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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ________ from to ________
Commission File Number 1-11706
CARRAMERICA REALTY CORPORATION
Formerly CARR REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 52-1796339
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 624-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, New York Stock Exchange
$0.01 Par Value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
As of March 15, 1997, the aggregate market value of the 28,121,529 shares of
Common Stock held by non-affiliates of the registrant was approximately $903.4
million, based upon the closing price of $32.125 on the New York Stock Exchange
composite tape on such date.
Number of shares of Common Stock outstanding as of March 15, 1997:
48,734,335
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for the
Annual Stockholders Meeting to be held in 1997 are incorporated by reference
into Part III.
PART 1
Item 1. Business
THE COMPANY
General
CarrAmerica Realty Corporation (the "Company") is a publicly-traded real estate
investment trust ("REIT") that focuses primarily on the acquisition,
development, ownership and operation of office properties in select suburban
growth markets across the United States. The Company's national office strategy
is responsive to the growing number of corporate office space users that are
relocating their operations from central business districts to suburban markets
to reduce operating costs and improve their employees' quality of life.
As of March 15, 1997, the Company owned a greater than 50% interest in a
portfolio of 170 operating office properties, and six properties currently under
construction, all of which are located in strategic markets across the United
States. These markets include Southern California, Northern California, Seattle,
Denver, Phoenix, Austin, Dallas, Chicago, Atlanta, South Florida and
metropolitan Washington, D.C. These 170 operating properties contain an
aggregate of approximately 13.4 million square feet of space (including
approximately 910,000 square feet under construction). The operating properties
owned by the Company as of December 31, 1996 were 93.6% leased as of that date,
with approximately 1,000 tenants.
The Company and its predecessor, The Oliver Carr Company ("OCCO"), have
successfully developed, owned and operated office buildings in the Washington,
D.C. metropolitan area for more than 30 years. In November 1995, the Company
announced a strategic alliance with a wholly-owned subsidiary of Security
Capital U.S. Realty (together with Security Capital U.S. Realty, "USRealty"), a
European real estate operating company which owns strategic positions in
selected real estate companies in the United States. USRealty initially invested
approximately $250 million in the Company in April 1996 for a 39% interest in
the Company on a fully-diluted basis. As of March 15, 1997, USRealty owned
approximately 39.7% of the outstanding common stock of the Company (35.6% on a
fully diluted basis). In April 1996, the Company changed its name to CarrAmerica
Realty Corporation.
The Company's experienced staff of over 625 employees, including over 425
on-site building employees, provides a full range of real estate services. The
Company's principal executive offices are located at 1700 Pennsylvania Avenue,
N.W., Washington, D.C. 20006, and its telephone number is (202) 624-7500. The
Company's web site can be found at www.carramerica.com. The Company was
organized as a Maryland corporation on July 9, 1992.
Business Strategy
The Company's primary business objective is to achieve long-term sustainable per
share cash flow growth by (i) acquiring, developing, owning and operating office
properties in suburban markets throughout the United States that exhibit strong,
long-term growth characteristics and (ii) developing a national operating system
that satisfies and capitalizes on the financial and operational demands of
corporate office space users. The Company believes that growth-oriented
companies are relocating to and expanding in suburban locations that offer lower
operating costs, greater convenience and a higher quality of life than
traditional central business districts. The Company seeks to provide suburban
office space which will meet the changing needs of corporate users of office
space.
The Company's business strategy is predicated on becoming one of the major
owners and operators of office space in each of its selected suburban target
markets; therefore, the Company is undertaking a major acquisition initiative as
the initial stage of its national office strategy. The Company focuses its
acquisition efforts in regions of the United States which possess strong,
long-term growth characteristics, and within those regions the Company targets,
in general, markets in which operating costs for businesses are relatively low,
long-term population and job growth are expected to exceed the national average,
and barriers to entry exist for new supply of office space. Additionally, the
Company's market officers coordinate with local third-party brokers to ensure
the identification of the best available locations. As of December 31, 1996 (on
a rentable square foot basis), 32% of the Company's portfolio was located in its
Pacific region, primarily in the suburban Seattle and the California markets of
San Jose, Silicon Valley, Pleasanton, Orange County, and San Diego; 41% in its
Southeast region, primarily in the metropolitan Washington, D.C. and suburban
Atlanta markets; and 27% in its Central and Mountain regions, primarily in the
southeast suburban Denver, suburban Chicago and Austin, Texas markets. Downtown
Washington, D.C., which represented 100% of the Company's portfolio in 1993,
accounted for approximately 19% of the Company's portfolio (on a rentable square
foot basis) at the end of 1996.
The Company has established a set of general guidelines and physical
characteristics to evaluate the acquisition opportunities available to the
Company in each identified target market. These guidelines include (i) the
purchase price of an office property typically should be at a discount to the
replacement cost of a comparable office property, (ii) rents of existing
customers with leases expiring in the near-term typically should be at or below
the current market rents for the given target market, and (iii) an office
property generally should be low-rise, with flexible floor plates that are
conducive to accommodating a variety of office space user needs. In addition,
the Company looks for office properties that have ample parking and that are
conveniently located near amenities and major transportation arteries.
To execute its national suburban office strategy, the Company is
implementing a national operating system that will provide nationally
coordinated customer service, marketing and development. The Company's national
operating system consists of three components: (i) a Market Officer Group; (ii)
a National Development Group; and (iii) a Corporate Services Group.
Market Officer Group. The Market Officer Group currently consists of nine
market officers who cover ten of the eleven target markets in which the Company
currently owns properties. These market officers are responsible for maximizing
the performance of the Company's properties in their markets and ensuring that
the needs of the Company's customers are consistently being met. Because they
meet with the Company's customers on a regular basis, they are cognizant of and
responsive to customers' relocation or expansion needs. The market officers have
extensive knowledge of local conditions in their respective markets and,
therefore, are invaluable in identifying attractive investment opportunities in
their markets. In addition, through their contact with customers, market
officers are well positioned to help the Corporate Services Group identify
customers with new build-to-suit and multi-market requirements.
National Development Group. The National Development Group is responsible
for developing suburban office properties, build-to-suit facilities and business
parks. The architects, engineers, and construction professionals who comprise
the National Development Group oversee every aspect of the Company's land
planning, building design, construction and development of office properties,
ensuring that all projects meet the same high standards and uniform
specifications in building design and systems. As the Company implements its
national strategy, the National Development Group's expertise should give the
Company a competitive edge in marketing its facilities and services to
customers. As of March 15, 1997, the Company owned (or held options to acquire)
land in six of its eleven target markets which will support the future
development of up to 3.3 million square feet of office space. The Company's goal
is to allocate approximately 5% of its invested capital to investments in
developable land. As of March 15, 1997, the Company had six suburban office
properties under construction: a 58,000 square foot building in suburban
Washington, D.C.; a 128,000 square foot building in suburban Atlanta; two
buildings totaling 295,000 square feet in southeast Denver; a 129,000 square
foot building in suburban Austin, Texas; and a 300,000 square foot building in
San Jose, California.
Corporate Services Group. The Company plans to establish the Corporate
Services Group during 1997. This group will be responsible for marketing the
Company's properties, build-to-suit capabilities, and the national scope of the
Company's operations to a targeted list of major corporate users of office
space. The Corporate Services Group will act as a primary point of contact for
national customers, coordinating all the
services the Company offers and giving corporate customers the opportunity to
address their national space requirements efficiently and economically.
Recent Developments
In 1996, the Company invested $1.1 billion ($855.4 million in cash, the
assumption of $184.4 million of debt and the issuance of $19.5 million in common
stock and partnership interests ("Units")) in 146 operating office properties,
552,000 square feet of office space under construction, and 142 acres of land
and land options held for future development. From January 1, 1997 to March 15,
1997, the Company invested $140.7 million in 10 operating office properties,
placed 1 development project of approximately 101,000 square feet into service
and acquired land which in the aggregate will support the development of 636,000
square feet of office space, 358,000 of which is currently under construction.
The 1997 acquisitions were funded through $122.6 million in cash and the
assumption of $18.1 million in debt. The table below shows the operating office
properties purchased or placed in service between January 1, 1996 and March 15,
1997.
Net Rentable
Number of Area
Property Location Properties (SF in 000's) Month/Year of Acquisition
- -----------------------------------------------------------------------------------------------------------------------
PACIFIC REGION:
Scenic Business Park Southern California 4 137 March 1996
Harbor Corporate Park Southern California 4 147 March 1996
AT&T Center Northern California 6 949 March 1996
Redmond East Suburban Seattle 10 399 June 1996
Plaza PacifiCare Southern California 1 104 June 1996
Katella Corporate Center Southern California 1 80 July 1996
Warner Center Southern California 12 342 July 1996
Sunnyvale Research Plaza Northern California 3 126 September 1996
NELO/Orchard Portfolio Northern California 21 1,014 November 1996
Rio Robles Northern California 7 368 November 1996
Del Mar Corporate Plaza Southern California 2 123 December 1996
South Coast Executive Center Southern California 2 162 December 1996
Warner Premier Southern California 1 62 February 1997
3745 North First Street Northern California 1 68 February 1997
Wateridge Pavilion Southern California 1 62 March 1997
---- ------
Subtotal 76 4,143
---- ------
Net Rentable
Number of Area
Property Location Properties (SF in 000's) Month/Year of Acquisition
- -----------------------------------------------------------------------------------------------------------------------
CENTRAL REGION:
Parkway North Center Suburban Chicago 2 508 June 1996
Norwood Tower Austin, Texas 1 111 June 1996
Littlefield Portfolio Austin, Texas 10 865 August 1996
Greyhound Suburban Dallas 1 93 November 1996
Search Plaza Suburban Dallas 1 151 December 1996
Unisys Suburban Chicago 2 365 December 1996
The Crossings Suburban Chicago 2 298 January 1997
Cedar Maple Suburban Dallas 3 113 January 1997
Quorum North Suburban Dallas 1 116 February 1997
Quorum Place Suburban Dallas 1 178 March 1997
---- -------
Subtotal 24 2,798
---- -------
SOUTHEAST REGION:
Reston Quadrangle Suburban Washington, D.C. 3 261 March 1996
Parkway One Suburban Washington, D.C. 1 88 June 1996
Peterson Portfolio Suburban Atlanta 38 1,263 November 1996
Lake Wyman Plaza South Florida 1 160 November 1996
---- -------
Subtotal 43 1,772
---- -------
MOUNTAIN REGION:
Harlequin Plaza Southeast Denver 2 324 May 1996
Quebec Court I & II Southeast Denver 2 286 May 1996
The Quorum Southeast Denver 2 124 June 1996
Greenwood Center Southeast Denver 1 75 July 1996
Quebec Center Southeast Denver 3 104 August 1996
Pointe Corridor IV Suburban Phoenix 1 172 December 1996
Camelback Lakes Suburban Phoenix 2 200 December 1996
Panorama I Southeast Denver 1 101 January 1997
---- -------
Subtotal 14 1,386
---- -------
TOTAL ACQUIRED 157 10,099
==== =======
The following table shows the Company's land and land options held for
future development, all of which were acquired between January 1, 1996 and March
15, 1997.
Square Feet Acres Rentable
Under Held For Square Feet
Region Construction Development Held For Development
- --------------------------------------------------------------------------------------------------------
Pacific Region:
Northern California 300,000 N/A N/A
Suburban Seattle N/A 4 95,000
-------- ---- ----------
Subtotal 300,000 4 95,000
-------- ---- ----------
Mountain Region:
Southeast Denver 295,000 39 720,000
Phoenix N/A 7 240,000
-------- ---- ----------
Subtotal 295,000 46 960,000
-------- ---- ----------
Central Region:
Austin, Texas 129,000 69 1,524,000
Dallas, Texas N/A 1 38,000
Suburban Chicago N/A 30 723,000
-------- ---- ----------
Subtotal 129,000 100 2,285,000
-------- ---- ----------
Southeast Region:
Suburban Washington, D.C. 58,000 N/A N/A
Suburban Atlanta 128,000 N/A N/A
-------- ---- ----------
Subtotal 186,000 N/A N/A
-------- ---- ----------
TOTAL 910,000 150 3,340,000
======== ==== ==========
Capital Transactions
During the fourth quarter of 1996, the Company raised aggregate net proceeds of
$249 million through the sale of 1.7 million shares of Series A Cumulative
Convertible Redeemable Preferred Stock in October, from which the Company raised
net proceeds of $43 million, and the sale of 8.2 million shares of its common
stock to the public and a concurrent offering to USRealty in November, from
which the Company raised net proceeds of $206 million. The net proceeds of these
offerings were used to acquire the suburban office properties and land described
above and to pay down indebtedness under the Company's unsecured line of credit.
In January 1997, the Company consummated a public offering and a concurrent
offering to USRealty of 4.9 million shares of its common stock that raised net
proceeds of approximately $136 million. The net proceeds were used to acquire
the suburban office properties and land described above and to pay down
indebtedness under the Company's unsecured line of credit.
In January 1997, the Company entered into a short-term, revolving credit
agreement with Morgan Guaranty Trust of New York to borrow up to $150 million,
secured by certain properties in the Company's portfolio.
Directors of the Company
The directors of the Company are divided into three classes, with approximately
one-third of the directors elected by the stockholders annually. As of March 15,
1997, the Board of Directors of the Company consisted of the following persons:
Oliver T. Carr, Jr., 71, has been the Chief Executive Officer and Chairman
of the Board of Directors of the Company since it commenced operations in
February 1993. Mr. Carr's term as a director of the Company expires at the 1999
Annual Meeting of Stockholders. Mr. Carr founded OCCO in 1962 and since that
time has been its Chairman of the Board and a director. In addition, Mr. Carr
has served as President of OCCO since February 1993. Mr. Carr is also on the
Board of Directors of Carr Park, Inc., a subsidiary of OCCO. He was Chairman of
the Board of Trustees of The George Washington University until May 1995. Mr.
Carr is the father of Thomas A. Carr and Robert O. Carr. Mr. Carr is a member of
the Investment Committee and the Executive Committee of the Board of Directors.
Thomas A. Carr, 38, has been President and a director of the Company since
February 1993. Mr. Carr's term as a director of the Company expires at the 1998
Annual Meeting of Stockholders. In May 1995, Mr. Carr was also appointed the
Chief Operating Officer of the Company, at which time he resigned as the
Company's Chief Financial Officer, a position he had held since February 1993.
Mr. Carr was President of Carr Partners, Inc., a financial services affiliate of
OCCO, from 1991 until February 1993, when Carr Partners, Inc. ceased operations.
Prior to becoming President of Carr Partners, Inc., Mr. Carr was Vice President
of Suburban Development and Regional Development Partner for Montgomery County
for OCCO, beginning in 1985. Mr. Carr is a director of OCCO. Mr. Carr holds a
Masters degree in Business Administration from Harvard Business School, and a
Bachelor of Arts degree from Brown University. Mr. Carr is a member of the Board
of Governors of the National Association of Real Estate Investment Trusts and a
director of Lafayette Square Partners, Inc. Mr. Carr is the son of Oliver T.
Carr, Jr. and the brother of Robert O. Carr. Mr. Carr is a member of the
Investment Committee and the Executive Committee of the Board of Directors. In
addition, Mr. Carr is a member of management's Operating Committee and
Investment Committee.
Robert O. Carr, 47, has been a director of the Company and President and
Chairman of the Board of Directors of Carr Real Estate Services, Inc. ("Carr
Services, Inc."), a subsidiary of the Company, since February 1993. Mr. Carr's
term as a director of the Company expires at the 1997 Annual Meeting of
Stockholders. Mr. Carr is a director of OCCO and, from 1987 until February 1993,
served as its President and Chief Executive Officer. Mr. Carr joined OCCO in
1973 and has served in a number of positions which have included the supervision
of all development operations since 1979 and all day-to-day company operations
since 1982 as Executive Vice President. Mr. Carr is a member of the Boards of
Directors for the Greater Washington Research Center, the Corcoran School of
Art, and the National Cathedral School for Girls. Mr. Carr is also a member of
the Greater Washington Board of Trade, the Urban Land Institute, and the D.C.
Chamber of Commerce. Mr. Carr holds a Bachelor of Arts degree from Trinity
College. Mr. Carr is the son of Oliver T. Carr, Jr. and the brother of Thomas A.
Carr. Mr. Carr is a member of the Executive Committee of the Board of Directors.
David Bonderman, 54, has been a director of the Company since its
commencement of operations. Mr. Bonderman's term expires at the 1997 Annual
Meeting of Stockholders. He is the managing general partner of TPG Partners,
L.P., a private investment partnership. From October 1971 through June 1983, Mr.
Bonderman was an associate and then partner in the law firm of Arnold & Porter,
Washington, D.C. From July 1983 through August 1992, Mr. Bonderman served as the
Vice President and Chief Operating Officer of Keystone, Inc. (formerly the
Robert M. Bass Group, Inc.). Mr. Bonderman also serves as a director of Bell &
Howell Holdings Company, Washington Mutual, Inc., Denbury Resources, Inc.,
National Education Corporation and Continental Airlines, Inc. Mr. Bonderman
holds a Bachelor of Arts degree from the University of Washington and an L.L.B.
degree from Harvard University. Mr. Bonderman is a member of the Executive
Compensation Committee of the Board of Directors.
Andrew F. Brimmer, 70, has been a director of the Company since February
1993. Dr. Brimmer's term as a director of the Company expires at the 1999 Annual
Meeting of Stockholders. He has been the President of Brimmer & Company, Inc.,
an economic and financial consulting firm, since 1976. Since
1995, Dr. Brimmer has served as the chairman of the District of Columbia
Financial Control Board. Dr. Brimmer was a member of the Board of Governors of
the Federal Reserve System from 1966 through 1974. He is also the Wilmer D.
Barrett Professor of Economics at the University of Massachusetts-Amherst. Dr.
Brimmer serves as a director of BankAmerica Corporation and Bank of America,
BlackRock Investment Income Trust, Inc. (and other funds), PHH Corporation, E.l.
du Pont de Nemours & Company, Navistar International Corporation, Gannett
Company, Borg-Warner Automotive, Inc. and Airborne Express. Dr. Brimmer received
a Bachelor of Arts and a Masters degree in Economics from University of
Washington and holds a Ph.D. in Economics from Harvard University. Dr. Brimmer
is a member of the Audit Committee of the Board of Directors.
A. James Clark, 69, has been a director of the Company since February 1993.
Mr. Clark's term as a director of the Company expires at the 1998 Annual Meeting
of Stockholders. He has been Chairman of the Board and President of Clark
Enterprises, Inc., a Bethesda, Maryland-based company involved in real estate,
communications, and commercial and residential construction, since 1972. Mr.
Clark is a member of the University of Maryland Foundation, and serves on the
Board of Trustees of The Johns Hopkins University. He is also a member of the
PGA Tour Investments Policy Board and a director of Lockheed Martin Corporation
and Potomac Electric Power Company. Mr. Clark is a graduate of the University of
Maryland. Mr. Clark is a member of the Investment Committee, the Executive
Compensation Committee, the Executive Committee and the Nominating Committee of
the Board of Directors.
Anthony R. Manno, Jr., 44, has been a director of the Company since May
1996. Mr. Manno's term as a director of the Company expires at the 1997 Annual
Meeting of Stockholders. Mr. Manno is a Managing Director of Security Capital
Investment Research Incorporated, an affiliate of USRealty. Prior to joining
Security Capital Investment Research Incorporated in 1993, Mr. Manno was a
managing director of LaSalle Partners Limited where he served in various
capacities from 1980 to 1993, including client manager for LaSalle Partners
Limited's joint venture partner, Dai-ichi Mutual Life Insurance Company; manager
of LaSalle Partners Limited's property finance group; and a member of LaSalle
Partners Limited's investment committee. Prior thereto, Mr. Manno was a
commercial real estate loan officer of The First National Bank of Chicago. Mr.
Manno is a Certified Public Accountant. Mr. Manno received his Masters in
Business Administration, with a concentration in Finance, from the University of
Chicago School of Business and his M.A. and B.A. in Economics from Northwestern
University.
Caroline S. McBride, 43, has been a director of the Company since July 1996.
Mrs. McBride's term as a director of the Company expires at the 1997 Annual
Meeting of Stockholders. Mrs. McBride is a Managing Director of Security Capital
Investment Research Incorporated. From January 1993 to June 1996, Mrs. McBride
was the director of private market investments for the IBM Retirement Fund and
from January 1992 to January 1995, she was the director of real estate
investments for such fund. Prior to joining the IBM Retirement Fund in 1992,
Mrs. McBride was director of finance, investments and asset management for IBM's
corporate real estate division. Mrs. McBride is on the Boards of Directors of
the Pension Real Estate Association (PREA) and the Real Estate Research
Institute. Mrs. McBride received her Masters in Business Administration from New
York University and a Bachelor of Arts degree from Middlebury College. Mrs.
McBride is a member of the Investment Committee and the Audit Committee of the
Board of Directors.
J. Marshall Peck, 45, has been a director of the Company since June 1996.
Mr. Peck was appointed to the Board in connection with the USRealty Transaction.
Mr. Peck is a Managing Director of Security Capital Investment Research
Incorporated. Prior to joining Security Capital Investment Research Incorporated
in May 1996, Mr. Peck was a Managing Director of LaSalle Partners Limited since
January 1989, where he served in various capacities over his 14-year tenure,
with responsibility for operating groups within both the investment and services
businesses and was a member of its management committee. Prior thereto, Mr. Peck
held various marketing and management positions in the Data Processing Division
of IBM. Mr. Peck is past Chairman of the Pension Real Estate Association and
serves on the National Real Estate Advisory Board of the Nature Conservancy. Mr.
Peck is on the Boards of
Directors of Regency Realty Corporation and Storage USA, Inc. Mr. Peck received
his B.A. degree from University of North Carolina at Chapel Hill. Mr. Peck is a
member of the Executive Committee and the Executive Compensation Committee of
the Board of Directors.
George R. Puskar, 53, has been a director of the Company since its
commencement of operations. Mr. Puskar's term expires at the 1999 Annual Meeting
of Stockholders. He has served as the Chairman and Chief Executive Officer of
Equitable Real Estate Investment Management, Inc. ("Equitable Real Estate")
since 1989 and a vice president of The Equitable Life Assurance Society of the
United States ("ELAS"). Mr. Puskar joined ELAS in 1966 in its local field office
in Pittsburgh. Mr. Puskar became the President of Equitable Real Estate, a
diversified real estate organization which is a subsidiary of ELAS, in 1984. Mr.
Puskar serves as a director of Equitable Real Estate Capital Markets, Inc. and
is a board member of the International Council of Shopping Centers, Clark
Atlanta University, The Atlanta Chamber of Commerce, the Vice Chairman and a
board member of the National Realty Committee, and a member of the Advisory
Board of the Wharton School's Real Estate Center in Philadelphia. Mr. Puskar is
a member of the Executive Committee and the Nominating Committee of the Board of
Directors.
William D. Sanders, 55, has been a director of the Company since May 1996.
Mr. Sanders is the Founder and Chairman of Security Capital Group, an affiliate
of USRealty. Mr. Sanders retired on January 1, 1990, as chief executive officer
of LaSalle Partners Limited, which he founded in 1968. Mr. Sanders is on the
Boards of Directors of R. R. Donnelley & Sons Company, USRealty, Storage USA,
Inc. and Regency Realty Corporation. Mr. Sanders is a former trustee and member
of the executive committee of the University of Chicago and a former trustee
fellow of Cornell University. Mr. Sanders received his Bachelor of Science from
Cornell University. Mr. Sanders is a member of the Nominating Committee of the
Board of Directors.
Wesley S. Williams, Jr., 54, has been a director of the Company since
February 1993. Mr. Williams' term as a director of the Company expires at the
1998 Annual Meeting of Stockholders. Mr. Williams has been a partner of the law
firm of Covington & Burling since 1975. He was adjunct professor of real estate
finance law at the Georgetown University Law Center from 1971 to 1973 and is a
contributing author to several texts on banking law and on real estate finance
and investment. Mr. Williams is also on the Editorial Advisory Board of the
District of Columbia Real Estate Reporter. Mr. Williams serves on the Boards of
Directors of Blackstar Communications, Inc. and its Florida, Michigan and Oregon
subsidiaries; Blackstar LLC and its Nebraska and South Dakota subsidiaries; and
the Federal Reserve Bank of Richmond. Mr. Williams is Chairman of the Boards of
Directors of Broadcast Capital, Inc. and Broadcast Capital Fund, Inc. and is
Vice Chairman of The Lockhart Companies, Incorporated. Mr. Williams also is a
member of the Executive Committee of the Board of Trustees of Penn Mutual Life
Insurance Company. Mr. Williams received a B.A. and J.D. from Harvard
University, an M.A. from the Fletcher School of Law and Diplomacy and an L.L.M.
from Columbia University. Mr. Williams is a member of the Executive Compensation
Committee of the Board of Directors.
Executive Officers and Certain Key Employees of the Company
In addition, as of March 15, 1997, the Company's executive officers and key
employees were as follows:
Brian K. Fields, 37, has been the Company's Chief Financial Officer since
May 1995. Prior to that time, Mr. Fields served as the Company's Vice President,
Treasurer and Controller since February 1993. Mr. Fields served as Treasurer and
Controller of OCCO from 1990 to February 1993. Prior to that time, Mr. Fields
was a Senior Manager with KPMG Peat Marwick LLP in Washington, D.C. Mr. Fields
was employed by KPMG Peat Marwick LLP for eight years. Since 1993, Mr. Fields
has also been a director and Treasurer of Carr Services, Inc. and since 1996 he
has served as a director and officer of several other subsidiaries of the
Company. He holds a Bachelor of Science degree in Accounting from Virginia Tech
and is a Certified Public Accountant. Mr. Fields is a member of management's
Operating Committee and Investment Committee.
Philip L. Hawkins, 41, has been the Company's Managing Director of Asset
Management since February 1996. Prior to that time, Mr. Hawkins was employed by
LaSalle Partners Limited since 1982. Mr. Hawkins served as the Executive Vice
President,
Eastern Division, Asset Management Group since 1995; the Senior Vice President,
Northeast Region, Asset Management Group from 1990 to 1994 and in other asset
management positions prior to that time. Mr. Hawkins was also a director of
LaSalle Partners. He holds a Masters in Business Administration from the
University of Chicago Graduate School of Business and a Bachelor of Arts degree
from Hamilton College. Mr. Hawkins is a member of management's Operating
Committee and Investment Committee.
Robert E. Peterson, 45, has been the Company's Regional Managing Director,
Southeast Region, since November 1996. Mr. Peterson has over 23 years of real
estate experience. Mr. Peterson's most recent experience includes 18 years as
President of Peterson Properties, which he co-founded in 1978. Prior to forming
Peterson Properties, Mr. Peterson was Vice President of Arthur Rubloff &
Company, where he spent five years specializing in office and industrial leasing
and investment property brokerage. Mr. Peterson is a former member of the
Society of Industrial and Office Realtors and serves on the Developer Advisory
council for the Georgia Chapter of the National Association of Industrial and
Office Parks. He graduated from University of North Carolina at Chapel Hill,
with a B.S. in Business Administration. Mr. Peterson is a member of management's
Operating Committee and Investment Committee.
Robert G. Stuckey, 35, has been the Company's Managing Director of
Acquisitions and Development since February 1996. Prior to that time, Mr.
Stuckey was employed by Security Capital Industrial Trust, an affiliate of
Security Capital Group, since January 1993, as a Senior Vice President managing
the operations of the development group since November 1994, and as a Vice
President supervising acquisition due diligence from May 1993 to November 1994.
Prior to that time, Mr. Stuckey had seven years of experience with Trammell Crow
Company. His most recent position there was as Chief Financial Officer for
Trammel Crow Company NE, Inc. Mr. Stuckey holds a Masters in Business
Administration from Harvard Business School and a Bachelor of Science in Finance
from University of Nebraska. Mr. Stuckey is a member of management's Operating
Committee and Investment Committee.
Paul R. Adkins, 38, has been the Company's Vice President, Market Officer
for Washington, D.C. since August 1996. Mr. Adkins has been with the Company for
over 14 years, including serving as Vice President of Acquisitions from May 1994
to August 1996. Mr. Adkins was instrumental in the Company's initial efforts to
acquire suburban office properties in its suburban Atlanta and Austin, Texas
target markets. Prior to that, Mr. Adkins served in a variety of other
capacities with the Company, with over 12 years in commercial real estate
leasing. Mr. Adkins was named "Top Producer" for the Washington metropolitan
area in 1990 and 1991 by the Washington, D.C. Association of Realtors. Mr.
Adkins is a member of the District of Columbia's Building Industry Association
and Northern Virginia's National Association of Industrial and Office Parks. Mr.
Adkins holds a Bachelor of Arts degree from Bucknell University.
Andrea F. Bradley, 36, has been the Company's Vice President, General
Counsel and Corporate Secretary since August 1993. Mrs. Bradley was an attorney
with the law firm of Shaw, Pittman, Potts and Trowbridge from 1991 to August
1993 and an attorney with the law firm of Paul, Hastings, Janofsky & Walker from
1985 to 1991, where she practiced primarily corporate finance and securities
law. Mrs. Bradley holds a Juris Doctor from University of California at Los
Angeles and an A.B. degree in American Studies from Stanford University.
Steven N. Bralower, 46, has been Senior Vice President of Carr Realty, L.P.,
a subsidiary of the Company, since May 1996 and prior thereto was Senior Vice
President of Carr Services, Inc. from 1993 to May 1996. Mr. Bralower was Senior
Vice President of OCCO from 1985 to February 1993 and was responsible for
overseeing and directing one-half of OCCO's leasing activities in its portfolio
of commercial office and retail space. Mr. Bralower first joined OCCO in 1978 as
a commercial leasing agent. Mr. Bralower has been a member of the Georgetown
University Law Center faculty. Mr. Bralower holds a Bachelor of Arts degree from
Kenyon College.
Robert L. Brumm, 45, has been Vice President, Human Resources and
Administration of the Company, since May 1996. From 1993 to 1996, Mr. Brumm held
the same position with Carr Services, Inc. and from March 1990 to 1993 held the
same
position with OCCO. He is responsible for managing the Human Resources,
Risk Management, Training, and Office Management functions. He has over 20 years
of experience including 8 years with Mark Controls Corporation and 5 years with
the real estate division of Philip Morris, Inc. Mr. Brumm received his Bachelors
degree from California State University at Long Beach.
Clete Casper, 37, has been the Company's Vice President, Market Officer for
suburban Seattle since July 1996. Mr. Casper has over 10 years' experience in
the real estate and marketing field. Mr. Casper's most recent experience
includes 1 year as a Senior Associate with CB Commercial Real Estate Group Inc.,
Seattle, Washington. Prior to that, Mr. Casper was with Sabey Corporation in
Seattle, Washington serving in the following capacities: 4 years as Development
Manager and 5 years as a Marketing Associate. Mr. Casper is a graduate of
Washington State University.
Joel DeSpain, 45, has been the Company's Vice President, Market Officer for
Austin, Texas since August 1996. Mr. DeSpain has over 18 years' experience in
the real estate and marketing field. Mr. DeSpain's most recent experience
includes 2 years as a Vice President of Littlefield Real Estate Company in
Austin, Texas. Prior to that, Mr. DeSpain spent 2 years with Faison-Stone in
Austin, Texas as Vice President, 5 years with Grubb & Ellis in Austin, Texas as
President, 2 years with Paragon Properties in Austin, Texas as Executive Vice
President, and 7 years with The Home Company Realtors in Houston, Texas as
Marketing Director. Mr. DeSpain holds a Doctor of Jurisprudence from South Texas
College of Law and a BBA in Marketing from University of Houston.
John J. Donovan, Jr., 53, has been Senior Vice President of Carr Services,
Inc. since February 1993. Prior to that, Mr. Donovan was Senior Vice President
of OCCO from 1988 to February 1993 and was responsible for overseeing and
directing one-half of OCCO's leasing activities in its portfolio of commercial
office and retail space. Mr. Donovan joined OCCO as a commercial leasing agent
in 1976. He is a member of the Advisory Board for Jubilee Enterprise of Greater
Washington (an affiliate of Jubilee Housing and The Enterprise Foundation). Mr.
Donovan holds a Bachelor of Arts degree from Georgetown University.
Karen B. Dorigan, 32, has been the Company's Vice President -- Land Due
Diligence since January 1996 and is responsible for supervising land and
development due diligence. Prior to that time and for more than 9 years, Mrs.
Dorigan served in a variety of capacities in OCCO's development business,
including from February 1993 to January 1996 serving as a Vice President. She is
a past member of Northern Virginia's Building Industry Association's Arlington
Chapter Council. Mrs. Dorigan holds a Bachelor of Science degree in Economics
from the University of Pennsylvania, Wharton School.
J. Thad Ellis, 36, has been the Company's Vice President, Market Officer for
suburban Atlanta since November 1996. Mr. Ellis has over 12 years' experience in
the real estate field. Mr. Ellis' most recent experience includes 10 years with
Peterson Properties where his primary responsibility was to oversee and
coordinate the leasing and property management for the management services
portfolio. Prior to that, Mr. Ellis spent two years with another Atlanta
development company. Mr. Ellis is a graduate of Washington & Lee University and
is involved with the National Association of Industrial and Office Parks and
Atlanta's Chamber of Commerce and is also on the Advisory Board of Black's
Guide.
Richard W. Greninger, 45, has been Senior Vice President of Carr Services,
Inc. since March 1995. Prior to that time he had been Vice President of Carr
Services, Inc. since February 1993. Mr. Greninger was with OCCO as Vice
President of Property Management Services from January 1992 to February 1993.
Prior to that time, Mr. Greninger was with CB Commercial Real Estate Group Inc.,
a commercial real estate firm, where he was Senior Vice President and Regional
Manager of the Mid-Atlantic Property Management Division responsible for the
management of 7.5 million square feet of commercial space. During 1994, Mr.
Greninger served as President of the Greater Washington Apartment and Office
Building Association. Mr. Greninger has served as a director of both the
Institute of Real Estate Management and the Building Owners and Managers
Association. Mr. Greninger holds a Masters in Business Administration from the
University of Cincinnati and a Bachelor of Science degree from Ohio State
University.
John S. Herr, 41, has been the Company's Vice President, Market Officer for
Northern California since September 1996. Mr. Herr has over 12 years' experience
in the real estate and marketing field. Mr. Herr's most recent experience
includes 21U2 years as the President and Chief Executive Officer of Simeon
Commercial Properties in San Francisco, California. Prior to that, Mr. Herr
spent 8 years with Trammel Crow serving in the following capacities: 2 years as
Principal and Executive Vice President in San Francisco; 3 years as Partner in
Richmond, Virginia; and 4 years as Marketing Representative in Washington, D.C.
Mr. Herr holds a Masters in Business Administration from Stanford University and
a Bachelors degree from the U.S. Naval Academy.
Austin W. Lehr, 35, has been the Company's Vice President, Market Officer
for Southeast Denver since July 1996. Mr. Lehr has over 10 years' experience in
the real estate and marketing field. Mr. Lehr's most recent experience includes
4 years as a Vice President with Southwest Value Partners and Affiliates in
Phoenix, Arizona. Prior to that, Mr. Lehr spent 4 years with Draper and Kramer,
lncorporated in Washington, D.C. as the Director of Development and Marketing,
and 2 years as a Vice President at Guaranty Federal Savings and Loan in Dallas,
Texas. Mr. Lehr holds a Masters of Management degree from Northwestern
University and a Bachelor of Arts degree from Williams College.
Dwight L. Merriman, 36, has been the Company's Vice President, Market
Officer for Southern California since August 1996. Mr. Merriman has over 12
years' experience in the real estate and marketing field. Mr. Merriman's most
recent experience includes 1 year as Vice President with Security Capital
Industrial Trust in Irvine, California. Prior to that, Mr. Merriman spent 11
years with Overton, Moore in Los Angeles in the following capacities: 5 years as
the Director of Marketing - Asset Management (Partner), 4 years as Director of
Marketing - Development (Partner) and 2 years as a Marketing Associate. Mr.
Merriman holds a Masters in Business Administration from University of
California at Los Angeles and a Bachelors degree from University of Southern
California.
B. Thomas Miller, Jr., 35, has been the Company's Vice President -
Acquisitions and Marketing since September 1996. Mr. Miller has over 10 years of
experience in the real estate and marketing field. Mr. Miller's most recent
experience includes 3 years as Vice President of Security Capital Investment
Research Incorporated. Prior to that time, Mr. Miller spent 3 years as a Senior
Manager with Arthur Andersen S.C. Real Estate Services Group and 2 years as an
Associate in Management Advisory Services at Kenneth Leventhal & Company. Mr.
Miller holds a Bachelor of Arts degree in Finance from University of Texas at
Austin.
Gerald J. O'Malley, 53, has been the Company's Vice President, Market
Officer for suburban Chicago since July 1996. Mr. O'MalIey has over 29 years'
experience in the real estate and marketing field. Mr. O'Malley's most recent
experience includes 10 years as founder and President of G.J. O'MaIIey &
Company, a real estate office leasing company. Prior to that, Mr. O'Malley spent
6 years as a leasing agent for LaSalle Partners in Chicago, Illinois, 4 years as
a leasing and sales agent for the firm of Bennett and Kahnweiler, in Chicago,
Illinois, and 8 years with Whiston Group as a property and leasing manager. Mr.
O'Malley holds a Bachelors degree from Loyola University.
James D. Peterson, 49, has been the Company's Vice President, Market Officer
for South Florida since November 1996. Mr. Peterson has over 25 years'
experience in the real estate field. Mr. Peterson's most recent experience
includes 3 years (from 1993 to October 1996) as Vice President of Peterson
Properties with responsibility for property operations in South Florida. From
1978 to 1981, Mr. Peterson was President of Peterson Properties, which he
co-founded. Mr. Peterson also spent 4 years with the Investment Life Insurance
Company of America as Chairman and Chief Executive Officer, 7 years as Chairman
of Cavanaugh Development Company, a general contractor and developer of office
and industrial parks in San Diego, California, which he co-founded, and 7 years
with Wachovia Bank and Trust Company. Mr. Peterson is involved with the National
Association of Industrial and Office Parks and is a member of Boca Raton's
Chamber of Commerce. Mr. Peterson holds a Masters in Business Administration
from University of Texas - Austin and a Bachelor of Science degree in Economics
from University of North Carolina at Chapel Hill.
Matthew L. Richardson, 37, has been a Senior Vice President of Carr
Development & Construction, Inc., a subsidiary of the Company, since April 1996,
with responsibility for all build-to- suit marketing and for assisting the
Market Officer Group in qualifying, structuring and negotiating development
opportunities. Prior to that time and for more than 8 years, Mr. Richardson
served in a variety of capacities in OCCO's development business, including from
September 1991 to April 1996 serving as its President. He is on the Board of
Directors of the District of Columbia's Building Industry Association. Mr.
Richardson holds a Masters of Business Administration and a Bachelor of Urban
Planning degree from University of Virginia.
Debra A. Volpicelli, 32, has been the Company's Treasurer and Controller
since May 1995. Prior to that time, Mrs. Volpicelli was the Company's Tax
Manager since February 1993. Mrs. Volpicelli was Tax Manager for OCCO from 1990
to February 1993. Prior to that time, Mrs. Volpicelli was in the tax department
of Arthur Andersen & Co., SC. Mrs. Volpicelli holds a Bachelor of Science degree
in Business Administration from Georgetown University and is a Certified Public
Accountant.
Joseph D. Wallace, 33, has been the Company's Vice President - Building Due
Diligence since January 1996 and is responsible for supervising building
acquisition due diligence. Prior to that time, Mr. Wallace was the Company's
Vice President of Asset Management since February 1993. Mr. Wallace was Vice
President of Carr Partners, Inc. from 1990 to February 1993. Prior to that, Mr.
Wallace was co-Director of Asset Management for OCCO responsible for the
investment oversight of OCCO's portfolio of commercial properties in the
Washington, D.C. metropolitan area. Mr. Wallace holds a Bachelor of Science
degree in Commerce from University of Virginia.
James S. Williams, 40, has been a Senior Vice President of Carr Development
& Construction, Inc. with responsibility for oversight of all project
management, design and construction operations since October 1996. Mr. Williams
rejoined the Company after 2 years as Vice President of Operations of Obadwick
International. Mr. Williams' initial tenure with the Company was from 1983 to
1994, during which time he served in a variety of capacities in OCCO's
development business. Prior to that, Mr. Williams was employed by Holland &
Lyons where he worked in project management of commercial and residential real
estate development. Mr. Williams is a guest lecturer at George Washington
University. Mr. Williams holds a Bachelor of Science degree in Business
Administration from West Virginia University.
Item 2. Properties
General. As of December 31, 1996, the Company owned interests in 165 operating
office properties consisting of whole or partial ownership interests, ranging
from two to sixteen stories each, located in eleven target markets across the
United States. As of December 31, 1996, the Company owned fee simple title or
leasehold interest in 156 operating office properties, controlling partial
interests in three operating office properties, and non-controlling partial
interests of 2% to 50% in six operating office properties. In addition, as of
December 31, 1996, the Company owned four office properties under development
and a 50% interest in one additional office property development project. Except
as disclosed in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources," the
Company has no immediate plans to renovate its operating office properties other
than for routine capital maintenance. The Company believes its properties are
adequately covered by insurance. The Company believes that, as a result of its
national operating system, market research capabilities, access to capital, and
experience as an owner, operator and developer of real estate, it will continue
to be able to identify and consummate acquisition opportunities and to operate
its portfolio more effectively than competitors without such capabilities. The
Company, however, competes in many of its target markets with other real estate
operators, some of whom may have been active in such markets for a longer period
than the Company.
The following table sets forth certain related information about each
operating property owned by the Company as of December 31, 1996:
Total
Net Annualized Average
Company's Rentable Base Base Rent
Effective Area Rent(3) Per Leased
Property (square Percent (in Square
Property Ownership feet)(1) Leased(2) thousands) Foot(4) Significant Tenants(5)
- -------------------------------------------------------------------------------------------------------------------------------
Consolidated Properties
SOUTHEAST REGION
Downtown Washington, D.C.:
International Square (3 Properties) 100.0% 1,017,511 91.7% $ 30,802 $33.00 International Monetary Fund (42%)
1730 Pennsylvania Avenue 100.0 229,461 97.6 8,538 38.12 Federal Deposit Insurance
Corporation (52%) King & Spalding (26%)
2550 M Street 100.0 187,931 100.0 5,838 31.06 Patton, Boggs (86%)
1775 Pennsylvania Avenue(6) 100.0 143,981 99.1 3,120 21.87 Citibank F.S.B.(81%)
900 19th Street 100.0 100,804 75.6 2,194 28.79 America's Community Bankers (29%),
Lucent Technologies (11%)
1747 Pennsylvania Avenue 89.7(7) 152,314 76.6 3,522 30.17 Legg Mason Wood Walker (16%)
1255 23rd Street 75.0(8) 303,930 88.4 7,356 27.40 Chronicle of Higher Education
(16%), Seabury & Smith (16%)
2445 M Street 74.0(7) 266,902 90.1 6,858 28.51 Wilmer, Cutler & Pickering (77%)
Suburban Washington, D.C.:
One Rock Spring Plaza(6) 100.0 205,298 95.9 4,349 22.10 Sybase (27%), Caterair (22%)
Tycon Courthouse 100.0 416,099 99.0 8,094 19.66 Siemens Rolm (19%), GSA-FINCEN
(16%), Vie de France (11%)
Three Ballston Plaza 100.0 302,797 100.0 6,979 23.05 CACI (50%), Eastman Kodak (20%)
Reston Quadrangle (3 Properties) 100.0 260,643 99.9 5,447 20.93 Software AG (67%), Lucas (14%),
LaFarge Corporation (11%)
Parkway One 100.0 87,842 100.0 1,358 15.46 EIS International (87%)
Suburban Atlanta:
Veridian (22 Properties) 100.0 187,842 96.0 2,255 12.50 GE Capital Corporation (32%)
Glenridge 100.0 64,431 96.0 909 14.69 Industrial Computer Corp. (37%),
Crawford & Co. (27%)
Century Springs West 100.0 94,765 95.3 1,321 14.63 Retirement Care Associates (27%)
Holcomb Place 100.0 72,991 100.0 1,097 15.03 Prudential (24%), Intercept
Holdings, Inc. (13%), The Progeni
Corp. (13%)
DeKalb Tech (5 properties) 100.0 163,159 86.9 1,239 8.73 Lucent Technologies (21%),
Moreland & Altobelli (20%)
Midori 100.0 99,864 96.1 1,718 17.91 OHM Remediation Services Corp.
(30%), UPS (21%), NCR (14%)
Crestwood 100.0 88,186 100.0 1,444 16.38 EBC Gwinnet Enterprises (23%),
Everready Battery Co. (12%)
Parkwood 100.0 151,020 89.5 2,486 18.40 Columbian Chemicals Company (30%)
Lakewood 100.0 80,338 98.2 1,117 14.16 Paychex (25%), ISS (25%), Hickson
Corp. (23%), Morrison's (17%)
The Summit 100.0 178,382 100.0 2,206 12.37 Unisys Corp. (73%), GE Claims
Service (14%), Construction Market
Data, Inc. (13%)
Spalding Triangle II (3 Properties) 100.0 82,102 97.6 1,074 13.41 OHM Remediation Services Corp.
(28%), UNI Distribution Corp. (18%),
Wakefield/Beasley & Associates (16%)
South Florida:
Lake Wyman Plaza 100.0 159,921 97.1 2,036 13.11 Motorola (15%)
--------- ---- -------- -----
Southeast Region Subtotal 5,098,514 94.3 113,357 23.57
Total
Net Annualized Average
Company's Rentable Base Base Rent
Effective Area Rent(3) Per Leased
Property (square Percent (in Square
Property Ownership feet)(1) Leased(2) thousands) Foot(4) Significant Tenants(5)
- -------------------------------------------------------------------------------------------------------------------------------
PACIFIC REGION
Southern California:
Scenic Business Park (4 Properties) 100.0 137,436 89.7 1,329 10.78 FHP (51%), So. Cal Blood & Tissue (12%)
Harbor Corporate Park (4 Properties) 100.0 147,304 53.6 1,033 13.06 Texaco Refining & Marketing (12%)
Plaza PacifiCare 100.0 104,377 100.0 960 9.20 Pacificare Health Systems (100%)
Katella Corporate Center 100.0 79,917 92.7 1,169 15.78 Friendly Hills Healthcare (19%),
Harris & Assoc (11%)
Warner Center (12 Properties) 100.0 342,056 94.5 7,444 23.03 El Camino Resources (18%), General
Services Administration (16%)
Del Mar Corporate Plaza
(2 Properties) 100.0 123,142 100.0 1,756 14.26 Peregrine Systems, Inc. (77%),
Newgen Results Company (23%)
South Coast Executive Center
(2 Properties) 100.0 161,778 95.3 3,009 19.52 State Compensation Insurance Fund (32%)
Northern California:
AT&T Center (6 Properties) 100.0 949,281 100.0 18,153 19.12 AT&T (54%), PeopleSoft (20%)
Sunnyvale Research Plaza
(3 Properties) 100.0 126,000 100.0 1,629 12.93 AEA Credit Union (63%), Cadence
Design Systems (31%)
Rio Robles (7 Properties) 100.0 368,178 100.0 4,065 11.04 Fujitsu (41%), KLA Instruments (31%),
NEC Systems Laboratory (23%)
San Jose Orchard Business Park - B
(6 Properties) 100.0 166,928 100.0 1,653 9.90 Pericom (16%), Delta Assembly (11%)
Orchard Bayshore Center
(2 Properties) 100.0 195,249 100.0 2,643 13.53 Clarify, Inc. (51%), Alantec (49%)
Orchard Rincon Centre (3 Properties) 100.0 201,178 100.0 1,885 9.37 Ontrak Systems (44%), Toshiba
America Electronic (38%),
Future Electronics (19%)
Orchard Office Centre II
(4 Properties) 100.0 212,082 62.4 1,293 9.78 Boston Scientific (38%), Clarify, Inc. (18%)
Orchard Office Centre (2 Properties) 100.0 68,725 100.0 1,406 20.46 Bank of America (21%), Quadrep (20%)
Orchard Centre (2 Properties) 100.0 102,291 100.0 979 9.57 Seagate Technology (40%),
Gregory Associates (38%),
Winbond Electronics (22%)
San Jose Orchard Business Park - A
(2 Properties) 100.0 67,784 100.0 630 9.30 Leybold-Heraeus (35%), Tylan
General (17%), Arcom Electronics (15%)
Suburban Seattle:
Redmond East (10 Properties) 100.0 398,777 99.9 4,572 11.48 Digital Systems (21%), INCONTROL
(16%), IBM (15%), Genetic Systems (14%),
Trigon Packaging (10%)
-------- ---- -------- ------
Pacific Region Subtotal 3,952,483 95.1 55,608 14.80
Total
Net Annualized Average
Company's Rentable Base Base Rent
Effective Area Rent(3) Per Leased
Property (square Percent (in Square
Property Ownership feet)(1) Leased(2) thousands) Foot(4) Significant Tenants(5)
- -------------------------------------------------------------------------------------------------------------------------------
CENTRAL REGION
Austin, Texas:
Norwood Tower 100.0 111,440 86.3 849 8.83 City of Austin (21%), George,
Donaldson & Ford (20%)
Littlefield Complex (2 Properties)(6) 100.0 126,622 52.4 765 11.55 Excel Fitness (12%)
First State Bank Tower 100.0 258,113 74.3 1,954 10.19 Southern Union Gas Company (12%),
First State Bank (10%)
Great Hills Plaza 100.0 135,335 100.0 1,930 14.26 First USA Management, Inc. (48%),
Blue Cross (24%), Skjerven Morrill,
Machpherson (13%), Executive Suites (11%)
Balcones Center 100.0 75,761 83.5 904 14.29 Medianet (37%), Austin Diagnostic
Clinic (15%), Daughters of Charity
Health (11%)
Park North (2 Properties) 100.0 132,935 98.7 2,112 16.10 Austin Regional Clinic (22%),
Samsung Austin Semiconductor (13%)
The Settings (3 Properties) 100.0 136,183 95.3 2,148 16.55 Holt, Rinehart & Winston (76%),
Barter Exchange (13%)
Suburban Chicago:
Parkway North (2 Properties) 100.0 508,488 96.0 8,112 16.62 Fujisawa USA (27%), Alliant
Foodservice, Inc. (21%),
Clintec Nutrition (16%),
Baxter Healthcare Corporation (13%)
Unisys (2 Properties) 100.0 365,193 91.4 5,583 16.72 Unisys (21%), PNC Mortgage (15%),
Sears Logistical (14%)
Dallas, Texas:
Greyhound 100.0 92,890 100.0 845 9.10 Greyhound Lines (100%)
Search Plaza 100.0 151,057 90.9 2,010 14.64 Basic Capital Management (29%)
--------- ----- -------- ------
Central Region Subtotal 2,094,017 89.1 27,212 14.58
--------- ----- -------- ------
MOUNTAIN REGION
Southeast Denver:
Harlequin Plaza (2 Properties) 100.0 324,340 95.8 4,020 12.94 Bellco First Federal Credit Union(12%)
Quebec Court I & II (2 Properties) 100.0 285,829 100.0 2,878 10.07 Intelligent Electronics (45%),
Alert Centre (37%), TCI Digital
Satellite (17%)
The Quorum (2 Properties) 100.0 123,876 78.2 1,335 13.78 Chatfield Dean (21%), Colorado
Mortgage Prof. (15%)
Greenwood Center 100.0 74,853 94.1 1,074 15.24 General Motors Corp. (33%),
Wakefield & Assoc. (13%)
Quebec Center (3 Properties) 100.0 104,367 92.5 1,232 12.76 Gordon Gumeeson & Associates
(12%), Walberg & Dagner (12%)
Phoenix, Arizona:
Camelback Lakes (2 Properties) 100.0 200,453 88.0 2,863 16.24 Vanguard Group (38%), Humana
Health Plan (11%)
Pointe Corridor IV 100.0 171,705 96.5 2,597 15.68 Jostens Learning Corp (27%), Aetna Life
--------- ---- -------- ------
Insurance Company (23%), Jennifer
Loomis Associates, Inc. (16%)
Mountain Region Subtotal 1,285,423 93.5 15,999 13.31
--------- ---- -------- ------
TOTAL CONSOLIDATED PROPERTIES: 12,430,437 $212,176
========== ========
WEIGHTED AVERAGE 93.6% $18.24
===== ======
Total
Net Annualized Average
Company's Rentable Base Base Rent
Effective Area Rent(3) Per Leased
Property (square Percent (in Square
Property Ownership feet)(1) Leased(2) thousands) Foot(4) Significant Tenants(5)
- -------------------------------------------------------------------------------------------------------------------------------
Unconsolidated Properties
Downtown Washington, D.C.:
AARP Headquarters 24.0(9) 477,187 99.1 16,691 35.30 American Association of Retired
Persons (98%)
Bond Building 15.0(10) 162,097 100.0 4,714 29.08 General Services Administration -
Dept of Justice (93%)
1776 Eye Street 5.0(11) 212,774 92.3 6,972 35.52 Putnam, Hayes & Bartlett (17%),
Smith Barney (11%), Nuclear Management &
Resources Council (11%), United States
Council for Energy Awareness (11%)
Willard Office/Hotel 5.0(12) 242,787 91.9 8,368 37.52 Vinson & Elkins (27%), Hale & Dorr(15%)
1575 Eye Street 2.0(11) 205,441 52.8 2,796 25.78 American Society of Association
Executives (20%)
Suburban Washington, D.C.:
Booz-Allen & Hamilton Building 50.0(13) 222,989 100.0 3,211 14.40 Booz Allen & Hamilton (100%)
---------- ----- -------- ------
TOTAL UNCONSOLIDATED PROPERTIES: 1,523,275 $ 42,752
---------- --------
WEIGHTED AVERAGE 91.0% $30.85
----- ------
All Operating Properties
TOTAL: 13,953,712 $254,928
========== ========
WEIGHTED AVERAGE 93.3% $19.58
===== ======
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
December 31, 1996.
(3) Total annualized base rent is based on executed and commenced leases as of
December 31, 1996. Total annualized base rent equals total original base
rent, including historical contractual increases and excluding (i)
percentage rents, (ii) additional rent payable by tenants such as common
area maintenance, real estate taxes and other expense reimbursements, (iii)
future contractual or contingent rent escalations, and (iv) parking rents.
(4) Calculated as total annualized base rent divided by net rentable area leased
as of December 31, 1996.
(5) Includes tenants leasing 10% or more of rentable square footage (with the
percentage of rentable square footage in parentheses).
(6) The Company owns the improvements on the property and has a leasehold
interest in all or a portion of the underlying land.
(7) The Company holds a general and limited partner interest in a partnership
that owns the property.
(8) The Company holds a 50% joint venture interest in the joint venture that
owns this property and a 50% joint venture interest in another joint
venture, which holds the remaining 50% interest in the joint venture that
owns the property. As a result of preferential rights to annual
distributions from another venture, the Company will receive distributions
of less than 75% (but in no event less than 50%) of the total amount
distributed with respect to this property in each year until the
preferential distribution requirements are satisfied, but will receive 100%
of any subsequent distributions during the year until its aggregate
distributions equal 75% of the cumulative distributions with respect to the
property since inception of the partnership. Thereafter, the Company will
receive 75% of the distributions made during the year with respect to the
property. Upon sale of the property, the Company will receive 75% of the
distributions until the Company receives its preference amount, 50% until
the remaining venturer receives its preference amount, and 75% of the
distributions thereafter.
(9) The Company holds an effective 24% interest in the property by virtue of a
48% general partner interest in a partnership that owns a 50% general
partner interest in the property.
(10)The Company holds an effective 15% interest in the property by virtue of a
30.6% limited partner interest in a partnership that has a 49% limited
partner interest in the property.
(11)The Company holds a limited partner interest in the partnership that owns
the property.
(12)The Company holds an effective 5% interest in the property by virtue of a
7.85% limited partner interest in a partnership that owns a 63.7% limited
partner interest in the property. The partnership in which the Company holds
an interest owns the improvements on the property and has a leasehold
interest in the underlying land.
(13)The Company holds a 50% joint venture interest, and is the managing
partner.
Occupancy, Average Rentals and Lease Expirations. As of December 31, 1996, 93.6%
of the aggregate net rentable square footage in the 159 operating office
properties whose results are consolidated in the financial statements of the
Company was leased. The following table sets forth the percent leased and
average annualized rent per leased square foot (excluding storage space) for
office and retail space combined for the past five years for the operating
office properties that were consolidated for financial statement purposes in
each of the years indicated:
Average
Percent Annualized Rent Number of
Leased at Per Leased Consolidated
Year Year End Square Foot(1) Properties
- --------------------------------------------------------------------------
1996 93.6% $19.37 159
1995 93.5 27.36 13
1994 95.9 32.48 11
1993 95.5 34.35 9
1992 97.5 33.68 9
(1)Calculated as total annualized building operating revenue, including tenant
reimbursements for operating expenses and excluding parking and storage
revenue, divided by the total square feet, excluding storage, in the building
under lease at year-end.
The following table sets forth a schedule of the lease expirations for
leases in place as of December 31, 1996 for each of the ten years beginning with
1997 and thereafter for the 159 operating office properties whose results are
consolidated in the financial statements of the Company, assuming that no
tenants exercise renewal options:
Net Annual Percent of
Rentable Area Base Rent Total Annual
Number of Subject to Under Expiring Base Rent
Tenants With Expiring Leases Leases (1) Represented by
Year of Lease Expiration Expiring Leases (square feet) (in thousands) Expiring Leases
- ----------------------------------------------------------------------------------------------------------
1997 225 1,507,806 $24,115 11.4%
1998 199 2,176,065 42,294 19.9
1999 191 1,315,594 21,750 10.2
2000 106 1,548,089 26,194 12.3
2001 113 1,300,355 20,419 9.6
2002 40 950,265 20,367 9.6
2003 26 794,845 12,891 6.1
2004 22 379,395 7,770 3.7
2005 19 449,511 8,621 4.1
2006 21 540,756 14,152 6.7
2007 and thereafter 14 671,926 13,603 6.4
(1) Excludes reimbursements from tenants for operating expenses.
Building and Lease Information. The following table sets forth certain
lease-related information for the 159 operating office properties that were
consolidated for financial statement purposes regarding leases that commenced
during the year ended December 31, 1996, excluding leases for office properties
that were executed prior to the date of acquisition of such properties:
Downtown Washington, D.C. Calculated on a Weighted Average Basis
-------------------------------------------------------------------------------------------
(10 Properties) Tenant
Total Improvements and Leasing
Type of Square Feet Cash Allowances Base Rent Lease Life Abatements Commission
Lease Leased per Square Foot per Square Foot in Years in Months Per Square Foot
- ---------------------------------------------------------------------------------------------------------------------------------
Office 207,638 $13.37 $27.29 7.8 2.6 $6.16
Retail 5,478 1.83 29.57 5.1 2.1 5.66
---------
Total 213,116 13.07 27.35 7.7 2.6 6.15
========= ====== ====== ==== === ====
New leases or expansion space 150,609 $17.17 $26.66 8.6 3.5 $6.69
Renewals of existing tenants' space 62,507 3.19 29.01 5.6 0.5 4.86
---------
Total 213,116 13.07 27.35 7.7 2.6 6.15
========= ====== ====== ==== === =====
All Other Operating Properties Calculated on a Weighted Average Basis
------------------------------------------------------------------------------------------
(149 Properties) Tenant
Total Improvements and Leasing
Type of Square Feet Cash Allowances Base Rent Lease Life Abatements Commission
Lease Leased per Square Foot per Square Foot in Years in Months Per Square Foot
- ---------------------------------------------------------------------------------------------------------------------------------
Office 1,384,713 $ 5.74 $18.06 5.7 0.2 $1.83
Retail 5,513 0.00 8.50 10.0 0.0 3.07
---------
Total 1,390,226 5.72 18.02 5.7 0.2 1.84
========= ====== ====== ==== === =====
New leases or expansion space 327,405 $ 6.64 $15.61 5.4 0.8 $1.80
Renewals of existing tenants' space 1,062,821 5.43 18.76 5.8 0.0 1.85
---------
Total 1,390,226 5.72 18.02 5.7 0.2 1.84
========= ====== ====== ==== === =====
Mortgage Financing. As of December 31, 1996, the 159 operating office
properties that were consolidated for financial statement purposes were subject
to existing mortgage indebtedness in an aggregate principal amount of $440.4
million, and unsecured indebtedness of $215.0 million, which bears a floating
interest rate. The Company's fixed rate debt bears an effective weighted average
interest rate of 8.1% and a weighted average maturity of 5.8 years (assuming
loans callable before maturity are called as early as possible). The existing
mortgage indebtedness for the consolidated operating office properties is set
forth in the table below:
Principal Estimated
Balance Annual Balance Due
nterest as of 12/31/96 Debt Service Maturity at Maturity
Property Rate (in thousands) (in thousands) Date (in thousands)
- ----------------------------------------------------------------------------------------------------------
International Square
1850 K Street
1825 Eye Street 8.80% $93,500 $8,228 2/1/03 $87,164(4)
1875 Eye Street
1730 Pennsylvania Avenue
1255 23rd Street 7.75 40,000 3,100 2/1/03 36,981(4)
International Square Land 7.55 40,000 3,020 2/1/03 36,781(4)
International Square Land 8.00 10,000 800 2/1/03 9,243(4)
900 19th Street 8.25 16,957 1,656 7/15/19(1) (1)
1747 Pennsylvania Avenue 9.50 15,613 1,730 7/10/17(2) (2)
2445 M Street 8.90 38,188 4,646 6/1/02 26,925(5)
1775 Pennsylvania Avenue 7.50 6,350 586 2/1/99 6,098(5)
Redmond East 8.38 28,036 2,648 1/1/06 24,022(6)
Warner Center 7.40 26,000 1,924 12/1/00 26,000(5)
First State Bank Tower 7.38 9,630 868 3/1/99 9,259(5)
Parkway North I 7.96 29,250 2,328 12/1/03 29,250(8)
San Jose Orchard Business Park - A
Orchard Office Center
Orchard Center II 8.25 40,850 4,655 12/10/01 37,873(5)
Orchard Rincon Center
Orchard Bayshore Center
Century Springs West
Glenridge
Crestwood 7.20 22,022 2,126 1/1/06 15,209(7)
Lakewood
Parkwood
Pointe Corridor IV 5.50 13,731 (3) 1/3/97 13,731(3)
South Coast Executive Center 9.01 10,322 1,015 5/31/99 10,103(5)
(1) Note is callable by the lender after July 1, 2004. The estimated principal
balance at July 1, 2004 will be $14,262,000.
(2) Note is callable by the lender after June 30, 2002. The estimated principal
balance at June 30, 2002 will be $13,840,000.
(3) Principal balance was repaid in full in January 1997.
(4) Prepayable after November 1, 1997 at the rates stated in the loan documents.
(5) Currently prepayable at the rates stated in the loan documents.
(6) Prepayable after December 19, 2005 at the rates stated in the loan
documents.
(7) Prepayable after January 2001 at the rates stated in the loan documents.
(8) Prepayable after December 1, 1999 at the rates stated in the loan documents.
Additional Property Information. Because the aggregate book value of the
three properties that constitute International Square is in excess of 10% of the
Company's total assets as of December 31, 1996, additional information regarding
this property is provided below.
International Square was developed in three phases that were completed in
1977, 1979 and 1982. The complex occupies three-quarters of a city block
bordered by K, 18th, 19th and Eye Streets, N.W., directly above Farragut West,
one of Washington, D.C.'s busiest Metro stations. The Metro level of
International Square offers a 600-seat food court, with more than a dozen
carry-out food establishments, serving a variety of international foods. The
street level of International Square contains more than 20 retail stores,
including a book store, a travel agency, clothing stores, and restaurants. A
two-level underground parking garage contains approximately 725 parking spaces.
The Company has no immediate plans to renovate International Square other than
for routine capital maintenance and believes the property is adequately covered
by insurance.
As of December 31, 1996, approximately 91.7% of the rentable square footage
in the three buildings constituting International Square was leased. The
following table sets forth the percent leased and average annualized rent per
leased square foot (excluding storage space) for the past five years for
International Square:
Average
Percent Annualized Rent
Leased at Per Leased
Year Year End Square Foot(1)
- --------------------------------------------------------------------------------
1996 91.7% $33.73
1995 89.9 34.18
1994 96.1 33.36
1993 95.5 33.32
1992 95.9 34.08
(1) Calculated as total building operating revenue, including tenant
reimbursements for operating expenses and excluding parking and storage
revenue, divided by the total square feet in the building, excluding
storage, under lease at year-end.
At December 31, 1996, the International Monetary Fund ("IMF"), an
intergovernmental financial agency, occupied 432,310 square feet in
International Square under direct leases with the Company that expire during
1998 and 2002. The IMF is currently constructing an office building in
Washington, D.C. which should be completed by 1998, and the IMF may move some of
its employees currently in International Square to their new building. The
Company has had discussions with the IMF and they have indicated that they may
reduce their office space requirements in International Square by approximately
133,000 square feet by the year 2000; however, there can be no assurances that
the IMF will not vacate more space than 133,000 square feet.
Three tenants in 1850 K Street, Phase I of the project, occupy over 10% of
the rentable square footage. As of December 31, 1996, the IMF occupied 94,258
square feet (25% of the rentable square footage) pursuant to a lease which
expires January 15, 1998. The IMF has an option to renew the lease on 39,270
square feet for two consecutive five-year periods and an option to renew the
lease on 12,456 square feet for consecutive terms of two and a half years and
five years. The law firm of McDermott, Will & Emery occupies 62,975 square feet
(17% of the rentable square footage) pursuant to a lease which expires on
December 31, 1997. McDermott, Will & Emery has notified the Company that it
plans to vacate its space on September 30, 1997. Merrill Lynch occupies 51,232
square feet (14% of the rentable square footage) pursuant to a lease that
expires on December 31, 2008, with an option to renew for two five-year terms.
The IMF is the only tenant occupying more than 10% of the rentable square
footage in 1825 Eye Street, Phase II of the project, occupying 63% of the
rentable square footage in that building as of December 31, 1996. Its leases,
which expire on various dates from January 15, 1998 to August 1, 2002, cover
234,153 square feet. The lease that expires as of January 15, 1998 contains an
option to renew the lease on 74,269 square feet for two consecutive five-year
terms. The lease that expires on August 1, 2002 contains an option to renew the
lease on 96,013 square feet for an additional five-year term.
The IMF is the only tenant in 1875 Eye Street, Phase III of the project,
occupying more than 10% of the rentable square footage. The IMF occupies 103,899
square feet (39% of the rentable square footage) pursuant to three leases which
expire on July 31, 2002 and provide renewal options on the entire space for two
five-year terms.
The following table sets out a schedule of the lease expirations for
International Square for each of the ten years beginning with 1997 and
thereafter:
Net Annual Percent of
Rentable Area Base Rent Total Annual
Number of Subject to Under Expiring Base Rent
Tenants With Expiring Leases Leases (1) Represented by
Year of Lease Expiration Expiring Leases (square feet) (in thousands) Expiring Leases
- -----------------------------------------------------------------------------------------------------------
1997 16 150,907 $ 4,899 15.9%
1998 8 365,896 12,685 41.2
1999 21 121,321 3,945 12.8
2000 1 26,162 827 2.7
2001 4 6,466 234 0.8
2002 12 191,680 6,079 19.7
2003 2 12,477 395 1.3
2004 4 8,509 273 0.9
2005 5 24,990 798 2.6
2006 3 11,736 379 1.2
2007 and thereafter 1 13,207 288 0.9
(1) Excludes operating expense recoveries.
The aggregate tax basis of depreciable real property of the office
properties constituting International Square for Federal income tax purposes is
$149,350,000 as of December 31, 1996. Depreciation and amortization are computed
on the Modified Accelerated Cost Recovery System (MACRS), Accelerated Cost
Recovery System (ACRS), declining balance or straight-line methods over the
estimated useful lives of the real property which range from 15 to 50 years. The
aggregate tax basis for depreciable personal property associated with these
office properties for Federal income tax purposes is $1,010,000 as of December
31, 1996. Depreciation and amortization are computed on the double declining
balance method or straight-line method over the estimated useful life of the
personal property of 5 to 7 years.
The current realty tax rate for International Square is $2.15 per $100 of
assessed value. The total annual tax at this rate for 1997 is $3,561,000 at an
assessed value of $165,640,000.
For additional information regarding the Company's office properties and
their operation, see "Item 1, Business."
Item 3. Legal Proceedings
The Company is a party to a variety of legal proceedings arising in the ordinary
course of its business. All of these matters, taken together, are not expected
to have a material adverse impact on the Company.
Item 4. Submission of Matters to a
Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity & Related Stockholder Matters
The Company's common stock is listed on the New York Stock Exchange ("NYSE")
under the symbol "CRE". The Company's common stock was listed on the NYSE
beginning on February 9, 1993. As of February 28, 1997, there were 423
stockholders of record. The following table sets forth the high and low sale
prices of the Company's common stock as reported in the NYSE Composite Tape, and
the dividends per share of common stock paid:
1996 1Q 2Q 3Q 4Q Full Year
- --------------------------------------------------------------------------------
High $ 25 25 1/4 25 7/8 29 1/2 29 1/2
Low $ 23 5/8 23 5/8 21 7/8 24 7/8 21 7/8
Dividend $.4375 .4375 .4375 .4375 1.75
1995
- --------------------------------------------------------------------------------
High $ 18 1/4 19 3/4 19 3/4 24 5/8 24 5/8
Low $ 17 1/8 16 3/4 17 1/4 18 1/2 16 3/4
Dividend $.4375 .4375 .4375 .4375 1.75
On April 30, 1996, the Company sold 11,627,907 shares of its common stock
directly to USRealty. These shares were not registered under the Securities Act
of 1933, as amended (the "Securities Act") in reliance on Section 4(2) of the
Securities Act based on the fact that USRealty is a single, sophisticated
investor.
On July 24, 1996, the Company sold 2,785,714 shares of its common stock
directly to USRealty, which shares were not registered under the Securities Act.
These shares were sold in connection with a public offering by the Company of
6,500,000 shares of common stock, of which USRealty bought 400,000 shares of
common stock. The 2,785,714 shares were sold at the public offering price of
$22.00 per share in reliance on Section 4(2) of the Securities Act based on the
fact that USRealty is a single, sophisticated investor with a previous
investment relationship with the Company. No underwriting discount was applied
to any shares purchased by USRealty directly from the Company or in the public
offering.
The Company, in order to qualify as a REIT, is required to make
distributions (other than capital gain distributions) to its stockholders in
amounts at least equal to (i) the sum of (A) 95% of its "REIT taxable income"
(computed without regard to the dividends paid deduction and its net capital
gain) and (B) 95% of the net income (after tax), if any, from foreclosure
property, minus (ii) the sum of certain items of non-cash income. The Company's
distribution strategy is to distribute what it believes is a conservative
percentage of its cash flow permitting the Company to retain funds for capital
improvements and other investments while funding its distributions.
For Federal income tax purposes, distributions may consist of ordinary
income, capital gains, nontaxable return of capital or a combination thereof.
Distributions that exceed the Company's current and accumulated earnings and
profits (calculated for tax purposes) constitute a return of capital rather than
a dividend and reduce the stockholder's basis in his or her shares of common
stock. To the extent that a distribution exceeds both current and accumulated
earnings and profits and the stockholder's basis in his or her shares, it will
generally be treated as gain from the sale or exchange of that stockholder's
shares. The Company annually notifies stockholders of the taxability of
distributions paid during the preceding year. The following table sets forth the
taxability of distributions paid in 1996, 1995, and 1994:
1996 1995 1994
- --------------------------------------------------------------------------------
Ordinary income 95% 85% 75%
Capital Gain -- -- --
Return of Capital 5% 15% 25%
Item 6. Selected Financial Data
The following table sets forth selected financial and operating information for
the Company as of December 31, 1996, 1995, 1994 and 1993 and for the years ended
December 31, 1996, 1995 and 1994 and the period from February 16, 1993
(commencement of operations) to December 31, 1993. The following table also sets
forth selected financial and operating information for the Carr Group, the
predecessor entity to the Company, as of and for the year ended December 31,
1992, and for the period from January 1, 1993 to February 15, 1993.
The following selected financial and operating information should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," and all of the financial statements and
notes thereto included elsewhere in this Annual Report on Form 10-K:
The Company Carr Group
- ----------------------------------------------------------------------------------------------- ------------------------------
Period from Period from
February 16, 1993 January 1, 1993 Year Ended
Year Ended December 31, to December 31, to February 15, December 31,
- ----------------------------------------------------------------------------------------------- ------------------------------
(In thousands, except per share data) 1996 1995 1994 1993 1993 1992
- ----------------------------------------------------------------------------------------------- ------------------------------
Operating Data:
Real Estate Operating Revenue:
Rental revenue $154,165 89,539 82,665 59,932 8,209 68,341
Real estate service income $ 12,512 11,315 8,890 8,978 1,096 9,995
Net income (loss) $ 24,318(1) 12,067(1) 12,097 (1,464)(2) 1,251 14,181
Dividends paid to common
shareholders $ 42,914 23,344 20,204 10,578 -- --
Per Share Data:
Net income (loss) $ 0.88 0.90 1.06 (0.15) -- --
Dividends paid to common
shareholders $ 1.75 1.75 1.75 1.06 -- --
Weighted average shares outstanding 31,999 13,338 11,387 10,000 -- --
used to calculate net income
(loss) per share
The Company Carr Group
As of December 31, As of December 31,
- ----------------------------------------------------------------------------------------------- ------------------------------
(In thousands) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------- ------------------------------
Balance Sheet Data:
Real estate, before
accumulated depreciation $1,475,998 480,589 429,537 286,764 202,988
Total assets $1,536,564 458,860 407,948 284,633 180,370
Mortgages and notes payable $ 655,449 317,374 254,933 185,827 201,024
Minority interest $ 50,597 34,850 38,644 25,373 --
Total stockholders' equity $ 787,478 95,543 106,042 59,590 --
Total common shares outstanding 43,789 13,409 13,248 10,000 --
The Company Carr Group
- ----------------------------------------------------------------------------------------------- ------------------------------
Period from Period from
February 16, 1993 January 1, 1993 Year Ended
Year Ended December 31, to December 31, to February 15, December 31,
- ----------------------------------------------------------------------------------------------- ---------------------------------
(In thousands) 1996 1995 1994 1993 1993 1992
- ----------------------------------------------------------------------------------------------- --------------- ---------------
Other Data:
Net cash provided (used)
by operating activities $ 82,300 35,277 29,908 (663) (1,286) 11,072
Net cash used by investing
activities $(876,947) (81,635) (67,046) (85,363) (1,015) (9,684)
Net cash provided (used)
by financing activities $ 813,067 37,113 32,652 108,974 (4,391) (906)
Funds from operations before
minority interest of the
Unitholders(3) $ 64,496(5) 33,190(5) 30,640 14,286(4) 2,421 22,890
(1) Net income includes a non-recurring deduction of approximately $2.3 and $1.9
million in 1996 and 1995, respectively, related to the write-off of
unamortized purchase price of certain third party real estate service
contracts that were terminated in 1996 and the termination of an agreement
to acquire the development business of The Evans Company in 1995,
respectively.
(2) Net loss includes a deduction for reorganization costs of $9.6 million and
an extraordinary loss on early extinguishment of debt of $5.6 million,
respectively.
(3) The Company believes that funds from operations is an appropriate measure of
the performance of an equity REIT because industry analysts have accepted it
as a performance measure of equity REITs. In accordance with the final
National Association of Real Estate Investment Trust's (NAREIT) White Paper
on Funds From Operations as approved by the Board of Governors of NAREIT on
March 3, 1995, funds from operations represents net income (loss) (computed
in accordance with generally accepted accounting principles), excluding
gains (or losses) from debt restructuring or sales of property, plus
depreciation and amortization of assets uniquely significant to the real
estate industry and after adjustments for unconsolidated partnerships and
joint ventures. Adjustments for unconsolidated partnerships and joint
ventures will be calculated to reflect funds from operations on the same
basis. The Company's funds from operations in 1994 and 1993 and the Carr
Group's funds from operations in 1993 and 1992 have been restated to conform
to the new NAREIT definition of funds from operations. Funds from operations
does not represent net income or cash flow generated from operating
activities in accordance with generally accepted accounting principles and
should not be considered an alternative to net income as an indication of
the Company's performance or to cash flows as a measure of liquidity or the
Company's ability to make distributions.
(4) Net income used to calculate funds from operations includes a deduction of
approximately $9.6 million related to reorganization costs associated with
the formation of the Company.
(5) Net income used to calculate funds from operations includes a non-recurring
deduction of approximately $2.3 and $1.9 million in 1996 and 1995,
respectively, related to the write-off of unamortized purchase price of
certain third party real estate service contracts that were terminated in
1996 and the termination of an agreement to acquire the development business
of The Evans Company in 1995, respectively.
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion is based primarily on the Consolidated Financial
Statements of CarrAmerica Realty Corporation and its subsidiaries as of December
31, 1996, 1995 and 1994.
This information should be read in conjunction with the accompanying
financial statements and notes thereto. These financial statements include all
adjustments which are, in the opinion of management, necessary to reflect a fair
statement of the periods presented, and all such adjustments are of a normal,
recurring nature.
RESULTS OF OPERATIONS--1996 TO 1995
Real Estate Operating Revenue. Total real estate operating revenue increased
$65.8 million, or 65.3%, to $166.7 million for 1996 as compared to $100.9
million for 1995. The increase in revenue was primarily attributable to a $64.6
million and a $1.2 million increase in rental revenue and real estate service
revenue, respectively. The Company experienced net growth in its rental revenue
as a result of its acquisitions, which contributed approximately $68.2 million
of additional rental revenue in 1996. Rental revenue from properties that were
fully operating throughout both years decreased by approximately $3.6 million
due to increased vacancies experienced in those properties. Real estate service
revenue increased by $1.2 million, or 10.6% for 1996 to $12.5 million as
compared to $11.3 million for 1995. The increase was primarily as a result of
development fees earned by Carr Development & Construction, Inc., which was
acquired by the Company in May 1996.
Real Estate Operating Expenses. Total real estate operating expenses
increased $54.4 million for 1996, or 65.8%, to $137.1 million as compared to
$82.7 million for 1995. The net increase in operating expenses was attributable
to a $20.3 million increase in property operating expenses, a $9.8 million
increase in interest expense, a $4.5 million increase in general and
administrative expenses, and a $19.8 million increase in depreciation and
amortization. The increase in property operating expenses was primarily
attributable to $20.2 million in operating expenses associated with property
acquisitions. Exclusive of operating expenses attributable to new property
acquisitions, property operating expenses increased by $.1 million for 1996. The
increase in the Company's interest expense is primarily related to borrowings
for acquisitions. The increase in general and administrative expenses is
predominantly a result of the addition of new staff to implement the Company's
new business strategy, the addition of approximately $1.8 million of expenses
associated with Carr Development & Construction, Inc., and inflation. The
increase in depreciation and amortization was predominately a result of
additional depreciation and amortization on the Company's real estate
acquisitions.
Other Operating Income (Expense). Other operating income (expense) increased
$.8 million for 1996, to ($.1) million as compared to ($.9) million for 1995,
primarily as a result of an increase in interest income and the addition of
equity in earnings of CC-JM II Associates, a joint venture which owns the
Booz-Allen & Hamilton Building. The Company is a 50% venturer in this entity,
which constructed the Booz-Allen & Hamilton Building that was placed in service
in January 1996. The increases in other operating income were partially offset
by an additional loss recognized on the write-off of intangible assets.
Net Income. Net income of $24.3 million was earned for 1996 as compared to
$12.1 million during 1995. The comparability of net income between the two
periods is impacted by the acquisitions the Company made and the other changes
described above.
Cash Flows. Net cash provided by operating activities increased $47.0
million, or 133.3%, to $82.3 million for 1996 as compared to $35.3 million for
1995, primarily as a result of the acquisitions made by the Company. Net cash
used by investing activities increased $795.3 million, to $876.9 million for
1996 as compared to $81.6 million for 1995, primarily as a result of capital
deployed by the Company for acquisitions of office properties, land held for
future development and construction in progress. Net cash provided by financing
activities increased $776.0 million to $813.1 million provided for 1996 as
compared to $37.1 million provided for 1995, primarily as a result of the sale
of common stock and preferred stock by the Company and net borrowings for the
Company's acquisitions.
RESULTS OF OPERATIONS--1995 TO 1994
Real Estate Operating Revenue. Total real estate operating revenue increased
$9.3 million, or 10.2%, to $100.9 million in 1995 as compared to $91.6 million
in 1994. The increase in revenue was primarily attributable to a $6.9 million
and a $2.4 million increase in rental revenue and real estate service revenue,
respectively. The Company experienced net growth in its rental revenue as a
result of its acquisitions which contributed approximately $8.1 million of
additional rental revenue in 1995. Rental revenue contributed by properties that
were fully operating throughout both periods declined by approximately $1.2
million, or 1.5%. These properties, all of which were located in downtown
Washington, D.C., experienced lower rental revenue in the aggregate during 1995
as a result of (a) lower occupancy rates, (b) the renegotiation of certain
tenants' leases resulting in lower rental rates, and (c) new leases entered into
by the Company at rates lower than the expiring leases' rental rates. The
Company experienced growth in its real estate service income of $1.7 million as
a result of its acquisition of real estate service contracts in 1995. In
addition, real estate service revenues from the Company's core service contracts
increased by $.7 million, or 8.2%, in 1995.
Real Estate Operating Expenses. Total real estate operating expenses
increased $7.7 million, or 10.2%, to $82.7 million as compared to $75.0 million
in 1994. The net increase in operating expenses was attributable to a $1.9
million increase in property operating expenses, a $.5 million increase in
interest expense, a $1.2 million increase in general and administrative
expenses, and a $4.1 million increase in depreciation and amortization. The
increase in property operating expenses was primarily attributable to $2.4
million in operating expenses associated with property acquisitions. Exclusive
of operating expenses attributable to new property acquisitions, property
operating expenses decreased $.5 million, or 1.9%, in 1995 predominately as a
result of lower real estate tax assessments. The increase in the Company's
interest expense is primarily related to borrowings for acquisitions. The
increase in general and administrative expenses is predominately a result of
general and administrative expenses associated with the real estate service
contracts acquired in 1995 and inflation. The increase in depreciation and
amortization is predominately a result of depreciation and amortization on the
Company's real estate and real estate service contract acquisitions.
Other Operating Income (Expense). In January 1996, the Company terminated an
agreement to acquire the development business of The Evans Company and, as a
result, recognized a $1.9 million non-recurring charge to its earnings in the
fourth quarter of 1995. The Company took this action in order to focus on
implementing its national growth strategy.
Net Income. Net income of $12.1 million was earned during 1995 as compared
to $12.1 million during 1994. The comparability of net income between the two
periods is impacted by the acquisitions the Company made and the other changes
described above.
Cash Flows. Net cash provided by o