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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): September 30, 1997
CRESCENT REAL ESTATE EQUITIES COMPANY
(formerly known as Crescent Real Estate Equities, Inc.)
(Exact name of Registrant as specified in its Charter)
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)
(817) 877-0477
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS
MIAMI CENTER. On September 30, 1997, the Company acquired Miami
Center, a 34-story Class A office property. The Company acquired fee simple
title, subject to a Condominium Declaration, to Miami Center from an
unaffiliated entity for approximately $131.5 million. The purchase price was
funded through a $121.5 million draw under the Company's unsecured $450
million credit facility from a consortium of banks led by BankBoston, N.A. and
$10 million raised from the $400 million of senior unsecured debt issued by
Crescent Real Estate Equities Limited Partnership, the Company's operating
partnership, in a private placement which closed on September 22, 1997. There
are two units associated with the Condominium Declaration, an office property
and a hotel. The Company owns the single condominium unit that comprises the
Miami Center office property and an unaffilited 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. Miami Center is
located in the Downtown Central Business District ("CBD") submarket of Miami,
Florida. Construction of the office property was completed in 1983. Situated on
approximately 1.81 acres, Miami Center contains approximately 783,000 square
feet of net rentable space with an attached nine level above-ground parking
structure that accommodates approximately 893 cars. Management believes that
Miami Center is suitable and adequate for continued use as a Class A office
property and is adequately covered by insurance.
As of June 30, 1997, Miami Center was 78% leased, with a weighted
average base rental rate per square foot of $20.92 (a weighted average
full-service rental rate of $23.50). Miami Center is leased to approximately 50
tenants, with the major tenants having principal businesses in the financial
and legal service industry sectors. One tenant in Miami Center leases more than
10% of the net rentable square footage. As of June 30, 1997, Citibank
International, a financial services company, leased approximately 100,000 net
rentable square feet (approximately 12.9% of the net rentable square footage of
Miami Center) pursuant to a lease that expires in January 2009. The current
base rental rate per square foot for approximately 100,000 net rentable square
feet is $10.16, and thereafter increases periodically during the lease term up
to $23.41 in February 2008 where it remains in effect until January 2009. The
lease provides for two 5-year renewal options at 100% of the then-prevailing
market rental rate. The tenant may terminate the lease, by written notice
delivered no earlier than one year and no later than 180 days prior to the
expiration of the eighth lease year (July 31, 2002), upon payment to the
Landlord of a termination payment equal to the then present value of tenant's
remaining base rent and additional rent obligations (operating expenses
reimbursed from the tenant) discounted at a rate of 10% per annum.
The Downtown-CBD Miami submarket consists of 3.8 million square feet
of Class A office space, which was approximately 13% of Miami's total Class A
office space at June 30, 1997. At June 30, 1997, the Miami Downtown-CBD Class A
office space was 87% occupied, and the average quoted full-service market
rental rate for such space was $23.75 per square foot.
Upon completion of this acquisition, the aggregate tax basis of
depreciable real property and improvements and personal property for Miami
Center for federal income tax purposes will be approximately $131.5 million.
For federal income tax purposes, depreciation is computed using the
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straight-line method over lives which range from 15 to 39 years for real
property and improvements and the double-declining balance method over lives
which range from 5 to 7 years for the personal property.
The 1996 realty tax rate for real property was $3.16 per $100 of the
$77 million assessed value. The total amount of tax at this rate for 1996 was
approximately $2.4 million.
For the year ended December 31, 1996 and the six months ended June 30,
1997, utility expense was approximately $1.1 million and $.6 million,
respectively, and expenses for repairs, maintenance and contract services were
approximately $2.6 million and $1.3 million, respectively.
The Company does not plan to renovate Miami Center, other than
expenditures associated with the routine maintenance of the property.
The following table sets forth Miami Center's year-end occupancy and
average base rent per leased square foot (excluding storage space) for the five
years ended December 31, 1996, and for the six months ended June 30, 1997.
<TABLE>
<CAPTION>
YEAR OCCUPANCY AVERAGE BASE RENT(1)
---- --------- --------------------
<S> <C> <C>
1992 68.7% $23.31
1993 69.0 21.80
1994 74.3 18.55
1995 78.1 18.96
1996 78.9 19.05
6/30/97 78.0 20.25
</TABLE>
(1) Represents annual base rental revenues (excluding scheduled rent increases
and free rent that would be taken into account under generally accepted
accounting principles) divided by average occupancy in square footage for
the year or period and excluding expenses payable by or reimbursed from the
tenants.
The following table sets forth a schedule of lease expirations for leases
in place as of June 30, 1997, for Miami Center, for each of the 10 years
beginning with the remainder of 1997, assuming that none of the tenants
exercises renewal options and excluding 164,456 square feet of unleased space.
<TABLE>
<CAPTION>
ANNUAL
BASE RENT
PERCENTAGE PERCENTAGE OF PER SQUARE
NET RENTABLE OF LEASED TOTAL ANNUAL FOOT FOR
NUMBER OF AREA SUBJECT TO NET RENTABLE ANNUAL BASE BASE RENT NET
TENANTS WITH EXPIRING AREA SUBJECT RENT UNDER REPRESENTED RENTABLE
EXPIRING LEASES TO EXPIRING EXPIRING BY EXPIRING AREA
YEAR OF LEASE EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 8 34,780 5.8% $ 684,106 4.7% $19.67
1998 4 8,898 1.5 174,008 1.2 19.56
1999 7 56,057 9.3 1,437,956 9.9 25.65
2000 3 13,543 2.2 257,700 1.8 19.03
2001 6 56,956 9.4 1,439,245 10.0 25.27
2002 7 82,399 13.7 2,229,990 15.4 27.06
2003 3 30,180 5.0 606,566 4.2 20.10
2004 4 66,938 11.1 1,456,886 10.1 21.76
2005 4 103,073 17.1 2,591,007 17.9 25.14
2006 1 4,464 .7 113,832 .8 25.50
2007 and thereafter 3 145,622 24.2 3,477,966 24.0 23.88
</TABLE>
- ----------
(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 expenses payable by or
reimbursed from the tenants.
Certain matters discussed within this Form 8-K may be interrupted to
be 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") 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 the Form 8-K.
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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
Miami Center
Report of Independent Public Accountants
Statements of Excess of Revenues Over Specific Operating Expenses
for the year ended December 31, 1996 and the six months ended June
30, 1997.
Notes to Statements.
(b) PRO FORMA FINANCIAL INFORMATION
Pro Forma financial statements for the Company as prescribed by
Article 11 of Regulation S-X will be provided in an amendment to
this 8K.
(c) EXHIBITS
The following is a list of all exhibits filed as part of this Form 8K.
Exhibit No. Description of Exhibit
----------- ----------------------
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants, dated September 30, 1997 (filed
herewith).
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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: September 30, 1997 CRESCENT REAL ESTATE EQUITIES COMPANY
By: /s/ Dallas. E Lucas
---------------------------------
Dallas E. Lucas
Senior Vice President and
Chief Financial and Accounting
Officer
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MIAMI CENTER
Report of Independent Public Accountants................................................. F-3
Statements of Excess of Revenues Over Specific Operating Expenses for the Year Ended
December 31, 1996 and the Six Month Period Ended June 30, 1997........................... F-4
Notes to Statements...................................................................... F-5
</TABLE>
F-1
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MIAMI CENTER
STATEMENTS OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND THE SIX-MONTH PERIOD ENDED JUNE 30, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-2
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statements of excess of revenues over specific
operating expenses (as defined in Note 2) of Miami Center for the year ended
December 31, 1996, and the six-month period ended June 30, 1997. These
statements are the responsibility of the Property's management. Our
responsibility is to express an opinion on these statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the excess of revenues over specific operating expenses of
Miami Center for the year ended December 31, 1996, and the six-month period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
August 21,1997
F-3
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MIAMI CENTER
STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996 ,
AND THE SIX-MONTH PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------------ -------------
<S> <C> <C>
REVENUES:
Office rent $12,554,877 $ 6,033,466
Parking 1,259,118 624,675
Recoveries 930,406 492,001
Other 83,863 8,160
------------ ------------
14,828,264 7,158,302
SPECIFIC OPERATING EXPENSES:
Real estate taxes 2,498,327 1,236,978
Utilities 1,147,064 566,893
Repairs, maintenance, and contract services 2,614,911 1,276,345
Salaries 363,052 212,870
General and administrative 546,345 224,529
Management fees 331,665 167,269
Insurance 209,933 100,828
------------ ------------
7,711,297 3,785,712
------------ ------------
EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $ 7,116,967 $ 3,372,590
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
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MIAMI CENTER
NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
DECEMBER 31, 1996, AND JUNE 30, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Property
Miami Center (the "Property") is a 34-story office tower located in the central
business district of Miami, Florida. The Property contains approximately
773,000 rentable square feet as well as a nine level attached parking
facility. The building is owned by The Prudential Insurance Company of
America, a New Jersey Corporation. The Property is managed by Premisys Real
Estate Services, Inc.
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 statements of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. These statements are
not intended to be a complete presentation of revenues and operating expenses
for the year ended December 31, 1996, and the six-month period ended June 30,
1997, as certain items such as depreciation, amortization, interest, and
administrative expenses have been excluded since they are not
comparable to the proposed future operations of the Property.
F-5
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3. PROPERTY MANAGEMENT:
The Property entered into a management agreement with Premisys Real Estate
Services, Inc. (the "Manager") in June 1995. The agreement with the Manager
requires a management fee of 2.25 % of gross rental receipts, as defined.
Total management fees for the year ended December 31, 1996, and the six-month
period ended June 30, 1997, were approximately $331,665 and $167,269,
respectively. The agreement may be terminated at any time by either party in
accordance with the management agreement. If terminated, the Manager shall be
paid an amount equal to the next monthly installment of the annual fee.
4. SIGNIFICANT TENANTS:
The largest tenant of the Property occupies approximately 100,000 square feet,
or 13%, of the total leasable square footage. This lease expires in January
2009. The second largest tenant of the Property occupies approximately 67,000
square feet, or 9%, of the total leasable square footage. This lease expires
in October 2005.
F-6
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants, dated September 30, 1997 (filed herewith)
</TABLE>
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EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated August 21, 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, No. 333-23005 and No. 333-33893.
ARTHUR ANDERSEN LLP
Dallas, Texas
September 30, 1997
