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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, 1998
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
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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.)
1850 K STREET, N.W. 20006
WASHINGTON, D.C. (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (202) 729-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $0.01 Par Value New York Stock Exchange
Series B Cumulative Redeemable Preferred Stock, $0.01 Par Value New York Stock Exchange
Series C Depositary Cumulative Redeemable Preferred Stock, $0.001
Par Value New York Stock Exchange
Series D Depositary Cumulative Redeemable Preferred Stock, $0.001
Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 15, 1999, the aggregate market value of the 41,468,494 shares
of Common Stock held by non-affiliates of the registrant was approximately
$909.7 million, based upon the closing price of $21.9375 on the New York Stock
Exchange composite tape on such date.
Number of shares of Common Stock outstanding as of March 15,
1999: 71,767,759
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for
the Annual Stockholders Meeting to be held in 1999 are incorporated by reference
into Part III.
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PART 1
ITEM 1. BUSINESS
THE COMPANY
GENERAL
CarrAmerica Realty Corporation (the 'Company') is a fully integrated,
self-administered and self-managed publicly traded real estate investment trust
('REIT') that focuses primarily on the acquisition, development, ownership and
operation of office properties in select growth markets across the United
States. As of March 15, 1999, the Company owned a greater than 50% interest in a
portfolio of 286 operating office properties and 45 properties under
construction. These 286 operating properties contain an aggregate of
approximately 22.0 million square feet of net rentable area and the 45
properties under construction will contain approximately 3.8 million square
feet. The operating properties owned by the Company as of December 31, 1998 were
96.7% leased as of that date, with approximately 2,400 tenants. In addition to
its real estate and development activities, the Company conducts an executive
office suites business through its affiliates OmniOffices, Inc. ('OmniOffices')
and OmniOffices (UK) Limited ('Omni UK'). As of March 15, 1999 the Company,
through its affiliates, operated over 100 executive office suite centers and had
an additional 34 executive office suite centers under development in the United
States and England.
The Company and its predecessor, The Oliver Carr Company ('OCCO'), have
developed, owned and operated office buildings in the Washington, D.C.
metropolitan area for more than 36 years. In November 1995, the Company
announced a strategic alliance with a wholly-owned subsidiary of Security
Capital U.S. Realty (together with Security Capital U.S. Realty, 'SC-USREALTY'),
a European real estate operating company which owns strategic positions in
selected real estate companies in the United States. As of March 15, 1999,
SC-USREALTY owned approximately 39.9% of the outstanding common stock of the
Company (36.2% on a fully diluted basis).
The Company's experienced staff of over 1,900 employees, including
approximately 500 on-site building employees and approximately 1,000 persons
employed by its executive office suite affiliates, provides a broad range of
real estate services. The Company's principal executive offices are located at
1850 K Street, N.W., Washington, D.C. 20006 and its telephone number is (202)
729-7500. The Company's web site can be found at www.carramerica.com. The
Company was organized as a Maryland corporation on July 9, 1992.
BUSINESS STRATEGY
The Company's primary business objectives are to achieve long-term
sustainable per share cash flow growth and to maximize stockholder value through
a strategy of (i) acquiring, developing, owning and operating office properties
primarily in markets throughout the United States that exhibit strong, long-term
growth characteristics and (ii) maintaining and enhancing a national operating
system that provides corporate users of office space with a mix of products and
services to meet their workplace needs at both the national and local level.
The Company's major segments of operations include real estate property
operations, executive office suites operations (conducted through its affiliates
OmniOffices and Omni UK), and development operations (conducted directly and
through its afffiliate CarrAmerica Development, Inc.). Real estate property
operations include the ownership of commercial real estate. Such operations
comprise approximately 90% of the Company's revenues and approximately 78% of
the Company's assets (including assets held by CarrAmerica Development, Inc.).
Executive suites operations include the short term leasing of office space, and
the Company's collective investment in this business accounts for approximately
10% of the Company's revenues and approximately 10% of the Company's assets.
Development operations include the development of office space and the buildout
of tenant space, and the Company's investment in this business represents
approximately 12% of the Company's assets (including assets held by CarrAmerica
Development, Inc.). The Company's executive suites operations and a portion of
its development operations are conducted by affiliates in which the Company owns
approximately 95% of the economic interest, but less than 10% of the voting
stock.
1
REAL ESTATE PROPERTY OPERATIONS
Core Markets. The Company has focused its acquisition and development
activity in U.S. markets which generally possess strong long-term growth
characteristics. Within these markets, the Company targets specific submarkets
in which (i) operating costs for businesses are relatively low, (ii) long-term
population and job growth generally are expected to exceed the national average,
(iii) large, well-educated employment pools exist, and (iv) barriers to entry
exist for new supplies of office space. The Company has established a local
presence in each of its existing core markets through its investment activity
and through relationships established by its experienced market officers. The
Company's core markets include the following: Atlanta, Austin, Chicago, Dallas,
Denver, Boca Raton, Florida, Orange County/Los Angeles, Phoenix, Portland,
Oregon, Sacramento, Salt Lake City, San Diego, San Francisco Bay area, Seattle
and metropolitan Washington, D.C.
For each identified core market, the Company has established a set of
general guidelines and physical characteristics to evaluate investment
opportunities. All investment decisions are driven by real estate research,
focusing on variables such as composition of economic base rate and composition
of job growth and office space supply and demand fundamentals.
As of December 31, 1998 the distribution of the Company's real estate
property operations (on a rentable square foot basis) was as follows: 45% in its
Pacific region, primarily in Seattle and the California markets of Silicon
Valley, Pleasanton, San Mateo, Orange County, Los Angeles and San Diego; 26% in
its Southeast region, primarily in metropolitan Washington, D.C., Atlanta and
Boca Raton, Florida; 12% in its Mountain region, primarily in Salt Lake City,
Denver and Phoenix; and 17% in its Central region, primarily in Chicago, Dallas
and Austin.
Operating Property Acquisitions. In November 1995, the Company implemented
a major initiative to acquire operating office properties in order to establish
the operating platform for its national business strategy. Between January 1,
1996 and October 31, 1998, the Company acquired 302 operating properties
containing approximately 20.3 million square feet of net rentable area,
resulting in an approximate 550% increase in the total square footage of
operating properties in which the Company has a majority interest. These
properties were acquired for an aggregate purchase price of approximately $2.5
billion. Since October 1998, the Company has not been focused on acquisitions as
a catalyst for growth.
National Operating System. As part of its business strategy, the Company
has developed and will continue to enhance a national operating system to
provide nationally coordinated customer service, marketing and development. The
Company's national operating system consists of three components: (i) a Market
Officer Group, currently consisting of 11 market officers focused on developing
and maintaining strong local relationships with the Company's customers and the
brokerage community and identifying investment opportunities for the Company;
(ii) a National Services Group, which is dedicated to marketing the Company's
office space to a targeted list of companies; and (iii) a National Development
Group, conducted through an affiliate, which is responsible for managing the
development of office properties, build-to-suit facilities and business parks.
The Company's national operating system is designed to provide corporate users
of office space with a mix of products and services to meet their workplace
needs at both the national and local levels. The Company believes that through
its existing portfolio of operating properties, property development
opportunities and land acquired and currently held for future development, the
Company can generate incremental demand through the relocation and expansion
needs of many of its customers, both within a single core market and in multiple
core markets.
Market Officer Group. The Market Officer Group currently consists of
11 market officers who cover the 15 core 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, market officers 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 National Services
Group identify customers with new build-to-suit and multi-market requirements.
2
National Services Group. The Company established the National
Services Group in 1997 and now has national account executives located in
Atlanta, Chicago and San Francisco. This group is responsible for marketing the
Company's properties, build-to-suit capabilities and the national scope of the
Company's operations to a targeted list of major corporate users. The National
Services Group acts as a primary point of contact for national customers,
coordinating all of the office space the Company offers and giving corporate
customers the opportunity to address their national space requirements
efficiently and economically.
National Development Group. The National Development Group is
responsible for developing office properties, build-to-suit facilities and
business parks. These operations are primarily handled by the Company's
affiliate, CarrAmerica Development, Inc. ('CarrAmerica Development'), which has
a development team of over 70 professionals consisting of architects, engineers
and construction professionals located across the United States who have an
average of over 15 years of experience developing office properties. This team
of development professionals oversees every aspect of land planning, building
design, construction and development of office properties, ensuring that all
projects meet the same high standards and uniform specifications in building
design and systems. The Company believes that the National Development Group's
expertise has given the Company a competitive edge in marketing its facilities
and services to customers.
Asset Optimization. As a component of its business strategy, the Company
may dispose of assets that become inconsistent with its long-term strategic or
return objectives or where market conditions for disposition are favorable. The
Company then redeploys the proceeds of dispositions into other office
properties, the funding of development operations, or in support of other
general corporate needs. Consistent with this strategy, the Company disposed of
13 properties during 1998 containing approximately 1.2 million square feet for
approximately $180 million in value. The Company recognized a gain of $38.2
million in conjunction with these transactions. In addition, from January 1,
1999 through March 15, 1999, the Company disposed of an additional 11 properties
containing 795,000 square feet for approximately $130 million in value,
resulting in a gain of $11.0 million. The Company may consider disposing of
additional properties or interests in properties, some of which may be
significant. The Company, however, has agreed with SC-USREALTY to use its
reasonable efforts to dispose of properties only through tax-deferred exchanges
(and the Company also is subject to other similar restrictions with respect to
certain properties acquired by CarrAmerica Realty, L.P. and Carr Realty, L.P.),
which may limit its flexibility in effecting dispositions. In addition, tax laws
applicable to REITs restrict the Company's ability to dispose of certain
properties.
EXECUTIVE OFFICE SUITES OPERATIONS
In 1997, the Company identified the executive office suites business as a
business that has significant potential for growth. The 'executive office
suites' business typically involves leasing 20,000 to 30,000 square feet of an
office building from an owner and outfitting that space with 60 to 70 individual
offices (known as office suites) that are leased on a relatively short-term
basis (i.e., one year or less) to customers who generally utilize one to three
offices at a time. Customers are provided with a wide array of services,
including administrative support services (e.g., secretarial, duplicating, fax
and receptionist services), conference and training facilities, video
conferencing, travel arrangements and catering arrangements. The Company
believes that the demand for these types of office arrangements will increase as
companies seek greater flexibility and alternative workplace solutions for their
staffing and business plan requirements. The Company believes that its position
as the only national office property owner and operator providing both
traditional, long-term office space and, through its affiliates, flexible,
short-term workplace options provides it with a competitive advantage in meeting
the evolving needs of growing companies.
The Company has made investments in two executive office suite affiliates,
OmniOffices and OmniUK. Since OmniOffices' acquisition of the assets of
OmniOffice Group, Inc. in August 1997, OmniOffices has actively pursued the
acquisition and development of executive office suites in the United States and
in Latin America. As of March 15, 1999, OmniOffices operated over 100 executive
office suite centers containing approximately 6,700 office suites located in 29
major U.S. markets, including New York City, San Francisco, Chicago, Atlanta and
Boston. OmniOffices also had 28 executive office suite centers under development
as of March 15, 1999. In addition, in March 1999, OmniOffices acquired the
franchise operations of HQ Network Systems, Inc., one of the largest networks of
executive office suites centers in the world. As a result of this
3
acquisition, OmniOffices now controls a network, either as an operator or a
franchisor, of approximately 260 executive office suites centers in 17 countries
around the world.
The Company also has made investments in Omni UK, which is actively
pursuing the acquisition and development of executive office suites in Europe.
As of March 15, 1999, Omni UK owned 6 executive office suites centers containing
approximately 240 office suites and had an additional 6 executive office suite
centers under development, all located in and around London.
As of March 15, 1999, the Company's total equity investments in OmniOffices
and Omni UK were $137.0 million and $31.3 million, respectively, and the Company
had loaned Omni UK an additional $30.6 million. In addition, the Company has
guaranteed a $200 million line of credit that OmniOffices obtained in April 1998
to finance the growth of its business, of which $98.5 million had been drawn as
of March 15, 1999.
In order to comply with tax laws applicable to REITs, the Company owns
approximately 95% of the economic interest of both OmniOffices and Omni UK, but
owns none of the voting stock of these companies. The voting stock of
OmniOffices (representing approximately 5% of the economic interest) is owned by
a limited liability company in which certain current and former executive
officers of the Company and OmniOffices are members, SC-USREALTY and The Oliver
Carr Company. Substantially all of the voting stock of Omni UK (representing
approximately 5% of the economic interest) is owned by OmniOffices. Because the
Company does not own any of the voting stock of these companies, there are
certain risks associated with the Company's investments in these companies. See
'Risk Factors -- Our Business Structure Has Certain Risks Associated With It --
Lack of Voting Control Over Some of Our Affiliates.' As a REIT, the Company
cannot have an investment in a business like OmniOffices with a value in excess
of 5% of the Company's gross assets. Currently, this 5% rule limits the
Company's ability to make substantial additional investments in OmniOffices. In
addition, if the value of OmniOffices were to grow substantially in connection
with certain changes in its capital structure, the Company may be required to
dispose of a significant portion of its interest in OmniOffices in order to
comply with this 5% rule.
The Company, working with OmniOffices and Omni UK, currently is analyzing
various alternatives that may be available to free up additional capital for the
Company while also providing OmniOffices and Omni UK with access to capital to
pursue their growth strategy. These alternatives include the making of
additional equity investments in OmniOffices by third parties, the sale or
distribution by the Company of a portion of its interest in OmniOffices, or the
sale or distribution by the Company of all or a portion of its interest in Omni
UK. These discussions currently are preliminary in nature, and there can be no
assurance as to what, if any, actions will be taken that will affect the
Company's executive office suites investments.
DEVELOPMENT OPERATIONS
Development of office properties is an important component of the Company's
growth strategy as attractive acquisition opportunities diminish due to the
influx of capital into the office property market. The Company believes that
long-term investment returns resulting from properties it develops generally
will exceed those from properties it acquires, without the assumption of
significantly increased investment risks. The Company minimizes its development
risk by employing, through its development affiliate, extensively trained and
experienced development personnel, by avoiding the assumption of entitlement
risk in conjunction with land acquisitions and by entering into guaranteed
maximum price (GMP) construction contracts with seasoned and credible
contractors. Most importantly, the Company carefully analyzes the supply and
demand characteristics of a core market before commencing inventory development
in the market. In general, the Company will only undertake inventory development
(which excludes properties under construction that have been substantially pre-
leased) in markets with strong real estate fundamentals, and then the Company
generally will construct office buildings attractive to a wide range of office
users. The Company's research-driven development program enables it to tailor
its development activities in each core market, including inventory development,
build-to-suit projects, and holding land for future development. From January 1,
1997 to March 15, 1999, the Company placed in service approximately 3.1 million
square feet of office properties. The total cost of these development projects
was approximately $436.5 million and the Company expects that the first year
stabilized unleveraged return of this square footage will be 11.6%. In addition,
as of March 15, 1999, the Company had 45 properties
4
under construction that will contain approximately 3.8 million square feet, of
which 473,000 square feet had already been placed in service.
The Company also believes that having a significant land inventory to
support future development provides it with a competitive advantage in
responding to customers' needs for office space in markets with low vacancy
rates, barriers to entry for new supplies of office space and increasing rental
rates. In addition to its portfolio of operating properties and projects
currently under development, the Company owned or controlled, as of March 15,
1999, land in 11 of its core markets that is expected to support future
development of up to 5.6 million square feet of office space.
The Company is engaged in the real estate development business directly and
through its affiliate CarrAmerica Development. As of March 15, 1999, the
Company's total investment in CarrAmerica Development was approximately $208.2
million, $26.1 million of which was in the form of an equity investment, $112.1
million of which was in the form of unsecured debt and $70.0 million was in the
form of secured debt.
In order to comply with tax laws applicable to REITs, the Company owns
approximately 95% of the economic interest of CarrAmerica Development, but owns
less than 10% of the voting stock of CarrAmerica Development. Substantially all
of the voting stock of CarrAmerica Development (representing approximately 5% of
the economic interest) is owned by The Oliver Carr Company. Because the Company
does not own a significant portion of the voting stock of CarrAmerica
Development, there are certain risks associated with the Company's investments
in this company. See 'Risk Factors -- Our Business Structure Has Certain Risks
Associated With It -- Lack of Voting Control Over Some of Our Affiliates.'
RECENT DEVELOPMENTS
ACQUISITIONS AND DEVELOPMENT
From January 1, 1998 to March 15, 1999, the Company invested approximately
$466.2 million ($424.6 million in cash, the assumption of $31.6 million of debt
and the issuance of $10.0 million in partnership interests ('Units') in two
partnerships that the Company controls) in 32 operating properties containing
approximately 2.2 million square feet and land held for future development which
is expected to support the future development of approximately 4.7 million
square feet of office space on this land, as of March 15, 1999, the Company had
developed and placed into service approximately 133,000 square feet of office
space and placed under construction approximately 1.7 million square feet of
additional office space. The table below provides certain information by market
regarding the operating properties acquired between January 1, 1998 and March
15, 1999:
PURCHASE
PRICE NUMBER OF RENTABLE
REGION/MARKET (IN MILLIONS) PROPERTIES SQUARE FEET
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SOUTHEAST REGION
Atlanta.......................................... $ 8.8 1 83,000
PACIFIC REGION
San Francisco Bay Area........................... 194.3 15 1,129,000
Orange County/Los Angeles........................ 23.7 6 182,000
San Diego........................................ 33.8 7 276,000
CENTRAL REGION
Dallas........................................... 39.3 2 379,000
MOUNTAIN REGION
Phoenix.......................................... 19.5 1 133,000
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Total......................................... $ 319.4 32 2,182,000
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5
The following table provides certain information regarding land acquired by
the Company (directly or through CarrAmerica Development) between January 1,
1998 and March 15, 1999:
SQUARE FEET FUTURE
UNDER BUILDABLE
REGION/MARKET CONSTRUCTION SQUARE FOOTAGE
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PACIFIC REGION:
San Francisco Bay Area.................................................. 592,000(1) 262,000
Portland, Oregon........................................................ 254,000 317,000
San Diego............................................................... 80,000 77,000
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Subtotal............................................................. 926,000 656,000
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MOUNTAIN REGION:
Denver.................................................................. -- 1,189,000
Phoenix................................................................. 215,000 --
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Subtotal............................................................. 215,000 1,189,000
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CENTRAL REGION:
Austin.................................................................. 258,000 173,000
Dallas.................................................................. 337,000 608,000
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Subtotal............................................................. 595,000 781,000
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SOUTHEAST REGION:
Downtown Washington, D.C................................................ --(2) --
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Subtotal............................................................. -- --
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Total..................................................................... 1,736,000 2,626,000
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(1) Excludes 133,000 square feet which were purchased, developed and placed in
service during 1998.
(2) Excludes 229,000 square feet which were purchased in 1998, placed under
construction, and subsequently contributed to a joint venture in which the
Company currently holds a 35% interest.
The following table provides certain information regarding the acquisition
by OmniOffices and Omni UK of executive suites businesses between January 1,
1998 and March 15, 1999:
PURCHASING PURCHASE PRICE NUMBER OF
MARKET AFFILIATE (IN MILLIONS) CENTERS
- ----------------------------------------------- ------------ -------------- ---------
New York City.................................. OmniOffices $ 33.5(1) 10
Washington, DC................................. OmniOffices 9.9 6
Chicago........................................ OmniOffices 55.7 21
Atlanta........................................ OmniOffices 12.3 5
Boston......................................... OmniOffices 18.6 6
San Rafael..................................... OmniOffices 1.0 1
New Jersey..................................... OmniOffices 18.5 10
Parsippany..................................... OmniOffices 6.2 3
Salt Lake City................................. OmniOffices 5.8 5
Phoenix........................................ OmniOffices 3.6 2
St. Louis...................................... OmniOffices 2.3 1
London......................................... Omni UK 37.3(2) 6
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Total........................................ $204.7 76
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(1) Purchase price also included the issuance of warrants to purchase stock in
OmniOffices.
(2) Purchase price net of contingent consideration of approximately $17.3
million.
6
FINANCING ACTIVITY
In 1998, the Company raised approximately $647 million in public and
private offerings of equity and debt. In January 1998, the Company raised $200
million from a private debt offering. In April 1998, the Company raised
approximately $297 million from two public equity offerings. In October 1998,
the Company raised $150 million from a public debt offering. The proceeds of
these offerings generally were used to repay amounts outstanding under the
Company's line of credit and for other general corporate purposes.
In April 1998, the Company sold 5,000,000 shares of common stock to Merrill
Lynch, Pierce, Fenner & Smith Incorporated ('Merrill Lynch'), resulting in net
proceeds of approximately $147 million, in what is commonly known as a 'forward
equity sale' transaction. In connection with that transaction, the Company
entered into an agreement with Merrill Lynch under which the parties agreed to
adjust the number of shares of common stock issued to Merrill Lynch (or the
aggregate purchase price paid for such shares) based upon the proceeds received
by Merrill Lynch upon a resale of the shares in April 1999 in relation to the
amount originally paid by Merrill Lynch ($150 million), plus a forward accretion
component and less dividends paid on the shares. The Company settled this
agreement with cash payments in October 1998 and March 1999, and the 5,000,000
shares were returned to the Company and cancelled.
The Company and one of its affiliates entered into a joint venture with
J.P. Morgan & Co. to purchase and develop 1201 F Street in downtown Washington,
D.C. J.P. Morgan & Co. has become a 65% joint venture partner in the partnership
that owns the property and has committed to provide its pro-rata share of the
required expected capital of $71.8 million. In addition, Bank of America and
Mass Mutual have agreed to provide construction financing and permanent
financing for this project.
Also, during the fourth quarter, the 2600 West Olive property in Burbank,
California was refinanced for 10 years at a fixed rate of 6.75%. In addition,
$29.3 million of mortgage debt secured by the Parkway North I property in
Deerfield, Illinois was refinanced for five years at a fixed rate of 6.92% and
the 1717 Pennsylvania Avenue property in downtown Washington, D.C. received
$12.5 million of financing for 10 years at a fixed rate of 6.63%.
In March 1999, the Company closed on a refinancing of the loans secured by
1255 23rd Street, 1730 Pennsylvania Avenue and International Square properties,
all of which are located in downtown Washington, D.C., which refinancing
increased the aggregate principal amount of the loan by $40.0 million to
approximately $222.0 million, extended the term approximately six years and
adjusted the interest rates to one global fixed interest rate of 8.12%. In
February 1999, the Company extended the mortgage on 1775 Pennsylvania Avenue in
downtown Washington, D.C. for three months. The Company expects to replace the
current $6.1 million note with a $12.0 million, 10-year loan which will bear
interest at a fixed rate of 6.79%. As this transaction is subject to certain
conditions, there can be no assurance that it will close.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute 'forward-looking statements'
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
'Reform Act'). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company and its affiliates or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: national and local economic, business and real
estate conditions that will, among other things, affect demand for office
properties, availability and creditworthiness of tenants, the level of lease
rents and the availability of financing for both tenants and the Company,
adverse changes in the real estate markets, including, among other things,
competition with other companies, risks of real estate acquisition and
development (including the failure of pending acquisitions to close and pending
developments to be completed on time and within budget), actions, strategies and
performance of affiliates that the Company may not control, governmental actions
and initiatives, and environmental/safety requirements.
7
DIRECTORS OF THE COMPANY
The directors of the Company are divided into three classes, with
approximately one-third of the directors elected by the stockholders annually.
The Board of Directors of the Company currently consists of the following
persons:
Oliver T. Carr, Jr., 73, has been Chairman of the Board of Directors of the
Company since February 1993. He also served as Chief Executive Officer of the
Company from 1993 to 1997. Mr. Carr's term as a director of the Company expires
at the 1999 Annual Meeting of Stockholders and he has been renominated for
election by the stockholders at that meeting to serve another three-year term.
Mr. Carr founded The Oliver Carr Company in 1962 and since that time has been
its Chairman of the Board and a director. In addition, Mr. Carr has served as
President of The Oliver Carr Company since February 1993. He was Chairman of the
Board of Trustees of The George Washington University until May 1995. Mr. Carr
is the father of Thomas A. Carr, the Company's current President and Chief
Executive Officer, and Robert O. Carr, the President of Carr Urban Development,
Inc. Mr. Carr is a member of the Investment Committee and the Executive
Committee of the Board of Directors.
Thomas A. Carr, 40, has been President and a director of the Company since
February 1993. Mr. Carr's term as a director of the Company expires at the 2001
Annual Meeting of Stockholders. In May 1997, Mr. Carr was appointed Chief
Executive Officer of the Company, at which time he resigned as Chief Operating
Officer of the Company, a position he had held since April 1995. Prior to such
time, Mr. Carr was the Company's Chief Financial Officer from February 1993 to
April 1995. Mr. Carr is a director of The Oliver Carr Company. Mr. Carr holds a
Masters in Business Administration degree from Harvard Business School, and a
Bachelor of Arts degree from Brown University. Mr. Carr is a member of the
National Association of Real Estate Investment Trusts; the Young Presidents
Organization; the Federal City Council and the International Development
Research Council. Mr. Carr is the son of Oliver T. Carr, Jr. and the brother of
Mr. Robert O. Carr. Mr. Carr is a member of the Investment Committee and the
Executive Committee of the Board of Directors. In addition, Mr. Carr is a member
of management's Operating Committee and Investment Committee.
Ronald Blankenship, 49, was appointed as a director of the Company in
August 1998 to fill a vacancy until the 1999 Annual Meeting of Stockholders, and
has been nominated for election by the stockholders at that meeting to serve the
remainder of a term that expires at the 2000 Annual Meeting of Stockholders. Mr.
Blankenship was nominated to the Board as a designee of SC-USREALTY, a major
stockholder of the Company. Mr. Blankenship has been the Vice Chairman and Chief
Operating Officer of Security Capital Group Incorporated since May 1998.
Previously, Mr. Blankenship was Managing Director of Security Capital Group
Incorporated from March 1991 to May 1998. Mr. Blankenship is a director of
Security Capital Group Incorporated and Storage USA, Inc. He received his B.B.A.
from the University of Texas at Austin. Mr. Blankenship is a member of the
Executive Compensation Committee of the Board of Directors.
Andrew F. Brimmer, 72, 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 and he has been renominated for election by the
stockholders at that meeting to serve another three-year term. He has been
President of Brimmer & Company, Inc., an economic and financial consulting firm,
since 1976. Dr. Brimmer is the Wilmer D. Barrett Professor of Economics at the
University of Massachusetts--Amherst. He also serves as a director of BlackRock
Investment Income Trust, Inc. (and other funds), Borg-Warner Automotive, Inc.,
and Airborne Express. From 1995 to 1998, Dr. Brimmer served as chairman of the
District of Columbia Financial Control Board. He also was a member of the Board
of Governors of the Federal Reserve System from 1966 through 1974. Dr. Brimmer
received a B.A. degree and a masters degree in economics from the University of
Washington and a Ph.D. in economics from Harvard University. Dr. Brimmer is a
member of the Audit Committee of the Board of Directors.
A. James Clark, 71, has been a director of the Company since February 1993.
Mr. Clark's term as a director of the Company expires at the 2000 Annual Meeting
of Stockholders. He has been Chairman of the Board and President of Clark
Enterprises, Inc., a Bethesda, Maryland-based company involved in real estate,
communications, and commercial and residential construction, since 1972. Mr.
Clark is a member of the University of Maryland Board of Visitors and
Foundation, and is a Trustee Emeritus of the Johns Hopkins University and the
Johns Hopkins Board of Medicine. He is also a member of the PGA Tour Golf Course
Properties Advisory Board and an advisory director of Potomac Electric Power
Company. Mr. Clark is a graduate
8
of the University of Maryland. Mr. Clark is a member of the Investment
Committee, the Executive Committee, the Executive Compensation Committee, and
the Nominating Committee of the Board of Directors.
Timothy Howard, 50, was appointed as a director of the Company in August
1998 to fill a vacancy until the 1999 Annual Meeting of Stockholders, and has
been nominated for election by the stockholders at that meeting to serve the
remainder of a term that expires at the 2000 Annual Meeting of Stockholders. Mr.
Howard has been the Executive Vice President and Chief Financial Officer of
Fannie Mae since 1990. From 1988 to 1990, Mr. Howard was Executive Vice
President--Asset Management of Fannie Mae. Mr. Howard has held positions of
increasing responsibility with Fannie Mae since beginning with the company in
1982. Mr. Howard received his Bachelor of Science and Masters in Economics
degrees from UCLA. Mr. Howard is a member of the Audit Committee and the
Executive Compensation Committee of the Board of Directors.
Caroline S. McBride, 45, has been a director of the Company since July
1996. Ms. McBride's term as a director of the Company expires at the 2001 Annual
Meeting of Stockholders. Ms. McBride was nominated to the Board of Directors as
a designee of SC-USREALTY. Since March 1997, Ms. McBride has been a Managing
Director of Security Capital Global Strategic Group, an affiliate of
SC-USREALTY. From June 1996 to July 1997, Ms. McBride was Managing Director of
Security Global Capital Management Group. Prior thereto, from July 1978 to May
1996, Ms. McBride was with IBM, where she was director of private market
investments for the IBM Retirement Fund from 1994 to 1996 and director of real
estate investments for the IBM Retirement Fund from 1992 to 1994. Ms. McBride is
on the Board of Directors of Storage USA, Inc., BelmontCorp, CWS Communities
Trust and the Real Estate Research Institute. Ms. McBride received her Masters
in Business Administration degree from New York University and a Bachelor of
Arts degree from Middlebury College. Ms. McBride is a member of the Investment
Committee and the Audit Committee of the Board of Directors.
William D. Sanders, 57, has been a director of the Company since May 1996.
Mr. Sanders' term as a director of the Company expires at the 1999 Annual
Meeting of Stockholders and he has been renominated for election by the
stockholders at that meeting to serve another three-year term. Mr. Sanders was
nominated to the Board as a designee of SC-USREALTY. He is the founder and
Chairman of Security Capital Group, an affiliate of SC-USREALTY. Mr. Sanders
retired on December 31, 1989 as Chief Executive Officer of LaSalle Partners
Limited, a firm he founded in 1968. Mr. Sanders is on the Board of Directors of
Security Capital European Realty, SC-USREALTY, and Storage USA, Inc. Mr. Sanders
is a former trustee and member of the executive committee of the University of
Chicago and a former trustee fellow of Cornell University. Mr. Sanders received
his Bachelor of Science degree from Cornell University. Mr. Sanders is a member
of the Nominating Committee of the Board of Directors.
Wesley S. Williams, Jr., 56, has been a director of the Company since
February 1993. Mr. Williams' term as a director of the Company expires at the
2001 Annual Meeting of Stockholders. Mr. Williams has been a partner of the law
firm of Covington & Burling, Washington, D.C., since 1975. He was adjunct
professor of real estate finance law at Georgetown University Law Center from
1971 to 1973 and is a contributing author to several texts on banking law and on
real estate finance and investment. Mr. Williams is on the Editorial Advisory
Board of the District of Columbia Real Estate Reporter. Mr. Williams serves as a
director of Blackstar Communications, Inc.; Blackstar LLC; and the Federal
Reserve Bank of Richmond, Virginia. Mr. Williams is Co-Chairman of the Board of
Directors and Co-CEO of The Lockhart Caribbean Corporation and its real estate,
insurance, consumer finance, and internet services subsidiaries. Mr. Williams is
a member of the Executive Committee of the Board of Trustees of Penn Mutual Life
Insurance Company, of which he is the Senior Trustee. Mr. Williams received B.A.
and J.D. degrees from Harvard University, an M.A. degree from the Fletcher
School of Law and Diplomacy and an LL.M. from Columbia University. Mr. Williams
is a member of the Executive Compensation Committee of the Board of Directors.
9
EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES OF THE COMPANY
As of March 15, 1999, the Company's executive officers and key employees
(including certain executive officers and key employees of OmniOffices,
CarrAmerica Development and other affiliates of the Company) were as follows:
Kent C. Gregory, 48, has been the Company's Managing Director--National
Services since July 1997. Prior to that time, Mr. Gregory had been employed by
Opus, a real estate services company, since 1991, serving as Senior Vice
President of National Accounts. He holds a Masters in Business Administration
from Pace University and a Bachelor of Arts degree in Business Administration
from St. Thomas University. Mr. Gregory is a member of management's Operating
Committee and Investment Committee.
Philip L. Hawkins, 43, has been the Company's Chief Operating Officer since
October 1998. Prior to that time Mr. Hawkins served as the Company's Managing
Director--Asset Management since February 1996. Prior to that time, Mr. Hawkins
had been employed by LaSalle Partners Limited, a real estate services company,
since 1982, serving as Executive Vice President, Eastern Division, Asset
Management Group since 1995, Senior Vice President, Northeast Region, Asset
Management Group from 1990 to 1994, and in other asset management positions
prior to that time. Mr. Hawkins also was a director of LaSalle Partners Limited.
He holds a Masters in Business Administration from the University of Chicago
Graduate School of Business and a Bachelor of Arts degree from Hamilton College.
Mr. Hawkins is a member of management's Operating Committee and Investment
Committee. Mr. Hawkins serves as a director and officer of certain subsidiaries
and affiliates of the Company, including as a director of OmniOffices.
Richard F. Katchuk, 52, has been the Company's Chief Financial Officer
since February 1999. Prior to that time, Mr. Katchuk served as Chief Financial
Officer and Corporate Executive Vice President of Crestar Financial Corporation
since 1995. Prior to joining Crestar Financial Corporation, Mr. Katchuk was with
Banc One, serving as a Senior Vice President Corporate Finance from 1988 to
1995. Mr. Katchuk holds a Bachelor of Arts degree in Economics from Hobart &
William Smith Colleges. Mr. Katchuk is a member of management's Operating
Committee and Investment Committee.
Linda A. Madrid, 39, has been the Company's Managing Director, General
Counsel and Corporate Secretary since November 1998. Ms. Madrid had served as
the Company's Senior Vice President and General Counsel since March 1998. Prior
to that time, Ms. Madrid had been Senior Vice President, Managing Director of
Legal Affairs and Corporate Secretary of Riggs National Corporation/Riggs Bank
N.A. since February 1996 and Vice President and Litigation Manager from
September 1993 to January 1996. Prior to that time, Ms. Madrid practiced law in
several law firms in Washington, D.C. and served as Assistant General Counsel
for Amtrak. Ms. Madrid holds a J.D. from Georgetown University Law Center and a
Bachelor of Arts degree from Arizona State University. Ms. Madrid is a member of
management's Operating Committee.
Paul R. Adkins, 40, has been the Company's Senior Vice President, Market
Officer for Washington, D.C. since August 1996. Mr. Adkins has been with the
Company for over 17 years, including serving as Vice President of Acquisitions
from May 1994 to August 1996. Prior to that, Mr. Adkins served in a variety of
other capacities with the Company, with over 12 years in commercial real estate
leasing. Mr. Adkins is a member of the District of Columbia's Building Industry
Association and Northern Virginia's National Association of Industrial and
Office Parks. Mr. Adkins holds a Bachelor of Arts degree in Economics from
Bucknell University.
Steven N. Bralower, 50, has been Executive Vice President of Carr Real
Estate Services, Inc. ('Carr Services, Inc.'), an affiliate of the Company that
conducts management and leasing operations since January 1999, and Senior Vice
President of Carr Realty, L.P., a subsidiary of the Company, since May 1996. Mr.
Bralower was Senior Vice President of Carr Services, Inc. from 1993 to May 1996.
Mr. Bralower is a member of the Greater Washington Commercial Association of
Realtors. Mr. Bralower has been a member of the Georgetown University Law Center
adjunct faculty since 1987. Mr. Bralower holds a Bachelor of Arts degree from
Kenyon College.
10
Robert L. Brumm, 47, has been a Senior Vice President of the Company since
February 1998. Prior to that Mr. Brumm had been Vice President, Human Resources
and Administration of the Company since May 1996. From 1993 to 1996, Mr. Brumm
held the same position with Carr Services, Inc. He is responsible for managing
the Human Resources, Risk Management, Training, and Office Management functions.
He has over 20 years of experience, including eight years with Mark Controls
Corporation and five years with the real estate division of Philip Morris, Inc.
Mr. Brumm received his Bachelors degree from California State University at Long
Beach.
Robert O. Carr, 49, has been President of Carr Urban Development, Inc., a
subsidiary of CarrAmerica Development, since June 1998, and Chairman of the
Board of Directors of Carr Services, Inc., since February 1993. Mr. Carr served
as a director of the Company from 1993 until 1997 and as President of Carr
Services, Inc. from 1993 to 1998. Mr. Carr is a director of The Oliver Carr
Company and, from 1987 until February 1993, served as its President and Chief
Executive Officer. Mr. Carr is a member of the Boards of Directors for the
Greater Washington Research Center, the Corcoran School of Art and the National
Cathedral School for Girls. Mr. Carr is also a member of the Greater Washington
Board of Trade, the Urban Land Institute and the D.C. Chamber of Commerce. Mr.
Carr holds a Bachelor of Arts degree from Trinity College. Mr. Carr is the son
of Oliver T. Carr, Jr. and the brother of Thomas A. Carr.
Clete Casper, 39, has been the Company's Vice President, Market Officer for
Seattle since July 1996. Mr. Casper has over 10 years of experience in real
estate and marketing. Mr. Casper's most recent experience includes one year as a
Senior Associate with CB Commercial Real Estate Group Inc., Seattle, Washington.
Prior to that, Mr. Casper was with Sabey Corporation in Seattle, Washington,
serving as Development Manager for four years and a Marketing Associate for five
years. Mr. Casper is a graduate of Washington State University.
John J. Donovan, Jr., 55, has been President of Carr Services, Inc., since
January 1999. Prior to that time, Mr. Donovan served as Senior Vice President of
Carr Services, Inc. from 1993 to 1998. He is a member of the Advisory Board for
Jubilee Enterprise of Greater Washington, the Economic Club of Washington, the
Greater Washington Board of Trade and the Greater Washington Commercial
Association of Realtors. Mr. Donovan holds a Bachelor of Arts degree from
Georgetown University.
Karen B. Dorigan, 34, has been a Senior Vice President of the Company since
May 1997. Prior to that, Ms. Dorigan was the Company's Vice President--Land Due
Diligence since January 1996. Prior to that time, Ms. Dorigan served for more
than nine years in a variety of capacities in the development business of The
Oliver Carr Company, including from February 1993 to January 1996 as a Vice
President. She is a past member of the Northern Virginia Building Industry
Association's Arlington Chapter Council. Ms. Dorigan holds a Bachelor of Science
degree in Economics from the University of Pennsylvania, Wharton School.
J. Thad Ellis, 38, has been the Company's Vice President, Market Officer
for Atlanta since November 1996. Mr. Ellis has over 15 years of experience in
real estate. Mr. Ellis' most recent experience includes 10 years with Peterson
Properties, where his primary responsibility was to oversee and coordinate
leasing and property management for the management services portfolio. Mr. Ellis
is a graduate of Washington & Lee University and is involved with the National
Association of Industrial and Office Parks and Atlanta's Chamber of Commerce and
is on the Advisory Board of Black's Guide.
Richard W. Greninger, 47, has been Senior VicePresident--Operations of the
Company since January 1998. Prior to that, Mr. Greninger had been the Senior
Vice President of Carr Services, Inc. since March 1995. Prior to that time, he
had been Vice President of Carr Services, Inc. since February 1993. During 1994,
Mr. Greninger served as President of the Greater Washington Apartment and Office
Building Association. Mr. Greninger has served as a director of both the
Institute of Real Estate Management and the 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.
Gary M. Kusin, 47, has been President and Chief Executive Officer of
OmniOffices since September 1998. Prior to that time, Mr. Kusin was co-founder
and Chairman of Laura Mercier Cosmetics. Prior to his launch of Laura Mercier
Cosmetics, Mr. Kusin was co-founder and President of Babbage's, Inc., a computer
software and video game retailing business. Mr. Kusin holds a Masters in
Business Administration degree from Harvard Business School and a Bachelor of
Arts degree from the University of Texas at Austin.
Austin W. Lehr, 37, has been the Company's Vice President, Market Officer
for Denver since July 1996. Mr. Lehr has over 14 years of experience in real
estate management, marketing, and development. Mr. Lehr's
11
most recent experience includes four years as a Vice President with Southwest
Value Partners and Affiliates in Phoenix, Arizona. Prior to that, Mr. Lehr spent
four years with Draper and Kramer, lncorporated in Washington, D.C. as the
Director of Development and Marketing. Mr. Lehr is a Director of the Chapter of
NAIOP, a Director for Brokers for Battered Kids and a guest lecturer at
University of Colorado's Real Estate Center. Mr. Lehr holds a Masters of
Management degree from Northwestern University and a Bachelor of Arts degree
from Williams College.
Dwight L. Merriman, 38, has been the Company's Senior Vice President,
Market Officer for Southern California since 1996. Mr. Merriman has over 15
years of experience in real estate, operations, acquisitions, construction,
marketing and development. From 1995 to 1996 Mr. Merriman served as Vice
President with Security Capital Pacific Trust (an affiliate of SC-USREALTY) in
Irvine, California. Prior to that, Mr. Merriman spent 11 years with Overton,
Moore in Los Angeles, serving as the regional development and operating partner
for Orange County and Riverside County in the Southern California Market. Mr.
Merriman holds a Masters in Business Administration from the University of
California at Los Angeles and a Bachelors degree from the University of Southern
California.
Robert M. Milkovich, 39, has been the Company's Vice President, Market
Officer for Phoenix, Arizona since January 1998. Mr. Milkovich has over 14 years
of experience in real estate leasing. Mr. Milkovich's most recent experience
includes five years as the Assistant Vice President of leasing for Carr
Services, Inc. Mr. Milkovich holds a Bachelor of Science in Business
Administration from the University of Maryland.
Gerald J. O'Malley, 55, has been the Company's Vice President, Market
Officer for Chicago since July 1996. Mr. O'MalIey has over 32 years of
experience in real estate marketing. Mr. O'Malley's most recent experience
includes 10 years as founder and President of G. J. O'MaIIey & Company, a real
estate office leasing company. Mr. O'Malley holds a Bachelors of Business
Administration degree from Loyola University.
Jeffrey S. Pace, 36, has been the Company's Vice President, Market Officer
for Austin, Texas since May 1997. Mr. Pace has over 14 years of experience in
real estate marketing. Mr. Pace's most recent experience was with Trammell Crow
Company, where he served as Marketing Director. Prior to that time, Mr. Pace
held the position of Marketing Representative in the Dallas and Austin markets
for Carlisle Property Company, Stockton, Luedmann, French & West and Trammell
Crow Company from 1985 to 1997. Mr. Pace holds a Masters of Business
Administration from the University of Texas at Arlington and a Bachelor of
Science from the University of Texas at Austin.
James D. Peterson, 51, has been the Company's Vice President, Market
Officer for Florida since November 1996. Mr. Peterson has over 25 years of
experience in the real estate field. From 1993 to October 1996 Mr. Peterson
served as Vice President of Peterson Properties with responsibility for property
operations in Florida. 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
at Austin and a Bachelor of Science degree in Economics from University of North
Carolina at Chapel Hill.
William H. Vanderstraaten, 38, has been the Company's Vice President,
Market Officer for Dallas since April 1997. Mr. Vanderstraaten has over 16 years
of experience in real estate development and leasing fields. Mr.
Vanderstraaten's most recent experience prior to working for the Company
includes eight years as Vice President--New Development for Harwood Pacific
Corporation in Dallas, Texas, where his primary responsibilities were directing
large scale development projects and coordinating leasing efforts for
portfolios. Mr. Vanderstraaten holds a Bachelor of Science degree in Business
Administration from Southern Methodist University.
Debra A. Volpicelli, 34, has been the Company's Treasurer and Controller
since May 1995. Prior to that time, Ms. Volpicelli had been the Company's Tax
Manager since February 1993. Ms. Volpicelli holds a Bachelor of Science degree
in Business Administration from Georgetown University and is a Certified Public
Accountant.
Joseph D. Wallace, 35, has been the Chief Financial Officer of OmniOffices
since January 1999. Prior to that time Mr. Wallace served as the Executive Vice
President of OmniOffices since October 1997. Prior to that time, Mr. Wallace had
served as the Company's Vice President--Building Due Diligence since January
1996 and was responsible for supervising building acquisition due diligence.
Prior to that time, Mr. Wallace had been the Company's Vice President of Asset
Management since February 1993. Mr. Wallace holds a Bachelor of Science degree
in Commerce from University of Virginia.
12
James S. Williams, 42, has been a Senior Vice President of CarrAmerica
Development, with responsibility for oversight of all development, design and
construction operations, since October 1996. Mr. Williams rejoined the Company
after two years as Vice President of Operations of Chadwick International. Prior
to that, from 1983 to 1994, he served in a variety of capacities for The Oliver
Carr Company. Mr. Williams is a guest lecturer at George Washington University.
Mr. Williams holds a Bachelor of Science degree in Business Administration from
West Virginia University.
Thomas M. Yockey, 44, has been a Senior Vice President of CarrAmerica
Development since June 1997, with primary responsibility for the Company's
build-to-suit development program and for management of the Company's
development coordinator group. Prior to that time, since 1994, Mr. Yockey was a
Vice President, with responsibility for securing and managing several of the
Company's major development projects. From 1987 to 1994, Mr. Yockey worked in a
variety of capacities with the Company's predecessor companies. Mr. Yockey holds
a Masters Degree from the Department of City and Regional Planning at the
University of North Carolina and a Bachelor of Arts Degree in Economics from the
University of Michigan.
RISK FACTORS
In addition to the other information in this document, you should consider
carefully the following risk factors in evaluating an investment in our
securities.
OUR PERFORMANCE IS SUBJECT TO RISKS ASSOCIATED WITH REAL ESTATE INVESTMENT
We are a real estate company that derives most of its income from the
ownership and operation of office buildings. There are a number of factors that
may adversely affect the income that our properties generate, including the
following:
Economic Downturns. Downturns in the national economy, or in regions or
localities where our properties are located, generally will negatively impact
the demand for office space.
Oversupply of Office Space. An oversupply of space in markets where we own
office properties making it more difficult for us to lease space at attractive
rental rates would typically cause rental rates and occupancies to decline.
Competitive Properties. If our properties are not as attractive to tenants
(in terms of rents, services or location) as other properties that are
competitive with ours, we could lose tenants to those properties, or could have
to reduce our rental rates to compensate for that disparity.
Renovation Costs. In order to maintain the quality of our office buildings
and successfully compete against other properties, we periodically have to spend
money to repair and renovate our properties.
Tenant Risk. Our performance depends on our ability to collect rent from
our tenants. While no tenant in our portfolio accounted for more than 5% of our
rental revenue as of December 31, 1998, the Company's financial position may be
adversely affected by financial difficulties experienced by a major tenant, or
by a number of smaller tenants, including bankruptcies, insolvencies or general
downturns in business.
Reletting Costs. As leases expire, we try to either relet the space to an
existing tenant or attract a new tenant to occupy the space. In either case, we
likely will incur significant costs in the process. In addition, if market rents
have declined since the time the expiring lease was entered into, the terms of
any new lease signed likely will not be as favorable to us as the terms of the
expiring lease, thereby reducing the income earned from that space.
Regulatory Costs. There are a number of government regulations, including
zoning and tax laws, that apply to the ownership and operation of office
buildings. Compliance with existing and newly adopted regulations often requires
us to spend a significant amount of money on our properties.
Fixed Nature of Costs. Most of the costs associated with owning and
operating an office building are not necessarily reduced when circumstances such
as market factors and competition cause a reduction in income from the property.
Environmental Problems Are Possible and Can Be Costly. Federal, state and
local laws and regulations relating to the protection of the environment may
require a current or previous owner or operator of real property to investigate
and clean up hazardous or toxic substances or petroleum product releases at the
property. The
13
presence of or failure to clean up contamination may adversely affect our
ability to sell or lease a property or to borrow using a property as collateral.
Competition. A number of other major real estate investors with
significant capital compete with us. These competitors include publicly traded
REITs, private REITs, investment banking firms and private institutional
investment funds.
NEW DEVELOPMENTS AND ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED
Over the last few years, we have embarked on a major acquisition and
development program. In deciding whether to acquire or develop a particular
property, we made certain assumptions regarding the expected future performance
of that property. If a number of these new properties do not perform as
expected, our financial performance will be adversely affected.
While our acquisition pace has declined significantly, we remain very
active in developing office properties. New office property developments are
subject to a number of risks, including construction delays, complications in
obtaining necessary zoning, occupancy and other governmental permits, cost
overruns, financing risks, and the possible inability to meet expected occupancy
and rent levels. If any of these problems occur, development costs for a project
will increase, and there may be costs incurred for projects that are not
completed.
OUR USE OF DEBT SUBJECTS US TO VARIOUS FINANCING RISKS
While we believe that we have a conservative borrowing policy, we do
regularly borrow money to finance our business, particularly the acquisition and
development of properties. We generally incur unsecured debt, although in many
cases we will incur mortgage debt that is secured by one or more of our office
buildings. There are certain risks inherent in borrowing money, including the
following:
No Limitation on Debt Incurrence. The Company's organizational documents
do not limit the amount of debt the Company can incur. The degree of leverage of
the Company could have important consequences, including making it more
difficult for us to obtain additional financing in the future for business
needs, as well as making us more vulnerable to an economic downturn.
Possible Inability to Meet Scheduled Debt Payments. If our properties do
not perform as expected, our cash flow from our properties may not be enough to
make required principal and interest payments. If a property is mortgaged to
secure payment of indebtedness and we are unable to meet mortgage payments, the
holder of the mortgage or lender could foreclose on the property, resulting in
loss of income and asset value. An unsecured lender could also attempt to
foreclose on some of the Company's assets in order to receive payment.
Inability to Refinance Debt. In almost every case, very little of the
principal amount that we borrow is repaid prior to the maturity of the loan. We
generally expect to refinance that debt when it matures, although in some cases
we may pay off the loan. If principal amounts due at maturity cannot be
refinanced, extended or paid with proceeds of other capital transactions, such
as new equity capital, our cash flow will be insufficient in all years to repay
all maturing debt. Prevailing interest rates or other factors at the time of a
refinancing (such as possible reluctance of lenders to make commercial real
estate loans) may result in higher interest rates and increased interest
expense.
As a general matter, we use our line of credit and cash on hand received
from asset dispositions and joint ventures to finance our development and
acquisition activities, with the expectation that long-term permanent financing
will be obtained once the property is stabilized. If permanent debt or equity
financing is unavailable on acceptable terms in the future, it may significantly
restrict our development and acquisition programs.
Financial Covenants Could Adversely Affect Our Financial Condition. The
Company's credit facilities and the indentures under which the Company's senior
unsecured indebtedness is issued contain financial and operating covenants,
including coverage ratios and other limitations on the Company's ability to
incur secured and unsecured indebtedness, sell all or substantially all of its
assets and engage in mergers, consolidations and certain acquisitions. These
covenants may restrict the Company's ability to engage in transactions that
would otherwise be in the Company's best interests.
14
OUR BUSINESS STRUCTURE HAS CERTAIN RISKS ASSOCIATED WITH IT
A Major Stockholder Has Influence on Our Operations. SC-USREALTY owned
approximately 39.9% of the outstanding shares of our common stock (36.2% on a
fully diluted basis) as of March 15, 1999. No other stockholder is permitted to
own more than 5% of our common stock, subject to certain exceptions. Under a
Stockholders Agreement with the Company, SC-USREALTY has the right to nominate
up to 40% of the directors. The Stockholders Agreement also gives SC-USREALTY
certain rights that limit our ability to take certain actions and limits our
ability to engage in certain transactions that may be in the best interests of
other stockholders. This situation results in SC-USREALTY having a substantial
influence over the affairs of the Company. This could potentially be
disadvantageous to other stockholders' interests, which may not converge with
the interests of SC-USREALTY.
Certain Officers and Directors May Have Interests that Conflict with the
Interests of Stockholders. Certain officers and members of the board of
directors of the Company own units of limited interest partnership in Carr
Realty, L.P., a partnership that owns some of the Company's properties. These
individuals may have personal interests that conflict with the interests of the
Company's stockholders with respect to business decisions affecting the Company
and Carr Realty, L.P., such as interests in the timing and pricing of property
sales or refinancings in order to obtain favorable tax treatment. The Company,
as the sole general partner of Carr Realty, L.P., has the exclusive authority to
determine whether and on what terms the partnership will sell or refinance an
individual property, but the effect of certain transactions on these unitholders
may influence decisions affecting these properties.
We May Not Be Able to Sell Properties When Appropriate. Real estate
property investments generally cannot be sold quickly. In addition, the tax laws
applicable to REITs restrict our ability to dispose of certain properties.
Therefore, we may be unable to vary our portfolio promptly in response to market
conditions, which may adversely affect our financial position.
Lack of Voting Control Over Some of Our Affiliates. While most of our
income is generated from the ownership and operation of our office buildings, we
own nonvoting interests in four affiliates that either currently produce or are
expected in the future to produce significant contributions to our income. Carr
Services, Inc. conducts management and leasing operations for third parties and
for office buildings in which we own less than a 100% interest. CarrAmerica
Development conducts fee-based development services for the Company and for
third parties. OmniOffices and Omni UK are engaged in the executive suites
business, providing short-term office space together with telephone answering,
data processing and other office support services. As of December 31, 1998, the
Company owned approximately 95% of the economic interest in each of these
companies through the ownership of nonvoting common stock. The voting stock of
each of these companies is owned by certain entities and individuals that have
some affiliation with the Company (or, in the case of Omni UK, by OmniOffices).
The Company owns nonvoting stock in these companies because the tax laws
applicable to REITs prohibit the Company from owning more than a 10% voting
interest. As a result, the Company has no right to elect the directors of these
companies, and its ability to influence their operations is limited. These
companies may engage in business activities that are not in the Company's best
interests.
We Depend On External Capital. To qualify as a REIT, we generally must
distribute to our stockholders each year at least 95% of our net taxable income.
Because of these distribution requirements, we likely will not be able to fund
all future capital needs, including capital for property development and
acquisitions, with income from operations. We therefore will have to rely on
third-party sources of capital, which may or may not be available on favorable
terms, if at all. Our access to third-party sources of capital depends on a
number of things, including the market's perception of our growth potential and
our current and potential future earnings.
CERTAIN FACTORS MAY INHIBIT CHANGES IN CONTROL OF THE COMPANY
Charter and By-law Provisions. Certain provisions of our charter and
by-laws may delay or prevent a change in control of the Company or other
transactions that could provide our common stockholders with a premium over the
then-prevailing market price of their common stock or that might otherwise be in
the best interests of our stockholders. These include a staggered board of
directors and the ability of our board of directors to authorize the issuance of
preferred stock without stockholder approval. Also, any future series of
preferred
15
stock may have voting provisions that could delay or prevent a change in control
or other transaction that might involve a premium price or otherwise be in the
best interests of our stockholders.
Ownership Limit. In order to assist the Company in maintaining its
qualification as a REIT, the Company's charter contains certain provisions
generally limiting the ownership of shares of capital stock by any single
stockholder to 5% of the Company's outstanding common stock and/or 5% of any
class or series of preferred stock. The federal tax laws include complex stock
ownership and attribution rules that apply in determining whether a stockholder
exceeds the ownership limits. These rules may cause a stockholder to be treated
as owning stock that is actually owned by others, including family members and
entities in which the stockholder has an ownership interest. The board of
directors of the Company could waive this restriction if it were satisfied that
ownership in excess of these ownership limits would not jeopardize our status as
a REIT and the board otherwise decides that a waiver would be in the Company's
interests. Capital stock acquired or transferred in breach of the ownership
limit will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary.
Maryland Law Provisions. Certain provisions of Maryland law applicable to
the Company because it is a Maryland corporation prohibit 'business
combinations' with any person that beneficially owns ten percent or more of the
outstanding voting shares of the Company (an 'interested stockholder') or with
an affiliate of the interested stockholder. These prohibitions last for five
years after the most recent date on which the person became an interested
stockholder. After the five-year period, a business combination with an
interested stockholder must be approved by two super-majority stockholder votes
unless, among other conditions, the Company's common stockholders receive a
minimum price for their shares and the consideration is received in cash or in
the same form as previously paid by the interested stockholder for its common
shares. The Company's board of directors has opted out of these business
combination provisions. Consequently, the five-year prohibition and the
super-majority vote requirements will not apply to a business combination
involving the Company. The Company's board of directors may, however, repeal
this election in most cases and cause the Company to become subject to these
provisions in the future. Being subject to the provisions could delay or prevent
a change in control or other transaction involving the Company that might
involve a premium price or otherwise be in the best interests of the Company's
stockholders.
THE MARKET VALUE OF OUR SECURITIES CAN BE ADVERSELY AFFECTED BY MANY FACTORS
As with any public company, a number of factors may adversely influence the
public market price of our common stock, many of which are beyond our control.
These factors include: the level of institutional interest in the Company; the
perception of REITs generally, and REITs with portfolios similar to ours in
particular, by market professionals, and the attractiveness of securities of
REITs in comparison to other companies; our financial condition and performance,
and the market's perception of our growth potential and potential future cash
dividends; increases in market interest rates, which may lead investors to
demand a higher annual yield from distributions by the Company in relation to
the price paid for our stock; and the relatively low trading volume of shares of
REITs in general, which tends to exacerbate a market trend with respect to our
stock.
Sales of a substantial number of shares of our stock, or the perception
that such sales could occur, also could adversely affect prevailing market
prices for our stock. In addition to the possibility that we may sell shares of
our stock in a public offering at any time, we also may issue shares of common
stock upon redemption of units of interest held by third parties in affiliated
partnerships that we control, as well as upon exercise of stock options that we
grant to our employees and others. All of these shares will be available for
sale in the public markets from time to time. In addition, SC-USREALTY, our
largest stockholder (owning more than one-third of our shares), has the right to
sell its shares at any time, pursuant to registration rights granted to it in
connection with its original investment in the Company.
OUR STATUS AS A REIT MAY RESULT IN RISKS FOR INVESTORS
We believe that the Company has qualified for taxation as a REIT for
federal income tax purposes, and we plan to continue to operate so that the
Company meets the requirements for taxation as a REIT. If we qualify as a REIT,
we generally will not be subject to federal income tax on our income that we
distribute currently to our shareholders. Many of the REIT requirements,
however, are highly technical and complex. The determination that the Company is
a REIT requires an analysis of various factual matters and circumstances that
may not be
16
totally within our control. For example, to qualify as a REIT, at least 95% of
our gross income must come from certain sources that are itemized in the REIT
tax laws. We also are required to distribute to our stockholders at least 95% of
our REIT taxable income (excluding capital gains). The fact that we hold certain
of our assets through partnerships and their subsidiaries further complicates
the application of the REIT requirements. Even a technical or inadvertent
mistake could jeopardize the Company's REIT status. Furthermore, Congress and
the IRS might make changes to the tax laws and regulations, and the courts might
issue new rulings, that make it more difficult, or impossible, for us to remain
qualified as a REIT.
If the Company fails to qualify as a REIT, it would be subject to federal
income tax at regular corporate rates. Also, unless the IRS granted the Company
relief under certain statutory provisions, it would remain disqualified as a
REIT for four years following the year it first failed to qualify. If we failed
to qualify as a REIT, we would have to pay significant income taxes and would
therefore have less money available for investments, debt service and dividends
to stockholders. This likely would have a significant adverse affect on the
value of our securities. In addition, we would no longer be required to pay any
dividends to stockholders.
Even if we qualify as a REIT, we are required to pay certain federal, state
and local taxes on our income and property. For example, if the Company has net
income from 'prohibited transactions,' that income will be subject to a 100%
tax. In general, prohibited transactions are sales or other dispositions of
property held primarily for sale to customers in the ordinary course of
business. The determination as to whether a particular sale is a prohibited
transaction is dependent on the facts and circumstances related to that sale.
While we have recently undertaken a significant number of asset sales, we do not
believe that those sales should be considered prohibited transactions, but there
can be no assurance that the IRS would not contend otherwise. In addition, any
net taxable income earned directly by some of our affiliates, including
OmniOffices, Carr Services, Inc. and CarrAmerica Development, is subject to
federal and state corporate income tax. Similarly, the income of our affiliate,
Omni UK, is subject to some foreign taxes.
Federal tax laws prohibit REITs from owning more than 10% of the
outstanding voting securities of any issuer that is not another REIT or a
'qualified REIT subsidiary.' The Clinton Administration's fiscal year 2000
budget proposal, announced February 1, 1999, includes a proposal that would
change the 10% voting securities test to a 10% vote or value test. Under the
proposal, a REIT would not be able to own more than 10% of the vote or value of
the outstanding securities of any corporation, except for a qualified REIT
subsidiary or another REIT. The proposal also contains an exception to the 5%
and 10% asset tests that would allow a REIT to have 'taxable REIT subsidiaries,'
including both 'qualified independent contractor subsidiaries,' which could
perform noncustomary and other currently prohibited services for tenants and
other customers, and 'qualified business subsidiaries,' which could undertake
third-party management and development activities as well as other non-real
estate related activities. Under the proposal, no more than 15% of a REIT's
total assets could consist of taxable REIT subsidiaries and no more than 5% of a
REIT's total assets could consist of qualified independent contractor
subsidiaries. Under the budget proposal, a taxable REIT subsidiary would not be
entitled to deduct any interest on debt funded directly or indirectly by the
REIT. This proposal would be effective after the date of enactment and a REIT
would be allowed to combine and convert existing corporate subsidiaries into
taxable REIT subsidiaries tax-free prior to a certain date. A transition period
would allow for conversion of existing corporate subsidiaries before the 10%
vote or value test would become effective. For the Company's taxable years after
the effective date of the proposal and after any applicable transition period,
the 10% vote or value test would apply to the Company's ownership in the
Company's operating subsidiaries, including OmniOffices not converted into
taxable REIT subsidiaries. It is presently uncertain whether any proposal
regarding REIT subsidiaries, including the budget proposal, will be enacted or,
if enacted, what the terms, including the effective date, of such proposal will
be.
OUR COMPANY IS NOT A SUITABLE INVESTMENT FOR FOREIGN INVESTORS
Our charter contains provisions generally preventing foreign investors
(other than SC-USREALTY and its affiliates) from acquiring additional shares of
the Company's capital stock if the acquisition would cause us to fail to qualify
as a domestically controlled REIT under the federal tax code. The application of
such provisions could prevent a foreign investor from acquiring stock or cause
stock that has been acquired to be reacquired automatically from the foreign
investor by a designated charitable trust. Accordingly, acquisition of our
capital stock would not likely be a suitable investment for foreign investors
other than SC-USREALTY.
17
FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON THE COMPANY
The year 2000 issue results from a programming convention in which computer
programs use two digits rather than four to define the applicable year. Software
and hardware may recognize a date using '00' as the year 1900, rather than the
year 2000. Such an inability of computer programs to recognize a year that
begins with '20' could result in business or building system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including, among other things, a temporary inability to process
transactions, send invoices or engage in other normal business activities. We
have undertaken a comprehensive program to address the year 2000 issue. Although
our year 2000 efforts are intended to minimize the adverse effects of the year
2000 issue on its business operations, the actual effects of the year 2000 issue
and the success or failure of our efforts may not be known until the year 2000
and later. Failure by the Company and its major vendors, other material service
providers and material clients to address adequately their respective year 2000
issues in a timely manner (insofar as such issues relate to the Company's
business) could have a material adverse effect on our business, results of
operations and financial condition.
ITEM 2. PROPERTIES
GENERAL. As of December 31, 1998, the Company owned interests (consisting
of whole or partial ownership interests) in 297 operating office properties
located in 15 core markets across the United States. As of December 31, 1998,
the Company owned fee simple title or leasehold interests in 290 of these
operating office properties, controlling partial interests in two operating
office properties, and non-controlling partial interests of 5% to 50% in five
operating office properties. In addition, as of December 31, 1998, the Company
owned (either directly or through CarrAmerica Development) 50 office properties
under development. Except as disclosed in 'Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources,' the Company has no immediate plans to renovate its operating office
properties other than for routine capital maintenance. The Company believes its
properties are adequately covered by insurance. The Company believes that, as a
result of its national operating system, market research capabilities, access to
capital, and experience as an owner, operator and developer of office
properties, it will continue to be able to identify and consummate acquisition
and development opportunities and to operate its portfolio more effectively than
competitors without such capabilities. The Company, however, competes in many of
its core markets with other real estate operators, some of which may have been
active in such markets for a longer period than the Company.
18
The following table sets forth certain information about each operating
property owned by the Company as of December 31, 1998:
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
CONSOLIDATED PROPERTIES
SOUTHEAST REGION
DOWNTOWN WASHINGTON, D.C.:
International Square.............. 3 100.0% 1,014,537 95.3% $ 30,855 $31.92
1730 Pennsylvania Avenue.......... 1 100.0 229,292 99.3 7,934 34.84
2550 M Street..................... 1 100.0 187,931 100.0 6,338 32.73
1775 Pennsylvania Avenue(6)....... 1 100.0 143,981 99.1 4,146 29.06
900 19th Street................... 1 100.0 100,907 100.0 3,128 31.00
1747 Pennsylvania Avenue.......... 1 89.7(7) 151,778 98.1 4,558 30.60
1255 23rd Street.................. 1 75.0(8) 305,237 97.1 8,304 28.03
WASHINGTON, D.C.:
One Rock Spring Plaza(6).......... 1 100.0 205,298 100.0 4,791 23.34
Tycon Courthouse.................. 1 100.0 416,195 98.7 8,454 20.58
Three Ballston Plaza(14).......... 1 100.0 302,875 100.0 7,584 25.04
Sunrise Corporate Center.......... 3 100.0 260,253 100.0 5,448 20.93
Parkway One....................... 1 100.0 87,842 100.0 1,416 16.12
ATLANTA:
Veridian.......................... 22 100.0 190,782 85.1 2,262 13.93
Glenridge......................... 1 100.0 64,052 76.3 829 16.96
Century Springs West.............. 1 100.0 94,893 97.3 1,551 16.79
Holcomb Place..................... 1 100.0 72,824 96.1 1,227 17.53
Midori............................ 1 100.0 99,900 100.0 1,823 18.25
Parkwood.......................... 1 100.0 151,296 66.4 1,818 18.11
Lakewood.......................... 1 100.0 80,338 100.0 1,176 14.64
The Summit........................ 1 100.0 179,085 100.0 2,963 16.54
Triangle Parkway.................. 3 100.0 82,102 81.8 976 14.53
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
CONSOLIDATED PROPERTIES
SOUTHEAST REGION
DOWNTOWN WASHINGTON, D.C.:
International Square.............. International Monetary Fund (36%)
1730 Pennsylvania Avenue.......... Federal Deposit Insurance Corporation (47%), King &
Spalding (30%)
2550 M Street..................... Patton Boggs, LLP (86%)
1775 Pennsylvania Avenue(6)....... Citibank F.S.B.(81%)
900 19th Street................... America's Community Bankers (30%), Stone & Webster (13%),
Korn/Ferry International (12%), Lucent Technologies (11%)
1747 Pennsylvania Avenue.......... Legg Mason Wood Walker (16%)
1255 23rd Street.................. Academy for Educational Development (18%), Chronicle of
Higher Education (16%), Seabury & Smith (16%), Peabody &
Brown (14%)
WASHINGTON, D.C.:
One Rock Spring Plaza(6).......... Sybase (27%), Caterair (22%)
Tycon Courthouse.................. Siemens Rolm (19%), GSA-FINCEN (16%), Vie de France
(11%),
Three Ballston Plaza(14).......... CACI (51%), Eastman Kodak (20%), Nixon & Vanderhye, PC
(11%)
Sunrise Corporate Center.......... Software AG (58%), LaFarge Corporation (12%)
Parkway One....................... EIS International (89%)
ATLANTA:
Veridian.......................... Edwards Baking Company (17%)
Glenridge......................... Industrial Computer Corporation (40%)
Century Springs West.............. Newcare Health Corporation (24%)
Holcomb Place..................... Intercept Holdings, Inc. (26%), Hitachi Telecom (USA),
Inc. (20%), The Progeni Corporation (13%)
Midori............................ National Consumer Services Corporation (66%), UPS (21%)
Parkwood.......................... American Flat Glass (10%)
Lakewood.......................... ISS (30%), Paychex (25%), Hickson Corporation (23%),
Morrison's (19%)
The Summit........................ Unisys Corporation (73%), GE Claims Service (14%), CSC
Continuum, Inc. (14%)
Triangle Parkway.................. Injoy, Inc. (28%), Wakefield / Beasley & Associates (16%)
19
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
2400 Lake Park.................... 1 100.0% 100,491 93.5% $ 1,396 $14.85
680 Engineering Drive............. 1 100.0 62,154 100.0 564 9.07
Embassy Row....................... 3 100.0 465,858 86.2 6,745 16.79
Waterford Center.................. 1 100.0 82,161 85.1 1,271 18.17
Spalding Ridge.................... 1 100.0 128,233 96.3 2,377 19.26
FLORIDA,
BOCA RATON:
Peninsula Plaza................... 1 100.0 162,303 93.8 2,279 14.97
Presidential Circle............... 1 100.0 280,118 84.3 3,854 16.31
------ ---------- --------- -------------- ------------
SOUTHEAST REGION SUBTOTAL...... 57 5,702,716 94.3 126,067 23.44
PACIFIC REGION
SOUTHERN CALIFORNIA,
ORANGE COUNTY/LOS ANGELES:
Scenic Business Park.............. 4 100.0 139,012 100.0 1,550 11.15
Harbor Corporate Park............. 4 100.0 151,787 96.3 2,233 15.27
Plaza PacifiCare.................. 1 100.0 104,377 100.0 979 9.38
Katella Corporate Center.......... 1 100.0 80,204 92.6 1,243 16.73
Warner Center..................... 12 100.0 343,769 98.0 7,991 23.71
South Coast Executive Center...... 2 100.0 161,310 90.7 3,058 20.90
Warner Premier.................... 1 100.0 61,553 100.0 1,358 22.07
Westlake Corporate Center......... 2 100.0 73,061 95.9 1,322 18.88
Von Karman........................ 1 100.0 103,713 100.0 2,443 23.56
2600 W. Olive..................... 1 100.0 145,474 95.7 3,543 25.46
Bay Technology Center............. 2 100.0 107,481 100.0 1,606 14.94
Alton Deere Plaza................. 6 100.0 182,146 99.0 2,663 14.77
SOUTHERN CALIFORNIA,
SAN DIEGO:
Del Mar Corporate Plaza........... 2 100.0 123,142 100.0 1,875 15.23
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
2400 Lake Park.................... GSA (23%), Computer Language Research (22%), United
Healthcare Services, Inc. (20%)
680 Engineering Drive............. EMS Technologies (67%), Tie/Communications, Inc. (12%),
Loral Aerospace Corporation (12%)
Embassy Row....................... Ceridian Corporation (25%), Cabot Corporation (10%)
Waterford Center.................. Dateq Information Network, Inc. (21%), VCG, Inc. (16%),
Arkwright Mutual Insurance Company (15%), Morgan Health
Group, Inc. (12%)
Spalding Ridge.................... OHM Remediation Services Corporation (57%)
FLORIDA,
BOCA RATON:
Peninsula Plaza................... Motorola (11%)
Presidential Circle............... Suncoast Savings (12%)
SOUTHEAST REGION SUBTOTAL......
PACIFIC REGION
SOUTHERN CALIFORNIA,
ORANGE COUNTY/LOS ANGELES:
Scenic Business Park.............. Talbert Medical Management (24%), FHP (17%), So. Cal
Blood & Tissue (12%), Coast Community College Dist. (13%)
Harbor Corporate Park............. Delmas (25%), Clayton Environmental (10%)
Plaza PacifiCare.................. Pacificare Health Systems (100%)
Katella Corporate Center.......... Friendly Hills Healthcare (19%)
Warner Center..................... GSA (16%), El Camino Resources (11%)
South Coast Executive Center...... State Compensation Insurance Fund (33%)
Warner Premier.................... Panorama Software (34%), RSL COM, USA (27%), Paging
Network of L.A. (10%)
Westlake Corporate Center......... Payco-General American Credit (10%), Biomarphic VLSI,
Inc. (10%)
Von Karman........................ Fidelity National Title Insurance (41%), Vision Solutions
(41%), Taco Bell Corporation (18%)
2600 W. Olive..................... The Walt Disney Company (89%)
Bay Technology Center............. AMRESCO (100%)
Alton Deere Plaza................. Prof. Coingrading Service (15%), Next Link California
(24%)
SOUTHERN CALIFORNIA,
SAN DIEGO:
Del Mar Corporate Plaza........... Peregrine Systems, Inc. (77%), Newgen Results Company
(23%)
20
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
Wateridge Pavilion................ 1 100.0% 62,194 100.0% $ 924 $14.85
Lightspan......................... 1 100.0 64,800 100.0 1,237 19.09
Towne Center Technology Park II... 1 100.0 62,367 100.0 995 15.96
Palomar Oaks Technology Park...... 6 00.0 170,358 100.0 1,958 11.49
Jaycor............................ 1 100.0 105,358 100.0 1,719 16.32
NORTHERN CALIFORNIA,
SAN FRANCISCO BAY AREA:
CarrAmerica Corporate Center...... 6 100.0 994,930 100.0 17,701 17.79
Sunnyvale Research Plaza(14)...... 3 100.0 126,000 100.0 1,774 14.08
Rio Robles........................ 7 100.0 368,178 100.0 4,547 12.35
Valley Business Park II........... 6 100.0 166,928 100.0 2,138 12.81
Bayshore Centre................... 2 100.0 195,249 100.0 2,711 13.88
Rincon Centre..................... 3 100.0 201,178 100.0 1,910 9.49
Valley Centre II.................. 4 100.0 212,082 100.0 2,647 12.48
Valley Office Centre.............. 2 100.0 68,731 100.0 1,735 25.25
Valley Centre..................... 2 100.0 102,291 100.0 1,195 11.68
Valley Business Park I............ 2 100.0 67,784 100.0 980 14.46
3745 North First Street........... 1 100.0 67,582 100.0 892 13.20
3571 North First Street........... 1 100.0 116,000 100.0 1,258 10.85
Mission Plaza(14)................. 2 100.0 102,687 100.0 1,155 11.25
North San Jose Technology Park.... 4 100.0 297,038 100.0 2,994 10.08
Foster City Technology
Center(14)..................... 2 100.0 66,869 100.0 1,100 16.45
150 River Oaks.................... 1 100.0 100,024 100.0 1,320 13.20
Amador/Rinconada(14).............. 3 100.0 134,611 100.0 1,777 13.20
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
Wateridge Pavilion................ Stellcom, Inc. (37%), Platinum Solutions, Inc. (19%),
Wateridge Insurance Services (18%), TCS Mortgage, Inc.
(14%)
Lightspan......................... The Lightspan Partnership, Inc. (100%)
Towne Center Technology Park II... Gateway 2000, Inc. (100%)
Palomar Oaks Technology Park...... Unifet, Inc. (23%), Excalibur Technologies Corporation
(18%), Torrey Pines Research, Inc. (13%), Pacific
Analytical, Inc. (11%), Coded Communications Corporation
(11%)
Jaycor............................ Jaycor, Inc. (100%)
NORTHERN CALIFORNIA,
SAN FRANCISCO BAY AREA:
CarrAmerica Corporate Center...... AT&T (47%), PeopleSoft (18%), Pacific Bell Mobil Services
(17%)
Sunnyvale Research Plaza(14)...... Cadence Design Systems (68%), AEA Credit Union (27%)
Rio Robles........................ Fujitsu (32%), KLA Instruments (27%), NEC Systems
Laboratory (23%)
Valley Business Park II........... Computer Training Academy (20%), Pericom (17%)
Bayshore Centre................... Clarify, Inc. (51%), Alantec (49%)
Rincon Centre..................... Ontrak Systems (44%), Toshiba America Electronic (31%),
Future Electronics (19%)
Valley Centre II.................. Boston Scientific (100%)
Valley Office Centre.............. Bank of America (21%), Quadrep (20%)
Valley Centre..................... Seagate Technology (40%), Gregory Associates (38%),
Neoparadigm Labs, Inc. (22%)
Valley Business Park I............ Leybold-Heraeus (35%), Tylan General (17%), LGC Wireless,
Inc. (17%), Arcom Electronics (15%)
3745 North First Street........... Comdisco, Inc. (100%)
3571 North First Street........... Sun Microsystems, Inc. (100%)
Mission Plaza(14)................. Intel Corporation (62%), Deskin Research (38%)
North San Jose Technology Park.... AG Associates (51%), 3DFX Interactive, Inc. (26%),
Elexsys International (22%)
Foster City Technology
Center(14)..................... Nortel Communications System (46%), Storybook Heirlooms
(30%), Perkin-Elmer Corporation (20%)
150 River Oaks.................... Seiko-Epson Corporation (100%)
Amador/Rinconada(14).............. Vanstar Corporation (28%)
21
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
Amador III(14).................... 1 100.0% 82,944 100.0% $ 1,188 $14.32
Arroyo Center(14)................. 2 100.0 104,741 100.0 1,045 9.98
San Mateo I....................... 1 100.0 70,000 100.0 2,478 35.40
San Mateo II and III.............. 2 100.0 141,404 97.2 3,778 27.51
900-910 East Hamilton(14)......... 2 100.0 351,811 100.0 8,106 23.04
Hacienda West..................... 2 100.0 205,903 94.4 4,328 22.27
Sunnyvale Technology Centre....... 5 100.0 165,520 100.0 2,527 15.27
Baytech Business Park............. 4 100.0 300,000 100.0 5,220 17.40
Golden Gateway Commons............ 3 100.0 270,395 99.3 6,595 24.56
Techmart Commerce Center(6)....... 1 100.0 259,656 98.3 7,265 28.47
995 Benecia Avenue................ 1 100.0 36,344 100.0 741 20.40
Oakmead West A-G.................. 7 100.0 425,981 100.0 8,946 21.00
Santa Clara Technology Park....... 3 100.0 178,132 100.0 1,996 11.21
Valley Technology Center 4 & 5.... 2 100.0 132,700 100.0 2,787 21.00
NORTHERN CALIFORNIA,
SACRAMENTO:
1860 Howe Avenue.................. 1 100.0 98,992 87.6 1,773 20.46
University Office Park............ 2 100.0 122,288 86.8 1,617 15.24
Capital Corporate Center.......... 5 100.0 94,564 87.1 1,354 16.43
PORTLAND, OREGON:
RadiSys Corporate Headquarters.... 1 100.0 80,525 100.0 822 10.21
RadiSys II........................ 1 100.0 45,655 100.0 602 13.19
SEATTLE:
Redmond East...................... 10 100.0 399,468 88.4 4,415 12.50
Willow Creek...................... 1 100.0 96,179 100.0 981 10.20
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
Amador III(14).................... Pacific Bell Corporation (26%)
Arroyo Center(14)................. Hexcel Corporation (17%), TOPCOM America Corporation
(15%)
San Mateo I....................... Franklin Resources (100%)
San Mateo II and III.............. Franklin Resources, Inc. (37%), Peoplesoft/Red Pepper
(20%)
900-910 East Hamilton(14)......... Apple Computer, Inc. (41%), Philips Electronics (10%),
Zilog, Inc. (31%)
Hacienda West..................... Zacson Corporation (16%), Paycheck, Inc. (13%)
Sunnyvale Technology Centre....... Advanced Micro Devices, Inc. (51%), BMC Software (25%),
XICOM Technology, Inc. (12%), Metelics Corporation (12%)
Baytech Business Park............. Applied Materials, Inc. (100%)
Golden Gateway Commons............ Sharper Image Corporation (22%), Norcal Mutual Insurance
Co. (20%), ABM Industries, Inc. (11%)
Techmart Commerce Center(6)....... Network Conference Company, Inc. (14%), Sun MicroSystems
(11%)
995 Benecia Avenue................ Cardiac Pathways Corporation (100%)
Oakmead West A-G.................. Applied Materials, Inc. (100%)
Santa Clara Technology Park....... Pycon, Inc. (75%), FRY's Metal, (25%)
Valley Technology Center 4 & 5.... Iomega Corporation (100%)
NORTHERN CALIFORNIA,
SACRAMENTO:
1860 Howe Avenue.................. Transamerica Information (30%), Anytime Access, Inc.
(20%), GSA (12%), TIG Insurance Company (12%)
University Office Park............ State Lands Commission (26%), Protection & Advocacy, Inc.
(13%)
Capital Corporate Center.......... Vision Services Plan (31%), CAL State Auto Assn (20%),
Tetra Tech, Inc. (11%)
PORTLAND, OREGON:
RadiSys Corporate Headquarters.... RadiSys Corporation (100%)
RadiSys II........................ RadiSys II Corporation (100%)
SEATTLE:
Redmond East...................... Mosaix, Inc. (21%), Genetic Systems (14%), Trigon
Packaging (10%), Incontrol, Inc. (11%)
Willow Creek...................... Data I/O Corporation (100%)
22
NET AVERAGE BASE
COMPANY'S RENTABLE TOTAL RENT PER
# OF EFFECTIVE AREA(1) ANNUALIZED LEASED
BUILD- PROPERTY (SQUARE PERCENT BASE RENT(3) SQUARE
PROPERTY INGS OWNERSHIP FEET) LEASED(2) (IN THOUSANDS) FOOT(4)
- ------------------------------------ ------ ----- ---------- --------- -------------- ------------
Canyon Park Business Center....... 6 100.0% 246,565 100.0% $ 3,324 $13.48
Canyon Park Commons............... 1 100.0 95,290 100.0 1,358 14.25
Willow Creek Corporate Center..... 5 100.0 296,089 93.2 4,218 15.28
Redmond Hilltop B & C............. 2 100.0 90,880 100.0 1,370 15.07
Canyon Park Commons 1 & 2......... 2 100.0 110,398 100.0 1,304 11.81
------ ---------- --------- -------------- ------------
PACIFIC REGION SUBTOTAL........ 173 10,132,692 98.3 166,669 16.74
CENTRAL REGION
AUSTIN, TEXAS:
Great Hills Plaza................. 1 100.0 135,333 100.0 2,532 18.71
Balcones Center................... 1 100.0 74,978 78.4 950 16.16
Park North........................ 2 100.0 132,744 95.3 2,101 16.62
City View Centre.................. 3 100.0 136,183 100.0 2,237 16.42
Riata 4, 5, 8..................... 3 100.0 274,118 89.7 3,506 14.26
Tower of the Hills................ 2 100.0 166,099 98.1 2,476 15.19
City View Center.................. 1 100.0 128,716 100.0 2,073 16.10
CHICAGO:
Parkway North..................... 2 100.0 507,240 100.0 8,385 16.53
Unisys............................ 2 100.0 361,834 95.6 5,626 16.27
The Crossings..................... 2 100.0 297,205 90.6 4,470 16.60
Bannockburn I & II................ 2 100.0 210,860 100.0 3,400 16.13
Bannockburn IV.................... 1 100.0 108,469 100.0 1,707 15.74
Summit Oaks....................... 1 100.0 91,626 93.4 1,442 16.86
DALLAS, TEXAS:
Quorum North...................... 1 100.0 115,845 88.6 1,860 18.12
PROPERTY SIGNIFICANT TENANTS(5)
- ------------------------------------ ---------------------------------------------------------
Canyon Park Business Center....... Cellpro Inc. (18%), Board of Regents of UWA (22%),
Federal Express (13%), ITT Educational Services (11%)
Canyon Park Commons............... Microsoft (100%)
Willow Creek Corporate Center..... Safeco Insurance Company of America (48%), Metawave
Communication Corporation (32%)
Redmond Hilltop B & C............. Concor Technologies (47%), Emerging Technology Solutions
(42%), Citrix Systems, Inc. (10%)
Canyon Park Commons 1 & 2......... Washington Mutual Bank (100%)
PACIFIC REGION SUBTOTAL........
CENTRAL REGION
AUSTIN, TEXAS:
Great Hills Plaza................. Empire Funding (48%), Blue Cross (24%), Skjerven Morrill,
Machpherson (13%), Businesssuites (12%)
Balcones Center................... Medianet (29%), Austin Diagnostic Clinic (15%)
Park North........................ CSC Continuum Inc. (36%)
City View Centre.................. Holt, Rinehart & Winston (76%), Money Star Communications
(16%)
Riata 4, 5, 8..................... Netsolve, Inc. (25%), Pervasive Software (25%), Alcatel
USA, Inc. (25%)
Tower of the Hills................ Texas Guaranteed Student (65%)
City View Center.................. IXC Communications, Inc. (100%)
CHICAGO:
Parkway North..................... Fujisawa USA (27%), Alliant Foodservice (23%), Baxter
Healthcare Corporation (13%)
Unisys............................ Unisys (15%), PNC Mortgage (16%), Hub Group, Inc. (11%)
The Crossings..................... Allstate Insurance Company (13%), Abercrombie & Kent
(11%)
Bannockburn I & II................ IMC Global (38%), Deutsche Credit Corporation (36%)
Bannockburn IV.................... Open Text (35%), Abbott Laboratories (12%), NY Life
Insurance (10%)
Summit Oaks....................... GSA (18%), BMG Music (14%), Master Printer Credit Union
(14%), National Truck Leasing Suite (12%)
DALLAS, TEXAS:
Quorum North...................... Digital Matrix Systems (20%), HQ Dallas Quorum North
(17%)
23