<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 15, 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 Offices) (Zip Code)
(212) 836-4216
(Registrant's telephone number, including area code)
<PAGE> 2
The Form 8-K/A of Crescent Real Estate Equities, Inc. (the "Company"),
dated August 15, 1996 and filed on September 27, 1996, is being amended and
restated in its entirety to update certain information relating to the
acquisition of the Greenway Plaza Portfolio and to reflect changes in the pro
forma financial information resulting from the Company's closing of its common
stock offerings in October 1996.
<PAGE> 3
ITEM 5. OTHER EVENTS
GREENWAY PLAZA PORTFOLIO. On August 15, 1996, Crescent Real Estate
Equities, Inc. (collectively with its subsidiaries, "the Company"), signed a
contract to purchase from unaffiliated entities 10 suburban office properties
totaling 4.3 million net rentable square feet ("Greenway Plaza Office
Portfolio"), a 389-room full service hotel, a private health and dining club, a
central plant which provides heated and chilled water to both the Greenway Plaza
Office Portfolio and third parties, and six parking garages (collectively with
the Greenway Plaza Office Portfolio, hereinafter referred to as the "Greenway
Plaza Portfolio") located in Houston, Texas. Located on 50.3 acres, the
Greenway Plaza Office Portfolio consists of 2.0 million net rentable square
feet of Class A and 2.3 million net rentable square feet of Class B office
space. The office buildings were constructed between 1969 and 1982 and range in
size from 150,000 to 880,000 net rentable square feet. Structured parking
accommodates approximately 11,500 cars. The Greenway Plaza Portfolio is
situated between Houston's two major business centers, the Central Business
District and the West Loop 610/Galleria areas, in the Richmond-Buffalo Speedway
submarket. The Greenway Plaza Portfolio will be owned in fee simple along with
the rights appurtenant and related to this portfolio. This acquisition closed
on October 7, 1996.
The aggregate cost of the acquisition of the Greenway Plaza Portfolio
was approximately $206 million. The acquisition price includes the Company's
assumption of $115 million of nonrecourse indebtedness. The $115 million
nonrecourse loan with Asset Securitization Corporation (the "Nomura Loan") is
secured by the Greenway Plaza Portfolio. The Nomura Loan bears interest at the
30-day LIBOR rate plus an average rate of 2.135% per annum (7.60% at August 31,
1996) pursuant to a rate cap agreement which caps the overall interest rate at
10% through the maturity date, and has a term during which only interest is
payable, with a final payment of $115 million due at maturity in July 1999. The
loan may be prepaid in whole or in part subject to certain prepayment conditions
and penalties. The Company also paid directly an additional $66 million of the
cost of the acquisition from the proceeds of the issuance and sale of 11,500,000
shares of its common stock. The Company financed the balance of the cost of the
acquisition through the issuance and sale of approximately $25 million of
shares of common stock in an amount based on the market price at the time of
the closing (599,332 shares of common stock based on a price of approximately
$41.713 per share). Management believes that the Greenway Plaza Portfolio is
suitable and adequate for continued use as Class A and B office properties,
full-service hotel, health and dining club, central plant and parking garages
and is adequately covered by insurance.
The Greenway Plaza Office Portfolio was 72% leased as of June 30, 1996,
(94% of the Class A office space and 53% of the Class B office space) with a
weighted average base rental rate per square foot of $12.65 ($13.36 for Class
A office space and $11.52 for Class B office space). The hotel and club are
under triple-net lease arrangements with unaffiliated third parties. The
Greenway Plaza Office Portfolio is leased to more than 280 tenants, the major
tenants having principal businesses in the industry sectors of energy service,
investment management and natural gas. One tenant in the Greenway Plaza
Office Portfolio, The Coastal Corporation ("Coastal"), an energy service
company, leases over 10% of the net rentable square footage. As of June 30,
1996, Coastal leased approximately 641,000 net rentable square feet
(approximately 15.1% of the net rentable square footage of the Greenway Plaza
Office Portfolio) pursuant to leases that expire in June 2010 and December
2014. The current base rental rate per square foot for approximately 617,000
net rentable square feet is $13.50, and thereafter increases periodically
during the lease term up to $28.00 in January 2006 where it remains in effect
until December 2014. This lease provides for two 5 year renewal options at the
then-prevailing market rental rates. The current base rental rate per square
foot for approximately 24,000 net rentable square feet is $13.50, and
thereafter increases periodically during the lease term up to $19.00 in July
2005 where it remains in effect until June 2010. This lease provides for one
4.5 year renewal, and two 5 year renewal options at the then-prevailing market
rental rates.
2
<PAGE> 4
The Richmond-Buffalo Speedway submarket consists of 10.4 million
square feet of office space, of which 3.9 million square feet is Class A space
and 3.7 million square feet is Class B space. As of June 30, 1996, Class A and
Class B suburban office occupancies in the Richmond-Buffalo Speedway submarket
were 95% and 68%, respectively, and average quoted market rental rates were
$13.37 and $12.62 per square foot, respectively.
Upon completion of this acquisition, the aggregate tax basis of
depreciable real property and improvements and personal property of the Greenway
Plaza Portfolio for federal income tax purposes will be approximately $206
million. Depreciation and amortization are computed for federal income tax
purposes using straight line methods over lives which range from 15 to 39 years
for the real property and improvements, and 5 to 7 years for the personal
property.
The 1995 realty tax rate for real property was $2.73 per $100 of the
$214 million assessed value. The total amount of tax at this rate for 1995 was
approximately $5.8 million of which $.3 million was attributable to the hotel
and club pursuant to their triple-net lease arrangements.
For the year ended December 31, 1995 and the five months ended May 31,
1996, utility expense was approximately $6.8 million and $2.9 million,
respectively, and expenses for repairs, maintenance and contract services were
approximately $5.2 million and $2.8 million, respectively.
The Company is currently evaluating the nature, extent and timing of
capital improvements that the Greenway Plaza Portfolio will require during the
next 10 years. Major projects identified consist of renovation of the central
plant and building and lobby renovations in two of the office buildings.
Management believes a portion of these expenditures will be recovered from the
tenants. In addition, certain of the office buildings, the garages and the hotel
in the Greenway Plaza Portfolio contain asbestos. Based on third-party asbestos
abatement reports, however, the Company does not believe that abatement costs or
other costs associated with asbestos clean-up in these buildings will have a
material adverse impact on the Company's business, financial condition or
results of operations. Management anticipates that a significant portion of
these expenditures will be incurred only upon leasing of currently vacant space
or re-leasing or renovation of occupied space.
The following chart sets forth the Greenway Plaza Office Portfolio
year-end occupancy and average rent per leased square foot (excluding storage
space) for the five years ended December 31, 1995, and for the six months ended
June 30, 1996.
<TABLE>
<CAPTION>
YEAR OCCUPANCY AVERAGE RENT(1)
---- --------- ------------
<S> <C> <C>
1991 81.9% $11.62
1992 84.1 12.14
1993 83.9 12.39
1994 83.7 12.71
1995 77.7 13.10
6/30/96 71.5 13.24
</TABLE>
(1) Represents annual base rental revenues (excluding scheduled rent increases
and free rent that would be taken into account under generally accepted
accounting principles) divided by average occupancy in square footage for the
year.
3
<PAGE> 5
The following table sets forth a schedule of the Greenway Plaza Office
Portfolio lease expirations for leases in place as of June 30, 1996, for each
of the 10 years beginning with the remainder of 1996 (July 1996 through
December 1996), assuming that none of the tenants exercises renewal options.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE OF
NET RENTABLE OF LEASED TOTAL ANNUAL ANNUAL BASE
NUMBER OF AREA SUBJECT TO NET RENTABLE ANNUAL BASE BASE RENT RENT PER SQ.
TENANTS WITH EXPIRING LEASES AREA SUBJECT RENT UNDER REPRESENTED FT. FOR
EXPIRING (SQUARE TO EXPIRING EXPIRING BY EXPIRING EXPIRING
YEAR OF LEASE EXPIRATION LEASES FEET)(1) LEASES LEASES(2) LEASES LEASES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 44 134,579 4.4% $1,348,455 2.5% $10.02
1997 61 268,373 8.8 3,566,713 6.7 13.29
1998 49 292,174 9.5 3,971,527 7.5 13.59
1999 42 378,976 12.4 5,008,380 9.4 13.22
2000 28 251,639 8.2 3,372,221 6.4 13.40
2001 19 147,501 4.8 2,120,725 4.0 14.38
2002 16 192,136 6.3 3,057,212 5.8 15.91
2003 15 438,696 14.3 7,032,904 13.3 16.03
2004 1 1,458 0.1 32,805 .1 22.50
2005 3 31,972 1.0 444,132 .8 13.89
2006 and thereafter 4 925,061 30.2 23,068,874 43.5 24.94
</TABLE>
- --------------------
(1) Excludes an aggregate of 1,194,320 square feet of unleased space as of June
30, 1996.
(2) Based on base rent payable as of the expiration day of 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 generally
accepted accounting principles and excluding (i) any operating costs (such
as utilities, real estate taxes and/or insurance) payable by the tenants
and (ii) any expense reimbursements received from the tenants.
The pro forma financial information reflects the acquisition of the Greenway
Plaza Portfolio and the issuance and sale of 11,950,000 shares of the Company's
common stock in October 1996.
4
<PAGE> 6
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS UNDER RULE 3-14 OF REGULATION S-X
GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD.
Report of Independent Certified Public Accountants.
Combined Statement of Excess of Revenues Over Specific Operating
Expenses for the Year Ended December 31, 1995.
Notes to Statement.
GREENWAY PLAZA
Report of Independent Public Accountants.
Combined Statement of Excess of Revenues Over Specific Operating
Expenses for the Five Months Ended May 31, 1996.
Notes to Statement.
(B) PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet as of June 30, 1996 (unaudited)
and notes thereto.
Pro Forma Consolidated Statements of Operations for the six months
ended June 30, 1996 (unaudited) and the Year Ended December 31,
1995 (unaudited) and notes thereto.
(C) EXHIBITS
The following is a list of all exhibits filed as a part of this
Form 8-K/A.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
23.01 Consent of Arthur Andersen, LLP, Independent Public Accountants,
dated September 27, 1996 (previously filed).
23.02 Consent of Grant Thornton LLP, Independent Certified Public
Accountants, dated September 27, 1996 (previously filed).
</TABLE>
5
<PAGE> 7
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: November 11, 1996 CRESCENT REAL ESTATE EQUITIES, INC.
By: /s/ Dallas E. Lucas
-----------------------------------
Dallas E. Lucas
Senior Vice President and
Chief Financial Officer
<PAGE> 8
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD.
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . F-2
Combined Statement of Excess of Revenues Over Specific Operating Expenses for the
Year Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Notes to Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
GREENWAY PLAZA
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . F-10
Combined Statement of Excess of Revenues Over Specific Operating Expenses for the
Five Months Ended May 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . F-11
Notes to Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Consolidated Balance Sheet as of June 30, 1996 and notes
thereto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
Pro Forma Consolidated Statements of Operations for the six months ended June 30,
1996 and the Year Ended December 31, 1995 and notes thereto . . . . . . . . . . . . F-19
</TABLE>
<PAGE> 9
COMBINED STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
GREENWAY PLAZA, LTD. AND
NINE GREENWAY, LTD.
FOR THE YEAR ENDED DECEMBER 31, 1995
F-1
<PAGE> 10
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the members of the Partnerships
Greenway Plaza, Ltd. and Nine Greenway, Ltd.
We have audited the accompanying combined statement of excess of
revenues over specific operating expenses (as defined in Note B) of Greenway
Plaza, Ltd. and Nine Greenway, Ltd.(Texas limited partnerships) (the Property)
for the year ended December 31, 1995. This statement is 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements. 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.
F-2
<PAGE> 11
In our opinion, the statement referred to above presents fairly, in all
material respects, the combined excess of revenues over specific operating
expenses (as defined in Note B) of Greenway Plaza, Ltd. and Nine Greenway, Ltd.
for the year ended December 31, 1995, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Houston, Texas
February 9, 1996
F-3
<PAGE> 12
GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD.
COMBINED STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
Year ended December 31, 1995
<TABLE>
<S> <C>
REVENUES
Office $50,177,101
Parking 4,723,571
Utilities 1,813,970
Recoveries 1,693,202
Other 879,467
-----------
59,287,311
SPECIFIC OPERATING EXPENSES
Real estate taxes 5,538,010
Utilities 6,758,581
Repairs, maintenance, and contract services 5,198,670
Salaries 3,951,503
General and administrative 2,907,197
Management fees 1,426,846
Insurance 601,919
-----------
26,382,726
-----------
EXCESS OF REVENUES OVER SPECIFIC OPERATING
EXPENSES $32,904,585
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 13
GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD.
NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
Year ended December 31, 1995
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
1. DESCRIPTION OF PROPERTY
Greenway Plaza (the "Property"), an office and retail project located in
Houston, Texas, is owned by two separate partnerships, Greenway Plaza, Ltd.
and Nine Greenway, Ltd.
Greenway Plaza, Ltd. owns Phase I of Greenway Plaza (Phase I), which consists
of six office towers containing approximately 2.2 million rentable square
feet, four adjacent parking garages with approximately 6,500 parking spaces,
a central plant facility, approximately 99,000 rentable square feet of retail
space, and a 389 room hotel. Phase I, including the land on which the
buildings, garages, central plant, hotel, and retail space are located, is
owned fee simple.
Nine Greenway, Ltd. owns Phase II of Greenway Plaza (Phase II) which is
comprised of four office towers containing approximately 2.0 million rentable
square feet and two adjacent parking garages with approximately 5,000 parking
spaces. Phase II, including the land on which the buildings and garages are
located, is owned fee simple.
2. PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Greenway Plaza,
Ltd. and Nine Greenway, Ltd. and have been presented on a combined basis
because of the affiliated ownership and management, and because of the
proposed sale of the Property to Crescent Real Estate Equities Limited
Partnership. All significant intercompany transactions have been eliminated.
3. RENTAL INCOME
In connection with obtaining certain tenants under long-term leases, the
Partnership grants rent concessions. The aggregate rental payments due over
the terms of the leases are recognized as rental income on a straight-line
basis over the full term of the leases, including the periods of rent
concessions.
4. 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.
F-5
<PAGE> 14
GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD.
NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES - CONTINUED
Year ended December 31, 1995
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
5. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE B - BASIS OF ACCOUNTING
The accompanying combined 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 31, 1995, as certain revenues
and expenses such as interest, depreciation and amortization, and partnership
administrative expenses have been excluded since they are not comparable to
the proposed future operations of the Property.
NOTE C - PROPERTY MANAGEMENT
The Partnerships entered into management agreements with Senterra Development
Corporation (the "Manager") in November 1989. The agreements with the
Manager require a management fee of 3% of gross revenues collected, as
defined, subject to certain maximums. Total management fees for the year
ended December 31, 1995 were $1,426,846. The management agreement shall
continue until it is terminated. The agreement can be terminated by the
Partnerships on 30 days written notice and can be terminated by the Manager
on 60 days written notice. If terminated, the management fees must be paid
through the month in which the Manager's service will extend.
NOTE D - SIGNIFICANT TENANTS
The property has one tenant that occupies approximately 641,000 square feet
or 15% of the total leasable square footage. This lease expires in December
2014.
F-6
<PAGE> 15
GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD.
NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES - CONTINUED
Year ended December 31, 1995
NOTE E - RELATED PARTY TRANSACTIONS
Approximate revenue and expenses from related parties were as follows for the
year ended December 31, 1995:
<TABLE>
<S> <C>
Rental income $ 211,000
Legal fees $ 142,000
Management fees 1,426,000
Marketing fees 909,000
Tenant construction and other 373,000
</TABLE>
NOTE F - FUTURE RENTALS
The following is a schedule by years of minimum future rents receivable on
noncancelable operating leases as of December 31, 1995.
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ------------
<S> <C>
1996 $ 40,063,000
1997 36,739,000
1998 34,082,000
1999 31,155,000
2000 29,259,000
Later years 262,193,000
------------
$433,491,000
============
</TABLE>
NOTE G - SUBSEQUENT EVENT
On April 19, 1996, the owners of Greenway Plaza, Ltd. and Nine Greenway, Ltd.
approved a non-binding letter of intent to sell their interests (including
equity, debt and accrued interest) in the Property to an unaffiliated third
party. The expected sales price is approximately $206,000,000.
F-7
<PAGE> 16
GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD.
NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES - CONTINUED
Year ended December 31, 1995
NOTE H - EXCESS REVENUES OVER SPECIFIC OPERATING EXPENSES
The combining statement of excess revenues over specific operating expenses
for the year ended December 31, 1995 follows:
<TABLE>
<CAPTION>
Nine Greenway
Greenway, Ltd. Plaza, Ltd. Elimination Combined
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Office $29,673,077 $20,504,024 $ - $50,177,101
Parking 2,730,520 1,993,051 - 4,723,571
Utilities 43,985 4,969,878 (3,199,893) 1,813,970
Escalations 897,526 795,676 - 1,693,202
Other 763,406 116,061 - 879,467
----------- ----------- ----------- -----------
Total revenues 34,108,514 28,378,690 (3,199,893) 59,287,311
Specific operating expenses
Real estate and other taxes 3,445,852 2,092,158 - 5,538,010
Utilities 4,838,848 5,119,626 (3,199,893) 6,758,581
Repairs, maintenance and
contract services 2,439,778 2,758,892 - 5,198,670
Salaries 1,537,965 2,413,538 - 3,951,503
General and administrative 1,332,354 1,574,843 - 2,907,197
Management fees 713,423 713,423 - 1,426,846
Insurance 256,087 345,832 - 601,919
----------- ----------- ----------- -----------
Total specific operating
expenses 14,564,307 15,018,312 (3,199,893) 26,382,726
----------- ----------- ----------- -----------
EXCESS OF REVENUES
OVER SPECIFIC
OPERATING
EXPENSES $19,544,207 $13,360,378 $ - $32,904,585
=========== =========== =========== ===========
</TABLE>
F-8
<PAGE> 17
GREENWAY PLAZA
COMBINED STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES FOR THE FIVE MONTHS
ENDED MAY 31, 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-9
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying combined statement of excess of revenues over
specific operating expenses (as defined in Note 2) of Greenway Plaza for the
five months ended May 31, 1996. This statement and the schedule referred to
below are the responsibility of the Property's management. Our responsibility
is to express an opinion on this statement and schedule 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 combined excess of revenues over specific operating
expenses of Greenway Plaza for the five months ended May 31, 1996, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the combined
statement of excess of revenues over specific operating expenses taken as a
whole. The combining information at Schedule I is presented for purposes of
additional analysis. This information has been subjected to the auditing
procedures applied in our audit of the combined statement and, in our opinion,
is fairly stated in all material respects in relation to the combined statement
taken as a whole.
ARTHUR ANDERSEN, LLP
Dallas, Texas,
July 19, 1996
F-10
<PAGE> 19
GREENWAY PLAZA
COMBINED STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE FIVE MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
REVENUES:
Office rent $20,677,339
Parking 1,985,343
Recoveries 797,152
Utilities 633,546
Other 172,251
-----------
24,265,631
-----------
SPECIFIC OPERATING EXPENSES:
Utilities 2,925,702
Repairs, maintenance, and contract services 2,793,597
Real estate taxes 2,205,731
Salaries 1,632,696
General and administrative 570,463
Management fees 609,609
Insurance 259,536
-----------
10,997,334
-----------
EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $13,268,297
===========
</TABLE>
The accompanying notes are an integral part of this combined statement.
F-11
<PAGE> 20
GREENWAY PLAZA
NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
MAY 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Properties
Greenway Plaza (the "Property"), an office and retail project located in
Houston, Texas, is owned by two separate partnerships, Greenway Plaza, Ltd. and
Nine Greenway, Ltd.
Greenway Plaza, Ltd. owns Phase I of Greenway Plaza (Phase I), which consists
of six office towers containing approximately 2.2 million rentable square feet,
four adjacent parking garages with approximately 6,500 parking spaces, a
central plant facility, approximately 99,000 rentable square feet of retail
space, and a 389-room hotel. Phase I, including the land on which the
buildings, garages, central plant, hotel, and retail space are located, is
owned fee simple.
Nine Greenway, Ltd. owns Phase II of Greenway Plaza (Phase II) which is
comprised of four office towers containing approximately 2.0 million rentable
square feet and two adjacent parking garages with approximately 5,000 parking
spaces. Phase II, including the land on which the buildings and garages are
located, is owned fee simple.
Principles of Combination
The combined statement includes the accounts of Greenway Plaza, Ltd. and Nine
Greenway, Ltd. The accompanying combined statement of the Property has been
presented on a combined historical cost basis because of the affiliated
ownership and management. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Rental Income and Deferred Rent Concessions
In connection with obtaining certain tenants under long-term leases, property
management grants rent concessions. The aggregate rental payments due over the
terms of the leases are recognized as rental income on a straight-line basis
over the full term of the leases, including the periods of rent concessions.
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 period-end,
based upon actual expenses.
F-12
<PAGE> 21
2. BASIS OF ACCOUNTING:
The accompanying combined 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 five months ended May 31, 1996, as certain items
such as depreciation, amortization, interest, and partnership administrative
expenses ( i.e. audit fees and tax preparation fees) have been excluded since
they are not comparable to the proposed future operations of the Property.
3. CENTRAL PLANT:
Included within Phase I is a central plant facility which primarily provides
services to chill water for the Property. All properties in Phase I are
allocated costs for chilled water based on actual costs of the central plant
facility. Properties within Phase II are allocated costs based upon
contractually agreed upon terms. The costs to each building and the related
income from each building recorded by the central plant facility are eliminated
in combination. The remaining income represents billings to third parties for
whom the central plant facility provides chilled water.
4. HOTEL LEASE ARRANGEMENT:
Greenway Plaza, Ltd. has leased the hotel to CTF Hotel Holdings, Inc. (the
"Hotel Lessee.") Under the provisions of the lease, which has a term of 25
years expiring on August 31, 2000, with two consecutive five year renewal
options, upon the satisfaction of certain conditions, the Hotel Lessee has
assumed the rights and obligations of the owner as well as the obligation to
pay all real estate taxes and any other charges or claims against the Hotel
lease income. Hotel lease income of $488,333 for the five months ended May 31,
1996, is included in office rent in the accompanying statement of excess of
revenues over specific operating expenses.
5. RELATED PARTY TRANSACTIONS AND PROPERTY MANAGEMENT:
The Property entered into management agreements with Senterra Development (the
"Manager") in November 1989. The agreements with the Manager require a
management fee of 3% of gross monthly collections, as defined, subject to
certain maximums. Total management fees for the five months ended May 31,
1996, were approximately $610,000. The agreement may be terminated at any time
by either party in accordance with the management agreement. If terminated,
the management fees must be paid through the month in which the Manager's
service will extend.
Additional fees are paid to the Manager for leasing commissions. These
commissions are defined in a separate marketing agreement.
6. SIGNIFICANT TENANTS:
The largest tenant of the Property occupies approximately 641,000 square feet,
or 15%, of the total leasable square footage. This lease expires in December,
2014.
7. INTENT TO SELL:
On April 19, 1996, the owners of Nine Greenway, Ltd., and Greenway Plaza, Ltd.,
approved a nonbinding letter of intent to sell their interest (including
equity, debt, and accrued interest) in the Property to an unaffiliated third
party. The expected sales price is approximately $206 million.
F-13
<PAGE> 22
SCHEDULE I
GREENWAY PLAZA
COMBINING STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE FIVE MONTHS ENDED MAY 31, 1996
<TABLE>
<CAPTION>
Combining Information
-----------------------------------------------------------
Greenway Nine
Plaza, Greenway,
Ltd. Ltd. Eliminations Combined
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES:
Office rent $ 8,191,147 $12,486,192 $ - $20,677,339
Parking 685,822 1,299,521 - 1,985,343
Recoveries 278,912 518,240 - 797,152
Utilities 1,996,934 15,436 (1,378,824) 633,546
Other 63,137 109,114 - 172,251
------------ ----------- ----------- -----------
11,215,952 14,428,503 (1,378,824) 24,265,631
------------ ----------- ----------- -----------
SPECIFIC OPERATING EXPENSES:
Utilities 2,181,683 2,122,843 (1,378,824) 2,925,702
Repairs, maintenance, and contract services 1,349,462 1,444,135 - 2,793,597
Real estate taxes 766,285 1,439,446 - 2,205,731
Salaries 982,933 649,763 - 1,632,696
General and administrative 338,862 231,601 - 570,463
Management fees 304,607 305,002 - 609,609
Insurance 142,797 116,739 - 259,536
------------ ----------- ----------- -----------
6,066,629 6,309,529 (1,378,824) 10,997,334
------------ ----------- ----------- -----------
EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $ 5,149,323 $ 8,118,974 $ - $13,268,297
============ =========== =========== ===========
</TABLE>
F-14
<PAGE> 23
CRESCENT REAL ESTATE EQUITIES, INC.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma Consolidated Balance Sheet of Crescent
Real Estate Equities, Inc. (the "Company") as of June 30, 1996, assumes
completion of (i) the issuance and sale made in October 1996 of 11,950,000
shares of the Company's common stock (the "Offerings") and the use of the net
proceeds therefrom to repay approximately $160 million of indebtedness, to pay
approximately $85 million of the acquisition cost of the Greenway Plaza
Portfolio and Canyon Ranch-Lenox, a destination health and fitness resort
(collectively, the "Pending Investments") and to invest the remaining proceeds
of approximately $211 million in short-term marketable securities and (ii) the
acquisition of Properties acquired subsequent to June 30, 1996 and the
completion of the acquisition of the Pending Investments, in each case as of
June 30, 1996. The pro forma Consolidated Statement of Operations for the six
months ended June 30, 1996 assumes completion of (i) the Offerings and the use
of the net proceeds therefrom to repay approximately $160 million of
indebtedness, to pay approximately $85 million of the acquisition cost of the
Pending Investments and to invest the remaining proceeds of approximately $211
million in short-term marketable securities and (ii) the acquisition of the
Properties acquired during 1996 and the completion of the Pending Investments,
in each case as of January 1, 1996. The pro forma Consolidated Statement of
Operations for the year ended December 31, 1995 assumes completion of (i) the
issuance and sale in April 1995 of 5,175,000 shares of the Company's common
stock and Mr. Rainwater's concurrent $31 million investment in the Operating
Partnership and the use of the net proceeds therefrom to repay approximately
$167 million of indebtedness secured by certain of the Properties, (ii) the
Offerings and the use of the net proceeds therefrom to repay approximately $160
million of indebtedness, to pay approximately $85 million of the acquisition
cost of the Pending Investments and to invest the remaining proceeds of
approximately $211 million in short-term marketable securities and (iii) the
acquisition of the Properties acquired during 1995 and 1996 and the completion
of the Pending Investments, in each case as of January 1, 1995.
The unaudited pro forma Consolidated Balance Sheet and Statements
of Operations should be read in conjunction with the historical financial
statements of the Company and the Company's Prospectus Supplement. In
management's opinion, all adjustments necessary to reflect the above discussed
transactions have been made. The unaudited pro forma Consolidated Balance
Sheet and Statements of Operations are not necessarily indicative of what actual
results of operations of the Company would have been for the period, nor does it
purport to represent the Company's results of operations for future periods.
F-15
<PAGE> 24
CRESCENT REAL ESTATE EQUITIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 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 $ 1,098,901 $ 366,115 (B) $ 1,465,016
Less - Accumulated depreciation (188,812) - (188,812)
-------------- ----------- -------------
910,089 366,115 1,276,204
Cash and cash equivalents 11,681 219,704 (C) 231,385
Restricted cash and cash equivalents 14,547 - 14,547
Accounts receivable, net 9,602 - 9,602
Deferred rent receivable 11,612 - 11,612
Investments in real estate mortgages and common
stock of residential development corporations 30,947 7,659 (D) 38,606
Notes receivable 20,465 3,000 (E) 23,465
Other assets, net 44,423 - 44,423
-------------- ----------- --------------
Total assets $ 1,053,366 $ 596,478 $ 1,649,844
============== =========== ==============
LIABILITIES:
Borrowings under Credit Facility $ 58,355 $ (37,355)(F) $ 21,000
Notes payable 476,053 123,000 (G) 599,053
Accounts payable, accrued expenses and other liabilities 22,103 - 22,103
-------------- ----------- -------------
Total liabilities 556,511 85,645 642,156
-------------- ----------- -------------
MINORITY INTEREST:
Operating Partnership 69,887 27,000 (H) 96,887
Investment Joint Ventures 31,820 2,729 (I) 34,549
-------------- ----------- -------------
Total minority interests 101,707 29,729 131,436
-------------- ----------- -------------
STOCKHOLDERS' EQUITY:
Common stock 236 126 362
Additional paid-in capital 424,652 480,978 905,630
Deferred compensation on restricted shares (364) - (364)
Retained deficit (29,376) - (29,376)
-------------- ----------- -------------
Total stockholders' equity 395,148 481,104 (J) 876,252
-------------- ----------- -------------
Total liabilities and stockholders' equity $ 1,053,366 $ 596,478 $ 1,649,844
============== =========== =============
</TABLE>
See adjustments to Pro Forma Consolidated Balance Sheet on the following pages.
F-16
<PAGE> 25
CRESCENT REAL ESTATE EQUITIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
Adjustments
(Dollars in Thousands)
<TABLE>
<S> <C> <C>
(A) Reflects Crescent Real Estate Equities, Inc. unaudited consolidated historical
balance sheet at June 30, 1996. ---
(B) Increase reflects the following:
Acquisition of 1615 Poydras office property $ 36,450
Acquisition of Canyon Ranch - Tucson resort 56,750
Acquisition of Three Westlake Park office property 29,000
Acquisition of two office properties in The Woodlands 10,915
Pending acquisition of Canyon Ranch - Lenox resort 27,000
Pending acquisition of the Greenway Plaza Portfolio 206,000
---------------
$ 366,115
===============
(C) Increase reflects the following:
Excess proceeds from borrowings for Canyon Ranch - Tucson resort $ 750
Excess proceeds from working capital draw 8,000
Excess proceeds from the Offerings 210,954
---------------
$ 219,704
===============
(D) Increase reflects the following:
Additional investment in residential development corporations $ 7,659
===============
(E) Increase reflects the following:
Canyon Ranch - Tucson resort note receivable $ 3,000
===============
(F) Net decrease reflects the following:
Increase in borrowings under the Credit Facility as a result of:
Acquisition of 1615 Poydras office property $ 24,800
Acquisition of Canyon Ranch - Tucson resort 33,500
Acquisition of Three Westlake Park office property 29,000
Acquisition of two office properties in The Woodlands 8,186
Working capital draw 15,659
Repayment of Credit Facility using proceeds of the Offerings (148,500)
---------------
$ (37,355)
===============
</TABLE>
F-17
<PAGE> 26
<TABLE>
<S> <C> <C>
(G) Net increase reflects the following:
Short-term borrowings for the acquisition of 1615 Poydras office property $ 11,650
Assumption of debt for the pending acquisition of the Greenway Plaza Portfolio 115,000
Assumption of debt for the pending acquisition of Canyon Ranch - Lenox resort 8,000
Repayment of short-term borrowings using proceeds of the Offerings (11,650)
---------------
$ 123,000
===============
(H) Increase reflects the following:
Issuance of Operating Partnership units for Canyon Ranch - Tucson resort $ 27,000
===============
(I) Increase reflects the following:
Minority interest for the two office properties in The Woodlands $ 2,729
===============
(J) Net increase reflects the following:
Proceeds of the Offering (11.5 million shares of common stock at $40.375 per share
and 450,000 shares of common stock at $42.00 per share (the "Offerings")) $ 483,213
Estimated costs of the Offerings (2,500)
Underwriters' discount for the Offerings (24,609)
Issuance of shares for the Greenway Plaza Portfolio 25,000
---------------
$ 481,104
===============
</TABLE>
F-18
<PAGE> 27
CRESCENT REAL ESTATE EQUITIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Crescent Real
Estate Greenway 1996 Acquired
Equities, Inc. Plaza and Pending Other Pro Forma
Historical (A) Portfolio (B) Properties (C) Adjustments Consolidated
-------------- --------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental property $ 85,549 $ 29,119 $ 14,924 $ - $ 129,592
Interest and other income 2,510 - - 6,329 (D) 8,839
------------- -------------- --------------- -------------- -----------------
Total revenues 88,059 29,119 14,924 6,329 138,431
------------- -------------- --------------- -------------- -----------------
EXPENSES:
Real estate taxes 8,377 2,647 1,432 - 12,456
Repairs and maintenance 4,879 3,352 1,101 - 9,332
Other rental property operating 17,842 7,198 2,254 - 27,294
Corporate general and administrative 2,299 - - - 2,299
Interest expense 19,018 - - 4,299 (E) 23,317
Depreciation and amortization 18,281 2,575 2,646 - 23,502
Amortization of deferred financing costs 1,320 - - - 1,320
------------- -------------- --------------- -------------- -----------------
Total expenses 72,016 15,772 7,433 4,299 99,520
------------- -------------- --------------- -------------- -----------------
Operating income (loss) 16,043 13,347 7,491 2,030 38,911
OTHER INCOME:
Equity in net income of residential
development corporations 2,175 - - - 2,175
------------- -------------- --------------- -------------- -----------------
INCOME (LOSS) BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 18,218 13,347 7,491 2,030 41,086
Minority interests (3,619) - (533) (2,492)(F) (6,644)
------------- -------------- --------------- -------------- -----------------
INCOME BEFORE EXTRAORDINARY ITEM 14,599 13,347 6,958 (462) 34,442
Extraordinary item (1,306) - - - (1,306)
------------- -------------- --------------- -------------- -----------------
NET INCOME (LOSS) $ 13,293 $ 13,347 $ 6,958 $ (462) $ 33,136
============= ============== =============== ============== =================
PER SHARE DATA (G):
Income before extraordinary item $ 0.95
Extraordinary item (0.04)
-----------------
Net income $ 0.91
=================
</TABLE>
See adjustments to Pro Forma Consolidated Statement of Operations
on the following pages.
F-19
<PAGE> 28
CRESCENT REAL ESTATE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
ADJUSTMENTS
(Dollars in Thousands)
<TABLE>
<S> <C> <C>
(A) Reflects Crescent Real Estate Equities, Inc. unaudited consolidated
historical statement of operations for the period from January 1, 1996
through June 30, 1996.
---
(B) Reflects the historical incremental rental income and operating
expenses including an adjustment for depreciation based on acquisition
price associated with the Greenway Plaza Portfolio, proposed to be
acquired in 1996, assuming the portfolio was acquired at the beginning
of the period.
---
(C) Reflects the historical incremental rental income and operating
expenses including an adjustment for depreciation based on acquisition
price associated with acquired and pending acquisition properties, all
acquired or proposed to be acquired in 1996, assuming the assets were
acquired at the beginning of the period.
</TABLE>
<TABLE>
<CAPTION>
PROPERTY ACQUISITION DATE
-------- ----------------
<S> <C>
3333 Lee Parkway office property 1/05/96
301 Congress Avenue office property (i) 4/18/96
Central Park Plaza office property 6/13/96
Canyon Ranch - Tucson resort (ii) 7/26/96
The Woodlands office properties (iii) 7/31/96
Three Westlake Park office property 8/16/96
1615 Poydras office property 8/23/96
Canyon Ranch - Lenox resort (iv) pending
</TABLE>
<TABLE>
<S> <C> <C> <C>
(i) The Company has a 1% general partner and a 49% limited
partner interest in the partnership that owns 301
Congress Avenue.
(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 the partnership that
owns these two office properties.
(iv) Historical operations of the resort were adjusted to
estimate the lease payments from the hotel lessee to
the Company.
</TABLE>
<TABLE>
<S> <C> <C>
(D) Increase reflects the incremental interest income associated
with the excess cash available from the Offerings in the amount
of $210,954 at an interest rate of 6%. $6,329
======
(E) Net increase as a result of interest costs for long and
short-term financing, as follows, net of repayment with proceeds
of the Offerings, assuming the borrowings to finance property
acquisitions and assumption of debt and repayment, had all
occurred at the beginning of the period.
</TABLE>
F-20
<PAGE> 29
<TABLE>
<S> <C> <C>
Credit Facility $ 21,000
Interest rate 7.90%
------------
1,659
Prorated for six months $ 830
Less: Historical Credit Facility
Interest Expense (465)
------------
$ 365
============
Greenway Nomura Loan $ 115,000
Interest rate 7.65%
------------
8,798
Prorate for six months $ 4,399
============
Canyon Ranch - Lenox loan $ 8,000
10.07%
------------
$ 806
Prorate for six months $ 403
============
Less:
Land development capitalized
interest $ (868)
============
$ 4,299
============
(F) Reflects adjustment needed to reflect minority partners' weighted
average 14.40% interest in the net income of the Operating Partnership
less joint venture minority interests assuming completion of the
Offerings at the beginning of the period.
$ (2,492)
============
(G) Reflects net income per share based on 36,097,006 weighted average
shares of Common Stock assumed to be outstanding during the six months
ended June 30, 1996.
---
</TABLE>
F-21
<PAGE> 30
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 Greenway 1996 Acquired
Equities, Inc. 1995 Acquired Plaza and Pending
Historical (A) Properties (B) Portfolio (C) Properties(D)
--------------- -------------- ------------- --------------
(audited)
<S> <C> <C> <C> <C>
REVENUES:
Rental property $ 123,489 $ 38,283 $ 59,287 $ 34,867
Interest and other income 6,471 212 - -
---------- ----------- ----------- -----------
Total revenues 129,960 38,495 59,287 34,867
---------- ----------- ----------- -----------
EXPENSES:
Real estate taxes 12,494 2,912 5,538 3,360
Repairs and maintenance 7,787 2,964 5,199 3,653
Other rental property operating 25,668 7,257 15,647 5,794
Corporate general and administrative 3,812 - - -
Interest expense 18,781 - - -
Depreciation and amortization 28,060 5,571 5,150 5,957
Amortization of deferred financing costs 2,500 - - -
---------- ----------- ----------- -----------
Total expenses 99,102 18,704 31,534 18,764
---------- ----------- ----------- -----------
Operating income (loss) 30,858 19,791 27,753 16,103
OTHER INCOME:
Equity in net income of residential
development corporations 5,500 - - -
---------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTERESTS 36,358 19,791 27,753 16,103
Minority interests (8,963) (564) - (1,808)
---------- ----------- ----------- -----------
NET INCOME (LOSS) $ 27,395 $ 19,227 $ 27,753 $ 14,295
========== =========== =========== ===========
NET INCOME PER COMMON SHARE (L)
</TABLE>
<TABLE>
<CAPTION>
Other Pro Forma
Adjustments Consolidated
------------- --------------
<S> <C> <C>
REVENUES:
Rental property $ 674 (E) $ 256,600
Interest and other income (326)(E) 19,014
12,657 (F)
--------- --------------
Total revenues 13,005 275,614
--------- --------------
EXPENSES:
Real estate taxes 85 (E) 24,389
Repairs and maintenance 99 (E) 19,702
Other rental property operating (305)(G) 54,212
151 (E)
Corporate general and administrative 788 (H) 4,600
Interest expense 26,816 (I) 45,597
Depreciation and amortization 89 (E) 44,827
Amortization of deferred financing costs 563 (J) 3,063
--------- --------------
Total expenses 28,286 196,390
--------- --------------
Operating income (loss) (15,281) 79,224
OTHER INCOME:
Equity in net income of residential
development corporations - 5,500
--------- --------------
INCOME (LOSS) BEFORE MINORITY INTERESTS (15,281) 84,724
Minority interests (5,805)(K) (17,140)
--------- --------------
NET INCOME (LOSS) $ (21,086) $ 67,584
========= ==============
NET INCOME PER COMMON SHARE (L) $ 1.94
==============
</TABLE>
See adjustments to Pro Forma Consolidated Statement of Operations
on the following pages.
F-22
<PAGE> 31
CRESCENT REAL ESTATE EQUITIES, INC.
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
ADJUSTMENTS
(Dollars in Thousands)
<TABLE>
<S> <C> <C>
(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, assuming the
assets were acquired at the beginning of the period.
</TABLE>
<TABLE>
<CAPTION>
PROPERTY ACQUISITION DATE
-------- ----------------
<S> <C>
Hyatt Regency Beaver Creek hotel 1/03/95
Stanford Corporate Centre office property 1/04/95
Mortgage note secured by the Biltmore
Commerce Center office property 2/28/95
The Aberdeen office property (i) 3/13/95
12404 Park Central office property 5/09/95
Barton Oaks Plaza One office property 6/05/95
MCI Tower office property 6/30/95
Denver Marriott City Center hotel (ii) 6/30/95
The Woodlands office properties (iii) 7/12/95
Spectrum Center office property 8/31/95
Ptarmigan Place office property 10/06/95
6225 N. 24th Street office property 11/07/95
Briargate office building and research center 11/21/95
Albuquerque Plaza office property 12/19/95
Hyatt Regency Albuquerque hotel (ii) 12/19/95
(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 the partnership that
owns these 10 office properties.
---
(C) Reflects the historical incremental rental income and operating
expenses including an adjustment for depreciation based on acquisition
price associated with the Greenway Plaza Portfolio, proposed to be
acquired in 1996, assuming the portfolio was acquired at the beginning
of the period.
---
(D) Reflects the historical incremental rental income and operating
expenses including an adjustment for depreciation based on acquisition
price associated with acquired and pending acquisition properties, all
acquired or proposed to be acquired in 1996, assuming the assets were
acquired at the beginning of the period.
---
</TABLE>
F-23
<PAGE> 32
<TABLE>
<CAPTION>
PROPERTY ACQUISITION DATE
-------- ----------------
<S> <C>
3333 Lee Parkway office property 1/05/96
301 Congress Avenue office property (i) 4/18/96
Central Park Plaza office property 6/13/96
Canyon Ranch - Tucson resort (ii) 7/26/96
The Woodlands office properties (iii) 7/31/96
Three Westlake Park office property 8/16/96
1615 Poydras office property 8/23/96
Canyon Ranch - Lenox resort (iv) pending
(i) The Company has a 1% general partnership and a 49% limited
partnership interest in the partnership that owns 301 Congress
Avenue.
(ii) Historical operations of the resort 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 the partnership that owns
these two office properties.
(iv) Historical operations of the resort were adjusted to estimate the
lease payments from the hotel lessee to the Company.
(E) Decrease as a result of the elimination of interest income for the
Spectrum Note in September 1995 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)
========
(F) Increase reflects the incremental interest income associated with
the excess cash available from the Offerings in the amount of $210,954
at an interest rate of 6%
$ 12,657
========
(G) Decrease as a result of the elimination of third party property
management fees which terminated upon acquisition of certain of the
properties.
$ (305)
========
(H) Increase reflects the estimated incremental general and administrative
costs associated with the increase in personnel due to numerous
acquisitions in 1995 and 1996.
$ 788
========
(I) 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, and
the Offerings, assuming the borrowings to finance property
acquisitions and assumption of debt and repayment, had all occurred
at the beginning of the period.
Credit Facility $ 21,000
Interest rate 7.90%
---------
1,659
Nomura Fund I $ 239,000
Interest rate 7.83%
---------
18,714
Nomura Fund II $ 161,000
Interest rate 7.79%
---------
12,542
</TABLE>
F-24
<PAGE> 33
<TABLE>
<S> <C>
Greenway Nomura Loan $ 115,000
Interest rate 8.00%
---------
9,200
Canyon Ranch - Lenox $ 8,000
Interest rate 10.07%
---------
806
Cigna Loan $ 63,500
Interest rate 7.47%
---------
4,743
Mortgage note assumed in the
Woodlands acquisition $ 12,553
Interest rate 8.83%
---------
1,108
Total annual amount $ 48,772
Less:
Historical interest expense (18,781)
The Aberdeen capitalized interest (1,200)
Land Development capitalized interest (1,363)
Working capital interest (612)
---------
$ 26,816
=========
(J) 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
=========
(K) Reflects adjustment needed to reflect minority partners' weighted
average 17.25% interest in the net income of the Operating Partnership
less joint venture minority interest assuming completion of the 1995
April Offering and the Offerings at the beginning of the period.
$ (5,805)
=========
(L) Reflects net income per share based on 34,838,391 weighted average
shares of Common Stock assumed to be outstanding during the year ended
December 31, 1995.
---
</TABLE>
F-25
