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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 June 30, 1997
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 Number)
incorporation or organization)
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 August 14, 1997:
Common Stock, par value $.01 per share: 57,588,696
--------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
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Index
Page
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Part I: Financial Information
- -----------------------------
Item 1. Financial Statements
Condensed consolidated balance sheets of CarrAmerica Realty
Corporation and subsidiaries as of June 30, 1997 (unaudited) and
December 31, 1996..................................................................4
Condensed consolidated statements of operations of CarrAmerica
Realty Corporation and subsidiaries for the three months ended June
30, 1997 and 1996 (unaudited) .....................................................5
Condensed consolidated statements of operations of CarrAmerica
Realty Corporation and subsidiaries for the six months ended June
30, 1997 and 1996 (unaudited) .....................................................6
Condensed consolidated statements of cash flows of CarrAmerica
Realty Corporation and subsidiaries for the three months ended June
30, 1997 and 1996 (unaudited) .....................................................7
Condensed consolidated statements of cash flows of CarrAmerica
Realty Corporation and subsidiaries for the six months ended June
30, 1997 and 1996 (unaudited) .....................................................8
Notes to condensed consolidated financial statements.........................9 to 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................15 to 24
Part II: Other Information
Item 1. Legal Proceedings.................................................................25
Item 2. Changes in Securities.............................................................25
Item 3. Defaults Upon Senior Securities...................................................25
Item 4. Submission of Matters to a Vote of Security Holders...............................25
Item 5. Other Information.................................................................25
Item 6. Exhibits and Reports on Form 8-K............................................25 to 26
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 June 30, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
(In thousands, except share amounts)
June 30, December 31,
1997 1996
---- ----
(unaudited)
Assets
Rental property (note 2):
Land $ 437,722 356,797
Buildings 1,348,872 1,017,313
Tenant improvements 118,576 99,760
Furniture, fixtures, and equipment 2,401 2,128
----------- ---------
1,907,571 1,475,998
Less - accumulated depreciation (149,594) (119,657)
----------- ---------
Total rental property 1,757,977 1,356,341
Land held for development 107,392 32,277
Construction in progress 91,688 31,723
Cash and cash equivalents 12,491 27,637
Restricted cash and cash equivalents (note 2) 7,841 8,229
Accounts and notes receivable 18,552 11,899
Investments 15,678 13,524
Accrued straight-line rents 27,597 23,810
Tenant leasing costs, net 18,634 13,499
Deferred financing costs, net 3,829 3,800
Prepaid expenses and other assets, net 23,620 13,825
----------- ---------
$ 2,085,299 1,536,564
=========== =========
Liabilities, Minority Interest, and Stockholders' Equity
Liabilities:
Mortgages and credit facilities (note 2) $ 840,366 655,449
Accounts payable and accrued expenses 47,489 32,657
Rent received in advance and security deposits 12,477 10,383
----------- ---------
Total liabilities 900,332 698,489
Minority interest (note 3) 66,789 50,597
Stockholders' equity:
Preferred stock, $.01 par value, authorized 15,000,000
shares, 1,740,000 shares of Series A Cumulative
Convertible Redeemable Preferred stock issued and
outstanding at June 30, 1997 and December 31, 1996
with an aggregate liquidation
preference of $43.5 million. 17 17
Common stock, $.01 par value, authorized 90,000,000
shares, issued and outstanding 57,052,871 shares
at June 30, 1997 and 43,789,073 shares at
December 31, 1996. 571 438
Additional paid in capital 1,183,933 837,355
Cumulative dividends in excess of net income (66,343) (50,332)
----------- ---------
Total stockholders' equity 1,118,178 787,478
----------- ---------
$ 2,085,299 1,536,564
=========== =========
See accompanying notes to condensed consolidated financial statements.
4
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------
(Unaudited and in thousands, except per common share amounts)
1997 1996
----- ----
Real estate operating revenue:
Rental revenue (note 4):
Minimum base rent $ 65,375 29,164
Recoveries from tenants 9,318 2,475
Parking and other tenant charges 2,995 1,145
--------- ------
Total rental revenue 77,688 32,784
Real estate service income 3,759 2,904
--------- ------
Total revenue 81,447 35,688
--------- ------
Real estate operating expenses:
Property operating expenses:
Operating expenses 19,743 7,416
Real estate taxes 7,003 3,053
Interest expense 11,734 7,414
General and administrative 5,176 3,910
Depreciation and amortization 18,267 8,615
--------- ------
Total operating expenses 61,923 30,408
--------- ------
Real estate operating income 19,524 5,280
--------- ------
Other operating income:
Interest income 551 513
Gain on sale of assets 353 --
Equity in earnings of unconsolidated partnerships 123 160
--------- ------
Total other operating income 1,027 673
--------- ------
Net operating income before minority interest and
extraordinary items 20,551 5,953
Minority interest (note 3) (2,020) (1,212)
--------- ------
Income before extraordinary item 18,531 4,741
Extraordinary item-loss on early extinguishment of debt -- (484)
--------- ------
Net income $ 18,531 4,257
========= ======
Net income per common share:
Income before extraordinary item $ 0.32 0.22
Extraordinary item-loss on early extinguishment
of debt -- (0.02)
--------- ------
Net income per common share $ 0.32 0.20
========= ======
See accompanying notes to condensed consolidated financial statements.
5
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Six Months Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------
(Unaudited and in thousands, except per common share amounts)
1997 1996
----- ----
Real estate operating revenue:
Rental revenue (note 4):
Minimum base rent $ 121,899 51,077
Recoveries from tenants 16,268 4,510
Parking and other tenant charges 5,810 2,546
--------- ------
Total rental revenue 143,977 58,133
Real estate service income 7,936 5,631
--------- ------
Total revenue 151,913 63,764
--------- ------
Real estate operating expenses:
Property operating expenses:
Operating expenses 37,008 13,647
Real estate taxes 13,380 5,812
Interest expense 22,992 13,946
General and administrative 10,332 6,659
Depreciation and amortization 34,183 14,099
--------- ------
Total operating expenses 117,895 54,163
--------- ------
Real estate operating income 34,018 9,601
--------- ------
Other operating income:
Interest income 1,093 819
Gain on sale of assets 353 --
Equity in earnings of unconsolidated partnerships 63 258
--------- ------
Total other operating income 1,509 1,077
--------- ------
Net operating income before minority interest and
extraordinary item 35,527 10,678
Minority interest (note 3) (3,737) (2,602)
--------- ------
Income before extraordinary item 31,790 8,076
Extraordinary item-loss on early extinguishment of debt -- (484)
--------- ------
Net income $ 31,790 7,592
========= =======
Net income per common share:
Income before extraordinary item $ 0.58 0.46
Extraordinary item-loss on early extinguishment
of debt -- (0.03)
--------- ------
Net income per common share $ 0.58 0.43
========= ======
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 June 30, 1997 and 1996
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 18,531 4,257
--------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 18,267 8,615
Minority interest in income 2,020 1,212
Loss on write off of assets 112 --
Equity in earnings of unconsolidated partnerships (123) (153)
Extraordinary item-loss on early extinguishment of debt -- 484
Increase in accounts receivable (4,228) (723)
(Increase) decrease in accrued straight-line rents (2,266) 19
Additions to tenant leasing costs (2,746) (743)
Increase in prepaid expenses and other assets (7,360) (6,169)
Increase in accounts payable and accrued expenses 10,397 5,402
Decrease in rent received in advance and security deposits (1,878) (882)
--------- ---------
Total adjustments 12,195 7,062
--------- ---------
Net cash provided by operating activities 30,726 11,319
--------- ---------
Cash flows from investing activities:
Acquisition of real estate service contracts -- (1,750)
Acquisitions of property (196,694) (144,109)
Additions to rental property (7,742) (867)
Additions to land held for development (75,046) --
Additions to construction in process (32,370) --
Investments in unconsolidated partnerships (1,466) (896)
Distributions from unconsolidated partnerships 54 1,401
Increase in restricted cash and cash equivalents (92) (6,578)
--------- ---------
Net cash used by investing activities (313,356) (152,799)
--------- ---------
Cash flows from financing activities:
Net proceeds from sale of common stock 208,337 244,692
Net proceeds from exercise of options 144 17
Borrowings on mortgage payable -- 136,000
Contributions from minority interests 350 --
Net borrowings on line of credit 88,000 --
Dividends paid (25,720) (5,938)
Repayment of mortgages payable (1,075) (237,396)
Additions to deferred financing costs (161) (1,333)
Distributions to minority interest (2,202) (1,773)
--------- ---------
Net cash provided by financing activities 267,673 134,269
--------- ---------
Decrease in unrestricted cash and cash equivalents (14,957) (7,211)
Unrestricted cash and cash equivalents, beginning of the period 27,448 20,233
--------- ---------
Unrestricted cash and cash equivalents, end of the period $ 12,491 13,022
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest
of $2,746 and $226 for the three months ended
June 30, 1997 and 1996, respectively $ 11,536 7,398
========= =========
During the three month periods ended June 30, 1997 and 1996, the Company
assumed $18.4 and $57.4 million of mortgages payable, respectively, and
issued $12.9 and $.3 million of Units, respectively, 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 Six Months Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 31,790 7,592
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 34,183 14,099
Minority interest in income 3,737 2,602
Loss on write off of assets 323 --
Equity in earnings of unconsolidated partnerships (63) (244)
Extraordinary item-loss on early extinguishment of debt -- 484
Increase in accounts receivable (6,653) (193)
Increase in accrued straight-line rents (3,787) (145)
Additions to tenant leasing costs (6,815) (1,025)
Increase in prepaid expenses and other assets (11,247) (7,277)
Increase in accounts payable and accrued expenses 14,832 2,986
Increase in rent received in advance and security deposits 2,093 1,441
--------- --------
Total adjustments 26,603 12,728
--------- --------
Net cash provided by operating activities 58,393 20,320
--------- --------
Cash flows from investing activities:
Acquisition of real estate service contracts -- (1,750)
Acquisitions of property (332,073) (312,265)
Additions to rental property (14,974) (1,836)
Additions to land held for development (81,386) --
Additions to construction in process (63,498) --
Investments in unconsolidated partnerships (2,074) (1,464)
Acquisition of minority interest -- (3)
Distributions from unconsolidated partnerships 108 1,408
Decrease (increase) in restricted cash and cash equivalents 388 (6,385)
--------- --------
Net cash used by investing activities (493,509) (322,295)
--------- --------
Cash flows from financing activities:
Net proceeds from sale of common stock 344,448 244,692
Net proceeds from exercise of options 1,363 17
Net borrowings on line of credit 143,000 --
Borrowings on mortgages payable -- 316,000
Contributions from minority interests 350 --
Dividends paid (47,801) (11,852)
Repayment of mortgages payable (15,664) (237,813)
Additions to deferred financing costs (1,168) (1,694)
Loan to investment venture (125) --
Distributions to minority interest (4,433) (3,570)
--------- --------
Net cash provided by financing activities 419,970 305,780
--------- --------
Increase (decrease) in unrestricted cash and cash equivalents (15,146) 3,805
Unrestricted cash and cash equivalents, beginning of the period 27,637 9,217
--------- --------
Unrestricted cash and cash equivalents, end of the period $ 12,491 13,022
========= ========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest of $4,416 and $452
for the six months ended June 30, 1997 and 1996, respectively. $ 22,717 13,815
========= ========
During the six month periods ended June 30, 1997 and 1996, the Company
assumed $56.6 and $57.4 million of mortgages payable, respectively, and
issued $17.6 and $.3 million, respectively, of Units in connection with
acquisitions of office properties and land held for development.
See accompanying notes to condensed consolidated financial statements.
8
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(1) Organization, Business and Summary of Significant Accounting Policies
(a) Organization and Business
CarrAmerica Realty Corporation (the "Company") is a
self-administered and self-managed equity real estate
investment trust (REIT), organized under the laws of Maryland,
which owns, develops, acquires and operates office buildings
located primarily in thirteen suburban markets across the
United States.
(b) Basis of Presentation
The accounts of the Company and its majority-owned subsidiaries
are consolidated in the accompanying financial statements. The
Company uses the equity method of accounting for its
investments in and earnings and losses of unconsolidated
partnerships not controlled by the Company. Management of the
Company has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and revenues and
expenses, and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results
could differ from those estimates.
(c) Interim Financial Statements
The information furnished reflects all adjustments which are,
in the opinion of management, necessary to reflect a fair
presentation of the results for the interim periods, and all
such adjustments are of a normal, recurring nature.
(d) 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............... 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 Company reviews its rental property, and certain
identifiable intangibles, for impairment whenever events or
changes in circumstances indicate that the Company's 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
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets.
9
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(e) Development Property
Land held for development and construction in progress are
carried at cost. Specifically identifiable direct and indirect
acquisition, development and construction costs are capitalized
including, where applicable, salaries and related costs, real
estate taxes, interest and certain pre-construction costs
essential to the development of the property.
(f) 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.
(g) 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.
(h) Real Estate Service Contracts and Other Intangible Assets
Real estate service contracts and other intangible assets,
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. 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 real estate service revenue for certain
properties it manages, leases and develops for third parties.
Such revenue is recognized as revenue as earned.
10
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(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, organized as partnerships,
of the Company are subject to District of Columbia franchise
tax. Other 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) 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 and Units are included as share
equivalents. The weighted average number of shares used in
computing earnings per share was 56,031,927 and 21,426,996
for the three month periods ended June 30, 1997 and 1996,
respectively, and 51,774,501 and 17,500,856 for the six month
periods ended June 30, 1997 and 1996, respectively. Net income
used in the computations for the three and six month periods
ended June 30, 1997 was reduced by cumulative preferred
dividends of $761 thousand and $1,522 thousand, respectively.
(l) 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.
(2) Mortgages and Credit Facilities
The Company's mortgages payable and credit facilities are summarized as
follows (in thousands):
June 30, December 31,
1997 1996
------------ ------------
Fixed rate mortgages $ 482,366 440,449
Unsecured credit facility 272,000 215,000
Secured credit facility 86,000 --
------------ ------------
$ 840,366 655,449
============ ============
Mortgages payable are collateralized by certain rental properties and
generally require monthly principal and/or interest payments. Mortgages
payable mature at various dates from February 1999 through July 2019.
The weighted average interest rates of
11
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
mortgages payable were 8.3% and 8.1% at June 30, 1997 and December 31,
1996, respectively. As required by the lender, a mortgage payable of
$27.9 million at June 30, 1997 is specifically held at the subsidiary
level by Carr Redmond Corporation, a wholly-owned subsidiary of the
Company, which owns the Redmond East office campus.
The Company also has a $325.0 million unsecured credit facility with
Morgan Guaranty Trust Company of New York (Morgan), as agent for a
group of banks. The credit facility bears interest, as selected by the
Company, at either (i) the higher of the prime rate or the sum of .25
percent (.5 percent at December 31, 1996) plus the Federal Funds Rate
for such day or (ii) an interest rate equal to 1.125 percent above the
London Interbank Offered Rate (LIBOR). The Company has predominantly
selected an interest rate equal to 1.125 percent above the 30 day LIBOR
rates. The credit facility matures in July 1998, with an option to
extend for one year.
At June 30, 1997, the Company also had a $150.0 million secured credit
facility with Morgan, as agent for a group of banks, bearing interest,
as selected by the Company, at either (i) the higher of the prime rate
or the sum of .5 percent plus the Federal Funds Rate for such day or
(ii) an interest rate equal to 1.625 percent above LIBOR. This facility
was repaid in full and terminated in July, 1997.
The annual maturities of debt at June 30, 1997 are summarized as
follows:
(in thousands)
1997 $ 89,485(1)
1998 279,077(2)
1999 33,423
2000 41,887
2001 71,219
Thereafter 325,275
----------
$ 840,366
==========
(1) Includes $86 million related to the Company's $150
million secured credit facility which was repaid in full
and terminated in July, 1997.
(2) Includes $272 million outstanding as of June 30, 1997
under the Company's $325 million unsecured line of
credit.
Restricted cash and cash equivalents primarily consist of escrow
deposits required by lenders to be used for future building
renovations, tenant improvements or as collateral for letters of
credit.
(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., also a majority-owned
subsidiary. 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,
12
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
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 six month periods ended June 30, 1997,
56,084 and 116,276 dividend paying Units, respectively, of Carr Realty,
L.P. or CarrAmerica Realty, L.P., were redeemed for common stock of the
Company.
The following table sets forth the common stock and preferred stock of
the Company and the operating partnership Units:
(in thousands) CarrAmerica CarrAmerica
Realty Realty
Corporation's Corporation's Dividend Non-Dividend
Common Preferred Paying Paying
Shares Shares Units Units
Outstanding Outstanding Outstanding Outstanding
----------- ----------- ----------- -----------
Outstanding As of:
June 30, 1997 57,053 1,740 5,466 540
December 31, 1996 43,789 1,740 4,940 540
====== ===== ===== ===
Weighted average for the
three months ended June 30:
1997 55,864 1,740 5,432 540
1996 21,427 -- 3,964 668
====== ===== ===== ===
Weighted average for the
six months ended June 30:
1997 51,583 1,740 5,187 540
1996 17,501 -- 3,977 668
====== ===== ===== ===
Minority interest in the accompanying condensed consolidated financial
statements relates primarily to holders of 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.
(5) New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No.
128), which supersedes APB No. 15 for periods ending after December 15,
1997. SFAS No. 128 specifies the computation, presentation, and
disclosure requirements for earnings per share. Primary EPS and Fully
Diluted EPS are replaced by Basic EPS and Diluted EPS, respectively.
Basic EPS, unlike Primary EPS, excludes all dilution while Diluted EPS,
like Fully Diluted EPS, reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
13
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
On a pro forma basis, Basic EPS and Diluted EPS per share is as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------
1997 1996 1997 1996
---- ---- ---- ----
Basic EPS $ 0.32 0.20 0.59 0.43
Diluted EPS 0.32 0.20 0.59 0.43
(6) Subsequent Events
On August 12, 1997, the Company sold 7,000,000 shares of 8.57% Series
B Cumulative Redeemable Preferred Stock at $25.00 per share. The
Preferred Stock, which may be called by the Company at par on or after
August 12, 2002, has no stated maturity, sinking fund or mandatory
redemption and is not convertible into any other securities of the
Company. The net proceeds of the offering of approximately $169
million were used to repay indebtedness.
On July 1, 1997, the Company sold to institutional investors an
aggregate principal amount of $275 million of its long-term debt, in
the form of $150 million aggregate principal amount of 7.20% unsecured
notes yielding 7.249% due 2004 and $125 million aggregate principal
amount of 7.375% unsecured notes yielding 7.422% due 2007. The Company
used the proceeds from the sale of its unsecured notes to repay $181
million outstanding under its unsecured revolving line of credit and
$86 million outstanding under its secured facility. This reduced the
Company's debt outstanding to $91 million under its unsecured line of
credit and fully repaid its secured credit facility. The secured
credit facility was subsequently canceled on July 3, 1997.
From July 1, 1997 to August 14, 1997, the Company acquired 7
operating office buildings, totaling approximately .5 million square
feet, and land that will support the future development of up to .1
million square feet of additional office space. The total purchase
price for the properties and land was approximately $72 million, which
was paid in cash.
14
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 June 30, 1997 and December 31, 1996, and for
the three and six months ended June 30, 1997 and 1996. 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 June 30, 1997 and 1996
Real Estate Operating Revenue
Total real estate operating revenue increased $45.7 million, or 128.2%,
to $81.4 million for the three months ended June 30, 1997 as compared to $35.7
million for the three months ended June 30, 1996. The increase in revenue was
primarily attributable to a $44.9 million and a $.8 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
second quarter of 1996 which contributed approximately $42.6 million of
additional rental revenue in the three month period ended June 30, 1997. Rental
revenue from properties that were fully operating throughout both periods
increased by approximately $2.3 million. Real estate service revenue increased
by $.8 million, or 29.4%, for the three months ended June 30, 1997 to $3.7
million as compared to $2.9 million for the three months ended June 30, 1996,
primarily as a result of development fees earned by CarrAmerica Development &
Construction, Inc., which was acquired by the Company in May 1996, and increased
leasing fees earned by the Company.
Real Estate Operating Expenses
Total real estate operating expenses increased $31.5 million for the
three months ended June 30, 1997, or 103.6%, to $61.9 million as compared to
$30.4 million for the three months ended June 30, 1996. The net increase in
operating expenses was attributable to a $16.2 million increase in property
operating expenses, a $4.3 million increase in interest expense, a $1.3 million
increase in general and administrative expenses, and a $9.7 million increase in
depreciation and amortization. An increase in property operating expenses of
$14.7 million was attributable to property acquisitions since the second quarter
of 1996. The Company also experienced an increase in property operating expenses
from properties that were fully operating throughout both periods by
approximately $1.5 million. The increase in the Company's interest expense is
primarily related to additional borrowings for acquisitions. The increase in
general and administrative expenses is predominately a result of the addition of
staff to implement the Company's new business strategy, the addition of
approximately $.6 million of general and administrative expenses associated with
CarrAmerica 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
June 30, 1997, to $1.0 million as compared to $.7 million for the three months
ended June 30, 1996, primarily due to a gain on the sale of certain assets.
Net Income
Net income of $18.5 million was earned for the three months ended June
30, 1997 as compared to $4.3 million during the three month period ended June
30, 1996. The comparability of net income between the two periods is impacted by
the acquisitions the Company made and the other changes described above.
15
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Cash Flows
Net cash provided by operating activities increased $19.4 million, or
171.5%, to $30.7 million for the three months ended June 30, 1997 as compared to
$11.3 million for the three months ended June 30, 1996, primarily as a result of
the acquisitions made by the Company. Net cash used by investing activities
increased $160.6 million, to $313.4 million for the three months ended June 30,
1997 as compared to $152.8 million for the three months ended June 30, 1996,
primarily as a result of capital deployed by the Company for acquisitions of
office properties, land held for future development and for construction in
process. Net cash provided by financing activities increased $133.4 million, to
$267.7 million provided for the three months ended June 30, 1997 as compared to
$134.3 million used for the three months ended June 30, 1996, primarily as a
result of a reduction in the amount of debt being repaid in 1997.
Results of Operations - Six Months Ended June 30, 1997 and 1996
Real Estate Operating Revenue
Total real estate operating revenue increased $88.1 million, or 138.2%,
to $151.9 million for the six months ended June 30, 1997 as compared to $63.8
million for the six months ended June 30, 1996. The increase in revenue was
primarily attributable to a $85.8 million and a $2.3 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
second quarter of 1996 which contributed approximately $85.6 million of
additional rental revenue in the six month period ended June 30, 1997. Rental
revenue from properties that were fully operating throughout both periods
increased by approximately $.2 million. Real estate service revenue increased
by $2.3 million, or 41.0%, for the six months ended June 30, 1997 to $7.9
million as compared to $5.6 million for the six months ended June 30, 1996,
primarily as a result of development fees earned by CarrAmerica Development &
Construction, Inc., which was acquired by the Company in May 1996, and increased
leasing fees earned by the Company.
Real Estate Operating Expenses
Total real estate operating expenses increased $63.7 million for the
six months ended June 30, 1997, or 117.7%, to $117.9 million as compared to
$54.2 million for the six months ended June 30, 1996. The net increase in
operating expenses was attributable to a $30.9 million increase in property
operating expenses, a $9.0 million increase in interest expense, a $3.7 million
increase in general and administrative expenses, and a $20.1 million increase in
depreciation and amortization. An increase in property operating expenses of
$31.4 million was attributable to property acquisitions since the second quarter
of 1996. The Company also experienced a decrease in property operating expenses
from properties that were fully operational in both periods by approximately $.5
million. 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 and the addition of approximately $1.2 million
of expenses associated with CarrAmerica Development & Construction, Inc. 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 $.4 million for the six months ended
June 30, 1997, to $1.5 million as compared to $1.1 million for the six months
ended June 30, 1996, primarily due to an increase in interest income and a gain
on the sale of certain assets.
Net Income
Net income of $31.8 million was earned for the six months ended June
30, 1997 as compared to $7.6 million during the six month period ended June 30,
1996. The comparability of net income between the two periods is impacted by the
acquisitions the Company made and the other changes described above.
16
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Cash Flows
Net cash provided by operating activities increased $38.1 million, or
187.4%, to $58.4 million for the six months ended June 30, 1997 as compared to
$20.3 million for the six months ended June 30, 1996, primarily as a result of
the acquisitions made by the Company. Net cash used by investing activities
increased $171.2 million, to $493.5 million for the six months ended June 30,
1997 as compared to $322.3 million for the six months ended June 30, 1996,
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 $114.2 million, to
$420.0 million provided for the six months ended June 30, 1997 as compared to
$305.8 million provided for the six months ended June 30, 1996, primarily as a
result of proceeds from the sale of common stock and the net borrowings
necessary for the Company's acquisitions.
Liquidity and Capital Resources
The Company seeks to create and maintain a capital structure that will
enable it to diversify its capital sources and thereby allow the Company to
obtain additional capital from a number of different sources, including
additional equity offerings of common and/or preferred stock, public and private
debt financings, and, when appropriate, asset sales. Management believes that
the Company will have access to the capital resources necessary to expand and
develop its business. 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, to
acquire additional properties and land, and to pay for construction in progress
in both the short and long term.
In May and June 1997, the Company obtained three investment grade
ratings. Duff & Phelps Credit Rating Co. (DCR) and Standard & Poors (S&P)
assigned their BBB rating to prospective senior unsecured debt offerings of the
Company and their BBB-rating to prospective cumulative preferred stock
offerings of the Company. Moody's Investor Service (Moody's) assigned its Baa3
rating to prospective senior unsecured debt offerings of the Company and its Ba2
rating to prospective cumulative preferred stock offerings of the Company.
Obtaining investment grade ratings has enabled the Company to diversify its
capital sources. Specifically, on July 1, 1997, the Company sold to
institutional investors an aggregate principal amount of $275 million of its
long-term debt, in the form of $150 million aggregate principal amount of 7.20%
unsecured notes yielding 7.249% due 2004 and $125 million aggregate principal
amount of 7.375% unsecured notes yielding 7.422% due 2007. Additionally, on
August 12, 1997, the Company sold 7,000,000 shares of Series B cumulative
preferred stock at a rate of 8.57% per annum of the liquidation preference of
$25.00.
The Company used the proceeds from the sale of its unsecured notes and
preferred stock to reduce the outstanding balance under its unsecured revolving
line of credit and to fully repay and terminate its $150 million secured credit
facility. The remaining availability under the Company's unsecured line of
credit was $325 million as of August 12, 1997. The Company currently expects to
continue to use its unsecured line of credit to finance future acquisition and
development activities.
The Company's total indebtedness at June 30, 1997 was $840.4 million,
of which $358.0 million, or 42.6%, 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 5.6 years. Based upon the
Company's total market capitalization at June 30, 1997 of $2.703 billion (the
stock price was $28.75 per share and the total shares/Units outstanding were
64,798,275), the Company's debt represented 31.1% of its total market
capitalization.
The Company 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. With respect to major
capital projects, the Company is planning a renovation of a 327,000 square foot
property in Denver during 1997 which is expected to cost $2.0 million, or
approximately
17
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
$5.00 per square foot. During 1997, the Company is also completing renovations
of several garages in its downtown Washington, D.C. portfolio and lighting
retrofits in its Dallas portfolio totaling approximately $2.6 million. The
Company intends to use cash flow from operations and its unsecured revolving
line of credit to meet its working capital needs for its existing portfolio of
operating assets.
The Company will also require a substantial amount of capital for
development projects currently underway and planned for the future. The Company
currently has a total of eleven development projects underway, one of which the
Company intends to sell to a third party upon completion of construction
pursuant to an existing contract. These projects are expected to require a total
investment by the Company of $209 million, with $202 million expected to be
invested in the ten projects the Company intends to own and operate upon
completion of construction. Since June 30, 1997 the Company has begun
construction on two projects. The Company intends to use cash flow from
operations and its unsecured revolving line of credit to meet its working
capital needs for its development projects underway.
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 expectations, and
(iv) the Company does not acquire operating office properties in the future that
require unforeseen substantial renovations.
Net cash provided by operating activities was $30.7 million for the
three months ended June 30, 1997, compared to $11.3 million for the three months
ended June 30, 1996. The increase in net cash provided by operating activities
was primarily as a result of acquisitions made by the Company. The Company's
investing activities used approximately $313.4 million and $152.8 million for
the three months ended June 30, 1997 and 1996, respectively. The Company's
investment activities included the acquisitions of office buildings and land
held for future development and additions to construction in process of
approximately $304.1 million for the three months ended June 30, 1997, as
compared to $144.1 million in acquisitions during the same period in 1996.
Additionally, the Company invested approximately $7.7 million and $.9 million in
its existing real estate assets for the three months ended June 30, 1997 and
1996, respectively. Net of distributions to the Company's shareholders and
minority interests, the Company's financing activities provided net cash of
$295.6 million and $142.0 million for the three months ended June 30, 1997 and
1996, respectively. For the three months ended June 30, 1997, the Company raised
$208.3 million through the sale of common stock which was used to repay $205.0
million of its unsecured facility and to fund acquisitions. For the three months
ended June 30, 1997, the Company's borrowings were approximately $88.0 million
to provide adequate capital for the Company's investing activities.
Net cash provided by operating activities was $58.4 million for the six
months ended June 30, 1997, compared to $20.3 million for the six months ended
June 30, 1996. The increase in net cash provided by operating activities was
primarily as a result of acquisitions made by the Company. The Company's
investing activities used approximately $493.5 million and $322.3 million for
the six months ended June 30, 1997 and 1996, respectively. The Company's
investment activities included the acquisitions of office buildings and land
held for future development and additions to construction in process of
approximately $477.0 million for the six months ended June 30, 1997, as compared
to $312.3 million in acquisitions during the same period in 1996. Additionally,
the Company invested approximately $15.0 million and $1.8 million in its
existing real estate assets for the six months ended June 30, 1997 and 1996,
respectively. Net of distributions to the Company's shareholders and minority
interests, the Company's financing activities provided net cash of $472.2
million and $321.2 million for the six months ended June 30, 1997 and 1996,
respectively. For the six months ended June 30, 1997, the Company raised $344.4
million through the sale of common stock which was used to repay $306.0 million
of its unsecured facility and to fund acquisitions. For the six months ended
June 30, 1997, the Company's borrowings were approximately $143.0 million to
provide adequate capital for the Company's investing activities.
18
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
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 funds 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 June
30, 1997, the Company had cash of $20.3 million, of which $7.8 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.
The Company believes that funds from operations is helpful to investors
as a measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to incur and
service debt, to make capital expenditures and to fund other cash needs. In
accordance with the final National Association of Real Estate Investment Trusts
(NAREIT) White Paper on Funds From Operations as approved by the Board of
Governors of NAREIT on March 3, 1995, funds from operations represents net
income (loss) (computed in accordance with generally accepted accounting
principals), excluding gains (or losses) from debt restructuring or sales of
property, plus depreciation and amortization of assets uniquely significant to
the real estate industry and after adjustments for unconsolidated partnerships
and joint ventures. Adjustments for unconsolidated partnerships and joint
ventures are calculated to reflect funds from operations on the same basis. The
Company computes funds from operations in accordance with standards established
by NAREIT, which may or may not be comparable to funds from operations reported
by other REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition differently than the
Company. Funds from operations does not represent net income or cash flow
generated from operating activities in accordance with generally accepted
accounting principles and, as such, should not be considered an alternative to
net income as an indication of the Company's performance or to cash flow as a
measure of liquidity or the Company's ability to make distributions.
19
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
The following table provides the calculation of the Company's funds
from operations (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Net income before minority interest and
extraordinary items $ 20,551 5,953 35,527 10,678
Adjustments to derive funds from operations:
Add:
Depreciation and amortization 17,321 8,026 32,337 13,197
Deduct:
Minority interests' (non
Unitholders) share of depreciation,
amortization and net income (295) (222) (586) (617)
Gain on Sale of Asset (353) -- (353) --
-------- ------ -------- ------
Funds from operations before allocation to
the minority Unitholders 37,224 13,757 66,925 23,258
Less: Funds from operations allocable to the
minority Unitholders (3,234) (2,207) (6,100) (4,371)
-------- ------ -------- ------
Funds from operations allocable
to CarrAmerica Realty Corporation $ 33,990 11,550 60,825 18,887
======== ====== ======== ======
Changes in funds from operations are largely attributable to changes in
net income between the periods as previously discussed.
20
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 owned by the Company as of June 30, 1997:
Company's
Effective Net
Property Rentable Area Percent
Property Ownership (square feet)(1) Leased(2)
- -------- --------- ---------------- ---------
Consolidated Properties
- -----------------------
SOUTHEAST REGION
Downtown Washington, D.C.:
International Square (3 Properties) 100.0% 1,017,669 96.0%
1730 Pennsylvania Avenue 100.0 229,292 99.3
2550 M Street 100.0 187,931 100.0
1775 Pennsylvania Avenue (3) 100.0 143,981 99.1
900 19th Street 100.0 100,907 84.1
1747 Pennsylvania Avenue 89.7(4) 152,119 84.5
1255 23rd Street 75.0(5) 304,538 97.3
2445 M Street 74.0(4) 266,902 90.1
Suburban Washington, D.C.:
One Rock Spring Plaza (3) 100.0 205,298 100.0
Tycon Courthouse 100.0 416,195 99.0
Three Ballston Plaza 100.0 302,875 99.5
Sunrise Corporate Center (3 Properties) 100.0 260,643 99.9
(formerly Reston Quadrangle)
Parkway One 100.0 87,842 100.0
Suburban Atlanta:
Veridian (22 Properties) 100.0 187,833 94.5
Glenridge 100.0 64,431 96.0
Century Springs West 100.0 94,765 99.5
Holcomb Place 100.0 72,823 100.0
DeKalb Tech (5 Properties) 100.0 163,159 87.6
Midori 100.0 99,900 97.6
Crestwood 100.0 88,186 97.0
Parkwood 100.0 151,020 87.5
Lakewood 100.0 80,338 98.2
The Summit 100.0 178,382 100.0
Triangle Parkway (3 Properties) 100.0 82,102 100.0
(formerly Spalding Triangle II)
2400 Lake Park 100.0 99,580 98.2
680 Engineering 100.0 62,154 100.0
Embassy Row (3 Properties) 100.0 466,240 99.7
South Florida:
Peninsula Plaza 100.0 159,921 98.8
------- ----
(formerly Lake Wyman Plaza)
Southeast Region Subtotal 5,727,026 96.7
PACIFIC REGION
Southern California:
Scenic Business Park (4 Properties) 100.0 138,141 100.0
Harbor Corporate Park (4 Properties) 100.0 148,523 84.6
Plaza PacifiCare 100.0 104,377 100.0
Katella Corporate Center 100.0 79,917 96.4
Warner Center (12 Properties) `100.0 342,866 99.0
Del Mar Corporate Plaza (2 Properties) 100.0 123,142 100.0
South Coast Executive Center (2 Properties) 100.0 161,301 95.6
Wateridge Pavilion 100.0 62,194 100.0
Warner Premier 100.0 61,553 100.0
Westlake Corporate (2 Properties) 100.0 71,419 91.1
21
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)
- -------- --------- ---------------- ---------
Northern California:
AT&T Center (6 Properties) 100.0 949,281 100.0
Sunnyvale Research Plaza (3 Properties) 100.0 126,000 100.0
Rio Robles (7 Properties) 100.0 368,178 100.0
Valley Business Park II (6 Properties) 100.0 166,928 100.0
(formerly San Jose Orchard Business Park - B)
Bayshore Centre (2 Properties) 100.0 195,249 100.0
(formerly Orchard Bayshore Center)
Rincon Centre (3 Properties) 100.0 201,178 100.0
(formerly Orchard Rincon Centre)
Valley Centre II (4 Properties) 100.0 212,082 100.0
(formerly Orchard Office Centre II)
Valley Office Centre (2 Properties) 100.0 68,731 100.0
(formerly Orchard Office Centre)
Valley Centre (2 Properties) 100.0 102,291 100.0
(formerly Orchard Centre)
Valley Business Park I (2 Properties) 100.0 67,784 91.2
(formerly San Jose Orchard Business Park - A)
3745 North First Street 100.0 67,582 100.0
Mission Plaza (2 Properties) 100.0 102,687 100.0
North San Jose Technology Park (4 Properties) 100.0 299,233 100.0
(formerly Fortran)
Foster City Technology Park (2 Properties) 100.0 66,869 100.0
150 River Oaks 100.0 100,024 100.0
Suburban Portland:
RadiSys 100.0 80,525 100.0
Suburban Seattle:
Redmond East (10 Properties) 100.0 398,230 99.9
Willow Creek 100.0 96,179 100.0
Canyon Park Business Center (6 Properties) 100.0 246,565 100.0
------- -----
Pacific Region Subtotal 5,209,029 99.1
CENTRAL REGION
Austin, Texas:
Norwood Tower 100.0 111,994 72.7
Littlefield Complex (2 Properties) (3) 100.0 120,815 77.0
First State Bank Tower 100.0 258,344 69.8
Great Hills Plaza 100.0 135,333 100.0
Balcones Center 100.0 75,761 83.5
Park North (2 Properties) 100.0 132,778 95.3
The Settings (3 Properties) 100.0 136,183 95.3
Suburban Chicago:
Parkway North (2 Properties) 100.0 508,394 95.1
Unisys (2 Properties) 100.0 355,331 95.8
The Crossings (2 Properties) 100.0 296,624 100.0
Bannockburn I & II (2 Properties) 100.0 209,900 98.6
Bannockburn IV 100.0 108,476 83.7
Summit Oaks 100.0 91,601 93.3
Suburban Dallas:
Greyhound 100.0 92,890 100.0
Search Plaza 100.0 151,048 96.5
Quorum North 100.0 117,790 81.4
Quorum Place 100.0 176,562 80.6
Cedar Maple (3 Properties) 100.0 112,177 92.0
Tollhill East & West (2 Properties) 100.0 237,894 87.3
------- ----
Central Region Subtotal 3,429,895 90.4
22
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)
- -------- --------- ---------------- ---------
MOUNTAIN REGION
Southeast Denver:
Harlequin Plaza (2 Properties) 100.0 323,258 91.4
Quebec Court I & II (2 Properties) 100.0 285,829 100.0
The Quorum (2 Properties) 100.0 123,895 95.6
Greenwood Center 100.0 75,866 94.2
Quebec Center (3 Properties) 100.0 106,796 95.6
Panorama Corporate Center I 100.0 100,619 96.4
Salt Lake City:
Sorenson Research Park (5 Properties) 100.0 282,534 100.0
Draper Park North (3 Properties) 100.0 178,098 100.0
Suburban Phoenix:
Camelback Lakes (2 Properties) 100.0 200,561 98.2
Highland Park 100.0 77,873 100.0
Pointe Corridor IV 100.0 178,373 92.9
------- ----
Mountain Region Subtotal 1,933,702 96.8
--------- ----
TOTAL CONSOLIDATED PROPERTIES: 16,299,652
----------
WEIGHTED AVERAGE 96.1%
----
Unconsolidated Properties
Downtown Washington, D.C.:
AARP Headquarters 24.0(6) 477,187 100.0
Bond Building 15.0(7) 162,097 100.0
Willard Office/Hotel 5.0(8) 242,787 95.5
Suburban Washington, D.C.:
Booz-Allen & Hamilton Building 50.0(9) 222,989 100.0
--------- -----
TOTAL UNCONSOLIDATED PROPERTIES: 1,105,060
---------
WEIGHTED AVERAGE 99.0%
-----
ALL OPERATING PROPERTIES
TOTAL: 17,404,712
==========
WEIGHTED AVERAGE 96.3%
====
- ---------------
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
June 30, 1997.
(3) The Company owns the improvements on the property and has a leasehold
interest in all or a portion of the underlying land.
(4) The Company holds a general and/or limited partner interest in a
partnership that owns the property.
(5) The Company holds a 50% joint venture interest in the joint venture
that owns this property and a 50% joint venture interest in another
joint venture, which holds the remaining 50% interest in the joint
venture that owns the property. As a result of preferential rights to
annual distributions from another venture, the Company will receive
distributions of less than 75% (but in no event less than 50%) of the
total amount distributed with respect to this property in each year
until the preferential distribution requirements are satisfied, but
will receive 100% of any subsequent distributions during the year
until its aggregate distributions equal 75% of the cumulative
distributions with respect to the property since inception of the
partnership. Thereafter, the Company will receive 75% of the
distributions made during the year with respect to the property. Upon
sale of the property, the Company will receive 75% of the
distributions until the Company receives its preference amount, 50%
until the remaining venturer receives its preference amount, and 75%
of the distributions thereafter.
(6) The Company holds an effective 24% interest in the property by virtue of a
48% general partner interest in a partnership that owns a 50% general
partner interest in the property.
(7) The Company holds an effective 15% interest in the property by virtue of a
30.6% limited partner interest in a partnership that has a 49% limited
partner interest in the property.
(8) The Company holds an effective 5% interest in the property by virtue
of a 7.85% limited partner interest in a partnership that owns a
63.7% limited partner interest in the property. The partnership in
which the Company holds an interest owns the improvements on the
property and has a leasehold interest in the underlying land.
(9) The Company holds a 50% joint venture interest, and is the managing
partner.
23
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
The following table sets forth a schedule of lease expirations for
executed leases as of June 30, 1997, for each of the 10 years beginning with
1997, for the 209 operating properties consolidated for financial statement
purposes, assuming that no tenants exercise renewal options:
Year of Net Rentable Area Percent of Total Leased
Lease Subject to Expiring Square Footage Represented
Expiration Leases (Square Feet) by Expiring Leases*
---------- -------------------- -------------------
1997 1,253,294 8.0%
1998 2,271,541** 14.5
1999 1,758,585 11.2
2000 2,000,138 12.8
2001 2,003,722 12.8
2002 1,513,840 9.7
2003 1,279,342 8.2
2004 867,868 5.5
2005 540,858 3.4
2006 and thereafter 2,181,479 13.9
- -------------
* ` Excludes 628,985 square feet of space vacant as of June 30,
1997.
** ` Included in Lease Year 1998 expirations is 349,358 square
feet for AT&T. As of June 30, 1997, new leases have been
executed to move the expiration of this square footage into
lease years 2002 and 2008 for the AT&T space.
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
July 1, 1996 to June 30, 1997, excluding the leases for operating properties
that were executed prior to the date of acquisition:
Calculated on a Weighted Average Basis
---------------------------------------------------------------------------------------
Tenant Base Leasing
Total Improvements & Rent per Lease Abatements Commission
Square Feet Cash Allowances Square Life in in Per Square
Type of Lease Leased per Square Foot Foot Years Months Foot
- ------------- ------ --------------- ---- ----- ------ ----
Downtown
Washington, D.C.
Properties
Office 686,424 $ 6.00 $ 29.85 6.9 0.6 $ 2.30
Retail 8,052 26.94 30.05 11.3 2.6 7.58
-------
Total 694,476 6.24 29.85 7.0 0.6 2.36
======= ======= ======== ==== === =======
New leases or
expansion space 162,428 $ 19.88 $ 25.67 9.0 2.6 $ 7.24
Renewals of existing
tenants' space 532,048 2.08 31.13 6.3 0.0 0.87
-------
Total 694,476 6.24 29.85 7.0 0.6 2.36
======= ======= ======= ==== === =======
All Other Operating
Properties
Office 2,871,325 $ 5.75 $ 17.06 5.8 0.3 $ 2.10
Retail 9,800 0.00 6.62 7.3 0.0 1.73
=========
Total 2,881,125 5.73 17.03 5.8 0.3 2.10
========= ======= ======== ==== === =======
New leases or
expansion space 1,411,337 $ 7.14 $ 15.13 6.0 0.6 $ 2.73
Renewals of existing
tenants' space 1,469,788 4.37 18.84 5.5 0.1 1.49
---------
Total 2,881,125 5.73 17.03 5.8 0.3 2.10
========= ======= ======= ==== === =======
24
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.
At the Company's annual meeting of its stockholders on May 8, 1997,
the stockholders elected Caroline S. McBride (42,351,318 votes for
and 305,290 votes against or withheld) as a director of the Company
for a term expiring in 1998. The stockholders also elected J.
Marshall Peck (42,350,718 votes for and 305,890 votes against or
withheld) as a director of the Company for a term expiring in 2000.
In addition, the stockholders approved the 1997 CarrAmerica Realty
Corporation Stock Option and Incentive Plan and certain stock option
grants to key employees (35,879,610 votes for, 3,843,627 votes
against, 116,568 votes withheld and 2,816,803 broker non-votes).
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Amendment and Restatement of Articles of Incorporation of the
Company as Amended on April 29, 1996 and April 30, 1996, and Articles
Supplementary thereto filed on October 24, 1996 and August 11, 1997.
4.1 Indenture, dated as of July 1, 1997, by and among the Company, as
Issuer, CarrAmerica Realty, L.P., as Guarantor, and Bankers Trust Company, as
Trustee.
27. Financial Data Schedule
(b) Reports on Form 8-K
a. Current Report on Form 8-K dated June 26, 1997 relative to
updated pro forma financial statements for the Company.
25
b. Current Report on Form 8-K dated June 23, 1997 relative to
press release on the Company's proposed private debt offering.
c. Current Report on Form 8-K dated June 20, 1997 relative to
certain historical summaries.
d. Current Report on Form 8-K dated June 20, 1997 relative to pro
forma financial statements for the Company.
e. Current Report on Form 8-K dated April 18, 1997 relative to a
legal opinion of Hogan & Hartson.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARRAMERICA REALTY CORPORATION
/s/ Thomas A. Carr
- -----------------------------------------------------
Thomas A. Carr, President and Chief Executive Officer
/s/ Brian K. Fields
- -----------------------------------------------------
Brian K. Fields, Chief Financial Officer
Date: August 14, 1997
27
Exhibit Index
Exhibit Description Page
- ------- ----------- ----
3.1 Amendment and Restatement of Articles of Incorporation
of the Company as Amended on April 29, 1996, April 30,
1996, October 24, 1996 and August 11, 1997.
4.1 Indenture, dated as of July 1, 1997, by and among the
Company, as Issuer, CarrAmerica Realty, L.P., as
Guarantor, and Bankers Trust Company, as Trustee.
27. Financial Data Schedule
28