-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q/xMhXv9DAnITYu6TtQPNk4yESHEozfjaecX/ZWAsZb1vcjdfpP0nseM7Y36JdgW 9bahZMdaZHUoDtwLqDYi1g== 0000928385-00-001035.txt : 20000331 0000928385-00-001035.hdr.sgml : 20000331 ACCESSION NUMBER: 0000928385-00-001035 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARRAMERICA REALTY L P CENTRAL INDEX KEY: 0001040554 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 521976308 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-22741 FILM NUMBER: 587280 BUSINESS ADDRESS: STREET 1: 1850 K STREET N W SUITE 500 CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 2027297500 MAIL ADDRESS: STREET 1: 1850 K STREET N W SUITE 500 CITY: WASHINGTON STATE: DC ZIP: 20006 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 1999 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file Number 0-22741 CARRAMERICA REALTY, L.P. ------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 52-1976308 -------- ---------- (State or other Jurisdiction or (I.R.S. Employer Identification No.) Incorporation or Organization) 1850 K Street, N.W. Washington, D.C. 20006 ---------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, Including area code: (202) 729-7500 Securities registered pursuant to Section 12(b) of the Act: NONE Securities to be registered pursuant to Section 12(g) of the Act: Units of Partnership Interest Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No_____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| As of March 27, 2000, assuming that each unit of partnership interest has the same value as a share of common stock of CarrAmerica Realty Corporation (into which such units may be redeemed) the aggregate market value of the 1,679,241 units of partnership Interest held by non-affiliates of the registrant was approximately $35.1 million, based upon the closing price of a share of common stock of CarrAmerica Realty Corporation of $20.8750 on the New York Stock Exchange composite tape on such date. PART 1 Item 1. BUSINESS General CarrAmerica Realty, L.P., a Delaware limited partnership (the "Partnership"), was organized in March 1996, and its activities include the acquisition, development, ownership and operation of office properties primarily in select growth markets across the United States. The Partnership's portfolio, as of December 31, 1999, consisted of (i) 66 operating properties containing approximately 6.1 million rentable square feet of space located in Austin, Denver, Dallas, Salt Lake City, Chicago, Phoenix, San Diego, Seattle, San Francisco Bay area and Orange County/Los Angeles (the "Properties"), (ii) four properties under construction that will contain approximately 0.4 million square feet of office space, and (iii) land that is expected to support the future development of up to 1.0 million square feet of office space. The Properties owned as of December 31, 1999 were 97.0% leased as of that date. Each of the Properties is wholly owned by the Partnership. The Partnership is managed indirectly by CarrAmerica Realty Corporation, a Maryland corporation (together with its subsidiaries, including the Partnership, "CarrAmerica"). CarrAmerica indirectly serves as the sole general partner of the Partnership and indirectly owned approximately 88% of the units of partnership interest ("Units") in the Partnership as of December 31, 1999. CarrAmerica is a real estate investment trust (a "REIT") for federal income tax purposes and its shares of common stock, $.01 par value per share ("Common Stock"), are listed on the New York Stock Exchange under the symbol "CRE." CarrAmerica is a fully integrated, self-administered and self-managed REIT that focuses primarily on the acquisition, development, ownership and operation of office properties in select growth markets across the United States. As of December 31, 1999, CarrAmerica owned a greater than 50% interest in a portfolio of 271 operating office properties, and 22 properties under construction. These 271 operating properties contain an aggregate of approximately 23 million square feet of net rentable area and the 22 properties under construction will contain approximately 1.3 million square feet. The operating properties owned by CarrAmerica as of December 31, 1999 were 97.4% leased as of that date, with approximately 2,000 tenants. For more complete information regarding CarrAmerica, see CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1999 (the "1999 CarrAmerica 10-K"). CarrAmerica and its predecessor, The Oliver Carr Company ("OCCO"), have developed, owned and operated office buildings in the Washington, D.C. metropolitan area for more than 37 years. In November 1995, CarrAmerica announced a strategic alliance with a wholly-owned subsidiary of Security Capital U.S. Realty (together with Security Capital U.S. Realty, "SC-USREALTY"), a European real estate operating Company which owns strategic positions in selected real estate companies in the United States. As of December 31, 1999, SC-USREALTY owned approximately 42.8% of the outstanding common stock of CarrAmerica. CarrAmerica organized and administers the Partnership as a means of acquiring, developing, owning and operating certain properties within its portfolio. All of the Partnership's properties, as well as its financial condition and results of operations, are reported as part of the consolidated properties, financial condition and results of operations of CarrAmerica. The Partnership is required to report separately by means of this Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission because it is the guarantor of certain publicly held debt of CarrAmerica. As of December 31, 1999, approximately 24% of the total assets of CarrAmerica were owned by the Partnership or its subsidiaries. The Partnership is capitalized through the issuance of Units. CarrAmerica, through its wholly-owned subsidiary, CarrAmerica Realty GP Holdings, Inc., a Delaware corporation ("GP Holdings"), serves as the sole general partner of the Partnership and owned a 1% general partner interest (in the form of Units) in the Partnership as of December 31, 1999. In addition, CarrAmerica, through its wholly owned subsidiary, CarrAmerica Realty LP Holdings, Inc., a Delaware corporation ("LP Holdings"), owned an approximate 87% limited partnership interest (in the form of Units) in the Partnership as of December 31, 1999. The remaining Units are owned by persons who received such Units in connection with the contribution to the Partnership of interests in certain Properties. The Partnership has 110 employees, including 85 on-site employees. 1 Business Strategy The Partnership is an integral part of CarrAmerica, and its operations and strategic direction are defined by CarrAmerica. CarrAmerica's primary business objectives are to achieve long-term sustainable per share cash flow growth and to maximize stockholder value through a strategy of (i) acquiring, developing, owning and operating office properties primarily in markets throughout the United States that exhibit strong, long-term growth characteristics and (ii) maintaining and enhancing a national operating system that provides corporate users of office space with a mix of products and services to meet their workplace needs at both the national and local level. The Partnership's major segment of operation includes real estate property operations. Real estate property operations include the ownership of commercial real estate. Such operations comprise approximately 97% of the Partnership's revenues and approximately 92% of the Partnership's assets. The Partnership's investment in development operations represents approximately 3% of the Partnership's assets. Real Estate Property Operations Core Markets. CarrAmerica continues to focus its development activities within its 14 core markets in the United States, which generally possess strong long- term growth characteristics. Within these markets, CarrAmerica is targeting specific submarkets in which (i) operating costs for businesses are relatively low, (ii) long-term population and job growth generally are expected to exceed the national average, (iii) large, well-educated employment pools exist, and (iv) barriers to entry exist for new supplies of office space. CarrAmerica has established a local presence in each of its target markets through its investment activity and through relationships established by its experienced Market Managing Directors. CarrAmerica's core markets include the following: Atlanta, Austin, Chicago, Dallas, Denver, Boca Raton (Florida), Orange County/Los Angeles, Phoenix, Portland (Oregon), Salt Lake City, San Diego, San Francisco Bay Area, Seattle and metropolitan Washington, D.C. CarrAmerica has established for each of its identified 14 core markets a set of general guidelines and physical characteristics to evaluate investment opportunities. All investment decisions are driven by real estate research, focusing on variables such as composition of economic base rate, and composition of job growth and office space supply and demand fundamentals. As of December 31, 1999, the distribution of the Partnership's real estate property operations (on a net rentable square foot basis) was as follows: 52% in its Central region, primarily in Austin, Dallas and Chicago; 34% in its Mountain region, primarily in Denver, Salt Lake City and Phoenix; and 14% in its Pacific region, primarily in Seattle, and the California markets of San Mateo, Orange County, Los Angeles and San Diego. Operating Property Acquisitions. In November 1995, CarrAmerica implemented a major initiative to acquire operating office properties in order to establish the operating platform for its national business strategy. Between January 1, 1996 and October 31, 1998, CarrAmerica acquired 302 operating properties containing approximately 20.3 million square feet resulting in an approximate 550% increase in the total square footage of operating properties in which CarrAmerica has a majority interest. These properties were acquired for an aggregate purchase price of approximately $2.5 billion. Since October 1998, CarrAmerica has not been focused on acquisitions as a catalyst for growth. National Operating System. As part of its business strategy, CarrAmerica has developed and will continue to enhance a national operating system to provide nationally coordinated customer service, marketing and development. CarrAmerica's national operating system consists of three components: (i) a Market Managing Director Group, currently consisting of 10 Market Managing Directors focused on developing and maintaining strong local relationships with CarrAmerica's customers and the brokerage community and identifying investment opportunities for CarrAmerica; (ii) a National Services Group, which is dedicated to marketing CarrAmerica's office space to a targeted list of companies; and (iii) a National Development Group, conducted through an affiliate, which is responsible for developing office properties, build-to-suit facilities and business parks. CarrAmerica's national operating system is designed to provide corporate users of office space with a mix of products and services to meet their workplace needs at both the national and local levels. CarrAmerica believes that through its existing portfolio of operating properties, property development opportunities and land acquired and currently held for future development, CarrAmerica can generate incremental demand through the relocation and expansion needs of many of its customers, both within a single core market and in multiple core markets. 2 Market Managing Director Group. The Market Managing Director Group currently consists of 10 Market Managing Directors who cover the 14 core markets in which CarrAmerica currently owns properties. These Market Managing Directors are responsible for maximizing the performance of CarrAmerica's properties in their markets and ensuring that the needs of CarrAmerica's customers are consistently being met. Because they meet with CarrAmerica's customers on a regular basis, Market Managing Directors are cognizant of and responsive to customers' relocation or expansion needs. The Market Managing Directors have extensive knowledge of local conditions in their respective markets and, therefore, are invaluable in identifying attractive investment opportunities in their markets. In addition, through their contact with customers, Market Managing Directors are well positioned to help the National Services Group identify customers with new build-to-suit and multi-market requirements. National Services Group. The Company established the National Services Group in 1997. This group is responsible for marketing CarrAmerica's properties, build- to-suit capabilities and the national scope of CarrAmerica's operations to a targeted list of major corporate users. The National Services Group acts as a primary point of contact for national customers, coordinating all of the office space CarrAmerica offers and giving corporate customers the opportunity to address their national space requirements efficiently and economically. National Development Group. The National Development Group is responsible for developing office properties, build-to-suit facilities and business parks. CarrAmerica's development team of over 40 professionals consisting of architects, engineers and construction professionals located across the United States who have an average of over 15 years of experience developing office properties. This team of development professionals oversees every aspect of CarrAmerica's land planning, building design, construction and development of office properties, ensuring that all projects meet the same high standards and uniform specifications in building design and systems. CarrAmerica believes that the National Development Group's expertise has given CarrAmerica a competitive edge in marketing its facilities and services to customers. Asset Optimization. As a component of its business strategy, CarrAmerica may dispose of assets that become inconsistent with its long-term strategic or return objectives or where market conditions for disposition are favorable. CarrAmerica then redeploys the proceeds of dispositions into other office properties (utilizing tax-deferred exchanges where possible). Consistent with this strategy, CarrAmerica disposed of 63 properties during 1999, containing approximately 3.8 million square feet for approximately $500.0 million in value. CarrAmerica recognized a gain of $54.8 million in conjunction with these transactions. CarrAmerica also may consider disposing of additional properties or interests in properties, some of which may be significant. CarrAmerica, however, has agreed with SC-USREALTY to use its reasonable efforts to dispose of properties through tax-deferred exchanges (and CarrAmerica also is subject to other similar restrictions with respect to certain properties acquired by the Partnership and Carr Realty, L.P.), which may limit its flexibility in effecting dispositions. In addition, tax laws applicable to REITs restrict CarrAmerica's ability to dispose of certain properties. Development Operations Development of office properties is an important component of CarrAmerica's growth strategy as attractive acquisition opportunities diminish due to the influx of capital into the office property market. CarrAmerica believes that long-term investment returns resulting from properties it develops generally will exceed those from properties it acquires, without the assumption of significantly increased investment risks. CarrAmerica minimizes its development risk by employing extensively trained and experienced development personnel, by avoiding the assumption of entitlement risk in conjunction with land acquisitions and by entering into guaranteed maximum price (GMP) construction contracts with seasoned and credible contractors. Most importantly, CarrAmerica carefully analyzes the supply and demand characteristics of a core market before commencing inventory development in the market. In general, CarrAmerica will only undertake inventory development (which excludes properties under construction that have been substantially pre-leased) in markets with strong real estate fundamentals, and then CarrAmerica generally will construct office buildings attractive to a wide range of office users. CarrAmerica's research- driven development program enables it to tailor its development activities in each core market, from inventory development, to build-to-suit projects, to holding land for future development. During 1999, CarrAmerica placed in service approximately 3.3 million square feet of office properties. The total cost of these development properties was $530.0 million and CarrAmerica expects that the first year stabilized unleveraged return of these properties will be 11.4%. As of December 31, 1999, CarrAmerica had approximately 1.3 million square feet of office space in 22 development projects underway which are expected to require a total investment by CarrAmerica of approximately $200.1 million. As of December 31, 1999, $116.0 million or 58.0% of the total expected investment, had been expended. CarrAmerica believes that having a significant land inventory to support future development provides it with a competitive advantage in responding to customers' needs for office space in markets with low vacancy rates, barriers to entry for new 3 supplies of office space and increasing rental rates. In addition to its portfolio of operating properties and projects currently under development, CarrAmerica owned or controlled, as of December 31, 1999, land in 10 of its core markets that is expected to support future development of up to 4.5 million square feet. Risk Factors For a discussion of certain risks associated with an investment in CarrAmerica and the Partnership, see "Item 1-Business The Company-Risk Factors" in the 1999 CarrAmerica 10-K, which information is hereby incorporated by reference. Financing Activity The Partnership entered into a joint venture with J.P. Morgan & Co. to purchase and develop 1201 F Street in downtown Washington, D.C. J.P. Morgan & Co. has become a 65% joint venture partner in the partnership that owns the property and has committed to provide its pro-rata share of the required expected capital of $71.8 million. In addition, Bank of America and Mass Mutual have provided or agreed to provide construction financing and permanent financing for this project. During the second quarter of 1999, the Partnership refinanced one loan totaling $15.0 million at a rate of 7.13% secured by two properties located in Orange County, California, which resulted in net proceeds to the Partnership of $4.9 million. 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 CarrAmerica and the Partnership 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 CarrAmerica and the Partnership, 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), governmental actions and initiatives, and environmental/safety requirements. Item 2. PROPERTIES General. As of December 31, 1999, the Partnership owned 66 operating office properties ranging from two to 12 stories each, located in 10 target markets across the United States. As of December 31, 1999, the Partnership also owned four office properties under development. Except as disclosed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," the Partnership has no immediate plans to renovate its operating office properties other than for routine capital maintenance. The Partnership believes its properties are adequately covered by insurance. The Partnership believes that, as a result of CarrAmerica's national operating system, market research capabilities, access to capital, and experience as an owner, operator and developer of office properties, the Partnership will continue to be able to identify and consummate acquisition and development opportunities and to operate its portfolio more effectively than competitors without such capabilities. The Partnership, however, competes in many of its core markets with other real estate operators, some of which may have been active in such markets for a longer period than the Partnership. 4 The following table sets forth certain information about each operating property owned by the Partnership as of December 31, 1999:
Average Total Base Net Annualized Rent Rentable Base Per Area Rent(3) Leased # of (square Percent (in Square Property Buildings feet)(1) Leased(2) thousands) Foot(4) Significant Tenants(5) - -------- --------- -------- --------- ---------- ------- ---------------------- Consolidated Properties - ----------------------- Southern California, Orange County/Los Angeles: South Coast Executive Center 2 161,787 89.6 3,216 22.19 State Compensation Insurance Fund (33%) 2600 W. Olive 1 144,831 100.0 3,685 25.44 The Walt Disney Company (89%) Bay Technology Center 2 107,481 100.0 1,393 12.96 AMRESCO (100%) San Diego: Jaycor 1 105,358 100.0 1,762 16.73 Jaycor, Inc. (100%) Northern California, San Francisco Bay Area: San Mateo I 1 70,000 100.0 2,562 36.60 Franklin Resources (100%) San Mateo II and III 2 141,404 98.9 4,464 31.92 Women.com Networks (38%), Franklin Resources, Inc. (30%) Seattle: Canyon Park Commons 1 95,290 100.0 1,342 14.08 Safeco Insurance Company of America (100%) Austin: Great Hills Plaza 1 135,333 100.0 2,637 19.49 Empire Funding (74%), Blue Cross (12%) Balcones Center 1 74,978 76.2 880 15.40 Medianet (29%) Park North 2 132,744 96.5 2,129 16.62 CSC Continuum Inc. (28%), Brent Rauht Engineering, Inc. (26%) City View Centre 3 136,183 100.0 2,357 17.31 Holt, Rinehart & Winston (48%), Money Star Communications (47%) Riata 2, 4, 5, 6, 8, 9 6 519,313 98.9 8,004 15.59 Lucent Technologies (35%), Janus Capital Corporation (28%), Pervasive Software (13%) Tower of the Hills 2 166,034 96.7 2,784 17.34 Texas Guaranteed Student (65%) City View Center 1 128,716 100.0 2,073 16.10 IXC Communications, Inc. (100%) Riata Crossing 1, 2, 3 3 265,177 100.0 4,993 18.83 EDS (100%) Chicago: Bannockburn I & II 2 210,257 88.8 2,804 15.01 IMC Global (38%), Deutsche Credit Corporation. (12%) Bannockburn IV 1 108,469 100.0 1,678 15.47 Open Text (35%), Abbott Laboratories (13%), NY Life Insurance (10%) Dallas: Quorum North 1 116,044 88.4 1,953 19.03 Digital Matrix Systems (20%), HQ Dallas Quorum North (17%) Quorum Place 1 178,210 97.5 3,130 18.00 VHASouthwest, Inc. (22%), Objectspace (11%) Cedar Maple Plaza 3 113,127 95.6 2,138 19.78 Avreafoster, Inc. (10%) Two Mission Park 1 77,710 96.9 1,201 15.94 Macromedia, Inc. (33%), Bland Garvey and Taylor (18%) 5000 Quorum 1 159,712 96.8 2,830 18.31 Decision Consultants, Inc. (10%) Royal Ridge A & B 2 247,239 100.0 4,457 18.03 GTE North, Inc. (59%), Cendant Operations (16%), Capital One Services, Inc. (15%) Commons at Las Colinas 1, 3 2 380,764 100.0 9,380 24.64 Nokia (100%)
5
Average Total Base Net Annualized Rent Rentable Base Per Area Rent(3) Leased # of (square Percent (in Square Property Buildings feet)(1) Leased(2) thousands) Foot(4) Significant Tenants(5) - -------- --------- -------- --------- ---------- ------- ---------------------- Denver: Harlequin Plaza 2 329,100 88.6 4,848 16.62 Travelers Insurance (23%), Bellco First Federal Credit Union (13%), Regis University (11%) Quebec Court I 1 130,000 100.0 2,014 15.50 Time Warner Communications (100%) Quebec Court II 1 157,294 100.0 2,162 13.75 Tele-Communications, Inc. (100%) Quebec Center 3 106,865 98.3 1,732 16.49 Gordon Gumeson & Associates (13%), Walberg & Dagner (11%) Panorama Corporate Center I 1 100,881 93.2 1,901 20.22 AT&T Corporation (70%), Sprint Spectrum, LP (11%) Panorama II 1 100,916 100.0 2,147 21.28 Hartford Fire Insurance Company (38%), 3COM Corporation (18%), Toyota Motor Credit Corporation (13%), Archstone Communities (12%) Phoenix: US West 4 532,506 100.0 8,795 16.52 US West Business Resources (100%) Concord Place 1 133,555 78.8 2,276 21.63 Peacock, Hislop, Staley & Given (16%) Salt Lake City: Sorenson Research Park 5 285,869 99.7 3,436 12.06 Convergys Customer Management Group (46%), Datachem Laboratories, Inc. (20%), Intel Corporation (14%), ITT Educational Services (12%) Wasatch Corporate Center 3 178,231 100.0 2,129 11.95 Advanta Financial Corporation (28%), Achieve Global, Inc. (23%), Fonix Corporation. (14%), Tenfold Corporation (14%), Musicians Friend, Inc. (12%) Wasatch Corporate Center 18 1 49,886 98.2 710 14.50 Citrix Systems (51%), Western Aggregates, Inc. (38%), Sprint Paranet, Inc. (10%) - --------- ----- -------- ------ TOTAL CONSOLIDATED PROPERTIES: 66 6,081,264 $106,002 -- --------- -------- WEIGHTED AVERAGE 97.0% $17.97 ----- ------
______________ (1) Includes office and retail space but excludes storage space. (2) Includes space for leases that have been executed and have commenced as of December 31, 1999. (3) Total annualized base rent equals total original base rent, including historical contractual increases and excluding (i) percentage rents, (ii) additional rent payable by tenants such as common area maintenance, real estate taxes and other expense reimbursements, (iii) future contractual or contingent rent escalations, and (iv) parking rents. (4) Calculated as total annualized base rent divided by net rentable area leased. (5) Includes tenants leasing 10% or more of rentable square footage (with the percentage of rentable square footage in parentheses). 6 Occupancy, Average Rentals and Lease Expirations. As of December 31, 1999, 97.0% of the aggregate net rentable square footage in the Partnership's 66 operating office properties was leased. The following table sets forth the percent leased and average annualized rent per leased square foot (excluding storage space) for office and retail space combined for the past three years at each of the dates indicated:
Average Percent Annualized Rent Number of Leased at Per Leased Consolidated December 31, Year End Square Foot (1) Properties - ------------------ --------------- --------------------- ----------------- 1999 97.0% $20.76 66 1998 96.8 19.33 59 1997 96.4 17.10 53
_____________________ (1) Calculated as total annualized building operating revenue, including tenant reimbursements for operating expenses and excluding parking and storage revenue, divided by the total square feet, excluding storage, in the building under lease at year end. The following table sets forth a schedule of the lease expirations for leases in place as of December 31, 1999 in each of the next ten years beginning with 2000 and thereafter for the Partnership's 66 operating office properties, assuming that no tenants exercise renewal options:
Net Annual Percent of Number of Rentable Area Base Rent Total Annual Tenants Subject to Under Base Rent Year With Expiring Expiring Represented of Lease Expiring Leases(1) Leases by Expiring Expiration Leases (square feet) (in thousands) Leases - -------------------------------------------------------------------------------- 2000 103 384,536 $10,009 9.4% 2001 106 637,541 10,211 9.6 2002 113 1,111,192 21,409 20.2 2003 99 720,627 12,309 11.6 2004 79 909,959 16,281 15.4 2005 4 225,435 2,607 2.5 2006 11 168,334 2,530 2.4 2007 14 650,603 10,468 9.9 2008 23 442,472 6,703 6.3 2009 6 567,569 12,278 11.6 2010 and thereafter 6 80,713 1,197 1.1
______________________ (1) Excludes approximately 182,000 square feet of space that was vacant as of December 31, 1999. 7 Mortgage Financing. As of December 31, 1999, certain of the Partnership's 66 operating office properties were subject to fixed rate mortgage indebtedness in an aggregate principal amount of $185.1 million. The Partnership's fixed rate mortgage debt bears an effective weighted average interest rate of 8.08% and a weighted average maturity of 6.6 years (assuming loans callable before maturity are called as early as possible). Certain information regarding fixed rate mortgage indebtedness is set forth in the table below as of December 31, 1999:
Estimated Balance Principal Annual Debt Due at Balance Maturity Service Maturity Property Interest Rate (in thousands) Date (in thousands) (in thousands) - ----------------------------------------------------------------------------------------------------------------------------------- Quorum Place 6.99% $ 7,450 11/15/00 $ 665 $ 7,326 (1) Bannockburn I & II 9.52 18,595 8/31/01 2,801 16,840 (1) Quorum North 8.27 6,465 12/10/01 640 6,247 (1) Jaycor 8.96 12,199 2/1/03 1,657 10,206 (1) Canyon Park Commons 9.13 5,405 12/1/04 714 4,043 (1) US West 7.92 48,251 12/1/05 9,915 -- Concord Place 7.75 7,509 1/1/06 725 6,420 (1) Wasatch Corporate Center 8.15 12,458 1/2/07 1,220 10,539 (1) 2600 West Olive 6.75 19,152 1/1/09 1,293 19,152 (1) South Coast Executive Center 7.13 15,000 6/10/09 1,069 12,660 (1) Harlequin Plaza and Quebec Court I & II (2) 8.50 28,545 5/31/11 2,899 19,586 (1) Sorenson Research Park 7.75 2,488 7/1/11 328 -- Sorenson Research Park 8.88 1,608 5/1/17 182 -- ---------- ----------- ------- ---------- Total 8.08% $185,125 $24,108 ========== =========== ==========
____________________ (1) Currently prepayable at the rates stated in the loan documents. (2) Payable to CarrAmerica. For additional information regarding the Partnership's office properties and its operations, see "Item 1, Business." Item 3. LEGAL PROCEEDINGS The Partnership is party to a variety of legal proceedings arising in the ordinary course of its business. All of these matters, taken together, are not expected to have a material adverse impact on the Partnership. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 8 PART II Item 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for the Units. As of December 31, 1999, there were 30 holders of record of Units. As of December 31, 1999, there were no options or warrants to purchase Units outstanding. In addition, as of December 31, 1999, there were no Units that were being, or have been publicly proposed to be, publicly offered by the Partnership. Each Unit held by persons other than GP Holdings or LP Holdings is (subject to certain holding period limitations) redeemable for cash equal to the value of a share of common stock of CarrAmerica or, at the option of GP Holdings, common stock of CarrAmerica on a one-for-one basis. For a presentation of the high and low trading prices of CarrAmerica's common stock for the last two years, see "Item 5 -- Market for Registrant's Common Equity and Related Stockholder Matters" in the 1999 CarrAmerica 10-K, which information is hereby incorporated by reference. The Partnership has made regular quarterly distributions of $0.4625 per Class A Unit throughout 1999 and 1998, and $0.4375 per Class A Unit during 1997. The distributions are prorated where appropriate to reflect ownership of Units for less than the full period to which such distribution relates. The Partnership's ability to make distributions depends on a number of factors, including its net cash provided by operating activities, capital commitments and debt repayment schedules. Holders of Units are entitled to receive distributions when, as and if declared by the Board of Directors of GP Holdings, its sole general partner, out of any funds legally available for that purpose. Item 6. SELECTED FINANCIAL DATA The following table sets forth selected financial and operating information for the Partnership as of and for the years ended December 31, 1999, 1998, 1997, and the period ending December 31, 1996. The following selected financial and operating information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K and the financial statements and notes thereto included in this Form 10-K.
March 6, 1996 Year Ended Year Ended Year Ended (date of inception) December 31, 1999 December 31, 1998 December 31, 1997 through December 31, 1996 ----------------- ----------------- ----------------- ------------------------- (amounts in thousands except Other Data) Operating Data: Real estate operating revenue $ 127,330 $ 104,614 $ 60,469 $ 13,376 Real estate operating expenses: Property operating expenses 41,344 34,167 25,804 6,546 Interest expense 20,545 16,508 6,792 1,475 General and administrative expenses 6,239 6,365 3,473 680 Depreciation and amortization 32,820 23,877 13,146 3,148 Real estate operating income 26,382 23,697 11,254 1,527 Net income 31,814 32,869 16,693 1,556 Cash distributions paid to Unit holders 2,277 2,277 1,124 2,050 Balance Sheet Data (at period end): Real estate, before accumulated depreciation $ 815,967 $ 762,580 $ 624,085 238,073 Total assets 829,199 779,615 636,568 241,217 Mortgages and notes payable 325,875 328,945 241,715 51,744 Total Unit holders' (partners') capital 456,344 426,807 377,632 180,933 Other Data (at period end): Number of properties 66 59 53 25 Square footage 6,081,000 5,356,000 4,730,000 2,295,000
9 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is based primarily on the Consolidated Financial Statements of the Partnership as of December 31, 1999 and 1998, and for the years ended December 31, 1999 and 1998 and 1997. The comparability of the periods is impacted by acquisitions and dispositions made during 1999, 1998 and 1997. The Partnership owned 53 properties by December 31, 1997, 59 properties by December 31, 1998, and 66 properties by December 31, 1999. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. The Partnership's reportable operating segment is real estate property operations. Other business activities and operating segments that are not reportable are included in other operations. RESULTS OF OPERATIONS - 1999 TO 1998 Real Estate Property Operations Operating Revenue. Total real estate operating revenue increased $22.5 million, or 22.3%, to $123.5 million for 1999 as compared to $101.0 million for 1998. The Partnership experienced net growth in its rental revenue as a result of its acquisitions and development properties placed in service, which together contributed approximately $17.5 million of additional rental revenue in 1999. Rental revenue from properties that were fully operational throughout both periods increased by approximately $5.0 million primarily due to lease termination fees and increased occupancy in these properties from 96.1% to 96.3%. Segment Expense. Real estate property operating expenses increased $7.1 million to $41.3 million in 1999 from $34.2 million in 1998. The Partnership experienced net growth in its segment expense primarily as a result of property acquisitions, and development properties placed in service, which together contributed approximately $5.2 million of additional expense in 1999. The Partnership also experienced an increase in property operating expenses from properties that were fully operational in both periods of approximately $1.9 million. Interest Expense. Interest expense increased $1.0 million primarily due to the full year effect on interest expense of properties acquired during 1998. Other Operations Operating Revenue. Operating revenue increased $0.2 million to $3.8 million for 1999 as compared to $3.6 million for 1998, primarily as a result of an increase in cost reimbursements from an affiliate for services provided. Segment Expenses. Segment expenses remained at $6.3 million for 1999. Interest Expense. The $3.0 million increase in the Partnership's interest expense is primarily related to a $44.0 million increase in average outstandings under the CarrAmerica revolving line of credit resulting from acquisitions completed in 1998 and development expenditures in 1998 and 1999. RESULTS OF OPERATIONS - 1998 TO 1997 Real Estate Property Operations Operating Revenue. Total real estate operating revenue increased $43.2 million, or 74.7%, to $101.0 million for 1998 as compared to $57.8 million for 1997. The Partnership experienced net growth in its rental revenue as a result of its acquisitions and development properties placed in service, which together contributed approximately $39.1 million of additional rental revenue in 1998. Rental revenue from properties that were fully operational throughout both periods increased by approximately $4.1 million primarily due to increased occupancy in these properties. Segment Expense. Real estate property operating expenses increased $8.4 million to $34.2 million in 1998 from $25.8 million in 1997. The Partnership experienced net growth in its segment expense primarily as a result of property acquisitions, and development properties placed in service, which together contributed approximately $7.7 million of additional expense in 1998. The Partnership also experienced an increase in property operating expenses from properties that were fully operational in both periods of approximately $0.7 million. 10 Interest Expense. Interest increased $5.9 million due to the acquisition of properties during 1998 which were subject to existing mortgage debt. Other Operations Operating Revenue. Operating revenue increased $.9 million to $3.6 million for 1998 as compared to $2.7 million for 1997, primarily as a result of an increase in cost reimbursements from an affiliate for services provided. Segment Expenses. Segment expenses increased $2.8 million, to $6.3 million for 1998 as compared to $3.5 million for 1997, primarily as a result of the addition of staff necessary to implement the Partnership's business strategy. Interest Expense. The $3.8 million increase in the Partnership's interest expense is primarily related to borrowings on CarrAmerica's line of credit necessary to fund acquisitions and development commitments. LIQUIDITY AND CAPITAL RESOURCES The Partnership's total indebtedness at December 31, 1999 was $325.9 million, of which $140.8 million, or 43.2%, bore a LIBOR-based floating interest rate or Federal Funds rate. The Partnership's mortgage payable fixed rate indebtedness bore an effective weighted average interest rate of 8.1% at December 31, 1999 and had a weighted average term to maturity of 6.6 years. At December 31, 1999, the Partnership's total assets were $829.2 million. The Partnership's debt as a percentage of total assets was 39.3% at December 31, 1999. CarrAmerica has a $450.0 million unsecured credit facility, of which $103.3 million was available for draw as of December 31, 1999 under which the Partnership is jointly and severally liable. The weighted average interest rate under the unsecured credit facility for 1999 was 6.5%. Currently, the unsecured credit facility bears interest at 90 basis points over LIBOR. The Partnership will require capital to invest in its existing portfolio of operating assets for major capital projects such as large-scale renovations, routine capital expenditures and deferred maintenance on certain properties recently acquired and tenant related capital expenditures, such as tenant improvements and allowances and leasing commissions. The Partnership's capital requirements for tenant related capital expenditures are dependent upon a number of factors, including square feet of expiring leases, tenant retention ratios and whether the expiring leases are in central business district properties or suburban properties. During 2000, the Partnership has 384,536 square feet of leases expiring, representing 6.5% of total leased space. The Partnership will require capital for development projects currently underway and planned for in the future. As of December 31, 1999, the Partnership had four development properties under construction, which are expected to require a total investment by the Partnership of $66.4 million. As of December 31, 1999, the Partnership had expended $27.7 million of these costs. The Partnership intends to use cash flow from operations, CarrAmerica's unsecured revolving line of credit facility and the proceeds from the disposition of assets to meet its working capital needs for its existing portfolio of operating assets. The Partnership anticipates that adequate cash will be available to fund its operating and administrative expenses, continuing debt service obligations, the payment of distributions in both the short term and long term. Management believes that the Partnership will have access to the capital resources necessary to expand and develop its business. However, the Partnership's ability to access additional capital necessary to support the current development program is largely dependent on CarrAmerica's ability to access additional capital. Current market conditions make CarrAmerica's traditional sources of such capital, the equity and public debt markets, currently unattractive. CarrAmerica believes that the alternative sources, namely refinancings, joint ventures and asset dispositions, will provide it with the necessary capital until such time as the equity and public debt markets improve. However, there can be no assurance that such an improvement will occur in the near term. If CarrAmerica is not able to access capital at attractive rates and the Partnership is not able to meet its cash requirements through its traditional means, it may have to rely on working capital advances from CarrAmerica at a time when CarrAmerica's cost of capital causes such advances to be made at unattractive rates. As of December 31, 1999, the Partnership had cash of $10.5 million, of which $2.2 million was restricted. Net cash provided by operating activities was $71.8 million during 1999, compared to $45.1 million during 1998. The increase in net cash provided by operating activities was primarily a result of an increase in amounts due to affiliates. The Partnership's investing activities used approximately $61.4 million and $128.0 million during 1999 11 and 1998, respectively. The Partnership's investment activities included the acquisitions of rental property, additions to land held for future development and additions to construction in progress totaling approximately $89.6 million during 1999, as compared to $183.2 million during 1998. Additionally, the Partnership invested approximately $8.0 million and $19.3 million in its existing real estate assets during 1999 and 1998, respectively. Net of distributions to the Partnership's partners, the Partnership's financing activities used net cash of $3.1 million and provided net cash of $84.9 million during 1999 and 1998, respectively. The Partnership's distributions are paid quarterly. Amounts accumulated for distribution are primarily invested by the Partnership in short-term investments that are collateralized by securities of the United States Government or certain of its agencies. YEAR 2000 COMPLIANCE The Year 2000 issue is the risk that computer programs using two-digit date fields will fail to properly recognize the Year 2000, with the result being business interruptions due to computer system failures by CarrAmerica's software or hardware or by government entities, service providers and vendors. With the assistance of a consulting firm and CarrAmerica's Steering Committee, CarrAmerica completed its assessment of the exposure to Year 2000 issue and successfully remediated areas of exposure. As of December 31, 1999, CarrAmerica had incurred approximately $2.75 million in costs for its Year 2000 program. CarrAmerica currently estimates that it will incur additional costs, which are not expected to exceed $0.1 million, to complete its Year 2000 compliance work. To the date of this report, CarrAmerica has not encountered any significant business interruptions or material adverse financial consequences related to the Year 2000 issue. However, there can be no assurances that CarrAmerica will not encounter material business interruptions or adverse financial consequences subsequent to the date of this report. ACQUISITION AND DEVELOPMENT ACTIVITY The following is a discussion of the Partnership's acquisition and development activity during 1999. A more detailed discussion can be found in "Item 1. Business--Recent Developments". During 1999, the Partnership acquired two parcels of land for an aggregate purchase price of $3.4 million that is expected to support the development of approximately 321,000 square feet. As of December 31, 1999, the Partnership had four office properties under construction: approximately 114,000 square feet in its Mountain region and approximately 286,000 square feet in its Central region. $38.7 million is expected to be expended for completion of these four properties. Costs incurred during 1999 for all properties being constructed were $83.1 million. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Increases in interest rates would increase the Partnership's interest expense, which would adversely affect cash flow. As of December 31, 1999, the Partnership has $140.8 million outstanding under its line of credit that bears interest at a floating rate and $185.1 million of additional fixed rate mortgage debt. These mortgage loans mature at various times through 2017. This amount includes a $28.5 million note due to CarrAmerica which matures in 2011. 12 The Partnership's future earnings, cash flow and fair values relevant to financial instruments are dependent upon prevailing market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. The Partnership manages its market risk by matching projected cash inflows from operating activities, financing activities and investing activities with projected cash outflows to fund debt payments, acquisitions, capital expenditures, distributions, and other cash requirements. The Partnership does not enter into derivative financial instruments to manage its market risk or for trading purposes. If the market rates of interest on the Partnership's variable rate debt change by 10% (or approximately 56 basis points) the Partnership's interest expense would change by approximately $0.8 million, assuming the amount outstanding under the variable rate facility remains at $140.8 million, the balance at December 31, 1999. Furthermore, book value of this variable interest credit facility approximates market value at December 31, 1999. A change in interest rates generally does not impact future earnings and cash flows for fixed rate debt instruments, but as fixed rate debt matures and if additional debt is acquired to fund the repayments under maturing facilities, future earnings and cash flows may be impacted by changes in interest rates. This impact would be realized in the periods subsequent to debt maturities. The following is a summary of the fixed rate debt maturities (in thousands): 2000............................. $ 16,249 2001............................. 32,584 2002............................. 9,910 2003............................. 20,601 2004............................. 15,574 2005 & thereafter ............... 90,207 -------- $185,125 ========
Assuming the repayments of fixed rate mortgages and the note to CarrAmerica are made in accordance with the terms and conditions of the respective mortgages and the note, a 10 percent change in the market interest rate for the respective fixed rate debt instruments would change the fair value of the Partnership's fixed rate debt by approximately $5.7 million. The fair market value of the fixed rate debt instruments at December 31, 1999 was $190.2 million. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data included in this Annual Report on Form 10-K are listed in Part IV. Item 14(a). Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. The Partnership is managed by GP Holdings, as the sole general partner of the Partnership. The following table sets forth certain information with respect to the directors and executive officers of GP Holdings:
Name Age Positions and Offices Held - ---- --- ----------------------------------------------- Thomas A. Carr...... 41 President and Director Philip L. Hawkins... 44 Executive Vice President, and Director Richard F. Katchuk.. 53 Executive Vice President, CFO and Treasurer, and Director
CarrAmerica is the sole stockholder of GP Holdings. The additional information required by this item with respect to directors and executive officers of CarrAmerica and GP Holdings is hereby incorporated by reference to the material appearing under the heading "Election of Directors (Proposal 1)," in CarrAmerica's definitive proxy statement for the annual meeting of its stockholders to be held on May 4, 2000 (the "1999 CarrAmerica Proxy Statement") and under the headings "Item 1. Business-The Company-Directors of the Company" and "-Executive Officers and Certain Key Employees of the Company," in the 1999 CarrAmerica 10-K, which information is hereby incorporated by reference. Item 11. EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. The Partnership is managed by GP Holdings, as the sole general partner of the Partnership. GP Holdings has not paid any compensation to its directors or officers. CarrAmerica is the sole stockholder of GP Holdings. The information required by this item with respect to CarrAmerica's executive officers is hereby incorporated by reference to the material appearing in the 1999 CarrAmerica Proxy Statement under the heading "Executive Compensation", which information is hereby by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information, as of March 9, 2000, regarding the beneficial ownership of Units by each person known by the Partnership to be the beneficial owner of more than five percent of the Partnership's outstanding Units. As of March 9, 2000, no director or executive officer of GP Holdings or CarrAmerica beneficially owned any Units. Each entity named in the table has sole voting and investment power with respect to all Units shown as beneficially owned by such person, except as otherwise set forth in the notes to the table.
Name and Business Number of Percent of Address of Beneficial Owner Units Units (1) - -------------------------------------- -------------- ----------- CarrAmerica Realty Corporation........ 12,694,202 (2) 88.4% CarrAmerica Realty LP Holdings, Inc... 12,550,582 87.4% 1850 K Street, N.W. Washington, D.C. 20006
___________________ (1) Based on 14,362,972 Units outstanding as of March 9, 2000. (2) Includes 12,550,582 Units held by LP Holdings and 143,622 Units held by GP Holdings, each of which is a wholly owned subsidiary of CarrAmerica. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CarrAmerica Realty Services, Inc. ("CARSI"), a wholly owned subsidiary of CarrAmerica, provides management and leasing services to all of the office properties owned by the Partnership. During 1999, 1998 and 1997, respectively, the Partnership incurred management fees of $3.8 million, $3.0 million and $1.9 million, respectively, for services performed by CARSI. Additionally, CARSI reimburses the Partnership for certain services the Partnership's personnel provide to CARSI. These reimbursements amounted to $3.5 million and $2.9 million in 1999 and 1998, respectively. CarrAmerica Development, Inc.("CADI"), also reimbursed the Partnership $0.3 million in 1998 and $0.7 million in 1997 for certain services the Partnership provided to CADI. 14 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements Reference is made to the Index to Financial Statements and Schedule on page F-1 of this Form 10-K. (a)(2) Financial Statement Schedules Reference is made to the Index to Financial Statements and Schedule on page F-1 of this Form 10-K. (a)(3) Exhibits 4.1 Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated May 9, 1997 (incorporated by reference to Exhibit 10.1 to CarrAmerica's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997). 4.2 First Amendment to Second Amended and Restated Agreement of Limited Partnership, dated October 6, 1997 (incorporated by reference to Exhibit 10.2 to CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997). 4.3 Second Amendment to Second Amended and Restated Agreement of Limited Partnership, dated October 6, 1997 (incorporated by reference to Exhibit 10.3 to CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997). 4.4 Third Amendment to Second Amended and Restated Agreement of Limited Partnership, dated October 6, 1997 (incorporated by reference to Exhibit 10.3 to CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997). 4.5 Fourth Amendment to Second Amended and Restated Agreement of Limited Partnership, dated December 31, 1998 (incorporated by reference to Exhibit 10.5 to CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1998). 4.6 Indenture, dated as of July 1, 1997, by and among CarrAmerica, as Issuer, the Partnership, as Guarantor, and Bankers Trust Company, as Trustee, relating to CarrAmerica's 7.20% Notes due 2004 and 7.375% Notes due 2007 (incorporated by reference to Exhibit 4.1 to CarrAmerica's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 4.7 Indenture, dated as of February 23, 1998, by and among CarrAmerica, as Issuer, the Partnership, as Guarantor, and Bankers Trust Company, as Trustee, relating to CarrAmerica's 6.625% Notes due 2005 and 6.875% Notes due 2008 (incorporated by reference to Exhibit 4.2 to CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997). 4.8 Indenture, dated as of October 1, 1998, by and among CarrAmerica, as Issuer, the Partnership, as Guarantor, and Bankers Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the CarrAmerica's Current Report on Form 8-K filed on October 2, 1998). 10.1 Stockholders Agreement, dated April 30, 1996, by and among CarrAmerica, Carr Realty, L.P., Security Capital Holdings, S.A. and Security Capital U.S. Realty (incorporated by reference to Exhibit 2.2 of Security Capital U.S. Realty's Schedule 13D dated April 30, 1996). 10.2 Third Amended and Restated Credit Agreement, dated August 27, 1998, by and among CarrAmerica, Carr Realty, L.P., the Partnership, Morgan Guaranty Trust Company of New York, Commerzbank Aktiengesellschaft, New York Branch, NationsBank, N.A., Wells Fargo Bank, National Association, Bank of America National Trust and Savings Association, and the other banks listed therein (incorporated by reference to Exhibit 10.1 to CarrAmerica's Annual Report on Form 10-Q for the quarter ended September 30, 1998). 15 10.3 Agreements of Purchase and Sale and Contribution Agreement dated September 30, 1997 by and among the Partnership, Phoenixwest Associates, Ltd., Versailles Associates Limited Partnership, Lakeview 436 Associates Ltd., Pines Realty Associates, Ltd., and certain other parties thereto (incorporated by reference to Exhibit 10.3 to the CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1998). 21.1 List of Subsidiaries. 23.1 Consent of KPMG LLP, dated March 30, 2000. 27 Financial Data Schedule. 99.1 Certificate of Incorporation of CarrAmerica GP Holdings, Inc. (incorporated by reference to Exhibit 99.1 to the Partnership's Registration Statement on Form 10/A, filed on October 1, 1997 (File No. 0-22741)). 99.2 Bylaws of CarrAmerica GP Holdings, Inc. (incorporated by reference to Exhibit 99.2 to the Partnership's Registration Statement on Form 10/A, filed on October 1, 1997 (File No. 0- 22741). 99.3 "Item 1-Business-The Company-Risk Factors," from CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1999. 99.4 "Item 5-Market for Registrant's Common Equity & Related Stockholder Matters," from CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1999. 99.5 "Election of Directors (Proposal 1)," from CarrAmerica's Proxy Statement to be delivered to CarrAmerica's stockholders in connection with CarrAmerica's 2000 Annual Meeting of Stockholders. 99.6 "Item 1-Business-The Company-Directors of the Company," from CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1999. 99.7 "Item 1-Business-The Company-Executive Officers and Certain Key Employees of the Company," from CarrAmerica's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. 99.8 "Executive Compensation," from CarrAmerica's Proxy Statement to be delivered to CarrAmerica's stockholders in connection with CarrAmerica's 2000 Annual Meeting of Stockholders. (b) Reports on Form 8-K None (c) Exhibits The list of exhibits filed with this report is set forth in response to Item 14(a)(3). The required exhibit index has been filed with the exhibits. (d) Financial Statements None. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the District of Columbia on March 29, 2000. CARRAMERICA REALTY, L.P. a Delaware limited partnership By: CarrAmerica Realty GP Holdings, Inc. General Partner By: /s/ THOMAS A. CARR --------------------- Thomas A. Carr President Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following person on behalf of the registrant and in the capacities indicated on March 29, 2000. Signature Title --------- ----- /s/ THOMAS A. CARR President and Director ------------------------ Thomas A. Carr /s/ PHILIP L. HAWKINS Executive Vice President and Director --------------------- Philip L. Hawkins /s/ RICHARD F. KATCHUK Executive Vice President, CFO ------------------------ and Treasurer, and Director Richard F. Katchuk 17 CARRAMERICA REALTY, L.P. INDEX TO FINANCIAL STATEMENTS AND SCHEDULE The following Consolidated Financial Statements and Schedule of CarrAmerica Realty, L.P. and Subsidiary and the Independent Auditors' Reports thereon are attached hereto: CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Balance Sheets as of December 31, 1999 and 1998....... F-2 Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997.............................. F-3 Consolidated Statements of Partners' Capital for the Years Ended December 31, 1999, 1998 and 1997.............................. F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997.............................. F-5 Notes to Consolidated Financial Statements......................... F-6 Independent Auditors' Report....................................... F-14 FINANCIAL STATEMENT SCHEDULE Independent Auditors' Report....................................... S-1 Schedule III: Consolidated Real Estate and Accumulated Depreciation as of December 31, 1999 for CarrAmerica Realty, L.P. and Subsidiary................................... S-2 All other schedules are omitted because they are not applicable, or because the required information is included in the financial statements or notes thereto. F-1 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Balance Sheets As of December 31, 1999 and 1998 (In thousands)
December 31, December 31, 1999 1998 ------------ ------------ Assets Rental property: Land $120,333 107,596 Buildings 602,552 529,127 Tenant improvements 63,324 35,209 Furniture, fixtures, and equipment 1,036 665 -------- -------- 787,245 672,597 Less - accumulated depreciation (57,733) (32,546) -------- -------- Total rental property 729,512 640,051 Land held for development 13,084 19,044 Construction in progress 15,638 70,939 Cash and cash equivalents 8,309 3,268 Restricted cash and cash equivalents 2,180 1,236 Accounts and notes receivable 21,514 10,536 Due from affiliates -- 4,556 Investments 9,917 8,621 Accrued straight-line rents 11,949 8,180 Tenant leasing costs, net of accumulated amortization of $4,466 in 1999 and $1,924 in 1998 15,898 11,092 Deferred financing costs, net of accumulated amortization of $67 in 1999 and $14 in 1998 286 337 Prepaid expenses and other assets, net of accumulated depreciation and amortization of $394 in 1999 and $211 in 1998 912 1,755 -------- -------- $829,199 779,615 ======== ======== Liabilities and Partners' Capital Liabilities: Mortgages and notes payable $297,330 299,949 Note payable to affiliate 28,545 28,996 Accounts payable and accrued expenses 16,131 18,476 Due to affiliates 24,615 -- Rent received in advance and security deposits 6,234 5,387 -------- -------- Total liabilities 372,855 352,808 Partners' capital: General partner 4,620 4,302 Limited partners 451,724 422,505 -------- -------- Total partners' capital 456,344 426,807 Commitments and Contingencies $829,199 779,615 ======== ========
See accompanying notes to consolidated financial statements F-2 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997 (In thousands)
1999 1998 1997 ----------- ----------- ---------- Real estate operating revenue: Rental revenue: Minimum base rent $101,830 86,800 48,487 Recoveries from tenants 16,450 12,670 8,043 Other tenant charges 5,220 1,518 1,232 -------- -------- -------- Total rental revenue 123,500 100,988 57,762 -------- -------- -------- Real estate service revenue -- 160 -- Cost reimbursements 3,830 3,466 2,707 -------- -------- -------- Total revenue 127,330 104,614 60,469 -------- -------- -------- Real estate operating expenses: Property operating expenses: Operating expenses 29,427 24,972 19,102 Real estate taxes 11,917 9,195 6,702 Interest expense 20,545 16,508 6,792 General and administrative 6,239 6,365 3,473 Depreciation and amortization 32,820 23,877 13,146 -------- -------- -------- Total operating expenses 100,948 80,917 49,215 -------- -------- -------- Real estate operating income 26,382 23,697 11,254 Other operating income: Interest income 1,620 982 372 Gain on sale of assets 3,804 8,190 5,067 Equity in earnings of unconsolidated partnerships 8 -- -- -------- -------- --------- Net income $ 31,814 32,869 16,693 ======== ======== ========= Net income attributable to general partner $ 318 329 167 ======== ======== ========= Net income attributable to limited partners $ 31,496 32,540 16,526 ======== ======== =========
See accompanying notes to consolidated financial statements F-3 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Statements of Partners' Capital For the Years Ended December 31, 1999, 1998 and 1997 (In thousands)
General Partner Limited Partners ------------------ --------------------------------------- CarrAmerica CarrAmerica Realty GP Realty LP Other Limited Holdings, Inc. Holdings, Inc. Partners Total ------------------ ------------------ ----------------- ------------ Partners' capital at December 31, 1996 $ 1,809 161,014 18,110 $180,933 Capital contributions 1,811 153,351 25,968 181,130 Capital distributions -- -- (1,124) (1,124) Net income 167 14,312 2,214 16,693 -------- -------- -------- -------- Partners' capital at December 31, 1997 $ 3,787 328,677 45,168 $377,632 Capital contributions 186 18,397 -- 18,583 Capital distributions -- -- (2,277) (2,277) Net income 329 28,426 4,114 32,869 -------- -------- -------- -------- Partners' capital at December 31, 1998 $ 4,302 375,500 47,005 $426,807 Redemption and purchase of units -- 2,213 (2,213) -- Capital distributions -- -- (2,277) (2,277) Net income 318 27,558 3,938 31,814 -------- -------- -------- -------- Partners' capital at December 31, 1999 $ 4,620 405,271 46,453 $456,344 ======== ======== ======== ========
See accompanying notes to consolidated financial statement F-4 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 (In thousands)
1999 1998 1997 ---------- ---------- ---------- Cash flows from operating activities: Net income $ 31,814 32,869 16,693 ---------- ---------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 32,820 23,877 13,146 Gain on sale of assets (3,804) (8,190) (5,067) Change in assets and liabilities, net of dispositions: Decrease (increase) in receivables (10,978) 1,221 (9,869) Increase in accrued straight-line rents (3,769) (5,269) (2,584) Additions to tenant leasing costs (2,614) (2,531) (3,981) Decrease (increase) in prepaid expenses and other assets 660 533 (1,991) Increase (decrease) in accounts payable and accrued expenses (2,345) 5,885 8,150 Increase (decrease) in due to/from affiliates 29,171 (5,942) (1,388) Increase in rent received in advance and security deposits 847 2,143 1,919 Other 30 465 148 ---------- ---------- ---------- Total adjustments 40,018 12,192 (1,517) ---------- ---------- ---------- Net cash provided by operating activities 71,832 45,061 15,176 ---------- ---------- ---------- Cash flows from investing activities: Additions to rental property (8,042) (19,284) (9,892) Acquisitions of rental property -- (33,864) (196,295) Additions to land held for future development (6,431) (22,193) (10,049) Additions to construction in progress (83,138) (127,162) (56,761) Investments in unconsolidated partnerships (1,296) (8,621) -- Decrease (increase) in restricted cash and cash equivalents (944) 264 (1,500) Proceeds from disposition of rental property and land held for development 38,409 82,842 64,045 ---------- ---------- ---------- Net cash used by investing activities (61,442) (128,018) (210,452) ---------- ---------- ---------- Cash flows from financing activities: Capital contributions -- 18,583 155,162 Net borrowings on unsecured line of credit -- 85,250 53,500 Repayments on notes and mortgages payable (7,975) (18,565) (1,647) Disposition of mortgage payable from sale of rental property -- -- (9,508) Proceeds from refinancing of existing mortgages 4,905 -- -- Additions to deferred financing costs (2) (351) -- Capital distributions (2,277) (2,277) (1,124) ---------- ---------- ---------- Net cash provided (used) by financing activities (5,349) 82,640 196,383 ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents 5,041 (317) 1,107 Cash and cash equivalents, beginning of the period 3,268 3,585 2,478 ---------- ---------- ---------- Cash and cash equivalents, end of the period 8,309 3,268 3,585 ========== ========== ========== Supplemental disclosure of cash flow information: Cash paid for interest (net of capitalized interest of $5,177 in 1999, $4,894 $ 19,642 17,003 6,210 in 1998 and $2,909 in 1997) ========== ========== ==========
Supplemental disclosure of noncash investing and financing activities: (a) During 1998, the Partnership funded a portion of the aggregate purchase price of its property acquisitions by assuming $20.5 million of debt and liabilities. (b) During 1997, the Partnership funded a portion of the aggregate purchase price of its property acquisitions by assuming $147.6 million of debt and liabilities and by issuing $26.0 million of minority units in the Partnership. See accompanying notes to consolidated financial statements F-5 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Description of Business and Summary of Significant Accounting Policies (a) Business CarrAmerica Realty, L.P. (the "Partnership") is a Delaware limited partnership formed on March 6, 1996 to own, acquire, develop, and operate office buildings across the United States. At December 31, 1999, the Partnership owned 66 operating properties and four properties under development. The properties are located in Austin, Chicago, Dallas, Denver, Orange County/Los Angeles, Phoenix, San Francisco Bay Area, Salt Lake City, San Diego and Seattle. The Partnership's general partner is CarrAmerica Realty GP Holdings, Inc. (the "General Partner"), a wholly-owned subsidiary of CarrAmerica Realty Corporation ("CarrAmerica"), a self-administered and self-managed real estate investment trust. The General Partner owned a 1% interest in the Partnership at December 31, 1999. The Partnership's limited partners are CarrAmerica Realty LP Holdings, Inc., a wholly owned subsidiary of CarrAmerica, which owned an approximate 87% interest in the Partnership at December 31, 1999, and various other individuals and entities which collectively owned an approximate 12% interest in the Partnership at December 31, 1999. (b) Basis of Presentation The accounts of the Partnership and its wholly-owned subsidiary are consolidated in the accompanying financial statements. The Partnership uses the equity method of accounting for its investments in unconsolidated partnerships not controlled by the Partnership. Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (c) Rental Property Rental property is recorded at cost less accumulated depreciation (which is less than the net realizable value of the rental property). Depreciation is computed on the straight-line basis over the estimated useful lives of the assets, as follows: Base building. ................................ 30 to 50 years Building components. .......................... 7 to 20 years Tenant improvements. .......................... Terms of the leases or useful lives, whichever is shorter Furniture, fixtures and equipment. ............ 5 to 15 years Expenditures for maintenance and repairs are charged to operations as incurred. Significant renovations are capitalized. The Partnership reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. The Partnership reviews its rental property to determine the point at which the asset is under contract for sale, with contingencies waived and nonrefundable earnest money posted. If an asset is subject to these conditions, the asset is reclassified to "Assets available for sale" and depreciation is discontinued. (d) Development Property Land held for development and construction in progress are carried at cost. Specifically identifiable direct and indirect, development, construction and external acquisition costs are capitalized including, where applicable, salaries and related costs, real estate taxes, interest and certain pre-construction costs essential to the development of a property. F-6 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (1) Description of Business and Summary of Significant Accounting Policies - (Continued) (e) Tenant Leasing Costs Fees and costs incurred in the successful negotiation of leases have been deferred and are being amortized on a straight-line basis over the terms of the respective leases. (f) Deferred Financing Costs Deferred financing costs include fees and costs incurred to obtain financing and are being amortized over the terms of the respective loans on a basis which approximates the interest method. (g) Fair Value of Financial Instruments The carrying amount of the following financial instruments approximates fair value because of their short-term maturity: cash and cash equivalents; accounts and notes receivable; accounts payable and accrued expenses. See note 2 for fair value information for mortgages and notes payable. (h) Revenue Recognition The Partnership reports base rental revenue for financial statement purposes straight-line over the terms of the respective leases. Accrued straight-line rents represent the amount that straight-line rental revenue exceeds rents collected in accordance with the lease agreements. Management, considering current information and events regarding the tenants' ability to fulfill their lease obligations, considers accrued straight-line rents to be impaired if it is probable that the Partnership will be unable to collect all rents due according to the contractual lease terms. If accrued straight-line rents associated with a tenant are considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows. Impairment losses, if any, are recorded through a loss on the write-off of assets. Cash receipts on impaired accrued straight-line rents are applied to reduce the remaining outstanding balance and as rental revenue, thereafter. (i) Income and Other Taxes No provision has been made for federal and state income taxes because each partner reports his or her share of the Partnership's taxable income or loss and any available tax credits on his or her income tax return. (j) Cash Equivalents For the purposes of reporting cash flows, the Partnership considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. (k) Stock Option Plan The Partnership is a participant in the CarrAmerica 1997 stock option and incentive plan. CarrAmerica and the Partnership accounted for their option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Compensation expenses would be recorded only if the market price of the underlying unit or stock, on the date of grant, exceeded the exercise price. F-7 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (1) Description of Business and Summary of Significant Accounting Policies - (Continued) (l) Segment Operations The Partnership has adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("FASB No. 131"), which establishes standards for the way that a public business enterprise reports information about operating segments in financial reports issued to shareholders. It also establishes standards for related disclosures about product and services, geographic areas and major customers. The Partnership operates in one reportable business segment: real estate operations. All corporate business activities and operating segments that are not reportable are classified as Other Operations. (m) Reclassifications Certain reclassifications of the prior years' amounts have been made to conform to the current period's presentation. (2) Mortgages Payable and Notes Payable The Partnership's mortgages payable and credit facility are summarized as follows (in thousands):
December 31, December 31, 1999 1998 ------------ ------------ Fixed rate mortgages $156,580 $159,199 Fixed rate note payable to affiliate 28,545 28,996 Unsecured credit facility 140,750 140,750 ------------ ------------ $325,875 $328,945 ============ ============
Mortgages payable are collateralized by certain rental properties and generally require monthly principal and/or interest payments. Mortgages payable mature at various dates from November 2000 through May 2017. The weighted average interest rate of mortgages payable was 8.1% and 8.2%, at December 31, 1999 and 1998, respectively. CarrAmerica and the Partnership also have a $450.0 million unsecured credit facility with Morgan Guaranty Trust Company of New York, as agent for a group of banks. The credit facility matures in August 2001. At December 31, 1999, the credit facility bore interest, as selected by CarrAmerica, at either (i) the higher of the prime rate or the Federal Funds Rate for such day or (ii) an interest rate equal to 90 basis points above the 30 day London Interbank Offered Rate (LIBOR). CarrAmerica has predominately selected interest rates equal to 90 basis points above the 30 day LIBOR rate. At December 31, 1999, CarrAmerica and the Partnership had $103.3 million available for draw under the credit facility. The unsecured credit facility contains a number of financial and other covenants with which the Partnership must comply including, but not limited to, covenants relating to ratios of annual EBITDA (earning before interest, taxes, depreciation and amortization) to interest expense, annual EBITDA to debt service, and total debt to tangible fair market value of CarrAmerica and the Partnership's assets, and restrictions on the ability of CarrAmerica to make dividend distributions in excess of 90% of funds from operations. Availability under the unsecured credit facility is also limited to a specified percentage of the Partnership's unsecured properties. The Partnership has a $30.0 million loan agreement with CarrAmerica. The note payable bears interest at 8.5% and requires monthly principal and interest payments of $242 thousand. The loan matures on May 31, 2011. The note is secured by certain office properties and other assets of the Partnership. The outstanding balance of the note payable to affiliate was $28.5 million and $29.0 million, at December 31, 1999 and December 31, 1998, respectively. F-8 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (2) Mortgages Payable and Notes Payable - (Continued) The annual maturities of debt as of December 31, 1999 are summarized as follows (in thousands): 2000 ................................................. $ 16,249 2001 ................................................. 173,334 (1) 2002 ................................................. 9,910 2003 ................................................. 20,601 2004 ................................................. 15,574 2005 & thereafter .................................... 90,207 (2) ----------- $ 325,875 ===========
__________________ (1) Includes $140.8 million outstanding as of December 31, 1999 under CarrAmerica's $450.0 million unsecured line of credit. (2) Includes approximately $26.9 million outstanding on the Partnership's loan agreement with CarrAmerica. Restricted cash and cash equivalents consists primarily of escrow deposits required by lenders to be used for future building renovations, tenant improvements or as collateral for letters of credit. Based on the borrowing rates available to the Partnership for fixed rate mortgages payable with similar terms and average maturities, the estimated fair value of the Partnership's mortgages and note payable to affiliate at December 31, 1999 and 1998 was approximately $190.2 million and $195.4 million, respectively. The fair market value of the unsecured credit facility approximates book value. (3) Partners' Capital Contributions, Distributions, and Participation Percentages The Second Amended and Restated Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") details the rights of ownership in the Partnership. Ownership in the Partnership is expressed in partnership units ("Units"). Units currently are designated as Class A, B, C, D or E Units. Class D Units have first preference, Class A and Class E Units together have second preference and Class B Units have third preference as to the allocation of Available Cash, as defined in the Partnership Agreement. Class C units do not share in the allocation of Available Cash. Upon the third anniversary of the date of issuance of Class C Units, they may be converted to Class A Units based on a conversion factor described in the Partnership Agreement. Class E Units have a special allocation of Partnership losses. Upon the first anniversary of the date of issuance (or two years from the date of issuance, in the case of Class D Units), each holder of Class A Units, Class D Units or Class E Units may, subject to certain limitations, require that the Partnership redeem his or her Units. Upon redemption, such holder will receive, at the option of the Partnership, with respect to each Unit tendered, either (i) cash in an amount equal to the market value of one share of CarrAmerica common stock (subject to certain anti-dilution adjustments) or (ii) one share of CarrAmerica common stock. In lieu of the Partnership redeeming Class A, Class D or Class E Units for cash, CarrAmerica has the right to assume directly and satisfy the redemption right of a Unit holder. Holders of Class B Units and Class C Units are not entitled to exercise this redemption right. The following Units were outstanding:
December 31, December 31, December 31, 1999 1998 1997 --------------- --------------- -------------- Class A Units .................................................... 959,684 950,111 950,111 Class B Units .................................................... 12,683,731 12,584,630 11,916,673 Class C Units .................................................... 431,674 539,593 539,593 Class D Units .................................................... 271,363 271,363 271,363 Class E Units .................................................... 16,520 16,520 16,520 --------------- --------------- -------------- 14,362,972 14,362,217 13,694,260 =============== =============== ==============
F-9 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (4) Lease Agreements The following table summarizes future minimum base rent to be received under noncancelable tenant leases and the percentage of total rentable space under leases expiring each year, as of December 31, 1999 (in thousands):
Percentage of Future Total Space Minimum Under Leases Rent Expiring ------------ ------------ 2000 ........................................ $ 97,189 6.5% 2001 ........................................ 92,730 10.8 2002 ........................................ 81,587 18.8 2003 ........................................ 60,422 12.2 2004 ........................................ 46,276 15.4 2005 and thereafter ......................... 115,570 36.3 -------- $493,774 ========
The leases also provide for additional rent based on increases in the Consumer Price Index (CPI) and increases in operating expenses. These increases are generally payable in equal installments throughout the year, based on estimated increases, with any differences being adjusted in the succeeding year. (5) Transactions With Affiliates CarrAmerica Realty Services, Inc. ("CARSI"), a wholly owned subsidiary of CarrAmerica, provides management and leasing services to all of the office properties owned by the Partnership. During 1999, 1998 and 1997, respectively, the Partnership incurred management fees of $3.8 million, $3.0 million and $1.9 million, respectively, for services performed by CARSI. Additionally, CARSI reimburses the Partnership for certain services the Partnership personnel provide to CARSI. These reimbursements amounted to $3.5 million and $2.9 million in 1999 and 1998, respectively. CarrAmerica Development, Inc.("CADI"), also reimbursed the Partnership $0.3 million in 1998 and $0.7 million in 1997 for certain services the Partnership provided to CADI. F-10 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (6) Gain on Sale of Assets The Partnership has disposed of assets that are inconsistent with its long-term strategic or return objectives or where market conditions for sale are favorable. The proceeds of the sales were primarily redeployed into other office properties (utilizing tax-deferred exchanges where possible). The Partnership disposed of three operating office properties in 1999, three properties in 1998 and four properties in 1997. The Partnership recognized gains totaling $3.8, $8.2 and $5.1 million on these dispositions during 1999, 1998 and 1997, respectively. (7) Commitments and Contingencies At December 31, 1999, the Partnership is contingently liable on letters of credit amounting to approximately $1.4 million for various completion escrows. The Partnership participates in CarrAmerica's 401(k) plan for employees. The Partnership matches 50% of employee contributions up to the first 4% of an employee's pay and will make a base contribution of 3% of pay for participants who remain employed on December 31 (the end of the plan year). Partnership contributions to the plan are subject to a five-year graduated vesting schedule. Partnership contributions to the plan amounted to $201 thousand in 1999, $73 thousand in 1998, and $41 thousand in 1997. In the course of the Partnership's normal business activities, various lawsuits, claims and proceedings have been or may be instituted or asserted against the Partnership. Based on currently available facts, management believes that the disposition of matters that are pending or asserted will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Partnership. During 1999, 1998 and 1997, the Partnership has unconditionally guaranteed unsecured notes by CarrAmerica to institutional investors. The aggregate principal amount of the unsecured notes is $625.0 million as of December 31, 1999. These notes are in the form of $150 million of 6.625% notes due in 2000, $150 million of 7.20% notes due in 2004, $100 million of 6.625% notes due in 2005, $125 million of 7.375% notes due in 2007 and $100 million of 6.875% notes due in 2008. The notes due in 2000, 2005 and 2008 were issued in 1998. The notes due in 2004 and 2007 were issued in 1997. CarrAmerica's senior unsecured notes contain various covenants with which CarrAmerica must comply, including but not limited to: limits on the aggregate amount of indebtedness CarrAmerica may have outstanding on a consolidated basis; limits on the aggregate amount of secured indebtedness CarrAmerica may have outstanding on a consolidated basis; and, limits on CarrAmerica's required debt service payments. (8) Acquisition and Development Activities During 1999, the Partnership did not acquire any operating properties. However, the Partnership incurred $83.1 million for properties under construction. At December 31, 1999, there were four properties under construction. During 1998, the Partnership acquired three operating office properties for an aggregate purchase price of $54.3 million. Costs incurred during 1998 for properties under construction were $127.2 million. As of December 31, 1998, the Partnership had twelve office properties under construction. All acquisitions have been accounted for as purchases. Operations of acquired properties have been included in the accompanying financial statements from their respective dates of acquisition. F-11 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (9) Quarterly Financial Information (unaudited) The following is a summary of quarterly results of operations for 1999 and 1998 (in thousands):
First Second Third Fourth 1999 Quarter Quarter Quarter Quarter - ---- -------------- -------------- ------------- ------------ Real estate operating revenue ..................... $28,922 $30,354 $34,796 $33,258 Real estate operating income ...................... 6,974 7,347 6,279 5,782 Net income ........................................ 7,057 8,004 8,391 8,362 1998 - ---- Real estate operating revenue ..................... 24,300 26,473 25,918 27,923 Real estate operating income ...................... 7,120 6,669 5,564 4,344 Net income ........................................ 6,951 6,819 11,362 7,737
(10) Investment in Unconsolidated Partnership The Partnership owns a 35% interest in a development operation through an unconsolidated partnership. This investment commenced in 1998. The condensed financial information for the unconsolidated partnership is as follows: (in thousands)
Balance Sheet December 31, December 31, - ------------- 1999 1998 ---------------- ---------------- Assets Rental property, net ....................................... $47,134 $22,213 Cash and cash equivalents .................................. 372 18,456 Other assets ............................................... 994 1,667 ---------------- ---------------- $48,500 $42,336 ================ ================ Liabilities and Partners' Capital Liabilities: Notes payable ............................................ $18,500 $18,350 Other liabilities ........................................ 78 313 ---------------- ---------------- Total liabilities ..................................... 18,578 18,663 Partners' capital .......................................... 29,922 23,673 ---------------- ---------------- $48,500 $42,336 ================ ================ Statement of Operations 1999 1998 - ----------------------- ---------------- ---------------- Revenue .................................................... $ -- $ -- Other expenses ............................................. -- 197 ---------------- ---------------- Net loss ................................................. $ -- $ (197) ================ ================
F-12 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (11) Segment Information The Partnership's reportable operating segment is real estate property operations. Other business activities and operating segments that are not reportable are included in other operations. The Partnership's operating segments performance is measured using funds from operations. Funds from operations represents net income excluding depreciation and amortization on real estate assets and gain (loss) on sale of assets.
(In millions) As of and for the year ended December 31, 1999 ------------------------------------------------------------------ Real Estate Property Operations Other Operations Total -------------------- ------------------- ---------------- Operating revenue ................................... $123.5 3.8 $127.3 Segment expense ..................................... 41.3 6.3 47.6 -------------------- ------------------- ---------------- Net segment revenue ............................... 82.2 (2.5) 79.7 Interest expense .................................... 12.8 7.7 20.5 Other income ........................................ 0.2 1.1 1.3 -------------------- ------------------- ---------------- Funds from operations ............................. $69.6 (9.1) 60.5 ==================== =================== Adjustments to net income: Depreciation and amortization ..................... (32.5) Gain on sale of assets ............................ 3.8 ---------------- Net income $ 31.8 ================ Total assets ........................................ $766.2 63.0 $829.2 Expenditures for long-lived assets .................. $ 8.9 88.9 $ 97.8 (In millions) As of and for the year ended December 31, 1998 ------------------------------------------------------------------ Real Estate Property Operations Other Operations Total -------------------- ------------------- ---------------- Operating revenue ................................. $101.0 3.6 $104.6 Segment expense ................................. 34.2 6.3 40.5 -------------------- ------------------- ---------------- Net segment revenue ...................................... 66.8 (2.7) 64.1 Interest expense ........................................... 11.8 4.7 16.5 Other income ........................................ 0.2 0.8 1.0 -------------------- ------------------- ---------------- Funds from operations ...................... $ 55.2 (6.6) 48.6 ==================== =================== Adjustments to net income: Depreciation and amortization ............ (23.9) Gain on sale of assets ................................... 8.2 ---------------- Net income $ 32.9 Total assets ............................................... $667.2 112.4 $779.6 Expenditures for long-lived assets ......................... $ 84.8 149.4 $234.2 (In millions) As of and for the year ended December 31, 1997 ------------------------------------------------------------------ Real Estate Property Operations Other Operations Total -------------------- ------------------- ---------------- Operating revenue ................................. $ 57.8 2.7 $ 60.5 Segment expense ................................. 25.8 3.5 29.3 -------------------- ------------------- ---------------- Net segment revenue ...................................... 32.0 (0.8) 31.2 Interest expense ........................................... 5.9 0.9 6.8 Other income ........................................ 0.1 0.2 0.3 -------------------- ------------------- ---------------- Funds from operations ...................... $ 26.2 (1.5) 24.7 ==================== =================== Adjustments to net income: Depreciation and amortization ............ (13.1) Gain on sale of assets ................................... 5.1 ---------------- Net income $ 16.7 ================ Total assets ............................................... $592.2 44.4 $636.6 Expenditures for long-lived assets ......................... $383.8 66.8 $450.6
F-13 INDEPENDENT AUDITORS' REPORTS The Partners CarrAmerica Realty, L.P.: We have audited the accompanying consolidated balance sheets of CarrAmerica Realty, L.P. and subsidiary as of December 31, 1999 and 1998 and the related consolidated statements of operations, partners' capital, and cash flows for each of the years in the three year period ended December 31, 1999. These consolidated financial statements are the responsibility of CarrAmerica Realty, L.P.'s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CarrAmerica Realty, L.P. and subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1999, in conformity with generally accepted accounting principles. KPMG LLP Washington, D.C. February 1, 2000 F-14 INDEPENDENT AUDITORS' REPORT The Partners CarrAmerica Realty, L.P.: Under date of February 1, 2000, we reported on the consolidated balance sheets of CarrAmerica Realty, L.P. and subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of operations, partners' capital, and cash flows for each of the years in the three year period ended December 31, 1999 which are included in this Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in this Form 10-K. This financial statement schedule is the responsibility of CarrAmerica Realty, L.P.'s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, this financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Washington, D.C. February 1, 2000 S-1 CARRAMERCA REALTY, L.P. AND SUBSIDIARY Consolidated Real Estate and Accumulated Depreciation as of December 31, 1999 ------------------------------------------------------------------------------
(in thousands) Initial Costs -------------------------- Properties Cost Capitalized Buildings and Subsequent to Encumbrances Land Improvements Acquisition (1) - ----------------------------------------------------------------------------------------------------------------------- Orange County/Los Angeles: South Coast Executive Center $ 15,000 3,324 17,212 1,257 2600 W. Olive 19,152 3,855 25,054 2,907 Bay Technology Center -- 2,442 11,164 128 San Diego: Jaycor 12,199 5,123 11,754 191 San Francisco Bay Area: San Mateo II and III -- 9,723 15,556 940 San Mateo I -- 5,703 9,126 108 Denver: Quebec Center -- 1,423 5,659 765 Quebec Court I and II 28,545 (2) 2,368 19,819 10,212 Harlequin Plaza -- (2) 4,746 21,344 6,613 Panorama Corporate Center I -- 1,325 6,486 3,568 Panorama Corporate Center II (3) -- 1,844 -- 9,368 Seattle: Canyon Park Commons 1 and 2 5,405 2,375 9,958 111 Salt Lake City: Sorenson Research Park 4,096 4,389 25,304 1,145 Sorenson Research Park XI (3) -- 1,490 -- 5,142 Wasatch Corporate Center 12,458 3,318 15,495 410 Wasatch Corporate Center 17 and 18 (3) -- 2,636 -- 11,161 Wasatch Corporate Center 16 -- 1,172 -- 820 Chicago: Bannockburn IV -- 1,914 12,729 488 Bannockburn I and II 18,595 3,448 22,928 1,912 Austin: Balcones Center -- 949 7,649 546 Great Hills Plaza -- 1,680 13,545 264 Park North -- 1,671 13,471 862 City View Centre -- 1,718 13,854 1,135 Tower of the Hills -- 1,633 13,625 462 Riata Buildings 1-9 (3) -- 10,121 -- 62,026 City View Centre -- 1,890 -- 13,702 Riata Crossing -- 4,933 -- 24,225 (in thousands) Gross Amount at Which Carried at Close of Period - ------------------------------------------------------------------------------------------------------------------------------------ Properties Buildings and Accumulated Date of Year of Land Improvements Total Depreciation Construction Acquisition - ------------------------------------------------------------------------------------------------------------------------------------ Orange County/Los Angeles: South Coast Executive Center 3,388 18,405 21,793 2,090 1987 1996 2600 W. Olive 3,904 27,912 31,816 2,625 1986 1997 Bay Technology Center 2,462 11,272 13,734 767 1985 1997 San Diego: Jaycor 5,154 11,914 17,068 478 1989 1998 San Francisco Bay Area: San Mateo II and III 9,817 16,402 26,219 1,393 1985 1997 San Mateo I 5,710 9,227 14,937 676 1986 1997 Denver: Quebec Center 1,423 6,424 7,847 1,106 1985 1996 Quebec Court I and II 2,371 30,028 32,399 3,974 1979-1980 1996 Harlequin Plaza 4,748 27,955 32,703 4,142 1981 1996 Panorama Corporate Center I 1,326 10,053 11,379 1,799 N/A 1996 Panorama Corporate Center II (3) 1,939 9,273 11,212 1,540 N/A 1996 Seattle: Canyon Park Commons 1 and 2 2,380 10,064 12,444 708 1988 1997 Salt Lake City: Sorenson Research Park 4,423 26,415 30,838 2,371 1988-1997 1997 Sorenson Research Park XI (3) 2,665 3,967 6,632 98 1999 1997 Wasatch Corporate Center 3,587 15,636 19,223 1,321 1996 1997 Wasatch Corporate Center 17 and 18 (3) 1,657 12,140 13,797 419 1998-1999 1997 Wasatch Corporate Center 16 1,992 -- 1,992 -- N/A 1999 Chicago: Bannockburn IV 1,924 13,207 15,131 1,183 1988 1997 Bannockburn I and II 3,472 24,816 28,288 2,576 1980 1997 Austin: Balcones Center 949 8,195 9,144 1,165 1985 1996 Great Hills Plaza 1,680 13,809 15,489 1,635 1985 1996 Park North 1,671 14,333 16,004 1,967 1981 1996 City View Centre 1,720 14,987 16,707 2,261 1985 1996 Tower of the Hills 1,634 14,086 15,720 999 1986 1997 Riata Buildings 1-9 (3) 12,533 59,614 72,147 3,201 1998-1999 1996 City View Centre 2,107 13,485 15,592 1,441 1998 1996 Riata Crossing 4,941 24,217 29,158 1,019 1999 1998
S-2
(in thousands) Initial Costs -------------------------- Properties Cost Capitalized Buildings and Subsequent to Encumbrances Land Improvements Acquisition (4) - ----------------------------------------------------------------------------------------------------------------------- Dallas: Quorum North 6,465 1,357 9,078 998 Quorum Place 7,450 1,941 14,234 1,327 Two Mission Park -- 823 4,326 852 Cedar Maple Plaza -- 1,220 10,982 401 Royal Ridge A and B -- 3,159 -- 19,159 5000 Quorum -- 1,774 15,616 638 The Commons at Las Colinas (3) -- 9,990 -- 62,046 Royal Ridge III -- 2,186 -- 319 Phoenix: U.S. West 48,251 18,517 74,069 788 Concord Place 7,509 3,337 16,675 742 ------------------------------------------------------------------- TOTAL $ 185,125 131,517 436,712 247,738 =================================================================== (in thousands) Gross Amount at Which Carried at Close of Period - ------------------------------------------------------------------------------------------------------------------------------------ Properties Buildings and Accumulated Date of Year of Land Improvements Total Depreciation Construction Acquisition - ------------------------------------------------------------------------------------------------------------------------------------ Dallas: Quorum North 1,368 10,065 11,433 1,081 1983 1997 Quorum Place 1,954 15,548 17,502 1,672 1981 1997 Two Mission Park 831 5,170 6,001 525 1983 1997 Cedar Maple Plaza 1,225 11,378 12,603 1,191 1985 1997 Royal Ridge A and B 3,286 19,032 22,318 1,359 1998-1999 1997 5000 Quorum 1,782 16,246 18,028 1,050 1984 1998 The Commons at Las Colinas (3) 6,897 65,139 72,036 1,848 1999 1998 Royal Ridge III 2,505 -- 2,505 -- N/A 1998 Phoenix: U.S. West 18,644 74,730 93,374 5,218 1988 1997 Concord Place 3,348 17,406 20,754 835 1989 1998 ------------------------------------------------------- TOTAL 133,417 682,550 815,967 57,733 =======================================================
Depreciation and amortization of the investment in building and improvements reflected in the statements of operations are calculated over the estimated lives of the assets as follows: Base Building 30 to 50 years Building components 7 to 20 years Tenant improvements Terms of leases or useful lives, whichever is shorter Furniture, fixtures and equipment 5 to 15 years The aggregate cost for federal income tax purposes was approximately $584,823 at December 31, 1999. The changes in total real estate assets and accumulated depreciation and amortization for 1999, 1998 and 1997 are as follows:
Total Real Estate Assets --------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Balance, beginning of period $762,580 $624,085 $238,073 Acquisitions -- 94,153 393,275 Improvements 90,537 122,086 53,640 Sales, Retirements and write-offs (37,150) (77,744) (60,903) ---------- ---------- ---------- $815,967 $762,580 $624,085 ========== ========== ========== Total Accumulated Depreciation ----------------------------------- 1999 1998 1997 --------- --------- --------- Balance, beginning of period $32,546 $13,360 $ 3,104 Depreciation for the period 28,742 22,331 12,961 Sales, Retirements and write-offs (3,555) (3,145) (2,705) ---------- ---------- --------- $57,733 $32,546 $13,360 ========== ========== =========
Notes: (1) Costs capitalized are offset by retirements and write-offs. (2) Secured by Quebec Court I & II and Harlequin Plaza. (3) Under construction as of December 31, 1999. Construction costs are shown under buildings and improvements until completion. At that time, costs will be allocated between land and buildings and improvements. S-3 EX-21.1 2 EXHIBIT 21.1 Exhibit 21.1 CARRAMERICA U.S. WEST, LLC EX-23.1 3 EXHIBIT 23.1 Exhibit 23.1 ACCOUNTANT'S CONSENT The Partners CarrAmerica Realty, L.P.: We consent to incorporation by reference in the registration statement (No. 333-53751) on Form S-3 of CarrAmerica Realty, L.P. of our reports dated February 1, 2000, relating to the consolidated balance sheets of CarrAmerica Realty, L.P. as of December 31, 1999 and 1998, and the related consolidated statements of operations, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1999 and the related schedule, which report appears in the December 31, 1999, annual report on Form 10-K of CarrAmerica Realty, L.P. KPMG LLP Washington, D.C. March 30, 2000 EX-27.1 4 EXHIBIT 27.1
5 The schedule contains summary financial information extracted from CarrAmerica Realty LP and subsidiaries consolidated balance sheet as of December 31, 1999 and from CarrAmerica Realty LP and subsidiaries and consolidated statement of operations for the year ended December 31, 1999. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 10,489 0 21,514 0 0 0 787,245 57,733 829,199 0 325,875 0 0 0 456,344 829,199 0 127,330 0 100,948 0 0 0 31,814 0 31,814 0 0 0 31,814 0 0 Notes & accounts receivable are presented net of allowance for doubtful accounts as the allowance is immaterial.
EX-27.2 5 EXHIBIT 27.2
5 The schedule contains summary financial information extracted from CarrAmerica Realty LP and subsidiaries consolidated balance sheet as of December 31, 1998 and from CarrAmerica Realty LP and subsidiaries and consolidated statement of operations for the year ended December 31, 1998. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 4,504 0 10,536 0 0 0 672,597 32,546 779,615 0 328,945 0 0 0 426,807 779,615 0 104,614 0 80,917 0 0 0 32,869 0 32,869 0 0 0 32,869 0 0 Notes & accounts receivable are presented net of allowance for doubtful accounts as the allowance is immaterial.
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