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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1998
COMMISSION FILE NO 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
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<S> <C>
TEXAS 52-1862813
- --------------------------------------------- ---------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
</TABLE>
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 preferred
and common shares, as of May 8, 1998.
Preferred Shares, par value $.01 per share: 8,000,000
Common Shares, par value $.01 per share: 120,097,948
- --------------------------------------------------------------------------------
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
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CRESCENT REAL ESTATE EQUITIES COMPANY
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
----
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Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 (Unaudited) and December 31, 1997..... 3
Consolidated Statements of Operations for the three months ended March 31,
1998 and 1997 (Unaudited).............................................................. 4
Consolidated Statements of Cash Flows for the three months ended March 31,
1998 and 1997 (Unaudited).............................................................. 5
Notes to Financial
Statements............................................................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Historical Results of Operations......................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................. 18
PART II: OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 24
Item 2. Changes in Securities.................................................................. 24
Item 3. Defaults Upon Senior Securities........................................................ 24
Item 4. Submission of Matters to a Vote of Security Holders.................................... 24
Item 5. Other Information...................................................................... 24
Item 6. Exhibits and Reports on Form 8-K....................................................... 24
</TABLE>
2
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(NOTE 1)
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<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS:
Investments in Real Estate:
Land $ 485,695 $ 448,328
Building and improvements 3,338,133 2,923,097
Furniture, fixtures and equipment 53,185 51,705
Less - accumulated depreciation (302,826) (278,194)
----------- -----------
Net investment in real estate 3,574,187 3,144,936
Cash and cash equivalents 68,548 66,622
Restricted cash and cash equivalents 26,519 41,528
Accounts receivable, net 24,047 30,179
Deferred rent receivable 48,397 39,588
Investments in real estate mortgages and equity of
unconsolidated companies 583,262 601,770
Notes receivable, net 148,482 156,676
Other assets, net 118,286 98,681
----------- -----------
Total assets $ 4,591,728 $ 4,179,980
=========== ===========
LIABILITIES:
Borrowings under credit facility $ 457,000 $ 350,000
Notes payable 1,517,927 1,360,124
Accounts payable, accrued expenses and other liabilities 79,222 127,258
----------- -----------
Total liabilities 2,054,149 1,837,382
----------- -----------
MINORITY INTERESTS:
Operating partnership, 6,416,642 and 6,397,072 units,
respectively 121,806 117,103
Investment joint ventures 27,815 28,178
----------- -----------
Total minority interests 149,621 145,281
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SHAREHOLDERS' EQUITY:
6 3/4% Series A Convertible Cumulative Preferred Shares,
$.01 par value, authorized 100,000,000 shares,
8,000,000 shares issued and outstanding at March 31, 1998 200,000 -
Common shares, $.01 par value, authorized 250,000,000 shares,
118,725,105 and 117,977,907 shares issued and outstanding
at March 31, 1998 and December 31, 1997, respectively 1,186 1,179
Additional paid-in capital 2,248,628 2,253,928
Deferred compensation on restricted shares (281) (283)
Retained deficit (61,575) (57,507)
----------- -----------
Total shareholders' equity 2,387,958 2,197,317
----------- -----------
Total liabilities and shareholder's equity $ 4,591,728 $ 4,179,980
=========== ===========
</TABLE>
The accompanying notes are in integral
part of these financial statements
3
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
(NOTE 1)
<TABLE>
<CAPTION>
For the three months
ended March 31,
(unaudited)
1998 1997
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REVENUES:
Office and retail properties $ 126,428 $ 70,415
Hotel properties 12,874 8,985
Behavioral healthcare properties 13,823 --
Interest and other income 8,024 1,530
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Total revenues 161,149 80,930
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EXPENSES:
Real estate taxes 16,097 7,925
Repairs and maintenance 8,700 5,151
Other rental property operating 29,891 17,520
Corporate general and administrative 3,147 4,845
Interest expense 34,283 14,744
Amortization of deferred financing costs 1,140 649
Depreciation and amortization 26,582 13,952
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Total expenses 119,840 64,786
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Operating income 41,309 16,144
OTHER INCOME:
Equity in net income of unconsolidated
companies 5,845 4,101
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INCOME BEFORE MINORITY INTERESTS 47,154 20,245
Minority interests (4,746) (3,494)
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NET INCOME 42,408 16,751
PREFERRED SHARE DIVIDENDS (1,575) --
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NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 40,833 $ 16,751
============= =============
PER COMMON SHARE DATA:
Net Income - Basic $ 0.35 $ 0.23
============= =============
Net Income - Diluted $ 0.33 $ 0.22
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 118,379,709 72,305,184
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 123,068,052 75,858,825
============= =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 3)
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<CAPTION>
For the three months
ended March 31,
------------------------
(unaudited)
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income applicable to common shareholders $ 40,833 $ 16,751
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 27,722 14,601
Minority interests 4,746 3,494
Non-cash compensation 24 20
Equity in earnings in excess of distributions
received from unconsolidated companies (3,635) (182)
Decrease (increase) in accounts receivable 6,132 (4,513)
Increase in deferred rent receivable (8,809) (3,276)
Increase in other assets (18,623) (3,458)
Decrease in restricted cash and cash equivalents 11,140 12,112
Decrease in accounts payable, accrued
expenses and other liabilities (48,036) (5,106)
--------- ---------
Net cash provided by operating activities 11,494 30,443
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investment properties (421,354) (222,158)
Development of investment properties (5,416) (3,801)
Capital expenditures - rental properties (8,481) (2,638)
Tenant improvement and leasing costs - rental properties (14,241) (6,925)
Decrease (increase) in restricted cash and cash equivalents -
capital reserves 3,869 (281)
Investment in unconsolidated companies 22,143 (930)
Decrease in escrow deposits - acquisition of investment (80) (4,890)
properties
Decrease (increase) in notes receivable 8,194 (11,642)
--------- ---------
Net cash used in investing activities (415,366) (253,265)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs 127 (564)
Borrowings under credit facility 335,050 116,000
Payments under credit facility (228,050) --
Debt proceeds 158,100 151,039
Debt payments (297) (80)
Capital distributions - joint venture partner (763) (728)
Proceeds from exercise of common share options 78 355
Net proceeds from preferred share offering 191,250 --
Distributions to shareholders and unitholders (49,697) (26,100)
--------- ---------
Net cash provided by financing activities 405,798 239,922
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 1,926 17,100
CASH AND CASH EQUIVALENTS,
Beginning of period 66,622 25,592
--------- ---------
CASH AND CASH EQUIVALENTS,
End of period $ 68,548 $ 42,692
========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
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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") is a fully
integrated real estate company operating as a Texas 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. 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 Crescent Equities
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 Operating Partnership, the General Partner and
the other direct and indirect subsidiaries of Crescent Equities.
As of March 31, 1998, the Company directly or indirectly owned a portfolio of
real estate assets (the "Properties") located primarily in 21 metropolitan
submarkets in Texas and Colorado. The Properties include 86 office properties
(the "Office Properties") with an aggregate of approximately 30.8 million net
rentable square feet, 89 behavioral healthcare facilities (the "Behavioral
Healthcare Facilities"), seven full-service hotels with a total of 2,276 rooms
and two destination health and fitness resorts that can accommodate up to 452
guests daily (the "Hotel Properties"), real estate mortgages and non-voting
common stock representing interests ranging from 40% to 95% in five
unconsolidated residential development corporations (the "Residential
Development Corporations"), which in turn, through joint venture or partnership
arrangements, own interests in 12 residential development properties (the
"Residential Development Properties"), and seven retail properties (the "Retail
Properties") with an aggregate of approximately .8 million net rentable square
feet. In addition, the Company owns an indirect 38% interest in each of two
corporations that currently own and operate approximately 80 refrigerated
warehouses with an aggregate of approximately 394 million cubic feet (the
"Refrigerated Warehouse Investment"). The Company also has a 42.5% partnership
interest in a partnership 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. In addition,
the Company has entered into a merger agreement, pursuant to which the Company
will acquire Station Casinos, Inc. ("Station") (see Note 9 - Pending
Transactions), a corporation that owns and operates, through wholly owned
subsidiaries, four full-service casino/hotels and two riverboat casinos
(collectively, the "Casino/Hotel Properties").
Crescent Equities 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 March 31, 1998:
Operating Partnership: 59 Office Properties, six Hotel Properties and five
Retail Properties
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
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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(1)
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")
</TABLE>
- ------------------------
(1) 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In March 1998, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") issued EITF 97-11, "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions", which provides that
internal costs of identifying and acquiring operating property should be
expensed as incurred. This pronouncement is effective March 19, 1998 and has no
material impact on the Company's financial statements.
3. SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS:
<TABLE>
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Three months ended
March 31,
-------------------
1998 1997
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $39,854 $13,108
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Two-for-one common share dividend $ -- $ 362
Conversion of operating partnership units to common
shares with resulting reduction in minority interest and
increases in common shares and additional paid-in
capital $ 3,352 $ --
Issuance of operating partnership units in settlement
of obligation $ 8,522 $ --
</TABLE>
7
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4. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY 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 has been presented on an
aggregated basis and classified under the captions "Residential Development
Corporations" and "Refrigerated Warehouse Investment and Other," as applicable,
as of March 31, 1998.
<TABLE>
<CAPTION>
SUMMARY STATEMENTS OF OPERATIONS: FOR THE THREE MONTHS ENDED
MARCH 31, 1998
---------------------------------
RESIDENTIAL REFRIGERATED
DEVELOPMENT WAREHOUSE INVESTMENT
CORPORATIONS AND OTHER
---------------- --------------------
<S> <C> <C>
Total revenues........................... $ 66,528 $ 18,148
Total expenses........................... 61,450 15,684
---------- ----------
Net income............................... $ 5,078 $ 2,464
========== ==========
Company's equity in net income of
unconsolidated companies.............. $ 4,338 $ 1,507
========== ==========
</TABLE>
5. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:
Following is a summary of the Company's debt financing:
<TABLE>
<CAPTION>
March 31, 1998
--------------
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SECURED DEBT
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
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
LaSalle Note III due July 1999, bears interest at 30-day LIBOR plus a weighted
average rate of 2.135% (at March 31, 1998 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
Chase Manhattan Note due September 2001, bears interest at 30-day LIBOR plus 175
basis points (at March 31, 1998 the rate was 7.44%), and requires payments of
interest only during its term, secured by the Fountain Place Office Property ........ 97,123
CIGNA Note due December 2002, bears interest at 7.47% with a seven-year
interest-only term, secured by the MCI Tower Office Property and Denver
Marriott City Center Hotel Property.................................................. 63,500
</TABLE>
8
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<TABLE>
March 31, 1998
--------------
<S> <C>
Metropolitan Life Note II due December 2002, bears interest at 6.93% with monthly
principal and interest payments based on a 25-year amortization schedule, secured
by the Energy Centre Office Property................................................. 44,831
Northwestern Note due January 2003, bears interest at 7.66% with a seven-year
interest-only term, secured by the 301 Congress Avenue Office Property............... 26,000
Metropolitan Life Note due September 2001, bears interest at 8.88% with monthly
principal and interest payments based on a 20-year amortization schedule, secured
by five of The Woodlands Office Properties........................................... 12,030
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................................................... 8,666
Rigney Note due November 2012, bears interest at 8.50% with quarterly principal
and interest payments based on a 15-year amortization schedule, secured by a
parcel of land....................................................................... 777
UNSECURED DEBT
Line of Credit with BankBoston, N.A. ("BankBoston") ("Credit Facility") (see
description of Credit Facility below)................................................ 457,000
Short-term BankBoston Note due May 1998, bears interest at Eurodollar rate plus
120 basis points (at March 31, 1998, the rate was 6.89%)............................. 250,000
Short-term BankBoston Note II due August 1998, bears interest at Eurodollar rate
plus 120 basis points (at March 31, 1998, the rate was 6.89%)........................ 100,000
2007 Notes bear interest at a fixed rate of 7.13% with a ten-year interest-only
term, due September 2007 (see "Notes Offering" below for a description of
changes in the interest rate under specified circumstances).......................... 250,000
2002 Notes bear interest at a fixed rate of 6.63% with a five-year interest-only
term, due September 2002 (see "Notes Offering" below for a
description of changes in the interest rate under specified circumstances)........... 150,000
------------
Total Notes Payable $ 1,974,927
============
</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.
9
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CREDIT FACILITY
On December 19, 1997, the Credit Facility was increased to $550,000, to
enhance the Company's financial flexibility in making new real estate
investments. The interest rate on advances under the Credit Facility is 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 March 31, 1998, the
Company was in compliance with all covenants. As of March 31, 1998, the interest
rate was 6.89% and $93,000 was available under the Credit Facility.
NOTES OFFERING
On September 22, 1997, the Operating Partnership completed a private
offering of unsecured notes in an aggregate principal amount of $400,000 (the
"Notes"). The interest rates on the Notes are 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 were 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 March 21, 1998. The interest rates
on the Notes were temporarily increased by 50 basis points, since the exchange
offer was not completed by March 21, 1998. The Company anticipates that the
interest rates on the Notes will return to the original rates in June 1998.
6. MINORITY INTERESTS:
Minority interests represent (i) the limited partnership interests
owned by unitholders in the Operating Partnership ("units") and (ii) joint
venture interests held by outside interests. 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 three months ended March 31, 1998, there
were 105,585 units exchanged for 211,170 common shares.
7. SHAREHOLDERS' EQUITY:
On February 3, 1998, the Company paid a cash dividend and unitholder
distribution of $49,697 or $.38 per share and equivalent unit, to shareholders
and equivalent unitholders of record on January 20, 1998. The dividend
represented an annualized dividend of $1.52 per share and equivalent unit.
On February 19, 1998, the Company completed an offering (the "February
1998 Preferred Offering") of 8,000,000 shares of 6 3/4% Series A convertible
cumulative preferred shares (the "Series A Preferred Shares") with a liquidation
preference of $25 per share. Series A Preferred Shares are convertible at any
time, in whole or in part, at the option of the holders thereof into common
shares of the Company at a conversion price of $40.86 per common share
(equivalent to a conversion rate of .6119 common share per Series A Preferred
Share), subject to adjustment in certain circumstances. Net proceeds to the
Company from the February 1998 Preferred Offering after underwriting discounts
of $8,000 and other offering costs of $750 were approximately $191,250. The net
proceeds from the February 1998 Preferred Offering were used to repay borrowings
under the Credit Facility. Dividends on the Series A Preferred Shares are
cumulative from the date of original issue and are payable quarterly in arrears
commencing on May 15, 1998. The dividend represents an annualized dividend of
$1.69 per share, or $.42 per share quarterly. On May 15, 1998, the Company paid
the preferred dividend of $3,264.
10
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8. ACQUISITIONS:
During the first quarter of 1998, the Company acquired in fee simple
the following Properties from unrelated third parties. The Company funded these
acquisitions through borrowings under the Credit Facility and borrowings under
the Company's $250,000 BankBoston Note.
<TABLE>
<CAPTION>
Net
Rentable
Company's Hotel Area
Property Name Acq. Date City, State Ownership % Acq. Price Rooms Apartments (In Sq. Ft.)
------------- --------- ----------- ----------- ---------- ----- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Austin Centre/Omni
Austin Hotel 1/23/98 Austin, TX 100 $ 96,400 314 61 344,000
Post Oak Central 2/13/98 Houston, TX 100 155,250 N/A N/A 1,278,000
Washington Harbour 2/25/98 Washington, D.C. 100 161,000 N/A N/A 536,000
</TABLE>
9. PENDING TRANSACTIONS:
Station Casinos, Inc.
On January 16, 1998, the Company entered into an agreement and plan of
merger pursuant to which Station will merge (the "Merger") with and into the
Company. Station is an established multi-jurisdictional casino/hotel company
that owns and operates, through wholly owned subsidiaries, six distinctly themed
casino/hotel properties, four full-service casinos/hotels which are located in
Las Vegas, Nevada, and two riverboats, one of which is located in Kansas City,
Missouri and one of which is located in St. Charles, Missouri. As a result of
the Merger, the Company will acquire the real estate and other assets of
Station, except to the extent operating assets are transferred immediately prior
to the Merger.
For the additional information regarding the Merger, see the Company's
Current Report on Form 8-K dated January 16, 1998 and filed January 27, 1998,
and the amendments thereto filed February 13, 1998 and April 27, 1998.
Refrigerated Warehouse Investment.
On March 25, 1998, Americold Corporation, a wholly owned subsidiary of
the Americold partnership which the Company owns an indirect 38% interest in,
entered into an agreement to acquire the assets of Freezer Services, Inc.,
consisting of nine cold storage warehouses for approximately $134,000, including
$22,000 of indebtedness. There can be no assurance that this proposed
transaction will ultimately be completed
10. PRO FORMA FINANCIAL INFORMATION
The pro forma financial information for the three months ended March
31, 1998 assumes the completion, in each case as of January 1, 1998, of (i) the
February 1998 Preferred Share Offering; (ii) the 1998 completed acquisitions,
inclusive of the pending transaction with Station (see Note 9); and (iii) the
Unit Investment Trust Offering (as defined in Note 11). Pro Forma information
assumes as of January 1, 1998, all offering proceeds were used for repayment of
indebtedness incurred for acquisitions.
11
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<TABLE>
<CAPTION>
For the three months ended
March 31, 1998
--------------------------
<S> <C>
Total revenues $214,453
Operating income 49,552
Income before minority
interests 55,397
Net income available to common
shareholders 44,876
Per common share data:
Net income - Basic $ 0.38
Net income - Diluted $ 0.36
</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 Property acquisitions. Pro forma adjustments
primarily represent the following: (i) rental income to the Company from the
Hotel Property acquired during 1998 based on lease payments (base rent and
percentage rent) from the hotel lessee by applying the rent provisions (as set
forth in the lease agreement) to historical revenues of the hotel property; (ii)
rental income to the Company from the Casino/Hotel Properties to be acquired as
a result of the Station Merger based on an estimated lease payment from the
Casino/Hotel lessee by using the historical operating results of the
Casino/Hotel Properties; (iii) an adjustment for depreciation expense for
Office and Hotel Properties acquired in 1998 and for the Casino/Hotel
Properties and (iv) interest costs assuming the borrowings to finance
acquisitions and assumption of debt for investments.
These pro forma amounts are not necessarily indicative of what the
actual financial position or results of operations of the Company would have
been assuming the above investments had been consummated or as of the beginning
of the period, nor do they purport to represent the future financial position or
results of operations of the Company.
11. SUBSEQUENT EVENTS:
On April 8, 1998, the Company declared a cash dividend and unitholder
distribution of $.38 per share and equivalent unit to shareholders and
equivalent unitholders of record on April 20, 1998. The cash dividend and
unitholder distributions were paid May 5, 1998, and represent an annualized
dividend of $1.52 per share and equivalent unit.
On April 23, 1998, the Company completed an offering of 1,365,138
common shares at $32.27 per share to Merrill Lynch & Co. (the "Underwriter").
The Underwriter deposited the common shares with the trustee of the Equity
Investor Fund Cohen & Steers Realty Majors Portfolio (A Unit Investment Trust)
(the "Trust"), in exchange for units in the Trust (the "Unit Investment Trust
Offering"). Net proceeds to the Company from the Unit Investment Trust Offering
were $43,960. The net proceeds were used to reduce borrowings outstanding under
the Credit Facility.
On May 1, 1998, the Company acquired, subject to a ground lease, Datran
Center, two Class A office buildings, containing approximately 472,000 net
rentable square feet located in the South Dade/Kendall submarket of Miami,
Florida. The purchase price was approximately $71,000 of which $47,000 was
funded through the assumption of two mortgage notes encumbering the leasehold
interests in the land and the building and the remaining balance of $24,000
through a borrowing under the Credit Facility.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
HISTORICAL RESULTS OF OPERATIONS
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These financial statements
include all adjustments which are, in the opinion of management, necessary to
reflect a fair statement of the results for the interim periods presented, and
all such adjustments are of a normal and recurring nature. The information
herein should be read in conjunction with the more detailed information
contained in the Company's Form 10-K for the year ended December 31, 1997.
Capitalized terms used but not otherwise defined therein, shall have the
meanings ascribed to those terms in the footnotes to the financial statements.
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although the Company believes that
the expectations reflected in such forward-looking statements are based upon
reasonable assumptions, the Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference are set forth in the Company's Current Report on
Form 8-K dated April 17, 1998 and filed April 28, 1998 and include the
following: changes in real estate conditions (including rental rates and
competing properties) or in industries in which the Company's principal tenants
compete; changes in general economic conditions; consummation of the proposed
merger with Station on terms other than those described herein or the failure to
consummate the merger; the ability to identify acquisitions and investment
opportunities meeting the Company's investment strategy; timely leasing of
unoccupied square footage; timely releasing of occupied square footage upon
expiration; the Company's ability to generate revenues sufficient to meet debt
service payments and other operating expenses; the Company's inability to
control the management and operation of its residential development properties,
its tenants and the businesses associated with its investment in refrigerated
warehouses; financing risks, such as the availability of funds sufficient to
service existing debt, changes in interest rates associated with its variable
rate debt, the availability of equity and debt financing terms acceptable to the
Company, the possibility that the Company's outstanding debt (which requires
so-called "balloon" payments of principal) may be refinanced at higher interest
rates or otherwise on terms less favorable to the Company and the fact that
interest rates under the Credit Facility and certain of the Company's other
financing arrangements may increase; the existence of complex regulations
relating to the Company's status as a real estate investment trust and the
adverse consequences of the failure to qualify as such;
13
<PAGE> 14
and other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission. Given these uncertainties, readers are
cautioned not to place undue reliance on such statements. The Company undertakes
no obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Total revenues increased approximately $80.2 million, or 99.1%, to
$161.1 million for the three months ended March 31, 1998, as compared to $80.9
million for the three months ended March 31, 1997. An increase in Office and
Retail Property revenues of $56.0 million is primarily attributable to: (i) the
acquisition of 27 Office Properties and one Retail Property subsequent to March
31, 1997, which resulted in $42.9 million of incremental revenues; (ii) the fact
that five Office Properties acquired during the first quarter of 1997
contributed revenues for a full quarter in 1998 as compared to a partial quarter
year in 1997, which resulted in $6.0 million of incremental revenues; and (iii)
an increase in Office and Retail Property revenues of $7.1 million from the
properties owned as of January 1, 1997, which is primarily due to rental rate
and occupancy increases at these Properties. The increase in Hotel Property
revenues of $3.9 million is primarily attributable to $.6 million from Hotel
Properties owned as of January 1, 1997, which is attributable to an increase
percentage rent received from the hotel lessee as a result of an increase in
revenues at the hotels and $3.2 million from Hotel Properties acquired
subsequent to January 1, 1997. The increase in Behavioral Healthcare Facilities
revenues of $13.8 million is attributable to the acquisition of the facilities
in June 1997. The increase in interest and other income of $6.5 million for the
three months ended March 31, 1998, is primarily attributable to the sale of
marketable securities and the $100.6 million increase in notes receivable as a
result of the acquisition of certain notes included in the Carter-Crowley
portfolio, and loans to Crescent Operating, Inc. ("COI").
Total expenses increased $55.1 million, or 85%, to $119.8 million for
the three months ended March 31, 1998, as compared to $64.8 million for the
three months ended March 31, 1997. An increase in rental property operating
expenses of $24.1 million is primarily attributable to: (i) the acquisition of
27 Office Properties and one Retail Property subsequent to March 31, 1997, which
resulted in $19.7 million of incremental expenses, and (ii) the fact that five
Office Properties acquired during the first quarter of 1997 contributed expenses
for a full quarter in 1998 as compared to a partial quarter in 1997, which
resulted in $2.4 million of incremental expenses; and (iii) an increase in
expenses of $1.5 million from the Office and Retail Properties owned as of
January 1, 1997. Depreciation and amortization increased $12.6 million primarily
due to the acquisitions of Office, Retail and Hotel Properties and the
Behavioral Healthcare Facilities. An increase in interest expense of $19.5
million is primarily attributable to: (i) $7.1 million of interest payable under
the Notes due 2002 and Notes due 2007, which were issued in a private offering
in September 1997; (ii) $1.8 million of interest payable under the Chase
Manhattan Note, which was assumed in the acquisition of Fountain Place in
November 1997; (iii) $1.7 million of interest payable on the BankBoston Note II;
and (iv) $8.3 million of incremental interest payable due to draws under the
Credit Facility (average balance outstanding for first quarter 1998 and 1997 was
$448 million and $156 million, respectively), all of which financing
arrangements were used to fund investments.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $68.5 million and $66.6 million at March
31, 1998 and December 31, 1997, respectively. The increase is attributable to
$405.8 million and $11.5 million of cash provided by financing and operating
activities, respectively, offset by $415.4 million used in investing activities.
The Company's inflow of cash provided by financing activities is primarily
attributable to net borrowings under the Credit Facility ($107.0 million) and
borrowings under the BankBoston Note ($158.1 million) and net proceeds from the
February 1998 Preferred Offering ($191.3 million). The inflow
from cash provided by financing activities was partially offset by the
distributions paid to shareholders and unitholders ($49.7 million). The inflow
from operating activities is primarily attributable to property operations, but
is partially offset by the decrease in accounts payable due to the payment of
real estate taxes. The Company utilized $415.4 million of cash flow primarily in
the
14
<PAGE> 15
following investing activities: (i) the acquisition of six office properties
and one hotel property ($421.4 million); (ii) recurring and non-recurring tenant
improvement and leasing costs for the office and retail properties ($14.2
million); (iii) capital expenditures for rental properties ($8.5 million)
primarily attributable to non-recoverable building improvements for the office
and retail properties, and replacement of furniture, fixtures and equipment for
the hotel properties; and (iv) development of investment properties ($5.4
million). The outflow of cash used in investing activities was partially offset
by: (i) net distributions received from the Company's unconsolidated companies
($22.1 million) and (ii) decrease in notes receivable ($8.2 million).
On February 19, 1998, the Company completed an offering of 8,000,000
shares of 6 3/4% Series A convertible cumulative preferred shares with a
liquidation preference of $25.00 per share. Series A Preferred Shares are
convertible at any time, in whole or in part, at the option of the holders
thereof into common shares of the Company at a conversion price of $40.86 per
common share (equivalent to a conversion rate of .6119 common shares per Series
A Preferred Share), subject to adjustment in certain circumstances. Net proceeds
to the Company from the February 1998 Preferred Offering after underwriting
discounts of $8.0 million and other offering costs of $.8 million were
approximately $191.3 million. The net proceeds from the February 1998 Preferred
Offering were used to repay borrowings under the Credit Facility. Dividends on
the Series A Preferred Shares are cumulative from the date of original issue and
are payable quarterly in arrears commencing on May 15, 1998. The dividend
represents an annualized dividend of $1.69 per share, or $.42 per share
quarterly.
As of March 25, 1998, with the exception of the Station transaction,
the Company had no commitments for material capital expenditures. The Company
principally expects to fund the approximately $1.745 billion required to
consummate the Merger with Station through the issuance of common shares and a
new series of preferred shares with a value of approximately $700 million, the
assumption of approximately $541 million of Station's outstanding debt, the
refinancing of approximately $378 million of Station's outstanding debt and the
incurrence of approximately $126 million in additional debt primarily related to
transaction costs. There are currently no definitive agreements or arrangements
relating to refinancing or obtaining any such debt.
15
<PAGE> 16
The significant terms of the Company's primary debt financing
arrangements are shown below (dollars in thousands):
<TABLE>
<CAPTION>
BALANCE
INTEREST OUTSTANDING
MAXIMUM RATE EXPIRATION AT
DESCRIPTION BORROWINGS AT 3/31/98 DATE 3/31/98
- ---------------------------------------- ---------------- ----- ----------- --------------------- --------------
<S> <C> <C> <C> <C>
Secured Fixed Rate Debt:
LaSalle Note I $ 239,000 7.83% August 2027(1) $ 239,000
LaSalle Note II 161,000 7.79% March 2028(2) 161,000
CIGNA Note 63,500 7.47% December 2002 63,500
Metropolitan Life Note II 44,831 6.93% December 2002 44,831
Northwestern Life Note 26,000 7.66% January 2003 26,000
Metropolitan Life Note I 12,030 8.88% September 2001 12,030
Nomura Funding VI Note 8,666 10.07% July 2020(3) 8,666
Rigney Promissory Note 777 8.50% November 2012 777
---------------- ----------- --------------
Subtotal/Weighted Average $ 555,804 7.75% $ 555,804
================ =========== ==============
Secured Capped Variable Rate Debt:
LaSalle Note III $ 115,000 7.82% July 1999 $ 115,000
================ =========== ===============
Secured Variable Rate Debt:
Chase Manhattan Note $ 97,123 7.44% September 2001 $ 97,123
================ =========== ==============
Unsecured Fixed Rate Debt:
Notes due 2007 $ 250,000 7.13% September 2007 $ 250,000
Notes due 2002 150,000 6.63% September 2002 150,000
================ =========== ==============
Subtotal/Weighted Average $ 400,000 6.94% $ 400,000
================ =========== ==============
Unsecured Variable Rate Debt:
Line of Credit $ 550,000 6.89% June 2000 $ 457,000
BankBoston Note 250,000 6.89% May 1998 250,000
BankBoston Note II 100,000 6.89% August 1998 100,000
---------------- ----------- --------------
Subtotal/Weighted Average $ 900,000 6.89% $ 807,000
================ =========== ==============
TOTAL/WEIGHTED AVERAGE $2,067,927 7.22% $1,974,927
================ =========== ==============
</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 million.
(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 million.
(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.
Based on the Company's total market capitalization of $6.9 billion at
March 31, 1998 (at a $36 share price, which was the closing price of the common
shares on the New York Stock Exchange on March 31, 1998, and including the full
conversion of all units of minority interest in the Operating Partnership plus
total indebtedness), the Company's debt represented 29% of its total market
capitalization. The Company currently intends to maintain a conservative capital
structure with total debt targeted at 40% of total market capitalization.
The Company expects to meet its short-term liquidity requirements
primarily through cash flow provided by operating activities, which the Company
believes will be adequate to fund normal recurring operating expenses, debt
service requirements, recurring capital expenditures and distributions to
shareholders and unitholders. To the extent the Company's cash flow from
operating activities is not sufficient to finance non-recurring capital
expenditures, such as tenant improvement and leasing costs related to previously
unoccupied space, or investment property acquisition and development costs, the
Company expects to finance such activities with proceeds available under the
Credit Facility, available cash reserves and other debt and equity financing.
The Company expects to meet its long-term liquidity requirements,
consisting primarily of maturities under the Company's fixed and variable rate
debt through long-term secured and unsecured borrowings and the issuance of debt
securities and/or additional equity securities of the Company.
The Company intends to maintain its qualification as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). As a REIT, the Company will generally not be subject to
16
<PAGE> 17
corporate federal income taxes as long as it satisfies certain technical
requirements of the Code, including the requirement to distribute 95% of its
taxable income to its shareholders.
FUNDS FROM OPERATIONS
Funds from Operations ("FFO"), based on the definition adopted by the
Board of Governors of the National Association of Real Estate Investment Trusts
("NAREIT") and as used herein, means net income (loss) (determined in accordance
with generally accepted accounting principles or "GAAP"), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. FFO was developed by NAREIT as a relative
measure of performance and liquidity of an equity REIT in order to recognize
that income-producing real estate historically has not depreciated on the basis
determined under GAAP. The Company considers FFO an appropriate measure of
performance of an equity REIT. However, FFO (i) does not represent cash
generated from operating activities determined in accordance with GAAP (which,
unlike FFO, generally reflects all cash effects of transactions and other events
that enter into the determination of net income), (ii) is not necessarily
indicative of cash flow available to fund cash needs and (iii) should not be
considered as an alternative to net income determined in accordance with GAAP as
an indication of the Company's operating performance, or to cash flow from
operating activities determined in accordance with GAAP as a measure of either
liquidity or the Company's ability to make distributions. The Company has
historically distributed an amount less than FFO, primarily due to reserves
required for capital expenditures, including leasing costs. The aggregate
distributions paid to shareholders and unitholders for the three months ended
March 31, 1998 and 1997 were $49.7 and $26.1 million, respectively. An increase
in FFO does not necessarily result in an increase in aggregate distributions
because the Company's board of trustees is not required to increase
distributions on a quarterly basis unless necessary in order to enable the
Company to maintain REIT status. Because the Company must distribute 95% of its
real estate investment trust taxable income (as defined in the Code), however, a
significant increase in FFO will generally require an increase in distributions
to shareholders and unitholders although not necessarily on a proportionate
basis. Accordingly, the Company believes that in order to facilitate a clear
understanding of the consolidated historical operating results of the Company,
FFO should be considered in conjunction with the Company's net income (loss) and
cash flows as reported in the consolidated financial statements and notes
thereto. However, the Company's measure of FFO may not be comparable to
similarly titled measures of other REIT's because these REIT's may not apply the
definition of FFO in the same manner as the Company.
17
<PAGE> 18
STATEMENTS OF FUNDS FROM OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Income Before Minority Interests $ 47,154 $ 20,245
Adjustments:
Depreciation and amortization of real estate assets 26,051 13,496
Adjustment for investments in real estate mortgages and equity of
unconsolidated companies 12,314 266
Minority interest in joint ventures (1,575) (416)
Preferred stock dividends (400) --
-------- --------
Funds From Operations $ 83,544 $ 33,591
======== ========
</TABLE>
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Funds From Operations $ 83,544 $ 33,591
Adjustments:
Depreciation and amortization of non-real estate assets 345 293
Amortization of deferred financing costs 1,140 649
Minority interest in joint ventures profit and depreciation
and amortization of real estate assets 586 579
Adjustment for investments in real estate mortgages and equity
of unconsolidated companies (12,314) (266)
Change in deferred rent receivable (8,809) (3,276)
Change in current assets and liabilities (49,387) (965)
Equity in earnings in excess of distributions received from
unconsolidated companies (3,635) (182)
Non-cash compensation 24 20
-------- --------
Net Cash Provided by Operating Activities $ 11,494 $ 30,443
======== ========
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
This item is inapplicable to the Company because its market
capitalization was less than $2.5 billion on January 28, 1997.
18
<PAGE> 19
OFFICE PROPERTIES
The following table sets forth certain information about the
Office Properties as of March 31, 1998.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT.(1)
--------------------- ---------- --------- --------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
DALLAS
Bank One Center(2).......... 1 CBD 1987 1,530,957 73% $ 21.46
The Crescent Office Towers.. 1 Uptown/Turtle Creek 1985 1,210,949 96 28.26
Fountain Place.............. 1 CBD 1986 1,200,266 95 18.13
Trammell Crow Center(3)..... 1 CBD 1984 1,128,331 87(5) 25.04
Stemmons Place.............. 1 Stemmons Freeway 1983 634,381 92 14.09
Spectrum Center(4).......... 1 Far North Dallas 1983 598,250 74 20.67
Waterside Commons........... 1 Las Colinas 1986 458,739 99 16.60
Caltex House................ 1 Las Colinas 1982 445,993 93 25.68
Reverchon Plaza............. 1 Uptown/Turtle Creek 1985 374,165 98 17.34
The Aberdeen................ 1 Far North Dallas 1986 320,629 100 18.19
MacArthur Center I & II..... 1 Las Colinas 1982/1986 294,069 98 18.20
Stanford Corporate Centre... 1 Far North Dallas 1985 265,507 100 16.36
The Amberton................ 1 Central Expressway 1982 255,052 77(5) 11.15
Concourse Office Park....... 1 LBJ Freeway 1972-1986 244,879 87(5) 12.73
12404 Park Central.......... 1 LBJ Freeway 1987 239,103 85(5) 18.48
Palisades Central II........ 1 Richardson/Plano 1985 237,731 92 16.79
3333 Lee Parkway............ 1 Uptown/Turtle Creek 1983 233,769 83(5) 19.12
Liberty Plaza I & II........ 1 Far North Dallas 1981/1986 218,813 100 13.45
The Addison................. 1 Far North Dallas 1981 215,016 99 15.72
The Meridian................ 1 LBJ Freeway 1984 213,915 92 15.34
Palisades Central I......... 1 Richardson/Plano 1980 180,503 88 14.13
Walnut Green................ 1 Central Expressway 1986 158,669 92 13.90
Greenway II................. 1 Richardson/Plano 1985 154,329 98 19.45
Addison Tower............... 1 Far North Dallas 1987 145,886 95(5) 13.37
5050 Quorum................. 1 Far North Dallas 1981 133,594 94 14.93
Cedar Springs Plaza......... 1 Uptown/Turtle Creek 1982 110,923 94 16.81
Greenway IA................. 1 Richardson/Plano 1983 94,784 100 21.95
Valley Centre............... 1 Las Colinas 1985 74,861 97 15.22
Greenway I.................. 1 Richardson/Plano 1983 51,920 100 21.95
One Preston Park............ 1 Far North Dallas 1980 40,525 82 15.08
--- ---------- ------- ------------
Subtotal/Weighted Average. 30 11,466,508 90% $ 19.70
--- ---------- ------- ------------
FORT WORTH
Continental Plaza........... 1 CBD 1982 954,895 50%(5) $ 15.71
---- ---------- ------- ------------
HOUSTON
Greenway Plaza Office
Portfolio.................. 10 Richmond-Buffalo 1969-1982 4,286,277 86% $ 15.16
Speedway
Houston Center............... 3 CBD 1974-1983 2,764,418 92 15.00
Post Oak Central............. 3 West Loop/Galleria 1974-1981 1,277,598 94 15.86
The Woodlands Office
Properties(6).............. 12 The Woodlands 1980-1996 810,630 98 15.01
Three Westlake Park(7)...... 1 Katy Freeway 1983 414,251 99 13.45
U.S. Home Building.......... 1 West Loop/Galleria 1982 399,777 83 14.67
---- ---------- ------- ------------
Subtotal/Weighted Average. 30 9,952,951 90% $ 15.10
--- ---------- ------- ------------
AUSTIN
Frost Bank Plaza............ 1 CBD 1984 433,024 74%(5) $ 17.81
301 Congress Avenue(8)...... 1 CBD 1986 418,338 96(5) 23.03
Bank One Tower.............. 1 CBD 1974 389,503 95 16.63
Austin Centre............... 1 CBD 1986 343,665 98 19.21
The Avallon................. 1 Northwest 1993/1997 232,301(9) 78(5) 18.95
Barton Oaks Plaza One....... 1 Southwest 1986 99,792 92 19.71
---- ---------- ------- ------------
Subtotal/Weighted Average 6 1,916,623 89% $ 19.28
---- ---------- ------- ------------
COLORADO
DENVER
MCI Tower................... 1 CBD 1982 550,807 93% $ 17.96
Ptarmigan Place............. 1 Cherry Creek 1984 418,565 83(5) 15.97
Regency Plaza One........... 1 DTC 1985 309,862 86(5) 20.93
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT.(1)
--------------------- ---------- --------- --------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
AT&T Building............... 1 CBD 1982 184,581 95 14.89
The Citadel................. 1 Cherry Creek 1987 130,652 97 19.79
55 Madison.................. 1 Cherry Creek 1982 137,176 80(5) 17.20
44 Cook..................... 1 Cherry Creek 1984 124,174 90 17.98
--- ---------- ------- ------------
Subtotal/Weighted Average 7 1,855,817 89% $ 17.79
--- ---------- ------- ------------
COLORADO SPRINGS
Briargate Office and
Research Center 1 Colorado Springs 1988 252,857 99% $ 15.35
--- ---------- ------- ------------
LOUISIANA
NEW ORLEANS
Energy Centre............... 1 CBD 1984 761,500 77% $ 14.58
1615 Poydras................ 1 CBD 1984 508,741 79 15.08
--- ---------- ------- ------------
Subtotal/Weighted Average 2 1,270,241 78% $ 14.79
--- ---------- ------- ------------
FLORIDA
MIAMI
Miami Center................ 1 CBD 1983 782,686 78% $ 23.42
Datran Center(10)........... 2 South Dade/Kendall 1986/1988 472,236 91 20.29
--- ---------- ------- ------------
Subtotal/Weighted Average 2 1,254,922 83% $ 22.13
--- ---------- ------- ------------
ARIZONA
PHOENIX
Two Renaissance Square...... 1 Downtown/CBD 1990 476,373 88%(5) $ 22.62
6225 North 24th Street...... 1 Camelback Corridor 1981 86,451 67 21.80
--- ---------- ------- ------------
Subtotal/Weighted Average 2 562,824 85% $ 22.52
--- ---------- ------- ------------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour........ 2 Georgetown 1986 536,206 95% $ 36.60
--- ---------- ------- ------------
NEBRASKA
OMAHA
Central Park Plaza.......... 1 CBD 1982 409,850 99% $ 15.27
--- ---------- ------- ------------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza........... 1 CBD 1990 366,236 92%(5) $ 18.41
--- ---------- ------- ------------
CALIFORNIA
SAN FRANCISCO
160 Spear Street............ 1 South of Market/CBD 1984 276,420 97% $ 24.81
--- ---------- ------- ------------
SAN DIEGO
Chancellor Park(11)......... 1 UTC 1988 195,733 86% $ 20.42
--- ---------- ------- ------------
TOTAL WEIGHTED AVERAGE.. 88 31,272,083 88%(5) $ 18.20
=== ========== ======= ============
</TABLE>
---------------------------------
(1) Calculated based on base rent payable as of March 31, 1998, without giving
effect to free rent or scheduled rent increases that would be taken into
account under generally accepted accounting principles and including
adjustments for expenses payable by or reimbursable from tenants.
(2) The Company has a 50% general partner interest in the partnership that owns
Bank One Center.
(3) The Company 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.
(4) The Company owns the principal economic interest in Spectrum Center through
an interest in Spectrum Mortgage Associates L.P., which owns both a
mortgage note secured by Spectrum Center and the ground lessor's interest
in the land underlying the office building.
(5) Leases have been executed at certain Office Properties but had not
commenced as of March 31, 1998. If such leases had commenced as of March
31, 1998, the percent leased for Office Properties would have been 92%. The
total percent leased for such Properties would have been as follows:
Trammell Crow Center - 90%; The Amberton - 80%; Concourse Office Park -
90%; 12404 Park Central - 100%; 3333 Lee Parkway - 98%; Addison Tower -
98%; Continental Plaza - 100%; Frost Bank Plaza - 77%; 301 Congress - 100%;
The Avallon - 100%; Ptarmigan Place - 94%; Regency Plaza - 95%; 55 Madison
- 87%; Two Renaissance Square - 91%; and Albuquerque Plaza - 96%.
(6) The Company has a 75% limited partner interest and an indirect
approximately 10% general partner interest in the partnership that owns the
12 Office Properties that comprise The Woodlands Office Properties.
(7) The Company owns the principal economic interest in Three Westlake Park
through its ownership of a mortgage note secured by Three Westlake Park.
(8) The Company has a 1% general partner and a 49% limited partner interest in
the partnership that owns 301 Congress Avenue.
20
<PAGE> 21
(9) In August 1997, construction was completed on a 106,342 square foot office
property. The entire building is leased to BMC Software, Inc., which is
expected to occupy in stages over the next 16 months.
(10) Acquired subsequent to March 31, 1998.
(11) The Company 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.
AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following table sets forth a schedule of the lease expirations for
leases in place as of March 31, 1998, at the Company's Office Properties for
each of the 10 years beginning with the remainder of 1998, assuming that none of
the tenants exercises renewal options and excluding an aggregate of 3,817,269
square feet of unleased space.
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL ANNUAL
AREA OF LEASED ANNUAL BASE RENT
NUMBER OF REPRESENTED NET RENTABLE ANNUAL BASE BASE RENT PER NET
TENANTS WITH BY EXPIRING AREA REPRESENTED RENT UNDER REPRESENTED RENTABLE
EXPIRING LEASES BY 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>
1998.............. 491 1,954,133 7.1% $32,154,430 6.2% $16.45
1999.............. 436 3,570,346 13.0 61,336,142 11.9 17.18
2000 ............. 401 3,403,540 12.4 63,596,755 12.3 18.69
2001.............. 328 3,777,740 13.8 66,116,626 12.8 17.50
2002.............. 300 3,477,274 12.7 69,783,650 13.5 20.07
2003.............. 118 1,788,048 6.7 31,567,157 6.1 17.65
2004 ............. 88 2,708,897 9.9 51,534,032 10.0 19.02
2005.............. 53 2,047,630 7.5 42,474,396 8.2 20.74
2006.............. 21 530,108 1.9 10,234,120 2.0 19.31
2007.............. 26 1,144,145 4.2 21,892,193 4.2 19.13
2008 and thereafter 44 3,052,953 11.1 65,063,918 12.6 21.31
</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 including adjustments for
expenses payable by or reimbursable from tenants based on current levels.
HOTEL PROPERTIES
The following table sets forth certain information about the Hotel
Properties for the three months ended March 31, 1998 and 1997. The information
for the Hotel Properties is based on available rooms, except for Canyon
Ranch-Tucson and Canyon Ranch-Lenox, which are destination health and fitness
resorts that measure performance based on available guest nights.
21
<PAGE> 22
<TABLE>
<CAPTION>
For the three months ended
March 31,
-----------------------------------------------------
Revenue
Average Average Per
Occupancy Daily Available
Rate Rate Room
Year ------- ------- -------
Completed/
Hotel Property(1) Location Renovated Rooms 1998 1997 1998 1997 1998 1997
-------------- -------- --------- ------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full-Service/Luxury Hotels:
Denver Marriott City Center Denver, CO 1982/1994 613
Four Seasons Hotel-Houston Houston, TX 1982 399
Hyatt Regency Albuquerque Albuquerque/NM 1990 395
Omni Austin Hotel Austin, TX 1986 314
Hyatt Regency Beaver Creek Avon, CO 1989 295
Sonoma Mission Inn & Spa Sonoma, CA 1927/1987/1997 198(2)
Ventana Country Inn Big Sur, CA 1975/1982/1988 62
----- ----- ----- ----- ----- ----- ------
Total/Weighted Average 2,276 73% 77% $170 $159 $123 $ 123
===== ===== ===== ===== ===== ===== ======
Guest Nights
------------
Destination Health & Fitness
Resorts
Canyon-Ranch - Tucson Tucson, AZ 1980 250(3)
Canyon Ranch - Lenox Lenox, MA 1989 202(3)
------
TOTAL/WEIGHTED AVERAGE 452 90%(4) 82%(4)$519(5) $488(5) $455(6) $391(6)
===== === === === ==== ==== ====
</TABLE>
- ---------------------------
(1) Because of the Company's status as a REIT for federal income tax purposes,
it does not operate the Hotel Properties and has leased the Hotel
Properties to subsidiaries of COI pursuant to long-term leases.
(2) In July 1997, 30 additional rooms were completed.
(3) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
(4) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights for the period.
(5) Represents the average daily "all-inclusive" guest package charges for
the period, divided by the average daily number of paying guests for the
period.
(6) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
RESIDENTIAL DEVELOPMENT PROPERTIES
The Company owns economic interests in five Residential Development
Corporations through the Residential Development Property Mortgages relating to
and the non-voting common stock in these Residential Development Corporations.
The Residential Development Corporations in turn, through joint ventures or
partnership arrangements, own interests in the 12 Residential Development
Properties. The Residential Development Corporations are responsible for the
continued development and the day-to-day operations of the Residential
Development Properties.
22
<PAGE> 23
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table sets forth certain information as of March 31,1998,
relating to the Residential Development Properties.
<TABLE>
<CAPTION>
Average
Total Total Closed
Residential Residential Total Lots/Units Lots/Units Sale Range of
Residential Development Development Lots/ Developed Closed Price Proposed
Development Properties Type of Corporation's Units Since Since Per Lot/ Sale Prices
Corporation(1) (RDP) RDP(2) Location Ownership % Planned Inception Inception Unit ($) Per Lot ($)(3)
- -------------- ----- ------ -------- ----------- ------- --------- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mira Vista Mira Vista SF Fort Worth, TX 100.00% 706 581 537 94,300 50,000-265,000
Development The Highlands SF Breckenridge, CO 12.25% 750 219 206 140,000 55,000-250,000
Corp. ------ ------ ------
Total Mira Vista Development Corp. 1,456 800 743
------ ------ ------
Houston Area Falcon Point SF Houston, TX 100.0% 1,205 508 227 28,000 16,000-60,000
Development Spring Lakes SF Houston, TX 100.0% 536(4) - - N/A 21,000-45,000
Corp.
------ ------ ------
Total Houston Area Development Corp 1,741 508 227
------ ------ ------
Crescent One Beaver Creek CO Avon, CO 60.0% 18 18 18 $2,181,000 $1,330,000-3,420,000
Development Market Square CO Avon, CO 60.0% 26 26 26 896,000 356,000-2,161,000
Management The Reserve at
Corp. Frisco SF Frisco, CO 60.0% 134 134 81 95,000 75,000-169,000
Villa Montane
Townhomes TH Avon, CO 30.0% 27(5) - - N/A 515,000-1,700,000
Villa Montane
Club TS Avon, CO 30.0% 746(5) - - N/A 27,000-77,000
Villas at Beaver
Creek TH Avon, CO 30.0% 10(5) - - N/A 1,500,000-2,950,000
------ ------ ------
Total Crescent Development Management Corp. 961 178 125
------ ------ ------
The Woodlands The Woodlands SF The Woodlands, TX 42.5% 38,313 18,765 17,685 40,000 13,000-250,000
Land Company ------ ------ ------
Inc.
Desert Mountain Desert Mountain SF Scottsdale, AZ 93.0% 2,544 1,872 1,622 305,000 150,000-2,500,000
Development ------ ------ ------
Corp.
Total 45,015 22,123 20,402
====== ====== ======
</TABLE>
- -------------------------------
(1) The Company has an approximately 94%, 94%, 90%, 95% and 95% ownership
interest in Mira Vista Development Corp., Houston Area Development Corp.,
Crescent Development Management Corp., The Woodlands Land Company, Inc.,
and Desert Mountain Development Corp., respectively, through ownership of
non-voting common stock in each of these Residential Development
Corporations.
(2) SF (Single-Family); CO (Condominium); TH (Townhome); and TS (Timeshare).
(3) Based on existing inventory of developed lots and lots to be developed.
(4) The initial phase of this project (93 lots) is expected to be completed in
the second quarter of 1998.
(5) As of March 31, 1998, eight units were under contract at Villas at Beaver
Creek representing $17.9 million in sales proceeds, 14 units were under
contract at Villa Montane Townhomes representing $13.0 million in sales
proceeds, and 605 contracts were pre-sold at Villa Montane Club
representing $36.9 million in sales proceeds.
23
<PAGE> 24
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K.
(a)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
2.01 Agreement and Plan of Merger, dated as of January 16, 1998, as
amended, by and between Crescent Real Estate Equities Company
and Station Casinos, Inc. (filed as Exhibit No. 2.01 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended (the "1997 10-K") and incorporated
herein by reference)
3.01 Restated Declaration of Trust of Crescent Real Estate Equities
Company (filed as Exhibit No. 4.01 to the Registrant's
Registration Statement on Form S-3 (File No. 333-21905) (the
"1997 S-3") and incorporated herein by reference)
3.02 Amended and Restated Bylaws of Crescent Real Estate Equities
Company, as amended (filed as Exhibit No. 3.04 to the 1997 10-K
and incorporated herein by reference)
4.01 Registration Rights Agreement, dated February 16, 1996, by and
among the Registrant, Crescent Real Estate Equities Limited
Partnership and certain of the limited partners of Crescent Real
Estate Equities Limited Partnership named therein (filed as
Exhibit No. 4.02 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (the "1996 10-K")
and incorporated herein by reference)
4.02 Registration Rights Agreement, dated January 20, 1997, by and
among the Registrant, Crescent Real Estate Equities Limited
Partnership and certain of the limited partners of Crescent Real
Estate Equities Limited Partnership named therein (filed as
Exhibit No. 4.03 to the 1996 10-K and incorporated herein by
reference)
4.03 Form of Registration Agreement relating to the acquisition of
the Greenway Plaza Portfolio (filed as Exhibit No. 4.01 to the
Registrant's Current Report on Form 8-K dated and filed
September 27, 1996 (the "1996 8-K") and incorporated herein by
reference)
4.04 Registration Rights Agreement, dated as of June 26, 1996,
relating to Canyon Ranch-Tucson (filed as Exhibit No. 4.02 to
the 1996 8-K and incorporated herein by reference)
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C>
4.05 Form of Common Share Certificate (filed as Exhibit No. 4.03 to
the 1997 S-3 and incorporated herein by reference)
4.06 Statement of Designation of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate Equities
Company (filed as Exhibit No. 4.07 to the 1997 10-K and
incorporated herein by reference)
4.07 Form of Certificate of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company (filed
as Exhibit No. 4 to the Registrant's Registration Statement on
Form 8-A/A filed on February 18, 1998 and incorporated herein by
reference)
4.08 Indenture, dated as of September 22, 1997, between Crescent Real
Estate Equities Limited Partnership and State Street Bank and
Trust Company, of Missouri, N.A. (filed as Exhibit No. 4.01 to
the Registration Statement on Form S-4 (File No. 333-42293) of
Crescent Real Estate Equities Limited Partnership (the "Form
S-4") and incorporated herein by reference)
4.09 Form of 6-5/8% Note due 2002 (filed as Exhibit No. 4.04 to the
Form S-4 and incorporated herein by reference)
4.10 Form of 7-1/8% Note due 2007 (filed as Exhibit No. 4.05 to the
Form S-4 and incorporated herein by reference)
4.11 Registration Rights Agreement, dated as of September 22, 1997,
among Crescent Real Estate Equities Limited Partnership, Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Salomon Brothers Inc. (filed as Exhibit No. 4.06 to the Form
S-4 and incorporated herein by reference)
4.12 Purchase Agreement, dated as of August 11, 1997, between
Crescent Real Estate Equities Company, UBS Securities
(Portfolio), LLC, and Union Bank of Switzerland, London Branch
(filed as Exhibit No. 4.01 to the Registrant's Current Report on
Form 8-K dated August 11, 1997 and filed August 13, 1997 and
incorporated herein by reference)
4.13 Purchase Agreement, effective as of December 12, 1997, among
Crescent Real Estate Equities Company, Crescent Real Estate
Equities Limited Partnership, Merrill Lynch International and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as
Exhibit No. 1.01 to the Registrant's Current Report on Form 8-K/A
dated December 12, 1997 and filed December 19, 1997 and
incorporated herein by reference)
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C>
4.14 Swap Agreement, effective as of December 12, 1997, between
Crescent Real Estate Equities Company and Merrill Lynch
International (filed as Exhibit No. 1.02 to the Registrant's
Current Report on Form 8-K dated December 12, 1997 and filed
December 18, 1997 and incorporated herein by reference)
4.15 Registration Rights Agreement, dated as of March 2, 1998, among
Crescent Real Estate Equities Company, Crescent Real Estate
Equities Limited Partnership and certain limited partners of
Crescent Real Estate Equities Limited Partnership (filed as
Exhibit No. 4.05 to the Registrant's Registration Statement on
Form S-3 (File No. 333-47563) and incorporated herein by
reference).
10.01 Second Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of
November 1, 1997, as amended (filed as Exhibit No. 4.06 to the
Registrant's Registration Statement on Form S-3 (File No.
333-41049) and incorporated herein by reference)
10.02 Noncompetition Agreement of Richard E. Rainwater as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed as Exhibit No. 10.02 to the 1997 10-K and incorporated
herein by reference)
10.03 Noncompetition Agreement of John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed as Exhibit No. 10.03 to the 1997 10-K and incorporated
herein by reference)
10.04 Noncompetition Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed as Exhibit No. 10.04 to the 1997 10-K and incorporated
herein by reference)
10.05 Employment Agreement of John C. Goff, as assigned to Crescent
Real Estate Equities Limited Partnership on May 5, 1994, and as
further amended (filed as Exhibit No. 10.05 to the 1997 10-K
and incorporated herein by reference)
10.06 Employment Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994,
and as further amended (filed as Exhibit No. 10.06 to the 1997
10-K and incorporated herein by reference)
10.07 Form of Registration Rights, Lock-Up and Pledge Agreement (filed
as Exhibit No. 10.05 to the 1994 S-11 and incorporated herein by
reference)
10.08 Form of Officers' and Trust Managers' Indemnification Agreement
as entered into between the Registrant and each of its executive
officers and trust managers (filed as Exhibit No. 10.07 to the
Form S-4 and incorporated herein by reference)
10.09 Crescent Real Estate Equities Company 1994 Stock Incentive Plan
(filed as Exhibit No. 10.07 to the 1994 S-11 and incorporated
herein by reference)
10.10 Crescent Real Estate Equities, Ltd. First Amended and Restated
401(k) Plan (filed as Exhibit No. 10.10 to the 1997 10-K and
incorporated herein by reference)
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
10.11 Real Estate Purchase and Sale Agreement, dated as of January 29,
1997, between Crescent Real Estate Equities Limited Partnership,
as purchaser, and Magellan Health Services, Inc., as seller,
relating to the acquisition of 92 behavioral healthcare
facilities (the "Behavioral Healthcare Facilities"), as amended
effective February 28, 1997 and May 29, 1997 (filed as Exhibit
No. 10.13 to the Company's Quarterly Report on Form 10-Q/A for
the quarter ended June 30, 1997 (the "1997 10-Q") and
incorporated herein by reference)
10.12 Second Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan (filed as Exhibit No. 10.13 to the Form
S-4 and incorporated herein by reference)
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
10.13 Fourth Amended and Restated Revolving Credit Facility, dated
December 19, 1997, among Crescent Real Estate Equities Limited
Partnership, BankBoston, N.A. and the other banks named therein
(filed as Exhibit No. 10.25 to the Form S-4 and incorporated herein
by reference)
10.14 1995 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan (filed as Exhibit No. 99.01 to the Registrant's
Registration Statement on Form S-8 (File No. 333-3452) and
incorporated herein by reference)
10.15 1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan (filed as Exhibit No. 10.01 to the 1996 8-K and
incorporated herein by reference)
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
10.16 Master Lease Agreement, dated June 16, 1997, as amended, between
Crescent Real Estate Funding VII, L.P. and Charter Behavioral
Health Systems, LLC and its subsidiaries, relating to the
Behavioral Healthcare Facilities (filed as Exhibit No. 10.27
to the 1997 10-K and incorporated herein by reference)
10.17 Intercompany Agreement, dated June 3, 1997, between Crescent
Real Estate Equities Limited Partnership and Crescent Operating,
Inc. (filed as Exhibit No. 10.2 to the Registration Statement on
Form S-1 (File No. 333-25223) of Crescent Operating, Inc. and
incorporated herein by reference)
27.01 Financial Data Schedule (filed herewith)
</TABLE>
29
<PAGE> 30
(b) Reports on Form 8-K.
Form 8-K dated and filed January 6, 1998, for the purpose of
filing under Item 7 - Financial Statements, Pro Forma
Financial Information and Exhibits, certain exhibits in
connection with the Company's offering of 30,933 common shares
to the Senterra Real Estate Group, L.L.C.
Form 8-K dated January 16, 1998 and filed January 27, 1998,
describing under Item 5 - Other Events, the Company's pending
merger with Station Casinos.
Form 8-K/A filed February 13, 1998, to the Form 8-K dated
January 16, 1998 and filed January 27, 1998, for the purpose
of updating, under Item 5 - Other Events, certain information
related to the Company's pending merger with Stations and
filing under Item 7 - Financial Statements and Pro Forma
Financial Information and Exhibits, the Financial Statements
for the quarter ended December 31, 1997 for Station Casinos,
Inc. and the Pro Forma Consolidated Balance Sheet of the
Company as of September 30, 1997 (unaudited) and notes
thereto, and the Pro Forma Consolidated Statements of
Operations of the Company for the nine months ended September
30, 1997 and the year ended December 31, 1996 (unaudited) and
notes thereto.
Form 8-K dated February 13, 1998 and filed February 18, 1998,
for the purpose of filing under Item 7 - Financial Statements,
Pro Forma Financial Information and Exhibits, exhibits in
connection with the Company's public offering of 8,000,000
preferred shares.
Form 8-K dated February 13, 1998 and filed February 18, 1998,
for the purpose of filing under Item 7 - Financial Statements,
Pro Forma Financial Information and Exhibits, the Pro Forma
Consolidated Balance Sheet of the Company as of September 30,
1997 and notes thereto, and the Pro Forma Statements of
Operations of
30
<PAGE> 31
the Company for the nine months ended September 30, 1997 and
the year ended December 31, 1996 and notes thereto in
connection with the Company's public offering of 8,000,000
preferred shares.
Form 8-K dated February 12, 1998 and filed February 23, 1998,
for the purpose of filing under Item 7 - Financial Statements,
Pro Forma Financial Information and Exhibits, exhibits in
connection with the Company's offering of 525,000 common
shares to Merrill Lynch International.
Form 8-K dated December 22, 1997 and filed March 4, 1998, for
the purpose of (i) announcing, under Item 5 - Other Events,
the Company's acquisitions of Energy Centre, Post Oak Central
and Washington Harbour, and (ii) filing, under Item 7 -
Financial Statements, Pro Forma Financial Information and
Exhibits, the Report of Independent Public Accountants, with
respect to Energy Centre, Post Oak Central and Washington
Harbour, the Statements of Excess of Revenues Over Specific
Operating Expenses and notes thereto, with respect to Energy
Centre, Post Oak Central and Washington Harbour, the Pro Forma
Consolidated Balance Sheet as of September 30, 1997 and notes
thereto, and Pro Forma Consolidated Statements of Operations
for the nine months ended September 30, 1997 and the year
ended December 31, 1996 and notes thereto.
31
<PAGE> 32
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: May 15, 1998 Gerald W. Haddock, President and Chief
Executive Officer
/s/ Dallas E. Lucas
----------------------------------------------
Date: May 15, 1998 Dallas E. Lucas, Senior Vice President, Chief
Financial Officer and Chief Accounting Officer
32
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
2.01 Agreement and Plan of Merger, dated as of January 16, 1998, as
amended, by and between Crescent Real Estate Equities Company
and Station Casinos, Inc. (filed as Exhibit No. 2.01 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended (the "1997 10-K") and incorporated
herein by reference)
3.01 Restated Declaration of Trust of Crescent Real Estate Equities
Company (filed as Exhibit No. 4.01 to the Registrant's
Registration Statement on Form S-3 (File No. 333-21905) (the
"1997 S-3") and incorporated herein by reference)
3.02 Amended and Restated Bylaws of Crescent Real Estate Equities
Company, as amended (filed as Exhibit No. 3.04 to the 1997 10-K
and incorporated herein by reference)
4.01 Registration Rights Agreement, dated February 16, 1996, by and
among the Registrant, Crescent Real Estate Equities Limited
Partnership and certain of the limited partners of Crescent Real
Estate Equities Limited Partnership named therein (filed as
Exhibit No. 4.02 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (the "1996 10-K")
and incorporated herein by reference)
4.02 Registration Rights Agreement, dated January 20, 1997, by and
among the Registrant, Crescent Real Estate Equities Limited
Partnership and certain of the limited partners of Crescent Real
Estate Equities Limited Partnership named therein (filed as
Exhibit No. 4.03 to the 1996 10-K and incorporated herein by
reference)
4.03 Form of Registration Agreement relating to the acquisition of
the Greenway Plaza Portfolio (filed as Exhibit No. 4.01 to the
Registrant's Current Report on Form 8-K dated and filed
September 27, 1996 (the "1996 8-K") and incorporated herein by
reference)
4.04 Registration Rights Agreement, dated as of June 26, 1996,
relating to Canyon Ranch-Tucson (filed as Exhibit No. 4.02 to
the 1996 8-K and incorporated herein by reference)
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
4.05 Form of Common Share Certificate (filed as Exhibit No. 4.03 to
the 1997 S-3 and incorporated herein by reference)
4.06 Statement of Designation of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate Equities
Company (filed as Exhibit No. 4.07 to the 1997 10-K and
incorporated herein by reference)
4.07 Form of Certificate of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company (filed
as Exhibit No. 4 to the Registrant's Registration Statement on
Form 8-A/A filed on February 18, 1998 and incorporated herein by
reference)
4.08 Indenture, dated as of September 22, 1997, between Crescent Real
Estate Equities Limited Partnership and State Street Bank and
Trust Company, of Missouri, N.A. (filed as Exhibit No. 4.01 to
the Registration Statement on Form S-4 (File No. 333-42293) of
Crescent Real Estate Equities Limited Partnership (the "Form
S-4") and incorporated herein by reference)
4.09 Form of 6-5/8% Note due 2002 (filed as Exhibit No. 4.04 to the
Form S-4 and incorporated herein by reference)
4.10 Form of 7-1/8% Note due 2007 (filed as Exhibit No. 4.05 to the
Form S-4 and incorporated herein by reference)
4.11 Registration Rights Agreement, dated as of September 22, 1997,
among Crescent Real Estate Equities Limited Partnership, Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Salomon Brothers Inc. (filed as Exhibit No. 4.06 to the Form
S-4 and incorporated herein by reference)
4.12 Purchase Agreement, dated as of August 11, 1997, between
Crescent Real Estate Equities Company, UBS Securities
(Portfolio), LLC, and Union Bank of Switzerland, London Branch
(filed as Exhibit No. 4.01 to the Registrant's Current Report on
Form 8-K dated August 11, 1997 and filed August 13, 1997 and
incorporated herein by reference)
4.13 Purchase Agreement, effective as of December 12, 1997, among
Crescent Real Estate Equities Company, Crescent Real Estate
Equities Limited Partnership, Merrill Lynch International and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as
Exhibit No. 1.01 to the Registrant's Current Report on Form 8-K/A
dated December 12, 1997 and filed December 19, 1997 and
incorporated herein by reference)
</TABLE>
<PAGE> 35
<TABLE>
<S> <C>
4.14 Swap Agreement, effective as of December 12, 1997, between
Crescent Real Estate Equities Company and Merrill Lynch
International (filed as Exhibit No. 1.02 to the Registrant's
Current Report on Form 8-K dated December 12, 1997 and filed
December 18, 1997 and incorporated herein by reference)
4.15 Registration Rights Agreement, dated as of March 2, 1998, among
Crescent Real Estate Equities Company, Crescent Real Estate
Equities Limited Partnership and certain limited partners of
Crescent Real Estate Equities Limited Partnership (filed as
Exhibit No. 4.05 to the Registrant's Registration Statement on
Form S-3 (File No. 333-47563) and incorporated herein by
reference).
10.01 Second Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of
November 1, 1997, as amended (filed as Exhibit No. 4.06 to the
Registrant's Registration Statement on Form S-3 (File No.
333-41049) and incorporated herein by reference)
10.02 Noncompetition Agreement of Richard E. Rainwater as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed as Exhibit No. 10.02 to the 1997 10-K and incorporated
herein by reference)
10.03 Noncompetition Agreement of John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed as Exhibit No. 10.03 to the 1997 10-K and incorporated
herein by reference)
10.04 Noncompetition Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed as Exhibit No. 10.04 to the 1997 10-K and incorporated
herein by reference)
10.05 Employment Agreement of John C. Goff, as assigned to Crescent
Real Estate Equities Limited Partnership on May 5, 1994, and as
further amended (filed as Exhibit No. 10.05 to the 1997 10-K
and incorporated herein by reference)
10.06 Employment Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994,
and as further amended (filed as Exhibit No. 10.06 to the 1997
10-K and incorporated herein by reference)
10.07 Form of Registration Rights, Lock-Up and Pledge Agreement (filed
as Exhibit No. 10.05 to the 1994 S-11 and incorporated herein by
reference)
10.08 Form of Officers' and Trust Managers' Indemnification Agreement
as entered into between the Registrant and each of its executive
officers and trust managers (filed as Exhibit No. 10.07 to the
Form S-4 and incorporated herein by reference)
10.09 Crescent Real Estate Equities Company 1994 Stock Incentive Plan
(filed as Exhibit No. 10.07 to the 1994 S-11 and incorporated
herein by reference)
10.10 Crescent Real Estate Equities, Ltd. First Amended and Restated
401(k) Plan (filed as Exhibit No. 10.10 to the 1997 10-K and
incorporated herein by reference)
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
10.11 Real Estate Purchase and Sale Agreement, dated as of January 29,
1997, between Crescent Real Estate Equities Limited Partnership,
as purchaser, and Magellan Health Services, Inc., as seller,
relating to the acquisition of 92 behavioral healthcare
facilities (the "Behavioral Healthcare Facilities"), as amended
effective February 28, 1997 and May 29, 1997 (filed as Exhibit
No. 10.13 to the Company's Quarterly Report on Form 10-Q/A for
the quarter ended June 30, 1997 (the "1997 10-Q") and
incorporated herein by reference)
10.12 Second Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan (filed as Exhibit No. 10.13 to the Form
S-4 and incorporated herein by reference)
10.13 Fourth Amended and Restated Revolving Credit Facility, dated
December 19, 1997, among Crescent Real Estate Equities Limited
Partnership, BankBoston, N.A. and the other banks named therein
(filed as Exhibit No. 10.25 to the Form S-4 and incorporated herein
by reference)
10.14 1995 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan (filed as Exhibit No. 99.01 to the Registrant's
Registration Statement on Form S-8 (File No. 333-3452) and
incorporated herein by reference)
10.15 1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan (filed as Exhibit No. 10.01 to the 1996 8-K and
incorporated herein by reference)
10.16 Master Lease Agreement, dated June 16, 1997, as amended, between
Crescent Real Estate Funding VII, L.P. and Charter Behavioral
Health Systems, LLC and its subsidiaries, relating to the
Behavioral Healthcare Facilities (filed as Exhibit No. 10.27
to the 1997 10-K and incorporated herein by reference)
10.17 Intercompany Agreement, dated June 3, 1997, between Crescent
Real Estate Equities Limited Partnership and Crescent Operating,
Inc. (filed as Exhibit No. 10.2 to the Registration Statement on
Form S-1 (File No. 333-25223) of Crescent Operating, Inc. and
incorporated herein by reference)
27.01 Financial Data Schedule (filed herewith)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4
OF THE COMPANY'S FORM 10-Q FOR THE THREE MONTHS ENDED, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 68,548
<SECURITIES> 0
<RECEIVABLES> 72,444
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 876,549
<PP&E> 3,877,013
<DEPRECIATION> (302,826)
<TOTAL-ASSETS> 4,591,728
<CURRENT-LIABILITIES> 79,222
<BONDS> 1,974,927
0
200,000
<COMMON> 1,186
<OTHER-SE> 2,186,772
<TOTAL-LIABILITY-AND-EQUITY> 4,591,728
<SALES> 0
<TOTAL-REVENUES> 161,149
<CGS> 0
<TOTAL-COSTS> 119,840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,283
<INCOME-PRETAX> 40,833
<INCOME-TAX> 0
<INCOME-CONTINUING> 40,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,833
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.33
</TABLE>
