 increasing approximately
$.9 million. 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 executive suite businesses.
The increase in general and administrative expenses is predominately a result of
the addition of new staff to implement the Company's business strategy and the
write-off of approximately $.7 million of costs associated with broken deal
costs. The increase in depreciation and amortization is predominately a result
of depreciation and amortization on the Company's real estate and executive
suite acquisitions.
Other Operating Income. Other operating income increased $29.5 million for the
six months ended June 30, 1998, to $31.0 million as compared to $1.5 million for
the six months ended June 30, 1997, primarily due to the gain recognized on the
disposition of 267,000 square feet of office space and earnings from the
Company's additional investments in unconsolidated partnerships.
Net Income. Net income of $74.6 million was earned for the six months ended June
30, 1998 as compared to $31.8 million during the six months ended June 30, 1997.
The comparability of net income between the two periods is impacted by the
acquisitions the Company made and the other changes described above.
17
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
Cash Flows. Net cash provided by operating activities increased $98.9 million,
or 169.3%, to $157.3 million for the six months ended June 30,1998 as compared
to $58.4 million for the six months ended June 30, 1997, primarily as a result
of the acquisitions made by the Company. Net cash used by investing activities
increased $247.6 million, to $741.1 million for the six months ended June 30,
1998 as compared to $493.5 million for the six months ended June 30, 1997,
primarily as a result of capital deployed by the Company for acquisitions of
office properties, executive suite businesses, land held for future development
and investments in construction in progress. Net cash provided by financing
activities increased $178.8 million, to $598.8 million for the six months ended
June 30, 1998 as compared to $420.0 million for the six months ended June 30,
1997, primarily as a result of borrowings on the unsecured credit facility and
the issuance of unsecured notes, net of 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 June 30, 1998 was $1.394 billion,
of which $324.0 million, or 23.2%, bears a LIBOR-based floating interest rate.
Currently, the unsecured credit facilities bear interest at 90 and 105 basis
points over LIBOR on the $450 million facility and the $125 million facility,
respectively. The Company's mortgages payable fixed rate indebtedness bears an
effective weighted average interest rate of 8.2% at June 30, 1998 and has a
weighted average term to maturity of 4.8 years. Based upon the Company's total
market capitalization at June 30, 1998 of $4.034 billion (the common stock price
was $28.38 per share; the total shares of common stock, convertible preferred
stock and Units outstanding was 78,957,151 and the aggregate liquidation value
of the cumulative redeemable preferred stock was $400 million), the Company's
debt represented 34.6% of its total market capitalization. As of August 14,
1998, the Company had $443.4 million outstanding under the unsecured credit
facilities.
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.
18
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
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 June
1998, the Company had 52 development projects underway which are expected to
require a total investment by the Company of approximately $643.8 million. The
Company intends to use cash flow from operations, its unsecured revolving
credit facilities, the proceeds from asset sales 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 $157.3 million for the
six months ended June 30, 1998, compared to $58.4 million for the six months
ended June 30, 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 $741.1 million and $493.5 million for
the six months ended June 30,1998 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 $685.4 million for the six months ended
June 30, 1998, as compared to $477.0 million in acquisitions during the same
period in 1997. Additionally, the Company invested approximately $21.2 million
and $15.0 million in its existing real estate assets for the six months ended
June 30, 1998 and 1997, respectively. Net of distributions to the Company's
stockholders and minority interests, the Company's financing activities provided
net cash of $682.5 million and $472.2 million for the six months ended June 30,
1998 and 1997, respectively. For the six months ended June 30,1998, the Company
raised $335.9 million through the sale of common stock 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 facilities
during 1998 to finance its acquisitions and other investing activities. For the
six months ended June 30, 1998, the Company's net borrowings on its unsecured
credit facility were approximately $164.5 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 June 30, 1998, the Company had cash of $79.6 million,
of which $40.1 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.
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.
19
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
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 January 1, 1998 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.
20
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
The following table provides the calculation of the Company's funds
from operations:
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net operating income before minority interest
and extraordinary items $ 32,511 20,551 $ 85,567 35,527
Adjustments to derive funds from operations:
Add:
Depreciation and amortization 25,869 17,321 48,924 32,337
Losses associated with executive
suites centers under development 1,049 -- 1,542 --
Deduct:
Minority interests' (non Unitholders)
share of depreciation, amortization and
net income (84) (295) (194) (586)
Gain on sale of assets 324 (353) (25,607) (353)
-------- ------ -------- ------
Funds from operations before allocation to
the minority Unitholders 59,669 37,224 110,232 66,925
Less: Funds from operations allocable to the
minority Unitholders (4,183) (3,234) (7,888) (6,100)
-------- ------ -------- ------
Funds from operations allocable
to CarrAmerica Realty Corporation 55,486 33,990 102,344 60,825
Less: Preferred stock dividends (1) (8,885) (761) (17,676) (1,522)
-------- ------ -------- ------
Funds from operations attributable
to common shareholders: $ 46,601 33,229 $ 84,668 59,303
======== ====== ======== ======
</TABLE>
(1) For the three months ended June 30, 1998 and 1997, included are
dividends of $361 and $761, respectively, of Series A Preferred Stock
which are convertible into common shares. For the six months ended June
30, 1998 and 1997, included are dividends of $722 and $1,522,
respectively, 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.
21
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Building And Lease Information
The following table sets forth certain information about each operating property
owned by the Company as of June 30, 1998:
<TABLE>
<CAPTION>
Company's Net
Effective Rentable
Property Area Percent # of
Property Ownership (square feet)(1) Leased(2) Buildings
- -------- --------- ---------------- --------- ---------
<S> <C> <C> <C> <C>
Consolidated Properties
SOUTHEAST REGION
Downtown Washington, D.C.:
International Square 100.0% 1,018,469 97.4% 3
1730 Pennsylvania Avenue 100.0 229,292 99.3 1
2550 M Street 100.0 187,931 97.4 1
1775 Pennsylvania Avenue (3) 100.0 143,981 99.1 1
900 19th Street 100.0 100,907 100.0 1
1747 Pennsylvania Avenue 89.7(4) 152,162 94.9 1
1255 23rd Street 75.0(5) 304,538 97.3 1
Suburban Washington, D.C.:
One Rock Spring Plaza (3) 100.0 205,298 100.0 1
Tycon Courthouse 100.0 416,195 99.2 1
Three Ballston Plaza 100.0 302,875 100.0 1
Sunrise Corporate Center 100.0 260,643 99.9 3
Parkway One 100.0 87,842 100.0 1
Suburban Atlanta:
Veridian 100.0 187,842 84.7 22
Glenridge 100.0 64,052 76.3 1
Century Springs West 100.0 94,747 94.9 1
Holcomb Place 100.0 72,823 100.0 1
DeKalb Tech 100.0 163,159 76.2 5
Midori 100.0 99,900 92.8 1
Crestwood 100.0 88,186 98.3 1
Parkwood 100.0 151,020 83.6 1
Lakewood 100.0 80,338 95.3 1
The Summit 100.0 178,382 94.5 1
Triangle Parkway 100.0 82,102 98.6 3
2400 Lake Park 100.0 100,445 98.4 1
680 Engineering Drive 100.0 62,154 100.0 1
Embassy Row 100.0 465,858 92.2 3
Waterford Center 100.0 82,161 85.1 1
Spalding Ridge 100.0 128,233 92.3 1
Boca Raton:
Peninsula Plaza 100.0 160,081 92.0 1
Presidential Circle 100.0 281,266 90.8 1
--------- ----- --
Southeast Region Subtotal 5,952,882 95.2 63
PACIFIC REGION
Southern California,
Orange County/Los Angeles:
Scenic Business Park 100.0 139,012 100.0 4
Harbor Corporate Park 100.0 148,598 95.4 4
Plaza PacifiCare 100.0 104,377 100.0 1
Katella Corporate Center 100.0 79,917 96.5 1
Warner Center 100.0 342,866 94.3 12
South Coast Executive Center 100.0 160,301 92.9 2
Warner Premier 100.0 61,553 100.0 1
Westlake Corporate Center 100.0 71,645 89.5 2
Von Karman 100.0 103,713 100.0 1
2600 W. Olive 100.0 145,304 95.7 1
Bay Technology Center 100.0 107,480 100.0 2
Alton Deere Plaza 100.0 181,196 100.0 6
</TABLE>
22
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company's Net
Effective Rentable
Property Area Percent # of
Property Ownership (square feet)(1) Leased(2) Buildings
- -------- --------- ---------------- --------- ---------
<S> <C> <C> <C> <C>
Southern California,
San Diego:
Del Mar Corporate Plaza 100.0% 123,142 100.0% 2
Wateridge Pavilion 100.0 62,194 100.0 1
Lightspan 100.0 64,800 100.0 1
Century Park II 100.0 198,306 100.0 3
Northern California,
San Francisco Bay Area:
CarrAmerica Corporate Center 100.0 957,737 100.0 6
Sunnyvale Research Plaza 100.0 126,000 100.0 3
Rio Robles 100.0 368,178 100.0 7
Valley Business Park II 100.0 161,040 100.0 6
Bayshore Centre 100.0 195,249 100.0 2
Rincon Centre 100.0 201,178 100.0 3
Valley Centre II 100.0 212,082 100.0 4
Valley Office Centre 100.0 68,731 97.2 2
Valley Centre 100.0 102,291 100.0 2
Valley Business Park I 100.0 67,784 100.0 2
3745 North First Street 100.0 67,582 100.0 1
3571 North First Street 100.0 116,000 100.0 1
Mission Plaza 100.0 102,687 100.0 2
North San Jose Technology Park 100.0 299,233 100.0 4
Foster City Technology Center 100.0 66,869 100.0 2
150 River Oaks 100.0 100,024 100.0 1
Amador/Rinconada 100.0 134,611 100.0 3
Amador III 100.0 82,944 100.0 1
Arroyo Center 100.0 104,741 100.0 2
San Mateo I 100.0 70,000 100.0 1
San Mateo II and III 100.0 135,353 99.5 2
900-910 East Hamilton 100.0 351,811 100.0 2
Hacienda West 100.0 205,724 95.6 2
Sunnyvale Technology Centre 100.0 165,520 100.0 5
Baytech Business Park 100.0 300,000 100.0 4
Golden Gateway Commons 100.0 269,405 100.0 3
Techmart Commerce Center 100.0 259,526 97.1 1
Santa Clara Technology Park 100.0 178,132 100.0 3
Northern California,
Sacramento:
1860 Howe Avenue 100.0 98,992 75.9 1
University Office Park 100.0 121,255 97.1 2
Capital Corporate Center 100.0 94,561 89.6 5
Suburban Portland:
RadiSys Corporate Headquarters 100.0 80,525 100.0 1
RadiSys II 100.0 45,655 100.0 1
Suburban Seattle:
Redmond East 100.0 398,030 91.3 10
Willow Creek 100.0 96,179 100.0 1
Canyon Park Business Center 100.0 246,565 100.0 6
Canyon Park Commons 100.0 95,290 100.0 1
Willow Creek Corporate Center 100.0 228,736 100.0 4
Redmond Hilltop B & C 100.0 90,880 100.0 2
--------- ----- ---
Pacific Region Subtotal 9,161,504 98.4 155
</TABLE>
23
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company's Net
Effective Rentable
Property Area Percent # of
Property Ownership (square feet)(1) Leased(2) Buildings
- -------- --------- ---------------- --------- ---------
<S> <C> <C> <C> <C>
CENTRAL REGION
Austin, Texas:
Great Hills Plaza 100.0% 135,333 100.0% 1
Balcones Center 100.0 75,761 64.5 1
Park North 100.0 128,023 98.1 2
City View Centre 100.0 135,104 100.0 3
Tower of the Hills 100.0 165,322 98.1 2
Suburban Chicago:
Parkway North 100.0 507,839 98.8 2
Unisys 100.0 359,633 94.1 2
The Crossings 100.0 296,624 99.3 2
Bannockburn I & II 100.0 209,860 100.0 2
Bannockburn IV 100.0 108,469 100.0 1
Summit Oaks 100.0 91,626 92.7 1
Dallas, Texas:
Greyhound 100.0 92,890 100.0 1
Search Plaza 100.0 152,508 95.4 1
Quorum North 100.0 114,196 89.7 1
Quorum Place 100.0 180,422 95.2 1
Cedar Maple Plaza 100.0 112,968 95.5 3
Tollhill East & West 100.0 241,155 91.1 2
Two Mission Park 100.0 76,962 63.1 1
Citymark 100.0 206,475 85.6 1
5000 Quorum 100.0 160,122 96.3 1
---------- ----- ---
Central Region Subtotal 3,551,292 94.7 31
MOUNTAIN REGION
Southeast Denver:
Harlequin Plaza 100.0 329,126 90.6 2
Quebec Court I & II 100.0 287,294 100.0 2
Greenwood Center 100.0 75,866 97.1 1
Quebec Center 100.0 106,849 96.9 1
Panorama Corporate Center I 100.0 100,542 98.7 3
JD Edwards 100.0 189,087 100.0 1
Panorama II 100.0 100,916 96.7 1
Phoenix, Arizona:
Camelback Lakes 100.0 199,149 99.8 2
Pointe Corridor IV 100.0 178,745 94.1 1
Highland Park 100.0 78,093 67.7 1
The Grove at Black Canyon 100.0 104,187 95.2 1
US West 100.0 532,506 100.0 4
Salt Lake City, Utah:
Sorenson Research Park 100.0 285,144 98.4 5
Wasatch Corporate Center 100.0 178,098 100.0 3
---------- ----- ---
Mountain Region Subtotal 2,745,602 96.8 28
---------- ----- ---
TOTAL CONSOLIDATED PROPERTIES: 21,411,280 277
---------- ---
WEIGHTED AVERAGE 96.7%
-----
</TABLE>
24
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company's Net
Effective Rentable
Property Area Percent # of
Property Ownership (square feet)(1) Leased(2) Buildings
- -------- --------- ---------------- --------- ---------
<S> <C> <C> <C> <C>
Unconsolidated Properties
Downtown Washington, D.C.:
1717 Pennsylvania Avenue 50.0%(6) 184,446 100.0% 1
AARP Headquarters 24.0 (7) 477,394 99.8 1
Bond Building 15.0 (8) 162,097 100.0 1
Willard Office/Hotel 5.0 (9) 242,787 97.2 1
Suburban Washington, D.C.:
Booz-Allen & Hamilton Building 50.0 (10) 222,989 100.0 1
---------- ----- -
TOTAL UNCONSOLIDATED PROPERTIES: 1,289,713 5
---------- -
WEIGHTED AVERAGE 99.4%
-----
ALL OPERATING PROPERTIES
TOTAL: 22,700,993
==========
WEIGHTED AVERAGE 96.9%
=====
</TABLE>
- ---------------
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
June 30, 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.
25
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
The following table sets forth a schedule of the lease expirations for
leases in place as of June 30, 1998 in each of the next ten years beginning with
1998 and thereafter for the 277 operating office properties whose results are
consolidated in the financial statements of the Company, assuming that no
tenants exercise renewal options:
<TABLE>
<CAPTION>
Net Rentable Area Percent of Leased
Subject to Square Footage
Year Expiring Represented
of Lease Leases (1) by Expiring
Expiration (square feet) Leases
------------------------ ---------------------- -----------------------
<S> <C> <C>
1998 1,787,000 8.6%
1999 2,138,000 10.3
2000 2,801,000 13.5
2001 2,478,000 12.0
2002 2,862,000 13.8
2003 2,438,000 11.8
2004 1,488,000 7.2
2005 894,000 4.3
2006 1,233,000 6.0
2007 and thereafter 2,585,000 12.5
</TABLE>
- ----------------------
(1) Excludes 707,000 square feet of space that was vacant as of June 30, 1998.
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 July 1, 1997 to June 30, 1998, excluding the leases for
operating properties that were executed prior to the date of acquisition:
<TABLE>
<CAPTION>
Calculated on a Weighted Average Basis
Tenant Leasing
Total Square Improvements & Base Lease Abatements Commission
Feet Cash Allowances Rent per Life in in Per Square
Type of Lease Leased per Square Foot Square Foot Years Months Foot
- ------------- ------------ --------------- ----------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating
Properties, Downtown
Washington, D.C.
(9 Properties)
Office 202,145 $ 7.21 $ 29.25 4.4 0.8 $ 1.41
Retail 31,197 4.64 26.65 6.3 1.4 1.26
---------
Total/Weighted Average 233,342 6.87 28.90 4.7 0.8 1.39
========= ======= ======= === === =======
New leases or
expansion space 193,114 $ 8.30 $ 28.58 4.6 1.0 $ 1.66
Renewals of existing
tenants' space 40,228 0.00 30.42 4.9 0.0 0.07
--------
Total/Weighted Aveerage 233,342 6.87 28.90 4.7 0.8 1.39
========= ======= ======= === === =======
Operating
Properties, Other
Than Downtown
Washington, D.C.
(268 Properties)
Office 4,431,613 $ 3.82 $ 16.86 5.7 0.3 $ 1.90
Retail 3,050 2.27 14.20 1.0 0.0 0.39
---------
Total/Weighted Average 4,434,663 3.82 16.86 5.7 0.3 1.90
========= ======= ======= === === =======
New leases or
expansion space 3,034,842 $ 4.56 $ 16.93 5.5 0.4 $ 2.41
Renewals of existing
tenants' space 1,399,821 2.21 16.72 6.1 0.0 0.79
---------
Total/Weighted Average 4,434,663 3.82 16.86 5.7 0.3 1.90
========= ======= ======= === === =======
</TABLE>
26
<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
At the annual meeting of its stockholders on May 7, 1998, the
stockholders elected A. James Clark (54,158,465 votes for and
704,983 votes against or withheld) and Todd W. Mansfield
(54,155,660 votes for and 707,788 votes against or withheld)
as directors of the Company with terms expiring in 2000. The
stockholders also elected Thomas A. Carr (54,162,470 votes for
and 700,978 votes against or withheld), Caroline S. McBride
(54,162,440 votes for and 701,008 votes against or withheld)
and Wesley S. Williams, Jr. (54,274,827 votes for and 588,621
votes against or withheld) as directors of the Company with
terms expiring in 2001.
In addition, the stockholders voted to increase the number of
authorized shares of common stock and preferred stock
(42,861,654 votes for, 8,947,566 votes against, 63,757 votes
withheld and 2,990,469 broker non-votes), to increase the
number of shares authorized for issuance under the 1997
CarrAmerica Realty Corporation Stock Option and Incentive Plan
(43,081,908 votes for, 8,711,776 votes against, 79,295 votes
withheld and 2,990,469 broker non-votes) and to increase the
number of shares authorized for issuance under the 1995
CarrAmerica Realty Corporation Non-Employee Director Stock
Option Plan (49,966,730 votes for, 1,819,238 votes against,
87,009 votes withheld and 2,990,471 broker non-votes). The
stockholders also voted to amend the Articles of Incorporation
to modify the definition of the term "Special Shareholder"
(50,642,487 votes for, 1,101,046 votes against, 129,445 votes
withheld and 2,990,470 broker non-votes).
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
3.1 Amendment to the Company's Articles of Incorporation
dated May 7, 1998.
3.2 Amendment to the Second Amended and Restated By-Laws of
CarrAmerica Realty Corporation.
3.3 Amendment to the Second Amended and Restated By-Laws of
CarrAmerica Realty Corporation.
27
<PAGE>
10.1 Third Amendment to Third Amended and Restated Agreement
of Limited Partnership of Carr Realty, L.P. dated
May 8, 1998.
27.1 Financial Data Schedule - Six Months Ended June 30,
1998.
27.2 Financial Data Schedule - Six Months Ended June 30,
1997.
(b.) Reports on Form 8-K
a. Current Report on Form 8-K filed on April 3, 1998
regarding proforma condensed consolidated balance sheet
(unaudited) at December 31, 1997 and proforma condensed
consolidated statement of operations (unaudited) for the
year ended December 31, 1997.
b. Current Report on Form 8-K/A filed on April 8,1998
regarding the Underwriting Agreement and related Terms
Agreement with Goldman, Sachs & Co and the Purchase
Agreement and the Purchase Price Adjustment Agreement
with Merrill Lynch, Pierce, Finner & Smith,
Incorporated.
c. Current Report on Form 8-K filed on April 16, 1998
regarding the exercise of the overallotment option by
Goldman, Sachs & Co and by SC-USREALTY.
d. Current Report on Form 8-K filed on April 28, 1998
regarding the Underwriting Agreement and related Terms
Agreement entered into with Merrill Lynch, Pierce,
Finner & Smith, Incorporated.
e. Current Report on Form 8-K filed on May 7, 1998
regarding certain supplemental data included in the
Company's press release, dated May 7, 1998.
28
<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: August 14, 1998
29
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
3.1 Amendment to the Company's Articles of Incorporation
dated May 7, 1998.
3.2 Amendment to the Second Amended and Restated By-Laws of
CarrAmerica Realty Corporation.
3.3 Amendment to the Second Amended and Restated By-Laws of
CarrAmerica Realty Corporation.
10.1 Third Amendment to Third Amended and Restated Agreement of Limited
Partnership of Carr Realty, L.P. dated May 8, 1998.
27.1 Financial Data Schedule - Six Months Ended June 30, 1998.
27.2 Financial Data Schedule - Six Months Ended June 30, 1997.
</TABLE>
30
ARTICLES OF AMENDMENT
OF
AMENDMENT AND RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
CARRAMERICA REALTY CORPORATION
CarrAmerica Realty Corporation, a Maryland corporation, having its
principal office in Maryland in Baltimore, Maryland (the "Corporation"), and
having The Corporation Trust, Incorporated as its resident agent located at 23
South Street, Baltimore, Maryland, hereby certifies to the State Department of
Assessment and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by striking in
its entirety Section 4.1 and by inserting in lieu thereof the following:
"Section 4.1 Shares and Par Value. The total number of shares
of all classes of stock that the Corporation shall have authority to
issue is 215,000,000, consisting of 180,000,000 shares of Common Stock
having a par value of one cent ($.01) per share, amounting in the
aggregate to par value of $1,800,000, and 35,000,000 shares of
Preferred Stock having a par value of one cent ($.01) per share,
amounting in the aggregate to par value of $350,000."
SECOND: The total number of shares of all classes of stock that the
Corporation was heretofore authorized to issue is 105,000,000, consisting of
90,000,000 shares of Common Stock having a par value of one cent ($.01) per
share, amounting in the aggregate to par value of $900,000, and 15,000,000
shares of Preferred Stock having a par value of one cent ($.01) per share,
amounting in the aggregate to par value of $150,000. The shares are not divided
into classes.
THIRD: The charter of the Corporation is hereby amended by striking in
its entirety Section 5.1(v) and by inserting in lieu thereof the following:
"(v) "Special Shareholder" shall mean (i) Security Capital
U.S. Realty S.A., Security Capital Holdings S.A. and any affiliate of
either such Person who shall acquire any shares of Stock either
directly pursuant to the Stock Purchase Agreement or from either such
Person (or another affiliate thereof) in accordance with the provisions
of such Stock Purchase Agreement or the Stockholders Agreement, (ii)
any Person who is considered a Beneficial Owner of shares of Stock as a
result of the actual ownership of shares of Stock by any of the Persons
identified in clause (i) above, and (iii) any bona fide financial
institution that Acquires Beneficial Ownership of shares of Stock
either (x) as a result of an exercise of rights as a pledgee or
<PAGE>
otherwise in connection with bona fide indebtedness of any of the
Persons identified in clause (i) above or (y) as a result of any such
Person's default under any such bona fide indebtedness (it being
understood that no pledge or other assignment of such shares of Stock
as collateral for bona fide indebtedness shall in and of itself result
in the pledgee or assignee being deemed to have Beneficial Ownership of
the pledged or assigned shares of Stock unless and until a default with
respect to such indebtedness shall have occurred and the lender
therefore has a current right to exercise its rights as pledgee or
assignee with respect to such shares of Stock), subject in each case to
the condition that such bona fide financial institution's Beneficial
Ownership of Stock would not result in the Special Shareholders as a
group exceeding the Special Shareholder Limit; provided, that, as a
condition to a bona fide financial institution's qualifying under
clause (iii) above, (p) each of Security Capital U.S. Realty S.A. and
Security Capital Holdings S.A. shall agree in writing (and each such
agreement shall be reasonably acceptable to the Corporation) that each
such bona fide financial institution shall be deemed a Special
Shareholder and the shares of Stock owned by each such financial
institution shall be included (without duplication) with the shares of
Stock owned by persons otherwise deemed Special Shareholders in
determining the Special Shareholder Limit, and (q) such bona fide
financial institution shall agree in writing (and such agreement shall
be reasonably acceptable to the Corporation), in advance or promptly
following acquisition of Beneficial Ownership of any shares of Stock as
described in clause (iii) above, to be bound by the Stockholders
Agreement (including, without limitation, the provisions to the effect
that shares of Stock cannot be transferred if the transfer would
violate the restrictions set forth in Section 5.2 of the Charter)."
FOURTH: On February 5, 1998 and March 5, 1998, respectively, the board
of directors of the Corporation duly approved the foregoing amendments to the
charter of the Corporation, subject to, among other things, the approval thereof
by the stockholders of the Corporation.
FIFTH: Notice of the 1998 annual meeting of stockholders of the
Corporation to, among other things, take action on certain proposals, including
the foregoing amendments, was given to each stockholder entitled to vote on the
foregoing amendments.
SEVENTH: The stockholders of the Corporation on May 7, 1998 duly
approved the foregoing amendments to the charter of the Corporation at the 1998
annual meeting of the stockholders of the Corporation.
-2-
<PAGE>
IN WITNESS WHEREOF, CarrAmerica Realty Corporation has caused these
presents to be signed in its name and on its behalf by its Senior Vice
President, General Counsel and Secretary and attested by its Assistant Secretary
on June 16, 1998. The undersigned hereby certifies, under penalties of perjury,
that to the best of his or her knowledge, information and belief the matters and
facts set forth herein are true and correct in all material respects.
CARRAMERICA REALTY CORPORATION
By: /s/ Linda A Madrid
---------------------------------------
Linda A. Madrid
Senior Vice President, General Counsel
and Secretary
Attest: /s/ Kelly S. Holdcraft
--------------------------------
Kelly S. Holdcraft
Assistant Secretary
-3-
BYLAW AMENDMENT
Approved by the Board of Directors
On April 6, 1998
Effective May 7,1998
Section 4(3)(1)(a) of the By-Laws of the Corporation is read in its entirety as
follows:
"(a) The size of the Board of Directors shall be no more than twelve,
but not fewer than the number required by the Corporation's Articles of
Incorporation or by Maryland law, with such number to be determined from time to
time by a majority of the entire Board of Directors. The term of office of a
Director shall not be affected by any decrease in the authorized number of
Directors."
BYLAW AMENDMENT
Approved by the Board of Directors
on May 7, 1998
Effective May 7, 1998
Section 6.05 of the By-laws of the Corporation is read in its entirety as
follows:
"Section 6.05. President. The President, subject to the control of the
Board of Directors and at the direction of and with the Chief Executive Officer,
shall in general supervise and control all of the business and affairs of the
Corporation. He shall, when present and in the absence of the Chairman of the
Board and the Chief Executive Officer, preside at all meetings of the
stockholders and the Board of Directors. The President may appoint one or more
officers or assistant officers of the Corporation. He may sign, with the
Secretary or any other proper officer of the Corporation authorized by the Board
of Directors, certificates for shares of the Corporation and deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-laws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Chief Executive Officer or the Board of Directors from time to
time."
THIRD AMENDMENT TO
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CARR REALTY, L.P.
THIS THIRD AMENDMENT TO THIRD AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CARR REALTY, L.P. (this "Third Amendment"), dated
May 8, 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 party listed on Schedule A hereto (the
"Contributor").
WHEREAS, on the date hereof, the Contributor is receiving
Class C units of limited partnership interest in the Partnership in exchange for
the Contributor's limited partnership interest in Square 24 Associates, a
District of Columbia limited partnership in which Carr Real Estate Services,
L.L.C., a Delaware limited liability company in which the Partnership is the
sole member, is the sole general partner, pursuant to a closing under a certain
Contribution Agreement by and between the Partnership and the Contributor; and
WHEREAS, the 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. The 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 a Contribution Agreement, dated as of May 8, 1998, by and
between Carr Realty, L.P. and the Contributor, Exhibit A hereby is amended by
replacing such Exhibit A with the Exhibit A attached to this Third Amendment,
and the Contributor hereby is admitted to the Partnership as an Additional
Limited Partner holding Class C Units.
* * * *
All capitalized terms used in this Third 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 Third
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: Karen B. Dorigan
----------------------------
Name: Karen B. Dorigan
Title: Senior Vice President
CONTRIBUTOR
By: Karen B. Dorigan
--------------------------------------------
Name: Karen B. Dorigan
As Attorney-in-Fact for the Holder
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
JUNE 30, 1998 AND FROM CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
</LEGEND>
<CIK> 0000893577
<NAME> Carr America Realty Corporation
<MULTIPLIER> 1,000
<CURRENCY> US Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 79,638
<SECURITIES> 0
<RECEIVABLES> 46,658
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,781,942
<DEPRECIATION> 216,704
<TOTAL-ASSETS> 3,495,638
<CURRENT-LIABILITIES> 0
<BONDS> 1,393,964
0
96
<COMMON> 716
<OTHER-SE> 1,885,744
<TOTAL-LIABILITY-AND-EQUITY> 3,495,638
<SALES> 0
<TOTAL-REVENUES> 264,116
<CGS> 0
<TOTAL-COSTS> 209,511
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 85,567
<INCOME-TAX> 0
<INCOME-CONTINUING> 85,567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,616
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
<FN>
<F1>Notes & accounts receivable are presented net of allowance for doubtful
accounts as the allowance is immaterial.
</FN>
</TABLE>
<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
JUNE 30, 1997 AND FROM CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997
</LEGEND>
<CIK> 0000893577
<NAME> CarrAmerica Realty Corp.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 35,866
<SECURITIES> 0
<RECEIVABLES> 11,899
<ALLOWANCES> 0 <F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,475,998
<DEPRECIATION> 119,657
<TOTAL-ASSETS> 1,536,564
<CURRENT-LIABILITIES> 0
<BONDS> 655,449
0
17
<COMMON> 438
<OTHER-SE> 1,552,697
<TOTAL-LIABILITY-AND-EQUITY> 1,536,564
<SALES> 0
<TOTAL-REVENUES> 151,913
<CGS> 0
<TOTAL-COSTS> 117,895
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 35,527
<INCOME-TAX> 0
<INCOME-CONTINUING> 35,527
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,790
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.58
<FN>
<F1> Notes & accounts receivable are presented net of allowance for doubtful
accounts as the allowance is immaterial.
</FN>
</TABLE>
