THOMAS A. CARR President and Chief Executive Officer A strong performance 1999 was a very good year, characterized by strong market fundamentals and tremendous execution on CarrAmerica’s part. We’re operating in growing markets in a favorable real estate climate at a time when many of our customers—rapid-growth technology, telecommunications and financial services leaders—are experiencing phenomenal growth. The combination of our investment in development, continued strong portfolio performance and a concentration on growing markets contributed to our excellent results. We are very pleased with our performance for the year. Funds from continuing operations for 1999 of $2.56 per diluted common share were up 9.9 percent over 1998. 1999 operating income from same store operating properties increased 6.4 percent from 1998. Revenue from new developments placed in service was $51 million. Revenue from real estate services was $17 million in 1999, compared with $16 million in 1998, and our executive office suites affiliate, HQ Global Workplaces, Inc., now classified as discontinued operations, produced revenues of $237 million, up 62 percent from 1998. The performance of our operating properties has been strong, with an average occupancy of 97.6 percent at year-end. Rental rates increased 19 percent on average on the 2.2 million square feet of leases executed in the twelve-month period ended December 31, 1999. Our development program has yielded excellent results. During 1999, CarrAmerica and its affiliate placed in service 3.3 million square feet of new office space with total projected costs of $530 million at an expected year-one yield of approximately 11.4 percent. At year-end, the company had 1.3 million square feet under development in 10 key markets. The total cost of this development is projected at $200 million, of which $116 million was invested by year-end. Our development pipeline is currently 53.1 percent leased or committed, with a year-one unleveraged return projected at 11.2 percent. Construction starts for 1999 totaled $145 million; 58 percent of these were build-to-suits.We’ve made commitments to begin construction on an additional $155 million in new development in 2000; 66 percent of this new development is preleased.

All of these activities are yielding strong, sustained cash flow growth for our business. We have announced plans to strengthen our balance sheet with the proceeds from the planned merger of our executive office suites affiliate, HQ Global Workplaces, Inc., with Vantas Incorporated. Announced in January, the merger is expected to substantially reduce our debt load, yielding approximately $380 million in cash before transaction costs and other distributions. Cash proceeds to HQ Global Workplaces after transaction expenses will be applied to the repayment of $140 million of HQ Global Workplaces’ debt presently guaranteed by CarrAmerica and to the purchase of OmniOffices UK and other affiliates. CarrAmerica anticipates receiving approximately $170 million in cash at closing after setting aside approximately $21 million for certain performance payments related to the purchase of OmniOffices UK that were incurred primarily in the fourth quarter of 1999. In January, concurrent with the announcement regarding HQ Global Workplaces, CarrAmerica announced that it would repurchase up to $100 million of its outstanding common shares. We feel strongly that our shares represent an extraordinary value considering that we view our stock to be trading at a considerable discount to net asset value and recognizing our strong future business prospects.

Looking Forward We will continue to invest in the future of our business. We feel we are in excellent shape as we move into the future. Our strength derives from a number of factors. • Market Leadership Our mission is to be a leader in each of the markets in which we operate. And we have succeeded. We are a strong competitor in all 14 core markets, with 23.8 million square feet of office space, overall. Our leadership is inextricably tied to an ability to sustain strong, lasting, service-driven customer relationships. Today, almost 30 percent of our space—6.6 million square feet—is occupied by major corporate customers with leases in multiple CarrAmerica locations. That’s up 15 percent from a year ago. These are companies that appreciate our capacity to act quickly and professionally and to provide a variety of services in a variety of locations. They’re companies with names such as US West, AT&T, Nokia, PeopleSoft and Sun MicroSystems. We have elevated the relationships we have with our customers to a new level. Increasingly, they’re looking to us for solutions—in multiple markets, for long- and short-term space, build-to-suit, whatever their needs. And that’s precisely the role we’ve been aiming for.

We possess an outstanding ability to pinpoint high-growth markets—for locating those markets where our customers want to be, markets that yield high returns and sustain high occupancies. Occupancies across our portfolio have averaged 96.2 percent for the past five years. Rental rate growth in our markets has been extremely strong as evidenced by our near-20 percent rental rate growth for 1999 lease rollovers. Today, more than 40 percent of our revenue comes from strong West Coast markets. In 2000, almost 50 percent of our lease rollover will occur in these West Coast markets—Seattle/Portland, the San Francisco Bay Area, Orange County and San Diego—all of which continue to experience explosive rental rate growth. Across our portfolio, rental rate growth in 2000 should be in the range of 25 percent. • World-Class Development Capabilities CarrAmerica is one of the leading developers in our markets and, for the last three years, has been one of the most active commercial developers in the U.S. Through our development affiliate, we are uniquely positioned to offer a wide variety of product types in the most demanded geographic locations—as well as development outside our core markets. We are uniquely qualified to provide, through our development affiliate, an array of development services, not just for buildings owned by CarrAmerica, but for third-party customers such as The World Bank, KPMG, CheckFree, General Motors, Gateway and The Sidney Kimmel Cancer Center. These are sophisticated and demanding customers, large multimarket corporations. More than 50 percent of our current build-to-suit projects are for repeat customers.

Because of our size, we can achieve outstanding economies of scale, minimizing product delivery schedules and project costs, resulting in genuine savings to our customers. And, just as importantly, we have a phenomenally experienced, skilled and dedicated group of people in our development affiliate. There are 40 professionals on staff with expertise in business, architecture, engineering and project management for both urban and suburban projects. The average number of years they’ve worked in the industry exceeds 15 and they have, on average, more than seven years with the company. • Better Operating Systems In 1999, we began the process of implementing Project Excellence—a name we have selected to speak to the intensity of our commitment to setting the highest standards for our operating performance. With Project Excellence, we have begun the process of refining our operating systems—adapting and upgrading our technology, streamlining our processes and eliminating paperwork, a process that will ultimately result in significant operating cost savings. Project Excellence is a critical step toward preparing for the future and a symbol of our organizational commitment to the future.

Initially, we are focusing on the finance and accounting services within the company and bringing them up to world-class levels by measuring our operations against best industry practices and closely evaluating how we do our work. Our CFO, Dick Katchuk, was instrumental in implementing a similar project at Crestar Bank on a much larger scale and I am very excited about the process as it unfolds at CarrAmerica under his leadership. • A Leading Office Innovator CarrAmerica has evolved into a leader in our industry because of change, not despite change. Our success rests on a continuing ability to identify new opportunities and act on what we see. We are constantly exploring new avenues for growth that build value for our customers and our shareholders. We joined with other real estate companies to deliver telecommunications and technology services to office buildings by creating Broadband Offices, Inc. By contributing access to our property portfolio, CarrAmerica stands to benefit not only from our ability to deliver greater choice to our customers, but from the grant of a significant equity position at no cost to CarrAmerica, revenue-sharing agreements and a seat on the Broadband Office Board and Executive Committee. This level of involvement gives us the ability to ensure Broadband’s services are of the highest quality and directly responsive to our customers’ needs. In 1999, we also entered into an alliance with DukeSolutions, a Duke Energy subsidiary, to implement a comprehensive energy management program that pioneers creative web-based energy management strategies and will significantly reduce energy costs for our customers.

HQ Global Workplaces proved itself a successful innovative investment and an excellent example of execution. An opportunity was identified and the company was able to capitalize on that opportunity to build value for our shareholders. In just 12 months, HQ Global Workplaces successfully integrated 20 companies into two—in effect, the U.S. and U.K. companies—with 1,400 employees operating in 17 countries, firmly positioned as a global leader in the executive office suites business. The merger with Vantas enhances that leadership, making HQ Global Workplaces a more valuable partner for our customers in the future. We will continue to seek out innovative approaches in every area of the company. Just as important, we are reshaping our organization to promote an entrepreneurial environment so we can continue to lead and innovate—by hiring outstanding people, fostering creativity and promoting new ideas.

• Disciplined Use of Capital In looking forward, we continue to devise new strategies to deal with new economic realities. This is a healthy process, forcing disciplined thinking about the use of capital and how our industry is going to change in the months and years ahead. We have upgraded our portfolio by selling about a half billion dollars worth of lower-performing assets in markets with greater supply exposure and we have redeployed those assets, investing in high-quality, new development with significantly greater returns. We’ve been divesting assets with capitalization rates under 9 percent on average and reinvesting in development that’s averaging in excess of 11 percent. The appreciation of real estate in some of our key markets has been phenomenal. For example, in 1996, CarrAmerica purchased buildings in the Orange County, California area for about $55 per square foot. Today, land values alone have exceeded that same number per square foot. Our development strategy reflects this same thinking. We continue to develop new properties, but in 1999 development took place at a slower rate than in 1998. At the beginning of 1999, we had about four million square feet in development; by year-end we had about one million square feet in development. We’ve shifted from mostly inventory development to build-to-suit projects and have been highly successful at leveraging our core capabilities in that skill, attracting major corporate customers. In 2000, development opportunities remain very attractive and we will continue to be an active developer in most of our markets.

In January, we began the process of divesting our executive office suites investment, which should give us added flexibility to pursue growth opportunities in our target markets and provide a solid current return to our shareholders through a $100 million share repurchase program expected to be executed later this year. We are extremely pleased with the terms of the merger. In the end, we will not only recognize an estimated pre-tax gain of approximately $81 million, but also retain a 19 percent interest in the newly merged company, a Board seat and strategic marketing and development agreements. Valued at the time at $500 million, this transaction clearly demonstrates the value that management believes underlies CarrAmerica’s stock. The share repurchase program will allow some of the benefits from the HQ Global merger to go directly to the shareholders and for the company to make an extremely attractive investment. The transaction also gives us more flexibility to take advantage of new opportunities and to build for the future.

Building Our Business During Periods of Change Change plays an integral role in everything we do—how we serve our customers, our ability to anticipate their changing needs and our capacity to adapt to shifts in the market. We have always been a leader in periods of change, and we always look closely at conditions to see what it is we can do to respond. Our history is rich with examples. In the 1970s and 1980s, CarrAmerica led the commercial renaissance of downtown Washington, D.C.—now one of the strongest markets in the country. Ours was the first office real estate company to go public in the 1990s and the first to move into the executive office suites market. We have, historically, capitalized on conditions that other people considered traumatic. CarrAmerica is, and will continue to be, a company that leads through periods of change. That means, first and foremost, changing in response to changing customer needs. It means finding new ways to serve at a local and national level that go beyond traditional real estate and property management services; focused on finding solutions to our customers’ needs across markets and building long-term customer relationships. Understanding and responding to our customers gets at the heart of what we do. In defining our central mission, we don’t just sell space. We sell productivity. We sell work environments. We sell a competitive edge to companies that are trying to attract and retain the best employees. We sell success in people’s core business. The measure of success in our business should be what we achieve for our customers—how we enable them to increase productivity, serve their customers better, achieve their long-term goals.

In Closing We’re good at what we do and we’ve been good at what we do for a long time. What we’re doing hasn’t changed. Our mission remains the same: to be the preferred provider—the top competitor—in the markets in which we operate. To be a world-class developer—selecting the best sites in the best markets and achieving the strongest market share; leading in innovation in the office sector; achieving the operating efficiencies to match our expertise in real estate and keep pace with technology; and, finally, taking a disciplined approach to employing and redeploying capital so we can continue to build for our future and build value for our customers and our shareholders. We look forward to another exciting year ahead. Sincerely, Thomas A. Carr President and Chief Executive Officer