<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1999
COMMISSION FILE NO. 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 52-1862813
- -------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
777 Main Street, Suite 2100, Fort Worth, Texas 76102
- --------------------------------------------------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code (817) 321-2100
Number of shares outstanding of each of the registrant's classes of preferred
and common shares, as of November 12, 1999.
Preferred Shares, par value $.01 per share: 8,000,000
Common Shares, par value $.01 per share: 120,349,329
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
----- -----
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CRESCENT REAL ESTATE EQUITIES COMPANY
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and
December 31, 1998 (audited) ................................................. 3
Consolidated Statements of Operations for the three and nine months ended
September 30, 1999 and 1998 (unaudited) ..................................... 4
Consolidated Statement of Shareholders' Equity for the nine months ended
September 30, 1999 (unaudited) .............................................. 5
Consolidated Statements of Cash Flows for the nine months ended September 30,
1999 and 1998 (unaudited) ................................................... 6
Notes to Financial Statements ............................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................... 22
Item 3. Quantitative and Qualitative Disclosures about Market Risk .................. 57
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ........................................................... 57
Item 2. Changes in Securities ....................................................... 57
Item 3. Defaults Upon Senior Securities ............................................. 57
Item 4. Submission of Matters to a Vote of Security Holders ......................... 57
Item 5. Other Information ........................................................... 57
Item 6. Exhibits and Reports on Form 8-K ............................................ 57
</TABLE>
2
<PAGE> 3
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Investments in real estate:
Land $ 398,703 $ 400,690
Land held for development or sale 95,282 95,282
Building and improvements 3,517,383 3,569,774
Furniture, fixtures and equipment 70,160 63,626
Less - accumulated depreciation (476,438) (387,457)
----------- -----------
Net investment in real estate 3,605,090 3,741,915
Cash and cash equivalents 67,557 110,292
Restricted cash and cash equivalents 76,219 46,841
Accounts receivable, net 34,322 32,730
Deferred rent receivable 68,537 73,635
Investments in real estate mortgages and equity
of unconsolidated companies 920,321 743,516
Notes receivable, net 184,573 183,974
Other assets, net 103,039 110,544
----------- -----------
Total assets $ 5,059,658 $ 5,043,447
=========== ===========
LIABILITIES:
Borrowings under Credit Facility $ 585,000 $ 660,000
Notes payable 2,097,127 1,658,156
Accounts payable, accrued expenses and other liabilities 160,089 149,444
----------- -----------
Total liabilities 2,842,216 2,467,600
----------- -----------
COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS:
Operating partnership, 6,404,524 and 6,545,528 units,
respectively 103,012 126,575
Investment joint ventures 25,003 26,727
----------- -----------
Total minority interests 128,015 153,302
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value, authorized 100,000,000 shares:
6 3/4% Series A Convertible Cumulative Preferred Shares,
8,000,000 shares issued and outstanding at September 30, 1999
and December 31, 1998 200,000 200,000
Common shares, $.01 par value, authorized 250,000,000 shares,
119,898,368 and 124,555,447 shares issued and outstanding
at September 30, 1999 and December 31, 1998, respectively 1,196 1,245
Additional paid-in capital 2,214,990 2,336,621
Deferred compensation on restricted shares (41) (88)
Retained deficit (339,276) (110,196)
Accumulated other comprehensive income (loss) 12,558 (5,037)
----------- -----------
Total shareholders' equity 2,089,427 2,422,545
----------- -----------
Total liabilities and shareholders' equity $ 5,059,658 $ 5,043,447
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
(UNAUDITED) (UNAUDITED)
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Office and retail properties $ 153,012 $ 146,037 $ 458,747 $ 409,937
Hotel properties 16,999 12,798 48,510 38,350
Behavioral healthcare properties 8,634 13,824 36,282 41,471
Interest and other income 6,880 7,134 20,130 20,288
--------- --------- --------- ---------
Total revenues 185,525 179,793 563,669 510,046
--------- --------- --------- ---------
EXPENSES:
Real estate taxes 21,169 18,531 64,369 51,937
Repairs and maintenance 10,421 10,379 32,113 28,181
Other rental property operating 32,504 33,338 97,614 93,003
Corporate general and administrative 4,083 4,335 12,013 11,036
Interest expense 51,084 37,940 138,482 110,067
Amortization of deferred financing costs 2,033 1,944 7,857 4,194
Depreciation and amortization 30,344 29,770 97,001 84,602
Settlement of merger dispute -- -- 15,000 --
Impairment and other charges related to the
behavioral healthcare assets 162,038 -- 162,038 --
Write-off of costs associated with
unsuccessful acquisitions -- 18,435 -- 18,435
--------- --------- --------- ---------
Total expenses 313,676 154,672 626,487 401,455
--------- --------- --------- ---------
Operating income (loss) (128,151) 25,121 (62,818) 108,591
OTHER INCOME AND EXPENSES:
Equity in net income of unconsolidated
companies:
Office and retail properties 3,778 (318) 5,734 511
Refrigerated storage properties 1,746 484 11,476 (1,032)
Residential development properties 7,944 8,265 30,988 20,914
Other 1,367 822 2,277 822
--------- --------- --------- ---------
Total other income and expenses 14,835 9,253 50,475 21,215
--------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTERESTS (113,316) 34,374 (12,343) 129,806
Minority interests 11,034 (3,217) 1,236 (12,797)
--------- --------- --------- ---------
NET INCOME (LOSS) (102,282) 31,157 (11,107) 117,009
PREFERRED SHARE DIVIDENDS (3,375) (3,375) (10,125) (8,325)
FORWARD SHARE PURCHASE
AGREEMENT RETURN -- -- (4,317) --
--------- --------- --------- ---------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $(105,657) $ 27,782 $ (25,549) $ 108,684
========= ========= ========= =========
PER COMMON SHARE DATA:
Net Income (Loss) - Basic $ (0.88) $ 0.23 $ (0.21) $ 0.91
========= ========= ========= =========
Net Income (Loss) - Diluted $ (0.88) $ 0.21 $ (0.21) $ 0.85
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Preferred Shares Common Shares
----------------------------- -----------------------------
Shares Net Value Shares Par Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31,1998 8,000,000 $ 200,000 124,555,447 $ 1,245
Issuance of Common Shares -- -- 167,183 1
Exercise of Common Share Options -- -- 1,261,932 12
Cancellation of restricted shares -- -- (216) --
Amortization of Deferred Compensation -- -- -- --
Issuance of Common Shares in Exchange for Operating
Partnership Units -- -- 453,828 4
Preferred Share Conversion Adjustment -- -- 12,356 --
Forward Share Purchase Agreement -- -- 747,598 7
Settlement of Forward Share Purchase Agreement -- -- (7,299,760) (73)
Dividends Paid -- -- -- --
Net Income (Loss) -- -- -- --
Accumulated Other Comprehensive Income -- -- -- --
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, September 30, 1999 8,000,000 $ 200,000 119,898,368 $ 1,196
============ ============ ============ ============
<CAPTION>
Deferred Accumulated
Additional Compensation Retained Other
Paid-in on Restricted Earnings Comprehensive
Capital Shares (Deficit) Income
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31,1998 $ 2,336,621 $ (88) $ (110,196) $ (5,037)
Issuance of Common Shares 3,833 -- -- --
Exercise of Common Share Options 17,937 -- -- --
Cancellation of restricted shares (6) 6 -- --
Amortization of Deferred Compensation -- 41 --
Issuance of Common Shares in Exchange for Operating
Partnership Units 1,935 -- --
Preferred Share Conversion Adjustment -- -- -- --
Forward Share Purchase Agreement -- -- -- --
Settlement of Forward Share Purchase Agreement (145,330) -- (3,981) --
Dividends Paid -- -- (203,867) --
Net Income (Loss) -- -- (21,232) --
Accumulated Other Comprehensive Income -- -- -- 17,595
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, September 30, 1999 $ 2,214,990 $ (41) $ (339,276) $ 12,558
============ ============ ============ ============
<CAPTION>
Total
------------
<S> <C>
SHAREHOLDERS' EQUITY, December 31,1998 $ 2,422,545
Issuance of Common Shares 3,834
Exercise of Common Share Options 17,949
Cancellation of restricted shares --
Amortization of Deferred Compensation 41
Issuance of Common Shares in Exchange for Operating
Partnership Units 1,939
Preferred Share Conversion Adjustment --
Forward Share Purchase Agreement 7
Settlement of Forward Share Purchase Agreement (149,384)
Dividends Paid (203,867)
Net Income (Loss) (21,232)
Accumulated Other Comprehensive Income 17,595
------------
SHAREHOLDERS' EQUITY, September 30, 1999 $ 2,089,427
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
(UNAUDITED)
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (11,107) $ 117,009
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 104,858 88,796
Impairment charge related to the
behavioral healthcare real estate assets 103,773 --
Minority interests (1,236) 12,797
Non-cash compensation 101 155
Distributions received in excess of equity in earnings
from unconsolidated companies -- 11,804
Equity in earnings in excess of distributions received
from unconsolidated companies (17,985) --
(Increase) decrease in accounts receivable (1,592) 5,251
Decrease (increase) in deferred rent receivable 5,098 (23,795)
Decrease (increase) in other assets 36,597 (21,637)
(Increase) decrease in restricted cash and cash equivalents (1,559) 4,560
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 10,645 (13,646)
--------- ---------
Net cash provided by operating activities 227,593 181,294
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investment properties -- (527,076)
Development of investment properties (5,961) (14,796)
Capital expenditures - rental properties (22,945) (35,073)
Tenant improvement and leasing costs - rental properties (39,098) (53,700)
Increase in restricted cash and cash equivalents (27,819) (548)
Investment in unconsolidated companies (115,875) (137,702)
Investment in residential development companies (38,624) 17,242
Escrow deposits - acquisition of investment properties -- 5,360
Increase in notes receivable (599) (15,351)
--------- ---------
Net cash used in investing activities (250,921) (761,644)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (14,054) (3,436)
Borrowings under credit facility 51,920 672,150
Payments under credit facility (126,920) (272,150)
Debt proceeds 890,000 158,100
Debt payments (451,029) (250,903)
Capital distributions - joint venture partner (2,461) (2,343)
Proceeds from common shares offerings -- 43,959
Proceeds from exercise of share options 17,949 612
Net proceeds from preferred shares offerings -- 416,000
Settlement of Forward Share Purchase Agreement (149,384) --
Preferred dividends (10,125) (8,325)
Dividends and unitholder distributions (225,303) (149,884)
--------- ---------
Net cash (used in) provided by financing activities (19,407) 603,780
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (42,735) 23,430
CASH AND CASH EQUIVALENTS,
Beginning of period 110,292 66,622
--------- ---------
CASH AND CASH EQUIVALENTS,
End of period $ 67,557 $ 90,052
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
Crescent Real Estate Equities Company ("Crescent Equities") operates as
a real estate investment trust for federal income tax purposes (a "REIT"), and,
together with its subsidiaries, provides management, leasing and development
services to some of its properties.
The term "Company" includes, unless the context otherwise requires, all
of the direct and indirect subsidiaries of Crescent Equities.
The direct and indirect subsidiaries of Crescent Equities include:
o CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP;
The Operating Partnership
o CRESCENT REAL ESTATE EQUITIES, LTD.;
The General Partner of the Operating Partnership
o SEVEN SEPARATE SINGLE-PURPOSE LIMITED PARTNERSHIPS;
Formed for the purpose of obtaining securitized debt,
substantially all the economic interests owned
directly or indirectly by the Operating Partnership
and the remaining interests owned indirectly by
Crescent Equities through seven separate corporations
described below.
o SEVEN SEPARATE CORPORATIONS.
Wholly owned subsidiaries of the General Partner,
each of which is a general partner of one of the
seven limited partnerships described above.
Crescent Equities conducts all of its business directly through the
Operating Partnership and its other subsidiaries. The Company is structured to
facilitate and maintain the qualification of Crescent Equities as a REIT.
SEGMENTS
As of September 30, 1999, the Company's assets and operations were
composed of five major industry segments:
o Office and Retail Segment;
o Hospitality Segment;
o Residential Development Segment;
o Refrigerated Storage Segment; and
o Behavioral Healthcare Segment.
Within these segments, the Company owned directly or
indirectly the following real estate assets (the "Properties") as of September
30, 1999:
o OFFICE AND RETAIL SEGMENT consists of 89 office properties
(collectively referred to as the "Office Properties") located
in 31 metropolitan submarkets in nine states, with an
aggregate of approximately 31.8 million net rentable square
feet and seven retail properties (collectively referred to as
the "Retail Properties") with an aggregate of approximately
0.8 million net rentable square feet.
7
<PAGE> 8
o HOSPITALITY SEGMENT consists of eight full service hotels with
a total of 2,674 rooms and two destination health and fitness
resorts that can accommodate up to 462 guests daily
(collectively referred to as the "Hotel Properties"). All
Hotel Properties, except the Omni Austin Hotel, are leased to
subsidiaries of Crescent Operating, Inc. ("COI"). The Omni
Austin Hotel is leased to an unrelated third party.
o RESIDENTIAL DEVELOPMENT SEGMENT consists of the Company's
ownership of real estate mortgages and non-voting common stock
representing interests ranging from 40% to 95% in five
unconsolidated residential development corporations
(collectively referred to as the "Residential Development
Corporations"), which in turn, through joint venture or
partnership arrangements, own 15 residential development
properties (collectively referred to as the "Residential
Development Properties").
o REFRIGERATED STORAGE SEGMENT consists of the Company's
indirect 39.6% interest in three partnerships (collectively
referred to as the "Refrigerated Storage Partnerships"), each
of which owns one or more corporations or limited liability
companies (collectively referred to as the "Refrigerated
Storage Corporations") which, as of September 30, 1999,
directly or indirectly owned 89 refrigerated storage
properties (collectively referred to as the "Refrigerated
Storage Properties") with an aggregate of approximately 428.3
million cubic feet (17.0 million square feet).
o BEHAVIORAL HEALTHCARE SEGMENT consists of 87 properties in 25
states (collectively referred to as the "Behavioral Healthcare
Properties") that are leased to Charter Behavioral Health
Systems, LLC ("CBHS"). CBHS was formed to operate the
Behavioral Healthcare Properties and is owned 10% by a
subsidiary of Magellan Health Services, Inc. ("Magellan") and
90% by COI and an affiliate of COI. See Note 13. CBHS
Recapitalization and Strategy for a description of the current
status of the Company's lease with CBHS.
See Note 6. Segment Reporting for a table showing revenues and funds from
operations for each of these industry segments for the three and nine months
ended September 30, 1999 and 1998 and identifiable assets for each of these
industry segments at September 30, 1999 and 1998.
The following table shows, by subsidiary, the Properties such subsidiaries owned
as of September 30, 1999:
<TABLE>
<S> <C>
Operating Partnership: 62 Office Properties, six Hotel Properties and five
Retail Properties
Crescent Real Estate The Aberdeen, The Avallon, Caltex House, The Citadel,
Funding I, L.P.: The Crescent Atrium, The Crescent Office Towers,
("Funding I") Regency Plaza One, UPR Plaza and Waterside Commons
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate
Funding II, L.P.: Office and Research Center, Hyatt Regency
("Funding II") Albuquerque, Hyatt Regency Beaver Creek, Las Colinas
Plaza, Liberty Plaza I & II, MacArthur Center I & II,
Ptarmigan Place, Stanford Corporate Centre, Two
Renaissance Square and 12404 Park Central
Crescent Real Estate Greenway Plaza Portfolio(1)
Funding III, IV and V, L.P.:
("Funding III, IV and V")
Crescent Real Estate Canyon Ranch-Lenox
Funding VI, L.P.:
("Funding VI")
Crescent Real Estate Behavioral Healthcare Properties
Funding VII, L.P."
("Funding VII")
</TABLE>
- -----------------------------
(1) Funding III owns the Greenway Plaza Portfolio (inclusive of one Hotel
Property), except for the central heated and chilled water plant
building and Coastal Tower Office Property, both located within
Greenway Plaza, which are owned by Funding IV and Funding V,
respectively.
8
<PAGE> 9
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, the information and footnotes required by GAAP for
complete financial statements are not included. In management's opinion, all
adjustments (consisting of normal recurring adjustments and the impairment and
other charges associated with the Behavioral Healthcare segment see Note 13.
CBHS Recapitalization and Strategy for a description of these charges)
considered necessary for a fair presentation of the unaudited interim financial
statements are included. Operating results for interim periods reflected do not
necessarily indicate the results that may be expected for a full fiscal year.
You should read these financial statements in conjunction with the financial
statements and the accompanying notes included in the Company's Form 10-K for
the year ended December 31, 1998.
Certain previously reported amounts have been reclassified to conform
with the current presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which provides that all
derivative instruments should be recognized as either assets or liabilities
depending on the rights or obligations under the contract and that all
derivative instruments be measured at fair value. This pronouncement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company has elected to implement SFAS No. 133 in the third quarter of 1999;
however, this early implementation had no material impact on the Company's
financial statements for the three or nine months ended September 30, 1999 or
1998.
3. PROPERTIES HELD FOR DISPOSITION:
In pursuit of management's objective to dispose of non-strategic or
non-core assets, the Company is actively marketing for sale its wholly-owned
interests in 12 Office Properties, which are currently included in the Net
Investment in Real Estate of $3,605,090. Eight of the properties are located in
Dallas, Texas, two are located in New Orleans, Louisiana, one is located in
Denver, Colorado and one is located in Omaha, Nebraska. During the third quarter
of 1999, bids were received on these properties either individually or in
various combinations. Management is currently in the process of evaluating the
bids to determine their economic viability as well as the credit-worthiness of
the potential purchasers and their ability to close the transactions. The
disposition of these properties remains subject to the negotiation of acceptable
terms and other customary conditions once one or more purchasers have been
selected. The Company anticipates completing any economically justified sales of
these Office Properties to one or more buyers in the fourth quarter of 1999 or
the first quarter of 2000.
The following table summarizes the condensed results of operations for
the nine months ended September 30, 1999 and 1998 for the 12 Office Properties
held for disposition. These properties are classified as held for sale, and
depreciation expense has not been recognized since June 30, 1999.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Revenue $ 33,211 $ 32,980
Operating Expenses 15,394 14,174
-------- --------
Net Operating Income $ 17,817 $ 18,806
======== ========
</TABLE>
The Company does not intend to sell these Office Properties at prices
below management's assessment of fair value, which exceeds the net book value of
these Office Properties at September 30, 1999. Additionally, there is not
expected to be any impairment to the portfolio of real estate assets remaining
as a result of any sale of these Office Properties.
9
<PAGE> 10
4. EARNINGS PER SHARE:
SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share. Basic EPS excludes all dilution, while
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common shares were exercised or converted into common
shares.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------
1999 1998
--------- ----------
Wtd. Avg. Per Share Wtd. Avg. Per Share
(Loss) Shares Amount Income Shares Amount
--------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS -
Net income (loss) available
to common shareholders ....... $(105,657) 119,892 $ (0.88) $ 27,782 120,820 $ 0.23
========= =========
Effect of dilutive securities:
Share and unit options ....... -- 1,387 -- 3,565
Assumed conversion of
preferred shares ............. -- -- -- 8,311
Additional common shares
obligation relating to:
Forward Share Purchase
Agreement .................... -- -- -- 747
Equity swap agreement ......... -- -- -- 729
--------- --------- --------- --------- --------- ---------
Diluted EPS -
Net income (loss) available
to common shareholders ....... $(105,657) 121,279 $ (0.88)(1) $ 27,782 134,172 $ 0.21
========= ========= ========= ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------
1999 1998
--------- ----------
Wtd. Avg. Per Share Wtd. Avg. Per Share
(Loss) Shares Amount Income Shares Amount
--------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS -
Net income (loss) available
to common shareholders ....... $ (25,549) 123,632 $ (0.21) $ 108,684 119,660 $ 0.91
========= =========
Effect of dilutive securities:
Share and unit options ....... -- 1,876 -- 4,243
Assumed conversion of
preferred shares ............. -- -- -- 2,770
Additional common shares
obligation relating to:
Forward Share Purchase
Agreement .................... -- 391 -- 249
Equity swap agreement ........ -- -- -- 243
--------- --------- --------- --------- ---------- ---------
Diluted EPS -
Net income (loss) available
to common shareholders ....... $ (25,549) 125,899 $ (0.21)(1) $ 108,684 127,165 $ 0.85
========= ========= ========= ========= ========== =========
</TABLE>
- ---------------------------
(1) Diluted earnings per share does not recalculate from amounts shown for
the three and nine months ended September 30, 1999. The share and unit
options and the additional common shares relating to the Forward Share
Purchase Agreement shown for the three and nine months ended September
30, 1999 are typically dilutive by nature; however, due to the net
losses for the 1999 reporting periods, these items are antidilutive
with respect to the net losses per share.
The effect of the conversion of the Series A Convertible Cumulative
Preferred Shares is not included in the computation of Diluted EPS for the three
or nine months ended September 30, 1999 or 1998 since the effect of their
conversion is antidilutive.
10
<PAGE> 11
5. SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1999 1998
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid .............................................. $144,086 $110,067
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Conversion of Operating Partnership units to common
shares with resulting reduction in minority interest
and increases in common shares and additional
paid-in capital ......................................... 1,939 5,471
Issuance of Operating Partnership units in conjunction
with settlement of an obligation ....................... 1,786 8,522
Issuance of Operating Partnership units in conjunction
with investments ....................................... -- 11,450
Common share obligation in conjunction with an
investment ............................................. -- 21,000
Mortgage note assumed in conjunction with property
acquisitions ............................................ -- 46,934
Debt incurred in conjunction with the termination of
equity swap agreement .................................. -- 209,299
Acquisition of partnership interests ....................... 3,774 --
Unrealized gain on available-for-sale securities ........... 10,003 9,132
Forward Share Purchase Agreement Return .................... 4,317 --
Impairment and other charges related to the behavioral
healthcare assets ...................................... 162,038 --
</TABLE>
6. SEGMENT REPORTING:
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" beginning with the year ended December 31,
1998. The Company currently has five major operating segments: the Office and
Retail Segment; the Hospitality Segment; the Refrigerated Storage Segment; the
Residential Development Segment and the Behavioral Healthcare Segment.
Management organizes the segments within the Company based on property type for
making operating decisions and assessing performance. Operating segments for
SFAS No. 131 are determined on the same basis.
The Company uses funds from operations ("FFO") as the measure of
segment profit or loss. FFO, based on the definition adopted by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") and as used in this document, means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from debt restructuring and
sales of property;
o excluding adjustments not of a normal or recurring
nature;
o plus depreciation and amortization of real estate
assets; and
o after adjustments for unconsolidated partnerships and
joint ventures;
NAREIT developed FFO as a relative measure of performance and liquidity of
an equity REIT to recognize that income-producing real estate historically has
not depreciated on the basis determined under GAAP. The Company considers FFO an
appropriate measure of performance for an equity REIT, and for its operating
segments. However, the Company's measure of FFO may not be comparable to
similarly titled measures of other REITs because these REITs may apply the
definition of FFO in a different manner than the Company.
11
<PAGE> 12
Selected financial information related to each operating segment for
the three and nine months ended September 30, 1999 and 1998 is presented below.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Office and Retail Segment $ 153,012 $ 146,037 $ 458,747 $ 409,937
Hospitality Segment 16,999 12,798 48,510 38,350
Behavioral Healthcare Segment 8,634 13,824 36,282 41,471
Refrigerated Storage Segment -- -- -- --
Residential Development Segment -- -- -- --
Corporate and other 6,880 7,134 20,130 20,288
----------- ----------- ----------- -----------
TOTAL CONSOLIDATED REVENUE $ 185,525 $ 179,793 $ 563,669 $ 510,046
=========== =========== =========== ===========
FUNDS FROM OPERATIONS:
Office and Retail Segment $ 91,916 $ 85,121 $ 273,395 $ 241,237
Hospitality Segment 16,564 12,567 47,658 37,677
Behavioral Healthcare Segment (16,969) 13,824 10,679 41,471
Refrigerated Storage Segment 6,791 7,729 24,279 19,267
Residential Development Segment 11,401 12,449 45,739 36,537
Corporate and other adjustments:
Corporate general & administrative (4,083) (4,335) (12,013) (11,036)
Interest expense (51,084) (37,940) (138,482) (110,067)
Preferred share dividends (3,375) (3,375) (10,125) (8,325)
Other 6,036 5,635 13,410 15,803
----------- ----------- ----------- -----------
TOTAL FUNDS FROM OPERATIONS $ 57,197 $ 91,675 $ 254,540 $ 262,564
----------- ----------- ----------- -----------
ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS TO CONSOLIDATED
NET INCOME (LOSS) AFTER MINORITY INTEREST:
Depreciation and amortization of real estate
assets $ (29,516) $ (29,204) $ (94,542) $ (82,919)
Settlement of merger dispute -- -- (15,000) --
Impairment and other charges related to the behavioral
healthcare assets (136,435) -- (136,435) --
Write-off of costs associated with unsuccessful acquisitions -- (18,435) -- (18,435)
Unitholder minority interest 11,287 (3,017) 1,973 (11,791)
Adjustment for investments in real estate
mortgages and equity of unconsolidated companies:
Office and Retail Segment 751 (1,808) (3,603) (4,813)
Refrigerated Storage Segment (5,045) (7,245) (12,803) (20,299)
Residential Development Segment (3,457) (4,184) (14,751) (15,623)
Other (439) -- (611) --
Preferred share dividends 3,375 3,375 10,125 8,325
----------- ----------- ----------- -----------
CONSOLIDATED NET INCOME (LOSS) AFTER MINORITY
INTEREST $ (102,282) $ 31,157 $ (11,107) $ 117,009
=========== =========== =========== ===========
EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES:
Office and Retail Segment $ 3,778 $ (318) $ 5,734 $ 511
Hospitality Segment -- -- -- --
Behavioral Healthcare Segment -- -- -- --
Refrigerated Storage Segment 1,746 484 11,476 (1,032)
Residential Development Segment 7,944 8,265 30,988 20,914
Other 1,367 822 2,277 822
----------- ----------- ----------- -----------
TOTAL EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES $ 14,835 $ 9,253 $ 50,475 $ 21,215
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
IDENTIFIABLE ASSETS:
Office and Retail Segment $ 3,292,500 $ 3,202,220
Hospitality Segment 472,114 441,674
Behavioral Healthcare Segment 245,033 388,993
Refrigerated Storage Segment 289,463 275,192
Residential Development Segment 332,758 312,617
Other 427,790 361,283
----------- -----------
TOTAL IDENTIFIABLE ASSETS $ 5,059,658 $ 4,981,979
=========== ===========
</TABLE>
12
<PAGE> 13
At September 30, 1999, COI and CBHS are the Company's two largest
lessees in terms of total consolidated rental revenues derived from leases.
Total rental revenues from COI and total cash rental revenues from CBHS for the
nine months ended September 30, 1999 were approximately 8% and 5% respectively,
of the Company's total consolidated rental revenues. COI was the lessee for nine
of the Hotel Properties for the nine months ended September 30, 1999, and CBHS
was the sole lessee of the Behavioral Healthcare Properties during that period.
See Note 13. CBHS Recapitalization and Strategy.
See Note 7. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies for a description of the sole lessee of the
Refrigerated Storage Properties.
7. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES:
The following is a summary of the Company's ownership in significant
unconsolidated companies:
<TABLE>
<CAPTION>
COMPANY'S OWNERSHIP
ENTITY CLASSIFICATIONS AS OF SEPTEMBER 30, 1999
- --------------------------------------- ------------------------------------- -----------------------------------
<S> <C> <C>
Desert Mountain Development Corporation Residential Development Corporation 95%(1)
Houston Area Development Corp. Residential Development Corporation 94%(1)
The Woodlands Land Company, Inc. Residential Development Corporation 95%(1)
Crescent Development Management Corp. Residential Development Corporation 90%(1)
Mira Vista Development Corp. Residential Development Corporation 94%(1)
Crescent CS Holdings Corp. Crescent Subsidiary 99%(2)
Crescent CS Holdings II Corp. Crescent Subsidiary 99%(2)
The Woodlands Commercial Office and Retail (various commercial
Properties Company, L.P. properties)(3) 42.5%
Main Street Partners, L.P. Office and Retail (office property -
Bank One Center) 50%
DBL Holdings, Inc. Other(4) 95%
Metropolitan Partners, LLC Other (5)
CRL Investments, Inc. Other 95%
</TABLE>
- ---------------------
(1) See Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Residential Development Properties
Table included in that section for the Residential Development
Corporation's ownership interest in the Residential Development
Properties.
(2) The Crescent Subsidiaries have a 40% interest in each of the
Refrigerated Storage Partnerships. Accordingly, each of the Crescent
Subsidiaries has an indirect 40% interest in the Refrigerated Storage
Properties.
(3) See the "Office and Retail Segment" section below for more information
regarding certain commercial property assets that the Company intends
to sell.
(4) See Note 14. Disposition for more information regarding certain
interests that the Company has sold.
(5) See "Other" Section below for a description of the Company's
investment in Metropolitan Partners, LLC.
RESIDENTIAL DEVELOPMENT SEGMENT
On April 29, 1999, a partnership in which Crescent Development
Management Corp. ("CDMC") has a 64% economic interest finalized the purchase of
Riverfront Plaza (previously known as "The Commons"), a master planned
residential development on 23 acres in the Central Platte Valley near downtown
Denver, Colorado for approximately $25,000. Currently, it is contemplated that
the project will include both sale and rental units at multiple price points. An
adjacent 28 acres are expected to be commercially developed by another firm,
providing a major mixed-use community adjacent to the lower downtown area of
Denver. The acreage is in close proximity to several major entertainment and
recreational facilities including Coors Field (home to the Major League's
Colorado Rockies), Elitch Gardens (an amusement park) and the new Pepsi Center
(home to the National Hockey League's Colorado Avalanche and the National
Basketball Association's Denver Nuggets).
REFRIGERATED STORAGE SEGMENT
As of September 30, 1999, the Refrigerated Storage Partnerships and the
Refrigerated Storage Corporations directly or indirectly own the real estate
assets associated with the Refrigerated Storage Properties. The business
operations associated with the Refrigerated Storage Properties are owned by a
recently formed partnership (the "Refrigerated Storage Operating Partnership"),
owned 60% by Vornado Operating L.P. and 40% by a
13
<PAGE> 14
subsidiary of COI, in which the Company has no interest. The Company holds an
indirect 39.6% interest in the Refrigerated Storage Partnerships and COI holds
an indirect 0.4% interest in the Refrigerated Storage Partnerships. COI has an
option to require the Company to purchase COI's remaining 1% interest in each of
the Crescent Subsidiaries at such time as the purchase would not, in the opinion
of counsel to the Company, adversely affect the status of Crescent Equities as a
REIT, for an aggregate price, payable by the Company, of approximately $3,300.
The Refrigerated Storage Operating Partnership, as sole lessee of the
Refrigerated Storage Properties, entered into triple-net master leases with
certain of the Refrigerated Storage Corporations. Each of the Refrigerated
Storage Properties is subject to one or more of the leases, each of which has an
initial term of 15 years, subject to two, five-year renewal options. The leases
provide for an aggregate annual base rental rate of $123,000 for the first
through fifth lease years, $126,000 for the sixth through 10th lease years and
$130,500 for the 11th through 15th lease years, plus percentage rent based on
the gross revenues received from customers at the Refrigerated Storage
Properties above a specified amount.
OFFICE AND RETAIL SEGMENT
The Woodlands Commercial Properties Company, L.P., owned by the Company
and Morgan Stanley Real Estate Fund II, L.P., has been actively marketing for
sale certain commercial property assets (multi-family, retail and office/venture
tech) in The Woodlands. As of September 30, 1999, the multi-family portfolio had
been sold. The sale of the retail portfolio, including the Company's four Retail
Properties located in The Woodlands, is expected to close during the fourth
quarter of 1999. The sale of the office/venture tech portfolio, including the
Company's 12 Office Properties located in The Woodlands, is expected to close
during the first quarter of 2000.
OTHER
On December 8, 1998, Tower Realty Trust ("Tower"), Reckson Associates
Realty Corporation ("Reckson"), and Metropolitan Partners, LLC ("Metropolitan")
entered into a revised agreement and plan of merger that superseded the merger
agreement to which the Company was a party. Under the revised agreement,
Metropolitan agreed to acquire Tower for a combination of cash and Reckson
exchangeable Class B common shares. The Company, Reckson and Metropolitan agreed
that the Company's investment in Metropolitan would be an $85,000 preferred
member interest in Metropolitan. In connection with the revised agreement, the
Company contributed $10,000 of the $85,000 required capital contribution to
Metropolitan in December 1998 and contributed the remaining $75,000 to
Metropolitan upon satisfaction of all of the conditions to the funding on May
19, 1999. The Company's $85,000 preferred member interest in Metropolitan at
September 30, 1999 would equate to an approximate 20% equity interest.
The investment has a cash flow preference of 7.5% for a two-year period
and may be redeemed by Metropolitan within the two-year period for $85,000, plus
an amount sufficient to provide a 9.5% internal rate of return to the Company.
If Metropolitan does not redeem the preferred interest upon expiration of the
two-year period, the Company may convert the interest either into (i) a common
equity interest in Metropolitan or (ii) shares of common stock of Reckson at a
conversion price of $24.61.
The Company reports its share of income and losses based on its
ownership interest in its respective equity investments. The following
summarized information for all unconsolidated companies is presented on an
aggregate basis and classified under the captions "Residential Development
Corporations," "Refrigerated Storage Corporations," "Office and Retail" and
"Other," as applicable, as of September 30, 1999.
14
<PAGE> 15
BALANCE SHEETS AT SEPTEMBER 30, 1999:
<TABLE>
<CAPTION>
RESIDENTIAL REFRIGERATED
DEVELOPMENT STORAGE OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Real estate, net ........................... $ 708,850 $1,305,997 $ 427,283
Cash ....................................... 23,141 8,649 57,102
Other assets ............................... 192,648 186,128 43,179
---------- ---------- ----------
Total assets ........................... $ 924,639 $1,500,774 $ 527,564
========== ========== ==========
Notes payable .............................. $ 321,230 $ 585,068 $ 273,234
Notes payable to the Company ............... 176,645 5,333 --
Other liabilities .......................... 195,574 178,387 20,054
Equity ..................................... 231,190 731,986 234,276
---------- ---------- ----------
Total liabilities and equity ........... $ 924,639 $1,500,774 $ 527,564
========== ========== ==========
Company's share of unconsolidated debt ..... $ 216,120 $ 231,687 $ 127,749
========== ========== ==========
Company's investments in real estate
mortgages and equity of uncon-
solidated companies ...................... $ 332,757 $ 289,463 $ 138,473 $ 159,628
========== ========== ========== ==========
</TABLE>
SUMMARY STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
------------------------------------------------------
RESIDENTIAL REFRIGERATED
DEVELOPMENT STORAGE OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Total revenues ............................. $ 334,714 $ 213,405 $ 59,997
Expenses:
Operating expense ........................ 259,095 108,398 19,051
Interest expense ......................... 2,762 34,166 13,774
Depreciation and amortization ............ 8,406 41,212 13,580
Taxes .................................... 15,484 (3,488) --
---------- ---------- ----------
Total expenses ............................. 285,747 180,288 46,405
---------- ---------- ----------
Net income ................................. $ 48,967 $ 33,117 $ 13,592
========== ========== ==========
Company's equity in net income
of unconsolidated companies .............. $ 30,988 $ 11,476 $ 5,734 $ 2,277
========== ========== ========== ==========
</TABLE>
15
<PAGE> 16
8. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:
<TABLE>
<CAPTION>
The following is a summary of the Company's debt financing at September 30, 1999: BALANCE AT
SEPTEMBER 30,
1999
-------------
<S> <C>
SECURED DEBT
BankBoston, N.A. ("BankBoston") Term Note due October 30, 2001, bears interest at the
Eurodollar rate plus 325 basis points or the Base Rate (as defined in the Term Note
Agreement) plus 100 basis points (at September 30, 1999, the rate was 8.63% based on the
Eurodollar rate) with a three-year interest-only term, secured by Greenway I and IA, Four
Westlake Park, Washington Harbour, Bank One Tower, Frost Bank Plaza, Central Park Plaza, 3333
Lee Parkway, The Addison and Reverchon Plaza Office Properties..................................... $320,000
AEGON Note due July 1, 2009, bears interest at 7.53% with monthly principal and interest
payments based on a 25-year amortization schedule(1), secured by the Funding III, IV and V
Properties......................................................................................... 279,362
LaSalle Note I bears interest at 7.83% with an initial seven-year interest-only term (through
August 2002), followed by principal amortization based on a 25-year amortization schedule
through maturity in August 2027(2), secured by the Funding I Properties............................ 239,000
BankBoston Mezzanine Loan due September 13, 2003, bears interest at the 30-day LIBOR rate plus
325 basis points (at September 30, 1999, the interest rate was 8.69%)(3) with a four-year
interest only term, secured by equity interests in Funding I and II................................ 200,000
JP Morgan Mortgage Note due September 15, 2006, bears interest at a fixed rate of 8.31% with
a two-year interest-only term(4), secured by the Houston Center mixed-use Office Property
complex............................................................................................ 200,000
LaSalle Note II bears interest at 7.79% with an initial seven-year interest-only term
(through March 2003), followed by principal amortization based on a 25-year amortization
schedule through maturity in March 2028(5), secured by the Funding II Properties................... 161,000
SFT Whole Loans, Inc. ("SFT") Note due September 30, 2001, bears interest at 30-day LIBOR
plus an average rate of 1.75% (at September 30, 1999, the rate was 7.15%) with an
interest-only term, secured by the Fountain Place Office Property.................................. 97,123
CIGNA Note due December 2002, bears interest at 7.47% with an interest-only term, secured by
the MCI Tower Office Property and Denver Marriott City Center Hotel Property....................... 63,500
Metropolitan Life Note II due December 2002, bears interest at 6.93% with monthly principal and
interest payments based on a 25-year amortization schedule, secured by the Energy Centre Office
Property........................................................................................... 43,813
Metropolitan Life Note III due December 1999, bears interest at 7.74% with an interest-only
term, secured by the Datran Center Office Property................................................. 40,000
Northwestern Note due January 2004, bears interest at 7.65% with an interest-only term, secured
by the 301 Congress Avenue Office Property......................................................... 26,000
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
BALANCE AT
SEPTEMBER 30,
1999
-------------
<S> <C>
Metropolitan Life Note I due September 2001, bears interest at 8.88% with monthly principal and
interest payments based on a 20-year amortization schedule, secured by five of The Woodlands
Office Properties................................................................................... 11,543
Nomura Funding VI Note bears interest at 10.07% with monthly principal and interest payments
based on a 25-year amortization schedule through maturity in July 2020(6), secured by the
Funding VI Property................................................................................. 8,510
Metropolitan Life Note IV due December 1999, bears interest at 7.11% with monthly principal and
interest payments based on a 15-year amortization schedule, secured by the Datran Center Office
Property............................................................................................ 6,537
Rigney Note due June 2012, bears interest at 8.50% with quarterly principal and interest
payments based on a 15-year amortization schedule, secured by a parcel of land...................... 739
UNSECURED DEBT
Line of Credit with BankBoston ("Credit Facility") (see description of Credit Facility below)....... 585,000
2007 Notes bear interest at a fixed rate of 7.50% with a ten-year interest-only term, due
September 2007(7)................................................................................... 250,000
2002 Notes bear interest at a fixed rate of 7.00% with a five-year interest-only term, due
September 2002(7)................................................................................... 150,000
----------
Total Notes Payable............................................................................ $2,682,127
==========
</TABLE>
- ---------------
(1) The outstanding principal balance at maturity of this note will be
approximately $223,000.
(2) In August 2007, the interest rate increases, and the Company is required to
remit, in addition to the monthly debt service payment, excess property
cash flow, as defined, to be applied first against principal until the note
is paid in full and thereafter, against accrued excess interest, as
defined. It is the Company's intention to repay the note in full at such
time (August 2007) by making a final payment of approximately $220,000.
(3) The Company entered into the Mezzanine Loan on September 14, 1999. This
loan is secured by partnership interests in two pools of underleveraged
assets. The proceeds were used to pay-off the $150,000 BankBoston Bridge
Loan and pay-down $50,000 of the BankBoston Credit Facility. The Company
entered into a four-year $200,000 interest rate swap agreement effective
September 1, 1999 with Salomon Brothers Holding Company, Inc. in a separate
transaction related to the BankBoston Mezzanine Loan. Pursuant to this
agreement, the Company will pay Salomon Brothers Holding Company, Inc. on a
quarterly basis a 6.183% fixed interest rate and Salomon Brothers Holding
Company, Inc. will pay the Company a floating 90-day LIBOR rate based on
the same quarterly reset dates.
(4) On September 15, 1999, the Company refinanced the $184,299 Salomon Brothers
Realty Corp. Note with this note. The additional proceeds of $15,701 were
used to pay-down the BankBoston Credit Facility. The refinancing did not
include the Four Seasons Hotel that had served as partial collateral for
the Salomon Brothers Realty Corp. Note.
(5) In March 2006, the interest rate increases, and the Company is required to
remit, in addition to the monthly debt service payment, excess property
cash flow, as defined, to be applied first against principal until the note
is paid in full and thereafter, against accrued excess interest, as
defined. It is the Company's intention to repay the note in full at such
time (March 2006) by making a final payment of approximately $154,000.
(6) The Company has the option to defease the note, by purchasing Treasury
obligations in an amount sufficient to pay the note, without penalty. In
July 2010, the interest rate due under the note will change to a 10-year
Treasury yield plus 500 basis points or, if the Company so elects, it may
repay the note without penalty at that date.
(7) The notes were issued in an offering registered with the Securities and
Exchange Commission ("SEC").
17
<PAGE> 18
Below are the aggregate principal amounts due under the Credit Facility
and other indebtedness of the Company by year. Scheduled principal installments
and amounts due at maturity are included.
<TABLE>
<CAPTION>
SECURED UNSECURED TOTAL
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
1999 ................ $ 47,843 $ -- $ 47,843
2000 ................ 5,431 585,000 590,431
2001 ................ 444,509 -- 444,509
2002 ................ 104,991 150,000 254,991
2003 ................ 314,894 -- 314,894
Thereafter .......... 779,459 250,000 1,029,459
------------ ------------ ------------
$ 1,697,127 $ 985,000 $ 2,682,127
============ ============ ============
</TABLE>
The Company has approximately $47,843 of secured debt expiring during
the remainder of 1999, consisting primarily of two components. The first
component is $40,000 due under the Metropolitan Life Note III which matures in
December 1999. The Company anticipates modifying and extending the existing loan
at $40,350 for six years at a fixed-rate of 8.49% by December 1, 1999. The
second component is $6,537 due under the Metropolitan Life Note IV which matures
in December 1999. This amount is expected to be paid-off at maturity with cash
from operations.
CREDIT FACILITY
On June 30, 1998, the Credit Facility was increased to $850,000
(currently limited to $750,000 of borrowing capacity, subject to increase based
upon certain events) to enhance the Company's financial flexibility in making
new real estate investments. The interest rate on advances under the Credit
Facility is the Eurodollar rate plus 137 basis points. As of September 30, 1999,
the interest rate was 6.78%. The Credit Facility is unsecured and expires in
June 2000. In connection with the refinancing of a BankBoston term note, the
Company used $90,000 of the net proceeds of the refinancing to purchase a 12%
participation interest from BankBoston in the Credit Facility. As a result, the
Company's borrowing capacity under the Credit Facility is currently limited to
$660,000. The Credit Facility requires the Company to maintain compliance with a
number of customary financial and other covenants on an ongoing basis, including
leverage ratios based on book value and debt service coverage ratios,
limitations on additional secured and total indebtedness and distributions,
limitations on additional investments and the incurrence of additional liens,
restrictions on real estate development activity and a minimum net worth
requirement. The Company has entered into an agreement with its lender group to
amend the Credit Facility to (i) provide for a reduction in the rent coverage
level for CBHS, effective as of June 30, 1999, (ii) reduce the Company's
reliance on the CBHS assets as support for the Credit Facility through a
combination of the payment of certain amounts outstanding under the Credit
Facility and the provision of substitute value to support the Credit Facility,
and (iii) provide for a decrease in the size of the Credit Facility. In
accordance with this agreement, the Company made payments totaling $75,000
during the third quarter of 1999. The Company expects to make payments totaling
approximately $75,000 during the fourth quarter of 1999, expected to be funded
with proceeds from asset sales and cash flow provided by operating activities.
The Company was in compliance with the financial covenants related to the Credit
Facility as amended for the September 30, 1999 reporting period.
18
<PAGE> 19
9. SETTLEMENT OF MERGER DISPUTE:
STATION CASINOS, INC. ("STATION")
As of April 14, 1999, the Company and Station entered into a settlement
agreement for the mutual settlement and release of all claims between the
Company and Station arising out of the agreement and plan of merger between the
Company and Station, which the Company terminated in August 1998. As part of the
settlement agreement, the Company paid $15,000 to Station on April 22, 1999.
10. MINORITY INTEREST:
Minority interest represents (i) the limited partnership interests
owned by limited partners in the Operating Partnership ("units"), and (ii) joint
venture interests held by third parties. Each unit may be exchanged for either
two common shares or, at the election of the Company, cash equal to the fair
market value of two common shares at the time of the exchange. When a unitholder
exchanges a unit, Crescent Equities' percentage interest in the Operating
Partnership increases. During the nine months ended September 30, 1999, there
were 226,914 units exchanged for 453,828 common shares of Crescent Equities.
11. SHAREHOLDERS' EQUITY:
COMMON SHARE ISSUANCE
On March 25, 1999, the Company issued 12,356 additional common shares
to the former holder of the Series B Preferred Shares, settling a dispute
regarding the calculation of the conversion rate used in the conversion of the
Series B Preferred Shares into the Company's common shares on November 30, 1998.
FORWARD SHARE PURCHASE AGREEMENT
On June 30, 1999, the Company settled the forward share purchase
agreement (the "Forward Share Purchase Agreement") with affiliates of the
predecessor of UBS AG ("UBS"). As settlement of the Forward Share Purchase
Agreement, the Company made a cash payment of approximately $149,000 (the
"Settlement Price") to UBS in exchange for the return by UBS to the Company of
7,299,760 common shares.
The number of common shares returned to the Company is equal to the
4,700,000 common shares originally issued to UBS plus 2,599,760 common shares
subsequently issued by the Company, because of a decline in its stock price. The
additional shares were issued as collateral for the Company's obligation to
purchase 4,700,000 common shares from UBS by August 12, 1999. The Settlement
Price was calculated based on the gross proceeds the Company received from the
original issuance of 4,700,000 common shares to UBS, plus a forward accretion
component equal to 90-day LIBOR plus 75 basis points, minus an adjustment for
the Company's distributions paid to UBS. The forward accretion component
represented a guaranteed rate of return to UBS.
SHARE REPURCHASE
On November 5, 1999, the Company's Board of Trust Managers authorized
the repurchase of a portion of its outstanding common shares from time to time
in the open market or through privately negotiated transactions, in an amount
not to exceed $500,000. The proposed repurchases will be subject to prevailing
market conditions and other considerations.
The Company expects the share repurchase program to be funded through a
combination of asset sales and financing arrangements, which, in some cases, may
be secured by the repurchased shares. The amount of shares that the Company
actually will purchase will be determined from time to time, in its reasonable
judgement, based on market conditions and the availability of funds, among other
factors. There can be no assurance that any number of shares actually will be
purchased within any particular time period.
19
<PAGE> 20
DISTRIBUTIONS
Common Shares
On February 17, 1999, the Company paid a cash dividend and unitholder
distribution of $75,707, or $.55 per share and equivalent unit, to shareholders
and equivalent unitholders of record on January 27, 1999. The dividend
represented an annualized dividend of $2.20 per share and equivalent unit.
On May 18, 1999, the Company paid a cash dividend and unitholder
distribution of $76,494, or $.55 per share and equivalent unit, to shareholders
and equivalent unitholders of record on April 27, 1999. The dividend represented
an annualized dividend of $2.20 per share and equivalent unit.
On August 17, 1999, the Company paid a cash dividend and unitholder
distribution of $72,952, or $.55 per share and equivalent unit, to shareholders
and equivalent unitholders of record on July 27, 1999. The dividend represents
an annualized dividend of $2.20 per share and equivalent unit.
On October 8, 1999, the Company declared a cash dividend and unitholder
distribution of $72,992, or $.55 per share and equivalent unit, to shareholders
and equivalent unitholders of record on October 26, 1999. The dividend
represents an annualized dividend of $2.20 per share and equivalent unit and is
payable on November 16, 1999.
Preferred Shares
On February 16, 1999, the Company paid a cash dividend on its Series A
Preferred Shares of $3,375, or $.422 per preferred share, to shareholders of
record on January 29, 1999. The dividend represented an annualized dividend of
$1.69 per preferred share.
On May 14, 1999, the Company paid a cash dividend on its Series A
Preferred Shares of $3,375, or $.422 per preferred share, to shareholders of
record on April 30, 1999. The dividend represented an annualized dividend of
$1.69 per preferred share.
On August 16, 1999, the Company paid a cash dividend on its Series A
Preferred Shares of $3,375, or $.422 per preferred share, to shareholders of
record on July 30, 1999. The dividend represents an annualized dividend of $1.69
per preferred share.
On October 8, 1999, the Company declared a cash dividend on its Series A
preferred shares of $3,375, or $.422 per preferred share, to shareholders of
record on October 29, 1999. The dividend represents an annualized dividend of
$1.69 per preferred share and is payable on November 15, 1999.
12. RELATED PARTY INVESTMENT:
On June 9, 1999, the Company, upon the approval of the independent
members of its Board of Trust Managers, contributed approximately $17,000 of a
$25,000 commitment to DBL Holdings, Inc. ("DBL"). Additionally, in the third
quarter, the Company funded approximately $4,000 of this commitment. The
Operating Partnership has a 95% non-voting interest in DBL. At September 30,
1999, DBL's primary holdings consisted of the limited partner interest in the
partnership that has equity and debt interests in the Dallas Mavericks,
interests in the new Dallas sports arena development and surrounding mixed-use
development projects. See Note 14. Disposition regarding the subsequent sale of
the Company's equity and debt interests in the Dallas Mavericks.
The contribution was used by DBL to invest in DBL-ABC, Inc., which, in
turn, acquired a limited partnership interest of 12.5% in the G2 Opportunity
Fund, LP ("G2"). G2 was formed for the purpose of investing in commercial
mortgage backed securities and is managed by an entity that is owned equally by
Goff Moore Strategic Partners, LP ("GMSP") and GMAC Commercial Mortgage
Corporation. John Goff, Vice-Chairman of the Board of Trust Managers and
President and Chief Executive Officer of the Company, and Darla Moore, who is
married to Richard Rainwater, Chairman of the Board of Trust Managers of the
Company, each own 50% of the entity that ultimately controls GMSP. Mr. Rainwater
is a limited partner of GMSP.
20
<PAGE> 21
\
13. CBHS RECAPITALIZATION AND STRATEGY:
BEHAVIORAL HEALTHCARE SEGMENT
During the three and nine months ended September 30,1999, the Company
received cash rental payments of $8,600 and $30,500, respectively, from CBHS.
CBHS has been negatively affected by many factors including adverse industry
conditions. CBHS is no longer performing in accordance with its operating
budget. On September 13, 1999, the Company, COI, Magellan and CBHS completed the
first phase of a recapitalization of CBHS, which included the following:
o The Company agreed to defer the payment of August 1999 rent by CBHS to
the last four months of 1999;
o The Company, Magellan, COI and CBHS entered into certain mutual
releases at closing; and
o Magellan transferred its remaining hospital-based assets (including
Charter Advantage, Charter Franchise Services, LLC, the call center
assets, the Charter name and related intellectual property and certain
other assets) to CBHS, canceled its accrued franchise fees and
terminated the franchise agreement.
Upon the completion of the first phase of the recapitalization of CBHS, the
Company began working on the second phase of the recapitalization. This phase
included the following:
o The Company commissioned an independent public accounting firm of
national recognition to assist in evaluating the alternatives related
to CBHS, which included an appraisal of the underlying behavioral
healthcare real estate assets;
o The Company agreed to defer cash rent payments by CBHS for November
and December 1999; and
o The Company amended its master lease agreement with CBHS and agreed
that, upon the sale of any of up to 53 of the Behavioral Healthcare
Properties, the monthly minimum rent due under the master lease would
be reduced by a specified percentage of the net proceeds of such sale.
The Company and CBHS agreed that the master lease would terminate with
respect to 53 of the Behavioral Healthcare Properties on January 31, 2000,
unless the Company elects to extend the master lease on a month-to-month basis
as to any one or more of these Properties.
The following financial statement charges were made in the third quarter of
1999:
o CBHS rent is reflected on a cash basis for the third quarter of 1999
at $8,600 and CBHS rent will continue to be reflected on a cash basis
going forward;
o Cash revenue received was impacted by the deferral of the August, 1999
rent. The amount deferred was $3,800, of which $950 was received
through September 1999;
o The Company wrote-off the rent that was deferred according to the CBHS
lease agreement from the commencement of the lease in June of 1997
through June 30, 1999. The balance written-off totaled $25,600; and
o The Company wrote-down its behavioral healthcare real estate assets to
an estimated fair value of $245,000 at September 30, 1999.
At September 30, 1999, the Company's investment in the Behavioral
Healthcare Properties represented approximately 5% of its total assets (after
the impairment and other charges related to the behavioral healthcare assets)
and approximately 5% of consolidated rental revenues for the nine months ended
September 30, 1999 (after the write-off of the rent that was deferred for 1999).
The Company's decision regarding CBHS is dependent upon whether a viable
capital structure exists for CBHS that will provide acceptable coverage for
rental payments to the Company. Management believes that the underlying real
estate has substantial value and alternative uses and that a core group of 34
properties and nine CBHS joint venture properties would provide acceptable rent
coverage on a stabilized basis, assuming cash rent is reduced to $25,000, all
rent is deferred from November 1999 through December 2000, additional equity and
debt financing in excess of $50,000 is made available to CBHS and CBHS
management is able to modify the business to provide out-patient care as well as
in-patient care. Although the Company intends to provide CBHS with approximately
$15,000 to be used by CBHS as working capital in November and December 1999, the
Company does not intend to provide the additional approximately $50,000 of
financing. CBHS, however, is exploring financing alternatives with various
parties who have expressed interest in participating in CBHS's business. In
addition, the Company anticipates that it may sell up to 53 of the Behavioral
Healthcare Properties. If the current plan for the recapitalization and
restructuring of CBHS is completed, management believes that the Company would
benefit from the new capital structure, by reducing its exposure to the
Behavioral Healthcare segment in the future, significantly improving its rent
coverage and monetizing a portion of is initial investment.
21
<PAGE> 22
14. DISPOSITION:
On October 27, 1999, the Company completed the sale of its non-core
equity and debt interests in the Dallas Mavericks, interest in the new Dallas
sports arena development and surrounding mixed-use development projects and
certain promissory notes related to the Dallas Mavericks for approximately
$89,000 in cash. The sale had no material impact on the Company's financial
position or results of operations for the three or nine months ended September
30, 1999 or 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read this section in conjunction with the consolidated
interim financial statements and the accompanying notes in Item 1. Financial
Statements of this document and the more detailed information contained in the
Company's Form 10-K for the year ended December 31, 1998. In management's
opinion, all adjustments (consisting of normal and recurring adjustments and the
impairment and other charges associated with the Behavioral Healthcare segment
see the "Behavioral Healthcare Segment" below for a description of these
charges) considered necessary for a fair presentation of the unaudited interim
financial statements are included. Capitalized terms used but not otherwise
defined in this section, have the meanings given to them in the notes to the
financial statements in Item 1. Financial Statements.
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
characterized by terms such as "believe", "expect" and "may".
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those given in the forward-looking
statements.
The following factors might cause such a difference:
o The failure of CBHS to locate an investment partner and to
procure sufficient debt and equity capital to complete a
restructuring and pay deferred rent payments on that date;
o The failure of CBHS, following any restructuring, to fulfill
all of its lease obligations over the long term;
o The Company's ability to generate revenues sufficient to
meet debt service payments, satisfy existing financial
covenants and other operating expenses;
o The Company's ability to close anticipated sales of assets,
including sales of non-core behavioral healthcare
facilities;
o Financing risks, such as the availability of funds
sufficient to service existing debt, increases in debt
service associated with variable-rate debt and the Company's
ability to consummate planned financings and refinancings on
the terms and within the time frames anticipated;
o The Company's ability to timely lease unoccupied square
footage and timely re-lease occupied square footage upon
expiration;
o Changes in real estate conditions (including rental rates
and competition from other properties);
o The concentration of a significant percentage of the
Company's assets in Texas;
o The existence of complex regulations relating to the
Company's status as a REIT, the effect of future changes in
REIT requirements as a result of new legislation and the
adverse consequences of the failure to qualify as a REIT;
o Adverse changes in the financial condition of existing
tenants; and
o Other risks detailed from time to time in the Company's
filings with the SEC.
Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Company is not obligated to update these
forward-looking statements to reflect any future events or circumstances.
22
<PAGE> 23
STRATEGY UPDATE
John C. Goff, Vice-Chairman of the Board of Trust Managers of the
Company, was appointed to the positions of President and Chief Executive Officer
of the Company on June 11, 1999. The immediate objectives of Mr. Goff and the
management team were to:
o Resolve the issues surrounding the Company's investment in CBHS;
o Reduce the Company's exposure on variable-rate debt; and
o Dispose of non-strategic or non-core assets within the Company's
business segments.
CBHS
On September 13, 1999, the first phase of the recapitalization of CBHS
was completed. This phase eliminated CBHS's franchise fee and simplified the
capital structure, which was designed to permit CBHS to strengthen its business
to provide the Company with greater security regarding the collectibility of its
lease payments from CBHS. Upon completion of the phase one transactions, the
Company began phase two of the recapitalization of CBHS and commissioned an
independent public accounting firm of national recognition to assist in the
evaluation of alternatives related to CBHS, which included an appraisal of the
underlying behavioral healthcare real estate assets. The Company's decision
regarding CBHS is dependent upon whether a viable capital structure exists for
CBHS that will provide acceptable coverage for rental payments to the Company.
Management believes that the underlying real estate has substantial value and
alternative uses and that a core group of 34 of the Behavioral Healthcare
Properties and nine CBHS joint venture properties would provide acceptable rent
coverage on a stabilized basis, assuming cash rent is reduced to $25 million,
all rent is deferred from November 1999 through December 2000, additional equity
and debt financing in excess of $50 million is made available to CBHS and CBHS
management is able to modify the business to provide out-patient care as well as
in-patient care. Although the Company intends to provide CBHS with approximately
$15 million to be used by CBHS as working capital in November and December 1999,
the Company does not intend to provide the additional approximately $50 million
of financing. CBHS, however, is exploring financing alternatives with various
parties who have expressed interest in participating in CBHS's business. In
addition, the Company anticipates that it may sell up to 53 of the Behavioral
Healthcare Properties. If the current plan for the recapitalization and
restructuring of CBHS is completed, management believes that the Company would
benefit from the new capital structure by reducing its exposure to the
Behavioral Healthcare segment in the future, significantly improving its rent
coverage and monetizing a portion of its initial investment.
Exposure to variable-rate debt
During the three months ended September 30, 1999, the Company fixed or
hedged approximately $400 million of its variable-rate debt. Management intends
to further reduce the Company's variable-rate debt by an additional $300 to $400
million by the end of the first quarter of 2000. This further reduction is
expected to be funded with proceeds from asset dispositions and/or refinancings
of variable-rate debt with fixed-rate debt.
Asset Dispositions
The Company has identified the following assets for disposition which
are either non-strategic or non-core assets within the Company's business
segments. The proceeds generated from these asset sales are expected to be used
to reduce the Company's variable-rate debt, make investments, fund a share
repurchase program, or any combination of these options.
On October 27, 1999, the Company completed the sale of its non-core
equity and debt interests in the Dallas Mavericks, interest in the new Dallas
sports arena development and surrounding mixed-use development projects and
certain promissory notes related to the Dallas Mavericks for approximately $89
million in cash.
The Woodlands Commercial Properties Company, L.P., owned by the Company
and Morgan Stanley Real Estate Fund II, L.P., has been actively marketing for
sale certain commercial property assets (multi-family, retail and office/venture
tech) in The Woodlands. As of September 30, 1999, the multi-family portfolio had
been sold. The sale of the retail portfolio, including the Company's four Retail
Properties located in the Woodlands, is expected to close during the fourth
quarter of 1999. The sale of the office/venture tech portfolio, including the
Company's 12 Office Properties located in The Woodlands, is expected to close
during the first quarter of 2000.
23
<PAGE> 24
The Company is actively marketing for sale its wholly-owned interests in 12
Office Properties. During the third quarter of 1999 bids were received on these
properties either individually or in various combinations. Management is
currently in the process of evaluating the bids to determine their economic
viability as well as the credit-worthiness of the potential purchasers and their
ability to close the transactions. The disposition of these properties remains
subject to the negotiation of acceptable terms and other customary conditions
once one or more purchasers have been selected. The Company anticipates
completing any economically justified sales of these Office Properties to one or
more buyers in the fourth quarter of 1999 or the first quarter of 2000.
If all of the pending asset sales discussed above are made at the
current offering prices, the Company will realize net sales proceeds, including
net sales proceeds from the completed sale of the Company's interest in the
Dallas Mavericks, in excess of $380 million after paying off secured debt of $75
million encumbering certain of the properties.
OFFICE AND RETAIL SEGMENT
The following tables show the same-store net operating income growth
for the 27.1 million square feet of office property space owned as of January 1,
1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED PERCENTAGE/POINT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 INCREASE
------------------ ------------------ ----------------
<S> <C> <C> <C>
Same-store Revenues $ 129.1 $ 123.1 4.9%
Same-store Expenses (54.9) (52.9) 3.6%
-------------- --------------
Net Operating Income $ 74.2 $ 70.2 5.7%
============== ==============
Weighted Average Occupancy 90.4% 90.3% 0.1 pt
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED PERCENTAGE/POINT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 INCREASE
------------------ ------------------ ----------------
<S> <C> <C> <C>
Same-store Revenues $ 385.1 $ 359.2 7.2%
Same-store Expenses (166.6) (153.8) 8.3%
-------------- --------------
Net Operating Income $ 218.5 $ 205.4 6.4%
============== ==============
Weighted Average Occupancy 91.1% 89.6% 1.5 pt
</TABLE>
The following tables show the leasing and rental rates for the 31.8
million square feet of office property owned as of September 30, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------------
SIGNED LEASES EXPIRING LEASES PERCENTAGE INCREASE
-------------------- ------------------ -------------------
<S> <C> <C> <C>
Renewed or re-leased (1) 528,000 sq. ft. N/A N/A
Weighted average full-
service rental rate (2) $22.08 per sq. ft. $19.01 per sq. ft. 16%
FFO annual net effective
rental rate (3) $14.10 per sq. ft. $11.21 per sq. ft. 26%
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------------
SIGNED LEASES EXPIRING LEASES PERCENTAGE INCREASE
--------------------- ------------------ -------------------
<S> <C> <C> <C>
Renewed or re-leased (1) 2,094,000 sq. ft. N/A N/A
Weighted average full-
service rental rate (2) $21.66 per sq. ft. $18.36 per sq. ft. 18%
FFO annual net effective
rental rate (3) $13.70 per sq. ft. $10.46 per sq. ft. 31%
</TABLE>
(1) All of which have commenced or will commence during the next twelve months.
24
<PAGE> 25
(2) Including free rent, scheduled rent increases taken into account under
generally accepted accounting principles, and expense recoveries.
(3) Calculated as weighted average full-service rental rate minus operating
expenses.
o For the nine months ended September 30, 1999 executed, renewals of existing
leases and leases of space re-leased within six months of expiring leases
required tenant improvements of $1.36 per square foot per year and leasing
costs of $0.70 per square foot per year.
o Based on executed leases, the overall office portfolio was approximately
92.4% leased, or approximately 90.4% leased based on commenced leases, at
September 30, 1999.
INVESTMENT IN BROADBAND OFFICE, INC.:
The Company, along with seven other real estate companies, joined with
venture capitalist Kleiner Perkins Caufield and Buyers as a founding shareholder
in Broadband Office, Inc. ("Broadband"), a national telecommunications company.
Broadband is dedicated to providing state of the art broadband
telecommunications services to commercial office properties across the country.
In addition to significantly improving the Company's office tenant amenity
package to take advantage of evolving technologies, the Company also received an
equity interest and representation on the board of directors of Broadband in
exchange for granting Broadband marketing access to the tenants within the
Company's Office Property portfolio.
HOSPITALITY SEGMENT
The following table shows the percentage increases in occupancy,
average daily rate and revenue per available room for the Hotel Properties for
the three and nine months ended September 30, 1999, as compared with the same
periods of 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED PERCENTAGE/POINT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 CHANGE
------------------ ------------------ ----------------
<S> <C> <C> <C>
Weighted average occupancy 76% 76% 0 pt
Average daily rate $247 $233 6%
Revenue per available room $186 $176 6%
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED PERCENTAGE/POINT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 CHANGE
------------------ ------------------ -----------------
<S> <C> <C> <C>
Weighted average occupancy 75% 76% -1 pt
Average daily rate $220 $208 6%
Revenue per available room $165 $157 5%
</TABLE>
o For the nine months ended September 30, 1999, hotel property rental income
growth, including weighted average base rent(1) and percentage rent, was
approximately 16%(2) compared with the same period of 1998, for the eight
hotel and resort properties owned as of January 1, 1998.
- --------------
(1) Including scheduled rent increases that would be taken into account under
generally accepted accounting principles.
(2) This growth primarily represents the return on approximately $22 million of
capital invested during 1998 and 1999 in connection with the construction
of The Allegra Spa at the Hyatt Beaver Creek hotel, the construction of
the spa facility at Ventana Country Inn and the renovation of the Four
Seasons - Houston hotel.
RESIDENTIAL DEVELOPMENT SEGMENT
The Company owns economic interests in five Residential Development
Corporations through the residential development property mortgages and the
non-voting common stock of these Residential Development Corporations. The
Residential Development Corporations in turn, through joint ventures or
partnership arrangements, own interests in 15 Residential Development
Properties. The Residential Development Corporations are responsible for the
continued development and the day-to-day operations of the Residential
Development Properties. Management plans to maintain the Residential Development
segment at its current investment level and reinvest returned capital into
residential development projects that it expects to achieve comparable rates of
return.
25
<PAGE> 26
THE WOODLANDS LAND DEVELOPMENT, L.P. AND THE WOODLANDS COMMERCIAL PROPERTIES
COMPANY, L.P. (COLLECTIVELY "THE WOODLANDS"), WOODLANDS, TEXAS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 534 415
Average sales price per lot $44,000 $53,000
Commercial land sales -- 19 acres
Average sales price per acre -- $346,000
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 1,452 1,234
Average sales price per lot $47,000 $53,000
Commercial land sales 27 acres 124 acres
Average sales price per acre $316,000 $205,000
</TABLE>
o Future buildout of The Woodlands is estimated at approximately 16,700
residential lots and approximately 2,021 acres of commercial land, of which
1,174 residential lots and 1,040 acres are currently in inventory.
o The Woodlands estimates that sales of 588 residential lots and 58 acres of
commercial land will close during the fourth quarter of 1999, which would
result in 1999 sales in excess of initial sales estimates of 2,000
residential lots and in line with initial sales estimates of 85 commercial
acres.
DESERT MOUNTAIN PROPERTIES LIMITED PARTNERSHIP ("DESERT MOUNTAIN"), SCOTTSDALE,
ARIZONA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 37 25
Average sales price per lot(1) $488,000 $374,000
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 161 148
Average sales price per lot(1) $534,000 $381,000
</TABLE>
(1) Including equity golf membership.
o Since the March 1999 opening of the initial Saguaro Forest villages, Desert
Mountain has sold 49 lots with an average sales price of $643,000 per lot.
Continued marketing efforts relating to the remaining lots, which range
in price from $500,000 to $2.5 million, are anticipated to result in 15 to
25 additional closings during the fourth quarter of 1999.
o In October 1999, Desert Mountain opened two new villages in Saguaro Forest
consisting of 55 additional lots. Approximately 50% of the lots are
anticipated to close during the fourth quarter of 1999 with an estimated
average closing price of approximately $650,000 per lot.
o In addition to the Saguaro Forest lot inventory, Desert Mountain is
marketing approximately 200 lots in other villages of Desert Mountain, with
prices ranging from $400,000 to $2.6 million, and estimates approximately
20% of these 200 lots will close during the fourth quarter of 1999.
26
<PAGE> 27
CRESCENT DEVELOPMENT MANAGEMENT CORPORATION ("CDMC"), BEAVER CREEK, COLORADO:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Active projects 5 2
Residential lot sales 36 17
Townhome sales 6 7
Single-family home sales 4 --
Condominium sales 7 --
Total CMDC Revenues (in thousands) $41,911 $6,591
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Active projects 8 2
Residential lot sales 42 29
Townhome sales 27 7
Single-family home sales 8 --
Equivalent timeshare unit sales 5 --
Condominium sales 7 --
Total CDMC Revenues (in thousands) $89,131 $19,513
</TABLE>
o For the fourth quarter of 1999, CDMC estimates the following sales from
eight active projects and three projects expected to be introduced during
the fourth quarter of 1999: 370 residential lots, four townhomes, one
single-family home, one equivalent timeshare unit and 18 condominiums.
o 99% of the sales anticipated during the fourth quarter of 1999 were under
contract as of September 30, 1999.
o On April 29, 1999, a partnership in which CDMC has a 64% economic interest
finalized the purchase of Riverfront Plaza (previously known as "The
Commons"), a master planned residential development on 23 acres in the
Central Platte Valley near downtown Denver, Colorado for approximately $25
million. Currently, it is contemplated that the project will include both
sale and rental units at multiple price points. An adjacent 28 acres is
expected to be commercially developed by another firm, thus providing a
major mixed-use community adjacent to the lower downtown area of Denver.
The acreage is in close proximity to several major entertainment and
recreational facilities including Coors Field (home to the Major League's
Colorado Rockies), Elitch Gardens (an amusement park) and the new Pepsi
Center (home to the National Hockey League's Colorado Avalanche and the
National Basketball Association's Denver Nuggets).
27
<PAGE> 28
MIRA VISTA DEVELOPMENT CORP. ("MIRA VISTA"), FORT WORTH, TEXAS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 8 28
Average sales price per lot $125,000 $106,000
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 27 44
Average sales price per lot $124,000 $106,000
</TABLE>
HOUSTON AREA DEVELOPMENT CORP. ("HOUSTON AREA DEVELOPMENT"), HOUSTON, TEXAS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 87 69
Average sales price per lot $30,000 $23,000
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Residential lot sales 200 134
Average sales price per lot $29,000 $26,000
Commercial land sales 16 acres --
</TABLE>
28
<PAGE> 29
REFRIGERATED STORAGE SEGMENT
As of September 30, 1999, the Refrigerated Storage Partnerships and the
Refrigerated Storage Corporations directly or indirectly owned real estate
assets associated with the Refrigerated Storage Properties. The business
operations associated with the Refrigerated Storage Properties are owned by the
recently formed Refrigerated Storage Operating Partnership, in which the Company
has no interest. The Company holds an indirect 39.6% interest in the
Refrigerated Storage Partnerships, which are entitled to receive lease payments
(base rent and percentage rent) from the Refrigerated Storage Operating
Partnership.
Management believes that earnings before interest, taxes, depreciation
and amortization ("EBITDA") is a useful financial performance measure for
assessing the relative stability of the financial condition of the Refrigerated
Storage Operating Partnership, which is the sole lessee of the Refrigerated
Storage Properties.
This table shows (i) the Refrigerated Storage Operating Partnership's pro forma
EBITDA for the nine months ended September 30, 1999 and the year ended December
31,1998, assuming that the acquisitions by one of the Refrigerated Storage
Partnerships of 14 Refrigerated Storage Properties had occurred on January 1,
1998, and (ii) the pro forma lease payments for the nine months ended September
30, 1999 and the year ended December 31, 1998, assuming the restructuring of the
Refrigerated Storage Corporations' investment in the Refrigerated Storage
Properties had occurred on January 1, 1998.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA LEASE PAYMENT
EBITDA(1) FOR THE EBITDA FOR THE FOR THE NINE MONTHS PRO FORMA LEASE
NINE MONTHS ENDED YEAR ENDED ENDED SEPTEMBER 30, PAYMENT FOR THE YEAR
SEPTEMBER 30, 1999 DECEMBER 31, 1998 1999 ENDED DECEMBER 31, 1998
------------------ ----------------- ----------------------- -----------------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C>
$114.4 $145.7 $113.7 $143.0
</TABLE>
- -------------
(1) EBITDA does not represent net income or cash flows from operating,
financing or investing activities as defined by GAAP.
BEHAVIORAL HEALTHCARE SEGMENT
During the three and nine months ended September 30,1999, the Company
received cash rental payments of $8.6 million and $30.5 million, respectively,
from CBHS. CBHS has been negatively affected by many factors, including adverse
industry conditions. CBHS is no longer performing in accordance with its
operating budget. On September 13, 1999, the Company, COI, Magellan and CBHS
completed the first phase of a recapitalization of CBHS, which included the
following:
o The Company agreed to defer the payment of August 1999 rent by
CBHS to the last four months of 1999;
o The Company, Magellan, COI and CBHS entered into certain mutual
releases at closing; and
o Magellan transferred its remaining hospital-based assets (including
Charter Advantage, Charter Franchise Services, LLC, the call center
assets, the Charter name and related intellectual property and
certain other assets) to CBHS, canceled its accrued franchise fees
and terminated the franchise agreement.
Upon the completion of the first phase of the recapitalization of CBHS, the
Company began working on the second phase of the recapitalization. This phase
included the following:
o The Company commissioned an independent public accounting firm of
national recognition to assist in the evaluation of alternatives
related to CBHS, which included an appraisal of the behavioral
healthcare real estate assets;
o The Company agreed to defer cash rent payments by CBHS for
November and December 1999; and
29
<PAGE> 30
o The Company amended its master lease agreement with CBHS and
agreed that, upon the sale of any of up to 53 of the Behavioral
Healthcare Properties, the monthly minimum rent due under the
master lease would be reduced by a specified percentage of the net
proceeds of such sale.
The Company and CBHS agreed that the master lease would terminate with
respect to 53 of the Behavioral Healthcare Properties on January 31, 2000,
unless the Company elects to extend the master lease on a month-to-month basis
as to any one or more of these properties.
The following financial statement charges were made in the third quarter of
1999:
o CBHS rent is reflected on a cash basis for the third quarter of
1999 at $8.6 million and CBHS rent will continue to be reflected
on a cash basis going forward;
o Cash revenue received was impacted by the deferral of the August,
1999 rent. The amount deferred was $3.8 million, of which $1.0
million was received through September 1999;
o The Company wrote-off the rent that was deferred according
to the CBHS lease agreement from the commencement of the lease in
June of 1997 through June 30, 1999. The balance written-off
totals $25.6 million; and
o The Company wrote-down its behavioral healthcare real estate
assets to an estimated fair value of $245.0 million at September
30, 1999.
At September 30, 1999, the Company's investment in the Behavioral
Healthcare Properties represented approximately 5% of its total assets (after
the impairment and other charges related to the behavioral healthcare assets)
and approximately 5% of consolidated rental revenues for the nine months ended
September 30, 1999 (after the write-off of the rent that was deferred for 1999).
The Company's decision regarding CBHS is dependent upon whether a
viable capital structure exists for CBHS that will provide acceptable coverage
for rental payments to the Company. Management believes that the underlying real
estate has substantial value and alternative uses and that a core group of 34
properties and nine CBHS joint venture properties would provide acceptable rent
coverage on a stabilized basis, assuming cash rent is reduced to $25 million,
all rent is deferred from November 1999 through December 2000, additional equity
and debt financing in excess of $50 million is made available to CBHS and CBHS
management is able to modify the business to provide out-patient care as well as
in-patient care. Although the Company intends to provide CBHS with approximately
$15 million to be used by CBHS as working capital in November and December 1999,
the Company does not intend to provide the additional approximately $50 million
of financing. CBHS, however, is exploring financing alternatives with various
parties who have expressed interest in participating in CBHS's business. In
addition, the Company anticipates that it may sell up to 53 of the Behavioral
Healthcare Properties. If the current plan for the recapitalization and
restructuring of CBHS is completed, management believes that the Company would
benefit from the new capital structure by reducing its exposure to the
Behavioral Healthcare segment in the future, significantly improving its rent
coverage and monetizing a portion of its initial investment.
30
<PAGE> 31
RESULTS OF OPERATIONS
The following table shows the Company's financial data as a percentage of
total revenues for the three and nine months ended September 30, 1999 and 1998
and the variance in dollars between the three and nine months ended September
30, 1999 and the same periods in 1998. (See Note 6. Segment Reporting included
in Item 1. Financial Statements for financial information about industry
segments)
<TABLE>
<CAPTION>
----------------------------------------------
FINANCIAL DATA AS A
PERCENTAGE OF TOTAL REVENUES
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- --------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES
Office and retail properties 82.5% 81.3% 81.4% 80.4%
Hotel properties 9.2 7.1 8.6 7.5
Behavioral healthcare properties 4.6 7.7 6.4 8.1
Interest and other income 3.7 3.9 3.6 4.0
------- ------- ------- -------
TOTAL REVENUES 100.0 100.0 100.0 100.0
------- ------- ------- -------
EXPENSES
Operating expenses 34.5 34.6 34.4 33.9
Corporate general and administrative 2.2 2.4 2.1 2.2
Interest expense 27.5 21.1 24.6 21.6
Amortization of deferred financing costs 1.1 1.1 1.4 0.8
Depreciation and amortization 16.3 16.6 17.2 16.6
Settlement of merger dispute -- -- 2.7 --
Write-off of costs associated with
unsuccessful acquisitions -- 10.2 -- 3.6
Impairment and other charges related to
the behavioral healthcare assets 87.3 -- 28.7 --
------- ------- ------- -------
TOTAL EXPENSES 168.9 86.0 111.1 78.7
------- ------- ------- -------
Operating Income (Loss) (68.9) 14.0 (11.1) 21.3
OTHER INCOME
Equity in net income of unconsolidated
Companies:
Office and retail properties 2.0 (0.2) 1.0 0.1
Refrigerated storage corporations 0.9 0.3 2.0 (0.2)
Residential development corporations 4.3 4.6 5.5 4.1
Other 0.8 0.4 0.4 0.2
------- ------- ------- -------
TOTAL OTHER INCOME 8.0 5.1 8.9 4.2
------- ------- ------- -------
INCOME (LOSS) BEFORE MINORITY INTERESTS (60.9) 19.1 (2.2) 25.5
Minority interests 5.9 (1.8) 0.2 (2.5)
------- ------- ------- -------
NET INCOME (LOSS) (55.0) 17.3 (2.0) 23.0
PREFERRED SHARE DIVIDENDS (1.8) (1.9) (1.8) (1.6)
FORWARD SHARE PURCHASE
AGREEMENT RETURN -- -- (0.8) --
------- ------- ------- -------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS (56.8)% 15.4% (4.6)% 21.4%
======= ======= ======= =======
<CAPTION>
------------------------------------------
TOTAL VARIANCE IN TOTAL VARIANCE IN
DOLLARS BETWEEN THE DOLLARS BETWEEN THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30,
AND 1998 1999 AND 1998
------------------ ------------------
(DOLLARS IN MILLIONS)
REVENUES
<S> <C> <C>
Office and retail properties $ 7.0 $ 48.8
Hotel properties 4.2 10.1
Behavioral healthcare properties (5.2) (5.2)
Interest and other income (0.3) --
-------- --------
TOTAL REVENUES 5.7 53.7
-------- --------
EXPENSES
Operating expenses 1.8 21.0
Corporate general and administrative (0.2) 1.0
Interest expense 13.2 28.4
Amortization of deferred financing costs 0.1 3.6
Depreciation and amortization 0.5 12.4
Settlement of merger dispute -- 15.0
Write-off of costs associated with
unsuccessful acquisitions (18.4) (18.4)
Impairment and other charges related to
the behavioral healthcare assets 162.0 162.0
-------- --------
TOTAL EXPENSES 159.0 225.0
-------- --------
Operating Income (Loss) (153.3) (171.3)
OTHER INCOME
Equity in net income of unconsolidated
Companies:
Office and retail properties 4.1 5.2
Refrigerated storage corporations 1.2 12.5
Residential development corporations (0.4) 10.1
Other 0.6 1.5
-------- --------
TOTAL OTHER INCOME 5.5 29.3
-------- --------
INCOME (LOSS) BEFORE MINORITY INTERESTS (147.8) (142.0)
Minority interests 14.2 14.0
-------- --------
NET INCOME (LOSS) (133.6) (128.0)
PREFERRED SHARE DIVIDENDS -- (1.8)
FORWARD SHARE PURCHASE
AGREEMENT RETURN -- (4.3)
-------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ (133.6) $ (134.1)
======== ========
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 1998
REVENUES
Total revenues increased $5.7 million, or 3.2%, to $185.5 million for
the three months ended September 30, 1999, as compared to $179.8 million for the
three months ended September 30, 1998.
31
<PAGE> 32
The increase in Office and Retail Property revenues of $7.0 million,
or 4.8%, compared to the three months ended September 30, 1998, is primarily
attributable to rental rate increases and lease termination fees of $1.6
million at the Office and Retail Properties.
The increase in Hotel Property revenues of $4.2 million, or 32.8%,
compared to the three months ended September 30, 1998, is attributable to:
o the acquisition of one golf course affiliated with one of the
Hotel Properties subsequent to September 30, 1998, resulting in
$0.6 million of incremental revenues,
o the reclassification of one Hotel Property subsequent to July 1,
1998, resulting in $1.3 million of incremental revenues; and
o increased revenues of $2.3 million from the nine Hotel Properties
acquired prior to July 1, 1998, primarily as a result of an
increase in base rents of $2.2 million because of lease
amendments entered into in connection with contributions made by
the Company for capital improvements at some of the Hotel
Properties, and an increase in percentage rent of $0.7 million.
The decrease in Behavioral Healthcare Property revenue of $5.2
million, or 37.7%, is attributable to the reflection of rent from CBHS on a
cash basis in the third quarter of 1999.
EXPENSES
Total expenses increased $159.0 million, or 102.8%, to $313.7 million
for the three months ended September 30, 1999, as compared to $154.7 million for
the three months ended September 30, 1998.
The increase in rental property operating expenses of $1.8 million, or
2.9%, compared to the three months ended September 30, 1998, is attributable to
an increase in real estate taxes on the 89 Office and Retail Properties.
The increase in interest expense of $13.2 million, or 34.8%, compared
to the three months ended September 30, 1998, is primarily attributable to:
o $2.6 million of interest payable under the Salomon Brothers
Note issued in conjunction with the termination of the
equity swap agreement with Merrill Lynch International on
September 30, 1998;
o $6.9 million of incremental interest payable due to draws
under the Credit Facility and term loans with BankBoston
(average balance outstanding on the Credit Facility and
under the term loans for the three months ended September
30, 1999 and 1998 was $1,128.7 million and $728.5 million,
respectively). All of these financing arrangements were used
to fund investments and obligations associated with
investments and to provide working capital;
o $3.0 million of incremental interest payable due to the
refinancing of the Greenway Plaza Office Property complex
in June, 1999; and
An additional increase in expenses of $143.6 million is attributable
to:
o an increase of $162.0 million due to the impairment and
other charges related to the behavioral healthcare assets;
and
o a decrease of $18.4 million due to a non-recurring write-off
in 1998 of costs associated with unsuccessful acquisitions.
32
<PAGE> 33
EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES
Equity in net income of unconsolidated companies increased $5.5
million, or 59.1%, to $14.8 million for the three months ended September 30,
1999, as compared to $9.3 million for the three months ended September 30, 1998.
The increase is primarily attributable to:
o an increase in equity in net income of the unconsolidated
office and retail properties of $4.1 million, or 1366.7%,
compared to the three months ended September 30, 1998,
primarily attributable to increased revenues at The
Woodlands Commercial Properties Company, L.P. due to the
sale of the multi-family portfolio in the third quarter of
1999; and
o an increase in equity in net income of the Refrigerated
Storage Corporations of $1.2 million, or 240.0%, compared to
the three months ended September 30, 1998, primarily as a
result of the Refrigerated Storage Corporations applying
customary purchase price adjustments to basis, resulting in
a reduction of depreciation recorded in the third quarter of
1999. (As of March 12, 1999, the Refrigerated Storage
Corporations no longer owned the operations associated with
the Refrigerated Storage Properties but collect a lease
payment from the Refrigerated Storage Operating
Partnership).
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 WITH THE NINE MONTHS
ENDED SEPTEMBER 30, 1998
REVENUES
Total revenues increased $53.7 million, or 10.5%, to $563.7 million for
the nine months ended September 30, 1999, as compared to $510.0 million for the
nine months ended September 30, 1998.
The increase in Office and Retail Property revenues of $48.8 million,
or 11.9%, compared to the nine months ended September 30, 1998, is attributable
to:
o the acquisition of nine Office Properties during the first
nine months of 1998, which contributed revenues during the
full nine months of 1999, as compared to only a portion of
the period of 1998, resulting in $16.7 million in
incremental revenues;
o increased revenues of $25.8 million from the 80 Office and
Retail Properties acquired prior to January 1, 1998,
primarily as a result of rental rate and occupancy increases
at these Properties; and
o increased revenues of $6.3 million as a result of the
receipt of lease termination fees in the second and third
quarters of 1999.
The increase in Hotel Property revenues of $10.1 million, or 26.3%,
compared to the nine months ended September 30, 1998, is attributable to:
o the acquisition of one golf course affiliated with one of
the Hotel Properties subsequent to September 30, 1998,
resulting in $1.6 million of incremental revenues;
o the reclassification of one Hotel Property subsequent to
July 1, 1998, resulting in $1.5 million of incremental
revenues;
o increased revenues of $1.0 million from the re-leasing of
the Omni Austin Hotel to an unrelated third party as of
January 1, 1999; and
o increased revenues of $6.0 million from the eight Hotel
Properties acquired prior to January 1, 1998, as a result of
an increase in base rents of $4.1 million because of lease
amendments entered into in connection with contributions
made by the Company for capital improvements at some of the
Hotel Properties, and an increase in percentage rent of $1.9
million.
33
<PAGE> 34
The decrease in Behavioral Healthcare Property revenue of $5.2 million,
or 12.5%, is attributable to the reflection of rent from CBHS on a cash basis in
the third quarter of 1999.
EXPENSES
Total expenses increased $225.0 million, or 56.0%, to $626.5 million
for the nine months ended September 30, 1999, as compared to $401.5 million for
the nine months ended September 30, 1998.
The increase in rental property operating expenses of $21.0 million, or
12.1%, compared to the nine months ended September 30, 1998, is primarily
attributable to:
o the acquisition of nine Office Properties during the first
nine months of 1998, which incurred expenses during the full
nine-month period of 1999, as compared to only a portion of
the period of 1998, resulting in $7.2 million of incremental
expenses; and
o increased expenses of $13.6 million from the 80 Office and
Retail Properties acquired prior to January 1, 1998,
primarily as a result of an increase in real estate taxes of
$10.1 million and occupancy increases at these Office
Properties.
The increase in depreciation and amortization expense of $12.4 million,
or 14.7%, compared to the nine months ended September 30, 1998, is primarily
attributable to the acquisition during 1998 of nine Office Properties.
The increase in interest expense of $28.4 million, or 25.8%, compared
to the nine months ended September 30, 1998, is primarily attributable to:
o $1.1 million of incremental interest payable under the
Metropolitan Life Notes III and IV, which were assumed in
connection with the acquisition of the Datran Center Office
Property in May 1998;
o $9.2 million of interest payable under the Salomon Brothers
Note issued in conjunction with the termination of the
equity swap agreement with Merrill Lynch International on
September 30, 1998;
o $14.2 million of incremental interest payable due to draws
under the Credit Facility and under the term loans with
BankBoston (average balance outstanding on the Credit
Facility and under the term loans for the nine months ended
September 30, 1999 and 1998 was $982.5 million and $680.7
million, respectively). All of these financing arrangements
were used to fund investments and obligations associated
with investments and to provide working capital;
o $3.0 million of incremental interest payable due to the
refinancing of the Greenway Plaza Office Property complex
in June 1999; and
An additional increase in expenses of $158.6 million is attributable
to:
o an increase of $162.0 million due to the impairment and
other charges related to the behavioral healthcare assets;
o non-recurring costs of $15.0 million associated with the
settlement of litigation relating to the merger agreement
entered into in January 1998 between the Company and
Station; and
o a decrease of $18.4 million due to a non-recurring write-off
in 1998 of costs associated with unsuccessful acquisitions.
34
<PAGE> 35
EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES
Equity in net income of unconsolidated companies increased $29.3
million, or 138.2%, to $50.5 million for the nine months ended September 30,
1999, as compared to $21.2 million for the nine months ended September 30, 1998.
The increase is attributable to:
o An increase in equity in net income of the unconsolidated
office and retail properties of $5.2 million, or 1040.0%
compared to the nine months ended September 30, 1998,
primarily attributable to increased revenues at the
Woodlands Commercial Properties Company L.P., due to the
sale of the multi-family portfolio in the third quarter of
1999;
o an increase in equity in net income of the Refrigerated
Storage Corporations of $12.5 million, or 1250.0%, compared
to the nine months ended September 30, 1998, primarily as a
result of the acquisitions by one of the Refrigerated
Storage Partnerships of nine and five Refrigerated Storage
Properties and the associated operations in June 1998 and
July 1998, respectively, and the Refrigerated Storage
Corporations' refinancing of approximately $607 million of
debt in April 1998, which reduced interest expense for the
nine months ended September 30, 1999 as compared to the same
period in 1998 (as of March 12, 1999 the Refrigerated
Storage Corporations no longer owned the operations
associated with the Refrigerated Storage Properties but
collect a lease payment from the Refrigerated Storage
Operating Partnership);
o an increase in equity in net income of the Residential
Development Corporations of $10.1 million, or 48.3%,
compared to the nine months ended September 30, 1998,
primarily as a result of i) the increased sales activity at
CDMC and Houston Area Development which resulted in $4.5
million and $3.0 million, respectively, of incremental
equity in net income to the Company, ii) the increase in
sales activity and average sales price per lot at Desert
Mountain which resulted in $3.2 million of incremental
equity in net income to the Company, iii) an increase in
sales activity at The Woodlands which resulted in $1.2
million of incremental equity in net income to the
Company and iv) a decrease in sales activity at Mira
Vista, which resulted in a decrease of $1.9 million in
equity in net income to the Company; and
o an increase in equity in net income of the other
unconsolidated companies of $1.5 million, or 187.5%,
compared to the nine months ended September 30, 1998,
primarily attributable to a preferred member interest in
Metropolitan, which the Company purchased in December 1998
and May 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $67.6 million and $110.3 million at
September 30, 1999 and December 31, 1998, respectively. This 38.7% decrease is
attributable to $250.9 million and $19.4 million used in investing and financing
activities, respectively, partially offset by $227.6 million of cash provided by
operating activities.
INVESTING ACTIVITIES
The Company's cash used in investing activities of $250.9 million is
primarily attributable to:
o $115.9 million for increased investments in unconsolidated
companies;
o $39.1 million for recurring and non-recurring tenant
improvement and leasing costs for the Office and Retail
Properties;
o $38.6 million for increased investments in the residential
development companies;
o $27.8 million attributable to increased restricted cash and
cash equivalents primarily due to the escrow requirements
related to the refinancings of the Greenway Plaza Office
Property complex and the Houston Center Office Property
complex.
35
<PAGE> 36
o $22.9 million for capital expenditures on rental properties,
primarily attributable to: i) non-recoverable building
improvements for the Office and Retail Properties; ii)
replacement of furniture, fixtures and equipment for the
Hotel Properties and iii) improvements and renovations at
the Hotel Properties; and
o $6.0 million for the development of investment properties.
OPERATING ACTIVITIES
The Company's cash provided by operating activities of $227.6 million
is attributable to:
o $10.7 million from an increase in accounts payable, accrued
liabilities and other liabilities;
o $201.1 million from property operations; and
o $36.6 million from a decrease in other assets, primarily due
to the sale of $18.8 million of marketable securities.
The cash provided by operating activities is partially offset by:
o $18.0 million from equity in earnings in excess of
distributions received from unconsolidated companies;
o $1.2 million from minority interests; and
o $1.6 million from an increase in restricted cash and cash
equivalents.
FINANCING ACTIVITIES
The Company's use of cash for financing activities of $19.4 million is
attributable to:
o distributions paid to common shareholders and unitholders of
$225.3 million;
o settlement of the Forward Share Purchase Agreement for
$149.4 million;
o debt financing costs of $14.1 million primarily related to
the refinancing of the Greenway Plaza Office Property
complex, the Houston Center Office Property complex, and
the BankBoston Mezzanine Loan;
o distributions paid to preferred shareholders of $10.1
million;
o net payments under the Credit Facility of $75.0 million; and
o capital distributions to a joint venture partner of $2.4
million.
The use of cash for financing activities is partially offset by:
o net proceeds under short-term and long-term facilities of
$440.0 million due to net proceeds from the refinancing of
the Greenway Plaza Office Property complex of $165 million;
net proceeds from the refinancing of the BankBoston Term
Note of $60 million; gross proceeds from the refinancing of
the BankBoston Mezzanine Loan of $200 million and net
proceeds of $15 million from the refinancing of the Houston
Center Office Property complex; and
o proceeds from the exercise of common share options of $17.9
million.
SHELF REGISTRATION STATEMENT
On October 29, 1997, the Company filed a shelf registration statement
(the "Shelf Registration Statement") with the SEC for an aggregate of $1.5
billion of common shares, preferred shares and warrants exercisable for common
shares. Management believes the Shelf Registration Statement will provide the
Company with more efficient and immediate access to capital markets when
considered appropriate. As of September 30, 1999, approximately $782.7 million
was available under the Shelf Registration Statement for the issuance of
securities.
36
<PAGE> 37
FORWARD SHARE PURCHASE AGREEMENT
On June 30, 1999, the Company settled the Forward Share Purchase
Agreement with UBS. As settlement of the Forward Share Purchase Agreement, the
Company made a cash payment of approximately $149 million to UBS in exchange for
the return by UBS to the Company of 7,299,760 common shares.
The number of common shares returned to the Company is equal to the
4,700,000 common shares originally issued to UBS plus 2,599,760 common shares
subsequently issued by the Company, because of a decline in its stock price. The
additional shares were issued as collateral for the Company's obligation to
purchase 4,700,000 common shares from UBS by August 12, 1999. The Settlement
Price was calculated based on the gross proceeds the Company received from the
original issuance of 4,700,000 common shares to UBS, plus a forward accretion
component equal to 90-day LIBOR plus 75 basis points, minus an adjustment for
the Company's distributions paid to UBS. The forward accretion component
represented a guaranteed rate of return to UBS.
SHARE REPURCHASE
On November 5, 1999, the Company's Board of Trust Managers authorized
the repurchase of a portion of its outstanding common shares from time to time
in the open market or through privately negotiated transactions, in an amount
not to exceed $500 million. The proposed repurchases will be subject to
prevailing market conditions and other considerations.
The Company expects the share repurchase program to be funded through a
combination of asset sales and financing arrangements, which, in some cases, may
be secured by the repurchased shares. The amount of shares that the Company
actually will purchase will be determined from time to time, in its reasonable
judgement, based on market conditions and the availability of funds, among other
factors. There can be no assurance that any number of shares actually will be
purchased within any particular time period.
STATION CASINOS, INC.
On April 14, 1999, the Company and Station entered into a settlement
agreement for the mutual settlement and release of all claims between the
Company and Station arising out of the agreement and plan of merger between the
Company and Station, which the Company terminated in August 1998. As part of the
settlement agreement, the Company paid $15 million to Station on April 22, 1999.
CREDIT FACILITY
On June 30, 1998, the Credit Facility was increased to $850 million
(currently limited to $750 million of borrowing capacity, subject to increase
based upon certain events) to enhance the Company's financial flexibility in
making new real estate investments. The interest rate on advances under the
Credit Facility is the Eurodollar rate plus 137 basis points. As of September
30, 1999, the interest rate was 6.78%. The Credit Facility is unsecured and
expires in June 2000. In connection with the refinancing of a BankBoston term
note, the Company used $90 million of the net proceeds of the refinancing to
purchase a 12% participation interest from BankBoston in the Credit Facility. As
a result, the Company's borrowing capacity under the Credit Facility is
currently limited to $660 million. The Credit Facility requires the Company to
maintain compliance with a number of customary financial and other covenants on
an ongoing basis, including leverage ratios based on book value and debt service
coverage ratios, limitations on additional secured and total indebtedness and
distributions, limitations on additional investments and the incurrence of
additional liens, restrictions on real estate development activity and a minimum
net worth requirement. The Company has entered into an agreement with its lender
group to amend the Credit Facility to (i) provide for a reduction in the rent
coverage level for CBHS, effective as of June 30, 1999, (ii) reduce the
Company's reliance on the CBHS assets as support for the Credit Facility through
a combination of the payment of certain amounts outstanding under the Credit
Facility and the provision of substitute value to support the Credit Facility,
and (iii) provide for a decrease in the size of the Credit Facility. The Company
was in compliance with the financial covenants related to the Credit Facility as
amended for the September 30, 1999 reporting period.
37
<PAGE> 38
LIQUIDITY REQUIREMENTS
On June 30, 1999, the Company refinanced the Greenway Plaza Office
Property complex with a $280 million, secured, fixed-rate mortgage loan, bearing
interest at a fixed rate of 7.53%. the proceeds were primarily used to repay the
$115 million existing note on the complex and to pay approximately $149 million
in settlement of the Forward Share Purchase Agreement with UBS.
On September 14, 1999, the Company obtained a $200 million note from
BankBoston secured by partnership interests in two pools of assets which also
secure the La Salle Notes I and II. This new loan has a four-year term and a
floating interest rate based on 30-day LIBOR plus 325 basis points. The proceeds
were used to repay the $150 million short-term Bridge Loan with BankBoston in
full and reduce the amount outstanding under the BankBoston Credit Facility by
$50 million. The Company has entered into a four-year $200 million interest rate
swap agreement with Salomon, effective September 1, 1999, in a separate
transaction related to this financing. Pursuant to this agreement, the Company
will pay Salomon a 6.183% fixed interest rate on a quarterly basis, and Salomon
will pay the Company a floating 90-day LIBOR rate based on the same quarterly
reset dates.
On September 15, 1999, the Company refinanced the $184 million Salomon
Brothers Note which secured the Houston Center mixed-use Office Property
complex, with a $200 million, secured, fixed-rate mortgage loan through J.P.
Morgan Investment Management, Inc. The replacement loan has a seven-year term
and bears interest at a fixed rate of 8.31%. The Houston Center mixed-use Office
Property secures the replacement loan but the Four Seasons Hotel - Houston,
which served as partial collateral for the original loan, does not serve as
collateral for the replacement loan. The proceeds of the replacement loan were
primarily used to repay the $184 million Salomon Brothers Note in full and to
reduce the amount outstanding under the BankBoston Credit Facility by
approximately $15 million.
The Company made payments totaling $75 million during the third
quarter of 1999 on the Credit Facility. The Company expects to make payments
totaling approximately $75 million during the fourth quarter of 1999. These
payments are expected to be funded with proceeds from asset sales and cash flow
provided by operating activities.
Approximately $47.8 million of secured debt expires during the
remainder of 1999, consisting primarily of two components. The first component
is $40 million due under the Metropolitan Life Note III which matures in
December 1999. The Company anticipates that, by December 1, 1999, it will modify
and extend the existing loan with a $40.4 million, six-year note that would bear
interest at a fixed rate of 8.49%. The second component is approximately $6.5
million due under the Metropolitan Life Note IV which matures in December 1999.
This amount is expected to be paid in full at maturity with cash flow provided
by operating activities.
The Company expects to meet its other short-term liquidity requirements
primarily through cash flow provided by operating activities. The Company
believes that cash flow provided by operating activities will be adequate to
fund normal recurring operating expenses, regular debt service requirements
(including debt service relating to additional and replacement debt), recurring
capital expenditures and distributions to shareholders and unitholders, as well
as non-recurring capital expenditures, such as tenant improvement and leasing
costs related to previously unoccupied space. To the extent that the Company's
cash flow from operating activities is not sufficient to finance non-recurring
capital expenditures, the Company expects to finance such activities with
available cash or additional debt financing.
The Company expects to meet its long-term liquidity requirements
through long-term secured and unsecured borrowings and other debt and equity
financing alternatives. As of September 30, 1999, the Company's long-term
liquidity requirements consisted primarily of maturities under the Company's
fixed and variable-rate debt.
Debt and equity financing alternatives currently available to the
Company to satisfy its liquidity requirements and commitments for material
capital expenditures include:
38
<PAGE> 39
o Additional proceeds from the refinancing of existing secured and unsecured
debt;
o Obtaining additional debt secured by existing investment properties or by
investment property acquisitions or developments;
o Issuances of Operating Partnership units; and
o Joint ventures arrangements.
REIT QUALIFICATION
The Company intends to maintain its qualification as a REIT under
Section 856(c) of the Internal Revenue Code of 1986, as amended (the "Code"). As
a REIT, the Company generally will not be subject to corporate federal income
taxes as long as it satisfies certain technical requirements of the Code,
including the requirement to distribute 95% of its REIT taxable income to its
shareholders.
39
<PAGE> 40
DEBT FINANCING ARRANGEMENTS
The significant terms of the Company's primary debt financing
arrangements are shown below (dollars in thousands):
<TABLE>
<CAPTION>
INTEREST RATE BALANCE
MAXIMUM AT SEPTEMBER 30, EXPIRATION OUTSTANDING AT
DESCRIPTION BORROWINGS 1999 DATE SEPTEMBER 30, 1999
- ----------------------------------- ------------ ---------------- --------------- -------------------
<S> <C> <C> <C> <C>
SECURED FIXED RATE DEBT:
AEGON Note $ 279,362 7.53% July 2009(1) $ 279,362
LaSalle Note I 239,000 7.83 August 2027 239,000
JP Morgan Mortgage Note(3) 200,000 8.31 September 2006(3) 200,000
LaSalle Note II 161,000 7.79 March 2028(4) 161,000
CIGNA Note 63,500 7.47 December 2002 63,500
Metropolitan Life Note I 11,543 8.88 September 2001 11,543
Metropolitan Life Note II 43,813 6.93 December 2002 43,813
Metropolitan Life Note III 40,000 7.74 December 1999 40,000
Metropolitan Life Note IV 6,537 7.11 December 1999 6,537
Northwestern Life Note 26,000 7.65 January 2004 26,000
Nomura Funding VI Note 8,510 10.07 July 2020(5) 8,510
Rigney Promissory Note 739 8.50 June 2012 739
------------ ------ -------------
Subtotal/Weighted Average $ 1,080,004 7.79% $ 1,080,004
------------ ------ -------------
SECURED VARIABLE RATE DEBT(6):
BankBoston Term Note 320,000 8.63 October 2001 320,000
BankBoston Mezzanine Loan(7) 200,000 8.69 September 2003 200,000
SFT Note 97,123 7.15 September 2001 97,123
------------ ------ -------------
Subtotal/Weighted Average $ 617,123 8.42% $ 617,123
------------ ------ -------------
UNSECURED FIXED RATE DEBT:
Notes due 2007(8) $ 250,000 7.50% September 2007 $ 250,000
Notes due 2002(8) 150,000 7.00 September 2002 150,000
------------ ------ -------------
Subtotal/Weighted Average $ 400,000 7.31% $ 400,000
----------- ------ -------------
UNSECURED VARIABLE RATE DEBT:
Credit Facility(9) $ 660,000 6.78% June 2000 $ 585,000
----------- ------ -------------
TOTAL/WEIGHTED AVERAGE $ 2,757,127 7.64% $ 2,682,127
============ ====== =============
</TABLE>
- -----------------------------------------
(1) The outstanding principal balance at maturity of this note will be
approximately $223 million.
(2) In August 2007, the interest rate increases, and the Company is required to
remit, in addition to the monthly debt service payment, excess property cash
flow, as defined, to be applied first against principal until the note is
paid in full and thereafter, against accrued excess interest, as defined. It
is the Company's intention to repay the note in full at such time (August
2007) by making a final payment of approximately $220 million.
(3) On September 15, 1999, the Company refinanced the $184,299 Salomon Brothers
Realty Corp. Note with this note. The additional proceeds of $15,701 were
used to pay-down the BankBoston Credit Facility. The refinancing did not
include the Four Seasons Hotel that had served as partial collateral for the
Salomon Brothers Realty Corp. Note.
(4) In March 2006, the interest rate increases, and the Company is required to
remit, in addition to the monthly debt service payment, excess property cash
flow, as defined, to be applied first against principal until the note is
paid in full and thereafter, against accrued excess interest, as defined. It
is the Company's intention to repay the note in full at such time (March
2006) by making a final payment of approximately $154 million.
(5) The Company has the option to defease the note, by purchasing Treasury
obligations in an amount sufficient to pay the note, without penalty. In
July 2010, the interest rate due under the note will change to a 10-year
Treasury yield plus 500 basis points or, if the Company so elects, it may
repay the note without penalty at that date.
(6) For the method of calculation of the interest rate for the Company's
variable-rate debt (other than the Credit Facility), see Note 8. Notes
Payable and Borrowings under Credit Facility of Item 1. Financial
Statements.
(7) The Company entered into this Mezzanine Loan on September 14, 1999. This
loan is secured by partnership interests in two pools of underleveraged
assets. The proceeds were used to pay-off the $150 million BankBoston Bridge
Loan and pay-down $50 million of the BankBoston Credit Facility. The Company
entered into a four-year $200 million interest rate swap agreement effective
September 1, 1999 with Salomon Brothers Holding Company, Inc. in a separate
transaction related to the BankBoston Mezzanine Loan. Pursuant to this
agreement, the Company will pay Salomon Brothers Holding Company, Inc. on a
quarterly basis a 6.183% fixed interest rate, and Salomon Brothers Holding
Company, Inc. will pay the Company a floating 90-day LIBOR rate based on the
same quarterly reset dates.
(8) The notes were issued in an offering registered with the SEC.
(9) The Credit Facility is unsecured with an interest rate of the Eurodollar
rate plus 137 basis points. In connection with the refinancing of a
BankBoston Term Note, the Company used $90 million of the net proceeds of
the refinancing to purchase a 12% participation interest from
40
<PAGE> 41
BankBoston in the $750 million Credit Facility. As a result, the Company's
borrowing capacity under the Credit Facility is currently limited to $660
million. The Credit Facility requires the Company to maintain compliance
with a number of customary financial and other covenants on an ongoing
basis, including leverage ratios based on book value and debt service
coverage ratios, limitations on additional secured and total indebtedness
and distributions, limitations on additional investments and the incurrence
of additional liens, restrictions on real estate development activity and a
minimum net worth requirement. The Company has entered into an agreement
with its lender group to amend the Credit Facility to (i) provide for a
reduction in the rent coverage level for CBHS, effective as of June 30,
1999, (ii) reduce the Company's reliance on the CBHS assets as support for
the Credit Facility through a combination of the payment of certain amounts
outstanding under the Credit Facility and the provision of substitute value
to support the Credit Facility, and (iii) provide for a decrease in the size
of the Credit Facility. The Company was in compliance with the financial
covenants related to the Credit Facility for the September 30, 1999
reporting period.
Below are the aggregate principal amounts due under the Credit Facility
and other indebtedness of the Company by year. Scheduled principal installments
and amounts due at maturity are included.
<TABLE>
<CAPTION>
SECURED UNSECURED TOTAL
---------- --------- ----------
(in thousands)
<S> <C> <C> <C>
1999 ....................... $ 47,843 $ -- $ 47,843
2000 ....................... 5,431 585,000 590,431
2001 ....................... 444,509 -- 444,509
2002 ....................... 104,991 150,000 254,991
2003 ....................... 314,894 -- 314,894
Thereafter ................. 779,459 250,000 1,029,459
---------- --------- ----------
$1,697,127 $ 985,000 $2,682,127
========== ========= ==========
</TABLE>
The Company's policy with regard to the incurrence and maintenance of
debt is based on a review and analysis of:
o investment opportunities for which capital is required and the
cost of debt in relation to such investment opportunities;
o the type of debt available (secured or unsecured);
o the effect of additional debt on existing coverage ratios;
o the maturity of the proposed debt in relation to maturities of
existing debt; and
o exposure to variable-rate debt and alternatives such as interest
rate swaps and hedges to reduce this exposure.
The Company's debt service coverage ratio for the nine months ended
September 30, 1999 was approximately 2.9 and for the nine months ended September
30, 1998 was approximately 3.2. Debt service coverage for a particular period is
generally calculated as net income plus depreciation and amortization, plus
interest expense, plus extraordinary or non-recurring losses, minus
extraordinary or non-recurring gains, divided by debt service (including
principal and interest payable during the period of calculation). The debt
service coverage ratio the Company is required to maintain as stipulated by the
Company's debt arrangements and calculated as described above is 1.5. In
addition, the Company's Credit Facility requires a debt service coverage ratio
(which is calculated in a different manner) of 2.5. Under the calculation
required by the Credit Facility, the Company's debt service coverage ratio was
3.2 at September 30, 1999.
41
<PAGE> 42
FUNDS FROM OPERATIONS
FFO, based on the definition adopted by the Board of Governors of the
NAREIT and as used in this document, means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from debt restructuring and
sales of property;
o excluding adjustments not of a normal or recurring
nature;
o plus depreciation and amortization of real estate
assets; and
o after adjustments for unconsolidated partnerships and
joint ventures.
NAREIT developed FFO as a relative measure of performance and liquidity
of an equity REIT to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. The Company considers
FFO an appropriate measure of performance of an equity REIT. However, FFO:
o does not represent cash generated from operating activities
determined in accordance with GAAP (which, unlike FFO, generally
reflects all cash effects of transactions and other events that
enter into the determination of net income);
o is not necessarily indicative of cash flow available to fund cash
needs; and
o should not be considered as an alternative to net income
determined in accordance with GAAP as an indication of the
Company's operating performance, or to cash flow from operating
activities determined in accordance with GAAP as a measure of
either liquidity or the Company's ability to make distributions.
The Company has historically distributed an amount less than FFO,
primarily due to reserves required for capital expenditures, including leasing
costs. The aggregate cash distributions paid to shareholders and unitholders for
the nine months ended September 30, 1999 and 1998 were $225.2 and $149.9
million, respectively.
An increase or decrease in FFO does not necessarily result in an
increase or decrease in aggregate distributions because the Company's Board of
Trust Managers is not required to increase distributions on a quarterly basis
unless necessary for the Company to maintain REIT status. However, the Company
must distribute 95% of its REIT taxable income (as defined in the Code).
Therefore, a significant increase in FFO will generally require an increase in
distributions to shareholders and unitholders although not necessarily on a
proportionate basis.
Accordingly, the Company believes that to facilitate a clear
understanding of the consolidated historical operating results of the Company,
FFO should be considered in conjunction with the Company's net income (loss) and
cash flows reported in the consolidated financial statements and notes to the
financial statements. However, the Company's measure of FFO may not be
comparable to similarly titled measures of other REITs because these REITs may
apply the definition of FFO in a different manner than the Company.
42
<PAGE> 43
STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND SHARES/UNITS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------- ---------- --------------
<S> <C> <C> <C> <C>
Income (loss) after minority interest ................... $(102,282) $ 31,157 $ (11,107) $ 117,009
Adjustments:
Depreciation and amortization of real estate assets...... 29,516 29,204 94,542 82,919
Settlement of merger dispute ............................ -- -- 15,000 --
Impairment and other charges related to the
behavioral healthcare assets ...................... 136,435 -- 136,435 --
Write-off of costs associated with unsuccessful
acquisitions ...................................... -- 18,435 -- 18,435
Adjustment for investments in real estate
mortgages and equity of unconsolidated
companies:
Office and retail properties ................. (751) 1,808 3,603 4,813
Refrigerated storage properties .............. 5,045 7,245 12,803 20,299
Residential development properties ........... 3,457 4,184 14,751 15,623
Other ........................................ 439 -- 611 --
Unitholder minority interest ............................ (11,287) 3,017 (1,973) 11,791
Preferred share dividends ............................... (3,375) (3,375) (10,125) (8,325)
--------- --------- --------- ---------
Funds from operations(1) ................................ $ 57,197 $ 91,675 $ 254,540 $ 262,564
========= ========= ========= =========
Investment Segments:
Office and Retail Segment ........................... $ 91,916 $ 85,121 $ 273,395 $ 241,237
Hospitality Segment ................................. 16,564 12,567 47,658 37,677
Behavioral Healthcare Segment ....................... (16,969) 13,824 10,679 41,471
Refrigerated Storage Segment ........................ 6,791 7,729 24,279 19,267
Residential Development Segment ..................... 11,401 12,449 45,739 36,537
Corporate general & administrative .................. (4,083) (4,335) (12,013) (11,036)
Interest expense .................................... (51,084) (37,940) (138,482) (110,067)
Preferred share dividends ........................... (3,375) (3,375) (10,125) (8,325)
Other(2) ............................................ 6,036 5,635 13,410 15,803
--------- --------- --------- ---------
Funds from operations ................................... $ 57,197 $ 91,675 $ 254,540 $ 262,564
========= ========= ========= =========
Basic weighted average shares ........................... 119,892 120,820 123,632 119,660
========= ========= ========= =========
Diluted weighted average shares/units(3) ................ 134,094 147,316 138,830 140,116
========= ========= ========= =========
</TABLE>
- --------------------------
(1) To calculate basic funds from operations, deduct Unitholder minority
interest.
(2) Includes interest and other income less depreciation and amortization of
non-real assets and amortization of deferred financing costs.
(3) See calculations for the amounts presented in the reconciliation following
this table.
The following schedule reconciles the Company's basic weighted average
shares to the diluted weighted average shares/units presented above:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
(SHARES IN THOUSANDS) 1999 1998 1999 1998
------------ ------------- ---------- --------------
<S> <C> <C> <C> <C>
Basic weighted average shares: ..................... 119,892 120,820 123,632 119,660
Add: Weighted average units ........................ 12,815 13,144 12,930 12,951
Weighted average preferred shares ......... -- 8,311 -- 2,770
Share and unit options .................... 1,387 3,565 1,877 4,243
Forward Share Purchase Agreement .......... -- 747 391 249
Equity Swap Agreement ..................... -- 729 -- 243
------- ------- ------- -------
Diluted weighted average shares/units .............. 134,094 147,316 138,830 140,116
======= ======= ======= =======
</TABLE>
43
<PAGE> 44
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Funds from operations ..................................................... $ 254,540 $ 262,564
Adjustments:
Depreciation and amortization of non-real estate assets ............. 1,752 1,108
Settlement of merger dispute ........................................ (15,000) --
Write-off costs associated with unsuccessful acquisitions ........... -- (18,435)
Other charges related to the behavioral healthcare
assets .......................................................... (32,665) --
Amortization of deferred financing costs ............................ 7,857 4,194
Minority interest in joint ventures profit and depreciation
and amortization ................................................ 1,444 1,581
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies .......................... (31,768) (40,735)
Change in deferred rent receivable .................................. 5,098 (23,795)
Change in current assets and liabilities ............................ 44,091 (25,472)
Equity in earnings in excess of distributions received from
unconsolidated companies ........................................ (17,985) --
Distributions received in excess of equity in earnings from
unconsolidated companies ........................................ -- 11,804
Preferred share dividends ........................................... 10,125 8,325
Non-cash compensation ............................................... 101 155
----------- -----------
Net cash provided by operating activities ................................. $ 227,593 $ 181,294
=========== ===========
</TABLE>
OFFICE AND RETAIL PROPERTIES
The Company's Office Properties are located primarily in Dallas/Fort
Worth and Houston, Texas. As of September 30, 1999, the Company's Office
Properties in Dallas/Fort Worth and Houston represent an aggregate of
approximately 72% of its office portfolio based on total net rentable square
feet (39% for Dallas/Fort Worth and 33% for Houston).
OFFICE PROPERTIES TABLES
The following table shows certain information about the Company's
Office Properties as of September 30, 1999.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT.(1)
------------------------------ ---------- --------- --------- --------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
DALLAS
Bank One Center(2).......... 1 CBD 1987 1,530,957 77% $21.81
The Crescent Office Towers.. 1 Uptown/Turtle Creek 1985 1,204,670 99 30.11
Fountain Place.............. 1 CBD 1986 1,200,266 93 19.43
Trammell Crow Center(3)..... 1 CBD 1984 1,128,331 94 25.55
Stemmons Place.............. 1 Stemmons Freeway 1983 634,381 88 15.33
Spectrum Center(4).......... 1 Far North Dallas 1983 598,250 90 23.44
Waterside Commons........... 1 Las Colinas 1986 458,739 100 19.80
Caltex House................ 1 Las Colinas 1982 445,993 95 29.14
Reverchon Plaza............. 1 Uptown/Turtle Creek 1985 374,165 98 19.37
The Aberdeen................ 1 Far North Dallas 1986 320,629 100 18.21
MacArthur Center I & II..... 1 Las Colinas 1982/1986 294,069 99 20.63
Stanford Corporate Centre... 1 Far North Dallas 1985 265,507 88 18.97
The Amberton................ 1 Central Expressway 1982 255,052 79 13.38
Concourse Office Park....... 1 LBJ Freeway 1972-1986 244,879 89 15.16
12404 Park Central.......... 1 LBJ Freeway 1987 239,103 100 21.09
Palisades Central II........ 1 Richardson/Plano 1985 237,731 64 (5) 17.26
3333 Lee Parkway............ 1 Uptown/Turtle Creek 1983 233,769 92 20.85
Liberty Plaza I & II........ 1 Far North Dallas 1981/1986 218,813 100 15.73
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT.(1)
------------------------------ ---------- --------- --------- --------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
The Addison................. 1 Far North Dallas 1981 215,016 100 18.44
The Meridian................ 1 LBJ Freeway 1984 213,915 91 (5) 16.92
Palisades Central I......... 1 Richardson/Plano 1980 180,503 85 17.32
Walnut Green................ 1 Central Expressway 1986 158,669 70 15.58
Greenway II................. 1 Richardson/Plano 1985 154,329 100 19.85
Addison Tower............... 1 Far North Dallas 1987 145,886 96 15.72
Greenway I & IA............. 2 Richardson/Plano 1983 146,704 100 23.19
5050 Quorum................. 1 Far North Dallas 1981 133,594 87 17.30
Cedar Springs Plaza......... 1 Uptown/Turtle Creek 1982 110,923 96 17.94
Valley Centre............... 1 Las Colinas 1985 74,861 87 17.80
One Preston Park............ 1 Far North Dallas 1980 40,525 84 17.19
--- ----------- ---- -------
Subtotal/Weighted Average. 30 11,460,229 91% $ 21.50
--- ----------- ---- -------
FORT WORTH
UPR Plaza................... 1 CBD 1982 954,895 95% $ 15.50
--- ----------- ---- -------
HOUSTON
Greenway Plaza Office Portfolio 10 Richmond-Buffalo 1969-1982 4,286,277 90%(5) $ 17.03
Speedway
Houston Center............... 3 CBD 1974-1983 2,764,418 94 (5) 16.81
Post Oak Central............. 3 WestLoop/Galleria 1974-1981 1,277,516 92 17.49
The Woodlands Office
Properties(6)................ 12 The Woodlands 1980-1996 811,067 99 16.09
Four Westlake Park........... 1 Katy Freeway 1992 561,065 100 18.61
Three Westlake Park(7)(8).... 1 Katy Freeway 1983 414,251 41 (5) 18.95
1800 West Loop South......... 1 WestLoop/Galleria 1982 399,777 68 (5) 17.60
--- ----------- ---- -------
Subtotal/Weighted Average. 31 10,514,371 90% $ 17.09
--- ----------- ---- -------
AUSTIN
Frost Bank Plaza............ 1 CBD 1984 433,024 94% $ 22.67
301 Congress Avenue(9)...... 1 CBD 1986 418,338 91 (5) 23.74
Bank One Tower.............. 1 CBD 1974 389,503 94 19.32
Austin Centre............... 1 CBD 1986 343,665 97 21.95
The Avallon................. 1 Northwest 1993/1997 232,301 89(5) 21.89
Barton Oaks Plaza One....... 1 Southwest 1986 99,895 97 21.39
--- ----------- ---- -------
Subtotal/Weighted Average 6 1,916,726 93% $ 21.92
--- ----------- ---- -------
COLORADO
DENVER
MCI Tower................... 1 CBD 1982 550,807 100% $ 18.05
Ptarmigan Place............. 1 Cherry Creek 1984 418,630 99 18.59
Regency Plaza One........... 1 DTC 1985 309,862 98 23.27
AT&T Building............... 1 CBD 1982 184,581 82 15.22
The Citadel................. 1 Cherry Creek 1987 130,652 89 (5) 22.26
55 Madison.................. 1 Cherry Creek 1982 137,176 85 (5) 19.11
44 Cook..................... 1 Cherry Creek 1984 124,174 55 (5) 19.06
--- ----------- ---- -------
Subtotal/Weighted Average 7 1,855,882 93% $ 19.27
--- ----------- ---- -------
COLORADO SPRINGS
Briargate Office and Research
Center...................... 1 Colorado Springs 1988 252,857 100% $ 18.00
--- ----------- ---- -------
LOUISIANA
NEW ORLEANS
Energy Centre............... 1 CBD 1984 761,500 81%(5) $ 15.48
1615 Poydras................ 1 CBD 1984 508,741 81 16.44
--- ----------- ---- -------
Subtotal/Weighted Average 2 1,270,241 81% $ 15.86
--- ----------- ---- -------
FLORIDA
MIAMI
Miami Center................ 1 CBD 1983 782,686 76%(5) $ 23.30
Datran Center............... 2 South Dade/Kendall 1986/1988 472,236 93 (5) 21.50
--- ----------- ---- -------
Subtotal/Weighted Average. 3 1,254,922 82% $ 22.53
--- ----------- ---- -------
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT.(1)
------------------------------ ---------- --------- --------- --------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
ARIZONA
PHOENIX
Two Renaissance Square........ 1 Downtown/CBD 1990 476,373 95% $ 23.88
6225 North 24th Street........ 1 Camelback Corridor 1981 86,451 83 (5) 21.98
--- ----------- ---- -------
Subtotal/Weighted Average.... 2 562,824 93% $ 23.62
--- ----------- ---- -------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour......... 2 Georgetown 1986 536,206 94%(5) $ 36.27
--- ----------- ---- -------
NEBRASKA
OMAHA
Central Park Plaza........... 1 CBD 1982 409,850 94% $ 15.93
--- ----------- ---- -------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza............ 1 CBD 1990 366,236 92% $ 19.19
--- ----------- ---- -------
CALIFORNIA
SAN FRANCISCO
160 Spear Street.............. 1 South of Market/CBD 1984 276,420 98% $ 25.68
--- ----------- ---- -------
SAN DIEGO
Chancellor Park (10)......... 1 UTC 1988 195,733 90%(5) $ 21.64
--- ----------- ---- -------
TOTAL/WEIGHTED AVERAGE 89 31,827,392 90%(5) $ 19.79(11)
=== ----------- ---- -------
</TABLE>
- --------------------------------
(1) Calculated based on base rent payable as of September 30, 1999,
without giving effect to free rent or scheduled rent increases that
would be taken into account under GAAP and including adjustments for
expenses payable by or reimbursable from tenants.
(2) The Company has a 49.5% limited partner interest and a .5% general
partner interest in the partnership that owns Bank One Center.
(3) The Company owns the principal economic interest in Trammell Crow
Center through its ownership of fee simple title to the Property
(subject to a ground lease and a leasehold estate regarding the
building) and two mortgage notes encumbering the leasehold interests
in the land and building.
(4) The Company owns the principal economic interest in Spectrum Center
through an interest in Spectrum Mortgage Associates L.P., which owns
both a mortgage note secured by Spectrum Center and the ground
lessor's interest in the land underlying the office building.
(5) Leases have been executed at certain Office Properties but had not
commenced as of September 30, 1999. If such leases had commenced as of
September 30, 1999, the percent leased for all Office Properties would
have been 92%. The total percent leased for these Properties would
have been as follows: Palisades Central II - 68%; Meridian - 98%;
Greenway Plaza - 92%; Houston Center - 97%; Three Westlake - 62%; 1800
West Loop South - 73%; 301 Congress - 99%; Avallon - 100%; Citadel -
93%; 55 Madison - 93%; 44 Cook - 99%; Energy Centre - 84%; Miami
Center - 80%; Datran - 96%; 6225 N. 24th St. - 100%; Washington
Harbour - 97%; and Chancellor Park - 93%.
(6) The Company has a 75% limited partner interest and an approximate 10%
indirect general partner interest in the partnership that owns the 12
Office Properties that comprise The Woodlands Office Properties.
(7) The property was primarily occupied by a major tenant until June 1999,
at which time the tenant made a payment of $4.7 million in connection
with its termination of the lease. Simultaneously with the lease
termination, the Company leased approximately 41% of the space to a
new tenant pursuant to a lease which commenced September 1, 1999.
(8) The Company owns the principal economic interest in Three Westlake
Park through its ownership of a mortgage note secured by Three
Westlake Park.
(9) The Company has a 1% general partner and a 49% limited partner
interest in the partnership that owns 301 Congress Avenue.
(10) The Company owns Chancellor Park through its ownership of a mortgage
note secured by the building and through its direct and indirect
interests in the partnership which owns the building.
(11) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Company Office Properties as
of September 30, 1999, giving effect to free rent and scheduled rent
increases that would be taken into consideration under GAAP and
including adjustments for expenses payable by or reimbursed from
tenants is $20.27.
46
<PAGE> 47
The following table provides information, as of September 30, 1999, for
the Company's Office Properties by state, city, and submarket.
<TABLE>
<CAPTION>
PERCENT
PERCENT LEASED OFFICE COMPANY
OF AT SUBMARKET SHARE OF
TOTAL TOTAL COMPANY PERCENT OFFICE
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2)
----------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD .......................... 3 3,859,554 12% 87% 85% 21%
Uptown/Turtle Creek .......... 4 1,923,527 6 98 92 34
Far North Dallas ............. 7 1,897,695 6 94 75 20
Las Colinas .................. 4 1,273,662 4 97 84 12
Richardson/Plano ............. 5 719,267 2 84 79 14
Stemmons Freeway ............. 1 634,381 2 88 89 26
LBJ Freeway .................. 2 453,018 1 96(6) 88 5
----------- ----------- ----------- ----------- ----------- -----------
Subtotal/Weighted Average .. 26 10,761,104 34% 91% 84% 18%
----------- ----------- ----------- ----------- ----------- -----------
FORT WORTH
CBD .......................... 1 954,895 3% 95% 84% 24%
----------- ----------- ----------- ----------- ----------- -----------
HOUSTON
CBD .......................... 3 2,764,418 9% 94%(6) 97% 11%
Richmond-Buffalo Speedway .... 6 2,735,030 9 91(6) 92 56
West Loop/Galleria ........... 4 1,677,293 5 86 94 13
The Woodlands ................ 7 487,320 2 99 97 100
Katy Freeway ................. 2 975,316 3 75(6) 86 13
----------- ----------- ----------- ----------- ----------- -----------
Subtotal/Weighted Average .. 22 8,639,377 27% 89% 94% 17%
----------- ----------- ----------- ----------- ----------- -----------
AUSTIN
CBD .......................... 4 1,584,530 5% 94%(6) 98% 44%
Northwest .................... 1 232,301 1 89(6) 82 10
Southwest .................... 1 99,895 0 97 98 4
----------- ----------- ----------- ----------- ----------- -----------
Subtotal/Weighted Average .. 6 1,916,726 6% 93% 93% 23%
----------- ----------- ----------- ----------- ----------- -----------
COLORADO
DENVER
Cherry Creek ................. 4 810,632 3% 88%(6) 83% 46%
CBD .......................... 2 735,388 2 95 97 7
DTC .......................... 1 309,862 1 98 87 6
----------- ----------- ----------- ----------- ----------- -----------
Subtotal/Weighted Average .. 7 1,855,882 6% 93% 93% 11%
----------- ----------- ----------- ----------- ----------- -----------
COLORADO SPRINGS
Colorado Springs ............. 1 252,857 1% 100% 93% 6%
----------- ----------- ----------- ----------- ----------- -----------
LOUISIANA
NEW ORLEANS
CBD .......................... 2 1,270,241 4% 81%(6) 87% 14%
----------- ----------- ----------- ----------- ----------- -----------
FLORIDA
MIAMI
CBD .......................... 1 782,686 3% 76%(6) 91% 23%
South Dade/Kendall ........... 2 472,236 2 93(6) 94 100
----------- ----------- ----------- ----------- ----------- -----------
Subtotal/Weighted Average .. 3 1,254,922 4% 82% 91% 33%
----------- ----------- ----------- ----------- ----------- -----------
ARIZONA
PHOENIX
Downtown/CBD ................. 1 476,373 2% 95% 95% 27%
Camelback Corridor ........... 1 86,451 0 83(6) 97 2
----------- ----------- ----------- ----------- ----------- -----------
Subtotal/Weighted Average .. 2 562,824 2% 93% 97% 11%
----------- ----------- ----------- ----------- ----------- -----------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown ................... 2 536,206 2% 94%(6) 97% 100%
----------- ----------- ----------- ----------- ----------- -----------
NEBRASKA
OMAHA
CBD .......................... 1 409,850 1% 94% 96% 32%
----------- ----------- ----------- ----------- ----------- -----------
NEW MEXICO
ALBUQUERQUE
CBD .......................... 1 366,236 1% 92% 95% 64%
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
QUOTED QUOTED SERVICE
MARKET RENTAL RENTAL
RENTAL RATE RATE PER RATE PER
PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(2)(3) FOOT(4) FOOT(5)
----------------------- ----------- ----------- -----------
<S> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD .......................... $ 22.50 $ 25.81 $ 22.19
Uptown/Turtle Creek .......... 26.69 30.48 26.27
Far North Dallas ............. 25.09 24.17 19.34
Las Colinas .................. 25.95 25.80 23.09
Richardson/Plano ............. 22.83 23.25 19.36
Stemmons Freeway ............. 22.99 19.50 15.33
LBJ Freeway .................. 24.90 22.32 19.22
----------- ----------- -----------
Subtotal/Weighted Average .. $ 24.27 $ 25.66 $ 21.87
----------- ----------- -----------
FORT WORTH
CBD .......................... $ 19.99 $ 20.58 $ 15.50
----------- ----------- -----------
HOUSTON
CBD .......................... $ 22.47 $ 23.48 $ 16.81
Richmond-Buffalo Speedway .... 20.43 21.43 18.17
West Loop/Galleria ........... 21.98 23.04 17.51
The Woodlands ................ 15.73 15.73 16.38
Katy Freeway ................. 22.25 24.44 18.69
----------- ----------- -----------
Subtotal/Weighted Average .. $ 21.32 $ 22.42 $ 17.53
----------- ----------- -----------
AUSTIN
CBD .......................... $ 29.02 $ 29.37 $ 21.96
Northwest .................... 26.71 25.50 21.89
Southwest .................... 26.79 25.25 21.39
----------- ----------- -----------
Subtotal/Weighted Average .. $ 28.62 $ 28.68 $ 21.92
----------- ----------- -----------
COLORADO
DENVER
Cherry Creek ................. $ 23.99 $ 21.87 $ 19.32
CBD .......................... 25.85 21.75 17.42
DTC .......................... 25.50 26.00 23.27
----------- ----------- -----------
Subtotal/Weighted Average .. $ 24.98 $ 22.51 $ 19.27
----------- ----------- -----------
COLORADO SPRINGS
Colorado Springs ............. $ 19.11 $ 19.45 $ 18.00
----------- ----------- -----------
LOUISIANA
NEW ORLEANS
CBD .......................... $ 16.43 $ 16.10 $ 15.86
----------- ----------- -----------
FLORIDA
MIAMI
CBD .......................... $ 28.76 $ 30.75 $ 23.30
South Dade/Kendall ........... 23.75 23.75 21.50
----------- ----------- -----------
Subtotal/Weighted Average .. $ 26.87 $ 28.12 $ 22.53
----------- ----------- -----------
ARIZONA
PHOENIX
Downtown/CBD ................. $ 23.02 $ 23.50 $ 23.88
Camelback Corridor ........... 27.28 21.50 21.98
----------- ----------- -----------
Subtotal/Weighted Average .. $ 23.67 $ 23.19 $ 23.62
----------- ----------- -----------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown ................... $ 36.68 $ 36.68 $ 36.27
----------- ----------- -----------
NEBRASKA
OMAHA
CBD .......................... $ 18.61 $ 18.50 $ 15.93
----------- ----------- -----------
NEW MEXICO
ALBUQUERQUE
CBD .......................... $ 19.10 $ 19.50 $ 19.19
----------- ----------- -----------
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
PERCENT
PERCENT LEASED OFFICE COMPANY
OF AT SUBMARKET SHARE OF
TOTAL TOTAL COMPANY PERCENT OFFICE
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2)
---------------------- ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA
SAN FRANCISCO
South of Market/CBD ............ 1 276,420 1% 98% 97% 2%
----------- ----------- ----------- ----------- ----------- -----------
SAN DIEGO
UTC ............................ 1 195,733 1% 90%(6) 87% 5%
----------- ----------- ----------- ----------- ----------- -----------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE .................... 76 29,253,273 92% 91% 90% 16%
=========== =========== =========== =========== =========== ===========
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway ............. 2 413,721 1% 75% 83% 11%
LBJ Freeway .................... 1 244,879 1 89 85 2
Far North Dallas ............... 1 40,525 0 84 82 0
----------- ----------- ----------- ----------- ----------- -----------
Subtotal/Weighted Average .... 4 699,125 2% 81% 83% 3%
----------- ----------- ----------- ----------- ----------- -----------
HOUSTON
Richmond-Buffalo Speedway ...... 4 1,551,247 5% 89% 94% 47%
The Woodlands .................. 5 323,747 1 99 99 100
----------- ----------- ----------- ----------- ----------- -----------
Subtotal/Weighted Average .... 9 1,874,994 6% 91% 94% 51%
----------- ----------- ----------- ----------- ----------- -----------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE .................... 13 2,574,119 8% 88% 85% 9%
=========== =========== =========== =========== =========== ===========
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE .................... 89 31,827,392 100% 90%(6) 89% 15%
=========== =========== =========== =========== =========== ===========
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
QUOTED QUOTED SERVICE
MARKET RENTAL RENTAL
RENTAL RATE RATE PER RATE PER
PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(2)(3) FOOT(4) FOOT(5)
---------------------- ----------- ----------- -----------
<S> <C> <C> <C>
CALIFORNIA
SAN FRANCISCO
South of Market/CBD ............ $ 46.36 $ 42.00 $ 25.68
----------- ----------- -----------
SAN DIEGO
UTC ............................ $ 29.70 $ 26.00 $ 21.64
----------- ----------- -----------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE .................... $ 23.63 $ 24.31 $ 20.20
=========== =========== ===========
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway ............. $ 17.41 $ 18.63 $ 14.18
LBJ Freeway .................... 19.14 18.15 15.16
Far North Dallas ............... 20.56 19.50 17.19
----------- ----------- -----------
Subtotal/Weighted Average .... $ 18.20 $ 18.51 $ 14.74
----------- ----------- -----------
HOUSTON
Richmond-Buffalo Speedway ...... $ 18.74 $ 20.08 $ 14.92
The Woodlands .................. 15.09 15.09 15.65
----------- ----------- -----------
Subtotal/Weighted Average .... $ 18.11 $ 19.22 $ 15.06
----------- ----------- -----------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE .................... $ 18.13 $ 19.03 $ 14.98
=========== =========== ===========
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE .................... $ 23.19 $ 23.88 $ 19.79(7)
=========== =========== ===========
</TABLE>
- --------------------------------
(1) NRA means net rentable area in square feet.
(2) Market information is for Class A office space under the caption
"Class A Office Properties" and market information is for Class B
office space under the caption "Class B Office Properties." Sources
are CoStar/Jamison, (for the Dallas CBD, Uptown/Turtle Creek, Far
North Dallas, Las Colinas, Richardson/Plano, Stemmons Freeway, LBJ
Freeway and Central Expressway, Fort Worth CBD and the New Orleans CBD
submarkets), The Baca Group (for the Houston Richmond-Buffalo
Speedway, CBD and West Loop/Galleria and Katy Freeway submarkets), The
Woodlands Operating Company, L.P. (for The Woodlands submarket), CB
Richard Ellis (for the Austin CBD, Northwest and Southwest
submarkets), Cushman & Wakefield of Colorado, Inc. (for the Denver
Cherry Creek, CBD and DTC submarkets), Turner Commercial Research (for
the Colorado Springs market), Grubb and Ellis Company (for the Phoenix
Downtown/CBD, Camelback Corridor and San Francisco South of Market/CBD
submarkets), Grubb and Ellis Company and the Company (for the
Washington D.C. Georgetown submarket), Grubb and Ellis/Pacific Realty
Group, Inc. (for the Omaha CBD submarket), Building Interests, Inc.
(for the Albuquerque CBD submarket), RealData Information Systems,
Inc. (for the Miami CBD and South Dade/Kendall submarkets) and
CoStar/John Burnham (for the San Diego UTC submarket).
(3) Represents full-service quoted market rental rates. These rates do not
necessarily represent the amounts at which available space at the
Office Properties will be leased. The weighted average subtotals and
total are based on total net rentable square feet of Company Office
Properties in the submarket.
(4) For Office Properties, represents weighted average rental rates per
square foot quoted by the Company as of September 30, 1999, based on
total net rentable square feet of Company Office Properties in the
submarket, adjusted, if necessary, based on management estimates, to
equivalent full-service quoted rental rates to facilitate comparison
to weighted average Class A or Class B, as the case may be, quoted
submarket rental rates per square foot. These rates do not necessarily
represent the amounts at which available space at the Company's Office
Properties will be leased.
(5) Calculated based on base rent payable for Company Office Properties in
the submarket as of September 30, 1999, without giving effect to free
rent or scheduled rent increases that would be taken into account
under GAAP and including adjustments for expenses payable by or
reimbursed from tenants, divided by total net rentable square feet of
Company Office Properties in the submarket.
(6) Leases have been executed at certain Properties in these submarkets
but had not commenced as of September 30, 1999. If such leases had
commenced as of September 30, 1999, the percent leased for all Office
Properties in the Company's submarkets would have been 92%. The total
percent leased for these Class A Company submarkets would have been as
follows: Dallas LBJ Freeway - 99%; Houston CBD - 97%; Houston Richmond
- Buffalo Speedway - 93%; Houston Katy Freeway - 84%; Austin CBD -
97%; Austin Northwest - 100%; Denver Cherry Creek -- 97%; New Orleans
CBD - 84%; Miami CBD - 80%; Miami South Dade/Kendall - 96%; Phoenix
Camelback Corridor - 100%; Washington D.C. Georgetown - 97%; and San
Diego UTC - 93%.
(7) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Company Office Properties as
of September 30, 1999, giving effect to free rent and scheduled rent
increases that would be taken into consideration under GAAP and
including adjustments for expenses payable by or reimbursed from
tenants is $20.27.
48
<PAGE> 49
The following table shows, as of September 30, 1999, the principal
businesses conducted by the tenants at the Company's Office Properties, based on
information supplied to the Company from the tenants.
<TABLE>
<CAPTION>
Percent of
Industry Sector Leased Sq. Ft.
--------------- --------------
<S> <C>
Professional Services (1) 25%
Energy(2) 20
Financial Services (3) 19
Technology 7
Telecommunications 6
Medical 3
Government 3
Food Service 3
Manufacturing 2
Retail 2
Other(4) 10
----
Total Leased 100%
====
</TABLE>
- -------------------
(1) Includes legal, accounting, engineering, architectural, and
advertising services.
(2) Of the 20% of energy tenants at the Company's Office Properties, 64%
are located in Houston, 24% are located in Dallas, 7% are located in
Denver and 5% are located in New Orleans. Of the 64% of energy tenants
located in Houston (approximately 3.8 million square feet), 71%
(approximately 2.7 million square feet) are obligated under long-term
leases (expiring in 2003 or later).
(3) Includes banking, title and insurance, and investment services
(4) Includes construction, real estate, transportation and other
industries.
AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following tables show schedules of lease expirations for leases in
place as of September 30, 1999 for the Company's total Office Properties and for
Dallas and Houston, Texas, individually, for each of the ten years beginning
with the remainder of 1999, assuming that none of the tenants exercises or has
exercised renewal options.
TOTAL OFFICE PROPERTIES
<TABLE>
<CAPTION>
ANNUAL
PERCENTAGE FULL-SERVICE
NET RENTABLE PERCENTAGE OF TOTAL RENT PER
AREA OF LEASED NET ANNUAL SQUARE
REPRESENTED RENTABLE ANNUAL FULL-SERVICE FOOT OF
NUMBER OF BY EXPIRING AREA FULL-SERVICE RENT NET
TENANTS WITH LEASES REPRESENTED RENT UNDER REPRESENTED RENTABLE
YEAR OF LEASE EXPIRING (SQUARE BY EXPIRING EXPIRING BY EXPIRING AREA
EXPIRATION LEASES FEET) LEASES LEASES(1) LEASES EXPIRING(1)
-------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999 .................... 265 1,480,500(2) 5.2% $ 29,227,027 4.9% $ 19.74
2000 .................... 435 3,362,913 11.8 66,143,069 11.0 19.67
2001 .................... 410 3,767,545 13.2 72,397,518 12.0 19.22
2002 .................... 389 3,905,953 13.7 82,048,599 13.6 21.01
2003 .................... 292 2,872,387 10.1 55,945,333 9.3 19.48
2004 .................... 256 3,969,431 13.9 84,109,748 14.0 21.19
2005 .................... 86 2,414,756 8.5 53,752,790 8.9 22.26
2006 .................... 39 837,593 2.9 18,544,371 3.1 22.14
2007 .................... 36 1,317,982 4.6 30,142,040 5.0 22.87
2008 .................... 31 1,096,600 3.8 27,243,636 4.5 24.84
2009 and thereafter ..... 35 3,461,922 12.3 82,243,893 13.7 23.76
------------ ------------ ------------ ------------ ------------ ------------
Totals .................. 2,274 28,487,582(3) 100.0%(3) $601,798,024 100.0% $ 21.12
============ ============ ============ ============ ============ ============
</TABLE>
49
<PAGE> 50
- ---------------------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled
rent increases that would be taken into account under GAAP and
including adjustments for expenses payable by or reimbursable from
tenants based on current levels.
(2) As of September 30, 1999, leases have been signed for approximately
1,240,275 net rentable square feet (including renewed leases and
leases of previously unleased space) commencing after September 30,
1999.
(3) Reconciliation to the Company's total office net rentable area is as
follows:
<TABLE>
<CAPTION>
SQUARE FEET PERCENTAGE OF TOTAL
------------ --------------------
<S> <C> <C>
Square footage leased to tenants 28,487,582 89.5%
Square footage used for
management offices, building use,
and remeasurement adjustments 291,685 0.9
Square footage vacant 3,048,125 9.6
------------ ------------
Total net rentable square footage 31,827,392 100.0%
============ ============
</TABLE>
DALLAS OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL ANNUAL
NET RENTABLE ANNUAL FULL-SERVICE
AREA PERCENTAGE OF ANNUAL FULL-SERVICE RENT PER
NUMBER OF REPRESENTED LEASED NET FULL-SERVICE RENT SQUARE
TENANTS WITH BY EXPIRING RENTABLE AREA RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES REPRESENTED BY EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES LEASES(1) LEASES EXPIRING(1)
-------------- ------------ ------------ --------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
1999 ................... 94 652,502(2) 6.3% $ 14,980,885 6.5% $ 22.96
2000 ................... 168 1,767,381 17.1 36,777,285 15.8 20.81
2001 ................... 141 1,164,912 11.3 24,688,999 10.6 21.19
2002 ................... 115 1,031,775 10.0 24,975,464 10.8 24.21
2003 ................... 88 1,158,667 11.2 22,694,047 9.8 19.59
2004 ................... 80 867,285 8.4 21,828,912 9.4 25.17
2005 ................... 20 1,199,492 11.6 25,588,845 11.0 21.33
2006 ................... 13 223,326 2.2 5,784,130 2.5 25.90
2007 ................... 13 558,608 5.4 13,529,447 5.8 24.22
2008 ................... 11 571,209 5.5 14,113,446 6.1 24.71
2009 and thereafter .... 9 1,132,649 11.0 27,128,918 11.7 23.95
------------ ------------ ------------ ------------ ------------ ------------
Totals ................. 752 10,327,806 100.0% $232,090,378 100.0% $ 22.47
============ ============ ============ ============ ============ ============
</TABLE>
- -----------------------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from tenants based on
current levels.
(2) As of September 30, 1999, leases have been signed for approximately 364,193
net rentable square feet (including renewed leases and leases of previously
unleased space) commencing after September 30, 1999.
50
<PAGE> 51
HOUSTON OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL ANNUAL
NET RENTABLE ANNUAL FULL-SERVICE
AREA PERCENTAGE OF ANNUAL FULL-SERVICE RENT PER
NUMBER OF REPRESENTED LEASED NET FULL-SERVICE RENT SQUARE
TENANTS WITH BY EXPIRING RENTABLE AREA RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES REPRESENTED BY EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES LEASES(1) LEASES EXPIRING(1)
-------------- ------------ ------------ --------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
1999 ................... 86 628,679(2) 6.7% $ 10,015,829 5.6% $ 15.93
2000 ................... 136 783,040 8.3 12,458,252 7.0 15.91
2001 ................... 132 1,658,458 17.6 28,467,363 16.0 17.16
2002 ................... 149 1,166,984 12.4 21,245,614 11.9 18.21
2003 ................... 98 878,917 9.3 15,795,847 8.9 17.97
2004 ................... 86 1,697,124 18.0 31,698,292 17.8 18.68
2005 ................... 18 194,584 2.1 3,731,596 2.1 19.18
2006 ................... 9 310,229 3.3 5,823,114 3.3 18.77
2007 ................... 6 476,874 5.1 9,434,382 5.3 19.78
2008 ................... 7 183,719 2.0 3,238,829 1.8 17.63
2009 and thereafter .... 10 1,437,952 15.2 36,288,800 20.3 25.24
------------ ------------ ------------ ------------ ------------ ------------
Totals ................. 737 9,416,560 100.0% $178,197,918 100.0% $ 18.92
============ ============ ============ ============ ============ ============
</TABLE>
- ---------------------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from tenants based on
current levels.
(2) As of September 30, 1999, leases have been signed for approximately 554,939
net rentable square feet (including renewed leases and leases of previously
unleased space) commencing after September 30, 1999.
RETAIL PROPERTIES
The Company owns seven Retail Properties, which in the aggregate
contain approximately 779,000 net rentable square feet. Four of the Retail
Properties, The Woodlands Retail Properties, with an aggregate of approximately
358,000 net rentable square feet (remeasured), are located in The Woodlands, a
master-planned development located 27 miles north of downtown Houston, Texas.
The Company has a 75% limited partner interest and an approximately 10% indirect
general partner interest in the partnership that owns The Woodlands Retail
Properties. Two of the Retail Properties, Las Colinas Plaza, with approximately
135,000 net rentable square feet, and The Crescent Atrium with approximately
95,000 net rentable square feet, are located in submarkets of Dallas, Texas. The
remaining Retail Property, The Park Shops at Houston Center, with an aggregate
of approximately 191,000 net rentable square feet, is located in the CBD
submarket of Houston, Texas. As of September 30, 1999, the Retail Properties
were 95% leased.
51
<PAGE> 52
HOTEL PROPERTIES
HOTEL PROPERTIES TABLES
The following table shows certain information for the nine months ended
September 30, 1999 and 1998, about the Company's Hotel Properties. The
information for the Hotel Properties is based on available rooms, except for
Canyon Ranch-Tucson and Canyon Ranch-Lenox, which are destination health and
fitness resorts that measure their performance based on available guest nights.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------
AVERAGE AVERAGE REVENUE PER
OCCUPANCY DAILY AVAILABLE
YEAR RATE RATE ROOM
COMPLETED/ --------------- -------------- --------------
HOTEL PROPERTY(1) LOCATION RENOVATED ROOMS 1999 1998 1999 1998 1999 1998
-------------- -------- --------- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FULL-SERVICE/LUXURY HOTELS:
Denver Marriott City Center Denver, CO 1982/1994 613 81% 81% $125 $126 $100 $102
Four Seasons Hotel-Houston Houston, TX 1982 399 65 65 197 179 128 116
Hyatt Regency Albuquerque Albuquerque, NM 1990 395 69 70 105 102 72 71
Omni Austin Hotel Austin, TX 1986 362(2) 79 80 123 114 96 90
Hyatt Regency Beaver Creek Avon, CO 1989 276 75 72 254 240 191 173
Sonoma Mission Inn & Spa Sonoma, CA 1927/1987/1997 178(3) 82 84 218 230 178 193
Ventana Country Inn Big Sur, CA 1975/1982/1988 62 80 58(4) 371 380 297 221(4)
Renaissance Houston Hotel Houston, TX 1975 389 63 68 94 92 59 63
----- ---- ---- ---- ---- ---- ----
TOTAL/WEIGHTED AVERAGE 2,674 73% 74% $156 $150 $114 $110
===== ==== ==== ==== ==== ==== ====
DESTINATION HEALTH & GUESTNIGHTS
FITNESS RESORTS: -----------
Canyon Ranch-Tucson Tucson, AZ 1980 250(5)
Canyon Ranch-Lenox Lenox, MA 1989 212(5)
=====
TOTAL/WEIGHTED AVERAGE 462 88%(6) 87%(6) $529(7) $493(7) $446(8) $414(8)
===== ==== ==== ==== ==== ==== ====
</TABLE>
-------------------------------
(1) Because of the Company's status as a REIT for federal income tax
purposes, it does not operate the Hotel Properties and has leased all
of the Hotel Properties, except the Omni Austin Hotel, to COI pursuant
to long term leases. As of January 1, 1999, the Omni Austin Hotel is
leased pursuant to a separate long term lease to an unrelated third
party.
(2) As of September 30, 1999, 48 condominiums have been converted to hotel
suites.
(3) In February 1999, 20 rooms were taken out of commission for
construction of the spa.
(4) Temporarily closed from February 1, 1998 through May 1, 1998 due to
flooding in the region, affecting the roadway passage to the hotel.
(5) Represents available guest nights, which is the maximum number of
guests that the resort can accommodate per night.
(6) Represents the number of paying and complimentary guests for the
period, divided by the maximum number of available guest nights for
the period.
(7) Represents the average daily "all-inclusive" guest package charges for
the period, divided by the average daily number of paying guests for
the period.
(8) Represents the total "all-inclusive" guest package charges for the
period, divided by the maximum number of available guest nights for
the period.
52
<PAGE> 53
REFRIGERATED STORAGE PROPERTIES
REFRIGERATED STORAGE PROPERTIES TABLE
The following table shows the number and aggregate size of Refrigerated
Storage Properties leased to the newly formed partnership, the Refrigerated
Storage Operating Partnership, by state as of September 30, 1999:
<TABLE>
<CAPTION>
TOTAL CUBIC TOTAL TOTAL CUBIC TOTAL
NUMBER OF FOOTAGE SQUARE FEET NUMBER OF FOOTAGE SQUARE FEET
STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS) STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS)
----- ------------- ------------- ------------- ----- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alabama 4 9.4 0.3 Mississippi 1 4.7 0.2
Arizona 1 2.9 0.1 Missouri(2) 2 37.9 2.2
Arkansas 6 33.1 1.0 Nebraska 2 4.4 0.2
California 9 28.6 1.1 New York 1 11.8 0.4
Colorado 2 3.4 0.1 North Carolina 3 8.5 0.3
Florida 5 7.5 0.3 Oklahoma 2 2.1 0.1
Georgia 7 44.5 1.6 Oregon 6 40.4 1.7
Idaho 2 18.7 0.8 Pennsylvania 2 27.4 0.9
Illinois 2 11.6 0.4 South Carolina 1 1.6 0.1
Indiana 1 9.1 0.3 South Dakota 1 2.9 0.1
Iowa 2 12.5 0.5 Tennessee 3 10.6 0.4
Kansas 2 5.0 0.2 Texas 2 6.6 0.2
Kentucky 1 2.7 0.1 Utah 1 8.6 0.4
Maine 1 1.8 0.2 Virginia 2 8.7 0.3
Massachusetts 6 15.2 0.7 Washington 6 28.7 1.1
Wisconsin 3 17.4 0.7
--- ------ -----
TOTAL 89(3) 428.3(3) 17.0(3)
=== ====== =====
</TABLE>
- -----------------------------
(1) As of September 30, 1999, the Refrigerated Storage Partnerships and the
Refrigerated Storage Corporations directly or indirectly owned real estate
assets associated with the Refrigerated Storage Properties. The business
operations associated with the Refrigerated Storage Properties are owned by
the recently formed Refrigerated Storage Operating Partnership, in which
the Company has no interest. The Company holds an indirect 39.6% interest
in the Refrigerated Storage Partnerships which are entitled to receive
lease payments (base rent and percentage rent) from the Refrigerated
Storage Operating Partnership.
(2) Missouri has an underground storage facility, with approximately 33.1
million cubic feet.
(3) As of September 30, 1999, the Refrigerated Storage Operating Partnership
operated 103 refrigerated storage properties with an aggregate of
approximately 514.4 million cubic feet (19.8 million square feet).
53
<PAGE> 54
RESIDENTIAL DEVELOPMENT PROPERTIES
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table shows certain information as of September 30, 1999,
relating to the Residential Development Properties.
<TABLE>
<CAPTION>
AVERAGE
TOTAL TOTAL CLOSED
RESIDENTIAL RESIDENTIAL TOTAL LOTS/UNITS LOTS/UNITS SALE
RESIDENTIAL DEVELOPMENT DEVELOPMENT LOTS/ DEVELOPED CLOSED PRICE
DEVELOPMENT PROPERTIES TYPE OF CORPORATION'S UNITS SINCE SINCE PER Lot/
CORPORATION(1) (RDP) RDP(2) LOCATION OWNERSHIP % PLANNED INCEPTION INCEPTION UNIT($)(3)
-------------- ----------- ------- -------- ----------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ 93.0% 2,665 2,210 1,900 470,000(5)
Development -------- -------- --------
Corp.
The Woodlands The Woodlands SF The Woodlands, TX 42.5% 36,845 21,356 20,182 49,554
Land Company ======== ======== ========
Inc.
Crescent Villa Montane
Development Townhomes TH Avon, CO 30.0% 27(6) 27 25 1,125,000
Management Villa Montane
Corp. Club TS Avon, CO 30.0% 38 38 37 60,000(7)
Deer Trail SFH Avon, CO 60.0% 16(6) 8 8 2,930,000
Buckhorn
Townhomes TH Avon, CO 60.0% 24(6) 19 19 1,300,000
Bear Paw Lodge CO Avon, CO 60.0% 53(6) 7 7 1,675,000
Eagle Ranch SF Eagle, CO 60.0% 1,100(6) -- -- N/A
Main Street
Junction CO Breckenridge,CO 60.0% 36(6) -- -- N/A
Riverbend/
Valleydale SF Charlotte, NC 60.0% 915(6) -- -- N/A
Three Peaks
(Eagle's Nest) SF Silverthorne, CO 30.0% 391(6) 36 36 213,000
-------- -------- --------
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP. 2,600 135 132
-------- -------- --------
Mira Vista MiraVista SF Fort Worth,TX 100.0% 757 693 539 98,000
Development The Highlands SF Breckenridge,CO 12.3% 750 317 305 143,000
Corp. -------- -------- --------
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,507 1,010 844
-------- -------- --------
Houston Area FalconPoint SF Houston,TX 100.0% 1,205 556 512 31,000
Development SpringLakes SF Houston,TX 100.0% 536 161 98 28,000
Corp. -------- -------- --------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,741 717 610
-------- -------- --------
TOTAL 45,358 25,428 23,668
======== ======== ========
<CAPTION>
RESIDENTIAL RANGE OF
RESIDENTIAL DEVELOPMENT PROPOSED
DEVELOPMENT PROPERTIES SALE PRICES
CORPORATION(1) (RDP) PER LOT/UNIT($)(4)
-------------- ----------- -----------------------
<S> <C> <C>
Desert Mountain Desert Mountain 375,000 - 3,000,000(5)
Development
Corp.
The Woodlands The Woodlands 15,300 - 500,000
Land Company
Inc.
Crescent Villa Montane
Development Townhomes 1,325,000 - 1,355,000
Management Villa Montane
Corp. Club 18,000 - 150,000(7)
Deer Trail 2,695,000 - 4,075,000
Buckhorn
Townhomes 1,420,000 - 1,870,000
Bear Paw Lodge 665,000 - 2,025,000
Eagle Ranch 80,000 - 150,000
Main Street
Junction 300,000 - 580,000
Riverbend/
Valleydale 23,000 - 30,000
Three Peaks
(Eagle's Nest) 135,000 - 425,000
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP.
Mira Vista MiraVista 50,000 - 265,000
Development The Highlands 55,000 - 450,000
Corp.
TOTAL MIRA VISTA DEVELOPMENT CORP.
Houston Area FalconPoint 22,000 - 60,000
Development SpringLakes 22,000 - 33,000
Corp.
TOTAL HOUSTON AREA DEVELOPMENT CORP.
TOTAL
</TABLE>
- -----------------------------------------
(1) The Company has an approximately 95%, 95%, 90%, 94%, and 94%,
ownership interest in Desert Mountain Development Corporation, The
Woodlands Land Company, Inc., Crescent Development Management Corp.,
Mira Vista Development Corp., and Houston Area Development Corp.,
respectively, through ownership of non-voting common stock in each of
these Residential Development Corporations.
(2) SF (Single-Family Lots); CO (Condominium); TH (Townhome); TS
(Timeshare); and SFH (Single Family Homes).
(3) Based on Lots/Units closed during the Company's ownership period.
(4) Based on existing inventory of developed lots and lots to be
developed.
(5) Includes golf membership, which for 1999, is approximately $175,000.
(6) As of September 30, 1999, 1 unit was under contract at Villa Montane
Townhomes representing $1.3 million in sales, 2 units were under
contract at Deer Trail representing $5.5 million in sales, 5 units
were under contract at Buckhorn Townhomes representing $7.9 million in
sales, 27 units were under contract at Bear Paw Lodge representing
$34.0 million in sales, 148 lots were under contract at Eagle Ranch
representing $18.9 million in sales, 16 units were under contract at
Main Street Junction representing $7.4 million in sales, 244 lots
(bulk sale undeveloped lots) were under contract at Valleydale
representing $1.5 million in sales, and 56 lots were under contract at
Three Peaks representing $12.9 million in sales.
(7) Represents amounts per timeshare (1/20 of a timeshare unit).
54
<PAGE> 55
BEHAVIORAL HEALTHCARE PROPERTIES
BEHAVIORAL HEALTHCARE PROPERTIES TABLE
The following table shows the number of properties and beds by state of
the 87 Behavioral Healthcare Properties as of September 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
STATE PROPERTIES(1)(2) BEDS STATE PROPERTIES(1)(2) BEDS
----- ---------------- --------- ----- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Alabama 1 70 Mississippi 2 217
Arkansas 2 109 North Carolina 4 410
Arizona 2 170 New Hampshire 2 100
California 8 649 New Jersey 1 150
Delaware 1 72 Nevada 1 84
Florida 12 648 Pennsylvania 1 169
Georgia 15 986 South Carolina 3 248
Indiana 7 517 Tennessee 1 204
Kansas 2 160 Texas 9 816
Kentucky 3 251 Utah 2 196
Maryland 1 0 Virginia 3 285
Minnesota 1 40 Wisconsin 2 160
Missouri 1 96 ----- -----
TOTAL 87 6,807
===== =====
</TABLE>
- -------------------
(1) The Behavioral Healthcare Properties include 87 properties in 25
states that are leased to CBHS. One property was sold in January 1999.
CBHS was formed to operate the Behavioral Healthcare Properties and is
owned 10% by a subsidiary of Magellan, 90% of common shares and 100%
preferred shares by COI.
(2) The property in Louisiana was closed in the second quarter of 1999.
YEAR 2000 COMPLIANCE
OVERVIEW
The year 2000 issue relates to whether computer systems will properly
recognize date-sensitive information to allow accurate processing of
transactions and data relating to the year 2000 and beyond. In addition, the
year 2000 issue relates to whether non-Information Technology ("IT") systems
that depend on embedded computer technology will recognize the year 2000.
Systems that do not properly recognize such information could generate erroneous
information or fail.
In early 1998, the Company assigned a group of individuals with the
task of creating a program to identify, understand and address the myriad issues
associated with the year 2000 problem. The group has completed its assessment of
the Company's year 2000 readiness by way of a comprehensive review of IT and
non-IT systems at the Company's principal executive offices and at the Company's
Properties. The group is in its final stages of remediation and testing of any
systems that were identified as being date sensitive and, accordingly, could
have potential year 2000 problems.
YEAR 2000 READINESS DISCLOSURE
The Company has completed its assessment of all mission-critical IT
systems, such as in-house accounting and property management systems, network
operating systems, telecommunication systems and desktop software systems as to
their year 2000 compliance. The Company is currently involved in remediating all
items that were deemed non-compliant. Although remediation and testing is not
yet complete, the Company has not identified any significant problem areas and
it believes that the mission-critical systems, AS/400 and accounting system,
local network servers, WAN equipment and the majority of desktop PC's are
compliant, or can be made compliant with minor software upgrades.
For non-IT systems, the Company has completed its comprehensive review
of computer hardware and software in mechanical systems and has developed a
program to repair or replace non-IT systems that are not year
55
<PAGE> 56
2000 compliant. As of November 1, 1999, approximately 99% of the systems have
been deemed compliant based upon manufacturers' statements, and the combined
research efforts of a retained outside specialist company, retained technology
consultants, and third party vendors. The remaining 1% have been reviewed and
plans are in place to upgrade or remediate these systems prior to November 30,
1999. Management does not believe that the resolution of any problems with
respect to these systems will have a material adverse effect on the Company's
financial condition or results of operations. The Company's non-IT systems or
embedded technology are primarily property-related and include escalator and
elevator service, building automation (e.g., energy management and HVAC
systems), security access systems, fire and life safety systems.
The Company believes that potential exposure lies with third parties,
such as its tenants, vendors, financial institutions and the Company's transfer
agent and unaffiliated joint venture partners. The Company depends on its
tenants for rents and cash flows, its financial institutions for availability of
cash, its transfer agent to maintain and track investor information, its vendors
for day-to-day services and its unaffiliated joint venture partners for
operations and management of certain of the Company's Properties. If any of
these third parties are unable to meet their obligations to the Company because
of the year 2000 problem, such a failure may have a material adverse effect on
the financial condition or results of operations of the Company. The Company is
actively pursuing information from third parties regarding their year 2000
compliance status. As of November 1, 1999, 97% of the third parties who have
responded to inquiries are either compliant, are employing plans to bring
themselves into compliance, or do not have any issues with year 2000 date
sensitivity. Although the Company continues to work with third parties in order
to attempt to eliminate its year 2000 concerns, the cost and timing of the third
party year 2000 compliance is not within the Company's control, and no assurance
can be given with respect to the cost and timing of these third-party efforts or
the potential effects of any failure to comply.
The majority of the work performed to date has been performed by
employees of the Company without significant additional cost to the Company. The
Company currently estimates that the total cost to repair and replace IT and
non-IT systems that are not year 2000 compliant (not including costs associated
with the Company's normal upgrade and replacement process) will be approximately
$1.2 million. Management does not believe that such estimated total cost will
have a material adverse effect on the Company's financial condition or results
of operations.
The Company currently believes that it will have performed all year
2000 compliance testing and completed its remedial measures on its IT and non-IT
systems on or before November 30, 1999. Based on the progress the Company has
made in addressing the Company's year 2000 issues and its plan and timeline to
complete its compliance program, at this time, the Company does not foresee
significant risks associated with the Company's year 2000 compliance. Management
does not believe that the year 2000 issue will pose significant problems in its
IT or non-IT systems, or that resolution of any potential problems with respect
to these systems will have a material adverse effect on the Company's financial
condition or results of operations. Management believes that the year 2000 risks
to the Company's financial condition or results of operations associated with a
failure of non-IT systems is immaterial, due to the fact that each of the
Company's Properties has, for the most part, separate non-IT systems.
Accordingly, a year 2000 problem that is experienced at one Property generally
should have no effect on the other Company Properties. In addition, management
believes that the Company has sufficient time to correct those system problems
within its control before the year 2000. Because the Company's major source of
income is rental payments under long-term leases, a failure of the Company's
mission-critical IT systems is not expected to have a material adverse effect on
the Company's financial condition or results of operations. Even if the Company
were to experience problems with its IT systems, the payment of rent under the
leases would not be excused. In addition, the Company expects to correct those
IT system problems within its control before the year 2000, thereby minimizing
or avoiding the increased cost of correcting problems after the fact.
The Company is in the process of developing contingency plans for its
IT and non-IT systems. Non-IT systems contingency plans are being tailored for
each of the Company's Properties, due to the fact that each of the Properties
has, for the most part, separate non-IT systems. As the Company identifies
significant risks related to the Company's year 2000 compliance, or if the
Company's year 2000 compliance program's progress deviates substantially from
the anticipated timeline, the Company will adjust contingency plans
appropriately.
56
<PAGE> 57
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's use of financial instruments, such as debt instruments,
subject the Company to market risk which may affect the Company's future
earnings and cash flows as well as the fair value of its assets. Market risk
generally refers to the risk of loss from changes in interest rates and market
prices. The Company manages its market risk by attempting to match anticipated
inflow of cash from its operating, investment and financing activities with
anticipated outflow of cash to fund debt payments, distributions to
shareholders, investments, capital expenditures and other cash requirements. The
Company does not enter into financial instruments for trading purposes.
The following discussion of market risk is based solely on hypothetical
changes in interest rates related to the Company's variable rate debt. This
discussion does not purport to take into account all of the factors that may
affect the financial instruments discussed in this section.
Interest Rate Risk
The Company's interest rate risk is most sensitive to fluctuations in
interest rates on its short-term variable rate debt. The Company had total
outstanding debt of approximately $2.7 billion at September 30, 1999, of which
approximately $1.2 billion, or 44%, was variable rate debt. The weighted average
interest rate on such variable rate debt was 7.64% as of September 30, 1999. A
10% (76.4 basis point) increase in the weighted average interest rate on such
variable rate debt would result in an annual decrease in net income and cash
flows of approximately $9.2 million based on the variable rate debt outstanding
as of September 30, 1999, as a result of the increased interest expense
associated with the change in rate. Conversely, a 10% (76.4 basis point)
decrease in the weighted average interest rate on such variable rate debt would
result in an annual increase in net income and cash flows of approximately $9.2
million based on the variable rate debt outstanding as of September 30, 1999, as
a result of the decreased interest expense associated with the change in rate.
Effective September 1, 1999, the Company entered into a four-year
interest rate swap agreement for a notional amount of $200 million. The swap
agreement is designed to mitigate the impact of changes in interest rates on
$200 million of the Company's $1.2 billion of variable rate debt.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Description
3.01 Restated Declaration of Trust of Crescent Real
Estate Equities Company (filed as Exhibit No. 4.01
to the Registrant's Registration Statement on Form
S-3 (File No. 333-21905) (the "1997 S-3") and
incorporated herein by reference)
3.02 Amended and Restated Bylaws of Crescent Real Estate
Equities Company, as amended (filed as Exhibit No.
3.02 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998
(the "1998 3Q 10-Q") and incorporated herein by
reference)
4.01 Form of Common Share Certificate (filed as Exhibit
No. 4.03 to the 1997 S-3 and incorporated herein by
reference)
4.02 Statement of Designation of 6-3/4% Series A
Convertible Cumulative Preferred Shares of Crescent
Real Estate Equities Company (filed as Exhibit 4.07
to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (the "1997
10-K") and incorporated herein by reference)
4.03 Form of Certificate of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate
Equities Company (filed as Exhibit No. 4 to the
Registrant's Registration Statement on Form 8-A/A
filed on February 18, 1998 and incorporated by
reference)
4.04 Indenture, dated as of September 22, 1997, between
Crescent Real Estate Equities Limited Partnership
and State Street Bank and Trust Company of Missouri,
N.A. (filed as Exhibit No. 4.01 to the Registration
Statement on Form S-4 (File No. 333-42293) of
Crescent Real Estate Equities Limited Partnership
(the "Form S-4") and incorporated herein by
reference)
4.05 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 (the "1998 2Q 10-Q")
and incorporated herein by reference)
4.06 7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to
the 1998 2Q 10-Q and incorporated herein by
reference)
10.01 Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of November 1, 1997, as
amended (filed as Exhibit 10.01 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999 (the "1999 2Q 10-Q") and incorporated
herein by reference)
10.02 Noncompetition Agreement of Richard E. Rainwater, as
assigned to Crescent Real Estate Equities Limited
Partnership on May 5, 1994 (filed as Exhibit 10.02
to the 1997 10-K and incorporated herein by
reference)
10.03 Noncompetition Agreement of John C. Goff, as
assigned to Crescent Real Estate Equities Limited
Partnership on May 5, 1994 (filed as Exhibit 10.03
to the 1997 10-K and incorporated herein by
reference)
10.04 Employment Agreement with John C. Goff, as assigned
to Crescent Real Estate Equities Limited Partnership
on May 5, 1994, and as further amended (filed as
Exhibit 10.05 to the 1997 10-K and incorporated
herein by reference)
10.05 Amendment No. 5 to the Goff Employment Agreement,
dated March 10, 1998 (filed as Exhibit 10.29 to the
Form S-4 and incorporated herein by reference)
10.06 Employment Agreement of Gerald W. Haddock, as
assigned to Crescent Real Estate Equities Limited
Partnership on May 5, 1994, and as further amended
(filed as Exhibit 10.06 to the 1997 10-K and
incorporated herein by reference)
10.07 Amendment No. 5 to the Haddock Employment Agreement,
dated March 1, 1999 (filed as Exhibit No. 10.09 to
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998 (the "1998 10-K") and
incorporated herein by reference)
10.08 Form of Officers' and Trust Managers'
Indemnification Agreement as entered into between
the Registrant and each of its executive officers
and trust managers (filed as Exhibit No. 10.07 to
the Form S-4 and incorporated herein by reference)
10.09 Crescent Real Estate Equities Company 1994 Stock
Incentive Plan (filed as Exhibit No. 10.07 to the
Registrant's Registration Statement on Form S-11
(File No. 33-75188) (the "Form S-11") and
incorporated herein by reference)
10.10 Crescent Real Estate Equities, Ltd. First Amended
and Restated 401(k) Plan, as amended (filed as
Exhibit No. 10.12 to the 1998 10-K and incorporated
herein by reference)
10.11 Second Amended and Restated 1995 Crescent Real
Estate Equities Company Stock Incentive Plan (filed
as Exhibit 10.13 to the Form S-4 and incorporated
herein by reference)
10.12 Amended and Restated 1995 Crescent Real Estate
Equities Limited Partnership Unit Incentive Plan
(filed as Exhibit 99.01 to the Registrant's
Registration Statement on Form S-8 (File No.
333-3452) and incorporated herein by reference)
10.13 1996 Crescent Real Estate Equities Limited
Partnership Unit Incentive Plan (filed as Exhibit
10.01 to the Registrant's Current Report on Form 8-K
dated and filed September 27, 1996 and incorporated
herein by reference)
10.14 Master Lease Agreement, dated June 16, 1997, as
amended, between Crescent Real Estate Funding VII,
L.P. and Charter Behavioral Health Systems, LLC and
its subsidiaries, relating to the Magellan
Facilities (filed as Exhibit 10.27 to the 1997 10-K
and incorporated herein by reference)
10.15 Fifth Amended and Restated Revolving Credit
Agreement, dated June 30, 1998, among Crescent Real
Estate Limited Partnership, BankBoston, N.A. and the
other banks named therein (filed as Exhibit 10.17 to
the 1998 2Q 10-Q and incorporated herein by
reference)
10.16 Intercompany Agreement, dated June 3, 1997, between
Crescent Real Estate Equities Limited Partnership
and Crescent Operating, Inc. (filed as Exhibit 10.2
to the Registration Statement on Form S-1 (File No.
333-25223) of Crescent Operating, Inc. and
incorporated herein by reference)
10.17 Form of Registration Rights, Lock-Up and Pledge
Agreement (filed as Exhibit No. 10.05 to the Form
S-11 and incorporated herein by reference)
10.18 Agreement dated June 11, 1999 by and between Gerald
W. Haddock and Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership and Crescent Real Estate Equities, Ltd.
(incorporated as exhibit 10.19 to the 1999 2Q 10-Q
and incorporated herein by reference)
27.01 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None
57
<PAGE> 58
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRESCENT REAL ESTATE EQUITIES COMPANY
/s/ John C. Goff
------------------------------------------
Date: November 15, 1999 John C. Goff, Vice Chairman of the Board,
------------------------ President and Chief Executive Officer
/s/ Jerry R. Crenshaw
------------------------------------------
Date: November 15, 1999 Jerry R. Crenshaw, Senior Vice President
------------------------ and Chief Financial Officer (Principal
Financial and Accounting Officer)
58
<PAGE> 59
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
-------- -----------
<S> <C>
3.01 Restated Declaration of Trust of Crescent Real
Estate Equities Company (filed as Exhibit No. 4.01
to the Registrant's Registration Statement on Form
S-3 (File No. 333-21905) (the "1997 S-3") and
incorporated herein by reference)
3.02 Amended and Restated Bylaws of Crescent Real Estate
Equities Company, as amended (filed as Exhibit No.
3.02 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998
(the "1998 3Q 10-Q") and incorporated herein by
reference)
4.01 Form of Common Share Certificate (filed as Exhibit
No. 4.03 to the 1997 S-3 and incorporated herein by
reference)
4.02 Statement of Designation of 6-3/4% Series A
Convertible Cumulative Preferred Shares of Crescent
Real Estate Equities Company (filed as Exhibit 4.07
to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (the "1997
10-K") and incorporated herein by reference)
4.03 Form of Certificate of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate
Equities Company (filed as Exhibit No. 4 to the
Registrant's Registration Statement on Form 8-A/A
filed on February 18, 1998 and incorporated by
reference)
4.04 Indenture, dated as of September 22, 1997, between
Crescent Real Estate Equities Limited Partnership
and State Street Bank and Trust Company of Missouri,
N.A. (filed as Exhibit No. 4.01 to the Registration
Statement on Form S-4 (File No. 333-42293) of
Crescent Real Estate Equities Limited Partnership
(the "Form S-4") and incorporated herein by
reference)
4.05 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 (the "1998 2Q 10-Q")
and incorporated herein by reference)
4.06 7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to
the 1998 2Q 10-Q and incorporated herein by
reference)
10.01 Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of November 1, 1997, as
amended (filed as Exhibit 10.01 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999 (the "1999 2Q 10-Q") and incorporated
herein by reference)
10.02 Noncompetition Agreement of Richard E. Rainwater, as
assigned to Crescent Real Estate Equities Limited
Partnership on May 5, 1994 (filed as Exhibit 10.02
to the 1997 10-K and incorporated herein by
reference)
10.03 Noncompetition Agreement of John C. Goff, as
assigned to Crescent Real Estate Equities Limited
Partnership on May 5, 1994 (filed as Exhibit 10.03
to the 1997 10-K and incorporated herein by
reference)
10.04 Employment Agreement with John C. Goff, as assigned
to Crescent Real Estate Equities Limited Partnership
on May 5, 1994, and as further amended (filed as
Exhibit 10.05 to the 1997 10-K and incorporated
herein by reference)
10.05 Amendment No. 5 to the Goff Employment Agreement,
dated March 10, 1998 (filed as Exhibit 10.29 to the
Form S-4 and incorporated herein by reference)
</TABLE>
<PAGE> 60
<TABLE>
<S> <C>
10.06 Employment Agreement of Gerald W. Haddock, as
assigned to Crescent Real Estate Equities Limited
Partnership on May 5, 1994, and as further amended
(filed as Exhibit 10.06 to the 1997 10-K and
incorporated herein by reference)
10.07 Amendment No. 5 to the Haddock Employment Agreement,
dated March 1, 1999 (filed as Exhibit No. 10.09 to
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998 (the "1998 10-K") and
incorporated herein by reference)
10.08 Form of Officers' and Trust Managers'
Indemnification Agreement as entered into between
the Registrant and each of its executive officers
and trust managers (filed as Exhibit No. 10.07 to
the Form S-4 and incorporated herein by reference)
10.09 Crescent Real Estate Equities Company 1994 Stock
Incentive Plan (filed as Exhibit No. 10.07 to the
Registrant's Registration Statement on Form S-11
(File No. 33-75188) (the "Form S-11") and
incorporated herein by reference)
10.10 Crescent Real Estate Equities, Ltd. First Amended
and Restated 401(k) Plan, as amended (filed as
Exhibit No. 10.12 to the 1998 10-K and incorporated
herein by reference)
10.11 Second Amended and Restated 1995 Crescent Real
Estate Equities Company Stock Incentive Plan (filed
as Exhibit 10.13 to the Form S-4 and incorporated
herein by reference)
10.12 Amended and Restated 1995 Crescent Real Estate
Equities Limited Partnership Unit Incentive Plan
(filed as Exhibit 99.01 to the Registrant's
Registration Statement on Form S-8 (File No.
333-3452) and incorporated herein by reference)
10.13 1996 Crescent Real Estate Equities Limited
Partnership Unit Incentive Plan (filed as Exhibit
10.01 to the Registrant's Current Report on Form 8-K
dated and filed September 27, 1996 and incorporated
herein by reference)
10.14 Master Lease Agreement, dated June 16, 1997, as
amended, between Crescent Real Estate Funding VII,
L.P. and Charter Behavioral Health Systems, LLC and
its subsidiaries, relating to the Magellan
Facilities (filed as Exhibit 10.27 to the 1997 10-K
and incorporated herein by reference)
10.15 Fifth Amended and Restated Revolving Credit
Agreement, dated June 30, 1998, among Crescent Real
Estate Limited Partnership, BankBoston, N.A. and the
other banks named therein (filed as Exhibit 10.17 to
the 1998 2Q 10-Q and incorporated herein by
reference)
10.16 Intercompany Agreement, dated June 3, 1997, between
Crescent Real Estate Equities Limited Partnership
and Crescent Operating, Inc. (filed as Exhibit 10.2
to the Registration Statement on Form S-1 (File No.
333-25223) of Crescent Operating, Inc. and
incorporated herein by reference)
10.17 Form of Registration Rights, Lock-Up and Pledge
Agreement (filed as Exhibit No. 10.05 to the Form
S-11 and incorporated herein by reference)
10.18 Agreement dated June 11, 1999 by and between Gerald
W. Haddock and Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership and Crescent Real Estate Equities, Ltd.
(incorporated as exhibit 10.19 to the 1999 2Q 10-Q
and incorporated herein by reference)
27.01 Financial Data Schedule (filed herewith)
</TABLE>
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