================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20543
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1999
COMMISSION FILE NO. 1-11706
CARRAMERICA REALTY CORPORATION
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Maryland 52-1796339
- --------------------------------------------- --------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
1850 K Street, N.W., Washington, D.C. 20006
--------------------------------------------------------
(Address or principal executive office) (Zip code)
Registrant's telephone number, including area code (202) 729-7500
--------------
<TABLE>
<S> <C>
N/A
- ------------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last report)
</TABLE>
Number of shares outstanding of each of the registrant's
classes of common stock, as of May 17, 1999:
Common Stock, par value $.01 per share: 66,776,899 shares
- --------------------------------------------------------------------------------
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
----------- -----------
================================================================================
<PAGE>
Index
<TABLE>
<CAPTION>
Page
------
Part I: Financial Information
- -----------------------------
<S> <C> <C>
Item 1. Financial Statements
Condensed consolidated balance sheets of CarrAmerica Realty Corporation and subsidiaries
as of March 31, 1999 (unaudited) and December 31, 1998............................................4
Condensed consolidated statements of operations of CarrAmerica Realty Corporation and
subsidiaries for the three months ended March 31, 1999 and 1998 (unaudited).......................5
Condensed consolidated statements of cash flows of CarrAmerica Realty Corporation and
subsidiaries for the three months ended March 31, 1999 and 1998 (unaudited).......................6
Notes to condensed consolidated financial statements (unaudited)............................7 to 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................14 to 26
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................................27
Part II: Other Information
- --------------------------
Item 6. Exhibits and Reports on Form 8-K.................................................................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 March 31,1999 and December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share and share amounts)
March 31, December 31,
1999 1998
---- ------
(Unaudited)
<S> <C> <C>
Assets
- ------
Rental property (note 2):
Land $ 631,314 692,484
Buildings 1,938,849 2,051,734
Tenant improvements 198,207 192,211
Furniture, fixtures and equipment 66,378 57,140
--------------- ----------------
2,834,748 2,993,569
Less - accumulated depreciation (267,324) (262,458)
--------------- ----------------
Total rental property 2,567,424 2,731,111
Land held for development 128,987 119,141
Construction in progress 338,318 347,294
Cash and cash equivalents 41,624 36,499
Restricted cash and cash equivalents (note 2) 69,492 48,640
Accounts and notes receivable 52,072 47,251
Investments 83,143 101,679
Accrued straight-line rents 38,633 39,273
Tenant leasing costs, net 42,721 42,552
Deferred financing costs, net 19,660 19,911
Goodwill, net 231,250 221,570
Prepaid expenses and other assets, net 39,656 38,563
--------------- ----------------
$ 3,652,980 3,793,484
=============== ================
Liabilities, Minority Interest, and Stockholders' Equity
- --------------------------------------------------------
Liabilities:
Mortgages and notes payable (note 2) $ 1,676,868 1,704,359
Accounts payable and accrued expenses 123,764 133,767
Rent received in advance and security deposits 43,142 47,692
--------------- ----------------
Total liabilities 1,843,774 1,885,818
Minority interest (note 3) 102,109 93,264
Stockholders' equity (note 4):
Preferred Stock, $.01 par value, authorized 35,000,000 shares:
Series A Cumulative Convertible Redeemable Preferred Stock, $.01 par
value, 680,000 shares issued and outstanding with an aggregate
liquidation preference of $17.0 million. 7 7
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 66,767,758 shares at March 31, 1999 and 71,760,172 shares
at December 31, 1998. 668 718
Additional paid in capital 1,816,414 1,926,057
Accumulated other comprehensive income (1,270) 463
Cumulative dividends in excess of net income (108,810) (112,931)
--------------- ----------------
Total stockholders' equity 1,707,097 1,814,402
--------------- ----------------
Commitments and Contingencies
$ 3,652,980 3,793,484
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited and in thousands, except per share amounts)
1999 1998
---- ----
<S> <C> <C>
Operating revenue:
Rental revenue:
Minimum base rent $ 103,140 85,383
Recoveries from tenants 14,133 11,576
Parking and other tenant charges 4,185 3,370
-------------- --------------
Total rental revenue 121,458 100,329
Executive suites revenue 49,099 15,648
Real estate service revenue 3,900 2,990
-------------- --------------
Total revenue 174,457 118,967
-------------- --------------
Operating expenses:
Property expenses:
Operating expenses 29,304 23,214
Real estate taxes 11,041 9,302
Interest expense 23,493 17,161
Executive suites expenses 44,116 13,854
General and administrative 9,309 6,439
Depreciation and amortization 30,402 23,643
-------------- --------------
Total operating expenses 147,665 93,613
-------------- --------------
Operating income 26,792 25,354
-------------- --------------
Other operating income:
Interest Income 1,315 1,017
Equity in earnings of unconsolidated partnerships 1,495 754
Gain on settlement of treasury locks (note 2) 4,489 --
-------------- --------------
Total other operating income 7,299 1,771
-------------- --------------
Net operating income before gain on sale of assets,
income taxes and minority interest 34,091 27,125
Income taxes (252) --
Minority interest (5,719) (8,547)
-------------- --------------
Net operating income before gain on sale of assets 28,120 18,578
Gain on sale of assets, net of income taxes (note 5) 18,055 25,931
Net income $ 46,175 44,509
-------------- --------------
Other comprehensive loss - foreign currency
translation adjustment (1,733) --
-------------- --------------
Comprehensive income $ 44,442 44,509
============== ==============
Basic net income per common share $ 0.53 0.60
============== ==============
Diluted net income per share $ 0.52 0.59
============== ==============
See accompanying notes to condensed consolidated financial statements
</TABLE>
5
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited and in thousands)
1999 1998
-------------- ---------------
Cash flows from operating activities:
Net income $ 46,175 44,509
-------------- ---------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 30,402 23,643
Minority interest in income 5,719 8,547
Restricted Stock Units issued 378 --
Equity in earnings of unconsolidated partnerships (1,495) (754)
Gain on sale of assets, net of income taxes (18,055) (25,931)
Loss on write-off of assets 1,236 --
Change in assets and liabilities, net of acquisitions and dispositions:
Increase in accounts and notes receivable (4,821) (5,075)
Decrease in accrued straight-line rents 640 3,668
Additions to tenant leasing costs (2,120) (2,556)
Decrease (increase) in prepaid expenses and other assets (4,436) 15,551
Decrease in accounts payable and accrued expenses (10,381) (10,288)
Increase (decrease) in rent received in advance and security deposits (4,550) 5,874
-------------- ---------------
Total adjustments (7,483) 12,679
-------------- ---------------
Net cash provided by operating activities 38,692 57,188
-------------- ---------------
Cash flows from investing activities:
Acquisitions of executive suites assets (11,077) (28,397)
Additions to executive suites in development (8,683) --
Acquisitions of rental property -- (107,299)
Additions to rental property (12,751) (8,242)
Additions to land held for development (10,061) (71,918)
Additions to construction in progress (65,048) (71,506)
Distributions from unconsolidated partnerships 21,440 777
Investments in unconsolidated partnerships (1,409) (50,224)
Increase in restricted cash and cash equivalents (20,852) (13,306)
Proceeds from sales of rental property 253,771 57,218
-------------- ---------------
Net cash provided (used) by investing activities 145,330 (292,897)
-------------- ---------------
Cash flows from financing activities:
Net proceeds from sales of common and preferred stock -- (256)
Repurchase of common stock (109,693) --
Net borrowings (repayments) on unsecured credit facility (65,000) 90,000
Proceeds from issuance of unsecured notes -- 200,000
Proceeds from refinance of existing mortgages 41,220 --
Net proceeds from exercise of stock options -- 23
Repayment of mortgages payable (3,711) (15,068)
Contributions from minority interests 5,888 10,227
Dividends paid (42,054) (36,344)
Additions to deferred financing costs (1,052) (9,194)
Distributions to minority interests (2,762) (2,653)
-------------- ---------------
Net cash provided (used) by financing activities (177,164) 236,735
-------------- ---------------
Foreign currency translation adjustment (1,733) --
-------------- ---------------
Increase in unrestricted cash and cash equivalents 5,125 1,026
Unrestricted cash and cash equivalents, beginning of the period 36,499 23,845
-------------- ---------------
Unrestricted cash and cash equivalents, end of the period $ 41,624 24,871
============== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $8,055 and $5,377
for the three months ended March 31, 1999 and 1998, respectively) $ 18,257 21,839
============== ===============
Supplemental disclosure of non-cash investing and financing activities:
During the three months ended March 31, 1998, the Company funded a portion of
the aggregate purchase price of its property acquisitions by assuming $6.0
million of debt and liabilities and by issuing $9.8 million of Units.
See accompanying notes to condensed consolidated financial statements
</TABLE>
6
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statement
(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 14 suburban markets across the United States.
OmniOffices, Inc. ("OmniOffices") and OmniOffices (UK) Limited ("Omni
UK"), the Company's executive suites affiliates, are engaged in the
business of leasing commercial office space in the form of executive
office suites and providing related telecommunications, secretarial,
copying and office support services to tenants. OmniOffices and Omni UK
offered short-term leases and service packages at over 100 facility
locations in 31 markets throughout the United States and in the United
Kingdom and Argentina as of March 31, 1999.
(b) Basis of Presentation
The accounts of the Company and its majority-owned/controlled
subsidiaries and affiliates 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) New Accounting Pronouncements
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, if any.
7
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statement (Continued)
(Unaudited)
- -------------------------------------------------------------------------------
(e) Per Share Data and Dividends
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations for net income:
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, 1999 Ended March 31, 1998
--------------------------------------------------------------------
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 $ 37,430 71,099 $0.53 35,718 59,997 0.60
Effect of Dilutive Securities:
Stock Options -- 293 -- 233
Series A Preferred Stock 315 680 361 780
Units in CarrAmerica Realty, L.P. 873 1,778 896 1,778
------- ----- ------- ------
Diluted EPS $ 38,618 73,850 $0.52 36,975 62,788 0.59
======== ====== ======= ======
</TABLE>
Net income has been reduced by preferred stock dividends of $8,745 and
$8,791 for the three month periods ending March 31, 1999 and 1998,
respectively.
The effects of units and Series A Preferred Stock are not included in
the computation of diluted EPS for a given period if their effect is
antidilutive.
(f) Reclassifications
Certain reclassifications of the prior quarter and December 31, 1998
amounts have been made to conform to the current period's presentation.
(2) Mortgages, Unsecured Notes and Credit Facilities
The Company's mortgages payable, unsecured notes and credit facilities are
summarized as follows (in thousands):
March 31, December 31,
1999 1998
---- -----
Fixed rate mortgages $ 634,368 596,859
Unsecured credit facilities 417,500 482,500
Senior unsecured notes 625,000 625,000
---------- ---------
$1,676,868 1,704,359
========== =========
8
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statement (Continued)
(Unaudited)
- -------------------------------------------------------------------------------
Fixed rate mortgages payable are collateralized by certain rental
properties and generally require monthly principal and/or interest
payments. The mortgages mature at various dates from May 31, 1999
through July 15, 2019. The weighted average interest rate of mortgages
payable was 8.1% at March 31, 1999 and 8.2% at December 31, 1998. In
compliance with the terms of the mortgage instrument, a mortgage payable
of $27.3 million at March 31, 1999 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 March 31, 1999, 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 for initial draws and upon the
expiration of current LIBOR contracts. The credit facility matures in
August 2001. At March 31, 1999, the Company had $133.3 million available
for draw under the credit facility.
OmniOffices also has a $200.0 million unsecured credit facility with
Morgan, as agent for a group of banks. At March 31, 1999, 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 90 basis points above the 30 day LIBOR.
OmniOffices has predominately selected interest rates equal to 90 basis
points above the 30 day LIBOR rate for initial draws and upon the
expiration of current LIBOR contracts. The credit facility matures in
August 2001. The facility is unconditionally guaranteed by the Company.
At March 31, 1999, OminOffices had $91.7 million available for draw
under the credit facility.
The Company has senior unsecured notes outstanding in the aggregate
principal amount of $625 million. These notes are in the form of $150
million of 6.625% notes due in 2000, $150 million of 7.20% notes due in
2004, $100 million of 6.625% notes due in 2005, $125 million of 7.375%
notes due in 2007 and $100 million of 6.875% notes due in 2008. The
notes due in 2000, 2005 and 2008 were issued in 1998. The notes due in
2004 and 2007 were issued in 1997.
9
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statement (Continued)
(Unaudited)
- -------------------------------------------------------------------------------
The annual maturities of debt as of March 31, 1999 are summarized as follows
(in thousands):
1999 $ 25,403
2000 197,403 (1)
2001 517,732 (2),(3)
2002 44,232
2003 54,936
2004 and thereafter 837,162 (4)
----------
$1,676,868
==========
(1) Includes $150 million of senior unsecured notes, which
mature in 2000.
(2) Includes $313 million outstanding as of March 31, 1999
under the Company's $450 million unsecured line of
credit.
(3) Includes $104.5 million outstanding as of March 31, 1999
under OmniOffices' $200 million unsecured line of credit.
(4) 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.
Restricted cash and cash equivalents include escrow deposits required by
lenders to be used for future building renovations or tenant improvements,
escrow deposits for the acquisition of executive suites assets and
collateral for letters of credit.
On June 22, 1998, the Company entered into an agreement in the notional
amount of $200.0 million at a rate of 9.5% in order to hedge against the
risk of interest rates increasing above 9.5% on the Company's line of
credit. As of March 31, 1999, unrealized gain/loss on the agreement was
zero.
In February 1999, the Company settled the forward treasury lock agreements.
In doing so, the Company has recognized a $4.5 million gain for the
three-month period ended March 31, 1999.
(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 months ended March 31, 1999, 7,586 distribution paying Units of
Carr Realty, L.P. and CarrAmerica Realty, L.P. were redeemed for common
stock of the Company.
10
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statement (Continued)
(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 Non-
Common Preferred Distribution Distribution
Stock Stock Paying Units Paying Units
Outstanding Outstanding Outstanding Outstanding
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Outstanding as of:
March 31, 1999 66,768 680 5,970 540
December 31, 1998 71,760 680 5,978 540
Weighted average for the
three months ended:
March 31, 1999 71,099 680 5,972 540
March 31, 1998 59,997 780 5,938 540
</TABLE>
Minority interest in the accompanying condensed consolidated financial
statements relates primarily to holders of Units.
(4) Common Stock
In April 1998, the Company sold 5,000,000 shares of common stock to Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), resulting in
net proceeds to the Company of approximately $147 million, in what is
commonly know as a "forward equity sale" transaction. In March 1999, the
Company settled this agreement with a final cash payment of $109.7 million,
at which time the 5,000,000 shares were returned to the Company and
cancelled.
(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. During the three months ended March 31, 1999, the Company
disposed of 24 operating office properties recognizing gains totaling $18.1
million, net of $8.4 million in accrued income taxes.
(6) Subsequent Events
Since April 1, 1999, the Company sold 26 operating office properties for
$75.4 million and a parcel of land for $11.8 million, resulting in a net
after tax gain of $6.9 million. The operating office properties were located
in Suburban Washington, D.C. and Atlanta, and the land parcel was located in
Boca Raton, Florida.
OmniOffices also acquired five additional business centers located in the
Silicon Valley area of California. OmniOffices invested approximately $19.3
million to acquire these centers.
11
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statement (Continued)
(Unaudited)
- -------------------------------------------------------------------------------
During April 1999, the Company placed into service two buildings. The
properties placed in service added to the Company's holdings as follows:
<TABLE>
<CAPTION>
# of
Region Buildings Square Feet
-------------------------------------------- ------------ --------------------------------------
<S> <C> <C>
Pacific Region 1 54,153
Central Region 1 102,404
- -------
Total 2 156,557
= =======
</TABLE>
(7) Segment Information
The Company's reportable operating segments are real estate property
operations, executive office suites operations and development operations.
Other business activities and operating segments that are not reportable are
included in other operations.
The Company's operating segments' performances are measured using funds from
operations. Funds from operations represent net operating income before
minority interest and extraordinary items, excluding depreciation and
amortization on real estate assets and the executive suites business, losses
associated with the executive office suites centers under development, gain
on settlement of treasury locks, deferred taxes and gain on sale of assets.
<TABLE>
<CAPTION>
(In millions) As of and for the three months ended
March 31, 1999
---------------------------------------------------------------------------
Executive
Real Estate Office
Property Suites Development Other
Operations Operations Operations Operations Total
------------- ----------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Operating revenue $ 121.5 49.1 -- 3.9 $ 174.5
Segment expense 40.3 39.8 0.9 8.4 89.4
------------- ------------- -------------- ------------ --------------
Net segment revenue 81.2 9.3 (0.9) (4.5) 85.1
Interest expense 12.1 2.2 (8.0) 17.2 23.5
Other income (expense), net 0.2 0.3 -- 1.3 1.8
------------- ------------- -------------- ------------ --------------
Funds from operations 69.3 7.4 7.1 (20.4) 63.4
============= ============= ============== ============ --------------
Adjustments to net operating income
before gain on sale of assets,
income taxes and minority interest:
Depreciation and amortization (29.6)
Gain on settlement of treasury
locks 4.5
Other, net (4.2)
--------------
Net operating income before gain on
sale of assets, income taxes and
minority interest $ 34.1
==============
Total assets $ 2,653.0 378.9 467.3 153.8 $ 3,653.0
Expenditures for long lived
assets $ 14.9 19.8 75.1 -- $ 109.8
Total foreign sales $ -- 3.9 -- -- $ 3.9
</TABLE>
12
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statement (Continued)
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In millions) As of and for the three months ended
March 31, 1998
---------------------------------------------------------------------------
Executive
Real Estate Office
Property Suites Development Other
Operations Operations Operations Operations Total
----------- ------------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Operating revenue 100.3 15.7 -- 3.0 119.0
Segment expense 32.5 13.3 0.5 6.0 52.3
------------- ------------- -------------- ------------ --------------
Net segment revenue 67.8 2.4 (0.5) (3.0) 66.7
Interest expense 8.3 1.0 (5.4) 13.3 17.2
Other income (expense), net 0.3 0.2 -- 0.6 1.1
------------- ------------- -------------- ------------ --------------
Funds from operations $ 59.8 1.6 4.9 (15.7) 50.6
============= ============= ============== ============ --------------
Adjustments to net operating income
before gain on sale of assets,
income taxes and minority interest:
Depreciation and amortization (22.9)
Other, net (0.6)
--------------
Net operating income before gain on
sale of assets, income taxes and
minority interest $ 27.1
==============
Total assets $ 2,459.1 160.0 353.5 72.0 $ 3,044.6
Expenditures for long lived assets $ 10.8 28.4 143.4 -- $ 182.6
</TABLE>
13
<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 Condensed
Consolidated Financial Statements of CarrAmerica Realty Corporation and its
subsidiaries (the "Company") as of March 31, 1999 and December 31, 1998, and for
the three months ended March 31, 1999 and 1998. The comparability of the periods
is significantly impacted by acquisitions completed, development properties
placed in service and dispositions made during 1999 and 1998. As of March 31,
1998, the Company owned 258 properties. This number grew to 273 at March 31,
1999.
The Company's reportable operating segments are real estate property
operations, executive office suites operations and development operations. Other
business activities and operating segments that are not reportable are included
in other operations.
This information should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto. These condensed
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, 1999 and 1998
Real Estate Property Operations
Operating Revenue. Total real estate property operating revenue
increased $21.2 million, or 21.1%, to $121.5 million for the three months ended
March 31, 1999 as compared to $100.3 million for the three months ended March
31, 1998. The Company experienced net growth in its rental revenue considering
the effect of its acquisitions, dispositions and development properties placed
in service, which together contributed approximately $17.6 million of additional
rental revenue in 1999. Rental revenue from properties that were fully
operational throughout both periods increased by approximately $3.6 million
primarily due to increases in rental rates and increased occupancy at these
properties.
Segment Expenses. Real estate property operating expenses increased
$7.8 million primarily as a result of property acquisitions and development
properties placed in service. The Company also experienced an increase in
property operating expenses from properties that were fully operational in both
periods of approximately $0.4 million.
Interest Expense. Interest expense increased $3.8 million due to
acquisitions of rental property which were subject to existing mortgage debt.
Other Income (Expense), net. Other revenue generated by real estate
property operations decreased $0.1 million primarily as a result of a reduction
of interest income for rental properties.
Total Assets. The increase of $193.9 million, or 7.9%, from 1998 to
1999 results primarily from acquisitions of real estate and development
properties placed in service.
Executive Office Suites Operations
Operating Revenue. Executive office suites operating revenue increased
by $33.4 million to $49.1 million for the three months ended March 31,1999, as
compared to $15.7 million for the three months ended March 31, 1998, primarily
as a result of additional operating revenue earned on executive suites
businesses acquired since March 31, 1998.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
-----------------------------------------------------------------------------
Segment Expense. The addition of $26.5 million in executive office
suites operating expenses is primarily a result of executive office suites
acquisitions since March 31, 1998.
Interest Expense. Interest expense increased $1.2 million from the
three months ended March 31, 1998 to the three month period ended March 31, 1999
primarily as a result of higher average balances outstanding on the OmniOffices
line of credit necessary to complete the acquisition of executive suites
businesses.
Other Income (Expense), net. The increase of $0.1 million from the
three months ended March 31, 1998 to the three months ended March 31, 1999 is
primarily from additional interest income.
Total Assets. Executive office suites assets increased $218.9 million
from $160.0 million at March 31, 1998 to $378.9 million at March 31, 1999. This
increase is attributed to acquisitions and development of executive suites
centers since the first quarter of 1998.
Development Operations
Segment Expenses. Segment expense increased $0.4 million to $0.9
million for the three months ended March 31, 1999 from $0.5 million for the
three months ended March 31, 1998, primarily as a result of increases in general
and administrative expenses related to increased staffing.
Interest Expense. Interest cost capitalization related to construction
in progress increased $2.6 million to $8.0 million for the three months ended
March 31, 1999 from $5.4 million for the three months ended March 31, 1998
primarily as a result of increased development expenditures and carrying costs.
Total Assets. Total assets increased $113.8 million, or 32.2%, to
$467.3 million at March 31, 1999 from $353.5 million at March 31, 1998 as a
result of increased construction starts since the first quarter of 1998.
Other Operations
Operating Revenue. The increase of $0.9 million to $3.9 million of
revenues for the three months ended March 31, 1999 from $3.0 million of revenues
for the three months ended March 31, 1998 is a result of increased real estate
service fees.
Segment Expense. The increase of $2.4 million to $8.4 million of
expenses for the three months ended March 31, 1999 from $6.0 million of expenses
for the three months ended March 31, 1998 is as a result of the addition of new
staff.
Interest Expense. The $3.9 million increase in the Company's interest
expense is primarily related to borrowings on the Company's line of credit
necessary to fund acquisitions and development commitments and the sale of
unsecured notes.
Other Income (Expenses), net. Other revenue increased $0.7 million to
$1.3 million for the three months ended March 31, 1999 from $0.6 million for the
three months ended March 31, 1998, primarily as a result of increased interest
income and equity in earnings from unconsolidated partnerships.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
-----------------------------------------------------------------------------
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 as market conditions
permit, and to pay for construction in progress in both the short and long term.
The Company's debt and preferred stock offerings have been rated by
three rating agencies. 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 as of March 31, 1999.
The Company's total indebtedness at March 31, 1999 was $1.7 billion, of
which $417.5 million, or 24.9%, bears a LIBOR-based floating interest rate.
Currently, the unsecured credit facilities bear interest at 90 basis points over
30 day LIBOR on the $450.0 million facility and the $200.0 million facility. The
Company's mortgages payable fixed rate indebtedness bears an effective weighted
average interest rate of 8.1% at March 31, 1999 and has a weighted average term
to maturity of 7.3 years. Based upon the Company's total market capitalization
at March 31, 1999 of $3.7 billion (the common stock price was $22.06 per share;
the total shares of common stock, convertible preferred stock and Units
outstanding was 73,958,000 and the aggregate liquidation value of the cumulative
redeemable preferred stock was $400.0 million), the Company's debt represented
45.2% of its total market capitalization. As of May 17, 1999, the Company had
$353.5 million outstanding under the unsecured credit facilities, leaving $288.6
million available for draws under these unsecured credit facilities.
Rental revenue, executive suites 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 these sources of
revenue will continue to provide the necessary funds for its operating expenses
and debt service. The Company and its affiliates also require capital to invest
in their 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.
Additionally, the Company and its affiliates (including CarrAmerica
Development) will require a substantial amount of capital for development
projects currently underway and planned for the future. As of March 31, 1999,
the Company had approximately 3.3 million square feet of office space in 43
development projects underway which are expected to require a total investment
by the Company of approximately $492.8 million. As of March 31, 1999, the
Company had expended $338.3 million, or 68.6 percent of the total expected
investment. In addition, CarrAmerica Development has made commitments of $17.6
million for two additional development projects that will start construction in
the second quarter of 1999.
16
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
-----------------------------------------------------------------------------
As of March 31, 1999, OmniOffices and Omni UK were also developing
approximately 35 executive office suite centers. The total cost to complete
these projects is approximately $54.0 million, of which approximately $30.9
million had been expended as of March 31, 1999. In addition, OmniOffices and
Omni UK will periodically consider acquisitions of existing executive office
suite centers. Future cash needs of OmniOffices are expected to be met primarily
by draws on the OmniOffices line of credit facility. Future cash needs of Omni
UK are expected to be met primarily through third party financings or through
debt or equity investments by the Company.
The Company recently announced that, subject to market conditions and
approval by OmniOffices' board of directors, OmniOffices is planning an initial
public offering of its common stock, which is expected to be completed by the
end of 1999. As part of the public offering, the Company expects that its
interest in the executive suites business would be reduced, and that its
percentage equity interest in OmniOffices would be reduced to approximately
40-60% of the total equity capital of the company. Any public offering by
OmniOffices will be made only by means of a prospectus.
Historically, the Company has met its capital requirements primarily by
accessing the public equity and debt capital markets. As a general matter,
conditions in the public equity and debt capital markets for most REITs have not
been favorable since the second quarter of 1998. In response to these
unfavorable conditions, the Company has curtailed its acquisition program and
satisfied its cash needs through the disposition of selected assets, the
refinancing of selected assets, prudent use of joint ventures that reduce the
Company's investment requirement and utilization of the Company's existing
credit facilities.
During the first quarter of 1999, the Company disposed of 24 operating
properties, generating net proceeds of $253.8 million. As of May 17, 1999, the
Company has four projects under contract for sale in various markets which are
projected to produce net proceeds of $49 million and has two other projects
under letter of intent for sale that would produce additional net proceeds of
$70 million. Due to uncertainties in the disposition process, there can be no
assurance that these sales will close or that they will achieve the expected net
proceeds.
In addition, during the first quarter of 1999, the Company refinanced
loans totaling $222.0 million at a rate of 8.12% secured by five properties
located in downtown Washington, D.C., which resulted in net proceeds to the
Company of $41.2 million. Also during the first quarter, the Company received
$21.4 million of distributions from unconsolidated partnerships of which $19.0
million represents net proceeds from the financing of two properties located in
downtown Washington, D.C.
In March 1999, the Company also announced that it had settled all
obligations outstanding under its forward equity transaction with Merrill Lynch,
Pierce, Fenner & Smith Incorporated. The Company made a final payment of
approximately $109.7 million to settle the transaction, and the 5,000,000 shares
originally issued in the transaction in April 1998 were returned and cancelled.
As a result of the Company's disposition and refinancing efforts, the
Company believes that all of its current capital requirements for 1999
(including firm commitments for development projects) have been funded. Although
the Company has seen improvement in the conditions of the debt and equity
capital markets for REITs in the last few months, there can be no assurance that
conditions will continue to improve. To the extent that market conditions do not
continue to improve, the Company expects to continue to rely on asset
dispositions, asset refinancings, joint ventures and access to its credit
facilities to fund capital requirements for the foreseeable future.
Net cash provided by operating activities was $38.7 million for the
three months ended March 31, 1999, compared to $57.2 million for the three
months ended March 31, 1998. The decrease in net cash provided by operating
activities was primarily a result of utilization of prepaid assets in 1998
attributable to acquisitions initiated in the fourth quarter of 1997 and
completed in the first quarter of 1998. The Company's investing activities
provided $145.3 million for the three months ended March 31, 1999 compared to
the Company's investing activities using $292.9 million for the three months
ended March 31, 1998. The Company's investment activities included sales of
office buildings, acquisitions of executive office suites businesses (through
OmniOffices and OmniUK), and land held for future development and additions to
construction in process. Net of the proceeds from the sale of rental property,
the Company's investing activities used cash of $108.4 million and $350.1
million for the three months ended March 31, 1999 and 1998, respectively.
Included in this, the Company invested approximately $12.8 million and $8.2
million in its existing real estate assets for the three months ended March 31,
1999 and 1998, respectively.
17
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
-----------------------------------------------------------------------------
Net of distributions to the Company's stockholders and minority
interests, the Company's financing activities used net cash of $132.3 million
for the three months ended March 31, 1998 compared to net cash provided of
$275.7 million for the three months ended March 31, 1998. During the three
months ended March 31, 1999, the Company repurchased 5,000,000 common shares
issued in its forward equity sale transaction for $109.7 million. Proceeds from
the sale of rental property were used to fund this transaction and to repay
amounts on the unsecured credit facility. For the three months ended March 31,
1999, the Company's net repayments on its unsecured credit facility were
approximately $65.0 million.
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.
Year 2000 Compliance
The Year 2000 issue results from a programming convention in which
computer programs use two digits rather than four to define the applicable year.
Software and hardware may recognize a date using "00" as the year 1900, rather
than the year 2000. Such an inability of computer programs to recognize a year
that begins with "20" could result in business or building system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including, among other things, a temporary inability to process
transactions, send invoices or engage in other normal business activities.
The Company has undertaken a comprehensive program to address the Year
2000 issue. In the second quarter of 1998, the Company expanded its program and
appointed a Year 2000 Steering Committee to manage centrally its Year 2000
compliance program (known internally as "Project 2000"). The Steering Committee
includes representatives of senior level management representing a wide array of
the organization and is charged with overseeing the Company's comprehensive
action plan designed to address Year 2000 issues.
During the second quarter of 1998, the Company's Steering Committee
engaged the independent consulting firm of Computer Technology Associates, Inc.
("CTA") to serve as the Project Manager for Project 2000. During the first
quarter of 1999 and after completion of the assessment phase, CTA's role as
Project Manager was modified and the Company designated two full-time employees
as the Project Managers to oversee the remainder of Project 2000. The Company
expects CTA will continue to assist the Project Managers, as needed, during the
remainder of Project 2000.
Project 2000 is organized into two areas of concentration: (i) Property
Operations Embedded Systems and (ii) Internal Business Operations Technology.
The Property Operations segment of the program focuses primarily on equipment
and systems present in the Company's operating properties that may contain
embedded microprocessor technology (such as elevators and HVAC systems). The
Internal Business Operations segment focuses primarily on the Company's
information technology, operating systems (such as such as billing, accounting
and financial reporting systems) and certain systems of the Company's major
vendors and material service providers. As described below, Project 2000
involves (i) the assessment of the Year 2000 problems that may affect the
Company, (ii) the development of remedies to address the problems discovered in
the assessment phase, (iii) the testing of such remedies and (iv) the
preparation of contingency plans to deal with the potential failure of important
and critical systems.
Assessment. During the course of its assessment phase, the Company
continues to identify substantially all of the major components of its property
and business operations systems, which may be vulnerable to the Year 2000 issue.
In terms of Property Operations, the Company is conducting a comprehensive
inventory of all the buildings' systems and equipment. Systems were risk ranked
(1-3) based upon each system's importance to the properties' operations. Those
systems classified as level 2 or 3 (the highest levels of importance) are
compared to CTA's existing embedded systems database to determine the status of
Year 2000 compliance if it is not already known by the Company. If relevant
information is not contained in the existing database, the system is then
identified for processing through vendor management coordinated by CTA. Vendor
18
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
-----------------------------------------------------------------------------
management involved concentrated communication with the vendor in an attempt to
determine the status of a systems Year 2000 compliance and any available
remedies. As of the fourth quarter of 1998, inventory of the Company's operating
properties was complete. Assessment of property operations was complete as of
the end of the first quarter of 1999.
In terms of Internal Business Operations Technology, team leaders have
been selected from each business unit and market office to assist in identifying
software, hardware and external interfaces which may be vulnerable to Year 2000
issues. Inventorying of both core business units and all market offices was
substantially completed by the end of the fourth quarter of 1998. A routine
application upgrade of the Company's primary billing and accounting software was
complete as of the end of the first quarter of 1999. The vendor of the software
has received the Information Technology Association of America (ITAA) 2000
Certification and represents that the system is Year 2000 ready, and the Company
expects to test the system during the second and third quarter of 1999. In
addition, during the fourth quarter of 1998 and the first quarter of 1999, the
Company continued communicating with other significant hardware, software and
other material services providers, requesting them to provide the Company with
detailed, written information concerning existing or anticipated Year 2000
compliance of their systems insofar as the systems relate to such parties'
business activities with the Company. The Company expects to continue to
communicate with these vendors throughout 1999.
Remediation and Testing Phase. Based upon the results of its assessment
efforts, the Company has initiated remediation and testing activities. The
Company intends to complete remediation on important and critical systems by the
end of the second quarter of 1999. Selective validation testing of these systems
is scheduled to be completed during the third quarter of 1999. The activities
conducted during the remediation and testing phase are intended to provide
assurance from both the Property Operation and the Internal Business
perspectives that critical and important applications, systems and equipment
will be substantially Year 2000 compliant on a timely basis. In this phase, the
Company will first evaluate applications, systems and equipment. If a potential
Year 2000 problem is identified, the Company will take steps to attempt to
remediate the problem and, where applicable, test to confirm that the
remediating changes are effective and have not adversely affected the
functionality of that application. After the various applications, system
components and equipment have undergone remediation and testing phases, the
Company, where applicable, will conduct integrated testing for the purpose of
demonstrating functional integrated systems operations.
Contingency Plans. The Company has started updating contingency plans
to handle its most reasonably likely worst case Year 2000 scenarios, which it is
in the process of continuing to identify. The Company intends to complete its
determination of worst case scenarios after it has received and analyzed
responses to substantially all of the inquiries it has made of third parties.
The Company expects to complete contingency plans by the end of the third
quarter of 1999.
Costs Related to the Year 2000 Issue. As of April 30, 1999, the Company
has incurred approximately $2.7 million in costs for its Year 2000 program. The
Company currently estimates that it will incur additional costs, which are not
expected to exceed approximately $1.9 million, to complete its Year 2000
compliance work. The Company believes that a portion of these costs may be
recoverable from tenants but has not determined at this time the extent to which
such recovery can be realized.
Risks Related to the Year 2000 Issue. Although the Company's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
the Company's business and operations, the actual effects of the Year 2000 issue
and the success or failure of the Company's efforts described above cannot be
known until the year 2000. Failure by the Company and its major vendors, other
material service providers and material clients to address adequately their
respective Year 2000 issues in a timely manner (insofar as such issues relate to
the Company's business) could have a material adverse effect on the Company's
business, results of operations and financial condition.
19
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
-----------------------------------------------------------------------------
Funds From 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 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 suites 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.
The following table provides the calculation of the Company's Funds From
Operations:
<TABLE>
<CAPTION>
(in thousands) Three Months Ended
March 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 46,175 44,509
Minority interest 5,719 8,547
--------------- -------------
Net income before minority interest 51,894 53,056
Adjustments to derive funds from operations:
Add:
Depreciation and amortization 29,613 23,055
Losses associated with executive suites centers under development 4,338 493
Deferred taxes 127 --
Deduct:
Minority interests' (non Unitholders) share of depreciation,
amortization and net income (48) (110)
Gain on settlement of treasury locks (4,489) --
Gain on sale of assets, net of income taxes (18,055) (25,931)
--------------- -------------
Funds from Operations before allocations to the minority Unitholders 63,380 50,563
Less: Funds from operations allocable to the minority Unitholders (4,166) (3,706)
--------------- -------------
Funds from operations allocable to CarrAmerica Realty Corporation 59,214 46,857
Less: Preferred stock dividends (8,745) (8,791)
--------------- -------------
Funds from operations attributable to common shareholders $ 50,469 38,066
=============== =============
</TABLE>
20
<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 March 31, 1999:
<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 % 1,014,537 89.6% 3
1730 Pennsylvania Avenue 100.0 229,292 99.3 1
2550 M Street 100.0 187,931 100.0 1
1775 Pennsylvania Avenue (3) 100.0 143,981 99.1 1
900 19th Street 100.0 101,202 100.0 1
1747 Pennsylvania Avenue 89.7 (4) 151,778 99.5 1
1255 23rd Street 75.0 (5) 305,237 79.6 1
Suburban Washington, D.C.:
One Rock Spring Plaza (3) 100.0 205,298 100.0 1
Tycon Courthouse 100.0 416,195 98.7 1
Sunrise Corporate Center 100.0 260,253 100.0 3
Parkway One 100.0 87,842 100.0 1
Atlanta:
Veridian 100.0 193,256 84.0 22
Glenridge 100.0 64,052 69.5 1
Century Springs West 100.0 94,893 98.0 1
Holcomb Place 100.0 72,824 96.1 1
Midori 100.0 99,900 100.0 1
Parkwood 100.0 151,296 95.9 1
Lakewood 100.0 80,338 70.2 1
The Summit 100.0 179,085 86.4 1
Triangle Parkway 100.0 82,825 81.0 3
2400 Lake Park 100.0 100,491 85.0 1
680 Engineering Drive 100.0 62,154 100.0 1
Embassy Row 100.0 465,858 88.1 3
Waterford Center 100.0 82,161 89.5 1
Spalding Ridge 100.0 128,233 96.3 1
Embassy 500-Land 100.0 75,711 100.0 1
Boca Raton:
Peninsula Plaza 100.0 159,702 90.4 1
Presidential Circle 100.0 278,469 88.9 1
Peninsula Executive Center I 100.0 100,626 100.0 1
------- ----- -
Southeast Region Subtotal 5,575,420 92.2% 58
PACIFIC REGION
Southern California,
Orange County/Los Angeles:
Scenic Business Park 100.0 139,012 100.0 4
Harbor Corporate Park 100.0 151,787 98.8 4
Plaza PacifiCare 100.0 104,377 100.0 1
Katella Corporate Center 100.0 80,204 92.6 1
Warner Center 100.0 343,769 99.7 12
South Coast Executive Center 100.0 161,310 89.4 2
Warner Premier 100.0 61,553 100.0 1
Westlake Corporate Center 100.0 73,069 88.0 2
Von Karman 100.0 103,713 100.0 1
2600 W. Olive 100.0 146,018 100.0 1
Bay Technology Center 100.0 107,481 100.0 2
Alton Deere Plaza 100.0 182,146 93.8 6
</TABLE>
21
<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
Towne Center Technology Park I & II 100.0 103,918 100.0 2
Palomar Oaks Technology Park 100.0 170,358 100.0 6
Jaycor 100.0 105,358 100.0 1
Lightspan 100.0 64,800 100.0 1
Northern California,
San Francisco Bay Area:
CarrAmerica Corporate Center 100.0 1,001,976 100.0 6
Rio Robles 100.0 368,178 100.0 7
Valley Business Park II 100.0 166,928 100.0 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 68,731 100.0 2
Valley Centre 100.0 102,291 61.6 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
North San Jose Technology Park 100.0 297,038 100.0 4
150 River Oaks 100.0 100,024 100.0 1
San Mateo I 100.0 70,000 100.0 1
San Mateo II and III 100.0 141,404 99.5 2
Hacienda West 100.0 203,990 98.5 2
Sunnyvale Technology Centre 100.0 165,520 100.0 5
Baytech Business Park 100.0 300,000 100.0 4
Golden Gateway Commons 100.0 273,802 85.4 3
Techmart Commerce Center 100.0 259,656 98.3 1
995 Benecia Avenue 100.0 36,344 100.0 1
Oakmead West A-G 100.0 425,981 100.0 7
Santa Clara Technology Park 100.0 178,132 100.0 3
Valley Technology Center 4 & 5 100.0 132,700 100.0 2
Portland:
RadiSys Corporate Headquarters 100.0 80,525 100.0 1
RadiSys II 100.0 45,655 100.0 1
Seattle:
Redmond East 100.0 397,264 100.0 10
Willow Creek 100.0 96,179 100.0 1
Canyon Park Business Center 100.0 282,038 100.0 6
Canyon Park Commons 100.0 95,290 100.0 1
Willow Creek Corporate Center 100.0 278,509 100.0 5
Redmond Hilltop B & C 100.0 90,880 100.0 2
Canyon Park Commons 1 & 2 100.0 110,398 100.0 2
------- ----- -
Pacific Region Subtotal 8,913,517 98.5% 151
</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>
CENTRAL REGION
Austin, Texas:
Great Hills Plaza 100.0% 135,333 100.0% 1
Balcones Center 100.0 74,978 84.3 1
Park North 100.0 132,744 95.3 2
City View Centre 100.0 136,183 100.0 3
Riata 4, 5, 8 100.0 274,118 89.7 3
Tower of the Hills 100.0 166,099 98.1 2
City View Center 100.0 128,716 100.0 1
Chicago:
Parkway North 100.0 507,488 100.0 2
Parkway VI 100.0 83,498 100.0 1
Unisys 100.0 361,775 96.5 2
The Crossings 100.0 296,835 94.6 2
Bannockburn I & II 100.0 210,860 100.0 2
Bannockburn IV 100.0 108,469 100.0 1
Summit Oaks 100.0 91,626 90.6 1
Dallas, Texas:
Quorum North 100.0 115,845 88.6 1
Quorum Place 100.0 177,873 92.8 1
Cedar Maple Plaza 100.0 113,011 96.2 3
Tollhill East & West 100.0 241,487 91.5 2
Two Mission Park 100.0 77,731 89.9 1
Citymark 100.0 213,153 94.2 1
5000 Quorum 100.0 159,549 96.2 1
Royal Ridge A 100.0 144,835 100.0 1
------- ----- -
Central Region Subtotal 3,952,206 95.9% 35
MOUNTAIN REGION
Denver:
Harlequin Plaza 100.0 329,028 98.3 2
Quebec Court I & II 100.0 287,294 100.0 2
Greenwood Center 100.0 76,068 97.6 1
Quebec Center 100.0 106,865 92.0 3
Panorama Corporate Center I 100.0 100,881 98.4 1
Panorama II 100.0 100,916 96.7 1
Panorama III 100.0 136,850 100.0 1
Phoenix, Arizona:
Camelback Lakes 100.0 200,796 100.0 2
Pointe Corridor IV 100.0 143,962 99.4 1
Highland Park 100.0 78,093 66.6 1
The Grove at Black Canyon 100.0 104,187 95.9 1
US West 100.0 532,506 100.0 4
Concord Place 100.0 134,557 87.7 1
Salt Lake City, Utah:
Sorenson Research Park 100.0 285,869 99.7 5
Wasatch Corporate Center 100.0 178,098 100.0 3
------- ----- -
Mountain Region Subtotal 2,795,970 97.5% 29
--------- ---- --
TOTAL CONSOLIDATED PROPERTIES: 21,237,113 273
---------- ---
WEIGHTED AVERAGE 96.2%
----
</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>
Unconsolidated Properties
- -------------------------
Downtown Washington, D.C.:
1717 Pennsylvania Avenue 50.0%(6) 184,446 100.0% 1
AARP Headquarters 24.0 (7) 502,316 100.0 1
Bond Building 15.0 (8) 162,097 100.0 1
Washington, D.C.:
Booz-Allen & Hamilton Building 50.0 (9) 222,989 100.0 1
---------- ----- -
TOTAL UNCONSOLIDATED PROPERTIES: 1,071,848 4
--------- -
WEIGHTED AVERAGE 100.0%
-----
ALL OPERATING PROPERTIES
- ------------------------
TOTAL: 22,308,961
==========
WEIGHTED AVERAGE 96.4%
====
- --------------------
</TABLE>
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
March 31, 1999.
(3) The Company owns the improvements on the property and has a leasehold
interest in all 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 a 50% joint venture interest, and is the managing
venturer.
24
<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 March 31, 1999 in each of the next ten years beginning
with 1998 and thereafter for the 273 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>
1999 1,856,000 9.1%
2000 2,164,000 10.6
2001 2,619,000 12.8
2002 2,767,000 13.5
2003 3,355,000 16.4
2004 1,866,000 9.1
2005 1,082,000 5.3
2006 1,155,000 5.7
2007 and thereafter 3,574,000 17.5
- ----------------------
(1) Excludes 799,000 square feet of space that was vacant as of March 31, 1999.
</TABLE>
25
<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
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, 1998 to March 31, 1999, excluding the leases for
operating properties that were executed prior to the date of acquisition:
<TABLE>
<CAPTION>
Calculated on a Weighted Average Basis
------------------------------------------------------------------------
Tenant
Total Improvements & Base Leasing
Square Cash Allowances Rent per Lease Abatements Commission
Fooot per Square Foot Square Life in In Per Square
Type of Lease Leased Square Foot Foot Years Months Foot
- ------------------------------ ------- --------------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Operating Properties,
Downtown
Washington, D.C.
(9 Properties)
- -----------------------------
Office 376,351 $ 10.96 $ 31.24 6.7 0.7 $ 2.15
Retail 28,573 11.76 29.11 6.0 0.5 4.41
Total/Weighted Average 404,924 11.02 31.09 6.6 0.7 2.31
=========== =============== ========= ======== ============== ==============
New leases or expansion 251,318 $ 15.68 $ 30.77 7.9 0.1 $ 3.20
space
Renewals of existing
tenants' space 153,606 3.39 31.60 4.5 1.8 0.85
-----------
Total/Weighted Average 404,924 11.02 31.09 6.6 0.7 2.31
=========== =============== ========= ======== ============== ==============
- ----------------------------- Tenant
Operating Properties, Other Total Improvements & Base Leasing
Than Downtown Washington, Square Cash Allowances Rent per Lease Abatements Commission
D.C. Fooot per Square Foot Square Life in In Per Square
(264 Properties) Leased Square Foot Foot Years Months Foot
- ----------------------------- ------- --------------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Type of Lease
Office 4,439,794 $ 10.70 $ 17.75 6.4 0.0 $ 2.11
Retail 9,411 6.86 11.10 3.6 0.0 0.56
Total/Weighted Average 4,449,205 10.69 17.74 6.4 0.0 2.10
=========== =============== ========= ======== ============== ==============
New leases or expansion 3,693,621 $ 12.00 $ 17.64 6.6 0.0 $ 2.31
space
Renewals of existing
tenants' space 755,584 4.29 18.20 5.2 0.1 1.11
-----------
Total/Weighted Average 4,449,205 10.69 17.74 6.4 0.0 2.10
=========== =============== ========= ======== ============== ==============
</TABLE>
26
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk.
-----------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
No material changes in the Company's market risk have occurred since
the filing of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
27
<PAGE>
Part II
OTHER INFORMATION
- -----------------
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
27 Financial Data Schedule - Three Months Ended March 31,
1999.
(b.) Reports on Form 8-K
a. Current Report on Form 8-K filed on February 4, 1999 regarding
certain supplemental data included in the Company's press
release dated February 4, 1999.
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/ Richard F. Katchuk
- -----------------------------------
Richard F. Katchuk, Chief Financial Officer
Date: May 17, 1999
29
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule - Three Months Ended March 31, 1999.
</TABLE>
30
<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, 1999 AND FROM CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1999
</LEGEND>
<CIK> 0000893577
<NAME> CarrAmerica Realty Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 111,116
<SECURITIES> 0
<RECEIVABLES> 52,427
<ALLOWANCES> 355
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,834,748
<DEPRECIATION> 267,324
<TOTAL-ASSETS> 3,652,980
<CURRENT-LIABILITIES> 0
<BONDS> 1,676,868
0
95
<COMMON> 668
<OTHER-SE> 1,706,334
<TOTAL-LIABILITY-AND-EQUITY> 3,652,980
<SALES> 0
<TOTAL-REVENUES> 174,457
<CGS> 0
<TOTAL-COSTS> 147,310
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 355
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 34,091
<INCOME-TAX> 252
<INCOME-CONTINUING> 28,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,175
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.52
</TABLE>
