<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, 2000
COMMISSION FILE NO. 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
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(Exact name of registrant as specified in its charter)
TEXAS 52-1862813
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
777 Main Street, Suite 2100, Fort Worth, Texas 76102
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(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 7, 2000.
Preferred Shares, par value $.01 per share: 8,000,000
Common Shares, par value $.01 per share: 108,015,130
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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>
PAGE
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000 (unaudited) and December 31, 1999
(audited)............................................................................ 2
Consolidated Statements of Operations for the three and nine months ended September 30,
2000 and 1999 (unaudited)............................................................. 3
Consolidated Statements of Shareholders' Equity for the nine months ended
September 30, 2000 and 1999 (unaudited)............................................... 4
Consolidated Statements of Cash Flows for the nine months ended September 30,
2000 and 1999 (unaudited)............................................................. 5
Notes to Financial Statements......................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 60
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 61
Item 2. Changes in Securities................................................................. 61
Item 3. Defaults Upon Senior Securities....................................................... 61
Item 4. Submission of Matters to a Vote of Security Holders................................... 61
Item 5. Other Information..................................................................... 61
Item 6. Exhibits and Reports on Form 8-K...................................................... 61
</TABLE>
1
<PAGE> 3
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Investments in real estate:
Land $ 319,605 $ 398,754
Land held for development or sale 110,811 95,760
Building and improvements 3,229,129 3,529,344
Furniture, fixtures and equipment 65,891 71,716
Less - accumulated depreciation (547,117) (507,520)
------------- -------------
Net investment in real estate 3,178,319 3,588,054
Cash and cash equivalents 27,303 72,926
Restricted cash and cash equivalents 81,076 87,939
Accounts receivable, net 53,559 37,204
Deferred rent receivable 81,903 74,271
Investments in real estate mortgages and equity
of unconsolidated companies 839,313 812,494
Notes receivable, net 142,015 131,542
Other assets 159,111 146,131
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Total assets $ 4,562,599 $ 4,950,561
============= =============
LIABILITIES:
Borrowings under BankBoston Credit Facility $ -- $ 510,000
Borrowings under UBS Facility 553,452 --
Notes payable 1,721,563 2,088,929
Accounts payable, accrued expenses and other liabilities 152,821 170,984
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Total liabilities 2,427,836 2,769,913
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COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS:
Operating partnership, 7,010,823 and 6,975,952 units,
respectively 98,440 99,226
Investment joint ventures 294,300 24,648
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Total minority interests 392,740 123,874
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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, 2000
and December 31, 1999 200,000 200,000
Common shares, $.01 par value, authorized 250,000,000 shares,
121,755,989 and 121,537,353 shares issued and outstanding
at September 30, 2000 and December 31, 1999, respectively 1,211 1,208
Additional paid-in capital 2,220,091 2,229,680
Deferred compensation on restricted shares (41) (41)
Retained deficit (417,321) (386,532)
Accumulated other comprehensive income 3,190 12,459
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2,007,130 2,056,774
Less - shares held in treasury, at cost, 13,755,423 common
shares at September 30, 2000 (265,107) --
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Total shareholders' equity 1,742,023 2,056,774
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Total liabilities and shareholders' equity $ 4,562,599 $ 4,950,561
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Office and retail properties $ 151,347 $ 153,012 $ 447,989 $ 458,747
Hotel properties 19,728 16,999 55,735 48,510
Behavioral healthcare properties 1,550 8,634 6,933 36,282
Interest and other income 4,522 6,880 17,507 20,130
---------- ---------- ---------- ----------
Total revenues 177,147 185,525 528,164 563,669
---------- ---------- ---------- ----------
EXPENSES:
Real estate taxes 20,837 21,169 65,087 64,369
Repairs and maintenance 7,836 10,421 30,602 32,113
Other rental property operating 31,173 32,504 91,215 97,614
Corporate general and administrative 5,305 4,083 14,632 12,013
Interest expense 50,458 51,084 154,544 138,482
Amortization of deferred financing costs 2,368 2,033 7,056 7,857
Depreciation and amortization 30,988 30,344 93,608 97,001
Settlement of merger dispute -- -- -- 15,000
Impairment and other charges related to the
behavioral healthcare assets -- 162,038 -- 162,038
---------- ---------- ---------- ----------
Total expenses 148,965 313,676 456,744 626,487
---------- ---------- ---------- ----------
Operating income 28,182 (128,151) 71,420 (62,818)
OTHER INCOME AND EXPENSE:
Equity in net income of unconsolidated
companies:
Office and retail properties 135 3,778 3,235 5,734
Temperature-controlled logistics properties 637 1,746 4,865 11,476
Residential development properties 5,934 7,944 28,115 30,988
Other 2,310 1,367 7,629 2,277
---------- ---------- ---------- ----------
Total equity in net income of unconsolidated companies 9,016 14,835 43,844 50,475
Gain on property sales, net 63,679 -- 92,432 --
---------- ---------- ---------- ----------
Total other income and expense 72,695 14,835 136,276 50,475
---------- ---------- ---------- ----------
INCOME BEFORE MINORITY INTERESTS 100,877 (113,316) 207,696 (12,343)
AND EXTRAORDINARY ITEM
Minority interests (17,702) 11,034 (33,409) 1,236
---------- ---------- ---------- ----------
NET INCOME BEFORE EXTRAORDINARY ITEM 83,175 (102,282) 174,287 (11,107)
Extraordinary item - extinguishment of debt -- -- (3,928) --
---------- ---------- ---------- ----------
NET INCOME 83,175 (102,282) 170,359 (11,107)
6 3/4% Series A Preferred Share dividends (3,375) (3,375) (10,125) (10,125)
Share repurchase agreement return (1,647) -- (4,441) --
Forward share purchase agreement return -- -- -- (4,317)
---------- ---------- ---------- ----------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 78,153 $ (105,657) $ 155,793 $ (25,549)
========== ========== ========== ==========
BASIC EARNINGS PER SHARE DATA:
Net income available to common shareholders before
extraordinary item $ 0.71 $ (0.88) $ 1.38 $ (0.21)
Extraordinary item - extinguishment of debt -- -- (0.03) --
---------- ---------- ---------- ----------
Net income available to common shareholders $ 0.71 $ (0.88) $ 1.35 $ (0.21)
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE DATA:
Net income available to common shareholders before
extraordinary item $ 0.70 $ (0.88) $ 1.37 $ (0.21)
Extraordinary item - extinguishment of debt -- -- (0.03) --
---------- ---------- ---------- ----------
Net income available to common shareholders $ 0.70 $ (0.88) $ 1.34 $ (0.21)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Preferred shares Treasury Shares Common shares
------------------------ --------------------------- -----------------------------
Shares Net Value Shares Net Value Shares Par Value
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1999 8,000,000 $ 200,000 -- $ -- 121,537,353 $ 1,208
Issuance of Common Shares -- -- -- -- 4,398 --
Exercise of Common Share Options -- -- -- -- 177,400 2
Preferred Equity Issuance Cost -- -- -- -- -- --
Issuance of Shares in Exchange for
Operating Partnership Units -- -- -- -- 57,124 1
Share Repurchases -- -- 13,775,709 (265,462) -- --
Retirement of Treasury Shares -- -- (20,286) 355 (20,286) --
Dividends Paid -- -- -- -- -- --
Net Income -- -- -- -- -- --
Unrealized Net Loss on
Available-for-Sale Securities -- -- -- -- -- --
Unrealized Net Loss on Cash -- -- -- -- -- --
Flow Hedges
---------- ---------- ---------- ---------- ------------ ------------
SHAREHOLDERS' EQUITY, September 30, 2000 8,000,000 $ 200,000 13,755,423 $ (265,107) 121,755,989 $ 1,211
========== ========== ========== ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Deferred Accumulated
Additional Compensation Retained Other
Paid-in on Restricted Earnings Comprehensive
Capital Shares (Deficit) Income Total
------------ ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1999 $ 2,229,680 $ (41) $ (386,532) $ 12,459 $ 2,056,774
Issuance of Common Shares 85 -- -- -- 85
Exercise of Common Share Options 1,219 -- -- -- 1,221
Preferred Equity Issuance Cost (9,903) -- -- -- (10,006)
Issuance of Shares in Exchange for
Operating Partnership Units 502 -- -- -- 503
Share Repurchases (1,137) -- -- -- (266,496)
Retirement of Treasury Shares (355) -- -- -- --
Dividends Paid -- -- (191,023) -- (191,023)
Net Income -- -- 160,234 -- 160,234
Unrealized Net Loss on
Available-for-Sale Securities -- -- -- (6,932) (6,932)
Unrealized Net Loss on Cash Flow Hedges -- -- -- (2,337) (2,337)
----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY, September 30, 2000 $ 2,220,091 $ (41) $ (417,321) 3,190 $ 1,742,023
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 170,359 $ (11,107)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 100,664 104,858
Extraordinary item - extinguishment of debt 3,928 --
Impairment charge related to the
behavioral healthcare real estate assets -- 103,773
Gain on property sales, net (92,432) --
Minority interests 33,409 (1,236)
Non-cash compensation 85 101
Distributions received in excess of earnings from
unconsolidated companies:
Office and retail 1,707 --
Temperature-controlled logistics 16,718 16,320
Equity in earnings net of distributions received from
unconsolidated companies:
Office and retail -- (1,213)
Residential development properties (5,520) (11,845)
Other (2,847) (777)
Increase in accounts receivable (16,355) (1,592)
(Increase) decrease in deferred rent receivable (7,632) 5,098
(Increase) decrease in other assets (10,049) 36,597
Decrease (increase) in restricted cash and cash equivalents 5,373 (1,559)
(Decrease) increase in accounts payable, accrued
expenses and other liabilities (22,250) 10,645
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Net cash provided by operating activities 175,158 248,063
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of land held for development or sale (15,052) --
Proceeds from property sales 519,927 --
Development of investment properties (25,953) (5,961)
Capital expenditures - rental properties (13,930) (22,945)
Tenant improvement and leasing costs - rental properties (47,387) (39,098)
Increase (decrease) in restricted cash and cash equivalents 1,489 (27,819)
Return of investment in unconsolidated companies:
Office and retail 9,852 --
Residential development properties 40,567 18,415
Other 1,125 --
Investment in unconsolidated companies:
Office and retail -- (2,821)
Residential development properties (72,741) (49,713)
Temperature-controlled logistics (24,205) (27,927)
Other -- (112,923)
Escrow deposits - acquisition of investment properties 150 --
Increase in notes receivable (10,473) (599)
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Net cash provided by (used in) investing activities 363,369 (271,391)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (19,275) (14,054)
Settlement of Forward Share Purchase Agreement -- (149,384)
Borrowings under BankBoston Credit Facility -- 51,920
Payments under BankBoston Credit Facility (510,000) (126,920)
Borrowings under UBS Facility 932,819 --
Payments under UBS Facility (379,367) --
Notes Payable proceeds -- 890,000
Notes Payable payments (367,366) (451,029)
Capital proceeds - joint venture partner 275,000 --
Preferred Equity Issuance Costs (9,903) --
Capital distributions - joint venture partner (17,577) (2,461)
Proceeds from exercise of share options 1,221 17,949
Treasury share repurchases (265,462) --
6 3/4% Series A Preferred Share dividends (10,125) (10,125)
Dividends and unitholder distributions (214,115) (225,303)
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Net cash used in financing activities (584,150) (19,407)
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DECREASE IN CASH AND CASH EQUIVALENTS (45,623) (42,735)
CASH AND CASH EQUIVALENTS,
Beginning of period 72,926 110,292
------------- -------------
CASH AND CASH EQUIVALENTS,
End of period $ 27,303 $ 67,557
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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 (a "REIT") for federal income tax purposes, and,
together with its subsidiaries, provides management, leasing and development
services to some of its properties.
The term "Company" includes, unless the context otherwise indicates,
Crescent Equities, a Texas real estate investment trust, and all of its direct
and indirect subsidiaries.
The direct and indirect subsidiaries of Crescent Equities at September
30, 2000 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 NINE SEPARATE LIMITED-PURPOSE LIMITED PARTNERSHIPS
Eight of these limited partnerships were formed for the
purpose of obtaining securitized debt and all or substantially
all the economic interests in these partnerships are owned
directly or indirectly by the Operating Partnership, with the
remaining interests, if any, owned indirectly by Crescent
Equities through eight separate corporations or limited
liability companies described below. The ninth limited
partnership was formed for the purpose of obtaining equity
financing through the sale of preferred equity interests, with
substantially all of the common equity interests owned
directly by the Operating Partnership, the remaining common
equity interests owned indirectly by Crescent Equities through
a separate limited liability company described below, and all
of the preferred equity interests owned by an unrelated third
party.
o TEN SEPARATE CORPORATIONS OR LIMITED LIABILITY COMPANIES
Nine of these entities are wholly owned subsidiaries of the
General Partner or the Operating Partnership and serve as the
general partner of one of the nine limited partnerships
described above. The tenth entity is a wholly owned subsidiary
of Crescent Equities formed for the purpose of repurchasing
and holding common shares of beneficial interest of Crescent
Equities.
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.
The following table shows, by subsidiary, the Properties such
subsidiaries, directly or indirectly, owned as of September 30, 2000(1):
<TABLE>
<S> <C>
Operating Partnership: 21 Office Properties and The Park Shops at Houston Center
Crescent Real Estate The Aberdeen, The Avallon, Caltex House, The Citadel, The Crescent Atrium, The Crescent
Funding I, L.P.: Office Towers, Regency Plaza One, UPR Plaza and Waterside Commons
("Funding I")
</TABLE>
6
<PAGE> 8
<TABLE>
<S> <C>
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate Office and Research Center, Hyatt
Funding II, L.P.: Regency Albuquerque, Hyatt Regency Beaver Creek, Las Colinas Plaza, Liberty Plaza I &
("Funding II") II, MacArthur Center I & II, Ptarmigan Place, Stanford Corporate Centre, Two
Renaissance Square and 12404 Park Central
Crescent Real Estate Greenway Plaza Office Properties and Renaissance Houston Hotel
Funding III, IV and V, L.P.:
("Funding III, IV and V")(2)
Crescent Real Estate Canyon Ranch - Lenox
Funding VI, L.P.:
("Funding VI")
Crescent Real Estate 33 Behavioral Healthcare Properties
Funding VII, L.P.:
("Funding VII")
Crescent Real Estate 23 Office Properties and four Hotel Properties
Funding VIII, L.P.:
("Funding VIII")
Crescent Real Estate Chancellor Park, Denver Marriott City Center, Four Seasons Hotel - Houston, MCI Tower,
Funding IX, L.P.: Miami Center, Reverchon Plaza, 44 Cook Street, 55 Madison and 6225 N. 24th Street
("Funding IX")
</TABLE>
----------
(1) As of September 30, 2000, Crescent SH IX, Inc. owned 13,755,423 common
shares of beneficial interest in Crescent Equities.
(2) Funding III owns nine of the 10 Office Properties in the Greenway Plaza
Office portfolio and the Renaissance Houston Hotel; Funding IV owns the
central heated and chilled water plant building located at Greenway
Plaza; and Funding V owns Coastal Tower, the remaining Office Property
in the Greenway Plaza Office portfolio.
SEGMENTS
As of September 30, 2000, the Company's assets and operations were
composed of five major investment segments:
o Office and Retail Segment;
o Hotel/Resort Segment;
o Residential Development Segment;
o Temperature-Controlled Logistics 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, 2000:
o OFFICE AND RETAIL SEGMENT consisted of 78 office properties
(collectively referred to as the "Office Properties") located
in 27 metropolitan submarkets in seven states, with an
aggregate of approximately 28.7 million net rentable square
feet and three retail properties (collectively referred to as
the "Retail Properties") with an aggregate of approximately
0.4 million net rentable square feet.
o HOTEL/RESORT SEGMENT consisted of five upscale business class
hotels with a total of 2,168 rooms, three luxury spa resorts
with a total of 566 rooms and two Canyon Ranch destination
fitness resorts and spas 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. ("COPI"). The Omni
Austin Hotel is leased to HCD Austin Corporation. Subsequent
to September 30, 2000, the Company sold the Four Seasons Hotel
- Houston.
o RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Company's
ownership of real estate mortgages and non-voting common stock
representing interests ranging from 90% 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, owned 19 residential development
properties (collectively referred to as the "Residential
Development Properties").
7
<PAGE> 9
o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the
Company's indirect 39.6% interest in three partnerships
(collectively referred to as the "Temperature-Controlled
Logistics Partnerships"), each of which owns one or more
corporations or limited liability companies (collectively
referred to as the "Temperature-Controlled Logistics
Corporations") which, as of September 30, 2000, directly or
indirectly owned 89 temperature-controlled logistics
properties (collectively referred to as the
"Temperature-Controlled Logistics Properties") with an
aggregate of approximately 441.7 million cubic feet (17.6
million square feet).
o BEHAVIORAL HEALTHCARE SEGMENT consisted of 33 properties in 16
states (collectively referred to as the "Behavioral Healthcare
Properties"). Charter Behavioral Health Systems, LLC ("CBHS")
was formed to operate the behavioral healthcare business
located at the Behavioral Healthcare Properties and is owned
10% by a subsidiary of Magellan Health Services, Inc.
("Magellan") and 90% by COPI and an affiliate of COPI. On
February 16, 2000, CBHS and all of its subsidiaries that were
subject to the master lease with the Company filed voluntary
Chapter 11 bankruptcy petitions in the United States
Bankruptcy Court for the District of Delaware. As of September
30, 2000, CBHS had ceased operations at substantially all of
the Behavioral Healthcare Properties. CBHS is expected to
cease operations at the remaining Behavioral Healthcare
Properties in the fourth quarter of 2000. Subsequent to
September 30, 2000, the Company sold three Behavioral
Healthcare Properties. The Company has entered into contracts
or letters of intent to sell five additional Behavioral
Healthcare Properties and is actively marketing for sale the
remaining 25 Behavioral Healthcare Properties.
See Note 6. Segment Reporting for a table showing total revenues, funds
from operations and equity in net income of unconsolidated companies for each of
these investment segments for the three and nine months ended September 30, 2000
and 1999 and identifiable assets for each of these investment segments at
September 30, 2000 and 1999.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information, as well as in accordance 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) 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, 1999.
Certain amounts in prior year financial statements have been
reclassified to conform with current year presentation.
8
<PAGE> 10
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, 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. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an Amendment of FASB Statement No. 133", which
deferred the effective date of SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company elected
to implement SFAS No. 133 in the third quarter of 1999. See Note 9. Cash Flow
Hedges for a description of the impact of the cash flow hedges on the Company's
financial statements for the nine months ended September 30, 2000.
3. PROPERTIES HELD FOR DISPOSITION:
Office and Retail Segment
In pursuit of management's objective to dispose of non-strategic and
non-core assets, at September 30, 2000, the Company was actively marketing for
sale its interest in one Office Property, which is included in the Net
Investment in Real Estate of $3,178,319. The Property is Washington Harbour
located in Washington, D.C. The carrying value of this Property at September 30,
2000 was approximately $156,865.
The following table summarizes the condensed results of operations for
the nine months ended September 30, 2000 and 1999 for the Office Property held
for disposition. Depreciation expense has not been recognized since June 1,
2000, which is the date this Property was classified as held for sale.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------------------
2000 1999
----------------- ---------------
<S> <C> <C>
Revenue $ 17,295 $ 15,271
Operating Expenses 4,891 4,205
--------------- ---------------
Net Operating Income $ 12,404 $ 11,066
=============== ===============
</TABLE>
Hotel/Resort Segment
At September 30, 2000, the Company was actively marketing for sale its
interest in one Hotel Property, which is included in the Net Investment in Real
Estate of $3,178,319. The Property is the Four Seasons Hotel - Houston located
in Houston, Texas. The carrying value of this Property at September 30, 2000 was
approximately $53,008.
The Company's net operating income for the nine months ended September
30, 2000 and 1999 for the Four Seasons Hotel - Houston was $7,217 and $6,947,
respectively. Depreciation expense has not been recognized since September 1,
2000, which is the date this Property was classified as held for sale.
On November 3, 2000, the Company completed the sale of the Four Seasons
Hotel - Houston. See Note 17. Subsequent Events.
Behavioral Healthcare Segment
As of September 30, 2000, the Company owned 33 Behavioral Healthcare
Properties, all of which were classified as held for disposition. The carrying
value of the Behavioral Healthcare Properties at September 30, 2000 was
approximately $85,097. During the three months ended September 30, 2000, the
Company recognized an impairment loss of approximately $6,541 on the Behavioral
Healthcare Properties held for disposition, which is included in Gain on
Property Sales, Net. This amount represents the difference between the carrying
values and the estimated sales prices less costs of the sales for eight of the
Properties. Depreciation expense has not been recognized from the dates the
Behavioral Healthcare Properties were classified as held for sale.
9
<PAGE> 11
Subsequent to September 30, 2000, the Company sold three Behavioral
Healthcare Properties. See Note 17. Subsequent Events. The Company also has
entered into contracts or letters of intent to sell five additional Behavioral
Healthcare Properties and is actively marketing for sale the remaining 25
Behavioral Healthcare Properties.
4. EARNINGS PER SHARE
SFAS No. 128 "Earnings Per Share" ("EPS") 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,
------------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
Wtd. Avg. Per Share Wtd. Avg. Per Share
Income Shares Amount Income Shares Amount
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS -
Net Income $ 83,175 109,379 $(102,282) 119,892
6 3/4% Series A Preferred Share dividends (3,375) (3,375)
Share repurchase agreement return (1,647) --
--------- --------- ----------- --------- --------- -----------
Net income available to common
shareholders $ 78,153 109,379 $ 0.71 $(105,657) 119,892 $ (0.88)
========= ========= =========== ========= ========= ===========
DILUTED EPS -
Net income available to common
shareholders $ 78,153 109,379 $ 0.71 $(105,657) 119,892 $ (0.88)
Effect of dilutive securities:
Share and unit options -- 1,761 -- 1,387
--------- --------- ----------- --------- --------- -----------
Net income available to common
shareholders $ 78,153 111,140 $ 0.70 $(105,657) 121,279 $ (0.88)(1)
========= ========= =========== ========= ========= ===========
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
2000 1999
----------------------------------- ------------------------------------
Wtd. Avg. Per Share Wtd. Avg. Per Share
Income Shares Amount Income Shares Amount
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS -
Net Income before extraordinary item $ 174,287 115,434 $ (11,107) 123,632
6 3/4% Series A Preferred Share dividends (10,125) (10,125)
Share repurchase agreement return (4,441) --
Forward share purchase
agreement return -- (4,317)
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders before extraordinary
item $ 159,721 115,434 $ 1.38 $ (25,549) 123,632 $ (0.21)
Extraordinary item -
extinguishment of debt (3,928) (0.03) -- --
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders $ 155,793 115,434 $ 1.35 $ (25,549) 123,632 $ (0.21)
========= ========= ========= ========= ========= =========
DILUTED EPS -
Net income available to common
shareholders before extraordinary
item $ 159,721 115,434 $ 1.38 $ (25,549) 123,632 $ (0.21)
Effect of dilutive securities:
Additional common shares obligation
relating to:
Forward share purchase agreement -- 391
Share and unit options 1,064 1,876
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders before extraordinary
item $ 159,721 116,498 $ 1.37 $ (25,549) 125,899 $ (0.21)(1)
Extraordinary item -
extinguishment of debt (3,928) (0.03) -- --
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders $ 155,793 116,498 $ 1.34 $ (25,549) 125,899 $ (0.21)(1)
========= ========= ========= ========= ========= =========
</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 6 3/4% Series A Preferred Shares is
not included in the computation of Diluted EPS for the three or nine months
ended September 30, 2000 or 1999, since the effect of their conversion is
antidilutive.
11
<PAGE> 13
5. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................................................. $ 162,293 $ 144,086
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING 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........................................................ $ 503 $ 1,939
Issuance of Operating Partnership units in conjunction
with settlement of an obligation...................................... 2,125 1,786
Acquisition of partnership interests...................................... -- 3,774
Unrealized net gain/(loss) on available-for-sale securities............... 6,932 10,003
Forward Share Purchase Agreement Return................................... -- 4,317
Share Repurchase Agreement Return......................................... 4,441 --
Decrease of cash flow hedge to fair value................................. 2,337 --
Equity investment in a tenant in exchange
for office space/other investment ventures........................... 4,485 --
Impairment and other charges related to the
behavioral healthcare assets......................................... 6,541 162,038
Impairment related to investments in unconsolidated
companies............................................................ 8,525 --
</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 investment segments: the Office and
Retail Segment; the Hotel/Resort Segment; the Residential Development Segment;
the Temperature-Controlled Logistics Segment; and the Behavioral Healthcare
Segment. Management organizes the segments within the Company based on property
type for making operating decisions and assessing performance. Investment
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 revised definition adopted by the
Board of Governors of the National Association of Real Estate Investment Trusts
("NAREIT"), effective January 1, 2000, and as used in this document, means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from sales of depreciable
operating property;
o excluding extraordinary items (as defined by GAAP);
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. Effective January 1,
2000, NAREIT clarified the definition of FFO to include non-recurring events,
except for those that are defined as "extraordinary items" under GAAP and gains
or losses from sales of depreciable operating property. The Company has adopted
the revised definition of FFO effective as of January 1, 2000. Under the prior
definition of FFO, for the nine months ended September 30, 1999, FFO was
approximately $254,540, which excluded $15,000 paid in connection with the
settlement and release of all claims between the Company and Station Casinos,
Inc. ("Station") arising out of the agreement and plan of merger between the
Company and Station. Because this settlement is not considered an "extraordinary
item" under GAAP, FFO for the nine months ended September 30, 1999 would have
been approximately $239,540, which would have included the $15,000 settlement
payment, if the revised definition of FFO had been in effect. The Company
considers FFO an appropriate measure of performance for an equity REIT, and for
its investment 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.
12
<PAGE> 14
Selected financial information related to each segment at or for the
three and nine months ended September 30, 2000 and 1999 is presented below.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Office and Retail Segment $ 151,347 $ 153,012 $ 447,989 $ 458,747
Hotel/Resort Segment 19,728 16,999 55,735 48,510
Behavioral Healthcare Segment 1,550 8,634 6,933 36,282
Temperature-Controlled Logistics Segment -- -- -- --
Residential Development Segment -- -- -- --
Corporate and other 4,522 6,880 17,507 20,130
------------ ------------ ------------ ------------
TOTAL REVENUE $ 177,147 $ 185,525 $ 528,164 $ 563,669
============ ============ ============ ============
FUNDS FROM OPERATIONS:
Office and Retail Segment $ 92,917 $ 91,916 $ 266,341 $ 273,395
Hotel/Resort Segment 19,598 16,564 55,235 47,658
Behavioral Healthcare Segment 1,550 (16,969) 6,933 10,679
Temperature-Controlled Logistics Segment 8,101 6,791 25,218 24,279
Residential Development Segment 14,761 11,401 52,665 45,739
Corporate and other adjustments:
Interest expense (50,458) (51,084) (154,544) (138,482)
6 3/4 Series A Preferred Share dividends (3,375) (3,375) (10,125) (10,125)
Other (2,785) 6,036 5,090 13,410
Corporate general & administrative (5,305) (4,083) (14,632) (12,013)
------------ ------------ ------------ ------------
TOTAL FUNDS FROM OPERATIONS - OLD DEFINITION 75,004 57,197 232,181 254,540
Settlement of merger dispute -- -- -- (15,000)
------------ ------------ ------------ ------------
TOTAL FUNDS FROM OPERATIONS - NEW DEFINITION $ 75,004 $ 57,197 $ 232,181 $ 239,540
------------ ------------ ------------ ------------
ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS TO
NET INCOME:
Depreciation and amortization of real estate
assets $ (30,727) $ (29,516) $ (90,872) $ (94,542)
Gain on property sales, net 63,679 -- 92,432 --
Impairment and other charges related to the
behavioral healthcare assets -- (136,435) -- (136,435)
Extraordinary item - extinguishment of debt -- -- (3,928) --
Adjustment for investments in real estate
mortgages and equity of unconsolidated companies:
Office and Retail Properties (1,805) 751 (3,522) (3,603)
Temperature-Controlled Logistics Properties (7,465) (5,045) (20,354) (12,803)
Residential Development Properties (8,828) (3,457) (24,551) (14,751)
Other -- (439) -- (611)
Unitholder minority interests (10,058) 11,287 (21,152) 1,973
6 3/4 Series A Preferred Share dividends 3,375 3,375 10,125 10,125
------------ ------------ ------------ ------------
NET INCOME $ 83,175 $ (102,282) $ 170,359 $ (11,107)
============ ============ ============ ============
EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES:
Office and Retail Properties $ 135 $ 3,778 $ 3,235 $ 5,734
Hotel/Resort Properties -- -- -- --
Behavioral Healthcare Properties -- -- -- --
Temperature-Controlled Logistics Properties 637 1,746 4,865 11,476
Residential Development Properties 5,934 7,944 28,115 30,988
Other 2,310 1,367 7,629 2,277
------------ ------------ ------------ ------------
TOTAL EQUITY IN NET INCOME OF
UNCONSOLIDATED COMPANIES $ 9,016 $ 14,835 $ 43,844 $ 50,475
============ ============ ============ ============
BALANCE AT SEPTEMBER 30,
----------------------------
IDENTIFIABLE ASSETS: 2000 1999
------------ ------------
Office and Retail Segment $ 2,979,429 $ 3,292,500
Hotel/Resort Segment 546,214 472,114
Behavioral Healthcare Segment 85,097 245,033
Temperature-Controlled Logistics Segment 300,730 289,463
Residential Development Segment 316,891 332,758
Other 334,238 427,790
------------ -----------
TOTAL IDENTIFIABLE ASSETS $ 4,562,599 $ 5,059,658
============ ============
</TABLE>
13
<PAGE> 15
At September 30, 2000, COPI was the Company's largest lessee in terms
of total revenues. Total revenues received from COPI for the nine months ended
September 30, 2000 were approximately 10% of the Company's total revenues. COPI
was the lessee of nine of the Hotel Properties for the nine months ended
September 30, 2000.
See Note 7. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies - Temperature-Controlled Logistics Properties for a
description of the sole lessee of the Temperature-Controlled Logistics
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, or equity investments:
<TABLE>
<CAPTION>
COMPANY'S OWNERSHIP
Entity CLASSIFICATION AS OF SEPTEMBER 30, 2000
------------------------------------ ------------------------------------------ --------------------------------
<S> <C> <C>
Desert Mountain Development Corp. Residential Development Corporation 95%(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)
Houston Area 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 (office/venture tech
Properties Company, L.P. portfolio) 42.5%
Main Street Partners, L.P. Office and Retail (office property -
Bank One Center) 50%
DBL Holdings, Inc. Other 97.4%
Metropolitan Partners, LLC Other (3)
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 three
Temperature-Controlled Logistics Partnerships, which own the
Temperature-Controlled Logistics Corporations, which directly or indirectly
own the Temperature-Controlled Logistics Properties. Accordingly, the
Company has an indirect 39.6% interest in the Temperature-Controlled
Logistics Properties. The business operations associated with the
Temperature-Controlled Logistics Properties are owned by AmeriCold
Logistics, which is owned 60% by Vornado Operating L.P. and 40% by a
subsidiary of COPI. The Company has no interest in AmeriCold Logistics.
(3) The Company's $85,000 preferred member interest in Metropolitan Partners,
LLC ("Metropolitan") at September 30, 2000 would equate to an approximately
20% equity interest. The investment has a cash flow preference of 7.5%
until May 19, 2001 and may be redeemed by Metropolitan on or before May 19,
2001 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 by May 19, 2001, the Company may convert the interest either into
(i) a common equity interest in Metropolitan or (ii) shares of common stock
of Reckson Associates Realty Corporation ("Reckson") at a conversion price
of $24.61.
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES
AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, entered into triple-net master leases of the
Temperature-Controlled Logistics Properties with certain of the
Temperature-Controlled Logistics Corporations. Each of the
Temperature-Controlled Logistics 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. Under the leases, AmeriCold Logistics is required to pay for
all costs arising from the operation, maintenance, and repair of the properties
as well as capital expenditures for the properties in excess of $5,000 annually.
In addition, the leases permit AmeriCold Logistics to defer a portion
of the rent for the Temperature-Controlled Logistics Properties for up to three
years beginning on March 12, 1999, to the extent that available cash, as defined
in the leases, is insufficient to pay such rent. The leases provide for total
lease payments of $42,600 and $128,700 for the three and nine months ended
September 30, 2000, of which AmeriCold Logistics deferred $4,800 and $11,500,
respectively.
14
<PAGE> 16
The following table shows the amount of deferred rent by quarter and
the Company's share of such deferred rent.
<TABLE>
<CAPTION>
(IN THOUSANDS) COMPANY'S
TOTAL PORTION
-------------- --------------
<S> <C> <C>
For the three months ended September 30, 2000 $ 4,800 $ 1,900
For the three months ended June 30, 2000 6,700 2,700
For the three months ended December 31, 1999 5,400 2,100
-------------- --------------
Total $ 16,900 $ 6,700
============== ==============
</TABLE>
During the three and nine months ended September 30, 2000, the
Temperature-Controlled Logistics Corporations recorded a rent receivable
valuation allowance of $4,800 and $8,800, respectively, of which the Company's
portion was $1,900 and $3,500, respectively. The reserve was recorded in
connection with the probable restructuring of the leases.
OTHER
During the three months ended September 30, 2000, the Company
recognized an impairment loss of $8,525, which is included in Gain on Property
Sales, Net, on a real estate investment fund in which the Company has an
interest.
15
<PAGE> 17
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," "Temperature-Controlled Logistics Corporations," "Office and
Retail" and "Other," as applicable, as of September 30, 2000.
<TABLE>
<CAPTION>
BALANCE SHEETS:
BALANCE AT SEPTEMBER 30, 2000
------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Real estate, net $ 774,502 $ 1,311,590 $ 426,022
Cash 46,367 51,711 23,470
Other assets 222,504 87,391(1) 39,355
------------ ------------ ------------
Total assets $ 1,043,373 $ 1,450,692 $ 488,847
============ ============ ============
Notes payable $ 261,418 $ 570,065 $ 298,711
Notes payable to the Company 178,638 11,333 --
Other liabilities 351,719 80,155 35,105
Equity 251,598 789,139 155,031
------------ ------------ ------------
Total liabilities and equity $ 1,043,373 $ 1,450,692 $ 488,847
============ ============ ============
Company's share of unconsolidated debt $ 105,548 $ 225,746 $ 138,460
============ ============ ============
Company's investments in real estate
mortgages and equity of
unconsolidated companies $ 316,891 $ 300,730 $ 88,573 $ 133,119
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SUMMARY STATEMENTS OF OPERATIONS:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues $ 355,697 $ 116,353 $ 60,793
Expenses:
Operating expense 269,697 16,234(1) 23,295
Interest expense 5,665 35,622 18,851
Depreciation and amortization 11,411 43,312 12,079
Taxes 19,158 2,176 --
Other (income) expense -- (2,824) --
------------ ------------ ------------
Total expenses 305,931 94,520 54,225
------------ ------------ ------------
Net income $ 49,766 $ 21,833 $ 6,568
============ ============ ============
Company's equity in net income
of unconsolidated companies $ 28,115 $ 4,865 $ 3,235 $ 7,629
============ ============ ============ ============
</TABLE>
----------
(1) Inclusive of the preferred return paid to Vornado Realty Trust (1% per
annum of the acquisition price of assets plus cost of development
properties).
16
<PAGE> 18
8. NOTES PAYABLE AND BORROWINGS UNDER UBS FACILITY:
The following is a summary of the Company's debt financing at September 30,
2000:
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING AT
SEPTEMBER 30, 2000
----------------------
SECURED DEBT
<S> <C>
UBS Term Loan II(1) (see description of UBS Facility below) ........................................ $326,677
AEGON Note(2) due July 1, 2009, bears interest at 7.53% with monthly principal and interest
payments based on a 25-year amortization schedule, secured by the Funding III, IV and V
Properties ......................................................................................... 275,367
LaSalle Note I(3) 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, secured by the Funding I Properties ............................... 239,000
BankBoston Term Note II(4) due August 31, 2003, bears interest at the 30-day LIBOR rate plus
400 basis points (at September 30, 2000, the interest rate was 10.63%) with a four-year interest
only term, secured by equity interests in Funding I and II ......................................... 200,000
JP Morgan Mortgage Note(5) due October 1, 2016, bears interest at a fixed rate of 8.31% with a
two-year interest-only term (through October 2001), followed by principal amortization based on
a 15-year amortization schedule through maturity in October 2016, secured by the Houston
Center mixed-use Office Property complex ........................................................... 200,000
LaSalle Note II(6) 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 August 2028, secured by the Funding II Properties .............................. 161,000
UBS Term Loan I(1) (see description of UBS Facility below) ......................................... 146,775
SFT Whole Loans, Inc. Note due September 30, 2001, bears interest at 30-day LIBOR
plus 1.75% (at September 30, 2000, the rate was 8.38%) with an interest-only term, secured
by the Fountain Place Office Property .............................................................. 97.123
UBS Line of Credit(1) (see description of UBS Facility below) ...................................... 80,000
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 V due December 2005, bears interest at 8.49% with monthly principal
and interest payments based on a 25-year amortization schedule, secured by the Datran
Center Office Property ............................................................................. 39,343
Northwestern Life Note due January 2003, bears interest at 7.66% with an interest-only term,
secured by the 301 Congress Avenue Office Property ................................................. 26,000
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 ........................................................................ 11,160
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING AT
SEPTEMBER 30, 2000
----------------------
<S> <C>
SECURED DEBT
Nomura Funding VI Note(7) bears interest at 10.07% with monthly principal and interest
payments based on a 25-year amortization schedule through maturity in July 2020,
secured by the Funding VI Property ................................................................. 8,364
Rigney Promissory Note due November 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 ............ 706
UNSECURED DEBT
2007 Notes(8) bear interest at a fixed rate of 7.50% with a ten-year interest-only term, due
September 2007 ..................................................................................... 250,000
2002 Notes(8) bear interest at a fixed rate of 7.00% with a five-year interest-only term, due
September 2002 ..................................................................................... 150,000
------------
Total Notes Payable ........................................................................... $ 2,275,015
============
</TABLE>
----------
(1) The UBS Facility was entered into effective January 31, 2000 and amended on
May 10, 2000 and May 18, 2000. As amended, the UBS Facility consists of
three tranches: the UBS Line of Credit, the UBS Term Loan I and the UBS
Term Loan II. For a further description of the UBS Facility, see "UBS
Facility" below.
(2) The outstanding principal balance of this note at maturity will be
approximately $224,000.
(3) 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.
(4) This loan is secured by partnership interests in two pools of assets that
also secure the LaSalle Note I and the LaSalle Note II. The Company entered
into a four-year $200,000 cash flow hedge agreement effective September 1,
1999 with Salomon Brothers Holding Company, Inc. ("Salomon") in a separate
transaction related to the BankBoston Term Note II. See Note 9. Cash Flow
Hedges.
(5) At the end of seven years (October 2006), the interest rate will adjust
based on current interest rates at that time. It is the Company's intention
to repay the note in full at such time (October 2006) by making a final
payment of approximately $178,000.
(6) 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.
(7) 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.
(8) The notes were issued in an offering registered with the SEC.
18
<PAGE> 20
Below are the aggregate principal amounts due as of September 30, 2000
under the UBS 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>
2000 $ 1,323 $ -- $ 1,323
2001 113,887 -- 113,887
2002 73,913 150,000 223,913
2003 467,835 -- 467,835
2004 343,534 -- 343,534
Thereafter 874,523 250,000 1,124,523
-------------- -------------- --------------
$ 1,875,015 $ 400,000 $ 2,275,015
============== ============== ==============
</TABLE>
UBS FACILITY
On February 4, 2000, the Company repaid and retired the Company's prior
credit facility with BankBoston, N.A. (the "BankBoston Credit Facility") and the
BankBoston Term Note I primarily with the proceeds of the UBS Facility. The UBS
Facility is a secured, variable-rate facility that is currently funded by a
syndicate of 23 banks and institutions led by UBS AG ("UBS") and Fleet Boston
Financial ("Fleet"). The borrowing capacity under the UBS Facility is currently
limited to $734,577. The UBS Facility was entered into effective January 31,
2000 and amended on May 10, 2000 and May 18, 2000, and, as amended, consists of
three tranches: the UBS Line of Credit, a three-year $300,000 revolving line of
credit (currently limited to $261,125 of borrowing capacity); the UBS Term Loan
I, a $146,775 three-year term loan; and the UBS Term Loan II, a $326,677
four-year term loan. Borrowings under the UBS Line of Credit, the UBS Term Loan
I and the UBS Term Loan II at September 30, 2000, were approximately $80,000,
$146,775 and $326,677, respectively. The UBS Line of Credit and the UBS Term
Loan I bear interest at LIBOR plus 250 basis points. The UBS Term Loan II bears
interest at LIBOR plus 275 basis points. As of September 30, 2000, the interest
rate on the UBS Line of Credit and UBS Term Loan I was 9.14%, and the interest
rate on the UBS Term Loan II was 9.39%. In order to mitigate its exposure to
variable-rate debt, the Company has entered into two cash flow hedge agreements
related to a portion of the UBS Facility. See Note 9. Cash Flow Hedges for a
description of these agreements. During the nine months ended September 30,
2000, the Company sold six office properties securing the UBS Facility. The net
proceeds of the sale of these properties were used to repay amounts outstanding
under the UBS Facility. As of September 30, 2000, the UBS Facility was secured
by 37 Office Properties and four Hotel Properties. The UBS 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 allocated
property values and debt service coverage ratios, and, with respect solely to
Funding VIII, limitations on additional secured and total indebtedness,
distributions, additional investments and the incurrence of additional liens.
The Company was in compliance with all covenants related to the UBS Facility for
the September 30, 2000 reporting period.
9. CASH FLOW HEDGES:
The Company does not use derivative financial instruments for trading
purposes, but utilizes them to manage exposure to variable-rate debt. The
Company accounts for its derivative instruments under SFAS No. 133, which was
adopted in the third quarter of 1999.
On September 1, 1999, the Company entered into a four-year cash flow
hedge agreement with Salomon for a notional amount of $200,000 relating to the
BankBoston Term Note II. As a result of the cash flow hedge agreement, the
interest rate on the underlying note, which currently has a floating interest
rate of 30-day LIBOR plus 400 basis points, has been effectively converted to a
fixed interest rate of 10.18% through maturity. During the nine months ended
September 30, 2000, the cash flow hedge agreement with Salomon resulted in a
reduction of approximately $508 of interest expense. As of September 30, 2000,
the fair value of the cash flow hedge was approximately $1,993.
19
<PAGE> 21
Effective February 4, 2000, the Company entered into a three-year cash
flow hedge agreement with Fleet, for a notional amount of $200,000, relating to
a portion of the UBS Term Loan I and the UBS Line of Credit. As a result, the
interest rate on $200,000 of the amount due under the UBS Term Loan I and the
UBS Line of Credit, which were originally issued at a floating interest rate of
LIBOR plus 250 basis points, was effectively converted to a fixed interest rate
of 9.61% through maturity. During the nine months ended September 30, 2000, the
cash flow hedge agreement with Fleet resulted in approximately $1,025 of
additional interest expense. As of September 30, 2000, the fair value of the
cash flow hedge was approximately ($2,750).
Effective April 18, 2000, the Company entered into a four-year cash
flow hedge agreement with Fleet, for a notional amount of $100,000, relating to
a portion of the UBS Term Loan II. As a result, the interest rate on $100,000 of
this loan, which was originally issued at a floating interest rate of LIBOR plus
275 basis points, was effectively converted to a fixed interest rate of 9.51%
through maturity. Fleet has an option to terminate the agreement at the end of
the third year of the agreement. During the nine months ended September 30,
2000, the cash flow hedge agreement with Fleet resulted in approximately $105 of
additional interest expense. As of September 30, 2000, the fair value of the
cash flow hedge was approximately ($1,300).
10. SETTLEMENT OF MERGER DISPUTE:
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 $15,000 to Station on April 22, 1999.
11. MINORITY INTEREST:
Minority interest represents (i) the limited partner interests owned by
limited partners in the Operating Partnership ("units"), and (ii) joint venture
and preferred equity interests held by third parties in other consolidated
subsidiaries. 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, 2000, there were 28,562 units exchanged for
57,124 common shares of Crescent Equities.
12. SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY:
During the nine months ended September 30, 2000, the Company formed
Funding IX and contributed seven Office Properties and two Hotel Properties to
Funding IX. The Company owns 100% of the voting interests in Funding IX, 0.1% in
the form of a general partner interest and 99.9% in the form of a limited
partner interest.
As of September 30, 2000, the Company had sold $275,000 of non-voting,
redeemable preferred Class A Units in Funding IX to GMAC Commercial Mortgage
Corporation ("GMACCM") and received net proceeds of $265,063. The Class A Units
receive a preferred variable-rate dividend currently calculated at 30-day LIBOR
plus 450 basis points, or approximately 11.13% per annum as of September 30,
2000, and are redeemable at the option of the Company at the original purchase
price.
As of September 30, 2000, $265,061 of the net proceeds from the sale of
the Class A Units had been used to repurchase 13,755,423 of the Company's
outstanding common shares. See Note 13. Shareholders' Equity - Share Repurchase
Program. The repurchased common shares are consolidated as treasury shares in
accordance with GAAP. However, these shares will be held in a wholly-owned
subsidiary of the Company until the Class A Units are redeemed. Distributions
will continue to be paid on the repurchased common shares and will be used to
pay dividends on the Class A Units.
The Company generally will use the proceeds from any joint venture or
sale of a Property held by Funding IX to redeem the Class A Units.
20
<PAGE> 22
13. SHAREHOLDERS' EQUITY:
SHARE REPURCHASE PROGRAM
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 (the "Share
Repurchase Program"), in an amount not to exceed $500,000.
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
judgment, 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.
The Company commenced its Share Repurchase Program in March 2000.
During the nine months ended September 30, 2000, the Company repurchased
7,986,830 common shares in the open market at an average price of $20.59 per
common share for an aggregate of approximately $164,441.
In addition, during the nine months ended September 30, 2000, the
Company purchased 5,809,180 of the Company's common shares at an average price
of $17.44 per common share for an aggregate of approximately $101,333,
fulfilling its obligations under the "Share Repurchase Agreement" with UBS. This
amount includes 1,766,489 common shares purchased from UBS on July 5, 2000 at an
average cost of $17.33 per common share for an aggregate cost of approximately
$30,621. This amount also includes 20,301 common shares purchased outside of the
Share Repurchase Program in connection with a management incentive plan. See
"Share Repurchase Agreement" below for a description of the agreement.
The purchase of the 13,796,010 common shares was financed primarily
with the proceeds of the sale of Class A Units in Funding IX. See Note 12. Sale
of Preferred Equity Interests in Subsidiary.
SHARE REPURCHASE AGREEMENT
On November 19, 1999, the Company entered into an agreement with UBS to
purchase a portion of its common shares from UBS. As of December 31, 1999, the
Company was obligated to purchase 4,789,580 common shares, or approximately
$84,100 of the Company's common shares. The agreement was amended on January 4,
2000, increasing the number of common shares the Company was obligated to
purchase from UBS by January 4, 2001 to 5,809,180 common shares, or
approximately $101,000 of the Company's common shares (as amended, the "Share
Repurchase Agreement"). The price the Company was obligated to pay for the
common shares was calculated based on the average cost of the common shares
purchased by UBS in connection with the Share Repurchase Agreement plus a return
to UBS of 30-day LIBOR plus 250 basis points, minus an adjustment for the
Company's distributions during the term of the Share Repurchase Agreement. The
guaranteed rate of return to UBS under the agreement is equal to 30-day LIBOR
plus 250 basis points.
The Company had the option to settle the Share Repurchase Agreement in
cash or common shares. During the nine months ended September 30, 2000, the
Company purchased the 5,809,180 common shares from UBS at an average cost of
$17.44 per common share for an aggregate of approximately $101,333 under the
Share Repurchase Agreement with UBS. This amount includes 1,766,489 common
shares purchased from UBS on July 5, 2000 at an average cost of $17.33 per
common share for an aggregate of approximately $30,621. The Company has no
further obligation under the Share Repurchase Agreement. The purchases were
funded primarily through the sale of Class A Units in Funding IX. See Note 12.
Sale of Preferred Equity Interests in Subsidiary.
21
<PAGE> 23
DISTRIBUTIONS
Common Shares
On February 17, 2000, the Company paid a cash dividend on its common
shares and unitholder distribution of $74,542, or $0.55 per share and equivalent
unit to shareholders and equivalent unitholders of record on January 28, 2000.
The dividend represented an annualized dividend of $2.20 per share and
equivalent unit.
On May 15, 2000, the Company paid a cash dividend on its common shares
and unitholder distribution of $74,628, or $0.55 per share and equivalent unit,
to shareholders and equivalent unitholders of record on April 28, 2000. The
dividend represented an annualized dividend of $2.20 per share and equivalent
unit.
On August 15, 2000, the Company paid a cash dividend on its common
shares and unitholder distribution of $74,675, or $0.55 per share and equivalent
unit, to shareholders and equivalent unitholders of record on July 31, 2000. The
dividend represented an annualized dividend of $2.20 per share and equivalent
unit.
On October 13, 2000, the Company declared a cash dividend on its common
shares and unitholder distribution of $74,686, or $0.55 per share and equivalent
unit, to shareholders and equivalent unitholders of record on October 31, 2000.
The dividend represents an annualized dividend of $2.20 per share and equivalent
unit and is payable on November 15, 2000.
As of September 30, 2000, the Company was holding 13,755,423 of its
common shares. The distribution amounts above include $9,747 of distributions
for the nine months ended September 30, 2000, which were paid for common shares
held by the Company.
Preferred Shares
On February 17, 2000, the Company paid a cash dividend on its 6 3/4%
Series A Preferred Shares of $3,375, or $0.421875 per share, to shareholders of
record on January 28, 2000. The dividend represented an annualized dividend of
$1.6875 per preferred share.
On May 15, 2000, the Company paid a cash dividend on its 6 3/4% Series
A Preferred Shares of $3,375, or $0.421875 per share, to shareholders of record
on April 28, 2000. The dividend represented an annualized dividend of $1.6875
per preferred share.
On August 15, 2000, the Company paid a cash dividend on its 6 3/4%
Series A Preferred Shares of $3,375, or $0.421875 per share, to shareholders of
record on July 31, 2000. The dividend represented an annualized dividend of
$1.6875 per preferred share.
On October 13, 2000, the Company declared a cash dividend on its 6 3/4%
Series A Preferred Shares of $3,375, or $0.421875 per share, to shareholders of
record on October 31, 2000. The dividend represents an annualized dividend of
$1.6875 per preferred share and is payable on November 15, 2000.
14. RELATED PARTY INVESTMENT:
As of September 30, 2000, the Company, upon the approval of the
independent members of its Board of Trust Managers, had contributed
approximately $23,800 of a $25,000 commitment to DBL Holdings, Inc. ("DBL"). The
total contribution will be made through a combination of loans and equity
investments. The Operating Partnership has a 97.4% non-voting interest in DBL.
The contribution was used by DBL to make an equity contribution to
DBL-ABC, Inc., a wholly-owned subsidiary, which committed to purchase $25,000 of
limited partnership interests in G2 Opportunity Fund, LP ("G2"), representing a
limited partnership interest of approximately 12.5%. DBL-ABC, Inc. is committed
to contribute the balance of $1,200 upon demand of the general partner of G2. G2
was formed for the purpose of
22
<PAGE> 24
investing in commercial mortgage backed securities and is managed by an entity
that is owned equally by Goff-Moore Strategic Partners, LP ("GMSP") and GMACCM.
John Goff, Vice-Chairman of the Board of Trust Managers 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. At September 30, 2000, DBL's primary holdings consisted of the 12.5%
investment in G2.
15. CBHS:
As of December 31, 1999, the Company owned 88 behavioral healthcare
properties, all of which were leased by the Company to CBHS under a master
lease. CBHS's business has been negatively affected by many factors, including
adverse industry conditions, and on February 16, 2000, CBHS and all of its
subsidiaries that were subject to the master lease with the Company filed
voluntary Chapter 11 bankruptcy petitions in the United States Bankruptcy Court
for the District of Delaware.
Payment and treatment of rent for the Behavioral Healthcare Properties
is subject to a rent stipulation agreed to by certain of the parties involved in
the CBHS bankruptcy proceeding. The Company received approximately $1,550 and
$6,933 in rent from CBHS during the three and nine months ended September 30,
2000, respectively.
The Company sold 37 and 55 behavioral healthcare properties during the
three and nine months ended September 30, 2000, respectively. The sales
generated approximately $168,831 and $218,404 in net proceeds, during the three
and nine months ended September 30, 2000, respectively.
As of September 30, 2000, the Behavioral Healthcare Segment consisted
of 33 Behavioral Healthcare Properties in 16 states. CBHS had ceased operations
at substantially all of the Behavioral Healthcare Properties as of September 30,
2000. CBHS is expected to cease operations at the remaining Behavioral
Healthcare Properties by the end of the fourth quarter of 2000.
Subsequent to September 30, 2000, the Company sold three Behavioral
Healthcare Properties. See Note 17. Subsequent Events. The Company has entered
into contracts or letters of intent to sell five additional Behavioral
Healthcare Properties and is actively marketing for sale the remaining 25
Behavioral Healthcare Properties.
16. DISPOSITIONS:
Office & Retail Segment
During the nine months ended September 30, 2000, the Company completed
the sale of 11 wholly-owned office properties. The sale of the 11 office
properties generated approximately $265,867 of net proceeds. The proceeds were
used primarily to pay down variable-rate debt. The Company recognized a net
gain, which is included in Gain on Property Sales, Net, of approximately $35,593
related to the sale of the 11 office properties during the nine months ended
September 30, 2000. During the year ended December 31, 1999, the Company
recognized an impairment loss of approximately $16,800 on one of the 11 office
properties sold during the nine months ended September 30, 2000. The Company
also recognized an impairment loss of approximately $5,000, which is included in
Gain on Property Sales, Net, during the nine months ended September 30, 2000 on
one of the 11 office properties sold. The impairment losses represented the
differences between the carrying values of the office properties and the sales
prices less costs of the sales.
Behavioral Healthcare Segment
During the nine months ended September 30, 2000, the Company completed
the sale of 55 behavioral healthcare properties previously classified as held
for disposition. The sales generated approximately $218,404 in net proceeds and
a net gain of approximately $60,972 for the nine months ended September 30,
2000. During the
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<PAGE> 25
three months ended September 30, 2000, the Company recognized an impairment loss
of $6,541 on the Behavioral Healthcare Properties held for disposition, which is
included in Gain on Property Sales, Net. This amount represents the difference
between the carrying values and the estimated sales prices less costs of the
sales for eight of the Properties. The net proceeds from the sale of the 55
behavioral healthcare properties sold during the nine months ended September 30,
2000 were used primarily to pay down variable-rate debt.
Subsequent to September 30, 2000, the Company sold three Behavioral
Healthcare Properties. See Note 17. Subsequent Events.
Other
The Woodlands Commercial Properties Company, L.P., owned by the Company
and Morgan Stanley Real Estate Fund II, L.P., completed the sale of its retail
portfolio, consisting of the Company's four retail properties located in The
Woodlands, on January 5, 2000. The sale generated approximately $49,800 of net
proceeds, of which the Company's portion was approximately $37,300. The
Woodlands retail properties were sold at a net gain of approximately $9,000, of
which the Company's portion was approximately $6,900. The proceeds to the
Company were used primarily to pay down debt.
17. SUBSEQUENT EVENTS:
HOTEL/RESORT PROPERTIES
On November 3, 2000, the Company completed the sale of the Four Seasons
Hotel - Houston, for a sale price of approximately $105,000. The Company is
required to use a minimum of $56,600 of the net proceeds to redeem Class A Units
in Funding IX, through which the Company owned the Property, from GMACCM. See
Note 12. Sale of Preferred Equity Interests in Subsidiary for a description of
the ownership structure of Funding IX.
BEHAVIORAL HEALTHCARE PROPERTIES
Subsequent to September 30, 2000, the Company sold three Behavioral
Healthcare Properties. The sales generated approximately $10,266 in net proceeds
and a net gain of approximately $1,532. The Company also has entered into
contracts or letters of intent to sell five additional Behavioral Healthcare
Properties and is actively marketing for sale the remaining 25 Behavioral
Healthcare Properties.
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<PAGE> 26
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, 1999. In management's
opinion, all adjustments (consisting of normal and recurring adjustments)
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 Financing risks, such as the ability to generate revenue
sufficient to service existing debt, increases in debt
service associated with variable-rate debt, the ability to
meet existing financial covenants 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 close anticipated sales of assets
or joint venture transactions or other pending transactions;
o The Company's ability to timely lease unoccupied square
footage and timely re-lease occupied square footage upon
expiration on favorable terms;
o The Company's ability to locate purchasers and close sales
of the Behavioral Healthcare Properties;
o The concentration of a significant percentage of the
Company's assets in Texas;
o Changes in real estate conditions (including rental
rates and competition from other properties and new
development of competing properties);
o Adverse changes in the financial condition of existing
tenants;
o The Company's ability to find acquisition and development
opportunities which meet the Company's investment strategy;
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;
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.
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<PAGE> 27
The following sections include information for each of the Company's
investment segments for the nine months ended September 30, 2000.
OFFICE AND RETAIL SEGMENT
The following tables show the same-store net operating income growth
for the approximately 27.2 million square feet of Office Property space owned as
of September 30, 2000, which excludes approximately 1.5 million square feet of
Office Property space at Bank One Center, in which the Company owns a 50%
non-controlling interest.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------------------- -----------------------------------------
PERCENTAGE/ PERCENTAGE/
POINT POINT
INCREASE INCREASE
2000 1999 (DECREASE) 2000 1999 (DECREASE)
---------- ---------- ------------- ---------- ---------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Same-store Revenues $ 142.7 $ 135.5 5.3% $ 420.0 $ 404.1 3.9%
Same-store Expenses 57.1 56.5 1.1% 175.6 171.8 2.2%
---------- ---------- ---------- ----------
Net Operating Income $ 85.6 $ 79.0 8.4% $ 244.4 $ 232.3 5.2%
========== ========== ========== ==========
Weighted Average Occupancy 92.9% 91.5% 1.4 pt 92.0% 92.3% (0.3)pt(1)
</TABLE>
-----------
(1) This decline in weighted average occupancy is primarily due to three
significant lease expirations totaling 524,000 square feet; two at year-end
1999 and one in the first quarter of 2000. As of November 7, 2000,
approximately 86% of the expiring space has been re-leased, with leases
having commenced for 59% of the expiring space.
The following table shows renewed or re-leased leasing activity and the
percentage increase of leasing rates for signed leases compared to expiring
leasing rates at the Company's Office Properties owned as of September 30, 2000.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------
SIGNED EXPIRING PERCENTAGE
LEASES LEASES INCREASE
----------------------- --------------------- ------------
<S> <C> <C> <C>
Renewed or re-leased(1) 534,000 sq. ft. N/A N/A
Weighted average full-
service rental rate(2) $23.89 per sq. ft. $17.78 per sq. ft. 34.4%
FFO annual net effective
rental rate(3) $15.16 per sq. ft. $9.24 per sq. ft. 64.1%
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------
SIGNED EXPIRING PERCENTAGE
LEASES LEASES INCREASE
----------------------- --------------------- ------------
<S> <C> <C> <C>
Renewed or re-leased(1) 1,928,000 sq. ft. N/A N/A
Weighted average full-
service rental rate(2) $24.53 per sq. ft. $20.09 per sq. ft. 22.1%
FFO annual net effective
rental rate(3) $15.43 per sq. ft. $11.05 per sq. ft. 39.6%
</TABLE>
----------
(1) All of which have commenced or will commence during the next twelve months.
(2) Including free rent, scheduled rent increases taken into account under GAAP
and expense recoveries.
(3) Calculated as weighted average full-service rental rate minus operating
expenses.
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<PAGE> 28
HOTEL/RESORT SEGMENT
The following table shows weighted average occupancy, average daily
rate and revenue per available room/guest for the Hotel Properties for the three
and nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------------- ---------------------------------------
PERCENTAGE/ PERCENTAGE/
POINT POINT
2000 1999 INCREASE 2000 1999 INCREASE
----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Weighted average occupancy 77% 76% 1pt 77% 75% 2pt
Average daily rate $ 228 $ 213 7% $ 235 $ 220 7%
Revenue per available room/guest $ 173 $ 159 9% $ 180 $ 165 9%
</TABLE>
The following table shows pro-forma Hotel Property same-store rental
income for the three and nine months ended September 30, 2000 and 1999, for the
nine Hotel Properties owned as of January 1, 1999. Pro-forma rental income
includes weighted average base rent with scheduled rent increases that would be
taken into account under GAAP, and percentage rent. Management believes that the
pro-forma rental income, which includes the effect of the change in accounting
for contingent rental revenues that was adopted January 1, 2000, is the best
measure of same-store rental income growth for both periods.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------------- ---------------------------------------
PERCENTAGE PERCENTAGE
2000 1999 INCREASE 2000 1999 INCREASE
----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Upscale Business Class Hotels $ 7,289 $ 6,742 8% $ 21,017 $ 19,627 7%
Luxury Spa Resorts 6,911 5,856 18 19,960 17,563 14
Destination Fitness Resorts and Spas 4,235 3,658 16 10,870 9,903 10
----------- --------- ---------- ---------- ---------- ----------
All Hotel Properties $ 18,435 $ 16,256 13% $ 51,847 $ 47,093 10%
=========== ========= ========== ========== ========== ==========
</TABLE>
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 19 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.
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<PAGE> 29
The Woodlands Land Development Company, L.P. and The Woodlands Commercial
Properties Company, L.P. (collectively "The Woodlands"), The Woodlands, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------------------- -------------------------------------
2000 1999 2000 1999
------------------ ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Residential lot sales 505 534 1,517 1,452
Average sales price per lot $ 46,000 $ 44,000 $ 45,000 $ 47,000
Commercial land sales 42 acres - acres 69 acres 27 acres
Average sales price per acre $ 317,000 $ - $ 325,000 $ 316,000
</TABLE>
o Residential lot sales increased by 65 lots or 4%, for the nine months
ended September 30, 2000 compared to the same period in 1999.
o The Woodlands estimates that additional sales of approximately 400
residential lots and 64 acres of commercial land will close during the
remainder of 2000.
o Future buildout of The Woodlands is estimated at approximately 13,900
residential lots and approximately 1,800 acres of commercial land, of
which approximately 1,400 residential lots and 1,300 acres are
currently in inventory.
o The Woodlands launched its first premier, up-scale residential
development in September 2000. Carlton Woods, a gated community
comprised of 519 lots located around a Jack Nicklaus signature golf
course, is part of a new concept to offer exclusive, high-end
residential housing in The Woodlands. As of November 7, 2000, 132 of
the 159 first-phase lots are under contract at prices ranging from
$0.1 million to $1.0 million per lot, or an average of $0.3 million
per lot. Additional phases are expected to be marketed to the public
over the next three to 24 months.
Desert Mountain Properties Limited Partnership ("Desert Mountain"), Scottsdale,
Arizona:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------- ------------- ------------ -------------
2000 1999 2000 1999
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Residential lot sales 22 37 139 161
Average sales price per lot(1) $ 721,000 $ 488,000 $ 616,000 $ 534,000
</TABLE>
----------
(1) Including equity golf memberships.
o The average sales price per lot increased by $82,000, or 15%, as a
reflection of a higher price product mix sold in the nine months ended
September 30, 2000 compared to the same period in 1999.
o Future buildout of Desert Mountain is estimated to be in excess of 500
residential lots, of which approximately 160 are currently in
inventory.
Crescent Development Management Corporation ("CDMC"), Beaver Creek, Colorado:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ ----------------------------
2000 1999 2000 1999
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Active projects 12 9 12 9
Residential lot sales 107 36 133 42
Townhome sales 4 6 6 27
Single-family home sales 1 4 5 8
Equivalent timeshare unit sales - - - 5
Condominium sales 11 7 17 7
Commercial land sales 8 acres - acres 8 acres - acres
Total Revenue (in millions) $ 61.6 $ 41.9 $ 113.7 $ 89.1
</TABLE>
28
<PAGE> 30
o CDMC experienced 28% growth in total revenue for the nine months ended
September 30, 2000 compared to the same period in 1999.
o CDMC estimates the following sales for the year 2000 from its 12 active
projects: 221 residential lots, 12 townhomes, and 14 condominiums.
o As of September 30, 2000, contracts relating to 96% of the sales
anticipated during the full year 2000 had been executed.
o On September 22, 2000, the Company closed on its latest investment through
CDMC, a joint-venture arrangement between CDMC and Booth Creek Ski
Holdings, Inc., owner of the Northstar-at-Tahoe resort, a premier, up-scale
ski resort located in North Lake Tahoe, California. The development is
expected to span ten years and include an enhanced core village with new
restaurants and retail shops, hotels and spas, and an extensive residential
product mix of over 2,000 condominium and townhome units. The Company's
initial capital contribution to CDMC was $18.0 million with a total
expected investment by the Company of approximately $75.0 million over the
life of the project. CDMC expects pre-sales to commence in the second
quarter of 2002 and closings to occur during the fourth quarter of 2002.
Mira Vista Development Corp. ("Mira Vista"), Fort Worth, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
Residential lot sales 12 8 31 27
Average sales price per lot(1) $ 100,000 $ 125,000 $ 97,000 $ 124,000
</TABLE>
----------
(1) Decrease in average sales price per lot between years is due to a change in
product mix.
Houston Area Development Corp. ("Houston Area Development"), Houston, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------------- ----------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Residential lot sales 55 87 166 200
Average sales price per lot $ 27,000 $ 30,000 $ 27,000 $ 29,000
Commercial land sales - acres - acres 2 acres 16 acres
</TABLE>
TEMPERATURE-CONTROLLED LOGISTICS SEGMENT
As of September 30, 2000, the Company held an indirect 39.6% interest
in the Temperature-Controlled Logistics Partnerships, which own the
Temperature-Controlled Logistics Corporations, which directly or indirectly own
the Temperature-Controlled Logistics Properties. The business operations
associated with the Temperature-Controlled Logistics Properties are owned by
AmeriCold Logistics, which is owned 60% by Vornado Operating L.P. and 40% by a
subsidiary of COPI. The Company has no interest in AmeriCold Logistics. COPI
holds an indirect 0.4% interest in the Temperature-Controlled Logistics
Partnerships, through its ownership of a 1% economic interest, representing all
of the voting common stock, in each of the Crescent Subsidiaries. COPI has an
option to require the Company to purchase COPI's 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 $3.9
million.
AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, entered into triple-net master leases of the
Temperature-Controlled Logistics Properties with certain of the
Temperature-Controlled Logistics Corporations. Each of the
Temperature-Controlled Logistics 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. Under the leases, AmeriCold Logistics is required to pay for
all costs arising from the operation, maintenance, and repair of the properties
as well as capital expenditures for the properties in excess of $5.0 million
annually.
29
<PAGE> 31
In addition, the leases permit AmeriCold Logistics to defer a portion
of the rent for the Temperature-Controlled Logistics Properties for up to three
years beginning on March 12, 1999, to the extent that available cash, as defined
in the leases, is insufficient to pay such rent. The leases provide for total
lease payments of $42.6 million and $128.7 million for the three and nine months
ended September 30, 2000, of which AmeriCold Logistics deferred $4.8 million and
$11.5 million, respectively.
The following table shows the amount of deferred rent by quarter and
the Company's share of such deferred rent.
<TABLE>
<CAPTION>
(IN MILLIONS) COMPANY'S
TOTAL PORTION
------------ ------------
<S> <C> <C>
For the three months ended September 30, 2000 $ 4.8 $ 1.9
For the three months ended June 30, 2000 6.7 2.7
For the three months ended December 31, 1999 5.4 2.1
------------ ------------
Total $ 16.9 $ 6.7
============ ============
</TABLE>
During the three and nine months ended September 30, 2000, the
Temperature-Controlled Logistics Corporations recorded a rent receivable
valuation allowance of $4.8 million and $8.8 million, respectively, of which the
Company's portion was $1.9 million and $3.5 million, respectively. The reserve
was recorded in connection with the probable restructuring of the leases.
Management believes that earnings before interest, taxes, depreciation
and amortization and rent ("EBITDAR") is a useful financial performance measure
for assessing the relative stability of the financial condition of AmeriCold
Logistics. The following table shows EBITDAR and lease payment for AmeriCold
Logistics for the nine months ended September 30, 2000.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
2000
-------------
<S> <C>
EBITDAR(1) $ 119.4
Lease Payment $ 128.7(2)
</TABLE>
----------
(1) EBITDAR does not represent net income or cash flows from operating,
financing or investing activities as defined by GAAP.
(2) Represents the base rent and percentage rent obligation of AmeriCold
Logistics before deferred rent of $11.5 million.
o During the first quarter of 2000, the Temperature-Controlled Logistics
Corporations completed and opened $30.6 million of expansion and new
product space, representing approximately 16.6 million cubic feet (0.8
million square feet).
o The Temperature-Controlled Logistics Corporations have approximately $25.0
of expansion and new product temperature-controlled logistics facilities
under review for development or acquisition during 2000.
30
<PAGE> 32
BEHAVIORAL HEALTHCARE SEGMENT
As of September 30, 2000, the Behavioral Healthcare Segment consisted of
33 Behavioral Healthcare Properties in 16 states. CBHS was formed to operate the
behavioral healthcare business located at the Behavioral Healthcare Properties
and is owned 10% by a subsidiary of Magellan and 90% by COPI and an affiliate of
COPI. On February 16, 2000, CBHS and all of its subsidiaries that were subject
to the master lease with the Company filed voluntary Chapter 11 bankruptcy
petitions in the United States Bankruptcy Court for the District of Delaware. As
of September 30, 2000, CBHS had ceased operations at substantially all of the
Behavioral Healthcare Properties. CBHS is expected to cease operations at the
remaining Behavioral Healthcare Properties by the end of the fourth quarter of
2000.
Subsequent to September 30, 2000, the Company sold three Behavioral
Healthcare Properties. The Company has entered into contracts or letters of
intent to sell five additional Behavioral Healthcare Properties and is actively
marketing for sale the remaining 25 Behavioral Healthcare Properties.
During the nine months ended September 30, 2000, the Company received
cash rental payments of approximately $6.9 million from CBHS.
At September 30, 2000, the Company's investment in the Behavioral
Healthcare Properties represented approximately 2% of its total assets and
approximately 1% of consolidated rental revenues for the nine months ended
September 30, 2000. See "Liquidity and Capital Resources - CBHS" below for a
further description of the status of the Company's investment in the Behavioral
Healthcare Properties.
31
<PAGE> 33
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, 2000 and
1999 and the variance in dollars between the three and nine months ended
September 30, 2000 and 1999. See Note 6. Segment Reporting included in Item 1.
Financial Statements for financial information about investment 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,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Office and retail properties 85.4% 82.5% 84.8% 81.4%
Hotel properties 11.1 9.2 10.5 8.6
Behavioral healthcare properties 0.9 4.6 1.3 6.4
Interest and other income 2.6 3.7 3.4 3.6
---------- ---------- ---------- ----------
TOTAL REVENUES 100.0 100.0 100.0 100.0
---------- ---------- ---------- ----------
EXPENSES:
Operating expenses 33.7 34.7 35.4 34.4
Corporate general and administrative 3.0 2.2 2.8 2.1
Interest expense 28.5 27.5 29.3 24.6
Amortization of deferred financing costs 1.4 1.1 1.3 1.4
Depreciation and amortization 17.5 16.3 17.7 17.2
Settlement of merger dispute -- -- -- 2.7
Impairment and other charges related to
the behavioral healthcare assets -- 87.3 -- 28.7
---------- ---------- ---------- ----------
TOTAL EXPENSES 84.1 169.1 86.5 111.1
---------- ---------- ---------- ----------
OPERATING INCOME 15.9 (69.1) 13.5 (11.1)
OTHER INCOME AND EXPENSE:
Equity in net income of unconsolidated
companies:
Office and retail properties 0.1 2.0 0.6 1.0
Temperature-controlled logistics properties 0.3 0.9 0.9 2.0
Residential development properties 3.3 4.3 5.3 5.5
Other 1.4 0.8 1.5 0.5
---------- ---------- ---------- ----------
TOTAL EQUITY IN NET INCOME FROM
UNCONSOLIDATED COMPANIES: 5.1 8.0 8.3 9.0
Gain on property sales, net 36.0 -- 17.5 --
---------- ---------- ---------- ----------
TOTAL OTHER INCOME AND EXPENSE 41.1 8.0 25.8 9.0
---------- ---------- ---------- ----------
INCOME BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 57.0 (61.1) 39.3 (2.1)
Minority interests (10.0) 6.0 (6.3) 0.1
---------- ---------- ---------- ----------
NET INCOME BEFORE EXTRAORDINARY ITEM 47.0 (55.1) 33.0 (2.0)
Extraordinary item - extinguishment of debt -- -- (0.7) --
---------- ---------- ---------- ----------
NET INCOME 47.0 (55.1) 32.3 (2.0)
6 3/4% Series A Preferred Share dividends (2.0) (1.9) (2.0) (1.7)
Share repurchase agreement return (0.9) -- (0.8) --
Forward share purchase
agreement return -- -- -- (0.8)
---------- ---------- ---------- ----------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS 44.1% (57.0)% 29.5% (4.5)%
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
TOTAL VARIANCE IN DOLLARS BETWEEN THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 AND 1999 2000 AND 1999
------------------ -----------------
<S> <C> <C>
Revenues:
Office and retail properties $ (1.7) $ (10.7)
Hotel properties 2.7 7.2
Behavioral healthcare properties (7.0) (29.4)
Interest and other income (2.4) (2.6)
-------------- --------------
TOTAL REVENUES (8.4) (35.5)
-------------- --------------
EXPENSES:
Operating expenses (4.3) (7.2)
Corporate general and administrative 1.2 2.6
Interest expense (0.6) 16.0
Amortization of deferred financing costs 0.4 (0.8)
Depreciation and amortization 0.7 (3.4)
Settlement of merger dispute -- (15.0)
Impairment and other charges related to
the behavioral healthcare assets (162.0) (162.0)
-------------- --------------
TOTAL EXPENSES (164.6) (169.8)
-------------- --------------
OPERATING INCOME 156.2 134.3
OTHER INCOME AND EXPENSE:
Equity in net income of unconsolidated
companies:
Office and retail properties (3.7) (2.5)
Temperature-controlled logistics properties (1.1) (6.6)
Residential development properties (2.0) (2.9)
Other 1.0 5.3
-------------- --------------
TOTAL EQUITY IN NET INCOME FROM
UNCONSOLIDATED COMPANIES: (5.8) (6.7)
Gain on property sales, net 63.7 92.4
-------------- --------------
TOTAL OTHER INCOME AND EXPENSE 57.9 85.7
-------------- --------------
INCOME BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 214.1 220.0
Minority interests (28.6) (34.6)
-------------- --------------
NET INCOME BEFORE EXTRAORDINARY ITEM 185.5 185.4
Extraordinary item - extinguishment of debt -- (3.9)
-------------- --------------
NET INCOME 185.5 181.5
6 3/4% Series A Preferred Share dividends -- --
Share repurchase agreement return (1.6) (4.4)
Forward share purchase
agreement return -- 4.2
-------------- --------------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 183.9 $ 181.3
============== ==============
</TABLE>
32
<PAGE> 34
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
REVENUES
Total revenues decreased $8.4 million, or 4.5%, to $177.1 million for
the three months ended September 30, 2000, as compared to $185.5 million for the
three months ended September 30, 1999.
The decrease in Office and Retail Property revenues of $1.7 million, or
1.1%, for the three months ended September 30, 2000, as compared to the three
months ended September 30, 1999, is attributable to:
o decreased revenues of $8.1 million due to the disposition of
six office properties and four retail properties during the
first quarter of 2000; and
o decreased revenues of $2.8 million due to the disposition of
five office properties during the second and third quarters
of 2000; partially offset by
o increased revenues of $5.7 million from the 78 Office and
three Retail Properties owned as of September 30, 2000,
primarily as a result of increased weighted average
full-service rental rates and increased average occupancy
rates at these Properties; and
o increased revenues from lease termination fees of $3.5
million.
The increase in Hotel Property revenues of $2.7 million, or 15.9%, for
the three months ended September 30, 2000, as compared to the three months ended
September 30, 1999, is attributable to:
o increased revenues of $1.1 million at the business class
hotels primarily due to the recognition of additional
percentage rent as a result of a change in accounting for
contingent rental revenues adopted on January 1, 2000;
o increased revenues of $1.0 million at the destination
fitness resorts and spas primarily due to an increase in
percentage rents at Canyon Ranch Properties as a result of
higher room rates; and
o increased revenues of $0.6 million at the luxury spa
resorts, primarily due to an increase in percentage rents
resulting from higher room rates and lease amendments
entered into in connection with amounts paid by the Company
for capital improvements at Sonoma Mission Inn & Spa.
The decrease in Behavioral Healthcare Property revenue of $7.0 million,
or 81.4%, for the three months ended September 30, 2000, as compared to the
three months ended September 30, 1999, is attributable to the filing of
voluntary bankruptcy petitions by CBHS and its subsidiaries on February 16,
2000, which resulted in a reduction in Behavioral Healthcare Property revenues
to $1.6 million for the three months ended September 30, 2000.
The decrease in interest and other income of $2.4 million, or 34.8%,
for the three months ended September 30, 2000, as compared to the three months
ended September 30, 1999, is primarily attributable to decreased interest income
earned on interest bearing accounts due to lower cash balances as a result of
debt pay-downs.
EXPENSES
Total expenses decreased $164.6 million, or 52.5%, to $149.0 million
for the three months ended September 30, 2000, as compared to $313.6 million for
the three months ended September 30, 1999.
The decrease in Office and Retail Property operating expenses of $4.3
million, or 6.7%, for the three months ended September 30, 2000, as compared to
the three months ended September 30, 1999, is attributable to:
o decreased expenses of $3.8 million due to the disposition of
six office properties and four retail properties during the
first quarter of 2000; and
o decreased expenses of $1.3 million due to the disposition of
five office properties during the second and third quarters
of 2000; partially offset by
o increased expenses of $0.8 million from the 78 Office and
three Retail Properties owned as of September 30, 2000,
primarily as a result of an increase in real estate taxes of
$0.9 million.
33
<PAGE> 35
The increase in corporate general and administrative expense of $1.2
million, or 29.3%, is primarily attributable to increased personnel costs as a
result of the Company's new performance-based executive compensation plan.
An additional decrease in expenses of $162.0 million is due to the
impairment and other charges related to the behavioral healthcare properties in
the third quarter of 1999.
OTHER INCOME
Other income increased $57.9 million, or 391.2%, to $72.7 million for
the three months ended September 30, 2000, as compared to $14.8 million for the
three months ended September 30, 1999. The components of the increase in other
income are discussed below.
The decrease in equity in net income of unconsolidated companies of
$5.8 million, or 39.2%, for the three months ended September 30, 2000, as
compared to the three months ended September 30, 1999, is attributable to:
o a decrease in equity in net income of the unconsolidated
Office and Retail Properties of $3.7 million, or 97.4%,
primarily attributable to (i) the decrease in operations net
of gains as a result of the sale of the multi-family and
retail portfolio in the fourth quarter of 1999 and the first
quarter of 2000, respectively and (ii) an increase in
interest expense as a result of additional financing
obtained in July 2000 and an increase in the average rate of
debt at The Woodlands Commercial Properties Company, L.P.;
o a decrease in equity in net income of the Residential
Development Corporations of $2.0 million, or 25.3%,
primarily attributable to a decrease in asset monetization
and an increase in interest expense as a result of an
increase in the average rate of debt at The Woodlands Land
Development Company, L.P., which resulted in a decrease of
$2.6 million in equity in net income to the Company,
partially offset by the increase in investment income earned
at Mira Vista Development Corporation which resulted in a
increase of $1.5 million in equity in net income to the
Company; and
o a decrease in equity in net income of the
Temperature-Controlled Logistics Partnerships of $1.1
million, or 64.7%, resulting primarily from the
recognition of a rent receivable valuation allowance at
September 30, 2000 of $1.9 million;
o an increase in equity in net income of the other
unconsolidated companies of $1.0 million, or 71.4%,
primarily as a result of start-up losses sustained at CRL
Investments, Inc. ("CRL"), which owns the Canyon Ranch Spa
located at the Venetian Hotel in Las Vegas, and began
operations in July of 1999.
The increase in net gain on property sales of $63.7 million for the
nine months ended September 30, 2000, as compared to the nine months ended
September 30, 1999, is attributable to:
o a gain of $78.7 million recognized on office, retail and
behavioral healthcare property sales; partially offset by
o an impairment loss of $8.5 million recognized on a real
estate investment fund in which the Company has an interest;
and
o an impairment loss of $6.5 million recognized on eight
Behavioral Healthcare Properties.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES
Total revenues decreased $35.5 million, or 6.3%, to $528.2 million for
the nine months ended September 30, 2000, as compared to $563.7 million for the
nine months ended September 30, 1999.
The decrease in Office and Retail Property revenues of $10.7 million,
or 2.3%, for the nine months ended September 30, 2000, as compared to the nine
months ended September 30, 1999, is attributable to:
34
<PAGE> 36
o decreased revenues of $20.6 million due to the disposition
of six office properties and four retail properties during
the first quarter of 2000, which contributed revenues during
the full nine months of 1999, as compared to only a portion
of the period of 2000;
o decreased revenues of $4.1 million due to the disposition of
five office properties during the second and third quarters
of 2000, which contributed revenues during the full nine
months of 1999, as compared to only a portion of the period
of 2000; and
o decreased revenues from lease termination fees of $0.7
million as a result of $4.6 million received in June 1999
compared to approximately $3.7 million received in September
2000; partially offset by
o increased revenues of $14.7 million from the 78 Office and
three Retail Properties owned as of September 30, 2000,
primarily as a result of increased weighted average
full-service rental rates at these Properties.
The increase in Hotel Property revenues of $7.2 million, or 14.8%, for
the nine months ended September 30, 2000, as compared to the nine months ended
September 30, 1999, is attributable to:
o increased revenues of $3.8 million at the business class
hotels primarily due to (i) the reclassification of the
Renaissance Houston Hotel from the Office and Retail segment
to the Hotel/Resort segment as a result of the restructuring
of its lease on July 1, 1999, which resulted in $2.4 million
of incremental revenues under the new lease and (ii)
increased percentage rents due to higher room and occupancy
rates;
o increased revenues of $2.4 million at the luxury spa resorts
primarily due to an increase in percentage rents resulting
from higher room rates and lease amendments entered into in
connection with amounts paid by the Company for capital
improvements at Sonoma Mission Inn & Spa; and
o increased revenues of $1.0 million at the destination
fitness resorts and spas primarily due to an increase in
percentage rents at Canyon Ranch Properties as a result of
higher room rates.
The decrease in Behavioral Healthcare Property revenue of $29.4
million, or 81.0%, for the nine months ended September 30, 2000, as compared to
the nine months ended September 30, 1999, is attributable to the reflection of
rent from CBHS on a cash basis beginning in the third quarter of 1999 and the
filing of voluntary bankruptcy petitions by CBHS and its subsidiaries on
February 16, 2000, which resulted in a reduction in Behavioral Healthcare
Property revenues to $6.9 million for the nine months ended September 30, 2000.
The decrease in interest and other income of $2.6 million, or 12.9%,
for the three months ended September 30, 2000, as compared to the three months
ended September 30, 1999, is primarily attributable to decreased interest income
earned on interest bearing accounts due to lower cash balances as a result of
debt pay-downs.
EXPENSES
Total expenses decreased $169.8 million, or 27.1%, to $456.7 million
for the nine months ended September 30, 2000, as compared to $626.5 million for
the nine months ended September 30, 1999.
The decrease in Office and Retail Property operating expenses of $7.2
million, or 3.7%, for the nine months ended September 30, 2000, as compared to
the nine months ended September 30, 1999, is attributable to:
o decreased expenses of $9.1 million due to the disposition of
six office properties and four retail properties during the
first quarter of 2000, which incurred expenses during the
full nine months of 1999, as compared to only a portion of
the period of 2000; and
o decreased expenses of $1.7 million due to the disposition of
five office properties during the second and third quarters
of 2000, which incurred expenses during the full nine months
of 1999, as compared to only a portion of the period of
2000; partially offset by
o increased expenses of $3.6 million from the 78 Office and
three Retail Properties owned as of September 30, 2000,
primarily as a result of an increase in real estate taxes of
$3.9 million.
35
<PAGE> 37
The increase in corporate general and administrative expense of $2.6
million, or 21.7%, is primarily attributable to increased personnel costs as a
result of the Company's new performance-based executive compensation plan.
The increase in interest expense of $16.0 million, or 11.6%, for the
nine months ended September 30, 2000, as compared to the nine months ended
September 30, 1999, is primarily attributable to an average rate increase of 1%,
offset by a decrease in average debt balance outstanding of $0.2 million.
The decrease in depreciation and amortization expense of $3.4 million,
or 3.5%, as compared to the nine months ended September 30, 1999, is primarily
attributable to the cessation of the recognition of depreciation expense on
Office Properties and Behavioral Healthcare Properties from the dates they were
classified as held for disposition.
An additional decrease in expenses of $177.0 million is attributable
to:
o $162.0 million due to the impairment and other charges
related to the behavioral healthcare properties in the third
quarter of 1999; and
o non-recurring costs of $15.0 million in connection with the
settlement of litigation relating to the merger agreement
entered into January 1998 between the Company and Station in
the first quarter of 1999.
OTHER INCOME
Other income increased $85.7 million, or 169.7%, to $136.3 million for
the nine months ended September 30, 2000, as compared to $50.5 million for the
nine months ended September 30, 1999. The components of the increase in other
income are discussed below.
The decrease in equity in net income of unconsolidated companies of
$6.7 million, or 13.3%, for the nine months ended September 30, 2000, as
compared to the nine months ended September 30, 1999, is attributable to:
o a decrease in equity in net income of the
Temperature-Controlled Logistics Partnerships of $6.6
million, or 57.4%, resulting primarily from (i) the
recognition of a rent receivable valuation allowance for the
nine months ended September 30, 2000 of $3.5 million; and
(ii) the one-time tax benefit of approximately $2.9 million
in the nine months ended September 30, 1999, which resulted
from the election of REIT status by one of the
Temperature-Controlled Logistics Corporations in 1999;
o a decrease in equity in net income of the Residential
Development Corporations of $2.9 million, or 9.4%, primarily
attributable to (i) a decrease in asset monetization and an
increase in interest expense as a result of an increase in
the average rate of debt at The Woodlands Land Development
Company, L.P. which resulted in a decrease of $2.9 million
in equity in net income to the Company and (ii) a decrease
in commercial acreage sales at Houston Area Development
Corporation, which resulted in a decrease of $2.3 million in
equity in net income to the Company; partially offset by
(iii) the increase in investment income earned at Mira Vista
Development Corporation, which resulted in a increase of
$1.5 million in equity in net income to the Company and (iv)
the increase in average sales price per lot at Desert
Mountain and an increase in membership conversion revenue,
which resulted in a increase of $1.2 million in equity in
net income to the Company; and
o a decrease in equity in net income of the unconsolidated
Office and Retail Properties of $2.5 million, or 43.9%,
primarily attributable to (i) the decrease in operations net
gains as a result of the sale of the multi-family and retail
portfolio in the fourth quarter of 1999 and the first
quarter of 2000, respectively, and (ii) an increase in
interest expense as a result of additional financing
obtained in July 2000 and an increase in the average rate of
debt at The Woodlands Commercial Properties Company, L.P.;
partially offset by
o an increase in equity in net income of the other
unconsolidated companies of $5.3 million, or 230.4%,
primarily as a result of (i) the dividend income
attributable to the 7.5% per annum cash flow preference of
the Company's $85.0 million preferred member interest in
Metropolitan, which the Company purchased in May 1999 and
(ii) an increase in the equity in earnings from DBL as a
result of its investment in G2, which was made in the third
quarter of 1999.
36
<PAGE> 38
The increase in net gain on property sales of $92.4 million for the
nine months ended September 30, 2000, as compared to the nine months ended
September 30, 1999, is attributable to:
o a gain of $112.4 million recognized on office, retail and
behavioral healthcare property sales; offset by
o an impairment loss of $8.5 million recognized on a real
estate investment fund in which the Company has an interest;
o an impairment loss of $6.5 million recognized on eight
behavioral healthcare properties held for disposition; and
o an impairment loss of $5.0 million recognized on one office
property sold during the second quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $27.3 million and $72.9 million at
September 30, 2000 and December 31, 1999, respectively. This 62.6% decrease is
attributable to $584.2 million used in financing activities, partially offset by
$363.4 million and $175.2 million provided by investing and operating
activities, respectively.
FINANCING ACTIVITIES
The Company's use of cash for financing activities of $584.2 million is
primarily attributable to:
o payments under the BankBoston Credit Facility of $510.0
million;
o payments of $367.4 million of long-term debt, primarily
attributable to payments of (i) $320.0 million on the
BankBoston Term Note II, and (ii) $43.6 million for the
retirement of the Metropolitan Life Note II;
o share repurchases of $265.5 million;
o distributions paid to common shareholders and unitholders of
$214.1 million;
o debt financing costs of $19.3 million primarily related to
capitalized financing costs in connection with the UBS
Facility; and
o distributions paid to preferred shareholders of $10.1
million.
The use of cash for financing activities is partially offset by:
o net proceeds under the UBS Facility of $553.5 million; and
o net capital proceeds from joint ventures of $247.5 million,
primarily due to net proceeds of $261.5 million from the
sale of Class A Units to GMACCM.
INVESTING ACTIVITIES
The Company's cash provided by investing activities of $363.4 million
is primarily attributable to:
o $519.9 million of net sales proceeds primarily attributable
to the disposition of office, retail and behavioral
healthcare properties; and
o $51.5 million from return of investment in unconsolidated
Office and Retail Properties, Residential Development
Properties, and other unconsolidated companies.
The Company's cash provided by investing activities is partially offset
by:
o $96.9 million of additional investment in the Residential
Development Properties and Temperature-Controlled Logistics
Properties;
o $47.4 million for recurring and non-recurring tenant
improvement and leasing costs for the Office and Retail
Properties;
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<PAGE> 39
o $26.0 million for the development of investment properties,
including expansions and renovations at the Hotel
Properties;
o $15.1 million for the acquisition of land held for
development in Houston;
o $13.9 million for capital expenditures on rental properties,
primarily attributable to non-recoverable building
improvements for the Office and Retail Properties and
replacement of furniture, fixtures and equipment for the
Hotel Properties; and
o $10.5 million increase in notes receivable, primarily as a
result of an increase in base rent receivable for the Hotel
Properties.
OPERATING ACTIVITIES
The Company's cash provided by operating activities of $175.2 million
is attributable to:
o $187.4 million from Property operations; and
o $18.4 million representing distributions received from
unconsolidated Office and Retail and Temperature-Controlled
Logistics Properties in excess of equity in earnings.
The cash provided by operating activities is partially offset by:
o $22.3 million attributable to a decrease in accounts
payable, accrued liabilities and other liabilities primarily
due to the semi-annual interest payments on the Company's
$400.0 million bonds; and
o $8.3 million representing equity in earnings net of
distributions received from unconsolidated Residential
Development Properties and other unconsolidated companies.
PROPERTY DISPOSITIONS
Office & Retail Segment
During the nine months ended September 30, 2000, the Company completed
the sale of 11 wholly-owned office properties. The sale of the 11 office
properties generated approximately $265.9 million of net proceeds. The proceeds
were used primarily to pay down variable-rate debt. The Company recognized a net
gain of approximately $35.6 million related to the sale of the 11 office
properties during the nine months ended September 30, 2000. During the year
ended December 31, 1999, the Company recognized an impairment loss of
approximately $16.8 million on one of the 11 office properties sold during the
nine months ended September 30, 2000. The Company also recognized an impairment
loss of approximately $5.0 million during the nine months ended September 30,
2000 on one of the 11 office properties sold. The impairment losses represented
the differences between the carrying values of the office properties and the
sales prices less costs of the sales.
Behavioral Healthcare Segment
During the nine months ended September 30, 2000, the Company completed
the sale of 55 behavioral healthcare properties previously classified as held
for disposition. The sales generated approximately $218.4 million in net
proceeds and a net gain of approximately $61.0 million for the nine months ended
September 30, 2000. During the three months ended September 30, 2000, the
Company recognized an impairment loss of $6.5 million on the Behavioral
Healthcare Properties held for disposition. This amount represents the
difference between the carrying values and the estimated sales prices less costs
of the sales for eight of the Properties. The net proceeds from the sale of the
55 behavioral healthcare properties sold during the nine months ended September
30, 2000 were used primarily to pay down variable-rate debt.
Subsequent to September 30, 2000, the Company sold three Behavioral
Healthcare Properties. The sales generated approximately $10.3 million in net
proceeds and a net gain of approximately $1.5 million. The Company also has
entered into contracts or letters of intent to sell five additional Behavioral
Healthcare Properties. The sales of these Properties are expected to close by
the end of the fourth quarter of 2000.
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<PAGE> 40
Hotel/Resort Segment
On November 3, 2000, the Company completed the sale of the Four Seasons
Hotel - Houston for a sale price of approximately $105.0 million. The Company is
required to use a minimum of approximately $56.6 million of the net proceeds
from the sale to redeem Class A Units in Funding IX, through which the Company
owned the Property, from GMACCM. See "Sale of Preferred Equity Interests in
Subsidiary" below for a description of the ownership structure of Funding IX.
Other
The Woodlands Commercial Properties Company, L.P., owned by the Company
and Morgan Stanley Real Estate Fund II, L.P., completed the sale of its retail
portfolio, consisting of the Company's four retail properties located in The
Woodlands, on January 5, 2000. The sale generated approximately $49.8 million of
net proceeds, of which the Company's portion was approximately $37.3 million.
The Woodlands retail properties were sold at a net gain of approximately $9.0
million, of which the Company's portion was approximately $6.9 million. The
proceeds to the Company were used primarily to pay down debt.
CBHS
As of December 31, 1999, the Company owned 88 behavioral healthcare
properties, all of which were leased by the Company to CBHS under a master
lease. CBHS's business has been negatively affected by many factors, including
adverse industry conditions, and on February 16, 2000, CBHS and all of its
subsidiaries that were subject to the master lease with the Company filed
voluntary Chapter 11 bankruptcy petitions in the United States Bankruptcy Court
for the District of Delaware.
Payment and treatment of rent for the Behavioral Healthcare Properties
is subject to a rent stipulation agreed to by certain of the parties involved in
the CBHS bankruptcy proceeding. The Company received approximately $1.6 million
and $6.9 million in rent from CBHS during the three and nine months ended
September 30, 2000, respectively.
The Company sold 37 and 55 behavioral healthcare properties during the
three and nine months ended September 30, 2000, respectively. The sales
generated approximately $168.8 million and $218.4 million in net proceeds,
during the three and nine months ended September 30, 2000, respectively.
As of September 30, 2000, the Behavioral Healthcare Segment consisted
of 33 Behavioral Healthcare Properties in 16 states. CBHS had ceased operations
at substantially all of the Behavioral Healthcare Properties as of September 30,
2000. CBHS is expected to cease operations at the remaining Behavioral
Healthcare Properties by the end of the fourth quarter of 2000.
Subsequent to September 30, 2000, the Company sold three Behavioral
Healthcare Properties. The Company has entered into contracts or letters of
intent to sell five additional Behavioral Healthcare Properties and is actively
marketing for sale the remaining 25 Behavioral Healthcare Properties.
TXU ENERGY SERVICE AGREEMENT
On June 5, 2000, the Company entered into a five-year energy services
agreement with TXU Energy Services ("TXU"), under which TXU will manage a full
range of energy services on behalf of the Company. The agreement provides that
TXU will consolidate, audit, and pay all utility bills, provide real-time
metering technology and offer on-line access to customized utility management
reports. In addition, TXU will manage supply-side services, including review of
existing rate structure and negotiation and procurement of energy supply in
competitive areas, and invest in energy efficiency and local management
technologies. Furthermore, TXU will design, finance, and build energy-related
projects on site-specific programs for the Company. The first phase of the
agreement focuses on the Company's Class A Office Properties with future plans
to incorporate the Company's Hotel Properties.
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<PAGE> 41
SHELF REGISTRATION STATEMENT
On October 29, 1997, the Company filed a shelf registration statement
(the "Shelf Registration Statement") with the SEC relating to the future
offering of up to 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, 2000, approximately $782.7 million was available under the Shelf
Registration Statement for the issuance of securities.
SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY
During the nine months ended September 30, 2000, the Company formed
Funding IX and contributed seven Office Properties and two Hotel Properties to
Funding IX. The Company owns 100% of the voting interests in Funding IX, 0.1% in
the form of a general partner interest and 99.9% in the form of a limited
partner interest.
As of September 30, 2000, the Company had sold $275.0 million of
non-voting, redeemable preferred Class A Units in Funding IX to GMACCM and
received net proceeds of $265.1 million. The Class A Units receive a preferred
variable-rate dividend currently calculated at 30-day LIBOR plus 450 basis
points, or approximately 11.13% per annum as of September 30, 2000, and are
redeemable at the option of the Company at the original purchase price.
As of September 30, 2000, the net proceeds of $265.1 million from the
sale of the Class A Units had been used to repurchase 13,755,423 of the
Company's outstanding common shares. See "Share Repurchase Program" below. The
repurchased common shares are consolidated as treasury shares in accordance with
GAAP. However, these shares will be held in a wholly-owned subsidiary of the
Company until the Class A Units are redeemed. Distributions will continue to be
paid on the repurchased common shares and will be used to pay dividends on the
Class A Units.
The Company generally will use the proceeds from any joint venture or
sale of a Property held by Funding IX to redeem the Class A Units.
SHARE REPURCHASE PROGRAM
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 $500.0 million.
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
judgment, 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.
The Company commenced its Share Repurchase Program in March 2000.
During the nine months ended September 30, 2000, the Company repurchased
7,986,830 common shares in the open market at an average price of $20.59 per
common share for an aggregate of approximately $164.4 million.
In addition, during the nine months ended September 30, 2000, the
Company purchased 5,809,180 of the Company's common shares at an average price
of $17.44 per common share for an aggregate of approximately $101.3 million,
fulfilling its obligation under the "Share Repurchase Agreement" with UBS. This
amount includes 1,766,489 common shares purchased from UBS on July 5, 2000 at an
average cost of $17.33 per common share for an aggregate cost of approximately
$30.6 million. This amount also includes 20,301 common shares purchased outside
of the Share Repurchase Program in connection with a management incentive plan.
See "Share Repurchase Agreement" below for a description of the agreement.
The purchase of the 13,796,010 common shares was financed primarily
with the proceeds of the sale of Class A Units in Funding IX. See "Sale of
Preferred Equity Interests in Subsidiary" above.
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<PAGE> 42
SHARE REPURCHASE AGREEMENT
On November 19, 1999, the Company entered into an agreement with UBS to
purchase a portion of its common shares from UBS. As of December 31, 1999, the
Company was obligated to purchase 4,789,580 common shares, or approximately
$84.1 million of the Company's common shares. The agreement was amended on
January 4, 2000, increasing the number of common shares the Company was
obligated to purchase from UBS by January 4, 2001 to 5,809,180 common shares, or
approximately $101.0 million of the Company's common shares. The price the
Company was obligated to pay for the common shares was calculated based on the
average cost of the common shares purchased by UBS in connection with the Share
Repurchase Agreement plus a return to UBS of 30-day LIBOR plus 250 basis points,
minus an adjustment for the Company's distributions during the term of the Share
Repurchase Agreement. The guaranteed rate of return to UBS under the agreement
is equal to 30-day LIBOR plus 250 basis points.
The Company had the option to settle the Share Repurchase Agreement in
cash or common shares. During the nine months ended September 30, 2000, the
Company purchased the 5,809,180 common shares from UBS at an average cost of
$17.44 per common share for an aggregate of approximately $101.3 million under
the Share Repurchase Agreement with UBS. This amount includes 1,766,489 common
shares purchased from UBS on July 5, 2000 at an average cost of $17.33 per
common share for an aggregate of approximately $30.6 million. The Company has no
further obligation under the Share Repurchase Agreement. The purchases were
funded primarily through the sale of Class A Units in Funding IX. See "Sale of
Preferred Equity Interests in Subsidiary" above.
METROPOLITAN
The Company's $85.0 million preferred member interest in Metropolitan
at September 30, 2000 would equate to an approximately 20% equity interest. The
investment has a cash flow preference of 7.5% until May 19, 2001 and may be
redeemed by Metropolitan on or before May 19, 2001 for $85.0 million, plus an
amount sufficient to provide a 9.5% internal rate of return to the Company. If
Metropolitan does not redeem the preferred interest by May 19, 2001, 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.
UBS FACILITY
On February 4, 2000, the Company repaid and retired the BankBoston
Credit Facility and the BankBoston Term Note I primarily with the proceeds of
the UBS Facility. The UBS Facility is a secured, variable-rate facility that is
currently funded by a syndicate of 23 banks and institutions led by UBS and
Fleet. The borrowing capacity under the UBS facility is currently limited to
$734.6 million. The UBS Facility was entered into effective January 31, 2000 and
amended on May 10, 2000 and May 18, 2000, and, as amended, consists of three
tranches: the UBS Line of Credit, a three-year $300.0 million revolving line of
credit (currently limited to $261.1 million of borrowing capacity); the UBS Term
Loan I, a $146.8 million three-year term loan; and the UBS Term Loan II, a
$326.7 million four-year term loan. Borrowings under the UBS Line of Credit, the
UBS Term Loan I and the UBS Term Loan II at September 30, 2000, were
approximately $80.0 million, $146.8 million and $326.7 million, respectively.
The UBS Line of Credit and the UBS Term Loan I bear interest at LIBOR plus 250
basis points. The UBS Term Loan II bears interest at LIBOR plus 275 basis
points. As of September 30, 2000, the interest rate on the UBS Line of Credit
and UBS Term Loan I was 9.14%, and the interest rate on the UBS Term Loan II was
9.39%. In order to mitigate its exposure to variable-rate debt, the Company has
entered into two cash flow hedge agreements related to a portion of the UBS
Facility. See "Cash Flow Hedging Transactions" below for a description of these
agreements. During the nine months ended September 30, 2000, the Company sold
six office properties securing the UBS Facility. The net proceeds of the sale of
these properties were used to repay amounts outstanding under the UBS Facility.
As of September 30, 2000, the UBS Facility was secured by 37 Office Properties
and four Hotel Properties. The UBS 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 allocated property values and
debt service coverage ratios, and, with respect solely to Funding VIII,
limitations on additional secured and total indebtedness, distributions,
additional investments and the incurrence of additional liens. The Company was
in compliance with all covenants related to the UBS Facility for the September
30, 2000 reporting period.
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<PAGE> 43
CASH FLOW HEDGING TRANSACTIONS
The Company does not use derivative financial instruments for trading
purposes, but utilizes them to manage exposure to variable rate debt. The
Company accounts for its derivative instruments under SFAS No. 133, which was
adopted in the third quarter of 1999.
On September 1, 1999, the Company entered into a four-year cash flow
hedge agreement with Salomon for a notional amount of $200.0 million, relating
to the BankBoston Term Note II. As a result of the cash flow hedge agreement,
the interest rate on the underlying note, which currently has a floating
interest rate of 30-day LIBOR plus 400 basis points, has been effectively
converted to a fixed interest rate of 10.18% through maturity. During the nine
months ended September 30, 2000, the cash flow hedge agreement with Salomon
resulted in a reduction of approximately $0.5 million of interest expense. As of
September 30, 2000, the fair value of the cash flow hedge was approximately $2.0
million.
Effective February 4, 2000, the Company entered into a three-year cash
flow hedge agreement with Fleet, for a notional amount of $200.0 million,
relating to a portion of the UBS Term Loan I and the UBS Line of Credit. As a
result, the interest rate on $200.0 million of the amount due under the UBS Term
Loan I and the UBS Line of Credit, which were originally issued at a floating
interest rate of LIBOR plus 250 basis points, was effectively converted to a
fixed interest rate of 9.61% through maturity. During the nine months ended
September 30, 2000, the cash flow hedge agreement with Fleet resulted in
approximately $1.0 million of additional interest expense. As of September 30,
2000, the fair value of the cash flow hedge was approximately ($2.8) million.
Effective April 18, 2000, the Company entered into a four-year cash
flow hedge agreement with Fleet, for a notional amount of $100.0 million,
relating to a portion of the UBS Term Loan II. As a result, the interest rate on
$100.0 million of this loan, which was originally issued at a floating interest
rate of LIBOR plus 275 basis points, was effectively converted to a fixed
interest rate of 9.51% through maturity. Fleet has an option to terminate the
agreement at the end of the third year of the agreement. During the nine months
ended September 30, 2000, the cash flow hedge agreement with Fleet resulted in
approximately $0.1 million of additional interest expense. As of September 30,
2000, the fair value of the cash flow hedge was approximately ($1.3) million.
ASSET JOINT VENTURES
The Company has agreements with Chadwick Saylor & Co., Inc. and Warburg
Dillon Read pursuant to which they are providing investment advisory services to
the Company regarding the Company's joint-venture strategy. The Company intends
to hold a minority equity interest in these joint-ventured assets and will
continue to lease and manage these Properties.
LIQUIDITY REQUIREMENTS
As of September 30, 2000, the Company had commitments of approximately
$197.4 million relating to expansion, construction, renovation and development
projects. This amount includes the ongoing renovation of the Renaissance
Houston Hotel and the Hyatt Regency Beaver Creek, the development of an
approximately 88,000 square foot office building adjacent to The Avallon in
Austin, Texas and the Company's latest investment through CDMC for its share of
the costs associated with development of a premier, up-scale ski resort. This
amount also includes construction of 5 Houston Center, the newest development
within the Company's Houston Center office complex in Houston, Texas.
Of the approximately $197.4 million represented by these commitments,
approximately $37.9 million is expected to be due during the next 12 to 15
months. In addition, approximately $108.2 million of debt matures during the
next 12 months. The Company expects to meet these obligations primarily through
a combination of cash flow provided by operating activities and additional or
replacement debt financing.
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<PAGE> 44
The Company expects to meet its other short-term liquidity
requirements, consisting of normal recurring operating expenses, regular debt
service requirements (including debt service relating to additional and
replacement debt), recurring capital expenditures, non-recurring capital
expenditures, such as tenant improvement and leasing costs, and distributions to
shareholders and unitholders, primarily through cash flow provided by operating
activities. To the extent that the Company's cash flow from operating activities
is not sufficient to finance such short-term liquidity requirements, the Company
expects to finance such requirements with available cash, property sales,
proceeds received from joint venture arrangements, additional borrowings under
the UBS Line of Credit or additional debt financing.
The Company's commitments of $197.4 million include approximately
$117.5 million of costs associated with construction of 5 Houston Center.
Construction of the planned 27-story, Class A office property of 577,000 net
rentable square feet commenced on November 2, 2000, and is expected to be
completed in the third quarter of 2002. The Company has leasing commitments for
over 50% of the space. Of the total estimated development costs of the project,
approximately $87.5 million is being financed with long-term construction
financing. The Company intends to bring in a joint-venture partner as a co-owner
of 5 Houston Center, and, ultimately, to hold a 25% to 30% equity interest while
continuing to manage and lease the property.
The Company's other long-term liquidity requirements consist primarily
of maturities under the Company's fixed and variable-rate debt, which totaled
approximately $2.2 billion as of September 30, 2000. The Company expects to meet
these long-term liquidity requirements primarily through long-term secured and
unsecured borrowings and other debt and equity financing alternatives.
Debt and equity financing alternatives currently available to the
Company to satisfy its liquidity requirements and commitments for material
capital expenditures include:
o Additional proceeds from the refinancing of existing secured and
unsecured debt;
o Additional debt secured by existing underleveraged properties,
investment properties, or by investment property acquisitions or
developments;
o Joint venture arrangements; and
o Issuances of Operating Partnership units.
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.
On December 17, 1999, President Clinton signed into law the REIT
Modernization Act which will become effective after December 31, 2000, and
contains a provision that would permit the Company to own and operate certain
types of investments that are currently owned by COPI. The REIT Modernization
Act is expected to reduce the number of business opportunities that the Company
would otherwise offer to COPI pursuant to the Intercompany Agreement between the
Company and COPI, which provides each party with rights to participate in
certain transactions. The Company has expressed an interest to COPI in certain
of the businesses currently owned or operated by COPI that the REIT
Modernization Act would allow the Company to own or operate. The Company is
exploring alternatives with COPI regarding a potential future transaction with
respect to certain of COPI's assets.
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<PAGE> 45
DEBT FINANCING ARRANGEMENTS
The significant terms of the Company's primary debt financing
arrangements existing as of September 30, 2000 are shown below (dollars in
thousands):
<TABLE>
<CAPTION>
INTEREST BALANCE
RATE AT OUTSTANDING AT
MAXIMUM SEPTEMBER 30, EXPIRATION SEPTEMBER 30,
DESCRIPTION BORROWINGS 2000 DATE 2000
------------------------------ ---------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
SECURED FIXED RATE DEBT:
AEGON Note(1) $ 275,367 7.53% July 2009 $ 275,367
LaSalle Note I(2) 239,000 7.83 August 2027 239,000
JP Morgan Mortgage Note(3) 200,000 8.31 October 2016 200,000
LaSalle Note II(4) 161,000 7.79 August 2028 161,000
CIGNA Note 63,500 7.47 December 2002 63,500
Metropolitan Life Note V 39,343 8.49 December 2005 39,343
Northwestern Life Note 26,000 7.66 January 2003 26,000
Metropolitan Life Note I 11,160 8.88 September 2001 11,160
Nomura Funding VI Note(5) 8,364 10.07 July 2020 8,364
Rigney Promissory Note 706 8.50 November 2012 706
---------- ----------- ----------
Subtotal/Weighted Average $1,024,440 7.87% $1,024,440
---------- ----------- ----------
SECURED VARIABLE RATE DEBT(6):
UBS Term Loan II(7) $ 326,677 9.39% February 2004 $ 326,677
BankBoston Term Note II(8) 200,000 10.63 August 2003 200,000
UBS Term Loan I(7) 146,775 9.14 February 2003 146,775
SFT Whole Loans, Inc. Note 97,123 8.38 September 2001 97,123
UBS Line of Credit(7)(9) 261,125 9.14 February 2003 80,000
---------- ----------- ----------
Subtotal/Weighted Average $1,031,700 9.50% $ 850,575
---------- ----------- ----------
UNSECURED FIXED RATE DEBT:
Notes due 2007(10) $ 250,000 7.50% September 2007 $ 250,000
Notes due 2002(10) 150,000 7.00 September 2002 150,000
---------- ----------- ----------
Subtotal/Weighted Average $ 400,000 7.31% $ 400,000
---------- ----------- ----------
TOTAL/WEIGHTED AVERAGE $2,456,140 8.38%(11) $2,275,015
========== =========== ==========
</TABLE>
----------
(1) The outstanding principal balance of this note at maturity will be
approximately $224.0 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 $220.0
million.
(3) At the end of seven years (October 2006), the interest rate will adjust
based on current interest rates at that time. It is the Company's intention
to repay the note in full at such time (October 2006) by making a final
payment of approximately $178.0 million.
(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 $154.0
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, see Note 8. Notes Payable and Borrowings under the UBS
Facility of Item 1. Financial Statements.
(7) The UBS Facility was entered into effective January 31, 2000 and amended on
May 10, 2000 and May 18, 2000. As amended, the UBS Facility consists of
three tranches: the UBS Line of Credit, the UBS Term Loan I and the UBS
Term Loan II. For a description of the UBS Facility, see "Liquidity and
Capital Resources - UBS Facility."
(8) This loan is secured by partnership interests in two pools of assets that
also secure the LaSalle Note I and the LaSalle Note II. The Company entered
into a four-year $200.0 million cash flow hedge agreement effective
September 1, 1999 with Salomon in a separate transaction related to the
BankBoston Term Note II. See "Liquidity and Capital Resources - Cash Flow
Hedging Transactions."
(9) Maximum borrowing is calculated based on borrowing capacity at September
30, 2000, and cannot exceed $300.0 million.
(10) The notes were issued in an offering registered with the SEC.
(11) The overall weighted average interest rate does not include the effect of
the Company's cash flow hedge agreements. Including the effect of these
agreements, the overall weighted average interest rate would have been
8.39%.
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<PAGE> 46
Below are the aggregate principal amounts due as of September 30, 2000
under the UBS 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>
2000 $ 1,323 $ -- $ 1,323
2001 113,887 -- 113,887
2002 73,913 150,000 223,913
2003 467,835 -- 467,835
2004 343,534 -- 343,534
Thereafter 874,523 250,000 1,124,523
------------ ------------ ------------
$ 1,875,015 $ 400,000 $ 2,275,015
============ ============ ============
</TABLE>
The Company has approximately $1.3 million of principal on secured debt
payable during 2000, consisting primarily of monthly principal payments due
under the AEGON Note during 2000, which are expected to be funded through cash
flows provided by operating activities.
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 cash flow hedges to reduce this exposure.
Debt service coverage ratios for a particular period are 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 for
the UBS Facility is calculated in a different manner. As of September 30, 2000,
the Company was in compliance with all of its debt service coverage ratios and
other covenants related to its outstanding debt.
FUNDS FROM OPERATIONS
FFO, based on the revised definition adopted by the Board of Governors
of the NAREIT, effective January 1, 2000, and as used in this document, means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from sales of depreciable
operating property;
o excluding extraordinary items (as defined by GAAP);
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. Effective January 1,
2000, NAREIT clarified the definition of FFO to include non-recurring events,
except for those that are defined as "extraordinary items" under GAAP and gains
or losses from sales of depreciable operating property. The Company has adopted
the revised definition of FFO effective as of January 1, 2000. Under the prior
definition of FFO, for the nine months ended September 30, 1999, FFO was
approximately $254.5 million, which excluded $15.0 million paid in connection
with the 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.
Because this settlement is not considered an "extraordinary item" under GAAP,
FFO for the nine months ended September 30, 1999 would have been approximately
$239.5 million,
45
<PAGE> 47
which would have included the $15.0 million settlement payment, if the revised
definition of FFO had been in effect. The Company considers FFO an appropriate
measure of performance for an equity REIT, and for its investment segments.
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, 2000 and 1999 were $214.1 and $225.3
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.
46
<PAGE> 48
STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND SHARES/UNITS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 83,175 $ (102,282) $ 170,359 $ (11,107)
Adjustments to reconcile net income to
funds from operations:
Depreciation and amortization of real estate assets 30,727 29,516 90,872 94,542
Gain on property sales, net (63,679) -- (92,432) --
Settlement of merger dispute -- -- -- 15,000
Impairment and other charges related to
the behavioral healthcare assets -- 136,435 -- 136,435
Extraordinary item - extinguishment of debt -- 3,928 --
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office and Retail Properties 1,805 (751) 3,522 3,603
Temperature-Controlled Logistics Properties 7,465 5,045 20,354 12,803
Residential Development Properties 8,828 3,457 24,551 14,751
Other -- 439 -- 611
Unitholder minority interest 10,058 (11,287) 21,152 (1,973)
6 3/4% Series A Preferred Share dividends (3,375) (3,375) (10,125) (10,125)
------------ ------------ ------------ ------------
Funds from operations - old definition(1)(2) $ 75,004 $ 57,197 $ 232,181 $ 254,540
------------ ------------ ------------ ------------
Settlement of merger dispute -- -- -- (15,000)
------------ ------------ ------------ ------------
Funds from operations - new definition(1)(2) $ 75,004 $ 57,197 $ 232,181 $ 239,540
============ ============ ============ ============
Investment Segments:
Office and Retail Segment $ 92,917 $ 91,916 $ 266,341 $ 273,395
Hotel/Resort Segment 19,598 16,564 55,235 47,658
Behavioral Healthcare Segment 1,550 (16,969) 6,933 10,679
Temperature-Controlled Logistics Segment 8,101 6,791 25,218 24,279
Residential Development Segment 14,761 11,401 52,665 45,739
Corporate and other adjustments:
Interest expense (50,458) (51,084) (154,544) (138,482)
6 3/4% Series A Preferred Share dividend (3,375) (3,375) (10,125) (10,125)
Other(3) (2,785) 6,036 5,090 13,410
Corporate general & administrative (5,305) (4,083) (14,632) (12,013)
------------ ------------ ------------ ------------
Funds from operations - old definition 75,004 57,197 232,181 254,540
------------ ------------ ------------ ------------
Settlement of merger dispute -- -- -- (15,000)
------------ ------------ ------------ ------------
Funds from operations - new definition(1)(2) $ 75,004 $ 57,197 $ 232,181 $ 239,540
============ ============ ============ ============
Basic weighted average shares/units 123,400 132,707 129,444 136,562
============ ============ ============ ============
Diluted weighted average shares/units(4) 125,161 134,094 130,508 138,830
============ ============ ============ ============
</TABLE>
----------
(1) To calculate basic funds from operations, deduct Unitholder minority
interest.
(2) For the periods beginning after January 1, 2000, the Company has adopted
the revised definition of FFO adopted by NAREIT effective on January 1,
2000. The revised definition modifies the prior FFO calculation to include
certain nonrecurring charges.
(3) Includes interest and other income, preferred return paid to GMACCM, other
unconsolidated companies, less depreciation and amortization of non-real
estate assets and amortization of deferred financing costs.
(4) See calculations for the amounts presented in the reconciliation following
this table.
47
<PAGE> 49
The following schedule reconciles the Company's basic weighted average
shares/units to the diluted weighted average shares/units presented above:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
(SHARES/UNITS IN THOUSANDS) 2000 1999 2000 1999
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Basic weighted average shares/units: 123,400 132,707 129,444 136,562
Add: Share and unit options 1,761 1,387 1,064 1,877
Forward Share Purchase Agreement - - - 391
--------------- -------------- --------------- --------------
Diluted weighted average shares/units 125,161 134,094 130,508 138,830
=============== ============== =============== ==============
</TABLE>
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Funds from operations - new definition $ 232,181 $ 239,540
Adjustments:
Depreciation and amortization of non-real estate assets 1,963 1,752
Amortization of deferred financing costs 7,056 7,857
Impairment and other charges related to the behavioral
healthcare assets -- (32,662)
Minority interest in joint ventures profit and depreciation
and amortization 13,030 1,444
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies (48,427) (31,768)
Change in deferred rent receivable (7,632) 5,098
Change in current assets and liabilities (43,281) 44,091
Distributions received in excess of earnings from
unconsolidated companies 18,425 16,320
Equity in earnings in excess of distributions received from
unconsolidated companies (8,367) (13,835)
6 3/4% Series A Preferred Share dividends 10,125 10,125
Non-cash compensation 85 101
-------------- --------------
Net cash provided by operating activities $ 175,158 $ 248,063
============== ==============
</TABLE>
48
<PAGE> 50
OFFICE AND RETAIL PROPERTIES
As of September 30, 2000, the Company owned 78 Office Properties
located in 27 metropolitan submarkets in seven states with an aggregate of
approximately 28.7 million net rentable square feet. The Company's Office
Properties are located primarily in the Dallas/Fort Worth and Houston, Texas
metropolitan areas. As of September 30, 2000, the Company's Office Properties in
Dallas/Fort Worth and Houston represented an aggregate of approximately 77% of
its office portfolio based on total net rentable square feet (40% for
Dallas/Fort Worth and 37% for Houston).
In pursuit of management's objective to dispose of non-strategic and
non-core assets, the Company sold 11 wholly-owned office properties during the
nine months ended September 30, 2000 and was actively marketing for sale its
interest in one additional Office Property at September 30, 2000. The office
properties sold were The Amberton, Concourse Office Park, The Meridian, One
Preston Park, Valley Centre, and Walnut Green Office Properties located in
Dallas, Texas; the Energy Centre and 1615 Poydras Office Properties located in
New Orleans, Louisiana; the AT&T Building located in Denver, Colorado; the
Central Park Plaza Office Property located in Omaha, Nebraska and the 160 Spear
Office Property located in San Francisco, California.
49
<PAGE> 51
OFFICE PROPERTIES TABLES
The following table shows, as of September 30, 2000, certain
information about the Company's Office Properties. In the table below "CBD,"
means central business district.
<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 83% $ 22.47
The Crescent Office Towers 1 Uptown/Turtle Creek 1985 1,204,670 94(3) 30.76
Fountain Place 1 CBD 1986 1,200,266 95(3) 19.27
Trammell Crow Center(4) 1 CBD 1984 1,128,331 80(3) 24.02
Stemmons Place 1 Stemmons Freeway 1983 634,381 86 16.10
Spectrum Center(5) 1 Far North Dallas 1983 598,250 95 23.50
Waterside Commons 1 Las Colinas 1986 458,739 100 20.37
Caltex House 1 Las Colinas 1982 445,993 89 28.63
Reverchon Plaza 1 Uptown/Turtle Creek 1985 374,165 78(3) 20.50
The Aberdeen 1 Far North Dallas 1986 320,629 100 18.54
MacArthur Center I & II 1 Las Colinas 1982/1986 294,069 98 22.46
Stanford Corporate Centre 1 Far North Dallas 1985 265,507 73(3) 22.40
12404 Park Central 1 LBJ Freeway 1987 239,103 100 21.31
Palisades Central II 1 Richardson/Plano 1985 237,731 98 21.32
3333 Lee Parkway 1 Uptown/Turtle Creek 1983 233,769 92 21.80
Liberty Plaza I & II 1 Far North Dallas 1981/1986 218,813 100 15.83
The Addison 1 Far North Dallas 1981 215,016 100 18.90
Palisades Central I 1 Richardson/Plano 1980 180,503 94(3) 19.36
Greenway II 1 Richardson/Plano 1985 154,329 100 23.02
Greenway I & IA 2 Richardson/Plano 1983 146,704 100 23.43
Addison Tower 1 Far North Dallas 1987 145,886 94(3) 18.83
5050 Quorum 1 Far North Dallas 1981 133,594 88 17.56
Cedar Springs Plaza 1 Uptown/Turtle Creek 1982 110,923 90(3) 18.65
---------- ------------- ------- -------
Subtotal/Weighted Average 24 10,472,328 90% $ 22.38
---------- ------------- ------- -------
FORT WORTH
UPR Plaza 1 CBD 1982 954,895 92% $ 15.08
---------- ------------ ------ -------
HOUSTON
Greenway Plaza Office Portfolio 10 Richmond-Buffalo 1969-1982 4,288,417 95% $ 18.49
Speedway
Houston Center 3 CBD 1974-1983 2,764,418 96 18.54
Post Oak Central 3 West Loop/Galleria 1974-1981 1,277,516 92 18.57
The Woodlands Office Properties(6) 12 The Woodlands 1980-1996 811,067 99 16.20
Four Westlake Park 1 Katy Freeway 1992 561,065 100 19.05
Three Westlake Park 1 Katy Freeway 1983 414,251 77 20.60
1800 West Loop South 1 West Loop/Galleria 1982 399,777 73 18.43
---------- ------------ ------ -------
Subtotal/Weighted Average 31 10,516,511 94% $ 18.43
---------- ------------ ------ -------
AUSTIN
Frost Bank Plaza 1 CBD 1984 433,024 99% $ 23.83
301 Congress Avenue(7) 1 CBD 1986 418,338 94 25.11
Bank One Tower 1 CBD 1974 389,503 94(3) 20.75
Austin Centre 1 CBD 1986 343,665 84(3) 25.59
The Avallon 1 Northwest 1993/1997 232,301 100 23.18
Barton Oaks Plaza One 1 Southwest 1986 99,895 100 22.57
---------- ------------ ------ -------
Subtotal/Weighted Average 6 1,916,726 94% $ 23.59
---------- ------------ ------ -------
</TABLE>
50
<PAGE> 52
<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>
COLORADO
DENVER
MCI Tower 1 CBD 1982 550,807 99% $ 18.04
Ptarmigan Place 1 Cherry Creek 1984 418,630 100 18.98
Regency Plaza One 1 Denver Technology Center 1985 309,862 99 23.85
55 Madison 1 Cherry Creek 1982 137,176 95 19.41
The Citadel 1 Cherry Creek 1987 130,652 96 22.74
44 Cook 1 Cherry Creek 1984 124,174 96 19.92
--------- ------------ ------ -------
Subtotal/Weighted Average 6 1,671,301 99% $ 20.00
--------- ------------ ------ -------
COLORADO SPRINGS
Briargate Office and
and Research Center 1 Colorado Springs 1988 252,857 100% $ 18.78
--------- ------------ ------ -------
FLORIDA
MIAMI
Miami Center 1 CBD 1983 782,686 85%(3) $ 25.19
Datran Center 2 South Dade/Kendall 1986/1988 472,236 93(3) 22.65
--------- ------------ ------ -------
Subtotal/Weighted Average 3 1,254,922 88% $ 24.18
--------- ------------ ------ -------
ARIZONA
PHOENIX
Two Renaissance Square 1 Downtown/CBD 1990 476,373 87%(3) $ 23.79
6225 North 24th Street 1 Camelback Corridor 1981 86,451 100 23.31
--------- ------------ ------ -------
Subtotal/Weighted Average 2 562,824 89% $ 23.70
--------- ------------ ------ -------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour 2 Georgetown 1986 536,206 97%(3) $ 40.16
--------- ------------ ------ -------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza 1 CBD 1990 366,236 89% $ 19.35
--------- ------------ ------ -------
CALIFORNIA
SAN DIEGO
Chancellor Park (8) 1 University Town Center 1988 195,733 94% $ 24.08
--------- ------------ ------ -------
TOTAL/WEIGHTED AVERAGE 78 28,700,539 93%(3) $ 20.99(9)
========= ============ ====== =======
</TABLE>
----------
(1) Calculated based on base rent payable as of September 30, 2000, 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 0.5% general partner
interest in the partnership that owns Bank One Center.
(3) Leases have been executed at certain Office Properties but had not
commenced as of September 30, 2000. If such leases had commenced as of
September 30, 2000, the percent leased for all Office Properties would have
been 94%. The total percent leased for these Properties would have been as
follows: The Crescent Office Towers - 98%; Fountain Place - 98%; Trammell
Crow Center - 84%; Reverchon Plaza - 84%; Stanford Corporate Centre - 82%;
Palisades Central I - 99%; Addison Tower - 97%; Cedar Springs Plaza - 97%;
Bank One Tower - 99%; Austin Centre - 91%; Miami Center - 90%; Datran
Center - 96%; Two Renaissance Square - 98% and Washington Harbour - 100%.
(4) 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.
(5) 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.
(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 Company has a 1% general partner interest and a 49% limited partner
interest in the partnership that owns 301 Congress Avenue.
(8) 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.
(9) The weighted average full-service rental rate per square foot calculated
based on base rent payable for Company Office Properties as of September
30, 2000, 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 $21.36.
51
<PAGE> 53
The following table provides information, as of September 30, 2000, for the
Company's Office Properties by state, city, and submarket.
<TABLE>
<CAPTION>
PERCENT OFFICE COMPANY
PERCENT OF LEASED 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 13% 86%(6) 81% 21%
Uptown/Turtle Creek 4 1,923,527 7 90(6) 89 31
Far North Dallas 7 1,897,695 7 93(6) 75 17
Las Colinas 3 1,198,801 4 95 85 11
Richardson/Plano 5 719,267 3 98(6) 95 14
Stemmons Freeway 1 634,381 2 86 90 26
LBJ Freeway 1 239,103 1 100 83 3
---------- ---------- ---------- --------- ---------- ---------
Subtotal/Weighted Average 24 10,472,328 37% 90% 83% 16%
---------- ---------- ---------- --------- ---------- ---------
FORT WORTH
CBD 1 954,895 3% 92% 91% 24%
---------- ---------- ---------- --------- ---------- ---------
HOUSTON
CBD 3 2,764,418 10% 96% 97% 11%
Richmond-Buffalo Speedway 6 2,735,030 10 96 93 56
West Loop/Galleria 4 1,677,293 6 87 89 13
Katy Freeway 2 975,316 3 90 85 13
The Woodlands 7 487,320 1 99 97 100
---------- ---------- ---------- --------- ---------- ---------
Subtotal/Weighted Average 22 8,639,377 30% 94% 93% 17%
---------- ---------- ---------- --------- ---------- ---------
AUSTIN
CBD 4 1,584,530 6% 93% (6) 100% 49%
Northwest 1 232,301 1 100 100 10
Southwest 1 99,895 0 100 99 4
---------- ---------- ---------- --------- ---------- ---------
Subtotal/Weighted Average 6 1,916,726 7% 94% 100% 24%
---------- ---------- ---------- --------- ---------- ---------
COLORADO
DENVER
Cherry Creek 4 810,632 3% 98% 95% 45%
CBD 1 550,807 2 99 96 5
Denver Technology Center 1 309,862 1 99 88 6
---------- ---------- ---------- --------- ---------- ---------
Subtotal/Weighted Average 6 1,671,301 6% 99% 93% 9%
---------- ---------- ---------- --------- ---------- ---------
COLORADO SPRINGS
Colorado Springs 1 252,857 1% 100% 94% 5%
---------- ---------- ---------- --------- ---------- ---------
FLORIDA
MIAMI
CBD 1 782,686 3% 85%(6) 94% 23%
South Dade/Kendall 2 472,236 1 93(6) 93 100
---------- ---------- ---------- --------- ---------- ---------
Subtotal/Weighted Average 3 1,254,922 4% 88% 94% 33%
---------- ---------- ---------- --------- ---------- ---------
ARIZONA
PHOENIX
Downtown/CBD 1 476,373 2% 87% (6) 98% 27%
Camelback Corridor 1 86,451 0 100 91 3
---------- ---------- ---------- --------- ---------- ---------
Subtotal/Weighted Average 2 562,824 2% 89% 93% 11%
---------- ---------- ---------- --------- ---------- ---------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown 2 536,206 2% 97%(6) 100% 100%
---------- ---------- ---------- --------- ---------- ---------
NEW MEXICO
ALBUQUERQUE
CBD 1 366,236 1% 89% 90% 64%
---------- ---------- ---------- --------- ---------- ---------
CALIFORNIA
SAN DIEGO
University Town Center 1 195,733 1% 94% 91% 6%
---------- ---------- ---------- --------- ---------- ---------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 69 26,823,405 94% 92% 89% 16%
========== ========== ========== ========= ========== =========
</TABLE>
<TABLE>
<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 $23.33 $24.86 $21.78
Uptown/Turtle Creek $27.54 $31.14 $27.25
Far North Dallas $24.41 $24.76 $20.22
Las Colinas $24.11 $25.99 $23.76
Richardson/Plano $23.57 $25.29 $21.66
Stemmons Freeway $24.36 $18.58 $16.10
LBJ Freeway $23.63 $24.20 $21.31
------ ------ ------
Subtotal/Weighted Average $24.47 $25.76 $22.38
------ ------ ------
FORT WORTH
CBD $21.11 $20.20 $15.08
------ ------ ------
HOUSTON
CBD $23.75 $25.45 $18.54
Richmond-Buffalo Speedway $20.46 $22.74 $19.61
West Loop/Galleria $21.98 $21.90 $18.54
Katy Freeway $21.98 $23.43 $19.61
The Woodlands $16.92 $16.92 $16.43
------ ------ ------
Subtotal/Weighted Average $21.78 $23.19 $18.88
------ ------ ------
AUSTIN
CBD $33.26 $33.86 $23.73
Northwest $29.56 $31.13 $23.18
Southwest $28.00 $31.42 $22.57
------ ------ ------
Subtotal/Weighted Average $32.54 $33.40 $23.59
------ ------ ------
COLORADO
DENVER
Cherry Creek $21.47 $21.87 $19.78
CBD $28.77 $27.00 $18.04
Denver Technology Center $22.27 $27.00 $23.85
------ ------ ------
Subtotal/Weighted Average $24.02 $24.51 $20.00
------ ------ ------
COLORADO SPRINGS
Colorado Springs $19.79 $20.28 $18.78
------ ------ ------
FLORIDA
MIAMI
CBD $29.94 $30.00 $25.19
South Dade/Kendall $24.25 $24.25 $22.65
------ ------ ------
Subtotal/Weighted Average $27.80 $27.84 $24.18
------ ------ ------
ARIZONA
PHOENIX
Downtown/CBD $24.00 $24.00 $23.79
Camelback Corridor $27.21 $24.00 $23.31
------ ------ ------
Subtotal/Weighted Average $24.49 $24.00 $23.70
------ ------ ------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown $43.00 $43.00 $40.16
------ ------ ------
NEW MEXICO
ALBUQUERQUE
CBD $18.70 $19.78 $19.35
------ ------ ------
CALIFORNIA
SAN DIEGO
University Town Center $33.60 $34.00 $24.08
------ ------ ------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE $24.50 $25.54 $21.33
====== ====== ======
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
PERCENT OFFICE COMPANY
PERCENT OF LEASED 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 B OFFICE PROPERTIES
TEXAS
HOUSTON
Richmond-Buffalo Speedway 4 1,553,387 5% 93% 96% 47%
The Woodlands 5 323,747 1 99 94 100
---------- ---------- ---------- --------- ---------- ---------
Subtotal/Weighted Average 9 1,877,134 6% 94% 96% 51%
---------- ---------- ---------- --------- ---------- ---------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 9 1,877,134 6% 94% 96% 51%
========== ========== ========== ========= ========== =========
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED AVERAGE 78 28,700,539 100% 93%(6) 90% 17%
========== ========== ========== ========= ========== =========
</TABLE>
<TABLE>
<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 B OFFICE PROPERTIES
TEXAS
HOUSTON
Richmond-Buffalo Speedway $19.10 $20.93 $16.46
The Woodlands $15.37 $15.37 $15.84
------ ------ ------
Subtotal/Weighted Average $18.46 $19.97 $16.35
------ ------ ------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE $18.46 $19.97 $16.35
====== ====== ======
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED AVERAGE $24.11 $25.17 $20.99(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 Group
(for the Dallas CBD, Uptown/Turtle Creek, Far North Dallas, Las
Colinas, Richardson/Plano, Stemmons Freeway, LBJ Freeway, Fort Worth
CBD, Houston Richmond-Buffalo Speedway, Houston CBD, 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 Denver Technology
Center submarkets), Turner Commercial Research (for the Colorado
Springs market), Grubb and Ellis Company(for the Phoenix Downtown/CBD,
Transwestern Commercial Services (for the Washington D.C. Georgetown
submarket), Building Interests, Inc. (for the Albuquerque CBD
submarket), RealData Information Systems, Inc. (for the Miami CBD and
South Dade/Kendall submarkets) and John Burnham Real Estate Services
(for the San Diego University Town Center 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, 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, 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 Office Properties in these
submarkets but had not commenced as of September 30, 2000. If such
leases had commenced as of September 30, 2000, the percent leased for
all Office Properties in the Company's submarkets would have been 94%.
The total percent leased for these Class A Company submarkets would
have been as follows: Dallas CBD - 89%; Dallas Uptown/Turtle Creek -
94%; Far North Dallas - 95%; Richardson/Plano - 99%; Austin CBD - 96%;
Miami CBD - 90%; Miami South Dade/Kendall - 96%; Phoenix Downtown/CBD -
98%; and Washington D.C. Georgetown - 100%.
(7) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Company Office Properties,
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 $21.36.
53
<PAGE> 55
The following table shows, as of September 30, 2000, 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>
Industry Sector Leased Sq. Ft.
---------------------------- --------------
<S> <C>
Professional Services(1) 26%
Energy(2) 21
Financial Services(3) 20
Telecommunications 7
Technology 7
Manufacturing 3
Food Service 3
Government 3
Retail 2
Medical 2
Other(4) 6
-------------
TOTAL LEASED 100%
=============
</TABLE>
----------
(1) Includes legal, accounting, engineering, architectural, and advertising
services.
(2) Includes oil and gas and utility companies.
(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, 2000 for the Company's total Office Properties and for
Dallas and Houston, Texas, individually, for each of the 10 years beginning with
2000, assuming that none of the tenants exercises or has exercised renewal
options.
TOTAL OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
------------------ ------------ -------------- ------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
2000 201 1,145,518(2) 4.4% $ 22,799,761 3.9% $ 19.90
2001 369 3,363,689 12.8 65,653,208 11.2 19.52
2002 344 3,457,977 13.2 76,862,123 13.1 22.23
2003 327 3,017,277 11.5 61,812,519 10.5 20.49
2004 254 4,019,579 15.3 89,560,376 15.3 22.28
2005 218 3,241,268 12.3 75,025,632 12.8 23.15
2006 51 1,332,420 5.1 31,628,651 5.4 23.74
2007 56 1,764,163 6.7 40,643,507 6.9 23.04
2008 24 939,585 3.6 24,474,471 4.2 26.05
2009 20 644,563 2.5 17,522,941 3.0 27.19
2010 and thereafter 47 3,356,965 12.6 81,239,202 13.7 24.20
----------- ------------- ------------ ------------- ------- -----------
1,911 26,283,004(3) 100.0% $ 587,222,391 100.0% $ 22.34
=========== ============= ============ ============= ======= ===========
</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 expense levels.
(2) As of September 30, 2000, leases have been signed for approximately
1,482,000 net rentable square feet (including renewed leases and leases of
previously unleased space) commencing after September 30, 2000 and on or
before December 31, 2000.
54
<PAGE> 56
(3) Reconciliation to the Company's total Office Property net rentable area is
as follows:
<TABLE>
<CAPTION>
SQUARE PERCENTAGE
FEET OF TOTAL
------------- -----------
<S> <C> <C>
Square footage leased to tenants 26,283,004 91.6%
Square footage reflecting
management offices, building use,
and remeasurement adjustments 257,825 0.9
Square footage vacant 2,159,710 7.5
------------ ----------
Total net rentable square footage 28,700,539 100.0%
============ ==========
</TABLE>
DALLAS OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
------------------ ------------ ------------- -------------- ------------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
2000 59 369,602(2) 3.9% $ 7,538,607 3.4% $ 20.40
2001 90 888,496 9.4 18,956,898 8.6 21.34
2002 84 988,729 10.5 25,053,947 11.4 25.34
2003 90 1,152,197 12.2 24,143,316 10.9 20.95
2004 77 1,062,514 11.3 27,097,945 12.3 25.50
2005 75 1,649,306 17.5 36,167,789 16.4 21.93
2006 19 390,350 4.1 10,541,813 4.8 27.01
2007 17 918,030 9.8 21,883,060 9.9 23.84
2008 9 571,209 6.1 14,292,891 6.5 25.02
2009 7 376,473 4.0 9,433,174 4.3 25.06
2010 and thereafter 13 1,043,463 11.2 25,458,849 11.5 24.40
----------- ------------- ------------ ----------------- ---------- --------------
540 9,410,369 100.0% $ 220,568,289 100.0% $ 23.44
=========== ============= ============ ================= ========== ==============
</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 expense levels.
(2) As of September 30, 2000, leases have been signed for approximately 679,199
net rentable square feet (including renewed leases and leases of previously
unleased space) commencing after September 30, 2000 and on or before
December 31, 2000.
55
<PAGE> 57
HOUSTON OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
------------------ ------------ --------------- ------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
2000 80 474,683(2) 4.8% $ 8,783,225 4.4% $ 18.50
2001 148 1,639,768 16.7 28,232,492 14.3 17.22
2002 150 1,335,557 13.6 25,406,483 12.8 19.02
2003 124 976,215 9.9 18,107,765 9.1 18.55
2004 97 1,872,403 19.1 36,432,331 18.4 19.46
2005 65 550,162 5.6 11,747,078 5.9 21.35
2006 15 650,081 6.6 13,934,226 7.0 21.43
2007 14 623,558 6.4 13,100,105 6.6 21.01
2008 5 185,680 1.9 3,405,329 1.7 18.34
2009 3 52,857 0.5 1,284,850 0.6 24.31
2010 and thereafter 13 1,451,079 14.9 37,592,942 19.2 25.91
----------- ------------- ------------ ----------------- ---------- --------------
714 9,812,043 100.0% $ 198,026,826 100.0% $ 20.18
=========== ============= ============ ================= ========== ==============
</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 expense levels.
(2) As of September 30, 2000, leases have been signed for approximately 366,294
net rentable square feet (including renewed leases and leases of previously
unleased space) commencing after September 30, 2000 and on or before
December 31, 2000.
RETAIL PROPERTIES
As of September 30, 2000, the Company owned three Retail Properties,
which in the aggregate contain approximately 421,000 net rentable square feet.
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, 2000, the Retail Properties were 91%
leased.
On January 5, 2000, the sale of the Company's four retail properties
located in The Woodlands, a master-planned development located 27 miles north of
downtown Houston, Texas, was completed.
56
<PAGE> 58
HOTEL PROPERTIES
HOTEL PROPERTIES TABLES
The following table shows certain information for the nine months ended
September 30, 2000 and 1999, 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 fitness
resorts and spas that measure their performance based on available guest nights.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
AVERAGE AVERAGE
OCCUPANCY DAILY
YEAR RATE RATE
COMPLETED/ --------------- ---------------
HOTEL PROPERTY(1) LOCATION RENOVATED ROOMS 2000 1999 2000 1999
----------------- -------- --------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Denver Marriott City Center Denver, CO 1982/1994 613 87% 81% $ 121 $ 125
Four Seasons Hotel-Houston(2) Houston, TX 1982 399 71 65 204 197
Hyatt Regency Albuquerque Albuquerque, NM 1990 395 69 69 105 105
Omni Austin Hotel Austin, TX 1986 372 83 79 132 123
Renaissance Houston Hotel(3) Houston, TX 1975 389 63 63 94 94
----- ----- ----- ----- -----
TOTAL/WEIGHTED AVERAGE 2,168 75% 72% $ 131 $ 129
===== ===== ===== ===== =====
LUXURY SPA RESORTS:
Hyatt Regency Beaver Creek(4) Avon, CO 1989 276 71% 75% $ 268 $ 254
Sonoma Mission Inn & Spa(5) Sonoma, ca 1927/1987/
1997 228 77 82 300(5) 219(5)
Ventana Inn & Spa Big Sur, CA 1975/1982/
1988 62 80 80 457 371
----- ----- ----- ----- -----
TOTAL/WEIGHTED AVERAGE 566 74% 78% $ 304 $ 255
===== ===== ===== ===== =====
GUEST
DESTINATION FITNESS RESORTS AND SPAS: NIGHTS
------
Canyon Ranch-Tucson Tucson, AZ 1980 250(6)
Canyon Ranch-Lenox Lenox, MA 1989 212(6)
------- ----- ----- ----- -----
TOTAL/WEIGHTED AVERAGE 462 88%(7) 88%(7) $ 579(8) $ 528(8)
======= ===== ===== ===== =====
GRAND TOTAL/WEIGHTED AVERAGE FOR HOTEL PROPERTIES 77% 75% $ 235 $ 220
===== ===== ===== =====
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
REVENUE
PER
AVAILABLE
ROOM/GUEST
---------------
HOTEL PROPERTY(1) 2000 1999
----------------- ---- ----
<S> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Denver Marriott City Center $ 104 $ 100
Four Seasons Hotel-Houston(2) 145 128
Hyatt Regency Albuquerque 72 72
Omni Austin Hotel 109 96
Renaissance Houston Hotel(3) 59 59
----- -----
TOTAL/WEIGHTED AVERAGE $ 99 $ 92
===== =====
LUXURY SPA RESORTS:
Hyatt Regency Beaver Creek(4) $ 191 $ 191
Sonoma Mission Inn & Spa(5)
230(5) 178(5)
Ventana Inn & Spa
365 297
----- -----
TOTAL/WEIGHTED AVERAGE $ 226 $ 199
===== =====
DESTINATION FITNESS RESORTS AND SPAS
Canyon Ranch-Tucson
Canyon Ranch-Lenox
----- -----
TOTAL/WEIGHTED AVERAGE $ 487(9) $ 446(9)
===== =====
GRAND TOTAL/WEIGHTED AVERAGE
FOR HOTEL PROPERTIES $ 180 $ 165
===== =====
</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 COPI
pursuant to long term leases. As of September 30, 2000, the Omni
Austin Hotel is leased pursuant to a separate long term lease, to HCD
Austin Corporation.
(2) The hotel is undergoing a $5.0 million renovation of all guest rooms
scheduled to be completed during the fourth quarter of 2000. This
Property was sold subsequent to September 30, 2000.
(3) The hotel is undergoing an estimated $15.5 million renovation project
scheduled to be completed in the fourth quarter of 2000. The
renovation includes improvements to all guest rooms, the lobby,
corridor, and exterior and interior systems.
(4) The hotel is undergoing a $6.9 million renovation of all guest rooms.
The project is scheduled to be completed by the fourth quarter of
2001.
(5) In January 2000, 20 rooms, which were previously taken out of
commission for construction of a 30,000 square foot full-service spa
in connection with an approximately $21.0 million expansion of the
hotel, were returned to service. The expansion was completed in the
second quarter of 2000. The expansion also included 30 additional
guest rooms. Rates were discounted during the construction period
which resulted in a lower average daily rate and revenue per available
room for the nine months ended September 30, 1999 as compared to
September 30, 2000.
(6) Represents available guest nights, which is the maximum number of
guests that the resort can accommodate per night.
(7) Represents the number of paying and complimentary guests for the
period, divided by the maximum number of available guest nights, which
is the maximum number of guests that the resort can accommodate per
night, for the period.
(8) Represents the average daily "all-inclusive" guest package charges for
the period, divided by the average daily number of paying guests for
the period.
(9) Represents the total "all-inclusive" guest package charges for the
period, divided by the maximum number of available guest nights for
the period.
57
<PAGE> 59
RESIDENTIAL DEVELOPMENT PROPERTIES
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table shows certain information as of September 30, 2000,
relating to the Residential Development Properties.
<TABLE>
<CAPTION>
TOTAL
RESIDENTIAL RESIDENTIAL TOTAL LOTS/UNITS
Residential DEVELOPMENT DEVELOPMENT LOTS/ DEVELOPED
Development PROPERTIES TYPE OF CORPORATION'S UNITS SINCE
Corporation(1) (RDP) RDP(2) LOCATION OWNERSHIP % PLANNED INCEPTION
---------------- ------------ ------ -------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ
Development 93.0% 2,665 2,254
Corp.
The Woodlands The Woodlands SF The Woodlands, TX
Land Company, 42.5% 36,385 23,612
Inc.
Crescent Bear Paw Lodge CO Avon, CO 60.0% 53(6) 26
Development QuarterMoon TH Avon, CO 64.0% 13(6) 4
Management Eagle Ranch SF Eagle, CO 60.0% 1,260(6) 248
Corp. Main Street
Junction CO Breckenridge, CO 60.0% 36(6) 36
Main Street
Station CO Breckenridge, CO 60.0% 82(6) -
Riverbend SF Charlotte, NC 60.0% 650(6) 117
Three Peaks
(Eagle's Nest) SF Silverthorne, CO 30.0% 391(6) 162
Park Place at
Riverfront CO Denver, CO 64.0% 71(6) -
Park Tower at
Riverfront CO Denver, CO 64.0% 58(6) -
Bridge Lofts
at Riverfront CO Denver, CO 64.0% 53(6) -
Cresta TH/SFH Edwards, CO 60.0% 25(6) -
Snow Cloud CO Avon, CO 60.0% 53(6) -
---------- ------
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP. 2,745 593
---------- ------
Mira Vista Mira Vista SF Fort Worth, TX 100.0% 740 740
Development The Highlands SF Breckenridge, CO 12.3% 750 437
Corp. ---------- ------
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,490 1,177
---------- ------
Houston Area Falcon Point SF Houston, TX 100.0% 510 273
Development Falcon Landing SF Houston, TX 100.0% 623 415
Corp. Spring Lakes SF Houston, TX 100.0% 520 234
---------- ------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,653 922
---------- ------
TOTAL 44,938 28,558
========== ======
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE
RESIDENTIAL LOTS/UNITS CLOSED RANGE OF
Residential DEVELOPMENT CLOSED SALE PRICE PROPOSED
Development PROPERTIES SINCE PER LOT/ SALE PRICES
Corporation(1) (RDP) INCEPTION UNIT($)(3) PER LOT/UNIT($)(4)
--------------- ----------- --------- ---------- ------------------
<S> <C> <C> <C> <C>
Desert Mountain Desert Mountain
Development 2,095 490,000 425,000 - 3,000,000(5)
Corp. ---------
The Woodlands The Woodlands
Land Company, 22,238 47,000 13,800 - 990,000
Inc. ---------
Crescent Bear Paw Lodge 21 1,388,000 665,000 - 2,025,000
Development QuarterMoon 4 2,186,000 1,850,000 - 2,795,000
Management Eagle Ranch 163 128,000 80,000 - 150,000
Corp. Main Street
Junction 21 436,000 300,000 - 580,000
Main Street
Station - N/A 215,000 - 1,065,000
Riverbend 8 31,000 25,000 - 38,000
Three Peaks
(Eagle's Nest) 122 240,000 135,000 - 425,000
Park Place at
Riverfront - N/A 195,000 - 1,445,000
Park Tower at
Riverfront - N/A 180,000 - 2,100,000
Bridge Lofts
at Riverfront - N/A 180,000 - 2,100,000
Cresta - N/A 1,900,000 - 2,600,000
Snow Cloud - N/A 840,000 - 4,545,000
---------
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP. 339
---------
Mira Vista Mira Vista 659 100,000 50,000 - 265,000
Development The Highlands 412 185,000 55,000 - 625,000
Corp.
---------
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,071
---------
Houston Area Falcon Point 218 43,000 28,000 - 56,000
Development Falcon Landing 393 20,000 19,000 - 26,000
Corp. Spring Lakes 196 30,000 24,000 - 44,000
---------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 807
---------
TOTAL 26,550
========
</TABLE>
----------
(1) The Company has an approximately 95%, 95%, 90%, 94% and 94%, ownership
interest in Desert Mountain Development Corp., 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); 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 as of September 30, 2000 is $225,000.
(6) As of September 30, 2000, 25 units were under contract at Bear Paw
Lodge representing $37.6 million in sales; 9 units were under contract
at QuarterMoon representing $21.1 million in sales; 46 lots were under
contract at Eagle Ranch representing $6.4 million in sales; one unit
was under contract at Main Street Junction representing $0.4 million
in sales; 82 units were under contract at Main Street Station
representing $40.9 million in sales; 100 lots were under contract at
Riverbend representing $3.0 million in sales; 36 lots were under
contract at Three Peaks representing $10.1 million in sales; 65 units
were under contract at Park Place at Riverfront representing $26.3
million in sales; 32 units were under contract at Park Tower at
Riverfront representing $23.1 million in sales; 47 units were under
contract at the Bridge Lofts at Riverfront representing $18.7 million
in sales; 11 units were under contract at Cresta representing $15.3
million in sales and 33 units were under contract at Snow Cloud
representing $57.9 million in sales.
58
<PAGE> 60
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES TABLE
The following table shows the number and aggregate size of
Temperature-Controlled Logistics Properties by state as of September 30, 2000:
<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> <C>
Alabama 4 9.4 0.3 Missouri(2) 2 48.8 2.8
Arizona 1 2.9 0.1 Nebraska 2 4.4 0.2
Arkansas 6 33.1 1.0 New York 1 11.8 0.4
California 9 28.6 1.1 North Carolina 3 10.0 0.4
Colorado 2 3.4 0.1 Ohio 1 5.7 0.2
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 5 10.5 0.5 Washington 6 28.7 1.1
Mississippi 1 4.7 0.2 Wisconsin 3 17.4 0.6
------------ ---------- -----------
TOTAL 89(3) 441.7(3) 17.6(3)
============ ========== ===========
</TABLE>
-------------
(1) As of September 30, 2000, the Company held an indirect 39.6% interest in
three Temperature-Controlled Logistics Partnerships, which own the
Temperature-Controlled Logistics Corporations, which directly or indirectly
owned the Temperature-Controlled Logistics Properties. The business
operations associated with the Temperature-Controlled Logistics Properties
are owned by AmeriCold Logistics, in which the Company has no interest. The
Temperature-Controlled Logistics Corporations are entitled to receive lease
payments (base rent and percentage rent) from AmeriCold Logistics.
(2) Includes an underground storage facility, with approximately 33.1 million
cubic feet.
(3) As of September 30, 2000, AmeriCold Logistics operated 100
temperature-controlled logistics properties with an aggregate of
approximately 526.0 million cubic feet (20.3 million square feet).
59
<PAGE> 61
BEHAVIORAL HEALTHCARE PROPERTIES
BEHAVIORAL HEALTHCARE PROPERTIES
As of December 31, 1999, the Company owned 88 behavioral healthcare
properties, all of which were leased by the Company to CBHS under a master
lease. CBHS's business has been negatively affected by many factors, including
adverse industry conditions, and on February 16, 2000, CBHS and all of its
subsidiaries that were subject to the master lease with the Company filed
voluntary Chapter 11 bankruptcy petitions in the United States Bankruptcy Court
for the District of Delaware.
The Company sold 37 and 55 behavioral healthcare properties during the
three and nine months ended September 30, 2000, respectively. The sales
generated approximately $168.8 million and $218.4 million in net proceeds,
during the three and nine months ended September 30, 2000, respectively.
As of September 30, 2000, the Behavioral Healthcare Segment consisted
of 33 Behavioral Healthcare Properties in 16 states. CBHS had ceased operations
at substantially all of the Behavioral Healthcare Properties as of September 30,
2000. CBHS is expected to cease operations at the remaining Behavioral
Healthcare Properties by the end of the fourth quarter of 2000.
Subsequent to September 30, 2000, the Company sold three Behavioral
Healthcare Properties. The Company has entered into contracts or letters of
intent to sell five additional Behavioral Healthcare Properties and is actively
marketing for sale the remaining 25 Behavioral Healthcare Properties.
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 $2.3 billion at September 30, 2000, of which
approximately $0.4 billion, or 17%, was unhedged variable-rate debt. The
weighted average interest rate on such variable-rate debt was 9.09% as of
September 30, 2000. A 10% (90.9 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 $3.2 million based on the unhedged
variable-rate debt outstanding as of September 30, 2000, as a result of the
increased interest expense associated with the change in rate. Conversely, a 10%
(90.9 basis point) decrease in the weighted average interest rate on such
unhedged variable-rate debt would result in an annual increase in net income and
cash flows of approximately $3.2 million based on the unhedged variable rate
debt outstanding as of September 30, 2000, as a result of the decreased interest
expense associated with the change in rate.
60
<PAGE> 62
The Company's Form 10-K for the year ended December 31, 1999 and Form
10-Q for the quarter ended June 30, 2000 contain information regarding its
interest rate risk from changes in the 30-day LIBOR rate in connection with its
settlement obligations under the Share Repurchase Agreement with UBS. The
Company settled its Share Repurchase Agreement on July 5, 2000, and, as a
result, this information is no longer applicable.
MARKET PRICE RISK
The Company's Form 10-K for the year ended December 31, 1999 and Form
10-Q for the quarter ended June 30, 2000 contain information regarding its
market price risk from changes in the price of its common shares in connection
with its settlement obligations under the Share Repurchase Agreement with UBS.
The Company settled its Share Repurchase Agreement on July 5, 2000, and, as a
result, this information is no longer applicable.
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
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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 quarter
ended September 30, 1998 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 No. 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)
61
<PAGE> 63
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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. 4.07 to the 1998
2Q 10-Q and incorporated herein by reference)
4.07 Amended and Restated Secured Loan Agreement, dated as of May
10, 2000, among Crescent Real Estate Funding VIII, L.P. and
UBS AG, Stamford Branch, as amended (filed as Exhibit No.
10.12 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000 (the "2000 2Q 10-Q") and
incorporated herein by reference)
4* Pursuant to Regulation S-K Item 601 (b) (4) (iii), the
Registrant by this filing agrees, upon request, to furnish
to the Securities and Exchange Commission a copy of other
instruments defining the rights of holders of long-term debt
of the Registrant.
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 No.
10.01 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 (the "1999 10-K") 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 No. 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 No. 10.02 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 No. 10.04 to
the 1999 10-K and incorporated herein by reference)
10.05 Employment Agreement of Jerry R. Crenshaw, Jr., dated as of
December 14, 1998 (filed as Exhibit No. 10.08 to the 1999
10-K and incorporated herein by reference)
10.06 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)
62
<PAGE> 64
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
10.07 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)
10.08 Crescent Real Estate Equities, Ltd. First Amended and
Restated 401(k) Plan, as amended (filed as Exhibit No. 10.12
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein
by reference)
10.09 Second Amended and Restated 1995 Crescent Real Estate
Equities Company Stock Incentive Plan (filed as Exhibit No.
10.13 to the Form S-4 and incorporated herein by reference)
10.10 Amended and Restated 1995 Crescent Real Estate Equities
Limited Partnership Unit Incentive Plan (filed as Exhibit
No. 99.01 to the Registrant's Registration Statement on Form
S-8 (File No. 333-3452) and incorporated herein by
reference)
10.11 1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan, as amended (filed as Exhibit No. 10.14 to
the 1999 10-K and incorporated herein by reference)
10.12 Amended and Restated Secured Loan Agreement, dated as of May
10, 2000, among Crescent Real Estate Funding VIII, L.P. and
UBS AG, Stamford Branch, as amended (filed as Exhibit No.
10.12 to the 2000 2Q 10-Q and incorporated herein by
reference)
10.13 Intercompany Agreement, dated June 3, 1997, between Crescent
Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit No. 10.2 to the
Registration Statement on Form S-1 (file No. 333-25223) of
Crescent Operating, Inc. and incorporated herein by
reference)
10.14 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)
27.01 Financial Data Schedule (filed herewith)
(b)
Reports on Form 8-K
None.
63
<PAGE> 65
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
(Registrant)
By /s/ John C. Goff
------------------------------------
John C. Goff
Date: November 9, 2000 Vice Chairman of the Board and
Chief Executive Officer
By /s/ Jerry R. Crenshaw
------------------------------------
Jerry R. Crenshaw
Senior Vice President and Chief
Financial Officer (Principal
Date: November 9, 2000 Financial and Accounting Officer)
64
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ----------------------
<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 quarter
ended September 30, 1998 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 No. 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. 4.07 to the 1998
2Q 10-Q and incorporated herein by reference)
4.07 Amended and Restated Secured Loan Agreement, dated as of May
10, 2000, among Crescent Real Estate Funding VIII, L.P. and
UBS AG, Stamford Branch, as amended (filed as Exhibit No.
10.12 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000 (the "2000 2Q 10-Q") and
incorporated herein by reference)
4* Pursuant to Regulation S-K Item 601(b)(4)(iii), the
Registrant by this filing agrees, upon request, to furnish
to the Securities and Exchange Commission a copy of other
instruments defining the rights of holders of long-term debt
of the Registrant.
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 No.
10.01 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 (the "1999 10-K") 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 No. 10.02 to
the 1997 10-K and incorporated herein by reference)
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ----------------------
<S> <C>
10.03 Noncompetition Agreement of John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit No. 10.02 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 No. 10.04 to
the 1999 10-K and incorporated herein by reference)
10.05 Employment Agreement of Jerry R. Crenshaw, Jr., dated as of
December 14, 1998 (filed as Exhibit No. 10.08 to the 1999
10-K and incorporated herein by reference)
10.06 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)
10.07 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)
10.08 Crescent Real Estate Equities, Ltd. First Amended and
Restated 401(k) Plan, as amended (filed as Exhibit No. 10.12
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein
by reference)
10.09 Second Amended and Restated 1995 Crescent Real Estate
Equities Company Stock Incentive Plan (filed as Exhibit No.
10.13 to the Form S-4 and incorporated herein by reference)
10.10 Amended and Restated 1995 Crescent Real Estate Equities
Limited Partnership Unit Incentive Plan (filed as Exhibit
No. 99.01 to the Registrant's Registration Statement on Form
S-8 (File No. 333-3452) and incorporated herein by
reference)
10.11 1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan, as amended (filed as Exhibit No. 10.14 to
the 1999 10-K and incorporated herein by reference)
10.12 Amended and Restated Secured Loan Agreement, dated as of May
10, 2000, among Crescent Real Estate Funding VIII, L.P. and
UBS AG, Stamford Branch, as amended (filed as Exhibit No.
10.12 to the 2000 2Q 10-Q and incorporated herein by
reference)
10.13 Intercompany Agreement, dated June 3, 1997, between Crescent
Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit No. 10.2 to the
Registration Statement on Form S-1 (file No. 333-25223) of
Crescent Operating, Inc. and incorporated herein by
reference)
10.14 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)
27.01 Financial Data Schedule (filed herewith)
</TABLE>
