<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 13, 1998
CRESCENT REAL ESTATE EQUITIES COMPANY
(formerly known as Crescent Real Estate Equities, Inc.)
(Exact name of Registrant as specified in its Charter)
Texas 1-13038 52-1862813
(State of Organization) (Commission File Number) (IRS Employer
Identification Number)
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(Address of Principal Executive (Zip Code)
Offices)
(817) 877-0477
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 5. OTHER EVENTS
This Current Report on Form 8-K is filed by Crescent Real Estate Equities
Company (the "Company") in connection with its registration statement (the
"Registration Statement") on Form S-3 (Registration No. 333-38071). Pursuant
to the prospectus dated December 12, 1997 (the "Prospectus") contained in the
Registration Statement and the prospectus supplement dated February 13, 1997
(the "Prospectus Supplement") to the Prospectus, the Company is offering for
sale to the public, 8,000,000 of its preferred shares (the "Offering").
Certain pro forma financial information regarding the Company, assuming , among
other things, the completion of the Offering and the application of the net
proceeds therefrom, is included in Item 7 of this report and incorporated by
reference into the Prospectus Supplement.
Capitalized terms used by not defined herein have the meaning set forth in the
Prospectus Supplement.
1
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS
None
(b) PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet as of September 30, 1997
(unaudited) and notes thereto.
Pro Forma Consolidated Statements of Operations for the Nine Months
Ended September 30, 1997 and the Year Ended December 31, 1996
(unaudited) and notes thereto.
(c) EXHIBITS
None.
2
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Dated: February 17, 1998 CRESCENT REAL ESTATE EQUITIES COMPANY
By: /s/ Dallas. E Lucas
-----------------------------------------
Dallas E. Lucas
Senior Vice President and
Chief Financial and Accounting Officer
3
<PAGE> 5
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Consolidated Balance Sheet as of September 30, 1997 and notes thereto . . F-3
Pro Forma Consolidated Statement of Operations for the Nine Months Ended September
30, 1997 and the Year Ended December 31, 1996 and notes thereto . . . . . . . . . . F-6
</TABLE>
F-1
<PAGE> 6
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The pro forma information for the year ended December 31, 1996 assumes
completion, in each case as of January 1, 1996 in determining operating and
other data, of (i) Crescent Real Estate Equities Company's (the "Company")
public offering of its common shares that closed on October 2, 1996 (the
"October 1996 Offering") and the additional public offering of 450,000 common
shares that closed on October 9, 1996 and the use of the net proceeds there from
were to repay approximately $168,000 of indebtedness and to fund approximately
$289,000 of Property acquisitions in the fourth quarter of 1996 and the first
quarter of 1997, (ii) the Company's public offering of its common shares that
closed on April 28, 1997 (the "April 1997 Offering") and the additional public
offering of 500,000 common shares that closed on May 14, 1997 and the use of the
net proceeds therefrom to fund approximately $593,500 of Property acquisitions
and other investments in the second quarter of 1997, (iii) the Company's
offering of 4,700,000 common shares to an affiliate of Union Bank of Switzerland
(the "UBS Offering") and the use of net proceeds therefrom to repay
approximately $145,000 of indebtedness under the Credit Facility, (iv) the
Operating Partnership's offering of an aggregate principal amount of $400
million of senior notes (the "September 1997 Note Offering") and the use of the
net proceeds therefrom to fund approximately $337,600 of the purchase price of
two Properties and to repay approximately $57,200 of indebtedness incurred under
the Credit Facility and other short-term indebtedness, (v) the Company's public
offering of its Common Shares that closed on October 15, 1997 (the "October 1997
Offering") and the use of the net proceeds therefrom to fund approximately
$45,000 of the purchase price of one Property and to repay approximately
$325,100 of short-term indebtedness and indebtedness incurred under the Credit
Facility, (vi) the Company's offering of 5,375,000 common shares to Merrill
Lynch International (the "Merrill Offering") and the use of the net proceeds
therefrom to repay approximately $199,900 of indebtedness under the Credit
Facility; (vii) this Offering and the use of the net proceeds therefrom to repay
approximately $191,250 of indebtedness under the Credit Facility (viii) Property
acquisitions, other investments and related financing and share issuances during
1996, 1997 and 1998, and (ix) the Pending Investment and related financing,
including $1,054,200 for refinancing and/or assumption of indebtedness, and
associated refinancing and transaction costs, in connection with the Merger.
The pro forma information for the nine months ended September 30, 1997
assumes completion, in each case as of January 1, 1997 in determining operating
and other data, and, in each case as of September 30, 1997 in determining
balance sheet data, of (i) the April 1997 Offering and the additional public
offering of 500,000 common shares that closed on May 14, 1997 and the use of the
net proceeds therefrom to fund approximately $593,500 of Property acquisitions
and other investments in the second quarter of 1997, (ii) the UBS Offering and
the use of the net proceeds therefrom to repay approximately $145,000 of
indebtedness under the Credit Facility, (iii) the September 1997 Note Offering
and the use of the net proceeds therefrom to fund approximately $337,600 of the
purchase price of two Properties and to repay approximately $57,200 of
indebtedness incurred under the Credit Facility and other short-term
indebtedness, (iv) the October 1997 Offering and the use of the net proceeds
therefrom to fund approximately $45,000 of the purchase price of one Property
and to repay approximately $325,100 of short-term indebtedness and indebtedness
incurred under the Credit Facility, (v) the Merrill Offering and the use of the
net proceeds therefrom to repay approximately $199,900 of indebtedness under the
Credit Facility; (vi)this Offering and the use of the net proceeds therefrom to
repay approximately $191,250 of indebtedness under the Credit Facility (vii)
Property acquisitions, other investments and related financing and share
issuances during 1997 and 1998, and (viii) the Pending Investment and related
financing, including $1,054,200 for refinancing and/or assumption of
indebtedness, and associated refinancing and transaction costs, in connection
with the Merger.
The unaudited pro forma Consolidated Balance Sheet and Statements of
Operations should be read in conjunction with the historical audited financial
statements of the Company for the year ended December 31, 1996, filed herein.
In management's opinion, all adjustments necessary to reflect the above
discussed transactions have been made. The unaudited pro forma Consolidated
Balance Sheet and Statements of Operations are not necessarily indicative of
what actual results of operations of the Company would have been for the
period, nor does it purport to represent the Company's results of operations
for future periods.
F-2
<PAGE> 7
CRESCENT REAL ESTATE EQUITIES COMPANY
Pro Forma Consolidated Balance Sheet
As of September 30, 1997
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
CRESCENT REAL
ESTATE EQUITIES
COMPANY PRO FORMA PRO FORMA
HISTORICAL (A) ADJUSTMENTS CONSOLIDATED
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in real estate $ 3,113,743 $ 2,261,016 (B) $ 5,374,759
Less - accumulated depreciation (256,204) -- (256,204)
----------- ----------- -----------
Net investment in real estate 2,857,539 2,261,016 5,118,555
Cash and cash equivalents 47,082 67,625 (C) 114,707
Restricted cash and cash equivalents 32,462 -- 32,462
Accounts receivable, net 24,010 -- 24,010
Deferred rent receivable 30,649 -- 30,649
Investments in mortgages and equity
of unconsolidated companies 369,779 218,075 (D) 587,854
Notes receivable, net 163,219 7,800 (E) 171,019
Other assets, net 87,293 -- 87,293
----------- ----------- -----------
Total assets $ 3,612,033 $ 2,554,516 $ 6,166,549
=========== =========== ===========
LIABILITIES:
Borrowings under Credit Facility $ 316,500 $ 16,300 (F) $ 332,800
Notes payable 1,460,404 (85,000) (G) 2,571,704
1,196,300 (H)
Accounts payable, accrued expenses and other liabilities 88,230 (25,000) (I) 63,230
----------- ----------- -----------
Total liabilities 1,865,134 1,102,600 2,967,734
----------- ----------- -----------
MINORITY INTERESTS
Operating partnership, 6,445,227 units 110,648 -- 110,648
Investment joint ventures 28,396 -- 28,396
----------- ----------- -----------
Total minority interests 139,044 -- 139,044
----------- ----------- -----------
SHAREHOLDERS' EQUITY:
6.75 % Series A convertible cumulative preferred shares -- 191,250 191,250
$3.50 Series B convertible preferred shares -- 103,500 103,500
Common stock, $.01 par value, authorized 250,000,000 shares,
102,442,050 shares issued and outstanding
at September 30, 1997 1,024 319 1,343
Additional paid-in capital 1,666,978 1,156,847 2,823,825
Deferred compensation on restricted shares (283) -- (283)
Retained deficit (59,864) -- (59,864)
----------- ----------- -----------
Total shareholders' equity 1,607,855 1,451,916 (J) 3,059,771
----------- ----------- -----------
Total liabilities and shareholders' equity $ 3,612,033 $ 2,554,516 $ 6,166,549
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma
Consolidated Balance Sheet.
F-3
<PAGE> 8
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
Adjustments
(dollars in thousands)
<TABLE>
<S> <C>
(A) Reflects Crescent Real Estate Equities Company unaudited
consolidated historical balance sheet as of September 30, 1997 .............. --
(B) Increase reflects the following:
Acquisition of U.S. Home Building office property ........................... $ 45,000
Acquisition of Fountain Place office property ............................... 114,000
Acquisition of Ventana Country Inn hotel property ........................... 30,000
Acquisition of Energy Centre office property ................................ 75,000
Acquisition of Austin Centre office property and Omni Austin Hotel property.. 96,900
Acquisition of Post Oak Central office property ............................. 155,250
Pending acquisition of Station's casino/hotel properties .................... 1,744,866
-----------
$ 2,261,016
===========
(C) Net increase reflects the following:
Net proceeds from the October 1997 Offering ................................. $ 370,100
Acquisition of U.S. Home Building office property ........................... (45,000)
Partial repayment under the Credit Facility using proceeds from
the October 1997 Offering ................................................. (325,100)
Draw under the Credit Facility for working capital .......................... 21,500
Borrowings under the Bridge Loan for working capital ........................ 43,100
Acquisition of Energy Centre office property ................................ (5,000)
Proceeds from sale of voting common stock to Crescent Operating, Inc. ("COI")
for the Refrigerated Warehouse investment ................................... 8,025
-----------
$ 67,625
===========
(D) Net increase reflects the following:
Refrigerated Warehouse Transaction - 40% equity investment .................. $ 160,500
Sale of 100% of voting common stock to COI representing 5% equity interest
in Refrigerated Warehouses ................................................ (8,025)
Investment in a partnership that owns Bank One Center office property
- 50% equity investment ................................................... 41,500
Additional investments in equity of unconsolidated companies ................ 24,100
-----------
$ 218,075
===========
(E) Increase in notes receivable reflects the following:
Loan to a residential development corporation ............................... $ 7,800
===========
</TABLE>
F-4
<PAGE> 9
<TABLE>
<S> <C>
(F) Net increase in borrowings under the Credit Facility as a result of:
Partial repayment under the Credit Facility using proceeds from
the October 1997 Offering .................................................... $ (325,100)
Draw to repay the BankBoston Note I ............................................ 235,000
Draw to partially repay the BankBoston Note II ................................. 100,000
Investment in a partnership that owns Bank One Center office property
- 50% equity investment ...................................................... 41,500
Draw for working capital ....................................................... 21,500
Refrigerated Warehouse Transaction - 40% equity investment ..................... 160,500
Partial repayment under the Credit Facility using proceeds from
the Merrill Offering ......................................................... (199,900)
Acquisition of Austin Centre office property and Omni Austin Hotel property .... 96,900
Draw for additional investments in equity of unconsolidated companies .......... 21,900
Acquisition of Post Oak Central office property ................................ 55,250
Partial repayment under the Credit Facility using proceeds from
this Offering ................................................................ (191,250)
-----------
$ 16,300
===========
(G) Net decrease in short-term borrowings as a result of:
Repayment of BankBoston Note I through a draw under the Credit Facility ........ $ (235,000)
Partial repayment of BankBoston Note II through a draw under the Credit Facility (100,000)
Borrowings under the Bridge Loan for working capital and property taxes ........ 68,100
Borrowings under the Bridge Loan to partially fund the acquisition of
Fountain Place office property ............................................... 16,900
Borrowings under the Bridge Loan for the acquisition of Ventana
Country Inn hotel property ................................................... 30,000
Borrowings under the Bridge Loan to partially fund the acquisition of
Energy Centre office property ................................................ 25,000
Borrowings under the Bridge Loan for a residential development corporation
loan and additional investments in equity of unconsolidated companies ........ 10,000
Borrowings under Bridge Loan for the acquisition of Post Oak Central
office property .............................................................. 100,000
-----------
$ (85,000)
===========
(H) Increase in notes payable reflects the following:
Assumption of debt with the acquisition of Fountain Place office property ...... $ 97,100
Proceeds from Met Life note in conjunction with the acquisition of Energy
Centre office property ....................................................... 45,000
Debt relating to the pending acquisition of Station's casino/hotel properties 1,054,200
-----------
$ 1,196,300
===========
(I) Decrease reflects the following:
Payment of property taxes with borrowings under the Bridge Loan .................. $ (25,000)
===========
(J) Increase reflects the following:
Net proceeds from the October 1997 Equity Offering ............................. $ 370,100
Net proceeds from the Merrill Offering 199,900
The Company's issuance of preferred shares in conjunction with the pending
acquisition of Station's casino/hotel properties 103,500
The Company's issuance of common shares in conjunction with the pending
acquisition of Station's casino/hotel properties 587,166
Proceeds of the Offering (8 million shares of preferred stock at $25 per share) 200,000
Estimated costs of the Offering (750)
Underwriters' discount and commission for the Offering (8,000)
-----------
$ 1,451,916
===========
</TABLE>
F-5
<PAGE> 10
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Crescent Real
Estate Equities 1998 Acquired
Company 1997 Acquired and Pending Other Pro Forma
Historical (A) Investments (B) Investments (C) Adjustments Consolidated
-------------- --------------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental property $ 289,752 $ 120,565 $ 151,063 $ -- $ 561,380
Interest and other income 13,508 -- -- 6,791 (D) 20,299
--------- --------- --------- --------- ---------
Total revenues 303,260 120,565 151,063 6,791 581,679
--------- --------- --------- --------- ---------
EXPENSES:
Real estate taxes 28,229 10,843 2,348 -- 41,420
Repairs and maintenance 17,244 12,843 2,563 -- 32,650
Other rental property operating 59,100 21,045 3,990 (283) (E) 82,869
(983) (F)
Corporate general and administrative 9,855 -- -- -- 9,855
Interest expense 54,687 -- -- 103,623 (G) 158,310
Depreciation and amortization 50,840 21,723 60,433 -- 132,996
Amortization of deferred financing costs 2,157 -- -- 539 (H) 2,696
--------- --------- --------- --------- ---------
Total expenses 222,112 66,454 69,334 102,896 460,796
--------- --------- --------- --------- ---------
Operating income (loss) 81,148 54,111 81,729 (96,105) 120,883
OTHER INCOME:
Equity in net income of unconsolidated
companies 3,118 11,130 -- -- 14,248
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTERESTS 84,266 65,241 81,729 (96,105) 135,131
Minority interests (12,018) -- -- (877) (I) (12,895)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ 72,248 $ 65,241 $ 81,729 $ (96,982) $ 122,236
========= ========= ========= ========= =========
Preferred dividend (J) (15,559)
---------
Net income available to common shareholders $ 106,677
=========
PER COMMON SHARE DATA:(K)
Net Income $ 0.79
=========
</TABLE>
See adjustments to Pro Forma Consolidated Statement
of Operations on following page.
F-6
<PAGE> 11
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
ADJUSTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(A) Reflects Crescent Real Estate Equities Company's unaudited
consolidated historical statement of operations for the nine months
ended September 30, 1997. --
(B) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with all investments acquired in 1997, assuming the
investments were acquired at the beginning of the period. --
</TABLE>
<TABLE>
<CAPTION>
Acquisition
Investment Date
---------- ----
<S> <C>
Greenway II office property 1/17/1997
Trammell Crow Center office property 2/28/1997
Three Denver office properties 2/28/1997
Carter-Crowley Real Estate Assets 5/9/1997
Magellan Real Estate Assets (i) 6/17/1997
The Woodlands (ii) (iii) 7/31/1997
Desert Mountain (iv) 8/29/1997
Houston Center mixed-use property complex 9/22/1997
Four Seasons Hotel - Houston hotel property (v) 9/22/1997
Miami Center office property 9/30/1997
U.S. Home Building office property 10/15/1997
Bank One Center office property (vi) 10/22/1997
Refrigerated Warehouse Investment (vii) 10/31/1997
Fountain Place office property 11/7/1997
Ventana Country Inn hotel property (v) 12/19/1997
Energy Centre office property 12/22/1997
(i) Calculated to reflect the lease payment from
the behavioral healthcare facilities' lessee to
the Company by applying the rent provisions (as
set forth in the facilities' lease agreement).
Rent provisions include no percentage rent
component.
(ii) The Company has an indirect 40.375% (after sale
of voting common stock to COI) non-voting
equity investment in the limited partnership
whose primary holding consists of The Woodlands
land assets.
(iii) The Company has a 42.5% equity investment in
the limited partnership whose primary holding
consists of The Woodlands commercial property
assets.
(iv) The Company has an indirect 88.35% (after sale
of voting common stock to COI) non-voting
equity investment in the limited partnership
that owns Desert Mountain.
(v) Historical operations of the hotel property
were adjusted to reflect the lease payment
(base rent and percentage rent, if applicable)
from the hotel lessee to the Company calculated
on a pro forma basis by applying the rent
provisions (as defined in the lease agreement).
Rent provisions attributable to percentage rent
were applied based on gross revenue thresholds,
as defined, in excess of historical revenues.
(vi) The Company has a 50% equity investment in the
partnership that owns Bank One Center office
property.
(vii) The Company has an indirect 38% (after the sale
of voting common stock to COI) non-voting
equity investment in two corporations that own
the refrigerated warehouse properties.
</TABLE>
F-7
<PAGE> 12
<TABLE>
<S> <C>
(C) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with the 1998 acquired and pending investments,
assuming the investments were acquired at the beginning of the period. --
</TABLE>
<TABLE>
<S> <C>
Austin Centre office property 1/23/1998
Omni Austin Hotel property (i) 1/23/1998
Post Oak Central office property complex 2/13/1998
Station's casino/hotel properties (ii) pending
(i) Historical operations of the hotel property were
adjusted to reflect the lease payment (base rent
and percentage rent, if applicable) from the
hotel lessee to the Company calculated on a pro
forma basis by applying the rent provisions (as
defined in the lease agreement). Rent provisions
attributable to percentage rent were applied
based on gross revenue thresholds, as defined,
in excess of historical revenues.
(ii) Casino/hotel properties' lease payment is
estimated using Station's fiscal third quarter
ended December 31, 1997 annualized EBITDA net of
lessee leakage calculated as 1.5% of
casino/hotel property rental revenues. This
quarter's information represents the first full
quarter of stabilized casino/hotel operations,
as two casinos commenced operations in 1997.
</TABLE>
(D) Increase reflects the incremental interest income associated with
the following, assuming all had occurred at the beginning of the
period.
<TABLE>
<S> <C>
Carter Crowley Notes ($53,365 @ 10%) $ 5,337
Ritz Note ($8,850 @ 18%) 1,593
COI Note ($36,955 @ 12%) 4,435
Residential Development Corp Note ($7,800 @ 10%) 780
Desert Mountain Note ($26,157 @ 12%) 3,139
--------
Total $ 15,284
Prorated for nine months 11,463
Less: Historical interest income (4,672)
--------
Total $ 6,791
=======
(E) Reflects the elimination of historical ground lessee's expense, as a
result of the Company acquiring the land underlying Trammell Crow
Center, assuming Trammell Crow Center was acquired at the beginning
of the period. $ (283)
=======
(F) Decrease as a result of the elimination of third party property
management fees which terminated subsequent to acquisition of certain
of the properties. $ (983)
=======
</TABLE>
F-8
<PAGE> 13
(G) Net increase as a result of interest costs for long and
short-term financing, as follows, net of repayment with proceeds
of this Offering, the Merrill Offering, the October 1997 Equity
Offering, the September 1997 Note Offering, the UBS Offering and
the April and May 1997 Equity Offerings, assuming the borrowings
to finance investment acquisitions and the assumption of debt and
repayment, had all occurred at the beginning of the period.
<TABLE>
<S> <C> <C> <C> <C>
Credit Facility $ 332,800 @ 6.86% $ 22,830
BankBoston Note II 100,000 @ 6.86% 6,860
Bridge Loan 250,000 @ 6.86% 17,150
Note Offering --
6.625% Notes due 2002 150,000 @ 6.625% 9,938
Note Offering --
7.125% Notes due 2007 250,000 @ 7.125% 17,813
Met Life Note 45,000 @ 6.86% 3,087
Chase Manhattan Note 97,100 @ 7.41% 7,195
Station's Refinanced Debt 1,054,200 @ 7.50% 79,065
LaSalle Note I 239,000 @ 7.83% 18,714
LaSalle Note II 161,000 @ 7.79% 12,542
Cigna Note 63,500 @ 7.47% 4,743
Metropolitan Life Note 12,188 @ 8.88% 1,082
LaSalle Note III 115,000 @ 7.82% 8,993
Nomura Funding VI Note 8,716 @ 10.07% 878
Northwestern Life Note 26,000 @ 7.66% 1,992
---------- --------
Total annual amount $2,904,504 $212,882
Prorated for nine months 159,661
Less: Capitalized interest (1,351)
Historical interest expense (54,687)
--------
$ 103,623
=========
</TABLE>
(H) Amortization of capitalized costs associated with the September
1997 Note Offering ($4,731 purchaser's discount and $500 other
costs).
<TABLE>
<CAPTION>
Amortization
of Fees
------------
<S> <C> <C>
Note Offering -- 6.625% Notes due 2002 $ 392
Note Offering -- 7.125% Notes due 2007 327
---------
Total $ 719
Prorated for nine months $ 539
=========
(I) Reflects adjustment needed to reflect minority
partners' weighted average 8.76% interest in the net
income of the Operating Partnership less joint venture
minority interests assuming completion of the Equity
Offerings at the beginning of the period. $ (877)
=========
(J) Reflects the following:
7% preferred dividend for the $103.5 million
of preferred shares issued in connection with the
Station transaction $ 7,245
6.75% preferred dividend for this Offering 13,500
---------
Total $ 20,745
Prorated for nine months $ 15,559
=========
(K) Reflects net income per share based on 134,233,392 weighted
average common shares assumed to be outstanding during the nine
month period ended September 30, 1997. --
</TABLE>
F-9
<PAGE> 14
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Crescent Real
Estate Equities 1998 Acquired
Company 1996 Acquired 1997 Acquired and Pending Other Pro Forma
Historical(A) Investments(B) Investments(C) Investments(D) Adjustments Consolidated
------------- -------------- --------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental property $ 202,003 $ 89,185 $ 225,276 $ 200,748 $ -- $ 717,212
Interest and other income 6,858 -- -- -- 15,284 (E) 22,142
--------- --------- --------- --------- --------- ---------
Total revenues 208,861 89,185 225,276 200,748 15,284 739,354
--------- --------- --------- --------- --------- ---------
EXPENSES:
Real estate taxes 20,606 8,176 18,991 3,008 -- 50,781
Repairs and maintenance 12,292 8,403 23,434 3,445 -- 47,574
Other rental property operating 40,915 21,346 39,751 5,422 (1,700) (F) 103,650
(2,084) (G)
Corporate general and administrative 4,674 -- -- -- 5,326 (H) 10,000
Interest expense 42,926 -- -- -- 168,854 (I) 211,780
Depreciation and amortization 40,535 12,727 41,368 80,577 -- 175,207
Amortization of deferred financing costs 2,812 -- -- -- 719 (J) 3,531
--------- --------- --------- --------- --------- ---------
Total expenses 164,760 50,652 123,544 92,452 171,115 602,523
--------- --------- --------- --------- --------- ---------
Operating income (loss) 44,101 38,533 101,732 108,296 (155,831) 136,831
OTHER INCOME:
Equity in net income of unconsolidated
companies 3,850 -- 10,170 -- -- 14,020
--------- --------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 47,951 38,533 111,902 108,296 (155,831) 150,851
Minority interests (9,510) (533) -- -- (4,101) (K) (14,144)
--------- --------- --------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 38,441 38,000 111,902 108,296 (159,932) 136,707
Extraordinary item (1,306) -- -- -- -- (1,306)
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) $ 37,135 $ 38,000 $ 111,902 $ 108,296 $(159,932) $ 135,401
========= ========= ========= ========= ========= =========
Preferred dividend (L) (20,745)
---------
Net income available to common shareholders $ 114,656
=========
PER COMMON SHARE DATA: (M)
Income before extraordinary item 0.86
Extraordinary item (0.01)
---------
Net Income $ 0.85
=========
</TABLE>
See adjustments to Pro Forma Consolidated Statement
of Operations on following page.
F-10
<PAGE> 15
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
ADJUSTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(A) Reflects Crescent Real Estate Equities
Company's audited consolidated historical
statement of operations for the year ended
December 31, 1996 --
(B) Reflects the historical incremental rental income
and operating expenses, including an adjustment
for depreciation based on acquisition price
associated with all investments acquired in 1996,
assuming the investments were acquired at the
beginning of the period. --
</TABLE>
<TABLE>
<CAPTION>
Acquisition
Investment Date
---------- -----------
<S> <C>
3333 Lee Parkway office property 1/5/1996
301 Congress Avenue office property (i) 4/18/1996
Central Park Plaza office property 6/13/1996
Canyon Ranch -- Tucson resort property (ii) 7/26/1996
The Woodlands office properties (iii) 7/31/1996
Three Westlake Park office property 8/16/1996
1615 Poydras office property 8/23/1996
Greenway Plaza Portfolio 10/7/1996
Chancellor Park office property 10/24/1996
The Woodlands retail properties (iii) 10/31/1996
Sonoma Mission Inn & Spa hotel property (ii) 11/18/1996
Canyon Ranch -- Lenox resort property (ii) 12/11/1996
160 Spear Street office property 12/13/1996
Greenway I and IA office properties 12/18/1996
Bank One Tower office property 12/23/1996
Frost Bank Plaza office property 12/27/1996
(i) The Company has a 1% general partner and a 49% limited
partner interest in the partnership that owns 301 Congress
Avenue.
(ii) Historical operations of the hotel or/resort property were
adjusted to reflect the lease payment (base rent and
percentage rent, if applicable) from the hotel lessee to the
Company calculated on a pro forma basis by applying the rent
provisions (as defined in the lease agreement). Rent
provisions attributable to percentage rent were applied
based on gross revenue thresholds, as defined, in excess of
historical revenues.
(iii) The Company had a 75% interest in the partnership that owns
these properties, in 1996. Currently, the Company has an
approximate 85% interest.
</TABLE>
<TABLE>
<S> <C>
(C) Reflects the historical incremental rental
income and operating expenses, including an
adjustment for depreciation based on acquisition
price associated with all investments acquired
in 1997, assuming the investments were acquired
at the beginning of the period. --
</TABLE>
<TABLE>
<CAPTION>
Acquisition
Investment Date
---------- -----------
<S> <C>
Greenway II office property 1/17/1997
Trammell Crow Center office property 2/28/1997
Three Denver office properties 2/28/1997
Carter-Crowley Real Estate Assets 5/9/1997
Magellan Real Estate Assets (i) 6/17/1997
The Woodlands (ii) (iii) 7/31/1997
Desert Mountain (iv) 8/29/1997
</TABLE>
F-11
<PAGE> 16
<TABLE>
<CAPTION>
Acquisition
Investment Date
---------- -----------
<S> <C>
Houston Center mixed-use property complex 9/22/1997
Four Seasons Hotel - Houston hotel property (v) 9/22/1997
Miami Center office property 9/30/1997
U.S. Home Building office property 10/15/1997
Bank One Center office property (vi) 10/22/1997
Refrigerated Warehouse Investment (vii) 10/31/1997
Fountain Place office property 11/7/1997
Ventana Country Inn hotel property (v) 12/19/1997
Energy Centre office property 12/22/1997
(i) Calculated to reflect the lease payment from the behavioral
healthcare facilities' lessee to the Company by applying the
rent provisions (as set forth in the facilities' lease
agreement). Rent provisions include no percentage rent
component.
(ii) The Company has an indirect 40.375% (after sale of voting
common stock to COI) non-voting equity investment in the
limited partnership whose primary holding consists of The
Woodlands land assets.
(iii) The Company has a 42.5% equity investment in the limited
partnership whose primary holding consists of The Woodlands
commercial property assets.
(iv) The Company has an indirect 88.35% (after sale of voting
common stock to COI) non-voting equity investment in the
limited partnership that owns Desert Mountain.
(v) Historical operations of the hotel property were adjusted to
reflect the lease payment (base rent and percentage rent, if
applicable) from the hotel lessee to the Company calculated
on a pro forma basis by applying the rent provisions (as
defined in the lease agreement). Rent provisions
attributable to percentage rent were applied based on gross
revenue thresholds, as defined, in excess of historical
revenues.
(vi) The Company has a 50% equity investment in the partnership
that owns Bank One Center office property.
(vii) The Company has an indirect 38% (after the sale of voting
common stock to COI) non-voting equity investment in two
corporations that own the refrigerated warehouse properties.
</TABLE>
<TABLE>
<S> <C>
(D) Reflects the historical incremental rental income and operating
expenses, including an adjustment for depreciation based on
acquisition price associated with the 1998 acquired and pending
investments, assuming the investments were acquired at the
beginning of the period. --
</TABLE>
<TABLE>
<S> <C>
Austin Centre office property 1/23/1998
Omni Austin Hotel property (i) 1/23/1998
Post Oak Central office property complex 2/13/1998
Station's casino/hotel properties (ii) pending
(i) Historical operations of the hotel property were adjusted to
reflect the lease payment (base rent and percentage rent, if
applicable) from the hotel lessee to the Company calculated
on a pro forma basis by applying the rent provisions (as
defined in the lease agreement). Rent provisions
attributable to percentage rent were applied based on gross
revenue thresholds, as defined, in excess of historical
revenues.
(ii) Casino/hotel properties' lease payment is estimated using
Station's fiscal third quarter ended December 31, 1997
annualized EBITDA net of lessee leakage calculated as 1.5%
of casino/hotel property rental revenues. This quarter's
information represents the first full quarter of stabilized
casino/hotel operations, as two casinos/hotels commenced
operations in 1997.
</TABLE>
F-12
<PAGE> 17
(E) Increase reflects the incremental interest income associated with
the following, assuming all had occurred at the beginning of the
period.
<TABLE>
<S> <C> <C> <C>
Carter Crowley Notes ($53,365 @ 10%) $ 5,337
Ritz Note ($8,850 @ 18%) 1,593
COI Note ($36,955 @ 12% 4,435
Residential Development Corp Note ($7,800 @ 10%) 780
Desert Mountain Note ($26,157 @ 12%) 3,139
-------
Total $ 15,284
========
(F) Reflects the elimination of historical ground lessee's expense, as a
result of the Company acquiring the land underlying
Trammell Crow Center, assuming Trammell Crow Center was acquired
at the beginning of the period. $ (1,700)
========
(G) Decrease as a result of the elimination of third party property
management fees which terminated subsequent to acquisition of certain
of the properties. $ (2,084)
========
(H) Increase reflects the estimated incremental general and administrative
costs associated with the increase in personnel due to numerous
acquisitions in 1996 and 1997. $ 5,326
========
</TABLE>
(I) Net increase as a result of interest costs for long and short-term
financing, as follows, net of repayment with proceeds of this
Offering, the Merrill Offering, the October 1997 Equity Offering,
the September 1997 Note Offering, the UBS Offering and April and
May 1997 Equity Offerings, and the 1996 Equity Offerings, assuming
the borrowings to finance investment acquisitions and the
assumption of debt and repayment, had all occurred at the
beginning of the period.
<TABLE>
<S> <C> <C> <C> <C>
Credit Facility $ 332,800 @ 6.86% $ 22,830
BankBoston Note II 100,000 @ 6.86% 6,860
Bridge Loan 250,000 @ 6.86% 17,150
Note Offering --
6.625% Notes due 2002 150,000 @ 6.625% 9,938
Note Offering --
7.125% Notes due 2007 250,000 @ 7.125% 17,813
Met Life Note 45,000 @ 6.86% 3,087
Chase Manhattan Note 97,100 @ 7.41% 7,195
Stations Refinanced Debt 1,054,200 @ 7.50% 79,065
LaSalle Note I 239,000 @ 7.83% 18,714
LaSalle Note II 161,000 @ 7.79% 12,542
Cigna Note 63,500 @ 7.47% 4,743
Metropolitan Life Note 12,188 @ 8.88% 1,082
LaSalle Note III 115,000 @ 7.82% 8,993
Nomura Funding VI Note 8,716 @ 10.07% 878
Northwestern Life Note 26,000 @ 7.66% 1,992
---------- --------
Total annual amount $2,904,504 $212,882
Less: Capitalized interest (1,102)
Historical interest expense (42,926)
--------
$ 168,854
=========
</TABLE>
F-13
<PAGE> 18
(J) Amortization of capitalized costs associated with the September
1997 Note Offering ($4,731 purchaser's discount and $500 other
costs).
<TABLE>
<CAPTION>
Amortization
of Fees
----------
<S> <C> <C>
Note Offering -- 6.625% Notes due 2002 $ 392
Note Offering -- 7.125% Notes due 2007 327
----------
Total $ 719
=========
(K) Reflects adjustment needed to reflect minority partners'
weighted average 8.76% interest in the net income of the
Operating Partnership less joint venture minority interests
assuming completion of the Equity Offerings at the beginning
of the period. $ (4,101)
=========
(L) Reflects the following:
7% preferred dividend for the $103.5 million of
preferred shares issued in connection with the
Station transaction. $ 7,245
6.75% preferred dividend for the Offering 13,500
----------
Total $ 20,745
=========
(M) Reflects net income per share based on
134,233,392 weighted average common shares assumed
to be outstanding during the year ended December 31, 1997. --
</TABLE>
F-14
