<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 30, 1998
CRESCENT REAL ESTATE EQUITIES COMPANY
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
Texas 1-13038 52-1862813
(State of Organization) (Commission File Number) (IRS Employer Identification Number)
</TABLE>
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(Address of Principal Executive (Zip Code)
Offices)
(817) 321-2100
(Registrant's telephone number, including area code)
<PAGE> 2
On July 9, 1998, Crescent Real Estate Equities Company (the "Company")
filed a Form 8-K dated June 30, 1998 (the "Original 8-K") containing a
description of a completed acquisition and a description of a probable
acquisition in Item 5 and certain related financial information in Item 7. This
Form 8-K/A amends the Original 8-K to revise and restate the disclosures
contained in Item 5 and Item 7 to reflect that the Company no longer considers
probable the acquisition previously reported as probable.
2
<PAGE> 3
ITEM 5. OTHER EVENTS
6701 TOWER, TWO TOWN CENTER and WOODFIELD CORPORATE CENTER. On June 30,
1998, as previously reported, the Company reached an agreement to acquire the
office properties/complexes of 6701 Tower, Two Town Center and Woodfield
Corporate Center from an unaffiliated entity. Completion of the acquisition was
subject to various closing conditions. As of September 10, 1998, the Company and
the unaffiliated entity ceased negotiations regarding the acquisition. As a
result, the Company no longer considers the acquisition of 6701 Tower, Two Town
Center and Woodfield Corporate Center to be probable.
BP PLAZA. On July 1, 1998, the Company acquired BP Plaza, a 20-story
Class A office property and 3.2 acres of adjacent undeveloped land located in
the Katy Freeway submarket of Houston, Texas. Construction of the office
property was completed in 1992. Situated on a 5.8-acre site, BP Plaza contains
approximately 561,000 square feet of net rentable area with an attached
six-level above ground parking structure that accommodates approximately 1,700
cars.
The Company acquired fee simple title to BP Plaza and the undeveloped
land from an unaffiliated entity for approximately $83 million primarily funded
through the Company's unsecured $750 million credit facility from a consortium
of banks led by BankBoston, N.A.
BP Plaza was 100% occupied as of July 1, 1998, with a weighted average
full-service rental rate per square foot of $18.13. BP Plaza is leased to
approximately six tenants having principal businesses in the energy sector. As
of July 1, 1998 the weighted average remaining lease term for BP Plaza tenants
was approximately 8.8 years. As of July 1, 1998, two tenants leased 10% or more
of the total net rentable area of the property.
As of July 1, 1998, BP Exploration and Oil, Inc., an energy company,
leased approximately 380,000 net rentable square feet (approximately 68% of the
net rentable area of BP Plaza) pursuant to a lease that expires in June 2010.
The current base rental rate per square foot for this lease is $18.10, with
increases every three years on July 1, throughout the remainder of the lease.
There are no specific expansion options under the lease; however, the tenant is
entitled to a preferential right on all space within the building that is not
subject to a superior right held by another tenant. The first renewal option is
for a period of three years, beginning at the end of the initial twelve year
term
3
<PAGE> 4
and may be exercised only for the entire premises at the then-prevailing market
rate. Thereafter, the tenant may renew the lease for all or a portion of the
space for periods between five and fifteen years, up to a maximum of thirty
years, at the then-prevailing market rate.
As of July 1, 1998, Union Pacific Resources Company leased
approximately 75,000 net rentable square feet (approximately 13% of the net
rentable area of BP Plaza). The lease expires in May 2004 and has a current base
rental rate per square foot of $17.71 which remains in effect until expiration.
The lease provides for two five-year renewal options, both of which are
subordinate to BP Exploration and Oil, Inc.'s preferential right.
The Katy Freeway submarket contains 2.3 million square feet of Class A
multi-tenant office space, which was approximately 4.2% of Houston's total Class
A multi-tenant office space at March 31, 1998. At March 31, 1998, the Katy
Freeway Class A multi-tenant office space was 98% occupied, and the average
quoted full-service market rental rate was $23.00 per available 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 BP Plaza for federal income tax purposes is $79.2
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 3.09% of the assessed
value of $43 million for BP Plaza. The total amount of tax at this rate for 1997
is $1.3 million.
For the year ended December 31, 1997 and the four months ended April
30, 1998, utilities expense was approximately $.5 million and $.2 million,
respectively and expenses for repairs, maintenance and contract services were
approximately $1.3 million and $.5 million respectively.
The Company does not plan to renovate BP Plaza, other than expenditures
associated with the routine maintenance of the property.
The following table sets forth year-end occupancy and average
full-service rental rates per leased square foot for BP Plaza 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 100% $ N/A
1997 100% $ N/A
</TABLE>
(1) Prior to July 1, 1998 BP Exploration and Oil, Inc. owned BP Plaza and
occupied approximately 68% of the net rentable area of BP Plaza. Since
there was no lease in place for this area until July 1998, the average
full- service rental rates for prior periods would not be meaningful.
The following table sets forth a schedule of lease expirations for
leases in place as of July 1, 1998, for BP Plaza, for each of the 10 years
beginning with the remainder of 1998, assuming that none of the tenants exercise
renewal options.
4
<PAGE> 5
<TABLE>
<CAPTION>
NET RENTABLE PERCENTAGE PERCENTAGE OF ANNUAL
AREA OF LEASED TOTAL ANNUAL FULL-SERVICE
REPRESENTED NET RENTABLE ANNUAL FULL-SERVICE RENT PER
NUMBER OF BY AREA FULL-SERVICE RENT NET
TENANTS WITH EXPIRING REPRESENTED RENT UNDER REPRESENTED RENTABLE
EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING AREA
YEAR OF LEASE EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 - - - - - -
1999 - - - - - -
2000 2 54,570 9.8% $919,356 8.3% $16.85
2001 1 45,649 8.2 938,086 8.4 20.55
2002 - - - - - -
2003 - - - - - -
2004 1 74,847 13.5 1,325,540 12.1 17.71
2005 - - - - - -
2006 - - - - - -
2007 - - - - - -
2008 and thereafter 1 379,817 68.5 7,888,799 71.2 20.77
</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
adjustments for expenses payable by or reimbursable from the tenants
based on current levels.
After reasonable inquiry, the Company is not aware of any material factors
relating to the property discussed above, other than as discussed in this
report, that would cause the reported financial information for the property
contained elsewhere in this report not to be necessarily indicative of the
future operating results of the property.
5
<PAGE> 6
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS UNDER RULE 3-14 OF REGULATION S-X
BP PLAZA
Report of Independent Public Accountants
Statement of Excess of Revenues Over Specific Operating
Expenses for the year ended December 31, 1997 and the four
month period ended April 30, 1998.
Notes to Statement.
(B) PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet as of March 31, 1998
(unaudited) and notes thereto.
Pro Forma Consolidated Statements of Operations for the three
months ended March 31, 1998 (unaudited) and the year ended
December 31, 1997 (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 September 11, 1998
(filed herewith).
</TABLE>
6
<PAGE> 7
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 16, 1998 CRESCENT REAL ESTATE EQUITIES COMPANY
By: /s/ Jerry R. Crenshaw Jr.
---------------------------------------
Jerry R. Crenshaw Jr.
Vice President, Controller and
Co-Chief Financial Officer
By: /s/ Bruce A. Picker
---------------------------------------
Bruce A. Picker
Vice President, Treasurer and
Co-Chief Financial Officer
7
<PAGE> 8
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BP PLAZA
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statement of Excess of Revenues Over Specific Operating Expenses for the Year Ended
December 31, 1997 and the Four Month Period Ended April 30, 1998 . . . . . . . . . . . . . . . . . . . . . .F-3
Notes to Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Consolidated Balance Sheet as of March 31, 1998 and notes thereto . . . . . . . . . . . . . . . F-7
Pro Forma Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and the Year Ended December 31, 1997 and notes thereto . . . . . . . . . . . . . . . . . . F-9
</TABLE>
F-1
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Crescent Real Estate Equities Limited Partnership:
We have audited the accompanying statements of excess of specific operating
expenses over revenues (as defined in Note 2) of BP Plaza for the year ended
December 31, 1997, and for the four months in the period ended April 30, 1998.
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 audits 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 statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
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 specific operating expenses over revenues of BP Plaza
for the year ended December 31, 1997, and for the four months in the period
ended April 30, 1998, in conformity with generally accepted accounting
principles.
Dallas, Texas, ARTHUR ANDERSEN LLP
June 12, 1998
F-2
<PAGE> 10
BP PLAZA
STATEMENTS OF EXCESS OF SPECIFIC
OPERATING EXPENSES OVER REVENUES
FOR THE YEAR ENDED DECEMBER 31, 1997,
AND THE FOUR MONTHS IN THE PERIOD ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
December 31, April 30,
1997 1998
------------- -------------
<S> <C> <C>
REVENUES:
Office rent $ 1,814,431 $ 755,065
Parking 117,241 41,991
Recoveries 1,418,615 509,769
Other 17,011 3,411
------------- -------------
3,367,298 1,310,236
------------- -------------
SPECIFIC OPERATING EXPENSES:
Real estate taxes 1,349,495 461,044
Utilities 529,360 163,560
Repairs, maintenance, and contract services 1,303,260 454,786
Salaries 367,639 133,833
General and administrative 117,619 34,648
Management fees 216,089 73,949
Insurance 2,314 --
------------- -------------
3,885,776 1,321,820
------------- -------------
EXCESS OF SPECIFIC OPERATING
EXPENSES OVER REVENUES $ (518,478) $ (11,584)
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 11
BP PLAZA
NOTES TO STATEMENTS OF EXCESS OF
SPECIFIC OPERATING EXPENSES OVER REVENUES
DECEMBER 31, 1997, AND APRIL 30, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Description of Property
BP Plaza (the "Property") is a 20-story office tower located in Houston, Texas.
The Property contains 561,065 rentable square feet as well as a 6-level parking
garage which contains approximately 1,700 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 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. For
the year ended December 31, 1997, and for the four months in the period ended
April 30, 1998, actual rental income billed exceeded rental income on the
straight-line basis by $250,810 and $84,890, respectively. Included in office
rent for the year ended December 31, 1997, is approximately $309,013 of rent
concessions not previously recognized relating to tenants terminating its lease
in that year.
The owner of the Property occupied 379,817 square feet, of which there was no
lease for 338,105 square feet, and, accordingly, no rental income was
recognized.
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 specific operating expenses over
revenues 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 31, 1997, and for the four months in the period
ended April 30, 1998, as certain items such as depreciation, amortization and
interest expenses have been excluded since they are not comparable to the
proposed future operations of the Property.
F-4
<PAGE> 12
3. PROPERTY MANAGEMENT:
The Property has a management agreement with Partrinely Group Inc. (the
"Manager") which expires on December 31, 2001. The agreement with the Manager
requires a management fee of 3% of gross rental receipts, as defined, for the
majority of tenants and $7,500 per month for one tenant. Total management fees
for the year ended December 31, 1997, and for the four months in the period
ended April 30, 1998, were approximately $216,000 and $74,000, respectively.
4. SIGNIFICANT TENANTS:
The owner of the Property occupies approximately 379,817 square feet, or 68%, of
the total leasable square footage. The second largest tenant of the Property
occupies approximately 74,981 square feet, or 13%, of the total leasable square
footage. This lease expires in May 2004.
F-5
<PAGE> 13
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The pro forma information for the three months ending March 31, 1998
and year ended December 31, 1997 assumes completion, as of January 1, 1997 in
determining operating and other data, and March 31, 1998 in determining balance
sheet data, of (i) the Crescent Real Estate Equities Company's (the "Company")
public offering of its Common Shares in April 1997 (the "April 1997 Offering")
and the additional public offering of 500,000 Common Shares that closed on May
14, 1997 and the net proceeds therefrom to fund approximately $593,500 of
Property acquisitions and other investments in the second quarter of 1997, (ii)
the Company's offering of 4,700,000 Common Shares to an affiliate of Union Bank
of Switzerland (the "UBS Offering") and the net proceeds therefrom to repay
approximately $145,000 of indebtedness under the Credit Facility, (iii) 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, (iv) the Company's public
offering of its Common Shares in October 1997 (the "October 1997 Offering") and
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 Company's offering
of 5,375,000 Common Shares to Merrill Lynch (the "Merrill Offering") and the net
proceeds therefrom to repay approximately $199,900 of indebtedness under the
Credit Facility, (vi) the Company's public offering of 8,000,000 Preferred
Shares in February 1998 ("February 1998 Preferred Offering") and the net
proceeds therefrom to repay approximately $191,250 of indebtedness under the
Credit Facility, (vii) the Company's public offering of 1,365,138 Common Shares
to Merrill Lynch & Co. in April 1998 which Merrill Lynch & Co. deposited with
the trustee of a unit investment trust ("April 1998 Unit Investment Trust
Offering") and the net proceeds therefrom to repay approximately $43,960 of
indebtedness under the Credit Facility, (viii) the Company's offering of
6,948,734 Preferred Shares in June 1998 (the "June 1998 Preferred Offering") and
the net proceeds therefrom to repay $170,000 of short-term indebtedness with
BankBoston N.A., and $54,750 was used as an additional investment in
Refrigerated Storage Properties, and (ix) Property acquisitions, other
investments and related financing and share issuances during 1997 and 1998.
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, 1997, 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-6
<PAGE> 14
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CRESCENT REAL
ESTATE EQUITIES
COMPANY PRO FORMA PRO FORMA
HISTORICAL(A) ADJUSTMENTS CONSOLIDATED
------------------- ----------- ------------
ASSETS
<S> <C> <C> <C>
Investments in real estate.................... $3,877,013 $ 153,500 (B) $4,030,513
Less -- accumulated depreciation.............. (302,826) -- (302,826)
---------- ---------- ----------
Net investment in real estate....... 3,574,187 153,500 3,727,687
Cash and cash equivalents..................... 68,548 32,460 (C) 101,008
Restricted cash and cash equivalents.......... 26,519 -- 26,519
Accounts receivable, net...................... 24,047 -- 24,047
Deferred rent receivable...................... 48,397 -- 48,397
Investments in real estate mortgages and
equity of unconsolidated companies.......... 583,262 116,750 (D) 700,012
Notes receivable, net......................... 148,482 148,482
Other assets, net............................. 118,286 -- 118,286
---------- ---------- ----------
Total assets........................ $4,591,728 $ 302,710 $4,894,438
========== ========== ==========
LIABILITIES
Borrowings under Credit Facility.............. $ 457,000 $ 233,000 (E) $ 690,000
Notes payable................................. 1,517,927 (203,000)(F) 1,314,927
Accounts payable, accrued expenses and other
liabilities................................. 79,222 -- 79,222
---------- ---------- ----------
Total liabilities................... 2,054,149 30,000 2,084,149
---------- ---------- ----------
MINORITY INTERESTS
Operating partnership....................... 121,806 4,000 (G) 125,806
Investment joint ventures................... 27,815 -- 27,815
---------- ---------- ----------
Total minority interests............ 149,621 4,000 153,621
---------- ---------- ----------
SHAREHOLDER'S EQUITY
6.75% Series A convertible cumulative
preferred shares $.01 par value,
authorized 100,000,000 shares, 8,000,000
shares issued and outstanding............. 200,000 -- 200,000
Series B convertible preferred shares ...... -- 225,000 225,000
Common shares, $.01 par value, authorized
250,000,000 shares........................ 1,186 14 1,200
Additional paid-in capital.................. 2,248,628 43,696 2,292,324
Deferred compensation on restricted shares.. (281) -- (281)
Retained deficit............................ (61,575) -- (61,575)
---------- ---------- ----------
Total shareholder's equity.......... 2,387,958 268,710 (H) 2,656,668
---------- ---------- ----------
Total liabilities and shareholders'
equity............................ $4,591,728 $ 302,710 $4,894,438
========== ========== ==========
</TABLE>
See accompanying notes to Pro Forma Consolidated Balance Sheet.
F-7
<PAGE> 15
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
ADJUSTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(A) Reflects Crescent Real Estate Equities Company
unaudited consolidated historical balance sheet as of
March 31, 1998............................................ --
(B) Increase reflects the following:
Acquisition of Datran Center office property................ $ 70,500
Acquisition of BP Plaza office property..................... 83,000
----------
$ 153,500
==========
(C) Net increase reflects the following:
Net proceeds from the April 1998 Unit Investment Trust
Offering................................................. $ 43,960
Partial repayment of Credit Facility........................ (44,100)
Net proceeds from the June 1998 Preferred Offering.......... 224,750
Partial repayment of Bank Boston Note I..................... (170,000)
Acquisition of BP Plaza office property..................... (23,000)
Additional Investment in Refrigerated Storage
Properties (acquisition of Carmar Group)............... (55,950)
Borrowings under the Credit Facility for working capital.... 56,800
----------
$ 32,460
==========
(D) Increase reflects the following:
Additional investment in Refrigerated Storage
Properties.............................................. $ 27,750
Additional investment in Refrigerated Storage
Properties (acquisition of Freezer Services, Inc.)...... 33,050
Additional investment in Refrigerated Storage
Properties (acquisition of Carmar Group)................ 55,950
----------
$ 116,750
==========
(E) Net increase in borrowings under the Credit Facility as a
result of:
Additional investment in Refrigerated Storage
Properties .............................................. $ 27,750
Partial repayment of Credit Facility........................ (44,100)
Borrowings for the acquisition of Datran office property.... 23,500
Additional Investment in Refrigerated Storage
Properties (acquisition of Freezer Services, Inc.)...... 29,050
Borrowings for Working Capital.............................. 56,800
Borrowings for acquisition of BP Plaza office property...... 60,000
Partial repayment of Bank Boston Note I..................... 80,000
----------
$ 233,000
==========
(F) Net decrease in notes payable as a result of:
Assumption of notes as a part of the acquisition of Datran
office property........................................... $ 47,000
Partial repayment of Bank Boston Note I using borrowings
under the Credit Facility................................. (80,000)
Partial repayment of Bank Boston Note I using proceeds
from the June 1998 Preferred Offering..................... (170,000)
----------
$ (203,000)
==========
(G) Increase in minority interest reflects the following:
Operating Partnership units issued in conjunction with the
Investment in Refrigerated Storage Properties
(acquisition of Freezer Services, Inc.)................... $ 4,000
----------
$ 4,000
==========
(H) Increase reflects the following:
Net proceeds from the April 1998 Unit Investment Trust
Offering................................................. 43,960
Proceeds from the June 1998 Preferred Offering.............. 225,000
Offering costs for the June 1998 Preferred Offering......... (250)
----------
$ 268,710
==========
</TABLE>
F-8
<PAGE> 16
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CRESCENT REAL
ESTATE EQUITIES
COMPANY 1998 ACQUISITION 1998 ACQUIRED OTHER PRO FORMA
HISTORICAL(A) OF BP PLAZA(B) INVESTMENTS(B) ADJUSTMENTS CONSOLIDATED
--------------- ---------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental property............................. $153,125 $ 983 $ 7,473 $ -- $161,581
Interest and other income................... 8,024 -- -- -- 8,024
-------- -------- ---------- -------- --------
Total revenues...................... 161,149 983 7,473 -- 169,605
-------- -------- ---------- -------- --------
EXPENSES:
Real estate taxes........................... 16,097 346 751 -- 17,194
Repairs and maintenance..................... 8,700 341 821 -- 9,862
Other rental property operating............. 29,891 305 1,578 (132)(C) 31,642
Corporate general and administrative........ 3,147 -- -- -- 3,147
Interest expense............................ 34,283 -- -- 1,414(D) 35,697
Depreciation and amortization............... 26,582 500 1,732 -- 28,814
Amortization of deferred financing
costs.................................... 1,140 -- -- -- 1,140
-------- -------- ---------- -------- --------
Total expenses...................... 119,840 1,492 4,882 1,282 127,496
-------- -------- ---------- -------- --------
Operating income (loss)............. 41,309 (509) 2,591 (1,282) 42,109
OTHER INCOME:
Equity in net income of unconsolidated
companies................................ 5,845 -- 753 -- 6,598
-------- -------- ---------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTERESTS....... 47,154 (509) 3,344 (1,282) 48,707
Minority interests............................ (4,746) -- -- (364)(E) (5,110)
-------- -------- ---------- -------- --------
NET INCOME (LOSS)............................. 42,408 (509) 3,344 (1,646) 43,597
Preferred dividend(F)......................... (1,575) -- -- (1,800) (3,375)
-------- -------- ---------- -------- --------
Net income applicable to common shareholders.. $ 40,833 $ (509) $ 3,344 $ (3,446) $ 40,222
======== ======== ========== ======== ========
PER COMMON SHARES DATA: (G)
Net Income -- Basic........................... $ .33
========
Net Income -- Dilutive........................ $ .31
========
</TABLE>
See adjustments to Pro Forma Consolidated Statement of Operations on following
page.
F-9
<PAGE> 17
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
ADJUSTMENTS
(DOLLARS IN THOUSANDS)
(A) Reflects Crescent Real Estate Equities Company's unaudited consolidated
historical statement of operations for the three months ended March 31,
1998.
(B) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with the 1998 acquired investments, assuming the investments
were acquired at the beginning of the period.
<TABLE>
<S> <C> <C>
Austin Centre office property............................... 1/23/98
Omni Austin Hotel property(i)............................... 1/23/98
Post Oak Central office property complex.................... 2/13/98
Washington Harbour office properties........................ 2/25/98
Datran Center office property............................... 5/01/98
BP Plaza office property.................................... 6/30/98
Investments in Refrigerated Storage Properties (ii)......... various
(i) Historical operations of the hotel property were adjusted to
reflect the lease payment (base rent and percentage rent)
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) The Company has an indirect 38% non-voting equity investment in two
partnerships that own the Refrigerated Storage Properties.
(C) Decrease as a result of the elimination of third party property management
fees which terminated subsequent to acquisition of certain of the
properties................................................................... $ (132)
========
</TABLE>
F-10
<PAGE> 18
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(D) Net increase as a result of interest costs for long and short-term
financing, as follows, net of repayment with proceeds of the June 1998
Preferred Offering, the April 1998 Unit Investment Trust Offering and the
February 1998 Preferred Offering, 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> <C>
Credit Facility......................... $ 690,000 @ 6.89% $ 47,541
BankBoston Note II...................... 100,000 @ 6.89% 6,890
Note Offering -- 7.125% Notes due
2007.................................. 250,000 @ 7.125% 17,813
Note Offering -- 6.625% Notes due
2002.................................. 150,000 @ 6.625% 9,938
LaSalle Note I.......................... 239,000 @ 7.83% 18,714
LaSalle Note II......................... 161,000 @ 7.79% 12,542
LaSalle Note III........................ 115,000 @ 7.81% 8,982
Chase Manhattan Note.................... 97,123 @ 7.44% 7,226
Cigna Note.............................. 63,500 @ 7.47% 4,743
Metropolitan Life Note II............... 44,831 @ 6.93% 3,107
Metropolitan Life Note III.............. 40,000 @ 7.74% 3,096
Metropolitan Life Note IV............... 7,000 @ 7.11% 498
Northwestern Life Note.................. 26,000 @ 7.66% 1,992
Metropolitan Life Note I................ 12,030 @ 8.88% 1,068
Nomura Funding VI Note.................. 8,666 @ 10.07% 873
Rigney Note............................. 777 @ 8.50% 66
---------- ------------
Total annual amount..................... $2,004,927 $ 145,089
Prorated for three months............... 36,272
Less: Capitalized interest.............. (575)
Historical interest expense............. (34,283)
------------
$ 1,414
========
</TABLE>
<TABLE>
<S> <C>
(E) Reflects adjustment needed to reflect minority partners' weighted average
9.75% 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................................................ $ (364)
========
</TABLE>
(F) Reflects the following:
<TABLE>
<S> <C>
6.75% preferred dividend for the February 1998 Preferred
Offering.................................................. $13,500
-------
$13,500
=======
Prorated for three months................................... $ 3,375
=======
</TABLE>
(G) Reflects net income per share based on 120,066,512 weighted average Common
Shares -- basic and 131,052,493 weighted average Common shares -- diluted
assumed to be outstanding during the three months ended March 31, 1998.
F-11
<PAGE> 19
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CRESCENT REAL
ESTATE EQUITIES 1998
COMPANY 1997 ACQUIRED ACQUISITION 1998 ACQUIRED OTHER PRO FORMA
HISTORICAL(A) INVESTMENTS(B) OF BP PLAZA(C) INVESTMENTS(C) ADJUSTMENTS CONSOLIDATED
--------------- -------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental property............... $430,383 $125,295 $ 3,367 $ 51,094 $ -- $610,139
Interest and other income..... 16,990 -- -- -- 6,363 (D) 23,353
-------- -------- -------- -------- --------- --------
Total revenues........ 447,373 125,295 3,367 51,094 6,363 633,492
-------- -------- -------- -------- --------- --------
EXPENSES:
Real estate taxes............. 44,154 11,277 1,349 5,224 -- 62,004
Repairs and maintenance....... 27,783 13,317 1,303 5,777 -- 48,180
Other rental property
operating.................. 86,931 21,974 1,233 10,179 (283)(E) 118,456
Corporate general and
administrative............. 12,858 -- -- -- (1,578)(F) 12,858
Interest expense.............. 86,441 -- -- -- 56,615 (G) 143,056
Depreciation and
amortization............... 74,426 22,554 2,000 12,092 -- 111,072
Amortization of deferred
financing costs............ 3,499 -- -- -- 539 (H) 4,038
-------- -------- -------- -------- --------- --------
Total expenses........ 336,092 69,122 5,885 33,272 55,293 499,664
-------- -------- -------- -------- --------- --------
Operating income
(loss).............. 111,281 56,173 (2,518) 17,822 (48,930) 133,828
OTHER INCOME:
Equity in net income of
unconsolidated companies... 23,743 10,590 -- 3,011 -- 37,344
-------- -------- -------- -------- --------- --------
INCOME (LOSS) BEFORE MINORITY
INTERESTS..................... 135,024 66,763 (2,518) 20,833 (48,930) 171,172
Minority interests.............. (17,683) -- -- -- (300)(I) (17,983)
-------- -------- -------- -------- --------- --------
NET INCOME (LOSS)............... $117,341 $ 66,763 $ (2,518) $ 20,833 $ (49,230) $153,189
======== ======== ======== ======== ========= ========
Preferred dividend(J)........... (13,500)
--------
Net income applicable to
common shareholders........... $139,689
========
PER COMMON SHARE DATA(K):
Net income -- Basic............. $ 1.16
========
Net income -- Dilutive.......... $ 1.07
========
</TABLE>
See adjustments to Pro Forma Consolidated Statement
of Operations on following page.
F-12
<PAGE> 20
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
ADJUSTMENTS
(DOLLARS IN THOUSANDS)
(A) Reflects Crescent Real Estate Equities Company's audited consolidated
historical statement of operations for the year ended December 31, 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>
<CAPTION>
ACQUISITION
INVESTMENT DATE
---------- -----------
<S> <C>
Greenway II office property................................. 1/17/97
Trammell Crow Center office property........................ 2/28/97
Three Denver office properties.............................. 2/28/97
Carter-Crowley Real Estate Assets........................... 5/09/97
Magellan Real Estate Assets(i).............................. 6/17/97
The Woodlands(ii)(iii)...................................... 7/31/97
Desert Mountain(iv)......................................... 8/29/97
Houston Center mixed-use property complex................... 9/22/97
Four Seasons Hotel -- Houston hotel property(v)............. 9/22/97
Miami Center office property................................ 9/30/97
U.S. Home Building office property.......................... 10/15/97
Bank One Center office property(vi)......................... 10/22/97
Refrigerated Storage Properties(vii)........................ 10/31/97
Fountain Place office property.............................. 11/07/97
Ventana Country Inn hotel property(v)....................... 12/19/97
Energy Centre office property............................... 12/22/97
</TABLE>
(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) 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
partnerships that own the Refrigerated Storage Properties.
F-13
<PAGE> 21
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(C) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with the 1998 acquired investments, assuming the investments
were acquired at the beginning of the period.
<TABLE>
<S> <C> <C> <C>
Austin Centre office property............................... 1/23/98
Omni Austin Hotel property(i)............................... 1/23/98
Post Oak Central office property complex.................... 2/13/98
Washington Harbour office properties........................ 2/25/98
Datran Center office property............................... 5/01/98
BP Plaza office property.................................... 6/30/98
Investments in Refrigerated Storage Properties (ii)......... various
(i) Historical operations of the hotel property were adjusted to reflect
the lease payment (base rent and percentage rent) 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) The Company has an indirect 38% non-voting equity investment in two
partnerships that own the Refrigerated Storage Properties.
</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> <C> <C> <C>
Carter Crowley Notes............................... ($53,365 @ 10%) $ 5,336
Ritz Note.......................................... ($ 8,850 @ 18%) 1,593
COI Note........................................... ($33,924 @ 12%) 4,070
Residential Development Corp Note.................. ($ 7,800 @ 10%) 780
Desert Mountain Note............................... ($23,251 @ 12%) 2,790
-------
Total.............................................. $14,569
Less: Historical interest income................... (8,206)
-------
Total.............................................. $ 6,363
========
(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................................................................... $ (1,578)
========
</TABLE>
F-14
<PAGE> 22
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(G) Net increase as a result of interest costs for long and short-term
financing, as follows, net of repayment with proceeds of the June 1998
Preferred Offering, the April 1998 Unit Investment Trust Offering, the
February 1998 Preferred Offering, the Equity Offering to Merrill Lynch in
December 1997, the October 1997 Equity Offering, the September 1997 Note
Offering, the Equity Offering to UBS in August 1997 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> <C>
Credit Facility......................... $ 690,000 @ 6.89% $ 47,541
BankBoston Note II...................... 100,000 @ 6.89% 6,890
Note Offering -- 7.125% Notes due
2007.................................. 250,000 @ 7.125% 17,813
Note Offering -- 6.625% Notes due
2002.................................. 150,000 @ 6.625% 9,938
LaSalle Note I.......................... 239,000 @ 7.83% 18,714
LaSalle Note II......................... 161,000 @ 7.79% 12,542
LaSalle Note III........................ 115,000 @ 7.81% 8,982
Chase Manhattan Note.................... 97,123 @ 7.44% 7,226
Metropolitan Life Note II............... 44,831 @ 6.93% 3,107
Cigna Note.............................. 63,500 @ 7.47% 4,743
Metropolitan Life Note III.............. 40,000 @ 7.74% 3,096
Metropolitan Life Note IV............... 7,000 @ 7.11% 498
Northwestern Life Note.................. 26,000 @ 7.66% 1,992
Metropolitan Life Note I................ 12,030 @ 8.88% 1,068
Nomura Funding VI Note.................. 8,666 @ 10.07% 873
Rigney Note............................. 777 @ 8.50% 66
---------- ------------
Total annual amount..................... $2,004,927 $ 145,089
Less: Capitalized interest.............. (2,033)
Historical interest expense............. (86,441)
------------
$ 56,615
========
</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
========
</TABLE>
(I) Reflects adjustment needed to reflect minority partners'
weighted average 9.75% 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. $ (300)
========
(J) Reflects the following:
<TABLE>
<S> <C> <C>
6.75% preferred dividend for the February 1998 Preferred
Offering.................................................. 13,500
-------
$ 13,500
========
</TABLE>
(K) Reflects net income per share based on 120,066,512 weighted average Common
Shares -- basic and 130,502,030 weighted average Common Shares -- diluted
assumed to be outstanding during the year ended December 31, 1997.
F-15
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants, dated September 11, 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 report dated June 12, 1998, on BP Plaza 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, No. 333-42417, No.
333-56809, No. 333-47563 and No. 333-57863.
ARTHUR ANDERSEN LLP
Dallas, Texas
September 11, 1998
