SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20543
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED September 30, 1996
COMMISSION FILE NO. 1-11706
CARRAMERICA REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 52-1796339
- ----------------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1700 Pennsylvania Avenue, N.W., Washington, D.C. 20006
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(Address or principal executive office) (Zip code)
Registrant's telephone number, including area code (202) 624-7500
N/A
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(Former name, former address and former fiscal year, if changed
since last report)
Number of shares outstanding of each of the registrant's
classes of common stock, as of November 5, 1996:
Common Stock, par value $.01 per share: 35,536,189
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
--- --
Index
Page
----
Part I: Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets of
CarrAmerica Realty Corporation and subsidiaries as
of September 30, 1996 (unaudited) and December 31,
1995.................................................4
Condensed consolidated statements of operations of
CarrAmerica Realty Corporation and subsidiaries for
the three months ended September 30, 1996 and 1995
(unaudited)
.....................................................5
Condensed consolidated statements of operations of
CarrAmerica Realty Corporation and subsidiaries for
the nine months ended September 30, 1996 and 1995
(unaudited)
.....................................................6
Condensed consolidated statements of cash flows of
CarrAmerica Realty Corporation and subsidiaries for
the three months ended September 30, 1996 and 1995
(unaudited)
.....................................................7
Condensed consolidated statements of cash flows of
CarrAmerica Realty Corporation and subsidiaries for
the nine months ended September 30, 1996 and 1995
(unaudited)..........................................8
Notes to condensed consolidated financial
statements.....................................9 to 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........17 to 25
Part II: Other Information
Item 1. Legal Proceedings.................................. 26
Item 2. Changes in Securities...............................26
Item 3. Defaults Upon Senior Securities.....................26
Item 4. Submission of Matters to a Vote of Security Holders.26
Item 5. Other Information.................................. 26
Item 6. Exhibits and Reports on Form 8-K....................27
2
Part I
Item 1. Financial Information
The information furnished in the accompanying condensed consolidated
balance sheets, condensed consolidated statements of operations and condensed
consolidated statements of cash flows of CarrAmerica Realty Corporation and
subsidiaries (the Company) reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the aforementioned financial
statements for the interim periods.
The aforementioned financial statements should be read in conjunction
with the notes to such financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
3
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of September 30, 1996 and December 31, 1995
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(Unaudited and in thousands, except common share amounts)
September 30, December 31,
1996 1995
---- ----
(Unaudited)
Assets
- ------
Rental property:
Land $ 226,572 115,565
Buildings 700,133 301,537
Tenant improvements 92,664 60,060
Furniture, fixtures and equipment 2,682 3,427
-------------- -----------
1,022,051 480,589
Less - accumulated depreciation (115,709) (98,873)
-------------- -----------
Total rental property 906,342 381,716
-------------- -----------
Cash and cash equivalents 14,238 9,217
Restricted cash and cash equivalents (note 2) 8,644 2,249
Accounts receivable and notes receivable 10,002 8,728
Accrued straight-line rents 22,915 22,437
Investments 12,155 10,745
Land held for development 28,409 --
Construction in process 12,040 --
Tenant leasing costs, net 10,520 10,746
Deferred financing costs, net 3,117 2,267
Prepaid expenses and other assets, net 15,526 10,755
-------------- -----------
$1,043,908 458,860
============== ===========
Liabilities, Minority Interest, and Stockholders' Equity
- --------------------------------------------------------
Liabilities:
Mortgages and notes payable (note 2) 426,069 317,374
Accounts payable and accrued expenses 14,676 9,357
Rent received in advance and security deposits 5,804 1,736
-------------- -----------
Total liabilities 446,549 328,467
-------------- -----------
Minority interest (note 3) 51,611 34,850
Stockholders' equity:
Common stock, $.01 par value, authorized 90,000,000
shares, issued and outstanding 35,473,493 at September
30, 1996 and 13,409,177 at December 31, 1995 355 134
Additional paid in capital 588,684 126,835
Cumulative dividends paid in excess of net income (43,291) (31,426)
-------------- -----------
Total stockholders' equity 545,748 95,543
-------------- -----------
Commitments (note 4)
$1,043,908 458,860
============== ===========
See accompanying notes to condensed consolidated financial statements.
4
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended September 30, 1996 and 1995
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(Unaudited and in thousands, except per common share amounts)
1996 1995
------------------ ---------------
Real estate operating revenue:
Rental revenue (note 4):
Minimum base rent $ 37,011 20,211
Recoveries from tenants 4,310 1,428
Parking and other tenant charges 1,185 1,103
-------------- -----------
Total rental revenue 42,506 22,742
Real estate service income 3,634 2,640
-------------- -----------
Total revenue 46,140 25,382
-------------- -----------
Real estate operating expenses:
Property operating expenses:
Operating expenses 9,898 5,746
Real estate taxes 4,014 2,307
Interest expense 7,911 5,575
General and administrative 4,002 2,556
Depreciation and amortization 11,645 4,579
-------------- -----------
Total operating expenses 37,470 20,763
-------------- -----------
Real estate operating income 8,670 4,619
-------------- -----------
Other operating income (expense):
Interest income 434 292
Equity in earnings (losses) of unconsolidated partnerships 99 (32)
-------------- -----------
Total other operating income 533 260
-------------- -----------
Net operating income before minority interest 9,203 4,879
Minority interest (note 3) (1,293) (1,444)
-------------- -----------
Net income $ 7,910 3,435
============== ===========
Net income per common share $ 0.24 0.26
============== ===========
See accompanying notes to condensed consolidated financial statements.
5
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Nine Months Ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
(Unaudited and in thousands, except per common share amounts)
1996 1995
------------------ ---------------
Real estate operating revenue:
Rental revenue (note 4):
Minimum base rent $ 88,088 59,540
Recoveries from tenants 8,820 3,843
Parking and other tenant charges 3,731 3,296
-------------- -----------
Total rental revenue 100,639 66,679
Real estate service income 9,265 7,748
-------------- -----------
Total revenue 109,904 74,427
-------------- -----------
Real estate operating expenses:
Property operating expenses:
Operating expenses 23,545 15,731
Real estate taxes 9,826 7,126
Interest expense 21,857 16,260
General and administrative 10,661 7,850
Depreciation and amortization 25,744 13,306
-------------- -----------
Total operating expenses 91,633 60,273
-------------- -----------
Real estate operating income 18,271 14,154
-------------- -----------
Other operating income (expense):
Interest income 1,253 839
Equity in earnings (losses) of unconsolidated partnerships 357 (108)
-------------- -----------
Total other operating income 1,610 731
-------------- -----------
Net operating income before minority interest and
extraordinary item 19,881 14,885
Minority interest (note 3) (3,895) (4,509)
-------------- -----------
Income before extraordinary item 15,986 10,376
Extraordinary item-loss on early extinguishment of debt (484) --
-------------- -----------
Net income $ 15,502 10,376
============== ===========
Net income per common share:
Income before extraordinary item $ 0.70 0.78
Extraordinary item-loss on early extinguishment
of debt (0.02) --
-------------- -----------
Net income per common share $ 0.68 0.78
============== ===========
See accompanying notes to condensed consolidated financial statements.
6
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 7,910 3,435
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,645 4,579
Minority interest in income 1,293 1,444
Equity in (earnings) losses of unconsolidated partnerships (93) 40
Increase in accounts receivable (1,081) (299)
Decrease (increase) in accrued straight-line rents (333) 229
Additions to tenant leasing costs (768) (295)
Decrease (increase) in prepaid expenses and other assets 2,501 (1,024)
Increase (decrease) in accounts payable and accrued expenses 3,331 (1,509)
Increase (decrease) in rent received in advance and
security deposits 2,627 (170)
------------ ------------
Total adjustments 19,122 2,995
------------ ------------
Net cash provided by operating activities 27,032 6,430
------------ ------------
Cash flows from investing activities:
Acquisitions of property (135,767) (18,408)
Additions to rental property (3,946) (2,721)
Additions to land held for development (9,548) --
Additions to construction in process (12,040) --
Investments in unconsolidated partnerships (1,214) (153)
Distributions from unconsolidated partnerships 197 3,054
Increase in restricted cash and cash equivalents (10) (31)
------------ ------------
Net cash used by investing activities (162,328) (18,259)
------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 216,656 --
Net proceeds from exercise of options 18 --
Net borrowings (repayments) on line of credit (62,000) 8,000
Borrowings on mortgages payable -- 6,280
Dividends paid (15,515) (5,846)
Repayment of mortgages payable (606) (670)
Additions to deferred financing costs (272) (292)
Distributions to minority interest (1,769) (1,881)
------------ ------------
Net cash provided by financing activities 136,512 5,591
------------ ------------
Increase (decrease) in unrestricted cash and cash equivalents 1,216 (6,238)
Unrestricted cash and cash equivalents, beginning of the period 13,022 14,162
------------ ------------
Unrestricted cash and cash equivalents, end of the period $ 14,238 7,924
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest
of $969 and $0 for the three months ended
September 30, 1996 and 1995, respectively. $ 7,315 5,623
============ ============
During the three month period ended September 30, 1996,
the Company assumed $35.7 million of mortgages payable
and issued $17.6 million of Units in connection with
acquisitions of office properties and land held for
development.
See accompanying notes to condensed consolidated financial statements.
7
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 15,502 10,376
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 25,744 13,306
Minority interest in income 3,895 4,509
Equity in (earnings) losses of unconsolidated partnerships (337) 131
Extraordinary item - loss on early extinguishment of debt 484 --
Increase in accounts receivable (1,274) (1,007)
(Increase) decrease in accrued straight-line rents (478) 1,113
Additions to tenant leasing costs (1,793) (683)
Increase in prepaid expenses and other assets (4,776) (1,704)
Increase (decrease) in accounts payable and accrued expenses 6,317 (1,280)
Increase (decrease) in rent received in advance and
security deposits 4,068 (405)
------------ -----------
Total adjustments 31,850 13,980
------------ -----------
Net cash provided by operating activities 47,352 24,356
------------ -----------
Cash flows from investing activities:
Acquisition of real estate service contracts (1,750) (7,419)
Acquisitions of property (438,427) (18,408)
Additions to rental property (5,782) (7,681)
Additions to land held for development (19,153) --
Additions to construction in process (12,040) --
Investments in unconsolidated partnerships (2,678) (2,930)
Acquisition of minority interest (3) --
Distributions from unconsolidated partnerships 1,605 4,395
Increase in restricted cash and cash equivalents (6,395) (251)
Notes receivable issued -- (1,500)
------------ -----------
Net cash used by investing activities (484,623) (33,794)
------------ -----------
Cash flows from financing activities:
Net proceeds from sale of common stock 461,348 --
Net proceeds from exercise of options 35 --
Net borrowings on line of credit 72,000 12,000
Borrowings on mortgages payable -- 12,000
Contributions from minority interests -- 17
Dividends paid (27,367) (17,479)
Repayment of mortgages payable (56,419) (1,574)
Additions to deferred financing costs (1,966) (308)
Distributions to minority interests (5,339) (5,756)
------------ -----------
Net cash provided (used) by financing activities 442,292 (1,100)
------------ -----------
Increase (decrease) in unrestricted cash and cash equivalents 5,021 (10,538)
Unrestricted cash and cash equivalents, beginning of the period 9,217 18,462
------------ -----------
Unrestricted cash and cash equivalents, end of the period $ 14,238 7,924
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest of $1,410 and $0
for the nine months ended September 30, 1996 and 1995 respectively $ 21,130 16,222
============ ===========
During the nine month period ended September 30, 1996, the Company
assumed $93.0 million of mortgages payable and issued
$17.9 million of Units in connection with acquisitions
of office properties and as a payment of a liability.
See accompanying notes to condensed consolidated financial statements.
8
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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(1) Organization, Business and Summary of Significant Accounting Policies
(a) Organization and Business
CarrAmerica Realty Corporation (formerly Carr Realty
Corporation) (the Company) is a self-administered and
self-managed equity real estate investment trust (REIT),
organized under the laws of Maryland, which owns, develops,
acquires and operates office buildings.
(b) Principles of Consolidation
The accounts of the Company and its majority-owned
subsidiaries are consolidated in the accompanying financial
statements. All significant intercompany balances and
transactions have been eliminated in consolidation. As used
hereafter, the Company refers to CarrAmerica Realty
Corporation and its consolidated subsidiaries.
(c) Interim Financial Statements
The information furnished reflects all adjustments which are,
in the opinion of management, necessary to reflect a fair
presentation of the results for the interim periods, and all
such adjustments are of a normal, recurring nature.
(d) Rental Property
Rental property is recorded at cost less accumulated
depreciation (which is less than the net realizable value of
the property). Depreciation is computed on the straight-line
basis over the estimated useful lives of the assets, as
follows:
Base building............... 20 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.
(e) Tenant Leasing Costs
Fees and costs incurred in the successful negotiation of
leases have been deferred and are being amortized on the
straight-line basis over the terms of the respective leases.
9
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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(f) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to
obtain long-term 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) Real Estate Service Contracts and Other Intangible Assets
Real estate service contracts and other intangible assets,
including goodwill, represent the purchase price of net assets
of real estate service operations acquired and are amortized
on the straight-line basis over the expected lives of the
respective real estate service contracts. Goodwill, which
represents the excess of purchase price over the fair value of
net assets acquired, is amortized on the straight-line basis
over the expected periods to be benefited, generally 15 years.
The Company assesses the recoverability of these intangible
assets by determining whether the amortization of the balance
over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The
amount of impairment loss, if any, is measured as the amount
by which the carrying amount of the assets exceeds the fair
value of the assets. The assessment of the recoverability of
these intangible assets will be impacted if estimated future
operating cash flows are not achieved.
(i) Revenue Recognition
The Company reports base rental revenue for financial
statement purposes straight-line over the terms of the
respective leases. Accrued straight-line rents represent the
amount that straight-line rental revenue exceeds rents
collected in accordance with the lease agreements. Management,
considering current information and events regarding the
tenants' ability to fulfill their lease obligations, considers
accrued straight-line rents to be impaired if it is probable
that the Company will be unable to collect all rents due
according to the contractual lease terms. If accrued
straight-line rents associated with a tenant are considered to
be impaired, the amount of the impairment is measured based on
the present value of expected future cash flows. Impairment
losses, if any, are recorded through a loss on the write-off
of assets. Cash receipts on impaired accrued straight-line
rents are applied to reduce the remaining outstanding balance
and as rental revenue, thereafter.
The Company receives monthly management fees generally equal
to 2% to 3% of the gross monthly revenue of each property it
manages. Management fees are recognized as revenue as they are
earned.
10
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
The Company receives monthly leasing fees generally equal to
1.5% to 2.0% of the gross monthly revenue of certain
properties it manages. These leasing fees are recognized as
revenue as they are earned. For certain other managed
properties, leasing commissions are received at the time a
lease is executed or at lease commencement. Such leasing fees
are recognized as revenue upon lease execution or lease
commencement, when earned.
(j) Income and Other Taxes
The Company qualifies as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended. A REIT will
generally not be subject to federal income taxation on that
portion of its income that qualifies as REIT taxable income to
the extent that it distributes at least 95 percent of its
taxable income to its shareholders and complies with certain
other requirements. Accordingly, no provision has been made
for federal income taxes for the Company and certain of its
subsidiaries in the accompanying condensed consolidated
financial statements.
Certain consolidated subsidiaries of the Company are subject
to District of Columbia franchise tax. These consolidated
subsidiaries file separate tax returns and are subject to
federal and state income taxes. Income taxes are accounted for
using the asset and liability method of accounting. These
taxes are recorded as general and administrative expenses in
the accompanying condensed consolidated financial statements.
(k) Investments in Unconsolidated Partnerships
The Company uses the equity method of accounting for its
investments in and earnings (losses) of unconsolidated
partnerships.
(l) Per Share Data
The computation of earnings per share in each year is based
upon the weighted average number of common shares outstanding.
When dilutive, stock options are included as share equivalents
using the treasury stock method. The weighted average number
of shares used in computing earnings per share was 38,765,122,
including 5,200,940 Units which are considered common stock
equivalents, and 13,361,992 for the three month periods ended
September 30, 1996 and 1995, respectively, and 27,723,006, in-
cluding 4,832,212 Units which are considered common stock
equivalents, and 13,324,269 for the nine month periods ended
September 30, 1996 and 1995, respectively.
(m) Cash Equivalents
For the purposes of reporting cash flows, the Company
considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash
equivalents.
(n) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities 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.
11
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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(2) Mortgages and Notes Payable
Mortgages and notes payable generally require monthly principal and/or
interest payments. Following is a summary of the Company's mortgages
and notes payable as of September 30, 1996 (in thousands):
September 30,
1996
-------------------
Mortgages payable to The Northwestern Mutual Life
Insurance Company (NML); bearing interest at
rates ranging from 7.55 percent to 8.80 percent;
interest only is payable monthly through
February 1, 1998; thereafter principal and
interest payments are due monthly based on a
25-year amortization schedule through maturity
in February, 2003. $ 183,500
Mortgage payable to NML; bearing interest at 8.90
percent monthly; principal and interest payments
of $346 thousand through maturity in June 2002;
additional annual principal curtailments of $500
thousand are due through 2000, $2 million in
2001 and $1 million in 2002. 38,471
Mortgages payable to the Aid Association for
Lutherans (AAL) under two notes; $16.5 million
note bearing interest at 9.50 percent requires
monthly principal and interest payments of $144
thousand through maturity on July 1, 2017;
callable after June 30, 2002 by AAL; $21.6
million note bearing interest at 8.25 percent
requires monthly principal and interest payments
of $138 thousand through maturity on July 15,
2019; callable by AAL after July 1, 2004. 32,694
12
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
September 30,
1996
-------------------
Note payable to Morgan Guaranty Trust Company of
New York, as agent for a group of banks; $325.0
million unsecured credit facility bearing
interest, as selected by the Company, at either
(i) the higher of the prime interest rate or the
sum of .5 percent plus the Federal Funds Rate
for such day or (ii) an interest rate equal to
1.75 percent above LIBOR. 72,000
Mortgage payable to Salomon Brothers Realty Corp.;
bearing interest at 8.375 percent; principal and
interest payments of $221 thousand are due
monthly through maturity in January 2006. * 28,110
Mortgage payable to CBA Conduit, Inc.; bearing
interest at 7.96 percent; interest only payments
of $194 thousand are due monthly through
maturity in December 2003. 29,250
Mortgage payable to CIGNA; bearing interest at 7.4
percent; interest only payments of $160 thousand
are due monthly through maturity in December
2000. 26,000
Mortgage payable to Metropolitan Life Insurance
Company; bearing interest at 7.375 percent;
principal and interest payments of $72 thousand
are due monthly through maturity in March 1999. 9,669
Mortgage payable to The Riggs National Bank of
Washington, D.C.; bearing interest at 7.50
percent; principal and interest payments of $49
thousand are due monthly through maturity in
February 1999. 6,375
----------
$ 426,069
==========
13
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
As of September 30, 1996, the scheduled maturities of mortgages payable
for years ended December 31 are as follows (in thousands):
1996 $ 547
1997 2,413
1998 76,348
1999 20,408
2000 31,450
Thereafter 294,903
-----------
$ 426,069
===========
Restricted cash and cash equivalents primarily consist of escrow
deposits required by lenders to be used for future building
renovations, tenant improvements, or as additional collateral for a
loan or for letters of credit.
* This mortgage payable is held by Carr Redmond Corporation, a
wholly-owned subsidiary of the Company which owns the Redmond East
office campus. The accounts of Carr Redmond Corporation are
consolidated in the Company's financial statements.
14
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(3) Minority Interest
In conjunction with the formation of the Company and its majority-owned
subsidiary, Carr Realty, L.P., persons contributing interests in
properties to Carr Realty, L.P. had the right to elect to receive
either common stock of the Company or Units in Carr Realty, L.P. In
addition, the Company has acquired certain assets since its formation
by issuing dividend paying Units and non-dividend paying Units of Carr
Realty, L.P. and CarrAmerica Realty, L.P. The non-dividend paying Units
are not entitled to any distributions until they automatically convert
into dividend paying Units at various dates in the future. Each
dividend paying Unit, subject to certain restrictions, may be redeemed
for either one share of common stock or, at the option of the Company,
cash equal to the fair market value of a share of common stock at the
time of the redemption. When a Unitholder redeems a dividend paying
Unit for a share of common stock or cash, minority interest is reduced
and the Company's investment in Carr Realty, L.P. or CarrAmerica
Realty, L.P., as the case may be, is increased. During the three and
nine month periods ended September 30, 1996, 11,310 and 173,695
dividend paying Units, of Carr Realty, L.P. or CarrAmerica Realty,
L.P., respectively, were redeemed for common stock of the Company.
The following table sets forth the operating partnership Units
outstanding at September 30, 1996 and December 31, 1995:
September 30, December 31,
1996 1995
--------------- --------------
Operating partnership Units
owned by the Company 18,597,845 13,409,177
Operating partnership Units
owned by minority interest:
Dividend paying Units 4,304,725 4,079,615
Non-dividend paying Units 1,207,338 667,745
-------------- -------------
Total operating partnership
Units outstanding 24,109,908 18,156,537
============== =============
Minority interest in the accompanying condensed consolidated financial
statements relates primarily to holders of dividend paying and
non-dividend paying Units.
(4) Lease Agreements
The Company receives minimum rentals under noncancelable tenant leases.
Certain leases provide for additional rentals based on increases in the
Consumer Price Index (CPI) and increases in operating expenses. The
increased rentals from operating expenses are generally payable in
equal installments throughout the year, based on estimated increases,
with any differences being adjusted in the succeeding year.
15
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(5) Transactions With Affiliates
In May 1996, the Company purchased the development business of The
Oliver Carr Company for $1.75 million. The principal shareholder of The
Oliver Carr Company is also a director, officer and shareholder of the
Company.
(6) Subsequent Events
From October 1, 1996 to November 1, 1996, the Company has acquired 12
operating office properties, consisting of 39 buildings totaling
approximately 1.4 million square feet, one property currently under
construction totaling 128,000 square feet and land which will support
the development of up to 95,000 square feet of additional office space.
The total purchase price for the properties and land was approximately
$130 million. The purchase of the properties was financed by the
assumption of $22 million in debt, the issuance of $1.5 million in
shares of common stock of the Company and payment of $106.5 million in
cash.
On October 18, 1996, the Company signed an agreement to extend its
borrowing capacity under its unsecured line of credit from $215 million
to $325 million.
On October 25, 1996, the Company sold 1,740,000 shares of Series A
Cumulative Convertible Redeemable Preferred Stock at $25.00 per share.
The proceeds derived from the sale of preferred stock were used to fund
a portion of the acquisition of a portfolio of properties located in
suburban Atlanta, Georgia.
16
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is based primarily on the Condensed
Consolidated Financial Statements of CarrAmerica Realty Corporation and
subsidiaries (the Company) as of September 30, 1996 and December 31, 1995, and
for the three and nine months ended September 30, 1996 and 1995. This
information should be read in conjunction with the accompanying condensed
consolidated financial statements and notes thereto. These financial statements
include all adjustments which are, in the opinion of management, necessary to
reflect a fair presentation of the results for the interim periods, and all such
adjustments are of a normal, recurring nature.
Results of Operations - Three Months Ended September 30, 1996 and 1995
Real Estate Operating Revenue
Total real estate operating revenue increased $20.8 million, or 81.8%,
to $46.1 million for the three months ended September 30, 1996 as compared to
$25.4 million for the three months ended September 30, 1995. The increase in
revenue was primarily attributable to a $19.8 million and a $1.0 million
increase in rental revenue and real estate service revenue, respectively. The
Company experienced net growth in its rental revenue as a result of its
acquisitions since the third quarter of 1995 which contributed approximately
$21.6 million of additional rental revenue in the three month period ended
September 30, 1996. Rental revenue from properties that were fully operating
throughout both periods decreased by approximately $1.8 million as a result of
increased vacancies experienced in these properties. Real estate service revenue
increased by $1.0 million, or 37.7%, for the three months ended September 30,
1996 to $3.6 million as compared to $2.6 million for the three months ended
September 30, 1995, primarily as a result of development fees earned by Carr
Development & Construction, Inc., which was acquired by the Company in May 1996.
Real Estate Operating Expenses
Total real estate operating expenses increased $16.7 million for the
three months ended September 30, 1996, or 80.5%, to $37.5 million as compared to
$20.8 million for the three months ended September 30, 1995. The net increase in
operating expenses was attributable to a $5.9 million increase in property
operating expenses, a $2.3 million increase in interest expense, a $1.4 million
increase in general and administrative expenses, and a $7.1 million increase in
depreciation and amortization. The increase in property operating expenses was
primarily attributable to property acquisitions since the third quarter of 1995.
The increase in the Company's interest expense is primarily related to
borrowings for acquisitions. The increase in general and administrative expenses
is predominately a result of the addition of new staff to implement the
Company's new business strategy, the addition of approximately $.6 million of
expenses associated with Carr Development & Construction, Inc., and inflation.
The increase in depreciation and amortization is predominately a result of
additional depreciation and amortization on the Company's real estate
acquisitions.
Other Operating Income (Expense)
Other operating income increased $.3 million for the three months ended
September 30, 1996, to $.5 million as compared to $.2 million for the three
months ended September 30, 1995, primarily due to an increase in interest income
and the addition of equity in earnings of CC-JM II Associates. The Company is a
50% venturer in this entity, which constructed the Booz-Allen & Hamilton
Building that was placed in service in January 1996.
17
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Net Income
Net income of $7.9 million was earned for the three months ended
September 30, 1996 as compared to $3.4 million during the three month period
ended September 30, 1995. The comparability of net income between the two
periods is impacted by the acquisitions the Company made and the other changes
described above.
Cash Flows
Net cash provided by operating activities increased $20.6 million, or
320.4%, to $27.0 million for the three months ended September 30, 1996 as
compared to $6.4 million for the three months ended September 30, 1995,
primarily as a result of the acquisitions made by the Company. Net cash used by
investing activities increased $144.0 million, to $162.3 million for the three
months ended September 30, 1996 as compared to $18.3 million for the three
months ended September 30, 1995, primarily as a result of capital deployed by
the Company for acquisitions of office properties, land held for future
development and construction in process. Net cash provided by financing
activities increased $130.9 million to $136.5 million for the three months ended
September 30, 1996 as compared to $5.6 million provided for the three months
ended September 30, 1995, primarily as a result of proceeds from the sale of
common stock, partially offset by net repayments on the Company's line of
credit.
Results of Operations - Nine Months Ended September 30, 1996 and 1995
Real Estate Operating Revenue
Total real estate operating revenue increased $35.5 million, or 47.7%,
to $109.9 million for the nine months ended September 30, 1996 as compared to
$74.4 million for the nine months ended September 30, 1995. The increase in
revenue was primarily attributable to a $34.0 million and a $1.5 million
increase in rental revenue and real estate service revenue, respectively. The
Company experienced net growth in its rental revenue as a result of its
acquisitions since the third quarter of 1995 which contributed approximately
$36.8 million of additional rental revenue in the nine month period ended
September 30, 1996. Rental revenue from properties that were fully operating
throughout both periods decreased by approximately $2.8 million due to increased
vacancies experienced in those properties. Real estate service revenue increased
by $1.5 million, or 19.6%, for the nine months ended September 30, 1996 to $9.3
million as compared to $7.7 million for the nine months ended September 30,
1995. The increase was primarily as a result of an increase in leasing
commissions earned in the first quarter of 1996 and development fees earned by
Carr Development & Construction, Inc., which was acquired by the Company in May
1996.
Real Estate Operating Expenses
Total real estate operating expenses increased $31.3 million for the
nine months ended September 30, 1996, or 52.0%, to $91.6 million as compared to
$60.3 million for the nine months ended September 30, 1995. The net increase in
operating expenses was attributable to a $10.5 million increase in property
operating expenses, a $5.6 million increase in interest expense, a $2.8 million
increase in general and administrative expenses, and a $12.4 million increase in
depreciation and amortization. The increase in property operating expenses was
primarily attributable to $9.7 million in operating expenses associated with
property acquisitions since September 30, 1995. Exclusive of operating expenses
attributable to new property acquisitions, property operating expenses increased
by $.8 million for the nine months ended September 30, 1996 predominately as a
result of higher real estate tax assessments and repairs and maintenance costs.
The increase in the Company's interest expense is primarily related to
borrowings for acquisitions. The increase in general and administrative expenses
is predominately a result of the addition of new staff to implement the
Company's new business strategy, the addition of approximately $1.1 million of
expenses associated with Carr Development & Construction, Inc., and inflation.
The increase in depreciation and amortization
18
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
is predominately a result of additional depreciation and amortization on the
Company's real estate acquisitions.
Other Operating Income (Expense)
Other operating income increased $.9 million for the nine months ended
September 30, 1996, to $1.6 million as compared to $.7 million for the nine
months ended September 30, 1995; primarily due to an increase in interest income
and the addition of equity in earnings of CC-JM II Associates. The Company is a
50% venturer in this entity, which constructed the Booz-Allen & Hamilton
Building that was placed in service in January 1996.
Net Income
Net income of $15.5 million was earned for the nine months ended
September 30, 1996 as compared to $10.4 million during the nine month period
ended September 30, 1995. The comparability of net income between the two
periods is impacted by the acquisitions the Company made and the other changes
described above.
Cash Flows
Net cash provided by operating activities increased $23.0 million, or
94.4%, to $47.4 million for the nine months ended September 30, 1996 as compared
to $24.4 million for the nine months ended September 30, 1995, primarily as a
result of the acquisitions made by the Company. Net cash used by investing
activities increased $450.8 million, to $484.6 million for the nine months ended
September 30, 1996 as compared to $33.8 million for the nine months ended
September 30, 1995, primarily as a result of capital deployed by the Company for
acquisitions of office properties, land held for future development and
construction in process. Net cash provided by financing activities increased
$443.4 million to $442.3 million for the nine months ended September 30, 1996 as
compared to $1.1 million used for the nine months ended September 30, 1995,
primarily as a result of proceeds from the sale of common stock and the net
borrowings necessary for the Company's acquisitions.
19
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company's total indebtedness at September 30, 1996 was $426.1
million, of which $72.0 million, or 16.9%, had a LIBOR-based floating interest
rate. The Company's fixed rate indebtedness had a weighted average interest rate
of 8.3% and had a weighted average term to maturity of 6.2 years. In addition to
the indebtedness outstanding, the Company can borrow up to an additional $143.0
million under its unsecured revolving line of credit which bears a LIBOR-based
floating interest rate (see below). Based upon the Company's total market
capitalization at September 30, 1996 of $1,450.7 million (the stock price was
$25.00 per share and the total shares/Units outstanding were 40,985,556, the
Company's debt represented 29.4% of its total market capitalization.
On October 18, 1996, the Company expanded its unsecured credit facility
from $215 million to $325 million. The Company intends to use the line of credit
to finance acquisitions and development activities, for capital expenditures and
for working capital purposes. The Company has drawn $145.0 million on its
unsecured line of credit in conjunction with various acquisitions since
September 30, 1996.
The Company's operating properties require periodic investments of
capital for tenant-related capital expenditures and for general capital
improvement projects. The Company has recently completed large-scale renovations
of certain of the Company's Washington, D.C. properties to improve these
properties' market position and to bring the properties into compliance with
certain new local and federal laws. As a result, the Company expects that
general capital expenditures for its Washington, D.C. properties will be lower
than the general capital expenditures the Company has incurred for these
properties over the last three years. The Company has recently begun renovating
several garages at its Washington, D.C. properties at an estimated total cost of
approximately $3.5 million, or $1.45 per square foot of the Company's
Washington, D.C. properties, to be spent over the next two years. Exclusive of
the garage renovations, general capital expenditures for the Company's
Washington, D.C. properties are expected to be approximately $1.0 million or
less annually, or $.40 or less per square foot annually. With respect to the
Company's recent acquisitions in select suburban growth markets, the Company
expects that the annual capital expenditures for these properties will be
substantially less than the Company has incurred for its Washington, D.C.
properties. Based on current market conditions in its target markets, the
Company expects that tenant-related capital expenditures for its recent
acquisitions will be approximately $7.75 to $8.25 per square foot leased for
leases entered into in the next 12 months. The Company expects that this amount
should decline if market conditions in its target markets continue to improve.
The Company believes that general capital expenditures will average
approximately $.30 per square foot owned on an annual basis for its recent
acquisitions. The Company anticipates funding the capital requirements of its
Washington, D.C. properties and of its new acquisitions with cash flow from
operations and, if necessary, with proceeds from its line of credit.
The Company's estimates regarding capital expenditures set forth above
are forward-looking information representing the Company's best estimates based
on currently available information. As with any estimates, they are based on a
number of assumptions, any of which, if unrealized, could adversely affect the
accuracy of the estimates. These assumptions include that (i) the Company
experiences tenant retention rates consistent with its expectations, (ii) the
supply/demand characteristics for office space in the Company's target markets
do not vary materially from the Company's expectations, (iii) leasing
commissions associated with obtaining new tenants or retaining existing tenants
are consistent with the Company's past experience and future expectation, and
(iv) the Company does not acquire operating office properties in the future that
require substantial renovations.
20
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
Net cash provided by operating activities was $27.0 million for the
three months ended September 30, 1996, compared to $6.4 million for the three
months ended September 30, 1995. The increase in net cash provided by operating
activities was primarily as a result of acquisitions made by the Company,
partially offset by decreased net income at certain of its operating properties.
The Company's investing activities used approximately $162.3 million and $18.3
million for the three months ended September 30, 1996 and 1995, respectively.
The Company's investment activities included the acquisitions of office
buildings, land held for development, and additions to construction in process,
for approximately $157.4 million for the three months ended September 30, 1996,
as compared to $18.4 million in acquisitions during the same period in 1995.
Additionally, the Company invested approximately $3.9 million and $2.7 million
in the existing real estate assets for the three months ended September 30, 1996
and 1995, respectively. Exclusive of distributions to the Company's shareholders
and minority interests, the Company's financing activities provided net cash of
$153.8 million and $13.3 million for the three months ended September 30, 1996
and 1995 respectively. For the three months ended September 30, 1996, the
Company raised $216.7 million through the sale of common stock which was used to
repay $62.0 million of its line of credit and to fund acquisitions. For the
three months ended September 30, 1995, the Company borrowed approximately $14.3
million to provide adequate capital for the Company's investing activities.
Net cash provided by operating activities was $47.4 million for the
nine months ended September 30, 1996, compared to $24.4 million for the nine
months ended September 30, 1995. The increase in net cash provided by operating
activities was primarily as a result of acquisitions made by the Company,
partially offset by decreased net income at certain of its operating properties.
The Company's investing activities used approximately $484.6 million and $33.8
million for the nine months ended September 30, 1996 and 1995, respectively. The
Company's investment activities included the acquisitions of office buildings,
land held for future development and additions to construction in process for
approximately $469.6 million and the acquisition of real estate service
contracts for approximately $1.8 million for the nine months ended September 30,
1996, as compared to acquisition activity of $18.4 million of office buildings
and $7.4 million of real estate service contracts during the same period in
1995. Additionally, the Company invested approximately $5.8 million and $7.7
million in the existing real estate assets for the nine months ended September
30, 1996 and 1995, respectively. Exclusive of distributions to the Company's
shareholders and minority interests, the Company's financing activities provided
net cash of $475.0 million and $22.1 million for the nine months ended September
30, 1996 and 1995 respectively. For the nine months ended September 30, 1996,
the Company raised $461.3 million through the sale of common stock, borrowed
$72.0 million on the Company's line of credit and repaid $56.4 million of
indebtedness to provide adequate capital for the Company's investing activities,
as compared to approximately borrowing $24.0 million for the nine months ended
September 30, 1995.
Rental revenue and real estate service revenue have been the principal
sources of capital to fund the Company's operating expenses, debt service and
capital expenditures, excluding nonrecurring capital expenditures. The Company
believes that rental revenue and real estate service revenue will continue to
provide the necessary funds for its operating expenses and debt service. The
Company expects to fund capital expenditures, including tenant concession
packages and building renovations from (a) available cash flow from operations;
(b) existing capital reserves; and (c) if necessary, credit facilities
established with third party lenders. If these sources of funds are
insufficient, the Company's ability to make expected dividends may be adversely
impacted. At September 30, 1996, the Company had cash of $22.9 million, of which
$8.6 million was restricted.
The Company's dividends are paid quarterly. Amounts accumulated for
distribution will predominately be invested by the Company in short-term
investments that are collateralized by securities of the United States
Government or any of its agencies.
21
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
Management believes that the Company will have access to the capital
resources necessary to expand and develop its business. Accordingly, the Company
may seek to obtain funds through additional equity offerings, joint ventures,
asset sales, or debt financing in a manner consistent with its intention to
operate with a conservative borrowing policy. The Company anticipates that
adequate cash will be available to fund its operating and administrative
expenses, to continue debt service obligations, to pay dividends in accordance
with REIT requirements, and to acquire additional rental properties.
The Company believes that funds from operations is an appropriate
measure of the performance of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. In accordance with the
final NAREIT White Paper on Funds From Operations as approved by the Board of
Governors of NAREIT on March 3, 1995, funds from operations represents net
income (loss) (computed in accordance with generally accepted accounting
principles), excluding gains (losses) from debt restructuring or sales of
property, plus depreciation and amortization of assets uniquely significant to
the real estate industry and after adjustments for unconsolidated partnerships
and joint ventures. Adjustments for unconsolidated partnerships and joint
ventures will be calculated to reflect funds from operations on the same basis.
The Company's funds from operations for the three and nine month periods ended
September 30, 1995 have been restated to conform to the new NAREIT definition of
funds from operations. Funds from operations does not represent net income or
cash flows generated from operating activities in accordance with generally
accepted accounting principles and should not be considered an alternative to
net income as an indication of the Company's performance or to cash flows as a
measure of liquidity or the Company's ability to make distributions.
The following table provides the calculation of the Company's funds
from operations for the three and nine month periods ended September 30, 1996
and 1995 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ---------------------
1996 1995 1996 1995
---- ---- ---- ----
Net income before minority interest and
extraordinary item $ 9,203 4,879 $ 19,881 14,885
Adjustments to derive funds from operations:
Add:
Depreciation and amortization 10,974 4,327 24,171 12,650
Deduct:
Minority interests' (non Unitholders)
share of depreciation, amortization and
net income (146) (408) (763) (1,327)
------- ------ ----- ------
Funds from operations before allocation to
the minority Unitholders 20,031 8,798 43,289 26,208
Less: Funds from operations allocable to the
minority Unitholders (2,390) (2,076) (6,761) (6,240)
--------- ------- ------- -------
Funds from operations allocable
to CarrAmerica Realty Corporation $ 17,641 6,722 $ 36,528 19,968
======== ===== ======== ======
Changes in funds from operations are largely attributable to changes in
net income between the periods as previously discussed.
22
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
Building and Lease Information
The following table sets forth certain lease related information about
each operating property as of September 30, 1996:
Company's
Effective Net
Property Rentable Area Percent
Property Ownership (Square Feet) (1) Leased (2)
- -------- --------- ----------------- ----------
Consolidated Properties
- -----------------------
Washington, D.C.:
International Square (3 Properties) 100.0 % 1,017,899 90.7 %
1730 Pennsylvania Avenue 100.0 229,500 96.2
2550 M Street 100.0 187,931 100.0
1775 Pennsylvania Avenue 100.0 143,981 99.1
900 19th Street 100.0 101,186 89.3
1747 Pennsylvania Avenue 89.7 152,314 74.9
1255 23rd Street 75.0 303,831 70.3
2445 M Street 74.0 266,902 89.4
Suburban Maryland:
One Rock Spring Plaza 100.0 205,298 98.3
Northern Virginia:
Tycon Courthouse 100.0 414,595 96.5
Three Ballston Plaza 100.0 302,797 99.1
Reston Quadrangle (3 Properties) 100.0 261,175 99.8
Parkway One 100.0 87,842 100.0
Southern California:
Scenic Business Park (4 Properties) 100.0 137,436 89.7
Harbor Corporate Park(4 Properties) 100.0 149,938 54.1
Plaza PacifiCare 100.0 104,377 100.0
Katella Corporate Center 100.0 80,204 92.7
Warner Center (12 Properties) 100.0 342,959 94.5
Northern, California:
AT&T Center (6 Properties) 100.0 1,082,032 100.0
Sunnyvale Research Plaza (3 Properties) 100.0 126,000 100.0
Denver :
Harlequin Plaza (2 Properties) 100.0 327,623 94.4
Quebec Court I & II (2 Properties) 100.0 285,829 100.0
The Quorum (2 Properties) 100.0 123,900 80.8
Greenwood Center 100.0 74,853 94.1
Quebec Center (3 Properties) 100.0 106,786 97.7
Seattle:
Redmond East (10 Properties) 100.0 400,297 98.1
Suburban Chicago:
Parkway North (2 Properties) 100.0 514,029 96.4
Austin, Texas:
Norwood Tower 100.0 111,444 86.5
Littlefield Complex (2 Properties) 100.0 128,625 46.9
First State Bank Tower 100.0 268,244 68.0
Great Hills Plaza 100.0 135,335 87.3
Balcones Center 100.0 75,761 83.5
Park North (2 Properties) 100.0 132,935 98.3
The Settings (3 Properties) 100.0 136,183 95.3
Total Consolidated Properties: 8,520,041
=========
Weighted Average 92.0
23
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
Company's
Effective Net
Property Rentable Area Percent
Property Ownership (Square Feet) (1) Leased (2)
- -------- --------- ----------------- ----------
Unconsolidated Properties:
- --------------------------
Washington, DC:
AARP Headquarters 24.0 477,187 98.9
Bond Building 15.0 162,097 100.0
1776 Eye Street 5.0 212,774 92.8
Willard Office/Hotel 5.0 242,787 93.0
1575 Eye Street 2.0 205,441 52.5
Virginia:
Booz-Allen & Hamilton Building 50.0 222,989 100.0
---------- -----
Total Unconsolidated Properties: 1,523,275
---------
Weighted Average 91.1
======
All Operating Properties
Total: 10,043,316
----------
Weighted Average 91.9
======
- ------------
(1) Excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
September 30, 1996.
The following table sets forth a schedule of lease expirations for
executed leases as of September 30, 1996, for each of the 10 years beginning
with 1996, for the 81 operating properties consolidated for financial statement
purposes, assuming that no tenants exercise renewal options:
Percent of Total
Net Rentable Leased Square
Year of Area Subject to Footage
Lease Expiring Leases Represented by
Expiration (Square Feet) Expiring Leases*
---------------- ------------------ ------------------
1996 235,632 3.0 %
1997 673,759 8.6
1998 1,608,517 20.5
1999 846,018 10.8
2000 764,188 9.7
2001 913,225 11.6
2002 791,723 10.1
2003 484,965 6.2
2004 227,022 2.9
2005 342,593 4.4
and thereafter 958,345 12.2
============= =========
- ------------
* Excludes 674,064 square feet of space vacant and uncommitted as of September
30, 1996.
24
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- -------------------------------------------------------------------------------
The following table sets forth certain lease-related information for
the consolidated operating properties presented in order to show downtown
Washington, D.C. operating properties separate from other operating properties.
The table presents leases that commenced during the twelve month period from
October 1, 1995 to September 30, 1996, excluding the leases for operating
properties that were executed prior to the date of acquisition:
Calculated on a Weighted Average Basis
--------------------------------------------------------------------
Downtown Tenant
Washington, D.C. Improvements Base
Properties Total & Cash Rent Leasing
Square Allowances per Lease Abatements Commission
Feet per Square Life in in Per Square
Type of Lease Leased Square Foot Foot Years Months Foot
- -------------- ------ ----------- ------ --------- ----------- ------------
Office 103,094 $ 29.09 $ 31.38 8.6 3.1 $ 7.36
Retail 10,765 4.16 26.25 3.8 1.6 2.88
------------
Total 113,859 26.73 30.90 8.2 3.0 6.94
============ =============== ======== ======= ============= =============
New leases or
expansion space 55,996 27.34 30.46 6.6 2.3 5.33
Renewals of existing
tenants' space 57,863 26.14 31.33 9.7 3.6 8.49
------------
Total 113,859 26.73 30.90 8.2 3.0 6.94
============ =============== ======== ======= ============= =============
Calculated on a Weighted Average Basis
--------------------------------------------------------------------
Tenant
All Other Operating Improvements Base
Properties Total & Cash Rent Leasing
Square Allowances per Lease Abatements Commission
Feet per Square Life in in Per Square
Type of Lease Leased Square Foot Foot Years Months Foot
- -------------- ------ ----------- ------- ------- ----------- ----------
Office 161,446 $ 3.61 $ 17.42 4.1 0.7 $ 0.28
Retail 0 0.00 0.00 0.0 0.0 0.00
------------
Total 161,446 3.61 17.42 4.1 0.7 0.28
============ =============== ======== ======= ============= =============
New leases or
expansion space 96,425 6.03 16.93 5.1 1.2 0.48
Renewals of existing
tenants' space 65,021 0.03 18.15 2.5 0.0 0.00
------------
Total 161,446 3.61 17.42 4.1 0.7 0.28
============ =============== ======== ======= =============================
25
Part II
OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
On October 25, 1996, the Board of Directors of the Company adopted a
Second Amendment and Restatement of By-Laws which incorporated all previously
approved amendments to the By-Laws and two new amendments: an amendment of
Section 3.01 of the By-Laws to provide that the annual Meeting of Stockholders
of the Corporation shall be held each year between May 1 and May 31; and the
amendment of Section 3.02 of the By-Laws to provide that, in accordance with
recent legislation from the State of Maryland (H.B. 636), a special meeting of
stockholders called at the request of stockholders must be requested by holders
of 35% or more of the issued and outstanding shares of capital stock of the
Corporation entitled to vote at the meeting. A copy of the Second Amendment and
Restatement of By-Laws is attached as Exhibit 3.1 to this Form 10-Q.
On October 24, 1996, the Company filed with the Maryland State
Department of Assessments and Taxation Articles Supplementary of Series A
Cumulative Convertible Redeemable Preferred Stock (the "Series A Preferred
Stock") in connection with the sale, on October 25, 1996, of 1,740,000 shares of
the Series A Preferred Stock. A copy of the Articles Supplementary is attached
as Exhibit 4.1 to this Form 10-Q.
On November 1, 1996, the Company acquired 38 operating office
buildings and one office building currently under construction in Atlanta,
Georgia and one operating property located in Boca Raton, Florida for an
aggregate purchase price of approximately $128 million. The consideration for
these acquisitions was paid through a combination of cash, issuance of common
stock of the Company and the assumption of approximately $22 million in debt
that bears interest at an annual rate of 7.2% and matures in 2006. The 39
operating office properties (the "Peterson Portfolio") contain approximately
1,437,000 square feet of space. The building under construction will contain
approximately 128,000 square feet when completed.
The historical financial statements relating to the Peterson
Portfolio required by Item 7 (a) of Form 8-K were filed with the Commission on a
Current Report on Form 8-K on October 24, 1996. It is impracticable at this time
to file the pro forma financial information relating to the Peterson Portfolio
required by Item 7 (b) of Form 8-K. The Company will file such pro forma
financial statements with the Commission as soon as they are available but not
later than January 14, 1997.
26
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
3.1 Second Amendment and Restatement of By-Laws of CarrAmerica
Realty Corporation dated as of October 25, 1996.
4.1 Articles Supplementary of Series A Cumulative Convertible Re-
deemeable Preferred Stock
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
a. Current Report on Form 8-K dated October 16, 1996 and filed on
October 16, 1996 relating to the closing of the purchase of
the Littlefield Portfolio located in Austin, Texas and pro
forma financial statements.
b. Current Report on Form 8-K dated October 24, 1996 and filed on
October 24, 1996 relating to certain historical summaries and
pro forma financial information.
c. Current Report as Form 8-K dated October 24, 1996 and filed on
October 24, 1996 relating to the sale by the Company of
1,740,000 shares of Series A Cumulative Convertible Preferred
Stock.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARRAMERICA REALTY CORPORATION
/s/ Thomas A. Carr
- -------------------------------
Thomas A. Carr, President and
Chief Operating Officer
/s/ Brian K. Fields
- ----------------------------------------
Brian K. Fields, Chief Financial Officer
Date: November 5, 1996
28
Exhibit Index
Exhibit Description
- ------- -----------
3.1 Second Amendment and Restatement of By-Laws of CarrAmerica
Realty Corporation dated as of October 25, 1996.
4.1 Articles Supplementary of Series A Cumulative Convertible
Redeemeable Preferred Stock
27 Financial Data Schedule
29