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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 16, 1998
CRESCENT REAL ESTATE EQUITIES COMPANY
(Exact name of Registrant as specified in its Charter)
Texas 1-13038 52-1862813
(State of Organization) (Commission File Number) (IRS Employer
Identification Number)
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(Address of Principal Executive Offices) (Zip Code)
(817) 877-0477
(Registrant's telephone number, including area code)
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On January 27, 1998, Crescent Real Estate Equities Company (the "Company")
filed a Form 8-K dated January 16, 1998 (the "Original 8-K") containing a
description of certain proposed transactions in Item 5 thereof. The Company
filed a Form 8-K/A on February 13, 1998 to revise and restate the disclosure
contained in Item 5 of the Original 8-K and to provide certain related
financial information in Item 7. This Form 8-K/A further amends the Original
8-K to revise and restate the disclosure contained in Item 5 and to provide
updated pro forma financial statements in Item 7(b).
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Item 5. Other Events.
General. On January 16, 1998, Crescent Real Estate Equities Company
(collectively with its subsidiaries, the "Company") entered into an agreement
and plan of merger (the "Merger Agreement") pursuant to which Station Casinos,
Inc. ("Station") will merge with and into the Company (the "Merger"). The Merger
Agreement also provides for certain alternative structures to facilitate the
combinations of the businesses of the Company and Station. As a result of the
Merger, the Company will acquire the real estate and other assets of Station,
except to the extent operating assets are transferred immediately to the Merger,
as described below. The Merger and the related transactions are expected to be
completed in the fourth quarter of 1998.
It is presently anticipated that, as part of the transactions associated
with the Merger, but immediately prior to the Merger, certain operating assets
and the employees of Station will be transferred to a new limited liability
company (the "Station Lessee"). The Station Lessee will be owned 50% by Crescent
Operating, Inc. or another entity designated by the Company, 24.9% by a newly
formed entity (the "Management Entity") owned by three of the existing directors
of Station (including its Chairman, President and Chief Executive Officer) and
25.1% by a separate newly formed entity owned by other members of Station
management (the "Secondary Management Entity"). It is anticipated that the
Station Lessee will operate four full-service casino/hotels and two riverboat
casinos (collectively, the "Casino/Hotel Properties") currently operated by
Station pursuant to a lease with the Company. The lease will have a 10-year
term, with one five-year renewal option. The lease will provide that the Station
Lessee is required to maintain the properties in good condition at its expense.
The Company will establish and maintain a reserve account to be used under
certain circumstances for the purchase of furniture, fixtures and equipment with
respect to the properties, to be used from time to time to replace furniture,
fixtures and equipment. The lease will provide for base and percentage rent but
the amount of the rent has not yet been determined. Under the lease, the Company
will have a right of first refusal to acquire, and thereafter to include under
the lease, any additional casino and/or hotel properties which the Station
Lessee desires to acquire.
In order to effect the Merger, the Company will issue .466 of its common
shares of beneficial interest, par value $.01 per share (the "Common Shares")
for each share of common stock of Station (including each restricted share) that
is issued and outstanding immediately prior to the Merger. In addition, the
Company will create a new class of preferred shares (the "Preferred Shares")
which will be exchanged, upon consummation of the Merger, for the shares of
$3.50 Convertible Preferred Stock of Station outstanding immediately prior to
the Merger.
The total value of the Merger transaction, including the Company's issuance
of Common Shares and Preferred Shares in connection with consummation of the
Merger and the Company's assumption and/or refinancing of approximately $919
million in existing indebtedness of Station and its subsidiaries, is currently
valued at approximately $1.745 billion.
In connection with the merger, the Company also has agreed to purchase up
to $115 million of a new class of convertible preferred stock of Station prior
to consummation of the merger. The purchase will be made in increments, or in a
single transaction, upon call by Station subject to certain conditions, whether
or not the merger is consummated.
Consummation of the Merger is subject to various conditions, including
Station's receipt of the approval of two-thirds of the holders of both its
common stock and its preferred stock, expiration or termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1974, and the
receipt by the Company and certain of its officers, trust managers and
affiliates of the approvals required under applicable gaming laws. It is
anticipated that the Merger and the associated transactions will be consummated
in the fourth quarter of 1998, although there can be no assurances that the
Merger will be consummated on the terms described herein. Certain individuals
who own in the aggregate approximately 41% of the outstanding capital stock of
Station have agreed to vote in favor of the Merger.
The Company will be entitled to receive a break-up fee of $54 million if
the Merger Agreement is terminated (i) by either the Company or the Board of
Directors of Station if any required approval of the Merger by the holders of
each class of capital stock of Station shall not have been obtained by reason of
the failure to obtain the required vote of stockholders, (ii) by the Company if
the Board of Directors of Station shall not recommend the Merger or shall
recommend a superior proposal or (iii) by the Board of Directors of Station if
it receives a superior proposal that the Company does not match or exceed.
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In connection with the transaction, the Company will enter into a Right of
First Refusal and Noncompetition Agreement with the Station Lessee. Under the
agreement, the Company will grant the Station Lessee a right of first refusal as
to any lease arrangement (a "master lease") for a casino/ hotel property
(defined as real estate on which hotel and casino or other gaming-related
operations are conducted) in which the operators of the business conducted at
the property prior to the date the property is owned or acquired by the Company
will cease to operate the business. The Station Lessee will grant the Company a
right of first refusal to invest, directly or indirectly, (i) in casino/hotel
properties (including the opportunity to provide services related to real estate
or to invest in a hotel property), real estate mortgages, real estate
derivatives, or entities that invest primarily in or have a substantial portion
of their assets in such types of real estate assets or (ii) any other
casino/hotel-related investments that can be structured as investments suitable
for a real estate investment trust (a "REIT"). In addition, without the prior
written consent of the Management Entity, the Company, Crescent Operating, Inc.
and their affiliates may not own, operate or otherwise engage in activities
related to any casino/hotel properties other than casino/hotel properties
operated and leased by the Station Lessee or an entity under its control,
provided that the Company may own a casino/hotel property if a master lease
arrangement already exists at the property, if casino/hotel activities conducted
at the property are incidental to the primary business operations at the
property or if the sellers or operators desire to enter into a master lease
arrangement with the Company. Under the agreement, without the prior written
consent of the Company, neither the Management Entity, the Secondary Management
Entity, nor any of the affiliates of either, may own, operate or otherwise
engage in any activities related to casino/hotel properties that are not
operated and leased by the Station Lessee or an entity under its control.
In connection with the Merger, the Company intends to lease the
Casino/Hotel Properties to the Station Lessee. The Company expects that it will
receive both base rent and a percentage of gross revenues above a certain
minimum level pursuant to the leases, which will expire in 2008, subject to
one, five-year renewal option. Although the rental payments have not yet been
finally determined, it is anticipated that base rental payments will exceed 20%
of current base rental revenues of the Company on an annual basis. As a result
of the percentage rent payments, the Company will participate in the economic
operations of the Casino/Hotel Properties only through its indirect
participation in gross revenues. The amount of rent payable to the Company
under the leases with respect to the Casino/Hotel Properties will depend on the
ability of the Station Lessee to maintain and increase revenues from the
Casino/ Hotel Properties. Accordingly, the Company's results of operations and
its ability to meet its obligations will be affected by (i) changes in general
and local economic conditions and the level of demand for the services of the
Casino/Hotel Properties, a deterioration in either of which could adversely
affect the Company's results of operations and its ability to meet its
obligations, (ii) competition in the casino/hotel industry, an increase in
which could reduce the gross revenues at the Casino/Hotel Properties and
adversely affect the Company's results of operations and its ability to meet
its obligations, (iii) governmental regulation that limits the ability of the
Casino/Hotel Properties to continue conducting their business as presently
conducted, (iv) any decision by the Nevada Gaming Commission or the Missouri
Gaming Commission to suspend, revoke or not reissue a gaming license held by
the Company or one of its subsidiaries or the Station Lessee, which decision
would adversely affect the ability of the Station Lessee to continue making its
lease payments to the Company and (v) the temporary or permanent loss of a
riverboat or dockside facility due to casualty, mechanical failure or severe
weather, which could prevent the Station Lessee from deriving revenue from the
affected location and thereby decrease its ability to make lease payments to
the Company.
Station Properties and Performance. Station is an established
multi-jurisdictional casino/hotel company that owns and operates, through wholly
owned subsidiaries, six distinctly themed casino/hotel properties, four of which
are located in Las Vegas, Nevada, one of which is located in Kansas City,
Missouri and one of which is located in St. Charles, Missouri. The table below
sets forth general information concerning each of the casino/hotel properties
and certain assets currently maintained at each property. Upon consummation of
the Merger, the Company will acquire the casino/hotel properties and, in
addition, will acquire those assets listed in the table which it may acquire
consistent with the Company's status as a REIT. The remaining assets will be
acquired by the Station Lessee. It has not yet been finally determined which
assets listed below will be owned directly by the Company upon consummation of
the Merger. It is expected that each of the Casino/Hotel Properties will
continue to operate all of the assets set forth in the table.
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<TABLE>
<CAPTION>
MISSOURI PROPERTIES
LAS VEGAS PROPERTIES ----------------------------
------------------------------------------------- STATION STATION
PALACE BOULDER TEXAS SUNSET CASINO CASINO
STATION STATION STATION STATION ST. CHARLES KANSAS CITY
------- ------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Date Opened....................... July 1976 August 1994 July 1995 June 1997 May 1994 January 1997
Casino Square Footage............. 84,000 86,000 75,000 80,000 47,000 140,000
Facility Square Footage........... 287,000 337,000 258,000 350,000 175,000 526,000
Slot & Video Poker Machines....... 2,250 3,040 2,020 2,770 1,860 3,100
Gaming Tables..................... 45 39 34 47 75 166
Site Acreage...................... 39 47 47 100 52 171
Hotel Rooms....................... 1,028 300 200 467 -- 200
Parking Spaces.................... 3,700 4,350 4,000 4,200 4,000 5,000
Movie Theaters.................... -- 11-screen 12-screen 13-screen -- 18-screen
Meeting and Convention Space...... 20,000 -- -- -- -- 1,400 seat
square feet Grand Pavilion
Child Care Facility............... -- available -- available -- available
Restaurant Seats.................. 1,225 1,400 1,300 1,400 330 1,700
</TABLE>
A detailed description of the casino/hotel properties operated by Station
is set forth in Appendix A.
Station had net revenues of $290.3 million, $466.9 million, $583.5 million
and $564.8 million for the years ended March 31, 1995, 1996 and 1997 and the
nine months ended December 31, 1997, respectively, and Station had net losses of
$7.9 million and $2.5 million for the year ended March 31, 1995 and the nine
months ended December 31, 1997, respectively, and net income of $25.5 million
and $13.8 million for the years ended March 31, 1996 and 1997, respectively. The
loss during the year ended March 31, 1995 was primarily attributable to
preopening expenses of approximately $19.4 million related to the opening of
Boulder Station and Station Casino St. Charles. The loss during the nine months
ended December 31, 1997 was primarily attributable to pre-opening expenses of
approximately $10.9 million related to the opening of Sunset Station, as well as
increased interest expense and the expiration of option agreements to lease or
acquire land for future development requiring certain option payments to Station
from third parties. In addition, Station's operating income was negatively
impacted by an $18.7 million decline in the operating income generated by
Station Casino St. Charles, which was due primarily to increased competition at
that facility.
Company's Assumption of Station Indebtedness. Station currently has
outstanding approximately $919 million of indebtedness at rates in excess of the
Company's current cost of capital. At the time of the closing of the Merger, as
a result of covenants of certain Station indebtedness, the Company will be
required to refinance an aggregate of approximately $378 million of such
outstanding indebtedness. In addition, the Company intends to finance the
transaction in part by incurring an additional $126 million in debt primarily
related to transaction costs. There are no definitive agreements or arrangements
for any such refinancing or the obtaining of any new debt, and there can be no
assurance that the Company will be able to complete the refinancing or obtain
the necessary financing or that the terms thereof will be favorable to the
Company.
Station Competition. The casino/hotel industry includes land-based casinos,
dockside casinos, riverboat casinos, casinos located on Indian reservations and
other forms of legalized gaming. There is intense competition among companies in
the casino/hotel industry, many of which have significantly greater resources
than Station. Station primarily competes with other casino/hotel operators in
Las Vegas, Nevada and St. Louis and Kansas City, Missouri, as described below.
To a lesser extent, the casino/hotel properties compete with gaming operations
in other parts of the state of Nevada, such as Reno, Laughlin and Lake Tahoe,
with facilities in Atlantic City, New Jersey and other parts of the world and
with casino gambling on Indian reservations, state-sponsored lotteries,
on-and-off-track pari-mutuel wagering, card parlors and other forms of legalized
gambling.
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Palace Station, Boulder Station, Texas Station and Sunset Station face
competition from all other casinos and hotels in the Las Vegas area, including,
to some degree, from each other. Such competition includes at least eight
casino/hotel properties targeted primarily towards local residents and repeat
visitors, as well as numerous non-hotel gaming facilities targeted towards local
residents. In recent months, several direct competitors to the casino/hotel
properties that cater to the "locals" market have completed major expansion
projects, and other expansions are in progress or are planned. As of September
30, 1997, there are approximately 28 major gaming properties located on or near
the Las Vegas Strip, 14 located in the downtown area and several located in
other areas of Las Vegas. In the past year, one large casino/hotel property has
opened and five major expansions were completed on the Las Vegas Strip. In
addition, as of September 30, 1997, five new casino/hotel properties were under
construction or had been announced, which will add approximately 22,500 rooms to
the Las Vegas area in the near future. The announced expansions and any other
major additions, expansions or enhancements of existing properties or the
construction of new properties by competitors, could have a material adverse
effect on the business of Palace Station, Boulder Station, Texas Station and
Sunset Station. The additional capacity has had little, if any, impact on hotel
occupancy or casino volume to date at Palace Station, Boulder Station or Texas
Station, although there can be no assurance that hotel occupancy or casino
volume will not be adversely affected in the future.
Station Casino St. Charles competes primarily with other gaming operations
in and around St. Louis, Missouri. Currently, there are six facilities operating
in the St. Louis market, including two facilities in Maryland Heights, one of
which opened in March 1997 and caused a significant decline in revenues at
Station Casino St. Charles. Additionally, two of the five competitors operating
in the St. Louis market are located in Illinois, which does not impose a limit
on the size of losses or restrict extension of credit to customers. Gaming also
has been approved by local voters in jurisdictions near St. Louis, including St.
Charles and other cities and counties along the Mississippi and Missouri Rivers.
Station Casino Kansas City competes primarily with other gaming operations in
and around Kansas City, Missouri. Currently, there are five gaming facilities
operating in the Kansas City market. Earlier entrants to the Kansas City market
may have an advantage over Station Casino Kansas City due to their ability to
establish early market share. Gaming has been approved by local voters in
jurisdictions near Kansas City, including St. Joseph (which currently has one
riverboat gaming operation) and other cities and counties along the Missouri
River. Recently, Davis Gaming was selected for investigation for licensure for a
gaming operation which it intends to develop in Boonville, Missouri, a city in
central Missouri near Jefferson City and Columbia, and Mark Twain Casino L.L.C.
was selected for investigation for licensure for a gaming operation which it
intends to develop in LaGrange, Missouri, a city in northeastern Missouri.
Neither area is currently served by a Missouri gaming facility.
Several companies engage in riverboat gaming in states adjacent to
Missouri. Illinois sites, including Alton, East St. Louis and Metropolis, enjoy
certain competitive advantages over Station Casino St. Charles because Illinois,
unlike Missouri, does not impose limits on the size of losses and places fewer
restrictions on the extension of credit to customers. In contrast, Missouri
gaming law provides for a maximum loss of $500 per player on each cruise and
prohibits the extension of credit (except credit cards and checks). Unlike
Illinois gaming law, the Missouri gaming law places no limits on the number of
gaming positions allowed at each site. As of September 30, 1997, Illinois had
approved a total of ten licenses. While riverboats currently are the only
licensed form of casino-style gaming in Illinois and the number of licenses is
restricted to ten, possible future competition may arise if gaming is legalized
in or around Chicago, which was specifically excluded from the legislation
permitting gaming in Illinois.
Station Environmental Matters. Station's operating costs may be affected by
the obligation to pay for the cost of complying with existing environmental
laws, ordinances and regulations, as well as the cost of future legislation.
Station's riverboat facilities are subject to a variety of federal and state
environmental laws and regulations, including The Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Clean Water Act, the
Federal Clean Air Act and the Toxic Substances Control Act. Under these
environmental laws, a current or previous owner or operator of real estate may
be required to investigate and clean up certain hazardous or toxic substances,
asbestos-containing materials, or petroleum product releases at the property,
and may be held liable to a governmental entity or to third parties for property
damage and for investigation and cleanup costs incurred by such parties in
connection with the contamination, which may adversely affect the owner's
ability to sell or lease real estate or to borrow using the real estate as
collateral. Such costs or liabilities could exceed the value of the affected
real estate. Operation of the two riverboat sites must be in conformity with
state and federal clean water requirements, including the Federal Water
Pollution Control Act (the "OPA"). The OPA establishes an extensive regulatory
and liability regime for the protection and clean up of the environment from oil
spills and affects all owners and operators whose vessels operate in United
States waters, which include the Missouri and Mississippi Rivers. The OPA also
requires vessel owners and operators to establish
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and maintain with the U.S. Coast Guard evidence of financial responsibility
sufficient to meet their potential liabilities under the OPA.
Limited environmental site assessments ("ESAs") were conducted at certain
of the casino/hotel properties by an independent environmental engineer at the
time of their initial acquisition by Station. The purpose of the ESAs was to
identify potential sources of contamination or environmental liability for which
the owners and operators of the casino/hotel properties may be responsible. At
least two of Station's properties include protected wetlands areas which have
subjected, and may subject, Station to obligations and liabilities and may limit
the ability of Station to utilize such areas for development. The ESAs did not
reveal, and Station is not aware of, any environmental liability or compliance
concerns that Station believes will have a material adverse effect on Station's
business, assets, results of operations or liquidity. However, Station has not
conducted, and is not aware of, any current or more comprehensive environmental
assessments or compliance audits for any of its properties. As a result, it is
possible that material environmental liabilities or compliance concerns exist of
which Station is currently unaware.
Station Litigation. Station and its subsidiaries are defendants in various
lawsuits relating to routine matters incidental to their business. Management of
Station does not believe that the outcome of such litigation, in the aggregate,
will have a material adverse effect on Station.
A suit seeking status as a class action lawsuit was filed by plaintiff,
William H. Poulos, et al., as class representative, on April 26, 1994, in the
United States District Court, Middle District of Florida, naming 41
manufacturers, distributors and casino operators of video poker and electronic
slot machines, including Station. On May 10, 1994, a lawsuit alleging
substantially identical claims was filed by another plaintiff, William Ahearn,
et al., as class representative, in the United States District Court, Middle
District of Florida, against 48 manufacturers, distributors and casino operators
of video poker and electronic slot machines, including Station and most of the
other major casino/hotel companies. The lawsuits allege that the defendants have
engaged in a course of fraudulent and misleading conduct intended to induce
persons to play such games based on a false belief concerning how the gaming
machines operate, as well as the extent to which there is an opportunity to win.
The two lawsuits have been consolidated into a single action and have been
transferred to the United States District Court for the State of Nevada. On
September 26, 1995, a lawsuit alleging substantially identical claims was filed
by plaintiff, Larry Schreier, et al., as class representative, in the United
States District Court for the District of Nevada, naming 45 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including Station. Motions to dismiss the Poulos/Ahearn and Schreier cases were
filed by the defendants, including Station. On April 17, 1996, the Poulos/Ahearn
lawsuits were dismissed, but plaintiffs were given leave to file Amended
Complaints on or before May 31, 1996. On May 31, 1996, an amended complaint was
filed, naming William H. Poulos, et al., as plaintiff. Defendants filed a motion
to dismiss. On August 15, 1996, the Schreier lawsuit was dismissed with leave to
amend. On September 27, 1996, Schreier filed an amended complaint. The
defendants, including Station, filed motions to dismiss the amended complaint.
In December 1996, the Court consolidated the Poulos/Ahearn, the Schreier and a
third case not involving Station and ordered all pending motions be deemed
withdrawn without prejudice, including the defendants' motions to dismiss the
amended complaints. The plaintiffs filed a consolidated amended complaint on
February 13, 1997. On or about December 19, 1997, the Court issued formal
opinions granting in part and denying in part the defendants' motion to dismiss.
In so doing, the Court ordered plaintiffs to file an amended complaint in
accordance with the Court's orders in January of 1998. Station and all other
defendants continue to deny the allegations contained in the amended complaint
filed on behalf of plaintiffs. The defendants have committed to vigorously
defend all claims and allegations contained in the consolidated action, and
Station does not expect that the lawsuits will have a material adverse effect on
Station's financial position or results of operations.
A suit seeking status as a class action lawsuit was filed by plaintiff
Nicole Anderson, et al., as class representative, on September 24, 1997, in the
United States District Court for the Eastern District of Missouri, Eastern
Division. The lawsuit alleges certain racially based discriminatory action at
Station Casino St. Charles. On or about October 24, 1997, plaintiff filed her
first amended complaint. On November 24, 1997, Station filed its answer to
plaintiff's first amended complaint which denied the allegations contained
therein. Station does not believe the suit has merit and intends to defend
itself vigorously.
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On January 16, 1997, Station's gaming license in Kansas City was formally
issued for its facility, which is located in a man-made basin filled with water
piped in from the surface of the Missouri River. In reliance on numerous
approvals from the Missouri Gaming Commission specific to the configuration and
granted prior to the formal issuance of its gaming license, Station built and
opened the Station Casino Kansas City facility. The license issued to Station
and the resolutions related thereto specifically acknowledge that the Missouri
Gaming Commission had reviewed and approved this configuration. On November 25,
1997, the Supreme Court of Missouri, in a case challenging the gaming licensing
of certain competing operators of Station Casino St. Charles located in Maryland
Heights, Missouri, ruled that gaming may occur only in artificial spaces that
are contiguous to the surface stream of the Missouri and Mississippi Rivers. The
case was remanded to the trial court for a factual determination as to whether
such competing operators meet this requirement.
Based upon this Missouri Supreme Court ruling (the so-called "Akin
Ruling"), the Missouri Gaming Commission attempted to issue preliminary orders
for disciplinary action to all licensees in Missouri that operate gaming
facilities in artificial basins. These preliminary orders started the gaming
license hearing process, which allows the affected licensees to demonstrate that
they are, in fact, contiguous to the surface stream of the Missouri or
Mississippi River. The preliminary orders were challenged by the licensees. The
Circuit Court of Cole County entered writs of prohibition preventing the
Missouri Gaming Commission from proceeding with such hearings under the Missouri
Gaming Commission's existing procedures. The Missouri Gaming Commission is
currently seeking further review of these writs of prohibition in the Missouri
Supreme Court, which has not yet ruled on the matter.
After the Akin Ruling was entered by the Missouri Supreme Court, but before
any further proceedings on remand, the plaintiffs dismissed the Akin case
without prejudice. Therefore, the status of the Akin Ruling is unclear.
On January 16, 1998, Station Casino Kansas City's licenses were renewed for
one year, subject to the satisfactory resolution of the issues raised in the
Akin Ruling. This renewal occurred before any writs of prohibition were entered
preventing the Missouri Gaming Commission from proceeding with hearings
concerning Station Casino Kansas City or any other licensees for alleged
noncompliance with the Akin Ruling. Because of the open questions raised but not
answered in the Akin Ruling, it is not possible to predict what effect, if any,
the Akin Ruling or Missouri Gaming Commission's actions will have on operations
at Station Casino Kansas City.
At this time, based on discussions with Missouri legal counsel, management
of Station believes that it has potentially meritorious defenses in any lawsuits
or administrative actions that are based on the Akin Ruling. Station management
cannot provide any assurance, however, as to whether the Station Casino Kansas
City facility would be found to comply with the guidelines described in the Akin
Ruling, whether it would be permitted to modify the facility to comply with such
standards, or whether Station's legal defenses, legislative alternatives or
other means available to permit the continued use of this current configuration
would succeed. Further, it is unclear, in the event of a determination that the
configuration of Station Casino Kansas City does not comply with the Akin
Ruling, whether Station Casino Kansas City would be able to continue to operate
or whether such findings would result in the temporary or permanent closure of
Station Casino Kansas City. Station cannot provide any assurance that there
would not be a material adverse impact in such an eventuality. Management of
Station does not believe, however, that the Akin Ruling will have a material
adverse impact on the Station Casino St. Charles operations.
A class action lawsuit was filed by plaintiff Stephen B. Small, et al., as
class representative, on November 28, 1997, in the United States District Court
for the Western District of Missouri, naming four gaming operators in Kansas
City, Missouri, including Kansas City Station Corporation. The lawsuit alleges
that the defendants are conducting gaming operations that are not located on the
Missouri River in violation of certain state and federal statutes. On January
28, 1998, Station filed its answer to the complaint denying the allegations
contained therein. Management of Station believes that the claims are without
merit and does not expect that the lawsuit will have a material adverse effect
on Station's financial position or results of operations.
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Station Government Regulation. Station is subject to a variety of
governmental regulations relating to the gaming industry in each state in which
it has operations. Appendix B contains a description of the gaming regulations
to which Station is currently subject and to which the Company or the Station
Lessee will become subject upon consummation of the Merger.
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APPENDIX A
Upon consummation of the proposed Merger with Station Casinos, Inc., the
following Casino/Hotel Properties will be owned by the Company.
Palace Station. Palace Station is situated on approximately 39 acres
located on the west side of Las Vegas, Nevada. The Palace Station complex has
approximately 287,000 square feet of main facility area and features a
turn-of-the-century railroad station theme. The complex includes a 1,028-room
hotel, a 84,000-square foot casino, two swimming pools, 3,700 parking spaces
(including 1,900 spaces in two multi-level parking structures), a 20,000-square
foot banquet and convention center, five full-service restaurants with a total
of over 1,225 seats, five fast-food outlets, a gift shop and a non-gaming video
arcade. The casino offers approximately 2,250 slot and video poker machines, 45
gaming tables, a keno lounge, a poker room, a bingo parlor and a race and sports
book. The hotel features 587 rooms in a modern 21-story tower. The remaining 441
hotel rooms are located in low-rise buildings adjoining the tower and casino.
Palace Station's hotel rooms average approximately 377 square feet.
The Palace Station hotel was opened in 1976 and expanded in 1991. For the
fiscal year ended March 31, 1997 and the nine months ended December 31, 1997,
the average occupancy rate was 95% and 94%, respectively, the average daily rate
was $46 and $44, respectively, and the revenue per available room was $45 and
$42, respectively.
Station owns approximately 26 acres and leases the remaining approximately
13 acres pursuant to five long-term ground leases with unaffiliated third
parties with terms extending from December 2032 to June 2037. The property
currently secures Station's bank facility, and the Company expects to refinance
the bank facility upon consummation of the Merger with unsecured debt. As a
result, the Company expects that its interests in Palace Station will be
unencumbered when acquired. Further, the Company has no knowledge of any default
or encumbrance under any such leases, and Station has advised the Company that
there are no material defaults thereunder. The Company will not be able to
obtain assurances as to such lack of default or encumbrance from such third
parties in connection with the Merger.
Palace Station is master planned for further growth. The master plan
includes a total of 3,000 hotel rooms, approximately 148,000 square feet of
casino space, 3,200 slot machines and 90 table games. Additionally, the expanded
Palace Station would offer approximately 50,000 square feet of rentable banquet
space, a child-care facility, an expanded arcade, expanded retail lease space,
an estimated 5,600 parking spaces, a Las Vegas-style showroom and several new
restaurants, bars and other entertainment amenities. This master plan may be
executed in multiple phases over several years. Currently, there are neither
definitive construction plans nor budgets for any portion of the master-planned
development, and the scope of any project may vary significantly from that which
has been described.
Boulder Station. Boulder Station, which opened in August 1994, is situated
on approximately 47 acres located on the east side of Las Vegas, Nevada. Boulder
Station is located approximately four miles east of the Las Vegas Strip and
approximately four miles southeast of downtown Las Vegas. The Boulder Station
complex has approximately 337,000 square feet of main facility area and, like
Palace Station, features a turn-
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of-the-century railroad station theme. The complex includes a 300-room hotel, an
approximately 86,000-square foot casino, 4,350 parking spaces (including a
1,900-space multi-level parking structure), five full-service restaurants with a
total of over 1,400 seats, several fast-food outlets, a 280-seat entertainment
lounge, eight free-standing bars, a high-quality 11-screen movie theater
complex, a child-care facility, a swimming pool, a non-gaming video arcade and a
gift shop. The casino offers approximately 3,040 slot and video poker machines,
39 gaming tables, a keno lounge, a poker room, a bingo parlor and a race and
sports book. Act III Theaters ("Act III") entered into a 25-year lease agreement
with respect to the Boulder Station movie theater, pursuant to which Act III has
provided all interior theater construction, operates the theaters and pays a
percentage of the monthly gross sales to Station. The lease prohibits Act III
from operating or developing theaters at gaming facilities in Las Vegas other
than Station's facilities and provides the right to participate in future Act
III theater developments at non-gaming facilities in Las Vegas on similar terms.
The Boulder Station hotel was opened in 1994 and expanded in 1995. For the
fiscal year ended March 31, 1997 and the nine months ended December 31, 1997,
the average occupancy rate was 98% and 95%, respectively, the average daily rate
was $53 and $50, respectively, and the revenue per available room was $53 and
$49, respectively.
Station owns approximately 20 acres of the Boulder Station property and
leases the remaining approximately 27 acres from a trust pursuant to a long-term
ground lease. The trustee of such trust is Bank of America NT&SA and the
beneficiary is KB Enterprises, a company owned by Frank J. Fertitta, Jr. and
Victoria K. Fertitta (the "Related Lessor"), the parents of Frank J. Fertitta
III, Chairman of the Board and Chief Executive Officer of Station. The lease has
a maximum term of 65 years, ending in June 2058. Currently, the lease provides
for monthly payments of $125,000 until June 1998. In June 1998 and every ten
years thereafter, the rent will be adjusted to the product of the fair market
value of the land and the greater of (i) the then-prevailing annual rate of
return for comparably situated property or (ii) 8% per year. The rent will be
further adjusted in June 2003 and every ten years thereafter by a cost-of-living
factor. In no event will the rent for any period be less than the immediately
prior period. Pursuant to the ground lease, Station has an option, exercisable
at five-year intervals beginning in June 1998, to purchase the land at fair
market value. The property currently secures Station's bank facility, and the
Operating Partnership expects to refinance the bank facility upon consummation
of the Merger with unsecured debt. As a result, the Company expects that its
interests in Boulder Station will be unencumbered when acquired.
Boulder Station is master planned for further growth. After completion of
the potential master-planned development, Boulder Station would offer 1,500
hotel rooms, 140,000 square feet of casino space with 3,500 slot and video poker
machines and 50 table games, a 23-screen Act III movie theater complex, a
bowling center, several restaurant concepts and additional lease space for food
and retail uses. This master plan may be executed in multiple phases over
several years. Currently, there are neither definitive construction plans nor
budgets for any portion of the master-planned development, and the scope of any
project may vary significantly from that which has been described.
Texas Station. Texas Station, which commenced operations in July 1995, is
situated on approximately 47 acres in North Las Vegas, Nevada. Texas Station has
approximately 258,000 square feet of main facility area in a low-rise complex
plus a six story, 200-room hotel tower and approximately 4,000 parking spaces.
The complex includes a 75,000 square foot casino, five full-service restaurants
with over 1,300 seats, two fast-food outlets, a 132-seat entertainment lounge,
seven additional bars, a 12-screen Act III movie theater complex, a swimming
pool, a non-gaming video arcade and a gift shop. The casino offers approximately
2,020 slot and video poker machines, 34 gaming tables, a keno lounge, a poker
room, a bingo parlor and a race and sports book. Act III entered into a 25-year
lease agreement with respect to the Texas Station Movie Theater with terms
substantially the same as those of the Boulder Station agreement described
above. In December 1996, Station completed construction of a $7 million
multi-level parking structure with approximately 1,500 parking spaces.
The Texas Station hotel was opened in 1995 and expanded in 1996. For the
fiscal year ended March 31, 1997 and the nine months ended December 31, 1997,
the average occupancy rate was 95% and 89%, respectively, the average daily rate
was $52 and $55, respectively, and the revenue per available room was $51 and
$50, respectively.
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Station leases the property from a trust pursuant to a long-term ground
lease. The trustee of such trust is Bank of America NT&SA and the beneficiary of
which is Texas Gambling Hall & Hotel, Inc., an affiliate of the Related Lessor.
The lease has a maximum term of 65 years, ending in May 2060. The lease provides
for monthly rental payments of $150,000 until July 2000. In July 2000, and every
ten years thereafter, the rent will be adjusted to the product of the fair
market value of the land and the greater of (i) the then-prevailing rate of
return being realized for owners of comparable land in Clark County or (ii) 8%
per year. The rent will be further adjusted by a cost-of-living factor after the
first ten years and every ten years thereafter. In no event will the rent for
any period be less than the rent for the immediately prior period. Pursuant to
the ground lease, Station has an option, exercisable at five-year intervals, to
purchase the land at fair market value. The property currently secures Station's
bank facility, and the Operating Partnership expects to refinance the bank
facility upon consummation of the Merger with unsecured debt. As a result, the
Operating Partnership expects that its interests in Texas Station will be
unencumbered when acquired.
The Texas Station master plan would create a complex with 700 hotel rooms,
127,000 square feet of casino space with approximately 3,500 slots and video
poker machines and 50 table games, over 55,000 square feet of banquet and
meeting space, a 24-screen Act III movie theater, 42,000 square feet of space
for the purpose of retail leasing or an entertainment venue, additional arcade
space and a 70-lane bowling alley. This master plan may be executed in multiple
phases over several years. Currently, there are neither definitive construction
plans nor budgets for any portion of the master-planned development, and the
scope of any project may vary significantly from that which has been described.
Sunset Station. Sunset Station, which commenced operations in June 1997, is
located on approximately 100 acres in the Green Valley/Henderson area of Las
Vegas, Nevada. The Sunset Station facility features approximately 350,000 square
feet of main facility area, a 20-story, 467-room hotel tower and 4,200 parking
spaces. The complex includes an 80,000-square foot casino, 2,770 slot and video
poker machines, 47 gaming tables, a keno lounge, a 10-table poker room and a
race and sports book. The complex also includes five full-service restaurants,
with a total of over 1,700 seats, an entertainment lounge, additional bars, a
microbrewery, a gift shop, a non-gaming video arcade, several fast food outlets,
a 13-screen movie theater complex, a child-care facility, an outdoor swimming
pool and an amphitheater. Act III has entered into a 25-year lease agreement
with respect to the movie theater with terms substantially the same as those of
the Boulder Station agreement described above.
The Sunset Station hotel was opened and expanded in 1997. For the period
from the beginning of its operations in June 1997 through December 31, 1997, the
average occupancy rate was 92%, the average daily rate was $58 and the revenue
per available room was $54.
Station leases approximately 48 acres pursuant to a long-term ground lease
with an unaffiliated third party. The lease was entered into in June 1994, and
has a term of 65 years with monthly rental payments of $120,000, adjusted on
each subsequent five-year anniversary by a cost of living factor. On the seventh
anniversary date of the lease, Station has the option to purchase the land for
$23.9 million. The lessor also has an option to sell the land to Station for
$21.8 million on the seventh anniversary of the lease. The remaining portion of
the land consisting of approximately 52 acres, was purchased by Station for
approximately $11 million. The property currently secures Station's bank
facility, and the Company expects to refinance the bank facility upon
consummation of the Merger with unsecured debt. As a result, the Company expects
that its interests in Sunset Station will be unencumbered when acquired.
Further, the Company has no knowledge of any default or encumbrance under the
lease, and Station has advised the Company that there are no material defaults
thereunder. The Company will not be able to obtain assurances as to such lack of
default or encumbrance from such third party in connection with the Merger.
The first phase of master-planned development at Sunset Station includes a
2,000-space covered parking garage, the addition of 11 "Stadium-Style" screens
to the Act III movie theater complex, a 20,000 square foot expansion of the
casino, which will include 400 more slot and video poker machines, a roller
hockey and ice skating arena, a new steakhouse and enhanced conference
facilities. The development is expected to cost approximately $45 million.
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The Sunset Station master-planned development would create a complex with
2,000 hotel rooms, 130,000 square feet of casino space, 60,550 square feet of
banquet and meeting space, a bowling center and additional leasable space for
retail and entertainment venues. This master plan may be executed in phases over
multiple years. No decision has been made as to the timing of Sunset Station's
master plan, and the scope of any project may vary significantly from that which
has been described.
Sunset Station is located on approximately 100 acres, of which only
approximately 70 acres have been developed. Station is currently evaluating
potential development plans for the undeveloped property. Uses for the land
could include a life-style entertainment retail center, as well as the
development of several pads for various build-to-suit retail, restaurant and
entertainment concepts and a 199-gaming machine bar and restaurant. Timing and
definitive plans have not yet been determined for the development.
Station Casino Kansas City. Station Casino Kansas City, which commenced
operations in January 1997, is located on an approximately 171-acre site in
Kansas City, Missouri. The Station Casino Kansas City facility features two
continuously docked gaming vessels situated in a man-made protective basin. The
two gaming facilities feature approximately 140,000 square feet of gaming space
that offers approximately 3,100 slot and video poker machines and 166 gaming
tables and a poker room. The gaming facilities are docked adjacent to a
land-based entertainment facility with approximately 526,000 square feet of main
facility area which includes a 200-room hotel, seven full-service restaurants,
several fast-food outlets, 11 bars and lounges, a 1,400-seat Grand Pavilion
featuring headline entertainment, a child-care facility, a gift shop and parking
for 5,000 vehicles. Act III has entered into a long-term ground lease agreement
with respect to an 18-screen movie theater complex adjacent to the facility. In
addition, Station completed a 5,700-square foot non-gaming video arcade and a
midway operated by Sega Game Works, which was opened with the theater complex in
July 1997.
The Station Casino Kansas City hotel was opened and expanded in 1997. For
the fiscal year ended March 31, 1997 and the nine months ended December 31,
1997, the average occupancy rate was 95% and 89%, respectively, the average
daily rate was $87 and $91, respectively, and the revenue per available room was
$83 and $83, respectively.
Station entered into a joint venture with an unaffiliated third party to
acquire the land on which the Station Casino Kansas City property is located. A
subsidiary of Station leases the site from the joint venture for monthly
payments of $90,000 through the remainder of the lease term. The lease term was
extended to March 31, 2006, with the option to extend the lease for up to eight
renewal periods of ten years each plus one additional period of seven years.
Commencing April 1, 1998, and every anniversary thereafter the rent will be
adjusted by a cost-of-living factor. In connection with the joint venture
agreement, Station received an option that provided for the right to acquire the
joint venture partner's interest in the joint venture. Station has the option to
purchase the interest at any time after April 1, 2002 through April 1, 2011 for
$11.7 million, however, adjusted by a cost-of-living factor of not more than 5%
or less than 2% per annum. Station paid $2.6 million for this option. The
property currently secures Station's bank facility, and, the Company expects to
refinance the bank facility upon consummation of the Merger with unsecured debt.
As a result, the Company expects that its interests in Station Casino Kansas
City will be unencumbered when acquired.
Station Casino Kansas City is master-planned for multi-phased growth
including additional hotel rooms, restaurants, other entertainment facilities, a
parking garage and banquet and meeting space. At the present time, there exist
no definitive plans, designs or budgets for any master-planned expansion.
Station Casino Kansas City is located on approximately 171 acres of land,
of which only approximately 85 acres have been developed. Station is currently
considering entering into options for the development of the remainder of the
real property and is evaluating the sale or lease of certain parcels for the
development of complementary hotel rooms, separate and apart from the existing
hotel. Station is also currently evaluating the development of a significant
retail facility on a portion of the real property. At the current time, no
decisions have been made as to the future use of the property.
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Station Casino St. Charles. Station Casino St. Charles, which commenced
operations in May 1994, is located on 52 acres on the banks of the Missouri
River in St. Charles, Missouri. Station Casino St. Charles is a master-planned
gaming and entertainment complex featuring a historic riverboat theme.
Station Casino St. Charles currently features two gaming vessels, which are
a 292-foot long by 74-foot wide gaming riverboat and a floating two-story,
105,000-square foot gaming and entertainment facility. Station Casino St.
Charles has a 4,000-space five-story parking structure and is accessible via an
elevated roadway which facilitates access during the spring flooding season. The
two current gaming vessels have 47,000 square feet of gaming space with capacity
for 4,000 gaming customers, as well as food and beverage and other related
facilities. Station Casino St. Charles offers approximately 1,860 slot and video
poker machines, 75 gaming tables and a poker room. Station Casino St. Charles
features a 250-seat all-you-can-eat buffet and an 80-seat specialty steakhouse.
In addition to the casinos and restaurants, the facility offers seven bars,
several fast-food outlets, an entertainment lounge and a gift shop.
Station owns the entire approximately 52 acres on which Station Casino St.
Charles is located. The property currently secures Station's bank facility,
however, the Company expects to refinance the bank facility upon consummation of
the Merger with unsecured debt. As a result, the Company expects that its
interests in Station Casino St. Charles will be unencumbered when acquired.
Station Casino St. Charles is master-planned to be a complete gaming and
entertainment destination, similar to Station Casino Kansas City. The St.
Charles master plan includes two new gaming vessels to be located in a recently
completed protective basin contiguous to the Missouri River, a uniquely designed
retail and entertainment complex, a full-service hotel, banquet and meeting
facilities and an additional parking structure. The new gaming vessels will
offer up to a combined 140,000 square feet of gaming space with 3,000 slot
machines and 190 gaming tables. The master-planned entertainment complex is
expected to include a 14-screen Act III movie theater, a 600-seat
Feast-Around-the-World Buffet, a child-care facility and various restaurants and
fast food venues. Station expects to explore opportunities for a third party to
develop and lease certain portions of the entertainment complex. Currently,
there are neither definitive construction plans nor budgets for any portion of
the master-planned development, and the scope of any project may vary
significantly from that which has been described.
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APPENDIX B
NEVADA GAMING REGULATIONS
The ownership and operation of casino gaming facilities, the operation of
gaming device routes and the manufacture, sale and distribution of gaming
devices for use or play in Nevada or for distribution outside of Nevada are
subject to the Nevada Gaming Control Act (the "Nevada Act") and various local
ordinances and regulations, and to the licensing and regulatory control of the
Nevada Commission, the Nevada State Gaming Control Board ("Nevada Board"), and
various other local city and county regulatory agencies (collectively, the
"Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees.
Station is currently registered and found suitable to own the stock of its
subsidiaries that conduct gaming operations (the "Station Gaming Subsidiaries")
at its casino/hotel properties (the "Initial Nevada Casino Properties"). The
Company must receive approval to acquire control of Station through the Merger.
In Nevada, the Company and Crescent Real Estate Equities Limited Partnership, a
Delaware limited partnership (the "Operating Partnership"), which will have an
interest in earnings from gaming operations through the leases with the Station
Lessee (a "Gaming Interest"), are required to be registered and found suitable,
or to be licensed by, the Nevada Gaming Authorities. Station is and the Company
and the Operating Partnership will each be required to be registered by the
Nevada Commission as a publicly traded corporation (a "Registered Corporation").
The Company will also be required to be registered and found suitable to own the
stock of a subsidiary ("DSUB") which will be required to be registered and found
suitable to own the stock of certain Station Gaming Subsidiaries that will be
acquired in the Merger (the "Gaming Subsidiaries"). The General Partner, as the
general partner of the Operating Partnership, will be required to be registered
and licensed and the limited partners of the Operating Partnership may be
required to be licensed or found suitable as limited partners in the discretion
of the Nevada Gaming Authorities. Crescent Operating will also be required to be
registered by the Nevada Commission as a Registered Corporation and Crescent
Operating or such other entity as Crescent Operating establishes to be a limited
partner in the Station Lessee (such subsidiary limited partner, "COI-SUB") will
be required to be registered or licensed as a limited partner of the Station
Lessee. Assuming that Crescent Operating establishes a subsidiary called
Crescent Operating, Ltd. ("COL") to be the general partner of the Station
Lessee, Crescent Operating will also be required to be found suitable to own the
stock of COL, which will be required to be registered or licensed as a general
partner of the Station Lessee. The Management Entity and the Secondary
Management Entity will be required to be registered or licensed as a general
partner and limited partner, respectively, of the Station Lessee. The Station
Lessee will be required to be registered and licensed to own the interests of
its limited liability company gaming subsidiaries (individually, a "Lessee
Gaming Subsidiary" and collectively, the "Lessee Gaming Subsidiaries") under the
terms of the Nevada Act. The Lessee Gaming Subsidiaries will be required to be
licensed to conduct certain gaming operations at the Initial Nevada Casino
Properties. All registrations, approvals, findings of suitability and licenses
required to conduct gaming operations or receive a Gaming Interest are
collectively referred to hereinafter as "Gaming Licenses." Each of the Company,
the Operating Partnership, the General Partner, DSUB, Crescent Operating, COL,
COI-SUB, the Management Entity and the Secondary Management Entity is
individually referred to hereinafter as a "Station Party," and they are
collectively referred to hereinafter as the "Station Parties."
As a Registered Corporation, Station is, and the Company, the Operating
Partnership and Crescent Operating will be required to submit detailed financial
and operating reports to the Nevada Commission and the Nevada Board periodically
and furnish any other information which the Nevada Commission or the
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Nevada Board may require. No person may become a member or holder of an interest
of, or receive any percentage of profits from COL, DSUB, the Gaming
Subsidiaries, the Management Entity, the Secondary Management Entity, the
Station Lessee or the Lessee Gaming Subsidiaries without first obtaining Gaming
Licenses and approvals from the Nevada Gaming Authorities. The Station Parties,
the Station Lessee and the Lessee Gaming Subsidiaries will apply for Gaming
Licenses required in order to engage in gaming activities in Nevada or to have a
Gaming Interest, as applicable. The following regulatory requirements are
currently applicable to Station and the Station Gaming Subsidiaries, and will be
applicable to the Station Parties, the Gaming Subsidiaries, the Station Lessee
and the Lessee Gaming Subsidiaries upon their receipt of all necessary Gaming
Licenses and approvals from the Nevada Gaming Authorities to conduct gaming
operations at the Initial Nevada Casino Properties or to have a Gaming Interest,
as applicable. The Station Parties, the Station Lessee and the Lessee Gaming
Subsidiaries have not yet obtained the Gaming Licenses necessary to conduct
gaming operations in Nevada or to receive a Gaming Interest, as applicable, and
no assurances can be given that such Gaming Licenses will be obtained, or that
they will be obtained on a timely basis.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, a Registered Corporation
or a company which holds a Gaming License, in order to determine whether such
individual is suitable or should be licensed as a business associate of a
Registered Corporation or a gaming licensee. Officers, directors and certain key
employees of the Station Parties, the Station Lessee and the Lessee Gaming
Subsidiaries must file applications with the Nevada Gaming Authorities and will
be required to be licensed or found suitable by the Nevada Gaming Authorities.
Following the consummation of the Merger, officers, directors, trust managers
and key employees of the Station Parties and the Station Lessee who are actively
and directly involved in gaming activities of the Lessee Gaming Subsidiaries may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing for any
cause which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information, followed by a thorough investigation. The applicant for licensing
or a finding of suitability must pay all the costs of the investigation. Changes
in licensed positions must be reported to the Nevada Gaming Authorities and in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director, trust
manager or key employee unsuitable for licensing or unsuitable to continue
having a relationship with the Station Parties, the Station Lessee or the Lessee
Gaming Subsidiaries, the companies involved would have to sever all
relationships with such person. In addition, the Nevada Commission may require
the Station Parties, the Station Lessee or the Lessee Gaming Subsidiaries to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
Station is required, and the Station Parties, the Station Lessee and the
Lessee Gaming Subsidiaries will be required, to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material loans,
leases, sales of securities and similar financing transactions by the Station
Parties, the Station Lessee and the Lessee Gaming Subsidiaries will be required
to be reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by Station Parties,
the Station Lessee or a Lessee Gaming Subsidiary, the Gaming Licenses it holds
could be limited, conditioned, suspended or revoked, subject to compliance with
certain statutory and regulatory procedures. In addition, the Station Parties,
the Station Lessee, the Lessee Gaming Subsidiaries and the persons involved
could be subject to substantial fines for each separate violation of the Nevada
Act at the discretion of the Nevada Commission. Limitation, conditioning or
suspension of the Gaming Licenses of the Station Parties, the Station Lessee or
the Lessee Gaming Subsidiaries or the appointment of a supervisor could (and
revocation of any Gaming License would) materially adversely affect the results
of operations of the Company and the Operating Partnership and their ability to
have Gaming Interests and the gaming operations of the Station Lessee.
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Any beneficial holder of Station's voting securities, regardless of the
number of shares owned, may be, and, at any time following consummation of the
Merger, any beneficial owner of the voting securities of the Company or Crescent
Operating or the limited partnership interests of the Operating Partnership may
be, required to file an application, be investigated, and have its suitability
as a beneficial holder of such voting securities or the limited partnership
interests of the Operating Partnership determined if the Nevada Commission has
reason to believe that such ownership would otherwise be inconsistent with the
declared policies of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.
The Nevada Act requires any person who acquires more than 5% of a
Registered Corporation's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of a Registered Corporation's voting securities apply to the Nevada
Commission for a finding of suitability within thirty days after the Chairman of
the Nevada Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of a Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the Registered Corporation's
corporate charter, bylaws, management, policies or operations of the Registered
Corporation, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determined to be consistent with such investment intent.
If the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the voting securities
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. Station is and, following consummation of the
Merger, the Company, the Operating Partnership and Crescent Operating will be
subject to disciplinary action if, after they receive notice that a person is
unsuitable to be a stockholder or limited partner or to have any other
relationship with Station, the Company, the Operating Partnership or Crescent
Operating, as the case may be, Station, the Company, the Operating Partnership
or Crescent Operating, as the case may be, (i) pays that person any dividend or
interest upon voting securities of such Registered Corporation or any share of
the profits or interest upon any limited partnership interest, (ii) allows that
person, directly or indirectly, any voting right conferred through securities
held by that person, (iii) pays remuneration in any form to that person for
services rendered or otherwise or (iv) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities including if
necessary, the immediate purchase of said voting securities for cash at fair
market value.
The Nevada Commission, in its discretion, may require the holder of any
debt security of a Registered Corporation, including preferred stock, the
Private Notes and the Exchange Notes, to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of approvals if, without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest or any
distribution
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whatsoever; (ii) recognizes any voting right by such unsuitable person in
connection with such securities; (iii) pays the unsuitable person remuneration
in any form; or (iv) makes any payment to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation, or similar
transaction.
Station is, and the Company, the Operating Partnership and Crescent
Operating will be, required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. Station is also, and, following consummation of the
Merger, the Company, the Operating Partnership and Crescent Operating will be,
required to render maximum assistance in determining the identity of the
beneficial owner. The Nevada Commission has the power to require the stock
certificates of Station, and will have the power to require the share or limited
partnership certificates of the Company and the Operating Partnership to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on Station and it
is unknown whether such a requirement will be imposed on the Company, the
Operating Partnership or Crescent Operating.
Station may not, and, following consummation of the Merger, the Company,
the Operating Partnership and Crescent Operating will not be permitted to, make
a public offering of its securities without the prior approval of the Nevada
Commission if the securities or proceeds therefrom are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or to retire or
extend obligations incurred for such purposes. On March 20, 1997, the Nevada
Commission granted Station prior approval to make public offerings for a period
of two years, subject to certain conditions (the "Shelf Approval"). However, the
Shelf Approval may be rescinded for good cause without prior notice upon the
issuance of an interlocutory stop order by the Chairman of the Nevada Board and
must be renewed at the end of the two-year approval period. The Shelf Approval
also applies to any affiliated company wholly owned by Station which is a
publicly traded corporation or would thereby become a publicly traded
corporation pursuant to a public offering. The Shelf Approval also includes
approval to place restrictions upon and enter into agreements not to encumber
equity securities of the Station Gaming Subsidiaries, and for the Station Gaming
Subsidiaries to guarantee any security issued by, or to hypothecate their assets
to secure the payment or performance of any obligations issued by, Station or an
affiliate in a public offering under the Shelf Approval.
Changes in control of Station through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby such person obtains control, including the Merger, may not (and,
following consummation of the Merger, in the case of the Company, the Operating
Partnership and Crescent Operating will not be permitted to) occur without the
prior approval of the Nevada Commission. The Merger must be approved by the
Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission and meet a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming licensees, and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; preserve
the beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Nevada Commission
before the Registered Corporation can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
B-4
<PAGE> 19
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operations, fail to
conduct the foreign gaming operations in accordance with the standards of
honesty and integrity required of Nevada gaming operations, engage in activities
that are harmful to the state of Nevada or its ability to collect gaming taxes
and fees, or employ a person in the foreign operations who has been denied a
license or finding of suitability in Nevada on the ground of personal
unsuitability.
NEVADA LIQUOR REGULATIONS
The sale of alcoholic beverages at Palace Station and Boulder Station is
subject to licensing, control and regulation by the City of Las Vegas and the
Clark County Board, respectively. Texas Station is subject to the licensing,
control and regulation of the City of North Las Vegas. Sunset Station is subject
to the licensing, control and regulation of the City of Henderson. All licenses
are revocable and are not transferable. The agencies involved have full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of the Lessee Gaming Subsidiaries and, therefore, impact the ability
of Station Lessee to make lease payments.
MISSOURI GAMING REGULATIONS
Gaming was originally authorized in the State of Missouri and the City of
St. Charles on November 3, 1992, although no governmental action was taken to
enforce or implement the original law. On April 29, 1993, Missouri enacted the
Missouri Gaming Law which replaced the original law and established the Missouri
Gaming Commission, which is responsible for the licensing and regulation of
riverboat gaming in Missouri. The Missouri Gaming Commission has discretion to
approve gaming license applications for both permanently moored ("dockside")
riverboat casinos and powered ("excursion") riverboat casinos. On September 20,
1993, Station filed its initial application with the Missouri Gaming Commission
for either a dockside or a cruising gaming license in St. Charles, Missouri,
which license was issued on May 27, 1994, thereby making Station one of the
first two entrants in the Missouri riverboat gaming market.
However, due to both a January 25, 1994 ruling by the Missouri Supreme
Court, which held that games of chance, including certain games authorized under
the Missouri Gaming Law such as bingo and keno, constitute "lotteries" and were
therefore prohibited under the Missouri Constitution and the failure of a
statewide election on April 5, 1994 to adopt a constitutional amendment that
would have exempted excursion boats and floating facilities from such
constitutional prohibition on lotteries, Station commenced operations with only
those games which involve some element of skill ("limited gaming"), such as
poker and blackjack, that would be constitutionally permissible. The
authorization of both games of skill and games of chance ("full-scale gaming")
occurred on November 9, 1994 with passage by Missouri voters of a constitutional
amendment virtually identical to the measure which was defeated on April 5,
1994. Full-scale gaming became effective on December 9, 1994, and by the end of
December 1994, Station was conducting full-scale gaming on both its excursion
and dockside casinos in St. Charles, Missouri.
On January 16, 1997, the Missouri Gaming commission granted Station Casino
Kansas City a Class A and Class B Excursion Gambling Boat license to own and
operate the River King and River Queen floating gaming facilities.
Opponents of gaming in Missouri have brought several legal challenges to
gaming in the past and may possibly bring similar challenges in the future.
There can be no assurances that any future challenges, if
B-5
<PAGE> 20
brought, would not further interfere with full-scale gaming operations in
Missouri, including the operations of Station and its subsidiaries and,
following consummation of the Merger, the operations of the Station Parties. The
Supreme Court of Missouri has recently ruled, in a case involving certain
competitors of Station Casino St. Charles, that gaming may occur only in
artificial spaces that are contiguous to the surface stream on the Missouri and
Mississippi Rivers. It is not possible to predict the effect this ruling may
have on operations at Station Casino Kansas City. See "Recent
Developments -- Station Casinos, Inc. Litigation" for a more detailed
description of litigation relating to Station's ability to conduct gaming
operations in Missouri.
Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities in Missouri are subject to extensive state and local
regulation. By virtue of its gaming license in Missouri, Station, any
subsidiaries it has or it may form and certain of its officers and employees are
subject to the Missouri Gaming Law and the regulations of the Missouri Gaming
Commission. Upon obtaining Gaming Licenses in Missouri, the Station Parties, the
Station Lessee, the Licensed Gaming Subsidiaries and certain of their officers
and employees will be subject to the laws and regulations of the Missouri Gaming
Commission.
As part of the application and licensing process for a gaming license, the
applicant must submit detailed financial, operating and other reports to the
Missouri Gaming Commission. Each applicant has an ongoing duty to update the
information provided to the Missouri Gaming Commission in the application. In
addition to the information required of the applicant, directors, officers and
other key persons must submit personal disclosure forms which include detailed
personal financial information and are subject to thorough investigations. All
gaming employees must obtain an occupational license issued by the Missouri
Gaming Commission. Operators' licenses are issued through application to the
Missouri Gaming Commission, which requires, among other things, (a)
investigations into an applicant's character, financial responsibility and
experience and (b) that applicants furnish (i) an affirmative action plan for
the hiring and training of minorities and women and (ii) an economic development
or impact report. License fees are a minimum of $50,000 for the initial
application and $25,000 annually thereafter.
The Missouri Gaming Commission may revoke or suspend gaming licenses and
impose other penalties for violation of the Missouri Gaming Law and the rules
and regulations promulgated thereunder, including, without limitation,
forfeiture of all gaming equipment used for improper gaming and fines of up to
three times an operator's highest daily gross adjusted receipts during the
preceding twelve months. The gaming licenses may not be transferred or pledged
as collateral, and the Missouri Gaming Law regulations bar a licensee from
taking any of the following actions without 15 days' prior notice to, and
approval by, the Missouri Gaming Commission: any issuance of an ownership
interest of five percent or more of the issued and outstanding ownership
interests; any private incurrence of debt by the licensee or any holding company
of $1,000,000 or more; and any public issuance of debt by a licensee or its
holding company. The Missouri Gaming Commission may reopen the licensing hearing
of the applicable gaming licensee prior to or following the consummation date to
consider the effect of the transaction on the gaming licensee's suitability. In
addition, the licensee must notify the Missouri Gaming Commission of other
transactions, including the transfer of five percent or more of an ownership
interest in the licensee or holding company, the pledge of five percent or more
of the ownership interest in a licensee or holding company and any transaction
of at least $1,000,000. The restrictions on transfer of ownership apply to
Station and its subsidiaries and, following consummation of the Merger, will
apply to the Station Parties, the Station Lessee and the Licensed Gaming
Subsidiaries.
The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of $2.00 per gaming customer that licensees must
pay to the Missouri Gaming Commission, certain minimum payout requirements, a
20% tax on adjusted gross receipts, prohibitions against providing credit to
gaming customers (except for the use of credit cards and cashing checks) and a
requirement that each licensee reimburse the Missouri Gaming Commission for all
costs of any Missouri Gaming Commission staff necessary to protect the public on
the licensee's riverboat. Licensees must also submit audited quarterly financial
reports to the Commission and pay the associated auditing fees. The Missouri
Gaming Law provides for a loss limit of $500 per person per excursion and
requires licensees to maintain scheduled excursions with boarding and
disembarking times regardless of whether the riverboat cruises. Although the
Missouri Gaming Law provides no limit on the amount of riverboat space that may
be used for gaming, the Missouri Gaming Commission is empowered to impose such
space limitations through the adoption of rules and regulations. Additionally,
B-6
<PAGE> 21
United States Coast Guard safety regulations could affect the amount of
riverboat space that may be devoted to gaming. The Missouri Gaming Law also
includes requirements as to the form of riverboats, which must resemble
Missouri's riverboat history to the extent practicable and include certain
non-gaming amenities. All eleven licensees in Missouri are authorized to conduct
all or a portion of their operations on a dockside basis.
With respect to the availability of dockside gaming, which may be more
profitable than excursion gaming, the Missouri Gaming Commission is empowered to
determine on a site-by-site basis where such gaming is appropriate and shall be
permitted.
B-7
<PAGE> 22
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS UNDER RULE 3-05 OF REGULATION S-X
Previously filed.
(b) PRO FORMA FINANCIAL INFORMATION
Crescent Real Estate Equities Company
Pro Forma Consolidated Balance Sheet as of December 31, 1997
(unaudited) and notes thereto.
Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1997 (unaudited) and notes thereto.
Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1996 (unaudited) and notes thereto.
-10-
<PAGE> 23
(c) EXHIBITS
The following is a list of all exhibits filed as a part of this Form
8-K/A.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
2.01 Agreement and Plan of Merger, dated as of
January 16, 1998, by and between the
Registrant and Station Casinos, Inc.
(previously filed)
23.01 Consent of Arthur Andersen LLP, Independent
Public Accountants, dated April 27, 1998
(filed herewith).
</TABLE>
-11-
<PAGE> 24
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
<S> <C>
Pro Forma Consolidated Balance Sheet as of December 31, 1997 (unaudited)
and notes thereto........................................................... F-3
Pro Forma Consolidated Statement of Operations for the year ended December 31,
1997 (unaudited) and notes thereto.......................................... F-5
Pro Forma Consolidated Statement of Operations for the year ended December 31,
1996 (unaudited) and notes thereto.......................................... F-9
</TABLE>
F-1
<PAGE> 25
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The pro forma information for the year ended December 31, 1997 and 1996
assumes completion, in each case as of January 1, 1996 in determining operating
and other data, of (i) Crescent Real Estate Equities Company's (the "Company")
public offering of its common shares that closed on October 2, 1996 (the
"October 1996 Offering") and the additional public offering of 900,000 common
shares that closed on October 9, 1996 and the use of the net proceeds therefrom
to repay approximately $168,000 of indebtedness and to fund approximately
$289,000 of Property acquisitions in the fourth quarter of 1996 and the first
quarter of 1997, (ii) the Company's public offering of its common shares that
closed on April 28, 1997 (the "April 1997 Offering") and the additional public
offering of 500,000 common shares that closed on May 14, 1997 and the use of the
net proceeds therefrom to fund approximately $593,500 of Property acquisitions
and other investments in the second quarter of 1997, (iii) the Company's
offering of 4,700,000 common shares to an affiliate of Union Bank of Switzerland
(the "UBS Offering") and the use of the net proceeds therefrom to repay
approximately $145,000 of indebtedness under the Credit Facility, (iv) the
Operating Partnership's offering of an aggregate principal amount of $400,000 of
senior notes (the "September 1997 Note Offering") and the use of the net
proceeds therefrom to fund approximately $337,600 of the purchase price of two
Properties and to repay approximately $57,200 of indebtedness incurred under the
Credit Facility and other short-term indebtedness, (v) the Company's public
offering of its Common Shares that closed on October 15, 1997 (the "October
1997 Offering") and the use of the net proceeds therefrom to fund approximately
$45,000 of the purchase price of one Property and to repay approximately
$325,100 of short-term indebtedness and indebtedness incurred under the Credit
Facility, (vi) the Company's offering of 5,375,000 Common Shares to Merrill
Lynch (the "Merrill Offering") and the use of the net proceeds therefrom to
repay approximately $199,900 of indebtedness under the Credit Facility, (vii)
the Company's public offering of 8,000,000 Preferred Shares that closed on
February 19, 1998 ("February 1998 Preferred Offering") and the use of the net
proceeds therefrom to repay approximately $191,500 of indebtedness under the
Credit Facility, (viii) Property acquisitions, other investments and related
financing and share issuances during 1996, 1997 and 1998, and (ix) Pending
Investment and related financing, including $1,054,200 for refinancing and/or
assumption of indebtedness, and associated refinancing and transaction costs, in
connection with the Merger 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-2
<PAGE> 26
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
CRESCENT REAL
ESTATE EQUITIES
COMPANY PRO FORMA PRO FORMA
HISTORICAL(A) ADJUSTMENTS CONSOLIDATED
------------------- ----------- ------------
<S> <C> <C> <C>
Investments in real estate.................... $3,423,130 $2,157,516(B) $5,580,646
Less -- accumulated depreciation.............. (278,194) -- (278,194)
---------- ---------- ----------
Net investment in real estate....... 3,144,936 2,157,516 5,302,452
Cash and cash equivalents..................... 66,622 23,100(C) 89,722
Restricted cash and cash equivalents.......... 41,528 -- 41,528
Accounts receivable, net...................... 30,179 -- 30,179
Deferred rent receivable...................... 39,588 -- 39,588
Investments in real estate mortgages and
equity of unconsolidated companies.......... 601,770 24,100(D) 625,870
Notes receivable, net......................... 156,676 7,800(E) 164,476
Other assets, net............................. 98,681 -- 98,681
---------- ---------- ----------
Total assets........................ $4,179,980 $2,212,516 $6,392,496
========== ========== ==========
LIABILITIES
Borrowings under Credit Facility.............. $ 350,000 $ 143,050(F) $ 493,050
Notes payable................................. 1,360,124 158,100(G) 2,572,424
1,054,200(H)
Accounts payable, accrued expenses and other
liabilities................................. 127,258 (25,000)(I) 102,258
---------- ---------- ----------
Total liabilities................... 1,837,382 1,330,350 3,167,732
---------- ---------- ----------
MINORITY INTERESTS:
Operating partnership....................... 117,103 -- 117,103
Investment in joint ventures................ 28,178 -- 28,178
---------- ---------- ----------
Total minority interests............ 145,281 -- 145,281
---------- ---------- ----------
SHAREHOLDERS' EQUITY:
6.75% Series A convertible cumulative
preferred shares.......................... -- 200,000 200,000
7% Series B convertible preferred shares.... -- 103,500 103,500
Common stock, $.01 par value, authorized
250,000,000 shares, 117,977,907 shares
issued and outstanding at
December 31, 1997......................... 1,179 165 1,344
Additional paid-in capital.................. 2,253,928 578,501 2,832,429
Deferred compensation on restricted shares.. (283) -- (283)
Retained deficit............................ (57,507) -- (57,507)
---------- ---------- ----------
Total shareholders' equity.......... 2,197,317 882,166(J) 3,079,483
---------- ---------- ----------
Total liabilities and shareholders'
equity............................ $4,179,980 $2,212,516 $6,392,496
========== ========== ==========
</TABLE>
See accompanying notes to Pro Forma Consolidated Balance Sheet.
F-3
<PAGE> 27
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's
audited consolidated historical balance sheet as of
December 31, 1997......................................... --
(B) Increase reflects the following:
Acquisition of Austin Centre office property and Omni Austin
Hotel property............................................ $ 96,400
Acquisition of Post Oak Central office property............. 155,250
Acquisition of Washington Harbour office properties......... 161,000
Pending acquisition of Station's casino/hotel properties.... 1,744,866
----------
$2,157,516
==========
(C) Net increase reflects the following:
Borrowings under the Bridge Loan for working capital........ $ 23,100
----------
$ 23,100
==========
(D) Net increase reflects the following:
Additional investments in equity of unconsolidated
companies................................................. $ 24,100
----------
$ 24,100
==========
(E) Increase in notes receivable reflects the following:
Loan to a residential development corporation............... $ 7,800
==========
(F) Net increase in borrowings under the Credit Facility as a
result of:
Acquisition of Austin Centre office property and Omni Austin
Hotel property............................................ $ 96,400
Draw for additional investments in equity of unconsolidated
companies................................................. 21,900
Acquisition of Post Oak Central office property............. 55,250
Partial repayment under the Credit Facility using
proceeds from the February 1998 Preferred Offering...... (191,500)
Acquisition of Washington Harbour office properties......... 161,000
----------
$ 143,050
==========
(G) Net decrease in short-term borrowings as a result of:
Borrowings under the Bridge Loan for working capital and
property taxes............................................ $ 48,100
Borrowings under the Bridge Loan for a residential
development corporation loan and additional investments
in equity of unconsolidated companies..................... 10,000
Borrowings under the Bridge Loan for the acquisition of Post
Oak Central office property............................... 100,000
----------
$ 158,100
==========
(H) Increase in notes payable reflects the following:
Debt relating to the pending acquisition of Station's
casino/hotel properties................................... $1,054,200
----------
$1,054,200
==========
(I) Decrease reflects the following:
Payment of property taxes with borrowings under the Bridge
Loan...................................................... $ (25,000)
==========
(J) 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 Station's casino/hotel
properties................................................ 587,166
Proceeds of the February 1998 Preferred Offering............ 200,000
Estimated cost of the February 1998 Preferred Offering...... (500)
Underwriters' discount and commission for the February 1998
Preferred Offering........................................ (8,000)
----------
$ 882,166
==========
</TABLE>
F-4
<PAGE> 28
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CRESCENT REAL
ESTATE EQUITIES 1998 ACQUIRED
COMPANY 1997 ACQUIRED AND PENDING OTHER PRO FORMA
HISTORICAL(A) INVESTMENTS(B) INVESTMENT(C) ADJUSTMENTS CONSOLIDATED
--------------- -------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental property............... $430,383 $125,295 $205,431 $ -- $761,109
Interest and other income..... 16,990 -- -- 6,361(D) 23,351
-------- -------- -------- --------- --------
Total revenues........ 447,373 125,295 205,431 6,361 784,460
-------- -------- -------- --------- --------
EXPENSES:
Real estate taxes............. 44,154 11,277 4,367 -- 59,798
Repairs and maintenance....... 27,783 13,317 5,066 -- 46,166
Other rental property
operating.................. 86,931 21,974 7,443 (283)(E) 114,487
(1,578)(F)
Corporate general and
administrative............. 12,858 -- -- -- 12,858
Interest expense.............. 86,441 -- -- 138,375(G) 224,816
Depreciation and
amortization............... 74,426 22,554 84,602 -- 181,582
Amortization of deferred
financing costs............ 3,499 -- -- 539(H) 4,038
-------- -------- -------- --------- --------
Total expenses........ 336,092 69,122 101,478 137,053 643,745
-------- -------- -------- --------- --------
Operating income
(loss).............. 111,281 56,173 103,953 (130,692) 140,715
OTHER INCOME:
Equity in net income of
unconsolidated companies... 23,743 10,590 -- -- 34,333
-------- -------- -------- --------- --------
INCOME (LOSS) BEFORE MINORITY
INTERESTS..................... 135,024 66,763 103,953 (130,692) 175,048
Minority interests.............. (17,683) -- -- 1,041(I) (16,642)
-------- -------- -------- --------- --------
NET INCOME (LOSS)............... $117,341 $ 66,763 $103,953 $(129,651) $158,406
======== ======== ======== ========= ========
Preferred dividend(J)........... (20,745)
--------
Net income available to
common shareholders........... $137,661
========
Per common share data:(K)
Net Income--basic............... $ 1.03
========
Net Income--diluted............. $ .99
========
</TABLE>
See adjustments to Pro Forma Consolidated Statement of Operations on following
page.
F-5
<PAGE> 29
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........................... 5/9/97
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.............................. 11/7/97
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, if
applicable) from the hotel lessee to the Company calculated by
applying the rent provisions (as defined in the lease
agreement) to the historical revenues of the hotel property.
(vi) The Company has a 50% equity investment in the partnership that
owns Bank One Center office property.
(vii) The Company has an indirect 38% (after the sale of voting
common stock to COI) non-voting equity investment in two
corporations that own the refrigerated warehouse properties.
F-6
<PAGE> 30
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 investment, 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
Station's casino/hotel properties(ii)....................... pending
(i) Historical operations of the hotel property were adjusted to
reflect the lease payment (base rent and percentage rent, if
applicable) from the hotel lessee to the Company calculated by
applying the rent provisions (as defined in the lease agreement)
to the historical revenues of the hotel property.
(ii) Calculated an estimated lease payment using the historical
operating results of the casino/hotel properties. The
historical operations do not represent stabilized
casino/hotel operations, as two casino/hotel properties
commenced operations in 1997.
</TABLE>
(D) Increase reflects the incremental interest income associated with the
following, assuming all had occurred at the beginning of the period.
<TABLE>
<S> <C> <C> <C> <C>
Carter Crowley Notes............................... ($53,365 @ 10%) $ 5,337
Ritz Note.......................................... ($ 8,850 @ 18%) 1,593
COI Note........................................... ($33,924 @ 12%) 4,071
Residential Development Corp Note.................. ($ 7,800 @ 10%) 780
Desert Mountain Note............................... ($23,251 @ 12%) 2,790
-------
Total.............................................. $14,571
Less: Historical interest income................... (8,210)
-------
Total.............................................. $ 6,361
========
(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-7
<PAGE> 31
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 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......................... $ 493,050 @ 7.14% $ 35,204
BankBoston Note II...................... 100,000 @ 7.14% 7,140
Bridge Loan............................. 250,000 @ 7.14% 17,850
Note Offering -- 6.625% Notes due
2002.................................. 150,000 @ 6.625% 9,938
Note Offering -- 7.125% Notes due
2007.................................. 250,000 @ 7.125% 17,813
Met Life Note........................... 45,000 @ 6.86% 3,087
Chase Manhattan Note.................... 97,123 @ 7.69% 7,469
Station's Refinanced Debt............... 1,054,200 @ 7.50% 79,065
LaSalle Note I.......................... 239,000 @ 7.83% 18,714
LaSalle Note II......................... 161,000 @ 7.79% 12,542
Cigna Note.............................. 63,500 @ 7.47% 4,743
Metropolitan Life Note.................. 12,109 @ 8.88% 1,075
LaSalle Note III........................ 115,000 @ 8.07% 9,281
Nomura Funding VI Note.................. 8,692 @ 10.07% 875
Northwestern Life Note.................. 26,000 @ 7.66% 1,992
Rigney Note............................. 800 @ 8.50% 68
---------- ------------
Total annual amount..................... $3,065,474 $ 226,856
Less: Capitalized interest.............. (2,040)
Historical interest expense............. (86,441)
------------
$138,375
========
</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>
<TABLE>
<S> <C> <C>
(I) Reflects adjustment needed to
reflect minority partners'
weighted average 8.76% interest
in the net income of the
Operating Partnership less
joint venture minority interests
assuming completion of the Equity
Offerings at the beginning of the
period. $ 1,041
========
</TABLE>
(J) Reflects the following:
<TABLE>
<CAPTION>
<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 134,233,392 weighted average common
shares - basic and 138,371,272 weighted average common shares - diluted
assumed to be outstanding during the year ended December 31, 1997.
F-8
<PAGE> 32
CRESCENT REAL ESTATE EQUITIES COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CRESCENT REAL
ESTATE EQUITIES 1998 ACQUIRED
COMPANY 1996 ACQUIRED 1997 ACQUIRED AND PENDING OTHER PRO FORMA
HISTORICAL(A) INVESTMENTS(B) INVESTMENTS(C) INVESTMENT(D) ADJUSTMENTS CONSOLIDATED
--------------- -------------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental property............. $202,003 $89,185 $225,276 $178,823 $ -- $695,287
Interest and other income... 6,858 -- -- -- 14,569(E) 21,427
-------- ------- -------- -------- --------- --------
Total revenues...... 208,861 89,185 225,276 178,823 14,569 716,714
-------- ------- -------- -------- --------- --------
EXPENSES:
Real estate taxes........... 20,606 8,176 18,991 4,552 -- 52,325
Repairs and maintenance..... 12,292 8,403 23,437 5,102 -- 49,234
Other rental property
operating................ 40,915 21,346 39,751 8,312 (1,700)(F) 105,938
(2,686)(G)
Corporate general and
administrative........... 4,674 -- -- -- 5,326(H) 10,000
Interest expense............ 42,926 -- -- -- 182,818(I) 225,744
Depreciation and
amortization............. 40,535 12,727 41,368 84,602 -- 179,232
Amortization of deferred
financing costs.......... 2,812 -- -- -- 719(J) 3,531
-------- ------- -------- -------- --------- --------
Total expenses...... 164,760 50,652 123,547 102,568 184,477 626,004
-------- ------- -------- -------- --------- --------
Operating income
(loss)............ 44,101 38,533 101,729 76,255 (169,908) 90,710
OTHER INCOME:
Equity in net income of
unconsolidated
companies................ 3,850 -- 10,170 -- -- 14,020
-------- ------- -------- -------- --------- --------
INCOME (LOSS) BEFORE MINORITY
INTERESTS AND EXTRAORDINARY
ITEM........................ 47,951 38,533 111,899 76,255 (169,908) 104,730
Minority interests............ (9,510) (533) -- -- (61)(K) (10,104)
-------- ------- -------- -------- --------- --------
INCOME BEFORE EXTRAORDINARY
ITEM........................ 38,441 38,000 111,899 76,255 (169,969) 94,626
Extraordinary item............ (1,306) -- -- -- -- (1,306)
-------- ------- -------- -------- --------- --------
NET INCOME (LOSS)............. $ 37,135 $38,000 $111,899 $ 76,255 $(169,969) $ 93,320
======== ======= ======== ======== ========= ========
Preferred dividend(L)......... (20,745)
--------
Net income available to
common shareholders......... $ 72,575
========
Basic Earnings Per Common
Share:(M)
Income before extraordinary
item...................... $ 0.55
Extraordinary item.......... (0.01)
--------
Net Income.................. $ 0.54
========
Diluted Earnings Per Common
Share:(M)
Income before extraordinary
item...................... $ 0.53
Extraordinary item.......... (0.01)
--------
Net Income.................. $ 0.52
========
</TABLE>
See adjustments to Pro Forma Consolidated Statement of Operations on following
page.
F-9
<PAGE> 33
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, 1996
(B) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with all investments acquired in 1996, assuming the investments
were acquired at the beginning of the period.
<TABLE>
<CAPTION>
ACQUISITION
INVESTMENT DATE
---------- -----------
<S> <C>
3333 Lee Parkway office property............................ 1/5/96
301 Congress Avenue office property(i)...................... 4/18/96
Central Park Plaza office property.......................... 6/13/96
Canyon Ranch -- Tucson resort property(ii).................. 7/26/96
The Woodlands office properties(iii)........................ 7/31/96
Three Westlake Park office property......................... 8/16/96
1615 Poydras office property................................ 8/23/96
Greenway Plaza Portfolio.................................... 10/7/96
Chancellor Park office property............................. 10/24/96
The Woodlands retail properties(iii)........................ 10/31/96
Sonoma Mission Inn & Spa hotel property(ii)................. 11/18/96
Canyon Ranch -- Lenox resort property(ii)................... 12/11/96
160 Spear Street office property............................ 12/13/96
Greenway I and IA office properties......................... 12/18/96
Bank One Tower office property.............................. 12/23/96
Frost Bank Plaza office property............................ 12/27/96
</TABLE>
(i) The Company has a 1% general partner and a 49% limited partner
interest in the partnership that owns 301 Congress Avenue.
(ii) Historical operations of the hotel or/resort property were
adjusted to reflect the lease payment (base rent and percentage
rent, if applicable) from the hotel lessee to the Company
calculated by applying the rent provisions (as defined in the
lease agreement) to the historical revenues of the hotel or
resort property.
(iii) The Company had a 75% interest in the partnership that owns
these properties, in 1996. Currently, the Company has an
approximate 85% interest.
(C) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with all investments acquired in 1997, assuming the investments
were acquired at the beginning of the period.
F-10
<PAGE> 34
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
<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........................... 5/9/97
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.............................. 11/7/97
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, if
applicable) from the hotel lessee to the Company calculated by
applying the rent provisions (as defined in the lease agreement)
to the historical revenues of the hotel property.
(vi) The Company has a 50% equity investment in the partnership that
owns Bank One Center office property.
(vii) The Company has an indirect 38% (after the sale of voting common
stock to COI) non-voting equity investment in two corporations
that own the refrigerated warehouse properties.
(D) Reflects the historical incremental rental income and operating expenses,
including an adjustment for depreciation based on acquisition price
associated with the 1998 acquired and pending investment, assuming the
investments were acquired at the beginning of the period.
<TABLE>
<S> <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
Station's casino/hotel properties(ii)....................... pending
</TABLE>
F-11
<PAGE> 35
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(i) Historical operations of the hotel property were adjusted to
reflect the lease payment (base rent and percentage rent, if
applicable) from the hotel lessee to the Company calculated on a
pro forma basis by applying the rent provisions (as defined in
the lease agreement). Rent provisions attributable to percentage
rent were applied based on gross revenue thresholds, as defined,
in excess of historical revenues.
(ii) Calculated an estimated lease payment using the historical
operating results of the casino/ hotel properties. The historical
operations do not represent stabilized casino/hotel operations,
as two casino/hotel properties commenced operations in 1997.
(E) Increase reflects the incremental interest income associated with the
following, assuming all had occurred at the beginning of the period.
<TABLE>
<S> <C> <C> <C> <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
========
(F) Reflects the elimination of historical ground lessee's
expense, as a result of the Company acquiring the land
underlying Trammell Crow Center, assuming Trammell
Crow Center was acquired at the beginning of the period..... $ (1,700)
========
(G) Decrease as a result of the elimination of third party
property management fees which terminated subsequent to
acquisition of certain of the properties.................... $ (2,686)
========
(H) Increase reflects the estimated incremental general and
administrative costs associated with the increase in
personnel due to numerous acquisitions in 1996 and 1997..... $ 5,326
========
</TABLE>
F-12
<PAGE> 36
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(I) Net increase as a result of interest costs for long and short-term
financing, as follows, net of repayment with proceeds of the February 1998
Preferred Offering, 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,
and the 1996 Equity Offerings, assuming the borrowings to finance
investment acquisitions and the assumption of debt and repayment, had all
occurred at the beginning of the period.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Credit Facility.............................. $ 493,050 @ 7.14% $ 35,204
BankBoston Note II........................... 100,000 @ 7.14% 7,140
Bridge Loan.................................. 250,000 @ 7.14% 17,850
Note Offering -- 6.625% Notes due 2002....... 150,000 @ 6.625% 9,938
Note Offering -- 7.125% Notes due 2007....... 250,000 @ 7.125% 17,813
Met Life Note................................ 45,000 @ 6.86% 3,087
Chase Manhattan Note......................... 97,123 @ 7.69% 7,469
Stations Refinanced Debt..................... 1,054,200 @ 7.50% 79,065
LaSalle Note I............................... 239,000 @ 7.83% 18,714
LaSalle Note II.............................. 161,000 @ 7.79% 12,542
Cigna Note................................... 63,500 @ 7.47% 4,743
Metropolitan Life Note....................... 12,109 @ 8.88% 1,075
LaSalle Note III............................. 115,000 @ 8.07% 9,281
Nomura Funding VI Note....................... 8,692 @ 10.07% 875
Northwestern Life Note....................... 26,000 @ 7.66% 1,992
Rigney Note.................................. 800 @ 8.50% 68
---------- --------
Total annual amount.......................... $3,065,474 $226,856
Less: Capitalized interest (1,112)
Historical interest expense.................. (42,926)
--------
$182,818
========
</TABLE>
(J) Amortization of capitalized costs associated with the September 1997 Note
Offering ($4,731 purchaser's discount and $500 other costs).
<TABLE>
<CAPTION>
AMORTIZATION
OF FEES
------------
<S> <C> <C>
Note Offering -- 6.625% Notes due 2002...................... $392
Note Offering -- 7.125% Notes due 2007...................... 327
----
Total....................................................... $ 719
========
</TABLE>
(K) Reflects adjustment needed to reflect minority partners'
weighted average 8.76% interest in the net income of the
Operating Partnership less joint venture minority interests
assuming completion of the Equity Offerings at the beginning
of the period. $ (61)
=======
(L) Reflects the following:
<TABLE>
<CAPTION>
<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>
(M) Reflects net income per share based on 134,233,392 weighted average common
shares-basic and 135,414,067 weighted average common shares-diluted
assumed to be outstanding during the year ended December 31, 1996.
F-13
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
2.01 Agreement and Plan of Merger, dated as of
January 16, 1998, by and between the
Registrant and Station Casinos, Inc.
(previously filed)
23.01 Consent of Arthur Andersen LLP, Independent
Public Accountants, dated April 27, 1998
(filed herewith).
</TABLE>
<PAGE> 38
SIGNATURES
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: April 24, 1998 CRESCENT REAL ESTATE EQUITIES COMPANY
By: /s/ DALLAS E. LUCAS
-----------------------
Dallas E. Lucas
Senior Vice President and
Chief Financial Officer
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
2.01 Agreement and Plan of Merger, dated as of
January 16, 1998, by and between the
Registrant and Station Casinos, Inc.
(previously filed)
23.01 Consent of Arthur Andersen LLP, Independent
Public Accountants, dated April 27, 1998
(filed herewith).
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated April 23, 1997 (except for Note 5 as to which the
date is June 27, 1997 and Note 14 as to which the date is January 16, 1998),
with respect to the consolidated financial statements of Station Casinos, Inc.
as of March 31, 1997 and 1996 and for each of the three years in the period
ended March 31, 1997, included in this Form 8-K/A into Crescent Real Estate
Equities Company's previously filed Registration Statements No. 33-91438, No.
33-92548, No. 333-03450, No. 333-03452, No. 333-03454, No. 333-13521, No.
333-21905, No. 333-23005, No. 333-33893, No. 333-37273, No. 333-37553, No.
333-37565, No. 333-38071, No. 333-41049, No. 333-42417 and No. 333-47563.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
April 27, 1998
