10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED June 30, 2002 ------------- COMMISSION FILE NO. 000-22741 --------- CARRAMERICA REALTY, L.P. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 52-1976308 ----------------------------------- ----------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 1850 K Street, N.W., Washington, D.C. 20006 -------------------------------------------------------------------------------- (Address or principal executive office) (Zip code) Registrant's telephone number, including area code (202) 729-1700 -------------- N/A -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Number of Partnership Units outstanding of each of the registrant's classes of Partnership Units as of June 30, 2002: (# of shares) 14,362,972 -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or such shorter period that the Registrant was required to file such report) and (2) has been subject to such filing requirements for the past ninety (90) days. YES X NO ___ --- Index

2 Part I Item 1. Financial Information The information furnished in our accompanying consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows of CarrAmerica Realty, L.P. and subsidiary reflects all adjustments which are, in our opinion, necessary for a fair presentation of the aforementioned financial statements for the interim periods. The financial statements should be read in conjunction with the notes to the financial statements. The results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the operating results to be expected for the full year. 3 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Balance Sheets As of June 30, 2002 and December 31, 2001 --------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements. 4 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2002 and 2001 -------------------------------------------------------------------------------- (Unaudited and in thousands, except per share amounts)

See accompanying notes to consolidated financial statements. 5 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2002 and 2001 --------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements. 6 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) -------------------------------------------------------------------------------- (1) Description of Business and Summary of Significant Accounting Policies (a) Business We are a Delaware limited partnership formed in March 1996 for the purpose of owning, acquiring, developing and operating office buildings across the United States. At June 30, 2002, we owned 53 operating properties with no properties under development. The properties are located in Austin, Chicago, Dallas, Denver, Orange County/Los Angeles, San Francisco Bay Area, Salt Lake City, San Diego and Seattle. Our general partner is CarrAmerica Realty GP Holdings, Inc. (the "General Partner"), a wholly-owned subsidiary of CarrAmerica Realty Corporation ("CarrAmerica"), a self-administered and self-managed real estate investment trust. The General Partner owned a 1% interest in us at June 30, 2002. Our limited partners are CarrAmerica Realty LP Holdings, Inc., a wholly-owned subsidiary of CarrAmerica, which owned an approximate 89.9% interest in us at June 30, 2002 and various other individuals and entities, which collectively owned an approximate 9.1% interest in us at June 30, 2002. (b) Basis of Presentation Our accounts and those of our wholly-owned subsidiary are consolidated in the accompanying financial statements. We use the equity method of accounting for our investments in and our share of earnings and losses of unconsolidated entities. These entities are not majority-owned or controlled by us. 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 evaluation of the collectibility of accounts and notes receivable. Actual results could differ from these estimates. (c) Interim Financial Statements The financial statements reflect all adjustments, which are, in our opinion, necessary to reflect a fair presentation of results for the interim periods, and all adjustments are of a normal, recurring nature. (d) 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 Assts 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 7 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) -------------------------------------------------------------------------------- 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, we are required to present assets held for sale and related liabilities separately in our consolidated balance sheets, if we meet the applicable criteria of SFAS No. 144. In addition, if we meet the applicable criteria of SFAS No. 144, we are required to report the operating results of properties sold or classified as held for sale and related gain (loss) on sale in discontinued operations and to reclassify operating results of such properties to discontinued operations for all prior periods presented. In July 2001, the Emerging Issues Task Force (EITF) released EITF D-98: "Classification and Measurement of Redeemable Securities," which clarifies Rule 5-02.28 of Regulation S-X. This Rule requires securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (1) at a fixed or determinable price on a fixed or determinable date; (2) at the option of the holder; or (3) upon the occurrence of an event that is not solely within the control of the issuer. Our ownership is expressed in partnership units ("Units"). These Units are redeemable at the option of the holder for, as determined by CarrAmerica, a like number of shares of common stock of CarrAmerica or cash. Since these Units are redeemable, at the option of the holders, they are classified outside of partners' capital on the balance sheet as redeemable partnership units and measured at redemption value as of the end of the periods presented. As of June 30, 2002 and December 31, 2001 there were 1,308,411 and 1,333,920 redeemable Units outstanding, respectively. The value of the redeemable Units is based on the closing market price of CarrAmerica common stock, which was $30.85 per share as of June 30, 2002 and $30.10 per share as of December 31, 2001. This pronouncement was applied retroactively beginning in the first quarter of 2002. (e) Reclassifications Certain reclassifications of prior period amounts have been made to conform to the current period's presentation. (2) Mortgages and Notes Payable Our mortgages and notes payable are summarized as follows:

Mortgages payable are collateralized by properties and generally require monthly principal and/or interest payments. The mortgages mature at various dates from February 2003 through May 2017. Our fixed rate mortgages bore an effective weighted average interest rate of 7.61% at June 30, 2002. The weighted average term of these mortgages is 4.6 years. In June 2001, CarrAmerica closed on a new three-year $500 million unsecured credit facility with J.P. Morgan Chase, as agent for a group of banks. We are an unconditional guarantor of borrowings under this facility. CarrAmerica can extend the life of the facility for one year at its option. The interest rate on the unsecured credit facility is 70 basis points over 30-day LIBOR. 8 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) -------------------------------------------------------------------------------- We have two borrowing agreements with CarrAmerica. The first is a $12.0 million loan that bears interest at 8.5% and requires monthly interest only payments of $85,000. This note matures on March 27, 2007. The second is a $30.0 million loan that bears interest at 8.5% and requires monthly principal and interest payments of $242,000. This note matures on May 31, 2011. The outstanding balance on this note was $27.2 million at June 30, 2002 and $27.5 million at December 31, 2001. Both notes are secured by certain office properties and other assets. Debt maturities at June 30, 2002 were as follows: (In thousands) 2002 $ 5,109 2003 20,534 2004 15,663 2005 12,375 2006 2,099 2007 and thereafter 80,027 -------------- $ 135,807 ============== (3) Gain (Loss) on Sale of Assets and Other Provisions, Net and Discontinued Operations We dispose of assets that are inconsistent with our long-term strategic or return objectives or where market conditions for sale are favorable. During the three months ended June 30, 2002, we disposed of one operating property, recognizing a gain of $3.3 million. This gain has been classified in discontinued operations. We also recognized an impairment loss of $0.1 million on a parcel of land held for development. During the three months ended June 30, 2001, we did not dispose of any operating properties. During the six months ended June 30, 2002, we disposed of one operating property, recognizing a gain of $3.3 million. This gain has been classified in discontinued operations. We recognized impairment losses of $1.0 million on two parcels of land held for development. During the six months ended June 30, 2001, we disposed of one operating property in connection with the sale of a group of properties by CarrAmerica. There was a net gain on this transaction; however, we incurred a loss of $6.6 million on our property. We also recognized an impairment loss of $0.9 million on a parcel of land held for development during the six months ended June 30, 2001. 9 Management's Discussion and Analysis of Financial Condition and Results of Operations -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The discussion that follows is based primarily on our consolidated financial statements as of June 30, 2002 and December 31, 2001 and for the three and six months ended June 30, 2002 and 2001 and should be read along with the consolidated financial statements and related notes. The ability to compare one period to another may be significantly affected by acquisitions completed, development properties placed in service and dispositions made during those periods. Critical Accounting Policies Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management's most difficult, complex or subjective judgments. Our critical accounting policies relate to the evaluation of impairment of long-lived assets and the evaluation of the collectibility of accounts and notes receivable. 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 is not recoverable from future cash flows, the property is written down to estimated fair value and an impairment loss is recognized. If we decide to sell rental properties or land held for development, we evaluate the recoverability of the carrying amounts of the assets. If the evaluation indicates that the carrying value is not recoverable from estimated net sales proceeds, the property is written down to estimated fair value less costs to sell and an impairment loss is recognized within income from continuing operations. Our estimates of cash flows and fair values of the properties are based on current market conditions and consider matters such as rental rates and occupancies for comparable properties, recent sales data for comparable properties and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers. Our estimates are subject to revision as market conditions and our assessments of them change. Our allowance for doubtful accounts receivable is established 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. Our estimate of the required allowance, which is reviewed on a quarterly basis, is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on our tenants, particularly in our largest markets. For example, due to economic conditions and analysis of our accounts receivable, we increased our provision for uncollectible accounts by approximately $1.8 million in 2001 and by an additional $0.5 million in the first half of 2002. RESULTS OF OPERATIONS Operating results are summarized as follows:

10 Management's Discussion and Analysis of Financial Condition and Results of Operations -------------------------------------------------------------------------------- Operating revenues decreased 1.2% ($0.3 million) for the second quarter of 2002 as compared to the same period in 2001. Same store rental revenues decreased by approximately 5.2% (approximately $1.3 million) as overall same store occupancy decreased from 96.4% in 2001 to 90.2% in 2002. For the six months ended June 30, 2002, revenues decreased 0.4% ($0.2 million) as compared to the six months ended June 30, 2001. Same store rental revenues decreased 5.7% as overall same store average occupancy decreased from 96.4% as of June 30, 2001 to 90.7% as of June 30, 2002. These decreases in same store revenue were partially offset by revenue from two operating properties acquired in April 2001. Property operating expenses decreased slightly for the second quarter of 2002 as compared to the same period in 2001. Lower building operating expenses were partially offset by higher real estate taxes. For the six months ended June 30, 2002, property operating expenses decreased 1.8% ($0.3 million) compared to the six months ended June 30, 2001. A lower provision for uncollectible accounts receivable ($1.3 million) was offset by higher real estate taxes ($1.2 million) and the addition of property expenses from two operating properties acquired in April 2001. Same store property operating expenses decreased by approximately 4.7% (approximately $0.7 million). For the second quarter, general and administrative expenses decreased $1.3 million (56.5%) in 2002 as compared to 2001. This decrease resulted primarily from a reduction in allocated costs from CarrAmerica due to the completion of portions of its internal process improvement efforts. For the six months ended June 30, 2002, general and administrative expenses decreased $2.0 million (44.4%) compared to the six months ended June 30, 2001 for the same reason. Depreciation and amortization increased $0.3 million (4.3%) in the second quarter of 2002 compared to the same period in 2001. For the six months ended June 30, 2002, depreciation and amortization increased $1.0 million (7.0%) compared to the six months ended June 30, 2001. These increases were due primarily to the acquisition of two properties in April of 2001. Interest expense decreased $2.5 million (39.7%) in the second quarter of 2002 as compared to the same period in 2001. This decrease was principally the result of the retirement of certain mortgages due to maturities. Interest expense decreased $3.1 million for the six months ended June 30, 2002 compared to the six months ended June 30, 2001. This decrease was principally the result of the repayment of mortgages due to maturities or the disposition of properties in 2001. For the three months ended June 30, 2002 other operating income (loss) decreased $1.7 million as compared to the same period in 2001 due primarily to lower equity in earnings of unconsolidated entities. In June 2001, Carr Office Park, L.L.C., a significant investee, obtained third party financing on its properties which increased its interest expense and reduced its net earnings. For the six months ended June 30, 2002, other operating income (loss) increased $4.8 million from the six months ended June 30, 2001. In 2001, we recognized a loss of $6.6 million on a sale of a property in connection with the sale of a group of properties by CarrAmerica. Discontinued Operations In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we have classified the operating results of a property we sold in the second quarter of 2002 as discontinued operations for all periods presented in the consolidated statements of operations. The operating results of the property decreased $0.2 million for the three and six months ended June 30, 2002 in comparison to the corresponding periods in 2001 due to the sale of the property early in the second quarter of 2002. We recognized a gain of $3.3 million on this sale. 11 Management's Discussion and Analysis of Financial Condition and Results of Operations -------------------------------------------------------------------------------- Consolidated Cash Flows Consolidated cash flow information is summarized as follows:

Operations generated net cash of $14.4 million in 2002 compared to using $5.7 million in 2001. The changes in cash flow from operating activities were primarily the result of factors discussed above in the analysis of operating results and in 2001, payment of accounts payable to affiliates from proceeds of a distribution received from Carr Office Park, L.L.C. The level of net cash provided by operating activities is also affected by the timing of receipt of revenues and payment of expenses. Our investing activities used net cash of $9.4 million in 2002 compared to providing net cash of $21.2 million in 2001. The change in net cash provided by investing activities in 2002 is due primarily to the fact that 2001 included higher proceeds from sales of properties ($2.5 million), a distribution from Carr Office Park, L.L.C. of proceeds from a third party financing of its properties ($47.2 million) and the release of a restricted deposit in connection with a property transaction ($22.1 million). The effects of these changes was partially offset by a reduction in acquisitions and additions to rental property ($37.0 million) and a reduction in investments in unconsolidated entities ($5.2 million). Financing activities used net cash of $6.3 million in 2002 compared to $14.0 million 2001. This decrease is due primarily to a repayment of a $7.4 million mortgage balance in connection with the sale of a property in 2001. Liquidity and Capital Resources Our liquidity and capital resources are dependent upon CarrAmerica and its affiliates. CarrAmerica, as a REIT, is required to distribute at least 90% of its taxable income to its stockholders on an annual basis. We and CarrAmerica require capital to invest in our existing portfolio of operating assets for capital projects. These capital projects can include such things as large-scale renovations, routine capital improvements, deferred maintenance on properties we have recently acquired and tenant related matters, including tenant improvements, allowances and leasing commissions. Therefore, as a general matter, it is unlikely our cash balances would satisfy our liquidity needs. Instead, these needs must be met from cash generated from rental revenue and external sources of capital. We derive substantially all of our revenue from tenants under existing leases at our properties. Our operating cash flow therefore depends materially on the rents that we are able to charge to our tenants, and the ability of these tenants to make their rental payments. We believe that the diversity of our tenant base helps insulate us from the negative impact of tenant defaults and bankruptcies. However, general economic downturns, or economic downturns in one or more of our markets, still may adversely impact the ability of our tenants to make lease payments and our ability to re-lease space on favorable terms as leases expire. In either of these cases, our cash flow and therefore our ability to meet our capital needs would be adversely affected. As a result of the economic climate in 2001, the real estate markets materially softened. Demand for office space declined significantly and vacancy rates increased in most of our markets. During the first half of 2002, our core markets continued to weaken and we expect them to remain weak through the balance of the year. As a result, occupancy in our portfolio of operating properties decreased to 90.9% at June 30, 2002, as compared to 92.2% at December 31, 2001 and 96.9% at June 30, 2001. Market rental rates have declined in most markets from peak levels. 12 Management's Discussion and Analysis of Financial Condition and Results of Operations -------------------------------------------------------------------------------- CarrAmerica is our principal source of liquidity. CarrAmerica's primary external source of liquidity is its credit facility. It has a three-year $500 million unsecured credit facility expiring in June 2004 with J.P. Morgan Chase, as agent for a group of banks. CarrAmerica can extend the life of the line an additional year at its option. The line carries an interest rate of 70 basis points over 30-day LIBOR. The unsecured facility contains financial and other covenants with which CarrAmerica must comply and availability is limited to a specified percentage of the fair value of unmortgaged properties. We unconditionally guarantee this credit facility. As of June 30, 2002, $88.0 million was drawn on the credit facility, $2.3 million in letters of credit were outstanding and $409.7 million was available for borrowing. We will require capital for development projects currently underway and in the future. As of June 30, 2002, we had 195,000 square feet of office space under construction in two projects in which we own minority interests. These projects are expected to cost $32.7 million, of which our total investment is expected to be approximately $9.3 million. Through June 30, 2002, approximately $22.9 million or 70.0% of the total project costs had been expended on these projects. We have funded our investment in projects under construction at June 30, 2002, primarily from the proceeds of asset dispositions and loans from CarrAmerica. We expect that these sources and project-specific financing of selected assets will provide additional funds required to complete the development and to finance the costs of additional projects we may undertake. As a result of market conditions, we believe we will be limiting our development activities in the near future and expect to concentrate our growth efforts on the acquisition of properties. We also regularly incur expenditures in connection with the re-leasing of office space, principally in the form of tenant improvements and leasing commissions. The amounts of these expenditures can vary significantly, depending on negotiations with tenants and the willingness of tenants to pay higher base rents over the life of the leases. We expect to pay for these capital expenditures out of cash from operations or, to the extent necessary, borrowings from CarrAmerica. We believe that these expenditures are recouped in the form of continuing lease payments. Our long-term liquidity requirements consist primarily of funds necessary to pay for the principal amount of our long-term debt as it matures, significant non-recurring capital expenditures that need to be made periodically at our properties, development projects that we undertake and the costs associated with acquisitions of properties. In the future, if, as a result of general economic downturns, our or CarrAmerica's properties do not perform as expected, or we cannot raise the expected funds from the sale of properties and/or if we are unable to obtain capital from other sources, such as CarrAmerica, we may not be able to make required principal and interest payments or make necessary routine capital improvements with respect to our existing portfolio of operating assets. While we believe that we would continue to have sufficient funds to pay our operating expenses and debt service and our regular quarterly distributions, our ability to perform development activity or to fund additional development in our joint ventures could be adversely affected. In addition, if a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the holder of the mortgage or lender could foreclose on the property, resulting in loss of income and asset value. An unsecured lender could also attempt to foreclose on some of our assets in order to receive payment. In many cases, very little of the principal amount that we borrow is repaid prior to the maturity of the loan. We generally expect to refinance that debt when it matures, although in some cases we may pay off the loan. If principal amounts due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow may be insufficient to repay all maturing debt. Prevailing interest rates or other factors at the time of a refinancing (such as possible reluctance of lenders to make commercial real estate loans) may result in higher interest rates and increased interest expense. We have unconditionally guaranteed unsecured notes issued by CarrAmerica to institutional and other investors. The aggregate principal amount of the unsecured notes was $875.0 million as of June 30, 2002. These notes are in the form of $150 million of 7.20% notes due in 2004, $100 million of 6.625% notes due in 2005, $125 million of 7.375% notes due in 2007, $100 million of 6.875% notes due in 2008 and $400 million of 7.125% notes due in 2012. CarrAmerica's senior unsecured notes contain various covenants with which CarrAmerica must comply. The covenants include: 13 Management's Discussion and Analysis of Financial Condition and Results of Operations -------------------------------------------------------------------------------- * Limits on CarrAmerica's total indebtedness on a consolidated basis; * Limits on CarrAmerica's secured indebtedness on a consolidated basis; and * Limits on CarrAmerica's required debt service payments. A default by CarrAmerica on its line of credit could cause us to be required by lenders to make payments under the guarantee of the facility. Although we believe our properties are adequately covered by insurance, we cannot predict at this time if we will be able to obtain full coverage at a reasonable cost in the future. The costs associated with our June 30, 2002 property and casualty insurance renewals were higher than anticipated. Although we have an excellent claims history and safety record, all lines of coverage were affected by higher premiums, in part because insurance companies have experienced a loss of income on their investments, underwriting results have been poor and also as a result of the events of September 11, 2001. Our insurance renewal on June 30, 2002 increased premiums from last year approximately 155%. The property insurance deductible increased from $5,000 to $10,000 per claim. Since reinsurance treaties renew twice each year (January and July), our property and casualty insurance renewal date has been changed from June 30 to May 15 to enable underwriters to concentrate on the insurance proposals well ahead of treaty renewal. Early this year, all risk property insurers began attaching terrorism exclusions to insurance policies. Terrorism insurance must now be purchased separately. Unlike earthquake exposure, insurers do not yet have a means of modeling the terrorism risk. A limited number of companies are currently underwriting terrorism insurance, with limited capacity and at an extremely high cost. We have completed an in-depth asset evaluation of our terrorism exposure as well as our lender requirements. Upon our renewal date for insurance of June 30, 2002, we, in conjunction with CarrAmerica, purchased terrorism limits of $200 million per occurrence and in the aggregate with a deductible of $1.0 million per claim at a cost of approximately $2.2 million. The policy only covers physical damage. Coverage does not include biological, chemical or radioactive contamination. We have investments in real estate joint ventures in which we hold 21.2% to 49.0% interests. These investments are accounted for using the equity method, and therefore, the assets and liabilities of the joint ventures are not included in our financial statements. Most of these joint ventures own and operate office buildings financed by non-recourse debt obligations that are secured only by the real estate and other assets of the joint ventures. We have no obligation to repay this debt and the lenders have no recourse to our other assets. Our investments in these joint ventures are subject to risks not inherent in our majority owned properties, including: * Absence of exclusive control over the development, financing, leasing, management and other aspects of the project; * Possibility that our co-venturer or partner might: * become bankrupt; * have interests or goals that are inconsistent with ours; * take action contrary to our instructions, requests or interests (including those related to CarrAmerica's qualification as a REIT for tax purposes); or * otherwise impede our objectives. 14 Management's Discussion and Analysis of Financial Condition and Results of Operations -------------------------------------------------------------------------------- Building and Lease Information The following table sets forth certain information about each wholly-owned operating property as of June 30, 2002:

(1) Includes office and retail space but excludes storage space. (2) Includes space for leases that have been executed and have commenced as of June 30, 2002. 15 Management's Discussion and Analysis -------------------------------------------------------------------------------- The following table sets outs a schedule of the lease expirations as of June 30, 2002: Approximate Net Percent of Leased Rentable Area Subject Square Footage to Expiring Lease Represented by Year of Lease Expiration (square feet) (1) Expiring Leases ------------------------ --------------------- ------------------ 2002 238,140 5.3% 2003 384,924 8.6% 2004 848,648 18.9% 2005 433,789 9.6% 2006 229,077 5.1% 2007 843,932 18.8% 2008 360,613 8.0% 2009 507,050 11.3% 2010 223,470 5.0% 2011 87,302 1.9% 2012 and thereafter 341,755 7.5% 4,498,700 100.0% (1) Excludes 452,404 square feet of vacant space. FORWARD-LOOKING STATEMENTS Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our and our affiliates, or the industry's actual results, performance, achievements or transactions to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements. Such factors include, among others, the following: * National and local economic, business and real estate conditions that will, among other things affect: * Demand for office properties * The ability of the general economy to recover timely from the current economic downturn * The availability and creditworthiness of tenants * Level of lease rents * The availability of financing for both tenants and us; * Adverse changes in the real estate markets, including, among other things: * Competition with other companies, and * Risks of real estate acquisition and development (including the failure of pending developments to be completed on time and within budget); * Actions, strategies and performance of affiliates that we may not control or companies in which we have made investments; * The ability of CarrAmerica to maintain its status as a REIT for federal income tax purposes; * The ability to obtain insurance at a reasonable cost; * Governmental actions and initiatives; and * Environmental/safety requirements. For further discussion of these and other factors that could impact our or CarrAmerica's future results, performance, achievements or transactions, see the documents that we and CarrAmerica file from time to time with the Securities and Exchange Commission, and in particular, the section titled "The Company - Risk Factors" in CarrAmerica's Annual Report on Form 10-K. 16 Quantitative and Qualitative Disclosure About Market Risk Item 3. Quantitative and Qualitative Disclosures About Market Risk CarrAmerica uses derivative financial instruments from time to time to limit market risk. Interest rate protection agreements may be used to convert floating rate debt to a fixed rate basis, to convert fixed rate debt to a floating rate basis or to hedge anticipated financing transactions. CarrAmerica uses derivative financial instruments only for hedging purposes, and not for speculation or trading purposes. On May 8, 2002, CarrAmerica entered into an interest rate swap, which we guarantee, with JP Morgan Chase and Bank of America, hedging $150.0 million of senior unsecured notes due July 2004. The interest rate swap matures at the same time the notes are due. The swap qualifies as a fair value hedge. Net quarterly settlement payments are recognized as an increase or decrease to CarrAmerica's interest expense. The fair value of the interest rate swap is recognized on CarrAmerica's balance sheet and the carrying value of the senior unsecured notes are increased or decreased by an offsetting amount. As of June 30, 2002, the fair value of the interest rate swap was approximately $1.7 million. CarrAmerica recognized a credit to interest expense for the three months ended June 30, 2002 of approximately $507,000 related to the swap. Any other significant changes in our market risk that have occurred since the filing of our Annual Report on Form 10-K for the year ended December 31, 2001 are summarized in the Liquidity and Capital Resources section of the Management's Discussion and Analysis of Financial Condition and Results of Operations. 17 Part II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None. (b) Reports on Form 8-K None. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CARRAMERICA REALTY, L.P. a Delaware Limited Partnership By: CarrAmerica Realty GP Holdings, Inc., its general partner /s/ Stephen E. Riffee ----------------------------------------------------- Stephen E. Riffee, Chief Financial Officer (on behalf of the registrant and as the registrant's principal financial officer) Date: August 14, 2002

CARRAMERICA REALTY L P 10-Q