<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1997
COMMISSION FILE NO 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
(formerly known as Crescent Real Estate Equities, Inc.)
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 52-1862813
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
777 Main Street, Suite 2100, Fort Worth, Texas 76102
- -------------------------------------------------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code (817) 877-0477
Number of shares outstanding of each of the registrant's classes of common
shares, as of December 3, 1997
Common Shares, par value $.01 per share: 112,556,374
- -------------------------------------------------------------------------------
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
The Form 10-Q of Crescent Real Estate Equities Company (the "Company") for the
quarter ended September 30, 1997 is being amended to restate the disclosure
contained in Part I, Item 1, Notes to the Financial Statements (Note 11)
thereof, to reflect certain updated and corrected information relating to the
refrigerated warehouse investment made by the Company.
<PAGE> 3
CRESCENT REAL ESTATE EQUITIES COMPANY
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1997 and December 31,
1996 (Audited)............................................................ 3
Consolidated Statements of Operations for the three and nine months
ended September 30, 1997 and 1996......................................... 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996............................................... 5
Notes to Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Historical Results of Operations............................ 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 31
PART II: OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 31
Item 2. Changes in Securities..................................................... 31
Item 3. Defaults Upon Senior Securities........................................... 31
Item 4. Submission of Matters to a Vote of Security Holders....................... 31
Item 5. Other Information......................................................... 31
Item 6. Exhibits and Reports on Form 8-K.......................................... 31
</TABLE>
2
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(NOTE 1)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Investments in real estate:
Land $ 418,625 $ 146,036
Building and improvements 2,647,981 1,561,639
Furniture, fixtures and equipment 47,137 24,951
Less - accumulated depreciation (256,204) (208,808)
------------ ------------
Net investment in real estate 2,857,539 1,523,818
Cash and cash equivalents 47,082 25,592
Restricted cash and cash equivalents 32,462 36,882
Accounts receivable, net 24,010 15,329
Deferred rent receivable 30,649 16,217
Investments in real estate mortgages and common
stock of unconsolidated companies 369,779 41,059
Notes receivable, net 163,219 28,890
Other assets, net 87,293 43,135
------------ ------------
Total assets $ 3,612,033 $ 1,730,922
============ ============
LIABILITIES:
Borrowings under Credit Facility $ 316,500 $ 40,000
Notes payable 1,460,404 627,808
Accounts payable, accrued expenses and other liabilities 88,230 48,462
------------ ------------
Total liabilities 1,865,134 716,270
------------ ------------
MINORITY INTERESTS:
Operating partnership, 6,445,227 and 6,640,336 units,
respectively 110,648 120,227
Investment joint ventures 28,396 29,265
------------ ------------
Total minority interests 139,044 149,492
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 250,000,000 shares, 102,442,050 and
36,146,380 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 1,024 361
Additional paid-in capital 1,666,978 905,724
Deferred compensation on restricted shares (283) (364)
Retained deficit (59,864) (40,561)
------------ ------------
Total shareholders' equity 1,607,855 865,160
------------ ------------
Total liabilities and shareholders' equity $ 3,612,033 $ 1,730,922
============ ============
</TABLE>
The accompanying notes are integral part of these financial statements.
3
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(NOTE 1)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Office and retail properties $ 92,014 $ 43,255 $ 247,333 $ 120,080
Hotel properties 9,032 5,051 26,453 13,775
Behavioral healthcare properties 13,824 -- 15,966 --
Interest and other income 5,187 1,062 13,508 3,572
------------ ------------ ------------ ------------
Total revenues 120,057 49,368 303,260 137,427
------------ ------------ ------------ ------------
EXPENSES:
Real estate taxes 10,607 5,077 28,229 13,454
Repairs and maintenance 6,301 2,369 17,244 7,248
Other rental property operating 22,500 9,452 59,100 27,294
Corporate general and administrative 2,372 1,199 9,855 3,498
Interest expense 23,075 11,843 54,687 30,861
Amortization of deferred financing costs 937 745 2,157 2,065
Depreciation and amortization 20,549 11,058 50,840 29,339
------------ ------------ ------------ ------------
Total expenses 86,341 41,743 222,112 113,759
------------ ------------ ------------ ------------
Operating income 33,716 7,625 81,148 23,668
OTHER INCOME:
Equity in net income of unconsolidated
companies 1,119 892 3,118 3,067
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTERESTS AND
EXTRAORDINARY ITEM 34,835 8,517 84,266 26,735
Minority interests (4,432) (2,239) (12,018) (5,858)
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 30,403 6,278 72,248 20,877
Extraordinary item -- -- -- (1,306)
------------ ------------ ------------ ------------
NET INCOME $ 30,403 $ 6,278 $ 72,248 $ 19,571
============ ============ ============ ============
PER SHARE DATA:
Income before extraordinary item $ 0.30 $ 0.13 $ 0.83 $ 0.44
Extraordinary item -- -- -- (0.02)
------------ ------------ ------------ ------------
Net income $ 0.30 $ 0.13 $ 0.83 $ 0.42
============ ============ ============ ============
WEIGHTED AVERAGE
SHARES OUTSTANDING 99,894,600 47,190,564 87,364,374 47,127,264
============ ============ ============ ============
</TABLE>
The accompanying notes are integral part of these financial statements.
4
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF CASHFLOWS
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 3)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
(UNAUDITED)
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 72,248 $ 19,571
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 52,997 31,404
Minority interest 12,018 5,858
Extraordinary item -- 1,306
Non-cash compensation 157 91
Equity in earnings in excess of distributions
received from unconsolidated companies (252) (363)
Increase in accounts receivable (8,681) (3,997)
Increase in deferred rent receivable (14,432) (2,932)
Increase in other assets (23,879) (1,445)
Decrease in restricted cash and cash equivalents 4,944 1,451
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 39,768 (1,394)
------------ ------------
Net cash provided by operating activities 134,888 49,550
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investment properties (1,356,266) (173,091)
Capital expenditures - rental properties (14,497) (4,504)
Tenant improvement and leasing costs - rental properties (27,121) (8,738)
(Increase) decrease in restricted cash and cash equivalents (524) 1,682
Investment in unconsolidated companies (328,468) (18,924)
Increase in escrow deposits - acquisition of investment
properties (4,190) (6,350)
Increase in notes receivable (134,329) (11,525)
------------ ------------
Net cash used in investing activities (1,865,395) (221,450)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (11,329) (4,317)
Borrowings under Credit Facility 612,500 172,500
Payments under Credit Facility (336,000) (20,000)
Debt proceeds 990,696 124,638
Debt payments (158,100) (57,184)
Capital contributions - joint venture -- 750
Capital distributions - joint venture (2,061) (988)
Proceeds from common shares offering 760,460 --
Proceeds from exercise of share options 953 --
Issuance of partnership units -- 1,574
Distribution of Crescent Operating, Inc. shares to
unitholders of Operating Partnership and
shareholders of Crescent Equities (11,907) --
Dividends and unitholder distributions (93,215) (47,637)
------------ ------------
Net cash provided by financing activities 1,751,997 169,336
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21,490 (2,564)
CASH AND CASH EQUIVALENTS,
Beginning of period 25,592 16,931
------------ ------------
CASH AND CASH EQUIVALENTS,
End of period $ 47,082 $ 14,367
============ ============
</TABLE>
The accompanying notes are integral part of these financial statements.
5
<PAGE> 7
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
Crescent Real Estate Equities Company ("Crescent Equities" and,
together with its subsidiaries, the "Company") is a fully integrated real estate
company operating as a real estate investment trust for federal income tax
purposes (a "REIT"). The Company provides management, leasing, and development
services with respect to certain of its properties. Crescent Equities is a Texas
real estate investment trust which became the successor to Crescent Real Estate
Equities, Inc., a Maryland corporation (the "Predecessor Corporation"), on
December 31, 1996, through the merger (the "Merger") of the Predecessor
Corporation and CRE Limited Partner, Inc., a Delaware corporation, into Crescent
Equities. The direct and indirect subsidiaries of Crescent Equities include
Crescent Real Estate Equities Limited Partnership (the "Operating Partnership");
Crescent Real Estate Equities, Ltd. (the "General Partner"), which is the sole
general partner of the Operating Partnership; seven single purpose limited
partnerships (formed for the purpose of obtaining securitized debt) in which the
Operating Partnership owns substantially all of the economic interests directly
or indirectly, with the remaining interests owned indirectly by the Company
through seven separate corporations, each of which is a wholly owned subsidiary
of the General Partner and a general partner of one of the seven limited
partnerships. The term "Company" includes, unless the context otherwise
requires, Crescent Equities, the Predecessor Corporation, the Operating
Partnership, and the other subsidiaries of the Company.
As of September 30, 1997, the Company directly or indirectly owned a
portfolio of real estate assets (the "Properties") located primarily in 20
metropolitan submarkets in Texas and Colorado. The Properties include 76 office
properties (the "Office Properties") with an aggregate of approximately 24.7
million net rentable square feet, 91 behavioral healthcare facilities
("Behavioral Healthcare Facilities"), five full-service hotels with a total of
1,900 rooms and two destination health and fitness resorts (the "Hotel
Properties"), seven retail properties (the "Retail Properties") with an
aggregate of approximately .8 million net rentable square feet and real estate
mortgages and non-voting common stock representing economic interest ranging
from 42.5% to 98% in five unconsolidated residential development corporations
(the "Residential Development Corporations"). The Company also, has a 42.5%
partnership interest in an unconsolidated entity whose primary holdings consist
of a 364-room executive conference center and general partner interests ranging
from one to 50%, in additional office, retail, multi-family and industrial
properties.
The Company owns its assets and carries on its operations and other
activities through the Operating Partnership and its other subsidiaries.
The following table sets forth, by subsidiary, the Properties owned by
such subsidiary as of September 30, 1997:
Operating Partnership: The Addison, Addison Tower, The Amberton, AT&T Building,
Bank One Tower, Canyon Ranch-Tucson, Cedar Springs
Plaza, Central Park Plaza, Chancellor Park(1), Concourse
Office Park, Denver Marriott City Center, Four Seasons
Hotel-Houston, Frost Bank Plaza, Greenway I and IA,
Greenway II, Houston Center Office Properties, MCI
Tower, The Meridian, Miami Center, One Preston Park,
Palisades Central I, Palisades Central II, The Park
Shops in Houston Center, Reverchon Plaza, Sonoma Mission
Inn & Spa, Spectrum Center(2), Stemmons Place, Three
Westlake Park(3), Trammell Crow Center(4), The Woodlands
Office Properties(5), The Woodlands Retail
Properties(5), Valley Centre, Walnut Green, 44 Cook, 55
Madison, 160 Spear Street, 301 Congress Avenue(6), 1615
Poydras, 3333 Lee Parkway, 5050 Quorum, and 6225 North
24th Street
Crescent Real Estate The Aberdeen, The Avallon, Caltex House, The Citadel,
Funding I, L.P.: Continental Plaza, The Crescent Atrium, The Crescent
("Funding I") Office Towers, Regency Plaza One, and Waterside Commons
6
<PAGE> 8
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate
Funding II, L.P.: Office and Research Center, Hyatt Regency Albuquerque,
("Funding II") Hyatt Regency Beaver Creek, Las Colinas Plaza, Liberty
Plaza I & II, MacArthur Center I & II, Ptarmigan Place,
Stanford Corporate Centre, Two Renaissance Square, and
12404 Park Central
Crescent Real Estate Greenway Plaza Portfolio(7)
Funding III, IV, and
V, L.P.: ("Funding
III, IV and V")
Crescent Real Estate Canyon Ranch-Lenox
Funding VI, L.P.:
("Funding VI")
Crescent Real Estate Behavioral Healthcare Facilities
Funding VII, L.P.:
("Funding VII")
- -------------
(1) 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.
(2) The Operating Partnership owns the principal economic interest in Spectrum
Center through an interest in the limited partnership which owns both a
mortgage note secured by Spectrum Center and the ground lessor's interest in
the land underlying the building.
(3) The Operating Partnership owns the principal economic interest in Three
Westlake Park through its ownership of a mortgage note secured by Three
Westlake Park.
(4) 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.
(5) The Operating Partnership owns a 75% limited partner interest and an
indirect approximately 10% general partner interest in the partnerships that
own The Woodlands Office and Retail Properties.
(6) The Operating Partnership owns a 49% limited partner interest and
Crescent/301, L.L.C., a wholly owned subsidiary of the General Partner and
the Operating Partnership, owns a 1% general partner interest in 301
Congress Avenue, L.P., the partnership that owns 301 Congress Avenue.
(7) Funding III owns the Greenway Plaza Portfolio, except for the central heated
and chilled water plant building and Coastal Tower Office property, both
located within Greenway Plaza, which are owned by Funding IV and Funding V,
respectively.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In management's opinion, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
unaudited interim financial statements have been included. Operating results for
interim periods reflected are not necessarily indicative of the results that may
be expected for a full fiscal year. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K.
Certain reclassifications have been made to previously reported amounts to
conform with current presentation.
2. NEW ACCOUNTING PRONOUNCEMENT:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("EPS") ("SFAS
128") which supersedes APB No. 15 for periods ending after December 15, 1997.
SFAS 128 specifies the computation, presentation and disclosure requirements for
earnings per share. Primary EPS and Fully Diluted EPS are replaced by Basic EPS
and Diluted EPS, respectively. Basic EPS, unlike Primary EPS, excludes all
dilution while Diluted EPS, like Fully 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. The Company does not
expect the effect of its adoption of SFAS 128 to be material.
7
<PAGE> 9
3. SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1997 1996
------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $52,594 $30,930
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Two-for-one stock split $ 361 $ --
Conversion of operating partnership units to common shares with resulting
reduction in minority interest and increases in common share and
additional paid-in capital $ 426 $ 857
Minority interest - joint venture capital $ -- $21,635
Issuance of operating partnership units in conjunction
with property acquisition $ -- $27,056
</TABLE>
4. INVESTMENTS IN REAL ESTATE MORTGAGES AND COMMON STOCK OF UNCONSOLIDATED
COMPANIES:
The Company reports its share of income and losses based on its ownership
interest in the respective equity investments. The following summarized
information for all unconsolidated companies (see Note 1) has been presented on
an aggregated basis as of September 30, 1997.
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Total revenues $ 27,685 $ 34,105
Total expenses 26,247 30,853
-------- --------
Net income $ 1,438 $ 3,252
======== ========
Company equity in net income
of unconsolidated companies $ 1,119 $ 3,118
======== ========
</TABLE>
8
<PAGE> 10
5. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:
Following is a summary of the Company's debt financing:
<TABLE>
<CAPTION>
September 30,
1997
--------------
<S> <C>
Note payable to LaSalle National Bank, as Trustee for Commercial Mortgage
Pass-Through Certificates, Series 1995-MD IV ("LaSalle Note I") bears interest
at 7.83% with an initial seven-year interest-only term (through August 2002),
followed by principal amortization based on a 25-year amortization schedule
through maturity in August 2027 (1), secured by the Funding I
properties ..................................................................... $239,000
Note payable to LaSalle National Bank, as Trustee for Commercial Mortgage
Pass-Through Certificates, Series 1996-MD V ("LaSalle Note II") bears interest
at 7.79% with an initial seven-year interest-only term (through March 2003),
followed by principal amortization based on a 25-year amortization schedule
through maturity in March 2028(2), secured by the Funding II
properties ..................................................................... 161,000
Note payable to LaSalle National Bank, as Trustee for Commercial Mortgage
Pass-Through Certificates, Series 1994-MD II ("LaSalle Note III") due July 1999,
bears interest at 30-day LIBOR plus a weighted average rate of 2.135% (at
September 30, 1997 the rate was 7.82% subject to a rate cap of 10%) with a
five-year interest-only term, secured by the Funding III, IV and V
properties ..................................................................... 115,000
Note payable to Connecticut General Life Insurance Company ("CIGNA") due
December 2002, bears interest at 7.47% with a seven-year interest-only term,
secured by the MCI Tower and Denver Marriott City Center properties ............ 63,500
Note payable to Northwestern Mutual Life Insurance Company due January 2004,
bears interest at 7.66% with a seven-year interest-only term, secured by the 301
Congress Avenue property ....................................................... 26,000
Note payable to Metropolitan Life Insurance Company due September 2001, bears
interest at 8.88% with monthly principal and interest payments, secured by five
of The Woodlands Office Properties ............................................. 12,188
Note payable to Nomura Asset Capital Corporation ("Nomura Funding VI Note")
bears interest at 10.07% with monthly principal and interest payments based on a
25-year amortization schedule through July 2020(3), secured by the Funding VI
property ....................................................................... 8,716
Short-term unsecured note payable to BankBoston, N.A. ("BankBoston") due
October 1997, bears interest at Eurodollar rate plus 137.5 basis points (at
September 30, 1997, the rate was 7.03%) ........................................ 235,000(4)
Short-term unsecured note payable to BankBoston due August 1998, bears interest
at Eurodollar rate plus 120 basis points (at September 30, 1997, the rate was
6.86%) ........................................................................ 200,000
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
September 30,
1997
-----------------
<S> <C>
Senior unsecured notes to State Street Bank & Trust Company of Missouri,
N.A., as Trustee, bear interest at a fixed rate of 6.63% with a five-year
interest-only term, due September 2002 (see description of Notes offering
below) .................................................................... 150,000
Senior unsecured notes to State Street Bank & Trust Company of Missouri,
N.A., as Trustee, bear interest at a fixed rate of 7.13% with a ten-year
interest-only term, due September 2007 (see description of Notes offering
below) .................................................................... 250,000
----------
Total Notes Payable ....................................................... $1,460,404
==========
</TABLE>
(1) In August 2007, the interest rate increases, and the Company 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 Company's intention to
repay the note in full at such time (August 2007) by making a final
payment of approximately $220,000.
(2) In March 2006, the interest rate increases, and the Company 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 Company's intention to repay the note
in full at such time (March 2006) by making a final payment of
approximately $154,000.
(3) In July 1998, the Company may defease the note by purchasing Treasury
obligations 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 Company so elects, it may repay the note
without penalty.
(4) On October 15, 1997, the note was repaid in full through a draw under
the Company's Credit Facility (see Note 11 - October 1997 Offering).
On September 22, 1997, the Company's line of credit from a consortium
of banks led by BankBoston (the "Credit Facility") was increased to $450,000 to
enhance the Company's financial flexibility in making new real estate
investments. Concurrently with such increase, the interest rate on advances
under the Credit Facility was decreased from the Eurodollar rate plus 137.5
basis points to the Eurodollar rate plus 120 basis points. The Credit Facility
is unsecured and expires in June 2000. The Credit Facility requires the Company
to maintain compliance with a number of customary financial and other covenants
on an ongoing basis, including leverage ratios based on book value and debt
service coverage ratios, limitations on additional secured and total
indebtedness and distributions, and a minimum net worth requirement. As of
September 30, 1997, the Company was in compliance with all covenants. As of
September 30, 1997, the interest rate was 6.86% and the outstanding balance was
$316,500, with availability of $133,500.
On September 22, 1997, the Operating Partnership completed a private
note offering of senior unsecured notes in an aggregate principal amount of
$400,000 (the "Notes"). The Notes were issued in two series, the 6 5/8%,
$150,000 notes with maturity on September 15, 2002, yielding a 6.73% effective
rate (the "2002 Notes") and the 7 1/8%, $250,000 notes with maturity on
September 15, 2007, yielding a 7.151% effective rate (the "2007 Notes"). The
Notes pay interest semi-annually in arrears. The interest rate on the Notes is
subject to temporary increase by 50 basis points in the event that a registered
offer to exchange the Notes for notes of the Operating Partnership with terms
identical in all material respects to the Notes is not consummated or a shelf
registration statement with respect to the resale of the Notes is not declared
effective by the Securities and Exchange Commission (the "SEC") on or before the
180th day following the date of original issuance of the Notes. The interest
rate on the Notes also is subject to temporary or permanent increase by 37.5
basis points in the event that, within the period from the date of original
issuance of the Notes to the first anniversary of original issuance, the Notes
are assigned a rating that is not an investment grade rating (as defined in the
Notes) or are not assigned or do not retain, a rating by specified rating
agencies. These adjustments may apply simultaneously.
The Notes are redeemable, in whole or in part, at the option of the
Operating Partnership upon payment of principal, accrued and unpaid interest,
and the premium specified in the Notes. The Notes also
10
<PAGE> 12
contain certain covenants, including limitations on the ability of the Operating
Partnership and its subsidiaries to incur additional debt, other than certain
intercompany debt that is subordinate to payment of the Notes, unless certain
asset and income tests are satisfied.
The net proceeds of the Notes offering were used to fund the
approximately $327,600 purchase price of Houston Center, to repay approximately
$50,000 of borrowings under the Credit Facility, to fund
approximately $10,000 of the purchase price of Miami Center, and to repay
approximately $7,200 of short term indebtedness.
6. MINORITY INTERESTS:
Minority interests represents (i) the limited partnership interests
owned by unitholders in the Operating Partnership ("units") and (ii) joint
venture interests held by outside interests. Due to the March 26, 1997
two-for-one stock split, the exchange factor has been adjusted in accordance
with the Operating Partnership's limited partnership agreement and each unit may
be exchanged for either two common shares or, at the election of the Company,
cash equal to the fair market value of two common shares at the time of the
exchange. When a unitholder exchanges a unit, the Company's investment in the
Operating Partnership is increased. During the nine months ended September 30,
1997, there were 18,551 units exchanged for 37,102 common shares.
7. SHAREHOLDERS' EQUITY:
On February 4, 1997, the Company paid a cash dividend and unitholder
distribution of $26,100 or $.61 per share and equivalent unit, to shareholders
and unitholders of record on January 21, 1997. The dividend represented an
annualized distribution of $2.44 per share and equivalent unit.
On March 2, 1997, the Company declared a two-for-one stock split in the
form of a 100% share dividend. The share dividend was paid on March 26, 1997 to
shareholders of record on March 20, 1997.
On April 28, 1997, the Company completed an offering (the "April 1997
Offering") of 24,150,000 common shares (including the underwriters'
overallotment option) at $25.375 per share. Net proceeds from the April 1997
Offering to the Company after underwriting discount of $29,222 and other
offering costs of $3,000 were approximately $580,584. On May 14, 1997, the
Company completed an additional offering of 500,000 common shares to several
underwriters who participated in the April 1997 Offering. The common shares were
sold at $25.875 per share, totaling gross proceeds of approximately $12,938
(collectively, the "Offerings").
In the second quarter of 1997, the Company used net proceeds of
$593,522 from the Offerings and approximately $314,700 from borrowings under the
Credit Facility and $160,000 of short-term borrowings from BankBoston (i) to
fund approximately $30,000 in connection with the formation and capitalization
of Crescent Operating, Inc. ("Crescent Operating"); (ii) to repay the $150,000
BankBoston short-term note payable; (iii) to reduce by $131,000 borrowings under
the Credit Facility; (iv) to fund approximately $306,300 of the purchase price
of the Carter-Crowley Portfolio (as defined in Note 9) acquired by the Company;
and (v) to fund the commitments of the Company and Crescent Operating related to
the Magellan transaction totaling approximately $419,700. The remaining $31,222
has been used for working capital purposes.
On May 14, 1997, the Company paid a cash dividend and unitholder
distribution of $33,476 or $.305 per share and equivalent unit, to shareholders
and unitholders of record on April 30, 1997. The dividend represented an
annualized distribution of $1.22 per share and equivalent unit.
On July 23, 1997, the Company sold to Merrill Lynch & Co. 351,185
common shares at $28.475 per share (the "Merrill Offering"). The proceeds were
used to repay approximately $10,000 of borrowings under the Credit Facility.
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<PAGE> 13
On August 5, 1997, the Company paid a cash dividend and unitholder
distribution of $33,639 or $.305 per share and equivalent unit, to shareholders
and unitholders of record on July 16, 1997. The dividend represented an
annualized distribution of $1.22 per share and equivalent unit.
On August 12, 1997, the Company entered into two transactions with
affiliates of Union Bank of Switzerland ("UBS"). In one transaction, the Company
sold 4,700,000 common shares at $31.5625 per share to UBS Securities, LLC for
approximately $148 million (approximately $145 million of net proceeds) ("UBS
Offering"). In the other transaction, the Company entered into a forward share
purchase agreement with Union Bank of Switzerland, London Branch ("UBS-LB")
which provides that the Company will purchase 4,700,000 common shares from
UBS-LB within one year. The purchase price will be determined on the date the
Company settles the agreement and will include a forward accretion component,
minus an adjustment for the Company's distribution rate. The Company may
complete the settlement for cash or common shares at its option. The net
proceeds were used to repay borrowings under the Credit Facility.
On September 22, 1997, in connection with the acquisition of Houston
Center, the Company sold to the seller of Houston Center, 307,831 common shares
at $32.485 per share (the "HC Offering"). The proceeds were used to repay
approximately $10,000 of borrowings under the Credit Facility.
8. FORMATION AND CAPITALIZATION OF CRESCENT OPERATING, INC.
In April 1997, the Company established a new Delaware Corporation,
Crescent Operating. All of the outstanding common stock of Crescent Operating
was distributed, effective June 12, 1997, to those persons who were limited
partners of the Operating Partnership or shareholders of the Company on May 30,
1997, in a spin-off.
Crescent Operating was formed to become a lessee and operator of
various assets and to perform the Intercompany Agreement between Crescent
Operating and the Company, pursuant to which each has agreed to provide the
other with rights to participate in certain transactions. As a result of the
formation of Crescent Operating and the execution of the Intercompany Agreement,
persons who own equity interests in both Crescent Operating and the Company have
the opportunity to participate in the benefits of both the real estate
investments of the Company (including ownership of real state assets) and the
lease of certain of such assets and the ownership of other non-real estate
assets by Crescent Operating. The certificate of incorporation, as amended and
restated, of Crescent Operating generally prohibits Crescent Operating for so
long as the Intercompany Agreement remains in effect, from engaging in
activities or making investments that a REIT could make, unless the Company was
first given the opportunity but elected not to pursue such activities or
investments.
In connection with the formation and capitalization of Crescent
Operating, the Company provided to Crescent Operating approximately $50,000 in
the form of cash contributions and loans to be used by Crescent Operating to
acquire certain assets described in Note 9. The Company also made available to
Crescent Operating a line of credit in the amount of $20,400 to be used by
Crescent Operating to fulfill certain ongoing obligations associated with these
assets.
9. ACQUISITIONS:
Greenway II. On January 17, 1997, the Company acquired Greenway II, a
seven-story Class A office building containing approximately 154,000 net
rentable square feet and located in the Richardson/Plano submarket of Dallas,
Texas. The purchase price was approximately $18,200, which was funded through a
draw under the Credit Facility.
Trammell Crow Center. On February 28, 1997, the Company acquired
substantially all of the economic interest in Trammell Crow Center, a 50-story
Class A office building, which contains approximately 1,128,000 net rentable
square feet. The property is located in the cultural and financial district of
the Central Business District ("CBD") submarket of Dallas, Texas. The Company
acquired its interest in Trammell Crow Center through the purchase of fee simple
title to the property (subject to a
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<PAGE> 14
ground lease and a leasehold estate regarding the building) and two mortgage
notes encumbering the leasehold interests in the land and building. The purchase
price was approximately $162,000, of which $150,000 was funded through proceeds
from an unsecured, short-term loan with BankBoston and the remaining balance of
$12,000 through a draw under the Credit Facility.
Denver Properties. On February 28, 1997, the Company acquired three
office buildings in Denver, Colorado, in a single transaction: 44 Cook, 55
Madison and the AT&T Building. 44 Cook, a 10-story Class A office building
containing approximately 119,000 net rentable square feet, and 55 Madison, an
eight-story Class A office building containing approximately 125,000 net
rentable square feet, are both located in the Cherry Creek submarket of Denver,
Colorado. The AT&T Building, a 15-story office building, contains approximately
170,000 net rentable square feet and is located in the Denver CBD submarket. The
three office properties were acquired for an aggregate purchase price of
approximately $42,675, which was funded through a draw under the Credit
Facility.
Carter-Crowley Portfolio. On February 10, 1997, the Company entered
into a contract to acquire for approximately $383,300, substantially all of the
assets (the "Carter-Crowley Portfolio") of Carter-Crowley Properties, Inc.
("Carter-Crowley"), an unaffiliated company controlled by the family of Donald
J. Carter. At the time the contract was executed, the Carter-Crowley Portfolio
included 14 office properties (the "Carter-Crowley Office Portfolio"), with an
aggregate of approximately 3.0 million net rentable square feet, approximately
1,216 acres of commercially zoned, undeveloped land located in the Dallas/Fort
Worth metropolitan area, two multifamily residential properties located in the
Dallas/Fort Worth metropolitan area, marketable securities, an approximately 12%
limited partner interest in the limited partnership that owns the Dallas
Mavericks NBA basketball franchise, secured and unsecured promissory notes,
certain direct non-operating working interests in various oil and gas wells, an
approximately 35% limited partner interest in two oil and gas limited
partnerships, and certain other assets (including operating businesses).
Pursuant to an agreement between Carter-Crowley and the Company, Carter-Crowley
liquidated approximately $51,000 of such assets originally included in the
Carter-Crowley Portfolio, consisting primarily of the marketable securities and
the oil and gas investments, resulting in a reduction in the total purchase
price by a corresponding amount to approximately $332,300. On May 9, 1997, the
Company and Crescent Operating acquired the Carter-Crowley Portfolio.
The Company acquired certain assets from the Carter-Crowley Portfolio,
with an aggregate purchase price of approximately $306,300, consisting primarily
of the Carter-Crowley Office Portfolio, the two multifamily residential
properties, the approximately 1,216 acres of undeveloped land and the secured
and unsecured promissory notes relating primarily to the Dallas Mavericks. In
addition to the promissory notes relating to the Dallas Mavericks, the Company
obtained rights from the current holders of the majority interest in the Dallas
Mavericks to a contingent $10,000 payment after a new arena is constructed
within a 75-mile radius of Dallas.
Crescent Operating purchased the remainder of the Carter-Crowley
Portfolio utilizing cash contributions and loan proceeds provided to Crescent
Operating by the Company. These assets, which have an allocated cost of
approximately $26,000, consisted primarily of the approximately 12% limited
partner interest in the limited partnership that owns the Dallas Mavericks, an
approximately 1% interest in a private venture capital fund, and a 100% interest
in a construction equipment sale, leasing and services company.
Dallas Mavericks Interest. On June 11, 1997, DBL Holdings, Inc.
("DBL"), a wholly owned subsidiary of the Operating Partnership was formed. In
connection with the formation of DBL, the Operating Partnership acquired all the
voting and non-voting common stock of DBL, for an aggregate purchase price of
approximately $2,500 and loaned to DBL approximately $10,100. The voting common
stock, which represented a 5% effective interest in DBL, was subsequently sold
to Gerald W. Haddock , the President and Chief Executive Officer of the Company
and Crescent Operating, and John C. Goff, the Vice Chairman of the Company and
Crescent Operating, for $126. On June 11, 1997, DBL acquired from Crescent
Operating, for approximately $12,550, the limited partner interest in the
partnership that owns the Dallas Mavericks.
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<PAGE> 15
Magellan Transaction. On June 17, 1997, the Company acquired
substantially all of the real estate assets of the domestic hospital provider
business of Magellan Health Services, Inc. ("Magellan"), as previously owned and
operated by a wholly owned subsidiary of Magellan. The Magellan transaction
involved various components, certain of which related to the Company and certain
of which related to Crescent Operating.
The total purchase price of the assets acquired in the Magellan
transaction was approximately $419,700. Of this amount, the Company paid
approximately $387,200 for the acquisition of the 91 Behavioral Healthcare
Facilities (and one additional behavioral healthcare facility, which
subsequently was sold) and $12,500 for the acquisition of warrants to purchase
1,283,311 shares of common stock of Magellan. Crescent Operating paid $5,000 for
its interest in Charter Behavioral Health Systems, LLC, a limited liability
company ("CBHS"), $12,500 for the acquisition of warrants to purchase 1,283,311
shares of common stock of Magellan and $2,500 to CBHS after the closing. CBHS is
owned 50% by Crescent Operating and 50% by a wholly owned subsidiary of
Magellan, subject to potential dilution of each by up to 5% in connection with
future incentive compensation of management of CBHS.
The principal component of the transaction was the Company's
acquisition of the Behavioral Healthcare Facilities, which are leased to CBHS,
and the subsidiaries of CBHS, under a triple-net lease. The lease requires the
payment of annual minimum rent in the amount of $41,700, increasing in each
subsequent year during the 12-year term at a 5% compounded annual rate. The
lease provides for four, five-year renewal options. All maintenance and capital
improvement costs are the responsibility of CBHS during the term of the lease.
In addition, CBHS is required to pay annually an additional $20,000 under the
lease, at least $10,000 of which must be used, as directed by CBHS, for capital
expenditures each year and up to $10,000 of which may be used, if requested by
CBHS, to cover capital expenditures, property taxes, insurance premiums, and
franchise fees.
Woodlands Transaction. On July 31, 1997, the Company and certain Morgan
Stanley funds (the "Morgan Stanley Group") acquired The Woodlands Corporation, a
subsidiary of Mitchell Energy Corporation, for approximately $543,000. In
connection with the acquisition, the Company and the Morgan Stanley Group made
equity investments of approximately $80,000 and $109,000, respectively. The
Company's contribution was funded through the $235,000 BankBoston loan. The
remaining approximately $354,000 and associated acquisition and financing costs
of approximately $15,000 were financed by the two limited partnerships,
described below, through which the investment was made. The Woodlands
Corporation was the principal owner, developer and operator of The Woodlands, an
approximately 27,000-acre, master-planned residential and commercial community
located 27 miles north of downtown Houston, Texas. The Woodlands which is
approximately 50% developed, includes a shopping mall, retail centers, office
buildings, a hospital, club facilities, a community college, a performance
pavilion, and numerous other amenities.
The acquisition was made through The Woodlands Commercial Properties
Company, L.P. ("Woodlands-CPC"), a limited partnership in which the Morgan
Stanley Group holds a 57.5% interest and the Company holds a 42.5% interest, and
the Woodlands Land Development Company, L.P. ("Woodlands-LDC"), a limited
partnership in which the Morgan Stanley Group holds a 57.5% interest and a newly
formed Residential Development Corporation, The Woodlands Land Company, Inc.
("WLC"), holds a 42.5% interest. The Company currently owns all of the
non-voting common stock, representing a 95% economic interest in WLC and,
effective September 29, 1997, Crescent Operating owns all of the voting common
stock, representing a 5% economic interest, in WLC. The Company is the managing
general partner of Woodlands-CPC and WLC is the managing general partner of
Woodlands-LDC.
In connection with the acquisition, Woodlands-CPC acquired The
Woodlands Corporation's 25% general partner interest in the partnerships that
own approximately 1.2 million square feet of The Woodlands Office and Retail
Properties. The Company previously held a 75% limited partner interest in each
of these partnerships and, as a result of the acquisition, the Company's
indirect economic ownership interest in these Properties increased to
approximately 85%. The other assets acquired by Woodlands-CPC include a 364-room
executive conference center, a private golf and tennis club serving
approximately 1,600 members and offering 81 holes of golf, and approximately 400
acres of land that will support commercial development of more than 3.5 million
square feet of office, multi-family, industrial, retail and
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<PAGE> 16
lodging properties. In addition, Woodlands-CPC acquired The Woodlands
Corporation's general partner interests, ranging from one to 50%, in additional
office and retail properties and in multi-family and light industrial
properties. Woodlands-LDC acquired approximately 6,400 acres of land that will
support development of more than 20,000 lots for single-family homes and
approximately 2,500 acres of land that will support more than 21.5 million net
rentable square feet of commercial development. The executive conference
center, including the golf and tennis club and golf courses, is operated and
leased by a wholly owned subsidiary of a partnership owned 42.5% by a
subsidiary of Crescent Operating and 57.5% by the Morgan Stanley Group.
Desert Mountain. On August 29, 1997, the Company acquired, through a
newly formed Residential Development Corporation, Desert Mountain Development
Corporation ("DMDC"), the majority economic interest in Desert Mountain
Properties Limited Partnership ("DMPLP"), the partnership that owns Desert
Mountain, a master-planned, luxury residential and recreational community in
northern Scottsdale, Arizona. Desert Mountain is an 8,300-acre property that is
zoned for the development of approximately 4,500 lots, approximately 1,500 of
which have been sold. Desert Mountain also includes The Desert Mountain Club, a
private golf, tennis and fitness club serving over 1,600 members. The
partnership interest was acquired from a subsidiary of Mobil Land Development
Corporation for approximately $214,000, which was funded through the $200,000
BankBoston loan and a draw under the Credit Facility. The sole limited partner
of DMPLP is Sonora Partners Limited Partnership ("Sonora") whose principal owner
is Lyle Anderson, the original developer of Desert Mountain. A portion of
Sonora's interest in DMPLP is exchangeable for common shares of the Company.
Sonora currently owns a 7% economic interest in DMPLP, and DMDC, which is the
sole general partner of DMPLP, owns the remaining 93% economic interest. The
Company owns all of the non-voting common stock, representing a 95% economic
interest, and, effective September 29, 1997, Crescent Operating owns all of the
voting common stock, representing a 5% economic interest, in DMDC. The Company
also holds a residential development property mortgage on Desert Mountain.
Houston Center. On September 22, 1997, the Company acquired Houston
Center, an approximately 3.0 million square foot, mixed-use property located in
the CBD submarket of Houston, Texas. Houston Center consists of three high-rise
Class A office buildings aggregating approximately 2.8 million net rentable
square feet ("Houston Center Office Properties"), a 399-room Four Seasons
Hotel-Houston, 114 luxury apartments, The Park Shops in Houston Center (a retail
property containing approximately 191,000 net rentable square feet), and
approximately 20 acres of contiguous undeveloped commercial land. The aggregate
purchase price for Houston Center was approximately $327,600 which was funded
from the proceeds of the Notes offering (described in Note 5).
Miami Center. On September 30, 1997, the Company acquired Miami
Center, a 34-story Class A office building containing approximately 783,000 net
rentable square feet located in the Downtown-CBD submarket of Miami, Florida.
The Company acquired fee simple title, subject to a Condominium Declaration, to
Miami Center for approximately $131,500. The purchase price was funded through
an approximately $121,500 draw under the Credit Facility and $10,000 from
proceeds of the Notes offering. The Company owns the single condominium unit
that comprises the Miami Center office building and an unaffiliated party owns
the hotel unit. The Condominium Declaration grants each unit a 50% interest in
common areas, as well as in the common operating expenses of the condominium.
10. PRO FORMA FINANCIAL INFORMATION
The pro forma financial information for the nine months ended September
30, 1997 and 1996 assumes the completion, in each case as of January 1, 1996, of
(i) the 11,500,000 common share offering on October 2, 1996 and the additional
450,000 common share offering on October 9, 1996; (ii) the Offerings; (iii) the
Merrill Offering; (iv) the UBS Offering; (v) the Notes offering; (vi) the HC
Offering; (vii) the 1996 and 1997 completed acquisitions inclusive of subsequent
events (see Note 11), except for the Refrigerated Warehouses transaction
(collectively referred to as the, "Acquisitions"); and (viii) the October 1997
Offering (as defined in Note 11). Proforma information assumes as of January 1,
1996, all offering proceeds were used for repayment of indebtedness for
Acquisitions.
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<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30,1997 September 30,1996
----------------- -----------------
<S> <C> <C>
Total revenue .............................................. $437,619 $408,865
Operating income ............................................. $100,440 $ 79,165
Income before minority interests
and extraordinary item .................................. $120,339 $ 95,185
Net income ................................................... $107,694 $ 84,109
Per share:
Income before extraordinary item ........................ $ .96 $ .76
Net income .............................................. $ .96 $ .75
</TABLE>
The pro forma operating results combine the Company's historical
operating results with the historical incremental rental income and operating
expenses including an adjustment for depreciation based on the acquisition price
associated with the Office and Retail Property acquisitions. Pro forma
adjustments primarily represent the following: (i) rental income to the Company
from the hotels acquired during 1996 and 1997, based on the lease payments from
the hotel lessees and calculated on a pro forma basis by applying the rent
provisions (as set forth in the lease agreements); (ii) rental income based on
the lease payment from CBHS to the Company by applying the rent provisions (as
set forth in the lease agreement); (iii) adjustment for depreciation expense for
Hotel Properties and Magellan Facilities; (iv) adjustment for equity in net
income for the Woodlands and Desert Mountain transactions; (v) interest income
for the notes acquired in the Carter-Crowley transaction, the loans to Crescent
Operating and the loans to DMPL; and (vi) interest costs assuming the borrowings
to finance acquisitions and assumption of debt for property acquisitions.
These pro forma amounts are not necessarily indicative of what the
actual financial position of the Company would have been assuming the above
investments had been consummated as of the beginning of the period, nor do they
purport to represent the future financial position of the Company.
11. SUBSEQUENT EVENTS
Distribution. On September 10, 1997, the Company declared a cash
distribution of $.38 per share and equivalent unit, to shareholders and
unitholders of record on October 16, 1997. The cash dividend and unitholder
distribution were paid on November 4, 1997, and represented an annualized
distribution of $1.52 per share and equivalent unit.
October 1997 Offering. On October 8, 1997, the Company completed an
offering (the "October 1997 Offering") of 10,000,000 common shares at $39.00 per
share. Net proceeds from the October 1997 Offering to the Company after
underwriting discount of $19,900 were approximately $370,100 (with other
estimated offering costs of $1,500). The net proceeds of $370,100 were used to
partially repay approximately $325,100 of borrowings under the Credit
Facility and to fund approximately $45,000 of the purchase price of the U.S.
Home Building.
U.S. Home Building. On October 15, 1997, the Company acquired U.S. Home
Building, a 21-story Class A office building located in the West Loop/Galleria
submarket of Houston, Texas, containing approximately 400,000 net rentable
square feet. The purchase price was approximately $45,000, which was funded from
proceeds of the October 1997 Offering.
Bank One Center. On October 22, 1997, the Company, together with
affiliates of TrizecHahn Corporation ("Trizec") acquired Bank One Center, a
60-story Class A office building located in the CBD submarket of Dallas, Texas.
Bank One Center contains approximately 1.5 million net rentable square feet. The
acquisition was made by Main Street Partners, L.P. (the "Partnership"), a Texas
limited partnership in which the Company and Trizec each own a 50% interest.
Crescent 1717 Main, L.L.C., a Texas limited liability company that is wholly
owned by the Operating Partnership and TrizecHahn 1717 Main St., Inc., a
Delaware corporation, serve as the general partners of the Partnership. The
Partnership acquired Bank One Center for approximately $238,000 from two
unaffiliated entities. The purchase price was funded through (i) proceeds from
two secured loans aggregating $155,000 provided by The Travelers Insurance
Company and (ii) capital contributions of $41,500 from each of the Company and
Trizec partner groups. The Company's capital contribution of $41,500 was funded
through a draw under the Credit Facility.
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<PAGE> 18
Registration Statement. On October 29, 1997, the Company filed a shelf
registration with the SEC for an aggregate of $1.5 billion of common shares,
preferred shares, and warrants exercisable for common shares. Any securities
issued under the registration statement may be offered from time to time in
amounts, at prices, and on terms to be determined at the time of the offering.
Management believes this shelf registration will provide the Company with more
efficient and immediate access to the capital markets at such time as it is
considered appropriate. Net proceeds from any offering of these securities are
expected to be used for general business purposes, including the acquisition
and development of additional properties and other acquisition transactions,
the payment of certain outstanding debt, and improvements to certain properties
in the Company's portfolio.
Refrigerated Warehouses Transaction. Effective September 28, 1997, the
Company entered into a partnership with Vornado Realty Trust ("Vornado" and,
collectively with its affiliates, "VNO") to participate in the acquisition of
Americold Corporation ("Americold") and URS Logistics, Inc. ("URS"), two
suppliers of refrigerated warehouse space in the United States. On October 30,
1997, the Company and VNO agreed to the termination of that partnership and the
formation of two new partnerships, one of which was formed to consummate the
acquisition of Americold (the "Americold Partnership") and the other to
consummate the acquisition of URS (the "URS Partnership"). The Company, through
two newly formed subsidiaries ("Crescent Subsidiaries"), will own 40% of
these partnerships, and Vornado, through two newly formed subsidiaries ("Vornado
Subsidiaries"), will own 60%.
On October 31, 1997, the Americold Partnership acquired all of the
common stock of Americold through the merger of a subsidiary of Vornado into
Americold, and the URS Partnership acquired all of the common stock of URS
through the merger of a separate subsidiary of Vornado into URS. As a result,
the Americold Partnership and the URS Partnership became the owners and
operators of approximately 79 refrigerated warehouses with an aggregate of
approximately 368 million cubic feet.
The aggregate purchase price for the acquisition of Americold and URS
was approximately $1.0 billion (including transaction costs associated with the
acquisition). Of this amount, the purchase price for the acquisition of
Americold was approximately $632,000 (consisting of approximately $112,000 in
cash for the purchase of the equity, approximately $151,000 in cash for the
repayment of certain outstanding bonds issued by Americold, approximately
$367,000 in retention of debt and approximately $2,000 in transaction costs),
and the purchase price for the acquisition of URS was approximately $372,000
(consisting of approximately $173,000 in cash for the purchase of equity,
approximately $192,000 in retention of debt and approximately $7,000 in
transaction costs).
The Company currently owns all of the voting common stock,
representing an approximately 5% economic interest, and all of the nonvoting
common stock, representing an approximately 95% economic interest, of the
Crescent Subsidiaries. The Company expects to offer its interest in the voting
common stock to Crescent Operating, but no offer had been made as of November
14, 1997. It is intended that the transfer of the voting common stock to
another entity will take place in the near future and in no event later than
December 31, 1997.
The parties have not yet determined certain matters relating to the
future ownership and operations of Americold and URS, including the
identification and division of the assets that will continue to be owned by
one of the partnerships and those that will be owned by one or more other
entities formed to conduct the business operations currently conducted by
Americold and URS, and the nature and terms of any lease that may be entered
into between the operating entity and the owner of the warehouses.
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Term Loan. On November 3, 1997, the Company negotiated a term loan with
BankBoston in the amount of $50,000 (the "BankBoston Term Loan"). The loan bears
interest at Eurodollar plus 120 basis points and matures on March 31, 1998. The
BankBoston Term Loan can be increased to $150,000 subject to certain conditions.
Fountain Place. On November 7, 1997, the Company acquired Fountain
Place, a 60-story Class A office building located in the CBD submarket of
Dallas, Texas containing approximately 1.2 million net rentable square feet. The
purchase price was approximately $114,000 of which the Company funded $16,900
through the BankBoston Term Loan and $97,100 through the assumption of
nonrecourse indebtedness.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRESCENT REAL ESTATE EQUITIES COMPANY
/s/ Gerald W. Haddock
----------------------------------------
Date: December 5, 1997 Gerald W. Haddock, President and Chief
Executive Officer
/s/ Dallas E. Lucas
----------------------------------------
Date: December 5, 1997 Dallas E. Lucas, Senior Vice President,
Chief Financial Officer and Chief
Accounting Officer
19
