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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-11706
CARRAMERICA REALTY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 52-1796339
(State of Incorporation) (I.R.S. Employer Identification No.)
1850 K STREET, N.W. 20006
WASHINGTON, D.C. (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (202) 729-7500
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
Common Stock, $0.01 Par Value New York Stock Exchange
Series B Cumulative Redeemable Preferred Stock, $0.01 Par Value New York Stock Exchange
Series C Depositary Cumulative Redeemable Preferred Stock, $0.001
Par Value New York Stock Exchange
Series D Depositary Cumulative Redeemable Preferred Stock, $0.001
Par Value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 15, 1999, the aggregate market value of the 41,468,494 shares
of Common Stock held by non-affiliates of the registrant was approximately
$909.7 million, based upon the closing price of $21.9375 on the New York Stock
Exchange composite tape on such date.
Number of shares of Common Stock outstanding as of March 15,
1999: 71,767,759
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for
the Annual Stockholders Meeting to be held in 1999 are incorporated by reference
into Part III.
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<PAGE>
PART 1
ITEM 1. BUSINESS
THE COMPANY
GENERAL
CarrAmerica Realty Corporation (the 'Company') is a fully integrated,
self-administered and self-managed publicly traded real estate investment trust
('REIT') that focuses primarily on the acquisition, development, ownership and
operation of office properties in select growth markets across the United
States. As of March 15, 1999, the Company owned a greater than 50% interest in a
portfolio of 286 operating office properties and 45 properties under
construction. These 286 operating properties contain an aggregate of
approximately 22.0 million square feet of net rentable area and the 45
properties under construction will contain approximately 3.8 million square
feet. The operating properties owned by the Company as of December 31, 1998 were
96.7% leased as of that date, with approximately 2,400 tenants. In addition to
its real estate and development activities, the Company conducts an executive
office suites business through its affiliates OmniOffices, Inc. ('OmniOffices')
and OmniOffices (UK) Limited ('Omni UK'). As of March 15, 1999 the Company,
through its affiliates, operated over 100 executive office suite centers and had
an additional 34 executive office suite centers under development in the United
States and England.
The Company and its predecessor, The Oliver Carr Company ('OCCO'), have
developed, owned and operated office buildings in the Washington, D.C.
metropolitan area for more than 36 years. In November 1995, the Company
announced a strategic alliance with a wholly-owned subsidiary of Security
Capital U.S. Realty (together with Security Capital U.S. Realty, 'SC-USREALTY'),
a European real estate operating company which owns strategic positions in
selected real estate companies in the United States. As of March 15, 1999,
SC-USREALTY owned approximately 39.9% of the outstanding common stock of the
Company (36.2% on a fully diluted basis).
The Company's experienced staff of over 1,900 employees, including
approximately 500 on-site building employees and approximately 1,000 persons
employed by its executive office suite affiliates, provides a broad range of
real estate services. The Company's principal executive offices are located at
1850 K Street, N.W., Washington, D.C. 20006 and its telephone number is (202)
729-7500. The Company's web site can be found at www.carramerica.com. The
Company was organized as a Maryland corporation on July 9, 1992.
BUSINESS STRATEGY
The Company's primary business objectives are to achieve long-term
sustainable per share cash flow growth and to maximize stockholder value through
a strategy of (i) acquiring, developing, owning and operating office properties
primarily in markets throughout the United States that exhibit strong, long-term
growth characteristics and (ii) maintaining and enhancing a national operating
system that provides corporate users of office space with a mix of products and
services to meet their workplace needs at both the national and local level.
The Company's major segments of operations include real estate property
operations, executive office suites operations (conducted through its affiliates
OmniOffices and Omni UK), and development operations (conducted directly and
through its afffiliate CarrAmerica Development, Inc.). Real estate property
operations include the ownership of commercial real estate. Such operations
comprise approximately 90% of the Company's revenues and approximately 78% of
the Company's assets (including assets held by CarrAmerica Development, Inc.).
Executive suites operations include the short term leasing of office space, and
the Company's collective investment in this business accounts for approximately
10% of the Company's revenues and approximately 10% of the Company's assets.
Development operations include the development of office space and the buildout
of tenant space, and the Company's investment in this business represents
approximately 12% of the Company's assets (including assets held by CarrAmerica
Development, Inc.). The Company's executive suites operations and a portion of
its development operations are conducted by affiliates in which the Company owns
approximately 95% of the economic interest, but less than 10% of the voting
stock.
1
<PAGE>
REAL ESTATE PROPERTY OPERATIONS
Core Markets. The Company has focused its acquisition and development
activity in U.S. markets which generally possess strong long-term growth
characteristics. Within these markets, the Company targets specific submarkets
in which (i) operating costs for businesses are relatively low, (ii) long-term
population and job growth generally are expected to exceed the national average,
(iii) large, well-educated employment pools exist, and (iv) barriers to entry
exist for new supplies of office space. The Company has established a local
presence in each of its existing core markets through its investment activity
and through relationships established by its experienced market officers. The
Company's core markets include the following: Atlanta, Austin, Chicago, Dallas,
Denver, Boca Raton, Florida, Orange County/Los Angeles, Phoenix, Portland,
Oregon, Sacramento, Salt Lake City, San Diego, San Francisco Bay area, Seattle
and metropolitan Washington, D.C.
For each identified core market, the Company has established a set of
general guidelines and physical characteristics to evaluate investment
opportunities. All investment decisions are driven by real estate research,
focusing on variables such as composition of economic base rate and composition
of job growth and office space supply and demand fundamentals.
As of December 31, 1998 the distribution of the Company's real estate
property operations (on a rentable square foot basis) was as follows: 45% in its
Pacific region, primarily in Seattle and the California markets of Silicon
Valley, Pleasanton, San Mateo, Orange County, Los Angeles and San Diego; 26% in
its Southeast region, primarily in metropolitan Washington, D.C., Atlanta and
Boca Raton, Florida; 12% in its Mountain region, primarily in Salt Lake City,
Denver and Phoenix; and 17% in its Central region, primarily in Chicago, Dallas
and Austin.
Operating Property Acquisitions. In November 1995, the Company implemented
a major initiative to acquire operating office properties in order to establish
the operating platform for its national business strategy. Between January 1,
1996 and October 31, 1998, the Company acquired 302 operating properties
containing approximately 20.3 million square feet of net rentable area,
resulting in an approximate 550% increase in the total square footage of
operating properties in which the Company has a majority interest. These
properties were acquired for an aggregate purchase price of approximately $2.5
billion. Since October 1998, the Company has not been focused on acquisitions as
a catalyst for growth.
National Operating System. As part of its business strategy, the Company
has developed and will continue to enhance a national operating system to
provide nationally coordinated customer service, marketing and development. The
Company's national operating system consists of three components: (i) a Market
Officer Group, currently consisting of 11 market officers focused on developing
and maintaining strong local relationships with the Company's customers and the
brokerage community and identifying investment opportunities for the Company;
(ii) a National Services Group, which is dedicated to marketing the Company's
office space to a targeted list of companies; and (iii) a National Development
Group, conducted through an affiliate, which is responsible for managing the
development of office properties, build-to-suit facilities and business parks.
The Company's national operating system is designed to provide corporate users
of office space with a mix of products and services to meet their workplace
needs at both the national and local levels. The Company believes that through
its existing portfolio of operating properties, property development
opportunities and land acquired and currently held for future development, the
Company can generate incremental demand through the relocation and expansion
needs of many of its customers, both within a single core market and in multiple
core markets.
Market Officer Group. The Market Officer Group currently consists of
11 market officers who cover the 15 core markets in which the Company currently
owns properties. These market officers are responsible for maximizing the
performance of the Company's properties in their markets and ensuring that the
needs of the Company's customers are consistently being met. Because they meet
with the Company's customers on a regular basis, market officers are cognizant
of and responsive to customers' relocation or expansion needs. The market
officers have extensive knowledge of local conditions in their respective
markets and, therefore, are invaluable in identifying attractive investment
opportunities in their markets. In addition, through their contact with
customers, market officers are well positioned to help the National Services
Group identify customers with new build-to-suit and multi-market requirements.
2
<PAGE>
National Services Group. The Company established the National
Services Group in 1997 and now has national account executives located in
Atlanta, Chicago and San Francisco. This group is responsible for marketing the
Company's properties, build-to-suit capabilities and the national scope of the
Company's operations to a targeted list of major corporate users. The National
Services Group acts as a primary point of contact for national customers,
coordinating all of the office space the Company offers and giving corporate
customers the opportunity to address their national space requirements
efficiently and economically.
National Development Group. The National Development Group is
responsible for developing office properties, build-to-suit facilities and
business parks. These operations are primarily handled by the Company's
affiliate, CarrAmerica Development, Inc. ('CarrAmerica Development'), which has
a development team of over 70 professionals consisting of architects, engineers
and construction professionals located across the United States who have an
average of over 15 years of experience developing office properties. This team
of development professionals oversees every aspect of land planning, building
design, construction and development of office properties, ensuring that all
projects meet the same high standards and uniform specifications in building
design and systems. The Company believes that the National Development Group's
expertise has given the Company a competitive edge in marketing its facilities
and services to customers.
Asset Optimization. As a component of its business strategy, the Company
may dispose of assets that become inconsistent with its long-term strategic or
return objectives or where market conditions for disposition are favorable. The
Company then redeploys the proceeds of dispositions into other office
properties, the funding of development operations, or in support of other
general corporate needs. Consistent with this strategy, the Company disposed of
13 properties during 1998 containing approximately 1.2 million square feet for
approximately $180 million in value. The Company recognized a gain of $38.2
million in conjunction with these transactions. In addition, from January 1,
1999 through March 15, 1999, the Company disposed of an additional 11 properties
containing 795,000 square feet for approximately $130 million in value,
resulting in a gain of $11.0 million. The Company may consider disposing of
additional properties or interests in properties, some of which may be
significant. The Company, however, has agreed with SC-USREALTY to use its
reasonable efforts to dispose of properties only through tax-deferred exchanges
(and the Company also is subject to other similar restrictions with respect to
certain properties acquired by CarrAmerica Realty, L.P. and Carr Realty, L.P.),
which may limit its flexibility in effecting dispositions. In addition, tax laws
applicable to REITs restrict the Company's ability to dispose of certain
properties.
EXECUTIVE OFFICE SUITES OPERATIONS
In 1997, the Company identified the executive office suites business as a
business that has significant potential for growth. The 'executive office
suites' business typically involves leasing 20,000 to 30,000 square feet of an
office building from an owner and outfitting that space with 60 to 70 individual
offices (known as office suites) that are leased on a relatively short-term
basis (i.e., one year or less) to customers who generally utilize one to three
offices at a time. Customers are provided with a wide array of services,
including administrative support services (e.g., secretarial, duplicating, fax
and receptionist services), conference and training facilities, video
conferencing, travel arrangements and catering arrangements. The Company
believes that the demand for these types of office arrangements will increase as
companies seek greater flexibility and alternative workplace solutions for their
staffing and business plan requirements. The Company believes that its position
as the only national office property owner and operator providing both
traditional, long-term office space and, through its affiliates, flexible,
short-term workplace options provides it with a competitive advantage in meeting
the evolving needs of growing companies.
The Company has made investments in two executive office suite affiliates,
OmniOffices and OmniUK. Since OmniOffices' acquisition of the assets of
OmniOffice Group, Inc. in August 1997, OmniOffices has actively pursued the
acquisition and development of executive office suites in the United States and
in Latin America. As of March 15, 1999, OmniOffices operated over 100 executive
office suite centers containing approximately 6,700 office suites located in 29
major U.S. markets, including New York City, San Francisco, Chicago, Atlanta and
Boston. OmniOffices also had 28 executive office suite centers under development
as of March 15, 1999. In addition, in March 1999, OmniOffices acquired the
franchise operations of HQ Network Systems, Inc., one of the largest networks of
executive office suites centers in the world. As a result of this
3
<PAGE>
acquisition, OmniOffices now controls a network, either as an operator or a
franchisor, of approximately 260 executive office suites centers in 17 countries
around the world.
The Company also has made investments in Omni UK, which is actively
pursuing the acquisition and development of executive office suites in Europe.
As of March 15, 1999, Omni UK owned 6 executive office suites centers containing
approximately 240 office suites and had an additional 6 executive office suite
centers under development, all located in and around London.
As of March 15, 1999, the Company's total equity investments in OmniOffices
and Omni UK were $137.0 million and $31.3 million, respectively, and the Company
had loaned Omni UK an additional $30.6 million. In addition, the Company has
guaranteed a $200 million line of credit that OmniOffices obtained in April 1998
to finance the growth of its business, of which $98.5 million had been drawn as
of March 15, 1999.
In order to comply with tax laws applicable to REITs, the Company owns
approximately 95% of the economic interest of both OmniOffices and Omni UK, but
owns none of the voting stock of these companies. The voting stock of
OmniOffices (representing approximately 5% of the economic interest) is owned by
a limited liability company in which certain current and former executive
officers of the Company and OmniOffices are members, SC-USREALTY and The Oliver
Carr Company. Substantially all of the voting stock of Omni UK (representing
approximately 5% of the economic interest) is owned by OmniOffices. Because the
Company does not own any of the voting stock of these companies, there are
certain risks associated with the Company's investments in these companies. See
'Risk Factors -- Our Business Structure Has Certain Risks Associated With It --
Lack of Voting Control Over Some of Our Affiliates.' As a REIT, the Company
cannot have an investment in a business like OmniOffices with a value in excess
of 5% of the Company's gross assets. Currently, this 5% rule limits the
Company's ability to make substantial additional investments in OmniOffices. In
addition, if the value of OmniOffices were to grow substantially in connection
with certain changes in its capital structure, the Company may be required to
dispose of a significant portion of its interest in OmniOffices in order to
comply with this 5% rule.
The Company, working with OmniOffices and Omni UK, currently is analyzing
various alternatives that may be available to free up additional capital for the
Company while also providing OmniOffices and Omni UK with access to capital to
pursue their growth strategy. These alternatives include the making of
additional equity investments in OmniOffices by third parties, the sale or
distribution by the Company of a portion of its interest in OmniOffices, or the
sale or distribution by the Company of all or a portion of its interest in Omni
UK. These discussions currently are preliminary in nature, and there can be no
assurance as to what, if any, actions will be taken that will affect the
Company's executive office suites investments.
DEVELOPMENT OPERATIONS
Development of office properties is an important component of the Company's
growth strategy as attractive acquisition opportunities diminish due to the
influx of capital into the office property market. The Company believes that
long-term investment returns resulting from properties it develops generally
will exceed those from properties it acquires, without the assumption of
significantly increased investment risks. The Company minimizes its development
risk by employing, through its development affiliate, extensively trained and
experienced development personnel, by avoiding the assumption of entitlement
risk in conjunction with land acquisitions and by entering into guaranteed
maximum price (GMP) construction contracts with seasoned and credible
contractors. Most importantly, the Company carefully analyzes the supply and
demand characteristics of a core market before commencing inventory development
in the market. In general, the Company will only undertake inventory development
(which excludes properties under construction that have been substantially pre-
leased) in markets with strong real estate fundamentals, and then the Company
generally will construct office buildings attractive to a wide range of office
users. The Company's research-driven development program enables it to tailor
its development activities in each core market, including inventory development,
build-to-suit projects, and holding land for future development. From January 1,
1997 to March 15, 1999, the Company placed in service approximately 3.1 million
square feet of office properties. The total cost of these development projects
was approximately $436.5 million and the Company expects that the first year
stabilized unleveraged return of this square footage will be 11.6%. In addition,
as of March 15, 1999, the Company had 45 properties
4
<PAGE>
under construction that will contain approximately 3.8 million square feet, of
which 473,000 square feet had already been placed in service.
The Company also believes that having a significant land inventory to
support future development provides it with a competitive advantage in
responding to customers' needs for office space in markets with low vacancy
rates, barriers to entry for new supplies of office space and increasing rental
rates. In addition to its portfolio of operating properties and projects
currently under development, the Company owned or controlled, as of March 15,
1999, land in 11 of its core markets that is expected to support future
development of up to 5.6 million square feet of office space.
The Company is engaged in the real estate development business directly and
through its affiliate CarrAmerica Development. As of March 15, 1999, the
Company's total investment in CarrAmerica Development was approximately $208.2
million, $26.1 million of which was in the form of an equity investment, $112.1
million of which was in the form of unsecured debt and $70.0 million was in the
form of secured debt.
In order to comply with tax laws applicable to REITs, the Company owns
approximately 95% of the economic interest of CarrAmerica Development, but owns
less than 10% of the voting stock of CarrAmerica Development. Substantially all
of the voting stock of CarrAmerica Development (representing approximately 5% of
the economic interest) is owned by The Oliver Carr Company. Because the Company
does not own a significant portion of the voting stock of CarrAmerica
Development, there are certain risks associated with the Company's investments
in this company. See 'Risk Factors -- Our Business Structure Has Certain Risks
Associated With It -- Lack of Voting Control Over Some of Our Affiliates.'
RECENT DEVELOPMENTS
ACQUISITIONS AND DEVELOPMENT
From January 1, 1998 to March 15, 1999, the Company invested approximately
$466.2 million ($424.6 million in cash, the assumption of $31.6 million of debt
and the issuance of $10.0 million in partnership interests ('Units') in two
partnerships that the Company controls) in 32 operating properties containing
approximately 2.2 million square feet and land held for future development which
is expected to support the future development of approximately 4.7 million
square feet of office space on this land, as of March 15, 1999, the Company had
developed and placed into service approximately 133,000 square feet of office
space and placed under construction approximately 1.7 million square feet of
additional office space. The table below provides certain information by market
regarding the operating properties acquired between January 1, 1998 and March
15, 1999:
<TABLE>
<CAPTION>
PURCHASE
PRICE NUMBER OF RENTABLE
REGION/MARKET (IN MILLIONS) PROPERTIES SQUARE FEET
- --------------------------------------------------- ------------- ---------- -----------
<S> <C> <C> <C>
SOUTHEAST REGION
Atlanta.......................................... $ 8.8 1 83,000
PACIFIC REGION
San Francisco Bay Area........................... 194.3 15 1,129,000
Orange County/Los Angeles........................ 23.7 6 182,000
San Diego........................................ 33.8 7 276,000
CENTRAL REGION
Dallas........................................... 39.3 2 379,000
MOUNTAIN REGION
Phoenix.......................................... 19.5 1 133,000
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Total......................................... $ 319.4 32 2,182,000
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</TABLE>
5
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The following table provides certain information regarding land acquired by
the Company (directly or through CarrAmerica Development) between January 1,
1998 and March 15, 1999:
<TABLE>
<CAPTION>
SQUARE FEET FUTURE
UNDER BUILDABLE
REGION/MARKET CONSTRUCTION SQUARE FOOTAGE
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<S> <C> <C>
PACIFIC REGION:
San Francisco Bay Area.................................................. 592,000(1) 262,000
Portland, Oregon........................................................ 254,000 317,000
San Diego............................................................... 80,000 77,000
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Subtotal............................................................. 926,000 656,000
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MOUNTAIN REGION:
Denver.................................................................. -- 1,189,000
Phoenix................................................................. 215,000 --
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Subtotal............................................................. 215,000 1,189,000
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CENTRAL REGION:
Austin.................................................................. 258,000 173,000
Dallas.................................................................. 337,000 608,000
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Subtotal............................................................. 595,000 781,000
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SOUTHEAST REGION:
Downtown Washington, D.C................................................ --(2) --
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Subtotal............................................................. -- --
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Total..................................................................... 1,736,000 2,626,000
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</TABLE>
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(1) Excludes 133,000 square feet which were purchased, developed and placed in
service during 1998.
(2) Excludes 229,000 square feet which were purchased in 1998, placed under
construction, and subsequently contributed to a joint venture in which the
Company currently holds a 35% interest.
The following table provides certain information regarding the acquisition
by OmniOffices and Omni UK of executive suites businesses between January 1,
1998 and March 15, 1999:
<TABLE>
<CAPTION>
PURCHASING PURCHASE PRICE NUMBER OF
MARKET AFFILIATE (IN MILLIONS) CENTERS
- ----------------------------------------------- ------------ -------------- ---------
<S> <C> <C> <C>
New York City.................................. OmniOffices $ 33.5(1) 10
Washington, DC................................. OmniOffices 9.9 6
Chicago........................................ OmniOffices 55.7 21
Atlanta........................................ OmniOffices 12.3 5
Boston......................................... OmniOffices 18.6 6
San Rafael..................................... OmniOffices 1.0 1
New Jersey..................................... OmniOffices 18.5 10
Parsippany..................................... OmniOffices 6.2 3
Salt Lake City................................. OmniOffices 5.8 5
Phoenix........................................ OmniOffices 3.6 2
St. Louis...................................... OmniOffices 2.3 1
London......................................... Omni UK 37.3(2) 6
--
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Total........................................ $204.7 76
--
--
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</TABLE>
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(1) Purchase price also included the issuance of warrants to purchase stock in
OmniOffices.
(2) Purchase price net of contingent consideration of approximately $17.3
million.
6
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FINANCING ACTIVITY
In 1998, the Company raised approximately $647 million in public and
private offerings of equity and debt. In January 1998, the Company raised $200
million from a private debt offering. In April 1998, the Company raised
approximately $297 million from two public equity offerings. In October 1998,
the Company raised $150 million from a public debt offering. The proceeds of
these offerings generally were used to repay amounts outstanding under the
Company's line of credit and for other general corporate purposes.
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 of approximately $147 million, in what is commonly known as a 'forward
equity sale' transaction. In connection with that transaction, the Company
entered into an agreement with Merrill Lynch under which the parties agreed to
adjust the number of shares of common stock issued to Merrill Lynch (or the
aggregate purchase price paid for such shares) based upon the proceeds received
by Merrill Lynch upon a resale of the shares in April 1999 in relation to the
amount originally paid by Merrill Lynch ($150 million), plus a forward accretion
component and less dividends paid on the shares. The Company settled this
agreement with cash payments in October 1998 and March 1999, and the 5,000,000
shares were returned to the Company and cancelled.
The Company and one of its affiliates entered into a joint venture with
J.P. Morgan & Co. to purchase and develop 1201 F Street in downtown Washington,
D.C. J.P. Morgan & Co. has become a 65% joint venture partner in the partnership
that owns the property and has committed to provide its pro-rata share of the
required expected capital of $71.8 million. In addition, Bank of America and
Mass Mutual have agreed to provide construction financing and permanent
financing for this project.
Also, during the fourth quarter, the 2600 West Olive property in Burbank,
California was refinanced for 10 years at a fixed rate of 6.75%. In addition,
$29.3 million of mortgage debt secured by the Parkway North I property in
Deerfield, Illinois was refinanced for five years at a fixed rate of 6.92% and
the 1717 Pennsylvania Avenue property in downtown Washington, D.C. received
$12.5 million of financing for 10 years at a fixed rate of 6.63%.
In March 1999, the Company closed on a refinancing of the loans secured by
1255 23rd Street, 1730 Pennsylvania Avenue and International Square properties,
all of which are located in downtown Washington, D.C., which refinancing
increased the aggregate principal amount of the loan by $40.0 million to
approximately $222.0 million, extended the term approximately six years and
adjusted the interest rates to one global fixed interest rate of 8.12%. In
February 1999, the Company extended the mortgage on 1775 Pennsylvania Avenue in
downtown Washington, D.C. for three months. The Company expects to replace the
current $6.1 million note with a $12.0 million, 10-year loan which will bear
interest at a fixed rate of 6.79%. As this transaction is subject to certain
conditions, there can be no assurance that it will close.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute 'forward-looking statements'
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
'Reform Act'). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company and its affiliates or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: national and local economic, business and real
estate conditions that will, among other things, affect demand for office
properties, availability and creditworthiness of tenants, the level of lease
rents and the availability of financing for both tenants and the Company,
adverse changes in the real estate markets, including, among other things,
competition with other companies, risks of real estate acquisition and
development (including the failure of pending acquisitions to close and pending
developments to be completed on time and within budget), actions, strategies and
performance of affiliates that the Company may not control, governmental actions
and initiatives, and environmental/safety requirements.
7
<PAGE>
DIRECTORS OF THE COMPANY
The directors of the Company are divided into three classes, with
approximately one-third of the directors elected by the stockholders annually.
The Board of Directors of the Company currently consists of the following
persons:
Oliver T. Carr, Jr., 73, has been Chairman of the Board of Directors of the
Company since February 1993. He also served as Chief Executive Officer of the
Company from 1993 to 1997. Mr. Carr's term as a director of the Company expires
at the 1999 Annual Meeting of Stockholders and he has been renominated for
election by the stockholders at that meeting to serve another three-year term.
Mr. Carr founded The Oliver Carr Company in 1962 and since that time has been
its Chairman of the Board and a director. In addition, Mr. Carr has served as
President of The Oliver Carr Company since February 1993. He was Chairman of the
Board of Trustees of The George Washington University until May 1995. Mr. Carr
is the father of Thomas A. Carr, the Company's current President and Chief
Executive Officer, and Robert O. Carr, the President of Carr Urban Development,
Inc. Mr. Carr is a member of the Investment Committee and the Executive
Committee of the Board of Directors.
Thomas A. Carr, 40, has been President and a director of the Company since
February 1993. Mr. Carr's term as a director of the Company expires at the 2001
Annual Meeting of Stockholders. In May 1997, Mr. Carr was appointed Chief
Executive Officer of the Company, at which time he resigned as Chief Operating
Officer of the Company, a position he had held since April 1995. Prior to such
time, Mr. Carr was the Company's Chief Financial Officer from February 1993 to
April 1995. Mr. Carr is a director of The Oliver Carr Company. Mr. Carr holds a
Masters in Business Administration degree from Harvard Business School, and a
Bachelor of Arts degree from Brown University. Mr. Carr is a member of the
National Association of Real Estate Investment Trusts; the Young Presidents
Organization; the Federal City Council and the International Development
Research Council. Mr. Carr is the son of Oliver T. Carr, Jr. and the brother of
Mr. Robert O. Carr. Mr. Carr is a member of the Investment Committee and the
Executive Committee of the Board of Directors. In addition, Mr. Carr is a member
of management's Operating Committee and Investment Committee.
Ronald Blankenship, 49, was appointed as a director of the Company in
August 1998 to fill a vacancy until the 1999 Annual Meeting of Stockholders, and
has been nominated for election by the stockholders at that meeting to serve the
remainder of a term that expires at the 2000 Annual Meeting of Stockholders. Mr.
Blankenship was nominated to the Board as a designee of SC-USREALTY, a major
stockholder of the Company. Mr. Blankenship has been the Vice Chairman and Chief
Operating Officer of Security Capital Group Incorporated since May 1998.
Previously, Mr. Blankenship was Managing Director of Security Capital Group
Incorporated from March 1991 to May 1998. Mr. Blankenship is a director of
Security Capital Group Incorporated and Storage USA, Inc. He received his B.B.A.
from the University of Texas at Austin. Mr. Blankenship is a member of the
Executive Compensation Committee of the Board of Directors.
Andrew F. Brimmer, 72, has been a director of the Company since February
1993. Dr. Brimmer's term as a director of the Company expires at the 1999 Annual
Meeting of Stockholders and he has been renominated for election by the
stockholders at that meeting to serve another three-year term. He has been
President of Brimmer & Company, Inc., an economic and financial consulting firm,
since 1976. Dr. Brimmer is the Wilmer D. Barrett Professor of Economics at the
University of Massachusetts--Amherst. He also serves as a director of BlackRock
Investment Income Trust, Inc. (and other funds), Borg-Warner Automotive, Inc.,
and Airborne Express. From 1995 to 1998, Dr. Brimmer served as chairman of the
District of Columbia Financial Control Board. He also was a member of the Board
of Governors of the Federal Reserve System from 1966 through 1974. Dr. Brimmer
received a B.A. degree and a masters degree in economics from the University of
Washington and a Ph.D. in economics from Harvard University. Dr. Brimmer is a
member of the Audit Committee of the Board of Directors.
A. James Clark, 71, has been a director of the Company since February 1993.
Mr. Clark's term as a director of the Company expires at the 2000 Annual Meeting
of Stockholders. He has been Chairman of the Board and President of Clark
Enterprises, Inc., a Bethesda, Maryland-based company involved in real estate,
communications, and commercial and residential construction, since 1972. Mr.
Clark is a member of the University of Maryland Board of Visitors and
Foundation, and is a Trustee Emeritus of the Johns Hopkins University and the
Johns Hopkins Board of Medicine. He is also a member of the PGA Tour Golf Course
Properties Advisory Board and an advisory director of Potomac Electric Power
Company. Mr. Clark is a graduate
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of the University of Maryland. Mr. Clark is a member of the Investment
Committee, the Executive Committee, the Executive Compensation Committee, and
the Nominating Committee of the Board of Directors.
Timothy Howard, 50, was appointed as a director of the Company in August
1998 to fill a vacancy until the 1999 Annual Meeting of Stockholders, and has
been nominated for election by the stockholders at that meeting to serve the
remainder of a term that expires at the 2000 Annual Meeting of Stockholders. Mr.
Howard has been the Executive Vice President and Chief Financial Officer of
Fannie Mae since 1990. From 1988 to 1990, Mr. Howard was Executive Vice
President--Asset Management of Fannie Mae. Mr. Howard has held positions of
increasing responsibility with Fannie Mae since beginning with the company in
1982. Mr. Howard received his Bachelor of Science and Masters in Economics
degrees from UCLA. Mr. Howard is a member of the Audit Committee and the
Executive Compensation Committee of the Board of Directors.
Caroline S. McBride, 45, has been a director of the Company since July
1996. Ms. McBride's term as a director of the Company expires at the 2001 Annual
Meeting of Stockholders. Ms. McBride was nominated to the Board of Directors as
a designee of SC-USREALTY. Since March 1997, Ms. McBride has been a Managing
Director of Security Capital Global Strategic Group, an affiliate of
SC-USREALTY. From June 1996 to July 1997, Ms. McBride was Managing Director of
Security Global Capital Management Group. Prior thereto, from July 1978 to May
1996, Ms. McBride was with IBM, where she was director of private market
investments for the IBM Retirement Fund from 1994 to 1996 and director of real
estate investments for the IBM Retirement Fund from 1992 to 1994. Ms. McBride is
on the Board of Directors of Storage USA, Inc., BelmontCorp, CWS Communities
Trust and the Real Estate Research Institute. Ms. McBride received her Masters
in Business Administration degree from New York University and a Bachelor of
Arts degree from Middlebury College. Ms. McBride is a member of the Investment
Committee and the Audit Committee of the Board of Directors.
William D. Sanders, 57, has been a director of the Company since May 1996.
Mr. Sanders' term as a director of the Company expires at the 1999 Annual
Meeting of Stockholders and he has been renominated for election by the
stockholders at that meeting to serve another three-year term. Mr. Sanders was
nominated to the Board as a designee of SC-USREALTY. He is the founder and
Chairman of Security Capital Group, an affiliate of SC-USREALTY. Mr. Sanders
retired on December 31, 1989 as Chief Executive Officer of LaSalle Partners
Limited, a firm he founded in 1968. Mr. Sanders is on the Board of Directors of
Security Capital European Realty, SC-USREALTY, and Storage USA, Inc. Mr. Sanders
is a former trustee and member of the executive committee of the University of
Chicago and a former trustee fellow of Cornell University. Mr. Sanders received
his Bachelor of Science degree from Cornell University. Mr. Sanders is a member
of the Nominating Committee of the Board of Directors.
Wesley S. Williams, Jr., 56, has been a director of the Company since
February 1993. Mr. Williams' term as a director of the Company expires at the
2001 Annual Meeting of Stockholders. Mr. Williams has been a partner of the law
firm of Covington & Burling, Washington, D.C., since 1975. He was adjunct
professor of real estate finance law at Georgetown University Law Center from
1971 to 1973 and is a contributing author to several texts on banking law and on
real estate finance and investment. Mr. Williams is on the Editorial Advisory
Board of the District of Columbia Real Estate Reporter. Mr. Williams serves as a
director of Blackstar Communications, Inc.; Blackstar LLC; and the Federal
Reserve Bank of Richmond, Virginia. Mr. Williams is Co-Chairman of the Board of
Directors and Co-CEO of The Lockhart Caribbean Corporation and its real estate,
insurance, consumer finance, and internet services subsidiaries. Mr. Williams is
a member of the Executive Committee of the Board of Trustees of Penn Mutual Life
Insurance Company, of which he is the Senior Trustee. Mr. Williams received B.A.
and J.D. degrees from Harvard University, an M.A. degree from the Fletcher
School of Law and Diplomacy and an LL.M. from Columbia University. Mr. Williams
is a member of the Executive Compensation Committee of the Board of Directors.
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EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES OF THE COMPANY
As of March 15, 1999, the Company's executive officers and key employees
(including certain executive officers and key employees of OmniOffices,
CarrAmerica Development and other affiliates of the Company) were as follows:
Kent C. Gregory, 48, has been the Company's Managing Director--National
Services since July 1997. Prior to that time, Mr. Gregory had been employed by
Opus, a real estate services company, since 1991, serving as Senior Vice
President of National Accounts. He holds a Masters in Business Administration
from Pace University and a Bachelor of Arts degree in Business Administration
from St. Thomas University. Mr. Gregory is a member of management's Operating
Committee and Investment Committee.
Philip L. Hawkins, 43, has been the Company's Chief Operating Officer since
October 1998. Prior to that time Mr. Hawkins served as the Company's Managing
Director--Asset Management since February 1996. Prior to that time, Mr. Hawkins
had been employed by LaSalle Partners Limited, a real estate services company,
since 1982, serving as Executive Vice President, Eastern Division, Asset
Management Group since 1995, Senior Vice President, Northeast Region, Asset
Management Group from 1990 to 1994, and in other asset management positions
prior to that time. Mr. Hawkins also was a director of LaSalle Partners Limited.
He holds a Masters in Business Administration from the University of Chicago
Graduate School of Business and a Bachelor of Arts degree from Hamilton College.
Mr. Hawkins is a member of management's Operating Committee and Investment
Committee. Mr. Hawkins serves as a director and officer of certain subsidiaries
and affiliates of the Company, including as a director of OmniOffices.
Richard F. Katchuk, 52, has been the Company's Chief Financial Officer
since February 1999. Prior to that time, Mr. Katchuk served as Chief Financial
Officer and Corporate Executive Vice President of Crestar Financial Corporation
since 1995. Prior to joining Crestar Financial Corporation, Mr. Katchuk was with
Banc One, serving as a Senior Vice President Corporate Finance from 1988 to
1995. Mr. Katchuk holds a Bachelor of Arts degree in Economics from Hobart &
William Smith Colleges. Mr. Katchuk is a member of management's Operating
Committee and Investment Committee.
Linda A. Madrid, 39, has been the Company's Managing Director, General
Counsel and Corporate Secretary since November 1998. Ms. Madrid had served as
the Company's Senior Vice President and General Counsel since March 1998. Prior
to that time, Ms. Madrid had been Senior Vice President, Managing Director of
Legal Affairs and Corporate Secretary of Riggs National Corporation/Riggs Bank
N.A. since February 1996 and Vice President and Litigation Manager from
September 1993 to January 1996. Prior to that time, Ms. Madrid practiced law in
several law firms in Washington, D.C. and served as Assistant General Counsel
for Amtrak. Ms. Madrid holds a J.D. from Georgetown University Law Center and a
Bachelor of Arts degree from Arizona State University. Ms. Madrid is a member of
management's Operating Committee.
Paul R. Adkins, 40, has been the Company's Senior Vice President, Market
Officer for Washington, D.C. since August 1996. Mr. Adkins has been with the
Company for over 17 years, including serving as Vice President of Acquisitions
from May 1994 to August 1996. Prior to that, Mr. Adkins served in a variety of
other capacities with the Company, with over 12 years in commercial real estate
leasing. Mr. Adkins is a member of the District of Columbia's Building Industry
Association and Northern Virginia's National Association of Industrial and
Office Parks. Mr. Adkins holds a Bachelor of Arts degree in Economics from
Bucknell University.
Steven N. Bralower, 50, has been Executive Vice President of Carr Real
Estate Services, Inc. ('Carr Services, Inc.'), an affiliate of the Company that
conducts management and leasing operations since January 1999, and Senior Vice
President of Carr Realty, L.P., a subsidiary of the Company, since May 1996. Mr.
Bralower was Senior Vice President of Carr Services, Inc. from 1993 to May 1996.
Mr. Bralower is a member of the Greater Washington Commercial Association of
Realtors. Mr. Bralower has been a member of the Georgetown University Law Center
adjunct faculty since 1987. Mr. Bralower holds a Bachelor of Arts degree from
Kenyon College.
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Robert L. Brumm, 47, has been a Senior Vice President of the Company since
February 1998. Prior to that Mr. Brumm had been Vice President, Human Resources
and Administration of the Company since May 1996. From 1993 to 1996, Mr. Brumm
held the same position with Carr Services, Inc. He is responsible for managing
the Human Resources, Risk Management, Training, and Office Management functions.
He has over 20 years of experience, including eight years with Mark Controls
Corporation and five years with the real estate division of Philip Morris, Inc.
Mr. Brumm received his Bachelors degree from California State University at Long
Beach.
Robert O. Carr, 49, has been President of Carr Urban Development, Inc., a
subsidiary of CarrAmerica Development, since June 1998, and Chairman of the
Board of Directors of Carr Services, Inc., since February 1993. Mr. Carr served
as a director of the Company from 1993 until 1997 and as President of Carr
Services, Inc. from 1993 to 1998. Mr. Carr is a director of The Oliver Carr
Company and, from 1987 until February 1993, served as its President and Chief
Executive Officer. Mr. Carr is a member of the Boards of Directors for the
Greater Washington Research Center, the Corcoran School of Art and the National
Cathedral School for Girls. Mr. Carr is also a member of the Greater Washington
Board of Trade, the Urban Land Institute and the D.C. Chamber of Commerce. Mr.
Carr holds a Bachelor of Arts degree from Trinity College. Mr. Carr is the son
of Oliver T. Carr, Jr. and the brother of Thomas A. Carr.
Clete Casper, 39, has been the Company's Vice President, Market Officer for
Seattle since July 1996. Mr. Casper has over 10 years of experience in real
estate and marketing. Mr. Casper's most recent experience includes one year as a
Senior Associate with CB Commercial Real Estate Group Inc., Seattle, Washington.
Prior to that, Mr. Casper was with Sabey Corporation in Seattle, Washington,
serving as Development Manager for four years and a Marketing Associate for five
years. Mr. Casper is a graduate of Washington State University.
John J. Donovan, Jr., 55, has been President of Carr Services, Inc., since
January 1999. Prior to that time, Mr. Donovan served as Senior Vice President of
Carr Services, Inc. from 1993 to 1998. He is a member of the Advisory Board for
Jubilee Enterprise of Greater Washington, the Economic Club of Washington, the
Greater Washington Board of Trade and the Greater Washington Commercial
Association of Realtors. Mr. Donovan holds a Bachelor of Arts degree from
Georgetown University.
Karen B. Dorigan, 34, has been a Senior Vice President of the Company since
May 1997. Prior to that, Ms. Dorigan was the Company's Vice President--Land Due
Diligence since January 1996. Prior to that time, Ms. Dorigan served for more
than nine years in a variety of capacities in the development business of The
Oliver Carr Company, including from February 1993 to January 1996 as a Vice
President. She is a past member of the Northern Virginia Building Industry
Association's Arlington Chapter Council. Ms. Dorigan holds a Bachelor of Science
degree in Economics from the University of Pennsylvania, Wharton School.
J. Thad Ellis, 38, has been the Company's Vice President, Market Officer
for Atlanta since November 1996. Mr. Ellis has over 15 years of experience in
real estate. Mr. Ellis' most recent experience includes 10 years with Peterson
Properties, where his primary responsibility was to oversee and coordinate
leasing and property management for the management services portfolio. Mr. Ellis
is a graduate of Washington & Lee University and is involved with the National
Association of Industrial and Office Parks and Atlanta's Chamber of Commerce and
is on the Advisory Board of Black's Guide.
Richard W. Greninger, 47, has been Senior VicePresident--Operations of the
Company since January 1998. Prior to that, Mr. Greninger had been the Senior
Vice President of Carr Services, Inc. since March 1995. Prior to that time, he
had been Vice President of Carr Services, Inc. since February 1993. During 1994,
Mr. Greninger served as President of the Greater Washington Apartment and Office
Building Association. Mr. Greninger has served as a director of both the
Institute of Real Estate Management and the Building Owners and Managers
Association. Mr. Greninger holds a Masters in Business Administration from the
University of Cincinnati and a Bachelor of Science degree from Ohio State
University.
Gary M. Kusin, 47, has been President and Chief Executive Officer of
OmniOffices since September 1998. Prior to that time, Mr. Kusin was co-founder
and Chairman of Laura Mercier Cosmetics. Prior to his launch of Laura Mercier
Cosmetics, Mr. Kusin was co-founder and President of Babbage's, Inc., a computer
software and video game retailing business. Mr. Kusin holds a Masters in
Business Administration degree from Harvard Business School and a Bachelor of
Arts degree from the University of Texas at Austin.
Austin W. Lehr, 37, has been the Company's Vice President, Market Officer
for Denver since July 1996. Mr. Lehr has over 14 years of experience in real
estate management, marketing, and development. Mr. Lehr's
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most recent experience includes four years as a Vice President with Southwest
Value Partners and Affiliates in Phoenix, Arizona. Prior to that, Mr. Lehr spent
four years with Draper and Kramer, lncorporated in Washington, D.C. as the
Director of Development and Marketing. Mr. Lehr is a Director of the Chapter of
NAIOP, a Director for Brokers for Battered Kids and a guest lecturer at
University of Colorado's Real Estate Center. Mr. Lehr holds a Masters of
Management degree from Northwestern University and a Bachelor of Arts degree
from Williams College.
Dwight L. Merriman, 38, has been the Company's Senior Vice President,
Market Officer for Southern California since 1996. Mr. Merriman has over 15
years of experience in real estate, operations, acquisitions, construction,
marketing and development. From 1995 to 1996 Mr. Merriman served as Vice
President with Security Capital Pacific Trust (an affiliate of SC-USREALTY) in
Irvine, California. Prior to that, Mr. Merriman spent 11 years with Overton,
Moore in Los Angeles, serving as the regional development and operating partner
for Orange County and Riverside County in the Southern California Market. Mr.
Merriman holds a Masters in Business Administration from the University of
California at Los Angeles and a Bachelors degree from the University of Southern
California.
Robert M. Milkovich, 39, has been the Company's Vice President, Market
Officer for Phoenix, Arizona since January 1998. Mr. Milkovich has over 14 years
of experience in real estate leasing. Mr. Milkovich's most recent experience
includes five years as the Assistant Vice President of leasing for Carr
Services, Inc. Mr. Milkovich holds a Bachelor of Science in Business
Administration from the University of Maryland.
Gerald J. O'Malley, 55, has been the Company's Vice President, Market
Officer for Chicago since July 1996. Mr. O'MalIey has over 32 years of
experience in real estate marketing. Mr. O'Malley's most recent experience
includes 10 years as founder and President of G. J. O'MaIIey & Company, a real
estate office leasing company. Mr. O'Malley holds a Bachelors of Business
Administration degree from Loyola University.
Jeffrey S. Pace, 36, has been the Company's Vice President, Market Officer
for Austin, Texas since May 1997. Mr. Pace has over 14 years of experience in
real estate marketing. Mr. Pace's most recent experience was with Trammell Crow
Company, where he served as Marketing Director. Prior to that time, Mr. Pace
held the position of Marketing Representative in the Dallas and Austin markets
for Carlisle Property Company, Stockton, Luedmann, French & West and Trammell
Crow Company from 1985 to 1997. Mr. Pace holds a Masters of Business
Administration from the University of Texas at Arlington and a Bachelor of
Science from the University of Texas at Austin.
James D. Peterson, 51, has been the Company's Vice President, Market
Officer for Florida since November 1996. Mr. Peterson has over 25 years of
experience in the real estate field. From 1993 to October 1996 Mr. Peterson
served as Vice President of Peterson Properties with responsibility for property
operations in Florida. Mr. Peterson is involved with the National Association of
Industrial and Office Parks and is a member of Boca Raton's Chamber of Commerce.
Mr. Peterson holds a Masters in Business Administration from University of Texas
at Austin and a Bachelor of Science degree in Economics from University of North
Carolina at Chapel Hill.
William H. Vanderstraaten, 38, has been the Company's Vice President,
Market Officer for Dallas since April 1997. Mr. Vanderstraaten has over 16 years
of experience in real estate development and leasing fields. Mr.
Vanderstraaten's most recent experience prior to working for the Company
includes eight years as Vice President--New Development for Harwood Pacific
Corporation in Dallas, Texas, where his primary responsibilities were directing
large scale development projects and coordinating leasing efforts for
portfolios. Mr. Vanderstraaten holds a Bachelor of Science degree in Business
Administration from Southern Methodist University.
Debra A. Volpicelli, 34, has been the Company's Treasurer and Controller
since May 1995. Prior to that time, Ms. Volpicelli had been the Company's Tax
Manager since February 1993. Ms. Volpicelli holds a Bachelor of Science degree
in Business Administration from Georgetown University and is a Certified Public
Accountant.
Joseph D. Wallace, 35, has been the Chief Financial Officer of OmniOffices
since January 1999. Prior to that time Mr. Wallace served as the Executive Vice
President of OmniOffices since October 1997. Prior to that time, Mr. Wallace had
served as the Company's Vice President--Building Due Diligence since January
1996 and was responsible for supervising building acquisition due diligence.
Prior to that time, Mr. Wallace had been the Company's Vice President of Asset
Management since February 1993. Mr. Wallace holds a Bachelor of Science degree
in Commerce from University of Virginia.
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James S. Williams, 42, has been a Senior Vice President of CarrAmerica
Development, with responsibility for oversight of all development, design and
construction operations, since October 1996. Mr. Williams rejoined the Company
after two years as Vice President of Operations of Chadwick International. Prior
to that, from 1983 to 1994, he served in a variety of capacities for The Oliver
Carr Company. Mr. Williams is a guest lecturer at George Washington University.
Mr. Williams holds a Bachelor of Science degree in Business Administration from
West Virginia University.
Thomas M. Yockey, 44, has been a Senior Vice President of CarrAmerica
Development since June 1997, with primary responsibility for the Company's
build-to-suit development program and for management of the Company's
development coordinator group. Prior to that time, since 1994, Mr. Yockey was a
Vice President, with responsibility for securing and managing several of the
Company's major development projects. From 1987 to 1994, Mr. Yockey worked in a
variety of capacities with the Company's predecessor companies. Mr. Yockey holds
a Masters Degree from the Department of City and Regional Planning at the
University of North Carolina and a Bachelor of Arts Degree in Economics from the
University of Michigan.
RISK FACTORS
In addition to the other information in this document, you should consider
carefully the following risk factors in evaluating an investment in our
securities.
OUR PERFORMANCE IS SUBJECT TO RISKS ASSOCIATED WITH REAL ESTATE INVESTMENT
We are a real estate company that derives most of its income from the
ownership and operation of office buildings. There are a number of factors that
may adversely affect the income that our properties generate, including the
following:
Economic Downturns. Downturns in the national economy, or in regions or
localities where our properties are located, generally will negatively impact
the demand for office space.
Oversupply of Office Space. An oversupply of space in markets where we own
office properties making it more difficult for us to lease space at attractive
rental rates would typically cause rental rates and occupancies to decline.
Competitive Properties. If our properties are not as attractive to tenants
(in terms of rents, services or location) as other properties that are
competitive with ours, we could lose tenants to those properties, or could have
to reduce our rental rates to compensate for that disparity.
Renovation Costs. In order to maintain the quality of our office buildings
and successfully compete against other properties, we periodically have to spend
money to repair and renovate our properties.
Tenant Risk. Our performance depends on our ability to collect rent from
our tenants. While no tenant in our portfolio accounted for more than 5% of our
rental revenue as of December 31, 1998, the Company's financial position may be
adversely affected by financial difficulties experienced by a major tenant, or
by a number of smaller tenants, including bankruptcies, insolvencies or general
downturns in business.
Reletting Costs. As leases expire, we try to either relet the space to an
existing tenant or attract a new tenant to occupy the space. In either case, we
likely will incur significant costs in the process. In addition, if market rents
have declined since the time the expiring lease was entered into, the terms of
any new lease signed likely will not be as favorable to us as the terms of the
expiring lease, thereby reducing the income earned from that space.
Regulatory Costs. There are a number of government regulations, including
zoning and tax laws, that apply to the ownership and operation of office
buildings. Compliance with existing and newly adopted regulations often requires
us to spend a significant amount of money on our properties.
Fixed Nature of Costs. Most of the costs associated with owning and
operating an office building are not necessarily reduced when circumstances such
as market factors and competition cause a reduction in income from the property.
Environmental Problems Are Possible and Can Be Costly. Federal, state and
local laws and regulations relating to the protection of the environment may
require a current or previous owner or operator of real property to investigate
and clean up hazardous or toxic substances or petroleum product releases at the
property. The
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presence of or failure to clean up contamination may adversely affect our
ability to sell or lease a property or to borrow using a property as collateral.
Competition. A number of other major real estate investors with
significant capital compete with us. These competitors include publicly traded
REITs, private REITs, investment banking firms and private institutional
investment funds.
NEW DEVELOPMENTS AND ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED
Over the last few years, we have embarked on a major acquisition and
development program. In deciding whether to acquire or develop a particular
property, we made certain assumptions regarding the expected future performance
of that property. If a number of these new properties do not perform as
expected, our financial performance will be adversely affected.
While our acquisition pace has declined significantly, we remain very
active in developing office properties. New office property developments are
subject to a number of risks, including construction delays, complications in
obtaining necessary zoning, occupancy and other governmental permits, cost
overruns, financing risks, and the possible inability to meet expected occupancy
and rent levels. If any of these problems occur, development costs for a project
will increase, and there may be costs incurred for projects that are not
completed.
OUR USE OF DEBT SUBJECTS US TO VARIOUS FINANCING RISKS
While we believe that we have a conservative borrowing policy, we do
regularly borrow money to finance our business, particularly the acquisition and
development of properties. We generally incur unsecured debt, although in many
cases we will incur mortgage debt that is secured by one or more of our office
buildings. There are certain risks inherent in borrowing money, including the
following:
No Limitation on Debt Incurrence. The Company's organizational documents
do not limit the amount of debt the Company can incur. The degree of leverage of
the Company could have important consequences, including making it more
difficult for us to obtain additional financing in the future for business
needs, as well as making us more vulnerable to an economic downturn.
Possible Inability to Meet Scheduled Debt Payments. If our properties do
not perform as expected, our cash flow from our properties may not be enough to
make required principal and interest payments. If a property is mortgaged to
secure payment of indebtedness and we are unable to meet mortgage payments, the
holder of the mortgage or lender could foreclose on the property, resulting in
loss of income and asset value. An unsecured lender could also attempt to
foreclose on some of the Company's assets in order to receive payment.
Inability to Refinance Debt. In almost every case, very little of the
principal amount that we borrow is repaid prior to the maturity of the loan. We
generally expect to refinance that debt when it matures, although in some cases
we may pay off the loan. If principal amounts due at maturity cannot be
refinanced, extended or paid with proceeds of other capital transactions, such
as new equity capital, our cash flow will be insufficient in all years to repay
all maturing debt. Prevailing interest rates or other factors at the time of a
refinancing (such as possible reluctance of lenders to make commercial real
estate loans) may result in higher interest rates and increased interest
expense.
As a general matter, we use our line of credit and cash on hand received
from asset dispositions and joint ventures to finance our development and
acquisition activities, with the expectation that long-term permanent financing
will be obtained once the property is stabilized. If permanent debt or equity
financing is unavailable on acceptable terms in the future, it may significantly
restrict our development and acquisition programs.
Financial Covenants Could Adversely Affect Our Financial Condition. The
Company's credit facilities and the indentures under which the Company's senior
unsecured indebtedness is issued contain financial and operating covenants,
including coverage ratios and other limitations on the Company's ability to
incur secured and unsecured indebtedness, sell all or substantially all of its
assets and engage in mergers, consolidations and certain acquisitions. These
covenants may restrict the Company's ability to engage in transactions that
would otherwise be in the Company's best interests.
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OUR BUSINESS STRUCTURE HAS CERTAIN RISKS ASSOCIATED WITH IT
A Major Stockholder Has Influence on Our Operations. SC-USREALTY owned
approximately 39.9% of the outstanding shares of our common stock (36.2% on a
fully diluted basis) as of March 15, 1999. No other stockholder is permitted to
own more than 5% of our common stock, subject to certain exceptions. Under a
Stockholders Agreement with the Company, SC-USREALTY has the right to nominate
up to 40% of the directors. The Stockholders Agreement also gives SC-USREALTY
certain rights that limit our ability to take certain actions and limits our
ability to engage in certain transactions that may be in the best interests of
other stockholders. This situation results in SC-USREALTY having a substantial
influence over the affairs of the Company. This could potentially be
disadvantageous to other stockholders' interests, which may not converge with
the interests of SC-USREALTY.
Certain Officers and Directors May Have Interests that Conflict with the
Interests of Stockholders. Certain officers and members of the board of
directors of the Company own units of limited interest partnership in Carr
Realty, L.P., a partnership that owns some of the Company's properties. These
individuals may have personal interests that conflict with the interests of the
Company's stockholders with respect to business decisions affecting the Company
and Carr Realty, L.P., such as interests in the timing and pricing of property
sales or refinancings in order to obtain favorable tax treatment. The Company,
as the sole general partner of Carr Realty, L.P., has the exclusive authority to
determine whether and on what terms the partnership will sell or refinance an
individual property, but the effect of certain transactions on these unitholders
may influence decisions affecting these properties.
We May Not Be Able to Sell Properties When Appropriate. Real estate
property investments generally cannot be sold quickly. In addition, the tax laws
applicable to REITs restrict our ability to dispose of certain properties.
Therefore, we may be unable to vary our portfolio promptly in response to market
conditions, which may adversely affect our financial position.
Lack of Voting Control Over Some of Our Affiliates. While most of our
income is generated from the ownership and operation of our office buildings, we
own nonvoting interests in four affiliates that either currently produce or are
expected in the future to produce significant contributions to our income. Carr
Services, Inc. conducts management and leasing operations for third parties and
for office buildings in which we own less than a 100% interest. CarrAmerica
Development conducts fee-based development services for the Company and for
third parties. OmniOffices and Omni UK are engaged in the executive suites
business, providing short-term office space together with telephone answering,
data processing and other office support services. As of December 31, 1998, the
Company owned approximately 95% of the economic interest in each of these
companies through the ownership of nonvoting common stock. The voting stock of
each of these companies is owned by certain entities and individuals that have
some affiliation with the Company (or, in the case of Omni UK, by OmniOffices).
The Company owns nonvoting stock in these companies because the tax laws
applicable to REITs prohibit the Company from owning more than a 10% voting
interest. As a result, the Company has no right to elect the directors of these
companies, and its ability to influence their operations is limited. These
companies may engage in business activities that are not in the Company's best
interests.
We Depend On External Capital. To qualify as a REIT, we generally must
distribute to our stockholders each year at least 95% of our net taxable income.
Because of these distribution requirements, we likely will not be able to fund
all future capital needs, including capital for property development and
acquisitions, with income from operations. We therefore will have to rely on
third-party sources of capital, which may or may not be available on favorable
terms, if at all. Our access to third-party sources of capital depends on a
number of things, including the market's perception of our growth potential and
our current and potential future earnings.
CERTAIN FACTORS MAY INHIBIT CHANGES IN CONTROL OF THE COMPANY
Charter and By-law Provisions. Certain provisions of our charter and
by-laws may delay or prevent a change in control of the Company or other
transactions that could provide our common stockholders with a premium over the
then-prevailing market price of their common stock or that might otherwise be in
the best interests of our stockholders. These include a staggered board of
directors and the ability of our board of directors to authorize the issuance of
preferred stock without stockholder approval. Also, any future series of
preferred
15
<PAGE>
stock may have voting provisions that could delay or prevent a change in control
or other transaction that might involve a premium price or otherwise be in the
best interests of our stockholders.
Ownership Limit. In order to assist the Company in maintaining its
qualification as a REIT, the Company's charter contains certain provisions
generally limiting the ownership of shares of capital stock by any single
stockholder to 5% of the Company's outstanding common stock and/or 5% of any
class or series of preferred stock. The federal tax laws include complex stock
ownership and attribution rules that apply in determining whether a stockholder
exceeds the ownership limits. These rules may cause a stockholder to be treated
as owning stock that is actually owned by others, including family members and
entities in which the stockholder has an ownership interest. The board of
directors of the Company could waive this restriction if it were satisfied that
ownership in excess of these ownership limits would not jeopardize our status as
a REIT and the board otherwise decides that a waiver would be in the Company's
interests. Capital stock acquired or transferred in breach of the ownership
limit will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary.
Maryland Law Provisions. Certain provisions of Maryland law applicable to
the Company because it is a Maryland corporation prohibit 'business
combinations' with any person that beneficially owns ten percent or more of the
outstanding voting shares of the Company (an 'interested stockholder') or with
an affiliate of the interested stockholder. These prohibitions last for five
years after the most recent date on which the person became an interested
stockholder. After the five-year period, a business combination with an
interested stockholder must be approved by two super-majority stockholder votes
unless, among other conditions, the Company's common stockholders receive a
minimum price for their shares and the consideration is received in cash or in
the same form as previously paid by the interested stockholder for its common
shares. The Company's board of directors has opted out of these business
combination provisions. Consequently, the five-year prohibition and the
super-majority vote requirements will not apply to a business combination
involving the Company. The Company's board of directors may, however, repeal
this election in most cases and cause the Company to become subject to these
provisions in the future. Being subject to the provisions could delay or prevent
a change in control or other transaction involving the Company that might
involve a premium price or otherwise be in the best interests of the Company's
stockholders.
THE MARKET VALUE OF OUR SECURITIES CAN BE ADVERSELY AFFECTED BY MANY FACTORS
As with any public company, a number of factors may adversely influence the
public market price of our common stock, many of which are beyond our control.
These factors include: the level of institutional interest in the Company; the
perception of REITs generally, and REITs with portfolios similar to ours in
particular, by market professionals, and the attractiveness of securities of
REITs in comparison to other companies; our financial condition and performance,
and the market's perception of our growth potential and potential future cash
dividends; increases in market interest rates, which may lead investors to
demand a higher annual yield from distributions by the Company in relation to
the price paid for our stock; and the relatively low trading volume of shares of
REITs in general, which tends to exacerbate a market trend with respect to our
stock.
Sales of a substantial number of shares of our stock, or the perception
that such sales could occur, also could adversely affect prevailing market
prices for our stock. In addition to the possibility that we may sell shares of
our stock in a public offering at any time, we also may issue shares of common
stock upon redemption of units of interest held by third parties in affiliated
partnerships that we control, as well as upon exercise of stock options that we
grant to our employees and others. All of these shares will be available for
sale in the public markets from time to time. In addition, SC-USREALTY, our
largest stockholder (owning more than one-third of our shares), has the right to
sell its shares at any time, pursuant to registration rights granted to it in
connection with its original investment in the Company.
OUR STATUS AS A REIT MAY RESULT IN RISKS FOR INVESTORS
We believe that the Company has qualified for taxation as a REIT for
federal income tax purposes, and we plan to continue to operate so that the
Company meets the requirements for taxation as a REIT. If we qualify as a REIT,
we generally will not be subject to federal income tax on our income that we
distribute currently to our shareholders. Many of the REIT requirements,
however, are highly technical and complex. The determination that the Company is
a REIT requires an analysis of various factual matters and circumstances that
may not be
16
<PAGE>
totally within our control. For example, to qualify as a REIT, at least 95% of
our gross income must come from certain sources that are itemized in the REIT
tax laws. We also are required to distribute to our stockholders at least 95% of
our REIT taxable income (excluding capital gains). The fact that we hold certain
of our assets through partnerships and their subsidiaries further complicates
the application of the REIT requirements. Even a technical or inadvertent
mistake could jeopardize the Company's REIT status. Furthermore, Congress and
the IRS might make changes to the tax laws and regulations, and the courts might
issue new rulings, that make it more difficult, or impossible, for us to remain
qualified as a REIT.
If the Company fails to qualify as a REIT, it would be subject to federal
income tax at regular corporate rates. Also, unless the IRS granted the Company
relief under certain statutory provisions, it would remain disqualified as a
REIT for four years following the year it first failed to qualify. If we failed
to qualify as a REIT, we would have to pay significant income taxes and would
therefore have less money available for investments, debt service and dividends
to stockholders. This likely would have a significant adverse affect on the
value of our securities. In addition, we would no longer be required to pay any
dividends to stockholders.
Even if we qualify as a REIT, we are required to pay certain federal, state
and local taxes on our income and property. For example, if the Company has net
income from 'prohibited transactions,' that income will be subject to a 100%
tax. In general, prohibited transactions are sales or other dispositions of
property held primarily for sale to customers in the ordinary course of
business. The determination as to whether a particular sale is a prohibited
transaction is dependent on the facts and circumstances related to that sale.
While we have recently undertaken a significant number of asset sales, we do not
believe that those sales should be considered prohibited transactions, but there
can be no assurance that the IRS would not contend otherwise. In addition, any
net taxable income earned directly by some of our affiliates, including
OmniOffices, Carr Services, Inc. and CarrAmerica Development, is subject to
federal and state corporate income tax. Similarly, the income of our affiliate,
Omni UK, is subject to some foreign taxes.
Federal tax laws prohibit REITs from owning more than 10% of the
outstanding voting securities of any issuer that is not another REIT or a
'qualified REIT subsidiary.' The Clinton Administration's fiscal year 2000
budget proposal, announced February 1, 1999, includes a proposal that would
change the 10% voting securities test to a 10% vote or value test. Under the
proposal, a REIT would not be able to own more than 10% of the vote or value of
the outstanding securities of any corporation, except for a qualified REIT
subsidiary or another REIT. The proposal also contains an exception to the 5%
and 10% asset tests that would allow a REIT to have 'taxable REIT subsidiaries,'
including both 'qualified independent contractor subsidiaries,' which could
perform noncustomary and other currently prohibited services for tenants and
other customers, and 'qualified business subsidiaries,' which could undertake
third-party management and development activities as well as other non-real
estate related activities. Under the proposal, no more than 15% of a REIT's
total assets could consist of taxable REIT subsidiaries and no more than 5% of a
REIT's total assets could consist of qualified independent contractor
subsidiaries. Under the budget proposal, a taxable REIT subsidiary would not be
entitled to deduct any interest on debt funded directly or indirectly by the
REIT. This proposal would be effective after the date of enactment and a REIT
would be allowed to combine and convert existing corporate subsidiaries into
taxable REIT subsidiaries tax-free prior to a certain date. A transition period
would allow for conversion of existing corporate subsidiaries before the 10%
vote or value test would become effective. For the Company's taxable years after
the effective date of the proposal and after any applicable transition period,
the 10% vote or value test would apply to the Company's ownership in the
Company's operating subsidiaries, including OmniOffices not converted into
taxable REIT subsidiaries. It is presently uncertain whether any proposal
regarding REIT subsidiaries, including the budget proposal, will be enacted or,
if enacted, what the terms, including the effective date, of such proposal will
be.
OUR COMPANY IS NOT A SUITABLE INVESTMENT FOR FOREIGN INVESTORS
Our charter contains provisions generally preventing foreign investors
(other than SC-USREALTY and its affiliates) from acquiring additional shares of
the Company's capital stock if the acquisition would cause us to fail to qualify
as a domestically controlled REIT under the federal tax code. The application of
such provisions could prevent a foreign investor from acquiring stock or cause
stock that has been acquired to be reacquired automatically from the foreign
investor by a designated charitable trust. Accordingly, acquisition of our
capital stock would not likely be a suitable investment for foreign investors
other than SC-USREALTY.
17
<PAGE>
FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON THE COMPANY
The year 2000 issue results from a programming convention in which computer
programs use two digits rather than four to define the applicable year. Software
and hardware may recognize a date using '00' as the year 1900, rather than the
year 2000. Such an inability of computer programs to recognize a year that
begins with '20' could result in business or building system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including, among other things, a temporary inability to process
transactions, send invoices or engage in other normal business activities. We
have undertaken a comprehensive program to address the year 2000 issue. Although
our year 2000 efforts are intended to minimize the adverse effects of the year
2000 issue on its business operations, the actual effects of the year 2000 issue
and the success or failure of our efforts may not be known until the year 2000
and later. Failure by the Company and its major vendors, other material service
providers and material clients to address adequately their respective year 2000
issues in a timely manner (insofar as such issues relate to the Company's
business) could have a material adverse effect on our business, results of
operations and financial condition.
ITEM 2. PROPERTIES
GENERAL. As of December 31, 1998, the Company owned interests (consisting
of whole or partial ownership interests) in 297 operating office properties
located in 15 core markets across the United States. As of December 31, 1998,
the Company owned fee simple title or leasehold interests in 290 of these
operating office properties, controlling partial interests in two operating
office properties, and non-controlling partial interests of 5% to 50% in five
operating office properties. In addition, as of December 31, 1998, the Company
owned (either directly or through CarrAmerica Development) 50 office properties
under development. Except as disclosed in 'Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources,' the Company has no immediate plans to renovate its operating office
properties other than for routine capital maintenance. The Company believes its
properties are adequately covered by insurance. The Company believes that, as a
result of its national operating system, market research capabilities, access to
capital, and experience as an owner, operator and developer of office
properties, it will continue to be able to identify and consummate acquisition
and development opportunities and to operate its portfolio more effectively than
competitors without such capabilities. The Company, however, competes in many of
its core markets with other real estate operators, some of which may have been
active in such markets for a longer period than the Company.
18
<PAGE>
The following table sets forth certain information about each operating
property owned by the Company as of December 31, 1998:
<TABLE>
<CAPTION>
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED PROPERTIES
SOUTHEAST REGION
DOWNTOWN WASHINGTON, D.C.:
International Square.............. 3 100.0% 1,014,537 95.3% $ 30,855 $31.92
1730 Pennsylvania Avenue.......... 1 100.0 229,292 99.3 7,934 34.84
2550 M Street..................... 1 100.0 187,931 100.0 6,338 32.73
1775 Pennsylvania Avenue(6)....... 1 100.0 143,981 99.1 4,146 29.06
900 19th Street................... 1 100.0 100,907 100.0 3,128 31.00
1747 Pennsylvania Avenue.......... 1 89.7(7) 151,778 98.1 4,558 30.60
1255 23rd Street.................. 1 75.0(8) 305,237 97.1 8,304 28.03
WASHINGTON, D.C.:
One Rock Spring Plaza(6).......... 1 100.0 205,298 100.0 4,791 23.34
Tycon Courthouse.................. 1 100.0 416,195 98.7 8,454 20.58
Three Ballston Plaza(14).......... 1 100.0 302,875 100.0 7,584 25.04
Sunrise Corporate Center.......... 3 100.0 260,253 100.0 5,448 20.93
Parkway One....................... 1 100.0 87,842 100.0 1,416 16.12
ATLANTA:
Veridian.......................... 22 100.0 190,782 85.1 2,262 13.93
Glenridge......................... 1 100.0 64,052 76.3 829 16.96
Century Springs West.............. 1 100.0 94,893 97.3 1,551 16.79
Holcomb Place..................... 1 100.0 72,824 96.1 1,227 17.53
Midori............................ 1 100.0 99,900 100.0 1,823 18.25
Parkwood.......................... 1 100.0 151,296 66.4 1,818 18.11
Lakewood.......................... 1 100.0 80,338 100.0 1,176 14.64
The Summit........................ 1 100.0 179,085 100.0 2,963 16.54
Triangle Parkway.................. 3 100.0 82,102 81.8 976 14.53
<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
<S> <C>
CONSOLIDATED PROPERTIES
SOUTHEAST REGION
DOWNTOWN WASHINGTON, D.C.:
International Square.............. International Monetary Fund (36%)
1730 Pennsylvania Avenue.......... Federal Deposit Insurance Corporation (47%), King &
Spalding (30%)
2550 M Street..................... Patton Boggs, LLP (86%)
1775 Pennsylvania Avenue(6)....... Citibank F.S.B.(81%)
900 19th Street................... America's Community Bankers (30%), Stone & Webster (13%),
Korn/Ferry International (12%), Lucent Technologies (11%)
1747 Pennsylvania Avenue.......... Legg Mason Wood Walker (16%)
1255 23rd Street.................. Academy for Educational Development (18%), Chronicle of
Higher Education (16%), Seabury & Smith (16%), Peabody &
Brown (14%)
WASHINGTON, D.C.:
One Rock Spring Plaza(6).......... Sybase (27%), Caterair (22%)
Tycon Courthouse.................. Siemens Rolm (19%), GSA-FINCEN (16%), Vie de France
(11%),
Three Ballston Plaza(14).......... CACI (51%), Eastman Kodak (20%), Nixon & Vanderhye, PC
(11%)
Sunrise Corporate Center.......... Software AG (58%), LaFarge Corporation (12%)
Parkway One....................... EIS International (89%)
ATLANTA:
Veridian.......................... Edwards Baking Company (17%)
Glenridge......................... Industrial Computer Corporation (40%)
Century Springs West.............. Newcare Health Corporation (24%)
Holcomb Place..................... Intercept Holdings, Inc. (26%), Hitachi Telecom (USA),
Inc. (20%), The Progeni Corporation (13%)
Midori............................ National Consumer Services Corporation (66%), UPS (21%)
Parkwood.......................... American Flat Glass (10%)
Lakewood.......................... ISS (30%), Paychex (25%), Hickson Corporation (23%),
Morrison's (19%)
The Summit........................ Unisys Corporation (73%), GE Claims Service (14%), CSC
Continuum, Inc. (14%)
Triangle Parkway.................. Injoy, Inc. (28%), Wakefield / Beasley & Associates (16%)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
2400 Lake Park.................... 1 100.0% 100,491 93.5% $ 1,396 $14.85
<S> <C> <C> <C> <C> <C> <C>
680 Engineering Drive............. 1 100.0 62,154 100.0 564 9.07
Embassy Row....................... 3 100.0 465,858 86.2 6,745 16.79
Waterford Center.................. 1 100.0 82,161 85.1 1,271 18.17
Spalding Ridge.................... 1 100.0 128,233 96.3 2,377 19.26
FLORIDA,
BOCA RATON:
Peninsula Plaza................... 1 100.0 162,303 93.8 2,279 14.97
Presidential Circle............... 1 100.0 280,118 84.3 3,854 16.31
------ ---------- --------- -------------- ------------
SOUTHEAST REGION SUBTOTAL...... 57 5,702,716 94.3 126,067 23.44
PACIFIC REGION
SOUTHERN CALIFORNIA,
ORANGE COUNTY/LOS ANGELES:
Scenic Business Park.............. 4 100.0 139,012 100.0 1,550 11.15
Harbor Corporate Park............. 4 100.0 151,787 96.3 2,233 15.27
Plaza PacifiCare.................. 1 100.0 104,377 100.0 979 9.38
Katella Corporate Center.......... 1 100.0 80,204 92.6 1,243 16.73
Warner Center..................... 12 100.0 343,769 98.0 7,991 23.71
South Coast Executive Center...... 2 100.0 161,310 90.7 3,058 20.90
Warner Premier.................... 1 100.0 61,553 100.0 1,358 22.07
Westlake Corporate Center......... 2 100.0 73,061 95.9 1,322 18.88
Von Karman........................ 1 100.0 103,713 100.0 2,443 23.56
2600 W. Olive..................... 1 100.0 145,474 95.7 3,543 25.46
Bay Technology Center............. 2 100.0 107,481 100.0 1,606 14.94
Alton Deere Plaza................. 6 100.0 182,146 99.0 2,663 14.77
SOUTHERN CALIFORNIA,
SAN DIEGO:
Del Mar Corporate Plaza........... 2 100.0 123,142 100.0 1,875 15.23
<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
2400 Lake Park.................... GSA (23%), Computer Language Research (22%), United
Healthcare Services, Inc. (20%)
<S> <C>
680 Engineering Drive............. EMS Technologies (67%), Tie/Communications, Inc. (12%),
Loral Aerospace Corporation (12%)
Embassy Row....................... Ceridian Corporation (25%), Cabot Corporation (10%)
Waterford Center.................. Dateq Information Network, Inc. (21%), VCG, Inc. (16%),
Arkwright Mutual Insurance Company (15%), Morgan Health
Group, Inc. (12%)
Spalding Ridge.................... OHM Remediation Services Corporation (57%)
FLORIDA,
BOCA RATON:
Peninsula Plaza................... Motorola (11%)
Presidential Circle............... Suncoast Savings (12%)
SOUTHEAST REGION SUBTOTAL......
PACIFIC REGION
SOUTHERN CALIFORNIA,
ORANGE COUNTY/LOS ANGELES:
Scenic Business Park.............. Talbert Medical Management (24%), FHP (17%), So. Cal
Blood & Tissue (12%), Coast Community College Dist. (13%)
Harbor Corporate Park............. Delmas (25%), Clayton Environmental (10%)
Plaza PacifiCare.................. Pacificare Health Systems (100%)
Katella Corporate Center.......... Friendly Hills Healthcare (19%)
Warner Center..................... GSA (16%), El Camino Resources (11%)
South Coast Executive Center...... State Compensation Insurance Fund (33%)
Warner Premier.................... Panorama Software (34%), RSL COM, USA (27%), Paging
Network of L.A. (10%)
Westlake Corporate Center......... Payco-General American Credit (10%), Biomarphic VLSI,
Inc. (10%)
Von Karman........................ Fidelity National Title Insurance (41%), Vision Solutions
(41%), Taco Bell Corporation (18%)
2600 W. Olive..................... The Walt Disney Company (89%)
Bay Technology Center............. AMRESCO (100%)
Alton Deere Plaza................. Prof. Coingrading Service (15%), Next Link California
(24%)
SOUTHERN CALIFORNIA,
SAN DIEGO:
Del Mar Corporate Plaza........... Peregrine Systems, Inc. (77%), Newgen Results Company
(23%)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
Wateridge Pavilion................ 1 100.0% 62,194 100.0% $ 924 $14.85
<S> <C> <C> <C> <C> <C> <C>
Lightspan......................... 1 100.0 64,800 100.0 1,237 19.09
Towne Center Technology Park II... 1 100.0 62,367 100.0 995 15.96
Palomar Oaks Technology Park...... 6 00.0 170,358 100.0 1,958 11.49
Jaycor............................ 1 100.0 105,358 100.0 1,719 16.32
NORTHERN CALIFORNIA,
SAN FRANCISCO BAY AREA:
CarrAmerica Corporate Center...... 6 100.0 994,930 100.0 17,701 17.79
Sunnyvale Research Plaza(14)...... 3 100.0 126,000 100.0 1,774 14.08
Rio Robles........................ 7 100.0 368,178 100.0 4,547 12.35
Valley Business Park II........... 6 100.0 166,928 100.0 2,138 12.81
Bayshore Centre................... 2 100.0 195,249 100.0 2,711 13.88
Rincon Centre..................... 3 100.0 201,178 100.0 1,910 9.49
Valley Centre II.................. 4 100.0 212,082 100.0 2,647 12.48
Valley Office Centre.............. 2 100.0 68,731 100.0 1,735 25.25
Valley Centre..................... 2 100.0 102,291 100.0 1,195 11.68
Valley Business Park I............ 2 100.0 67,784 100.0 980 14.46
3745 North First Street........... 1 100.0 67,582 100.0 892 13.20
3571 North First Street........... 1 100.0 116,000 100.0 1,258 10.85
Mission Plaza(14)................. 2 100.0 102,687 100.0 1,155 11.25
North San Jose Technology Park.... 4 100.0 297,038 100.0 2,994 10.08
Foster City Technology
Center(14)..................... 2 100.0 66,869 100.0 1,100 16.45
150 River Oaks.................... 1 100.0 100,024 100.0 1,320 13.20
Amador/Rinconada(14).............. 3 100.0 134,611 100.0 1,777 13.20
<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
Wateridge Pavilion................ Stellcom, Inc. (37%), Platinum Solutions, Inc. (19%),
Wateridge Insurance Services (18%), TCS Mortgage, Inc.
(14%)
<S> <C>
Lightspan......................... The Lightspan Partnership, Inc. (100%)
Towne Center Technology Park II... Gateway 2000, Inc. (100%)
Palomar Oaks Technology Park...... Unifet, Inc. (23%), Excalibur Technologies Corporation
(18%), Torrey Pines Research, Inc. (13%), Pacific
Analytical, Inc. (11%), Coded Communications Corporation
(11%)
Jaycor............................ Jaycor, Inc. (100%)
NORTHERN CALIFORNIA,
SAN FRANCISCO BAY AREA:
CarrAmerica Corporate Center...... AT&T (47%), PeopleSoft (18%), Pacific Bell Mobil Services
(17%)
Sunnyvale Research Plaza(14)...... Cadence Design Systems (68%), AEA Credit Union (27%)
Rio Robles........................ Fujitsu (32%), KLA Instruments (27%), NEC Systems
Laboratory (23%)
Valley Business Park II........... Computer Training Academy (20%), Pericom (17%)
Bayshore Centre................... Clarify, Inc. (51%), Alantec (49%)
Rincon Centre..................... Ontrak Systems (44%), Toshiba America Electronic (31%),
Future Electronics (19%)
Valley Centre II.................. Boston Scientific (100%)
Valley Office Centre.............. Bank of America (21%), Quadrep (20%)
Valley Centre..................... Seagate Technology (40%), Gregory Associates (38%),
Neoparadigm Labs, Inc. (22%)
Valley Business Park I............ Leybold-Heraeus (35%), Tylan General (17%), LGC Wireless,
Inc. (17%), Arcom Electronics (15%)
3745 North First Street........... Comdisco, Inc. (100%)
3571 North First Street........... Sun Microsystems, Inc. (100%)
Mission Plaza(14)................. Intel Corporation (62%), Deskin Research (38%)
North San Jose Technology Park.... AG Associates (51%), 3DFX Interactive, Inc. (26%),
Elexsys International (22%)
Foster City Technology
Center(14)..................... Nortel Communications System (46%), Storybook Heirlooms
(30%), Perkin-Elmer Corporation (20%)
150 River Oaks.................... Seiko-Epson Corporation (100%)
Amador/Rinconada(14).............. Vanstar Corporation (28%)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
Amador III(14).................... 1 100.0% 82,944 100.0% $ 1,188 $14.32
<S> <C> <C> <C> <C> <C> <C>
Arroyo Center(14)................. 2 100.0 104,741 100.0 1,045 9.98
San Mateo I....................... 1 100.0 70,000 100.0 2,478 35.40
San Mateo II and III.............. 2 100.0 141,404 97.2 3,778 27.51
900-910 East Hamilton(14)......... 2 100.0 351,811 100.0 8,106 23.04
Hacienda West..................... 2 100.0 205,903 94.4 4,328 22.27
Sunnyvale Technology Centre....... 5 100.0 165,520 100.0 2,527 15.27
Baytech Business Park............. 4 100.0 300,000 100.0 5,220 17.40
Golden Gateway Commons............ 3 100.0 270,395 99.3 6,595 24.56
Techmart Commerce Center(6)....... 1 100.0 259,656 98.3 7,265 28.47
995 Benecia Avenue................ 1 100.0 36,344 100.0 741 20.40
Oakmead West A-G.................. 7 100.0 425,981 100.0 8,946 21.00
Santa Clara Technology Park....... 3 100.0 178,132 100.0 1,996 11.21
Valley Technology Center 4 & 5.... 2 100.0 132,700 100.0 2,787 21.00
NORTHERN CALIFORNIA,
SACRAMENTO:
1860 Howe Avenue.................. 1 100.0 98,992 87.6 1,773 20.46
University Office Park............ 2 100.0 122,288 86.8 1,617 15.24
Capital Corporate Center.......... 5 100.0 94,564 87.1 1,354 16.43
PORTLAND, OREGON:
RadiSys Corporate Headquarters.... 1 100.0 80,525 100.0 822 10.21
RadiSys II........................ 1 100.0 45,655 100.0 602 13.19
SEATTLE:
Redmond East...................... 10 100.0 399,468 88.4 4,415 12.50
Willow Creek...................... 1 100.0 96,179 100.0 981 10.20
<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
Amador III(14).................... Pacific Bell Corporation (26%)
<S> <C>
Arroyo Center(14)................. Hexcel Corporation (17%), TOPCOM America Corporation
(15%)
San Mateo I....................... Franklin Resources (100%)
San Mateo II and III.............. Franklin Resources, Inc. (37%), Peoplesoft/Red Pepper
(20%)
900-910 East Hamilton(14)......... Apple Computer, Inc. (41%), Philips Electronics (10%),
Zilog, Inc. (31%)
Hacienda West..................... Zacson Corporation (16%), Paycheck, Inc. (13%)
Sunnyvale Technology Centre....... Advanced Micro Devices, Inc. (51%), BMC Software (25%),
XICOM Technology, Inc. (12%), Metelics Corporation (12%)
Baytech Business Park............. Applied Materials, Inc. (100%)
Golden Gateway Commons............ Sharper Image Corporation (22%), Norcal Mutual Insurance
Co. (20%), ABM Industries, Inc. (11%)
Techmart Commerce Center(6)....... Network Conference Company, Inc. (14%), Sun MicroSystems
(11%)
995 Benecia Avenue................ Cardiac Pathways Corporation (100%)
Oakmead West A-G.................. Applied Materials, Inc. (100%)
Santa Clara Technology Park....... Pycon, Inc. (75%), FRY's Metal, (25%)
Valley Technology Center 4 & 5.... Iomega Corporation (100%)
NORTHERN CALIFORNIA,
SACRAMENTO:
1860 Howe Avenue.................. Transamerica Information (30%), Anytime Access, Inc.
(20%), GSA (12%), TIG Insurance Company (12%)
University Office Park............ State Lands Commission (26%), Protection & Advocacy, Inc.
(13%)
Capital Corporate Center.......... Vision Services Plan (31%), CAL State Auto Assn (20%),
Tetra Tech, Inc. (11%)
PORTLAND, OREGON:
RadiSys Corporate Headquarters.... RadiSys Corporation (100%)
RadiSys II........................ RadiSys II Corporation (100%)
SEATTLE:
Redmond East...................... Mosaix, Inc. (21%), Genetic Systems (14%), Trigon
Packaging (10%), Incontrol, Inc. (11%)
Willow Creek...................... Data I/O Corporation (100%)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
Canyon Park Business Center....... 6 100.0% 246,565 100.0% $ 3,324 $13.48
<S> <C> <C> <C> <C> <C> <C>
Canyon Park Commons............... 1 100.0 95,290 100.0 1,358 14.25
Willow Creek Corporate Center..... 5 100.0 296,089 93.2 4,218 15.28
Redmond Hilltop B & C............. 2 100.0 90,880 100.0 1,370 15.07
Canyon Park Commons 1 & 2......... 2 100.0 110,398 100.0 1,304 11.81
------ ---------- --------- -------------- ------------
PACIFIC REGION SUBTOTAL........ 173 10,132,692 98.3 166,669 16.74
CENTRAL REGION
AUSTIN, TEXAS:
Great Hills Plaza................. 1 100.0 135,333 100.0 2,532 18.71
Balcones Center................... 1 100.0 74,978 78.4 950 16.16
Park North........................ 2 100.0 132,744 95.3 2,101 16.62
City View Centre.................. 3 100.0 136,183 100.0 2,237 16.42
Riata 4, 5, 8..................... 3 100.0 274,118 89.7 3,506 14.26
Tower of the Hills................ 2 100.0 166,099 98.1 2,476 15.19
City View Center.................. 1 100.0 128,716 100.0 2,073 16.10
CHICAGO:
Parkway North..................... 2 100.0 507,240 100.0 8,385 16.53
Unisys............................ 2 100.0 361,834 95.6 5,626 16.27
The Crossings..................... 2 100.0 297,205 90.6 4,470 16.60
Bannockburn I & II................ 2 100.0 210,860 100.0 3,400 16.13
Bannockburn IV.................... 1 100.0 108,469 100.0 1,707 15.74
Summit Oaks....................... 1 100.0 91,626 93.4 1,442 16.86
DALLAS, TEXAS:
Quorum North...................... 1 100.0 115,845 88.6 1,860 18.12
<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
Canyon Park Business Center....... Cellpro Inc. (18%), Board of Regents of UWA (22%),
Federal Express (13%), ITT Educational Services (11%)
<S> <C>
Canyon Park Commons............... Microsoft (100%)
Willow Creek Corporate Center..... Safeco Insurance Company of America (48%), Metawave
Communication Corporation (32%)
Redmond Hilltop B & C............. Concor Technologies (47%), Emerging Technology Solutions
(42%), Citrix Systems, Inc. (10%)
Canyon Park Commons 1 & 2......... Washington Mutual Bank (100%)
PACIFIC REGION SUBTOTAL........
CENTRAL REGION
AUSTIN, TEXAS:
Great Hills Plaza................. Empire Funding (48%), Blue Cross (24%), Skjerven Morrill,
Machpherson (13%), Businesssuites (12%)
Balcones Center................... Medianet (29%), Austin Diagnostic Clinic (15%)
Park North........................ CSC Continuum Inc. (36%)
City View Centre.................. Holt, Rinehart & Winston (76%), Money Star Communications
(16%)
Riata 4, 5, 8..................... Netsolve, Inc. (25%), Pervasive Software (25%), Alcatel
USA, Inc. (25%)
Tower of the Hills................ Texas Guaranteed Student (65%)
City View Center.................. IXC Communications, Inc. (100%)
CHICAGO:
Parkway North..................... Fujisawa USA (27%), Alliant Foodservice (23%), Baxter
Healthcare Corporation (13%)
Unisys............................ Unisys (15%), PNC Mortgage (16%), Hub Group, Inc. (11%)
The Crossings..................... Allstate Insurance Company (13%), Abercrombie & Kent
(11%)
Bannockburn I & II................ IMC Global (38%), Deutsche Credit Corporation (36%)
Bannockburn IV.................... Open Text (35%), Abbott Laboratories (12%), NY Life
Insurance (10%)
Summit Oaks....................... GSA (18%), BMG Music (14%), Master Printer Credit Union
(14%), National Truck Leasing Suite (12%)
DALLAS, TEXAS:
Quorum North...................... Digital Matrix Systems (20%), HQ Dallas Quorum North
(17%)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
Quorum Place...................... 1 100.0% 179,303 92.4% $ 2,706 $16.34
<S> <C> <C> <C> <C> <C> <C>
Cedar Maple Plaza................. 3 100.0 113,011 96.1 2,144 19.73
Tollhill East & West.............. 2 100.0 241,487 91.1 3,550 16.14
Two Mission Park.................. 1 100.0 77,731 89.1 985 14.21
Citymark.......................... 1 100.0 207,595 94.1 3,933 20.14
5000 Quorum....................... 1 100.0 160,222 92.2 2,361 15.99
Royal Ridge A..................... 1 100.0 144,835 100.0 2,571 17.75
------ ---------- --------- -------------- ------------
CENTRAL REGION SUBTOTAL........ 34 3,865,434 95.1 61,015 16.60
MOUNTAIN REGION
DENVER:
Harlequin Plaza................... 2 100.0 329,070 98.6 5,171 15.94
Quebec Court I & II............... 2 100.0 287,294 100.0 4,021 14.00
Greenwood Center.................. 1 100.0 75,866 100.0 1,456 19.19
Quebec Center..................... 3 100.0 106,865 92.1 1,470 14.95
Panorama Corporate Center I....... 1 100.0 100,881 100.0 2,062 20.44
Panorama II....................... 1 100.0 100,916 96.7 2,151 22.04
PHOENIX, ARIZONA:
Camelback Lakes................... 2 100.0 197,351 99.8 3,385 17.19
Pointe Corridor IV................ 1 100.0 178,745 99.5 2,944 16.55
Highland Park..................... 1 100.0 78,093 68.7 1,057 19.70
The Grove at Black Canyon......... 1 100.0 104,187 95.2 1,932 19.47
US West........................... 4 100.0 532,506 100.0 8,580 16.11
Concord Place..................... 1 100.0 133,287 100.0 2,463 18.70
<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
Quorum Place...................... VHASouthwest, Inc. (22%), Objectspace (16%)
<S> <C>
Cedar Maple Plaza................. No Tenant Occupies More Than 10%
Tollhill East & West.............. Digital Equipment Corporation (22%)
Two Mission Park.................. Macromedia, Inc. (26%), Bland Garvey and Taylor (16%)
Citymark.......................... Wells Fargo Bank (Texas), N.A. (30%), Robert Young
Associates, Inc. (11%), Centex Service Company, (10%),
Berry Brown Advertising, Inc. (10%)
5000 Quorum....................... No Tenant Occupies More Than 10%
Royal Ridge A..................... GTE North, Inc. (100%)
CENTRAL REGION SUBTOTAL........
MOUNTAIN REGION
DENVER:
Harlequin Plaza................... Travelers Insurance (17%), Bellco First Federal Credit
Union (13%), National Mortgage Corporation (11%), Regis
University (10%)
Quebec Court I & II............... Prime Star, Inc. (55%), Time Warner Communications (45%)
Greenwood Center.................. General Motors Corporation. (30%), Talisman Partners, Ltd
(11%), FDIC (11%)
Quebec Center..................... Gordon Gumeeson & Associates (12%), Walberg & Dagner
(11%)
Panorama Corporate Center I....... Teleport Communications Group (70%), Sprint Spectrum, LP
(11%)
Panorama II....................... Hartford Fire Insurance Company (38%), 3COM Corporation
(18%), Toyota Motor Credit Corporation (13%), Archstone
Communities (11%)
PHOENIX, ARIZONA:
Camelback Lakes................... Vanguard Group (38%), Humana Health Plan (14%)
Pointe Corridor IV................ Jostens Learning Corporation (19%), Aetna Life Insurance
Company (22%), TPA, Inc. (12%)
Highland Park..................... All Apartments, Inc. (14%), Trendwest Resorts, Inc. (11%)
The Grove at Black Canyon......... Cigna Healthcare of Arizona (80%)
US West........................... US West Business Resources (100%)
Concord Place..................... Peacock, Hislop, Staley & Given (16%), Horizon Real
Estate Group (11%)
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
SALT LAKE CITY, UTAH:
<S> <C> <C> <C> <C> <C> <C>
Sorenson Research Park............ 5 100.0% 285,144 99.7% $ 3,381 $11.89
Wasatch Corporate Center.......... 3 100.0 178,098 100.0 2,084 11.70
------ ---------- --------- -------------- ------------
MOUNTAIN REGION SUBTOTAL....... 28 2,688,303 98.2 42,157 15.98
------ ---------- --------- -------------- ------------
TOTAL CONSOLIDATED PROPERTIES:...... 292 22,389,145 $395,908
------ ---------- --------------
WEIGHTED AVERAGE.................... 96.7% $18.29
--------- ------------
UNCONSOLIDATED PROPERTIES
DOWNTOWN WASHINGTON, D.C.:
1717 Pennsylvania Avenue.......... 1 50.0(9) 184,446 100.0 6,490 35.19
AARP Headquarters................. 1 24.0(10) 477,394 99.9 18,428 38.65
Bond Building..................... 1 15.0(11) 162,097 100.0 4,714 29.08
Willard Office/Hotel(14).......... 1 5.0(12) 242,787 98.3 9,366 39.24
WASHINGTON, D.C.:
Booz-Allen & Hamilton Building.... 1 50.0(13) 222,989 100.0 3,405 15.27
------ ---------- --------- -------------- ------------
TOTAL UNCONSOLIDATED PROPERTIES:.... 5 1,289,713 $ 42,403
------ ---------- --------------
WEIGHTED AVERAGE.................... 99.6% $33.00
--------- ------------
ALL OPERATING PROPERTIES
TOTAL:.............................. 23,678,858 $438,311
---------- --------------
---------- --------------
WEIGHTED AVERAGE.................... 96.9% $19.11
--------- ------------
--------- ------------
<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
SALT LAKE CITY, UTAH:
<S> <C>
Sorenson Research Park............ Matrix Marketing, Inc. (34%), Datachem Laboratories, Inc.
(20%), Intel Corporation (14%), ITT Educational Services
(12%), Foundation Health Corporation (12%)
Wasatch Corporate Center.......... Advanta Financial Corporation (28%), Achieve Global, Inc.
(23%), Fonix Corporation (14%), Tenfold Corporation
(14%), Musicians Friand, Inc. (12%)
MOUNTAIN REGION SUBTOTAL.......
TOTAL CONSOLIDATED PROPERTIES:......
WEIGHTED AVERAGE....................
UNCONSOLIDATED PROPERTIES
DOWNTOWN WASHINGTON, D.C.:
1717 Pennsylvania Avenue.......... MCI Telecommunications (57%)
AARP Headquarters................. American Association of Retired Persons (99%)
Bond Building..................... General Services Administration-Dept of Justice (93%)
Willard Office/Hotel(14).......... Vinson & Elkins (27%), Hale & Dorr (18%)
WASHINGTON, D.C.:
Booz-Allen & Hamilton Building.... Booz Allen & Hamilton (100%)
TOTAL UNCONSOLIDATED PROPERTIES:....
WEIGHTED AVERAGE....................
ALL OPERATING PROPERTIES
TOTAL:..............................
WEIGHTED AVERAGE....................
</TABLE>
- ------------------
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
December 31, 1998.
(Footnotes continued on next page)
25
<PAGE>
(Footnotes continued from previous page)
(3) Total annualized base rent equals total original base rent, including
historical contractual increases and excluding (i) percentage rents, (ii)
additional rent payable by tenants such as common area maintenance, real
estate taxes and other expense reimbursements, (iii) future contractual or
contingent rent escalations, and (iv) parking rents.
(4) Calculated as total annualized base rent divided by net rentable area
leased.
(5) Includes tenants leasing 10% or more of rentable square footage (with the
percentage of rentable square footage in parentheses).
(6) The Company owns the improvements on the property and has a leasehold
interest in all of the underlying land.
(7) The Company holds a general and limited partner interest in a partnership
that owns the property.
(8) 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.
(9) The Company holds a 50% interest in the limited liability company that owns
the property and serves as the entity's managing member.
(10) 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.
(11) 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.
(12) The Company holds an effective 5% interest in the property by virtue of a
7.85% limited partner interest in a partnership that owns, through an
affiliate, 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.
(13) The Company holds a 50% joint venture interest, and is the managing
venturer.
(14) The property was disposed of in the first quarter of 1999.
26
<PAGE>
OCCUPANCY, AVERAGE RENTALS AND LEASE EXPIRATIONS. As of December 31, 1998,
96.7% of the aggregate net rentable square footage in the 292 operating office
properties whose results are consolidated in the financial statements of the
Company was leased. The following table sets forth the percent leased and
average annualized rent per leased square foot (excluding storage space) for
office and retail space combined for the past five years for the operating
office properties that were consolidated for financial statement purposes at
each of the dates indicated:
<TABLE>
<CAPTION>
AVERAGE
PERCENT ANNUALIZED RENT NUMBER OF
LEASED AT PER LEASED CONSOLIDATED
DECEMBER 31, YEAR END SQUARE FOOT(1) PROPERTIES
- ------------------------------------------------------------- --------- --------------- ------------
<S> <C> <C> <C>
1998......................................................... 96.7% $ 20.46 292
1997......................................................... 95.9 19.38 243
1996......................................................... 93.6 19.37 159
1995......................................................... 93.5 27.36 13
1994......................................................... 95.9 32.48 11
</TABLE>
- ------------------
(1) Calculated as total annualized building operating revenue, including tenant
reimbursements for operating expenses and excluding parking and storage
revenue, divided by the total square feet, excluding storage, in the
building under lease at year end.
The following table sets forth a schedule of the lease expirations for
leases in place as of December 31, 1998 in each of the next ten years beginning
with 1999 and thereafter for the 292 operating office properties whose results
are consolidated in the financial statements of the Company, assuming that no
tenants exercise renewal options:
<TABLE>
<CAPTION>
NUMBER OF NET RENTABLE AREA ANNUAL BASE RENT PERCENT OF TOTAL
YEAR TENANTS WITH SUBJECT TO UNDER EXPIRING ANNUAL BASE RENT
OF LEASE EXPIRING EXPIRING LEASES(1) LEASES REPRESENTED BY
EXPIRATION LEASES (SQUARE FEET) (IN THOUSANDS) EXPIRING LEASES
- ----------------------------------------- ------------ -------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1999..................................... 708 2,586,000 $ 46,790 11.8%
2000..................................... 360 2,569,000 44,320 11.2
2001..................................... 411 2,946,000 49,933 12.6
2002..................................... 276 3,203,000 61,061 15.4
2003..................................... 321 3,343,000 58,980 14.9
2004..................................... 111 1,892,000 41,215 10.4
2005..................................... 58 901,000 16,550 4.2
2006..................................... 49 1,243,000 21,647 5.5
2007..................................... 50 1,187,000 22,222 5.6
2008..................................... 54 1,499,000 28,808 7.3
2009 and thereafter...................... 15 283,000 4,388 1.1
</TABLE>
- ------------------
(1) Excludes 737,000 square feet of space that was vacant as of December 31,
1998.
27
<PAGE>
BUILDING AND LEASE INFORMATION. The following table sets forth certain
information for the 292 operating office properties that were consolidated for
financial statement purposes regarding leases that commenced during the year
ended December 31, 1998, excluding leases for office properties that were
executed prior to the date of acquisition of such properties:
<TABLE>
<CAPTION>
CALCULATED ON A WEIGHTED AVERAGE BASIS
-------------------------------------------------------------
OPERATING PROPERTIES, TENANT
DOWNTOWN IMPROVEMENTS BASE
WASHINGTON, D.C. TOTAL & CASH RENT LEASING
(9 PROPERTIES) SQUARE ALLOWANCES PER LEASE ABATEMENTS COMMISSION
FEET PER SQUARE LIFE IN IN PER SQUARE
TYPE OF LEASE LEASED SQUARE FOOT FOOT YEARS MONTHS FOOT
--------- ------------ ------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Office.................................... 409,105 $ 7.63 $30.42 6.0 0.8 $ 1.83
Retail.................................... 26,014 12.92 26.69 6.0 3.6 4.73
---------
Total/Weighted Average.................... 435,119 7.95 30.19 6.0 0.9 2.01
-- --
-- --
--------- ------------ ------ ----------
--------- ------------ ------ ----------
New leases or expansion space............. 268,825 $10.88 $29.72 6.9 1.4 $ 2.83
Renewals of existing tenants' space....... 166,294 3.22 30.96 4.6 0.2 0.68
---------
Total/Weighted Average.................... 435,119 7.95 30.19 6.0 0.9 2.01
-- --
-- --
--------- ------------ ------ ----------
--------- ------------ ------ ----------
<CAPTION>
CALCULATED ON A WEIGHTED AVERAGE BASIS
-------------------------------------------------------------
OPERATING PROPERTIES, TENANT
OTHER THAN DOWNTOWN IMPROVEMENTS BASE
WASHINGTON, D.C. TOTAL & CASH RENT LEASING
(283 PROPERTIES) SQUARE ALLOWANCES PER LEASE ABATEMENTS COMMISSION
FEET PER SQUARE LIFE IN IN PER SQUARE
TYPE OF LEASE LEASED SQUARE FOOT FOOT YEARS MONTHS FOOT
--------- ------------ ------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Office.................................... 6,013,562 $ 6.07 $17.80 5.9 0.2 $ 2.22
Retail.................................... 34,269 1.68 1.19 4.9 3.0 0.00
---------
Total/Weighted Average.................... 6,047,831 6.04 17.70 5.9 0.2 2.21
-- --
-- --
--------- ------------ ------ ----------
--------- ------------ ------ ----------
New leases or expansion space............. 4,792,998 $ 7.27 $17.54 6.2 0.3 $ 2.59
Renewals of existing tenants' space....... 1,254,833 1.36 18.33 4.9 0.0 0.76
---------
Total/Weighted Average.................... 6,047,831 6.04 17.70 5.9 0.2 2.21
-- --
-- --
--------- ------------ ------ ----------
--------- ------------ ------ ----------
</TABLE>
28
<PAGE>
MORTGAGE FINANCING. As of December 31, 1998, certain of the 292 operating
office properties that were consolidated for financial statement purposes were
subject to fixed rate mortgage indebtedness in an aggregate principal amount of
$597 million. The Company's fixed rate mortgage debt as of December 31, 1998
bore an effective weighted average interest rate of 8.2% and had a weighted
average maturity of 4.7 years (assuming loans callable before maturity are
called as early as possible). Certain information regarding the existing
mortgage indebtedness for the consolidated operating office properties subject
to fixed rate mortgage indebtedness is set forth in the table below as of
December 31, 1998:
<TABLE>
<CAPTION>
ESTIMATED
ANNUAL DEBT BALANCE DUE AT
INTEREST PRINCIPAL MATURITY SERVICE (IN MATURITY (IN
PROPERTY RATE BALANCE DATE THOUSANDS) THOUSANDS)
- -------------------------------------------- -------- --------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
1775 Pennsylvania Avenue 7.50% $ 6,129 2/28/99(1) $ 586 $ 6,098(2)
South Coast Executive Center 9.01 10,127 5/31/99 1,015 10,103(2)
Quorum Place 6.99 7,578 11/15/00 665 7,327(2)
Warner Center 7.40 26,000 12/1/00 1,924 26,000(2)
Presidential Circle 7.14 22,982 3/1/01 2,061 22,041(2)
Bannockburn I & II 9.52 19,553 8/31/01 2,801 16,912(2)
Quorum North 8.27 6,566 12/10/01 640 6,258(2)
</TABLE>
)
<TABLE>
<S> <C> <C> <C> <C> <C>
Valley Business Park
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
Valley Office Centre
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
Valley Centre II 8.25 42,273 12/10/01 4,655 37,873(2)
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
Rincon Centre(
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
Bayshore Centre
</TABLE>
)
)
<TABLE>
<S> <C> <C> <C> <C> <C>
Sunnyvale Technology Center
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
Citymark Tower 8.90 35,554 6/1/02 4,646 26,924(2))
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
Hacienda West
</TABLE>
)
)
<TABLE>
<S> <C> <C> <C> <C> <C>
1255 23rd Street
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
International Square
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
1850 K Street 7.75 39,496 2/1/03 3,626 38,826(2)
</TABLE>
(4)
)
<TABLE>
<S> <C> <C> <C> <C> <C>
1825 Eye Street 8.80 92,500 2/1/03 9,263 87,164(2)(
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
1875 Eye Street
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
1730 Pennsylvania Avenue
</TABLE>
)
<TABLE>
<S> <C> <C> <C> <C> <C>
International Square Land(4) 7.55 39,481 2/1/03 3,563 36,657(2)
International Square Land(4) 8.00 9,879 2/1/03 926 9,211(2)
Jaycor 8.96 12,781 2/1/03 1,657 10,332(2)
Parkway North I 6.92 29,250 12/1/03 2,328 29,250(5)
Canyon Park Commons 9.13 5,615 12/1/04 714 4,071(2)
US West 7.92 53,263 12/1/05 8,836 (6)
Redmond East 8.38 27,355 1/1/06 2,648 24,022(3)
</TABLE>
)
<TABLE>
<S> <C> <C> <C> <C> <C>
Century Springs West
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
Glenridge
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
Midori 7.20 20,812 1/1/06 2,126 15,209(7)
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
Lakewood(
</TABLE>
(
<TABLE>
<S> <C> <C> <C> <C> <C>
Parkwood
</TABLE>
)
<TABLE>
<S> <C> <C> <C> <C> <C>
Concord Place 7.75 7,646 1/1/06 725 6,438(2)
Wateridge Pavillion 8.25 3,481 11/1/06 338 2,921(2)
Wasatch Corporate Center 8.15 12,654 1/2/07 1,220 10,569(2)
2600 W. Olive 6.75 19,152 1/1/09 1,293 19,152(2)
Palomar Oaks 8.85 10,086 4/1/09 1,025 7,925(2)
Sorenson Research Park 7.75 2,617 7/1/11 328 (6)
995 Benecia Avenue 8.50 911 8/1/11 118 64(2)
Sorenson Research Park 8.88 1,646 5/1/17 182 (6)
1747 Pennsylvania Avenue 9.50 15,072 7/10/17(8) 1,730 (8)
900 19th Street 8.25 16,400 7/15/19(9) 1,656 (9)
-------- --------- -----------
Total 8.18% $ 596,859 $63,295
-------- --------- -----------
-------- --------- -----------
</TABLE>
(Footnotes on next page)
29
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Note has been extended for three months. The Company expects to replace this
note with a $12.0 million, 10-year loan which will bear interest at 6.79%.
As this closing is subject to certain conditions, there can be no assurance
this transaction will close.
(2) Currently prepayable at the rates stated in the loan documents.
(3) Prepayable after December 19, 2005 at the rates stated in the loan
documents.
(4) In March 1999 these loans were refinanced with the existing lender. The
aggregate principal balance was increased to $222 million, the expiration
date was extended approximately 6 years and a fixed interest rate was set at
8.12%.
(5) Prepayable after December 1, 1999 at the rates stated in the loan documents.
(6) Note will be fully repaid at maturity.
(7) Prepayable after January 2001 at the rates stated in the loan documents.
(8) Note is callable by the lender after June 30, 2002. The estimated principal
balance at June 30, 2002 will be $13,840,000.
(9) Note is callable by the lender after July 1, 2004. The estimated principal
balance at July 1, 2004 will be $14,262,000.
For additional information regarding the Company's office properties and
their operation, see 'Item 1, Business.'
EXECUTIVE OFFICE SUITES LEASES. As of December 31, 1998, OmniOffices and
Omni UK had noncancellable operating leases at each of their respective centers.
The initial terms of these leases ranged from 10 to 15 years and expire between
1999 and 2014. The current leases in place have remaining future minimum lease
payment requirements of $524.0 million.
The following table sets forth certain information about the executive
suites leased by OmniOffices or Omni UK and subleased to executive office suites
tenants as of December 31, 1998:
<TABLE>
<CAPTION>
PERCENT
# OF # OF LEASED
FACILITY OWNER CENTERS SUITES @ 12-31-98
- --------------------------------------------------- ------------ ------- ------ ----------
<S> <C> <C> <C> <C>
New York........................................... OmniOffices 12 980 95.3%
Washington, DC..................................... OmniOffices 8 473 98.8
Atlanta............................................ OmniOffices 9 569 91.6
New Jersey......................................... OmniOffices 10 460 92.6
San Rafael......................................... OmniOffices 1 42 95.3
Chicago............................................ OmniOffices 26 1,839 96.7
Boston............................................. OmniOffices 8 555 94.6
Parsippany......................................... OmniOffices 3 202 90.6
Utah............................................... OmniOffices 5 245 83.7
Arizona............................................ OmniOffices 2 119 95.0
St. Louis.......................................... OmniOffices 1 57 66.7
Los Angeles/Orange County.......................... OmniOffices 4 264 95.1
Dallas............................................. OmniOffices 2 150 100.0
Houston............................................ OmniOffices 2 158 89.9
Denver............................................. OmniOffices 1 73 98.6
Philadelphia....................................... OmniOffices 1 48 87.5
Orlando............................................ OmniOffices 1 70 80.0
Seattle............................................ OmniOffices 1 60 100.0
San Francisco...................................... OmniOffices 1 65 100.0
San Diego.......................................... OmniOffices 1 75 93.3
San Mateo.......................................... OmniOffices 1 56 100.0
London............................................. Omni UK 6 239 84.9
------- ------ ----------
Total............................................ 106 6,799 93.7%
------- ------ ----------
------- ------ ----------
</TABLE>
30
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company currently is involved in litigation with two stockholders of
OmniOffices involving the conversion in September 1998 of approximately $111
million of debt previously loaned by the Company to OmniOffices into stock of
OmniOffices. The Company and OmniOffices initiated this litigation by filing a
complaint seeking a declaratory judgment that the terms of the debt conversion
were fair, after these two stockholders threatened to challenge the terms of the
conversion, claiming that the conversion price utilized, and the methods by
which the conversion price was agreed upon between the Company and OmniOffices,
were not fair to OmniOffices or these stockholders. The two stockholders filed
counterclaims against the Company, OmniOffices and the board of directors of
OmniOffices seeking a judgment declaring the conversion void or voidable, or in
the alternative compensatory and punitive damages.
Although the Company believes that the two stockholders' claims are without
merit and that it and OmniOffices will ultimately prevail in their actions
against the two stockholders, there can be no assurance that the court will not
find the conversion price to have been unfair and declare the conversion void,
which would have the effect of diluting the Company's equity interest in
OmniOffices, or award the two stockholders compensatory and punitive damages.
However, even if the two stockholders were successful in their claims, the
Company does not believe that such a result would have a material adverse effect
on the financial condition or results of operations of the Company or
OmniOffices.
The Company is a party to a variety of other legal proceedings arising in
the ordinary course of its business. All of these other matters, taken together,
are not expected to have a material adverse impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange
('NYSE') under the symbol 'CRE'. As of March 15, 1999, there were 453
stockholders of record. The following table sets forth the high and low sale
prices of the Company's common stock as reported on the NYSE Composite Tape, and
the dividends per share of common stock paid for each full quarterly period
within the two most recent fiscal years:
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q FULL YEAR
------- ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
1998
HIGH.............................................. $31 11/16 30 5/8 30 1/8 25 1/4 31 11/16
LOW............................................... $28 7/16 26 1/2 19 7/16 19 19
DIVIDEND $ .4625 .4625 .4625 .4625 1.85
</TABLE>
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q FULL YEAR
------- ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
1997
High.............................................. $32 1/4 30 5/8 32 3/16 33 7/16 33 7/16
Low............................................... $28 1/4 26 1/4 27 3/4 28 1/4 26 1/4
Dividend.......................................... $ .4375 .4375 .4375 .4375 1.75
</TABLE>
The Company, in order to qualify as a REIT, is required to make
distributions (other than capital gain distributions) to its stockholders in
amounts at least equal to (i) the sum of (A) 95% of its 'REIT taxable income'
(computed without regard to the dividends paid deduction and its net capital
gain) and (B) 95% of the net income (after tax), if any, from foreclosure
property, minus (ii) the sum of certain items of non-cash income. The Company's
distribution strategy is to distribute what it believes is a conservative
percentage of its cash flow permitting the Company to retain funds for capital
improvements and other investments while funding its distributions.
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, nontaxable return of capital or a combination thereof.
Distributions that exceed the Company's current and accumulated
31
<PAGE>
earnings and profits (calculated for tax purposes) constitute a return of
capital rather than a dividend and reduce the stockholder's basis in his or her
shares of common stock. To the extent that a distribution exceeds both current
and accumulated earnings and profits and the stockholder's basis in his or her
shares, it will generally be treated as gain from the sale or exchange of that
stockholder's shares. The Company annually notifies stockholders of the
taxability of distributions paid during the preceding year.
The following table sets forth the taxability of common stock distributions
paid in 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Ordinary income........................................................... 92% 90%
Capital Gain.............................................................. -- --
Return of Capital......................................................... 8% 10%
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
for the Company. The financial and operating data has been extracted from the
Company's consolidated financial statements for each of the periods presented.
The following selected financial and operating information should be read
in conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations,' and all of the financial statements and notes
thereto included elsewhere in this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
(In thousands, except per share data) 1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Real Estate Operating Revenue:
Rental revenue............................... $ 440,455 325,502 154,165 89,539 82,665
Real estate service revenue.................. 16,167 15,998 12,512 11,315 8,890
Executive office suites revenue................. 145,932 17,865 -- -- --
CONSOLIDATED DATA:
Net income from continuing operations........... 126,497(1) 78,740 24,802(2) 12,067(2) 12,097
Dividends paid to common stockholders........... 127,188 97,195 42,914 23,344 20,204
PER SHARE DATA:
Basic income before extraordinary item.......... 1.33 1.23 0.90 0.90 1.06
Diluted income before extraordinary item........ 1.32 1.23 0.90 0.90 1.06
Dividends paid to common stockholders........... 1.85 1.75 1.75 1.75 1.75
Weighted average shares outstanding--basic...... 68,577 54,873 26,932 13,338 11,387
Weighted average shares outstanding-- diluted... 68,778 59,597 26,999 13,339 11,387
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
(In thousands) 1998 1997 1996 1995 1994
------------ ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation...... $ 2,993,569 2,397,023 1,475,998 480,589 429,537
Total assets...................................... 3,793,484 2,744,060 1,536,564 458,860 407,948
Mortgages and notes payable....................... 1,704,359 1,025,145 655,449 317,374 254,933
Minority interest................................. 93,264 74,955 50,597 34,850 38,644
Total stockholders' equity........................ 1,814,402 1,552,697 787,478 95,543 106,042
Total common shares outstanding................... 71,760 59,994 43,789 13,409 13,248
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
(In thousands) 1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Net cash provided by operating activities...... $ 239,752 133,077 82,300 35,277 29,908
Net cash used by investing activities.......... (985,321) (998,733) (876,947) (81,635) (67,046)
Net cash provided by financing activities...... 757,760 861,864 813,067 37,113 32,652
Funds from operations before allocation to the
unitholders(4).............................. 234,554(3) 153,262 64,496(2) 33,190(2) 30,640
</TABLE>
- ------------------
(1) Net income includes a non-recurring deduction of approximately $13.7 million
related to the write-off of treasury locks.
(2) Net income and funds from operations before allocation to unitholders
include non-recurring deductions of approximately $2.3 million and $1.9
million in 1996 and 1995, respectively, related to the write-off of the
unamortized purchase price of certain third party real estate service
contracts that were terminated in 1996 and the termination of an agreement
to acquire the development business of The Evans Company in 1995,
respectively.
(3) Funds from operations before allocation to the unitholders excludes a
non-recurring deduction of approximately $13.7 million related to write off
of treasury locks.
(4) 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 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is based primarily on the Consolidated Financial
Statements of CarrAmerica Realty Corporation and its subsidiaries (the
'Company') as of December 31, 1998 and 1997, and for the years ended December
31, 1998, 1997 and 1996. The comparability of the periods is significantly
impacted by acquisitions completed, development properties placed in service and
certain dispositions made during those years. As of December 31, 1996, the
Company owned 159 properties that were consolidated for financial statement
purposes. This number grew to 243 as of December 31, 1997 and 292 as of December
31, 1998. Similar growth was occurring in the other segments. With respect to
the executive office suites business, the Company's affiliates commenced
operations in 1997 with 28 centers, growing to over 100 centers in 1998 with
approximately 30 more centers under development. Development operations also
grew significantly during the periods presented.
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
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.
33
<PAGE>
RESULTS OF OPERATIONS-1998 TO 1997
REAL ESTATE PROPERTY OPERATIONS
Operating Revenue. Total real estate property operating revenue increased
$115.0 million, or 35.3%, to $440.5 million for 1998 as compared to $325.5
million for 1997. The Company experienced net growth in its rental revenue as a
result of its acquisitions, and development properties placed in service, which
together contributed approximately $105.1 million of additional rental revenue
in 1998. Rental revenue from properties that were fully operational throughout
both periods increased by approximately $9.9 million primarily due to increased
occupancy in these properties.
Segment Expense. Real estate property operating expenses increased $36.9
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 $2.9 million.
Interest Expense. Interest expense increased $1.7 million due to the
acquisition of properties which were subject to existing mortgage debt.
Other Income (Expense), net. Other revenue generated by real estate
property operations increased $1.0 million primarily as a result of additional
interest income.
Total Assets. The increase of $504.7 million or 21.9% from 1997 to 1998 is
primarily as a result of acquisitions of real estate and development properties
placed in service.
EXECUTIVE OFFICE SUITES OPERATIONS
Operating Revenue. Executive office suites operating revenue increased by
$128.0 million to $145.9 million in 1998, as compared to $17.9 million for 1997,
primarily as a result of executive office suites revenue earned on executive
suite businesses acquired during the year and the effect of having a full year
of operations in 1998 as opposed to five months in 1997.
Segment Expense. The addition of $102.5 million in executive office suites
operating expenses is a result of the acquisition of executive office suites
businesses, the effect of having a full year of operations in 1998 as opposed to
five months in 1997 and the commencement of additional executive office suites
development.
Interest Expense. Interest expense increased $10.9 million from 1997 to
1998 primarily as a result of draws on the OmniOffices line of credit necessary
to complete the acquisition of executive suites businesses.
Other Income (Expense), net. The increase of $0.6 million from 1997 to
1998, is primarily as a result of the effect of having a full year of operations
in 1998 as opposed to five months in 1997.
DEVELOPMENT OPERATIONS
Segment Expenses. Segment expense increased $1.5 million to $3.1 million
in 1998 from $1.6 million in 1997, 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 $17.9 million to $30.5 million in 1998 from $12.6 million in
1997 primarily as a result of the increase in construction dollars expended.
Total Assets. Total assets increased $173.9 million, or 59.5%, to $466.4
million in 1998 from $292.5 million in 1997 as a result of an increase of $136.5
million and $37.5 million in construction in progress and land held for
development, respectively, primarily as a result of an increase in construction
starts from 1997 to 1998.
34
<PAGE>
OTHER OPERATIONS
Operating Revenue. The increase of $0.2 million to $16.2 million in 1998
from $16.0 million in 1997 is a result of increased leasing fee income.
Segment Expense. The increase of $7.1 million to $27.3 million in 1998
from $20.2 million in 1997 is as a result of the addition of new staff necessary
to implement the Company's business strategy.
Interest Expense. The $30.3 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
$350.0 million of unsecured notes.
Other Income (Expense), net. Other revenue increased $9.5 million to $5.6
million in 1998 from $(3.9) million in 1997 primarily as a result of increased
interest income and equity in earnings from unconsolidated partnerships.
CONSOLIDATED CASH FLOWS
Net cash provided by operating activities increased $106.7 million, or
80.2%, to $239.8 million for 1998 as compared to $133.1 million for 1997,
primarily as a result of the acquisitions made and development placed in service
by the Company. Net cash used by investing activities decreased $13.4 million to
$985.3 million for 1998 as compared to $998.7 million for 1997, primarily as a
result of capital deployed by the Company for acquisitions of office properties,
executive office suites businesses, land held for future development,
investments in construction in progress and proceeds from the sale of rental
property. Net cash provided by financing activities decreased $104.1 million, to
$757.8 million for 1998 as compared to $861.9 million for 1997, primarily as a
result of a reduction in the amount of proceeds from the sale of common and
preferred stock and an increase in the amount of dividends paid to the common
and preferred stockholders. These items were offset by an increase in borrowings
on the Company's unsecured credit facility and the issuance of unsecured notes.
RESULTS OF OPERATIONS-1997 TO 1996
REAL ESTATE PROPERTY OPERATIONS
Operating Revenue. Total real estate operating revenue increased $171.3
million, or 111.1%, to $325.5 million for 1997 as compared to $154.2 million for
1996. The Company experienced net growth in its rental revenue as a result of
its acquisitions, and development properties placed in service, which together
contributed approximately $168.0 million of additional rental revenue in 1997.
Rental revenue from properties that were fully operational throughout both
periods increased by approximately $3.3 million primarily due to increased
occupancy in these properties.
Segment Expense. Property operating expenses increased $62.9 million. An
increase of $62.6 million was experienced primarily as a result of property
acquisitions. The Company also experienced an increase in property operating
expenses from properties that were fully operational in both periods of
approximately $0.3 million.
Interest Expense. Interest expense increased $11.3 million, or 33.4%, to
$45.1 million in 1997 from $33.8 million in 1996 primarily as a result of
properties acquired subject to existing indebtedness.
Other Income (Expense), net. Other revenue increased $0.6 million, to $1.4
million in 1997 as compared to $0.8 million in 1996, primarily due to an
increase in interest income.
Total Assets. The increase of $871.3 million, or 60.8%, to $2.3 billion in
1997 from $1.4 billion in 1996 is primarily as a result of the Company's real
estate acquisitions.
EXECUTIVE OFFICE SUITES OPERATIONS
OmniOffices was established in 1997 and is therefore not comparable to
1996. OmniOffices' operations in 1997 consisted of the acquisition of
OmniOffices Group, Inc. in August of 1997. The assets and revenues of the
executive office suites operations as of and for the year ended December 31,
1997 are as a result of that acquisition.
35
<PAGE>
DEVELOPMENT OPERATIONS
Segment Expense. The decrease of $0.2 million to $1.6 in million in 1997
from $1.8 million in 1996 is as a result of a greater percentage of costs being
capitalized to projects in 1997.
Interest Expense. Interest capitalization increased $9.9 million to $12.6
million in 1997 from $2.7 million in 1996 primarily as a result of acquisitions
of land held for future development and the commencement of construction in
progress in 1997.
Total Assets. The increase of $228.5 million to $292.5 million in 1997
from $64.0 million in 1996 is primarily as a result of an increase of $49.3
million in land held for future development from land acquisitions and an
increase of $179.1 million in construction in progress due to an increase in
land placed into development.
OTHER OPERATIONS
Operating Revenue. The increase of $3.5 million to $16.0 million in 1997
from $12.5 million in 1996 is a result of increased management and leasing fee
income.
Segment Expense. The increase of $6.8 million to $20.2 million in 1997
from $13.4 million in 1996 is primarily a result of the addition of new staff to
implement the Company's business strategy.
Interest Expense. The increase of $17.4 million in the Company's interest
expense to $17.9 million in 1997 from $0.5 million in 1996 is primarily as a
result of the establishment of the Company's line of credit which was used to
fund acquisition and development activity and the sale of $275.0 in unsecured
notes in June 1997.
Other Income (Expense), net. The increase of $0.4 million interest to
$(3.9) million in 1997 from $(4.3) million in 1996 is primarily a result of
increased income.
Total Assets. Increased $42.5 million to $81.7 million in 1997 from $39.2
million in 1996 primarily as a result of an increase of $20.0 million in
acquisition costs and the issuance of a $10.0 million note receivable.
CONSOLIDATED CASH FLOWS
Net cash provided by operating activities increased $50.8 million, or
61.7%, to $133.1 million for 1997 as compared to $82.3 million for 1996,
primarily as a result of the acquisitions made by the Company. Net cash used by
investing activities increased $121.8 million, to $998.7 million for 1997 as
compared to $876.9 million for 1996, primarily as a result of capital deployed
by the Company for acquisitions of office properties, land held for future
development and construction in progress. Net cash provided by financing
activities increased $48.8 million, to $861.9 million for 1997 as compared to
$813.1 million for 1996, primarily as a result of proceeds from the sale of
common and preferred stock and the issuance of unsecured notes, net of
repayments of mortgages payable and a portion of the unsecured credit facility
and the payment of dividends 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) each had 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 as of March
15, 1999. Moody's Investor Service (Moody's) had 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 15,
1999.
36
<PAGE>
The Company's total indebtedness at December 31, 1998 was $1.704 billion,
of which $482.5 million, or 28.3%, bore a LIBOR-based floating interest rate.
The weighted average interest rate under the unsecured credit facility for 1998
was 6.3%. Currently, the unsecured credit facility bears interest at 90 basis
points over LIBOR. The Company's mortgage payable fixed rate indebtedness bore
an effective weighted average interest rate of 8.2% at December 31, 1998 and had
a weighted average term to maturity of 4.7 years. Based upon the Company's total
market capitalization at December 31, 1998 of $3.999 billion (the common stock
price was $24.00 per share, the total shares of common stock, convertible
preferred stock and Units outstanding was 78,957,691 and the aggregate
liquidation value of the cumulative redeemable preferred stock was $400.0
million), the Company's debt represented 42.6% of its total market
capitalization. The Company has a $450.0 million unsecured credit facility with
a current borrowing capacity of $360.0 million. In addition, OmniOffices has a
$200.0 million unsecured credit facility, all of which is available for
borrowing, which is guaranteed by the Company. As of March 15, 1999, $454.9
million was outstanding and $105.1 million available for draw under these
unsecured credit facilities.
Rental revenue, executive office suites revenue and real estate service
revenue have been the principal sources of capital to fund the operating
expenses, debt service and capital expenditures of the Company and its
affiliates, 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 December 31, 1998,
the Company (including CarrAmerica Development) had approximately 4.3 million
square feet of office space in 50 development projects underway which are
expected to require a total investment of approximately $635 million. As of
December 31, 1998, $404 million, or 63.6% of the total expected investment, had
been expended.
The Company's other affiliates also have various capital needs.
Specifically, OmniOffices is currently developing 28 executive office suite
centers. The total cost to complete these projects is expected to be
approximately $40.4 million, of which approximately $21.2 million had been
expended as of December 31, 1998. Omni UK is currently developing six executive
office suite centers with an expected total cost to complete of $9.7 million, of
which $2.6 million had been expended as of December 31, 1998. In addition,
OmniOffices and Omni UK will periodically consider several acquisitions of
existing executive office suite centers. Future cash needs of OmniOffices are
expected to be met by draws on the OmniOffices line of credit facility.
Historically, management has primarily met the Company's capital
requirements by accessing the public equity and debt markets. However, because
of certain unfavorable conditions currently existing in the public equity and
debt markets, the Company does not believe that these markets are currently
providing the Company with the most attractive sources of capital. If conditions
in the public equity or debt markets improve, the Company will evaluate the cost
of capital raised in such markets to determine if it is the most attractive
capital available to the Company at the time. However, there can be no assurance
that conditions will improve in the near term.
In response to the current conditions in the equity and debt markets, the
Company plans to address its cash needs through utilization of the Company's
line of credit, refinancing select assets, prudent use of joint ventures and the
disposition of certain assets. As of March 15, 1999, the Company had four
projects under contract for sale in the Northern California and suburban
Washington, D.C. markets. These projects are expected to produce net proceeds of
approximately $182 million. In addition, the Company and its affiliates had nine
projects under letter of intent for sale as of March 15, 1999. These projects
are expected to produce net proceeds of approximately $163 million. Due to the
uncertainties in the disposition process, there can be no assurances that these
sales will close or that they will achieve the expected net proceeds.
If (i) the debt and equity capital markets do not improve, (ii) the Company
is unable to raise the expected net proceeds from dispositions of properties,
and (iii) the Company is unable to obtain capital from other sources, the
37
<PAGE>
Company believes that it would continue to have sufficient funds to continue to
pay its operating and debt service expenses, its regular quarterly dividends and
to meet the necessary capital requirements with respect to its existing
portfolio of operating assets. However, the Company's ability to continue to
fund all of its current development projects could be adversely affected. If the
Company determined that it was in the best interests of the Company to continue
to fund all of its current development projects, the Company may have to access
either the public equity or debt markets, which, at that time, may not be the
most attractive source of capital.
Net cash provided by operating activities was $239.8 million for the year
ended December 31, 1998, compared to $133.1 million for the year ended December
31, 1997. The increase in net cash provided by operating activities was
primarily a result of acquisitions made and development placed in service by the
Company. The Company's investing activities used approximately $985.3 million
and $998.7 million for the years ended December 31, 1998 and 1997, respectively.
The Company's investment activities included the acquisitions of office
buildings (directly and through CarrAmerica Development), executive office
suites businesses (through OmniOffices and Omni UK), and land held for future
development and additions to construction in process (directly and through
CarrAmerica Development); and executive office suites development (through
OmniOffices and OmniUK) of approximately $1.031 billion for the year ended
December 31, 1998, as compared to $1.014 billion in investments during the same
period in 1997. Additionally, the Company invested approximately $56.2 million
and $36.3 million in its existing real estate assets for the years ended
December 31, 1998 and 1997, respectively. Net of distributions to the Company's
stockholders and minority interests, the Company's financing activities provided
net cash of $930.9 million and $976.2 million for the years ended December 31,
1998 and 1997, respectively. For the year ended December 31, 1998, the Company
raised $646.5 million through the sale of common and preferred stock and
unsecured notes which was used to repay amounts outstanding under its unsecured
credit facility and to fund acquisitions. The Company also drew amounts from its
unsecured credit facility during 1998 to finance its acquisitions and other
investing activities. For the year ended December 31, 1998, the Company's net
borrowings on its unsecured credit facility were approximately $323.0 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Increases in interest rates, or the loss of the benefits from any hedging
agreements of the Company, would increase our interest expense, which would
adversely affect cash flow. As of December 31, 1998, the Company has $482.5
million outstanding under its line of credit that bears interest at a floating
rate and $596.9 of additional fixed rate mortgage debt. These mortgage loans
mature at various times through 2019. The Company also has issued $625 million
unsecured notes, matures between 2000 and 2008.
The Company is currently a party to an interest rate hedge agreement in
order to hedge against the impact that interest rate fluctuations would have on
the floating rate debt under its line of credit. Although the hedging agreements
enable us to convert floating rate liabilities to fixed rate liabilities, they
expose us to the risk that the counterparties to such hedge agreements may not
perform, negating the benefit of the hedging arrangements. In addition, if
interest rates decline after we enter into a hedging agreement, our interest
expense would increase as compared to the underlying floating rate and could
result in us making payments to unwind such agreements. As a result of declining
interest rate environment in 1998, we made payments of approximately $9.2
million in cash in February 1999 to unwind treasure lock arrangements. The fair
market value of these treasury lock agreements at December 31, 1998 was negative
$13.7 million.
The Company's future earnings, cash flow and fair values relevant to
financial instruments are dependent upon prevailing market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. The
Company manages its risk by matching projected cash inflows from operating
activities, financing activities and investing activities with projected cash
outflows to fund debt payments, acquisitions, capital expenditures,
distributions, and other cash requirements. The Company also uses certain
derivative financial instruments at times to limit market risk. Interest rate
protection agreements are used to convert floating rate debt
38
<PAGE>
to a fixed rate basis or to hedge anticipated financing transactions.
Derivatives are used for hedging purposes rather than speculation. The Company
does not enter into financial instruments or for trading purposes.
If the market rates of interest on the Company's variable rate debt change
by 10% (or approximately 56 basis points) the Company's interest expense would
change by approximately $2.7 million, assuming the amount outstanding under the
variable rate facility remains at $482.5 million, the balance at December 31,
1998. Furthermore book value of this variable interest credit facility
approximates market value at December 31, 1998.
A change in interest rates generally does not impact future earnings and
cash flows for fixed rate debt instruments, but as fixed rate debt matures and
if additional debt is acquired to fund the repayments under maturing facilities,
future earnings and cash flows may be impacted by changes in interest rates.
This impact would be realized in the periods subsequent to debt maturities. The
following is a summary of the fixed rate to debt maturities (in thousands):
<TABLE>
<S> <C>
1999......................................... $ 31,053
2000......................................... 200,129
2001......................................... 102,092
2002......................................... 43,510
2003......................................... 221,768
2004 & thereafter............................ 623,307
------------
$ 1,221,859
------------
------------
</TABLE>
Assuming the repayments of fixed rate borrowings are made in accordance
with the terms and conditions of the respective credit arrangements, a 10
percent change in the market interest rate for the respective fixed rate debt
instruments would change the fair value of the Company's fixed rate debt be
approximately $38 million. The estimated fair market value of the fixed rate
debt instruments and the unsecured notes at December 31, 1998 was $615.5 million
and $614.1 million, respectively.
Because we have made loans to a foreign affiliate, Omni UK, we are exposed
to risks that there will be a significant change in the rate of exchange between
the United States dollar and the British pound, as well as the possibility of
the imposition or modification of exchange controls by governments or monetary
authorities. These risks generally depend on factors beyond our control, such as
economic, financial and political events and the supply and demand for various
currencies. We may invest in other entities with operations in foreign
countries, and if we do, the same risks will apply to the currencies utilized in
those countries. The Company's current exposure to foreign currency fluctuations
is not significant.
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.
39
<PAGE>
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 microcontroller technology (such as elevators and HVAC systems). The
Internal Business Operations segment focuses primarily on the Company's
information technology, operating systems (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 selective 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
continued to identify substantially all of the major components of its property
and business operations systems which may be vulnerable to the Year 2000 issue.
In terms of Property Operations, the Company conducted a comprehensive inventory
of all of its buildings' systems and equipment. Systems were risk ranked (1-3)
based upon each system's importance to the properties' operations. Those systems
classified as level 2 or 3 (the highest levels of importance) were compared to
CTA's existing embedded systems database to determine the status of Year 2000
compliance if it was not already known by the Company. If relevant information
was not contained in the existing database, the system was then identified for
processing through vendor management coordinated by CTA. Vendor management
involved concentrated communication with the vendor in an attempt to determine
the status of a system's Year 2000 compliance and any available remedies. As of
the fourth quarter of 1998, inventory of the Company's operating properties was
complete. Assessment of property operations was substantially complete as of
January 1999.
In terms of Internal Business Operations Technology, team leaders were
selected from each business unit and market office to assist in identifying
software, hardware and external interfaces which may be vulnerable to Year 2000
issues. Inventorying of both core business units and all market offices was
substantially completed by the end of the fourth quarter of 1998. The Company's
primary billing and accounting software is currently undergoing a routine
application upgrade expected to be complete by the end of the first quarter of
1999. The vendor of the software has received the Information Technology
Association of America (ITAA) 2000 Certification and represents that the system
is generally Year 2000 ready, and the Company expects to test the system during
the second quarter of 1999. In addition, during the fourth quarter of 1998 and
the first quarter of 1999, 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 and fourth quarters of 1999. The
activities conducted during the remediation and testing phase are intended to
provide assurance from both the Property Operation and the Internal Business
perspectives that critical and important applications, systems and equipment
will be substantially Year 2000 compliant on a timely basis. In this phase, 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
40
<PAGE>
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 identifying. 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 December 31, 1998, the
Company, has incurred approximately $.5 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 $4.5 million, to complete its
Year 2000 compliance work. Of such additional costs, approximately $3.3 million
are expected to be incurred during 1999. 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.
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. 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.
41
<PAGE>
The following table provides the calculation of the Company's funds from
operations for the years presented:
<TABLE>
<CAPTION>
(in thousands): 1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Net operating income before minority interest and extraordinary
items................................................................ $ 142,573 87,013 29,534
Adjustments to derive funds from operations:
Add:
Depreciation and amortization..................................... 109,487 72,922 35,888
Losses associated with executive suites centers under
development..................................................... 5,766 -- --
Loss on write-off of treasury locks............................... 13,729 -- --
Deferred taxes.................................................... 959 -- --
Deduct:
Minority interests' (non Unitholders) share of depreciation,
amortization and net income..................................... (380) (1,253) (926)
Gain on sale of assets............................................ (37,580) (5,420) --
---------- --------- ---------
Funds from operations before allocation to the minority Unitholders.... 234,554 153,262 64,496
Less: Funds from operations allocable to the minority Unitholders...... (15,507) (12,697) (8,610)
---------- --------- ---------
Funds from operations allocable to CarrAmerica Realty Corporation...... 219,047 140,565 55,886
Less: Preferred stock dividends........................................ (35,571) (10,991) (572)
---------- --------- ---------
Funds from operations attributable to common shareholders.............. $ 183,476 129,574 55,314
---------- --------- ---------
---------- --------- ---------
</TABLE>
Changes in funds from operations are largely attributable to the effect of
property and executive suites acquisitions during the periods on net income and
depreciation and amortization, as previously discussed.
ACQUISITION AND DEVELOPMENT ACTIVITY
The following is a discussion of the Company's acquisition and development
activity during 1998. A more detailed discussion can be found in 'Item 1.
Business--Recent Developments'.
During 1998, the Company (directly and through its affiliate CarrAmerica
Development) acquired the following properties: in its Pacific region, the
Company acquired 28 properties containing a total of approximately 1.6 million
square feet, for an aggregate purchase price of approximately $251.8 million; in
its Mountain region, the Company acquired one property containing approximately
.1 million square feet, for a purchase price of approximately $19.5 million; in
its Central region, the Company acquired two properties containing a total of
approximately .4 million square feet for an aggregate purchase price of
approximately $39.3 million; and in its Southeast region, the Company acquired
one property containing approximately .1 million square feet for a purchase
price of approximately $8.8 million.
During 1998, the Company (directly and through its affiliate CarrAmerica
Development) acquired land that is expected to support the future development of
up to 4.7 million square feet for an aggregate purchase price of $133.4 million.
In addition, as of December 31, 1998, the Company had 50 office properties under
construction: 1.3 million square feet in its Pacific region; .6 million square
feet in its Mountain region; 1.7 million square feet in its Central region; and
.7 million square feet in its Southeast region. Costs incurred during 1998 for
properties under construction were $400.4 million. An additional $231.4 million
is expected to be expended for completion of projects already under construction
as of December 31, 1998.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of certain interest rate and foreign currency risks to
which the Company is subject, see 'Item 7. Business--Management's Discussion and
Analysis of Financial Condition and Results of Operations.' The Company does not
currently believe that its market risk associated with these items is material.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data included in this Annual
Report on Form 10-K are listed in Part IV, Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is hereby incorporated by reference
to the material appearing in Part I of this Annual Report on Form 10-K and in
the Proxy Statement for the Company's Annual Stockholders' Meeting to be held in
1999 (the 'Proxy Statement').
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference
to the material appearing in the Proxy Statement under the caption 'Executive
Compensation.'
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference
to the material appearing in the Proxy Statement under the caption 'Voting
Securities and Principal Holders Thereof.'
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference
to the material appearing in the Proxy Statement under the caption 'Certain
Relationships and Related Transactions.'
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
14(A)(1) FINANCIAL STATEMENTS
Reference is made to the Index to Financial Statements and Schedule on page
F-1.
14(A)(2) FINANCIAL STATEMENT SCHEDULE
Reference is made to the Index to Financial Statements and Schedule on page
S-1.
14(A)(3) EXHIBITS
<TABLE>
<S> <C>
3.1 Amendment and Restatement of Articles of Incorporation of CarrAmerica Realty Corporation, as amended on
April 29, 1996 and April 30, 1996 (incorporated by reference to the same numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
3.2 Articles Supplementary Relating to Series A Cumulative Convertible Redeemable Preferred Stock dated October
24, 1996 (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
3.3 Articles Supplementary Relating to Series B Cumulative Redeemable Preferred Stock dated August 8, 1997
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
3.4 Articles Supplementary Relating to Series C Cumulative Redeemable Preferred Stock dated October 30, 1997
(incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated and filed on
November 6, 1997).
3.5 Articles Supplementary Relating to Series D Cumulative Redeemable Preferred Stock dated December 17, 1997
(incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated December 16,
1997 and filed on December 17, 1997).
3.6 Articles of Amendment of Amendment and Restatement of Articles of Incorporation of CarrAmerica Realty
Corporation (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
3.7 Second Amendment and Restatement of By-laws of CarrAmerica Realty Corporation (incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K filed on February 12, 1997).
3.8 Amendment to the Second Amendment and Restatement of By-Laws of CarrAmerica Realty Corporation (incorporated
by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30,
1998).
3.9 Amendment to the Second Amendment and Restatement of By-laws of CarrAmerica Realty Corporation (incorporated
by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
4.1 Indenture, dated as of July 1, 1997, by and among the Company, as Issuer, CarrAmerica Realty, L.P., as
Guarantor, and Bankers Trust Company, as Trustee, Relating to the Company's 7.20% Notes due 2004 and 7.375%
Notes due 2007 (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997).
4.2 Indenture, dated as of February 23, 1998, by and among the Company, as Issuer, CarrAmerica Realty, L.P., as
Guarantor, and Bankers Trust Company, as Trustee, Relating to the Company's 6.625% Notes due 2005 and 6.875%
Notes due 2008. (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
4.3 Indenture, dated as of October 1, 1998 by and among the Company as Issuer, CarrAmerica Realty, L.P., as
Guarantor, and Bankers Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on October 2, 1998).
10.1 Second Amended and Restated Agreement of Limited Partnership of CarrAmerica Realty, L.P., dated May 9, 1997
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997).
10.2 First Amendment to Second Amended and Restated Agreement of Limited Partnership of CarrAmerica Realty, L.P.,
dated October 6, 1997 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.3 Second Amendment to Second Amended and Restated Agreement of Limited Partnership of CarrAmerica Realty,
L.P., dated December 12, 1997 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.4 Third Amendment to Second Amended and Restated Agreement of Limited Partnership of CarrAmerica Realty, L.P.,
dated December 31, 1997 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.5 Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership of CarrAmerica Realty,
L.P., dated as of December 31, 1998.
10.6 Third Amended and Restated Agreement of Limited Partnership of Carr Realty, L.P., dated March 5, 1996, as
amended (incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996).
10.7 First Amendment to Third Amended and Restated Agreement of Limited Partnership of Carr Realty, L.P., dated
as of January 22, 1998 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998).
10.8 Second Amendment to Third Amended and Restated Agreement of Limited Partnership of CarrAmerica Realty, L.P.,
dated as of February 17, 1998 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998).
</TABLE>
44
<PAGE>
<TABLE>
<S> <C>
10.9 Third Amendment to Third Amended and Restated Agreement of Limited Partnership of CarrAmerica Realty, L.P.,
dated as of May 8, 1998 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
10.10 1993 Carr Realty Option Plan (incorporated by reference to Exhibit 10.3 of the Company's Registration
Statement on Form S-11, No. 33-53626).
10.11 1995 Non-Employee Director Stock Option Plan (incorporated by reference to the Company's Registration
Statement on Form S-8, No. 33-92136).
10.12 First Amendment to CarrAmerica Realty Corporation 1995 Non-Employee Director Stock Option Plan.
10.13 1997 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.14 First Amendment to CarrAmerica Realty Corporation 1997 Stock Option and Incentive Plan.
10.15 Second Amendment to CarrAmerica Realty Corporation 1997 Stock Option and Incentive Plan.
10.16 Third Amendment to CarrAmerica Realty Corporation 1997 Stock Option and Incentive Plan.
10.17 Noncompetition and Restriction Agreement by and among The Oliver Carr Company, Oliver T. Carr, Jr., Carr
Realty Corporation and Carr Realty, L.P. (incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-11, No. 33-53626).
10.18 Promissory Note from Carr Realty, L.P. to the Northwestern Mutual Life Insurance Company (incorporated by
reference to Exhibit 10.27 of the Company's Registration Statement on Form S-11, No. 33-72974).
10.19 Deed of Trust and Security Agreement by and among Carr Realty, L.P., Patrick H. McGuire, III, and the
Northwestern Mutual Life Insurance Company (incorporated by reference to Exhibit 10.28 of the Company's
Registration Statement on Form S-11, No. 33-72974).
10.20 Stock Purchase Agreement, dated November 5, 1995, by and among Carr Realty Corporation, Security Capital
Holdings, S.A. and Security Capital U.S. Realty (incorporated by reference to Exhibit 5.1 to the Company's
Current Report on Form 8-K filed November 6, 1995).
10.21 Stockholders Agreement, dated April 30, 1996 by and among Carr Realty Corporation, Carr Realty, L.P.,
Security Capital Holdings, S.A. and Security Capital U.S. Realty (incorporated by reference to Exhibit 2.2
of Security Capital U.S. Realty's Schedule 13D dated April 30, 1996).
10.22 Registration Rights Agreement, dated April 30, 1996 by and among Carr Realty Corporation, Security Capital
Holdings, S.A. and Security Capital U.S. Realty (incorporated by reference to Exhibit 2.3 of Security
Capital U.S. Realty's Schedule 13D dated April 30, 1996).
10.23 Fourth Amended and Restated Credit Agreement, dated August 27, 1998 by and among CarrAmerica Realty
Corporation, Carr Realty, L.P., CarrAmerica Realty, L.P., Morgan Guaranty Trust Company of New York,
Commerzbank Aktiengesellschaft, New York Branch, NationsBank, N.A., Wells Fargo Bank, National Association,
Bank of America National Trust and Savings Association, and the other banks listed therein (incorporated by
reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998).
10.24 Second Amended and Restated Credit Agreement, dated as of August 27, 1998, by and among OmniOffices, Inc.,
Morgan Guaranty Trust Company of New York, J.P. Morgan Securities Inc., Commerzbank Aktiengesellschaft, New
York Branch, NationsBank, N.A., PNC Bank, National Association, Bank of America National Trust and Savings
Association, Societe Generale, a French Banking Corporation, acting through its Southwest Agency, and the
other banks listed therein (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
10.25 Amended and Restated Guaranty Agreement, dated as of August 27, 1998, made by CarrAmerica Realty Corporation
in favor of Morgan Guaranty Trust Company, as bank and lead agent (incorporated by reference to Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
11.1 Statement regarding computation of per share earnings; reference is made to Notes to Financial Statements,
Footnote 1(l).
21.1 List of Subsidiaries.
</TABLE>
45
<PAGE>
<TABLE>
<S> <C>
23.1 Consent of KPMG LLP, dated March 31, 1999.
24.1 Power of Attorney of Oliver T. Carr, Jr.
24.2 Power of Attorney of Ronald Blankenship.
24.3 Power of Attorney of Andrew F. Brimmer.
24.4 Power of Attorney of A. James Clark.
24.5 Power of Attorney of Timothy Howard.
24.6 Power of Attorney of Caroline S. McBride.
24.7 Power of Attorney of William D. Sanders.
24.8 Power of Attorney of Wesley S. Williams, Jr.
27.1 Financial Data Schedule as of and for the year ended December 31, 1998.
27.2 Financial Data Schedule as of and for the year ended December 31, 1997.
</TABLE>
(b) REPORTS ON FORM 8-K
Form 8-K filed November 5, 1998 (and amendment thereto on Form 8-K/A filed
on November 6, 1998), regarding Supplemental Financial and Operating Information
of the Company as of September 30, 1998.
Form 8-K filed October 2, 1998, filing certain exhibits to the Company's
shelf registration statement in connection with the sale of $150.0 million of
unsecured notes.
(c) EXHIBITS
The list of exhibits filed with this report is set forth in response to
Item 14(a)(3). The required exhibit index has been filed with the exhibits.
(d) FINANCIAL STATEMENTS
None.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registration has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
District of Columbia on March , 1999.
CARRAMERICA REALTY CORPORATION
a Maryland corporation
By: /s/ THOMAS A. CARR________________
Thomas A. Carr
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following person on behalf of
the registrant and in the capacities indicated on March , 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------------- ---------------------------------------------------
<C> <S>
* Chairman of the Board
Oliver T. Carr, Jr. and Director
/s/ THOMAS A CARR President, Chief Executive Officer and Director
Thomas A. Carr
/s/ RICHARD F. KATCHUK Chief Financial Officer
Richard F. Katchuk
* Director
Ronald Blankenship
* Director
Andrew F. Brimmer
* Director
A. James Clark
* Director
Timothy Howard
* Director
Caroline S. McBride
* Director
William D. Sanders
* Director
Wesley S. Williams, Jr.
By:RICHARD F. KATCHUK
Richard F. Katchuk
Attorney-in-fact
</TABLE>
47
<PAGE>
CARRAMERICA REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
The following Consolidated Financial Statements and Schedule of CarrAmerica
Realty Corporation and Subsidiaries and the Independent Auditors' Reports
thereon are attached hereto:
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................... F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996......................................................................... F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996......................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996......................................................................... F-5
Notes to Consolidated Financial Statements................................................................. F-7
Independent Auditors' Report............................................................................... F-26
FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report............................................................................... F-27
Schedule III: Consolidated Real Estate and Accumulated Depreciation as of December 31, 1998 for CarrAmerica
Realty Corporation and Subsidiaries.......................................................... S-1
</TABLE>
All other schedules are omitted because they are not applicable, or because
the required information is included in the financial statements or notes
thereto.
F-1
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
__________CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997__________
(In thousands, except for per share and share amounts)
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Rental property (notes 2 and 11):
Land................................................................................. $ 692,484 557,536
Buildings............................................................................ 2,051,734 1,692,389
Tenant improvements.................................................................. 192,211 131,527
Furniture, fixtures and equipment.................................................... 57,140 15,571
---------- ---------
2,993,569 2,397,023
Less-accumulated depreciation........................................................ (262,458) (184,266)
---------- ---------
Total rental property............................................................. 2,731,111 2,212,757
Land held for development (note 11).................................................... 119,141 81,647
Construction in progress (note 11)..................................................... 347,294 210,829
Restricted and unrestricted cash and cash equivalents (note 2)......................... 85,139 41,894
Accounts and notes receivable (note 8)................................................. 47,251 38,321
Investments (note 4)................................................................... 101,679 20,128
Accrued straight-line rents............................................................ 39,273 33,212
Tenant leasing costs, net of accumulated amortization of $21,878 in 1998 and $15,576 in
1997................................................................................. 42,552 19,473
Deferred financing costs, net of accumulated amortization of $7,401 in 1998 and $4,100
in 1997.............................................................................. 19,911 6,899
Goodwill, net of accumulated amortization of $6,160 in 1998 and $426 in 1997 (note
11).................................................................................. 221,570 36,281
Prepaid expenses and other assets, net of accumulated depreciation and amortization of
$8,239 in 1998 and $5,753 in 1997.................................................... 38,563 42,619
---------- ---------
$3,793,484 2,744,060
---------- ---------
---------- ---------
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable (notes 2 and 11)......................................... $1,704,359 1,025,145
Accounts payable and accrued expenses................................................ 133,767 71,112
Rent received in advance and security deposits....................................... 47,692 20,151
---------- ---------
Total liabilities................................................................. 1,885,818 1,116,408
Minority interest (note 3)............................................................. 93,264 74,955
Stockholders' equity (notes 3, 6 and 7):
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 at December 31, 1998, and 780,000 shares
issued and outstanding at December 31, 1997 with an aggregate liquidation
preference of $17.0 million and $19.5 million, respectively...................... 7 8
Series B, C and D Cumulative Redeemable Preferred Stock, outstanding 8,800,000
shares at December 31, 1998 and 1997, with an aggregate liquidation preference of
$400.0 million................................................................... 88 88
Common Stock, $.01 par value, authorized 180,000,000 shares, issued and
outstanding 71,760,172 shares at December 31, 1998 and 59,993,778 shares at
December 31, 1997................................................................ 718 600
Additional paid in capital........................................................ 1,926,057 1,629,214
Accumulated other comprehensive income............................................ 463 --
Cumulative dividends in excess of net income...................................... (112,931) (77,213)
---------- ---------
Total stockholders' equity...................................................... 1,814,402 1,552,697
---------- ---------
Commitments and contingencies (notes 5, 8 and 10)...................................... $3,793,484 2,744,060
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
__________________YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996__________________
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Real estate operating revenue (notes 5 and 8):
Rental revenue:
Minimum base rent..................................................... $ 379,502 274,603 133,807
Recoveries from tenants............................................... 46,947 37,134 14,105
Parking and other tenant charges...................................... 14,006 13,765 6,253
--------- --------- ---------
Total rental revenue............................................. 440,455 325,502 154,165
Executive suites revenue................................................. 145,932 17,865 --
Real estate service revenue.............................................. 16,167 15,998 12,512
--------- --------- ---------
Total revenue.................................................... 602,554 359,365 166,677
--------- --------- ---------
Real estate operating expenses:
Property expenses:
Operating expenses.................................................... 109,514 84,432 37,047
Real estate taxes..................................................... 40,174 30,394 14,880
Interest expense......................................................... 76,458 51,528 31,630
Executive suites expenses (note 5)....................................... 123,976 15,728 --
General and administrative............................................... 32,356 21,839 15,228
Depreciation and amortization (note 11).................................. 111,022 76,958 38,264
--------- --------- ---------
Total operating expenses......................................... 493,500 280,879 137,049
--------- --------- ---------
Real estate operating income..................................... 109,054 78,486 29,628
--------- --------- ---------
Other operating income (expense):
Interest Income.......................................................... 5,704 2,452 1,701
Equity in earnings of unconsolidated partnerships (note 4)............... 5,282 655 484
Gain on sale of assets (note 9).......................................... 38,160 5,420 --
Loss on write-off of treasury locks (note 10)............................ (13,729) -- --
Loss on write-off of investment and intangible assets (note 9)........... -- -- (2,279)
--------- --------- ---------
Total other operating income (expense)........................... 35,417 8,527 (94)
--------- --------- ---------
Net operating income before income taxes, minority interest and
extraordinary item............................................. 144,471 87,013 29,534
Income taxes (note 15)................................................... (1,898) -- --
--------- --------- ---------
Net operating income before minority interest and extraordinary
item........................................................... 142,573 87,013 29,534
Minority interest (note 3)................................................. (16,076) (8,273) (4,732)
--------- --------- ---------
Income before extraordinary item...................................... 126,497 78,740 24,802
Extraordinary item-loss on early extinguishment of debt.................... -- (608) (484)
--------- --------- ---------
Net income....................................................... $ 126,497 78,132 24,318
--------- --------- ---------
--------- --------- ---------
Basic net income per common share:
Income before extraordinary item (note 1)................................ $ 1.33 1.23 0.90
Extraordinary item-loss on early extinguishment of debt.................. -- (0.01) (0.02)
--------- --------- ---------
Basic net income per common share................................ $ 1.33 1.22 0.88
--------- --------- ---------
--------- --------- ---------
Diluted net income per share:
Income before extraordinary item (note 1)................................ $ 1.32 1.23 0.90
Extraordinary item-loss on early extinguishment of debt.................. -- (0.01) (0.02)
--------- --------- ---------
Diluted net income per share..................................... $ 1.32 1.22 0.88
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompaning notes to consolidated financial statements.
F-3
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE
__________________YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996__________________
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ACCUMULATED DIVIDENDS IN
ADDITIONAL OTHER EXCESS OF
PREFERRED COMMON PREFERRED COMMON PAID-IN COMPREHENSIVE CUMULATIVE
SHARES SHARES STOCK STOCK CAPITAL INCOME EARNINGS
--------- ---------- --------- ------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.... -- 13,409,177 $-- 134 126,835 -- (31,426)
Sales of Common Stock......... -- 30,102,907 -- 301 665,178 -- --
Sale of Series A Cumulative
Convertible Redeemable
Preferred Stock............. 1,740,000 -- 17 -- 42,976 -- --
Shares issued in exchange for
Unit redemptions (note 3)... -- 212,293 -- 2 831 -- --
Exercise of stock options..... -- 2,000 -- -- 36 -- --
Shares issued to acquire
rental property............. -- 62,696 -- 1 1,499 -- --
Net income.................... -- -- -- -- -- -- 24,318
Dividends paid................ -- -- -- -- -- -- (43,224)
--------- ---------- --- ------ ---------- --- ------------
Balance at December 31, 1996.... 1,740,000 43,789,073 17 438 837,355 -- (50,332)
Sales of Common Stock......... -- 15,032,815 -- 151 400,781 -- --
Sales of Preferred Stock...... 8,800,000 -- 88 -- 386,843 -- --
Shares issued in exchange for
Unit redemptions (note 3)... -- 199,223 -- 2 3,955 -- --
Exercise of stock options..... -- 12,667 -- -- 280 -- --
Conversion of Series A
Cumulative Convertible
Redeemable Preferred Stock
to Common Stock............. (960,000) 960,000 (9) 9 -- -- --
Net income.................... -- -- -- -- -- -- 78,132
Dividends Paid................ -- -- -- -- -- -- (105,013)
--------- ---------- --- ------ ---------- --- ------------
Balance at December 31, 1997.... 9,580,000 59,993,778 96 600 1,629,214 -- (77,213)
Sales of Common Stock......... -- 11,612,781 -- 116 296,373 -- --
Shares issued in exchange for
Unit redemptions (note 3)... -- 52,613 -- 1 452 -- --
Exercise of stock options..... -- 1,000 -- -- 18 -- --
Conversion of Series A
Cumulative Convertible
Redeemable Preferred Stock
to Common Stock............. (100,000) 100,000 (1) 1 -- -- --
Comprehensive Income:
Net income.................. -- -- -- -- -- -- 126,497
Foreign Currency Translation
Adjustment................ -- -- -- -- -- 463 --
Total Comprehensive Income..
Dividends Paid................ -- -- -- -- -- -- (162,215)
--------- ---------- --- ------ ---------- --- ------------
Balance at December 31, 1998.... 9,480,000 71,760,172 $95 718 1,926,057 463 (112,931)
--------- ---------- --- ------ ---------- --- ------------
--------- ---------- --- ------ ---------- --- ------------
<CAPTION>
TOTAL
---------
<S> <C>
Balance at December 31, 1995.... 95,543
Sales of Common Stock......... 665,479
Sale of Series A Cumulative
Convertible Redeemable
Preferred Stock............. 42,993
Shares issued in exchange for
Unit redemptions (note 3)... 833
Exercise of stock options..... 36
Shares issued to acquire
rental property............. 1,500
Net income.................... 24,318
Dividends paid................ (43,224)
---------
Balance at December 31, 1996.... 787,478
Sales of Common Stock......... 400,932
Sales of Preferred Stock...... 386,931
Shares issued in exchange for
Unit redemptions (note 3)... 3,957
Exercise of stock options..... 280
Conversion of Series A
Cumulative Convertible
Redeemable Preferred Stock
to Common Stock............. --
Net income.................... 78,132
Dividends Paid................ (105,013)
---------
Balance at December 31, 1997.... 1,552,697
Sales of Common Stock......... 296,489
Shares issued in exchange for
Unit redemptions (note 3)... 453
Exercise of stock options..... 18
Conversion of Series A
Cumulative Convertible
Redeemable Preferred Stock
to Common Stock............. --
Comprehensive Income:
Net income.................. 126,497
Foreign Currency Translation
Adjustment................ 463
---------
Total Comprehensive Income.. 126,960
Dividends Paid................ (162,215)
---------
Balance at December 31, 1998.... 1,814,402
---------
---------
</TABLE>
See accompaning notes to consolidated financial statements.
F-4
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
____CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998,
1997 AND 1996___________________________________________________________________
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 126,497 78,132 24,318
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................... 111,022 76,958 38,264
Minority interest in income............................................. 16,076 8,273 4,732
Restricted Stock Units issued in connection with restricted stock
plan................................................................. 312 -- --
Gain on sale of assets.................................................. (38,160) (5,420) --
Equity in earnings of unconsolidated partnerships....................... (5,282) (655) (464)
Extraordinary item-loss on early extinguishment of debt................. -- 608 484
Loss on write-off of fixed assets....................................... 685 -- 2,279
Changes in assets and liabilities, net of acquisitions:
Increase in accounts receivable and notes receivable................. (6,605) (26,422) (3,171)
Increase in accrued straight-line rents.............................. (13,919) (9,533) (1,373)
Additions to tenant leasing costs.................................... (12,949) (10,671) (5,530)
Decrease (increase) in prepaid expenses and other assets............. 7,453 (22,615) (5,915)
Increase in accounts payable and accrued expenses.................... 37,066 34,654 20,029
Increase in rent received in advance and security deposits........... 17,556 9,768 8,647
--------- --------- ---------
Total adjustments................................................ 113,255 54,945 57,982
--------- --------- ---------
Net cash provided by operating activities........................ 239,752 133,077 82,300
--------- --------- ---------
Cash flows from investing activities:
Acquisition of executive suites assets...................................... (203,493) (45,736) --
Additions to executive suites development................................... (13,946) -- --
Acquisitions of rental property............................................. (280,906) (692,001) (800,628)
Additions to rental property................................................ (56,174) (36,303) (11,525)
Additions to land held for development...................................... (132,416) (96,225) (23,022)
Additions to construction in progress....................................... (400,391) (180,104) (31,723)
Acquisition of real estate service contracts and other intangibles.......... -- -- (1,750)
Distributions from unconsolidated partnerships.............................. 5,852 1,574 1,739
Investments in unconsolidated partnerships.................................. (82,120) (7,398) (4,055)
Acquisition of minority interest............................................ -- -- (3)
Increase in restricted cash and cash equivalents............................ (15,802) (6,019) (5,980)
Proceeds from sales of rental property...................................... 194,075 63,479 --
--------- --------- ---------
Net cash used by investing activities............................ (985,321) (998,733) (876,947)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from sales of common and preferred stock....................... 296,518 788,143 708,508
Net borrowings (repayments) on unsecured credit facility.................... 323,000 (55,500) 215,000
Proceeds from issuance of unsecured notes................................... 350,000 275,000 --
Repayment of mortgages payable.............................................. (25,412) (19,305) (57,048)
Disposition of mortgage payable from sale of rental property................ -- (9,508) --
Contributions from minority interests....................................... 3,622 1,502 --
Dividends paid.............................................................. (162,215) (105,013) (43,224)
Additions to deferred financing costs....................................... (16,821) (4,179) (3,020)
Distributions to minority interests......................................... (10,932) (9,276) (7,149)
--------- --------- ---------
Net cash provided by financing activities........................ 757,760 861,864 813,067
--------- --------- ---------
Effect of comprehensive income................................... 463 -- --
--------- --------- ---------
Increase (decrease) in unrestricted cash and cash equivalents.... 12,654 (3,792) 18,420
Unrestricted cash and cash equivalents, beginning of the period............... 23,845 27,637 9,217
--------- --------- ---------
Unrestricted cash and cash equivalents, end of the period..................... $ 36,499 23,845 27,637
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $30,482 in 1998,
$12,571 in 1997 and $2,664 in 1996)....................................... $ 81,428 41,170 29,693
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-5
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
____CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998,
1997 AND 1996___________________________________________________________________
(Continued)
Supplemental disclosure of noncash investing and financing activities:
(a) During 1998, the Company funded a portion of the aggregate purchase price of
its property acquisitions by assuming $31.6 million of debt and liabilities
and by issuing $10.0 million of units.
(b) During 1997, the Company funded a portion of the aggregate purchase price of
its property acquisitions by assuming $182.8 million of debt and liabilities
and by issuing $26.0 million of units.
(c) During 1996, the Company funded a portion of the aggregate purchase price of
its property acquisitions by assuming $184.4 million of debt and liabilities
and by issuing $1.5 million of common stock and $18.0 million of Units. The
Company also repaid $1.0 million of liabilities by issuing $1.0 million of
Units.
See accompanying notes to consolidated financial statements
F-6
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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 primarily are located in 15 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 the United Kingdom as of December 31, 1998.
(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) RENTAL PROPERTY
Rental property is recorded at cost less accumulated depreciation (which is
less than the fair 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
Leasehold Improvements, 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.
The Company reviews its rental property to determine the point at which the
asset is under contract for sale, with contingencies waived and nonrefundable
earnest money posted. If an asset is subject to these conditions, the asset is
reclassified to 'Assets Available for Sale', and depreciation is discontinued.
F-7
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
(D) DEVELOPMENT PROPERTY
Land held for development and construction in progress are carried at cost.
Specifically identifiable direct and indirect, development, construction and
external acquisition costs are capitalized including, where applicable, salaries
and related costs, real estate taxes, interest and certain pre-construction
costs essential to the development of a property.
(E) TENANT LEASING COSTS
Fees and costs incurred in the successful negotiation of leases have been
deferred and are being amortized on a straight-line basis over the terms of the
respective leases.
(F) DEFERRED FINANCING COSTS
Deferred financing costs include fees and costs incurred to obtain
financing and are being amortized over the terms of the respective loans on a
basis which approximates the interest method.
(G) GOODWILL, REAL ESTATE SERVICE CONTRACTS AND OTHER INTANGIBLES
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired in the acquisition of executive suites businesses, is
amortized on the straight-line basis over 30 years. Real estate service
contracts and other intangible assets represent the fair value of assets
acquired and are amortized on the straight-line basis over their expected lives.
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.
(H) 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.
(I) 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. Executive Suites revenue
represents rental income from executive suites customers and income from various
services provided to these customers, such as telephone and administrative
support. Such revenue is recognized as earned.
F-8
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
(J) 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 affiliate, Carr Real Estate Services, Inc. ('Carr Services, Inc.'),
the Company's real estate service affiliate, OmniOffices and Omni UK file
separate tax returns and are subject to federal, state and local income taxes as
well as certain foreign taxes. The Company uses the asset and liability method
of accounting for income taxes for these affiliates. 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 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.
(K) 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, or the investment no
longer effectively hedges the existing or probable future long-term debt
instruments, any related deferred gains or losses are recognized in the current
period.
(L) PER SHARE DATA AND DIVIDENDS
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for income before extraordinary loss.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997 1996
------------------------------------ ------------------------------------ ---------------------------
INCOME PER INCOME PER INCOME
(000'S) SHARES SHARE (000'S) SHARES SHARE (000'S) SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR)
----------- ------------- ------ ----------- ------------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS............ $90,926 68,577 $1.33 $67,749 54,873 $1.23 $24,230 26,932
Effect of Dilutive
Securities..........
Stock Options........ -- 201 (0.01 ) -- 205 -- -- 67
Units in Carr
Realty, LP....... -- -- -- 5,530 4,519 -- -- --
----------- ------ ------ ----------- ------ ------ ----------- ------
Diluted EPS.......... $90,926 68,778 $1.32 $73,279 59,597 $1.23 $24,230 26,999
----------- ------ ------ ----------- ------ ------ ----------- ------
----------- ------ ------ ----------- ------ ------ ----------- ------
<CAPTION>
PER
SHARE
AMOUNT
------
<S> <C>
Basic EPS............ $0.90
Effect of Dilutive
Securities..........
Stock Options........ --
Units in Carr
Realty, LP....... --
------
Diluted EPS.......... $0.90
------
------
</TABLE>
Income before extraordinary loss has been reduced by preferred stock
dividends of $35,571, $10,991 and $572 for 1998, 1997 and 1996,
respectively.
F-9
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
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.
Following is the income tax status of common stock dividends paid during
the last three calendar years:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Ordinary income.......................................................... 92% 90% 95%
Capital Gain............................................................. -- -- --
Return of Capital........................................................ 8% 10% 5%
</TABLE>
(M) 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.
(N) ACCUMULATED OTHER COMPREHENSIVE INCOME
The financial statements of Omni UK, a foreign affiliate, 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
Stockholders' Equity as accumulated other comprehensive income. Comprehensive
income of the Company represents net income and these translation adjustments.
(O) SEGMENT OPERATIONS
In June 1997, the Financial Accounting Standards Board ('FASB') issued SFAS
No. 131, 'Disclosures About Segments of an Enterprise and Related Information,'
which requires a public entity to report selected information about operating
segments in financial reports issued to shareholders. It also establishes
standards for related disclosures about product and services, geographic areas
and major customers.
The Company has segmented its operations into real estate property
operations, executive suites operations, development operations and
miscellaneous which consists primarily of real estate service operations.
(P) STOCK/UNIT OPTION PLANS
The Company accounts for its option and unit plans in accordance with the
provisions of Accounting Principles Board ('APB') Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. Compensation expenses
would be recorded only if the current market price of the underlying unit or
stock on the date of grant exceeded the exercise price.
(Q) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, 'Accounting for Derivative Instruments and Hedging Activities', which
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company has not yet determined the
impact of this pronouncement, if any.
F-10
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
(R) RECLASSIFICATIONS
Certain reclassifications of the prior years' amounts have been made to
conform to the current period's presentation.
(2) MORTGAGES, UNSECURED NOTES AND CREDIT FACILITY
The Company's mortgages payable, unsecured notes and credit facilities are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Fixed rate mortgages....................................... $ 596,859 $ 590,645
Unsecured credit facilities................................ 482,500 159,500
Senior unsecured notes..................................... 625,000 275,000
--------------- ---------------
$ 1,704,359 $ 1,025,145
--------------- ---------------
--------------- ---------------
</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 February 1999 through July 2019. The weighted
average interest rate of mortgages payable was 8.2% at December 31, 1998 and
8.1% at December 31, 1997. In compliance with the terms of the mortgage
instrument, a mortgage payable of $27.4 million at December 31, 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
December 31, 1998, the credit facility bore interest, as selected by the
Company, at either (i) the higher of the prime rate or the Federal Funds Rate
for such day or (ii) an interest rate equal to 90 basis points above the 30 day
London Interbank Offered Rate (LIBOR). The Company has predominately selected
interest rates equal to 90 basis points above the 30 day LIBOR for initial draws
and upon the expiration of current LIBOR contracts. The credit facility matures
in August 2001. At December 31, 1998, the Company had $61 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 December 31, 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 90
basis points above the 30 day LIBOR. OmniOffices has predominately selected
interest rates equal to 90 basis points above the 30 day LIBOR 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
December 31, 1998, OmniOffices had $106.5 million available for draw under the
credit facility.
The Company's unsecured credit facility and the OmniOffices credit facility
contain a number of financial and other covenants with which the Company must
comply including, but not limited to, covenants relating to ratios of annual
EBITDA (earnings before interest, taxes, depreciation and amortization) to
interest expense, annual EBITDA to debt service, and total debt to tangible fair
market value of the Company's assets, and restrictions on the ability of the
Company to make dividend distributions in excess of 90% of funds from
operations. Availability under the unsecured credit facility is also limited to
a specified percentage of the Company's unsecured properties.
F-11
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
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. The
Company's senior unsecured notes contain various covenants with which the
Company must comply, including but not limited to: limits on the aggregate
amount of indebtedness the Company may have outstanding on a consolidated basis;
limits on the aggregate amount of secured indebtedness the Company may have
outstanding on a consolidated basis; and, limits on the Company's required debt
service payments. The senior unsecured notes are unconditionally guaranteed by
CarrAmerica Realty, L.P.
The annual maturities of debt as of December 31, 1998 are summarized as
follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 31,053
2000........................................................ 200,129(1)
2001........................................................ 584,592(2,3)
2002........................................................ 43,510
2003........................................................ 221,768
2004 & thereafter........................................... 623,307(4)
------------
$ 1,704,359
------------
------------
</TABLE>
- ------------------
(1) Includes $150 million of senior unsecured notes, which mature in 2000.
(2) Includes $389.0 million outstanding as of December 31, 1998 under the
Company's $450 million unsecured line of credit.
(3) Includes $93.5 million outstanding as of December 31, 1998 under the
Company's $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 and unrestricted cash and cash equivalents include $48.6 million
and $18.0 million of restricted cash at December 31, 1998 and 1997,
respectively, consisting primarily of escrow deposits required by lenders to be
used for future building renovations, tenant improvements or as collateral for
letters of credit.
Based on the borrowing rates available to the Company for fixed rate
mortgages payable with similar terms and average maturities, the estimated fair
value of these mortgages and unsecured notes at December 31, 1998 was
approximately $615.5 million and $614.1 million, respectively.
(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, the Company's 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 years ended December 31, 1998 and
1997, 52,613 and 199,223 distribution paying Units, of Carr Realty, L.P. and
CarrAmerica Realty, L.P., respectively, were redeemed for common stock of the
Company.
F-12
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
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>
COMMON CONVERTIBLE DISTRIBUTION NON-DISTRIBUTION
STOCK PREFERRED STOCK PAYING UNITS PAYING UNITS
OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
----------- --------------- ------------ ----------------
<S> <C> <C> <C> <C>
As of December 31:
1998...................................... 71,760 680 5,978 540
1997...................................... 59,994 780 5,699 540
1996...................................... 43,789 1,740 4,940 540
Weighted average for:
1998...................................... 68,577 745 5,985 540
1997...................................... 54,873 1,322 5,381 540
1996...................................... 26,932 328 4,131 872
</TABLE>
Minority interest in the accompanying consolidated financial statements
relates primarily to holders of Units.
(4) INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
The Company owns interests ranging from 5% to 50% in real estate
operations, executive suites operations and development operations through
unconsolidated partnerships. The Company had eight investments in 1998, five
investments in 1997 and seven investments in 1996 in these partnerships. The
average percentage ownership of these unconsolidated investments was
approximately 29% for real estate property operations, 25% for executive suites
operations and 35% for development operations. The combined financial
information for the unconsolidated partnerships is as follows:
REAL ESTATE PROPERTY OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
BALANCE SHEETS 1998 1997
- ------------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
ASSETS
Rental property, net............................................... $248,004 258,571
Cash and cash equivalents.......................................... 19,398 14,348
Other assets....................................................... 47,379 41,959
-------- --------
$314,781 314,878
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Notes payable.................................................... $291,803 294,328
Other liabilities................................................ 27,831 23,897
-------- --------
Total liabilities............................................. 319,634 318,225
Partners' Capital.................................................. (4,853) (3,347)
-------- --------
$314,781 314,878
-------- --------
-------- --------
<CAPTION>
STATEMENTS OF OPERATIONS 1998 1997 1996
- ------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Revenue............................................................ $ 90,734 82,583 85,702
Depreciation and amortization expense.............................. 11,331 10,217 6,266
Interest expense................................................... 26,123 26,257 24,470
Other expenses..................................................... 47,853 42,335 41,787
-------- -------- --------
Net income.................................................... $ 5,427 3,774 13,179
-------- -------- --------
-------- -------- --------
</TABLE>
F-13
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
EXECUTIVE SUITES OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
BALANCE SHEETS 1998 1997
- ------------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
ASSETS
Rental property, net............................................... $ 64,715 --
Cash and cash equivalents.......................................... 54,769 --
Other assets....................................................... 2,002 --
-------- --------
$121,486 --
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Notes payable.................................................... -- --
Other liabilities................................................ 26 --
-------- --------
Total liabilities............................................. 26 --
Partners' Capital.................................................. 121,460 --
-------- --------
$121,486 --
-------- --------
-------- --------
</TABLE>
DEVELOPMENT OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
BALANCE SHEETS 1998 1997
- ------------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
ASSETS --
Rental property, net............................................... $ 22,213 --
Cash and cash equivalents.......................................... 18,456 --
Other assets....................................................... 1,667 --
-------- --------
$ 42,336 --
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Notes payable.................................................... $ 18,350 --
Other liabilities................................................ 313 --
-------- --------
Total liabilities............................................. 18,663 --
Partners' Capital.................................................. 23,673 --
-------- --------
$ 42,336 --
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS 1998 1997 1996
- ------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Revenue............................................................ $ -- -- --
Other expenses..................................................... 197 -- --
-------- -------- --------
Net loss...................................................... $ (197) -- --
-------- -------- --------
-------- -------- --------
</TABLE>
F-14
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
(5) LEASE AGREEMENTS
The following table summarizes the real estate property operations' future
minimum base rent to be received under noncancelable tenant leases and the
percentage of total rentable space under leases expiring each year, as of
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
FUTURE PERCENTAGE OF
MINIMUM TOTAL SPACE UNDER
RENT LEASES EXPIRING
---------- -----------------
<S> <C> <C>
1999............................................... $ 392,295 11.9%
2000............................................... 363,872 11.9
2001............................................... 323,960 13.6
2002............................................... 273,843 14.8
2003............................................... 206,650 15.4
2004 & thereafter.................................. 487,848 32.4
----------
$2,048,468
----------
----------
</TABLE>
The leases also provide for additional rent based on increases in the
Consumer Price Index (CPI) and increases in operating expenses. These increases
are generally payable in equal installments throughout the year, based on
estimated increases, with any differences being adjusted in the succeeding year.
The Company leases land beneath two office properties located in
metropolitan Washington, D.C. and one office property located in Santa Clara,
California. The Company also leases land adjacent to an office property in
Chicago. The initial terms of these leases range from 5 years to 99 years, with
the last lease maturing in the year 2086. The minimum base annual rental payment
associated with these leases is $2.3 million.
The Company leases certain commercial office space for its executive suites
operations under non-cancelable operating leases with initial terms ranging from
10 to 15 years, expiring through 2014. Future minimum lease payments required
under these operating leases as of December 31, 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
1999........................................................ $ 64,254
<S> <C>
2000........................................................ 64,909
2001........................................................ 61,698
2002........................................................ 56,567
2003........................................................ 51,475
2004 & thereafter........................................... 225,095
----------
$ 523,998
----------
----------
</TABLE>
(6) PREFERRED STOCK
The Company is authorized to issue 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 December 31, 1998, 1,060,000 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.
F-15
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
As of December 31, 1998, the following additional preferred stock issued by
the Company was outstanding:
<TABLE>
<CAPTION>
LIQUIDATION
SHARES ISSUE DATE PREFERENCE DIVIDEND RATE
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Series B............................................ 8,000,000 August 1997 $ 25.00 8.57%
Series C............................................ 6,000,000 November 1997 $ 25.00 8.55%
Series D............................................ 2,000,000 December 1997 $ 25.00 8.45%
</TABLE>
Series C and D shares listed above are Depositary Shares, each representing
a 1/10 fractional interest in a share of preferred stock. Dividends for the
Series B, C and D shares are cumulative from the date of issuance and are
payable quarterly in arrears on the last day of February, May, August and
November of each year. These preferred shares are redeemable at the option of
the Company not prior to the following dates:
Series B--August 12, 2002
Series C--November 6, 2002
Series D--December 19, 2002
(7) STOCK/UNIT OPTION PLANS
As of December 31, 1998, the Company had three option plans: two plans for
the purpose of attracting and retaining executive officers and other key
employees (1997 Stock Option and Incentive Plan and the 1993 Carr Realty Option
Plan); and the other plan for the purpose of attracting and retaining directors
who are not employees of the Company (1995 Non-Employee Director Stock Option
Plan).
The 1997 Stock Option and Incentive Plan ('Stock Option Plan') allows for
the grant of options to purchase the Company's common stock at an exercise price
which is equal to the fair market value of the common stock at the date of
grant. The Stock Option Plan was approved by the Company's stockholders at its
Annual Meeting of Stockholders on May 8, 1997. At December 31, 1998, the Company
had options to purchase 7,200,000 shares of common stock authorized for grant
under the Stock Option Plan, of which 5,362,214 were reserved for issuance or
outstanding. All of the outstanding options have a 10-year term from the date of
grant. The majority of the outstanding options vest over a five-year period, 20%
per year, with the exception of 1,492,500 options which vest over a four-year
period, 25% per year, and 450,000 options which vest at the end of five years.
The 1993 Carr Realty Option Plan allows for the grant of options to
purchase Units of Carr Realty, L.P. (Unit options) that are exercisable at the
fair market value of the Units at the date of grant, which is deemed to be
equivalent to the fair market value of the Company's common stock at such date.
Units (following exercise of Unit options) are redeemable for cash or common
stock of the Company, at the option of the Company. At December 31, 1998, the
Company had options to purchase 1,266,900 Units authorized for grant under the
1993 Carr Realty Option Plan, of which 814,000 were outstanding. All of the
outstanding options have a 10-year term from the date of grant and vest over a
five-year period, 20% per year.
The 1995 Non-Employee Director Stock Option Plan provides for the grant of
options to purchase the Company's common stock at an exercise price which is
equal to the fair market value of the common stock on the date of grant. Under
this plan, each newly elected non-employee director was granted options to
purchase 3,000 shares of the Company's common stock upon commencement of
service. In connection with each annual election of directors, each continuing
non-employee director is entitled to receive options to purchase 5,000 shares of
the Company's common stock. Commencing with the Company's 1999 Annual Meeting of
Stockholders, each continuing director will be entitled to receive options to
purchase 7,500 shares if a proposed amendment is approved by the Company's
stockholders. The stock options have a 10-year term from the date of grant and
vest over a three-year period, 33 1/3% per year. At December 31, 1998, the
Company had options to purchase 270,000 shares of common stock authorized for
grant under the 1995 Non-Employee Director Stock
F-16
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
Option Plan, of which 159,893 were outstanding. This amount includes 61,560
options granted under the 1997 Stock Option Plan to nonemployee director in
September 1998 who elected to receive options in lieu of their annual retainer
fee. The options are fully vested.
In November 1998 the Company granted to key executives 417,754 restricted
stock units under the 1997 Stock Option Plan. The stock units were granted at
$23.9375 and are subject to a 5 year vesting schedule, at 20% per year. On each
vesting date, each executive will receive, at the Company's option, stock, cash
or a combination of stock and cash equal to the value of the vested stock units
on vesting date.
The per share weighted-average fair values of Unit options and stock
options granted during 1998, 1997 and 1996 were $2.38, $2.84 and $2.15,
respectively, on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: 1998--expected dividend yield
of 7.38%, risk free interest rate of 5.05%, stock volatility of 21.82%, and
expected option life of 5.00 years; 1997--expected dividend yield of 7.36%, risk
free interest rate of 6.26%, stock volatility of 19.42%, and expected option
life of 5.46 years; 1996--expected dividend yield of 7.89%, risk free interest
rate of 6.08%, stock volatility of 19.45%, and expected option life of 4.02
years.
The Company applies APB Opinion No. 25 in accounting for its Unit options
and stock options and, accordingly, no compensation cost has been recognized for
its Unit options and stock options in the financial statements. However, pro
forma information regarding net income and earnings per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
unit and stock options under the fair value method. For 1998 and 1997 the
Company's pro forma net income and basic EPS were $89,455 and $1.30, and $72,880
and $1.22, respectively. The pro forma effect for 1996 is insignificant.
Unit option and stock option activity during 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
UNITS/SHARES EXERCISE PRICE
------------ --------------
<S> <C> <C>
Balance at December 31, 1995............................................... 937,348 $22.86
Granted.................................................................... 112,000 24.70
Exercised.................................................................. 4,000 20.75
Forfeited.................................................................. -- --
Expired.................................................................... -- --
------------
Balance at December 31, 1996............................................... 1,045,348 23.06
Granted.................................................................... 917,202 29.01
Exercised.................................................................. 96,015 23.04
Forfeited.................................................................. 76,081 24.09
Expired.................................................................... -- --
------------
Balance at December 31, 1997............................................... 1,790,454 26.07
Granted.................................................................... 4,308,560(1) 26.14
Exercised.................................................................. 1,000 17.75
Forfeited.................................................................. 179,661 29.15
Expired.................................................................... -- --
------------
Balance at December 31, 1998............................................... 5,918,353 $26.03
------------ -------
------------ -------
</TABLE>
- ------------------
(1) Excludes 417,754 restricted stock units granted in 1998 under the 1997 Stock
Option Plan.
At December 31, 1998, the range of exercise prices for outstanding options
fall into four categories ranging from $17.75 to $30.25 per Unit/share and a
weighted average remaining contractual life of 8.70 years for outstanding
options.
F-17
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
At December 31, 1998, 1997, and 1996 the number of options exercisable was
1,017,631; 639,572; and 526,420, respectively, and the weighted average exercise
price of those options was $24.01, $22.80, and $22.72 per Unit/share,
respectively.
The following table summarizes certain information with regards to options
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING WEIGHTED
# OF RANGE OF CONTRACTUAL LIFE AVERAGE
SHARES EXERCISE PRICES (IN YEARS) EXERCISE PRICE
------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
1993 Employee Unit Plan........................... 742,540 $22.00 - $24.75 4.90 $22.88
1997 Stock Option Plan(1)......................... 180,875 $24.00 - $30.25 8.19 $28.89
Non-Employee Director Plan:
Range 1......................................... 68,560 $17.75 - $22.88 9.43 $22.49
Range 2......................................... 25,656 $24.38 - $28.13 7.79 $26.17
</TABLE>
- ------------------
(1) Excludes 417,754 restricted shares of stock granted in 1998 under the 1997
Stock Option Plan.
(8) TRANSACTIONS WITH AFFILIATES
Accounts receivable includes management and leasing fees, development and
architectural fees and payroll reimbursements receivable from affiliates of $3.5
million at December 31, 1998 and $3.6 million at December 31, 1997. This amount
includes a leasing commission receivable of $2.3 million at December 31, 1998
and $2.5 million at December 31, 1997, which receivable is collectible in
quarterly installments of approximately $47 thousand through September 2011. The
fair market value of this receivable is $1.5 million at December 31, 1998 and
$1.5 million at December 31, 1997. The leasing commission is due from an
unconsolidated investee partnership.
The Company earned management, leasing, development and architectural fees
from affiliated partnerships of $6.1 million in 1998, $7.4 million in 1997, and
$6.9 million in 1996.
A wholly owned subsidiary of Clark Enterprises, Inc., a Unitholder, has
provided construction management services to the Company. In connection with
these services, the Company paid $19.6 million in 1998, $1.5 million in 1997,
and $1.3 million in 1996. Additionally, a wholly owned subsidiary of Clark
Enterprises, Inc. received a total of $19.6 million during the years of 1997,
1996 and 1995 under a construction contract for the Booz-Allen & Hamilton
Building (in which the Company is a 50% joint venturer).
The Company formerly leased office space from a partnership affiliated with
The Oliver Carr Company. Rent expense amounted to $.6 million in 1998, $1.2
million in 1997 and $1.1 million in 1996 under the lease.
The Company paid Security Capital Markets Group, Inc., an affiliate of
SC-USREALTY, a placement fee of $.4 million in 1996 for services rendered in
connection with the sale of 1,740,000 shares of Series A Preferred Stock issued
in October 1996.
During 1998 and 1997, payments of $.3 million and $.1 million, respectively
were made to Security Capital Investment Research Incorporated, an affiliate of
SC-USREALTY, for research rendered in connection with the acquisition of
operating properties, executive office suites businesses and development
properties.
F-18
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
- --------------------------------------------------------------------------------
(9) GAINS/LOSSES FROM DISPOSITIONS OF ASSETS
The Company has disposed of assets that are inconsistent with its long-term
strategic or return objectives or where market conditions for sale are
favorable. The proceeds of the sales primarily were redeployed into other office
properties (utilizing tax-deferred exchanges where possible). During 1998, the
Company disposed of 13 operating properties and land that was being held for
development. The Company recognized gains totaling $38.2 million on these
dispositions.
In 1996, the Company wrote off approximately $2.3 million of the
unamortized purchase price of certain third-party real estate service contracts
that were terminated during the year.
(10) COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company was contingently liable on letters of
credit amounting to approximately $7.4 million for various completion escrows
and on performance bonds amounting to approximately $15.4 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 December 31, 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 planned to
issue in the future.
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
DATE NOTIONAL 10-YEAR LOSS LOSS
OF AMOUNT TREASURY BILL @ 12-31-98 @ 2-12-99
AGREEMENT (IN MILLIONS) RATE (IN MILLIONS) (IN MILLIONS)
- ------------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
September 2, 1998...................................... $50.0 5.898% $ 4.9 3.9
September 2, 1998...................................... 25.0 5.788 2.2 1.7
September 2, 1998...................................... 25.0 5.647 1.9 1.5
September 2, 1998...................................... 25.0 5.566 1.8 1.3
August 27, 1998........................................ 75.0 5.128(1) 2.9 .8
------ ---
Total................................................ $13.7 9.2
------ ---
------ ---
</TABLE>
- ------------------
(1) Tied to Treasury bills maturing 2/15/06.
At December 31, 1998, the Company determined that these positions no longer
represented effective hedges and accordingly, the amount due to the counterparty
under the forward Treasury Lock Agreements of $13.7 million has been recognized
in the Company's financial statements as a loss. These contracts were settled on
February 12, 1999, for $9.2 million in cash.
The Company has a 401(k) plan for employees that will match 50% of employee
contributions up to the first 4% of an employee's pay and will make a base
contribution of 3% of pay for participants who remain employed on December 31
(the end of the plan year). Company contributions to the plan are subject to a
five-year graduated vesting schedule. Company contributions to the plan amounted
to $1.1 million in 1998, $.6 million in 1997 and $.3 million in 1996.
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 known
as a 'forward equity sale' transaction. In connection with that transaction, the
Company entered into an agreement with Merrill Lynch under which the parties
agreed to adjust the number of shares of common stock issued to Merrill Lynch
(or the aggregate purchase price paid for such shares) based
F-19
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
upon the proceeds received by Merrill Lynch upon a resale of the shares by April
1999 in relation to the amount originally paid by Merrill Lynch ($150 million),
plus a forward accretion component and less dividends paid on the shares.
On October 5, 1998, the Company and Merrill Lynch entered into an amendment
to the agreement pursuant to which the Company paid to Merrill Lynch the $39.3
million currently on deposit, and in connection therewith the aggregate
settlement amount under the agreement was reduced from $150 million to
approximately $112 million (i.e, the purchase price adjustment mechanism takes
effect if the aggregate proceeds received by Merrill Lynch from the sale of the
5,000,000 shares is less than or greater than $112 million), plus a forward
accretion component and less dividends paid on the shares. The Company settled
this agreement with a cash payment of $109.6 million in March 1999, at which
time the 5,000,000 shares were returned to the Company and cancelled.
In the course of the Company's normal business activities, various
lawsuits, claims and proceedings have been or may be instituted or asserted
against the Company. Based on currently available facts, management believes
that the disposition of matters that are pending or asserted will not have a
material adverse effect on the consolidated financial position, results of
operations or liquidity of the Company.
(11) ACQUISITION AND DEVELOPMENT ACTIVITIES
During 1998 and 1997, the Company made the following operating property
acquisitions:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------- --------------------------------------
SQUARE SQUARE
OPERATING # OF FEET PURCHASE # OF FEET PURCHASE
PROPERTIES BUILDINGS (UNAUDITED) PRICE BUILDINGS (UNAUDITED) PRICE
- ------------------------------------- --------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Pacific.............................. 28 1.6 $251.8 51 3.3 $464.2
Mountain............................. 1 .1 19.5 14 1.2 162.7
Central.............................. 2 .4 39.3 16 1.6 178.2
Southeast............................ 1 .1 8.8 6 0.9 101.6
-- --- -------- -- --- --------
32 2.2 $319.4 87 7.0 $906.7
-- --- -------- -- --- --------
-- --- -------- -- --- --------
</TABLE>
During 1998 and 1997, the Company acquired land that will support the
future development of up to 4.7 million square feet (unaudited) and 4.6 million
square feet (unaudited), respectively, for an aggregate purchase price of
approximately $133.4 million and $117.3 million, respectively. In addition, as
of December 31, 1998, and 1997, the Company has the following office properties
under construction:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------- -------------------------------------------
# OF OFFICE # OF OFFICE
PROPERTIES SQUARE TOTAL PROPERTIES SQUARE TOTAL
DEVELOPMENT UNDER FEET EXPECTED UNDER FEET EXPECTED
PROPERTIES CONSTRUCTION (UNAUDITED) INVESTMENT CONSTRUCTION (UNAUDITED) INVESTMENT
- --------------------------- ------------ ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pacific.................... 24 1.3 $201.4 20 1.2 $171.1
Mountain................... 6 0.6 74.9 4 0.4 59.2
Central.................... 14 1.7 244.3 10 1.2 153.6
Southeast.................. 6 0.7 114.9 6 0.7 100.1
-- --
--- ---------- --- ----------
50 4.3 $635.5 40 3.5 $484.0
-- --
-- --
--- ---------- --- ----------
--- ---------- --- ----------
</TABLE>
During 1997, OmniOffices acquired the assets of OmniOffices Group, Inc. for
approximately $50 million in cash. OmniOffices owned 28 executive office suites
located in 14 markets nationwide.
During 1998, CarrAmerica, through its affiliates, OmniOffices and Omni UK,
invested $226.5 million in the acquisition and development of executive office
suites. OmniOffices invested approximately $189.2 million acquiring HQ Business
Center franchisees located primarily in New York, Chicago, Atlanta, Boston,
Washington, DC, Tampa, Indianapolis, Orlando, San Diego and New Jersey.
OmniOffices has 28 centers under
F-20
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
development. OmniOffices now operates over 100 executive office suite centers in
29 markets in the United States. The Company recorded goodwill of $159.4 million
upon completion of these acquisitions.
During 1998, Omni UK invested $37.3 million, acquiring the London HQ
Business Center franchises. In addition, Omni UK owns six centers, has six
centers under development and has an additional six centers under development
with a joint venture partner. Omni UK now operates 10 executive office suite
centers in the United Kingdom. The Company recorded goodwill of $31.6 million
upon these acquisitions.
The following unaudited pro forma summary presents information as if the
Company's property and executive suites acquisitions, sales of properties, sales
of common and preferred stock, and issuance of debt securities through December
31, 1998 had occurred at the beginning of 1997. The pro forma information is
provided for informational purposes only. It is based on historical information
and does not necessarily reflect the actual results that would have occurred nor
is it necessarily indicative of future results of operations of the Company.
<TABLE>
<CAPTION>
PRO FORMA INFORMATION (UNAUDITED)
(In thousands, except per share amounts) 1998 1997
---------- ----------
<S> <C> <C>
Total Revenue.................................................... $ 639,355 $ 635,779
Net Income before extraordinary item............................. $ 127,389 $ 119,567
Net Income....................................................... $ 127,389 $ 118,959
Basic net income per common share................................ $ 1.78 $ 1.66
---------- ----------
---------- ----------
</TABLE>
(12) SUBSEQUENT EVENTS
The Company currently is involved in litigation with two stockholders of
OmniOffices involving the conversion in September 1998 of approximately $111
million of debt previously loaned by the Company to OmniOffices into stock of
OmniOffices. The Company and OmniOffices initiated this litigation by filing a
complaint seeking a declaratory judgment that the terms of the debt conversion
were fair, after these two stockholders threatened to challenge the terms of the
conversion, claiming that the conversion price utilized, and the methods by
which the conversion price was agreed upon between the Company and OmniOffices,
were not fair to OmniOffices or these stockholders. The two stockholders filed
counterclaims against the Company, OmniOffices and the board of directors of
OmniOffices seeking a judgment declaring the conversion void or voidable, or in
the alternative compensatory and punitive damages.
Although the Company believes that the two stockholders' claims are without
merit and that it and OmniOffices will ultimately prevail in their actions
against the two stockholders, there can be no assurance that the court will not
find the conversion price to have been unfair and declare the conversion void,
which would have the effect of diluting the Company's equity interest in
OmniOffices, or award the two stockholders compensatory and punitive damages.
However, even if the two stockholders were successful in their claims, the
Company does not believe that such a result would have a material adverse effect
on the financial condition or results of operations of the Company or
OmniOffices.
During January 1999, the Company sold four office buildings for $129.6
million, resulting in a gain of $11.0 million. Properties sold include Ballston
Plaza III in Northern Virginia and Hacienda NNN in Pleasanton, Mission Plaza in
Santa Clara and Foster City Technology Center in Foster City in Northern
California. As of March 15, 1999, the Company has four projects under contract
to be sold and nine projects under letter of intent to be sold with expected net
proceeds of approximately $345.0 million (unaudited). The Company anticipates
the proceeds from the sale of these assets to be used to repay amounts
outstanding on the Company's line of credit, to fund development project costs
and for other general corporate purposes. There can be no assurance that any of
the pending dispositions will occur on such terms or at all.
F-21
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
From January 1, 1999, to March 15, 1999, the Company placed into service
five office buildings. The properties placed in service added to the Company's
holdings as follows (unaudited):
<TABLE>
<CAPTION>
# OF SQUARE
REGION BUILDINGS FEET (UNAUDITED)
- ------------------------------------------------------------------ --------- ----------------
<S> <C> <C>
Pacific Region.................................................... 1 42,000
Mountain Region................................................... 1 137,000
Central Region.................................................... 1 91,000
Southeast Region.................................................. 2 177,000
-
----------------
Total........................................................ 5 447,000
-
-
----------------
----------------
</TABLE>
(13) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly results of operations for 1998 and
1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Rental revenue................................................... $100,329 106,964 113,657 119,505
-------- -------- -------- --------
-------- -------- -------- --------
Real estate service revenue...................................... $ 2,990 3,524 4,471 5,182
-------- -------- -------- --------
-------- -------- -------- --------
Real estate operating revenue.................................... $ 25,354 29,251 30,033 24,416
-------- -------- -------- --------
-------- -------- -------- --------
Income before extraordinary item................................. $ 44,509 30,107 36,381 15,500
-------- -------- -------- --------
-------- -------- -------- --------
Net income....................................................... $ 44,509 30,107 36,381 15,500
-------- -------- -------- --------
-------- -------- -------- --------
Basic net income per share:
Income before extraordinary item............................... $ 0.60 0.30 0.38 0.09
-------- -------- -------- --------
-------- -------- -------- --------
Net income..................................................... $ 0.60 0.30 0.38 0.09
-------- -------- -------- --------
-------- -------- -------- --------
Diluted net income per share:
Income before extraordinary item............................... $ 0.59 0.30 0.37 0.09
-------- -------- -------- --------
-------- -------- -------- --------
Net income..................................................... $ 0.59 0.30 0.37 0.09
-------- -------- -------- --------
-------- -------- -------- --------
1997
Rental revenue................................................... $ 66,289 77,688 87,855 93,670
-------- -------- -------- --------
-------- -------- -------- --------
Real estate service revenue...................................... $ 4,178 3,759 3,575 4,486
-------- -------- -------- --------
-------- -------- -------- --------
Real estate operating revenue.................................... $ 14,495 19,524 20,679 23,788
-------- -------- -------- --------
-------- -------- -------- --------
Income before extraordinary item................................. $ 13,259 18,531 19,481 27,469
-------- -------- -------- --------
-------- -------- -------- --------
Net income....................................................... $ 13,259 18,531 18,873 27,469
-------- -------- -------- --------
-------- -------- -------- --------
Basic net income per share:
Income before extraordinary item............................... $ 0.26 0.32 0.29 0.35
-------- -------- -------- --------
-------- -------- -------- --------
Net income..................................................... $ 0.26 0.32 0.28 0.35
-------- -------- -------- --------
-------- -------- -------- --------
Diluted net income per share:
Income before extraordinary item............................... $ 0.26 0.32 0.29 0.35
-------- -------- -------- --------
-------- -------- -------- --------
Net income..................................................... $ 0.26 0.32 0.28 0.35
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
F-22
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
(14) 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 represents 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, losses on
write-off of treasury locks, deferred taxes and gain on sale of assets.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1998
---------------------------------------------------------------------
REAL ESTATE EXECUTIVE
PROPERTY OFFICE SUITES DEVELOPMENT OTHER
(In millions) OPERATIONS OPERATIONS OPERATIONS OPERATIONS TOTAL
----------- ------------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Operating revenue................................ $ 440.5 145.9 -- 16.2 602.6
Segment expense.................................. $ 151.7 118.2 3.1 27.3 300.3
----------- ------------- ----------- ---------- --------
Net segment revenue......................... $ 288.8 27.7 (3.1) (11.1) 302.3
Interest expense................................. $ 46.8 12.0 (30.5) 48.2 76.5
Other income (expense), net...................... $ 2.4 0.8 -- 5.6 8.8
----------- ------------- ----------- ---------- --------
Funds from operations....................... $ 244.4 16.5 27.4 (53.7) 234.6
----------- ------------- ----------- ---------- --------
----------- ------------- ----------- ---------- --------
Adjustments to income before income taxes,
minority interest, and extraordinary items:
Depreciation and amortization............... $ (109.1)
Gain on sales of assets..................... $ 37.6
Loss on write-off of treasury locks......... $ (13.7)
Other, net.................................. $ (4.9)
--------
Income before income taxes, minority interest,
and extraordinary items: $ 144.5
--------
--------
Total assets................................ $ 2,809.4 364.2 466.4 153.5 3,793.5
Expenditures for long-lived assets.......... $ 391.6 217.4 532.8 -- 1,141.8
Total foreign sales......................... $ -- 9.8 -- -- 9.8
</TABLE>
F-23
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1997
---------------------------------------------------------------------
REAL ESTATE EXECUTIVE
PROPERTY OFFICE SUITES DEVELOPMENT OTHER
OPERATIONS OPERATIONS OPERATIONS OPERATIONS TOTAL
----------- ------------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Operating revenue................................ $ 325.5 17.9 -- 16.0 359.4
Segment expense.................................. $ 114.8 15.7 1.6 20.2 152.3
----------- ------------- ----------- ---------- --------
Net segment revenue......................... $ 210.7 2.2 (1.6) (4.2) 207.1
Interest expense................................. $ 45.1 1.1 (12.6) 17.9 51.5
Other income (expense), net...................... $ 1.4 0.2 -- (3.9) (2.3)
----------- ------------- ----------- ---------- --------
Funds from operations....................... $ 167.0 1.3 11.0 (26.0) 153.3
----------- ------------- ----------- ---------- --------
----------- ------------- ----------- ---------- --------
Adjustments to income before income taxes,
minority interest, and extraordinary items:
Depreciation and amortization............... $ (71.7)
Gain on sale of assets...................... $ 5.4
--------
Income before income taxes, minority interest,
and extraordinary items: $ 87.0
--------
--------
Total assets................................ $ 2,304.7 65.2 292.5 81.7 2,744.1
Expenditures for long-lived assets.......... $ 947.8 45.7 276.3 -- 1,269.8
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1996
---------------------------------------------------------------------
REAL ESTATE EXECUTIVE
PROPERTY OFFICE SUITES DEVELOPMENT OTHER
OPERATIONS OPERATIONS OPERATIONS OPERATIONS TOTAL
----------- ------------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Operating revenue................................ $ 154.2 -- -- 12.5 166.7
Segment expense.................................. $ 51.9 -- 1.8 13.4 67.1
----------- ------------- ----------- ---------- --------
Net segment revenue......................... $ 102.3 -- (1.8) (0.9) 99.6
Interest expense................................. $ 33.8 -- (2.7) 0.5 31.6
Other income (expense), net...................... $ 0.8 -- -- (4.3) (3.5)
----------- ------------- ----------- ---------- --------
Funds from operations....................... $ 69.3 -- 0.9 (5.7) 64.5
----------- ------------- ----------- ---------- --------
----------- ------------- ----------- ---------- --------
Adjustments to income before income taxes,
minority interest, and extraordinary items:
Depreciation and amortization............... $ (35.0)
--------
Income before income taxes, minority interest,
and extraordinary items: $ 29.5
--------
--------
Total assets................................ $ 1,433.4 -- 64.0 39.2 1,536.6
Expenditures for long-lived assets.......... $ 1,023.3 -- 54.7 -- 1,078.0
</TABLE>
(15) INCOME TAXES
The Company's executive office suites affiliates are subject to federal and
state income tax and file separate tax returns. For the year ended December 31,
1998, tax expense for executive office suites affiliates was approximately $1.9
million, which includes $0.9 million current tax expense (including $0.4 million
for foreign tax expense) and $1.0 deferred tax expense. In addition, current
real estate operations are subject to state and local taxes which amounted to
approximately $0.4 million in 1998.
At December 31,1998 the executive suites affiliates had net deferred tax
assets of approximately $2.0 million which management believes is recoverable
through normal future operations. Approximately $3.0 million
F-24
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------------------------------------------------------------------------------
of net deferred tax assets were acquired in 1998 and any amount not ultimately
realized will result in an adjustment to initially recorded goodwill. The
components of the net deferred tax assets include $3.0 million of operating loss
carryforwards that expire beginning in 2000 and $2.0 million for rent collected
in advance, offset by deferred tax liabilities for depreciation and amortization
on property, equipment and intangible assets.
Significant differences driving the expected tax expense of $0.6 million
for executive office suites affiliates, using a 35 percent federal tax rate,
include primarily differences for state taxes and non-deductible expenses
including goodwill.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The Board of Directors and Stockholders
CarrAmerica Realty Corporation:
We have audited the accompanying consolidated balance sheets of CarrAmerica
Realty Corporation and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CarrAmerica
Realty Corporation and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Washington, D.C.
February 6, 1999,
except as to notes 10 and 12
which are as of March 15, 1999
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The Board of Directors and Stockholders
CarrAmerica Realty Corporation:
Under date of February 6, 1999, we reported on the consolidated balance
sheets of CarrAmerica Realty Corporation and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, which are included in this Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule in this Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, this financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Washington, D.C.
February 6, 1999
F-27
<PAGE>
<TABLE>
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
INITIAL COSTS PERIOD
---------------------- ----------------------
BUILDINGS COST CAPITALIZED BUILDINGS
(in thousands) AND SUBSEQUENT TO AND
PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION (4) LAND IMPROVEMENTS
- ------------------------------------------ ------------ ------- ------------ ---------------- ------- ------------
DOWNTOWN WASHINGTON, D.C.:
International Square(1)................. $181,356(2) 69,651 100,921 10,236 69,651 111,157
1730 Pennsylvania Avenue, N.W........... --(2) 2,196 11,013 12,877 2,196 23,890
2550 M Street, N.W...................... -- 2,340 11,348 4,042 2,340 15,390
1775 Pennsylvania Avenue, N.W........... 6,129 -- 19,000 2,097 -- 21,097
900 19th Street......................... 16,400 1,985 13,358 2,887 1,985 16,245
1747 Pennsylvania Avenue, N.W........... 15,072 1,636 8,157 5,884 1,636 14,041
1255 23rd Street........................ (2) 10,793 40,214 4,918 10,793 45,132
VIRGINIA:
Ballston Plaza.......................... -- 8,250 46,926 1,395 8,250 48,321
Tycon Courthouse........................ -- 14,183 31,772 2,075 14,183 33,847
Sunrise Corporate Center................ -- 8,997 34,322 776 9,011 35,084
Parkway One............................. -- 2,010 4,663 389 2,013 5,049
Reston Crossing(7)...................... -- 8,379 -- 22,856 -- 31,235
MARYLAND:
One Rock Spring Plaza................... -- -- 18,409 1,209 -- 19,618
ORANGE COUNTY/LOS ANGELES:
Plaza PacifiCare........................ -- 3,493 6,392 56 3,493 6,448
Katella Corporate Center................ -- 2,671 4,314 390 2,681 4,694
Warner Center........................... 26,000 16,490 33,698 1,772 16,574 35,386
Scenic Business Park.................... -- 2,469 4,503 661 2,469 5,164
South Coast Executive Center............ 10,127 3,324 17,212 811 3,388 17,959
Harbor Corporate Park................... -- 2,191 5,784 1,754 2,191 7,538
Westlake Corporate Center............... -- 1,705 4,450 665 1,722 5,098
Warner Premier.......................... -- 3,252 6,040 142 3,285 6,149
2600 W. Olive........................... 19,152 3,855 25,054 2,709 3,904 27,714
Bay Technology Center................... -- 2,442 11,164 128 2,462 11,272
Von Karman.............................. -- 3,731 12,493 446 3,744 12,926
Pacific Corporate Plaza................. -- 5,756 -- 3,159 -- 8,915
Alton Deere Plaza....................... -- 5,666 17,967 161 5,671 18,123
SAN DIEGO:
Del Mar Corporate Center................ -- 2,860 13,252 77 2,869 13,320
Wateridge Pavilion...................... 3,481 881 5,509 112 895 5,607
Lightspan............................... -- 1,438 5,710 724 1,440 6,432
Towne Center Technology Park 2.......... -- 1,688 -- 6,603 1,792 6,499
<CAPTION>
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands) ACCUMULATED DATE OF YEAR OF
PROPERTIES TOTAL DEPRECIATION CONSTRUCTION ACQUISITION
- ------------------------------------------ --------- ------------- ---------------- -----------
DOWNTOWN WASHINGTON, D.C.:
International Square(1)................. 180,808 55,641 1977,1979,1982 1993
1730 Pennsylvania Avenue, N.W........... 26,086 11,220 1972 1993
2550 M Street, N.W...................... 17,730 8,563 1978 1993
1775 Pennsylvania Avenue, N.W........... 21,097 2,685 1975 1994
900 19th Street......................... 18,230 6,103 1986 1993
1747 Pennsylvania Avenue, N.W........... 15,677 6,293 1970 1993
1255 23rd Street........................ 55,925 16,384 1983 1993
VIRGINIA:
Ballston Plaza.......................... 56,571 10,374 1991 1994
Tycon Courthouse........................ 48,030 3,745 1983 1995
Sunrise Corporate Center................ 44,095 3,642 1987-1989 1996
Parkway One............................. 7,062 726 1985 1996
Reston Crossing(7)...................... 31,235 -- N/A 1997
MARYLAND:
One Rock Spring Plaza................... 19,618 4,451 1989 1995
ORANGE COUNTY/LOS ANGELES:
Plaza PacifiCare........................ 9,941 691 1986 1996
Katella Corporate Center................ 7,375 507 1982 1996
Warner Center........................... 51,960 3,809 1981-1985 1996
Scenic Business Park.................... 7,633 811 1985 1996
South Coast Executive Center............ 21,347 1,337 1987 1996
Harbor Corporate Park................... 9,729 1,029 1987 1996
Westlake Corporate Center............... 6,820 319 1986 1997
Warner Premier.......................... 9,434 456 1990 1997
2600 W. Olive........................... 31,618 1,420 1986 1997
Bay Technology Center................... 13,734 391 1985 1997
Von Karman.............................. 16,670 655 1981 1997
Pacific Corporate Plaza................. 8,915 -- N/A 1997
Alton Deere Plaza....................... 23,794 441 1989 1998
SAN DIEGO:
Del Mar Corporate Center................ 16,189 1,320 1986 1996
Wateridge Pavilion...................... 6,502 376 1987 1997
Lightspan............................... 7,872 432 1985 1997
Towne Center Technology Park 2.......... 8,291 162 1998 1997
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
INITIAL COSTS PERIOD
---------------------- ----------------------
BUILDINGS COST CAPITALIZED BUILDINGS
(in thousands) AND SUBSEQUENT TO AND
PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION (4) LAND IMPROVEMENTS
- ------------------------------------------ ------------ ------- ------------ ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Towne Center Technology Park 1 and
3(7).................................. -- $ 3,241 -- 10,589 -- 13,830
Palomar Oaks Technology Park(7)......... 10,086 4,698 12,495 39 4,709 12,523
Jaycor.................................. 12,781 5,123 11,754 -- 5,123 11,754
LaJolla Spectrum Technology Park B...... -- 3,165 -- 1,925 5,090 --
LaJolla Spectrum Technology Park A...... -- 3,282 -- 3,573 -- 6,855
SAN FRANCISCO BAY AREA:
CarrAmerica Corporate Center............ -- 32,946 75,720 6,752 32,949 82,469
CarrAmerica Corporate Center 7 --
Land.................................. -- 89 -- -- 89 --
Sunnyvale Research Plaza................ -- 5,082 11,191 225 5,101 11,397
Valley Business Park I.................. 42,273(3) 3,859 3,155 307 3,865 3,456
Valley Business Park II................. -- 8,753 7,155 714 8,765 7,857
Valley Centre........................... -- 6,051 4,945 92 6,058 5,030
Valley Office Centre.................... (3) 6,134 5,014 286 6,142 5,292
Valley Centre II........................ (3) 13,658 11,164 (385) 13,676 10,761
Rincon Centre........................... (3) 12,464 10,188 210 12,480 10,382
Bayshore Centre......................... (3) 17,545 14,342 549 17,569 14,867
3745 North First Street................. -- 3,388 4,884 328 3,411 5,189
Mission Plaza........................... -- 3,978 6,280 (38) 4,010 6,210
North San Jose Technology Park.......... -- 9,124 21,681 191 9,170 21,826
150 River Oaks.......................... -- 6,409 8,698 211 6,444 8,874
Foster City Technology Center........... -- 3,986 5,614 339 4,014 5,925
Rio Robles.............................. -- 16,655 29,598 633 16,669 30,217
San Mateo II and III.................... -- 9,723 15,556 659 9,817 16,121
3571 North First Street................. -- 6,297 8,862 70 6,326 8,903
San Mateo I............................. -- 5,703 9,126 47 5,710 9,166
900-910 East Hamilton................... -- 28,264 52,993 1,970 28,275 54,952
Amador I/Rinconda, Amador III, Arroyo
Center................................ -- 14,448 24,706 416 14,494 25,076
Baytech Business Park................... -- 14,958 -- 17,638 14,562 18,034
Oakmead West............................ -- 22,842 -- 34,064 21,629 35,277
Hacienda West........................... --(6) 6,468 24,062 211 6,492 24,249
Sunnyvale Technology Centre............. 35,554(6) 12,098 16,131 114 12,106 16,237
Santa Clara Technology Park............. -- 9,750 11,917 19 9,759 11,927
Techmart Commerce Center................ -- -- 36,594 597 -- 37,191
Golden Gateway Commons.................. -- 21,112 51,689 270 21,167 51,904
995 Benecia Avenue...................... 911 3,407 3,026 30 3,421 3,042
Clarify Corporate Center................ -- 17,574 -- 17,103 -- 34,677
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) ACCUMULATED DATE OF YEAR OF
PROPERTIES TOTAL DEPRECIATION CONSTRUCTION ACQUISITION
- ------------------------------------------ --------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Towne Center Technology Park 1 and
3(7).................................. 13,830 -- N/A 1997
Palomar Oaks Technology Park(7)......... 17,232 193 1989 1998
Jaycor.................................. 16,877 82 1989 1998
LaJolla Spectrum Technology Park B...... 5,090 -- N/A 1998
LaJolla Spectrum Technology Park A...... 6,855 -- N/A 1998
SAN FRANCISCO BAY AREA:
CarrAmerica Corporate Center............ 115,418 20,418 1988 1996
CarrAmerica Corporate Center 7 --
Land.................................. 89 -- N/A 1998
Sunnyvale Research Plaza................ 16,498 1,372 1985 1996
Valley Business Park I.................. 7,321 283 1981 1996
Valley Business Park II................. 16,622 616 1979 1996
Valley Centre........................... 11,088 399 1980 1996
Valley Office Centre.................... 11,434 380 1981 1996
Valley Centre II........................ 24,437 929 1980 1996
Rincon Centre........................... 22,862 1,056 1984 1996
Bayshore Centre......................... 32,436 1,977 1984 1996
3745 North First Street................. 8,600 360 1984 1997
Mission Plaza........................... 10,220 597 1985 1997
North San Jose Technology Park.......... 30,996 1,998 1984 1997
150 River Oaks.......................... 15,318 476 1984 1997
Foster City Technology Center........... 9,939 401 1988 1997
Rio Robles.............................. 46,886 2,152 1985 1996
San Mateo II and III.................... 25,938 794 1985 1997
3571 North First Street................. 15,229 433 1985 1997
San Mateo I............................. 14,876 369 1986 1997
900-910 East Hamilton................... 83,227 2,045 1989 1997
Amador I/Rinconda, Amador III, Arroyo
Center................................ 39,570 1,149 1983 1997
Baytech Business Park................... 32,596 576 1998 1997
Oakmead West............................ 56,906 371 1998 1997
Hacienda West........................... 30,741 797 1987 1998
Sunnyvale Technology Centre............. 28,343 519 1971-1975 1998
Santa Clara Technology Park............. 21,686 186 1984,1985 1998
Techmart Commerce Center................ 37,191 786 1987 1998
Golden Gateway Commons.................. 73,071 1,214 1980,1984 1998
995 Benecia Avenue...................... 6,463 46 1976 1998
Clarify Corporate Center................ 34,677 -- N/A 1998
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
INITIAL COSTS PERIOD
---------------------- ----------------------
BUILDINGS COST CAPITALIZED BUILDINGS
(in thousands) AND SUBSEQUENT TO AND
PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION (4) LAND IMPROVEMENTS
- ------------------------------------------ ------------ ------- ------------ ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Valley Technology Center 4 and 5........ -- $ 8,879 -- 7,529 8,916 7,492
Valley Technology Center 1, 2, 3(7)..... -- 14,540 -- 11,993 -- 26,533
Valley Technology Center II(7).......... -- 9,491 -- 776 10,267 --
Fremont Technology Park(7).............. -- 10,122 10,797 4,826 11,296 14,449
SACRAMENTO:
1860 Howe Avenue........................ -- 2,824 8,944 852 2,846 9,774
University Park......................... -- 3,217 10,185 439 3,242 10,599
Capital Corporate Center................ -- 2,189 6,932 195 2,207 7,109
DENVER:
Quebec Center........................... -- 1,423 5,659 613 1,423 6,272
Greenwood Center........................ -- 289 6,619 505 289 7,124
Quebec Court I and II................... -- 2,368 19,819 9,143 2,371 28,959
Harlequin Plaza......................... -- 4,746 21,344 4,564 4,748 25,906
Panorama Corporate Center III(7)........ -- 1,541 -- 14,105 -- 15,646
Panorama Phase V........................ -- 472 -- 2,481 594 2,359
Panorama Phase V(7)..................... -- 1,314 -- 9,496 -- 10,810
Panorama Phase IV....................... -- 1,775 -- 1,105 2,880 --
Panorama Phase VI....................... -- 1,716 -- 995 2,711 --
Panorama Phase VII...................... -- 1,226 -- 1,266 2,492 --
Panorama Corporate Center I............. -- 1,325 6,486 3,494 1,326 9,979
Panorama Corporate Center II(7)......... -- 1,844 -- 9,043 1,939 8,948
Panorama Corporate Center VIII.......... -- 4,060 -- 441 4,501 --
Dry Creek Corporate Center.............. -- 10,575 -- 641 11,216 --
Panorama Phase IX....................... -- 1,977 -- 150 2,127 --
Panorama Phase X........................ -- 484 -- 81 565 --
SEATTLE:
Redmond East............................ 27,355 6,957 32,390 1,170 6,972 33,545
Redmond Hilltop B and C................. -- 2,511 -- 7,762 2,489 7,784
Canyon Park Business Center............. -- 5,748 23,624 228 5,782 23,818
Canyon Park 4 -- Land(7)................ -- 1,895 -- 3,768 -- 5,663
Canyon Park 1 and 2..................... -- 3,217 -- 10,772 2,833 11,156
Canyon Park Commons 1 and 2............. 5,615 2,375 9,958 29 2,380 9,982
Willow Creek Corporate Center........... -- 1,709 6,972 79 1,724 7,036
Willow Creek Corporate Center 1, 2, 3,
4, 5.................................. -- 5,548 -- 32,202 4,925 32,825
Willow Creek Corporate Center 6(7)...... -- 937 -- 3,790 -- 4,727
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) ACCUMULATED DATE OF YEAR OF
PROPERTIES TOTAL DEPRECIATION CONSTRUCTION ACQUISITION
- ------------------------------------------ --------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Valley Technology Center 4 and 5........ 16,408 8 1998 1998
Valley Technology Center 1, 2, 3(7)..... 26,533 -- N/A 1998
Valley Technology Center II(7).......... 10,267 -- N/A 1998
Fremont Technology Park(7).............. 25,745 -- N/A 1998
SACRAMENTO:
1860 Howe Avenue........................ 12,620 419 1983 1997
University Park......................... 13,841 516 1981 1997
Capital Corporate Center................ 9,316 336 1985 1997
DENVER:
Quebec Center........................... 7,695 769 1985 1996
Greenwood Center........................ 7,413 663 1982 1996
Quebec Court I and II................... 31,330 2,557 1979/1980 1996
Harlequin Plaza......................... 30,654 2,649 1981 1996
Panorama Corporate Center III(7)........ 15,646 -- 1996 1996
Panorama Phase V........................ 2,953 4 1998 1996
Panorama Phase V(7)..................... 10,810 -- N/A 1996
Panorama Phase IV....................... 2,880 -- N/A 1996
Panorama Phase VI....................... 2,711 -- N/A 1996
Panorama Phase VII...................... 2,492 -- N/A 1996
Panorama Corporate Center I............. 11,305 1,182 N/A 1996
Panorama Corporate Center II(7)......... 10,887 837 N/A 1996
Panorama Corporate Center VIII.......... 4,501 -- N/A 1997
Dry Creek Corporate Center.............. 11,216 -- N/A 1998
Panorama Phase IX....................... 2,127 -- N/A 1998
Panorama Phase X........................ 565 -- N/A 1998
SEATTLE:
Redmond East............................ 40,517 4,241 1988-1992 1996
Redmond Hilltop B and C................. 10,273 472 1998 1996
Canyon Park Business Center............. 29,600 1,315 1989 1997
Canyon Park 4 -- Land(7)................ 5,663 -- N/A 1997
Canyon Park 1 and 2..................... 13,989 12 N/A
Canyon Park Commons 1 and 2............. 12,362 561 1988 1997
Willow Creek Corporate Center........... 8,760 382 1981 1997
Willow Creek Corporate Center 1, 2, 3,
4, 5.................................. 37,750 1,161 1998 1997
Willow Creek Corporate Center 6(7)...... 4,727 -- N/A 1997
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
INITIAL COSTS PERIOD
---------------------- ----------------------
BUILDINGS COST CAPITALIZED BUILDINGS
(in thousands) AND SUBSEQUENT TO AND
PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION (4) LAND IMPROVEMENTS
- ------------------------------------------ ------------ ------- ------------ ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
SALT LAKE CITY, UTAH:
Sorenson Research Park XI............... -- $ 1,490 -- 481 1,971 --
Sorenson Research Park.................. 4,263 4,389 25,304 407 4,423 25,677
Sorenson Research Park X(7)............. -- 772 -- 2,439 -- 3,211
Wasatch Corporate Center................ 12,654 3,318 15,495 320 3,578 15,555
Wasatch Corporate Center 17 and 18(7)... -- 2,378 -- 6,072 -- 8,450
Wasatch Corporate Center 18............. -- 258 -- 813 236 835
CHICAGO:
Parkway North I......................... 29,250 3,727 29,146 1,135 3,733 30,275
Parkway North III and IV................ -- 4,304 34,390 1,491 4,310 35,875
Unisys.................................. -- 6,387 45,111 3,483 6,346 48,635
Parkway North 6 -- Land................. -- 759 -- 9,526 789 9,496
Parkway North 7, 8, 9 -- Land........... -- 4,472 -- 707 5,179 --
Parkway North 4, 6, 10 -- Land(7)....... -- 3,579 -- 11,258 -- 14,837
The Crossings........................... -- 5,268 34,215 1,983 5,289 36,177
Bannockburn IV.......................... -- 1,914 12,729 325 1,924 13,044
Summit Oaks............................. -- 949 7,285 478 952 7,760
Bannockburn I and II.................... 19,553 3,448 22,928 1,082 3,472 23,986
AUSTIN, TEXAS:
Balcones Center......................... -- 949 7,649 438 949 8,087
Great Hills Plaza....................... -- 1,680 13,545 207 1,680 13,752
Park North.............................. -- 1,671 13,471 706 1,671 14,177
City View Centre........................ -- 1,718 13,854 1,060 1,720 14,912
Tower of the Hills...................... -- 1,633 13,625 273 1,634 13,897
Riata Buildings 4, 5, 8, 9.............. -- 4,490 -- 31,348 4,856 30,982
Riata Buildings 2, 3, 9(7).............. -- 2,245 -- 11,146 -- 13,391
Riata Buildings 1, 6, 7................. -- 3,386 -- 1,703 5,089 --
City View Centre........................ -- 1,890 -- 13,693 2,107 13,476
Braker Pointe........................... -- 6,602 -- 2,436 9,038 --
Riata Crossing 4-6...................... -- 1,940 -- 83 2,023 --
Riata Crossing 1-3(7)................... -- 2,993 -- 7,356 -- 10,349
DALLAS, TEXAS:
Quorum North............................ 6,566 1,357 9,078 780 1,365 9,850
Quorum Place............................ 7,578 1,941 14,234 1,082 1,954 15,303
Tollhill East and West.................. -- 2,603 19,086 1,604 2,612 20,681
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) ACCUMULATED DATE OF YEAR OF
PROPERTIES TOTAL DEPRECIATION CONSTRUCTION ACQUISITION
- ------------------------------------------ --------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
SALT LAKE CITY, UTAH:
Sorenson Research Park XI............... 1,971 -- N/A 1997
Sorenson Research Park.................. 30,100 1,470 1988,1989,1993,
1995,1997 1997
Sorenson Research Park X(7)............. 3,211 -- N/A 1997
Wasatch Corporate Center................ 19,133 800 1996 1997
Wasatch Corporate Center 17 and 18(7)... 8,450 -- N/A 1997
Wasatch Corporate Center 18............. 1,071 22 1998 1997
CHICAGO:
Parkway North I......................... 34,008 2,730 1986-1989 1996
Parkway North III and IV................ 40,185 4,587 1986-1989 1996
Unisys.................................. 54,981 3,626 1984-1985 1996
Parkway North 6 -- Land................. 10,285 158 1998 1996
Parkway North 7, 8, 9 -- Land........... 5,179 -- N/A 1996
Parkway North 4, 6, 10 -- Land(7)....... 14,837 -- N/A 1996
The Crossings........................... 41,466 2,784 1985 1997
Bannockburn IV.......................... 14,968 685 1988 1997
Summit Oaks............................. 8,712 448 1982 1997
Bannockburn I and II.................... 27,458 1,628 1980 1997
AUSTIN, TEXAS:
Balcones Center......................... 9,036 793 1985 1996
Great Hills Plaza....................... 15,432 1,110 1985 1996
Park North.............................. 15,848 1,318 1981 1996
City View Centre........................ 16,632 1,552 1985 1996
Tower of the Hills...................... 15,531 499 1986 1997
Riata Buildings 4, 5, 8, 9.............. 35,838 986 1998 1996
Riata Buildings 2, 3, 9(7).............. 13,391 -- N/A 1996
Riata Buildings 1, 6, 7................. 5,089 -- N/A 1996
City View Centre........................ 15,583 702 1998 1996
Braker Pointe........................... 9,038 -- N/A 1997
Riata Crossing 4-6...................... 2,023 -- N/A 1998
Riata Crossing 1-3(7)................... 10,349 -- N/A 1998
DALLAS, TEXAS:
Quorum North............................ 11,215 657 1983 1997
Quorum Place............................ 17,257 1,021 1981 1997
Tollhill East and West.................. 23,293 1,315 1974 1997
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
INITIAL COSTS PERIOD
---------------------- ----------------------
BUILDINGS COST CAPITALIZED BUILDINGS
(in thousands) AND SUBSEQUENT TO AND
PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION (4) LAND IMPROVEMENTS
- ------------------------------------------ ------------ ------- ------------ ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Two Mission Park........................ -- $ 823 4,320 652 831 4,964
Cedar Maple Plaza....................... -- 1,220 10,982 411 1,225 11,388
Cedar Maple Plaza -- Land............... -- 520 -- 93 613 --
Tollway I and II(7)..................... -- 1,707 -- 17,615 -- 19,322
Tollway I and II........................ -- 1,253 -- 15,771 1,675 15,349
Tollway III............................. -- 2,522 -- 808 3,330 --
Royal Ridge A and B..................... -- 2,601 -- 15,747 2,718 15,630
Royal Ridge B(7)........................ -- 558 -- 2,024 -- 2,582
Citymark................................ (6) 2,904 19,427 302 2,911 19,722
5000 Quorum............................. -- 1,774 15,616 484 1,782 16,092
The Commons at Las Colinas 2............ -- 3,189 -- 377 3,566 --
The Commons at Las Colinas 1 and 3(7)... -- 6,801 -- 26,154 -- 32,955
Royal Ridge Phase II.................... -- 5,221 -- 561 5,782 --
PHOENIX, ARIZONA:
Camelback Lakes......................... -- 5,476 21,365 (5,091) 4,275 17,475
Highland Park........................... -- 1,956 5,544 969 1,974 6,495
The Grove @ Black Canyon................ -- 1,748 9,658 625 1,755 10,276
U.S. West............................... 53,263 18,517 74,069 786 18,642 74,730
Pointe Corridor IV...................... -- 2,396 12,580 1,443 2,401 14,018
Four Gateway Plaza...................... -- 393 -- 1,380 424 1,349
Four Gateway Plaza(7)................... -- 3,027 -- 8,860 -- 11,887
Concord Place........................... 7,646 3,337 16,675 156 3,337 16,831
East Gateway............................ -- 6,002 -- 1,180 7,182 --
PORTLAND, OREGON:
Radisys Corporate Headquarters.......... -- 1,448 7,518 49 1,456 7,559
Radisys II.............................. -- 926 -- 4,738 798 4,866
Sunset Corporate Park A-C............... -- 1,460 -- 2,314 3,774 --
Sunset Corporate Park D-H(7)............ -- 3,472 -- 6,647 -- 10,119
Rock Creek Corporate Park 1-3(7)........ -- 2,614 -- 2,774 -- 5,388
ATLANTA:
Veridian................................ -- 2,730 13,308 (4,768) 1,766 9,504
Century Springs West.................... 20,812(5) 1,642 7,646 (1,534) 1,280 6,474
Glenridge............................... (5) 1,423 4,870 (196) 1,292 4,805
Midori.................................. (5) 1,802 6,715 2,804 2,320 9,001
Triangle Parkway........................ -- 1,365 5,449 (591) 1,187 5,036
Summit.................................. -- 2,237 15,027 906 2,241 15,929
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) ACCUMULATED DATE OF YEAR OF
PROPERTIES TOTAL DEPRECIATION CONSTRUCTION ACQUISITION
- ------------------------------------------ --------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Two Mission Park........................ 5,795 253 1983 1997
Cedar Maple Plaza....................... 12,613 782 1985 1997
Cedar Maple Plaza -- Land............... 613 -- N/A 1997
Tollway I and II(7)..................... 19,322 -- N/A 1997
Tollway I and II........................ 17,024 152 1998 1997
Tollway III............................. 3,330 -- N/A 1997
Royal Ridge A and B..................... 18,348 179 1998 1997
Royal Ridge B(7)........................ 2,582 -- N/A 1997
Citymark................................ 22,633 827 1986 1998
5000 Quorum............................. 17,874 441 1984 1998
The Commons at Las Colinas 2............ 3,566 -- N/A 1998
The Commons at Las Colinas 1 and 3(7)... 32,955 -- N/A 1998
Royal Ridge Phase II.................... 5,782 -- N/A 1998
PHOENIX, ARIZONA:
Camelback Lakes......................... 21,750 1,667 1982 1996
Highland Park........................... 8,469 402 1986 1997
The Grove @ Black Canyon................ 12,031 483 1986 1997
U.S. West............................... 93,372 2,595 1988 1997
Pointe Corridor IV...................... 16,419 1,246 1990 1996
Four Gateway Plaza...................... 1,773 40 1998 1997
Four Gateway Plaza(7)................... 11,887 -- N/A 1997
Concord Place........................... 20,168 130 1989 1998
East Gateway............................ 7,182 -- N/A 1998
PORTLAND, OREGON:
Radisys Corporate Headquarters.......... 9,015 451 1996 1997
Radisys II.............................. 5,664 259 1997 1997
Sunset Corporate Park A-C............... 3,774 -- N/A 1998
Sunset Corporate Park D-H(7)............ 10,119 -- N/A 1998
Rock Creek Corporate Park 1-3(7)........ 5,388 -- N/A 1998
ATLANTA:
Veridian................................ 11,270 735 1976 1996
Century Springs West.................... 7,754 485 1982 1996
Glenridge............................... 6,097 368 1986 1996
Midori.................................. 11,321 642 1989 1996
Triangle Parkway........................ 6,223 352 1988 1996
Summit.................................. 18,170 1,183 1986 1996
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
INITIAL COSTS PERIOD
---------------------- ----------------------
BUILDINGS COST CAPITALIZED BUILDINGS
(in thousands) AND SUBSEQUENT TO AND
PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION (4) LAND IMPROVEMENTS
- ------------------------------------------ ------------ ------- ------------ ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Holcomb Place........................... -- $ 1,419 4,574 113 1,421 4,685
Parkwood................................ (5) 2,080 12,678 3,286 2,362 15,682
Lakewood................................ (5) 1,040 6,789 541 1,055 7,315
Spalding Ridge.......................... -- 1,550 4,950 7,866 1,678 12,688
2400 Lake Park Drive.................... -- 805 6,539 551 812 7,083
680 Engineering Drive................... -- 559 3,420 295 563 3,711
Embassy Row............................. -- 7,916 36,907 2,339 7,959 39,203
Embassy Row -- Land..................... -- 1,248 -- 8,055 1,244 8,059
Embassy Row -- Land 100 and 500(7)...... -- 3,080 -- 10,275 -- 13,355
Preston Ridge........................... -- 1,993 -- 350 2,343 --
Waterford Centre........................ -- 1,110 7,737 193 1,115 7,925
BOCA RATON, FLORIDA:
Peninsula Plaza......................... -- 3,003 10,475 4,569 3,745 14,302
Presidential Circle..................... 22,982 7,074 35,370 463 7,082 35,825
Peninsula Executive Center.............. -- 5,962 -- 22,451 -- 28,413
Peninsula Corporate Center.............. -- 12,020 -- 4,040 16,060 --
------------ ------- ------------ ------- ------- ------------
Subtotal.................................. 596,859 886,333 1,893,267 622,044 811,667 2,589,977
------------ ------- ------------ ------- ------- ------------
OmniOffices, Inc.......................... -- -- 10,198 37,812 -- 48,010
Omni UK................................... -- -- 10,906 -- -- 10,906
Intercompany Elimination.................. -- -- -- (556) (42) (514)
------------ ------- ------------ ------- ------- ------------
Total..................................... $596,859 886,333 1,914,371 659,300 811,625 2,648,379
------------ ------- ------------ ------- ------- ------------
------------ ------- ------------ ------- ------- ------------
<CAPTION>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands) ACCUMULATED DATE OF YEAR OF
PROPERTIES TOTAL DEPRECIATION CONSTRUCTION ACQUISITION
- ------------------------------------------ --------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Holcomb Place........................... 6,106 337 1982 1996
Parkwood................................ 18,044 1,168 1985 1996
Lakewood................................ 8,370 526 1985 1996
Spalding Ridge.......................... 14,366 960 1998 1996
2400 Lake Park Drive.................... 7,895 424 1982 1997
680 Engineering Drive................... 4,274 331 1985 1997
Embassy Row............................. 47,162 2,805 1983 1997
Embassy Row -- Land..................... 9,303 172 1998 1997
Embassy Row -- Land 100 and 500(7)...... 13,355 -- N/A 1997
Preston Ridge........................... 2,343 -- N/A 1997
Waterford Centre........................ 9,040 210 1985 1998
BOCA RATON, FLORIDA: 1997
Peninsula Plaza......................... 18,047 1,180 1988 1996
Presidential Circle..................... 42,907 1,498 1989 1997
Peninsula Executive Center.............. 28,413 -- N/A 1997
Peninsula Corporate Center.............. 16,060 -- N/A 1997
--------- -------------
Subtotal.................................. 3,401,644 257,215
--------- -------------
OmniOffices, Inc.......................... 48,010 5,243 N/A 1997
Omni UK................................... 10,906 -- N/A 1998
Intercompany Elimination.................. (556) --
--------- -------------
Total..................................... 3,460,004 262,458
--------- -------------
--------- -------------
</TABLE>
Depreciation and amortization of the investment in building and
improvements reflected in the statements of operations are calculated over the
estimated lives of the assets as follows:
<TABLE>
<S> <C>
Base Building 30 to 50 years
Building components 7 to 20 years
Tenant improvements Terms of leases or useful lives, whichever is shorter
Furniture, fixtures and equipment 5 to 15 years
</TABLE>
The aggregate cost for federal income tax purposes was approximately
$3,016,524 at December 31, 1998.
S-6
<PAGE>
The changes in total real estate assets and accumulated depreciation and
amortization for the three years ended December 31, 1998, 1997, and 1996 are as
follows:
<TABLE>
<CAPTION>
ACCUMULATED
TOTAL REAL ESTATE ASSETS DEPRECIATION
------------------------------- --------------------
1998 1997 1996 1998 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period..... $2,689,499 1,539,998 480,589 Balance, beginning of period..... $ 184,266 119,657
Acquisitions................... 492,498 1,023,070 1,050,227
Improvements................... 442,288 186,541 20,536 Depreciation for the period...... 94,708 67,353
Sales, retirements and Sales, retirements and
write-offs................... (164,281) (60,110) (11,354) write-offs....................... (16,516) (2,744)
--------- --------- --------- --------- ---------
$3,460,004 2,689,499 1,539,998 $ 262,458 184,266
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
1996
---------
<S> <C>
Balance, beginning of period..... 98,873
Acquisitions...................
Improvements................... 32,078
Sales, retirements and
write-offs................... (11,294)
---------
119,657
---------
---------
</TABLE>
- ------------------
Notes:
(1) Represents 3 properties: 1850 K Street, N.W., 1875 Eye Street, N.W., and
1825 Eye Street, N.W., where the Company leases approximately 63,000 square
feet of office space for its corporate headquarters as of December 31, 1998.
(2) Consists of four loans secured by International Square, 1730 Pennsylvania
Avenue & 1255 23rd Street.
(3) Secured by Valley Business Park I (formerly San Jose Orchard Business
Park-A), Valley Office Centre (formerly Orchard Office Center), Valley
Centre II (formerly Orchard Center II), Rincon Centre (formerly Orchard
Rincon Center) and Bayshore Centre (formerly Orchard Bayshore Center).
(4) Costs capitalized are offset by retirements and write-offs.
(5) Secured by Century Springs West, Glenridge, Midori, Lakewood and Parkwood.
(6) Secured by Sunnyvale Technology Centre, Hacienda West and Citymark.
(7) Under construction as of December 31, 1998. Construction costs are shown
under buildings and improvements until completion. At that time, costs will
be allocated between land and buildings and improvements.
S-7
Exhibit 10.5
FOURTH AMENDMENT TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CARRAMERICA REALTY, L.P.
THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CARRAMERICA REALTY, L.P. (this "Fourth Amendment"),
dated as of December 31, 1998, is entered into by CarrAmerica Realty GP
Holdings, Inc., a Delaware corporation, as general partner (the "General
Partner") of CarrAmerica Realty, L.P. (the "Partnership"), for itself and on
behalf of the limited partners of the Partnership.
WHEREAS, pursuant to the authority granted to the General
Partner pursuant to the Second Amended and Restated Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement"), the General
Partner desires to amend the Partnership Agreement to amend and restate Exhibit
A thereto to reflect various issuances of Class B Units to the General Partner
and CarrAmerica Realty LP Holdings, Inc.
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 Exhibit A to the Partnership
Agreement by replacing such Exhibit A with the Exhibit A attached to this Fourth
Amendment.
All capitalized terms used in this Fourth 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 Fourth
Amendment as of the date first set forth above.
CARRAMERICA REALTY GP HOLDINGS, INC.,
as General Partner of CarrAmerica Realty, L.P.
and on behalf of the Limited Partners of
CarrAmerica Realty, L.P.
By: /s/ Linda A. Madrid
-----------------------------------
Name: Linda A. Madrid
-----------------------------------
Title: Secretary
-----------------------------------
- 2 -
<PAGE>
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
PARTNERSHIP PARTNERSHIP PARTNERSHIP
NAME AND ADDRESS OF PARTNER UNITS UNITS UNITS
--------------------------- ----- ----- -----
<S> <C> <C> <C>
GENERAL PARTNER:
CarrAmerica Realty GP 143,622
Holdings, Inc. Class B Units
1700 Pennsylvania Avenue, N.W.
Washington D.C. 20006
LIMITED PARTNERS:
CarrAmerica Realty LP 12,441,008
Holdings, Inc. Class B Units
1700 Pennsylvania Avenue, N.W.
Washington D.C. 20006
Jeffrey L. Minch 190,796 243,795
1402 Etheredge Class A Units Class C Units
Austin, Texas 78703
Frank P. Krasovec 164,588 243,795
c/o Littlefield Real Estate Company Class A Units Class C Units
Congress at 6th Street
Austin, Texas 78701
Carlton R. Williams, Jr. 52,003
c/o Littlefield Real Estate Company Class C Units
Congress at 6th Street
Austin, Texas 78701
</TABLE>
<TABLE>
<CAPTION>
CLASS D CLASS E AGREED INITIAL
PARTNERSHIP PARTNERSHIP CAPITAL PERCENTAGE
NAME AND ADDRESS OF PARTNER UNITS UNITS ACCOUNT INTEREST
--------------------------- ----- ----- ------- --------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
CarrAmerica Realty GP $ 4,129,273 1.00%
Holdings, Inc. (1.14% of
1700 Pennsylvania Avenue, N.W. Class B Units)
Washington D.C. 20006
LIMITED PARTNERS:
CarrAmerica Realty LP $349,060,750 86.62%
Holdings, Inc. (98.86% of
1700 Pennsylvania Avenue, N.W. Class B Units)
Washington D.C. 20006
Jeffrey L. Minch $10,484,508 3.03%
1402 Etheredge (20.08% of
Austin, Texas 78703 Class A Units,
45.18% of
Class C Units)
Frank P. Krasovec $9,852,240 2.85% (17.32% of
c/o Littlefield Real Estate Company Class A Units,
Congress at 6th Street 45.18% of
Austin, Texas 78701 Class C Units)
Carlton R. Williams, Jr. $1,254,572 0.36%
c/o Littlefield Real Estate Company (9.64% of
Congress at 6th Street Class C Units)
Austin, Texas 78701
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
PARTNERSHIP PARTNERSHIP PARTNERSHIP
NAME AND ADDRESS OF PARTNER UNITS UNITS UNITS
--------------------------- ----- ----- -----
<S> <C> <C> <C>
Plaza Developers Holdings LLC 11,452
7600 East Orchard Road Class A Units
Suite 430N
Englewood, Colorado 80111
Bristol Plaza 3,781
3100 Bristol Street Class A Units
Suite 260
Costa Mesa, California 92626
Bannockburn General Partnership 144,094
1401 Oak Knoll Avenue Class A Units
Pasadena, California 91106
James Lee Sorenson 100,016
1405 East Siesta Drive Class A Units
Sandy, Utah 84093
Ralph B. Johnson 100,016
433 East Holstein Way Class A Units
Murray, Utah 84107
Joseph T. Sorenson 9,162
437 Evesham Drive Class A Units
Murray, Utah 84107
F. Tim Fenton 9,162
6290 Shenandoah Park Avenue Class A Units
Salt Lake City, Utah 84107
James LeVoy Sorenson 84,789
2511 South West Temple Class A Units
Salt Lake City, Utah 84115
</TABLE>
<TABLE>
<CAPTION>
CLASS D CLASS E AGREED INITIAL
PARTNERSHIP PARTNERSHIP CAPITAL PERCENTAGE
NAME AND ADDRESS OF PARTNER UNITS UNITS ACCOUNT INTEREST
--------------------------- ----- ----- ------- --------
<S> <C> <C> <C> <C>
Plaza Developers Holdings LLC $280,000 0.08%
7600 East Orchard Road (1.21% of
Suite 430N Class A Units)
Englewood, Colorado 80111
Bristol Plaza $100,000 0.03%
3100 Bristol Street (0.40% of
Suite 260 Class A Units)
Costa Mesa, California 92626
Bannockburn General Partnership $4,553,364 1.00%
1401 Oak Knoll Avenue (15.17% of
Pasadena, California 91106 Class A Units)
James Lee Sorenson $2,945,465 0.70%
1405 East Siesta Drive (10.53% of
Sandy, Utah 84093 Class A Units)
Ralph B. Johnson $2,945,465 0.70%
433 East Holstein Way (10.53% of
Murray, Utah 84107 Class A Units)
Joseph T. Sorenson $269,838 0.06%
437 Evesham Drive (0.96% of
Murray, Utah 84107 Class A Units)
F. Tim Fenton $269,838 0.06%
6290 Shenandoah Park Avenue (0.96% of
Salt Lake City, Utah 84107 Class A Units)
James LeVoy Sorenson $2,497,036 0.59%
2511 South West Temple (8.93% of
Salt Lake City, Utah 84115 Class A Units)
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
PARTNERSHIP PARTNERSHIP PARTNERSHIP
NAME AND ADDRESS OF PARTNER UNITS UNITS UNITS
--------------------------- ----- ----- -----
<S> <C> <C> <C>
MSI, Inc. 132,255
Arrow Press Square Class A Units
165 South West Temple
Suite 300
Salt Lake City, Utah 84101
Gary S. Carr, Trustee of the Carr Family
Trust u/d/t/ dated June 20, 1985
2560 Peninsula Road
Oxnard, California 93035
Jack D. McCormick, Trustee of the
McCormick Family Trust
u/d/t dated January 20, 1982
5243 East Desert Park Lane
Paradise Valley, Arizona 85253
Robert D. Lambert and Patricia M.
Lambert, Co-Trustees of the Lambert
Family Trust u/d/t/ dated
September 3, 1980
7241 Whitehall Lane
West Hills, California 91307
Raymond S. Lambert and Rose M.
Lambert, Co-Trustees of the Lambert
Family Trust u/d/t/ dated
November 14, 1980
17447 Parthenia Street
Northridge, California 91352
Patricia S. Carr, Trustee of the
Patricia S.
Carr Living Trust u/d/t/ dated
May 19, 1993
1560 Grandview
Glendale, California
</TABLE>
<TABLE>
<CAPTION>
CLASS D CLASS E AGREED INITIAL
PARTNERSHIP PARTNERSHIP CAPITAL PERCENTAGE
NAME AND ADDRESS OF PARTNER UNITS UNITS ACCOUNT INTEREST
--------------------------- ----- ----- ------- --------
<S> <C> <C> <C> <C>
MSI, Inc. $3,894,898 0.92%
Arrow Press Square (13.92% of
165 South West Temple Class A Units)
Suite 300
Salt Lake City, Utah 84101
Gary S. Carr, Trustee of the Carr Family 24,408 $712,409 0.17%
Trust u/d/t/ dated June 20, 1985 Class D Units (8.99% of
2560 Peninsula Road Class D Units)
Oxnard, California 93035
Jack D. McCormick, Trustee of the 48,816 $1,424,817 0.34%
McCormick Family Trust Class D Units (17.99% of
u/d/t dated January 20, 1982 Class D Units)
5243 East Desert Park Lane
Paradise Valley, Arizona 85253
Robert D. Lambert and Patricia M.
Lambert, Co-Trustees of the Lambert 86,865 $2,535,372 0.61%
Family Trust u/d/t/ dated Class D Units (32.01% of
September 3, 1980 Class D Units)
7241 Whitehall Lane
West Hills, California 91307
Raymond S. Lambert and Rose M. 86,865 $2,535,372 0.61%
Lambert, Co-Trustees of the Lambert Class D Units (32.01% of
Family Trust u/d/t/ dated Class D Units)
November 14, 1980
17447 Parthenia Street
Northridge, California 91352
Patricia S. Carr, Trustee of the 24,409 $712,438 0.17%
Patricia S. Class D Units (8.99% of
Carr Living Trust u/d/t/ dated Class D Units)
May 19, 1993
1560 Grandview
Glendale, California
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
PARTNERSHIP PARTNERSHIP PARTNERSHIP
NAME AND ADDRESS OF PARTNER UNITS UNITS UNITS
--------------------------- ----- ----- -----
<S> <C> <C> <C>
Phoenix West Associates, Ltd.
2295 Corporate Boulevard, NW
Suite 222
Boca Raton, Florida 33431
Versailles Associates Limited
Partnership
2295 Corporate Boulevard, NW
Suite 222
Boca Raton, Florida 33431
Lakeview 436 Associates, Ltd.
2295 Corporate Boulevard, NW
Suite 222
Boca Raton, Florida 33431
Pines Realty Associates, Ltd.
2295 Corporate Boulevard, NW
Suite 222
Boca Raton, Florida 33431 ____________ __________ __________
TOTAL: 950,111 12,584,630 539,593
============ =========== ==========
</TABLE>
<TABLE>
<CAPTION>
CLASS D CLASS E AGREED INITIAL
PARTNERSHIP PARTNERSHIP CAPITAL PERCENTAGE
NAME AND ADDRESS OF PARTNER UNITS UNITS ACCOUNT INTEREST
--------------------------- ----- ----- ------- --------
<C> <C> <C> <C>
<S>
Phoenix West Associates, Ltd. 5,884 $176,157 .04%
2295 Corporate Boulevard, NW Class E Units (35.62% of
Suite 222 Class E Units)
Boca Raton, Florida 33431
Versailles Associates Limited 5,039 $150,864 .04%
Partnership Class E Units (30.50% of
2295 Corporate Boulevard, NW Class E Units)
Suite 222
Boca Raton, Florida 33431
Lakeview 436 Associates, Ltd. 2,748 $82,275 .02%
2295 Corporate Boulevard, NW Class E Units (16.63% of
Suite 222 Class E Units)
Boca Raton, Florida 33431
Pines Realty Associates, Ltd. 2,849 $85,299 .02%
2295 Corporate Boulevard, NW Class E Units (17.25% of
Suite 222 Class E Units)
Boca Raton, Florida 33431 __________ __________ _____________ ____________
TOTAL: 271,363 16,520 $400,952,250 100.00%
========== ========== ============= ===========
</TABLE>
- 4 -
Exhibit 10.12
FIRST AMENDMENT TO
CARRAMERICA REALTY CORPORATION
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
CarrAmerica Realty Corporation, a Maryland corporation (the
"Company"), hereby certifies as follows:
1. The Company deems it appropriate to execute this
certificate to evidence adoption of an amendment of its 1995 Non-Employee
Director Stock Option Plan (the "Plan") that increased the number of shares of
common stock available for issuance pursuant to grants under the Plan from
150,000 to 270,000 (the "Amendment").
2. On February 5, 1998, the Board of Directors of the Company
authorized and approved the Amendment, subject to approval of the Company's
stockholders, and directed that the Amendment be submitted to the stockholders
for approval.
3. The Amendment was submitted to the stockholders for
approval at the annual meeting of stockholders of the Company held on May 7,
1998, and was approved by the stockholders.
4. Section 4.1 of the Plan therefore has been amended,
effective as of May 7, 1998, and now reads as follows:
"4.1 Subject to adjustments made pursuant to Section 4.2, the
maximum number of shares of Stock which may be issued pursuant to the Plan shall
not exceed 270,000. If any Option expires, terminates or is canceled for any
reason before it is exercised in full, the shares of Stock that were subject to
the unexercised portion of the Option shall be available for future Options
granted under the Plan."
IN WITNESS WHEREOF, the Company has caused this certificate to
be signed by the undersigned, a duly authorized officer of the Company, as of
December 31, 1998.
CarrAmerica Realty Corporation
By: /s/ Linda A. Madrid
------------------------
Linda A. Madrid
Managing Director
Attest: /s/ Kelly N. Holdcraft
-----------------------------
Kelly N. Holdcraft
Assistant Secretary
Exhibit 10.14
FIRST AMENDMENT TO
CARRAMERICA REALTY CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
CarrAmerica Realty Corporation, a Maryland corporation (the
"Company"), hereby certifies as follows:
1. The Company deems it appropriate to execute this
certificate to evidence adoption of an amendment to its 1997 Stock Option and
Incentive Plan (the "Plan") that reserved shares of stock available to be issued
under the Plan for issuance by certain companies that are affiliated with the
Company to their employees (the "Amendment").
2. Effective August 4, 1997, the Board of Directors of the
Company adopted the Amendment.
3. A new Section 25 therefore has been added to the Plan,
effective as of August 4, 1997, which reads as follows:
"25. GRANTS TO OFFICERS AND EMPLOYEES OF AFFILIATED COMPANIES
Subject to adjustment as provided in SECTION 16 hereof, the
Company hereby reserves 500,000 of shares of Stock available for issuance under
the Plan to be issued to Carr Real Estate Services, Inc., Carr Development &
Construction, Inc., CarrAmerica Acquisition Sub, Inc. and such other companies
that may be created in the future in which the Company owns at least a 90%
economic interest (such companies being referred to herein as "Affiliated
Companies") in connection with grants by such Affiliated Companies of options to
purchase Stock of the Company, restricted Stock, or restricted Stock units to
their officers and employees. Any such grants shall be considered to be grants
of Options, Restricted Stock or Restricted Stock Units, as applicable, made
under the Plan, except that decisions with respect to the making of individual
grants, and the terms thereof, shall be made by the boards of directors (or
committees thereof) of such Affiliated Companies."
IN WITNESS WHEREOF, the Company has caused this certificate to
be signed by the undersigned, a duly authorized officer of the Company, as of
December 31, 1998.
CarrAmerica Realty Corporation
By: /s/ Linda A. Madrid
-------------------------
Linda A. Madrid
Managing Director
Attest: /s/ Kelly N. Holdcraft
---------------------------
Kelly N. Holdcraft
Assistant Secretary
Exhibit 10.15
SECOND AMENDMENT TO
CARRAMERICA REALTY CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
CarrAmerica Realty Corporation, a Maryland corporation (the
"Company"), hereby certifies as follows:
1. The Company deems it appropriate to execute this
certificate to evidence adoption of an amendment to its 1997 Stock Option and
Incentive Plan (the "Plan") that increased the number of shares of common stock
available for issuance pursuant to grants under the Plan from 3,000,000 to
7,200,000 (the "Amendment").
2. On February 5, 1998, the Board of Directors of the Company
adopted the Amendment, determined that the Amendment should be submitted to the
Company's stockholders for approval, and directed that the Amendment be
submitted to the stockholders for approval at the next annual meeting of
stockholders.
3. The Amendment was submitted to the stockholders for
approval at the annual meeting of stockholders of the Company held on May 7,
1998, and was approved by the stockholders.
4. Section 4 of the Plan therefore has been amended, effective
as of May 7, 1998, and now reads as follows:
"4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in SECTION 16 hereof, the
number of shares of Stock available for issuance under the Plan shall be
7,200,000. Stock issued or to be issued under the Plan shall be authorized but
unissued shares. If any shares covered by a Grant are not purchased or are
forfeited, or if a Grant otherwise terminates without delivery of any Stock
subject thereto, then the number of shares of Stock counted against the
aggregate number of shares available under the Plan with respect to such Grant
shall, to the extent of any such forfeiture or termination, again be available
for making Grants under the Plan."
IN WITNESS WHEREOF, the Company has caused this certificate to
be signed by the undersigned, a duly authorized officer of the Company, as of
December 31, 1998.
CarrAmerica Realty Corporation
By: /s/ Linda A. Madrid
---------------------------
Linda A. Madrid
Managing Director
Attest: /s/ Kelly N. Holdcraft
-----------------------------
Kelly N. Holdcraft
Assistant Secretary
Exhibit 10.16
THIRD AMENDMENT TO
CARRAMERICA REALTY CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
CarrAmerica Realty Corporation, a Maryland corporation (the
"Company"), hereby certifies as follows:
1. The Company deems it appropriate to execute this
certificate to evidence adoption of an amendment to its 1997 Stock Option and
Incentive Plan (the "Plan") that permitted non-employee directors to receive
grants under the Plan (the "Amendment").
2. On September 21, 1998, the Board of Directors of the
Company adopted the Amendment.
3. Section 6.1 of the Plan therefore has been amended,
effective as of September 21, 1998, and now reads as follows:
"6.1 Company or Subsidiary Employees or Non-Employee
Directors. Grants (including Grants of Incentive Stock Options) may be made
under the Plan to (i) any employee of the Company or of any Subsidiary,
including any such employee who is an officer or director of the Company or of
any Subsidiary and (ii) any non-employee director of the Company, as the
Committee shall determine and designate from time to time."
IN WITNESS WHEREOF, the Company has caused this certificate to
be signed by the undersigned, a duly authorized officer of the Company, as of
December 31, 1998.
CarrAmerica Realty Corporation
By: /s/ Linda A. Madrid
--------------------------
Linda A. Madrid
Managing Director
Attest: /s/ Kelly N. Holdcraft
--------------------------
Kelly N. Holdcraft
Assistant Secretary
EXHIBIT 21.1
SUBSIDIARIES
Carr Real Estate Services, Inc.
CarrAmerica Development, Inc.
Carr Redmond Corporation
CarrAmerica Realty Services, Inc.
Carr Parkway North I Corporation
CarrAmerica Realty GP Holdings, Inc.
CarrAmerica Realty LP Holdings, Inc.
Carr Realty, L.P.
CarrAmerica Realty, L.P.
Carr Real Estate Services Partnership
Willard Associates
1747 Pennsylvania Avenue Associates, L.P.
Square 24 Associates
Phase I 7th & F Associates
Bond Texas Limited Partnership
Bond Building Limited Partnership
Carr Square 225 Associates
Phase I 456 Associates
Capital 50 Associates
Square 50 Associates
CC-JM II Associates
1717 Pennsylvania Avenue, L.L.C.
Palomar Oaks, L.L.C.
Techmart, L.L.C.
1201 F Street, L.L.C.
US West, L.L.C.
Exhibit 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
CarrAmerica Realty Corporation:
We consent to incorporation by reference in the registration statement (No.
333-22353, 333-53751, 333-50019, 333-18451, 333-04519, and 333-80164) on Form
S-3 and registration statements (No. 033-92136, and 333-33313) on Form S-8 of
CarrAmerica Realty Corporation of our reports dated February 6, 1999, relating
to the consolidated balance sheets of CarrAmerica Realty Corporation and
subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998 and the related schedule,
which reports appear in the December 31, 1998, annual report on Form 10-K of
CarrAmerica Realty Corporation.
KPMG LLP
Washington, D.C.
March 31, 1999
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution, to execute and deliver in the undersigned's name and on the
undersigned's behalf the Annual Report on Form 10-K for the year ended December
31, 1998 for CarrAmerica Realty Corporation, and any and all amendments thereto,
and to file the same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, and to execute, deliver
and file in connection therewith any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Securities Exchange Act of 1934, as amended, and any rules or
regulations promulgated thereunder, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person; and the undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue of the power of attorney granted
hereby.
Date: March ___, 1999
/s/ Oliver T. Carr, Jr.
-----------------------------------
Print Name: Oliver T. Carr, Jr.
-----------------------
Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution, to execute and deliver in the undersigned's name and on the
undersigned's behalf the Annual Report on Form 10-K for the year ended December
31, 1998 for CarrAmerica Realty Corporation, and any and all amendments thereto,
and to file the same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, and to execute, deliver
and file in connection therewith any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Securities Exchange Act of 1934, as amended, and any rules or
regulations promulgated thereunder, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person; and the undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue of the power of attorney granted
hereby.
Date: March ___, 1999
/s/ Ronald Blankenship
-----------------------------------
Print Name: Ronald Blankenship
-----------------------
Exhibit 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution, to execute and deliver in the undersigned's name and on the
undersigned's behalf the Annual Report on Form 10-K for the year ended December
31, 1998 for CarrAmerica Realty Corporation, and any and all amendments thereto,
and to file the same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, and to execute, deliver
and file in connection therewith any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Securities Exchange Act of 1934, as amended, and any rules or
regulations promulgated thereunder, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person; and the undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue of the power of attorney granted
hereby.
Date: March ___, 1999
/s/ Andrew F. Brimmer
-----------------------------------
Print Name: Andrew F. Brimmer
-----------------------
Exhibit 24.4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution, to execute and deliver in the undersigned's name and on the
undersigned's behalf the Annual Report on Form 10-K for the year ended December
31, 1998 for CarrAmerica Realty Corporation, and any and all amendments thereto,
and to file the same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, and to execute, deliver
and file in connection therewith any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Securities Exchange Act of 1934, as amended, and any rules or
regulations promulgated thereunder, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person; and the undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue of the power of attorney granted
hereby.
Date: March ___, 1999
/s/ A. James Clark
-----------------------------------
Print Name: A. James Clark
-----------------------
Exhibit 24.5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution, to execute and deliver in the undersigned's name and on the
undersigned's behalf the Annual Report on Form 10-K for the year ended December
31, 1998 for CarrAmerica Realty Corporation, and any and all amendments thereto,
and to file the same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, and to execute, deliver
and file in connection therewith any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Securities Exchange Act of 1934, as amended, and any rules or
regulations promulgated thereunder, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person; and the undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue of the power of attorney granted
hereby.
Date: March ___, 1999
/s/ Timothy Howard
-----------------------------------
Print Name: Timothy Howard
-----------------------
Exhibit 24.6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution, to execute and deliver in the undersigned's name and on the
undersigned's behalf the Annual Report on Form 10-K for the year ended December
31, 1998 for CarrAmerica Realty Corporation, and any and all amendments thereto,
and to file the same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, and to execute, deliver
and file in connection therewith any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Securities Exchange Act of 1934, as amended, and any rules or
regulations promulgated thereunder, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person; and the undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue of the power of attorney granted
hereby.
Date: March ___, 1999
/s/ Caroline S. McBride
-----------------------------------
Print Name: Caroline S. McBride
-----------------------
Exhibit 24.7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution, to execute and deliver in the undersigned's name and on the
undersigned's behalf the Annual Report on Form 10-K for the year ended December
31, 1998 for CarrAmerica Realty Corporation, and any and all amendments thereto,
and to file the same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, and to execute, deliver
and file in connection therewith any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Securities Exchange Act of 1934, as amended, and any rules or
regulations promulgated thereunder, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person; and the undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue of the power of attorney granted
hereby.
Date: March ___, 1999
/s/ William D. Sanders
-----------------------------------
Print Name: William D. Sanders
-----------------------
Exhibit 24.8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution, to execute and deliver in the undersigned's name and on the
undersigned's behalf the Annual Report on Form 10-K for the year ended December
31, 1998 for CarrAmerica Realty Corporation, and any and all amendments thereto,
and to file the same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, and to execute, deliver
and file in connection therewith any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Securities Exchange Act of 1934, as amended, and any rules or
regulations promulgated thereunder, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person; and the undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue of the power of attorney granted
hereby.
Date: March ___, 1999
/s/ Wesley S. Williams, Jr.
-----------------------------------
Print Name: Wesley S. Williams, Jr.
-----------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARRAMERICA
REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER
31, 1998 AND FROM CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
</LEGEND>
<CIK> 0000893577
<NAME> CarrAmerica Realty Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Dec-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 85,139
<SECURITIES> 0
<RECEIVABLES> 47,251
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,993,569
<DEPRECIATION> 262,458
<TOTAL-ASSETS> 3,793,484
<CURRENT-LIABILITIES> 0
<BONDS> 1,704,359
0
95
<COMMON> 718
<OTHER-SE> 1,813,589
<TOTAL-LIABILITY-AND-EQUITY> 3,793,484
<SALES> 0
<TOTAL-REVENUES> 602,554
<CGS> 0
<TOTAL-COSTS> 493,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 144,471
<INCOME-TAX> 1,898
<INCOME-CONTINUING> 142,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,497
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.32
<FN>
(1) 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 CONSOLIDATED BALANCE SHEET AS OF DECEMBER
31, 1997 AND FROM CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
</LEGEND>
<CIK> 0000893577
<NAME> CarrAmerica Realty Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Dec-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 41,894
<SECURITIES> 0
<RECEIVABLES> 38,321
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,397,023
<DEPRECIATION> 184,266
<TOTAL-ASSETS> 2,744,060
<CURRENT-LIABILITIES> 0
<BONDS> 1,025,145
0
96
<COMMON> 600
<OTHER-SE> 1,552,001
<TOTAL-LIABILITY-AND-EQUITY> 2,744,060
<SALES> 0
<TOTAL-REVENUES> 359,365
<CGS> 0
<TOTAL-COSTS> 280,879
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 87,013
<INCOME-TAX> 0
<INCOME-CONTINUING> 87,013
<DISCONTINUED> 0
<EXTRAORDINARY> 608
<CHANGES> 0
<NET-INCOME> 78,132
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
<FN>
(1) Notes & accounts receivable are presented net of allowance for doubtful
accounts as the allowance is immaterial.
</FN>
</TABLE>
