<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 2000
COMMISSION FILE NO. 333-42293
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
-------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2531304
--------------------------------------------- ---------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
</TABLE>
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
--------------------------------------------------------------------------------
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> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000 (unaudited) and December 31, 1999
(audited)............................................................................. 2
Consolidated Statements of Operations for the three and six months ended June 30,
2000 and 1999 (unaudited)............................................................. 3
Consolidated Statements of Partners' Capital for the six months ended
June 30, 2000 and 1999 (unaudited).................................................... 4
Consolidated Statements of Cash Flows for the six months ended June 30,
2000 and 1999 (unaudited)............................................................. 5
Notes to Financial Statements......................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 60
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 61
Item 2. Changes in Securities................................................................. 61
Item 3. Defaults Upon Senior Securities....................................................... 61
Item 4. Submission of Matters to a Vote of Security Holders................................... 61
Item 5. Other Information..................................................................... 61
Item 6. Exhibits and Reports on Form 8-K...................................................... 61
</TABLE>
1
<PAGE> 3
CRESENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Investments in real estate:
Land $ 356,488 $ 398,754
Land held for development or sale 110,811 95,760
Building and improvements 3,347,882 3,529,344
Furniture, fixtures and equipment 72,971 71,716
Less - accumulated depreciation (543,189) (507,520)
----------- -----------
Net investment in real estate 3,344,963 3,588,054
Cash and cash equivalents 39,845 72,102
Restricted cash and cash equivalents 66,678 87,939
Accounts receivable, net 45,730 37,098
Deferred rent receivable 80,117 74,271
Investments in real estate mortgages and
equity of unconsolidated companies 816,362 812,494
Notes receivable, net 291,312 133,165
Other assets, net 168,932 146,297
----------- -----------
Total assets $ 4,853,939 $ 4,951,420
=========== ===========
LIABILITIES:
Borrowings under BankBoston Credit Facility $ -- $ 510,000
UBS Facility 713,452 --
Notes payable 1,722,852 2,088,929
Accounts payable, accrued expenses and other liabilities 140,799 170,980
----------- -----------
Total liabilities 2,577,103 2,769,909
----------- -----------
COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS: 178,551 24,648
PARTNERS' CAPITAL:
Series A Preferred Units, 8,000,000 Units issued and outstanding
at June 30, 2000 and December 31, 1999 200,000 200,000
Units of Partnership Interests, 63,678,093 and 67,744,629 issued
and outstanding at June 30, 2000 and December 31, 1999,
respectively:
General partner -- outstanding 566,673 and 607,687 20,294 21,097
Limited partners' -- outstanding 63,111,420 and 67,136,942 1,864,890 1,923,307
Accumulated other comprehensive income 13,101 12,459
----------- -----------
Total partners' capital 2,098,285 2,156,863
----------- -----------
Total liabilities and partners' capital $ 4,853,939 $ 4,951,420
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Office and retail properties $ 147,534 $ 155,713 $ 296,642 $ 305,735
Hotel properties 18,463 16,107 36,007 31,511
Behavioral healthcare properties 3,304 13,825 5,383 27,648
Interest and other income 5,928 6,752 12,985 13,250
--------- --------- --------- ---------
Total revenues 175,229 192,397 351,017 378,144
--------- --------- --------- ---------
EXPENSES:
Real estate taxes 21,579 22,454 44,250 43,200
Repairs and maintenance 10,569 10,668 22,766 21,692
Other rental property operating 29,776 32,498 60,042 65,110
Corporate general and administrative 4,082 3,816 9,327 7,930
Interest expense 51,836 44,917 104,086 87,398
Amortization of deferred financing costs 2,341 2,755 4,688 5,824
Depreciation and amortization 31,718 33,010 62,620 66,657
Settlement of merger dispute -- -- -- 15,000
--------- --------- --------- ---------
Total expenses 151,901 150,118 307,779 312,811
--------- --------- --------- ---------
Operating income 23,328 42,279 43,238 65,333
OTHER INCOME AND EXPENSE:
Equity in net income of unconsolidated companies:
Office and retail properties 396 (5) 3,100 1,956
Temperature-controlled logistics properties 192 4,021 4,228 9,730
Residential development properties 11,717 14,415 22,181 23,044
Other 2,978 603 5,319 910
--------- --------- --------- ---------
Total equity in net income of unconsolidated companies: 15,283 19,034 34,828 35,640
Gain on property sales, net 6,126 -- 28,753 --
--------- --------- --------- ---------
Total other income and expense 21,409 19,034 63,581 35,640
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS 44,737 61,313 106,819 100,973
AND EXTRAORDINARY ITEM
Minority interests (3,964) (239) (4,614) (484)
--------- --------- --------- ---------
NET INCOME BEFORE EXTRAORDINARY ITEM 40,773 61,074 102,205 100,489
Extraordinary item - extinguishment of debt -- -- (4,378) --
--------- --------- --------- ---------
NET INCOME 40,773 61,074 97,827 100,489
Preferred unit dividends (3,375) (3,375) (6,750) (6,750)
Share repurchase agreement return (718) -- (2,794) --
Forward share purchase agreement return -- (2,165) -- (4,317)
--------- --------- --------- ---------
NET INCOME AVAILABLE TO PARTNERS $ 36,680 $ 55,534 $ 88,283 $ 89,422
========= ========= ========= =========
BASIC EARNINGS PER UNIT DATA:
Net income available to partners before extraordinary item 0.57 $ 0.80 $ 1.40 $ 1.29
Extraordinary item - extinguishment of debt -- -- (0.07) --
--------- --------- --------- ---------
Net income available to partners $ 0.57 $ 0.80 $ 1.33 $ 1.29
========= ========= ========= =========
DILUTED EARNINGS PER UNIT DATA:
Net income available to partners before extraordinary item 0.56 $ 0.79 $ 1.39 $ 1.27
Extraordinary item - extinguishment of debt -- -- (0.07) --
--------- --------- --------- ---------
Net income available to partners $ 0.56 $ 0.79 $ 1.32 $ 1.27
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<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, 1999 $ 200,000 $ 21,097 $ 1,923,307 $ 12,459 $ 2,156,863
Contributions -- 22 2,192 -- 2,214
Preferred Equity Issuance Cost -- (59) (5,829) -- (5,888)
Unit Repurchases -- (4) (351) -- (355)
Distributions -- (1,673) (144,595) -- (146,268)
Net income -- 911 90,166 -- 91,077
Unrealized Net Loss on
Available-for-sale securities -- -- -- (3,562) (3,562)
Other Comprehensive Income -- -- -- 4,204 4,204
----------- ----------- ----------- ----------- -----------
Partners' capital, June 30, 2000 $ 200,000 $ 20,294 $ 1,864,890 $ 13,101 $ 2,098,285
=========== =========== =========== =========== ===========
</TABLE>
The accompanying noes are an integral part of these financial statements.
4
<PAGE> 6
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------------
(UNAUDITED)
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 97,827 $ 100,489
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 67,308 72,481
Extraordinary item - extinguishment of debt 4,378 --
Gain on property sales, net (28,753) --
Minority interests 4,614 484
Non-cash compensation 39 81
Distributions received in excess of earnings
from unconsolidated companies 5,815 --
Equity in earnings net of distributions received
from unconsolidated companies -- (14,621)
Increase in accounts receivable (8,632) (867)
Increase in deferred rent receivable (5,846) (15,508)
(Increase) decrease in other assets (3,496) 19,253
Decrease in restricted cash and cash equivalents 21,524 3,766
Decrease in accounts payable, accrued
expenses and other liabilities (38,361) (14,048)
--------- ---------
Net cash provided by operating activities 116,417 151,510
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of land held for development or sale (15,051) --
Proceeds from property sales 282,040 --
Development of investment properties (14,951) (5,106)
Capital expenditures - rental properties (7,097) (14,723)
Tenant improvement and leasing costs - rental properties (35,391) (29,060)
Increase in restricted cash and cash equivalents (263) (19,544)
Return of investment in unconsolidated companies 1,589 --
Investment in unconsolidated companies -- (127,422)
Investment in residential development companies (11,272) (21,688)
Escrow deposits - acquisition of investment properties 500 --
Increase in notes receivable (158,147) (8,016)
--------- ---------
Net cash provided by (used in) investing activities 41,957 (225,559)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (19,008) (12,864)
Settlement of Forward Share Purchase Agreement -- (149,384)
Borrowings under BankBoston Credit Facility -- 51,920
Payments under BankBoston Credit Facility (510,000) (51,920)
Borrowings under UBS Facility 902,819 --
Payments under UBS Facility (189,367) --
Notes Payable proceeds -- 490,000
Notes Payable payments (366,077) (115,735)
Capital proceeds - joint venture partner 154,083 --
Capital distributions - joint venture partner (10,681) (1,753)
Capital contributions to the Operating Partnership 973 17,922
Unit repurchases (355) --
Preferred unit distributions (6,750) (6,750)
Distributions from the Operating Partnership (146,268) (152,347)
--------- ---------
Net cash (used in) provided by financing activities (190,631) 69,089
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (32,257) (4,960)
CASH AND CASH EQUIVALENTS,
Beginning of period 72,102 109,828
--------- ---------
CASH AND CASH EQUIVALENTS,
End of period $ 39,845 $ 104,868
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT 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 nine single purpose limited partnerships. Eight of these
limited partnerships were formed for the purpose of obtaining securitized debt,
and all or substantially all of the economic interests in these partnerships are
owned directly or indirectly by the Operating Partnership, with the remaining
interests, if any, owned indirectly by the Company through eight separate
corporations or limited liability companies, each of which is a wholly-owned
subsidiary of CREE, Ltd. and a general partner or managing member of one of the
eight limited partnerships or limited liability companies. The ninth limited
partnership was formed for the purpose of obtaining equity financing through the
sale of preferred equity interests, with all of the common equity interests
owned directly or indirectly by the Operating Partnership, and all of the
preferred equity interests owned by an unrelated third party.
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 88% limited partner interest has been treated as equivalent, for
purposes of this report, to 56,100,597 units, and the remaining approximately
10% limited partner interest has been treated as equivalent, for purposes of
this report, to 7,010,823 units. In addition, the Company's 1% general partner
interest has been treated as equivalent, for purposes of this report, to 566,673
units. For purposes of this report, in computing relative partner interests, the
Operating Partnership has assumed the purchase by the Company and the retirement
of common shares held by a wholly-owned subsidiary of the Company, the
corresponding reduction in the Company's limited partner interest and the
corresponding increase in the limited partner interest of the other limited
partners of the Operating Partnership. Without this adjustment, the Company's
limited partner interest, the Company's general partner interest, and the
remaining limited partner interest would be approximately 89%, 1%, and 10%,
respectively.
The Company owns its assets and carries on its operations and other
activities through the Operating Partnership and its other subsidiaries. The
limited partnership agreement of the Operating Partnership acknowledges that all
of the Company's operating expenses are incurred for the benefit of the
Operating Partnership and provides that the Operating Partnership shall
reimburse the Company for all such expenses. Accordingly, expenses of the
Company are reimbursed by the Operating Partnership.
6
<PAGE> 8
The following table shows, by entity, the Properties that the Operating
Partnership and its subsidiaries, owned as of June 30, 2000:
<TABLE>
<S> <C>
Operating Partnership: 25 Office Properties and The Park Shops at Houston Center
Crescent Real Estate The Aberdeen, The Avallon, Caltex House, The Citadel, The Crescent Atrium, The Crescent
Funding I, L.P.: Office Towers, Regency Plaza One, UPR Plaza and Waterside Commons
("Funding I")
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate Office and Research Center, Hyatt
Funding II, L.P.: Regency Albuquerque, Hyatt Regency Beaver Creek, Las Colinas Plaza, Liberty Plaza I &
("Funding II") II, MacArthur Center I & II, Ptarmigan Place, Stanford Corporate Centre, Two
Renaissance Square and 12404 Park Central
Crescent Real Estate Greenway Plaza Office Properties and Renaissance Houston Hotel(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 70 Behavioral Healthcare Properties
Funding VII, L.P.:
("Funding VII")
Crescent Real Estate 21 Office Properties and four Hotel Properties
Funding VIII, L.P.:
("Funding VIII")
Crescent Real Estate Chancellor Park, Denver Marriott City Center, Four Seasons - Houston, MCI Tower, Miami
Funding IX, L.P.: Center, Reverchon Plaza, 44 Cook Street, 55 Madison and 6225 N. 24th Street
("Funding IX")
</TABLE>
----------
(1) Funding III owns nine of the 10 Office Properties in the Greenway Plaza
Office portfolio and the Renaissance Houston Hotel; Funding IV owns the
central heated and chilled water plant building located at Greenway
Plaza; and Funding V owns Coastal Tower, the remaining Office Property
in the Greenway Plaza Office portfolio.
SEGMENTS
As of June 30, 2000, the Operating Partnership's assets and operations
were composed of five major investment segments:
o Office and Retail Segment;
o Hotel/Resort Segment;
o Residential Development Segment;
o Temperature-Controlled Logistics Segment; and
o Behavioral Healthcare Segment.
Within these segments, the Operating Partnership owned directly or
indirectly the following real estate assets (the "Properties") as of June 30,
2000:
o OFFICE AND RETAIL SEGMENT consisted of 80 office properties
(collectively referred to as the "Office Properties") located in
28 metropolitan submarkets in seven states, with an aggregate of
approximately 29.0 million net rentable square feet and three
retail properties (collectively referred to as the "Retail
Properties") with an aggregate of approximately 0.4 million net
rentable square feet. See Note 16. Dispositions.
o HOTEL/RESORT SEGMENT consisted of five upscale business class
hotels with a total of 2,168 rooms, three luxury spa resorts with
a total of 566 rooms and two Canyon Ranch destination fitness
resorts and spas 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. ("COPI"). The Omni
Austin Hotel is leased to HCD Austin Corporation.
o RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Operating
Partnership's ownership of real estate mortgages and non-voting
common stock representing interests ranging from 90% 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, owned 19 residential development
properties (collectively referred to as the "Residential
Development Properties").
7
<PAGE> 9
o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the
Operating Partnership's indirect 39.6% interest in three
partnerships (collectively referred to as the
"Temperature-Controlled Logistics Partnerships"), each of which
owns one or more corporations or limited liability companies
(collectively referred to as the "Temperature-Controlled
Logistics Corporations") which, as of June 30, 2000, directly or
indirectly owned 90 temperature-controlled logistics properties
(collectively referred to as the "Temperature-Controlled
Logistics Properties") with an aggregate of approximately 444.9
million cubic feet (17.8 million square feet).
o BEHAVIORAL HEALTHCARE SEGMENT consisted of 70 properties in 22
states (collectively referred to as the "Behavioral Healthcare
Properties"). Charter Behavioral Health Systems, LLC. ("CBHS")
was formed to operate the behavioral healthcare business located
at the Behavioral Healthcare Properties and is owned 10% by a
subsidiary of Magellan Health Services, Inc. ("Magellan") and 90%
by COPI and an affiliate of COPI. On February 16, 2000, CBHS and
all of its subsidiaries that were subject to the master lease
with the Operating Partnership filed voluntary Chapter 11
bankruptcy petitions in the United States Bankruptcy Court for
the District of Delaware. As of June 30, 2000, CBHS was
continuing to operate 37 of the Behavioral Healthcare Properties
(the "Core Properties") and had ceased operations at the other 33
Behavioral Healthcare Properties (the "Non-Core Properties").
CBHS intends to cease operations at all of the Core Properties,
either in connection with a sale of operating assets or by
closing Core Properties. The Operating Partnership intends to
sell all of the Behavioral Healthcare Properties. Subsequent to
June 30, 2000, the Operating Partnership sold three Core
Properties and two Non-Core Properties. The Operating Partnership
has entered into contracts or letters of intent to sell 26
additional Core Properties and nine additional Non-Core
Properties and is actively marketing for sale the remaining eight
Core Properties and 22 Non-Core Properties. See Note 15. CBHS and
Note 16. Dispositions for a description of the current status of
CBHS and the Operating Partnership's investment in the Behavioral
Healthcare Properties.
See Note 6. Segment Reporting for a table showing total revenues, funds
from operations and equity in net income of unconsolidated companies for each of
these investment segments for the three and six months ended June 30, 2000 and
1999 and identifiable assets for each of these investment segments at June 30,
2000 and 1999.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information, as well as in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, the information and
footnotes required by GAAP for complete financial statements are not included.
In management's opinion, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the unaudited
interim financial statements are included. Operating results for interim periods
reflected do not necessarily indicate the results that may be expected for a
full fiscal year. You should read these financial statements in conjunction with
the financial statements and the accompanying notes included in the Operating
Partnership's Form 10-K for the year ended December 31, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, 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. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an Amendment of FASB Statement No. 133", which
deferred the effective date of SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Operating
Partnership elected to implement SFAS No. 133 in the third quarter of 1999. See
Note 9. Cash Flow Hedges for a description of the impact of the cash flow hedges
on the Operating Partnership's financial statements for the six months ended
June 30, 2000.
8
<PAGE> 10
3. PROPERTIES HELD FOR DISPOSITION:
Office and Retail Segment
In pursuit of management's objective to dispose of non-strategic or
non-core assets, at June 30, 2000, the Operating Partnership was actively
marketing for sale its wholly owned interests in three Office Properties, which
are included in the Net Investment in Real Estate of $3,344,963. The Properties
are: 160 Spear located in San Francisco, California; Valley Centre located in
Dallas, Texas; and Washington Harbour located in Washington, D.C. The carrying
value of these Properties at June 30, 2000 was approximately $195,852. The
Operating Partnership has entered into contracts or letters of intent to sell
the three Office Properties held for disposition at June 30, 2000. The Operating
Partnership anticipates completing the sales of these Properties by the end of
the fourth quarter of 2000.
The following table summarizes the condensed results of operations for
the six months ended June 30, 2000 and 1999 for the three Office Properties held
for disposition. Depreciation expense has not been recognized from the dates
these Properties were classified as held for sale.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue $ 15,796 $ 14,325
Operating Expenses 4,963 4,250
-------- --------
Net Operating Income $ 10,833 $ 10,075
======== ========
</TABLE>
Behavioral Healthcare Segment
As of June 30, 2000, the Operating Partnership owned 70 Behavioral
Healthcare Properties, including 37 Core Properties and 33 Non-Core Properties.
The carrying value for the 70 Behavioral Healthcare Properties at June 30, 2000
was approximately $212,126. The 37 Core Properties were classified as held for
disposition at June 30, 2000, and no depreciation expense for these Properties
has been recognized since May 25, 2000. The 33 Non-Core Properties were also
classified as held for disposition at June 30, 2000, and no depreciation expense
for these Properties was recognized for the six months ended June 30, 2000.
Subsequent to June 30, 2000, the Operating Partnership sold three Core
Properties and two Non-Core Properties. The Operating Partnership also has
entered into contracts or letters of intent to sell 26 additional Core
Properties and nine additional Non-Core Properties and is actively marketing for
sale the remaining eight Core Properties and 22 Non-Core Properties.
9
<PAGE> 11
Other
The Woodlands Commercial Properties Company, L.P., owned by the
Operating Partnership and Morgan Stanley Real Estate Fund II, L.P., is actively
marketing for sale its office/venture tech portfolio located in The Woodlands.
These assets include the Operating Partnership's 12 Office Properties located in
The Woodlands.
4. EARNINGS PER UNIT OF PARTNERSHIP INTEREST:
SFAS No. 128 "Earnings Per Share" ("EPS") specifies the computation,
presentation and disclosure requirements for earnings per share. Basic EPS
excludes all dilution while Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common shares were
exercised or converted into common shares.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
2000 1999
--------------------------------- -----------------------------------
Wtd. Avg. Per Unit Wtd. Avg. Per Unit
Income Units Amount Income Units Amount
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS -
Net Income $ 40,773 64,709 $ 61,074 69,655
Series A Preferred unit distributions (3,375) (3,375)
Share repurchase agreement return (718) --
Forward share purchase
agreement return -- (2,165)
-------- ------ ------ -------- ------ ------
Net income available to partners $ 36,680 64,709 $ 0.57 $ 55,534 69,655 $ 0.80
======== ====== ======= ======== ====== ======
DILUTED EPS -
Net income available to partners $ 36,680 64,709 $ 0.57 $ 55,534 69,655 $ 0.80
Effect of dilutive securities:
Unit options -- 486 -- 1,064
-------- ------ ------ -------- ------ ------
Net income available to partners $ 36,680 65,195 $ 0.56 $ 55,534 70,719 $ 0.79
======== ====== ====== ======== ====== ======
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
2000 1999
------------------------------------- -----------------------------------
Wtd. Avg. Per Unit Wtd. Avg. Per Unit
Income Units Amount Income Units Amount
-------------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS -
Net Income before extraordinary item $ 102,205 66,250 $ 100,489 69,255
Series A Preferred unit distributions (6,750) (6,750)
Share repurchase agreement return (2,794) --
Forward share purchase
agreement return -- (4,317)
--------- --------- ----------- --------- --------- ----------
Net income available to partners
before extraordinary item $ 92,661 66,250 $ 1.40 $ 89,422 69,255 $ 1.29
Extraordinary item -
extinguishment of debt (4,378) (0.07) -- --
--------- --------- ----------- --------- --------- ----------
Net income available to partners $ 88,283 66,250 $ 1.33 $ 89,422 69,255 $ 1.29
========= ========= =========== ========= ========= ==========
Diluted EPS -
Net income available to partners
before extraordinary item $ 92,661 66,250 $ 1.40 $ 89,422 69,255 $ 1.29
Effect of dilutive securities:
unit options -- 334 -- 1,069
--------- --------- ----------- --------- --------- ----------
Net income available to partners
before extraordinary item $ 92,661 66,584 $ 1.39 $ 89,422 70,324 $ 1.27
Extraordinary item -
extinguishment of debt (4,378) (0.07) -- --
--------- --------- ----------- --------- --------- ----------
Net income available to partners $ 88,283 66,584 $ 1.32 $ 89,422 70,324 $ 1.27
========= ========= =========== ========= ========= ==========
</TABLE>
The effect of the conversion of the Series A Preferred Units is not
included in the computation of Diluted EPS for the three or six months ended
June 30, 2000 or 1999, since the effect of their conversion is antidilutive.
11
<PAGE> 13
5. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------------------
2000 1999
------------ -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid................................................ $102,996 $ 87,781
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of Operating Partnership units in conjunction
with settlement of an obligation......................... 2,125 --
Acquisition of partnership interests......................... -- 3,775
Unrealized net gain/(loss) on available-for-sale securities.. (3,562) 10,560
Forward Share Purchase Agreement Return...................... -- 4,317
Share Repurchase Agreement Return............................ 2,794 --
Increase of cash flow hedges to fair value................... 4,204 --
Equity investment in a tenant in exchange
for office space/other investment ventures.............. 4,485 --
</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 investment
segments: the Office and Retail Segment; the Hotel/Resort Segment; the
Residential Development Segment; the Temperature-Controlled Logistics 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. Investment 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 revised definition adopted
by the Board of Governors of the National Association of Real Estate Investment
Trusts ("NAREIT"), effective January 1, 2000, and as used in this document,
means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from sales of depreciable
operating property;
o excluding extraordinary items (as defined by GAAP);
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. Effective January 1,
2000, NAREIT clarified the definition of FFO to include non-recurring events,
except for those that are defined as "extraordinary items" under GAAP and gains
or losses from sales of depreciable operating property. The Operating
Partnership has adopted the revised definition of FFO effective as of January 1,
2000. Under the prior definition of FFO, for the six months ended June 30, 1999,
FFO was approximately $197,343, which excluded $15,000 paid in connection with
the settlement and release of all claims between the Company and Station
Casinos, Inc. ("Station") arising out of the agreement and plan of merger
between the Company and Station. Because this settlement is not considered an
"extraordinary item" under GAAP, FFO for the six months ended June 30, 1999
would have been approximately $182,343, which would have included the $15,000
settlement payment, if the revised definition of FFO had been in effect. The
Operating Partnership considers FFO an appropriate measure of performance for
the Operating Partnership, and its investment 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.
12
<PAGE> 14
Selected financial information related to each segment at or for the
three and six months ended June 30, 2000 and 1999 is presented below.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Office and Retail Segment $ 147,534 $ 155,713 $ 296,642 $ 305,735
Hotel/Resort Segment 18,463 16,107 36,007 31,511
Behavioral Healthcare Segment 3,304 13,825 5,383 27,648
Temperature-Controlled Logistics Segment -- -- -- --
Residential Development Segment -- -- -- --
Corporate and other 5,928 6,752 12,985 13,250
--------- --------- --------- ---------
TOTAL REVENUE $ 175,229 $ 192,397 $ 351,017 $ 378,144
========= ========= ========= =========
FUNDS FROM OPERATIONS:
Office and Retail Segment $ 87,213 $ 92,373 $ 173,424 $ 181,479
Hotel/Resort Segment 18,346 15,896 35,637 31,094
Behavioral Healthcare Segment 3,304 13,825 5,383 27,648
Temperature-Controlled Logistics Segment 7,630 9,208 17,117 17,488
Residential Development Segment 22,861 21,037 37,904 34,338
Corporate and other adjustments:
Interest expense (51,836) (44,917) (104,086) (87,398)
Preferred unit distributions (3,375) (3,375) (6,750) (6,750)
Other 1,936 4,195 7,875 7,374
Corporate general & administrative (4,082) (3,816) (9,327) (7,930)
Settlement of merger dispute -- -- -- (15,000)
--------- --------- --------- ---------
TOTAL FUNDS FROM OPERATIONS $ 81,997 $ 104,426 $ 157,177 $ 182,343
--------- --------- --------- ---------
ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS TO
CONSOLIDATED NET INCOME:
Depreciation and amortization of real estate
assets $ (30,353) $ (32,149) $ (60,145) $ (65,026)
Gain on property sales, net 6,126 -- 28,753 --
Extraordinary item - extinguishment of debt -- -- (4,378) --
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office and Retail Properties (1,790) (2,597) (1,718) (4,354)
Temperature-Controlled Logistics Properties (7,438) (5,187) (12,889) (7,758)
Residential Development Properties (11,144) (6,622) (15,723) (11,294)
Corporate and other -- (172) -- (172)
Preferred unit distributions 3,375 3,375 6,750 6,750
--------- --------- --------- ---------
NET INCOME $ 40,773 $ 61,074 $ 97,827 $ 100,489
========= ========= ========= =========
EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES:
Office and Retail Properties $ 396 $ (5) $ 3,100 $ 1,956
Hotel/Resort Properties -- -- -- --
Behavioral Healthcare Properties -- -- -- --
Temperature-Controlled Logistics Properties 192 4,021 4,228 9,730
Residential Development Properties 11,717 14,415 22,181 23,044
Other 2,978 603 5,319 910
--------- --------- --------- ---------
TOTAL EQUITY IN NET INCOME OF
UNCONSOLIDATED COMPANIES $ 15,283 $ 19,034 $ 34,828 $ 35,640
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT JUNE 30,
--------------------------------
2000 1999
------------- -------------
<S> <C> <C>
IDENTIFIABLE ASSETS:
Office and Retail Segment $ 3,035,973 $ 3,329,219
Hotel/Resort Segment 527,495 457,391
Behavioral Healthcare Segment 212,126 382,600
Temperature-Controlled Logistics Segment 298,522 285,791
Residential Development Segment 279,548 316,294
Other 500,275 456,503
----------- -----------
TOTAL IDENTIFIABLE ASSETS $ 4,853,939 $ 5,227,798
=========== ===========
</TABLE>
13
<PAGE> 15
At June 30, 2000, COPI was the Operating Partnership's largest lessee
in terms of total revenues. Total revenues received from COPI for the six months
ended June 30, 2000 were approximately 9% of the Operating Partnership's total
revenues. COPI was the lessee of nine of the Hotel Properties for the six months
ended June 30, 2000.
See Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Temperature-Controlled Logistics Segment for a
description of the sole lessee of the Temperature-Controlled Logistics
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, or equity investments:
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP'S
OWNERSHIP
ENTITY CLASSIFICATION AS OF JUNE 30, 2000
------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
Desert Mountain Development Corp. Residential Development Corporation 95%(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)
Houston Area 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 (office/venture tech
Properties Company, L.P. portfolio)(3) 42.5%
Main Street Partners, L.P. Office and Retail (office property -
Bank One Center) 50%
DBL Holdings, Inc. Other 97.4%
Metropolitan Partners, LLC Other (4)
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 three
Temperature-Controlled Logistics Partnerships, which own the
Temperature-Controlled Logistics Corporations, which directly or indirectly
own the Temperature-Controlled Logistics Properties. Accordingly, the
Operating Partnership has an indirect 39.6% interest in the
Temperature-Controlled Logistics Properties. See Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Temperature-Controlled Logistics Segment for additional information
regarding the ownership of the Temperature-Controlled Logistics Properties.
(3) See Note 3. Properties Held for Disposition - Other.
(4) The Operating Partnership's $85,000 preferred member interest in
Metropolitan Partners, LLC ("Metropolitan") at June 30, 2000 would equate
to an approximately 20% equity interest. The investment has a cash flow
preference of 7.5% until May 19, 2001 and may be redeemed by Metropolitan
on or before May 19, 2001 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 by May 19, 2001, the
Operating Partnership may convert the interest either into (i) a common
equity interest in Metropolitan or (ii) shares of common stock of Reckson
Associates Realty Corporation ("Reckson") at a conversion price of $24.61.
14
<PAGE> 16
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," "Temperature-Controlled Logistics Corporations," "Office and
Retail" and "Other," as applicable, as of June 30, 2000.
BALANCE SHEETS:
<TABLE>
<CAPTION>
BALANCE AT JUNE 30, 2000
-------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Real estate, net $ 736,654 $1,329,227 $ 407,394
Cash 43,352 22,281 18,421
Other assets 200,225 92,675 (2) 37,998
--------- ---------- ---------
Total assets $ 980,231 $1,444,183 $ 463,813
========= ========== =========
Notes payable $ 250,601 $ 571,174 $ 282,364
Notes payable to the Operating
Partnership 152,708 11,333 --
Other liabilities 345,444 82,339 11,773
Equity 231,478 779,337 169,676
--------- ---------- ---------
Total liabilities and equity $ 980,231 $1,444,183 $ 463,813
========= ========== =========
Operating Partnership's share of
Unconsolidated debt $ 101,180 $ 226,185 $ 131,545
========= ========== =========
Operating Partnership's investments
in real estate mortgages and
equity of unconsolidated companies $ 279,548 $ 298,522 $ 95,220 $ 143,072
========= ========== ========= =========
</TABLE>
SUMMARY STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ---------- -----------
<S> <C> <C> <C>
Total revenues $ 227,577 $ 83,592 $ 38,954
Expenses:
Operating expense 183,398 11,125 (1) 11,831
Interest expense 3,231 23,872 9,147
Depreciation and amortization 6,374 28,918 11,810
Taxes 2,678 1,476 --
Other expense -- 2,625 (2) --
--------- ---------- ---------
Total expenses 195,681 68,016 32,788
--------- ---------- ---------
Net income $ 31,896 $ 15,576 $ 6,166
========= ========== =========
Operating Partnership's equity in
net income of unconsolidated
companies $ 22,181 $ 4,228 $ 3,100 $ 5,319
========= ========== ========= =========
</TABLE>
----------
(1) Inclusive of the management fee paid to Vornado Realty Trust (1% per annum
of the acquisition price of assets plus cost of development properties).
(2) During the three months ended June 30, 2000, the tenant of the
Temperature-Controlled Logistics Properties elected to defer approximately
$6,700 of rent, of which the Operating Partnership's share was
approximately $2,700. During the three months ended June 30, 2000, the
Temperature-Controlled Logistics Corporations recorded a rent receivable
valuation allowance of approximately $4,000, of which the Operating
Partnership's portion was approximately $1,600. The reserve was recorded in
connection with the probable restructuring of the leases.
15
<PAGE> 17
8. NOTES PAYABLE AND BORROWINGS UNDER UBS FACILITY:
The following is a summary of the Operating Partnership's debt financing at June
30, 2000:
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING AT
JUNE 30, 2000
---------------
<S> <C>
SECURED DEBT
UBS Term Loan II(1) (see description of UBS Facility below)............................................$326,677
AEGON Note(2) due July 1, 2009, bears interest at 7.53% with monthly principal
and interest payments based on a 25-year amortization schedule, secured by the
Funding III, IV and V Properties........................................................................276,394
UBS Line of Credit(1) (see description of UBS Facility below)...........................................240,000
LaSalle Note I(3) 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, secured
by the Funding I Properties.............................................................................239,000
BankBoston Term Note II(4) due August 31, 2003, bears interest at the 30-day
LIBOR rate plus 400 basis points (at June 30, 2000, the interest rate was
10.69%) with a four-year interest only term, secured by equity interests in
Funding I and II........................................................................................200,000
JP Morgan Mortgage Note(5) due October 1, 2016, bears interest at a fixed rate
of 8.31% with a two-year interest-only term (through October 2001), followed by
principal amortization based on a 15-year amortization schedule through maturity
in October 2016, secured by the Houston Center mixed-use Office Property complex........................200,000
LaSalle Note II(6) 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 August 2028,
secured by the Funding II Properties....................................................................161,000
UBS Term Loan I(1) (see description of UBS Facility below)..............................................146,775
SFT Whole Loans, Inc. ("SFT") Note due September 30, 2001, bears interest at
30-day LIBOR plus 1.75% (at June 30, 2000, the rate was 8.39%) 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 V due December 2005, bears interest at 8.49% with monthly
principal and interest payments based on a 25-year amortization schedule,
secured by the Datran Center Office Property.............................................................39,464
Northwestern Life Note due January 2003, bears interest at 7.66% with an interest-only term,
secured by the 301 Congress Avenue Office Property.......................................................26,000
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.............................................11,260
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING AT
JUNE 30, 2000
--------------
<S> <C>
SECURED DEBT
Nomura Funding VI Note(7) bears interest at 10.07% with monthly principal and
interest payments based on a 25-year amortization schedule through maturity in
July 2020, secured by the Funding VI Property........................................................ 8,397
Rigney Promissory Note due November 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.............. 714
UNSECURED DEBT
2007 Notes(8) bear interest at a fixed rate of 7.50% with a ten-year interest-only term, due
September 2007....................................................................................... 250,000
2002 Notes(8) bear interest at a fixed rate of 7.00% with a five-year interest-only term, due
September 2002....................................................................................... 150,000
----------
Total Notes Payable............................................................................. $2,436,304
==========
</TABLE>
(1) Effective January 31, 2000, the Operating Partnership entered into the UBS
Facility, which was amended on May 10, 2000 and May 18, 2000, and, as
amended, consists of three tranches: the UBS Line of Credit, the UBS Term
Loan I and the UBS Term Loan II. For a further description of the UBS
Facility, see "UBS Facility" below.
(2) The outstanding principal balance of this note at maturity will be
approximately $223,000.
(3) 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.
(4) This loan is secured by partnership interests in two pools of
underleveraged assets. On February 1, 2000, the Operating Partnership
renegotiated certain terms and covenants under this note. As a result, the
interest rate on the underlying note increased to 30-day LIBOR plus 400
basis points. The Operating Partnership entered into a four-year $200,000
cash flow hedge agreement effective September 1, 1999 with Salomon Brothers
Holding Company, Inc. ("Salomon") in a separate transaction related to the
BankBoston Term Note II. See Note 9. Cash Flow Hedges.
(5) At the end of seven years (October 2006), the interest rate will adjust
based on current interest rates at that time. It is the Operating
Partnership's intention to repay the note in full at such time (October
2006) by making a final payment of approximately $179,000.
(6) 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.
(7) 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.
(8) The notes were issued in an offering registered with the SEC.
17
<PAGE> 19
Below are the aggregate principal amounts due as of June 30, 2000 under
the UBS 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
----------- --------- -----------
<S> <C> <C> <C>
(in thousands)
2000 $ 2,602 $ -- $ 2,602
2001 113,891 -- 113,891
2002 73,913 150,000 223,913
2003 627,835 -- 627,835
2004 343,533 -- 343,533
Thereafter 874,530 250,000 1,124,530
----------- --------- -----------
$ 2,036,304 $ 400,000 $ 2,436,304
=========== ========= ===========
</TABLE>
UBS FACILITY
On February 4, 2000, the Operating Partnership repaid and retired the
Operating Partnership's prior credit facility with BankBoston, N.A. (the
"BankBoston Credit Facility") and the BankBoston Term Note I primarily with the
proceeds of the UBS Facility. The UBS Facility is a secured, variable-rate
facility that is currently funded by a syndicate of 23 banks and institutions
led by UBS AG ("UBS") and Fleet Boston Financial ("Fleet"). The borrowing
capacity under the UBS Facility is currently limited to $760,245. The UBS
Facility was entered into effective January 31, 2000, and amended on May 10,
2000 and May 18, 2000 and, as amended, consists of three tranches: the UBS Line
of Credit, a three-year $300,000 revolving line of credit (currently limited to
$286,793 of borrowing capacity); the UBS Term Loan I, a $146,775 three-year term
loan; and the UBS Term Loan II, a $326,677 four-year term loan. Borrowings under
the UBS Line of Credit, the UBS Term Loan I and the UBS Term Loan II at June 30,
2000, were approximately $240,000, $146,775 and $326,677, respectively. The UBS
Line of Credit and the UBS Term Loan I bear interest at LIBOR plus 250 basis
points. The UBS Term Loan II bears interest at LIBOR plus 275 basis points. As
of June 30, 2000, the interest rate on the UBS Line of Credit and UBS Term Loan
I was 9.18% and the interest rate on the UBS Term Loan II was 9.43%. In order to
mitigate its exposure to variable-rate debt, the Operating Partnership has
entered into two cash flow hedge agreements related to a portion of the UBS
Facility. See Note 9. Cash Flow Hedges for a description of these agreements.
During the six months ended June 30, 2000, the Operating Partnership sold six
Office Properties securing the UBS Facility. The net proceeds of the sale of
these Properties were used to repay amounts outstanding under the UBS Facility.
As of June 30, 2000, the UBS Facility was secured by 34 Office Properties and
four Hotel Properties. The UBS 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 allocated property values
and debt service coverage ratios, and, with respect solely to Funding VIII,
limitations on additional secured and total indebtedness, distributions,
additional investments and the incurrence of additional liens. The Operating
Partnership was in compliance with all covenants related to the UBS Facility for
the June 30, 2000 reporting period.
9. CASH FLOW HEDGES:
The Operating Partnership does not use derivative financial instruments
for trading purposes, but utilizes them to manage exposure to variable-rate
debt. The Operating Partnership accounts for its derivative instruments under
SFAS No. 133, which was adopted in the third quarter of 1999.
On September 1, 1999, the Operating Partnership entered into a
four-year cash flow hedge agreement with Salomon for a notional amount of
$200,000 relating to the BankBoston Term Note II. As a result of the cash flow
hedge agreement, the interest rate on the underlying note, which currently has a
floating interest rate of 30-day LIBOR plus 400 basis points, has been
effectively converted to a fixed interest rate of 10.18% through maturity.
During the six months ended June 30, 2000, the cash flow hedge agreement with
Salomon resulted in a reduction of approximately $34 of interest expense.
Effective February 4, 2000, the Operating Partnership entered into a
three-year cash flow hedge agreement with Fleet, for a notional amount of
$200,000, relating to a portion of the UBS Term Loan I and the UBS Line of
18
<PAGE> 20
Credit. As a result, the interest rate on $200,000 of the amount due under the
UBS Term Loan I and the UBS Line of Credit, which were originally issued at a
floating interest rate of LIBOR plus 250 basis points, was effectively converted
to a fixed interest rate of 9.61% through maturity. During the six months ended
June 30, 2000, the cash flow hedge agreement with Fleet resulted in
approximately $781 of additional interest expense.
Effective April 18, 2000, the Operating Partnership entered into a
four-year cash flow hedge agreement with Fleet, for a notional amount of
$100,000, relating to a portion of the UBS Term Loan II. As a result, the
interest rate on $100,000 of this loan, which was originally issued at a
floating interest rate of LIBOR plus 275 basis points, was effectively converted
to a fixed interest rate of 9.51% through maturity. Fleet has an option to
terminate the agreement at the end of the third year of the agreement. During
the six months ended June 30, 2000, the cash flow hedge agreement with Fleet
resulted in approximately $77 of additional interest expense.
10. SETTLEMENT OF MERGER DISPUTE:
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 Operating Partnership paid $15,000 to Station on April
22, 1999.
11. MINORITY INTEREST:
Minority interest represents joint venture and preferred equity
interests held by third parties in other consolidated subsidiaries.
12. SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY:
During the six months ended June 30, 2000, the Operating Partnership
formed Funding IX and contributed seven Office Properties and two Hotel
Properties to Funding IX. The Operating Partnership owns 100% of the voting
interests in Funding IX, 0.1% in the form of a general partner interest and
99.9% in the form of a limited partner interest.
As of June 30, 2000, the Operating Partnership had sold $160,000 of
non-voting, redeemable preferred Class A Units in Funding IX to GMAC Commercial
Mortgage Corporation ("GMACCM"). The Class A Units receive a preferred
variable-rate dividend currently calculated at 30-day LIBOR plus 450 basis
points, or approximately 11.2% per annum as of June 30, 2000, and are redeemable
at the option of the Operating Partnership at the original purchase price.
Subsequent to June 30, 2000, the Operating Partnership sold an additional
$90,000 of Class A Units in Funding IX to GMACCM. The Operating Partnership has
the right to sell to GMACCM an additional $25,000 of Class A Units, for an
aggregate of $275,000, on or before August 11, 2000.
As of August 9, 2000, $233,740 of the net proceeds of $240,941 from the
sale of the Class A Units were loaned to a wholly-owned subsidiary of the
Company which used these proceeds to repurchase 12,388,823 of the Company's
outstanding common shares. These shares will be held in the subsidiary of the
Company until the Class A Units are redeemed. Distributions will continue to be
paid by the Company on the repurchased common shares and will be used to pay
dividends on the Class A Units. See Note 13. Partners' Capital - Share
Repurchase Program.
The Operating Partnership is actively marketing the Office Properties
held by Funding IX for joint venture and will use the proceeds from any joint
venture of a Property held by Funding IX to redeem the Class A Units.
19
<PAGE> 21
13. PARTNERS' CAPITAL:
Each unit may be exchanged for either two common shares of the Company
or, at the election of the Company, cash equal to the fair market value of 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 six months ended June 30, 2000, there were 28,562 units exchanged for 57,124
common shares of the Company.
SHARE REPURCHASE PROGRAM
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 (the "Share
Repurchase Program"), in an amount not to exceed $500,000. The repurchase of
common shares by the Company will decrease the Company's limited partner
interest, which will result in an increase in net income 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
judgment, 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.
The Company commenced the Share Repurchase Program in March 2000.
During the six months ended June 30, 2000, the Company repurchased 4,400,030
common shares in the open market at an average price of $19.19 per common share
for an aggregate of approximately $84,418. Subsequent to June 30, 2000, the
Company repurchased 2,220,200 common shares in the open market at an average
price of $21.94 per common share for an aggregate of $48,701.
In addition, during the six months ended June 30, 2000, the Company
repurchased 4,042,691 common shares at an average price of $17.49 per common
share for an aggregate of approximately $70,712, under the "Share Repurchase
Agreement" with UBS. This amount includes 20,301 common shares purchased outside
of the Share Repurchase Program in connection with a management incentive plan.
On July 5, 2000, the Company fulfilled its settlement obligations under the
Share Repurchase Agreement with UBS by repurchasing the remaining 1,766,489
common shares at an average cost of $17.33 per common share for an aggregate
cost of approximately $30,621. See "Share Repurchase Agreement" below for a
description of the agreement. All of the common shares repurchased by the
Company with the proceeds of the sale of Class A Units in Funding IX will be
held in a wholly-owned subsidiary of the Company. Pursuant to an agreement
between the Company and the subsidiary, the Company is required to purchase
these common shares from the subsidiary no later than March 15, 2003, at which
time the shares will be retired. The presentation of these financial statements
assumes the Company has purchased the shares from the wholly-owned subsidiary
and retired these shares. Based on these assumptions, the Company's limited
partner interest decreased, which in turn resulted in an increase in net income
per unit.
The purchase of 12,429,410 common shares was primarily financed with
the proceeds of the sale of Class A Units in Funding IX. See Note 12. Sale of
Preferred Equity Interests in Subsidiary.
SHARE REPURCHASE AGREEMENT
On November 19, 1999, the Company entered into an agreement with UBS to
purchase a portion of its common shares from UBS. As of December 31, 1999, the
Company was obligated to purchase 4,789,580 common shares, or approximately
$84,100 of the Company's common shares. The agreement was amended on January 4,
2000, increasing the number of common shares the Company was obligated to
purchase from UBS by January 4, 2001 to 5,809,180 common shares, or
approximately $101,000 of the Company's common shares (as amended, the "Share
Repurchase Agreement"). The price the Company was obligated to pay for the
common shares was calculated based on the average cost of the common shares
purchased by UBS in connection with the Share Repurchase Agreement plus a return
to UBS of 30-day LIBOR plus 250 basis points, minus an adjustment for the
Company's distributions during the term of the Share Repurchase Agreement. The
guaranteed rate of return to UBS under the agreement is equal to 30-day LIBOR
plus 250 basis points.
20
<PAGE> 22
The Company had the option to settle the Share Repurchase Agreement in
cash or common shares. During the six months ended June 30, 2000, the Company
purchased 4,042,691 common shares from UBS at an average cost of $17.49 per
common share. On July 5, 2000, the Company fulfilled its settlement obligations
under the Share Repurchase Agreement with UBS by purchasing the remaining
1,766,489 common shares from UBS at an average cost of $17.33 per common share.
The Company has no further obligation under the Share Repurchase Agreement. The
purchases were funded primarily through the sale of Class A Units in Funding IX.
See Note 12. Sale of Preferred Equity Interests in Subsidiary.
DISTRIBUTIONS
Units
On February 17, 2000, the Operating Partnership paid a distribution of
$74,542, or $1.10 per unit to holders of record on January 28, 2000. The
distribution represented an annualized distribution of $4.40 per unit.
On May 15, 2000, the Operating Partnership paid a distribution of
$74,628, or $1.10 per unit to holders of record on April 28, 2000. The
distribution represented an annualized distribution of $4.40 per unit.
On July 14, 2000, the Operating Partnership declared a distribution of
$74,675, or $1.10 per unit, to holders of record on July 31, 2000. The
distribution represents an annualized distribution of $4.40 per unit and is
payable on August 15, 2000.
Preferred Units
On February 17, 2000, the Operating Partnership paid a distribution on
its Series A Preferred Units of $3,375, or $0.421875 per unit, to the Company,
which was the sole holder of record on January 28, 2000. The distribution
represented an annualized distribution of $1.6875 per preferred unit.
On May 15, 2000, the Operating Partnership paid a distribution on its
Series A Preferred Units of $3,375, or $0.421875 per unit, to the Company, which
was the sole holder of record on April 28, 2000. The distribution represented an
annualized dividend of $1.6875 per preferred unit.
On July 14, 2000, the Operating Partnership declared a distribution on
its Series A Preferred Units of $3,375, or $0.421875 per unit, to the Company,
which was the sole holder of record on July 31, 2000. The distribution
represents an annualized distribution of $1.6875 per preferred unit and is
payable on August 15, 2000.
14. RELATED PARTY INVESTMENT:
As of June 30, 2000, the Operating Partnership, upon the approval of
CREE, Ltd. and the independent members of the Board of Trust Managers of the
Company, had contributed approximately $23,800 of a $25,000 commitment to DBL
Holdings, Inc. ("DBL"). The total contribution will be made through a
combination of loans and equity investments. The Operating Partnership has a
97.4% non-voting interest in DBL.
The contribution was used by DBL to make an equity contribution to
DBL-ABC, Inc., a wholly-owned subsidiary, which committed to purchase $25,000 of
limited partnership interests in G2 Opportunity Fund, LP ("G2"), representing a
limited partnership interest of approximately 12.5%. DBL-ABC, Inc. is committed
to contribute the balance of $1,200 upon demand of the general partner of 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 GMACCM. John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company and member of the Strategic
Planning Committee of CREE, 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 CREE, Ltd., each own 50% of the entity that
ultimately controls GMSP. Mr. Rainwater is a limited partner of GMSP. At June
30, 2000, DBL's primary holdings consisted of the 12.5% investment in G2.
21
<PAGE> 23
15. CBHS:
As of December 31, 1999, the Operating Partnership owned 88 behavioral
healthcare properties, all of which were leased by the Operating Partnership to
CBHS under a master lease. CBHS's business has been negatively affected by many
factors, including adverse industry conditions, and on February 16, 2000, CBHS
and all of its subsidiaries that were subject to the master lease with the
Operating Partnership filed voluntary Chapter 11 bankruptcy petitions in the
United States Bankruptcy Court for the District of Delaware.
Payment and treatment of rent for the Behavioral Healthcare Properties
is subject to a rent stipulation agreed to by certain of the parties involved in
the CBHS bankruptcy proceeding. The Operating Partnership received approximately
$3,304 and $5,383 in rent from CBHS during the three and six months ended June
30, 2000, respectively.
The Operating Partnership sold 18 behavioral healthcare properties
during the six months ended June 30, 2000, generating approximately $11,273 and
$49,573 in net proceeds, during the three and six months ended June 30, 2000,
respectively.
As of June 30, 2000, the Behavioral Healthcare Segment consisted of 70
Behavioral Healthcare Properties in 22 states. CBHS was continuing to operate
the 37 Core Properties and had ceased operations at the 33 Non-Core Properties
as of June 30, 2000. CBHS intends to cease operations at all of the Core
Properties, either in connection with a sale of operating assets or by closing
Core Properties. The Operating Partnership intends to sell all of the Behavioral
Healthcare Properties.
Subsequent to June 30, 2000, the Operating Partnership sold three Core
Properties and two Non-Core Properties. The Operating Partnership also has
entered into contracts or letters of intent to sell 26 additional Core
Properties and nine additional Non-Core Properties and is actively marketing for
sale the remaining eight Core Properties and 22 Non-Core Properties.
16. DISPOSITIONS:
Office & Retail Segment
During the six months ended June 30, 2000, the Operating Partnership
completed the sale of nine wholly owned Office Properties. The sale of the nine
Office Properties generated approximately $198,478 of net proceeds. The proceeds
were used primarily to pay down debt. The Operating Partnership recognized a net
gain, which is included in Gain on Property Sales, Net, of approximately $9,644
related to the sale of eight of the nine Office Properties during the six months
ended June 30, 2000. During the year ended December 31, 1999, the Operating
Partnership recognized an impairment loss of approximately $16,800 on one Office
Property which was sold during the six months ended June 30, 2000. The Operating
Partnership also recognized an impairment loss, which is included in Gain on
Property Sales, Net, of approximately $5,000 during the six months ended June
30, 2000 on one of the nine Properties sold. The impairment losses represented
the differences between the carrying values of the Office Properties and the
sales prices less costs of the sales.
22
<PAGE> 24
Behavioral Healthcare Segment
During the six months ended June 30, 2000, the Operating Partnership
completed the sale of 18 behavioral healthcare properties previously classified
as held for disposition. The sales generated approximately $49,573 in net
proceeds and a net gain of approximately $14,717 for the six months ended June
30, 2000. Subsequent to June 30, 2000, the Operating Partnership sold three Core
Properties and two Non-Core Properties. The sales generated approximately
$21,725 in net proceeds and a net gain of approximately $3,917. The net proceeds
from the sale of the 18 behavioral healthcare properties sold during the six
months ended June 30, 2000 and the three Core Properties and two Non-Core
Properties sold subsequent to June 30, 2000 were used primarily to pay down
variable-rate debt. The Operating Partnership has also entered into contracts or
letters of intent to sell 26 additional Core Properties and nine additional
Non-Core Properties.
Other
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 property assets (retail and office/venture
tech portfolio) located in The Woodlands. The sale of the retail portfolio,
including the Operating Partnership's four Retail Properties located in The
Woodlands, closed on January 5, 2000, and generated approximately $49,800 of net
proceeds, of which the Operating Partnership's portion was approximately
$37,300. The Woodlands Retail Properties were sold at a net gain of
approximately $9,000, of which the Operating Partnership's portion was
approximately $6,900. The proceeds to the Operating Partnership were used
primarily to pay down debt.
23
<PAGE> 25
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, 1999. In
management's opinion, all adjustments (consisting of normal and recurring
adjustments) considered necessary for a fair presentation of the unaudited
interim financial statements are included. Capitalized terms used but not
otherwise defined in this section have the meanings given to them in the notes
to the financial statements in Item 1. Financial Statements.
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
characterized by terms such as "believe," "expect" and "may".
Although the Operating Partnership believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Operating Partnership's actual results could differ materially
from those given in the forward-looking statements.
The following factors might cause such a difference:
o Financing risks, such as the ability to generate revenue
sufficient to service existing debt, increases in debt service
associated with variable-rate debt, the ability to meet existing
financial covenants 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 close anticipated sales of
assets or joint venture transactions or other pending
transactions;
o The Operating Partnership's ability to timely lease unoccupied
square footage and timely re-lease occupied square footage upon
expiration on favorable terms;
o The Operating Partnership's ability to locate purchasers and
close sales of the Behavioral Healthcare Properties;
o The concentration of a significant percentage of the Operating
Partnership's assets in Texas;
o Changes in real estate conditions (including rental rates and
competition from other properties and new development of
competing properties);
o Adverse changes in the financial condition of existing tenants;
o The Operating Partnership's ability to find acquisition and
development opportunities which meet the Operating Partnership's
investment strategy;
o The existence of complex regulations relating to the Company'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; 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.
24
<PAGE> 26
The following sections include information for each of the Operating
Partnership's investment segments for the six months ended June 30, 2000.
OFFICE AND RETAIL SEGMENT
The following tables show the same-store net operating income growth
for the approximately 27.5 million square feet of Office Property space owned as
of June 30, 2000, which excludes approximately 1.5 million square feet of Office
Property space at Bank One Center, in which the Operating Partnership owns a 50%
non-controlling interest.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------- ---------------------------------------
PERCENTAGE/ PERCENTAGE/
POINT POINT
INCREASE INCREASE
2000 1999 (DECREASE) 2000 1999 (DECREASE)
---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Same-store Revenues $ 142.3 $ 137.0 3.9% $ 282.0 $ 272.9 3.3%
Same-store Expenses 60.0 58.8 2.0% 120.3 117.1 2.7%
---------- ---------- ---------- ----------
Net Operating Income $ 82.3 $ 78.2 5.2% $ 161.7 $ 155.8 3.8%
========== ========== ========== ==========
Weighted Average Occupancy 92.1% 92.1% --pt 91.6% 92.7% (1.1)pt(1)
</TABLE>
---------
(1) This decline in weighted average occupancy is due to three significant
lease expirations totaling 524,000 square feet: two at year-end 1999 and
one in the first quarter of 2000. As of August 9, 2000, approximately 79%
of the expiring space has been re-leased, with commencement dates over the
next two quarters.
The following table shows renewed or re-leased leasing activity and the
percentage increase of leasing rates for signed leases compared to expiring
leasing rates at the Operating Partnership's Office Properties owned as of June
30, 2000.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------
SIGNED EXPIRING PERCENTAGE
LEASES LEASES INCREASE
--------- -------- -----------
<S> <C> <C> <C>
Renewed or re-leased (1) 575,000 sq. ft. N/A N/A
Weighted average full-
service rental rate (2) $ 25.14 per sq. ft. $20.43 per sq. ft. 23.1%
FFO annual net effective
rental rate (3) $ 15.93 per sq. ft. $11.23 per sq. ft. 41.9%
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------------------------
SIGNED EXPIRING PERCENTAGE
LEASES LEASES INCREASE
------------ -------- -----------
<S> <C> <C> <C>
Renewed or re-leased (1) 1,394,000 sq. ft. N/A N/A
Weighted average full-
service rental rate (2) $ 24.77 per sq. ft. $20.98 per sq. ft. 18.1%
FFO annual net effective
rental rate (3) $ 15.53 per sq. ft. $11.74 per sq. ft. 32.3%
</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 GAAP
and expense recoveries.
(3) Calculated as weighted average full-service rental rate minus operating
expenses.
25
<PAGE> 27
HOTEL/RESORT SEGMENT
The following table shows weighted average occupancy, average daily
rate and revenue per available room/guest for the Hotel Properties for the
three and six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- -------------------------------------
PERCENTAGE/ PERCENTAGE/
POINT POINT
INCREASE INCREASE
2000 1999 (DECREASE) 2000 1999 (DECREASE)
----- ----- ---------- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Weighted average occupancy 78% 71% 7pt 76% 72% 4pt
Average daily rate $ 134 $ 130 3% $ 132 $ 129 2%
Revenue per available room $ 105 $ 92 14% $ 101 $ 94 7%
LUXURY SPA RESORTS:
Weighted average occupancy 66% 69% (3)pt 71% 74% (3)pt
Average daily rate $ 272 $ 205 33% $ 319 $ 263 21%
Revenue per available room $ 179 $ 141 27% $ 226 $ 195 16%
DESTINATION FITNESS RESORTS AND SPAS:
Weighted average occupancy (1) 85% 87% (2)pt 88% 89% (1)pt
Average daily rate (2) $ 583 $ 529 10% $ 587 $ 537 9%
Revenue per available guest (3) $ 482 $ 446 8% $ 503 $ 464 8%
----- ----- ------ ----- ----- ------
TOTAL HOTEL PROPERTIES:
Weighted average occupancy 77% 73% 4pt 77% 75% 2pt
Average daily rate $ 228 $ 213 7% $ 239 $ 224 7%
Revenue per available room/guest $ 175 $ 155 13% $ 183 $ 167 10%
</TABLE>
---------
(1) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights, which is the
maximum number of guests that the resort can accommodate per night, for the
period.
(2) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the
period.
(3) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
26
<PAGE> 28
The following table shows pro-forma Hotel Property same-store rental
income for the three and six months ended June 30, 2000 and 1999, for the nine
Hotel Properties owned as of January 1, 1999. Pro-forma rental income includes
weighted average base rent with scheduled rent increases that would be taken
into account under GAAP, and percentage rent. Management believes that the
pro-forma rental income, which includes the effect of the change in accounting
for contingent rental revenues that was adopted January 1, 2000, is the best
measure of same-store rental income growth for both periods.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- ---------------------------------
PERCENTAGE PERCENTAGE
2000 1999 INCREASE 2000 1999 INCREASE
------- ------- ------------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Upscale Business Class Hotels $ 7,307 $ 6,455 13% $13,728 $12,885 7%
Luxury Spa Resorts 6,586 6,227 6 13,049 11,707 11(1)
Destination Fitness Resorts and Spas 3,272 3,182 3 6,635 6,245 6
------- ------- ---- ------- ------- ----
All Hotel Properties $17,165 $15,864 8% $33,412 $30,837 8%
======= ======= ==== ======= ======= ====
</TABLE>
---------
(1) Of the 11% same-store rental income growth, approximately 7 percentage
points are due to the $21.0 million expansion project and favorable
operations at Sonoma Mission Inn and Spa.
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 19 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 Company, L.P. and The Woodlands Commercial
Properties Company, L.P. (collectively "The Woodlands"), The Woodlands, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Residential lot sales 449 407 1,012 918
Average sales price per lot $ 43,622 $ 48,031 $ 45,053 $ 48,789
Commercial land sales 6 acres 19 acres 27 acres 27 acres
Average sales price per acre $427,649 $ 289,375 $ 337,952 $ 316,019
</TABLE>
o Residential lot sales increased by 94 lots or 10%, for the six months
ended June 30, 2000 compared to the same period in 1999.
o The Woodlands estimates that additional sales of approximately 1,100
residential lots and 60 acres of commercial land will close during the
remainder of 2000.
o Future buildout of The Woodlands is estimated at approximately 13,500
residential lots and approximately 1,900 acres of commercial land, of
which approximately 1,100 residential lots and 1,350 acres are
currently in inventory.
27
<PAGE> 29
Desert Mountain Properties Limited Partnership ("Desert Mountain"), Scottsdale,
Arizona:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- -------------------------
2000 1999 2000 1999
-------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Residential lot sales 73 88 117 124
Average sales price per lot(1) $ 635,000 $ 594,000 $597,000 $548,000
</TABLE>
---------
(1) Including equity golf memberships.
o The average sales price per lot increased by $49,000 or 9%, as a
reflection of a higher price product mix sold in the six months ended
June 30, 2000 compared to the same period in 1999.
o Future buildout of Desert Mountain is estimated to be in excess of 500
residential lots, of which approximately 180 are currently in
inventory.
Crescent Development Management Corporation ("CDMC"), Beaver Creek, Colorado:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- ----------------------
2000 1999 2000 1999
------------ ----------- ---------- ---------
<S> <C> <C> <C> <C>
Active projects 13 5 13 5
Residential lot sales 21 - 26 6
Townhome sales - 8 2 21
Single-family home sales 3 2 4 4
Equivalent timeshare unit sales - 1 - 5
Condominium sales 5 - 6 -
Total Revenue (in millions) $ 22.0 $ 21.3 $ 52.1 $ 47.2
</TABLE>
o CDMC experienced 10% growth in total revenue for the six months ended June
30, 2000 compared to the same period in 1999.
o In April 1999, a partnership in which CDMC has a 64% economic interest
completed the purchase of Riverfront Park (previously known as "The
Commons"), a master planned residential development on 23 acres in the
Central Platte Valley near downtown Denver, Colorado for approximately
$25.0 million. The development of Riverfront Park began in May 2000. The
first phase consists of condominiums and lofts with prices ranging from
$0.2 million to $2.1 million. Park Place, the first residential project in
this first phase, consists of 71 lofts for which pre-selling commenced in
January 2000. As of June 30, 2000, contracts had been signed on 93% of the
lofts. Pre-selling had also commenced on the 58 Park Tower condominiums and
the 53 Promenade lofts, which are also first phase developments. As of June
30, 2000, contracts had been signed on 45% of the condominiums and 66% of
the lofts. As of June 30, 2000, the partnership had also entered into
contracts relating to the sale of 8.3 acres of Riverfront Park, which are
expected to close by the end of the fourth quarter of 2000.
o Development of Main Street Station, a premier slope-side residential
development in Breckenridge, Colorado, began in April 2000. All of the 82
condominiums are pre-sold with prices ranging from $0.2 million to $1.1
million per unit.
o CDMC estimates the following sales for the year 2000 from its 13 active
projects: 357 residential lots, 15 townhomes, 41 condominiums, and one
single-family home.
o As of June 30, 2000, contracts relating to 85% of the sales anticipated
during the full year 2000 had been executed.
28
<PAGE> 30
Mira Vista Development Corp. ("Mira Vista"), Fort Worth, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Residential lot sales 8 11 19 19
Average sales price per lot (1) $ 107,000 $118,000 $ 96,000 $124,000
</TABLE>
---------
(1) Decrease in average sales price per lot between years is due to a change in
product mix.
Houston Area Development Corp. ("Houston Area Development"), Houston, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- --------------------------
2000 1999 2000 1999
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Residential lot sales 56 67 111 113
Average sales price per lot $26,000 $ 30,000 $ 27,000 $ 29,000
</TABLE>
TEMPERATURE-CONTROLLED LOGISTICS SEGMENT
As of June 30, 2000, the Operating Partnership held an indirect 39.6%
interest in the Temperature-Controlled Logistics Partnerships, which own the
Temperature-Controlled Logistics Corporations, which directly or indirectly own
the Temperature-Controlled Logistics Properties. The business operations
associated with the Temperature-Controlled Logistics Properties are owned by
AmeriCold Logistics, which is owned 60% by Vornado Operating L.P. and 40% by a
subsidiary of COPI, in which the Operating Partnership has no interest. COPI
holds an indirect 0.4% interest in the Temperature-Controlled Logistics
Partnerships, through its ownership of a 1% economic interest, representing all
of the voting common stock, in each of the Crescent Subsidiaries. COPI has an
option to require the Operating Partnership to purchase COPI's 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 the Company as
a REIT, for an aggregate price, payable by the Operating Partnership, of
approximately $3.8 million.
AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, entered into triple-net master leases of the
Temperature-Controlled Logistics Properties with certain of the
Temperature-Controlled Logistics Corporations. Each of the
Temperature-Controlled Logistics 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. Under the leases, AmeriCold Logistics is required to pay for
all costs arising from the operation, maintenance, and repair of the properties
as well as capital expenditures for the properties in excess of $5.0 million
annually. For the six months ended June 30, 2000, rental revenues were
approximately $83.6 million (inclusive of deferred rent), of which base rent
represented approximately 80%. AmeriCold Logistics has the right to defer a
portion of the rent for the Properties for up to three years beginning on March
12, 1999, to the extent that available cash, as defined in the leases, is
insufficient to pay such rent. As of December 31, 1999, AmeriCold Logistics had
deferred approximately $5.4 million of rent, of which the Operating
Partnership's share was approximately $2.1 million. During the three months
ended June 30, 2000, AmeriCold Logistics deferred approximately $6.7 million of
rent, of which the Operating Partnership's share was approximately $2.7 million.
During the three months ended June 30, 2000, the Temperature-Controlled
Logistics Corporations recorded a rent receivable valuation allowance of
approximately $4.0 million, of which the Operating Partnership's portion was
approximately $1.6 million. The reserve was recorded in connection with the
probable restructuring of the leases.
29
<PAGE> 31
Management believes that earnings before interest, taxes, depreciation
and amortization and rent ("EBITDAR") is a useful financial performance measure
for assessing the relative stability of the financial condition of AmeriCold
Logistics. The following table shows EBITDAR and lease payments for AmeriCold
Logistics for the six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
------------
2000
------------
<S> <C>
EBITDAR(1) $ 78.0
Lease Payment $ 83.6(2)
</TABLE>
---------
(1) EBITDAR does not represent net income or cash flows from operating,
financing or investing activities as defined by GAAP.
(2) Includes deferred rent of $6.7 million.
o During the first quarter of 2000, the Temperature-Controlled Logistics
Corporations completed and opened $30.6 million of expansion and new
product space, representing approximately 16.6 million cubic feet (0.8
million square feet).
o The Temperature-Controlled Logistics Corporations have approximately $25.0
to $50.0 million of expansion and new product temperature-controlled
logistics facilities under review for development or acquisition during
2000.
BEHAVIORAL HEALTHCARE SEGMENT
As of June 30, 2000, the Behavioral Healthcare Segment consisted of 70
Behavioral Healthcare Properties in 22 states. CBHS was formed to operate the
behavioral healthcare business located at the Behavioral Healthcare Properties
and is owned 10% by a subsidiary of Magellan and 90% by COPI and an affiliate of
COPI. On February 16, 2000, CBHS and all of its subsidiaries that were subject
to the master lease with the Operating Partnership filed voluntary Chapter 11
bankruptcy petitions in the United States Bankruptcy Court for the District of
Delaware. As of June 30, 2000, CBHS was continuing to operate the 37 Core
Properties and had ceased operations at the 33 Non-Core Properties. CBHS intends
to cease operations at all of the Core Properties, either in connection with a
sale of operating assets or by closing Core Properties. The Operating
Partnership intends to sell all of the Behavioral Healthcare Properties.
Subsequent to June 30, 2000, the Operating Partnership sold three Core
Properties and two Non-Core Properties. The Operating Partnership has entered
into contracts or letters of intent to sell 26 additional Core Properties and
nine additional Non-Core Properties and is actively marketing for sale the
remaining eight Core Properties and 22 Non-Core Properties.
During the six months ended June 30, 2000, the Operating Partnership
received cash rental payments of approximately $5.4 million from CBHS. See
"Liquidity and Capital Resources - CBHS" below for a complete description of the
current status of CBHS, the voluntary filing of Chapter 11 bankruptcy petitions
by CBHS and its subsidiaries and the Operating Partnership's investment in the
Behavioral Healthcare Properties.
At June 30, 2000, the Operating Partnership's investment in the
Behavioral Healthcare Properties represented approximately 5% of its total
assets and approximately 2% of consolidated rental revenues for the six months
ended June 30, 2000.
30
<PAGE> 32
RESULTS OF OPERATIONS
The following table shows the Operating Partnership's financial data as
a percentage of total revenues for the three and six months ended June 30, 2000
and 1999 and the variance in dollars between the three and six months ended June
30, 2000 and 1999. See Note 6. Segment Reporting included in Item 1. Financial
Statements for financial information about investment segments.
<TABLE>
<CAPTION>
FINANCIAL DATA AS A PERCENTAGE
OF TOTAL REVENUES
---------------------------------------------
FOR THE THREE MONTHS FOR THE SIX MONTHS TOTAL VARIANCE IN DOLLARS BETWEEN THE
ENDED JUNE 30, ENDED JUNE 30, THREE MONTHS SIX MONTHS
--------------------- --------------------- ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999 2000 AND 1999 2000 AND 1999
-------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Office and retail properties 84.2% 80.9% 84.5% 80.9% $ (8.2) $ (9.1)
Hotel properties 10.6 8.4 10.3 8.3 2.4 4.5
Behavioral healthcare properties 1.9 7.2 1.5 7.3 (10.5) (22.2)
Interest and other income 3.3 3.5 3.7 3.5 (0.9) (0.3)
-------- -------- -------- -------- ------------- -------------
TOTAL REVENUES 100.0 100.0 100.0 100.0 (17.2) (27.1)
-------- -------- -------- -------- ------------- -------------
EXPENSES
Operating expenses 35.4 34.0 36.3 34.4 (3.7) (2.9)
Corporate general and administrative 2.3 2.0 2.6 2.1 0.4 1.4
Interest expense 29.6 23.3 29.7 23.1 6.9 16.7
Amortization of deferred financing costs 1.3 1.5 1.3 1.5 (0.5) (1.1)
Depreciation and amortization 18.1 17.2 17.8 17.6 (1.3) (4.1)
Settlement of merger dispute -- -- -- 4.0 -- (15.0)
-------- -------- -------- -------- ------------- -------------
TOTAL EXPENSES 86.7 78.0 87.7 82.7 1.8 (5.0)
-------- -------- -------- -------- ------------- -------------
OPERATING INCOME 13.3 22.0 12.3 17.3 (19.0) (22.1)
OTHER INCOME AND EXPENSE
Equity in net income of unconsolidated
companies:
Office and retail properties 0.2 -- 0.9 0.5 0.4 1.1
Temperature-controlled logistics
properties 0.1 2.1 1.2 2.6 (3.8) (5.5)
Residential development properties 6.7 7.5 6.3 6.1 (2.7) (0.8)
Other 1.8 0.3 1.5 0.2 2.4 4.4
-------- -------- -------- -------- ------------- -------------
TOTAL EQUITY IN NET INCOME FROM
UNCONSOLIDATED COMPANIES: 8.8 9.9 9.9 9.4 (3.7) (0.8)
Gain on property sales, net 3.4 -- 8.2 -- 6.1 28.8
-------- -------- -------- -------- ------------- -------------
TOTAL OTHER INCOME AND EXPENSE 12.2 9.9 18.1 9.4 2.4 28.0
-------- -------- -------- -------- ------------- -------------
INCOME BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 25.5 31.9 30.4 26.7 (16.6) 5.9
Minority interests (2.2) (0.1) (1.3) (0.1) (3.7) (4.1)
-------- -------- -------- -------- ------------- -------------
NET INCOME BEFORE EXTRAORDINARY ITEM 23.3 31.8 29.1 26.6 (20.3) 1.8
Extraordinary item -- extinguishment
of debt -- -- (1.3) -- -- (4.4)
-------- -------- -------- -------- ------------- -------------
NET INCOME 23.3 31.8 27.8 26.6 (20.3) (2.6)
Preferred unit dividends (1.9) (1.8) (1.9) (1.8) -- --
Share repurchase agreement return (0.4) -- (0.8) -- (0.7) (2.8)
Forward share purchase
agreement return -- (1.1) -- (1.1) 2.2 4.4
-------- -------- -------- -------- ------------- -------------
NET INCOME AVAILABLE TO
PARTNERS 21.0% 28.9% 25.1% 23.7% $ (18.8) $ (1.0)
======== ======== ======== ======== ============= =============
</TABLE>
31
<PAGE> 33
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 TO THE THREE MONTHS ENDED
JUNE 30, 1999
REVENUES
Total revenues decreased $17.2 million, or 8.9%, to $175.2 million for
the three months ended June 30, 2000, as compared to $192.4 million for the
three months ended June 30, 1999.
The decrease in Office and Retail Property revenues of $8.2 million, or
5.3%, for the three months ended June 30, 2000, as compared to the three months
ended June 30, 1999, is attributable to:
o decreased revenues of $8.0 million due to the disposition of
six Office Properties and four Retail Properties during the
first quarter of 2000;
o decreased revenues of $3.0 million primarily as a result of
a lease termination fee of $4.6 million received in June
1999; and
o decreased revenues of $1.8 million due to the disposition of
three Office Properties during the second quarter of 2000,
which contributed revenues for a full quarter in 1999, as
compared to a partial quarter in 2000; partially offset by
o increased revenues of $4.6 million from the 80 Office and
three Retail Properties owned as of June 30, 2000, primarily
as a result of increased weighted average full-service
rental rates at these Properties.
The increase in Hotel Property revenues of $2.4 million, or 14.9%, for
the three months ended June 30, 2000, as compared to the three months ended June
30, 1999, is primarily attributable to:
o the reclassification of the Renaissance Houston Hotel from
the Office and Retail segment to the Hotel/Resort segment as
a result of the restructuring of its lease on July 1, 1999,
which resulted in $1.1 million of incremental revenues under
the new lease;
o increased revenues of $0.6 million primarily due to an
increase in percentage rents at Omni Austin Hotel as a
result of higher room rates and higher occupancy rates; and
o increased revenues of $0.4 million primarily due to an
increase in percentage rents resulting from higher room
rates and lease amendments entered into in connection with
amounts paid by the Operating Partnership for capital
improvements at Sonoma Mission Inn & Spa.
The decrease in Behavioral Healthcare Property revenue of $10.5
million, or 76.1%, for the three months ended June 30, 2000, as compared to the
three months ended June 30, 1999, is attributable to the reflection of rent from
CBHS on a cash basis beginning in the third quarter of 1999, and the filing of
voluntary bankruptcy petitions by CBHS and its subsidiaries on February 16,
2000, which resulted in a reduction in Behavioral Healthcare Property revenues
to $3.3 million for the three months ended June 30, 2000.
EXPENSES
Total expenses increased $1.8 million, or 1.2%, to $151.9 million for
the three months ended June 30, 2000, as compared to $150.1 million for the
three months ended June 30, 1999.
The decrease in rental property operating expenses of $3.7 million, or
5.6%, for the three months ended June 30, 2000, as compared to the three months
ended June 30, 1999, is attributable to:
o decreased expenses of $4.0 million due to the disposition of
six Office Properties and four Retail Properties during the
first quarter of 2000; and
o decreased expenses of $0.6 million due to the disposition of
three Office Properties during the second quarter of 2000,
which incurred expenses for a full quarter in 1999, as
compared to a partial quarter in 2000; partially offset by
o an increase in expenses of $0.9 million from the 80 Office
and three Retail Properties owned as of June 30, 2000, as a
result of an increase in real estate taxes of $0.5 million
and other operating expenses of $0.4 million.
32
<PAGE> 34
The increase in interest expense of $6.9 million, or 15.4%, for the
three months ended June 30, 2000, as compared to the three months ended June 30,
1999, is primarily attributable to:
o $16.6 million of incremental interest payable due to draws
under the UBS Facility;
o $5.3 million of incremental interest payable under the
BankBoston Term Note II which was obtained on September 14,
1999;
o $3.0 million of incremental interest payable due to the
refinancing of the Greenway Plaza Office Property complex in
June 1999; and
o $0.7 million of incremental interest payable due to the
refinancing of the Houston Center Office Property complex in
September 1999.
The increase in interest expense is partially offset by:
o a decrease of $18.5 million in interest payable due to the
repayment and retiring of the BankBoston Credit Facility and
the BankBoston Term Note I on February 4, 2000.
The decrease in depreciation and amortization expense of $1.3 million,
or 3.9%, as compared to the three months ended June 30, 1999, is primarily
attributable to the cessation of the recognition of depreciation expense on
Office Properties and Behavioral Healthcare Properties from the dates they were
classified as held for disposition.
OTHER INCOME
Other income increased $2.4 million, or 12.6%, to $21.4 million for the
three months ended June 30, 2000, as compared to $19.0 million for the three
months ended June 30, 1999. The components of the increase in other income are
discussed below.
The decrease in equity in net income of unconsolidated companies of
$3.7 million, or 19.5%, for the three months ended June 30, 2000, as compared to
the three months ended June 30, 1999, is attributable to:
o a decrease in equity in net income of the
Temperature-Controlled Logistics Partnerships of $3.8
million, or 95.0%, resulting primarily from (i) the
recognition of a rent receivable valuation allowance at June
30, 2000 of $1.6 million and (ii) an increase in tax expense
of $1.4 million in the three months ended June 30, 2000; and
o a decrease in equity in net income of the Residential
Development Corporations of $2.7 million, or 18.8%,
primarily due to a decrease in commercial acreage sales at
Houston Area Development Company and The Woodlands Land
Development Company, L.P.; partially offset by
o an increase in equity in net income of the other
unconsolidated companies of $2.4 million, or 400.0%,
primarily as a result of the dividend income attributable to
the 7.5% per annum cash flow preference of the Operating
Partnership's $85.0 million preferred member interest in
Metropolitan, which the Operating Partnership purchased in
May 1999; and
o an increase in equity in net income of the unconsolidated
Office and Retail Properties of $0.4 million, or 100.0%,
attributable to a reduction in operating expenses at The
Woodlands Commercial Properties Company, L.P.
The increase in net gain on property sales of $6.1 million represents a
gain recognized on Office and Behavioral Healthcare Property sales during the
three months ended June 30, 2000.
33
<PAGE> 35
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS ENDED JUNE
30, 1999
REVENUES
Total revenues decreased $27.1 million, or 7.2%, to $351.0 million for
the six months ended June 30, 2000, as compared to $378.1 million for the six
months ended June 30, 1999.
The decrease in Office and Retail Property revenues of $9.1 million, or
3.0%, for the six months ended June 30, 2000, as compared to the six months
ended June 30, 1999, is attributable to:
o decreased revenues of $12.5 million due to the disposition
of six Office Properties and four Retail Properties during
the first quarter of 2000, which contributed revenues during
the full six months of 1999, as compared to only a portion
of the period of 2000;
o decreased revenues of $3.0 million primarily as a result of
a lease termination fee of $4.6 million received in June
1999;
o decreased revenues of $1.7 million due to the disposition of
three Office Properties during the second quarter of 2000,
which contributed revenues during the full six months of
1999, as compared to only a portion of the period of 2000;
partially offset by
o increased revenues of $8.1 million from the 80 Office and
three Retail Properties owned as of June 30, 2000, primarily
as a result of increased weighted average full-service
rental rates at these Properties.
The increase in Hotel Property revenues of $4.5 million, or 14.3%, for
the six months ended June 30, 2000, as compared to the six months ended June 30,
1999, is primarily attributable to:
o the reclassification of the Renaissance Houston Hotel from
the Office and Retail segment to the Hotel/Resort segment as
a result of the restructuring of its lease on July 1, 1999,
which resulted in $2.4 million of incremental revenues under
the new lease;
o increased revenues of $1.4 million primarily due to an
increase in percentage rents resulting from higher room
rates and lease amendments entered into in connection with
amounts paid by the Operating Partnership for capital
improvements at Sonoma Mission Inn & Spa; and
o increased revenues of $0.5 million primarily due to an
increase in percentage rents at Omni Austin Hotel due to
higher room rates and higher occupancy rates.
The decrease in Behavioral Healthcare Property revenue of $22.2
million, or 80.4%, for the six months ended June 30, 2000, as compared to the
six months ended June 30, 1999, is attributable to the reflection of rent from
CBHS on a cash basis beginning in the third quarter of 1999, and the filing of
voluntary bankruptcy petitions by CBHS and its subsidiaries on February 16,
2000, which resulted in a reduction in Behavioral Healthcare Property revenues
to $5.4 million for the six months ended June 30, 2000.
EXPENSES
Total expenses decreased $5.0 million, or 1.6%, to $307.8 million for
the six months ended June 30, 2000, as compared to $312.8 million for the six
months ended June 30, 1999.
The decrease in rental property operating expenses of $2.9 million, or
2.2%, for the six months ended June 30, 2000, as compared to the six months
ended June 30, 1999, is attributable to:
o decreased expenses of $5.4 million due to the disposition of
six Office Properties and four Retail Properties during the
first quarter of 2000, which incurred expenses during the
full six months of 1999, as compared to only a portion of
the period of 2000; and
o decreased expenses of $0.6 million due to the disposition of
three Office Properties during the second quarter of 2000,
which incurred expenses during the full six months of 1999,
as compared to only a portion of the period of 2000;
partially offset by
o increased expenses of $3.1 million from the 80 Office and
three Retail Properties owned as of June 30, 2000, primarily
as a result of an increase in real estate taxes of $3.0
million.
34
<PAGE> 36
The increase in interest expense of $16.7 million, or 19.1%, for the
six months ended June 30, 2000, as compared to the six months ended June 30,
1999, is primarily attributable to:
o $27.4 million of incremental interest payable due to draws
under the UBS Facility;
o $10.3 million of incremental interest payable under the
BankBoston Term Note II which was obtained on September 14,
1999;
o $6.2 million of incremental interest payable due to the
refinancing of the Greenway Plaza Office Property complex in
June 1999; and
o $1.7 million of incremental interest payable due to the
refinancing of the Houston Center Office Property complex in
September 1999.
The increase in interest expense is partially offset by:
o a decrease of $28.4 million in interest payable due to the
repayment and retiring of the BankBoston Credit Facility and
the BankBoston Term Note I on February 4, 2000.
The decrease in depreciation and amortization expense of $4.1 million,
or 6.1%, as compared to the six months ended June 30, 1999, is primarily
attributable to the cessation of the recognition of depreciation expense on
Office Properties and Behavioral Healthcare Properties from the dates they were
classified as held for disposition.
An additional decrease in expenses of $15.0 million is attributable to
a decrease in non-recurring costs incurred during the six months ended June 30,
1999 in connection with the settlement of litigation relating to the merger
agreement entered into January 1998 between the Company and Station.
OTHER INCOME
Other income increased $28.0 million, or 78.7%, to $63.6 million for
the six months ended June 30, 2000, as compared to $35.6 million for the six
months ended June 30, 1999. The components of the increase in other income are
discussed below.
The decrease in equity in net income of unconsolidated companies of
$0.8 million, or 2.2%, for the six months ended June 30, 2000, as compared to
the six months ended June 30, 1999, is attributable to:
o a decrease in equity in net income of the
Temperature-Controlled Logistics Partnerships of $5.5
million, or 56.7%, resulting primarily from (i) the
recognition of a rent receivable valuation allowance at June
30, 2000 of $1.6 million, (ii) the one-time tax benefit of
approximately $2.9 million in the six months ended June 30,
1999, which resulted from the election of REIT status by one
of the Temperature-Controlled Logistics Corporations in
1999; and (iii) an increase in tax expense of $1.4 million
in the six months ended June 30, 2000; partially offset by
(iv) the change in ownership structure which created an
approximate $0.3 million increase in equity in net income
from the Temperature-Controlled Logistics Partnerships for
the six months ended June 30, 2000. Prior to March 12, 1999,
the Temperature-Controlled Logistics Corporations reflected
their equity in the operations of the Temperature-Controlled
Logistics Properties. Subsequent to March 12, 1999, the
Temperature-Controlled Logistics Corporations reflect equity
in the rent they receive from AmeriCold Logistics, the
lessee and owner of business operations; and
o a decrease in equity in net income of the Residential
Development Corporations of $0.8 million, or 3.5%, primarily
as a result of (i) the decrease in commercial acreage sales
at Houston Area Development, which resulted in a decrease of
$1.9 million in equity in net income to the Operating
Partnership; partially offset by (ii) the increase in
average sales price per lot at Desert Mountain, due to
constant lot absorption between years, and an increase in
membership conversion revenue, which resulted in $1.3
million of incremental equity in net income to the Operating
Partnership.
35
<PAGE> 37
The decrease in equity in net income of unconsolidated
companies is partially offset by;
o an increase in equity in net income of the other
unconsolidated companies of $4.4 million, or 488.9%,
primarily as a result of the dividend income attributable to
the 7.5% per annum cash flow preference of the Operating
Partnership's $85.0 million preferred member interest in
Metropolitan, which the Operating Partnership purchased in
May 1999; and
o an increase in equity in net income of the unconsolidated
Office and Retail Properties of $1.1 million, or 55.0%, as
compared to the six months ended June 30, 1999, attributable
to increased revenues at The Woodlands Commercial Properties
Company, L.P.
The increase in net gain on property sales of $28.8 million represents
a gain recognized on Office, Retail and Behavioral Healthcare Property sales
during the six months ended June 30, 2000, reduced by an impairment loss of $5.0
million recognized during the six months ended June 30, 2000 on one Office
Property sold during the second quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $39.8 million and $72.1 million at June
30, 2000 and December 31, 1999, respectively. This 44.8% decrease is
attributable to $190.6 million used in financing activities, partially offset by
$116.4 million and $42.0 million provided by operating and investing activities,
respectively.
FINANCING ACTIVITIES
The Operating Partnership's use of cash for financing activities of
$190.6 million is primarily attributable to:
o payments under the BankBoston Credit Facility of $510.0
million;
o payments of $366.0 million of long-term debt, primarily
attributable to payments of (i) $320.0 million on the
BankBoston Term Note II, and (ii) $43.6 million for the
retirement of the Metropolitan Life Note II;
o distributions paid to unitholders of $146.3 million;
o debt financing costs of $19.0 million primarily related to
capitalized financing costs in connection with the UBS
Facility; and
o distributions paid to the holder of preferred units of $6.8
million.
The use of cash for financing activities is partially offset by:
o net proceeds under the UBS Facility of $713.5 million; and
o net capital proceeds from joint ventures of $143.4 million,
primarily due to net proceeds of $154.1 million from the
sale of Class A Units to GMACCM.
OPERATING ACTIVITIES
The Operating Partnership's cash provided by operating activities of
$116.4 million is primarily attributable to:
o $155.1 million from Property operations;
o $21.5 million from a decrease in restricted cash and cash
equivalents, primarily as a result of a decrease in property
tax escrow deposits due to the payment of property taxes in
January 2000;
o $4.6 million from minority interests; and
o $5.8 million representing distributions received from
unconsolidated companies in excess of equity in earnings.
36
<PAGE> 38
The cash provided by operating activities is partially offset by:
o $38.4 million attributable to a decrease in accounts
payable, accrued liabilities and other liabilities primarily
due to the payment of property taxes during the six months
ended June 30, 2000; and
o $28.8 million primarily attributable to a net gain on the
sale of Office, Retail and Behavioral Healthcare Properties.
INVESTING ACTIVITIES
The Operating Partnership's cash provided by investing activities of
$42.0 million is primarily attributable to:
o $282.0 million of net sales proceeds primarily attributable
to the disposition of Office, Retail and Behavioral
Healthcare Properties; and
o $1.6 million from return of investment in unconsolidated
companies.
The Operating Partnership's cash provided by investing activities is
partially offset by:
o $158.1 million increase in notes receivable primarily as a
result of a loan of $154.5 million to a wholly-owned
subsidiary of the Company in connection with the repurchase
of 8,442,721 common shares of the Company;
o $35.4 million for recurring and non-recurring tenant
improvement and leasing costs for the Office and Retail
Properties;
o $15.1 million for the acquisition of land held for
development in Houston;
o $15.0 million for the development of investment properties,
including expansions and renovations at the Hotel
Properties;
o $11.3 million of additional investment in the Residential
Development Corporations; and
o $7.1 million for capital expenditures on rental properties,
primarily attributable to non-recoverable building
improvements for the Office and Retail Properties and
replacement of furniture, fixtures and equipment for the
Hotel Properties.
PROPERTY DISPOSITIONS
Office & Retail Segment
During the six months ended June 30, 2000, the Operating Partnership
completed the sale of nine wholly owned Office Properties. The sales of the nine
Office Properties generated approximately $198.5 million of net proceeds. The
proceeds were used primarily to pay down debt. The Operating Partnership
recognized a net gain of approximately $9.6 million related to the sales of
eight of the nine Office Properties during the six months ended June 30, 2000.
During the year ended December 31, 1999, the Operating Partnership recognized an
impairment loss of approximately $16.8 million on one Office Property which was
sold during the six months ended June 30, 2000. The Operating Partnership also
recognized an impairment loss of approximately $5.0 million during the six
months ended June 30, 2000 on one of the nine Properties sold. The impairment
losses represented the differences between the carrying values of the Office
Properties and the sales prices less costs of the sales. The Operating
Partnership has entered into contracts or letters of intent relating to the sale
of the three additional Office Properties that were classified as held for
disposition as of June 30, 2000. The sales of these Properties are expected to
close by the end of the fourth quarter of 2000.
Behavioral Healthcare Segment
During the six months ended June 30, 2000, the Operating Partnership
completed the sale of 18 behavioral healthcare properties previously classified
as held for disposition. The sales generated approximately $49.6 million in net
proceeds and a net gain of approximately $14.7 million for the six months ended
June 30, 2000. As of June 30, 2000, all 70 of the Behavioral Healthcare
Properties, including 37 Core Properties and 33 Non-Core Properties, were
classified as held for disposition. Subsequent to June 30, 2000, the Operating
Partnership sold three Core Properties and two Non-Core Properties. The sales
generated approximately $21.7 million in net proceeds and a net gain of
approximately $3.9
37
<PAGE> 39
million. The net proceeds from the sale of the 18 behavioral healthcare
properties sold during the six months ended June 30, 2000 and the three Core
Properties and two Non-Core Properties sold subsequent to June 30, 2000 were
used primarily to pay down variable-rate debt. The Operating Partnership also
has entered into contracts or letters of intent to sell 26 additional Core
Properties and nine additional Non-Core Properties. The sales of these
Properties are expected to close by the end of the fourth quarter of 2000.
Other
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 property assets (retail and office/venture
tech portfolio) located in The Woodlands. The sale of the retail portfolio,
including the Operating Partnership's four Retail Properties located in The
Woodlands, closed on January 5, 2000, and generated approximately $49.8 million
of net proceeds, of which the Operating Partnership's portion was approximately
$37.3 million. The Woodlands Retail Properties were sold at a net gain of
approximately $9.0 million, of which the Operating Partnership's portion was
approximately $6.9 million. The proceeds to the Operating Partnership were used
primarily to pay down debt.
CBHS
As of December 31, 1999, the Operating Partnership owned 88 behavioral
healthcare properties, all of which were leased by the Operating Partnership to
CBHS under a master lease. CBHS's business has been negatively affected by many
factors, including adverse industry conditions, and on February 16, 2000, CBHS
and all of its subsidiaries that were subject to the master lease with the
Operating Partnership filed voluntary Chapter 11 bankruptcy petitions in the
United States Bankruptcy Court for the District of Delaware.
Payment and treatment of rent for the Behavioral Healthcare Properties
is subject to a rent stipulation agreed to by certain of the parties involved in
the CBHS bankruptcy proceeding. The Operating Partnership received approximately
$3.3 million and $5.4 million in rent from CBHS during the three and six months
ended June 30, 2000, respectively.
The Operating Partnership sold 18 behavioral healthcare properties
during the six months ended June 30, 2000, generating approximately $11.3
million and $49.6 million in net proceeds, during the three and six months ended
June 30, 2000, respectively.
As of June 30, 2000, the Behavioral Healthcare Segment consisted of 70
Behavioral Healthcare Properties in 22 states. CBHS was continuing to operate
the 37 Core Properties and had ceased operations at the 33 Non-Core Properties
as of June 30, 2000. CBHS intends to cease operations at all of the Core
Properties, either in connection with a sale of operating assets or by closing
Core Properties. The Operating Partnership intends to sell all of the Behavioral
Healthcare Properties.
Subsequent to June 30, 2000, the Operating Partnership sold three
Core Properties and two Non-Core Properties. The Operating Partnership also has
entered into contracts or letters of intent to sell 26 additional Core
Properties and nine additional Non-Core Properties and is actively marketing for
sale the remaining eight Core Properties and 22 Non-Core Properties.
TXU ENERGY SERVICE AGREEMENT
On June 5, 2000, the Operating Partnership entered into a five-year
energy services agreement with TXU Energy Services ("TXU"), under which TXU will
manage a full range of energy services on behalf of the Operating Partnership.
The agreement provides that TXU will consolidate, audit, and pay all utility
bills, provide real-time metering technology and offer on-line access to
customized utility management reports. In addition, TXU will manage supply-side
services, including review of existing rate structure and negotiation and
procurement of energy supply in competitive areas, and invest in energy
efficiency and local management technologies. Furthermore, TXU will design,
finance, and build energy-related projects on site-specific programs for the
Operating Partnership. The first phase of the agreement focuses on the Operating
Partnership's Class A Office Properties with future plans to incorporate the
Operating Partnership's Hotel Properties.
38
<PAGE> 40
SHELF REGISTRATION STATEMENT
On October 29, 1997, the Company filed a shelf registration statement
(the "Shelf Registration Statement") with the SEC relating to the future
offering of up to an aggregate of $1.5 billion of common shares, preferred
shares and warrants exercisable for common shares. Management believes the Shelf
Registration Statement will provide the Company with more efficient and
immediate access to capital markets when considered appropriate. As of June 30,
2000, 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.
SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY
During the six months ended June 30, 2000, the Operating Partnership
formed Funding IX and contributed seven Office Properties and two Hotel
Properties to Funding IX. The Operating Partnership owns 100% of the voting
interests in Funding IX, 0.1% in the form of a general partner interest and
99.9% in the form of a limited partner interest.
As of June 30, 2000, the Operating Partnership had sold $160.0 million
of non-voting, redeemable preferred Class A Units in Funding IX to GMAC
Commercial Mortgage Corporation ("GMACCM"). The Class A Units receive a
preferred variable rate dividend currently calculated at 30-day LIBOR plus 450
basis points, or approximately 11.2% per annum as of June 30, 2000, and are
redeemable at the option of the Operating Partnership at the original purchase
price. Subsequent to June 30, 2000, the Operating Partnership sold an additional
$90.0 million of Class A Units in Funding IX to GMACCM. The Operating
Partnership has the right to sell to GMACCM an additional $25.0 million of Class
A Units, for an aggregate of $275.0 million, on or before August 11, 2000.
As of August 9, 2000, $233.7 million of the net proceeds of $240.9
million from the sale of the Class A Units were loaned to a wholly-owned
subsidiary of the Company, which used these proceeds to repurchase 12,388,823 of
the Company's outstanding common shares. These shares will be held in the
subsidiary until the Class A Units are redeemed. Distributions will continue to
be paid by the Company on the repurchased common shares and will be used to pay
dividends on the Class A Units. See "Share Repurchase Program" below.
The Operating Partnership is actively marketing the Office Properties
held by Funding IX for joint venture and will use the proceeds from any joint
venture of a Property held by Funding IX to redeem the Class A Units.
SHARE REPURCHASE PROGRAM
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 $500.0 million. The repurchase of common shares by the Company
will decrease the Company's limited partner interest, which will result in an
increase in net income 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
judgment, 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.
The Company commenced the Share Repurchase Program in March 2000.
During the six months ended June 30, 2000, the Company repurchased 4,400,030
common shares in the open market at an average price of $19.19 per common share
for an aggregate of approximately $84.4 million. Subsequent to June 30, 2000,
the Company repurchased 2,220,200 common shares in the open market at an average
price of $21.94 per common share for an aggregate of $48.7 million.
In addition, during the six months ended June 30, 2000, the Company
repurchased 4,042,691 common shares at an average price of $17.49 per common
share for an aggregate of approximately $70.7 million, under the "Share
Repurchase Agreement" with UBS. This amount includes 20,301 common shares
purchased outside of the Share
39
<PAGE> 41
Repurchase Program in connection with a management incentive plan. On July 5,
2000, the Company fulfilled its settlement obligations under the Share
Repurchase Agreement with UBS by repurchasing the remaining 1,766,489 common
shares at an average cost of $17.33 per common share for an aggregate cost of
approximately $30.6 million. See "Share Repurchase Agreement" below for a
description of the agreement. All of the common shares repurchased by the
Company with the proceeds of the sale of Class A Units in Funding IX will be
held in a wholly-owned subsidiary of the Company. Pursuant to an agreement
between the Company and the subsidiary, the Company is required to repurchase
these common shares from the subsidiary no later than March 15, 2003, at which
time the shares will be retired. The presentation in the financial statements
assumes that the Company has purchased the shares from the wholly-owned
subsidiary and retired these shares. Based on these assumptions, the Company's
limited partner interest decreased, which in turn resulted in an increase in net
income per unit.
The purchase of the 12,429,410 common shares was primarily financed
with the proceeds of the sale of Class A Units in Funding IX. See "Sale of
Preferred Equity Interests in Subsidiary" above.
SHARE REPURCHASE AGREEMENT
On November 19, 1999, the Company entered into an agreement with UBS to
purchase a portion of its common shares from UBS. As of December 31, 1999, the
Company was obligated to purchase 4,789,580 common shares, or approximately
$84.1 million of the Company's common shares. The agreement was amended on
January 4, 2000, increasing the number of common shares the Company was
obligated to purchase from UBS by January 4, 2001 to 5,809,100 common shares, or
approximately $101.0 million of the Company's common shares. The price the
Company was obligated to pay for the common shares was calculated based on the
average cost of the common shares purchased by UBS in connection with the Share
Repurchase Agreement plus a return to UBS of 30-day LIBOR plus 250 basis points,
minus an adjustment for the Company's distributions during the term of the Share
Repurchase Agreement. The guaranteed rate of return to UBS under the agreement
is equal to 30-day LIBOR plus 250 basis points.
The Company had the option to settle the Share Repurchase Agreement in
cash or common shares. During the six months ended June 30, 2000, the Company
purchased 4,042,691 common shares from UBS, at an average cost of $17.49 per
common share. This decreased the Operating Partnership's liquidity and resulted
in an increase in the Operating Partnership's net income per common unit and net
book value per unit. On July 5, 2000, the Company fulfilled its settlement
obligations under the Share Repurchase Agreement with UBS by purchasing the
remaining 1,766,489 common shares at an average cost of $17.33 per common share.
This decreased the Operating Partnership's liquidity and will result in an
increase in the Operating Partnership's net income per unit and net book value
per unit for the third quarter of 2000. The Company has no further obligation
under the Share Repurchase Agreement. The purchases were funded primarily
through the sale of Class A Units in Funding IX. See "Sale of Preferred Equity
Interests in Subsidiary" and see also "Share Repurchase Program" above for a
description of the effect of this transaction on the Company's interest in the
Operating Partnership.
METROPOLITAN
The Operating Partnership's $85.0 million preferred member interest in
Metropolitan at June 30, 2000 would equate to an approximately 20% equity
interest. The investment has a cash flow preference of 7.5% until May 19, 2001
and may be redeemed by Metropolitan on or before May 19, 2001 for $85.0 million,
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 by
May 19, 2001, 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.
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<PAGE> 42
UBS FACILITY
On February 4, 2000, the Operating Partnership repaid and retired the
BankBoston Credit Facility and the BankBoston Term Note I primarily with the
proceeds of the UBS Facility. The UBS Facility is a secured, variable-rate
facility that is currently funded by a syndicate of 23 banks and institutions
led by UBS and Fleet. The borrowing capacity under the UBS facility is currently
limited to $760.3 million. The UBS Facility was entered into effective January
31, 2000 and amended on May 10, 2000 and May 18, 2000, and, as amended, consists
of three tranches: the UBS Line of Credit, a three-year $300.0 million revolving
line of credit (currently limited to $286.8 million of borrowing capacity); the
UBS Term Loan I, a $146.8 million three-year term loan; and the UBS Term Loan
II, a $326.7 million four-year term loan. Borrowings under the UBS Line of
Credit, the UBS Term Loan I and the UBS Term Loan II at June 30, 2000, were
approximately $240.0 million, $146.8 million and $326.7 million, respectively.
The UBS Line of Credit and the UBS Term Loan I bear interest at LIBOR plus 250
basis points. The UBS Term Loan II bears interest at LIBOR plus 275 basis
points. As of June 30, 2000, the interest rate on the UBS Line of Credit and UBS
Term Loan I was 9.18% and the interest rate on the UBS Term Loan II was 9.43%.
In order to mitigate its exposure to variable-rate debt, the Operating
Partnership has entered into two cash flow hedge agreements related to a portion
of the UBS Facility. See "Cash Flow Hedging Transactions" below for a
description of these agreements. During the six months ended June 30, 2000, the
Operating Partnership sold six Office Properties securing the UBS Facility. The
net proceeds of the sale of these Properties were used to repay amounts
outstanding under the UBS Facility. As of June 30, 2000, the UBS Facility was
secured by 34 Office Properties and four Hotel Properties. The UBS 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 allocated property values and debt service coverage ratios, and,
with respect solely to Funding VIII, limitations on additional secured and total
indebtedness, distributions, additional investments and the incurrence of
additional liens. The Operating Partnership was in compliance with all covenants
related to the UBS Facility for the June 30, 2000 reporting period.
CASH FLOW HEDGING TRANSACTIONS
The Operating Partnership does not use derivative financial instruments
for trading purposes, but utilizes them to manage exposure to variable rate
debt. The Operating Partnership accounts for its derivative instruments under
SFAS No. 133, which was adopted in the third quarter of 1999.
On September 1, 1999, the Operating Partnership entered into a
four-year cash flow hedge agreement with Salomon for a notional amount of $200.0
million, relating to the BankBoston Term Note II. As a result of the cash flow
hedge agreement, the interest rate on the underlying note, which currently has a
floating interest rate of 30-day LIBOR plus 400 basis points, has been
effectively converted to a fixed interest rate of 10.18% through maturity.
During the six months ended June 30, 2000, the cash flow hedge agreement with
Salomon resulted in a reduction of approximately $0.03 million of interest
expense.
Effective February 4, 2000, the Operating Partnership entered into a
three-year cash flow hedge agreement with Fleet, for a notional amount of $200.0
million, relating to a portion of the UBS Term Loan I and the UBS Line of
Credit. As a result, the interest rate on $200.0 million of the amount due under
the UBS Term Loan I and the UBS Line of Credit, which were originally issued at
a floating interest rate of LIBOR plus 250 basis points, was effectively
converted to a fixed interest rate of 9.61% through maturity. During the six
months ended June 30, 2000, the cash flow hedge agreement with Fleet resulted in
approximately $0.78 million of additional interest expense.
Effective April 18, 2000, the Operating Partnership entered into a
four-year cash flow hedge agreement with Fleet, for a notional amount of $100.0
million, relating to a portion of the UBS Term Loan II. As a result, the
interest rate on $100.0 million of this loan, which was originally issued at a
floating interest rate of LIBOR plus 275 basis points, was effectively converted
to a fixed interest rate of 9.51% through maturity. Fleet has an option to
terminate the agreement at the end of the third year of the agreement. During
the six months ended June 30, 2000, the cash flow hedge agreement with Fleet
resulted in approximately $0.08 million of additional interest expense.
41
<PAGE> 43
ASSET JOINT VENTURES
The Operating Partnership has agreements with Chadwick Saylor & Co.,
Inc. and Warburg Dillon Read pursuant to which they are providing investment
advisory services to the Operating Partnership regarding the Operating
Partnership's joint-venture strategy. The Operating Partnership intends to hold
a minority equity interest in these joint-ventured assets and will continue to
lease and manage these Properties.
LIQUIDITY REQUIREMENTS
During the six months ended June 30, 2000, the Operating Partnership
entered into the UBS Facility, which is described above under "UBS Facility."
The Operating Partnership used the proceeds of the UBS Facility to retire the
BankBoston Credit Facility and BankBoston Term Note I, which made up 86% of the
Operating Partnership's maturing debt in 2000 and 2001.
The Company's Share Repurchase Agreement with UBS, as described in
"Share Repurchase Agreement" above, was scheduled to expire on January 4, 2001,
at which time the Company would have been required to settle in cash or common
shares. During the six months ended June 30, 2000, the Company purchased
4,042,691 common shares from UBS at an average cost of $17.49 per common share.
In addition, on July 5, 2000, the Company fulfilled its settlement obligations
under the Share Repurchase Agreement with UBS by purchasing 1,766,489 common
shares from UBS at an average cost of $17.33 per common share. The purchases
were funded primarily through the sale of the Class A Units in Funding IX, as
described in "Sale of Preferred Equity Interests in Subsidiary" above.
The Sonoma Mission Inn & Spa, located north of San Francisco,
California, completed its estimated $21.0 million expansion, consisting of 30
additional guest rooms and a 30,000 square foot full-service spa during the
second quarter of 2000. The Operating Partnership has incurred costs of $18.2
million related to the expansion as of June 30, 2000. In the first quarter of
2000, the 389 guest room Renaissance Houston Hotel, located in the center of
Greenway Plaza, commenced a substantial renovation, including improvements to
all guest rooms, the lobby, corridors and exterior and interior systems. The
estimated $15.0 million renovation project, of which the Operating Partnership
has incurred costs of $3.3 million as of June 30, 2000, is scheduled to be
completed in the fourth quarter of 2000. Both of these projects will be funded
from cash flow provided by operating activities, additional debt financing or a
combination of the two.
In July, 2000, the Operating Partnership began the development of an
office building adjacent to The Avallon in Austin, Texas. The approximately
88,000 square foot building has been 100% pre-leased. The $12.0 million project
is scheduled to be completed within the next 12 months, and will be funded
through additional debt financing.
The Operating Partnership expects to meet its other short-term
liquidity requirements, consisting of normal recurring operating expenses,
regular debt service requirements (including debt service relating to additional
and replacement debt), recurring capital expenditures, non-recurring capital
expenditures, such as tenant improvement and leasing costs, and distributions to
unitholders, primarily through cash flow provided by operating activities. To
the extent that the Operating Partnership's cash flow from operating activities
is not sufficient to finance such short-term liquidity requirements, the
Operating Partnership expects to finance such requirements with available cash,
property sales, proceeds received from joint venture arrangements 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 June 30, 2000, the Operating
Partnership's long-term liquidity requirements consisted primarily of maturities
under the Operating Partnership's fixed and variable-rate debt.
Debt and equity financing alternatives currently available to the
Operating Partnership to satisfy its liquidity requirements and commitments for
material capital expenditures include:
o Additional proceeds from the refinancing of existing secured and
unsecured debt;
o Additional debt secured by existing underleveraged properties,
investment properties, or by investment property acquisitions or
developments;
o Joint venture arrangements; and
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<PAGE> 44
o Issuances of Operating Partnership units.
REIT QUALIFICATION
The Company intends to maintain its qualification as a REIT under
Section 856(c) of the Internal Revenue Code of 1986, as amended (the "Code"). As
a REIT, the Company generally will not be subject to corporate federal income
taxes as long as it satisfies certain technical requirements of the Code,
including the requirement to distribute 95% of its REIT taxable income to its
shareholders.
On December 17, 1999, President Clinton signed into law the REIT
Modernization Act which will become effective after December 31, 2000, and
contains a provision that would permit the Company to own and operate certain
types of investments that are currently owned by COPI. The REIT Modernization
Act is expected to reduce the number of business opportunities that the Company
would otherwise offer to COPI pursuant to the Intercompany Agreement between the
Company and COPI, which provides each party with rights to participate in
certain transactions. The Company has expressed an interest to COPI in certain
of the businesses currently owned or operated by COPI that the REIT
Modernization Act would allow the Company to own or operate. The Company is
exploring alternatives with COPI regarding a potential future transaction with
respect to certain of COPI's assets.
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<PAGE> 45
DEBT FINANCING ARRANGEMENTS
The significant terms of the Operating Partnership's primary debt
financing arrangements existing as of June 30, 2000 are shown below (dollars in
thousands):
<TABLE>
<CAPTION>
INTEREST BALANCE
RATE AT OUTSTANDING AT
MAXIMUM JUNE 30, EXPIRATION JUNE 30,
DESCRIPTION BORROWINGS 2000 DATE 2000
----------- ----------- --------- ----------- --------------
<S> <C> <C> <C> <C>
SECURED FIXED RATE DEBT:
AEGON Note (1) $ 276,394 7.53% July 2009 $ 276,394
LaSalle Note I (2) 239,000 7.83 August 2027 239,000
JP Morgan Mortgage Note (3) 200,000 8.31 October 2016 200,000
LaSalle Note II (4) 161,000 7.79 August 2028 161,000
CIGNA Note 63,500 7.47 December 2002 63,500
Metropolitan Life Note V 39,464 8.49 December 2005 39,464
Northwestern Life Note 26,000 7.66 January 2003 26,000
Metropolitan Life Note I 11,260 8.88 September 2001 11,260
Nomura Funding VI Note (5) 8,397 10.07 July 2020 8,397
Rigney Promissory Note 714 8.50 November 2012 714
----------- --------- ------------
Subtotal/Weighted Average $ 1,025,729 7.87% $ 1,025,729
----------- --------- ------------
SECURED VARIABLE RATE DEBT (6):
UBS Term Loan II(7) $ 326,677 9.43% February 2004 $ 326,677
UBS Line of Credit(7) (8) 286,793 9.18 February 2003 240,000
UBS Term Loan I(7) 146,775 9.18 February 2003 146,775
BankBoston Term Note II (9) 200,000 10.69 August 2003 200,000
SFT Whole Loans, Inc. Note 97,123 8.39 September 2001 97,123
----------- --------- ------------
Subtotal/Weighted Average $ 1,057,368 9.48% $ 1,010,575
----------- --------- ------------
UNSECURED FIXED RATE DEBT:
Notes due 2007 (10) $ 250,000 7.50% September 2007 $ 250,000
Notes due 2002 (10) 150,000 7.00 September 2002 150,000
----------- --------- ------------
Subtotal/Weighted Average $ 400,000 7.31% $ 400,000
----------- --------- ------------
TOTAL/WEIGHTED AVERAGE $ 2,483,097 8.45%(11) $ 2,436,304
=========== ========= ============
</TABLE>
---------
(1) The outstanding principal balance of this note at maturity will be
approximately $223.0 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 $220.0 million.
(3) At the end of seven years (October 2006), the interest rate will adjust
based on current interest rates at that time. It is the Operating
Partnership's intention to repay the note in full at such time (October
2006) by making a final payment of approximately $179.0 million.
(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 $154.0 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, see Note 8. Notes Payable and Borrowings
under the UBS Facility of Item 1. Financial Statements.
(7) Effective January 31, 2000, the Operating Partnership entered into the UBS
Facility, which was amended on May 10, 2000 and May 18, 2000 and, as
amended, consists of three tranches, the UBS Line of Credit, the UBS Term
Loan I and the UBS Term Loan II. For a description of the UBS Facility, see
"Liquidity and Capital Resources - UBS Facility."
(8) Maximum borrowing is calculated based on borrowing capacity at June 30,
2000, and cannot exceed $300.0 million.
(9) This loan is secured by partnership interests in two pools of assets that
secure the LaSalle Note I and the LaSalle Note II. On February 1, 2000,
the Operating Partnership renegotiated certain terms and covenants under
this note. As a result, the interest rate on the underlying note increased
to 30-day LIBOR plus 400 basis points. The Operating Partnership entered
into a four-year $200.0 million cash flow hedge agreement effective
September 1, 1999 with Salomon in a separate transaction related to the
BankBoston Term Note II. See "Liquidity and Capital Resources - Cash Flow
Hedging Transactions."
(10) The notes were issued in an offering registered with the SEC.
(11) The overall weighted average interest rate does not include the effect of
the Operating Partnership's cash flow hedge agreements. Including the
effect of these agreements, the overall weighted average interest rate
would have been 8.44%.
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<PAGE> 46
Below are the aggregate principal amounts due as of June 30, 2000 under
the UBS 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
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands)
2000 $ 2,602 $ -- $ 2,602
2001 113,891 -- 113,891
2002 73,913 150,000 223,913
2003 627,835 -- 627,835
2004 343,533 -- 343,533
Thereafter 874,530 250,000 1,124,530
------------ ------------ ------------
$ 2,036,304 $ 400,000 $ 2,436,304
============ ============ ============
</TABLE>
The Operating Partnership has approximately $2.6 million of principal
on secured debt payable during 2000, consisting primarily of monthly principal
payments due under the AEGON Note during 2000, which are expected to be funded
through cash flows provided by operating activities.
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 cash flow hedges to reduce this exposure.
The Operating Partnership's debt service coverage ratio for the six
months ended June 30, 2000 and 1999 was approximately 2.4 and 3.2, respectively.
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
$400.0 million unsecured notes and calculated as described above is 1.5. The
Operating Partnership's UBS Facility requires a minimum debt service coverage
ratio (which is calculated in a different manner) of 2.0. Under the calculation
required by the UBS Facility, the Operating Partnership's debt service coverage
ratio was 2.2 at June 30, 2000.
FUNDS FROM OPERATIONS
FFO, based on the revised definition adopted by the Board of Governors
of the NAREIT, effective January 1, 2000, and as used in this document, means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from sales of depreciable operating
property;
o excluding extraordinary items (as defined by GAAP);
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. Effective January 1,
2000, NAREIT clarified the definition of FFO to include non-recurring events,
except for those that are defined as "extraordinary items" under GAAP and gains
or losses from sales of depreciable operating property. The Operating
Partnership has adopted the revised definition of FFO effective as of January 1,
2000. Under the prior definition of FFO,
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<PAGE> 47
for the six months ended June 30, 1999, FFO was approximately $197.3 million,
which excluded $15.0 million paid in connection with the 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. Because this settlement is not
considered an "extraordinary item" under GAAP, FFO for the six months ended June
30, 1999 would have been approximately $182.3 million, which would have included
the $15.0 million settlement payment, if the revised definition of FFO had been
in effect. The Operating Partnership considers FFO an appropriate measure of
performance for the Operating Partnership and for its investment segments.
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 Operating Partnership'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 the Operating Partnership's unitholders for the six months ended
June 30, 2000 and 1999 were $146.3 and $152.3 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 of the Company and the Operating Partnership's
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
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.
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<PAGE> 48
STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND SHARES/UNITS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 40,773 $ 61,074 $ 97,827 $ 100,489
Adjustments:
Depreciation and amortization of real estate assets 30,353 32,149 60,145 65,026
Gain on property sales, net (6,126) -- (28,753) --
Settlement of merger dispute -- -- -- 15,000
Extraordinary item - extinguishment of debt -- -- 4,378 --
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office and Retail Properties 1,790 2,597 1,718 4,354
Temperature-Controlled Logistics Properties 7,438 5,187 12,889 7,758
Residential Development Properties 11,144 6,622 15,723 11,294
Other -- 172 -- 172
Preferred unit distributions (3,375) (3,375) (6,750) (6,750)
------------ ------------ ------------ ------------
Funds from operations - old definition (1) $ 81,997 $ 104,426 $ 157,177 $ 197,343
------------ ------------ ------------ ------------
Adjustments:
Settlement of merger dispute -- -- -- (15,000)
------------ ------------ ------------ ------------
Funds from operations - new definition(1) $ 81,997 $ 104,426 $ 157,177 $ 182,343
============ ============ ============ ============
Investment Segments:
Office and Retail Segment $ 87,213 $ 92,373 $ 173,424 $ 181,479
Hotel/Resort Segment 18,346 15,896 35,637 31,094
Behavioral Healthcare Segment 3,304 13,825 5,383 27,648
Temperature-Controlled Logistics Segment 7,630 9,208 17,117 17,488
Residential Development Segment 22,861 21,037 37,904 34,338
Corporate general & administrative (4,082) (3,816) (9,327) (7,930)
Interest expense (51,836) (44,917) (104,086) (87,398)
Preferred unit distributions (3,375) (3,375) (6,750) (6,750)
Other(2) 1,936 4,195 7,875 7,374
Settlement of merger dispute -- -- -- (15,000)
------------ ------------ ------------ ------------
Funds from operations - new definition(1) $ 81,997 $ 104,426 $ 157,177 $ 182,343
============ ============ ============ ============
Basic weighted average units 64,709 69,655 66,250 69,255
============ ============ ============ ============
Diluted weighted average units(3) 65,195 70,719 66,584 70,324
============ ============ ============ ============
</TABLE>
---------
(1) For the periods beginning after January 1, 2000, the Operating Partnership
has adopted the revised definition of FFO adopted by NAREIT effective on
January 1, 2000. The revised definition modifies the prior FFO calculation
to include certain nonrecurring charges.
(2) Includes interest and other income, net of gains on Behavioral Healthcare
Properties and Office Property dispositions, preferred return paid to
GMACCM less depreciation and amortization of non-real estate assets and
amortization of deferred financing costs.
(3) See calculations for the amounts presented in the reconciliation following
this table.
47
<PAGE> 49
The following schedule reconciles the Operating Partnership's basic
weighted average units to the diluted weighted average units presented above:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
(units in thousands) 2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic weighted average units: 64,709 69,655 66,250 69,255
Add: unit options 486 1,064 334 1,069
------------ ------------ ------------ ------------
Diluted weighted average units 65,195 70,719 66,584 70,324
============ ============ ============ ============
</TABLE>
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Funds from operations - new definition $ 157,177 $ 182,343
Adjustments:
Depreciation and amortization of non-real estate assets 1,102 1,134
Amortization of deferred financing costs 2,341 5,824
Minority interest in joint ventures profit and depreciation
and amortization 8,334 981
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies (30,330) (23,578)
Change in deferred rent receivable (5,846) (15,508)
Change in current assets and liabilities (28,965) 8,104
Equity in earnings in excess of distributions received from
unconsolidated companies 5,815 (14,621)
Preferred unit distributions 6,750 6,750
Non-cash compensation 39 81
------------ ------------
Net cash provided by operating activities $ 116,417 $ 151,510
============ ============
</TABLE>
48
<PAGE> 50
OFFICE AND RETAIL PROPERTIES
As of June 30, 2000, the Operating Partnership owned 80 Office
Properties located in 28 metropolitan submarkets in seven states with an
aggregate of approximately 29.0 million net rentable square feet. The Operating
Partnership's Office Properties are located primarily in the Dallas/Fort Worth
and Houston, Texas metropolitan areas. As of June 30, 2000, the Operating
Partnership's Office Properties in Dallas/Fort Worth and Houston represented an
aggregate of approximately 76% of its office portfolio based on total net
rentable square feet (40% for Dallas/Fort Worth and 36% for Houston).
In pursuit of management's objective to dispose of non-strategic and
non-core assets, the Operating Partnership sold nine Office Properties during
the six months ended June 30, 2000 and was actively marketing for sale its
wholly owned interests in three additional Office Properties at June 30, 2000.
The office properties sold were The Amberton, Concourse Office Park, The
Meridian, One Preston Park, and Walnut Green Office Properties located in
Dallas, Texas; the Energy Centre and 1615 Poydras Office Properties located in
New Orleans, Louisiana; the AT&T Building located in Denver, Colorado; and the
Central Park Plaza Office Property located in Omaha, Nebraska.
In addition, the Operating Partnership has entered into contracts or
letters of intent to sell the three Properties held for disposition at June 30,
2000: 160 Spear located in San Francisco, California; Valley Centre located in
Dallas, Texas; and Washington Harbour located in Washington, D.C. The Operating
Partnership anticipates completing the sales of these Office Properties by the
end of the fourth quarter of 2000.
49
<PAGE> 51
OFFICE PROPERTIES TABLES
The following table shows, as of June 30, 2000, certain information
about the Operating Partnership's Office Properties. In the table below "CBD,"
means central business district.
<TABLE>
<CAPTION>
NET
RENTABLE
NO. OF YEAR AREA
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.)
--------------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
TEXAS
DALLAS
Bank One Center (2) 1 CBD 1987 1,530,957
The Crescent Office Towers 1 Uptown/Turtle Creek 1985 1,204,670
Fountain Place 1 CBD 1986 1,200,266
Trammell Crow Center (3) 1 CBD 1984 1,128,331
Stemmons Place 1 Stemmons Freeway 1983 634,381
Spectrum Center (4) 1 Far North Dallas 1983 598,250
Waterside Commons 1 Las Colinas 1986 458,739
Caltex House 1 Las Colinas 1982 445,993
Reverchon Plaza 1 Uptown/Turtle Creek 1985 374,165
The Aberdeen 1 Far North Dallas 1986 320,629
MacArthur Center I & II 1 Las Colinas 1982/1986 294,069
Stanford Corporate Centre 1 Far North Dallas 1985 265,507
12404 Park Central 1 LBJ Freeway 1987 239,103
Palisades Central II 1 Richardson/Plano 1985 237,731
3333 Lee Parkway 1 Uptown/Turtle Creek 1983 233,769
Liberty Plaza I & II 1 Far North Dallas 1981/1986 218,813
The Addison 1 Far North Dallas 1981 215,016
Palisades Central I 1 Richardson/Plano 1980 180,503
Greenway II 1 Richardson/Plano 1985 154,329
Greenway I & IA 2 Richardson/Plano 1983 146,704
Addison Tower 1 Far North Dallas 1987 145,886
5050 Quorum 1 Far North Dallas 1981 133,594
Cedar Springs Plaza 1 Uptown/Turtle Creek 1982 110,923
Valley Centre 1 Las Colinas 1985 74,861
--------- -------------
Subtotal/Weighted Average 25 10,547,189
--------- -------------
FORT WORTH
UPR Plaza 1 CBD 1982 954,895
---------- --------------
HOUSTON
Greenway Plaza Office Portfolio 10 Richmond-Buffalo 1969-1982 4,286,277
Speedway
Houston Center 3 CBD 1974-1983 2,764,418
Post Oak Central 3 West Loop/Galleria 1974-1981 1,277,516
The Woodlands Office Properties (6) 12 The Woodlands 1980-1996 811,067
Four Westlake Park 1 Katy Freeway 1992 561,065
Three Westlake Park 1 Katy Freeway 1983 414,251
1800 West Loop South 1 West Loop/Galleria 1982 399,777
--------- -------------
Subtotal/Weighted Average 31 10,514,371
--------- -------------
AUSTIN
Frost Bank Plaza 1 CBD 1984 433,024
301 Congress Avenue (7) 1 CBD 1986 418,338
Bank One Tower 1 CBD 1974 389,503
Austin Centre 1 CBD 1986 343,665
The Avallon 1 Northwest 1993/1997 232,301
Barton Oaks Plaza One 1 Southwest 1986 99,895
--------- -------------
Subtotal/Weighted Average 6 1,916,726
--------- -------------
<CAPTION>
WEIGHTED
AVERAGE
FULL-SERVICE
RENTAL RATE
PERCENT PER LEASED
STATE, CITY, PROPERTY LEASED SQ. FT. (1)
--------------------- ------ -----------
<S> <C> <C>
TEXAS
DALLAS
Bank One Center (2) 74% (5) $ 23.08
The Crescent Office Towers 89 (5) 30.77
Fountain Place 96 19.32
Trammell Crow Center (3) 80 23.95
Stemmons Place 88 16.11
Spectrum Center (4) 95 23.64
Waterside Commons 100 20.18
Caltex House 90 29.39
Reverchon Plaza 77 (5) 20.47
The Aberdeen 100 18.51
MacArthur Center I & II 97 22.01
Stanford Corporate Centre 37 (5) 21.27
12404 Park Central 100 21.52
Palisades Central II 87 (5) 18.80
3333 Lee Parkway 92 21.90
Liberty Plaza I & II 100 16.00
The Addison 100 19.54
Palisades Central I 97 19.09
Greenway II 100 22.81
Greenway I & IA 100 23.50
Addison Tower 92 17.56
5050 Quorum 85 17.77
Cedar Springs Plaza 89 18.91
Valley Centre 87 (5) 19.71
------- -------
Subtotal/Weighted Average 87% $ 22.34
------- -------
FORT WORTH
UPR Plaza 98% $ 15.66
-------- -------
HOUSTON
Greenway Plaza Office Portfolio 95% $ 18.20
Houston Center 97 18.16
Post Oak Central 92 18.47
The Woodlands Office Properties (6) 95 16.42
Four Westlake Park 100 19.47
Three Westlake Park 73 20.30
1800 West Loop South 69 (5) 17.96
------- -------
Subtotal/Weighted Average 93% $ 18.21
------- -------
AUSTIN
Frost Bank Plaza 99% $ 23.87
301 Congress Avenue (7) 98 25.21
Bank One Tower 95 20.16
Austin Centre 96 23.15
The Avallon 100 22.98
Barton Oaks Plaza One 100 21.63
------- -------
Subtotal/Weighted Average 98% $ 23.10
------- -------
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
NET
RENTABLE
NO. OF YEAR AREA
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.)
--------------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
COLORADO
DENVER
MCI Tower 1 CBD 1982 550,807
Ptarmigan Place 1 Cherry Creek 1984 418,630
Regency Plaza One 1 Denver Technology Center 1985 309,862
The Citadel 1 Cherry Creek 1987 130,652
55 Madison 1 Cherry Creek 1982 137,176
44 Cook 1 Cherry Creek 1984 124,174
--------- -------------
Subtotal/Weighted Average 6 1,671,301
--------- -------------
COLORADO SPRINGS
Briargate Office and
Research Center 1 Colorado Springs 1988 252,857
--------- -------------
FLORIDA
MIAMI
Miami Center 1 CBD 1983 782,686
Datran Center 2 South Dade/Kendall 1986/1988 472,236
--------- -------------
Subtotal/Weighted Average 3 1,254,922
--------- -------------
ARIZONA
PHOENIX
Two Renaissance Square 1 Downtown/CBD 1990 476,373
6225 North 24th Street 1 Camelback Corridor 1981 86,451
--------- -------------
Subtotal/Weighted Average 2 562,824
--------- -------------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour 2 Georgetown 1986 536,206
--------- -------------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza 1 CBD 1990 366,236
--------- -------------
CALIFORNIA
SAN FRANCISCO
160 Spear Street 1 South of Market/CBD 1984 276,420
--------- -------------
SAN DIEGO
Chancellor Park(9) 1 University Town Center 1988 195,733
--------- -------------
TOTAL/WEIGHTED AVERAGE 80 29,049,680
========= =============
<CAPTION>
WEIGHTED
AVERAGE
FULL-SERVICE
RENTAL RATE
PERCENT PER LEASED
STATE, CITY, PROPERTY LEASED SQ. FT. (1)
--------------------- ------ -----------
<S> <C> <C>
COLORADO
DENVER
MCI Tower 99% $ 18.12
Ptarmigan Place 100 19.26
Regency Plaza One 97 (5) 23.16
The Citadel 92 (5) 22.68
55 Madison 89 (5) 19.43
44 Cook 99 20.27
------- -------
Subtotal/Weighted Average 97% $ 19.97
------- -------
COLORADO SPRINGS
Briargate Office and
Research Center 100% $ 18.69
------- -------
FLORIDA
MIAMI
Miami Center 78%(5) $ 24.89
Datran Center 90 (5) 22.55
------- -------
Subtotal/Weighted Average 83% $ 23.93
------- -------
ARIZONA
PHOENIX
Two Renaissance Square 96% $ 24.49
6225 North 24th Street 100 22.59
------- -------
Subtotal/Weighted Average 97% $ 24.18
------- -------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour 99%(5) $ 38.54
------- -------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza 89% $ 19.22
------- -------
CALIFORNIA
SAN FRANCISCO
160 Spear Street 100% $ 26.34
------- -------
SAN DIEGO
Chancellor Park(8) 96% $ 22.90
------- -------
TOTAL/WEIGHTED AVERAGE 92%(5) $20.88(9)
======= ======
</TABLE>
----------
(1) Calculated based on base rent payable as of June 30, 2000, 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
0.5% 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 June 30, 2000. If such leases had commenced as of June
30, 2000, the percent leased for all Office Properties would have been
94%. The total percent leased for these Properties would have been as
follows: Bank One Center - 82%; The Crescent Office Towers - 97%;
Reverchon Plaza - 83%; Stanford Corporate Centre - 71%; Palisades
Central II - 95%; Valley Centre - 92%; 1800 West Loop South - 75%;
Regency Plaza - 100%; 55 Madison - 96%; The Citadel - 96%; Miami Center
- 84%; Datran Center - 93% and Washington Harbour - 100%.
(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 Operating Partnership has a 1% general partner interest and a 49%
limited partner interest in the partnership that owns 301 Congress
Avenue.
(8) 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.
(9) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Operating Partnership Office
Properties as of June 30, 2000, 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 $21.25.
51
<PAGE> 53
The following table provides information, as of June 30, 2000, for the
Operating Partnership's Office Properties by state, city, and submarket.
<TABLE>
<CAPTION>
PERCENT OPERATING
PERCENT OF LEASED AT OFFICE PARTNERSHIP
TOTAL TOTAL OPERATING SUBMARKET SHARE OF
OPERATING OPERATING PARTNERSHIP PERCENT OFFICE
NUMBER OF PARTNERSHIP PARTNERSHIP OFFICE LEASED/ SUBMARKET
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2)
-------------------------------- ---------- ------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD 3 3,859,554 13% 83%(6) 86% 21%
Uptown/Turtle Creek 4 1,923,527 7 87 (6) 90 31
Far North Dallas 7 1,897,695 7 88 (6) 76 17
Las Colinas 4 1,273,662 4 95 (6) 83 11
Richardson/Plano 5 719,267 3 95 (6) 82 14
Stemmons Freeway 1 634,381 1 88 76 26
LBJ Freeway 1 239,103 1 100 84 3
---------- ----------- ----------- ---------- ---------- ----------
Subtotal/Weighted Average 25 10,547,189 36% 87% 83% 17%
---------- ----------- ----------- ---------- ---------- ----------
FORT WORTH
CBD 1 954,895 3% 98% 91% 24%
---------- ----------- ----------- ---------- ---------- ----------
HOUSTON
CBD 3 2,764,418 10% 97% 97% 11%
Richmond-Buffalo Speedway 6 2,735,030 9 95 94 56
West Loop/Galleria 4 1,677,293 6 87 (6) 93 13
Katy Freeway 2 975,316 3 88 81 13
The Woodlands 7 487,320 2 97 95 100
---------- ----------- ----------- ---------- ---------- ----------
Subtotal/Weighted Average 22 8,639,377 30% 93% 94% 17%
---------- ----------- ----------- ---------- ---------- ----------
AUSTIN
CBD 4 1,584,530 6% 97% 100% 49%
Northwest 1 232,301 1 100 100 10
Southwest 1 99,895 0 100 99 4
---------- ----------- ----------- ---------- ---------- ----------
Subtotal/Weighted Average 6 1,916,726 7% 98% 100% 24%
---------- ----------- ----------- ---------- ---------- ----------
COLORADO
DENVER
Cherry Creek 4 810,632 3% 97%(6) 93 % 45 %
CBD 1 550,807 2 99 99 5
Denver Technology Center 1 309,862 1 97 (6) 88 6
---------- ----------- ----------- ---------- ---------- ----------
Subtotal/Weighted Average 6 1,671,301 6% 97 % 95 % 9 %
---------- ----------- ----------- ---------- ---------- ----------
COLORADO SPRINGS
Colorado Springs 1 252,857 1% 100 % 93 % 5 %
---------- ----------- ----------- ---------- ---------- ----------
FLORIDA
MIAMI
CBD 1 782,686 3% 78%(6) 93% 23%
South Dade/Kendall 2 472,236 1 90 (6) 93 100
---------- ----------- ----------- ---------- ---------- ----------
Subtotal/Weighted Average 3 1,254,922 4% 83% 93% 33%
---------- ----------- ----------- ---------- ---------- ----------
ARIZONA
PHOENIX
Downtown/CBD 1 476,373 2% 96% 97% 27%
Camelback Corridor 1 86,451 0 100 94 3
---------- ----------- ----------- ---------- ---------- ----------
Subtotal/Weighted Average 2 562,824 2% 97% 95% 11%
---------- ----------- ----------- ---------- ---------- ----------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown 2 536,206 2% 99%(6) 100% 100%
---------- ----------- ----------- ---------- ---------- ----------
NEW MEXICO
ALBUQUERQUE
CBD 1 366,236 1% 89% 92% 64%
---------- ----------- ----------- ---------- ---------- ----------
CALIFORNIA
SAN FRANCISCO
South of Market/CBD 1 276,420 1% 100% 99% 2%
---------- ----------- ----------- ---------- ---------- ----------
<CAPTION>
WEIGHTED
AVERAGE
OPERATING
WEIGHTED OPERATING PARTNERSHIP
AVERAGE PARTNERSHIP FULL-
QUOTED QUOTED SERVICE
MARKET RENTAL RENTAL
RENTAL RATE RATE PER RATE PER
PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(2)(3) FOOT(4) FOOT(5)
-------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD $23.35 $26.22 $21.97
Uptown/Turtle Creek $27.09 $29.94 $27.18
Far North Dallas $24.37 $23.87 $20.10
Las Colinas $25.26 $25.20 $23.64
Richardson/Plano $23.35 $24.14 $20.79
Stemmons Freeway $24.36 $19.50 $16.11
LBJ Freeway $23.59 $24.60 $21.52
------ ------ ------
Subtotal/Weighted Average $24.51 $25.77 $22.34
------ ------ ------
FORT WORTH
CBD $19.86 $19.57 $15.66
------ ------ ------
HOUSTON
CBD $23.58 $25.44 $18.16
Richmond-Buffalo Speedway $20.62 $22.43 $19.52
West Loop/Galleria $22.31 $22.27 $18.37
Katy Freeway $22.25 $23.43 $19.76
The Woodlands $16.80 $16.80 $16.86
------ ------ ------
Subtotal/Weighted Average $21.86 $23.16 $18.73
------ ------ ------
AUSTIN
CBD $33.26 $33.86 $23.20
Northwest $29.56 $30.10 $22.98
Southwest $28.00 $30.42 $21.63
------ ------ ------
Subtotal/Weighted Average $32.54 $33.22 $23.09
------ ------ ------
COLORADO
DENVER
Cherry Creek $22.89 $21.87 $19.97
CBD $26.41 $25.00 $18.12
Denver Technology Center $25.13 $26.00 $23.16
------ ------ ------
Subtotal/Weighted Average $24.47 $23.67 $19.97
------ ------ ------
COLORADO SPRINGS
Colorado Springs $19.91 $21.50 $18.69
------ ------ ------
FLORIDA
MIAMI
CBD $29.75 $30.75 $24.89
South Dade/Kendall $23.73 $23.73 $22.55
------ ------ ------
Subtotal/Weighted Average $27.48 $28.11 $23.93
------ ------ ------
ARIZONA
PHOENIX
Downtown/CBD $23.88 $23.00 $24.49
Camelback Corridor $26.87 $24.00 $22.59
------ ------ ------
Subtotal/Weighted Average $24.34 $23.15 $24.18
------ ------ ------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown $43.00 $43.00 $38.54
------ ------ ------
NEW MEXICO
ALBUQUERQUE
CBD $18.70 $19.50 $19.22
----------- ------ ------
CALIFORNIA
SAN FRANCISCO
South of Market/CBD $66.53 $65.00 $26.34
------ ------ ------
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
PERCENT OPERATING
PERCENT OF LEASED AT OFFICE PARTNERSHIP
TOTAL TOTAL OPERATING SUBMARKET SHARE OF
OPERATING OPERATING PARTNERSHIP PERCENT OFFICE
NUMBER OF PARTNERSHIP PARTNERSHIP OFFICE LEASED/ SUBMARKET
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2)
------------------------------ ---------- ------------ ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SAN DIEGO
University Town Center 1 195,733 1% 96% 91% 6%
---------- ------------ ----------- ---------- ---------- ----------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 71 27,174,686 94% 92% 91% 15%
========== ============ =========== ========== ========== ==========
CLASS B OFFICE PROPERTIES
TEXAS
HOUSTON
Richmond-Buffalo Speedway 4 1,551,247 5% 94% 93% 47%
The Woodlands 5 323,747 1 93 90 100
---------- ------------ ----------- ---------- ---------- ----------
Subtotal/Weighted Average 9 1,874,994 6% 94% 93% 51%
---------- ------------ ----------- ---------- ---------- ----------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 9 1,874,994 6% 94% 93% 51%
========== ============ =========== ========== ========== ==========
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED AVERAGE 80 29,049,680 100% 92%(6) 91% 16%
========== ============ =========== ========== ========== ==========
<CAPTION>
WEIGHTED
AVERAGE
OPERATING
WEIGHTED OPERATING PARTNERSHIP
AVERAGE PARTNERSHIP FULL-
QUOTED QUOTED SERVICE
MARKET RENTAL RENTAL
RENTAL RATE RATE PER RATE PER
PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(2)(3) FOOT(4) FOOT(5)
------------------------------ ---------- ----------- -----------
<S> <C> <C> <C>
SAN DIEGO
University Town Center $30.60 $28.00 $22.90
------ ------ ------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE $24.92 $25.80 $21.24
====== ====== ======
CLASS B OFFICE PROPERTIES
TEXAS
HOUSTON
Richmond-Buffalo Speedway $18.95 $20.93 $15.82
The Woodlands $15.40 $15.40 $15.73
------ ------ ------
Subtotal/Weighted Average $18.34 $19.98 $15.81
------ ------ ------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE $18.34 $19.98 $15.81
====== ====== ======
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED AVERAGE $24.49 $25.43 $20.88 (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 Group
(for the Dallas CBD, Uptown/Turtle Creek, Far North Dallas, Las
Colinas, Richardson/Plano, Stemmons Freeway, LBJ Freeway, and Fort
Worth CBD), The Baca Group (for the Houston Richmond-Buffalo Speedway,
Houston CBD, 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 Operating Partnership (for the
Washington D.C. Georgetown submarket), Building Interests, Inc. (for
the Albuquerque CBD submarket), RealData Information Systems, Inc. (for
the Miami CBD and South Dade/Kendall submarkets) and John Burnham Real
Estate Services (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, 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, 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 Office Properties in these
submarkets but had not commenced as of June 30, 2000. If such leases
had commenced as of June 30, 2000, the percent leased for all Office
Properties in the Operating Partnership's submarkets would have been
94%. The total percent leased for these Class A Operating Partnership
submarkets would have been as follows: Dallas CBD - 86%; Dallas
Uptown/Turtle Creek - 93%; Far North Dallas - 93%; Dallas Las Colinas -
96%; Richardson/Plano - 97%; Houston West Loop/Galleria - 88%; Denver
Cherry Creek 99%; Denver Technology Center - 100% ; Miami CBD - 84%;
Miami South Dade/Kendall - 93%; and Washington D.C. Georgetown - 100%.
(7) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Operating Partnership Office
Properties, 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
$21.25.
53
<PAGE> 55
The following table shows, as of June 30, 2000, 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) 26%
Energy(2) 21
Financial Services (3) 21
Telecommunications 7
Technology 7
Manufacturing 3
Food Service 3
Retail 2
Medical 2
Government 2
Other (4) 6
-------------
TOTAL LEASED 100%
=============
</TABLE>
----------
(1) Includes legal, accounting, engineering, architectural, and advertising
services.
(2) Includes oil and gas and utility companies.
(3) Includes banking, title and insurance, and investment services.
(4) Includes construction, real estate, transportation and other industries.
AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following tables show schedules of lease expirations for leases in
place as of June 30, 2000 for the Operating Partnership's total Office
Properties and for Dallas and Houston, Texas, individually, for each of the 10
years beginning with 2000, assuming that none of the tenants exercises or has
exercised renewal options.
TOTAL OFFICE PROPERTIES
[CAPTION]
<TABLE>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES (1) LEASES EXPIRING (1)
------------------ ------------ ------------- ------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
2000 296 1,790,682 (2) 6.8% $ 34,541,542 5.9% $ 19.29
2001 363 3,394,356 12.9 66,702,929 11.4 19.65
2002 345 3,453,146 13.1 76,280,407 13.0 22.09
2003 308 2,939,222 11.1 60,136,511 10.3 20.46
2004 258 4,019,636 15.2 89,512,185 15.3 22.27
2005 179 2,893,054 11.0 67,576,015 11.5 23.36
2006 46 1,310,155 5.0 30,850,409 5.3 23.55
2007 52 1,826,780 6.9 42,445,796 7.2 23.24
2008 25 955,942 3.6 25,079,472 4.3 26.24
2009 21 648,855 2.5 17,591,303 3.0 27.11
2010 and thereafter 38 3,134,640 11.9 75,652,878 12.8 24.13
----------- ------------- ------------ ------------- ---------- -------
1,931 26,366,468 (3) 100.0% $ 586,369,447 100.0% $ 22.24
=========== ============= ============ ============= ========== =======
</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 expense levels.
(2) As of June 30, 2000, leases have been signed for approximately
1,443,054 net rentable square feet (including renewed leases and leases
of previously unleased space) commencing after June 30, 2000 and on or
before December 31, 2000.
(3) Reconciliation to the Operating Partnership's total Office Property net
rentable area is as follows:
54
<PAGE> 56
<TABLE>
<CAPTION>
SQUARE PERCENTAGE
FEET OF TOTAL
------------- -----------
<S> <C> <C>
Square footage leased to tenants 26,366,468 90.8%
Square footage reflecting
management offices, building use,
and remeasurement adjustments 253,065 0.9
Square footage vacant 2,430,147 8.3
------------ ----------
Total net rentable square footage 29,049,680 100.0%
============ ==========
</TABLE>
DALLAS OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES (1) LEASES EXPIRING (1)
------------------ ------------ --------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
2000 85 595,422 (2) 6.5% $ 11,587,327 5.4% $ 19.46
2001 95 934,605 10.2 20,111,366 9.4 21.52
2002 84 887,756 9.7 22,862,770 10.7 25.75
2003 86 1,140,420 12.4 24,051,186 11.2 21.09
2004 80 1,058,017 11.5 26,963,890 12.6 25.49
2005 59 1,526,240 16.6 33,753,183 15.8 22.12
2006 17 355,957 3.9 9,604,241 4.5 26.98
2007 16 908,041 9.9 21,580,955 10.1 23.77
2008 9 571,209 6.2 14,386,079 6.7 25.19
2009 8 380,641 4.1 9,542,218 4.5 25.07
2010 and thereafter 9 818,545 9.0 19,555,760 9.1 23.89
----------- ------------- ------------ ------------- ---------- -------
548 9,176,853 100.0% $ 213,998,975 100.0% $ 23.32
=========== ============= ============ ============= ========== =======
</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 expense levels.
(2) As of June 30, 2000, leases have been signed for approximately 690,652 net
rentable square feet (including renewed leases and leases of previously
unleased space) commencing after June 30, 2000 and on or before December
31, 2000.
55
<PAGE> 57
HOUSTON OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES (1) LEASES EXPIRING (1)
------------------ ------------ ------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
2000 118 583,729 (2) 6.0% $ 9,746,904 5.0% $ 16.70
2001 141 1,647,891 16.9 28,682,603 14.7 17.41
2002 150 1,329,850 13.6 25,135,977 12.9 18.90
2003 114 958,406 9.8 17,562,982 9.0 18.33
2004 95 1,856,266 19.0 35,867,463 18.4 19.32
2005 51 425,171 4.4 8,897,309 4.6 20.93
2006 12 638,866 6.5 13,585,299 7.0 21.26
2007 11 593,415 6.1 12,441,240 6.4 20.97
2008 5 183,719 1.9 3,291,186 1.7 17.91
2009 2 48,538 0.5 1,173,280 0.6 24.17
2010 and thereafter 14 1,498,053 15.3 38,786,170 19.7 25.89
----------- ------------- ------------ ------------- ---------- -------
713 9,763,904 100.0% $ 195,170,413 100.0% $ 19.99
=========== ============= ============ ============= ========== =======
</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 expense levels.
(2) As of June 30, 2000, leases have been signed for approximately 690,652 net
rentable square feet (including renewed leases and leases of previously
unleased space) commencing after June 30, 2000 and on or before December
31, 2000.
RETAIL PROPERTIES
As of June 30, 2000, the Operating Partnership owned three Retail
Properties, which in the aggregate contain approximately 421,000 net rentable
square feet. Two of the Retail Properties, Las Colinas Plaza, with approximately
135,000 net rentable square feet, and The Crescent Atrium with approximately
95,000 net rentable square feet, are located in submarkets of Dallas, Texas. The
remaining Retail Property, The Park Shops at Houston Center, with an aggregate
of approximately 191,000 net rentable square feet, is located in the CBD
submarket of Houston, Texas. As of June 30, 2000, the Retail Properties were 91%
leased.
On January 5, 2000, the sale of the Operating Partnership's four Retail
Properties located in The Woodlands, a master-planned development located 27
miles north of downtown Houston, Texas, was completed.
56
<PAGE> 58
HOTEL PROPERTIES
HOTEL PROPERTIES TABLES
The following table shows certain information for the six months ended
June 30, 2000 and 1999, 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 fitness
resorts and spas that measure their performance based on available guest nights.
<TABLE>
<CAPTION>
YEAR
COMPLETED/
HOTEL PROPERTY(1) LOCATION RENOVATED ROOMS
----------------- -------- --------- -----
<S> <C> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Denver Marriott City Center Denver, CO 1982/1994 613
Four Seasons Hotel-Houston(2) Houston, TX 1982 399
Hyatt Regency Albuquerque Albuquerque, NM 1990 395
Omni Austin Hotel Austin, TX 1986 372
Renaissance Houston Hotel(3) Houston, TX 1975 389
------
TOTAL/WEIGHTED AVERAGE 2,168
======
LUXURY SPA RESORTS:
Hyatt Regency Beaver Creek Avon, CO 1989 276
Sonoma Mission Inn & Spa(4) Sonoma, CA 1927/1987/1997 228
Ventana Inn & Spa Big Sur, CA 1975/1982/1988 62
------
TOTAL/WEIGHTED AVERAGE 566
======
GUEST
DESTINATION FITNESS RESORTS AND SPAS: NIGHTS
------
Canyon Ranch-Tucson Tucson, AZ 1980 250 (5)
Canyon Ranch-Lenox Lenox, MA 1989 212 (5)
------
TOTAL/WEIGHTED AVERAGE 462
======
GRAND TOTAL/WEIGHTED AVERAGE FOR HOTEL PROPERTIES
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------
REVENUE
AVERAGE AVERAGE PER
OCCUPANCY DAILY AVAILABLE
RATE RATE ROOM/GUEST
--------------- -------------- ---------------
HOTEL PROPERTY(1) 2000 1999 2000 1999 2000 1999
----------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Denver Marriott City Center 84 % 77 % $119 $123 $100 $ 95
Four Seasons Hotel-Houston(2) 72 66 207 196 149 128
Hyatt Regency Albuquerque 70 71 105 106 74 75
Omni Austin Hotel 84 82 135 127 113 104
Renaissance Houston Hotel(3) 68 65 98 97 67 63
----- ----- ---- ---- ---- ----
TOTAL/WEIGHTED AVERAGE 76 % 72 % $132 $129 $101 $ 94
===== ===== ==== ==== ==== ====
LUXURY SPA RESORTS:
Hyatt Regency Beaver Creek 68% 70% $318 $296 $217 $ 207
Sonoma Mission Inn & Spa(4) 73 79 287 196 (4) 211 155 (4)
Ventana Inn & Spa 74 77 428 329 314 254
----- ----- ---- ---- ---- ----
TOTAL/WEIGHTED AVERAGE 71% 74% $319 $263 $226 $ 195
===== ===== ==== ==== ==== ====
DESTINATION FITNESS RESORTS AND SPAS:
Canyon Ranch-Tucson
Canyon Ranch-Lenox
----- ----- ---- ---- ---- ----
TOTAL/WEIGHTED AVERAGE 88%(6) 89%(6) $587 (7) $537 (7) $503 (8) $464 (8)
===== ===== ==== ==== ==== ====
GRAND TOTAL/WEIGHTED AVERAGE
FOR HOTEL PROPERTIES 77% 75% $239 $224 $183 $167
===== ===== ==== ==== ==== ====
</TABLE>
----------
(1) Because of the Company's status as a REIT for federal income tax purposes,
the Operating Partnership does not operate the Hotel Properties and has
leased all of the Hotel Properties, except the Omni Austin Hotel, to COPI
pursuant to long term leases. As of June 30, 2000, the Omni Austin Hotel is
leased pursuant to a separate long term lease, to HCD Austin Corporation.
(2) The hotel is undergoing a $5.0 million renovation of all guest rooms
scheduled to be completed by the end of the third quarter of 2000.
(3) The hotel is undergoing an estimated $15.0 million renovation project
scheduled to be completed in the fourth quarter of 2000. The renovation
includes improvements to all guest rooms, the lobby, corridor, and exterior
and interior systems.
(4) In January 2000, 20 rooms, which were previously taken out of commission
for construction of a 30,000 square foot full-service spa in connection
with an approximately $21.0 million expansion of the hotel, were returned
to service. The expansion was completed in the second quarter of 2000. The
expansion also included 30 additional guest rooms. Rates were discounted
during the construction period which resulted in a lower average daily rate
and revenue per available room for the six months ended June 30, 1999 as
compared to June 30, 2000.
(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, which is the
maximum number of guests that the resort can accommodate per night, 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.
57
<PAGE> 59
RESIDENTIAL DEVELOPMENT PROPERTIES
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table shows certain information as of June 30, 2000, relating to
the Residential Development Properties.
<TABLE>
<CAPTION>
TOTAL TOTAL
RESIDENTIAL RESIDENTIAL TOTAL LOTS/UNITS LOTS/UNITS
Residential DEVELOPMENT DEVELOPMENT LOTS/ DEVELOPED CLOSED
Development PROPERTIES TYPE OF CORPORATION'S UNITS SINCE SINCE
Corporation (1) (RDP) RDP(2) LOCATION OWNERSHIP % PLANNED INCEPTION INCEPTION
--------------- ----------- ------- -------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ 93.0% 2,665 2,256 2,078
Development --------- -------- ---------
Corp.
The Woodlands The Woodlands SF The Woodlands, TX 42.5% 36,385 22,856 21,733
Land Company, --------- -------- ---------
Inc.
Crescent Deer Trail SFH Avon, CO 60.0% 16 (6) 15 15
Development Bear Paw Lodge CO Avon, CO 60.0% 53 (6) 11 11
Management QuarterMoon TH Avon, CO 64.0% 13 (6) - -
Corp. Eagle Ranch SF Eagle, CO 60.0% 1,260 (6) 135 105
Main Street
Junction CO Breckenridge, CO 60.0% 36 (6) 36 19
Main Street
Station CO Breckenridge, CO 60.0% 82 (6) - -
Riverbend SF Charlotte, NC 60.0% 650 (6) - -
Three Peaks
(Eagle's Nest) SF Silverthorne, CO 30.0% 391 (6) 102 81
Park Place at
Riverfront CO Denver, CO 64.0% 71 (6) - -
Park Tower at
Riverfront CO Denver, CO 64.0% 58 (6) - -
Bridge Lofts
at Riverfront CO Denver, CO 64.0% 53 (6) - -
Cresta TH/SFH Edwards, CO 60.0% 25 (6) - -
Snow Cloud CO Avon, CO 60.0% 53 (6) - -
--------- -------- ---------
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP. 2,761 299 231
--------- -------- ---------
Mira Vista Mira Vista SF Fort Worth, TX 100.0% 740 740 647
Development The Highlands SF Breckenridge, CO 12.3% 750 340 336
Corp. --------- -------- ---------
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,490 1,080 983
--------- -------- ---------
Houston Area Falcon Point SF Houston, TX 100.0% 1,205 688 588
Development Spring Lakes SF Houston, TX 100.0% 536 161 164
Corp. --------- -------- ---------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,741 849 752
--------- -------- ---------
TOTAL 45,042 27,340 25,777
========= ======== =========
<CAPTION>
AVERAGE
RESIDENTIAL CLOSED RANGE OF
Residential DEVELOPMENT SALE PRICE PROPOSED
Development PROPERTIES TYPE OF PER LOT/ SALE PRICES
Corporation (1) (RDP) RDP(2) LOCATION UNIT ($)(3) PER LOT/UNIT ($)(4)
--------------- ----------- ------- -------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ 463,000 400,000 - 3,000,000 (5)
Development
Corp.
The Woodlands The Woodlands SF The Woodlands, TX 48,000 13,600 - 500,000
Land Company,
Inc.
Crescent Deer Trail SFH Avon, CO 2,930,000 2,695,000 - 4,075,000
Development Bear Paw Lodge CO Avon, CO 1,675,000 665,000 - 2,025,000
Management QuarterMoon TH Avon, CO N/A 1,850,000 - 2,795,000
Corp. Eagle Ranch SF Eagle, CO 111,500 80,000 - 150,000
Main Street
Junction CO Breckenridge, CO 475,000 300,000 - 580,000
Main Street
Station CO Breckenridge, CO N/A 215,000 - 1,065,000
Riverbend SF Charlotte, NC N/A 25,000 - 38,000
Three Peaks
(Eagle's Nest) SF Silverthorne, CO 220,000 135,000 - 425,000
Park Place at
Riverfront CO Denver, CO N/A 195,000 - 1,445,000
Park Tower at
Riverfront CO Denver, CO N/A 180,000 - 2,100,000
Bridge Lofts
at Riverfront CO Denver, CO N/A 180,000 - 2,100,000
Cresta TH/SFH Edwards, CO N/A 1,900,000 - 2,600,000
Snow Cloud CO Avon, CO N/A 840,000 - 4,545,000
Mira Vista Mira Vista SF Fort Worth, TX 100,000 50,000 - 265,000
Development The Highlands SF Breckenridge, CO 156,000 55,000 - 450,000
Corp.
Houston Area Falcon Point SF Houston, TX 39,000 22,000 - 60,000
Development Spring Lakes SF Houston, TX 28,000 22,000 - 33,000
Corp.
</TABLE>
-----------
(1) The Operating Partnership has an approximately 95%, 95%, 90%, 94% and 94%,
ownership interest in Desert Mountain Development Corp., 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); 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 as of June 30, 2000 is $175,000. Effective
July 1, 2000 the golf membership was increased to $225,000.
(6) As of June 30, 2000, one units were under contract at Deer Trail
representing $4.0 million in sales; 34 units were under contract at Bear
Paw Lodge representing $47.1 million in sales; 13 units were under contract
at QuarterMoon representing $29.8 million in sales; 97 lots were under
contract at Eagle Ranch representing $13.9 million in sales; one unit was
under contract at Main Street Junction representing $0.4 million in sales;
82 units were under contract at Main Street Station representing $40.9
million in sales; 117 lots were under contract at Riverbend representing
$3.5 million in sales; 20 lots were under contract at Three Peaks
representing $4.9 million in sales; 66 units were under contract at Park
Place representing $26.5 million in sales; 26 units were under contract at
Park Tower representing $16.5 million in sales; 35 units were under
contract at the Bridge Lofts at Riverfront representing $13.0 million in
sales; nine units were under contract at Cresta representing $15.3 million
in sales and 20 units were under contract at Snow Cloud representing $35.0
million in sales.
58
<PAGE> 60
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES TABLE
The following table shows the number and aggregate size of
Temperature-Controlled Logistics Properties by state as of June 30, 2000:
<TABLE>
<CAPTION>
TOTAL CUBIC TOTAL TOTAL CUBIC TOTAL
NUMBER OF FOOTAGE SQUARE FEET NUMBER OF FOOTAGE SQUARE FEET
STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS) STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS)
----- ------------- ------------- ------------- ----- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama 4 9.4 0.3 Missouri(2) 2 48.8 2.8
Arizona 1 2.9 0.1 Nebraska 2 4.4 0.2
Arkansas 6 33.1 1.0 New York 1 11.8 0.4
California 9 28.6 1.1 North Carolina 3 8.5 0.3
Colorado 2 3.4 0.1 Ohio 1 5.7 0.2
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
Mississippi 1 4.7 0.2 Wisconsin 3 17.4 0.7
------------ ----------- -----------
TOTAL 90 (3) 444.9 (3) 17.8 (3)
============ =========== ===========
</TABLE>
-------------
(1) As of June 30, 2000, the Operating Partnership held an indirect 39.6%
interest in the Temperature-Controlled Logistics Partnerships, which own
the Temperature-Controlled Logistics Corporations, which directly or
indirectly owned the Temperature-Controlled Logistics Properties. The
business operations associated with the Temperature-Controlled Logistics
Properties are owned by AmeriCold Logistics, in which the Operating
Partnership has no interest. The Temperature-Controlled Logistics
Corporations are entitled to receive lease payments (base rent and
percentage rent) from AmeriCold Logistics.
(2) Includes an underground storage facility, with approximately 33.1 million
cubic feet.
(3) As of June 30, 2000, AmeriCold Logistics operated 104
temperature-controlled logistics properties with an aggregate of
approximately 533.0 million cubic feet (20.6 million square feet).
59
<PAGE> 61
BEHAVIORAL HEALTHCARE PROPERTIES
BEHAVIORAL HEALTHCARE PROPERTIES
As of December 31, 1999, the Operating Partnership owned 88 behavioral
healthcare properties, all of which were leased by the Operating Partnership to
CBHS under a master lease. CBHS's business has been negatively affected by many
factors, including adverse industry conditions, and on February 16, 2000, CBHS
and all of its subsidiaries that were subject to the master lease with the
Operating Partnership filed voluntary Chapter 11 bankruptcy petitions in the
United States Bankruptcy Court for the District of Delaware.
The Operating Partnership sold 18 behavioral healthcare properties
during the six months ended June 30, 2000, generating approximately $11.3
million and $49.6 million in net proceeds, during the three and six months ended
June 30, 2000, respectively.
As of June 30, 2000, the Behavioral Healthcare Segment consisted of 70
Behavioral Healthcare Properties in 22 states. CBHS was continuing to operate
the 37 Core Properties and had ceased operations at the 33 Non-Core Properties
as of June 30, 2000. CBHS intends to cease operations at all of the Core
Properties, either in connection with a sale of operating assets or by closing
Core Properties. The Operating Partnership intends to sell all of the Behavioral
Healthcare Properties.
Subsequent to June 30, 2000, the Operating Partnership sold three
Core Properties and two Non-Core Properties. The Operating Partnership also has
entered into contracts or letters of intent to sell 26 additional Core
Properties and nine additional Non-Core Properties and is actively marketing for
sale the remaining eight Core Properties and 22 Non-Core Properties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Operating Partnership's and the Company's use of financial
instruments, such as debt instruments and the Share Repurchase Agreement with
UBS, 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 and the Share Repurchase Agreement and in the market price of the Company's
common shares as such changes relate to the Share Repurchase Agreement. 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 $2.4 billion
at June 30, 2000, of which approximately $0.5 billion, or 21%, was unhedged
variable-rate debt. The weighted average interest rate on such variable-rate
debt was 9.13% as of June 30, 2000. A 10% (91.3 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 $4.7 million based
on the unhedged variable-rate debt outstanding as of June 30, 2000, as a result
of the increased interest expense associated with the change in rate.
Conversely, a 10% (91.3 basis point) decrease in the weighted average interest
rate on such unhedged variable-rate debt would result in an annual increase in
net income and cash flows of approximately $4.7 million based on the variable
rate debt outstanding as of June 30, 2000, as a result of the decreased interest
expense associated with the change in rate.
In addition, the Company's settlement obligations under the Share
Repurchase Agreement with UBS described in Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Share Repurchase
Agreement, are subject to interest rate risk, specifically changes in the 30-day
LIBOR rate in the event that the Company
60
<PAGE> 62
elects to settle in cash. At June 30, 2000, approximately $31.9 million of the
Company's $101.0 million obligation under the Share Repurchase Agreement was
outstanding. The Company fulfilled its settlement obligation on July 5, 2000,
and has no further obligation under the Share Repurchase Agreement.
MARKET PRICE RISK
The Share Repurchase Agreement is subject to market price risk because
changes in the closing share price for the Company's common shares affect the
Company's settlement obligation, in the event the Company elects to settle in
common shares. At June 30, 2000, approximately $31.9 million of the Company's
$101.0 million obligation under the Share Repurchase Agreement was outstanding.
The Company fulfilled its settlement obligation on July 5, 2000, and has no
further obligation under the Share Repurchase Agreement.
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.
Item 6. Exhibits and Reports on Form 8-
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
3.01 Second Amended and Restated Agreement of
Limited Partnership of the Annual
Registrant dated November 1, 1997, as
amended (filed as Exhibit No. 10.01 to the
Report on Form 10-K for the fiscal year
ended December 31, 1999 (the "Company 1999
10-K") 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 No. 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 No. 4.01 to the Registration Statement on Form
S-3 (File No. 333-21905) of the Company and
incorporated herein by reference)
</TABLE>
61
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
4.03 Amended and Restated Bylaws of the Company, as amended
(filed as Exhibit No. 3.02 to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 of
the Company and incorporated herein by reference)
4.04 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to the
Quarterly Report on on Form 10-Q for the quarter ended
June 30, 1998 (the "Company 1998 2Q 10-Q") of the
Company and incorporated herein by reference)
4.05 7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to the
Company 1998 2Q 10- Q and incorporated herein by
reference)
4.06 Amended and Restated Secured Loan Agreement, dated as
of May 10, 2000, among Crescent Real Estate Funding
VIII, L.P. and UBS AG, Stamford Branch, as amended
(filed as Exhibit No. 10.12 to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000 (the
"Company 2000 2Q 10-Q") of the Company and
incorporated herein by reference)
4* Pursuant to Regulation S-K Item 601 (b) (4) (iii), the
Registrant by this filing agrees, upon request, to
furnish to the SEC a copy of other instruments
defining the rights of holders of long-term debt of
the Registrant
10.01 Noncompetition Agreement of Richard E. Rainwater, as
assigned to the Registrant on May 5, 1994 (filed as
Exhibit No. 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 No.
10.03 to Company 1997 10-K and incorporated herein by
reference)
10.03 Employment Agreement with John C. Goff, as assigned to
the Registrant on May 5, 1994, and as further amended
(filed as Exhibit No.10.04 to the Company 1999 10-K
and incorporated herein by reference)
10.04 Employment Agreement of Jerry R. Crenshaw, Jr., dated
as of December 14, 1998 (filed as Exhibit No. 10.08 to
the Company 1999 10-K and incorporated herein by
reference)
10.05 Form of Officers' and Trust Managers' Indemnification
Agreement as entered into between the Company and each
of its executive officers and trust managers (filed as
Exhibit No. 10.07 to the Form S-4 and incorporated
herein by reference)
10.06 Crescent Real Estate Equities Company 1994 Stock
Incentive Plan (filed as Exhibit No. 10.07 to the
Registration Statement on Form S-11 (File No.
33-75188) (the "Form S-11") of the Company and
incorporated herein by reference)
10.07 Crescent Real Estate Equities, Ltd. First Amended and
Restated 401(k) Plan, as amended (filed as Exhibit
No.10.12 to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 of the Company and
incorporated herein by reference)
10.08 Second Amended and Restated 1995 Crescent Real Estate
Equities Company Stock Incentive Plan (filed as
Exhibit No. 10.13 to the Form S-4 and incorporated
herein by reference)
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
10.09 Amended and Restated 1995 Crescent Real Estate
Equities Limited Partnership Unit Incentive Plan
(filed as Exhibit No. 99.01 to the Registration
Statement on Form S-8 (File No. 333-3452) of the
Company and incorporated herein by reference)
10.10 1996 Crescent Real Estate Equities Limited Partnership
Unit Incentive Plan, as amended (filed as Exhibit No.
10.14 to the Company 1999 10-K and incorporated herein
by reference)
10.11 Amended and Restated Secured Loan Agreement, dated as
of May 10, 2000, among Crescent Real Estate Funding
VIII, L.P. and UBS AG, Stamford Branch, as amended
(filed as Exhibit No. 10.12 of the Company 2000 2Q
10-Q and incorporated herein by reference)
10.12 Intercompany Agreement, dated June 3, 1997, between
the Registrant and Crescent Operating, Inc. (filed as
Exhibit No. 10.02 to the Registration Statement on
Form S-1 (File No. 333-25223) of Crescent Operating,
Inc. and incorporated herein by reference)
10.13 Form of Registration Rights, Look-up and Pledge
Agreement (filed as Exhibit No. 10.05 to the Form S-11
and incorporated herein by reference)
27.01 Financial Data Schedule (filed herewith)
</TABLE>
(b) Reports on Form 8-K
None.
63
<PAGE> 65
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.
<TABLE>
<S> <C>
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
(Registrant)
By: Crescent Real Estate Equities, Ltd., its General Partner
By /s/ John C. Goff
-------------------------------
John C. Goff
Date: August 11, 2000 Vice Chairman of the Board and Chief Executive Officer
By /s/ Jerry R. Crenshaw
-------------------------------
Jerry R. Crenshaw
Senior Vice President and Chief Financial Officer
Date: August 11, 2000 (Principal Financial and Accounting Officer)
</TABLE>
64
<PAGE> 66
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
3.01 Second Amended and Restated Agreement of
Limited Partnership of the Annual
Registrant dated November 1, 1997, as
amended (filed as Exhibit No. 10.01 to the
Report on Form 10-K for the fiscal year
ended December 31, 1999 (the "Company 1999
10-K") 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 No. 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 No. 4.01 to the Registration Statement on Form
S-3 (File No. 333-21905) of the Company and
incorporated herein by reference)
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
4.03 Amended and Restated Bylaws of the Company, as amended
(filed as Exhibit No. 3.02 to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 of
the Company and incorporated herein by reference)
4.04 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to the
Quarterly Report on on Form 10-Q for the quarter ended
June 30, 1998 (the "Company 1998 2Q 10-Q") of the
Company and incorporated herein by reference)
4.05 7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to the
Company 1998 2Q 10- Q and incorporated herein by
reference)
4.06 Amended and Restated Secured Loan Agreement, dated as
of May 10, 2000, among Crescent Real Estate Funding
VIII, L.P. and UBS AG, Stamford Branch, as amended
(filed as Exhibit No. 10.12 to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000 (the
"Company 2000 2Q 10-Q") of the Company and
incorporated herein by reference)
4* Pursuant to Regulation S-K Item 601 (b) (4) (iii), the
Registrant by this filing agrees, upon request, to
furnish to the SEC a copy of other instruments
defining the rights of holders of long-term debt of
the Registrant
10.01 Noncompetition Agreement of Richard E. Rainwater, as
assigned to the Registrant on May 5, 1994 (filed as
Exhibit No. 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 No.
10.03 to Company 1997 10-K and incorporated herein by
reference)
10.03 Employment Agreement with John C. Goff, as assigned to
the Registrant on May 5, 1994, and as further amended
(filed as Exhibit No.10.04 to the Company 1999 10-K
and incorporated herein by reference)
10.04 Employment Agreement of Jerry R. Crenshaw, Jr., dated
as of December 14, 1998 (filed as Exhibit No. 10.08 to
the Company 1999 10-K and incorporated herein by
reference)
10.05 Form of Officers' and Trust Managers' Indemnification
Agreement as entered into between the Company and each
of its executive officers and trust managers (filed as
Exhibit No. 10.07 to the Form S-4 and incorporated
herein by reference)
10.06 Crescent Real Estate Equities Company 1994 Stock
Incentive Plan (filed as Exhibit No. 10.07 to the
Registration Statement on Form S-11 (File No.
33-75188) (the "Form S-11") of the Company and
incorporated herein by reference)
10.07 Crescent Real Estate Equities, Ltd. First Amended and
Restated 401(k) Plan, as amended (filed as Exhibit
No.10.12 to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 of the Company and
incorporated herein by reference)
10.08 Second Amended and Restated 1995 Crescent Real Estate
Equities Company Stock Incentive Plan (filed as
Exhibit No. 10.13 to the Form S-4 and incorporated
herein by reference)
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
10.09 Amended and Restated 1995 Crescent Real Estate
Equities Limited Partnership Unit Incentive Plan
(filed as Exhibit No. 99.01 to the Registration
Statement on Form S-8 (File No. 333-3452) of the
Company and incorporated herein by reference)
10.10 1996 Crescent Real Estate Equities Limited Partnership
Unit Incentive Plan, as amended (filed as Exhibit No.
10.14 to the Company 1999 10-K and incorporated herein
by reference)
10.11 Amended and Restated Secured Loan Agreement, dated as
of May 10, 2000, among Crescent Real Estate Funding
VIII, L.P. and UBS AG, Stamford Branch, as amended
(filed as Exhibit No. 10.12 of the Company 2000 2Q
10-Q and incorporated herein by reference)
10.12 Intercompany Agreement, dated June 3, 1997, between
the Registrant and Crescent Operating, Inc. (filed as
Exhibit No. 10.02 to the Registration Statement on
Form S-1 (File No. 333-25223) of Crescent Operating,
Inc. and incorporated herein by reference)
10.13 Form of Registration Rights, Look-up and Pledge
Agreement (filed as Exhibit No. 10.05 to the Form S-11
and incorporated herein by reference)
27.01 Financial Data Schedule (filed herewith)
</TABLE>
