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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission File Number 1-11706
CARRAMERICA REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-1796339
(State of Incorporation) (I.R.S. Employer Identification No.)
1850 K Street, N.W.
Washington, D.C. 20006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 729-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.01 Par Value New York Stock Exchange
Series B Cumulative Redeemable Preferred Stock, $0.01 Par Value New York Stock Exchange
Series C Depositary Cumulative Redeemable Preferred Stock, $0.001 Par Value New York Stock Exchange
Series D Depositary Cumulative Redeemable Preferred Stock, $0.001 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of March 1, 2001, the aggregate market value of the 36,452,365 shares of
Common Stock held by non-affiliates of the registrant was approximately $1,100.0
million, based upon the closing price of $30.18 on the New York Stock Exchange
composite tape on such date.
Number of shares of Common Stock outstanding as of March 1, 2001:
65,224,012
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for the
Annual Stockholders Meeting to be held in 2001 are incorporated by reference
into Part III.
PART 1
Item 1. Business
THE COMPANY
General
CarrAmerica Realty Corporation is a fully integrated, self-administered and
self-managed publicly traded real estate investment trust ("REIT"). We focus on
the acquisition, development, ownership and operation of office properties,
located primarily in selected markets across the United States. As of December
31, 2000, we owned a greater than 50% interest in 252 operating office
properties and six properties under construction. The 252 operating properties
contain a total of approximately 20.4 million square feet of net rentable area.
The six properties under construction will contain approximately 552,000 square
feet of net rentable area. The operating properties in which we owned a greater
than 50% interest as of December 31, 2000 were 97.4 % leased. These properties
had approximately 1,350 tenants. As of December 31, 2000, we also owned minority
interests (ranging from 15% to 50%) in 31 operating office properties and seven
properties under construction. The 31 operating properties contain a total of
approximately 3.5 million square feet of net rentable area. The seven properties
under construction will contain approximately 1.2 million square feet of net
rentable area. The operating properties in which we owned a minority interest as
of December 31, 2000 were 99.1% leased.
We also are a leading office innovator, having made several strategic
investments or established strategic relationships with several companies that
complement our core real estate portfolio ownership. These investments and
relationships include HQ Global Workplaces, Inc., a global leader in executive
office suites; Broadband Office, Inc., a leading global provider of network-
based applications and communications, Internet and e-business solutions;
e'ssention, the engine behind InfoCentre, a web-based operations and issues
management platform; and DukeSolutions, a Duke Energy subsidiary providing
comprehensive energy management programs.
We were organized as a Maryland corporation on July 9, 1992, but we or our
predecessor, The Oliver Carr Company ("OCCO"), have developed, owned and
operated office buildings in the Washington, D.C. metropolitan area for more
than 38 years. In November 1995, we entered into a strategic alliance with a
wholly-owned subsidiary of Security Capital-U.S. Realty in which Security
Capital-U.S Realty purchased 11.6 million shares of our stock. In January 2001,
Security Capital-U.S. Realty merged with Security Capital Group International
("Security Capital"), and as a result, Security Capital now owns these shares.
As of December 31, 2000, Security Capital-U.S. Realty owned approximately 44.0%
of our outstanding common stock.
Our experienced staff of approximately 800 employees, including about 470
on-site building employees, provides a broad range of real estates services. Our
principal executive offices are located at 1850 K Street, NW, Washington, DC
20006. Our telephone number is 202-729-7500. Our web site can be found
www.carramerica.com.
Business Strategy
Our primary business objectives are to achieve long-term sustainable per
share cash flow growth and to maximize stockholder value by:
i. Acquiring, developing, owning and operating office properties
primarily in markets throughout the United States that exhibit strong,
long-term growth characteristics.
ii. Maintaining and enhancing a national operating system that provides
corporate users of office space a mix of products and services,
meeting their workplace needs both at the national and local levels.
Our major segments of continuing operations include real estate property
operations, which includes commercial property ownership, development operations
and other, including management services. Approximately 95.3% of our revenues
from continuing operations and approximately 88.3% of our assets are associated
with our real estate property operations. Our development operations include the
development of office space and the buildout of tenant spaces and are conducted
by us and through our subsidiary, CarrAmerica Development, Inc. ("CarrAmerica
Development"). Our investment in this business represents approximately 1.9% of
our revenues from continuing operations and approximately 3.1% of our assets.
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Real Estate Property Operations
Core Markets
We have focused our acquisition and development activity in U.S.
markets that possess long-term growth characteristics. Within these markets, we
target specific submarkets in which:
i. Long-term population and job growth are generally expected to
exceed the national average;
ii. Large, well educated employment pools exist; and
iii. Entry barriers exist for new supplies of office space.
We have established a local presence in each existing core market. This has been
done through our investment activity and relationships established by our
seasoned professional Market Managing Directors. Our core markets include:
* Pacific Region - Orange County/Los Angeles, CA, San Diego, CA,
San Francisco Bay Area, CA, Seattle, WA and Portland, OR
* Eastern Region - Metropolitan Washington, DC, and Atlanta, GA
* Mountain Region - Denver, CO, and Salt Lake City, UT
* Central Region - Austin, TX, Dallas, TX and Chicago, IL
For each core market, we have established a set of general guidelines
and physical criteria to evaluate investment opportunities. All of our
investment decisions are driven by real estate research. This research focuses
on variables such as the economic growth rate, the composition of job growth,
and office space supply and demand fundamentals.
As of December 31, 2000, our real estate property operations (on a
rentable square foot basis) were allocated among our regions as follows:
* 47.7% in the Pacific region
* 23.0% in the Eastern region
* 13.3% in the Mountain region
* 16.0% in the Central region
National Operating System
As part of our business strategy, we developed, and continue to
enhance, a national operating system. This system provides for nationally
coordinated customer service, marketing and development. Our national operating
system consists of three components:
* Market Managing Director Group. Our Market Managing Director
------------------------------
group consists of nine individuals who cover all of the markets
in which we own property. These Directors are responsible for
maximizing the performance of our properties in their respective
markets and ensuring that we are consistently meeting the needs
of our customers. Because they meet with our customers and local
brokers on a regular basis, the Managing Directors have extensive
knowledge of local conditions in their respective markets and are
invaluable identifying attractive investment opportunities in
them. Also, through their contact with customers, the Managing
Directors are well positioned to help the National Services Group
identify customers with new build-to-suit and multi-market
requirements.
* National Services Group. Our National Services Group is
-----------------------
responsible for marketing our properties, build-to-suit
capabilities and the national scope of our operations to a
targeted list of major corporate users. This group acts as a
primary point of contact for national customers, coordinating all
of the office space we offer and giving corporate customers the
opportunity to address their national space requirements
efficiently and economically.
* National Development Group. Our National Development Group is
--------------------------
responsible for developing office properties, build-to-suit
facilities and business parks. Through our subsidiary,
CarrAmerica
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Development, this development team consists of over 40 development and
project management professionals, who are located across the United
States and have an average of over 17 years of experience developing
office properties. Our team oversees every aspect of land planning,
building design, construction and development of office properties.
This ensures that all projects meet the same high standards and
uniform specifications in building design and systems. We believe that
the National Development Group's expertise has given us a competitive
edge in marketing our facilities and services to customers.
Our national operating system is designed to provide corporate users of
office space with a mix of products and services to meet their workplace needs
at both the national and local levels. We believe that through our existing
portfolio of operating properties, property development opportunities and land
acquired and currently held for development, we can generate incremental demand.
This can be accomplished through the relocation and expansion needs of many of
our customers, both within a single core market and in multiple core markets.
An increasingly important component of our business strategy involves
establishing alliances with companies or making investments in companies that
offer us new opportunities to build value for our customers and stockholders.
Some of the alliances or investments that we have established include the
following:
Strategic Alliances and Investments
HQ Global Workplaces. In 1997, we began making investments in HQ Global
Workplaces, a worldwide leader in providing office suites. HQ Global Workplaces
is the largest provider of flexible office outsourcing in the world. HQ Global
Workplaces and certain of its affiliates provide this office outsourcing to
customers by offering furnished individual offices and multi-office suites on a
short-term basis that are equipped for a number of services, including
telecommunications, broadband Internet access, copying, faxing and printing, as
well as secretarial support. We own approximately 16% of HQ Global Workplaces on
a fully diluted basis.
Broadband Office, Inc. Joining with several other real estate companies, we
formed Broadband Office, Inc. ("Broadband") in 1999. Broadband provides
telecommunications and technology services to office buildings throughout the
country. By contributing access to our property portfolio, we expect to benefit
from Broadband's ability to improve choice and services to our customers.
DukeSolutions. In December 1999, we entered into an alliance with
DukeSolutions, a Duke Energy subsidiary. The purpose of this alliance is to
implement a comprehensive energy management program that pioneers creative web-
based energy information and analysis strategies. This energy management program
became operational in 2000 and is intended to minimize risk due to deregulation
and to reduce energy costs for our customers.
AgilQuest. In September 2000, we made a $2.3 million equity investment in V
Technologies International Corporation d/b/a AgilQuest ("AgilQuest"). AgilQuest
created and operates an online resource reservation service that allows
individual employees to reserve office space when and where they need it. It
also enables employers to measure the use of office assets, allowing them to
position office resources more efficiently.
e'ssention. In November 2000, we formed a strategic relationship with
e'ssention, Inc. ("e'ssention"). e'ssention provides a web-based building
operation tool, InfoCentre, for use by our properties, customers and employees.
We have implemented InfoCentre at most of our properties. It allows for real-
time communications and monitoring of building and customer related maintenance
activities via the Internet 24 hours per day, seven days per week.
Growth Strategy
Development
Development of office properties is an important component of our growth
strategy. We believe that long-term investment returns resulting from properties
we develop will generally exceed those from properties we acquire, without the
assumption of significantly increased investment risks. We seek to control
development risks by:
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* employing extensively trained and experienced development personnel;
* avoiding the assumption of entitlement risk in conjunction with land
acquisitions;
* entering into guaranteed maximum price construction contracts with
seasoned and credible contractors;
* focusing on pre-leasing space and build-to-suit opportunities with our
customer network;
* analyzing the supply and demand characteristics of a market before
commencing inventory development in that market.
In general, we will only undertake inventory development, which excludes
construction of pre-leased properties, in markets with strong real estate
fundamentals. We then construct office buildings attractive to a wide range of
office users. Our research-driven development program enables us to tailor our
development activities in each core market, from inventory development,
build-to-suit projects and acquiring and holding land for future development.
We believe that having a land inventory to support future development
provides us with a competitive advantage. We use this advantage to respond to
customers' needs for office space in markets with low vacancy rates, barriers to
entry for new supplies of office space and increasing rental rates. In addition
to our portfolio of operating properties and projects currently under
development, we own or control, as of December 31, 2000, land in eight of our
markets. This land is expected to support future development of up to 2.0
million square feet of office space.
Acquisitions
From 1996 to 1998, we were very active in acquiring office properties as we
established an operating platform for our national business strategy. In light
of capital constraints and pricing disparities that favored development over
acquisitions, our acquisition activity in 1999 and 2000 was limited. We will
selectively pursue acquisitions in our core markets where attractive
opportunities exist, particularly when pricing yields make acquisitions of
existing properties attractive in comparison to new property development.
Asset Optimization
As a component of our business strategy, we may dispose of assets that
become inconsistent with our long-term strategic or return objectives or where
market conditions for disposition are favorable. We then redeploy the proceeds
from the dispositions into other office properties, or use them to fund
development operations, or support other corporate needs. We also may contribute
properties that we own into joint ventures with third parties.
Our ability to dispose of properties is limited, however, in light of an
agreement we have with Security Capital to use reasonable efforts to dispose of
properties through tax-deferred exchanges and agreements that we have entered
into with respect to properties owned by our subsidiaries CarrAmerica Realty,
L.P. and Carr Realty, L.P. Tax laws applicable to REITs also restrict our
ability to dispose of properties.
2000 Activities
Development and Acquisitions Activity
During 2000, we placed in service approximately 1.0 million square feet of
office properties that were previously under development. The total cost for
these projects was approximately $161.6 million. We expect that the first year
stabilized unleveraged return on this square footage will be 11.5%. As of
December 31, 2000, we had approximately 0.6 million square feet of office space
under construction in six projects that we wholly owned. Our total investment in
these projects is expected to be $94.7 million. Through December 31, 2000, we
had expended $48.3 million or 51.0% of the total expected investment for these
projects. During 2000, development of properties for others has become a more
significant part of this segment of our business. This includes development of
properties for joint ventures in which we are partners and for unaffiliated
parties. As of December 31, 2000, we
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were managing $267.3 million in projects for others, including $255.7 million
relating to the projects in which we had a minority interest.
During 2000, we acquired two operating properties and six parcels of land
we intend to hold for future development for approximately $35.3 million. The
operating properties contain approximately 0.1 million square feet. The land is
expected to support the development of approximately 0.9 million square feet of
office space.
Joint Ventures
In May 2000, we entered into a joint venture with JER Partners to develop a
440,000 square foot office building in downtown Austin, Texas. Construction of
this building is scheduled for completion in June 2002. As of December 31, 2000,
we also had approximately 784,000 square feet of office space under construction
in six projects in which we own minority interests. All of these projects are
expected to cost approximately $255.7 million. Our total investment in these
projects is expected to be approximately $98.9 million. Through December 31,
2000, approximately 38.3% or $97.9 million of the total project costs had been
expended.
Dispositions
On August 17, 2000, we closed on a joint venture transaction with New York
State Teachers' Retirement System ("NYSTRS"). At closing, we contributed
properties to the joint venture, Carr Office Park, L.L.C., and NYSTRS
contributed cash of approximately $255.1 million. The venture encompasses five
suburban office parks in four markets. We received cash totaling approximately
$249.6 million from these transactions and hold a 35% interest in the joint
venture. Our investment in Carr Office Park, L.L.C. at December 31, 2000 was
$124.5 million.
In addition to the properties contributed to the NYSTRS joint venture, we
disposed of an additional 16 properties (including one property in which we held
an interest through an unconsolidated entity) in 2000 and four parcels of land
that were being held for development. We recognized a net gain of $24.1 million,
net of taxes of $5.6 million, on these transactions.
HQ Global Workplaces
In June 2000, we sold a substantial portion of our equity interest in HQ
Global and our debt and equity interests in two European executive suites
affiliates in connection with the merger of HQ Global with VANTAS Incorporated.
We received $377.3 million in cash in connection with these transactions. In
addition, $140.5 million of debt which we guaranteed was repaid with a portion
of the cash proceeds. We own approximately 16% of the equity of the merged
entity on a fully diluted basis. Our investment is accounted for under the cost
method of accounting.
As part of the HQ Global/VANTAS transaction, we received put rights with
respect to our continuing interest in HQ Global. These rights can be exercised
at specified times at our option if HQ Global has not completed an initial
public offering. A portion of the put is exercisable in late 2001, with the
balance exercisable in June 2002. Payment for our HQ Global stock will be based
on the fair market value of our investment and can be made either in cash, a
short-term note (in the case of the 2001 put right) or delivery of common stock
of FrontLine Capital Group, a NASDAQ-listed company and the majority shareholder
of HQ Global.
Financing Activity
In September 2000, we retired $150 million of senior unsecured credit notes
that were to mature on October 1, 2000.
Forward-Looking Statements
Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our, and our affiliates, or the
industry's actual results, performance or achievements to be materially
different from any future results, performance or
6
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following:
* National and local economic, business and real estate conditions
that will, among other things affect:
* Demand for office properties
* Availability and creditworthiness of tenants
* Level of lease rents
* Availability of financing for both tenants and us;
* Adverse changes in the real estate markets, including, among
other things:
* Competition with other companies
* Risks of real estate acquisition and development
* Failure of pending developments to be completed on time
and on budget;
* Actions, strategies and performance of affiliates that we may not
control;
* Governmental actions and initiatives;
* Environmental/safety requirements.
Our Directors
Our directors are divided into three classes, with approximately one-
third of the directors elected by the stockholders annually. The current members
of our Board of Directors are as follows:
* Thomas A. Carr, 42, has been our Chairman of the Board of Directors since
May 2000 and President and a director since 1993 and Chief Executive
Officer since 1997. Mr. Carr's term as director of the Company expires at
the 2001 Annual Meeting of Stockholders. He has been renominated for
election by the stockholders at that meeting to serve another three-year
term. Mr. Carr was our Chief Operating Officer from April 1995 to May 1997
and our Chief Financial Officer from February 1993 to April 1995. Also, he
is a director of The Oliver Carr Company. Mr. Carr holds a Master of
Business Administration degree from Harvard Business School and a Bachelor
of Arts degree from Brown University. Mr. Carr is a member of the Board of
Directors of the National Association of Real Estate Investment Trusts, and
a member of the Young Presidents Organization, Federal City Council and the
International Development Research Council. He is a member of the Board of
Directors of HQ Global. Mr. Carr is the son of Oliver T. Carr, Jr. and the
brother of Robert O. Carr. Mr. Carr is a member of the Investment Committee
and the Executive Committee of the Board of Directors. In addition, Mr.
Carr is a member of management's Operating Committee and Investment
Committee.
* Oliver T. Carr, Jr., 75, was Chairman of our Board of Directors from
February 1993 until May 2000. He also served as our Chief Executive Officer
from 1993 to 1997. Mr. Carr's term as a director expires at the 2002 Annual
Meeting of Stockholders. Mr. Carr founded The Oliver Carr Company in 1962
and since that time he has been its Chairman of the Board and a director as
well as President from 1962 to 2000. He also is Chairman Emeritus of the
Board of Trustees of The George Washington University. Mr. Carr is the
father of both our current Chairman, President and Chief Executive Officer,
Thomas A. Carr, and Robert O. Carr, the President of Carr Urban
Development, Inc. Mr. Carr is a member of the Investment Committee and the
Executive Committee of the Board of Directors.
* Ronald Blankenship, 51, has been a director since August 1998. Mr.
Blankenship's term as a director expires at the 2003 Annual Meeting of
Stockholders. Mr. Blankenship was nominated to the Board as a designee of
Security Capital, one of our major stockholders. Mr. Blankenship has been
the Vice Chairman and Chief Operating Officer of Security Capital Group
Incorporated since May 1998. Previously, Mr. Blankenship was Managing
Director of Security Capital Group Incorporated from March 1991 to May
1998. Mr. Blankenship is a director of Security Capital Group Incorporated
and Storage USA, Inc. He received a B.B.A. from the University of Texas at
Austin. Mr. Blankenship is a member of the Executive Compensation Committee
of the Board of Directors.
* Andrew F. Brimmer, 74, has been a director since February 1993. Dr.
Brimmer's term as a director expires at the 2002 Annual Meeting of
Stockholders. He has been President of Brimmer & Company, Inc., an economic
and financial consulting firm, since 1976. Dr. Brimmer is the Wilmer D.
Barrett Professor of Economics at the
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University of Massachusetts, Amherst. He also serves as a director of
BlackRock Investment Income Trust, Inc. (and other funds) and Borg-Warner
Automotive, Inc. From June 1995 through August 1998, Dr. Brimmer served as
chairman of the District of Columbia Financial Control Board. He was a
member of the Board of Governors of the Federal Reserve System from March
1966 through August 1974. Dr. Brimmer received a B.A. degree and a master's
degree in economics from the University of Washington and a Ph.D. in
economics from Harvard University. Dr. Brimmer is a member of the Audit
Committee of the Board of Directors.
* A. James Clark, 73, has been a director since February 1993. Mr. Clark's
term as a director expires at the 2003 Annual Meeting of Stockholders. He
is Chairman of the Board and CEO of Clark Enterprises, Inc., a Bethesda,
Maryland-based company. Clark Enterprises, Inc. has been involved in real
estate, and commercial and residential construction since 1972. Mr. Clark
is on the Board of Trustees of the University of Maryland College Park
Foundation, and is a Trustee Emeritus of the Johns Hopkins University and
the Johns Hopkins Board of Medicine. He is also a member of the PGA Tour
Golf Course Properties Advisory Board. Mr. Clark is a graduate of the
University of Maryland. He is a member of the Investment Committee, the
Executive Committee, the Executive Compensation Committee, and the
Nominating Committee of the Board of Directors.
* Timothy Howard, 52, has been a director since August 1998. Mr. Howard's
term as a director expires at the 2003 Annual Meeting of Stockholders. Mr.
Howard has been the Executive Vice President and Chief Financial Officer
of Fannie Mae since 1990 and a member of Fannie Mae's Office of the
Chairman since November 2000. From 1988 to 1990, Mr. Howard was Executive
Vice President - Asset Management of Fannie Mae. Mr. Howard has held
positions of increasing responsibility with Fannie Mae since beginning with
the company in 1982. Mr. Howard is a member of the Audit Committee and the
Executive Compensation Committee of the Board of Directors.
* Caroline S. McBride, 47, has been a director since July 1996. Ms. McBride's
term as a director expires at the 2001 Annual Meeting of Stockholders. She
has been renominated for election by the stockholders at that meeting to
serve another three-year term. Ms. McBride was nominated to the Board as a
designee of Security Capital, one of our major stockholders. Since June
1996, Ms. McBride has been a Managing Director of the Capital Division of
Security Capital Group. From June 1996 to July 1997, Ms. McBride was
Managing Director of Security Global Capital Management Group. From July
1978 to May 1996, she was with IBM, where she was director of private
market investments for the IBM Retirement Fund from 1994 to 1996. From 1992
to 1994, she was director of real estate investments for the IBM Retirement
Fund. Ms. McBride is on the Board of Directors of Storage USA, Inc.,
BelmontCorp., CWS Communities Trust and the Real Estate Research Institute.
Ms. McBride received her Masters in Business Administration degree from New
York University and a Bachelor of Arts degree from Middlebury College. Ms.
McBride is a member of the Investment Committee of the Board of Directors.
* William D. Sanders, 59, has been a director since May 1996. Mr. Sanders'
term as a director expires at the 2002 Annual Meeting of Stockholders. Mr.
Sanders was nominated to the Board as a designee of Security Capital, one
of our major stockholders. He is the founder and Chairman of Security
Capital Group. Mr. Sanders retired on December 31, 1989 as Chief Executive
Officer of LaSalle Partners Limited, a firm he founded in 1968. Mr. Sanders
is on the Board of Directors of Security Capital and Storage USA, Inc. Mr.
Sanders is a former trustee and member of the executive committee of the
University of Chicago and a former trustee fellow of Cornell University.
Mr. Sanders received his Bachelor of Science degree from Cornell
University. Mr. Sanders is a member of the Nominating Committee of the
Board of Directors.
* Wesley S. Williams, Jr., 58, has been a director since February 1993.
Mr. Williams' term as a director expires at the 2001 Annual Meeting of
Stockholders. He has been renominated for election by the stockholders at
that meeting to serve another three-year term. Mr. Williams has been a
partner of the law firm of Covington & Burling since 1975. After serving as
a junior member of the Faculty of Law of Columbia University, Mr. Williams
was adjunct professor of real estate finance law at Georgetown University
Law Center from 1971 to 1973. In addition, he is an author or contributing
author of several texts on banking law and on real estate investment and
finance. Mr. Williams is on the Editorial Advisory Board of the District of
Columbia Real Estate Reporter. Mr. Williams serves as Deputy Chairman of
the Board of Directors of the Federal Reserve Bank of Richmond. Mr.
Williams is Co-Chairman of the Board of Directors and Co-CEO of The
Lockhart Companies Inc. and of its real estate, insurance, consumer
finance, and miscellaneous internet and venture subsidiaries. Mr. Williams
is a member of the Executive Committee of the Board of Trustees of Penn
Mutual
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Life Insurance Company, of which he is the Senior Trustee. He is also a
member of the Executive Committee of the Board of Regents of the
Smithsonian Institution. Mr. Williams received B.A. and J.D. degrees from
Harvard University, an M.A. degree from the Fletcher School of Law and
Diplomacy and an LL.M. from Columbia University. Mr. Williams is a member
of the Audit Committee and Executive Compensation Committee of the Board of
Directors.
Our Executive Officers and Certain Key Employees
As of December 31, 2000, our executive officers and key employees
(including executive officers and key employees of CarrAmerica Development, Inc.
and other affiliates) were as follows:
* Karen B. Dorigan, 36, has been Chief Investment Officer since November
2000. Prior to that time, she was Managing Director - Capital Markets and
Investments since April 1999. Prior to that time, Ms. Dorigan served as a
Senior Vice President since May 1997. Prior to that, Ms. Dorigan was the
Company's Vice President--Land Due Diligence since January 1996. Prior to
that, Ms. Dorigan served for more than nine years in a variety of
capacities in the development business of The Oliver Carr Company,
including from February 1993 to January 1996 as a Vice President. Ms.
Dorigan holds a Bachelor of Science degree in Economics from the University
of Pennsylvania, Wharton School. Ms. Dorigan is a member of management's
Operating Committee and Investment Committee.
* Kent C. Gregory, 50, has been Managing Director - National Services since
July 1997. Prior to joining us, Mr. Gregory had been employed by Opus, a
real estate service company, since 1991, as Senior Vice President of
National Accounts. He holds a Masters in Business Administration from Pace
University and a Bachelor of Arts degree in Business Administration from
St. Thomas University. He is a member of management's Operating Committee
and Investment Committee.
* Philip L. Hawkins, 45, has been Chief Operating Officer since October 1998.
From February 1996 to October 1998, Mr. Hawkins served as Managing
Director--Asset Management. Prior to that time, Mr. Hawkins was employed
by LaSalle Partners Limited, a real estate services company, since 1982. At
LaSalle, he served as Executive Vice President, Eastern Division, Asset
Management Group from 1995 to 1996, as Senior Vice President, Northeast
Region, Asset Management Group from 1990 to 1994, and in other asset
management positions prior to that time. Mr. Hawkins also was a director of
LaSalle Partners Limited. He holds a Masters in Business Administration
from the University of Chicago Graduate School of Business and a Bachelor
of Arts degree from Hamilton College. Mr. Hawkins is a member of
management's Operating Committee and Investment Committee. Mr. Hawkins is
also a member of the Board of Directors and the Executive Committee of
Broadband Office, Inc.
* Richard F. Katchuk, 54, has been Chief Financial Officer since February
1999. From 1995 to 1999, Mr. Katchuk served as Chief Financial Officer and
Corporate Executive Vice President of Crestar Financial Corporation. Prior
to joining Crestar Financial Corporation, Mr. Katchuk was with Banc One,
serving as a Senior Vice President Corporate Finance from 1988 to 1995. Mr.
Katchuk holds a Bachelor of Arts degree in Economics from Hobart & William
Smith Colleges. Mr. Katchuk is a member of management's Operating Committee
and Investment Committee.
* Linda A. Madrid, 41, has been Managing Director, General Counsel and
Corporate Secretary since November 1998. Prior to that time Ms. Madrid
served as Senior Vice President and General Counsel since March 1998. Prior
to that time, Ms. Madrid had been Senior Vice President, Managing Director
of Legal Affairs and Corporate Secretary of Riggs National
Corporation/Riggs Bank N.A. since February 1996 and Vice President and
Litigation Manager from September 1993 to January 1996. Before joining
Riggs, Ms. Madrid practiced law in several law firms in Washington, D.C.
and served as Assistant General Counsel for Amtrak. Ms. Madrid holds a J.D.
from Georgetown University Law Center and a Bachelor of Arts degree from
Arizona State University. Ms. Madrid is a member of management's Operating
Committee.
* Paul R. Adkins, 42, has been Managing Director - Private Capital since May
1999. From 1996 to 1999, Mr. Adkins served as the Company's Senior Vice
President, Market Managing Director for Washington, D.C. Mr. Adkins has
been with the Company for over 17 years, including serving as Vice
President of Acquisitions from May 1994 to August 1996. Prior to that, Mr.
Adkins served in a variety of other capacities with the Company,
9
with over 12 years in commercial real estate leasing. Mr. Adkins is a
member of the District of Columbia's Building Industry Association and
Northern Virginia's National Association of Industrial and Office Parks.
Mr. Adkins holds a Bachelor of Arts degree in Economics from Bucknell
University. Mr. Adkins is a member of management's Operating Committee.
* Steven N. Bralower, 52, has been Executive Vice President of Carr Real
Estate Services, Inc. ("Carr Services, Inc."), an affiliate that conducts
management and leasing operations, since January 1999, and Senior Vice
President of Carr Realty, L.P., a subsidiary, since May 1996. Mr. Bralower
was Senior Vice President of Carr Services, Inc. from 1993 to May 1996. Mr.
Bralower is a member of the Greater Washington Commercial Association of
Realtors. Mr. Bralower has been a member of the Georgetown University Law
Center adjunct faculty since 1987. Mr. Bralower holds a Bachelor of Arts
degree from Kenyon College.
* Robert O. Carr, 51, has been President of CarrAmerica Urban Development,
Inc., a subsidiary of CarrAmerica Development, since June 1998, and
Chairman of the Board of Directors of Carr Services, Inc., since February
1993. Mr. Carr served as one of our directors from 1993 until 1997 and as
President of Carr Services, Inc. from 1993 to 1998. Mr. Carr is a director
of The Oliver Carr Company. From 1987 until February 1993, he served as
President and Chief Executive Officer of The Oliver Carr Company. Mr. Carr
is a member of the Boards of Directors of the Greater Washington Research
Center, the Corcoran School of Art and the National Cathedral School for
Girls. Mr. Carr is also a member of the Greater Washington Board of Trade,
the Urban Land Institute and the D.C. Chamber of Commerce. Mr. Carr holds a
Bachelor of Arts degree from Trinity College. Mr. Carr is the son of Oliver
T. Carr, Jr. and the brother of Thomas A. Carr.
* Clete Casper, 41, has been Market Managing Director -Seattle since July
1999. Prior to that time Mr. Casper served as the Company's Vice President,
Market Managing Director for Seattle since July 1996. Mr. Casper has over
10 years of experience in real estate and marketing. Mr. Casper's most
recent experience includes one year as a Senior Associate with CB
Commercial Real Estate Group Inc., Seattle, Washington. Prior to that, Mr.
Casper was with Sabey Corporation in Seattle, Washington, serving as
Development Manager for four years and as a Marketing Associate for five
years. Mr. Casper is a graduate of Washington State University. Mr. Casper
is a member of management's Operating Committee.
* John J. Donovan, Jr., 57, has been a Market Managing Director since July
1999 and President of Carr Services, Inc., since January 1999. Prior to
that time, Mr. Donovan served as Senior Vice President of Carr Services,
Inc. from 1993 to 1998. He is a member of the Advisory Board for Jubilee
Enterprise of Greater Washington, the Economic Club of Washington, the
Greater Washington Board of Trade and the Greater Washington Commercial
Association of Realtors. Mr. Donovan holds a Bachelor of Arts degree from
Georgetown University. Mr. Donovan is a member of management's Operating
Committee.
* J. Thad Ellis, 40, has been Market Managing Director - Atlanta since July
1999. Prior to that time Mr. Ellis served as the Company's Vice President,
Market Managing Director for Atlanta since November 1996. Mr. Ellis has
over 15 years of experience in real estate. Mr. Ellis' most recent
experience includes 10 years with Peterson Properties. At Peterson
Properties, his primary responsibility was to oversee and coordinate
leasing and property management for the management services portfolio. Mr.
Ellis is a graduate of Washington & Lee University and is a member of the
National Association of Industrial and Office Parks and Atlanta's Chamber
of Commerce and is on the Advisory Board of Black's Guide. Mr. Ellis is a
member of management's Operating Committee.
* Richard W. Greninger, 49, has been Managing Director - Property Operations
since May 1999. Prior to that time Mr. Greninger served as Senior Vice
President--Operations since January 1998. Prior to that, Mr. Greninger had
been the Senior Vice President of Carr Services, Inc., since March 1995.
Prior to that time, he had been Vice President of Carr Services, Inc. since
February 1993. During 1994, Mr. Greninger served as President of the
Greater Washington Apartment and Office Building Association. Mr. Greninger
has served as a director of both the Institute of Real Estate Management
and the Building Owners and Managers Association and is currently Chairman
of its National Advisory Council. He is also a member of the Board of
Directors of e'ssention. Mr. Greninger holds a Masters in Business
Administration from the University of Cincinnati and a Bachelor of Science
degree from Ohio State University. Mr. Greninger is a member of
management's Operating Committee.
10
* Dale F. Hogg, 58, joined us from Iridium, LLC, in May 2000 as Senior Vice
President of Human Resources and Administration. Before joining Iridium in
1994, Mr. Hogg was Corporate Manager, Global Staffing and Corporate
Manager, Compensation for W.R. Grace & Co. from 1991. Mr. Hogg holds a
Bachelor of Science degree from Colorado State University. He is a member
of management's Operating Committee.
* William Krokowski, 38, has been Market Managing Director - Denver since
December 1999. Prior to that time Mr. Krokowski served as Vice
President/Director of Development for CarrAmerica Development, Inc., an
affiliate, since 1997. Prior to 1997, Mr. Krokowski was a member of our
investments group. Prior to joining CarrAmerica, Mr. Krokowski spent over
five years with Tishman Speyer Properties in New York and Washington, D.C.
as a development manager. Mr. Krokowski holds a Civil Engineering degree
from Bucknell University and a Masters in Business Administration from Duke
University. Mr. Krokowski is a member of management's Operating Committee.
* Joel A. Manfredo, 46, became Chief Technology Officer and Managing Director
of e-business solutions in November 2000. Prior to joining us, Mr. Manfredo
was Vice President and Director of Information Strategies with The Rouse
Company from 1988. Mr. Manfredo served as Director of Investment Assets for
a subsidiary of McCormick and Company from 1981 to 1988. Mr. Manfredo holds
a Masters of Science in Finance and a Masters of Business Administration
from Loyola College, as well as, a Bachelors of Science in Business
Administration from Lehigh University. He is a member of management's
Operating Committee.
* Robert M. Milkovich, 41, has been Market Managing Director - Phoenix since
July 1999. Prior to that time Mr. Milkovich served as Vice President,
Market Managing Director for Phoenix, Arizona since January 1998. Mr.
Milkovich has over 14 years of experience in real estate leasing. Mr.
Milkovich's most recent experience includes five years as the Assistant
Vice President of leasing for Carr Services, Inc. Mr. Milkovich holds a
Bachelor of Science in Business Administration from the University of
Maryland. Mr. Milkovich is a member of management's Operating Committee.
* Malcolm O'Donnell, 43, joined us in October 2000 as Vice President and
Managing Director for our Southern California region. He was previously
employed as Principal of Alpine Holding and Keller Equity Group, Inc.
overseeing development projects. From March 1997 to December 1997, Mr.
O'Donnell was Vice President of Acquisitions for Beacon Properties. Mr.
O'Donnell holds a Bachelor of Science degree from the University of
Southern California. He is a member of management's Operating Committee.
* Gerald J. O'Malley, 57, has been Market Managing Director - Chicago since
July 1999. Prior to that time Mr. O'Malley served as Vice President, Market
Managing Director for Chicago since July 1996. Mr. O'Malley has over 32
years of experience in real estate marketing. Mr. O'Malley's most recent
experience includes 10 years as founder and President of G. J. O'Malley &
Company, a real estate office leasing company. Mr. O'Malley holds a
Bachelors of Business Administration degree from Loyola University. Mr.
O'Malley is a member of management's Operating Committee.
* Jeffrey S. Pace, 38, has been Market Managing Director - Austin since July
1999. Prior to that time Mr. Pace served as Vice President, Market Managing
Director for Austin, Texas since May 1997. Mr. Pace has over 14 years of
experience in real estate marketing. Mr. Pace's most recent experience was
with Trammell Crow Company, where he served as Marketing Director. Prior to
that time, Mr. Pace held the position of Marketing Representative in the
Dallas and Austin markets for Carlisle Property Company, Stockton,
Luedmann, French & West and Trammell Crow Company from 1985 to 1997. Mr.
Pace holds a Masters of Business Administration from the University of
Texas at Arlington and a Bachelor of Science from the University of Texas
at Austin. Mr. Pace is a member of management's Operating Committee.
* Stephen E. Riffee, 43, has been Senior Vice President, Controller and
Treasurer since July 1999. Prior to that time, Mr. Riffee served as Vice
President Finance and Chief Accounting Officer of Marriott International,
Inc. for three years. Prior to joining Marriott International, Inc., Mr.
Riffee served as Assistant Vice President at Burlington Northern Railroad
after having previously worked in the National Transportation Practice of
KPMG Peat Marwick. Mr. Riffee holds a Bachelor of Science in Commerce
degree from the McIntire School of Commerce of the University of Virginia.
Mr. Riffee is a member of management's Operating Committee.
* Leah Segawa, 44, has been Market Managing Director - Northern California
since June 1999. Prior to that time Ms. Segawa served as Vice President and
Development Coordinator for CarrAmerica Development, Inc., an
11
affiliate. Prior to this, from 1989 to 1997, Ms. Segawa was President of
WesTerra Collaborative Ltd., a real estate development consulting firm
which managed a wide range of development projects. Ms. Segawa holds a
Bachelor of Arts with honors in Architecture from University of California
at Berkeley and a Masters of Business Administration from Harvard
University. Ms. Segawa is a member of management's Operating Committee.
* William H. Vanderstraaten, 40, has been Market Managing Director - Dallas
since July 1999. Prior to that time Mr. Vanderstraaten served as Vice
President, Market Managing Director for Dallas since April 1997. Mr.
Vanderstraaten has over 16 years of experience in real estate development
and leasing fields. Mr. Vanderstraaten's most recent experience prior to
working for the Company includes eight years as Vice President--New
Development for Harwood Pacific Corporation in Dallas, Texas, where his
primary responsibilities were directing large scale development projects
and coordinating leasing efforts for portfolios. Mr. Vanderstraaten holds a
Bachelor of Science degree in Business Administration from Southern
Methodist University. Mr. Vanderstraaten is a member of management's
Operating Committee.
* Karen L. Widmayer, 42, has served as Senior Vice President of Corporate
Communications since August 1999. Prior to that time Ms. Widmayer served as
Vice President of Corporate Communications since 1997. Ms. Widmayer is an
18-year veteran of CarrAmerica and our predecessor company. Ms. Widmayer is
responsible for our strategic marketing and branding including media
relations, advertising, community relations, employee communications,
corporate and project marketing as well as our web site and intranet site.
Ms. Widmayer performed Masters work in Economics at the University of
Tennessee. Ms. Widmayer holds a Bachelor of Arts degree in Business
Management from Virginia Intermont College. Ms. Widmayer is a member of
management's Operating Committee.
* James S. Williams, 44, has been a Managing Director since April 1999 and
President of CarrAmerica Development since May 1999. Prior to that time Mr.
Williams was Senior Vice President of CarrAmerica Development since October
1996. Mr. Williams rejoined us after two years as Vice President of
Operations of Chadwick International. Prior to that, from 1983 to 1994, he
served in a variety of capacities for The Oliver Carr Company including
Senior Vice President of Development. Mr. Williams is a guest lecturer at
George Washington University. He holds a Bachelor of Science degree in
Business Administration from West Virginia University. Mr. Williams is a
member of the Board of Directors and a member of the Executive Committee of
the District of Columbia Building Industry Association. He is a member of
the Investment Committee of CarrAmerica Development and a member of
management's Investment Committee and Operating Committee.
Risk Factors
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in our
securities.
Our Performance is Subject to Risks Associated with Real Estate Investment
We are a real estate company that derives most of its income from the
ownership and operation of office buildings. There are a number of factors that
may adversely affect the income that our properties generate, including the
following:
* Economic Downturns. Downturns in the national economy, or in
------------------
regions or localities where our properties are located, generally
will negatively impact the demand for office space.
* Oversupply of Office Space. An oversupply of space in markets
--------------------------
where we own office properties making it more difficult for us to
lease space at attractive rental rates would typically cause
rental rates and occupancies to decline.
* Competitive Properties. If our properties are not as attractive to
----------------------
tenants (in terms of rents, services or location) as other
properties that are competitive with ours, we will lose tenants to
those properties or could have to reduce our rental rates to
compensate for that disparity.
* Renovation Costs. In order to maintain the quality of our office
----------------
buildings and successfully compete against other properties, we
periodically have to spend money to repair and renovate our
properties.
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* Tenant Risk. Our performance depends on our ability to collect
-----------
rent from our tenants. While no tenant in our portfolio accounted
for more than 5% of our rental revenue as of December 31, 2000,
our financial position may be adversely affected by financial
difficulties experienced by a major tenant, or by a number of
smaller tenants, including bankruptcies, insolvencies or general
downturns in business.
* Reletting Costs. As leases expire, we try to either relet the
---------------
space to an existing tenant or attract a new tenant to occupy the
space. In either case, we likely will incur significant costs in
the process. In addition, if market rents have declined since the
time the expiring lease was entered into, the terms of any new
lease signed likely will not be as favorable to us as the terms of
the expiring lease, thereby reducing the income earned from that
space.
* Regulatory Costs. There are a number of government regulations,
----------------
including zoning, tax and accessibility laws that apply to the
ownership and operation of office buildings. Compliance with
existing and newly adopted regulations may require us to spend a
significant amount of money on our properties.
* Fixed Nature of Costs. Most of the costs associated with owning
---------------------
and operating an office building are not necessarily reduced when
circumstances such as market factors and competition cause a
reduction in income from the property.
* Environmental Problems. Federal, state and local laws and
----------------------
regulations relating to the protection of the environment may
require a current or previous owner or operator of real property
to investigate and clean up hazardous or toxic substances or
petroleum product releases at the property. The clean up can be
costly. The presence of or failure to clean up contamination may
adversely affect our ability to sell or lease a property or to
borrow using a property as collateral.
* Competition. A number of other major real estate investors with
-----------
significant capital compete with us. These competitors include
publicly traded REITs, private REITs, investment banking firms and
private institutional investment funds.
New Developments and Acquisitions May Fail to Perform As Expected
Over the last few years, we have embarked on a major acquisition and
development program. In deciding whether to acquire or develop a particular
property, we made certain assumptions regarding the expected future performance
of that property. If a number of these new properties do not perform as
expected, our financial performance will be adversely affected.
While our acquisition pace has declined significantly, we remain very
active in developing office properties. New office property developments are
subject to a number of risks, including construction delays, complications in
obtaining necessary zoning, occupancy and other governmental permits, cost
overruns, financing risks, and the possible inability to meet expected occupancy
and rent levels. If any of these problems occur, development costs for a project
will increase, and there may be costs incurred for projects that are not
completed.
We Do Not Have Exclusive Control Over Our Joint Venture Investments
We have invested in projects or properties as a co-venturer or partner
in the development of new properties and the continued operations of operating
properties. These investments involve risks not present in a wholly owned
project. Risks related to these investments include:
* Absence of exclusive control over the development, financing,
leasing, management and other aspects of the project;
* Possibility that our co-venturer or partner might:
* become bankrupt;
* have interests or goals that are inconsistent with ours;
* take action contrary to our instructions, requests or
interests (including those related to our qualification as a
REIT for tax purposes); or
* otherwise impede our objectives.
13
Our Use of Debt Subjects Us to Various Financing Risks
While we believe that we have a conservative borrowing policy, we do
regularly borrow money to finance our business, particularly the acquisition and
development of properties. We generally incur unsecured debt, although in many
cases we will incur mortgage debt that is secured by one or more of our office
buildings. There are risks inherent in borrowing money, including the following:
* No Limitation on Debt Incurrence. The Company's organizational
--------------------------------
documents do not limit the amount of debt the Company can incur.
The degree of leverage of the Company could have important
consequences, including making it more difficult for us to obtain
additional financing in the future for business needs, as well as
making us more vulnerable to an economic downturn.
* Possible Inability to Meet Scheduled Debt Payments. If our
--------------------------------------------------
properties do not perform as expected, our cash flow from our
properties may not be enough to make required principal and
interest payments. If a property is mortgaged to secure payment of
indebtedness and we are unable to meet mortgage payments, the
holder of the mortgage or lender could foreclose on the property,
resulting in loss of income and asset value. An unsecured lender
could also attempt to foreclose on some of the Company's assets in
order to receive payment.
* Inability to Refinance Debt. In almost every case, very little of
---------------------------
the principal amount that we borrow is repaid prior to the
maturity of the loan. We generally expect to refinance that debt
when it matures, although in some cases we may pay off the loan.
If principal amounts due at maturity cannot be refinanced,
extended or paid with proceeds of other capital transactions, such
as new equity capital, our cash flow may be insufficient to repay
all maturing debt. Prevailing interest rates or other factors at
the time of a refinancing (such as possible reluctance of lenders
to make commercial real estate loans) may result in higher
interest rates and increased interest expense.
* Financial Covenants Could Adversely Affect Our Financial
--------------------------------------------------------
Condition. Our credit facilities and the indentures under which
---------
our senior unsecured indebtedness are issued contain financial and
operating covenants, including coverage ratios and other
limitations on our ability to incur secured and unsecured
indebtedness, sell all or substantially all of our assets and
engage in mergers, consolidations and certain acquisitions. These
covenants may restrict our ability to engage in transactions that
would otherwise be in our best interests.
* Variable Interest Rates Could Increase the Cost of Borrowing. A
------------------------------------------------------------
significant amount of our financing is through an unsecured line
of credit. The line of credit is subject to variable floating
interest rates. Because we have not hedged against interest
fluctuations, significant increases in interest rates could
dramatically increase our costs of borrowing on the line of
credit. Additionally, interest rates on certain of our debt are
based on the credit rating of our debt by independent agencies,
and would be increased in the event that the credit ratings are
downgraded.
Our Business Structure Has Certain Risks Associated With It
* A Major Stockholder Has Influence on Our Operations.
Security Capital owned approximately 44.0% of our outstanding common stock
as of December 31, 2000. No other stockholder is permitted to own more than
5% of our common stock, subject to certain exceptions. Under a Stockholders
Agreement with us, Security Capital has the right to nominate up to 40% of
the directors. The Stockholders Agreement also gives Security Capital
certain rights that limit our ability to take certain actions and limits
our ability to engage in certain transactions that may be in the short-term
best interests of other stockholders. This situation results in Security
Capital having a substantial influence over our affairs. This could
potentially be disadvantageous to other stockholders' interests, which may
not converge with the interests of Security Capital.
14
* Certain Officers and Directors May Have Interests that Conflict with the
Interests of Stockholders.
Certain of our officers and members of our board of directors own units of
limited partner interest in Carr Realty, L.P., a partnership that holds
some of our properties. These individuals may have personal interests that
conflict with the interests of our stockholders with respect to business
decisions affecting us and Carr Realty, L.P., such as interests in the
timing and pricing of property sales or refinancings in order to obtain
favorable tax treatment. We, as the sole general partner of Carr Realty,
L.P., have the exclusive authority to determine whether and on what terms
Carr Realty L.P. will sell or refinance an individual property, but the
effect of certain transactions on these unitholders may our influence
decisions affecting these properties.
* We May Not Be Able to Sell Properties When Appropriate.
Real estate property investments generally cannot be sold quickly. In
addition, an agreement we have with Security Capital requires us to use
reasonable efforts to dispose of properties through tax deferred exchanges.
Agreements that we have entered into with respect to certain properties
owned by CarrAmerica Realty, L.P. and Carr Realty, L.P. limit our ability
to dispose of property. Also, the tax laws applicable to REITs restrict our
ability to dispose of certain properties. Therefore, we may by unable to
vary our portfolio promptly in response to market conditions, which may
adversely affect our financial position.
* Lack of Voting Control Over Carr Real Estate Services, Inc.
While most of our income is generated from the ownership and operation of
our office buildings, we own a nonvoting interest in Carr Real Estate
Services, Inc., which produces a significant contribution to our income.
Carr Real Estate Services, Inc. conducts management and leasing operations
for third parties and for office buildings in which we own less than a 100%
interest. As of December 31, 2000, we owned approximately 95% of the
economic interest in Carr Real Estate Services, Inc. through the ownership
of nonvoting common stock. The voting common stock of Carr Real Estate
Services, Inc. is owned by entities and individuals that have some
affiliation with us. As a result, we have no right to elect the directors
of Carr Real Estate Services, Inc., and our ability to influence its
operations is limited. Carr Real Estate Services, Inc. may engage in
business activities that are not in our best interests.
* We Depend On External Capital.
To qualify as a REIT, we generally must distribute to our stockholders each
year at least 90% of our net taxable income excluding net capital gain.
Because of these distribution requirements, we likely will not be able to
fund all future capital needs, including capital for property development
and acquisitions, with income from operations. We therefore will have to
rely on third-party sources of capital, which may or may not be available
on favorable terms, if at all. Our access to third-party sources of capital
depends on a number of things, including the market's perception of our
growth potential and our current and potential future earnings.
Certain Factors May Inhibit Changes in Control of the Company
* Charter and By-law Provisions.
Certain provisions of our charter and by-laws may delay or prevent a change
in control of the Company or other transactions that could provide our
common stockholders with a premium over the then-prevailing market price of
their common stock or that might otherwise be in the best interests of our
stockholders. These include a staggered board of directors and the ability
of our board of directors to authorize the issuance of preferred stock
without stockholder approval. Also, any future series of preferred stock
may have voting provisions that could delay or prevent a change in control
or other transaction that might involve a premium price or otherwise be in
the best interests of our common stockholders.
* Ownership Limit.
In order to assist us in maintaining our qualification as a REIT and for
other strategic reasons, our charter contains certain provisions generally
limiting the ownership of shares of capital stock by any single stockholder
to 5% of our outstanding common stock and/or 5% of any class or series of
preferred stock. The federal tax laws include complex stock ownership and
attribution rules that apply in determining whether a stockholder
15
exceeds the ownership limits. These rules may cause a stockholder to be
treated as owning stock that is actually owned by others, including family
members and entities in which the stockholder has an ownership interest.
Our board of directors could waive this restriction if it were satisfied
that ownership in excess of these ownership limits would not jeopardize our
status as a REIT and the board otherwise decided that a waiver would be in
our interests. Capital stock acquired or transferred in breach of the
ownership limit will be automatically transferred to a trust for the
benefit of a designated charitable beneficiary.
* Maryland Law Provisions.
Certain provisions of Maryland law which are applicable to us because we
are a Maryland corporation prohibit "business combinations" with any person
that beneficially owns ten percent or more of our outstanding voting shares
(an "interested stockholder") or with an affiliate of the interested
stockholder. These prohibitions last for five years after the most recent
date on which the person became an interested stockholder. After the five-
year period, a business combination with an interested stockholder must be
approved by two super-majority stockholder votes unless, among other
conditions, our common stockholders receive a minimum price for their
shares and the consideration is received in cash or in the same form as
previously paid by the interested stockholder for its common shares. Our
board of directors has opted out of these business combination provisions.
Consequently, the five-year prohibition and the super-majority vote
requirements will not apply to a business combination involving us. Our
board of directors may, however, repeal this election in most cases and
cause us to become subject to these provisions in the future. Being subject
to the provisions could delay or prevent a change in control or other
transactions that might involve a premium price or otherwise be in the best
interests of our stockholders.
The Market Value of Our Securities Can Be Adversely Affected by Many Factors
As with any public company, a number of factors may adversely influence
the public market price of our common stock, many of which are beyond our
control. These factors include:
* Level of institutional interest in us;
* Perception of REITs generally and REITs with portfolios similar
to ours, in particular, by market professionals;
* Attractiveness of securities of REITs in comparison to other
companies;
* Our financial condition and performance;
* The market's perception of our growth potential and potential
future cash dividends;
* Increases in market interest rates, which may lead investors to
demand a higher annual yield from our distributions in relation
to the price paid for our stock;
* Relatively low trading volume of shares of REITs in general,
which tends to exacerbate a market trend with respect to our
stock.
Sales of a substantial number of shares of our stock, or the perception
that such sales could occur, also could adversely affect prevailing market
prices for our stock. In addition to the possibility that we may sell shares of
our stock in a public offering at any time, we also may issue shares of common
stock upon redemption of units of interest held by third parties in affiliated
partnerships that we control, as well as upon exercise of stock options that we
grant to our employees and others. All of these shares will be available for
sale in the public markets from time to time. In addition, Security Capital, our
largest stockholder (owning more than one-third of our shares) has the right to
sell its shares at any time, pursuant to registration rights granted to it in
connection with its original investment in us.
Our Status As a REIT
We believe that we qualify for taxation as a REIT for federal income
tax purposes, and we plan to operate so that we can continue to meet the
requirements for taxation as a REIT. If we qualify as a REIT, we generally will
not be subject to federal income tax on our income that we distribute currently
to our shareholders. Many of the REIT requirements, however, are highly
technical and complex. The determination that we are a REIT requires an analysis
of various factual matters and circumstances that may not be totally within our
control. For example, to qualify as a REIT, at least 95% of our gross income
must come from specific passive sources, like rent, that are itemized in the
REIT tax laws. We also are required to distribute to our stockholders at least
90% of our REIT taxable income (excluding capital gains). The fact that we hold
some of our assets through partnerships and their
16
subsidiaries further complicates the application of the REIT requirements. Even
a technical or inadvertent mistake could jeopardize our REIT status.
Furthermore, Congress and the IRS might make changes to the tax laws and
regulations, and the courts might issue new rulings, that make it more
difficult, or impossible, for us to remain qualified as a REIT.
If we fail to qualify as a REIT for federal income tax purposes, we
would be subject to federal income tax at regular corporate rates. Also, unless
the IRS granted us relief under certain statutory provisions, we would remain
disqualified as a REIT for four years following the year we first failed to
qualify. If we failed to qualify as a REIT, we would have to pay significant
income taxes. This likely would have a significant adverse affect on the value
of our securities. In addition, we would no longer be required to pay any
dividends to stockholders.
Even if we qualify as a REIT for federal income tax purposes, we are
required to pay certain federal, state and local taxes on our income and
property. For example, if we have net income from "prohibited transactions,"
that income will be subject to a 100% tax. In general, prohibited transactions
are sales or other dispositions of property held primarily for sale to customers
in the ordinary course of business. The determination as to whether a particular
sale is a prohibited transaction depends on the facts and circumstances related
to that sale. While we have recently undertaken a significant number of asset
sales, we do not believe that those sales should be considered prohibited
transactions, but there can be no assurance that the IRS would not contend
otherwise. In addition, any net taxable income earned directly by some of our
affiliates, including Carr Real Estate Services, Inc. and CarrAmerica
Development, Inc., is subject to federal and state corporate income tax. To the
extent that we and our affiliates are required to pay federal, state and local
taxes, we will have less cash available for distributions to our shareholders.
Prior to December 31, 2000, a REIT could not own securities in any one
issuer if the value of those securities exceeded 5% of the value of the REIT's
total assets or the securities owned by the REIT represented more than 10% of
the issuer's outstanding voting securities. As a result of the REIT
Modernization Act, after December 31, 2000, the 5% value test and the 10% voting
security test were modified in two respects. First, the 10% voting securities
test was expanded so that REITs also are prohibited from owning more than 10% of
the value of the outstanding securities of any one issuer. Second, an exception
to these tests allows a REIT to own securities of a subsidiary that exceed the
5% value test and the new 10% vote or value test if the subsidiary elects to be
a "taxable REIT subsidiary." Under a new asset test, for taxable years beginning
after December 31, 2000, we are not able to own securities of taxable REIT
subsidiaries that represent in the aggregate more than 20% of the value of our
total assets.
Several provisions of the new law ensure that a taxable REIT subsidiary
will be subject to an appropriate level of federal income taxation. For example,
a taxable REIT subsidiary is limited in its ability to deduct interest payments
made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax
on some payments that it receives if the economic arrangements between the REIT,
the REIT's tenants, and the taxable REIT subsidiary are not comparable to
similar arrangements between unrelated parties.
We currently own more than 10% of the total value of the outstanding
securities of HQ Global, Carr Real Estate Services, Inc. and CarrAmerica
Development. These entities have elected to be taxable REIT subsidiaries.
17
Item 2. PROPERTIES
General
As of December 31, 2000, we owned interests (consisting of whole or
partial ownership interests) in 283 operating properties located in 13 markets
across the United States. As of December 31, 2000, we owned fee simple title or
leasehold interest in 250 operating properties, controlling partial interests in
two operating properties and non-controlling partial interests of 15% to 50% in
31 operating properties. In addition, as of December 31, 2000, we owned (either
directly or through CarrAmerica Development) six properties under development.
Except as we disclose in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources", we have no immediate plans to renovate our operating properties
other than for routine capital maintenance. We believe our properties are
adequately covered by insurance. We believe that, as a result of our national
operating system, market research capabilities, access to capital and experience
as an owner, operator and developer of properties, we will continue to be able
to identify and consummate acquisition and development opportunities and to
operate our portfolio more effectively than competitors without such
capabilities. We compete in many of our markets with other real estate
operators, some of which may have been active in those markets for a longer
period of time than we have.
The following table sets forth information about each operating
property in which we own an interest as of December 31, 2000.
18
Net Total Average
Rentable Annualized Base Rent
# of Area in Percent Base Rent/3/ /Leased
Property Buildings Sq. Feet/1/ Leased/2/ (in thousands) Sq. Feet/4/ Significant Tenants/5/
- ---------------------------------- ---------- ------------ -------- -------------- ---------- ------------------------
Consolidated Properties
EASTERN REGION
- --------------
Downtown Washington, D.C.:
International Square 3 1,014,556 100.0% $ 33,736 $33.25 International Monetary Fund
(49%)
900 19th Street 1 101,215 100.0% 3,252 32.14 America's Community Bankers
(30%), Stone & Webster (13%),
Korn/Ferry International
(12%), Lucent Technologies
(11%)
2550 M Street 1 187,931 96.8% 7,800 42.89 Patton & Boggs (96%)
1730 Pennsylvania Avenue/6/ 1 229,377 100.0% 8,181 35.67 Federal Deposit Insurance Co.
(47%), King & Spalding (39%)
1255 23rd Street/7/ 1 306,126 99.3% 8,573 28.20 Chronicle of Higher Education
(29%), William M. Mercer,
Inc. (22%)
1747 Pennsylvania Avenue 1 152,104 99.8% 4,843 31.89 Legg Mason Wood Walker,
Inc. (29%)
1775 Pennsylvania Avenue 1 143,981 97.5% 4,065 28.95 Citicorp Savings of
Washington, DC (89%)
Suburban Washington, D.C.:
One Rock Spring Plaza/6/ 1 205,721 98.4% 5,393 26.63 Caterair International (22%),
Sybase, Inc. (19%)
Sunrise Corporate Center 3 260,253 99.2% 6,082 23.57 Software AG of North America
(81%)
Reston Crossing East & West 2 327,788 100.0% 5,736 17.50 Nextel Communications, Inc.
(100%)
Atlanta, GA:
Glenridge 1 64,219 91.9% 1,149 19.48 digitalinsurance.com (15%),
Communication Trends, Inc.
(11%)
Century Springs West 1 95,055 83.1% 1,498 18.97 No tenant occupies 10%
Holcomb Place 1 72,889 100.0% 1,277 17.52 Intercept Group, Inc. (47%),
Hitachi Telecom (USA), Inc.
(20%), Progeni Corporation
(13%)
Midori 1 99,691 100.0% 2,113 21.20 National Consumer Services
(66%), United Parcel Service
(21%)
Parkwood 1 150,270 98.5% 2,893 19.54 Onesource (22%), Corecommerce
(11%)
Lakewood 1 80,483 100.0% 1,429 17.75 Paychex, Inc. (28%), Morrison
Health Care, Inc. (25%), The
Mulling Group (25%), Hickson
(USA) Corp. (17%)
The Summit 1 179,085 100.0% 3,202 17.88 Unisys Corporation (86%), CSC
Continuum, Inc. (14%)
Spalding Ridge 1 128,233 99.3% 2,581 20.28 IT Corporation (57%), Federal
Deposit Insurance Co. (10%)
2400 Lake Park Drive 1 100,918 78.6% 1,347 16.99 United Healthcare Services,
Inc. (29%), GSA (17%)
680 Engineering Drive 1 62,154 100.0% 613 9.86 EMS Technologies Inc. (67%),
Enreve Corporation (22%),
Loral Aerospace Corporation
(11%)
Embassy Row 3 464,895 92.6% 7,890 18.32 Ceridian Corporation (24%),
Cabot Corporation (10%)
Embassy 100, 500 2 190,470 100.0% 4,112 21.59 Art Institute of Atlanta,
Inc. (60%), Edutrek
International, Inc. (40%)
Waterford Centre 1 82,344 97.4% 1,534 19.12 Dateq Information Network
Inc. (21%), VCG, Inc. (18%),
Arkwright Mutual Insurance
(15%)
-------- ---------- ------
Southeast Region Subtotal 31 4,699,758 97.6%
PACIFIC REGION
- --------------
Southern California: Orange County/
Los Angeles
Scenic Business Park 4 140,812 98.1% 2,206 15.97 Talbert Medical Group (20%),
Miles, Wright, Finely & Zak
(18%), Terayon Communications
(17%), Coast Community College
(13%)
Harbor Corporate Park 4 151,924 96.1% 2,734 18.73 Clayton Environmental (10%)
Plaza PacifiCare 1 104,377 100.0% 1,019 9.76 Pacificare Health Systems Inc.
(100%)
Katella 1 80,609 97.2% 1,337 17.06 Friendly Hills Healthcare
(19%)
19
Net Total Average
Rentable Annualized Base Rent
# of Area in Percent Base Rent/3/ /Leased
Property Buildings Sq. Feet/1/ Leased/2/ (in thousands) Sq. Feet/4/ Significant Tenants/5/
- ----------------------------------- ---------- ---------- --------- ------------- --------- -------------------------------
Warner Center 12 344,147 98.2% 7,987 23.64 El Camino Resources, Inc. (25%),
General Services Administration
(17%)
South Coast Executive Center 2 161,692 100.0% 3,784 23.40 State Comp. Insurance Fund (33%)
Warner Premier 1 61,553 66.3% 952 23.34 RSL Com, USA (27%), Charles
Schwab (12%)
Von Karman 1 104,138 100.0% 2,552 24.51 Vision Solutions, Inc. (41%),
Fidelity National Title Ins.
(26%), Taco Bell Corporation
(18%)
2600 W. Olive 1 144,831 100.0% 3,685 25.44 Walt Disney Company (89%)
Bay Technology Center 2 107,481 100.0% 1,629 15.16 Amresco Residential Mortgage
(57%), Aqcess Technologies, Inc.
(43%)
Pacific Corporate Plaza 1, 2, 3 3 125,298 100.0% 2,138 11.70 Zland, Inc. (53%), Covenant Care
California, Inc. (16%)
Alton Deere Plaza 6 182,183 82.1% 2,835 18.96 Nextlink California (34%)
Westlake Spectrum 2 108,084 100.0% 2,000 19.96 Pinkerton's Inc. (63%), Coyote
Network Systems, Inc. (21%),
Insweb Corporation (16%)
Southern California,
San Diego:
Del Mar Corporate Plaza 2 123,142 100.0% 3,293 26.74 Stellcom, Inc. (79%), Peregrine
Systems, Inc. (21%)
Wateridge Pavilion 1 62,194 84.5% 938 17.84 Infogation (25%), Platinum
Solutions, Inc. (19%), Wateridge
Insurance Service (18%), TCS
Mortgage, Inc. (14%)
Towne Center Technology Park 1, 2, 3 3 182,120 100.0% 3,064 16.82 Gateway, Inc. (100%)
Lightspan 1 64,800 100.0% 1,182 18.24 Lightspan Partnership, Inc.
(100%)
La Jolla Spectrum 1 79,759 100.0% 2,465 30.90 Novartis Agricultural Discover
(100%)
Palomar Oaks Technology Park 6 170,358 100.0% 2,102 12.34 Unifet, Inc. (23%), Excalibur
Technologies Corp. (18%), Torrey
Pines Research, Inc. (13%),
Pacific Analytical, Inc. (11%)
Jaycor 1 105,358 100.0%# 1,896 18.00 Gateway, Inc. (100%)
Highlands Corporate Center 5 205,085 99.0% 6,044 29.77 Brobeck, Phleger & Harrison
(14%), Genesis Communications
(12%)
Northern California,
San Francisco Bay Area:
CarrAmerica Corporate Center 6 1,001,976 99.8% 18,773 18.77 AT&T (47%), Peoplesoft (32%),
Pacific Bell Mobile Services
(17%)
Valley Business Park I 2 61,600 100.0% 1,102 17.88 Leybold Inficon, Inc. (38%),
Informative Inc. (19%),
Millipore, Inc. (19%), Acer
Labs, Inc. USA (17%)
Bayshore Centre 2 1 94,874 100.0% 1,879 19.80 Redback Networks, Inc. (100%)
Rincon Centre 3 201,178 100.0% 3,254 16.17 Toshiba america Electronic
(31%), Propel Software
Corporation (44%), Future
Electronics Corp. (19%)
Valley Centre II 4 212,082 100.0% 3,617 17.06 Boston Scientific (100%)
Valley Office Centre 2 68,881 100.0% 2,165 31.43 Bank of America (21%), Quadrep,
Inc. (13%)
Valley Centre 2 102,291 100.0% 1,928 18.84 Seagate Technology (40%),
Numberical Technologies, Inc.
(38%), Vivace Networks (22%)
Valley Business Park II 6 166,928 100.0% 3,228 19.34 Pericom Semiconductor Corp.
(40%)
Rio Robles 7 368,178 100.0% 5,660 15.37 Fujitsu Microlectronics (41%),
KLA Instruments Corporation
(36%), NEC Systems, Inc. (23%)
3745 North First Street 1 67,582 100.0% 973 14.40 Comdisco, Inc. (100%)
Baytech Business Park 4 300,000 100.0% 5,181 17.27 Schlumberger Technologies (34%),
Caspian Networks (25%), Rapid 5
Networks, Inc. (13%)
3571 North First Street 1 116,000 100.0% 1,357 11.70 Sun Microsystems, Inc. (100%)
San Mateo Center I 1 70,000 100.0% 2,604 37.20 Franklin Resources (100%)
Oakmead West Land A-G 7 425,981 100.0% 9,457 22.20 Applied Materials Inc. (100%)
San Mateo II & III 2 141,404 100.0% 5,684 40.20 Franklin Resources (34%),
Women.com Networks (31%)
20
Net Total Average
Rentable Annualized Base Rent
# of Area in Percent Base Rent/3/ /Leased
Property Buildings Sq. Feet/1/ Leased/2/ (in thousands) Sq. Feet/4/ Significant Tenants/5/
- ---------------------------------- --------- ----------- --------- -------------- ----------- ----------------------
Hacienda West 2 206,992 99.3% 5,599 27.23 Sun Microsystems, Inc.
(13%), Paychex, Inc.
(12%)
Sunnyvale Technology Center 5 165,520 100.0% 3,320 13.77 Lattice Semiconductor
Corp. (51%), BMC
Software (25%),
Metelics Corporation
(12%), Nokia Internet
Comm., Inc. (12%)
Clarify Corporate Center 1, 2, 3, 4 4 258,048 100.0% 6,482 25.12 Nortel Networks, Inc.
(100%)
Valley Technology Center 1, 2, 3, 4 & 5 7 460,590 100.0% 10,703 23.24 Lattice Semiconductor
Corp. (29%), TSMC
North America, Inc.
(24%), Navisite, Inc.
(14%)
Golden Gateway Commons 3 273,327 98.6% 8,068 29.94 Sharper Image
Corporation (21%), ABM
Industries, Inc. (11%)
Techmart Commerce Center 1 265,979 100.0% 10,256 38.56 Network Conference
Co., Inc. (14%)
Freemont Technology Park 1, 2, 3 3 139,304 100.0% 2,469 17.73 Applied Fiber Optics,
Inc. (39%), Flash
Electronics, Inc.
(32%), Bandwidth
Unlimited, Inc. (29%)
Portland, OR:
Sunset Corporate Park 3 132,531 97.9% 1,054 8.12 First Insight
Corporation (34%),
Volkswagon Corporation
(34%), Mindfinders
Inc. (17%)
Rock Creek Corp Center 1 142,662 100.0% 431 3.02 Corillian Corporation
(86%), University of
Phoenix (14%)
Seattle, WA:
Redmond 10 396,497 100.0% 5,453 13.75 Avaya, Inc. (21%),
Cardiac Pacemakers
Inc. (20%), Genetic
Systems (14%)
Redmond Hilltop B & C 2 90,880 100.0% 1,370 15.07 Concur Technologies
(90%)
Canyon Park 6 316,978 96.4% 3,656 11.97 Icos Corporation
(28%), Targeted
Genetics Corporation
(24%), Federal Express
Corporation (10%)
Willow Creek 1 96,179 100.0% 981 10.20 Data I/.O Corporation
(100%)
Willow Creek Corp. Center 1, 2, 3, 4, 5, 6 6 329,009 100.0% 5,089 15.47 Safeco Insurance Co.
of America (52%),
Metawave
Communications Co.
(29%), Nextlink Comm
unications, Inc. (13%)
Canyon Park Commons 1, 2, 4 3 176,846 100.0% 2,251 12.73 Washington Mutual Bank
(62%), AT&T Corp.
(38%)
Canyon Park Commons 1 95,290 100.0% 1,342 14.08 Safeco Insurance Co.
(100%)
---- --------- -----
Pacific Region Subtotal 167 9,755,532 98.9%
CENTRAL REGION
- --------------
Austin, TX:
City View Centre 3 136,183 100.0% 2,506 18.40 Holt, Reinhart &
Winston, Inc. (76%),
Confiniti (16%)
City View Center 1 128,716 100.0% 2,073 16.10 Broadwing
Telecommunication
(100%)
Tower of the Hills 2 166,149 99.7% 2,922 17.65 Texas Gauaranteed
Student Loan (70%)
Chicago, IL:
Parkway North I 1 249,314 87.8% 3,386 15.46 Alliant Foodservice,
Inc. (53%), Toshiba
America Electronics
(10%)
Unisys 2 364,115 89.8% 4,930 15.07 PNC Mortgage Corp. of
America (24%), Hub
Group, Inc. (11%)
The Crossings 2 296,230 91.7% 4,880 17.96 Allstate Insurance
Company (14%)
Bannockburn I & II 2 209,582 97.8% 3,248 15.85 IMC Global, Inc.
(39%), Parexel (21%)
Bannockburn IV 1 108,469 96.0% 1,655 15.90 Open Text, Inc. (35%),
Abbott Laboratories
(13%), New York Life
Insurance Co. (10%)
Dallas, TX:
Cedar Maple Plaza 3 112,682 78.9% 1,773 19.95 No tenant occupies 10%
Quorum North 1 116,084 92.9% 2,070 19.20 Digital Madtrix
Systems, Inc. (20%),
HQ Dallas Quorum North
(17%)
Quorum Place 1 178,296 97.1% 3,241 18.72 VHA Southwest, Inc.
(22%), Objectspace,
Inc. (11%)
21
Net Total Average
Rentable Annualized Base Rent
# of Area in Percent Base Rent/3/ /Leased
Property Buildings Sq. Feet/1/ Leased/2/ (in thousands) Sq. Feet/4/ Significant Tenants/5/
- ---------------------------------- ---------- ---------- -------- -------------- ----------- ----------------------------
Tollway Plaza 1, 2 2 359,903 99.4% 8,458 23.64 Sun Microsystems, Inc. (27%),
American Relocation Mgmt.
(10%), Omnioffices, Inc. (10%)
Two Mission Park 1 78,046 100.0% 1,332 17.06 Macromedia, Inc. (32%), Bland,
Garvey & Taylor, Inc. (17%)
Commons @ Las Colinas 1, 3 2 604,234 100.0% 9,810 16.24 Nokia, Inc. (100%)
5000 Quorum 1 161,823 97.2% 3,087 19.63 Case Corporation (11%)
---------- --------- -----
Central Region Subtotal 25 3,269,826 95.6%
MOUNTAIN REGION
- ---------------
Denver, CO:
Harlequin Plaza 2 329,210 90.2% 5,148 17.33 Travelers Insurance Co. (24%),
Bellco First Federal Credit
(13%), Regis University (11%)
Quebec Court I 1 130,000 100.0% 2,144 16.50 Time Warner Communications
(100%)
Quebec Court II 1 157,294 100.0% 2,187 13.90 Tele-Communications, Inc.
(100%)
Quebec Centre 3 106,865 83.9% 1,551 17.29 Walberg & Dagner, P.C. (11%)
Phoenix, AZ:
Camelback Lakes 2 201,373 99.9% 4,114 20.44 Chancellor Media of L.A. (38%),
Humana Health Plan, Inc. (14%),
American Founders Life Ins.
(10%), Compass Bank (10%)
Pointe Corridor 1 178,114 68.7% 2,268 18.53 Compasslearning, Inc. (20%),
Benesight (12%)
Four Gateway 1 136,817 98.5% 2,953 21.92 Eclipsys Corporation (29%),
Options Health Care, Inc. (26%)
Highland Park 1 78,970 88.5% 1,489 21.30 Springstreet (14%)
The Grove @ Black Canyon 1 104,571 95.9% 1,979 19.73 Cigna Healthcare of Arizona
(81%)
Qwest Communications 4 532,506 100.0% 9,144 17.17 Qwest Communications (100%)
Concord Place 1 133,555 73.3% 2,273 23.24 Peacock Hislop, Staley & Given
(16%)
Salt Lake City, UT:
Sorenson Research Park 5 283,076 93.4% 3,193 12.07 Convergys Customer Mgmt. (46%),
Intel Corporation (15%), ITT
Educational Services, Inc.
(15%)
Wasatch Corporate Center 3 178,231 100.0% 2,185 12.26 Advata Bank Corporation (28%),
Achieveglobal, Inc. (23%),
Fonix Corporation (14%),
Tenfold Corporation (14%),
Musician's Friend, Inc. (12%)
Wasatch Corporate Center 17, 18 2 121,654 100.0% 1,784 14.67 Ebay, Inc. (59%), Citrix
Systems (21%), Western
Aggregates, Inc. (15%)
Sorenson X 1 41,288 100.0% 763 18.49 Electronic Data Systems (73%)
-------- ---------- ------- ---------
Mountain Region Subtotal 29 2,713,524 93.6%
Total Consolidated Properties 252 20,438,640 409,073
Weighted Average 97.4% 20.54
Unconsolidated Properties
- -------------------------
Washington, D.C.:
1919 Pennsylvania/8/ 1 263,931 98.3% 8,709 36.61 Allied Capital Corporation
(21%), Cole, Raywid &
Braverman, LLP (15%)
Bond Building/9/ 1 242,787 98.4% 2,181 27.23 General Services
Administration (97%)
1717 Pennsylvania Avenue/10/ 1 184,446 100.0% 6,732 36.50 MCI Telecommunications Corp.
(57%)
Booz-Allen & Hamilton Building/11/ 1 222,989 100.0% 3,604 16.16 Booz, Allen & Hamilton, Inc.
(100%)
Portland, OR:
GM Call Center/12/ 1 103,279 100.0% 1,232 11.93 GM Call Center (100%)
Chicago, IL:
Parkway North/13/ 5 653,914 100.0% 10,667 17.51 Fujisawa USA, Inc. (20%),
Associates Commerce Solutions
(19%), Shand Morahan & Company
(11%)
Dallas, TX:
Royal Ridge/13/ 3 370,997 99.0% 6,155 16.59 Capital One Services, Inc.
(43%), GTE North, Inc. (39%),
Cendant Operations, Inc. (11%)
Austin, TX:
Riata/13/ 13 905,673 100.0% 16,337 16.53 Janus Capital Corporation
(35%), Electronic Data Systems
(29%), Pervasive Software, Inc.
(10%)
Denver, CO:
Panorama/13/ 5 527,200 96.7% 9,715 19.05 Charles Schwab & Co., Inc.
(26%), AT&T Corporation (16%),
ICG Equipment, Inc. (11%)
-------- ---------- ---------
Total Unconsolidated Properties 31 3,475,216 65,332
======== ========== =========
Weighted Average 99.1% 20.26
=======
Total All Operating Properties: 283 23,913,856 $ 474,405
======== ========== =========
Weighted Average 97.7% $20.49
=======
22
/1/ Includes office and retail space but excludes storage.
/2/ Includes spaces for leases that have ben executed and have commenced as
of December 31, 2000.
/3/ Total annualized base rent equals total original base rent, including
historical contractual increases and excluding (i)percentage rents, (ii)
additional rent payable by tenants such as common area maintenance, real
estate taxes and other expense reimbursements, (iii) future contractual
or contingent rent escalations and (iv) parking rents.
/4/ Calculated as total annualized base rent divided by net rentable area
leased.
/5/ Includes tenants leasing 10% or more of rentable square footage (with the
percentage of rentable square footage in parentheses).
/6/ We own the improvements on the property and have a leasehold interest in
all the underlying land.
/7/ We hold a general and limited partner interest in a partnership that owns
the property.
/8/ We own 49% through a partnership.
/9/ We own 15% through a partnership.
/10/ We own 50% through a limited liability company.
/11/ We own 50% through a joint venture.
/12/ We own 16% through a joint venture.
/13/ We own 35% through a joint venture.
23
Occupancy, Average Rentals and Lease Expirations
As of December 31, 2000, 97.4% of our aggregate net rentable square footage
in 252 consolidated operating properties was leased. The following table
summarizes percent leased and average annualized rent per leased square foot
(excluding storage space) for the past five years for the consolidated operating
properties:
Average
Percent Annualized Number of
Leased at Rent/Leased Consolidated
December 31, Year End Sq. Ft./1/ Properties
---------------------------- ---------------- ------------------- --------------------
2000 97.4% $23.77 252
1999 97.4% 21.66 271
1998 96.7% 20.46 292
1997 95.9% 19.38 243
1996 93.6% 19.37 159
/1/ Calculated as total annualized building operating revenue,
including tenant reimbursements for operating expenses and
excluding parking and storage revenue, divided by the total square
feet, excluding storage, in buildings under lease at year end.
The following table is a schedule of our lease expirations for leases in place
as of December 31, 2000 for the next ten years for the 252 consolidated
operating properties, assuming no tenants exercise renewal options:
Net Rentable Annual Base Percent of Total
Year of Area Subject Rent Under Annual Base Rent
Lease to Expiring Expiring Represented by
Expiration Leases (sq. ft.) Leases (000's) Expiring Leases
-------------- --------------------- --------------------- ---------------------------
2001 1,618,000 $31,245 7.6%
2002 2,460,000 50,427 12.4%
2003 2,899,000 56,998 13.9%
2004 2,972,000 65,919 16.1%
2005 2,406,000 49,158 12.0%
2006 1,569,000 32,263 7.9%
2007 1,613,000 32,439 7.9%
2008 1,429,000 31,752 7.8%
2009 1,444,000 27,412 6.7%
2010 659,000 12,473 3.1%
2011 and
thereafter 846,000 18,984 4.6%
Mortgage Financing
As of December 31, 2000, some of our consolidated operating properties were
subject to fixed rate mortgage indebtedness. The total of these mortgages was
$560 million. Our fixed rate mortgage debt as of December 31, 2000 bore an
effective weighted average interest rate of 8.09% and a weighted average
maturity of seven years (assuming loans callable before maturity are called as
early as possible). The following table details information regarding the
existing mortgage indebtedness for the consolidated operating properties as of
December 31, 2000.
24
Estimated
Balance Due
Interest Principal Maturity Annual Debt at Maturity
Property Rate Balance (000's) Date Service (000's) (000's)
- ------------------------------------------ ------------ ----------------- ---------- ----------------- --------------
Bannockburn 9.52% $ 17,714 8/31/01 $ 2,801 $ 17,049
Quorum North 8.27% 6,369 12/10/01 586 6,261
Valley Business Park II/3745 North 1st St. 8.25% 39,443 12/10/01 3,498 37,944
Sunnyvale Technology Center/Highland
Corporate Center/Hacienda West 8.90% 32,179 6/1/02 5,346 28,210
Jaycor 7.35% 11,611 2/1/03 1,520 10,115
Parkway North 6.92% 24,164 12/1/03 1,672 24,164/1/
Canyon Park Commons 9.13% 5,196 12/1/04 714 4,072
Qwest Communications 7.92% 19,883 12/1/05 4,201 -
Qwest Communications 7.92% 5,606 12/1/05 1,337 -
Qwest Communications 7.92% 8,476 12/1/05 2,005 -
Qwest Communications 7.92% 8,476 12/1/05 2,005 -
Redmond East 8.38% 26,616 1/1/06 2,648 24,022/2/
Century Springs
West/Glenridge/Midori/Lakewood/Parkwood 7.20% 19,522 1/1/06 2,126 15,203/3/
Concord Place 7.35% 7,374 1/1/06 725 6,439
Wateridge Pavilion 8.25% 3,368 11/1/06 338 2,918
Wasatch Corporate Center 8.15% 12,269 1/2/07 1,220 10,576
2600 West Olive 6.75% 19,152 1/1/09 1,293 19,152
Palomar Oaks 8.85% 9,811 4/1/09 1,025 7,922
1255 23rd St 8.12% 38,300 4/1/09 3,584 33,060
1730 Penn, I Square 8.12% 183,700 4/1/09 17,190 158,569
South Coast 7.13% 15,000 6/10/09 1,178 12,660
Sorenson 7.75% 2,364 7/1/11 328 -
Sorenson 8.88% 1,572 5/1/17 182 -
1747 Penn 9.50% 14,418 7/10/17 1,730 -/4/
900 19th St/Pres. Plaza 8.25% 15,711 7/15/19 1,656 -/5/
1775 Penn 7.63% 11,864 9/1/09 1,020 10,463
Total 8.09% $560,158 $61,928
============= ============== ===============
1. Prepayable after 12/1/99 at the rates stated in the loan documents.
2. Prepayable after 12/19/05 at the rates stated in the loan documents.
3. Prepayable after January 2001 at the rates stated in the loan documents.
4. Note is callable by the lender after 6/30/02. The estimated principal
balance will be $13,841,000 at that date.
5. Note is callable by the lender after 7/1/04. The estimated principal
balance will be $14,177,000 at that date.
For additional information regarding our office properties and their operation,
see "Item 1, Business."
Item 3. LEGAL PROCEEDINGS
We are currently involved in two separate lawsuits with two
stockholders of HQ Global. The first lawsuit involves the conversion in
September 1998 of approximately $111 million of debt previously loaned by us to
HQ Global into stock of HQ Global. We, along with HQ Global, initiated this
lawsuit asking the court to declare that the terms of the debt conversion were
fair, after these two stockholders threatened to challenge the terms of the
conversion. The stockholders had claimed that both the conversion price used and
the methods by which the conversion price was agreed upon between HQ Global and
us were not fair to HQ Global or these stockholders. Thereafter, the two
stockholders filed their own counterclaims against HQ Global, the board of
directors of HQ Global and us. The stockholders have asked the court to declare
the conversion void, or in the alternative for compensatory and punitive
damages. The second lawsuit involves claims filed by the two stockholders
arising out of
25
the June 2000 HQ Global/VANTAS merger transactions. In this lawsuit, the two
stockholders have brought claims against HQ Global, the board of directors of HQ
Global, and us. The two stockholders allege that, in connection with HQ
Transactions, we breached our fiduciary duties to the two stockholders and
breached a certain contract with the stockholders. The stockholders have asked
the court to rescind the entire transaction, or in the alternative for
compensatory and rescissory damages.
Although we believe that the two stockholders' claims are without merit and
that we will ultimately prevail in these actions, there can be no assurance that
the court will not find in favor of these stockholders. However, even if the
two stockholders were successful in their claims, we do not believe that this
result would have a material adverse effect on our financial condition or
results of operations.
We are party to a variety of other legal proceedings arising in the
ordinary course of business. All of these matters, taken together, are not
expected to have a material adverse impact on us.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER
MATTERS
Our common stock is listed on the New York Stock Exchange ("NYSE")
under the symbol "CRE". As of December 31, 2000, there were 419 stockholders of
record. The following table sets forth the high and low sale prices of our
common stock as reported on the NYSE Composite Tape, and the dividends paid per
share of common stock for each quarterly period for the past two years.
2000 1Q 2Q 3Q 4Q Full Year
-------------------------------------------------------------------------------------------
High $ 20.77 27.44 30.27 31.50 31.50
Low 18.56 20.34 26.60 28.80 18.56
Dividend 0.4625 0.4625 0.4625 0.4625 1.85
1999 1Q 2Q 3Q 4Q Full Year
-------------------------------------------------------------------------------------------
High $ 24.38 26.50 24.63 22.69 26.50
Low 20.94 20.94 21.50 17.94 17.94
Dividend 0.4625 0.4625 0.4625 0.4625 1.85
In order to qualify as a REIT, we are required to make distributions (other
than capital gain distributions) to our stockholders. The amount of these
distributions must equal at least:
i. the sum of (A) 90% of our "REIT taxable income" (computed without
regard to the dividends paid deduction and our net capital gain) and
(B) 90% of the net income (after tax), if any, from foreclosure
property,
minus
ii. the sum of certain non-cash income items.
Our strategy is to distribute what we believe is a conservative percentage of
our cash flow. This permits us to retain funds for capital improvements and
other investments while funding our distributions.
26
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, nontaxable return of capital or a combination of those
items. Distributions that exceed our current and accumulated earnings and
profits (calculated for tax purposes) constitute a return of capital rather than
a dividend, which reduces a stockholder's basis in the shares of common stock
and will not be taxable to the extent that the distribution equals or is less
than the stockholder's basis in the stock. To the extent a distribution exceeds
both current and accumulated earnings and profits and the stockholder's basis in
the stock, that distribution will be treated as a gain from the sale or exchange
of that stockholder's shares. Every year we notify stockholders of the
taxability of distributions paid during the preceding year.
The following table sets forth the taxability of common stock distributions
paid in 2000 and 1999:
2000 1999
------------- -------------
Ordinary income 84% 78%
Capital gain 16% 22%
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
information. The financial and operating data has been extracted from our
consolidated financial statements for each of the periods presented.
The following selected financial and operating information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the financial statements and related notes
included elsewhere in this Annual Report on Form 10K:
(In thousands, except per share data) Year Ended December 31,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------
Operating Data:
Real Estate Operating Revenue (from continuing
operations):
Rental revenue $531,859 $498,849 $440,455 $325,502 $154,165
Real estates service revenue 26,172 17,054 16,167 15,998 12,512
Consolidated Data:
Income from continuing operations 147,159 151,079/1/ 119,979/1/ 77,800 24,802/2/
Income (loss) from discontinued operations 456 (7,862) 6,518 940 -
Gain on sale of discontinued operations, net of tax 31,852 - - - -
Dividends paid to common stockholders 123,245 125,876 127,188 97,195 42,914
Per Share Data:
Basic income from continuing operations $ 1.69 $ 1.71 $ 1.23 $ 1.21 $ 0.90
Diluted income from continuing operations 1.65 1.71 1.23 1.21 0.90
Income (loss) from discontinued operations - diluted 0.01 (0.12) 0.09 0.02 -
Gain on sale of discontinued operations - diluted 0.47 - - - -
Dividends paid to common shareholders 1.85 1.85 1.85 1.75 1.75
Weighted average shares outstanding - basic 66,221 67,858 68,577 54,873 26,932
Weighted average shares outstanding - diluted 67,649 67,982 68,778 59,597 26,999
27
(In thousands) As of or for the Year Ended December 31,
-------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------
Balance Sheet Data:
Real estate, before accumulated depreciation $2,813,320 $3,067,822 $2,934,653 $2,384,668 $1,475,998
Total assets 3,072,841 3,479,072 3,627,260 2,730,556 1,536,564
Mortgages and notes payable 1,211,158 1,603,371 1,610,859 1,025,145 655,449
Minority interest 89,687 92,586 88,815 73,955 50,597
Total stockholders' equity 1,646,706 1,686,715 1,813,939 1,552,697 787,478
Total common shares outstanding 65,018 66,826 71,760 59,994 43,789
Other Data:
Net cash provided by operating activities $ 173,536 $ 175,002 $ 239,752 $ 133,077 $ 82,300
Net cash provided by (used by) investing activities 572,995 83,714 (985,321) (998,733) (876,947)
Net cash (used by) provided by financing activities (773,713) (238,366) 757,760 861,864 813,067
Funds from continuing operations before
allocation to the unitholders/3/ 254,714 226,587/3/ 211,094/3/ 151,900 64,496/2/
/1/ Net income from continuing operations includes a non-recurring gain (loss)
of $4.5 million and ($13.7) million related to a treasury lock agreement in
1999 and 1998, respectively.
/2/ Net income and funds from operations before allocation to unitholders
includes a non-recurring deduction of approximately $2.3 million in 1996,
related to the write-off of the unamortized purchase price of certain third
party real estate service contracts that were terminated.
/3/ We believe that funds from operations is helpful to investors as a measure
of the performance of an equity REIT. Along with cash flow from operating
activities, financing activities and investing activities, funds from
operations provides investors with an indication of our ability to incur
and service debt, to make capital expenditures and to fund other cash
needs. Funds from operations is defined by the National Association of Real
Estate Investment Trusts (NAREIT) as net income (loss) computed in
accordance with generally accepted accounting principles (GAAP), excluding
gains or losses from sales of depreciable operating properties and items
that are classified as extraordinary items under GAAP, 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. Our funds
from operations 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 from us. Funds from operations does not represent net income or
cash flow generated from operating activities in accordance with GAAP and,
as such, should not be considered an alternative to net income as an
indication of our performance or to cash flow as a measure of liquidity or
our ability to make distributions.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion that follows is based primarily on our consolidated
financial statements as of December 31, 2000 and 1999, and for the years ended
December 31, 2000, 1999 and 1998 and should be read along with the consolidated
financial statements and related notes. The ability to compare one period to
another may be significantly affected by acquisitions completed, development
properties placed in service and dispositions made during those years. The
number of properties that we owned and were consolidated for the financial
statements were 252 in 2000, 271 in 1999, and 292 in 1998. Comparison of the
periods is also affected by development operations, which grew significantly
during the periods presented.
The discussion and analysis of operating results focuses on our
segments as management believes that segment analysis provides the most
effective means of understanding the business. Our reportable operating segments
are real estate property operations and development operations. Other business
activities and operations, which are not reported separately, are included in
other operations. Executive office suites are presented as discontinued
operations in our financial statements.
28
Results of Operations
Real Estate Property Operations
Operating results and assets of real estate property operations are
summarized as follows:
===================================================================================================
For the year ended Variance
------------------------
Real Estate Operations December 31, 2000 vs. 1999 vs.
---------------------- ---------------------------------------
(in millions) 2000 1999 1998 1999 1998
-------- -------- -------- ------- ------
Operating revenue $ 531.9 $ 498.9 $ 440.5 $ 33.0 $ 58.4
Segment expense 170.0 167.2 149.7 2.8 17.5
Interest expense 49.2 50.5 46.8 (1.3) 3.7
Other income, net 14.5 8.9 8.2 5.6 0.7
As of December 31,
-------------------------------------
2000 1999 1998
-------- -------- --------
Total assets $ 2,711.9 $2,991.8 $2,809.4 $(279.9) $182.4
===================================================================================================
Real estate operating revenues increased $33.0 million (6.6%) in 2000 as
compared to 1999. This increase resulted from development properties being
placed in service, "same store" rental growth and higher occupancies. Same
store rental revenues grew by approximately 7.2% (approximately $25.6 million).
This increase was due primarily to an increase in average rental rates in
properties in the San Francisco Bay area due to strong demand for office space.
The average occupancy rate, when compared on a same store basis, was 97.2% in
2000 and 96.8% in 1999. These increases were partially offset by dispositions
of interests in properties, including the properties contributed to Carr Office
Park, L.L.C. in August 2000.
Real estate operating revenues increased $58.4 million (13.3%) in 1999 as
compared to 1998. This increase resulted from development properties being
placed in service, "same store" rental growth and higher occupancies. Same
store rental revenues grew by approximately 5.4% (approximately $16.6 million).
This increase was due primarily to an increase in average rental rates in
properties in the San Francisco Bay area due to strong demand for office space.
The average occupancy rate, when compared on a same store basis, was 96.3% in
1999 and 96.1% in 1998.
Real estate operating expenses increased $2.8 million (1.7%) in 2000 as
compared to 1999. This increase was due to development properties being placed
in service and a slight increase in same store expenses. These increases were
partially offset by dispositions of interests in properties, including the
properties contributed to Carr Office Park, L.L.C. in August 2000.
Real estate operating expenses increased $17.5 million (11.7%) in 1999
compared to 1998. The increase in expenses was due primarily to development
properties being placed in service. On a same store basis, operating expenses
were $3.6 million higher in 1999 due principally to higher real estate taxes,
costs incurred related to Year 2000 compliance and increased bad debt expense.
Real estate interest expense decreased $1.3 million (2.6%) in 2000 as
compared to 1999. This decrease was principally the result of retirement of
certain mortgages. In 1999, we refinanced properties to increase leverage. As a
result of this refinancing, real estate interest expense increased $3.7 million
in 1999 from 1998.
Real estate other income increased $5.6 million (62.9%) in 2000 as compared
to 1999. This increase was primarily the result of equity in earnings of
unconsolidated entities (excluding depreciation), primarily from the investment
in Carr Office Park, L.L.C.
The primary cause of the decrease in real estate assets from 1999 to 2000
was the contribution of $332.1 million of property to Carr Office Park, L.L.C.
These assets are not included in our consolidated financial statements but we
retain a 35% interest in them.
29
Development Operations
Operating results and assets of development operations are summarized as
follows:
===================================================================================================
For the year ended Variance
---------------------------
Development Operations December 31, 2000 vs. 1999 vs.
---------------------- ---------------------------------------
(in millions) 2000 1999 1998 1999 1998
----- ------ ------ ------- -------
Operating revenue $10.6 $ 6.6 $ 4.4 $ 4.0 $ 2.2
Segment expense 4.5 4.6 3.1 (0.1) 1.5
Interest expense - - - - -
Other income, net 0.2 0.2 - - 0.2
As of December 31,
--------------------------------------
2000 1999 1998
----- ------ ------
Total assets $96.3 $220.1 $466.4 $(123.8) $(246.3)
=====================================================================================================
Revenue from our development operations increased $4.0 million (60.6%) in
2000 as compared to 1999 and $2.2 million (50%) in 1999 as compared to 1998.
These increases resulted primarily from our expanded operations in this area.
In particular, in August 2000, we began providing services to Carr Office Park,
L.L.C. and other joint ventures in connection with their development of new
properties and, during 1999, we increased the number of development properties
managed for unaffiliated companies.
The expenses for our development operations decreased $0.1 million in 2000
as compared to 1999 and increased $1.5 million in 1999 as compared to 1998. The
decrease in expenses in 2000 from 1999 was primarily due to lower salary expense
from a temporary reduction in headcount. The increase in expenses from 1998 to
1999 was principally related to more development projects.
Total development assets decreased $123.8 million in 2000 from $220.1
million in 1999. $76.9 million of this decrease was the result of our
contribution of assets to Carr Office Park, L.L.C. and a higher portion of our
development activity being for joint ventures. In 1998, total development
assets were $466.4 million. The decline in assets from 1998 to 1999 was
primarily the result of construction completions and properties placed in
service. Our construction starts in 1999 were lower than in 1998.
Other Operations
Operating results and assets of other operations are summarized as follows:
===================================================================================================
For the year ended Variance
---------------------------
Other Operations December 31, 2000 vs. 1999 vs.
---------------- ----------------------------------------
(in millions) 2000 1999 1998 1999 1998
------ ----- ------ ------ ------
Operating revenue $ 15.5 $10.4 $ 11.8 $ 5.1 $ (1.4)
Segment expense 41.6 34.3 29.3 7.3 5.0
Interest expense 49.1 38.6 24.6 10.5 14.0
Other income (expense), net (3.5) (3.2) (0.3) (0.3) (2.9)
As of December 31,
-----------------------------------------
2000 1999 1998
------ ----- ------
Total assets $264.6 $59.5 $153.9 $205.1 $(94.4)
==================================================================================================
Revenues from our other operations increased $5.1 million (49.0%) in 2000
as compared to 1999 and decreased $1.4 million (11.9%) in 1999 as compared to
1998. The increase in 2000 resulted primarily from expansion of our operations
in the area of managing rental properties for affiliates and others. In
particular, in August 2000, we began providing leasing and management services
to Carr Office Park, L.L.C. The decrease in 1999 as compared to 1998 was due
to reduced leasing fee revenue.
30
Expenses of our other operations increased $7.3 million (21.3%) in 2000
as compared to 1999 and $5.0 million (17.1%) in 1999 as compared to 1998. The
increase in 2000 was due primarily to our expanded property management
operations discussed above and professional fees associated with Project
Excellence, an internal process improvement effort, and other initiatives. The
increase in 1999 was due primarily to professional fees associated with Project
Excellence and the effects of Year 2000 compliance work.
Interest expense for other operations is net of interest allocated to
other segments, consisting primarily of interest capitalized on development
projects at our average effective borrowing rate. Interest expense for our other
operations increased $10.5 million (27.2%) in 2000 as compared to 1999 and $14.0
million (56.9%) in 1999 as compared to 1998. The increase in 2000 is due to a
decrease in capitalized interest due primarily to a lower level of development
activity. The increase in 1999 was primarily related to interest on an
additional $150 million of senior unsecured notes outstanding during that year
and additional borrowings on our unsecured credit line.
Depreciation and Amortization
Depreciation and amortization increased $8.8 million (7.4%) in 2000
compared to 1999 and $18.9 million (18.7%) in 1999 compared to 1998. These
increases were due primarily to acquisitions of property and transitions of
property from construction in progress to operations, partially offset by
property dispositions and joint venture activity.
Gain on Sale of Assets and Other Provisions, Net
We dispose of assets (sometimes using tax-deferred exchanges) that are
inconsistent with our long-term strategic or return objectives or where market
conditions for sale are favorable. The proceeds from the sales are redeployed
into other properties or used to fund development operations or to support other
corporate needs. During 2000, we disposed of 16 properties (including one
property in which we held an interest through an unconsolidated entity) and four
parcels of land that were being held for development. We recognized a net gain
of $24.1 million on these transactions, net of taxes of $5.6 million, including
a net gain of $8.8 million relating to our share of gain on a sale of a property
in which we held an interest through an unconsolidated entity.
On August 17, 2000, we closed on a joint venture transaction with
New York State Teachers' Retirement System ("NYSTRS"). At closing, we and some
affiliates contributed properties to the joint venture, Carr Office Park,
L.L.C., and NYSTRS contributed cash of approximately $255.1 million. The joint
venture encompasses five suburban office parks (including 26 rental properties
and land held for development of additional properties) in four markets. We
received approximately $249.6 million and a 35% interest in the joint venture in
exchange for the properties contributed and recognized a gain on the partial
sale of $20.1 million, net of taxes of $13.1 million.
During 1999, we disposed of 63 properties and two parcels of land being
held for development. We recognized a gain of $54.8 million net of District of
Columbia franchise tax of $0.6 million. During 1998, we disposed of 13
properties and one parcel of land being held for development. We recognized a
gain of $38.2 million, net of taxes of $9.5 million.
Other provisions for 2000 includes an impairment loss of $7.9 million
for land held for development that we decided to sell. For various reasons, we
determined that we would not proceed with planned development of rental
properties on certain of our land holdings and decided to market the land for
sale. As a result, we evaluated the recoverability of the carrying amounts of
the land. We determined that the carrying amounts would not be recovered from
estimated net sale proceeds in certain cases and, in those cases, we recognized
impairment losses.
Discontinued Operations
Our income from discontinued operations of the executive suites
business was $0.5 million in 2000 versus a loss of $7.9 million in 1999. Income
increased primarily due to the lease up of development properties placed into
operations. In 1998, the executive suites business had income of $6.5 million.
The $14.4 million decrease in net income from 1998 to 1999 was principally due
to start-up costs incurred in 1999 for new executive suites centers and costs
incurred to integrate the various acquired operations.
31
On January 20, 2000, we, along with HQ Global Workplaces, Inc. (HQ Global),
VANTAS Incorporated (VANTAS), and FrontLine Capital Group, entered into several
agreements that contemplated several transactions including (i) the merger of
VANTAS with and into HQ Global, (ii) the acquisition by FrontLine Capital Group
of shares of HQ Global common stock from us and other stockholders of HQ Global,
and (iii) the acquisition by VANTAS of our debt and equity interests in
OmniOffices (UK) Limited and OmniOffices LUX 1929 Holding Company S.A. On June
1, 2000, we consummated the transactions. We recognized an after tax gain of
$31.9 million. Our investment in the merged entity at December 31, 2000 was
$42.2 million and is accounted for using the cost method.
Consolidated Cash Flows
Consolidated cash flow information is summarized as follows:
============================================================================================================
For the year ended Variance
-------------------
December 31, 2000 vs. 1999 vs.
--------------------------------
(in millions) 2000 1999 1998 1999 1998
---- ---- ---- ---- ----
Cash provided by operating activities $ 173.5 $ 175.0 $ 239.8 $ (1.5) $ (64.8)
Cash provided by (used in) investing activities 573.0 83.7 (985.3) 489.3 1,069.0
Cash (used in) provided by financing activities (773.7) (238.4) 757.8 (535.3) (996.2)
=============================================================================================================
1 Operations generated $173.5 million in 2000 compared to $175.0 million
in 1999 and $239.8 million in 1998. The changes in cash flow from operating
activities were primarily the result of factors discussed above in the analysis
of operating results. The level of net cash provided by operating activities is
also affected by the timing of receipt of revenues and payment of expenses.
Our investing activities provided net cash of $573.0 million in 2000
and $83.7 million in 1999. We used net cash of $985.3 million in our investing
activities in 1998. The increase in net cash provided by investing activities in
2000 is due to proceeds from the sale of discontinued operations and reduced
property acquisition and development activity. The increase in net cash provided
by investing activities in 1999 is due to higher net proceeds from sales of
properties and substantially lower levels of property acquisitions.
In 2000, we decreased our debt significantly, resulting in a use of
cash for financing activities of $773.7 million. Net debt repayments during 2000
totaled $546.3 million versus $13.5 million in 1999. We also repurchased $90.2
million of our common stock in 2000. Our financing activities used net cash of
$238.4 million in 1999 and provided net cash of $757.8 million in 1998. In 1998,
we sold stock, generating proceeds of $296.5 million, borrowed a net of $323.0
million on our unsecured credit facilities, primarily to finance acquisitions
and issued $350.0 million of senior unsecured notes. In 1999, we repurchased
$109.8 million of our common stock, borrowed a net of $1.0 million on our
unsecured credit facilities and did not issue any unsecured notes.
Liquidity and Capital Resources
We seek to create and maintain a capital structure that will enable us
to diversify our capital resources. This should allow us to obtain additional
capital from a number of different sources. These sources could include
additional equity offerings of common stock and/or preferred stock, public and
private debt financings and possible asset dispositions. Our management believes
that we will have access to the capital resources necessary to expand and
develop our business, to fund our operating and administrative expenses, to
continue to meet our debt service obligations, to pay dividends in accordance
with REIT requirements, to acquire additional properties and land and to pay for
construction in progress.
We have three investment grade ratings. As of December 31, 2000, Duff &
Phelps Credit Rating Co. and Standard & Poors have assigned a BBB rating to our
prospective senior unsecured debt offerings and their BBB- rating to our
prospective cumulative preferred stock offerings. Moody's Investor Service has
assigned its Baa3 rating to our prospective senior unsecured debt offerings and
its Ba2 rating to our prospective cumulative preferred stock offerings.
Our total debt at December 31, 2000 was $1.2 billion. $176.0 million of
the total debt (14.5%) bore a LIBOR-based floating rate. The weighted average
interest rate on borrowings on our unsecured credit facility for 2000 was 7.32%.
The interest rate of the unsecured credit facility is 70 basis points over
30-day LIBOR. Our fixed rate mortgage payable debt bore an effective weighted
average interest rate of 8.09% at December 31, 2000. The
32
weighted average term of this debt is seven years. At December 31, 2000, our
debt represented 31.4% of our total market capitalization of $3.9 billion.
We have a $450.0 million unsecured credit facility. As of December 31,
2000, $176.0 million was drawn on the credit facility, $3.7 million in letters
of credit were outstanding and we had $270.3 million available for borrowing.
This credit facility matures in August 2001 and we are in the process of
negotiating the terms of renewal. Based on the progress of the negotiations, we
expect that we will continue to have credit available to meet our needs on
satisfactory terms.
Rental revenue and real estate service revenue have been our principal
sources of funds to pay our operating expenses, debt service and capital
expenditures, excluding non-recurring capital expenditures. We believe that our
current sources of revenue will continue to provide the necessary funds for our
operating expenses and debt service.
We and our affiliates also require capital to invest in our existing
portfolio of operating assets for capital projects. These capital projects
can be such things as large-scale renovations, routine capital expenditures,
deferred maintenance on properties we have recently acquired and tenant related
matters, including tenant improvements, allowances and leasing commissions.
We will require a substantial amount of capital for development
projects currently underway and in the future. As of December 31, 2000, we had
approximately 0.6 million square feet of office space in six development
projects in progress. Our total expected investment on these projects is $94.7
million. Through December 31, 2000 we had invested $48.3 million or 51.0% of the
total expected investment for these projects. As of December 31, 2000, we also
had 1.2 million square feet of office space under construction in seven projects
in which we own minority interests. These projects are expected to cost $255.7
million of which, our total investment is expected to be approximately $98.9
million. Through December 31, 2000, approximately $97.9 million or 38.3% of the
total project costs had been expended. We have financed our investment in
projects under construction at December 31, 2000, primarily from the proceeds of
asset dispositions and borrowings under our credit facility. We expect that
these sources and project-specific financing of selected assets will provide
additional funds required to complete the development and to finance the costs
of additional projects.
Prior to the second quarter of 1998, we primarily met our capital
requirements by accessing the public debt and equity markets. As a general
matter, conditions in the public equity markets for most REITs have not been
favorable since that time. In response to these unfavorable conditions, we have
curtailed our acquisition program and satisfied our capital requirements through
the disposition of selected assets, the refinancing of selected assets, prudent
use of joint ventures to reduce our investment requirements and use of our
credit facility.
In the future, if the debt and equity markets are not favorable, if we
cannot raise the expected funds from the sale of properties and/or if we are
unable to obtain capital from other sources, we believe that we would continue
to have sufficient funds to pay our operating and debt service expenses and our
regular quarterly dividends and to make necessary routine capital improvements
with respect to our existing portfolio of operating assets. However, our ability
to continue to fund all of our current development projects could be adversely
affected. If we determine that it is in our best interest to continue to fund
all of our current development projects, we may have to access either the public
equity or debt markets at a time when those markets may not be the best source
of capital for us.
As of December 31, 2000, our portfolio of rental properties in Phoenix
(exclusive of one property) and three parcels of land were under contracts for
sale for purchase prices of $97.9 million and $5.3 million, respectively. The
sale of the Phoenix portfolio closed on February 15, 2001, producing net
proceeds of $85.2 million that will be used to fund development projects and
meet other corporate needs. We recognized a gain of $2.7 million, net of tax of
$1.7 million. We also repaid a $ 7.3 million mortgage on one of the properties
sold.
Our Board of Directors has authorized us to spend up to $225 million to
repurchase our common shares. During 2000, we acquired approximately 3.2 million
shares for $90.2 million, an average price of $28.41 per share.
We pay dividends quarterly. Funds, which we accumulate for the
distribution, are invested primarily in short-term investments collateralized by
securities of the United States Government or one of its agencies.
33
Funds from Operations
We believe that funds from operations is helpful to investors as a
measure of the performance of an equity REIT. Based on our experience, funds
from operations, along with information about cash flows from operating
activities, investing activities and financing activities, provides investors
with an indication of our ability to incur and service debt, to make capital
expenditures and to fund other cash needs. Funds from operations is defined by
the National Association of Real Estate Investment Trusts (NAREIT) as follows:
* Net income (loss) - computed in accordance with generally accepted
accounting principles (GAAP);
* Less gains (or plus losses) from sales of depreciable operating
properties and items that are classified as extraordinary items
under GAAP;
* Plus depreciation and amortization of assets uniquely significant
to the real estate industry;
* Plus or minus adjustments for unconsolidated partnerships and joint
ventures (to reflect funds from operations on the same basis).
Our funds from operations may not be comparable to funds from
operations reported by other REITs. These other REITs may not define the term in
accordance with the current NAREIT definition or may interpret the current
NAREIT definition differently than us. We continue to exclude the gain (loss) on
settlement of treasury locks for funds from operations. Funds from operations
does not represent net income or cash flow generated from operating activities
in accordance with GAAP. As such, it should not be considered an alternative to
net income as an indication of our performance or to cash flows as a measure of
our liquidity or our ability to make distributions.
The following table provides the calculation of our funds from
operations for the years presented:
(In thousands) 2000 1999 1998
--------- --------- --------
Income from continuing operations before minority
interest $ 163,308 $ 168,678 $ 136,051
Adjustments to derive funds from operations:
Add:
Depreciation and amortization 128,861 117,829 99,274
(Gain) loss on settlement of treasury locks - (4,489) 13,729
Deduct:
Minority interests' (non-Unitholders share of
depreciation, amortization and net income) (1,084) (609) (380)
Gain on sale of assets and other provisions, net (36,371) (54,822) (37,580)
--------- --------- ---------
Funds from operations before allocation to the minority
unitholders 254,714 226,587 211,094
Less funds from operations allocable to the minority
Unitholders (16,342) (16,545) (15,507)
--------- --------- ---------
Funds from operations allocable to CarrAmerica Realty
Corporation 238,372 210,042 195,587
Less preferred stock dividends (35,206) (35,448) (35,571)
--------- --------- ---------
Funds from operations attributable to common
shareholders: $ 203,166 $ 174,594 $ 160,016
========= ========= =========
Changes in funds from operations are largely attributable to the
effects of property acquisitions and dispositions and new developments as
discussed above.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Increases in interest rates, or the loss of benefits from any hedging
agreements would increase our interest expense. These events would adversely
affect cash flow. As of December 31, 2000, we had $176.0 million
34
outstanding under our line of credit that bears a floating interest rate. In
addition, we had $560.2 million of fixed rate mortgage debt. Our unsecured
credit facilities mature in August 2001. The mortgage loans mature at various
dates through 2019. We also have $475.0 million senior unsecured notes, which
mature between 2004 and 2008.
Our future earnings, cash flow and fair values relevant to financial
instruments are dependent upon prevailing market rates. Market risk associated
with financial instruments and derivative and commodity instruments is the risk
of loss from adverse changes in market prices or rates. We manage our risk by
matching projected cash inflows from operating activities, financing activities
and investing activities with projected cash outflows to fund debt payments,
acquisitions, capital expenditures, distributions and other cash requirements.
We may also use derivative financial instruments at times to limit market risk.
Interest rate protection agreements may be used to convert floating rate debt to
a fixed rate basis or to hedge anticipated financing transactions. We use
derivative financial instruments only for hedging purposes, and not for
speculation or trading purposes.
If the market rates of interest on our variable rate debt change by 10%
(or approximately 66 basis points), our interest expense would change by
approximately $1.2 million. This assumes the amount outstanding under our
variable rate credit facility remains at $176.0 million, our balance at December
31, 2000. The book value of our variable interest credit facility approximates
market value at December 31, 2000.
A change in interest rates generally does not impact future earnings
and cash flows for fixed rate debt instruments. As fixed rate debt matures, and
additional debt is incurred to fund the repayments of maturing facilities,
future earnings and cash flows may be impacted by changes in interest rates.
This impact would be realized in the periods subsequent to debt maturities. The
following is a summary of the fixed rate mortgages and senior unsecured debt
maturities at December 31, 2000 (in thousands):
2001 $ 78,483
2002 44,435
2003 49,980
2004 171,352
2005 118,439
2006 & thereafter 572,469
-----------
$ 1,035,158
===========
If we assume the repayments of fixed rate borrowings are made in
accordance with the terms and conditions of the respective credit arrangements,
a 10 percent change in the market interest rate for the respective fixed rate
debt instruments would change the fair market value of our fixed rate debt by
approximately $18 million. The estimated fair market value of the fixed rate
debt instruments and the senior unsecured notes at December 31, 2000 was $582.3
million and $468.7 million, respectively.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data included in this Annual
Report on Form 10-K are listed in Part IV, Item 14(a).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
35
PART III
Item 10. Directors and Executive Officers of the Registrant
This information is hereby incorporated by reference to the material
appearing in Part I of this Annual Report on Form 10-K.
Item 11. Executive Compensation
This information is hereby incorporated by reference to the material
appearing in the Notice of Annual Meeting of Stockholders ("Proxy Statement") to
be held on May 3, 2001 under the caption "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is hereby incorporated by reference to the material
appearing in the Proxy Statement under the caption "Voting Securities and
Principal Holders Thereof."
Item 13. Certain Relationships and Related Transactions
This information is hereby incorporated by reference to the material
appearing in the Proxy Statement under the caption "Certain Relationships and
Transactions."
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
14(a)(1) Financial Statements
Reference is made to the Index to Financial Statements and Schedule on
page 43.
14(a)(2) Financial Statement Schedule
Reference is made to the Index to Financial Statements and Schedule on
page 43.
14(a)(3) Exhibits
3.1 Amendment and Restatement of Articles of Incorporation of CarrAmerica
Realty Corporation, as amended on April 29, 1996 and April 30, 1996
(incorporated by reference to the same numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996).
3.2 Articles Supplementary Relating to Series A Cumulative Convertible
Redeemable Preferred Stock dated October 24, 1996 (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996).
3.3 Articles Supplementary Relating to Series B Cumulative Redeemable
Preferred Stock dated August 8, 1997 (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
3.4 Articles Supplementary Relating to Series C Cumulative Redeemable
Preferred Stock dated October 30, 1997 (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated and filed
on November 6, 1997).
3.5 Articles Supplementary Relating to Series D Cumulative Redeemable
Preferred Stock dated December 17, 1997 (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated December
16, 1997 and filed on December 17, 1997).
36
3.6 Articles of Amendment of Amendment and Restatement of Articles of
Incorporation of CarrAmerica Realty Corporation (incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998).
3.7 Second Amendment and Restatement of By-laws of CarrAmerica Realty
Corporation (incorporated by references to Exhibit 3.1 to the Company's
Current Report on Form 8-K filed on February 12, 1997).
3.8 Amendment to the Second Amendment and Restatement of By-Laws of
CarrAmerica Realty Corporation (incorporated by reference to Exhibit
3.2 to the Company's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1998).
3.9 Amendment to the Second Amendment and Restatement of By-laws of
CarrAmerica Realty Corporation (incorporated by reference to Exhibit
3.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998).
4.1 Indenture, dated as of July 1, 1997, by and among the Company, as
Issuer, CarrAmerica Realty, L.P., as Guarantor, and Bankers Trust
Company, as Trustee, Relating to the Company's 7.20% Notes due 2004 and
7.375% Notes due 2007 (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997).
4.2 Indenture, dated as of February 23, 1998, by and among the Company, as
Issuer, CarrAmerica Realty, L.P., as Guarantor, and Bankers Trust
Company, as Trustee, Relating to the Company's 6.625% Notes due 2005
and 6.875% Notes due 2008, (incorporated by reference to Exhibit 4.2 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1997).
4.3 Indenture, dated as of October 1, 1998 by and among the Company, as
Issuer, CarrAmerica Realty, L.P., as Guarantor, and Bankers Trust
Company, as Trustee, (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on October 2, 1998).
10.1 Second Amended and Restated Agreement of Limited Partnership of
CarrAmerica Realty, L.P., dated May 9, 1997 (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
10.2 First Amendment to Second Amended and Restated Agreement of Limited
Partnership of CarrAmerica Realty, L.P., dated October 6, 1997
(incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.3 Second Amendment to Second Amended and Restated Agreement of Limited
Partnership of CarrAmerica Realty, L.P., dated December 12, 1997
(incorporated by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.4 Third Amendment to Second Amended and Restated Agreement of Limited
Partnership of CarrAmerica Realty, L.P., dated December 31, 1997
(incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.5 Fourth Amendment to Second Amended and Restated Agreement of Limited
Partnership of CarrAmerica Realty, L.P., dated as of December 31, 1998
(incorporated by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998).
10.6 Third Amended and Restated Agreement of Limited Partnership of Carr
Realty, L.P., dated March 5, 1996, as amended (incorporated by
reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996).
10.7 First Amendment to Third Amended and Restated Agreement of Limited
Partnership of Carr Realty, L.P., dated as of January 22, 1998
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998).
37
10.8 Second Amendment to Third Amended and Restated Agreement of Limited
Partnership of CarrAmerica Realty, L.P., dated as of February 17, 1998
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998).
10.9 Third Amendment to Third Amended and Restated Agreement of Limited
Partnership of CarrAmerica Realty, L.P., dated as of May 8, 1998
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
10.10 1993 Carr Realty Option Plan (incorporated by reference to Exhibit 10.3
of the Company's Registration Statement on Form S-11, No. 33-53626).
10.11 Non-Employee Director Stock Option Plan (incorporated by reference to
the Company's Registration Statement on Form S-8, No. 33-92136).
10.12 First Amendment to CarrAmerica Realty Corporation 1995 Non-Employee
Director Stock Option Plan (incorporated by reference to Exhibit 10.12
to the Company's Annual Report on Form 10-K for the year ended December
31, 1998).
10.13 Second Amendment to CarrAmerica Realty Corporation 1995 Non-Employee
Director Stock Option Plan (incorporated by reference to Exhibit 10.1
of the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
10.14 1997 Stock Option and Incentive Plan (incorporated by reference to
Exhibit 10.5 to the Company's annual report on Form 10-K for the year
ended December 31, 1996).
10.15 First Amendment to CarrAmerica Realty Corporation 1997 Stock Option and
Incentive Plan (incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998).
10.16 Second Amendment to CarrAmerica Realty Corporation 1997 Stock Option
and Incentive Plan (incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998).
10.17 Third Amendment to CarrAmerica Realty Corporation 1997 Stock Option and
Incentive Plan (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998).
10.18 Fourth Amendment to CarrAmerica Realty Corporation 1997 Stock Option
and Incentive Plan (incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).
10.19 Fifth Amendment to CarrAmerica Realty Corporation 1997 Stock Option and
Incentive Plan (incorporated by reference to Exhibit 10.19 of the
Company's 1999 Annual Report on Form 10-K).
10.20 Noncompetition and Restriction Agreement by and among The Oliver Carr
Company, Oliver T. Carr, Jr., Carr Realty Corporation and Carr Realty,
L.P. (incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-11, No. 33-53626).
10.21 Consolidated, Amended and Restated Promissory Note dated March 19, 1999
from Carr Realty, L.P. to the Northwestern Mutual Life Insurance
Company (incorporated by reference to Exhibit 10.21 of the Company's
1999 Annual Report on Form 10-K).
10.22 Consolidated, Amended and Restated Deed of Trust and Security Agreement
dated March 19, 1999 by and among Carr Realty, L.P., William H. Norton,
and the Northwestern Mutual Life Insurance Company (incorporated by
reference to Exhibit 10.22 of the Company's 1999 Annual Report on Form
10-K).
38
10.23 Stockholders Agreement, dated April 30, 1996 by and among Carr Realty
Corporation, Carr Realty, L.P., Security Capital Holdings, S.A. and
Security Capital U.S. Realty (incorporated by reference to Exhibit 2.2
of Security Capital U.S. Realty's Schedule 13D dated April 30, 1996).
10.24 Registration Rights Agreement, dated April 30, 1996 by and among Carr
Realty Corporation, Security Capital Holdings, S.A. and Security
Capital U.S. Realty (incorporated by reference to Exhibit 2.3 of
Security Capital U.S. Realty's Schedule 13D dated April 30, 1996).
10.25 Fourth Amended and Restated Credit Agreement, dated August 27, 1998 by
and among CarrAmerica Realty Corporation, Carr Realty, L.P.,
CarrAmerica Realty, L.P., 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 10.15 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998).
10.26 Agreement and Plan of Merger by and among HQ Global Workplaces, Inc.,
CarrAmerica Realty Corporation, VANTAS Incorporated and Reckson Service
Industries, Inc., dated as of January 20, 2000 (incorporated by
reference to Exhibit 10.1 to the Company's Current Report filed on Form
8-K filed February 3, 2000).
10.27 First Amendment to Agreement and Plan of Merger by and among HQ Global
Workplaces, Inc., the Company, VANTAS Incorporated and Reckson Services
Industries, Inc., dated as of April 29, 2000 (incorporated by reference
to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000).
10.28 Second Amendment to Agreement and Plan of Merger by and among VANTAS
Incorporated, FrontLine Capital Group, CarrAmerica Realty Corporation
and HQ Global Workplaces, Inc. dated as of May 31, 2000 (incorporated
by reference to Exhibit 10.1 to the Company's Current Report filed on
Form 8-K filed June 16, 2000).
10.29 Stock Purchase Agreement between CarrAmerica Realty Corporation and
Reckson Service Industries, Inc., dated as of January 20, 2000
(incorporated by reference to Exhibit 10.3 to the Company's Current
Report filed on Form 8-K filed February 3, 2000).
10.30 First Amendment to Stock Purchase Agreement between the Company and
Reckson Service Industries, Inc., dated as of April 20, 2000
(incorporated by reference to Exhibit 10.7 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000).
10.31 Stock Purchase agreement among CarrAmerica Realty Corporation,
OmniOffices (UK) Limited, OmniOffices (Lux) 1929 Holding Company S.A.,
VANTAS Incorporated and Reckson Service Industries, Inc., dated as of
January 20, 2000 (incorporated by reference to Exhibit 10.4 to the
Company's Current Report filed on Form 8-K filed February 3, 2000).
10.32 First Amendment to Stock Purchase Agreement among the Company,
OmniOffices (UK) Limited, OmniOffices (Lux) 1929 Holding Company S.A.,
VANTAS Incorporated and Reckson Service Industries, Inc., dated as of
April 29, 2000 (incorporated by reference to Exhibit 10.8 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000).
10.33 Indemnification and Escrow Agreement by and among FrontLine Capital
Group, CarrAmerica Realty Corporation and the other parties named
therein dated as of June 1, 2000 (incorporated by reference to Exhibit
10.2 to the Company's Current Report filed on Form 8-K filed June 16,
2000).
10.34 Registration Rights Agreement, by and between FrontLine Capital Group
and CarrAmerica Realty Corporation dated as of June 1, 2000
(incorporated by reference to Exhibit 10.3 to the Company's Current
Report filed on Form 8-K filed June 16, 2000).
39
10.35 Registration Rights Agreement by and between HQ Global Holdings, Inc.
and CarrAmerica Realty Corporation dated as of June 1, 2000
(incorporated by reference to Exhibit 10.4 to the Company's Current
Report filed on Form 8-K filed June 16, 2000).
10.36 Stockholders Agreement among FrontLine Capital Group, HQ Global
Workplaces, Inc. and CarrAmerica Realty Corporation dated as of June 1,
2000 (incorporated by reference to Exhibit 10.5 to the Company's
Current Report filed on Form 8-K filed June 16, 2000).
10.37 Amended and Restated Limited Liability Company Agreement Carr Office
Park, L.L.C., dated as of August 15, 2000 (incorporated by reference to
Exhibit 10.1 to the Company's Current Report filed on Form 8-K filed
September 1, 2000).
10.38 Contribution and Purchase/Sale Agreement, dated as of August 15, 2000,
among CarrAmerica Realty Corporation, CarrAmerica Realty L.P.,
CarrAmerica Development, Inc., Carr Development & Construction, L.P.,
Carr Parkway North I Corporation and New York State Teachers'
Retirement System (incorporated by reference to Exhibit 10.2 to the
Company's Current Report filed on Form 8-K filed September 1, 2000).
10.39 Supplemental Agreement (Amending and Supplementing the Contribution
Agreement and the LLC Agreement), dated as of August 15, 2000, among
CarrAmerica Realty Corporation, CarrAmerica Realty L.P., CarrAmerica
Development, Inc., Carr Development & Construction, L.P., Carr Parkway
North I Corporation and New York State Teachers' Retirement System
(incorporated by reference to Exhibit 10.3 to the Company's Current
Report filed on Form 8-K filed September 1, 2000).
10.40 Loan Agreement, dated as of April 18, 2000, by and among the Company,
CarrAmerica Realty, L.P. and The Chase Manhattan Bank (incorporated by
reference to Exhibit 10.6 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000).
10.41 Change in Control Employment Agreement by and between CarrAmerica
Realty Corporation and Philip L. Hawkins, dated May 6, 1999, filed
herewith.
10.42 Change in Control Employment Agreement by and between CarrAmerica
Realty Corporation and Richard F. Katchuk, dated May 6, 1999, filed
herewith.
10.43 Change in Control Employment Agreement by and between CarrAmerica
Realty Corporation and Thomas A. Carr, dated May 6, 1999, filed
herewith.
10.44 Change in Control Employment Agreement by and between CarrAmerica
Realty Corporation and Karen B. Dorigan, dated February 6, 2001, filed
herewith.
11.1 Statement regarding computation of per share earnings; reference is
made to Notes to Financial Statements, Footnote 1(K).
12.1 Statement re: Computation of ratios
21.1 List of Subsidiaries.
23.1 Consent of KPMG LLP, dated March 28, 2001.
24.1 Power of Attorney of Oliver T. Carr, Jr.
24.2 Power of Attorney of Ronald Blankenship.
24.3 Power of Attorney of Andrew F. Brimmer.
24.4 Power of Attorney of A. James Clark.
24.5 Power of Attorney of Timothy Howard.
24.6 Power of Attorney of Caroline S. McBride.
24.7 Power of Attorney of William D. Sanders.
24.8 Power of Attorney of Wesley S. Williams, Jr.
99.1 Letter Agreement, dated July 28, 2000, among the Company, Carr Realty.
L.P. and Security Capital Group (incorporated by reference to Exhibit
14.2 to Schedule 13D/A of SC-U.S. Realty filed on September 27, 2000).
40
99.2 Letter Agreement, dated July 28, 2000, by and among the Company, Carr
Realty, L.P. Security Capital Holdings S.A. and Security Capital U.S.
Realty (incorporated by reference to Exhibit 12 to Schedule 13 D/A of
SC-U.S. Realty filed on August 4, 2000).
14(b) Reports on Form 8-K
Form 8-K filed October 11, 2000, regarding letter agreement with
Security Capital Group Inc.
Form 8-K filed November 3, 2000, regarding Supplemental Financial and
Operating Information of the Company as of November 3, 2000.
Form 8-K filed November 7, 2000, regarding the Press Release of the
Company dated November 6, 2000.
14(c) Exhibits
The list of exhibits filed with this report is set forth in response to
Item 14(a)(3). The required exhibit index has been filed with the exhibits.
14(d) Financial Statements
The financial statements required by this item are included in the list
set forth in response to Item 14(a)(2).
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registration has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the District of Columbia on March 28, 2001.
CARRAMERICA REALTY CORPORATION
a Maryland corporation
By: /s/ THOMAS A. CARR
------------------------
Thomas A. Carr
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following person on behalf
of the registrant and in the capacities indicated on March 15, 2001.
Signature Title
--------- -----
/s/ THOMAS A. CARR Chairman of the Board, President,
----------------------------------
Thomas A. Carr Chief Executive Officer and Director
/s/ RICHARD F. KATCHUK Chief Financial Officer
----------------------------------
Richard F. Katchuk
/s/ STEPHEN E. RIFFEE Senior Vice President, Controller
----------------------------------
Stephen E. Riffee and Treasurer
* Director
______________________________
Ronald Blankenship
* Director
______________________________
Andrew F. Brimmer
* Director
______________________________
Oliver T. Carr, Jr.
* Director
______________________________
A. James Clark
* Director
______________________________
Timothy Howard
* Director
______________________________
Caroline S. McBride
* Director
______________________________
William D. Sanders
* Director
-------------------------------
Wesley S. Williams, Jr.
*By: RICHARD F. KATCHUK
-------------------------
Richard F. Katchuk
Attorney-in-fact
42
CARRAMERICA REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
The following Consolidated Financial Statements and Schedule of
CarrAmerica Realty Corporation and Subsidiaries and the Independent Auditors'
Report thereon are attached hereto:
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Independent Auditors' Report................................................................. 44
Consolidated Balance Sheets as of December 31, 2000 and 1999................................. 45
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998.................................................... 46
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998.................................................... 47
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.................................................... 48
Notes to Consolidated Financial Statements................................................... 49-65
FINANCIAL STATEMENT SCHEDULE
Schedule III: Real Estate and Accumulated Depreciation as of
December 31, 2000 for CarrAmerica Realty Corporation and Subsidiaries............... 66-69
All other schedules are omitted because they are not applicable, or because the
required information is included in the financial statements or notes thereto.
43
Independent Auditors' Report
The Board of Directors and Stockholders
CarrAmerica Realty Corporation:
We have audited the accompanying consolidated financial statements and the
related financial statement schedule of CarrAmerica Realty Corporation and
subsidiaries as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CarrAmerica
Realty Corporation and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule referred to above, when
considered in relation to the basic consolidated statements taken as a whole,
presents fairly, in all material respects, the information set forth herein.
/s/ KPMG LLP
Washington, D.C.
February 2, 2001, except as to note 13 which is
as of February 15, 2001
44
CARRAMERICA REALTY CORPORATION AND
SUBSIDIARIES Consolidated Balance Sheets as of
December 31, 2000 and 1999
- -------------------------------------------------------------------------------
(In thousands, except for per share and share amounts)
2000 1999
----------- -----------
Assets
- ------
Rental property:
Land $ 644,326 $ 674,390
Buildings 1,836,214 2,082,533
Tenant improvements 325,936 304,983
Furniture, fixtures and equipment 6,844 5,916
----------- -----------
2,813,320 3,067,822
Less: Accumulated depreciation (381,260) (323,455)
----------- -----------
Total rental property 2,432,060 2,744,367
Land held for development or sale 47,984 104,050
Construction in progress 48,300 116,013
Cash and cash equivalents 24,704 51,886
Restricted deposits 39,482 12,475
Accounts and notes receivable 70,693 34,734
Investments in unconsolidated entities 269,193 67,143
Accrued straight-line rents 54,960 47,764
Tenant leasing costs, net of accumulated amortization
of $39,899 and $31,667 respectively 54,522 58,848
Deferred financing costs, net of accumulated amortization
of $14,031 and $12,309, respectively 11,311 15,621
Prepaid expenses and other assets, net of accumulated amortization
of $13,665 and $10,896, respectively 19,632 18,503
Net assets of discontinued operations - 207,668
----------- -----------
$ 3,072,841 $ 3,479,072
=========== ===========
Liabilities, Minority Interest and Stockholders' Equity
- -------------------------------------------------------
Liabilities:
Mortgages and notes payable $ 1,211,158 $ 1,603,371
Accounts payable and accrued expenses 96,147 68,643
Rent received in advance and security deposits 29,143 27,757
----------- -----------
Total liabilities 1,336,448 1,699,771
Minority interest 89,687 92,586
Stockholders' equity:
Preferred Stock, $0.01 par value, authorized 35,000,000 shares:
Series A Cumulative Convertible Redeemable Preferred Stock,
480,000 and 680,000 shares issued and
outstanding, respectively, with an aggregate liquidation
preference of $12.0 million and $17.0 million, respectively 5 7
Series B, C and D Cumulative Redeemable Preferred Stock,
8,800,000 shares issued and outstanding with an
aggregate liquidation preference of $400.0 million 88 88
Common Stock, $0.01 par value, authorized 180,000,000
shares, issued and outstanding 65,017,623 and
66,826,288 shares, respectively 650 668
Additional paid-in capital 1,755,985 1,816,990
Cumulative dividends in excess of net income (110,022) (131,038)
----------- -----------
Total stockholders' equity 1,646,706 1,686,715
Commitments and contingencies
----------- -----------
$ 3,072,841 $ 3,479,072
=========== ===========
See accompanying notes to consolidated financial statements.
45
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations for the Years Ended December 31, 2000,
1999 and 1998
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
2000 1999 1998
--------- --------- ---------
Operating revenues:
Rental revenue:
Minimum base rent $ 448,068 $ 422,440 $ 379,502
Recoveries from tenants 64,344 58,426 46,947
Parking and other tenant charges 19,447 17,983 14,006
--------- --------- ---------
Total rental revenue 531,859 498,849 440,455
Real estate service income 26,172 17,054 16,167
--------- --------- ---------
Total operating revenues 558,031 515,903 456,622
--------- --------- ---------
Operating expenses:
Property expenses:
Operating expenses 124,119 122,676 109,514
Real estate taxes 45,864 44,529 40,174
Interest expense 98,348 89,057 71,419
General and administrative 46,189 38,894 32,356
Depreciation and amortization 128,542 119,700 100,810
--------- --------- ---------
Total operating expenses 443,062 414,856 354,273
--------- --------- ---------
Real estate operating income 114,969 101,047 102,349
--------- --------- ---------
Other income:
Interest income 4,372 3,936 3,989
Equity in earnings of unconsolidated entities 7,596 5,167 5,282
Gain (loss) on treasury locks - 4,489 (13,729)
--------- --------- ---------
Total other income 11,968 13,592 (4,458)
--------- --------- ---------
Income from continuing operations before income
taxes, minority interest, and gain on sale of assets
and other provisions, net 126,937 114,639 97,891
Income taxes - (783) -
Minority interest (16,149) (17,599) (16,072)
Gain on sale of assets and other provisions, net 36,371 54,822 38,160
--------- --------- ---------
Income from continuing operations 147,159 151,079 119,979
Discontinued operations - Income (loss) from executive suite
operations (net of applicable income tax expense (benefit)
of $1,300, ($816) and $1,898, respectively) 456 (7,862) 6,518
Discontinued operations - Gain on sale of discontinued
operations (less applicable income tax expense of $21,131) 31,852 - -
--------- --------- ---------
Net income $ 179,467 $ 143,217 $ 126,497
========= ========= =========
Basic net income per common share:
Income from continuing operations $ 1.69 $ 1.71 $ 1.23
Discontinued operations 0.01 (0.12) 0.10
Gain on sale of discontinued operations 0.48 - -
--------- --------- ---------
Net income $ 2.18 $ 1.59 $ 1.33
========= ========= =========
Diluted net income per common share:
Income from continuing operations $ 1.65 $ 1.71 $ 1.23
Discontinued operations 0.01 (0.12) 0.09
Gain on sale of discontinued operations 0.47 - -
--------- --------- ---------
Net income $ 2.13 $ 1.59 $ 1.32
========= ========= =========
See accompanying notes to consolidated financial statements.
46
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity as of
December 31, 2000, 1999 and 1998
- -------------------------------------------------------------------------------------------------------------------
Preferred Common Preferred Common
(In thousands, except share amounts) Shares Shares Stock Stock
---------- ----------- ----------- ---------
Balance at December 31, 1997 9,580,000 59,993,778 $ 96 $ 600
Sales of common stock - 11,612,781 - 116
Shares issued in exchange for Unit
redemptions - 51,613 - 1
Exercise of stock options - 2,000 - -
Conversion of Series A Cumulative
Preferred Stock to common stock (100,000) 100,000 (1) 1
Net income - - - -
Dividends paid - - - -
---------- ----------- ----------- ---------
Balance at December 31, 1998 9,480,000 71,760,172 95 718
Repurchase of common stock - (5,000,000) - (50)
Shares issued in exchange for Unit
redemptions - 38,430 - -
Exercise of stock options - 27,686 - -
Net income - - - -
Dividends paid - - - -
---------- ----------- ----------- ---------
Balance at December 31, 1999 9,480,000 66,826,288 95 668
Repurchase of common stock - (3,174,100) - (31)
Shares issued in exchange for Unit
redemptions - 593,800 - -
Management incentive plan cancellation - (88,659) - -
Exercise of stock options - 660,294 - 11
Conversion of Series A Cumulative
Preferred Stock to common stock (200,000) 200,000 (2) 2
Net income - - - -
Dividends paid - - - -
---------- ----------- ----------- ---------
Balance at December 31, 2000 9,280,000 65,017,623 $ 93 $ 650
========== =========== =========== =========
Cumulative
Additional Dividends in
Paid-In Excess of
(In thousands, except share amounts) Capital Net Income Total
------------ ------------ ------------
Balance at December 31, 1997 $ 1,629,214 $ (77,213) $ 1,552,697
Sales of common stock 296,373 - 296,489
Shares issued in exchange for Unit
redemptions 452 - 453
Exercise of stock options 18 - 18
Conversion of Series A Cumulative
Preferred Stock to common stock - - -
Net income - 126,497 126,497
Dividends paid - (162,215) (162,215)
------------ ------------ ------------
Balance at December 31, 1998 1,926,057 (112,931) 1,813,939
Repurchase of common stock (109,752) - (109,802)
Shares issued in exchange for Unit
redemptions 551 - 551
Exercise of stock options 134 - 134
Net income - 143,217 143,217
Dividends paid - (161,324) (161,324)
------------ ------------ ------------
Balance at December 31, 1999 1,816,990 (131,038) 1,686,715
Repurchase of common stock (90,192) - (90,223)
Shares issued in exchange for Unit
redemptions 14,999 - 14,999
Management incentive plan cancellation (2,325) - (2,325)
Exercise of stock options 16,513 - 16,524
Conversion of Series A Cumulative
Preferred Stock to common stock - - -
Net income - 179,467 179,467
Dividends paid - (158,451) (158,451)
------------ ------------ ------------
Balance at December 31, 2000 $ 1,755,985 $ (110,022) $ 1,646,706
============ ============ ============
See accompanying notes to consolidated financial statements.
47
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998
- -----------------------------------------------------------------------------------------------------------------------
(In thousands)
2000 1999 1998
---------- ---------- ----------
Cash flows from operating activities:
Net income $ 179,467 $ 143,217 $ 126,497
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 128,542 140,349 111,022
Minority interest 16,149 17,415 16,076
Gain on sale of assets and other provisions, net (36,371) (54,822) (38,160)
Equity in earnings of unconsolidated entities (7,596) (5,167) (5,282)
Income and gain on sale of discontinued operations (32,308) - -
Stock and units issued in connection with compensation plans 2,890 2,356 312
Other (2,686) 1,825 685
Changes in assets and liabilities:
Increase in accounts and notes receivable (30,612) (10,736) (6,605)
Increase in accrued straight-line rents (9,187) (14,331) (13,919)
Additions to tenant leasing costs (17,050) (13,049) (12,949)
(Increase) decrease in prepaid expenses and other assets (4,332) (23,728) 7,453
(Decrease) increase in accounts payable and accrued expenses (15,796) (16,027) 37,066
Increase in rent received in advance and security deposits 2,426 7,700 17,556
---------- ---------- ----------
Total adjustments (5,931) 31,785 113,255
---------- ---------- ----------
Net cash provided by operating activities 173,536 175,002 239,752
---------- ---------- ----------
Cash flows from investing activities:
Acquisition and development of rental property (90,475) (78,957) (337,080)
Acquisition and development of executive suite assets (6,678) (83,709) (217,439)
Additions to land held for development or sale (26,157) (3,149) (132,416)
Additions to construction in progress (97,025) (275,942) (400,391)
Distributions from unconsolidated entities 7,392 19,424 5,852
Contributions to unconsolidated entities (29,942) (5,191) (82,120)
Acquisition of minority interest (8,438) (2,231) -
(Increase) decrease in restricted deposits (27,007) 25,586 (15,802)
Proceeds from sales of properties 474,015 487,883 194,075
Proceeds from sale of discontinued operations 377,310 - -
---------- ---------- ----------
Net cash provided by (used by) investing activities 572,995 83,714 (985,321)
---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from sales of common and preferred stock - - 296,518
Repurchase of common stock (90,223) (109,802) -
Excercises of stock options 29,730 - -
Net (repayments) borrowings on unsecured credit facility ( including
$140,500 related to discontinued operations in 2000) (307,500) 1,000 323,000
Proceeds from issuance of senior unsecured notes - - 350,000
Payment of senior unsecured notes (150,000) - -
Repayments of mortgages payable (including $14,449
related to discontinued operations in 2000) (88,811) (13,468) (25,412)
Proceeds from refinancing of existing mortgages - 51,980 -
Dividends and distributions to minority interests (169,320) (172,626) (173,147)
Deferred financing costs - (1,516) (16,821)
Contributions from minority interests 2,411 6,066 3,622
---------- ---------- ----------
Net cash (used by) provided by financing activities (773,713) (238,366) 757,760
---------- ---------- ----------
Foreign currency translation adjustment - (1,517) 463
---------- ---------- ----------
(Decrease) increase in unrestricted cash and cash equivalents (27,182) 18,833 12,654
Unrestricted cash and cash equivalents, beginning of the period 51,886 36,499 23,845
---------- ---------- ----------
Unrestricted cash and cash equivalents, end of the period $ 24,704 $ 55,332 $ 36,499
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $12,367,
$26,485 and $30,482, respectively) $ 99,628 $ 95,221 $ 81,428
========== ========== ==========
Supplemental disclosure of noncash investing and financing activities
(a) During 1998, we funded a portion of the purchase price of property
acquisitions by assuming $31.6 million of debt and and liabilities and by
issuing $10.0 million of unit options.
(b) During 2000, we contributed $332.1 million of assets to an unconsolidated
joint venture.
See accompanying notes to consolidated financial statements.
48
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) Description of Business and Summary of Significant Accounting Policies
(a) Business
We are a fully integrated, self-administered and self-managed publicly
traded real estate investment trust ("REIT"). We focus on the acquisition,
development, ownership and operation of office properties, located primarily in
selected suburban markets across the United States. Until June of 2000, we also
operated an executive suites business. As discussed in note 3, we disposed of a
substantial portion of our interest in this business on June 1, 2000, and we
present the executive suites business as a discontinued operation. Our principal
shareholder at December 31, 2000 was Security Capital-U.S. Realty, which owned
approximately 44% of our outstanding common stock. In January 2001, Security
Capital-U.S. Realty merged with Security Capital Group International, and, as a
result, Security Capital Group International ("Security Capital") now owns these
shares.
(b) Basis of Presentation
Our accounts and those of our majority-owned/controlled subsidiaries and
affiliates are consolidated in the financial statements. We use the equity or
cost methods, as appropriate in the circumstances, to account for our
investments in and our share of the earnings or losses of unconsolidated
entities. These entities are not majority-owned or controlled by us.
Management has made a number of estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses in the financial
statements, and the disclosure of contingent assets and liabilities. Estimates
are required in order for us to prepare our financial statements in conformity
with accounting principles generally accepted in the United States of America.
Significant estimates are required in a number of areas, including the
evaluation of impairment of long-lived assets, determination of useful lives of
assets subject to depreciation or amortization and evaluation of the
collectibility of accounts and notes receivable. Actual results could differ
from these estimates.
(c) Rental Property
Properties to be developed or held and used in rental operations are
carried at cost less accumulated depreciation and impairment losses, where
appropriate. Properties held for sale are carried at the lower of their carrying
values (i.e., cost less accumulated depreciation and impairment losses, where
appropriate) or estimated fair value less costs to sell. Properties are
considered held for sale when they are subject to a contract of sale meeting
criteria specified by senior management (e.g., contingencies are met or waived,
a nonrefundable deposit is paid, etc.). Depreciation on these properties is
discontinued at that time, but operating revenues, other operating expenses and
interest continue to be recognized until the date of sale. At December 31, 2000,
rental properties with a net book value of $203.0 million and land with a
carrying value of $12.0 million were held for sale. The sale of the majority of
the rental properties closed in February 2001 (see note 13) and all of the land
is expected to be sold in 2001.
Depreciation of rental properties is computed on a straight-line basis over
the estimated useful lives of the assets. The estimated lives of our assets by
class are as follows:
Base building.................................................... 30 to 50 years
Building components.............................................. 7 to 20 years
Tenant improvements.............................................. Lesser of the terms of the leases or
useful lives of the assets
Leasehold improvements, furniture, fixtures and equipment........ 5 to 15 years
Specifically identifiable costs associated with properties and land in
development are capitalized. Capitalized costs may include salaries and related
costs, real estate taxes, interest, pre-construction costs essential to the
development of a property, development costs, construction costs and external
acquisition costs. Costs of significant improvements, renovations and
replacements to rental properties are capitalized. Expenditures for maintenance
and repairs are charged to operations as they are incurred.
If events or changes in circumstances indicate that the carrying value of a
rental property or land held for development may be impaired, we perform a
recoverability analysis based on estimated undiscounted cash flows to
49
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
be generated from the property in the future. If the analysis indicates that the
carrying value is not recoverable from future cash flows, the property is
written down to estimated fair value and an impairment loss is recognized.
We recognize gains from sales of rental properties and land at the time of
sale using the full accrual method, provided that various criteria related to
the terms of the transactions and any subsequent involvement by us with the
properties sold are met. If the criteria are not met, we defer the gains and
recognize them when the criteria are met or using the installment or cost
recovery methods, as appropriate in the circumstances.
(d) Tenant Leasing Costs
We defer fees and initial direct costs incurred in the negotiation of
completed leases. They are amortized on a straight-line basis over the term of
the lease to which they apply.
(e) Deferred Financing Costs
We defer fees and costs incurred to obtain financing. They are amortized
using the interest method over the term of the loan to which they apply.
(f) Real Estate Service Contracts and Other Intangibles
The costs of real estate service contracts and other identified intangible
assets are amortized on a straight-line basis over the expected lives of the
assets.
(g) Fair Values of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts and notes
receivable and accounts payable and accrued expenses approximate their fair
values because of their short-term maturities. Fair value information relating
to mortgages and notes payable is provided in Note 2.
(h) Revenue Recognition
We recognize minimum base rental revenue under tenant leases on a straight-
line basis over the terms of their respective leases. Accrued straight-line
rents represent the rental revenue recognized in excess of rents due under the
lease agreements at the balance sheet date. Accrued straight-line rents is net
of an allowance for estimated uncollectible amounts. The allowance is based on
the expected future cash flows determined based on current information and
management's assessment of the tenants' ability to fulfill their lease
obligations. We recognize revenues for recoveries from tenants of real estate
taxes, insurance and other costs in the period in which the related expenses are
incurred.
We recognize revenue for services on properties we manage, lease or develop
for unconsolidated entities or third parties when the services are performed.
Revenue for development and leasing services to affiliates is reduced to
eliminate profit to the extent of our ownership interest.
(i) Income and Other Taxes
In general, a REIT which meets certain requirements and distributes at
least 90 percent of its REIT taxable income to its shareholders in a taxable
year will not be subject to income tax to the extent of the income it
distributes. We qualify and intend to continue to qualify as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As a
result, we have made no provision for federal income taxes on income from
continuing operations except for taxes on certain property sales.
The REIT Modernization Act ("RMA") was included in the Tax Relief Extension
Act of 1999 ("the Act"), which was enacted into law on December 17, 1999. The
RMA includes numerous amendments to the provisions governing the qualification
and taxation of REITs. These amendments were effective January 1, 2001. One of
the principal provisions included in the Act was the creation of the taxable
REIT subsidiary ("TRS"). A TRS is a corporation that, among other things, is
permitted to provide services to tenants that previously were allowed to be
provided only by independent third parties or through a corporation in which we
had less than 10% of the voting
50
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
power. We and some of our subsidiaries made a joint election to treat these
subsidiaries as TRS's for federal and state income tax purposes as of January 1,
2001.
The net operating losses carried forward from December 31, 2000, for
federal income tax purposes aggregate approximately $20.0 million and will begin
to expire in 2012.
We have subsidiaries which are organized as partnerships which are subject
to District of Columbia franchise tax. This tax is included in income taxes.
(j) Hedging Transactions
We sometimes use interest rate lock and collar agreements to hedge against
the impact of interest rate fluctuations on our existing debt or anticipated
financing transactions. These agreements are designed as hedges and, as a
result, changes in their fair values are not recognized in the financial
statements, provided that they meet defined correlation and effectiveness
criteria at inception and thereafter. Instruments that cease to qualify for
hedge accounting are marked-to-market with gains and losses recognized in the
statement of operations.
(k) Earnings Per Share and Dividends
Our basic earnings per share (EPS) is computed by dividing earnings
available to common shareholders by the weighted average number of common shares
outstanding. Our diluted EPS is computed after adjusting the numerator and
denominator of the basic EPS computation for the effects of all dilutive
potential common shares outstanding during the period. The dilutive effects of
convertible securities are computed using the "if-converted" method. The
dilutive effects of options, warrants and their equivalents (including fixed
awards and nonvested shares issued under stock compensation plans) are computed
using the "treasury stock" method.
The following table sets forth information relating to the computations of
our basic and diluted EPS for income from continuing operations:
(In thousands except per share amounts)
Year Ended December 31, 2000
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------
Basic EPS $ 111,953 66,221 $ 1.69
Effect of Dilutive Securities -
Stock Options - 1,428 (0.04)
-------------------------------------------
Diluted EPS $ 111,953 67,649 $ 1.65
===========================================
Year Ended December 31, 1999
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------
Basic EPS $ 115,631 67,858 $ 1.71
Effect of Dilutive Securities -
Stock Options - 124 -
-------------------------------------------
Diluted EPS $ 115,631 67,982 $ 1.71
===========================================
Year Ended December 31, 1998
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------
Basic EPS $ 84,408 68,577 $ 1.23
Effect of Dilutive Securities -
Stock Options - 201 -
-------------------------------------------
Diluted EPS $ 84,408 68,778 $ 1.23
===========================================
51
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Income from continuing operations has been reduced by preferred dividends
of $35,206, $35,448 and $35,571 for 2000, 1999 and 1998, respectively.
The effects of convertible units in CarrAmerica Realty L.P. and Carr Realty
L.P. and Series A Convertible Preferred Stock are not included in the
calculation of diluted EPS for any year in which their effect is antidilutive.
The tax status of our common stock dividends paid during the last three
years is as follows:
2000 1999 1998
-------- -------- --------
Ordinary income 84% 78% 92%
Capital gain 16% 22% -
Return of capital - - 8%
(l) Cash Equivalents
We consider all highly liquid investments with a maturity of three months
or less at the date of purchase to be cash equivalents except that any such
investments purchased with funds on deposit in escrow or similar accounts are
classified as restricted deposits.
(m) Accumulated Other Comprehensive Income
We currently do not have any items of other comprehensive income. Prior to
the merger of HQ Global with VANTAS (see note 3), we had foreign currency
translation adjustments due to HQ Global's foreign affiliates. Our historic
translation adjustments are included in net assets of discontinued operations at
December 31, 1999. Our comprehensive income represented net income and
translation adjustments. Comprehensive income was $179.5 million in 2000, $141.7
million in 1999 and $127.0 million in 1998.
(n) Segment Information
We have two reportable business segments: real estate property operations
and development operations. Business activities and operating segments that are
not reportable are included in other operations.
(o) Stock/Unit Compensation Plans
We use the intrinsic value method to account for our stock option and unit
plans. Under this method, we record compensation expense for awards of stock,
options or units to employees only if the market price of the unit or stock on
the grant date exceeds the amount the employee is required to pay to acquire the
unit or stock.
(p) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet. The derivatives must be measured at fair
value. We have adopted this statement as of January 1, 2001. Because we use
derivatives on only a limited basis and in a manner that will qualify for
treatment as cash flow hedges under SFAS No. 133, adoption of SFAS No. 133 will
not have a material impact on our financial statements.
(q) Reclassifications
Some prior years' amounts have been reclassified to conform to the current
year's presentation.
(2) Mortgages and Notes Payable
Our mortgages and notes payable are summarized as follows:
52
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(In thousands) December 31, 2000 December 31, 1999
----------------- -----------------
Fixed rate mortgages $ 560,158 $ 635,371
Unsecured credit facility 176,000 343,000
Senior unsecured notes 475,000 625,000
----------------- -----------------
$ 1,211,158 $ 1,603,371
================= =================
Mortgages payable are collateralized by properties and generally require
monthly principal and/or interest payments. Mortgages payable mature at various
dates from August 2001 through July 2019. The weighted average interest rate of
mortgages payable was 8.09% at December 31, 2000 and 8.04% at December 31, 1999.
We have 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 an interest rate, based on our choice, of either the higher of
the prime rate or the Federal Funds Rate or 70 basis points above the 30-day
London Interbank Offered Rate (LIBOR). We usually select the interest rate equal
to 70 basis points above the 30-day LIBOR rate for initial draws and when LIBOR
contracts expire. The credit facility matures in August 2001 and we are in the
process of negotiating the terms of renewal. Based on the progress of the
negotiations, we expect that we will continue to have credit available to meet
our needs on satisfactory terms. At December 31, 2000, we had $270.3 million
available for draw under the credit facility.
Our unsecured credit facility contains financial and other covenants with
which we must comply. Some of these covenants include:
* A minimum ratio of annual EBITDA (earnings before interest,
taxes, depreciation and amortization) to interest expense;
* A minimum ratio of annual EBITDA to debt service;
* A maximum ratio of total debt to tangible fair market value of
our assets;
* Restrictions on our ability to make dividend distributions in
excess of 90% of funds from operations.
Availability under the unsecured credit facility is also limited to a specified
percentage of the fair value of our unmortgaged properties.
We had senior unsecured notes outstanding of $475.0 million at December 31,
2000. These notes are as follows:
* $150 million of 7.20% notes due in 2004;
* $100 million of 6.625% notes due in 2005;
* $125 million of 7.375% notes due in 2007;
* $100 million of 6.875% notes due in 2008.
Our senior unsecured notes also contain covenants with which we must comply.
These include:
* Limits on our total indebtedness on a consolidated basis;
* Limits on our secured indebtedness on a consolidated basis;
* Limits on our required debt service payments.
CarrAmerica Realty, L.P. unconditionally guarantees the senior unsecured notes.
Debt maturities at December 31, 2000 are as follows:
53
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(In thousands)
2001 $ 254,483
2002 44,435
2003 49,980
2004 171,352
2005 118,439
2006 and thereafter 572,469
-----------
$ 1,211,158
===========
Restricted deposits consist primarily of escrow deposits. These deposits
are required by lenders to be used for future building renovations or tenant
improvements or as collateral for letters of credit.
The estimated fair value of our mortgages payable at December 31, 2000 and
1999 was approximately $582.3 million and $659.0 million, respectively. The
estimated fair value is based on the borrowing rates available to us for fixed
rate mortgages payable with similar terms and average maturities. The fair value
of the unsecured credit facility at December 31, 2000 and 1999 approximates book
value. The estimated fair value of our senior unsecured notes at December 31,
2000 and 1999 was approximately $468.7 million and $584.8 million, respectively.
The estimated fair value is based on the borrowing rates available to us for
debt with similar terms and maturities.
(3) Discontinued Operations
On January 20, 2000, we, along with HQ Global Workplaces, Inc. (HQ Global),
VANTAS Incorporated (VANTAS) and FrontLine Capital Group, entered into several
agreements that contemplated several transactions including (i) the merger of
VANTAS with and into HQ Global, (ii) the acquisition by FrontLine Capital Group
of shares of HQ Global common stock from us and other stockholders of HQ Global,
and (iii) the acquisition by VANTAS of our debt and equity interests in
OmniOffices (UK) Limited and OmniOffices LUX 1929 Holding Company S.A.
On June 1, 2000, we consummated the transactions. We recognized an after
tax gain of $31.9 million. Our investment in the merged entity at December 31,
2000 was $42.2 million and is accounted for using the cost method. We own
approximately 16% of the equity of the merged entity on a fully diluted basis.
In connection with the HQ Global merger, a $200.0 million credit facility that
HQ Global had with Morgan Guaranty Trust Company was retired. Approximately
$140.5 million of HQ Global debt (which we guaranteed) was repaid at that time.
As part of the HQ Global/VANTAS transaction, we received put rights with
respect to our continuing interest in HQ Global. These rights can be exercised
at specified times at our option if HQ Global has not completed an initial
public offering. A portion of the put is exercisable in late 2001, with the
balance exercisable in June 2002. Payment for our HQ Global stock will be based
on the fair market value of our investment and can be made either in cash, a
short-term note (in the case of the 2001 put right) or delivery of common stock
of FrontLine Capital Group, a NASDAQ-listed company and the majority shareholder
of HQ Global.
(4) Minority Interest
At the time we were incorporated and our majority-owned subsidiary, Carr
Realty, L.P. was formed, those who contributed interests in properties to Carr
Realty, L.P. had the right to elect to receive either our common stock or units
of limited partnership interest in Carr Realty, L.P. In addition, we have
acquired assets since our formation by issuing distribution paying units and
non-distribution paying units of Carr Realty, L.P. and CarrAmerica Realty, L.P.
The non-distribution paying units cannot receive any distributions until they
automatically convert into distribution paying units in the future. During the
year ended December 31, 2000, 163,598 non-distribution paying units were
converted to distribution paying units. A distribution paying unit, subject to
restrictions, may be redeemed for either one share of our common stock, or, at
our option, cash equal to the fair market value of a share of our common stock
at the time of redemption. When a Unitholder redeems a distribution paying unit
for a share of common stock or cash, minority interest is reduced and our
investment in Carr Realty, L.P. or CarrAmerica Realty, L.P., as appropriate, is
increased. During the years ended December 31, 2000 and 1999, 292,739 and 38,430
distribution
54
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
paying units, respectively, of Carr Realty, L.P. were redeemed for our common
stock. Minority interest in the financial statements relates primarily to
Unitholders.
The following table summarizes the outstanding shares of our common stock,
preferred stock which is convertible into our common stock and outstanding units
of Carr Realty, L.P. and CarrAmerica Realty, L.P.:
(In thousands)
Convertible Distribution Non-Distribution
Common Preferred Paying Paying
Stock Stock Units Units
As of December 31, Outstanding Outstanding Outstanding Outstanding
- ------------------ ----------- ----------- ----------- -----------
2000 65,018 480 5,656 268
1999 66,826 680 6,048 432
1998 71,760 680 5,978 540
Weighted average for:
- --------------------
2000 66,221 495 5,916 405
1999 67,858 680 6,003 495
1998 68,577 745 5,985 540
(5) Other Investments in Unconsolidated Entities and Affiliate Transactions
We own interest ranging from 15% to 50% in real estate property operations
and development operations through unconsolidated entities. We had eleven
investments in 2000, six investments in 1999 and eight investments in 1998 in
these entities.
The combined condensed financial information for the unconsolidated
entities accounted for under the equity method is as follows:
55
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(In thousands)
December 31,
Balance Sheets 2000 1999
---- ----
Assets
------
Rental property, net $569,500 $188,463
Land and construction in progress 123,540 47,134
Cash and cash equivalents 20,140 4,921
Other assets 37,201 37,815
-------- --------
$750,381 $278,333
======== ========
Liabilities and Partners' Capital
Liabilities:
Notes payable $184,991 $249,330
Other liabilities 15,697 18,715
-------- --------
Total liabilities 200,688 268,045
Partners' capital 549,693 10,288
-------- --------
$750,381 $278,333
======== ========
Year Ended December 31,
Statements of Operations 2000 1999 1998
---- ---- ----
Revenue $ 64,423 $ 39,825 $ 90,734
Depreciation and amortization expense 14,733 7,370 11,331
Interest expense 19,529 19,464 26,123
Other expenses 21,302 11,371 48,050
Gain on sale of assets 63,984 - -
-------- -------- --------
Net income $ 72,843 $ 1,620 $ 5,230
======== ======== ========
In addition to making investments in these entities, we provided
construction management, leasing, development and architectural and other
services to them. We earned fees for these services of $8.9 million in 2000,
$7.9 million in 1999 and $6.1 million in 1998. Accounts receivable from our
affiliates were $4.8 million at December 31, 2000 and $6.1 million at December
31, 1999. At December 31, 1999, these receivables included a leasing commission
receivable of $2.1 million. In December 2000, the building to which this
receivable related was sold and the balance of the receivable was collected.
A subsidiary of Clark Enterprises, Inc., a Unitholder, has provided
construction management services to us. We have paid $1.7 million in 2000, $3.1
million in 1999 and $19.6 million in 1998 for these services.
During 1999 and 1998, payments of $0.2 million and $0.3 million,
respectively, were made to Security Capital Investment Research Incorporated, an
affiliate of Security Capital, for research. Payments to Security Capital in
2000 were less than $30,000. The research was related to the acquisition of
operating properties, executive office suites businesses and development
properties.
(6) Lease Agreements
Space in our rental properties is leased to approximately 1,350 tenants. In
addition to minimum rents, the leases typically provide for other rents which
reimburse us for specific property operating expenses. The future minimum base
rent to be received under noncancellable tenant leases and the percentage of
total rentable space under leases expiring each year, as of December 31, 2000
are summarized as follows:
56
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(Dollars in thousands) Percentage of
Future Total Space
Minimum Under Lease
Rent Expiring
----------- ----------
2001 $ 417,395 8.1
2002 396,353 12.4
2003 341,008 14.6
2004 271,534 14.9
2005 223,713 12.0
2006 & thereafter 565,367 38.0
-----------
$ 2,215,370
===========
Leases also provide for additional rent based on increases in the Consumer
Price Index (CPI) and increases in operating expenses. Increases are generally
payable in equal installments throughout the year.
We lease land for two office properties located in metropolitan Washington,
D.C. and one office property located in Santa Clara, California. We also lease
land adjacent to an office property in Chicago, Illinois. The initial terms of
these leases range from 5 years to 99 years. The longest lease matures in 2086.
The minimum base annual rental payment for these leases is $2.6 million.
(7) Common and Preferred Stock
In 2000, our Board of Directors has authorized us to spend up to $225
million to repurchase our common shares. During 2000, we acquired approximately
3.2 million shares for $90.2 million, an average price of $28.41 per share.
We are authorized to issue 35 million shares of preferred stock. On October
25, 1996, we issued 1,740,000 shares of Series A Cumulative Convertible
Redeemable Preferred Stock ("Series A Preferred Stock") at $25 per share.
Dividends for the Series A Preferred Stock are cumulative from the date of
issuance. The dividends are payable quarterly in arrears in an amount per share
equal to the greater of $1.75 per share per year or the cash dividend paid on
the number of shares of our common stock into which a share of Series A
Preferred Stock is convertible. Series A Preferred Stock has a liquidation
preference of $25 per share. Each share of Series A Preferred Stock is
convertible into one share of common stock (subject to conversion adjustments),
at the option of the holder. As of December 31, 2000, 1,260,000 shares of Series
A Preferred Stock had been converted into common stock. After October 25, 1999,
each outstanding share of Series A Preferred Stock became redeemable at our
option. The redemption price is $25 per share plus accrued and unpaid dividends.
As of December 31, 2000, we had the following additional preferred stock
issued and outstanding:
Liquidation
Shares Issue Date Preference Dividend Rate
------ ---------- ---------- -------------
Series B 8,000,000 August 1997 $25.00 8.57%
Series C 6,000,000 November 1997 $25.00 8.55%
Series D 2,000,000 December 1997 $25.00 8.45%
The Series C and D shares are Depositary Shares. They each represent a 1/10
fractional interest in a share of preferred stock. Dividends for the Series B, C
and D shares are cumulative from the date of issuance and are payable quarterly
in arrears on the last day of February, May, August and November. These
preferred shares are redeemable at our option after the following dates:
Series B - August 12, 2002
Series C - November 6, 2002
Series D - December 19, 2002
57
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(8) Stock/Unit Compensation Plans
As of December 31, 2000, we had three option plans. Two plans are for the
purpose of attracting and retaining executive officers and other key employees
(1997 Employee Stock Option and Incentive Plan and the 1993 Carr Realty Option
Plan). The other plan is for the purpose of attracting and retaining directors
who are not employees (1995 Non-Employee Director Stock Option Plan).
The 1997 Employee Stock Option and Incentive Plan ("Stock Option Plan")
allows for the grant of options to purchase our common stock at an exercise
price equal to the fair market value of the common stock at the date of grant.
At December 31, 2000, we had options and units to purchase 10,000,000 shares of
common stock and units reserved so we could issue them under the Stock Option
Plan. At December 31, 2000, 6,281,703 options were outstanding. All of the
outstanding options have a 10-year term from the date of grant. 3,606,375
options vest over a four-year period, 25% per year, and 450,000 options vest at
the end of five years. The balance of the options vest over a five-year period,
20% per year.
The 1993 Carr Realty Option Plan allows for the grant of options to
purchase units of Carr Realty, L.P. (unit options). These options are
exercisable at the fair market value of the units at the date of grant, which is
equivalent to the fair market value of our common stock on that date. Units
(following exercise of unit options) are redeemable for cash or common stock, at
our option. At December 31, 2000, we had options to purchase 1,266,900 units
authorized for grant under the 1993 Carr Realty Option Plan, of which 238,522
were outstanding. All of the outstanding options have a 10-year term from the
date of grant and vest over five years, 20% per year.
The 1995 Non-Employee Director Stock Option Plan provides for the grant of
options to purchase our common stock at an exercise price equal to the fair
market value of the common stock at the date of grant. Under this plan, a newly
elected non-employee directors are granted options to purchase 3,000 shares of
common stock when they start serving as a director. In connection with each
annual election of directors, a continuing non-employee director will receive
options to purchase 7,500 shares of common stock. The stock options have a 10-
year term from the date of grant and vest over three years, 33 1/3% per year. At
December 31, 2000, we had 270,000 options on shares of common stock authorized
for grant under this plan with 231,225 outstanding.
The per share weighted-average fair values of Unit options and stock
options granted during 2000, 1999 and 1998 were $2.24, $2.25 and $2.38,
respectively, on the date of grant. This value is determined using the Black-
Scholes option-pricing model. The following assumptions were used:
Expected Risk Free Expected Expected
Dividend Interest Stock Option
Yield Rate Volatility Life
---------- ---------- ----------- ----------
2000 8.64% 6.77% 22.47% 5.00
1999 7.54% 5.16% 22.78% 3.95
1998 7.38% 5.05% 21.82% 5.00
If we had applied a fair-value based method (rather than the intrinsic
value method) to recognize compensation cost for our unit and stock options, our
net income and earnings per share of common stock would have been adjusted as
indicated below:
(In thousands except per share data) 2000 1999 1998
--------- --------- ---------
Pro forma net income $ 176,364 $ 140,507 $ 125,026
Pro forma basic EPS $ 2.13 $ 1.55 $ 1.30
Pro forma diluted EPS $ 2.09 $ 1.55 $ 1.30
Unit and stock option activity during 2000, 1999 and 1998 is summarized as
follows:
58
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1993 Plan 1995 Plan 1997 Plan
---------------------------- --------------------------- ----------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Under Exercise Under Exercise Under Exercise
Option Price Option Price Option Price
------------- ----------- ------------ ------------ ------------- ------------
Outstanding at
December 31, 1997 915,622 $ 23.266 94,332 $ 24.909 994,981 $ 29.052
Granted - - 97,560 25.004 4,217,500 26.178
Exercised 1,000 22.875 1,000 17.750 - -
Forfeited 20,000 24.375 - - 176,537 29.487
------------- ------------ -------------
Outstanding at
December 31, 1998 894,622 23.242 190,892 24.995 5,035,944 26.629
Granted - - 52,500 24.250 456,500 23.010
Exercised 16,200 23.480 - - - -
Forfeited 30,800 24.643 19,667 27.699 791,941 26.493
------------- ------------ -------------
Outstanding at
December 31, 1999 847,622 23.186 223,725 24.583 4,700,503 26.301
Granted - - 7,500 24.688 2,870,357 21.174
Exercised 593,600 22.932 - - 632,611 25.103
Forfeited 15,500 23.831 - - 656,546 24.424
------------- ------------ -------------
Outstanding at
December 31, 2000 238,522 $ 23.778 231,225 $ 24.586 6,281,703 $ 24.275
============= ============ =============
Options exercisable at:
December 31, 1998 708,942 $ 22.914 59,172 $ 23.386 305,245 $ 29.222
December 31, 1999 802,188 22.953 105,745 24.287 1,198,708 27.388
December 31, 2000 218,766 23.400 164,710 24.548 1,316,540 27.480
The following table summarizes information about our stock options outstanding
at December 31, 2000:
Options Outstandng Options Exercisable
- --------------------------------------------------------------- -----------------------------------------
Outstanding Weighted-Average Exercisable
Range of Exercise as of Remaining Weighted-Average as of Weighted-Average
Prices 12/31/00 Contractual Life Exercise Price 12/31/00 Exercise Price
- ------------------- ------------- -------------------- ----------------- ------------ -----------------
$17.00-$20.00 41,000 7.1 $ 18.5122 22,250 $ 18.1011
$20.01-$23.00 2,719,093 8.7 20.9265 221,663 22.6429
$23.01-$26.00 1,984,913 7.9 23.7209 500,913 23.6824
$26.01-$29.00 248,144 7.1 28.4181 131,225 28.2724
$29.01-$32.00 1,758,300 6.9 29.6017 823,965 29.5477
-------------- -------------------- ----------------- ------------ ------------------
6,751,450 7.9 $ 24.2681 1,700,016 $ 26.6709
We have also granted to key executives 726,294 restricted stock units under the
1997 Stock Option Plan. The stock units were granted at a zero exercise price.
The fair market values of the units at the dates of grant range from $20.69 to
$28.94 per unit. The units vest over five years, at 20% per year. We recognize
the fair value of the units awarded at dates of grant as compensation cost on a
straight-line basis over the terms of the awards. Compensation expense related
to these awards was $2.9 million in 2000, $2.0 million in 1999 and $0.3 million
in 1998.
59
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) Gain on Sale of Assets and Other Provisions, Net
The following table summarizes our gain on sale of assets and other
provisions, net:
(in thousands) 2000 1999 1998
--------- --------- ---------
Sales of land/development properties $ (3,655) $ 662 $ 580
Sales of rental properties 33,399 54,791 47,121
Sale of properties to Carr Office Park, L.L.C. 33,197 - -
Impairment loss (7,894) - -
Taxes (18,676) (631) (9,541)
--------- --------- ---------
Total $ 36,371 $ 54,822 $ 38,160
========= ========= =========
We dispose of assets (sometimes using tax-deferred exchanges) that are
inconsistent with our long-term strategic or return objectives or where market
conditions for sale are favorable. During 2000, we disposed of 16 properties
(including one property in which we held an interest through an unconsolidated
entity) and four parcels of land that were being held for development. We
recognized a net gain of $24.1 million on these transactions, net of taxes of
$5.6 million, including a net gain of $8.8 million relating to our share of the
gain on sale of a property in which we held an interest through an
unconsolidated entity.
On August 17, 2000, we closed on a joint venture transaction with New York
State Teachers' Retirement System ("NYSTRS"). At closing, we and some affiliates
contributed properties to the joint venture, Carr Office Park, L.L.C., and
NYSTRS contributed cash of approximately $255.1 million. The joint venture
encompasses five suburban office parks (including 26 rental properties and land
held for development of additional properties) in four markets. We received
approximately $249.6 million in cash and a 35% interest in the joint venture in
exchange for the properties contributed and recognized a gain on the partial
sale of $20.1 million, net of taxes of $13.1 million.
During the fourth quarter of 2000, we recognized an impairment loss of $7.9
million on land. For various reasons, we determined that we would not proceed
with planned development of rental properties on certain of our land holdings
and decided to market the land for sale. As a result, we evaluated the
recoverability of the carrying amounts of the land. We determined that the
carrying amounts would not be recovered from estimated net sale proceeds in
certain cases and, in those cases, we recognized impairment losses.
During 1999, we disposed of 63 rental properties and two parcels of land
being held for development. During 1998, we disposed of 13 rental properties and
one parcel of land being held for development.
(10) Commitments and Contingencies
At December 31, 2000, we were liable on $3.7 million in letters of credit.
We were contingently liable for letters of credit related to various completion
escrows and on performance bonds amounting to approximately $13.1 million to
ensure completion of required public improvements on our construction projects.
In 1998, we entered into forward treasury agreements (treasury locks) in
order to hedge against the impact of interest rate fluctuations on planned
future debt issuances. At December 31, 1998, we determined that these positions
no longer represented effective hedges. At that time, we recognized a loss of
$13.7 million in anticipation of terminating the agreements. These contracts
were settled in February 1999 for $9.2 million in cash, resulting in a gain of
$4.5 million in 1999.
We have a 401(k) plan for employees under which we match 50% of employee
contributions up to the first 4% of pay. We also make a base contribution of 3%
of pay for participants who remain employed on December 31 (end of the plan
year). Our contributions to the plan are subject to a five-year graduated
vesting schedule. Our contributions to the plan were $1.6 million in 2000 and
$1.1 million in 1999 and 1998. In 2001, the vesting schedule is changing to four
years, 25% per year, and our contribution will be 75% of employee contributions
up to the first 6% of pay.
60
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
We are currently involved in two separate lawsuits with two stockholders of
HQ Global. The first lawsuit involves the conversion in September 1998 of
approximately $111 million of debt previously loaned by us to HQ Global into
stock of HQ Global. We, along with HQ Global, initiated this lawsuit asking the
court to declare that the terms of the debt conversion were fair, after these
two stockholders threatened to challenge the terms of the conversion. The
stockholders had claimed that both the conversion price used and the methods by
which the conversion price was agreed upon between HQ Global and us were not
fair to HQ Global or these stockholders. Thereafter, the two stockholders filed
their own counterclaims against HQ Global, the board of directors of HQ Global
and us. The stockholders have asked the court to declare the conversion void, or
in the alternative for compensatory and punitive damages. The second lawsuit
involves claims filed by the two stockholders arising out of the June 2000 HQ
Global/VANTAS merger transactions. In this lawsuit, the two stockholders have
brought claims against HQ Global, the board of directors of HQ Global, and us.
The two stockholders allege that, in connection with the transactions, we
breached our fiduciary duties to the two stockholders and breached a certain
contract with the stockholders. The stockholders have asked the court to rescind
the entire transaction, or in the alternative for compensatory and rescissory
damages.
Although we believe that the two stockholders' claims are without merit and
that we will ultimately prevail in these actions, there can be no assurance that
the court will not find in favor of these stockholders. However, even if the two
stockholders were successful in their claims, we do not believe that this result
would have a material adverse effect on our financial condition or results of
operations.
In the course of our normal business activities, various lawsuits, claims
and proceedings have been or may be instituted or asserted against us. Based on
currently available facts, we believe that the disposition of matters that are
pending or asserted will not have a material adverse effect on our consolidated
financial position, results of operations or liquidity.
61
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
________________________________________________________________________________
(11) Selected Quarterly Financial Information (unaudited)
The following is a summary of the quarterly results of operations for 2000
and 1999:
(In thousands, except per share data)
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter
- ---- --------- --------- --------- ---------
Rental revenue $ 136,625 $ 139,127 $ 131,690 $ 124,417
Real estate service income 4,941 5,312 7,667 8,252
Real estate operating income 28,527 27,651 30,678 28,113
Income from continuing operations 33,152 29,825 49,910 34,272
(Loss) income from discontinued operations (1,380) 1,836 - -
Gain on sale of discontinued operations - 31,852 - -
Net income 31,772 63,513 49,910 34,272
Basic net income per common share:
Income from continuing operations 0.36 0.31 0.62 0.39
(Loss) income from discontinued operations (0.02) 0.03 - -
Gain on sale of discontinued operations - 0.48 - -
Net income 0.34 0.82 0.62 0.39
Diluted net income per common share:
Income from continuing operations 0.36 0.31 0.60 0.38
Income from discontinued operations (0.02) 0.03 - -
Gain on sale of discontinued operations - 0.43 - -
Net income 0.34 0.77 0.60 0.38
1999
- ----
Rental revenue $ 121,458 $ 119,238 $ 128,311 $ 129,842
Real estate service income 3,900 4,947 4,202 4,005
Real estate operating income 28,231 24,272 23,082 25,462
Income from continuing operations 47,446 32,255 42,235 29,143
Loss from discontinued operations (1,271) (1,849) (2,848) (1,894)
Net income 46,175 30,406 39,387 27,249
Basic net income per common share:
Income from continuing operations 0.55 0.35 0.50 0.30
Loss from discontinued operations (0.02) (0.03) (0.04) (0.03)
Net income 0.53 0.32 0.46 0.27
Diluted net income per common share:
Income from continuing operations 0.54 0.35 0.49 0.30
Loss from discontinued operations (0.02) (0.03) (0.04) (0.03)
Net income 0.52 0.32 0.45 0.27
62
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
________________________________________________________________________________
(12) Segment Information
Our reportable operating segments are real estate property operations and
development operations. Other business activities and operating segments that
are not reportable are included in other operations. The real estate property
operations segment includes the operation and management of rental properties.
The development operations segment includes the development of new rental
properties for us and for unaffiliated companies. Our reportable segments offer
different products and services and are managed separately because each requires
different business strategies and management expertise.
Our operating segments' performance is measured using funds from
operations. Funds from operations is defined by the National Association of Real
Estate Investment Trusts (NAREIT) as follows:
* Net income (loss) - computed in accordance with generally accepted
accounting principles (GAAP);
* Less gains (or plus losses) from sales of depreciable operating
properties and items that are classified as extraordinary items under
GAAP;
* Plus depreciation and amortization of assets uniquely significant to
the real estate industry;
* Plus or minus adjustments for unconsolidated partnerships and joint
ventures (to reflect funds from operations on the same basis).
Funds from operations does not represent net income or cash flow generated from
operating activities in accordance with GAAP. As such, it should not be
considered an alternative to net income as an indication of our performance or
to cash flows as a measure of our liquidity or our ability to make
distributions.
Operating results of our reportable segments and our other operations are
summarized as follows:
As of and for the year ended December 31, 2000
-----------------------------------------------------------------
Real Estate
Property Development Other
(In millions) Operations Operations Operations Total
----------- ----------- ---------- -----------
Operating revenue $ 531.9 $ 10.6 $ 15.5 $ 558.0
Segment expense 170.0 4.5 41.6 216.1
----------- ----------- ---------- -----------
Net segment revenue (expense) 361.9 6.1 (26.1) 341.9
Interest expense 49.2 - 49.1 98.3
Other income (expense), net 14.5 0.2 (3.6) 11.1
----------- ----------- ---------- -----------
Funds from operations $ 327.2 $ 6.3 $ (78.8) 254.7
=========== =========== ==========
Adjustments:
Depreciation and amortization (128.4)
Other, net 0.5
-----------
Income from continuing operations before
gain on sale of assets and minority interest 126.8
Minority interest and gain on sale of assets 20.3
Discontinued operations, net of income tax 0.5
Gain on sale of discontinued operations, net of tax 31.9
-----------
Net income $ 179.5
===========
Total assets from continuing operations $ 2,711.9 $ 96.3 $ 264.6 $ 3,072.8
=================================================================
Expenditures for long-lived assets $ 107.5 $ 123.2 $ - $ 230.7
=================================================================
63
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
________________________________________________________________________________
As of and for the year ended December 31, 1999
-----------------------------------------------------------------
Real Estate
Property Development Other
(In millions) Operations Operations Operations Total
----------- ----------- ---------- -----------
Operating revenue $ 498.9 $ 6.6 $ 10.4 $ 515.9
Segment expense 167.2 4.6 34.3 206.1
----------- ----------- ---------- -----------
Net segment revenue (expense) 331.7 2.0 (23.9) 309.8
Interest expense 50.5 - 38.6 89.1
Other income (expense), net 8.9 0.2 (3.2) 5.9
----------- ----------- ---------- -----------
Funds from operations $ 290.1 $ 2.2 $ (65.7) 226.6
=========== =========== ==========
Adjustments:
Depreciation and amortization (117.3)
Gain on settlement of treasury locks 4.5
Other, net 0.8
-----------
Income from continuing operations before
gain on sale of assets and minority interest 114.6
Minority interest and gain on sale of assets 36.4
Discontinued operations, net of income tax (7.8)
-----------
Net income $ 143.2
===========
Total assets from continuing operations $ 2,991.8 $ 220.1 $ 59.5 $ 3,271.4
=========== =========== ==========
Net assets of discontinued operations 207.7
-----------
Total assets $ 3,479.1
===========
Expenditures for long-lived assets $ 92.0 $ 279.1 $ - $ 371.1
=================================================================
64
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
________________________________________________________________________________
As of and for the year ended December 31, 1998
-----------------------------------------------------------------
Real Estate
Property Development Other
(In millions) Operations Operations Operations Total
----------- ----------- ---------- -----------
Operating revenue $ 440.5 $ 4.4 $ 11.8 $ 456.7
Segment expense 149.7 3.1 29.3 182.1
----------- ----------- ---------- -----------
Net segment revenue (expense) 290.8 1.3 (17.5) 274.6
Interest expense 46.8 - 24.6 71.4
Other income (expense), net 8.2 - (0.3) 7.9
----------- ----------- ---------- -----------
Funds from operations $ 252.2 $ 1.3 $ (42.4) 211.1
=========== =========== ==========
Adjustments:
Depreciation and amortization (98.8)
Loss on treasury locks (13.7)
Other, net (0.7)
-----------
Income from continuing operations before
gain on sale of assets and minority interest 97.9
Minority interest and gain on sale of assets 22.1
Discontinued operations, net of income tax 6.5
-----------
Net income $ 126.5
===========
Total assets from continuing operations $ 2,809.4 $ 466.4 $ 153.9 $ 3,429.7
===============================================
Net assets of discontinued operations 197.6
-----------
Total assets $ 3,627.3
===========
Expenditures for long-lived assets $ 391.6 $ 532.8 $ - $ 924.4
=================================================================
(13) Subsequent Events
As of December 31, 2000, our portfolio of rental properties in Phoenix
(exclusive of one property) and three parcels of land were under contracts for
sale for purchase prices of $97.9 million and $5.3 million, respectively. The
sale of the Phoenix portfolio closed on February 15, 2001, producing net
proceeds of $85.2 million that will be used to fund development projects and
meet other corporate needs. We recognized a gain of $2.7 million, net of tax of
$1.7 million. We also repaid a $ 7.3 million mortgage on one of the properties
sold.
65
CarrAmerica Realty Corporation and Subsidiaries
Schedule III: Real Estate and Accumulated Depreciation as of December 31, 2000
(In Thousands)
Gross Amount
Costs at Which Carried
Initial Costs Capitalized at Close of Period
------------- ------------------------
Buildings and Subsequent to Building and
Properties Encumbrances Land Improvements Acquisition/3/ Land Improvements
- ---------- ------------ ---- ----------------------------- ---- ------------
Downtown Washington, D.C.:
International Square/2/ 183,700 /7/ 69,651 100,921 17,922 69,651 118,843
900 19th Street 15,711 1,985 13,358 3,198 1,985 16,556
2550 M Street - 2,340 11,348 12,980 2,340 24,328
1730 Pennsylvania Avenue - 2,196 11,013 13,451 2,196 24,464
1255 23rd Street 38,300 10,793 40,214 3,946 10,793 44,160
1747 Pennsylvania Avenue 14,418 1,636 8,157 6,999 1,636 15,156
1775 Pennsylvania Avenue 11,864 - 19,000 2,224 - 21,224
Suburban Washington, D.C.:
One Rock Spring Plaza - - 18,409 1,910 - 20,319
Reston Town Center - - 2,150 - - 2,150
King Street Exchange - - 1,622 1,830 - 3,452
Sunrise Corporate Center - 8,250 34,322 7,557 11,566 38,563
Reston Crossing East & West - 8,379 - 59,162 13,315 54,226
Orange County/Los Angeles:
Scenic Business Park - 2,469 4,503 1,482 2,469 5,985
Harbor Corporate Park - 2,191 5,784 2,361 2,191 8,145
Plaza PacifiCare - 3,493 6,392 78 3,493 6,470
Katella - 2,671 4,314 657 2,681 4,961
Warner Center - 16,490 33,698 4,109 16,574 37,723
South Coast Executive Center 15,000 3,324 17,212 2,440 3,388 19,588
Warner Premier - 3,252 6,040 328 3,285 6,335
Von Karman - 3,731 12,493 1,168 3,744 13,648
2600 W. Olive 19,152 3,855 25,054 2,941 3,904 27,946
Bay Technology Center - 2,442 11,164 552 2,462 11,696
Pacific Corporate Plaza 1, 2, 3 - 5,756 - 11,591 5,911 11,436
Alton Deere Plaza - 5,666 17,967 942 5,676 18,899
Westlake Spectrum - 4,371 13,105 6 4,369 13,113
San Diego:
Del Mar Corporate Plaza - 2,860 13,252 1,219 2,869 14,462
Wateridge Pavilion 3,368 881 5,509 176 895 5,671
Towne Center Technology Park 1, 2, 3 - 4,929 - 21,583 5,071 21,441
Lightspan - 1,438 5,710 777 1,440 6,485
La Jolla Spectrum/1/ - 6,447 - 19,079 3,232 22,294
Palomar Oaks Technology Park 9,811 4,698 12,495 126 4,714 12,605
Jaycor 11,611 5,123 11,754 1,690 5,154 13,413
Highlands Corporate Center - 10,156 30,369 481 10,156 30,850
San Francisco Bay Area:
CarrAmerica Corporate Center - 33,035 75,720 8,505 32,946 84,314
Valley Business Park I 39,443 /4/ 3,859 3,155 423 3,865 3,572
Bayshore Centre 2 - 8,525 6,969 646 8,960 7,180
Rincon Centre - 12,464 10,188 1,439 12,480 11,611
Valley Centre II - 13,658 11,164 (149) 13,676 10,997
Valley Office Centre - 6,134 5,014 511 6,142 5,517
Valley Centre - 6,051 4,945 822 6,059 5,759
Valley Business Park II - 8,753 7,155 1,481 8,765 8,624
Rio Robles - 16,655 29,598 655 16,669 30,239
3745 North First Street - 3,388 4,884 420 3,411 5,281
Baytech Business Park - 14,958 - 24,033 14,568 24,423
3571 North First Street - 6,297 8,862 70 6,326 8,903
San Mateo Center I - 5,703 9,126 109 5,710 9,228
Oakmead West Land A-G - 22,842 - 41,594 21,624 42,812
San Mateo II & III - 9,723 15,556 992 9,817 16,454
Accumulated Date of Year of
Properties Total Depreciation Construction Acquisition
- ---------- ----- ------------ ------------ -----------
Downtown Washington, D.C.:
International Square/2/ 188,494 64,510 1977, 1979, 1982 1993
900 19th Street 18,541 7,422 1986 1993
2550 M Street 26,668 10,565 1978 1993
1730 Pennsylvania Avenue 26,660 13,220 1972 1993
1255 23rd Street 54,953 17,900 1983 1993
1747 Pennsylvania Avenue 16,792 7,974 1970 1993
1775 Pennsylvania Avenue 21,224 4,023 1975 1994
Suburban Washington, D.C.:
One Rock Spring Plaza 20,319 6,867 1989 1995
Reston Town Center 2,150 518 N/A 1996
King Street Exchange 3,452 - 2000 2000
Sunrise Corporate Center 50,129 1,183 1987-1989 1996
Reston Crossing East & West 67,541 2,088 1987-1989 1996
Orange County/Los Angeles:
Scenic Business Park 8,454 1,813 1985 1996
Harbor Corporate Park 10,336 2,062 1987 1996
Plaza PacifiCare 9,963 1,248 1986 1996
Katella 7,642 1,027 1982 1996
Warner Center 54,297 7,397 1981-1985 1996
South Coast Executive Center 22,976 3,066 1987 1996
Warner Premier 9,620 949 1990 1997
Von Karman 17,392 1,587 1981 1997
2600 W. Olive 31,850 3,833 1986 1997
Bay Technology Center 14,158 1,204 1985 1997
Pacific Corporate Plaza 1, 2, 3 17,347 767 1998 1997
Alton Deere Plaza 24,575 1,887 1989 1998
Westlake Spectrum 17,482 382 1988-1989 2000
San Diego:
Del Mar Corporate Plaza 17,331 3,007 1986 1996
Wateridge Pavilion 6,566 821 1987 1997
Towne Center Technology Park 1, 2, 3 26,512 3,500 1998 1997
Lightspan 7,925 1,038 1985 1997
La Jolla Spectrum/1/ 25,526 1,490 1999 1998
Palomar Oaks Technology Park 17,319 1,044 1989 1998
Jaycor 18,567 895 1989 1998
Highlands Corporate Center 41,006 1,185 N/A 1999
San Francisco Bay Area:
CarrAmerica Corporate Center 117,260 27,034 1988 1996
Valley Business Park I 7,437 597 1981 1996
Bayshore Centre 2 16,140 959 1984 1996
Rincon Centre 24,091 1,942 1984 1996
Valley Centre II 24,673 1,893 1980 1996
Valley Office Centre 11,659 809 1981 1996
Valley Centre 11,818 950 1980 1996
Valley Business Park II 17,389 1,331 1979 1996
Rio Robles 46,908 4,223 1985 1996
3745 North First Street 8,692 773 1984 1997
Baytech Business Park 38,991 2,335 1998 1997
3571 North First Street 15,229 1,026 1985 1997
San Mateo Center I 14,938 987 1986 1997
Oakmead West Land A-G 64,436 5,760 1998 1997
San Mateo II & III 26,271 2,012 1985 1997
66
(In Thousands)
Gross Amount
Costs at Which Carried
Initial Costs Capitalized at Close of Period
------------- ------------------------
Buildings and Subsequent to Building and
Properties Encumbrances Land Improvements Acquisition/3/ Land Improvements
- ---------- ------------ ---- ----------------------------- ---- ------------
Hacienda West - 6,468 24,062 1,218 6,492 25,256
Sunnyvale Technology Center 32,179 /5/ 12,098 16,131 146 12,106 16,269
Clarify Corporate Center 1, 2, 3, 4 - 17,574 - 31,059 17,470 31,163
Valley Technology Center 1, 2, 3, 4 & 5 - 32,910 - 47,812 34,645 46,077
Golden Gateway Commons - 21,112 51,689 1,840 21,166 53,475
Techmart Commerce Center - - 36,594 1,976 - 38,570
Freemont Technology Park 1, 2, 3 - 10,122 10,797 (1,455) 8,475 10,989
Denver, CO:
Harlequin Plaza - 4,746 21,344 7,773 4,747 29,116
Quebec Court I & II - 2,368 19,819 10,267 2,371 30,083
Quebec Centre - 1,423 5,659 859 1,423 6,518
Dry Creek Corporate Center - 10,575 - 10,096 12,104 8,567
Seattle, WA:
Redmond 26,616 6,957 32,390 3,098 6,972 35,473
Redmond Hilltop B & C - 2,511 - 7,925 2,489 7,947
Canyon Park - 7,643 23,624 2,705 5,782 28,190
Willow Creek - 1,709 6,972 79 1,724 7,036
Willow Creek Corp. Center 1, 2, 3, 4, 5, 6 - 6,485 - 39,936 5,778 40,643
Canyon Park Commons 1, 2, 4 5,196 5,592 9,958 20,896 6,740 29,706
Canyon Point - 6,225 - 611 6,817 19
Salt Lake City, UT:
Sorenson Research Park 3,936 4,389 25,304 3,264 5,017 27,940
Sorenson XI - 1,490 - 5,682 3,115 4,057
Wasatch Corporate Center 12,269 3,318 15,495 465 3,587 15,691
Wasatch Corporate Center 17, 18 - 2,636 - 11,602 2,537 11,701
Wasatch Corporate Center 16 - 1,172 - 1,001 2,173 -
Creekside/1/ - - 3,150 8,410 - 11,560
Chicago, IL:
Parkway North I 24,164 3,727 29,146 2,110 3,733 31,250
Unisys - 6,387 45,111 4,672 6,346 49,824
The Crossings - 5,268 34,215 2,883 5,289 37,077
Bannockburn I & II 17,714 3,448 22,928 4,580 3,472 27,484
Bannockburn IV - 1,914 12,729 534 1,924 13,253
Austin, TX:
City View Centre - 1,718 13,854 1,155 1,720 15,007
City View Center - 1,890 - 13,647 2,107 13,430
Braker Pointe/1/ - 6,602 - 9,743 2,978 13,367
Tower of the Hills - 1,633 13,625 1,002 1,634 14,626
Dallas, TX:
Cedar Maple Plaza - 1,220 10,982 1,039 1,225 12,016
Quorum North 6,369 1,357 9,078 1,249 1,368 10,316
Quorum Place - 1,941 14,234 1,800 1,954 16,021
Tollway Plaza 1, 2 - 2,960 - 47,451 3,959 46,452
Tollway Plaza 3 - 2,522 - 527 3,049 -
Royal Ridge IV & V - 6,586 - 137 6,723 -
Two Mission Park - 823 4,326 928 831 5,246
Commons @ Las Colinas 1, 3 - 9,990 - 90,643 10,032 90,601
5000 Quorum - 1,774 15,616 994 1,782 16,602
Phoenix, AZ:
Camelback Lakes - 5,476 21,365 (5,391) 4,275 17,175
Accumulated Date of Year of
Properties Total Depreciation Construction Acquisition
- ---------- ----- ------------ ------------ -----------
Hacienda West 31,748 2,606 1987 1998
Sunnyvale Technology Center 28,375 1,605 1971-1975 1998
Clarify Corporate Center 1, 2, 3, 4 48,633 2,961 1999 1998
Valley Technology Center 1, 2, 3, 4 & 5 80,722 2,578 1998 1998
Golden Gateway Commons 74,641 5,332 1980-1984 1998
Techmart Commerce Center 38,570 3,693 1987 1998
Freemont Technology Park 1, 2, 3 19,464 1,055 1999 1998
Denver, CO:
Harlequin Plaza 33,863 5,559 1981 1996
Quebec Court I & II 32,454 5,410 1979-1980 1996
Quebec Centre 7,941 1,442 1985 1996
Dry Creek Corporate Center 20,671 - 1999 1998
Seattle, WA:
Redmond 42,445 7,085 1988-1992 1996
Redmond Hilltop B & C 10,436 1,854 1998 1996
Canyon Park 33,972 4,605 1989 1997
Willow Creek 8,760 853 1981 1997
Willow Creek Corp. Center 1, 2, 3, 4, 5, 6 46,421 6,587 1998 1997
Canyon Park Commons 1, 2, 4 36,446 2,240 1988, 2000 1997
Canyon Point 6,836 - 2000
Salt Lake City, UT:
Sorenson Research Park 32,957 3,511 1988-1997 1997
Sorenson XI 7,172 394 1999 1997
Wasatch Corporate Center 19,278 1,850 1996 1997
Wasatch Corporate Center 17, 18 14,238 1,292 1998-1999 1997
Wasatch Corporate Center 16 2,173 - N/A 1999
Creekside/1/ 11,560 - N/A 2000
Chicago, IL:
Parkway North I 34,983 5,193 1986-1989 1996
Unisys 56,170 7,814 1984-1985 1996
The Crossings 42,366 5,863 1985 1997
Bannockburn I & II 30,956 3,859 1980 1997
Bannockburn IV 15,177 1,675 1988 1997
Austin, TX:
City View Centre 16,727 2,978 1985 1996
City View Center 15,537 2,239 1998 1996
Braker Pointe/1/ 16,345 - N/A 1997
Tower of the Hills 16,260 1,552 1986 1997
Dallas, TX:
Cedar Maple Plaza 13,241 1,639 1985 1997
Quorum North 11,684 1,549 1983 1997
Quorum Place 17,975 2,455 1981 1997
Tollway Plaza 1, 2 50,411 4,291 1998 1997
Tollway Plaza 3 3,049 - N/A 1997
Royal Ridge IV & V 6,723 - N/A 2000
Two Mission Park 6,077 821 1983 1997
Commons @ Las Colinas 1, 3 100,633 4,635 1999 1998
5000 Quorum 18,384 1,735 1984 1998
Phoenix, AZ:
Camelback Lakes 21,450 2,923 1982 1996
67
CarrAmerica Realty Corporation and Subsidiaries
Schedule III: Real Estate and Accumulated Depreciation as of December 31, 2000
(In Thousands)
Costs Gross Amount at Which
Initial Costs Capitalized Carried at Close of Period
------------- --------------------------
Buildings and Subsequent to Building and
Properties Encumbrances Land Improvements Acquisition/3/ Land Improvements
- ---------- ------------ ---- ----------------------------- ---- ------------
Pointe Corridor - 2,396 12,580 1,696 2,401 14,271
Four Gateway - 3,420 - 14,287 3,473 14,234
Highland Park - 1,956 5,544 1,385 1,974 6,911
The Grove @ Black Canyon - 1,748 9,658 687 1,754 10,339
Qwest Communications 42,441 18,517 74,069 786 18,641 74,731
Concord Place 7,374 3,337 16,675 1,105 3,348 17,769
Portland, OR:
Sunset Corporate Park - 4,932 - 13,914 4,258 14,588
Rock Creek Corp Center - 2,614 - 15,714 2,575 15,753
Atlanta, GA:
Glenridge - 1,423 4,871 201 1,292 5,203
Century Springs West 19,522 /6/ 1,642 7,646 (1,161) 1,280 6,847
Holcomb Place - 1,419 4,574 289 1,421 4,861
Midori - 1,802 6,715 2,885 2,320 9,082
Parkwood - 2,080 12,678 4,249 2,362 16,645
Lakewood - 1,040 6,789 648 1,055 7,422
The Summit - 2,237 15,027 1,207 2,241 16,230
Spalding Ridge - 1,550 4,950 7,963 1,678 12,785
2400 Lake Park Drive - 805 6,539 1,183 812 7,715
680 Engineering Drive - 559 3,420 299 563 3,715
Embassy Row - 7,916 36,907 3,704 7,959 40,568
Embassy 100, 500 - 4,328 - 28,768 4,351 28,745
Waterford Centre - 1,110 7,737 614 1,115 8,346
Preston Ridge - 1,993 - 336 2,329 -
Forum/1/ - 1,732 - 633 - 2,365
Boca Raton, FL:
Peninsula Corporate Center - 2,933 - 3,654 6,587 -
--------- --------- ---------- --------- --------- ----------
PROPERTY TOTALS 560,158 683,766 1,476,241 788,530 692,098 2,256,439
Intercompany elimination - - - (38,933) 212 (39,145)
--------- --------- ---------- --------- --------- ----------
TOTAL $ 560,158 $ 683,766 $1,476,241 $ 749,597 $ 692,310 $2,217,294
========= ========= ========== ========= ========= ==========
Accumulated Date of Year of
Properties Total Depreciation Construction Acquisition
- ---------- ----- ------------ ------------ -----------
Pointe Corridor 16,672 2,471 1990 1996
Four Gateway 17,707 1,462 1998-1999 1997
Highland Park 8,885 1,054 1986 1997
The Grove @ Black Canyon 12,093 1,259 1986 1997
Qwest Communications 93,372 6,954 1988 1997
Concord Place 21,117 1,382 1989 1998
Portland, OR:
Sunset Corporate Park 18,846 729 1999 1998
Rock Creek Corp Center 18,328 474 1999 1998
Atlanta, GA:
Glenridge 6,495 833 1986 1996
Century Springs West 8,127 1,045 1982 1996
Holcomb Place 6,282 714 1982 1996
Midori 11,402 1,264 1989 1996
Parkwood 19,007 2,704 1985 1996
Lakewood 8,477 1,138 1985 1996
The Summit 18,471 2,532 1986 1996
Spalding Ridge 14,463 2,337 1998 1996
2400 Lake Park Drive 8,527 1,128 1982 1997
680 Engineering Drive 4,278 685 1985 1997
Embassy Row 48,527 6,293 1983 1997
Embassy 100, 500 33,096 2,166 1998-1999 1997
Waterford Centre 9,461 860 1985 1998
Preston Ridge 2,329 - N/A 1997
Forum/1/ 2,365 - N/A 2000
Boca Raton, FL:
Peninsula Corporate Center 6,587 - N/A 1997
---------- ----------
PROPERTY TOTALS 2,948,537 382,320
Intercompany elimination (38,933) (1,060)
---------- ----------
TOTAL $2,909,604 $ 381,260
========== ==========
Depreciation of rental properties is computed on a straight-line basis over the
estimated useful lives of the assets. The estimated lives of our assets by class
are as follows:
Base building 30 to 50 years
Building components 7 to 20 years
Tenant improvements Lesser of the terms of the leases or useful lives of the assets
Leasehold improvements, furniture, fixtures and equipment 5 to 15 years
The aggregate cost for federal income tax purposes was approximately
$2,529,200,000 at December 31, 2000.
The changes in total real estate assets and accumulated depreciation for the
three years ended December 31, 2000, 1999 and 1998 are as follows:
Real Estate Assets
-----------------------------------------
(In thousands) 2000 1999 1998
- -------------- ---- ---- ----
Balance, beginning of period $ 3,287,885 $3,401,088 $2,677,144
Discontinued operations - (56,471) (46,561)
Acquisitions 36,791 40,525 492,498
Improvements 176,866 345,716 442,288
Sales, retirements and write-offs (591,938) (442,973) (164,281)
----------- ---------- ----------
Balance, end of period $ 2,909,604 $3,287,885 $3,401,088
=========== ========== ==========
Accumulated Depreciation
-----------------------------------------
2000 1999 1998
---- ---- ----
Balance, beginning of period $ 323,455 $ 257,215 $ 183,343
Discontinued operations - (11,264) (4,320)
Depreciation for the period 110,052 114,388 94,708
Sales, retirements and
write-offs (52,247) (36,884) (16,516)
--------- --------- ---------
Balance, end of period $ 381,260 $ 323,455 $ 257,215
========= ========= =========
/1/ Under construction as of December 31, 2000. Construction costs are shown
under building and improvements until completion. At completion, costs will be
allocated between land and building and improvements.
68
CarrAmerica Realty Corporation and Subsidiaries
Schedule III: Real Estate and Accumulated Depreciation as of December 31, 2000
Costs Gross Amount at Which
Initial Costs Capitalized Carried at Close of Period
------------- --------------------------
Buildings and Subsequent to Building and
Properties Encumbrances Land Improvements Acquisition/3/ Land Improvements
- ---------- ------------ ---- ----------------------------- ---- ------------
/2/ We lease approximately 78,000 square feet of office space for our headquarters.
/3/ Costs capitalized are offset by retirements and writeoffs.
/4/ Secured by Valley Business Park II and 3745 North First Street.
/5/ Secured by Sunnyvale Technology Center, Highland Corporate Center and Hacienda West.
/6/ Secured by Century Springs West, Glenridge, Midori , Lakewood and Parkwood.
/7/ Secured by International Square, 1730 Pennsylvania Avenue and 1255 23rd Street.
Accumulated Date of Year of
Properties Total Depreciation Construction Acquisition
- ---------- ----- ------------ ------------ -----------
/2/ We lease approximately 78,000 square feet of office space for our headquarters.
/3/ Costs capitalized are offset by retirements and writeoffs.
/4/ Secured by Valley Business Park II and 3745 North First Street.
/5/ Secured by Sunnyvale Technology Center, Highland Corporate Center and Hacienda West.
/6/ Secured by Century Springs West, Glenridge, Midori , Lakewood and Parkwood.
/7/ Secured by International Square, 1730 Pennsylvania Avenue and 1255 23rd Street.
69