CRESCENT REAL ESTATE EQUITIES CO, 8-K, 1998-07-09

CRESCENT REAL ESTATE EQUITIES CO
8-K, 1998-07-09
REAL ESTATE INVESTMENT TRUSTS

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<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): 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
Certain matters discussed within this Form 8-K may be interpreted to be
forward-looking statements within the meaning of the federal securities laws.
Although Crescent Real Estate Equities Company ("Crescent Equities" and,
collectively with its subsidiaries, the "Company") believes that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, there can be no assurance that these expectations will
be realized. Factors that could cause actual results to differ materially from
current expectations include the failure of pending investments to close,
changes in general economic conditions, changes in local real estate conditions,
changes in industries in which the Company's principal tenants compete, the
failure to timely lease unoccupied square footage, the failure to timely release
occupied square footage upon expiration of leases, the inability to generate
sufficient revenues to meet debt service payments and operating expenses, the
unavailability of equity and debt financing. For more detailed information
regarding such factors, see the Form 8-K/A of the Company dated April 17, 1998
and filed June 22, 1998.

ITEM 5. OTHER EVENTS

Probable Acquisition of Properties

On June 30, 1998, the Company reached a binding agreement to acquire
fee simple title to the office properties/complexes of 6701 Tower, Two Town
Center and Woodfield Corporate Center from an unaffiliated entity for an
aggregate purchase price of approximately $464.6 million. Completion of the
acquisition is expected to occur in August 1998, subject to various closing
conditions.

6701 TOWER. 6701 Tower is a 15-story, Class A office property located
in the Culver City submarket of Los Angeles, California. Construction of the
office property was completed in 1987. Situated on a 2.71-acre site, 6701 Tower
contains approximately 321,000 square feet of net rentable area. 6701 Tower has
approximately 882 parking spaces contained within a multi-level, above-ground,
detached parking garage and a single-level, underground, attached parking
garage.

6701 Tower was 83.1% occupied as of March 31, 1998, with a weighted
average full-service rental rate per square foot of $23.04. 6701 Tower is leased
to approximately 17 tenants, with the major tenants having principal businesses
in the industry sectors of professional services, financial services and
media/entertainment. As of March 31, 1998, the weighted average remaining lease
term for 6701 Tower was approximately 2.7 years, and two tenants of 6701 Tower
leased more than 10% of the total net rentable area.

As of March 31, 1998, Blue Shield of California, a financial services
company, leased approximately 67,000 net rentable square feet (approximately 21%
of the net rentable area of 6701 Tower), pursuant to a lease that expires in May
2000. The current base rental rate per square foot is $18.00 and remains in
effect until expiration of the lease. The lease provides for one 5-year renewal
option at 95% of the then-prevailing market rental rate.

As of March 31, 1998, Univision Station Group, Inc., a
media/entertainment company, leased approximately 56,000 net rentable square
feet (approximately 17% of the net rentable area of 6701 Tower), pursuant to a
lease that expires in September 2002. For the majority of the 56,000 net
rentable square feet, the current triple net base rental rate per square foot is
$24.00. The lease provides for free rent during the months of April through
September 2002. The lease provides, with certain limitations, for one 5-year
renewal option at 95% of the then-prevailing market rental rate. The lease also
provides an expansion option for approximately 10,000 net rentable square feet,
at the same rate that is in effect for the original premises, but with free
rent, expense recoveries and parking for the first one-eighth of the expansion
space term.

The Culver City submarket of Los Angeles, California contains 1.8
million square feet of Class A office space, which was approximately 8.2% of Los
Angeles' total Class A office space at March 31, 1998. At March 31, 1998, the
Culver City Class A office space was 87.1% occupied. The above market
information has been provided by Cushman & Wakefield of California, Inc.

The 1997 realty tax rate for real property was $1.11 per $100 of the
$36.7 million assessed value for 6701 Tower. The total amount of tax at this
rate for 1997 was approximately $.4 million.

For the year ended December 31, 1997 and the five months ended May 31,
1998, utilities expense was approximately $.8 million and $.4 million,
respectively and expenses for repairs, maintenance and contract services were
approximately $.8 million and $.3 million, respectively.

The Company does not plan to renovate 6701 Tower, other than
expenditures associated with the routine maintenance of the property.

<PAGE> 3

The following table sets forth the year-end occupancy and average
full-service rental rate per leased square foot (excluding storage space) for
6701 Tower for the year ended December 31, 1997. Information for prior periods
is not available.

<TABLE>
<CAPTION>
AVERAGE FULL-SERVICE
YEAR OCCUPANCY RENTAL RATE(1)
---- --------- --------------
<S> <C> <C>
1997 82.8% $19.00
</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 feet 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
(excluding storage space) for leases in place as of March 31, 1998, for 6701
Tower, for each of the 10 years beginning with the remainder of 1998, assuming
that none of the tenants exercise renewal options and excluding 53,110 square
feet of unleased space.

<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE OF ANNUAL
NET RENTABLE OF LEASED TOTAL ANNUAL FULL-SERVICE
AREA NET RENTABLE ANNUAL FULL-SERVICE RENT PER
NUMBER OF REPRESENTED AREA FULL-SERVICE RENT NET
TENANTS WITH BY 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 5 40,686 15.6% $727,949 15.0% $17.89
1999 3 23,867 9.2 631,467 12.9 26.46
2000 4 110,648 42.4 2,285,366 46.9 20.65
2001 2 10,294 4.0 224,250 4.6 21.78
2002 3 75,227 28.8 1,005,199 20.6 13.36
</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.

TWO TOWN CENTER. Two Town Center is comprised of two 15-story high rise
office buildings, one 5-story mid rise office building, one single-story
multi-tenant retail and restaurant building, a cinema building, and three
free-standing restaurants located in the South Coast Metro submarket of Costa
Mesa, California. Construction of the office property complex was completed
between 1979 and 1983. Situated on a 14.6-acre site, Two Town Center contains
approximately 732,000 square feet of net rentable area. Two Town Center has one
multi-level, detached, above-ground parking structure that in total accommodates
approximately 2,100 cars, and in addition to this parking structure, there are
various surface lots that accommodate approximately 300 additional cars.

Two Town Center was 76.6% occupied as of March 31, 1998, with a
weighted average full-service rental rate per square foot of $22.61. Two Town
Center is leased to approximately 34 tenants, with the major tenants having
principal businesses in the industry sectors of professional services, financial
services and technology. As of March 31, 1998, the weighted average remaining
lease term for Two Town Center was approximately 4.72 years. As of March 31,
1998, one tenant of Two Town Center leased more than 10% of the total
net rentable area.

As of March 31, 1998, Rutan & Tucker, a professional services firm,
leased approximately 95,000 net rentable square feet of office space,
(approximately 13% of the net rentable area of Two Town Center), at a triple net

2
<PAGE> 4
base rental rate of $18.00 per square foot pursuant to a lease that expires in
August 1999. However, subsequent to March 31, 1998, an amendment to the lease
was executed which, during the existing term, provides the tenant with free rent
and expense recoveries from October 1998 through April 1999. This amendment also
extends the term of the lease for a period of ten years, from September 1999 to
August 2009, at a base rental rate of $28.99 per square foot based on 100,088
square feet, increasing to $30.99 per square foot January 1, 2003 and $33.99 per
square foot May 1, 2006 where it remains in effect until expiration. The
amendment provides for one 5-year renewal option at 93% of the then-prevailing
market rental rate.

The South Coast Metro submarket contains 1.0 million square feet of
Class A office space, which was approximately 14.2% of Costa Mesa's total Class
A office space at March 31, 1998. At March 31, 1998, the South Coast Metro Class
A office space was 94.3% occupied. The above market information was provided by
Cushman & Wakefield of California, Inc.

The 1997 realty tax rate for real property was $1.04 per $100 of the
weighted average $92.4 million assessed value of Two Town Center. The total
amount of tax at this rate for 1997 was approximately $1.0 million.

For the year ended December 31, 1997 and the five months ended May 31,
1998, utilities expense was approximately $.9 million and $.3 million,
respectively, and expenses for repairs, maintenance and contract services were
approximately $2.5 million and $1.0 million, respectively.

The Company does not plan to renovate Two Town Center, other than
expenditures associated with the routine maintenance of the property.

The following table sets forth the year-end occupancy and average
full-service rental rate per leased square foot for Two Town Center for the year
ended December 31, 1997. Information for prior periods is not available.

<TABLE>
<CAPTION>
AVERAGE FULL-SERVICE
YEAR OCCUPANCY RENTAL RATE(1)
---- --------- --------------
<S> <C> <C>
1997 93.0% $20.28
</TABLE>

3
<PAGE> 5

The following table sets forth a schedule of lease expirations for leases
in place as of March 31, 1998, for Two Town Center, for each of the 10 years
beginning with the remainder of 1998, assuming that none of the tenants exercise
renewal options and excluding 171,382 square feet of unleased space.

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 8 53,625 9.6% $1,021,730 7.8% $19.05
1999 4 114,469 20.4 2,972,039 22.6 25.96
2000 8 61,640 11.0 1,406,015 10.7 22.81
2001 9 125,235 22.4 2,220,227 16.9 17.73
2002 2 18,614 3.3 438,507 3.3 23.56
2003 2 10,109 1.8 262,730 2.0 25.99
2004 6 94,818 16.9 2,250,876 17.1 23.74
2005 1 1,903 0.3 47,522 0.3 24.97
2006 - - - - - -
2007 - - - - - -
2008 and thereafter 3 80,174 14.3 2,542,593 19.3 31.71

</TABLE>

WOODFIELD CORPORATE CENTER. Woodfield Corporate Center is comprised of
six Class A office properties located in the Schaumburg submarket of Chicago,
Illinois. Construction of the office properties was completed between 1978 and
1986. Situated on a 70-acre site, Woodfield Corporate Center contains
approximately 1,628,000 square feet of net rentable area and two multi-level
above ground parking structures and surface parking which accomodates
approximately 5,400 cars.

Woodfield Corporate Center was 94.4% occupied as of December 31, 1997,
with a weighted average full-service rental rate per square foot of $23.74.
Woodfield Corporate Center is leased to approximately 80 tenants, the major
tenants having principal businesses in the industry sectors of technology,
telemarketing and market research. As of December 31, 1997, the weighted average
remaining lease term for Woodfield Corporate Center tenants was approximately
4.5 years. As of December 31, 1997, three tenants leased 10% or more of the
total net rentable area of the property.

As of December 31, 1997, Advantis/IBM, a technology company, leased
approximately 349,000 net rentable square feet (approximately 21% of the net
rentable area of Woodfield Corporate Center), pursuant to two leases. The
primary lease for approximately 294,000 net rentable square feet originally
expired by its terms in December 1999; however, Advantis/IBM renewed the lease
in January 1998, and the new lease expires in December 2005. The current base
rental rate per square foot for this lease is $26.00, with increases each
January 1, throughout the remainder of the lease. The primary lease provides for
one four-year renewal option at the then-prevailing market rental rate. The
secondary lease is for approximately 55,000 net rentable square feet and expires
in June 1999. The current base rental rate per square foot for this lease is
$25.59. This rate increases to $25.99 on July 1, 1998 and remains in effect
until expiration. The secondary lease does not provide for any renewal options.

4
<PAGE> 6

As of December 31, 1997, Signature Group, a telemarketing company,
leased approximately 287,000 net rentable square feet (approximately 18% of the
net rentable area of Woodfield Corporate Center), pursuant to three leases that
expire in February 2001. The primary lease is for approximately 229,000 net
rentable square feet. The current base rental rate per square foot for this
lease is $17.88 and remains in effect until expiration. The secondary lease is
for approximately 33,000 net rentable square feet. The current base rental rate
per square foot for this lease is $16.34 and remains in effect until expiration.
The third lease is for approximately 25,000 net rentable square feet. The
current base rental rate per square foot for this lease is $15.63 and remains in
effect until expiration. The leases do not provide for any renewal options.

As of December 31, 1997, the A.C. Nielsen Company, a market research
company, leased approximately 205,000 net rentable square feet (approximately
13% of the net rentable area of Woodfield Corporate Center), pursuant to a lease
that expires in December 2004. The current base rental rate per square foot is
$17.33, with various increases each January 1, throughout the remainder of the
lease. The lease provides for two five-year renewal options at 95% of the
then-prevailing market rental rate.

The Schaumburg submarket contains of 10.2 million square feet of Class
A office space, which was approximately 14% of Chicago's total Class A office
space at December 31, 1997. At December 31, 1997, the Schaumburg Class A office
space was 92% occupied, and the average quoted full-service market rental rate
was $24.40 per available square foot. The above submarket information has been
provided by CB Richard Ellis Company.

The 1997 realty tax rate for real property is estimated to be 9.5% of
the total equalized estimated assessed value of $42.9 million for Woodfield
Corporate Center. The total amount of tax for 1997 is not available at this
time.

For the years ended December 31, 1996 and 1997, utilities expense was
approximately $1.6 million and for the four months ended April 30, 1998,
utilities expense was approximately $.4 million. Expenses for repairs,
maintenance and contract services were approximately $3.3 million for both years
and approximately $1.0 for the four months ended April 30, 1998.

The Company does not plan to renovate Woodfield Corporate Center, 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 Woodfield Corporate Center
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 93.1% $22.07
1997 94.4% $22.43
</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 feet for the year or period 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 (excluding January 1998 renewals), for
Woodfield Corporate Center, for each of the 10 years beginning with 1998,
assuming that none of the tenants exercise renewal options and excluding 131,427
square feet of unleased space.

5
<PAGE> 7

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 15 62,175 4.2% $1,564,735 4.2% $25.17
1999 16 418,988 28.1 12,183,307 32.9 29.08
2000 8 40,516 2.7 1,082,511 2.9 26.72
2001 12 349,651 23.4 6,456,263 17.4 18.46
2002 15 259,470 17.3 6,918,353 18.7 26.66
2003 2 8,466 0.5 192,295 0.5 22.71
2004 4 50,091 3.3 1,448,395 3.9 28.92
2005 1 205,024 13.7 4,250,148 11.6 20.73
2006 - - - - - -
2007 1 78,346 5.2 2,146,140 5.8 27.39
2008 and thereafter 1 23,846 1.6 780,420 2.1 32.73
</TABLE>

The aggregate tax basis of depreciable real property and improvements
and personal property for 6701 Tower, Two Town Center and Woodfield
Corporate Center for federal income tax purposes is approximately
$464.6 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.

After reasonable inquiry, the Company is not aware of any material
factors relating to the properties discussed above, other than as discussed in
this report, that would cause the reported financial information for the
properties contained elsewhere in this report not to be necessarily indicative
of the future operating results of the properties.

Acquisition of Property

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

6
<PAGE> 8
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.

7
<PAGE> 9

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.

8
<PAGE> 10

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

(A) FINANCIAL STATEMENTS UNDER RULE 3-14 OF REGULATION S-X

6701 TOWER

Report of Independent Public Accountants

Statement of Excess of Revenues Over Specific Operating
Expenses for the year ended December 31, 1997 and the five
month period ended May 31, 1998.

Notes to Statement.

TWO TOWN CENTER

Report of Independent Public Accountants

Statement of Excess of Revenues Over Specific Operating
Expenses for the year ended December 31, 1997 and the five
month period ended May 31, 1998.

Notes to Statement.

WOODFIELD CORPORATE CENTER

Report of Independent Public Accountants

Statement of Excess of Revenues Over Specific Operating
Expenses for the years ended December 31, 1996 and 1997 and
the four month period ended April 30, 1998.

Notes to Statement.

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.

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 July 6, 1998
(filed herewith).
</TABLE>

<PAGE> 11

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: July 9, 1998 CRESCENT REAL ESTATE EQUITIES COMPANY

By: /s/ Dallas E. Lucas
---------------------------------------
Dallas E. Lucas
Senior Vice President and
Chief Financial and
Accounting Officer

10
<PAGE> 12

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6701 TOWER

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 Five Month Period Ended May 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . F-3

Notes to Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4

TWO TOWN CENTER

Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Statement of Excess of Revenues Over Specific Operating Expenses for the Year Ended
December 31, 1997 and the Five Month Period Ended May 31, 1998 . . . . . . . . . . . . . . . . . . . . . . F-7

Notes to Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

WOODFIELD CORPORATE CENTER

Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-11

Statement of Excess of Revenues Over Specific Operating Expenses for the Years Ended
December 31, 1996 and 1997 and the Four Month Period Ended April 30, 1998 . . . . . . . . . . . . . . . . . F-12

Notes to Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13

BP PLAZA

Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17

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-18

Notes to Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19

PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)

Pro Forma Consolidated Balance Sheet as of March 31, 1998 and notes thereto . . . . . . . . . . . . . . . F-21

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-24
</TABLE>

F-1
<PAGE> 13

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Crescent Real Estate Equities Limited Partnership:

We have audited the accompanying statement of excess of revenues over specific
operating expenses (as defined in Note 2) of 6701 Tower for the year ended
December 31, 1997. This statement is the responsibility of the Property's
management. Our responsibility is to express an opinion on this statement based
on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement is 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 audit
provides a reasonable basis for our opinion.

In our opinion, the statement referred to above presents fairly, in all material
respects, the excess of revenues over specific operating expenses of 6701 Tower
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.

Dallas, Texas, ARTHUR ANDERSEN LLP
March 13, 1998

F-2
<PAGE> 14

6701 TOWER

STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
December 31, May 31,
1997 1998
---------- ----------
(unaudited)
REVENUES:
<S> <C> <C>
Office rent $4,805,927 $2,145,235
Parking 546,383 288,765
Recoveries 215,602 345,640
Other 55,992 38,256
---------- ----------

5,623,904 2,817,896
---------- ----------

SPECIFIC OPERATING EXPENSES:
Repairs, maintenance, and contract services 843,440 339,831
Real estate taxes 417,810 179,182
Utilities 765,822 374,386
Salaries 400,120 106,852
General and administrative 246,066 141,429
Management fees 172,902 84,476
Insurance 165,765 122,031
---------- ----------

3,011,925 1,348,187
---------- ----------

EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $2,611,979 $1,469,709
========== ==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-3
<PAGE> 15

6701 TOWER

NOTES TO STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES

DECEMBER 31, 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

Description of Property

6701 Tower (the "Property") is a 15-story office tower located in Los Angeles,
California. The Property contains 313,832 rentable square feet as well as
approximately 882 parking spaces contained within a 6-level detached above
ground parking garage and a single level 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. For the year ended December 31, 1997, rental income on the
straight-line basis exceeded actual rental income billed by $536,072.

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 statement of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. This statement is not
intended to be a complete presentation of revenues and operating expenses for
the year ended December 31, 1997, as certain items such as depreciation,
amortization, and interest expense have been excluded since they are not
comparable to the proposed future operations of the Property.

3. PROPERTY MANAGEMENT:

The Property entered into a management agreement with Premisys Real Estate
Services, Inc.(the "Manager") in April 1997. The Manager requires a management
fee of the greater of 2.5% of gross rental receipts, as defined or $15,000 per
month. Total management fees for the year ended December 31, 1997, were
approximately $173,000.

F-4
<PAGE> 16

4. SIGNIFICANT TENANT:

The largest tenant of the Property occupies approximately 67,000 square feet, or
21%, of the total square footage. This lease expires in May 2000. The second
largest tenant of the Property occupies approximately 56,000 square feet, or 18%
of the total square footage. This lease expires in September 2002.

F-5
<PAGE> 17

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Crescent Real Estate Equities Limited Partnership:

We have audited the accompanying statement of excess of revenues over specific
operating expenses (as defined in Note 2) of Two Town Center for the year ended
December 31, 1997. This statement and the supplemental schedule referred to
below are the responsibility of the Property's management. Our responsibility is
to express an opinion on this statement and the supplemental schedule based on
our audit.

In our opinion, the statement referred to above presents fairly, in all material
respects, the excess of revenues over specific operating expenses of Two Town
Center for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic statement
taken as a whole. The supplemental schedule included on page 4 is presented for
the purposes of additional analysis and is not a required part of the basic
statement. This information has been subjected to the auditing procedures
applied in our audit of the basic statement and, in our opinion, is fairly
stated in all material respects in relation to the basic statement taken as a
whole.

Dallas, Texas, ARTHUR ANDERSEN LLP
March 11, 1998

F-6
<PAGE> 18

TWO TOWN CENTER

STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
December 31, May 31,
1997 1998
----------- -----------
(unaudited)

REVENUES:
<S> <C> <C>
Office rent $ 7,947,821 $ 3,061,579
Retail rent 693,050 290,157
Parking 1,021,120 398,990
Recoveries 5,165,445 2,029,365
Other 79,972 15,152
----------- -----------

14,907,408 5,795,243
----------- -----------

SPECIFIC OPERATING EXPENSES:
Repairs, maintenance, and contract services 2,482,758 967,436
Real estate taxes 964,595 457,682
Utilities 855,013 255,926
Salaries 229,767 73,343
General and administrative 240,022 65,958
Management fees 432,203 173,695
Insurance 329,661 105,509
----------- -----------

5,534,019 2,099,549
----------- -----------

EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $ 9,373,389 $ 3,695,694
=========== ===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-7
<PAGE> 19

TWO TOWN CENTER

NOTES TO STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES

DECEMBER 31, 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

Description of Property

Two Town Center (the "Property") is comprised of the following asset group
located in Costa Mesa, California.

<TABLE>
<CAPTION>
Asset Type Square Feet/No. of Units
- ----- ---- ------------------------
<S> <C> <C>
Great Western Bank Tower Office 305,872 sq. ft.
Comerica Bank Tower Office 304,984 sq. ft.
Bank of America Building Office 66,142 sq. ft.

655 Anton Boulevard Retail 7,345 sq. ft.
TGI Friday's Retail 8,345 sq. ft.
El Torito Grill Retail 11,300 sq. ft.
Jerry's Famous Deli Retail 9,421 sq. ft.
Edwards Cinema Retail 18,560 sq. ft.

Multi-story garage Parking 2,137 spaces
Surface lots Parking 291 spaces
</TABLE>

Use of Estimates

The preparation of the statement 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

Recoveries

A portion of the operating expenses are charged back to tenants on a monthly
basis based upon estimated expenses. These charges are adjusted at period-end,
based upon actual expenses.

F-8
<PAGE> 20

2. BASIS OF ACCOUNTING:

The accompanying statement of excess of revenues over specific operating
expenses is presented on the accrual basis of accounting. This statement is not
intended to be a complete presentation of revenues and operating expenses for
the year ended December 31, 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:

The Property entered into a management agreement with South Coast Plaza (the
"Manager") in March 1981. The Manager requires a management fee of 3% of gross
receipts, as defined. Total management fees for the year ended December 31,
1997, were approximately $432,000.

4. SIGNIFICANT TENANTS:

The largest tenant of the Property occupies approximately 96,000 square feet, or
13.1% of the total rentable square footage. Approximately 99% of this lease
expires in August 1999, with the remainder being month-to-month storage. There
are no further individual tenants that occupy more than 10% of the total
rentable square footage of the Property as of December 31, 1997.

F-9
<PAGE> 21
SCHEDULE I

TWO TOWN CENTER

STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES BY ASSET

FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
Bank of
Great Western Comerica America 655 Anton El Torito
Bank Tower Bank Tower Building Building Grill TGI Friday's
------------- ------------ ------------ ------------ ------------ ------------

<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Office rent $ 3,468,092 $ 3,857,430 $ 622,299 $ -- $ -- $ --
Retail rent -- -- -- 126,874 193,982 144,922
Parking -- -- -- -- -- --
Recoveries 1,334,790 1,360,807 247,287 33,965 55,741 12,128
Other 21,630 33,215 4,171 673 73 103
------------ ------------ ------------ ------------ ------------ ------------

4,824,512 5,251,452 873,757 161,512 249,796 157,153
------------ ------------ ------------ ------------ ------------ ------------

SPECIFIC OPERATING EXPENSES:
Repairs, maintenance, and contract
services 742,184 747,474 141,519 8,874 16,303 300
Real estate taxes 220,465 215,376 57,362 10,200 28,711 9,487
Parking garage expenses -- -- -- -- -- --
Utilities 263,717 267,147 54,469 9,838 -- --
Salaries -- -- -- -- -- --
General and administrative 25,000(C) 93 -- -- -- --
Management fees -- -- -- -- -- --
Insurance 89,991 88,144 21,550 2,332 2,904 2,348
------------ ------------ ------------ ------------ ------------ ------------

1,341,357 1,318,234 274,900 31,244 47,918 12,135
------------ ------------ ------------ ------------ ------------ ------------

EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $ 3,483,155 $ 3,933,218 $ 598,857 $ 130,268 $ 201,878 $ 145,018
============ ============ ============ ============ ============ ============

Jerry's
Famous Edwards Parking Central Common
Deli Cinema Structure Plant Area
------------ ------------ ------------ ------------ ------------

<S> <C> <C> <C> <C> <C>
REVENUES:
Office rent $ -- $ -- $ -- $ -- $ --
Retail rent 78,792 148,480 -- -- --
Parking -- -- 1,021,120 -- --
Recoveries 21,237 30,808 -- -- 2,068,682
Other -- -- -- -- 107
------------ ------------ ------------ ------------ ------------

100,029 179,288 1,021,120 -- 2,068,789
------------ ------------ ------------ ------------ ------------

SPECIFIC OPERATING EXPENSES:
Repairs, maintenance, and contract
services 10,888 270 197,205 (213,131)(B) 519,502
Real estate taxes 23,515 24,766 149,484 34,324 190,905
Parking garage expenses -- -- (469,953)(A) -- 781,323
Utilities 432 -- 42,148 172,295 44,967
Salaries -- -- -- -- 180,307
General and administrative -- -- -- -- 91,497
Management fees -- -- -- -- 432,203
Insurance 3,519 4,563 81,116 6,512 26,682
------------ ------------ ------------ ------------ ------------

38,354 29,599 -- -- 2,267,386
------------ ------------ ------------ ------------ ------------

EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $ 61,675 $ 149,689 $ 1,021,120 $ -- $ (198,597)
============ ============ ============ ============ ============

General and Consolidated
Administrative Total
-------------- -------------

<S> <C> <C>
REVENUES:
Office rent $ -- $ 7,947,821
Retail rent -- 693,050
Parking -- 1,021,120
Recoveries -- 5,165,445
Other 20,000 79,972
------------ ------------

20,000 14,907,408
------------ ------------

SPECIFIC OPERATING EXPENSES:
Repairs, maintenance, and contract
services -- 2,171,388
Real estate taxes -- 964,595
Parking garage expenses -- 311,370 (D)
Utilities -- 855,013
Salaries 49,460 229,767
General and administrative 123,432 240,022
Management fees -- 432,203
Insurance -- 329,661
------------ ------------

172,892 5,534,019
------------ ------------

EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $ (152,892) $ 9,373,389
============ ============
</TABLE>

(A) Amount represents allocation to common area for inclusion in recovery
calculation.
(B) Amount represents allocations to the following individual properties for
inclusion in recovery calculation: Great Western Bank Tower, Comerica Bank
Tower, Bank of America Building, 655 Anton Building, El Torito Grill and
Jerry's Famous Deli.
(C) Amount represents Bad Debt Expense.
(D) In Consolidated Statement, amount is included in Repairs, Maintenance, and
Contract Services.

F-10
<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 Woodfield Corporate Center for the
years ended December 31, 1996 and 1997. These statements and the supplemental
schedule referred to below 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 Woodfield
Corporate Center for the years ended December 31, 1996 and 1997, in conformity
with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
statements taken as a whole. The supplemental schedules I and II are presented
for the purpose of additional analysis and are not a required part of the basic
statements. This information has been subjected to the auditing procedures
applied in our audits of the basic statements and, in our opinion, is fairly
stated in all material respects in relation to the basic statement taken as a
whole.

ARTHUR ANDERSEN LLP

Dallas, Texas,
January 23, 1998

F-11
<PAGE> 23

WOODFIELD CORPORATE CENTER

STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
December 31
--------------------------- April 30,
1996 1997 1998
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Rent $17,115,052 $17,826,769 $ 5,763,505
Parking 9,150 28,913 7,150
Recoveries 14,571,244 14,924,812 5,385,893
Other 418,869 264,664 111,911
----------- ----------- -----------

32,114,315 33,045,158 11,268,459
----------- ----------- -----------

SPECIFIC OPERATING EXPENSES:
Real estate taxes 8,475,556 8,566,161 3,020,180
Utilities 1,550,737 1,624,655 417,873
Repairs, maintenance, and contract services 3,252,495 3,296,833 983,758
Salaries 1,623,915 1,771,215 539,452
General and administrative 331,334 301,680 38,462
Management fees 491,064 504,881 156,394
Insurance 287,952 278,455 106,304
----------- ----------- -----------

16,013,053 16,343,880 5,262,423
----------- ----------- -----------

EXCESS OF REVENUES OVER SPECIFIC
OPERATING EXPENSES $16,101,262 $16,701,278 $ 6,006,036
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-12
<PAGE> 24

WOODFIELD CORPORATE CENTER

NOTES TO STATEMENTS OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES

DECEMBER 31, 1996 AND 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

Description of Property

Woodfield Corporate Center (the "Property") is a six office tower development in
Schaumberg, Illinois. The Property contains approximately 1,628,000 rentable
square feet and includes three above ground parking garages.

Use of Estimates

Rental Income and Deferred Rent Concessions

Recoveries

A portion of the operating expenses are 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 years ended December 31, 1996 and 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.

Each building is identified by its street address on North Martingale Road on
Schedules I and II. For financial reporting purposes, buildings 150 and 200 have
been combined on Schedules I and II as these buildings share a common area and a
parking garage. Buildings 425 and 475 have also been combined as they share a
common area and a parking garage. Building 231 is leased to a single tenant,
which pays most of the operating costs of this building directly.

F-13
<PAGE> 25

3. PROPERTY MANAGEMENT:

U.S. Equities Realty, Inc. (the "Manager"), has had an arrangement to manage the
Property since August 1992. For buildings 150/200, 300, and 425/475, the Manager
requires a fee of 1.5% of the first $20 million collected, 1.75% of the next $10
million collected, and 2% of all additional collections. For building 231, the
manager requires a fee of 1% of annual collections. For the years ended December
31, 1996 and 1997, management fees were approximately $491,000 and $505,000,
respectively.

4. SIGNIFICANT TENANTS:

The largest tenant of the Property occupies approximately 349,000 square feet,
or 21% of the total square footage. The majority of this lease expires in
December 2005. The second largest tenant of the Property occupies approximately
287,000 square feet, or 18%, of the total rentable square footage. This lease
expires in February 2001. The third largest tenant occupies approximately
205,000 square feet, or 13% of the total rentable square footage. This lease
expires in December 2004.

F-14
<PAGE> 26

SCHEDULE I
WOODFIELD CORPORATE CENTER

STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES BY ASSET

FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
Consolidated
150/200 231 300 425/475 Total
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rent $ 4,201,670 $ 4,504,480 $ 1,309,513 $ 7,811,106 $17,826,769
Parking 13,450 -- 10,306 5,157 28,913
Recoveries 4,966,804 2,033,590 1,154,143 6,770,275 14,924,812
Other 39,303 7,068 22,425 195,868 264,664
----------- ----------- ----------- ----------- -----------

9,221,227 6,545,138 2,496,387 14,782,406 33,045,158
----------- ----------- ----------- ----------- -----------

SPECIFIC OPERATING EXPENSES
Real estate taxes 2,397,227 1,852,895 475,845 3,840,194 8,566,161
Utilities 675,528 -- 186,755 762,372 1,624,655
Repairs, maintenance,
and contract services 1,136,851 155,714 355,672 1,648,596 3,296,833
Salaries 670,227 -- 268,825 832,163 1,771,215
General and administrative 59,089 6,368 16,899 219,324 301,680
Management fees 148,499 54,900 40,104 261,378 504,881
Insurance 106,966 11,716 29,182 130,591 278,455
----------- ----------- ----------- ----------- -----------

5,194,387 2,081,593 1,373,282 7,694,618 16,343,880
----------- ----------- ----------- ----------- -----------

EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES $ 4,026,840 $ 4,463,545 $ 1,123,105 $ 7,087,788 $16,701,278
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-15
<PAGE> 27

SCHEDULE II

WOODFIELD CORPORATE CENTER

STATEMENT OF EXCESS OF REVENUES
OVER SPECIFIC OPERATING EXPENSES BY ASSET

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
Consolidated
150/200 231 300 425/475 Total
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rent $ 4,077,211 $ 4,353,699 $ 1,127,282 $ 7,556,860 $17,115,052
Parking 3,600 -- 2,850 2,700 9,150
Recoveries 4,815,890 2,034,522 1,188,058 6,532,774 14,571,244
Other 101,632 36,330 88,100 192,807 418,869
----------- ----------- ----------- ----------- -----------

8,998,333 6,424,551 2,406,290 14,285,141 32,114,315
----------- ----------- ----------- ----------- -----------

SPECIFIC OPERATING EXPENSES
Real estate taxes 2,387,762 1,833,294 497,106 3,757,394 8,475,556
Utilities 659,889 -- 156,861 733,987 1,550,737
Repairs, maintenance, and contract services 1,128,121 131,840 461,724 1,530,810 3,252,495
Salaries 645,095 -- 182,122 796,698 1,623,915
General and administrative 56,912 4,545 17,207 252,670 331,334
Management fees 131,761 54,360 54,319 250,624 491,064
Insurance 108,717 11,608 31,072 136,555 287,952
----------- ----------- ----------- ----------- -----------

5,118,257 2,035,647 1,400,411 7,458,738 16,013,053
----------- ----------- ----------- ----------- -----------

EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES $ 3,880,076 $ 4,388,904 $ 1,005,879 $ 6,826,403 $16,101,262
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-16
<PAGE> 28

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-17
<PAGE> 29

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-18
<PAGE> 30

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

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-19
<PAGE> 31

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-20
<PAGE> 32

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 ("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 Warehouse partnerships ,
(ix) Property acquisitions and pending property acquisitions, other investments
and related financing and share issuances during 1997 and 1998, and (ix)
proposed acquisition of a corporation that owns primarily four full-service
casino/hotels and two riverboat casinos and related financing, including
$1,035,200 for refinancing and/or assumption of indebtedness, and associated
refinancing and transaction costs, in connection with the merger with Station.

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-21
<PAGE> 33

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 $2,349,103(B) $6,226,116
Less -- accumulated depreciation.............. (302,826) -- (302,826)
---------- ---------- ----------
Net investment in real estate....... 3,574,187 2,349,103 5,923,290
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 $2,498,313 $7,090,041
========== ========== ==========

LIABILITIES

Borrowings under Credit Facility.............. $ 457,000 $ 393,000(E) $ 850,000
Notes payable................................. 1,517,927 1,135,293(F) 2,653,220
Accounts payable, accrued expenses and other
liabilities................................. 79,222 -- 79,222
---------- ---------- ----------
Total liabilities................... 2,054,149 1,528,293 3,582,442
---------- ---------- ----------

MINORITY INTERESTS
Operating partnership....................... 121,806 5,500(G) 127,306
Investment joint ventures................... 27,815 -- 27,815
---------- ---------- ----------
Total minority interests............ 149,621 5,500 155,121
---------- ---------- ----------
SHAREHOLDER'S EQUITY
7% Series B convertible preferred shares.... -- 103,500 103,500
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........................ 1,186 179 1,365
Additional paid-in capital.................. 2,248,628 635,841 2,884,469
Deferred compensation on restricted shares.. (281) -- (281)
Retained deficit............................ (61,575) -- (61,575)
---------- ---------- ----------
Total shareholder's equity.......... 2,387,958 964,520(H) 3,352,478
---------- ---------- ----------
Total liabilities and shareholders'
equity............................ $4,591,728 $2,498,313 $7,090,041
========== ========== ==========
</TABLE>
See accompanying notes to Pro Forma Consolidated Balance Sheet.

F-22
<PAGE> 34
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
Pending acquisition of the Prudential office property
portfolio................................................. 464,593
Pending acquisition of Station's casino/hotel properties.... 1,731,010
----------
$2,349,103
==========
(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 Warehouse
partnerships (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 Warehouse
partnerships.............................................. $ 27,750
Additional investment in Refrigerated Warehouse
partnerships (acquisition of Freezer Services, Inc.)...... 33,050
Additional investment in Refrigerated Warehouse
partnerships (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 Warehouse
partnerships.............................................. $ 27,750
Partial repayment of Credit Facility........................ (44,100)
Borrowings for the acquisition of Datran office property.... 23,500
Additional Investment in Refrigerated Warehouse
partnerships (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
Borrowings for the pending acquisition of the Prudential
office properties portfolio............................... 160,000
----------
$ 393,000
==========
(F) Net increase in notes payable as a result of:
Debt relating to the pending acquisition of Station's
casino/hotel properties................................... $1,035,200
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)
Assumption of secured and unsecured loans as a part of the
pending acquisition of the Prudential office property
portfolio................................................. 217,100
Future loans for pending acquisition of the Prudential
office properties portfolio............................... 85,993
----------
$1,135,293
==========
(G) Increase in minority interest reflects the following:
Operating Partnership units issued in conjunction with the
Investment in Refrigerated Warehouse partnerships
(acquisition of Freezer Services, Inc.)................... $ 4,000
Operating Partnership units issued in conjunction with the
pending acquisition of the Prudential office property
portfolio................................................. 1,500
----------
$ 5,500
==========

(H) Increase reflects the following:
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 Stations's casino/hotel
properties................................................ 592,310
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)
----------
$ 964,520
==========
</TABLE>

F-23
<PAGE> 35
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 1998 PENDING
COMPANY 1998 ACQUISITION ACQUISITION OF
HISTORICAL(A) OF BP PLAZA(B) TWO TOWN CENTER(B)
--------------- ---------------- ------------------
<S> <C> <C> <C>
REVENUES:
Rental property............................. $153,125 $ 983 $ 3,477
Interest and other income................... 8,024 -- --
-------- -------- ---------
Total revenues...................... 161,149 983 3,477
-------- -------- ---------
EXPENSES:
Real estate taxes........................... 16,097 346 275
Repairs and maintenance..................... 8,700 341 580
Other rental property operating............. 29,891 305 405
Corporate general and administrative........ 3,147 -- --
Interest expense............................ 34,283 -- --
Depreciation and amortization............... 26,582 500 962
Amortization of deferred financing
costs.................................... 1,140 -- --
-------- -------- ---------
Total expenses...................... 119,840 1,492 2,222
-------- -------- ---------
Operating income (loss)............. 41,309 (509) 1,255
OTHER INCOME:
Equity in net income of unconsolidated
companies................................ 5,845 -- --
-------- -------- ---------
INCOME (LOSS) BEFORE MINORITY INTERESTS....... 47,154 (509) 1,255
Minority interests............................ (4,746) -- --
-------- -------- ---------
NET INCOME (LOSS)............................. $ 42,408 $ (509) $ 1,255
Preferred dividend(F)......................... (1,575) -- --
-------- -------- ---------
Net income applicable to common shareholders.. $ 40,833 $ (509) $ 1,255
======== ======== =========
PER COMMON SHARES DATA: (G)
Net Income -- Basic...........................

Net Income -- Dilutive........................

1998 PENDING 1998 PENDING 1998 ACQUIRED
ACQUISITION OF ACQUISITION OF AND PENDING OTHER PRO FORMA
6701 TOWER(B) WOODFIELD CENTER(B) INVESTMENTS(B) ADJUSTMENTS CONSOLIDATED
------------- ------------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental property............................. $ 1,691 $ 8,451 $ 53,304 $ -- $221,031
Interest and other income................... -- -- -- -- 8,024
--------- --------- ---------- -------- --------
Total revenues...................... 1,691 8,451 53,304 -- 229,055
--------- --------- ---------- -------- --------
EXPENSES:
Real estate taxes........................... 108 2,265 751 -- 19,842
Repairs and maintenance..................... 204 738 821 -- 11,384
Other rental property operating............. 498 944 1,578 (132)(C) 33,489
Corporate general and administrative........ -- -- -- -- 3,147
Interest expense............................ -- -- -- 28,953(D) 63,236
Depreciation and amortization............... 414 1,527 20,300 -- 50,285
Amortization of deferred financing
costs.................................... -- -- -- -- 1,140
--------- --------- ---------- -------- --------
Total expenses...................... 1,224 5,474 23,450 28,821 182,523
--------- --------- ---------- -------- --------
Operating income (loss)............. 467 2,977 29,854 (28,821) 46,532
OTHER INCOME:
Equity in net income of unconsolidated
companies................................ -- -- 753 -- 6,598
--------- --------- ---------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTERESTS....... 467 2,977 30,607 (28,821) 53,130
Minority interests............................ -- -- -- (226)(E) (4,972)
--------- --------- ---------- -------- --------
NET INCOME (LOSS)............................. $ 467 $ 2,977 $ 30,607 $(29,047) $ 48,158
Preferred dividend(F)......................... -- -- -- (3,611) (5,186)
--------- --------- ---------- -------- --------
Net income applicable to common shareholders.. $ 467 $ 2,977 $ 30,607 $(32,658) $ 42,972
========= ========= ========== ======== ========
PER COMMON SHARES DATA: (G)
Net Income -- Basic........................... $ .31
========
Net Income -- Dilutive........................ $ .29
========

See adjustments to Pro Forma Consolidated Statement of Operations on following page.
</TABLE>
F-24
<PAGE> 36

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 and pending 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 Warehouse partnerships (iii).... various
Prudential office property portfolio........................ pending
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)
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 estimated lease payment using the historical operating
results of the casino/hotel properties for the quarter ended March 31,
1998. Current negotiations provide for a lease payment equal to 98% of
Station's operating income for the three months ended March 31, 1998,
plus depreciation, amortization, preopening expenses for the three
month period, and a historical equipment rental lease payment which
will be eliminated upon consummation of the Company's Merger with
Station ("Adjusted Operating Income"). The definitive terms of the
lease agreement have not yet been finalized. The following reflects
the components of the calculation of Adjusted Operating Income.
Operating income............................................ $ 27,684
Adjusted for depreciation and amortization.................. 17,019
Elimination of historical equipment rental lease payment, as
a result of the Company's Merger with Stations.............. 2,063
--------
Adjusted Operating Income................................... $ 46,766
98% of Adjusted Operating Income............................ $ 45,831

(iii) The company has an indirect 38% non-voting equity investment in two
partnerships that own the refrigerated warehouse 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-25
<PAGE> 37
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 pending 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......................... $ 850,000 @ 6.89% $ 58,565
BankBoston Note II...................... 100,000 @ 6.89% 6,890
Future Loan ............................ 85,993 @ 7.00% 6,020
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
Station's Refinanced Debt............... 1,035,200 @ 7.50% 77,640
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
Unsecured Loan-Prudential office
portfolio............................. 106,000 @ 7.00% 7,420
Secured Loan-Prudential office
portfolio............................. 111,100 @ 7.25% 8,055
---------- ------------
Total annual amount..................... $3,503,220 $ 255,248
Prorated for three months............... 63,811
Less: Capitalized interest.............. (575)
Historical interest expense............. (34,283)
------------
$ 28,953
========
</TABLE>

<TABLE>
<S> <C>
(E) Reflects adjustment needed to reflect minority partners' weighted average
8.67% 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................................................ $ (226)
========
</TABLE>
(F) Reflects the following:

<TABLE>
<S> <C>
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
-------
$20,745
=======
Prorated for three months................................... $ 5,186
=======
</TABLE>

(G) Reflects net income per share based on 136,519,512 weighted average Common
Shares -- basic and 147,968,467 weighted average Common shares -- diluted
assumed to be outstanding during the three months ended March 31, 1998.

F-26
<PAGE> 38
CRESCENT REAL ESTATE EQUITIES COMPANY

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)

CRESCENT REAL 1998 PENDING
ESTATE EQUITIES 1998 ACQUISITION OF 1998 PENDING
COMPANY 1997 ACQUIRED ACQUISITION TWO TOWN ACQUISITION OF
HISTORICAL(A) INVESTMENTS(B) OF BP PLAZA(C) CENTER(C) 6701 TOWER(C)
--------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental property............... $430,383 $125,295 $ 3,367 $ 14,907 $ 5,624
Interest and other income..... 16,990 -- -- -- --
-------- -------- -------- ---------- ----------
Total revenues........ 447,373 125,295 3,367 14,907 5,624
-------- -------- -------- ---------- ----------
EXPENSES:
Real estate taxes............. 44,154 11,277 1,349 965 418
Repairs and maintenance....... 27,783 13,317 1,303 2,483 843
Other rental property
operating.................. 86,931 21,974 1,233 2,087 1,751

Corporate general and
administrative............. 12,858 -- -- -- --
Interest expense.............. 86,441 -- -- -- --
Depreciation and
amortization............... 74,426 22,554 2,000 3,850 1,656
Amortization of deferred
financing costs............ 3,499 -- -- -- --
-------- -------- -------- ---------- ----------
Total expenses........ 336,092 69,122 5,885 9,385 4,668
-------- -------- -------- ---------- ----------
Operating income
(loss).............. 111,281 56,173 (2,518) 5,522 956
OTHER INCOME:
Equity in net income of
unconsolidated companies... 23,743 10,590 (2,518) -- --
-------- -------- -------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY
INTERESTS..................... 135,024 66,763 (2,518) 5,522 956
Minority interests.............. (17,683) -- -- -- --
-------- -------- -------- ---------- ----------
NET INCOME (LOSS)............... $117,341 $ 66,763 $ (2,518) $ 5,522 $ 956
======== ======== ======== ========== ==========
Preferred dividend(J)...........

Net income applicable to
common shareholders...........

PER COMMON SHARE DATA(K):
Net income -- Basic.............

Net income -- Dilutive..........

1998 PENDING 1998 ACQUIRED
ACQUISITION OF AND PENDING OTHER PRO FORMA
WOODFIELD CENTER(C) INVESTMENTS(C) ADJUSTMENTS CONSOLIDATED
------------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Rental property............... $ 33,045 $210,459 $ -- $823,080
Interest and other income..... -- -- 6,363 (D) 23,353
---------- -------- --------- --------
Total revenues........ 33,045 210,459 6,363 846,433
---------- -------- --------- --------
EXPENSES:
Real estate taxes............. 8,566 5,224 -- 71,953
Repairs and maintenance....... 3,297 5,777 -- 54,803
Other rental property
operating.................. 4,480 10,179 (283)(E) 126,774

Corporate general and
administrative............. -- -- (1,578)(F) 12,858
Interest expense.............. -- -- 166,774 (G) 253,215
Depreciation and
amortization............... 6,109 86,366 -- 196,961
Amortization of deferred
financing costs............ -- -- 539 (H) 4,038
---------- -------- --------- --------
Total expenses........ 22,452 107,546 165,452 720,602
---------- -------- --------- --------
Operating income
(loss).............. 10,593 102,913 (159,089) 125,831
OTHER INCOME:
Equity in net income of
unconsolidated companies... -- -- -- 37,344
---------- -------- --------- --------
INCOME (LOSS) BEFORE MINORITY
INTERESTS..................... 10,593 102,913 (159,089) 163,175
Minority interests.............. -- -- 2,226 (I) (15,457)
---------- -------- --------- --------
NET INCOME (LOSS)............... $ 10,593 $102,913 $(156,863) $147,718
========== ======== ========= ========
Preferred dividend(J)........... (20,745)
--------
Net income applicable to
common shareholders........... $126,973
========
PER COMMON SHARE DATA(K):
Net income -- Basic............. $ .93
========
Net income -- Dilutive.......... $ .86
========

</TABLE>

See adjustments to Pro Forma Consolidated Statement of Operations on following
page.

F-27
<PAGE> 39

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 Warehouse Investment(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
corporations that own the refrigerated warehouse properties.

F-28
<PAGE> 40
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 and pending 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 Warehouse partnerships (iii).... various
Prudential office property portfolio........................ pending
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)
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 estimated lease payment using the historical
operating results of the casino/hotel properties for the
twelve months ended December 31, 1997. Current negotia-
tions provide for a lease payment equal to 100% of Station's
operating income for the twelve months ended December 31,
1997, plus depreciation, amortization, preopening expenses,
a one-time restructuring charge for the twelve-month
period, and a historical equipment rental lease
payment which will be eliminated upon consummation of the
Company's Merger with Station ("Adjusted Operating Income").
The definitive terms of the lease agreement have not yet
been finalized. The following reflects the components
of the calculation of Adjusted Operating Income.
Operating income............................................ $ 46,467
Adjusted for depreciation, amortization, preopening expenses
and a one-time restructuring charge....................... 108,719
Elimination of historical equipment rental lease payment, as
a result of the Company's Merger with Station............. 4,178
--------
Adjusted Operating Income................................... $159,364
========
(iii) The company has an indirect 38% non-voting equity investment in two
partnerships that own the refrigerated warehouse 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-29
<PAGE> 41
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 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......................... $ 850,000 @ 6.89% $ 58,565
BankBoston Note II...................... 100,000 @ 6.89% 6,890
Future Loan............................. 85,993 @ 7.00% 6,020
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
Station's Refinanced Debt............... 1,035,200 @ 7.50% 77,640
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
Unsecured Loan Prudential............... 106,000 @ 7.00% 7,420
Secured Loan - Prudential................ 111,100 @ 7.25% 8,055
---------- ------------
Total annual amount..................... $3,503,220 $ 255,248
Less: Capitalized interest.............. (2,033)
Historical interest expense............. (86,441)
------------
$166,774
========

</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 8.67% 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. $ 2,226
========

(J) Reflects the following:

<TABLE>
<S> <C> <C>
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
-------
$ 20,745
========
</TABLE>

(K) Reflects net income per share based on 136,519,512 weighted average Common
Shares -- basic and 147,418,004 weighted average Common Shares -- diluted
assumed to be outstanding during the year ended December 31, 1997.

F-30
<PAGE> 42
EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants, dated July 6, 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 March 13, 1998, on 6701 Tower, March 11, 1998, on
Two Town Center, January 23, 1998, on Woodfield Corporate Center and 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, 333-42417, No. 333-56809 and No. 333-57945.

ARTHUR ANDERSEN LLP

Dallas, Texas
July 6, 1998