<PAGE> 1
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 JUNE 30, 1999
COMMISSION FILE NO. 333-42293
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-2531304
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
777 Main Street, Suite 2100, Fort Worth, Texas 76102
- -------------------------------------------------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code (817) 321-2100
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
- -------------------------------------------------------------------------------
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 for 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 [ ]
<PAGE> 2
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
December 31, 1998 (audited) .............................................. 3
Consolidated Statements of Operations for the three and six months ended
June 30, 1999 and 1998 (unaudited) ....................................... 4
Consolidated Statement of Partners' Capital for the six months ended ..... 5
June 30, 1999 (unaudited)
Consolidated Statements of Cash Flows for the six months ended June 30,
1999 and 1998 (unaudited) ................................................ 6
Notes to Financial Statements ............................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................... 22
Item 3. Quantitative and Qualitative Disclosures about Market Risk ............... 51
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ........................................................ 51
Item 2. Changes in Securities .................................................... 51
Item 3. Defaults Upon Senior Securities .......................................... 51
Item 4. Submission of Matters to a Vote of Security Holders ...................... 51
Item 5. Other Information ........................................................ 52
Item 6. Exhibits and Reports on Form 8-K ......................................... 52
</TABLE>
2
<PAGE> 3
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(NOTES 1, 2 AND 3)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Land $ 399,434 $ 400,690
Land held for development or sale 95,282 95,282
Building and improvements 3,606,474 3,569,774
Furniture, fixtures and equipment 69,018 63,626
Less - accumulated depreciation (448,829) (387,457)
----------- -----------
Net investment in real estate 3,721,379 3,741,915
Cash and cash equivalents 104,868 109,828
Restricted cash and cash equivalents 62,619 46,841
Accounts receivable, net 33,452 32,585
Deferred rent receivable 89,143 73,635
Investments in real estate mortgages and
equity of unconsolidated companies 912,141 743,516
Notes receivable , net 195,079 187,063
Other assets, net 109,117 110,566
----------- -----------
Total assets $ 5,227,798 $ 5,045,949
=========== ===========
LIABILITIES:
Borrowings under Credit Facility $ 660,000 $ 660,000
Notes payable 2,032,421 1,658,156
Accounts payable, accrued expenses and other liabilities 135,394 149,442
----------- -----------
Total liabilities 2,827,815 2,467,598
----------- -----------
COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS: 25,458 26,727
PARTNERS' CAPITAL:
Series A Preferred Units, 8,000,000 Units issued and outstanding
at June 30, 1999 and December 31, 1998 200,000 200,000
Units of Partnership Interests, 66,315,188 and 68,823,252 issued
and outstanding at June 30, 1999 and December 31, 1998,
respectively:
General partner -- outstanding 599,257 and 622,777 3,214 3,815
Limited partners' -- outstanding 65,715,931 and 68,200,475 2,165,788 2,352,846
Accumulated other comprehensive income 5,523 (5,037)
----------- -----------
Total partners' capital 2,374,525 2,551,624
----------- -----------
Total liabilities and partners' capital $ 5,227,798 $ 5,045,949
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
(NOTES 1, 3, AND 4)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
(UNAUDITED) (UNAUDITED)
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Office and retail properties $ 155,713 $ 137,472 $ 305,735 $ 263,900
Hotel properties 16,107 12,678 31,511 25,552
Behavioral healthcare properties 13,825 13,824 27,648 27,647
Interest and other income 6,752 5,130 13,250 13,154
------------ ------------ ------------ ------------
Total revenues 192,397 169,104 378,144 330,253
------------ ------------ ------------ ------------
EXPENSES:
Real estate taxes 22,454 17,309 43,200 33,406
Repairs and maintenance 10,668 9,102 21,692 17,802
Other rental property operating 32,498 29,774 65,110 59,665
Corporate general and administrative 3,816 3,554 7,930 6,701
Interest expense 44,917 37,844 87,398 72,127
Amortization of deferred financing costs 2,755 1,110 5,824 2,250
Depreciation and amortization 33,010 28,250 66,657 54,832
Settlement of merger dispute -- -- 15,000 --
------------ ------------ ------------ ------------
Total expenses 150,118 126,943 312,811 246,783
------------ ------------ ------------ ------------
Operating income 42,279 42,161 65,333 83,470
OTHER INCOME AND EXPENSE:
Equity in net income of unconsolidated
companies
Office and retail properties (5) (372) 1,956 829
Refrigerated storage properties 4,021 (1,585) 9,730 (1,516)
Residential development properties 14,415 8,074 23,044 12,649
Other 603 -- 910 --
------------ ------------ ------------ ------------
Total other income and expense 19,034 6,117 35,640 11,962
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTERESTS: 61,313 48,278 100,973 95,432
Minority interests (239) (407) (484) (807)
------------ ------------ ------------ ------------
NET INCOME 61,074 47,871 100,489 94,625
PREFERRED UNIT DIVIDENDS (3,375) (3,375) (6,750) (4,950)
FORWARD SHARE PURCHASE
AGREEMENT RETURN (2,165) -- (4,317) --
------------ ------------ ------------ ------------
NET INCOME AVAILABLE TO PARTNERS $ 55,534 $ 44,496 $ 89,422 $ 89,675
============ ============ ============ ============
PER UNIT DATA:
Net Income - Basic $ 0.80 $ 0.67 $ 1.29 $ 1.36
============ ============ ============ ============
Net Income - Diluted $ 0.79 $ 0.65 $ 1.27 $ 1.31
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 11)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED GENERAL LIMITED OTHER TOTAL
PARTNERS' PARTNER'S PARTNERS' COMPREHENSIVE PARTNERS'
CAPITAL CAPITAL CAPITAL INCOME CAPITAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Partners' capital, December 31, 1998 $ 200,000 $ 3,815 $ 2,352,846 $ (5,037) $ 2,551,624
Contributions -- -- 21,747 -- 21,747
Settlement of Forward Share Purchase Agreement -- -- (149,384) -- (149,384)
Distributions -- (1,538) (152,223) -- (153,761)
Net income -- 937 92,802 -- 93,739
Accumulated other comprehensive income -- -- -- 10,560 10,560
------------ ------------ ------------ ------------ ------------
Partners' capital, June 30, 1999 $ 200,000 $ 3,214 $ 2,165,788 $ 5,523 $ 2,374,525
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(NOTES 1, 2 AND 5)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------------
(UNAUDITED)
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 100,489 $ 94,625
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 72,481 57,082
Minority interests 484 807
Non-cash compensation 81 135
Distributions received in excess of equity in earnings
from unconsolidated companies -- 9,000
Equity in earnings in excess of distributions received
from unconsolidated companies (14,621) --
Increase in accounts receivable (867) 9,303
Increase in deferred rent receivable (15,508) (16,060)
Decrease in other assets 19,253 (25,716)
Decrease in restricted cash and cash equivalents 3,766 13,185
Decrease in accounts payable, accrued
expenses and other liabilities (14,048) (32,479)
----------- -----------
Net cash provided by operating activities 151,510 109,882
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investment properties -- (582,036)
Development of investment properties (5,106) (11,498)
Capital expenditures - rental properties (14,723) (24,930)
Tenant improvement and leasing costs - rental properties (29,060) (34,316)
Increase in restricted cash and cash equivalents (19,544) (25)
Investment in unconsolidated companies (127,422) (74,608)
Investment in residential development companies (21,688) --
Return of investment in residential development properties -- 14,063
Escrow deposits - acquisition of investment properties -- (2,160)
(Increase) decrease in notes receivable (8,016) 14,501
----------- -----------
Net cash used in investing activities (225,559) (701,009)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (12,864) (2,293)
Borrowings under credit facility 51,920 532,150
Payments under credit facility (51,920) (272,150)
Debt proceeds 490,000 205,034
Debt payments (115,735) (170,562)
Capital distributions - joint venture partner (1,753) (1,596)
Capital Contributions to the Operating Partnership 17,922 460,143
Settlement of Share Purchase Agreement (149,384) --
Distributions from the Operating Partnership (159,097) (104,612)
----------- -----------
Net cash provided by financing activities 69,089 646,114
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,960) 54,987
CASH AND CASH EQUIVALENTS,
Beginning of period 109,828 66,063
----------- -----------
CASH AND CASH EQUIVALENTS,
End of period $ 104,868 $ 121,050
----------- -----------
$ 104,868 $ 121,050
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership ("CREELP" and, together with its direct and indirect ownership
interests in limited partnerships, corporations and limited liability
companies, the "Operating Partnership"), was formed under the terms of a
limited partnership agreement dated February 9, 1994. The Operating Partnership
is controlled by Crescent Real Estate Equities Company, a Texas real estate
investment trust (the "Company"), through the Company's ownership of all of the
outstanding stock of Crescent Real Estate Equities, Ltd., a Delaware
corporation ("CREE, Ltd."), which owns an approximately 1% general partner
interest in the Operating Partnership. In addition, the Company owns an
approximately 89% limited partner interest in the Operating Partnership, with
the remaining approximately 10% limited partner interest held by other limited
partners. The Operating Partnership directly or indirectly owns substantially
all of the economic interests in seven separate single purpose limited
partnerships (all formed for the purpose of obtaining securitized debt), with
the remaining interests owned indirectly by the Company through seven separate
corporations, each of which is a wholly owned subsidiary of CREE, Ltd. and a
general partner of one of the seven limited partnerships.
All of the limited partners of the Operating Partnership other than
the Company own, in addition to limited partner interests, units. Each unit
entitles the holder to exchange the unit (and the related limited partner
interest) for two common shares of the Company or, at the Company's option, an
equivalent amount of cash. For purposes of this report, the term "unit" or
"unit of partnership interest" refers to the limited partner interest and, if
applicable, related units held by a limited partner. Accordingly, the Company's
approximately 89% limited partner interest has been treated as equivalent, for
purposes of this report, to 59,326,407 units, and the remaining approximately
10% limited partner interest has been treated as equivalent, for purposes of
this report, to 6,389,524 units. In addition, the Company's 1% general partner
interest has been treated as equivalent, for purposes of this report, to
599,257 units.
SEGMENTS
As of June 30, 1999, the Operating Partnership's assets and operations
were composed of five major industry segments:
o Office and Retail Segment;
o Hospitality Segment;
o Residential Development Segment;
o Refrigerated Storage Segment; and
o Behavioral Healthcare Segment.
Within these segments, the Operating Partnership owned directly or
indirectly the following real estate assets (the "Properties") as of June 30,
1999:
o OFFICE AND RETAIL SEGMENT consists of 89 office properties
(collectively referred to as the "Office Properties") located
in 31 metropolitan submarkets in nine states, with an
aggregate of approximately 31.8 million net rentable square
feet and seven retail properties (collectively referred to as
the "Retail Properties") with an aggregate of approximately
0.8 million net rentable square feet.
7
<PAGE> 8
o HOSPITALITY SEGMENT consists of eight full service hotels
with a total of 2,636 rooms and two destination health and
fitness resorts that can accommodate up to 462 guests daily
(collectively referred to as the "Hotel Properties"). All
Hotel Properties, except the Omni Austin Hotel, are leased to
subsidiaries of Crescent Operating, Inc. ("COI"). The Omni
Austin Hotel is leased to an unrelated third party.
o RESIDENTIAL DEVELOPMENT SEGMENT consists of the Operating
Partnership's ownership of real estate mortgages and
non-voting common stock representing interests ranging from
40% to 95% in five unconsolidated residential development
corporations (collectively referred to as the "Residential
Development Corporations"), which in turn, through joint
venture or partnership arrangements, own 13 residential
development properties (collectively referred to as the
"Residential Development Properties").
o REFRIGERATED STORAGE SEGMENT consists of the Operating
Partnership's indirect 39.6% interest in three partnerships
(collectively referred to as the "Refrigerated Storage
Partnerships"), each of which owns one or more corporations
or limited liability companies (collectively referred to as
the "Refrigerated Storage Corporations") which, as of June
30, 1999, directly or indirectly owned approximately 86
refrigerated storage properties (collectively referred to as
the "Refrigerated Storage Properties") with an aggregate of
approximately 416.2 million cubic feet (16.6 million square
feet).
o BEHAVIORAL HEALTHCARE SEGMENT consists of 88 properties in 26
states (collectively referred to as the "Behavioral
Healthcare Properties") that are leased to Charter Behavioral
Health Systems, LLC ("CBHS"). CBHS was formed to operate the
Behavioral Healthcare Properties and is owned 50% by a
subsidiary of Magellan Health Services, Inc. ("Magellan") and
50% by COI. See Note 14. Proposed CBHS Recapitalization for a
description of the current status of the Operating
Partnerhip's lease with CBHS.
The Company owns its assets and carries on its operations and other
activities through the Operating Partnership and its other subsidiaries. The
limited partnership agreement of the Operating Partnership acknowledges that all
of the Company's operating expenses are incurred for the benefit of the
Operating Partnership and provides that the Operating Partnership shall
reimburse the Company for all such expenses. Accordingly, expenses of the
Company are reimbursed by the Operating Partnership. See Note 6. Segment
Reporting for a table showing revenues, funds from operations and identifiable
assets for each of these industry segments for the three and six months ended
June 30, 1999 and 1998.
The following table shows, by entity, the Properties that the Operating
Partnership and subsidiaries owned as of June 30, 1999:
<TABLE>
<S> <C>
Operating Partnership: 62 Office Properties, six Hotel Properties and five Retail Properties
Crescent Real Estate The Aberdeen, The Avallon, Caltex House, The Citadel, The Crescent Atrium, The Crescent
Funding I, L.P.: Office Towers, Regency Plaza One, UPR Plaza and Waterside Commons
("Funding I")
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate Office and Research Center, Hyatt
Funding II, L.P.: Regency Albuquerque, Hyatt Regency Beaver Creek, Las Colinas Plaza, Liberty Plaza I &
("Funding II") II, MacArthur Center I & II, Ptarmigan Place, Stanford Corporate Centre, Two
Renaissance Square and 12404 Park Central
Crescent Real Estate Greenway Plaza Portfolio(1)
Funding III, IV and V,
L.P.:
("Funding III, IV and V")
Crescent Real Estate Canyon Ranch-Lenox
Funding VI, L.P.:
("Funding VI")
Crescent Real Estate Behavioral Healthcare Properties
Funding VII, L.P."
("Funding VII")
</TABLE>
- -------------------------------------------
(1) Funding III owns the Greenway Plaza Portfolio (inclusive of one Hotel
Property), except for the central heated and chilled water plant
building and Coastal Tower Office Property, both located within
Greenway Plaza, which are owned by Funding IV and Funding V,
respectively.
8
<PAGE> 9
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, the information and footnotes required by GAAP for
complete financial statements are not included. In management's opinion, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the unaudited interim financial statements are
included. Operating results for interim periods reflected do not necessarily
indicate the results that may be expected for a full fiscal year. You should
read these financial statements in conjunction with the financial statements
and the accompanying notes included in the Operating Partnership's Form 10-K
for the year ended December 31, 1998.
Certain previously reported amounts have been reclassified to conform
with the current presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which provides that all
derivative instruments should be recognized as either assets or liabilities
depending on the rights or obligations under the contract and that all
derivative instruments be measured at fair value. This pronouncement is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000, and would have had no material impact on the Operating Partnership's
financial statements for the three or six months ended June 30, 1999.
3. PROPERTIES HELD FOR DISPOSITION:
In pursuit of management's objective to dispose of non-strategic or
non-core assets to generate funds for future growth, the Operating Partnership
is actively marketing for sale 12 Office Properties. These 12 Office Properties
held for disposition are included in the Net Investment in Real Estate of
$3,721,379. Eight of the Properties are in Dallas, two are in New Orleans, one
is in Denver and one is in Omaha. The disposition of these Properties is
subject to identification of a purchaser, negotiation of acceptable terms and
other customary conditions.
The following table summarizes the condensed results of operations for
the six months ended June 30, 1999 and 1998, for the 12 Office Properties held
for disposition.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Revenue $ 22,030 $ 21,728
Operating Expenses 10,034 8,994
----------- -----------
Net Operating Income $ 11,996 $ 12,734
=========== ===========
</TABLE>
The Operating Partnership does not intend to sell these Office
Properties at prices below management's assessment of fair value, which exceeds
the net book value of these Office Properties at June 30, 1999. Additionally,
there is not expected to be any impairment to the portfolio of real estate
assets remaining as a result of any sale of these Office Properties.
9
<PAGE> 10
4. EARNINGS PER UNIT OF PARTNERSHIP INTEREST:
SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share. Basic EPS excludes all dilution, while
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common shares were exercised or converted into common
shares.
<TABLE>
<CAPTION>
For the three months ended June 30,
---------------------------------------------------------------------
1999 1998
--------- ---------
Wtd. Avg. Per Unit Wtd. Avg. Per Unit
Income Units Amount Income Units Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS -
Net income available
to partners ..... $ 55,534 69,655 $ 0.80 $ 44,496 66,387 $ 0.67
========= =========
Effect of dilutive
securities:
Unit options .... -- 1,064 -- 2,297
---------------------------------------------------------------------
Diluted EPS -
Net income available
to partners...... $ 55,534 70,719 $ 0.79 $ 44,496 68,684 $ 0.65
========= ======= ========= ========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
1999 1998
--------- ---------
Wtd. Avg. Per Unit Wtd. Avg. Per Unit
Income Units Amount Income Units Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS -
Net income available
to partners...... $ 89,422 69,254 $ 1.29 $ 89,675 65,962 $ 1.36
========= =========
Effect of dilutive
securities:
Unit options...... -- 1,070 -- 2,320
---------------------------------------------------------------------
Diluted EPS -
Net income available
to partners...... $ 89,422 70,324 $ 1.27 $ 89,675 68,282 $ 1.31
========= ======= ========= ========= ======= =========
</TABLE>
The effect of the conversion of the Series A Convertible Cumulative
Preferred Shares is not included in the computation of diluted EPS for the
three or six months ended June 30, 1999 or 1998 since the effect of their
conversion is antidilutive. Also, the Company's obligation under the Forward
Share Purchase Agreement, which terminated as of June 30, 1999, is not included
in the computation of diluted EPS for the three or six months ended June 30,
1999 or 1998 since the effect of the obligation is antidilutive.
5. SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid ........................................... $ 87,781 $ 70,834
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of Operating Partnership units in conjunction
with settlement of an obligation .................... -- 8,522
Issuance of Operating Partnership units in conjunction
with investments .................................... -- 11,450
Acquisition of partnership interests .................... 3,775 --
Unrealized gain on available-for-sale securities ........ 10,560 --
Forward Share Purchase Agreement Return ................. 4,317 --
</TABLE>
10
<PAGE> 11
6. SEGMENT REPORTING:
The Operating Partnership adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" beginning with the year
ended December 31, 1998. The Operating Partnership currently has five major
operating segments: the Office and Retail Segment; the Hospitality Segment; the
Refrigerated Storage Segment; the Residential Development Segment and the
Behavioral Healthcare Segment. Management organizes the segments within the
Operating Partnership based on property type for making operating decisions and
assessing performance. Operating segments for SFAS No. 131 are determined on
the same basis.
The Operating Partnership uses funds from operations ("FFO") as the
measure of segment profit or loss. FFO, based on the definition adopted by the
Board of Governors of the National Association of Real Estate Investment Trusts
("NAREIT") and as used in this document, means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from debt restructuring
and sales of property;
o plus depreciation and amortization of real estate
assets; and
o after adjustments for unconsolidated partnerships and
joint ventures.
NAREIT developed FFO as a relative measure of performance and liquidity
of an equity REIT to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. The Operating
Partnership considers FFO an appropriate measure of performance for an equity
REIT, and for its operating segments. However, the Operating Partnership's
measure of FFO may not be comparable to similarly titled measures of REITs
(other than the Company) because these REITs may apply the definition of FFO in
a different manner than the Operating Partnership.
11
<PAGE> 12
Selected financial information related to each operating segment for
the three and six months ended June 30, 1999 and 1998 is presented below.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
1999 1998 1999 1998.
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Office and Retail Segment $ 155,713 $ 137,472 $ 305,735 $ 263,900
Hospitality Segment 16,107 12,678 31,511 25,552
Behavioral Healthcare Segment 13,825 13,824 27,648 27,647
Refrigerated Storage Segment -- -- -- --
Residential Development Segment -- -- -- --
Corporate and other 6,752 5,130 13,250 13,154
-------------- -------------- -------------- --------------
TOTAL CONSOLIDATED REVENUE $ 192,397 $ 169,104 $ 378,144 $ 330,253
============== ============== ============== ==============
FUNDS FROM OPERATIONS:
Office and Retail Segment $ 92,373 $ 82,071 $ 181,479 $ 156,116
Hospitality Segment 15,896 12,486 31,094 25,110
Behavioral Healthcare Segment 13,825 13,824 27,648 27,647
Refrigerated Storage Segment 9,208 5,398 17,488 11,538
Residential Development Segment 21,037 14,713 34,338 24,090
Corporate and other adjustments:
Interest expense (44,917) (37,844) (87,398) (72,127)
Preferred share dividends (3,375) (3,375) (6,750) (4,950)
Other 4,195 3,626 7,374 10,166
Corporate G & A (3,816) (3,554) (7,930) (6,701)
-------------- -------------- -------------- --------------
TOTAL FUNDS FROM OPERATIONS $ 104,426 $ 87,345 $ 197,343 $ 170,889
-------------- -------------- -------------- --------------
ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS TO NET
INCOME:
Depreciation and amortization of real estate
assets $ (32,149) $ (27,664) $ (65,026) $ (53,715)
Settlement of merger dispute -- -- (15,000) --
Adjustment for investments in real estate
mortgages and equity of unconsolidated companies:
Office and Retail Segment (2,597) (1,563) (4,354) (3,004)
Refrigerated Storage Segment (5,187) (6,983) (7,758) (13,054)
Residential Development Segment (6,622) (6,639) (11,294) (11,441)
Corporate and other (172) -- (172) --
Preferred share dividends 3,375 3,375 6,750 4,950
-------------- -------------- -------------- --------------
NET INCOME $ 61,074 $ 47,871 $ 100,489 $ 94,625
============== ============== ============== ==============
EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES:
Office and Retail Segment $ (5) $ (372) $ 1,956 $ 829
Hospitality Segment -- -- -- --
Behavioral Healthcare Segment -- -- -- --
Refrigerated Storage Segment 4,021 (1,585) 9,730 (1,516)
Residential Development Segment 14,415 8,074 23,044 12,649
Corporate and other 603 -- 910 --
-------------- -------------- -------------- --------------
TOTAL EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES $ 19,034 $ 6,117 $ 35,640 $ 11,962
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
-------------- --------------
<S> <C> <C>
IDENTIFIABLE ASSETS:
Office and Retail Segment $ 3,329,219 $ 3,228,985
Hospitality Segment 457,391 418,657
Behavioral Healthcare Segment 382,600 383,397
Refrigerated Storage Segment 285,791 222,908
Residential Development Segment 316,294 297,689
Corporate and other 456,503 362,608
-------------- --------------
TOTAL IDENTIFIABLE ASSETS $ 5,227,798 $ 4,914,244
============== ==============
</TABLE>
12
<PAGE> 13
COI and CBHS are the two largest lessees of the Operating Partnership
in terms of total consolidated rental revenues derived from leases. Total
rental revenues from each of COI and CBHS for the six months ended June 30,
1999 were approximately 8% of the Operating Partnership's total consolidated
rental revenues. COI was the primary lessee of the Hotel Properties for the six
months ended June 30, 1999, and CBHS was the sole lessee of the Behavioral
Healthcare Properties during that period. See Note 14. Proposed CBHS
Recapitalization.
See Note 12. Investments and Potential Dispositions for a description
of the sole lessee of the Refrigerated Storage Properties.
7. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES:
The following is a summary of the Operating Partnership's ownership in
significant unconsolidated companies:
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP'S OWNERSHIP
ENTITY CLASSIFICATIONS AS OF JUNE 30, 1999
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Desert Mountain Development Corporation Residential Development Corporation 95%(1)
Houston Area Development Corp. Residential Development Corporation 94%(1)
The Woodlands Land Company, Inc. Residential Development Corporation 95%(1)
Crescent Development Management Corp. Residential Development Corporation 90%(1)
Mira Vista Development Corp. Residential Development Corporation 94%(1)
Crescent CS Holdings Corp. Crescent Subsidiary 99%(2)
Crescent CS Holdings II Corp. Crescent Subsidiary 99%(2)
The Woodlands Commercial Office and Retail (various
Properties Company, L.P. commercial properties)(3) 42.5%
Main Street Partners, L.P. Office and Retail (office property
- Bank One Center) 50%
DBL Holdings, Inc. Other(4) 95%
Metropolitan Partners, LLC Other (5)
CRL Investments, Inc. Other 95%
</TABLE>
- ---------------------
(1) See Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Residential Development
Properties Table included in that section for the Residential
Development Corporation's ownership interest in the Residential
Development Properties.
(2) The Crescent Subsidiaries have a 40% interest in each of the
Refrigerated Storage Partnerships. Accordingly, each of the Crescent
Subsidiaries has an indirect 40% interest in the Refrigerated Storage
Properties.
(3) The Woodlands Commercial Properties Company, L.P. is actively
marketing for sale certain commercial property assets in The Woodlands.
(4) See Note 15. Pending Divestiture for more information regarding
certain interests that the Operating Partnership has agreed to sell.
(5) See Note 12. Investments and Potential Dispositions for a description
of the Operating Partnership's investment in Metropolitan Partners,
LLC.
The Operating Partnership reports its share of income and losses based on its
ownership interest in its respective equity investments. The following
summarized information for all unconsolidated companies is presented on an
aggregate basis and classified under the captions "Residential Development
Corporations," "Refrigerated Storage Corporations," "Office and Retail" and
"Other," as applicable, as of June 30, 1999.
13
<PAGE> 14
BALANCE SHEETS AT JUNE 30, 1999:
<TABLE>
<CAPTION>
RESIDENTIAL REFRIGERATED
DEVELOPMENT STORAGE OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Real estate, net ............................. $ 668,125 $ 1,270,376 $ 469,000
Cash ......................................... 24,386 20,981 27,866
Other assets ................................. 175,801 197,264 16,363
------------ ------------ ------------
Total assets ............................. $ 868,312 $ 1,488,621 $ 513,229
============ ============ ============
Notes payable ................................ $ 318,095 $ 592,430 $ 274,359
Notes payable to the Operating Partnership ... 174,506 -- --
Other liabilities ............................ 165,044 165,173 17,511
Equity ....................................... 210,667 731,018 221,359
------------ ------------ ------------
Total liabilities and equity ............ $ 868,312 $ 1,488,621 $ 513,229
============ ============ ============
Operating Partnership's share of
unconsolidated debt .......................... $ 155,511 $ 234,602 $ 128,228
============ ============ ============
Operating Partnership's investments in real
estate mortgages and equity of
unconsolidated companies ..................... $ 316,294 $ 285,791 $ 105,916 $ 204,140
============ ============ ============ ============
</TABLE>
SUMMARY STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 1999
----------------------------------------------------------
RESIDENTIAL REFRIGERATED
DEVELOPMENT STORAGE OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues ......................... $ 211,786 $ 171,777 $ 46,542
Expenses:
Operating expense ................... 164,128 102,882 19,707
Interest expense .................... 1,507 23,058 8,794
Depreciation and amortization ....... 5,405 28,195 8,844
Taxes ............................... 10,959 (5,964) --
------------ ------------ ------------
Total expenses ........................ 181,999 148,171 37,345
------------ ------------ ------------
Net income ............................. $ 29,787 $ 23,606 $ 9,197
============ ============ ============
Operating Partnership's equity in net
income of unconsolidated companies ..... $ 23,044 $ 9,730 $ 1,956 $ 910
============ ============ ============ ============
</TABLE>
14
<PAGE> 15
8. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:
<TABLE>
<CAPTION>
The following is a summary of the Operating Partnership's debt financing at June 30, 1999: BALANCE AT
JUNE 30,
1999
-----------
<S> <C>
SECURED DEBT
BankBoston, N.A. ("BankBoston") Term Note due October 30, 2001, bears interest at the
Eurodollar rate plus 325 basis points or the Base Rate (as defined in the Term Note
Agreement) plus 100 basis points (at June 30, 1999, the rate was 8.49% based on the
Eurodollar rate), with a three-year interest-only term, secured by Greenway I and IA, BP
Plaza, Washington Harbour, Bank One Tower, Frost Bank Plaza, Central Park Plaza, 3333 Lee
Parkway, The Addison and Reverchon Plaza Office Properties ....................................... $ 320,000
AEGON Note due July 1, 2009, bears interest at 7.53% with monthly principal and interest
payments based on a 25-year amortization schedule(1) , secured by the Funding III, IV and V
Properties ....................................................................................... 280,000
LaSalle Note I bears interest at 7.83% with an initial seven-year interest-only term (through
August 2002), followed by principal amortization based on a 25-year amortization schedule
through maturity in August 2027(2), secured by the Funding I Properties .......................... 239,000
Salomon Brothers Realty Corp. ("Salomon Brothers") Note due September 14, 1999, bears
interest at an initial rate of 30-day LIBOR plus 200 basis points (at June 30, 1999, the rate
was 7.24%) with an interest-only term(3), secured by the Houston Center mixed-use Office
Property complex and the Four Seasons Hotel - Houston ............................................ 184,299
LaSalle Note II bears interest at 7.79% with an initial seven-year interest-only term
(through March 2003), followed by principal amortization based on a 25-year amortization
schedule through maturity in March 2028(4), secured by the Funding II ............................ 161,000
Properties
BankBoston Bridge Loan, due August 31, 1999, bears interest at 30-day LIBOR plus 350 basis
points (at June 30, 1999, the rate was 8.74%), secured by investment interests in
Metropolitan Partners LLC and the Desert Mountain Loans(5) ....................................... 150,000
SFT Whole Loans, Inc. ("SFT") Note due September 30, 2001, bears interest at 30-day LIBOR
plus an average rate of 1.75% (at June 30, 1999, the rate was 6.99%) with an interest-only
term, secured by the Fountain Place Office Property .............................................. 97,123
CIGNA Note due December 2002, bears interest at 7.47% with an interest-only term, secured by
the MCI Tower Office Property and Denver Marriott City Center Hotel
Property ......................................................................................... 63,500
Metropolitan Life Note II due December 2002, bears interest at 6.93% with monthly principal and
interest payments based on a 25-year amortization schedule, secured by the Energy Centre Office
Property ......................................................................................... 44,000
Metropolitan Life Note III due December 1999, bears interest at 7.74% with an interest-only
term, secured by the Datran Center Office Property ............................................... 40,000
Northwestern Note due January 2004, bears interest at 7.65% with an interest-only term, secured
by the 301 Congress Avenue Office Property ....................................................... 26,000
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
BALANCE AT
JUNE 30,
1999
------------
<S> <C>
Metropolitan Life Note I due September 2001, bears interest at 8.88% with monthly principal and
interest payments based on a 20-year amortization schedule, secured by five of The Woodlands
Office Properties ................................................................................ 11,603
Nomura Funding VI Note bears interest at 10.07% with monthly principal and interest payments
based on a 25-year amortization schedule through maturity in July 2020(6), secured by the
Funding VI Property .............................................................................. 8,539
Metropolitan Life Note IV due December 1999, bears interest at 7.11% with monthly principal and
interest payments based on a 15-year amortization schedule, secured by the Datran Center Office
Property ......................................................................................... 6,610
Rigney Note due June 2012, bears interest at 8.50% with quarterly principal and interest
payments based on a 15-year amortization schedule, secured by a parcel of land ................... 747
UNSECURED DEBT
Line of Credit with BankBoston ("Credit Facility") (see description of Credit Facility below) .... 660,000
2007 Notes bear interest at a fixed rate of 7.50% with a ten-year interest-only term, due
September 2007(7) ................................................................................ 250,000
2002 Notes bear interest at a fixed rate of 7.00% with a five-year
interest-only term, due
September 2002(7) ................................................................................ 150,000
------------
Total Notes Payable ......................................................................... $ 2,692,421
============
</TABLE>
- ----------------
(1) On June 30, 1999, the Operating Partnership refinanced the $115,000 La
Salle Note III due July 1999 with this $280,000 AEGON Note. The
proceeds were primarily used to repay the existing debt of $115,000
and to settle the Company's remaining Forward Share Purchase
Agreement. (See Note 11. Partners' Capital.) The outstanding principal
balance at maturity will be approximately $223,000.
(2) In August 2007, the interest rate increases, and the Operating
Partnership is required to remit, in addition to the monthly debt
service payment, excess property cash flow, as defined, to be applied
first against principal until the note is paid in full and thereafter,
against accrued excess interest, as defined. It is the Operating
Partnership's intention to repay the note in full at such time (August
2007) by making a final payment of approximately $220,000.
(3) On May 28, 1999, the Operating Partnership refinanced the $184,299
Merrill Lynch Promissory Note with this Salomon Brothers Note.
(4) In March 2006, the interest rate increases, and the Operating
Partnership is required to remit, in addition to the monthly debt
service payment, excess property cash flow, as defined, to be applied
first against principal until the note is paid in full and thereafter,
against accrued excess interest, as defined. It is the Operating
Partnership's intention to repay the note in full at such time (March
2006) by making a final payment of approximately $154,000.
(5) Prior to expiration on July 15, 1999, the Operating Partnership
extended the term of this loan to August 31, 1999.
(6) The Operating Partnership has the option to defease the note, by
purchasing Treasury obligations in an amount sufficient to pay the
note, without penalty. In July 2010, the interest rate due under the
note will change to a 10-year Treasury yield plus 500 basis points or,
if the Operating Partnership so elects, it may repay the note without
penalty at that date.
(7) The notes were issued in an offering registered with the Securities
and Exchange Commission ("SEC").
16
<PAGE> 17
Below are the aggregate principal amounts due under the Credit
Facility and other indebtedness of the Operating Partnership by year. Scheduled
principal installments and amounts due at maturity are included.
<TABLE>
<CAPTION>
SECURED UNSECURED TOTAL
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
1999 .................... $ 381,528 $ -- $ 381,528
2000 .................... 1,359 660,000 661,359
2001 .................... 429,208 -- 429,208
2002 .................... 65,655 150,000 215,655
2003 .................... 72,201 -- 72,201
Thereafter .............. 682,470 250,000 932,470
------------ ------------ ------------
$ 1,632,421 $ 1,060,000 $ 2,692,421
============ ============ ============
</TABLE>
The Operating Partnership has approximately $381,528 of secured debt
expiring during the remainder of 1999, consisting of two major components.
The first component is $184,299 due under the Salomon Brothers Note
maturing in September 1999, which is secured by the Houston Center mixed-use
Office Property complex and the Four Seasons Hotel - Houston. The Operating
Partnership has a commitment from a commingled trust fund advised by J.P. Morgan
Investment Management, Inc. to refinance the Salomon Brothers Note with a
seven-year term loan of $200,000 bearing interest at an 8.3% fixed interest
rate. Closing of this loan is expected to occur by August 31, 1999. This
refinancing will retain the Houston Center mixed-use Office Property complex as
collateral for the loan but will not include the Four Seasons Hotel - Houston,
which currently serves as partial collateral for the existing loan.
The second component is a $150,000 short-term Bridge Loan with
BankBoston maturing August 31, 1999. The Operating Partnership has a commitment
from BankBoston for a $200,000 note secured by partnership interests in two
pools of assets which currently also secure the LaSalle Notes I and II. This
new loan is expected to have a four-year term and a floating interest rate
based on 30-day LIBOR plus 325 basis points. The Operating Partnership has
entered into a four-year $200,000 interest rate swap agreement with Salomon
Brothers Holding Company, Inc. ("Salomon") in a separate transaction related to
this financing. Pursuant to this agreement, the Operating Partnership will pay
Salomon on a quarterly basis a 6.183% fixed interest rate and Salomon will pay
the Operating Partnership a floating 90-day LIBOR rate based on the same
quarterly reset dates. This loan is also expected to close by August 31, 1999,
and the interest rate swap agreement becomes effective September 1, 1999.
CREDIT FACILITY
On June 30, 1998, the Credit Facility was increased to $850,000
(currently limited to $750,000 of borrowing capacity, subject to increase based
upon certain events) to enhance the Operating Partnership's financial
flexibility in making new real estate investments. The interest rate on
advances under the Credit Facility is the Eurodollar rate plus 137 basis
points. As of June 30, 1999, the interest rate on advances under the Credit
Facility is unsecured and expires in June 2000. In connection with the
refinancing of a BankBoston term note, the Operating Partnership used $90,000
of the net proceeds of the refinancing to purchase a 12% participation interest
from BankBoston in the Credit Facility. As a result, the Operating
Partnership's borrowing capacity under the Credit Facility is currently limited
to $660,000. The Credit Facility requires the Operating Partnership to maintain
compliance with a number of customary financial and other covenants on an
ongoing basis, including leverage ratios based on book value and debt service
coverage ratios, limitations on additional secured and total indebtedness and
distributions, limitations on additional investments and the incurrence of
additional liens, restrictions on real estate development activity and a
minimum net worth requirement. The Operating Partnership has entered into an
agreement with its lender group to amend the Credit Facility to (i) provide for
a reduction in the rent coverage level for CBHS, effective as of June 30, 1999,
(ii) reduce the Operating Partnership's reliance on the CBHS assets as support
for the Credit Facility through a combination of the payment of certain amounts
outstanding under the Credit Facility and the provision of substitute value to
support the Credit Facility, and (iii) provide for a decrease in
17
<PAGE> 18
the size of the Credit Facility. As a result of this agreement, the Operating
Partnership was in compliance with the financial covenants related to the Credit
Facility for the June 30, 1999 reporting period. The Operating Partnership
expects to make the short-term payments on the Credit Facility, as amended, with
cash from operations and proceeds from asset sales.
9. SETTLEMENT OF MERGER DISPUTE:
STATION CASINOS, INC. ("STATION")
As of April 14, 1999, the Company and Station entered into a
settlement agreement for the mutual settlement and release of all claims
between the Company and Station arising out of the agreement and plan of merger
between the Company and Station, which the Company terminated in August 1998.
As part of the settlement agreement, the Company paid $15,000 to Station on
April 22, 1999, which had been accrued by the Company at March 31, 1999.
10. MINORITY INTEREST:
Minority interest represents joint venture interests held by third
parties.
11. PARTNERS' CAPITAL:
In connection with its issuance of securities, the Company contributes
the net proceeds of these issuances to the Operating Partnership for its use in
exchange for an increase in its limited partner interest in the Operating
Partnership.
COMMON SHARE ISSUANCE
On March 25, 1999, the Company issued 12,356 additional common shares
to the former holder of the Series B Preferred Shares, settling a dispute
regarding the calculation of the conversion rate used in the conversion of the
Series B Preferred Shares into the Company's common shares on November 30,
1998.
FORWARD SHARE PURCHASE AGREEMENT
On June 30, 1999, the Company settled the forward share purchase
agreement (the "Forward Share Purchase Agreement") with affiliates of the
predecessor of UBS AG ("UBS"). As settlement of the Forward Share Purchase
Agreement, the Company made a cash payment of approximately $149,000 (the
"Settlement Price") to UBS in exchange for the return by UBS to the Company of
7,299,760 common shares. The Operating Partnership distributed the funds to the
Company in exchange for a decrease in its limited partner interest in the
Operating Partnership.
The number of common shares returned to the Company is equal to the
4,700,000 common shares originally issued to UBS plus 2,599,760 common shares
subsequently issued by the Company, because of a decline in its stock price. In
connection with the issuance of additional common shares, the Company received
an additional limited partner interest, which resulted in a reduction of the
Operating Partnership's net income per unit and net book value per unit. The
additional shares were issued as collateral for the Company's obligation to
purchase 4,700,000 common shares from UBS by August 12, 1999. The Settlement
Price was calculated based on the gross proceeds the Company received from the
original issuance of 4,700,000 common shares to UBS, plus a forward accretion
component equal to 90-day LIBOR plus 75 basis points, minus an adjustment for
the Company's distributions paid to UBS. The forward accretion component
represented a guaranteed rate of return to UBS.
Upon settlement of this agreement, neither the Company nor the
Operating Partnership had any forward share purchase agreements as of June 30,
1999.
18
<PAGE> 19
DISTRIBUTIONS
Units
On February 17, 1999, the Operating Partnership paid a distribution on
its units of $75,707, or $1.10 per unit, to holders of record on January 27,
1999. The distribution represented an annualized distribution of $4.40 per unit.
On May 18, 1999, the Operating Partnership paid a distribution on its
units of $76,494, or $1.10 per unit, to holders of record on April 27, 1999.
The distribution represented an annualized distribution of $4.40 per unit.
On July 12, 1999, the Operating Partnership declared a cash dividend and
unitholder distribution of $72,989, or $1.10 per unit, to holders of record on
July 27, 1999. The distribution represents an annualized distribution of $4.40
per unit and is payable August 17, 1999.
Preferred Units
On February 16, 1999, the Operating Partnership paid a distribution on
its Series A Preferred Units of $3,375, or $.422 per preferred unit, to the
Company, which was the sole holder of record on January 29, 1999. The
distribution represented an annualized distribution of $1.69 per preferred unit.
On May 14, 1999, the Operating Partnership paid a distribution on its
Series A Preferred Units of $3,375, or $.422 per preferred unit, to the Company,
which was the sole holder of record on April 30, 1999. The distribution
represented an annualized distribution of $1.69 per preferred unit.
On July 12, 1999, the Operating Partnership declared a distribution on
its Series A Preferred Units of $3,375, or $.422 per preferred unit, to the
Company, which was the sole holder of record on July 30, 1999. The distribution
represents an annualized distribution of $1.69 per preferred unit and is payable
on August 16, 1999.
UNITS EXCHANGED
Each unit may be exchanged for either two common shares or, at the
election of the Company, cash equal to the fair market value of the two common
shares at the time of the exchange. When a unitholder exchanges a unit, the
Company's percentage interest in the Operating Partnership increases. During
the three months ended June 30, 1999, there were 204,414 units exchanged for
408,828 common shares of the Company.
12. INVESTMENTS AND POTENTIAL DISPOSITIONS:
OFFICE AND RETAIL SEGMENT
The Woodlands Commercial Properties Company, L.P., whose partners are
the Company and Morgan Stanley Real Estate Fund II, L.P., is actively marketing
for sale certain commercial property assets in The Woodlands.
REFRIGERATED STORAGE SEGMENT
As of June 30, 1999, the Refrigerated Storage Partnerships and the
Refrigerated Storage Corporations directly or indirectly owned the real estate
assets associated with the Refrigerated Storage Properties. The business
operations associated with the Refrigerated Storage Properties are owned by a
recently formed partnership (the "Refrigerated Storage Operating Partnership"),
owned 60% by Vornado Operating L.P. and 40% by a newly formed subsidiary of COI,
in which the Operating Partnership has no interest. The Operating Partnership
holds an indirect 39.6% interest in the Refrigerated Storage Partnerships and
COI holds an indirect 0.4% interest in the Refrigerated Storage Partnerships.
COI has an option to require the Operating Partnership to purchase COI's
remaining 1% interest in each of the Crescent Subsidiaries at such time as the
purchase would not, in the opinion of counsel to the
19
<PAGE> 20
Operating Partnership, adversely affect the status of the Company as a REIT,
for an aggregate price, payable by the Operating Partnership, of approximately
$3,300.
The Refrigerated Storage Operating Partnership, as sole lessee of the
Refrigerated Storage Properties, entered into triple-net master leases with
certain of the Refrigerated Storage Corporations. Each of the Refrigerated
Storage Properties is subject to one or more of the leases, each of which has
an initial term of 15 years, subject to two, five-year renewal options. The
leases provide for an aggregate annual base rental rate of $123,000 for the
first through fifth lease years, $126,000 for the sixth through 10th lease
years and $130,500 for the 11th through 15th lease years, plus percentage rent
based on the gross revenues received from customers at the Refrigerated Storage
Properties above a specified amount.
RESIDENTIAL DEVELOPMENT SEGMENT
On April 29, 1999, a partnership in which Crescent Development
Management Corp. ("CDMC") has a 64% economic interest, finalized the purchase
of "The Commons," a master planned residential development on 23 acres in the
Central Platte Valley near downtown Denver, Colorado for approximately $25,000.
Currently, it is contemplated that the project will include both sale and
rental units at multiple price points. An adjacent 28 acres are expected to be
commercially developed by another firm, providing a major mixed-use community
adjacent to the lower downtown area of Denver. The acreage connects with
several major entertainment and recreational facilities including Coors Field
(home to the Major League's Colorado Rockies), Elitch Gardens (an amusement
park) and the new Pepsi Center (home to the National Hockey League's Colorado
Avalanche and the National Basketball Association's Denver Nuggets).
OTHER
On December 8, 1998, Tower Realty Trust ("Tower"), Reckson Associates
Realty Corporation ("Reckson"), and Metropolitan Partners, LLC ("Metropolitan")
entered into a revised agreement and plan of merger that superseded the merger
agreement to which the Company was a party. Under the revised agreement,
Metropolitan agreed to acquire Tower for a combination of cash and Reckson
exchangeable Class B common shares. The Operating Partnership, Reckson and
Metropolitan agreed that the Operating Partnership's investment in Metropolitan
would be an $85,000 preferred member interest in Metropolitan. In connection
with the revised agreement, the Operating Partnership contributed $10,000 of the
$85,000 required capital contribution to Metropolitan in December 1998 and
contributed the remaining $75,000 to Metropolitan upon satisfaction of all of
the conditions to the funding on May 19, 1999. The Operating Partnership's
$85,000 preferred member interest in Metropolitan at June 30, 1999, would equate
to an approximate 20% equity interest.
The investment has a cash flow preference of 7.5% for a two-year period
and may be redeemed by Metropolitan within the two-year period for $85,000,
plus an amount sufficient to provide a 9.5% internal rate of return to the
Operating Partnership. If Metropolitan does not redeem the preferred interest
upon expiration of the two-year period, the Operating Partnership may convert
the interest either into (i) a common equity interest in Metropolitan or (ii)
shares of common stock of Reckson at a conversion price of $24.61.
The Operating Partnership is actively marketing for sale its preferred
interest in Metropolitan and does not intend to sell it at a price below
management's assessment of the investment's fair value.
13. RELATED PARTY INVESTMENT:
On June 9, 1999, upon the approval of the independent members of the
Board of Trust Managers of the Company, the Operating Partnership contributed
approximately $17,000 of a $25,000 commitment to DBL Holdings, Inc. ("DBL").
The Operating Partnership has a 95% non-voting interest in DBL. DBL's primary
holdings consist of the limited partner interest in the partnership that has
equity and debt interests in the Dallas Mavericks, interests in the new Dallas
sports arena development and surrounding mixed-use development projects.
20
<PAGE> 21
The contribution was used by DBL to invest in DBL-ABC, Inc., which, in
turn, acquired a limited partnership interest of 12.5% in the G2 Opportunity
Fund, LP ("G2"). G2 was formed for the purpose of investing in commercial
mortgage backed securities and is managed by an entity that is owned equally by
Goff Moore Strategic Partners, LP ("GMSP") and GMAC Commercial Mortgage
Corporation. John Goff, Vice-Chairman of the Board of Trust Managers of the
Company and President and Chief Executive Officer of CREE Ltd., and Darla Moore,
who is married to Richard Rainwater, Chairman of the Board of Trust Managers of
the Company, each own 50% of the entity that ultimately controls GMSP. Mr.
Rainwater is a limited partner of GMSP.
14. PROPOSED CBHS RECAPITALIZATION:
BEHAVIORAL HEALTHCARE SEGMENT
During the six months ended June 30, 1999, the Operating Partnership
received rental payments of $21,900 from CBHS as required under its lease with
CBHS. CBHS has been negatively affected by many factors including adverse
industry conditions. As a result, CBHS is no longer performing in accordance
with its operating budget. The Operating Partnership's management is working
with other constituents to recapitalize CBHS and has entered into a letter
agreement with the Operating Partnership, COI, Magellan and CBHS pursuant to
which, (i) the Operating Partnership has agreed to defer the payment of the
August rent by CBHS to the last four months of 1999, (ii) the Operating
Partnership, Magellan, COI and CBHS have agreed to enter into certain mutual
releases at closing, and (iii) Magellan has agreed that it will, at the closing
of the transactions, transfer its remaining hospital-based assets (including
Charter Advantage, Charter Franchise Services, LLC, the call center assets, the
Charter name and related intellectual property and certain other assets) to
CBHS, and cancel its accrued franchise fees. The closing of the transactions is
expected to occur in thirty days. If the transactions do not close within thirty
days, the letter agreement will terminate and CBHS potentially will be unable to
satisfy all of its lease obligations to the Operating Partnership. Although
management continues to work on this recapitalization, the Operating Partnership
may have downside exposure on its original investment and on income associated
with its lease with CBHS. The Operating Partnership's investment in CBHS
represented approximately 7% of total assets at June 30, 1999, and approximately
8% of consolidated rental revenues for the six months ended June 30, 1999.
CBHS was not able to make its rental payment of $3,800 that was due
August 10, 1999 and requested to pay August rent in four equal installments
beginning in September 1999. The Operating Partnership agreed to amend its lease
with CBHS on August 10, 1999, to allow CBHS to defer the August, 1999 payment by
making additional rental payments that effectively bear interest at
approximately 11% to the Operating Partnership during the period from September
1999 through December 1999. These additional payments will be due and payable
along with CBHS's regular monthly rental payments. The master lease between the
Operating Partnership and CBHS, as amended, remains in full force and effect.
15. PENDING DIVESTITURE:
On July 26, 1999, the Operating Partnership announced that the Operating
Partnership and DBL have agreed to sell their non-core equity and debt interests
in the Dallas Mavericks, interest in the new Dallas sports arena development and
surrounding mixed-use development projects and certain promissory notes related
to the Dallas Mavericks for approximately $89,000 in cash. Certain of the
transactions are subject to approval by the National Basketball Association. The
sale is not expected to have a material impact on the Operating Partnership's
financial position or results of operations. The proceeds from the sale are
expected to be used to pay down the Credit Facility.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read this section in conjunction with the consolidated
interim financial statements and the accompanying notes in Item 1. Financial
Statements of this document and the more detailed information contained in the
Operating Partnership's Form 10-K for the year ended December 31, 1998. In
management's opinion, all adjustments (consisting of normal and recurring
adjustments) considered necessary for a fair presentation of the unaudited
interim financial statements are included. Capitalized terms used but not
otherwise defined in this section, have the meanings given to them in the notes
to the financial statements in Item 1. Financial Statements.
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. These statements are generally
characterized by terms such as "believe", "expect" and "may."
Although the Operating Partnership believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Operating Partnership's actual results could differ materially
from those given in the forward-looking statements. Certain factors that might
cause such a difference are detailed in the Company's Current Report on Form
8-K/A dated April 17, 1998 and filed May 14, 1999.
The following factors might cause such a difference:
o Failure to complete the recapitalization of CBHS which
would adversely affect CBHS's ability to fulfill all of its
lease obligations;
o Adverse changes in the financial condition of existing
tenants;
o The Operating Partnership's ability to generate revenues
sufficient to meet debt service payments, satisfy existing
financial covenants and other operating expenses;
o Financing risks, such as the availability of funds
sufficient to service existing debt, increased debt service
associated with variable rate debt and the Operating
Partnership's ability to consummate planned financings and
refinancings on the terms and within the time frames
anticipated;
o The Operating Partnership's ability to timely lease
unoccupied square footage and timely release occupied
square footage upon expiration;
o Changes in real estate conditions (including rental rates
and competition from other properties);
o The concentration of a significant percentage of the
Operating Partnership's assets in Texas;
o The existence of complex regulations relating to the
Company's status as a REIT and the adverse consequences of
the failure to qualify as such; and
o Other risks detailed from time to time in the Operating
Partnership's filings with the SEC.
Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Operating Partnership is not obligated to
update these forward-looking statements to reflect any future events or
circumstances.
STRATEGY
John C. Goff, Vice-Chairman of the Board of Trust Managers of the
Company, was appointed to the positions of President and Chief Executive
Officer of CREE Ltd. on June 11, 1999. The immediate objectives
of Mr. Goff and the management team are to:
o Resolve the issues surrounding the Operating Partnership's
investment in CBHS;
o Reduce the Operating Partnership's exposure on variable
rate debt; and
o Dispose of non-strategic or non-core assets in order to
generate funds for future growth.
22
<PAGE> 23
CBHS
The Operating Partnership's management is working with other
constituents to recapitalize CBHS. Any recapitalization will be designed to
preserve value for the Operating Partnership's unitholders while permitting CBHS
to strengthen its business to provide the Operating Partnership with greater
security regarding the collectibility of its lease payments from CBHS.
Variable-rate Debt
Management is reviewing alternative means of reducing the Operating
Partnership's exposure on its variable-rate debt to create greater
predictability of interest expense and earnings. Among the alternatives being
considered are asset sales to reduce debt, refinancings and interest rate swaps
and hedges.
Asset Dispositions
On July 26, 1999, the Operating Partnership announced that the
Operating Partnership and DBL have agreed to sell their non-core equity and debt
interests in the Dallas Mavericks, interest in the new Dallas sports arena
development and surrounding mixed-use development projects and certain
promissory notes related to the Dallas Mavericks for approximately $89 million
in cash.
The Operating Partnership is also actively marketing for sale certain
non-strategic or non-core assets consisting of 12 Office Properties and its
preferred interest in Metropolitan (which acquired Tower in May 1999) in an
effort to refocus the Operating Partnership's business objectives and generate
funds for future growth.
Additionally, The Woodlands Commercial Properties Company, L.P., whose
partners are the Operating Partnership and Morgan Stanley Real Estate Fund II,
L.P., is actively marketing for sale certain commercial property assets in The
Woodlands.
The Operating Partnership does not intend to dispose of any assets at
prices below management's assessment of the property's or investment's fair
value.
OFFICE AND RETAIL SEGMENT
Office Property net operating income increased by approximately 4% for
the three months ended June 30, 1999, compared to the three months ended June
30, 1998, for the 27.1 million square feet of Office Properties owned as of
January 1, 1998. This increase is composed of a 6% increase in same-store
revenues offset by a 10% increase in same-store expenses. For these Office
Properties, the weighted average occupancy for the three months ended June 30,
1999 was approximately 90.9%, and the weighted average occupancy for the six
months ended June 30, 1998 was approximately 89.7%.
For the three months ended June 30, 1999, leases were executed (all of
which have commenced or will commence during the next twelve months) renewing
or re-leasing 900,379 net rentable square feet of office space at a weighted
average full-service rental rate (weighted average full-service rental rates
include free rent, scheduled rent increases that would be taken into account
under GAAP, and expense recoveries) and an FFO annual net effective rental rate
(calculated as weighted average full-service rental rate minus operating
expenses paid by the Operating Partnership) of $20.72 and $13.20 per square
foot, respectively. These rates represent a 17% and 30% increase, respectively,
over expiring leases, which had a weighted average full-service rental rate of
$17.65 per square foot and an FFO annual net effective rental rate of $10.14
per square foot.
Office Property net operating income increased by approximately 7% for
the six months ended June 30, 1999, compared to the six months ended June 30,
1998, for the 27.1 million square feet of Office Properties owned as of January
1, 1998. This increase is composed of an 8% increase in same-store revenues
offset by a 10% increase in same-store expenses. For these Office Properties,
the weighted average occupancy for the six months ended June 30,
23
<PAGE> 24
1999 was approximately 91.5%, and the weighted average occupancy for the six
months ended June 30, 1998 was approximately 89.3%.
For the six months ended June 30, 1999, leases were executed (all of
which have commenced or will commence during the next twelve months) renewing
or re-leasing 1,565,515 net rentable square feet of office space at a weighted
average full-service rental rate (weighted average full-service rental rates
include free rent, scheduled rent increases that would be taken into account
under GAAP and expense recoveries) and an FFO annual net effective rental rate
(calculated as weighted average full-service rental rate minus operating
expenses paid by the Operating Partnership) of $21.52 and $13.57 per square
foot, respectively. These rates represent a 19% and 33% increase, respectively,
over expiring leases, which had a weighted average full-service rental rate of
$18.14 per square foot and an FFO annual net effective rental rate of $10.20 per
square foot.
The leases executed for the six months ended June 30, 1999, all of
which have commenced or will commence during the next twelve months, required
tenant improvement and leasing costs of $5.80 and $2.99 per square foot,
respectively, or $1.21 and $0.73 per square foot per year, respectively. The
overall office portfolio was approximately 91% leased (based on executed
leases) and 90% leased (based on commenced leases) at June 30, 1999.
HOSPITALITY SEGMENT
Hotel Property rental income growth, including weighted average base
rent and percentage rent, was approximately 17% and 15%, respectively, for the
three and six months ended June 30, 1999, compared to the same period of 1998,
for the six full-service Hotel Properties and two destination health and
fitness resorts owned as of January 1, 1998 (weighted average base rent
includes scheduled rent increases that would be taken into account under GAAP).
The growth primarily represents the return on capital invested during 1998 and
early 1999.
For the three months ended June 30, 1999, weighted average occupancy,
average daily rate and revenue per available room for all Hotel Properties were
75%, $226 and $167, respectively, compared to 75%, $214 and $159, respectively,
for the same period of 1998. For the six months ended June 30, 1999, the
weighted average occupancy, average daily rate and revenue per available room
for all Hotel Properties were 77%, $238 and $182, respectively, compared to
75%, $226 and $169, respectively, for the same period of 1998.
RESIDENTIAL DEVELOPMENT SEGMENT
The Operating Partnership owns economic interests in five Residential
Development Corporations through the residential development property mortgages
and the non-voting common stock of these Residential Development Corporations.
The Residential Development Corporations in turn, through joint ventures or
partnership arrangements, own interests in 13 Residential Development
Properties. The Residential Development Corporations are responsible for the
continued development and the day-to-day operations of the Residential
Development Properties. Management plans to maintain the Residential
Development Segment at its current investment level and reinvest returned
capital into residential development projects that it expects to achieve
comparable rates of return.
The Woodlands Land Company, Inc. The Woodlands, Texas. For the three
months ended June 30, 1999, 407 lots with an average sales price of $48,031 per
lot and 19 acres of commercial land were sold, compared to 402 lots with an
average sales price of $54,986 per lot and 24 acres of commercial land, for the
same period of 1998. For the six months ended June 30, 1999, 918 lots with an
average sales price of $48,789 per lot and 27 acres of commercial land were
sold, compared to 819 lots with an average sales price of $53,246 per lot and
105 acres of commercial land, for the same period of 1998.
Desert Mountain Development Corporation ("Desert Mountain"),
Scottsdale, Arizona. For the three months ended June 30, 1999, Desert Mountain
sold 88 lots with an average sales price of $594,000 per lot (including club
24
<PAGE> 25
membership), compared to 71 lots with an average sales price of $398,000 per
lot (including club membership), for the same period of 1998. Of the 88 lots
sold during the second quarter of 1999, Desert Mountain sold 42 lots with an
average sales price of $640,000 per lot, in the initial three villages in
Saguaro Forest, which consist of 105 lots. The Saguro Forest is an exclusive
community of 380 lots surrounding the new Chiricahua Jack Nicklaus signature
golf course at Desert Mountain. For the six months ended June 30, 1999, Desert
Mountain sold 124 lots with an average sales price of $548,000 per lot
(including club membership), compared to 123 lots with an average sales price
of $382,000 per lot (including club membership), for the same period of 1998.
Crescent Development Management Corp. ("CDMC"), Beaver Creek, Colorado.
For the three months ended June 30, 1999, CDMC's sales from its five active
projects were eight townhomes, two single-family homes and one equivalent
timeshare unit, compared to sales from its one active project of nine
residential lots for the same period of 1998. For the six months ended June 30,
1999, CDMC's sales from its five active projects were six residential lots, 21
townhomes, four single-family homes, and five equivalent timeshare units,
compared to sales from its one active project of 12 residential lots for the
same period of 1998.
On April 29, 1999, a partnership in which CDMC has a 64% economic
interest, finalized the purchase of "The Commons," a master planned residential
development on 23 acres in the Central Platte Valley near downtown Denver,
Colorado for approximately $25 million. Currently, it is contemplated that the
project will include both sale and rental units at multiple price points. An
adjacent 28 acres is expected to be commercially developed by another firm, thus
providing a major mixed-use community adjacent to the lower downtown area of
Denver. The acreage connects with several major entertainment and recreational
facilities including Coors Field (home to the Major League's Colorado Rockies),
Elitch Gardens (an amusement park) and the new Pepsi Center (home to the
National Hockey League's Colorado Avalanche and the National Basketball
Association's Denver Nuggets).
Mira Vista Development Corp. ("Mira Vista"), Fort Worth, Texas. For
the three months ended June 30, 1999, Mira Vista sold 11 lots with an average
sales price of $118,000 per lot, compared to four lots with an average sales
price of $179,000 for the same period of 1998. For the six months ended June
30, 1999, Mira Vista sold 19 lots with an average sales price of $124,000 per
lot, compared to 15 lots with an average sales price of $116,000 per lot, for
the same period of 1998.
Houston Area Development Corp. ("Houston Area Development"), Houston,
Texas. For the three months ended June 30, 1999, Houston Area Development sold
67 lots with an average sales price of $30,000 per lot and 16 acres of
commercial land, compared to 41 lots with an average sales price of $28,000 per
lot for the same period of 1998. For the six months ended June 30, 1999,
Houston Area Development sold 113 lots with an average sales price of $29,000
per lot and 16 acres of commercial land, compared to 65 lots with an average
sales price of $28,000 per lot, for the same period of 1998.
REFRIGERATED STORAGE SEGMENT
As of June 30, 1999, the Refrigerated Storage Partnerships and the
Refrigerated Storage Corporations directly or indirectly owned real estate
assets associated with the Refrigerated Storage Properties. The business
operations associated with the Refrigerated Storage Properties are owned by the
recently formed Refrigerated Storage Operating Partnership, in which the
Operating Partnership has no interest. The Operating Partnership holds an
indirect 39.6% interest in the Refrigerated Storage Partnerships which are
entitled to receive lease payments (base rent and percentage rent) from the
Refrigerated Storage Operating Partnership.
Management believes that earnings before interest, taxes, depreciation
and amortization ("EBITDA") is a useful financial performance measure for
assessing the financial condition of the Refrigerated Storage Operating
Partnership, which is the sole lessee of the Refrigerated Storage Properties.
This table shows (i) the Refrigerated Storage Operating Partnership's
proforma EBITDA for the six months ended June 30, 1999 and 1998, assuming that
the acquisitions by one of the Refrigerated Storage Partnerships of 14
Refrigerated Storage Properties had occurred on January 1, 1998, and (ii) the
proforma lease payment for the six months
25
<PAGE> 26
ended June 30, 1999, assuming the restructuring of the Refrigerated Storage
Corporations' investment in the Refrigerated Storage Properties had occurred on
January 1, 1999.
<TABLE>
<CAPTION>
EBITDA FOR THE SIX MONTHS PROFORMA LEASE PAYMENT FOR THE
ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ------------------------------
(in millions) (in millions)
1999 1998 1999
------ ------ -------
<S> <C> <C>
$ 75.6 $ 73.0 $ 75.1
</TABLE>
Comparative EBITDA has been provided for the six months ended June 30, 1999 and
1998 to illustrate the relative stability of the Refrigerated Storage Operating
Partnership's financial condition. EBITDA does not represent net income or cash
flows from operating, financing or investing activities as defined by GAAP, but
management believes that it is a good indication of the Refrigerated Storage
Operating Partnership's ability to make its lease payments to the Refrigerated
Storage Partnerships, in which the Operating Partnership has an indirect 39.6%
interest.
BEHAVIORAL HEALTHCARE SEGMENT
During the six months ended June 30, 1999, the Operating Partnership
received rental payments of $21.9 million from CBHS as required under its lease
with CBHS. CBHS has been negatively affected by many factors including adverse
industry conditions. As a result, CBHS is no longer performing in accordance
with its operating budget. The Operating Partnership's management is
working with other constituents to recapitalize CBHS and has entered into a
letter agreement with the Operating Partnership, COI, Magellan and CBHS pursuant
to which (i) the Operating Partnership has agreed to defer the payment of the
August rent by CBHS to the last four months of 1999, (ii) the Operating
Partnership, Magellan, COI and CBHS have agreed to enter into certain mutual
releases at closing, and (iii) Magellan has agreed that it will, at the closing
of the transactions, transfer its remaining hospital-based assets (including
Charter Advantage, Charter Franchise Services, LLC, the call center assets, the
Charter name and related intellectual property and certain other assets) to
CBHS, and cancel its accrued franchise fees. The closing of the transactions is
expected to occur in thirty days. If the transactions do not close within thirty
days, the letter agreement will terminate and CBHS potentially will be unable to
satisfy all of its lease obligations to the Operating Partnership. Although
management continues to work on this recapitalization, the Operating Partnership
may have downside exposure on its original investment and on income associated
with its lease with CBHS. The Operating Partnership's investment in CBHS
represented approximately 7% of its total assets at June 30, 1999 and
approximately 8% of consolidated rental revenues for the six months ended June
30, 1999.
CBHS was not able to make its rental payment of $3.8 million that was
due August 10, 1999 and requested to pay August rent in four equal installments
beginning in September 1999. The Operating Partnership agreed to amend its lease
with CBHS on August 10, 1999, to allow CBHS to defer the August, 1999 payment by
making additional rental payments that effectively bear interest at
approximately 11% to the Operating Partnership during the period from September
1999 through December 1999. These additional payments will be due and payable
along with CBHS's regular monthly rental payments. The master lease between the
Operating Partnership and CBHS, as amended, remains in full force and effect.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which provides that all derivative
instruments should be recognized as either assets or liabilities, depending on
the rights or obligations under the contract and that all derivative
instruments should be measured at fair value. This pronouncement is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000, and
would have had no material impact on the Operating Partnership's financial
statements for the three or six months ended June 30, 1999.
26
<PAGE> 27
RESULTS OF OPERATIONS
The following table shows the Operating Partnership's financial data
as a percentage of total revenues for the three and six months ended June 30,
1999 and 1998 and the segment reporting variance in dollars between the three
and six months ended June 30, 1999 and the same periods in 1998. (See Note 6
Segment Reporting included in Item 1. Financial Statements for financial
information about industry segments).
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
FINANCIAL DATA AS A PERCENTAGE OF TOTAL REVENUES
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------------- -------------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES
Office and retail properties 80.9% 81.3% 80.9% 79.9%
Hotel properties 8.4 7.5 8.3 7.8
Behavioral healthcare properties 7.2 8.2 7.3 8.4
Interest and other income 3.5 3.0 3.5 3.9
---------------- ---------------- ---------------- ----------------
TOTAL REVENUES 100.0 100.0 100.0 100.0
---------------- ---------------- ---------------- ----------------
EXPENSES
Operating expenses 34.0 33.2 34.4 33.6
Corporate general and administrative 2.0 2.1 2.1 2.0
Interest expense 23.3 22.4 23.1 21.8
Amortization of deferred financing costs 1.5 0.7 1.5 0.7
Depreciation and amortization 17.2 16.7 17.6 16.6
Settlement of merger dispute -- -- 4.0 --
---------------- ---------------- ---------------- ----------------
TOTAL EXPENSES 78.0 75.1 82.7 74.7
---------------- ---------------- ---------------- ----------------
Operating income 22.0 24.9 17.3 25.3
OTHER INCOME
Equity in net income of unconsolidated Companies:
Office and retail properties -- (0.3) 0.5 0.3
Refrigerated storage corporations 2.1 (0.9) 2.6 (0.5)
Residential development corporations 7.5 4.8 6.1 3.8
Other 0.3 -- 0.2 --
---------------- ---------------- ---------------- ----------------
TOTAL OTHER INCOME 9.9 3.6 9.4 3.6
---------------- ---------------- ---------------- ----------------
INCOME BEFORE MINORITY INTERESTS 31.9 28.5 26.7 28.9
Minority interests (0.1) (0.2) (0.1) (0.2)
---------------- ---------------- ---------------- ----------------
NET INCOME 31.8 28.3 26.6 28.7
PREFERRED SHARE DIVIDENDS (1.8) (2.0) (1.8) (1.5)
FORWARD SHARE PURCHASE
AGREEMENT RETURN (1.1) -- (1.1) --
---------------- ---------------- ---------------- ----------------
NET INCOME AVAILABLE TO PARTNERS 28.9% 26.3% 23.7% 27.2%
================ ================ ================ ================
<CAPTION>
------------------------------------
TOTAL VARIANCE IN TOTAL VARIANCE IN
DOLLARS BETWEEN DOLLARS BETWEEN
THE THREE MONTHS THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 AND 1998 1999 AND 1998
---------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
REVENUES
Office and retail properties $ 18.2 $ 41.8
Hotel properties 3.4 5.9
Behavioral healthcare properties -- --
Interest and other income 1.7 0.1
---------------- ----------------
TOTAL REVENUES 23.3 47.8
---------------- ----------------
EXPENSES
Operating expenses 9.4 19.1
Corporate general and administrative 0.2 1.2
Interest expense 7.1 15.3
Amortization of deferred financing costs 1.7 3.5
Depreciation and amortization 4.7 11.9
Settlement of merger dispute -- 15.0
---------------- ----------------
TOTAL EXPENSES 23.1 66.0
---------------- ----------------
Operating income 0.2 (18.2)
OTHER INCOME
Equity in net income of unconsolidated Companies:
Office and retail properties 0.4 1.2
Refrigerated storage corporations 5.6 11.2
Residential development corporations 6.3 10.4
Other 0.6 0.9
---------------- ----------------
TOTAL OTHER INCOME 12.9 23.7
---------------- ----------------
INCOME BEFORE MINORITY INTERESTS 13.1 5.5
Minority interests 0.2 0.4
---------------- ----------------
NET INCOME 13.3 5.9
PREFERRED SHARE DIVIDENDS -- (1.9)
FORWARD SHARE PURCHASE
AGREEMENT RETURN (2.2) (4.3)
---------------- ----------------
NET INCOME AVAILABLE TO PARTNERS $ 11.1 $ (0.3)
================ ================
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 TO THE THREE MONTHS ENDED
JUNE 30, 1998
REVENUES
Total revenues increased $23.3 million, or 13.8%, to $192.4 million
for the three months ended June 30, 1999, as compared to $169.1 million for the
three months ended June 30, 1998.
The increase in Office and Retail Property revenues of $18.2 million,
or 13.2%, compared to the three months ended June 30, 1998, is attributable to:
o the acquisition of three Office Properties during the
second quarter of 1998, which contributed revenues for a
full quarter in 1999, as compared to a partial quarter in
1998, resulting in $4.0 million in incremental revenues;
27
<PAGE> 28
o increased revenues of $9.5 million from the 86 Office and
Retail Properties acquired prior to April 1, 1998,
primarily as a result of rental rate and occupancy
increases at these Properties; and
o increased revenues of $4.7 million as a result of the
receipt of a lease termination fee from a tenant at one of
the Company's Office Properties in Houston.
The increase in Hotel Property revenues of $3.4 million, or 26.8%,
compared to the three months ended June 30, 1998, is primarily attributable to:
o the acquisition of one golf course affiliated with one of
the Hotel Properties subsequent to June 30, 1998, resulting
in $0.6 million of incremental revenues;
o increased revenues of $0.3 million from the re-leasing of
the Omni Austin Hotel to an unrelated third party as of
January 1, 1999; and
o increased revenues of $2.3 million from the eight Hotel
Properties acquired prior to April 1, 1998, primarily as a
result of an increase in base rents of $1.5 million because
of lease amendments entered into in connection with
contributions made by the Company for capital improvements
at some of the Hotel Properties and an increase in
percentage rent of $0.8 million.
The increase in interest and other income of $1.7 million, or 33.3%,
compared to the three months ended June 30, 1998, is primarily attributable to:
o increased interest income of $0.5 million on additional
loans to COI;
o increased interest income of $0.6 million due to additional
notes receivable; and
o preferred dividends of $0.4 million from Metropolitan.
EXPENSES
Total expenses increased $23.1 million, or 18.2%, to $150.1 million
for the three months ended June 30, 1999, as compared to $127.0 million for the
three months ended June 30, 1998.
The increase in rental property operating expenses of $9.4 million, or
16.7%, compared to the three months ended June 30, 1998, is attributable to:
o the acquisition of three Office Properties during the
second quarter of 1998, which incurred expenses for a full
quarter in 1999, as compared to a partial quarter in 1998,
resulting in $1.7 million of incremental expenses; and
o increased expenses of $7.7 million from the 86 Office and
Retail Properties acquired prior to April 1, 1998,
primarily as a result of real estate taxes ($5.0 million)
and occupancy increases at these Properties.
The increase in depreciation and amortization expense of $4.7 million,
or 16.6%, compared to the three months ended June 30, 1998, is primarily
attributable to the acquisition during the second quarter of 1998 of three
Office Properties.
The increase in interest expense of $7.1 million, or 18.8%, compared
to the three months ended June 30, 1998, is primarily attributable to:
o $3.3 million of interest payable under the Salomon Brothers
Note issued in conjunction with the termination of the
equity swap agreement with Merrill Lynch International on
September 30, 1998; and
o $3.8 million of incremental interest payable due to draws
under the Credit Facility and term loans with BankBoston
(average balance outstanding on the Credit Facility and
under the term loans for the three months ended June 30,
1999 and 1998 was $1,029.7 million and $759.2 million,
respectively). All of these financing arrangements were
used to fund investments and obligations associated with
investments and to provide working capital.
28
<PAGE> 29
EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES
Equity in net income of unconsolidated companies increased $12.9
million, or 211.5%, to $19.0 million for the three months ended June 30, 1999,
as compared to $6.1 million for the three months ended June 30, 1998.
The increase is primarily attributable to:
o an increase in equity in net income of the Refrigerated
Storage Corporations of $5.6 million, or 350.0 %, compared
to the three months ended June 30, 1998, primarily as a
result of the acquisitions by one of the Refrigerated
Storage Partnerships of nine and five Refrigerated Storage
Properties and the associated operations in June 1998 and
July 1998, respectively, (as of March 12, 1999, the
Refrigerated Storage Corporations no longer owned the
operations associated with the Refrigerated Storage
Properties but collect a lease payment from the
Refrigerated Storage Operating Partnership) and the
Refrigerated Storage Corporations' refinancing of
approximately $607 million of debt in April 1998, which
reduced interest expense for the three months ended June
30, 1999 compared to the same period in 1998; and
o an increase in equity in net income of the Residential
Development Corporations of $6.3 million, or 77.8%,
compared to the three months ended June 30, 1998, primarily
as a result of an increase in sales activity and the
increased average sales price per lot at Desert Mountain,
which resulted in $5.6 million of incremental equity in net
income to the Operating Partnership, and an increase in
sales activity at Houston Area Development, which resulted
in $2.6 million of incremental equity in net income to the
Operating Partnership. These increases in equity in net
income were partially offset by a $1.4 million decease in
revenues at The Woodlands due to lower average sales prices
per lot for the three months ended June 30, 1999, compared
to the same period of 1998. The number of lots sold at The
Woodlands remained relatively constant for both periods.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED JUNE
30, 1998
REVENUES
Total revenues increased $47.8 million, or 14.5%, to $378.1 million
for the six months ended June 30, 1999, as compared to $330.3 million for the
six months ended June 30, 1998.
The increase in Office and Retail Property revenues of $41.8 million,
or 15.8%, compared to the six months ended June 30, 1998, is attributable to:
o the acquisition of nine Office Properties during the
first six months of 1998, which contributed revenues during
the full six-months of 1999, as compared to only a portion
of the period of 1998, resulting in $16.9 million in
incremental revenues;
o increased revenues of $20.2 million from the 80 Office and
Retail Properties acquired prior to January 1, 1998,
primarily as a result of rental rate and occupancy increases
at these Properties; and
o increased revenues of $4.7 million as a result of the
receipt of a lease termination fee from a tenant at one
of the Company's Office Properties in Houston.
The increase in Hotel Property revenues of $5.9 million, or 23.0%,
compared to the six months ended June 30, 1998, is primarily attributable to:
o the acquisition of one golf course affiliated with one of
the Hotel Properties subsequent to June 30, 1998, resulting
in $1.1 million of incremental revenues;
o increased revenues of $0.9 million from the re-leasing of
the Omni Austin Hotel to an unrelated third party as of
January 1, 1999; and
29
<PAGE> 30
o increased revenues of $3.7 million from the eight Hotel
Properties acquired prior to January 1, 1998, primarily as
a result of an increase in base rents of $1.9 million
because of lease amendments entered into in connection with
contributions made by the Company for capital improvements
at some of the Hotel Properties and an increase in
percentage rent of $1.8 million.
EXPENSES
Total expenses increased $66.0 million, or 26.7%, to $312.8 million
for the six months ended June 30, 1999, as compared to $246.8 million for the
six months ended June 30, 1998.
The increase in rental property operating expenses of $19.1 million,
or 17.2%, compared to the six months ended June 30, 1998, is attributable to:
o the acquisition of nine Office Properties during the first
six months of 1998, which incurred expenses during the full
six-month period of 1999, as compared to only a portion of
the period of 1998, resulting in $7.3 million of
incremental expenses; and
o increased expenses of $11.8 million from the 80 Office and
Retail Properties acquired prior to January 1, 1998,
primarily as a result of real estate taxes ($7.0 million)
and occupancy increases at these Properties.
The increase in depreciation and amortization expense of $11.9
million, or 21.7%, compared to the six months ended June 30, 1998, is primarily
attributable to the acquisition during 1998 of nine Office Properties.
The increase in interest expense of $15.3 million, or 21.2%, compared
to the six months ended June 30, 1998, is primarily attributable to:
o $1.2 million of interest payable under the Metropolitan
Life Notes III and IV, which were assumed in connection
with the acquisition of the Datran Center Office Property
in May 1998;
o $6.6 million of interest payable under the Salomon Brothers
Note issued in conjunction with the termination of the
equity swap agreement with Merrill Lynch International on
September 30, 1998; and
o $7.3 million of incremental interest payable due to draws
under the Credit Facility and under the term loans with
BankBoston (average balance outstanding on the Credit
Facility and under the term loans for the six months ended
June 30, 1999 and 1998 was $982.5 million and $680.7
million, respectively). All of these financing arrangements
were used to fund investments and obligations associated
with investments and to provide working capital.
An additional increase in expenses of $15.0 million is attributable to
non-recurring costs associated with the settlement of litigation relating to
the merger agreement entered into in January 1998 between the Company and
Station.
EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES
Equity in net income of unconsolidated companies increased $23.7
million, or 199.2%, to $35.6 million for the six months ended June 30, 1999, as
compared to $11.9 million for the six months ended June 30, 1998.
The increase is primarily attributable to:
o an increase in equity in net income of the Refrigerated
Storage Corporations of $11.2 million, or 746.7%, compared
to the six months ended June 30, 1998, primarily as a
result of the acquisitions by one of the Refrigerated
Storage Partnerships of nine and five Refrigerated Storage
Properties and the associated operations in June 1998 and
July 1998, respectively, as of March 12, 1999, the
Refrigerated Storage Corporations no longer owned the
operations associated with the Refrigerated Storage
Properties but collect a lease payment from the
Refrigerated Storage Operating
30
<PAGE> 31
Partnership), and the Refrigerated Storage Corporations'
refinancing of approximately $607 million debt in April
1998, which reduced interest expense for the six months
ended June 30, 1999, compared to the same period in 1998;
o an increase in equity in net income of the Residential
Development Corporations of $10.4 million, or 82.5%,
compared to the six months ended June 30, 1998, primarily as
a result of i) the increased sales activity at CDMC and
Houston Area Development which resulted in $2.0 million and
$2.5 million, respectively, of incremental equity in net
income to the Operating Partnership, and ii) the increased
average sales price per lot at Desert Mountain which
resulted in $5.9 million of incremental equity in net income
to the Operating Partnership.
o an increase in equity in net income of the other
unconsolidated companies of $1.2 million, or 150.0%,
compared to the six months ended June 30, 1998, primarily
as a result of increased operating income at The Woodlands
Commercial Properties Company, L.P., attributable to the
acquisition of one office building and the development of
one office building in the second quarter of 1998, which
contributed revenues during the full six months of 1999, as
compared to only a portion of the period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $104.9 million and $109.8 million at
June 30, 1999 and December 31, 1998, respectively. This 4.5% decrease is
attributable to $225.6 million used in investing activities, partially offset
by $151.5 million and $69.1 million of cash provided by operating activities
and financing activities, respectively.
INVESTING ACTIVITIES
The Operating Partnership's cash used in investing activities of
$225.6 million is primarily attributable to:
o $127.4 million for increased investments in unconsolidated companies;
o $29.1 million for recurring and non-recurring tenant improvement and
leasing costs for the Office and Retail Properties;
o $21.7 million for increased investments in the Residential Development
Corporations;
o $19.5 million attributable to increased restricted cash and cash
equivalents primarily due to the escrow requirements related to the
refinancing of the Greenway Plaza Office Property complex;
o $14.7 million for capital expenditures on rental properties, primarily
attributable to: i) non-recoverable building improvements for the
Office and Retail Properties, ii) replacement of furniture, fixtures
and equipment for the Hotel Properties and iii) improvements and
renovations at the Hotel Properties;
o $8.0 million outflow from an increase in notes receivable primarily
due to advances made to unconsolidated companies; and
o $5.1 million for the development of investment properties.
OPERATING ACTIVITIES
The Operating Partnership's cash provided by operating activities of
$151.5 million is primarily attributable to:
o $156.6 million from Property operations;
o $19.3 million from a decrease in other assets, primarily due
to the sale of marketable securities ($18.8 million);
o $3.8 million from a decrease in restricted cash and cash
equivalents; and
o $0.5 million from minority interests.
31
<PAGE> 32
The cash provided by operating activities is partially offset by:
o $14.0 million from a decrease in accounts payable, accrued
liabilities and other liabilities; and
o $14.6 million from equity in earnings in excess of
distributions received from unconsolidated companies.
FINANCING ACTIVITIES
The Operating Partnership's use of cash for financing activities of
$69.1 million is primarily attributable to:
o distributions paid to unitholders of $159.1 million;
o settlement of the Forward Share Purchase Agreement for
$149.4 million; and
o debt financing costs of $12.9 million primarily related to
the refinancing of the Greenway Plaza Office Property
complex.
The use of cash for financing activities is partially offset by:
o net proceeds under short-term and long-term facilities of
$374.3 million primarily due to proceeds from the
refinancing of the Greenway Plaza Office Property complex
($165 million), the BankBoston Bridge Loan ($150 million)
and the BankBoston Term Note ($60 million); and
o proceeds from capital contributions to the Operating
Partnership of $17.9 million.
SHELF REGISTRATION STATEMENT
On October 29, 1997, the Company filed a shelf registration statement
(the "Shelf Registration Statement") with the SEC for an aggregate of $1.5
billion of common shares, preferred shares and warrants exercisable for common
shares. Management believes the Shelf Registration Statement will provide the
Company with more efficient and immediate access to capital markets when
considered appropriate. As of June 30, 1999, approximately $782.7 million was
available under the Shelf Registration Statement for the issuance of
securities. In connection with the issuances of securities pursuant to the
Shelf Registration Statement, the Company contributes the net proceeds of these
issuances to the Operating Partnership for its use in exchange for an increase
in its limited partner interest in the Operating Partnership.
FORWARD SHARE PURCHASE AGREEMENT
On June 30, 1999, the Company settled the Forward Share Purchase
Agreement with UBS. As settlement of the Forward Share Purchase Agreement, the
Company made a cash payment of approximately $149 million to UBS in exchange
for the return by UBS to the Company of 7,299,760 common shares.
The number of common shares returned to the Company is equal to the
4,700,000 common shares originally issued to UBS plus 2,599,760 common shares
subsequently issued by the Company, because of a decline in its stock price. In
connection with the issuance of additional common shares, the Company received
additional limited partner interest, which resulted in a reduction of the
Operating Partnership's net income per unit and net book value per unit. The
additional shares were issued as collateral for the Company's obligation to
purchase 4,700,000 common shares from UBS by August 12, 1999. The Settlement
Price was calculated based on the gross proceeds the Operating Partnership
received from the original issuance 4,700,000 of common shares to UBS, plus a
forward accretion component equal to 90-day LIBOR plus 75 basis points, minus
an adjustment for the Company's distributions paid to UBS. The forward
accretion component represented the guaranteed rate of return to UBS.
Upon settlement of this agreement, neither the Company nor the
Operating Partnership had any forward share purchase agreements as of June 30,
1999.
32
<PAGE> 33
STATION CASINOS, INC.
On April 14, 1999, the Company and Station entered into a settlement
agreement for the mutual settlement and release of all claims between the
Company and Station arising out of the agreement and plan of merger between the
Company and Station, which the Company terminated in August 1998. As part of
the settlement agreement, the Company paid $15 million to Station on April 22,
1999.
CREDIT FACILITY
The Operating Partnership has entered into an agreement with its
lender group to amend the Credit Facility to (i) provide for a reduction in the
rent coverage level for CBHS, effective as of June 30, 1999, (ii) reduce the
Operating Partnership's reliance on the CBHS assets as support for the Credit
Facility through a combination of the payment of certain amounts outstanding
under the Credit Facility and the provision of substitute value to support the
Credit Facility, and (iii) provide for a decrease in the size of the Credit
Facility. As a result of this agreement, the Operating Partnership was in
compliance with the financial covenants related to the Credit Facility for the
June 30, 1999 reporting period. The Operating Partnership expects to make the
short-term payments on the Credit Facility, as amended, with cash flows from
operations and proceeds from asset sales.
LIQUIDITY REQUIREMENTS
On June 30, 1999, the Operating Partnership refinanced the Greenway
Plaza Office Property complex with a $280 million, secured, fixed-rate mortgage
loan, bearing interest at a fixed rate of 7.53%. The proceeds were primarily
used to repay the $115 million existing note on the complex and to pay
approximately $149 million in settlement of the Forward Share Purchase
Agreement with UBS.
The Operating Partnership has approximately $381 million of secured
debt expiring during the remainder of 1999, consisting of two major components.
The first component is $184 million due under the Salomon Brothers
Note maturing in September 1999, which is secured by the Houston Center
mixed-use Office Property complex and the Four Seasons Hotel - Houston. The
Operating Partnership has a commitment from a commingled trust fund advised by
J. P. Morgan Investment Management, Inc., to refinance the Salomon Brothers
Note with a seven-year term loan of $200 million bearing interest at an 8.3%
fixed interest rate. Closing of this loan is expected to occur by August 31,
1999. This refinancing will retain the Houston Center mixed-use Office Property
complex as collateral for the loan but will not include the Four Seasons Hotel
- - Houston, which currently serves as partial collateral for the existing loan.
The second component is a $150 million short-term Bridge Loan with
BankBoston maturing on August 31, 1999. The Operating Partnership has a
commitment from BankBoston for a $200 million note secured by partnership
interests in two pools of assets which currently also secure the La Salle Notes
I and II. This new loan is expected to have a four-year term and a floating
interest rate based on 30-day LIBOR plus 325 basis points. The Operating
Partnership has entered into a four-year $200 million interest rate swap
agreement with Salomon in a separate transaction related to this financing.
Pursuant to this agreement, the Operating Partnership will pay Salomon on a
quarterly basis a 6.183% fixed interest rate, and Salomon will pay the Operating
Partnership a floating 90-day LIBOR rate based on the same quarterly reset
dates. This loan is also expected to close by August 31, 1999, and the interest
rate swap agreement becomes effective September 1, 1999.
The Operating Partnership expects to meet its other short-term
liquidity requirements primarily through cash flow provided by operating
activities. The Operating Partnership believes that cash flow provided by
operating activities will be adequate to fund normal recurring operating
expenses, regular debt service requirements (including debt service relating to
additional and replacement debt), recurring capital expenditures and
distributions to shareholders and unitholders, as well as non-recurring capital
expenditures, such as tenant improvement and leasing costs related to
previously unoccupied space. To the extent that the Operating Partnership's
cash flow from operating activities is not sufficient to finance non-recurring
capital expenditures, the Operating Partnership expects to finance such
activities with available cash reserves or additional debt financing.
33
<PAGE> 34
The Operating Partnership expects to meet its long-term liquidity
requirements through long-term secured and unsecured borrowings and other debt
and equity financing alternatives. As of June 30, 1999, the Operating
Partnership's long-term liquidity requirements consisted primarily of
maturities under the Operating Partnership's fixed and variable rate debt.
Debt and equity financing alternatives currently available to the
Operating Partnership to satisfy its liquidity requirements and commitments for
material capital expenditures include:
o Additional proceeds from the refinancing of existing secured and
unsecured debt;
o Obtaining additional debt secured by existing investment
properties or by investment property acquisitions or
developments; and
o Issuances of Operating Partnership units or the Company's common
and/or preferred shares of the Company.
DEBT FINANCING ARRANGEMENTS
The significant terms of the Operating Partnership's primary debt
financing arrangements are shown below (dollars in thousands):
<TABLE>
<CAPTION>
INTEREST RATE BALANCE
MAXIMUM AT JUNE 30, EXPIRATION OUTSTANDING AT
DESCRIPTION BORROWINGS 1999 DATE JUNE 30, 1999
---------- ---- ------ ----------
<S> <C> <C> <C> <C>
SECURED FIXED RATE DEBT:
AEGON Note $ 280,000 7.53% July 2009(1) $ 280,000
LaSalle Note I 239,000 7.83 August 2027(2) 239,000
LaSalle Note II 161,000 7.79 March 2028(3) 161,000
CIGNA Note 63,500 7.47 December 2002 63,500
Metropolitan Life Note I 11,603 8.88 September 2001 11,603
Metropolitan Life Note II 44,000 6.93 December 2002 44,000
Metropolitan Life Note III 40,000 7.74 December 1999 40,000
Metropolitan Life Note IV 6,610 7.11 December 1999 6,610
Northwestern Life Note 26,000 7.65 January 2003 26,000
Nomura Funding VI Note 8,539 10.07 July 2020(4) 8,539
Rigney Promissory Note 747 8.50 June 2012 747
---------- ----- ----------
Subtotal/Weighted Average $ 880,999 7.68% $ 880,999
---------- ----- ----------
SECURED VARIABLE RATE DEBT(5):
BankBoston Bridge Loan $ 150,000 8.74% August 1999(6) $ 150,000
BankBoston Note 320,000 8.49 October 2001 320,000
Salomon Brothers Note(7) 184,299 7.24 September 1999 184,299
SFT Note 97,123 6.99 September 2001 97,123
---------- ----- ----------
Subtotal/Weighted Average $ 751,422 8.04% $ 751,422
---------- ----- ----------
UNSECURED FIXED RATE DEBT:
Notes due 2007(8) $ 250,000 7.50% September 2007 $ 250,000
Notes due 2002(8) 150,000 7.00 September 2002 150,000
---------- ----- ----------
Subtotal/Weighted Average $ 400,000 7.31% $ 400,000
---------- ----- ----------
UNSECURED VARIABLE RATE DEBT:
Credit Facility(9) $ 660,000 6.61% June 2000 $ 660,000
---------- ----- ----------
TOTAL/WEIGHTED AVERAGE $2,692,421 7.46% $2,692,421
---------- ----- ----------
</TABLE>
- --------------------
(1) On June 30, 1999, the Operating Partnership refinanced the $115 million La
Salle Note III due July 1999 with this $280 million AEGON Note. The
proceeds primarily were used to repay the existing debt of $115 million
and to settle the Company's remaining Forward Share Purchase Agreement.
The outstanding principal balance at maturity will be approximately $223
million. (See Note 11 Partners' Equity of Item 1. Financial Statements)
(2) In August 2007, the interest rate increases, and the Operating Partnership
is required to remit, in addition to the monthly debt service payment,
excess property cash flow, as defined, to be applied first against
principal until the note is paid in full and thereafter, against accrued
excess interest, as defined. It is the Operating Partnership's intention
to repay the note in full at such time (August 2007) by making a final
payment of approximately $220 million.
34
<PAGE> 35
(3) In March 2006, the interest rate increases, and the Operating Partnership
is required to remit, in addition to the monthly debt service payment,
excess property cash flow, as defined, to be applied first against
principal until the note is paid in full and thereafter, against accrued
excess interest, as defined. It is the Operating Partnership's intention
to repay the note in full at such time (March 2006) by making a final
payment of approximately $154 million.
(4) The Operating Partnership has the option to defease the note, by
purchasing Treasury obligations in an amount sufficient to pay the note,
without penalty. In July 2010, the interest rate due under the note will
change to a 10-year Treasury yield plus 500 basis points or, if the
Operating Partnership so elects, it may repay the note without penalty at
that date.
(5) For the method of calculation of the interest rate for the Operating
Partnership's variable rate debt (other than the Credit Facility), see
Note 8 Notes Payable and Borrowing under Credit Facility of Item 1.
Financial Statements.
(6) Prior to expiration on July 15, 1999, the Operating Partnership extended
the term of this loan to August 31, 1999.
(7) On May 28,1999, the Operating Partnership refinanced the $184,299 Merrill
Lynch Promissory Note with this Salomon Brothers Note.
(8) The notes were issued in an offering registered with the SEC.
(9) The Credit Facility is unsecured with an interest rate of the Eurodollar
rate plus 137 basis points. In connection with the refinancing of a
BankBoston term note, the Operating Partnership used $90 million of the
net proceeds of the refinancing to purchase a 12% participation interest
from BankBoston in the $750 million Credit Facility. As a result, the
Operating Partnership's borrowing capacity under the Credit Facility is
currently limited to $660 million. The Credit Facility requires the
Operating Partnership to maintain compliance with a number of customary
financial and other covenants on an ongoing basis, including leverage
ratios based on book value and debt service coverage ratios, limitations
on additional secured and total indebtedness and distributions,
limitations on additional investments and the incurrence of additional
liens, restrictions on real estate development activity and a minimum net
worth requirement. The Operating Partnership has entered into an agreement
with its lender group to amend the Credit Facility to (i) provide for a
reduction in the rent coverage level for CBHS, effective as of June 30,
1999, (ii) reduce the Operating Partnership's reliance on the CBHS assets
as support for the Credit Facility through a combination of the payment of
certain amounts outstanding under the Credit Facility and the provision of
substitute value to support the Credit Facility, and (iii) provide for a
decrease in the size of the Credit Facility. As a result of this
agreement, the Operating Partnership was in compliance with the financial
covenants related to the Credit Facility for the June 30, 1999 reporting
period.
Below are the aggregate principal amounts due under the Credit
Facility and other indebtedness of the Operating Partnership by year. Scheduled
principal installments and amounts due at maturity are included.
<TABLE>
<CAPTION>
SECURED UNSECURED TOTAL
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
1999 ......................... $ 381,528 $ -- $ 381,528
2000 ......................... 1,359 660,000 661,359
2001 ......................... 429,208 -- 429,208
2002 ......................... 65,655 150,000 215,655
2003 ......................... 72,201 -- 72,201
Thereafter ................... 682,470 250,000 932,470
---------- ---------- ----------
$1,632,421 $1,060,000 $2,692,421
========== ========== ==========
</TABLE>
The Operating Partnership's policy with regard to the incurrence and
maintenance of debt is based on a review and analysis of:
o investment opportunities for which capital is required and the
cost of debt in relation to such investment opportunities;
o the type of debt available (secured or unsecured);
o the effect of additional debt on existing coverage ratios;
o the maturity of the proposed debt in relation to maturities of
existing debt; and
o exposure to variable-rate debt and alternatives such as interest
rate swaps and hedges to reduce this exposure.
The Operating Partnership's debt service coverage ratio for the six
months ended June 30, 1999 was approximately 3.2 and for the six months ended
June 30, 1998 was approximately 3.1. Debt service coverage for a particular
period is generally calculated as net income plus depreciation and
amortization, plus interest expense, plus extraordinary or non-recurring
losses, minus extraordinary or non-recurring gains, divided by debt service
(including principal and interest payable during the period of calculation).
The most restrictive debt service coverage ratio the Operating Partnership is
required to maintain as stipulated by the Operating Partnership's debt
arrangements and calculated as described above is 1.5. In addition, the
Operating Partnership's Credit Facility
35
<PAGE> 36
requires a debt service coverage ratio (which is calculated in a different
manner) of 2.5. Under the calculation required by the Credit Facility, the
Operating Partnership's debt service coverage ratio was 3.5 at June 30, 1999.
FUNDS FROM OPERATIONS
FFO, based on the definition adopted by the Board of Governors of the
NAREIT and as used in this document, means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from debt restructuring and
sales of property;
o plus depreciation and amortization of real estate
assets; and
o after adjustments for unconsolidated partnerships and
joint ventures.
NAREIT developed FFO as a relative measure of performance and
liquidity of an equity REIT to recognize that income-producing real estate
historically has not depreciated on the basis determined under GAAP. The
Operating Partnership considers FFO an appropriate measure of performance of an
equity REIT. However, FFO:
o does not represent cash generated from operating activities
determined in accordance with GAAP (which, unlike FFO, generally
reflects all cash effects of transactions and other events that
enter into the determination of net income);
o is not necessarily indicative of cash flow available to fund
cash needs; and
o should not be considered as an alternative to net income
determined in accordance with GAAP as an indication of the
Operating Partnership's operating performance, or to cash flow
from operating activities determined in accordance with GAAP as
a measure of either liquidity or the Company's ability to make
distributions.
The Operating Partnership has historically distributed an amount less
than FFO, primarily due to reserves required for capital expenditures,
including leasing costs. The aggregate cash distributions paid to shareholders
and unitholders for the six months ended June 30, 1999 and 1998 were $149.5 and
$99.7 million, respectively.
An increase or decrease in FFO does not necessarily result in an
increase or decrease in aggregate distributions because the Company's Board of
Trust Managers is not required to increase distributions on a quarterly basis
unless necessary for the Company to maintain REIT status. However, the Company
must distribute 95% of its REIT taxable income (as defined in the Code).
Therefore, a significant increase in FFO will generally require an increase in
distributions to shareholders and unitholders although not necessarily on a
proportionate basis.
Accordingly, the Operating Partnership believes that to facilitate a
clear understanding of the consolidated historical operating results of the
Company and the Operating Partnership, FFO should be considered in conjunction
with the Operating Partnership's net income (loss) and cash flows reported in
the consolidated financial statements and notes to the financial statements.
However, the Operating Partnership's measure of FFO may not be comparable to
similarly titled measures of REITs (other than the Company) because these REITs
may apply the definition of FFO in a different manner than the Operating
Partnership.
36
<PAGE> 37
STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND UNITS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income after minority interest ........................... $ 61,074 $ 47,871 $ 100,489 $ 94,625
Adjustments:
Depreciation and amortization of real estate assets .. 32,149 27,664 65,026 53,715
Settlement of merger dispute ......................... -- -- 15,000 --
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office and retail properties .................. 2,597 1,563 4,354 3,004
Refrigerated storage properties ............... 5,187 6,983 7,758 13,054
Residential development properties ............ 6,622 6,639 11,294 11,441
Other ......................................... 172 -- 172 --
Preferred unit dividends ............................. (3,375) (3,375) (6,750) (4,950)
----------- ----------- ----------- -----------
Funds from operations .................................... $ 104,426 $ 87,345 $ 197,343 $ 170,889
=========== =========== =========== ===========
Investment Segments:
Office and Retail Segment ............................ $ 92,373 $ 82,071 $ 181,479 $ 156,116
Hospitality Segment .................................. 15,896 12,486 31,094 25,110
Behavioral Healthcare Segment ........................ 13,825 13,824 27,648 27,647
Refrigerated Storage Segment ......................... 9,208 5,398 17,488 11,538
Residential Development Segment ...................... 21,037 14,713 34,338 24,090
Corporate general & administrative ................... (3,816) (3,554) (7,930) (6,701)
Interest expense ..................................... (44,917) (37,844) (87,398) (72,127)
Preferred unit dividends ............................. (3,375) (3,375) (6,750) (4,950)
Other(1) ............................................. 4,195 3,626 7,374 10,166
----------- ----------- ----------- -----------
Funds from operations .................................... $ 104,426 $ 87,345 $ 197,343 $ 170,889
=========== =========== =========== ===========
Basic weighted average units ............................. 69,655 66,387 69,254 65,962
=========== =========== =========== ===========
Diluted weighted average units(2) ........................ 70,837 68,684 70,584 68,282
=========== =========== =========== ===========
</TABLE>
- --------------------------
(1) Includes interest and other income less depreciation and amortization of
non-real assets and amortization of deferred financing costs.
(2) See calculations for the amounts presented in the reconciliation following
this table.
37
<PAGE> 38
The following schedule reconciles the Operating Partnership's basic
weighted average units to the diluted weighted average units presented above:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------- -------------------------
(UNITS IN THOUSANDS) 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic weighted average units: 69,655 66,387 69,254 65,962
Weighted average preferred units .. -- 35 -- 17
Unit options ...................... 1,063 2,262 1,070 2,303
Forward Share Purchase Agreement .. 119 -- 260 --
----------- ----------- ----------- -----------
Diluted weighted average units ............ 70,837 68,684 70,584 68,282
=========== =========== =========== ===========
</TABLE>
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Funds from operations .............................................. $ 197,343 $ 170,889
Adjustments:
Depreciation and amortization of non-real estate assets ...... 1,134 739
Settlement of merger dispute ................................. (15,000) --
Amortization of deferred financing costs ..................... 5,824 2,250
Minority interest in joint ventures profit and depreciation
and amortization ......................................... 981 1,184
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies ................... (23,578) (27,498)
Change in deferred rent receivable ........................... (15,508) (16,060)
Change in current assets and liabilities ..................... 8,104 (35,707)
Equity in earnings in excess of distributions received from
unconsolidated companies ................................. (14,621) --
Distributions received in excess of equity in earnings from
unconsolidated companies ................................. -- 9,000
Preferred unit dividends ..................................... 6,750 4,950
Non-cash compensation ........................................ 81 135
----------- -----------
Net cash provided by operating activities .......................... $ 151,510 $ 109,882
=========== ===========
</TABLE>
OFFICE AND RETAIL PROPERTIES
The Operating Partnership's Office Properties are located primarily in
Dallas/Fort Worth and Houston, Texas. As of June 30, 1999, the Operating
Partnership's Office Properties in Dallas/Fort Worth and Houston represent an
aggregate of approximately 72% of its office portfolio based on total net
rentable square feet (39% for Dallas/Fort Worth and 33% for Houston).
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<PAGE> 39
OFFICE PROPERTIES TABLES
The following table shows certain information about the Operating
Partnership's Office Properties as of June 30, 1999.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT. (1)
------------------------------ ---------- --------- --------- --------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
DALLAS
Bank One Center(2)............. 1 CBD 1987 1,530,957 78% $22.19
The Crescent Office Towers..... 1 Uptown/Turtle Creek 1985 1,204,670 97 30.01
Fountain Place................. 1 CBD 1986 1,200,266 91 19.58
Trammell Crow Center(3)........ 1 CBD 1984 1,128,331 94(5) 25.71
Stemmons Place................. 1 Stemmons Freeway 1983 634,381 90 15.28
Spectrum Center(4)............. 1 Far North Dallas 1983 598,250 85(5) 23.42
Waterside Commons.............. 1 Las Colinas 1986 458,739 100 19.65
Caltex House................... 1 Las Colinas 1982 445,993 96 29.08
Reverchon Plaza................ 1 Uptown/Turtle Creek 1985 374,165 96 18.98
The Aberdeen................... 1 Far North Dallas 1986 320,629 100 19.27
MacArthur Center I & II........ 1 Las Colinas 1982/1986 294,069 99 20.52
Stanford Corporate Centre...... 1 Far North Dallas 1985 265,507 87 18.96
The Amberton................... 1 Central Expressway 1982 255,052 78 13.07
Concourse Office Park.......... 1 LBJ Freeway 1972-1986 244,879 90 14.81
12404 Park Central............. 1 LBJ Freeway 1987 239,103 100 21.44
Palisades Central II........... 1 Richardson/Plano 1985 237,731 64 17.05
3333 Lee Parkway............... 1 Uptown/Turtle Creek 1983 233,769 89(5) 20.84
Liberty Plaza I & II........... 1 Far North Dallas 1981/1986 218,813 100 15.72
The Addison.................... 1 Far North Dallas 1981 215,016 100 18.44
The Meridian................... 1 LBJ Freeway 1984 213,915 91 16.95
Palisades Central I............ 1 Richardson/Plano 1980 180,503 82 16.52
Walnut Green................... 1 Central Expressway 1986 158,669 75 16.06
Greenway II.................... 1 Richardson/Plano 1985 154,329 100 20.23
Addison Tower.................. 1 Far North Dallas 1987 145,886 97 15.75
Greenway I & IA................ 2 Richardson/Plano 1983 146,704 100 23.19
5050 Quorum.................... 1 Far North Dallas 1981 133,594 87 17.30
Cedar Springs Plaza............ 1 Uptown/Turtle Creek 1982 110,923 96 17.94
Valley Centre.................. 1 Las Colinas 1985 74,861 92 17.05
One Preston Park............... 1 Far North Dallas 1980 40,525 84 16.90
---- ---------- --- ------
Subtotal/Weighted Average.... 30 11,460,229 90% $21.53
--- ---------- --- ------
FORT WORTH
UPR Plaza...................... 1 CBD 1982 954,895 96% $16.39
--- ---------- --- ------
HOUSTON
Greenway Plaza Office
Portfolio ................... 10 Richmond-Buffalo 1969-1982 4,286,277 89% $16.90
Speedway
Houston Center.................. 3 CBD 1974-1983 2,764,418 96 16.51
Post Oak Central................ 3 West Loop/Galleria 1974-1981 1,277,516 92 17.36
The Woodlands Office
Properties(6).. .............. 12 The Woodlands 1980-1996 810,630 98 15.98
BP Plaza........................ 1 Katy Freeway 1992 561,065 100 18.84
Three Westlake Park(7)(8)....... 1 Katy Freeway 1983 414,251 -- (5) 15.03
1800 West Loop South............ 1 West Loop/Galleria 1982 399,777 66 17.54
---- ---------- --- ------
Subtotal/Weighted Average.... 31 10,513,934 88% $16.91
--- ---------- --- ------
AUSTIN
Frost Bank Plaza............... 1 CBD 1984 433,024 96% $20.30
301 Congress Avenue(9)......... 1 CBD 1986 418,338 92 22.42
Bank One Tower................. 1 CBD 1974 389,503 94 18.18
Austin Centre.................. 1 CBD 1986 343,665 97 21.35
The Avallon.................... 1 Northwest 1993/1997 232,301 100 20.56
Barton Oaks Plaza One.......... 1 Southwest 1986 99,895 97 21.37
---- ---------- --- ------
Subtotal/Weighted Average . 6 1,916,726 95% $20.59
---- ---------- --- ------
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT. (1)
------------------------------ ---------- --------- --------- --------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
COLORADO
DENVER
MCI Tower................... 1 CBD 1982 550,807 99% $18.04
Ptarmigan Place............. 1 Cherry Creek 1984 418,630 96(5) 18.11
Regency Plaza One........... 1 DTC 1985 309,862 97 23.03
AT&T Building............... 1 CBD 1982 184,581 82 15.07
The Citadel................. 1 Cherry Creek 1987 130,652 93 21.50
55 Madison.................. 1 Cherry Creek 1982 137,176 92(5) 16.23
44 Cook..................... 1 Cherry Creek 1984 124,174 57 18.61
--- ---------- ---- ------
Subtotal/Weighted
Average ............. 7 1,855,882 93% $18.83
--- ---------- ---- ------
COLORADO SPRINGS
Briargate Office and
Research Center............. 1 Colorado Springs 1988 252,857 100% $17.98
--- ---------- ---- ------
LOUISIANA
NEW ORLEANS
Energy Centre............... 1 CBD 1984 761,500 81% $15.46
1615 Poydras................ 1 CBD 1984 508,741 80 16.45
--- ---------- ---- ------
Subtotal/Weighted
Average ............. 2 1,270,241 81% $15.85
--- ---------- ---- ------
FLORIDA
MIAMI
Miami Center................ 1 CBD 1983 782,686 80%(5) $24.42
Datran Center............... 2 South Dade/Kendall 1986/1988 472,236 94 23.16
--- ---------- ---- ------
Subtotal/Weighted
Average ............... 3 1,254,922 85% $23.89
--- ---------- ---- ------
ARIZONA
PHOENIX
Two Renaissance Square...... 1 Downtown/CBD 1990 476,373 95%(5) $23.70
6225 North 24th Street...... 1 Camelback Corridor 1981 86,451 83 21.96
--- ---------- ---- ------
Subtotal/Weighted
Average ............. 2 562,824 93% $23.46
--- ---------- --- ------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour........ 2 Georgetown 1986 536,206 91%(5) $36.62
--- ---------- --- ------
NEBRASKA
OMAHA
Central Park Plaza.......... 1 CBD 1982 409,850 92% $15.84
--- ---------- -- ------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza........... 1 CBD 1990 366,236 95% $18.86
--- ---------- --- ------
CALIFORNIA
SAN FRANCISCO
160 Spear Street............. 1 South of Market/CBD 1984 276,420 98% $25.53
--- ---------- --- ------
SAN DIEGO
Chancellor Park (10)........ 1 UTC 1988 195,733 85%(5) $21.25
--- ---------- --- ------
TOTAL/WEIGHTED AVERAGE 89 31,826,955 90%(5) $19.72(11)
=== ========== === ======
</TABLE>
- -------------------------------------------
(1) Calculated based on base rent payable as of June 30, 1999, without
giving effect to free rent or scheduled rent increases that would be
taken into account under GAAP and including adjustments for expenses
payable by or reimbursable from tenants.
(2) The Operating Partnership has a 49.5% limited partner interest and a
.5% general partner interest in the partnership that owns Bank One
Center.
40
<PAGE> 41
(3) The Operating Partnership owns the principal economic interest in
Trammell Crow Center through its ownership of fee simple title to the
Property (subject to a ground lease and a leasehold estate regarding
the building) and two mortgage notes encumbering the leasehold
interests in the land and building.
(4) The Operating Partnership owns the principal economic interest in
Spectrum Center through an interest in Spectrum Mortgage Associates
L.P., which owns both a mortgage note secured by Spectrum Center and
the ground lessor's interest in the land underlying the office
building.
(5) Leases have been executed at certain Office Properties but had not
commenced as of June 30, 1999. If such leases had commenced as of
June 30, 1999, the percent leased for Office Properties would have
been 91%. The total percent leased for such Properties would have
been as follows: Trammell Crow - 97%; Spectrum Center - 89%; 3333 Lee
Parkway - 92%; Three Westlake - 41%; Ptarmigan Place - 99%; 55
Madison - 98%; Miami Center - 84%; Two Renaissance Square - 98%;
Washington Harbour - 94%; and Chancellor Park - 89%.
(6) The Operating Partnership has a 75% limited partner interest and an
approximate 10% indirect general partner interest in the partnership
that owns the 12 Office Properties that comprise The Woodlands Office
Properties.
(7) The property was occupied primarily by a major tenant until June,
1999, at which time the tenant made a payment of $4.7 million in
connection with its termination of the lease. Simultaneously with the
lease termination, the Operating Partnership leased approximately 41%
of the space to a new tenant, pursuant to a lease which will
commence no later than September 1, 1999.
(8) The Operating Partnership owns the principal economic interest in
Three Westlake Park through its ownership of a mortgage note secured
by Three Westlake Park.
(9) The Operating Partnership has a 1% general partner and a 49% limited
partner interest in the partnership that owns 301 Congress Avenue.
(10) The Operating Partnership owns Chancellor Park through its ownership
of a mortgage note secured by the building and through its direct and
indirect interests in the partnership which owns the building.
(11) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Operating Partnership
Office Properties as of June 30, 1999, giving effect to free rent and
scheduled rent increases that would be taken into consideration under
GAAP and including adjustments for expenses payable by or reimbursed
from tenants is $20.28.
The following table provides information, as of June 30, 1999, for the
Operating Partnership's Office Properties by state, city, and submarket.
<TABLE>
<CAPTION>
PERCENT OFFICE COMPANY
PERCENT OF LEASED AT SUBMARKET SHARE OF
TOTAL TOTAL COMPANY PERCENT OFFICE
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2)
- ----------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD ............................ 3 3,859,554 12% 87% 85% 21%
Uptown/Turtle Creek ............ 4 1,923,527 6 96 93 36
Far North Dallas ............... 7 1,897,695 6 92 79 22
Las Colinas .................... 4 1,273,662 4 98 86 12
Richardson/Plano ............... 5 719,267 2 84 85 16
Stemmons Freeway ............... 1 634,381 2 90 91 31
LBJ Freeway .................... 2 453,018 1 96 88 5
---------- ---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average .... 26 10,761,104 33% 91% 86% 18%
---------- ---------- ---------- ---------- ---------- ----------
FORT WORTH
CBD ............................ 1 954,895 3% 96% 84% 24%
---------- ---------- ---------- ---------- ---------- ----------
HOUSTON
CBD ............................ 3 2,764,418 9% 96% 97% 11%
Richmond-Buffalo Speedway ...... 6 2,735,030 9 91 93 56
West Loop/Galleria ............. 4 1,677,293 5 86 94 13
The Woodlands .................. 7 486,867 2 98 99 100
Katy Freeway ................... 2 975,316 3 58(6) 85 13
---------- ---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average .... 22 8,638,924 28% 88% 94% 17%
---------- ---------- ---------- ---------- ---------- ----------
AUSTIN
CBD ............................ 4 1,584,530 5% 95% 98% 44%
Northwest ...................... 1 232,301 1 100 72 10
Southwest ...................... 1 99,895 0 97 99 5
---------- ---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average .... 6 1,916,726 6% 95% 91% 24%
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
QUOTED QUOTED SERVICE
MARKET RENTAL RENTAL
RENTAL RATE RATE PER RATE PER
PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(2)(3) FOOT(4) FOOT(5)
- ----------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD ............................ $ 22.80 $ 25.81 $ 22.45
Uptown/Turtle Creek ............ 26.58 30.48 26.15
Far North Dallas ............... 25.25 24.20 19.47
Las Colinas .................... 25.97 25.34 22.95
Richardson/Plano ............... 22.89 23.32 19.22
Stemmons Freeway ............... 23.15 19.50 15.28
LBJ Freeway .................... 24.96 22.32 19.43
---------- ---------- ----------
Subtotal/Weighted Average .... $ 24.40 $ 25.62 $ 21.93
---------- ---------- ----------
FORT WORTH
CBD ............................ $ 20.20 $ 20.29 $ 16.39
---------- ---------- ----------
HOUSTON
CBD ............................ $ 22.28 $ 23.41 $ 16.51
Richmond-Buffalo Speedway ...... 20.71 23.30 17.96
West Loop/Galleria ............. 21.98 23.04 17.40
The Woodlands .................. 15.48 15.48 16.21
Katy Freeway ................... 22.21 24.44 18.83
---------- ---------- ----------
Subtotal/Weighted Average .... $ 21.33 $ 22.97 $ 17.30
---------- ---------- ----------
AUSTIN
CBD ............................ $ 28.61 $ 28.30 $ 20.54
Northwest ...................... 26.51 25.00 20.56
Southwest ...................... 26.76 25.00 21.37
---------- ---------- ----------
Subtotal/Weighted Average .... $ 28.26 $ 27.73 $ 20.59
---------- ---------- ----------
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
PERCENT OFFICE COMPANY
PERCENT OF LEASED AT SUBMARKET SHARE OF
TOTAL TOTAL COMPANY PERCENT OFFICE
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2)
- ----------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
COLORADO
DENVER
Cherry Creek ................... 4 810,632 3% 89%(6) 74% 46%
CBD ............................ 2 735,388 2 95 97 7
DTC ............................ 1 309,862 1 97 92 6
---------- ---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average .... 7 1,855,882 6% 93% 93% 11%
---------- ---------- ---------- ---------- ---------- ----------
COLORADO SPRINGS
Colorado Springs ............... 1 252,857 1% 100% 93% 6%
---------- ---------- ---------- ---------- ---------- ----------
LOUISIANA
NEW ORLEANS
CBD ............................ 2 1,270,241 5% 81% 88% 14%
---------- ---------- ---------- ---------- ---------- ----------
FLORIDA
MIAMI
CBD ............................ 1 782,686 2% 80%(6) 91% 23%
South Dade/Kendall ............. 2 472,236 1 94 95 100
---------- ---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average .... 3 1,254,922 3% 85% 92% 33%
---------- ---------- ---------- ---------- ---------- ----------
ARIZONA
PHOENIX
Downtown/CBD ................... 1 476,373 1% 95%(6) 95% 27%
Camelback Corridor ............. 1 86,451 0 83 93 2
---------- ---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average .... 2 562,824 1% 93% 94% 11%
---------- ---------- ---------- ---------- ---------- ----------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown ..................... 2 536,206 2% 91%(6) 97% 100%
---------- ---------- ---------- ---------- ---------- ----------
NEBRASKA
OMAHA
CBD ............................ 1 409,850 1% 92% 96% 32%
---------- ---------- ---------- ---------- ---------- ----------
NEW MEXICO
ALBUQUERQUE
CBD ............................ 1 366,236 1% 95% 93% 63%
---------- ---------- ---------- ---------- ---------- ----------
CALIFORNIA
SAN FRANCISCO
South of Market/CBD ............ 1 276,420 1% 98% 96% 2%
---------- ---------- ---------- ---------- ---------- ----------
SAN DIEGO
UTC ............................ 1 195,733 1% 85%(6) 85% 5%
---------- ---------- ---------- ---------- ---------- ----------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE .................... 76 29,252,820 92% 90% 90% 16%
========== ========== ========== ========== ========== ==========
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway ............. 2 413,721 1% 77% 83% 11%
LBJ Freeway .................... 1 244,879 1 90 88 2
Far North Dallas ............... 1 40,525 0 84 85 0
---------- ---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average .... 4 699,125 2% 82% 86% 3%
---------- ---------- ---------- ---------- ---------- ----------
HOUSTON
Richmond-Buffalo Speedway ...... 4 1,551,247 5% 86% 89% 47%
The Woodlands .................. 5 323,763 1 98 99 100
---------- ---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average .... 9 1,875,010 6% 88% 90% 51%
---------- ---------- ---------- ---------- ---------- ----------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE .................... 13 2,574,135 8% 86% 86% 9%
========== ========== ========== ========== ========== ==========
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE .................... 89 31,826,955 100% 90%(6) 90% 15%
========== ========== ========== ========== ========== ==========
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
QUOTED QUOTED SERVICE
MARKET RENTAL RENTAL
RENTAL RATE RATE PER RATE PER
PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(2)(3) FOOT(4) FOOT(5)
- ----------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
COLORADO
DENVER
Cherry Creek ................... $ 23.14 $ 22.64 $ 18.42
CBD ............................ 23.47 22.00 17.37
DTC ............................ 24.45 26.00 23.03
---------- ---------- ----------
Subtotal/Weighted Average .... $ 23.49 $ 22.95 $ 18.83
---------- ---------- ----------
COLORADO SPRINGS
Colorado Springs ............... $ 19.56 $ 22.00 $ 17.98
---------- ---------- ----------
LOUISIANA
NEW ORLEANS
CBD ............................ $ 16.43 $ 17.00 $ 15.85
---------- ---------- ----------
FLORIDA
MIAMI
CBD ............................ $ 28.94 $ 30.75 $ 24.42
South Dade/Kendall ............. 23.46 25.00 23.16
---------- ---------- ----------
Subtotal/Weighted Average .... $ 26.88 $ 28.59 $ 23.89
---------- ---------- ----------
ARIZONA
PHOENIX
Downtown/CBD ................... $ 23.59 $ 23.00 $ 23.70
Camelback Corridor ............. 27.21 22.00 21.96
---------- ---------- ----------
Subtotal/Weighted Average .... $ 24.15 $ 22.85 $ 23.46
---------- ---------- ----------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown ..................... $ 36.68 $ 36.68 $ 36.62
---------- ---------- ----------
NEBRASKA
OMAHA
CBD ............................ $ 18.61 $ 18.50 $ 15.84
---------- ---------- ----------
NEW MEXICO
ALBUQUERQUE
CBD ............................ $ 19.30 $ 19.50 $ 18.86
---------- ---------- ----------
CALIFORNIA
SAN FRANCISCO
South of Market/CBD ............ $ 44.34 $ 44.00 $ 25.53
---------- ---------- ----------
SAN DIEGO
UTC ............................ $ 29.40 $ 26.00 $ 21.25
---------- ---------- ----------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE .................... $ 23.57 $ 24.50 $ 20.12
========== ========== ==========
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway ............. $ 17.27 $ 18.53 $ 14.21
LBJ Freeway .................... 19.01 17.15 14.81
Far North Dallas ............... 20.57 19.50 16.90
---------- ---------- ----------
Subtotal/Weighted Average .... $ 18.07 $ 18.10 $ 14.61
---------- ---------- ----------
HOUSTON
Richmond-Buffalo Speedway ...... $ 18.61 $ 22.03 $ 14.92
The Woodlands .................. 15.01 15.01 15.62
---------- ---------- ----------
Subtotal/Weighted Average .... $ 17.99 $ 20.82 $ 15.05
---------- ---------- ----------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE .................... $ 18.01 $ 20.08 $ 14.93
========== ========== ==========
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE .................... $ 23.12 $ 24.15 $ 19.72(7)
========== ========== ==========
</TABLE>
42
<PAGE> 43
- -----------------------
(1) NRA means net rentable area in square feet.
(2) Market information is for Class A office space under the caption "Class A
Office Properties" and market information is for Class B office space
under the caption "Class B Office Properties." Sources are CoStar/Jamison.
(for the Dallas CBD, Uptown/Turtle Creek, Far North Dallas, Las Colinas,
Richardson/Plano, Stemmons Freeway, LBJ Freeway and Central Expressway,
Fort Worth CBD and the New Orleans CBD submarkets), The Baca Group (for
the Houston Richmond-Buffalo Speedway, CBD and West Loop/Galleria and Katy
Freeway submarkets), The Woodlands Operating Company, L.P. (for The
Woodlands submarket), CB Richard Ellis (for the Austin CBD, Northwest and
Southwest submarkets), Cushman & Wakefield of Colorado, Inc. (for the
Denver Cherry Creek, CBD and DTC submarkets), Turner Commercial Research
(for the Colorado Springs market), Grubb and Ellis Company (for the
Phoenix Downtown/CBD, Camelback Corridor and San Francisco South of
Market/CBD submarkets), Grubb and Ellis Company and the Company (for the
Washington D.C. Georgetown submarket), Grubb and Ellis/Pacific Realty
Group, Inc. (for the Omaha CBD submarket), Building Interests, Inc. (for
the Albuquerque CBD submarket), RealData Information Systems, Inc. (for
the Miami CBD and South Dade/Kendall submarkets) and CoStar/John Burnham
(for the San Diego UTC submarket).
(3) Represents full-service quoted market rental rates. These rates do not
necessarily represent the amounts at which available space at the Office
Properties will be leased. The weighted average subtotals and total are
based on total net rentable square feet of Operating Partnership Office
Properties in the submarket.
(4) For Office Properties, represents weighted average rental rates per square
foot quoted by the Operating Partnership as of June 30, 1999, based on
total net rentable square feet of Operating Partnership Office Properties
in the submarket, adjusted, if necessary, based on management estimates,
to equivalent full-service quoted rental rates to facilitate comparison to
weighted average Class A or Class B, as the case may be, quoted submarket
rental rates per square foot. These rates do not necessarily represent the
amounts at which available space at the Operating Partnership's Office
Properties will be leased.
(5) Calculated based on base rent payable for Operating Partnership Office
Properties in the submarket as of June 30, 1999, without giving effect to
free rent or scheduled rent increases that would be taken into account
under GAAP and including adjustments for expenses payable by or reimbursed
from tenants, divided by total net rentable square feet of Operating
Partnership Office Properties in the submarket.
(6) Leases have been executed at certain Properties in these submarkets but
had not commenced as of June 30, 1999. If such leases had commenced as of
June 30, 1999, the percent leased for all Office Properties in the
Operating Partnership's submarkets would have been 91%. The total percent
leased at the Operating Partnership Office Properties would have been as
follows: Katy Freeway - 75%; Denver Cherry Creek -- 92%; Miami CBD - 84%;
and Phoenix Downtown CBD - 98%; Washington Georgetown - 94%; and San Diego
UTC - 89%.
(7) The weighted average full-service rental rate per square foot calculated
based on base rent payable for Operating Partnership's Office Properties
as of June 30, 1999, giving effect to free rent and scheduled rent
increases that would be taken into consideration under GAAP and including
adjustments for expenses payable by or reimbursed from tenants, is $20.28.
The following table shows, as of June 30, 1999, the principal
businesses conducted by the tenants at the Operating Partnership's Office
Properties, based on information supplied to the Operating Partnership from the
tenants.
<TABLE>
<CAPTION>
Percent of
Industry Sector Leased Sq. Ft.
--------------- --------------
<S> <C>
Professional Services (1) 25%
Energy(2) 20
Financial Services (3) 19
Technology 7
Telecommunications 6
Manufacturing 2
Retail 2
Medical 3
Government 3
Food Service 3
Other(4) 10
-----
Total Leased 100%
=====
</TABLE>
- ------------------------------------
(1) Includes legal, accounting, engineering, architectural, and advertising
services.
(2) Of the 20% of energy tenants at the Operating Partnership's Office
Properties, 63% are located in Houston, 25% are located in Dallas, 7% are
located in Denver and 5% are located in New Orleans. Of the 63% of energy
tenants located in Houston (approximately 3.7 million square feet), 73%
(approximately 2.7 million square feet) are obligated under long-term
leases (expiring in 2003 or later).
(3) Includes banking, title and insurance, and investment services
(4) Includes construction, real estate, transportation and other industries.
AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following tables show schedules of lease expirations for leases in
place as of June 30, 1999 for the Operating Partnership's total Office
Properties and for Dallas and Houston, Texas, individually, for each of the ten
43
<PAGE> 44
years beginning with the remainder of 1999, assuming that none of the tenants
exercises or has exercised renewal options.
TOTAL OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL ANNUAL
NET RENTABLE ANNUAL FULL-SERVICE
AREA PERCENTAGE OF ANNUAL FULL-SERVICE RENT PER
NUMBER OF REPRESENTED LEASED NET FULL-SERVICE RENT SQUARE
TENANTS WITH BY EXPIRING RENTABLE AREA RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES REPRESENTED BY EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES LEASES(1) LEASES EXPIRING(1)
- --------------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1999 ................ 379 2,160,351(2) 7.6% $ 41,345,695 6.9% $ 19.14
2000 ................ 416 3,336,582 11.8 65,889,771 11.0 19.75
2001 ................ 409 3,599,194 12.7 69,641,593 11.6 19.35
2002 ................ 365 3,784,930 13.4 79,911,520 13.4 21.11
2003 ................ 287 2,817,019 9.9 55,219,161 9.2 19.60
2004 ................ 198 3,613,138 12.8 75,913,707 12.7 21.01
2005 ................ 84 2,371,973 8.4 52,645,161 8.8 22.19
2006 ................ 35 802,195 2.8 17,373,581 2.9 21.66
2007 ................ 34 1,304,182 4.6 30,031,958 5.0 23.03
2008 ................ 31 1,089,281 3.8 27,190,287 4.5 24.96
2009 and thereafter . 36 3,446,824 12.2 83,332,362 14.0 24.18
-------------- -------------- -------------- -------------- -------------- --------------
Totals .............. 2,274 28,325,669(3) 100.0%(3) $ 598,494,796 100.0% $ 21.13
============== ============== ============== ============== ============== ==============
</TABLE>
- ---------------------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from tenants based on
current levels.
(2) As of June 30, 1999, leases have been signed for approximately 1,472,520
net rentable square feet (including renewed leases and leases of
previously unleased space) commencing after June 30, 1999.
(3) Reconciliation to the Operating Partnership's total net rentable area is
as follows:
<TABLE>
<CAPTION>
Square Feet Percentage of Total
--------------- -------------------
<S> <C> <C>
Square footage leased to tenants 28,325,669 89.0%
Square footage used for
management offices, building use,
and remeasurement adjustments 303,704 1.0
Square footage vacant 3,197,582 10.0
--------------- ---------------
Total net rentable square footage 31,826,955 100.0%
=============== ===============
</TABLE>
44
<PAGE> 45
DALLAS OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL ANNUAL
NET RENTABLE ANNUAL FULL-SERVICE
AREA PERCENTAGE OF ANNUAL FULL-SERVICE RENT PER
NUMBER OF REPRESENTED LEASED NET FULL-SERVICE RENT SQUARE
TENANTS WITH BY EXPIRING RENTABLE AREA RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES REPRESENTED BY EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES LEASES(1) LEASES EXPIRING(1)
- --------------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1999 .................... 128 797,958(2) 7.8% $ 18,085,546 7.8% $ 22.66
2000 .................... 158 1,766,055 17.2 37,401,958 16.1 21.18
2001 .................... 143 1,197,225 11.6 25,626,105 11.0 21.40
2002 .................... 105 1,011,276 9.8 24,725,344 10.6 24.45
2003 .................... 89 1,182,778 11.5 23,350,164 10.0 19.74
2004 .................... 60 699,466 6.8 17,465,121 7.5 24.97
2005 .................... 20 1,170,382 11.4 25,239,876 10.9 21.57
2006 .................... 12 213,550 2.1 5,378,432 2.3 25.19
2007 .................... 14 558,608 5.4 13,600,238 5.8 24.35
2008 .................... 11 565,853 5.5 14,072,781 6.1 24.87
2009 and thereafter ..... 10 1,132,649 10.9 27,577,531 11.9 24.35
-------------- -------------- -------------- -------------- -------------- --------------
Totals .................. 750 10,295,800 100.0% $ 232,523,096 100.0% $ 22.58
============== ============== ============== ============== ============== ==============
</TABLE>
- -----------------------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from tenants based on
current levels.
(2) As of June 30, 1999, leases have been signed for approximately 442,505 net
rentable square feet (including renewed leases and leases of previously
unleased space) commencing after June 30, 1999.
HOUSTON OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL ANNUAL
NET RENTABLE ANNUAL FULL-SERVICE
AREA PERCENTAGE OF ANNUAL FULL-SERVICE RENT PER
NUMBER OF REPRESENTED LEASED NET FULL-SERVICE RENT SQUARE
TENANTS WITH BY EXPIRING RENTABLE AREA RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES REPRESENTED BY EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES LEASES(1) LEASES EXPIRING(1)
- --------------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1999 ................... 131 891,031(2) 9.7% $ 13,853,510 8.0% $ 15.55
2000 ................... 132 793,731 8.6 12,636,784 7.3 15.92
2001 ................... 130 1,462,726 15.8 24,907,034 14.3 17.03
2002 ................... 139 1,090,370 11.8 19,727,666 11.3 18.09
2003 ................... 96 824,128 8.9 14,969,440 8.6 18.16
2004 ................... 62 1,572,260 17.0 29,301,678 16.8 18.64
2005 ................... 16 190,368 2.1 3,649,682 2.1 19.17
2006 ................... 9 310,229 3.4 5,856,144 3.4 18.88
2007 ................... 5 474,024 5.1 9,489,812 5.5 20.02
2008 ................... 7 183,719 2.0 3,231,625 1.9 17.59
2009 and thereafter .... 10 1,437,952 15.6 36,380,383 20.8 25.30
-------------- -------------- -------------- -------------- -------------- --------------
Totals ................. 737 9,230,538 100.0% $ 174,003,758 100.0% $ 18.85
============== ============== ============== ============== ============== ==============
</TABLE>
- ---------------------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from tenants based on
current levels.
(2) As of June 30, 1999, leases have been signed for approximately 697,195 net
rentable square feet (including renewed leases and leases of previously
unleased space) commencing after June 30, 1999.
45
<PAGE> 46
RETAIL PROPERTIES
The Operating Partnership owns seven Retail Properties, which in the
aggregate contain approximately 777,000 net rentable square feet. Four of the
Retail Properties, The Woodlands Retail Properties, with an aggregate of
approximately 356,000 net rentable square feet, are located in The Woodlands, a
master-planned development located 27 miles north of downtown Houston, Texas.
The Operating Partnership has a 75% limited partner interest and an
approximately 10% indirect general partner interest in the partnership that
owns The Woodlands Retail Properties. Two of the Retail Properties, Las Colinas
Plaza, with approximately 135,000 net rentable square feet, and The Crescent
Atrium with approximately 95,000 net rentable square feet, are located in
submarkets of Dallas, Texas. The remaining Retail Property, The Park Shops at
Houston Center, with an aggregate of approximately 191,000 net rentable square
feet, is located in the CBD submarket of Houston, Texas. As of June 30, 1999,
the Retail Properties were 95% leased.
HOTEL PROPERTIES
HOTEL PROPERTIES TABLES
The following table shows certain information for the six months ended
June 30, 1999 and 1998, about the Operating Partnership's Hotel Properties. The
information for the Hotel Properties is based on available rooms, except for
Canyon Ranch-Tucson and Canyon Ranch-Lenox, which are destination health and
fitness resorts that measure their performance based on available guest nights.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------
AVERAGE AVERAGE REVENUE PER
YEAR OCCUPANCY DAILY AVAILABLE
COMPLETED/ RATE RATE ROOM
------------- ------------- ------------
HOTEL PROPERTY(1), (9) LOCATION RENOVATED ROOMS 1999 1998 1999 1998 1999 1998
---------------------- -------- --------- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FULL-SERVICE/LUXURY HOTELS:
Denver Marriott City Center Denver,CO 1982/1994 613 77% 79% $123 $123 $95 $97
Four Seasons Hotel-Houston Houston,TX 1982 399 66 66 196 179 128 119
Hyatt Regency Albuquerque Albuquerque,NM 1990 395 71 68 106 103 75 70
Omni Austin Hotel Austin,TX 1986 324(2) 82 80 127 117 104 94
Hyatt Regency Beaver Creek Avon,CO 1989 276 70 68 296 279 207 190
Sonoma Mission Inn & Spa Sonoma,CA 1927/1987/1997 178(3) 79 79 196 214 155 170
Ventana Country Inn BigSur,CA 1975/1982/1988 62 77 41(4) 329 319 254 130(4)
------ --- --- ---- ---- ---- ----
TOTAL/WEIGHTED AVERAGE 2,247 74% 73% $166 $159 $122 $115
------ --- --- ---- ---- ---- ----
DESTINATION HEALTH & GUESTNIGHTS
FITNESS RESORTS: -----------
Canyon Ranch-Tucson Tucson,AZ 1980 250(5)
Canyon Ranch-Lenox Lenox,MA 1989 212(5)
------
TOTAL/WEIGHTED AVERAGE 462 90%(6) 89%(6) $536(7) $504(7) $464(8) $436(8)
------ --- --- ---- ---- ---- ----
</TABLE>
(1) Because of the Company's status as a REIT for federal income tax purposes,
it does not operate the Hotel Properties and has leased all of the Hotel
Properties, except the Omni Austin Hotel, to COI pursuant to long term
leases. As of January 1, 1999, the Omni Austin Hotel is leased pursuant to
a separate long term lease to an unrelated third party.
(2) As of June 30, 1999, 20 condominiums have been converted to hotel suites
and 10 of the parlor rooms have been taken out of commission to be
renovated.
(3) In February 1999, 20 rooms were taken out of commission for construction
of the spa.
(4) Temporarily closed from February 1, 1998 through May 1, 1998 due to
flooding in the region affecting the roadway passage to the hotel.
(5) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
(6) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights for the period.
(7) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the
period.
(8) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
(9) The Houston Renaissance hotel with 389 rooms, will be included in these
hotel statistics for the nine months ended September 30, 1999.
46
<PAGE> 47
REFRIGERATED STORAGE PROPERTIES
REFRIGERATED STORAGE PROPERTIES TABLE
The following table shows the number and aggregate size of
Refrigerated Storage Properties leased to the newly formed partnership, the
Refrigerated Storage Operating Partnership, by state as of June 30, 1999:
<TABLE>
<CAPTION>
TOTAL CUBIC TOTAL TOTAL CUBIC TOTAL
NUMBER OF FOOTAGE SQUARE FEET NUMBER OF FOOTAGE SQUARE FEET
STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS) STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS)
----- ------------- ------------- ------------- ----- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama 4 9.4 0.3 Mississippi 1 4.7 0.2
Arizona 1 2.9 0.1 Missouri(2) 2 37.9 2.2
Arkansas 6 33.1 1.0 Nebraska 2 4.4 0.2
California 8 26.7 1.1 New York 1 11.8 0.4
Colorado 2 3.4 0.1 North Carolina 3 8.5 0.3
Florida 5 7.5 0.3 Oklahoma 2 2.1 0.1
Georgia 7 44.5 1.6 Oregon 6 40.4 1.7
Idaho 2 18.7 0.8 Pennsylvania 2 27.4 0.9
Illinois 2 11.6 0.4 South Carolina 1 1.6 0.1
Indiana 1 9.1 0.3 South Dakota 1 2.9 0.1
Iowa 2 12.5 0.5 Tennessee 3 10.6 0.4
Kansas 2 5.0 0.2 Texas 2 6.6 0.2
Kentucky 1 2.7 0.1 Utah 1 8.6 0.4
Maine 1 1.8 0.2 Virginia 1 1.9 0.1
Massachusetts 6 15.2 0.7 Washington 6 28.7 1.1
Wisconsin 2 14.0 0.5
----- ------ -----
TOTAL 86(3) 416.2(3) 16.6(3)
===== ====== =====
</TABLE>
- -----------------------------
(1) As of June 30, 1999, the Refrigerated Storage Partnerships and the
Refrigerated Storage Corporations directly or indirectly owned real estate
assets associated with the Refrigerated Storage Properties. The business
operations associated with the Refrigerated Storage Properties are owned
by the recently formed Refrigerated Storage Operating Partnership, in
which the Operating Partnership has no interest. The Operating Partnership
holds an indirect 39.6% interest in the Refrigerated Storage Partnerships
which are entitled to receive lease payments (base rent and percentage
rent from the Refrigerated Storage Operating Partnership).
(2) Missouri has an underground storage facility, with approximately 33.1
million cubic feet.
(3) As of June 30, 1999, the Refrigerated Storage Operating Partnership
operated 102 refrigerated storage properties with an aggregate of
approximately 537.1 million cubic feet (21.6 million square feet).
47
<PAGE> 48
RESIDENTIAL DEVELOPMENT PROPERTIES
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table shows certain information as of June 30, 1999,
relating to the Residential Development Properties.
<TABLE>
<CAPTION>
AVERAGE
TOTAL TOTAL CLOSED
RESIDENTIAL RESIDENTIAL TOTAL LOTS/UNITS LOTS/UNITS SALE
RESIDENTIAL DEVELOPMENT DEVELOPMENT LOTS/ DEVELOPED CLOSED PRICE
DEVELOPMENT PROPERTIES TYPE OF CORPORATION'S UNITS SINCE SINCE PER LOT/
CORPORATION (1) (RDP) RDP(2) LOCATION OWNERSHIP % PLANNED INCEPTION INCEPTION UNIT ($)(3)
--------------- ----- ------ -------- ----------- ------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ 93.0% 2,665 2,155 1,869 469,000(5)
------ ------ ------
Development
Corp.
The Woodlands The Woodlands SF The Woodlands, TX 42.5% 36,845 20,805 19,648 49,879
------ ------ ------
Land Company
Inc.
Crescent Villa Montane
Development Townhomes TH Avon, CO 30.0% 27 27 24 1,090,000
Management Villa Montane
Corp. Club TS Avon, CO 30.0% 38 38 37 60,000(6)
Deer Trail SFH Avon, CO 60.0% 16(6) 4 4 2,980,000
Buckhorn
Townhomes TH Avon, CO 60.0% 24(6) 14 14 1,300,000
Bear Paw Lodge CO Avon, CO 60.0% 53(6) -- -- N/A
Eagle Ranch SF Eagle, CO 60.0% 1,100(6) -- -- N/A
Main Street
Junction CO Breckenridge, CO 60.0% 36(6) -- -- N/A
------ ------ ------
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP. 1,294 83 79
------ ------ ------
Mira Vista Mira Vista SF Fort Worth, TX 100.0% 710 693 578 98,000
Development The Highlands SF Breckenridge, 12.3% 750 294 281 132,000
------ ------ ------
Corp.
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,460 987 859
------ ------ ------
Houston Area Falcon Point SF Houston, TX 100.0% 1,205 556 448 31,000
Development Spring Lakes SF Houston, TX 100.0% 536 93 75 31,000
------ ------ ------
Corp.
TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,741 649 523
------ ------ ------
TOTAL 44,005 24,679 22,978
====== ====== ======
<CAPTION>
RESIDENTIAL RANGE OF
RESIDENTIAL DEVELOPMENT PROPOSED
DEVELOPMENT PROPERTIES TYPE OF SALE PRICES
CORPORATION (1) (RDP) RDP(2) PER LOT/UNIT ($)(4)
--------------- ----- ------ -------------------
<S> <C> <C> <C>
Desert Mountain Desert Mountain SF 350,000 - 3,000,000(5)
Development
Corp.
The Woodlands The Woodlands SF 15,300 - 500,000
Land Company
Inc.
Crescent Villa Montane
Development Townhomes TH 1,325,000 - 1,450,000
Management Villa Montane
Corp. Club TS 18,000 - 150,000(7)
Deer Trail SFH 2,560,000 - 3,995,000
Buckhorn
Townhomes TH 1,420,000 - 1,870,000
Bear Paw Lodge CO 665,000 - 2,025,000
Eagle Ranch SF 80,000 - 150,000
Main Street
Junction CO 300,000 - 580,000
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP.
Mira Vista Mira Vista SF 50,000 - 265,000
Development The Highlands SF 55,000 - 250,000
Corp.
TOTAL MIRA VISTA DEVELOPMENT CORP.
Houston Area Falcon Point SF 22,000 - 60,000
Development Spring Lakes SF 22,000 - 33,000
Corp.
TOTAL HOUSTON AREA DEVELOPMENT CORP.
TOTAL
</TABLE>
(1) The Operating Partnership has an approximately 95%, 95%, 90%, 94%, and
94%, ownership interest in Desert Mountain Development Corporation, The
Woodlands Land Company, Inc., Crescent Development Management Corp., Mira
Vista Development Corp., and Houston Area Development Corp., respectively,
through ownership of non-voting common stock in each of these Residential
Development Corporations.
(2) SF (Single-Family Lots); CO (Condominium); TH (Townhome); TS (Timeshare);
and SFH (Single Family Homes).
(3) Based on Lots/Units closed during the Company's ownership period.
(4) Based on existing inventory of developed lots and lots to be developed.
(5) Includes golf membership, which for 1999, is approximately $175,000.
(6) As of June 30, 1999, six units were under contract at Deer Trail
representing $17.4 million in sales, eight units were under contract at
Buckhorn Townhomes representing $13.6 million in sales, 26 units were
under contract at Bear Paw Lodge representing $36.1 million in sales, 124
lots were under contract at Eagle Ranch representing $15.5 million in
sales, and 13 units were under contract at Main Street Junction
representing $6.1 million in sales.
(7) Represents amounts per timeshare (1/20 of a timeshare unit).
48
<PAGE> 49
BEHAVIORAL HEALTHCARE PROPERTIES
BEHAVIORAL HEALTHCARE PROPERTIES TABLE
The following table shows the number of properties and beds by state
of the 88 Behavioral Healthcare Properties as of June 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
STATE PROPERTIES(1) BEDS STATE PROPERTIES(1) BEDS
----- ------------- ---- ----- ------------- ----
<S> <C> <C> <C> <C> <C>
Alabama 1 70 Mississippi 2 217
Arkansas 2 109 North Carolina 4 410
Arizona 2 170 New Hampshire 2 100
California 8 649 New Jersey 1 150
Delaware 1 72 Nevada 1 84
Florida 12 648 Pennsylvania 1 169
Georgia 15 986 South Carolina 3 248
Indiana 7 517 Tennessee 1 204
Kansas 2 160 Texas 9 816
Kentucky 3 251 Utah 2 196
Louisiana 1 0 Virginia 3 285
Maryland 1 0 Wisconsin 2 160
Minnesota 1 40 -- -----
Missouri 1 96 TOTAL 88 6,807
== =====
</TABLE>
- -------------------
(1) The Behavioral Healthcare Properties include 88 properties in 26 states
that are leased to CBHS. One property was sold in January 1999. CBHS was
formed to operate the Behavioral Healthcare Properties and is owned 50% by
a subsidiary of Magellan and 50% by COI.
YEAR 2000 COMPLIANCE
OVERVIEW
The year 2000 issue relates to whether computer systems will properly
recognize date-sensitive information to allow accurate processing of
transactions and data relating to the year 2000 and beyond. In addition, the
year 2000 issue relates to whether non-Information Technology ("IT") systems
that depend on embedded computer technology will recognize the year 2000.
Systems that do not properly recognize such information could generate
erroneous information or fail.
In early 1998, the Operating Partnership assigned a group of
individuals with the task of creating a program to identify, understand and
address the myriad issues associated with the year 2000 problem. The group has
completed its assessment of the Operating Partnership's year 2000 readiness by
way of a comprehensive review of IT and non-IT systems at the Operating
Partnership's principal executive offices and at the Operating Partnership's
Properties. The group is in its final stages of remediation and testing of any
systems that were identified as being date sensitive and, accordingly, could
have potential year 2000 problems.
YEAR 2000 READINESS DISCLOSURE
The Operating Partnership has completed its assessment of all
mission-critical IT systems, such as in-house accounting and property
management systems, network operating systems, telecommunication systems and
desktop software systems as to their year 2000 compliance. The Operating
Partnership is currently involved in remediating all items that were deemed
non-compliant. Although remediation and testing is not yet complete, the
Operating Partnership has not identified any significant problem areas and it
believes that the mission-critical systems, AS/400 and accounting system, local
network servers, WAN equipment and the majority of desktop PC's are compliant,
or can be made compliant with minor software upgrades.
49
<PAGE> 50
For non-IT systems, the Operating Partnership has completed its
comprehensive review of computer hardware and software in mechanical systems
and has developed a program to repair or replace non-IT systems that are not
year 2000 compliant. As of July 15, 1999, approximately 96% of the systems have
been deemed compliant based upon manufacturers' statements, and the combined
research efforts of a retained outside specialist company, retained technology
consultants, and third party vendors. The remaining 4% have been reviewed and
plans are in place to upgrade or remediate these systems prior to October 31,
1999. Management does not believe that the resolution of any problems with
respect to these systems will have a material adverse effect on the Operating
Partnership's financial condition or results of operations. The Operating
Partnership's non-IT systems or embedded technology are primarily
property-related and include escalator and elevator service, building
automation (e.g., energy management and HVAC systems), security access systems,
fire and life safety systems.
The Operating Partnership believes that potential exposure lies with
third parties, such as its tenants, vendors, financial institutions and the
Operating Partnership's transfer agent and unaffiliated joint venture partners.
The Operating Partnership depends on its tenants for rents and cash flows, its
financial institutions for availability of cash, its transfer agent to maintain
and track investor information, its vendors for day-to-day services and its
unaffiliated joint venture partners for operations and management of certain of
the Operating Partnership's Properties. If any of these third parties are
unable to meet their obligations to the Operating Partnership because of the
year 2000 problem, such a failure may have a material adverse effect on the
financial condition or results of operations of the Operating Partnership. The
Operating Partnership is actively pursuing information from third parties
regarding their year 2000 compliance status. As of July 15, 1999, 97% of the
third parties who have responded to inquiries are either compliant, are
employing plans to bring themselves into compliance, or do not have any issues
with year 2000 date sensitivity. Although the Operating Partnership continues
to work with third parties in order to attempt to eliminate its year 2000
concerns, the cost and timing of the third party year 2000 compliance is not
within the Operating Partnership's control, and no assurance can be given with
respect to the cost and timing of these third-party efforts or the potential
effects of any failure to comply.
The majority of the work performed to date has been performed by
employees of the Company without significant additional cost to the Operating
Partnership. The Operating Partnership currently estimates that the total cost
to repair and replace IT and non-IT systems that are not year 2000 compliant
(not including costs associated with the Operating Partnership's normal upgrade
and replacement process) will be approximately $1.2 million of which,
approximately $0.3 million has been incurred to date. Management does not
believe that such estimated total cost will have a material adverse effect on
the Operating Partnership's financial condition or results of operations.
The Operating Partnership currently believes that it will have
performed all year 2000 compliance testing and completed its remedial measures
on its IT and non-IT systems on or before October 31, 1999. Based on the
progress the Operating Partnership has made in addressing the Operating
Partnership's year 2000 issues and its plan and timeline to complete its
compliance program, at this time, the Operating Partnership does not foresee
significant risks associated with the Operating Partnership's year 2000
compliance. Management does not believe that the year 2000 issue will pose
significant problems in its IT or non-IT systems, or that resolution of any
potential problems with respect to these systems will have a material adverse
effect on the Operating Partnership's financial condition or results of
operations. Management believes that the year 2000 risks to the Operating
Partnership's financial condition or results of operations associated with a
failure of non-IT systems is immaterial, due to the fact that each of the
Operating Partnership's Properties has, for the most part, separate non-IT
systems. Accordingly, a year 2000 problem that is experienced at one Property
generally should have no effect on the other Operating Partnership Properties.
In addition, management believes that the Operating Partnership has sufficient
time to correct those system problems within its control before the year 2000.
Because the Operating Partnership's major source of income is rental payments
under long-term leases, a failure of the Operating Partnership's
mission-critical IT systems is not expected to have a material adverse effect
on the Operating Partnership's financial condition or results of operations.
Even if the Operating Partnership were to experience problems with its IT
systems, the payment of rent under the leases would not be excused. In
addition, the Operating Partnership expects to correct those IT system problems
within its control before the year 2000, thereby minimizing or avoiding the
increased cost of correcting problems after the fact.
50
<PAGE> 51
The Operating Partnership is in the process of developing contingency
plans for its IT and non-IT systems. Non-IT systems contingency plans are being
tailored for each of the Operating Partnership's Properties, due to the fact
that each of the Properties has, for the most part, separate non-IT systems. As
the Operating Partnership identifies significant risks related to the Operating
Partnership's year 2000 compliance, or if the Operating Partnership's year 2000
compliance program's progress deviates substantially from the anticipated
timeline, the Operating Partnership will adjust contingency plans
appropriately.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Operating Partnership's Form 10-K for the year ended December 31,
1998 contains information regarding its interest rate risk from changes in the
90-day LIBOR rate and its market price risk from changes in the price of its
common shares in connection with its settlement obligations under its Forward
Share Purchase Agreement with UBS. The Company's settled its Forward Share
Purchase Agreement on June 30, 1999 and, as a result, this information is no
longer applicable.
The Operating Partnership's Form 10-K for the year ended December 31,
1999 also contains information regarding its interest rate risk from
fluctuations in interest rates on its short-term variable rate debt. There have
been no material changes in this information.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of April 14, 1999, the Company and Station Casinos, Inc.
("Station") entered into an agreement (the "Settlement Agreement") relating to
certain litigation arising out of a merger agreement entered into between the
Company and Station in January 1998.
As discussed in the Registrant's Form 10-K for the year ended December
31, 1998, Station had filed and subsequently amended a complaint in Clark
County District Court, State of Nevada seeking, primarily, declaratory relief
against, and damages from, the Company, and the Company had filed a complaint
in the United States District Court, Northern District of Texas, seeking
damages from, and declaratory relief against, Station. In addition, the Company
had sought to have the dispute tried in federal court either in Texas or
Nevada, while Station had sought to maintain the action in state court in
Nevada. Although the Nevada federal district court had remanded the case to
Nevada state court and the Texas federal court had followed suit, the Company
had filed an appeal in the Fifth Circuit Court of Appeals.
The Settlement Agreement provides for the mutual settlement and
release of all claims between the Company and Station arising out of the merger
agreement and the dismissal with prejudice of the litigation described above as
to all claims and counterclaims in connection therewith. The Settlement
Agreement also provides that each party will be responsible for the payment of
its own attorney's fees and costs of litigation, including attorney's fees and
costs associated with the dismissal. As part of the Settlement Agreement, the
Company paid $15 million to Station on April 22, 1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended June 30, 1999, the Operating Partnership
issued an aggregate of 85,910 units to three limited partners in satisfaction
of certain obligations relating to the contribution of properties to the
Operating Partnership in 1998. The units were valued at $4,012,157.60. The
units were issued in private offerings exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act. The limited partners were "accredited investors" under Rule 501 of the
Securities Act and had such knowledge and experience in financial and business
matters that they were capable of evaluating the merits and risks of their
investments in the Operating Partnership. There was no general solicitation in
connection with the offerings of the units.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
51
<PAGE> 52
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<S> <C>
3.01 Second Amended and Restated Agreement of Limited Partnership of the
Registrant, dated as of November 1, 1997, as amended (filed as Exhibit
10.01 to the Quarterly Report on Form 10-Q for the quarter ended June
30, 1999 (the "Company 2Q 1999 10-Q") of Crescent Real Estate Equities
Company (the "Company") and incorporated herein by reference)
4.01 Indenture, dated as of September 22, 1997, between the Registrant and
State Street Bank and Trust Company, of Missouri, N.A. (filed as
Exhibit 4.01 to the Registration Statement on Form S-4 (File No.
333-42293) of the Registrant (the "Form S-4") and incorporated herein
by reference)
4.02 Restated Declaration of Trust of the Company (filed as Exhibit 4.01 to
the Registration Statement on Form S-3 (File No. 333-21905) of the
Company and incorporated herein by reference)
4.03 Amended and Restated Bylaws of the Company, as amended (filed as
Exhibit 3.02 to the Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998 of the Company and incorporated herein
by reference)
4.04 6-5/8% Note due 2002 of the Registrant (filed as Exhibit No. 4.07 to
the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1998 (the "Company 2Q 1998 10-Q") of the Company and incorporated
herein by reference)
4.05 7-1/8% Note due 2007 of the Registrant (filed as Exhibit No. 4.08 to
the Company 2Q 1998 10-Q and incorporated herein by reference)
10.01 Noncompetition Agreement of Richard E. Rainwater, as assigned to the
Registrant on May 5, 1994 (filed as Exhibit 10.02 to the Annual Report
on Form 10-K for the Fiscal year ended December 31, 1997 (the "Company
1997 10-K") of the Company and incorporated herein by reference)
10.02 Noncompetition Agreement of John C. Goff, as assigned to the Registrant
on May 5, 1994 (filed as Exhibit 10.03 to the Company 1997 10-K and
incorporated herein by reference)
10.03 Noncompetition Agreement of Gerald W. Haddock, as assigned to the
Registrant on May 5, 1994 (filed as Exhibit 10.04 to the Company 1997
10-K and incorporated herein by reference)
10.04 Employment Agreement of John C. Goff, as assigned to the Registrant on
May 5, 1997, and as further amended (the "Goff Employment Agreement")
(filed as Exhibit 10.05 to the Company 1997 10-K and incorporated
herein by reference)
10.05 Amendment No. 5 to the Goff Employment Agreement, dated March 10, 1998
(filed as Exhibit 10.29 to the Form S-4 and incorporated herein by
reference)
10.06 Employment Agreement of Gerald W. Haddock, as assigned to the
Registrant on May 5, 1994, and as further amended (the "Haddock
Employment Agreement") (filed as Exhibit 10.06 to the Company 1997 10-K
and incorporated herein by reference)
10.07 Amendment No. 5 to the Haddock Employment Agreement, dated March 1,
1999 (filed as Exhibit 10.09 to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 of the Company (the "Company 1998
10-K") and incorporated herein by reference)
10.08 Form of Officer's and Trust Managers' Indemnification Agreement as
entered into between the Company and each of its executive officers and
trust managers (filed as Exhibit 10.07 to the Form S-4 and incorporated
herein by reference)
10.09 Crescent Real Estate Equities Company 1994 Stock Incentive Plan (filed
as Exhibit 10.07 to the Registration Statement on Form S-11 (File No.
33-75188) of the Company and incorporated by reference)
10.10 Crescent Real Estate Equities, Ltd. First Amended and Restated 401(k)
Plan, as amended (filed as Exhibit 10.12 to the Company 1998 10-K and
incorporated herein by reference)
10.11 Second Amended and Restated 1995 Crescent Real Estate Equities Company
Stock Incentive Plan (filed as Exhibit 10.13 to the Form S-4 and
incorporated herein by reference)
10.12 Amended and Restated 1995 Crescent Real Estate Equities Limited
Partnership Unit Incentive Plan (filed as Exhibit 99.01 to the
Registration Statement on Form S-8 (File No. 333-3452) of the Company
and incorporated herein by reference)
10.13 1996 Crescent Real Estate Equities Limited Partnership Unit Incentive
Plan (filed as Exhibit 10.01 to the Current Report on Form 8-K dated
and filed September 27, 1996 of the Company and incorporated herein by
reference)
10.14 Master Lease Agreement, dated June 16, 1997, as amended, between
Crescent Real Estate Funding VII, L.P. and Charter Behavioral Health
Systems, LLC and its subsidiaries, relating to the Behavioral
Healthcare Properties (filed as Exhibit 10.27 to the Company 1997 10-K
and incorporated herein by reference)
10.15 Fifth Amended and Restated Revolving Credit Agreement, dated June 30,
1998 among the Registrant, BankBoston, N.A. and the other banks named
therein (filed as Exhibit 10.17 to the Company 2Q 1998 10-Q and
incorporated herein by reference)
10.16 Intercompany Agreement, dated June 3, 1997, between the Registrant and
Crescent Operating, Inc. (filed as Exhibit 10.2 to the Registration
Statement on Form S-1 (File No. 333-25223) of Crescent Operating, Inc.
and incorporated herein by reference)
10.17 Agreement dated June 11, 1999 by and between Gerald W. Haddock and
Crescent Real Estate Equities Company, Crescent Real Estate Equities
Limited Partnership and Crescent Real Estate Equities, Ltd. (filed as
Exhibit No. 10.19 to the Company 2Q 1999 10-Q and incorporated herein
by reference)
27.01 Financial Data Schedule (filed herewith)
</TABLE>
(b) Reports on Form 8-K
Not Applicable
<PAGE> 53
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.
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
By: Crescent Real Estate Equities, Ltd., its
General Partner
/s/ John C. Goff
--------------------------------------------
Date: August 16, 1999 John C. Goff, President and Chief
------------------ Executive Officer
/s/ Jack I. Tompkins
---------------------------------------------
Date: August 16, 1999 Jack I. Tompkins, Executive Vice President
------------------ and Chief Financial Officer (Principal
Financial and Accounting Officer)
53
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
3.01 Second Amended and Restated Agreement of Limited Partnership of the
Registrant, dated as of November 1, 1997, as amended (filed as Exhibit
10.01 to the Quarterly Report on Form 10-Q for the quarter ended June
30, 1999 (the "Company 2Q 1999 10-Q") of Crescent Real Estate Equities
Company (the "Company") and incorporated herein by reference)
4.01 Indenture, dated as of September 22, 1997, between the Registrant and
State Street Bank and Trust Company, of Missouri, N.A. (filed as
Exhibit 4.01 to the Registration Statement on Form S-4 (File No.
333-42293) of the Registrant (the "Form S-4") and incorporated herein
by reference)
4.02 Restated Declaration of Trust of the Company (filed as Exhibit 4.01 to
the Registration Statement on Form S-3 (File No. 333-21905) of the
Company and incorporated herein by reference)
4.03 Amended and Restated Bylaws of the Company, as amended (filed as
Exhibit 3.02 to the Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998 of the Company and incorporated herein
by reference)
4.04 6-5/8% Note due 2002 of the Registrant (filed as Exhibit No. 4.07 to
the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1998 (the "Company 2Q 1998 10-Q") of the Company and incorporated
herein by reference)
4.05 7-1/8% Note due 2007 of the Registrant (filed as Exhibit No. 4.08 to
the Company 2Q 1998 10-Q and incorporated herein by reference)
10.01 Noncompetition Agreement of Richard E. Rainwater, as assigned to the
Registrant on May 5, 1994 (filed as Exhibit 10.02 to the Annual Report
on Form 10-K for the Fiscal year ended December 31, 1997 (the "Company
1997 10-K") of the Company and incorporated herein by reference)
10.02 Noncompetition Agreement of John C. Goff, as assigned to the Registrant
on May 5, 1994 (filed as Exhibit 10.03 to the Company 1997 10-K and
incorporated herein by reference)
10.03 Noncompetition Agreement of Gerald W. Haddock, as assigned to the
Registrant on May 5, 1994 (filed as Exhibit 10.04 to the Company 1997
10-K and incorporated herein by reference)
10.04 Employment Agreement of John C. Goff, as assigned to the Registrant on
May 5, 1997, and as further amended (the "Goff Employment Agreement")
(filed as Exhibit 10.05 to the Company 1997 10-K and incorporated
herein by reference)
10.05 Amendment No. 5 to the Goff Employment Agreement, dated March 10, 1998
(filed as Exhibit 10.29 to the Form S-4 and incorporated herein by
reference)
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
10.06 Employment Agreement of Gerald W. Haddock, as assigned to the
Registrant on May 5, 1994, and as further amended (the "Haddock
Employment Agreement") (filed as Exhibit 10.06 to the Company 1997 10-K
and incorporated herein by reference)
10.07 Amendment No. 5 to the Haddock Employment Agreement, dated March 1,
1999 (filed as Exhibit 10.09 to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 of the Company (the "Company 1998
10-K") and incorporated herein by reference)
10.08 Form of Officer's and Trust Managers' Indemnification Agreement as
entered into between the Company and each of its executive officers and
trust managers (filed as Exhibit 10.07 to the Form S-4 and incorporated
herein by reference)
10.09 Crescent Real Estate Equities Company 1994 Stock Incentive Plan (filed
as Exhibit 10.07 to the Registration Statement on Form S-11 (File No.
33-75188) of the Company and incorporated by reference)
10.10 Crescent Real Estate Equities, Ltd. First Amended and Restated 401(k)
Plan, as amended (filed as Exhibit 10.12 to the Company 1998 10-K and
incorporated herein by reference)
10.11 Second Amended and Restated 1995 Crescent Real Estate Equities Company
Stock Incentive Plan (filed as Exhibit 10.13 to the Form S-4 and
incorporated herein by reference)
10.12 Amended and Restated 1995 Crescent Real Estate Equities Limited
Partnership Unit Incentive Plan (filed as Exhibit 99.01 to the
Registration Statement on Form S-8 (File No. 333-3452) of the Company
and incorporated herein by reference)
10.13 1996 Crescent Real Estate Equities Limited Partnership Unit Incentive
Plan (filed as Exhibit 10.01 to the Current Report on Form 8-K dated
and filed September 27, 1996 of the Company and incorporated herein by
reference)
10.14 Master Lease Agreement, dated June 16, 1997, as amended, between
Crescent Real Estate Funding VII, L.P. and Charter Behavioral Health
Systems, LLC and its subsidiaries, relating to the Behavioral
Healthcare Properties (filed as Exhibit 10.27 to the Company 1997 10-K
and incorporated herein by reference)
10.15 Fifth Amended and Restated Revolving Credit Agreement, dated June 30,
1998 among the Registrant, BankBoston, N.A. and the other banks named
therein (filed as Exhibit 10.17 to the Company 2Q 1998 10-Q and
incorporated herein by reference)
10.16 Intercompany Agreement, dated June 3, 1997, between the Registrant and
Crescent Operating, Inc. (filed as Exhibit 10.2 to the Registration
Statement on Form S-1 (File No. 333-25223) of Crescent Operating, Inc.
and incorporated herein by reference)
10.17 Agreement dated June 11, 1999 by and between Gerald W. Haddock and
Crescent Real Estate Equities Company, Crescent Real Estate Equities
Limited Partnership and Crescent Real Estate Equities, Ltd. (filed as
Exhibit No. 10.19 to the Company 2Q 1999 10-Q and incorporated herein
by reference)
27.01 Financial Data Schedule (filed herewith)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 104,868
<SECURITIES> 0
<RECEIVABLES> 122,595
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,278,956
<PP&E> 4,170,208
<DEPRECIATION> (448,829)
<TOTAL-ASSETS> 5,227,798
<CURRENT-LIABILITIES> 135,394
<BONDS> 2,692,421
0
200,000
<COMMON> 0
<OTHER-SE> 2,199,983
<TOTAL-LIABILITY-AND-EQUITY> 5,227,798
<SALES> 0
<TOTAL-REVENUES> 192,397
<CGS> 0
<TOTAL-COSTS> 105,201
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,917
<INCOME-PRETAX> 55,534
<INCOME-TAX> 0
<INCOME-CONTINUING> 55,534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,534
<EPS-BASIC> 0.80
<EPS-DILUTED> 0.79
</TABLE>
