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(1) Description
of Business and Summary of Significant Accounting Policies
(a) Business
We are a fully integrated, self-administered and self-managed publicly
traded real estate investment trust (“REIT”). We focus on the
acquisition, development, ownership and operation of office properties,
located primarily in selected suburban markets across the United States.
Based on property net operating income, our most significant markets include
the San Francisco Bay area, the Washington, D.C. Metro area, Southern California
and Seattle/Portland. Until June 2000, we also operated an executive suites
business. As discussed in note 3, we disposed of a substantial portion
of our interest in this business on June 1, 2000, and we present the executive
suites business as a discontinued operation. For several years, our principal
shareholder was Security Capital Group Incorporated and/or affiliates (“Security
Capital”). In November 2001, we repurchased 9.2 million shares
of our common stock from Security Capital and in December 2001, Security
Capital
sold its remaining shares of our common stock to the public in an underwritten
offering.
(b) Basis
of Presentation
Our accounts and those of our controlled subsidiaries and affiliates
are consolidated in the financial statements. We use the equity or cost
methods,
as appropriate in the circumstances, to account for our investments in
and our share of the earnings or losses of unconsolidated entities. These
entities are not controlled by us. If events or changes in circumstances
indicate that the fair value of an investment accounted for using the
equity method or cost method has declined below its carrying value and
we consider
the decline to be “other than temporary,” the investment
is written down to fair value and an impairment loss is recognized.
Management has made a number of estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses
in the financial
statements, and the disclosure of contingent assets and liabilities.
Estimates are required in order for us to prepare our financial statements in
conformity
with accounting principles generally accepted in the United States of
America. Significant estimates are required in a number of areas, including the
evaluation of impairment of long-lived assets and equity and cost method
investments and evaluation of the collectibility of accounts and notes
receivable. Actual results could differ from these estimates.
(c) Rental
Property
Properties to be developed or held and used in rental operations are carried
at cost less accumulated depreciation and impairment losses, where appropriate.
Properties held for sale are carried at the lower of their carrying values
(i.e., cost less accumulated depreciation and impairment losses, where
appropriate) or estimated fair value less costs to sell. Properties are
considered held for sale when they are subject to a contract of sale meeting
criteria specified by senior management (e.g., contingencies are met or
waived, a nonrefundable deposit is paid, etc.). Depreciation on these properties
is discontinued at that time, but operating revenues, other operating expenses
and interest continue to be recognized until the date of sale. As of December
31, 2002 and 2001, land with a carrying value of $5.7 million and $6.9
million, respectively, was held for sale.
Depreciation of rental properties is computed on a straight-line
basis over the estimated useful lives of the assets. The estimated lives of our
assets by class are as follows:
| Base building | 30 to 50 years |
Building components |
7 to 20 years |
Tenant improvements |
Lesser of the terms |
| of the leases or useful | |
| lives of the assets | |
Furniture, fixtures and equipment |
5 to 15 years |
Specifically identifiable costs associated with properties
and land in development are capitalized. Capitalized costs may include salaries
and
related costs, real estate taxes, interest, pre-construction costs essential
to the development of a property, development costs, construction costs
and external acquisition costs. Costs of significant improvements, renovations
and replacements to rental properties are capitalized. Expenditures for
maintenance and repairs are charged to operations as they are incurred.
If events or changes in circumstances indicate that
the carrying value of a rental property to be held and used or land held for
development may
be impaired, we perform a recoverability analysis based on estimated
undiscounted cash flows to be generated from the property in the future. If the
analysis
indicates that the carrying value cannot be recovered from future undiscounted
cash flows, the property is written down to estimated fair value and
an impairment loss is recognized.
We recognize gains from sales of rental properties and
land at the time of sale using the full accrual method, provided that various
criteria related
to the terms of the transactions and any subsequent involvement by us
with the properties sold are met. If the criteria are not met, we defer the
gains and recognize them when the criteria are met or using the installment
or cost recovery methods, as appropriate in the circumstances.
(d) Geographic
Concentration
As of December 31, 2002, we owned greater than 50% interests in and
consolidated 260 operating office buildings located in the United States.
The following
table summarizes the number of buildings, the rentable square footage
and the percentage of property operating income by market.
| Percent of Property | |||||
| Rentable | Operating Income | ||||
| Number of | Square | for the Year | |||
| Market | Buildings | Footage | Ended 12/31/02 | ||
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| San Francisco Bay Area | 79 | 5,507,607 | 33.6 | ||
| Washington, D.C. Metro | 20 | 3,522,714 | 21.4 | ||
| Southern California | 65 | 3,066,859 | 14.2 | ||
| Seattle/Portland | 35 | 1,776,561 | 7.8 | ||
| Atlanta | 16 | 1,774,263 | 5.0 | ||
| Chicago | 7 | 1,237,565 | 4.9 | ||
| Dallas | 9 | 1,007,309 | 3.6 | ||
| Phoenix | 4 | 532,506 | 3.0 | ||
| Denver | 8 | 815,529 | 2.9 | ||
| Salt Lake City | 11 | 630,029 | 2.3 | ||
| Austin | 6 | 432,083 | 1.3 | ||
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| 260 | 20,303,025 | 100.0 | |||
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(e) Tenant
Leasing Costs
We defer fees and initial direct costs incurred in the negotiation of completed
leases. They are amortized on a straight-line basis over the term of the
lease to which they apply.
(f) Deferred
Financing Costs
We defer fees and costs incurred to obtain financing. They are amortized
using the interest method over the term of the loan to which they apply.
(g) Fair
Values of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts and notes receivable
and accounts payable and accrued expenses approximate their fair values
because of their short-term maturities. Fair value information relating
to mortgages
and notes payable is provided in note 2.
(h) Revenue
Recognition
We recognize minimum base rental revenue under tenant leases on a straight-line
basis over the terms of the related leases. Accrued straight-line rents
represent the rental revenue recognized in excess of rents due under the
lease agreements
at the balance sheet date. We recognize revenues for recoveries from tenants
of real estate taxes, insurance and other costs in the period in which
the related expenses are incurred. We recognize revenues for rents that
are based
on a percentage
of a tenant’s sales in excess of levels specified in the lease agreement
when the tenant’s sales actually exceed the specified minimum level.
We recognize lease termination fees on the termination date. We recognized
lease
termination fees of $4.4 million, $2.5 million and $6.7 million in 2002, 2001
and 2000, respectively. These fees are included in parking and other tenant
charges in the Statements of Operations.
We recognize revenue for services on properties we manage,
lease or develop for unconsolidated entities or third parties when the services
are performed. Revenue
for development and leasing services to affiliates is reduced to eliminate
profit to the extent of our ownership interest.
We provide for potentially uncollectible accounts and notes receiv-able
and accrued straight-line rents based on analysis of the risk of loss on
specific
accounts.
The analysis places particular emphasis on past-due accounts and considers
information such as the nature and age of the receivable, the payment history
of the tenant
or other debtor, the financial condition of the tenant and our assessment
of its ability to meet its lease obligations, the basis for any disputes
and the
status of related negotiations, etc. During 2002, 2001 and 2000, we recognized
bad debt expense of $7.1 million, $5.5 million and $2.9 million, respectively.
(i) Income
and Other Taxes
In general, a REIT that meets certain organizational and operational requirements
and distributes at least 90 percent of its REIT taxable income to its shareholders
in a taxable year will not be subject to income tax to the extent of the
income it distributes. We qualify and intend to continue to qualify as
a REIT under
the Internal Revenue Code of 1986, as amended. As a result, no provision
for federal income taxes on income from continuing operations is required,
except
for taxes on certain property sales and on taxable income, if any, of our
taxable REIT subsidiaries (“TRS”). If we fail to qualify as a REIT in any
taxable year, we will be subject to federal income tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate tax rates.
Even if we qualify for taxation as a REIT, we may be subject to state and local
income and franchise taxes and to federal income tax and excise tax on any
undistributed income.
We incurred current federal and state income and franchise
taxes of approximately $0.3 million, $1.3 million and $44.5 million in 2002,
2001 and 2000, respectively.
Deferred income taxes of our TRSs are accounted for using
the asset and liability method. Under this method, deferred income taxes are
recognized for temporary
differences between the financial reporting bases of assets and liabilities
of our TRSs and their respective tax bases and for their operating loss and interest
deduction carryforwards based on enacted tax rates expected to be in effect
when
such amounts are realized or settled. However, deferred tax assets are recognized
only to the extent that it is more likely than not that they will be realized
based on consideration of available evidence, including tax planning strategies
and other factors. The components of deferred income taxes are summarized as
follows:
| (In thousands) | Dec. 31, 2002 | Dec. 31, 2001 | ||||
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| Rental property | $ | 5,376 | $ | 3,569 | ||
| Net operating loss carryforwards | 4,725 | 7,910 | ||||
| Interest deduction carryforwards | 3,134 | 2,160 | ||||
| Intangible/investments | 964 | 1,348 | ||||
| Accrued compensation | 695 | 349 | ||||
| Allowance for doubtful accounts | 479 | 105 | ||||
| Rents received in advance | 451 | 1,053 | ||||
| Accrued straight-line rents | (1,554 | ) | (998 | ) | ||
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| 14,270 | 15,496 | |||||
| Less: Valuation allowance | (14,270 | ) | (15,496 | ) | ||
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| Net deferred tax assets | $ | – | $ | – | ||
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As of December 31, 2002 and 2001, we had a valuation
allowance for the full amount of the net deferred tax assets of our TRSs as we
do not believe that it is more
likely than not that these deferred tax assets will be realized. The net operating
loss carryforwards at December 31, 2002 expire between 2009 and 2021.
Reconciliation of Net Income to Estimated Taxable Income (Unaudited)
Earnings and profits, which determine the taxability of distributions
to stockholders, differ from net income reported for financial reporting
purposes
due primarily
to differences in the estimated useful lives and methods used to compute
depreciation of rental property, in the carrying value (basis) of investments
in properties
and unconsolidated entities and in the timing of recognition of certain
revenues and expenses for tax and financial reporting purposes. The following
table
reconciles our net income to estimated taxable income.
| (In thousands) | 2002 | 2001 | ||||
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| Net income | $ | 109,305 | $ | 79,061 | ||
| Depreciation/amortization timing | ||||||
| differences on real estate | 44,868 | 32,842 | ||||
| Straight-line rent adjustments | (6,315 | ) | (9,922 | ) | ||
| Earnings adjustment on consolidated and | ||||||
| unconsolidated entities | (13,715 | ) | 3,804 | |||
| Rents received in advance | 3,794 | 1,387 | ||||
| Bad debts | (1,930 | ) | 3,443 | |||
| Tax gain on sale of real estate in excess | ||||||
| of book gain | (13,002 | ) | 48,612 | |||
| Compensation expense | (2,051 | ) | (3,752 | ) | ||
| Other | 120 | 2,358 | ||||
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| Estimated taxable net income | $ | 121,074 | $ | 157,833 | ||
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Reconciliation
between Dividends Paid and Dividends Paid Deductions (Unaudited)
The following table reconciles cash dividends paid and the dividends
paid deduction for income tax purposes:
| (In thousands) | 2002 | 2001 | 2000 | ||||||
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| Cash dividends paid | $ | 136,359 | $ | 148,825 | $ | 158,453 | |||
| Dividends carried back to the prior year | (10,403 | ) | (1,395 | ) | (14,099 | ) | |||
| Dividends designated from following year | – | 10,403 | 1,395 | ||||||
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| Dividends paid deduction | $ | 125,956 | $ | 157,833 | $ | 145,749 | |||
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Characterization of Distributions (Unaudited)
The following table characterizes distributions paid per common share:
| 2002 | 2001 | 2000 | ||||
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| Ordinary income | 100 | % | 92 | % | 84 | % |
| Capital gain | – | 8 | % | 16 | % | |
(j) Earnings
Per Share
Our basic earnings per share (EPS) is computed by dividing earnings
available to common shareholders by the weighted average number
of common shares
outstanding. Our diluted EPS is computed after adjusting the numerator
and denominator
of the basic EPS computation for the effects of all dilutive potential
common shares outstanding during the period. The dilutive effects
of convertible securities
are computed using the “if-converted” method. The dilutive effects
of options, warrants and their equivalents are computed using the “treasury
stock” method.
The following table sets forth information relating to
the computations of our basic and diluted EPS for income from continuing operations:
| Year Ended December 31, 2002 | ||||||||
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| Income | Shares | Per Share | ||||||
| (Numerator) | (Denominator) | Amount | ||||||
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| Basic EPS | $ | 55,999 | 52,817 | $ | 1.06 | |||
| Effect of Dilutive Securities– | ||||||||
| Stock Options | – | 910 | (0.02 | ) | ||||
| Diluted EPS | $ | 55,999 | 53,727 | $ | 1.04 | |||
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Year Ended December 31, 2001 |
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| Income | Shares | Per Share | ||||||
| (Numerator) | (Denominator) | Amount | ||||||
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| Basic EPS | $ | 37,148 | 61,010 | $ | 0.61 | |||
| Effect of Dilutive Securities– | ||||||||
| Stock Options | – | 1,432 | (0.02 | ) | ||||
| Diluted EPS | $ | 37,148 | 62,442 | $ | 0.59 | |||
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Year Ended December 31, 2000 |
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| Income | Shares | Per Share | ||||||
| (Numerator) | (Denominator) | Amount | ||||||
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| Basic EPS | $ | 107,678 | 66,221 | $ | 1.63 | |||
| Effect of Dilutive Securities– | ||||||||
| Stock Options | – | 1,428 | (0.04 | ) | ||||
| Diluted EPS | $ | 107,678 | 67,649 | $ | 1.59 | |||
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Income from continuing operations has been reduced by
preferred stock dividends of $30,055, $34,705 and $35,206 for 2002, 2001 and
2000, respectively.
The effects of convertible units in CarrAmerica Realty,
L.P. and Carr Realty, L.P. and Series A Convertible Preferred Stock are not included
in the calculation
of diluted EPS for any year in which their effect is antidilutive.
(k) Cash
Equivalents
We consider all highly liquid investments with maturities at date of
purchase of three months or less to be cash equivalents except
that any such investments
purchased with funds on deposit in escrow or similar accounts
are classified as restricted deposits.
(l) Derivative
Financial Instruments
and Hedging
We manage our capital structure to reflect a long-term investment approach,
generally seeking to match the stable return nature of our assets
with a mix of equity
and various debt instruments. We mainly use fixed rate debt instruments
in order to match the returns from our real estate assets. We
also utilize variable
rate
debt for short-term financing purposes or to protect against
the risk, at certain times, that fixed rates may overstate our long-term
costs
of borrowing
if assumed
inflation or growth in the economy implicit in higher fixed interest
rates do not materialize. At times, our mix of variable and fixed
rate debt may
not suit
our needs. At those times, we may use derivative financial instruments,
including interest rate caps and swaps, forward interest rate
options
or interest rate
options in order to assist us in managing our debt mix. We either
will hedge our variable rate debt to give it a fixed interest rate
or hedge
our fixed
rate debt to give it a variable interest rate.
Under interest rate cap agreements, we make initial premium
payments to the counterparties in exchange for the right to receive payments
from them if interest rates exceed
specified levels during the agreement period. Under interest rate swap agreements,
we and the counterparties agree to exchange the difference between fixed rate
and variable rate interest amounts calculated by reference to specified notional
principal amounts during the agreement period. Notional principal amounts are
used to express the volume of these transactions, but the cash requirements
and amounts subject to credit risk are substantially less. Parties to interest
rate
cap and swap agreements are subject to market risk for changes in interest
rates and credit risk in the event of nonperformance by the counterparty. We
do not
require any collateral under these agreements but deal only with highly rated
institutional counterparties and do no expect that any counterparties will
fail to meet their obligations.
Derivative financial instruments are recognized as either assets or liabilities
on the balance sheet at their fair value. Subject to certain qualifying conditions,
we may designate a derivative as either a hedge of the cash flows from a variable
rate debt instrument or anticipated transaction (cash flow hedge) or a hedge
of the fair value of a fixed rate debt instrument (fair value hedge). For those
derivatives designated as a cash flow hedge, we report the fair value gains and
losses in accumulated other comprehensive income in stockholders’ equity
to the extent the hedge is effective. We recognize these fair value gains or
losses in earnings during the period(s) in which the hedged item affects earnings.
For a derivative qualifying as a fair value hedge, we report fair value gains
or losses in earnings along with fair value gains or losses on the hedged item
attributable to the risk being hedged. Most of our derivative financial instruments
qualify as a fair value hedge. Derivatives that do not qualify for hedge accounting
are marked to market through earnings. Amounts receivable or payable under
interest rate cap and swap agreements are accounted for as adjustments to interest
expense
on the related debt.
(m) Accumulated
Other Comprehensive
Income
We currently do not have any items of other comprehensive income. Prior
to the merger of HQ Global with VANTAS (see note 4), we had foreign
currency translation adjustments relating to HQ Global’s foreign affiliates. Our comprehensive
income consisting of net income and translation adjustments was $179.5 million
in 2000.
(n) Segment
Information
We have one reportable business segment: real estate property operations.
Business activities and operating segments that are not reportable
are included in other
operations.
(o) Stock/Unit
Compensation Plans
Through 2002, we applied the intrinsic value method of accounting prescribed
by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees,” and related interpretations to account for our stock/unit
compensation plans. Under this method, we record compensation expense for awards
of stock, options or units to employees only if the market price of the unit
or stock on the grant date exceeds the amount the employee is required to pay
to acquire the unit or stock.
The following table summarizes pro forma effects on net
income and earnings per share if the fair value method had been used to account
for all stock-based compensation
awards made since 1995.
| (In thousands, except per share data) | 2002 | 2001 | 2000 | ||||||
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| Net income as reported | $ | 109,305 | $ | 79,061 | $ | 179,467 | |||
| Stock-based compensation cost from | |||||||||
| restricted unit plan included in net income | 4,310 | 2,630 | 2,980 | ||||||
| Fair value of stock-based compensation | (7,561 | ) | (6,880 | ) | (6,083 | ) | |||
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| Pro forma net income | $ | 106,054 | $ | 74,811 | $ | 176,364 | |||
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| Earnings per share as reported: | |||||||||
| Basic | $ | 1.50 | $ | 0.73 | $ | 2.18 | |||
| Diluted | 1.470.71 | 2.13 | |||||||
| Earnings per share, pro forma: | |||||||||
| Basic | $ | 1.44 | $ | 0.66 | $ | 2.13 | |||
| Diluted | 1.41 | 0.64 | 2.09 | ||||||
The per share weighted-average fair values of Unit options and stock options granted during 2002, 2001 and 2000 were $3.12, $3.07 and $2.24, respectively, on the date of grant. This value is determined using the Black-Scholes option-pricing model. The following assumptions were used:
| Expected | Risk Free | Expected | Expected | |
| Dividend | Interest | Stock | Option | |
| Yield | Rate | Volatility | Life in Years | |
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| 2002 | 7.80% | 4.86% | 23.89% | 6.81 |
| 2001 | 7.94% | 5.12% | 23.79% | 5.22 |
| 2000 | 8.64% | 6.77% | 22.47% | 5.00 |
Additional information concerning stock/unit compensation
plans is presented in note 9.
(p) New Accounting
Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations” and
SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations
initiated after June 2001. SFAS No. 142 changes the accounting for goodwill
and intangible assets with indefinite lives from an amortization approach to
an impairment-only
approach. Adoption of SFAS No. 142 in January 2002 did not have a material
effect on our financial statements.
In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of,” and APB Opinion No. 30, “Reporting the Results of Operations—Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions.” The Statement does
not change the fundamental provisions of SFAS No. 121; however, it resolves various
implementation issues of SFAS No. 121 and establishes a single accounting model
for long-lived assets to be disposed of by sale. It retains the requirement of
Opinion No. 30 to report separately discontinued operations but extends that
reporting to a component of an entity that either has been disposed of (by sale,
abandonment, or in distribution to owners) or is classified as held for sale.
Adoption of SFAS No. 144 in January 2002 did not have a material effect on our
financial statements. However, in the event we sell a property on terms where
we have limited or no continuing involvement with the property after such sale
we are required to reclassify that property’s previously reported earnings
to discontinued operations. We are also required to present assets held for
sale and the related liabilities separately in our consolidated balance sheets
if
we meet the applicable criteria of SFAS No. 144.
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others.” For 2002, the Interpretation requires certain
disclosures which we have included in note 13. Beginning in 2003, the Interpretation
requires recognition of liabilities at their fair value for newly issued guarantees.
We do not anticipate that adoption of Interpretation No. 45 will have a material
effect on our financial statements.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based
Compensation—Transition and Disclosure.” SFAS No. 148 amends SFAS
No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based compensation and requires
disclosure in both annual and interim financial statements about the method
of accounting
for stock-based compensation and the effect of the method used on reported
results. We have adopted the disclosure provisions of SFAS No. 148. Beginning
January
1, 2003, we will adopt the prospective transition method for all new stock
compensation awards. We do not anticipate that adoption of SFAS No. 148 will
have a material
effect on our financial statements.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation
of Variable Interest Entities.” This Interpretation clarifies the application
of Accounting Research Bulletin No. 51, “ConsolidatedFinancial Statements”,
to certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated financial
support from other parties. We do not anticipate that adoption of Interpretation
No. 46 will have a material effect on our financial statements.
(q) Reclassifications
Some prior years’ amounts have been reclassified to conform to the current
year’s presentation.
(2) Mortgages
and Notes Payable
Our mortgages and notes payable are summarized as follows:
| December 31, | December 31, | |||||
| (In thousands) | 2002 | 2001 | ||||
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| Fixed rate mortgages | $ | 419,356 | $ | 473,382 | ||
| Unsecured credit facility | 88,000 | 457,000 | ||||
| Senior unsecured notes | 1,100,000 | 475,000 | ||||
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| 1,607,356 | 1,405,382 | |||||
| Unamortized discount and fair | ||||||
| value adjustment, net | (3,407 | ) | (6,152 | ) | ||
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| $ | 1,603,949 | $ | 1,399,230 | |||
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Mortgages payable are collateralized by properties and
generally require monthly principal and/or interest payments. Mortgages payable
mature at various dates
from December 2003 through July 2029. The weighted average interest rate of
mortgages payable was 7.98% at December 31, 2002 and 8.04% at December 31, 2001.
The net
book value of properties pledged as collateral for mortgages payable was $510.4
million and $653.6 million as of December 31, 2002 and 2001, respectively.
In June 2001, we closed on a new three-year $500.0 million
unsecured credit line facility with J.P. Morgan Chase, as agent for a group of
banks. We can extend
the life of the line an additional year at our option. The line carries an
interest rate of 70 basis points over 30-day London Interbank Offered Rate (LIBOR).
As
of December 31, 2002, $88.0 million was drawn on the credit facility, $1.2
million in letters of credit were outstanding and we had $410.8 million available
for
borrowing.
Our unsecured credit facility contains financial and
other covenants with which we must comply. Some of these covenants include:
- A minimum ratio of annual EBITDA (earnings before interest, taxes, depreciation and amortization) to interest expense;
- A minimum ratio of annual EBITDA to fixed charges;
- A maximum ratio of aggregate unsecured debt to unencumbered assets;
- A maximum ratio of total debt to tangible fair market value of our assets; and
- Restrictions on our ability to make dividend distributions in excess of 90% of funds from operations.
Availability
under the unsecured credit facility is also limited to a specified
percentage of the fair value of our unmortgaged properties.
We had senior unsecured notes outstanding at December 31, 2002 as follows:
| Note | Unamortized | Fair Value | ||||||||
| (In thousands) | Principal | Discount | Adjustment | Total | ||||||
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| 7.20% notes due in 2004 | $ | 150,000 | $ | (338 | ) | $ | 5,333 | $ | 154,995 | |
| 6.625% notes due in 2005 | 100,000 | (1,381 | ) | – | 98,619 | |||||
| 7.375% notes due in 2007 | 125,000 | (653 | ) | – | 124,347 | |||||
| 5.261% notes due in 2007 | 50,000 | (50 | ) | – | 49,950 | |||||
| 5.25% notes due in 2007 | 175,000 | (1,440 | ) | 2,235 | 175,795 | |||||
| 6.875% notes due in 2008 | 100,000 | (2,137 | ) | – | 97,863 | |||||
| 7.125% notes due in 2012 | 400,000 | (4,976 | ) | – | 395,024 | |||||
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| $ | 1,100,000 | $ | (10,975 | ) | $ | 7,568 | $ | 1,096,593 | ||
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We had senior unsecured notes outstanding at December 31, 2001 as follows:
| Note | Unamortized | |||||||
| (In thousands) | Principal | Discount | Total | |||||
|
||||||||
| 7.20% notes due in 2004 | $ | 150,000 | $ | (584 | ) | $ | 149,416 | |
| 6.625% notes due in 2005 | 100,000 | (2,077 | ) | 97,923 | ||||
| 7.375% notes due in 2007 | 125,000 | (811 | ) | 124,189 | ||||
| 6.875% notes due in 2008 | 100,000 | (2,680 | ) | 97,320 | ||||
|
|
|||||||
| $ | 475,000 | $ | (6,152 | ) | $ | 468,848 | ||
|
|
|||||||
Our senior unsecured notes also contain covenants with which we must comply. These include:
- Limits on our total indebtedness on a consolidated basis;
- Limits on our secured indebtedness on a consolidated basis;
- Limits on our required debt service payments; and
- Compliance with the financial covenants of our credit facility.
CarrAmerica
Realty, L.P. unconditionally guarantees all of the senior unsecured
notes and unsecured credit facility.
Debt maturities as of December 31, 2002 are summarized as follows:
| (In thousands) | ||
|
||
| 2003 | $ | 39,903 |
| 2004 | 259,426 | |
| 2005 | 157,711 | |
| 2006 | 20,580 | |
| 2007 | 357,262 | |
| 2008 and thereafter | 772,474 | |
|
|
|
| $ | 1,607,356 | |
|
|
|
Restricted deposits consist primarily of escrow deposits. These
deposits are required by lenders to be used for future building
renovations
or tenant improvements
or as collateral for letters of credit.
The estimated fair value of our mortgages payable at December 31,
2002 and 2001 was approximately $438.5 million and $494.5 million,
respectively.
The
estimated
fair value is based on the borrowing rates available to us for
fixed rate mortgages payable with similar terms and average maturities.
The fair value
of the unsecured
credit facility at December 31, 2002 and 2001 approximates book
value.
The estimated fair value of our senior unsecured notes at December
31, 2002 and
2001 was approximately
$1,182.1 million and $489.8 million, respectively. The estimated
fair value is based on the borrowing rates available to us for
debt with
similar terms
and
maturities.
(3) Derivative
Financial Instruments
On May 8, 2002, we entered into interest rate swap agreements with
JP Morgan Chase and Bank of America, N.A. hedging $150.0 million
of senior
unsecured
notes due July 2004. We receive interest at a fixed rate of 7.2%
and pay interest at
a variable rate of six-month LIBOR in arrears plus 2.72%. The
interest rate swaps mature at the same time the notes are due. The
swaps
qualify as fair
value hedges
for accounting purposes. Net semi-annual settlement payments
are recognized as increases or decreases to interest expense. The fair
value of the
interest rate
swaps is recognized on our balance sheet and the carrying value
of the senior unsecured notes is increased or decreased by an
offsetting
amount.
As of
December 31, 2002, the fair value of the interest rate swaps
was approximately $5.3 million.
We recognized a reduction in interest expense for 2002 of approximately
$2.7 million, related to the swaps. As of December 31, 2002,
taking into account
the effect of the interest rate swaps, the effective interest
rate on the notes was
reduced to 4.2%.
On November 20, 2002, in conjunction with the issuance of $175.0
million of senior unsecured notes, we entered into interest rate
swap agreements
with
JP Morgan
Chase, Bank of America, N.A. and Goldman Sachs & Co. We receive
interest at a fixed rate of 5.25% and pay interest at a variable
rate of six-month LIBOR
in arrears plus 1.405%. The interest rate swaps mature at the same
time the notes are due. The swaps qualify as fair value hedges
for accounting purposes.
Net
semi-annual settlement payments are recognized as increases or
decreases to interest expense. The fair value of the interest rate
swaps is recognized on
our balance
sheet and the carrying value of the senior unsecured notes is increased
or decreased by an offsetting amount. As of December 31, 2002,
the fair value
of the interest
rate swaps was approximately $2.2 million. We recognized a reduction
in interest expense for 2002 of approximately $0.4 million, related
to the swaps. As of
December 31, 2002, taking into account the effect of the interest
rate swaps, the effective
interest rate on the notes was reduced to 3.1%.
As part of the assumption of $63.5 million of debt associated with
the purchase of two operating properties in August 2002, we purchased
interest
rate caps
with a notional amount of $97.0 million and LIBOR capped at 6.75%.
As of December
31, 2002, the fair market value of these interest rate caps was
not material.
(4) HQ
Global Workplaces, Inc.
In 1997, we began making investments in HQ Global Workplaces, Inc.
(“HQ
Global”), a provider of executive office suites. On June 1, 2000, we,
along with HQ Global, VANTAS Incorporated (VANTAS) and FrontLine Capital Group
(FrontLine),
consummated several transactions including (i) the merger of VANTAS with and
into HQ Global, (ii) the acquisition by FrontLine of shares of HQ Global common
stock from us and other stockholders of HQ Global, and (iii) the acquisition
by VANTAS of our debt and equity interests in OmniOffices (UK) Limited and
OmniOffices LUX 1929 Holding Company S.A. We received $377.3 million in cash
in connection
with these transactions. In addition, $140.5 million of debt which we had guaranteed
was repaid with a portion of the cash proceeds. Following the transaction,
we owned approximately 16% of the equity of HQ Global on a diluted basis and
our
investment had a carrying value of $42.2 million.
FrontLine, the majority stockholder of HQ Global, announced in
October 2001 that HQ Global was in default with respect to certain
covenant
and payment
obligations
under its senior and mezzanine term indebtedness, was in a forbearance
period with HQ Global lenders and was actively negotiating with
those lenders. In
November 2001, FrontLine disclosed that it had recognized an impairment
in the value of
intangible assets relating to HQ Global due to HQ Global’s
trend of operating losses and its inability to remain in compliance
with the terms of its debt
arrangements. Based on these factors, our analysis of the financial
condition and operating
results of HQ Global (which deteriorated significantly during 2001
as the economic slowdown reduced the demand for temporary office
space, particularly from technology-related
tenants) and the losses of key board members and executives by
HQ Global, particularly in the last half of 2001, we determined
in the fourth quarter of 2001, that
our investment in HQ Global was impaired. We recorded a $42.2 million
impairment charge, reducing the carrying value of our remaining
investment in HQ Global
to zero.
On March 13, 2002, HQ Global filed for bankruptcy protection under
Chapter 11 of the federal bankruptcy laws. During 1997 and 1998,
to assist HQ
Global as
it grew its business, we provided guarantees of HQ Global’s
performance under four office leases. To our knowledge, all monthly
rent payments were
made by HQ Global under two of these leases through January 2002,
and rental payments
under the other two leases were made through February 2002.
In the course of its bankruptcy proceedings, HQ Global has filed
motions to reject two of these four leases. One lease is for space
in San Jose,
California. This
lease is for approximately 22,000 square feet of space at two adjacent
buildings and runs through October 2008. Total aggregate remaining
lease payments under
this lease as of February 1, 2002 were approximately $6.2 million
(approximately $0.7 million of which was payable in 2002); however,
our liability
under this guarantee was limited to approximately $2.0 million.
We reached
an agreement with the landlord of this lease under which we paid
$1.75 million
in full
satisfaction
of the guarantee in January 2003. We recognized this expense in
2002.
The second lease that was rejected by HQ Global is a sublease for
space in downtown Manhattan. This lease is for approximately 26,000
square
feet of
space and runs
through March 2008, with total aggregate remaining lease payments
as of February 1, 2002 of approximately $5.4 million (approximately
$0.8
million
of which
was payable in 2002). In June 2002, we received a demand for payment
of the full
amount of the guarantee. However, we believe that we have defenses
to payment under this guarantee available to us and joined with
HQ Global
in filing
suit on July 24, 2002 in HQ Global’s bankruptcy proceedings
asking the bankruptcy court to declare that the lease was terminated
by the landlord of the sublease
not later than February 28, 2002. On July 26, 2002, the landlord
under the sublease filed suit in federal court in New York seeking
payment from us under
this guarantee.
In light of our defenses and these proceedings, we have not accrued
any expense relating to this guarantee; however, there can be no
assurance as to the outcome
of the pending litigation or that we will not incur expense or
be required to make cash payments relating to this guarantee up
to the full amount of the
guarantee.
As of December 31, 2002, we had not made any payments under this
guarantee.
HQ Global has not filed a motion seeking to reject the remaining
two leases that we have guaranteed, although it could do so in
the future.
Even if
the leases
are not rejected, we may ultimately be liable to the lessors for
payments due under the leases. In one case, the lease is for approximately
25,000
square feet
of space in midtown Manhattan, and our liability is currently capped
at approximately $0.5 million, which liability reduces over the
life of the
lease until its
expiration in September 2007. As of December 31, 2002, we have
not accrued any expense related
to or made any payments under this guarantee.
The remaining lease is for space in San Mateo, California. This
lease is for approximately 19,000 square feet of space and runs
through
January 2013, with
total aggregate remaining lease payments as of March 1, 2002 of
approximately $10.4 million (approximately $0.6 million of which
was payable in
2002). We initially recognized an expense of $0.4 million under
this guarantee
in the
first quarter
of 2002 based on a tentative agreement with HQ Global under which
HQ Global
would not reject this lease obligation and we would fund HQ Global’s
operating losses at this location for a limited period of time.
Due to deteriorating conditions
in the local commercial real estate market, HQ Global subsequently
determined that the tentative agreement was not in its best interest.
HQ Global indicated
to us that it intended to reject this lease unless its rent was
reduced to current market rates. As an interim measure, we entered
into an agreement with
HQ Global
as of June 30, 2002 to fund operating losses at this location up
to an aggregate amount of $130,000 in exchange for HQ Global forbearing
from rejecting this
lease until September 15, 2002, or if it obtained from the bankruptcy
court an extension
of time within which to reject leases, November 1, 2002. Because
the bankruptcy court has since twice extended the time period within
which HQ Global may reject
this lease to May 9, 2003, we have twice extended the existing
forbearance agreement in exchange for funding operating losses
up to an additional aggregate
amount
of $245,000. As a result of our efforts to mitigate our exposure
under this guarantee, we entered into agreements with HQ Global
in January 2003 under
which HQ Global
assigned its interest as a tenant in this lease to us and we in
turn subleased the space back to HQ Global at current market rates.
These agreements remain
subject to approval by both the bankruptcy court and the landlord
under the lease. In addition, these agreements will not be enforceable
if HQ Global fails
to successfully
reorganize and emerge from the bankruptcy proceedings. There can
be no assurance that the necessary approvals will be granted, that
material changes to the
agreements will not be required to gain approvals, or that HQ Global
will successfully reorganize
and emerge from the bankruptcy proceedings. We increased our provision
for loss under this guarantee to $6.9 million in the second quarter
of 2002 and
this continues
to represent the amount we have determined to be our likely exposure
under this guarantee as of December 31, 2002. However, there can
be no assurance
that we
will not be required to further increase our provision or make
cash payments related to this guarantee in future periods up to,
in the aggregate, the full
amount of the guarantee. As of December 31, 2002, we had not made
any payments under this guarantee.
(5) Minority
Interest
At the time we were incorporated and our majority-owned subsidiary,
Carr Realty, L.P. was formed, those who contributed interests
in properties to Carr Realty,
L.P. had the right to elect to receive either our common stock
or units of limited partnership interest in Carr Realty, L.P.
In addition,
we
have acquired
assets
since our formation by issuing distribution paying units and
non-distribution paying units of Carr Realty, L.P. and CarrAmerica
Realty, L.P.
The non-distribution
paying units cannot receive any distributions until they automatically
convert into distribution paying units in the future. During
2002, 2001 and 2000,
89,357, 89,357 and 163,598 non-distribution paying units, respectively,
were converted
to distribution paying units. A distribution paying unit, subject
to restrictions, may be redeemed at any time for either one share
of our
common stock, or
at our option, cash equal to the fair market value of a share
of our common stock at
the redemption date. When a Unitholder redeems a distribution
paying unit for a share of common stock or cash, minority interest
is
reduced and our
investment
in Carr Realty, L.P. or CarrAmerica Realty, L.P., as appropriate,
is increased. During 2002, 2001 and 2000, 278,799, 61,432 and
292,739 distribution paying
units, respectively, of Carr Realty, L.P. were redeemed for cash
or
our common stock.
During 2002, 2001 and 2000, 25,509, 52,782 and 146,151 units,
respectively, of CarrAmerica Realty, L.P. were redeemed for cash or
our common
stock. Minority interest in the financial statements relates primarily
to
Unitholders.
The following table summarizes the outstanding shares of our common
stock, preferred stock which is convertible into our common stock
and outstanding
units of Carr
Realty, L.P. and CarrAmerica Realty, L.P.:
| Non- | ||||||||
| Convertible | Distribution | Distribution | ||||||
| Common | Preferred | Paying | Paying | |||||
| Stock | Stock | Units | Units | |||||
| (In thousands) | Outstanding | Outstanding | Outstanding | Outstanding | ||||
|
||||||||
| As of December 31, | ||||||||
| 2002 | 51,836 | – | 5,579 | 89 | ||||
| 2001 | 51,965 | 80 | 5,794 | 179 | ||||
| 2000 | 65,018 | 480 | 5,656 | 268 | ||||
| Weighted average for: | ||||||||
| 2002 | 52,817 | 3 | 5,671 | 142 | ||||
| 2001 | 61,010 | 256 | 5,809 | 231 | ||||
| 2000 | 66,221 | 495 | 5,916 | 405 | ||||
(6) Other
Investments in Unconsolidated Entities and Affiliate Transactions
We utilize joint venture arrangements on projects characterized
by large dollar-per-square foot costs and/or when we desire
to limit
capital deployment
in certain of our
markets. We own interests ranging from 15% to 50% in real estate
property operations and development operations through unconsolidated
entities.
We had ten investments
at December 31, 2002 and eleven investments at December 31,
2001 and 2000 in these entities. Adjustments are made to equity in
earnings of unconsolidated
entities to account for differences in the amount at which
the investment is
carried and the amount of underlying equity in the net assets.
The combined condensed financial information for the unconsolidated
entities accounted for under the equity method is as follows:
| December 31, | ||||||
|
||||||
| (In thousands) | 2002 | 2001 | ||||
| Balance Sheets | ||||||
| Assets | ||||||
| Rental property, net | $ | 706,627 | $ | 647,294 | ||
| Land and construction in progress | 48,300 | 161,959 | ||||
| Cash and cash equivalents | 22,719 | 17,607 | ||||
| Other assets | 42,648 | 54,493 | ||||
|
|
|||||
| $ | 820,294 | $ | 881,353 | |||
|
|
|||||
Liabilities and Partners' Capital |
||||||
| Liabilities: | ||||||
| Notes payable | $ | 473,985 | $ | 497,493 | ||
| Other liabilities | 25,112 | 36,582 | ||||
|
|
|||||
| Total liabilities | 499,097 | 534,075 | ||||
| Partners' capital | 321,197 | 347,278 | ||||
|
|
|||||
| $ | 820,294 | $ | 881,353 | |||
|
|
|||||
| Year Ended December 31, | ||||||
|
||||||
| (In thousands) | 2002 | 2001 | 2000 | |||
|
||||||
Statements of Operations |
||||||
| Revenue | $ | 134,903 | $ | 109,441 | $ | 64,423 |
| Depreciation and amortization expense | 33,188 | 27,890 | 14,733 | |||
| Interest expense | 36,737 | 22,034 | 19,529 | |||
| Other expenses | 47,212 | 37,627 | 21,302 | |||
| Gain on sale of assets | 18,162 | – | 63,984 | |||
|
|
|||||
| Net income | $ | 35,928 | $ | 21,890 | $ | 72,843 |
|
|
|||||
In addition to making investments in these ventures, we provide construction
management, leasing and property management, development and architectural
and other services to them. We earned fees for these services of
$8.0 million in
2002, $14.2 million in 2001 and $8.9 million in 2000. Accounts
receivable from joint ventures and other affiliates were $1.7 million
at December
31, 2002 and
$3.2 million at December 31, 2001.
Other material related party transactions include general contracting
and other services from Clark Enterprises, Inc., an entity in which
one of
our directors
is the majority stockholder. We, including our unconsolidated affiliates,
paid $36.1 million in 2002, $25.1 million in 2001 and $10.0 million
in 2000 to Clark
Enterprises, Inc. for these services. Substantially all of the
payments related to our unconsolidated affiliates. We also have
a consulting
agreement with
Oliver Carr, one of our directors, under which Mr. Carr provides
services to us. We
paid Mr. Carr $105,000 in 2002 and 2001 and $52,500 in 2000. The
agreement expires in June 2003.
As of December 31, 2002, we guaranteed $26.5 million of debt related
to a joint venture and $21.0 million of debt related to a development
project
we have undertaken
with a third party.
In November 2001, we repurchased 9.2 million shares of our common
stock from Security Capital for a total of $265.4 million or $28.85
per share.
We have investments in two companies, V Technologies International
Corporation (Agilquest) and essention, which we account for using
the cost method.
These are startup entities in which we invested $2.8 million and
$1.7 million, respectively. To date, neither company has had any
substantial
earnings.
In the fourth quarter
of 2002, we recognized an impairment of $500,000 on our investment
in essention because we believe the value of our investment was
partially impaired.
If,
in the future, these companies fail to achieve their business plans,
additional impairment charges related to our investments may be
required.
(7) Lease
Agreements
Space in our rental properties is leased to approximately 1,050
tenants. In addition to minimum rents, the leases typically
provide for other
rents which reimburse
us for specific property operating expenses and real estate
taxes. The future minimum base rent to be received under noncancellable
tenant operating
leases
and the percentage of total rentable space under leases expiring
each year, as of December 31, 2002 are summarized as follows:
Future Percentage of Minimum Total Space under (In thousands)
Rent Lease Expiring
| Future | Percentage of | |||
| Minimum | Total Space under | |||
| (In thousands) | Rent | Lease Expiring | ||
|
||||
| 2003 | $ | 400,797 | 12.9 | |
| 2004 | 353,810 | 14.2 | ||
| 2005 | 300,815 | 13.2 | ||
| 2006 | 236,486 | 11.5 | ||
| 2007 | 183,184 | 13.3 | ||
| 2008 & thereafter | 440,043 | 27.3 | ||
|
|
|
||
| $ | 1,915,135 | |||
|
|
|
||
Leases also provide for additional rent based on increases in the
Consumer Price Index (CPI) and increases in operating expenses.
Increases are
generally payable
in equal installments throughout the year.
We lease land for two office properties located in metropolitan
Washington, D.C. and one office property located in Santa Clara,
California.
We also lease land
adjacent to an office property in Chicago, Illinois and office
space in metropolitan Washington, D.C. for our own use, with part
of this
space being subleased
to tenants. On October 2, 2002 in connection with the acquisition
of a
property, we entered into a ground lease agreement with Stanford
University in Palo
Alto,
California for 51 years with minimum annual base rent of $800,000
along with a percentage rent based on the property’s operating
performance. The initial terms of these leases range from 5 years
to 99 years. The longest lease
matures
in 2086. The minimum base annual rental payment for these leases
is $4.2 million.
(8) Common
and Preferred Stock
Over the past three years, our Board of Directors authorized us
to spend up to $400.0 million to repurchase our common
and preferred shares not
including stock
repurchased from Security Capital in 2001 or the redemption
of 4.0
million of Series B Preferred shares in 2002 which were
separately authorized.
During 2000
and 2001, we acquired approximately 8.7 million shares
of common stock for $253.1 million, an average price of $29.03 per
share,
exclusive of 9.2 million
shares
repurchased from Security Capital at $28.85 per share under
the separate authorization in November 2001. During 2002, we repurchased
an additional
1.4 million shares
of common stock for $35.9 million at an average price of
$25.63
per share. During 2002, we repurchased 1.8 million shares
of our preferred
stock
for approximately
$45.5 million, exclusive of 4.0 million Series B preferred
shares
redeemed
for $100.0 million under the separate authorization in
September 2002.
We are authorized to issue 35 million shares of preferred stock.
On October 25, 1996, we issued 1,740,000 shares of Series A Cumulative
Convertible
Redeemable Preferred Stock (“Series A Preferred Stock”)
at $25 per share. Dividends for the Series A Preferred Stock were
cumulative and payable quarterly
in arrears
in an amount per share equal to the greater of $1.75 per share
per year or the cash dividend paid on the number of shares of our
common stock into which
a share
of Series A Preferred Stock was convertible. Series A Preferred
Stock had a liquidation preference of $25 per share. Each share
of Series A Preferred Stock
was convertible
into one share of common stock (subject to conversion adjustments),
at the option of the holder. As of December 31, 2002, all shares
of Series A Preferred
Stock
had been converted into common stock.
As of December 31, 2002, we had the following additional preferred
stock issued and outstanding:
Liquidation(In thousands, Issue Preference Dividendexcept
share data) Shares Date @ $25 Rate
| Liquidation | |||||
| (In thousands, | Issue | Preference | Dividend | ||
| except share data) | Shares | Date | @ $25 | Rate | |
|
|||||
| Series B | 2,893,916 | August 1997 | $ | 72,348 | 8.57% |
| Series C | 5,541,720 | November 1997 | 138,544 | 8.55% | |
| Series D | 1,745,010 | December 1997 | 43,626 | 8.45% | |
The Series C and D shares are Depositary Shares. They each represent
a 1/10 fractional interest in a share of preferred stock. Dividends
for the
Series
B, C and D shares
are cumulative from the date of issuance and are payable quarterly
in arrears on the last day of February, May, August and November.
These preferred
shares are redeemable at our option.
(9) Stock/Unit
Compensation Plans
As of December 31, 2002, we had three option plans. Two plans are
for the purpose of attracting and retaining executive
officers and other
key employees
(1997
Employee Stock Option and Incentive Plan and the 1993
Carr Realty Option Plan). The other plan is for the purpose of attracting
and retaining
directors who are
not employees (1995 Non-Employee Director Stock Option
Plan).
The 1997 Employee Stock Option and Incentive Plan (“Stock Option
Plan”)
allows for the grant of options to purchase our common stock at
an exercise price equal to the fair market value of the common stock
at the date of grant.
At December
31, 2002, we had options and units to purchase 10,000,000 shares
of common stock and units reserved so we could issue them under the Stock
Option Plan.
At December
31, 2002, 5,276,111 options were outstanding. All of the outstanding
options have a 10-year term from the date of grant. 3,262,748 options
vest over a four-year
period, 25% per year, 381,000 options vest at the end of five years,
69,526 options vest over a three-year period, 33.3% per year and 29,364
vest within
the first
year after grant. The balance of the options vests over a five-year
period, 20% per year.
The 1993 Carr Realty Option Plan allows for the grant of options
to purchase units of Carr Realty, L.P. (unit options). These options
are
exercisable
at the fair market value of the units at the date of grant, which
is equivalent to the
fair market value of our common stock on that date. Units (following
exercise of unit options) are redeemable for cash or common stock,
at our option.
At December 31, 2002, we had options to purchase 1,266,900 units
authorized for grant under
this plan, of which 159,422 were outstanding. All of the outstanding
options have a 10-year term from the date of grant and vest over
five years, 20%
per year.
The 1995 Non-Employee Director Stock Option Plan provides for the
grant of options to purchase our common stock at an exercise price
equal
to the fair
market value
of the common stock at the date of grant. Under this plan, newly
elected non-employee directors are granted options to purchase
3,000 shares
of common stock when they
start serving as a director. In connection with each annual election
of directors, a continuing non-employee director will receive options
to purchase
7,500
shares of common stock. The stock options have a 10-year term from
the date of grant
and vest over three years, 33 1/3% per year. At December 31, 2002,
we had 270,000 options on shares of common stock authorized for
grant under
this
plan with 91,693
outstanding.
Unit and stock option activity during 2002, 2001 and 2000 is summarized
as follows:
| 1993 Plan | 1995 Plan | 1997 Plan | ||||||||
|
||||||||||
| Weighted | Weighted | Weighted | ||||||||
| Shares | Average | Shares | Average | Shares | Average | |||||
| under | Exercise | under | Exercise | under | Exercise | |||||
| Option | Price | Option | Price | Option | Price | |||||
|
||||||||||
| Outstanding at December 31, 1999 | 847,622 | $ | 23.186 | 200,393 | $ | 24.824 | 4,700,503 | $ | 26.301 | |
| Granted | – | – | 7,500 | 24.688 | 2,867,857 | 21.195 | ||||
| Exercised | 593,600 | 22.932 | – | – | 632,611 | 25.103 | ||||
| Forfeited | 15,500 | 23.831 | – | – | 773,337 | 24.480 | ||||
|
|
|
|
|
|
|
||||
| Outstanding at December 31, 2000 | 238,522 | 23.778 | 207,893 | 24.819 | 6,162,412 | 24.275 | ||||
| Granted | – | – | – | – | 1,171,139 | 28.644 | ||||
| Exercised | 79,100 | 22.939 | 70,700 | 23.626 | 1,061,213 | 23.329 | ||||
| Forfeited | – | – | – | – | 121,613 | 23.678 | ||||
|
|
|
|
|
|
|
||||
| Outstanding at December 31, 2001 | 159,422 | 24.194 | 137,193 | 25.435 | 6,150,725 | 25.277 | ||||
| Granted | – | – | – | – | 607,193 | 30.315 | ||||
| Exercised | – | – | 33,000 | 26.338 | 1,010,125 | 23.503 | ||||
| Forfeited | – | – | 12,500 | 26.302 | 471,682 | 25.370 | ||||
|
|
|
|
|
|
|
||||
| Outstanding at December 31, 2002 | 159,422 | $ | 24.194 | 91,693 | $ | 24.993 | 5,276,111 | $ | 26.206 | |
|
|
|
|
|
|
|
||||
| Options exercisable at: | ||||||||||
| December 31, 2000 | 218,766 | $ | 23.400 | 141,378 | $ | 24.884 | 1,293,024 | $ | 27.469 | |
| December 31, 2001 | 151,544 | 23.947 | 114,693 | 25.648 | 1,619,437 | 27.105 | ||||
| December 31, 2002 | 159,422 | 24.194 | 89,193 | 25.001 | 2,129,602 | 27.046 | ||||
The following table summarizes information about our stock options outstanding at December 31, 2002:
| Options Outstanding | Options Exercisable | |||||||||||
|
|
|
|
|||||||||
| Outstanding | Weighted-Average | Exercisable | ||||||||||
| Range of Exercise | as of | Remaining | Weighted-Average | as of | Weighted-Average | |||||||
| Prices | 12/31/02 | Contractual Life | Exercise Price | 12/31/02 | Exercise Price | |||||||
|
||||||||||||
| $17.00¨$20.00 | 3,000 | 2.3 | $ | 17.7500 | 3,000 | $ | 17.7500 | |||||
| $20.01¨$23.00 | 1,349,810 | 6.5 | 20.9269 | 340,185 | 21.5502 | |||||||
| $23.01¨$26.00 | 1,167,225 | 6.0 | 23.7995 | 592,475 | 23.6105 | |||||||
| $26.01¨$29.00 | 1,140,448 | 7.8 | 28.5997 | 372,564 | 28.5525 | |||||||
| $29.01¨$32.00 | 1,866,743 | 6.2 | 29.8480 | 1,069,993 | 29.6028 | |||||||
|
|
|
|
|||||||||
| 5,527,226 | 6.5 | $ | 26.1279 | 2,378,217 | $ | 26.7786 | ||||||
|
|
|
|
|
||||||||
We have also granted to key executives 831,003 restricted stock
units under the 1997 Stock Option Plan. The stock units were granted
at
a zero exercise
price
and are convertible to shares of common stock on a one-for-one
basis as they vest at the option of the executive. The fair market
values
of the
units
at the dates of grant range from $20.69 to $32.05 per unit. The
units vest over five
years, at 20% per year. We recognize the fair value of the units
awarded at dates of grant as compensation cost on a straight-line
basis over
the terms of the
awards. Compensation expense related to these awards was $4.3 million
in 2002, $2.6 million in 2001 and $3.0 million in 2000. During
2002, we began
to exchange
unvested stock units for shares of restricted common stock with
the same terms as the unvested units. During 2002, 73,797 units
were
exchanged and the remaining
unvested units (194,872 units as of December 31, 2002) are expected
to
be exchanged during 2003.
(10) Gain
on Sale of Assets and Other Provisions, Net
The following table summarizes our gain on sale of assets and other
provisions, net:
| (In thousands) | 2002 | 2001 | 2000 | ||||||
|
|||||||||
| Sales of land/development properties | $ | – | $ | (473 | ) | $ | (3,655 | ) | |
| Sales of rental properties | 15,652 | 4,937 | 33,399 | ||||||
| Sale of properties to Carr Office Park, L.L.C. | – | – | 33,197 | ||||||
| Impairment loss | (2,496 | ) | (1,500 | ) | (7,894 | ) | |||
| Income taxes | – | – | (18,676 | ) | |||||
|
|
||||||||
| Total | $ | 13,156 | $ | 2,964 | $ | 36,371 | |||
|
|
||||||||
We dispose of assets (sometimes using tax-deferred exchanges) that
are inconsistent with our long-term strategic or return objectives
or where
market conditions
for sale are favorable. The proceeds from the sales are redeployed
into other properties or used to fund development operations or
to support
other corporate
needs.
During 2002, we disposed of four operating properties recognizing
a gain of $34.7 million, including a gain of $4.9 million relating
to
our share
of gain on a
sale of a property which we held an interest through an unconsolidated
entity. Approximately $19.1 million of the gain relates to our
Commons at Las Colinas
property with which we have no continuing involvement after the
sale. Accordingly, the gain and the results of operations of the
property
are classified as
discontinued operations. The balance of the gain relates to properties
we continue to manage
under management agreements. The gain on these sales and the operating
results of the properties are not classified as discontinued operations
due to our
continuing involvement. We also recognized impairment losses of
$2.5 million on land holdings.
As required by SFAS No. 144, the operating results of the Commons
at Las Colinas property are included in discontinued operations
for all
periods
presented in
the Statements of Operations. Operating results of the property
are summarized as follows:
| (In thousands) | 2002 | 2001 | 2000 | |||
|
||||||
| Revenues | $ | 7,758 | $ | 12,860 | $ | 8,258 |
| Property expenses | 154 | 111 | 764 | |||
| Depreciation and amortization | 3,438 | 5,541 | 3,219 | |||
|
|
|||||
| Net income | $ | 4,166 | $ | 7,208 | $ | 4,275 |
|
|
|||||
During 2001, we disposed of seven operating properties, one property
under development and three parcels of land held for development.
We recognized
a gain of $4.5
million on these transactions. We also recognized an impairment
loss of $1.5 million on land holdings.
During 2000, we disposed of 16 operating properties (including
one property in which we held an interest through an unconsolidated
entity)
and four
parcels of land that were being held for development. We recognized
a gain of $24.1
million
on these transactions, net of taxes of $5.6 million, including
a net gain of $8.8 million relating to our share of gain on the
sale
of a
property in which
we held an interest through an unconsolidated entity.
On August 17, 2000, we closed on a joint venture transaction with
New York State Teachers’ Retirement System (“NYSTRS”).
At closing, we and some affiliates contributed properties to the
joint venture, Carr Office
Park,
L.L.C., and NYSTRS contributed cash of approximately $255.1 million.
The joint venture encompasses five suburban office parks (including
26 rental properties
and land held for development of additional properties) in four
markets. We received approximately $249.6 million and a 35% interest
in the joint venture
in exchange
for the properties contributed and recognized a gain on the partial
sale of $20.1 million, net of taxes of $13.1 million.
In 2000 we recognized an impairment loss of $7.9 million on land.
For various reasons, we determined that we would not proceed with
planned
development
of rental properties on certain of our land holdings and decided
to market the land
for sale. As a result, we evaluated the recoverability of the carrying
amounts of the land. We determined that the carrying amounts would
not be recovered
from estimated net sale proceeds in certain cases and, in those
cases, we recognized
impairment losses.
(11) Acquisitions
During 2002, we acquired five operating properties
totaling almost 900,000 rentable square feet
for approximately $216.1 million,
including assumed
debt. The table
below details our 2002 acquisitions.
| Number | Rentable | ||||||
| Property | Month | of | Square | Purchase | |||
| Name | Market | Acquired | Buildings | Footage | Price (000) | ||
|
|||||||
| 11119 Torrey Pines Rd. | Southern California | May-02 | 1 | 76,701 | $ | 19,000 | |
| Canal Center | Washington, DC Metro | Aug-02 | 4 | 492,001 | 121,779 | ||
| TransPotomac V Plaza | Washington, DC Metro | Aug-02 | 1 | 96,960 | 19,721 | ||
| Carroll Vista I & II | Southern California | Sep-02 | 3 | 107,579 | 24,600 | ||
| Stanford Research Park1 | San Francisco Bay Area | Oct-02 | 2 | 89,595 | 31,000 | ||
|
|
||||||
| 11 | 862,836 | $ | 216,100 | ||||
|
|
||||||
1. $5.1 million of the purchase price is classified as prepaid rent on ther related ground lease.
The aggregate purchase price of these properties was allocated as follows:
| (In thousands) | |||
|
|||
| Land | $ | 34,176 | |
| Building | 177,318 | ||
| Prepaid ground rent | 5,100 | ||
| Lease contracts | (494 | ) | |
|
|
||
| $ | 216,100 | ||
|
|
||
(12) Commitments
and Contingencies
At December 31, 2002, we were liable on $1.2 million in letters
of credit. We were contingently liable for
letters of credit related to various
completion escrows and on performance bonds
amounting to approximately $1.4 million
to ensure
completion of required public improvements
on our construction projects.
We have a 401(k) plan for employees under which we match 75% of
employee contributions up to the first 6% of pay. We also have
the option
to make a base contribution
of 3% of pay for participants who remain employed on December 31
(end of the plan year). Our contributions to the plan are subject
to an
initial four-year vesting, 25% per year. Prior to 2001, the vesting
schedule
was
a five-year
graduated
vesting schedule, and our contribution was 50% of employee contributions
up to the first 4% of pay. Our contributions to the plan were $3.1
million in 2002,
$3.0 million in 2001 and $1.6 million in 2000.
We are currently involved in two separate lawsuits with two stockholders
of HQ Global. The first lawsuit involves the September 1998 conversion
of an approximately
$111.0 million loan that we made to HQ Global into stock of HQ
Global. We, along
with HQ Global, initiated this lawsuit in the United States District
Court for the District of Columbia in February 1999, asking the
court to declare
that the
terms of the debt conversion were fair, after two minority stockholders
threatened to challenge the terms of the conversion. These stockholders
had claimed
that both the conversion price used and the methods by which the
conversion price
was agreed upon between HQ Global and us were not fair to HQ Global
or these stockholders. Thereafter, these two stockholders filed
their own
counterclaims
against HQ Global, the board of directors of HQ Global and us.
The stockholders asked the court to declare the conversion void,
or in
the alternative
for compensatory and punitive damages. On September 12, 2001, the
trial court
granted these
stockholders’ motion
for summary judgment, declaring that the shares issued in connection
with the conversion were null and void. We believe that the trial
court incorrectly interpreted
Delaware law in this case. We appealed this decision on October
2, 2001. We recognize that, in light of the trial court’s
finding, there is a reasonable possibility that we will be unsuccessful
in overturning the court’s decision. In that
event, there are a number of possible outcomes, including a reduction
in our equity interest in HQ Global or a cash payment by us to
these stockholders. We
currently believe that the value of any loss we may incur from
this matter should not exceed $10 million including losses under
directors’ indemnification
discussed below, although we cannot assure you that this will be
the case.
The second lawsuit involves claims filed by these two stockholders
in April 2000 arising out of the June 2000 merger transaction involving
HQ Global
and VANTAS
Incorporated. In this lawsuit, these two stockholders have brought
claims
against HQ Global, the board of directors of HQ Global, FrontLine
Capital Group and us
in Delaware Chancery Court. The two stockholders allege that, in
connection with the merger transaction, we breached our fiduciary
duties to the
two stockholders
and breached a contract with the stockholders. The claim relates
principally to the allocation of consideration paid to us with
respect to our interest
in an affiliate of HQ Global that conducts international executive
suites operations.
The stockholders asked the court to rescind the transaction, or
in the alternative for compensatory and rescissory damages. The
court
recently
determined that
it would not rescind the merger transaction, but held open the
possibility that
compensatory damages could be awarded or that another equitable
remedy might be available. We believe that these claims are without
merit
and that we
will ultimately prevail in this action, although we cannot assure
you that the court
will not find in favor of these stockholders. We believe, however,
that, even if the court finds in favor of these stockholders, any
such adverse
result will
not have a material adverse effect on our financial condition or
results of operations.
In connection with the HQ Global/VANTAS merger transaction, we
agreed to indemnify all of the individuals who served as directors
of HQ
Global at
the time of
the transaction, including Thomas Carr, Oliver Carr and Philip
Hawkins, who currently
serve as directors and/or executive officers of us, with respect
to any losses incurred by them arising out of the above litigation
matters,
if they first
tried and were unsuccessful in getting the losses reimbursed by
HQ Global
or from insurance
proceeds. It was expected at the time that these former directors
would be indemnified against any of these losses by HQ Global,
as required
by HQ Global’s certificate
of incorporation and bylaws. HQ Global has not satisfied its indemnity
obligation to these directors, and in light of HQ Global’s
bankruptcy filing in March 2002, is not likely to do so in the
future. As a result, we have paid
the costs
incurred by these directors in connection with the above litigation
matters. As of December 31, 2002, we had paid approximately $615,000
of costs pursuant
to this indemnification arrangement, all of which represents amounts
paid to legal counsel for these directors.
We are currently involved in two lawsuits arising out of a sublease
entered into by HQ Global in March 1998 and our guarantee to the
landlord of
the performance of HQ Global’s obligations under the sublease.
On March 13, 2002 HQ Global filed for bankruptcy protection under
Chapter 11 of the federal bankruptcy
laws in the United States Bankruptcy Court for the District of
Delaware. In its bankruptcy
proceedings, HQ Global rejected the sublease effective April 30,
2002. In June 2002, we received a demand for payment by the landlord
of the full amount of
the guarantee (approximately $5.4 million of rent payments remain
under the sublease).
We believe, however, that we have defenses to making payment under
the guarantee and therefore joined with HQ Global in filing suit
on July
24, 2002 in HQ
Global’s
bankruptcy proceedings asking the bankruptcy court to declare that
the sublease was terminated not later than February 28, 2002. In
February 2002, HQ Global,
with the knowledge of the landlord, vacated the space it was subleasing
and surrendered possession of the space to the landlord. The landlord
then began utilizing the
space for its own benefit, as a storage and staging area related
to construction the landlord was performing on other space it occupied.
We believe that the landlord’s
use of the space effectively terminated the sublease as a matter
of law and that therefore we have no obligation to make payments
under the guarantee.
On July 26, 2002, the landlord under the sublease filed suit in
the United States District Court for the Southern District of New
York
seeking payment
from us
under the guarantee. The District Court in New York ruled that
the bankruptcy court should determine which of the two courts should
decide this dispute.
The bankruptcy court has not yet decided that issue.
In light of our defenses and these proceedings, we have not accrued
any expense relating to this guarantee; however, there can be no
assurance as to the
outcome of the pending litigation or that we will not incur expense
or
be required to
make cash payments relating to this guarantee up to the full amount
of the guarantee. As of December 31, 2002, we had not made any
payments under this
guarantee. However,
even if the landlord were successful in its claims, we do not believe
that this result would have a material adverse effect on our financial
condition.
In the course of our normal business activities, various lawsuits,
claims and proceedings have been or may be instituted or asserted
against us.
Based on currently
available facts, we believe that the disposition of matters that
are pending or asserted will not have a material adverse effect
on our
consolidated financial position, results of operations or liquidity.
(13) Guarantees
Our obligations under guarantee agreements
at December 31, 2002 are summarized as follows:
| Type of | Project | Maximum | Carrying | |||
| Guarantee | Relationship | Term | Exposure | Value | ||
|
||||||
| Loan1 | 575 7th Street | Apr-05 | $ | 26,500,000 | $ | – |
| Loan2 | Atlantic Building | Dec-03 | 21,000,000 | – | ||
| Lease3 | HQ Global | Jan-13 | 18,150,000 | 8,837,714 | ||
| Indemnification4 | HQ Global | – | – | – | ||
1. Loan guarantee relates to a joint venture
in which we have a 30% interest and for which
we are
the developer.
It is a
payment guaranty
to the lender
on behalf of the joint venture. If the joint
venture defaults
on
the loan, we may
be required to perform under the guarantee.
We have a reimbursement guarantee from the
other
joint venture
partner to repay
us their proportionate share (70%) of any
monies we pay
under
the guarantee.
2. Loan guarantee relates to a third party
project for which we are the developer. It
is a payment
guarantee to the lender.
If
the third
party
defaults on the
loan, we may be required to perform under
the guarantee. We have a security interest
in the third party’s interest in the
underlying property. In the event of a default,
we can exercise our rights under the security
agreement to take
title to the property and sell the property
to mitigate our exposure under the guarantee.
3. See note 4 for further discussion.
4. See note 12 for further discussion.
In the normal course of business, we guarantee our performance
of services or indemnify third parties against our negligence.
(14) Selected
Quarterly Financial Information (unaudited)
The following is a summary of the quarterly results of operations
for 2002 and 2001:
| First | Second | Third | Fourth | ||||||
| 2002 | Quarter | Quarter | Quarter | Quarter | |||||
|
|||||||||
| (In thousands, except per share data) | |||||||||
| Rental revenue | $ | 124,075 | $ | 120,893 | $ | 127,648 | $ | 130,574 | |
| Real estate service revenue | 6,127 | 5,488 | 5,560 | 7,363 | |||||
| Real estate operating income | 19,463 | 22,920 | 24,570 | 20,920 | |||||
| Income from continuing operations | 15,784 | 18,475 | 28,245 | 23,548 | |||||
| Income (loss) from discontinued | |||||||||
| operations | 1,716 | 1,710 | 789 | (47 | ) | ||||
| Gain on sale of discontinued | |||||||||
| operations | – | – | 19,085 | – | |||||
| Net income | 17,500 | 20,185 | 48,119 | 23,501 | |||||
| Basic net income per | |||||||||
| common share: | |||||||||
| Income from continuing | |||||||||
| operations | 0.14 | 0.19 | 0.39 | 0.34 | |||||
| Income from discontinued | |||||||||
| operations | 0.03 | 0.03 | 0.02 | – | |||||
| Gain on sale of discontinued | |||||||||
| operations | – | – | 0.36 | – | |||||
| Net income | 0.17 | 0.22 | 0.77 | 0.34 | |||||
| Diluted net income per | |||||||||
| common share: | |||||||||
| Income from continuing | |||||||||
| operations | 0.14 | 0.18 | 0.39 | 0.34 | |||||
| Income from discontinued | |||||||||
| operations | 0.03 | 0.03 | 0.01 | – | |||||
| Gain on sale of discontinued | |||||||||
| operations | – | – | 0.36 | – | |||||
| Net income | 0.17 | 0.21 | 0.76 | 0.34 | |||||
| |
First | Second | Third | Fourth | |||||
| 2001 | Quarter | Quarter | Quarter | Quarter | |||||
| (In thousands, except per share data) | |||||||||
|
|||||||||
| Rental revenue | $ | 120,379 | $ | 120,765 | $ | 123,683 | $ | 129,922 | |
| Real estate service revenue | 10,137 | 9,703 | 6,682 | 4,515 | |||||
| Real estate operating income | 24,227 | 29,502 | 28,827 | 26,977 | |||||
| Income (loss) from continuing | |||||||||
| operations | 28,261 | 30,914 | 27,257 | (14,579 | ) | ||||
| Income from discontinued | |||||||||
| operations | 2,005 | 1,646 | 1,687 | 1,871 | |||||
| Net income (loss) | 30,266 | 32,560 | 28,944 | (12,709 | ) | ||||
| Basic net income per | |||||||||
| common share: | |||||||||
| Income (loss) from continuing | |||||||||
| operations | 0.31 | 0.36 | 0.30 | (0.41 | ) | ||||
| Income from discontinued | |||||||||
| operations | 0.03 | 0.03 | 0.03 | 0.03 | |||||
| Net income (loss) | 0.34 | 0.39 | 0.33 | (0.38 | ) | ||||
| Diluted net income per | |||||||||
| common share: | |||||||||
| Income from continuing | |||||||||
| operations | 0.29 | 0.35 | 0.29 | (0.41 | ) | ||||
| Income from discontinued | |||||||||
| operations | 0.03 | 0.03 | 0.03 | 0.03 | |||||
| Net income (loss) | 0.32 | 0.38 | 0.32 | (0.38 | ) | ||||
Note: Net loss for the fourth quarter of 2001 includes an impairment loss of $42.2 million ($0.74 per share, basic and diluted) on our investment in HQ Global. Quarterly amounts have been restated to reflect property sold in 2002 with which we have no continuing involvement as discontinued operations. |
|||||||||
(15) Segment
Information
Our only reportable operating segment is real estate property operations.
Other business activities and operating
segments that are not reportable are included
in other operations. The performance
measure we use to assess results for real estate property operations
is segment operating income. We define segment operating
income as total rental revenue less property
expenses,
which
include
property
operating expenses (other than depreciation
and amortization)
and real estate taxes. The real estate property
operations segment includes the operation
and management of rental properties including
those classified
as discontinued
operations.
The accounting policies of the segments
are the same as those described in note 1.
Operating results of our reportable segment and our other operations
are summarized as follows:
| As of and for the Year Ended December 31, 2002 | |||||||||||||
|
|||||||||||||
| Real Estate | Other | Reclassification | |||||||||||
| Property | Operations and | Discontinued | |||||||||||
| (In millions) | Operations | Unallocated | Operations | Total | |||||||||
|
|||||||||||||
| Revenue | $ | 511.0 | $ | 24.5 | $ | (7.8 | ) | $ | 527.7 | ||||
| Segment expense | 172.8 | 41.7 | (0.2 | ) | 214.3 | ||||||||
|
|
||||||||||||
| Segment operating | |||||||||||||
| income (loss) | 338.2 | (17.2 | ) | (7.6 | ) | 313.4 | |||||||
|
|
|
|||||||||||
| Interest expense | 99.0 | ||||||||||||
| Depreciation expense | 126.6 | ||||||||||||
|
|
||||||||||||
| Operating income | 87.8 | ||||||||||||
| Other expense | (0.9 | ) | |||||||||||
| Gain on sale of assets and | |||||||||||||
| other provisions, net | 13.2 | ||||||||||||
| Minority interest and taxes | (14.1 | ) | |||||||||||
| Discontinued operations– | |||||||||||||
| sold property | 4.2 | ||||||||||||
| Discontinued operations– | |||||||||||||
| gain on sale | 19.1 | ||||||||||||
|
|
||||||||||||
| Net income | $ | 109.3 | |||||||||||
|
|
||||||||||||
| Total assets | $ | 2,635.3 | $ | 180.4 | $ | – | $ | 2,815.7 | |||||
|
|
||||||||||||
| Expenditures for | |||||||||||||
| long-lived assets | $ | 287.9 | $ | 13.7 | $ | – | $ | 301.6 | |||||
|
|
||||||||||||
| As of and for the Year Ended December 31, 2001 | |||||||||||||
|
|||||||||||||
| Real Estate | Other | Reclassification– | |||||||||||
| Property | Operations and | Discontinued | |||||||||||
| (In millions) | Operations | Unallocated | Operations | Total | |||||||||
|
|||||||||||||
| Revenue | $ | 507.6 | $ | 31.1 | $ | (12.9 | ) | $ | 525.8 | ||||
| Segment expense | 162.9 | 49.5 | (0.1 | ) | 212.3 | ||||||||
| Segment operating | |||||||||||||
| income (loss) | 344.7 | (18.4 | ) | (12.8 | ) | 313.5 | |||||||
|
|
|
|||||||||||
| Interest expense | 83.6 | ||||||||||||
| Depreciation expense | 120.4 | ||||||||||||
|
|
||||||||||||
| Operating income | 109.5 | ||||||||||||
| Other expense | (29.8 | ) | |||||||||||
| Gain on sale of assets and | |||||||||||||
| other provisions, net | 3.0 | ||||||||||||
| Minority interest and taxes | (10.8 | ) | |||||||||||
| Discontinued operations– | |||||||||||||
| sold property | 7.2 | ||||||||||||
|
|
||||||||||||
| Net income | $ | 79.1 | |||||||||||
|
|
||||||||||||
| Total assets | $ | 2,605.8 | $ | 169.6 | $ | – | $ | 2,775.4 | |||||
|
|
||||||||||||
| Expenditures for | |||||||||||||
| long-lived assets | $ | 133.3 | $ | 17.2 | $ | – | $ | 150.5 | |||||
|
|
||||||||||||
| As of and for the Year Ended December 31, 2000 | |||||||||||||
|
|||||||||||||
| Real Estate | Other | Reclassification– | |||||||||||
| Property | Operations and | Discontinued | |||||||||||
|
|||||||||||||
| (In millions) | Operations | Unallocated | Operations | Total | |||||||||
| Revenue | $ | 531.9 | $ | 26.2 | $ | (8.3 | ) | $ | 549.8 | ||||
| Segment expense | 171.4 | 41.6 | (0.8 | ) | 212.2 | ||||||||
| Segment operating | |||||||||||||
| income (loss) | 360.5 | (15.4 | ) | (7.5 | ) | 337.6 | |||||||
|
|
|
|||||||||||
| Interest expense | 100.2 | ||||||||||||
| Depreciation expense | 123.4 | ||||||||||||
|
|
||||||||||||
| Operating income | 114.0 | ||||||||||||
| Other income | 12.0 | ||||||||||||
| Gain on sale of assets and | |||||||||||||
| other provisions, net | 36.4 | ||||||||||||
| Minority interest and taxes | (19.5 | ) | |||||||||||
| Discontinued operations– | |||||||||||||
| sold property | 4.3 | ||||||||||||
| Discontinued operations– | |||||||||||||
| executive suites | 0.5 | ||||||||||||
| Discontinued operations– | |||||||||||||
| gain on sale of | |||||||||||||
| executive suites | 31.8 | ||||||||||||
|
|
||||||||||||
| Net income | $ | 179.5 | |||||||||||
|
|
||||||||||||
| Total assets | $ | 2,524.2 | $ | 548.6 | $ | – | $ | 3,072.8 | |||||
|
|
||||||||||||
| Expenditures for | |||||||||||||
| long-lived assets | $ | 230.7 | $ | 29.9 | $ | – | $ | 260.6 | |||||
|
|
||||||||||||
(16) Supplemental
Cash Flow Information
In August 2002, we assumed $63.5 million of debt related to the purchase
of two operating properties. The total
purchase price of the properties was approximately
$141.5 million.
In January 2002, 80,000 shares of our Series A Cumulative Convertible
Redeemable Preferred Stock were converted to shares of common stock,
retiring all
remaining shares of Series A Cumulative Convertible Redeemable
Preferred Stock.
Our employees converted approximately $1.8 million, $1.8 million
and $1.0 million in restricted units to 78,280 shares, 80,532 shares
and
29,360
shares of common
stock during 2002, 2001 and 2000, respectively.
In April 2001, we exercised an option under a loan agreement to
acquire two office buildings and related land located in the San
Francisco
Bay area.
For financial
reporting purposes, we had classified the loan as an investment
in an unconsolidated entity and accounted for it using the equity
method.
The
investment, which
had a carrying value of approximately $50.3 million at the date
the option was exercised,
was reclassified to rental property in connection with this transaction.
On June 29, 2001, we contributed land subject to a note payable
of approximately $26.0 million to a joint venture in exchange for
a
30% ownership interest.
Our initial investment in the joint venture amounted to $7.3 million,
the net book
value of the asset and liability contributed.
In 2001 and 2000, 400,000 shares and 200,000 shares, respectively,
of our Series A Cumulative Convertible Redeemable Preferred Stock
were converted
to shares
of common stock.
In August 2000, we contributed $332.1 million of assets to an unconsolidated
joint venture, Carr Office Park, L.L.C.
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