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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 13, 2002
CARRAMERICA REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 1-11706 52-1796339
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
1850 K Street, NW, Suite 500
Washington, DC 20006
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
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(202) 729-1700
Not applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events
In June 2000, we disposed of a substantial portion of our equity
interest in HQ Global Workplaces, Inc. ("HQ Global") in connection with a merger
transaction involving HQ Global and VANTAS Incorporated ("VANTAS"), which was
then a subsidiary of FrontLine Capital Group ("FrontLine"). We continue to own
an approximately 16% equity interest in HQ Global.
On January 30, 2002, FrontLine reiterated that HQ Global was in active
negotiations with its lenders and certain other investors in HQ Global with
respect to the restructuring of its long-term indebtedness with an objective of
reaching an agreement on terms that would provide HQ Global with sufficient
liquidity to operate its business through the current economic downturn.
Unsuccessful in these attempts, on March 13, 2002, HQ Global filed for
bankruptcy protection under Chapter 11 of the federal bankruptcy laws. We
provide below certain information concerning the possible effects of this
bankruptcy filing on our financial condition and results of operations.
As previously disclosed in our filing dated February 8, 2002 on Form
8-K, we took an impairment charge of $42.2 million with respect to this
investment in the fourth quarter of 2001, which constituted a write-down of our
entire investment in HQ Global. As a result, the bankruptcy filing will have no
further impact on our investment in HQ Global as reflected on our books and
records.
We leased space at three of our office properties to HQ Global as of
the date of the bankruptcy filing. These three leases aggregate approximately
83,000 square feet of net rentable area and $2.3 million of annual base rent, or
less than 0.5% of our 2001 base rental revenue of $431.8 million. Rent payments
were made currently with respect to each of these leases, except that rent
payments due March 1, 2002 were not made. In addition, we subleased space to HQ
Global in one building where we hold a master lease that expires on May 31,
2002. The sublease is for approximately 23,000 square feet of net rentable area
and approximately $57,000 of monthly base rent. Rent payments were made
currently with respect to this master lease, including the rent payment due
March 1, 2002. In connection with the bankruptcy proceedings, HQ Global has the
ability to reject these leases, but has not yet done so. Even if HQ Global
rejects the leases, or otherwise fails to make timely payments of rent under the
leases, we do not believe that this would have a material adverse effect on our
financial condition or results of operations.
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As described above, we previously owned a substantial economic interest
in HQ Global. During 1997 and 1998, to assist HQ Global as it grew its business,
we provided guarantees of HQ Global's performance under four office leases that
it signed. In connection with the HQ Global/VANTAS merger transaction, FrontLine
agreed to indemnify us against any losses incurred with respect to these
guarantees. However, at this time, FrontLine's principal asset is its interest
in HQ Global, and therefore our ability to recover any resulting losses from
FrontLine under this indemnity likely will be limited. To our knowledge, all
monthly rent payments were made by HQ Global under two of these leases through
January 2002, and rental payments under the other two leases were made through
February 2002. As a result, we may be liable to the lessors with respect to
payments due under two of these leases from and after February 2002 and under
the other two leases from and after March 2002.
As part of the initial filings made in connection with the bankruptcy
proceedings, HQ Global filed a motion to reject one of these four leases. That
lease is for space in San Jose, California. The lease is for approximately
22,000 square feet of space at two adjacent buildings and runs through October
2008, with total aggregate remaining lease payments as of February 1, 2002 of
approximately $6.2 million (approximately $706,000 of which is payable in 2002).
Our liability under this guarantee is limited to approximately $2 million.
HQ Global has not filed a motion seeking to reject the remaining three
leases that we have guaranteed, although it could do so in the future. Even if
the leases are not rejected, we may ultimately be liable to the lessor for
payments due under the leases. In one case, the lease is for approximately
25,000 square feet of space in midtown Manhattan, and our liability is currently
capped at approximately $630,000, which liability reduces over the life of the
lease until its expiration in September 2007. The second lease is a sublease for
space in downtown Manhattan. This lease is for approximately 26,000 square feet
of space and runs through March 2008, with total aggregate remaining lease
payments as of February 1, 2002 of approximately $5.4 million (approximately
$755,000 of which is payable in 2002). The third lease is for space in San
Mateo, California. This lease is for approximately 19,000 square feet of space
and runs through January 2013, with total aggregate remaining lease payments as
of March 1, 2002 of approximately $10.4 million (approximately $612,000 of which
is payable in 2002).
We currently are evaluating a number of options with respect to these
leases in an attempt to reduce or eliminate our possible exposure under these
lease guarantees. These options include, among other things, seeking to sublease
certain of these lease locations to third parties or
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assuming the lease as a primary tenant and conducting executive suites or other
business activities at these locations. It also is possible that claims by the
lessors under the guarantees may be mitigated through re-leasing by them of the
space or by retaining the security (generally in the form of cash or letters of
credit) granted to them by HQ Global under the leases, but there can be no
assurance that this will be the case.
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SIGNATURE
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 hereunto duly authorized.
CARRAMERICA REALTY CORPORATION
Date: March 15, 2002 By: /s/ Stephen E. Riffee
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Stephen E. Riffee,
Senior Vice President, Controller
and Treasurer