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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. 000-22741
CARRAMERICA REALTY, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 52-1976308
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(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 Partnership Units outstanding of each of the registrant's classes of
Partnership Units as of November 14, 1997:
12,593,774
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES |X| NO |_|
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Index
Page
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Part I: Financial Information
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Item 1. Financial Statements
Balance sheets of CarrAmerica Realty, L.P. as of
September 30, 1997 (unaudited) and December 31, 1996 .................4
Statements of operations of CarrAmerica Realty, L.P. for
the three months ended September 30, 1997 and 1996 ...................5
Statements of operations of CarrAmerica Realty, L.P. for
the nine months ended September 30, 1997 and the period
from March 6, 1996 (Date of Inception) to September 30, 1996
(unaudited) ..........................................................6
Statements of cash flows of CarrAmerica Realty, L.P. for
the nine months ended September 30, 1997 and the period from
March 6, 1996 (Date of Inception) to September 30, 1996
(unaudited) ..........................................................7
Notes to financial statements...................................8 to 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................14 to 19
Part II: Other Information
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Item 1. Legal Proceedings ...................................................20
Item 2. Changes in Securities................................................20
Item 3. Defaults Upon Senior Securities......................................20
Item 4. Submission of Matters to a Vote of Security Holders..................20
Item 5. Other Information ...................................................20
Item 6. Exhibits and Reports on Form 8-K...............................20 to 21
2
Part I
Item 1. Financial Information
The information furnished in the accompanying balance sheets, statements of
operations and statements of cash flows of CarrAmerica Realty, L.P. (the
"Partnership") 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, L.P.
Balance Sheets
As of September 30, 1997 and December 31, 1996
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(In thousands)
September 30, December 31,
1997 1996
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(unaudited)
Assets Rental property (note 2):
Land $ 52,074 26,404
Buildings 349,160 182,856
Tenant improvements 11,752 7,068
Furniture, fixtures, and equipment 104 6
--------- ---------
413,090 216,334
Less - accumulated depreciation (11,896) (3,104)
--------- ---------
Total rental property 401,194 213,230
Land held for development 23,821 13,254
Construction in progress 27,147 8,485
Cash and cash equivalents 2,856 2,478
Restricted cash and cash equivalents (note 2) 167 --
Accounts receivable 4,994 1,888
Accrued straight-line rents 2,423 733
Tenant leasing costs, net 2,899 881
Prepaid expenses and other assets, net 1,005 268
--------- ---------
$ 466,506 241,217
========= =========
Liabilities and Partners' Capital
Liabilities:
Mortgages and notes payable (note 2) $ 102,290 21,952
Note payable to affiliate (note 2) 29,509 29,792
Accounts payable and accrued expenses 10,973 4,441
Due to affiliates (note 5) 972 2,774
Rent received in advance and security deposits 2,843 1,325
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Total liabilities 146,587 60,284
Partners' capital (note 3):
General partner 3,199 1,809
Limited partners 316,720 179,124
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Total partners' capital 319,919 180,933
Commitments (note 4)
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$ 466,506 241,217
========= =========
See accompanying notes to financial statements.
4
CARRAMERICA REALTY, L.P.
Statements of Operations
For the Three Months Ended September 30, 1997 and 1996
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(Unaudited and in thousands)
1997 1996
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Real estate operating revenue:
Rental revenue (note 4):
Minimum base rent $13,734 4,452
Recoveries from tenants 2,509 676
Parking and Other tenant charges 237 128
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Total rental revenue 16,480 5,256
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Cost reimbursements (note 5) 658 110
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Total revenue 17,138 5,366
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Real estate operating expenses:
Property operating expenses:
Operating expenses 5,611 1,834
Real estate taxes 1,815 588
Interest expense 1,643 594
General and administrative 494 344
Depreciation and amortization 3,667 1,689
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Total operating expenses 13,230 5,049
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Real estate operating income 3,908 317
Other operating income - interest income 16 4
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Net income $ 3,924 321
======= =======
Net income attributable to general partner $ 39 3
======= =======
Net income attributable to limited partners $ 3,885 318
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See accompanying notes to financial statements.
5
CARRAMERICA REALTY, L.P.
Statements of Operations
For the Nine Months Ended September 30, 1997 and the Period
from March 6, 1996 (Date of Inception) to September 30, 1996
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(Unaudited and in thousands)
1997 1996
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Real estate operating revenue:
Rental revenue (note 4):
Minimum base rent $32,554 5,263
Recoveries from tenants 5,465 819
Other tenant charges 801 133
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Total rental revenue 38,820 6,215
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Cost reimbursements (note 5) 1,337 110
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Total revenue 40,157 6,325
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Real estate operating expenses:
Property operating expenses:
Operating expenses 13,422 2,081
Real estate taxes 3,989 722
Interest expense 3,989 864
General and administrative 1,625 352
Depreciation and amortization 8,784 2,008
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Total operating expenses 31,809 6,027
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Real estate operating income 8,348 298
Other operating income - interest income 71 5
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Net income $ 8,419 303
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Net income attributable to general partner $ 84 3
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Net income attributable to limited partners $ 8,335 300
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See accompanying notes to financial statements.
6
CARRAMERICA REALTY, L.P.
Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and the Period
from March 6, 1996 (Date of Inception) to September 30, 1996
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(Unaudited and in thousands)
1997 1996
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Cash flows from operating activities:
Net income $ 8,419 303
--------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 8,784 2,008
Loss on write off of assets 148 --
Increase in accounts receivable (3,106) (643)
Increase in accrued straight-line rents (1,690) (375)
Additions to tenant leasing costs (2,302) (492)
Increase in prepaid expenses and other assets (763) (199)
Increase in accounts payable and accrued expenses 6,532 3,778
Increase (decrease) in due to affiliates (1,802) 106
Increase in rent received in advance and security deposits 1,518 1,030
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Total adjustments 7,319 5,213
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Net cash provided by operating activities 15,738 5,516
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Cash flows from investing activities:
Additions to rental property (4,848) --
Acquisitions of rental property (94,297) (150,660)
Additions to land held for development (16,716) (3,477)
Additions to construction in process (39,321) --
Increase in restricted cash and cash equivalents (167) --
--------- ---------
Net cash used by investing activities (155,349) (154,137)
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Cash flows from financing activities:
Capital contributions 113,738 120,763
Capital distributions (709) (309)
Net borrowings (repayments) on unsecured line of credit 23,000 --
Borrowings on notes payable to affiliates -- 30,000
Repayments on notes and mortgages payable (1,040) (130)
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Net cash provided by financing activities 139,989 150,324
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Increase in cash and cash equivalents 378 1,703
Unrestricted cash and cash equivalents, beginning of the period 2,478 --
--------- ---------
Unrestricted cash and cash equivalents, end of the period $ 2,856 1,703
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest of $2,044 for the nine
months ended September 30, 1997 and $166 for the period
March 6, 1996 to September 30, 1996 $ 3,638 805
========= =========
Supplemental disclosure of noncash investing and financing activities:
During the nine months ended September 30, 1997 and the period from March
6, 1996 to September 30, 1996, the Partnership funded a portion of the
aggregate purchase price of its property acquisitions by assuming $53.1
million and $9.7 million of debt and liabilities, respectively, and by
issuing $17.6 million and $17.9 million of Minority Units in the
Partnership, respectively.
See accompanying notes to financial statements.
7
CARRAMERICA REALTY, L.P.
Notes to Financial Statements
(Unaudited)
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(1) Description of Business and Summary of Significant Accounting Policies
(a) Business
CarrAmerica Realty, L.P. (the "Partnership") is a Delaware limited
partnership formed on March 6, 1996 to own, acquire, develop, and
operate office buildings across the United States. At September 30,
1997, the Partnership owned 46 operating properties and four
properties under development. At December 31, 1996, the Partnership
owned 25 operating properties and one property under development. The
properties are located in downtown and suburban Austin, suburban
Dallas, Southeast Denver, Southern California, and suburban Salt Lake
City.
The Partnership's general partner is CarrAmerica Realty GP Holdings,
Inc. (the "General Partner"), a wholly owned subsidiary of CarrAmerica
Realty Corporation ("CARC"), a self-administered and self-managed real
estate investment trust. The General Partner owns a 1% interest in the
Partnership at September 30, 1997 and December 31, 1996. The
Partnership's limited partners are CarrAmerica Realty LP Holdings,
Inc., a wholly owned subsidiary of CARC, which owned an approximate
87% interest in the Partnership at September 30, 1997 and December 31,
1996 and various other individuals and entities which collectively own
approximately 12% interest in the Partnership at September 30, 1997
and December 31, 1996, respectively.
(b) Basis of Presentation
The Partnership's financial statements are prepared using the accrual
basis of accounting and in accordance with generally accepted
accounting principles. Management of the Partnership 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 statement of the
results for the interim periods presented, 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 rental property).
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets, as follows:
Base Building..............................30 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
8
CARRAMERICA REALTY, L.P.
Notes to Financial Statements
(Unaudited)
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Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations are capitalized.
Management reviews the Partnership's long-lived assets, such as rental
property, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair
value of the assets.
(e) Development Property
Land held for development and construction in progress is 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 a
property.
(f) Tenant Leasing Costs
Fees and costs incurred in the successful negotiation of leases have
been deferred and are being amortized on a straight-line basis over
the terms of the respective leases.
(g) Fair Value of Financial Instruments
The carrying amount of the following financial instruments
approximates fair value because of their short-term maturity: cash and
cash equivalents; accounts and notes receivable; accounts payable,
accrued expenses and other liabilities.
(h) Revenue Recognition
The Partnership reports base rental revenue for financial statement
purposes straight-line over the terms of the respective leases.
Accrued straight-line rents represent the amount that straight-line
rental revenue exceeds rents collected in accordance with the lease
agreements. Management, considering current information and events
regarding the tenants' ability to fulfill their lease obligations,
considers accrued straight-line rents to be impaired if it is probable
that the Partnership will be unable to collect all rents due according
to the contractual lease terms. If accrued straight-line rents
associated with a tenant are considered to be impaired, the amount of
the impairment is measured based on the present value of expected
future cash flows. Impairment losses, if any, are recorded through a
loss on the write-off of assets. Cash receipts on impaired accrued
straight-line rents are applied to reduce the remaining outstanding
balance and, thereafter, as rental revenue.
(i) Income Taxes
No provision has been made for federal and state income taxes because
each partner reports their share of the Partnership's taxable income
or loss and any available tax credits on their income tax return.
9
CARRAMERICA REALTY, L.P.
Notes to Financial Statements
(Unaudited)
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(j) Cash Equivalents
For purposes of reporting cash flows, the Partnership considers all
highly liquid investments with a maturity of three months or less at
the time of purchase to be cash equivalents.
(2) Mortgages and Note Payable
Mortgages and note payable generally are collateralized by certain rental
properties and generally require monthly principal and/or interest
payments. Following is a summary of the Partnership's mortgages and notes
payable as of the end of each period (in thousands):
September 30, December 31,
1997 1996
------------- ------------
Fixed rate mortgages $ 72,290 19,952
Unsecured credit facility 30,000 2,000
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$102,290 21,952
======== ========
On May 24, 1996, the Partnership entered into a $30 million loan agreement
with CARC. The note payable bears interest at 8.5% and requires monthly
principal and interest payments of $242 thousand. The loan matures on May
31, 2011. The note is secured by certain office properties and other assets
of the Partnership. The outstanding balance of the note payable to
affiliate was $29.5 million and $29.8 million, at September 30, 1997 and
December 31, 1996, respectively.
The Partnership is party to a $450.0 million unsecured revolving credit
facility payable to Morgan Guaranty Trust Company of New York, as agent for
a group of banks ("Morgan") This note is available to CARC, the Partnership
and Carr Realty, L.P., a partnership in which CARC is the majority partner.
The line of credit contains a number of financial and other covenants,
including, but not limited to, covenants relating to ratios of annual
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to
interest expense, annual EBITDA to debt service, and total debt to tangible
fair market value of CARC's consolidated assets and restrictions on the
ability of CARC to make dividend distributions in excess of 90% of funds
from operations. Availability under the line of credit is also limited to a
specified percentage of the Partnership's unencumbered properties. CARC and
the Partnership are jointly and severally liable for all obligations under
the line of credit. As of September 30, 1997 and December 31, 1996,
availability under the line of credit was $378.0 million and $325.0
million, respectively, of which approximately $147.0 million and $215.0
million, respectively, had been drawn under this facility.
10
CARRAMERICA REALTY, L.P.
Notes to Financial Statements
(Unaudited)
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As of September 30, 1997, the scheduled maturity of mortgages and notes
payable and the note payable to affiliate are as follows (in thousands):
1997 ............................. $ 504
1998 ............................. 2,127
1999 ............................. 21,452(1)
2000 ............................. 39,511(2)
2001 ............................. 24,914
Thereafter ....................... 43,291(3)
--------
$131,799
========
(1) Includes $9.5 million which was repaid October 1, 1997 in
conjunction with the sale of First State Bank Tower.
(2) Includes $30.0 million outstanding as of September 30, 1997 under
the Company's $450 million unsecured line of credit.
(3) Includes approximately $27.5 million outstanding on the
Partnership's loan agreement with CARC.
Based on the borrowing rates available to the Partnership for mortgages and
notes payable with similar terms and average maturities, the estimated fair
value, as determined by management, of the Partnership's mortgages and
notes payable approximates the carrying amount.
Restricted cash and cash equivalents consist of an escrow deposit required
as collateral for a letter of credit.
(3) Partners' Capital Contributions, Distributions, and Participation
Percentages
The Second Amended and Restated Agreement of Limited Partnership of the
Partnership (the "Partnership Agreement") details the rights of ownership
in the Partnership. Ownership in the Partnership is expressed in
partnership units ("Units"). Units currently are designated as Class A, B,
or C Units. Class A Units have first preference and Class B Units, which
are owned by CARC, have second preference as to the allocation of Available
Cash, as defined in the Partnership Agreement. Class C Units do not share
in the allocation of Available Cash. Upon the third anniversary of the date
of issuance of Class C Units, they may be converted to Class A Units based
on a conversion factor described in the Partnership Agreement.
Upon the first anniversary of the date of issuance, each holder of Class A
Units may, subject to certain limitations, require that the Partnership
redeem his or her Class A Units. Upon redemption, a Class A Unit holder
will receive, at the option of the Partnership, with respect to each Class
A Unit tendered, either (i) cash in an amount equal to the market value of
one share of CARC common stock (subject to certain anti-dilution
adjustments) or (ii) one share of CARC common stock. In lieu of the
Partnership redeeming Class A Units for cash, CARC has the right to assume
directly and satisfy the redemption right of a Unit holder. Holders of
Class B Units and Class C Units are not entitled to exercise this
redemption right.
11
CARRAMERICA REALTY, L.P.
Notes to Financial Statements
(Unaudited)
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The following Units were outstanding:
September 30, December 31,
1997 1996
------------- ------------
Class A Units 950,111 361,677
Class B Units 10,593,846 6,619,131
Class C Units 539,593 539,593
---------- ----------
12,083,550 7,520,401
========== ==========
(4) Lease Agreements
The Partnership 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) Transactions With Affiliates
CarrAmerica Realty Services, Inc. (CARSI), a wholly owned subsidiary of
CARC, provides management and leasing services to all of the office
properties owned by the Partnership. During the three months ended
September 30, 1997 and 1996, the Partnership incurred management fees of
$.5 million and $.2 million, respectively, for services performed by CARSI.
During the nine months ended September 30, 1997 and the period March 6,
1996 (Date of Inception) to September 30, 1996, the Partnership incurred
management fees of $1.2 million and $.2 million, respectively, for services
performed by CARSI. Additionally, CARSI reimburses CARLP for certain
services CARLP personnel provide to CARSI. These reimbursements amounted to
$.7 million and $.1 million, respectively, for the three months ended
September 30, 1997 and 1996, and $1.3 million and $.1 million for the nine
months ended September 30, 1997 and the period from March 6, 1996 (Date of
Inception) to September 30, 1996, respectively.
CARC pays on behalf of the Partnership certain administrative costs and
certain costs related to the acquisitions of properties which are billed to
the Partnership, and makes working capital advances to the Partnership.
Such costs are included in the general and administrative costs of the
Partnership. Amounts due to CARC were $.4 million at September 30, 1997 and
$2.8 million at December 31, 1996.
(6) Commitments and Contingencies
At September 30, 1997, the Partnership is contingently liable on letters of
credit amounting to approximately $1.4 million for various completion
escrows.
In June 1997, the Partnership unconditionally guaranteed unsecured notes by
CARC to institutional investors. The aggregate principal amount of the
unsecured notes are $275.0 million of 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 notes contain various covenants,
including the following: (i) neither CARC nor any Subsidiary (as defined in
the indenture relating to the notes (the "indenture")) will incur any
indebtedness (as defined in
12
CARRAMERICA REALTY, L.P.
Notes to Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
the Indenture) if, after giving effect thereto, the aggregate principal
amount of all outstanding Indebtedness of CARC and its Subsidiaries on a
consolidated basis is greater than 60% of Adjusted Total Assets (as defined
in the Indenture); (ii) neither CARC nor any Subsidiary will incur any
Indebtedness secured by any Encumbrance (as defined in the Indenture) upon
the property of CARC or any Subsidiary if, immediately after giving effect
to the incurrence of the additional indebtedness secured by any Encumbrance
(as defined in the Indenture) upon the property of CARC or any Subsidiary
if, immediately after giving effect to the incurrence of the additional
Indebtedness, the aggregate amount of all outstanding Indebtedness of CARC
and its Subsidiaries on a consolidated basis which is secured by any
Encumbrance on property of CARC or any Subsidiary is greater than 40% of
Adjusted Total Assets, (iii) neither CARC nor any Subsidiary will incur any
Indebtedness if Consolidated Income Available for Debt Service (as defined
in the Indenture) for the four consecutive fiscal quarters most recently
ended prior to the date of the incurrence of the Indebtedness, on a pro
forma basis, would be less than 1.5 times the Annual Service Charge (as
defined in the Indenture) on all Indebtedness outstanding immediately after
the incurrence of the Indebtedness; and (iv) CARC and its Subsidiaries will
not at any time own Total Unencumbered Assets (as defined in the Indenture)
equal to less than 150% of the aggregate outstanding principal amount of
the Unsecured Indebtedness (as defined in the Indenture) equal to less than
150% of the aggregate outstanding principal amount of the Unsecured
Indebtedness (as defined in the Indenture) of CARC and its Subsidiaries on
a consolidated basis.
(7) Acquisition and Development Activities
From January 1, 1997 to September 30, 1997, the Partnership acquired 20
operating office properties containing approximately 1.6 million square
feet for an aggregate purchase price of $166.4 million and placed in
service one operating property previously under development. In addition,
as of September 30, 1997, the Partnership had four properties under
development and 112.1 acres of land held for development. Land held for
development was purchased for an aggregate purchase price of $13.9 million.
Costs incurred at September 30, 1997 and December 31, 1996 for properties
under construction were $27.2 and $8.5 million, respectively.
13
CARRAMERICA REALTY, L.P.
Notes to Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
All acquisitions have been accounted for as purchases. Operations of
acquired properties have been included in the accompanying financial
statements from their respective dates of acquisition.
(8) Subsequent Events
Since September 30, 1997, the Partnership has acquired three operating
office properties containing approximately 310,000 square feet through the
issuance of $7.9 million in Partnership Units to new minority partners and
the payment of $47.9 million in cash.
The Partnership sold one office building for an aggregate sales price of
$25.6 producing a gain of approximately $2.7 million. The proceeds of the
sale were used to repay indebtedness and acquire additional operating
properties. In addition, the partnership has sold its options to acquire
land supporting the future development of 462,000 square feet in Panorama
Corporate Center to an affiliate of the Partnership for an aggregate
purchase price of approximately $5.9 million.
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 and analysis of the financial condition and
results of operations should be read in conjunction with the selected financial
and operating information and the Financial Statements and Notes thereto.
Results of Operations
The Partnership was formed on March 6, 1996 and purchased its first
properties in May 1996. During the remainder of 1996, the Partnership acquired
operating office properties, land and options to acquire land in four markets
across the United States. During the nine months ended September 30, 1997, the
Partnership continued buying properties and expanded into a fifth market. The
following discussion focuses on the results of the Partnership's operations from
March 6, 1996 (date of inception) to September 30, 1997. However, since the
Partnership does not have a full nine months of operations for September 30,
1996 with which to compare the nine months ended September 30, 1997, the
discussion below will explain variances between the two periods which will be
largely impacted by the difference between minimal activity in 1996 versus full
operations in 1997.
Results of Operations - Three Months Ended September 30, 1997 and 1996
Real Estate Operating Revenue. As of September 30, 1997, the Partnership
owned 46 operating properties, 44 of which, containing approximately 3.8 million
square feet, were in service for the full three months ended September 30, 1997,
as compared to 21 properties, 7 of which, containing approximately .8 million
square feet, were in service for the full three months ended September 30, 1996.
As a result, total real estate operating revenue increased $11.7 million, or
219.4 %, to $17.1 million for the three months ended September 30, 1997 as
compared to $5.4 million for the three months ended September 30, 1996. The
increase in revenue was primarily attributable to an $11.2 million and a $.5
million increase in rental revenue and real estate service income, respectively.
The Partnership experienced net growth in its rental revenue as a result of its
acquisitions since the third quarter of 1996 which contributed approximately
$10.9 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 $.3 million. Real estate service income
increased by $.5 million, or 498.2%, for the three months ended September 30,
1997 to $.6 million as compared to $.1 million for the three months ended
September 30, 1996, primarily as a result of reimbursements from an affiliate
related to certain services the Partnership personnel provide to the affiliate.
Real Estate Operating Expenses. Total real estate operating expenses
increased $8.2 million for the three months ended September 30, 1997, or 162.0%,
to $13.2 million as compared to $5.0 million for the three months ended
September 30, 1996. The net increase in operating expenses was attributable to a
$5.0 million increase in property operating expenses, a $1.0 million increase in
interest expense, a $.2 million increase in general and administrative expenses,
and a $2.0 million increase in depreciation and amortization. The increase in
operating expenses was primarily attributable to additional expenses associated
with new acquisitions since the third quarter of 1996. The increase in the
Partnership'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 staff to implement the Partnership's
business strategy and inflation. The increase in depreciation and amortization
is predominately a result of additional depreciation and amortization of the
Partnership's real estate acquisitions.
15
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Net Income. Net income of $3.9 million was earned for the three months
ended September 30, 1997 as compared to $.3 million during the three months
ended September 30, 1996. The comparability of net income between the two
periods is impacted by the acquisitions the Partnership made and the other
changes described above.
Results of Operations - Nine Months Ended September 30, 1997
and the period March 6, 1996 (Date of Inception) to
September 30, 1996
Real Estate Operating Revenue. As of September 30, 1997, the Partnership
owned 46 operating properties, 25 of which, containing approximately 2.3 million
square feet, were in service for the full nine months ended September 30, 1997,
as compared to 21 properties, none of which were in service for the full nine
months ended September 30, 1996. As a result, total real estate operating
revenue increased $33.9 million, or 534.9%, to $40.2 million for the nine months
ended September 30, 1997 as compared to $6.3 million for the period from March
6, 1996 to September 30, 1996. The increase in revenue was primarily
attributable to an $32.6 million and a $1.2 million increase in rental revenue
and real estate service income, respectively. The Partnership experienced net
growth in its rental revenue as a result of its acquisitions, which contributed
approximately $32.6 million of additional rental revenue in the nine month
period ended September 30, 1997. Real estate service income increased by $1.2
million, or 1,115.5%, for the nine months ended September 30, 1997 to $1.3
million as compared to $.1 million for the period from March 6, 1996 to
September 30, 1996, primarily as a result of reimbursements from an affiliate
related to certain services the Partnership personnel provide to the affiliate.
Real Estate Operating Expenses. Total real estate operating expenses
increased $25.8 million for the nine months ended September 30, 1997, or 427.8%,
to $31.8 million as compared to $6.0 million for the period from March 6, 1996
to September 30, 1996. The net increase in operating expenses was attributable
to a $14.6 million increase in property operating expenses, a $3.1 million
increase in interest expense, a $1.3 million increase in general and
administrative expenses, and a $6.8 million increase in depreciation and
amortization. The increase in operating expenses was primarily attributable to
additional expenses associated with new acquisitions during the nine months
ended September 30, 1997. The increase in the Partnership'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 staff to
implement the Partnership's business strategy and inflation. The increase in
depreciation and amortization is predominately a result of additional
depreciation and amortization of the Partnership's real estate acquisitions.
Net Income. Net income of $8.4 million was earned for the nine months ended
September 30, 1997 as compared to $.3 million during the period from March 6,
1996 to September 30, 1996. The comparability of net income between the two
periods is impacted by the acquisitions the Partnership made and the other
changes described above.
Cash Flows
Net cash provided by operating activities increased $10.2 million, or
185.3%, to $15.7 million for the nine months ended September 30, 1997 as
compared to $5.5 million for the period from March 6, 1996 to September 30,
1996, primarily as a result of the acquisitions made by the Company. Net cash
used by investing activities increased $1.2 million, to $155.3 million for the
nine months ended September 30, 1997 as compared to $154.1 million for the
period from March 6, 1996 to September 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 decreased $10.3 million to $140.0 million provided for the
nine months ended September 30, 1997 as compared to $150.3 million used for the
period from March 6, 1996 to September 30, 1996, primarily as a result of a
reduction in capital contributions associated with the acquisition of rental
properties.
16
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Acquisitions
During the three months ended September 30, 1997, the Partnership acquired
one operating property totaling approximately 77,000 square feet and located in
suburban Dallas. The property was acquired through the payment of $5.1 million
in cash. In addition, in the three months ended on September 30, 1997, the
Partnership has placed into service one operating property previously under
development containing approximately 189,000 square feet.
Liquidity and Capital Resources
The Partnership's total indebtedness at September 30, 1997 was $131.8
million, of which $30.0 million, or 22.8%, had a LIBOR-based floating interest
rate. The Partnership's fixed rate indebtedness had an effective weighted
average interest rate of 8.5% and had a weighted average term to maturity of 7.5
years. The Partnership is jointly and severally liable with CARC on a $450.0
million unsecured revolving line of credit. This line of credit bears interest
at 1.000 percent above LIBOR. At September 30, 1997, on this line of credit, the
Partnership had $30.0 million outstanding directly and had a joint and several
guarantee on the remainder of the outstanding balance of $117.0 million. At
September 30, 1997 CARC had total borrowing capacity under its unsecured line of
credit of $378.0 million, allowing CARC and the Partnership to borrow up to an
additional $231.0 million. At September 30, 1997, the total book value of the
Partnership's assets was $478.8 million. The Partnership's debt as a percentage
of total book value of its assets was 27.5%.
The Partnership will require capital to invest in its existing portfolio of
operating assets for major capital projects such as large-scale renovations,
routine capital expenditures and deferred maintenance on certain properties
recently acquired and tenant related capital expenditures, such as tenant
improvements and allowances and leasing commissions. The Partnership expects
such expenditures to decrease in subsequent years as deferred maintenance
activities are completed on recently acquired properties and as the emphasis of
the Partnership's growth shifts from acquiring existing office properties to
developing new properties. The Partnership anticipates that this shift from
acquiring properties to developing properties will increase its need for
short-term borrowings. The Partnership expects to meet these anticipated
additional borrowing needs through the use of its unsecured line of credit (as
described in the preceding paragraph). The Partnership's capital requirements
for tenant related capital expenditures are dependent upon a number of factors,
including square feet of expiring leases, tenant retention ratios and whether
the expiring leases are in central business district properties or suburban
properties. As of September 30, 1997, the Partnership has 149,736 square feet
under leases expiring on or before December 31, 1997. The Partnership intends to
use cash flow from operations and its unsecured revolving line of credit
facility to meet its working capital needs for its existing portfolio of
operating assets.
The Partnership also will require a substantial amount of capital for
development projects currently underway and planned for the future. The
Partnership currently has four development projects underway in which the
Partnership has invested $27.2 million and which the Partnership expects to
require a total investment by the Partnership of approximately $52.5 million.
The Partnership intends to use cash flow from operations and its unsecured
revolving credit facility 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
- --------------------------------------------------------------------------------
Building and Lease Information
The 46 properties contain a total of approximately 4.1 million rentable
square feet. Twelve properties are located in Southeast Denver (representing
29.6%), eleven properties are located in downtown and suburban Austin
(representing 23.8% of the portfolio's net rentable square feet), ten properties
are located in suburban Dallas (representing 23.6%), eight properties are
located in suburban Salt Lake City (representing 11.3%), three properties are
located in suburban Chicago (representing 7.8%) and two properties are located
in Southern California (representing 3.9%). Each of the properties is wholly
owned by the Partnership. The properties range in size from approximately 76,000
square feet to approximately 261,000 square feet. The Partnership acquired each
of the properties at various times between May 1996 and September 30, 1997. All
of the properties are managed by CARSI. In addition, as of September 30, 1997,
the Partnership owns four properties under development that will contain
approximately 414,000 square feet, and land and options to acquire land that
will support the development of up to 1.7 million square feet of office space.
18
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
The following table sets forth certain additional information relating to those
properties owned as of September 30, 1997:
The Net
Partnership's Rentable
Effective Area
Number of Property (Square Percent
Property Buildings Ownership Feet) (1) Leased (2)
- -------- --------- --------- --------- ----------
Southeast Denver
Harlequin Plaza 2 100.0% 327,711 96.2%
Quebec Court I & II 2 100.0% 285,829 100.0%
The Quorum 2 100.0% 123,895 95.6%
Greenwood Center 1 100.0% 75,866 97.1%
Quebec Center 3 100.0% 106,849 96.1%
Panorama Corporate Center I 1 100.0% 100,542 98.7%
JD Edwards 1 100.0% 189,087 100.0%
Austin
The Littlefield Complex (3) 2 100.0% 120,815 77.0%
First State Bank (4) 1 100.0% 260,840 72.9%
Norwood Tower 1 100.0% 111,994 74.9%
Great Hills Plaza 1 100.0% 135,333 100.0%
The Setting 3 100.0% 132,647 97.9%
Park North 2 100.0% 132,923 66.3%
Balcones Center 1 100.0% 75,761 83.5%
Salt Lake City
Sorenson Research Park 5 100.0% 285,144 100.0%
Draper Park North 3 100.0% 178,098 100.0%
Dallas
Greyhound 1 100.0% 92,890 100.0%
Search Plaza 1 100.0% 151,048 94.5%
Quorum North 1 100.0% 117,790 80.2%
Cedar Maple 3 100.0% 112,176 96.1%
Quorum Place 1 100.0% 176,562 91.0%
Tollhill East & West 2 100.0% 237,709 87.0%
Two Mission Park 1 100.0% 76,933 89.1%
Suburban Chicago
Bannockburn Lake I & II 2 100.0% 209,860 98.7%
Bannockburn IV 1 100.0% 108,470 98.7%
Southern California
South Coast
Executive Center 2 100.0% 161,301 95.6%
--- --------- -----
Total 46 4,088,073
=== =========
Weighted Average 92.3%
=====
- ----------
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
September 30, 1997.
(3) The Partnership owns the improvements on the land and has a leasehold
interest in all or a portion of the underlying land.
(4) This property was sold in October 1997.
19
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
The following table sets out a schedule of the lease expirations for leases
in place at those Properties owned as of September 30, 1997:
Net Rentable
Area Subject to
Expiring Leases
Year of Lease Expiration (square feet) (1)
------------------------ -----------------
1997....................... 149,736
1998....................... 527,121
1999....................... 503,515
2000....................... 397,908
2001....................... 797,769
2002....................... 456,461
2003....................... 257,372
2004....................... 145,284
2005....................... 2,171
2006 and thereafter 535,789
- ----------
(1) Excludes 314,947 square feet of vacant space.
20
Part II
OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Financial Statements and Financial Statement Schedules
See "Index to Financial Statements and Schedule" on page F-1 of
this Form 10.
(b) Exhibits
4.1 Indenture dated as of July 1, 1997 among CarrAmerica Realty
Corporation, the Partnership and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.1 of
CarrAmerica Realty Corporation's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997).
10.1 Second Amended and Restated Revolving Credit Agreement
dated as of September 15, 1997 by and among CarrAmerica
Realty Corporation, Carr Realty, L.P., the Partnership,
Morgan Guaranty Trust Company of New York, Commerzbank
Aktiengesellschaft, New York Branch, NationsBank, N.A.,
Wells Fargo Bank, National Association, Bank of America
National Trust and Savings Association, and the other banks
listed therein (incorporated by reference to Exhibit 10.1 of
CarrAmerica Realty Corporation's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
27.1 Financial Data Schedule.
21
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, L.P.
a Delaware Limited Partnership
By: CarrAmerica Realty GP Holdings, Inc.,
its general partner
/s/ Thomas A. Carr
- --------------------------------------------
Thomas A. Carr, President
/s/ Brian K. Fields
- --------------------------------------------
Brian K. Fields, Chief Financial Officer,
Treasurer and Vice President
Date: November 14, 1997
22
Exhibit Index
Exhibit Description Page
- ------- ----------- ----
(a) Financial Statements and Financial Statement Schedules
See "Index to Financial Statements and Schedule" on page F-1 of this
Form 10.
(b) Exhibits
4.1 Indenture dated as of July 1, 1997 among CarrAmerica Realty
Corporation, the Partnership and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.1 of
CarrAmerica Realty Corporation's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997).
10.1 Second Amended and Restated Revolving Credit Agreement
dated as of September 15, 1997 by and among CarrAmerica
Realty Corporation, Carr Realty, L.P., the Partnership,
Morgan Guaranty Trust Company of New York, Commerzbank
Aktiengesellschaft, New York Branch, NationsBank, N.A.,
Wells Fargo Bank, National Association, Bank of America
National Trust and Savings Association, and the other banks
listed therein (incorporated by reference to Exhibit 10.1 of
CarrAmerica Realty Corporation's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
27.1 Financial Data Schedule.
23