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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, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to ______________
Commission File Number 1-11706
CARRAMERICA REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-1796339
(State of Incorporation) (I.R.S. Employer Identification No.)
1850 K Street, N.W.
Washington, D.C. 20006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 729-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- ------------------------------------------
Common Stock, $0.01 Par Value New York Stock Exchange
Series B Cumulative Redeemable Preferred Stock, $0.01 Par Value New York Stock Exchange
Series C Depositary Cumulative Redeemable Preferred Stock, $0.001 Par Value New York Stock Exchange
Series D Depositary Cumulative Redeemable Preferred Stock, $0.001 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of March 2, 2000, the aggregate market value of the 37,913,925 shares of
Common Stock held by non-affiliates of the registrant was approximately $774.9
million, based upon the closing price of $20.4375 on the New York Stock Exchange
composite tape on such date.
Number of shares of Common Stock outstanding as of March 2, 2000.:
67,026,489
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for the
Annual Stockholders Meeting to be held in 2000 are incorporated by reference
into Part III.
PART 1
Item 1. Business
THE COMPANY
General
CarrAmerica Realty Corporation (the "Company") is a fully integrated,
self-administered and self-managed publicly traded real estate investment trust
("REIT") that focuses primarily on the acquisition, development, ownership and
operation of office properties in select growth markets across the United
States. As of December 31, 1999, the Company owned a greater than 50% interest
in a portfolio of 271 operating office properties, and 22 properties under
construction. These 271 operating properties contain an aggregate of
approximately 23 million square feet of net rentable area and the 22 properties
under construction will contain approximately 1.3 million square feet. The
operating properties owned by the Company as of December 31, 1999 were 97.4%
leased as of that date, with approximately 2,000 tenants.
The Company and its predecessor, The Oliver Carr Company ("OCCO"), have
developed, owned and operated office buildings in the Washington, D.C.
metropolitan area for more than 37 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, "SC-USREALTY"),
a European real estate operating company which owns strategic positions in
selected real estate companies in the United States. As of December 31, 1999,
SC-USREALTY owned approximately 42.8% of the outstanding common stock of the
Company.
In addition to its real estate and development activities, the Company
conducts an executive suites business through its affiliates HQ Global
Workplaces, Inc. ("HQ Global"), OmniOffices (UK) Limited ("Omni UK"), and
OmniOffices (Lux) 1929 Holding Company S.A. ("LUX"). On January 20, 2000, the
Company, HQ Global, VANTAS Incorporated ("VANTAS") and Reckson Service
Industries, Inc. d/b/a FrontLine Capital Group ("FrontLine Capital Group")
entered into several agreements pursuant to which a series of transactions will
occur, including (i) the merger of VANTAS with and into HQ Global, (ii) the
acquisition by FrontLine Capital Group of certain shares of common stock of HQ
Global from the Company and other stockholders of HQ Global, and (iii) the
acquisition by HQ Global from the Company of the Company's debt and equity
interests in Omni UK and LUX. Following the completion of these transactions,
FrontLine Capital Group will own a substantial majority of the outstanding stock
of HQ Global, with the Company retaining a minority interest in HQ Global. The
results of the executive suites business are reported as a discontinued
operation.
The Company's experienced staff of over 1,900 employees, including
approximately 450 on-site building employees and approximately 1,200 persons
employed by its executive suite affiliates, provides a broad range of real
estate services. The Company's principal executive offices are located at 1850 K
Street, N.W., Washington, D.C. 20006 and its telephone number is (202) 729-7500.
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 objectives are to achieve long-term
sustainable per share cash flow growth and to maximize stockholder value through
a strategy of (i) acquiring, developing, owning and operating office properties
primarily in markets throughout the United States that exhibit strong, long-term
growth characteristics and (ii) maintaining and enhancing a national operating
system that provides corporate users of office space with a mix of products and
services to meet their workplace needs at both the national and local level.
The Company's major segments of continuing operations include real
estate property operations and development operations (conducted directly and
through its affiliate CarrAmerica Development, Inc.). Real estate property
operations includes the ownership of commercial real estate. Such operations
comprise approximately 97% of the Company's revenues from continuing operations
and approximately 92% of the Company's assets (including assets held by
CarrAmerica Development, Inc.). Development operations include
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the development of office space and the buildout of tenant space. The Company's
investment in this business represents approximately 7% of the Company's assets
(including assets held by CarrAmerica Development, Inc.) and 1% of the Company's
revenues from continuing operations.
Real Estate Property Operations
Core Markets. The Company has focused its acquisition and development
activity in U.S. markets which generally possess strong long-term growth
characteristics. Within these markets, the Company targets specific submarkets
in which (i) operating costs for businesses are relatively low, (ii) long-term
population and job growth generally are expected to exceed the national average,
(iii) large, well-educated employment pools exist, and (iv) barriers to entry
exist for new supplies of office space. The Company has established a local
presence in each of its existing core markets through its investment activity
and through relationships established by its experienced Market Managing
Directors. The Company's core markets include the following: Atlanta, Austin,
Chicago, Dallas, Denver, Boca Raton, Florida, Orange County/Los Angeles,
Phoenix, Portland, Oregon, Salt Lake City, San Diego, San Francisco Bay Area,
Seattle and metropolitan Washington, D.C.
For each identified core market, the Company has established a set of
general guidelines and physical characteristics to evaluate investment
opportunities. All investment decisions are driven by real estate research,
focusing on variables such as composition of economic base rate, and composition
of job growth and office space supply and demand fundamentals.
As of December 31, 1999 the distribution of the Company's real estate
property operations (on a rentable square foot basis) was as follows: 41% in its
Pacific region, primarily in Seattle and the California markets of Silicon
Valley, Pleasanton, San Mateo, Orange County, Los Angeles and San Diego; 24% in
its Southeast region, primarily in metropolitan Washington, D.C., Atlanta and
Boca Raton, Florida; 13% in its Mountain region, primarily in Salt Lake City,
Denver and Phoenix; and 22% in its Central region, primarily in Chicago, Dallas
and Austin.
Operating Property Acquisitions. In November 1995, the Company
implemented a major initiative to acquire operating office properties in order
to establish the operating platform for its national business strategy. Between
January 1, 1996 and October 31, 1998, the Company acquired 302 operating
properties containing approximately 20.3 million square feet, resulting in an
approximate 550% increase in the total square footage of operating properties in
which the Company has a majority interest. These properties were acquired for an
aggregate purchase price of approximately $2.5 billion. Since October 1998, the
Company has not been focused on acquisitions as a catalyst for growth.
National Operating System. As part of its business strategy, the
Company has developed and will continue to enhance a national operating system
to provide nationally coordinated customer service, marketing and development.
The Company's national operating system consists of three components: (i) a
Market Managing Director Group, currently consisting of 10 Market Managing
Directors focused on developing and maintaining strong local relationships with
the Company's customers and the brokerage community and identifying investment
opportunities for the Company; (ii) a National Services Group, which is
dedicated to marketing the Company's office space to a targeted list of
companies; and (iii) a National Development Group, conducted through an
affiliate, which is responsible for managing the development of office
properties, build-to-suit facilities and business parks. The Company's national
operating system is designed to provide corporate users of office space with a
mix of products and services to meet their workplace needs at both the national
and local levels. The Company believes that through its existing portfolio of
operating properties, property development opportunities and land acquired and
currently held for future development, the Company can generate incremental
demand through the relocation and expansion needs of many of its customers, both
within a single core market and in multiple core markets.
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Market Managing Director Group. The Market Managing Director Group
currently consists of 10 Market Managing Directors who cover the 14 core markets
in which the Company currently owns properties. These Market Managing Directors
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, Market Managing Directors are cognizant of and responsive to
customers' relocation or expansion needs. The Market Managing Directors 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
Managing Directors are well positioned to help the National Services Group
identify customers with new build-to-suit and multi-market requirements.
National Services Group. The Company established the National Services
Group in 1997. This group is 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. The National Services Group acts as a
primary point of contact for national customers, coordinating all of the office
space the Company offers and giving corporate customers the opportunity to
address their national space requirements efficiently and economically.
National Development Group. The National Development Group is
responsible for developing office properties, build-to-suit facilities and
business parks. These operations are handled by the Company's affiliate,
CarrAmerica Development, Inc. ("CarrAmerica Development"), which has a
development team of over 40 professionals consisting of architects, engineers
and construction professionals located across the United States who have an
average of over 15 years of experience developing office properties. This team
of development professionals oversees every aspect of 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. The Company believes that the National Development Group's
expertise has given the Company a competitive edge in marketing its facilities
and services to customers.
Innovative Strategic Alliances. An increasingly important component of
the Company's business strategy involves establishing alliances with service
providers that offer the Company new opportunities to build value for its
customers and its stockholders. In 1999, the Company entered into two such
alliances. First, the Company joined with other real estate companies to form
Broadband Office, Inc., which provides telecommunications and technology
services to office buildings throughout the country. By contributing access to
its property portfolio, the Company expects to benefit from its ability to
improve choice and service for its customers, as well as from an equity position
in the company. In December 1999, the Company also entered into an alliance with
DukeSolutions, a Duke Energy subsidiary, to implement a comprehensive energy
management program that pioneers creative web-based energy management
strategies. The Company believes that this alliance will significantly reduce
energy costs for its customers.
Asset Optimization. As a component of its business strategy, the
Company may dispose of assets that become inconsistent with its long-term
strategic or return objectives or where market conditions for disposition are
favorable. The Company then redeploys the proceeds of dispositions into other
office properties, the funding of development operations, or in support of other
general corporate needs. Consistent with this strategy, the Company disposed of
63 properties during 1999, containing approximately 3.8 million square feet for
approximately $500 million. The Company recognized a gain of $54.8 million in
conjunction with these transactions. The Company also may consider disposing of
additional properties or interests in properties, some of which may be
significant. The Company, however, has agreed with SC-USREALTY to use its
reasonable efforts to dispose of properties through tax-deferred exchanges (and
the Company also is subject to other similar restrictions with respect to
certain properties owned by the Company's subsidiaries CarrAmerica Realty, L.P.
and Carr Realty, L.P.), which may limit its flexibility in effecting
dispositions. In addition, tax laws applicable to REITs restrict the Company's
ability to dispose of certain properties.
3
Development Operations
Development of office properties is an important component of the
Company's growth strategy as attractive acquisition opportunities diminish due
to the influx of capital into the office property market. The Company believes
that long-term investment returns resulting from properties it develops
generally will exceed those from properties it acquires, without the assumption
of significantly increased investment risks. The Company minimizes its
development risk by employing, through CarrAmerica Development, extensively
trained and experienced development personnel, by avoiding the assumption of
entitlement risk in conjunction with land acquisitions and by entering into
guaranteed maximum price (GMP) construction contracts with seasoned and credible
contractors. Most importantly, the Company carefully analyzes the supply and
demand characteristics of a core market before commencing inventory development
in the market. In general, the Company will only undertake inventory development
(which excludes properties under construction that have been substantially
pre-leased) in markets with strong real estate fundamentals, and then the
Company generally will construct office buildings attractive to a wide range of
office users. The Company's research-driven development program enables it to
tailor its development activities in each core market, from inventory
development, build-to-suit projects, and holding land for future development.
During 1999, the Company placed in service approximately 3.3 million square feet
of office properties. The total cost of these development projects was
approximately $530 million and the Company expects that the first year
stabilized unleveraged return of this square footage will be 11.4%. As of
December 31, 1999, the Company (including CarrAmerica Development) had
approximately 1.3 million square feet of office space in 22 development projects
underway which are expected to require a total investment by the Company of
approximately $200.1 million. As of December 31, 1999, $116.0 million, or 58.0%
of the total expected investment, had been expended.
The Company also believes that having a significant land inventory to
support future development provides it with a competitive advantage in
responding to customers' needs for office space in markets with low vacancy
rates, barriers to entry for new supplies of office space and increasing rental
rates. In addition to its portfolio of operating properties and projects
currently under development, the Company owned or controlled, as of December 31,
1999, land in 10 of its core markets that is expected to support future
development of up to 4.5 million square feet of office space.
The Company is engaged in the real estate development business directly
and through its affiliate CarrAmerica Development. As of December 31, 1999, the
Company's total investment in CarrAmerica Development was approximately $233.8
million, $26.8 million of which was in the form of an equity investment, $121.5
million of which was in the form of unsecured debt and $85.5 million was in the
form of secured debt.
In order to comply with tax laws applicable to REITs, the Company owns
approximately 95% of the economic interest of CarrAmerica Development, but owns
less than 10% of the voting stock of CarrAmerica Development. Substantially all
of the voting stock of CarrAmerica Development (representing approximately 5% of
the economic interest) is owned by The Oliver Carr Company. Because the Company
does not own a significant portion of the voting stock of CarrAmerica
Development, there are certain risks associated with the Company's investments
in this company. See "Risk Factors -- Our Business Structure Has Certain Risks
Associated With It - Lack of Voting Control Over Some of Our Affiliates."
Acquisitions and Development
During 1999 the Company acquired 5 operating properties and land held
for future development for approximately $47.2 million. The operating properties
contain approximately 205,000 square feet and the land is expected to support
the development of approximately 376,000 square feet of office space. Also
during 1999, the Company developed and placed into service approximately 3.3
million square feet of office space and placed under construction approximately
826,000 square feet of office space.
Discontinued Operations
The executive suites business (HQ Global, OMNI UK, and LUX) typically
involves leasing 20,000 to 30,000 square feet of an office building from an
owner and outfitting that space with 60 to 70 individual offices (known as
office suites) that are leased on a relatively short-term basis (i.e., one year
or less) to customers who
4
generally utilize one to three offices at a time. Customers are provided with a
wide array of services, including administrative support services (e.g.,
secretarial, duplicating, fax and receptionist services), conference and
training facilities, video conferencing, travel arrangements and catering
arrangements.
The Company currently owns approximately 95% of the economic interest
of HQ Global, Omni UK and LUX, but owns none of the voting stock of these
companies. The voting stock of HQ Global (representing approximately 5% of the
economic interest) is owned by a limited liability company in which certain
current and former executive officers of the Company and HQ Global are members,
SC-USREALTY and The Oliver Carr Company. Substantially all of the voting stock
of Omni UK and LUX (representing approximately 5% of the economic interest) is
owned by HQ Global. Because the Company does not own any of the voting stock of
these companies, there are certain risks associated with the Company's
investments in these companies. See "Risk Factors -- Our Business Structure Has
Certain Risks Associated With It - Lack of Voting Control Over Some of Our
Affiliates."
On January 20, 2000, the Company, HQ Global, VANTAS and FrontLine
Capital Group entered into several agreements pursuant to which a series of
transactions will occur, including (i) the merger of VANTAS with and into HQ
Global, (ii) the acquisition by FrontLine Capital Group of certain shares of
common stock of HQ Global from the Company and other stockholders of HQ Global,
and (iii) the acquisition by HQ Global from the Company of the Company's debt
and equity interests in Omni UK and Lux. Following the completion of these
transactions, FrontLine Capital Group will own a substantial majority of the
outstanding stock of HQ Global, with the Company retaining a minority interest
in HQ Global. It is anticipated that CarrAmerica's retained minority interest in
HQ Global will be accounted for using the cost method of accounting following
the transaction. The anticipated gain at closing will be included in
Discontinued Operations net of transaction costs.
In connection with the HQ Global/VANTAS transaction, it is contemplated
that CarrAmerica will enter into various agreements at closing, including (i) a
stockholders agreement, which will provide CarrAmerica with certain rights with
respect to its ongoing equity interest in HQ Global, and will impose certain
obligations on CarrAmerica in connection therewith, and (ii) an indemnification
and escrow agreement which will provide CarrAmerica with certain rights in the
event certain representations and warranties regarding the operations of VANTAS
turn out to be incorrect (subject to a number of limitations), and will impose
certain obligations on CarrAmerica in the event certain representations and
warranties regarding the operations of HQ Global, HQ UK or LUX turn out to be
incorrect (subject to a number of limitations). In connection with these
indemnity obligations, CarrAmerica has agreed to indemnify FrontLine Capital
Group and certain existing directors of HQ Global against any losses incurred in
connection with the pending litigation involving two minority stockholders of HQ
Global referred to in Item 3 below.
If the proposed transactions are consummated, certain limitations will
be imposed on the continuing HQ Global enterprise to help avoid jeopardizing the
Company's status as a real estate investment trust. First, HQ Global will agree
to elect to be treated as a "taxable REIT subsidiary" under the Internal Revenue
Code so long as the Company continues to be taxed as a REIT and retains a
threshold interest in HQ Global. Second, through January 1, 2001, HQ Global will
not engage in various transactions that would result in the Company owning more
than 10% of the voting securities of HQ Global. Third, through July 2002, HQ
Global will not engage in certain transactions that would cause the Company to
fail to meet one of the asset tests applicable to REITs. Finally, HQ Global will
agree not to undertake any transaction that would result in recognition by the
Company of more than $25 million of taxable income or gain in 2000 (other than
the transaction contemplated by the merger agreement) or more than $75 million
of taxable income or gain in 2001. HQ Global also will agree to provide advance
notice of transactions that would trigger a significant amount of gain for the
Company through 2003.
Closing of the VANTAS transaction is scheduled to occur on or prior to
April 30, 2000. The proposed transaction is subject to satisfaction of a number
of conditions. There can be no assurance that the proposed transaction will be
consummated.
5
Financing Activity
In April 1998, the Company sold 5,000,000 shares of common stock to
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), resulting
in net proceeds of approximately $147 million, in what is commonly known as a
"forward equity sale" transaction. In connection with that transaction, the
Company entered into an agreement with Merrill Lynch under which the parties
agreed to adjust the number of shares of common stock issued to Merrill Lynch
(or the aggregate purchase price paid for such shares) based upon the proceeds
received by Merrill Lynch upon a resale of the shares in April 1999 in relation
to the amount originally paid by Merrill Lynch ($150 million), plus a forward
accretion component and less dividends paid on the shares. The Company settled
this agreement with cash payments in October 1998 and March 1999, and the
5,000,000 shares were returned to the Company and cancelled.
The Company and one of its affiliates entered into a joint venture with
J.P. Morgan & Co. to purchase and develop 1201 F Street in downtown Washington,
D.C. J.P. Morgan & Co. has become a 65% joint venture partner in the partnership
that owns the property and has committed to provide its pro-rata share of the
required expected capital of $71.8 million. In addition, Bank of America and
Mass Mutual have provided or agreed to provide construction financing and
permanent financing for this project.
In March 1999, the Company closed on a refinancing of the loans secured
by 1255 23rd Street, 1730 Pennsylvania Avenue and International Square
properties, all of which are located in downtown Washington, D.C., which
refinancing increased the aggregate principal amount of the loan by $41.1
million to approximately $222.0 million, extended the term approximately six
years and adjusted the interest rates to one global fixed interest rate of
8.12%. In July 1999, the Company replaced the mortgage on 1775 Pennsylvania
Avenue in downtown Washington, D.C. with a $12.0 million, 10-year loan which
will bear interest at a fixed rate of 7.63% which resulted in net proceeds to
the Company of $6.0 million.
In addition, during the second quarter of 1999, the Company refinanced
one loan totaling $15.0 million at a rate of 7.13% secured by two properties
located in Orange County, California, which resulted in net proceeds to the
Company of $4.9 million.
Forward-Looking Statements
Certain statements contained herein constitute "forward-looking
statements" with the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company and its affiliates or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: national and local economic,
business and real estate conditions that will, among other things, affect demand
for office properties, availability and creditworthiness of tenants, the level
of lease rents and the availability of financing for both tenants and the
Company, adverse changes in the real estate markets, including, among other
things, competition with other companies, risks of real estate acquisition and
development (including the failure of pending acquisitions to close and pending
developments to be completed on time and within budget), actions, strategies and
performance of affiliates that the Company may not control, governmental actions
and initiatives, and environmental/safety requirements.
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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.
The Board of Directors of the Company currently consists of the following
persons:
Oliver T. Carr, Jr., 74, has been Chairman of the Board of Directors of
the Company since February 1993. He also served as Chief Executive Officer of
the Company from 1993 to 1997. Mr. Carr's term as a director of the Company
expires at the 2002 Annual Meeting of Stockholders. Mr. Carr founded The Oliver
Carr Company 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 The Oliver Carr
Company since February 1993. 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, the Company's current President and Chief Executive Officer, and Robert O.
Carr, the President of Carr Urban Development, Inc. Mr. Carr is a member of the
Investment Committee and the Executive Committee of the Board of Directors.
Thomas A. Carr, 41, 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
2001 Annual Meeting of Stockholders. In May 1997, Mr. Carr was appointed Chief
Executive Officer of the Company, at which time he resigned as Chief Operating
Officer of the Company, a position he had held since April 1995. Prior to such
time, Mr. Carr was the Company's Chief Financial Officer from February 1993 to
April 1995. Mr. Carr is a director of The Oliver Carr Company. Mr. Carr holds a
Masters in Business Administration degree from Harvard Business School, and a
Bachelor of Arts degree from Brown University. Mr. Carr is a member of the
National Association of Real Estate Investment Trusts, the Young Presidents
Organization, Federal City Council and the International Development Research
Council. Mr. Carr is the son of Oliver T. Carr, Jr. and the brother of Mr.
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.
Ronald Blankenship, 50, has been a director of the Company since
August 1998. Mr. Blankenship's term as a director of the Company expires at the
2000 Annual Meeting of Stockholders and he has been renominated for election by
the stockholders at that meeting to serve another three-year term. Mr.
Blankenship was nominated to the Board as a designee of SC-USREALTY, a major
stockholder of the Company. Mr. Blankenship has been the Vice Chairman and Chief
Operating Officer of Security Capital Group Incorporated since May 1998.
Previously, Mr. Blankenship was Managing Director of Security Capital Group
Incorporated from March 1991 to May 1998. Mr. Blankenship is a director of
Security Capital Group Incorporated and Storage USA, Inc. He received his B.B.A.
from the University of Texas at Austin. Mr. Blankenship is a member of the
Executive Compensation Committee of the Board of Directors.
Andrew F. Brimmer, 73, has been a director of the Company since
February 1993. Dr. Brimmer's term as a director of the Company expires at the
2002 Annual Meeting of Stockholders. He has been President of Brimmer & Company,
Inc., an economic and financial consulting firm, since 1976. Dr. Brimmer is the
Wilmer D. Barrett Professor of Economics at the University of Massachusetts--
Amherst. He also serves as a director of BlackRock Investment Income Trust, Inc.
(and other funds), Borg-Warner Automotive, Inc., and Airborne Express. From 1995
to 1998, Dr. Brimmer served as chairman of the District of Columbia Financial
Control Board. He also was a member of the Board of Governors of the Federal
Reserve System from 1966 through 1974. Dr. Brimmer received a B.A. degree and a
masters degree in economics from the University of Washington and a Ph.D. in
economics from Harvard University. Dr. Brimmer is a member of the Audit
Committee of the Board of Directors.
A. James Clark, 72, has been a director of the Company since February
1993. Mr. Clark's term as a director of the Company expires at the 2000 Annual
Meeting of Stockholders and he has been renominated for election by the
stockholders at that meeting to serve another three-year term. 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 Board of Visitors and Foundation, and is a Trustee
Emeritus of the Johns Hopkins University and the Johns Hopkins Board of
Medicine. He is also a member of the PGA Tour Golf Course Properties Advisory
Board and an advisory director of Potomac Electric Power Company. Mr. Clark is a
7
graduate of the University of Maryland. Mr. Clark is a member of the Investment
Committee, the Executive Committee, the Executive Compensation Committee, and
the Nominating Committee of the Board of Directors.
Timothy Howard, 51, has been a director of the Company since August
1998. Mr. Howard's term as a director of the Company expires at the 2000 Annual
Meeting of Stockholders and he has been renominated for election by the
stockholders at that meeting to serve another three-year term. Mr. Howard has
been the Executive Vice President and Chief Financial Officer of Fannie Mae
since 1990. From 1988 to 1990, Mr. Howard was Executive Vice President -Asset
Management of Fannie Mae. Mr. Howard has held positions of increasing
responsibility with Fannie Mae since beginning with the company in 1982. Mr.
Howard received his Bachelor of Science and Masters in Economics degrees from
UCLA. Mr. Howard is a member of the Audit Committee and the Executive
Compensation Committee of the Board of Directors.
Caroline S. McBride, 46, has been a director of the Company since July
1996. Ms. McBride's term as a director of the Company expires at the 2001 Annual
Meeting of Stockholders. Ms. McBride was nominated to the Board of Directors as
a designee of SC-USREALTY. Since June 1996, Ms. McBride has been a Managing
Director of the Capital Division of Security Capital Group. From June 1996 to
July 1997, Ms. McBride was Managing Director of Security Global Capital
Management Group. Prior thereto, from July 1978 to May 1996, Ms. McBride was
with IBM, where she was director of private market investments for the IBM
Retirement Fund from 1994 to 1996 and director of real estate investments for
the IBM Retirement Fund from 1992 to 1994. Ms. McBride is on the Board of
Directors of Storage USA, Inc., BelmontCorp, CWS Communities Trust and the Real
Estate Research Institute. Ms. McBride received her Masters in Business
Administration degree from New York University and a Bachelor of Arts degree
from Middlebury College. Ms. McBride is a member of the Investment Committee of
the Board of Directors.
William D. Sanders, 58, has been a director of the Company since May
1996. Mr. Sanders' term as a director of the Company expires at the 2002 Annual
Meeting of Stockholders. Mr. Sanders was nominated to the Board as a designee of
SC-USREALTY. He is the founder and Chairman of Security Capital Group, an
affiliate of SC-USREALTY. Mr. Sanders retired on December 31, 1989 as Chief
Executive Officer of LaSalle Partners Limited, a firm he founded in 1968. Mr.
Sanders is on the Board of Directors of Security Capital European Realty,
SC-USREALTY, and Storage USA, Inc. Mr. Sanders is a former trustee and member of
the executive committee of the University of Chicago and a former trustee fellow
of Cornell University. Mr. Sanders received his Bachelor of Science degree from
Cornell University. Mr. Sanders is a member of the Nominating Committee of the
Board of Directors.
Wesley S. Williams, Jr., 57, has been a director of the Company since
February 1993. Mr. Williams' term as a director of the Company expires at the
2001 Annual Meeting of Stockholders. Mr. Williams has been a partner of the law
firm of Covington & Burling, Washington, D.C., since 1975. He was adjunct
professor of real estate finance law at 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 on the Editorial Advisory
Board of the District of Columbia Real Estate Reporter. Mr. Williams serves as a
director of Blackstar Communications, Inc.; Blackstar LLC; and the Federal
Reserve Bank of Richmond, Virginia. Mr. Williams is Co-Chairman of the Board of
Directors and Co-CEO of The Lockhart Caribbean Corporation and its real estate,
insurance, consumer finance, internet services, and media subsidiaries. Mr.
Williams is a member of the Executive Committee of the Board of Trustees of Penn
Mutual Life Insurance Company, of which he is the Senior Trustee. Mr. Williams
received B.A. and J.D. degrees from Harvard University, an M.A. degree from the
Fletcher School of Law and Diplomacy and an LL.M. from Columbia University. Mr.
Williams is a member of the Audit Committee and Executive Compensation Committee
of the Board of Directors.
8
Executive Officers and Certain Key Employees of the Company
As of December 31, 1999, the Company's executive officers and key
employees (including certain executive officers and key employees of HQ Global
Workplaces, Inc., CarrAmerica Development, Inc. and other affiliates of the
Company), were as follows:
Kent C. Gregory, 49, has been the Company's Managing Director--National
Services since July 1997. Prior to that time, Mr. Gregory had been employed by
Opus, a real estate services company, since 1991, serving as Senior Vice
President of National Accounts. He holds a Masters in Business Administration
from Pace University and a Bachelor of Arts degree in Business Administration
from St. Thomas University. Mr. Gregory is a member of management's Operating
Committee and Investment Committee.
Philip L. Hawkins, 44, has been the Company's Chief Operating Officer
since October 1998. Prior to that time Mr. Hawkins served as the Company's
Managing Director--Asset Management since February 1996. Prior to that time, Mr.
Hawkins had been employed by LaSalle Partners Limited, a real estate services
company, since 1982, serving as Executive Vice President, Eastern Division,
Asset Management Group since 1995, Senior Vice President, Northeast Region,
Asset Management Group from 1990 to 1994, and in other asset management
positions prior to that time. Mr. Hawkins also was a director of LaSalle
Partners Limited. He holds a Masters in Business Administration from the
University of Chicago Graduate School of Business and a Bachelor of Arts degree
from Hamilton College. Mr. Hawkins is a member of management's Operating
Committee and Investment Committee. Mr. Hawkins is also a member of the Board of
Directors and the Executive Committee of Broadband Office, Inc.
Richard F. Katchuk, 53, has been the Company's Chief Financial Officer
since February 1999. Prior to that time, Mr. Katchuk served as Chief Financial
Officer and Corporate Executive Vice President of Crestar Financial Corporation
since 1995. Prior to joining Crestar Financial Corporation, Mr. Katchuk was with
Banc One, serving as a Senior Vice President Corporate Finance from 1988 to
1995. Mr. Katchuk holds a Bachelor of Arts degree in Economics from Hobart &
William Smith Colleges. Mr. Katchuk is a member of management's Operating
Committee and Investment Committee.
Linda A. Madrid, 40, has been the Company's Managing Director, General
Counsel and Corporate Secretary since November 1998. Prior to that time Ms.
Madrid served as the Company's Senior Vice President and General Counsel since
March 1998. Prior to that time, Ms. Madrid had been Senior Vice President,
Managing Director of Legal Affairs and Corporate Secretary of Riggs National
Corporation/Riggs Bank N.A. since February 1996 and Vice President and
Litigation Manager from September 1993 to January 1996. Prior to that time, Ms.
Madrid practiced law in several law firms in Washington, D.C. and served as
Assistant General Counsel for Amtrak. Ms. Madrid holds a J.D. from Georgetown
University Law Center and a Bachelor of Arts degree from Arizona State
University. Ms. Madrid is a member of management's Operating Committee.
Paul R. Adkins, 41, has been the Company's Managing Director - Private
Capital since May 1999. Prior to that time Mr. Adkins served as the Company's
Senior Vice President, Market Managing Director for Washington, D.C. since
August 1996. Mr. Adkins has been with the Company for over 17 years, including
serving as Vice President of Acquisitions from May 1994 to August 1996. Prior to
that, Mr. Adkins served in a variety of other capacities with the Company, with
over 12 years in commercial real estate leasing. Mr. Adkins is a member of the
District of Columbia's Building Industry Association and Northern Virginia's
National Association of Industrial and Office Parks. Mr. Adkins holds a Bachelor
of Arts degree in Economics from Bucknell University. Mr. Adkins is a member of
management's Operating Committee.
Steven N. Bralower, 51, has been Executive Vice President of Carr Real
Estate Services, Inc. ("Carr Services, Inc."), an affiliate of the Company that
conducts management and leasing operations, since January 1999, and Senior Vice
President of Carr Realty, L.P., a subsidiary of the Company, since May 1996. Mr.
Bralower was Senior Vice President of Carr Services, Inc. from 1993 to May 1996.
Mr. Bralower is a member of the Greater Washington Commercial Association of
Realtors. Mr. Bralower has been a member of the Georgetown University Law Center
adjunct faculty since 1987. Mr. Bralower holds a Bachelor of Arts degree from
Kenyon College.
9
Robert L. Brumm, 48, has been a Senior Vice President of the Company
since February 1998. Prior to that Mr. Brumm had 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. He is responsible for
managing the Human Resources, Risk Management, Training, and Office Management
functions. He has over 20 years of experience, including eight years with Mark
Controls Corporation and five years with the real estate division of Philip
Morris, Inc. Mr. Brumm received his Bachelors degree from California State
University at Long Beach. Mr. Brumm is a member of management's Operating
Committee.
Robert O. Carr, 50, has been President of CarrAmerica Urban
Development, Inc., a subsidiary of CarrAmerica Development, since June 1998, and
Chairman of the Board of Directors of Carr Services, Inc., since February 1993.
Mr. Carr served as a director of the Company from 1993 until 1997 and as
President of Carr Services, Inc. from 1993 to 1998. Mr. Carr is a director of
The Oliver Carr Company and, from 1987 until February 1993, served as its
President and Chief Executive Officer. 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.
Clete Casper, 40, has been the Company's Market Managing Director -
Seattle since July 1999. Prior to that time Mr. Casper served as the Company's
Vice President, Market Managing Director for Seattle since July 1996. Mr. Casper
has over 10 years of experience in real estate and marketing. Mr. Casper's most
recent experience includes one year as a Senior Associate with CB Commercial
Real Estate Group Inc., Seattle, Washington. Prior to that, Mr. Casper was with
Sabey Corporation in Seattle, Washington, serving as Development Manager for
four years and a Marketing Associate for five years. Mr. Casper is a graduate of
Washington State University. Mr. Casper is a member of management's Operating
Committee.
John J. Donovan, Jr., 56, has been a Market Managing Director of the
Company since July 1999 and President of Carr Services, Inc., since January
1999. Prior to that time, Mr. Donovan served as Senior Vice President of Carr
Services, Inc. from 1993 to 1998. He is a member of the Advisory Board for
Jubilee Enterprise of Greater Washington, the Economic Club of Washington, the
Greater Washington Board of Trade and the Greater Washington Commercial
Association of Realtors. Mr. Donovan holds a Bachelor of Arts degree from
Georgetown University. Mr. Donovan is a member of management's Operating
Committee.
Karen B. Dorigan, 35, has been the Company's Managing Director -
Capital Markets and Investments since April 1999. Prior to that time, Ms.
Dorigan served as a Senior Vice President of the Company since May 1997. Prior
to that, Ms. Dorigan was the Company's Vice President--Land Due Diligence since
January 1996. Prior to that time, Ms. Dorigan served for more than nine years in
a variety of capacities in the development business of The Oliver Carr Company,
including from February 1993 to January 1996 as a Vice President. She is a past
member of the Northern Virginia Building Industry Association's Arlington
Chapter Council. Ms. Dorigan holds a Bachelor of Science degree in Economics
from the University of Pennsylvania, Wharton School. Ms. Dorigan is a member of
management's Operating Committee and Investment Committee.
J. Thad Ellis, 39, has been the Company's Market Managing Director -
Atlanta since July 1999. Prior to that time Mr. Ellis served as the Company's
Vice President, Market Managing Director for Atlanta since November 1996. Mr.
Ellis has over 15 years of experience in real estate. Mr. Ellis' most recent
experience includes 10 years with Peterson Properties, where his primary
responsibility was to oversee and coordinate leasing and property management for
the management services portfolio. Mr. Ellis is a graduate of Washington & Lee
University and is involved with the National Association of Industrial and
Office Parks and Atlanta's Chamber of Commerce and is on the Advisory Board of
Black's Guide. Mr. Ellis is a member of management's Operating Committee.
Richard W. Greninger, 48, has been the Company's Managing Director -
Property Operations since May 1999. Prior to that time Mr. Greninger served as
the Company's Senior Vice President--Operations of the Company since January
1998. Prior to that, Mr. Greninger had been the Senior Vice President of Carr
Services, Inc., since March 1995. Prior to that time, he had been Vice President
of Carr Services, Inc. since February 1993. During 1994, Mr. Greninger served as
President of the Greater Washington Apartment and Office Building Association.
Mr. Greninger has served as a director of both the Institute of Real Estate
Management and the
10
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. Mr. Greninger is a member of
management's Operating Committee.
William Krokowski, 37, has been the Company's Market Managing Director -
Denver since December 1999. Prior to that time Mr. Krokowski served as Vice
President/Director of Development for CarrAmerica Development, Inc., an
affiliate of CarrAmerica since 1997. Prior to 1997, Mr. Krokowski was a member
of CarrAmerica's investments group. Prior to joining CarrAmerica, Mr. Krokowski
spent over five years with Tishman Speyer Properties in New York and Washington,
D.C. as a development manager. Mr. Krokowski holds a Civil Engineering degree
from Bucknell University and a Masters in Business Administration from Duke
University. Mr. Krokowski is a member of management's Operating Committee.
Gary M. Kusin, 48, has been President and Chief Executive Officer of HQ
Global Workplaces, Inc., since September 1998. Prior to that time, Mr. Kusin was
co-founder and Chairman of Laura Mercier Cosmetics. Prior to his launch of Laura
Mercier Cosmetics, Mr. Kusin was co-founder and President of Babbage's, Inc., a
computer software and video game retailing business. Mr. Kusin holds a Masters
in Business Administration degree from Harvard Business School and a Bachelor of
Arts degree from the University of Texas at Austin.
Dwight L. Merriman, 39, has been the Company's Market Managing Director-
Southern California since August 1999. Prior to that time Mr. Merriman served as
the Company's Senior Vice President, Market Managing Director for Southern
California since 1996. Mr. Merriman has over 15 years of experience in real
estate, operations, acquisitions, construction, marketing and development. From
1995 to 1996 Mr. Merriman served as Vice President with Security Capital Pacific
Trust (an affiliate of SC-USREALTY) in Irvine, California. Prior to that, Mr.
Merriman spent 11 years with Overton, Moore in Los Angeles, serving as the
regional development and operating partner for Orange County and Riverside
County in the Southern California Market. Mr. Merriman holds a Masters in
Business Administration from the University of California at Los Angeles and a
Bachelors degree from the University of Southern California. Mr. Merriman is a
member of management's Operating Committee.
Robert M. Milkovich, 40, has been the Company's Market Managing Director -
Phoenix since July 1999. Prior to that time Mr. Milkovich served as the
Company's Vice President, Market Managing Director for Phoenix, Arizona since
January 1998. Mr. Milkovich has over 14 years of experience in real estate
leasing. Mr. Milkovich's most recent experience includes five years as the
Assistant Vice President of leasing for Carr Services, Inc. Mr. Milkovich holds
a Bachelor of Science in Business Administration from the University of
Maryland. Mr. Milkovich is a member of management's Operating Committee.
Gerald J. O'Malley, 56, has been the Company's Market Managing Director -
Chicago since July 1999. Prior to that time Mr. O'Malley served as the Company's
Vice President, Market Managing Director for Chicago since July 1996. Mr.
O'MalIey has over 32 years of experience in real estate marketing. Mr.
O'Malley's most recent experience includes 10 years as founder and President of
G. J. O'MaIIey & Company, a real estate office leasing company. Mr. O'Malley
holds a Bachelors of Business Administration degree from Loyola University. Mr.
O'Malley is a member of management's Operating Committee.
Jeffrey S. Pace, 37, has been the Company's Market Managing Director -
Austin since July 1999. Prior to that time Mr. Pace served as the Company's Vice
President, Market Managing Director for Austin, Texas since May 1997. Mr. Pace
has over 14 years of experience in real estate marketing. Mr. Pace's most recent
experience was with Trammell Crow Company, where he served as Marketing
Director. Prior to that time, Mr. Pace held the position of Marketing
Representative in the Dallas and Austin markets for Carlisle Property Company,
Stockton, Luedmann, French & West and Trammell Crow Company from 1985 to 1997.
Mr. Pace holds a Masters of Business Administration from the University of Texas
at Arlington and a Bachelor of Science from the University of Texas at Austin.
Mr. Pace is a member of management's Operating Committee.
Stephen E. Riffee, 42, has been the Company's Senior Vice President,
Controller and Treasurer since July 1999. Prior to that time, Mr. Riffee served
as Vice President Finance and Chief Accounting Officer of Marriott
International, Inc. for three years. Prior to joining Marriott International,
Inc., Mr. Riffee served as Assistant Vice President at Burlington Northern
Railroad after having previously worked in the National Transportation Practice
of KPMG Peat Marwick. Mr. Riffee holds a Bachelor of Science in Commerce degree
11
from the McIntire School of Commerce of the University of Virginia. Mr. Riffee
is a member of management's Operating Committee.
Brian A. Rommel, 32, has been the Company's Chief Information Officer since
March 1998. Prior to that time, Mr. Rommel operated a technology-consulting firm
he founded in 1991. Mr. Rommel has provided consulting services to the
CarrAmerica companies since 1992. Mr. Rommel has over 11 years of experience
designing and implementing information technology solutions and more than 8
years of experience in the real estate and property management industry. Mr.
Rommel holds a Bachelors of Science in Business Finance from the University of
Maryland. Mr. Rommel is a member of management's Operating Committee.
Leah Segawa, 43, has been the Company's Market Managing Director - Northern
California since June 1999. Prior to that time Ms. Segawa served as Vice
President and Development Coordinator for CarrAmerica's Development, Inc., an
affiliate of CarrAmerica. Prior to this, from 1989 to 1997, Ms. Segawa was
President of WesTerra Collaborative Ltd., a real estate development consulting
firm which managed a wide range of development projects. Ms. Segawa holds a
Bachelor of Arts with honors in Architecture from University of California at
Berkeley and a Masters of Business Administration from Harvard University. Ms.
Segawa is a member of management's Operating Committee.
William H. Vanderstraaten, 39, has been the Company's Market Managing
Director - Dallas since July 1999. Prior to that time Mr. Vanderstraaten served
as the Company's Vice President, Market Managing Director for Dallas since April
1997. Mr. Vanderstraaten has over 16 years of experience in real estate
development and leasing fields. Mr. Vanderstraaten's most recent experience
prior to working for the Company includes eight years as Vice President--New
Development for Harwood Pacific Corporation in Dallas, Texas, where his primary
responsibilities were directing large scale development projects and
coordinating leasing efforts for portfolios. Mr. Vanderstraaten holds a Bachelor
of Science degree in Business Administration from Southern Methodist University.
Mr. Vanderstraaten is a member of management's Operating Committee.
Joseph D. Wallace, 36, has been the Chief Financial Officer of HQ Global
Workplaces, Inc. since January 1999. Prior to that time Mr. Wallace served as
the Executive Vice President of HQ Global Workplaces, Inc. since October 1997.
Prior to that time, Mr. Wallace had served as the Company's Vice President--
Building Due Diligence since January 1996. Prior to that time, Mr. Wallace had
been the Company's Vice President of Asset Management since February 1993. Mr.
Wallace holds a Bachelor of Science degree in Commerce from University of
Virginia.
Karen L. Widmayer, 41, has served as Senior Vice President of Corporate
Communications since August 1999. Prior to that time Ms. Widmayer served as the
Company's Vice President of Corporate Communications since 1997. Ms. Widmayer is
a 15-year veteran of CarrAmerica and its predecessor company. Ms. Widmayer is
responsible for the strategic marketing and branding of CarrAmerica including
media relations, advertising, community relations, employee communications,
corporate and project marketing as well as the Company's web site and intranet
site. Ms. Widmayer performed Masters work in Economics at the University of
Tennessee. Ms. Widmayer holds a Bachelor of Arts degree in Business Management
from Virginia Intermont College. Ms. Widmayer is a member of management's
Operating Committee.
James S. Williams, 43, has been a Managing Director of the Company since
April 1999 and President of CarrAmerica Development since May 1999. Prior to
that time Mr. Williams was Senior Vice President of CarrAmerica Development
since October 1996. Mr. Williams rejoined the Company after two years as Vice
President of Operations of Chadwick International. Prior to that, from 1983 to
1994, he served in a variety of capacities for The Oliver Carr Company. 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. Mr. Williams is a member of the Board of Directors and a member of
the Executive Committee of the District of Columbia Building Industry
Association. Mr. Williams is a member of the Investment Committee of CarrAmerica
Development, a member of the Company's Investment Committee, and a member of the
Company's Operating Committee.
12
Risk Factors
In addition to the other information in this document, you should consider
carefully the following risk factors in evaluating an investment in our
securities.
Our Performance is Subject to Risks Associated with Real Estate Investment
We are a real estate company that derives most of its income from the
ownership and operation of office buildings. There are a number of factors that
may adversely affect the income that our properties generate, including the
following:
Economic Downturns. Downturns in the national economy, or in regions or
localities where our properties are located, generally will negatively impact
the demand for office space.
Oversupply of Office Space. An oversupply of space in markets where we own
office properties making it more difficult for us to lease space at attractive
rental rates would typically cause rental rates and occupancies to decline.
Competitive Properties. If our properties are not as attractive to tenants
(in terms of rents, services or location) as other properties that are
competitive with ours, we will lose tenants to those properties, or could have
to reduce our rental rates to compensate for that disparity.
Renovation Costs. In order to maintain the quality of our office buildings
and successfully compete against other properties, we periodically have to spend
money to repair and renovate our properties.
Tenant Risk. Our performance depends on our ability to collect rent from
our tenants. While no tenant in our portfolio accounted for more than 5% of our
rental revenue as of December 31, 1999, the Company's financial position may be
adversely affected by financial difficulties experienced by a major tenant, or
by a number of smaller tenants, including bankruptcies, insolvencies or general
downturns in business.
Reletting Costs. As leases expire, we try to either relet the space to an
existing tenant or attract a new tenant to occupy the space. In either case, we
likely will incur significant costs in the process. In addition, if market rents
have declined since the time the expiring lease was entered into, the terms of
any new lease signed likely will not be as favorable to us as the terms of the
expiring lease, thereby reducing the income earned from that space.
Regulatory Costs. There are a number of government regulations, including
zoning and tax laws, that apply to the ownership and operation of office
buildings. Compliance with existing and newly adopted regulations often requires
us to spend a significant amount of money on our properties.
Fixed Nature of Costs. Most of the costs associated with owning and
operating an office building are not necessarily reduced when circumstances such
as market factors and competition cause a reduction in income from the property.
Environmental Problems Are Possible and Can Be Costly. Federal, state and
local laws and regulations relating to the protection of the environment may
require a current or previous owner or operator of real property to investigate
and clean up hazardous or toxic substances or petroleum product releases at the
property. The presence of or failure to clean up contamination may adversely
affect our ability to sell or lease a property or to borrow using a property as
collateral.
Competition. A number of other major real estate investors with significant
capital compete with us. These competitors include publicly traded REITs,
private REITs, investment banking firms and private institutional investment
funds.
13
New Developments and Acquisitions May Fail to Perform As Expected
Over the last few years, we have embarked on a major acquisition and
development program. In deciding whether to acquire or develop a particular
property, we made certain assumptions regarding the expected future performance
of that property. If a number of these new properties do not perform as
expected, our financial performance will be adversely affected.
While our acquisition pace has declined significantly, we remain very
active in developing office properties. New office property developments are
subject to a number of risks, including construction delays, complications in
obtaining necessary zoning, occupancy and other governmental permits, cost
overruns, financing risks, and the possible inability to meet expected occupancy
and rent levels. If any of these problems occur, development costs for a project
will increase, and there may be costs incurred for projects that are not
completed.
Our Use of Debt Subjects Us to Various Financing Risks
While we believe that we have a conservative borrowing policy, we do
regularly borrow money to finance our business, particularly the acquisition and
development of properties. We generally incur unsecured debt, although in many
cases we will incur mortgage debt that is secured by one or more of our office
buildings. There are certain risks inherent in borrowing money, including the
following:
No Limitation on Debt Incurrence. The Company's organizational documents do
not limit the amount of debt the Company can incur. The degree of leverage of
the Company could have important consequences, including making it more
difficult for us to obtain additional financing in the future for business
needs, as well as making us more vulnerable to an economic downturn.
Possible Inability to Meet Scheduled Debt Payments. If our properties do
not perform as expected, our cash flow from our properties may not be enough to
make required principal and interest payments. If a property is mortgaged to
secure payment of indebtedness and we are unable to meet mortgage payments, the
holder of the mortgage or lender could foreclose on the property, resulting in
loss of income and asset value. An unsecured lender could also attempt to
foreclose on some of the Company's assets in order to receive payment.
Inability to Refinance Debt. In almost every case, very little of the
principal amount that we borrow is repaid prior to the maturity of the loan. We
generally expect to refinance that debt when it matures, although in some cases
we may pay off the loan. If principal amounts due at maturity cannot be
refinanced, extended or paid with proceeds of other capital transactions, such
as new equity capital, our cash flow will be insufficient in all years to repay
all maturing debt. Prevailing interest rates or other factors at the time of a
refinancing (such as possible reluctance of lenders to make commercial real
estate loans) may result in higher interest rates and increased interest
expense.
Financial Covenants Could Adversely Affect Our Financial Condition. The
Company's credit facilities and the indentures under which the Company's senior
unsecured indebtedness is issued contain financial and operating covenants,
including coverage ratios and other limitations on the Company's ability to
incur secured and unsecured indebtedness, sell all or substantially all of its
assets and engage in mergers, consolidations and certain acquisitions. These
covenants may restrict the Company's ability to engage in transactions that
would otherwise be in the Company's best interests.
14
Our Business Structure Has Certain Risks Associated With It
A Major Stockholder Has Influence on Our Operations. SC-USREALTY owned
approximately 42.8% of the outstanding shares of our common stock as of December
31, 1999. No other stockholder is permitted to own more than 5% of our common
stock, subject to certain exceptions. Under a Stockholders Agreement with the
Company, SC-USREALTY has the right to nominate up to 40% of the directors. The
Stockholders Agreement also gives SC-USREALTY certain rights that limit our
ability to take certain actions and limits our ability to engage in certain
transactions that may be in the short-term best interests of other stockholders.
This situation results in SC-USREALTY having a substantial influence over the
affairs of the Company. This could potentially be disadvantageous to other
stockholders' interests, which may not converge with the interests of SC-
USREALTY.
Certain Officers and Directors May Have Interests that Conflict with the
Interests of Stockholders. Certain officers and members of the board of
directors of the Company own units of limited partner interest in Carr Realty,
L.P., a partnership that owns some of the Company's properties. These
individuals may have personal interests that conflict with the interests of the
Company's stockholders with respect to business decisions affecting the Company
and Carr Realty, L.P., such as interests in the timing and pricing of property
sales or refinancings in order to obtain favorable tax treatment. The Company,
as the sole general partner of Carr Realty, L.P., has the exclusive authority to
determine whether and on what terms the partnership will sell or refinance an
individual property, but the effect of certain transactions on these unitholders
may influence decisions affecting these properties.
We May Not Be Able to Sell Properties When Appropriate. Real estate
property investments generally cannot be sold quickly. In addition, the tax laws
applicable to REITs restrict our ability to dispose of certain properties.
Therefore, we may by unable to vary our portfolio promptly in response to market
conditions, which may adversely affect our financial position.
Lack of Voting Control Over Some of Our Affiliates. While most of our
income is generated from the ownership and operation of our office buildings, we
own nonvoting interests in five affiliates that either currently produce or are
expected in the future to produce significant contributions to our income. Carr
Services, Inc. conducts management and leasing operations for third parties and
for office buildings in which we own less than a 100% interest. CarrAmerica
Development conducts fee-based development services for the Company and for
third parties. HQ Global, Omni UK and LUX are engaged in the executive suites
business, providing short-term office space together with telephone answering,
data processing and other office support services. As of December 31, 1999, the
Company owned approximately 95% of the economic interest in each of these
companies through the ownership of nonvoting common stock. The voting stock of
each of these companies is owned by certain entities and individuals that have
some affiliation with the Company (or, in the case of Omni UK and LUX, by HQ
Global).
The Company owns nonvoting stock in these companies because the tax laws
applicable to REITs currently prohibit the Company from owning more than a 10%
voting interest. As a result, the Company has no right to elect the directors of
these companies, and its ability to influence their operations is limited. These
companies may engage in business activities that are not in the Company's best
interests.
We Depend On External Capital. To qualify as a REIT, we generally must
distribute to our stockholders each year at least 95% of our net taxable income.
Because of these distribution requirements, we likely will not be able to fund
all future capital needs, including capital for property development and
acquisitions, with income from operations. We therefore will have to rely on
third-party sources of capital, which may or may not be available on favorable
terms, if at all. Our access to third-party sources of capital depends on a
number of things, including the market's perception of our growth potential and
our current and potential future earnings.
15
Certain Factors May Inhibit Changes in Control of the Company
Charter and By-law Provisions. Certain provisions of our charter and by-
laws may delay or prevent a change in control of the Company or other
transactions that could provide our common stockholders with a premium over the
then-prevailing market price of their common stock or that might otherwise be in
the best interests of our stockholders. These include a staggered board of
directors and the ability of our board of directors to authorize the issuance of
preferred stock without stockholder approval. Also, any future series of
preferred stock may have voting provisions that could delay or prevent a change
in control or other transaction that might involve a premium price or otherwise
be in the best interests of our stockholders.
Ownership Limit. In order to assist the Company in maintaining its
qualification as a REIT, the Company's charter contains certain provisions
generally limiting the ownership of shares of capital stock by any single
stockholder to 5% of the Company's outstanding common stock and/or 5% of any
class or series of preferred stock. The federal tax laws include complex stock
ownership and attribution rules that apply in determining whether a stockholder
exceeds the ownership limits. These rules may cause a stockholder to be treated
as owning stock that is actually owned by others, including family members and
entities in which the stockholder has an ownership interest. The board of
directors of the Company could waive this restriction if it were satisfied that
ownership in excess of these ownership limits would not jeopardize our status as
a REIT and the board otherwise decided that a waiver would be in the Company's
interests. Capital stock acquired or transferred in breach of the ownership
limit will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary.
Maryland Law Provisions. Certain provisions of Maryland law applicable to
the Company because it is a Maryland corporation prohibit "business
combinations" with any person that beneficially owns ten percent or more of the
outstanding voting shares of the Company (an "interested stockholder") or with
an affiliate of the interested stockholder. These prohibitions last for five
years after the most recent date on which the person became an interested
stockholder. After the five-year period, a business combination with an
interested stockholder must be approved by two super-majority stockholder votes
unless, among other conditions, the Company's common stockholders receive a
minimum price for their shares and the consideration is received in cash or in
the same form as previously paid by the interested stockholder for its common
shares. The Company's board of directors has opted out of these business
combination provisions. Consequently, the five-year prohibition and the super-
majority vote requirements will not apply to a business combination involving
the Company. The Company's board of directors may, however, repeal this election
in most cases and cause the Company to become subject to these provisions in the
future. Being subject to the provisions could delay or prevent a change in
control or other transaction involving the Company that might involve a premium
price or otherwise be in the best interests of the Company's stockholders.
The Market Value of Our Securities Can Be Adversely Affected by Many Factors
As with any public company, a number of factors may adversely influence the
public market price of our common stock, many of which are beyond our control.
These factors include: the level of institutional interest in the Company; the
perception of REITs generally, and REITs with portfolios similar to ours in
particular, by market professionals, and the attractiveness of securities of
REITs in comparison to other companies; our financial condition and performance,
and the market's perception of our growth potential and potential future cash
dividends; increases in market interest rates, which may lead investors to
demand a higher annual yield from distributions by the Company in relation to
the price paid for our stock; and the relatively low trading volume of shares of
REITs in general, which tends to exacerbate a market trend with respect to our
stock.
Sales of a substantial number of shares of our stock, or the perception
that such sales could occur, also could adversely affect prevailing market
prices for our stock. In addition to the possibility that we may sell shares of
our stock in a public offering at any time, we also may issue shares of common
stock upon redemption of units of interest held by third parties in affiliated
partnerships that we control, as well as upon exercise of stock options that we
grant to our employees and others. All of these shares will be available for
sale in the public markets from time to time. In addition, SC-USREALTY, our
largest stockholder (owning more than one-third of our shares) has the right to
sell its shares at any time, pursuant to registration rights granted to it in
connection with its original investment in the Company.
16
Our Status As a REIT
We believe that the Company qualifies for taxation as a REIT for federal
income tax purposes, and we plan to operate so that the Company continues to
meet the requirements for taxation as a REIT. If we qualify as a REIT, we
generally will not be subject to federal income tax on our income that we
distribute currently to our shareholders. Many of the REIT requirements,
however, are highly technical and complex. The determination that the Company is
a REIT requires an analysis of various factual matters and circumstances that
may not be totally within our control. For example, to qualify as a REIT, at
least 95% of our gross income must come from specific passive sources, like
rent, that are itemized in the REIT tax laws. We also are required to distribute
to our stockholders at least 95% of our REIT taxable income (excluding capital
gains). The distribution requirements will be reduced to 90% for taxable years
after December 31, 2000. The fact that we hold certain of our assets through
partnerships and their subsidiaries further complicates the application of the
REIT requirements. Even a technical or inadvertent mistake could jeopardize the
Company's REIT status. Furthermore, Congress and the IRS might make changes to
the tax laws and regulations, and the courts might issue new rulings, that make
it more difficult, or impossible, for us to remain qualified as a REIT.
If the Company fails to qualify as a REIT, it would be subject to federal
income tax at regular corporate rates. Also, unless the IRS granted the Company
relief under certain statutory provisions, it would remain disqualified as a
REIT for four years following the year it first failed to qualify. If the
Company failed to qualify as a REIT, we would have to pay significant income
taxes. This likely would have a significant adverse affect on the value of our
securities. In addition, we would no longer be required to pay any dividends to
stockholders.
Even if we qualify as a REIT, we are required to pay certain federal, state
and local taxes on our income and property. For example, if the Company has net
income from "prohibited transactions," that income will be subject to a 100%
tax. In general, prohibited transactions are sales or other dispositions of
property held primarily for sale to customers in the ordinary course of
business. The determination as to whether a particular sale is a prohibited
transaction depends on the facts and circumstances related to that sale. While
we have recently undertaken a significant number of asset sales, we do not
believe that those sales should be considered prohibited transactions, but there
can be no assurance that the IRS would not contend otherwise. In addition, any
net taxable income earned directly by some of our affiliates, including HQ
Global, Carr Services, Inc. and CarrAmerica Development, Inc., is subject to
federal and state corporate income tax. Similarly, the income of our affiliates,
Omni UK and LUX, is subject to some foreign taxes.
Currently, a REIT may not own securities in any one issuer if the value of
those securities exceeds 5% of the value of the REIT's total assets or the
securities owned by the REIT represent more than 10% of the issuer's outstanding
voting securities. As a result of the Work Incentives Improvement Act, after
December 31, 2000, the 5% value test and the 10% voting security test will be
modified in two respects. First, the 10% voting securities test will be expanded
so that REITs also will be prohibited from owning more than 10% of the value of
the outstanding securities of any one issuer. Second, an exception to these
tests will allow a REIT to own securities of a subsidiary that exceed the 5%
value test and the new 10% vote or value test if the subsidiary elects to be a
"taxable REIT subsidiary." The expanded 10% vote or value test, however, will
not apply to an existing subsidiary unless it engages in a substantial new line
of business or acquires any substantial asset or the Company acquires any
securities in that subsidiary after July 12, 1999. Under a new asset test, for
taxable years beginning after December 31, 2000, the Company will not be able to
own securities of taxable REIT subsidiaries that represent in the aggregate more
than 20% of the value of the Company's total assets.
Several provisions of the new law will ensure that a taxable REIT
subsidiary will be subject to an appropriate level of federal income taxation.
For example, a taxable REIT subsidiary will be limited in its ability to deduct
interest payments made to an affiliated REIT. In addition, the REIT will have to
pay a 100% penalty tax on some payments that it receives if the economic
arrangements between the REIT, the REIT's tenants, and the taxable REIT
subsidiary are not comparable to similar arrangements between unrelated parties.
The Company currently owns more than 10% of the total value of the
outstanding securities of HQ Global, Carr Services, Inc., CarrAmerica
Development, Omni UK and LUX. As part of the transaction in which FrontLine
Capital Group will acquire a majority interest in HQ Global, HQ Global will
elect to be treated as a taxable REIT subsidiary and the Company's direct
interests in Omni UK and LUX will be terminated. Carr Services, Inc. and
CarrAmerica Development also are likely to elect to be taxable REIT
subsidiaries. The
17
provisions described above likely will have the effect of increasing the federal
income tax expenses of these entities.
Our Company Is Not a Suitable Investment for Foreign Investors
Our charter contains provisions generally preventing foreign investors
(other than SC-USREALTY and its affiliates) from acquiring additional shares of
the Company's capital stock if the acquisition would cause us to fail to quality
as a domestically controlled REIT under the federal tax code. The application of
such provisions could prevent a foreign investor from acquiring stock or cause
stock that has been acquired to be reacquired automatically from the foreign
investor by a designated charitable trust. Accordingly, acquisition of our
capital stock would not likely be a suitable investment for foreign investors
other than SC-USREALTY.
Item 2. PROPERTIES
General. As of December 31, 1999, the Company owned interests (consisting
of whole or partial ownership interests) in 275 operating office properties
located in 14 core markets across the United States. As of December 31, 1999,
the Company owned fee simple title or leasehold interest in 269 operating office
properties, controlling partial interests in two operating office properties,
and non-controlling partial interests of 5% to 50% in four operating office
properties. In addition, as of December 31, 1999, the Company owned (either
directly or through CarrAmerica Development) 22 office properties under
development. 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 office properties, it will continue to be able to identify and
consummate acquisition and development opportunities and to operate its
portfolio more effectively than competitors without such capabilities. The
Company, however, competes in many of its core markets with other real estate
operators, some of which may have been active in such markets for a longer
period than the Company.
18
The following table sets forth certain information about each operating
property owned by the Company as of December 31, 1999:
Net Total Average Base
Rentable Annualized Rent Per
# of Area/(1)/ Percent Base Rent/(3)/ Leased
Property Buildings (square feet) Leased/(2)/ (in thousands) Square Foot/(4)/
- -------- --------- ------------- ----------- --------------- ----------------
Consolidated Properties
- -----------------------
SOUTHEAST REGION
Downtown Washington, D.C.:
International Square 3 1,014,555 98.0% $ 31,863 $ 32.05
1730 Pennsylvania Avenue 1 229,377 99.3 8,003 35.13
2550 M Street 1 187,931 99.4 6,361 34.05
1775 Pennsylvania Avenue (6) 1 143,981 97.5 4,052 28.85
900 19th Street 1 101,215 100.0 3,169 31.31
1747 Pennsylvania Avenue (7) 1 151,942 97.1 4,605 31.21
1255 23rd Street (8) 1 305,528 98.5 8,389 27.86
Suburban Washington, D.C.:
One Rock Spring Plaza (6) 1 205,298 98.9 5,204 25.63
Reston Crossing East & West 2 323,821 100.0 5,667 17.50
Sunrise Corporate Center 3 260,253 100.0 5,770 22.17
Parkway One 1 87,842 100.0 1,457 16.59
Atlanta:
Glenridge 1 64,052 47.7 592 19.36
Century Springs West 1 94,893 83.5 1,516 19.12
Holcomb Place 1 72,824 94.0 1,173 17.12
Midori 1 99,900 100.0 1,793 17.94
Parkwood 1 151,296 91.9 2,651 19.05
Lakewood 1 80,338 70.2 964 17.08
The Summit 1 179,085 100.0 2,890 16.13
2400 Lake Park 1 101,285 88.5 1,457 16.25
680 Engineering Drive 1 62,154 100.0 599 9.62
Embassy Row 3 465,674 96.7 7,919 17.59
Embassy 100, 500 2 190,470 100.0 3,973 20.85
Waterford Center 1 82,161 88.0 1,352 18.69
Spalding Ridge 1 128,233 99.3 2,518 19.78
Property Significant Tenants/(5)/
- -------- ------------------------
Consolidated Properties
- -----------------------
SOUTHEAST REGION
Downtown Washington, D.C.:
International Square International Monetary Fund (46%)
1730 Pennsylvania Avenue Federal Deposit Insurance Corporation (47%), King (35%)
2550 M Street Patton Boggs, LLP (96%)
1775 Pennsylvania Avenue/(6)/ Citicorp (81%)
900 19th Street America's Community Bankers (29%), Stone & Webster (13%)
Korn/Ferry International (12%), Lucent Technologies (11%), The
Aluminum Association, Inc. (10%)
1747 Pennsylvania Avenue/(7)/ Legg Mason Wood Walker (16%)
1255 23rd Street/(8)/ Seaburry & Smith (16%), Chronicle of Higher Education (15%),
Peabody & Brown (14%), JH Marsh & McLennan, Inc. (14%), William
H. Mercer, Inc. (13%)
Suburban Washington, D.C.:
One Rock Spring Plaza /(6)/ Caterair (22%), Sybase, Inc. (19%)
Reston Crossing East & West Nextel Communications (100%)
Sunrise Corporate Center Software AG (66%), Lucas Aerospace (14%), LaFarge Corporation (12%)
Parkway One EIS International (89%)
Atlanta:
Glenridge Brooks, McGinnis & Chafin, LLC (10%)
Century Springs West No Tenants Occupy 10%
Holcomb Place Intercept Holdings, Inc. (41%), Hitachi Telecom (USA), Inc
(20%), The Progeni Corporation (13%)
Midori National Consumer Services Corporation (64%), UPS (20%)
Parkwood Onesource (20%)
Lakewood Morrison Health Care, Inc. (25%), Paychex (25%), Hickson (USA)
Corporation (17%)
The Summit Unisys Corporation (87%)
2400 Lake Park United Healthcare Services (28%), Computer Language Research
(22%), Government Services Administration (16%)
680 Engineering Drive EMS Technologies (67%), Enrev Corporation (22%), Loral Aerospace
Corporation (12%)
Embassy Row Ceridian Corporation (24%), Cabot Corporation (10%)
Embassy 100, 500 Art Institute of Atlanta (60%), Edutrek International, Inc (40%)
Waterford Center Dateq Information Network, Inc. (20%), VCG,Inc. (16%), Arkwright
Mutual Insurance Co. (15%)
Spalding Ridge OHM Remediation Services Corporation (57%), FDIC (10%)
19
Net Total Average Base
Rentable Annualized Rent Per
# of Area/(1)/ Percent Base Rent/(3)/ Leased
Property Buildings (square feet) Leased/(2)/ (in thousands) Square Foot/(4)/
- -------- --------- ------------------ ----------- --------------- ----------------
Florida,
Boca Raton:
Peninsula Plaza 1 162,303 88.2% $ 2,100 $ 14.66
Peninsula Executive Center 1, 2 2 164,777 100.0 2,517 15.27
Presidential Circle 1 279,375 94.9 4,445 16.76
- --------- ---- ------- -------
Southeast Region Subtotal 36 5,390,563 96.3% $ 122,999 $ 23.69
PACIFIC REGION
Southern California,
Orange County/Los Angeles:
Scenic Business Park 4 139,012 90.6 1,724 13.69
Harbor Corporate Park 4 151,888 99.2 2,710 17.97
Plaza PacifiCare 1 104,377 100.0 999 9.57
Katella Corporate Center 1 80,609 96.1 1,305 16.85
Warner Center 12 344,181 99.4 8,461 24.73
South Coast Executive Center 2 161,787 89.6 3,216 22.19
Warner Premier 1 61,553 93.4 1,280 22.28
Pacific Corporate Plaza 3 1 40,063 100.0 649 16.20
Von Karman 1 103,713 100.0 2,410 23.23
2600 W. Olive 1 144,831 100.0 3,685 25.44
Bay Technology Center 2 107,481 100.0 1,393 12.96
Alton Deere Plaza 6 182,185 100.0 2,974 16.33
Southern California,
San Diego:
Del Mar Corporate Plaza 2 123,142 100.0 1,904 15.46
Wateridge Pavilion 1 62,194 100.0 967 15.54
Lightspan 1 64,800 100.0 1,135 17.52
Towne Center Technology Park 1, 2, 3 3 182,120 100.0 2,975 16.33
Palomar Oaks Technology Park 6 170,358 100.0 2,067 12.13
La Jolla Spectrum 1 79,759 100.0 2,393 30.00
Jaycor 1 105,358 100.0 1,762 16.73
Highlands Corporate Center 5 205,085 95.1 4,473 22.94
Property Significant Tenants/(5)/
- -------- ------------------------
Florida,
Boca Raton:
Peninsula Plaza TSI International Software, Ltd. (13%), Motoro
Peninsula Executive Center 1, 2 Sunbeam Corporation (66%), Ericsson (15%)
Presidential Circle Suncoast Savings (11%)
Southeast Region Subtotal
PACIFIC REGION
Southern California,
Orange County/Los Angeles:
Scenic Business Park Talbert Medical Management (34%), Miles, Wright, Finely & Zak
(19%), Coast Community College Dist. (13%), Southern California
Blood & Tissue Service (12%)
Harbor Corporate Park Delmas (22%), Tech Data Corporation (15%)
Plaza PacifiCare Pacificare Health Systems (100%)
Katella Corporate Center Friendly Hills Healthcare (19%)
Warner Center El Camino Resources (23%), General Services Administration (16%)
South Coast Executive Center State Compensation Insurance Fund (33%)
Warner Premier Panorama Software (34%), RSL COM, USA (27%), Charles Schwab &
Co, Inc. (12%)
Pacific Corporate Plaza 3 ZLAND, Inc. (100%)
Von Karman Fidelity National Title Insurance (41%), Vision Solutions (41%),
Taco Bell Corporation (18%)
2600 W. Olive The Walt Disney Company (89%)
Bay Technology Center AMRESCO (100%)
Alton Deere Plaza Nextlink California (24%), Prof. Coingrading Service (15%)
Southern California,
San Diego:
Del Mar Corporate Plaza Peregrine Systems, Inc. (77%), Newgen Results
Wateridge Pavilion Stellcom, Inc. (41%), Platinum Solutions, Inc. (19%), Wateridge
Insurance Services (18%), TCS Mortgage, Inc. (14%)
Lightspan The Lightspan Partnership, Inc. (100%)
Towne Center Technology Park 1, 2, 3 Gateway 2000, Inc. (100%)
Palomar Oaks Technology Park Unifet, Inc. (23%), Excalibur Technologies Corporation (18%),
Torrey Pines Research, Inc. (13%), Pacific Analytical, Inc
(11%), Coded Communications Corporation (11%)
La Jolla Spectrum Novartis Agricultural Discover (100%)
Jaycor Jaycor, Inc. (100%)
Highlands Corporate Center Brandes Investment (25%), Premier, Inc. (14%)
20
Net Total Average Base
Rentable Annualized Rent Per
# of Area Percent Base Rent/(3)/ Leased
Property Buildings (square feet)/1)/ Leased/(2)/ (in thousands) Square Foot/(4)/
- -------- --------- ---------------- ----------- -------------- ---------------
Northern California,
San Francisco Bay Area:
CarrAmerica Corporate Center 6 1,001,976 100.0% $ 18,733 $ 18.70
Bayshore Centre 2 1 94,874 100.0 1,188 12.52
Rio Robles 7 368,178 100.0 4,591 12.47
Valley Business Park II 6 166,928 100.0 2,443 14.64
Rincon Centre 3 201,178 100.0 2,045 10.16
Valley Centre II 4 212,082 100.0 2,774 13.08
Valley Office Centre 2 68,738 99.1 1,851 27.18
Valley Centre 2 102,291 100.0 1,684 16.47
Valley Business Park I 2 67,784 100.0 968 14.28
3745 North First Street 1 67,582 100.0 933 13.80
3571 North First Street 1 116,000 100.0 1,302 11.23
San Mateo I 1 70,000 100.0 2,562 36.60
San Mateo II and III 2 141,404 98.9 4,464 31.92
Hacienda West 2 206,652 89.2 4,224 22.91
Sunnyvale Technology Centre 5 165,520 100.0 2,559 15.46
Baytech Business Park 4 300,000 100.0 4,374 14.58
Golden Gateway Commons 3 272,393 99.3 7,375 27.26
Techmart Commerce Center/(6)/ 1 262,585 95.3 7,035 28.10
995 Benecia Avenue 1 36,344 100.0 741 20.40
Oakmead West A-G 7 425,981 100.0 9,201 21.60
Santa Clara Technology Park 3 178,132 100.0 2,041 11.46
Valley Technology Center 1, 2, 3, 4 & 5 5 350,000 90.2 3,254 10.31
Clarify Corporate Center 2, 3, 4 3 193,536 100.0 4,745 24.52
Fremont Technology Park 1, 2, 3 3 120,688 100.0 1,907 15.80
Portland, OR:
RadiSys Corporate Headquarters 1 80,525 100.0 822 10.21
RadiSys II 1 45,655 100.0 602 13.19
Property Significant Tenants/(5)/
- -------- -------------------
Northern California,
San Francisco Bay Area:
CarrAmerica Corporate Center AT&T (47%), PeopleSoft (32%), Pacific Bell Mobil Services (17%)
Bayshore Centre 2 Redbacks Networds, Inc. (100%)
Rio Robles KLA Instruments (39%), Fujitsu (36%), NEC Systems, Inc. (25%)
Valley Business Park II Pericom (28%), Computer Training Academy (20%)
Rincon Centre Ontrak Systems (44%), Toshiba America Electronic (31%), Future
Electronics (19%)
Valley Centre II Boston Scientific (100%)
Valley Office Centre Bank of America (21%), Quadrep (20%)
Valley Centre Seagate Technology (40%), Numerical Technologies (38%), Vivace
Network (17%)
Valley Business Park I Leybold-Heraeus (35%), LGC Wireless, Inc. (17%), Millipore,
Inc./Tylan General (17%), Acer Labs, Inc. USA (15%)
3745 North First Street Comdisco, Inc. (100%)
3571 North First Street Sun Microsystems, Inc. (100%)
San Mateo I Franklin Resources (100%)
San Mateo II and III Women.com Networks (38%), Franklin Resources, Inc. (30%)
Hacienda West Paychex, Inc. (13%), Zacson Corporation (12%)
Sunnyvale Technology Centre Advanced Micro Devices, Inc. (51%), BMC Software (25%), XICOM
Technology, Inc. (12%), Metelics Corporation (12%)
Baytech Business Park Applied Materials, Inc. (50%), Schlumberger Technologies (50%)
Golden Gateway Commons Sharper Image Corporation (21%), Norcal Mutual Insurance Co.
(20%), ABM Industries, Inc. (11%)
Techmart Commerce Center/(6)/ Network Conference Company, Inc. (15%), Sun MicroSystems (11%),
Bay Business Centers, Inc. (10%)
995 Benecia Avenue Cardiac Pathways Corporation (100%)
Oakmead West A-G Applied Materials, Inc. (100%)
Santa Clara Technology Park Pycon, Inc. (75%), FRY's Metal, (25%)
Valley Technology Center 1, 2, 3, 4 & 5 Iomega Corporation (42%), Fore Systems (27%), Navisite, Inc.
(21%), Picot Interiors (10%)
Clarify Corporate Center 2, 3, 4 Clarify, Inc. (100%)
Fremont Technology Park 1, 2, 3 Applied Fiber Optics, Inc. (39%), Flash Electronics, Inc. (32%),
Bandwidth Unlimited, Inc. (16%)
Portland, OR:
RadiSys Corporate Headquarters RadiSys Corporation (100%)
RadiSys II RadiSys Corporation (100%)
21
Net Total Average Base
Rentable Annualized Rent Per
# of Area Percent Base Rent(3) Leased
Property Buildings (square feet)/(1)/ Leased/(2)/ (in thousands) Square Foot/(4)/
- -------- --------- ------------------ ----------- -------------- ----------------
Seattle:
Redmond East 10 396,497 100.0% $ 5,206 $ 13.13
Willow Creek 1 96,179 100.0 981 10.20
Canyon Park Business Center 6 285,428 100.0 4,443 15.57
Canyon Park Commons 1 95,290 100.0 1,342 14.08
Willow Creek Corporate Center 1-6 6 329,009 100.0 5,089 15.47
Redmond Hilltop B & C 2 90,880 100.0 1,370 15.07
Canyon Park Commons 1 & 2 2 110,398 100.0 1,304 11.81
- --------- ----- --------- -------
Pacific Region Subtotal 161 9,335,203 98.7% $ 162,635 $ 17.65
CENTRAL REGION
Austin, Texas:
Great Hills Plaza 1 135,333 100.0 2,637 19.49
Balcones Center 1 74,978 76.2 880 15.40
Park North 2 132,744 96.5 2,129 16.62
City View Centre 3 136,183 100.0 2,357 17.31
Riata 2, 4, 5, 6, 8, 9 6 519,313 98.9 8,004 15.59
Tower of the Hills 2 166,034 96.7 2,784 17.34
City View Center 1 128,716 100.0 2,073 16.10
Riata Crossing 1, 2, 3 3 265,177 100.0 4,993 18.83
Chicago:
Parkway North I 1 249,314 100.0 3,993 16.02
Parkway North III 1 257,512 93.7 3,911 16.20
Parkway 6 1 91,604 91.4 1,502 17.94
Unisys 2 362,950 95.9 5,664 16.28
The Crossings 2 294,350 94.3 4,757 17.13
Bannockburn I & II 2 210,257 88.8 2,804 15.01
Bannockburn IV 1 108,469 100.0 1,678 15.47
Property Significant Tenants/(5)/
- -------- ------------------------
Seattle:
Redmond East Lucent Technologies, Inc. (21%), Guidant Corp. (20%), IBM Corp.
(15%), Genetic Systems (14%), Genie Industries, Inc. (10%)
Willow Creek Data I/O Corporation (100%)
Canyon Park Business Center ICOS Corporation (27%), University of Washington (18%), Federal
Express (11%)
Canyon Park Commons Safeco Insurance Company of America (100%)
Willow Creek Corporate Center 1-6 Safeco Insurance Company of America (52%), Metawave
Communication Corporation (29%), Nextlink Communications, Inc.
(13%)
Redmond Hilltop B & C Concur Technologies (90%), Citrix Systems, Inc. (10%)
Canyon Park Commons 1 & 2 Washington Mutual Bank (100%)
Pacific Region Subtotal
CENTRAL REGION
Austin, Texas:
Great Hills Plaza Empire Funding (74%), Blue Cross (12%)
Balcones Center Medianet (29%)
Park North CSC Continuum Inc. (28%), Brent Rauht Engineering, Inc. (26%)
City View Centre Holt, Rinehart & Winston (48%), Money Star Communications (47%)
Riata 2, 4, 5, 6, 8, 9 Lucent Technologies (35%), Janus Capital Corporation (28%),
Pervasive Software, Inc. (13%)
Tower of the Hills Texas Guaranteed Student (65%)
City View Center IXC Communications, Inc. (100%)
Riata Crossing 1, 2, 3 EDS (100%)
Chicago:
Parkway North I Alliant Foodservice, Inc. (52%) Pactiv Corporation (11%),
Toshiba America Electronics (10%)
Parkway North III Fujisawa USA, Inc. (46%), Nestle Clinical Nutrition (15%)
Parkway 6 BT Office Products (69%), Allstate Insurance Company (23%)
Unisys PNC Mortgage (29%), Unisys Corporation (19%)
The Crossings Abercrombie & Kent (15%), Allstate Insurance Co. (14%)
Bannockburn I & II IMC Global (38%), Deutsche Credit Corporation. (12%)
Bannockburn IV Open Text (35%), Abbott Laboratories (13%), NY Life Insurance (10%)
22
Net Total Average Base
Rentable Annualized Rent Per
# of Area Percent Base Rent/(3)/ Leased
Property Buildings (square feet)/(1)/ Leased/(2)/ (in thousands) Square
Foot/(4)/ Significant Tenants/(5)/
- -------- --------- ------------ ------- ------------- --------- ----------------------
Dallas, Texas:
Quorum North 1 116,044 88.4 1,953 19.03 Digital Matrix Systems (20%),
HQ Dallas Quorum North (17%)
Quorum Place 1 178,210 97.5 3,130 18.00 VHA Southwest, Inc. (22%),
Objectspace (11%)
Cedar Maple Plaza 3 113,127 95.6 2,138 19.78 Avreafoster, Inc. (10%)
Two Mission Park 1 77,710 96.9 1,201 15.94 Macromedia, Inc. (33%), Bland
Garvey and Taylor (18%)
5000 Quorum 1 159,712 96.8 2,830 18.31 Decision Consultants, Inc.
(10%)
Tollway Plaza 1, 2 2 342,802 100.0 8,016 23.38 Sun Microsystems (27%),
Americorp Relocation Management
(10%)
Commons @ Las Colinas 1, 3 2 380,764 100.0 9,380 24.64 Nokia (100%)
Royal Ridge Phase II 1 123,740 100.0 1,609 13.00 Capital One Services (100%)
Royal Ridge A & B 2 247,239 100.0 4,457 18.03 GTE North, Inc. (59%), Cendant
-- ------- ----- ----- ----- Operations (16%), Capital One
Services, Inc. (15%)
Central Region Subtotal 43 4,872,282 97.1 84,880 17.95
MOUNTAIN REGION
Denver:
Harlequin Plaza 2 329,100 88.6 4,848 16.62 Travelers Insurance (23%),
Bellco First Federal Credit
Union (13%), Regis University
(11%)
Quebec Court I 1 130,000 100.0 2,014 15.50 Time Warner Communications
(100%)
Quebec Court II 1 157,294 100.0 2,162 13.75 Tele-Communications, Inc.
(100%)
Quebec Center 3 106,865 98.3 1,732 16.49 Gordon Gumeson & Associates
(13%), Walberg & Dagner (11%)
Panorama Corporate Center I 1 100,881 93.2 1,901 20.22 AT&T Corporation (70%), Sprint
Spectrum, LP (11%)
Panorama II 1 100,916 100.0 2,147 21.28 Hartford Fire Insurance
Company (38%), 3COM Corporation
(18%), Toyota Motor Credit
Corporation (13%), Archstone
Communities (12%)
Panorama III 1 136,850 100.0 1,613 11.79 Charles Schwab & Co., Inc.
(100%)
Panorama V 1 137,953 97.0 3,054 22.81 ICG Equipment, Inc. (43%),
Manugistics, Inc. (12%),
Synopsis, Inc. (10%)
Phoenix, Arizona:
Camelback Lakes 2 201,238 99.9 3,773 18.76 Vanguard Group (28%), Humana
Health Plan (14%), American
Founders Life Insurance (11%),
Arizona Bank (10%)
Pointe Corridor IV 1 144,219 98.3 2,468 17.40 Jostens Learning Corporation
(22%), Aetna Life Insurance
Company (22%), TPA, Inc. (12%)
Four Gateway 1 137,709 90.8 2,670 21.35 Eclipsys Corporation (29%),
Options Health Care, Inc. (22%)
Highland Park 1 78,969 82.9 1,324 20.23 Springstreet (14%), Trendwest
Resources, Inc. (11%)
The Grove at Black Canyon 1 104,571 95.9 1,956 19.50 Cigna Healthcare of Arizona
(80%)
US West 4 532,506 100.0 8,795 16.52 US West Business Resources
(100%)
Concord Place 1 133,555 78.8 2,276 21.63 Peacock, Hislop, Staley &
Given (16%)
23
Net Total Average Base
Rentable Annualized Rent Per
# of Area Percent Base Rent/(3)/ Leased
Property Buildings (square feet)/(1)/ Leased/(2)/ (in thousands) Square
Foot/(4)/ Significant Tenants/(5)/
- -------- --------- ------------ ------- ------------- ---------- -----------------------
Salt Lake City, Utah:
Sorenson Research Park 5 285,869 99.7 3,436 12.06 Convergys Customer Management
Group (46%), Datachem
Laboratories, Inc. (20%),
Intel Corporation (14%), ITT
Educational Services (12%)
Wasatch Corporate Center 3 178,231