-----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, GCo0eBSgm3m2onZn1t/vK0onICKXwa9agIKiuJOQEpL1vHEG4REVTidASEsA8RLr GunJkyUQBn2v+lSRatu0JA== 0001024739-99-000197.txt : 19990403 0001024739-99-000197.hdr.sgml : 19990403 ACCESSION NUMBER: 0001024739-99-000197 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 99583746 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-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file Number 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. 20006 WASHINGTON, D.C. ---------- ---------------------------------------- (Zip Code) (Address of principal executive offices)
Registrant's telephone number, including area code: (202) 729-7500 Securities registered pursuant to Section 12(b) of the Act: None Securities 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 15, 1999, 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 1,777,587 units of partnership interest held by non-affiliates of the registrant was approximately $39.0 million, based upon the closing price of a share of common stock of CarrAmerica Realty Corporation of $21.9375 on the New York Stock Exchange composite tape on such date. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I 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 March 15, 1999, consisted of (i) 59 operating properties containing approximately 5.4 million rentable square feet of office 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) twelve properties under construction that will contain approximately 1.1 million square feet of office space, and (iii) land that is expected to support the future development of up to 1.1 million square feet of office space. The Properties owned as of December 31, 1998 were 96.8% 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 March 15, 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 March 15, 1999, CarrAmerica owned a greater than 50% interest in a portfolio of 286 operating office properties and 45 properties under construction. These 286 operating properties contain an aggregate of approximately 22.0 million square feet of net rentable area and the 45 properties under construction will contain approximately 3.8 million square feet. The operating properties as of December 31, 1998 were 96.7% leased as of that date, with approximately 2,400 tenants. 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 36 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 March 15, 1999, SC-USREALTY owned approximately 39.9% of the outstanding common stock of CarrAmerica (36.2% on a fully diluted basis). 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, 1998, approximately 20% 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 1.0% general partner interest (in the form of Units) in the Partnership as of March 15, 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 March 15, 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 approximately 115 employees, including approximately 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 segments of operations include real estate property operations and development operations. Real estate property operations include the ownership of commercial real estate. Such operations comprise approximately 97% of the Partnership's revenues and approximately 86% of the Partnership's assets. Development operations include the development of office space and the buildout of tenant space. The Partnership's investment in development operations represents approximately 12% of the Partnership's assets. REAL ESTATE PROPERTY OPERATIONS Core Markets. CarrAmerica has focused its acquisition and development activity in markets of 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 existing target markets through its investment activity and through relationships established by its experienced market officers. CarrAmerica's target markets include the following: Atlanta, Austin, Chicago, Dallas, Denver, Boca Raton, Florida, Orange County/Los Angeles, Phoenix, Portland, Oregon, Sacramento, Salt Lake City, San Diego, San Francisco Bay area, Seattle and metropolitan Washington, D.C. For each identified core market, CarrAmerica has established a set of general guidelines and physical characteristics to evaluate investment opportunities. All investment decisions are driven by real estate research, focusing on variables such as composition of economic base rate, and composition of job growth and office space supply and demand fundamentals. As of December 31, 1998, the distribution of the Partnership's real estate property operations (on a net rentable square foot basis) was as follows: 45% in its Central region, primarily in Austin, Dallas and Chicago; 40% in its Mountain region, primarily in Denver, Salt Lake City and Phoenix; and 15% 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 of net rentable area, 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 Officer Group, currently consisting of 11 market officers 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, 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, 2 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. Market Officer Group. The Market Officer Group currently consists of 11 market officers who cover the 15 core markets in which CarrAmerica currently owns properties. These market officers 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 officers are cognizant of and responsive to customers' relocation or expansion needs. The market officers have extensive knowledge of local conditions in their respective markets and, therefore, are invaluable in identifying attractive investment opportunities in their markets. In addition, through their contact with customers, market officers are well positioned to help the National Services Group identify customers with new build-to-suit and multi-market requirements. National Services Group. CarrAmerica 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 currently has over 70 professionals consisting of architects, engineers and construction professionals 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 13 properties during 1998, containing approximately 1.2 million square feet for approximately $180 million in value. CarrAmerica recognized a gain of $38.2 million in conjunction with these transactions. In addition, from January 1, 1999 through March 15, 1999, CarrAmerica disposed of an additional 11 properties containing 795,000 square feet for approximately $130 million in value, resulting in a gain of $11 million. CarrAmerica 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 only 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 3 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. From January 1, 1997 to March 15, 1999, CarrAmerica placed in service approximately 3.1 million square feet of office properties. The total cost of these development properties was $436.5 million and CarrAmerica expects that the first year stabilized unleveraged return of these properties will be 11.6%. In addition, as of March 15, 1999, CarrAmerica had 45 properties under construction that will contain approximately 3.8 million square feet of which 473,000 square feet had already been placed in service. 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 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 March 15, 1999, land in 11 of its core markets that is expected to support future development of up to 5.6 million square feet. RECENT DEVELOPMENTS Acquisitions and Development From January 1, 1998 to March 15, 1999, the Partnership invested approximately $113.3 million ($73.7 million in cash and the assumption of $20.5 million of debt) in three operating properties containing approximately .4 million square feet and land which was expected to support the future development of approximately 1.6 million square feet. During this period, the Partnership had developed and placed into service six properties containing an aggregate of approximately 649,000 square feet and placed under construction nine properties which will contain an aggregate of approximately 888,000 square feet. The table below provides certain information by market regarding the operating properties acquired between January 1, 1998 and March 15, 1999:
PURCHASE PRICE NUMBER OF RENTABLE REGION/MARKET (IN MILLIONS) PROPERTIES SQUARE FEET - ------------------------------------------------------------------ ------------- ---------- ----------- PACIFIC REGION San Diego....................................................... $ 16.9 1 105,000 CENTRAL REGION Dallas.......................................................... 17.4 1 160,000 MOUNTAIN REGION Phoenix......................................................... 20.0 1 133,000 -- ------------- ----------- Total........................................................ $ 54.3 3 398,000 -- -- ------------- ----------- ------------- -----------
The following table provides certain information regarding the development activity on the Partnership's land, all of which was acquired between January 1, 1998 and March 15, 1999:
SQUARE FEET FUTURE UNDER BUILDABLE MARKET CONSTRUCTION SQUARE FOOTAGE - -------------------------------------------------------------------------- ------------ -------------- Downtown Washington, D.C................................................ --(1) -- Austin.................................................................. 258,000 173,000 Dallas.................................................................. 337,000 608,000 ------------ -------------- Total................................................................ 595,000 781,000 ------------ -------------- ------------ --------------
- ------------------ (1) Excludes 229,000 square feet which was purchased in 1998, placed under construction and subsequently contributed to a joint venture in which the Partnership currently holds a 35% interest. 4 FINANCING ACTIVITY In December 1998, 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 agreed to provide construction financing and permanent financing for this project. Also, during the fourth quarter, the 2600 West Olive property in Burbank, California was refinanced for 10 years at a fixed rate of 6.75%. In 1998, CarrAmerica raised $350 million through debt offerings which were guaranteed by the Partnership. 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 1998 CarrAmerica 10-K, which inforamtion is hereby incorporated by reference. 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, 1998, the Partnership owned 59 operating office properties ranging from two to 12 stories each, located in ten target markets across the United States. As of December 31, 1998, the Partnership also owned 12 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. 5 The following table sets forth certain information about each operating property owned by the Partnership as of December 31, 1998:
NET AVERAGE BASE COMPANY'S RENTABLE TOTAL RENT PER # OF EFFECTIVE AREA ANNUALIZED LEASED BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE PROPERTY INGS OWNERSHIP FEET)(1) LEASED(2) (IN THOUSANDS) FOOT(4) - ----------------------------------- ------ ----- ---------- --------- -------------- ------------ CONSOLIDATED PROPERTIES SOUTHERN CALIFORNIA, ORANGE COUNTY/LOS ANGELES: South Coast Executive Center..... 2 100.0% 161,310 90.7% $ 3,058 $20.90 2600 W. Olive.................... 1 100.0 145,474 95.7 3,543 25.46 Bay Technology Center............ 2 100.0 107,481 100.0 1,606 14.94 SOUTHERN CALIFORNIA, SAN DIEGO: Jaycor........................... 1 100.0 105,358 100.0 1,719 16.32 NORTHERN CALIFORNIA, SAN FRANCISCO BAY AREA: San Mateo I...................... 1 100.0 70,000 100.0 2,478 35.40 San Mateo II and III............. 2 100.0 141,404 97.2 3,778 27.51 SEATTLE: Canyon Park Commons.............. 1 100.0 95,290 100.0 1,358 14.25 AUSTIN, TEXAS: Great Hills Plaza................ 1 100.0 135,333 100.0 2,532 18.71 Balcones Center.................. 1 100.0 74,978 78.4 950 16.16 Park North....................... 2 100.0 132,744 95.3 2,101 16.62 City View Centre................. 3 100.0 136,183 100.0 2,237 16.42 Riata 4, 5, 8.................... 3 100.0 274,118 89.7 3,506 14.26 Tower of the Hills............... 2 100.0 166,099 98.1 2,476 15.19 City View Center................. 1 100.0 128,716 100.0 2,073 16.10 CHICAGO: Bannockburn I & II............... 2 100.0 210,860 100.0 3,400 16.13 Bannockburn IV................... 1 100.0 108,469 100.0 1,707 15.74 DALLAS, TEXAS: Quorum North..................... 1 100.0 115,845 88.6 1,860 18.12 Quorum Place..................... 1 100.0 179,303 92.4 2,706 16.34 Cedar Maple Plaza................ 3 100.0 113,011 96.1 2,144 19.73 Tollhill East & West............. 2 100.0 241,487 91.1 3,550 16.14 PROPERTY SIGNIFICANT TENANTS(5) - ----------------------------------- ------------------------------------------------------------------ CONSOLIDATED PROPERTIES SOUTHERN CALIFORNIA, ORANGE COUNTY/LOS ANGELES: South Coast Executive Center..... State Compensation Insurance Fund (33%) 2600 W. Olive.................... The Walt Disney Company (89%) Bay Technology Center............ AMRESCO (100%) SOUTHERN CALIFORNIA, SAN DIEGO: Jaycor........................... Jaycor, Inc. (100%) NORTHERN CALIFORNIA, SAN FRANCISCO BAY AREA: San Mateo I...................... Franklin Resources (100%) San Mateo II and III............. Franklin Resources, Inc. (37%), Peoplesoft/Red Pepper (20%) SEATTLE: Canyon Park Commons.............. Microsoft (100%) AUSTIN, TEXAS: Great Hills Plaza................ Empire Funding (48%), Blue Cross (24%), Skjerven Morrill, Machpherson (13%), Businesssuites (12%) Balcones Center.................. Medianet (29%), Austin Diagnostic Clinic (15%) Park North....................... CSC Continuum Inc. (36%) City View Centre................. Holt, Rinehart & Winston (76%), Money Star Communications (16%) Riata 4, 5, 8.................... Netsolve, Inc. (25%), Pervasive Software (25%), Alcatel USA, Inc. (25%) Tower of the Hills............... Texas Guaranteed Student (65%) City View Center................. IXC Communications, Inc. (100%) CHICAGO: Bannockburn I & II............... IMC Global (38%), Deutsche Credit Corporation (36%) Bannockburn IV................... Open Text (35%), Abbott Laboratories (12%), NY Life Insurance (10%) DALLAS, TEXAS: Quorum North..................... Digital Matrix Systems (20%), HQ Dallas Quorum North (17%) Quorum Place..................... VHASouthwest, Inc. (22%), Objectspace (16%) Cedar Maple Plaza................ No Tenant Occupies More Than 10% Tollhill East & West............. Digital Equipment Corporation (22%)
6
NET AVERAGE BASE COMPANY'S RENTABLE TOTAL RENT PER # OF EFFECTIVE AREA ANNUALIZED LEASED BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE PROPERTY INGS OWNERSHIP FEET)(1) LEASED(2) (IN THOUSANDS) FOOT(4) - ----------------------------------- ------ ----- ---------- --------- -------------- ------------ Two Mission Park................. 1 100.0% 77,731 89.1% $ 985 $14.21 5000 Quorum...................... 1 100.0 160,222 92.2 2,361 15.99 Royal Ridge A.................... 1 100.0 144,835 100.0 2,571 17.75 SOUTHEAST DENVER: Harlequin Plaza.................. 2 100.0 329,070 98.6 5,173 15.94 Quebec Court I & II.............. 2 100.0 287,294 100.0 4,021 14.00 Greenwood Center................. 1 100.0 75,866 100.0 1,456 19.19 Quebec Center.................... 3 100.0 106,865 92.1 1,470 14.95 Panorama Corporate Center I...... 1 100.0 100,881 100.0 2,062 20.44 Panorama II...................... 1 100.0 100,916 96.7 2,151 22.04 PHOENIX, ARIZONA: US West.......................... 4 100.0 532,506 100.0 8,580 16.11 Concord Place.................... 1 100.0 133,287 100.0 2,463 18.70 SALT LAKE CITY, UTAH: Sorenson Research Park........... 5 100.0 285,144 99.7 3,381 11.89 Wasatch Corporate Center......... 3 100.0 178,098 100.0 2,084 11.70 ------ ---------- --------- -------------- ------------ TOTAL CONSOLIDATED PROPERTIES:..... 59 5,356,178 $ 87,540 ------ ---------- -------------- ---------- -------------- WEIGHTED AVERAGE................... 96.8% $16.89 --------- ------------ --------- ------------ PROPERTY SIGNIFICANT TENANTS(5) - ----------------------------------- ------------------------------------------------------------------ Two Mission Park................. Macromedia, Inc. (26%), Bland Garvey and Taylor (16%) < 5000 Quorum...................... No Tenant Occupies More Than 10% Royal Ridge A.................... GTE North, Inc. (100%) SOUTHEAST DENVER: Harlequin Plaza.................. Travelers Insurance (17%), Bellco First Federal Credit Union (13%), National Mortgage Corporation. (11%), Regis University (10%) Quebec Court I & II.............. Prime Star, Inc. (55%), Time Warner Communications (45%) Greenwood Center................. General Motors Corporation (30%), Talisman Partners, Ltd (11%), FDIC (11%) Quebec Center.................... Gordon Gumeeson & Associates (12%), Walberg & Dagner (11%) Panorama Corporate Center I...... Teleport Communications Group (70%), Sprint Spectrum, LP (11%) Panorama II...................... Hartford Fire Insurance Company (38%), 3COM Corporation (18%), Toyota Motor Credit Corporation (13%), Archstone Communities (11%) PHOENIX, ARIZONA: US West.......................... US West Business Resources (100%) Concord Place.................... Peacock, Hislop, Staley & Given (16%), Horizon Real Estate Group (11%) SALT LAKE CITY, UTAH: Sorenson Research Park........... Foundation Health Corporation (12%), Matrix Marketing, Inc. (34%), Datachem Laboratories, Inc. (20%), Intel Corporation (14%), ITT Educational Services (12%) Wasatch Corporate Center......... Advanta Financial Corporation (28%), Achieve Global, Inc. (23%), Fonix Corporation (14%), Tenfold Corporation (14%), Musicians Friand, Inc. (12%) TOTAL CONSOLIDATED PROPERTIES:..... WEIGHTED AVERAGE...................
- ------------------ (1) Includes office and retail space but excludes storage space. (2) Includes space for leases that have been executed and have commenced as of December 31, 1998. (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). 7 Occupancy, Average Rentals and Lease Expirations. As of December 31, 1998, 96.8% of the aggregate net rentable square footage in the Partnership's 59 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 - ------------ --------- --------------- ------------ 1998 96.8% $ 19.33 59 1997 96.4 17.10 53 1996 89.7 13.93 25
- ------------------ (1) Calculated as total annualized building operating revenue, including tenant reimbursements for operating expenses and excluding parking and storage revenue, divided by the total square feet, excluding storage, in the building under lease at year end. The following table sets forth a schedule of the lease expirations for leases in place as of December 31, 1998 in each of the next ten years beginning with 1999 and thereafter for the Partnership's 59 operating office properties, assuming that no tenants exercise renewal options:
PERCENT OF NET ANNUAL TOTAL NUMBER OF RENTABLE AREA BASE RENT 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 - ------------------------------------- --------- ------------- -------------- ----------- 1999................................. 158 716,000 $ 11,356 13.0% 2000................................. 106 453,000 8,568 9.8 2001................................. 134 859,000 14,657 16.7 2002................................. 68 614,000 11,961 13.7 2003................................. 95 649,000 10,670 12.2 2004................................. 30 549,000 9,484 10.8 2005................................. 2 23,000 510 .6 2006................................. 10 180,000 2,759 3.2 2007................................. 8 618,000 9,698 11.1 2008................................. 15 442,000 6,740 7.7 2009 and thereafter.................. 6 81,000 1,137 1.2
- ------------------ (1) Excludes 172,000 square feet of space that was vacant as of December 31, 1998. US West. Because the aggregate gross revenues of the four properties that constitute US West were in excess of 10% of the Partnership's total gross revenues for 1998, additional information regarding US West is provided below. US West was developed in 1988. The complex includes four buildings, three of which are located in Phoenix and one in Tucson. The Partnership has no immediate plans to renovate US West (other than for routine capital maintenance) and believes that US West is adequately covered by insurance. As of December 31, 1998 and 1997, 100.0% of the rentable square footage in the four buildings constituting US West was leased. The percent leased and average annualized rent per leased square foot (excluding storage space) for the prior three years for US West is not available because US West was purchased by the Partnership in December 1997. At December 31, 1998 and 1997, U.S. West Business Resources occupied 100% of the space (or approximately 532,500 square feet) pursuant to a lease which expires in 2007. U.S. West has two five-year options to extend their lease at the then prevailing market rates, provided notice is given no later than July 1, 8 2006 on the first option and July 1, 2011 on the second option. The current annual base rent under this lease, excluding operating recoveries, is approximately $8,580,000. The aggregate tax basis of depreciable real property of the office properties constituting US West for federal income tax purposes was approximately $66.8 million as of December 31, 1998. Depreciation is computed on the Modified Accelerated Cost Recovery System (MACRS) over the estimated useful lives of the real property over 31.5 or 39 years. No personal property was purchased with these office properties. The current realty tax rate for the four buildings that constitute US West range from $4.6965 to $10.4561 per $100 assessed value. The annual tax for the four buildings range from approximately $247,000 to $786,000 based on assessed values ranging from $3,516,000 to $9,908,000. Mortgage Financing. As of December 31, 1998, certain of the Partnership's 59 operating office properties were subject to fixed rate mortgage indebtedness in an aggregate principal amount of $188.2 million. The Partnership's fixed rate mortgage debt bears an effective weighted average interest rate of 8.2% and a weighted average maturity of 7.0 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, 1998:
ESTIMATED ANNUAL DEBT BALANCE DUE AT INTEREST PRINCIPAL MATURITY SERVICE MATURITY PROPERTY RATE BALANCE DATE (IN THOUSANDS) (IN THOUSANDS) - -------------------------------------------- ------------- --------- -------- -------------- -------------- South Coast Executive Center................ 9.01% $ 10,127 5/31/99 $ 1,015 $ 10,103(1) Quorum Place................................ 6.99 7,578 11/15/00 665 7,327(1) Bannockburn I & II.......................... 9.52 19,554 8/31/01 2,801 16,912(1) Quorum North................................ 8.27 6,566 12/10/01 640 6,258(1) Jaycor...................................... 8.96 12,781 2/1/03 1,657 10,332(1) Canyon Park Commons......................... 9.13 5,615 12/1/04 714 4,071(1) US West..................................... 7.92 53,263 12/1/05 8,836 (2) Concord Place............................... 7.75 7,646 1/1/06 725 6,438(1) Wasatch Corporate Center.................... 8.15 12,654 1/2/07 1,220 10,569(1) 2600 West Olive............................. 6.75 19,152 1/1/09 1,293 19,152(1) Harlequin Plaza and Quebec Court I & II(3).. 8.50 28,996 5/31/11 2,899 19,586(1) Sorenson Research Park...................... 7.75 2,617 7/1/11 328 (2) Sorenson Research Park...................... 8.88 1,646 5/1/17 182 (2) ----- --------- -------------- Total....................................... 8.21% $ 188,195 $ 22,975 ----- --------- -------------- ----- --------- --------------
- ------------------ (1) Currently prepayable at the rates stated in the loan documents. (2) Note will be fully repaid at maturity. (3) Payable to CarrAmerica. For additional information regarding the Company's office properties and their operation, 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. 9 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, 1998, there were 23 holders of record of Units. As of December 31, 1998, there were no options or warrants to purchase Units outstanding. In addition, as of December 31, 1998, 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 & Related Stockholder Matters' in CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1998 (the '1998 CarrAmerica 10-K'), which information is hereby incorporated by reference. The Partnership has made regular quarterly distributions of $0.4625 per Class A Unit from the first quarter of 1998 and $0.4375 per Class A Unit from the second quarter of 1996 through the fouth quarter of 1997. The distributions are prorated where appropriate to reflect ownership of Units for less than the full period to which such distribution relates. A distribution of $0.4375 per Class B Unit also was made for each of the second and third quarters of 1996. 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. 10 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, 1998 and 1997, as of December 31, 1996 and for the period from March 6, 1996 (date of inception) to 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 (date of inception) through YEAR ENDED Year Ended December 31, DECEMBER 31, 1998 December 31, 1997 1996 ----------------- ----------------- ------------ (amounts in thousands except Other Data) OPERATING DATA: Real estate operating revenue.............................. $ 104,614 $ 60,469 $ 13,376 Real estate operating expenses: Property operating expenses............................. 34,167 25,804 6,546 Interest expense........................................ 16,508 6,792 1,475 General and administrative expenses..................... 6,365 3,473 680 Depreciation and amortization........................... 23,877 13,146 3,148 Real estate operating income............................... 23,697 11,254 1,527 Net income................................................. 32,869 16,693 1,556 Cash distributions paid to Unit holders.................... 2,277 1,124 2,050 BALANCE SHEET DATA (AT PERIOD END): Real estate, before accumulated depreciation............... 762,580 624,085 238,073 Total assets............................................... 775,059 636,568 241,217 Mortgages and notes payable................................ 328,945 241,715 51,744 Total Unit holders' (partners') capital.................... 426,807 377,632 180,933 OTHER DATA (AT PERIOD END): Number of properties....................................... 59 53 25 Square footage............................................. 5,356,000 4,730,000 2,295,000
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, 1998 and 1997, and for the years ended December 31, 1998 and 1997 and the period from March 6, 1996 (Date of Inception) to December 31, 1996. The comparability of the periods is significantly impacted by acquisitions and dispositions made during 1998, 1997 and 1996 and the Partnership not having a full 12 months of operations for the period ended December 31, 1996, since the Partnership did not acquire any assets until May 1996, with which to compare the 12 months ended December 31, 1997. As of December 31, 1996 the Partnership owned 25 properties. This number grew to 53 properties by December 31, 1997 and 59 properties by December 31, 1998 respectively. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. The Partnership's reportable operating segments are real estate property operations and development operations. Other business activities and operating segments that are not reportable are included in other operations. 11 RESULTS OF OPERATIONS--1998 TO 1997 REAL ESTATE PROPERTY OPERATIONS Operating Revenue. Total real estate property 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 $.7 million. Interest Expense. Interest expense increased $7.1 million due to the acquisition of properties which were subject to existing mortgage debt. Other Income. Other revenue generated by real estate property operations increased $.1 million primarily due to increased interest income. Total Assets. The increase of $75.0 million or 12.7% from 1997 to 1998 is primarily as a result of acquisitions of real estate and development properties placed in service. DEVELOPMENT OPERATIONS Interest Expense. Interest capitalization related to construction in progress increased $2.0 million to $4.9 million in 1998 from $2.9 million in 1997 primarily as a result of the increase in construction dollars expended. Total Assets. Total assets increased $54.4 million to $90.0 million in 1998 from $35.6 million in 1997, primarily as a result of an increase in construction starts from 1997 to 1998. 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 reimbursements from an affiliate related to certain services provided to the affiliates by Partnership personnel. Segment Expenses. Segment expenses increased $2.9 million, to $6.4 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 $4.6 million increase in the Partnership's interest expense is primarily related to borrowings on the Company's line of credit necessary to fund acquisitions and development commitments. Other Income. Other income increased $.6 million to $.8 million in 1998 from $.2 million in 1997 primarily as a result of interest income earned on a note receivable from an affiliate. Total Assets. Total assets increased $9.1 million, or 103.4%, to $17.9 million for 1998 as compared to $8.8 million for 1997, primarily as a result of an $8.6 million investment in an unconsolidated partnership. CONSOLIDATED CASH FLOWS Net cash provided by operating activities increased $33.1 million, or 163.1%, to $53.3 million for 1998 as compared to $20.2 million for 1997, primarily as a result of the acquisitions of operating properties. Net cash used by investing activities decreased $79.3 million, to $136.2 million for 1998 as compared to $215.5 million for 1997, primarily as a result of a reduction of capital deployed by the Partnership for acquisitions of office 12 properties. Net cash provided by financing activities decreased $113.8 million, to $82.6 million for 1998 as compared to $196.4 million for 1997, primarily as a result of a reduction of capital contributions. RESULTS OF OPERATIONS--1997 TO 1996 REAL ESTATE PROPERTY OPERATIONS Operating Revenue. Total real estate property operating revenue increased $44.4 million to $57.8 million for 1997 as compared to $13.4 million for 1996. This increase is due to a full 12 months of activity in 1997 as opposed to 8 months in 1996. In addition, the Partnership experienced net growth in its rental revenue as a result of its acquisitions and development properties placed in service, which together contributed the additional real estate operating revenue in 1997. Segment Expenses. Real estate property operating expenses increased $19.3 million to $25.8 million for 1997 as compared to $6.5 million for 1996. This increase is due to a full 12 months of activity in 1997 as opposed to 8 months in 1996. In addition, the Partnership experienced increases in operating expenses as a result of its acquisitions and development properties placed in service, which together contributed the additional real estate operating expenses in 1997. Interest Expense. Interest expense increased $6.9 million to $8.8 million in 1997 from $1.9 million primarily as a result of properties acquired subject to existing mortgage debt. Other Income. Other income increased $.1 million primarily due to an increase in interest income. Total Assets. The increase of $374.5 million to $592.2 million in 1997 from $217.7 million in 1996 is primarily as a result of the Company's real estate acquisitions. DEVELOPMENT OPERATIONS Interest Expense. Interest capitalization increased $2.5 million to $2.9 million in 1997 from $.4 million in 1996 primarily as a result of the increase in construction dollars expended. Total Assets. The increase of $13.9 million to $35.6 million in 1997 from $21.7 million in 1996 is primarily as a result of an increase in construction starts from 1996 to 1997. OTHER OPERATIONS Operating Revenue. Operating revenue increased $2.7 million for 1997, primarily as a result of an increase in reimbursements from an affiliate related to certain services the Partnership personnel provide to the affiliate. Segment Expenses. Segment expenses increased $2.8 million, or 400.0%, to $3.5 million for 1998 as compared to $.7 million for 1997, primarily as a result of the addition of staff to implement the Partnership's business strategy. Interest Expense. The increase of $.9 million in the Partnership's interest expense is primarily as a result of the establishment of the Partnership's line of credit which was used to fund acquisition and development activity. Other Income. The increase of $.2 million in other income in 1997 is primarily as a result of increased interest income. Total Assets. Increased $7.0 million to $8.8 million in 1997 from $1.8 million in 1996 primarily as a result of the issuance of a $5.9 million note receivable. CONSOLIDATED CASH FLOWS Net cash provided by operating activities increased $10.8 million, or 114.7%, to $20.2 million for 1997 as compared to $9.4 million for 1996, primarily as a result of the acquisitions of operating properties. Net cash used by investing activities increased $15.4 million, to $215.5 million for 1997 as compared to $200.1 million for 1996, primarily as a result of capital deployed by the Partnership for acquisitions of office properties, land held 13 for future development and construction in progress. Net cash provided by financing activities increased $3.3 million, to $196.4 million for 1997 as compared to $193.1 million for 1996, primarily as a result of net borrowings on the unsecured credit facility. LIQUIDITY AND CAPITAL RESOURCES The Partnership's total indebtedness at December 31, 1998 was $328.9 million, of which $140.8 million, or 42.8%, 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 8.2% at December 31, 1998 and had a weighted average term to maturity of 7.0 years. At December 31, 1998, the total book value of the Partnership's assets was $775.1 million. The Partnership's debt as a percentage of total book value of its assets was 40.6% at December 31, 1998. CarrAmerica has a $450.0 million unsecured credit facility with a current borrowing capacity of $360.0 million under which the Partnership is jointly and severally liable. The weighted average interest rate under the unsecured credit facility for 1998 was 6.3%. Currently, the unsecured credit facility bears interest at 90 basis points over LIBOR. The 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 1999, the Partnership had 716,000 square feet of leases expiring, representing 13.0% of total leased space. The Partnership expects expenditures for deferred maintenance on recently acquired properties to decrease in subsequent years as the emphasis of the Partnership's growth shifts from acquiring existing office properties to developing new properties. The Partnership anticipates that this shift from acquiring properties to developing properties will increase its need for short-term borrowings. The Partnership will require a substantial amount of capital for development projects currently underway and planned for the future. As of December 31, 1998, the Partnership had 12 development projects underway, which are expected to require a total investment by the Partnership of $152.5 million. As of December 31, 1998, the Partnership had expended $82.2 million of these costs. The Partnership expects to meet these anticipated capital needs through the use of its unsecured line of credit (as described above), through advances from CarrAmerica, prudent refinancing of certain properties, targeted use of joint ventures, and from the disposition of certain properties. As of March 15, 1999, the Partnership had three properties under letter of intent and commencing due diligence located in Dallas. These properties are expected to produce net proceeds of approximately $35 million. Due to the uncertainty in the disposition and related due diligence process, there can be no assurance that these sales will close or that they will achieve the expected net proceeds. The Partnership intends to use cash flow from operations, its 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 and the payment of distributions in both the short term and long term. 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 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 which it is currently pursuing, 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, 1998, the Partnership had cash of $4.5 million, of which $1.2 million was restricted. 14 Net cash provided by operating activities was $53.3 million during 1998, compared to $20.2 million during 1997. The increase in net cash provided by operating activities was primarily a result of acquisitions made by the Partnership. The Partnership's investing activities used approximately $136.2 million and $215.5 million during 1998 and 1997, respectively. The Partnership's investment activities included the acquisitions of office buildings and land held for future development and additions to construction in process of approximately $183.2 million during 1998, as compared to $263.1 million in acquisitions during 1997. Additionally, the Partnership invested approximately $19.3 million and $9.9 million in its existing real estate assets during 1998 and 1997, respectively. Net of distributions to the Partnership's partners, the Partnership's financing activities provided net cash of $84.9 million and $197.5 million during 1998 and 1997, respectively. During 1998, the Partnership's partners contributed $18.6 million to fund acquisitions. The Partnership also drew amounts from its unsecured credit facility during 1998 to finance its acquisitions and other investing activities. During 1998, the Partnership's net borrowings of its unsecured credit facility were approximately $85.3 million. 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. Management believes that the Partnership will have access to the capital resources necessary to expand and develop its business. The Partnership may seek to obtain funds through contributions from CarrAmerica through its ability to raise funds through contributions from CarrAmerica through its ability to raise funds through equity offerings or debt offerings, in a manner consistent with its intention to operate with a conservative borrowing policy. The Partnership anticipates that adequate cash will be available to fund its operating and administrative expenses, continuing debt service obligations, the payment of dividends in accordance with REIT requirements in both the short term and long term, and future acquisitions of office properties. YEAR 2000 COMPLIANCE The Year 2000 issue results from a programming convention in which computer programs use two digits rather than four to define the applicable year. Software and hardware may recognize a date using '00' as the year 1900, rather than the year 2000. Such an inability of computer programs to recognize a year that begins with '20' could result in business or building system failures, miscalculations or errors causing disruptions of operations or other business problems, including, among other things, a temporary inability to process transactions, send invoices or engage in other normal business activities. CarrAmerica has undertaken a comprehensive program to address the Year 2000 issue. In the second quarter of 1998, CarrAmerica expanded its program and appointed a Year 2000 Steering Committee to manage centrally its Year 2000 compliance program (known internally as 'Project 2000'). The Steering Committee includes representatives of senior level management representing a wide array of the organization and is charged with overseeing CarrAmerica's comprehensive action plan designed to address Year 2000 issues. During the second quarter of 1998, CarrAmerica's Steering Committee engaged the independent consulting firm of Computer Technology Associates, Inc. ('CTA') to serve as the Project Manager for Project 2000. During the first quarter of 1999 and after completion of the assessment phase, CTA's role as Project Manager was modified and CarrAmerica designated two full-time employees as the Project Managers to oversee the remainder of Project 2000. CarrAmerica expects CTA will continue to assist the Project Managers, as needed, during the remainder of Project 2000. Project 2000 is organized into two areas of concentration: (i) Property Operations Embedded Systems and (ii) Internal Business Operations Technology. The Property Operations segment of the program focuses primarily on equipment and systems present in CarrAmerica's operating properties that may contain embedded microcontroller technology (such as elevators and HVAC systems). The Internal Business Operations segment focuses primarily on CarrAmerica's information technology, operating systems (such as billing, accounting and financial reporting systems) and certain systems of CarrAmerica's major vendors and material service providers. As described below, Project 2000 involves (i) the assessment of the Year 2000 problems that may affect CarrAmercia, (ii) the development of remedies to address the problems discovered in the assessment phase, (iii) the selective testing of such remedies and (iv) the preparation of contingency plans to deal with the potential failure of important and critical systems. 15 ASSESSMENT. During the course of its assessment phase, CarrAmerica continued to identify substantially all of the major components of its property and business operations systems which may be vulnerable to the Year 2000 issue. In terms of Property Operations, CarrAmerica conducted a comprehensive inventory of all of its buildings' systems and equipment. Systems were risk ranked (1-3) based upon each system's importance to the properties' operations. Those systems classified as level 2 or 3 (the highest levels of importance) were compared to CTA's existing embedded systems database to determine the status of Year 2000 compliance if it was not already known by CarrAmerica. If relevant information was not contained in the existing database, the system was then identified for processing through vendor management coordinated by CTA. Vendor management involved concentrated communication with the vendor in an attempt to determine the status of a system's Year 2000 compliance and any available remedies. As of the fourth quarter of 1998, inventory of CarrAmerica's operating properties was complete. Assessment of property operations was substantially complete as of January 1999. In terms of Internal Business Operations Technology, team leaders were selected from each business unit and market office to assist in identifying software, hardware and external interfaces which may be vulnerable to Year 2000 issues. Inventorying of both core business units and all market offices was substantially completed by the end of the fourth quarter of 1998. CarrAmerica's primary billing and accounting software is currently undergoing a routine application upgrade expected to be complete by the end of the first quarter of 1999. The vendor of the software has received the Information Technology Association of America (ITAA) 2000 Certification and represents that the system is generally Year 2000 ready, and CarrAmerica expects to test the system during the second quarter of 1999. In addition, during the fourth quarter of 1998 and the first quarter of 1999, CarrAmerica continued communicating with other significant hardware, software and other material services providers, requesting them to provide CarrAmerica with detailed, written information concerning existing or anticipated Year 2000 compliance of their systems in so far as the systems relate to such parties' business activities with CarrAmerica. CarrAmerica expects to continue to communicate with these vendors throughout 1999. REMEDIATION AND TESTING PHASE. Based upon the results of its assessment efforts, CarrAmerica has initiated remediation and testing activities. CarrAmerica intends to complete remediation on important and critical systems by the end of the second quarter of 1999. Selective validation testing of these systems is scheduled to be completed during the third and fourth quarters of 1999. The activities conducted during the remediation and testing phase are intended to provide assurance from both the Property Operation and the Internal Business perspectives that critical and important applications, systems and equipment will be substantially Year 2000 compliant on a timely basis. In this phase, CarrAmerica will first evaluate applications, systems and equipment. If a potential Year 2000 problem is identified, CarrAmerica will take steps to attempt to remediate the problem and, where applicable, test to confirm that the remediating changes are effective and have not adversely affected the functionality of that application. After the various applications, system components and equipment have undergone remediation and testing phases, CarrAmerica, where applicable, will conduct integrated testing for the purpose of demonstrating functional integrated systems operations. CONTINGENCY PLANS. CarrAmerica has started updating contingency plans to handle its most reasonably likely worst case Year 2000 scenarios, which it is in the process of identifying. CarrAmerica intends to complete its determination of worst case scenarios after it has received and analyzed responses to substantially all of the inquiries it has made of third parties. CarrAmerica expects to complete contingency plans by the end of the third quarter of 1999. COSTS RELATED TO THE YEAR 2000 ISSUE. As of December 31, 1998, CarrAmerica has incurred approximately $.5 million in costs for its Year 2000 program. CarrAmerica currently estimates that it will incur additional costs, which are not expected to exceed approximately $4.5 million, to complete its Year 2000 compliance work. Of such additional costs, approximately $3.3 million are expected to be incurred during 1999. CarrAmerica believes that a portion of these costs may be recoverable from tenants but has not determined at this time the extent to which such recovery can be realized. CarrAmerica also has not yet determined the portion of these expenditures that will be allocated to the Partnership. 16 ACQUISITION AND DEVELOPMENT ACTIVITY The following is a discussion of the Partnership's acquisition and development activity during 1998. A more detailed discussion can be found in 'Item 1. Business--Recent Developments'. During 1998, the Partnership acquired the following properties: in its Pacific region, one property containing a total of approximately .1 million square feet, for an aggregate purchase price of approximately $16.9 million; in its Mountain region, one property containing a total of approximately .1 million square feet, for an aggregate purchase price of approximately $20.0 million; and in its Central region, one property containing a total of approximately .2 million square feet for an aggregate purchase price of approximately $17.4 million. The Partnership also acquired land for an aggregate purchase price of $20.1 million that is expected to support the development of up to 1.4 million square feet. In addition, the Partnership also acquired land for an aggregate purchase price of $19.7 million that has been subsequently contributed to a joint venture of which the Partnership currently holds a 35% interest. This land is expected to support the development of up to .2 milion square feet of office space. As of December 31, 1998, the Partnership had 12 office properties under construction: 164,000 square feet in its Mountain region and 966,000 square feet in its Central region. Costs incurred during 1998 for properties under construction were $127.2 million. An additional $70.3 million is expected to be expended for completion of projects already under construction as of December 31, 1998. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Increases in interest rates would increase our interest expense, which would adversely affect cash flow. As of December 31, 1998, the Partnership has $140.8 million outstanding under its line of credit that bears interest at a floating rate and $159.2 of additional fixed rate mortgage debt. These mortgage loans mature at various times through 2017. The Partnership also has a $29.0 million unsecured note due to CarrAmerica which matures in 2011. 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, 1998. Furthermore book value of this variable interest credit facility approximates market value at December 31, 1998. A change in interest rates generally does not impact future earnings and cash flows for fixed rate debt instruments, but as fixed rate debt matures and if additional debt is acquired to fund the repayments under maturing facilities, future earnings and cash flows may be impacted by changes in interest rates. This impact would be realized in the periods subsequent to debt maturities. The following is a summary of the fixed rate debt maturities (in thousands): 1999......................................... $ 17,843 2000......................................... 16,229 2001......................................... 32,535 2002......................................... 9,660 2003......................................... 20,468 2004 & thereafter............................ 91,460 ---------- $ 188,195 ---------- ----------
17 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 $5.9 million. The fair market value of the fixed rate debt instruments at December 31, 1998 was $195.4 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. 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....................................... 40 President and Director Philip L. Hawkins.................................... 43 Managing Director, Vice President, 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 6, 1999 (the '1998 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 1998 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 1998 CarrAmerica Proxy Statement under the headings '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 December 31, 1998, 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 December 31, 1998, no director or executive officer of GP Holdings or CarrAmerica beneficially owned any Units. Each person named in the table has sole voting and investment power 18 with respect to all Units shown as beneficially owned by such person, except as otherwise set forth in the notes to the table.
NUMBER OF PERCENT OF NAME AND BUSINESS ADDRESS OF BENEFICIAL OWNER UNITS UNITS(1) - ------------------------------------------------------------------------------------ ---------- ---------- CarrAmerica Realty Corporation...................................................... 12,584,630(2) 87.6% CarrAmerica Realty LP Holdings, Inc................................................. 12,441,008 86.6% 1850 K Street, N.W. Washington, D.C. 20006
- ------------------ (1) Based on 14,362,217 Units outstanding as of December 31, 1998. (2) Includes 12,441,008 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 1998, 1997 and 1996, the Partnership incurred management fees of $3.0 million, $1.9 million and $.4 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 $2.9 million and $2.0 million in 1998 and 1997, respectively. In addition, CarrAmerica Development, Inc. ('CADI'), also reimbursed the Partnership for certain services the Partnership personnel provided to CADI. These reimbursements amounted to $.3 million and $.7 million in 1998 and 1997, respectivley. CarrAmerica pays on behalf of the Partnership certain administrative costs and certain costs related to the acquisitions of properties which are billed to the Partnership, and makes working capital advances to the Partnership. Amounts due to CarrAmerica and its subsidiaries were $1.4 million at December 31, 1997 and $2.8 million at December 31, 1996. During 1997, the Partnership sold land to CADI that will support the future development of approximately four office properties for $5.9 million, which is payable by a note between the Partnership and CADI. 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).
19 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 Fourth 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. 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 31, 1999. 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, 1998. 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, 1998. 99.5 'Election of Directors (Proposal 1),' from CarrAmerica's Proxy Statement to be delivered to CarrAmerica's stockholders in connection with CarrAmerica's 1999 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, 1998. 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, 1998.
20 99.8 'Executive Compensation,' from CarrAmerica's Proxy Statement to be delivered to CarrAmerica's stockholders in connection with CarrAmerica's 1999Annual 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. - ---------------- * To be filed by amendment. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registration has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the District of Columbia on March 31, 1999. 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 31, 1999.
SIGNATURE TITLE - ------------------------------------------------ --------------------------------------- /s/ THOMAS A. CARR President and Director - ------------------------------------------------ Thomas A. Carr /s/ PHILIP L. HAWKINS Managing Director, Vice President and - ------------------------------------------------ Director Philip L. Hawkins
22 CARRAMERICA REALTY, L.P. AND SUBSIDIARY 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, 1998 and 1997........................... F-2 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and the Period from March 6, 1996 (Date of Inception) to December 31, 1996............... F-3 Consolidated Statements of Partners' Capital for the Years Ended December 31, 1998, 1997 and the Period from March 6, 1996 (Date of Inception) to December 31, 1996...... F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and the Period from March 6, 1996 (Date of Inception) to December 31, 1996............... F-5 Notes to Consolidated Financial Statements............................................. F-6 Independent Auditors' Report........................................................... F-16
FINANCIAL STATEMENT SCHEDULE Independent Auditors' Report........................................................... S-1 Schedule III: Consolidated Real Estate and Accumulated Depreciation as of December 31, 1998 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, 1998 AND 1997 - -------------------------------------------------------------------------------- (In thousands)
1998 1997 ------------ ------------ ASSETS Rental property (notes 2 and 9): Land............................................................................... $107,596 91,347 Buildings.......................................................................... 529,127 465,276 Tenant improvements................................................................ 35,209 12,496 Furniture, fixtures, and equipment................................................. 665 96 ------------ ------------ 672,597 569,215 Less--accumulated depreciation..................................................... (32,546) (13,360) ------------ ------------ Total rental property........................................................... 640,051 555,855 Land held for development (note 9)................................................... 19,044 10,526 Construction in progress (note 9).................................................... 70,939 44,344 Restricted and unrestricted cash and cash equivalents (note 2)....................... 4,504 5,085 Accounts and notes receivable (note 6)............................................... 10,536 11,757 Investments (note 12)................................................................ 8,621 -- Accrued straight-line rents.......................................................... 8,180 3,317 Tenant leasing costs, net of accumulated amortization of $1,924 in 1998 and $406 in 1997............................................................................... 11,092 3,439 Deferred financing costs, net of accumulated amortization of $14 in 1998............. 337 -- Prepaid expenses and other assets, net of accumulated depreciation and amortization of $211 in 1998 and $46 in 1997.................................................... 1,755 2,245 ------------ ------------ $775,059 636,568 ------------ ------------ ------------ ------------ LIABILITIES AND PARTNERS' CAPITAL Mortgages and notes payable (note 2)................................................. $299,949 212,304 Note payable to affiliate (note 2)................................................... 28,996 29,411 Accounts payable and accrued expenses................................................ 13,920 12,591 Due to affiliates (note 6)........................................................... -- 1,386 Rent received in advance and security deposits....................................... 5,387 3,244 ------------ ------------ Total liabilities............................................................... 348,252 258,936 Partners' capital (note 3): General partner.................................................................... 4,302 3,787 Limited partners................................................................... 422,505 373,845 ------------ ------------ Total partners' capital......................................................... 426,807 377,632 ------------ ------------ Commitments and Contingencies (notes 4 and 8) $775,059 636,568 ------------ ------------ ------------ ------------
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, 1998, 1997, AND FOR THE PERIOD FROM MARCH 6, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996 - -------------------------------------------------------------------------------- (In thousands)
MARCH 6, 1996 (DATE OF INCEPTION) 1997 THROUGH DECEMBER 31, 1998 1997 1996 ------------ ------------ ------------ Real estate operating revenue: Rental revenue (note 4): Minimum base rent................................................ $ 86,800 48,487 11,220 Recoveries from tenants.......................................... 12,670 8,043 1,790 Other tenant charges............................................. 1,518 1,232 366 ------------ ------------ ------------ Total rental revenue........................................... 100,988 57,762 13,376 ------------ ------------ ------------ Real estate service revenue......................................... 160 -- -- Cost reimbursements (note 6)........................................ 3,466 2,707 -- ------------ ------------ ------------ Total revenue.................................................. 104,614 60,469 13,376 ------------ ------------ ------------ Real estate operating expenses: Property operating expenses: Operating expenses............................................... 24,972 19,102 4,873 Real estate taxes................................................ 9,195 6,702 1,673 Interest expense.................................................... 16,508 6,792 1,475 General and administrative.......................................... 6,365 3,473 680 Depreciation and amortization....................................... 23,877 13,146 3,148 ------------ ------------ ------------ Total operating expenses....................................... 80,917 49,215 11,849 ------------ ------------ ------------ Real estate operating income................................... 23,697 11,254 1,527 Other operating income: Interest income..................................................... 982 372 29 Gain on sales of assets (note 7).................................... 8,190 5,067 -- ------------ ------------ ------------ Net income....................................................... $ 32,869 16,693 1,556 ------------ ------------ ------------ ------------ ------------ ------------ Net income attributable to general partner....................... $ 329 167 15 ------------ ------------ ------------ Net income attributable to limited partners...................... $ 32,540 16,526 1,541 ------------ ------------ ------------ ------------ ------------ ------------
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, 1998, 1997, AND THE PERIOD FROM MARCH 6, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996 - -------------------------------------------------------------------------------- (In thousands)
GENERAL PARTNER LIMITED PARTNERS ------------ ---------------------------- CARRAMERICA CARRAMERICA REALTY GP REALTY LP HOLDINGS, HOLDINGS, OTHER LIMITED INC. INC. PARTNERS TOTAL ------------ ----------- ------------- -------- Capital contributions.................................... $1,814 161,620 17,993 181,427 Capital distributions.................................... (20) (1,924) (106) (2,050) Net income............................................... 15 1,318 223 1,556 ------------ ----------- ------------- -------- 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 ------------ ----------- ------------- -------- ------------ ----------- ------------- --------
See accompanying notes to consolidated financial statements F-4 CARRAMERICA REALTY, L.P. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND THE PERIOD FROM MARCH 6, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996 - -------------------------------------------------------------------------------- (In thousands)
MARCH 6, 1996 (DATE OF INCEPTION) THROUGH 1998 1997 DECEMBER 31, 1996 --------- --------- ----------------- Cash flows from operating activities: Net income........................................................... $ 32,869 16,693 1,556 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization...................................... 23,877 13,146 3,148 Loss on write-off of assets........................................ 465 148 -- Changes in assets and liabilities: Decrease (increase) in receivables................................. 1,221 (9,869) (1,816) Increase in accrued straight-line rents............................ (5,269) (2,584) (805) Additions to tenant leasing costs.................................. (2,531) (3,981) (916) Decrease (increase) in prepaid expenses and other assets........... 533 (1,991) (277) Increase in accounts payable and accrued expenses.................. 1,329 8,150 4,441 Increase (decrease) in due to affiliates........................... (1,386) (1,388) 2,774 Increase in rent received in advance and security deposits......... 2,143 1,919 1,325 --------- --------- ----------------- Total adjustments................................................ 20,382 3,550 7,874 --------- --------- ----------------- Net cash provided by operating activities........................ 53,251 20,243 9,430 --------- --------- ----------------- Cash flows from investing activities: Additions to rental property......................................... (19,284) (9,892) (98) Acquisitions of rental property...................................... (33,864) (196,295) (178,239) Additions to land held for future development........................ (22,193) (10,049) (13,254) Additions to construction in progress................................ (127,162) (56,761) (8,485) Investments in unconsolidated partnerships........................... (8,621) -- -- Decrease (increase) in restricted cash and cash equivalents.......... 264 (1,500) -- Proceeds from disposition of rental property and land held for development........................................................ 74,652 58,978 -- --------- --------- ----------------- Net cash used by investing activities............................ (136,208) (215,519) (200,076) --------- --------- ----------------- Cash flows from financing activities: Capital contributions................................................ 18,583 155,162 163,433 Net borrowings on unsecured line of credit........................... 85,250 53,500 2,000 Borrowings on notes payable to affiliates............................ -- -- 30,000 Repayments on notes and mortgages payable............................ (18,565) (1,647) (259) Disposition of mortgage payable from sale of rental property......... -- (9,508) -- Additions to deferred financing costs................................ (351) -- -- Capital distributions................................................ (2,277) (1,124) (2,050) --------- --------- ----------------- Net cash provided by financing activities........................ 82,640 196,383 193,124 --------- --------- ----------------- Increase (decrease) in cash and cash equivalents................. (317) 1,107 2,478 Cash and cash equivalents, beginning of the period..................... 3,585 2,478 -- --------- --------- ----------------- Cash and cash equivalents, end of the period........................... $ 3,268 3,585 2,478 --------- --------- ----------------- --------- --------- ----------------- Supplemental disclosure of cash flow information: Cash paid for interest (net of capitalized interest of $4,894 in 1998, $2,909 in 1997 and $431 for the period March 6, 1996 to December 31, 1996)................................................. $ 17,003 6,210 1,619 --------- --------- ----------------- --------- --------- -----------------
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. (c) For the period from March 6, 1996 to December 31, 1996, the Partnership funded a portion of the aggregate purchase price of its property acquisitions by assuming $20.0 million of debt and liabilities and $18.0 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, 1998, the Partnership owned 59 operating properties and twelve 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, 1998. 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, 1998, and various other individuals and entities which collectively owned an approximate 12% interest in the Partnership at December 31, 1998. (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. 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) (d) Development Property Land held for development and construction in progress are carried at cost. Specifically identifiable direct and indirect, development, construction and external acquisition costs are capitalized including, where applicable, salaries and related costs, real estate taxes, interest and certain pre-construction costs essential to the development of a property. (e) Tenant Leasing Costs Fees and costs incurred in the successful negotiation of leases have been deferred and are being amortized on a straight-line basis over the terms of the respective leases. (f) Deferred Financing Costs Deferred financing costs include fees and costs incurred to obtain financing and are being amortized over the terms of the respective loans on a basis which approximates the interest method. (g) 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. (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) New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, 'Accounting for Derivative Instruments and Hedging Activities', which requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Partnership has not yet determined the impact of this pronouncement, if any. (j) 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. (k) 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. (l) Stock Option Plan The Partnership is a participant in the CarrAmerica 1997 Stock Option and Incentive Plan. Carr America 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 current 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) (m) Segment Operations In June 1997, the Financial Accounting Standards Board ('FASB') issued SFAS No. 131, 'Disclosures about Segments of an Enterprise and Related Information,' which requires a public entity to report selected information about operating segments in financial reports issued to shareholders. It also establishes standards for related disclosures about product and services, geographic areas and major customers. The Partnership has segmented its operations into real estate property operations, development operations and other operations. Other operations consist of other business activities and operating segments that are not reportable. (n) 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, 1998 1997 ------------ ------------ Fixed rate mortgages................................................................. $159,199 156,804 Fixed rate note payable to affiliate................................................. 28,996 29,411 Unsecured credit facility............................................................ 140,750 55,500 ------------ ------------ $328,945 241,715 ------------ ------------ ------------ ------------
Mortgages payable are collateralized by certain rental properties and generally require monthly principal and/or interest payments. Mortgages payable mature at various dates from May 1999 through May 2017. The weighted average interest rate of mortgages payable was 8.2% and 8.1% at December 31, 1998 and 1997, respectively. CarrAmerica and the Partnership also have a $450.0 million unsecured credit facility with Morgan Guaranty Trust Company of New York, as lead agent for a group of banks. At December 31, 1998, 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. The credit facility matures in August 2001. The weighted average effective interest rate for 1998 was 6.3%. At December 31, 1998, CarrAmerica and the Partnership had $61 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 (earnings 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. On May 24, 1996, the Partnership entered into a $30 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 $29.0 million and $29.4 million, at December 31, 1998 and December 31, 1997, 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, 1998 are summarized as follows (in thousands): 1999.......................................................... $ 17,843 2000.......................................................... 16,229 2001.......................................................... 173,285(1) 2002.......................................................... 9,660 2003.......................................................... 20,468 2004 & thereafter............................................. 91,460(2) -------- $328,945 -------- --------
- ------------------ (1) Includes $140.8 million outstanding as of December 31, 1998 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 and unrestricted cash and cash equivalents includes $1.2 million of restricted cash at December 31, 1998, consisting primarily of escrow deposits required by lenders to be used for future building renovations, tenant improvements or as collateral for letters of credit. Based on the borrowing rates available to the Partnership for fixed rate mortgages and note payable with similar terms and average maturities, the estimated fair value of the Partnership's mortgages at December 31, 1998 and 1997 was approximately $195.4 million and $194.4 million, respectively. (3) PARTNERS' CAPITAL CONTRIBUTIONS, DISTRIBUTIONS, AND PARTICIPATION PERCENTAGES The Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended (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, 1998 1997 1996 ------------ ------------ ------------ Class A Units............................................... 950,111 950,111 361,677 Class B Units............................................... 12,584,630 11,916,673 6,619,131 Class C Units............................................... 539,593 539,593 539,593 Class D Units............................................... 271,363 271,363 -- Class E Units............................................... 16,520 16,520 -- ------------ ------------ ------------ 14,362,217 13,694,260 7,520,401 ------------ ------------ ------------ ------------ ------------ ------------
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, 1998 (in thousands):
FUTURE PERCENTAGE OF MINIMUM TOTAL SPACE UNDER RENT LEASES EXPIRING -------- ----------------- 1999..................................................................... $ 86,402 13.8% 2000..................................................................... 79,156 8.8 2001..................................................................... 69,882 16.6 2002..................................................................... 60,211 11.8 2003..................................................................... 45,565 12.5 2004 & thereafter........................................................ 115,813 36.5 -------- $457,029 -------- --------
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) STOCK OPTION PLANS As of December 31, 1998, the Partnership participated in the CarrAmerica 1997 Stock Option and Incentive Plan for the purpose of attracting and retaining executive officers and other key employees. The 1997 Stock Option and Incentive Plan ('Stock Option Plan') allows for the grant of options to purchase CarrAmerica's common stock at an exercise price which is equal to the fair market value of the common stock at the date of grant. The Stock Option Plan was approved by CarrAmerica's stockholders at its Annual Meeting of Stockholders on May 8, 1997. At December 31, 1998, CarrAmerica had options to purchase 7,200,000 shares of common stock authorized for grant under the Stock Option Plan, of which 5,362,214 were reserved for issuance or outstanding. All of the outstanding options have a 10-year term from the date of grant. The majority of the outstanding options vest over a five-year period, 20% per year, with the exception of 1,492,500 options which vest over a four-year period, 25% per year, and 450,000 options which vest at the end of five years. In November 1998 CarrAmerica granted to key executives 417,754 restricted stock units under the 1997 Stock Option Plan, of which 31,332 restricted stock units were granted to Partnership employees. The restricted stock units are subject to a 5 year vesting schedule, at 20% per year. On each vesting, each executive will receive, at CarrAmerica's option, stock, cash or a combination of stock and cash equal to the value of the vested restricted stock unit on the vesting date, plus an amount equal to the dividends that would have been paid with respect to such shares since the date of grant had the shares been issued on such date. The closing price of a share of common stock of CarrAmerica on the grant date was $23.9375. F-10 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (5) STOCK OPTION PLANS--(CONTINUED) Stock option activity for the Partnership during 1998 and 1997 is as follows:
NUMBER OF WEIGHTED AVERAGE SHARES EXERCISE PRICE --------- ---------------- Balance at December 31, 1996............................................. -- -- Granted.................................................................. 50,517 $28.45 Exercised................................................................ -- -- Forfeited................................................................ 312 28.56 Expired.................................................................. -- -- --------- ------- Balance at December 31, 1997............................................. 50,205 $28.45 Granted.................................................................. 270,000 25.90 Exercised................................................................ -- -- Forfeited................................................................ -- -- Expired.................................................................. -- -- --------- ------- Balance at December 31, 1998............................................. 320,205 $26.30 --------- ------- --------- -------
At December 31, 1998, the range of exercise prices for options issued to employees of the Partnership was between $23.25 and $29.75 per share and the weighted average remaining contractual life of outstanding options was 9.35 years. At December 31, 1998, the number of options exercisable was 10,041 and the weighted average exercise price of those options was $28.45 per share. At December 31, 1997, none of the options were exercisable. The following table summarizes certain information with regards to options exercisable at December 31, 1998:
WEIGHTED AVERAGE REMAINING RANGE OF NUMBER OF CONTRACTUAL LIFE WEIGHTED AVERAGE EXERCISE PRICES SHARES EXERCISABLE (IN YEARS) EXERCISE PRICE - --------------- ------------------ ---------------- ---------------- $26.38--$29.25 10,041 8.27 $28.45
(6) 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 1998, 1997 and 1996, the Partnership incurred management fees of $3.0 million, $1.9 million and $.4 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 $2.9 million and $2.0 million in 1998 and 1997, respectively. In addition, CarrAmerica Development, Inc. ('CADI'), also reimbursed the Partnership for certain services the Partnership personnel provided to CADI. These reimbursements amounted to $.3 million and $.7 million in 1998 and 1997, respectively. CarrAmerica pays on behalf of the Partnership certain administrative costs and certain costs related to the acquisitions of properties which are billed to the Partnership, and makes working capital advances to the Partnership. Amounts due to CarrAmerica and its subsidiaries were $1.4 million at December 31, 1997 and $2.8 million at December 31, 1996. During 1997, the Partnership sold land to CADI that will support the future development of approximately four office properties for $5.9 million, which is payable by a note between the Partnership and CADI. F-11 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (7) 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). During 1998, the Partnership disposed of three operating office properties. The Partnership recognized gains totaling $8.2 million on these dispositions. (8) COMMITMENTS AND CONTINGENCIES At December 31, 1998, 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 Plan will match 50% of employee contributions up to the first 4% of an employee's pay and will make a base contribution of 3% of pay for participants who remain employed on December 31 (the end of the plan year). Partnership contributions to the plan are subject to a five-year graduated vesting schedule. Partnership contributions to the plan amounted to $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 1998 and 1997, the Partnership has unconditionally guaranteed unsecured notes sold by CarrAmerica to institutional investors. The aggregate principal amount of the unsecured notes is $625.0 million of long-term debt as of December 31, 1998. 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. (9) ACQUISITION AND DEVELOPMENT ACTIVITIES 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. During 1997, the Partnership acquired 30 operating office properties for an aggregate purchase price of $343.2 million. Costs incurred during 1997 for properties under construction were $56.8 million. In addition, CarrAmerica contributed to the Partnership three operating office properties, one office property under construction and options to acquire land which will support the future development of approximately four office properties. 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. The following unaudited pro forma summary presents information as if the Partnership's acquisitions and sales of properties through December 31, 1998 had occurred at the beginning of 1997. The pro forma information is provided for informational purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the Partnership. F-12 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (9) ACQUISITION AND DEVELOPMENT ACTIVITIES--(CONTINUED)
PRO FORMA INFORMATION (UNAUDITED): 1998 1997 - --------------------------------------------------------------------------------- -------- ------- (IN THOUSANDS) Total revenue.................................................................... $106,289 $96,150 Net income....................................................................... $ 32,955 $18,082
(10) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following is a summary of quarterly results of operations for 1998, 1997 and 1996 (in thousands):
FIRST SECOND THIRD FOURTH 1998 QUARTER QUARTER QUARTER QUARTER - ---------------------------------------------------------------------- ------- ------- ------- ------- 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 ------- ------- ------- ------- ------- ------- ------- ------- FIRST SECOND THIRD FOURTH 1997 QUARTER QUARTER QUARTER QUARTER - ---------------------------------------------------------------------- ------- ------- ------- ------- Real estate operating revenue......................................... $ 9,479 $13,540 $17,138 $20,312 ------- ------- ------- ------- ------- ------- ------- ------- Real estate operating income.......................................... $ 1,749 $ 2,690 $ 3,908 $ 2,907 ------- ------- ------- ------- ------- ------- ------- ------- Net income............................................................ $ 1,757 $ 2,738 $ 3,924 $ 8,274 ------- ------- ------- ------- ------- ------- ------- ------- FIRST SECOND THIRD FOURTH 1996 QUARTER QUARTER QUARTER QUARTER - ---------------------------------------------------------------------- ------- ------- ------- ------- Real estate operating revenue......................................... $ -- $ 959 $ 6,216 $ 6,201 ------- ------- ------- ------- ------- ------- ------- ------- Real estate operating income.......................................... $ -- $ (19) $ 236 $ 1,310 ------- ------- ------- ------- ------- ------- ------- ------- Net income............................................................ $ -- $ (18) $ 241 $ 1,333 ------- ------- ------- ------- ------- ------- ------- -------
(11) 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: DEVELOPMENT OPERATIONS (in thousands)
DECEMBER 31, -------------------- BALANCE SHEETS 1998 1997 - ------------------------------------------------------------------- -------- -------- ASSETS -- Rental property, net............................................... $ 22,213 -- Cash and cash equivalents.......................................... 18,456 -- Other assets....................................................... 1,667 -- -------- -------- $ 42,336 -- -------- -------- -------- --------
F-13 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (11) INVESTMENT IN UNCONSOLIDATED PARTNERSHIP--(CONTINUED) LIABILITIES AND PARTNERS' CAPITAL Liabilities: Notes payable.................................................... $ 18,350 -- Other liabilities................................................ 313 -- -------- -------- Total liabilities............................................. 18,663 -- Partners' Capital.................................................. 23,673 -- -------- -------- $ 42,336 -- -------- -------- -------- -------- STATEMENTS OF OPERATIONS 1998 1997 1996 ------------------------ ---- ---- ---- Revenue........................... $ -- -- -- Other expenses.................... 197 -- -- ----- ---- ---- Net loss..................... $(197) -- -- ===== ==== ====
(12) SEGMENT INFORMATION The Partnership's reportable operating segments are real estate properly operations and develpment 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 on sale of assets. (In millions)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 -------------------------------------------------- REAL ESTATE PROPERTY DEVELOPMENT OTHER OPERATIONS OPERATIONS OPERATIONS TOTAL ----------- ----------- ---------- ------ Operating revenue................................................ $ 101.0 -- 3.6 104.6 Segment expense.................................................. $ 34.2 -- 6.4 40.6 ----------- ----------- ---------- ------ Net segment revenue......................................... $ 66.8 -- (2.8) 64.0 Interest expense................................................. $ 15.9 (4.9) 5.5 16.5 Other income..................................................... $ 0.2 -- 0.8 1.0 ----------- ----------- ---------- ------ Funds from operations....................................... $ 51.1 4.9 (7.5) 48.5 ----------- ----------- ---------- ------ ----------- ----------- ---------- ------ Adjustments to net income: Depreciation and amortization............................... $(23.7) Gain on sale of assets...................................... $ 8.2 ------ Net income $ 32.9 ------ ------ Total assets................................................ $ 667.2 90.0 17.9 775.1 Expenditures for long-lived assets.......................... $ 84.8 149.4 -- 234.2
F-14 CARRAMERICA REALTY, L.P. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (12) SEGMENT INFORMATION--(CONTINUED)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 -------------------------------------------------- REAL ESTATE PROPERTY DEVELOPMENT OTHER OPERATIONS OPERATIONS 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................................................. $ 8.8 (2.9) 0.9 6.8 Other income..................................................... $ 0.1 -- 0.2 0.3 ----------- ----------- ---------- ------ Funds from operations....................................... $ 23.3 2.9 (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 35.6 8.8 636.6 Expenditures for long-lived assets.......................... $ 383.8 66.8 -- 450.6
AS OF DECEMBER 31, 1996 AND FOR THE PERIOD FROM MARCH 6, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996 -------------------------------------------------- REAL ESTATE PROPERTY DEVELOPMENT OTHER OPERATIONS OPERATIONS OPERATIONS TOTAL ----------- ----------- ---------- ------ Operating revenue................................................ $ 13.4 -- -- 13.4 Segment expense.................................................. $ 6.5 -- 0.7 7.2 ----------- ----------- ---------- ------ Net segment revenue......................................... $ 6.9 -- (0.7) 6.2 Interest expense................................................. $ 1.9 (0.4) -- 1.5 ----------- ----------- ---------- ------ Funds from operations....................................... $ 5.0 0.4 (0.7) 4.7 ----------- ----------- ---------- ------ ----------- ----------- ---------- ------ Adjustments to net income: Depreciation and amortization............................... $ (3.1) ------ Net income $ 1.6 ------ ------ Total assets................................................ $ 217.7 21.7 1.8 241.2 Expenditures for long-lived assets.......................... $ 217.1 21.8 -- 238.9
F-15 INDEPENDENT AUDITORS' REPORT CARRAMERICA REALTY, L.P. AND SUBSIDIARY 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, 1998 and 1997 the related consolidated statements of operations, partners' capital, and cash flows for the years ended December 31, 1998 and 1997 and the period from March 6, 1996 (date of inception) to December 31, 1996. 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, 1998 and 1997, and the results of their operations and their cash flows for the years ended December 31, 1998 and 1997 and the period from March 6, 1996 (date of inception) to December 31, 1996, in conformity with generally accepted accounting principles. KPMG LLP Washington, D.C. February 6, 1999 F-16 INDEPENDENT AUDITORS' REPORT CARRAMERICA REALTY, L.P. AND SUBSIDIARY The Partners CarrAmerica Realty, L.P.: Under date of February 6, 1999, we reported on the consolidated balance sheets of CarrAmerica Realty, L.P. and subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, partners' capital, and cash flows for the years ended December 31, 1998 and 1997 and the period from March 6, 1996 (date of inception) to December 31, 1996, 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 6, 1999 S-1
CARRAMERCA REALTY, L.P. AND SUBSIDIARY CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998 GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF INITIAL COSTS PERIOD ---------------------- ---------------------- BUILDINGS COST CAPITALIZED BUILDINGS (In thousands) AND SUBSEQUENT TO AND PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION(1) LAND IMPROVEMENTS - ------------------------------------------- ------------ ------- ------------ ---------------- ------- ------------ ORANGE COUNTY/LOS ANGELES: South Coast Executive Center............. $ 10,127 3,324 17,212 811 3,388 17,959 2600 W. Olive............................ 19,152 3,855 25,054 2,709 3,904 27,714 Bay Technology Center.................... -- 2,442 11,164 128 2,462 11,272 SAN DIEGO: Jaycor................................... 12,781 5,123 11,754 -- 5,123 11,754 SAN FRANCISCO BAY AREA: San Mateo II and III..................... -- 9,723 15,556 659 9,817 16,121 San Mateo I.............................. -- 5,703 9,126 47 5,710 9,166 DENVER: Quebec Center............................ -- 1,423 5,659 613 1,423 6,272 Greenwood Center......................... -- 289 6,619 505 289 7,124 Quebec Court I and II.................... 28,996(2) 2,368 19,819 9,142 2,371 28,958 Harlequin Plaza.......................... --(2) 4,746 21,344 4,562 4,748 25,904 Panorama Corporate Center I.............. -- 1,325 6,486 3,494 1,326 9,979 Panorama Corporate Center II............. -- 1,844 -- 9,043 1,939 8,948 SEATTLE: Canyon Park Commons 1 and 2.............. 5,615 2,375 9,958 29 2,380 9,982 SALT LAKE CITY, UTAH: Sorenson Research Park XI................ -- 1,490 -- 481 1,971 -- Sorenson Research Park................... 4,263 4,389 25,304 407 4,423 25,677 Sorenson Research Park X(3).............. -- 772 -- 2,439 -- 3,211 Wasatch Corporate Center................. 12,654 3,318 15,495 320 3,578 15,555 Wasatch Corporate Center 17 and 18(3).... -- 2,378 -- 6,072 -- 8,450 Wasatch Corporate Center 18.............. -- 258 -- 813 236 835 CHICAGO: Bannockburn IV........................... -- 1,914 12,729 325 1,924 13,044 Bannockburn I and II..................... 19,554 3,448 22,928 1,082 3,472 23,986 AUSTIN, TEXAS: Balcones Center.......................... -- 949 7,649 438 949 8,087 Great Hills Plaza........................ -- 1,680 13,545 207 1,680 13,752 Park North............................... -- 1,671 13,471 706 1,671 14,177 City View Centre......................... -- 1,718 13,854 1,060 1,720 14,912 Tower of the Hills....................... -- 1,633 13,625 273 1,634 13,897 CONSOLIDATED REAL E (In thousands) ACCUMULATED DATE OF YEAR OF PROPERTIES TOTAL DEPRECIATION CONSTRUCTION ACQUISITION - ------------------------------------------- ------- ------------- ---------------- ----------- ORANGE COUNTY/LOS ANGELES: South Coast Executive Center............. 21,347 1,337 1987 1996 2600 W. Olive............................ 31,618 1,420 1986 1997 Bay Technology Center.................... 13,734 391 1985 1997 SAN DIEGO: Jaycor................................... 16,877 82 1989 1998 SAN FRANCISCO BAY AREA: San Mateo II and III..................... 25,938 794 1985 1997 San Mateo I.............................. 14,876 369 1986 1997 DENVER: Quebec Center............................ 7,695 769 1985 1996 Greenwood Center......................... 7,413 663 1982 1996 Quebec Court I and II.................... 31,329 2,556 1979/1980 1996 Harlequin Plaza.......................... 30,654 2,647 1981 1996 Panorama Corporate Center I.............. 11,305 1,182 N/A 1997 Panorama Corporate Center II............. 10,887 837 N/A 1997 SEATTLE: Canyon Park Commons 1 and 2.............. 12,362 561 1988 1997 SALT LAKE CITY, UTAH: Sorenson Research Park XI................ 1,971 -- N/A 1997 Sorenson Research Park................... 30,100 1,470 1988,1989,1993, 1995,1997 1997 Sorenson Research Park X(3).............. 3,211 -- N/A 1997 Wasatch Corporate Center................. 19,133 800 1996 1997 Wasatch Corporate Center 17 and 18(3).... 8,450 -- N/A 1997 Wasatch Corporate Center 18.............. 1,071 22 1998 1997 CHICAGO: Bannockburn IV........................... 14,968 685 1988 1997 Bannockburn I and II..................... 27,458 1,628 1980 1997 AUSTIN, TEXAS: Balcones Center.......................... 9,036 793 1985 1996 Great Hills Plaza........................ 15,432 1,110 1985 1996 Park North............................... 15,848 1,318 1981 1996 City View Centre......................... 16,632 1,552 1985 1996 Tower of the Hills....................... 15,531 499 1986 1997
S-2
CARRAMERCA REALTY, L.P. AND SUBSIDIARY CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998 GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF INITIAL COSTS PERIOD ---------------------- ---------------------- BUILDINGS COST CAPITALIZED BUILDINGS (In thousands) AND SUBSEQUENT TO AND PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION(1) LAND IMPROVEMENTS - ------------------------------------------- ------------ ------- ------------ ---------------- ------- ------------ Riata Buildings 4, 5, 8, 9............... -- $ 4,490 -- 31,348 4,856 30,982 Riata Buildings 2, 3, 9(3)............... -- 2,245 -- 11,146 -- 13,391 Riata Buildings 1, 6, 7.................. -- 3,386 -- 1,703 5,089 -- City View Centre......................... -- 1,890 -- 13,693 2,107 13,476 Riata Crossing 4-6....................... -- 1,940 -- 83 2,023 -- Riata Crossing 1-3(3).................... -- 2,993 -- 7,356 -- 10,349 DALLAS, TEXAS: Quorum North............................. 6,566 1,357 9,078 780 1,365 9,850 Quorum Place............................. 7,578 1,941 14,234 1,082 1,954 15,303 Tollhill East and West................... -- 2,603 19,086 1,604 2,612 20,681 Two Mission Park......................... -- 823 4,320 652 831 4,964 Cedar Maple Plaza........................ -- 1,220 10,982 411 1,225 11,388 Cedar Maple Plaza -- Land................ -- 520 -- 93 613 -- Royal Ridge A and B...................... -- 2,601 -- 15,747 2,718 15,630 Royal Ridge B(3)......................... -- 558 -- 2,024 -- 2,582 5000 Quorum.............................. -- 1,774 15,616 484 1,782 16,092 The Commons at Las Colinas 2............. -- 3,189 -- 377 3,566 -- The Commons at Las Colinas 1 and 3(3).... -- 6,801 -- 26,154 -- 32,955 Royal Ridge Phase II..................... -- 5,221 -- 561 5,782 -- PHOENIX, ARIZONA: U.S. West................................ 53,263 18,517 74,069 786 18,642 74,730 Concord Place............................ 7,646 3,337 16,675 156 3,337 16,831 ------------ ------- ------------ ------- ------- ------------ Total.................................... $188,195 137,564 462,411 162,605 126,640 635,940 ------------ ------------ ------- ------- ------------ ------------ ------- ------- ------- ------- ------------ ------------ CONSOLIDATED REAL E (In thousands) ACCUMULATED DATE OF YEAR OF PROPERTIES TOTAL DEPRECIATION CONSTRUCTION ACQUISITION - ------------------------------------------- ------- ------------- ---------------- ----------- Riata Buildings 4, 5, 8, 9............... 35,838 986 1998 1996 Riata Buildings 2, 3, 9(3)............... 13,391 -- N/A 1996 Riata Buildings 1, 6, 7.................. 5,089 -- N/A 1996 City View Centre......................... 15,583 702 1998 1996 Riata Crossing 4-6....................... 2,023 -- N/A 1998 Riata Crossing 1-3(3).................... 10,349 -- N/A 1998 DALLAS, TEXAS: Quorum North............................. 11,215 657 1983 1997 Quorum Place............................. 17,257 1,021 1981 1997 Tollhill East and West................... 23,293 1,315 1974 1997 Two Mission Park......................... 5,795 253 1983 1997 Cedar Maple Plaza........................ 12,613 782 1985 1997 Cedar Maple Plaza -- Land................ 613 -- N/A 1997 Royal Ridge A and B...................... 18,348 179 1998 1997 Royal Ridge B(3)......................... 2,582 -- N/A 1997 5000 Quorum.............................. 17,874 441 1984 1998 The Commons at Las Colinas 2............. 3,566 -- N/A 1998 The Commons at Las Colinas 1 and 3(3).... 32,955 -- N/A 1998 Royal Ridge Phase II..................... 5,782 -- N/A 1998 PHOENIX, ARIZONA: U.S. West................................ 93,372 2,595 1988 1997 Concord Place............................ 20,168 130 1989 1998 ------- ------ Total.................................... 762,580 32,546 ------- ------- ------ ------
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, 1998. S-3 The changes in total real estate assets and accumulated depreciation and amortization for 1998, 1997 and 1996 are as follows:
ACCUMULATED TOTAL REAL ESTATE ASSET DEPRECIATION ------------------------------- -------------------- 1998 1997 1996 1998 1997 --------- --------- --------- --------- --------- Balance, beginning of period $ 624,085 238,073 -- Balance, beginning of period $ 13,360 3,104 Acquisitions 94,153 393,275 232,092 Improvements 122,086 53,640 5,981 Depreciation for the period 22,331 12,961 Sales, Retirements and Sales, Retirements and write-offs (77,744) (60,903) -- write-offs (3,145) (2,705) --------- --------- --------- --------- --------- $ 762,580 624,085 238,073 $ 32,546 13,360 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- 1996 --------- Balance, beginning of period -- Acquisitions Improvements 3,104 Sales, Retirements and write-offs --------- 3,104 --------- ---------
- ------------------ 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, 1998. Construction costs are shown under buildings and improvements until completion. At that time, costs will be allocated between land and buildings and improvements. S-4 EX-21.1 2 LIST OF SUBSIDIARIES EXHIBIT 21.1 LIST OF SUBSIDIARIES U.S. West, L.L.C. 1201 F Street, L.L.C. EX-23.1 3 ACCOUNTANT'S CONSENT Exhibit 23.1 ACCOUNTANT'S CONSENT The Partners CarrAmerica Realty, L.P.: We consent to incorporation by reference in the registration statement (No. 333-22353) on Form S-3 of CarrAmerica Realty, L.P. of our report dated February 6, 1999, relating to the consolidated balance sheets of CarrAmerica Realty, L.P. as of December 31, 1998 and 1997, and the related consolidated statements of operations, partners' capital, and cash flows for each of the years in the period from March 6, 1996 (date of inception) through December 31, 1998 and the related schedule, which report appears in the December 31, 1998, annual report on Form 10-K of CarrAmerica Realty, L.P. KPMG LLP Washington, D.C. March 31, 1999 EX-27 4 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARRAMERICA REALTY, L.P. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND FROM CARRAMERICA REALTY, L.P. AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 0001040554 chefw$d5 1,000 U.S. Dollar 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1.000 4,504 0 10,536 0 0 0 672,597 32,546 775,059 0 348,252 0 0 0 426,807 775,059 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.
EX-99.3 5 RISK FACTORS Exhibit 99.3 ITEM 1--BUSINESS--THE COMPANY--RISK FACTORS (from the Annual Report on Form 10-K of CarrAmerica Realty Corporation for the year ended December 31, 1998) RISK FACTORS In addition to the other information in this document, you should consider carefully the following risk factors in evaluating an investment in our securities. OUR PERFORMANCE IS SUBJECT TO RISKS ASSOCIATED WITH REAL ESTATE INVESTMENT We are a real estate company that derives most of its income from the ownership and operation of office buildings. There are a number of factors that may adversely affect the income that our properties generate, including the following: Economic Downturns. Downturns in the national economy, or in regions or localities where our properties are located, generally will negatively impact the demand for office space. Oversupply of Office Space. An oversupply of space in markets where we own office properties making it more difficult for us to lease space at attractive rental rates would typically cause rental rates and occupancies to decline. Competitive Properties. If our properties are not as attractive to tenants (in terms of rents, services or location) as other properties that are competitive with ours, we could lose tenants to those properties, or could have to reduce our rental rates to compensate for that disparity. Renovation Costs. In order to maintain the quality of our office buildings and successfully compete against other properties, we periodically have to spend money to repair and renovate our properties. Tenant Risk. Our performance depends on our ability to collect rent from our tenants. While no tenant in our portfolio accounted for more than 5% of our rental revenue as of December 31, 1998, the Company's financial position may be adversely affected by financial difficulties experienced by a major tenant, or by a number of smaller tenants, including bankruptcies, insolvencies or general downturns in business. Reletting Costs. As leases expire, we try to either relet the space to an existing tenant or attract a new tenant to occupy the space. In either case, we likely will incur significant costs in the process. In addition, if market rents have declined since the time the expiring lease was entered into, the terms of any new lease signed likely will not be as favorable to us as the terms of the expiring lease, thereby reducing the income earned from that space. Regulatory Costs. There are a number of government regulations, including zoning and tax laws, that apply to the ownership and operation of office buildings. Compliance with existing and newly adopted regulations often requires us to spend a significant amount of money on our properties. Fixed Nature of Costs. Most of the costs associated with owning and operating an office building are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property. Environmental Problems Are Possible and Can Be Costly. Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real property to investigate and clean up hazardous or toxic substances or petroleum product releases at the property. The 1 presence of or failure to clean up contamination may adversely affect our ability to sell or lease a property or to borrow using a property as collateral. Competition. A number of other major real estate investors with significant capital compete with us. These competitors include publicly traded REITs, private REITs, investment banking firms and private institutional investment funds. NEW DEVELOPMENTS AND ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED Over the last few years, we have embarked on a major acquisition and development program. In deciding whether to acquire or develop a particular property, we made certain assumptions regarding the expected future performance of that property. If a number of these new properties do not perform as expected, our financial performance will be adversely affected. While our acquisition pace has declined significantly, we remain very active in developing office properties. New office property developments are subject to a number of risks, including construction delays, complications in obtaining necessary zoning, occupancy and other governmental permits, cost overruns, financing risks, and the possible inability to meet expected occupancy and rent levels. If any of these problems occur, development costs for a project will increase, and there may be costs incurred for projects that are not completed. OUR USE OF DEBT SUBJECTS US TO VARIOUS FINANCING RISKS While we believe that we have a conservative borrowing policy, we do regularly borrow money to finance our business, particularly the acquisition and development of properties. We generally incur unsecured debt, although in many cases we will incur mortgage debt that is secured by one or more of our office buildings. There are certain risks inherent in borrowing money, including the following: No Limitation on Debt Incurrence. The Company's organizational documents do not limit the amount of debt the Company can incur. The degree of leverage of the Company could have important consequences, including making it more difficult for us to obtain additional financing in the future for business needs, as well as making us more vulnerable to an economic downturn. Possible Inability to Meet Scheduled Debt Payments. If our properties do not perform as expected, our cash flow from our properties may not be enough to make required principal and interest payments. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the holder of the mortgage or lender could foreclose on the property, resulting in loss of income and asset value. An unsecured lender could also attempt to foreclose on some of the Company's assets in order to receive payment. Inability to Refinance Debt. In almost every case, very little of the principal amount that we borrow is repaid prior to the maturity of the loan. We generally expect to refinance that debt when it matures, although in some cases we may pay off the loan. If principal amounts due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow will be insufficient in all years to repay all maturing debt. Prevailing interest rates or other factors at the time of a refinancing (such as possible reluctance of lenders to make commercial real estate loans) may result in higher interest rates and increased interest expense. As a general matter, we use our line of credit and cash on hand received from asset dispositions and joint ventures to finance our development and acquisition activities, with the expectation that long-term permanent financing will be obtained once the property is stabilized. If permanent debt or equity financing is unavailable on acceptable terms in the future, it may significantly restrict our development and acquisition programs. Financial Covenants Could Adversely Affect Our Financial Condition. The Company's credit facilities and the indentures under which the Company's senior unsecured indebtedness is issued contain financial and operating covenants, including coverage ratios and other limitations on the Company's ability to incur secured and unsecured indebtedness, sell all or substantially all of its assets and engage in mergers, consolidations and certain acquisitions. These covenants may restrict the Company's ability to engage in transactions that would otherwise be in the Company's best interests. 2 OUR BUSINESS STRUCTURE HAS CERTAIN RISKS ASSOCIATED WITH IT A Major Stockholder Has Influence on Our Operations. SC-USREALTY owned approximately 39.9% of the outstanding shares of our common stock (36.2% on a fully diluted basis) as of March 15, 1999. No other stockholder is permitted to own more than 5% of our common stock, subject to certain exceptions. Under a Stockholders Agreement with the Company, SC-USREALTY has the right to nominate up to 40% of the directors. The Stockholders Agreement also gives SC-USREALTY certain rights that limit our ability to take certain actions and limits our ability to engage in certain transactions that may be in the best interests of other stockholders. This situation results in SC-USREALTY having a substantial influence over the affairs of the Company. This could potentially be disadvantageous to other stockholders' interests, which may not converge with the interests of SC-USREALTY. Certain Officers and Directors May Have Interests that Conflict with the Interests of Stockholders. Certain officers and members of the board of directors of the Company own units of limited interest partnership in Carr Realty, L.P., a partnership that owns some of the Company's properties. These individuals may have personal interests that conflict with the interests of the Company's stockholders with respect to business decisions affecting the Company and Carr Realty, L.P., such as interests in the timing and pricing of property sales or refinancings in order to obtain favorable tax treatment. The Company, as the sole general partner of Carr Realty, L.P., has the exclusive authority to determine whether and on what terms the partnership will sell or refinance an individual property, but the effect of certain transactions on these unitholders may influence decisions affecting these properties. We May Not Be Able to Sell Properties When Appropriate. Real estate property investments generally cannot be sold quickly. In addition, the tax laws applicable to REITs restrict our ability to dispose of certain properties. Therefore, we may be unable to vary our portfolio promptly in response to market conditions, which may adversely affect our financial position. Lack of Voting Control Over Some of Our Affiliates. While most of our income is generated from the ownership and operation of our office buildings, we own nonvoting interests in four affiliates that either currently produce or are expected in the future to produce significant contributions to our income. Carr Services, Inc. conducts management and leasing operations for third parties and for office buildings in which we own less than a 100% interest. CarrAmerica Development conducts fee-based development services for the Company and for third parties. OmniOffices and Omni UK are engaged in the executive suites business, providing short-term office space together with telephone answering, data processing and other office support services. As of December 31, 1998, the Company owned approximately 95% of the economic interest in each of these companies through the ownership of nonvoting common stock. The voting stock of each of these companies is owned by certain entities and individuals that have some affiliation with the Company (or, in the case of Omni UK, by OmniOffices). The Company owns nonvoting stock in these companies because the tax laws applicable to REITs prohibit the Company from owning more than a 10% voting interest. As a result, the Company has no right to elect the directors of these companies, and its ability to influence their operations is limited. These companies may engage in business activities that are not in the Company's best interests. We Depend On External Capital. To qualify as a REIT, we generally must distribute to our stockholders each year at least 95% of our net taxable income. Because of these distribution requirements, we likely will not be able to fund all future capital needs, including capital for property development and acquisitions, with income from operations. We therefore will have to rely on third-party sources of capital, which may or may not be available on favorable terms, if at all. Our access to third-party sources of capital depends on a number of things, including the market's perception of our growth potential and our current and potential future earnings. CERTAIN FACTORS MAY INHIBIT CHANGES IN CONTROL OF THE COMPANY Charter and By-law Provisions. Certain provisions of our charter and by-laws may delay or prevent a change in control of the Company or other transactions that could provide our common stockholders with a premium over the then-prevailing market price of their common stock or that might otherwise be in the best interests of our stockholders. These include a staggered board of directors and the ability of our board of directors to authorize the issuance of preferred stock without stockholder approval. Also, any future series of preferred 3 stock may have voting provisions that could delay or prevent a change in control or other transaction that might involve a premium price or otherwise be in the best interests of our stockholders. Ownership Limit. In order to assist the Company in maintaining its qualification as a REIT, the Company's charter contains certain provisions generally limiting the ownership of shares of capital stock by any single stockholder to 5% of the Company's outstanding common stock and/or 5% of any class or series of preferred stock. The federal tax laws include complex stock ownership and attribution rules that apply in determining whether a stockholder exceeds the ownership limits. These rules may cause a stockholder to be treated as owning stock that is actually owned by others, including family members and entities in which the stockholder has an ownership interest. The board of directors of the Company could waive this restriction if it were satisfied that ownership in excess of these ownership limits would not jeopardize our status as a REIT and the board otherwise decides that a waiver would be in the Company's interests. Capital stock acquired or transferred in breach of the ownership limit will be automatically transferred to a trust for the benefit of a designated charitable beneficiary. Maryland Law Provisions. Certain provisions of Maryland law applicable to the Company because it is a Maryland corporation prohibit 'business combinations' with any person that beneficially owns ten percent or more of the outstanding voting shares of the Company (an 'interested stockholder') or with an affiliate of the interested stockholder. These prohibitions last for five years after the most recent date on which the person became an interested stockholder. After the five-year period, a business combination with an interested stockholder must be approved by two super-majority stockholder votes unless, among other conditions, the Company's common stockholders receive a minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its common shares. The Company's board of directors has opted out of these business combination provisions. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to a business combination involving the Company. The Company's board of directors may, however, repeal this election in most cases and cause the Company to become subject to these provisions in the future. Being subject to the provisions could delay or prevent a change in control or other transaction involving the Company that might involve a premium price or otherwise be in the best interests of the Company's stockholders. THE MARKET VALUE OF OUR SECURITIES CAN BE ADVERSELY AFFECTED BY MANY FACTORS As with any public company, a number of factors may adversely influence the public market price of our common stock, many of which are beyond our control. These factors include: the level of institutional interest in the Company; the perception of REITs generally, and REITs with portfolios similar to ours in particular, by market professionals, and the attractiveness of securities of REITs in comparison to other companies; our financial condition and performance, and the market's perception of our growth potential and potential future cash dividends; increases in market interest rates, which may lead investors to demand a higher annual yield from distributions by the Company in relation to the price paid for our stock; and the relatively low trading volume of shares of REITs in general, which tends to exacerbate a market trend with respect to our stock. Sales of a substantial number of shares of our stock, or the perception that such sales could occur, also could adversely affect prevailing market prices for our stock. In addition to the possibility that we may sell shares of our stock in a public offering at any time, we also may issue shares of common stock upon redemption of units of interest held by third parties in affiliated partnerships that we control, as well as upon exercise of stock options that we grant to our employees and others. All of these shares will be available for sale in the public markets from time to time. In addition, SC-USREALTY, our largest stockholder (owning more than one-third of our shares), has the right to sell its shares at any time, pursuant to registration rights granted to it in connection with its original investment in the Company. OUR STATUS AS A REIT MAY RESULT IN RISKS FOR INVESTORS We believe that the Company has qualified for taxation as a REIT for federal income tax purposes, and we plan to continue to operate so that the Company meets the requirements for taxation as a REIT. If we qualify as a REIT, we generally will not be subject to federal income tax on our income that we distribute currently to our shareholders. Many of the REIT requirements, however, are highly technical and complex. The determination that the Company is a REIT requires an analysis of various factual matters and circumstances that may not be 4 totally within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from certain sources that are itemized in the REIT tax laws. We also are required to distribute to our stockholders at least 95% of our REIT taxable income (excluding capital gains). The fact that we hold certain of our assets through partnerships and their subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize the Company's REIT status. Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings, that make it more difficult, or impossible, for us to remain qualified as a REIT. If the Company fails to qualify as a REIT, it would be subject to federal income tax at regular corporate rates. Also, unless the IRS granted the Company relief under certain statutory provisions, it would remain disqualified as a REIT for four years following the year it first failed to qualify. If we failed to qualify as a REIT, we would have to pay significant income taxes and would therefore have less money available for investments, debt service and dividends to stockholders. This likely would have a significant adverse affect on the value of our securities. In addition, we would no longer be required to pay any dividends to stockholders. Even if we qualify as a REIT, we are required to pay certain federal, state and local taxes on our income and property. For example, if the Company has net income from 'prohibited transactions,' that income will be subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction is dependent on the facts and circumstances related to that sale. While we have recently undertaken a significant number of asset sales, we do not believe that those sales should be considered prohibited transactions, but there can be no assurance that the IRS would not contend otherwise. In addition, any net taxable income earned directly by some of our affiliates, including OmniOffices, Carr Services, Inc. and CarrAmerica Development, is subject to federal and state corporate income tax. Similarly, the income of our affiliate, Omni UK, is subject to some foreign taxes. Federal tax laws prohibit REITs from owning more than 10% of the outstanding voting securities of any issuer that is not another REIT or a 'qualified REIT subsidiary.' The Clinton Administration's fiscal year 2000 budget proposal, announced February 1, 1999, includes a proposal that would change the 10% voting securities test to a 10% vote or value test. Under the proposal, a REIT would not be able to own more than 10% of the vote or value of the outstanding securities of any corporation, except for a qualified REIT subsidiary or another REIT. The proposal also contains an exception to the 5% and 10% asset tests that would allow a REIT to have 'taxable REIT subsidiaries,' including both 'qualified independent contractor subsidiaries,' which could perform noncustomary and other currently prohibited services for tenants and other customers, and 'qualified business subsidiaries,' which could undertake third-party management and development activities as well as other non-real estate related activities. Under the proposal, no more than 15% of a REIT's total assets could consist of taxable REIT subsidiaries and no more than 5% of a REIT's total assets could consist of qualified independent contractor subsidiaries. Under the budget proposal, a taxable REIT subsidiary would not be entitled to deduct any interest on debt funded directly or indirectly by the REIT. This proposal would be effective after the date of enactment and a REIT would be allowed to combine and convert existing corporate subsidiaries into taxable REIT subsidiaries tax-free prior to a certain date. A transition period would allow for conversion of existing corporate subsidiaries before the 10% vote or value test would become effective. For the Company's taxable years after the effective date of the proposal and after any applicable transition period, the 10% vote or value test would apply to the Company's ownership in the Company's operating subsidiaries, including OmniOffices not converted into taxable REIT subsidiaries. It is presently uncertain whether any proposal regarding REIT subsidiaries, including the budget proposal, will be enacted or, if enacted, what the terms, including the effective date, of such proposal will be. OUR COMPANY IS NOT A SUITABLE INVESTMENT FOR FOREIGN INVESTORS Our charter contains provisions generally preventing foreign investors (other than SC-USREALTY and its affiliates) from acquiring additional shares of the Company's capital stock if the acquisition would cause us to fail to qualify as a domestically controlled REIT under the federal tax code. The application of such provisions could prevent a foreign investor from acquiring stock or cause stock that has been acquired to be reacquired automatically from the foreign investor by a designated charitable trust. Accordingly, acquisition of our capital stock would not likely be a suitable investment for foreign investors other than SC-USREALTY. 5 FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON THE COMPANY The year 2000 issue results from a programming convention in which computer programs use two digits rather than four to define the applicable year. Software and hardware may recognize a date using '00' as the year 1900, rather than the year 2000. Such an inability of computer programs to recognize a year that begins with '20' could result in business or building system failures, miscalculations or errors causing disruptions of operations or other business problems, including, among other things, a temporary inability to process transactions, send invoices or engage in other normal business activities. We have undertaken a comprehensive program to address the year 2000 issue. Although our year 2000 efforts are intended to minimize the adverse effects of the year 2000 issue on its business operations, the actual effects of the year 2000 issue and the success or failure of our efforts may not be known until the year 2000 and later. Failure by the Company and its major vendors, other material service providers and material clients to address adequately their respective year 2000 issues in a timely manner (insofar as such issues relate to the Company's business) could have a material adverse effect on our business, results of operations and financial condition. 6 EX-99.4 6 ITEM 5 Exhibit 99.4 ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER MATTERS (from the Annual Report on Form 10-K of CarrAmerica Realty Corporation for the year ended December 31, 1998) The Company's common stock is listed on the New York Stock Exchange ('NYSE') under the symbol 'CRE'. As of March 15, 1999, there were 453 stockholders of record. The following table sets forth the high and low sale prices of the Company's common stock as reported on the NYSE Composite Tape, and the dividends per share of common stock paid for each full quarterly period within the two most recent fiscal years:
1Q 2Q 3Q 4Q FULL YEAR ------- ------- ------ ------ --------- 1998 HIGH.............................................. $31 11/16 30 5/8 30 1/8 25 1/4 31 11/16 LOW............................................... $28 7/16 26 1/2 19 7/16 19 19 DIVIDEND $ .4625 .4625 .4625 .4625 1.85
1Q 2Q 3Q 4Q FULL YEAR ------- ------- ------ ------ --------- 1997 High.............................................. $32 1/4 30 5/8 32 3/16 33 7/16 33 7/16 Low............................................... $28 1/4 26 1/4 27 3/4 28 1/4 26 1/4 Dividend.......................................... $ .4375 .4375 .4375 .4375 1.75
The Company, in order to qualify as a REIT, is required to make distributions (other than capital gain distributions) to its stockholders in amounts at least equal to (i) the sum of (A) 95% of its 'REIT taxable income' (computed without regard to the dividends paid deduction and its net capital gain) and (B) 95% of the net income (after tax), if any, from foreclosure property, minus (ii) the sum of certain items of non-cash income. The Company's distribution strategy is to distribute what it believes is a conservative percentage of its cash flow permitting the Company to retain funds for capital improvements and other investments while funding its distributions. For federal income tax purposes, distributions may consist of ordinary income, capital gains, nontaxable return of capital or a combination thereof. Distributions that exceed the Company's current and accumulated 1 earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and reduce the stockholder's basis in his or her shares of common stock. To the extent that a distribution exceeds both current and accumulated earnings and profits and the stockholder's basis in his or her shares, it will generally be treated as gain from the sale or exchange of that stockholder's shares. The Company annually notifies stockholders of the taxability of distributions paid during the preceding year. The following table sets forth the taxability of common stock distributions paid in 1998 and 1997:
1998 1997 ---- ---- Ordinary income........................................................... 92% 90% Capital Gain.............................................................. -- -- Return of Capital......................................................... 8% 10%
2 EX-99.5 7 ELECTION OF DIRECTORS Exhibit 99.5 ELECTION OF DIRECTORS (Proposal 1) (from the Proxy Statement to be delivered to the stockholders of CarrAmerica Realty Corporation in connection with that company's 1999 Annual Meeting of Stockholders) Board of Directors The Board of Directors of the Company is divided into three classes, with one-third of the directors scheduled to be elected by the stockholders annually. Andrew F. Brimmer, Oliver T. Carr, Jr., and William D. Sanders have been nominated by the Board of Directors for election as directors at the 1999 annual meeting of stockholders to fill terms expiring at the 2002 annual meeting of stockholders. Timothy Howard and Ronald Blankenship have been nominated for election as directors to fill terms expiring at the annual meeting of stockholders in 2000. If elected, the nominees will hold office until the expiration of their terms and until their successors are elected and qualified. Nominees for Election to Terms Expiring in 2002 Andrew F. Brimmer, 72, has been a director of the Company since February 1993. He has been President of Brimmer & Company, Inc., an economic and financial consulting firm, since 1976. Dr. Brimmer is the Wilmer D. Barrett Professor of Economics at the University of Massachusetts--Amherst. He also serves as a director of BlackRock Investment Income Trust, Inc. (and other funds); Borg-Warner Automotive, Inc.; and Airborne Express. From 1995 to 1998, Dr. Brimmer served as chairman of the District of Columbia Financial Control Board. He also was a member of the Board of Governors of the Federal Reserve System from 1966 to 1974. Dr. Brimmer received a B.A. degree and a masters degree in economics from the University of Washington and a Ph.D. in economics from Harvard University. Dr. Brimmer is a member of the Audit Committee of the Board of Directors. Oliver T. Carr, Jr., 73, has been Chairman of the Board of Directors of the Company since February 1993. He also served as Chief Executive Officer of the Company from 1993 to 1997. Mr. Carr founded The Oliver Carr Company in 1962 and since that time has been its Chairman of the Board and a director. In addition, Mr. Carr has served as President of The Oliver Carr Company since February 1993. He was Chairman of the Board of Trustees of The George Washington University from July 1988 until May 1995. Mr. Carr is the father of Thomas A. Carr, the Company's current President and Chief Executive Officer. Mr. Carr is a member of the Investment Committee and Executive Committee of the Board of Directors. William D. Sanders, 57, has been a director of the Company since May 1996. Mr. Sanders was nominated to the Board as a designee of Security Capital U.S. Realty ("SC-USREALTY"), a major stockholder of the Company. He is the founder and Chairman of Security Capital Group, an affiliate of SC-USREALTY. Mr. Sanders retired on December 31, 1989 as Chief Executive Officer of LaSalle Partners Limited, a firm he founded in 1968. Mr. Sanders is on the Board of Directors of Security Capital European Realty; SC-USREALTY; and Storage USA, Inc. Mr. Sanders is a former trustee and member of the executive committee of the University of Chicago and a former trustee fellow of Cornell University. Mr. Sanders received his Bachelor of Science degree from Cornell University. He is a member of the Nominating Committee of the Board of Directors. Nominees for Election to Terms Expiring in 2000 Timothy Howard, 50, has been a director of the Company since August 1998. Mr. Howard has been the Executive Vice President and Chief Financial Officer of Fannie Mae since 1990. Mr. Howard has held positions of increasing responsibility with Fannie Mae since beginning with the company in 1982. Mr. Howard received his Bachelor of Science and Masters in Economics degrees from UCLA. He is a member of the Audit Committee and Executive Compensation Committee of the Board of Directors. Ronald Blankenship, 49, has been a director of the Company since August 1998. Mr. Blankenship was nominated to the Board as a designee of SC-USREALTY. Mr. Blankenship has been the Vice Chairman and Chief Operating Officer of Security Capital Group Incorporated since 1998. Previously, he was Managing Director of Security Capital Group Incorporated from 1991 to 1998. Mr. Blankenship is a director of Security Capital Group Incorporated and Storage USA, Inc. He received his B.B.A. from the University of Texas at Austin. Mr. Blankenship is a member of the Executive Compensation Committee of the Board of Directors. Incumbent Director--Term Expiring in 2000 A. James Clark, 71, has been a director of the Company since February 1993. He has been Chairman of the Board and President of Clark Enterprises, Inc., a Bethesda, Maryland-based company involved in real estate, communications, and commercial and residential construction, since 1972. Mr. Clark is a Trustee Emeritus of the Johns Hopkins University and the Johns Hopkins Board of Medicine. He is an Advisory Director of Potomac Electric Power Company. Mr. Clark is also a member of the PGA Tour Golfcourse Properties Advisory Board. An alumnus of the University of Maryland, Mr. Clark is a member of the University's Board of Visitors and the school's Foundation. Mr. Clark is a member of the Executive Committee, Executive Compensation Committee, Investment Committee, and the Nominating Committee of the Board of Directors. Incumbent Directors--Terms Expiring in 2001 Thomas A. Carr, 40, has been President and a director of the Company since February 1993. In May 1997, Mr. Carr was elected Chief Executive Officer of the Company, at which time he resigned as Chief Operating Officer of the Company, a position he had held since April 1995. Prior to that time, Mr. Carr had been the Company's Chief Financial Officer since February 1993. Mr. Carr is a director of The Oliver Carr Company. He holds a Masters in Business Administration degree from Harvard Business School, and a Bachelor of Arts degree from Brown University. Mr. Carr is a member of the National Association of Real Estate Investment Trusts; the Young Presidents Organization; the Federal City Council; and the International Development Research Council. Mr. Carr is the son of Oliver T. Carr, Jr., the Chairman of the Board of Directors of the Company. He is a member of the Investment Committee and the Executive Committee of the Board of Directors. Caroline S. McBride, 45, has been a director of the Company since July 1996. Ms. McBride was nominated to the Board of Directors as a designee of SC-USREALTY. Since March 1997, Ms. McBride has been Managing Director of Security Capital Global Strategic Group, an affiliate of SC-USREALTY. From June 1996 to July 1997, Ms. McBride was Managing Director of Security Global Capital Management Group. Prior thereto, from July 1978 to May 1996, Ms. McBride was with IBM, where she was director of private market investments for the IBM Retirement Fund from 1994 to 1996 and director of real estate investments for the IBM Retirement Fund from 1992 to 1994. Ms. McBride is on the Board of Directors of Storage USA, Inc.; BelmontCorp; CWS Communities Trust; and the Real Estate Research Institute. Ms. McBride received her Masters in Business Administration degree from New York University and a Bachelor of Arts degree from Middlebury Col- lege. Ms. McBride is a member of the Investment Committee and the Audit Committee of the Board of Directors. Wesley S. Williams, Jr., 56, has been a director of the Company since February 1993. Mr. Williams has been a partner of the law firm of Covington & Burling, Washington, D.C., since 1975. He was adjunct professor of real estate finance law at Georgetown University Law Center from 1971 to 1973 and is a contributing author to several texts on banking law and on real estate finance and investment. Mr. Williams is on the Editorial Advisory Board of the District of Columbia Real Estate Reporter. Mr. Williams serves as a director of Blackstar Communications, Inc.; Blackstar LLC; and the Federal Reserve Bank of Richmond, Virginia. Mr. Williams is Co-Chairman of the Board of Directors and Co-CEO of Lockhart Caribbean Corporation and its real estate, insurance, consumer finance, and internet services subsidiaries. Mr. Williams is a member of the Executive Committee of the Board of Trustees of Penn Mutual Life Insurance Company, of which he is the Senior Trustee. He received B.A. and J.D. degrees from Harvard University, an M.A. degree from the Fletcher School of Law and Diplomacy and an LL.M. from Columbia University. Mr. Williams is a member of the Executive Compensation Committee of the Board of Directors. Committees of the Board of Directors; Meetings Among the committees of the Board of Directors are a standing Audit Committee, Executive Compensation Committee, Nominating Committee, Executive Committee and Investment Committee. The Board of Directors also established an Ad Hoc Compensation Committee during 1998. The functions performed by these committees are described below. Audit Committee. The Audit Committee makes recommendations concerning the engagement of independent public accountants, reviews with the independent public accountants the plans and results of the audit engagement, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees of the independent public accountants, and reviews the adequacy of the Company's internal accounting controls. The Audit Committee met three times in 1998. Executive Compensation Committee and Ad Hoc Compensation Committee. The Executive Compensation Committee is comprised entirely of non-employee directors, and is responsible for implementing and/or recommending to the Board of Directors compensation policies applicable to the Company's executive officers and for monitoring compliance with such policies. The Committee determines the Chief Executive Officer's compensation and approves compensation recommendations for the other executive officers of the Company as submitted by the Chief Executive Officer. It also administers the Company's stock option and restricted stock plans. The Ad Hoc Compensation Committee was a committee comprised solely of directors who qualified as "outside directors" under Section 162(m) of the Internal Revenue Code. The Company's Board of Directors established the Ad Hoc Compensation Committee to consider and make grants of options on November 11, 1998 that otherwise would have been subject to a limitation on deductibility under the Code. The Executive Compensation Committee met six times in 1998 and took action by unanimous written consent twice. The Ad Hoc Compensation Committee met one time in 1998. Nominating Committee. The Nominating Committee was established to consider and make recommendations to the Board of Directors regarding nominees for election as members of the Board of Directors. In addition, the Nominating Committee has the authority to review and approve compensation, benefits and other forms of remuneration for non-employee directors. The Nominating Committee is willing to consider nominees recommended by stockholders. Stockholders who wish to suggest qualified candidates must comply with the advance notice provisions and other requirements of Section 3.11 of the Company's by-laws. See "Stockholder Proposals for 2000 Annual Meeting" below. The Nominating Committee met once in 1998 and took action by unanimous consent once. Executive Committee. The Executive Committee may exercise the full authority of the Board of Directors, except that the Executive Committee may not amend the Company's charter or by-laws; adopt a plan of merger or consolidation; recommend to stockholders the sale or lease of all or substantially all of the Company's assets; elect directors; elect or remove officers; establish compensation for executive officers; and/or declare dividends or authorize the issuance of stock of the Company. Investment Committee. The Investment Committee has the authority to approve and authorize expenditures, agreements and other actions relating to the acquisition and/or disposition of assets by the Company, the incurrence of indebtedness by the Company or other encumbrances on the assets of the Company or other matters treated as capital items and involving less than $100,000,000 for any single transaction or series of related transactions, so long as such matters are consistent with the annual budget (as to amount and type of transaction). The Board of Directors held ten meetings during 1998 and took action by unanimous written consent five times. None of the directors attended fewer than 75% of the aggregate of the number of meetings of the Board of Directors held during the period he or she served on the Board and the number of meetings of committees of the Board of Directors on which he or she served during the period of service. Compensation of Directors The Company pays an annual retainer of $20,000 to directors who are not employees of the Company. The Company also pays each non-employee director a fee (plus out-of-pocket expenses) for attendance (in person or by telephone) at each meeting of the Board of Directors and committee meeting held on a non-Board meeting day. The Board of Directors meeting fee is $1,000 and the committee meeting fee is $500. In addition, the chairman of each committee receives an additional annual fee of $1,000. The Company also compensates its non-employee directors through its 1995 Non-Employee Director Stock Option Plan. The plan provides for the grant of 3,000 options to purchase shares of common stock of the Company upon a non-employee director's initial election to the Board. Assuming Proposal 4 is approved by the stockholders, each continuing non-employee director will receive a grant of options to purchase 7,500 shares of the Company's common stock immediately following the election of directors at each annual meeting of the Company's stockholders. The plan currently provides for an annual grant of 5,000 shares, and would continue to do so if Proposal 4 is not approved by the stockholders. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires the Company's executive officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and the New York Stock Exchange. Executive officers, directors and greater than ten percent stockholders are required by the SEC to furnish the Company with copies of all Forms 3, 4 and 5 they file. Based on the Company's review of the copies of such forms it has received and on written representations from certain reporting persons that they were not required to file a Form 5 for the fiscal year, the Company believes that its executive officers, directors and greater than ten percent stockholders complied with all Section 16(a) filing requirements applicable to them with respect to transactions during 1998, except that Robert E. Peterson, who at the time was an executive officer of the Company, filed a Form 4 in an untimely manner. Vote Required and Recommendation The affirmative vote of a plurality of the votes cast at the annual meeting will be required for the election of directors. A properly executed proxy marked "Withhold Authority" with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes of determining whether there is a quorum. Accordingly, abstentions or broker non-votes as to the election of directors will not affect the election of the candidates receiving the most votes. The Board of Directors of the Company recommends a vote FOR the candidates named in this Proxy Statement as directors to hold office until the expiration of the terms for which they have been nominated and until their successors are elected and qualified. Should any one or more of these nominees become unable to serve for any reason before the annual meeting, the Board of Directors may designate a substitute nominee or nominees, in which event the persons designated as proxy holders on the enclosed proxy will vote for the election of such substitute nominee or nominees, or may reduce the number of members of the Board of Directors. EX-99.6 8 DIRECTORS OF THE COMPANY Exhibit 99.6 ITEM 1--BUSINESS--THE COMPANY--DIRECTORS OF THE COMPANY (from the Annual Report on Form 10-K of CarrAmerica Realty Corporation for the year ended December 31, 1998) The directors of the Company are divided into three classes, with approximately one-third of the directors elected by the stockholders annually. The Board of Directors of the Company currently consists of the following persons: Oliver T. Carr, Jr., 73, has been Chairman of the Board of Directors of the Company since February 1993. He also served as Chief Executive Officer of the Company from 1993 to 1997. Mr. Carr's term as a director of the Company expires at the 1999 Annual Meeting of Stockholders and he has been renominated for election by the stockholders at that meeting to serve another three-year term. Mr. Carr founded The Oliver Carr Company in 1962 and since that time has been its Chairman of the Board and a director. In addition, Mr. Carr has served as President of The Oliver Carr Company since February 1993. He was Chairman of the Board of Trustees of The George Washington University until May 1995. Mr. Carr is the father of Thomas A. Carr, the Company's current President and Chief Executive Officer, and Robert O. Carr, the President of Carr Urban Development, Inc. Mr. Carr is a member of the Investment Committee and the Executive Committee of the Board of Directors. Thomas A. Carr, 40, has been President and a director of the Company since February 1993. Mr. Carr's term as a director of the Company expires at the 2001 Annual Meeting of Stockholders. In May 1997, Mr. Carr was appointed Chief Executive Officer of the Company, at which time he resigned as Chief Operating Officer of the Company, a position he had held since April 1995. Prior to such time, Mr. Carr was the Company's Chief Financial Officer from February 1993 to April 1995. Mr. Carr is a director of The Oliver Carr Company. Mr. Carr holds a Masters in Business Administration degree from Harvard Business School, and a Bachelor of Arts degree from Brown University. Mr. Carr is a member of the National Association of Real Estate Investment Trusts; the Young Presidents Organization; the Federal City Council and the International Development Research Council. Mr. Carr is the son of Oliver T. Carr, Jr. and the brother of Mr. Robert O. Carr. Mr. Carr is a member of the Investment Committee and the Executive Committee of the Board of Directors. In addition, Mr. Carr is a member of management's Operating Committee and Investment Committee. Ronald Blankenship, 49, was appointed as a director of the Company in August 1998 to fill a vacancy until the 1999 Annual Meeting of Stockholders, and has been nominated for election by the stockholders at that meeting to serve the remainder of a term that expires at the 2000 Annual Meeting of Stockholders. Mr. Blankenship was nominated to the Board as a designee of SC-USREALTY, a major stockholder of the Company. Mr. Blankenship has been the Vice Chairman and Chief Operating Officer of Security Capital Group Incorporated since May 1998. Previously, Mr. Blankenship was Managing Director of Security Capital Group Incorporated from March 1991 to May 1998. Mr. Blankenship is a director of Security Capital Group Incorporated and Storage USA, Inc. He received his B.B.A. from the University of Texas at Austin. Mr. Blankenship is a member of the Executive Compensation Committee of the Board of Directors. Andrew F. Brimmer, 72, has been a director of the Company since February 1993. Dr. Brimmer's term as a director of the Company expires at the 1999 Annual Meeting of Stockholders and he has been renominated for election by the stockholders at that meeting to serve another three-year term. He has been President of Brimmer & Company, Inc., an economic and financial consulting firm, since 1976. Dr. Brimmer is the Wilmer D. Barrett Professor of Economics at the University of Massachusetts--Amherst. He also serves as a director of BlackRock Investment Income Trust, Inc. (and other funds), Borg-Warner Automotive, Inc., and Airborne Express. From 1995 to 1998, Dr. Brimmer served as chairman of the District of Columbia Financial Control Board. He also was a member of the Board of Governors of the Federal Reserve System from 1966 through 1974. Dr. Brimmer received a B.A. degree and a masters degree in economics from the University of Washington and a Ph.D. in economics from Harvard University. Dr. Brimmer is a member of the Audit Committee of the Board of Directors. A. James Clark, 71, has been a director of the Company since February 1993. Mr. Clark's term as a director of the Company expires at the 2000 Annual Meeting of Stockholders. He has been Chairman of the Board and President of Clark Enterprises, Inc., a Bethesda, Maryland-based company involved in real estate, communications, and commercial and residential construction, since 1972. Mr. Clark is a member of the University of Maryland Board of Visitors and Foundation, and is a Trustee Emeritus of the Johns Hopkins University and the Johns Hopkins Board of Medicine. He is also a member of the PGA Tour Golf Course Properties Advisory Board and an advisory director of Potomac Electric Power Company. Mr. Clark is a graduate 1 of the University of Maryland. Mr. Clark is a member of the Investment Committee, the Executive Committee, the Executive Compensation Committee, and the Nominating Committee of the Board of Directors. Timothy Howard, 50, was appointed as a director of the Company in August 1998 to fill a vacancy until the 1999 Annual Meeting of Stockholders, and has been nominated for election by the stockholders at that meeting to serve the remainder of a term that expires at the 2000 Annual Meeting of Stockholders. Mr. Howard has been the Executive Vice President and Chief Financial Officer of Fannie Mae since 1990. From 1988 to 1990, Mr. Howard was Executive Vice President--Asset Management of Fannie Mae. Mr. Howard has held positions of increasing responsibility with Fannie Mae since beginning with the company in 1982. Mr. Howard received his Bachelor of Science and Masters in Economics degrees from UCLA. Mr. Howard is a member of the Audit Committee and the Executive Compensation Committee of the Board of Directors. Caroline S. McBride, 45, has been a director of the Company since July 1996. Ms. McBride's term as a director of the Company expires at the 2001 Annual Meeting of Stockholders. Ms. McBride was nominated to the Board of Directors as a designee of SC-USREALTY. Since March 1997, Ms. McBride has been a Managing Director of Security Capital Global Strategic Group, an affiliate of SC-USREALTY. From June 1996 to July 1997, Ms. McBride was Managing Director of Security Global Capital Management Group. Prior thereto, from July 1978 to May 1996, Ms. McBride was with IBM, where she was director of private market investments for the IBM Retirement Fund from 1994 to 1996 and director of real estate investments for the IBM Retirement Fund from 1992 to 1994. Ms. McBride is on the Board of Directors of Storage USA, Inc., BelmontCorp, CWS Communities Trust and the Real Estate Research Institute. Ms. McBride received her Masters in Business Administration degree from New York University and a Bachelor of Arts degree from Middlebury College. Ms. McBride is a member of the Investment Committee and the Audit Committee of the Board of Directors. William D. Sanders, 57, has been a director of the Company since May 1996. Mr. Sanders' term as a director of the Company expires at the 1999 Annual Meeting of Stockholders and he has been renominated for election by the stockholders at that meeting to serve another three-year term. Mr. Sanders was nominated to the Board as a designee of SC-USREALTY. He is the founder and Chairman of Security Capital Group, an affiliate of SC-USREALTY. Mr. Sanders retired on December 31, 1989 as Chief Executive Officer of LaSalle Partners Limited, a firm he founded in 1968. Mr. Sanders is on the Board of Directors of Security Capital European Realty, SC-USREALTY, and Storage USA, Inc. Mr. Sanders is a former trustee and member of the executive committee of the University of Chicago and a former trustee fellow of Cornell University. Mr. Sanders received his Bachelor of Science degree from Cornell University. Mr. Sanders is a member of the Nominating Committee of the Board of Directors. Wesley S. Williams, Jr., 56, has been a director of the Company since February 1993. Mr. Williams' term as a director of the Company expires at the 2001 Annual Meeting of Stockholders. Mr. Williams has been a partner of the law firm of Covington & Burling, Washington, D.C., since 1975. He was adjunct professor of real estate finance law at Georgetown University Law Center from 1971 to 1973 and is a contributing author to several texts on banking law and on real estate finance and investment. Mr. Williams is on the Editorial Advisory Board of the District of Columbia Real Estate Reporter. Mr. Williams serves as a director of Blackstar Communications, Inc.; Blackstar LLC; and the Federal Reserve Bank of Richmond, Virginia. Mr. Williams is Co-Chairman of the Board of Directors and Co-CEO of The Lockhart Caribbean Corporation and its real estate, insurance, consumer finance, and internet services subsidiaries. Mr. Williams is a member of the Executive Committee of the Board of Trustees of Penn Mutual Life Insurance Company, of which he is the Senior Trustee. Mr. Williams received B.A. and J.D. degrees from Harvard University, an M.A. degree from the Fletcher School of Law and Diplomacy and an LL.M. from Columbia University. Mr. Williams is a member of the Executive Compensation Committee of the Board of Directors. 2 EX-99.7 9 EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES Exhibit 99.7 ITEM 1--BUSINESS--THE COMPANY--EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES OF THE COMPANY (from the Annual Report on Form 10-K of CarrAmerica Realty Corporation for the year ended December 31, 1998) As of March 15, 1999, the Company's executive officers and key employees (including certain executive officers and key employees of OmniOffices, CarrAmerica Development and other affiliates of the Company) were as follows: Kent C. Gregory, 48, has been the Company's Managing Director--National Services since July 1997. Prior to that time, Mr. Gregory had been employed by Opus, a real estate services company, since 1991, serving as Senior Vice President of National Accounts. He holds a Masters in Business Administration from Pace University and a Bachelor of Arts degree in Business Administration from St. Thomas University. Mr. Gregory is a member of management's Operating Committee and Investment Committee. Philip L. Hawkins, 43, has been the Company's Chief Operating Officer since October 1998. Prior to that time Mr. Hawkins served as the Company's Managing Director--Asset Management since February 1996. Prior to that time, Mr. Hawkins had been employed by LaSalle Partners Limited, a real estate services company, since 1982, serving as Executive Vice President, Eastern Division, Asset Management Group since 1995, Senior Vice President, Northeast Region, Asset Management Group from 1990 to 1994, and in other asset management positions prior to that time. Mr. Hawkins also was a director of LaSalle Partners Limited. He holds a Masters in Business Administration from the University of Chicago Graduate School of Business and a Bachelor of Arts degree from Hamilton College. Mr. Hawkins is a member of management's Operating Committee and Investment Committee. Mr. Hawkins serves as a director and officer of certain subsidiaries and affiliates of the Company, including as a director of OmniOffices. Richard F. Katchuk, 52, has been the Company's Chief Financial Officer since February 1999. Prior to that time, Mr. Katchuk served as Chief Financial Officer and Corporate Executive Vice President of Crestar Financial Corporation since 1995. Prior to joining Crestar Financial Corporation, Mr. Katchuk was with Banc One, serving as a Senior Vice President Corporate Finance from 1988 to 1995. Mr. Katchuk holds a Bachelor of Arts degree in Economics from Hobart & William Smith Colleges. Mr. Katchuk is a member of management's Operating Committee and Investment Committee. Linda A. Madrid, 39, has been the Company's Managing Director, General Counsel and Corporate Secretary since November 1998. Ms. Madrid had served as the Company's Senior Vice President and General Counsel since March 1998. Prior to that time, Ms. Madrid had been Senior Vice President, Managing Director of Legal Affairs and Corporate Secretary of Riggs National Corporation/Riggs Bank N.A. since February 1996 and Vice President and Litigation Manager from September 1993 to January 1996. Prior to that time, Ms. Madrid practiced law in several law firms in Washington, D.C. and served as Assistant General Counsel for Amtrak. Ms. Madrid holds a J.D. from Georgetown University Law Center and a Bachelor of Arts degree from Arizona State University. Ms. Madrid is a member of management's Operating Committee. Paul R. Adkins, 40, has been the Company's Senior Vice President, Market Officer for Washington, D.C. since August 1996. Mr. Adkins has been with the Company for over 17 years, including serving as Vice President of Acquisitions from May 1994 to August 1996. Prior to that, Mr. Adkins served in a variety of other capacities with the Company, with over 12 years in commercial real estate leasing. Mr. Adkins is a member of the District of Columbia's Building Industry Association and Northern Virginia's National Association of Industrial and Office Parks. Mr. Adkins holds a Bachelor of Arts degree in Economics from Bucknell University. Steven N. Bralower, 50, has been Executive Vice President of Carr Real Estate Services, Inc. ('Carr Services, Inc.'), an affiliate of the Company that conducts management and leasing operations since January 1999, and Senior Vice President of Carr Realty, L.P., a subsidiary of the Company, since May 1996. Mr. Bralower was Senior Vice President of Carr Services, Inc. from 1993 to May 1996. Mr. Bralower is a member of the Greater Washington Commercial Association of Realtors. Mr. Bralower has been a member of the Georgetown University Law Center adjunct faculty since 1987. Mr. Bralower holds a Bachelor of Arts degree from Kenyon College. 1 Robert L. Brumm, 47, has been a Senior Vice President of the Company since February 1998. Prior to that Mr. Brumm had been Vice President, Human Resources and Administration of the Company since May 1996. From 1993 to 1996, Mr. Brumm held the same position with Carr Services, Inc. He is responsible for managing the Human Resources, Risk Management, Training, and Office Management functions. He has over 20 years of experience, including eight years with Mark Controls Corporation and five years with the real estate division of Philip Morris, Inc. Mr. Brumm received his Bachelors degree from California State University at Long Beach. Robert O. Carr, 49, has been President of Carr Urban Development, Inc., a subsidiary of CarrAmerica Development, since June 1998, and Chairman of the Board of Directors of Carr Services, Inc., since February 1993. Mr. Carr served as a director of the Company from 1993 until 1997 and as President of Carr Services, Inc. from 1993 to 1998. Mr. Carr is a director of The Oliver Carr Company and, from 1987 until February 1993, served as its President and Chief Executive Officer. Mr. Carr is a member of the Boards of Directors for the Greater Washington Research Center, the Corcoran School of Art and the National Cathedral School for Girls. Mr. Carr is also a member of the Greater Washington Board of Trade, the Urban Land Institute and the D.C. Chamber of Commerce. Mr. Carr holds a Bachelor of Arts degree from Trinity College. Mr. Carr is the son of Oliver T. Carr, Jr. and the brother of Thomas A. Carr. Clete Casper, 39, has been the Company's Vice President, Market Officer for Seattle since July 1996. Mr. Casper has over 10 years of experience in real estate and marketing. Mr. Casper's most recent experience includes one year as a Senior Associate with CB Commercial Real Estate Group Inc., Seattle, Washington. Prior to that, Mr. Casper was with Sabey Corporation in Seattle, Washington, serving as Development Manager for four years and a Marketing Associate for five years. Mr. Casper is a graduate of Washington State University. John J. Donovan, Jr., 55, has been President of Carr Services, Inc., since January 1999. Prior to that time, Mr. Donovan served as Senior Vice President of Carr Services, Inc. from 1993 to 1998. He is a member of the Advisory Board for Jubilee Enterprise of Greater Washington, the Economic Club of Washington, the Greater Washington Board of Trade and the Greater Washington Commercial Association of Realtors. Mr. Donovan holds a Bachelor of Arts degree from Georgetown University. Karen B. Dorigan, 34, has been a Senior Vice President of the Company since May 1997. Prior to that, Ms. Dorigan was the Company's Vice President--Land Due Diligence since January 1996. Prior to that time, Ms. Dorigan served for more than nine years in a variety of capacities in the development business of The Oliver Carr Company, including from February 1993 to January 1996 as a Vice President. She is a past member of the Northern Virginia Building Industry Association's Arlington Chapter Council. Ms. Dorigan holds a Bachelor of Science degree in Economics from the University of Pennsylvania, Wharton School. J. Thad Ellis, 38, has been the Company's Vice President, Market Officer for Atlanta since November 1996. Mr. Ellis has over 15 years of experience in real estate. Mr. Ellis' most recent experience includes 10 years with Peterson Properties, where his primary responsibility was to oversee and coordinate leasing and property management for the management services portfolio. Mr. Ellis is a graduate of Washington & Lee University and is involved with the National Association of Industrial and Office Parks and Atlanta's Chamber of Commerce and is on the Advisory Board of Black's Guide. Richard W. Greninger, 47, has been Senior VicePresident--Operations of the Company since January 1998. Prior to that, Mr. Greninger had been the Senior Vice President of Carr Services, Inc. since March 1995. Prior to that time, he had been Vice President of Carr Services, Inc. since February 1993. During 1994, Mr. Greninger served as President of the Greater Washington Apartment and Office Building Association. Mr. Greninger has served as a director of both the Institute of Real Estate Management and the Building Owners and Managers Association. Mr. Greninger holds a Masters in Business Administration from the University of Cincinnati and a Bachelor of Science degree from Ohio State University. Gary M. Kusin, 47, has been President and Chief Executive Officer of OmniOffices since September 1998. Prior to that time, Mr. Kusin was co-founder and Chairman of Laura Mercier Cosmetics. Prior to his launch of Laura Mercier Cosmetics, Mr. Kusin was co-founder and President of Babbage's, Inc., a computer software and video game retailing business. Mr. Kusin holds a Masters in Business Administration degree from Harvard Business School and a Bachelor of Arts degree from the University of Texas at Austin. Austin W. Lehr, 37, has been the Company's Vice President, Market Officer for Denver since July 1996. Mr. Lehr has over 14 years of experience in real estate management, marketing, and development. Mr. Lehr's 2 most recent experience includes four years as a Vice President with Southwest Value Partners and Affiliates in Phoenix, Arizona. Prior to that, Mr. Lehr spent four years with Draper and Kramer, lncorporated in Washington, D.C. as the Director of Development and Marketing. Mr. Lehr is a Director of the Chapter of NAIOP, a Director for Brokers for Battered Kids and a guest lecturer at University of Colorado's Real Estate Center. Mr. Lehr holds a Masters of Management degree from Northwestern University and a Bachelor of Arts degree from Williams College. Dwight L. Merriman, 38, has been the Company's Senior Vice President, Market Officer for Southern California since 1996. Mr. Merriman has over 15 years of experience in real estate, operations, acquisitions, construction, marketing and development. From 1995 to 1996 Mr. Merriman served as Vice President with Security Capital Pacific Trust (an affiliate of SC-USREALTY) in Irvine, California. Prior to that, Mr. Merriman spent 11 years with Overton, Moore in Los Angeles, serving as the regional development and operating partner for Orange County and Riverside County in the Southern California Market. Mr. Merriman holds a Masters in Business Administration from the University of California at Los Angeles and a Bachelors degree from the University of Southern California. Robert M. Milkovich, 39, has been the Company's Vice President, Market Officer for Phoenix, Arizona since January 1998. Mr. Milkovich has over 14 years of experience in real estate leasing. Mr. Milkovich's most recent experience includes five years as the Assistant Vice President of leasing for Carr Services, Inc. Mr. Milkovich holds a Bachelor of Science in Business Administration from the University of Maryland. Gerald J. O'Malley, 55, has been the Company's Vice President, Market Officer for Chicago since July 1996. Mr. O'MalIey has over 32 years of experience in real estate marketing. Mr. O'Malley's most recent experience includes 10 years as founder and President of G. J. O'MaIIey & Company, a real estate office leasing company. Mr. O'Malley holds a Bachelors of Business Administration degree from Loyola University. Jeffrey S. Pace, 36, has been the Company's Vice President, Market Officer for Austin, Texas since May 1997. Mr. Pace has over 14 years of experience in real estate marketing. Mr. Pace's most recent experience was with Trammell Crow Company, where he served as Marketing Director. Prior to that time, Mr. Pace held the position of Marketing Representative in the Dallas and Austin markets for Carlisle Property Company, Stockton, Luedmann, French & West and Trammell Crow Company from 1985 to 1997. Mr. Pace holds a Masters of Business Administration from the University of Texas at Arlington and a Bachelor of Science from the University of Texas at Austin. James D. Peterson, 51, has been the Company's Vice President, Market Officer for Florida since November 1996. Mr. Peterson has over 25 years of experience in the real estate field. From 1993 to October 1996 Mr. Peterson served as Vice President of Peterson Properties with responsibility for property operations in Florida. Mr. Peterson is involved with the National Association of Industrial and Office Parks and is a member of Boca Raton's Chamber of Commerce. Mr. Peterson holds a Masters in Business Administration from University of Texas at Austin and a Bachelor of Science degree in Economics from University of North Carolina at Chapel Hill. William H. Vanderstraaten, 38, has been the Company's Vice President, Market Officer for Dallas since April 1997. Mr. Vanderstraaten has over 16 years of experience in real estate development and leasing fields. Mr. Vanderstraaten's most recent experience prior to working for the Company includes eight years as Vice President--New Development for Harwood Pacific Corporation in Dallas, Texas, where his primary responsibilities were directing large scale development projects and coordinating leasing efforts for portfolios. Mr. Vanderstraaten holds a Bachelor of Science degree in Business Administration from Southern Methodist University. Debra A. Volpicelli, 34, has been the Company's Treasurer and Controller since May 1995. Prior to that time, Ms. Volpicelli had been the Company's Tax Manager since February 1993. Ms. Volpicelli holds a Bachelor of Science degree in Business Administration from Georgetown University and is a Certified Public Accountant. Joseph D. Wallace, 35, has been the Chief Financial Officer of OmniOffices since January 1999. Prior to that time Mr. Wallace served as the Executive Vice President of OmniOffices since October 1997. Prior to that time, Mr. Wallace had served as the Company's Vice President--Building Due Diligence since January 1996 and was responsible for supervising building acquisition due diligence. Prior to that time, Mr. Wallace had been the Company's Vice President of Asset Management since February 1993. Mr. Wallace holds a Bachelor of Science degree in Commerce from University of Virginia. 3 -----END PRIVACY-ENHANCED MESSAGE-----