<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20543
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED March 31, 2000
--------------
COMMISSION FILE NO. 1-11706
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CARRAMERICA REALTY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1796339
- ------------------------------------ -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1850 K Street, N.W., Washington, D.C. 20006
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(Address or principal executive office) (Zip code)
Registrant's telephone number, including area code (202) 729-1000
--------------
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Number of shares outstanding of each of the registrant's
classes of common stock, as of May 10, 2000:
Common Stock, par value $.01 per share: 67,027,109 shares
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
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<PAGE>
Index
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I: Financial Information
- -----------------------------
Item 1. Financial Statements
Consolidated balance sheets of CarrAmerica Realty Corporation and subsidiaries as of March
31, 2000 (unaudited) and December 31, 1999................................................................ 4
Consolidated statements of operations of CarrAmerica Realty Corporation and subsidiaries
for the three months ended March 31, 2000 and 1999 (unaudited)........................................... 5
Consolidated statements of cash flows of CarrAmerica Realty Corporation and subsidiaries
for the three months ended March 31, 2000 and 1999 (unaudited)........................................... 6
Notes to consolidated financial statements (unaudited).................................................... 7 to 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 12 to 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................ 17
Part II: Other Information
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders..................................................... 18
Item 6. Exhibits and Reports on Form 8-K......................................................................... 18
</TABLE>
2
<PAGE>
Part I
Item 1. Financial Information
---------------------
The information furnished in the accompanying consolidated balance
sheets, consolidated statements of operations and consolidated statements of
cash flows of CarrAmerica Realty Corporation and subsidiaries (the Company)
reflect all adjustments which are, in the opinion of management, necessary for a
fair presentation of the aforementioned financial statements for the interim
periods.
The aforementioned financial statements should be read in conjunction
with the notes to the financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
3
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets As Of March 31, 2000 and
December 31, 1999
- --------------------------------------------------------------------------------
(In thousands, except per share and share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Assets
- ------
Rental property:
Land $ 680,882 $ 674,390
Buildings 2,120,928 2,082,533
Tenant improvements 325,324 304,983
Furniture, fixtures and equipment 5,997 5,916
------------ ------------
3,133,131 3,067,822
Less - accumulated depreciation (348,860) (323,455)
------------ ------------
Total rental property 2,784,271 2,744,367
Land held for development 103,859 104,050
Construction in progress 75,315 116,013
Cash and cash equivalents 44,344 51,886
Restricted cash and cash equivalents 13,054 12,475
Accounts and notes receivable 29,113 34,734
Investments 68,579 67,143
Accrued straight-line rents 50,438 47,764
Tenant leasing costs, net 60,205 58,848
Deferred financing costs, net 14,419 15,621
Prepaid expenses and other assets, net 22,792 18,503
Net assets of discontinued operations 210,645 207,668
------------ ------------
$ 3,477,034 $ 3,479,072
============ ============
Liabilities, Minority Interest, and Stockholders' Equity
- --------------------------------------------------------
Liabilities:
Mortgages and notes payable $ 1,609,911 $ 1,603,371
Accounts payable and accrued expenses 67,142 68,643
Rent received in advance and security deposits 28,344 27,757
------------ ------------
Total liabilities 1,705,397 1,699,771
Minority interest 92,405 92,586
Stockholders' equity:
Preferred Stock, $.01 par value, authorized 35,000,000 shares:
Series A Cumulative Convertible Redeemable Preferred Stock, $.01 par
value, 480,000 shares issued and outstanding at March 31, 2000 and
680,000 shares issued and outstanding at December 31, 1999 with an
aggregate liquidation preference of $12.0 million and
$17.0 million, respectively. 5 7
Series B, C and D Cumulative Redeemable Preferred Stock,
8,800,000 shares issued and outstanding with an aggregate
liquidation preference of $400.0 million. 88 88
Common Stock, $.01 par value, authorized 180,000,000 shares, issued and
outstanding 67,027,108 shares at March 31, 2000 and 66, 826,288 shares
at December 31, 1999 671 668
Additional paid in capital 1,817,502 1,816,990
Cumulative dividends in excess of net income (139,034) (131,038)
------------ ------------
Total stockholders' equity 1,679,232 1,686,715
------------ ------------
$ 3,477,034 $ 3,479,072
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended March 31, 2000 and 1999
- --------------------------------------------------------------------------------
(Unaudited and in thousands, except per share amounts)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenues:
Rental income:
Minimum base rent $ 113,880 $ 103,140
Recoveries from tenants 16,834 14,133
Parking and other tenant charges 5,911 4,185
----------- -----------
Total rental revenue 136,625 121,458
Real estate service revenue 4,941 3,900
----------- -----------
Total operating revenues 141,566 125,358
----------- -----------
Operating expenses:
Property expenses:
Operating expenses 32,282 29,304
Real estate taxes 11,946 11,041
Interest expense 26,890 21,318
General and administrative 9,772 9,309
Depreciation and amortization 32,149 26,155
----------- -----------
Total operating expenses 113,039 97,127
----------- -----------
Real estate operating income 28,527 28,231
----------- -----------
Other operating income:
Interest Income 877 912
Equity in earnings of unconsolidated partnerships 1,449 1,495
Gain on settlement of treasury locks -- 4,489
----------- -----------
Total other operating income 2,326 6,896
----------- -----------
Income from continuing operations before gain on sale of assets
and minority interest 30,853 35,127
Minority Interest (3,055) (5,736)
----------- -----------
Income from continuing operations before gain on sale of assets 27,798 29,391
Discontinued operations - Loss from Executive Suites operations (less
applicable income tax expense of $218 and $252, respectively). (1,380) (1,271)
----------- -----------
Income before gain on sale of assets 26,418 28,120
Gain on sale of assets, net of income taxes 5,354 18,055
----------- -----------
Net income $ 31,772 46,175
=========== ===========
Basic net income per common share:
Income from continuing operations $ 0.36 $ 0.55
Discontinued operations (0.02) (0.02)
----------- -----------
Net income $ 0.34 $ 0.53
=========== ===========
Diluted net income per share:
Income from continuing operations $ 0.36 $ 0.54
Discontinued operations (0.02) (0.02)
----------- -----------
Net income $ 0.34 $ 0.52
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999
- -------------------------------------------------------------------------------
(Unaudited and in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 31,772 $ 46,175
------------ ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 38,550 30,402
Minority interest in income 2,999 5,719
Stock and units issued in connection with compensation plans 643 378
Equity in earnings of unconsolidated partnerships (1,449) (1,495)
Gain on sale of assets (5,354) (18,055)
Other 254 1,236
Change in assets and liabilities, net of acquisitions and dispositions:
Increase in accounts and notes receivable (3,073) (4,821)
(Increase) decrease in accrued straight-line rents (3,001) 640
Additions to tenant leasing costs (2,396) (2,120)
Decrease (increase) in prepaid expenses and other assets 279 (4,436)
Decrease in accounts payable and accrued expenses (1,691) (10,381)
Increase (decrease) in rent received in advance and security deposits 3,349 (4,550)
------------ ----------
Total adjustments 29,110 (7,483)
------------ ----------
Net cash provided by operating activities 60,882 38,692
------------ ----------
Cash flows from investing activities:
Acquisition and development of rental property (32,601) (12,751)
Acquisition and development of executive suites assets (8,640) (19,760)
Additions to land held for development (5,489) (10,061)
Additions to construction in progress (5,092) (65,048)
Distributions from unconsolidated partnerships 1,402 21,440
Investments in unconsolidated partnerships (2,673) (1,409)
Acquisition of minority interest (229) --
Decrease (increase) in restricted cash and cash equivalents 63 (20,852)
Proceeds from sales of rental property 32,719 253,771
------------ ----------
Net cash provided (used) by investing activities (20,540) 145,330
------------ ----------
Cash flows from financing activities:
Repurchase of common stock -- (109,693)
Net borrowings (repayments) on unsecured credit facility 10,000 (65,000)
Proceeds from refinance of existing mortgages -- 41,220
Repayment of mortgages payable (3,460) (3,711)
Dividends and distributions to minority interests (42,913) (44,816)
Contributions from minority interests -- 5,888
Additions to deferred financing costs -- (1,052)
------------ ----------
Net cash used by financing activities (36,373) (177,164)
------------ ----------
Foreign currency translation adjustment (854) (1,733)
------------ ----------
Increase in unrestricted cash and cash equivalents 3,115 5,125
Unrestricted cash and cash equivalents, beginning of the period 55,332 36,499
------------ ----------
Unrestricted cash and cash equivalents, end of the period $ 58,447 $ 41,624
============ ==========
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $3,218 and $8,055
for the three months ended March 31, 2000 and 1999, respectively) $ 31,997 $ 18,257
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(1) Description of Business and Summary of Significant Accounting Policies
(a) Business
CarrAmerica Realty Corporation (the "Company") is a self-administered
and self-managed equity real estate investment trust ("REIT"),
organized under the laws of Maryland, which owns, develops, acquires
and operates office properties. The Company's office properties
primarily are located in 14 suburban markets across the United States.
(b) Basis of Presentation
The accounts of the Company and its majority-owned/controlled
subsidiaries and affiliates are consolidated in the accompanying
financial statements. The Company uses the equity method of accounting
for its investments in and earnings and losses of unconsolidated
partnerships not controlled by the Company. Management of the Company
has made a number of estimates and assumptions relating to the
reporting of assets and liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(c) Interim Financial Statements
The information furnished reflects all adjustments, which are, in the
opinion of management, necessary to reflect a fair presentation of the
results for the interim periods, and all such adjustments are of a
normal, recurring nature.
(d) New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", which requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. This statement, as amended, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company is
evaluating and has not yet determined the impact of this
pronouncement.
(e) Per Share Data and Dividends
The following is a reconciliation of the numerators and denominators
of the basic and diluted EPS computations for income from continuing
operations before extraordinary item:
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, 2000 Ended March 31, 1999
-----------------------------------------------------------------------------
Income Per Income Per
(000's) Shares Share (000's) Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 24,375 66,967 $ 0.36 $ 38,701 71,099 $ 0.54
Effect of Dilutive
Stock Options -- 248 -- -- 293 --
Series A Preferred -- -- -- 315 680 --
Units in Carr Realty, LP -- -- -- 873 1,778 --
-------- ------ ------ -------- ------ ------
Diluted EPS $ 24,375 67,215 $ 0.36 $ 39,889 73,850 $ 0.54
======== ====== ====== ======== ====== ======
</TABLE>
Income from continuing operations before extraordinary item has been
reduced by preferred stock dividends of $8,777 and $8,745 for the
three month periods ended March 31, 2000 and 1999, respectively.
The effects of stock options, units and Series A Preferred Stock are
not included in the computation of diluted EPS for a given period if
their effect is antidilutive.
7
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
- --------------------------------------------------------------------------------
(f) Reclassifications
Certain reclassifications of prior period amounts have been made to
conform to the current period's presentation.
(2) Hedging Transactions
In 1998, the Company entered into forward treasury 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. At December 31,
1998, the Company determined that these agreements no longer represented
effective hedges and recorded a loss of $13.7 million in anticipation of
terminating the agreements. In February 1999, the Company settled these
contracts for $9.2 million in cash and recorded a gain of $4.5 million.
(3) Common Stock
In April 1998, the Company sold 5,000,000 shares of common stock to Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), resulting in
net proceeds to the Company of approximately $147 million, in what is
commonly know as a "forward equity sale" transaction. In 1998, the Company
paid Merrill Lynch $39.3 million and in March 1999 the Company settled this
agreement with a final payment of $109.7 million, at which time the
5,000,000 shares were repurchased by the Company and cancelled.
(4) Discontinued Operations
On January 20, 2000, the Company, HQ Global, VANTAS and FrontLine Capital
Group entered into several agreements pursuant to which a series of
transactions will occur, including (i) the merger of VANTAS with and into
HQ Global, (ii) the acquisition by FrontLine Capital Group of certain
shares of common stock of HQ Global from the Company and other stockholders
of HQ Global, and (iii) the acquisition by VANTAS of the Company's debt and
equity interests in OmniOffices (UK) Limited and OmniOffices (Lux) 1929
Holding Company S.A. Following the completion of these transactions,
FrontLine Capital Group will own a substantial majority of the outstanding
stock of HQ Global, with the Company retaining a minority interest in HQ
Global.
HQ Global has $140.5 million outstanding under a $200.0 million credit
facility with Morgan Guaranty Trust Company ("Morgan") as lead agent. The
Company unconditionally guarantees this credit facility, and the terms of
the HQ Global credit facility with respect to interest rate and maturity
are the same as the terms of the Company's unsecured credit facility with
Morgan as lead agent. The borrowings outstanding under the HQ Global
unsecured credit facility are included within net assets of discontinued
operations in the accompanying balance sheets.
8
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
- --------------------------------------------------------------------------------
The assets and liabilities of the executive suites businesses at March
31, 2000 and December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Assets:
Rental property, net $ 103,313 $ 98,880
Goodwill, net of accumulated amortization 250,274 253,050
Other assets 90,558 87,000
--------- --------
Total assets 444,145 438,930
Liabilities and other:
Unsecured credit facility 140,500 140,500
Other liabilities 84,412 81,256
--------- --------
224,912 221,756
Minority interest 10,496 10,560
Foreign currency translation adjustment (1,908) (1,054)
--------- --------
Net assets of discontinued operations $ 210,645 $207,668
========= ========
</TABLE>
Executive Suites revenue (included in discontinued operations in the
statement of operations) 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. Total revenues for the executive suites operations were $72.1
million for the three months ended March 31, 2000 compared with $49.1
million for the three months ended March 31, 1999. The $23.0 million
revenue increase resulted from an increase in owned centers from 113 at
March 31, 1999 to 193 at March 31, 2000. The increase in revenue was offset
by corresponding increases in operating expense, interest expense and
depreciation and amortization.
The Company does not expect a loss from disposal of the executive suites
businesses. The merger is scheduled to close on or before May 31, 2000. The
proposed transaction is subject to satisfaction of a number of conditions.
There can be no assurance that the proposed transaction will be
consummated.
(5) Gain on Sale of Assets
The Company has disposed of certain assets that are inconsistent with its
long-term strategic or return objectives or where market conditions for
sale are favorable. During the three months March 31, 2000, the Company
disposed of four operating office properties recognizing gains totaling
$5.4 million, net of $0.3 million in income taxes. During the three months
ended March 31, 1999, the Company disposed of 24 operating office
properties recognizing gains totaling $18.1 million, net of $8.4 million in
income taxes.
9
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(6) Segment Information
The Company's reportable operating segments are real estate property
operations and development operations. Other business activities and
operating segments that are not reportable are included in other
operations.
The Company's operating segments' performances are measured using funds
from operations. Funds from operations represent net operating income
before minority interest and extraordinary items, excluding depreciation
and amortization on real estate assets and discontinued operations, gains
on treasury locks and gain on sale of assets.
<TABLE>
<CAPTION>
(In millions) For the three months ended
March 31, 2000
---------------------------------------------------------
Real Estate
Property Development Other
Operations Operations Operations Total
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenue $ 136.6 1.9 3.1 $ 141.6
Segment expense 44.2 1.0 8.8 54.0
-------- ----- ------ --------
Net segment revenue (expense) 92.4 .9 (5.7) 87.6
Interest expense 12.8 -- 14.1 26.9
Other income (expense), net 1.2 -- .1 1.3
-------- ----- ------ --------
Funds from operations $ 80.8 .9 (19.7) 62.0
======== ===== ======
Adjustments:
Depreciation and amortization (31.1)
--------
Income from continuing operations
before gain on sale of assets and
minority interest 30.9
Income taxes, minority interest and
gain on sale of assets 2.3
Discontinued operations - loss,
net of income tax (1.4)
--------
Net income $ 31.8
========
</TABLE>
10
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In millions) For the three months ended
March 31, 1999
------------------------------------------------------------
Real Estate
Property Development Other
Operations Operations Operations Total
---------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Operating revenue $ 121.5 1.4 2.5 $ 125.4
Segment expense 40.4 .9 8.4 49.7
------- ----- ------ -------
Net segment revenue (expense) 81.1 .5 (5.9) 75.7
Interest expense 12.2 -- 9.1 21.3
Other income (expense), net 1.3 -- .3 1.6
------- ----- ------ -------
Funds from operations $ 70.2 .5 (14.7) 56.0
======= ===== ======
Adjustments:
Depreciation and amortization (25.3)
Gain on treasury locks 4.5
-------
Income from continuing operations
before gain on sale of assets and
minority interest 35.2
Income taxes, minority interest and 12.3
Discontinued operations - loss, net
of income tax (1.3)
-------
Net income $ 46.2
=======
</TABLE>
11
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion is primarily based on the Consolidated Financial
Statements of CarrAmerica Realty Corporation and its subsidiaries (the
"Company") as of March 31, 2000 and December 31, 1999, and for the three months
ended March 31, 2000 and 1999. The comparability of the periods is impacted by
acquisitions completed, development properties placed in service and
dispositions made during 2000 and 1999. As of March 31, 1999, the Company owned
273 properties. This number increased to 282 at March 31, 2000.
The Company's reportable operating segments are real estate property
operations and development operations. Development operations are primarily
third-party development fee income and associated expenses. Other business
activities and operating segments that are not reportable are included in other
operations. Executive office suites are presented as discontinued 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.
RESULTS OF OPERATIONS - Three Months Ended March 31, 2000 and 1999
Real Estate Property Operations
Total real estate property operating revenue increased $15.1 million, or
12.4%, to $136.6 million for the three months ended March 31, 2000, compared to
$121.5 million for the three months ended March 31, 1999. This increase resulted
from development properties placed in service and same store rental growth which
exceeded the loss of rental revenue due to dispositions. Same store net
operating income in 2000 grew by 11.3% or $7.1 million over the same period in
1999, as a result of a 8.1% increase in rental revenue. This increase was driven
by an increase in average rental rates primarily in San Francisco Bay area
properties. The occupancy rate for same store properties increased to 97.0% for
the first quarter of 2000 from 96.6% for the first quarter of 1999.
Real estate property operating expenses increased $3.8 million primarily as
a result of development properties placed in service. Same store operating
expenses in 2000 decreased by $0.4 million or 1.4% over the first quarter of
1999. Interest expense increased by $0.6 million over the three months ended
March 31, 1999 primarily as a result of an increase in borrowings offset
partially by lower interest rates on refinanced mortgages.
Development Operations
Development fee income increased $0.5 million to $1.9 million and
development operating expenses increased $0.1 million to $1.0 million for the
first quarter of 2000. These increases are the result of an increase in the
number of development fee projects the Company manages.
Other Operations
Operating revenues increased $0.6 million for the three months ended March
31, 2000 compared to the same period in 1999 primarily from increases in leasing
fees and other service income.
Other operations expenses increased $0.4 million primarily as a result of
professional fees associated with the Company's Project Excellence program. The
project's mission is primarily to examine the Company's current finance,
technology and business processes in order to identify and implement changes
needed to improve these processes to the level of best practice.
12
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Interest expense increased $5.0 million or 55% to $14.1 million compared to
$9.1 million in 1999. This was primarily due to a $4.8 million decrease in
capitalizable interest for the three months ended March 31, 2000 as compared to
1999.
Discontinued Operations
Loss from operations of discontinued executive suites businesses was $1.4
million for 2000 versus $1.3 million reported for the three months ended March
31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company seeks to create and maintain a capital structure that will
enable it to diversify its capital sources and thereby allow the Company to
obtain additional capital from a number of different sources, including
additional equity offerings of common and/or preferred stock, public and private
debt financings, and, where appropriate, asset dispositions. Management believes
that the Company will have access to the capital resources necessary to expand
and develop its business, to fund its operating and administrative expenses, to
continue debt service obligations, to pay dividends in accordance with REIT
requirements, to acquire additional properties and land as market conditions
permit, and to pay for construction in progress in both the short and long term.
The Company's debt and preferred stock offerings have been rated by three
rating agencies. Duff & Phelps Credit Rating Co. (DCR) and Standard & Poors
(S&P) have each assigned their BBB rating to senior unsecured debt offerings of
the Company and their BBB- rating to cumulative preferred stock offerings of the
Company. Moody's Investor Service (Moody's) has assigned its Baa3 rating to
senior unsecured debt offerings of the Company and its Ba2 rating to cumulative
preferred stock offerings of the Company.
The Company's total indebtedness, excluding discontinued operations, at
March 31, 2000 was approximately $1.6 billion, of which $353 million, or 22%,
bore a LIBOR-based floating interest rate. The Company's mortgages payable fixed
rate indebtedness bore an effective weighted average interest rate of 8.0% at
March 31, 2000 and had a weighted average term to maturity of 6.7 years. Based
upon the Company's total market capitalization at March 31, 2000 of $3.6 billion
(the common stock price was $21.25 per share; the total shares of common stock,
convertible preferred stock and Units outstanding was approximately 73,987,000
and the aggregate liquidation value of the cumulative redeemable preferred stock
was $400 million), the Company's debt represented 45% of its total market
capitalization. The Company has a $450.0 million unsecured credit facility, of
which $353.0 million had been advanced, letters of credit totaling $3.7 million
were issued, and $93.3 million was available for draw. HQ Global has a $200.0
million unsecured credit facility, which is guaranteed by the Company. As of
March 31, 2000, $140.5 million had been advanced, letters of credit totaling
$10.8 million were issued, and $48.7 million was available for draw. It is
contemplated that the HQ Global facility will be repaid and terminated in
connection with the proposed HQ Global/VANTAS transaction.
Rental revenue and real estate service revenue have been the principal
sources of cash to fund the Company's operating expenses, debt service and
routine capital expenditures. 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 and tenant related capital
expenditures, such as tenant improvements and allowances and leasing
commissions. The Company believes that these sources of revenue will continue to
provide the funds necessary for these expenditures.
Additionally, the Company and its affiliates (including CarrAmerica
Development, Inc.) will require a substantial amount of capital for development
projects currently underway and planned for the future. As of March 31, 2000,
the Company had approximately 954,000 square feet of office space in 16
development projects under construction which are expected to require a total
investment by the Company of approximately $166 million. As of March 31, 2000,
the Company had expended $75.3 million, or 45 percent of the total expected
investment. In addition, CarrAmerica Development has made commitments of $170.0
million for new development projects that will commence construction in 2000.
13
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Prior to the second quarter of 1998, the Company met its capital
requirements primarily by accessing the public equity and debt capital markets.
As a general matter, conditions in the public equity and debt capital markets
for most REITs have not been favorable since that time. In response to these
unfavorable conditions, the Company has curtailed its acquisition program and
satisfied its cash needs through the disposition of selected assets, the
refinancing of selected assets, prudent use of joint ventures that reduce the
Company's investment requirement and utilization of the Company's existing
credit facilities.
During the first quarter of 2000, the Company disposed of four operating
properties, generating net proceeds of $32.7 million. As of May 10, 2000, the
Company has three projects under contract for sale which are projected to
produce net proceeds of $36.8 million of which $27.6 million is projected for
the second quarter 2000. Due to uncertainties in the disposition process, there
can be no assurance that these sales will close or that they will achieve the
expected net proceeds.
As a result of the Company's disposition and refinancing efforts, the
Company believes that funding is available for all capital requirements through
the end of 2000, including firm commitments for development projects. The
Company expects to continue to rely on cash flow from operations, asset
dispositions, asset refinancings, joint ventures and access to its credit
facilities to fund capital requirements for the foreseeable future.
Net cash provided by operating activities was $60.9 million for the three
months ended March 31, 2000, compared to $38.7 million for the three months
ended March 31, 1999. The increase of $22.2 million in net cash provided by
operating activities resulted primarily from the timing of payments for accounts
payable and rents received in advance. The Company's investing activities used
$20.5 million for the three months ended March 31, 2000 compared to the
Company's investing activities providing $145.3 million for the three months
ended March 31, 1999. The Company's investment activities included sales of
office buildings and land acquired for future development and additions to
construction in progress. Net proceeds from the sales of rental property was
$32.7 million for the three months ended March 31, 2000, compared to $253.8
million for the three months ended March 31, 1999. The Company invested
approximately $51.8 million in acquisitions and improvements to existing real
estate assets, acquisition and development of executive suites assets and
additions to land held for development and construction in progress for the
three months ended March 31, 2000 compared to $107.6 million for the comparable
period of 1999.
Net of dividends paid and distributions to minority interests, the
Company's financing activities provided net cash of $6.5 million for the three
months ended March 31, 2000 compared to net cash used of $132.3 million for the
three months ended March 31, 1999. During the three months ended March 31, 1999,
the Company repurchased 5,000,000 common shares issued in its forward equity
sale transaction for $109.7 million. Proceeds from the sale of rental properties
were used to fund this transaction and to repay amounts on the unsecured credit
facility. For the three months ended March 31, 2000, the Company's net
borrowings on its unsecured credit facility were $10.0 million as compared to
net repayments of $65.0 million for the comparable period of 1999.
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.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Funds From Operations
The Company believes that funds from operations (FFO) 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 National Association of Real Estate
Investment Trusts (NAREIT) White Paper on funds from operations as approved by
the Board of Governors of NAREIT, funds from operations represents net income
(loss) (computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring or sales of property, plus
depreciation and amortization of assets uniquely significant to the real estate
industry and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect funds from operations on the same basis. The Company's
funds from operations 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. NAREIT's definition for FFO excludes discontinued operations, however,
the Company has elected to calculate FFO from discontinued operations of the
Company's executive suites businesses. FFO for discontinued operations includes
executive suites earnings before depreciation, amortization and deferred taxes
("EBDADT"). The Company has restated the prior year to conform with the current
year presentation which excludes the add back of development losses associated
with the Company's executive suites business. The Company continues to exclude
the gain on settlement of treasury locks for the restated 1999 FFO. Funds from
operations does not represent net income or cash flow generated from operating
activities in accordance with generally accepted accounting principles and, as
such, should not be considered an alternative to net income as an indication of
the Company's performance or to cash flow as a measure of liquidity or the
Company's ability to make distributions.
The following table provides the calculation of the Company's funds from
operations for the period presented:
<TABLE>
<CAPTION>
(In thousands) Three Months Ended
March 31,
------------------------
2000 1999
---- ----
<S> <C> <C>
Net income from continuing operations before minority interest $ 36,207 $ 53,182
Adjustments to derive funds from continuing operations:
Add depreciation and amortization 31,442 25,366
Deduct:
Minority interests' (non Unitholders) share of depreciation,
Amortization and net income (255) (49)
Gain on settlement of treasury locks --- (4,489)
Gain on sale of assets (5,354) (18,055)
---------- ----------
Funds from continuing operations before allocations to the minority
Unitholders 62,040 55,955
Less funds from continuing operations allocable to the minority
Unitholders (4,437) (4,166)
---------- ----------
Funds from continuing operations allocable to CarrAmerica Realty
Corporation 57,603 51,789
Less preferred stock dividends (8,777) (8,745)
---------- ----------
Funds from continuing operations attributable to common shareholders 48,826 43,044
---------- ----------
Discontinued operations 4,895 3,086
---------- ----------
Funds from operations attributable to common shareholders $ 53,721 $ 46,130
========== ==========
</TABLE>
15
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
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.
16
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk
No material changes in the Company's market risk have occurred since the
filing of the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
17
<PAGE>
Part II
OTHER INFORMATION
- -----------------
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
10.1 Agreement and Plan of Merger by and among HQ Global
Workplaces, Inc., the Company, VANTAS Incorporated and
Reckson Service Industries, Inc., dated as of January 20,
2000 (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on February 3,
2000) (the "Merger Agreement").
10.2 Form of Stockholders Agreement among Reckson Service
Industries, Inc., HQ Global Workplaces, Inc., the Company
and the other parties named therein (incorporated by
reference to Exhibit 10.2 to the Company's Current Report
on Form 8-K filed on February 3, 2000).
10.3 Stock Purchase Agreement between the Company and Reckson
Service Industries, Inc., dated as of January 20, 2000
(incorporated by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K filed on February 3,
2000) (the "Stock Purchase Agreement").
10.4 Stock Purchase Agreement among the Company, OmniOffices
(UK) Limited, OmniOffices (Lux) 1929 Holding Company S.A.,
VANTAS Incorporated and Reckson Service Industries, Inc.,
dated as of January 20, 2000 (incorporated by reference to
Exhibit 10.4 to the Company's Current Report on Form 8-K
filed on February 3, 2000) (the "UK Agreement").
10.5 Form of Indemnification and Escrow Agreement by and among
Reckson Service Industries, Inc., the Company and the
other parties named therein (incorporated by reference to
Exhibit 10.5 to the Company's Current Report on Form 8-K
filed on February 3, 2000).
10.6 First Amendment to Merger Agreement, dated as of April
29, 2000.
10.7 First Amendment to Stock Purchase Agreement, dated as of
April 29, 2000.
10.8 First Amendment to UK Agreement, dated as of April 29,
2000.
27 Financial Data Schedule - Three Months Ended March 31,
2000.
(b.) Reports on Form 8-K
a. Current Report on Form 8-K filed on February 3, 2000
regarding a proposed transaction involving the Company's
executive suites affiliates HQ Global Workplaces, Inc.,
OmniOffices (UK) Limited and OmniOffices (Lux) 1929 Holding
Company S.A.
b. Current Report on Form 8-K filed on February 14, 2000, as
amended by a Current Report on Form 8-K/A filed on February
17, 2000 and a Current Report on Form 8-K/A filed on February
23, 2000, regarding certain supplemental data included in the
Company's press release dated February 4, 2000.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARRAMERICA REALTY CORPORATION
/s/ Thomas A. Carr
_______________________________________________________
Thomas A. Carr, President and Chief Executive Officer
/s/ Richard F. Katchuk
_______________________________________________________
Richard F. Katchuk, Chief Financial Officer
/s/ Stephen E. Riffee
_______________________________________________________
Stephen E. Riffee, Senior Vice President, Controller and Treasurer
(Principal Accounting Officer)
Date: May 12, 2000
19
<PAGE>
Exhibit Index
-------------
Exhibit Description Page
- ------- ----------- ----
10.6 First Amendment to Merger Agreement, dated as of April 29, 2000
10.7 First Amendment to Stock Purchase Agreement, dated as of April
29, 2000
10.8 First Amendment to UK Agreement, dated as of April 29, 2000
27 Financial Data Schedule - Three Months Ended March 31, 2000.
20
<PAGE>
Exhibit 10.6
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this
"Amendment") is entered into as of April 29, 2000 by and among VANTAS
Incorporated, a Nevada corporation ("VANTAS"), and FrontLine Capital Group, a
Delaware corporation (formerly known as Reckson Services Industries, Inc.)
("RSI"), on the one hand, and HQ Global Workplaces, Inc., a Delaware corporation
(the "Company"), and CarrAmerica Realty Corporation, a Maryland corporation
("CarrAmerica"), on the other hand.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, VANTAS and RSI, on the one hand, and the Company and
CarrAmerica, on the other hand, have executed the Agreement and Plan of Merger
dated as of January 20, 2000 (such agreement, as heretofore, hereby or
hereinafter amended, the "Merger Agreement") pursuant to which VANTAS is to
merge with and into the Company, with the Company being the Surviving
Corporation;
WHEREAS, VANTAS, RSI, the Company and CarrAmerica have executed an
Agreement dated as of March 13, 2000, as amended, pursuant to which such parties
agreed to authorize certain actions governed by the Merger Agreement;
WHEREAS, the parties hereto wish to amend the Merger Agreement as
provided herein; and
WHEREAS, capitalized terms used herein but not defined herein shall
have the meanings ascribed to such terms in the Merger Agreement.
NOW, THEREFORE, in consideration of the aforesaid and the respective
representations, warranties, covenants and agreements hereinafter set forth, the
parties, intending to be legally bound, agree as follows:
A. AMENDMENTS TO MERGER AGREEMENT
The Merger Agreement is hereby amended as follows:
1. The fifth WHEREAS clause of the Merger Agreement is hereby
deleted in its entirety and replaced by the following:
"WHEREAS, immediately following the consummation of the HQ Merger and
the transactions contemplated by the Stock Purchase Agreement and the
UK Agreement, the Company (being sometimes
<PAGE>
referred to as the "HQ Surviving Corporation" following the HQ Merger)
will merge (the "Second Step Merger") with and into a to-be formed
Delaware corporation ("M Sub") that will be a wholly-owned subsidiary
of another to-be formed Delaware corporation ("Holdco"), which will be
wholly-owned by the Company, pursuant to the terms and conditions of
an Agreement and Plan of Merger (the "Second Step Plan of Merger"),
substantially in the form of Exhibit A to this Agreement, with M Sub
---------
being the surviving corporation (being sometimes referred to as the
"Second Step Surviving Corporation") in the Second Step Merger."
2. The reference to "Holdco" in the first sentence of Section 4(c)
of the Merger Agreement is hereby deleted and replaced with "Holdco or M Sub."
3. The second sentence of Section 4(d) of the Merger Agreement is
hereby deleted in its entirety and replaced by the following:
"Except as set forth on Schedule 4(d), upon the filing of the
Recapitalization Amendments and immediately prior to the Effective
Time, the authorized capital stock of the Company shall consist of
75,000,000 shares of Voting Common Stock, 25,000,000 shares of Non-
Voting Common Stock and 7,800,00 shares of preferred stock (the
"Company Preferred Stock"), of which an aggregate of 7,359,526 shares
of Voting Common Stock and Non-Voting Common Stock will be duly
authorized and validly issued and outstanding, fully paid and
nonassessable."
4. Section 4(bb) of the Merger Agreement is hereby deleted in its
entirety and replaced by the following:
"(bb) Immediately prior to the Effective Time, each of M Sub and
Holdco will be a corporation duly organized, validly existing and in
good standing under the laws of Delaware. The authorized capital stock
of M Sub will consist of 1,000 shares of voting common stock, par
value $.01 per share (the "M Sub Voting Common Stock"), of which 1,000
shares of M Sub Voting Common Stock will be duly authorized for
issuance, and upon such issuance will be validly issued and
outstanding, fully paid and nonassessable. All such issued and
outstanding shares of M Sub Voting Common Stock will be owned as of
record by Holdco. The authorized capital stock of Holdco will consist
of 75,000,000 shares of voting common stock, par value $.01 per share
("Holdco Voting Common Stock"), 25,000,000 shares of Class C
-2-
<PAGE>
convertible non-voting common stock, par value $.01 per share ("Holdco
Non-Voting Common Stock") and 7,800,000 shares of preferred stock, par
value $.01 per share ("Holdco Preferred Stock"), and the shares of
Holdco capital stock issued pursuant to the Second Step Merger will be
validly issued and outstanding, fully paid and nonassessable. Prior to
the effective time of the Second Step Merger, only Holdco Voting
Common Stock will be issued and outstanding and all of such
outstanding shares will be owned of record by the Company."
5. Section 6(i) of the Merger Agreement is hereby deleted in its
entirety and replaced by the following:
"(ii) M Sub and Holdco. The Company shall cause the formation of
----------------
each of Holdco and M Sub by filing with the Secretary of State of the
State of Delaware a certificate of incorporation in substantially the
form of Exhibit K-1 to this Agreement for Holdco (the "Holdco
-----------
Charter") and a certificate of incorporation for M Sub (the "M Sub
Charter") in substantially the form of Exhibit K-2 to this Agreement,
-----------
and shall cause each of M Sub and Holdco to adopt by-laws, in
substantially the form of Exhibits K-3 and K-4, respectively, to this
--------------------
Agreement. The Company shall cause M Sub and Holdco to have a
sufficient number of shares of M Sub Voting Common Stock, Holdco
Voting Common Stock and Holdco Non-Voting Common Stock to be
authorized and unissued to effectuate the terms and conditions of the
Second Step Merger. The Company shall cause Holdco to have a
sufficient number of shares of the Holdco Preferred Stock (the terms
and conditions of such Holdco Preferred Stock being set forth in the
Holdco Charter) authorized and unissued to effectuate the terms and
conditions of the exchange contemplated by the term sheet contained in
the Financing Exhibits (as defined herein). Other than (i) the shares
of M Sub Voting Common Stock issued to Holdco, (ii) the shares of
Holdco Voting Common Stock issued to the Company, and (iii) the shares
of Holdco Voting Common Stock and Holdco Non-Voting Common Stock to be
issued in the Second Step Merger, the Company shall cause no
additional shares of M Sub Voting Common Stock, Holdco Voting Common
Stock, Holdco Non-Voting Common Stock or Holdco Preferred Stock to be
issued by M Sub or Holdco prior to Closing."
6. Section 7(k) of the Merger Agreement is hereby deleted in its
entirety and replaced by the following:
-3-
<PAGE>
"Upon consummation of the HQ Merger, the UK Agreement and the Stock
Purchase Agreement, the HQ Surviving Company shall make the necessary
filings with the Secretary of State of the State of Delaware as
contemplated by Section 251(g) of the Delaware General Corporation Law
to effect the merger of HQ Global with and into M Sub."
7. Section 9(b)(iv) of the Merger Agreement is hereby deleted in
its entirety and replaced by the following:
"The Indemnification and Escrow Agreement, by and among certain
stockholders, warrantholders and optionees who are electing to sell at
least 4,000 options to purchase shares of common stock of the Company
who hold their shares, warrants or options in the Company immediately
prior to Closing, RSI and such escrow agent as shall be mutually
agreed to by the parties (the "Indemnification Escrow Agent"),
substantially in the form of Exhibit E hereto (the "Indemnification
---------
Escrow Agreement"), shall have been duly executed and delivered by
such stockholders, warrantholders and optionees, RSI and the
Indemnification Escrow Agent and the shares required to be delivered
by RSI pursuant thereto shall have been delivered to the
Indemnification Escrow Agent pursuant thereto."
8. Section 9(b)(vii) of the Merger Agreement is hereby deleted in
its entirety and replaced by the following:
"The Registration Rights Agreement by and among RSI and certain
holders of shares in Holdco, substantially in the form of Exhibit H
---------
hereto (the "RSI Registration Rights Agreement"), shall have been
executed at the Closing."
9. Section 9(b)(xi) of the Merger Agreement is hereby deleted in
its entirety and replaced by the following:
"(xi) Reckson Associates Realty Corp. ("RA"), or an affiliate
thereof, and RSI, as the case may be, shall have executed and
delivered the RA/RSI Intercompany Agreements, substantially in the
form of Exhibits J-1, J-2, and J-3, respectively, to this Agreement
--------------------------
(collectively, the "RSI Intercompany Agreements")."
10. The number "3,000,000" in Section 9(c)(xiv) of the Merger
Agreement is hereby deleted and replaced with the number "5,100,000."
-4-
<PAGE>
11. All references to "April 30, 2000" in Sections 14(a)(ii),
14(a)(v) and 14(a)(vi) of the Merger Agreement are hereby replaced with "May 31,
2000."
12. All references to "May 1, 2000" in Section 14(a)(ii) of the
Merger Agreement are hereby replaced with "June 1, 2000."
13. All references to "May 15, 2000" in Section 14(d) of the Merger
Agreement are hereby replaced with "June 15, 2000."
B. AMENDMENTS TO FORM EXHIBITS AND DISCLOSURE SCHEDULES
The forms of agreements attached as exhibits to the Merger Agreement
and the Disclosure Schedules attached to the Merger Agreement hereby are amended
as follows:
1. Exhibit A to the Merger Agreement is hereby deleted in its
---------
entirety and replaced by Exhibit A attached to this Amendment.
---------
2. Exhibit C to the Merger Agreement is hereby deleted in its
---------
entirety.
3. The preamble of the form of Stockholders Agreement attached to
the Merger Agreement as Exhibit D (the "Stockholders Agreement") is hereby
---------
deleted in its entirety and replaced by the following:
"THIS STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of
_________, 2000, is made by and among FrontLine Capital Group
(formerly known as Reckson Services Industries, Inc.) ("RSI"), HQ
Global Holdings, Inc. (the "Company"), CarrAmerica Realty Corporation
("CarrAmerica" or the "Designated Holder") and the undersigned holders
of common stock of the Company (the "Common Stock") (together with
CarrAmerica, the "Holders")."
4. The first WHEREAS clause of the Stockholders Agreement is hereby
deleted in its entirety and replaced by the following:
"WHEREAS, RSI and [the/certain] Holders have entered into that certain
Stock Purchase Agreement dated as of January 20, 2000 pursuant to
which RSI is acquiring on the date hereof certain shares of common
stock of HQ Global Workplaces, Inc. ("HQ Global") owned by such
Holders (the "Transaction");"
-5-
<PAGE>
5. Clause 7.1(a)(iii) of the Stockholders Agreement is hereby
deleted in its entirety and replaced by the following:
"the highest price per share of Common Stock (or the implied value of
the Common Stock in connection with the issuance of any convertible
security of the Company) (subject to future adjustment in the event of
stock splits, stock dividends and other similar events) received by
RSI or the Company in any sale or issuance thereof (i) in connection
with the Transaction or (ii) from and after the date hereof through
the last day of the 2000 Put Period."
6. The preamble of the form of Indemnification and Escrow Agreement
attached to the Merger Agreement as Exhibit E (the "Indemnification Agreement')
---------
is hereby deleted in its entirety and replaced by the following:
"THIS INDEMNIFICATION AND ESCROW AGREEMENT (this "Agreement") is
entered into as of the _______ day of _________ by and among FrontLine
Capital Group (formerly known as Reckson Services Industries, Inc.), a
Delaware corporation ("RSI"), CarrAmerica Realty Corporation, a
Maryland corporation ("CarrAmerica"), and [other shareholders,
warrantholders and optionees of HQ Global Workplaces, Inc. to be added
per CarrAmerica' instructions, collectively the "Shareholders" and
individually a "Shareholder")] and ___________, a ______ corporation,
as escrow agent (the "Escrow Agent") hereunder."
7. The second, third and fourth WHEREAS clauses of the
Indemnification Agreement are hereby deleted in their entirety and replaced by
the following:
"WHEREAS, on the date hereof, pursuant to an agreement among
[the/certain] Shareholders and RSI dated as of January __, 2000 (the
"Stock Purchase Agreement"), [certain/each] of the Shareholders are
selling to RSI, and RSI is purchasing from such Shareholders, that
number of the shares of voting common stock, par value $.01 per share,
and non-voting common stock, par value $.01 per share, of HQGW as set
forth in, and subject to the terms and conditions of, the Stock
Purchase Agreement for $____ per share in cash for an aggregate
purchase price of $______ (the "Share Consideration");
WHEREAS, on the date hereof, pursuant to the Merger Agreement, each
issued and outstanding share of (A) common stock, par value $.01 per
share ("VANTAS Common Stock"), of VANTAS shall be converted into the
right to receive $_____ per share in cash and (B) (i) Series A
-6-
<PAGE>
Convertible Preferred Stock, par value $.01 per share, of VANTAS (the
"Series A Stock"), (ii) Series B Convertible Preferred Stock, par
value $.01 per share, of VANTAS (the "Series B Stock"), (iii) Series C
Convertible Preferred Stock, par value $.01 per share, of VANTAS (the
"Series C Stock"), (iv) Series D Convertible Preferred Stock, par
value $.01 per share, of VANTAS (the "Series D Stock"), and (v)
Series E Convertible Preferred Stock, par value $.01 per share of
VANTAS (the "Series E Stock"), other than shares of Series A Stock,
Series B Stock, Series C Stock, Series D Stock and Series E Stock held
in the treasury of VANTAS, are, by virtue of the Merger and without
any action on the part of the holder thereof, being converted into
the right to receive ______ shares of voting common stock of HQGW
("VANTAS' Share Consideration");
WHEREAS, as a condition to the consummation by VANTAS and/or RSI, as
applicable, of the transactions contemplated by the Merger Agreement,
the Stock Purchase Agreement, and that certain Stock Purchase
Agreement by and among VANTAS, RSI, CarrAmerica, OmniOffices (UK)
Limited ("Omni UK") and OmniOffices (Lux) 1929 Holding Company S.A.
("LuxCo") (the "UK Agreement"), (i) the Shareholders have hereby
agreed to indemnify and hold harmless RSI from and against certain
losses related to the Merger Agreement and the Stock Purchase
Agreement, and (ii) CarrAmerica has hereby agreed to indemnify and
hold harmless RSI from and against certain losses related to the UK
Agreement, upon the terms and conditions provided herein;"
8. The sixth and seventh WHEREAS clauses of the Indemnification
Agreement are hereby deleted in their entirety and replaced by the following:
"WHEREAS, in connection with the Shareholders' indemnification
obligations, the parties have agreed that the Shareholders are
depositing an aggregate of ___ shares of voting common stock of Holdco
(the "Voting Common Stock") and ____ shares of non-voting common stock
of Holdco (the "Non-Voting Common Stock") (collectively, the
"Shareholder Indemnification Shares") and $____________ in cash (the
"Shareholder Cash Collateral") with the Escrow Agent to be held and
disbursed by the Escrow Agent in accordance with this Agreement, with
such Shareholder Indemnification Shares and Shareholder Cash
Collateral having an aggregate initial value of $30,000,000 as of the
Closing;
-7-
<PAGE>
WHEREAS, in connection with RSI's indemnification obligations, the
parties have agreed that RSI is depositing an aggregate of ___ shares
of Voting Common Stock (the "RSI Indemnification Shares," and together
with the Shareholder Indemnification Shares, the "Indemnification
Shares") with the Escrow Agent to be held and disbursed by the Escrow
Agent in accordance with this Agreement, with the RSI Indemnification
Shares having an aggregate initial value of $30,000,000 as of the
Closing;"
9. All references to "Surviving Corporation" in the definition of
"Direct Loss" set forth in Section 1 and in Section 2(a) of the Indemnification
Agreement are hereby changed to "Holdco."
10. All references to "Surviving Corporation" or "Surviving Company"
set forth in Sections 5(a), 6(a), 6(b), 6(c), 6(d) and 7(b) of the
Indemnification Agreement are hereby changed to "Second Step Surviving
Corporation."
11. All references to "HQGW" in Section 2(a) of the Indemnification
Agreement are hereby changed to "Holdco."
12. Section 3 of the Indemnification Agreement is hereby amended by
adding the following subparagraph (d):
"RSI shall indemnify each of the Shareholder Indemnitees for any Extra
Tax Costs incurred by such Shareholder Indemnitees in connection with
the HQ Merger, the Second Step Merger, and/or the sale of shares by
such Shareholder Indemnitee pursuant to the Stock Purchase Agreement.
For purposes of this Section 3(d), "Extra Tax Costs" shall be defined
as (i) all interest, penalties, and similar charges actually payable
by a Shareholder Indemnitee to any applicable taxing authority with
respect to Extra Taxes attributable to the period ending on the
earlier of January 1, 2003 or the date all of such Shareholder
Indemnitee's shares of stock in HQGW not sold pursuant to the Stock
Purchase Agreement actually are sold (in either case, the "Deemed Sale
Date"), plus (ii) in the event that such interest, penalties, and
similar charges have not been paid on or prior to the Deemed Sale
Date, all interest, penalties and similar charges accruing with
respect to such interest, penalties and similar charges until the
earlier of the actual date on which the interest, penalties, and
similar charges described in clause (i) are paid or thirty (30) days
following a "final determination" within the meaning of Section 1313
of the Code that the Shareholder Indemnitee is required to pay Extra
Taxes, plus (iii) if
-8-
<PAGE>
and to the extent that a Shareholder Indemnitee is required to pay any
Extra Taxes prior to the applicable Deemed Sale Date, interest on such
Extra Taxes from the date the Shareholder Indemnitee makes such
payment of Extra Taxes to and including the applicable Deemed Sale
Date, computed at a rate equal to the rate applicable under Section
6621 of the Code with respect to underpayments of federal income tax,
plus (iv) an amount equal to all federal, state and local income taxes
(net of the federal income tax benefit, if any, resulting to the
Shareholder Indemnitee from any deduction allowed to such Shareholder
Indemnitee for any such state and local income taxes) required to be
paid by such Shareholder Indemnitee with respect to the payment
received pursuant to this Section 3(d). For purposes of this Section
3(d), "Extra Taxes" shall be defined as the excess of (i) the amount
of all Taxes (other than stock transfer Taxes) payable (determined as
described below) by a Shareholder Indemnitee by reason of the Second
Step Merger and/or the sale of shares of stock by the Shareholder
Indemnitee pursuant to the Stock Purchase Agreement over (ii) the
amount of Taxes (other than stock transfer Taxes) that would have been
payable by such Shareholder Indemnitee by such reason if (a) the
exchange into Holdco Preferred Stock described on the Financing
Exhibits were not to have taken place and (b) the surviving
corporation in the Second Step Merger were the HQ Surviving
Corporation rather than M Sub. The amount of Extra Taxes and the Extra
Tax Costs for purposes of this Section 3(d) shall be determined and
certified to by an independent accountant selected by the applicable
Shareholder Indemnitee, as may be reasonably acceptable to RSI. Extra
Taxes and Extra Tax Costs shall be considered payable for the purposes
hereof on the earlier of (i) the date on which the Shareholder
Indemnitee notifies RSI in writing of any assertion by the Internal
Revenue Service, formal or informal, of a position to the effect that
such amounts might be required to be paid, or (ii) the date on which
the Shareholder Indemnitee delivers to RSI a copy of an opinion of the
tax advisor to such Indemnitee providing that it is more likely than
not that the Shareholder Indemnitee is liable for such Extra Taxes and
Extra Tax Costs (in either case, a "Potential Adverse Determination
Date"), unless in either event RSI notifies such Shareholder
Indemnitee in writing within ten days of the Potential Adverse
Determination Date that, pursuant to the provisions of this section,
it will indemnify the Shareholder Indemnitee for (a) all interest,
penalties, and similar charges accruing with respect to such Extra
Taxes and Extra Tax Costs from the Potential Adverse Determination
Date until the earlier of thirty (30) days following a
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<PAGE>
"final determination" within the meaning of Section 1313 of the Code
that the Shareholder is required to pay Extra Taxes and/or Extra Tax
Costs or ten (10) days following written notice from RSI to such
Shareholder Indemnitee to pay all such Extra Taxes and Extra Tax Costs
as to which a Potential Adverse Determination Date has occurred (in
either case, the "Delayed Payment Date"), and (b) all legal and
accounting costs and expenses incurred in connection with any
challenge or assertion by the Internal Revenue Service (it being
understood that the Shareholder Indemnitee shall not in any event have
any duty to contest any such challenge except, and only to the extent
that, RSI bears any and all costs associated therewith), in which
event Extra Taxes and Extra Tax Costs shall be considered payable for
purposes hereof on the Delayed Payment Date. The obligations of RSI
pursuant to this Section 3(d) are in addition to, and not in lieu of,
the obligations of HQ Surviving Corporation and HQGW under Section
7(j) of the Merger Agreement. The provisions of Section 5(a), 5(b),
5(c) and 5(d) shall not apply with respect to this Section 3(d)."
13. Section 4(a)(X) of the Indemnification Agreement is hereby
amended by deleting clause (i) therein in its entirety.
14. Clause 4(b)(Z) of the Indemnification Agreement is hereby amended
by adding the following language at the end of such clause:
", or (iii) arising from, relating to, or otherwise in respect of the
offer or sale of equity securities of HQGW or Holdco to any third
party in connection with the transactions contemplated by the Merger
Agreement, the Stock Purchase Agreement or the UK Agreement; provided
that any recovery under the foregoing shall be reduced by the amount
of any claim of the RSI Indemnitees under Section 4(a) above."
15. The preamble of the form of Registration Rights Agreement
attached to the Merger Agreement as Exhibit G (the "Holdco Registration Rights
---------
Agreement") is hereby deleted in its entirety and replaced with the following:
"THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of ________, 2000 by and among HQ Global Holdings,
Inc., a Delaware corporation (the "Company") [the Company will be
formed as a wholly owned subsidiary of HQ Global immediately prior to
the closing under the Merger Agreement and will become the parent
company of M Sub in connection with the second
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<PAGE>
step merger], and CarrAmerica Realty Corporation, a Maryland
corporation ("Carr") and _____________________ (each, a "Seller" and
collectively, including Carr, the "Sellers")."
16. The second paragraph of the Holdco Registration Rights Agreement
is hereby deleted in its entirety and replaced with the following:
"This Agreement is in connection with (i) the Stockholders Agreement
of even date herewith (the "Stockholders Agreement") between the
Company, as issuer of the common stock, par value $[.01] per share
(the "Securities"), FrontLine Capital Group (formerly known as Reckson
Services Industries, Inc.) ("RSI"), Carr and certain other
stockholders of the Company, (ii) the Agreement and Plan of Merger
among RSI, VANTAS Incorporated, a Nevada corporation ("VANTAS"), Carr
and HQ Global Workplaces, Inc., a Delaware corporation ("HQ Global"),
(iii) the Stock Purchase Agreement dated as of January 20, 2000 by and
between RSI and Carr, and (iv) the Stock Purchase Agreement dated as
of January 20, 2000 by and among RSI, VANTAS, Carr, OmniOffices (UK)
Limited and OmniOffices (Lux) 1929 Holding Company S.A.. In order to
induce the Sellers to consummate the transactions contemplated by the
foregoing agreements, the Company has agreed to provide to the Sellers
the registration rights set forth in this Agreement."
17. The first recital of the form of Registration Rights Agreement
attached to the Merger Agreement as Exhibit H is hereby deleted in its entirety
---------
and replaced with the following:
"This Agreement is in connection with (i) the Stockholders Agreement
of even date herewith (the "Stockholders Agreement") between FrontLine
Capital Group (formerly known as Reckson Services Industries, Inc.)
(the "Company"), as issuer of the common stock, par value $[.01] per
share (the "Securities") pursuant to the put rights set forth in
Section 7.1, 7.2 and 7.3 of the Stockholders Agreement among HQ Global
Holdings, Inc. ("HQ"), Carr and certain other stockholders of HQ, (ii)
the Agreement and Plan of Merger among the Company, VANTAS
Incorporated, a Nevada corporation ("VANTAS"), Carr and HQ Global,
(iii) the Stock Purchase Agreement dated as of January 20, 2000 by and
between the Company and Carr, and (iv) the Stock Purchase Agreement
dated as of January 20, 2000 by and among VANTAS, the Company, Carr,
OmniOffices (UK) Limited and OmniOffices (Lux) 1929 Holding Company
S.A.. In order to induce the Sellers to consummation the transactions
contemplated by the
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<PAGE>
foregoing agreements, the Company has agreed to provide to the Sellers
the registration rights set forth in this Agreement."
18. The Merger Agreement is hereby amended by adding Exhibits K-1, K-
---------------
2, K-3 and K-4 to the Merger Agreement in the forms attached to this Amendment.
- --------------
19. Schedule 1(e) to the Merger Agreement is hereby amended by
deleting such Schedule in its entirety and replacing it with Schedule 1(e)
attached to this Amendment.
20. Schedule 4(c) to the Merger Agreement is hereby amended by
deleting such Schedule in its entirety and replacing it with Schedule 4(c)
attached to this Amendment.
21. Schedule 4(a) to the Merger Agreement is hereby amended by
deleing such Schedule in its entirety and replacing it with Schedule 4(a)
attached to this Amendment.
22. Schedule 4(o) to the Merger Agreement is hereby amended by
deleting such Schedule in its entirety and replacing it with Schedule 4(o)
attached to this Amendment.
23. Schedule 4(p) to the Merger Agreement is hereby amended by
deleting such Schedule in its entirety and replacing it with Schedule 4(p)
attached to this Amendment.
C. OTHER AGREEMENTS
The Merger Agreement is hereby amended to add the following
provisions:
1. Simultaneously with the execution of this Amendment, VANTAS shall
deliver to the Company immediately available funds in the aggregate amount of
$12,500,000 as an additional initial deposit under the Merger Agreement. VANTAS
shall have the right to deliver to the Company a replacement letter of credit in
the face amount of $47,500,000 (the "Replacement LOC"). The Replacement LOC
shall replace the additional $12,500,000 initial deposit hereunder and the
existing letter of credit previously delivered to the Company by VANTAS, which
additional initial deposit and existing letter of credit shall be returned to
VANTAS upon the Company's receipt of the Replacement LOC. Any references to
"Letter of Credit" in the Merger Agreement shall be deemed to refer to the
Replacement LOC, and any reference to "Initial Deposit" shall be deemed to refer
to
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<PAGE>
$47,500,000 and to include the additional initial deposit hereunder from and
after the date hereof.
2. Simultaneously with the execution of this Amendment, RSI shall
contribute an aggregate of $250,000 to VANTAS, and VANTAS shall pay the Company
$125,000 and CarrAmerica $125,000 (the "Legal Fees Allowance") as an allowance
for certain additional legal costs and expenses incurred by such parties as a
result of the extension of the outside Closing Date from April 30, 2000 to May
31, 2000. The Legal Fees Allowance is nonrefundable and will not be used to
adjust the consideration otherwise payable in connection with the Merger
Transactions.
3. At Closing, the Second Step Surviving Corporation shall pay to
CarrAmerica, as agent for all of the stockholders of the Company immediately
prior to the effective time of the HQ Merger, an amount in cash equal to the
amount of all tenant improvement costs ("TI Costs") paid by the Company on or
prior to April 30, 2000 that are reimbursable by the landlords but which have
not been reimbursed prior to Closing and are not the subject of dispute with the
relevant landlord (the "TI Reimbursement"), which TI Reimbursement shall be
distributed to such stockholders based on each such stockholder's proportionate
interest in the Company immediately prior to the effective time of the HQ
Merger. Any such TI Costs paid to the Second Step Surviving Corporation
following the resolution of any dispute with a landlord shall be paid by the
Second Step Surviving Corporation to CarrAmerica, as agent for all of the
stockholders of the Company immediately prior to the effective time of the HQ
Merger, within five business days after receipt of such amounts by the Second
Step Surviving Corporation. The Company will provide the Second Step Surviving
Corporation with a schedule of the TI Costs (including the identification of any
TI Cost that is the subject of dispute with the relevant landlord) prior to the
Closing. With respect to projects of the Company for which TI Costs are paid by
the Company both on or before April 30, 2000 and after April 30, 2000 (the
"Straddle Projects"), the amount of the TI Reimbursement with respect to such
Straddle Projects shall be calculated as the total reimbursable amount
multiplied by a fraction, the numerator of which is the TI Costs paid by the
Company on or before April 30, 2000, and the denominator of which is the total
TI Costs.
4. At Closing, the Second Step Surviving Corporation shall pay to
CarrAmerica, as agent for all of the stockholders of the Company immediately
prior to the effective time of the HQ Merger, an amount in cash equal to the
amount of all capital expenditures and development costs (including TI Costs,
whether or not reimbursable by landlords) paid by the Company after April 30,
2000 and prior to Closing (net of any amounts the Company actually receives from
landlords prior to Closing as reimbursements of such TI Costs); provided that
the Second Step
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<PAGE>
Surviving Corporation is provided with a schedule of such amounts at or prior to
the Closing.
5. RSI and VANTAS hereby represent, warrant, acknowledge and agree
that (a) neither RSI nor VANTAS is aware of any failure on the part of the
Company, CarrAmerica, Omni UK or LuxCo to perform any of their respective
obligations under the Merger Agreement, the Stock Purchase Agreement or the UK
Agreement, (ii) RSI and VANTAS hereby waive any and all rights and claims, fixed
or contingent, with respect to circumstances existing on the date of this
Amendment, relating to any failure by the Company, CarrAmerica, Omni UK or LuxCo
to perform any obligations under the Merger Agreement, the Stock Purchase
Agreement or the UK Agreement, and (iii) neither RSI or VANTAS is aware of any
current right of RSI or VANTAS to terminate (or give notice of its intent to
terminate) the Merger Agreement, the Stock Purchase Agreement or the UK
Agreement. Notwithstanding anything to the contrary contained in this paragraph
5, nothing in this paragraph 5 shall modify, supplement or amend the
Indemnification Agreement or otherwise affect any of the parties' rights
thereunder from and after the Closing.
6. RSI and VANTAS jointly and severally shall indemnify and defend
the Company, CarrAmerica, Omni UK, LuxCo and the respective stockholders,
officers and directors of such entities against all losses, liabilities, claims,
damages and expenses that arise from any claims made by any stockholders,
employees, officers or directors of RSI or VANTAS to the extent relating to (i)
any failure of the parties to consummate any of the Merger Transactions for any
reason other than as a result of a breach by the Company, CarrAmerica, Omni UK
or LuxCo of the Merger Agreement, the Stock Purchase Agreement or the UK
Agreement after the date of this Amendment, and (ii) the integration of
operations of the Company, Omni UK, LuxCo and VANTAS, including wrongful
discharge claims by any current or former employees of VANTAS. The provisions
of this paragraph 6 shall terminate on the Closing Date; provided that the
indemnification obligations with respect to any claim covered by this paragraph
6 that is asserted by any of the foregoing indemnified parties after the date
hereof (whether or not the underlying action giving rise to the claim occurred
before or after the date hereof) and on or prior to the Closing Date shall
survive until such claim is finally resolved.
7. RSI and VANTAS represent and warrant that attached hereto as
Exhibits L and M are correct and complete copies of all term sheets and
- ----------------
commitment letters setting forth all material terms of all debt and equity
arrangements (including all joint venture and other ancillary arrangements)
proposed to be implemented by VANTAS to finance (or in connection with the
-14-
<PAGE>
financing of) the Merger Transactions (the "Financing Exhibits"). RSI and VANTAS
shall cause the terms and conditions of any issuances of debt or equity
(including the execution of any joint venture agreement, operating agreement or
other ancillary arrangement) prior to or in connection with the Merger
Transactions to be the same in all material respects as the terms and conditions
set forth in such Financing Exhibits and shall not make or permit any material
additional term not included in the Financing Exhibits without the prior written
consent of the Company and CarrAmerica. Prior to the Closing, RSI and VANTAS
shall, and shall cause their respective Subsidiaries to, use commercially
reasonable efforts to give the Company and CarrAmerica and their respective
officers, employees, representatives, counsel and accountants and their
respective counsel, auditors and authorized representatives full access, during
normal business hours and upon reasonable notice, to the proposed financing
sources of RSI and VANTAS. RSI and VANTAS shall use commercially reasonable
efforts to ensure that their proposed financing sources are available to and
cooperate with the Company and CarrAmerica. Prior to the Closing, RSI and VANTAS
shall provide weekly reports on the first business day of each week regarding
the status of the financing arrangements. RSI and VANTAS hereby (i) authorize
the Company and CarrAmerica to discuss the terms of the proposed financing
arrangements with the proposed financing sources of RSI and VANTAS, and (ii)
agree that any such discussions by the Company, CarrAmerica and any proposed
financing sources of RSI and VANTAS shall not be deemed to constitute
interference by the Company or CarrAmerica with the proposed financing
arrangements of RSI or VANTAS.
8. Attached as Exhibit N is a summary term sheet containing possible
---------
joint venture terms involving one of the proposed equity financing sources for
VANTAS. Prior to the Closing and thereafter for as long as the stockholders of
the Company immediately prior to the Closing who retain an interest in Holdco
immediately following the Closing (the "Continuing Stockholders") collectively
retain a direct or indirect 10% interest in Holdco, neither RSI nor VANTAS, as
applicable, directly or indirectly shall make or permit any term or condition to
deviate in any material respect from any of the terms or conditions set forth in
the JV Term Sheet or make or permit any additional term not included in the JV
Term Sheet without the prior written consent of the Company and CarrAmerica (if
at or prior to the Closing) or Continuing Stockholders owning a majority of the
aggregate number of shares of Holdco owned by the Continuing Stockholders at the
time such approval is required (if after the Closing), which consent will not be
unreasonably withheld.
9. The Company and CarrAmerica represent and warrant, each as to
itself only, that each of the Company and CarrAmerica has the requisite capacity
and authority, and has taken all action necessary in order, to execute, deliver
and
-15-
<PAGE>
perform its respective obligations under this Amendment. This Amendment is a
legal, valid and binding obligation of each of CarrAmerica and the Company,
enforceable in accordance with its terms, except insofar as enforcement thereof
may be limited by bankruptcy, insolvency or other laws relating to or affecting
enforcement of creditors' rights generally including such general equitable
principles as may apply in the enforcement of creditors' rights.
10. RSI and VANTAS represent and warrant, each as to itself only,
that each of RSI and VANTAS has the requisite capacity and authority, and has
taken all action necessary in order, to execute, deliver, and perform its
respective obligations under this Amendment. This Amendment is a legal, valid
and binding obligation of each of RSI and VANTAS, enforceable in accordance with
its terms, except insofar as enforcement thereof may be limited by bankruptcy,
insolvency or other laws relating to or affecting enforcement of creditors'
rights generally including such general equitable principals as may apply in the
enforcement of creditors' rights.
11. This Amendment and the other agreements referred to herein
represent the entire understanding of the parties with respect to the subject
matter contained herein. This Amendment may not be amended, modified or waived
except in a writing signed by the party against whom enforcement of such
amendment, modification or waiter is sought. This Amendment shall be construed
and interpreted in accordance with the internal laws of the State of Delaware,
without reference to the conflict of laws principles contained therein. This
Amendment may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which, when taken together, shall constitute one
and the same instrument.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
HQ GLOBAL WORKPLACES, INC.
By: /s/ Jill B. Louis
--------------------
Name: Jill B. Louis
Title: Vice President and General Counsel
VANTAS INCORPORATED
By: /s/ Steven M. Rathkopf
-------------------------
Name: Steven M. Rathkopf
Title: Secretary
CARRAMERICA REALTY CORPORATION
By: /s/ Karen B. Dorigan
-----------------------
Name: Karen B. Dorigan
Title: Managing Director
FRONTLINE CAPITAL GROUP
By: /s/ Jason Barnett
--------------------
Name: Jason Barnett
Title: Executive Vice President
-17-
<PAGE>
Exhibit 10.7
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Amendment") is
entered into by and between CarrAmerica Realty Corporation ("Seller") and
FrontLine Capital Group (formerly known as Reckson Services Industries, Inc.)
("Buyer") as of April 29, 2000.
RECITALS:
WHEREAS, Seller and Buyer entered into a Stock Purchase Agreement
dated as of January 20, 2000 (such agreement as heretofore, hereby and
hereinafter amended, the "Stock Purchase Agreement") pursuant to which Seller
agreed to sell shares of common stock of HQ Global Workplaces, Inc. (the
"Company") owned by it to Buyer on the terms set forth therein;
WHEREAS, the parties hereto wish to make certain amendments to the
Stock Purchase Agreement; and
WHEREAS, capitalized terms not otherwise defined herein shall have the
meanings set forth in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth herein, the parties, intending to be legally
bound, agree as follows:
1. The second sentence of Section 4(c)(ii) of the Stock Purchase
Agreement is hereby deleted in its entirety and replaced by the following:
"Other than (i) this Agreement, (ii) the Amended and Restated
Stockholders Agreement dated as of September 29, 1998 by and among the
Company, Seller and certain other stockholders of the Company (the
"Existing Stockholders Agreement"), and (iii) any stockholders
agreement to be executed in connection with the Closing hereunder,
none of the Shares are subject to any agreement, contract, commitment,
understanding or arrangement, including any such agreement, contract,
commitment, understanding or arrangement restricting or otherwise
relating to the voting, dividend rights or disposition of the Shares."
2. The last sentence of Section 5(c) of the Stock Purchase Agreement
is hereby deleted in its entirety and replaced with the following:
<PAGE>
"No consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required to be obtained or made by or with respect to the Buyer in
connection with the execution, delivery, performance of this Agreement
by the Buyer or the consummation of the transactions contemplated
hereby."
3. Section 5 of the Stock Purchase Agreement is hereby amended by
adding the following section:
"(d) Investment Representation. Each party acquiring Shares
-------------------------
hereunder will be receiving the Shares for his or its own account for
investment only and not with a view towards distribution or resale.
Each party acquiring Shares hereunder will either be an "accredited"
investor within the meaning of Rule 501 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), or will
have such knowledge and experience in financial and business matters
that such party is capable of evaluating the merits and risks of
investment in the Shares and will be able to bear the economic risk of
its investment in the Shares. Each party acquiring Shares hereunder
acknowledges that any routine sale of such Shares made in reliance
upon Rule 144 promulgated under the Securities Act can be made only in
accordance with the terms and conditions of such Rule and further,
that in case such Rule is not applicable to any sale of the Shares,
resale thereof may require compliance with some other exemption under
the Securities Act prior to resale. Each party acquiring Shares
hereunder acknowledges that the certificates representing the Shares
issued pursuant to this Agreement shall bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO UNDER SUCH ACT
OR AN OPINION OF COUNSEL THAT AN EXEMPTION FROM REGISTRATION FOR SUCH
SALE, OFFER, TRANSFER, HYPOTHECATION OR OTHER ASSIGNMENT IS AVAILABLE
UNDER SUCH ACT.""
4. Section 12(a)(iv) is hereby deleted in its entirety and replaced
with the following:
2
<PAGE>
"by the Seller or Buyer (provided, however, in the case of Buyer, only
if Buyer has given the Seller at least five business days' prior
written notice of its intention to terminate pursuant to this Section
12(a)(iv), which notice may not be given prior to June 1, 2000), if
the Closing does not occur on or prior to May 31, 2000;"
5. Section 24 is hereby deleted in its entirety and replaced with
the following:
"24. Additional Signature Parties. At any time after the date
----------------------------
hereof and at or prior to five (5) business days prior to the Closing,
any other holder of Non-Voting Common Stock, any holder of voting
common stock, par value $.01 per share of the Company (the "Voting
Common Stock") and any holder of warrants to acquire shares of Non-
Voting Common Stock (the "Warrants") as of the date hereof shall be
permitted to execute and deliver to the Buyer an Additional Party
Signature Page substantially in the form of Annex B hereto (each such
party who executes and delivers to the Buyer such document, an
"Additional Stockholder Party"), pursuant to which such Additional
Stockholder Party shall be entitled, subject to the terms and
conditions herein, to become a "Seller" for all purposes of this
Agreement, and shall be entitled to sell to Buyer the number of shares
of Non-Voting Common Stock or Voting Common Stock or the number of
Warrants, held by such Additional Stockholder Party and set forth on
such Additional Party Signature Page on the same terms set forth in
this Agreement; provided that each holder of Warrants that elects to
sell Warrants hereunder shall be entitled to receive a price per
Warrant, equal to the Per Share Purchase Price, as adjusted hereunder,
minus the exercise price of such Warrant. Each Additional Stockholder
Party shall be deemed to have made the representations and warranties
of Seller herein and be bound by the other agreements of Seller
herein, and the shares of Non-Voting Common Stock and Voting Common
Stock and the Warrants sold by each such party shall be deemed
"Shares" for all purposes hereunder. To the extent that any
Additional Stockholder Party elects to sell shares of Non-Voting
Common Stock, shares of Voting Common Stock or Warrants, the number of
shares of Non-Voting Common Stock to be sold by CarrAmerica pursuant
to this Agreement shall be decreased by the number of shares of Non-
Voting Common Stock, shares of Voting Common Stock or Warrants, as
applicable, to be sold by such Additional Stockholder Party, it being
intended that the Buyer shall be entitled to and required to purchase
only the number of shares of Non-Voting Common Stock, shares of Voting
Common Stock and Warrants, in the aggregate from
3
<PAGE>
CarrAmerica and all Additional Stockholder Parties, shown as being
proposed to be sold by CarrAmerica on Exhibit A as delivered on
January 20, 2000; provided that, notwithstanding anything to the
contrary contained herein, in the event any Additional Stockholder
Party shall breach any representation or warranty or otherwise fail to
perform any of its obligations under this Agreement, CarrAmerica shall
have the right to make such representation or warranty and otherwise
perform such obligations on behalf of such Additional Stockholder
Party. If Warrants are sold to Buyer pursuant to this Section 24,
Buyer will immediately exercise such Warrants and pay the exercise
price therefor to the Company (or its successors)."
6. Simultaneously with the execution of this Amendment, RSI shall
contribute $1,350,000 to VANTAS and VANTAS shall pay $1,350,000 in cash (the
"Company Stockholder Extension Payment") to the Company, as agent for the
stockholders of the Company who have elected to sell all or a portion of their
shares in the Company, as compensation for the extension of the Closing Date
from April 30, 2000 to May 31, 2000, which funds shall be distributed by the
Company on a pro rata basis to such stockholders based on the percentage of
shares being sold by each such stockholder divided by the total number of shares
being sold. The Company Stockholder Extension Payment is nonrefundable and will
not be used to adjust the consideration otherwise payable in connection with the
consummation of the transactions contemplated by the Stock Purchase Agreement.
7. Seller represents and warrants that Seller has the requisite
capacity and authority, and has taken all actions necessary in order, to
execute, deliver and perform its obligations under this Amendment. This
Amendment is a legal, valid and binding obligation of Seller, enforceable in
accordance with its terms, except insofar as enforcement thereof may be limited
by bankruptcy, insolvency or other laws relating to or affecting enforcement of
creditors' rights generally including such general equitable principles as may
apply in the enforcement of creditors' rights.
8. Buyer represents and warrants that Buyer has the requisite
capacity and authority, and has taken all actions necessary in order, to
execute, deliver and perform its obligations under this Amendment. This
Amendment is a legal, valid and binding obligation of Buyer, enforceable in
accordance with its terms, except insofar as enforcement thereof may be limited
by bankruptcy, insolvency or other laws relating to or affecting enforcement of
creditors' rights generally including such general equitable principles as may
apply in the enforcement of creditors' rights.
4
<PAGE>
9. This Amendment and the other agreements referred to herein
represent the entire understanding of the parties with respect to the subject
matter contained herein. This Amendment may not be amended, modified or waived
except in a writing signed by the party against whom enforcement of such
amendment, modification or waiver is sought. This Amendment shall be construed
and interpreted in accordance with the laws of the State of Delaware, without
reference to the conflict of laws principles contained therein. This Amendment
may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which, when taken together, shall constitute one and the
same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
CARRAMERICA REALTY CORPORATION
By: /s/ Karen B. Dorigan
-----------------------
Name: Karen B. Dorigan
Title: Managing Director
FRONTLINE CAPITAL GROUP
By: /s/ Jason Barnett
-------------------
Name: Jason Barnett
Title: Executive Vice President
6
<PAGE>
Exhibit 10.8
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Amendment") is
entered into by and among CarrAmerica Realty Corporation ("CarrAmerica"),
OmniOffices (UK) Limited ("Omni UK"), OmniOffices (Lux) 1929 Holding Company
S.A. ("LuxCo"), VANTAS Incorporated ("VANTAS") and FrontLine Capital Group
(formerly known as Reckson Services Industries, Inc.) ("RSI") as of April 29,
2000.
RECITALS:
WHEREAS, CarrAmerica, Omni UK, LuxCo, VANTAS and RSI entered into a
Stock Purchase Agreement dated as of January 20, 2000 (such agreement, as
heretofore, hereby and hereinafter amended, the "UK Agreement") pursuant to
which CarrAmerica agreed to sell shares of common stock of Omni UK and LuxCo
owned by it together with its interest in certain loans made by it to Omni UK
and LuxCo to VANTAS on the terms set forth therein;
WHEREAS, VANTAS, RSI, CarrAmerica, Omni UK and LuxCo have executed an
Agreement dated as of March 13, 2000, as amended, pursuant to which such parties
agreed to authorize certain actions governed by the UK Agreement;
WHEREAS, the parties hereto wish to make certain additional amendments
to the UK Agreement; and
WHEREAS, capitalized terms not otherwise defined herein shall have the
meanings set forth in the UK Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth herein, the parties, intending to be legally
bound, agree as follows:
1. The second and third recitals of the UK Agreement are hereby
deleted in their entirety and replaced with the following:
"WHEREAS, CarrAmerica has made certain loans to Omni UK and LuxCo as
described on Exhibit B attached hereto, and may make additional loans
to Omni UK and LuxCo as contemplated by Section 4.1(b)(iii) hereof
(collectively, the "Loans"), which Loans are or will be evidenced by
promissory notes, the date and denominations of which as of the date
hereof are set forth on Exhibit B (the "Notes");
<PAGE>
WHEREAS, CarrAmerica desires to sell and transfer to VANTAS and VANTAS
desires to purchase from CarrAmerica (i) the Notes in exchange for an
amount equal to the principal amount of, and any accrued and unpaid
interest with respect to, the Notes outstanding as of the Closing Date
in accordance with Section 1.2 (the "Loan Consideration"), and (ii)
all of the shares of non-voting common stock, par value (Pounds).01
per share, of Omni UK (which represents approximately 95% of the
equity interest in Omni UK) (the "UK Non-Voting Common Stock") and all
of the shares of non-voting common stock, par value $250 per share, of
LuxCo (which represents approximately 95% of the equity interest in
LuxCo) (the "Lux Non-Voting Common Stock"; and together with the UK
Non-Voting Common Stock, collectively, the "Shares") owned of record
by the Seller for total consideration equal to the "Share
Consideration" as calculated pursuant to Annex A (the "Share
Consideration");"
2. Section 2.3 of the UK Agreement is hereby amended by inserting
the following at the end of Section 2.3:
"Notwithstanding anything to the contrary contained herein, the
parties acknowledge that, in connection with the consummation of the
transactions contemplated by the Merger Agreement, the consent of the
general partner of Mercury Executive Offices, L.P. may be required
under the Limited Partnership Agreement dated November 16, 1998 and
the management agreements related thereto; it being understood that
Omni UK, LuxCo, VANTAS and RSI shall use commercially reasonable
efforts to obtain such consent."
3. Section 2.12(a) of the UK Agreement is hereby amended by deleting
the first sentence in its entirety and replacing it with the following:
"Neither of the Companies nor any of their respective Subsidiaries
owns any real property or interests in real property, other than
OmniUK Real Property Leases (as defined below), LuxCo Real Property
Leases (as defined below), the OmniUK Owned Property (as defined
below) and certain interests in certain real property assets held
directly or indirectly through the MAM Investment (as defined below)."
4. The provision immediately following Section 2.13(j) on page 12 of
the UK Agreement is hereby deleted in its entirety and replaced with the
following:
2
<PAGE>
"; provided, however, that notwithstanding anything to the contrary
contained herein other than any contracts relating to office
equipment, maintenance or service for any individual business center
of the Companies or their respective Subsidiaries which does not
require annual payments in excess of $25,000, the sum of the aggregate
future liabilities and costs of termination associated with all
contracts, arrangements, agreements or understandings to which either
of the Companies or any of their respective Subsidiaries is a party or
by which they or any of their respective properties or assets which
are not set forth on Schedule 5.2, 2.13 or 2.16 is bound does not
exceed $5,000,000."
5. Section 2.28 of the UK Agreement is hereby deleted in its
entirety and replaced with the following:
"Section 2.28 MAM Investment. OmniUK and certain of its Subsidiaries
--------------
have agreed to invest up to (Pounds)20 million in Mercury Executive
Offices, L.P. on the terms and conditions set forth in the limited
partnership agreement, dated November 16, 1998 (the "MAM Investment"),
of which at least (Pounds)15,594,241 has been funded. Notwithstanding
anything to the contrary contained herein, the parties acknowledge
that, in connection with the consummation of the transactions
contemplated by the Merger Agreement, the consent of the general
partner of Mercury Executive Offices, L.P. may be required under the
Limited Partnership Agreement dated November 16, 1998 and the
management agreements related thereto; it being understood that Omni
UK, LuxCo, VANTAS and RSI shall use commercially reasonable efforts to
obtain such consent."
6. Section 4.1(b)(iii) of the UK Agreement is hereby deleted in its
entirety and replaced with the following:
"incur or assume any liabilities or incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other
individual, corporation or entity (other than a wholly owned
Subsidiary) except pursuant to contracts or agreements listed in
Schedule 2.13 or except for loans and equity investments (which shall
be deemed to be included on Exhibit A or Exhibit B, as applicable,
attached hereto) by CarrAmerica necessary to fund the business of the
Companies in the ordinary course or to fund committed developments;"
7. Section 4.1(b)(v) of the UK Agreement is hereby deleted in its
entirety and replaced with the following:
3
<PAGE>
"make any material change in any Omni UK Real Property Lease or LuxCo
Real Property Lease, as applicable, or other contracts or enter into,
renew, fail to renew, terminate or permit to be terminated any Omni UK
Real Property Lease or LuxCo Real Property Lease, as applicable, any
other contract or agreement that calls for aggregate annual payments
of $25,000 or more and which either (i) is not terminable by either of
the Companies or their respective Subsidiary, as applicable, at will
on 60 days or less notice without payment of a penalty or (ii) has a
term of more than six months, other than the operating leases and
related letters of comfort executed by Omni UK, LuxCo or any
Subsidiaries thereof with respect to development and refurbishment
projects identified in the CapEx Budget, as contemplated by the
operating budgets for those projects;"
8. Section 5.5 of the UK Agreement is hereby amended by inserting
the following sentence at the end of such section:
"Not later than six months after the Closing, the Second Step
Surviving Corporation shall reimburse CarrAmerica, as agent for itself
and the stockholders of HQ Global Workplaces, Inc. ("HQ Global")
immediately prior to the Closing (based on their proportionate
indirect beneficial interests in Omni UK and LuxCo), for any
additional lease deposits of Omni UK and LuxCo that are not identified
on the disclosure schedules delivered in connection with the execution
of this Agreement; provided that the Second Step Surviving Corporation
is provided with a schedule of such additional lease deposits at or
prior to Closing."
9. Article 5 of the UK Agreement is hereby amended by adding the
following sections at the end of such Article 5:
"Section 5.6 MAM Hammersmith Center. RSI and VANTAS hereby consent
----------------------
to the development of the MAM Hammersmith center. Immediately
subsequent to the Closing, the Second Step Surviving Corporation shall
reimburse CarrAmerica, as agent for itself and the stockholders of HQ
Global immediately prior to the Closing (based on their proportionate
indirect beneficial interests in Omni UK and LuxCo), for any costs
that have been or will be incurred prior to Closing in connection with
the development of the MAM Hammersmith center; provided that the
Second Step Surviving Corporation is provided with a schedule of such
amounts at or prior to Closing.
4
<PAGE>
Section 5.7 Prepaid Rent; Tenant Reimbursement. Immediately
----------------------------------
subsequent to the Closing, the Second Step Surviving Corporation shall
pay to CarrAmerica, as agent for itself and the stockholders of HQ
Global immediately prior to the Closing (based on their proportionate
indirect beneficial interests in Omni UK and LuxCo), $576,000, which
represents the amount of rent of Omni UK and LuxCo that was prepaid
for the period after Closing;; provided that the Second Step Surviving
Corporation is provided with a schedule of such amounts at or prior to
Closing.
Section 5.8 Capital Expenditures and Cash Fundings. Immediately
---------------------------------------------------
subsequent to the Closing, the Second Step Surviving Corporation shall
reimburse CarrAmerica, as agent for itself and the stockholders of HQ
Global immediately prior to the Closing (based on their proportionate
indirect beneficial interests in Omni UK and LuxCo), for all capital
expenditures and development expenses of Omni UK or LuxCo incurred
after April 30, 2000 and prior to Closing, including amounts funded to
enable Omni UK to satisfy its capital commitments with respect to the
MAM Investment; provided that the Second Step Surviving Corporation is
provided with a schedule of such amounts at or prior to Closing.
Section 5.9 Side Letter. At Closing, VANTAS shall assume the
-----------
obligations of CarrAmerica with respect to that certain Side Letter
dated as of November 16, 1998 by and among HQMerc UK Management
Limited ("HQ Merc"), P.R.A. Investments Limited ("PRA"), P.K.
Investments Limited ("PKL"), Peter Allport ("Allport"), Peter Kershaw
("Kershaw"), HQ Holdings Limited ("HQ Holdings") and CarrAmerica and
that certain Side Letter dated as of November 16, 1998 by and among HQ
Merc UK Partnership Limited, PRA, PKL, Allport, Kershaw, HQ Holdings
and CarrAmerica."
10. Section 6.2(b) of the UK Agreement is hereby deleted in its
entirety and replaced with the following:
"CarrAmerica shall have received the cash required by Sections 1.2,
5.3, 5.5, 5.6, 5.7 and 5.8."
11. All references to "April 30, 2000" in Article X(a)(iv), Article
X(a)(vi) and Article X(a)(vii) of the UK Agreement are hereby changed to "May
31, 2000."
12. All references to "May 1, 2000" in Article X(a)(iv) of the UK
Agreement are hereby changed to "June 1, 2000."
5
<PAGE>
13. The amount of the Loan Notes identified in Annex A to the UK
Agreement is hereby deleted and replaced with "21,229,392 (reduced by the amount
of any payments thereto prior to Closing)."
14. Simultaneously with the execution of this Amendment, RSI shall
contribute $900,000 to VANTAS and VANTAS shall pay $900,000 in cash (the "UK
Stockholder Extension Payment") to CarrAmerica, as compensation for the
extension of the Closing Date from April 30, 2000 to May 31, 2000. The UK
Stockholder Extension Payment is nonrefundable and will not be used to adjust
the consideration otherwise payable in connection with the consummation of the
transactions contemplated by the UK Agreement.
15. CarrAmerica, Omni UK and LuxCo represent and warrant, each as to
itself only, that each of CarrAmerica, Omni, UK and LuxCo has the requisite
capacity and authority, and has taken all actions necessary in order, to
execute, deliver and perform its obligations under this Amendment. This
Amendment is a legal, valid and binding obligation of each of CarrAmerica, Omni
UK and LuxCo, enforceable in accordance with its terms, except insofar as
enforcement thereof may be limited by bankruptcy, insolvency or other laws
relating to or affecting enforcement of creditors' rights generally including
such general equitable principles as may apply in the enforcement of creditors'
rights.
16. VANTAS and RSI represent and warrant that each of VANTAS and RSI
has the requisite capacity and authority, and has taken all actions necessary in
order, to execute, deliver and perform its obligations under this Amendment.
This Amendment is a legal, valid and binding obligation of each of VANTAS and
RSI, enforceable in accordance with its terms, except insofar as enforcement
thereof may be limited by bankruptcy, insolvency or other laws relating to or
affecting enforcement of creditors' rights generally including such general
equitable principles as may apply in the enforcement of creditors' rights.
17. This Amendment, the Merger Agreement, as amended, the Stock
Purchase Agreement, as amended, and the other agreements referred to herein and
therein represent the entire understanding of the parties with respect to the
subject matter contained herein. This Amendment may not be amended, modified or
waived except in a writing signed by the party against whom enforcement of such
amendment, modification or waiver is sought. This Amendment shall be construed
and interpreted in accordance with the laws of the State of Delaware, without
reference to the conflict of laws principles contained therein. This Amendment
may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which, when taken together, shall constitute one and the
same instrument.
6
<PAGE>
[signature page follows]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
CARRAMERICA REALTY CORPORATION
By: /s/ Karen B. Dorigan
-----------------------
Name: Karen B. Dorigan
Title: Managing Director
OMNIOFFICES (UK) LIMITED
By: /s/ Thomas A. Carr
---------------------
Name: Thomas A. Carr
Title: Director
OMNIOFFICES (LUX) 1929 HOLDING COMPANY S.A.
By: /s/ Thomas A. Carr
---------------------
Name: Thomas A. Carr
Title: Director
FRONTLINE CAPITAL GROUP
By: /s/ Jason Barnett
--------------------
Name: Jason Barnett
Title: Executive Vice President
VANTAS INCORPORATED
By: /s/ Steven M. Rathkopf
-------------------------
Name: Steven M. Rathkopf
Title: Secretary
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARRAMERICA
REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF MARCH 31,
2000 AND FROM CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 57,398
<SECURITIES> 0
<RECEIVABLES> 29,113
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,133,131
<DEPRECIATION> 348,860
<TOTAL-ASSETS> 3,477,034
<CURRENT-LIABILITIES> 0
<BONDS> 1,609,911
0
93
<COMMON> 671
<OTHER-SE> 1,678,468
<TOTAL-LIABILITY-AND-EQUITY> 3,477,034
<SALES> 0
<TOTAL-REVENUES> 141,566
<CGS> 0
<TOTAL-COSTS> 113,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 36,207
<INCOME-TAX> 0
<INCOME-CONTINUING> 33,152
<DISCONTINUED> (1,380)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,772
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.34
</TABLE>
