UNITED STATES

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 ~~September 30~~March 31, ~~2003~~2006

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

incorporation or organization)

(I.R.S. Employer

Identification Number)

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 ~~September 30~~April 21, ~~2003~~2006: 14,362,972

(# 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 ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. ~~(as~~See ~~defined~~definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). ~~YES ¨ NO x~~


Large accelerated filer ¨		Accelerated filer ¨		Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

Index

		Page
Part I: Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002	4
	Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005	4
	Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002 (unaudited)	5
	Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005 (unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 (unaudited)	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7 ~~- 10~~
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~11 -20~~13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2124
Item 4.	Controls and Procedures	2124
Part II: Other Information
Item 1.	Legal Proceedings	2225
Item 6.	Exhibits and Reports on Form 8-K	22
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6.	Exhibits	28

Part I

Item 1. Financial ~~Information~~Statements

The information furnished in our accompanying consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows reflects all adjustments which are, in our opinion, necessary for a fair presentation of the aforementioned financial statements for the interim periods. presented.

The financial statements should be read in conjunction with the notes to the financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere in this report. The results of operations for the ~~nine~~three months ended ~~September 30~~March 31, ~~2003~~2006 are not necessarily indicative of the operating results to be expected for the full year.

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Consolidated Balance Sheets

As of ~~September 30~~March 31, ~~2003~~2006 and December 31, ~~2002~~2005

	September 30,2003			December 31,2002
	March 31,2006			December 31,2005
(In thousands)	(unaudited)
Assets
Rental property:
Land	$	~~129~~136,~~091~~814		$	~~129~~136,~~091~~814
Buildings		~~589~~547,~~272~~534			~~587~~546,~~114~~838
Tenant improvements		5177,~~124~~862			4475,~~547~~284
Furniture, fixtures, and equipment		~~775~~1,503			~~782~~1,501
		770,262			761,534
		763,713			760,437
Less – accumulated depreciation		(~~125~~147,~~897~~098	)		(~~105~~139,~~370~~818	)
Total rental property		~~644~~616,~~365~~615			~~656~~620,~~164~~619
Land held for development		54,~~819~~161			54,~~660~~168
Cash and cash equivalents		—			1,654
Cash		582			—
Restricted deposits		344			—
Accounts receivable, net		1,780			2,433
Accounts and notes receivable, net		9,008			10,180
Investments in unconsolidated entities		48,790			36,823
Investments in unconsolidated entities		41,398			45,924
Accrued straight-line rents		15,400			14,848
Accrued straight-line rents		16,328			13,816
Tenant leasing costs, net		13,512			14,039
Tenant leasing costs, net		8,384			7,707
Intangible assets, net		12,597			13,018
Prepaid expenses and other assets, net		9,025			9,516
Prepaid expenses and other assets		300			439
	$	~~734~~713,~~671~~737		$	~~750~~706,~~621~~387
Liabilities, Redeemable Partnership Units and Partners’ Capital
Liabilities:
Mortgages and notes payable	$	74,385		$	81,636
Mortgages payable	$	13,747		$	13,823
Notes payable to affiliates		3881,~~479~~695			3881,~~944~~890
Accounts payable and accrued expenses		118,~~213~~326			128,~~095~~908
Due to affiliates		3110,~~849~~741			565,~~423~~480
Rents received in advance and security deposits		67,~~766~~368			6,~~400~~292
Total liabilities		~~162~~121,~~692~~877			~~195~~116,~~498~~393
Mandatorily redeemable partnership units (at redemption value)		3741,~~585~~265			32,~~776~~323
Partners’ capital:
General partner		56,~~866~~111			56,~~679~~088
Limited partners		~~528~~544,~~528~~484			~~516~~551,~~668~~583
Total partners’ capital		~~534~~550,~~394~~595			~~522~~557,~~347~~671
Commitments and contingencies
	$	~~734~~713,~~671~~737		$	~~750~~706,~~621~~387

See accompanying notes to consolidated financial statements.

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Consolidated Statements of Operations

For the Three ~~and Nine~~ Months Ended ~~September 30~~March 31, ~~2003~~2006 and ~~2002~~2005

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	Three months endedMarch 31,
(Unaudited and in thousands)	~~2003~~2006			~~2002~~2005			~~2003~~			~~2002~~
Operating revenues:
Rental revenues:
Rental revenue:
Minimum base rent	$	2219,~~058~~850		$	2015,~~011~~605		$	~~66,785~~		$	~~56,219~~
Recoveries from tenants		3,~~214~~358			32,~~944~~739			~~10,645~~			~~10,942~~
Other tenant charges		905			1,035			2,711			2,165
Parking and other tenant charges		641			1,172
Total rental revenues		26,177			24,990			80,141			69,326
Total rental revenue		23,849			19,516
Other revenue		~~213~~167			~~201~~214			~~718~~			~~646~~
Total operating revenues		2624,~~390~~016			2519,~~191~~730			~~80,859~~			~~69,972~~
Operating expenses:
Property expenses:
Operating expenses		7,~~782~~081			65,~~643~~801			~~22,097~~			~~17,760~~
Real estate taxes		12,~~581~~059			21,~~403~~850			~~6,616~~			~~7,140~~
General and administrative		12,~~142~~486			~~598~~2,461			~~3,426~~			~~3,058~~
Depreciation and amortization		8,~~495~~666			76,~~224~~533			~~24,513~~			~~19,720~~
Total operating expenses		1920,~~000~~292			16,~~868~~645			~~56,652~~			~~47,678~~
Real estate operating income		73,~~390~~724			83,~~323~~085			~~24,207~~			~~22,294~~
Other (expense) income:
Interest expense		(21,~~415~~902	)		(31,~~602~~554	)		~~(7,402~~	)		~~(11,533~~	)
Interest income		~~226~~17			~~208~~7			~~616~~			~~618~~
Equity in earnings of unconsolidated entities		468			635			1,725			2,654
Tax expense		(12	)		—
Total other expense		(1,721	)		(2,759	)		(5,061	)		(8,261	)
Equity in earnings of unconsolidated entities		502			254
Income from continuing operations before loss on sales of assets and other provisions, net		5,669			5,564			19,146			14,033
Net other expense		(1,395	)		(1,293	)
Loss on sales of assets and other provisions, net		(3	)		—			(445	)		(1,009	)
Income from continuing operations		2,329			1,792
Income from continuing operations		5,666			5,564			18,701			13,024
Discontinued operations		—			(2,426	)
Discontinued operations - net operations of sold properties		—			1,017			—			4,376
Net income (loss)	$	2,329		$	(634	)
Discontinued operations - gain on sale of property		—			19,085			—			22,425
Net income (loss) attributable to general partner	$	23		$	(6	)
Net income	$	5,666		$	25,666		$	18,701		$	39,825
Net income (loss) attributable to limited partners	$	2,306		$	(628	)
Net income attributable to general partner	$	57		$	257		$	187		$	398
Net income attributable to limited partners	$	5,609		$	25,409		$	18,514		$	39,427

See accompanying notes to consolidated financial statements.

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the ~~Nine~~Three Months Ended ~~September 30~~March 31, ~~2003~~2006 and ~~2002~~2005

	2003			2002
(Unaudited and in thousands)	2006			2005
(Unaudited and in thousands)
Cash flows from operating activities:
Net income	$	18,701		$	39,825
Net income (loss)	$	2,329		$	(634	)
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization (including discontinued operations)		24,513			23,358
Depreciation and amortization		8,666			8,180
Loss on sale of assets and other provisions, net		445			1,009
Impairment losses on real estate		—			4,000
Gain on sale of discontinued operations		—			(22,425	)
Equity in earnings of unconsolidated entities		(502	)		(254	)
Equity in earnings of unconsolidated entities		(1,725	)		(2,654	)
Provision for uncollectible accounts		151			192
Other		(132	)		(143	)
Operating distributions from unconsolidated entities		200			229
Change in assets and liabilities:
Other		87			95
Decrease in accounts and notes receivable, net		1,172			2,462
Changes in assets and liabilities:
Increase in accrued straight-line rents		(2,512	)		(1,508	)
Decrease (increase) in accounts receivable, net		502			(209	)
Additions to tenant leasing costs		(3,175	)		(2,659	)
Increase in accrued straight-line rents		(552	)		(752	)
Increase in prepaid expenses and other assets		(903	)		(1,123	)
Additions to tenant leasing costs		(281	)		(1,025	)
(Decrease) increase in accounts payable and accrued expenses		(882	)		331
Increase (decrease) in intangible assets and prepaid expenses and other assets		(106	)		84
Increase (decrease) in rent received in advance and security deposits		366			(602	)
Decrease in accounts payable and accrued expenses		(582	)		(5,848	)
Total adjustments		17,167			(3,954	)
Increase in rents received in advance and security deposits		1,076			842
Net cash provided by operating activities		35,868			35,871
Total adjustments		8,659			5,534
Net cash provided by operating activities		10,988			4,900
Cash flows from investing activities:
Acquisitions and additions to rental property		(8,716	)		(104,743	)
Rental property additions		(3,269	)		(1,802	)
Additions to land held for development		(159	)		(239	)
Distributions from unconsolidated entities		1,569			320
Distributions from unconsolidated entities		5,832			2,957
Investments in unconsolidated entities		(13,233	)		(1,296	)
Contributions to unconsolidated entities		—			(109	)
Net cash used in investing activities		(14,933	)		(2,778	)
Increase in restricted deposits		(344	)		(538	)
Proceeds from sale of property		—			129,418
Net cash (used) provided by investing activities		(3,387	)		26,746
Cash flows from financing activities:
Decrease in due to affiliates		(24,574	)		(54,058	)
Increase (decrease) in due to affiliates		5,261			(1,275	)
Distributions on mandatorily redeemable partnership units		(~~1,845~~463	)		(~~1,946~~520	)
Repayments on mortgages and notes payable		(7,716	)		(7,454	)
Repayments on mortgages and notes payable to affiliates		(271	)		(327	)
Net cash used by financing activities		(34,135	)		(63,458	)
Net cash provided by (used in) financing activities		4,527			(2,122	)
Decrease in cash and cash equivalents		(1,654	)		(841	)
Increase in cash and cash equivalents		582			—
Cash and cash equivalents, beginning of the period		~~1,654~~—			~~1,226~~—
Cash and cash equivalents, end of the period	$	—582		$	~~385~~—
Supplemental disclosure of cash flow information:
Supplemental disclosure of cash flow information: Cash paid for interest	$	1,284		$	1,608
Cash paid for interest, net of capitalized interest of $196 for the nine months ended September 30, 2002	$	6,924		$	11,714

See accompanying notes to consolidated financial statements.

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

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 on March 6, 1996 for the purpose of owning, acquiring, developing and operating office buildings across the United States. As of ~~September 30~~March 31, ~~2003~~2006, we owned a controlling interest in a portfolio of 5553 operating office buildings. As of ~~September 30~~ March 31, ~~2003~~2006, we also owned a minority interest in 3130 operating office buildings. The properties are located in Austin, Chicago, Dallas, Denver, Orange County/Los Angeles, ~~Phoenix,~~Northern ~~San Francisco Bay Area~~California, Salt Lake City, San Diego, Seattle and metropolitan Washington, D.C.

~~Our~~We ~~general~~are ~~partner~~managed isindirectly by CarrAmerica Realty GPCorporation ~~Holdings~~(“CarrAmerica”), ~~Inc~~a fully integrated, self-administered and self-managed publicly traded real estate investment trust (“REIT”). On June 30, 2004, CarrAmerica Realty Corporation contributed substantially all of it assets to CarrAmerica Realty Operating Partnership, L.P. (the “~~General~~Operating ~~Partner~~Partnership”), ain ~~wholly~~exchange ~~owned~~for ~~subsidiary~~units of common and preferred partnership interest in the Operating Partnership. The Operating Partnership assumed substantially all of CarrAmerica Realty Corporation’s liabilities. Our general partner is CarrAmerica Realty GP Holdings, LLC (the “~~CarrAmerica~~General Partner”), a ~~self-administered~~wholly ~~and~~owned ~~self-managed~~subsidiary ~~real~~of ~~estate investment trust~~CarrAmerica. ~~Our~~The General Partner owned a 1.0% interest in us at ~~September 30~~March 31, ~~2003~~2006. Our limited partners are CarrAmerica Realty LP Holdings, ~~Inc.~~LLC, a wholly owned subsidiary of CarrAmerica, which owned an approximate 9092.06% interest in us at ~~September 30~~March 31, ~~2003~~2006, and various other individuals and entities, which collectively owned an approximate 96.04% ~~aggregate~~ interest in us at ~~September 30~~ March 31, ~~2003~~2006.

(b)

Basis of Presentation

The financial statements have been prepared using the accounting policies described in our ~~2002~~2005 annual report on Form 10-K. ~~except~~Our ~~that,~~accounts ~~effective~~and ~~January~~those of our controlled subsidiaries and affiliates are consolidated in the financial statements. We consolidate all entities in 1,which ~~2003~~we own a direct or indirect majority voting interest and where the minority holders do not have rights to participate in significant decisions that are made in the ordinary course of business. If applicable, we ~~began~~would ~~using~~consolidate any variable interest entity of which we are the ~~fair~~primary ~~value~~beneficiary. We use the equity method to account for ~~employee~~our ~~stock~~investments ~~compensation~~in ~~awards~~and our share of the earnings or losses of unconsolidated entities. ~~The~~These ~~effect~~entities are not controlled by us. If events or changes in circumstances indicate that the fair value of an investment accounted for using the ~~change~~equity onmethod has declined below its carrying value and we consider the ~~financial~~decline ~~statements~~to ~~was~~be ~~immaterial~~“other than temporary,” the investment is written down to fair value and an impairment loss is recognized.

~~Our~~Management ~~accounts~~has ~~and~~made ~~those~~a number of ~~our~~estimates, ~~controlled~~judgments ~~subsidiaries~~ and ~~affiliates~~assumptions ~~are~~that ~~consolidated~~affect in the ~~financial~~reported ~~statements. We~~amounts ~~consolidate~~of ~~all~~assets, ~~entities~~liabilities, inrevenues ~~which we own a direct or indirect majority voting interest~~ and ~~where~~expenses ~~the minority holders do not have rights to participate~~ in ~~significant decisions that are made in~~ the ~~ordinary~~financial ~~course of business. If applicable~~statements, ~~we would~~and ~~consolidate~~the ~~any~~disclosure ~~variable interest entity~~ of ~~which~~contingent weassets ~~were~~and ~~the primary beneficiary~~liabilities. WeEstimates ~~use~~are ~~the~~required ~~equity~~in ~~method~~order ~~to account~~ for ~~our~~us ~~investments~~to inprepare ~~and~~ our ~~share~~financial ofstatements ~~the~~in ~~earnings~~conformity orwith ~~losses of unconsolidated entities~~U.S. ~~These~~generally ~~entities are not controlled~~accepted byaccounting usprinciples. IfSignificant ~~events~~estimates orare ~~changes~~required in ~~circumstances~~a ~~indicate~~number ~~that the fair value~~ of anareas, ~~investment~~including ~~accounted for using~~ the ~~equity~~depreciable ~~method~~lives ~~has~~of ~~declined~~assets, ~~below~~evaluating ~~its~~the ~~carrying~~impairment ~~value~~of ~~and~~long-lived weassets, ~~consider~~allocating the ~~decline~~purchase tocost beof ~~“other~~acquired ~~than~~properties ~~temporary,”~~and ~~the~~evaluating ~~investment~~the iscollectibility ~~written~~of ~~down~~accounts toreceivable. ~~fair~~Actual ~~value~~results ~~and~~may andiffer ~~impairment~~from ~~loss~~these ~~is recognized~~estimates.

WeIn ~~operate~~accordance aswith aits ~~unit~~established of practices, CarrAmerica. Weallocates ~~utilize~~certain ~~CarrAmerica’s employees and administrative services. Certain~~ general and administrative ~~costs~~expenses ~~are allocated~~ to usits ~~based~~subsidiaries, ~~upon~~including ~~specific~~us. ~~identification~~CarrAmerica ofallocates ~~individual~~certain ~~costs or estimated levels of effort by its~~ general ~~and~~expenses ~~administrative~~to ~~departments~~subsidiaries ~~and~~based ~~otherwise~~on ~~through~~their ~~allocations~~respective ~~based~~share ~~upon~~of ~~our relative~~ total assets. InExpenses ~~the~~allocated ~~opinion~~to ofus ~~management,~~by CarrAmerica during the ~~methods~~three months ended for ~~allocating~~both ~~general~~March 31, 2006 and ~~administrative~~2005 ~~costs~~totaled toapproximately us$1.7 ~~are reasonable~~million.

~~Management~~(c) ~~has~~Revenue 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 method investments and evaluation of the collectibility of accounts receivable. Actual results could differ from these estimates. Recognition

We commence revenue recognition on our leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, this occurs on the lease commencement date. In determining what constitutes the leased asset, we evaluate whether we or the lessee are the owner, for accounting purposes, of the

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

tenant improvements. If we are the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete. If we conclude we are not the owner, for accounting purposes, of the tenant improvements (cthe lessee is the owner), ~~Interim~~then ~~Financial~~any ~~Statements~~tenant improvement allowances funded under the lease are treated as lease incentives and the leased asset is the unimproved space. In these circumstances, we begin revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct improvements. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. We consider a number of different factors to evaluate whether we or the lessee is the owner of the tenant improvements for accounting purposes. These criteria include:

•

whether the lease stipulates how and on what a tenant improvement allowance may be spent;

•

whether the tenant or landlord retain legal title to the improvements;

•

the uniqueness of the improvements;

•

the expected economic life of the tenant improvements relative to the length of the lease; and

•

who constructs or directs the construction of the improvements.

The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment. In making that determination we consider all of the above factors, however, no one factor is determinative in reaching a conclusion.

If a lease provides for rent based on the resolution of contingencies, such as meeting a level of sales by the tenant, we defer rent associated with rental contingencies until the resolution of the contingency.

(d)

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.

(d2) ~~New~~Proposed ~~Accounting~~Merger ~~Pronouncements~~with an Affiliate of The Blackstone Group

InOn ~~November~~March 5, ~~2002~~2006, ~~the~~we ~~Financial~~and ~~Accounting~~certain ~~Standards~~other ~~Board~~parties, ~~(FASB)~~including ~~issued~~CarrAmerica, ~~Interpretation~~Operating ~~No.~~Partnership 45and Carr Realty Holdings, L.P., a Delaware limited liability partnership (“~~Guarantor’s~~CRH”) ~~Accounting~~entered into an Agreement and ~~Disclosure~~Plan of Merger (the ~~Requirements~~“Merger ~~for~~Agreement”) ~~Guarantees~~with Nantucket Parent LLC, ~~Including~~a ~~Indirect~~Delaware ~~Guarantees~~limited ofliability ~~Indebtedness~~company (“Parent”), Nantucket Acquisition Inc., a Maryland corporation and wholly owned subsidiary of ~~Others~~the Parent (“MergerCo”), Nantucket CRH Acquisition L.P., a Delaware limited liability partnership whose general partner is MergerCo (“NCRH Merger Partnership”) ~~The~~and ~~Interpretation~~Nantucket ~~requires~~CAR ~~recognition~~Acquisition ofL.P., ~~liabilities~~a atDelaware ~~their~~limited ~~fair~~partnership ~~value~~whose ~~for~~general ~~newly~~partner ~~issued~~is ~~guarantees~~MergerCo (“NCAR Merger Partnership”). ~~The~~Parent, ~~adoption~~MergerCo, NCRH Merger Partnership and NCAR Merger Partnership (collectively, the “Buyer Parties”) are affiliates of ~~Interpretation~~The NoBlackstone Group (“Blackstone”). 45The onMerger ~~January~~Agreement ~~1, 2003~~and ~~did~~the ~~not~~transactions contemplated ~~have~~thereby awere ~~material~~approved ~~effect~~unanimously onby ~~our~~CarrAmerica’s ~~financial~~Board ~~statements~~of Directors.

InPursuant ~~December~~to ~~2002,~~ the ~~FASB~~Merger ~~issued~~Agreement, ~~SFAS~~concurrently ~~No. 148~~at closing, ~~“Accounting~~(1) NCRH ~~for~~Merger ~~Stock-Based~~Partnership ~~Compensation~~will -be ~~Transition~~merged with and ~~Disclosure.”~~into ~~SFAS~~CRH ~~No.~~with ~~148~~CRH ~~provides~~continuing ~~alternative~~as ~~methods of transition for a voluntary change to~~ the ~~fair~~surviving ~~value~~limited ~~based~~partnership, ~~method of~~and ~~accounting~~(2) NCAR ~~for~~Merger ~~stock-based~~Partnership ~~compensation~~will ~~and~~be ~~requires~~merged ~~disclosure~~with ~~in both annual~~ and ~~interim~~into ~~financial~~us ~~statements~~with ~~about~~us ~~the~~continuing ~~method~~as ~~of accounting for stock-based compensation and~~ the ~~effect~~surviving ~~of the method used on reported results. Effective January~~limited 1,partnership ~~2003~~(collectively, ~~we adopted~~ the ~~fair~~“Partnership ~~value based method of accounting for stock-based compensation costs~~Mergers”). WeImmediately ~~elected~~after ~~to use~~ the ~~prospective~~effective ~~method~~time of ~~transition~~the tolater of the ~~fair~~Partnership ~~value~~Mergers, ~~method~~CarrAmerica ~~provided~~will inbe ~~SFAS~~merged ~~No.~~with ~~148~~ and, ~~accordingly,~~into ~~the~~MergerCo ~~method~~with isMergerCo ~~being~~continuing ~~applied for~~as ~~all~~the ~~employee~~surviving ~~stock~~corporation (the ~~compensation~~“Company ~~awards granted~~Merger,” ~~modified~~and ortogether ~~settled~~with onthe orPartnership ~~after January 1~~Mergers, ~~2003. The effect of~~ the ~~change on our financial statements is immaterial~~“Mergers”).

In ~~January~~connection ~~2003,~~with the ~~FASB issued Interpretation No. 46~~Partnership Mergers, ~~“Consolidation~~each unit of ~~Variable~~limited ~~Interest~~partnership ~~Entities.”~~interest ~~This Interpretation~~in ~~addresses~~CRH ~~the~~and ~~consolidation~~us, ofrespectively, ~~variable~~issued ~~interest~~and ~~entities~~outstanding ~~(“VIEs”)~~immediately inprior ~~which~~to the ~~equity~~effective ~~investors~~time ~~lack one or more~~ of the ~~essential~~applicable ~~characteristics~~Partnership ofMerger aand ~~controlling~~not ~~financial~~owned ~~interest~~by CarrAmerica or ~~where~~any ~~the~~of ~~equity~~its ~~investment~~subsidiaries atwill ~~risk is~~be ~~not~~converted ~~sufficient~~automatically ~~for~~into the ~~entity~~right to ~~finance~~receive ~~its~~$44.75 ~~activities~~in cash, without ~~subordinated~~interest ~~financial~~and ~~support~~less ~~from~~any ~~other~~applicable ~~parties.~~withholding ~~The~~taxes; ~~Interpretation~~provided, ~~initially~~however, ~~applied~~in tolieu ~~VIEs~~of ~~created~~the ~~after~~cash ~~January 31~~consideration, ~~2003~~each ~~and~~holder toof ~~VIEs~~such inunits ~~which~~that weis ~~acquire~~ an ~~interest~~“accredited ~~after that~~investor,” ~~date.~~as ~~Effective~~defined ~~July~~under 1,the ~~2003,~~U.S. itsecurities ~~also~~laws, ~~applied~~will tobe ~~VIEs~~offered inthe ~~which~~opportunity weto ~~acquired~~elect anto ~~interest~~convert ~~before~~all, ~~February~~but 1,not ~~2003.~~less ~~The~~than ~~adoption~~all, of ~~Interpretation~~such ~~No.~~holder’s 46units infor ~~2003~~newly ~~had~~issued no6% ~~effect~~Class A onpreferred ~~our~~unit ~~financial~~in ~~statements~~the asapplicable wesurviving ~~concluded~~partnership ~~that~~on ~~we are not required to~~a ~~consolidate any of our unconsolidated real estate ventures that we have accounted~~ one-for-one ~~using the equity method~~basis.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Adoption of SFAS No. 150 did not affect our financial statements.

(e) Reclassifications

Certain reclassifications of prior period amounts have been made to conform to the current period’s presentation.

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In connection with the Company Merger, (1) each share of CarrAmerica’s common stock issued and outstanding immediately prior to the effective time of the Company Merger (other than shares owned by CarrAmerica or its subsidiaries or MergerCo) will be converted automatically into the right to receive $44.75 in cash, without interest and less any applicable withholding taxes, and (2) each ~~Mortgages~~share of CarrAmerica’s 7.5% Series E cumulative redeemable preferred stock issued and ~~Notes~~outstanding ~~Payable~~immediately prior to the effective time of the Company Merger will be converted automatically into the right to receive one share of 7.5% Series E cumulative redeemable preferred stock of the surviving corporation of the Company Merger on substantially the same terms as CarrAmerica’s Series E preferred stock. As promptly as practicable following the Company Merger, the surviving corporation in the Company Merger will liquidate into Parent. In connection therewith, holders of its Series E preferred stock will be paid an amount equal to $25.00 per share plus any accrued and unpaid dividends in accordance with the terms of such preferred stock.

Each outstanding option to purchase CarrAmerica’s common stock under any employee stock option or incentive plan will be cancelled in exchange for the right to receive, for each share of common stock issuable upon exercise of such option, cash in the amount of the difference between $44.75 and the exercise price per share of any such option.

CarrAmerica, Operating Partnership and the Buyer Parties have made customary representations, warranties and covenants in the Merger Agreement, including, among others, its covenant not to, nor to permit the Operating Partnership or any other subsidiary of CarrAmerica to, solicit alternative transactions or, subject to certain exceptions, participate in discussions relating to an alternative transaction or furnish non-public information pursuant to an alternative transaction. CarrAmerica will also be permitted to pay its regular quarterly dividend payable with respect to the first quarter of 2006, up to a maximum of $0.50 per share, which is the amount CarrAmerica currently expects to pay, but thereafter will not be permitted to pay dividends to holders of common stock.

The consummation of the Mergers is subject to customary closing conditions including, among other things, (1) the approval of the Company Merger by the affirmative vote of holders of at least two-thirds of CarrAmerica’s outstanding common stock, (2) the pay off and termination of CarrAmerica’s credit facility, and (3) the success of the consent solicitations for outstanding senior notes (unless called for redemption and paid for or satisfied and discharged). The closing of the Mergers is not subject to a financing condition.

Pending completion of the merger, CarrAmerica has agreed to carry on business in the usual, regular and ordinary course consistent with past practice. Under the Merger Agreement, CarrAmerica has agreed to various covenants regarding the conduct of its business and other general matters. These covenants include, among other things, limitations on its ability to purchase, acquire, sell, encumber, transfer or dispose of its assets, enter into or amend any material contract and, subject to a list of enumerated exceptions in the Merger Agreement, incur or repay indebtedness, issue or repurchase equity, make capital contributions to joint ventures or encumber company properties.

(3)

Mortgages and Notes Payable

Our mortgages and notes payable are summarized as follows:

(In thousands)	~~September~~March 3031,~~2003~~2006		December 31,~~2002~~2005
Fixed rate mortgages	$	7413,~~385~~747	$	8113,~~636~~823
Fixed rate notes payable to affiliate		3854,~~479~~695		3854,~~944~~890
	$	112,864	$	120,580
Variable rate note payable to affiliate		27,000		27,000
	$	95,442	$	95,713

Mortgages payable are collateralized by properties and generally require monthly principal and/or interest payments. ~~Mortgages~~The ~~payable~~weighted-average ~~mature~~maturity atof ~~various~~fixed ~~dates~~mortgage ~~from~~payable ~~December~~outstanding ~~2004~~at ~~through~~March 31, ~~May~~2006 ~~2017~~was 3.20 years. The weighted average interest rate of fixed rate ~~mortgages~~mortgage and notes payable was 7.9043% at ~~September~~March 31, 302006 and 7.44% at December 31, ~~2003~~2005. The weighted average interest rate of our fixed rate ~~mortgages~~mortgage, excluding the notes payable to affiliate, was 7.6013% as of ~~September~~March 31, 302006 and December 31, ~~2003~~2005.

We9 have two loans with CarrAmerica. The first is a $30.0 million loan (balance at September 30, 2003 of $26.5 million) that bears interest at 8.5% and requires monthly principal and interest payments of $242,000 and matures on May 31, 2011. The second is a $12.0 million loan that bears interest at 8.5% and requires monthly interest only payments of $85,000 and matures on March 27, 2007.

DebtTable maturitiesof at September 30, 2003 were as follows: Contents

(In thousands)
2003	$	2,698
2004		15,657
2005		12,367
2006		12,632
2007		13,888
2008 and thereafter		55,622
	$	112,864

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

WeNotes ~~have unconditionally guaranteed unsecured notes issued by CarrAmerica~~ to ~~institutional~~Consolidated ~~and~~Financial ~~other~~Statements investors. The aggregate principal amount of the unsecured notes was $1.1 billion as of September 30, 2003. These notes are in the form of $150.0 million of 7.20% notes due in 2004, $100.0 million of 6.625% notes due in 2005, $125.0 million of 7.375% notes due in 2007, $50.0 million of 5.261% notes due in 2007, $175.0 million of 5.250% notes due in 2007, $100.0 million of 6.875% notes due in 2008, and $400.0 million of 7.125% notes due in 2012. CarrAmerica’s senior unsecured notes contain various covenants with which CarrAmerica must comply. The covenants include:

(Unaudited)

We have four loans with CarrAmerica. The first is a $30.0 million loan (balance at March 31, 2006 of $24.7 million) that bears interest at 8.5%, requires monthly principal and interest payments of $242,000 and matures on May 31, 2011. The second is a $12.0 million loan that bears interest at 8.5% and requires monthly interest only payments of $85,000 and matures on March 27, 2007. The third is a $27.0 million loan that requires monthly interest only payments equal to 100 basis points over 30-day LIBOR (5.85% as of March 31, 2006) and matures on December 31, 2017. The fourth is an $18.0 million loan that bears interest at 5.5% and requires monthly interest only payments of $82,500 and matures on November 30, 2015. Total interest paid to CarrAmerica under these loans was $1.4 million and $1.0 million in the first quarter of 2006 and 2005, respectively.

Debt maturities at March 31, 2006 were as follows:


(In thousands)

2006	$	849
2007		13,214
2008		1,316
2009		13,858
2010		1,132
2011 and thereafter		65,073

	$	95,442

On June 30, 2004, CarrAmerica entered into a $500.0 million, three-year unsecured revolving credit facility with JPMorgan Chase Bank as administrative agent for a syndicate of banks. We are an unconditional guarantor of borrowings under this facility. The facility replaced and was used to repay all amounts outstanding under CarrAmerica’s previous senior unsecured credit facility. CarrAmerica may increase the facility to $700.0 million by request at any time within 24 months of the closing, provided the funding commitments are increased accordingly. The facility can be extended one year at CarrAmerica’s option. The facility carries an interest rate of 65 basis points over 30-day LIBOR, or 5.50%, as of March 31, 2006. As of March 31, 2006, $164.0 million was drawn on the credit facility, $14.2 million in letters of credit were outstanding, and CarrAmerica had $321.8 million available for borrowing.

CarrAmerica’s unsecured credit facility contains financial and other covenants with which it must comply. Some of these covenants include:

•

A minimum ratio of annual EBITDA (earnings before interest, taxes, depreciation and amortization) to interest expense of at least 2 to 1;

•

A minimum ratio of annual EBITDA to fixed charges of at least 1.5 to 1;

•

A maximum ratio of aggregate unsecured debt to tangible fair market value of CarrAmerica’s unencumbered assets of 60%;

•

A maximum ratio of total secured debt to tangible fair market value of 30%;

•

A maximum ratio of total debt to tangible fair market value of CarrAmerica’s assets of 60%; and

•

Restrictions on CarrAmerica’s ability to make dividend distributions in excess of 90% of funds from operations or the minimum amount necessary to enable CarrAmerica to maintain its status as a REIT.

As of March 31, 2006, CarrAmerica is in compliance with all of its debt covenants related to its unsecured line of credit; however, CarrAmerica’s ability to draw on its unsecured facility or incur other significant debt in the future could be restricted by the covenants. During 2006, CarrAmerica may approach the limit of its unencumbered leverage ratio which restricts unsecured debt outstanding to no more than 60% of unencumbered assets. As of March 31, 2006, CarrAmerica’s unencumbered leverage ratio was 57.8%. CarrAmerica’s unencumbered leverage ratio is most significantly impacted by the performance of its operating properties and net borrowings required to fund capital expenditures and pay its dividend as a result of insufficient operating cash flow. Incurring additional unsecured debt to acquire additional unencumbered assets does not impact CarrAmerica’s unencumbered leverage ratio as significantly as incurring additional debt for other purposes. The tangible fair market value of CarrAmerica’s unencumbered properties is calculated by applying capitalization rates stipulated in its line of credit

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

of 8.5% - 9.0% to current operating income. Therefore, CarrAmerica’s unencumbered leverage ratio could increase if the operating income of its unencumbered properties decreases. Additionally, the ratio will increase as CarrAmerica acquires properties which have operating income which is lower than 8.5%—9.0% of the amount invested. If CarrAmerica’s unencumbered leverage ratio increases and surpasses 60%, it could impact its business and operations, including CarrAmerica’s ability to incur additional unsecured debt, draw on its unsecured line of credit, which is its primary source of short term liquidity, acquire leveraged properties or invest in properties through joint ventures. CarrAmerica expects to terminate and repay its credit facility at the time of the consummation of the proposed merger discussed in Note 2.

We have unconditionally guaranteed certain unsecured notes issued by CarrAmerica to institutional and other investors. The aggregate principal amount of these unsecured notes was $1.525 billion as of March 31, 2006 and 2005. These notes are in the following form:


	Note Principal
(In thousands)	March 31, 2006		December 31, 2005
7.375% notes due in 2007		125,000		125,000
5.261% notes due in 2007		50,000		50,000
5.250% notes due in 2007		175,000		175,000
6.875% notes due in 2008		100,000		100,000
3.625% notes due in 2009		225,000		225,000
5.500% notes due in 2010		250,000		250,000
5.125% notes due in 2011		200,000		200,000
7.125% notes due in 2012		400,000		400,000

	$	1,525,000	$	1,525,000

The unsecured notes also contain covenants with which CarrAmerica must comply. These covenants include:

•

Limits on total indebtedness on a consolidated basis;

•

Limits on secured indebtedness on a consolidated basis;

•

Limits on required debt service payments; and

• Compliance with the financial covenants of ~~its~~the credit facility.

~~As of September 30, 2003,~~ CarrAmerica was in compliance with its ~~loan~~senior unsecured notes covenants as of March 31, 2006.

9Under the Merger Agreement referred to in note 2, CarrAmerica and Operating Partnership have agreed to use commercially reasonable efforts to commence offers to purchase and related consent solicitations relating to all of the aggregate principal amount of the senior unsecured notes that Operating Partnership has outstanding, on the terms and subject to the conditions set forth in the related tender offer documentation that will be distributed to the holders of such notes. In connection with the offers to purchase the senior unsecured notes, Operating Partnership will seek the consents of the holders of the senior unsecured notes to amend the indentures governing the senior unsecured notes to eliminate substantially all of the restrictive covenants contained in such senior unsecured notes and the indentures, eliminate certain events of default, modify covenants regarding mergers, and modify or eliminate certain other provisions contained in the indentures and the senior unsecured notes. Assuming the requisite consents are received from the holders of the senior unsecured notes to amend the indentures and the senior unsecured notes, the amendments will become operative concurrently with the Company Merger effective time, so long as all validly tendered notes are accepted for purchase pursuant to the offers to purchase upon the completion of the Mergers, whereupon the amendments will apply to all such senior unsecured notes remaining outstanding following completion of the applicable offers to purchase. The proposed terms of the amended senior unsecured notes and indentures will be described in the tender offer documents. Assuming that all of the conditions to the tender offers and consent solicitations are satisfied or waived, concurrently with the Company Merger effective time, senior unsecured notes validly tendered in the tender offers will be accepted for payment. In the event the requisite consents have not been validly delivered (without having been properly withdrawn) with respect to any series of senior unsecured notes, CarrAmerica and Operating Partnership may issue an irrevocable notice of optional redemption for all of the then outstanding senior unsecured notes of such series in accordance with the terms of the applicable indenture governing such series, which would provide for the satisfaction and discharge of such senior unsecured notes and such indenture.

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(34) Gain on Sale of ~~Assets and Other Provisions~~Properties, Net and Discontinued Operations

We dispose of assets from time to time that are inconsistent with our long-term strategic or return objectives. ~~During~~We ~~the three and nine months ended September 30, 2003, we~~ did not dispose of any ~~operating~~assets ~~properties,~~during ~~although we reduced a previously recognized gain $0.4 million for additional costs related to a sold property. During~~ the three months ended ~~September 30~~March 31, ~~2002,~~2006 weor ~~disposed of one operating property (Commons at Las Colinas)~~March 31, ~~recognizing a gain of $19~~2005.1 ~~million.~~However, ~~For~~during the twelve ~~nine~~ months ended ~~September 30~~December 31, ~~2002~~2005, we disposed of ~~two~~our ~~operating~~Phoenix ~~properties~~portfolio, ~~(Wasatch~~2600 17West ~~and~~Olive, ~~Commons~~Two ~~at Las Colinas)~~Mission, ~~recognizing a~~and ~~gain~~the ofQuorum ~~$22.4~~properties ~~million.~~in ~~These~~Dallas, ~~gains~~Texas ~~have~~which ~~been~~are classified as discontinued operations as we have no continuing involvement with the properties. Weafter ~~also~~the ~~recognized impairment losses of $1~~sales.0 ~~million on two parcels of land held for development. These losses have been classified as loss on sale of assets and other provisions, net.~~

~~Operating~~The operating results of ~~the~~ properties classified as discontinued operations are summarized as follows:

(In thousands)	~~Three~~For ~~Months~~the ~~Ended~~three ~~September~~months 30ended March 31, ~~2002~~2005			~~Nine Months Ended September 30, 2002~~
Revenues	$	14,~~617~~773		$	~~8,269~~
Property operating expenses		(49	)		255
Property expenses		1,280
Depreciation and amortization		~~649~~1,647			~~3,638~~
Net operations of sold properties	$	1,017		$	4,376
Net operations of properties sold or held for sale		1,846
Interest expense (including debt prepayment penalty of $1,196 in 2005)		(272	)
Impairment loss		(4,000	)
Gain on sale of properties		—
Discontinued Operations	$	(2,426	)

1012

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Management’s Discussion and Analysis

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~The~~Introduction discussion that follows is based primarily on our consolidated financial statements as of September 30, 2003 and December 31, 2002 and for the three and nine months ended September 30, 2003 and 2002 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.

~~During~~The ~~2002,~~discussion wethat ~~acquired~~follows ~~three~~is ~~operating~~based ~~properties~~primarily ~~totaling~~on ~~approximately 666,000 rentable square feet for approximately $160.5 million including assumed debt. Our building purchases in 2002 were acquired from~~our ~~unrelated~~consolidated ~~third~~financial ~~parties.~~statements ~~Canal~~as ~~Center~~of ~~was~~March 31, ~~purchased~~2006, December 31, in2005 ~~August~~and ~~2002~~for ~~from~~the ~~Canal~~three ~~Center~~months ~~Properties~~ended ~~LLC~~March 31, ~~TransPotomac~~2006 Vand ~~Plaza~~2005 ~~was~~and ~~purchased~~should inbe ~~August~~read ~~2002~~along ~~from~~with ~~TransPotomac~~the Vconsolidated ~~LLC~~financial statements and ~~11119~~related ~~Torrey~~notes ~~Pines~~appearing elsewhere ~~Road was purchased~~ in ~~May~~this ~~2002 from USAA Real Estate Company~~report. The ~~purchases~~ability ~~were~~to ~~funded~~compare ~~from~~one ~~the~~period ~~sale of other properties and through assumed debt. Canal Center and TransPotomac V Plaza were acquired subject~~ to ~~$63.5~~another ~~million~~may ofbe ~~3.06%~~significantly ~~debt~~affected ~~held~~ by ~~Morgan~~acquisitions ~~Stanley~~completed, ~~Dean~~development ~~Witter.~~properties Weplaced ~~repaid~~in ~~this~~service ~~debt in~~and ~~full~~dispositions inmade ~~December~~during ~~2002~~those periods.

~~During~~Proposed ~~2002,~~Merger wewith ~~sold~~an ~~two~~Affiliate ~~operating properties~~of ~~totaling~~The ~~approximately~~Blackstone ~~676,000~~Group rentable square feet for approximately $130.4 million to unrelated third parties. Of these, we sold our Commons at Las Colinas property in August 2002 for $119.6 million to Wells Operating Partnership, L.P.

On March 5, 2006, we and certain other parties, including CarrAmerica, Operating Partnership and Carr Realty Holdings, L.P., a Delaware limited liability partnership (“CRH”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Nantucket Parent LLC, a Delaware limited liability company (“Parent”), Nantucket Acquisition Inc., a Maryland corporation and wholly owned subsidiary of the Parent (“MergerCo”), Nantucket CRH Acquisition L.P., a Delaware limited liability partnership whose general partner is MergerCo (“NCRH Merger Partnership”) and Nantucket CAR Acquisition L.P., a Delaware limited partnership whose general partner is MergerCo (“NCAR Merger Partnership”). Parent, MergerCo, NCRH Merger Partnership and NCAR Merger Partnership (collectively, the “Buyer Parties”) are affiliates of The Blackstone Group (“Blackstone”). The Merger Agreement and the transactions contemplated thereby were approved unanimously by CarrAmerica’s Board of Directors.

Pursuant to the Merger Agreement, concurrently at closing, (1) NCRH Merger Partnership will be merged with and into CRH with CRH continuing as the surviving limited partnership, and (2) NCAR Merger Partnership will be merged with and into us with us continuing as the surviving limited partnership (collectively, the “Partnership Mergers”). Immediately after the effective time of the later of the Partnership Mergers, CarrAmerica will be merged with and into MergerCo with MergerCo continuing as the surviving corporation (the “Company Merger,” and together with the Partnership Mergers, the “Mergers”).

In connection with the Partnership Mergers, each unit of limited partnership interest in CRH and us, respectively, issued and outstanding immediately prior to the effective time of the applicable Partnership Merger and not owned by CarrAmerica or any of its subsidiaries will be converted automatically into the right to receive $44.75 in cash, without interest and less any applicable withholding taxes; provided, however, in lieu of the cash consideration, each holder of such units that is an “accredited investor,” as defined under the U.S. securities laws will be offered the opportunity to elect to convert all, but not less than all, of such holder’s units for newly issued 6% Class A preferred unit in the applicable surviving partnership on a one-for-one basis.

In connection with the Company Merger, (1) each share of CarrAmerica’s common stock issued and outstanding immediately prior to the effective time of the Company Merger (other than shares owned by CarrAmerica’s or its subsidiaries or MergerCo) will be converted automatically into the right to receive $44.75 in cash, without interest and less any applicable withholding taxes, and (2) each share of CarrAmerica’s 7.5% Series E cumulative redeemable preferred stock issued and outstanding immediately prior to the effective time of the Company Merger will be converted automatically into the right to receive one share of 7.5% Series E cumulative redeemable preferred stock of the surviving corporation of the Company Merger on substantially the same terms as CarrAmerica’s Series E preferred stock. As promptly as practicable following the Company Merger, the surviving corporation in the Company Merger will liquidate into Parent. In connection therewith, holders of its Series E preferred stock will be paid an amount equal to $25.00 per share plus any accrued and unpaid dividends in accordance with the terms of such preferred stock.

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Management’s Discussion and Analysis

to a maximum of $0.50 per share, which is the amount CarrAmerica currently expects to pay, but thereafter will not be permitted to pay dividends to holders of common stock.

Pending completion of the Company Merger, CarrAmerica has agreed to carry on business in the usual, regular and ordinary course consistent with past practice. Under the Merger Agreement, CarrAmerica has agreed to various covenants regarding the conduct of its business and other general matters. These covenants include, among other things, limitations on its ability to purchase, acquire, sell, encumber, transfer or dispose of its assets, enter into or amend any material contract and, subject to a list of enumerated exceptions in the Merger Agreement, incur or repay indebtedness, issue or repurchase equity, make capital contributions to joint ventures or encumber company properties.

Real Estate Operations

After several years of adverse conditions in the commercial office real estate markets, vacancy rates peaked in the majority of our markets in 2003 and then began to improve. At the end of 2005, vacancy rates in all of our markets are declining due to continuing positive net absorption. As a result of improved office job growth, we believe leasing activity is up significantly, and we believe that market rental rates have stabilized in all of our markets and have improved in many of our markets including Washington, D.C. and Southern California. We anticipate rental economics will improve in most of our markets for the discernable future.

Due to the improving market conditions described above, occupancy in our portfolio of operating properties increased to 92.7% at March 31, 2006 compared to 91.4% at December 31, 2005 and 89.0% at March 31, 2005. If demand continues to improve in the balance of 2006, we expect that our overall portfolio average occupancy may improve further.

We are currently marketing or anticipate marketing several properties for sale. There can be no assurance any of these sales will be consummated.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates 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 and estimates relate to revenue recognition, estimating the depreciable lives of assets, evaluating the impairment of long-lived assets and investments, allocating the purchase cost of acquired properties, and evaluating the collectibility of accounts receivable.

IfWe ~~events~~commence orrevenue ~~changes~~recognition inon ~~circumstances~~our ~~indicate~~leases ~~that~~based ~~the~~on ~~carrying~~a ~~value~~number of afactors. ~~rental~~In most ~~property~~cases, torevenue berecognition ~~held~~under ~~and~~a ~~used~~lease orbegins ~~land~~when ~~held~~the ~~for~~lessee ~~development~~takes ~~may~~possession ~~be impaired,~~of weor ~~perform~~controls athe ~~recoverability~~physical ~~analysis~~use ~~based~~of onthe ~~estimated~~leased ~~undiscounted~~asset. ~~cash~~Generally, ~~flows~~this tooccurs beon ~~generated from~~ the ~~property~~lease incommencement ~~the future~~date. IfIn ~~the~~determining ~~analysis~~what ~~indicates~~constitutes ~~that~~ the ~~carrying~~leased ~~value~~asset, iswe evaluate ~~not~~whether ~~recoverable~~we ~~from~~or ~~future~~the ~~cash~~lessee ~~flows,~~is the ~~property~~owner, ~~and related~~for ~~assets~~accounting purposes, ~~such~~of asthe tenant improvements. ~~and~~If ~~lease~~we ~~commissions~~are the owner, ~~are~~for ~~written~~accounting ~~down~~purposes, toof ~~estimated~~the ~~fair~~tenant ~~value~~improvements, ~~and~~then anthe ~~impairment~~leased ~~loss~~asset is ~~recognized.~~the Iffinished wespace ~~decide~~and torevenue ~~sell~~recognition ~~rental~~begins when ~~properties~~the orlessee ~~land~~takes ~~holdings,~~possession weof ~~evaluate~~ the ~~recoverability~~finished ofspace, typically when the ~~carrying amounts~~improvements ofare ~~the~~substantially ~~assets~~complete. If ~~the~~we ~~evaluation~~conclude ~~indicates~~we ~~that~~are not the ~~carrying~~owner, ~~value~~for isaccounting ~~not~~purposes, ~~recoverable~~of ~~from~~the ~~estimated~~tenant ~~net~~improvements ~~sales~~(the ~~proceeds~~lessee is the owner), then the ~~property~~leased asset is ~~written~~the ~~down~~unimproved tospace ~~estimated~~and ~~fair~~any ~~value~~tenant ~~less~~improvement ~~costs~~allowances tofunded ~~sell~~under ~~and~~the anlease ~~impairment~~are ~~loss~~treated isas ~~recognized.~~lease ~~Our estimates~~incentives ofwhich ~~cash~~reduces ~~flows~~revenue ~~and~~recognized ~~fair~~over ~~values~~the term of the ~~properties~~lease. ~~are~~In ~~based~~these oncircumstances, ~~current~~we ~~market~~begin ~~conditions~~revenue ~~and~~recognition ~~consider~~when ~~matters~~the lessee ~~such~~takes aspossession ~~rental~~of ~~rates~~the ~~and~~unimproved ~~occupancies~~space for ~~comparable~~the ~~properties,~~lessee ~~recent~~to ~~sales~~construct ~~data~~improvements. ~~for~~The ~~comparable~~determination ~~properties~~of ~~and,~~who ~~where~~is ~~applicable~~the owner, ~~contracts~~ orfor ~~the~~accounting ~~results~~purposes, of ~~negotiations~~the ~~with~~tenant ~~purchasers~~improvements ordetermines ~~prospective~~the ~~purchasers.~~nature ~~Changes~~of inthe ~~estimated~~leased ~~future~~asset ~~cash~~and ~~flows~~when ~~due~~revenue recognition tounder ~~changes~~a inlease ~~our~~begins. ~~plans~~We orconsider ~~views~~a number of ~~market~~different ~~and~~factors ~~economic~~to ~~conditions~~evaluate ~~could~~whether ~~result~~we inor ~~recognition~~the oflessee ~~additional~~is ~~impairment losses~~the ~~that,~~owner ~~under~~of ~~applicable~~the ~~accounting~~tenant ~~guidance,~~improvements ~~could~~for beaccounting ~~substantial~~purposes. These factors include:

We• ~~allocate~~whether the ~~purchase~~lease ~~cost~~stipulates ofhow ~~acquired properties to the related physical assets~~ and ~~in-place leases based~~ on ~~their~~what ~~fair values. The estimated fair values are based on~~ a ~~number of factors and judgments including estimates of future cash flows of properties, market analysis of in-place~~ tenant ~~leases~~improvement ~~and~~allowance ~~our~~may ~~assessment~~be of the value of tenant relationships. The estimated lives of the purchased tangible and intangible assets vary. A change in the allocation of the purchase cost among the purchased assets would affect the timing of recognition of the related revenue and expenses. spent;

~~Our~~• ~~allowance~~whether ~~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~~landlord ~~debtor,~~retains ~~the~~legal ~~amount~~title ~~of security we hold, 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 (and related accrued straight-line rents) by approximately $0.8 million for the nine months ended September 30, 2003. improvements;

11• the uniqueness of the improvements;

•

the expected economic life of the tenant improvements relative to the length of the lease; and

•

who constructs or directs the construction of the improvements.

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Management’s Discussion and Analysis

~~RESULTS~~The OFdetermination ~~OPERATIONS~~of who owns the tenant improvements, for accounting purposes, is subject to significant judgment. In making that determination we consider all of the above factors. No one factor, however necessarily determines our conclusion.

~~Operating~~If ~~results~~a lease ~~are~~provides ~~summarized~~for rent based on the resolution of contingencies, such as ~~follows:~~meeting a level of sales by the tenant, we defer rent associated with rental contingencies until the resolution of the contingency.

	For the three months endedSeptember 30,				Variance			For the nine months endedSeptember 30,						Variance
(in millions)	2003		2002		2003 vs.2002			2003			2002			2003 vs.2002
Operating revenues	$	26.4	$	25.2	$	1.2		$	80.9		$	70.0		$	10.9
Property operating expense		9.4		9.0		0.4			28.7			24.9			3.8
General and administrative		1.1		0.6		0.5			3.4			3.1			0.3
Depreciation and amortization		8.5		7.2		1.3			24.5			19.7			4.8
Interest expense		2.4		3.6		(1.2	)		7.4			11.5			(4.1	)
Loss on sales of assets and other provisions, net		—		—		—			(0.4	)		(1.0	)		0.6
Other income		0.7		0.8		(0.1	)		2.3			3.3			(1.0	)
Discontinued operations		—		20.1		(20.1	)		—			26.8			(26.8	)

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:

Operating revenues increased $1.2 million (4.8%) for the third quarter of 2003 and $10.9 million (15.6%) for the nine months ended September 30, 2003 compared to the same periods in 2002. This increase was primarily due to higher minimum base rents which was partially offset by a decrease in recoveries from tenants. The increase in minimum base rents was principally due to base rents from the buildings we acquired in May and August of 2002 (see summary below), partially offset by higher vacancies in our other properties. During 2002 and in some cases continuing into 2003, our markets weakened substantially and our operations were adversely impacted. Vacancy rates now appear to have peaked in many of our markets, and some positive net absorption of space is occurring. However, because vacancy rates are still at high levels in most markets, we do not expect any material improvement in leasing conditions until at least 2004


Base building		20-40 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

~~Operating~~We ~~results~~make subjective assessments as to the useful lives of our assets. These assessments have a direct impact on our net income. Should we lengthen the ~~properties~~expected ~~acquired~~useful life of an asset, it would be depreciated over a longer period, resulting in ~~2002~~less ~~are~~depreciation ~~summarized~~expense asand ~~follows:~~higher annual net income. Should we shorten the expected useful life of an asset, it would be depreciated over a shorter period, resulting in more depreciation expense and lower annual net income.

	Three MonthsEnded September 30,				Nine Months Ended September 30,
(In thousands)	2003		2002		2003		2002
Revenue	$	4,983	$	2,554	$	15,306	$	2,869
Property operating expenses		1,531		815		4,422		881
Depreciation and amortization		2,261		661		4,787		661
Net operations of acquired properties	$	1,191	$	1,078	$	6,097	$	1,327

We assess the carrying values of our assets on a regular basis. 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 and related assets, such as tenant improvements, lease commissions and in-place lease intangibles, are written down to estimated fair value and an impairment loss is recognized. If we decide to sell rental properties or land holdings, 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 and related assets are written down to estimated fair value less costs to sell and an impairment loss is recognized. 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. Changes in estimated future cash flows due to changes in our plans or views of market and economic conditions could result in recognition of additional impairment losses which, under applicable accounting guidance, could be substantial.

12We allocate the purchase cost of acquired properties to the related physical assets and in-place leases based on their fair values. The fair values of acquired office buildings are determined on an “if-vacant” basis considering a variety of factors, including the physical condition and quality of the buildings, estimated rental and absorption rates, estimated future cash flows and valuation assumptions consistent with current market conditions. The “if-vacant” fair value is allocated to land, where applicable, buildings, tenant improvements and equipment based on property tax assessments and other relevant information obtained in connection with the acquisition of the property.

The fair value of in-place leases includes the effect of leases with above or below market rents, customer relationship value, where applicable, and the cost of acquiring existing tenants at the date of acquisition. Above market and below market in-place lease values are determined on a lease by lease basis based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (a) the contractual amounts to be paid under the lease and (b) our estimate of the fair market lease rate for the corresponding space over the remaining non-cancelable terms of the related leases. The capitalized below market lease values are amortized as an increase to rental revenue over the initial term and any below market renewal periods of the related leases. Capitalized above market lease values are amortized as a decrease to rental revenue over the initial term of the related leases. Customer relationship values are determined based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the tenant. Characteristics we consider include the nature and extent of our existing business relationships with the tenant, prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals. The value of customer relationship intangibles is amortized to expense over the lesser of the initial lease term and any expected renewal periods or the remaining useful life of the building. We determine the fair value of the cost of acquiring existing tenants by estimating the lease commissions avoided by having in-place tenants and avoided lost operating income for the estimated period required to lease the space occupied by existing tenants at the acquisition date. The cost of acquiring existing tenants is amortized to expense over the initial term of the respective leases. Should a tenant terminate its lease

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Management’s Discussion and Analysis

~~Our~~ early, the unamortized portion of the in-place lease ~~rollover~~value byis ~~square~~charged ~~footage~~to atexpense. ~~September~~Changes ~~30,~~in ~~2003~~the assumptions used in the allocation of the purchase cost isamong asthe ~~follows:~~acquired assets would affect the timing of recognition of the related revenue and expenses.

Year of Lease Expiration	Rented Sq.Footage 1	Percent of Leased Square Footage Represented by Expiring Leases
2003	130,564	3.0	%
2004	893,694	20.3	%
2005	411,170	9.3	%
2006	293,590	6.7	%
2007	1,077,436	24.4	%
2008	543,056	12.3	%
2009	204,554	4.6	%
2010	152,423	3.5	%
2011	213,815	4.8	%
2012	417,847	9.5	%
2013 and thereafter	70,421	1.6	%
	4,408,570	100.0	%

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 amount of security we hold, 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. 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. Bad debt expense was $0.2 million for both the three months ended March 31, 2006 and 2005.

1Results ~~Does not include vacant space~~ of ~~0.5~~Operations ~~million sq. ft.~~

~~Property~~Operating ~~operating~~results ~~expenses~~are ~~increased~~summarized ~~$0.4 million (4.4%) in the third quarter of 2003 from 2002 primarily~~ as afollows: result of expenses incurred related to the buildings we acquired in August 2002 ($1.4) partially offset by decreased real estate taxes ($0.8 million). Property operating expenses increased $3.8 million (15.3%) for the nine months ended September 30, 2003 compared to the same period for 2002. The increase is primarily due to general increases in insurance premiums ($0.5 million) and increased expenses related to the buildings we acquired in May and August of 2002 ($3.9 million) partially offset by decreased real estate taxes ($0.6 million). Our insurance expense increased as a result of increased insurance premiums from our June 2002 insurance renewal and the cost of terrorism coverage.

General and administrative expense increased $0.5 million (83.3%) and $0.3 million (9.7%) in the three months and nine months ended September 30, 2003, respectively compared to the same periods in 2002. The increases were due primarily to increased allocations of expense from CarrAmerica.


	For the three months ended March 31,				Variance
(in millions)	2006		2005		2006 vs. 2005
Operating revenues	$	24.0	$	19.7	$	4.3
Property operating expenses		9.1		7.7		1.4
General and administrative		2.5		2.5		—
Depreciation and amortization		8.7		6.5		2.2
Interest expense		1.9		1.6		0.3

~~Depreciation~~Operating ~~and~~Revenues amortization increased $1.3 million (18.1%) and $4.8 million (24.4%) in the three months and nine months ended September 30, 2003, respectively, compared to the same periods in 2002. The increases were due primarily to the acquisitions of properties in 2002.

~~Interest~~Operating ~~expense~~revenues ~~decreased~~increased $14.~~2 million (33.~~3%) ~~and $4.1~~ million (3521.78%) for in the ~~three~~first ~~months~~quarter ~~and~~of ~~nine~~2006 ~~months ended September 30, 2003, respectively~~ compared to ~~the same periods in 2002~~2005. ~~The~~This ~~decreases~~increase ~~were~~was due primarily ~~the~~as a result of the ~~repayment~~2005 ofacquisitions ~~mortgage debt. Mortgages and notes payable decreased by~~ ($834.90 million) ~~between September 30, 2002~~ and ~~September~~improving ~~30, 2003. In 2002, we repaid two~~occupancy ~~mortgages~~partially ~~including~~offset ~~one~~by ~~for~~lower ~~$63.5~~rental ~~million associated with TransPotomac V Plaza and Canal Center and another for $10~~rates.9 ~~million. The remainder of the decrease was a result of recurring repayments on mortgages and notes payable.~~

~~For~~Our ~~the~~lease ~~three~~rollover ~~months~~by ~~ended~~square ~~September~~footage ~~30,~~at ~~2003~~March 31, ~~other~~2006 ~~income~~is ~~decreased $0.1 million (12.5%) compared to 2002 due primarily to decreased equity in earnings of unconsolidated entities. Equity in earnings decreased $0.2 million (26.3%)~~ as afollows: ~~result of increased vacancies in properties owned by these entities. For the nine months ended~~


Year of Lease Expiration	Net Rentable Area Subject to Expiring Leases (sq. ft.)	Percent of Leased Square Footage Represented by Expiring Leases
2006	143,179	3.7	%
2007	409,990	10.7	%
2008	775,648	20.2	%
2009	450,103	11.7	%
2010	442,120	11.5	%
2011	469,562	12.2	%
2012	367,817	9.6	%
2013	214,995	5.6	%
2014	147,080	3.9	%
2015	235,251	6.1	%
2016 and thereafter	182,047	4.8	%

	3,837,792	100.0	%

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Management’s Discussion and Analysis

~~September~~Property ~~30,~~Operating ~~2003,~~Expenses other income decreased $1.0 million from 2002 primarily as a result of decreased equity in earnings of unconsolidated entities. Equity in earnings decreased as a result of increased vacancies in properties owned by these entities.

WeProperty ~~dispose of assets from time to time that are inconsistent with our long-term strategic or return objectives. During the three and nine months ended September 30, 2003, we did not dispose of any~~ operating ~~properties,~~ ~~although~~expenses weincreased ~~reduced a previously recognized gain~~ $01.4 million ~~for additional costs related to a sold property~~(18.2%) in ~~During~~ the three months ended ~~September 30~~March 31, ~~2002,~~2006 wecompared ~~disposed~~to ofthe ~~one~~same ~~operating~~period ~~property~~in ~~(Commons at Las Colinas), recognizing a gain of $19~~2005.1 ~~million.~~The ~~For~~increase ~~the~~was ~~nine~~due ~~months~~primarily ~~ended~~to ~~September~~additional ~~30,~~expenses ~~2002,~~incurred weby ~~disposed~~the newly ofacquired ~~two operating~~ properties (~~Wasatch 17 and Commons at Las Colinas), recognizing a gain of~~ $220.48 million.) These gains have been classified as discontinued operations as we have no continuing involvement with the properties. We also recognized impairment losses of $1.0 million on two parcels of land held for development. These losses have been classified as loss on sale of assets and ~~other~~improving ~~provisions, net~~occupancy.

~~Operating~~General ~~results~~and ofAdministrative ~~the~~Expenses ~~properties are summarized as follows:~~

(In thousands)	Three MonthsEnded September 30, 2002			Nine MonthsEndedSeptember 30, 2002
Revenues	$	1,617		$	8,269
Property operating expenses		(49	)		255
Depreciation and amortization		649			3,638
Net operations of sold properties	$	1,017		$	4,376

General and administrative expense did not change in the three months ended March 31, 2006 compared to the same period in 2005. General and administrative expenses are primarily expenses allocated from affiliates.

Depreciation and Amortization Expense

Depreciation and amortization increased $2.2 million (33.8%) in the three months ended March 31, 2006, compared to the same period in 2005. The increase was due to the 2005 acquisitions ($2.2 million).

Interest Expense

Interest expense increased $0.3 million (18.8%) in the three months ended March 31, 2006 compared to the same period in 2005. The increases were primarily due to the increase in interest related to intercompany loans ($0.4 million) as a result of the 2005 property acquisitions.

Dispositions

There were no property sales or dispositions for the three months ended March 31, 2006 and 2005.

Consolidated Cash Flows

Consolidated cash flow information is summarized as follows:

	For the nine months ended September 30,						Variance
(in millions)	For the three months ended March 31,						Variance
(in millions)	2003			2002			2003 vs. 2002
							2006 vs. 2005
Cash provided by operating activities	$	35.9		$	35.9		$	—
	2006			2005
Cash (used) provided by investing activities		(3.4	)		26.7			(30.1	)
Cash provided by operating activities	$	11.0		$	4.9		$	6.1
Cash used by financing activities		(34.1	)		(63.5	)		29.4
Cash used in investing activities		(14.9	)		(2.8	)		(12.1	)
Cash provided by (used in) financing activities		4.5			(2.1	)		6.6

~~Operations~~Cash ~~generated~~provided by operating activities increased $356.91 million in the first three months of 2006 ~~net~~compared ~~cash~~to ~~for~~ the ~~first~~same ~~nine~~period ~~months~~in 2005. Cash flow from operating activities is primarily the result of ~~2003~~factors ~~and~~discussed ~~2002~~above ~~remaining~~in ~~flat~~the analysis of operating results. 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 ($314.4)9 million in ~~2003~~the three months ended March 31, 2006 compared to ~~generating~~using $262.7 8 million of net cash in ~~2002~~the same period of 2005. The ~~net~~$12.1 ~~change~~increase in cash ~~flows~~used ~~from~~for investing ~~activities~~ in ~~2003~~2006 was ~~primarily~~ due primarily to aan ~~decrease~~increase in ~~proceeds~~investments ~~from~~in aunconsolidated ~~sale~~entities ~~of property~~ ($~~129~~11.49 million), ~~partially offset by a decrease in acquisitions~~ and ~~additions to~~ rental property additions ($961.0 5 million) ~~and~~partially offset by an increase in distributions from unconsolidated ~~subsidiaries~~entities ($21.92 million).

Our financing activities ~~used~~provided net cash of ($344.1)5 million for the first ~~nine~~three months of ~~2003~~2006 and (used net cash of $632.5)1 million for the same period in ~~2002~~2005. The net change in cash flows from financing activities is primarily a result of ~~the timing of receipt and~~increased ~~payment~~borrowings offrom ~~amounts due to~~ affiliates, ~~primarily~~($6.5 ~~related~~million) tofor the ~~properties~~purchase weof ~~sold in 2002~~properties.

~~LIQUIDITY~~Liquidity ~~AND~~and ~~CAPITAL~~Capital ~~RESOURCES~~Resources

General

Our liquidity and capital resources ~~are~~ are dependent upon CarrAmerica and its other affiliates. CarrAmerica,’s asprimary asources ~~REIT,~~of capital is ~~required~~its toreal ~~distribute~~estate atoperations ~~least~~and ~~90%~~unsecured credit facility. As of March 31, 2006, CarrAmerica had approximately $2.7 million of restricted cash and $321.8 million available for borrowing under its ~~taxable~~unsecured ~~income~~credit tofacility. CarrAmerica derives substantially all of its ~~stockholders~~revenue onfrom antenants ~~annual~~under ~~basis~~leases at its properties. WeIts ~~and~~operating ~~CarrAmerica~~cash ~~require~~flow ~~capital~~therefore depends materially on the rents that it is able to ~~invest~~charge into ~~our~~tenants, ~~existing~~and ~~portfolio~~the ability of ~~operating~~ ~~assets~~those ~~for~~tenants ~~capital~~to ~~projects.~~make ~~These~~their ~~capital~~rental payments.

1417

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Management’s Discussion and Analysis

Our primary uses of cash are to fund distributions to unitholders, to fund capital investment in our ~~projects~~existing ~~can~~portfolio ~~include~~of ~~such~~operating ~~things~~assets asand to fund new acquisitions and our development activities. We regularly require capital to invest in our existing portfolio of operating assets in connection with large-scale renovations, routine capital improvements, deferred maintenance on properties we have recently acquired, and ~~tenant~~ ~~related~~our ~~matters~~leasing activities, including funding tenant improvements, allowances and leasing commissions. The amounts of the leasing-related 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.

WeDuring ~~derive substantially all of~~2006, ~~our~~we ~~revenue~~expect ~~from tenants under leases at our properties. Our operating cash flow therefore depends materially on the rents~~ that we ~~are~~will ~~able~~have tosignificant ~~charge~~capital ~~to our tenants~~requirements, ~~and~~including the ~~ability~~following ofitems. ~~these~~There ~~tenants~~can tobe ~~make~~no ~~their~~assurance ~~rental payments. We believe~~ that ~~the diversity of~~ our ~~tenant~~capital ~~base~~requirements ~~helps~~will ~~insulate~~not usbe ~~from~~materially ~~the~~higher ~~negative impact of tenant defaults and bankruptcies. However, general economic downturns,~~ or ~~economic~~lower ~~downturns~~than ~~in one or more of our markets, could materially 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~~expectations.

As• aApproximately ~~result of the ongoing weak economic climate, the real estate markets have been materially affected~~$1. ~~The contraction of office workforces has reduced demand for office space and overall vacancy rates have increased in all of our markets~~2-1.6 ~~During~~million ~~2002 and~~ in ~~some~~distributions ~~cases continuing into 2003, our markets weakened substantially and our operations were adversely impacted. Vacancy rates now appear~~ to ~~have~~Unitholders ~~peaked~~(other inthan ~~many~~Class ofB our markets, and some positive net absorption of space is occurring. However, because vacancy rates are still at high levels in most markets, we do not expect any material improvement in leasing conditions until at least 2004. The occupancy in our portfolio of stabilized operating properties decreased to approximately 89.4% at September 30, 2003 compared to 90.4% at December 31, 2002 and 89.6% at September 30, 2002. Market rental rates have declined in most markets from peak levels and we expect there will be additional declines in some markets in the remainder of 2003. Unitholders);

•

Approximately $12-$20 million to invest in our existing portfolio of operating assets, including approximately $9-$17 million to fund tenant-related capital requirements;

We expect to meet our capital requirements using cash generated by our real estate operations, by borrowings from CarrAmerica’s unsecured credit facility, and from proceeds from the sale of properties.

We believe that we will generate sufficient cash flow from operations and the possible disposition of assets and have access to the capital resources necessary to expand and develop our business, to fund our operating and administrative expenses, to continue to meet our debt service obligations, to pay distributions to Unitholders, to acquire additional properties and land and to pay for construction in progress. However, as a result of general economic downturns, if CarrAmerica’s cash flow from operations are adversely affected in 2006 due to declining rental rates in certain of their markets with expiring leases, rent abatement features in many of the new leases at their properties and most significantly, their estimated tenant-related and other capital expenditures associated with new leases, we may not generate sufficient cash flow from operations or otherwise have access to capital on favorable terms, or at all. If we cannot raise the expected funds from the sale of properties and/or if we are unable to obtain capital from other sources, we may not be able to pay the distributions at their current level, make required principal and interest payments, continue our development activities, make strategic acquisitions or make necessary routine capital improvements with respect to our existing portfolio of operating assets. Any of these events could have a material adverse effect on our liquidity, financial condition, results of operations and the value of our units. 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 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 most cases, very little of the principal amount that we borrow is repaid prior to the maturity of the loan. We may refinance that debt when it matures, or 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.

Under our partnership agreement to the extent that there is available cash, each Class A Unit, Class D Unit, and Class E Unit is entitled to receive a distribution equal to the amount of dividend per common share that is paid to CarrAmerica’s shareholders. Once all of the holders of these units have received their distribution, all additional available cash may be distributed to the holders of Class B Units. Cash flows from operations are an important factor in our ability to sustain our quarterly distributions to our partners at the current rate of $0.50 per unit per quarter. During the first quarter, cash flows from operations increased from $4.9 million in 2005 to $11.0 million in 2006. We currently expect to maintain our distribution rate of $0.50 per unit per quarter in 2006. We expect that operating cash flow will be sufficient to maintain these distributions. In the event available cash is insufficient to pay distributions at the current level we may be unable to make distributions to our Class B Unitholders.

Debt Financing

CarrAmerica is our principal source of liquidity. CarrAmerica’s primary external source of liquidity is its unsecured credit facility. CarrAmerica has a three-year, $500.0 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 facility an additional year at its option. The facility carries an interest rate of 70 basis points over 30-day LIBOR, or 1.82% as of September 30, 2003. As of September 30, 2003, $43.0 million was drawn on the credit facility, $4.8 million in letters of credit were outstanding and $452.2 million was available for borrowing.

CarrAmerica’s unsecured credit facility contains financial and other covenants with which it must comply. Some of these covenants include:

• A minimum ratio of annual EBITDA (earnings before interest, taxes, depreciation and amortization) to interest expense of at least 2 to 1;

•18 ~~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 assets; and

• Restrictions on CarrAmerica’s 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 unmortgaged properties. During 2003, CarrAmerica amended its credit agreement to change the maximum ratio of aggregate unsecured debt to unencumbered assets covenant to allow for continuing compliance. Failure to comply with any of the other covenants under the unsecured credit facility or other debt instruments could result in a default under one or more debt instruments. This could cause the lenders to accelerate the timing of payments and would therefore have a material adverse effect on our business, operations, financial condition or liquidity. CarrAmerica is currently in compliance with all the financial covenants of its unsecured credit facility.

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 capital expenditures that need to be made periodically at our properties, development projects that we undertake and the costs associated with acquisitions of properties.

Mortgages and notes payable decreased $7.7 million and $83.9 million as of September 30, 2003 as compared with December 31, 2002 and September 30, 2002, respectively. The decrease from December 31, 2002 was a result of recurring repayments on mortgages and notes payable. In 2002, we repaid two mortgages including one for $63.5 million associated with TransPotomac V Plaza and Canal Center and another for $10.9 million. The remainder of the decrease was a result of recurring repayments on mortgages and notes payable. We have debt maturities of $15.7 million in 2004. We expect that our operating cash flow in combination with borrowings from CarrAmerica will be adequate to meet this obligation.

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Management’s Discussion and Analysis

In• ~~the~~A ~~future,~~minimum ~~if,~~ratio ~~as a result~~ of ~~general~~annual ~~economic downturns,~~EBITDA ~~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~~fixed ~~capital~~charges ~~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 most cases, very little of the principal amount that we borrow is repaid prior to the maturity of the loan. We may refinance that debt when it matures or we may pay off the loan. If principal amounts due at ~~maturity cannot~~least ~~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~~1.5 ~~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.~~ 1;

•

A maximum ratio of aggregate unsecured debt to tangible fair market value of CarrAmerica’s unencumbered assets of 60%;

•

A maximum ratio of total secured debt to tangible fair market value of 30%;

•

A maximum ratio of total debt to tangible fair market value of CarrAmerica’s assets of 60%; and

•

As of March 31, 2006, CarrAmerica is in compliance with all of its debt covenants related to its unsecured line of credit however, CarrAmerica’s ability to draw on its unsecured facility or incur other significant debt in the future could be restricted by the covenants. During 2006, CarrAmerica may approach the limit of its unencumbered leverage ratio which restricts unsecured debt outstanding to no more than 60% of unencumbered assets. As of March 31, 2006, CarrAmerica’s unencumbered leverage ratio was 57.8%. CarrAmerica’s unencumbered leverage ratio is most significantly impacted by the performance of its operating properties and net borrowings required to fund capital expenditures and pay its dividend as a result of insufficient operating cash flow. Incurring additional unsecured debt to acquire additional unencumbered assets does not impact CarrAmerica’s unencumbered leverage ratio as significantly as incurring additional debt for other purposes. The tangible fair market value of CarrAmerica’s unencumbered properties is calculated by applying capitalization rates stipulated in its line of credit of 8.5% - 9.0% to current operating income. Therefore, CarrAmerica’s unencumbered leverage ratio could increase if the operating income of its unencumbered properties decreases. Additionally, the ratio will increase as CarrAmerica acquires properties which have operating income which is lower than 8.5% - 9.0% of the amount invested. If CarrAmerica’s unencumbered leverage ratio increases and surpasses 60%, it could impact its business and operations, including CarrAmerica’s ability to incur additional unsecured debt, draw on its unsecured line of credit, which is its primary source of short term liquidity, acquire leveraged properties or invest in properties through joint ventures. CarrAmerica expects to terminate and repay its credit facility at the time of the consummation of the proposed merger discussed previously in this Management’s Discussion and Analysis.

Our total debt as of March 31, 2006 is summarized as follows:


(In thousands)
Fixed rate mortgages	$	13,747
Fixed rate notes payable to affiliate		54,695
Variable rate note payable to affiliate		27,000

	$	95,442

Our fixed rate debt bore an effective weighted-average interest rate of 7.43% at March 31, 2006 and had a weighted-average maturity of 5.23 years. The effective weighted-average interest rate of our fixed rate debt, excluding our notes payable to affiliates, was 7.13% at March 31, 2006 and had a weighted-average maturity of 3.20 years. Our variable rate note payable to affiliate at March 31, 2006 bore an interest rate of 100 basis points over 30-day LIBOR or 5.85%. We repaid $0.3 million of fixed rate mortgage debt and notes payable in the first three months of both 2006 and 2005.

Capital Commitments

We 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 generally recouped in the form of continuing lease payments.

Unconsolidated Investments and Joint Ventures

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~~ and therefore, the assets and liabilities of the joint ventures are not included in our financial statements. ~~Most~~These ~~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 these non-recourse debt obligations 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;

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Management’s Discussion and Analysis

•

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);

•

otherwise impede our objectives; or

• Possibility that we, together with our partners, may be required to fund losses of the investee.

~~Guarantee~~Off ~~Obligations~~Balance Sheet Arrangements

WeOn ~~have~~June 30, ~~unconditionally~~2004, ~~guaranteed~~CarrAmerica entered into a $500.0 million, three-year unsecured ~~notes~~revolving ~~issued~~credit byfacility ~~CarrAmerica~~with toJPMorgan ~~institutional~~Chase ~~and~~Bank ~~other~~as ~~investors.~~administrative ~~The~~agent ~~aggregate~~for ~~principal~~a ~~amount~~syndicate of ~~the unsecured~~banks. ~~notes~~We ~~was~~are ~~$1.1~~an ~~billion~~unconditional asguarantor of ~~September~~borrowings ~~30,~~under ~~2003~~this facility. ~~These~~The ~~notes~~facility ~~are~~replaced inand ~~the~~was ~~form~~used ofto ~~$150.0~~repay ~~million~~all ofamounts outstanding 7under CarrAmerica’s previous senior unsecured credit facility.~~20%~~ ~~notes~~CarrAmerica ~~due~~may inincrease ~~2004,~~the facility to $~~100~~700.0 million by request at any time within 24 months of 6the closing, provided the funding commitments are increased accordingly.~~625%~~ ~~notes~~The ~~due~~facility incan ~~2005,~~be ~~$125~~extended one year at CarrAmerica’s option.0 ~~million~~The facility carries an interest rate of ~~7.375%~~65 ~~notes~~basis ~~due~~points inover ~~2007~~30-day LIBOR, ~~$50~~or 5.050% ~~million~~as of 5March 31, 2006.~~261% notes~~ ~~due~~As inof ~~2007~~March 31, 2006, $~~175~~164.0 million ofwas ~~5.250%~~drawn ~~notes~~on the ~~due~~credit ~~in 2007~~facility, $~~100~~14.02 million ofin ~~6.875%~~letters ~~notes~~of ~~due~~credit inwere ~~2008,~~outstanding and CarrAmerica had $~~400~~321.08 million ofavailable 7for borrowing.~~125%~~ ~~notes~~CarrAmerica ~~due~~expects into ~~2012.~~terminate ~~CarrAmerica’s~~and ~~senior~~repay ~~unsecured~~this ~~notes~~credit ~~contain~~facility ~~various~~at ~~covenants~~the ~~with~~time ~~which~~of ~~CarrAmerica must~~the ~~comply.~~consummation ~~The~~of ~~covenants~~the ~~include:~~proposed merger.


	Note Principal
(In thousands)	March 31, 2006		December 31, 2005
7.375% notes due in 2007		125,000		125,000
5.261% notes due in 2007		50,000		50,000
5.250% notes due in 2007		175,000		175,000
6.875% notes due in 2008		100,000		100,000
3.625% notes due in 2009		225,000		225,000
5.500% notes due in 2010		250,000		250,000
5.125% notes due in 2011		200,000		200,000
7.125% notes due in 2012		400,000		400,000

	$	1,525,000	$	1,525,000

The unsecured notes also contain covenants with which CarrAmerica must comply. These covenants include:

•

Limits on total indebtedness on a consolidated basis;

•

Limits on secured indebtedness on a consolidated basis;

•

Limits on required debt service payments; and

• Compliance with the financial covenants of ~~its~~the credit facility.

~~As of September 30, 2003,~~ CarrAmerica was in compliance with ~~its~~the ~~loan~~senior unsecured notes covenants as of March 31, 2006.

16Under the Merger Agreement, CarrAmerica and Operating Partnership have agreed to use its commercially reasonable efforts to commence offers to purchase and related consent solicitations relating to all of the aggregate principal amount of the senior unsecured notes that Operating Partnership has outstanding, on the terms and subject to the conditions set forth in the related tender offer documentation that will be distributed to the holders of such notes. In connection with the offers to purchase the senior unsecured notes, Operating Partnership will seek the consents of the holders of the senior unsecured notes to amend the indentures governing the senior unsecured notes to eliminate substantially all of the restrictive covenants contained in such senior unsecured notes and the indentures, eliminate certain events of default, modify covenants regarding mergers, and modify or eliminate certain other provisions contained in the indentures and the senior unsecured notes. Assuming the requisite consents are received from the holders of the senior unsecured notes to amend the indentures and the senior unsecured notes, the amendments will become operative

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Management’s Discussion and Analysis

~~CarrAmerica~~ concurrently ~~has~~with ~~$150.0~~the ~~million~~Company inMerger ~~unsecured~~effective time, so long as all validly tendered notes ~~maturing~~are accepted for purchase pursuant to the offers to purchase upon ~~July~~the 1completion of the mergers, ~~2004.~~whereupon ~~CarrAmerica~~the ~~has~~amendments ~~notified~~will usapply ~~that~~to ~~they~~all ~~anticipate~~such ~~refinancing~~senior ~~this~~unsecured ~~debt~~notes ~~with~~remaining ~~new~~outstanding following completion of the applicable offers to purchase. The proposed terms of the amended senior unsecured ~~debt~~notes ~~rather~~and indentures ~~than~~will ~~paying~~be itdescribed ~~down~~in ~~out~~the tender offer documents. Assuming that all of ~~income~~the ~~from~~conditions ~~operations~~to the tender offers and consent solicitations are satisfied or ~~from~~waived, ~~proceeds~~concurrently ofwith anthe ~~equity~~Company ~~offering~~Merger effective time, senior unsecured notes validly tendered in the tender offers will be accepted for payment. IfIn ~~they~~the ~~are~~event ~~unable~~the requisite consents have not been validly delivered (without having been properly withdrawn) with respect to ~~issue~~any series of senior unsecured notes, ~~they~~CarrAmerica ~~expect~~and Operating toPartnership ~~use~~may ~~their~~issue ~~unsecured~~an ~~credit~~irrevocable ~~facility~~notice toof ~~repay~~optional redemption for all of the ~~maturing~~then outstanding senior unsecured notes. Itof issuch ~~expected~~series ~~that~~in weaccordance ~~will~~with ~~guarantee~~the ~~any~~terms ~~new~~of ~~debt~~the applicable indenture governing such series, which would provide for the satisfaction and discharge of such senior unsecured notes and such indenture.

~~Capital~~21 ~~Commitments~~

As of September 30, 2003 we had no office space under construction. Generally, we fund our investments in projects under construction 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 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 generally recouped in the form of continuing lease payments.

Insurance

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 the prior 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.

In anticipation of the scheduled renewal on May 15, 2003, CarrAmerica provided updated data to its insurance broker to enable the broker to market our insurance with various insurers. We received insurance coverage and cost proposals in April 2003 and our final costs in May. Our premiums for the 2003-2004 renewal period were relatively unchanged from the 2002-2003 period.

As a result of the Terrorism Risk Insurance Act of 2002 (“TRIA”), CarrAmerica elected to purchase the TRIA coverage upon its 2003 insurance renewal rather than stand alone coverage. In June 2002, CarrAmerica purchased stand alone terrorism coverage with 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 per year. The TRIA insurance increases CarrAmerica’s coverage to $500 million for foreign certified terrorist acts but also includes $25 million of coverage for domestic terrorism. Coverage, either under TRIA or a stand alone policy, includes only physical damage and does not include losses due to biological, chemical or radioactive contamination. The lack of coverage for such contamination could have a material adverse effect on our financial results if a building we own becomes uninhabitable as a result of a biological, chemical, radioactive or other contamination.

Due to the rising cost of California earthquake insurance, CarrAmerica reviewed its probable maximum loss (“PML”) and industry practice related to earthquake coverage for various factors. As a result of this review, CarrAmerica determined that it was possible to lower its earthquake coverage from $200 million to $150 million. We believe this will be sufficient coverage but there can be no assurance that such coverage will adequately compensate us for any loss, that our coverage would continue after a loss, or that a loss, even if covered, would not have a material adverse effect on our business, financial condition or results of operations.

CARRAMERICA REALTY, L.P. AND SUBSIDIARIES

Management’s Discussion and Analysis

New Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The Interpretation requires recognition of liabilities at their fair value for newly issued guarantees. The adoption of Interpretation No. 45 on January 1, 2003 did not 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 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. Effective January 1, 2003, we adopted the fair value based method of accounting for stock-based compensation costs. We elected to use the prospective method of transition to the fair value method provided in SFAS No. 148 and, accordingly, the method is being applied for all employee stock compensation awards granted, modified or settled on or after January 1, 2003. The effect of the change on our financial statements is immaterial.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” This Interpretation addresses the consolidation of variable interest entities (“VIEs”) in which the equity investors lack one or more of the essential characteristics of a controlling financial interest or where the equity investment at risk is not sufficient for the entity to finance its activities without subordinated financial support from other parties. The Interpretation initially applied to VIEs created after January 31, 2003 and to VIEs in which we acquired an interest after that date. Effective July 1, 2003, it also applied to VIEs in which we acquired an interest before February 1, 2003. The adoption of Interpretation No. 46 in 2003 had no effect on our financial statements as we concluded that we are not required to consolidate any of our unconsolidated real estate ventures that we have accounted for using the equity method.

Building and Lease Information

The following table sets forth information about each wholly-owned property as of ~~September 30~~March 31, ~~2003~~2006:

Consolidated Properties	Net ~~RentableArea~~Rentable Area (square feet)(1)	~~PercentLeased~~Percent Leased(2)		~~Numberof~~Number of Buildings
Southern California, Orange County/Los Angeles
South Coast Executive Center	~~162~~154,~~504~~959	96100.60	%	2
2600 W. Olive	144,831	100.0		1
Bay Technology Center	107,481	100.0	%	2
Bay Technology Center	107,481	100.0		2
Southern California, San Diego
Towne Center Technology Park 4	105,358	100.0	%	1
11119 Torrey Pines Road	76,701	100.0		1
Torrey Pines Research Center	81,816	100.0	%	1
Chancellor Park	187,990	93.2	%	2
Northern California, San Francisco Bay Area
San Mateo I	73,240	28.2		1
San Mateo Center	207,882	85.2	%	3
San Mateo II and III	141,427	69.7		2
Mountain View Gateway Center	236,400	100.0	%	2
Mountain View Gateway Center	236,400	100.0		2
Seattle, Washington:
Canyon Park Commons	95,290	100.0	%	1
North Creek Corporate Center	94,048	95.0	%	3
West Willows Technology Center	155,830	100.0	%	3
Austin, Texas:
City View Centre	~~137~~136,~~185~~106	7692.73	%	3
Tower of the Hills	166,149	100.0		2
City View Center	128,716	100.0	%	1
City View Center	128,716	100.0		1
Chicago, Illinois:
Bannockburn I & II	209,450	83.3		2
Bannockburn I & II, IV	315,287	73.8	%	3
Bannockburn IV	108,801	93.0		1
Dallas, Texas:
Quorum North	115,723	55.9		1
Cedar Maple Plaza	113,010	86.2	%	3
Quorum Place	178,684	74.6		1
Cedar Maple Plaza	113,117	85.7		3
Two Mission Park	77,593	73.8		1
5000 Quorum	161,338	72.8		1
Denver, Colorado:
Harlequin Plaza	~~324~~319,~~601~~069	9781.7	%	2
Quebec Court I & II	287,294	100.0	%	2
Quebec Center	106,~~867~~865	9590.61	%	3
Phoenix, Arizona:
Qwest Communications	532,506	100.0		4
Salt Lake City, Utah:
Sorenson Research Park	281,264	90.8		5
Sorenson Research Park X	321,475	96.0	%	6
Wasatch Corporate Center 18	49,566	62.1		1
Wasatch Corporate Center	227,889	98.3	%	4
Wasatch Corporate Center	178,231	79.3		3
Sorensen X	41,288	100.0		1
Washington, DC:
TransPotomac V Plaza	97,~~006~~634	9889.12	%	1
Canal Center	~~492~~495,~~001~~694	8492.96	%	4
TOTAL CONSOLIDATED PROPERTIES:	4,930,612			55
Park Place	166,134	91.3	%	1
WEIGHTED AVERAGE AT SEPTEMBER 30, 2003		89.4	%
Total Consolidated Properties	4,142,227			53
Weighted Average at March 31, 2006		92.7	%

(1)	Includes office and retail space but excludes storage space.

(2) Includes ~~space~~spaces for leases that have been executed and have commenced as of ~~September~~March 3031, ~~2003~~2006.

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~~FORWARD-LOOKING~~CARRAMERICA ~~STATEMENTS~~REALTY, L.P. AND SUBSIDIARIES

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 industryManagement’s ~~actual~~Discussion ~~results, performance,~~and ~~achievements~~Analysis 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:

Forward-looking Statements

Statements contained in this Form 10-K which are not historical facts may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Such statements (none of which are intended as a guarantee of performance) are subject to certain risks and uncertainties, which could cause our actual future results, achievements or transactions to differ materially from those projected or anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the SEC. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, the risks described in our annual report on Form 10-K for the fiscal year ended December 31, 2005. Such factors include, among others:

•

The satisfaction of the conditions to consummate the proposed merger with affiliates of The Blackstone Group, including, among other things:

•

The receipt of the required stockholder approval;

•

The actual terms of certain financings that will be obtained for the proposed mergers;

•

The occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; and

•

The outcome of the legal proceedings that have been instituted against CarrAmerica following the announcement of the proposed mergers;

•

The failure of the proposed mergers to close for any other reason;

•

The amount of the costs, fees, expenses and charges related to the proposed mergers;

•

The substantial indebtedness following consummation of the proposed mergers;

•

National and local economic, business and real estate conditions that will, among other things, affect:

• Demand for office ~~properties~~space,

• The ~~ability~~extent, strength and duration of any economic recovery, including the ~~general~~effect ~~economy~~on todemand ~~recover~~for ~~timely~~office ~~from~~space and the ~~current~~creation ~~economic~~of ~~conditions~~new office development,

• ~~The~~Availability ~~availability~~ and creditworthiness of tenants,

•

The level of lease rents, and

•

The availability of financing for both tenants and us;

•

Adverse changes in the real estate markets, including, among other things:

• ~~Competition~~The ~~with~~extent ~~other~~of ~~companies~~tenant bankruptcies, financial difficulties and defaults,

• ~~Risks~~The extent of ~~real~~future ~~estate~~demand ~~acquisition~~for ~~and~~office ~~development~~space ~~(including~~in ~~the~~our ~~failure~~core ofmarkets ~~pending~~and ~~acquisitions~~barriers to ~~close~~entry ~~and~~into ~~pending~~markets ~~developments~~in towhich bewe ~~completed~~may onseek ~~time~~to ~~and~~enter ~~within~~in ~~budget);~~the future,

•

The extent of decreases in rental rates

•

Our ability to identify and consummate attractive acquisitions on favorable terms,

•

Our ability to successfully complete and lease development projects on time and within budget,

•

Our ability to consummate any planned dispositions in a timely manner on acceptable terms, and

•

Changes in operating costs, including real estate taxes, utilities, insurance and security costs;

•

Actions, strategies and performance of affiliates that we may not control or companies in which we have made investments;

•

Ability to obtain insurance at a reasonable cost;

• Ability of CarrAmerica to maintain ~~CarrAmerica’s~~its status as a REIT for federal and state income tax purposes;

•

Ability to raise capital;

•

Effect of any terrorist activity or other heightened geopolitical risks;

•

Governmental actions and initiatives; and

•

Environmental/safety requirements.

For further discussion of these and other factors that could impact our future results, performance, achievements or transactions, see the section of this report entitled “Risk Factors”, as well as the documents we 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 for the fiscal year ended December 31, 2005.

2023

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Any significant changes in our market risk that have occurred since the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2002~~2005 are summarized in the Liquidity and Capital Resources section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained elsewhere in this report.

Item 4. Controls and Procedures

Evaluation ~~was performed under the supervision and with the participation~~ of ~~our~~Disclosure ~~management,~~Controls ~~including our Chief Executive Officer~~ and ~~Chief~~Procedures Financial Officer, of the effectiveness as of September 30, 2003 of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the rules promulgated under the Securities and Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. There has been no change in our internal control over financial reporting identified in connection with that evaluation that occurred during the three months ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

21Evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness as of March 31, 2006 of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the rules promulgated under the Securities and Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) identified in connection with the evaluation required by Rule 13a-15(b) under the Securities Exchange Act of 1934 of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II

OTHER INFORMATION

Item 1. Legal Proceedings

On ~~May~~ 8March 9, ~~2003~~2006, ~~Broadband~~a ~~Office,~~purported ~~Inc.~~stockholder ~~and~~class ~~the~~action ~~official~~lawsuit ~~committee~~related ofto the ~~unsecured~~Merger ~~creditors~~Agreement ofwas ~~Broadband Office Inc.,~~ filed ~~a complaint~~ in the ~~United~~Superior ~~States Bankruptcy~~ Court ~~for~~of the District of ~~Delaware against a group of REITs~~Columbia, ~~real~~Doris ~~estate~~Staer operating companies and individuals, including CarrAmerica, its subsidiaries, including us, and Philip Hawkins, CarrAmerica’s President and Chief Operating Officer, relating to the formation, management and capitalization of Broadband Officev. CarrAmerica ~~was~~ anRealty ~~equity investor and customer of Broadband Office~~Corporation, ~~and~~et Mral. ~~Hawkins~~(Case ~~was a member of the board of directors of Broadband Office until his resignation from the board of Broadband Office on May 2, 2001~~No. ~~Broadband Office filed for bankruptcy protection on May 9~~ 06-0001918), ~~2001.~~naming ~~The complaint alleges, among other things, breaches of fiduciary duties by~~ us and ~~CarrAmerica~~each ~~and~~of ~~Mr.~~our ~~Hawkins~~directors as adefendants. ~~member~~On ~~of the Broadband Office board~~March 10, ~~seeks to recharacterize CarrAmerica’s investment as a holder of~~2006, ~~common~~another ~~stock~~purported tostockholder beclass ~~one~~action aslawsuit awas ~~general~~filed ~~unsecured~~in ~~creditor~~the ~~and/or~~Circuit asCourt ~~a general partner responsible jointly with all other alleged general partners~~ for ~~the~~Baltimore ~~outstanding debts of the corporation~~City, ~~and~~William ~~also~~Reichart ~~seeks~~v. ~~recovery of alleged preference payments made to~~ CarrAmerica orRealty ~~its subsidiaries~~Corporation, ~~including~~et usal. ~~The~~(Case ~~plaintiffs seek relief in an amount in excess of $300 million jointly and severally from all defendants~~No. ~~CarrAmerica’s board of directors has determined that~~ 24-C-06-002569), ~~based~~naming ~~on Maryland law and our charter, we or~~ CarrAmerica ~~are permitted to indemnify Mr. Hawkins in connection with these claims,~~ and ~~has~~each ~~authorized CarrAmerica or us to advance to or on behalf~~ of ~~Mr.~~its ~~Hawkins~~directors ~~his costs and expenses incurred in defending this claim. Currently our~~as ~~legal counsel is also defending Mr~~defendants. ~~Hawkins~~Both inlawsuits ~~this~~allege, ~~matter~~among ~~and~~other wethings, ~~are paying those legal fees directly. If it is later determined~~ that ~~Mr. Hawkins was not entitled to indemnification under Maryland law or~~ CarrAmerica’s ~~charter,~~directors ~~Mr.~~violated ~~Hawkins~~their ~~has agreed~~fiduciary toduties ~~reimburse CarrAmerica or us for any costs or expenses advanced~~ to ~~him~~its orstockholders ~~on his behalf. On October 29, 2003, we filed a motion to dismiss all claims asserted~~ in ~~the~~approving ~~complaint. Due to~~ the inherent uncertainties of the judicial process and the early stage of this action, we are unable to either predict the outcome of or estimate a range of potential loss associated with, this litigation including our agreement to indemnify Mrmerger. Hawkins. While we intend to vigorously defend this matter and believe we have meritorious defenses available to us, there can be no assurance that we would prevail in this matter. If this matter is not resolved in our favor, it could have a material adverse effect on our financial condition and results of operations

WeBoth ~~are~~lawsuits ~~party~~seek toclass aaction ~~variety~~status and injunctive relief against completion of the merger and the related transactions. Additionally, among other ~~legal~~things, the District of Columbia lawsuit seeks disgorgement of any ~~proceedings~~benefits ~~arising~~improperly inreceived and the ~~ordinary~~Maryland ~~course~~lawsuit ofasks ~~business.~~for ~~All~~unspecified ofmonetary ~~these~~damages. ~~matters,~~CarrAmerica ~~taken~~believes ~~together,~~that ~~are~~these ~~not~~lawsuits ~~expected~~are towithout ~~have~~merit aand ~~material~~intend ~~adverse~~to ~~impact~~vigorously ondefend usthe actions.

~~Item~~We 6.are ~~Exhibits~~party from time to time to a variety of other legal proceedings which are of a routine nature and ~~Reports~~incidental onto ~~Form~~our ~~8-K~~business. All of these other matters, taken together, are not expected to have a material adverse impact on us.

~~(a)~~ Item 1A. ~~Exhibits~~Risk Factors

The discussion of our results of operations and financial condition should be read together with the risk factors contained in our Annual Report on Form 10-K for the fiscal year ended December 31.1, ~~Section~~2005 ~~302~~(the ~~Certification~~“2005 ~~from~~10-K”), ~~Mr.~~which ~~Thomas~~describe Avarious risks and uncertainties to which we are or may become subject. ~~Carr~~These risks and uncertainties have the potential to affect our business, ~~dated~~financial ~~November~~condition, 6results of operations, ~~2003~~cash flows, strategies or prospects in a material and adverse manner. In addition to the risks identified in our 2005 10-K, we are also subject to the following additional risks:

~~31.2~~Risks ~~Section~~Related ~~302~~to ~~Certification~~Our ~~from~~Proposed ~~Mr.~~Merger ~~Stephen E. Riffee, dated November 6, 2003~~

~~32.1~~On ~~Section~~March 5, ~~906~~2006, ~~Certification~~we, ~~from~~and ~~Mr.~~certain ~~Thomas~~other A.parties, ~~Carr~~including CarrAmerica, entered into a definitive Merger Agreement pursuant to which they have agreed, subject to the approval of CarrAmerica’s common shareholders and Mrcertain other conditions, to merge with and into an affiliate of The Blackstone Group. ~~Stephen~~A Epreliminary proxy statement in connection with a special meeting of stockholders of CarrAmerica was filed by CarrAmerica with the Securities and Exchange Commission (the “SEC”) on April 7, 2006 and may be obtained by visiting the SEC’s website at www.sec.gov. ~~Riffee~~The proxy statement contains important information about CarrAmerica and its subsidiaries (including us), ~~dated~~the ~~November~~buyer 6parties, ~~2003~~the proposed merger and other related matters, and the discussions below contain only limited information about the merger. As a result, you are encouraged to read the proxy statement in its entirety for additional information about the proposed merger.

In connection with the proposed merger, CarrAmerica and its subsidiaries (bincluding us), ~~Reports~~are onsubject ~~Form~~to ~~8-K~~certain risks including, but not limited to, those set forth below.

~~None~~If CarrAmerica is unable to consummate the proposed merger, their business, financial condition, operating results and stock price could suffer.

22The completion of the proposed merger is subject to the satisfaction of numerous closing conditions, including the approval of the merger by CarrAmerica’s common stockholders. In addition, the occurrence of certain material events, changes or other circumstances could give rise to the termination of the Merger Agreement. Further, to date, two separate lawsuits have been filed seeking class action status and seeking to enjoin the merger, and additional legal proceedings may be instituted against CarrAmerica seeking to prevent the merger from being completed. As a result, no assurances can be given that the merger will be consummated. If CarrAmerica’s common stockholders choose not to approve the proposed merger, they otherwise fail to satisfy, or obtain a waiver of the satisfaction of, the closing conditions to the transaction and the merger is not consummated, a material event, change or circumstance has occurred that results in the termination of the Merger Agreement, or any legal proceeding results in enjoining the merger, CarrAmerica and its subsidiaries (including us), could be subject to various adverse consequences, including, but not limited to, the following:

•

We would remain liable for significant costs relating to the proposed merger, including, among others, legal, accounting, financial advisory and financial printing expenses;

•

We may face various disruptions to the operation of our business as a result of the substantial time and effort invested by CarrAmerica management in connection with the merger;

•

The decision to enter into the proposed merger may cause substantial harm to relationships between CarrAmerica and its employees and/or may divert employee attention away from day-to-day operations of our business;

•

an announcement that CarrAmerica has abandoned the proposed merger could trigger a decline in CarrAmerica’s stock price to the extent that its stock price reflects a market assumption that it will complete the merger;

•

CarrAmerica’s inability to solicit competing acquisition proposals and the possibility that they could be required to pay a termination fee of $85 million plus expense reimbursements of up to $7.5 million if the Merger Agreement is terminated under certain circumstances; and

•

We may forego alternative business opportunities or fail to respond effectively to competitive pressures.

Certain restrictive pre-closing covenants in the Merger Agreement may negatively affect CarrAmerica’s business, financial condition, operating results and cash flows.

Pending completion of the proposed merger, CarrAmerica and its subsidiaries (including us) have agreed to conduct their business in the ordinary course and consistent with their past practices. CarrAmerica also have agreed, subject to certain exceptions, that they and their subsidiaries will not, among other things:

•

declare, set aside, make or pay dividends or other distributions, other than (a) dividends paid by their wholly owned subsidiaries, (b) the quarterly dividend payment on their common stock for the quarter ended March 31, 2006 (not to exceed $0.50 per share), (c) the corresponding quarterly distribution for certain of their subsidiaries, and (d) cash dividends on their Series E preferred stock;

•

acquire (by merger, consolidation, acquisition of equity interest or assets, or any other business combination) any corporation, partnership, limited liability company, joint venture or other business organization and any property (other than real property) or asset for consideration in excess of $200,000, or, subject to the consent of the purchaser, acquire, or enter into any option, commitment or agreement to acquire, any real property or commence any development activity on any of their, their subsidiaries’ or their joint ventures’ properties;

•

incur any indebtedness or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person (other than a subsidiary) for indebtedness;

•

modify, amend or terminate any material contract or enter into any new material contract or any non-compete contract;

•

repurchase, repay or prepay any of our indebtedness, or pay, discharge or satisfy any material claims, liabilities or obligations;

•

enter into a new lease or terminate, materially modify or amend any lease that relates to in excess of 25,000 square feet or net rentable area at any of their, their subsidiaries’ and their joint ventures’ properties, or enter into, terminate or materially modify or amend any ground lease;

•

make any loans, advances or capital contributions to, or investments in, any person (other than their subsidiaries, joint ventures or as required by any material contract in effect as of March 5, 2006), or authorize or enter into any commitment for any new material capital expenditure other than certain permitted expenditures;

•

waive, release, assign, settle or compromise any material legal actions or material liabilities or certain securities-related legal actions;

•

sell or otherwise dispose of, or subject to any encumbrance, any of their, their subsidiaries’ or their joint ventures’ properties or other material assets other than pending sales pursuant to definitive agreements executed prior to March 5, 2006; and

•

announce an intention, enter into an agreement or otherwise make a commitment to do any of the foregoing.

These restrictions could alter the manner in which CarrAmerica and its subsidiaries (including us) have customarily conducted their business and therefore significantly disrupt the operation of their business, and could have a material adverse effect on our business, financial condition, cash flows and operating results.

Pending consummation of the proposed merger, existing or prospective tenants, vendors and other parties may delay or defer decisions concerning their business transactions or relationships with CarrAmerica, which may harm their results of operations going forward if the merger is not consummated.

Because the merger is subject to several closing conditions, including the approval of the merger by CarrAmerica’s common stockholders, uncertainty exists regarding the completion of the merger. This uncertainty may cause existing or prospective tenants, vendors and other parties to delay or defer decisions concerning their business transactions or relationships with CarrAmerica and/or us, which could negatively affect our business and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Pursuant to our partnership agreement, minority interest units may be redeemed by us or one of our affiliates for either cash or common stock of CarrAmerica. The following table summarizes the number and average price for redemptions of third party units during the three months ended March 31, 2006:


	Total Number of Units Redeemed Purchased (1)	Average Price Per Unit		Remaining Outstanding Third Party Units That May Yet Be Purchased
December 31, 2005				929,522
January 1-31, 2006	4,500	$	34.98	925,022
February 1-28, 2006	—		—	925,022
March 1-31, 2006	—		—	925,022

	4,500			925,022

(1)	Units purchased pursuant to the redemption terms included in our partnership agreement

Item 6. Exhibits


(a)	Exhibit
	2.1	Agreement and Plan of Merger, dated as of March 5, 2006, by and among CarrAmerica Realty Corporation, CarrAmerica Realty Operating Partnership, L.P., Carr Realty Holdings, L.P., CarrAmerica Realty, L.P., Nantucket Parent LLC, Nantucket Acquisition Inc., Nantucket CRH Acquisition L.P., and Nantucket CAR Acquisition L.P., (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 8, 2006)

	31.1	Section 302 Certification from Mr. Thomas A. Carr, dated May 4, 2006*

	31.2	Section 302 Certification from Mr. Stephen E. Riffee, dated May 4, 2006*

	32.1	Section 906 Certification from Mr. Thomas A. Carr and Mr. Stephen E. Riffee, dated May 4, 2006*

*Filed herewith

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/~~a ~~Kurt~~Delaware A.Limited ~~Heister~~Partnership ~~Kurt A. Heister, Treasurer (on behalf of registrant and as its principal accounting officer)~~

~~Date~~By: ~~November~~CarrAmerica 6Realty GP Holdings, ~~2003~~LLC, its general partner

23By: CarrAmerica Realty Operating Partnership, L.P., its sole member

By: CarrAmerica Realty Corporation, its general partner

/s/ Kurt A. Heister

Kurt A. Heister, Treasurer

(of CarrAmerica Realty Corporation, on behalf of the registrant)

Date: May 4, 2006

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Filing Compare · CARRAMERICA REALTY L P