<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 SEPTEMBER 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
Number of shares outstanding of each of the registrant's classes of preferred
and common shares, as of November 12, 1999.
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>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and December
31, 1998 (audited)................................................................ 3
Consolidated Statements of Operations for the three and nine months ended
September 30, 1999 and 1998 (unaudited)........................................... 4
Consolidated Statement of Partner's Capital for the nine months ended
September 30, 1999 (unaudited).................................................... 5
Consolidated Statements of Cash Flows for the nine months ended September 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........................ 59
PART II: OTHER INFORMATION
Item 1. Legal Proceedings................................................................. 59
Item 2. Changes in Securities............................................................. 59
Item 3. Defaults Upon Senior Securities................................................... 59
Item 4. Submission of Matters to a Vote of Security Holders............................... 59
Item 5. Other Information................................................................. 59
Item 6. Exhibits and Reports on Form 8-K.................................................. 60
</TABLE>
2
<PAGE> 3
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Investments in real estate:
Land $ 398,703 $ 400,690
Land held for development or sale 95,282 95,282
Building and improvements 3,517,383 3,569,774
Furniture, fixtures and equipment 70,160 63,626
Less - accumulated depreciation (476,438) (387,457)
------------ ------------
Net investment in real estate 3,605,090 3,741,915
Cash and cash equivalents 65,742 109,828
Restricted cash and cash equivalents 76,219 46,841
Accounts receivable, net 34,163 32,585
Deferred rent receivable 68,537 73,635
Investments in real estate mortgages and
equity of unconsolidated companies 920,321 743,516
Notes receivable, net 186,163 187,063
Other assets, net 104,350 110,566
------------ ------------
Total assets $ 5,060,585 $ 5,045,949
============ ============
LIABILITIES:
Borrowings under Credit Facility $ 585,000 $ 660,000
Notes payable 2,097,127 1,658,156
Accounts payable, accrued expenses and other liabilities 160,089 149,442
------------ ------------
Total liabilities 2,842,216 2,467,598
------------ ------------
COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS: 25,003 26,727
PARTNERS' CAPITAL:
Series A Preferred Units, 8,000,000 Units issued and outstanding
at September 30, 1999 and December 31, 1998 200,000 200,000
Units of Partnership Interests, 66,353,708 and 68,823,252 issued
and outstanding at September 30, 1999 and December 31, 1998,
respectively:
General partner -- outstanding 599,492 and 622,777 1,315 3,815
Limited partners' -- outstanding 65,754,216 and 68,200,475 1,979,493 2,352,846
Accumulated other comprehensive income 12,558 (5,037)
------------ ------------
Total partners' capital 2,193,366 2,551,624
------------ ------------
Total liabilities and partners' capital $ 5,060,585 $ 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)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
(UNAUDITED) (UNAUDITED)
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Office and retail properties $ 153,012 $ 146,037 $ 458,747 $ 409,937
Hotel properties 16,999 12,798 48,510 38,350
Behavioral healthcare properties 8,634 13,824 36,282 41,471
Interest and other income 6,880 7,134 20,130 20,288
------------ ------------ ------------ ------------
Total revenues 185,525 179,793 563,669 510,046
------------ ------------ ------------ ------------
EXPENSES:
Real estate taxes 21,169 18,531 64,369 51,937
Repairs and maintenance 10,421 10,379 32,113 28,181
Other rental property operating 32,504 33,338 97,614 93,003
Corporate general and administrative 4,083 4,335 12,013 11,036
Interest expense 51,084 37,940 138,482 110,067
Amortization of deferred financing costs 2,033 1,944 7,857 4,194
Depreciation and amortization 30,344 29,770 97,001 84,602
Settlement of merger dispute -- -- 15,000 --
Impairment and other charges related to the
behavioral healthcare assets 162,038 -- 162,038 --
Write-off of costs associated with
unsuccessful acquisitions -- 18,435 -- 18,435
------------ ------------ ------------ ------------
Total expenses 313,676 154,672 626,487 401,455
------------ ------------ ------------ ------------
Operating income (loss) (128,151) 25,121 (62,818) 108,591
OTHER INCOME AND EXPENSE:
Equity in net income of unconsolidated
companies
Office and retail properties 3,778 (318) 5,734 511
Refrigerated storage properties 1,746 484 11,476 (1,032)
Residential development properties 7,944 8,265 30,988 20,914
Other 1,367 822 2,277 822
------------ ------------ ------------ ------------
Total other income and expense 14,835 9,253 50,475 21,215
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTERESTS: (113,316) 34,374 (12,343) 129,806
Minority interests (253) (200) (737) (1,006)
------------ ------------ ------------ ------------
NET INCOME (LOSS) (113,569) 34,174 (13,080) 128,800
PREFERRED UNIT DIVIDENDS (3,375) (3,375) (10,125) (8,325)
FORWARD SHARE PURCHASE
AGREEMENT RETURN -- -- (4,317) --
------------ ------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE TO PARTNERS $ (116,944) $ 30,799 $ (27,522) $ 120,475
============ ============ ============ ============
PER UNIT DATA:
Net Income (Loss) - Basic $ (1.76) $ 0.46 $ (0.40) $ 1.82
============ ============ ============ ============
Net Income (Loss) - Diluted $ (1.76) $ 0.42 $ (0.40) $ 1.72
============ ============ ============ ============
W. AVE. UNIT OF PART. INT. - BASIC 66,353,580 66,981,932 68,281,071 66,305,338
============ ============ ============ ============
W. AVE. UNIT OF PART. INT. - DILUTED 67,047,017 73,658,148 69,414,910 70,057,767
============ ============ ============ ============
</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)
(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 -- -- 23,572 -- 23,572
Settlement of Forward Share Purchase Agreement -- -- (149,384) -- (149,384)
Distributions -- (2,268) (224,568) -- (226,836)
Net income -- (232) (22,973) -- (23,205)
Accumulated other comprehensive income -- -- -- 17,595 17,595
----------- ----------- ----------- ------------ -----------
Partners' capital, September 30, 1999 $ 200,000 $ 1,315 $ 1,979,493 $ 12,558 $ 2,193,366
=========== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
(UNAUDITED)
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (13,080) $ 128,800
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 104,858 88,796
Impairment charge related to the
behavioral healthcare real estate assets 103,773 --
Minority interests 737 1,006
Non-cash compensation 101 155
Distributions received in excess of equity in earnings
from unconsolidated companies -- 11,804
Equity in earnings in excess of distributions received
from unconsolidated companies (17,985) --
(Increase) decrease in accounts receivable (1,578) 5,248
Decrease (increase) in deferred rent receivable 5,098 (23,795)
Decrease (increase) in other assets 33,731 (21,556)
(Increase) decrease in restricted cash and cash equivalents (1,559) 4,560
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 10,647 (13,598)
---------- ----------
Net cash provided by operating activities 224,743 181,420
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investment properties -- (527,076)
Development of investment properties (5,961) (14,796)
Capital expenditures - rental properties (22,945) (35,073)
Tenant improvement and leasing costs - rental properties (39,098) (53,700)
Increase in restricted cash and cash equivalents (27,819) (548)
Investment in unconsolidated companies (115,875) (137,702)
Investment in residential development companies (38,624) 17,242
Escrow deposits - acquisition of investment properties -- 5,360
Decrease (increase) in notes receivable 900 (15,537)
---------- ----------
Net cash used in investing activities (249,422) (761,830)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (14,054) (3,436)
Borrowings under credit facility 51,920 672,150
Payments under credit facility (126,920) (272,150)
Debt proceeds 890,000 158,100
Debt payments (451,029) (250,903)
Capital distributions - joint venture partner (2,461) (2,343)
Capital contributions to the Operating Partnership 17,949 460,570
Settlement of Forward Share Purchase Agreement (149,384) --
Distributions from the Operating Partnership (235,428) (158,237)
---------- ----------
Net cash (used in) provided by financing activities (19,407) 603,751
---------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (44,086) 23,341
CASH AND CASH EQUIVALENTS,
Beginning of period 109,828 66,063
---------- ----------
CASH AND CASH EQUIVALENTS,
End of period $ 65,742 $ 89,404
========== ==========
</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 59,349,692 units, and the remaining approximately
10% limited partner interest has been treated as equivalent, for purposes of
this report, to 6,404,524 units. In addition, the Company's 1% general partner
interest has been treated as equivalent, for purposes of this report, to 599,492
units.
SEGMENTS
As of September 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 September
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.
o HOSPITALITY SEGMENT consists of eight full service hotels with
a total of 2,674 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.
7
<PAGE> 8
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 15 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 September
30, 1999, directly or indirectly owned 89 refrigerated storage
properties (collectively referred to as the "Refrigerated
Storage Properties") with an aggregate of approximately 428.3
million cubic feet (17.0 million square feet).
o BEHAVIORAL HEALTHCARE SEGMENT consists of 87 properties in 25
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 10% by a
subsidiary of Magellan Health Services, Inc. ("Magellan") and
90% by COI and an affiliate of COI. See Note 13. CBHS
Recapitalization and Strategy for a description of the current
status of the Operating Partnership's lease with CBHS.
The Company owns its assets and carries on its operation 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 and funds from
operations for each of these industry segments for the three and nine months
ended September 30, 1999 and 1998 and identifiable assets for each of these
industry segments at September 30, 1999 and 1998.
The following table shows, by entity, the Properties the Operating Partnership
and subsidiaries owned as of September 30, 1999:
Operating Partnership: 62 Office Properties, six Hotel Properties and five
Retail Properties
Crescent Real Estate The Aberdeen, The Avallon, Caltex House, The
Funding I, L.P.: Citadel, The Crescent Atrium, The Crescent Office
("Funding I") Towers, Regency Plaza One, UPR Plaza and Waterside
Commons
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate
Funding II, L.P.: Office and Research Center, Hyatt Regency
("Funding II") Albuquerque, Hyatt Regency Beaver Creek, Las
Colinas Plaza, Liberty Plaza I & 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")
- ----------
(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 and the impairment and
other charges associated with the Behavioral Healthcare Segment - see Note 13.
CBHS Recapitalization and Strategy for a description of these charges)
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.
The Operating Partnership has elected to implement SFAS No. 133 in the third
quarter of 1999; however, this early implementation had no material impact on
the Operating Partnership's financial statements for the three or nine months
ended September 30, 1999 or 1998.
3. PROPERTIES HELD FOR DISPOSITION:
In pursuit of management's objective to dispose of non-strategic or
non-core assets, the Operating Partnership is actively marketing for sale its
wholly-owned interests in 12 Office Properties, which are currently included in
the Net Investment in Real Estate of $3,605,090. Eight of the properties are
located in Dallas, Texas, two are located in New Orleans, Louisiana, one is
located in Denver, Colorado and one is located in Omaha, Nebraska. During the
third quarter of 1999, bids were received on these properties either
individually or in various combinations. Management is currently in the process
of evaluating the bids to determine their economic viability as well as the
credit-worthiness of the potential purchasers and their ability to close the
transactions. The disposition of these properties remains subject to the
negotiation of acceptable terms and other customary conditions once one or more
purchasers have been selected. The Operating Partnership anticipates completing
any economically justified sales of these Office Properties to one or more
buyers in the fourth quarter of 1999 or the first quarter of 2000.
The following table summarizes the condensed results of operations for
the nine months ended September 30, 1999 and 1998 for the 12 Office Properties
held for disposition. These properties are classified as held for sale, and
depreciation expense has not been recognized since June 30, 1999.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenue $ 33,211 $ 32,980
Operating Expenses 15,394 14,174
---------- ----------
Net Operating Income $ 17,817 $ 18,806
========== ==========
</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 September 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 SEPTEMBER 30,
----------------------------------------------------------------------------
1999 1998
--------- ---------
Wtd. Avg. Per Unit Wtd. Avg. Per Unit
(Loss) Units Amount Income Units Amount
--------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS -
Net income (loss) available
to partners................. $(116,944) 66,354 $ (1.76) $ 30,799 66,982 $ 0.46
======= =======
Effect of dilutive securities:
Unit options................ -- 693 -- 1,783
Assumed conversion of
preferred units............. -- -- -- 4,155
Additional units obligation
relating to:
Forward Share Purchase
Agreement .................. -- -- -- 374
Equity swap agreement....... -- -- -- 364
--------- ------ ------- -------- ------ -------
Diluted EPS -
Net income (loss) available
to partners................. $(116,944) 67,047 $ (1.76)(1) $ 30,799 73,658 $ 0.42
========= ====== ======= == ======== ====== =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1999 1998
--------- ---------
Wtd. Avg. Per Share Wtd. Avg. Per Unit
(Loss) Units Amount Income Units Amount
--------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS -
Net income (loss) available
to partners................. $ (27,522) 68,281 $ (0.40) $120,475 66,305 $ 1.82
======== ========
Effect of dilutive securities:
Unit options................ -- 938 -- 2,122
Assumed conversion of
preferred units............. -- -- -- 1,385
Additional units obligation
relating to:
Forward Share Purchase
Agreement .................. -- 196 -- 125
Equity swap agreement....... -- -- -- 121
--------- ------ -------- -------- ------- --------
Diluted EPS -
Net income (loss) available
to partners................. $ (27,522) 69,415 $ (0.40)(1) $120,475 70,058 $ 1.72
========= ====== ======== ======== ======= ========
</TABLE>
- ----------
(1) Diluted earnings per share does not recalculate from amounts shown for
the three and nine months ended September 30, 1999. The unit options
and the additional units relating to the Forward Share Purchase
Agreement shown for the three and nine months ended September 30, 1999
are typically dilutive by nature; however, due to the net losses for
the 1999 reporting periods, these items are antidilutive with respect
to the net losses per share.
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 nine months ended September 30, 1999 or 1998 since the effect of their
conversion is antidilutive.
10
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5. SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid .............................................. $ 144,086 $ 110,067
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Issuance of Operating Partnership units in conjunction
with settlement of an obligation ....................... 1,786 8,522
Issuance of Operating Partnership units in conjunction
with investments ....................................... -- 11,450
Unit obligation in conjunction with an
investment ............................................. -- 21,000
Mortgage note assumed in conjunction with property
acquisitions ............................................ -- 46,934
Debt incurred in conjunction with the termination of
equity swap agreement .................................. -- 209,299
Acquisition of partnership interests ....................... 3,774 --
Unrealized gain on available-for-sale securities ........... 10,003 9,132
Forward Share Purchase Agreement Return .................... 4,317 --
Impairment and other charges related to the
behavioral healthcare assets .......................... 162,038 --
</TABLE>
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 excluding adjustments not of a normal or recurring
nature;
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 nine months ended September 30, 1999 and 1998 is presented below.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Office and Retail Segment $ 153,012 $ 146,037 $ 458,747 $ 409,937
Hospitality Segment 16,999 12,798 48,510 38,350
Behavioral Healthcare Segment 8,634 13,824 36,282 41,471
Refrigerated Storage Segment -- -- -- --
Residential Development Segment -- -- -- --
Corporate and other 6,880 7,134 20,130 20,288
--------- --------- --------- ---------
TOTAL CONSOLIDATED REVENUE $ 185,525 $ 179,793 $ 563,669 $ 510,046
========= ========= ========= =========
FUNDS FROM OPERATIONS:
Office and Retail Segment $ 91,916 $ 85,121 $ 273,395 $ 241,237
Hospitality Segment 16,564 12,567 47,658 37,677
Behavioral Healthcare Segment (16,969) 13,824 10,679 41,471
Refrigerated Storage Segment 6,791 7,729 24,279 19,267
Residential Development Segment 11,401 12,449 45,739 36,537
Corporate and other adjustments:
Corporate general & administrative (4,083) (4,335) (12,013) (11,036)
Interest expense (51,084) (37,940) (138,482) (110,067)
Preferred share dividends (3,375) (3,375) (10,125) (8,325)
Other 6,036 5,635 13,410 15,803
--------- --------- --------- ---------
TOTAL FUNDS FROM OPERATIONS $ 57,197 $ 91,675 $ 254,540 $ 262,564
--------- --------- --------- ---------
ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS TO CONSOLIDATED
NET INCOME (LOSS) AFTER MINORITY INTEREST:
Depreciation and amortization of real estate
assets $ (29,516) $ (29,204) $ (94,542) $ (82,919)
Settlement of merger dispute -- -- (15,000) --
Impairment and other charges related to the behavioral
healthcare assets (136,435) -- (136,435) --
Write-off of costs associated with unsuccessful acquisitions -- (18,435) -- (18,435)
Adjustment for investments in real estate
mortgages and equity of unconsolidated companies:
Office and Retail Segment 751 (1,808) (3,603) (4,813)
Refrigerated Storage Segment (5,045) (7,245) (12,803) (20,299)
Residential Development Segment (3,457) (4,184) (14,751) (15,623)
Other (439) -- (611) --
Preferred share dividends 3,375 3,375 10,125 8,325
--------- --------- --------- ---------
CONSOLIDATED NET INCOME (LOSS) $(113,569) $ 34,174 $ (13,080) $ 128,800
========= ========= ========= =========
EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES:
Office and Retail Segment $ 3,778 $ (318) $ 5,734 $ 511
Hospitality Segment -- -- -- --
Behavioral Healthcare Segment -- -- -- --
Refrigerated Storage Segment 1,746 484 11,476 (1,032)
Residential Development Segment 7,944 8,265 30,988 20,914
Other 1,367 822 2,277 822
--------- --------- --------- ---------
TOTAL EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES $ 14,835 $ 9,253 $ 50,475 $ 21,215
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
IDENTIFIABLE ASSETS:
Office and Retail Segment $3,292,500 $3,202,220
Hospitality Segment 472,114 441,674
Behavioral Healthcare Segment 245,033 388,993
Refrigerated Storage Segment 289,463 275,192
Residential Development Segment 332,758 312,617
Other 428,717 363,932
---------- ----------
TOTAL IDENTIFIABLE ASSETS $5,060,585 $4,984,628
========== ==========
</TABLE>
12
<PAGE> 13
At September 30, 1999, COI and CBHS are the Operating Partnership's two
largest lessees in terms of total consolidated rental revenues derived from
leases. Total rental revenues from COI and total cash rental revenues from CBHS
for the nine months ended September 30, 1999 were approximately 8% and 5%
respectively, of the Operating Partnership's total consolidated rental revenues.
COI was the lessee for nine of the Hotel Properties for the nine months ended
September 30, 1999, and CBHS was the sole lessee of the Behavioral Healthcare
Properties during that period. See Note 13. CBHS Recapitalization and Strategy.
See Note 7. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies 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>
COMPANY'S OWNERSHIP
ENTITY CLASSIFICATIONS AS OF SEPTEMBER 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- 50%
Bank One Center)
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) See "Office and Retail Segment" section below for more information
regarding certain commercial property assets that the Operating
Partnership intends to sell.
(4) See Note 14. Disposition for more information regarding certain
interests that the Operating Partnership has sold.
(5) See "Other" section below for a description of the Operating
Partnership's investment in Metropolitan Partners, LLC.
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
Riverfront Plaza (previously known as "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 is in close proximity to 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).
REFRIGERATED STORAGE SEGMENT
As of September 30, 1999, the Refrigerated Storage Partnerships and the
Refrigerated Storage Corporations directly or indirectly own 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 subsidiary of
13
<PAGE> 14
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 Company, adversely
affect the status of Crescent Equities 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.
OFFICE AND RETAIL SEGMENT
The Woodlands Commercial Properties Company, L.P., owned by the
Operating Partnership and Morgan Stanley Real Estate Fund II, L.P., has been
actively marketing for sale certain commercial property assets (multi-family,
retail and office/venture tech) in The Woodlands. As of September 30, 1999, the
multi-family portfolio had been sold. The sale of the retail portfolio,
including the Operating Partnership's four Retail Properties, located in The
Woodlands, is expected to close during the fourth quarter of 1999. The sale of
the office/venture tech portfolio including the Operating Partnership's 12
Office Properties located in The Woodlands, is expected to close during the
first quarter of 2000.
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 September 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 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 September 30, 1999.
14
<PAGE> 15
BALANCE SHEETS AT SEPTEMBER 30, 1999:
<TABLE>
<CAPTION>
RESIDENTIAL REFRIGERATED
DEVELOPMENT STORAGE OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Real estate, net ......................... $ 708,850 $ 1,305,997 $ 427,283
Cash ..................................... 23,141 8,649 57,102
Other assets ............................. 192,648 186,128 43,179
------------ ------------ ------------
Total assets ......................... $ 924,639 $ 1,500,774 $ 527,564
============ ============ ============
Notes payable ............................ $ 321,230 $ 585,068 $ 273,234
Notes payable to the Operating
Partnership .............................. 176,645 5,333 --
Other liabilities ........................ 195,574 178,387 20,054
Equity ................................... 231,190 731,986 234,276
------------ ------------ ------------
Total liabilities and equity ........ $ 924,639 $ 1,500,774 $ 527,564
============ ============ ============
Operating Partnership's share of
unconsolidated debt ...................... $ 216,120 $ 231,687 $ 127,749
============ ============ ============
Operating Partnership's investments in
real estate mortgages and equity of
unconsolidated companies ................. $ 332,757 $ 289,463 $ 138,473 $ 159,628
============ ============ ============ ============
</TABLE>
SUMMARY STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
-------------------------------------------------------------
RESIDENTIAL REFRIGERATED
DEVELOPMENT STORAGE OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues ........................... $ 334,714 $ 213,405 $ 59,997
Expenses:
Operating expense ..................... 259,095 108,398 19,051
Interest expense ...................... 2,762 34,166 13,774
Depreciation and amortization ......... 8,406 41,212 13,580
Taxes ................................. 15,484 (3,488) --
------------ ------------ ------------
Total expenses .......................... 285,747 180,288 46,405
------------ ------------ ------------
Net income ............................... $ 48,967 $ 33,117 $ 13,592
============ ============ ============
Operating Partnership's equity in net income
of unconsolidated companies ........... $ 30,988 $ 11,476 $ 5,734 $ 2,277
============ ============ ============ ============
</TABLE>
15
<PAGE> 16
8. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:
The following is a summary of the Operating Partnership's debt financing at
September 30, 1999:
<TABLE>
<CAPTION>
BALANCE AT
SEPTEMBER 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 September 30, 1999, the rate was 8.63% based on the
Eurodollar rate) with a three-year interest-only term, secured by Greenway I and IA, Four
Westlake Park, 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........................................................................................ 279,362
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
BankBoston Mezzanine Loan due September 13, 2003, bears interest at the 30-day LIBOR rate plus
325 basis points (at September 30, 1999, the interest rate was 8.69%)(3) with a four-year
interest only term, secured by equity interests in Funding I and II............................... 200,000
JP Morgan Mortgage Note due September 15, 2006, bears interest at a fixed rate of 8.31% with
a two-year interest-only term(4), secured by the Houston Center mixed-use Office Property
complex........................................................................................... 200,000
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(5), secured by the Funding II Properties.................. 161,000
SFT Whole Loans, Inc. ("SFT") Note due September 30, 2001, bears interest at 30-day LIBOR
plus an average rate of 1.75% (at September 30, 1999, the rate was 7.15%) 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.......................................................................................... 43,813
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>
16
<PAGE> 17
<TABLE>
<CAPTION>
BALANCE AT
SEPTEMBER 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................................................................................. 11,543
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............................................................................... 8,510
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.......................................................................................... 6,537
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.................... 739
UNSECURED DEBT
Line of Credit with BankBoston ("Credit Facility") (see description of Credit Facility below)..... 585,000
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.......................................................................... $ 2,682,127
===========
</TABLE>
- ----------
(1) The outstanding principal balance at maturity of this note 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) The Operating Partnership entered into the Mezzanine Loan on September
14, 1999. This loan is secured by partnership interests in two pools of
underleveraged assets. The proceeds were used to pay-off the $150,000
BankBoston Bridge Loan and pay-down $50,000 of the BankBoston Credit
Facility. The Operating Partnership entered into a four-year $200,000
interest rate swap agreement effective September 1, 1999 with Salomon
Brothers Holding Company, Inc. in a separate transaction related to the
BankBoston Mezzanine Loan. Pursuant to this agreement, the Operating
Partnership will pay Salomon Brothers Holding Company, Inc. on a
quarterly basis a 6.183% fixed interest rate and Salomon Brothers
Holdings Company, Inc. will pay the Operating Partnership a floating
90-day LIBOR rate based on the same quarterly reset dates.
(4) On September 15, 1999, the Operating Partnership refinanced the
$184,299 Salomon Brothers Realty Corp. Note with this note. The
additional proceeds of $15,701 were used to pay-down the BankBoston
Credit Facility. The refinancing did not include the Four Seasons Hotel
that had served as partial collateral for the Salomon Brothers Realty
Corp. Note.
(5) 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.
(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").
17
<PAGE> 18
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................................ $ 47,843 $ -- $ 47,843
2000................................ 5,431 585,000 590,431
2001................................ 444,509 -- 444,509
2002................................ 104,991 150,000 254,991
2003................................ 314,894 -- 314,894
Thereafter.......................... 779,459 250,000 1,029,459
------------- -------------- ------------
$ 1,697,127 $ 985,000 $ 2,682,127
============= ============== ============
</TABLE>
The Operating Partnership has approximately $47,843 of secured debt
expiring during the remainder of 1999, consisting primarily of two components.
The first component is $40,000 due under the Metropolitan Life Note III which
matures in December 1999. The Operating Partnership anticipates modifying and
extending the existing loan at $40,350 for six years at a fixed-rate of 8.49% by
December 1, 1999. The second component is $6,537 due under the Metropolitan Life
Note IV which matures in December 1999. This amount is expected to be paid-off
at maturity with cash from operations.
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
September 30, 1999, the interest rate was 6.78%. 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 the size of the Credit Facility. In
accordance with this agreement, payments totaling $75,000 were made during the
third quarter of 1999. The Operating Partnership expects to make subsequent
payments totaling approximately $75,000 during the fourth quarter of 1999,
expected to be funded with proceeds from asset sales and the cash flow provided
by operating activities. The Operating Partnership was in compliance with the
financial covenants related to the Credit Facility as amended for the September
30, 1999 reporting period.
18
<PAGE> 19
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.
10. MINORITY INTEREST:
Minority interest represents joint venture interests held by third
parties.
11. PARTNERS' CAPITAL:
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 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 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.
SHARE REPURCHASE
On November 5, 1999, the Company's Board of Trust Managers authorized
the repurchase of a portion of its outstanding common shares from time to time
in the open market or through privately negotiated transactions, in an amount
not to exceed $500,000. The proposed repurchases will be subject to prevailing
market conditions and other considerations. The repurchase of common shares by
the Company would decrease the Company's limited partner interest, which would
result in an increase of net income per unit and net book value per unit.
The Company expects the share repurchase program to be funded through a
combination of asset sales and financing arrangements, which, in some cases, may
be secured by the repurchased shares. The amount of shares that the Company
actually will purchase will be determined from time to time, in its reasonable
judgement, based on market conditions and the availability of funds, among other
factors. There can be no assurance that any number of shares actually will be
purchased within any particular time period.
19
<PAGE> 20
DISTRIBUTIONS
Units
On February 17, 1999, the Operating Partnership paid a distribution 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 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 August 17, 1999, the Operating Partnership paid a distribution of
$72,952, or $1.10 per unit, to holders of record on July 27, 1999. The
distribution represents an annualized distribution of $4.40 per unit.
On October 8, 1999, the Operating Partnership declared a distribution
of $72,992, or $1.10 per unit, to holders of record on October 26, 1999. The
distribution represents an annualized distribution of $4.40 per unit and is
payable on November 16, 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 August 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 July 30, 1999. The distribution
represents an annualized distribution of $1.69 per preferred unit.
On October 8, 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 October 29, 1999. The
distribution represents an annualized distribution of $1.69 per preferred unit
and is payable on November 15, 1999.
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 September 30, 1999, there were 226,914 units exchanged for
453,828 common shares of the Company.
12. RELATED PARTY INVESTMENT:
On June 9, 1999, the Operating Partnership, upon the approval of the
independent members of the Board of Trust Managers of the Company contributed
approximately $17,000 of a $25,000 commitment to DBL Holdings, Inc. ("DBL").
Additionally, in the third quarter, the Operating Partnership funded
approximately $4,000 of this commitment. The Operating Partnership has a 95%
non-voting interest in DBL. At September 30, 1999, DBL's primary holdings
consisted 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. See Note 14.
Disposition regarding the subsequent sale of the Operating Partnership's equity
and debt interests in the Dallas Mavericks.
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
20
<PAGE> 21
Managers and President and Chief Executive Officer of the Company and member of
the Strategic Planning Committee of Crescent Real Estate Equities, Ltd., and
Darla Moore, who is married to Richard Rainwater, Chairman of the Board of Trust
Managers of the Company and member of the Strategic Planning Committee of
Crescent Real Estate Equities, Ltd., each own 50% of the entity that ultimately
controls GMSP. Mr. Rainwater is a limited partner of GMSP.
13. CBHS RECAPITALIZATION AND STRATEGY:
BEHAVIORAL HEALTHCARE SEGMENT
During the three and nine months ended September 30,1999, the Operating
Partnership received cash rental payments of $8,600 and $30,500, respectively,
from CBHS. CBHS has been negatively affected by many factors including adverse
industry conditions. CBHS is no longer performing in accordance with its
operating budget. On September 13, 1999, the Operating Partnership, COI,
Magellan and CBHS completed the first phase of a recapitalization of CBHS, which
included the following:
o The Operating Partnership agreed to defer the payment of
August 1999 rent by CBHS to the last four months of 1999;
o The Operating Partnership, Magellan, COI and CBHS entered into
certain mutual releases at closing; and
o Magellan transferred 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,
canceled its accrued franchise fees and terminated the
franchise agreements.
Upon the completion of the first phase of the recapitalization of CBHS, the
Operating Partnership began working on the second phase of the recapitalization.
This phase included the following:
o The Operating Partnership commissioned an independent public
accounting firm of national recognition to assist in
evaluating the alternatives related to CBHS which included an
appraisal of the underlying behavioral healthcare real estate
assets;
o The Operating Partnership agreed to defer cash rent payments
by CBHS for November and December 1999; and
o The Operating Partnership amended its master lease agreement
with CBHS and agreed that, upon the sale of any of up to 53 of
the Behavioral Healthcare Properties, the monthly minimum rent
due under the master lease would be reduced by a specified
percentage of the net proceeds of such sale.
The Operating Partnership and CBHS agreed that the master lease would
terminate with respect to 53 of the Behavioral Healthcare Properties on January
31, 2000, unless the Operating Partnership elects to extend the master lease on
a month-to-month basis as to any one or more of these Properties.
The following financial statement charges were made in the third quarter of
1999:
o CBHS rent is reflected on a cash basis for the third quarter
of 1999 at $8,600 and CBHS rent will continue to be reflected
on a cash basis going forward;
o Cash revenue received was impacted by the deferral of the
August, 1999 rent. The amount deferred was $3,800, of which
$950 was received through September 1999;
o The Operating Partnership wrote-off the rent that was deferred
according to the CBHS lease agreement from the commencement of
the lease in June of 1997 through June 30, 1999. The balance
written-off totaled $25,600; and
o The Operating Partnership wrote-down its behavioral healthcare
real estate assets to an estimated fair value of $245,000 at
September 30, 1999.
At September 30, 1999, the Operating Partnership's investment in the
Behavioral Healthcare Properties represented approximately 5% of its total
assets (after the impairment and other charges related to the behavioral
21
<PAGE> 22
healthcare assets) and approximately 5% of consolidated rental revenues for the
nine months ended September 30, 1999 (after the write-off of the rent that was
deferred for 1999).
The Operating Partnership's decision regarding CBHS is dependent upon
whether a viable capital structure exists for CBHS that will provide acceptable
coverage for rental payments to the Operating Partnership. Management believes
that the underlying real estate has substantial value and alternative uses and
that a core group of 34 properties and nine CBHS joint venture properties would
provide acceptable rent coverage on a stabilized basis assuming cash rent is
reduced to $25,000, all rent is deferred from November 1999 through December
2000, additional equity and debt financing in excess of $50,000 is made
available to CBHS and CBHS management is able to modify the business to provide
out-patient care as well as in-patient care. Although the Operating Partnership
intends to provide CBHS with approximately $15,000 to be used by CBHS as working
capital in November and December 1999, the Operating Partnership does not intend
to provide the additional approximately $50,000 of financing. CBHS, however, is
exploring financing alternatives with various parties who have expressed
interest in participating in CBHS's business. In addition, the Operating
Partnership anticipates that it may sell up to 53 of the Behavioral Healthcare
Properties. If the current plan for the recapitalization and restructuring of
CBHS is completed, management believes that the Operating Partnership would
benefit from the new capital structure, by reducing its exposure to the
Behavioral Healthcare segment in the future, significantly improving its rent
coverage and monetizing a portion of is initial investment.
14. DISPOSITION:
On October 27, 1999, the Operating Partnership completed the sale of
its 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. The sale had no material impact on the Operating
Partnership's financial position or results of operations for the three or nine
months ended September 30, 1999 or 1998.
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, and the impairment and other charges associated with the Behavioral
Healthcare segment (see "Behavioral Healthcare Segment" section below for a
description of these charges) 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.
The following factors might cause such a difference:
o The failure of CBHS to locate an investment partner and to
procure sufficient debt and equity capital to complete a
restructuring and pay short-term deferred rent payments;
o The failure of CBHS, following any restructuring, to fulfill
all of its lease obligations over the long term;
o The Operating Partnership's ability to generate revenues
sufficient to meet debt service payments, satisfy existing
financial covenants and other operating expenses;
22
<PAGE> 23
o The Operating Partnership's ability to close anticipated sales
of assets, including sales of non-core Behavioral Healthcare
Properties;
o Financing risks, such as the availability of funds sufficient
to service existing debt, increases in 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 re-lease 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 Operating
Partnership's status as a REIT, the effect of future changes
in REIT requirements as a result of new legislation and the
adverse consequences of the failure to qualify as a REIT;
o Adverse changes in the financial condition of existing
tenants; 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.
23
<PAGE> 24
STRATEGY UPDATE
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 were 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 within the
Operating Partnership's business segments.
CBHS
On September 13, 1999, the first phase of the recapitalization of CBHS
was completed. This phase eliminated CBHS's franchise fee and simplified the
capital structure, which was designed to permit CBHS to strengthen its business
to provide the Operating Partnership with greater security regarding the
collectibility of its lease payments from CBHS. Upon completion of the phase one
transactions, the Operating Partnership began phase two of the recapitalization
of CBHS and commissioned an independent public accounting firm of national
recognition to assist in the evaluation of alternatives related to CBHS which
included an appraisal of the underlying behavioral healthcare real estate
assets. The Operating Partnership's decision regarding CBHS is dependent upon
whether a viable capital structure exists for CBHS that will provide acceptable
coverage for rental payments to the Operating Partnership. Management believes
that the underlying real estate has substantial value and alternative uses and
that a core group of 34 of the Behavioral Healthcare Properties and nine CBHS
joint venture properties would provide acceptable rent coverage on a stabilized
basis, assuming cash rent is reduced to $25 million, all rent is deferred from
November 1999 through December 2000, additional equity and debt financing in
excess of $50 million is made available to CBHS and CBHS management is able to
modify the business to provide out-patient care as well as in-patient care.
Although the Operating Partnership intends to provide CBHS with approximately
$15 million to be used by CBHS as working capital in November and December 1999,
the Operating Partnership does not intend to provide the additional
approximately $50 million of financing. CBHS, however, is exploring financing
alternatives with various parties who have expressed interest in participating
in CBHS's business. In addition, the Operating Partnership anticipates that it
may sell up to 53 of the Behavioral Healthcare Properties. If the current plan
for the recapitalization and restructuring of CBHS is completed, management
believes that the Operating Partnership would benefit from the new capital
structure, by reducing its exposure to the Behavioral Healthcare segment in the
future, significantly improving its rent coverage and monetizing a portion of
its initial investment.
Exposure to variable-rate debt
During the three months ended September 30, 1999, the Operating
Partnership fixed or hedged approximately $400 million of its variable-rate
debt. Management intends to further reduce the Operating Partnership's
variable-rate debt by an additional $300 to $400 million by the end of the first
quarter of 2000. This further reduction is expected to be funded with proceeds
from asset dispositions and/or refinancings of variable-rate debt with
fixed-rate debt.
Asset Dispositions
The Operating Partnership has identified the following assets for
disposition which are either non-strategic or non-core assets within the
Operating Partnership's business segments. The proceeds generated from these
asset sales are expected to be used to reduce the Operating Partnership's
variable-rate debt, make investments, allow the Company to fund a share
repurchase program, or any combination of these options.
On October 27, 1999, the Operating Partnership completed the sale of
its 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.
24
<PAGE> 25
The Woodlands Commercial Properties Company, L.P., owned by the
Operating Partnership and Morgan Stanley Real Estate Fund II, L.P., has been
actively marketing for sale certain commercial property assets (multi-family,
retail and office/venture tech) in The Woodlands. As of September 30, 1999, the
multi-family portfolio had been sold. The sale of the retail portfolio,
including the Operating Partnership's four Retail Properties located in The
Woodlands, is expected to close during the fourth quarter of 1999. The sale of
the office/venture tech portfolio, including the Operating Partnership's 12
Office Properties located in The Woodlands, is expected to close during the
first quarter of 2000.
The Operating Partnership is actively marketing for sale its
wholly-owned interests in 12 Office Properties. During the third quarter of 1999
bids were received on these properties either individually or in various
combinations. Management is currently in the process of evaluating the bids to
determine their economic viability as well as the credit-worthiness of the
potential purchasers and their ability to close the transactions. The
disposition of these properties remains subject to the negotiation of acceptable
terms and other customary conditions once one or more purchasers have been
selected. The Operating Partnership anticipates completing any economically
justified sales of these Office Properties to one or more buyers in the fourth
quarter of 1999 or the first quarter of 2000.
If all of the pending asset sales discussed above are made at the
current offering prices, the Operating Partnership will realize net sales
proceeds, including net sales proceeds from the completed sale of the Operating
Partnership's interest in the Dallas Mavericks, in excess of $380 million after
paying off secured debt of $75 million encumbering certain of the properties.
OFFICE AND RETAIL SEGMENT
The following tables show the same-store net operating income growth
for the 27.1 million square feet of office property space owned as of January 1,
1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED PERCENTAGE/POINT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 INCREASE
------------------ ------------------ ----------------
<S> <C> <C> <C>
Same-store Revenues $ 129.1 $ 123.1 4.9%
Same-store Expenses (54.9) (52.9) 3.6%
---------- ----------
Net Operating Income $ 74.2 $ 70.2 5.7%
========== ==========
Weighted Average Occupancy 90.4% 90.3% 0.1 pt
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED PERCENTAGE/POINT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 INCREASE
------------------ ------------------ ----------------
<S> <C> <C> <C>
Same-store Revenues $ 385.1 $ 359.2 7.2%
Same-store Expenses (166.6) (153.8) 8.3%
---------- ---------
Net Operating Income $ 218.5 $ 205.4 6.4%
========== =========
Weighted Average Occupancy 91.1% 89.6% 1.5 pt
</TABLE>
The following tables show the leasing and rental rates for the 31.8
million square feet of office property owned as of September 30, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------
SIGNED LEASES EXPIRING LEASES PERCENTAGE INCREASE
------------------ ------------------ -------------------
<S> <C> <C> <C>
Renewed or re-leased (1) 528,000 sq. ft. N/A N/A
Weighted average full-
service rental rate (2) $22.08 per sq. ft. $19.01 per sq. ft. 16%
FFO annual net effective
rental rate (3) $14.10 per sq. ft. $11.21 per sq. ft. 26%
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------
SIGNED LEASES EXPIRING LEASES PERCENTAGE INCREASE
------------------ ----------------- -----------------------
<S> <C> <C> <C>
Renewed or re-leased (1) 2,094,000 sq. ft. N/A N/A
Weighted average full-
service rental rate (2) $21.66 per sq. ft. $18.36 per sq. ft. 18%
FFO annual net effective
rental rate (3) $13.70 per sq. ft. $10.46 per sq. ft. 31%
</TABLE>
(1) All of which have commenced or will commence during the next twelve months.
(2) Including free rent, scheduled rent increases taken into account under
generally accepted accounting principles, and expense recoveries.
(3) Calculated as weighted average full-service rental rate minus operating
expenses.
o For the nine months ended September 30, 1999 executed, renewals of existing
leases and leases of space re-leased within six months of expiring leases
required tenant improvements of $1.36 per square foot per year and leasing
costs of $0.70 per square foot per year.
o Based on executed leases, the overall office portfolio was approximately
92.4% leased, or approximately 90.4% leased based on commenced leases, at
September 30, 1999.
INVESTMENT IN BROADBAND OFFICE, INC.:
The Operating Partnership, along with seven other real estate companies,
joined with venture capitalist Kleiner Perkins Caufield and Buyers as a founding
shareholder in Broadband Office, Inc. ("Broadband"), a national
telecommunications company. Broadband is dedicated to providing state of the art
broadband telecommunications services to commercial office properties across the
country. In addition to significantly improving the Operating Partnership's
office tenant amenity package to take advantage of evolving technologies, the
Operating Partnership also received an equity interest and representation on the
board of directors of Broadband in exchange for granting Broadband marketing
access to the tenants within the Operating Partnership's Office Property
portfolio.
HOSPITALITY SEGMENT
The following table shows the percentage increases in occupancy,
average daily rate and revenue per available room for the Hotel Properties for
the three and nine months ended September 30, 1999, as compared with the same
periods of 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED PERCENTAGE/POINT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 CHANGE
------------------ ------------------ ------
<S> <C> <C> <C>
Weighted average occupancy 76% 76% 0 pt
Average daily rate $247 $233 6%
Revenue per available room $186 $176 6%
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED PERCENTAGE/POINT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 CHANGE
------------------ ------------------ ------
<S> <C> <C> <C>
Weighted average occupancy 75% 76% (1) pt
Average daily rate $220 $208 6%
Revenue per available room $165 $157 5%
</TABLE>
o For the nine months ended September 30, 1999, hotel property rental income
growth, including weighted average base rent(1) and percentage rent, was
approximately 16%(2) compared with the same period of 1998, for the eight
hotel and resort properties owned as of January 1, 1998.
- ----------------------
(1) Including scheduled rent increases that would be taken into account under
generally accepted accounting principles.
(2) This growth primarily represents the return on approximately $22 million of
capital invested during 1998 and 1999 in connection with the construction
of The Allegra Spa at the Hyatt Beaver Creek hotel, the construction of the
spa facility at Ventana Country Inn and the renovation of the Four Seasons
- Houston hotel.
26
<PAGE> 27
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 15 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 DEVELOPMENT, L.P. AND THE WOODLANDS COMMERCIAL PROPERTIES
COMPANY, L.P. (COLLECTIVELY "THE WOODLANDS"), WOODLANDS, TEXAS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 534 415
Average sales price per lot $44,000 $ 53,000
Commercial land sales -- 19 acres
Average sales price per acre -- $346,000
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 1,452 1,234
Average sales price per lot $ 47,000 $ 53,000
Commercial land sales 27 acres 124 acres
Average sales price per acre $316,000 $205,000
</TABLE>
o Future buildout of The Woodlands is estimated at approximately 16,700
residential lots and approximately 2,021 acres of commercial land, of which
1,174 residential lots and 1,040 acres are currently in inventory.
o The Woodlands estimates that sales of 588 residential lots and 58 acres of
commercial land will close during the fourth quarter of 1999, which would
result in 1999 sales in excess of initial sales estimates of 2,000
residential lots and in line with initial sales estimates of 85 commercial
acres.
27
<PAGE> 28
DESERT MOUNTAIN PROPERTIES LIMITED PARTNERSHIP ("DESERT MOUNTAIN"), SCOTTSDALE,
ARIZONA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 37 25
Average sales price per lot(1) $488,000 $374,000
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 161 148
Average sales price per lot(1) $534,000 $381,000
</TABLE>
(1) Including equity golf membership.
o Since the March 1999 opening of the initial Saguaro Forest villages, Desert
Mountain has sold 49 lots with an average sales price of $643,000 per lot.
Continued marketing efforts relating to the remaining lots, which range in
price from $500,000 to $2.5 million, are anticipated to result in 15 to 25
additional closings during the fourth quarter of 1999.
o In October 1999, Desert Mountain opened two new villages in Saguaro Forest
consisting of 55 additional lots. Approximately 50% of the lots are
anticipated to close during the fourth quarter of 1999 with an estimated
average closing price of approximately $650,000 per lot.
o In addition to the Saguaro Forest lot inventory, Desert Mountain is
marketing approximately 200 lots in other villages of Desert Mountain, with
prices ranging from $400,000 to $2.6 million, and estimates approximately
20% of these 200 lots will close during the fourth quarter of 1999.
28
<PAGE> 29
CRESCENT DEVELOPMENT MANAGEMENT CORPORATION ("CDMC"), BEAVER CREEK, COLORADO:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Active projects 5 2
Residential lot sales 36 17
Townhome sales 6 7
Single-family home sales 4 --
Condominium sales 7 --
Total CMDC Revenues (in thousands) $41,911 $6,591
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Active projects 8 2
Residential lot sales 42 29
Townhome sales 27 7
Single-family home sales 8 --
Equivalent timeshare unit sales 5 --
Condominium sales 7 --
Total CDMC Revenues (in thousands) $89,131 $19,513
</TABLE>
o For the fourth quarter of 1999, CDMC estimates the following sales from
eight active projects and three projects expected to be introduced during
the fourth quarter of 1999: 370 residential lots, four townhomes, one
single-family home, one equivalent timeshare unit and 18 condominiums.
o 99% of the sales anticipated during the fourth quarter of 1999 were under
contract as of September 30, 1999.
o On April 29, 1999, a partnership in which CDMC has a 64% economic interest
finalized the purchase of Riverfront Plaza (previously known as "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 is in close proximity to 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).
29
<PAGE> 30
MIRA VISTA DEVELOPMENT CORP. ("MIRA VISTA"), FORT WORTH, TEXAS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 8 28
Average sales price per lot $125,000 $106,000
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 27 44
Average sales price per lot $124,000 $106,000
</TABLE>
HOUSTON AREA DEVELOPMENT CORP. ("HOUSTON AREA DEVELOPMENT"), HOUSTON, TEXAS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 87 69
Average sales price per lot $30,000 $23,000
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 200 134
Average sales price per lot $29,000 $26,000
Commercial land sales 16 acres -
</TABLE>
30
<PAGE> 31
REFRIGERATED STORAGE SEGMENT
As of September 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 relative stability of 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
pro forma EBITDA for the nine months ended September 30, 1999 and the year ended
December 31,1998, 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 pro forma lease payments for the nine months ended
September 30, 1999 and the year ended December 31, 1998, assuming the
restructuring of the Refrigerated Storage Corporations' investment in the
Refrigerated Storage Properties had occurred on January 1, 1998.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA LEASE
EBITDA(1) FOR THE EBITDA FOR THE PAYMENT FOR THE NINE PRO FORMA LEASE PAYMENT
NINE MONTHS ENDED YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998 SEPTEMBER 30, 1999 DECEMBER 31, 1998
- --------------------------------- ------------------------- ------------------------ --------------------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C>
$114.4 $145.7 $113.7 $143.0
</TABLE>
- ---------------------------------
(1) EBITDA does not represent net income or cash flows from operating,
financing or investing activities as defined by GAAP.
BEHAVIORAL HEALTHCARE SEGMENT
During the three and nine months ended September 30,1999, the Operating
Partnership received cash rental payments of $8.6 million and $30.5 million,
respectively, from CBHS. CBHS has been negatively affected by many factors,
including adverse industry conditions. CBHS is no longer performing in
accordance with its operating budget. On September 13, 1999, the Operating
Partnership, COI, Magellan and CBHS completed the first phase of a
recapitalization of CBHS, which included the following:
o The Operating Partnership agreed to defer the payment of
August 1999 rent by CBHS to the last four months of 1999;
o The Operating Partnership, Magellan, COI and CBHS entered into
certain mutual releases at closing; and
o Magellan transferred 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,
canceled its accrued franchise fees and terminated the
franchise agreement.
Upon the completion of the first phase of the recapitalization of CBHS, the
Operating Partnership began working on the second phase of the recapitalization.
This phase included the following:
o The Operating Partnership commissioned an independent public
accounting firm of national recognition to assist in the
evaluation of alternatives related to CBHS, which included an
appraisal of the behavioral healthcare real estate assets;
o The Operating Partnership agreed to defer cash rent payments
by CBHS for November and December 1999; and
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<PAGE> 32
o The Operating Partnership amended its master lease agreement
with CBHS and agreed that, upon the sale of any of up to 53 of
the Behavioral Healthcare Properties, the monthly minimum rent
due under the master lease would be reduced by a specified
percentage of the net proceeds of such sale.
The Operating Partnership and CBHS agreed that the master lease would
terminate with respect to 53 of the Behavioral Healthcare Properties on January
31, 2000, unless the Operating Partnership elects to extend the master lease on
a month-to-month basis as to any one or more of these Properties.
The following financial statement charges were made in the third quarter of
1999:
o CBHS rent is reflected on a cash basis for the third quarter
of 1999 at $8.6 million and CBHS rent will continue to be
reflected on a cash basis going forward;
o Cash revenue received was impacted by the deferral of the
August, 1999 rent. The amount deferred was $3.8 million, of
which approximately $1.0 million was received through
September 1999;
o The Operating Partnership wrote-off the rent that was deferred
according to the CBHS lease agreement from the commencement of
the lease in June of 1997 through June 30, 1999. The balance
written, off totals $25.6 million; and
o The Operating Partnership wrote-down its behavioral healthcare
real estate assets to an estimated fair value of $245.0
million at September 30, 1999.
At September 30, 1999, the Operating Partnership's investment in the
Behavioral Healthcare Properties represented approximately 5% of its total
assets (after the impairment and other charges related to the behavioral
healthcare assets) and approximately 5% of consolidated rental revenues for the
nine months ended September 30, 1999 (after the write-off of the rent that was
deferred for 1999).
The Operating Partnership decision regarding CBHS is dependent upon
whether a viable capital structure exists for CBHS that will provide acceptable
coverage for rental payments to the Operating Partnership. Management believes
that the underlying real estate has substantial value and alternative uses and
that a core group of 34 properties and nine CBHS joint venture properties would
provide acceptable rent coverage on a stabilized basis assuming cash rent is
reduced to $25 million, all rent is deferred from November 1999 through December
2000, additional equity and debt financing in excess of $50 million is made
available to CBHS and CBHS management is able to modify the business to provide
out-patient care as well as in-patient care. Although the Operating Partnership
intends to provide CBHS with approximately $15 million to be used by CBHS as
working capital in November and December 1999, the Operating Partnership does
not intend to provide the additional approximately $50 million of financing.
CBHS, however, is exploring financing alternatives with various parties who have
expressed interest in participating in CBHS's business. In addition, the
Operating Partnership anticipates that it may sell up to 53 of the Behavioral
Healthcare Properties. If the current plan for the recapitalization and
restructuring of CBHS is completed, management believes that the Operating
Partnership would benefit from the new capital structure, by reducing its
exposure to the Behavioral Healthcare segment in the future, significantly
improving its rent coverage and monetizing a portion of is initial investment.
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<PAGE> 33
RESULTS OF OPERATIONS
The following table shows the Operating Partnership's financial data as
a percentage of total revenues for the three and nine months ended September 30,
1999 and 1998 and the variance in dollars between the three and nine months
ended September 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 TOTAL VARIANCE IN
TOTAL VARIANCE IN DOLLARS BETWEEN
DOLLARS BETWEEN THE THE NINE MONTHS
THREE MONTHS ENDED ENDED
FOR THE THREE MONTHS FOR THE NINE MONTHS SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, AND 1998 AND 1998
-------------------------- -------------------------- ------------------ -------------------
1999 1998 1999 1998 (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Office and retail properties 82.5% 81.3% 81.4% 80.4% $ 7.0 $ 48.8
Hotel properties 9.2 7.1 8.6 7.5 4.2 10.1
Behavioral healthcare
properties 4.6 7.7 6.4 8.1 (5.2) (5.2)
Interest and other income 3.7 3.9 3.6 4.0 (0.3) --
---------- ---------- ---------- ---------- ---------- ----------
TOTAL REVENUES 100.0 100.0 100.0 100.0 5.7 53.7
---------- ---------- ---------- ---------- ---------- ----------
EXPENSES
Operating expenses 34.5 34.6 34.4 33.9 1.8 21.0
Corporate general and
administrative 2.2 2.4 2.1 2.2 (0.2) 1.0
Interest expense 27.5 21.1 24.6 21.6 13.2 28.4
Amortization of deferred
financing costs 1.1 1.1 1.4 0.8 0.1 3.6
Depreciation and
amortization 16.3 16.6 17.2 16.6 0.5 12.4
Settlement of merger dispute -- -- 2.7 -- -- 15.0
Write-off of costs
associated with -- 10.2 -- 3.6 (18.4) (18.4)
unsuccessful acquisitions
Impairment and other
charges related to
the behavioral
healthcare assets 87.3 -- 28.7 -- 162.0 162.0
---------- ---------- ---------- ---------- ---------- ----------
TOTAL EXPENSES 168.9 86.0 111.1 78.7 159.0 225.0
---------- ---------- ---------- ---------- ---------- ----------
Operating Income (Loss) (68.9) 14.0 (11.1) 21.3 (153.3) (171.3)
OTHER INCOME
Equity in net income of
unconsolidated
Companies:
Office and retail
properties 2.0 (0.2) 1.0 0.1 4.1 5.2
Refrigerated storage
corporations 0.9 0.3 2.0 (0.2) 1.2 12.5
Residential development
corporations 4.3 4.6 5.5 4.1 (0.4) 10.1
Other 0.8 0.4 0.4 0.2 0.6 1.5
---------- ---------- ---------- ---------- ---------- ----------
TOTAL OTHER INCOME 8.0 5.1 8.9 4.2 5.5 29.3
---------- ---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY (60.9) 19.1 (2.2) 25.5 (147.8) (142.0)
INTERESTS
Minority interests (0.2) (0.1) (0.1) (0.2) (0.1) 0.3
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) (61.1) 19.0 (2.3) 25.3 (147.9) (141.7)
PREFERRED SHARE DIVIDENDS (1.8) (1.9) (1.8) (1.6) -- (1.8)
FORWARD SHARE PURCHASE
AGREEMENT RETURN -- -- (0.8) -- -- (4.3)
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) AVAILABLE TO
PARTNERS (62.9)% 17.1% (4.9)% 23.7% $ (147.9) $ (147.8)
========== ========== ========== ========== ========== ==========
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 WITH
THE THREE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
Total revenues increased $5.7 million, or 3.2%, to $185.5 million for
the three months ended September 30, 1999, as compared to $179.8 million for the
three months ended September 30, 1998.
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<PAGE> 34
The increase in Office and Retail Property revenues of $7.0 million, or
4.8%, compared to the three months ended September 30, 1998, is primarily
attributable to rental rate increases and lease termination fees of $1.6 million
at the Office and Retail Properties.
The increase in Hotel Property revenues of $4.2 million, or 32.8%,
compared to the three months ended September 30, 1998, is attributable to:
o the acquisition of one golf course affiliated with one of the
Hotel Properties subsequent to September 30, 1998, resulting
in $0.6 million of incremental revenues;
o the reclassification of one Hotel Property subsequent to July
1, 1998, resulting in $1.3 million of incremental revenues;
and
o increased revenues of $2.3 million from the nine Hotel
Properties acquired prior to July 1, 1998, primarily as a
result of an increase in base rents of $2.2 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 $0.7
million.
The decrease in Behavioral Healthcare Property revenue of $5.2 million,
or 37.7%, is attributable to the reflection of rent from CBHS on a cash basis in
the third quarter of 1999.
EXPENSES
Total expenses increased $159.0 million, or 102.8%, to $313.7 million
for the three months ended September 30, 1999, as compared to $154.7 million for
the three months ended September 30, 1998.
The increase in rental property operating expenses of $1.8 million, or
2.9%, compared to the three months ended September 30, 1998, is primarily
attributable to an increase in real estate taxes on the 89 Office and Retail
Properties.
The increase in interest expense of $13.2 million, or 34.8%, compared
to the three months ended September 30, 1998, is primarily attributable to:
o $2.6 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;
o $6.9 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 September
30, 1999 and 1998 was $1,128.7 million and $728.5 million,
respectively). All of these financing arrangements were
used to fund investments and obligations associated with
investments and to provide working capital; and
o $3.0 million of incremental interest payable due to the
refinancing of the Greenway Plaza Office Property complex
in June, 1999.
An additional increase in expenses of $143.6 million is attributable
to:
o an increase of $162.0 million due to the impairment and
other charges related to the behavioral healthcare assets;
and
o a decrease of $18.4 million due to a non-recurring
write-off in 1998 of costs associated with unsuccessful
acquisitions.
34
<PAGE> 35
EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES
Equity in net income of unconsolidated companies increased $5.5
million, or 59.1%, to $14.8 million for the three months ended September 30,
1999, as compared to $9.3 million for the three months ended September 30, 1998.
The increase is primarily attributable to:
o an increase in equity in net income of the unconsolidated
office and retail properties of $4.1 million, or 1366.7%,
compared to the three months ended September 30, 1998,
primarily attributable to increased revenues at The
Woodlands Commercial Properties Company, L.P. due to the
sale of the multi-family portfolio in the third quarter of
1999; and
o an increase in equity in net income of the Refrigerated
Storage Corporations of $1.2 million, or 240.0%, compared
to the three months ended September 30, 1998, primarily as
a result of the Refrigerated Storage Corporations applying
customary purchase price adjustments to basis, resulting in
a reduction of depreciation recorded in the third quarter
of 1999. (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).
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 WITH
THE NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
Total revenues increased $53.7 million, or 10.5%, to $563.7 million for
the nine months ended September 30, 1999, as compared to $510.0 million for the
nine months ended September 30, 1998.
The increase in Office and Retail Property revenues of $48.8 million,
or 11.9%, compared to the nine months ended September 30, 1998, is attributable
to:
o the acquisition of nine Office Properties during the first
nine months of 1998, which contributed revenues during the
full nine months of 1999, as compared to only a portion of
the period of 1998, resulting in $16.7 million in
incremental revenues;
o increased revenues of $25.8 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 $6.3 million as a result of the
receipt of lease termination fees in the second and third
quarters of 1999.
The increase in Hotel Property revenues of $10.1 million, or 26.3%,
compared to the nine months ended September 30, 1998, is attributable to:
o the acquisition of one golf course affiliated with one of
the Hotel Properties subsequent to September 30, 1998,
resulting in $1.6 million of incremental revenues;
o the reclassification of one Hotel Property subsequent to
July 1, 1998, resulting in $1.3 million of incremental
revenues;
o increased revenues of $1.0 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 $6.2 million from the eight Hotel
Properties acquired prior to January 1, 1998, as a result
of an increase in base rents of $4.1 million because of
lease amendments entered into in connection with
contributions made by the Operating Partnership for capital
improvements at some of the Hotel Properties, and an
increase in percentage rent of $2.1 million.
35
<PAGE> 36
The decrease in Behavioral Healthcare Property revenue of $5.2 million,
or 12.5%, is attributable to the reflection of rent from CBHS on a cash basis in
the third quarter of 1999.
EXPENSES
Total expenses increased $225.0 million, or 56.0%, to $626.5 million
for the nine months ended September 30, 1999, as compared to $401.5 million for
the nine months ended September 30, 1998.
The increase in rental property operating expenses of $21.0 million, or
12.1%, compared to the nine months ended September 30, 1998, is primarily
attributable to:
o the acquisition of nine Office Properties during the first
nine months of 1998, which incurred expenses during the
full nine-month period of 1999, as compared to only a
portion of the period of 1998, resulting in $7.2 million of
incremental expenses; and
o increased expenses of $12.8 million from the 80 Office and
Retail Properties acquired prior to January 1, 1998,
primarily as a result of an increase in real estate taxes
of $10.1 million and occupancy increases at these Office
Properties.
The increase in depreciation and amortization expense of $12.4 million,
or 14.7%, compared to the nine months ended September 30, 1998, is primarily
attributable to the acquisition during 1998 of nine Office Properties.
The increase in interest expense of $28.4 million, or 25.8%, compared
to the nine months ended September 30, 1998, is primarily attributable to:
o $1.1 million of incremental 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 $9.2 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;
o $14.2 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 nine months ended
September 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; and
o $3.0 million of incremental interest payable due to the
refinancing of the Greenway Plaza Office Property complex
in June 1999.
An additional increase in expenses of $158.6 million is attributable
to:
o an increase of $162.0 million due to the impairment and
other charges related to the behavioral healthcare assets;
o non-recurring costs of $15.0 million associated with the
settlement of litigation relating to the merger agreement
entered into in January 1998 between the Company and
Station; and
o a decrease of $18.4 million due to a non-recurring
write-off in 1998 of costs associated with unsuccessful
acquisitions.
36
<PAGE> 37
EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES
Equity in net income of unconsolidated companies increased $29.3
million, or 138.2%, to $50.5 million for the nine months ended September 30,
1999, as compared to $21.2 million for the nine months ended September 30, 1998.
The increase is attributable to:
o An increase in equity in net income of the unconsolidated
office and retail properties of $5.2 million, or 1040.0%
compared to the nine months ended September 30, 1998,
primarily attributable to increased revenues at the
Woodlands Commercial Properties Company L.P., due to the
sale of the multi-family portfolio in the third quarter of
1999;
o an increase in equity in net income of the Refrigerated
Storage Corporations of $12.5 million, or 1250.0%, compared
to the nine months ended September 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, and the Refrigerated Storage
Corporations' refinancing of approximately $607 million of
debt in April 1998, which reduced interest expense for the
nine months ended September 30, 1999 as compared to the
same period in 1998 (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);
o an increase in equity in net income of the Residential
Development Corporations of $10.1 million, or 48.3%,
compared to the nine months ended September 30, 1998,
primarily as a result of (i) the increased sales activity
at CDMC and Houston Area Development which resulted in $4.5
million and $3.0 million, respectively, of incremental
equity in net income to the Operating Partnership, (ii) the
increase in sales activity and average sales price per lot
at Desert Mountain which resulted in $3.2 million of
incremental equity in net income to the Operating
Partnership,, (iii) an increase in sales activity at The
Woodlands which resulted in $1.2 million of incremental
equity in net income to the Operating Partnership, and (iv)
a decrease in sales activity at Mira Vista, which resulted
in a decrease of $1.9 million in equity in net income to
the Operating Partnership,; and
o an increase in equity in net income of the other
unconsolidated companies of $1.5 million, or 187.5%,
compared to the nine months ended September 30, 1998,
primarily attributable to a preferred member interest in
Metropolitan, which the Operating Partnership, purchased in
December 1998 and May 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $65.7 million and $109.8 million at
September 30, 1999 and December 31, 1998, respectively. This 40.2% decrease is
attributable to $249.4 million and $19.4 million used in investing and financing
activities, respectively, partially offset by $224.7 million of cash provided by
operating activities.
INVESTING ACTIVITIES
The Operating Partnership's cash used in investing activities of $249.4
million is primarily attributable to:
o $115.9 million for increased investments in unconsolidated
companies;
o $39.1 million for recurring and non-recurring tenant
improvement and leasing costs for the Office and Retail
Properties;
o $38.6 million for increased investments in the residential
development companies;
o $27.8 million attributable to increased restricted cash and
cash equivalents primarily due to the escrow requirements
related to the refinancings of the Greenway Plaza Office
Property complex and the Houston Center Office Property
complex;
37
<PAGE> 38
o $22.9 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; and
o $6.0 million for the development of investment properties.
OPERATING ACTIVITIES
The Operating Partnership's cash provided by operating activities of
$224.7 million is attributable to:
o $10.7 million from an increase in accounts payable,
accrued liabilities and other liabilities;
o $0.7 million from minority interests; and
o $199.2 million from property operations; and
o $33.7 million from a decrease in other assets, primarily
due to the sale of $18.8 million of marketable securities.
The cash provided by operating activities is partially offset by:
o $18.0 million from equity in earnings in excess of
distributions received from unconsolidated companies; and
o $1.6 million from an increase in restricted cash and cash
equivalents.
FINANCING ACTIVITIES
The Operating Partnership's use of cash for financing activities of
$19.4 million is primarily attributable to:
o distributions paid to unitholders of $235.4 million;
o settlement of the Forward Share Purchase Agreement for
$149.4 million;
o debt financing costs of $14.1 million primarily related to
the refinancing of the Greenway Plaza Office Property
complex, the Houston Center Office Property complex and the
BankBoston Mezzanine Loan;
o net payments under the Credit Facility of $75.0 million;
and
o capital distributions to a joint venture partner of $2.4
million.
The use of cash for financing activities is partially offset by:
o net proceeds under short-term and long-term facilities of
$440.0 million primarily due to net proceeds from the
refinancing of the Greenway Plaza Office Property complex
of $165 million, net proceeds from the refinancing of the
BankBoston Term Note of $60 million, net proceeds from the
refinancing of the BankBoston Mezzanine Loan of $200
million and net proceeds of $15 million from the
refinancing of the Houston Center Office Property complex;
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 September 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.
38
<PAGE> 39
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 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.
SHARE REPURCHASE
On November 5, 1999, the Company's Board of Trust Managers authorized
the repurchase of a portion of its outstanding common shares from time to time
in the open market or through privately negotiated transactions, in an amount
not to exceed $500 million. The proposed repurchases will be subject to
prevailing market conditions and other considerations. The repurchase of common
shares by the Company would decrease the Company's limited partner interest,
which would result in an increase of net income per unit and net book value per
unit.
The Company expects the share repurchase program to be funded through a
combination of asset sales and financing arrangements, which, in some cases, may
be secured by the repurchased shares. The amount of shares that the Company
actually will purchase will be determined from time to time, in its reasonable
judgement, based on market conditions and the availability of funds, among other
factors. There can be no assurance that any number of shares actually will be
purchased within any particular time period.
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
On June 30, 1998, the Credit Facility was increased to $850 million
(currently limited to $750 million 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
September 30, 1999, the interest rate was 6.78%. 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 million 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
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
39
<PAGE> 40
of the Credit Facility. The Operating Partnership was in compliance with the
financial covenants related to the Credit Facility as amended for the September
30, 1999 reporting period.
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.
On September 14, 1999, the Operating Partnership obtained a $200
million note from BankBoston secured by partnership interests in two pools of
assets which also secure the La Salle Notes I and II. This new loan has a
four-year term and a floating interest rate based on 30-day LIBOR plus 325 basis
points. The proceeds were used to repay the $150 million short-term Bridge Loan
with BankBoston in full and reduce the amount outstanding under the BankBoston
Credit Facility by $50 million. The Operating Partnership has entered into a
four-year $200 million interest rate swap agreement with Salomon, effective
September 1, 1999, in a separate transaction related to this financing. Pursuant
to this agreement, the Operating Partnership will pay Salomon a 6.183% fixed
interest rate on a quarterly basis, and Salomon will pay the Operating
Partnership a floating 90-day LIBOR rate based on the same quarterly reset
dates.
On September 15, 1999, the Operating Partnership refinanced the $184
million Salomon Brothers Note which secured the Houston Center mixed-use Office
Property complex, with a $200 million, secured, fixed-rate mortgage loan through
J.P. Morgan Investment Management, Inc. The replacement loan has a seven-year
term and bears interest at a fixed rate of 8.31%. The Houston Center mixed-use
Office Property secures the replacement loan but the Four Seasons Hotel -
Houston, which served as partial collateral for the original loan, does not
serve as collateral for the replacement loan. The proceeds of the replacement
loan were primarily used to repay the $184 million Salomon Brothers Note in full
and to reduce the amount outstanding under the BankBoston Credit Facility by
approximately $15 million.
The Operating Partnership made payments totaling $75 million during the
third quarter of 1999 on the Credit Facility. The Operating Partnership expects
to make payments totaling approximately $75 million during the fourth quarter of
1999. These payments are expected to be funded with proceeds from asset sales
and cash flow provided by operating activities.
Approximately $47.8 million of secured debt expires during the
remainder of 1999, consisting primarily of two components. The first component
is $40 million due under the Metropolitan Life Note III which matures in
December 1999. The Operating Partnership anticipates that, by December 1, 1999,
it will modify and extend the existing loan with a $40.4 million, six-year note
that would bear interest at a fixed rate of 8.49%. The second component is
approximately $6.5 million due under the Metropolitan Life Note IV which matures
in December 1999. This amount is expected to be paid in full at maturity with
cash flow provided by operating activities.
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 or additional debt financing.
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 September 30, 1999, the Operating
Partnership's long-term liquidity requirements consisted primarily of maturities
under the Operating Partnership's fixed and variable-rate debt.
40
<PAGE> 41
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;
o Issuances of Operating Partnership units or the Company's
common and/or preferred shares of the Company; and
o Joint ventures arrangements.
41
<PAGE> 42
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 SEPTEMBER 30, EXPIRATION OUTSTANDING AT
DESCRIPTION BORROWINGS 1999 DATE SEPTEMBER 30, 1999
- --------------------------------------- ------------ --------------- ------------------ -------------------
<S> <C> <C> <C> <C>
SECURED FIXED RATE DEBT:
AEGON Note $ 279,362 7.53% July 2009(1) $ 279,362
LaSalle Note I 239,000 7.83 August 2027 239,000
JP Morgan Mortgage Note(3) 200,000 8.31 September 2006(3) 200,000
LaSalle Note II 161,000 7.79 March 2028(4) 161,000
CIGNA Note 63,500 7.47 December 2002 63,500
Metropolitan Life Note I 11,543 8.88 September 2001 11,543
Metropolitan Life Note II 43,813 6.93 December 2002 43,813
Metropolitan Life Note III 40,000 7.74 December 1999 40,000
Metropolitan Life Note IV 6,537 7.11 December 1999 6,537
Northwestern Life Note 26,000 7.65 January 2004 26,000
Nomura Funding VI Note 8,510 10.07 July 2020(5) 8,510
Rigney Promissory Note 739 8.50 June 2012 739
------------ ------ -----------
Subtotal/Weighted Average $ 1,080,004 7.79% $ 1,080,004
------------ ------ -----------
SECURED VARIABLE RATE DEBT(6):
BankBoston Term Note 320,000 8.63 October 2001 320,000
BankBoston Mezzanine Loan(7) 200,000 8.69 September 2003 200,000
SFT Note 97,123 7.15 September 2001 97,123
------------ ------ -----------
Subtotal/Weighted Average $ 617,123 8.42% $ 617,123
------------ ------ -----------
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 6.78% June 2000 $ 585,000
------------ ------ -----------
TOTAL/WEIGHTED AVERAGE $ 2,757,127 7.64% $ 2,682,127
============ ====== ===========
</TABLE>
- -----------------------------------------
(1) The outstanding principal balance at maturity of this note will be
approximately $223 million.
(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.
(3) On September 15, 1999, the Operating Partnership refinanced the $184,299
Salomon Brothers Realty Corp. Note with this note. The additional
proceeds of $15,701 were used to pay-down the BankBoston Credit Facility.
The refinancing did not include the Four Seasons Hotel that had served as
partial collateral for the Salomon Brothers Realty Corp. 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 million.
(5) 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.
(6) 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 Borrowings under Credit Facility of Item 1.
Financial Statements.
(7) The Operating Partnership entered into this Mezzanine Loan on September
14, 1999. This loan is secured by partnership interests in two pools of
underleveraged assets. The proceeds were used to pay-off the $150 million
BankBoston Bridge Loan, and pay-down $50 million of the BankBoston Credit
Facility. The Operating Partnership entered into a four-year $200 million
interest rate swap agreement effective September 1, 1999 with Salomon
Brothers Holding Company, Inc. in a separate transaction related to the
BankBoston Mezzanine Loan. Pursuant to this agreement, the Operating
Partnership will pay Salomon Brothers Holding Company, Inc. 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.
(8) The notes were issued in an offering registered with the SEC.
42
<PAGE> 43
(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. The
Operating Partnership was in compliance with the financial covenants
related to the Credit Facility for the September 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 .................... $ 47,843 $ -- $ 47,843
2000 .................... 5,431 585,000 590,431
2001 .................... 444,509 -- 444,509
2002 .................... 104,991 150,000 254,991
2003 .................... 314,894 -- 314,894
Thereafter ............. 779,459 250,000 1,029,459
---------- ---------- ----------
$1,697,127 $ 985,000 $2,682,127
========== ========== ==========
</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 nine
months ended September 30, 1999 was approximately 2.9 and for the nine months
ended September 30, 1998 was approximately 3.2. 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 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
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 3.2 at September 30,
1999.
43
<PAGE> 44
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 excluding adjustments not of a normal or recurring nature;
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 of the
Company and unitholders for the nine months ended September 30, 1999 and 1998
were $225.2 and $149.9 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.
44
<PAGE> 45
STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND UNITS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Income (loss) after minority interest ................. $(113,569) $ 34,174 $ (13,080) $ 128,800
Adjustments:
Depreciation and amortization of real estate assets.... 29,516 29,204 94,542 82,919
Settlement of merger dispute .......................... -- -- 15,000 --
Impairment and other charges related to the behavioral
behavioral healthcare assets .................... 136,435 -- 136,435 --
Write-off of costs associated with unsuccessful
acquisitions .................................... -- 18,435 -- 18,435
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office and retail properties ............... (751) 1,808 3,603 4,813
Refrigerated storage properties ............ 5,045 7,245 12,803 20,299
Residential development properties ......... 3,457 4,184 14,751 15,623
Other ...................................... 439 -- 611 --
Preferred unit dividends .............................. (3,375) (3,375) (10,125) (8,325)
--------- --------- --------- ---------
Funds from operations ................................. $ 57,197 $ 91,675 $ 254,540 $ 262,564
========= ========= ========= =========
Investment Segments:
Office and Retail Segment ......................... $ 91,916 $ 85,121 $ 273,395 $ 241,237
Hospitality Segment ............................... 16,564 12,567 47,658 37,677
Behavioral Healthcare Segment ..................... (16,969) 13,824 10,679 41,471
Refrigerated Storage Segment ...................... 6,791 7,729 24,279 19,267
Residential Development Segment ................... 11,401 12,449 45,739 36,537
Corporate general & administrative ................ (4,083) (4,335) (12,013) (11,036)
Interest expense .................................. (51,084) (37,940) (138,482) (110,067)
Preferred unit dividends .......................... (3,375) (3,375) (10,125) (8,325)
Other(1) .......................................... 6,036 5,635 13,410 15,803
--------- --------- --------- ---------
Funds from operations ................................. $ 57,197 $ 91,675 $ 254,540 $ 262,564
========= ========= ========= =========
Basic weighted average units .......................... 66,354 66,982 68,281 66,305
========= ========= ========= =========
Diluted weighted average units(2) ..................... 67,047 73,658 69,415 70,058
========= ========= ========= =========
</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.
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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------- -------------------------------
(UNITS IN THOUSANDS) 1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic weighted average units: .................... 66,354 66,982 68,281 66,305
Add: Weighted average preferred units ............ -- 4,155 -- 1,385
Unit options ............................ 693 1,783 938 2,122
Forward Share Purchase Agreement ........ -- 374 196 125
Equity Swap Agreement ................... -- 364 -- 121
------ ------ ------ ------
Diluted weighted average units ................... 67,047 73,658 69,415 70,058
====== ====== ====== ======
</TABLE>
45
<PAGE> 46
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Funds from operations ................................................ $ 254,540 $ 262,564
Adjustments:
Depreciation and amortization of non-real estate assets ........ 1,752 1,108
Settlement of merger dispute ................................... (15,000) --
Write-off costs associated with unsuccessful acquisitions ...... -- (18,435)
Other charges related to the behavioral healthcare assets ...... (32,665) --
Amortization of deferred financing costs ....................... 7,857 4,194
Minority interest in joint ventures profit and depreciation
and amortization ........................................... 1,444 1,581
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies ..................... (31,768) (40,735)
Change in deferred rent receivable ............................. 5,098 (23,795)
Change in current assets and liabilities ....................... 43,041 (25,346)
Equity in earnings in excess of distributions received from
unconsolidated companies ................................... (17,985) --
Distributions received in excess of equity in earnings from
unconsolidated companies ................................... -- 11,804
Preferred share dividends ...................................... 10,128 8,325
Non-cash compensation .......................................... 101 155
--------- ---------
Net cash provided by operating activities ............................ $ 226,543 $ 181,420
========= =========
</TABLE>
OFFICE AND RETAIL PROPERTIES
The Operating Partnership's Office Properties are located primarily in
Dallas/Fort Worth and Houston, Texas. As of September 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).
OFFICE PROPERTIES TABLES
The following table shows certain information about the Operating
Partnership's Office Properties as of September 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 77% $21.81
The Crescent Office Towers....... 1 Uptown/Turtle 1985 1,204,670 99 30.11
Creek
Fountain Place................... 1 CBD 1986 1,200,266 93 19.43
Trammell Crow Center(3).......... 1 CBD 1984 1,128,331 94 25.55
Stemmons Place................... 1 Stemmons Freeway 1983 634,381 88 15.33
Spectrum Center(4)............... 1 Far North Dallas 1983 598,250 90 23.44
Waterside Commons................ 1 Las Colinas 1986 458,739 100 19.80
Caltex House..................... 1 Las Colinas 1982 445,993 95 29.14
Reverchon Plaza.................. 1 Uptown/Turtle 1985 374,165 98 19.37
Creek
The Aberdeen..................... 1 Far North Dallas 1986 320,629 100 18.21
MacArthur Center I & II.......... 1 Las Colinas 1982/1986 294,069 99 20.63
Stanford Corporate Centre........ 1 Far North Dallas 1985 265,507 88 18.97
The Amberton..................... 1 Central Expressway 1982 255,052 79 13.38
Concourse Office Park............ 1 LBJ Freeway 1972-1986 244,879 89 15.16
12404 Park Central............... 1 LBJ Freeway 1987 239,103 100 21.09
Palisades Central II............. 1 Richardson/Plano 1985 237,731 64(5) 17.26
3333 Lee Parkway................. 1 Uptown/Turtle 1983 233,769 92 20.85
Creek
Liberty Plaza I & II............. 1 Far North Dallas 1981/1986 218,813 100 15.73
</TABLE>
46
<PAGE> 47
<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>
The Addison...................... 1 Far North Dallas 1981 215,016 100 18.44
The Meridian..................... 1 LBJ Freeway 1984 213,915 91(5) 16.92
Palisades Central I.............. 1 Richardson/Plano 1980 180,503 85 17.32
Walnut Green..................... 1 Central Expressway 1986 158,669 70 15.58
Greenway II...................... 1 Richardson/Plano 1985 154,329 100 19.85
Addison Tower.................... 1 Far North Dallas 1987 145,886 96 15.72
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 87 17.80
One Preston Park................. 1 Far North Dallas 1980 40,525 84 17.19
--- ---------- --- ------
Subtotal/Weighted Average...... 30 11,460,229 91% $21.50
--- ---------- --- ------
FORT WORTH
UPR Plaza........................ 1 CBD 1982 954,895 95% $15.50
--- ---------- --- ------
HOUSTON
Greenway Plaza Office
Portfolio...................... 10 Richmond-Buffalo 1969-1982 4,286,277 90%(5) $17.03
Speedway
Houston Center.................... 3 CBD 1974-1983 2,764,418 94(5) 16.81
Post Oak Central.................. 3 West Loop/Galleria 1974-1981 1,277,516 92 17.49
The Woodlands Office
Properties(6)................... 12 The Woodlands 1980-1996 811,067 99 16.09
Four Westlake Park................ 1 Katy Freeway 1992 561,065 100 18.61
Three Westlake Park(7)(8)......... 1 Katy Freeway 1983 414,251 41(5) 18.95
1800 West Loop South.............. 1 West Loop/Galleria 1982 399,777 68(5) 17.60
--- ---------- --- ------
Subtotal/Weighted Average...... 31 10,514,371 90% $17.09
--- ---------- --- ------
AUSTIN
Frost Bank Plaza................. 1 CBD 1984 433,024 94% $22.67
301 Congress Avenue(9)........... 1 CBD 1986 418,338 91(5) 23.74
Bank One Tower................... 1 CBD 1974 389,503 94 19.32
Austin Centre.................... 1 CBD 1986 343,665 97 21.95
The Avallon...................... 1 Northwest 1993/1997 232,301 89(5) 21.89
Barton Oaks Plaza One............ 1 Southwest 1986 99,895 97 21.39
--- ---------- --- ------
Subtotal/Weighted Average.... 6 1,916,726 93% $21.92
--- ---------- --- ------
COLORADO
DENVER
MCI Tower........................ 1 CBD 1982 550,807 100% $18.05
Ptarmigan Place.................. 1 Cherry Creek 1984 418,630 99 18.59
Regency Plaza One................ 1 DTC 1985 309,862 98 23.27
AT&T Building.................... 1 CBD 1982 184,581 82 15.22
The Citadel...................... 1 Cherry Creek 1987 130,652 89(5) 22.26
55 Madison....................... 1 Cherry Creek 1982 137,176 85(5) 19.11
44 Cook.......................... 1 Cherry Creek 1984 124,174 55(5) 19.06
--- ---------- --- ------
Subtotal/Weighted Average.... 7 1,855,882 93% $19.27
--- ---------- --- ------
COLORADO SPRINGS
Briargate Office and
Research Center................ 1 Colorado Springs 1988 252,857 100% $18.00
--- ---------- --- ------
LOUISIANA
NEW ORLEANS
Energy Centre.................... 1 CBD 1984 761,500 81%(5) $15.48
1615 Poydras..................... 1 CBD 1984 508,741 81 16.44
--- ---------- --- ------
Subtotal/Weighted Average.... 2 1,270,241 81% $15.86
--- ---------- --- ------
FLORIDA
MIAMI
Miami Center..................... 1 CBD 1983 782,686 76%(5) $23.30
Datran Center.................... 2 South Dade/Kendall 1986/1988 472,236 93(5) 21.50
--- ---------- --- ------
Subtotal/Weighted Average...... 3 1,254,922 82% $22.53
--- ---------- --- ------
</TABLE>
47
<PAGE> 48
<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>
ARIZONA
PHOENIX
Two Renaissance Square........... 1 Downtown/CBD 1990 476,373 95% $23.88
6225 North 24th Street........... 1 Camelback Corridor 1981 86,451 83(5) 21.98
--- ---------- --- ------
Subtotal/Weighted Average.... 2 562,824 93% $23.62
--- ---------- --- ------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour............. 2 Georgetown 1986 536,206 94%(5) $36.27
--- ---------- --- ------
NEBRASKA
OMAHA
Central Park Plaza............... 1 CBD 1982 409,850 94% $15.93
--- ---------- --- ------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza................ 1 CBD 1990 366,236 92% $19.19
--- ---------- --- ------
CALIFORNIA
SAN FRANCISCO
160 Spear Street.................. 1 South of Market/CBD 1984 276,420 98% $25.68
--- ---------- --- ------
SAN DIEGO
Chancellor Park (10)............. 1 UTC 1988 195,733 90%(5) $21.64
--- ---------- --- ------
TOTAL/WEIGHTED AVERAGE.............. 89 31,827,392 90%(5) $19.79(11)
=== ========== === ======
</TABLE>
- ------------------------
(1) Calculated based on base rent payable as of September 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.
(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 September 30, 1999. If such leases had commenced
as of September 30, 1999, the percent leased for all Office
Properties would have been 92%. The total percent leased for these
Properties would have been as follows: Palisades Central II - 68%;
Meridian - 98%; Greenway Plaza - 92%; Houston Center - 97%; Three
Westlake - 62%; 1800 West Loop South - 73%; 301 Congress - 99%;
Avallon - 100%; Citadel - 93%; 55 Madison - 93%; 44 Cook - 99%;
Energy Centre - 84%; Miami Center - 80%; Datran Center - 96%; 6225
N. 24th St. - 100%; Washington Harbour - 97%; and Chancellor Park
- 93%.
(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 primarily occupied 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 commenced September 1, 1999.
(8) The Company 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 September 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 $20.27.
48
<PAGE> 49
The following table provides information, as of September 30, 1999, for
the Operating Partnership's Office Properties by state, city, and submarket.
<TABLE>
<CAPTION>
PERCENT
PERCENT OF LEASED AT OFFICE
TOTAL TOTAL OPERATING SUBMARKET
OPERATING OPERATING PARTNERSHIP PERCENT
NUMBER OF PARTNERSHIP PARTNERSHIP OFFICE LEASED/
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2)
---------------------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD ................................. 3 3,859,554 12% 87% 85%
Uptown/Turtle Creek ................. 4 1,923,527 6 98 92
Far North Dallas .................... 7 1,897,695 6 94 75
Las Colinas ......................... 4 1,273,662 4 97 84
Richardson/Plano .................... 5 719,267 2 84 79
Stemmons Freeway .................... 1 634,381 2 88 89
LBJ Freeway ......................... 2 453,018 1 96(6) 88
---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average ......... 26 10,761,104 34% 91% 84%
---------- ---------- ---------- ---------- ----------
FORT WORTH
CBD ................................. 1 954,895 3% 95% 84%
---------- ---------- ---------- ---------- ----------
HOUSTON
CBD ................................. 3 2,764,418 9% 94%(6) 97%
Richmond-Buffalo Speedway ........... 6 2,735,030 9 91(6) 92
West Loop/Galleria .................. 4 1,677,293 5 86 94
The Woodlands ....................... 7 487,320 2 99 97
Katy Freeway ........................ 2 975,316 3 75(6) 86
---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average ......... 22 8,639,377 27% 89% 94%
---------- ---------- ---------- ---------- ----------
AUSTIN
CBD ................................. 4 1,584,530 5% 94%(6) 98%
Northwest ........................... 1 232,301 1 89(6) 82
Southwest ........................... 1 99,895 0 97 98
---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average ......... 6 1,916,726 6% 93% 93%
---------- ---------- ---------- ---------- ----------
COLORADO
DENVER
Cherry Creek ........................ 4 810,632 3% 88%(6) 83%
CBD ................................. 2 735,388 2 95 97
DTC ................................. 1 309,862 1 98 87
---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average ......... 7 1,855,882 6% 93% 93%
---------- ---------- ---------- ---------- ----------
COLORADO SPRINGS
Colorado Springs .................... 1 252,857 1% 100% 93%
---------- ---------- ---------- ---------- ----------
LOUISIANA
NEW ORLEANS
CBD ................................. 2 1,270,241 4% 81%(6) 87%
---------- ---------- ---------- ---------- ----------
FLORIDA
MIAMI
CBD ................................. 1 782,686 3% 76%(6) 91%
South Dade/Kendall .................. 2 472,236 2 93(6) 94
---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average ......... 3 1,254,922 4% 82% 91%
---------- ---------- ---------- ---------- ----------
ARIZONA
PHOENIX
Downtown/CBD ........................ 1 476,373 2% 95% 95%
Camelback Corridor .................. 1 86,451 0 83(6) 97
---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average ......... 2 562,824 2% 93% 97%
---------- ---------- ---------- ---------- ----------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown .......................... 2 536,206 2% 94%(6) 97%
---------- ---------- ---------- ---------- ----------
NEBRASKA
OMAHA
CBD ................................. 1 409,850 1% 94% 96%
---------- ---------- ---------- ---------- ----------
NEW MEXICO
ALBUQUERQUE
CBD ................................. 1 366,236 1% 92% 95%
---------- ---------- ---------- ---------- ----------
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED OPERATING COMPANY
OPERATING AVERAGE PARTNERSHIP FULL-
PARTNERSHIP QUOTED QUOTED SERVICE
SHARE OF MARKET RENTAL RENTAL
OFFICE RENTAL RATE RATE PER RATE PER
SUBMARKET PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5)
---------------------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD ................................. 21% $22.50 $25.81 $22.19
Uptown/Turtle Creek ................. 34 26.69 30.48 26.27
Far North Dallas .................... 20 25.09 24.17 19.34
Las Colinas ......................... 12 25.95 25.80 23.09
Richardson/Plano .................... 14 22.83 23.25 19.36
Stemmons Freeway .................... 26 22.99 19.50 15.33
LBJ Freeway ......................... 5 24.90 22.32 19.22
---------- ------ ------ ------
Subtotal/Weighted Average ......... 18% $24.27 $25.66 $21.87
---------- ------ ------ ------
FORT WORTH
CBD ................................. 24% $19.99 $20.58 $15.50
---------- ------ ------ ------
HOUSTON
CBD ................................. 11% $22.47 $23.48 $16.81
Richmond-Buffalo Speedway ........... 56 20.43 21.43 18.17
West Loop/Galleria .................. 13 21.98 23.04 17.51
The Woodlands ....................... 100 15.73 15.73 16.38
Katy Freeway ........................ 13 22.25 24.44 18.69
---------- ------ ------ ------
Subtotal/Weighted Average ......... 17% $21.32 $22.42 $17.53
---------- ------ ------ ------
AUSTIN
CBD ................................. 44% $29.02 $29.37 $21.96
Northwest ........................... 10 26.71 25.50 21.89
Southwest ........................... 4 26.79 25.25 21.39
---------- ------ ------ ------
Subtotal/Weighted Average ......... 23% $28.62 $28.68 $21.92
---------- ------ ------ ------
COLORADO
DENVER
Cherry Creek ........................ 46% $23.99 $21.87 $19.32
CBD ................................. 7 25.85 21.75 17.42
DTC ................................. 6 25.50 26.00 23.27
---------- ------ ------ ------
Subtotal/Weighted Average ......... 11% $24.98 $22.51 $19.27
---------- ------ ------ ------
COLORADO SPRINGS
Colorado Springs .................... 6% $19.11 $19.45 $18.00
---------- ------ ------ ------
LOUISIANA
NEW ORLEANS
CBD ................................. 14% $16.43 $16.10 $15.86
---------- ------ ------ ------
FLORIDA
MIAMI
CBD ................................. 23% $28.76 $30.75 $23.30
South Dade/Kendall .................. 100 23.75 23.75 21.50
---------- ------ ------ ------
Subtotal/Weighted Average ......... 33% $26.87 $28.12 $22.53
---------- ------ ------ ------
ARIZONA
PHOENIX
Downtown/CBD ........................ 27% $23.02 $23.50 $23.88
Camelback Corridor .................. 2 27.28 21.50 21.98
---------- ------ ------ ------
Subtotal/Weighted Average ......... 11% $23.67 $23.19 $23.62
---------- ------ ------ ------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown .......................... 100% $36.68 $36.68 $36.27
---------- ------ ------ ------
NEBRASKA
OMAHA
CBD ................................. 32% $18.61 $18.50 $15.93
---------- ------ ------ ------
NEW MEXICO
ALBUQUERQUE
CBD ................................. 64% $19.10 $19.50 $19.19
---------- ------ ------ ------
</TABLE>
49
<PAGE> 50
<TABLE>
<CAPTION>
PERCENT
PERCENT OF LEASED AT OFFICE
TOTAL TOTAL OPERATING SUBMARKET
OPERATING OPERATING PARTNERSHIP PERCENT
NUMBER OF PARTNERSHIP PARTNERSHIP OFFICE LEASED/
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2)
---------------------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
CALIFORNIA
SAN FRANCISCO
South of Market/CBD ................. 1 276,420 1% 98% 97%
---------- ---------- ---------- ---------- ----------
SAN DIEGO
UTC ................................. 1 195,733 1% 90%(6) 87%
---------- ---------- ---------- ---------- ----------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE ......................... 76 29,253,273 92% 91% 90%
========== ========== ========== ========== ==========
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway .................. 2 413,721 1% 75% 83%
LBJ Freeway ......................... 1 244,879 1 89 85
Far North Dallas .................... 1 40,525 0 84 82
---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average ......... 4 699,125 2% 81% 83%
---------- ---------- ---------- ---------- ----------
HOUSTON
Richmond-Buffalo Speedway ........... 4 1,551,247 5% 89% 94%
The Woodlands ....................... 5 323,747 1 99 99
---------- ---------- ---------- ---------- ----------
Subtotal/Weighted Average ......... 9 1,874,994 6% 91% 94%
---------- ---------- ---------- ---------- ----------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE ......................... 13 2,574,119 8% 88% 85%
========== ========== ========== ========== ==========
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE.......................... 89 31,827,392 100% 90%(6) 89%
========== ========== ========== ========== ==========
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED OPERATING COMPANY
OPERATING AVERAGE PARTNERSHIP FULL-
PARTNERSHIP QUOTED QUOTED SERVICE
SHARE OF MARKET RENTAL RENTAL
OFFICE RENTAL RATE RATE PER RATE PER
SUBMARKET PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5)
---------------------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
CALIFORNIA
SAN FRANCISCO
South of Market/CBD ................. 2% $46.36 $42.00 $25.68
---------- ------ ------ ------
SAN DIEGO
UTC ................................. 5% $29.70 $26.00 $21.64
---------- ------ ------ ------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE ......................... 16% $23.63 $24.31 $20.20
========== ====== ====== ======
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway .................. 11% $17.41 $18.63 $14.18
LBJ Freeway ......................... 2 19.14 18.15 15.16
Far North Dallas .................... 0 20.56 19.50 17.19
---------- ------ ------ ------
Subtotal/Weighted Average ......... 3% $18.20 $18.51 $14.74
---------- ------ ------ ------
HOUSTON
Richmond-Buffalo Speedway ........... 47% $18.74 $20.08 $14.92
The Woodlands ....................... 100 15.09 15.09 15.65
---------- ------ ------ ------
Subtotal/Weighted Average ......... 51% $18.11 $19.22 $15.06
---------- ------ ------ ------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE ......................... 9% $18.13 $19.03 $14.98
========== ====== ====== ======
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE.......................... 15% $23.19 $23.88 $19.79(7)
========== ====== ====== ======
</TABLE>
- --------------------------------
(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
September 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 September 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 September 30, 1999. If such
leases had commenced as of September 30, 1999, the percent leased
for all Office Properties in the Operating Partnership's
submarkets would have been 92%. The total percent leased for these
Class A Operating Partnership's submarkets would have been as
follows: Dallas LBJ Freeway - 99%; Houston CBD - 97%; Houston
Richmond - Buffalo Speedway - 93%; Houston Katy Freeway - 84%;
Austin CBD - 97%; Austin Northwest - 100%; Denver Cherry Creek --
97%; New Orleans CBD - 84%; Miami CBD - 80%; Miami South
Dade/Kendall - 96%; Phoenix Camelback Corridor - 100%; Washington
D.C. Georgetown - 97%; and San Diego UTC - 93%.
(7) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Operating Partnership
Office Properties as of September 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 $20.27.
50
<PAGE> 51
The following table shows, as of September 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
Medical 3
Government 3
Food Service 3
Manufacturing 2
Retail 2
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, 64% are located in Houston, 24% are located in Dallas, 7% are
located in Denver and 5% are located in New Orleans. Of the 64% of energy
tenants located in Houston (approximately 3.8 million square feet), 71%
(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 September 30, 1999 for the Operating Partnership's total Office
Properties and for Dallas and Houston, Texas, individually, for each of the ten
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
NET RENTABLE PERCENTAGE OF ANNUAL ANNUAL FULL-
AREA LEASED NET ANNUAL FULL-SERVICE SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED BY RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
- ----------------------- ------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999 .................. 265 1,480,500(2) 5.2% $ 29,227,027 4.9% $ 19.74
2000 .................. 435 3,362,913 11.8 66,143,069 11.0 19.67
2001 .................. 410 3,767,545 13.2 72,397,518 12.0 19.22
2002 .................. 389 3,905,953 13.7 82,048,599 13.6 21.01
2003 .................. 292 2,872,387 10.1 55,945,333 9.3 19.48
2004 .................. 256 3,969,431 13.9 84,109,748 14.0 21.19
2005 .................. 86 2,414,756 8.5 53,752,790 8.9 22.26
2006 .................. 39 837,593 2.9 18,544,371 3.1 22.14
2007 .................. 36 1,317,982 4.6 30,142,040 5.0 22.87
2008 .................. 31 1,096,600 3.8 27,243,636 4.5 24.84
2009 and thereafter ... 35 3,461,922 12.3 82,243,893 13.7 23.76
------------ ------------ ------------ ------------ ------------ ------------
Totals ................ 2,274 28,487,582(3) 100.0%(3) $601,798,024 100.0% $ 21.12
============ ============ ============ ============ ============ ============
</TABLE>
51
<PAGE> 52
- ---------------------
(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 September 30, 1999, leases have been signed for
approximately 1,240,275 net rentable square feet (including
renewed leases and leases of previously unleased space) commencing
after September 30, 1999.
(3) Reconciliation to the Operating Partnership's total office net
rentable area is as follows:
<TABLE>
<CAPTION>
SQUARE FEET PERCENTAGE OF TOTAL
----------- -------------------
<S> <C> <C>
Square footage leased to tenants 28,487,582 89.5%
Square footage used for
management offices, building use,
and remeasurement adjustments 291,685 0.9
Square footage vacant 3,048,125 9.6
---------- -----
Total net rentable square footage 31,827,392 100.0%
========== =====
</TABLE>
DALLAS OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
NET RENTABLE PERCENTAGE OF ANNUAL ANNUAL FULL-
AREA LEASED NET ANNUAL FULL-SERVICE SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED BY RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
- ----------------------- ------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999 .................. 94 652,502(2) 6.3% $ 14,980,885 6.5% $22.96
2000 .................. 168 1,767,381 17.1 36,777,285 15.8 20.81
2001 .................. 141 1,164,912 11.3 24,688,999 10.6 21.19
2002 .................. 115 1,031,775 10.0 24,975,464 10.8 24.21
2003 .................. 88 1,158,667 11.2 22,694,047 9.8 19.59
2004 .................. 80 867,285 8.4 21,828,912 9.4 25.17
2005 .................. 20 1,199,492 11.6 25,588,845 11.0 21.33
2006 .................. 13 223,326 2.2 5,784,130 2.5 25.90
2007 .................. 13 558,608 5.4 13,529,447 5.8 24.22
2008 .................. 11 571,209 5.5 14,113,446 6.1 24.71
2009 and thereafter ... 9 1,132,649 11.0 27,128,918 11.7 23.95
------------ ------------ ------ ------------ ------ ------
Totals ................ 752 10,327,806 100.0% $232,090,378 100.0% $22.47
============ ============ ====== ============ ====== ======
</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 September 30, 1999, leases have been signed for approximately
364,193 net rentable square feet (including renewed leases and leases of
previously unleased space) commencing after September 30, 1999.
52
<PAGE> 53
HOUSTON OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
NET RENTABLE PERCENTAGE OF ANNUAL ANNUAL FULL-
AREA LEASED NET ANNUAL FULL-SERVICE SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED BY RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
- ----------------------- ------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999 .................. 86 628,679(2) 6.7% $10,015,829 5.6% $15.93
2000 .................. 136 783,040 8.3 12,458,252 7.0 15.91
2001 .................. 132 1,658,458 17.6 28,467,363 16.0 17.16
2002 .................. 149 1,166,984 12.4 21,245,614 11.9 18.21
2003 .................. 98 878,917 9.3 15,795,847 8.9 17.97
2004 .................. 86 1,697,124 18.0 31,698,292 17.8 18.68
2005 .................. 18 194,584 2.1 3,731,596 2.1 19.18
2006 .................. 9 310,229 3.3 5,823,114 3.3 18.77
2007 .................. 6 476,874 5.1 9,434,382 5.3 19.78
2008 .................. 7 183,719 2.0 3,238,829 1.8 17.63
2009 and thereafter ... 10 1,437,952 15.2 36,288,800 20.3 25.24
-------- --------- -------- ------------ ------- ------
Totals................. 737 9,416,560 100.0% $178,197,918 100.0% $18.92
======== ========= ======== ============ ======= ======
</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 September 30, 1999, leases have been signed for approximately
554,939 net rentable square feet (including renewed leases and leases of
previously unleased space) commencing after September 30, 1999.
RETAIL PROPERTIES
The Operating Partnership owns seven Retail Properties, which in the
aggregate contain approximately 779,000 net rentable square feet. Four of the
Retail Properties, The Woodlands Retail Properties, with an aggregate of
approximately 358,000 net rentable square feet (remeasured), 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 September 30,
1999, the Retail Properties were 95% leased.
53
<PAGE> 54
HOTEL PROPERTIES
HOTEL PROPERTIES TABLES
The following table shows certain information for the nine months
ended September 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 NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------
AVERAGE AVERAGE REVENUE PER
YEAR OCCUPANCY DAILY AVAILABLE
COMPLETED/ RATE RATE ROOM
------------ ------------- --------------
HOTEL PROPERTY(1) 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 81% 81% $ 125 $ 126 $ 100 $ 102
Four Seasons Hotel-Houston Houston, TX 1982 399 65 65 197 179 128 116
Hyatt Regency Albuquerque Albuquerque, NM 1990 395 69 70 105 102 72 71
Omni Austin Hotel Austin, TX 1986 362(2) 79 80 123 114 96 90
Hyatt Regency Beaver Creek Avon, CO 1989 276 75 72 254 240 191 173
Sonoma Mission Inn & Spa Sonoma, CA 1927/1987/1997 178(3) 82 84 218 230 178 193
Ventana Country Inn Big Sur, CA 1975/1982/1988 62 80 58(4) 371 380 297 221(4)
Renaissance Houston Houston, TX 1975 389 63 68 94 92 59 63
--- ----- ----- ----- ----- ----- -----
TOTAL/WEIGHTED AVERAGE 2,674 73% 74% $ 156 $ 150 $ 114 $ 110
===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DESTINATION HEALTH & GUEST NIGHTS
FITNESS RESORTS: ------------
<S> <C> <C>
Canyon Ranch-Tucson Tucson, AZ 1980 250(5)
Canyon Ranch-Lenox Lenox, MA 1989 212(5)
---
TOTAL/WEIGHTED AVERAGE 462 88%(6) 87%(6) $529(7) $493(7) $ 446(8) $414(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 September 30, 1999, 48 condominiums have been converted to hotel
suites.
(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.
54
<PAGE> 55
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 September 30, 1999:
<TABLE>
<CAPTION>
TOTAL CUBIC TOTAL
FOOTAGE SQUARE FEET TOTAL CUBIC TOTAL
NUMBER OF (IN (IN NUMBER OF FOOTAGE SQUARE FEET
STATE PROPERTIES(1) MILLIONS) 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 9 28.6 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 2 8.7 0.3
Massachusetts 6 15.2 0.7 Washington 6 28.7 1.1
Wisconsin 3 17.4 0.7
----- ------- ------
TOTAL 89(3) 428.3(3) 17.0(3)
===== ======= ======
</TABLE>
- -----------------------------
(1) As of September 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 September 30, 1999, the Refrigerated Storage Operating Partnership
operated 103 refrigerated storage properties with an aggregate of
approximately 514.4 million cubic feet (19.8 million square feet).
55
<PAGE> 56
RESIDENTIAL DEVELOPMENT PROPERTIES
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table shows certain information as of September 30,
1999, relating to the Residential Development Properties.
<TABLE>
<CAPTION>
AVERAGE
CLOSED
TOTAL TOTAL SALE
RESIDENTIAL RESIDENTIAL TOTAL LOTS/UNITS LOTS/UNITS PRICE
RESIDENTIAL DEVELOPMENT DEVELOPMENT LOTS/ DEVELOPED CLOSED PER
DEVELOPMENT PROPERTIES TYPE OF CORPORATION'S UNITS SINCE SINCE 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 2,210 1,900 470,000(3)
Development ------ ------ ------
Corp.
The Woodlands The Woodlands SF The Woodlands, TX 42.5% 36,845 21,356 20,182 49,554
Land Company ------ ------ ------
Inc.
Crescent Villa Montane
Development Townhomes TH Avon, CO 30.0% 27(6) 27 25 1,125,000
Management Villa Montane
Corp. Club TS Avon, CO 30.0% 38 38 37 60,000(7)
Deer Trail SFH Avon, CO 60.0% 16(6) 8 8 2,930,000
Buckhorn
Townhomes TH Avon, CO 60.0% 24(6) 19 19 1,300,000
Bear Paw Lodge CO Avon, CO 60.0% 53(6) 7 7 1,675,000
Eagle Ranch SF Eagle, CO 60.0% 1,100(6) - - N/A
Main Street
Junction CO Breckenridge, CO 60.0% 36(6) - - N/A
Riverbend/
Valleydale SF Charlotte, NC 60.0% 915(6) - - N/A
Three Peaks
(Eagle's Nest) SF Silverthorne, CO 30.0% 391(6) 36 36 213,000
------ ------ ------
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP. 2,600 135 132
------ ------ ------
Mira Vista Mira Vista SF Fort Worth, TX 100.0% 757 693 539 98,000
Development The Highlands SF Breckenridge, CO 12.3% 750 317 305 143,000
Corp. ------ ------ ------
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,507 1,010 844
------ ------ ------
Houston Area Falcon Point SF Houston, TX 100.0% 1,205 556 512 31,000
Development Spring Lakes SF Houston, TX 100.0% 536 161 98 28,000
Corp. ------ ------ ------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,741 717 610
------ ------ ------
TOTAL 45,358 25,428 23,668
====== ====== ======
<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> <S> <C>
Desert Mountain Desert Mountain SF 375,000 - 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 - 1,355,000
Management Villa Montane
Corp. Club TS 18,000 - 150,000(7)
Deer Trail SFH 2,695,000 - 4,075,000
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
Riverbend/
Valleydale SF 23,000 - 30,000
Three Peaks
(Eagle's Nest) SF 135,000 - 425,000
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP
Mira Vista Mira Vista SF 50,000 - 265,000
Development The Highlands SF 55,000 - 450,000
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.
</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 Operating Partnership'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 September 30, 1999, 1 unit was under contract at Villa Montane
Townhomes representing $1.3 million in sales, 2 units were under contract
at Deer Trail representing $5.5 million in sales, 5 units were under
contract at Buckhorn Townhomes representing $7.9 million in sales, 27
units were under contract at Bear Paw Lodge representing $34.0 million in
sales, 148 lots were under contract at Eagle Ranch representing $18.9
million in sales, 16 units were under contract at Main Street Junction
representing $7.4 million in sales, 244 lots (bulk sale undeveloped lots)
were under contract at Valleydale representing $1.5 million in sales, and
56 lots were under contract at Three Peaks representing $12.9 million in
sales.
(7) Represents amounts per timeshare (1/20 of a timeshare unit).
56
<PAGE> 57
BEHAVIORAL HEALTHCARE PROPERTIES
BEHAVIORAL HEALTHCARE PROPERTIES TABLE
The following table shows the number of properties and beds by state of
the 87 Behavioral Healthcare Properties as of September 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
STATE PROPERTIES(1)(2) BEDS STATE PROPERTIES(1)(2) 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
Maryland 1 0 Virginia 3 285
Minnesota 1 40 Wisconsin 2 160
Missouri 1 96 ----- -----
TOTAL 87 6,807
===== =====
</TABLE>
- -------------------
(1) The Behavioral Healthcare Properties include 87 properties in 25 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 10% by
a subsidiary of Magellan, 90% of common shares and 100% preferred shares by
COI.
(2) The property in Louisiana was closed in the second quarter of 1999.
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.
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
57
<PAGE> 58
are not year 2000 compliant. As of November 1, 1999, approximately 99% 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 1% have been
reviewed and plans are in place to upgrade or remediate these systems prior to
November 30, 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 November 1, 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 Operating Partnership 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.
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 November 30, 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.
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
58
<PAGE> 59
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 use of financial instruments, such as debt
instruments, subject the Operating Partnership to market risk which may affect
the Operating Partnership's future earnings and cash flows as well as the fair
value of its assets. Market risk generally refers to the risk of loss from
changes in interest rates and market prices. The Operating Partnership manages
its market risk by attempting to match anticipated inflow of cash from its
operating, investment and financing activities with anticipated outflow of cash
to fund debt payments, distributions to shareholders, investments, capital
expenditures and other cash requirements. The Operating Partnership does not
enter into financial instruments for trading purposes.
The following discussion of market risk is based solely on hypothetical
changes in interest rates related to the Operating Partnership's variable-rate
debt. This discussion does not purport to take into account all of the factors
that may affect the financial instruments discussed in this section.
Interest Rate Risk
The Operating Partnership's interest rate risk is most sensitive to
fluctuations in interest rates on its short-term variable-rate debt. The
Operating Partnership had total outstanding debt of approximately $2.7 billion
at September 30, 1999, of which approximately $1.2 billion, or 44%, was variable
rate debt. The weighted average interest rate on such variable rate debt was
7.64% as of September 30, 1999. A 10% (76.4 basis point) increase in the
weighted average interest rate on such variable rate debt would result in an
annual decrease in net income and cash flows of approximately $9.2 million based
on the variable rate debt outstanding as of September 30, 1999, as a result of
the increased interest expense associated with the change in rate. Conversely, a
10% (76.4 basis point) decrease in the weighted average interest rate on such
variable rate debt would result in an annual increase in net income and cash
flows of approximately $9.2 million based on the variable rate debt outstanding
as of September 30, 1999, as a result of the decreased interest expense
associated with the change in rate.
Effective September 1, 1999, the Operating Partnership entered into a
four-year interest rate swap agreement for a notional amount of $200 million.
The swap agreement is designed to mitigate the impact of changes in interest
rates on $200 million of the Operating Partnership's $1.2 billion of variable
rate debt.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
59
<PAGE> 60
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Description
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 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)
10.04 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)
60
<PAGE> 61
10.05 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)
10.06 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)
10.07 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)
10.08 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)
10.09 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)
10.10 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)
10.11 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)
10.12 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)
10.13 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)
10.14 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)
10.15 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)
10.16 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)
(b) Reports on Form 8-K
None
61
<PAGE> 62
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: November 15, 1999 ----------------------------------------
------------------ John C. Goff, President and Chief
Executive Officer
/s/ Jerry R. Crenshaw
Date: November 15, 1999 ----------------------------------------
------------------ Jerry R. Crenshaw, Senior Vice President
and Chief Financial Officer (Principal
Financial and Accounting Officer)
62
<PAGE> 63
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 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)
10.04 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> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
10.05 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)
10.06 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)
10.07 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)
10.08 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)
10.09 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)
10.10 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)
10.11 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)
10.12 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)
10.13 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)
10.14 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)
10.15 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)
10.16 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>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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0
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<NET-INCOME> (116,944)
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<EPS-DILUTED> (1.76)
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