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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 28, 1997
CRESCENT REAL ESTATE EQUITIES COMPANY
(formerly known as Crescent Real Estate Equities, Inc.)
(Exact name of Registrant as specified in its Charter)
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<S> <C> <C>
Texas 1-13038 52-1862813
(State of Organization) (Commission File Number) (IRS Employer Identification Number)
777 Main Street, Suite 2100
Fort Worth, Texas 76102
( Address of Principal Executive (Zip Code)
Offices)
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(817) 877-0477
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
TRAMMELL CROW CENTER. On February 28, 1997, Crescent Real Estate
Equities Company (collectively with its subsidiaries, "the Company") acquired
from unaffiliated entities substantially all of the economic interest in
Trammell Crow Center ("TCC"), a 50-story Class A office property. The Company
acquired its interest in TCC through the purchase of fee simple title to the
property, (subject to a ground lease and a leasehold estate for years regarding
the building), and two mortgage notes encumbering the leasehold interests in the
land and building. TCC is located in the cultural and financial district of
the Central Business District ("CBD") submarket of Dallas, Texas. Construction
of the office property was completed in 1984. Situated on approximately 2.2
acres, TCC contains approximately 1,128,000 square feet of net rentable space
with a six-level underground parking structure that accommodates approximately
1,154 cars. Management believes that TCC is suitable and adequate for
continued use as a Class A office property and is adequately covered by
insurance.
The Company acquired for $162 million the two mortgage notes ("TCC
Notes") with outstanding balances totaling $104.6 million and $101.6 million,
including principal and accrued but unpaid interest, held by the California
Public Employment Retirement System ("PERS") and the Teacher Retirement System
of Texas, respectively, as well as PERS' interest as fee title owner, subject
to the ground lease and leasehold estate for years held by the borrower. The
Company financed the acquisition through a $150 million unsecured, short-term
loan with The First National Bank of Boston ("FNBB"). The loan, which is
interest only, bears interest at the Eurodollar rate plus 185 basis points and
is due at maturity on July 28, 1997. The remaining $12 million was funded
through a draw under the Company's unsecured $175 million credit facility from a
consortium of banks led by FNBB. Prior to closing, the TCC notes were
restructured to waive existing defaults on the notes, to extend the maturity
dates from January 2005 to March 2012, and to increase the interest rate from
10% to 14% per annum. In the event that cash flow from the property is
insufficient to pay interest at the stated rate, the difference shall be added
to the outstanding principal balance and shall bear interest at the stated rate.
In addition, the ground lease was amended and restated to provide for a
40-year lease term expiring December 2037 with a fixed annual rental of $2.5
million. If revenues of the property are insufficient to pay the rent, the
unpaid rent shall accrue and bear interest at a rate of 14% per annum.
TCC was 80% leased as of December 31, 1996, with a weighted average base
rental rate per square foot of $21.58. TCC is leased to approximately 34
tenants, the major tenants having principal businesses in the industry sectors
of accounting and law professional services and oilfield services. Two
tenants in TCC lease over 10% of the net rentable square footage. As of
December 31, 1996, Jones, Day, Reavis and Pogue, a national law firm, leased
approximately 173,000 net rentable square feet (approximately 15.4% of the
rentable square footage of TCC) pursuant to a lease that expires in November
1999. The current base rental rate per square foot of $28.15 decreases
beginning in December 1997 to $27.67, where it remains in effect until November
1999. Although the lease provides for two 10-year renewal options at the
then-prevailing market rental rates, the tenant has indicated that it will not
exercise its renewal option. As of December 31, 1996, Baker and Botts, LLP, a
national law firm, leased approximately 132,000 net rentable square feet
(approximately 11.7% of the rentable square footage of TCC) pursuant to a lease
that expires in June 2005. The base rental rate per square foot under the lease
is $20.00. This lease provides for two 5-year renewal options at 95% of the
then-prevailing market rental rates.
The Dallas CBD submarket consists of 18.3 million square feet of Class A
office space, which was approximately 30.6% of Dallas' total Class A office
space at December 31, 1996. At December 31, 1996, the Dallas CBD Class A
office space was 75% occupied, and the average quoted market rental rate for
such space was $18.17 per square foot.
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The aggregate tax basis of depreciable real property for TCC for federal
income tax purposes was approximately $132 million as of December 31, 1996.
Depreciation is computed using Modified Accelerated Cost Recovery System
("MACRS") and Accelerated Cost Recovery System straight-line methods over lives
which range from 15 to 40 years for federal income tax purposes. Personal
property with an aggregate tax basis of approximately $1.4 million is
depreciated using the MACRS straight-line method over a period of 5 to 12
years.
The 1996 realty tax rate for real property was $2.681 per $100 of the
$82.4 million assessed value. The total amount of tax at this rate for 1996
was approximately $2.2 million.
For the year ended December 31, 1996, utility expense was approximately
$1.9 million and expenses for repairs, maintenance and contract services were
approximately $1.9 million.
The Company does not plan to renovate TCC, other than expenditures
associated with the routine maintenance of the property.
The following table sets forth TCC's year-end occupancy and average base
rent per leased square foot (excluding storage space) for the five years ended
December 31, 1996.
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YEAR OCCUPANCY AVERAGE BASE RENT(1)
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1992 76% $23.65
1993 76 24.20
1994 77 23.44
1995 77 22.96
1996 80 21.83
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(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.
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The following table sets forth a schedule of lease expirations for
leases in place as of January 1, 1997, for TCC, for each of the 10 years
beginning with January 1, 1997, assuming that none of the tenants exercises
renewal options and excluding 222,859 square feet of unleased space.
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<CAPTION>
PERCENTAGE PERCENTAGE OF ANNUAL BASE
OF LEASED TOTAL ANNUAL RENT PER
NUMBER OF NET RENTABLE NET RENTABLE ANNUAL BASE BASE RENT SQUARE FOOT FOR
TENANTS WITH AREA SUBJECT TO AREA SUBJECT RENT UNDER REPRESENTED NET RENTABLE
YEAR OF LEASE EXPIRING EXPIRING LEASES TO EXPIRING EXPIRING BY EXPIRING AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
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<S> <C> <C> <C> <C> <C> <C>
1997 10 118,596 13.1% $2,113,267 10.6% $17.82
1998 2 80,252 8.9 1,995,705 10.1 24.87
1999 8 256,581 28.3 6,662,455 33.6 25.97
2000 2 4,921 0.5 94,729 0.5 19.25
2001 1 5,419 0.6 0 0.0 0.00
2002 2 16,171 1.8 351,940 1.8 21.76
2003 0 0 0.0 0 0.0 0.00
2004 2 116,659 12.9 2,274,720 11.5 19.50
2005 5 183,601 20.3 3,633,779 18.3 19.79
2006 1 26,034 2.9 494,646 2.5 19.00
2007 and thereafter: 1 97,238 10.7 2,212,165 11.1 22.75
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(1) Based on base rent payable as of the expiration date 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) operating
costs (such as utilities, real estate taxes and/or insurance) payable by
the tenants and (ii) expense reimbursements received from the tenants.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS UNDER RULE 3-14 OF REGULATION S-X
It is impractical to file audited financial statements for Trammell
Crow Center for the year ended December 31, 1996, as prescribed by Rule
3-14 of Regulation S-X, within the time this Current Report is required
to be filed. Such financial statements will be filed as soon as
practicable, but not more than 60 days after this Current Report is
required to be filed.
(b) PRO FORMA FINANCIAL INFORMATION
It is impractical to provide the pro forma financial statements for the
Company as prescribed by Article 11 of Regulation S-X within the time
this Current Report is required to be filed. Such pro forma financial
statements will be filed as soon as practicable, but not more than 60
days after this Current Report is required to be filed.
(c) EXHIBITS
None
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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: March 17, 1997 CRESCENT REAL ESTATE EQUITIES COMPANY
By: /s/ Dallas. E Lucas
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Dallas E. Lucas
Senior Vice President and
Chief Financial Officer
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