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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 September 30, 1997
COMMISSION FILE NO. 1-11706
CARRAMERICA REALTY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1796339
- --------------------------------- --------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1700 Pennsylvania Avenue, N.W., Washington, D.C. 20006
- --------------------------------------------------------------------------------
(Address or principal executive office) (Zip code)
Registrant's telephone number, including area code (202) 624-7500
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of each of the
registrant's classes of common stock, as of October 30, 1997:
Common Stock, par value $.01 per share: 58,182,102
- --------------------------------------------------------------------------------
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
----
Part I: Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets of CarrAmerica Realty
Corporation and subsidiaries as of September 30, 1997 (unaudited)
and December 31, 1996..........................................................4
Condensed consolidated statements of operations of CarrAmerica
Realty Corporation and subsidiaries for the three months ended
September 30, 1997 and 1996 (unaudited) .......................................5
Condensed consolidated statements of operations of CarrAmerica
Realty Corporation and subsidiaries for the nine months ended
September 30, 1997 and 1996 (unaudited) .......................................6
Condensed consolidated statements of cash flows of CarrAmerica
Realty Corporation and subsidiaries for the three months ended
September 30, 1997 and 1996 (unaudited) .......................................7
Condensed consolidated statements of cash flows of CarrAmerica
Realty Corporation and subsidiaries for the nine months ended
September 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 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........................................26 to 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
Aas of September 30, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
(In thousands, except share amounts)
September 30, December 31,
1997 1996
------------- ------------
Assets (unaudited)
- ------
Rental property (note 2):
Land $ 484,884 356,797
Buildings 1,469,803 1,017,313
Tenant improvements 126,479 99,760
Furniture, fixtures, and equipment 13,142 2,128
----------- ---------
2,094,308 1,475,998
Less - accumulated depreciation (167,462) (119,657)
----------- ---------
Total rental property 1,926,846 1,356,341
Land held for development 82,324 32,277
Construction in progress 132,437 31,723
Cash and cash equivalents 25,803 27,637
Restricted cash and cash equivalents (note 2) 12,187 8,229
Accounts and notes receivable 28,131 11,899
Investments 15,286 13,524
Accrued straight-line rents 30,987 23,810
Tenant leasing costs, net 18,810 13,499
Deferred financing costs, net 7,414 3,800
Prepaid expenses and other assets, net 70,792 13,825
----------- ---------
$ 2,351,017 1,536,564
=========== =========
Liabilities, Minority Interest, and Stockholders' Equity
- --------------------------------------------------------
Liabilities:
Mortgages, unsecured notes and credit
facilities (note 2) $ 903,058 655,449
Accounts payable and accrued expenses 53,937 32,657
Rent received in advance and security deposits 18,577 10,383
----------- ---------
Total liabilities 975,572 698,489
Minority interest (note 3) 67,331 50,597
Stockholders' equity:
Series A Cumulative Convertible Redeemable
Preferred Stock, $.01 par value, 780,000
issued and outstanding at September 30, 1997
and 1,740,000 shares issued and outstanding
at December 31, 1996 with an aggregate
liquidation preference of $19.5 million and
$43.5 million, respectively. 8 17
Series B Cumulative Redeemable Preferred
stock $.01 par value, 8,000,000 shares
issued and outstanding at September 30, 1997
with an aggregate liquidation value of
$200.0 million. 80 --
Common stock, $.01 par value, authorized
90,000,000 shares, issued and outstanding
58,168,602 shares at September 30, 1997 and
43,789,073 shares at December 31, 1996. 582 438
Additional paid in capital 1,381,216 837,355
Cumulative dividends in excess of net income (73,772) (50,332)
----------- ---------
Total stockholders' equity 1,308,114 787,478
----------- ---------
$ 2,351,017 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 September 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 $ 74,630 37,011
Recoveries from tenants 9,921 4,310
Parking and other tenant charges 3,304 1,185
-------- ------
Total rental revenue 87,855 42,506
Other real estate operating revenue:
Real estate service revenue 3,575 3,634
Executive suites revenue 5,000 --
-------- ------
Total revenue 96,430 46,140
-------- ------
Real estate operating expenses:
Property operating expenses:
Operating expenses 23,653 9,898
Real estate taxes 7,876 4,014
Interest expense 14,275 7,911
Executive suites operating expenses 4,124 --
General and administrative 5,445 4,002
Depreciation and amortization 20,378 11,645
-------- ------
Total operating expenses 75,751 37,470
-------- ------
Real estate operating income 20,679 8,670
-------- ------
Other operating income:
Interest income 510 434
Equity in earnings of unconsolidated
partnerships 314 99
-------- ------
Total other operating income 824 533
-------- ------
Net operating income before minority
interest and extraordinary item 21,503 9,203
Minority interest (note 3) (2,022) (1,293)
-------- ------
Income before extraordinary item 19,481 7,910
Extraordinary item-loss on early (608) --
extinguishment of debt
-------- ------
Net income $ 18,873 7,910
======== =====
Net income per common share:
Income before extraordinary $ 0.29 0.24
item
Extraordinary item-loss on early
extinguishment of debt (0.01) --
-------- ----
Net income per common share $ 0.28 0.24
======== ====
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, 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 $196,530 88,088
Recoveries from tenants 26,188 8,820
Parking and other tenant charges 9,114 3,731
-------- ------
Total rental revenue 231,832 100,639
Other real estate operating revenue:
Real estate service revenue 11,512 9,265
Executive suites revenue 5,000 --
-------- ------
Total revenue 248,344 109,904
-------- ------
Real estate operating expenses:
Property operating expenses:
Operating expenses 60,664 23,545
Real estate taxes 21,256 9,826
Interest expense 37,266 21,857
Executive suites operating expenses 4,124 --
General and administrative 15,777 10,661
Depreciation and amortization 54,561 25,744
-------- ------
Total operating expenses 193,648 91,633
-------- ------
Real estate operating income 54,696 18,271
-------- ------
Other operating income:
Interest income 1,603 1,253
Gain on sale of assets 353 --
Equity in earnings of unconsolidated
partnerships 377 357
-------- ------
Total other operating income 2,333 1,610
-------- ------
Net operating income before
minority interest and
extraordinary item 57,029 19,881
Minority interest (note 3) (5,758) (3,895)
-------- ------
Income before extraordinary item 51,271 15,986
Extraordinary item-loss on early
extinguishment of debt (608) (484)
-------- ------
Net income $ 50,663 15,502
======== ======
Net income per common share:
Income before extraordinary item $ 0.87 0.70
Extraordinary item-loss on early
extinguishment of debt (0.01) (0.02)
-------- ------
Net income per common share $ 0.86 0.68
======== ======
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, 1997 and 1996
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 18,873 7,910
--------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 20,378 11,645
Minority interest in income 2,022 1,293
Loss on write off of assets 7 --
Equity in earnings of unconsolidated
partnerships (314) (93)
Extraordinary item-loss on early
extinguishment of debt 608 --
Increase in accounts receivable (9,579) (1,081)
Increase in accrued straight-line rents (3,390) (333)
Additions to tenant leasing costs (1,162) (768)
(Increase) decrease in prepaid expenses
and other assets (2,355) 2,501
Increase in accounts payable and
accrued expenses 6,448 3,331
Increase in rent received in advance and
security deposits 6,100 2,627
--------- -------
Total adjustments 18,763 19,122
--------- -------
Net cash provided by operating
activities 37,636 27,032
--------- -------
Cash flows from investing activities:
Acquisition of executive suites assets (45,736) --
Acquisitions of property (153,326) (135,767)
Additions to rental property (6,608) (3,946)
Additions to land held for development (14,940) (9,548)
Additions to construction in process (27,553) (12,040)
Investments in unconsolidated partnerships (626) (1,214)
Distributions from unconsolidated
partnerships 1,331 197
Increase in restricted cash and cash
equivalents (4,346) (10)
--------- -------
Net cash used by investing activities (251,804) (162,328)
--------- -------
Cash flows from financing activities:
Net proceeds from sale of common and
preferred stock 196,777 216,656
Net proceeds from exercise of options 446 18
Proceeds from issuance of senior unsecured
notes 275,000 --
Contributions from minority interests 1,010 --
Net repayments on line of credit (211,000) (62,000)
Dividends paid (26,302) (15,515)
Repayment of mortgages payable (1,308) (606)
Additions to deferred financing costs (4,726) (272)
Distributions to minority interest (2,417) (1,769)
--------- -------
Net cash provided by financing
activities 227,480 136,512
--------- -------
Increase in unrestricted cash and
cash equivalents 13,312 1,216
Unrestricted cash and cash equivalents,
beginning of the period 12,491 13,022
--------- -------
Unrestricted cash and cash equivalents,
end of the period $ 25,803 14,238
========= =======
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized
interest of $3,434 and $969 for the three
months ended September 30, 1997 and 1996,
respectively $ 9,630 7,315
========= =======
During the three month periods 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. During the three months ended September 30, 1997, no such
transactions occurred.
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, 1997 and 1996
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 50,663 15,502
-------- ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 54,561 25,744
Minority interest in income 5,758 3,895
Loss on write off of assets 330 --
Equity in earnings of unconsolidated (377) (337)
partnerships
Extraordinary item-loss on early
extinguishment of debt 608 484
Increase in accounts receivable (16,357) (1,274)
Increase in accrued straight-line rents (7,177) (478)
Additions to tenant leasing costs (7,977) (1,793)
Increase in prepaid expenses and other
assets (13,602) (4,776)
Increase in accounts payable and
accrued expenses 21,280 6,317
Increase in rent received in advance and
security deposits 8,194 4,068
-------- ------
Total adjustments 45,241 31,850
-------- ------
Net cash provided by operating
activities 95,904 47,352
-------- ------
Cash flows from investing activities:
Acquisition of executive suites assets (45,736) --
Acquisition of real estate service contracts -- (1,750)
Acquisitions of property (485,399) (438,427)
Additions to rental property (21,582) (5,782)
Additions to land held for development (96,326) (19,153)
Additions to construction in process (91,051) (12,040)
Investments in unconsolidated partnerships (2,700) (2,678)
Acquisition of minority interest -- (3)
Distributions from unconsolidated
partnerships 1,439 1,605
Increase in restricted cash and cash
equivalents (3,958) (6,395)
-------- ------
Net cash used by investing activities (745,313) (484,623)
-------- ------
Cash flows from financing activities:
Net proceeds from sale of common and
preferred stock 541,225 461,348
Net proceeds from exercise of options 1,809 35
Net borrowings (repayments) on line of credit (68,000) 72,000
Proceeds from issuance of unsecured notes 275,000 --
Contributions from minority interests 1,360 --
Dividends paid (74,103) (27,367)
Repayment of mortgages payable (16,972) (56,419)
Additions to deferred financing costs (5,894) (1,966)
Distributions to minority interest (6,850) (5,339)
-------- ------
Net cash provided by financing
activities 647,575 442,292
-------- ------
Increase (decrease) in unrestricted
cash and cash equivalents (1,834) 5,021
Unrestricted cash and cash equivalents,
beginning of the period 27,637 9,217
-------- ------
Unrestricted cash and cash equivalents, end of
the period $ 25,803 14,238
======== ======
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized
interest of $7,850 and $1,410 for the nine
months ended September 30, 1997 and 1996,
respectively. $ 32,347 21,130
======== ======
During the nine month periods ended September 30, 1997 and 1996, the Company
assumed $57.6 and $93.0 million of mortgages payable, respectively, and
issued $17.6 and $17.9 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 fifteen 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. 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. 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.
10
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
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. The Company
receives executive suites service revenue for certain
facilities it runs. Such revenue is recognized as revenue as
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, 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 58,047,707 and 38,765,122 for
the three month periods ended September 30, 1997 and 1996,
respectively, and 53,886,135 and 27,723,006 for the nine month
periods ended September 30, 1997 and 1996, respectively. Net
income used in the computations for the three and nine month
periods ended September 30, 1997 was reduced by cumulative
preferred dividends paid of $2,689 thousand and $4,212
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, Unsecured Notes and Credit Facilities
The Company's mortgages payable, unsecured notes and credit facilities
are summarized as follows (in thousands):
September 30, December 31,
1997 1996
------------- ------------
Fixed rate mortgages $ 481,058 440,449
Unsecured credit facility 147,000 215,000
Senior unsecured notes 275,000 --
---------- -------
$ 903,058 655,449
========== =======
11
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
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 mortgages payable were 8.3% and
8.1% at September 30, 1997 and December 31, 1996, respectively. As
required by the lender, a mortgage payable of $27.9 million at
September 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 $450.0 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 Federal
Funds Rate for such day or (ii) an interest rate equal to 1.00 percent
above the London Interbank Offered Rate (LIBOR) (1.75 percent at
December 31, 1996). The Company has predominantly selected interest
rates equal to 1.00 percent above the 30 day LIBOR rates. The credit
facility matures in September 2000.
The annual maturities of debt at September 30, 1997 are summarized as
follows:
(in thousands)
1997 $ 2,170
1998 7,077 (1)
1999 33,426 (2)
2000 188,887
2001 71,225
Thereafter 600,273 (2,3)
---------
$ 903,058
=========
(1) Includes $147 million outstanding as of September 30,
1997 under the Company's $450 million unsecured line of
credit.
(2) Includes $9.5 million which was repaid October 3, 1997
in conjunction with the sale of First State Bank Tower.
(3) Includes $275 million of senior unsecured notes $150
million of which matures in 2004 and $125 million of
which mature in 2007.
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
12
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
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, 1997, 24,838 and 141,114 dividend paying
Units, respectively, of Carr Realty, L.P. or CarrAmerica Realty, L.P.,
were redeemed for common stock of the Company. In addition, in October
1996 the Company issued 1,740,000 shares of Series A Cumulative
Convertible Redeemable Preferred Stock. During the three month period
ended September 30, 1997, 960,000 shares were converted into common
stock.
The following table sets forth the common stock and convertible
preferred stock of the Company and the operating partnership Units:
(in thousands) CarrAmerica
CarrAmerica Realty
Realty Corporation's
Corporation's Series A Dividend Non-Dividend
Common Shares Preferred Shares Paying Units Paying Units
Outstanding Outstanding Outstanding Outstanding
------------- ---------------- ------------- ------------
Outstanding As of:
September 30, 1997 58,169 780 5,453 540
December 31, 1996 43,789 1,740 4,940 540
====== ===== ===== ===
Weighted average for the
three months ended
September 30:
1997 57,834 1,041 5,460 540
1996 33,570 -- 4,191 1,020
====== ===== ===== ===
Weighted average for the
nine months ended
September 30:
1997 53,689 1,505 5,279 540
1996 22,902 -- 4,049 786
====== ===== ===== ===
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) Commitments and Contingencies
At September 30, 1997, the Company is contingently liable on letters of
credit amounting to approximately $1.4 million for various completion
escrow and on performance bonds amounting to approximately $6.1 million
to ensure completion of required public improvements on its
construction projects.
In September 1997, the Company entered into an agreement with a counterparty to
hedge against the impact that interest rate fluctuations may have on debt
instruments the Company intends to issue in 1998.
The agreement is a forward treasury lock agreement on a notional amount of $75
million based on the 10 year U.S. Treasury Bill interest rate. Per the
agreement, on February 27, 1998, the Company will either pay or receive an
amount from the counterparty to effectively fix the interest rate on the
notional amount at 6.415% on that date. The amount paid or received by the
Company on February 27, 1998 will be amortized over the term of the debt
instrument to be issued by the Company as a component of interest expense. As
of October 30, 1997, the Company's unrealized loss on this agreement is $2.9
million.
In October 1997, the Company entered into a similar agreement to effectively
fix its interest pay rate as of February 26, 1997, based on the 10 year U.S.
Treasury Bill, at 5.898% on a notional amount on $50 million. As of October 30,
1997, the Company has an insignificant unrealized gain on this agreement.
13
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(6) 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.
On a pro forma basis, Basic EPS and Diluted EPS per share is as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Basic EPS $ 0.28 0.20 0.87 0.56
Diluted EPS 0.28 0.20 0.87 0.56
(7) Subsequent Events
From October 1, 1997 to October 30, 1997, the Company acquired 3
operating office buildings, totaling approximately .5 million square
feet. The total purchase price for the properties was approximately
$86 million, which was accomplished through the assumption of $43
million in debt, the issuance of $8 million in partnership units and
the payment of $35 million in cash. In addition, the Company sold one
office building for an aggregate sales price of $25.6 million
producing a gain of approximately $2.7 million. The proceeds of the
sale was used to repay indebtedness and acquire additional operating
properties.
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 September 30, 1997 and December 31, 1996, and
for the three and nine months ended September 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 September 30, 1997 and 1996
Real Estate Operating Revenue
Total real estate operating revenue increased $50.3 million, or 109.0%,
to $96.4 million for the three months ended September 30, 1997 as compared to
$46.1 million for the three months ended September 30, 1996. The increase in
revenue was primarily attributable to a $45.3 million and a $5.0 million
increase in rental revenue and other real estate operating income, respectively.
The Company experienced net growth in its rental revenue as a result of its
acquisitions since the third quarter of 1996 which contributed approximately
$41.5 million of additional rental revenue in the three month period ended
September 30, 1997. Rental revenue from properties that were fully operating
throughout both periods increased by approximately $3.8 million. Other real
estate operating income increased by $5.0 million, or 136.0%, for the three
months ended September 30, 1997 to $8.6 million as compared to $3.6 million for
the three months ended September 30, 1996, primarily as a result of executive
suites revenue earned by OmniOffices, Inc. and subsidiaries, whose net assets
were acquired by the Company in August 1997.
Real Estate Operating Expenses
Total real estate operating expenses increased $38.2 million for the
three months ended September 30, 1997, or 102.2%, to $75.7 million as compared
to $37.5 million for the three months ended September 30, 1996. The net increase
in operating expenses was attributable to a $17.6 million increase in property
operating expenses, a $6.4 million increase in interest expense, the addition of
$4.1 million in executive suites operating expenses associated with OmniOffices,
Inc., a $1.4 million increase in general and administrative expenses, and a $8.7
million increase in depreciation and amortization. An increase in property
operating expenses of $15.8 million was attributable to property acquisitions
since the third quarter of 1996. The Company also experienced an increase in
property operating expenses from properties that were fully operating throughout
both periods by approximately $1.8 million. The increase in the Company's
interest expense is primarily related to additional borrowings for acquisitions.
The addition of executive suites operating expenses is a result of the
acquisition of OmniOffices, Inc. in August 1997. The increase in general and
administrative expenses is predominately a result of the addition of staff to
implement the Company's new business strategy, 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, 1997, to $.8 million as compared to $.5 million for the three
months ended September 30, 1996, primarily due to an increase in interest income
and the equity in earnings of unconsolidated partnerships.
Net Income
Net income of $18.9 million was earned for the three months ended
September 30, 1997 as compared to $7.9 million during the three month period
ended September 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 $10.6 million, or
39.2%, to $37.6 million for the three months ended September 30, 1997 as
compared to $27.0 million for the three months ended September 30, 1996,
primarily as a result of the acquisitions made by the Company. Net cash used by
investing activities increased $89.5 million, to $251.8 million for the three
months ended September 30, 1997 as compared to $162.3 million for the three
months ended September 30, 1996, primarily as a result of capital deployed by
the Company for acquisitions of office properties, land held for future
development, construction in process and executive suites. Net cash provided by
financing activities increased $91.0 million, to $227.5 million provided for the
three months ended September 30, 1997 as compared to $136.5 million used for the
three months ended September 30, 1996, primarily as a result of proceeds from
the issuance of preferred stock and unsecured notes, partially offset by net
repayments on the Company's line of credit.
Results of Operations - Nine Months Ended September 30, 1997 and 1996
Real Estate Operating Revenue
Total real estate operating revenue increased $138.4 million, or
126.9%, to $248.3 million for the nine months ended September 30, 1997 as
compared to $109.9 million for the nine months ended September 30, 1996. The
increase in revenue was primarily attributable to a $131.2 million and a $7.2
million increase in rental revenue and other real estate operating revenue,
respectively. The Company experienced net growth in its rental revenue as a
result of its acquisitions since the third quarter of 1996 which contributed
approximately $128.7 million of additional rental revenue in the nine month
period ended September 30, 1997. Rental revenue from properties that were fully
operating throughout both periods increased by approximately $2.5 million. Other
real estate operating revenue increased by $7.2 million, or 78.2%, for the nine
months ended September 30, 1997 to $16.5 million as compared to $9.3 million for
the nine months ended September 30, 1996, primarily as a result of executive
suites revenue earned by OmniOffices, Inc., which was acquired by the Company in
August 1997.
Real Estate Operating Expenses
Total real estate operating expenses increased $102.0 million for the
nine months ended September 30, 1997, or 111.3%, to $193.6 million as compared
to $91.6 million for the nine months ended September 30, 1996. The net increase
in operating expenses was attributable to a $48.6 million increase in property
operating expenses, a $15.4 million increase in interest expense, the addition
of $4.1 million in executive suites operating expenses associated with
OmniOffices, Inc., a $5.1 million increase in general and administrative
expenses, and a $28.8 million increase in depreciation and amortization. An
increase in property operating expenses of $48.1 million was attributable to
property acquisitions since the third quarter of 1996. The Company also
experienced an increase 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 addition of executive suites operating expenses is a result of
the acquisition of OmniOffices, Inc., in August, 1997. 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 $1.7 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 $.7 million for the nine months ended
September 30, 1997, to $2.3 million as compared to $1.6 million for the nine
months ended September 30, 1996, primarily due to an increase in interest income
and a gain on the sale of certain assets.
16
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Net Income
Net income of $50.7 million was earned for the nine months ended
September 30, 1997 as compared to $15.5 million during the nine month period
ended September 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.
Cash Flows
Net cash provided by operating activities increased $48.6 million, or
102.8%, to $96.0 million for the nine months ended September 30, 1997 as
compared to $47.4 million for the nine months ended September 30, 1996,
primarily as a result of the acquisitions made by the Company. Net cash used by
investing activities increased $260.7 million, to $745.3 million for the nine
months ended September 30, 1997 as compared to $484.6 million for the nine
months ended September 30, 1996, primarily as a result of capital deployed by
the Company for acquisitions of office properties, land held for future
development, construction in process, and executive suites. Net cash provided by
financing activities increased $205.2 million, to $647.5 million provided for
the nine months ended September 30, 1997 as compared to $442.3 million provided
for the nine months ended September 30, 1996, primarily as a result of proceeds
from the sale of common and preferred stock and the proceeds from the issuance
of unsecured notes.
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, 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.
The Company has three investment grade ratings. Duff & Phelps Credit
Rating Co. (DCR) and Standard & Poors (S&P) have each 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) has 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.
The Company's total indebtedness at September 30, 1997 was $903.1
million, of which $147.0 million, or 16.3%, had a LIBOR-based floating interest
rate. The Company's fixed rate indebtedness had a weighted average interest rate
of 7.9% and had a weighted average term to maturity of 6.4 years. Based upon the
Company's total market capitalization at September 30, 1997 of $3.181 billion
(the stock price was $32.00 per share and the total shares/Units outstanding
were 64,941,014, the Company's debt represented 28.4% of its total market
capitalization. The Company has a $450.0 million unsecured line of credit, of
which $378.0 million is currently available to the Company. As of October 30,
1997, the Company had $194 million outstanding under this facility.
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. 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.
17
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
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 seventeen 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 $372.9 million, with $366.0 million expected to be
invested in the sixteen projects the Company intends to own and operate upon
completion of construction. The Company intends to use cash flow from operations
and its unsecured revolving line of credit and additional equity or debt
offerings 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 $37.6 million for the
three months ended September 30, 1997, compared to $27.0 million for the three
months ended September 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 $251.8 million and $162.3
million for the three months ended September 30, 1997 and 1996, respectively.
The Company's investment activities included the acquisitions of office
buildings, executive suites, and land held for future development and additions
to construction in process of approximately $241.6 million for the three months
ended September 30, 1997, as compared to $157.4 million in acquisitions during
the same period in 1996. Additionally, the Company invested approximately $6.6
million and $3.9 million in its existing real estate assets for the three months
ended September 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 $256.2 million and $153.8 million for the three
months ended September 30, 1997 and 1996, respectively. For the three months
ended September 30, 1997, the Company raised $471.8 million through the sale of
common and preferred stock and unsecured notes which was used to repay $457.0
million of its unsecured facility and to fund acquisitions. For the three months
ended September 30, 1997, the Company's net repayments of its line of credit
were approximately $211.0 million to provide an adequate source of capital for
the Company's investing activities.
Net cash provided by operating activities was $96.0 million for the
nine months ended September 30, 1997, compared to $47.4 million for the nine
months ended September 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 $745.3 million and $484.6
million for the nine months ended September 30, 1997 and 1996, respectively. The
Company's investment activities included the acquisitions of office buildings,
executive suites, and land held for future development and additions to
construction in process of approximately $718.5 million for the nine months
ended September 30, 1997, as compared to $469.6 million in acquisitions during
the same period in 1996. Additionally, the Company invested approximately $21.6
million and $5.8 million in its existing real estate assets for the nine months
ended September 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 $728.4 million and $475.0 million for the nine
months ended September 30, 1997 and 1996, respectively. For the nine months
ended September 30, 1997, the Company raised $816.2 million through the sale of
common and preferred stock and unsecured notes which was used to repay $763.0
million of its unsecured facility and to fund acquisitions. For the nine months
ended September 30, 1997, the Company's net repayments of its line of credit
were approximately $68.0 million to provide an adequate source of 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
September 30, 1997, the Company had cash of $38.0 million, of which $12.2
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. For
purposes of calculating the Company's funds from operations, the Company has
added back to net income the amortization expense associated associated with the
goodwill amortization related to the purchase of the assets of OmniOffices,
Inc., by an affiliate of the Company. The Company computes funds from operations
in accordance with standards established by NAREIT, except for the add back of
goodwill amortization. The Company's funds 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 Nine Months Ended
September 30, September 30,
------------------------ ---------------------
1997 1996 1997 1996
--------- --------- --------- -------
Net income before minority interest and
extraordinary items $ 21,503 9,203 57,029 19,881
Adjustments to derive funds from operations:
Add:
Depreciation and amortization 19,543(2) 10,974 51,881(2) 24,171
Deduct:
Minority interests' (non Unitholders)
share of depreciation, amortization
and net income (379) (146) (965) (763)
Gain on sale of Asset -- -- (353) --
----------- ---------- ---------- ---------
Funds from operations before allocation to
the minority Unitholders 40,667 20,031 107,592 43,289
Less: Funds from operations allocable to the
minority Unitholders (3,276) (2,390) (9,376) (6,761)
-------- ---------- ---------- ---------
Funds from operations allocable
to CarrAmerica Realty Corporation 37,391 17,641 98,216 36,528
Less: Preferred stock dividends (1) (2,348) -- (2,348) --
----------- ---------- ---------- ---------
Funds from operations attributable
to commons shares: $ 35,043 17,641 $ 95,868 36,528
=========== ========== ========== =========
- ----------------
Note 1: Excludes dividends on Series A preferred shares which are
convertible into common shares.
Note 2: Includes $90 of goodwill amortization related to the acquisition
of the assets of OmniOffices, Inc.
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 September 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% 1,018,383 96.3%
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 98.9
2445 M Street 74.0 (4) 266,902 96.6
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 99.1
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) 100.0 187,842 95.2
Glenridge 100.0 64,431 99.4
Century Springs West 100.0 94,766 96.7
Holcomb Place 100.0 72,823 100.0
DeKalb Tech (5 Properties) 100.0 163,159 87.5
Midori 100.0 99,900 95.3
Crestwood 100.0 88,186 93.4
Parkwood 100.0 151,020 83.6
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) 100.0 465,858 99.1
Florida:
Peninsula Plaza 100.0 160,391 94.7
------- ----
(formerly Lake Wyman Plaza)
Southeast Region Subtotal 5,727,838 96.9
PACIFIC REGION
Orange County/Los Angeles California:
Scenic Business Park (4 Properties) 100.0 138,141 100.0
Harbor Corporate Park (4 Properties) 100.0 148,836 95.4
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
Warner Premier 100.0 61,553 100.0
Westlake Corporate (2 Properties) 100.0 71,419 92.0
Von Karman 100.0 103,713 100.0
South Coast Executive Center (2 Properties) 100.0 161,301 95.6
21
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Company's Net
Effective Rentable Area
Property (square Percent
Property Ownership feet)(1) Leased(2)
- --------- --------- -------------- ---------
San Diego California:
Del Mar Corporate Plaza (2 Properties) 100.0 123,142 100.0
Wateridge Pavilion 100.0 62,194 100.0
Lightspan 100.0 64,800 100.0
San Francisco Bay Area California:
CarrAmerica Corporate Center (6 Properties) 100.0 949,281 100.0
(formerly AT&T Center)
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) 100.0 161,040 100.0
(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 67,784 100.0
(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
San Mateo Center II & III 100.0 140,675 97.9
3571 North First Street 100.0 116,000 100.0
Amador I / Riconada (3 Properties) 100.0 134,476 100.0
Amador III 100.0 82,944 100.0
Arayo Center (2 Properties) 100.0 104,741 100.0
Sacramento California:
1860 Howe Avenue 100.0 97,887 97.2
University Park 100.0 121,257 84.1
Capital Corporate Center 100.0 94,670 93.5
Suburban Portland:
RadiSys 100.0 80,525 100.0
Suburban Seattle:
Redmond East (10 Properties) 100.0 398,030 99.9
Willow Creek 100.0 96,179 100.0
(formerly Data I/O)
Canyon Park Business Center (6 Properties) 100.0 246,565 100.0
-------- -----
Pacific Region Subtotal 6,264,417 99.0
CENTRAL REGION Austin, Texas:
Norwood Tower 100.0 111,994 74.9
Littlefield Complex (2 Properties) (3) 100.0 120,815 77.0
First State Bank Tower 100.0 260,840 72.9
Great Hills Plaza 100.0 135,333 100.0
Balcones Center 100.0 75,761 83.5
Park North (2 Properties) 100.0 132,923 66.3
The Settings (3 Properties) 100.0 132,647 97.9
22
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Company's Net
Effective Rentable Area
Property (square Percent
Property Ownership feet)(1) Leased(2)
- --------- --------- -------------- ---------
Suburban Chicago:
Parkway North (2 Properties) 100.0 508,749 95.5
Unisys (2 Properties) 100.0 355,331 95.2
The Crossings (2 Properties) 100.0 296,624 98.6
Bannockburn I & II (2 Properties) 100.0 209,860 98.7
Bannockburn IV 100.0 108,470 98.7
Summit Oaks 100.0 91,601 89.8
Suburban Dallas:
Greyhound 100.0 92,890 100.0
Search Plaza 100.0 151,048 94.5
Quorum North 100.0 117,790 80.2
Two Mission Park 100.0 76,933 89.1
Quorum Place 100.0 176,562 91.0
Cedar Maple (3 Properties) 100.0 112,176 96.1
Tollhill East & West (2 Properties) 100.0 237,709 87.0
------- ----
Central Region Subtotal 3,506,056 90.4
MOUNTAIN REGION Southeast Denver:
Harlequin Plaza (2 Properties) 100.0 327,711 96.2
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 97.1
Quebec Center (3 Properties) 100.0 106,849 96.1
Panorama Corporate Center I 100.0 100,542 98.7
JD Edwards 100.0 189,087 100.0
Salt Lake City:
Sorenson Research Park (5 Properties) 100.0 285,144 100.0
Draper Park North (3 Properties) 100.0 178,098 100.0
Suburban Phoenix:
Camelback Lakes (2 Properties) 100.0 200,489 98.2
Highland Park 100.0 77,932 95.9
Pointe Corridor IV 100.0 178,373 92.8
------- ----
Mountain Region Subtotal 2,129,815 97.9
--------- ----
TOTAL CONSOLIDATED PROPERTIES: 17,628,126
----------
WEIGHTED AVERAGE 96.5%
----
Unconsolidated Properties
- -------------------------
Downtown Washington, D.C.:
AARP Headquarters 24.0(6) 477,187 100.0
Bond Building 15.0(7) 162,097 100.0
1717 Pennsylvania Avenue 50.0(8) 181,566 95.2
Willard Office/Hotel 5.0(9) 242,787 97.8
Suburban Washington, D.C.:
Booz-Allen & Hamilton Building 50.0(10) 222,989 100.0
--------- -----
TOTAL UNCONSOLIDATED PROPERTIES: 1,286,62
---------
WEIGHTED AVERAGE 98.9%
----
ALL OPERATING PROPERTIES
- ------------------------
TOTAL: 18,914,752
==========
WEIGHTED AVERAGE 96.7%
=====
- ---------------
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as
of September 30, 1997.
23
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
(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 a 50% limited liability interest, and is the managing
member.
(9) 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.
(10) The Company holds a 50% joint venture interest, and is the managing
partner.
24
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 September 30, 1997, for each of the 10 years beginning
with 1997, for the 230 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
Expiration Leases (Square Feet) Represented by Expiring
Leases*
----------------- ---------------------- --------------------------
1997 1,491,118 8.8 %
1998 2,604,816** 15.3
1999 1,832,581 10.8
2000 2,239,384 13.1
2001 2,212,220 13.0
2002 1,770,281 10.4
2003 1,322,600 7.8
2004 924,057 5.4
2005 540,858 3.2
2006 and thereafter 2,072,264 12.2
- ------------
* Excludes 617,947 square feet of space vacant as of September 30,
1997.
** Included in Lease Year 1998 expirations is 349,358 square feet
for AT&T, a tenant at CarrAmerica Corporate Center. As of
September 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
October 1, 1996 to September 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 Cash Allowances Square Life in in Per Square
Type of Lease Feet Leased per Square Foot Foot Years Months Foot
- ------------- ----------- --------------- ---- ----- ------ ----
Downtown
Washington, D.C.
Properties
Office 712,131 $ 5.64 $ 29.88 7.0 0.6 $ 2.18
Retail 17,152 12.65 29.13 7.9 1.2 5.07
---------
Total 729,283 5.80 29.86 7.0 0.6 2.25
========= ======= ======== === === =======
New leases or expansion
space 186,624 $ 16.75 $ 26.30 9.0 2.4 $ 6.19
Renewals of existing
tenants' space 542,659 2.04 31.08 6.3 0.0 0.90
---------
Total 729,283 5.80 29.86 7.0 0.6 2.25
========= ======= ======== === === =======
All Other Operating
Properties
Office 3,202,585 $ 5.60 $ 16.98 5.6 0.3 $ 1.98
Retail 11,005 0.00 6.39 6.6 0.0 1.54
---------
Total 3,213,590 5.58 16.94 5.6 0.3 1.98
========= ======= ======== === === =======
New leases or
expansion space 1,690,727 $ 6.72 $ 15.34 5.8 0.6 $ 2.47
Renewals of existing
tenants' space 1,522,863 4.32 18.72 5.5 0.1 1.45
---------
Total 3,213,590 5.58 16.94 5.6 0.3 1.98
========= ======= ======== === === =======
25
Part II
OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
In August 1997, the Company issued 8,000,000 shares of Series B
Cumulative Redeemable Preferred Stock (the "Series B Preferred
Shares"). The Series B Preferred Shares have a liquidation preference
of $25.00 per share. The Series B Preferred Shares are not redeemable
prior to August 12, 2002. On and after such date, the Series B
Preferred Shares may be redeemed, in whole or in part, at the option
of the Company, at a redemption price of $25.00 per share, plus all
accrued and unpaid dividends. The Series B Preferred Shares are not
convertible into any other securities of the Company. Dividends on
the series B Preferred Shares are cumulative from the date of
original issue and are payable quarterly in arrears on the last day
of February, May, August and November of each year, commencing on
August 31, 1997, at the rate of 8.57% of the liquidation preference
per annum.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Second Amended and Restated Revolving Credit Agreement dated as
of September 15, 1997 among the Company, Carr Realty, L.P., CarrAmerica Realty,
L.P., Morgan Guaranty Trust Company and Commercebank Aktiengesellschaft - New
York Branch, NationsBank, N.A., Wells Fargo Bank, National Association, Bank of
America National Trust and Savings Association, and the other banks listed
therein.
27. Financial Data Schedule
(b) Reports on Form 8-K
a. Current Report on Form 8-K dated July 1, 1997 relative to
revision of management's discussion and analysis of financial
condition and results of operations contained in Form 10 filed
on behalf of CarrAmerica Realty, L.P. on June 16, 1997.
b. Current Report on Form 8-K dated July 11, 1997 relative to
press release on the Company's private debt offering.
c. Current Report on Form 8-K dated August 4, 1997 relative to pro
forma financial statements for the Company, as amended by a
Current Report on Form 8-K/A dated August 8, 1997.
d. Current Report on Form 8-K dated August 12, 1997 relative to
the Company's Series B Preferred stock offering.
e. Current Report on Form 8-K dated August 14, 1997 relative to
supplemental financial information of the Company as of June
30, 1997.
f. Current Report on Form 8-K dated August 29, 1997 relative to
pro forma financial statement for the Company.
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: October 30, 1997
Exhibit Index
-------------
Exhibit Description Page
- ------- ----------- ----
10.1 Second Amended and Restated Revolving Credit Agreement dated
as of September 15, 1997 among the Company, Carr Realty, L.P.,
CarrAmerica Realty, L.P., Morgan Guaranty Trust Company and
Commercebank Aktiengesell schaft-New York Branch, Nations Bank,
N.A., Wells Fargo Bank, National Association, Bank of America
National Trust and Savings Association, and the other banks
listed therein.
27. Financial Data Schedule