<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 22, 1997
CRESCENT REAL ESTATE EQUITIES COMPANY
(formerly known as Crescent Real Estate Equities, Inc.)
(Exact name of Registrant as specified in its Charter)
Texas 1-13038 52-1862813
(State of Organization) (Commission File Number) (IRS Employer
Identification Number)
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(Address of Principal Executive (Zip Code)
Offices)
(817) 877-0477
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 5. OTHER EVENTS
ENERGY CENTRE. On December 22, 1997, Crescent Real Estate Equities
Company ("Crescent Equities" and, collectively with its subsidiaries, the
"Company") acquired Energy Centre, a 39-story Class A office property located
in the Central Business District ("CBD") submarket of New Orleans, Louisiana.
Construction of the office property was completed in 1984. Situated on a
1.28-acre site, Energy Centre contains approximately 761,500 square feet of net
rentable area with a six-level attached, above-ground parking structure that
accommodates approximately 520 cars.
The Company acquired fee simple title to Energy Centre from an
unaffiliated entity for approximately $75 million. The purchase price was
funded though i) proceeds of $45 million of debt provided by Metropolitan Life
Insurance Company and ii) a $30 million draw under the Company's unsecured $550
million credit facility from a consortium of banks led by BankBoston, N.A. The
loan with Metropolitan Life Insurance Company is secured by a first mortgage
lien on Energy Centre. The nonrecourse loan bears interest at 6.93% and has a
five year term. The loan provides for principal amortization based on a
25-year amortization schedule through maturity on December 22, 2002. During
the 90 day period prior to the maturity date, the Company may prepay the loan
without a prepayment penalty fee on 30 days prior written notice. In addition,
commencing on the first day of July 2000, the Company may prepay the loan with
a prepayment penalty fee on 60 days prior written notice.
Energy Centre was 78% leased as of December 31, 1997, with a weighted
average full-service rental rate per square foot of $14.54. Energy Centre is
leased to approximately 67 tenants, the major tenants having principal
businesses in the legal services and investment banking industry sectors. The
weighted average remaining lease term for Energy Centre tenants is
approximately 7 years. The major tenants include Chaffe, McCall, Phillips,
Toler & Sarpy, L.L.P., Legg Mason and Montgomery, Barnett, Brown, Reed, Hammond
& Mintz. None of the tenants in Energy Centre leased 10% or more of the total
net rentable area of the property.
The New Orleans CBD submarket consists of 8.9 million square feet of
Class A office space, which was approximately 72% of New Orlean's total Class A
office space at December 31, 1997. At December 31, 1997, the New Orleans CBD
Class A office space was 87% occupied, and the average quoted full-service
market rental rate for such space was $15.82 per square foot. The above
submarket information has been provided by Jamison Research, Inc.
The aggregate tax basis of depreciable real property and improvements
and personal property for Energy Centre for federal income tax purposes is $75
million. For federal income tax purposes, depreciation is computed using the
straight-line method over lives which range from 15 to 39 years for the real
property and improvements, and the double- declining balance method over lives
which range from 5 to 7 years for the personal property.
The 1997 realty tax rate for real property was 2.5% of the $33.5
million assessed value. The total amount of tax at this rate for 1997 was
approximately $.9 million.
For the year ended December 15, 1996 and the nine months ended
September 15, 1997, utilities expense was approximately $.9 million and $.7
million, respectively, and expenses for repairs, maintenance and contact
services was approximately $.8 million and $.5 million, respectively.
The Company does not plan to renovate Energy Centre, other than
expenditures associated with the routine maintenance of the property.
1
<PAGE> 3
The following table sets forth year-end occupancy and average
full-service rental rate per leased square foot (excluding storage space) for
the years ended December 31, 1996 and 1997. Information for prior periods is
not available.
<TABLE>
<CAPTION>
AVERAGE FULL-SERVICE
--------------------
YEAR OCCUPANCY RENTAL RATE(1)
---- --------- -----------
<S> <C> <C>
1996 73% $14.48
1997 78% $14.54
</TABLE>
(1) Represents annual base rental revenues (excluding scheduled rent increases
and free rent that would be taken into account under generally accepted
accounting principles) divided by average occupancy in square footage for
the year and including adjustments for expenses payable by or reimbursed
from the tenants.
The following table sets forth a schedule of lease expirations for leases
in place as of December 31, 1998, for Energy Centre, for each of the 10 years
beginning with 1998, assuming that none of the tenants exercises renewal
options and excluding 175,793 square feet of unleased space.
<TABLE>
<CAPTION>
ANNUAL FULL-
NET RENTABLE PERCENTAGE PERCENTAGE OF SERVICE RENT
AREA SUBJECT OF LEASED ANNUAL FULL- TOTAL FULL- PER SQUARE
NUMBER OF TO NET RENTABLE SERVICE RENT SERVICE RENT FOOT FOR NET
TENANTS WITH EXPIRING AREA SUBJECT UNDER REPRESENTED RENTABLE
EXPIRING LEASES TO EXPIRING EXPIRING BY EXPIRING AREA
YEAR OF LEASE EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
- ------------------------ ------------ ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998 19 34,628 5.9% $ 459,427 5.1% $13.27
1999 6 15,179 2.6 199,486 2.2 13.14
2000 11 27,175 4.6 372,150 4.2 13.69
2001 7 53,844 9.2 851,383 9.5 15.81
2002 13 92,343 15.8 1,281,127 14.4 13.87
2003 3 19,266 3.3 392,042 4.4 20.35
2004 1 8,654 1.5 115,531 1.3 13.35
2005 9 154,839 26.4 2,213,268 24.8 14.29
2006 1 16,288 2.8 209,247 2.3 12.85
2007 1 12,521 2.1 169,660 1.9 13.55
2008 and thereafter 3 150,970 25.8 2,669,351 29.9 17.68
</TABLE>
- ----------
(1) Calculated based on base rent payable as of the expiration day 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 expenses payable by
or reimbursable from the tenants based on current levels.
POST OAK CENTRAL. On February 13, 1998, the Company acquired Post Oak
Central. Post Oak Central is comprised of three, 24-story, Class A properties
located in the West Loop Galleria submarket of Houston, Texas. Construction of
the office property complex was completed between 1974 and 1981. Situated on a
17.3-acre site, Post Oak Central contains approximately 1,278,000 square feet
of net rentable area with three, multi-level detached, but connected via
covered walkway or tunnel, aboveground parking structures that in total
accommodate approximately 4,400 cars.
The Company acquired fee simple title to Post Oak Central from an
unaffiliated entity for approximately $155.3 million. The purchase price was
funded through (i) borrowings of $100 million under the Company's $250 million
bridge loan provided by BankBoston, N.A., which expires in March 1998, and (ii)
a $55.3 million draw under the Company's unsecured $550 million credit facility
from a consortium of banks led by BankBoston, N.A.
2
<PAGE> 4
Post Oak Central was 95.5% occupied as of December 31, 1997, with a
weighted average full-service rental rate per square foot of $13.93. Post Oak
Central is leased to approximately 130 tenants, with the major tenants having
principal businesses in the industry sectors of oil and gas exploration and
production, title insurance services, and energy related engineering and
construction. The weighted average remaining lease term for Post Oak Central
tenants is approximately 5.5 years. There were two tenants that leased 10% or
more of the total net rentable area of Post Oak Central.
As of December 31, 1997, Apache Corporation, an international oil and
gas exploration and production company, leased approximately 260,000 net
rentable square feet (approximately 20% of the net rentable square footage of
Post Oak Central), pursuant to a lease that expires in April 2007. The current
base rental rate per square foot for approximately 216,000 net rentable square
feet is $12.75, which increases to $18.95 per square foot effective May 1998
and to the comparable space rate (defined in the lease as not less than $18.95
or more than $22.50 per square foot) effective May 2003, where it remains in
effect until April 2007. For an additional 29,000 net rentable square feet,
the current base rental rate per square foot of $12.75 increases to $15.85 per
square foot effective June 2002, where it remains in effect until April 2007.
The remaining 15,000 net rentable square feet is primarily storage space. This
lease provides for four 5-year renewal options, the first two 5-year options at
95% of the then-prevailing market rental rate, and the second two 5-year
options at 100% of the then prevailing market rental rates.
As of December 31, 1997, Stewart Information Services Corporation
("Stewart"), a title insurance company, leased approximately 216,000 net
rentable square feet (approximately 17% of the net rentable square footage of
Post Oak Central), pursuant to two leases that expire in September 2004. The
current base rental rate per square foot for approximately 175,000 net rentable
square feet is $13.45, and increases to $15.45 per square foot during the
months of July through November 1999, where it remains in effect until
September 2004. For an additional 41,000 net rentable square feet, the current
base rental rate per square foot ranges from $7.00 to $18.50 and increases to a
base rental rate per square foot that ranges from $9.00 to $20.50. These rate
increases are scheduled to occur from January 1998 through October 2002, where
they remain in effect until September 2004. The leases provides for two 5-year
renewal options, the first 5-year option at 95% of the then-prevailing market
rental rate and the second 5-year option at 100% of the then-prevailing market
rental rates. In addition, Stewart has the right to terminate approximately
48,000 net rentable square feet of the lease in 1999.
The West Loop Galleria submarket consists of 12.8 million square feet
of Class A office space, which was approximately 20% of Houston's total Class A
office space at December 31, 1997. At December 31, 1997, the West Loop
Galleria Class A office space was 94% occupied, and the average quoted
full-service market rental rate for such space was $19.44 per square foot. The
above submarket information has been provided by Baca Landata, Inc.
The aggregate tax basis of depreciable real property and improvements
and personal property for Post Oak Central for federal income tax purposes is
approximately $155.3 million. For federal income tax purposes, depreciation is
computed using the straight-line method over lives which range from 15 to 39
years for the real property and improvements, and the double-declining balance
method over lives which range from 5 to 7 years for the personal property.
The 1997 realty tax rate for real property was $2.91 per $100 of the
$78.4 million assessed value. The total amount of tax at this rate for 1997
was approximately $2.3 million.
For the year ended December 31, 1996 and the eleven months ended
November 30, 1997, utilities expense was approximately $1.8 million for both
periods and expenses for repairs, maintenance and contract services was
approximately $2.6 million and $2.4 million, respectively.
The Company does not plan to renovate Post Oak Central, other than
expenditures associated with the routine maintenance of the property.
3
<PAGE> 5
The following table sets forth year-end occupancy and average
full-service rental rate per leased square foot (excluding storage space) for
the years ended December 31, 1996 and 1997. Information for prior periods is
not available.
<TABLE>
<CAPTION>
AVERAGE FULL-SERVICE
--------------------
YEAR OCCUPANCY RENTAL RATE(1)
---- --------- -----------
<S> <C> <C>
1996 92.4% $13.43
1997 95.5% $12.71
</TABLE>
(1) Represents annual base rental revenues (excluding scheduled rent increases
and free rent that would be taken into account under generally accepted
accounting principles) divided by average occupancy in square footage for
the year and including adjustments for expenses payable by or reimbursed
from the tenants.
The following table sets forth a schedule of lease expirations for leases
in place as of December 31, 1997, for Post Oak Central, for each of the 10
years beginning 1998, assuming that none of the tenants exercises renewal
options and excluding 57,623 square feet of unleased space.
<TABLE>
<CAPTION>
ANNUAL FULL-
NET RENTABLE PERCENTAGE PERCENTAGE OF SERVICE RENT
AREA SUBJECT OF LEASED ANNUAL FULL- TOTAL FULL- PER SQUARE
NUMBER OF TO NET RENTABLE SERVICE RENT SERVICE RENT FOOT FOR NET
TENANTS WITH EXPIRING AREA SUBJECT UNDER REPRESENTED RENTABLE
EXPIRING LEASES TO EXPIRING EXPIRING BY EXPIRING AREA
YEAR OF LEASE EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
- ------------------------ ------------ ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998 36 84,290 6.9% $1,058,622 5.2% $12.56
1999 27 89,985 7.4 1,205,754 6.0 13.40
2000 28 158,998 13.0 2,604,347 12.9 16.38
2001 15 97,932 8.0 1,535,561 7.6 15.68
2002 24 159,315 13.1 2,565,371 12.7 16.10
2003 4 27,528 2.3 435,159 2.1 15.81
2004 6 250,585 20.5 3,771,679 18.7 15.05
2005 2 16,320 1.3 292,930 1.4 17.95
2006 -- -- -- -- -- --
2007 2 334,940 27.5 6,751,127 33.4 20.16
2008 and thereafter -- -- -- -- -- --
</TABLE>
- -------------------
(1) Calculated based on base rent payable as of the expiration day 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 expenses payable by
or reimbursable from the tenants based on current levels.
WASHINGTON HARBOUR. On February 25, 1998, the Company acquired
Washington Harbour, a two building complex containing a 5-story and an 8-story
Class A office/condominium property located in the Georgetown/West End
submarket of Washington D.C. The Company did not acquire the condominiums.
Construction of the office property was completed in 1986. Situated on a
5.04-acre site, Washington Harbour contains approximately 536,000 square feet
of net rentable area with a 2-level attached, below ground parking structure
that accommodates approximately 613 cars. The Company acquired fee simple
title to Washington Harbour from an unaffiliated entity for approximately $161
million. The purchase price was funded though a draw under the Company's
unsecured $550 million credit facility from a consortium of banks led by
BankBoston, N.A.
Washington Harbour was 95% leased as of December 31, 1997, with a
weighted average full-service rental rate per square foot of $34.30.
Washington Harbour is leased to approximately 31 tenants,
4
<PAGE> 6
the major tenants having principal businesses in the legal services industry
sector. The weighted average remaining lease term for Washington Harbour
tenants is approximately 7 years. There were three tenants that leased 10% or
more of the total net rentable area of Washington Harbour. As of December 31,
1997, Swidler & Berlin, one of the largest local law firms in Washington D.C.,
leased approximately 146,305 net rentable square feet (approximately 27% of the
net rentable square footage of Washington Harbour) pursuant to a lease that
expires in June 2002. The current base rental rate per square foot is $40.00
with various increases in rent and CPI adjustments on certain spaces throughout
the remainder of the lease. The lease provides for one 5-year renewal option
at 95% of the then-prevailing market rental rate. As of December 31, 1997,
Collier, Shannon, Rill & Scott, a large international law firm, leased
approximately 101,625 net rentable square feet (approximately 19% of the net
rentable square footage of Washington Harbour) pursuant to a lease that expires
in June 2005. The current base rental rate per square foot is $30.75 with
various CPI adjustments on certain spaces throughout the remainder of the
lease. The lease provides for one 5-year renewal option at 95% of the
then-prevailing market rental rate. As of December 31, 1997, Foley & Lardner, a
large national law firm, leased approximately 91,298 net rentable square feet
(approximately 17% of the net rentable square footage of Washington Harbour)
pursuant to a lease that expires in January 2008. The current base rental rate
per square foot is $40.30 with CPI adjustments each January 1 throughout the
remainder of the lease, and a one-time base rental rate increase commencing
March 1, 2001 of $2.50 per square foot. The lease does not provide a renewal
option.
The Georgetown/West End submarket consists of approximately 536,000
square feet of Class A office space (the Company's office property), which was
approximately 1% of Washington D.C.'s total Class A office space at December
31, 1997. The above submarket information has been provided by Grubb and
Ellis Company.
The aggregate tax basis of depreciable real property and improvements
and personal property for Washington Harbour for federal income tax purposes is
$161 million. For federal income tax purposes, depreciation is computed using
the straight-line method over lives which range from 15 to 39 years for the
real property and improvements, and the double-declining balance method over
lives which range from 5 to 7 years for the personal property.
The 1997 realty tax rate for real property was 2.15% of the $57
million assessed value. The total amount of tax at this rate for 1997 was
approximately $1.2 million.
For the years ended December 31, 1996 and 1997, utilities expense was
approximately $.7 million and $.9 million, respectively, and expenses for
repairs, maintenance and contact services was approximately $1.7 million for
both years.
The Company does not plan to renovate Washington Harbour, other than
expenditures associated with the routine maintenance of the property.
The following table sets forth year-end occupancy and average
full-service rental rate per leased square foot (excluding storage space) for
the years ended December 31, 1996 and 1997. Information for prior periods is
not available.
<TABLE>
<CAPTION>
AVERAGE FULL-SERVICE
--------------------
YEAR OCCUPANCY RENTAL RATE(1)
---- --------- -----------
<S> <C> <C>
1996 88.6% $28.30
1997 95.0% $34.30
</TABLE>
(1) Represents annual base rental revenues (excluding scheduled rent increases
and free rent that would be taken into account under generally accepted
accounting principles) divided by average occupancy in square footage for
the year and including adjustments for expenses payable by or reimbursed
from the tenants.
5
<PAGE> 7
The following table sets forth a schedule of lease expirations
for leases in place as of December 31, 1997, for Washington Harbour, for each
of the 10 years beginning with 1998, assuming that none of the tenants
exercises renewal options and excluding 27,505 square feet of unleased space.
<TABLE>
<CAPTION>
ANNUAL FULL-
NET RENTABLE PERCENTAGE PERCENTAGE OF SERVICE RENT
AREA SUBJECT OF LEASED ANNUAL FULL- TOTAL FULL- PER SQUARE
NUMBER OF TO NET RENTABLE SERVICE RENT SERVICE RENT FOOT FOR NET
TENANTS WITH EXPIRING AREA SUBJECT UNDER REPRESENTED RENTABLE
EXPIRING LEASES TO EXPIRING EXPIRING BY EXPIRING AREA
YEAR OF LEASE EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
- ------------------------ ------------ ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998 11 25,930 5.1% $546,374 2.9% $21.07
1999 1 10,044 2.0 348,225 1.9 34.67
2000 2 7,730 1.8 250,382 1.3 32.39
2001 5 15,903 3.1 582,648 3.1 36.64
2002 2 142,430 28.0 5,681,555 30.3 39.89
2003 2 7,581 1.5 246,657 1.3 32.54
2004 -- -- -- -- -- --
2005 4 149,307 29.1 5,170,164 27.5 34.63
2006 -- -- -- -- -- --
2007 3 15,876 3.1 639,936 3.4 40.31
2008 and thereafter 5 133,900 26.3 5,315,254 28.3 39.70
</TABLE>
- -----------
(1) Calculated based on base rent payable as of the expiration day 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 expenses payable by
or reimbursable from the tenants based on current levels.
6
<PAGE> 8
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS UNDER RULE 3-14 OF REGULATION S-X
ENERGY CENTRE
Report of Independent Public Accountants
Statements of Excess of Revenues Over Specific Operating
Expenses for the year ended December 15, 1996 and the nine
month period ended September 15, 1997.
Notes to Statements.
POST OAK CENTRAL
Report of Independent Public Accountants
Statements of Excess of Revenues Over Specific Operating
Expenses for the year ended December 31, 1996 and the eleven
month period ended November 30, 1997.
Notes to Statements.
WASHINGTON HARBOUR
Report of Independent Public Accountants
Statements of Excess of Revenues Over Specific Operating
Expenses for the years ended December 31, 1996 and 1997.
Notes to Statements.
(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
The following is a list of all exhibits filed as a part of
this Form 8-K.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
23.01 Consent of Arthur Andersen LLP, Independent
Public Accountants, dated March 2, 1998
(filed herewith).
</TABLE>
7
<PAGE> 9
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: March 2, 1998 CRESCENT REAL ESTATE EQUITIES COMPANY
By: /s/ Dallas. E Lucas
---------------------------------------
Dallas E. Lucas
Senior Vice President and
Chief Financial and
Accounting Officer
8
<PAGE> 10
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ENERGY CENTRE
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Excess of Revenues Over Specific Operating Expenses for the Year Ended
December 15, 1996 and the Nine Month Period Ended September 15, 1997 . . . . . . . . . . . . . . . . . . . . F-4
Notes to Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
POST OAK CENTRAL
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Statements of Excess of Revenues Over Specific Operating Expenses for the Year Ended
December 31, 1996 and the Eleven Month Period Ended November 30, 1997 . . . . . . . . . . . . . . . . . . . F-9
Notes to Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
WASHINGTON HARBOUR
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
Statements of Excess of Revenues Over Specific Operating Expenses for the Year Ended
December 31, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Notes to Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Consolidated Balance Sheet as of September 30, 1997 and notes thereto . . . . . . . . . . . . . F-18
Pro Forma Consolidated Statements of Operations for the Nine Months Ended September
30, 1997 and the Year Ended December 31, 1996 and notes thereto . . . . . . . . . . . . . . . . . . . . . F-21
</TABLE>
F-1
<PAGE> 11
ENERGY CENTRE
STATEMENTS OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 15, 1996, AND
THE NINE-MONTH PERIOD ENDED SEPTEMBER 15, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-2
<PAGE> 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statements of excess of revenues over specific
operating expenses (as defined in Note 2) of Energy Centre for the year ended
December 15, 1996, and the nine-month period ended September 15, 1997. These
statements are the responsibility of the Property's management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all material
respects, the excess of revenues over specific operating expenses of Energy
Centre for the year ended December 15, 1996, and the nine-month period ended
September 15, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
December 4, 1997
F-3
<PAGE> 13
ENERGY CENTRE
STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 15, 1996,
AND THE NINE-MONTH PERIOD ENDED SEPTEMBER 15, 1997
<TABLE>
<CAPTION>
December 15, September 15,
1996 1997
---------- ----------
<S> <C> <C>
REVENUES:
Office rent $8,081,180 $6,088,826
Parking 838,914 640,834
Recoveries 67,519 38,398
Other 356,294 345,389
---------- ----------
9,343,907 7,113,447
---------- ----------
SPECIFIC OPERATING EXPENSES:
Real estate taxes 850,622 639,123
Utilities 863,193 654,141
Repairs, maintenance, and contract services 846,475 492,322
Salaries and benefits 436,045 331,202
General and administrative 917,319 719,876
Management fees 114,247 74,406
Insurance 173,993 131,382
---------- ----------
4,201,894 3,042,452
---------- ----------
EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $5,142,013 $4,070,995
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 14
ENERGY CENTRE
NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
DECEMBER 15, 1996, AND SEPTEMBER 15, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Property
Energy Centre (the "Property") is a 39-story office tower located in the central
business district of New Orleans, Louisiana. The Property contains approximately
761,500 rentable square feet.
Use of Estimates
The preparation of statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Rental Income and Deferred Rent Concessions
In connection with obtaining certain tenants under long-term leases, property
management grants rent concessions. The aggregate future minimum rental payments
due over the terms of the leases are recognized as rental income on a
straight-line basis over the full term of the leases, including the periods of
rent concessions.
Recoveries
A portion of the operating expenses is charged back to tenants on a monthly
basis based upon estimated expenses. These charges are adjusted at period-end,
based upon actual expenses.
2. BASIS OF ACCOUNTING:
The accompanying statements of excess of revenues over specific operating
expenses are presented on the accrual basis of accounting. These statements are
not intended to be a complete presentation of revenues and operating expenses
for the year ended December 15, 1996, and the nine-month period ended September
15, 1997, as certain items such as depreciation, amortization, interest, and
partnership administrative expenses have been excluded since they are not
comparable to the proposed future operations of the Property.
3. PROPERTY MANAGEMENT:
Transwestern Property Company (the "Manager") has had an arrangement to manage
the Property since January 1995. The Manager required a management fee of 1.5%
of gross rental revenue in 1996 and through March 1997. Effective April 1997,
the management fee was adjusted to 1.4% through June 1997, then adjusted to 1.0%
from July through September 15, 1997. Total management fees for the year ended
December 15, 1996, and the nine-month period ended September 15, 1997, were
approximately $114,000 and $74,000, respectively.
F-5
<PAGE> 15
4. SIGNIFICANT TENANTS:
The largest tenant of the Property occupies approximately 73,000 square feet, or
9.6%, of the total square footage. This lease expires in July 2008.
F-6
<PAGE> 16
POST OAK CENTRAL
STATEMENTS OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND THE ELEVEN-MONTH PERIOD ENDED NOVEMBER 30, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-7
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statements of excess of revenues over specific
operating expenses (as defined in Note 2) of Post Oak Central for the year ended
December 31, 1996, and the eleven-month period ended November 30, 1997. These
statements are the responsibility of the Property's management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all material
respects, the excess of revenues over specific operating expenses of Post Oak
Central for the year ended December 31, 1996, and the eleven-month period ended
November 30, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 16, 1998
F-8
<PAGE> 18
POST OAK CENTRAL
STATEMENTS OF EXCESS REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996, AND
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
REVENUES:
Rent $15,830,875 $14,769,083
Parking 465,641 522,713
Recoveries 345,622 286,543
Other 52,804 38,500
----------- -----------
16,694,942 15,616,839
----------- -----------
SPECIFIC OPERATING EXPENSES:
Real estate taxes 2,167,817 2,099,717
Utilities 1,793,577 1,764,849
Repairs, maintenance, and contract services 2,620,143 2,375,625
Salaries 819,825 758,039
General and administrative 477,066 251,582
Management fees 465,058 409,899
Insurance 70,532 64,654
----------- -----------
8,414,018 7,724,365
----------- -----------
EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $ 8,280,924 $ 7,892,474
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE> 19
POST OAK CENTRAL
NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
DECEMBER 31, 1996, AND NOVEMBER 30, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Property
Post Oak Central (the "Property") consists of three 24-story office towers, each
with an adjacent parking garage. The ground floor of each parking garage is used
as supporting retail space. The Property is located in the West Loop Galleria
submarket of Houston, Texas, and it contains approximately 1,277,516 rentable
square feet and approximately 4,400 parking spaces.
Use of Estimates
The preparation of statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Rental Income and Deferred Rent Concessions
In connection with obtaining certain tenants under long-term leases, property
management grants rent concessions. The aggregate future minimum rental payments
due over the terms of the leases are recognized as rental income on a
straight-line basis over the full term of the leases, including the periods of
rent concessions.
Recoveries
A portion of the operating expenses is charged back to tenants on a monthly
basis based upon estimated expenses. These charges are adjusted at period-end,
based upon actual expenses.
2. BASIS OF ACCOUNTING:
The accompanying statements of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. These statements are
not intended to be a complete presentation of revenues and operating expenses
for the year ended December 31, 1996, and the eleven-month period ended November
30, 1997, as certain items such as depreciation, amortization, interest, and
partnership administrative expenses have been excluded since they are not
comparable to the proposed future operations of the Property.
F-10
<PAGE> 20
3. PROPERTY MANAGEMENT:
O'Connor Realty Advisors, Inc. (the "Asset Manager") has had an arrangement to
be the Property's asset manager since April 1994 and PM Realty Group (the
"Property Manager") has had an arrangement to manage the Property since December
1991. The Asset Manager requires an asset management fee of approximately
$270,000 per year, which is not recoverable from tenants, and the Property
Manager requires a management fee of 1.25% of gross rental receipts, as defined,
which is recoverable from tenants. Total combined management fees for both the
Asset Manager and Property Manager for the year ended December 31, 1996, and the
eleven-month period ended November 30, 1997, were approximately $465,000 and
$410,000, respectively.
4. RENTAL INCOME
The Property records rental income on a straight-line basis in accordance with
FAS 13 "Accounting for Leases". Rental income was increased $655,094 and
$1,059,295 for the year ended December 31, 1996 and for the period ended
November 30, 1997, respectively, in order to reflect rental income on a
straight-line basis.
5. SIGNIFICANT TENANTS:
The largest tenant of the Property occupies approximately 260,000 square feet,
or 20%, of the total square footage. Approximately 97% of this lease expires in
April 2007, with the remainder being month to month storage. The second largest
tenant occupies approximately 216,000 square feet, or 17% of the total square
footage. Approximately 98% of this lease expires in September 2004, with the
remainder being 80 square feet of month to month storage and 3,693 square feet
expiring in December 2000.
F-11
<PAGE> 21
WASHINGTON HARBOUR
STATEMENTS OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-12
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statements of excess of revenues over specific
operating expenses (as defined in Note 2) of Washington Harbour for the years
ended December 31, 1997 and 1996. These statements are the responsibility of
the Property's management. Our responsibility is to express an opinion on
these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above presents fairly, in all
material respects, the excess of revenues over specific operating expenses of
Washington Harbour for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas,
January 16, 1998
F-13
<PAGE> 23
WASHINGTON HARBOUR
STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
<S> <C> <C>
REVENUES:
Office rent $13,918,108 $14,464,169
Parking 965,603 912,328
Recoveries 245,022 626,675
Other 69,080 108,356
--------------- --------------
15,197,813 16,111,528
--------------- --------------
SPECIFIC OPERATING EXPENSES:
Real estate taxes 1,236,201 1,544,022
Utilities 915,630 728,192
Repairs, maintenance, and contract services 1,649,117 1,657,240
Salaries 460,176 982,766
General and administrative 210,934 449,079
Management fees 400,000 602,010
Insurance 128,030 127,826
--------------- --------------
5,000,088 6,091,135
-------------- --------------
EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $10,197,725 $10,020,393
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE> 24
WASHINGTON HARBOUR
NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Property
Washington Harbour (the "Property") is a two-building complex containing a
5-story and an 8-story Class A office/condo property located in the Georgetown
submarket of Washington, D.C. The Property contains approximately 540,000
rentable square feet as well as an underground parking garage.
Use of Estimates
The preparation of statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Rental Income and Deferred Rent Concessions
In connection with obtaining certain tenants under long-term leases, property
management grants rent concessions. The aggregate future minimum rental
payments due over the terms of the leases are recognized as rental income on a
straight-line basis over the full term of the leases, including the periods of
rent concessions.
Recoveries
A portion of the operating expenses is charged back to tenants on an annual
basis based upon actual expenses.
2. BASIS OF ACCOUNTING:
The accompanying statements of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. These statements are
not intended to be a complete presentation of revenues and operating expenses
for the years ended December 31, 1997 and 1996, as certain items such as
depreciation, amortization, interest, and partnership administrative expenses
have been excluded since they are not comparable to the proposed future
operations of the Property.
3. PROPERTY MANAGEMENT:
Jones Lang Wootton USA, Inc. (the "Manager") has had an arrangement to manage
the Property since January 1, 1997. The Manager requires an asset and property
management fee of approximately $33,000 a month. Prior to January 1, 1997,
Washington Harbour Management Corp. was the management company. Prior to 1997,
management fees were assessed at 2 1/2% of gross operating revenue, as defined,
in addition to an asset management fee of approximately $16,000 per month.
Total management fees for the years ended December 31, 1997 and 1996, were
approximately $400,000 and $602,000, respectively.
F-15
<PAGE> 25
-2-
4. SIGNIFICANT TENANTS:
The largest tenant of the Property occupies approximately 146,000 square feet,
or 27%, of the total square footage. This lease expires in June 2002. The
second largest tenant of the Property occupies approximately 102,000 square
feet, or 19%, of the total rentable square footage. This lease expires in June
2005.
5. REAL ESTATE TAXES:
During 1997, the Property received a refund of approximately $817,000 related
to a reduction in property taxes for previous years. This amount has been
excluded from the accompanying statements of excess of revenues over specific
operating expenses as it does not relate to the future operations of the
Property.
6. CONDOMINIUM DISPUTE:
The Property currently receives reimbursement under the condominium Settlement
Agreement from adjacent condominiums related to the condominiums' allocable
portion of maintenance of the common areas between the Property and
condominiums. The condominiums are disputing the portion of common area
maintenance cost being allocated to them. No resolution has been reached
regarding this matter.
F-16
<PAGE> 26
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) the February 1998 Preferred 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, 1996 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)the February 1998 Preferred 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-17
<PAGE> 27
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 $ 2,422,016 (B) $ 5,535,759
Less - accumulated depreciation (256,204) -- (256,204)
----------- ----------- -----------
Net investment in real estate 2,857,539 2,422,016 5,279,555
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 $ 2,715,516 $ 6,327,549
=========== =========== ===========
LIABILITIES:
Borrowings under Credit Facility $ 316,500 $ 177,300 (F) $ 493,800
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 1,263,600 3,128,734
----------- ----------- -----------
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 $ 2,715,516 $ 6,327,549
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma
Consolidated Balance Sheet.
F-18
<PAGE> 28
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
Acquisition of Washington Harbour office property............................ 161,000
Pending acquisition of Station's casino/hotel properties .................... 1,744,866
-----------
$ 2,422,016
===========
(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-19
<PAGE> 29
<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
Preferred Offering ........................................................... (191,250)
Acquisition of Washington Harbour office property............................... 161,000
-----------
$ 177,300
===========
(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 February 1998 Preferred Offering (8 million shares of preferred
stock at $25 per share)....................................................... 200,000
Estimated costs of the February 1998 Preferred Offering......................... (750)
Underwriters' discount and commission for the February 1998 Preferred Offering.. (8,000)
-----------
$ 1,451,916
===========
</TABLE>
F-20
<PAGE> 30
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
Company 1997 Acquisition 1997 Acquired 1998 Acquisition
Historical (A) of Energy Centre (B) Investments (B) of Post Oak (C)
-------------- -------------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Rental property $ 289,752 $ 7,113 $ 113,452 $ 12,777
Interest and other income 13,508 -- -- --
------------ --------- ----------- -----------
Total revenues 303,260 7,113 113,452 12,777
------------ --------- ----------- -----------
EXPENSES:
Real estate taxes 28,229 639 10,204 1,718
Repairs and maintenance 17,244 492 12,351 1,944
Other rental property operating 59,100 1,911 19,134 2,652
Corporate general and administrative 9,855 -- -- --
Interest expense 54,687 -- -- --
Depreciation and amortization 50,840 1,406 20,317 2,911
Amortization of deferred financing costs 2,157 -- -- --
------------ --------- ----------- -----------
Total expenses 222,112 4,448 62,006 9,225
------------ --------- ----------- -----------
Operating income (loss) 81,148 2,665 51,446 3,552
OTHER INCOME:
Equity in net income of unconsolidated
companies 3,118 -- 11,130 --
------------ --------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTERESTS 84,266 2,665 62,576 3,552
Minority interests (12,018) -- -- --
------------ --------- ----------- -----------
NET INCOME (LOSS) $ 72,248 $ 2,665 $ 62,576 $ 3,552
============ ========= =========== ===========
Preferred dividend (J)
Net income available to common shareholders
PER COMMON SHARE DATA:(K)
Net Income
<CAPTION>
1998 Acquisition Pending
of Washington 1998 Acquired Acquisition of Other
Harbour (C) Investments (C) Station Casinos (C) Adjustments
----------- --------------- --------------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental property $ 11,398 $ 7,347 $ 122,551 $ --
Interest and other income -- -- -- 6,791 (D)
----------- ---------- ------------- -----------
Total revenues 11,398 7,347 122,551 6,791
----------- ---------- ------------- -----------
EXPENSES:
Real estate taxes 927 630 -- --
Repairs and maintenance 1,236 619 -- --
Other rental property operating 1,586 1,338 -- (283)(E)
(1,283)(F)
Corporate general and administrative -- -- -- --
Interest expense -- -- -- 111,907 (G)
Depreciation and amortization 3,018 1,817 55,705 --
Amortization of deferred financing costs -- -- -- 539 (H)
----------- ---------- ------------- -----------
Total expenses 6,767 4,404 55,705 110,880
----------- ---------- ------------- -----------
Operating income (loss) 4,631 2,943 66,846 (104,089)
OTHER INCOME:
Equity in net income of unconsolidated
companies -- -- -- --
----------- ---------- ------------- -----------
INCOME (LOSS) BEFORE MINORITY INTERESTS 4,631 2,943 66,846 (104,089)
Minority interests -- -- -- 152 (I)
----------- ---------- ------------- -----------
NET INCOME (LOSS) $ 4,631 $ 2,943 $ 66,846 $ (103,937)
=========== ========== ============= ===========
Preferred dividend (J)
Net income available to common shareholders
PER COMMON SHARE DATA:(K)
Net Income
<CAPTION>
Pro Forma
Consolidated
------------
<S> <C>
REVENUES:
Rental property $ 564,390
Interest and other income 20,299
-------------
Total revenues 584,689
-------------
EXPENSES:
Real estate taxes 42,347
Repairs and maintenance 33,886
Other rental property operating 84,155
Corporate general and administrative 9,855
Interest expense 166,594
Depreciation and amortization 136,014
Amortization of deferred financing costs 2,696
-------------
Total expenses 475,547
-------------
Operating income (loss) 109,142
OTHER INCOME:
Equity in net income of unconsolidated
companies 14,248
-------------
INCOME (LOSS) BEFORE MINORITY INTERESTS 123,390
Minority interests (11,866)
-------------
NET INCOME (LOSS) $ 111,524
=============
Preferred dividend (J) (15,559)
-------------
Net income available to common shareholders $ 95,965
=============
PER COMMON SHARE DATA:(K)
Net Income $ 0.71
=============
</TABLE>
See adjustments to Pro Forma Consolidated Statement of Operations
on following page.
F-21
<PAGE> 31
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 by applying the rent provisions (as
defined in the lease agreement) to the
historical revenues of the hotel property.
(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-22
<PAGE> 32
<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 investment,
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
Washington Harbour office property 2/25/1998
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 by
applying the rent provisions (as defined in the
lease agreement) to the historical revenues of
the hotel property.
(ii) Calculated an estimated lease payment using
the historical operating results of the
casino/hotel properties. The historical
operations do not represent stabilized
casino/hotel operations, as two casino/hotel
properties 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. $(1,283)
=======
</TABLE>
F-23
<PAGE> 33
(G) Net increase as a result of interest costs for long and
short-term financing, as follows, net of repayment with proceeds
of the February 1998 Preferred 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>
Credit Facility $ 493,800 @ 6.86% $ 33,875
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 @ 6.93% 3,119
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 $3,065,504 $223,959
Prorated for nine months 167,969
Less: Capitalized interest (1,375)
Historical interest expense (54,687)
--------
$ 111,907
=========
</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. $ 152
=========
(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 the February 1998
Preferred 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-24
<PAGE> 34
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 1997
Company 1996 Acquired Acquisition of
Historical (A) Investments (B) Energy Centre (C)
-------------- --------------- -----------------
<S> <C> <C> <C>
REVENUES:
Rental property $ 202,003 $ 89,185 $ 9,344
Interest and other income 6,858 -- --
--------------- ------------- ---------
Total revenues 208,861 89,185 9,344
--------------- ------------- ---------
EXPENSES:
Real estate taxes 20,606 8,176 851
Repairs and maintenance 12,292 8,403 846
Other rental property operating 40,915 21,346 2,505
Corporate general and administrative 4,674 -- --
Interest expense 42,926 -- --
Depreciation and amortization 40,535 12,727 1,875
Amortization of deferred financing costs 2,812 -- --
--------------- ------------- ---------
Total expenses 164,760 50,652 6,077
--------------- ------------- ---------
Operating income (loss) 44,101 38,533 3,267
OTHER INCOME:
Equity in net income of unconsolidated
companies 3,850 -- --
--------------- ------------- ---------
INCOME (LOSS) BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 47,951 38,533 3,267
Minority interests (9,510) (533) --
--------------- ------------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 38,441 38,000 3,267
Extraordinary item (1,306) -- --
--------------- ------------- ---------
NET INCOME (LOSS) $ 37,135 $ 38,000 $ 3,267
=============== ============= =========
Preferred dividend (L)
Net income available to common shareholders
PER COMMON SHARE DATA: (M)
Income before extraordinary item
Extraordinary item
Net Income
<CAPTION>
1998 Acquisition
1997 Acquired 1998 Acquisition of Washington
Investments (C) of Post Oak (C) Harbour (D)
--------------- --------------- -----------
<S> <C> <C> <C>
REVENUES:
Rental property $ 215,932 $ 16,695 $ 16,112
Interest and other income -- -- --
------------- ------------ ------------
Total revenues 215,932 16,695 16,112
------------- ------------ ------------
EXPENSES:
Real estate taxes 18,140 2,168 1,544
Repairs and maintenance 22,591 2,620 1,657
Other rental property operating 37,246 3,637 2,890
Corporate general and administrative -- -- --
Interest expense -- -- --
Depreciation and amortization 39,493 3,881 4,025
Amortization of deferred financing costs -- -- --
------------- ------------ ------------
Total expenses 117,470 12,306 10,116
------------- ------------ ------------
Operating income (loss) 98,462 4,389 5,996
OTHER INCOME:
Equity in net income of unconsolidated
companies 10,170 -- --
------------- ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 108,632 4,389 5,996
Minority interests -- -- --
------------- ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 108,632 4,389 5,996
Extraordinary item -- -- --
------------- ------------ ------------
NET INCOME (LOSS) $ 108,632 $ 4,389 $ 5,996
============= ============ ============
Preferred dividend (L)
Net income available to common shareholders
PER COMMON SHARE DATA: (M)
Income before extraordinary item
Extraordinary item
Net Income
<CAPTION>
Pending
1998 Acquired Acquisition of Other
Investments (D) Station Casinos (D) Adjustments
--------------- --------------------- -----------
<S> <C> <C> <C>
REVENUES:
Rental property $ 9,468 $ 136,548 $ --
Interest and other income -- -- 15,284 (E)
------------- ----------- -----------
Total revenues 9,468 136,548 15,284
------------- ----------- -----------
EXPENSES:
Real estate taxes 840 -- --
Repairs and maintenance 825 -- --
Other rental property operating 1,785 -- (1,700)(F)
(2,686)(G)
Corporate general and administrative -- -- 5,326 (H)
Interest expense -- -- 179,899 (I)
Depreciation and amortization 2,423 74,273 --
Amortization of deferred financing costs -- -- 719 (J)
------------- ----------- -----------
Total expenses 5,873 74,273 181,558
------------- ----------- -----------
Operating income (loss) 3,595 62,275 (166,274)
OTHER INCOME:
Equity in net income of unconsolidated
companies -- -- --
------------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 3,595 62,275 (166,274)
Minority interests -- -- (379)(K)
------------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 3,595 62,275 (166,653)
Extraordinary item -- -- --
------------- ----------- -----------
NET INCOME (LOSS) $ 3,595 $ 62,275 $ (166,653)
============= =========== ===========
Preferred dividend (L)
Net income available to common shareholders
PER COMMON SHARE DATA: (M)
Income before extraordinary item
Extraordinary item
Net Income
<CAPTION>
Pro Forma
Consolidated
------------
<S> <C>
REVENUES:
Rental property $ 695,287
Interest and other income 22,142
-------------
Total revenues 717,429
-------------
EXPENSES:
Real estate taxes 52,325
Repairs and maintenance 49,234
Other rental property operating 105,938
Corporate general and administrative 10,000
Interest expense 222,825
Depreciation and amortization 179,232
Amortization of deferred financing costs 3,531
-------------
Total expenses 623,085
-------------
Operating income (loss) 94,344
OTHER INCOME:
Equity in net income of unconsolidated
companies 14,020
-------------
INCOME (LOSS) BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 108,364
Minority interests (10,422)
-------------
INCOME BEFORE EXTRAORDINARY ITEM 97,942
Extraordinary item (1,306)
-------------
NET INCOME (LOSS) $ 96,636
=============
Preferred dividend (L) (20,745)
-------------
Net income available to common shareholders $ 75,891
=============
PER COMMON SHARE DATA: (M)
Income before extraordinary item 0.58
Extraordinary item (0.01)
-------------
Net Income $ 0.57
=============
</TABLE>
See adjustments to Pro Forma Consolidated Statement of
Operations on following page.
F-25
<PAGE> 35
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 by applying the rent provisions (as
defined in the lease agreement) to the historical revenues
of the hotel or/resort property.
(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-26
<PAGE> 36
<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
by applying the rent provisions (as defined in the lease
agreement) to the historical revenues of the hotel property.
(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
investment, 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
Washington Harbour office property 2/25/1998
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
by applying the rent provisions (as defined in the lease
agreement) to the historical revenues of the hotel property.
(ii) Calculated an estimated leased payment using the historical
operating results of the casino/hotel properties. The
historical operations do not represent stabilized
casino/hotel operations, as two casino/hotel properties
commenced operations in 1997.
</TABLE>
F-27
<PAGE> 37
(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. $ (2,686)
========
(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 the
February 1998 Preferred 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 $ 493,800 @ 6.86% $ 33,875
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 @ 6.93% 3,119
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 $3,065,504 $223,959
Less: Capitalized interest (1,134)
Historical interest expense (42,926)
--------
$ 179,899
=========
</TABLE>
F-28
<PAGE> 38
(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. $ (379)
=========
(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 February 1998
Preferred 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-29
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
23.01 Consent of Arthur Andersen LLP, Independent Public Accountants, dated
March 2, 1998 (filed herewith)
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated December 4, 1997, on Energy Centre, January 16,
1998, on Post Oak Central, and January 16, 1998, on Washington Harbour included
in this Form 8-K into Crescent Real Estate Equities Company's previously filed
Registration Statements No. 33-91438, No. 333-92548, No. 333-3450, No.
333-3452, No. 333-3454, No. 333- 13521, No. 333-21905, No. 333-23005, No.
333-33893, No. 333-37273, No. 333-38071, No. 333-37565, No. 333-41049 and
333-42417.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 2, 1998
