<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 18, 1996
CRESCENT REAL ESTATE EQUITIES, INC.
(Exact name of Registrant as specified in its Charter)
Maryland 1-13038 52-1862813
(STATE OF INCORPORATION) (COMMISSION FILE NUMBER) (IRS EMPLOYER
IDENTIFICATION NUMBER)
900 Third Avenue, Suite 1800
New York, New York 10022
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(212) 836-4216
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
301 CONGRESS AVENUE. On April 18, 1996, Crescent Real Estate Equities,
Inc. (collectively with its subsidiaries, "the Company"), together with Aetna
Life Insurance Company ("Aetna"), formed 301 Congress Avenue, L.P., a
Delaware limited partnership in which the Company and Aetna, each own a 50%
interest. Crescent/301, L.L.C., a subsidiary (organized as a Delaware limited
liability company) that is wholly owned by the Company's operating partnership
and its general partner, serves as the general partner of 301 Congress Avenue,
L.P. (the "Partnership"). On April 18, 1996, the partnership acquired 301
Congress Avenue ("301 Congress"), a 22-story Class A office building located
in the Central Business District ("CBD") submarket of Austin, Texas, in fee
simple and the rights appurtenant and related to such office building. The
Company acquired its interest in 301 Congress from Aetna, an unaffiliated
entity, for approximately $21.6 million, all of which was financed through a
short-term loan with The First National Bank of Boston. The loan, which bears
interest at the rate of 7.50% per annum, is due on June 30, 1996. Management
believes that this property is suitable and adequate for its continued use as
a Class A office property and is adequately covered by insurance.
Built in 1986, 301 Congress contains approximately 418,000 square feet
of net rentable space located on a 1.54 acre site with an attached 841-space
parking structure.
The Austin CBD has approximately 3.6 million square feet of Class A
office space, which was approximately 54% of Austin's total Class A office
space at March 31, 1996. At March 31, 1996, the Austin CBD Class A office
space was 83% occupied, and the average quoted market rental rate for such
space had decreased 1.9 % to $19.78 (on a full service basis) per square foot
from year end 1995. Leases of Class A office space in the CBD submarket,
inclusive of 301 Congress, generally are triple-net leases meaning that the
tenant is responsible for payment, in addition to rent, of all operating
expenses of the property, including utilities, real estate taxes and
insurance.
301 Congress was 85% leased as of March 31, 1996. Two tenants in 301
Congress lease over 10% of the rentable square footage. As of March 31, 1996,
International Business Machines Corporation ("IBM"), a diversified
international computer company, leased approximately 108,000 rentable
square feet (approximately 25.8% of the rentable square footage) pursuant to
a lease that expires in June of 1998. The current rental rate is $10.22 per
square foot and increases to $19.50 in July 1996. The lease provides for one
5 year renewal option at 90% of the then-prevailing market rate. IBM sublets
approximately 75% of its space to numerous individual tenants but remains
fully liable under its lease. As of March 31, 1996, Lumbermen's Investment
Corporation ("LIC"), a real estate development company, leased
approximately 65,000 square feet (approximately 15.5% of the rentable
square footage) pursuant to a lease that expires October 2000. The current
rental rate is $20.50 per square foot with no future increases. LIC sublets
approximately 40% of its space to three individual tenants but remains fully
liable under its lease.
The aggregate tax bases of depreciable real property and improvements
and personal property of 301 Congress for federal income tax purposes were
approximately $42.8 million and $.4 million, respectively, as of March 31,
1996. Depreciation and amortization are computed for federal income tax
purposes using straight line methods over lives which range from 3 to 39
years for the real property and improvements, and which are 5 to 7 years for
the personal property.
The 1995 realty tax rate for real property is $2.394 per $100 of the $42
million assessed value. The total amount of tax at this rate for 1995 was
approximately $1.0 million.
For the year ended December 31, 1995, utility expense was approximately
$760,538 and expenses for repairs, maintenance and contract services were
approximately $1,029,357. In the third quarter of 1996, there is a proposed
$400,000 capital improvement project to recaulk the exterior of the building,
which will be funded through working capital of the partnership.
<PAGE>
The following chart sets forth the year-end occupancy and average rent
per leased square foot (excluding storage space) for the five years ended
December 31, 1995 (except as noted), and for the three months ended March 31,
1996.
YEAR OCCUPANCY AVERAGE RENT(1)(2)
---- --------- ------------------
1991 81.8% $11.01
1992 90.5 9.86
1993 92.6 9.94
1994 96.8 11.24
1995 97.3 11.30
3/31/96 85.4 12.44
(1) Represents annual base rental revenues (excluding scheduled rent
increases and free rent) divided by average occupancy for the year.
(2) Leases are triple-net, with the tenant responsible for payment, in addition
to rent, of all operating costs of the property, including utilities, real
estate taxes and insurance.
The following table sets out a schedule of the lease expirations for
leases in place as of March 31, 1996, for each of the 10 years beginning with
the remainder of 1996 (April 1996 - December 1996), assuming that none of the
tenants exercises renewal options.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE OF ANNUAL
NET RENTABLE OF LEASED TOTAL ANNUAL BASE RENT
NUMBER OF AREA SUBJECT TO NET RENTABLE ANNUAL BASE BASE RENT PER SQ. FT.
TENANTS WITH EXPIRING AREA SUBJECT RENT UNDER REPRESENTED FOR
EXPIRING LEASES TO EXPIRING EXPIRING BY EXPIRING EXPIRING
YEAR OF LEASE EXPIRATION LEASES (SQUARE FEET)(1) LEASES LEASES(2) LEASES LEASES (3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 4 22,178 6.2% $ 164,211 2.8% $ 7.40
1997 3 16,352 4.6 189,792 3.3 11.61
1998 7 140,243 39.4 2,501,167 44.1 17.83
1999 4 32,667 9.2 419,315 7.4 12.84
2000 2 66,841 18.8 1,355,809 24.0 20.28
2001 3 14,342 4.0 172,921 3.0 12.06
2002 - - - - - -
2003 1 16,097 4.5 225,358 4.0 14.00
2004 2 41,466 11.6 544,090 9.6 13.12
2005 1 6,051 1.7 96,816 1.8 16.00
2006 and thereafter - - - - - -
</TABLE>
_____________________
(1)Excludes an aggregate of 62,206 square feet of unleased space as of
March 31, 1996.
(2)Annual base rent (excluding increases in rent and free rent that would be
taken into account under generally accepted accounting principles) for net
rentable area expiring.
(3)Leases are triple-net, with the tenant responsible for payment, in addition
to rent, of all operating costs of the property, including utilities, real
estate taxes and insurance.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
301 CONGRESS
Report of Independent Public Accountants.
Statement of Excess of Revenues Over Specific Operating Expenses
for the Year Ended December 15, 1995.
Notes to Statement.
(B) PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet as of March 31, 1996
(unaudited) and notes thereto.
Pro Forma Consolidated Statements of Operations for the three
months ended March 31, 1996 (unaudited) and the Year Ended
December 31, 1995 (unaudited) and notes thereto.
(C) EXHIBITS
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 3, 1996 CRESCENT REAL ESTATE EQUITIES, INC.
By: /s/ DALLAS E. LUCAS
------------------------------------
Dallas E. Lucas
Senior Vice President and
Chief Financial Officer
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
301 CONGRESS
Report of Independent Public Accountants......................... F-3
Statement of Excess of Revenues Over Specific Operating
Expenses for the Year Ended December 15, 1995.................... F-4
Notes to Statement............................................... F-5
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Consolidated Balance Sheet as of March 31, 1996
and notes thereto................................................ F-7
Pro Forma Consolidated Statements of Operations for the three
months ended March 31, 1996 and the Year Ended December 31,
1995 and notes thereto........................................... F-10
F-1
<PAGE>
301 CONGRESS
STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 15, 1995
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Crescent Real Estate Equities, Inc.:
We have audited the accompanying statement of excess of revenues over specific
operating expenses (as defined in Note 2) of 301 Congress for the year ended
December 15, 1995. These statements are the responsibility of the Property's
management. Our responsibility is to express an opinion on this statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement referred to above presents fairly, in all material
respects, the excess of revenues over specific operating expenses (as defined in
Note 2) of 301 Congress for the year ended December 15, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 15, 1996
F-3
<PAGE>
301 CONGRESS
STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 15, 1995
<TABLE>
YEAR ENDED
DECEMBER 15,
1995
------------
<S> <C>
REVENUES (Note 1):
Rental $4,191,913
Recoveries 2,845,669
Other 1,092,207
----------
8,129,789
----------
SPECIFIC OPERATING EXPENSES (Note 2):
Real estate taxes 1,049,733
Utilities 760,538
Repairs, maintenance, and contract services 1,029,357
Rental property operating 113,772
General and administrative 304,281
Management fees 175,111
----------
3,432,792
----------
EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES $4,696,997
----------
----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
301 CONGRESS
NOTES TO STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 15, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF PROPERTY
Aetna Life Insurance Company ( the "Owner") owns 301 Congress (the "Property"),
an office project and parking garage located in Austin, Texas. The Property
consists of one twenty-two story office tower containing approximately 423,000
rentable square feet. A multi-level parking garage is located adjacent to the
building that contains approximately 904 covered parking spaces.
RENTAL INCOME
Rents from leases are accounted for on an accrual basis in accordance with
generally accepted accounting principles.
RECOVERIES
A portion of the operating expenses is charged back to tenants on a monthly
basis based upon estimated expenses. These charges are adjusted at year-end,
based upon actual expenses.
OTHER INCOME
Other income consists primarily of parking fees, health club fees, and recycling
income. Tenants who choose to become members of the health club are charged
approximately $40 per person, on a monthly basis. In addition, the Property
received approximately $320,000 as a partial settlement of a disputed receivable
and has recorded the amount as other income.
2. BASIS OF ACCOUNTING:
The accompanying statement of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. This statement is
not intended to be a complete presentation of revenues and operating expenses
for the year ended December 15, 1995, as certain costs such as depreciation and
amortization, interest, and partnership administrative expenses have been
excluded, since they are not comparable to the proposed future operations of the
Property.
3. RELATED PARTY TRANSACTIONS:
The Owner entered into a management agreement with Trammell Crow (the "Manager")
at the time the building was constructed in 1986. The agreement with the Manager
requires a management fee of 2% of gross revenues, as defined. Total
management fees for 1995 were $175,111. The management agreement does not
specify a termination date, however, either the Owner or the Manager can
terminate at any time with a 30 day notice. If terminated, the management fees
must be paid through the month in which the Manager's service will extend.
F-5
<PAGE>
The Manager occupies approximately 4% of total leasable square footage under a
lease, which expires in November 1996.
4. SIGNIFICANT TENANTS:
The Property has three tenants that collectively occupy over 230,000 square
feet. The largest tenant occupies 26% of the total leasable square footage.
This lease expires in June 1998. This tenant has subleased 88,082 square feet
of this space.
The second largest tenant occupies 16% of the total leasable square footage.
This lease expires in October 2000.
The third largest tenant occupies 13% of the total leasable square footage under
multiple leases with different expiration dates. A significant portion of these
leases (89%) for this tenant expire in March of 1996. The tenant has moved out
of most of this space, but continues to pay rent through the termination of the
lease agreement. The remaining leases (11%) expire in July 2005.
F-6
<PAGE>
CRESCENT REAL ESTATE EQUITIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(Dollars in Thousands)
(Unaudited)
The following unaudited pro forma Consolidated Balance Sheet has been
presented as if the acquisition and related financing described in the Notes
hereto had occurred as of March 31, 1996. This unaudited pro forma
Consolidated Balance Sheet should be read in conjunction with the
consolidated historical financial statements of Crescent Real Estate
Equities, Inc. and notes thereto. In management's opinion, all adjustments
necessary to reflect the above transactions have been made.
This unaudited pro forma Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position would have been as of March
31, 1996, nor does it purport to represent the future financial position of
the Company.
F-7
<PAGE>
CRESCENT REAL ESTATE EQUITIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
CRESCENT
REAL ESTATE
EQUITIES, INC. PRO FORMA PRO FORMA
HISTORICAL (A) ADJUSTMENTS CONSOLIDATED
-------------- ----------- ------------
<S> <C> <C> <C>
ASSETS:
Investment properties, at cost $1,024,617 $43,200 (B) $1,067,817
Less - Accumulated depreciation (180,473) - (180,473)
---------- ------- ----------
844,144 43,200 887,344
Cash and cash equivalents 20,365 900 (C) 21,265
Restricted cash and cash equivalents 14,412 - 14,412
Accounts receivable, net 9,871 - 9,871
Deferred rent receivable 10,894 - 10,894
Investments in real estate mortgages and common
stock of Residential Development Corporations 31,347 - 31,347
Notes receivable 18,896 - 18,896
Other assets, net 37,106 - 37,106
---------- ------- ----------
Total assets $ 987,035 $44,100 $1,031,135
---------- ------- ----------
---------- ------- ----------
LIABILITIES:
Notes payable $ 484,121 $22,500 (D) $ 506,621
Accounts payable, accrued expenses and other liabilities 19,745 - 19,745
---------- ------- ----------
Total liabilities 503,866 22,500 526,366
---------- ------- ----------
MINORITY INTEREST 82,129 21,600 (E) 103,729
STOCKHOLDERS' EQUITY:
Common stock 236 - 236
Additional paid-in capital 423,999 - 423,999
Deferred compensation on restricted shares (455) - (455)
Retained deficit (22,740) - (22,740)
---------- ------- ----------
Total stockholders' equity 401,040 - 401,040
---------- ------- ----------
Total liabilities and stockholders' equity $ 987,035 $44,100 $1,031,135
---------- ------- ----------
---------- ------- ----------
</TABLE>
See accompanying notes to Pro Forma Consolidated Balance Sheet.
F-8
<PAGE>
CRESCENT REAL ESTATE EQUITIES, INC.
PROFORMA CONSOLIDATED BALANCE SHEET
ADJUSTMENTS
(Dollars in Thousands)
<TABLE>
<S> <C>
(A) Reflects Crescent Real Estate Equities, Inc. unaudited consolidated historical
balance sheet as of March 31, 1996. ---
(B) Increase reflects the formation of 301 Congress Avenue, L.P.:
Partnership assets $43,200
-------
-------
(C) Increase reflects the following:
Excess proceeds from borrowings $ 900
-------
-------
(D) Increase reflects the following:
Short-term borrowings from Bank of Boston $22,500
-------
-------
(E) Increase reflects the following:
Aetna Life Insurance Company's 50% Joint Venture interest in
301 Congress Avenue, L.P. $21,600
-------
-------
</TABLE>
F-9
<PAGE>
CRESCENT REAL ESTATE EQUITIES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
The following unaudited pro forma Consolidated Statements of Operations
assumes completion of a) 1995 April Offering and Mr. Rainwater's concurrent
$31,000 investment in the Operating Partnership and the use of the net
proceeds therefrom to repay approximately $167,000 of indebtedness secured by
certain of the properties and b) the acquisition of properties during 1995
and 1996, in each case as of January 1, 1995. The unaudited pro forma
Consolidated Statements of Operations should be read in conjunction with the
consolidated historical financial statements of Crescent Real Estate
Equities, Inc. (together with its subsidiaries, the "Company") and notes
thereto. In management's opinion, all adjustments necessary to reflect the
above transactions have been made.
These unaudited pro forma Consolidated Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Company would have been assuming the above transactions had been consummated
as of January 1, 1995, nor does it purport to represent the results of
operations for future periods.
F-10
<PAGE>
CRESCENT REAL ESTATE EQUITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
CRESCENT REAL
ESTATE
EQUITIES, INC. OTHER 301 CONGRESS PRO FORMA
HISTORICAL (A) ADJUSTMENTS AVENUE (B) CONSOLIDATED
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Rental property $41,997 $ - $1,963 $43,960
Interest and other income 1,063 - - 1,063
------- ------ ------ -------
Total revenues 43,060 - 1,963 45,023
------- ------ ------ -------
EXPENSES:
Real estate taxes 4,033 - 302 4,335
Repairs and maintenance 2,200 - 69 2,269
Other rental property operating 8,721 - 404 9,125
Corporate general and administrative 1,158 - - 1,158
Interest expense 9,159 430 (C) - 9,589
Amortization of deferred financing costs 983 - - 983
Depreciation and amortization 9,054 - 270 9,324
------- ------ ------ -------
Total expenses 35,308 430 1,045 36,783
------- ------ ------ -------
Operating income (loss) 7,752 (430) 918 8,240
OTHER INCOME:
Income from investments in real estate
mortgages and common stock of Residential
Development Corporations 811 - - 811
------- ------ ------ -------
INCOME (LOSS) BEFORE MINORITY INTEREST 8,563 (430) 918 9,051
Minority Interest (1,583) (1)(D) (459) (2,043)
------- ------ ------ -------
NET INCOME (LOSS) $ 6,980 $(431) $ 459 $ 7,008
------- ------ ------ -------
------- ------ ------ -------
NET INCOME PER COMMON SHARE (E) $ 0.30
-------
</TABLE>
See adjustments to Pro Forma Consolidated Statement
of Operations on following page.
F-11
<PAGE>
CRESCENT REAL ESTATE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
ADJUSTMENTS
(Dollars in Thousands)
<TABLE>
<S> <C>
(A) Reflects Crescent Real Estate Equities, Inc. unaudited consolidated historical statement
of operations for the period from January 1, 1996 through March 31, 1996. ---
(B) Reflects full consolidation of the historical incremental rental income and operating
expenses including an adjustment for depreciation based on acquisition price associated
with 301 Congress Avenue, net of joint venture 50% minority interest, assuming the asset
was acquired at the beginning of the period. ---
(C) Reflects an increase as a result of interest costs for short-term financing, assuming the
borrowings to finance the purchase of a 50% interest in 301 Congress Avenue, L.P. had
occurred at the beginning of the period. ---
First Bank of Boston Loan $22,500
Interest rate 7.65%
-------
1,721
Prorated for three months $ 430 $430
----
----
(D) Reflects adjustment needed to reflect minority partners' weighted average 18.44%
interest in the net income of the Operating Partnership less joint venture minority
interest at the beginning of the period. $ (1)
----
----
(E) Reflects net income per share based on 23,535,314 weighted average shares of
Common Stock assumed to be outstanding during the period ended March 31, 1996. ---
</TABLE>
F-12
<PAGE>
CRESCENT REAL ESTATE EQUITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
CRESCENT REAL
ESTATE
EQUITIES, INC. OTHER ACQUIRED 301 CONGRESS PRO FORMA
HISTORICAL (A) ADJUSTMENTS PROPERTIES (B) AVENUE (C) CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
(AUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental property $123,489 $ 674 (D) $40,252 $ 8,130 $172,545
Interest and other income 6,471 (326)(D) 212 - 6,357
-------- -------- ------- ------- --------
Total revenues 129,960 348 40,464 8,130 178,902
-------- -------- ------- ------- --------
EXPENSES:
Repairs and maintenance 7,787 99 (D) 3,197 1,029 12,112
Real estate taxes 12,494 85 (D) 3,021 1,050 16,650
Other rental property operating 25,668 (305)(E) 8,396 1,354 35,264
151 (D)
Corporate general and administrative 3,812 388 (F) - - 4,200
Interest expense 18,781 17,490 (G) - - 36,271
Depreciation and amortization 28,060 89 (D) 5,934 1,080 35,163
Amortization of deferred financing costs 2,500 563 (H) - - 3,063
-------- -------- ------- ------- --------
Total expenses 99,102 18,560 20,548 4,513 142,723
-------- -------- ------- ------- --------
Operating income (loss) 30,858 (18,212) 19,916 3,617 36,179
OTHER INCOME:
Income from investments in real estate
mortgages and common stock of Residential
Development Corporations 5,500 - - - 5,500
-------- -------- ------- ------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST 36,358 (18,212) 19,916 3,617 41,679
Minority Interest (8,963) (457)(I) (564) (1,808) (11,792)
-------- -------- ------- ------- --------
NET INCOME (LOSS) $ 27,395 $(18,669) $19,352 $ 1,809 $ 29,887
-------- -------- ------- ------- --------
-------- -------- ------- ------- --------
NET INCOME PER COMMON SHARE (J) $ 1.34
--------
--------
</TABLE>
See adjustments to Pro Forma Consolidated Statement of Operations on
following page.
F-13
<PAGE>
CRESCENT REAL ESTATE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
ADJUSTMENTS
(Dollars in Thousands)
(A) Reflects Crescent Real Estate Equities, Inc. audited consolidated
historical statement of operations for the period from January 1,
1995 through December 31, 1995. ---
(B) Reflects the historical incremental rental income and operating
expenses including an adjustment for depreciation based on
acquisition price associated with acquired properties and interest
income associated with the mortgage note all acquired in 1995 and
1996, assuming the assets were acquired at the beginning of the
period.
PROPERTY ACQUISITION DATE
-------- ----------------
Hyatt Regency Beaver Creek hotel 1/03/95
Stanford Corporate Centre office building 1/04/95
Mortgage note secured by the Biltmore
Commerce Center office building 2/28/95
The Aberdeen office building (i) 3/13/95
12404 Park Central office building 5/09/95
Barton Oaks Plaza One office building 6/05/95
MCI Tower office building 6/30/95
Denver Marriott City Center hotel (ii) 6/30/95
The Woodlands office properties (iii) 7/12/95
Spectrum Center office building 8/31/95
Ptarmigan Place office building 10/06/95
6225 N. 24th Street office building 11/07/95
Briargate office building and research center 11/21/95
Albuquerque Plaza office building 12/19/95
Hyatt Regency Albuquerque hotel (ii) 12/19/95
3333 Lee Parkway 1/05/96
(i) The building was vacant from January 1995 through
July 1995, therefore no historical information is
presented prior to July.
(ii) Historical operations of the hotel were adjusted to
reflect the lease payments from the hotel lessee to
the Company calculated on a pro forma basis by
applying the rent provisions (as defined in the
lease agreements).
(iii) The Company has a 75% interest in 10 office
properties. ---
(C) Reflects full consolidation of the historical incremental rental
income and operating expenses including an adjustment for
depreciation based on acquisition price associated with 301
Congress Avenue, net of 50% joint venture minority interest,
assuming the asset was acquired at the beginning of the period. ---
F-14
<PAGE>
(D) Decrease as a result of the elimination of interest income for the
Spectrum Note in September and recording historical incremental
rental income and operating expenses associated with the property
based upon an agreement with the borrower and its partners, the
Company transferred the ground lessor's interest in the land
underlying the building and the Spectrum Note to a partnership in
return for a general partner interest. As a result, the Company
began consolidating the operations of the property due to its
economic control of the property's cash flows. $ (76)
-------
-------
(E) Decrease as a result of the elimination of third party property
management fees which terminated upon acquisition of certain of
the properties. $ (305)
-------
-------
(F) Increase reflects the estimated incremental general and
administrative costs associated with the increase in personnel
due to numerous acquisitions in 1995. $ 388
-------
-------
(G) Net increase as a result of interest costs for long and short-
term financing, as follows, net of repayment with proceeds of
the April 1995 Offering and Mr. Rainwater's concurrent $31,000
investment, assuming the borrowings to finance property
acquisitions had occurred at the beginning of the period.
First Bank of Boston Loan $ 30,500
Interest rate 7.65%
--------
2,333
Nomura Fund I $239,000
Interest rate 7.83%
--------
18,714
Nomura Fund II $161,000
Interest rate 7.79%
--------
12,542
Cigna Loan $ 63,500
Interest rate 7.47%
--------
4,743
Mortgage note assumed in the
Woodlands acquisition $ 12,621
Interest rate 8.83%
--------
1,114
Total annual amount $ 39,446
Less:
Historical interest expense (18,781)
The Aberdeen capitalized interest (1,200)
Land Development capitalized interest (1,363)
Working capital interest (612)
--------
$17,490
-------
-------
F-15
<PAGE>
(H) Increase reflects the incremental amortization expense from costs
of obtaining the Nomura Loans and CIGNA Loan.
Loan Closing Costs on Nomura Loans $6,000
Average term of Nomura Loans 11 years
------
545
Prorate for eight months $ 363
Loan Closing Costs on CIGNA Loan $1,400
Term of CIGNA Loan 7 years
------
200
Prorated for twelve months $ 200
------
$ 563
-------
-------
(I) Reflects adjustment needed to reflect minority partners' weighted
average 22.63% interest in the net income of the Operating
Partnership less joint venture minority interest assuming
completion of the 1995 April Offering at the beginning of
the period. $ (457)
-------
-------
(J) Reflects net income per share based on 22,289,059 weighted
average shares of Common Stock assumed to be outstanding
during the year ended December 31, 1995. ---
F-16
