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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, 1996
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
Formerly CARR REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 52-1796339
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 624-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, New York Stock Exchange
$0.01 Par Value
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 15, 1997, the aggregate market value of the 28,121,529 shares of
Common Stock held by non-affiliates of the registrant was approximately $903.4
million, based upon the closing price of $32.125 on the New York Stock Exchange
composite tape on such date.
Number of shares of Common Stock outstanding as of March 15, 1997:
48,734,335
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for the
Annual Stockholders Meeting to be held in 1997 are incorporated by reference
into Part III.
PART 1
Item 1. Business
THE COMPANY
General
CarrAmerica Realty Corporation (the "Company") is a publicly-traded real estate
investment trust ("REIT") that focuses primarily on the acquisition,
development, ownership and operation of office properties in select suburban
growth markets across the United States. The Company's national office strategy
is responsive to the growing number of corporate office space users that are
relocating their operations from central business districts to suburban markets
to reduce operating costs and improve their employees' quality of life.
As of March 15, 1997, the Company owned a greater than 50% interest in a
portfolio of 170 operating office properties, and six properties currently under
construction, all of which are located in strategic markets across the United
States. These markets include Southern California, Northern California, Seattle,
Denver, Phoenix, Austin, Dallas, Chicago, Atlanta, South Florida and
metropolitan Washington, D.C. These 170 operating properties contain an
aggregate of approximately 13.4 million square feet of space (including
approximately 910,000 square feet under construction). The operating properties
owned by the Company as of December 31, 1996 were 93.6% leased as of that date,
with approximately 1,000 tenants.
The Company and its predecessor, The Oliver Carr Company ("OCCO"), have
successfully developed, owned and operated office buildings in the Washington,
D.C. metropolitan area for more than 30 years. In November 1995, the Company
announced a strategic alliance with a wholly-owned subsidiary of Security
Capital U.S. Realty (together with Security Capital U.S. Realty, "USRealty"), a
European real estate operating company which owns strategic positions in
selected real estate companies in the United States. USRealty initially invested
approximately $250 million in the Company in April 1996 for a 39% interest in
the Company on a fully-diluted basis. As of March 15, 1997, USRealty owned
approximately 39.7% of the outstanding common stock of the Company (35.6% on a
fully diluted basis). In April 1996, the Company changed its name to CarrAmerica
Realty Corporation.
The Company's experienced staff of over 625 employees, including over 425
on-site building employees, provides a full range of real estate services. The
Company's principal executive offices are located at 1700 Pennsylvania Avenue,
N.W., Washington, D.C. 20006, and its telephone number is (202) 624-7500. The
Company's web site can be found at www.carramerica.com. The Company was
organized as a Maryland corporation on July 9, 1992.
Business Strategy
The Company's primary business objective is to achieve long-term sustainable per
share cash flow growth by (i) acquiring, developing, owning and operating office
properties in suburban markets throughout the United States that exhibit strong,
long-term growth characteristics and (ii) developing a national operating system
that satisfies and capitalizes on the financial and operational demands of
corporate office space users. The Company believes that growth-oriented
companies are relocating to and expanding in suburban locations that offer lower
operating costs, greater convenience and a higher quality of life than
traditional central business districts. The Company seeks to provide suburban
office space which will meet the changing needs of corporate users of office
space.
The Company's business strategy is predicated on becoming one of the major
owners and operators of office space in each of its selected suburban target
markets; therefore, the Company is undertaking a major acquisition initiative as
the initial stage of its national office strategy. The Company focuses its
acquisition efforts in regions of the United States which possess strong,
long-term growth characteristics, and within those regions the Company targets,
in general, markets in which operating costs for businesses are relatively low,
long-term population and job growth are expected to exceed the national average,
and barriers to entry exist for new supply of office space. Additionally, the
Company's market officers coordinate with local third-party brokers to ensure
the identification of the best available locations. As of December 31, 1996 (on
a rentable square foot basis), 32% of the Company's portfolio was located in its
Pacific region, primarily in the suburban Seattle and the California markets of
San Jose, Silicon Valley, Pleasanton, Orange County, and San Diego; 41% in its
Southeast region, primarily in the metropolitan Washington, D.C. and suburban
Atlanta markets; and 27% in its Central and Mountain regions, primarily in the
southeast suburban Denver, suburban Chicago and Austin, Texas markets. Downtown
Washington, D.C., which represented 100% of the Company's portfolio in 1993,
accounted for approximately 19% of the Company's portfolio (on a rentable square
foot basis) at the end of 1996.
The Company has established a set of general guidelines and physical
characteristics to evaluate the acquisition opportunities available to the
Company in each identified target market. These guidelines include (i) the
purchase price of an office property typically should be at a discount to the
replacement cost of a comparable office property, (ii) rents of existing
customers with leases expiring in the near-term typically should be at or below
the current market rents for the given target market, and (iii) an office
property generally should be low-rise, with flexible floor plates that are
conducive to accommodating a variety of office space user needs. In addition,
the Company looks for office properties that have ample parking and that are
conveniently located near amenities and major transportation arteries.
To execute its national suburban office strategy, the Company is
implementing a national operating system that will provide nationally
coordinated customer service, marketing and development. The Company's national
operating system consists of three components: (i) a Market Officer Group; (ii)
a National Development Group; and (iii) a Corporate Services Group.
Market Officer Group. The Market Officer Group currently consists of nine
market officers who cover ten of the eleven target markets in which the Company
currently owns properties. These market officers are responsible for maximizing
the performance of the Company's properties in their markets and ensuring that
the needs of the Company's customers are consistently being met. Because they
meet with the Company's customers on a regular basis, they are cognizant of and
responsive to customers' relocation or expansion needs. The market officers have
extensive knowledge of local conditions in their respective markets and,
therefore, are invaluable in identifying attractive investment opportunities in
their markets. In addition, through their contact with customers, market
officers are well positioned to help the Corporate Services Group identify
customers with new build-to-suit and multi-market requirements.
National Development Group. The National Development Group is responsible
for developing suburban office properties, build-to-suit facilities and business
parks. The architects, engineers, and construction professionals who comprise
the National Development Group oversee every aspect of the Company's land
planning, building design, construction and development of office properties,
ensuring that all projects meet the same high standards and uniform
specifications in building design and systems. As the Company implements its
national strategy, the National Development Group's expertise should give the
Company a competitive edge in marketing its facilities and services to
customers. As of March 15, 1997, the Company owned (or held options to acquire)
land in six of its eleven target markets which will support the future
development of up to 3.3 million square feet of office space. The Company's goal
is to allocate approximately 5% of its invested capital to investments in
developable land. As of March 15, 1997, the Company had six suburban office
properties under construction: a 58,000 square foot building in suburban
Washington, D.C.; a 128,000 square foot building in suburban Atlanta; two
buildings totaling 295,000 square feet in southeast Denver; a 129,000 square
foot building in suburban Austin, Texas; and a 300,000 square foot building in
San Jose, California.
Corporate Services Group. The Company plans to establish the Corporate
Services Group during 1997. This group will be responsible for marketing the
Company's properties, build-to-suit capabilities, and the national scope of the
Company's operations to a targeted list of major corporate users of office
space. The Corporate Services Group will act as a primary point of contact for
national customers, coordinating all the
services the Company offers and giving corporate customers the opportunity to
address their national space requirements efficiently and economically.
Recent Developments
In 1996, the Company invested $1.1 billion ($855.4 million in cash, the
assumption of $184.4 million of debt and the issuance of $19.5 million in common
stock and partnership interests ("Units")) in 146 operating office properties,
552,000 square feet of office space under construction, and 142 acres of land
and land options held for future development. From January 1, 1997 to March 15,
1997, the Company invested $140.7 million in 10 operating office properties,
placed 1 development project of approximately 101,000 square feet into service
and acquired land which in the aggregate will support the development of 636,000
square feet of office space, 358,000 of which is currently under construction.
The 1997 acquisitions were funded through $122.6 million in cash and the
assumption of $18.1 million in debt. The table below shows the operating office
properties purchased or placed in service between January 1, 1996 and March 15,
1997.
Net Rentable
Number of Area
Property Location Properties (SF in 000's) Month/Year of Acquisition
- -----------------------------------------------------------------------------------------------------------------------
PACIFIC REGION:
Scenic Business Park Southern California 4 137 March 1996
Harbor Corporate Park Southern California 4 147 March 1996
AT&T Center Northern California 6 949 March 1996
Redmond East Suburban Seattle 10 399 June 1996
Plaza PacifiCare Southern California 1 104 June 1996
Katella Corporate Center Southern California 1 80 July 1996
Warner Center Southern California 12 342 July 1996
Sunnyvale Research Plaza Northern California 3 126 September 1996
NELO/Orchard Portfolio Northern California 21 1,014 November 1996
Rio Robles Northern California 7 368 November 1996
Del Mar Corporate Plaza Southern California 2 123 December 1996
South Coast Executive Center Southern California 2 162 December 1996
Warner Premier Southern California 1 62 February 1997
3745 North First Street Northern California 1 68 February 1997
Wateridge Pavilion Southern California 1 62 March 1997
---- ------
Subtotal 76 4,143
---- ------
Net Rentable
Number of Area
Property Location Properties (SF in 000's) Month/Year of Acquisition
- -----------------------------------------------------------------------------------------------------------------------
CENTRAL REGION:
Parkway North Center Suburban Chicago 2 508 June 1996
Norwood Tower Austin, Texas 1 111 June 1996
Littlefield Portfolio Austin, Texas 10 865 August 1996
Greyhound Suburban Dallas 1 93 November 1996
Search Plaza Suburban Dallas 1 151 December 1996
Unisys Suburban Chicago 2 365 December 1996
The Crossings Suburban Chicago 2 298 January 1997
Cedar Maple Suburban Dallas 3 113 January 1997
Quorum North Suburban Dallas 1 116 February 1997
Quorum Place Suburban Dallas 1 178 March 1997
---- -------
Subtotal 24 2,798
---- -------
SOUTHEAST REGION:
Reston Quadrangle Suburban Washington, D.C. 3 261 March 1996
Parkway One Suburban Washington, D.C. 1 88 June 1996
Peterson Portfolio Suburban Atlanta 38 1,263 November 1996
Lake Wyman Plaza South Florida 1 160 November 1996
---- -------
Subtotal 43 1,772
---- -------
MOUNTAIN REGION:
Harlequin Plaza Southeast Denver 2 324 May 1996
Quebec Court I & II Southeast Denver 2 286 May 1996
The Quorum Southeast Denver 2 124 June 1996
Greenwood Center Southeast Denver 1 75 July 1996
Quebec Center Southeast Denver 3 104 August 1996
Pointe Corridor IV Suburban Phoenix 1 172 December 1996
Camelback Lakes Suburban Phoenix 2 200 December 1996
Panorama I Southeast Denver 1 101 January 1997
---- -------
Subtotal 14 1,386
---- -------
TOTAL ACQUIRED 157 10,099
==== =======
The following table shows the Company's land and land options held for
future development, all of which were acquired between January 1, 1996 and March
15, 1997.
Square Feet Acres Rentable
Under Held For Square Feet
Region Construction Development Held For Development
- --------------------------------------------------------------------------------------------------------
Pacific Region:
Northern California 300,000 N/A N/A
Suburban Seattle N/A 4 95,000
-------- ---- ----------
Subtotal 300,000 4 95,000
-------- ---- ----------
Mountain Region:
Southeast Denver 295,000 39 720,000
Phoenix N/A 7 240,000
-------- ---- ----------
Subtotal 295,000 46 960,000
-------- ---- ----------
Central Region:
Austin, Texas 129,000 69 1,524,000
Dallas, Texas N/A 1 38,000
Suburban Chicago N/A 30 723,000
-------- ---- ----------
Subtotal 129,000 100 2,285,000
-------- ---- ----------
Southeast Region:
Suburban Washington, D.C. 58,000 N/A N/A
Suburban Atlanta 128,000 N/A N/A
-------- ---- ----------
Subtotal 186,000 N/A N/A
-------- ---- ----------
TOTAL 910,000 150 3,340,000
======== ==== ==========
Capital Transactions
During the fourth quarter of 1996, the Company raised aggregate net proceeds of
$249 million through the sale of 1.7 million shares of Series A Cumulative
Convertible Redeemable Preferred Stock in October, from which the Company raised
net proceeds of $43 million, and the sale of 8.2 million shares of its common
stock to the public and a concurrent offering to USRealty in November, from
which the Company raised net proceeds of $206 million. The net proceeds of these
offerings were used to acquire the suburban office properties and land described
above and to pay down indebtedness under the Company's unsecured line of credit.
In January 1997, the Company consummated a public offering and a concurrent
offering to USRealty of 4.9 million shares of its common stock that raised net
proceeds of approximately $136 million. The net proceeds were used to acquire
the suburban office properties and land described above and to pay down
indebtedness under the Company's unsecured line of credit.
In January 1997, the Company entered into a short-term, revolving credit
agreement with Morgan Guaranty Trust of New York to borrow up to $150 million,
secured by certain properties in the Company's portfolio.
Directors of the Company
The directors of the Company are divided into three classes, with approximately
one-third of the directors elected by the stockholders annually. As of March 15,
1997, the Board of Directors of the Company consisted of the following persons:
Oliver T. Carr, Jr., 71, has been the Chief Executive Officer and Chairman
of the Board of Directors of the Company since it commenced operations in
February 1993. Mr. Carr's term as a director of the Company expires at the 1999
Annual Meeting of Stockholders. Mr. Carr founded OCCO in 1962 and since that
time has been its Chairman of the Board and a director. In addition, Mr. Carr
has served as President of OCCO since February 1993. Mr. Carr is also on the
Board of Directors of Carr Park, Inc., a subsidiary of OCCO. He was Chairman of
the Board of Trustees of The George Washington University until May 1995. Mr.
Carr is the father of Thomas A. Carr and Robert O. Carr. Mr. Carr is a member of
the Investment Committee and the Executive Committee of the Board of Directors.
Thomas A. Carr, 38, has been President and a director of the Company since
February 1993. Mr. Carr's term as a director of the Company expires at the 1998
Annual Meeting of Stockholders. In May 1995, Mr. Carr was also appointed the
Chief Operating Officer of the Company, at which time he resigned as the
Company's Chief Financial Officer, a position he had held since February 1993.
Mr. Carr was President of Carr Partners, Inc., a financial services affiliate of
OCCO, from 1991 until February 1993, when Carr Partners, Inc. ceased operations.
Prior to becoming President of Carr Partners, Inc., Mr. Carr was Vice President
of Suburban Development and Regional Development Partner for Montgomery County
for OCCO, beginning in 1985. Mr. Carr is a director of OCCO. Mr. Carr holds a
Masters degree in Business Administration from Harvard Business School, and a
Bachelor of Arts degree from Brown University. Mr. Carr is a member of the Board
of Governors of the National Association of Real Estate Investment Trusts and a
director of Lafayette Square Partners, Inc. 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.
Robert O. Carr, 47, has been a director of the Company and President and
Chairman of the Board of Directors of Carr Real Estate Services, Inc. ("Carr
Services, Inc."), a subsidiary of the Company, since February 1993. Mr. Carr's
term as a director of the Company expires at the 1997 Annual Meeting of
Stockholders. Mr. Carr is a director of OCCO and, from 1987 until February 1993,
served as its President and Chief Executive Officer. Mr. Carr joined OCCO in
1973 and has served in a number of positions which have included the supervision
of all development operations since 1979 and all day-to-day company operations
since 1982 as Executive Vice President. Mr. Carr is a member of the Boards of
Directors for 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. Mr. Carr is a member of the Executive Committee of the Board of Directors.
David Bonderman, 54, has been a director of the Company since its
commencement of operations. Mr. Bonderman's term expires at the 1997 Annual
Meeting of Stockholders. He is the managing general partner of TPG Partners,
L.P., a private investment partnership. From October 1971 through June 1983, Mr.
Bonderman was an associate and then partner in the law firm of Arnold & Porter,
Washington, D.C. From July 1983 through August 1992, Mr. Bonderman served as the
Vice President and Chief Operating Officer of Keystone, Inc. (formerly the
Robert M. Bass Group, Inc.). Mr. Bonderman also serves as a director of Bell &
Howell Holdings Company, Washington Mutual, Inc., Denbury Resources, Inc.,
National Education Corporation and Continental Airlines, Inc. Mr. Bonderman
holds a Bachelor of Arts degree from the University of Washington and an L.L.B.
degree from Harvard University. Mr. Bonderman is a member of the Executive
Compensation Committee of the Board of Directors.
Andrew F. Brimmer, 70, has been a director of the Company since February
1993. Dr. Brimmer's term as a director of the Company expires at the 1999 Annual
Meeting of Stockholders. He has been the President of Brimmer & Company, Inc.,
an economic and financial consulting firm, since 1976. Since
1995, Dr. Brimmer has served as the chairman of the District of Columbia
Financial Control Board. Dr. Brimmer was a member of the Board of Governors of
the Federal Reserve System from 1966 through 1974. He is also the Wilmer D.
Barrett Professor of Economics at the University of Massachusetts-Amherst. Dr.
Brimmer serves as a director of BankAmerica Corporation and Bank of America,
BlackRock Investment Income Trust, Inc. (and other funds), PHH Corporation, E.l.
du Pont de Nemours & Company, Navistar International Corporation, Gannett
Company, Borg-Warner Automotive, Inc. and Airborne Express. Dr. Brimmer received
a Bachelor of Arts and a Masters degree in Economics from University of
Washington and holds 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, 69, has been a director of the Company since February 1993.
Mr. Clark's term as a director of the Company expires at the 1998 Annual Meeting
of Stockholders. He has been Chairman of the Board and President of Clark
Enterprises, Inc., a Bethesda, Maryland-based company involved in real estate,
communications, and commercial and residential construction, since 1972. Mr.
Clark is a member of the University of Maryland Foundation, and serves on the
Board of Trustees of The Johns Hopkins University. He is also a member of the
PGA Tour Investments Policy Board and a director of Lockheed Martin Corporation
and Potomac Electric Power Company. Mr. Clark is a graduate of the University of
Maryland. Mr. Clark is a member of the Investment Committee, the Executive
Compensation Committee, the Executive Committee and the Nominating Committee of
the Board of Directors.
Anthony R. Manno, Jr., 44, has been a director of the Company since May
1996. Mr. Manno's term as a director of the Company expires at the 1997 Annual
Meeting of Stockholders. Mr. Manno is a Managing Director of Security Capital
Investment Research Incorporated, an affiliate of USRealty. Prior to joining
Security Capital Investment Research Incorporated in 1993, Mr. Manno was a
managing director of LaSalle Partners Limited where he served in various
capacities from 1980 to 1993, including client manager for LaSalle Partners
Limited's joint venture partner, Dai-ichi Mutual Life Insurance Company; manager
of LaSalle Partners Limited's property finance group; and a member of LaSalle
Partners Limited's investment committee. Prior thereto, Mr. Manno was a
commercial real estate loan officer of The First National Bank of Chicago. Mr.
Manno is a Certified Public Accountant. Mr. Manno received his Masters in
Business Administration, with a concentration in Finance, from the University of
Chicago School of Business and his M.A. and B.A. in Economics from Northwestern
University.
Caroline S. McBride, 43, has been a director of the Company since July 1996.
Mrs. McBride's term as a director of the Company expires at the 1997 Annual
Meeting of Stockholders. Mrs. McBride is a Managing Director of Security Capital
Investment Research Incorporated. From January 1993 to June 1996, Mrs. McBride
was the director of private market investments for the IBM Retirement Fund and
from January 1992 to January 1995, she was the director of real estate
investments for such fund. Prior to joining the IBM Retirement Fund in 1992,
Mrs. McBride was director of finance, investments and asset management for IBM's
corporate real estate division. Mrs. McBride is on the Boards of Directors of
the Pension Real Estate Association (PREA) and the Real Estate Research
Institute. Mrs. McBride received her Masters in Business Administration from New
York University and a Bachelor of Arts degree from Middlebury College. Mrs.
McBride is a member of the Investment Committee and the Audit Committee of the
Board of Directors.
J. Marshall Peck, 45, has been a director of the Company since June 1996.
Mr. Peck was appointed to the Board in connection with the USRealty Transaction.
Mr. Peck is a Managing Director of Security Capital Investment Research
Incorporated. Prior to joining Security Capital Investment Research Incorporated
in May 1996, Mr. Peck was a Managing Director of LaSalle Partners Limited since
January 1989, where he served in various capacities over his 14-year tenure,
with responsibility for operating groups within both the investment and services
businesses and was a member of its management committee. Prior thereto, Mr. Peck
held various marketing and management positions in the Data Processing Division
of IBM. Mr. Peck is past Chairman of the Pension Real Estate Association and
serves on the National Real Estate Advisory Board of the Nature Conservancy. Mr.
Peck is on the Boards of
Directors of Regency Realty Corporation and Storage USA, Inc. Mr. Peck received
his B.A. degree from University of North Carolina at Chapel Hill. Mr. Peck is a
member of the Executive Committee and the Executive Compensation Committee of
the Board of Directors.
George R. Puskar, 53, has been a director of the Company since its
commencement of operations. Mr. Puskar's term expires at the 1999 Annual Meeting
of Stockholders. He has served as the Chairman and Chief Executive Officer of
Equitable Real Estate Investment Management, Inc. ("Equitable Real Estate")
since 1989 and a vice president of The Equitable Life Assurance Society of the
United States ("ELAS"). Mr. Puskar joined ELAS in 1966 in its local field office
in Pittsburgh. Mr. Puskar became the President of Equitable Real Estate, a
diversified real estate organization which is a subsidiary of ELAS, in 1984. Mr.
Puskar serves as a director of Equitable Real Estate Capital Markets, Inc. and
is a board member of the International Council of Shopping Centers, Clark
Atlanta University, The Atlanta Chamber of Commerce, the Vice Chairman and a
board member of the National Realty Committee, and a member of the Advisory
Board of the Wharton School's Real Estate Center in Philadelphia. Mr. Puskar is
a member of the Executive Committee and the Nominating Committee of the Board of
Directors.
William D. Sanders, 55, has been a director of the Company since May 1996.
Mr. Sanders is the Founder and Chairman of Security Capital Group, an affiliate
of USRealty. Mr. Sanders retired on January 1, 1990, as chief executive officer
of LaSalle Partners Limited, which he founded in 1968. Mr. Sanders is on the
Boards of Directors of R. R. Donnelley & Sons Company, USRealty, Storage USA,
Inc. and Regency Realty Corporation. 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 from
Cornell University. Mr. Sanders is a member of the Nominating Committee of the
Board of Directors.
Wesley S. Williams, Jr., 54, has been a director of the Company since
February 1993. Mr. Williams' term as a director of the Company expires at the
1998 Annual Meeting of Stockholders. Mr. Williams has been a partner of the law
firm of Covington & Burling since 1975. He was adjunct professor of real estate
finance law at the Georgetown University Law Center from 1971 to 1973 and is a
contributing author to several texts on banking law and on real estate finance
and investment. Mr. Williams is also on the Editorial Advisory Board of the
District of Columbia Real Estate Reporter. Mr. Williams serves on the Boards of
Directors of Blackstar Communications, Inc. and its Florida, Michigan and Oregon
subsidiaries; Blackstar LLC and its Nebraska and South Dakota subsidiaries; and
the Federal Reserve Bank of Richmond. Mr. Williams is Chairman of the Boards of
Directors of Broadcast Capital, Inc. and Broadcast Capital Fund, Inc. and is
Vice Chairman of The Lockhart Companies, Incorporated. Mr. Williams also is a
member of the Executive Committee of the Board of Trustees of Penn Mutual Life
Insurance Company. Mr. Williams received a B.A. and J.D. from Harvard
University, an M.A. from the Fletcher School of Law and Diplomacy and an L.L.M.
from Columbia University. Mr. Williams is a member of the Executive Compensation
Committee of the Board of Directors.
Executive Officers and Certain Key Employees of the Company
In addition, as of March 15, 1997, the Company's executive officers and key
employees were as follows:
Brian K. Fields, 37, has been the Company's Chief Financial Officer since
May 1995. Prior to that time, Mr. Fields served as the Company's Vice President,
Treasurer and Controller since February 1993. Mr. Fields served as Treasurer and
Controller of OCCO from 1990 to February 1993. Prior to that time, Mr. Fields
was a Senior Manager with KPMG Peat Marwick LLP in Washington, D.C. Mr. Fields
was employed by KPMG Peat Marwick LLP for eight years. Since 1993, Mr. Fields
has also been a director and Treasurer of Carr Services, Inc. and since 1996 he
has served as a director and officer of several other subsidiaries of the
Company. He holds a Bachelor of Science degree in Accounting from Virginia Tech
and is a Certified Public Accountant. Mr. Fields is a member of management's
Operating Committee and Investment Committee.
Philip L. Hawkins, 41, has been the Company's Managing Director of Asset
Management since February 1996. Prior to that time, Mr. Hawkins was employed by
LaSalle Partners Limited since 1982. Mr. Hawkins served as the Executive Vice
President,
Eastern Division, Asset Management Group since 1995; the Senior Vice President,
Northeast Region, Asset Management Group from 1990 to 1994 and in other asset
management positions prior to that time. Mr. Hawkins was also a director of
LaSalle Partners. 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.
Robert E. Peterson, 45, has been the Company's Regional Managing Director,
Southeast Region, since November 1996. Mr. Peterson has over 23 years of real
estate experience. Mr. Peterson's most recent experience includes 18 years as
President of Peterson Properties, which he co-founded in 1978. Prior to forming
Peterson Properties, Mr. Peterson was Vice President of Arthur Rubloff &
Company, where he spent five years specializing in office and industrial leasing
and investment property brokerage. Mr. Peterson is a former member of the
Society of Industrial and Office Realtors and serves on the Developer Advisory
council for the Georgia Chapter of the National Association of Industrial and
Office Parks. He graduated from University of North Carolina at Chapel Hill,
with a B.S. in Business Administration. Mr. Peterson is a member of management's
Operating Committee and Investment Committee.
Robert G. Stuckey, 35, has been the Company's Managing Director of
Acquisitions and Development since February 1996. Prior to that time, Mr.
Stuckey was employed by Security Capital Industrial Trust, an affiliate of
Security Capital Group, since January 1993, as a Senior Vice President managing
the operations of the development group since November 1994, and as a Vice
President supervising acquisition due diligence from May 1993 to November 1994.
Prior to that time, Mr. Stuckey had seven years of experience with Trammell Crow
Company. His most recent position there was as Chief Financial Officer for
Trammel Crow Company NE, Inc. Mr. Stuckey holds a Masters in Business
Administration from Harvard Business School and a Bachelor of Science in Finance
from University of Nebraska. Mr. Stuckey is a member of management's Operating
Committee and Investment Committee.
Paul R. Adkins, 38, has been the Company's Vice President, Market Officer
for Washington, D.C. since August 1996. Mr. Adkins has been with the Company for
over 14 years, including serving as Vice President of Acquisitions from May 1994
to August 1996. Mr. Adkins was instrumental in the Company's initial efforts to
acquire suburban office properties in its suburban Atlanta and Austin, Texas
target markets. Prior to that, Mr. Adkins served in a variety of other
capacities with the Company, with over 12 years in commercial real estate
leasing. Mr. Adkins was named "Top Producer" for the Washington metropolitan
area in 1990 and 1991 by the Washington, D.C. Association of Realtors. 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 from Bucknell University.
Andrea F. Bradley, 36, has been the Company's Vice President, General
Counsel and Corporate Secretary since August 1993. Mrs. Bradley was an attorney
with the law firm of Shaw, Pittman, Potts and Trowbridge from 1991 to August
1993 and an attorney with the law firm of Paul, Hastings, Janofsky & Walker from
1985 to 1991, where she practiced primarily corporate finance and securities
law. Mrs. Bradley holds a Juris Doctor from University of California at Los
Angeles and an A.B. degree in American Studies from Stanford University.
Steven N. Bralower, 46, has been Senior Vice President of Carr Realty, L.P.,
a subsidiary of the Company, since May 1996 and prior thereto was Senior Vice
President of Carr Services, Inc. from 1993 to May 1996. Mr. Bralower was Senior
Vice President of OCCO from 1985 to February 1993 and was responsible for
overseeing and directing one-half of OCCO's leasing activities in its portfolio
of commercial office and retail space. Mr. Bralower first joined OCCO in 1978 as
a commercial leasing agent. Mr. Bralower has been a member of the Georgetown
University Law Center faculty. Mr. Bralower holds a Bachelor of Arts degree from
Kenyon College.
Robert L. Brumm, 45, has been Vice President, Human Resources and
Administration of the Company, since May 1996. From 1993 to 1996, Mr. Brumm held
the same position with Carr Services, Inc. and from March 1990 to 1993 held the
same
position with OCCO. He is responsible for managing the Human Resources,
Risk Management, Training, and Office Management functions. He has over 20 years
of experience including 8 years with Mark Controls Corporation and 5 years with
the real estate division of Philip Morris, Inc. Mr. Brumm received his Bachelors
degree from California State University at Long Beach.
Clete Casper, 37, has been the Company's Vice President, Market Officer for
suburban Seattle since July 1996. Mr. Casper has over 10 years' experience in
the real estate and marketing field. Mr. Casper's most recent experience
includes 1 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 in the following capacities: 4 years as Development
Manager and 5 years as a Marketing Associate. Mr. Casper is a graduate of
Washington State University.
Joel DeSpain, 45, has been the Company's Vice President, Market Officer for
Austin, Texas since August 1996. Mr. DeSpain has over 18 years' experience in
the real estate and marketing field. Mr. DeSpain's most recent experience
includes 2 years as a Vice President of Littlefield Real Estate Company in
Austin, Texas. Prior to that, Mr. DeSpain spent 2 years with Faison-Stone in
Austin, Texas as Vice President, 5 years with Grubb & Ellis in Austin, Texas as
President, 2 years with Paragon Properties in Austin, Texas as Executive Vice
President, and 7 years with The Home Company Realtors in Houston, Texas as
Marketing Director. Mr. DeSpain holds a Doctor of Jurisprudence from South Texas
College of Law and a BBA in Marketing from University of Houston.
John J. Donovan, Jr., 53, has been Senior Vice President of Carr Services,
Inc. since February 1993. Prior to that, Mr. Donovan was Senior Vice President
of OCCO from 1988 to February 1993 and was responsible for overseeing and
directing one-half of OCCO's leasing activities in its portfolio of commercial
office and retail space. Mr. Donovan joined OCCO as a commercial leasing agent
in 1976. He is a member of the Advisory Board for Jubilee Enterprise of Greater
Washington (an affiliate of Jubilee Housing and The Enterprise Foundation). Mr.
Donovan holds a Bachelor of Arts degree from Georgetown University.
Karen B. Dorigan, 32, has been the Company's Vice President -- Land Due
Diligence since January 1996 and is responsible for supervising land and
development due diligence. Prior to that time and for more than 9 years, Mrs.
Dorigan served in a variety of capacities in OCCO's development business,
including from February 1993 to January 1996 serving as a Vice President. She is
a past member of Northern Virginia's Building Industry Association's Arlington
Chapter Council. Mrs. Dorigan holds a Bachelor of Science degree in Economics
from the University of Pennsylvania, Wharton School.
J. Thad Ellis, 36, has been the Company's Vice President, Market Officer for
suburban Atlanta since November 1996. Mr. Ellis has over 12 years' experience in
the real estate field. Mr. Ellis' most recent experience includes 10 years with
Peterson Properties where his primary responsibility was to oversee and
coordinate the leasing and property management for the management services
portfolio. Prior to that, Mr. Ellis spent two years with another Atlanta
development company. Mr. Ellis is a graduate of Washington & Lee University and
is involved with the National Association of Industrial and Office Parks and
Atlanta's Chamber of Commerce and is also on the Advisory Board of Black's
Guide.
Richard W. Greninger, 45, has been 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. Mr. Greninger was with OCCO as Vice
President of Property Management Services from January 1992 to February 1993.
Prior to that time, Mr. Greninger was with CB Commercial Real Estate Group Inc.,
a commercial real estate firm, where he was Senior Vice President and Regional
Manager of the Mid-Atlantic Property Management Division responsible for the
management of 7.5 million square feet of commercial space. 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. Mr. Greninger holds a Masters in Business Administration from the
University of Cincinnati and a Bachelor of Science degree from Ohio State
University.
John S. Herr, 41, has been the Company's Vice President, Market Officer for
Northern California since September 1996. Mr. Herr has over 12 years' experience
in the real estate and marketing field. Mr. Herr's most recent experience
includes 21U2 years as the President and Chief Executive Officer of Simeon
Commercial Properties in San Francisco, California. Prior to that, Mr. Herr
spent 8 years with Trammel Crow serving in the following capacities: 2 years as
Principal and Executive Vice President in San Francisco; 3 years as Partner in
Richmond, Virginia; and 4 years as Marketing Representative in Washington, D.C.
Mr. Herr holds a Masters in Business Administration from Stanford University and
a Bachelors degree from the U.S. Naval Academy.
Austin W. Lehr, 35, has been the Company's Vice President, Market Officer
for Southeast Denver since July 1996. Mr. Lehr has over 10 years' experience in
the real estate and marketing field. Mr. Lehr's most recent experience includes
4 years as a Vice President with Southwest Value Partners and Affiliates in
Phoenix, Arizona. Prior to that, Mr. Lehr spent 4 years with Draper and Kramer,
lncorporated in Washington, D.C. as the Director of Development and Marketing,
and 2 years as a Vice President at Guaranty Federal Savings and Loan in Dallas,
Texas. Mr. Lehr holds a Masters of Management degree from Northwestern
University and a Bachelor of Arts degree from Williams College.
Dwight L. Merriman, 36, has been the Company's Vice President, Market
Officer for Southern California since August 1996. Mr. Merriman has over 12
years' experience in the real estate and marketing field. Mr. Merriman's most
recent experience includes 1 year as Vice President with Security Capital
Industrial Trust in Irvine, California. Prior to that, Mr. Merriman spent 11
years with Overton, Moore in Los Angeles in the following capacities: 5 years as
the Director of Marketing - Asset Management (Partner), 4 years as Director of
Marketing - Development (Partner) and 2 years as a Marketing Associate. Mr.
Merriman holds a Masters in Business Administration from University of
California at Los Angeles and a Bachelors degree from University of Southern
California.
B. Thomas Miller, Jr., 35, has been the Company's Vice President -
Acquisitions and Marketing since September 1996. Mr. Miller has over 10 years of
experience in the real estate and marketing field. Mr. Miller's most recent
experience includes 3 years as Vice President of Security Capital Investment
Research Incorporated. Prior to that time, Mr. Miller spent 3 years as a Senior
Manager with Arthur Andersen S.C. Real Estate Services Group and 2 years as an
Associate in Management Advisory Services at Kenneth Leventhal & Company. Mr.
Miller holds a Bachelor of Arts degree in Finance from University of Texas at
Austin.
Gerald J. O'Malley, 53, has been the Company's Vice President, Market
Officer for suburban Chicago since July 1996. Mr. O'MalIey has over 29 years'
experience in the real estate and marketing field. Mr. O'Malley's most recent
experience includes 10 years as founder and President of G.J. O'MaIIey &
Company, a real estate office leasing company. Prior to that, Mr. O'Malley spent
6 years as a leasing agent for LaSalle Partners in Chicago, Illinois, 4 years as
a leasing and sales agent for the firm of Bennett and Kahnweiler, in Chicago,
Illinois, and 8 years with Whiston Group as a property and leasing manager. Mr.
O'Malley holds a Bachelors degree from Loyola University.
James D. Peterson, 49, has been the Company's Vice President, Market Officer
for South Florida since November 1996. Mr. Peterson has over 25 years'
experience in the real estate field. Mr. Peterson's most recent experience
includes 3 years (from 1993 to October 1996) as Vice President of Peterson
Properties with responsibility for property operations in South Florida. From
1978 to 1981, Mr. Peterson was President of Peterson Properties, which he
co-founded. Mr. Peterson also spent 4 years with the Investment Life Insurance
Company of America as Chairman and Chief Executive Officer, 7 years as Chairman
of Cavanaugh Development Company, a general contractor and developer of office
and industrial parks in San Diego, California, which he co-founded, and 7 years
with Wachovia Bank and Trust Company. Mr. Peterson is involved with the National
Association of Industrial and Office Parks and is a member of Boca Raton's
Chamber of Commerce. Mr. Peterson holds a Masters in Business Administration
from University of Texas - Austin and a Bachelor of Science degree in Economics
from University of North Carolina at Chapel Hill.
Matthew L. Richardson, 37, has been a Senior Vice President of Carr
Development & Construction, Inc., a subsidiary of the Company, since April 1996,
with responsibility for all build-to- suit marketing and for assisting the
Market Officer Group in qualifying, structuring and negotiating development
opportunities. Prior to that time and for more than 8 years, Mr. Richardson
served in a variety of capacities in OCCO's development business, including from
September 1991 to April 1996 serving as its President. He is on the Board of
Directors of the District of Columbia's Building Industry Association. Mr.
Richardson holds a Masters of Business Administration and a Bachelor of Urban
Planning degree from University of Virginia.
Debra A. Volpicelli, 32, has been the Company's Treasurer and Controller
since May 1995. Prior to that time, Mrs. Volpicelli was the Company's Tax
Manager since February 1993. Mrs. Volpicelli was Tax Manager for OCCO from 1990
to February 1993. Prior to that time, Mrs. Volpicelli was in the tax department
of Arthur Andersen & Co., SC. Mrs. Volpicelli holds a Bachelor of Science degree
in Business Administration from Georgetown University and is a Certified Public
Accountant.
Joseph D. Wallace, 33, has been the Company's Vice President - Building Due
Diligence since January 1996 and is responsible for supervising building
acquisition due diligence. Prior to that time, Mr. Wallace was the Company's
Vice President of Asset Management since February 1993. Mr. Wallace was Vice
President of Carr Partners, Inc. from 1990 to February 1993. Prior to that, Mr.
Wallace was co-Director of Asset Management for OCCO responsible for the
investment oversight of OCCO's portfolio of commercial properties in the
Washington, D.C. metropolitan area. Mr. Wallace holds a Bachelor of Science
degree in Commerce from University of Virginia.
James S. Williams, 40, has been a Senior Vice President of Carr Development
& Construction, Inc. with responsibility for oversight of all project
management, design and construction operations since October 1996. Mr. Williams
rejoined the Company after 2 years as Vice President of Operations of Obadwick
International. Mr. Williams' initial tenure with the Company was from 1983 to
1994, during which time he served in a variety of capacities in OCCO's
development business. Prior to that, Mr. Williams was employed by Holland &
Lyons where he worked in project management of commercial and residential real
estate development. Mr. Williams is a guest lecturer at George Washington
University. Mr. Williams holds a Bachelor of Science degree in Business
Administration from West Virginia University.
Item 2. Properties
General. As of December 31, 1996, the Company owned interests in 165 operating
office properties consisting of whole or partial ownership interests, ranging
from two to sixteen stories each, located in eleven target markets across the
United States. As of December 31, 1996, the Company owned fee simple title or
leasehold interest in 156 operating office properties, controlling partial
interests in three operating office properties, and non-controlling partial
interests of 2% to 50% in six operating office properties. In addition, as of
December 31, 1996, the Company owned four office properties under development
and a 50% interest in one additional office property development project. Except
as disclosed in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources," the
Company has no immediate plans to renovate its operating office properties other
than for routine capital maintenance. The Company believes its properties are
adequately covered by insurance. The Company believes that, as a result of its
national operating system, market research capabilities, access to capital, and
experience as an owner, operator and developer of real estate, it will continue
to be able to identify and consummate acquisition opportunities and to operate
its portfolio more effectively than competitors without such capabilities. The
Company, however, competes in many of its target markets with other real estate
operators, some of whom may have been active in such markets for a longer period
than the Company.
The following table sets forth certain related information about each
operating property owned by the Company as of December 31, 1996:
Total
Net Annualized Average
Company's Rentable Base Base Rent
Effective Area Rent(3) Per Leased
Property (square Percent (in Square
Property Ownership feet)(1) Leased(2) thousands) Foot(4) Significant Tenants(5)
- -------------------------------------------------------------------------------------------------------------------------------
Consolidated Properties
SOUTHEAST REGION
Downtown Washington, D.C.:
International Square (3 Properties) 100.0% 1,017,511 91.7% $ 30,802 $33.00 International Monetary Fund (42%)
1730 Pennsylvania Avenue 100.0 229,461 97.6 8,538 38.12 Federal Deposit Insurance
Corporation (52%) King & Spalding (26%)
2550 M Street 100.0 187,931 100.0 5,838 31.06 Patton, Boggs (86%)
1775 Pennsylvania Avenue(6) 100.0 143,981 99.1 3,120 21.87 Citibank F.S.B.(81%)
900 19th Street 100.0 100,804 75.6 2,194 28.79 America's Community Bankers (29%),
Lucent Technologies (11%)
1747 Pennsylvania Avenue 89.7(7) 152,314 76.6 3,522 30.17 Legg Mason Wood Walker (16%)
1255 23rd Street 75.0(8) 303,930 88.4 7,356 27.40 Chronicle of Higher Education
(16%), Seabury & Smith (16%)
2445 M Street 74.0(7) 266,902 90.1 6,858 28.51 Wilmer, Cutler & Pickering (77%)
Suburban Washington, D.C.:
One Rock Spring Plaza(6) 100.0 205,298 95.9 4,349 22.10 Sybase (27%), Caterair (22%)
Tycon Courthouse 100.0 416,099 99.0 8,094 19.66 Siemens Rolm (19%), GSA-FINCEN
(16%), Vie de France (11%)
Three Ballston Plaza 100.0 302,797 100.0 6,979 23.05 CACI (50%), Eastman Kodak (20%)
Reston Quadrangle (3 Properties) 100.0 260,643 99.9 5,447 20.93 Software AG (67%), Lucas (14%),
LaFarge Corporation (11%)
Parkway One 100.0 87,842 100.0 1,358 15.46 EIS International (87%)
Suburban Atlanta:
Veridian (22 Properties) 100.0 187,842 96.0 2,255 12.50 GE Capital Corporation (32%)
Glenridge 100.0 64,431 96.0 909 14.69 Industrial Computer Corp. (37%),
Crawford & Co. (27%)
Century Springs West 100.0 94,765 95.3 1,321 14.63 Retirement Care Associates (27%)
Holcomb Place 100.0 72,991 100.0 1,097 15.03 Prudential (24%), Intercept
Holdings, Inc. (13%), The Progeni
Corp. (13%)
DeKalb Tech (5 properties) 100.0 163,159 86.9 1,239 8.73 Lucent Technologies (21%),
Moreland & Altobelli (20%)
Midori 100.0 99,864 96.1 1,718 17.91 OHM Remediation Services Corp.
(30%), UPS (21%), NCR (14%)
Crestwood 100.0 88,186 100.0 1,444 16.38 EBC Gwinnet Enterprises (23%),
Everready Battery Co. (12%)
Parkwood 100.0 151,020 89.5 2,486 18.40 Columbian Chemicals Company (30%)
Lakewood 100.0 80,338 98.2 1,117 14.16 Paychex (25%), ISS (25%), Hickson
Corp. (23%), Morrison's (17%)
The Summit 100.0 178,382 100.0 2,206 12.37 Unisys Corp. (73%), GE Claims
Service (14%), Construction Market
Data, Inc. (13%)
Spalding Triangle II (3 Properties) 100.0 82,102 97.6 1,074 13.41 OHM Remediation Services Corp.
(28%), UNI Distribution Corp. (18%),
Wakefield/Beasley & Associates (16%)
South Florida:
Lake Wyman Plaza 100.0 159,921 97.1 2,036 13.11 Motorola (15%)
--------- ---- -------- -----
Southeast Region Subtotal 5,098,514 94.3 113,357 23.57
Total
Net Annualized Average
Company's Rentable Base Base Rent
Effective Area Rent(3) Per Leased
Property (square Percent (in Square
Property Ownership feet)(1) Leased(2) thousands) Foot(4) Significant Tenants(5)
- -------------------------------------------------------------------------------------------------------------------------------
PACIFIC REGION
Southern California:
Scenic Business Park (4 Properties) 100.0 137,436 89.7 1,329 10.78 FHP (51%), So. Cal Blood & Tissue (12%)
Harbor Corporate Park (4 Properties) 100.0 147,304 53.6 1,033 13.06 Texaco Refining & Marketing (12%)
Plaza PacifiCare 100.0 104,377 100.0 960 9.20 Pacificare Health Systems (100%)
Katella Corporate Center 100.0 79,917 92.7 1,169 15.78 Friendly Hills Healthcare (19%),
Harris & Assoc (11%)
Warner Center (12 Properties) 100.0 342,056 94.5 7,444 23.03 El Camino Resources (18%), General
Services Administration (16%)
Del Mar Corporate Plaza
(2 Properties) 100.0 123,142 100.0 1,756 14.26 Peregrine Systems, Inc. (77%),
Newgen Results Company (23%)
South Coast Executive Center
(2 Properties) 100.0 161,778 95.3 3,009 19.52 State Compensation Insurance Fund (32%)
Northern California:
AT&T Center (6 Properties) 100.0 949,281 100.0 18,153 19.12 AT&T (54%), PeopleSoft (20%)
Sunnyvale Research Plaza
(3 Properties) 100.0 126,000 100.0 1,629 12.93 AEA Credit Union (63%), Cadence
Design Systems (31%)
Rio Robles (7 Properties) 100.0 368,178 100.0 4,065 11.04 Fujitsu (41%), KLA Instruments (31%),
NEC Systems Laboratory (23%)
San Jose Orchard Business Park - B
(6 Properties) 100.0 166,928 100.0 1,653 9.90 Pericom (16%), Delta Assembly (11%)
Orchard Bayshore Center
(2 Properties) 100.0 195,249 100.0 2,643 13.53 Clarify, Inc. (51%), Alantec (49%)
Orchard Rincon Centre (3 Properties) 100.0 201,178 100.0 1,885 9.37 Ontrak Systems (44%), Toshiba
America Electronic (38%),
Future Electronics (19%)
Orchard Office Centre II
(4 Properties) 100.0 212,082 62.4 1,293 9.78 Boston Scientific (38%), Clarify, Inc. (18%)
Orchard Office Centre (2 Properties) 100.0 68,725 100.0 1,406 20.46 Bank of America (21%), Quadrep (20%)
Orchard Centre (2 Properties) 100.0 102,291 100.0 979 9.57 Seagate Technology (40%),
Gregory Associates (38%),
Winbond Electronics (22%)
San Jose Orchard Business Park - A
(2 Properties) 100.0 67,784 100.0 630 9.30 Leybold-Heraeus (35%), Tylan
General (17%), Arcom Electronics (15%)
Suburban Seattle:
Redmond East (10 Properties) 100.0 398,777 99.9 4,572 11.48 Digital Systems (21%), INCONTROL
(16%), IBM (15%), Genetic Systems (14%),
Trigon Packaging (10%)
-------- ---- -------- ------
Pacific Region Subtotal 3,952,483 95.1 55,608 14.80
Total
Net Annualized Average
Company's Rentable Base Base Rent
Effective Area Rent(3) Per Leased
Property (square Percent (in Square
Property Ownership feet)(1) Leased(2) thousands) Foot(4) Significant Tenants(5)
- -------------------------------------------------------------------------------------------------------------------------------
CENTRAL REGION
Austin, Texas:
Norwood Tower 100.0 111,440 86.3 849 8.83 City of Austin (21%), George,
Donaldson & Ford (20%)
Littlefield Complex (2 Properties)(6) 100.0 126,622 52.4 765 11.55 Excel Fitness (12%)
First State Bank Tower 100.0 258,113 74.3 1,954 10.19 Southern Union Gas Company (12%),
First State Bank (10%)
Great Hills Plaza 100.0 135,335 100.0 1,930 14.26 First USA Management, Inc. (48%),
Blue Cross (24%), Skjerven Morrill,
Machpherson (13%), Executive Suites (11%)
Balcones Center 100.0 75,761 83.5 904 14.29 Medianet (37%), Austin Diagnostic
Clinic (15%), Daughters of Charity
Health (11%)
Park North (2 Properties) 100.0 132,935 98.7 2,112 16.10 Austin Regional Clinic (22%),
Samsung Austin Semiconductor (13%)
The Settings (3 Properties) 100.0 136,183 95.3 2,148 16.55 Holt, Rinehart & Winston (76%),
Barter Exchange (13%)
Suburban Chicago:
Parkway North (2 Properties) 100.0 508,488 96.0 8,112 16.62 Fujisawa USA (27%), Alliant
Foodservice, Inc. (21%),
Clintec Nutrition (16%),
Baxter Healthcare Corporation (13%)
Unisys (2 Properties) 100.0 365,193 91.4 5,583 16.72 Unisys (21%), PNC Mortgage (15%),
Sears Logistical (14%)
Dallas, Texas:
Greyhound 100.0 92,890 100.0 845 9.10 Greyhound Lines (100%)
Search Plaza 100.0 151,057 90.9 2,010 14.64 Basic Capital Management (29%)
--------- ----- -------- ------
Central Region Subtotal 2,094,017 89.1 27,212 14.58
--------- ----- -------- ------
MOUNTAIN REGION
Southeast Denver:
Harlequin Plaza (2 Properties) 100.0 324,340 95.8 4,020 12.94 Bellco First Federal Credit Union(12%)
Quebec Court I & II (2 Properties) 100.0 285,829 100.0 2,878 10.07 Intelligent Electronics (45%),
Alert Centre (37%), TCI Digital
Satellite (17%)
The Quorum (2 Properties) 100.0 123,876 78.2 1,335 13.78 Chatfield Dean (21%), Colorado
Mortgage Prof. (15%)
Greenwood Center 100.0 74,853 94.1 1,074 15.24 General Motors Corp. (33%),
Wakefield & Assoc. (13%)
Quebec Center (3 Properties) 100.0 104,367 92.5 1,232 12.76 Gordon Gumeeson & Associates
(12%), Walberg & Dagner (12%)
Phoenix, Arizona:
Camelback Lakes (2 Properties) 100.0 200,453 88.0 2,863 16.24 Vanguard Group (38%), Humana
Health Plan (11%)
Pointe Corridor IV 100.0 171,705 96.5 2,597 15.68 Jostens Learning Corp (27%), Aetna Life
--------- ---- -------- ------
Insurance Company (23%), Jennifer
Loomis Associates, Inc. (16%)
Mountain Region Subtotal 1,285,423 93.5 15,999 13.31
--------- ---- -------- ------
TOTAL CONSOLIDATED PROPERTIES: 12,430,437 $212,176
========== ========
WEIGHTED AVERAGE 93.6% $18.24
===== ======
Total
Net Annualized Average
Company's Rentable Base Base Rent
Effective Area Rent(3) Per Leased
Property (square Percent (in Square
Property Ownership feet)(1) Leased(2) thousands) Foot(4) Significant Tenants(5)
- -------------------------------------------------------------------------------------------------------------------------------
Unconsolidated Properties
Downtown Washington, D.C.:
AARP Headquarters 24.0(9) 477,187 99.1 16,691 35.30 American Association of Retired
Persons (98%)
Bond Building 15.0(10) 162,097 100.0 4,714 29.08 General Services Administration -
Dept of Justice (93%)
1776 Eye Street 5.0(11) 212,774 92.3 6,972 35.52 Putnam, Hayes & Bartlett (17%),
Smith Barney (11%), Nuclear Management &
Resources Council (11%), United States
Council for Energy Awareness (11%)
Willard Office/Hotel 5.0(12) 242,787 91.9 8,368 37.52 Vinson & Elkins (27%), Hale & Dorr(15%)
1575 Eye Street 2.0(11) 205,441 52.8 2,796 25.78 American Society of Association
Executives (20%)
Suburban Washington, D.C.:
Booz-Allen & Hamilton Building 50.0(13) 222,989 100.0 3,211 14.40 Booz Allen & Hamilton (100%)
---------- ----- -------- ------
TOTAL UNCONSOLIDATED PROPERTIES: 1,523,275 $ 42,752
---------- --------
WEIGHTED AVERAGE 91.0% $30.85
----- ------
All Operating Properties
TOTAL: 13,953,712 $254,928
========== ========
WEIGHTED AVERAGE 93.3% $19.58
===== ======
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
December 31, 1996.
(3) Total annualized base rent is based on executed and commenced leases as of
December 31, 1996. 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
as of December 31, 1996.
(5) Includes tenants leasing 10% or more of rentable square footage (with the
percentage of rentable square footage in parentheses).
(6) The Company owns the improvements on the property and has a leasehold
interest in all or a portion of the underlying land.
(7) The Company holds a general and limited partner interest in a partnership
that owns the property.
(8) The Company holds a 50% joint venture interest in the joint venture that
owns this property and a 50% joint venture interest in another joint
venture, which holds the remaining 50% interest in the joint venture that
owns the property. As a result of preferential rights to annual
distributions from another venture, the Company will receive distributions
of less than 75% (but in no event less than 50%) of the total amount
distributed with respect to this property in each year until the
preferential distribution requirements are satisfied, but will receive 100%
of any subsequent distributions during the year until its aggregate
distributions equal 75% of the cumulative distributions with respect to the
property since inception of the partnership. Thereafter, the Company will
receive 75% of the distributions made during the year with respect to the
property. Upon sale of the property, the Company will receive 75% of the
distributions until the Company receives its preference amount, 50% until
the remaining venturer receives its preference amount, and 75% of the
distributions thereafter.
(9) The Company holds an effective 24% interest in the property by virtue of a
48% general partner interest in a partnership that owns a 50% general
partner interest in the property.
(10)The Company holds an effective 15% interest in the property by virtue of a
30.6% limited partner interest in a partnership that has a 49% limited
partner interest in the property.
(11)The Company holds a limited partner interest in the partnership that owns
the property.
(12)The Company holds an effective 5% interest in the property by virtue of a
7.85% limited partner interest in a partnership that owns a 63.7% limited
partner interest in the property. The partnership in which the Company holds
an interest owns the improvements on the property and has a leasehold
interest in the underlying land.
(13)The Company holds a 50% joint venture interest, and is the managing
partner.
Occupancy, Average Rentals and Lease Expirations. As of December 31, 1996, 93.6%
of the aggregate net rentable square footage in the 159 operating office
properties whose results are consolidated in the financial statements of the
Company was leased. The following table sets forth the percent leased and
average annualized rent per leased square foot (excluding storage space) for
office and retail space combined for the past five years for the operating
office properties that were consolidated for financial statement purposes in
each of the years indicated:
Average
Percent Annualized Rent Number of
Leased at Per Leased Consolidated
Year Year End Square Foot(1) Properties
- --------------------------------------------------------------------------
1996 93.6% $19.37 159
1995 93.5 27.36 13
1994 95.9 32.48 11
1993 95.5 34.35 9
1992 97.5 33.68 9
(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 the building
under lease at year-end.
The following table sets forth a schedule of the lease expirations for
leases in place as of December 31, 1996 for each of the ten years beginning with
1997 and thereafter for the 159 operating office properties whose results are
consolidated in the financial statements of the Company, assuming that no
tenants exercise renewal options:
Net Annual Percent of
Rentable Area Base Rent Total Annual
Number of Subject to Under Expiring Base Rent
Tenants With Expiring Leases Leases (1) Represented by
Year of Lease Expiration Expiring Leases (square feet) (in thousands) Expiring Leases
- ----------------------------------------------------------------------------------------------------------
1997 225 1,507,806 $24,115 11.4%
1998 199 2,176,065 42,294 19.9
1999 191 1,315,594 21,750 10.2
2000 106 1,548,089 26,194 12.3
2001 113 1,300,355 20,419 9.6
2002 40 950,265 20,367 9.6
2003 26 794,845 12,891 6.1
2004 22 379,395 7,770 3.7
2005 19 449,511 8,621 4.1
2006 21 540,756 14,152 6.7
2007 and thereafter 14 671,926 13,603 6.4
(1) Excludes reimbursements from tenants for operating expenses.
Building and Lease Information. The following table sets forth certain
lease-related information for the 159 operating office properties that were
consolidated for financial statement purposes regarding leases that commenced
during the year ended December 31, 1996, excluding leases for office properties
that were executed prior to the date of acquisition of such properties:
Downtown Washington, D.C. Calculated on a Weighted Average Basis
-------------------------------------------------------------------------------------------
(10 Properties) Tenant
Total Improvements and Leasing
Type of Square Feet Cash Allowances Base Rent Lease Life Abatements Commission
Lease Leased per Square Foot per Square Foot in Years in Months Per Square Foot
- ---------------------------------------------------------------------------------------------------------------------------------
Office 207,638 $13.37 $27.29 7.8 2.6 $6.16
Retail 5,478 1.83 29.57 5.1 2.1 5.66
---------
Total 213,116 13.07 27.35 7.7 2.6 6.15
========= ====== ====== ==== === ====
New leases or expansion space 150,609 $17.17 $26.66 8.6 3.5 $6.69
Renewals of existing tenants' space 62,507 3.19 29.01 5.6 0.5 4.86
---------
Total 213,116 13.07 27.35 7.7 2.6 6.15
========= ====== ====== ==== === =====
All Other Operating Properties Calculated on a Weighted Average Basis
------------------------------------------------------------------------------------------
(149 Properties) Tenant
Total Improvements and Leasing
Type of Square Feet Cash Allowances Base Rent Lease Life Abatements Commission
Lease Leased per Square Foot per Square Foot in Years in Months Per Square Foot
- ---------------------------------------------------------------------------------------------------------------------------------
Office 1,384,713 $ 5.74 $18.06 5.7 0.2 $1.83
Retail 5,513 0.00 8.50 10.0 0.0 3.07
---------
Total 1,390,226 5.72 18.02 5.7 0.2 1.84
========= ====== ====== ==== === =====
New leases or expansion space 327,405 $ 6.64 $15.61 5.4 0.8 $1.80
Renewals of existing tenants' space 1,062,821 5.43 18.76 5.8 0.0 1.85
---------
Total 1,390,226 5.72 18.02 5.7 0.2 1.84
========= ====== ====== ==== === =====
Mortgage Financing. As of December 31, 1996, the 159 operating office
properties that were consolidated for financial statement purposes were subject
to existing mortgage indebtedness in an aggregate principal amount of $440.4
million, and unsecured indebtedness of $215.0 million, which bears a floating
interest rate. The Company's fixed rate debt bears an effective weighted average
interest rate of 8.1% and a weighted average maturity of 5.8 years (assuming
loans callable before maturity are called as early as possible). The existing
mortgage indebtedness for the consolidated operating office properties is set
forth in the table below:
Principal Estimated
Balance Annual Balance Due
nterest as of 12/31/96 Debt Service Maturity at Maturity
Property Rate (in thousands) (in thousands) Date (in thousands)
- ----------------------------------------------------------------------------------------------------------
International Square
1850 K Street
1825 Eye Street 8.80% $93,500 $8,228 2/1/03 $87,164(4)
1875 Eye Street
1730 Pennsylvania Avenue
1255 23rd Street 7.75 40,000 3,100 2/1/03 36,981(4)
International Square Land 7.55 40,000 3,020 2/1/03 36,781(4)
International Square Land 8.00 10,000 800 2/1/03 9,243(4)
900 19th Street 8.25 16,957 1,656 7/15/19(1) (1)
1747 Pennsylvania Avenue 9.50 15,613 1,730 7/10/17(2) (2)
2445 M Street 8.90 38,188 4,646 6/1/02 26,925(5)
1775 Pennsylvania Avenue 7.50 6,350 586 2/1/99 6,098(5)
Redmond East 8.38 28,036 2,648 1/1/06 24,022(6)
Warner Center 7.40 26,000 1,924 12/1/00 26,000(5)
First State Bank Tower 7.38 9,630 868 3/1/99 9,259(5)
Parkway North I 7.96 29,250 2,328 12/1/03 29,250(8)
San Jose Orchard Business Park - A
Orchard Office Center
Orchard Center II 8.25 40,850 4,655 12/10/01 37,873(5)
Orchard Rincon Center
Orchard Bayshore Center
Century Springs West
Glenridge
Crestwood 7.20 22,022 2,126 1/1/06 15,209(7)
Lakewood
Parkwood
Pointe Corridor IV 5.50 13,731 (3) 1/3/97 13,731(3)
South Coast Executive Center 9.01 10,322 1,015 5/31/99 10,103(5)
(1) Note is callable by the lender after July 1, 2004. The estimated principal
balance at July 1, 2004 will be $14,262,000.
(2) Note is callable by the lender after June 30, 2002. The estimated principal
balance at June 30, 2002 will be $13,840,000.
(3) Principal balance was repaid in full in January 1997.
(4) Prepayable after November 1, 1997 at the rates stated in the loan documents.
(5) Currently prepayable at the rates stated in the loan documents.
(6) Prepayable after December 19, 2005 at the rates stated in the loan
documents.
(7) Prepayable after January 2001 at the rates stated in the loan documents.
(8) Prepayable after December 1, 1999 at the rates stated in the loan documents.
Additional Property Information. Because the aggregate book value of the
three properties that constitute International Square is in excess of 10% of the
Company's total assets as of December 31, 1996, additional information regarding
this property is provided below.
International Square was developed in three phases that were completed in
1977, 1979 and 1982. The complex occupies three-quarters of a city block
bordered by K, 18th, 19th and Eye Streets, N.W., directly above Farragut West,
one of Washington, D.C.'s busiest Metro stations. The Metro level of
International Square offers a 600-seat food court, with more than a dozen
carry-out food establishments, serving a variety of international foods. The
street level of International Square contains more than 20 retail stores,
including a book store, a travel agency, clothing stores, and restaurants. A
two-level underground parking garage contains approximately 725 parking spaces.
The Company has no immediate plans to renovate International Square other than
for routine capital maintenance and believes the property is adequately covered
by insurance.
As of December 31, 1996, approximately 91.7% of the rentable square footage
in the three buildings constituting International Square was leased. The
following table sets forth the percent leased and average annualized rent per
leased square foot (excluding storage space) for the past five years for
International Square:
Average
Percent Annualized Rent
Leased at Per Leased
Year Year End Square Foot(1)
- --------------------------------------------------------------------------------
1996 91.7% $33.73
1995 89.9 34.18
1994 96.1 33.36
1993 95.5 33.32
1992 95.9 34.08
(1) Calculated as total building operating revenue, including tenant
reimbursements for operating expenses and excluding parking and storage
revenue, divided by the total square feet in the building, excluding
storage, under lease at year-end.
At December 31, 1996, the International Monetary Fund ("IMF"), an
intergovernmental financial agency, occupied 432,310 square feet in
International Square under direct leases with the Company that expire during
1998 and 2002. The IMF is currently constructing an office building in
Washington, D.C. which should be completed by 1998, and the IMF may move some of
its employees currently in International Square to their new building. The
Company has had discussions with the IMF and they have indicated that they may
reduce their office space requirements in International Square by approximately
133,000 square feet by the year 2000; however, there can be no assurances that
the IMF will not vacate more space than 133,000 square feet.
Three tenants in 1850 K Street, Phase I of the project, occupy over 10% of
the rentable square footage. As of December 31, 1996, the IMF occupied 94,258
square feet (25% of the rentable square footage) pursuant to a lease which
expires January 15, 1998. The IMF has an option to renew the lease on 39,270
square feet for two consecutive five-year periods and an option to renew the
lease on 12,456 square feet for consecutive terms of two and a half years and
five years. The law firm of McDermott, Will & Emery occupies 62,975 square feet
(17% of the rentable square footage) pursuant to a lease which expires on
December 31, 1997. McDermott, Will & Emery has notified the Company that it
plans to vacate its space on September 30, 1997. Merrill Lynch occupies 51,232
square feet (14% of the rentable square footage) pursuant to a lease that
expires on December 31, 2008, with an option to renew for two five-year terms.
The IMF is the only tenant occupying more than 10% of the rentable square
footage in 1825 Eye Street, Phase II of the project, occupying 63% of the
rentable square footage in that building as of December 31, 1996. Its leases,
which expire on various dates from January 15, 1998 to August 1, 2002, cover
234,153 square feet. The lease that expires as of January 15, 1998 contains an
option to renew the lease on 74,269 square feet for two consecutive five-year
terms. The lease that expires on August 1, 2002 contains an option to renew the
lease on 96,013 square feet for an additional five-year term.
The IMF is the only tenant in 1875 Eye Street, Phase III of the project,
occupying more than 10% of the rentable square footage. The IMF occupies 103,899
square feet (39% of the rentable square footage) pursuant to three leases which
expire on July 31, 2002 and provide renewal options on the entire space for two
five-year terms.
The following table sets out a schedule of the lease expirations for
International Square for each of the ten years beginning with 1997 and
thereafter:
Net Annual Percent of
Rentable Area Base Rent Total Annual
Number of Subject to Under Expiring Base Rent
Tenants With Expiring Leases Leases (1) Represented by
Year of Lease Expiration Expiring Leases (square feet) (in thousands) Expiring Leases
- -----------------------------------------------------------------------------------------------------------
1997 16 150,907 $ 4,899 15.9%
1998 8 365,896 12,685 41.2
1999 21 121,321 3,945 12.8
2000 1 26,162 827 2.7
2001 4 6,466 234 0.8
2002 12 191,680 6,079 19.7
2003 2 12,477 395 1.3
2004 4 8,509 273 0.9
2005 5 24,990 798 2.6
2006 3 11,736 379 1.2
2007 and thereafter 1 13,207 288 0.9
(1) Excludes operating expense recoveries.
The aggregate tax basis of depreciable real property of the office
properties constituting International Square for Federal income tax purposes is
$149,350,000 as of December 31, 1996. Depreciation and amortization are computed
on the Modified Accelerated Cost Recovery System (MACRS), Accelerated Cost
Recovery System (ACRS), declining balance or straight-line methods over the
estimated useful lives of the real property which range from 15 to 50 years. The
aggregate tax basis for depreciable personal property associated with these
office properties for Federal income tax purposes is $1,010,000 as of December
31, 1996. Depreciation and amortization are computed on the double declining
balance method or straight-line method over the estimated useful life of the
personal property of 5 to 7 years.
The current realty tax rate for International Square is $2.15 per $100 of
assessed value. The total annual tax at this rate for 1997 is $3,561,000 at an
assessed value of $165,640,000.
For additional information regarding the Company's office properties and
their operation, see "Item 1, Business."
Item 3. Legal Proceedings
The Company is a party to a variety of legal proceedings arising in the ordinary
course of its business. All of these matters, taken together, are not expected
to have a material adverse impact on the Company.
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
The Company's common stock is listed on the New York Stock Exchange ("NYSE")
under the symbol "CRE". The Company's common stock was listed on the NYSE
beginning on February 9, 1993. As of February 28, 1997, there were 423
stockholders of record. The following table sets forth the high and low sale
prices of the Company's common stock as reported in the NYSE Composite Tape, and
the dividends per share of common stock paid:
1996 1Q 2Q 3Q 4Q Full Year
- --------------------------------------------------------------------------------
High $ 25 25 1/4 25 7/8 29 1/2 29 1/2
Low $ 23 5/8 23 5/8 21 7/8 24 7/8 21 7/8
Dividend $.4375 .4375 .4375 .4375 1.75
1995
- --------------------------------------------------------------------------------
High $ 18 1/4 19 3/4 19 3/4 24 5/8 24 5/8
Low $ 17 1/8 16 3/4 17 1/4 18 1/2 16 3/4
Dividend $.4375 .4375 .4375 .4375 1.75
On April 30, 1996, the Company sold 11,627,907 shares of its common stock
directly to USRealty. These shares were not registered under the Securities Act
of 1933, as amended (the "Securities Act") in reliance on Section 4(2) of the
Securities Act based on the fact that USRealty is a single, sophisticated
investor.
On July 24, 1996, the Company sold 2,785,714 shares of its common stock
directly to USRealty, which shares were not registered under the Securities Act.
These shares were sold in connection with a public offering by the Company of
6,500,000 shares of common stock, of which USRealty bought 400,000 shares of
common stock. The 2,785,714 shares were sold at the public offering price of
$22.00 per share in reliance on Section 4(2) of the Securities Act based on the
fact that USRealty is a single, sophisticated investor with a previous
investment relationship with the Company. No underwriting discount was applied
to any shares purchased by USRealty directly from the Company or in the public
offering.
The Company, in order to qualify as a REIT, is required to make
distributions (other than capital gain distributions) to its stockholders in
amounts at least equal to (i) the sum of (A) 95% of its "REIT taxable income"
(computed without regard to the dividends paid deduction and its net capital
gain) and (B) 95% of the net income (after tax), if any, from foreclosure
property, minus (ii) the sum of certain items of non-cash income. The Company's
distribution strategy is to distribute what it believes is a conservative
percentage of its cash flow permitting the Company to retain funds for capital
improvements and other investments while funding its distributions.
For Federal income tax purposes, distributions may consist of ordinary
income, capital gains, nontaxable return of capital or a combination thereof.
Distributions that exceed the Company's current and accumulated earnings and
profits (calculated for tax purposes) constitute a return of capital rather than
a dividend and reduce the stockholder's basis in his or her shares of common
stock. To the extent that a distribution exceeds both current and accumulated
earnings and profits and the stockholder's basis in his or her shares, it will
generally be treated as gain from the sale or exchange of that stockholder's
shares. The Company annually notifies stockholders of the taxability of
distributions paid during the preceding year. The following table sets forth the
taxability of distributions paid in 1996, 1995, and 1994:
1996 1995 1994
- --------------------------------------------------------------------------------
Ordinary income 95% 85% 75%
Capital Gain -- -- --
Return of Capital 5% 15% 25%
Item 6. Selected Financial Data
The following table sets forth selected financial and operating information for
the Company as of December 31, 1996, 1995, 1994 and 1993 and for the years ended
December 31, 1996, 1995 and 1994 and the period from February 16, 1993
(commencement of operations) to December 31, 1993. The following table also sets
forth selected financial and operating information for the Carr Group, the
predecessor entity to the Company, as of and for the year ended December 31,
1992, and for the period from January 1, 1993 to February 15, 1993.
The following selected financial and operating information should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," and all of the financial statements and
notes thereto included elsewhere in this Annual Report on Form 10-K:
The Company Carr Group
- ----------------------------------------------------------------------------------------------- ------------------------------
Period from Period from
February 16, 1993 January 1, 1993 Year Ended
Year Ended December 31, to December 31, to February 15, December 31,
- ----------------------------------------------------------------------------------------------- ------------------------------
(In thousands, except per share data) 1996 1995 1994 1993 1993 1992
- ----------------------------------------------------------------------------------------------- ------------------------------
Operating Data:
Real Estate Operating Revenue:
Rental revenue $154,165 89,539 82,665 59,932 8,209 68,341
Real estate service income $ 12,512 11,315 8,890 8,978 1,096 9,995
Net income (loss) $ 24,318(1) 12,067(1) 12,097 (1,464)(2) 1,251 14,181
Dividends paid to common
shareholders $ 42,914 23,344 20,204 10,578 -- --
Per Share Data:
Net income (loss) $ 0.88 0.90 1.06 (0.15) -- --
Dividends paid to common
shareholders $ 1.75 1.75 1.75 1.06 -- --
Weighted average shares outstanding 31,999 13,338 11,387 10,000 -- --
used to calculate net income
(loss) per share
The Company Carr Group
As of December 31, As of December 31,
- ----------------------------------------------------------------------------------------------- ------------------------------
(In thousands) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------- ------------------------------
Balance Sheet Data:
Real estate, before
accumulated depreciation $1,475,998 480,589 429,537 286,764 202,988
Total assets $1,536,564 458,860 407,948 284,633 180,370
Mortgages and notes payable $ 655,449 317,374 254,933 185,827 201,024
Minority interest $ 50,597 34,850 38,644 25,373 --
Total stockholders' equity $ 787,478 95,543 106,042 59,590 --
Total common shares outstanding 43,789 13,409 13,248 10,000 --
The Company Carr Group
- ----------------------------------------------------------------------------------------------- ------------------------------
Period from Period from
February 16, 1993 January 1, 1993 Year Ended
Year Ended December 31, to December 31, to February 15, December 31,
- ----------------------------------------------------------------------------------------------- ---------------------------------
(In thousands) 1996 1995 1994 1993 1993 1992
- ----------------------------------------------------------------------------------------------- --------------- ---------------
Other Data:
Net cash provided (used)
by operating activities $ 82,300 35,277 29,908 (663) (1,286) 11,072
Net cash used by investing
activities $(876,947) (81,635) (67,046) (85,363) (1,015) (9,684)
Net cash provided (used)
by financing activities $ 813,067 37,113 32,652 108,974 (4,391) (906)
Funds from operations before
minority interest of the
Unitholders(3) $ 64,496(5) 33,190(5) 30,640 14,286(4) 2,421 22,890
(1) Net income includes a non-recurring deduction of approximately $2.3 and $1.9
million in 1996 and 1995, respectively, related to the write-off of
unamortized purchase price of certain third party real estate service
contracts that were terminated in 1996 and the termination of an agreement
to acquire the development business of The Evans Company in 1995,
respectively.
(2) Net loss includes a deduction for reorganization costs of $9.6 million and
an extraordinary loss on early extinguishment of debt of $5.6 million,
respectively.
(3) The Company believes that funds from operations is an appropriate measure of
the performance of an equity REIT because industry analysts have accepted it
as a performance measure of equity REITs. In accordance with the final
National Association of Real Estate Investment Trust's (NAREIT) White Paper
on Funds From Operations as approved by the Board of Governors of NAREIT on
March 3, 1995, funds from operations represents net income (loss) (computed
in accordance with generally accepted accounting principles), excluding
gains (or losses) from debt restructuring or sales of property, plus
depreciation and amortization of assets uniquely significant to the real
estate industry and after adjustments for unconsolidated partnerships and
joint ventures. Adjustments for unconsolidated partnerships and joint
ventures will be calculated to reflect funds from operations on the same
basis. The Company's funds from operations in 1994 and 1993 and the Carr
Group's funds from operations in 1993 and 1992 have been restated to conform
to the new NAREIT definition of funds from operations. Funds from operations
does not represent net income or cash flow generated from operating
activities in accordance with generally accepted accounting principles and
should not be considered an alternative to net income as an indication of
the Company's performance or to cash flows as a measure of liquidity or the
Company's ability to make distributions.
(4) Net income used to calculate funds from operations includes a deduction of
approximately $9.6 million related to reorganization costs associated with
the formation of the Company.
(5) Net income used to calculate funds from operations includes a non-recurring
deduction of approximately $2.3 and $1.9 million in 1996 and 1995,
respectively, related to the write-off of unamortized purchase price of
certain third party real estate service contracts that were terminated in
1996 and the termination of an agreement to acquire the development business
of The Evans Company in 1995, respectively.
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion is based primarily on the Consolidated Financial
Statements of CarrAmerica Realty Corporation and its subsidiaries as of December
31, 1996, 1995 and 1994.
This information should be read in conjunction with the accompanying
financial statements and notes thereto. These financial statements include all
adjustments which are, in the opinion of management, necessary to reflect a fair
statement of the periods presented, and all such adjustments are of a normal,
recurring nature.
RESULTS OF OPERATIONS--1996 TO 1995
Real Estate Operating Revenue. Total real estate operating revenue increased
$65.8 million, or 65.3%, to $166.7 million for 1996 as compared to $100.9
million for 1995. The increase in revenue was primarily attributable to a $64.6
million and a $1.2 million increase in rental revenue and real estate service
revenue, respectively. The Company experienced net growth in its rental revenue
as a result of its acquisitions, which contributed approximately $68.2 million
of additional rental revenue in 1996. Rental revenue from properties that were
fully operating throughout both years decreased by approximately $3.6 million
due to increased vacancies experienced in those properties. Real estate service
revenue increased by $1.2 million, or 10.6% for 1996 to $12.5 million as
compared to $11.3 million for 1995. The increase was primarily as a result of
development fees earned by Carr Development & Construction, Inc., which was
acquired by the Company in May 1996.
Real Estate Operating Expenses. Total real estate operating expenses
increased $54.4 million for 1996, or 65.8%, to $137.1 million as compared to
$82.7 million for 1995. The net increase in operating expenses was attributable
to a $20.3 million increase in property operating expenses, a $9.8 million
increase in interest expense, a $4.5 million increase in general and
administrative expenses, and a $19.8 million increase in depreciation and
amortization. The increase in property operating expenses was primarily
attributable to $20.2 million in operating expenses associated with property
acquisitions. Exclusive of operating expenses attributable to new property
acquisitions, property operating expenses increased by $.1 million for 1996. The
increase in the Company's interest expense is primarily related to borrowings
for acquisitions. The increase in general and administrative expenses is
predominantly a result of the addition of new staff to implement the Company's
new business strategy, the addition of approximately $1.8 million of expenses
associated with Carr Development & Construction, Inc., and inflation. The
increase in depreciation and amortization was predominately a result of
additional depreciation and amortization on the Company's real estate
acquisitions.
Other Operating Income (Expense). Other operating income (expense) increased
$.8 million for 1996, to ($.1) million as compared to ($.9) million for 1995,
primarily as a result of an increase in interest income and the addition of
equity in earnings of CC-JM II Associates, a joint venture which owns the
Booz-Allen & Hamilton Building. The Company is a 50% venturer in this entity,
which constructed the Booz-Allen & Hamilton Building that was placed in service
in January 1996. The increases in other operating income were partially offset
by an additional loss recognized on the write-off of intangible assets.
Net Income. Net income of $24.3 million was earned for 1996 as compared to
$12.1 million during 1995. The comparability of net income between the two
periods is impacted by the acquisitions the Company made and the other changes
described above.
Cash Flows. Net cash provided by operating activities increased $47.0
million, or 133.3%, to $82.3 million for 1996 as compared to $35.3 million for
1995, primarily as a result of the acquisitions made by the Company. Net cash
used by investing activities increased $795.3 million, to $876.9 million for
1996 as compared to $81.6 million for 1995, primarily as a result of capital
deployed by the Company for acquisitions of office properties, land held for
future development and construction in progress. Net cash provided by financing
activities increased $776.0 million to $813.1 million provided for 1996 as
compared to $37.1 million provided for 1995, primarily as a result of the sale
of common stock and preferred stock by the Company and net borrowings for the
Company's acquisitions.
RESULTS OF OPERATIONS--1995 TO 1994
Real Estate Operating Revenue. Total real estate operating revenue increased
$9.3 million, or 10.2%, to $100.9 million in 1995 as compared to $91.6 million
in 1994. The increase in revenue was primarily attributable to a $6.9 million
and a $2.4 million increase in rental revenue and real estate service revenue,
respectively. The Company experienced net growth in its rental revenue as a
result of its acquisitions which contributed approximately $8.1 million of
additional rental revenue in 1995. Rental revenue contributed by properties that
were fully operating throughout both periods declined by approximately $1.2
million, or 1.5%. These properties, all of which were located in downtown
Washington, D.C., experienced lower rental revenue in the aggregate during 1995
as a result of (a) lower occupancy rates, (b) the renegotiation of certain
tenants' leases resulting in lower rental rates, and (c) new leases entered into
by the Company at rates lower than the expiring leases' rental rates. The
Company experienced growth in its real estate service income of $1.7 million as
a result of its acquisition of real estate service contracts in 1995. In
addition, real estate service revenues from the Company's core service contracts
increased by $.7 million, or 8.2%, in 1995.
Real Estate Operating Expenses. Total real estate operating expenses
increased $7.7 million, or 10.2%, to $82.7 million as compared to $75.0 million
in 1994. The net increase in operating expenses was attributable to a $1.9
million increase in property operating expenses, a $.5 million increase in
interest expense, a $1.2 million increase in general and administrative
expenses, and a $4.1 million increase in depreciation and amortization. The
increase in property operating expenses was primarily attributable to $2.4
million in operating expenses associated with property acquisitions. Exclusive
of operating expenses attributable to new property acquisitions, property
operating expenses decreased $.5 million, or 1.9%, in 1995 predominately as a
result of lower real estate tax assessments. The increase in the Company's
interest expense is primarily related to borrowings for acquisitions. The
increase in general and administrative expenses is predominately a result of
general and administrative expenses associated with the real estate service
contracts acquired in 1995 and inflation. The increase in depreciation and
amortization is predominately a result of depreciation and amortization on the
Company's real estate and real estate service contract acquisitions.
Other Operating Income (Expense). In January 1996, the Company terminated an
agreement to acquire the development business of The Evans Company and, as a
result, recognized a $1.9 million non-recurring charge to its earnings in the
fourth quarter of 1995. The Company took this action in order to focus on
implementing its national growth strategy.
Net Income. Net income of $12.1 million was earned during 1995 as compared
to $12.1 million during 1994. The comparability of net income between the two
periods is impacted by the acquisitions the Company made and the other changes
described above.
Cash Flows. Net cash provided by operating activities increased $5.4
million, or 18.0%, to $35.3 million in 1995 as compared to $29.9 million in
1994, primarily as a result of the acquisitions made by the Company. Net cash
used by investing activities increased $14.6 million, or 21.8%, to $81.6 million
in 1995 as compared to $67.0 million in 1994, primarily as a result of capital
deployed by the Company for acquisitions of office properties and real estate
service contracts. Net cash provided by financing activities increased $4.5
million, or 13.7%, to $37.1 million in 1995 as compared to $32.6 million in
1994, primarily as a result of net borrowings for the Company's acquisitions.
Liquidity and Capital Resources
The Company's total indebtedness at December 31, 1996 was $655.4 million, of
which $215.0 million, or 32.8%, had a LIBOR-based floating interest rate. The
Company's fixed rate indebtedness had an effective weighted average interest
rate of 8.1% and had a weighted average term to maturity of 5.8 years. In
addition to the indebtedness outstanding, the Company had total borrowing
capacity under its unsecured line of credit of $283.0 million allowing the
Company to borrow up to an additional $68.0 million at December 31, 1996. Based
upon the Company's total market capitalization at December 31, 1996 of $2.147
billion (the stock price was $29.25 per share and the total shares/Units
outstanding were 51,008,319), the Company's debt represented 30.52% of its total
market capitalization. On January 28, 1997, the Company obtained a $150 million,
short-term revolving credit facility from Morgan Guaranty Trust Company of New
York, secured by certain of the Company's properties. The Company currently has
$89.0 million of borrowing capacity under this facility, of which, as of March
15, 1997, the Company had drawn $86.0 million. The Company intends to use the
credit facility to finance the acquisitions and development of office properties
and to meet working capital needs.
The Company will require capital to invest in its existing portfolio of
operating assets for major capital projects such as large-scale renovations,
routine capital expenditures and deferred maintenance on certain properties
recently acquired and tenant related capital expenditures, such as tenant
improvements and allowances and leasing commissions. With respect to major
capital projects, the Company is planning a renovation of a 327,000 square foot
property in southeast Denver during 1997 which will cost $2.0 million, or
approximately $5.00 per square foot. During 1997, the Company is also completing
renovations of several garages in its downtown Washington, D.C. portfolio. The
total remaining cost of the garage renovations will be approximately $1.7
million. With respect to routine capital expenditures and deferred maintenance
on certain properties recently acquired, the Company anticipates spending
approximately $5.8 million, or approximately $0.52 per square foot, during 1997
on its portfolio of operating assets owned as of December 31, 1996. The Company
expects this amount to decrease in subsequent years as deferred maintenance
activities are completed on recently acquired properties and as the emphasis of
the Company's growth shifts from acquiring existing office properties to
developing new properties. The Company's capital requirements for tenant related
capital expenditures are dependent upon a number of factors including square
feet of expiring leases, tenant retention ratios and whether the expiring leases
are in central business district properties or suburban properties. During 1997,
the Company has 256,347 square feet and 1,251,459 square feet of expiring leases
in central business district properties and suburban properties, respectively.
Tenant related capital expenditures (tenant improvements, cash allowances and
leasing commissions) for 1996 were $19.22 per square foot and $7.56 per square
foot for leases executed in 1996 for the Company's central business district
properties and suburban properties, respectively. The Company intends to use
cash flow from operations and its unsecured revolving credit facility to meet
its working capital needs for its existing portfolio of operating assets.
The Company will also require a substantial amount of capital for
development projects currently underway and planned for the future. The Company
currently has six development projects underway which are expected to require a
total investment by the Company of $119.4 million. The Company intends to use
cash flow from operations and its unsecured, revolving credit facility to meet
its working capital needs for its existing portfolio of operating assets.
Net cash flow provided by operating activities was $82.3 million for 1996,
compared to $35.3 million in 1995. The increase in net cash flow provided by
operating activities was primarily as a result of acquisitions made by the
Company.
The Company's investing activities used approximately $876.9 million and
$81.6 million in 1996 and 1995, respectively. The Company's investment
activities included the investment in the acquisition of operating properties,
land and real estate service contracts, as well as meeting the construction
costs of its properties currently under development, of approximately $857.1
million and $71.8 million in 1996 and 1995, respectively. Additionally, the
Company invested approximately $11.5 million and $8.9 million in 1996 and 1995,
respectively, in its existing real estate assets.
Net of distributions to the Company's shareholders, the Company's financing
activities provided net cash of $813.1 million and $37.1 million in 1996 and
1995, respectively. The Company had net borrowings of approximately $215.0
million in 1996 and borrowings of $72.0 million in 1995, to provide adequate
capital for the Company's investing activities. Additionally, in 1996, the
Company raised $708.5 million in net proceeds from the sales of common stock and
preferred stock to provide adequate capital for the Company's investing
activities and to repay certain indebtedness. In 1995, the Company did not raise
any capital from equity offerings.
Rental revenue and real estate service revenue have been the principal
sources of capital to fund the Company's operating expenses, debt service and
capital expenditures, excluding non-recurring capital expenditures. The Company
believes that rental revenue and real estate service revenue will continue to
provide the necessary funds for its operating expenses and debt service. The
Company expects to fund capital expenditures, including tenant concession
packages, building renovations and construction costs, from (i) available funds
from operations, (ii) existing capital reserves, and (iii) if necessary, credit
facilities established with third party lenders. If these sources of funds are
insufficient, the Company's ability to make expected distributions may be
adversely impacted. At December 31, 1996, the Company had cash of $35.9 million,
of which $8.2 million was restricted.
The Company's dividends are paid quarterly. Amounts accumulated for
distribution are primarily invested by the Company in short-term investments
that are collateralized by securities of the United States Government or any of
its agencies.
Management believes that the Company will have access to the capital
resources necessary to expand and develop its business. Accordingly, the Company
may seek to obtain funds through additional equity offerings or debt financings
in a manner consistent with its intention to operate with a conservative
borrowing policy. The Company anticipates that adequate cash will be available
to fund its operating and administrative expenses, continuing debt service
obligations, the payment of dividends in accordance with REIT requirements in
both the short-term and long-term, and future acquisitions of rental properties.
The Company believes that funds from operations is an appropriate measure of
the performance of an equity REIT because industry analysts have accepted it as
a performance measure of equity REITs. In accordance with the final NAREIT White
Paper on Funds From Operations as approved by the Board of Governors of NAREIT
on March 3, 1995, funds from operations represents net income (loss) (computed
in accordance with generally accepted accounting principles), excluding gains
(or losses) from debt restructuring or sales of property, plus depreciation and
amortization of assets uniquely significant to the real estate industry and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis. The Company's
funds from operations in 1994 have been restated to conform to the new NAREIT
definition of funds from operations. Funds from operations does not represent
net income or cash flow generated from operating activities in accordance with
generally accepted accounting principles and should not be considered an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or the Company's ability to make
distributions.
The following table sets forth the calculation of the Company's funds from
operations for 1996, 1995 and 1994:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Net income before minority interest $29,534 17,284 17,821
Adjustments to derive funds
from operations:
Add:
Depreciation and amortization 35,888 17,564 14,523
Deduct:
Minority interests (non-Unitholders)
share of depreciation and
amortization and net income (926) (1,658) (1,704)
------- ------ ------
Funds from operations before
allocation to the
minority Unitholders 64,496 33,190 30,640
Less: Funds from operations
allocable to the
minority Unitholders (8,610) (7,876) (8,640)
------- ------ ------
Funds from operations
allocable to CarrAmerica
Realty Corporation $55,886 25,314 22,000
======= ====== ======
Changes in funds from operations are largely attributable to changes in net
income between the periods as previously discussed.
Acquisition and Development Activity
The following is a discussion of the Company's acquisition and development
activity during 1996. A more detailed discussion can be found in "Item 1.
Business -- Recent Developments."
During 1996, the Company acquired the following properties: in its Pacific
region, the Company acquired an aggregate of 73 buildings containing a total of
approximately 4.0 million square feet, for an aggregate purchase price of
approximately $454.3 million; in its Mountain region, the Company acquired an
aggregate of 13 buildings containing a total of approximately 1.3 million square
feet, for an aggregate purchase price of approximately $112.7 million; in its
Central region, the Company acquired an aggregate of 17 buildings containing a
total of approximately 2.1 million square feet, for an aggregate purchase price
of approximately $243.5 million; and in its Southeast region, the Company
acquired an aggregate of 43 buildings containing a total of approximately 1.8
million square feet, for an aggregate purchase price of approximately $178.3
million.
During 1996, the Company also acquired or purchased options to acquire 142
acres of developable land in four of its target markets: suburban Seattle;
southeast Denver; Austin, Texas; and suburban Chicago. In the aggregate, this
land (including land subject to purchase options) will support development of up
to 3.2 million square feet of office space. In addition, as of December 31,
1996, the Company had three properties under construction: 128,000 square feet
in suburban Atlanta; and an aggregate of 295,000 square feet in southeast Denver
(including a build-to-suit project with 189,000 rentable square feet). Land held
for development was purchased for an aggregate purchase price of $32.3 million.
Costs incurred during 1996 for properties under construction were $31.7 million.
An additional $36.3 million will be expended for completion of projects already
under construction as of December 31, 1996.
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.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is hereby incorporated by reference to the
material appearing in Part I of this Annual Report on Form 10-K and in the Proxy
Statement for the Annual Stockholders Meeting to be held in 1997 (the "Proxy
Statement").
Item 11. Executive Compensation
The information required by this item is hereby incorporated by reference to the
material appearing in the Proxy Statement under the caption "Executive
Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item 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
The information required by this item 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 Statement 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 F-1.
14(a)(2) Financial Statement Schedule
Reference is made to the Index to Financial Statements and Schedule
on page F-1.
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 and filed May 15,
1996).
3.2 Second Amendment and Restatement of By-laws of CarrAmerica
Realty Corporation (incorporated by reference to Exhibit 3.1
to the Company's Current Report on Form 8-K dated and filed
February 12, 1997).
3.3 Articles Supplementary of 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 and filed on November 5, 1996).
10.1 First Amended and Restated Agreement of Limited Partnership of
CarrAmerica Realty, L.P., dated May 24, 1996, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 and filed on August 14, 1996).
10.2 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 and filed on May 15, 1996).
10.3 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).
10.4 Non-Employee Director Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8,
No. 33-92136).
10.5 1997 Stock Option and Incentive Plan.
10.6 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).
10.7 Promissory Note from Carr Real Estate Services, Inc. to Carr
Realty, L.P. (incorporated by reference to the same titled
exhibit to the Company's Registration Statement on Form S-11,
No. 33-72974).
10.8 Security Agreement granted by Carr Real Estate Services, Inc.
to Carr Realty, L.P. (incorporated by reference to the same
titled exhibit to the Company's Registration Statement on Form
S-11, No. 33-72974).
10.9 Promissory Note from Carr Realty, L.P. to the Northwestern
Mutual Life Insurance Company (incorporated by reference to
Exhibit 10.27 of the Company's Registration Statement on
Form S-11, No. 33-72974).
10.10 Deed of Trust and Security Agreement by and among Carr Realty,
L.P., Patrick H. McGuire, III, and the Northwestern Mutual
Life Insurance Company (incorporated by reference to Exhibit
10.28 of the Company's Registration Statement on Form S-11,
No. 33-72974).
10.11 Stock Purchase Agreement, dated November 5, 1995 by and among
Carr Realty Corporation, Security Capital Holdings, S.A. and
Security Capital U.S. Realty (incorporated by reference to
Exhibit 5.1 to the Company's Current Report on Form 8-K dated
November 6, 1995).
10.12 Amendment No. 1 to Stock Purchase Agreement, dated April 29,
1996 by and among Carr Realty Corporation, Security Capital
Holdings, S.A. and Security Capital U.S. Realty (incorporated
by reference to Exhibit 2.1 of Security Capital U.S. Realty's
Schedule 13D dated April 30, 1996).
10.13 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).
10.14 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).
10.15 Amended and Restated Credit Agreement, dated August 23, 1996
by and among CarrAmerica Realty Corporation, Carr Realty, L.P.
and Morgan Guaranty Trust Company of New York.
10.16 First Amendment to Amended and Restated Revolving Credit
Agreement, dated October 18, 1996 by and among CarrAmerica
Realty Corporation, Carr Realty, L.P., Morgan Guaranty Trust
Company of New York, Commerzbank Aktiengesellschaft, New York
Branch, NationsBank, N.A., Wells Fargo Realty Advisors
Funding, Inc. (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K dated and filed
October 24, 1996).
10.17 Employment Agreement dated November 1, 1996 by and among
Robert E. Peterson and CarrAmerica Realty Corporation.
21.1 List of Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP, dated March 26, 1997.
27 Financial Data Schedule.
14(b) Reports on Form 8-K
Form 8-K dated and filed October 16, 1996, regarding Pro Forma
Balance Sheet for six months ended June 30, 1996 and Pro Forma
Statements of Operations for six months ended June 30, 1996 and the
year ended December 31, 1995 for Littlefield Portfolio.
Form 8-K dated and filed October 24, 1996, regarding (i) new
acquisitions of Sunnyvale Research Plaza, Quebec Centre, Greenwood
Center, Panorama Corporate Center, Warner Center Business Park,
Katella Corporate Center, Littlefield Portfolio and Riata Land, (ii)
probable acquisitions of Peterson Portfolio, NELO/Orchard Portfolio,
Greyhound Building, Cedar Maple Plaza, Camelback Lakes, and Pointe
Corridor Centre IV and (iii) Historical Financials for the six months
ended June 30, 1996 and the year ended December 31, 1995 for
Sunnyvale Research Plaza, NELO/Orchard Portfolio, Peterson Portfolio
and Camelback Lakes.
Form 8-K dated October 24, 1996 and filed October 25, 1996, regarding
Hogan & Hartson L.L.P. opinion for offering of 1,740,000 shares of
the Company's preferred stock.
Form 8-K dated and filed November 4, 1996, regarding Historical
Financial Statements for the nine months ended September 30, 1996 and
the year ended December 31, 1995 for Search Plaza/Quorum North, Rio
Robles Technology Center and South Coast Executive Center.
Form 8-K dated November 6, 1996 and filed November 15, 1996,
regarding NELO/Orchard Portfolio acquisition.
Form 8-K/A dated and filed November 22, 1996, amending Form 8-K filed
October 24, 1996, regarding reliance on Historical Financials for the
three months ended March 31, 1996 and the year ended December 31,
1995 for Warner Center Business Park acquisition.
Form 8-K/A dated and filed November 22, 1996, amending Form 8-K filed
November 4, 1996, regarding reliance on Historical Financials for the
nine months ended September 30, 1996 and the year ended December 31,
1995 for Search Plaza/Quorum North.
Form 8-K dated and filed November 26, 1996, regarding Hogan & Hartson
L.L.P. opinion for offering of 5,750,000 shares of Company's common
stock.
Form 8-K dated and filed November 26, 1996, regarding Hogan & Hartson
L.L.P. opinion for offering of 2,142,857 shares of Company's common
stock to USRealty.
Form 8-K dated and filed December 18, 1996, regarding Unisys Center
Historical Financial Statements for the nine months ended September
30, 1996 and the year ended December 31, 1995, Pro Forma Balance
Sheet for the nine months ended September 30, 1996 and Pro Forma
Statements of Operations for the nine months ended September 30, 1996
and the year ended December 31, 1995.
Form 8-K dated and filed December 19, 1996, regarding Peterson
Portfolio Pro Forma Balance Sheet for the nine months ended September
30, 1996 and Pro Forma Statements of Operations for the nine months
ended September 30, 1996 and the year ended December 31, 1995.
Form 8-K/A dated and filed December 19, 1996, amending Form 8-K filed
November 15, 1996, regarding NELO/Orchard Portfolio Pro Forma Balance
Sheet for the nine months ended September 30, 1996 and Pro Forma
Statements of Operations for the nine months ended September 30, 1996
and the year ended December 31, 1995.
Form 8-K dated and filed December 20, 1996, regarding Hogan & Hartson
L.L.P. opinion for offering of 321,429 shares of Company's common
stock to Security Capital U.S. Realty.
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
None.
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 26, 1997.
CARRAMERICA REALTY CORPORATION
a Maryland corporation
By: /s/ THOMAS A. CARR
--------------------------------------
Thomas A. Carr
President and Chief Operating 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 26, 1997.
Signature Title
- -------- -----
/s/ OLIVER T. CARR, JR.
- ---------------------------------- Chairman of the Board,
Oliver T. Carr, Jr. Chief Executive Officer and Director
/s/ THOMAS A. CARR
- ---------------------------------- President, Chief Operating Officer and
Thomas A. Carr Director
/s/ BRIAN K. FIELDS
- ---------------------------------- Chief Financial Officer
Brian K. Fields
/s/ ROBERT O. CARR
- ---------------------------------- Director
Robert O. Carr
/s/ DAVID BONDERMAN
- ---------------------------------- Director
David Bonderman
/s/ ANDREW F. BRIMMER
- ---------------------------------- Director
Andrew F. Brimmer
/s/ A. JAMES CLARK
- ---------------------------------- Director
A. James Clark
/s/ ANTHONY R. MANNO, JR.
- ---------------------------------- Director
Anthony R. Manno, Jr.
/s/ CAROLINE S. MCBRIDE
- ---------------------------------- Director
Caroline S. McBride
/s/ J. MARSHALL PECK
- ---------------------------------- Director
J. Marshall Peck
/s/ GEORGE R. PUSKAR
- ---------------------------------- Director
George R. Puskar
/s/ WILLIAM D. SANDERS
- ---------------------------------- Director
William D. Sanders
/s/ WESLEY S. WILLIAMS, JR.
- ---------------------------------- Director
Wesley S. Williams, Jr.
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' Reports
thereon are attached hereto:
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-7
Independent Auditors' Report F-21
FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report F-21
Schedule III: Consolidated Real Estate and Accumulated
Depreciation as of December 31, 1996 for CarrAmerica Realty
Corporation and Subsidiaries F-22
All other schedules are omitted because they are not applicable, or because the
required information is included in the financial statements or notes thereto.
F-1
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1996 and 1995
(In thousands, except share amounts) 1996 1995
- -------------------------------------------------------------------------------
Assets
Rental property (notes 2 and 13):
Land $ 356,797 115,565
Buildings 1,017,313 301,537
Tenant improvements 99,760 60,060
Furniture, fixtures, and equipment 2,128 3,427
----------- --------
1,475,998 480,589
Less-- accumulated depreciation (119,657) (98,873)
----------- --------
Total rental property 1,356,341 381,716
Land held for development 32,277 --
Construction in progress 31,723 --
Cash and cash equivalents 27,637 9,217
Restricted cash and cash equivalents (note 2) 8,229 2,249
Accounts and notes receivable (note 10) 11,899 8,728
Investments (note 4) 13,524 10,745
Accrued straight-line rents 23,810 22,437
Tenant leasing costs, net of accumulated
amortization of $11,986 in 1996 and
$11,579 in 1995 13,499 10,746
Deferred financing costs, net of accumulated
amortization of $1,979 in 1996 and $1,200
in 1995 3,800 2,267
Prepaid expenses and other assets, net of
accumulated depreciation of $3,506 in 1996
and $1,894 in 1995 13,825 10,755
----------- --------
$1,536,564 458,860
=========== ========
Liabilities, Minority Interest, and
Stockholders' Equity
Liabilities:
Mortgages and notes payable (notes 2 and 13) $ 655,449 317,374
Accounts payable and accrued expenses 32,657 9,357
Rent received in advance and security deposits 10,383 1,736
----------- --------
Total liabilities 698,489 328,467
Minority interest (note 3) 50,597 34,850
Stockholders' equity (notes 7 and 8):
Preferred stock, $.01 par value, authorized
30,000,000 shares, issued and outstanding
1,740,000 shares of Series A Cumulative
Convertible Redeemable Preferred stock with
an aggregate liquidation preference of
$43.5 million 17 --
Common stock, $.01 par value, authorized
90,000,000 shares, issued and outstanding
43,789,073 shares at December 31, 1996 and
13,409,177 shares at December 31, 1995 438 134
Additional paid in capital 837,355 126,835
Cumulative dividends in excess of net income (50,332) (31,426)
----------- --------
Total stockholders' equity 787,478 95,543
----------- --------
Commitments (notes 5, 6 and 10)
$1,536,564 458,860
=========== ========
See accompanying notes to consolidated financial statements
F-2
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Years Ended December 31, 1996, 1995 and 1994
(In thousands, except per common share amounts) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Real estate operating revenue (notes 5 and 10):
Rental revenue:
Minimum base rent $133,807 79,688 73,070
Recoveries from tenants 14,105 5,266 5,977
Parking and other tenant charges 6,253 4,585 3,618
--------- -------- ------
Total rental revenue 154,165 89,539 82,665
Real estate service income 12,512 11,315 8,890
--------- -------- ------
Total revenue 166,677 100,854 91,555
--------- -------- ------
Real estate operating expenses:
Property operating expenses:
Operating expenses 37,047 21,894 19,428
Real estate taxes 14,880 9,685 10,279
Interest expense 31,630 21,873 21,366
General and administrative 15,228 10,711 9,535
Depreciation and amortization 38,264 18,495 14,419
--------- -------- ------
Total operating expenses 137,049 82,658 75,027
--------- -------- ------
Real estate operating income 29,628 18,196 16,528
--------- -------- ------
Other operating income (expense):
Interest Income 1,701 1,121 1,310
Equity in earnings (losses) of unconsolidated partnerships (note 4) 484 (131) (17)
Loss on write-off of investment and intangible assets (note 11) (2,279) (1,902) --
--------- -------- ------
Total other operating income (expense) (94) (912) 1,293
--------- -------- ------
Net operating income before minority interest
and extraordinary item 29,534 17,284 17,821
Minority interest (note 3) (4,732) (5,217) (5,724)
--------- -------- ------
Income before extraordinary item 24,802 12,067 12,097
Extraordinary item-- loss on early extinguishment of debt 484 -- --
--------- -------- ------
Net income $ 24,318 12,067 12,097
========= ======== ======
Net income per common share:
Income before extraordinary item $ 0.90 0.90 1.06
Extraordinary item-- loss on early extinguishment of debt (0.02) -- --
--------- -------- ------
Net income per common share $ 0.88 0.90 1.06
========= ======== ======
See accompanying notes to consolidated financial statements
F-3
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the Years Ended December 31, 1996, 1995 and 1994
Dividends in
Additional Excess of
Common Preferred Common Preferred Paid In Cumulative
(In thousands, except share amounts) Shares Shares stock stock Capital Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 10,000,067 -- $100 -- 71,532 (12,042) 59,590
Sale of common stock 2,875,000 -- 29 54,436 54,465
Shares issued in exchange for
Unit redemptions (note 3) 372,944 -- 3 -- 1,967 -- 1,970
Dilution from assets and liabilities
contributed by Unitholders -- -- -- -- (1,876) -- (1,876)
Net Income -- -- -- -- -- 12,097 12,097
Dividends Paid -- -- -- -- -- (20,204) (20,204)
---------- --------- ----- --- -------- ------- --------
Balance at December 31, 1994 13,248,011 -- 132 -- 126,059 (20,149) 106,042
Shares issued in exchange for
Unit redemptions (note 3) 161,166 -- 2 -- 776 -- 778
Net income -- -- -- -- -- 12,067 12,067
Dividends paid -- -- -- -- -- (23,344) (23,344)
---------- --------- ----- --- -------- ------- --------
Balance at December 31, 1995 13,409,177 -- 134 -- 126,835 (31,426) 95,543
Sales of common stock 30,102,907 -- 301 -- 665,178 -- 665,479
Sale of Series A Cumulative Convertible
Redeemable Preferred Stock -- 1,740,000 -- 17 42,976 -- 42,993
Shares issued in exchange for
Unit redemptions (note 3) 212,293 -- 2 -- 831 -- 833
Exercise of stock options 2,000 -- -- -- 36 -- 36
Shares issued to acquire rental property 62,696 -- 1 -- 1,499 -- 1,500
Net income -- -- -- -- -- 24,318 24,318
Dividends paid -- -- -- -- -- (43,224) (43,224)
---------- --------- ----- --- -------- ------- --------
Balance at December 31, 1996 43,789,073 1,740,000 $438 17 837,355 (50,332) 787,478
========== ========= ===== === ======== ======= ========
See accompanying notes to consolidated financial statements
F-4
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Years Ended December 31, 1996, 1995 and 1994
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 24,318 12,067 12,097
--------- ------- -------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 38,264 18,495 14,419
Minority interest in income 4,732 5,217 5,724
Equity in (earnings) losses of unconsolidated partnerships (464) 161 47
Extraordinary item--loss on early extinguishment of debt 484 -- --
Loss on write-off of assets 2,279 -- --
Decrease (increase) in accounts receivable (3,171) (3,124) 370
Decrease (increase) in accrued straight-line rents (1,373) 1,931 (713)
Additions to tenant leasing costs (5,530) (1,350) (811)
Increase in prepaid expenses and other assets (5,915) (884) (1,346)
Increase (decrease) in accounts payable and accrued expenses 20,029 2,969 (923)
Increase (decrease) in rent received in advance and security deposits 8,647 (205) 1,044
--------- ------- -------
Total adjustments 57,982 23,210 17,811
--------- ------- -------
Net cash provided by operating activities 82,300 35,277 29,908
--------- ------- -------
Cash flows from investing activities:
Additions to rental property (11,525) (8,927) (11,715)
Acquisitions of rental property (800,628) (64,363) (57,006)
Land purchased for future development (23,022) -- --
Additions to construction in progress (31,723) -- --
Acquisition of real estate service contracts and other intangibles (1,750) (7,419) --
Distributions from unconsolidated partnerships 1,739 4,399 --
Investments in unconsolidated partnerships (4,055) (3,437) (2,641)
Acquisition of minority interest (3) (1,546) --
Decrease (increase) in restricted cash and cash equivalents (5,980) (342) 3,375
Cash from contributed net assets -- -- 941
--------- ------- -------
Net cash used by investing activities (876,947) (81,635) (67,046)
--------- ------- -------
Cash flows from financing activities:
Net proceeds from sales of common and preferred stock 708,508 -- 54,465
Net borrowings on unsecured line of credit 215,000 -- --
Borrowings on mortgages payable -- 72,000 60,418
Repayment of mortgages payable (57,048) (2,559) (38,120)
Contributions from minority interests -- 17 --
Dividends paid (43,224) (23,344) (20,204)
Repayment of mortgages payable to related party -- -- (15,186)
Additions to deferred financing costs (3,020) (879) (674)
Distributions to minority interests (7,149) (8,122) (8,047)
--------- ------- -------
Net cash provided by financing activities 813,067 37,113 32,652
--------- ------- -------
Increase (decrease) in unrestricted cash and cash equivalents 18,420 (9,245) (4,486)
Unrestricted cash and cash equivalents, beginning of the period 9,217 18,462 22,948
--------- ------- -------
Unrestricted cash and cash equivalents, end of the period $ 27,637 9,217 18,462
========= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $2,664 in 1996
and $226 in 1995) $ 29,693 21,825 21,366
========= ======= =======
F-5
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the Years Ended December 31, 1996, 1995 and 1994
Supplemental disclosure of noncash investing and financing activities:
(a) During 1996, the Company funded a portion of the aggregate purchase price
of its property acquisitions by assuming $184.4 million of debt and
liabilities and by issuing $1.5 million of common stock and $18.0 million
of Units. The Company also repaid $1.0 million of liabilities by issuing
$1.0 million of Units.
(b) On July 6, 1995, the Company formed a limited liability company (the
"LLC") with a commingled pension trust fund. The Company contributed its
ownership in 1717 Pennsylvania Avenue to the LLC for a 50 percent
ownership interest. The Company was credited with a contribution of $20.0
million, reduced by $7.0 million of indebtedness secured by the property.
Subsequent to the Company's contribution to the LLC, the Company received
a distribution from the LLC of $2.9 million.
(c) During 1994, the Company funded a portion of the purchase prices of its
property acquisitions by assuming $20.4 million of debt and liabilities
and by issuing $14.1 million of Units.
(d) On February 17, 1994, the Company acquired an additional 21.4% interest in
Square 24 Associates, the partnership that owns the property located at
2445 M Street, in exchange for $4.3 million of Units.
See accompanying notes to consolidated financial statements
F-6
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business and Summary of Significant Accounting Policies
(a) Business
CarrAmerica Realty Corporation (the "Company"), formerly Carr Realty
Corporation, is a self-administered and self-managed equity real estate
investment trust ("REIT"), organized under the laws of Maryland, which owns,
develops, acquires and operates office buildings. The Company's office
properties are located in eleven suburban markets across the United States.
(b) Basis of Presentation
The accounts of the Company and its majority-owned subsidiaries are consolidated
in the accompanying financial statements. The Company uses the equity method of
accounting for its investments in and earnings and losses of unconsolidated
partnerships not controlled by the Company. Management of the Company has made a
number of estimates and assumptions relating to the reporting of assets and
liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates. Certain amounts for prior years have been reclassified to conform
with the presentation for 1996.
(c) Rental Property
Rental property is recorded at cost less accumulated depreciation (which is less
than the net realizable value of the rental property). Depreciation is computed
on the straight-line basis over the estimated useful lives of the assets, as
follows:
- --------------------------------------------------------------------------------
Base Building 30 to 50 years
Building components 7 to 20 years
Tenant improvements Terms of the leases or useful lives,
whichever is shorter
Furniture, fixtures and equipment 5 to 15 years
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations are capitalized.
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets, such as the
Company's rental property, and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Adoption of this Statement had no effect on the Company's financial
position, results of operations, or liquidity.
(d) Development Property
Land held for development and construction in progress are carried at cost.
Specifically identifiable direct and indirect acquisition, development and
construction costs are capitalized including, where applicable, salaries and
related costs, real estate taxes, interest and certain pre-construction costs
essential to the development of the property.
(e) Tenant Leasing Costs
Fees and costs incurred in the successful negotiation of leases have been
deferred and are being amortized on a straight-line basis over the terms of the
respective leases.
(f) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain financing and
are being amortized over the terms of the respective loans on a basis which
approximates the interest method.
F-7
(g) Fair Value of Financial Instruments
The carrying amount of the following financial instruments approximates fair
value because of their short-term maturity: cash and cash equivalents; accounts
and notes receivable; accounts payable, accrued expenses and other liabilities.
(h) Revenue Recognition
The Company reports base rental revenue for financial statement purposes
straight-line over the terms of the respective leases. Accrued straight-line
rents represent the amount that straight-line rental revenue exceeds rents
collected in accordance with the lease agreements. Management, considering
current information and events regarding the tenants' ability to fulfill their
lease obligations, considers accrued straight-line rents to be impaired if it is
probable that the Company will be unable to collect all rents due according to
the contractual lease terms. If accrued straight-line rents associated with a
tenant are considered to be impaired, the amount of the impairment is measured
based on the present value of expected future cash flows. Impairment losses, if
any, are recorded through a loss on the write-off of assets. Cash receipts on
impaired accrued straight-line rents are applied to reduce the remaining
outstanding balance and as rental revenue, thereafter.
The Company receives real estate service revenue for certain properties it
manages, leases and develops for third parties. Such revenue is recognized as
revenue as earned.
(i) Income and Other Taxes
The Company qualifies as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended. A REIT will generally not be subject to
federal income taxation on that portion of its income that qualifies as REIT
taxable income to the extent that it distributes at least 95 percent of its
taxable income to its shareholders and complies with certain other requirements.
Accordingly, no provision has been made for federal income taxes for the Company
and certain of its subsidiaries in the accompanying consolidated financial
statements. At December 31, 1996 and 1995, the Company's income tax basis in its
assets was approximately $1.5 billion and $474.5 million, respectively.
Certain subsidiaries, organized as partnerships, of the Company are subject
to District of Columbia franchise taxes. Franchise taxes are recorded as general
and administrative expenses in the accompanying consolidated financial
statements.
Carr Development & Construction, Inc. ("CDC"), the Company's development
subsidiary, and Carr Real Estate Services, Inc. ("CRESI"), the Company's real
estate service subsidiary, file separate tax returns and are subject to federal,
state and local income taxes. The Company has adopted the asset and liability
method of accounting for CDC's and CRESI's income taxes. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and to operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period of the enactment date. The effect of the asset and liability method on
the Company's financial statements is insignificant. The Company's subsidiaries
did not incur any income tax expense in 1996, 1995 or 1994.
(j) Real Estate Service Contracts and Other Intangible Assets
Real estate service contracts and other intangible assets represent the purchase
price of net assets of real estate service operations acquired and are amortized
on the straight-line basis over the expected lives of the respective real estate
service contracts. The Company assesses the recoverability of these intangible
assets by determining whether the amortization of the balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment loss, if any, is measured as the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. The assessment of the recoverability of these intangible assets will be
impacted if estimated future operating cash flows are not achieved.
F-8
(k) Per Share Data and Dividends
Net income per share of common stock is based upon the weighted average number
of common shares and share equivalents outstanding during the year. When
dilutive, stock options and Units are included as share equivalents. The
weighted average number of shares used in the computations was 31,999,580 for
1996, 13,338,080 for 1995 and 11,387,030 for 1994.
Net income for 1996 used in the computations was reduced by cumulative
preferred stock dividends of $572 thousand.
Following is the income tax status of dividends paid during the years ended
December 31:
1996 1995 1994
- --------------------------------------------------------------------------------
Ordinary income 95% 85% 75%
Capital Gain -- -- --
Return of Capital 5% 15% 25%
(l) Cash Equivalents
For the purposes of reporting cash flows, the Company considers all highly
liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
(m) Stock/Unit Option Plans
Prior to January 1, 1996, the Company accounted for its option plans in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expenses would be recorded only if the current market
price of the underlying unit or stock on the date of grant exceeded the exercise
price. As of January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense, over
the vesting period, the fair value of all unit-based and stock-based awards on
the date of grant. Alternatively, SFAS No. 123 allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee option grants made in 1995
and future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
F-9
(2) Mortgages And Notes Payable
Mortgages payable are collateralized by certain rental properties and generally
require monthly principal and/or interest payments. Following is a summary of
the Company's mortgages and notes payable as of December 31, 1996 and 1995:
(In thousands) 1996 1995
- ---------------------------------------------------------------------------------------------------------------
Mortgages payable to The Northwestern Mutual Life Insurance Company ("NML");
bearing interest at rates ranging from 7.55 percent to 8.80 percent; interest
only is payable through February 1, 1998; thereafter, principal and interest
payments are due monthly based on a 25-year amortization schedule through
maturity in February, 2003. $183,500 183,500
Mortgage payable to NML; bearing interest at 8.9 percent requires monthly
principal and interest payments of $346 thousand through maturity in June
2002; additional annual principal curtailments of $500 thousand are due
through 2000; $2.0 million in 2001, and $1.0 million in 2002. 38,188 39,377
Mortgages payable to the Aid Association for Lutherans ("AAL") under 2 notes;
$16.5 million note bearing interest at 9.5 percent requires monthly principal
and interest payments of $144 thousand through maturity on July 1, 2017,
callable after June 30, 2002 by AAL; $21.6 million note bearing interest at
8.25 percent requires monthly principal and interest payments of $138 thousand
through maturity on July 15, 2019, callable by AAL after July 1, 2004. 32,570 33,050
Note payable to Morgan Guaranty Trust Company of New York, as agent for a group
of banks ("Morgan"); $325.0 million unsecured revolving credit facility
bearing interest, as selected by the Company, at either (i) the higher of the
prime interest rate or the sum of .5 percent plus the Federal Funds Rate for
such day or (ii) an interest rate equal to 1.75 percent above the London
Interbank Offered Rate (LIBOR). The year-end weighted average interest rate at
December 31, 1996 was 7.3%. The note matures in July 1998, with an option to
extend for one year. 215,000 --
Mortgages payable to Salomon Brothers Realty Corp.; bearing interest at 8.375
percent; principal and interest payments of $221 thousand are due monthly
through maturity in January 2006. This mortgage payable is held by Carr
Redmond Corporation, a wholly-owned subsidiary of the Company which owns the
Redmond East office campus. 28,036 --
Mortgage payable to CBA Conduit, Inc; bearing interest at 7.96 percent; interest
only payments of $194 thousand are due monthly through maturity in December
2003. 29,250 --
Mortgage payable to Connecticut General Life Insurance Company; bearing interest
at 7.4 percent; interest only payments of $160 thousand are due monthly
through maturity in December 2000. 26,000 --
Mortgage payable to Metropolitan Life Insurance Company; bearing interest at
7.375 percent; principal and interest payments of $72 thousand are due monthly
through maturity in March 1999. 9,630 --
Mortgages payable to New York Life Insurance Company; bearing interest at an
effective rate of 8.25 percent; principal and interest payments of $388
thousand are due monthly through maturity in December 2001. 40,850 --
Mortgage payable to State Farm Insurance Company; bearing interest at 7.2
percent; principal and interest payments of $177 thousand are due monthly
through maturity in January 2006. 22,022 --
Mortgage payable to Windy City Holdings, Inc.; bearing interest at 9.01 percent;
principal and interest payments of $85 thousand are due monthly through
maturity in May 1999. 10,322 --
Mortgage payable to The Riggs National Bank of Washington, D.C.; bearing
interest at 7.5 percent; principal and interest payments of $49 thousand are
due monthly through maturity in February 1999. 6,350 6,447
Mortgage payable to 16th & Northern Associates L.L.C.; bearing interest at
5.5 percent; the note was repaid in full in January 1997. 13,731 --
Mortgage payable to NationsBank, N.A.; $35 million interest only note bearing
interest at 1.75 percent above LIBOR. The note was repaid in full in April
1996. -- 35,000
Mortgage payable to NationsBank, N.A.; $20 million interest only note bearing
interest at 2.0 percent above LIBOR. The note was repaid in full in
April 1996. -- 20,000
-------- -------
$655,449 317,374
======== =======
F-10
As of December 31, 1996, the scheduled maturity of all mortgages and notes
payable are as follows:
(In thousands)
- --------------------------------------------------------------------------------
1997 $ 17,281
1998 220,588
1999 31,790
2000 32,809
2001 46,783
Thereafter 306,198
--------
$655,449
========
Restricted cash and cash equivalents primarily consist of escrow deposits
required by lenders to be used for future building renovations, tenant
improvements or as collateral for letters of credit.
Based on the borrowing rates available to the Company for mortgages and
notes payable with similar terms and average maturities, the estimated fair
value of the Company's mortgages and notes at December 31, 1996 and 1995 was
approximately $644.5 million and $309.1 million, respectively.
(3) Minority Interest
In conjunction with the formation of the Company and its majority-owned
subsidiary, Carr Realty, L.P., persons contributing interests in properties to
Carr Realty, L.P. had the right to elect to receive either common stock of the
Company or Units in Carr Realty, L.P. In addition, the Company has acquired
certain assets since its formation by issuing dividend paying Units and
non-dividend paying Units of Carr Realty, L.P. and CarrAmerica Realty, L.P. The
non-dividend paying Units are not entitled to any distributions until they
automatically convert into dividend paying Units at various dates in the future.
Each dividend paying Unit, subject to certain restrictions, may be redeemed for
either one share of common stock or, at the option of the Company, cash equal to
the fair market value of a share of common stock at the time of the redemption.
When a Unitholder redeems a dividend paying Unit for a share of common stock or
cash, minority interest is reduced and the Company's investment in Carr Realty,
L.P. or CarrAmerica Realty, L.P., as the case may be, is increased. During the
years ended December 31, 1996 and 1995, 212,293 and 161,166 dividend paying
Units, respectively, of Carr Realty, L.P. or CarrAmerica Realty, L.P., were
redeemed for common stock of the Company.
The following table sets forth the common stock and preferred stock of the
Company and Units of Carr Realty, L.P. and CarrAmerica Realty, L.P.:
CarrAmerica
CarrAmerica Realty
Realty Corporation's
Corporation's Preferred Dividend Non-Dividend
Common Stock Stock Paying Units Paying Units
(In thousands) Outstanding Outstanding Outstanding Outstanding
- --------------------------------------------------------------------------------
As of December 31:
1996 43,789 1,740 4,940 540
1995 13,409 -- 4,080 668
1994 13,248 -- 4,241 668
====== ====== ====== ======
Weighted average for:
1996 26,932 328 4,131 872
1995 13,338 -- 4,151 668
1994 11,387 -- 4,473 18
====== ====== ====== ======
Minority interest in the accompanying consolidated financial statements
relates primarily to holders of Units.
F-11
(4) Investments in Unconsolidated Partnerships
Through seven unconsolidated partnerships, the Company owns interests ranging
from 2% to 50% in office properties. The combined condensed financial
information for the unconsolidated partnerships is as follows:
Balance Sheets
December 31,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Assets
- ------
Rental property, net $310,100 305,870
Cash and cash equivalents 15,577 15,998
Other assets 38,073 35,274
-------- -------
$363,750 357,142
======== =======
Liabilities and Accumulated Deficit
- -----------------------------------
Liabilities:
Notes payable $362,849 357,911
Other liabilities 17,233 21,091
-------- -------
Total liabilities 380,082 379,002
Accumulated deficit (16,332) (21,860)
-------- -------
$363,750 357,142
======== =======
F-12
Statements of Operations
1996 1995 1994
- --------------------------------------------------------------------------------
Revenue $ 85,702 81,182 80,815
Depreciation and
amortization expense 6,266 3,608 11,355
Interest expense 24,470 22,998 32,316
Other expenses 41,787 41,304 37,112
-------- ------- ------
Net income $ 13,179 13,272 32
======== ======= ======
(5) Lease Agreements
The following table summarizes future minimum base rent to be received under
noncancelable tenant leases and the percentage of total rentable space expiring
each year, as of December 31, 1996:
Future Percentage of
Minimum Total Space
(In thousands) Rent Expiring
- --------------------------------------------------------------------------------
1997 $ 199,669 13.0%
1998 164,848 18.7
1999 140,622 11.3
2000 122,360 13.3
2001 98,644 11.2
Thereafter 324,732 32.5
----------
$1,050,875
==========
The leases also provide for additional rent based on increases in the
Consumer Price Index (CPI) and increases in operating expenses. These increases
are generally payable in equal installments throughout the year, based on
estimated increases, with any differences being adjusted in the succeeding year.
The Company's largest tenant is AT&T with a master lease of approximately .9
million square feet of office space at AT&T Center which represents 7.6% of net
rentable space in the Company's consolidated office properties at December 31,
1996. No other single tenant occupies more than 5% of the net rentable space.
(6) Land Leases
The Company leases land beneath three office properties located in metropolitan
Washington, D.C. and Austin, Texas. The Company also leases land adjacent to an
office property in suburban Chicago. The terms of these leases range from 5
years to 99 years, with the last lease maturing in the year 2086. The minimum
base annual rental payment associated with these leases is $1.2 million.
(7) Series A Cumulative Convertible Redeemable Preferred Stock
The Company is authorized to issue 30,000,000 shares of Preferred Stock. On
October 25, 1996, the Company 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 and are payable quarterly in arrears in an amount per share equal to
the greater of (1) $1.75 per share per annum, or (2) the cash dividend paid on
the number of shares, or portion thereof, of the Company's common stock into
which a share of Series A Preferred Stock is convertible. The Series A Preferred
Stock has a liquidation preference of $25 per share. After April 25, 1997, each
share of Series A Preferred Stock is convertible, at the option of the holder,
into one share of the Company's common stock, subject to certain conversion
adjustments. After October 25, 1999, each share of Series A Preferred Stock is
redeemable at the Company's option, at $25 per share, plus accrued and unpaid
dividends.
(8) Stock/Unit Option Plans
As of December 31, 1996, the Company had two option plans: one plan for the
purpose of attracting and retaining executive officers and other key employees
(Employee Unit Option Plan); and the other plan for the purpose of attracting
and retaining directors who are not employees of the Company (Non-Employee
Director Stock Option Plan).
The Employee Unit Option Plan allows for the grant of options to purchase
Units of Carr Realty, L.P. (Unit options) that are exerciseable at the fair
market value of the Units at the date of grant, which is deemed to be equivalent
to the fair market value of the Company's common stock at such date. Units
(following exercise of Unit options) are redeemable for cash or common stock of
the Company, at the option of the Company. The Unit options have a 10-year term
from the date of grant and vest over a five-year period, 20% per year. At
December 31, 1996, the Company had 1,266,900 Units reserved for issuance under
the Employee Unit Option Plan, of which 941,348 were outstanding.
F-13
The Non-Employee Director Stock Option Plan provides for the grant of
options to purchase the Company's common stock at an exercise price which is
equal to the fair market value of the common stock at the date of grant. The
Non-Employee Director Stock Option Plan was approved by the Company's
stockholders at its Annual Meeting of Stockholders on April 28, 1995, following
which each then-serving non-employee director was granted options to purchase
3,000 shares of the Company's common stock. Immediately following each annual
election of directors, each then-serving non-employee director will receive
options to purchase 5,000 shares of the Company's common stock. The stock
options have a 10-year term from the date of grant and vest over a three-year
period, 33 1/3% per year. At December 31, 1996, the Company had 150,000 shares
of common stock reserved for issuance under the Non-Employee Director Stock
Option Plan, of which 61,000 were outstanding.
As approved by the Board of Directors (subject to shareholder approval), the
Company granted options to purchase an aggregate of 25,000 shares of the
Company's common stock to two key employees in 1996. The stock options have a
10-year term from the date of grant and vest over a five-year period, 20% per
year. All 25,000 options were outstanding at December 31, 1996.
The per share weighted-average fair value of Unit options and stock options
granted during 1996 and 1995 was $2.15 and $1.92, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighed-average assumptions: 1996 - expected dividend yield of 7.893%, risk
free interest rate of 6.08%, stock volatility of 19.45%, and expected option
life of 4.02 years; 1995 - expected dividend yield of 7.893%, risk free interest
rate of 7.06%, stock volatility of 19.45%, and expected option life of 5.38
years.
F-14
The Company applies APB Opinion No. 25 in accounting for its Unit options
and stock options and, accordingly, no compensation cost has been recognized for
its Unit options and stock options in the financial statements. The pro forma
effect of compensation costs, based on the fair value at the date of grant, of
the Unit options and stock options is immaterial to the Company's consolidated
financial statements and therefore is not presented. Unit option and stock
option activity during 1996 and 1995 is as follows:
Number Weighted-
of Units/ Average
Shares Exercise Price
- --------------------------------------------------------------------------------
Balance at December 31, 1994 911,348 $22.97
Granted 29,000 18.78
Exercised -- --
Forfeited 3,000 17.75
Expired -- --
---------
Balance at December 31, 1995 937,348 22.86
Granted 112,000 24.70
Exercised 4,000 20.75
Forfeited 18,000 22.66
Expired -- --
---------
Balance at December 31, 1996 1,027,348 $23.07
========= ======
At December 31, 1996, the range of exercise prices was between $17.75 and
$25.13 per Unit/share and the weighted-average remaining contractual life of
outstanding options was 7.29 years.
At December 31, 1996 and 1995, the number of options exercisable was 526,420
and 345,921, respectively, and the weighted average exercise price of those
options was $22.72 and $22.67 per Unit/share, respectively.
(9) Employee Benefits
The Company has a 401(k) plan for employees that will match 50% of employee
contributions up to the first 4% of an employee's pay and will make a base
contribution of 3% of pay for participants who remain employed on December 31,
the end of the plan year. The Company contributions are subject to a five-year
graduated vesting schedule. Company contributions to the plan amounted to $.3
million in 1996, $.3 million in 1995, and $.3 million in 1994.
F-15
(10) Transactions With Affiliates
CarrPark, Inc., a subsidiary of The Oliver Carr Company, a stockholder of the
Company, manages certain of the parking garages in the Company's properties, for
fees ranging from 24 to 62 percent of gross receipts from garage operations.
CarrPark, Inc. is responsible for payment of all garage operating expenses.
Parking revenue recognized is net of fees paid to CarrPark, Inc. of $1.9 million
in 1996, $1.8 million in 1995, and $1.8 million in 1994. Accounts receivable
includes $.3 million at December 31, 1996 and 1995 due from CarrPark, Inc.
Accounts receivable includes management and leasing fees, development and
architectural fees and payroll reimbursements receivable from affiliates of $4.0
million at December 31, 1996 and $3.9 million at December 31, 1995. This amount
includes a leasing commission receivable of $2.7 million at December 31, 1996
and $2.9 million at December 31, 1995, respectively, that is collectible in
quarterly installments of approximately $47 thousand through September 2011. The
fair market value of this receivable is $1.6 million at December 31, 1996 and
1995. The leasing commission is due from an unconsolidated investee partnership.
The Company earned management, leasing, development and architectural fees
in 1996 from affiliated partnerships of $6.9 million in 1996, $6.7 million in
1995, and $6.4 million in 1994.
A wholly-owned subsidiary of Clark Enterprises, Inc., a Unitholder, has
provided construction management services to the Company. In connection with
these services, the Company paid $1.3 million in 1996, $.7 million in 1995, and
$1.0 million in 1994. Additionally, a wholly-owned subsidiary of Clark
Enterprises, Inc. received a total of $19.6 million during the years of 1996,
1995 and 1994 under a construction contract for the Booz-Allen & Hamilton
Building (in which the Company is a 50% joint venturer).
The Equitable Life Assurance Society of the United States, an affiliate of
an entity of which one of the Company's directors serves as an officer and
director, leases approximately 10,000 square feet of office space from the
Company. Rents of $.3 million in each of 1996, 1995, and 1994 are included in
rental revenue.
The Company leases office space from a partnership affiliated with The
Oliver Carr Company. Rent expense amounted to $1.1 million in 1996, $.9 million
in 1995, and $.9 million in 1994 under the lease. Future minimum payments under
the lease are $.9 million in 1997 and $.4 million in 1998.
Carr Development and Construction was a division of The Oliver Carr Company
("OCCO") until April 30, 1996 when the Company acquired it for $1.75 million.
Carr Development and Construction was the development manager of 1717
Pennsylvania Avenue during 1995 and a portion of 1996. OCCO earned fees of $.2
million and $.5 million in 1996 and 1995, respectively.
The Company paid Security Capital Markets Group, Inc., an affiliate of
USRealty, a placement fee of $.4 million in 1996 for services rendered in
connection with the sale of 1,740,000 shares of Series A Preferred Stock issued
in October 1996.
During 1996, payments of $1.1 million were made to Security Capital
Investment Research Incorporated, an affiliate of USRealty, for services
rendered in connection with the acquisition of operating and development
properties.
(11) Loss on Write-off of Investment and Intangible Assets
On January 31, 1996, the Company terminated an agreement to acquire the
development business of The Evans Company ("Evans") and, as a result, in 1995
the Company recognized a $1.9 million loss on its investment. Furthermore, in
1996, the Company wrote off approximately $2.3 million of the unamortized
purchase price of certain third-party real estate service contracts that were
terminated during the year. These contracts were acquired from Evans in 1995 and
were terminated early as a result of the sale of the properties by third-party
owners.
(12) Segment Operations
The Company is engaged in the ownership and rental of commercial office
buildings and provides real estate services on a contractual basis to both
related and unrelated parties. Revenue from real estate services provided to
properties wholly-owned by the Company and to properties that are owned by
partnerships that are consolidated in the Company's consolidated financial
statements is eliminated in consolidation. During 1996, the Company's real
estate service operations did not account for more than 10% of the Company's
revenue and are not anticipated to exceed 10% in future years. As a result,
information regarding segment operations is not provided for 1996.
F-16
The following tables present operating and other information for the
Company's lines of business for 1995 and 1994:
Property
Rental Management Consolidated
(In thousands) Operations Operations Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------------
1995
Revenue $ 89,539 11,315 -- 100,854
Intersegment revenue -- 5,824 (5,824) --
-------- -------- -------- --------
Total revenue $ 89,539 17,139 (5,824) 100,854
======== ======== ======== ========
Depreciation and
amortization $ 16,850 1,645 -- 18,495
======== ======== ======== ========
Operating profit $ 19,354 (919) (629) 17,806
======== ======== ======== ========
Identifiable assets
at December 31 $442,495 19,121 (2,756) 458,860
======== ======== ======== ========
Capital expenditures $ 73,290 7,419 -- 80,709
======== ======== ======== ========
1994
Revenue $ 82,665 8,890 -- 91,555
Intersegment revenue -- 4,628 (4,628) --
-------- -------- -------- --------
Total revenue $ 82,665 13,518 (4,628) 91,555
======== ======== ======== ========
Depreciation and
amortization $ 13,801 618 -- 14,419
======== ======== ======== ========
Operating profit $ 18,489 (1,501) (477) 16,511
======== ======== ======== ========
Identifiable assets
at December 31 $398,362 12,528 (2,942) 407,948
======== ======== ======== ========
Capital expenditures $ 67,816 905 -- 68,721
======== ======== ======== ========
(13) Acquisition and Development Activities
During 1996, the Company made the following acquisitions: in its Pacific region,
the Company acquired an aggregate of 73 buildings containing a total of
approximately 4.0 million square feet, for an aggregate purchase price of
approximately $454.3 million; in its Mountain region, the Company acquired an
aggregate of 13 buildings containing a total of approximately 1.3 million square
feet, for an aggregate purchase price of approximately $112.7 million; in its
Central region, the Company acquired an aggregate of 17 buildings containing a
total of approximately 2.1 million square feet, for an aggregate purchase price
of approximately $243.5 million; and in its Southeast region, the Company
acquired an aggregate of 43 buildings containing a total of approximately 1.8
million square feet, for an aggregate purchase price of approximately $178.3
million.
During 1996, the Company acquired or purchased options to acquire 142 acres
of developable land in four of its target markets: suburban Seattle; southeast
Denver; Austin, Texas; and suburban Chicago. In the aggregate, this land
(including land subject to purchase options) will support development of up to
3.2 million square feet (unaudited) of office space. In addition, as of December
31, 1996, the Company had three properties under construction: 128,000 square
feet (unaudited) in suburban Atlanta; and an aggregate of 295,000 square feet
(unaudited) in southeast Denver (including a build-to-suit project with 189,000
rentable square feet). Land held for development was purchased for an aggregate
purchase price of $32.3 million. Costs incurred during 1996 for properties under
construction were $31.7 million. An additional $36.3 million (unaudited) will be
expended for completion of projects already under construction as of December
31, 1996.
In 1995, the Company acquired two properties in suburban Washington, D.C.
containing .6 million square feet for an aggregate purchase price of $64.0
million.
All acquisitions have been accounted for as purchases. Operations of the
properties acquired have been included in the accompanying consolidated
financial statements from their respective dates of acquisition.
The following unaudited pro forma summary presents information as if the
Company's acquisitions and sales of common and preferred stock through December
31, 1996 had occurred at the beginning of each year. The pro forma information
is provided for informational purposes only. It is based on historical
information and does not necessarily reflect the actual results that would have
occurred nor is it necessarily indicative of future results of operations of the
Company.
F-17
Pro forma Information (unaudited)
(In thousands, except per share amounts) 1996 1995
- -------------------------------------------------------------------------------
Total revenue $247,203 238,515
Net income before extraordinary item $ 42,985 45,330
Net income $ 42,501 45,330
Net income per common share $ 0.90 0.96
F-18
(14) Subsequent Events
In January 1997, the Company entered into a revolving credit agreement to borrow
up to $150.0 million secured by certain properties in the Company's portfolio.
The facility bears interest at 162.5 basis points over LIBOR. The agreement is
for an initial six-month period with two six-month options to extend.
In January 1997, the Company consummated a public offering and a concurrent
offering to a wholly-owned subsidiary of USRealty of 4,928,570 shares of common
stock that raised net proceeds of approximately $136 million. The net proceeds
were used to acquire the suburban office properties and land discussed below,
and to pay down indebtedness under the Company's unsecured line of credit.
Since January 1, 1997, the Company has acquired or placed into service 11
operating office properties, totaling approximately 1.0 million square feet. In
addition, since January 1, 1997, the Company has acquired 26 acres of land which
will support the future development of 636,000 square feet of office space. The
purchase of these properties was financed by the assumption of $18.1 million in
debt and the payment of $102.4 million in cash. These acquisitions added to the
Company's holdings as follows (unaudited):
Square Acres of Buildable
# of Feet Land Square Feet
Operating of Operating Held for of Land Held for
Region Buildings Properties Development Development
- -------------------------------------------------------------------------------------
Pacific Region 3 191,000 18 300,000
Mountain Region 1 106,000 7 240,000
Central Region 7 705,000 1 38,000
Southeast Region -- -- -- 58,000
-- --------- -- -------
Total 11 1,002,000 26 636,000
== ========= == =======
In February 1997, the Company sold its 2% limited partnership interest in
the partnership that owns 1575 Eye Street in Washington, D.C. for $40 thousand.
As part of this transaction, CRESI also received $400 thousand in consideration
for the early termination of its management and leasing agreement (which was
otherwise non-cancelable) and a $120 thousand financing fee from the partnership
for facilitating the transaction.
In March 1997, the Company sold its 5% limited partnership interest in the
partnership that owns 1776 Eye Street in Washington, D.C. for approximately $310
thousand. As part of this transaction, CRESI also received $326 thousand in
consideration for the early termination of its management and leasing agreement
(which was cancelable on 30 days notice).
In March 1997, the Company established its 1997 Stock Option and Incentive
Plan, subject to the approval of its shareholders at the 1997 Annual Meeting of
Stockholders, for the purpose of attracting and retaining executive officers and
other key employees. The Company has 3,000,000 shares of common stock reserved
for issuance under the stock option plan. As of March 15, 1997, an aggregate of
861,500 options had been granted under the stock option plan to 43 employees,
subject to shareholder approval.
F-19
(15) Quarterly Financial Information (unaudited)
The following is a summary of quarterly results of operations for 1996 and 1995:
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------
1996
Rental revenue $25,350 32,784 42,506 53,525
======= ====== ====== ======
Real estate service revenue $ 2,726 2,904 3,634 3,248
======= ====== ====== ======
Real estate operating income $ 4,321 5,280 8,670 11,357
======= ====== ====== ======
Income before extraordinary item $ 3,335 4,741 7,910 8,816
======= ====== ====== ======
Net income $ 3,335 4,257 7,910 8,816
======= ====== ====== ======
Per share:
- ---------
Income before extraordinary item $ 0.25 0.22 0.24 0.20
====== ==== ==== ====
Net income $ 0.25 0.20 0.24 0.20
====== ==== ==== ====
1995
Rental revenue $21,796 22,141 22,742 22,860
======= ====== ======= ======
Real estate service revenue $ 2,480 2,626 2,640 3,569
======= ====== ======= ======
Real estate operating income $ 4,506 5,029 4,619 4,042
======= ====== ======= ======
Net income $ 3,257 3,684 3,435 1,691
======= ====== ======= ======
Per share: Net income $ 0.25 0.28 0.26 0.12
- --------- ======= ====== ======= ======
F-20
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORTS
The Board of Directors and Stockholders
CarrAmerica Realty Corporation:
We have audited the accompanying consolidated balance sheets of CarrAmerica
Realty Corporation and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
February 6, 1997,
except for Note 14 which is as of March 26, 1997.
The Board of Directors and Stockholders
CarrAmerica Realty Corporation:
Under date of February 6, 1997, we reported on the consolidated balance sheets
of CarrAmerica Realty Corporation and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996, which are included in this Form 10-K. In connection with our
audits of the aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedule in this Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, this financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Washington, D.C.
February 6, 1997
F-21
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
Initial Cost
------------------------- Costs Capitalized
(In thousands) Buildings and Subsequent to
Properties Encumbrances Land Improvements Acquisition(4)
- ---------------------------------------------------------------------------------------------------------------------------
Downtown Washington, D.C.:
International Square (1) $ 183,500(2) 69,651 100,921 230
1730 Pennsylvania Avenue, N.W (2) 2,196 11,013 12,022
2550 M Street, N.W -- 2,340 11,348 3,729
1775 Pennsylvania Avenue, N.W 6,350 -- 19,000 869
Presidential Plaza 16,957 1,985 13,358 1,537
1747 Pennsylvania Avenue, N.W 15,613 1,636 8,157 3,415
1255 23rd Street (2) 10,793 40,214 3,250
2445 M Street 38,188 4,530 37,439 (760)
Virginia:
Ballston Plaza -- 8,250 46,926 820
Tycon Courthouse -- 14,183 31,772 1,074
Reston Quadrangle -- 8,997 34,322 382
Parkway One -- 2,010 4,663 84
Maryland:
One Rock Spring Plaza -- -- 18,409 837
Southern California:
Plaza PacifiCare -- 3,493 6,392 56
Katella Corporate Center -- 2,671 4,314 85
Warner Center 26,000 16,490 33,698 1,716
Scenic Business Park -- 2,469 4,503 171
Del Mar Corporate Center -- 2,860 13,252 25
South Coast Executive Center 10,322 3,324 17,212 31
Harbor Corporate Park -- 2,191 5,784 324
Northern California:
AT&T Center -- 32,946 75,720 1,439
Sunnyvale Research Plaza -- 5,082 11,191 153
San Jose Orchard Business Park - A 40,850(3) 3,859 3,155 21
San Jose Orchard Business Park - B -- 8,753 7,155 60
Orchard Center -- 6,051 4,945 32
Orchard Office Center (3) 6,134 5,014 31
Orchard Center II (3) 13,658 11,164 69
Orchard Rincon Center (3) 12,464 10,188 63
Orchard Bayshore Center (3) 17,545 14,342 88
Rio Robles -- 16,655 29,598 80
Southeast Denver:
The Quorum -- 1,299 7,887 90
Quebec Center -- 1,423 5,659 101
Greenwood Center -- 289 6,619 48
Quebec Court I & II -- 2,368 19,819 272
Gross Amount at Which
Carried at Close of Period
------------------------------
(In thousands) Buildings and Accumulated Date of Year of
Properties Land Improvements Total Depreciation Construction Acquisition
- ---------------------------------------------------------------------------------------------------------------
Downtown Washington, D.C.:
International Square (1) 69,651 $101,151 170,802 46,384 1977,1979,1982 1993
1730 Pennsylvania Avenue, N.W. 2,196 23,035 25,231 7,818 1972 1993
2550 M Street, N.W. 2,340 15,077 17,417 6,904 1978 1993
1775 Pennsylvania Avenue, N.W. -- 19,869 19,869 1,464 1975 1994
Presidential Plaza 1,985 14,895 16,880 4,964 1986 1993
1747 Pennsylvania Avenue, N.W. 1,636 11,572 13,208 4,800 1970 1993
1255 23rd Street 10,793 43,464 54,257 13,650 1983 1993
2445 M Street 4,530 36,679 41,209 9,834 1986 1993
Virginia:
Ballston Plaza 8,250 47,746 55,996 5,566 1991 1994
Tycon Courthouse 14,183 32,846 47,029 1,132 1983 1995
Reston Quadrangle 8,997 34,704 43,701 982 1987-1989 1996
Parkway One 2,010 4,747 6,757 135 1985 1996
Maryland:
One Rock Spring Plaza -- 19,246 19,246 1,801 1989 1995
Southern California:
Plaza PacifiCare 3,493 6,448 9,941 138 1986 1996
Katella Corporate Center 2,671 4,399 7,070 82 1982 1996
Warner Center 16,490 35,414 51,904 723 1981-1985 1996
Scenic Business Park 2,469 4,674 7,143 199 1985 1996
Del Mar Corporate Center 2,860 13,277 16,137 35 1986 1996
South Coast Executive Center 3,324 17,243 20,567 -- 1987 1996
Harbor Corporate Park 2,191 6,108 8,299 189 1987 1996
F-22
Northern California:
AT&T Center 32,946 77,159 110,105 6,103 1988 1996
Sunnyvale Research Plaza 5,082 11,344 16,426 175 1985 1996
San Jose Orchard Business Park - A 3,859 3,176 7,035 14 1981 1996
San Jose Orchard Business Park - B 8,753 7,215 15,968 31 1979 1996
Orchard Center 6,051 4,977 11,028 23 1980 1996
Orchard Office Center 6,134 5,045 11,179 21 1981 1996
Orchard Center II 13,658 11,233 24,891 44 1980 1996
Orchard Rincon Center 12,464 10,251 22,715 61 1984 1996
Orchard Bayshore Center 17,545 14,430 31,975 81 1984 1996
Rio Robles 16,655 29,678 46,333 123 1985 1996
Southeast Denver:
The Quorum 1,299 7,977 9,276 173 1975 1996
Quebec Center 1,423 5,760 7,183 111 1985 1996
Greenwood Center 289 6,667 6,956 116 1982 1996
Quebec Court I & II 2,368 20,091 22,459 562 1979/1980 1996
Gross Amount at Which
Initial Cost Carried at Close of Period
---------------------- Costs Capitalized --------------------------------
(In thousands) Buildings and Subsequent to Buildings and
Properties Encumbrances Land Improvements Acquisition(4) Land Improvements Total
- --------------------------------------------------------------------------------------------------------------------------------
Harlequin Plaza -- 4,746 21,344 401 4,746 21,745 26,491
Quorum Land -- 484 -- 18 502 -- 502
Panorama Phase II-VII (7) -- 6,503 -- 264 6,767 -- 6,767
JD-Edwards (8) -- 3,006 5,479 1,995 3,006 5,479 8,485
Panorama I (8) -- 1,325 6,486 -- 1,325 8,481 9,806
Panorama II-Land -- 1,844 -- 1,574 1,844 1,574 3,418
Suburban Seattle:
Redmond East 28,036 6,957 32,390 293 6,957 32,683 39,640
Redmond Hilltop-Land -- 2,511 -- 82 2,593 -- 2,593
Suburban Chicago:
Parkway North I 29,250 3,727 29,146 508 3,727 29,654 33,381
Parkway North III & IV -- 4,304 34,390 658 4,304 35,048 39,352
Unisys -- 6,387 45,111 15 6,387 45,126 51,513
Parkway North III-Land -- 8,810 -- 823 9,633 -- 9,633
Austin, Texas:
Balcones -- 949 7,649 38 949 7,687 8,636
Great Hills -- 1,680 13,545 403 1,680 13,948 15,628
Park North -- 1,671 13,471 85 1,671 13,556 15,227
Setting I, II & III -- 1,718 13,854 735 1,718 14,589 16,307
First State Bank 9,630 1,985 19,977 490 1,985 20,467 22,452
Littlefield Complex -- 967 9,736 171 967 9,907 10,874
Norwood Tower -- 851 8,570 268 851 8,838 9,689
Riata-Land -- 10,121 -- 492 10,613 -- 10,613
Setting IV & V-Land -- 1,890 -- 248 2,138 -- 2,138
Aubrey Smith (7) -- 30 -- -- 30 -- 30
Dallas, Texas:
Greyhound -- 1,312 7,999 72 1,312 8,071 9,383
Search Plaza -- 1,822 13,362 23 1,822 13,385 15,207
Phoenix, Arizona:
Camelback Lakes -- 5,476 21,365 28 5,476 21,393 26,869
Pointe Corridor IV 13,731 2,396 12,580 22 2,396 12,602 14,998
Suburban Atlanta:
Veridian -- 2,730 13,308 25 2,730 13,333 16,063
Century Springs West 22,022(5) 1,642 7,646 134 1,642 7,780 9,422
Glenridge (5) 1,423 4,870 11 1,423 4,881 6,304
Crestwood (5) 1,423 7,306 14 1,423 7,320 8,743
Midori -- 1,802 6,715 13 1,802 6,728 8,530
Spalding Triangle -- 1,365 5,449 19 1,365 5,468 6,833
Summit -- 2,237 15,027 28 2,237 15,055 17,292
Holcomb Place -- 1,419 4,574 10 1,419 4,584 6,003
DeKalb Tech -- 1,090 7,662 25 1,090 7,687 8,777
Parkwood (5) 2,080 12,678 26 2,080 12,704 14,784
Lakewood (5) 1,040 6,789 26 1,040 6,815 7,855
Spalding Ridge (8) -- 1,550 4,950 3,515 1,550 8,465 10,015
South Florida:
Lake Wyman Plaza -- 3,003 10,475 75 3,003 10,550 13,553
--------- --------- --------- --------- --------- --------- ---------
Total $ 440,449 394,871 1,099,056 46,071 396,798 1,143,200 1,539,998
========= ========= ========= ========= ========= ========= =========
F-23
(In thousands) Accumulated Date of Year of
Properties Depreciation Construction Acquisition
- ---------------------------------------------------------------------------------
Harlequin Plaza 571 1981 1996
Quorum Land -- N/A 1996
Panorama Phase II-VII (7) -- N/A 1996
JD-Edwards (8) -- N/A 1996
Panorama I (8) -- N/A 1996
Panorama II-Land -- N/A 1996
Suburban Seattle:
Redmond East 890 1988-1992 1996
Redmond Hilltop-Land -- N/A 1996
Suburban Chicago:
Parkway North I 603 1986-1989 1996
Parkway North III & IV 1,021 1986-1989 1996
Unisys 62 1984-1985 1996
Parkway North III-Land -- N/A 1996
Austin, Texas:
Balcones 130 1985 1996
Great Hills 265 1985 1996
Park North 217 1981 1996
Setting I, II & III 282 1985 1996
First State Bank 290 1980/1995 1996
Littlefield Complex 186 1910/1980 1996
Norwood Tower 150 1929/1982 1996
Riata-Land -- N/A 1996
Setting IV & V-Land -- N/A 1996
Aubrey Smith (7) -- N/A 1996
Dallas, Texas:
Greyhound 34 1962 1996
Search Plaza 19 1985 1996
Phoenix, Arizona:
Camelback Lakes 31 1982 1996
Pointe Corridor IV 26 1990 1996
Suburban Atlanta:
Veridian 41 1976 1996
Century Springs West 39 1982 1996
Glenridge 26 1986 1996
Crestwood 36 1986 1996
Midori 28 1989 1996
Spalding Triangle 19 1988 1996
Summit 66 1986 1996
Holcomb Place 21 1982 1996
DeKalb Tech 26 1985 1996
Parkwood 62 1985 1996
Lakewood 33 1985 1996
Spalding Ridge (8) -- N/A 1996
South Florida:
Lake Wyman Plaza 45 1988 1996
--------
Total 119,657
========
F-24
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (continued)
December 31, 1996
Depreciation and amortization of the investment in building and improvements
reflected in the statements of operations are calculated over the estimated
lives of the assets as follows:
- --------------------------------------------------------------------------------
Base Building 30 to 50 years
Building components 7 to 20 years
Tenant improvements Terms of leases or useful lives,
whichever is shorter
Furniture, fixtures and equipment 5 to 15 years
The aggregate cost for federal income tax purposes was approximately
$1,375,987 at December 31, 1996.
The changes in total real estate assets and accumulated depreciation and
amortization for the three years ended December 31, 1996, 1995, and 1994 are as
follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Total Real Estate Assets
Balance, beginning of period $ 480,589 429,537 286,764
Acquisitions 1,050,227 65,783 132,414(6)
Improvements 20,536 3,029 11,715
Retirements and write-offs (11,354) (17,760) (1,356)
---------- ------- -------
$1,539,998 480,589 429,537
========== ======= =======
Accumulated Depreciation
Balance, beginning of period $ 98,873 88,408 71,194
Depreciation for the period 32,078 10,465 18,502(6)
Retirements and write-offs (11,294) -- (1,288)
---------- ------- -------
$ 119,657 98,873 88,408
========== ======= =======
- -------------------------------------------------------------------------------
Notes:
(1) Represents 3 properties: 1850 K Street, N.W., 1875 Eye Street, N.W.,
and 1825 Eye Street, N.W.
(2) Consists of four loans secured by International Square,
1730 Pennsylvania Avenue & 1255 23rd Street.
(3) Secured by San Jose Orchard Business Park-A, Orchard Office Center,
Orchard Center II, Orchard Rincon Center & Orchard Bayshore Center.
(4) Costs capitalized are offset by retirements and write-offs.
(5) Secured by Century Springs West, Glenridge, Crestwood, Lakewood and
Parkwood.
(6) Includes the effect of consolidating 2445 M Street, NW, effective
January 1, 1994.
(7) Represents cost of options to acquire land for future development.
(8) Under construction as of December 31, 1996.
F-25