<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. THREE
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 29, 1997
CRESCENT REAL ESTATE EQUITIES COMPANY
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
Texas 1-13038 52-1862813
(State of Organization) (Commission File Number) (IRS Employer Identification Number)
</TABLE>
<TABLE>
<S> <C>
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(Address of Principal Executive (Zip Code)
Offices)
</TABLE>
(817) 877-0477
(Registrant's telephone number, including area code)
<PAGE> 2
On March 24, 1997, Crescent Real Estate Equities Company (the "Company")
filed a Form 8-K dated January 29, 1997 containing a description of certain
proposed transactions in Item 5 thereof and certain related financial
information in Item 7 thereof. On April 9 and April 24, 1997, the Company filed
Forms 8-K/A amending and restating the disclosure contained in Item 5 of the
Form 8-K filed on March 24, 1997 to provide updated information. This Form 8-K/A
(i) amends the Company's Form 8-K/A filed April 24, 1997 to restate the
disclosure contained in Item 5 thereof in its entirety to reflect updated
information relating to the acquisition of the Carter-Crowley Portfolio (as
defined herein), the proposed spin-off of an affiliated entity, the proposed
acquisition of certain other assets and the financing of these transactions and
(ii) amends and restates in its entirety the pro forma financial information
contained in Item 7(b) of the Company's Form 8-K filed on March 24, 1997 to
reflect updated information relating to the acquisition of the Carter-Crowley
Portfolio and the proposed transactions described herein.
- 1 -
<PAGE> 3
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Certain matters discussed within this Form 8-K/A are forward-looking
statements within the meaning of the federal securities laws. Although Crescent
Real Estate Equities Company ("Crescent Equities" and, collectively with its
subsidiaries, the "Company"), which operates as a real estate investment trust
(a "REIT") for federal income tax purposes, believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, there can be no assurance that these expectations will be realized.
Factors that could cause actual results to differ materially from current
expectations include the failure of pending investments to close, changes in
general economic conditions, changes in local real estate conditions, changes in
industries in which the Company's principal tenants compete, the failure to
timely lease unoccupied square footage, the failure to timely re-lease occupied
square footage upon expiration of leases, the inability to generate sufficient
revenues to meet debt service payments and operating expenses, the
unavailability of equity and debt financing and other risks described in this
Form 8-K/A.
PROPOSED SPIN-OFF
In April 1997, the Company established a new Delaware corporation,
Crescent Operating, Inc. ("Crescent Affiliate"), the shares of which will be
distributed by Crescent Real Estate Equities Limited Partnership, which is the
operating partnership of Crescent Equities (the "Operating Partnership"), to its
partners (including Crescent Equities). Crescent Equities will then distribute
the shares of Crescent Affiliate as a dividend to its shareholders in a
spin-off.
Prior to the spin-off, the Company will provide to Crescent Affiliate
approximately $42.5 million in the form of cash contributions and loans to be
used by Crescent Affiliate to acquire certain assets described below. The
Company will also make available to Crescent Affiliate a line of credit in the
amount of approximately $20.0 million to be used by Crescent Affiliate to
fulfill certain ongoing obligations associated with these assets. In
addition, Crescent Affiliate will obtain certain rights pursuant to the terms
of an intercompany agreement to be entered into with the Company in connection
with the spin-off.
The spin-off is designed to provide the shareholders of the Company at
the time of the spin-off with the ability to benefit from both the real estate
operations of the Company and the related business operations of Crescent
Affiliate. The spin-off of Crescent Affiliate will result in Crescent
Affiliate's becoming a public company, the shares of which are expected to be
publicly traded no later than the effective date of the spin-off.
ACQUISITION OF CARTER-CROWLEY PORTFOLIO
On February 10, 1997, the Company entered into a contract to acquire,
for approximately $383.3 million, substantially all of the assets (the
"Carter-Crowley Portfolio") of Carter-Crowley, 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 $51.0 million 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 $332.3 million.
On May 9, 1997, the Company and Crescent Affiliate acquired the Carter-Crowley
Portfolio.
The Company acquired certain assets from the Carter-Crowley Portfolio,
with an aggregate purchase price of approximately $306.3 million, 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 the rights from the holders of the majority
interest in the Dallas Mavericks to a contingent $10.0 million payment if a new
arena is built within a 75-mile radius of Dallas.
The remainder of the Carter-Crowley Portfolio was purchased by Crescent
Affiliate utilizing cash contributions and loan proceeds that were provided
to Crescent Affiliate by the Company. These assets, which have an allocated
cost of approximately $26.0 million, consist 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.
The Company has allocated approximately $196.2 million (approximately
$65.40 per square foot) of the purchase price to the Carter-Crowley Office
Portfolio. The Carter-Crowley Office Portfolio contains an aggregate of
approximately 3.0 million net rentable square feet in seven suburban Dallas
submarkets. The buildings, which were constructed principally between 1980 and
1986, range in size from approximately 40,000 to approximately 634,000 net
rentable square feet and, as of December 31, 1996, were 91% leased. The
acquisition of the Carter-Crowley Office Portfolio increased the Company's
ownership of office space in the Dallas market to more than 8.7 million net
rentable square feet and to 13% of the Class A office space in the Dallas
market. The weighted average full-service rental rates for the Carter-Crowley
Office Portfolio were $12.18 per leased square foot, compared to a weighted
average quoted market rental rate for the submarkets in which the
Carter-Crowley Office Portfolio is located of $18.63 per square foot. The
Carter-Crowley Office Portfolio has a weighted average remaining lease term of
3.75 years. Major tenants include CompUSA, Inc., Aetna Life Insurance Company,
United States Data Corporation and Northern Telecom, Inc.
- 2 -
<PAGE> 4
The following table provides information for the Carter-Crowley Office
Portfolio by submarket as of December 31, 1996.
<TABLE>
<CAPTION>
TOTAL
NET WEIGHTED AVERAGE OFFICE WEIGHTED AVERAGE
NUMBER RENTABLE PERCENT FULL-SERVICE SUBMARKET QUOTED MARKET
OF AREA LEASED AT RENTAL RATE PER PERCENT RENTAL RATE PER
CLASSIFICATION, SUBMARKET PROPERTIES (SQ. FT.) PROPERTIES SQUARE FOOT(1) LEASED(2) SQUARE FOOT(2)(3)
- ------------------------------------- ---------- --------- ---------- ---------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Stemmons Freeway..................... 1 634,381 92% $12.54 60%(4) $16.87
Far North Dallas..................... 3 494,496 98 12.67 98 20.88
Uptown/Turtle Creek.................. 2 485,088 79 12.20 86 22.99
Richardson/Plano..................... 2 418,234 100 13.23 98 19.14
LBJ Freeway.......................... 1 213,915 89 13.08 95 20.32
Las Colinas.......................... 1 74,861 99 11.95 95 23.14
-- --------- --- ------ -- ------
Subtotal/Weighted Average.......... 10 2,320,975 92% $12.67 92% $19.93
-- --------- --- ------ -- ------
CLASS B
Central Expressway................... 2 413,721 85% $11.04 82% $13.82
LBJ Freeway.......................... 1 244,879 92 9.61 91 14.92
Far North Dallas..................... 1 40,525 100 10.75 90 15.56
-- --------- --- ------ -- ------
Subtotal/Weighted Average.......... 4 699,125 88% $10.50 89% $14.31
-- --------- --- ------ -- ------
TOTAL/WEIGHTED AVERAGE....... 14 3,020,100 91% $12.18 91% $18.63
== ========= === ====== == ======
</TABLE>
- ---------------
(1) Calculated based on base rent payable as of December 31, 1996, without
giving effect to free rent or scheduled rent increases that would be taken
into account under generally accepted accounting principles, and including
expenses payable by tenants.
(2) Source -- Jamison Research, Inc.
(3) Represents full-service rental rates. These rates do not necessarily
represent the amounts at which available space in the Carter-Crowley Office
Portfolio will be leased. The weighted average subtotals and total are based
on total net rentable square feet in each submarket of the Class A and/or
Class B office properties, as applicable, in the Carter-Crowley Office
Portfolio.
(4) Includes two buildings with an aggregate of approximately 530,000 net
rentable square feet which, subsequent to December 31, 1996, have been
reclassified as "owner occupied" and will not be included in Class A office
space in 1997. Excluding these two buildings, management estimates that the
percent leased in this submarket would have been approximately 75% as of
December 31, 1996.
The Carter-Crowley Office Portfolio is leased to more than 450 tenants, the
major tenants having principal businesses in the industry sectors of technology,
financial services and media services. None of the tenants in the 14 office
properties comprising the Carter-Crowley Office Portfolio lease over 10% of the
aggregate net rentable area.
- 3 -
<PAGE> 5
The aggregate tax basis for the Carter-Crowley Office Portfolio of
depreciable real property and personal property is not available at this time
since the acquisition has not closed.
The 1996 realty tax rate for the Carter-Crowley Office Portfolio was $2.52
per $100 of the $148.5 million assessed value. The total amount of tax at this
rate for 1996 was approximately $3.7 million.
For the year ended December 31, 1996, utility expense for the
Carter-Crowley Office Portfolio was approximately $5.0 million and expenses for
repairs, maintenance and contract services were approximately $4.4 million.
The Company has no immediate plans to redevelop any of the properties
within the Carter-Crowley Office Portfolio and believes such properties are
adequately covered by insurance. The seller of the Carter-Crowley Office
Portfolio has acquired the 14 office properties at different times over the
last seven years; therefore, the year-end occupancy and average base rent per
leased square foot for the Carter-Crowley Office Portfolio is only available
for 1996. See table above.
The following table sets forth for the Carter-Crowley Office Portfolio a
schedule of lease expirations for leases in place as of December 31, 1996 for
each of the 10 years beginning with January 1, 1997, assuming that none of the
tenants exercises renewal options and excluding 290,590 square feet of unleased
space.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE OF ANNUAL BASE
NUMBER OF NET RENTABLE OF LEASED TOTAL ANNUAL RENT PER
TENANTS AREA SUBJECT NET RENTABLE ANNUAL BASE BASE RENT SQUARE FOOT
WITH TO EXPIRING AREA SUBJECT RENT UNDER REPRESENTED BY FOR NET
EXPIRING LEASES TO EXPIRING EXPIRING EXPIRING RENTABLE AREA
YEAR AND LEASE EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 91 176,724 6.5% $2,015,800 5.5% $11.41
1998 111 419,145 15.4 5,281,006 14.4 12.60
1999 102 389,846 14.3 4,829,621 13.2 12.39
2000 78 591,687 21.7 8,180,128 22.4 13.83
2001 58 413,361 15.1 5,703,691 15.6 13.80
2002 15 183,282 6.7 2,423,756 6.6 13.22
2003 7 366,656 13.4 5,201,805 14.2 14.19
2004 5 100,041 3.7 1,398,813 3.8 13.98
2005 0 0 0 0 0 0
2006 2 41,072 1.5 635,055 1.8 15.46
2007 and thereafter 1 47,696 1.7 906,224 2.5 19.00
</TABLE>
- ---------------
(1) Calculated 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 all expenses
payable by tenants.
- 4 -
<PAGE> 6
MAGELLAN TRANSACTION
On January 29, 1997, the Company entered into an agreement with Magellan
Health Services, Inc. ("Magellan") to acquire substantially all of the real
estate assets of Magellan's domestic hospital provider business as currently
owned and operated by a wholly owned subsidiary of Magellan. The Magellan
transaction involves various components, certain of which will relate to the
Company and certain of which will relate to Crescent Affiliate. None of the
Magellan transactions will be consummated unless all of the transactions are
consummated. Closing of the transactions is subject to various closing
conditions and to approval of the transactions by the stockholders of Magellan,
and is expected to occur in the second quarter of 1997.
The total purchase price for the assets to be acquired in the Magellan
transaction is $400 million. Of this amount, it is anticipated that $390
million will be paid by the Company for the acquisition of approximately 90
behavioral healthcare facilities (the "Magellan Facilities") and certain
warrants to purchase shares of common stock of Magellan, and $10 million will be
paid by Crescent Affiliate for its interest in a limited liability company
("CBHS") and certain warrants to purchase shares of common stock of Magellan.
CBHS will be owned 50% by Crescent Affiliate and 50% by 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 is the Company's acquisition of
the Magellan Facilities, which are to be leased to CBHS, and the subsidiaries of
CBHS, under a triple-net lease. The lease will require the payment of annual
minimum rent in the amount of $40 million, 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
will be the responsibility of CBHS during the term of the lease. In addition,
CBHS will pay annually an additional $20 million under the lease, at least $10
million of which must be used, as directed by CBHS, for capital expenditures
each year and up to $10 million of which may be used, if requested by CBHS, to
cover capital expenditures, property taxes, insurance premiums and franchise
fees. CBHS's failure to pay the additional $20 million is not a default under
the lease unless the Company has expended funds for capital expenditures,
property taxes, insurance premiums or franchise fees. In connection with the
Magellan transaction, the Company also will receive warrants to purchase
1,283,311 shares of common stock of Magellan, at an exercise price of $30.00
per share, with such warrants exercisable, in increments, during the period
from May 1998 through May 2009.
In connection with the closing of the Magellan transaction, Crescent
Affiliate will acquire its interest in CBHS and certain warrants to purchase
shares of common stock of Magellan in exchange for an initial payment
of $10 million, with an additional $2.5 million payable to CBHS within five
days following the closing. Magellan will acquire its interest in CBHS in
exchange for the contribution of certain assets, with an additional $2.5
million payable to CBHS in cash within five days following the closing. In
addition, each of Crescent Affiliate and Magellan will agree to lend to CBHS,
upon request by Magellan during the five years following the closing, up to an
aggregate of $17.5 million. Any such loans will bear interest at the rate of
10% per annum and have a term of five years. CBHS, as lessee of the Magellan
Facilities, will be responsible for operating the Magellan Facilities. CBHS
will derive assistance in its role as operator of the Magellan Facilities
through a franchise arrangement with an initial term of 12 years to be entered
into between CBHS (and its subsidiaries), as franchisees, and Magellan, as
franchisor. Pursuant to a franchise arrangement with an initial term of 12
years (and four, five-year renewal options), Magellan will provide to CBHS and
its subsidiaries certain services necessary or desirable for the operation of
the business to be conducted at the Magellan Facilities (including the
provision of policies, procedures and protocols for operation of the Magellan
Facilities and of a toll-free patient referral number) in exchange for an
annual franchise fee of $81 million plus the greater of annual cost-of-living
adjustments or a percentage of CBHS's gross revenues, as defined in the
franchise agreement. The payment by CBHS to Magellan of the annual franchise
fee will be subordinated to the payment by CBHS to the Company of annual
minimum rent. In addition, Magellan will not have the right to terminate the
franchise agreement due to the nonpayment of the franchise fee as a result of
the subordination of the franchise fee to the annual minimum rent. In
connection with the Magellan transaction, Crescent Affiliate will also acquire
warrants to purchase 1,283,311 shares of common stock of Magellan. These
warrants will have the same terms as the warrants purchased by the Company from
Magellan. In addition, Crescent Affiliate will issue to Magellan warrants to
purchase up to 2.5% of its common stock outstanding on the closing date, with
such warrants exercisable only in the same proportion as the Company and
Crescent Affiliate, in the aggregate, exercise their warrants to purchase
common stock of Magellan.
- 5 -
<PAGE> 7
STRUCTURE OF CRESCENT AFFILIATE AND CERTAIN RELATIONSHIPS
Intercompany Agreement. It is anticipated that, under an intercompany
agreement to be entered into in connection with the spin-off, the Company and
Crescent Affiliate will agree to provide each other with rights to participate
in certain transactions. For example, Crescent Affiliate will agree not to
acquire or make investments in real estate (which, for purposes of the
intercompany agreement, will include the provision of services related to real
estate or investment in hotel properties) unless it has notified the Company of
the acquisition or investment opportunity, and the Company has determined not to
pursue such acquisitions or investments. Crescent Affiliate also will agree to
assist the Company in structuring and consummating any such acquisition or
investment in real estate which the Company elects to pursue, on terms to be
determined by the Company. Similarly, the Company will provide Crescent
Affiliate with a right of first offer to become lessee of any real property that
may be acquired by the Company as to which the Company in its sole discretion
determines that, consistent with its status as a REIT, it must enter into a
"master" lease arrangement. In addition, Crescent Affiliate will notify the
Company of investment opportunities developed by Crescent Affiliate or of which
Crescent Affiliate is aware but is unable or unwilling to pursue. It is also
anticipated that Crescent Affiliate will enter into negotiations with the
lessees of certain of the Hotel Properties to acquire the rights of such
lessees. No such negotiations are currently ongoing, however, and there is no
assurance that any such agreements will be reached.
Management and Management Relationships. It is expected that Messrs.
Richard E. Rainwater, John C. Goff and Gerald W. Haddock will hold the same
offices with Crescent Affiliate that they currently hold with the Company. In
addition, it is expected that the board of directors of Crescent Affiliate will
consist of seven members, five of whom (including Messrs. Rainwater, Goff and
Haddock) are currently trust managers of the Company and two of whom are
persons who will not be affiliated with the Company. Although each of Messrs.
Rainwater, Goff and Haddock is committed to the success of Crescent Affiliate,
they are also committed to the success of Crescent Equities. None of Mr.
Rainwater, Mr. Goff or Mr. Haddock is committed to spending a particular amount
of time on Crescent Affiliate's affairs, nor will any of them devote his full
time to Crescent Affiliate.
Officers and directors of a corporation owe fiduciary duties to the
stockholders of that corporation. There is a risk that the common membership of
management and members of the Boards of Crescent Affiliate and Crescent
Equities will lead to conflicts of interests in connection with transactions
between the two companies. Crescent Affiliate was formed with specific purpose
clauses in an effort to avoid conflicts of interest issues by identifying at
the outset which types of opportunities will be pursued by each company. These
clauses provide that Crescent Affiliate's purposes include performing the
intercompany agreement and refraining from pursuing REIT-suitable
opportunities, until Crescent Equities has been offered, and has declined, the
opportunities.
Certain Relationships with Magellan. Messrs. Rainwater, Goff and Haddock and
Mr. Rainwater's children own shares of common stock of Magellan and warrants to
acquire shares of common stock of Magellan. Mr. Rainwater, either directly or
indirectly, owns approximately 2,475,000 shares, and warrants to acquire
1,237,500 shares, of common stock of Magellan. Mr. Rainwater's children, either
directly or indirectly, own approximately 320,000 shares, and warrants to
acquire 160,000 shares, of common stock of Magellan. Messrs. Goff and Haddock
each own, directly or indirectly, approximately 57,000 shares, and warrants to
acquire 28,500 shares, of common stock of Magellan. The Magellan transaction is
subject to the approval of Magellan's stockholders.
The warrants entitle the warrant holders to purchase, at any time until
the January 25, 2000 expiration date, shares of common stock of Magellan at a
purchase price of $26.15 per share. Agreements executed in connection with the
acquisition of the warrants (the "Private Placement") provide, among other
things, for the adjustment of the number of shares of common stock of Magellan
that can be purchased under the warrants and the purchase price, respectively,
for certain dilutive events, for registration rights for shares, including the
shares of common stock of Magellan underlying the warrants, which registration
rights have been exercised, and for a variety of other customary provisions,
including, without limitation, certain restrictions on the private sale of such
shares, certain preemptive rights to acquire additional securities issued by
Magellan for cash in a private placement transaction (which have been waived to
the extent they may apply to the Magellan transaction), and standstill
covenants restricting the purchase of additional shares of common stock of
Magellan by Mr. Rainwater and his affiliates in certain circumstances.
Darla D. Moore is married to Mr. Rainwater and is a director of
Magellan. As part of the arrangements pursuant to which Mr. Rainwater acquired
securities of Magellan, an affiliate of Mr. Rainwater has the right to
designate a nominee acceptable to Magellan for election as a director of
Magellan for so long as Mr. Rainwater and his affiliates (collectively, the
"Rainwater Group") continue to own beneficially a specified minimum number of
shares of common stock of Magellan. Mr. Rainwater's affiliate proposed Ms. Moore
as its nominee for director, and Ms. Moore was elected a director by the
Magellan Board on February 22, 1996.
As part of the Private Placement, Magellan agreed (i) to pay a
transaction fee of $150,000; (ii) to reimburse certain expenses of Rainwater,
Inc. in connection with the Private Placement; (iii) to pay the Rainwater
Group an annual monitoring fee of $75,000 commencing on March 31, 1996; and
(iv) to reimburse the Rainwater Group for reasonable fees and expenses (up to a
maximum of $25,000 annually) incurred in connection with its ownership of
common stock of Magellan and the warrants. Magellan also agreed to reimburse
the Rainwater Group in the future for one additional filing under the
Hart-Scott Rodino Antitrust Improvements Act of 1976 if such a filing is
required in connection with an exercise of the warrants.
From January 25, 1996 through December 31, 1996, Magellan paid to the
Rainwater Group under the Private Placement an aggregate of $306,344,
consisting of a transaction fee of $150,000, expense reimbursement in
connection with the Private Placement of $86,156, and monitoring fees and
expenses of $70,188. These amounts exclude directors' fees and expense
reimbursement paid to Ms. Moore in her capacity as a director of Magellan.
EFFECT OF CONSUMMATION OF TRANSACTIONS
General. Upon completion of the proposed spin-off, the proposed Magellan
transaction, and the acquisition of the Carter-Crowley Portfolio, the Company
and Crescent Affiliate will exist as separate public companies that, on an
aggregate basis, will own the assets acquired as a result of the consummation of
the proposed Magellan transaction and the acquisition of the Carter-Crowley
Portfolio, as described herein.
The Company. The Company will have purchased approximately $696.3 million of
assets, consisting primarily of the 90 Magellan Facilities and the warrants to
purchase 1,283,311 shares of the common stock of Magellan and the 14 office
properties included in the Carter-Crowley Office Portfolio and acquired by the
Company on May 9, 1997. These assets also include 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 and secured and unsecured promissory notes
relating primarily to the Dallas Mavericks, all of which the Company purchased
on May 9, 1997. The Company has funded or intends to fund these acquisitions
(as well as its obligations to Crescent Affiliate, as described below) through
proceeds of two public offerings of its Common Shares (as described below) and
additional borrowings under new or existing financing arrangements. In April and
May, 1997, the Company completed two public offerings of 24,150,000 and 500,000
Common Shares, respectively, through prospectus supplements to its existing
shelf registration statement. Net proceeds to the Company from the offerings
were approximately $593.5 million. The Company used the net proceeds to fund
approximately $306.3 million of the purchase price of the portion of the
Carter-Crowley Portfolio acquired by the Company and to fund approximately $26.0
million in connection with the formation and capitalization of Crescent
Affiliate. The $26.0 million was used by Crescent Affiliate to purchase the
portion of the Carter-Crowley Portfolio acquired by Crescent Affiliate. The
Company plans to use the remaining net proceeds of approximately $361.2 million
to fund a portion of the commitments of the Company and Crescent Affiliate
primarily related to the proposed Magellan transaction.
Crescent Affiliate. Crescent Affiliate will be a public company, the
securities of which initially will be owned by the shareholders of the Company
and the limited partners of the Operating Partnership on the record date for the
spin-off. The assets of Crescent Affiliate will be acquired by Crescent
Affiliate utilizing cash contributions of approximately $12.6 million and loans
of approximately $29.9 million provided to Crescent Affiliate by the Company in
the aggregate amount of approximately $42.5 million. Crescent Affiliate used
approximately $26.0 million of these funds to acquire an 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
100% of a construction equipment sale, leasing and services company and intends
to use approximately $12.5 million of these funds primarily to acquire a 50%
interest in CBHS and warrants to purchase 1,283,311 shares of common stock of
Magellan. The remaining approximately $4.0 million of these funds have been used
to fund certain obligations to purchase construction equipment of the
construction equipment sales, leasing and servicing company acquired from
Carter-Crowley. In addition, Crescent Affiliate will have available to it
approximately $20.0 million under a line of credit from the Company to fulfill
certain ongoing obligations associated with these assets.
The pro forma financial information reflects the acquisition of the
Carter-Crowley Office Portfolio, the two multifamily residential properties,
the approximately 1,216 acres of undeveloped land and promissory notes relating
to Dallas Mavericks, the pending Magallen transaction, and the proposed
spin-off.
- 6 -
<PAGE> 8
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS UNDER RULE 3-14 OF REGULATION S-X
Carter-Crowley Operating Real Estate Portfolio.
Report of Independent Public Accountants.
Statement of Excess of Revenues Over Specific Operating Expenses for
the Year Ended December 31, 1996.
Notes to Statement.
(b) PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet as of March 31, 1997
(unaudited) and notes thereto.
Pro Forma Consolidated Statement of Operations for the Three Months
ended March 31, 1997 (unaudited) and notes thereto.
Pro Forma Consolidated Statement of Operations for the Year ended
December 31, 1996 (unaudited) and notes thereto.
(c) EXHIBITS
The following is a list of all exhibits filed as a part of this
Form 8-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants, dated May 23, 1997 (filed herewith).
</TABLE>
- 7 -
<PAGE> 9
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: May 23, 1997 CRESCENT REAL ESTATE EQUITIES COMPANY
By: /s/ Dallas E. Lucas
--------------------------------
Dallas E. Lucas
Senior Vice President and
Chief Financial Officer
- 8 -
<PAGE> 10
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CARTER-CROWLEY OPERATING REAL ESTATE PORTFOLIO
Report of Independent Public Accountants ................................................... F-2
Statement of Excess of Revenues Over Specific Operating Expenses for the
Year Ended December 31, 1996 ............................................................... F-3
Notes to Statement ......................................................................... F-4
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Consolidated Balance Sheet as of March 31, 1997 and notes thereto ................ F-7
Pro Forma Consolidated Statement of Operations for the Three Months Ended March 31, 1997
and notes thereto .......................................................................... F-9
Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 1996 and
notes thereto .............................................................................. F-12
</TABLE>
- 9 -
<PAGE> 11
CARTER-CROWLEY OPERATING REAL ESTATE PORTFOLIO
STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-1
<PAGE> 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statement of excess of revenues over specific
operating expenses (as defined in Note 2) of Carter-Crowley Operating Real
Estate Portfolio for the year ended December 31, 1996. 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statement referred to above presents fairly, in all
material respects, the excess of revenues over specific operating expenses of
Carter-Crowley Operating Real Estate Portfolio for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 18, 1997
F-2
<PAGE> 13
CARTER-CROWLEY OPERATING REAL ESTATE PORTFOLIO
STATEMENT OF EXCESS OF
REVENUES OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Office rent $31,191,267
Residential rent 881,509
Recoveries 383,872
Other 355,157
-----------
32,811,805
SPECIFIC OPERATING EXPENSES:
Utilities 5,085,564
Repairs, maintenance, and contract services 4,493,230
Real estate taxes 3,924,737
Salaries 2,954,502
General and administrative 526,811
Insurance 272,421
Ground lease 154,104
Management fees 44,322
-----------
17,455,691
-----------
EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $15,356,114
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 14
CARTER-CROWLEY OPERATING REAL ESTATE PORTFOLIO
NOTES TO STATEMENT OF EXCESS
OF REVENUES OVER SPECIFIC OPERATING EXPENSES
DECEMBER 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Portfolio
Carter-Crowley Operating Real Estate Portfolio (the "Portfolio") consists of
14 office buildings (the "Buildings") and two apartment/condominium complexes
(the "Apartments") located in Dallas, Texas, and surrounding suburbs. The
Properties contain approximately 3 million rentable square feet. The Portfolio,
including the land on which the Buildings and Apartments are located (with the
exception of one office building subject to a ground lease expiring May, 2079),
are owned fee simple.
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.
2. BASIS OF ACCOUNTING:
The accompanying statement of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. This statement is
not intended to be a complete presentation of revenues and operating expenses
for the year ended December 31, 1996, as certain items such as depreciation,
amortization, interest, and partnership administrative expenses have been
excluded since they are not comparable to the proposed future operations of the
Properties. This statement has been prepared in accordance with requirements
for financial information required by Form 8-K and Rule 3.14 of Regulation S-X
of the Securities and Exchange Commission. Accordingly, the statement does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
F-4
<PAGE> 15
3. PROPERTY MANAGEMENT:
The Buildings are managed internally and are allocated a management fee of 4%
of gross rental receipts. Total management fees allocated to the Buildings for
the year ended December 31, 1996, were approximately $1.3 million and are
eliminated against the corresponding fees recorded by the Portfolio in the
accompanying statement of excess of revenues over specific operating expenses.
Approximately $1.1 million of home office salary expenses related to Building
management are included in salaries in the accompanying statement of excess of
revenues over specific operating expenses.
The Portfolio entered into a management agreement with Columbus Management
Services, Inc. (the "Manager") on January 1, 1996, relating to the management
of the Apartments. The agreement with the Manager requires a monthly
management fee of $200 and 5% of gross revenues, as defined. Total management
fees for the year ended December 31, 1996, were approximately $44,000. 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.
4. INTENT TO SELL:
On February 10, 1997, the fee owner of the Properties entered into a contract
to sell its interest in the Portfolio to an unaffiliated third party.
F-5
<PAGE> 16
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The proforma information for the year ended December 31, 1996 assumes
completion, in each case as of January 1, 1996 in determining operating data,
of (i) the October 1996 Offering and the additional public offering of 450,000
Common Shares that closed on October 9, 1996 and the use of the net proceeds
therefrom to repay approximately $168 million of indebtedness and to fund
approximately $289 million of Property acquisitions completed in the fourth
quarter of 1996 and the first quarter of 1997, (ii) the April 1997 Offering and
the additional public offering 500,000 Common Shares that closed on May 14,
1997 (collectively referred to as the "Offerings") and the use of the net
proceeds therefrom to fund approximately $306.3 million of the purchase price
of the portion of the Carter-Crowley Portfolio acquired by the Company, to fund
approximately $27.9 million in connection with the formation and capitalization
of Crescent Affiliate and the remaining proceeds of approximately $259.3
million ultimately to fund the purchase price of the assets to be acquired in
the Magellan transaction (iii) additional borrowings of approximately $143.1
million at an assumed interest rate of 7.0% to fund the remaining portion of
the purchase price of the assets to be acquired in the Magellan transaction and
(iv) the acquisition of the Properties acquired during 1996 and 1997.
The proforma information for the three months ended March 31, 1997
assumes completion, in each case as of January 1, 1997 in determining operating
data and, in each case as of March 31, 1997 in determining balance sheet data,
of (i) the Offerings and the use of the net proceeds therefrom to fund
approximately $306.3 million of the purchase price of the portion of the
Carter-Crowley Portfolio acquired by the Company, to fund approximately $27.9
million in connection with the formation and capitalization of Crescent
Affiliate and the remaining proceeds of approximately $259.3 million ultimately
to fund the purchase price of the assets to be acquired in the Magellan
transaction (ii) additional borrowings of approximately $143.1 million at an
assumed interest rate of 7.0% to fund the remaining portion of the purchase
price of the assets to be acquired in the Magellan transaction and (iii) the
acquisition of the Properties acquired during 1997.
The unaudited pro forma Consolidated Balance Sheet and Statements of
Operations should be read in conjunction with the historical financial
statements of the Company included in its Annual Report on Form 10-K for the
year ended December 31, 1996. In management's opinion, all adjustments
necessary to reflect the above-referenced 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 in purport to represent the Company's
results of operations for future periods.
F-6
<PAGE> 17
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Crescent
Real Estate
Equities Company Pro Forma Pro Forma
Historical (A) Adjustments Consolidated
---------------- ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investment properties, at cost $ 1,965,812 $ 636,733(B) $ 2,602,545
Less - Accumulated depreciation (221,730) -- (221,730)
------------ ------------ ------------
1,744,082 636,733 2,380,815
Cash and cash equivalents 42,692 -- (C) 42,692
Restricted cash and cash equivalents 25,051 -- 25,051
Accounts receivable, net 19,842 -- 19,842
Deferred rent receivable 19,493 -- 19,493
Investments in real estate mortgages and common
stock of residential development corporations 38,091 -- 38,091
Notes receivable 40,532 83,257(D) 123,789
Other assets, net 56,821 4,075(E) 60,896
------------ ------------ ------------
Total assets $ 1,986,604 $ 724,065 $ 2,710,669
============ ============ ============
LIABILITIES:
Borrowings under Credit Facility $ 156,000 $ 194,000 (F) $ 350,000
Notes payable 778,767 (50,857)(G) 727,910
Accounts payable, accrued expenses and other liabilities 43,356 -- 43,356
------------ ------------ ------------
Total liabilities 978,123 143,143 1,121,266
------------ ------------ ------------
MINORITY INTERESTS:
Operating Partnership 119,255 -- 119,255
Investment Joint Ventures 28,944 -- 28,944
------------ ------------ ------------
Total minority interests 148,199 -- 148,199
------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Common stock 723 247 970
Additional paid-in capital 905,792 580,675 1,486,467
Deferred compensation on restricted shares (374) -- (374)
Retained deficit (45,859) -- (45,859)
------------ ------------ ------------
Total stockholders' equity 860,282 580,922(H) 1,441,204
------------ ------------ ------------
Total liabilities and stockholders' equity $ 1,986,604 $ 724,065 $ 2,710,669
============ ============ ============
</TABLE>
See accompanying notes to Pro Forma Consolidated Balance Sheet.
F-7
<PAGE> 18
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
ADJUSTMENTS
(Dollars in Thousands)
<TABLE>
<S> <C>
(A) Reflects Crescent Real Estate Equities Company unaudited consolidated
historical balance sheet at March 31, 1997 --
(B) Increase reflects the following:
Acquisition of the Carter-Crowley Real Estate
Assets ("CC Real Estate Assets") $ 246,733
Pending acquisition of Magellan real estate assets and warrants 390,000
---------
$ 636,733
=========
(C) Change reflects the following:
Net proceeds of the Offerings $ 593,522
Acquisition of the Carter-Crowley Portfolio (306,308)
Cash contribution and note to Crescent Affiliate, in connection
with its formation, in order to acquire certain assets in
the Carter-Crowley Portfolio (27,857)
Partial repayment of Credit Facility (109,357)
Repayment of short-term borrowings (150,000)
---------
$ --
=========
(D) Increase reflects the following:
Note receivable to Crescent Affiliate $ 27,757
Acquisition of Carter-Crowley notes receivable ("CC Notes") 55,500
---------
$ 83,257
=========
(E) Increase reflects the following:
Acquisition of Carter-Crowley Other Assets ("CC Other Assets") $ 4,075
=========
(F) Net increase in borrowing under the Credit Facility as a result of:
Partial repayment of Credit Facility $(109,357)
Pending acquisition of Magellan real estate assets and warrants 290,857
Additional cash contribution to Crescent Affiliate for its
pending acquisition of a 50% interest in CBHS and warrants 12,500
---------
$ 194,000
=========
(G) Net increase in short-term borrowings for the following:
Repayment of short-term borrowings using proceeds of
the Offerings $(150,000)
Pending acquisition of Magellan real estate assets and warrants 99,143
---------
$ (50,857)
=========
(H) Net increase reflects the following:
Proceeds of the April 1997 Offering (24.150 million shares
of common stock at $25.375 per share) $ 612,806
Costs of the April 1997 Offering (3,000)
Underwriter's discount for the April 1997 Offering (29,222)
Proposed stock dividend in conjunction with cash contribution
to Crescent Affiliate (12,600)
Proceeds of additional Offering on May 14, 1997
(.5 million shares of common stock at $25.875 per share) 12,938
---------
$ 580,922
=========
</TABLE>
F-8
<PAGE> 19
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Crescent Real
Estate CC Real Pending
Equities Company Estate Magellan 1997 Acquired Other Pro Forma
Historical(A) Assets(B) Transaction(C) Properties(D) Adjustments Consolidated
---------------- ------------ -------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental property $ 79,400 $ 8,203 $ 13,250 $ 4,806 $ -- $ 105,659
Interest and other income 4,674 -- -- -- 2,400(E) 7,074
------------ ------------ ------------ ------------ ----------- ------------
Total revenues 84,074 8,203 13,250 4,806 2,400 112,733
------------ ------------ ------------ ------------ ----------- ------------
EXPENSES:
Real estate taxes 7,925 1,188 -- 475 -- 9,588
Repairs and maintenance 5,151 1,123 -- 503 -- 6,777
Other rental property operating 17,520 2,307 -- 1,225 (283)(F) 20,720
-- -- -- (49)(G) --
Corporate general and administrative 4,845 -- -- -- -- 4,845
Interest expense 14,744 -- -- -- 4,993(H) 19,737
Depreciation and amortization 13,952 1,251 2,438 872 -- 18,513
Amortization of deferred financing costs 649 -- -- -- -- 649
------------ ------------ ------------ ------------ ----------- ------------
Total expenses 64,786 5,869 2,438 3,075 4,661 80,829
------------ ------------ ------------ ------------ ----------- ------------
Operating income (loss) 19,288 2,334 10,812 1,731 (2,261) 31,904
OTHER INCOME:
Equity in net income of residential
development corporations 957 -- -- -- -- 957
------------ ------------ ------------ ------------ ----------- ------------
INCOME (LOSS) BEFORE MINORITY INTERESTS 20,245 2,334 10,812 1,731 (2,261) 32,861
Minority interests (3,494) -- -- -- (831)(I) (4,325)
------------ ------------ ------------ ------------ ----------- ------------
NET INCOME (LOSS) $ 16,751 $ 2,334 $ 10,812 $ 1,731 $ (3,092) $ 28,536
============ ============ ============ ============ =========== ============
PER SHARE DATA (J):
Net income $ 0.29
============
</TABLE>
See adjustments to Pro Forma Consolidated Statement
of Operations on following page.
F-9
<PAGE> 20
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
ADJUSTMENTS
(Dollars in Thousands)
<TABLE>
<S> <C>
(A) Reflects Crescent Real Estate Equities Company unaudited consolidated
historical statement of operations for the three months ended March 31,
1997. --
(B) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with CC Real Estate Assets, assuming the acquisition occurred
at the beginning of the period. --
(C) Reflects the historical incremental rental income based on the lease
payment from the behavioral healthcare facilities' lessee to the Company
by applying the rent provisions (as set forth in the facilities lease
agreement) and adjustment for depreciation based on the acquisition price
associated with the pending Magellan transaction, assuming the assets were
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 all properties acquired in 1997, assuming the properties
were acquired at the beginning of the period. --
PROPERTY ACQUISITION DATE
-------- ----------------
Greenway II office property 1/17/97
TCC 2/28/97
Three Denver office properties 2/28/97
(E) Increase reflects the incremental interest income associated with the
following, assuming all had occurred at the beginning of the period.
CC Notes ($55,500 @ 11.3%) $6,271
Crescent Affiliate Note Receivable ($27,757 @12%) 3,331
------
Total $9,602
Prorated for three months $2,400
$ 2,400
========
(F) Reflects the elimination of historical ground lessee's expense, as a
result of the Company acquiring the land underlying TCC, assuming TCC was
acquired at the beginning of the period. $ (283)
========
(G) Decrease as a result of the elimination of third party property management
fees which terminated after the acquisition of certain of the properties. $ (49)
========
</TABLE>
F-10
<PAGE> 21
<TABLE>
<S> <C> <C>
(H) Net increase as a result of interest costs for long and short-term
financing, net of repayment with proceeds of the Offerings, assuming the
borrowings to finance property acquisitions and the assumption of debt and
repayment, had all occurred at the beginning of the period.
Credit Facility and Short Term
Borrowings - $ 449,143 @ 7.00% = $ 31,440
LaSalle Note I - $ 239,000 @ 7.83% = 18,714
LaSalle Note II - $ 161,000 @ 7.79% = 12,542
Cigna - $ 63,500 @ 7.47% = 4,743
LaSalle Note III - $ 115,000 @ 7.57% = 8,706
Nomura Funding VI Note - $ 8,772 @ 10.07% = 883
Northwestern Loan - $ 26,000 @ 7.66% = 1,992
Woodlands Note - $ 12,338 @ 8.875% = 1,095
TCB Construction Loan- $ 3,157 @ 7.14% = 225
---------- --------
Total Annual Amount $1,077,910 $ 80,340
Prorated for three months 20,085
Less: Capitalized interest (348)
Historical interest expense (14,744)
--------
$ 4,993
========
(I) Reflects adjustment needed to reflect minority partners' weighted average
12.05% 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. $ (831)
========
(J) Reflects net income per share based on 96,955,184 weighted average shares
of Common Stock assumed to be outstanding during the three months ended
March 31, 1997. --
</TABLE>
F-11
<PAGE> 22
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Crescent Real
Estate CC Real Pending
Equities Company 1996 Acquired Estate Magellan 1997 Acquired
Historical(A) Properties(B) Assets(C) Transaction(D) Properties(E)
---------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental property $ 202,003 $ 89,185 $ 32,812 $ 53,000 $ 30,888
Interest and other income 6,858 -- -- -- --
------------ ------------ --------- ------------ ------------
Total revenues 208,861 89,185 32,812 53,000 30,888
------------ ------------ --------- ------------ ------------
EXPENSES:
Real estate taxes 20,606 8,176 4,751 -- 3,022
Repairs and maintenance 12,292 8,403 4,493 -- 3,258
Other rental property operating 40,915 21,346 9,230 -- 7,742
Corporate general and administrative 4,674 -- -- -- --
Interest expense 42,926 -- -- -- --
Depreciation and amortization 40,535 12,727 5,006 9,750 5,571
Amortization of deferred financing costs 2,812 -- -- -- --
------------ ------------ --------- ------------ ------------
Total expenses 164,760 50,652 23,480 9,750 19,593
------------ ------------ --------- ------------ ------------
Operating income (loss) 44,101 38,533 9,332 43,250 11,295
OTHER INCOME:
Equity in net income of residential
development corporations 3,850 -- -- -- --
------------ ------------ --------- ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 47,951 38,533 9,332 43,250 11,295
Minority interests (9,510) (533) -- -- --
------------ ------------ --------- ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 38,441 38,000 9,332 43,250 11,295
Extraordinary item (1,306) -- -- -- --
------------ ------------ --------- ------------ ------------
NET INCOME (LOSS) $ 37,135 $ 38,000 $ 9,332 $ 43,250 $ 11,295
============ ============ ========= ============ ============
PER SHARE DATA (L):
Income before extraordinary item
Extraordinary item
Net income
Other Pro Forma
Adjustments Consolidated
----------- ------------
<S> <C> <C>
REVENUES:
Rental property $ -- $ 407,888
Interest and other income 9,602(F) 16,460
------------ ------------
Total revenues 9,602 424,348
------------ ------------
EXPENSES:
Real estate taxes -- 36,555
Repairs and maintenance -- 28,446
Other rental property operating (1,700)(G) 77,081
(452)(H)
Corporate general and administrative 2,326(I) 7,000
Interest expense 36,312(J) 79,238
Depreciation and amortization -- 73,589
Amortization of deferred financing costs -- 2,812
------------ ------------
Total expenses 36,486 304,721
------------ ------------
Operating income (loss) (26,884) 119,627
OTHER INCOME:
Equity in net income of residential
development corporations -- 3,850
------------ ------------
INCOME (LOSS) BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM (26,884) 123,477
Minority interests (5,732)(K) (15,775)
------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM (32,616) 107,702
Extraordinary item -- (1,306)
------------ ------------
NET INCOME (LOSS) $ (32,616) $ 106,396
============ ============
PER SHARE DATA (L):
Income before extraordinary item $ 1.11
Extraordinary item (0.01)
------------
Net income $ 1.10
============
</TABLE>
See adjustments to Pro Forma Consolidated Statement
of Operations on following page.
F-12
<PAGE> 23
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
ADJUSTMENTS
(Dollars in Thousands)
<TABLE>
<S> <C>
(A) Reflects Crescent Real Estate Equities Company audited consolidated
historical statement of operations for the year ended December 31, 1996. --
(B) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with all properties acquired in 1996, assuming the properties
were acquired at the beginning of the period. --
PROPERTY ACQUISITION DATE
-------- ----------------
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
Greenway Plaza Portfolio 10/07/96
Chancellor Park office property 10/24/96
The Woodlands retail properties(iii) 10/31/96
Sonoma Mission Inn & Spa (ii) 11/18/96
Canyon Ranch - Lenox resort (ii) 12/11/96
160 Spear Street office property 12/13/96
Greenway I and IA office properties 12/18/96
Bank One Tower office property 12/23/96
Frost Bank Plaza office property 12/27/96
(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 or resort
property 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 set forth in the lease
agreements).
(iii) The Company has a 75% interest in the partnership
that owns these properties.
(C) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with CC Real Estate Assets, assuming the acquisition occurred
at the beginning of the period. --
</TABLE>
F-13
<PAGE> 24
<TABLE>
<S> <C>
(D) Reflects the historical incremental rental income based on the lease
payment from the behavioral healthcare facilities' lessee to the Company
by applying the rent provisions (as set forth in the facilities lease
agreement) and adjustment for depreciation based on the acquisition price
associated with the pending Magellan transaction, assuming the assets were
acquired at the beginning of the period. --
(E) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with all properties acquired in 1997, assuming the properties
were acquired at the beginning of the period. --
PROPERTY ACQUISITION DATE
-------- ----------------
Greenway II office property 1/17/97
TCC 2/28/97
Three Denver office properties 2/28/97
(F) Increase reflects the incremental interest income associated with the
following, assuming all had occurred at the beginning of the period.
CC Notes ($55,500 @ 11.3%) = $6,271
Crescent Affiliate Note Receivable ($27,757 @ 12%) = $3,331 $ 9,602
========
(G) Reflects the elimination of historical ground lessee's expense, as a
result of the Company acquiring the land underlying TCC, assuming TCC was
acquired at the beginning of the period. $ (1,700)
========
(H) Decrease as a result of the elimination of third party property management
fees which terminated subsequent to acquisition of certain of the
properties. $ (452)
========
(I) Increase reflects the estimated incremental general and administrative
costs associated with the increase in personnel due to numerous
acquisitions in 1996 and 1997. $ 2,326
========
(J) Net increase as a result of interest costs for long and short-term
financing, net of repayment with proceeds of the Offerings and the October
1996 Offerings, assuming the borrowings to finance property acquisitions
and the assumption of debt and repayment, had all occurred at the
beginning of the period.
Credit Facility and Short Term
Borrowings - $ 449,143 @ 7.00% = $ 31,440
LaSalle Note I - $ 239,000 @ 7.83% = 18,714
LaSalle Note II - $ 161,000 @ 7.79% = 12,542
Cigna - $ 63,500 @ 7.47% = 4,743
LaSalle Note III - $ 115,000 @ 7.57% = 8,706
Nomura Funding VI Note - $ 8,772 @ 10.07% = 883
Northwestern Loan - $ 26,000 @ 7.66% = 1,992
Woodlands Note - $ 12,338 @ 8.875% = 1,095
TCB Construction Loan - $ 3,157 @ 7.14% = 225
---------- --------
Total Annual Amount $1,077,910 $ 80,340
Less: Capitalized interest (1,102)
Historical interest expense (42,926)
--------
$ 36,312
========
(K) Reflects adjustment needed to reflect minority partners' weighted average
12.05% interest in the net income of the Operating Partnership less joint
venture minority interests assuming completion of the Offerings and the
October 1996 Offerings at the beginning of the period. $ (5,732)
========
(L) Reflects net income per share based on 96,955,184 weighted average shares
of Common Stock assumed to be outstanding during the year ended December
31, 1996. --
</TABLE>
F-14
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
23.01 Consent of Arthur Andersen LLP, Independent Public Accountants,
dated May 23, 1997 (filed herewith).
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 18, 1997 included in this Form 8-K into
Crescent Real Estate Equities Company's previously filed Registration
Statements No. 33-91438, No. 33-92548, No. 333-3450, No. 333-3452, No. 333-3454,
No. 333-13521, No. 333-21905 and No. 333-23005.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 23, 1997
