<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 MARCH 31, 2000
COMMISSION FILE NO. 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
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<S> <C>
TEXAS 52-1862813
- --------------------------------------------- ---------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
</TABLE>
777 Main Street, Suite 2100, Fort Worth, Texas 76102
----------------------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code (817) 321-2100
Number of shares outstanding of each of the registrant's classes of preferred
and common shares, as of May 10, 2000.
Preferred Shares, par value $.01 per share: 8,000,000
Common Shares, par value $.01 per share: 115,574,870
- --------------------------------------------------------------------------------
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
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PAGE
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2000 (unaudited) and December 31, 1999
(audited)............................................................................. 2
Consolidated Statements of Operations for the three months ended March 31, 2000
and 1999 (unaudited).................................................................. 3
Consolidated Statements of Shareholders' Equity for the three months ended
March 31, 2000 and 1999 (unaudited)................................................... 4
Consolidated Statements of Cash Flows for the three months ended March 31,
2000 and 1999 (unaudited)............................................................. 5
Notes to Financial Statements......................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 56
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 57
Item 2. Changes in Securities................................................................. 57
Item 3. Defaults Upon Senior Securities....................................................... 57
Item 4. Submission of Matters to a Vote of Security Holders................................... 57
Item 5. Other Information..................................................................... 58
Item 6. Exhibits and Reports on Form 8-K...................................................... 58
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1
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Investments in real estate:
Land $ 362,149 $ 398,754
Land held for development or sale 110,811 95,760
Building and improvements 3,385,937 3,529,344
Furniture, fixtures and equipment 72,332 71,716
Less - accumulated depreciation (520,799) (507,520)
----------- -----------
Net investment in real estate 3,410,430 3,588,054
Cash and cash equivalents 137,044 72,926
Restricted cash and cash equivalents 63,360 87,939
Accounts receivable, net 42,855 37,204
Deferred rent receivable 76,864 74,271
Investments in real estate mortgages and equity
of unconsolidated companies 827,128 812,494
Notes receivable, net 131,557 131,542
Other assets, net 162,934 146,131
----------- -----------
Total assets $ 4,852,172 $ 4,950,561
=========== ===========
LIABILITIES:
Borrowings under Bank Boston Credit Facility $ -- $ 510,000
UBS Facility 754,952 --
Notes payable 1,724,147 2,088,929
Accounts payable, accrued expenses and other liabilities 120,872 170,984
----------- -----------
Total liabilities 2,599,971 2,769,913
----------- -----------
COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS:
Operating partnership, 7,024,823 and 6,975,952 units,
respectively 99,637 99,226
Investment joint ventures 116,464 24,648
----------- -----------
Total minority interests 216,101 123,874
----------- -----------
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 March 31, 2000
and December 31, 1999, respectively 200,000 200,000
Common shares, $.01 par value, authorized 250,000,000 shares,
121,658,689 and 121,537,353 shares issued
at March 31, 2000 and December 31, 1999, respectively 1,209 1,208
Additional paid-in capital 2,229,706 2,229,680
Deferred compensation on restricted shares (41) (41)
Retained deficit (405,686) (386,532)
Accumulated other comprehensive income 13,735 12,459
----------- -----------
2,038,923 2,056,774
Less - shares held in treasury, at cost, 161,000 common
shares at March 31, 2000 (2,823) --
----------- -----------
Total shareholders' equity 2,036,100 2,056,774
----------- -----------
Total liabilities and shareholders' equity $ 4,852,172 $ 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)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Office and retail properties $ 149,108 $ 150,022
Hotel properties 17,544 15,404
Behavioral healthcare properties 2,079 13,823
Interest and other income 7,057 6,498
--------- ---------
Total revenues 175,788 185,747
--------- ---------
EXPENSES:
Real estate taxes 22,671 20,746
Repairs and maintenance 12,197 11,024
Other rental property operating 30,266 32,612
Corporate general and administrative 5,245 4,114
Interest expense 52,250 42,481
Amortization of deferred financing costs 2,347 3,069
Depreciation and amortization 30,902 33,647
Settlement of merger dispute -- 15,000
--------- ---------
Total expenses 155,878 162,693
--------- ---------
Operating income 19,910 23,054
OTHER INCOME AND EXPENSE:
Equity in net income of unconsolidated
companies:
Office and retail properties 2,704 1,961
Temperature-controlled logistics properties 4,036 5,709
Residential development properties 10,464 8,629
Other 2,341 307
--------- ---------
Total equity in net income of unconsolidated companies: 19,545 16,606
--------- ---------
Gain on property sales, net 22,627 --
--------- ---------
Total other income and expense 42,172 16,606
--------- ---------
INCOME BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 62,082 39,660
Minority interests (7,032) (3,649)
--------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 55,050 36,011
Extraordinary item - extinguishment of debt (3,928) --
--------- ---------
NET INCOME 51,122 36,011
Preferred share dividends (3,375) (3,375)
Share repurchase agreement return (2,076) --
Forward share purchase agreement return -- (2,152)
--------- ---------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 45,671 $ 30,484
========= =========
BASIC EARNINGS PER SHARE DATA:
Net income available to common shareholders before extraordinary item $ 0.41 $ 0.24
Extraordinary item - extinguishment of debt (0.03) --
--------- ---------
Net income available to common shareholders $ 0.38 $ 0.24
========= =========
DILUTED EARNINGS PER SHARE DATA:
Net income available to common shareholders before extraordinary item $ 0.41 $ 0.24
Extraordinary item - extinguishment of debt (0.03) --
--------- ---------
Net income available to common shareholders $ 0.38 $ 0.24
========= =========
</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)
<TABLE>
<CAPTION>
Preferred Shares Treasury Shares Common Shares Additional
-------------------- --------------------- --------------------------- Paid-in
Shares Net Value Shares Net Value Shares Par Value Capital
--------- --------- --------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1999 8,000,000 $ 200,000 -- $ -- 121,537,353 $ 1,208 $ 2,229,680
Issuance of Common Shares -- -- -- -- 1,212 -- 20
Exercise of Common Share Options -- -- -- -- 91,000 1 --
Issuance of Shares in Exchange for Operating
Partnership Units -- -- -- -- 29,124 -- 6
Share repurchases -- -- 161,000 (2,823) -- -- --
Dividends Paid -- -- -- -- -- -- --
Net Income -- -- -- -- -- -- --
Accumulated Other Comprehensive Income -- -- -- -- -- -- --
--------- --------- --------- --------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY, March 31, 2000 8,000,000 $ 200,000 161,000 $ (2,823) 121,658,689 $ 1,209 $ 2,229,706
========= ========= ========= ========= =========== =========== ===========
<CAPTION>
Deferred Accumulated
Compensation Retained Other
on Restricted Earnings Comprehensive
Shares (Deficit) Income Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1999 $ (41) $ (386,532) $ 12,459 $ 2,056,774
Issuance of Common Shares -- -- -- 20
Exercise of Common Share Options -- -- -- 1
Issuance of Shares in Exchange for Operating
Partnership Units -- -- -- 6
Share repurchases -- -- -- (2,823)
Dividends Paid -- (66,901) -- (66,901)
Net Income -- 47,747 -- 47,747
Accumulated Other Comprehensive Income -- -- 1,276 1,276
----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY, March 31, 2000 $ (41) $ (405,686) $ 13,735 $ 2,036,100
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
(UNAUDITED)
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 51,122 $ 36,011
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 33,249 36,716
Extraordinary item - extinguishment of debt 3,928 --
Gain on property sales, net (22,627) --
Minority interests 7,032 3,649
Non-cash compensation 20 20
Equity in earnings net of distributions received
from unconsolidated companies (8,455) (9,019)
(Increase) decrease in accounts receivable (5,651) 5,027
Increase in deferred rent receivable (2,593) (7,529)
(Increase) decrease in other assets (1,476) 2,931
Decrease in restricted cash and cash equivalents 21,528 12,485
Decrease in accounts payable, accrued
expenses and other liabilities (54,197) (39,888)
--------- ---------
Net cash provided by operating activities 21,880 40,403
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of land held for development or sale (15,051) --
Proceeds from property sales 215,508 --
Development of investment properties (8,526) (2,471)
Capital expenditures - rental properties (3,291) (3,267)
Tenant improvement and leasing costs - rental properties (16,646) (14,744)
Decrease (increase) in restricted cash and cash equivalents 11,735 (1,514)
Investment in unconsolidated companies (1,174) (7,421)
Investment in residential development companies (5,006) 13,980
Escrow deposits - acquisition of investment properties 500 --
(Increase) decrease in notes receivable (15) 1,592
--------- ---------
Net cash provided by (used in) investing activities 178,034 (13,845)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (17,708) (741)
Share Repurchase Agreement (8,685) --
Forward Share Purchase Agreement -- (14,740)
Borrowings under Bank Boston Credit Facility -- 26,400
Payments under Bank Boston Credit Facility (510,000) (51,920)
Borrowings under UBS Facility 833,000 --
Payments under UBS Facility (78,047) --
Notes Payable proceeds -- 60,000
Notes Payable payments (364,782) (364)
Capital proceeds - joint venture partner 98,212 --
Capital distributions - joint venture partner (7,046) (763)
Proceeds from exercise of share options -- 972
Treasury share repurchases (2,823) --
Preferred dividends (3,375) (3,375)
Dividends and unitholder distributions (74,542) (75,707)
--------- ---------
Net cash used in financing activities (135,796) (60,238)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 64,118 (33,680)
CASH AND CASH EQUIVALENTS,
Beginning of period 72,926 110,292
--------- ---------
CASH AND CASH EQUIVALENTS,
End of period $ 137,044 $ 76,612
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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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 requires,
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 March 31, 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 economic 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 March 31, 2000(1):
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Operating Partnership: 26 Office Properties, Denver Marriott City Center 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>
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<TABLE>
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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(2)
Funding III, IV and V, L.P.:
("Funding III, IV and V")
Crescent Real Estate Canyon Ranch-Lenox
Funding VI, L.P.:
("Funding VI")
Crescent Real Estate 77 Behavioral Healthcare Properties
Funding VII, L.P.
("Funding VII")
Crescent Real Estate 24 Office Properties and four Hotel Properties
Funding VIII, L.P.
("Funding VIII")
Crescent Real Estate Chancellor Park, Four Seasons - Houston, Miami Center, Reverchon Plaza, 44 Cook Street,
Funding IX, L.P. 55 Madison and 6225 N. 24th Street
("Funding IX")
</TABLE>
- ---------------------------
(1) As of March 31, 2000, Crescent SH IX, Inc. owned 161,000 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 March 31, 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 March 31, 2000:
o OFFICE AND RETAIL SEGMENT consisted of 83 office properties
(collectively referred to as the "Office Properties") located in 29
metropolitan submarkets in eight states, with an aggregate of
approximately 29.8 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.
See Note 16. Dispositions.
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
536 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.
("COI"). The Omni Austin Hotel is leased to HCD Austin Corporation.
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,
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currently own 18 residential development properties (collectively
referred to as the "Residential Development Properties").
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 March 31, 2000, directly or indirectly
owned 90 temperature-controlled logistics properties (collectively
referred to as the "Temperature-Controlled Logistics Properties") with
an aggregate of approximately 444.9 million cubic feet (17.8 million
square feet).
o BEHAVIORAL HEALTHCARE SEGMENT consisted of 77 properties in 24 states
(collectively referred to as the "Behavioral Healthcare Properties"),
37 of which were leased to Charter Behavioral Health Systems, LLC.
("CBHS") and its subsidiaries under a master lease. 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 COI and an affiliate of
COI. On February 16, 2000, CBHS and all of its subsidiaries that are
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. Of these 77 Behavioral Healthcare Properties,
the 37 Behavioral Healthcare Properties that remain subject to the
master lease are designated as the "Core Properties" for the conduct
of CBHS's business. The other 40 Behavioral Healthcare Properties, at
which CBHS has ceased operations or is planning to cease operations,
are designated as the "Non-Core Properties." Subsequent to March 31,
2000, the Company sold two of the Non-Core Properties. The Company
also has entered into contracts or letters of intent to sell 11
additional Non-Core Properties. The remaining 27 Non-Core Properties
are being actively marketed for sale. See Note 15. CBHS and Note 16.
Dispositions for a description of the current status of CBHS and the
Company's investment in the Behavioral Healthcare Properties.
See Note 6. Segment Reporting for a table showing consolidated revenues and
funds from operations for each of these investment segments for the three months
ended March 31, 2000 and 1999 and identifiable assets for each of these
investment segments at March 31, 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 and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, the information and footnotes required by GAAP for
complete financial statements are not included. In management's opinion, all
adjustments (consisting of normal recurring adjustments) 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 previously reported amounts have been reclassified to conform with
the current presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In June 1998, the Financial Accounting Standards Board ("FASB") issued 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
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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 on the Company's financial statements for the three
months ended March 31, 2000.
3. PROPERTIES HELD FOR DISPOSITION:
Office and Retail Segment
In pursuit of management's objective to dispose of non-strategic or
non-core assets, at March 31, 2000, the Company was actively marketing for sale
its wholly owned interests in four Office Properties, which are included in the
Net Investment in Real Estate of $3,410,430. The carrying value of these
Properties at March 31, 2000 was approximately $57,824. Two of the Properties
are located in Dallas, Texas, one is located in New Orleans, Louisiana, and one
is located in Denver, Colorado. Subsequent to March 31, 2000, the Company
completed the sale of two of these Office Properties. The Company has also
entered into contracts to sell the remaining two Properties. The Company
anticipates completing any economically justified sales of these Office
Properties by the end of the second quarter of 2000.
The following table summarizes the condensed results of operations for the
three months ended March 31, 2000 and 1999 for the four Office Properties held
for disposition. These Properties are classified as held for sale, and
depreciation expense has not been recognized since June 30, 1999.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue $ 3,028 $ 2,929
Operating Expenses 1,190 1,092
-------- --------
Net Operating Income $ 1,838 $ 1,837
======== ========
</TABLE>
Subsequent to March 31, 2000, the Company has begun actively marketing one
additional Office Property for sale, and has classified that Property, which is
located in San Francisco, California, as held for disposition. The carrying
value of this Property at March 31, 2000 was approximately $34,563. The Net
Operating Income of this Property for the three months ended March 31, 2000 and
1999, was $947 and $1,144, respectively.
Behavioral Healthcare Segment
The 40 Non-Core Properties were classified as held for disposition at March
31, 2000, and no depreciation expense for these Properties was recognized for
the three months ended March 31, 2000. The carrying value for these Properties
at March 31, 2000 was approximately $98,100. See Note 16. Dispositions for a
description of the sale of certain Non-Core Properties subsequent to March 31,
2000 and the execution of contracts or letters of intent relating to the sale of
additional Non-Core Properties as of May 10, 2000.
Other
The Woodlands Commercial Properties Company, L.P., owned by the Company and
Morgan Stanley Real Estate Fund II, L.P., is actively marketing for sale its
office/venture tech portfolio located in The Woodlands. These assets include the
Company's 12 Office Properties located in The Woodlands.
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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 MARCH 31,
--------------------------------------------------------------------------------------
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 -
Income before extraordinary item $ 55,050 $ 36,011
Preferred share dividends (3,375) (3,375)
Share repurchase agreement return (2,076) --
Forward share purchase
agreement return -- (2,152)
----------- ------- ----------- ----------- ------- -----------
Net income available to common $ 49,599 121,607 $ 0.41 $ 30,484 124,688 $ 0.24
shareholders before extraordinary
item
Extraordinary item -
extinguishment of debt (3,928) (0.03) -- --
----------- ------- ----------- ----------- ------- -----------
Net income available to common
shareholders $ 45,671 121,607 $ 0.38 $ 30,484 124,688 $ 0.24
=========== ======= =========== =========== ======= ===========
DILUTED EPS -
Net income available to common
shareholders before extraordinary
item $ 49,599 121,607 $ 0.41 $ 30,484 124,688 $ 0.24
Effect of dilutive securities:
Share and unit options -- 457 -- 2,142
----------- ------- ----------- ----------- ------- -----------
Net income available to common $ 49,599 122,064 $ 0.41 $ 30,484 126,830 $ 0.24
shareholders before extraordinary
item
Extraordinary item -
extinguishment of debt (3,928) (0.03) -- --
----------- ------- ----------- ----------- ------- -----------
Diluted EPS -
Net income available to common
shareholders $ 45,671 122,064 $ 0.38 $ 30,484 126,830 $ 0.24
=========== ======= =========== =========== ======= ===========
</TABLE>
The effect of the conversion of the Series A Convertible Cumulative
Preferred Shares is not included in the computation of Diluted EPS for the three
months ended March 31, 2000 or 1999, since the effect of their conversion is
antidilutive.
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5. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2000 1999
------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid ...................................................................... $58,326 $48,793
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 ................................................................. $ 6 $ 1,403
Issuance of Operating Partnership units in conjunction
with settlement of an obligation ................................................ 2,125 --
Unrealized loss on available-for-sale securities ................................... 3,009 2,678
Forward Share Purchase Agreement Return ............................................ -- 2,152
Share Repurchase Agreement Return .................................................. 2,076 --
Increase of cash flow hedges to fair value ......................................... 4,285 --
Equity investment in a tenant in exchange for office space ......................... 2,700 --
</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 Temperature-Controlled Logistics
Segment; the Residential Development Segment; and the Behavioral Healthcare
Segment. Management organizes the segments within the Company based on property
type for making operating decisions and assessing performance. 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 three months ended March 31, 1999, FFO was
approximately $92,900, 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 three months ended March 31, 1999
would have been approximately $77,900, which 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.
11
<PAGE> 13
Selected financial information related to each segment at or for the three
months ended March 31, 2000 and 1999 is presented below.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Office and Retail Segment $ 149,108 $ 150,022
Hotel/Resort Segment 17,544 15,404
Behavioral Healthcare Segment 2,079 13,823
Temperature-Controlled Logistics Segment -- --
Residential Development Segment -- --
Corporate and other 7,057 6,498
----------- -----------
TOTAL REVENUE $ 175,788 $ 185,747
=========== ===========
FUNDS FROM OPERATIONS:
Office and Retail Segment $ 86,211 $ 89,107
Hotel/Resort Segment 17,291 15,198
Behavioral Healthcare Segment 2,079 13,823
Temperature-Controlled Logistics Segment 9,487 8,280
Residential Development Segment 15,043 13,300
Corporate and other adjustments
Interest expense (52,250) (42,481)
Preferred share dividends (3,375) (3,375)
Interest and other income 5,939 3,179
Corporate general & adminstrative (5,245) (4,114)
Settlement of merger dispute -- (15,000)
----------- -----------
TOTAL FUNDS FROM OPERATIONS $ 75,180 $ 77,917
----------- -----------
ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS TO
CONSOLIDATED NET INCOME:
Depreciation and amortization of real estate assets $ (29,792) $ (32,877)
Gain on property sales, net 22,627 --
Extraordinary item - extinguishment of debt (3,928) --
Unitholder minority interests (6,382) (3,404)
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office and Retail Properties 72 (1,758)
Temperature-Controlled Logistics Properties (5,451) (2,571)
Residential Development Properties (4,579) (4,671)
Preferred share dividends 3,375 3,375
----------- -----------
NET INCOME $ 51,122 $ 36,011
=========== ===========
EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES:
Office and Retail Properties $ 2,704 $ 1,961
Hotel/Resort Properties -- --
Behavioral Healthcare Properties -- --
Temperature-Controlled Logistics Properties 4,036 5,709
Residential Development Properties 10,464 8,629
Corporate and other 2,341 307
----------- -----------
TOTAL EQUITY IN NET INCOME OF
UNCONSOLIDATED COMPANIES $ 19,545 $ 16,606
=========== ===========
<CAPTION>
MARCH 31,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
IDENTIFIABLE ASSETS:
Office and Retail Segment $ 3,220,159 $ 3,212,881
Hotel/Resort Segment 465,774 452,362
Behavioral Healthcare Segment 220,882 383,389
Temperature-Controlled Logistics Segment 298,329 281,436
Residential Development Segment 288,744 275,720
Other 358,284 390,017
----------- -----------
TOTAL IDENTIFIABLE ASSETS $ 4,852,172 $ 4,995,805
=========== ===========
</TABLE>
12
<PAGE> 14
At March 31, 2000, COI was the Company's largest lessee in terms of total
consolidated rental revenues derived from leases. Total rental revenues received
from COI for the three months ended March 31, 2000 was approximately 5% of the
Company's total consolidated rental revenues. COI was the lessee for nine of the
Hotel Properties for the three months ended March 31, 2000.
See Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Temperature-Controlled Logistics Segment 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 CLASSIFICATIONS AS OF MARCH 31, 2000
- --------------------------------------- -------------------------------------- --------------------
<S> <C> <C>
Desert Mountain Development Corporation Residential Development Corporation 95%(1)
Houston Area Development Corp. Residential Development Corporation 94%(1)
The Woodlands Land Company, Inc. Residential Development Corporation 95%(1)
Crescent Development Management Corp. Residential Development Corporation 90%(1)
Mira Vista Development Corp. Residential Development Corporation 94%(1)
Crescent CS Holdings Corp. Crescent Subsidiary 99%(2)
Crescent CS Holdings II Corp. Crescent Subsidiary 99%(2)
The Woodlands Commercial Office and Retail (office/venture tech
Properties Company, L.P. portfolio)(3) 42.5%
Main Street Partners, L.P. Office and Retail (office property -
Bank One Center) 50%
DBL Holdings, Inc. Other 95%
Metropolitan Partners, LLC Other (4)
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
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. See Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Temperature Controlled
Logistics Segment for additional information regarding the ownership of the
Temperature-Controlled Logistics Properties.
(3) See Note 3. Properties Held for Disposition - Other.
(4) The Company has an $85,000 preferred member interest in Metropolitan
Partners, LLC ("Metropolitan"), representing an approximately 20% equity
interest at March 31, 2000. The investment has a cash flow preference of
7.5% until May 19, 2001 and may be redeemed by Metropolitan until 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 at a conversion price of $24.61.
13
<PAGE> 15
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 March 31, 2000.
<TABLE>
<CAPTION>
BALANCE SHEETS:
MARCH 31, 2000
-------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Real estate, net $ 710,027 $ 1,332,342 $ 412,131
Cash 32,026 10,669 24,494
Other assets 198,031 92,734 40,024
----------- ----------- -----------
Total assets $ 940,084 $ 1,435,745 $ 476,649
=========== =========== ===========
Notes payable $ 324,503 $ 591,467 $ 282,074
Notes payable to the Company 152,953 11,333 --
Other liabilities 232,332 62,868 17,225
Equity 230,296 770,077 177,350
----------- ----------- -----------
Total liabilities and equity $ 940,084 $ 1,435,745 $ 476,649
=========== =========== ===========
Company's share of unconsolidated debt $ 163,730 $ 234,221 $ 131,475
=========== =========== ===========
Company's investments in real estate
mortgages and equity of uncon-
solidated companies $ 288,744 $ 298,329 $ 97,373 $ 142,682
=========== =========== =========== ===========
<CAPTION>
SUMMARY STATEMENTS OF OPERATIONS:
FOR THE THREE MONTHS ENDED MARCH 31, 2000
-------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total revenues $ 111,621 $ 41,577 $ 20,060
Expenses:
Operating expense 82,211 5,185(1) 3,896
Interest expense 1,708 11,445 5,878
Depreciation and amortization 3,497 14,543 4,362
Taxes 6,418 876 --
Other (income)/expense -- (223) --
----------- ----------- -----------
Total expenses 93,834 31,826 14,136
----------- ----------- -----------
Net income $ 17,787 $ 9,751 $ 5,924
=========== =========== ===========
Company's equity in net income
of unconsolidated companies $ 10,464 $ 4,036 $ 2,704 $ 2,341
=========== =========== =========== ===========
</TABLE>
- -------------------
(1) Inclusive of the management fee paid to Vornado Realty Trust (1% per annum
of the Total Combined Assets).
14
<PAGE> 16
8. NOTES PAYABLE AND BORROWINGS UNDER UBS FACILITY
The following is a summary of the Company's debt financing at March 31, 2000:
<TABLE>
<CAPTION>
BALANCE AT
MARCH 31,
2000
--------
<S> <C>
Secured Debt
AEGON Note(1) 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 ................................................................... $277,402
UBS Term Loan I(2) (see description of UBS Facility below) ......................................... 257,213
UBS Term Loan II(2) (see description of UBS Facility below) ........................................ 257,213
UBS Line of Credit(2) (see description of UBS Facility below) ...................................... 240,526
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 March 31, 2000, the interest rate was
9.94%) 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, 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 March 2028,
secured by the Funding II Properties ............................................................... 161,000
SFT Whole Loans, Inc. ("SFT") Note due September 30, 2001, bears interest at
30-day LIBOR plus 1.75% (at March 31, 2000, the rate was 7.58%) with an
interest-only term, secured by the Fountain Place Office Property .................................. 97,123
CIGNA Note due December 2002, bears interest at 7.47% with an interest-only term, secured
by the MCI Tower Office Property and Denver Marriott City Center Hotel Property .................... 63,500
Metropolitan Life Note 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 ............................................................................. 39,584
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 ....................................... 11,356
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
BALANCE AT
MARCH 31,
2000
----------
<S> <C>
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 .................................................... 8,459
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 .......... 723
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 ....................................................................... $2,479,099
==========
</TABLE>
- -------------------------
(1) The outstanding principal balance of this note at maturity will be
approximately $223,000.
(2) The Company entered into the UBS Facility which consists of three tranches:
UBS Line of Credit, UBS Term Loan I and UBS Term Loan II effective January
31, 2000. The proceeds were primarily used to repay and retire the
Company's prior credit facility with BankBoston, N.A. (the "BankBoston
Credit Facility") and an additional term loan (the "BankBoston Term Note
I"). For a further description of the UBS Facility, see "UBS Facility"
below.
(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
underleveraged assets. On February 1, 2000, the Company renegotiated
certain terms and covenants under this note. As a result, the interest rate
on the facility increased to 30-day LIBOR plus 400 basis points. The
Company entered into a four-year $200,000 cash flow hedge agreement
effective September 1, 1999 with Salomon Brothers Holding Company, Inc. 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 loan reprices based on
current interest rates at this 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 $179,000.
(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.
16
<PAGE> 18
Below are the aggregate principal amounts due as of March 31, 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 $ 3,897 $ -- $ 3,897
2001 113,887 -- 113,887
2002 73,911 150,000 223,911
2003 738,796 -- 738,796
2004 274,067 -- 274,067
Thereafter 874,541 250,000 1,124,541
---------- ---------- ----------
$2,079,099 $ 400,000 $2,479,099
========== ========== ==========
</TABLE>
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 an $850,000 secured, variable-rate facility fully
underwritten by UBS AG ("UBS") and currently funded by UBS and Fleet Boston
Financial ("Fleet"). The UBS Facility consists of three tranches: the UBS Line
of Credit, a three-year $300,000 revolving line of credit; the UBS Term Loan I,
a $275,000 three-year term loan; and the UBS Term Loan II, a $275,000 four-year
term loan. Borrowings under the UBS Line of Credit, the UBS Term Loan I and the
UBS Term Loan II at March 31, 2000 were approximately $240,500, $257,200 and
$257,200, 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 March 31, 2000, the interest rate on the UBS
Line of Credit and UBS Term Loan I was 8.63% and the interest rate on the UBS
Term Loan II was 8.88%. 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. As of March 31, 2000, the UBS Facility was secured by 40 Office
Properties and four Hotel Properties. Subsequent to March 31, 2000, the Company
sold two 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. 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 March 31, 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.
In September 1999, the Company entered into a four-year cash flow hedge
agreement with Salomon Brothers Holding Company, Inc. ("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 was
originally issued at a floating interest rate of 30-day LIBOR plus 325 basis
points, was effectively converted to a fixed weighted average interest rate of
9.43% through maturity. Effective February 1, 2000, the Company renegotiated
certain terms and covenants under the BankBoston Term Note II. At such time, the
interest rate on the underlying note increased to 30-day LIBOR plus 400 basis
points, and consequently, the effective fixed weighted average interest rate
increased to 10.18% through maturity. During the three months ended March 31,
2000, the cash flow hedge agreement with Salomon resulted in approximately $50
of additional interest expense.
17
<PAGE> 19
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 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 weighted
average interest rate of 9.61% through maturity. During the three months ended
March 31, 2000, the cash flow hedge agreement with Fleet resulted in
approximately $384 of additional interest expense.
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 weighted average 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.
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
three months ended March 31, 2000, there were 14,562 units exchanged for 29,124
common shares of Crescent Equities.
12. SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY:
During the first quarter of 2000, the Company formed Funding IX and
contributed six Office Properties and one Hotel Property 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 March 31, 2000, the Company had sold $100,000 of non-voting,
redeemable preferred Class A Units in Funding IX to GMAC Commercial Mortgage
Corporation ("GMACCM"). The Class A Units receive a preferred variable rate
dividend based on 30-day LIBOR, or approximately 10.6% per annum as of March
31, 2000, and are redeemable at the option of the Company at the original
purchase price. Subsequent to March 31, 2000, the Company sold an additional
$10,000 of Class A Units in Funding IX to GMACCM.
As of May 10, 2000, the net proceeds of $108,100 from the sale of the Class
A Units were used to repurchase 6,089,604 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 expects to contribute an additional Office Property and an
additional Hotel Property to Funding IX during the second quarter of 2000.
Following the contribution of these Properties and the satisfaction
18
<PAGE> 20
of other conditions relating to the Properties, the Company will have the right
to sell to GMACCM an aggregate of $275,000 of Class A Units.
The Company is actively marketing the Office Properties held by Funding IX
for joint venture and will use the proceeds from any joint venture or sale of a
Property held by Funding IX, to redeem the preferred Class A Units.
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, 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.
During the three months ended March 31, 2000, the Company repurchased
161,000 common shares in the open market at an average price of $17.53 per
common share for an aggregate of approximately $2,823. Subsequent to March 31,
2000, the Company repurchased 1,926,500 common shares in the open market at an
average price of $18.16 per common share for an aggregate of $34,976. In
addition, subsequent to March 31, 2000, the Company repurchased 4,002,104 common
shares at an average price of $17.49 per common share for an aggregate of
approximately $70,000, substantially settling the "Share Repurchase Agreement"
with UBS. See "Share Repurchase Agreement" below for a description of the
agreement.
The purchase of the 6,089,604 common shares was financed 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
repurchase a portion of its common shares from UBS. As of December 31, 1999, the
Company was obligated to repurchase 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
repurchase from UBS by January 4, 2001 to approximately 5,800,000 common shares,
or approximately $102,000 of the Company's common shares (as amended, the "Share
Repurchase Agreement"). The price the Company is obligated to pay for the common
shares (the "Settlement Price") is 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 may settle the Share Repurchase Agreement in cash or common
shares. In the event that the Company elects to fulfill the Share Repurchase
Agreement in common shares, UBS will sell the common shares on behalf of the
Company in the open market. If, as a result of a decrease in the market price of
the common shares, the number of common shares required to be sold to achieve
the Settlement Price exceeds the number of common shares purchased by UBS in
connection with the agreement, the Company will deliver additional cash or
common shares to UBS. If the Company elects to fulfill the Share Repurchase
Agreement in common shares, and the market price of the common shares is greater
than the Settlement Price, UBS will return a portion of the common shares that
it purchased in the open market to the Company.
19
<PAGE> 21
If the common share price on the NYSE falls below the Settlement Price
calculated approximately every two weeks, the Company is required to remit cash
collateral to UBS equal to the product of the number of common shares purchased
by UBS and 115% of the difference between the Settlement Price and the closing
price of the common shares as reported on the NYSE. If the Company elects to
settle the Share Repurchase Agreement in cash, any cash collateral held by UBS
will be used to "pay-down" the Settlement Price. If the Company elects to settle
the Share Repurchase Agreement in common shares, UBS will release all claims to
any cash collateral they hold at that time. On February 18, 2000, the Company
posted cash collateral of $8,700 to UBS, as a result of a decline in the common
share price. As of March 31, 2000, no additional cash collateral was due to UBS.
Subsequent to March 31, 2000, the Company had purchased 4,002,104 common
shares from UBS at an average cost of $17.49 per common share, substantially
settling the Share Repurchase Agreement. In connection with this purchase, UBS
returned approximately $5,980 of the cash collateral posted to the Company. The
purchase was funded through the sale of Class A Units in Funding IX. See Note
12. Sale of Preferred Equity Interests in Subsidiary.
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 April 17, 2000, the Company declared 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 represents and annualized dividend of $2.20 per share and is
payable on May 15, 2000.
Preferred Shares
On February 17, 2000, the Company paid a cash dividend on its 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
share.
On April 17, 2000, the Company declared a cash dividend on its Series A
Preferred Shares of $3,375, or $0.421875 per share, to shareholders of record on
April 28, 2000. The dividend represents and annualized dividend of $1.6875 per
preferred share and is payable on May 15, 2000.
14. RELATED PARTY INVESTMENT:
As of March 31, 2000, the Company, upon the approval of the independent
members of its Board of Trust Managers, had contributed approximately $23,500 of
a $25,000 commitment to DBL Holdings, Inc. ("DBL"). The total contribution will
be made though 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 $1,500 upon demand of the general partner of G2. G2
was formed for the purpose of investing in commercial mortgage backed securities
and is managed by an entity that is owned equally by Goff-Moore Strategic
Partners, LP ("GMSP") and GMAC. 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.
20
<PAGE> 22
Rainwater is a limited partner of GMSP. At March 31, 2000, DBL's primary
holdings consisted of the 12.5% investment in G2.
15. CBHS:
BEHAVIORAL HEALTHCARE SEGMENT
As of December 31, 1999, all of the Behavioral Healthcare Properties 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 are 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. CBHS has stated
in its bankruptcy petitions that it intends to sell all of the ongoing
businesses of CBHS and its subsidiaries by mid-May of 2000 or develop an
appropriate liquidation procedure if the sales have not taken place by that
time.
Effective February 29, 2000, the Non-Core Properties were terminated from
the master lease, although the aggregate rent due under the master lease was not
reduced as a result, except as described below with respect to sales of Non-Core
Properties. See Note 16. Dispositions for a description of recent dispositions
of Non-Core Properties. The Core Properties remain subject to the master lease.
The Company agreed with CBHS that, upon each sale by the Company of Non-Core
Properties, the monthly minimum rent due from CBHS under the master lease would
be reduced by a specified percentage of the net proceeds of such sale. 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.
As of March 31, 2000, the Behavioral Healthcare Segment consisted of 77
Behavioral Healthcare Properties in 24 states, 37 of which are designated as
Core Properties and were leased to CBHS and its subsidiaries under a triple-net
master lease, and 40 of which are designated as Non-Core Properties. Subsequent
to March 31, 2000, the Company sold two of the Non-Core Properties. The Company
has also entered into contracts or letters of intent to sell 11 additional
Non-Core Properties. The remaining 27 Non-Core Properties, which are the
Properties at which CBHS has ceased operations or is planning to cease
operations, are being actively marketed for sale.
An auction for the core operating assets of CBHS was held on May 10, 2000,
as part of the bankruptcy proceedings relating to CBHS. The results of the
auction are preliminary pending court approval.
16. DISPOSITIONS:
Office & Retail Segment
During the three months ended March 31, 2000, the Company completed the
sale of six wholly owned Office Properties and was actively marketing four
additional Office Properties for sale as of March 31, 2000. The six Office
Properties sold were previously classified as held for disposition. The sales of
the six Office Properties generated approximately $146,600 of net proceeds. The
proceeds were used primarily to pay down variable-rate debt. The Company
recognized a net gain of approximately $13,200 in the first quarter of 2000,
related to the sales of five of the Office Properties that were sold during the
three months ended March 31, 2000, and, during the year ended December 31, 1999,
recognized an impairment loss of $16,800 on the remaining Office Property. For
the three months ended March 31, 2000, the Company recognized an impairment loss
of approximately $5,000 on one Office Property classified as held for
disposition, which was sold subsequent to March 31, 2000. The impairment loss
represented the difference between the carrying value of the Office Property and
the sales price less costs of the sale, and is included in Gain on Property
Sales, net. Subsequent to March 31, 2000, the Company had completed the sale of
two of the four Office Properties held for disposition at March 31, 2000. The
sales of these Office Properties generated approximately $34,800 of net
proceeds, which were used primarily to pay down variable-rate debt. The Company
has also entered into contracts relating to the sale of the remaining two Office
Properties. The sales of these Properties are expected to close by the end of
the second quarter of 2000.
21
<PAGE> 23
Behavioral Healthcare Segment
During the three months ended March 31, 2000, the Company completed the
sale of 11 of the 51 Non-Core Properties classified as held for disposition. The
sales generated approximately $38,300 in net proceeds and a net gain of
approximately $9,600. As of March 31, 2000, 40 Non-Core Properties were
classified as held for disposition. Subsequent to March 31, 2000, the Company
completed the sale of two additional Non-Core Properties held for disposition.
The sale generated approximately $2,800 in net proceeds and a net gain of
approximately $500. The net proceeds from the sale of all 13 Non-Core Properties
sold subsequent to December 31, 1999 were primarily used to pay down
variable-rate debt. The Company has also entered into contracts or letters of
intent to sell an additional 11 Non-Core Properties. See Note 15. CBHS.
Other
The Woodlands Commercial Properties Company, L.P., owned by the Company and
Morgan Stanley Real Estate Fund II, L.P., has been actively marketing for sale
certain property assets (retail and office/venture tech portfolio) located in
The Woodlands. The sale of the retail portfolio, including the Company's four
Retail Properties located in The Woodlands, closed on January 5, 2000, and
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
variable-rate debt.
22
<PAGE> 24
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 The Company's ability to timely lease unoccupied square
footage and timely re-lease occupied square footage upon
expiration;
o Changes in real estate conditions (including rental rates and
competition from other properties and new development of
competing properties);
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 failure of CBHS as debtor in possession to negotiate or
consummate an acceptable sale of its core operating assets in
the on-going bankruptcy proceedings;
o The failure of CBHS, any successful purchaser or purchasers
of such core operating assets out of bankruptcy, and the
Company to negotiate and consummate leases for the core
facilities or the inability of the Company to secure on a
timely basis the release of hospital facilities from the
debtor in possession;
o The failure of the purchaser or purchasers of the core
operating assets of CBHS, following any purchase and
bankruptcy restructuring, to fulfill all new lease
obligations to the Company over the long term;
o The Company's ability to close sales of the Behavioral
Healthcare Properties;
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;
o The concentration of a significant percentage of the
Company's assets in Texas;
o Adverse changes in the financial condition of existing
tenants; and
o Other risks detailed from time to time in the Company's
filings with the SEC.
Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Company is not obligated to update these
forward-looking statements to reflect any future events or circumstances.
23
<PAGE> 25
The following sections include information for each of the Company's
investment segments for the three months ended March 31, 2000.
OFFICE AND RETAIL SEGMENT
The following tables show the same-store net operating income growth
for the approximately 28.3 million square feet of Office Property space owned as
of March 31, 2000, excluding 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 PERCENTAGE/
ENDED MARCH 31, POINT
-------------------- INCREASE
2000 1999 (DECREASE)
------- ------- -----------
<S> <C> <C> <C>
(IN MILLIONS)
Same-store Revenues $ 142.5 $ 138.6 2.8%
Same-store Expenses (61.1) (59.2) 3.2%
------- -------
Net Operating Income $ 81.4 $ 79.4 2.5%
======= =======
Weighted Average Occupancy 90.9%(1) 93.0% (2.1)pt
</TABLE>
- ------------------------
(1) The decline in weighted average occupancy is due to three significant
lease expirations; two at year-end 1999 and one in the first quarter of
2000. To date, approximately 61% of the expiring space has been re-leased,
with commencement dates over the next two quarters.
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 March 31, 2000.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 2000
-------------------------------------------------------------
SIGNED EXPIRING PERCENTAGE
LEASES LEASES INCREASE
-------------------- -------------------- --------------
<S> <C> <C> <C>
Renewed or re-leased(1) 819,000 sq. ft. N/A N/A
Weighted average full-
service rental rate(2) $24.51 per sq. ft. $21.36 per sq. ft. 15%
FFO annual net effective
rental rate(3) $15.25 per sq. ft. $12.09 per sq. ft. 26%
</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.
24
<PAGE> 26
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
months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS PERCENTAGE/
ENDED MARCH 31, POINT
----------------------- INCREASE
2000 1999 (DECREASE)
---------- ---------- ----------
<S> <C> <C> <C>
Upscale Business Class Hotels:
Weighted average occupancy 74% 74% 0pt
Average daily rate $ 131 $ 129 2%
Revenue per available room $ 97 $ 95 2%
Luxury Spa Resorts:
Weighted average occupancy 76% 79% (3)pt(1)
Average daily rate $ 361 $ 313 15%
Revenue per available room $ 275 $ 248 11%
Destination Fitness Resorts and Spas:
Weighted average occupancy (2) 91% 91% 0pt
Average daily rate (3) $ 589 $ 544 8%
Revenue per available guest (4) $ 525 $ 483 9%
---------- ---------- --------
Total Hotel Properties:
Weighted average occupancy 77% 77% 0pt
Average daily rate $ 250 $ 234 7%
Revenue per available room/guest $ 192 $ 180 7%
</TABLE>
- -----------------
(1) This decline in occupancy is primarily due to inclement weather conditions
in northern California in the first quarter of 2000.
(2) 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.
(3) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the period.
(4) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
25
<PAGE> 27
The following table shows proforma Hotel Property same-store rental
income for the three months ended March 31, 2000 and 1999, including weighted
average base rent with scheduled rent increases that would be taken into account
under GAAP, and percentage rent, for the nine Hotel Properties owned as of
January 1, 1999. Management believes that the proforma rental income, which
excludes the effect of the change in accounting for contingent rental revenues
that was adopted January 1, 2000, are the best measure of same-store rental
income growth for both periods.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------- PERCENTAGE
2000 1999 INCREASE
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Upscale Business Class Hotels $ 6,685 $ 6,661 0%
Luxury Spa Resorts 6,644 5,471 21(1)
Destination Fitness Resorts and Spas 3,518 3,271 8
--------- --------- ------
All Hotel Properties $ 16,847 $ 15,403 9%
========= ========= ======
</TABLE>
- ------------------------
(1) Of the 21% same-store rental income growth, approximately 13 percentage
points are due to the $21.0 million expansion project at Sonoma Mission Inn
and Spa.
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 18 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.
The Woodlands Land Development, L.P. and The Woodlands Commercial Properties
Company, L.P. (collectively "The Woodlands"), The Woodlands, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Residential lot sales 563 511
Average sales price per lot $ 46,195 $ 49,393
Commercial land sales 21 acres 8 acres
Average sales price per acre $ 312,761 $ 377,665
</TABLE>
o Residential lot sales increased by 52 lots or 10.2%, for the three
months ended March 31, 2000 compared to the same period in 1999.
o The Woodlands estimates that additional sales of approximately 1,500
residential lots and 60 acres of commercial land will close during the
remainder of 2000.
o Future buildout of The Woodlands is estimated at approximately 14,000
residential lots and approximately 1,900 acres of commercial land, of
which approximately 1,000 residential lots and 1,400 acres are
currently in inventory.
26
<PAGE> 28
Desert Mountain Properties Limited Partnership ("Desert Mountain"), Scottsdale,
Arizona:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Residential lot sales 44 36
Average sales price per lot(1) $533,000 $435,000
</TABLE>
- -----------------------
(1) Including equity golf memberships.
o The average sales price per lot increased by $98,000 or 23%, as a
reflection of a higher price product mix sold for the three months
ended March 31, 2000 compared to the same period in 1999
o Future buildout of Desert Mountain is estimated at approximately 650
residential lots, of which approximately 140 are currently in
inventory.
Crescent Development Management Corporation ("CDMC"), Beaver Creek, Colorado:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2000 1999
----- -----
<S> <C> <C>
Active projects 13 7
Residential lot sales 1 6
Townhome sales 2 11
Single-family home sales 5 2
Equivalent timeshare unit sales -- 4
Condominium sales 1 --
Total Revenue (in millions) $30.1 $25.9
</TABLE>
o CDMC experienced 16% growth in total revenue for the first quarter of
2000 compared to the first quarter of 1999.
o In April 1999, a partnership in which CDMC has a 64% economic interest
completed the purchase of Riverfront Park (previously known as "The
Commons"), a master planned residential development on 23 acres in the
Central Platte Valley near downtown Denver, Colorado for approximately
$25.0 million. The development of Riverfront Park is expected to begin
in the summer of 2000. The first phase will consist of one condominium
project and two loft projects with prices ranging from $0.2 million to
$2.5 million. Park Place, one of the first residential projects in this
first phase, consisting of 71 lofts, commenced pre-selling in January
2000. As of May 10, 2000, contracts had been signed on 85% of the 71
lofts. In the first quarter of 2000, the partnership has entered into
contracts relating to the sale of 8.3 acres of Riverfront Park, which
are expected to close by the end of the fourth quarter of 2000. The
acreage is in close proximity to several major entertainment and
recreational facilities including Coors Field (home to the Major League
Baseball's Colorado Rockies), Elitch Gardens (an amusement park), the
new Pepsi Center (home to the National Hockey League's Colorado
Avalanche and the National Basketball Association's Denver Nuggets) and
the new downtown Commons Park. An adjacent 28 acres is expected to be
commercially developed by another company, thus providing a major
mixed-use community adjacent to the lower downtown area of Denver.
o Main Street Station, a premier slope-side residential development in
Breckenridge, Colorado, is expected to begin development in the late
spring of this year. Contracts on all of the 82 condominiums were
signed within the first six hours of pre-selling. Prices range from
$0.2 million to $2.5 million.
o CDMC estimates the following sales for the year 2000 from its 13 active
projects: approximately 380 residential lots, 15 townhomes, five
single-family homes, and 40 condominiums.
o As of March 31, 2000, contracts relating to 80% of the sales
anticipated during the full year 2000 had been executed.
27
<PAGE> 29
Mira Vista Development Corp. ("Mira Vista"), Fort Worth, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Residential lot sales 11 8
Average sales price per lot (1) $ 88,182 $131,875
</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
ENDED MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Residential lot sales 55 46
Average sales price per lot $ 29,909 $ 27,022
</TABLE>
TEMPERATURE-CONTROLLED LOGISTICS SEGMENT
As of March 31, 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 COI, in which the Company has no interest. COI holds an indirect
0.4% interest in the Temperature-Controlled Logistics Partnerships. COI has an
option to require the Company to purchase COI's remaining 1% economic interest,
representing all of the voting stock, 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 $3.4 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 property as well as property capital expenditures in excess of $5.0
million annually. For the three months ended March 31, 2000, rental revenues
were approximately $41.6 million of which base rent represented approximately
80%. AmeriCold Logistics has the right to defer a portion of the rent 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. As of March 31, 2000,
the Company's share of deferred rent was approximately $2.1 million.
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.
This table shows EBITDAR and lease payments for AmeriCold Logistics for the
three months ended March 31, 2000.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, 2000
--------------
<S> <C>
EBITDAR(1) $ 38.5
Lease Payment $ 41.9
</TABLE>
28
<PAGE> 30
- ------------------
(1) EBITDAR does not represent net income or cash flows from operating,
financing or investing activities as defined by GAAP.
o During the first quarter of 2000, the Temperature-Controlled Logistics
Corporations completed and opened $30.6 million of expansion and new
product, representing approximately 16.6 million cubic feet (0.8 million
square feet).
o The Temperature-Controlled Logistics Corporations have approximately $50.0
to $75.0 million of expansion and new product temperature-controlled
logistics facilities under review for development or acquisition during
2000.
BEHAVIORAL HEALTHCARE SEGMENT
As of December 31, 1999, all of the Behavioral Healthcare Properties 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 are 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. CBHS has stated
in its bankruptcy petitions that it intends to sell all of the ongoing
businesses of CBHS and its subsidiaries by mid-May of 2000 or develop an
appropriate liquidation procedure if the sales have not taken place by that
time.
During the three months ended March 31, 2000, the Company received cash
rental payments of approximately $2.1 million from CBHS. See "Liquidity and
Capital Resources - CBHS" below for a complete description of the current status
of CBHS, the voluntary filing of Chapter 11 bankruptcy petitions by CBHS and its
subsidiaries and the Company's investment in the Behavioral Healthcare
Properties.
At March 31, 2000, the Company's investment in the Behavioral Healthcare
Properties represented approximately 5% of its total assets and approximately 1%
of consolidated rental revenues for the three months ended March 31, 2000.
29
<PAGE> 31
RESULTS OF OPERATIONS
The following table shows the Company's financial data as a percentage of
total revenues for the three month periods ended March 31, 2000 and 1999 and the
variance in dollars between the three month periods ended March 31, 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 TOTAL VARIANCE IN
OF TOTAL REVENUES FOR THE DOLLARS BETWEEN
THREE MONTHS ENDED MARCH 31, THE THREE MONTHS
----------------------------------- ENDED MARCH 31,
2000 1999 2000 AND 1999
--------------- --------------- -----------------
<S> <C> <C> <C>
REVENUES
Office and retail properties 84.8% 80.8% $ (0.9)
Hotel properties 10.0 8.3 2.1
Behavioral healthcare properties 1.2 7.4 (11.7)
Interest and other income 4.0 3.5 0.6
--------------- --------------- ---------------
Total Revenues 100.0 100.0 (9.9)
--------------- --------------- ---------------
EXPENSES
Operating expenses 37.1 34.7 0.7
Corporate general and administrative 3.0 2.2 1.2
Interest expense 29.7 22.9 9.8
Amortization of deferred financing costs 1.3 1.7 (0.8)
Depreciation and amortization 17.6 18.1 (2.7)
Settlement of merger dispute -- 8.0 (15.0)
--------------- --------------- ---------------
TOTAL EXPENSES 88.7 87.6 (6.8)
--------------- --------------- ---------------
OPERATING INCOME 11.3 12.4 (3.1)
OTHER INCOME
Equity in net income of unconsolidated
companies:
Office and retail properties 1.5 1.1 0.7
Temperature-controlled logistics properties 2.3 3.1 (1.7)
Residential development properties 6.0 4.6 1.9
Other 1.3 0.2 2.0
--------------- --------------- ---------------
TOTAL EQUITY IN NET INCOME FROM
UNCONSOLIDATED COMPANIES: 11.1 9.0 2.9
Gain on property sales, net 12.9 -- 22.6
--------------- --------------- ---------------
Total Other Income 24.0 9.0 25.5
--------------- --------------- ---------------
INCOME BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 35.3 21.4 22.4
Minority interests (4.0) (2.0) (3.4)
--------------- --------------- ---------------
INCOME BEFORE EXTRAORDINARY ITEM 31.3 19.4 19.0
Extraordinary item (2.2) -- (3.9)
--------------- --------------- ---------------
NET INCOME 29.1 19.4 15.1
Preferred share dividends (1.9) (1.8) --
Share repurchase agreement return (1.2) -- (2.1)
Forward share purchase
agreement return -- (1.2) 2.2
--------------- --------------- ---------------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS 26.0% 16.4% $ 15.2
=============== =============== ===============
</TABLE>
30
<PAGE> 32
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED
MARCH 31, 1999
REVENUES
Total revenues decreased $9.9 million, or 5.3%, to $175.8 million for the
three months ended March 31, 2000, as compared to $185.7 million for the three
months ended March 31, 1999.
The decrease in Office and Retail Property revenues of $0.9 million for the
three months ended March 31, 2000, or 0.6%, compared to the three months ended
March 31, 1999, is attributable to:
o a decrease in incremental revenue of $4.5 million due to the sale of
the Office and Retail Properties in the first quarter of 2000;
offset by
o increased revenues of $3.6 million primarily as a result of
increased weighted average full-service rental rates.
The increase in Hotel Property revenues of $2.1 million for the three
months ended March 31, 2000, or 13.6%, compared to the three months ended March
31, 1999, is primarily attributable to:
o increased revenues of $0.8 million primarily due to an increase in
base rents resulting from lease amendments entered into in
connection with amounts paid by the Company for capital improvements
at Sonoma Mission Inn & Spa; and
o the reclassification of the Renaissance Houston Hotel from the
Office Property segment to the Hotel Property segment as a result of
the restructuring of its lease on July 1, 1999, which resulted in
$1.3 million of incremental revenues under the new lease.
The decrease in Behavioral Healthcare Property revenue of $11.7 million for
the three months ended March 31, 2000, or 84.8%, is attributable to the
reflection of rent from CBHS on a cash basis beginning in the third quarter of
1999, and CBHS's failure to perform in accordance with its operating budget and
subsequent filing of voluntary bankruptcy petitions by CBHS and its subsidiaries
on February 16, 2000, which have resulted in a reduction of rent received to
$2.1 million for the three months ended March 31, 2000.
EXPENSES
Total expenses decreased $6.8 million, or 4.2%, to $155.9 million for the
three months ended March 31, 2000, as compared to $162.7 million for the three
months ended March 31, 1999.
The increase in rental property operating expenses of $0.7 million for the
three months ended March 31, 2000, or 1.1%, compared to the three months ended
March 31, 1999, is attributable to:
o a net increase in expenses of $1.9 million as a result of increased
real estate taxes of $2.3 million, offset by a decrease in real
estate taxes of $0.4 million due to Office Property dispositions;
offset by
o a decrease in expenses of $1.2 million due to the sale of the Office
and Retail Properties.
The increase in interest expense of $9.8 million for the three months ended
March 31, 2000, or 23.1%, compared to the three months ended March 31, 1999, is
primarily attributable to:
o $10.7 million of incremental interest payable due to draws under the
UBS Facility;
o $5.0 million of incremental interest payable due under the
BankBoston Term Note II which was obtained on September 14, 1999;
o $1.0 million of incremental interest payable due to the refinancing
of the Houston Center Office Property complex in September 1999; and
o $3.2 million of incremental interest payable due to the refinancing
of the Greenway Plaza Office Property complex in June 1999.
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The increase in interest expense is partially offset by:
o a decrease of $9.9 million of interest payable due to the repayment
and retiring of the BankBoston Credit Facility and the BankBoston
Term Note I on February 4, 2000.
The decrease in amortization of deferred financing costs of $0.8 million
for the three months ended March 31, 2000, or 25.8%, compared to the three
months ended March 31, 1999, is primarily attributable to the write-off of
approximately $3.9 million in unamortized financing costs associated with the
BankBoston Credit Facility and BankBoston Term Note II as a result of the
repayment and retiring of these loans on February 4, 2000.
The decrease in depreciation and amortization expense of $2.7 million, or
8.0%, compared to the three months ended March 31, 1999, is primarily
attributable to the fact that no depreciation was recognized during the first
quarter of 2000 on the Office Properties and Behavioral Healthcare Properties
held for disposition.
An additional decrease in expenses of $15.0 million is attributable to a
decrease in non-recurring costs incurred during the three months ended March 31,
1999 in connection with the settlement of litigation relating to the merger
agreement entered into January 1998 between the Company and Station Casinos,
Inc.
OTHER INCOME
Other income increased $25.5 million, or 153.6% to $42.2 million for the
three months ended March 31, 2000, as compared to $16.6 million for the three
months ended March 31, 1999. The components of the increase in other income are
discussed below.
The increase in equity in net income of unconsolidated companies of $2.9
million for the three months ended March 31, 2000, or 17.5%, compared to the
three months ended March 31, 1999, is attributable to:
o an increase in equity in net income of the unconsolidated Office and
Retail Properties of $0.7 million, or 35.0% compared to the three
months ended March 31, 1999, attributable to increased revenues at
The Woodlands Commercial Properties Company L.P., due to the sale of
its retail portfolio, including the Company's four Retail Properties
located in The Woodlands, during the three months ended March 31,
2000;
o an increase in equity in net income of the Residential Development
Corporations of $1.9 million for the three months ended March 31,
2000, or 22.1%, compared to the three months ended March 31, 1999,
primarily as a result of (i) the increase in average sales price per
lot at Desert Mountain, which, due to constant lot absorption
between years, resulted in $1.2 million of incremental equity in net
income to the Company; (ii) an increase in residential lot sales at
The Woodlands by 52 lots, which resulted in $0.8 million of
incremental equity in net income to the Company; and (iii) the
increased in lot sales and average price per lot sold at Houston
Area Development, which resulted in $0.4 million of incremental
equity in net income to the Company; partially offset by (iv) a
decrease in sales activity at CDMC, which resulted in a decrease of
$0.4 million of incremental equity in net income to the Company; and
(v) a decrease in average sales price per lot at Mira Vista, which
resulted in a decrease of $0.1 million in equity in net income to
the Company; and
o an increase in equity in net income of the other unconsolidated
companies of $2.0 million for the three months ended March 31, 2000,
or 666.7%, compared to the three months ended March 31, 1999,
primarily as a result of 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 Partners, LLC, which the
Company purchased in May 1999.
The increase in equity in net income of unconsolidated companies is
partially offset by a decrease in equity in net income of the
Temperature-Controlled Logistics Partnerships of $1.7 million for the three
months ended March 31, 2000, or 29.8%, compared to the three months ended March
31, 1999, resulting primarily from:
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o the one-time tax benefit of approximately $2.9 million in the
three months ended March 31, 1999, which resulted from the
election of REIT status by one of the Temperature-Controlled
Logistics Corporations in 1999; offset by
o the change in ownership structure which created a $1.2 million
increase in equity in net income from the Temperature-Controlled
Logistics Partnerships for the three months ended March 31, 2000.
Prior to March 12, 1999, the Temperature-Controlled Logistics
Corporations reflected its equity in the operations of the
Temperature-Controlled Logistics Properties. Subsequent to March
12, 1999, the Temperature-Controlled Logistics Corporations
reflect equity in the rent it receives from AmeriCold Logistics,
the lessee and owner of business operations.
The increase in net gain on property sales of $22.6 million represents a
gain recognized on property sales during the three months ended March 31, 2000,
reduced by an impairment loss of $5.0 million recognized during the three
months ended March 31, 2000 on one Office Property sold subsequent to March 31,
2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $137.0 million and $76.6 million at March 31,
2000 and December 31, 1999, respectively. This 78.9% increase is attributable to
$21.9 million and $178.0 million provided by operating and investing activities,
respectively, partially offset by $135.8 million of cash used in financing
activities.
OPERATING ACTIVITIES
The Company's cash provided by operating activities of $21.9 million is
primarily attributable to:
o $80.2 million from Property operations;
o $21.5 million from a decrease in restricted cash and cash
equivalents, primarily as a result of a decrease in property tax
escrow deposits due to the payment of property taxes in January
2000; and
o $7.0 million from minority interests.
The cash provided by operating activities is partially offset by:
o $54.2 million from an decrease in accounts payable, accrued
liabilities and other liabilities primarily due to the payment of
property taxes during the three months ended March 31, 2000;
o $22.6 million attributable to a net gain on the sale of Office,
Retail and Behavioral Healthcare Properties;
o $8.5 million representing equity in earnings in excess of
distributions received from unconsolidated Companies; and
o $1.5 million from an increase in other assets, primarily
attributable to an increase in prepaid assets.
INVESTING ACTIVITIES
The Company's cash provided by investing activities of $178.0 million is
primarily attributable to:
o $215.5 million of net sales proceeds attributable to the
disposition of Office, Retail and Behavioral Healthcare
Properties; and
o $11.7 million attributable to a decrease in restricted cash and
cash equivalents primarily due to a decrease in capital reserves
at certain Office Properties.
The Company's cash provided by investing activities is partially offset by:
o $16.6 million for recurring and non-recurring tenant improvement
and leasing costs for the Office and Retail Properties;
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o $15.1 million for the acquisition of land held for development in
Houston;
o $8.5 million for the development of investment properties,
including expansions and renovations at the Hotel Properties;
o $3.3 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;
o $5.0 million of additional investment in the Residential
Development Corporations; and
o $1.2 million of additional investment in unconsolidated
companies.
FINANCING ACTIVITIES
The Company's use of cash for financing activities of $135.8 million is
primarily attributable to:
o payments under the BankBoston Credit Facility of $510.0 million;
o payments of $364.8 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 II Note;
o distributions paid to common shareholders and unitholders of $74.5
million;
o debt financing costs of $17.7 million primarily related to
capitalized financing costs in connection with the UBS Facility;
o posting of cash collateral in connection with the Share
Repurchase Agreement of $8.7 million;
o distributions paid to preferred shareholders of $3.4 million; and
o share repurchases of $2.8 million.
The use of cash for financing activities is partially offset by:
o net proceeds under the UBS Facility of $755.0 million; and
o net capital proceeds from a joint venture partner of
$91.2 million.
PROPERTY DISPOSITIONS
Office & Retail Segment
During the three months ended March 31, 2000, the Company completed the
sale of six wholly owned Office Properties and was actively marketing four
additional Office Properties for sale as of March 31, 2000. The six Office
Properties sold were previously classified as held for disposition. The sales of
the six Office Properties generated approximately $146.6 million of net
proceeds. The proceeds were used primarily to pay down variable-rate debt. The
Company recognized a net gain of approximately $13.2 million in the first
quarter of 2000, related to the sales of five of the Office Properties that were
sold during the three months ended March 31, 2000, and, during the year ended
December 31, 1999, recognized an impairment loss of $16.8 million on the
remaining Office Property. For the three months ended March 31, 2000, the
Company recognized an impairment loss of approximately $5.0 million on one
Office Property classified as held for disposition, which was sold subsequent to
March 31, 2000. The impairment loss represented the difference between the
carrying value of the Office Property and the sales price less costs of the
sale. Subsequent to March 31, 2000, the Company had completed the sale of two of
the four Office Properties held for disposition at March 31, 2000. The sales of
these Office Properties generated approximately $34.8 million of net proceeds,
which were used primarily to pay down variable-rate debt. The Company has also
entered into contracts relating to the sale of the remaining two Office
Properties. The sales of these Properties are expected to close by the end of
the second quarter of 2000.
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Behavioral Healthcare Segment
During the three months ended March 31, 2000, the Company completed the
sale of 11 of the 51 Non-Core Properties classified as held for disposition. The
sales generated approximately $38.3 million in net proceeds and a net gain of
approximately $9.6 million. As of March 31, 2000, 40 Non-Core Properties were
classified as held for disposition. Subsequent to March 31, 2000, the Company
completed the sales of two additional Non-Core Properties held for disposition.
The sales generated approximately $2.8 million in net proceeds and a net gain of
approximately $0.5 million. The net proceeds from the sale of all 13 Non-Core
Properties sold subsequent to December 31, 1999 were primarily used to pay down
variable-rate debt. The Company has also entered into contracts or letters of
intent to sell an additional 11 Non-Core Properties. See "CBHS" below.
Other
The Woodlands Commercial Properties Company, L.P., owned by the Company and
Morgan Stanley Real Estate Fund II, L.P., has been actively marketing for sale
certain property assets (retail and office/venture tech portfolio) located in
The Woodlands. The sale of the retail portfolio, including the Company's four
Retail Properties located in The Woodlands, closed on January 5, 2000, and
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 variable-rate debt.
CBHS
As of December 31, 1999, all of the Behavioral Healthcare Properties 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 are 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. CBHS has stated
in its bankruptcy petitions that it intends to sell all of the ongoing
businesses of CBHS and its subsidiaries by mid-May of 2000 or develop an
appropriate liquidation procedure if the sales have not taken place by that
time.
Effective February 29, 2000, the Non-Core Properties were terminated from
the master lease, although the aggregate rent due under the master lease was not
reduced as a result, except as described below with respect to sales of Non-Core
Properties. The Core Properties remain subject to the master lease. The Company
agreed with CBHS that, upon each sale by the Company of Non-Core Properties, the
monthly minimum rent due from CBHS under the master lease would be reduced by a
specified percentage of the net proceeds of such sale. 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.
As of March 31, 2000, the Behavioral Healthcare Segment consisted of 77
Behavioral Healthcare Properties in 24 states, 37 of which are designated as
Core Properties and were leased to CBHS and its subsidiaries under a triple-net
master lease, and 40 of which are designated as Non-Core Properties. Subsequent
to March 31, 2000, the Company sold two of the Non-Core Properties. The Company
has also entered into contracts or letters of intent to sell 11 additional
Non-Core Properties. The remaining 27 Non-Core Properties, which are the
Properties at which CBHS has ceased operations or is planning to cease
operations, are being actively marketed for sale.
An auction for the core operating assets of CBHS was held on May 10, 2000,
as part of the bankruptcy proceedings relating to CBHS. The results of the
auction are preliminary pending court approval.
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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 March 31,
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 first quarter of 2000, the Company formed Funding IX and
contributed six Office Properties and one Hotel Property 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 March 31, 2000, the Company had sold $100.0 million of non-voting,
redeemable preferred Class A Units in Funding IX to GMACCM. The Class A Units
receive a preferred variable rate dividend based on 30-day LIBOR plus 450 basis
points, or approximately 10.6% per annum as of March 31, 2000, and are
redeemable at the option of the Company at the original purchase price.
Subsequent to March 31, 2000, the Company sold an additional $10.0 million of
Class A Units in Funding IX to GMACCM.
As of May 10, 2000, the net proceeds of $108.1 million from the sale of the
Class A Units were used to repurchase 6,089,604 of the Company's outstanding
common shares. See "Share Repurchase Program" below. The Company also will use
the net proceeds from any future sales of Class A Units to GMACCM to repurchase
common shares. 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 expects to contribute an additional Office Property and an
additional Hotel Property to Funding IX during the second quarter of 2000.
Following the contribution of these Properties and the satisfaction of other
conditions relating to the Properties, the Company will have the right to sell
to GMACCM an aggregate of $275.0 million of Class A Units.
The Company is actively marketing the Office Properties held by Funding IX
for joint venture and will use the proceeds from any joint venture or sale of a
Property held by Funding IX, to redeem the preferred 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.
During the three months ended March 31, 2000, the Company repurchased
161,000 common shares in the open market at an average price of $17.53 per
common share for an aggregate of approximately $2.8 million. Subsequent to March
31, 2000, the Company repurchased 1,926,500 common shares in the open market at
an average price of $18.16 per common share for an aggregate of $35.0 million.
In addition, subsequent to March 31, 2000, the Company repurchased 4,002,104
common shares at an average price of $17.49 per common share for an aggregate of
approximately $70.0 million, substantially settling the "Share Repurchase
Agreement" with UBS. See "Share Repurchase Agreement" below for a description of
the agreement.
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The purchase of the 6,089,604 common shares was financed with the proceeds
of the sale of Class A Units in Funding IX. See "Sale of Preferred Equity
Interests in Subsidiary" above.
SHARE REPURCHASE AGREEMENT
On November 19, 1999, the Company entered into an agreement with UBS to
repurchase a portion of its common shares from UBS. As of December 31, 1999, the
Company was obligated to repurchase 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
repurchase from UBS by January 4, 2001 to approximately 5,800,000 common shares,
or approximately $102,000 of the Company's common shares (as amended, the "Share
Repurchase Agreement"). The price the Company is obligated to pay for the common
shares (the "Settlement Price") is 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 may settle the Share Repurchase Agreement in cash or common
shares. The Company currently intends to settle the Share Repurchase Agreement
to UBS in cash, by purchasing and retiring the shares with proceeds from Office
Property joint ventures and financing arrangements. This will decrease the
Company's liquidity and result in an increase in the Company's net income per
common share and net book value per common share. The Company, however, will
continue to evaluate its sources of capital and the potential uses of its
capital until the time that settlement is required under the Share Repurchase
Agreement or until such earlier time as it determines to settle the Share
Repurchase Agreement.
In the event that the Company elects to fulfill the Share Repurchase
Agreement in common shares, UBS will sell the common shares on behalf of the
Company on the open market. If, as a result of a decrease in the market price of
the common shares, the number of common shares required to be sold to achieve
the Settlement Price exceeds the number of common shares purchased by UBS in
connection with the agreement, the Company will deliver additional cash or
common shares to UBS. If the Company elects to fulfill the Share Repurchase
Agreement in common shares, and the market price of the common shares is greater
than the Settlement Price, UBS will return a portion of the common shares that
it purchased in the open market to the Company.
If the common share price on the NYSE falls below the Settlement Price
calculated approximately every two weeks, the Company is required to remit cash
collateral to UBS equal to the product of the number of common shares purchased
by UBS and 115% of the difference between the Settlement Price and the closing
price of the common shares as reported on the NYSE. If the Company elects to
settle the Share Repurchase Agreement in cash, any cash collateral held by UBS
will be used to "pay-down" the Settlement Price. If the Company elects to settle
the Share Repurchase Agreement in common shares, UBS will release all claims to
any cash collateral they hold at that time. On February 18, 2000, the Company
posted cash collateral of $8.7 million to UBS, as a result of a decline in the
common share price. As of March 31, 2000, no cash collateral was due to UBS.
According to the terms of the Share Repurchase Agreement, had the agreement
been settled, and the average cost of common shares to UBS on March 31, 2000 of
approximately $17.45 been used, the Company would have had to repurchase the
5,800,000 common shares from UBS for approximately $101.4 million. In that
event, the Company's liquidity would have decreased and the Company's net income
- - diluted per common share would have been approximately $0.45 for the quarter
ended March 31, 2000 and the net book value per common share outstanding at
March 31, 2000 would have been approximately $14.99.
Subsequent to March 31, 2000, the Company purchased 4,002,104 common shares
from UBS, at an average cost of $17.49 per common share, substantially settling
the Share Repurchase Agreement. In connection with this purchase, UBS returned
approximately $6.0 million of the cash collateral posted to the Company. The
purchase was funded through the sale of Class A Units in Funding IX. See "Sale
of Preferred Equity Interests in Subsidiary" above.
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METROPOLITAN
The Company's $85.0 million preferred member interest in Metropolitan
Partners, LLC ("Metropolitan") at March 31, 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 an $850.0 million secured, variable-rate facility
fully underwritten by UBS and currently funded by UBS and Fleet. The UBS
Facility consists of three tranches: the UBS Line of Credit, a three-year $300.0
million revolving line of credit, the UBS Term Loan I, a $275.0 million
three-year term loan and the UBS Term Loan II, a $275.0 million four-year term
loan. Borrowings under the UBS Line of Credit, the UBS Term Loan I and the UBS
Term Loan II at March 31, 2000 were approximately $240.5 million, $257.2 million
and $257.2 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 March 31, 2000, the interest rate
on the UBS Line of Credit and UBS Term Loan I was 8.63% and the interest rate on
the UBS Term Loan II was 8.88%. In order to mitigate its exposure to variable
rate debt, the Company entered into two cash flow hedge agreements related to a
portion of the UBS Facility, as more fully described in "Interest Rate Hedging
Transactions" below. As of March 31, 2000, the UBS Facility was secured by 40
Office Properties and four Hotel Properties. Subsequent to March 31, 2000, the
Company sold two 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. 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 the 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 March 31, 2000 reporting period.
INTEREST RATE 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 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, relating to the BankBoston Term Note II, for a notional
amount of $200.0 million. As a result of the cash flow hedge agreement, the
interest rate on the underlying note, which was originally issued at a floating
interest rate of 30-day LIBOR plus 325 basis points was effectively converted to
a fixed weighted average interest rate of 9.43% through maturity. Effective
February 1, 2000, the Company renegotiated certain terms and covenants under the
BankBoston Term Note II. At such time, the interest rate on the underlying note
increased to 30-day LIBOR plus 400 basis points, and consequently, the effective
fixed weighted average interest rate increased to 10.18% through maturity.
During the three months ended March 31, 2000, the cash flow hedge agreement with
Salomon resulted in approximately $0.05 million of additional interest expense.
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Effective February 4, 2000, the Company entered into a three-year cash flow
hedge agreement with Fleet, relating to a portion of the UBS Term Loan I and the
UBS Line of Credit, for a notional amount of $200.0 million. 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 weighted
average interest rate of 9.61% through maturity. During the three months ended
March 31, 2000, the cash flow hedge agreement with Fleet resulted in
approximately $0.4 million of additional interest expense.
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 weighted
average 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.
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 assets and will continue to lease
and manage these Properties. Marketing memorandums for seven Office Properties
are currently being reviewed by prospective joint venture partners.
LIQUIDITY REQUIREMENTS
In the first quarter of 2000, the Company entered into the UBS Facility,
which is described above under "UBS Facility". The Company used the proceeds of
the UBS Facility to retire the BankBoston Credit Facility and BankBoston Term
Note I, which made up 86% of the Company's maturing debt in 2000 and 2001.
The Company's Share Repurchase Agreement with UBS, as described in "Share
Repurchase Agreement" above, expires on January 4, 2001, at which time the
Company is required to settle in cash or common shares. The Company currently
intends to fulfill the Share Repurchase Agreement to UBS in cash, by purchasing
and retiring the shares with proceeds from Office Property joint ventures and
financing arrangements. As of May 10, 2000, the Company had repurchased
4,002,104 common shares from UBS at an average cost of $17.49 per common share.
The purchase was funded through the sale of the Class A Units in Funding IX, as
described in "Sale of Preferred Equity Interests in Subsidiary" above. This
decreased the Company's liquidity and resulted in an increase in the Company's
net income per common share and net book value per common share. The Company,
however, will continue to evaluate its sources of capital and the potential uses
of its capital until the time that settlement is required under the Share
Repurchase Agreement or until such earlier time as it determines to settle the
remainder of Share Repurchase Agreement.
The Sonoma Mission Inn & Spa, located north of San Francisco, California,
is scheduled to complete its estimated $21.0 million expansion, consisting of 30
additional guest rooms and a 30,000 square foot full-service spa by the end of
the second quarter of 2000. The Company has incurred costs of $17.0 million
related to the expansion prior to March 31, 2000. In the first quarter of 2000,
the 389 guest room Renaissance Houston Hotel, located in the center of Greenway
Plaza, has commenced a substantial renovation, including improvements to all
guest rooms, the lobby, corridors and exterior and interior systems. The
estimated $15.0 million renovation project, of which the Company has incurred
costs of $1.7 million prior to March 31, 2000, is scheduled to be completed in
the fourth quarter of 2000. Both of these projects will be funded from cash
flows provided by operating activities, additional debt financing or a
combination thereof.
The Company expects to meet its other short-term liquidity requirements
primarily through cash flow provided by operating activities. The Company
believes that cash flow provided by operating activities will be adequate to
fund normal recurring operating expenses, regular debt service requirements
(including debt service relating to additional and replacement debt), recurring
capital expenditures and distributions to shareholders and unitholders, as well
as non-recurring capital expenditures, such as tenant improvement and leasing
costs related to previously unoccupied space. To the extent that the Company's
cash flow from operating activities is not sufficient to finance non-recurring
capital
39
<PAGE> 41
expenditures, the Company expects to finance such activities with available
cash, property sales, proceeds received from joint venture arrangements or
additional debt financing.
The Company expects to meet its long-term liquidity requirements
through long-term secured and unsecured borrowings and other debt and equity
financing alternatives. As of March 31, 2000, the Company's long-term liquidity
requirements consisted primarily of maturities under the Company's fixed and
variable-rate debt.
Debt and equity financing alternatives currently available to the
Company to satisfy its liquidity requirements and commitments for material
capital expenditures include:
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 Issuances of Operating Partnership units; and
o Joint venture arrangements.
REIT QUALIFICATION
The Company intends to maintain its qualification as a REIT under
Section 856(c) of 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 COI. The REIT Modernization Act
is expected to reduce the number of business opportunities that the Company
would otherwise offer to COI pursuant to the Intercompany Agreement between the
Company and COI, which provides each party with rights to participate in certain
transactions. The Company has expressed an interest to COI in certain of the
businesses currently owned or operated by COI that the REIT Modernization Act
would allow the Company to own or operate. The Company is exploring alternatives
with COI regarding a potential future transaction with respect to certain of
COI's assets.
40
<PAGE> 42
DEBT FINANCING ARRANGEMENTS
The significant terms of the Company's primary debt financing
arrangements existing as of March 31, 2000 are shown below (dollars in
thousands):
<TABLE>
<CAPTION>
INTEREST BALANCE
RATE AT OUTSTANDING AT
MAXIMUM MARCH 31, EXPIRATION MARCH 31,
DESCRIPTION BORROWINGS 2000 DATE 2000
- ------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SECURED FIXED RATE DEBT:
AEGON Note(1) $ 277,402 7.53% July 2009 $ 277,402
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 March 2028 161,000
CIGNA Note 63,500 7.47 December 2002 63,500
Metropolitan Life Note V 39,584 8.49 December 2005 39,584
Northwestern Life Note 26,000 7.66 January 2003 26,000
Metropolitan Life Note I 11,356 8.88 September 2001 11,356
Nomura Funding VI Note(5) 8,459 10.07 July 2020 8,459
Rigney Promissory Note 723 8.50 November 2012 723
-------------- ------------- --------------
Subtotal/Weighted Average $ 1,027,024 7.87% $ 1,027,024
-------------- ------------- --------------
SECURED VARIABLE RATE DEBT(6):
UBS Line of Credit(7) $ 300,000 8.63% February 2003 $ 240,526
UBS Term Loan I(7) 275,000 8.63 February 2003 257,213
UBS Term Loan II(7) 275,000 8.88 February 2004 257,213
BankBoston Term Note II(8) 200,000 9.94 August 2003 200,000
SFT Whole Loans, Inc. Note(9) 97,123 7.58 September 2001 97,123
-------------- ------------- --------------
Subtotal/Weighted Average $ 1,147,123 8.79% $ 1,052,075
-------------- ------------- --------------
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 $ 2,574,147 8.17%(11) $ 2,479,099
============== ============= ==============
</TABLE>
- -----------------
(1) The outstanding principal balance of this note at maturity will be
approximately $223.0 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 loan reprices 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 $179.0 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 Company entered into the UBS Facility which consists of three tranches,
the UBS Line of Credit, the UBS Term Loan I and the UBS Term Loan II,
effective January 31, 2000. The proceeds were primarily used to repay and
retire the BankBoston Credit Facility and the BankBoston Term Note I. 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. In the first quarter of 2000, the Company entered into two cash
flow hedge agreements related to a portion of the UBS Facility, which are
intended to mitigate its exposure to variable rate debt as more fully
described in "Interest Rate Hedging Transactions" above. As of March 31,
2000, the UBS Facility was secured by 40 Office Properties and four Hotel
Properties. Subsequent to March 31, 2000, the Company sold two 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.
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 March 31,
2000 reporting period.
(8) This loan is secured by partnership interests in two pools of
underleveraged assets. On February 1, 2000, the Company renegotiated
certain terms and covenants under this note. As a result, the interest rate
on the underlying note increased to 30-day LIBOR plus 400 basis points. The
Company entered
41
<PAGE> 43
into a four-year $200 million cash flow hedge agreement effective September
1, 1999 with Salomon in a separate transaction related to the BankBoston
Term Note II. Pursuant to this agreement, the Company will pay Salomon on a
quarterly basis a 6.183% fixed interest rate, and Salomon will pay the
Company a floating 90-day LIBOR rate based on the same quarterly reset
dates.
(9) The SFT Whole Loans, Inc. Note bears interest at 30-day LIBOR plus
1.75%.
(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
8.32%.
Below are the aggregate principal amounts due as of March 31, 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 $ 3,897 $ -- $ 3,897
2001 113,887 -- 113,887
2002 73,911 150,000 223,911
2003 738,796 -- 738,796
2004 274,067 -- 274,067
Thereafter 874,541 250,000 1,124,541
---------- ---------- ----------
$2,079,099 $ 400,000 $2,479,099
========== ========== ==========
</TABLE>
The Company has approximately $3,897 of secured and unsecured debt that
was scheduled to expire 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.
The Company's debt service coverage ratio for the three months ended
March 31, 2000 and 1999 was approximately 2.4 and 3.2, respectively. Debt
service coverage for a particular period is generally calculated as net income
plus depreciation and amortization, plus interest expense, plus extraordinary or
non-recurring losses, minus extraordinary or non-recurring gains, divided by
debt service (including principal and interest payable during the period of
calculation). The debt service coverage ratio the Company is required to
maintain as stipulated by the Company's $400.0 million unsecured notes and
calculated as described above is 1.5. The Company's UBS Facility requires a debt
service coverage ratio (which is calculated in a different manner) of 2.0. Under
the calculation required by the UBS Facility, the Company's debt service
coverage ratio was 2.4 at March 31, 2000.
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.
42
<PAGE> 44
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 three months ended March 31, 1999, FFO was
approximately $92.9 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 three months ended March 31, 1999 would have been approximately
$77.9 million, which 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 of an equity REIT. However, FFO:
o does not represent cash generated from operating activities
determined in accordance with GAAP (which, unlike FFO, generally
reflects all cash effects of transactions and other events that
enter into the determination of net income);
o is not necessarily indicative of cash flow available to fund cash
needs; and
o should not be considered as an alternative to net income determined
in accordance with GAAP as an indication of the Company's operating
performance, or to cash flow from operating activities determined in
accordance with GAAP as a measure of either liquidity or the
Company's ability to make distributions.
The Company has historically distributed an amount less than FFO,
primarily due to reserves required for capital expenditures, including leasing
costs. The aggregate cash distributions paid to shareholders and unitholders for
the three months ended March 31, 2000 and 1999 were $74.5 and $75.7 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.
43
<PAGE> 45
STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND SHARES/UNITS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net income $ 51,122 $ 36,011
Adjustments:
Depreciation and amortization of real estate assets 29,792 32,877
Gain on property sales, net (22,627) --
Settlement of merger dispute -- 15,000
Extraordinary item - extinguishment of debt 3,928 --
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office and retail properties (72) 1,758
Temperature-Controlled Logistics properties 5,451 2,571
Residential development properties 4,579 4,671
Other
Unitholder minority interest 6,382 3,404
Preferred share dividends (3,375) (3,375)
---------- ----------
Funds from operations - old definition(1)(2) $ 75,180 $ 92,917
---------- ----------
Adjustments:
Settlement at merger dispute -- (15,000)
---------- ----------
Funds from operations - new definition(1)(2) $ 75,180 $ 77,917
========== ==========
Investment Segments:
Office and Retail Segment $ 86,211 $ 89,107
Hospitality Segment 17,291 15,198
Behavioral Healthcare Segment 2,079 13,823
Temperature-Controlled Logistics Properties 9,487 8,280
Residential Development Segment 15,043 13,300
Corporate general & administrative (5,245) (4,114)
Interest expense (52,250) (42,481)
Preferred share dividends (3,375) (3,375)
Other(3) 5,939 3,179
Settlement of merger dispute -- (15,000)
---------- ----------
Funds from operations - new definition(1)(2) $ 75,180 $ 77,917
========== ==========
Basic weighted average shares/units 135,537 137,700
========== ==========
Diluted weighted average shares/units(4) 135,994 140,646
========== ==========
</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, net of gains on Behavioral Healthcare
Properties and Office Property dispositions, preferred return paid to GMAC
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.
44
<PAGE> 46
The following schedule reconciles the Company's basic weighted average
shares/units to the diluted weighted average shares/units presented above:
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------
(shares/units in thousands) 2000 1999
--------- ---------
<S> <C> <C>
Basic weighted average shares/units: 135,537 137,700
Add: Share and unit options 457 2,142
Forward Share Purchase Agreement -- 804
--------- ---------
Diluted weighted average shares/units 135,994 140,646
========= =========
</TABLE>
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Funds from operations - new definition $ 75,180 $ 77,917
Adjustments:
Depreciation and amortization of non-real estate assets 861 556
Amortization of deferred financing costs 2,347 3,069
Minority interest in joint ventures profit and depreciation
and amortization 899 459
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies (9,958) (9,000)
Change in deferred rent receivable (2,593) (7,529)
Change in current assets and liabilities (39,796) (19,445)
Equity in earnings in excess of distributions received from
unconsolidated companies (8,455) (9,019)
Preferred share dividends 3,375 3,375
Non-cash compensation 20 20
--------- ---------
Net cash provided by operating activities $ 21,880 $ 40,403
========= =========
</TABLE>
45
<PAGE> 47
OFFICE AND RETAIL PROPERTIES
As of March 31, 2000, the Company owned 83 Office Properties located in
29 metropolitan submarkets in eight states with an aggregate of approximately
29.8 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 March 31, 2000, the Company's Office Properties in Dallas/Fort
Worth and Houston represented an aggregate of approximately 71% of its office
portfolio based on total net rentable square feet (36% for Dallas/Fort Worth and
35% for Houston).
In pursuit of management's objective of disposing of non-strategic and
non-core assets, the Company sold six Office Properties in the first quarter of
2000 and the Company was actively marketing for sale its wholly owned interests
in four additional Office Properties at March 31, 2000. The Office Properties
sold were The Amberton, Concourse Office Park, The Meridian, and Walnut Green
Office Properties located in Dallas, Texas; the Energy Centre Office Property
located in New Orleans, Louisiana; and the Central Park Plaza Office Property
located in Omaha, Nebraska. Subsequent to March 31, 2000, the Company had
completed the sale of two of the four Office Properties held for disposition at
March 31, 2000. The Office Properties sold were One Preston Park located in
Dallas, Texas and 1615 Poydras located in New Orleans, Louisiana.
In addition, the Company has entered into contracts relating to the
sale of the two remaining Office Properties held for disposition at March 31,
2000, AT&T Building located in Denver, Colorado and Valley Centre located in
Dallas, Texas. The sales of these Properties are expected to close by the end of
the second quarter of 2000. The disposition of these Properties remains subject
to the negotiation of acceptable terms and other customary conditions.
Subsequent to March 31, 2000, the Company has begun actively marketing for sale
its wholly owned interests in one additional Office Property, 160 Spear located
in San Francisco, California, and has classified this Property as held for
disposition.
46
<PAGE> 48
OFFICE PROPERTIES TABLES
The following table shows, as of March 31, 2000, certain information
about the Company's Office Properties. "CBD," as used in the table below, 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 75% $ 22.99
The Crescent Office Towers 1 Uptown/Turtle Creek 1985 1,204,670 87 31.05
Fountain Place 1 CBD 1986 1,200,266 96 19.43
Trammell Crow Center(3) 1 CBD 1984 1,128,331 76(5) 24.12
Stemmons Place 1 Stemmons Freeway 1983 634,381 88 15.90
Spectrum Center(4) 1 Far North Dallas 1983 598,250 90 23.05
Waterside Commons 1 Las Colinas 1986 458,739 100 20.18
Caltex House 1 Las Colinas 1982 445,993 92 29.78
Reverchon Plaza 1 Uptown/Turtle Creek 1985 374,165 77 20.35
The Aberdeen 1 Far North Dallas 1986 320,629 100 18.77
MacArthur Center I & II 1 Las Colinas 1982/1986 294,069 95 22.27
Stanford Corporate Centre 1 Far North Dallas 1985 265,507 34(5) 20.31
12404 Park Central 1 LBJ Freeway 1987 239,103 100 21.67
Palisades Central II 1 Richardson/Plano 1985 237,731 75(5) 18.15
3333 Lee Parkway 1 Uptown/Turtle Creek 1983 233,769 92 21.48
Liberty Plaza I & II 1 Far North Dallas 1981/1986 218,813 100 15.98
The Addison 1 Far North Dallas 1981 215,016 100 19.50
Palisades Central I 1 Richardson/Plano 1980 180,503 87 18.04
Greenway II 1 Richardson/Plano 1985 154,329 100 22.78
Addison Tower 1 Far North Dallas 1987 145,886 92 17.55
Greenway I & IA 2 Richardson/Plano 1983 146,704 100 23.46
5050 Quorum 1 Far North Dallas 1981 133,594 89 17.87
Cedar Springs Plaza 1 Uptown/Turtle Creek 1982 110,923 96 18.54
Valley Centre 1 Las Colinas 1985 74,861 90 18.77
One Preston Park(6) 1 Far North Dallas 1980 40,525 59 18.54
-------- ----------- ------ ---------
Subtotal/Weighted Average 26 10,587,714 86% $ 22.28
-------- ----------- ------ ---------
FORT WORTH
UPR Plaza 1 CBD 1982 954,895 95% $ 15.57
-------- ----------- ------ ---------
HOUSTON
Greenway Plaza Office Portfolio 10 Richmond-Buffalo 1969-1982 4,286,277 93% $ 17.83
Speedway
Houston Center 3 CBD 1974-1983 2,764,418 96 17.83
Post Oak Central 3 West Loop/Galleria 1974-1981 1,277,516 93 18.44
The Woodlands Office Properties(7) 12 The Woodlands 1980-1996 811,067 96 16.35
Four Westlake Park 1 Katy Freeway 1992 561,065 96(5) 19.42
Three Westlake Park(8) 1 Katy Freeway 1983 414,251 62(5) 21.26
1800 West Loop South 1 West Loop/Galleria 1982 399,777 68 17.35
-------- ----------- ------ ---------
Subtotal/Weighted Average 31 10,514,371 92% $ 17.95
-------- ----------- ------ ---------
AUSTIN
Frost Bank Plaza 1 CBD 1984 433,024 93% $ 23.33
301 Congress Avenue(8) 1 CBD 1986 418,338 98 25.35
Bank One Tower 1 CBD 1974 389,503 97 19.84
Austin Centre 1 CBD 1986 343,665 92 22.61
The Avallon 1 Northwest 1993/1997 232,301 100 23.07
Barton Oaks Plaza One 1 Southwest 1986 99,895 100 21.47
-------- ----------- ------ ---------
Subtotal/Weighted Average 6 1,916,726 96% $ 22.83
-------- ----------- ------ ---------
</TABLE>
47
<PAGE> 49
<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% $ 18.06
Ptarmigan Place 1 Cherry Creek 1984 418,630 97 18.73
Regency Plaza One 1 DTC 1985 309,862 96 23.80
AT&T Building 1 CBD 1982 184,581 89 16.43
The Citadel 1 Cherry Creek 1987 130,652 91 22.58
55 Madison 1 Cherry Creek 1982 137,176 80(5) 19.41
44 Cook 1 Cherry Creek 1984 124,174 97 20.06
-------- ----------- ------ --------
Subtotal/Weighted Average 7 1,855,882 95% $ 19.59
-------- ----------- ------ --------
COLORADO SPRINGS
Briargate Office and
Research Center 1 Colorado Springs 1988 252,857 100% $ 18.72
-------- ----------- ------ --------
LOUISIANA
NEW ORLEANS
1615 Poydras(6) 1 CBD 1984 508,741 83% $ 16.63
-------- ----------- ------ --------
FLORIDA
MIAMI
Miami Center 1 CBD 1983 782,686 79%(5) $ 25.13
Datran Center 2 South Dade/Kendall 1986/1988 472,236 91 22.28
-------- ----------- ------ --------
Subtotal/Weighted Average 3 1,254,922 84% $ 23.95
-------- ----------- ------ --------
ARIZONA
PHOENIX
Two Renaissance Square 1 Downtown/CBD 1990 476,373 96% $ 24.50
6225 North 24th Street 1 Camelback Corridor 1981 86,451 100 21.82
-------- ----------- ------ --------
Subtotal/Weighted Average 2 562,824 96% $ 24.07
-------- ----------- ------ --------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour 2 Georgetown 1986 536,206 96%(5) $ 38.74
-------- ----------- ------ --------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza 1 CBD 1990 366,236 90% $ 18.77
-------- ----------- ------ --------
CALIFORNIA
SAN FRANCISCO
160 Spear Street 1 South of Market/CBD 1984 276,420 100% $ 26.32
-------- ----------- ------ --------
SAN DIEGO
Chancellor Park(10) 1 UTC 1988 195,733 92% $ 22.72
-------- ----------- ------ --------
TOTAL/WEIGHTED AVERAGE 83 29,783,527 90%(5) $ 20.65(11)
======== =========== ====== ========
</TABLE>
- ---------------------------------
(1) Calculated based on base rent payable as of March 31, 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) The Company owns the principal economic interest in Trammell Crow
Center through its ownership of fee simple title to the Property
(subject to a ground lease and a leasehold estate regarding the
building) and two mortgage notes encumbering the leasehold interests in
the land and building.
(4) The Company owns the principal economic interest in Spectrum Center
through an interest in Spectrum Mortgage Associates, L.P. which owns
both a mortgage note secured by Spectrum Centre and the ground lessor's
interest in the land underlying the office building.
(5) Leases have been executed at certain Office Properties but had not
commenced as of March 31, 2000. If such leases had commenced as of
March 31, 2000, the percent leased for all Office Properties would have
been 93%. The total percent leased for these Properties would have
48
<PAGE> 50
been as follows: Trammell Crow Center - 85%; Stanford Corporate Centre
- 63%; Palisades Central II - 93%; Four Westlake Park - 100%; Three
Westlake Park - 67%; 55 Madison - 92%; Miami Center - 86%; and
Washington Harbour - 99%.
(6) Sold subsequent to March 31, 2000.
(7) 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.
(8) As of December 31, 1999, the Company owned the principal economic
interest in Three Westlake Park through its ownership of a mortgage
note secured by Three Westlake Park. Effective January 7, 2000, the
Property was conveyed to the Company by a deed in lieu of foreclosure,
and as a result, the Company now owns Three Westlake Park in fee
simple.
(9) The Company has a 1% general partner interest and a 49% limited partner
interest in the partnership that owns 301 Congress Avenue.
(10) The Company owns Chancellor Park through its ownership of a mortgage
note secured by the building and through its direct and indirect
interests in the partnership which owns the building.
(11) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Company Office Properties as
of March 31, 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 $21.18.
The following table shows, as of March 31, 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>
Percent of
Industry Sector Leased Sq. Ft.
- --------------------------- --------------
<S> <C>
Professional Services(1) 26%
Energy 21
Financial Services(2) 20
Telecommunications 8
Technology 6
Manufacturing 3
Retail 3
Food Service 3
Medical 2
Government 2
Other(3) 6
-------------
TOTAL LEASED 100%
=============
</TABLE>
- -----------------------
(1) Includes legal, accounting, engineering, architectural, and advertising
services.
(2) Includes banking, title and insurance, and investment services.
(3) Includes construction, real estate, transportation and other
industries.
49
<PAGE> 51
AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following tables show schedules of lease expirations for leases in
place as of March 31, 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 406 2,252,981 (2) 8.5% $ 42,205,574 7.2% $ 18.73
2001 366 3,344,096 12.6 66,000,795 11.3 19.74
2002 355 3,591,001 13.5 79,600,198 13.6 22.17
2003 282 2,798,936 10.5 56,931,457 9.7 20.34
2004 268 4,374,532 16.4 96,328,587 16.4 22.02
2005 137 2,661,425 10.0 61,606,873 10.5 23.15
2006 47 1,297,330 4.9 30,685,593 5.2 23.65
2007 42 1,719,236 6.5 39,769,006 6.8 23.13
2008 25 974,391 3.7 25,487,520 4.3 26.16
2009 21 647,984 2.4 17,621,774 3.0 27.19
2010 and thereafter 27 2,941,404 11.0 70,191,197 12.0 23.86
----------- ------------- ------------ ------------------ ---------- --------------
1,976 26,603,316 100.0% $ 586,428,574 100.0% $ 22.04
=========== ============= ============ ================= ========== ==============
</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 March 31, 2000, leases have been signed for approximately
1,306,309 net rentable square feet (including renewed leases and leases
of previously unleased space) commencing after March 31, 2000 and on or
before December 31, 2000.
(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 26,603,316 89.3%
Square footage reflecting
management offices, building use,
and remeasurement adjustments 267,923 0.9
Square footage vacant 2,912,288 9.8
------------ ----------
Total net rentable square footage 29,783,527 100.0%
============ ==========
</TABLE>
50
<PAGE> 52
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 126 767,200(2) 8.5% $ 14,807,126 7.0% $ 19.30
2001 102 911,494 10.0 19,637,634 9.3 21.54
2002 89 901,421 9.9 23,364,231 11.1 25.92
2003 73 1,086,438 12.0 22,844,049 10.8 21.03
2004 84 1,082,010 11.9 27,658,489 13.1 25.56
2005 38 1,371,919 15.1 30,105,151 14.3 21.94
2006 17 367,114 4.0 9,964,500 4.7 27.14
2007 15 894,977 9.9 21,364,841 10.1 23.87
2008 9 571,209 6.3 14,423,688 6.8 25.25
2009 8 380,641 4.2 9,612,569 4.6 25.25
2010 and thereafter 4 738,666 8.2 17,465,524 8.2 23.64
----------- ------------ ------------ ----------------- ---------- -------------
565 9,073,089 100.0% $ 211,247,802 100.0% $ 23.28
=========== ============ ============ ================= ========== =============
</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 March 31, 2000, leases have been signed for approximately 649,695
net rentable square feet (including renewed leases and leases of
previously unleased space) commencing after March 31, 2000 and on or
before December 31, 2000.
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 162 862,987(2) 9.0% $ 13,983,969 7.3% $ 16.20
2001 133 1,605,333 16.7 28,292,517 14.8 17.62
2002 151 1,302,480 13.5 24,586,537 12.9 18.88
2003 104 902,916 9.4 16,508,993 8.6 18.28
2004 94 1,820,744 18.9 35,222,137 18.4 19.34
2005 42 349,471 3.6 7,154,339 3.7 20.47
2006 12 615,683 6.4 13,058,994 6.8 21.21
2007 8 502,817 5.2 10,221,368 5.3 20.33
2008 5 183,719 1.9 3,319,233 1.7 18.07
2009 2 48,538 0.5 1,175,034 0.6 24.21
2010 and thereafter 11 1,439,091 14.9 37,542,268 19.9 26.09
----------- ------------- ------------ ----------------- ---------- --------------
724 9,633,779 100.0% $ 191,065,389 100.0% $ 19.83
=========== ============= ============ ================= ========== ==============
</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 March 31, 2000, leases have been signed for approximately 373,881
net rentable square feet (including renewed leases and leases of
previously unleased space) commencing after March 31, 2000 and on or
before December 31, 2000.
51
<PAGE> 53
RETAIL PROPERTIES
As of March 31, 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 March 31, 2000, the Retail Properties were 90% 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.
52
<PAGE> 54
HOTEL PROPERTIES
HOTEL PROPERTIES TABLES
The following table shows certain information for the three months
ended March 31, 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 THREE MONTHS
ENDED MARCH 31,
--------------------
AVERAGE
OCCUPANCY
YEAR RATE
COMPLETED/ -------------------
HOTEL PROPERTY(1) LOCATION RENOVATED ROOMS 2000 1999
- ----------------- -------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Denver Marriott City Center Denver, CO 1982/1994 613 79% 79%
Four Seasons Hotel-Houston(2) Houston, TX 1982 399 74 68
Hyatt Regency Albuquerque Albuquerque,NM 1990 395 62 68
Omni Austin Hotel Austin, TX 1986 372 80 85
Renaissance Houston Hotel(3) Houston, TX 1975 389 75 69
------ ------ ------
TOTAL/WEIGHTED AVERAGE 2,168 74% 74%
====== ====== ======
LUXURY SPA RESORTS:
Hyatt Regency Beaver Creek Avon, CO 1989 276 85% 82%
Sonoma Mission Inn & Spa Sonoma, CA 1927/1987/1997 198(4) 67 75
Ventana Inn & Spa Big Sur, CA 1975/1982/1988 62 68 81
------ ------ ------
TOTAL/WEIGHTED AVERAGE 536 76% 79%
====== ====== ======
GUEST
DESTINATION FITNESS RESORTS AND SPAS: NIGHTS
Canyon Ranch-Tucson Tucson, AZ 1980 250(5)
Canyon Ranch-Lenox Lenox, MA 1989 212(5)
------ ------ ------
TOTAL/WEIGHTED AVERAGE 462 91%(6) 92%(6)
====== ====== ======
GRAND TOTAL/WEIGHTED AVERAGE FOR HOTEL PROPERTIES 77% 77%
====== ======
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-------------------------------------------
REVENUE
AVERAGE PER
DAILY AVAILABLE
RATE ROOM/GUEST
------------------ ------------------
HOTEL PROPERTY(1) LOCATION 2000 1999 2000 1999
- ----------------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Denver Marriott City Center Denver, CO $ 114 $ 121 $ 90 $ 96
Four Seasons Hotel-Houston(2) Houston, TX 206 193 152 131
Hyatt Regency Albuquerque Albuquerque,NM 104 107 64 73
Omni Austin Hotel Austin, TX 135 130 109 111
Renaissance Houston Hotel(3) Houston, TX 98 96 73 66
------ ------ ------ ------
TOTAL/WEIGHTED AVERAGE $ 131 $ 129 $ 97 $ 95
====== ====== ====== ======
LUXURY SPA RESORTS:
Hyatt Regency Beaver Creek Avon, CO $ 417 $ 399 $ 353 $ 327
Sonoma Mission Inn & Spa Sonoma, CA 256 174(4) 171 131(4)
Ventana Inn & Spa Big Sur, CA 379 297 257 242
------ ------ ------ ------
TOTAL/WEIGHTED AVERAGE $ 361 $ 313 $ 275 $ 248
====== ====== ====== ======
DESTINATION FITNESS RESORTS AND SPAS:
- -------------------------------------
Canyon Ranch-Tucson Tucson, AZ
Canyon Ranch-Lenox Lenox, MA
------ ------ ------ ------
TOTAL/WEIGHTED AVERAGE $ 589(7) $ 543(7) $ 525(8) $ 483(8)
====== ====== ====== ======
GRAND TOTAL/WEIGHTED AVERAGE FOR HOTEL PROPERTIES $ 250 $ 234 $ 192 $ 180
====== ====== ====== ======
</TABLE>
- ------------------------------------
(1) Because of the Company's status as a REIT for federal income tax
purposes, it does not operate the Hotel Properties and has leased all
of the Hotel Properties, except the Omni Austin Hotel, to COI pursuant
to long term leases. As of March 31, 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 by the end of the third quarter of 2000.
(3) The hotel is undergoing a $15.0 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) 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 is scheduled to be completed in
the second quarter of 2000. The expansion will also include the
construction of 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 three months ended March 31,
1999 as compared to March 31, 2000.
(5) Represents available guest nights, which is the maximum number of
guests that the resort can accommodate per night.
(6) Represents the number of paying and complimentary guests for the
period, divided by the maximum number of available guest nights for the
period.
(7) Represents the average daily "all-inclusive" guest package charges for
the period, divided by the average daily number of paying guests for
the period.
(8) Represents the total "all-inclusive" guest package charges for the
period, divided by the maximum number of available guest nights for the
period.
53
<PAGE> 55
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 March 31, 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 8.5 0.3
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 6 15.2 0.7 Washington 6 28.7 1.1
Mississippi 1 4.7 0.2 Wisconsin 3 17.4 0.7
------------ ---------- -----------
TOTAL 90(3) 444.9(3) 17.8(3)
============ ========== ===========
</TABLE>
- ----------------
(1) As of March 31, 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 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 March 31, 2000, AmeriCold Logistics operated 104
temperature-controlled logistics properties with an aggregate of
approximately 533.0 million cubic feet (20.6 million square feet).
54
<PAGE> 56
RESIDENTIAL DEVELOPMENT PROPERTIES
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table shows certain information as of March 31, 2000, relating to
the Residential Development Properties.
<TABLE>
<CAPTION>
TOTAL TOTAL
RESIDENTIAL RESIDENTIAL TOTAL LOTS/UNITS LOTS/UNITS
RESIDENTIAL DEVELOPMENT DEVELOPMENT LOTS/ DEVELOPED CLOSED
DEVELOPMENT PROPERTIES TYPE OF CORPORATION'S UNITS SINCE SINCE
CORPORATION(1) (RDP) RDP(2) LOCATION OWNERSHIP % PLANNED INCEPTION INCEPTION
--------------- ---------- ------ -------- ------------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ
Development 93.0% 2,665 2,236 2,014
Corp. -------- -------- --------
The Woodlands The Woodlands SF The Woodlands, TX
Land Company, 42.5% 36,385 22,303 21,284
Inc. -------- -------- --------
Crescent Deer Trail SFH Avon, CO 60.0% 16(6) 12 12
Development Bear Paw Lodge CO Avon, CO 60.0% 53(6) 11 11
Management QuarterMoon TH Avon, CO 64.0% 13(6) - -
Corp. Eagle Ranch SF Eagle, CO 60.0% 1,260(6) 93 92
Main Street
Junction CO Breckenridge, CO 60.0% 36(6) 18 14
Main Street
Station CO Breckenridge, CO 60.0% 82(6) - -
Riverbend SF Charlotte, NC 60.0% 650(6) - -
Three Peaks
(Eagle's Nest) SF Silverthorne, CO 30.0% 391(6) 75 71
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 - -
Cresta TH/SFH Edwards, CO 60.0% 25(6) - -
-------- -------- --------
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP. 2,708 209 200
-------- -------- --------
Mira Vista Mira Vista SF Fort Worth, TX 100.0% 757 740 639
Development The Highlands SF Breckenridge, CO 12.3% 750 332 327
Corp. -------- -------- --------
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,507 1,072 966
-------- -------- --------
Houston Area Falcon Point SF Houston, TX 100.0% 1,205 688 560
Development Spring Lakes SF Houston, TX 100.0% 536 161 136
Corp.
-------- -------- --------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,741 849 696
-------- -------- --------
TOTAL 45,006 26,669 25,160
======== ======== ========
<CAPTION>
AVERAGE
RESIDENTIAL CLOSED RANGE OF
RESIDENTIAL DEVELOPMENT SALE PRICE PROPOSED
DEVELOPMENT PROPERTIES TYPE OF PER LOT/ SALE PRICES
CORPORATION(1) (RDP) RDP(2) LOCATION UNIT($)(3) PER LOT/UNIT($)(4)
--------------- ---------- ------ -------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ
Development 467,000 375,000 - 3,000,000(5)
Corp.
The Woodlands The Woodlands SF The Woodlands, TX
Land Company, 47,893 13,600 - 500,000
Inc.
Crescent Deer Trail SFH Avon, CO 2,930,000 2,695,000 - 4,075,000
Development Bear Paw Lodge CO Avon, CO 1,675,000 665,000 - 2,025,000
Management QuarterMoon TH Avon, CO N/A 1,850,000 - 2,795,000
Corp. Eagle Ranch SF Eagle, CO 111,500 80,000 - 150,000
Main Street
Junction CO Breckenridge, CO 475,000 300,000 - 580,000
Main Street
Station CO Breckenridge, CO N/A 215,000 - 1,065,000
Riverbend SF Charlotte, NC N/A 25,000 - 38,000
Three Peaks
(Eagle's Nest) SF Silverthorne, CO 220,000 135,000 - 425,000
Park Place at
Riverfront CO Denver, CO N/A 195,000 - 1,445,000
Park Tower at
Riverfront CO Denver, CO N/A 180,000 - 2,100,000
Bridge Lofts
at Riverfront CO Denver, CO N/A 180,000 - 2,100,000
Cresta TH/SFH Edwards, CO N/A 1,900,000 - 2,600,000
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP.
Mira Vista Mira Vista SF Fort Worth, TX 100,000 50,000 - 265,000
Development The Highlands SF Breckenridge, CO 150,000 55,000 - 450,000
Corp.
TOTAL MIRA VISTA DEVELOPMENT CORP.
Houston Area Falcon Point SF Houston, TX 28,000 22,000 - 60,000
Development Spring Lakes SF Houston, TX 26,000 22,000 - 33,000
Corp.
TOTAL HOUSTON AREA DEVELOPMENT CORP.
TOTAL
</TABLE>
- --------------------------
(1) The Company has an approximately 95%, 95%, 90%, 94% and 94%, ownership
interest in Desert Mountain Development 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 for 2000, is approximately $175,000.
(6) As of March 31, 2000, four units were under contract at Deer Trail
frepresenting $14.2 million in sales, 34 units were under contract at
Bear Paw Lodge representing $47.4 million in sales, 13 units were under
contract at QuarterMoon representing $29.8 million in sales, 74 lots
were under contract at Eagle Ranch representing $10.6 million in sales,
six units were under contract at Main Street Junction representing $2.4
million in sales; 82 units were under contract at Main Street Station
representing $40.9 million in sales; 117 lots were under contract at
Riverbend representing $3.5 million in sales; 28 lots were under
contract at Three Peaks representing $6.6 million in sales; 58 units
were under contract at Park Place representing $23.5 million in sales
and 16 units were under contract at Park Tower representing $10.8
million in sales; and nine units were under contract at Cresta
representing $15.4 million in sales.
55
<PAGE> 57
BEHAVIORAL HEALTHCARE PROPERTIES
BEHAVIORAL HEALTHCARE PROPERTIES
As of December 31, 1999, all of the Behavioral Healthcare Properties
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 are 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.
CBHS has stated in its bankruptcy petitions that it intends to sell all of the
ongoing businesses of CBHS and its subsidiaries by mid-May of 2000 or develop an
appropriate liquidation procedure if the sales have not taken place by that
time.
Effective February 29, 2000, the Non-Core Properties were terminated
from the master lease, although the aggregate rent due under the master lease
was not reduced as a result, except as described below with respect to sales of
Non-Core Properties. The Core Properties remain subject to the master lease. The
Company agreed with CBHS that, upon each sale by the Company of Non-Core
Properties, the monthly minimum rent due from CBHS under the master lease would
be reduced by a specified percentage of the net proceeds of such sale. 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.
During the three months ended March 31, 2000, the Company sold 11
Non-Core Properties for approximately $38.3 million in net proceeds. The sale of
these properties generated a net gain of approximately $9.6 million. As of March
31, 2000, the Behavioral Healthcare Segment consisted of 77 Behavioral
Healthcare Properties in 24 states, 37 of which are designated as Core
Properties and were leased to CBHS and its subsidiaries under a triple-net
master lease, and 40 of which are designated as Non-Core Properties. Subsequent
to March 31, 2000, the Company sold two of the Non-Core Properties for
approximately $2.8 million of net proceeds. The sales generated a net gain of
approximately $0.5 million. The Company has also entered into contracts or
letters of intent to sell 11 additional Non-Core Properties. The remaining 27
Non-Core Properties, which are the Properties at which CBHS has ceased
operations or is planning to cease operations, are being actively marketed for
sale.
An auction for the core operating assets of CBHS was held on May 10,
2000, as part of the bankruptcy proceedings relating to CBHS. The results of the
auction are preliminary pending court approval.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's use of financial instruments, such as debt instruments
and its Share Repurchase Agreement with UBS, 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,
56
<PAGE> 58
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 and the
Share Repurchase Agreement and in the market price of the Company's common
shares as such changes relate to the Share Repurchase Agreement. 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 $2.5 billion at March 31, 2000, of which
approximately $0.7 billion, or 28%, was variable-rate unhedged debt. The
weighted average interest rate on such variable-rate debt was 8.57% as of March
31, 2000. A 10% (85.7 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 $5.6 million based on the variable-rate unhedged
debt outstanding as of March 31, 2000, as a result of the increased interest
expense associated with the change in rate. Conversely, a 10% (85.7 basis point)
decrease in the weighted average interest rate on such variable-rate debt would
result in an annual increase in net income and cash flows of approximately $5.6
million based on the variable rate debt outstanding as of March 31, 2000, as a
result of the decreased interest expense associated with the change in rate.
In addition, the Company's settlement obligations under the Share
Repurchase Agreement with UBS described in Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Share Repurchase
Agreement, are subject to interest rate risk, specifically changes in the 30-day
LIBOR rate.
MARKET PRICE RISK
The Share Repurchase Agreement is subject to market rate risk because
changes in the closing share price for the Company's common shares affect the
Company's settlement obligation. Assuming the Company elects to settle in
common shares on January 4, 2001, and the market price of the common shares
decreases by 10% from the $17.50 per share closing price of the common shares
on March 31, 2000, and assuming no change in the 30-day LIBOR rate from the
rate at March 31, 2000, the Company will issue an additional 416,249 common
shares based on its obligation under the Share Repurchase Agreement as of March
31, 2000, which related to 5,800,000 common shares. Assuming the Company elects
to settle in common shares on January 4, 2001, and the market price of the
common shares increases by 10% from the $17.50 per share closing price of the
common shares of March 31, 2000, and assuming no change in the 30-day LIBOR
rate from March 31, 2000, UBS will return to the Company 416,249 common shares
based on its obligation under the Share Repurchase Agreement as of March 31,
2000, which related to 5,800,000 common shares. The issuance of additional
common shares under the terms of the Share Repurchase Agreement would result in
the reduction of the Company's net income per common share and net book value
per common share. A change in the market price will not affect the amount
required to be paid to settle the Share Repurchase Agreement in cash.
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
57
<PAGE> 59
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 fiscal
quarter ended September 30, 1998 (the "1998 3Q 10-Q") and
incorporated herein by reference)
4.01 Form of Common Share Certificate (filed as Exhibit No. 4.03 to
the 1997 S-3 and incorporated herein by reference)
4.02 Statement of Designation of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate Equities
Company (filed as Exhibit 4.07 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1997 (the "1997 10-K") and incorporated herein by reference)
4.03 Form of Certificate of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company
(filed as Exhibit No. 4 to the Registrant's Registration
Statement on Form 8-A/A filed on February 18, 1998 and
incorporated by reference)
4.04 Statement of Designation of Series B Convertible Preferred
Shares of the Registrant (filed as Exhibit 4.01 to the
Registrant's Current Report on Form 8-K dated June 29, 1998
and filed June 30, 1998 and incorporated herein by reference)
4.05 Form of Certificate of Series B Convertible Preferred Shares
(filed as Exhibit 4.05 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 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)
4.07 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to the 1998 2Q
10-Q and incorporated herein by reference)
4.08 7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to the 1998 2Q
10-Q and incorporated herein by reference)
4* Pursuant to Regulation S-K Item 601 (6) (4) (iii), the
Registrant by this filing agrees, upon request to furnish to
the SEC a copy of other instruments
58
<PAGE> 60
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
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 10.01 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 (the "1999 10-K") and incorporated
herein by reference)
10.02 Noncompetition of Richard E. Rainwater, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit 10.02 to the 1997 10-K and incorporated
herein by reference)
10.03 Noncompetition Agreement of John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit 10.03 to the 1997 10-K and incorporated
herein by reference)
10.04 Employment Agreement with John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994, and as further amended (filed as Exhibit 10.04 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 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 10.12 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 (the "1998 10-K") and incorporated
herein by reference)
10.09 Second Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan (filed as Exhibit 10.13 to the
Form S-4 and incorporated herein by reference)
10.10 Amended and Restated 1995 Crescent Real Estate Equities
Limited Partnership Unit Incentive Plan (filed as Exhibit
99.01 to the Registrant's Registration Statement on Form S-8
(File No. 333-3452) and incorporated herein by reference )
10.11 1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan, as amended (filed as Exhibit 10.14 to the 1999
10-K and incorporated herein by reference)
10.12 Secured Loan Agreement, dated as of January 31, 2000, among
Crescent Real Estate Funding VIII, L.P. and UBS AG, Standard
Branch (filed herewith)
10.13 Intercompany Agreement, dated June 3, 1997, between Crescent
Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.2 to the Registration
Statement on Form S-1 (File No. 333-25223) of Crescent
Operating, Inc. and incorporated herein by reference)
59
<PAGE> 61
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
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.
60
<PAGE> 62
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.
<TABLE>
<S> <C>
CRESCENT REAL ESTATE EQUITIES COMPANY
(Registrant)
By /s/ John C. Goff
-----------------------------------------------------------
John C. Goff
Date: May 15, 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
Date: May 15, 2000 (Principal Financial and Accounting Officer)
</TABLE>
61
<PAGE> 63
<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 fiscal
quarter ended September 30, 1998 (the "1998 3Q 10-Q") and
incorporated herein by reference)
4.01 Form of Common Share Certificate (filed as Exhibit No. 4.03 to
the 1997 S-3 and incorporated herein by reference)
4.02 Statement of Designation of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate Equities
Company (filed as Exhibit 4.07 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1997 (the "1997 10-K") and incorporated herein by reference)
4.03 Form of Certificate of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company
(filed as Exhibit No. 4 to the Registrant's Registration
Statement on Form 8-A/A filed on February 18, 1998 and
incorporated by reference)
4.04 Statement of Designation of Series B Convertible Preferred
Shares of the Registrant (filed as Exhibit 4.01 to the
Registrant's Current Report on Form 8-K dated June 29, 1998
and filed June 30, 1998 and incorporated herein by reference)
4.05 Form of Certificate of Series B Convertible Preferred Shares
(filed as Exhibit 4.05 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 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)
4.07 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to the 1998 2Q
10-Q and incorporated herein by reference)
4.08 7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to the 1998 2Q
10-Q and incorporated herein by reference)
4* Pursuant to Regulation S-K Item 601 (6) (4) (iii), the
Registrant by this filing agrees, upon request to furnish to
the SEC a copy of other instruments
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
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 10.01 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 (the "1999 10-K") and incorporated
herein by reference)
10.02 Noncompetition of Richard E. Rainwater, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit 10.02 to the 1997 10-K and incorporated
herein by reference)
10.03 Noncompetition Agreement of John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit 10.03 to the 1997 10-K and incorporated
herein by reference)
10.04 Employment Agreement with John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994, and as further amended (filed as Exhibit 10.04 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 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 10.12 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 (the "1998 10-K") and incorporated
herein by reference)
10.09 Second Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan (filed as Exhibit 10.13 to the
Form S-4 and incorporated herein by reference)
10.10 Amended and Restated 1995 Crescent Real Estate Equities
Limited Partnership Unit Incentive Plan (filed as Exhibit
99.01 to the Registrant's Registration Statement on Form S-8
(File No. 333-3452) and incorporated herein by reference )
10.11 1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan, as amended (filed as Exhibit 10.14 to the 1999
10-K and incorporated herein by reference)
10.12 Secured Loan Agreement, dated as of January 31, 2000, among
Crescent Real Estate Funding VIII, L.P. and UBS AG, Standard
Branch (filed herewith)
10.13 Intercompany Agreement, dated June 3, 1997, between Crescent
Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.2 to the Registration
Statement on Form S-1 (File No. 333-25223) of Crescent
Operating, Inc. and incorporated herein by reference)
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
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>
<PAGE> 1
EXHIBIT 10.12
================================================================================
SECURED LOAN AGREEMENT
dated as of January 31, 2000
among
CRESCENT REAL ESTATE FUNDING VIII, L.P.,
as Borrower,
UBS AG, STAMFORD BRANCH,
as Lender,
and
UBS AG, STAMFORD BRANCH,
as Administrative Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I DEFINITIONS AND CONSTRUCTION OF TERMS.........................................1
Section 1.01 Definitions...................................................................1
Section 1.02 Accounting Terms.............................................................15
Section 1.03 Computation of Time Periods..................................................16
Section 1.04 Rules of Construction........................................................16
ARTICLE II THE LOANS....................................................................16
Section 2.01 The Loans....................................................................16
Section 2.02 Purpose......................................................................17
Section 2.03 Advances, Generally..........................................................17
Section 2.04 Procedures for Advances......................................................17
Section 2.05 Interest Periods; Renewals...................................................18
Section 2.06 Interest.....................................................................18
Section 2.07 Fees.........................................................................18
Section 2.08 Notes........................................................................19
Section 2.09 Prepayments..................................................................19
Section 2.10 Cancellation of Commitments..................................................20
Section 2.11 Method of Payment............................................................20
Section 2.12 Elections, Conversions or Continuation of Loans..............................21
Section 2.13 Minimum Amounts..............................................................21
Section 2.14 Certain Notices Regarding Elections, Conversions and Continuations of Loans..22
Section 2.15 Late Payment Premium.........................................................22
Section 2.16 Letters of Credit............................................................22
Section 2.17 Additional Conditions to Advances of Tranche A...............................24
ARTICLE III YIELD PROTECTION; ILLEGALITY; ETC............................................24
Section 3.01 Additional Costs.............................................................24
Section 3.02 Limitation on Types of Loans.................................................25
Section 3.03 Illegality...................................................................26
Section 3.04 Treatment of Affected Loans..................................................26
Section 3.05 Certain Compensation.........................................................27
Section 3.06 Capital Adequacy.............................................................27
Section 3.07 Substitution of Lenders......................................................28
Section 3.08 "Lender" to Include Participants.............................................29
ARTICLE IV CONDITIONS PRECEDENT.........................................................29
Section 4.01 Conditions Precedent to the Initial Advance..................................29
Section 4.02 Conditions Precedent to Advances After the Initial Advance...................35
Section 4.03 Deemed Representations.......................................................35
ARTICLE V REPRESENTATIONS AND WARRANTIES...............................................36
Section 5.01 Due Organization and General Power and Authority.............................36
</TABLE>
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<PAGE> 3
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Section 5.02 Power and Authority Regarding Loans; No Conflicts; Compliance With Laws......36
Section 5.03 Legally Enforceable Agreements...............................................37
Section 5.04 Litigation...................................................................37
Section 5.05 Good Title to Properties.....................................................37
Section 5.06 Taxes........................................................................37
Section 5.07 ERISA........................................................................38
Section 5.08 No Default on Outstanding Judgments or Orders................................38
Section 5.09 No Defaults on Other Agreements..............................................38
Section 5.10 Government Regulation........................................................38
Section 5.11 Environmental Protection.....................................................39
Section 5.12 Solvency.....................................................................39
Section 5.13 Financial Statements.........................................................39
Section 5.14 Valid Existence of Affiliates................................................39
Section 5.15 Insurance....................................................................40
Section 5.16 Accuracy of Information; Full Disclosure.....................................40
Section 5.17 Separate Tax and Zoning Lot..................................................40
Section 5.18 Zoning and Other Laws; Covenants and Restrictions............................40
Section 5.19 Utilities Available..........................................................41
Section 5.20 Creation of Liens............................................................41
Section 5.21 Roads........................................................................41
Section 5.22 Premises Documents and Leases................................................41
Section 5.23 Applicability of Representations and Warranties to Residential Corporations and
Investment Partnerships......................................................41
ARTICLE VI AFFIRMATIVE COVENANTS........................................................42
Section 6.01 Maintenance of Existence.....................................................42
Section 6.02 Maintenance of Records.......................................................42
Section 6.03 Maintenance of Insurance.....................................................42
Section 6.04 Compliance with Laws; Payment of Taxes.......................................42
Section 6.05 Right of Inspection..........................................................42
Section 6.06 Compliance With Environmental Laws...........................................43
Section 6.07 Maintenance of Properties....................................................43
Section 6.08 Payment of Costs.............................................................43
Section 6.09 Reporting and Miscellaneous Document Requirements............................43
Section 6.10 Premises Documents; Leases...................................................46
Section 6.11 Compliance with Covenants, Restrictions and Easements........................48
Section 6.12 Management and Leasing Contracts.............................................48
Section 6.13 Interest Rate Protection.....................................................48
ARTICLE VII SINGLE PURPOSE ENTITY AND CONTROL............................................48
Section 7.01 Single Purpose Entity........................................................48
Section 7.02 Ownership and Control........................................................51
ARTICLE VIII FINANCIAL COVENANTS..........................................................51
Section 8.01 Financial Covenants..........................................................51
</TABLE>
ii
<PAGE> 4
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ARTICLE IX EVENTS OF DEFAULT............................................................52
Section 9.01 Events of Default............................................................52
Section 9.02 Remedies.....................................................................54
ARTICLE X ADMINISTRATIVE AGENT; RELATIONS AMONG LENDERS................................55
Section 10.01 Appointment, Powers and Immunities of Administrative Agent...................55
Section 10.02 Reliance by Administrative Agent.............................................55
Section 10.03 Defaults.....................................................................56
Section 10.04 Rights of Administrative Agent as a Lender...................................56
Section 10.05 Sharing of Costs by Lenders; Indemnification of Administrative Agent.........56
Section 10.06 Non-Reliance on Administrative Agent and Other Lenders.......................57
Section 10.07 Failure of Administrative Agent to Act.......................................58
Section 10.08 Resignation or Removal of Administrative Agent...............................58
Section 10.09 Amendments Concerning Agency Function........................................58
Section 10.10 Liability of Administrative Agent............................................58
Section 10.11 Transfer of Agency Function..................................................59
Section 10.12 Non-Receipt of Funds by Administrative Agent; Adjustments....................59
Section 10.13 Withholding Taxes............................................................59
Section 10.14 Pro Rata Treatment...........................................................60
Section 10.15 Sharing of Payments Among Lenders............................................60
Section 10.16 Possession of Documents......................................................60
Section 10.17 Intentionally Omitted........................................................60
Section 10.18 Effect of a Lender's Failure to Make an Advance..............................60
Section 10.19 Cure by Delinquent Lender....................................................63
Section 10.20 Delinquent Lender Not Excused................................................63
Section 10.21 Notices Regarding Delinquent Lender..........................................64
Section 10.22 Replacement Lender...........................................................64
ARTICLE XI NATURE OF OBLIGATIONS........................................................65
Section 11.01 Absolute and Unconditional Obligations.......................................65
Section 11.02 Non-Recourse to Borrower's Principals........................................66
ARTICLE XII MISCELLANEOUS................................................................66
Section 12.01 Binding Effect of Request for Advance........................................66
Section 12.02 Amendments and Waivers.......................................................67
Section 12.03 Usury........................................................................67
Section 12.04 Expenses; Indemnification....................................................68
Section 12.05 Assignment; Participation....................................................68
Section 12.06 Documentation Satisfactory...................................................70
Section 12.07 Notices......................................................................70
Section 12.08 Setoff.......................................................................70
Section 12.09 Severability.................................................................71
Section 12.10 Counterparts.................................................................71
Section 12.11 Intentionally Omitted........................................................71
Section 12.12 Governing Law................................................................71
</TABLE>
iii
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Section 12.13 Waivers......................................................................71
Section 12.14 Year 2000....................................................................71
Section 12.15 Jurisdiction; Immunities.....................................................72
Section 12.16 Gross-Up For Taxes...........................................................73
Section 12.17 Additions and Releases of Properties.........................................73
Section 12.18 Reappraisals of Hotel Properties.............................................75
Section 12.19 Certain Provisions Regarding Disposition Properties..........................75
Section 12.20 Partial Releases.............................................................77
</TABLE>
SCHEDULE A - Properties
SCHEDULE 5.04 - Litigation
SCHEDULE 5.22 - Lease Purchase Options
EXHIBIT A - Authorization Letter
EXHIBIT B-1 - Tranche A Note
EXHIBIT B-2 - Tranche B Note
EXHIBIT B-3 - Tranche C Note
EXHIBIT C - Information Regarding Material Affiliates
EXHIBIT D - Solvency Certificate
EXHIBIT E - Assignment and Assumption Agreement
EXHIBIT F - Notice of Assignment of Lease
iv
<PAGE> 6
SECURED LOAN AGREEMENT dated as of January 31, 2000 among
CRESCENT REAL ESTATE FUNDING VIII, L.P., a limited partnership organized and
existing under the laws of the State of Delaware ("Borrower"), UBS AG, STAMFORD
BRANCH (in its individual capacity and not as Administrative Agent, "UBS"), the
other lenders (if any) signatory hereto and UBS AG, STAMFORD BRANCH, as
administrative agent for Lenders (in such capacity, together with its successors
in such capacity, "Administrative Agent"; UBS, the other lenders (if any)
signatory hereto and such other lenders who from time to time become Lenders
pursuant to Section 3.07, 10.22 or 12.05, each a "Lender" and collectively,
"Lenders").
Borrower desires that Lenders extend credit as provided
herein, and Lenders are prepared to extend such credit. Accordingly, Borrower,
Administrative Agent and each Lender agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION OF TERMS
Section 1.01 Definitions. As used in this Agreement the
following terms have the following meanings:
"Additional Costs" has the meaning specified in Section 3.01.
"Administrative Agent" has the meaning specified in the
preamble.
"Administrative Agent's Office" means Administrative Agent's
office located as set forth on its signature page hereof, or such other address
in the United States as Administrative Agent may designate by notice to Borrower
and Lenders.
"Affected Lender" has the meaning specified in Section 3.07.
"Affected Loan" has the meaning specified in Section 3.04.
"Affiliate" means, with respect to any Person (the "first
Person"), any other Person (1) which directly or indirectly controls, or is
controlled by, or is under common control with the first Person or (2) 10% or
more of the beneficial interest in which is directly or indirectly owned or held
by the first Person. The term "control" means the possession, directly or
indirectly, of the power, alone, to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement Regarding Encumbrances" means that certain
agreement dated the date hereof wherein CEI LP makes certain covenants and
agreements as owner and contract seller of those Properties identified on
SCHEDULE A as Walnut Green, AT&T Building, 1615 Poydras and Central Park Plaza.
"Applicable Lending Office" means, for each Lender and for its
LIBOR Loan or Base Rate Loan, as applicable, the lending office of such Lender
(or of an
<PAGE> 7
Affiliate of such Lender) designated as such on its signature page hereof or in
the applicable Assignment and Assumption Agreement, or such other office of such
Lender (or of an Affiliate of such Lender) as such Lender may from time to time
specify to Administrative Agent and Borrower as the office by which its LIBOR
Loan or Base Rate Loan, as applicable, is to be made and maintained.
"Applicable Margin" means (1) with respect to Base Rate Loans
under Tranches A, B and C, .50% per annum, (2) with respect to LIBOR Loans under
Tranches A and B, 2.50% per annum and (3) with respect to the LIBOR Loans under
Tranche C, 2.75% per annum.
"Assignee" has the meaning specified in Section 12.05.
"Assignment and Assumption Agreement" means an Assignment and
Assumption Agreement, substantially in the form of EXHIBIT E, pursuant to which
a Lender assigns and an Assignee assumes rights and obligations in accordance
with Section 12.05.
"Assignments of Loan Rights" means those certain Collateral
Assignments of Notes, Liens and Other Loan Rights dated the date hereof from,
respectively, Borrower and SMA to Administrative Agent, as agent for Lenders,
assigning the applicable Collateral Notes and Mortgages and various rights and
documents incidental thereto, as security for the payment and performance of the
Obligations.
"Assignment of Sales Proceeds" means that certain assignment
dated the date hereof from CEI LP to Administrative Agent, as agent for Lenders,
assigning its rights to the sales proceeds under the Sales Contracts (other than
the Sales Contract regarding Woodlands), as security for the payment and
performance of the Obligations.
"Authorization Letter" means a letter agreement executed by
Borrower in the form of EXHIBIT A.
"Base Rate" means, for any day, the higher of (1) the Federal
Funds Rate for such day plus .50% or (2) the Prime Rate for such day.
"Base Rate Loan" means all or any portion (as the context
requires) of a Lender's Loan which shall accrue interest at a rate determined in
relation to the Base Rate.
"Borrower" has the meaning specified in the preamble.
"Borrower's Consolidating Financial Statements" means the
consolidating balance sheet and related statement of operations, accumulated
deficiency in assets and cash flows (which shall specify the respective
contributions of each of the individual Properties), and footnotes thereto, of
Borrower, prepared in accordance with GAAP.
2
<PAGE> 8
"Borrower's Principals" means those individuals who are the
officers and directors of Borrower or Guarantor at any applicable time.
"Business Day" means (1) any day on which commercial banks are
not authorized or required to close in New York City and (2) whenever such day
relates to a LIBOR Loan, an Interest Period with respect to a LIBOR Loan, or
notice with respect to a LIBOR Loan, a day on which dealings in Dollar deposits
are also carried out in the London interbank market and banks are open for
business in London.
"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.
"CCRH" means Crescent Commercial Realty Holdings, L.P., a
single purpose Delaware limited partnership, an Affiliate of Borrower and wholly
owned by CEI LP, which is the owner of Trammell Crow Center.
"CEI" means Crescent Real Estate Equities Company, a Texas
real estate investment trust which directly and indirectly, owns approximately
90% of the beneficial interest in, and controls, CEI LP.
"CEI LP" means Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership which owns and controls 100% of
Borrower.
"CEI LP's Collateral Assignment" means the Collateral
Assignment by CEI LP to Administrative Agent for the benefit of Lender with
respect to CEI LP's Interest in The Woodlands.
"CEI LP's Interest in The Woodlands" mean, those partnership
interest(s) held by CEI LP in Woodlands Office Equities, which partnership
interest(s) are more particularly identified in the Partnership Assignment
regarding Woodlands.
"CEI Ltd." means Crescent Real Estate Equities, Ltd., a
Delaware corporation, the sole general partner of CEI LP.
"Closing Date" means the date this Agreement has been executed
by all parties.
"Code" means the Internal Revenue Code of 1986.
"Collateral" means, collectively, the Mortgaged Property under
each Mortgage, the collateral encumbered by the Collateral Assignments and any
other collateral now or hereafter given for the Loans.
"Collateral Assignments" means, collectively, the Partnership
Assignments, the Assignments of Loan Rights and the Assignment of Sale Proceeds.
"Collateral Notes and Mortgages" means, collectively, those
certain notes (secured and unsecured) and mortgages or deeds of trust owned and
held by (1) Borrower with respect to Trammell Crow Center and the Property
identified on SCHEDULE A as
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<PAGE> 9
Three Westlake and (2) SMA with respect to Spectrum Centre, which notes and
mortgages or deeds of trust are more particularly identified in the Assignments
of Loan Rights.
"Commitment Fee Rate" means the rate per annum determined, at
any time, based on the then ratio (expressed as a percentage) of the outstanding
principal balance of Tranche A to the uncancelled Tranche A Loan Commitment in
accordance with the following table. Any change in said ratio which causes it to
move into a different range on the table shall effect an immediate change in the
Commitment Fee Rate.
<TABLE>
<CAPTION>
Ratio of outstanding Tranche A balance to Commitment Fee
Uncancelled Tranche A Loan Commitment Rate (% per annum)
------------------------------------- ------------------
<S> <C>
Less than 25% .50%
Greater than or equal to 25%, but less than 50% .375%
Greater than or equal to 50%, but less than 75% .25%
75% or greater .15%
</TABLE>
"Continue", "Continuation" and "Continued" refer to the
continuation pursuant to Section 2.12 of a LIBOR Loan as a LIBOR Loan from one
Interest Period to the next Interest Period.
"Convert", "Conversion" and "Converted" refer to a conversion
pursuant to Section 2.12 of a Base Rate Loan into a LIBOR Loan or a LIBOR Loan
into a Base Rate Loan, each of which may be accompanied by the transfer by a
Lender (at its sole discretion) of all or a portion of its Loan from one
Applicable Lending Office to another.
"CWH" means Crescent Washington Harbour, LLC, a single purpose
Delaware limited liability company, an Affiliate of Borrower and wholly owned by
CEI LP, which is the owner of both the fee and ground leasehold interests in
Washington Harbour.
"Debt" means all (1) indebtedness or liability for borrowed
money, or evidenced by debt securities, debentures, acceptances, notes or other
similar instruments, and any accrued interest and fees relating thereto, (2)
liabilities under profit payment agreements or in respect of obligations to
redeem, repurchase or exchange any securities or to pay dividends in respect of
any preferred stock (but only to the extent that the Person whose Debt is being
measured shall be contractually obligated to pay the same), or for the deferred
purchase price of property or services (including trade obligations), (3)
obligations as lessee under Capital Leases, (4) current liabilities in respect
of unfunded vested benefits under any Plan, (5) obligations under letters of
credit issued for the account of any Person, (6) obligations arising under
bankers' or trade acceptance facilities, (7) guarantees, endorsements (other
than for collection or deposit in the ordinary course of business), and other
contingent obligations to purchase any of the items included in this definition,
to provide funds for payment, to supply funds to invest in any Person, or
otherwise to assure a creditor against loss, (8) obligations under
4
<PAGE> 10
indemnities but only at such time as a claim shall have been made thereunder,
(9) obligations secured by any Lien on property owned by the Person whose Debt
is being measured, whether or not the obligations have been assumed, (10)
indebtedness, obligations or other liabilities of such Person in respect of
interest rate contracts and foreign exchange contracts, net of liabilities owed
by the counterparties thereon; (11) preferred stock subject (upon the occurrence
of any contingency or otherwise) to mandatory redemption and (12) obligations
under any agreement providing for contingent participation or other hedging
mechanisms with respect to interest payable on any of the items described above
in this definition.
"Default" means any event which with the giving of notice or
lapse of time, or both, would become an Event of Default.
"Default Rate" means a rate per annum equal to (1) with
respect to Base Rate Loans, a variable rate 4% above the rate of interest then
in effect thereon (including the Applicable Margin) and (2) with respect to
LIBOR Loans, a fixed rate 4% above the rate(s) of interest in effect thereon
(including the Applicable Margin) at the time of Default until the end of the
then current Interest Period therefor and, thereafter, a variable rate 4% above
the rate of interest for a Base Rate Loan.
"Delinquency Amount", "Delinquency Notice" and "Delinquent
Lender" have the respective meanings specified in Section 10.18.
"Disposition" means a sale (whether by assignment, transfer or
Capital Lease) of an asset.
"Disposition Properties" means those Properties (other than
Woodlands) which are currently the subject of a bona fide contract of sale to a
third party, as indicated on SCHEDULE A.
"Dollars" and the sign "$" mean lawful money of the United
States.
"Elect", "Election" and "Elected" refer to election, if any,
by Borrower pursuant to Section 2.12 to have all or a portion of an advance of
the Loans be outstanding as LIBOR Loans.
"Electing Lender", "Election Notice" and "Election Period"
have the respective meanings specified in Section 10.18.
"Engineering Consultant" means Levien and Rich Associates,
Inc. or other firm designated by Administrative Agent from time to time for any
Property.
"Environmental Discharge" means any discharge or release of
any Hazardous Materials in violation of any applicable Environmental Law.
"Environmental Law" means any applicable Law pertaining to
environmental matters, including, without limitation, those arising under the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response,
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<PAGE> 11
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean Air
Act or the Toxic Substances Control Act.
"Environmental Notice" means any written complaint, order,
citation or notice from any Person (1) affecting or relating to Borrower's,
Guarantor's or the Other Mortgagor's compliance with any Environmental Law in
connection with any activity or operations at any time conducted by any of them,
(2) relating to (a) the existence of any Hazardous Materials contamination or
Environmental Discharges or threatened Hazardous Materials contamination or
Environmental Discharges at any of Borrower's or Guarantor's locations or
facilities or (b) remediation of any Environmental Discharge or Hazardous
Materials at any such location or facility or any part thereof or (3) relating
to any violation or alleged violation by Borrower, Guarantor or the Other
Mortgagor of any relevant Environmental Law.
"Equity Share Lease" means any occupancy lease for any portion
of any of the Properties, which provides for a reduced fixed rent in exchange
for an equity interest in the tenant thereunder, which equity interest must
consist solely of Permitted Stock.
"ERISA" means the Employee Retirement Income Security Act of
1974, including the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any corporation which is a member of
the same controlled group of corporations (within the meaning of Section 414(b)
of the Code) as Borrower, Guarantor or the Other Mortgagor, or any trade or
business which is under common control (within the meaning of Section 414(c) of
the Code) with Borrower, Guarantor or the Other Mortgagor, or any organization
which is required to be treated as a single employer with Borrower, Guarantor or
the Other Mortgagor under Section 414(m) or 414(o) of the Code.
"Event of Default" has the meaning specified in Section 9.01.
"Existing Credit Facilities" means, collectively, (1) the
unsecured revolving credit facility in the amount of $650,000,000 from
BankBoston and other lenders to CEI LP made pursuant to a Fifth Amended and
Restated Revolving Credit Agreement dated as of June 30, 1998, as amended and
(2) the term loan in the amount of $320,000,000 from BankBoston to CEI LP made
pursuant to a Term Loan Agreement dated as of October 30, 1998, as amended.
"Federal Funds Rate" means, for any day, the rate per annum
(expressed on a 360-day basis of calculation) equal to the weighted average of
the rates on overnight federal funds transactions as published by the Federal
Reserve Bank of New York for such day, provided that (1) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the immediately preceding Business Day as so published on the
next succeeding Business Day and (2) if no such rate is so published for any
day, the Federal Funds Rate for such day shall be the average of the rates
quoted by three (3) Federal Funds brokers to Administrative Agent on such day on
such transactions.
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<PAGE> 12
"Fiscal Year" means each period from January 1 to December 31.
"GAAP" means generally accepted accounting principles in the
United States as in effect from time to time, consistently applied.
"Good Faith Contest" means the contest of an item if (1) the
item is diligently contested in good faith, and, if appropriate, by proceedings
timely instituted, (2) adequate reserves are established with respect to the
contested item, (3) during the period of such contest, the enforcement of any
contested item is effectively stayed and (4) the failure to pay or comply with
the contested item during the period of the contest is not likely to (x) result
in a Material Adverse Change or (y) have a materially adverse effect on the
Mortgaged Property under any Mortgage or any part thereof, or on any material
portion of the other Collateral, or on Lenders' interests therein.
"Governmental Approvals" means any authorization, consent,
approval, license, permit, certification, or exemption of, registration or
filing with or report or notice to, any Governmental Authority.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantor" means, individually and collectively, CEI, CEI
Ltd. and CEI LP.
"Guarantor's Accountants" means Arthur Andersen, or such other
accounting firm(s) selected by Borrower and Guarantor and reasonably acceptable
to Administrative Agent.
"Guarantor's Consolidated Financial Statements" means the
consolidated balance sheet and related consolidated statement of operations,
accumulated deficiency in assets and cash flows, and footnotes thereto, of CEI,
prepared in accordance with GAAP.
"Guaranty" means the Guaranty of Payment, dated the date
hereof, from Guarantor to Lenders.
"Hazardous Materials" means any pollutant, effluents,
emissions, contaminants, toxic or hazardous wastes or substances, as any of
those terms are defined from time to time in or for the purposes of any relevant
Environmental Law, including asbestos fibers and friable asbestos,
polychlorinated biphenyls, and any petroleum or hydrocarbon-based products or
derivatives.
"Hotel Properties" means those Properties improved primarily
with hotel or resort Improvements, which Hotel Properties as of the date hereof
are identified as such on SCHEDULE A.
"Hotel Value" means, at any time, (x) the aggregate Property
Allocated Values of all Hotel Properties less (y) 10% of the aggregate Property
Allocated Values of
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<PAGE> 13
all Hotel Properties (at the time of their respective releases) then or
theretofore released pursuant to Section 12.17; provided, however, that in no
event shall Hotel Value exceed 25% of Total Value.
"Improvements" means, for each Property, all improvements now
or hereafter located thereon, including, without limitation, those improvements
identified on SCHEDULE A for such Property.
"Indemnity" means, for each Property (other than Woodlands),
an agreement from Borrower and Guarantor (and, in the case of Spectrum Centre,
Washington Harbour and Trammell Crow Center, from SMA, CWH and CCRH,
respectively) whereby, among other things, Lenders and Administrative Agent are
indemnified regarding Hazardous Materials.
"Independent Manager" has the meaning specified in Section
7.01(c).
"Initial Advance" means the first advance of proceeds of the
Loans.
"Interest Period" means, with respect to any LIBOR Loan, the
period commencing on the date the same is advanced, converted from a Base Rate
Loan or Continued, as the case may be, and ending, as Borrower may select
pursuant to Section 2.05, on the numerically corresponding day in the first,
second or third (or, if available after such time as the "general syndication"
occurs (i.e., the consummation of assignments, pursuant to Section 12.05, to a
large group of Lenders, by UBS and the small group of other Lenders to whom UBS
initially assigns substantial portions of the Loans, the sixth or ninth)
calendar month thereafter, provided that each such Interest Period which
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate calendar month,
provided that each such Interest Period which commences on the last Business Day
of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate calendar month.
"Law" means any applicable federal, state or local statute,
law, rule, regulation, ordinance, order, code, or rule of common law, now or
hereafter in effect, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment.
"Lender" and "Lenders" have the respective meanings specified
in the preamble.
"Lender Reply Period" has the meaning specified in Section
12.02.
"Lenders' L/C Fee Rate" has the meaning specified in Section
2.16(f).
"Letter of Credit" has the meaning specified in Section
2.16(a).
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<PAGE> 14
"LIBOR Base Rate" means, with respect to any Interest Period
therefor, the rate per annum quoted at approximately 11:00 a.m., London time, by
the Stamford, Connecticut branch of UBS two (2) Business Days prior to the first
day of such Interest Period for the offering to leading banks in the London
interbank market of Dollar deposits in immediately available funds, for a
period, and in an amount, comparable to such Interest Period and principal
amount of the LIBOR Loan in question outstanding during such Interest Period.
"LIBOR Interest Rate" means, for any LIBOR Loan, a rate per
annum determined by Administrative Agent to be equal to the quotient of (1) the
LIBOR Base Rate for such LIBOR Loan for the Interest Period therefor divided by
(2) one minus the LIBOR Reserve Requirement for such LIBOR Loan for such
Interest Period.
"LIBOR Loan" means all or any portion (as the context
requires) of any Lender's Loan which shall accrue interest at rate(s) determined
in relation to LIBOR Interest Rate(s).
"LIBOR Reserve Requirement" means, for any LIBOR Loan, the
rate at which reserves (including any marginal, supplemental or emergency
reserves) are actually required to be maintained during the Interest Period for
such LIBOR Loan under Regulation D by any Lender or any Lender's respective
Participants, if any, against "Eurocurrency liabilities" (as such term is used
in Regulation D). Without limiting the effect of the foregoing, the LIBOR
Reserve Requirement shall also reflect any other reserves required to be
maintained by any Lender or any Lender's respective Participants, if any, by
reason of any Regulatory Change against (1) any category of liabilities which
includes deposits by reference to which the LIBOR Base Rate is to be determined
as provided in the definition of "LIBOR Base Rate" in this Section 1.01 or (2)
any category of extensions of credit or other assets which include loans the
interest rate on which is determined on the basis of rates referred to in said
definition of "LIBOR Base Rate".
"Lien" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment for collateral purposes, deposit
arrangement, lien (statutory or other), or other security agreement or charge of
any kind or nature whatsoever of any third party (excluding any right of setoff
but including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable Law of any jurisdiction to evidence any of
the foregoing).
"Loan" and "Loans" have the respective meanings specified in
Section 2.01.
"Loan Commitment" means, with respect to each Lender, the
obligation to make a Loan in the principal amount set forth below (which shall
comprise a Tranche A Loan Commitment, a Tranche B Loan Commitment and a Tranche
C Loan Commitment in the respective amounts set forth below) or in the
applicable Assignment and Assumption Agreement, as such amounts may be modified
from time to time in accordance with the terms of this Agreement:
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<PAGE> 15
<TABLE>
<CAPTION>
Tranche A Loan Tranche B Loan Tranche C Loan
Lender Loan Commitment Commitment Commitment Commitment
------ --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
UBS $850,000,000 $300,000,000 $275,000,000 $275,000,000
TOTAL $850,000,000 $300,000,000 $275,000,000 $275,000,000
</TABLE>
"Loan Documents" means this Agreement, the Notes, the
Guaranty, the Mortgage and related Uniform Commercial Code financing statements
for each Property (other than for Woodlands), the Indemnity for each Property
(other than for Woodlands), the Collateral Assignments (and related Uniform
Commercial Code financing statements), the Agreement Regarding Encumbrances, the
Authorization Letter and the Solvency Certificate.
"Major Lease" means any lease demising 10,000 square feet or
more (or any group of leases to the same tenant in the same Property demising,
in the aggregate, 10,000 square feet or more) of the Improvements on any
Property, including, without limitation, the leases of the Hotel Properties.
"Material Adverse Change" means either (1) a material adverse
change in the status of the business, results of operations, financial
condition, property or prospects of Borrower or Guarantor or (2) any event or
occurrence of whatever nature which is likely to (x) have a material adverse
effect on the ability of Borrower or Guarantor to perform their respective
Obligations or (y) create, in the sole and absolute judgment (reasonably
exercised) of Administrative Agent, a material risk of sale or forfeiture of any
of the Mortgaged Property (other than an immaterial portion thereof) under any
Mortgage or any material portion of the other Collateral, or otherwise impair
any material portion of the Collateral, or Lenders' rights therein.
"Material Affiliates" means the Affiliates of Borrower and/or
Guarantor described on EXHIBIT C, together with (or excluding) any Affiliates of
Borrower and/or Guarantor or which are hereafter from time to time reasonably
determined by Administrative Agent to be material (or no longer material), upon
written notice to Borrower, based on the most recent Borrower's Financial
Statements or Guarantor's Consolidated Financial Statements, as the case may be.
"Maturity Date" means (1) with respect to Tranche A and
Tranche B and the Tranche A Notes and Tranche B Notes, February 1, 2003 and (2)
with respect to Tranche C and the Tranche C Notes, February 1, 2004.
"Mortgage" means, for each Property, the Deed of Trust (or
Mortgage), Assignment of Leases and Rents and Security Agreement in respect
thereof, in the amount of $850,000,000, from Borrower (or, in the case of
Spectrum Centre, Washington Harbour and Trammell Crow Center, from SMA, CWH and
CCRH, respectively) for the benefit of Administrative Agent, as agent for
Lenders, encumbering Borrower's, or the other Mortgagor's as the case may be,
fee and/or leasehold interests therein to secure the payment and performance of
the Obligations.
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<PAGE> 16
"Mortgaged Property" means, for each Property (other than
Woodlands), the Property, the Improvements thereon and all other property
constituting the "Mortgaged Property", as said quoted term is defined in the
applicable Mortgage.
"Multiemployer Plan" means a Plan defined as such in Section
3(37) of ERISA to which contributions have been made by Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"Non-Delinquent Lender" means each Lender other than a
Delinquent Lender.
"Non-Excluded Taxes" has the meaning specified in Section
12.16.
"Note" and "Notes" have the respective meanings specified in
Section 2.08.
"Obligations" means each and every obligation, covenant and
agreement of Borrower, Guarantor or any other obligor in respect of the Loans
now or hereafter existing, contained in this Agreement, and any of the other
Loan Documents, whether for principal, reimbursement obligations, interest,
fees, expenses, indemnities or otherwise, and any amendments or supplements
thereto, extensions or renewals thereof or replacements therefor, including, but
not limited to, all indebtedness, obligations and liabilities of Borrower,
Guarantor or any other obligor in respect of the Loans to Administrative Agent
and any Lender now existing or hereafter incurred under or arising out of or in
connection with the Notes, this Agreement, the other Loan Documents, and any
documents or instruments executed in connection therewith; in each case whether
direct or indirect, joint or several, absolute or contingent, liquidated or
unliquidated, now or hereafter existing, renewed or restructured, whether or not
from time to time decreased or extinguished and later increased, created or
incurred, and including all indebtedness of Borrower, Guarantor or any other
obligor in respect of the Loans, under any instrument now or hereafter
evidencing or securing any of the foregoing.
"Office Properties" means the Properties improved primarily
with office Improvements, which Office Properties as of the date hereof are
identified as such on SCHEDULE A.
"Office Value" means, at any time, (x) the aggregate of the
Property Allocated Values of all Office Properties less (y) 10% of the aggregate
Property Allocated Values (at the time of their respective releases) of all
Office Properties then or theretofore released pursuant to Section 12.17 (other
than those Office Properties listed on SCHEDULE A under "Office - Part II" that
are released prior to June 30, 2000).
"Other Mortgagor" means, individually and collectively, CWH,
SMA and CCRH.
"Parent" means, with respect to any Lender, any Person
controlling such Lender.
11
<PAGE> 17
"Participant" and "Participation" have the respective meanings
specified in Section 12.05.
"Partnership Assignments" means those certain Assignments
Regarding Partnership Interests dated the date hereof (1) from CEI LP assigning
CEI LP's Interest in The Woodlands and (2) from Borrower assigning its rights in
respect of its partnership interests in SMA, each to Administrative Agent, as
agent for Lenders, as security for the payment and performance of the
Obligations.
"Payor" and "Required Payment" have the respective meanings
specified in Section 10.12.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Permitted Stock" means shares of common or preferred stock
that (1) is non-assessable and fully paid up and (2) is, in the aggregate with
all other stock held by Borrower or any Affiliate in the company issuing such
stock, less than 25% of the shares of such issuing company which entitles the
holder to vote for the board of directors or other managers of such company.
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or other
entity of whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by Borrower, Guarantor or
any ERISA Affiliate and which is covered by Title IV of ERISA or to which
Section 412 of the Code applies.
"Premises Documents", for each Property (other than
Woodlands), has the meaning specified in the Mortgage for such Property.
"presence", when used in connection with any Environmental
Discharge or Hazardous Materials, means and includes presence, generation,
manufacture, installation, treatment, use, storage, handling, repair,
encapsulation, disposal, transportation, spill, discharge and release.
"Prime Rate" means that rate of interest from time to time
announced by UBS at its principal office in Stamford, Connecticut as its prime
commercial lending rate.
"Property" means each of the parcels of real property owned by
Borrower in fee (or, in the case of (1) those parcels identified on SCHEDULE A
as Stemmons Place and Frost Bank, in which Borrower is the owner of a valid and
subsisting leasehold interest, (2) Washington Harbour, in which CWH owns both
fee and leasehold interests, (3) Woodlands, in which CEI LP owns CEI LP's
Interest in The Woodlands and (4) Spectrum Centre and Trammell Crow Center,
which are owned, respectively, by SMA and CCRH), in each case, located and
improved with the Improvements as set forth on
12
<PAGE> 18
SCHEDULE A and more particularly described on SCHEDULE A to the Mortgage
encumbering each such parcel (or, in the case of Woodlands, described in the
Partnership Assignment regarding Woodlands), and each other property as may be
added as a Property pursuant to Section 12.17; excluding, however, any Property
released pursuant to said Section. For purposes of this Agreement, the term
"Property" shall include, in the case of Spectrum Centre, Trammell Crow Center
and the Property identified on SCHEDULE A as Three Westlake, the Collateral
Notes and Mortgages.
"Property Allocated Value" means, at any time, (1) for any
Hotel Property, the amount set forth in the last column of SCHEDULE A (or, in
the case of any Hotel Property reappraised pursuant to Section 12.18, the value
pursuant to the appraisal pursuant to said Section); or (2) for any Office
Property, the lesser of (x) the amount set forth in the last column of SCHEDULE
A (or, in the case of any Office Property added pursuant to Section 12.17 and
Disposition Properties for which an appraisal is required by Section 12.19, the
value pursuant to the appraisal required by Section 12.17 or 12.19) or (y) the
then Property Capitalization Value thereof; provided, however, that if the
circumstances exist that would permit Administrative Agent to apply casualty
insurance proceeds or condemnation awards with respect to a particular Office
Property or Hotel Property to the repayment of the Loans pursuant to Section
1.09 or Section 1.13 of the Mortgage of such Office Property or Hotel Property
(other than in the case of a partial condemnation that does not materially
affect the income from such Property), then, immediately upon the occurrence of
such circumstances, such Office Property or Hotel Property shall be deemed to
have a Property Allocated Value of zero. For purposes of this definition, in the
case of Office Properties that are partially, but not 100%, owned by Borrower,
the appraised value shall reflect Borrower's fractional beneficial ownership of
the Property.
"Property Capitalization Value" means, for any Office
Property, as of the end of any calendar quarter, Property Net Operating Income
for such Office Property for such quarter and the three (3) immediately
preceding calendar quarters, divided by 9.25%.
"Property Net Operating Income" means, for each Property, for
any period of time, the portion of the net income of Borrower (or, in the case
of (w) Woodlands, CEI LP, (x) Washington Harbour, CWH, (y) Spectrum Centre, SMA
or (z) Trammell Crow Center, CCRH) attributable to such Property, determined in
accordance with GAAP, before adjustment for gains or losses from extraordinary
items, plus (1) interest expense and (2) depreciation and amortization, and
adjusted for non-cash revenue attributable to the straight-line treatment of
rent or other GAAP adjustments for free rent and by the deduction of (a) any
accrued rent with respect to tenants that are more than sixty (60) days in
arrears in the payment of rent, (b) interest income, (c) a management fee equal
to the greater of actual management fees or 3.0% of gross revenues and (d)
capital expenditures in a deemed amount equal to $.75 per square foot of space
in the Improvements in the case of Office Properties and 3.5% of gross revenues
in the case of Hotel Properties. For purposes of the foregoing, income
attributable to third-party leasing commissions or management fees shall be
excluded.
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<PAGE> 19
"Pro Rata Share" means, for purposes of this Agreement and
with respect to each Lender, a fraction, the numerator of which is the amount of
such Lender's Loan Commitment and the denominator of which is the Total Loan
Commitment.
"Prohibited Transaction" means any transaction proscribed by
Section 406 of ERISA or Section 4975 of the Code and to which no statutory or
administrative exemption applies.
"Regulation D" and "Regulation U" mean, respectively,
Regulation D and Regulation U of the Board of Governors of the Federal Reserve
System.
"Regulatory Change" means, with respect to any Lender, any
change after the date of this Agreement in federal, state, municipal or foreign
laws or regulations (including Regulation D) or the adoption or making after
such date of any interpretations, directives or requests applying to a class of
lenders including such Lender of or under any federal, state, municipal or
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Relevant Documents" has the meanings specified in Section
11.02.
"Replacement Lender" has the meaning specified in Section
10.22.
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the thirty (30)
day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of
PBGC Reg. Section 2615.
"Required Lenders" means, at any time, those Lenders having
Pro Rata Shares aggregating at least 66 2/3%; provided, however, that during the
existence of an Event of Default, the "Required Lenders" shall be those Lenders
holding at least 66 2/3% of the then aggregate unpaid principal amount of the
Loans.
"Sales Contracts" means those certain Purchase and Sale
Contracts which CEI LP (or, in the case of Woodlands, Woodlands Office Equities)
has entered into for the sale to third parties of, respectively, those
Properties identified on SCHEDULE A as being under contract.
"SMA" means Spectrum Mortgage Associates, L.P., a Delaware
limited partnership in which Borrower is the sole general partner and which is
the owner of the fee and various other rights in respect of Spectrum Centre,
including, without limitation, the Collateral Notes and Mortgages relating to
Spectrum Centre.
"Solvency Certificate" means a certificate in the form of
EXHIBIT D.
"Solvent" means, when used with respect to any Person, that
the fair value of the property of such Person, on a going concern basis, is
greater than the total amount of liabilities (including, without limitation,
contingent liabilities) of such Person.
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"Spectrum Centre" means the Office Property, owned by SMA,
located in Dallas, Texas identified as such on SCHEDULE A.
"Substitute Lender" and "Substitution Notice" have the
respective meanings specified in Section 3.07.
"this Agreement" means this Secured Loan Agreement.
"Title Insurer" means, for each Property (other than
Woodlands), the issuer(s) of the title insurance policy(ies) insuring the
Mortgage thereon.
"Total Loan Commitment" means an amount equal to the aggregate
amount of all Loan Commitments.
"Total Value" means, at any time, the sum of Office Value plus
Hotel Value.
"Trammell Crow Center" means the Office Property, owned by
CCRH, located in Dallas, Texas identified as such on SCHEDULE A.
"Tranche", "Tranche A", "Tranche B" and "Tranche C" have the
respective meanings specified in Section 2.01.
"Tranche A Loan Commitment", "Tranche B Loan Commitment" and
"Tranche C Loan Commitment" have the respective meanings specified in Section
2.01.
"Tranche A Note", "Tranche B Note" and "Tranche C Note" have
the respective meanings specified in Section 2.08.
"UBS" has the meaning specified in the preamble.
"United States" and "U.S." mean the United States of America.
"Washington Harbour" means the Office Property, owned by CWH,
located in Washington, D.C. identified as such on SCHEDULE A.
"Woodlands" means the Office Property, owned by Woodlands
Office Equities, located in Woodlands, Texas identified as such on SCHEDULE A.
"Woodlands Office Equities" means Woodlands Office
Equities-'95 Limited, the Texas limited partnership which is the owner of
Woodlands and in which CEI LP is a limited partner and owns, directly or
indirectly, an approximately 75% beneficial interest.
Section 1.02 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP, and all
financial data required to be delivered hereunder shall be prepared in
accordance with GAAP.
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Section 1.03 Computation of Time Periods. Except as otherwise
provided herein, in this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and words "to" and "until" each means "to but excluding".
Section 1.04 Rules of Construction. Except as provided
otherwise, when used in this Agreement, (i) "or" is not exclusive, (ii) a
reference to a Law includes any amendment, modification or supplement to, or
replacement of, such Law, (iii) a reference to a Person includes its permitted
successors and permitted assigns, (iv) all terms defined in the singular shall
have a correlative meaning when used in the plural and vice versa, (v) a
reference to an agreement, instrument or document shall include such agreement,
instrument or document as the same may be amended, modified or supplemented from
time to time in accordance with its terms and as permitted by the Loan
Documents, (vi) all references to Articles, Sections or Exhibits shall be to
Articles, Sections and Exhibits of this Agreement unless otherwise indicated,
(vii) "hereunder", "herein", "hereof" and the like refer to this Agreement as a
whole and (viii) all Exhibits and Schedules to this Agreement shall be
incorporated herein. Any table of contents and the headings and captions
hereunder are for convenience only and shall not affect the interpretation or
construction hereof.
ARTICLE II
THE LOANS
Section 2.01 The Loans. Subject to the terms and conditions of
this Agreement, each of Lenders severally agrees to make a loan to Borrower
(each such loan by a Lender, a "Loan"; such loans, collectively, the "Loans") in
an amount up to such Lender's Loan Commitment. The Loans and the Total Loan
Commitment shall be divided into three (3) tranches: a tranche in the amount of
$300,000,000 ("Tranche A"), a tranche in the amount of $275,000,000 ("Tranche
B") and a tranche in the amount of $275,000,000 ("Tranche C"; each of Tranche A,
Tranche B and Tranche C, a "Tranche"). Each Lender's Loan and Loan Commitment
shall consist of a Tranche A portion, a Tranche B portion and a Tranche C
portion, in amounts proportional to Tranche A, Tranche B and Tranche C overall
(such portions of a Lender's Loan Commitment, a "Tranche A Loan Commitment",
"Tranche B Loan Commitment" and "Tranche C Loan Commitment", respectively).
The three (3) Tranches shall be advanced as follows:
(1) Tranche A will constitute a revolving credit facility,
pursuant to which each Lender shall from time to time advance and
re-advance to Borrower an amount equal to the excess of the amount of
such Lender's Tranche A Loan Commitment over the sum of (x) all
previous advances made by such Lender under its Tranche A Loan
Commitment which remain unpaid and (y) its Pro Rata Share of the
outstanding amount of all Letters of Credit. Within the limits set
forth herein, Borrower may borrow from time to time under this clause
(1) of this Section 2.01 and prepay from time to time pursuant to
Section 2.09 (subject,
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however, to the restrictions on prepayment set forth in such Section)
and thereafter re-borrow pursuant to this clause (1); and
(2) Tranches B and C shall be advanced in their entirety in a
single disbursement as part of the Initial Advance. Portions of
Tranches B and C that are repaid may not be reborrowed.
The Loans may be outstanding as (A) Base Rate Loans, (B) LIBOR
Loans or (C) a combination of the foregoing, as Borrower shall elect and notify
Administrative Agent in accordance with Section 2.14. The LIBOR Loan and Base
Rate Loan of each Lender shall be maintained at such Lender's Applicable Lending
Office.
The obligations of Lenders under this Agreement are several,
and no Lender shall be responsible for the failure of any other Lender to make
any advance of a Loan to be made by such other Lender. However, the failure of
any Lender to make any advance of the Loan to be made by it hereunder on the
date specified therefor shall not relieve any other Lender of its obligation to
make any advance of its Loan specified hereby to be made on such date.
Section 2.02 Purpose. Borrower shall use the proceeds of the
Loans for the following purposes:
(1) Advances under Tranches B and C and the portion of Tranche
A to be disbursed as part of the Initial Advance shall be used to (A)
repay the Existing Credit Facilities and (B) pay transaction costs
relating to the Loans; and
(2) Advances under Tranche A subsequent to the Initial Advance
shall be used for general partnership purposes of Borrower, Guarantor
and their respective Material Affiliates.
In no event shall proceeds of the Loans be used in a manner
that would violate Regulation U or in connection with a hostile acquisition or
for any illegal purpose.
Section 2.03 Advances, Generally. The Initial Advance shall be
made upon satisfaction of the conditions set forth in Section 4.01. Subsequent
advances shall be made no more frequently than weekly thereafter, upon
satisfaction of the conditions set forth in Section 4.02. The amount of each
advance subsequent to the Initial Advance shall be in the minimum amount of
$1,000,000 (unless less than $1,000,000 is available for disbursement pursuant
to the terms hereof at the time of any subsequent advance, in which case the
amount of such subsequent advance shall be equal to such remaining availability)
and in integral multiples of $100,000 above such amount.
Section 2.04 Procedures for Advances. Borrower shall submit to
Administrative Agent a request for each advance hereunder, stating the amount
requested, no later than 11:00 a.m. (New York time) on the date, in the case of
advances of Base Rate Loans, which is one (1) Business Day, and, in the case of
advances of LIBOR Loans, which is three (3) Business Days, prior to the date the
advance is to be made. Administrative Agent, upon its receipt and approval of
the request for advance,
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will so notify all Lenders either by telephone or by facsimile. Not later than
10:00 a.m. (New York time) on the date of each advance, each Lender shall,
through its Applicable Lending Office and subject to the conditions of this
Agreement, make the amount to be advanced by it on such day available to
Administrative Agent, at Administrative Agent's Office and in immediately
available funds for the account of Borrower. The amount so received by
Administrative Agent shall, subject to the conditions of this Agreement, be made
available to Borrower, in immediately available funds, by Administrative Agent's
crediting an account of Borrower designated by Borrower in its request for
advance.
Section 2.05 Interest Periods; Renewals. In the case of the
LIBOR Loans, Borrower shall select an Interest Period of any duration in
accordance with the definition of Interest Period in Section 1.01, subject to
the following limitations: (i) no Interest Period may extend beyond the Maturity
Date, (ii) if an Interest Period would end on a day which is not a Business Day,
such Interest Period shall be extended to the next Business Day, unless such
Business Day would fall in the next calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day and (iii) only twelve
(12) discrete segments of a Lender's Loan bearing interest at a LIBOR Interest
Rate, for a designated Interest Period, pursuant to a particular Election,
Conversion or Continuation, may be outstanding at any one time (each such
segment of each Lender's Loan corresponding to a proportionate segment of each
of the other Lenders' Loans).
Upon notice to Administrative Agent as provided in Section
2.14, Borrower may Continue any LIBOR Loan on the last day of the Interest
Period of the same or different duration in accordance with the limitations
provided above.
Section 2.06 Interest. Borrower shall pay interest to
Administrative Agent for the account of the applicable Lender on the outstanding
and unpaid principal amount of the Loans, at a rate per annum as follows: (i)
for Base Rate Loans at a rate equal to the Base Rate plus the Applicable Margin
and (ii) for LIBOR Loans at a rate equal to the applicable LIBOR Interest Rate
plus the Applicable Margin. Any principal amount not paid when due (when
scheduled, at acceleration or otherwise) shall bear interest thereafter, payable
on demand, at the Default Rate.
The interest rate on Base Rate Loans shall change when the
Base Rate changes. Interest shall be calculated for the actual number of days
elapsed on the basis of, in the case of Base Rate Loans and LIBOR Loans, three
hundred sixty (360) days.
Accrued interest shall be due and payable in arrears upon and
with respect to any payment or prepayment of principal and, in the case of both
Base Rate Loans and LIBOR Loans, on the first Business Day of each calendar
month; provided, however, that interest accruing at the Default Rate shall be
due and payable on demand.
Section 2.07 Fees.
(a) Borrower shall, during the term of the Tranche A portion
of the Loans, pay to Administrative Agent for the account of each Lender a
commitment fee, computed on the daily unused Tranche A Loan Commitment of such
Lender, at a rate per
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annum equal to the daily Commitment Fee Rate, calculated on the basis of a year
of three hundred sixty (360) days for the actual number of days elapsed. The
accrued commitment fee shall be due and payable quarterly in arrears on the
first Business Day of each calendar quarter, commencing on the first such date
after the Closing Date, and upon the Maturity Date (as stated, by acceleration
or otherwise) or earlier termination of the Tranche A Loan Commitments.
(b) Borrower agrees to pay to Administrative Agent any
administration fees separately agreed to in writing by Borrower and
Administrative Agent.
Section 2.08 Notes. The Loan made by each Lender under this
Agreement shall be evidenced by, and repaid with interest in accordance with,
promissory notes of Borrower in the form of EXHIBITS B-1, B-2 and B-3, duly
completed and executed by Borrower, in an aggregate principal amount equal to
such Lender's Loan Commitment (with each Tranche A Loan Commitment, Tranche B
Loan Commitment and Tranche C Loan Commitment to be evidenced by separate
promissory notes of Borrower in the respective amounts thereof), payable to such
Lender for the account of its Applicable Lending Office (each such note, as the
same may hereafter be amended, modified, extended, severed, assigned, renewed or
restated from time to time, including any substitute notes pursuant to Section
3.07, 10.18, 10.22 or 12.05, a " Note"; all such Notes, collectively, the
"Notes"). The Notes evidencing Tranche A are referred to herein collectively as
the "Tranche A Notes"; the Notes evidencing Tranche B are referred to herein
collectively as the "Tranche B Notes"; and the Notes evidencing Tranche C are
referred to herein collectively as the "Tranche C Notes." The Notes shall
mature, and all outstanding principal and accrued interest and other sums
thereunder shall be paid in full, on the applicable Maturity Date thereof, as
the same may be accelerated or extended.
Each Lender is hereby authorized by Borrower to endorse on the
schedule attached to the Notes held by it, the amount of each advance and each
payment of principal received by such Lender for the account of its Applicable
Lending Office(s) on account of its Loan, which endorsement shall, in the
absence of manifest error, be conclusive as to the outstanding balance of the
Loan made by such Lender. The failure by any Lender to make such notations with
respect to the Loans or each advance or payment shall not limit or otherwise
affect the Obligations.
In case of any loss, theft, destruction or mutilation of any
Lender's Note, Borrower shall, upon its receipt of an affidavit of an officer of
such Lender as to such loss, theft, destruction or mutilation, execute and
deliver a replacement Note to such Lender in the same principal amount and
otherwise of like tenor as the lost, stolen, destroyed or mutilated Note.
Section 2.09 Prepayments. Borrower may, upon at least fifteen
(15) days' notice to Administrative Agent, prepay the Loans; provided, however,
that (i) any partial prepayment under this Section shall be in integral
multiples of $1,000,000, (ii) a LIBOR Loan may be prepaid only on the last day
of the applicable Interest Period for such LIBOR Loan and (iii) each prepayment
under this Section shall include all interest
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accrued on the amount of principal prepaid through the date of prepayment and
any amounts payable under Article III in connection with such prepayment.
Prepayments of the Principal Amount shall be applied as follows: (a) prepayments
from the proceeds of the Disposition of a Property being released pursuant to
Section 12.17 shall be applied, first, if the aggregate outstanding principal
amount under the Tranche A, B and C Notes exceeds $700,000,000, to the Tranche B
and C Notes in proportion to the outstanding principal amounts under said
Tranche B and C Notes until such time as the aggregate outstanding principal
amounts under the Tranche A, B and C Notes has been reduced to $700,000,000 and,
second, to the Tranche A, B and C Notes in proportion to the outstanding
principal amounts under said Notes; and (b) prepayments from any sources other
than the proceeds of such a Disposition shall be applied, at Borrower's option,
either (i) first, to the Tranche A Notes and, second, to the Tranche B and C
Notes in proportion to the outstanding principal amounts under said Tranche B
and C Notes or (ii) to the Tranche A, B and C Notes in proportion to the
outstanding principal amounts under said Notes.
In addition, it is contemplated that in connection with the
"general syndication" referred to in the definition of "Interest Period" in
Section 1.01, certain institutions may become Lenders pursuant to Assignment and
Assumption Agreements in accordance with Section 12.05 who may require that they
have the option to refuse partial prepayments of their Notes. Borrower and
Lenders acknowledge the foregoing and agree to execute and deliver such
modifications to this Agreement as may be necessary to effectuate the
reallocation of the Lenders' ratable shares of the Loans as a result of
disproportionate application of prepayments to their Notes (it being understood
that the refused prepayments shall be applied ratably to the Notes of the
Lenders who did not refuse prepayment).
Section 2.10 Cancellation of Commitments.
(a) At any time, Borrower shall have the right, without
premium or penalty, to cancel any unused Tranche A Loan Commitments, in whole or
in part, from time to time, provided that (x) Borrower shall give notice of each
such cancellation to Administrative Agent no later then 10:00 a.m. (New York
time) on the date which is ten (10) Business Days prior to the effectiveness of
such cancellation, (y) the Tranche A Loan Commitments of each of the Lenders
must be cancelled ratably and simultaneously with those of the other Lenders and
(z) each partial cancellation of the Tranche A Loan Commitments as a whole (and
corresponding reduction of the Total Loan Commitment) shall be in an integral
multiple of $1,000,000.
(b) The Tranche A Loan Commitments, to the extent cancelled,
may not be reinstated.
Section 2.11 Method of Payment. Borrower shall make each
payment under this Agreement and under the Notes not later than 11:00 a.m. (New
York time) on the date when due in Dollars to Administrative Agent at
Administrative Agent's Office in immediately available funds. Administrative
Agent will thereafter, on the day of its receipt of each such payment, cause to
be distributed to each Lender (i) such Lender's appropriate share (based upon
the respective outstanding principal amounts and
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rate(s) of interest under the Notes of all Lenders) of the payments of principal
and interest in like funds for the account of such Lender's Applicable Lending
Office and (ii) fees payable to such Lender in accordance with the terms hereof.
Except to the extent otherwise provided herein, whenever any
payment to be made hereunder or under the Notes is due on any day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
the payment of interest and other fees, as the case may be.
Notwithstanding the foregoing provisions of this Section, (x)
Administrative Agent shall make no payment to a Delinquent Lender until the
Non-Delinquent Lenders have been paid in full all outstanding principal, accrued
and unpaid interest and any other sums owing to them under the Loan Documents,
it being understood that payments of interest on account of the outstanding
principal amount of the Notes held by the Delinquent Lender shall be held by
Administrative Agent in a non-interest bearing account and not distributed to
the Delinquent Lender until such time as all principal, interest and other sums
due to the Non-Delinquent Lenders have been paid in full, (y) any payments
(other than interest, as provided in clause (x) above) which would otherwise be
due a Delinquent Lender shall be distributed to the Non-Delinquent Lenders until
such time as all principal, interest and other sums due to the Non-Delinquent
Lenders have been paid in full (except that any such amounts otherwise due a
Delinquent Lender received by Administrative Agent during an Election Period
shall be retained by Administrative Agent until the expiration of the Election
Period and either paid to the Delinquent Lender, if the delinquency is cured, or
paid to the Non-Delinquent Lenders, if the delinquency is not cured) and (z)
Administrative Agent shall deduct, from amounts due (or, in the case of a
Delinquent Lender, amounts that would otherwise be payable to such Delinquent
Lender being held by Administrative Agent pursuant to clause (x) above) a Lender
in default under its obligations under Section 10.05, the amount owing by such
Lender pursuant to said Section 10.05 and pay the amount so deducted to itself,
the other Lenders, or such other party as is entitled to such amount, as
applicable.
Section 2.12 Elections, Conversions or Continuation of Loans.
Subject to the provisions of Article III and Sections 2.05 and 2.13, Borrower
shall have the right to Elect to have all or a portion of any advance of the
Loans be LIBOR Loans, to Convert Base Rate Loans into LIBOR Loans, to Convert
LIBOR Loans into Base Rate Loans, or to Continue LIBOR Loans as LIBOR Loans, at
any time or from time to time, provided that (i) Borrower shall give
Administrative Agent notice of each such Election, Conversion or Continuation as
provided in Section 2.14 and (ii) a LIBOR Loan may be Converted or Continued
only on the last day of the applicable Interest Period for such LIBOR Loan.
Except as otherwise provided herein, each Election, Continuation and Conversion
shall be applicable to each Lender's Loan in accordance with its Pro Rata Share.
Section 2.13 Minimum Amounts. With respect to the Loans as a
whole, each Election and each Conversion shall be in an amount at least equal to
$1,000,000 and in integral multiples of $100,000.
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Section 2.14 Certain Notices Regarding Elections, Conversions
and Continuations of Loans. Notices by Borrower to Administrative Agent of
Elections, Conversions and Continuations of LIBOR Loans shall be irrevocable and
shall be effective only if received by Administrative Agent not later than 10:00
a.m. (New York time) on the number of Business Days prior to the date of the
relevant Election, Conversion or Continuation specified below:
<TABLE>
<CAPTION>
Number of Business
Notice Days Prior
------ ------------------
<S> <C>
Conversions into Base Rate Loans two (2)
Elections of, Conversions into or Continuations as, three (3)
LIBOR Loans
</TABLE>
Promptly following its receipt of any such notice, Administrative Agent shall so
advise all Lenders either by telephone or by facsimile. Each such notice of
Election shall specify the portion of the amount of the advance that is to be
LIBOR Loans (subject to Section 2.13) and the duration of the Interest Period
applicable thereto (subject to Section 2.05); each such notice of Conversion
shall specify the LIBOR Loans or Base Rate Loans to be Converted; and each such
notice of Conversion or Continuation shall specify the date of Conversion or
Continuation (which shall be a Business Day), the amount thereof (subject to
Section 2.13) and the duration of the Interest Period applicable thereto
(subject to Section 2.05). In the event that Borrower fails to Elect to have any
portion of an advance of the Loans be LIBOR Loans, the entire amount of such
advance shall constitute Base Rate Loans. In the event that Borrower fails to
Continue a LIBOR Loan within the time period and as otherwise provided in this
Section, such LIBOR Loan will automatically be continued, on the last day of the
then current applicable Interest Period for such LIBOR Loan, for an Interest
Period of one (1) month, unless such Interest Period would expire after the
Maturity Date, in which case such LIBOR Loan shall instead be automatically
converted to a Base Rate Loan.
Section 2.15 Late Payment Premium. Borrower shall, at
Administrative Agent's option, pay to Administrative Agent for the account of
Lenders a late payment premium in the amount of 5% of any payments of interest
under the Loans made more than ten (10) days after the due date thereof, which
shall be due with any such late payment.
Section 2.16 Letters of Credit.
(a) Borrower, by notice to Administrative Agent, may request,
in lieu of advances of proceeds of the Tranche A portion of the Loans, that
Administrative Agent issue unconditional, irrevocable standby letters of credit
(each, a "Letter of Credit") for the account of Borrower, payable by sight
drafts, for such beneficiaries and with such other terms as Borrower shall
specify. Promptly upon issuance of a Letter of Credit, Administrative Agent
shall notify each Lender.
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(b) The amount of any Letter of Credit shall be limited to the
lesser of (x) $50,000,000 less the aggregate amount of all Letters of Credit
theretofore issued and outstanding or (y) the then aggregate amount of the
Tranche A Loan Commitments of all Lenders available to be advanced hereunder, it
being understood that the amount of each Letter of Credit issued and outstanding
shall (A) effect a reduction, by an equal amount, of the aggregate available
Tranche A Loan Commitments (such reduction to be allocated to each Lender's
Tranche A Loan Commitment ratably in accordance with Lenders' respective Pro
Rata Shares) and (B) be treated as advanced as of the date of issuance of the
Letter of Credit for purposes of calculating the commitment fee under Section
2.07(a).
(c) The amount of each Letter of Credit shall be further
subject to the limitations applicable to amounts of advances set forth in
Section 2.03 and the procedures for the issuance of each Letter of Credit shall
be the same as the procedures applicable to the making of advances as set forth
in the first sentence of Section 2.04. Administrative Agent's issuance of each
Letter of Credit shall be subject to Administrative Agent's determination that
Borrower has satisfied all conditions precedent to its entitlement to an advance
of proceeds of the Loans.
(d) No Letter of Credit shall have an expiration date later
than (x) one (1) year after the date of its issuance or (y) one (1) month prior
to the Maturity Date of Tranche A and the Tranche A Notes.
(e) In connection with, and as a further condition to the
issuance of, each Letter of Credit, Borrower shall execute and deliver to
Administrative Agent an application for the Letter of Credit on Administrative
Agent's standard form therefor, together with such other documents, opinions and
assurances as Administrative Agent shall reasonably require.
(f) In connection with each Letter of Credit, Borrower hereby
covenants to pay to Administrative Agent the following fees each payable
quarterly in arrears (on the first Business Day of each calendar quarter
following the issuance of the Letter of Credit): (x) a fee, for the account of
Lenders, computed daily on the amount of the Letter of Credit issued and
outstanding at a rate per annum equal to the "Lenders' L/C Fee Rate" (as
hereinafter defined) and (y) a fee, for Administrative Agent's own account,
computed daily on the amount of the Letter of Credit issued and outstanding at a
rate per annum equal to 0.125%. For purposes of this Agreement, the "Lenders'
L/C Fee Rate" shall mean, at any time, a rate per annum equal to the Applicable
Margin for LIBOR Loans under Tranche A less 0.125% per annum. It is understood
and agreed that the last installment of the fees provided for in this paragraph
(f) with respect to any particular Letter of Credit shall be due and payable on
the first Business Day of the calendar quarter following the return, undrawn, or
cancellation of such Letter of Credit. In addition, Borrower shall pay
Administrative Agent's customary administrative fees in connection with the
extension, amendment and drawing of all Letters of Credit.
(g) The parties hereto acknowledge and agree that, immediately
upon notice from Administrative Agent of any drawing under a Letter of Credit,
each Lender shall, notwithstanding the existence of a Default or Event of
Default or the
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non-satisfaction of any conditions precedent to the making of an advance of the
Loans, advance proceeds of the Tranche A portion of its Loan, in an amount equal
to its Pro Rata Share of such drawing, which advance shall be made to
Administrative Agent to reimburse Administrative Agent, for its own account, for
such drawing. Each Lender further acknowledges that its obligation to fund its
Pro Rata Share of drawings under Letters of Credit as aforesaid shall survive
Lenders' termination of this Agreement or enforcement of remedies hereunder or
under the other Loan Documents.
(h) Upon the occurrence and at any time during the continuance
of an Event of Default, Lenders shall, at the direction of the Required Lenders,
advance proceeds of the Loans hereunder into a cash collateral account to be
maintained with Administrative Agent, such advance by each Lender to be in an
account equal to its Pro Rata Share of the aggregate amount of all the
outstanding Letters of Credit, which cash collateral shall be held by
Administrative Agent as security for the payment and performance of the
Obligations. Borrower irrevocably authorizes Lenders to make such advance, and
agrees to execute and deliver to Administrative Agent such documents as
Administrative Agent reasonably requests to confirm and perfect the assignment
of such cash collateral to Administrative Agent. The amount so advanced shall be
evidenced by the Notes and secured by the Mortgages. Borrower shall be obligated
to pay interest on such amount, but Borrower shall have no obligation to make
further payments of the fees provided for in clauses (x) and (y) of paragraph
(f) of this Section.
Section 2.17 Additional Conditions to Advances of Tranche A.
Each advance of Tranche A shall be subject, in addition to the other limitations
and conditions set forth herein, to, at Administrative Agent's request,
Administrative Agent's receipt of a certificate, of the sort required by clause
(ii) of paragraph (3) of Section 6.09, which shall demonstrate Borrower's and
Guarantor's compliance, as of the end of the most recently ended calendar
quarter for which financial results are required hereunder to have been reported
by Borrower and Guarantor (and taking into account pro-forma adjustments for all
acquisitions and Dispositions subsequent to the end of such quarter required to
be reported pursuant to paragraph (7) of Section 6.09), with all covenants
enumerated in said clause (ii) of paragraph (3), assuming that the amount that
will be outstanding under the Loans following the making of the advance that is
being requested was outstanding as of the end of such most recently ended
calendar quarter.
ARTICLE III
YIELD PROTECTION; ILLEGALITY; ETC.
Section 3.01 Additional Costs. Borrower shall pay directly to
each Lender from time to time on demand such amounts as such Lender may
determine to be necessary to compensate it for any increased costs which such
Lender determines are attributable to its making or maintaining a LIBOR Loan, or
its obligation to make or maintain a LIBOR Loan, or its obligation to Convert a
Base Rate Loan to a LIBOR Loan hereunder, or any reduction in any amount
receivable by such Lender hereunder in respect of its LIBOR Loan or such
obligations (such increases in costs and reductions in
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amounts receivable being herein called "Additional Costs"), in each case
resulting from any Regulatory Change which:
(1) changes the basis of taxation of any amounts payable to
such Lender under this Agreement or the Notes in respect of any such
LIBOR Loan (other than changes in the rate of general corporate,
franchise, branch profit, net income or other income tax imposed on
such Lender or its Applicable Lending Office by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office); or
(2) (other than to the extent the LIBOR Reserve Requirement is
taken into account in determining the LIBOR Rate at the commencement of
the applicable Interest Period) imposes or modifies any reserve,
special deposit, deposit insurance or assessment, minimum capital,
capital ratio or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities
of, such Lender (including any LIBOR Loan or any deposits referred to
in the definition of "LIBOR Interest Rate" in Section 1.01), or any
commitment of such Lender (including such Lender's Loan Commitment
hereunder); or
(3) imposes any other condition affecting this Agreement or
the Notes (or any of such extensions of credit or liabilities).
Without limiting the effect of the provisions of the first
paragraph of this Section, in the event that, by reason of any Regulatory
Change, any Lender either (i) incurs Additional Costs based on or measured by
the excess above a specified level of the amount of a category of deposits or
other liabilities of such Lender which includes deposits by reference to which
the LIBOR Interest Rate is determined as provided herein or a category of
extensions of credit or other assets of such Lender which includes loans based
on the LIBOR Interest Rate or (ii) becomes subject to restrictions on the amount
of such a category of liabilities or assets which it may hold, then, if such
Lender so elects by notice to Borrower (with a copy to Administrative Agent),
the obligation of such Lender to permit Elections of, to Continue, or to Convert
Base Rate Loans into, LIBOR Loans shall be suspended (in which case the
provisions of Section 3.04 shall be applicable) until such Regulatory Change
ceases to be in effect.
Determinations and allocations by a Lender for purposes of
this Section of the effect of any Regulatory Change pursuant to the first or
second paragraph of this Section, on its costs or rate of return of making or
maintaining its Loan or portions thereof or on amounts receivable by it in
respect of its Loan or portions thereof, and the amounts required to compensate
such Lender under this Section, shall be conclusive absent manifest error.
Section 3.02 Limitation on Types of Loans. Anything herein to
the contrary notwithstanding, if on or prior to the determination of the LIBOR
Interest Rate for any Interest Period:
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(1) Administrative Agent determines (which determination shall
be conclusive) that quotations of interest rates for the relevant
deposits referred to in the definition of "LIBOR Interest Rate" in
Section 1.01 are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest for
the LIBOR Loans as provided herein; or
(2) a Lender determines (which determination shall be
conclusive) and promptly notifies Administrative Agent that the
relevant rates of interest referred to in the definition of "LIBOR
Interest Rate" in Section 1.01 upon the basis of which the rate of
interest for LIBOR Loans for such Interest Period is to be determined
do not cover the cost to such Lender of making or maintaining such
LIBOR Loan for such Interest Period;
then Administrative Agent shall give Borrower prompt notice thereof, and so long
as such condition remains in effect, Lenders (or, in the case of the
circumstances described in clause (2) above, the affected Lender) shall be under
no obligation to permit Elections of LIBOR Loans, to Convert Base Rate Loans
into LIBOR Loans or to Continue LIBOR Loans and Borrower shall, on the last
day(s) of the then current Interest Period(s) for the affected outstanding LIBOR
Loans, either (x) prepay the affected LIBOR Loans or (y) Convert the affected
LIBOR Loans into Base Rate Loans in accordance with Section 2.12.
Section 3.03 Illegality. Notwithstanding any other provision
of this Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain a LIBOR
Loan hereunder, to allow Elections of a LIBOR Loan or to Convert a Base Rate
Loan into a LIBOR Loan, then such Lender shall promptly notify Administrative
Agent and Borrower thereof and such Lender's obligation to make or maintain a
LIBOR Loan, or to permit Elections of, to Continue, or to Convert its Base Rate
Loan into, a LIBOR Loan shall be suspended (in which case the provisions of
Section 3.04 shall be applicable) until such time as such Lender may again make
and maintain a LIBOR Loan.
Section 3.04 Treatment of Affected Loans. If the obligations
of any Lender to make or maintain a LIBOR Loan, or to permit an Election of a
LIBOR Loan, to Continue its LIBOR Loan, or to Convert its Base Rate Loan into a
LIBOR Loan, are suspended pursuant to Sections 3.01 or 3.03 (each LIBOR Loan so
affected being herein called an "Affected Loan"), such Lender's Affected Loan
shall be automatically Converted into a Base Rate Loan on the last day of the
then current Interest Period for the Affected Loan (or, in the case of a
Conversion (or conversion) required by Sections 3.01 or 3.03, on such earlier
date as such Lender may specify to Borrower).
To the extent that such Lender's Affected Loan has been so
Converted (or the interest rate thereon so converted), all payments and
prepayments of principal which would otherwise be applied to such Lender's
Affected Loan shall be applied instead to its Base Rate Loan and such Lender
shall have no obligation to Convert its Base Rate Loan into a LIBOR Loan.
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Section 3.05 Certain Compensation. Borrower shall pay to
Administrative Agent for the account of the applicable Lender, upon the request
of such Lender through Administrative Agent (which request shall include a
calculation of the amount(s) due), such amount or amounts as shall be sufficient
(in the opinion of such Lender) to compensate it for any loss, cost or expense
which such Lender determines is attributable to:
(1) any payment or prepayment of a LIBOR Loan made by such
Lender, or any Conversion of a LIBOR Loan made by such Lender, in any
such case on a date other than the last day of an applicable Interest
Period, whether by reason of acceleration or otherwise; or
(2) any failure by Borrower for any reason to Convert or
Continue a LIBOR Loan to be Converted or Continued by such Lender on
the date specified therefor in the relevant notice under Section 2.14;
or
(3) any failure by Borrower to borrow (or to qualify for a
borrowing of) a LIBOR Loan which would otherwise be made hereunder on
the date specified in the relevant Election notice under Section 2.14
given or submitted by Borrower.
Without limiting the foregoing, such compensation shall
include an amount equal to the present value (using as the discount rate an
interest rate equal to the rate determined under clause (y) below) of the
excess, if any, of (x) the amount of interest which otherwise would have accrued
on the principal amount so paid, prepaid, Converted or Continued (or not
Converted, Continued or borrowed) for the period from the date of such payment,
prepayment, Conversion or Continuation (or failure to Convert, Continue or
borrow) to the last day of the then current applicable Interest Period (or, in
the case of a failure to Convert, Continue or borrow, to the last day of the
applicable Interest Period which would have commenced on the date specified
therefor in the relevant notice) at the applicable rate of interest for the
LIBOR Loan provided for herein, over (y) the amount of interest (as reasonably
determined by such Lender) based upon the interest rate which such Lender would
have bid in the London interbank market for Dollar deposits, for amounts
comparable to such principal amount and maturities comparable to such period. A
determination of any Lender as to the amounts payable pursuant to this Section
shall be conclusive absent manifest error.
Section 3.06 Capital Adequacy. If any Lender shall have
determined that, after the date hereof, the adoption of any applicable law, rule
or regulation regarding capital adequacy, or any change therein, or any change
in the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such Governmental Authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on capital of such Lender (or its Parent) as a consequence of
such Lender's obligations hereunder to a level below that which such Lender (or
its Parent) could have achieved but for such adoption, change, request or
directive (taking into consideration its policies with respect to capital
adequacy) by an
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amount deemed by such Lender to be material, then from time to time, within
fifteen (15) Business Days after demand by such Lender (with a copy to
Administrative Agent), Borrower shall pay to such Lender such additional amount
or amounts as will compensate such Lender (or its Parent) for such reduction. A
certificate of any Lender claiming compensation under this Section, setting
forth in reasonable detail the basis therefor, shall be conclusive absent
manifest error.
Section 3.07 Substitution of Lenders. If any Lender (an
"Affected Lender") (i) makes demand upon Borrower for (or if Borrower is
otherwise required to pay) Additional Costs pursuant to Section 3.01 or (ii)
gives notice to Borrower that such Lender is unable to make or maintain a LIBOR
Loan as a result of a condition described in Section 3.03 or clause (2) of
Section 3.02, Borrower may, within ninety (90) days of receipt of such demand or
notice (or the occurrence of such other event causing Borrower to be required to
pay Additional Costs or causing said Section 3.03 or clause (2) of Section 3.02
to be applicable), as the case may be, give notice (a "Substitution Notice") to
Administrative Agent and to each Lender of Borrower's intention either (x) to
prepay in full the Affected Lender's Notes and to terminate the Affected
Lender's entire Loan Commitment or (y) to replace the Affected Lender with
another financial institution (a "Substitute Lender") designated in such
Substitution Notice.
In the event Borrower opts to give the notice provided for in
clause (x) above, and if the Affected Lender shall not agree within thirty (30)
days of its receipt thereof to waive the payment of the Additional Costs in
question or the effect of the circumstances described in Section 3.03 or clause
(2) of Section 3.02, then, so long as no Event of Default shall exist, Borrower
may (notwithstanding the provisions of clause (y) of Section 2.10(a)) terminate
the Affected Lender's entire Loan Commitment, provided that in connection
therewith it pays to the Affected Lender all outstanding principal and accrued
and unpaid interest under the Affected Lender's Notes, together with all other
amounts, if any, due from Borrower to the Affected Lender, including all amounts
properly demanded and unreimbursed under this Article III.
In the event Borrower opts to give the notice provided for in
clause (y) above, and if (A) Administrative Agent shall, within thirty (30) days
of its receipt of the Substitution Notice, notify Borrower and each Lender in
writing that the proposed Substitute Lender is reasonably satisfactory to
Administrative Agent and (B) the Affected Lender shall not, prior to the end of
such thirty (30)-day period, agree to waive the payment of the Additional Costs
in question or the effect of the circumstances described in Section 3.03 or
clause (2) of Section 3.02, then the Affected Lender shall, so long as no Event
of Default shall exist, assign its Notes and all of its rights and obligations
under this Agreement to the Substitute Lender, and the Substitute Lender shall
assume all of the Affected Lender's rights and obligations, pursuant to an
agreement, substantially in the form of an Assignment and Assumption Agreement,
executed by the Affected Lender and the Substitute Lender. In connection with
such assignment and assumption, the Substitute Lender shall pay to the Affected
Lender an amount equal to the outstanding principal amount under the Affected
Lender's Notes plus all interest accrued thereon, plus all other amounts, if any
(other than the Additional Costs in question), then due and payable to the
Affected Lender; provided, however, that prior to or simultaneously with
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any such assignment and assumption, Borrower shall have paid to such Affected
Lender all amounts properly demanded and unreimbursed under this Article III.
Upon the effective date of such assignment and assumption and the payment by the
Substitute Lender to Administrative Agent of a fee, for Administrative Agent's
own account, in the amount of $3,500, the Substitute Lender shall become a party
to this Agreement and shall have all the rights and obligations of a Lender as
set forth in such Assignment and Assumption Agreement, and the Affected Lender
shall be released from its obligations hereunder, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this Section, substitute Notes shall be issued to the Substitute
Lender by Borrower, in exchange for the return of the Affected Lender's Notes.
The obligations evidenced by such substitute notes shall constitute
"Obligations" for all purposes of this Agreement and the other Loan Documents
and shall be secured by the Mortgages. In connection with Borrower's execution
of substitute notes as aforesaid, Borrower shall deliver to Administrative Agent
such evidence of the due authorization, execution and delivery of the substitute
notes and any related documents as Administrative Agent may reasonably request.
If the Substitute Lender is not incorporated under the Laws of the United States
or a state thereof, it shall, prior to the first date on which interest or fees
are payable hereunder for its account, deliver to Borrower and Administrative
Agent certification as to exemption from deduction or withholding of any United
States federal income taxes in accordance with Section 10.13. Each Substitute
Lender shall be deemed to have made the representations contained in, and shall
be bound by the provisions of, Section 10.13.
Borrower, Administrative Agent and Lenders shall execute such
modifications to the Loan Documents as shall be reasonably required in
connection with and to effectuate the foregoing.
Section 3.08 "Lender" to Include Participants. For purposes of
Sections 3.01 through 3.06 and of the definition of "Additional Costs", the term
"Lender" shall, at each Lender's option, be deemed to include such Lender's
present and future Participants in its Loan to the extent of each such
Participant's actual Additional Costs or other losses, costs or expenses payable
pursuant to this Article III.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01 Conditions Precedent to the Initial Advance. The
obligations of Lenders hereunder and the obligation of each Lender to make the
Initial Advance are subject to the condition precedent that Administrative Agent
shall have received and approved on or before the Closing Date (other than with
respect to the items listed in paragraph (23) below, which shall be received and
approved by Administrative Agent prior to the Initial Advance) each of the
following documents, and that each of the following requirements shall have been
fulfilled (it being understood that the documents set forth in paragraphs (4)
through (17) below are required for each Property, except that (x) in the case
of the Properties identified on SCHEDULE A as Austin Center and Omni Hotel, said
two (2) Properties shall be covered by a single Mortgage and Indemnity and
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the requirements of paragraphs (6) through (17) below may be satisfied jointly
with respect to such Properties, where appropriate; (y) certain requirements
with respect to the Disposition Properties shall be deferred as provided in
Section 12.19; and (z) in the case of Woodlands, the items listed in paragraphs
(4) through (10) and (12) through (16) shall not be required; provided, however,
that if Woodlands has not been sold as contemplated by the Sales Contract
therefor as provided in this Agreement by the date that is sixty (60) days (as
such period may be extended by Administrative Agent) after the Closing Date, or
if said Sales Contract terminates or is cancelled, then the requirements of
paragraphs (8), (10) and (12) through (16) with respect to Woodlands shall be
performed in full by Borrower and delivered to Administrative Agent within
thirty (30) days thereafter);
(1) Fees and Expenses. The payment of all fees and expenses
incurred by UBS and Administrative Agent (including, without
limitation, the reasonable fees and expenses of legal counsel, the
Engineering Consultant and any valuation, environmental or insurance
consultants, and the reasonable out-of-pocket expenses of
Administrative Agent which Borrower has agreed to pay pursuant hereto);
(2) Notes. The Notes for UBS, each duly executed by Borrower;
(3) Guaranty. The Guaranty, duly executed by Guarantor;
(4) Mortgages and UCCs. The duly executed Mortgages, recorded
or to be recorded in the appropriate land records, together with duly
executed financing statements filed or about to be filed under the
Uniform Commercial Code of all jurisdictions necessary or, in the
reasonable opinion of Administrative Agent, desirable to perfect the
lien created by each Mortgage;
(5) Indemnities. The duly executed Indemnities;
(6) Title Policy. A paid title insurance policy in the amount
of the Mortgage (or such lesser amount as may be approved by
Administrative Agent), in form approved by Administrative Agent and
issued by the Title Insurer, which shall insure the Mortgage to be a
valid first lien on Borrower's (or, in the case of Washington Harbour,
Spectrum Centre and Trammell Crow Center, on the Other Mortgagor's)
interests in the Property and Improvements, free and clear of all
liens, defects, encumbrances and exceptions other than those previously
approved by Administrative Agent, and shall contain (i) a reference to
the survey but no survey exceptions, (ii) if such policy is dated
earlier than the date of the Initial Advance, an endorsement to such
policy, in a form approved by Administrative Agent, conforming to the
pending disbursements requirements set forth above and setting forth no
additional exceptions other than those approved by Administrative Agent
and (iii) such affirmative insurance and endorsements (including with
respect to pending disbursements and revolving credits) as
Administrative Agent may require; and shall be accompanied by such
reinsurance agreements between the Title Insurer and title companies
approved by Administrative Agent, in ALTA facultative form approved by
Administrative Agent and with direct access provisions, as
Administrative Agent may require;
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(7) Survey. A current ALTA/ACSM survey, certified to
Administrative Agent and the Title Insurer, showing (i) the location of
the perimeter of the Property by courses and distances, (ii) all
easements, rights-of-way, and utility lines referred to in the title
policy required by this Agreement or which actually service or cross
the Property (with instrument, book and page number indicated), (iii)
the lines of the streets abutting the Property and the width thereof,
and any established building lines (and that such roads have been
dedicated for public use and are completed and have been accepted by
all required Governmental Authorities), (iv) any encroachments and the
extent thereof upon the Property, (v) locations of all portions (with
the acreage thereof also identified) of the Property, if any, which are
located in an area designated as a "flood prone area" as defined by
U.S. Department of Housing and Urban Development pursuant to the Flood
Disaster Protection Act of 1973 and (vi) the Improvements, and the
relationship thereof by distances to the perimeter of the Property,
established building lines and street lines;
(8) Appraisal. An independent M.A.I. appraisal, commissioned
by Administrative Agent, of the value of the Property, which appraisal
shall comply in all respects with the standards for real estate
appraisals established pursuant to the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989;
(9) Insurance Policies. The certificates of hazard and other
insurance required by the Mortgage, together with evidence of the
payment of the premiums therefor;
(10) Hazardous Materials Report. A Phase I environmental site
assessment by a properly qualified engineer with respect to the
Property;
(11) Intentionally Omitted.
(12) Consultant's Report. A detailed report from the
Engineering Consultant to the effect that (i) the Improvements are in
satisfactory condition and have been constructed in accordance with the
plans and specifications therefor approved by all applicable
Governmental Authorities, (ii) the Improvements comply with all
applicable zoning and other Laws, (iii) all roads and utilities
necessary for the full utilization of the Improvements for their
intended purposes have been completed and (iv) there exists a
sufficient number of parking spaces necessary to satisfy the
requirements of all zoning and other applicable Laws with respect to
the Property, and all required landscaping, sidewalks and other
amenities, and all off-site improvements, related to the Improvements
have been completed;
(13) Permits and Other Approvals. Copies of any and all
certificates of occupancy required by all Governmental Authorities;
(14) Leases. Copies, certified to be true and complete, of all
executed leases of the Improvements, accompanied by notices of
assignments in the form of EXHIBIT F and, in the case of Major Leases
(i) estoppel certificates from the
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tenants thereunder, (ii) at Administrative Agent's option,
subordination, non-disturbance and attornment agreements and (iii) to
the extent available, current financial statements of the tenants (and
guarantors of the tenants' obligations, if applicable) thereunder;
together with a certified copy of the standard form of lease Borrower
is using in connection with the leasing of space in the Improvements
and the first rent roll, leasing report and operating/cash statements
required by paragraph (14) of Section 6.09;
(15) Premises Documents and Ground Leases. Copies, certified
to be true and complete, of the Premises Documents, together with
estoppel certificates with respect thereto from each of the parties
thereto (to the extent obtainable by Borrower after exerting reasonable
efforts) and, if available, current financial statements of such
parties; and, in the case of (i) those Properties in which Borrower has
a leasehold interest (i.e., those Properties identified on SCHEDULE A
as Stemmons Place and Frost Bank) and (ii) Washington Harbour, copies,
certified by Borrower or CWH, as the case may be, to be true and
complete, of the ground lease(s) of the Property, together with an
estoppel certificate with respect thereto from the ground lessors
and/or ground lessees thereunder;
(16) Management and Leasing Contracts. Copies, certified to be
true and complete, of all existing contracts providing for the
management and/or leasing of the Property and Improvements, together
with, in each case, such subordinations, collateral assignments and/or
"will-serve" letters as Administrative Agent may require;
(17) UCC Searches. Uniform Commercial Code searches with
respect to Borrower, the Other Mortgagor and each of the "Assignors"
under the Collateral Assignments, and advice from the Title Insurer to
the effect that searches of the proper public records disclose no
leases of personalty or financing statements filed or recorded against
Borrower, the Other Mortgagor, any of said Assignors, or any of the
Collateral;
(18) Financial Statements. (i) Guarantor's Consolidated
Financial Statements as of and for the year ended December 31, 1998,
certified by the chief financial officer of Guarantor and audited by
Guarantor's Accountants, (ii) unaudited Guarantor's Consolidated
Financial Statements, certified by the chief financial officer of
Guarantor, as of and for the quarter ended September 30, 1999, (iii)
financial statements of the Other Mortgagor, as of and for the year
ended December 31, 1998, certified by the chief financial officer and
audited by Guarantor's Accountants, (iv) unaudited financial statements
of the Other Mortgagor, certified by the chief financial officer, as of
and for the quarter ended September 30, 1999 and (v) unaudited
operating statements for each Property for the year ended December 31,
1999, certified by the chief financial officer of Borrower;
(19) Organizational Documents. For CEI, CEI Ltd. and any
general partner or member of Borrower, Guarantor, CHW, SMA or CCRH
which is a
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corporation, current copies of the following documents with respect to
each (unless otherwise indicated):
(i) a good-standing certificate from the jurisdiction
of its incorporation (other than for CEI),
(ii) a resolution, certified by the corporate
secretary, of the shareholders or directors of the corporation
authorizing the consummation of the transactions contemplated
hereby and the execution, delivery and performance of the Loan
Documents and other documents to be executed, delivered or
performed by said corporation (including any substitute or
replacement Notes to be executed and delivered pursuant to the
terms hereof), and
(iii) a certificate of the corporate secretary as to
the incumbency of the officers executing any of the documents
required hereby,
and for Borrower, CEI LP, CWH, SMA, CCRH and any general partner or
member (in the case of a limited liability company) of Borrower,
Guarantor, CWH or SMA which is a partnership, venture, limited
liability company or trust:
(iv) the entity's organizational/operating agreement
and all amendments and attachments thereto, certified by a
general partner, venturer, member or trustee to be true and
complete,
(v) good standing certificates from, and any other
certificates filed or required to be filed by the entity in,
the jurisdiction of its formation and in any of the
jurisdictions where the Properties are located, and
(vi) evidence of the authorization of the
consummation of the transactions contemplated hereby and the
execution, delivery and performance of the Loan Documents and
any other documents to be executed, delivered and performed by
said entity (including any substitute or replacement Notes to
be executed and delivered pursuant to the terms hereof), and
including any required consents by partners, venturers,
members, trustees or beneficiaries;
(20) Solvency Certificate. A duly executed Solvency
Certificate with respect to Borrower, Guarantor and the Other
Mortgagor;
(21) Opinions of Counsel. Favorable opinions, dated the
Closing Date, of counsel for Borrower, Guarantor and the Other
Mortgagor, as to such matters as Administrative Agent may reasonably
request;
(22) Authorization Letter. The Authorization Letter, duly
executed by Borrower;
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(23) Request for Advance. A request for an advance in
accordance with Section 2.04, together with such supporting
documentation as Administrative Agent may reasonably request;
(24) Certificate. The following statements shall be true and
Administrative Agent shall have received a certificate dated the
Closing Date signed by a duly authorized signatory of Borrower stating,
to the best of the certifying party's knowledge, the following:
(i) All representations and warranties contained in
this Agreement and in each of the other Loan Documents are
true and correct on and as of the Closing Date as though made
on and as of such date,
(ii) No Default or Event of Default has occurred and
is continuing, or could result from the transactions
contemplated by this Agreement and the other Loan Documents,
and
(iii) None of the Improvements on any Property has
been injured or damaged by fire or other casualty which has
not been satisfactorily repaired or restored as of the Closing
Date;
(25) Assignment of Loan Rights. The Assignments of Loan
Rights, duly executed by Borrower and SMA, as the case may be (and
related Uniform Commercial Code financing statements) and the related
absolute assignment(s)/subordination(s) in recordable form required
thereby (and related Uniform Commercial Code assignment statements),
together with the original executed collateral Notes and Mortgages and
related documents being assigned (or, in the case of any such documents
which have been lost or destroyed, such estoppels, affidavits or
indemnities as Administrative Agent may require), and, to the extent
obtainable by Borrower with reasonable effort, an acknowledgement and
agreement with respect thereto by the obligors and mortgagors/grantors
thereunder;
(26) Partnership Assignments. The Partnership Assignments,
duly executed by Borrower and CEI LP, as the case may be (and related
Uniform Commercial Code financing statements), together with copies,
certified by Borrower or CEI LP, as the case may be, to be true and
complete of the partnership agreements for SMA and Woodlands Office
Equities;
(27) Assignment of Sales Proceeds. The Assignment of Sales
Proceeds, duly executed by CEI LP (and related Uniform Commercial Code
financing statements);
(28) Agreement Regarding Encumbrances. The Agreement Regarding
Encumbrances, duly executed by CEI LP and in proper form for recording
in the appropriate land records;
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(29) Evidence regarding Existing Credit Facilities. Evidence
that the Existing Credit Facilities have been or will be repaid in full
and terminated upon the making of the Initial Advance;
(30) Sales Contracts. Copies, certified by CEI LP to be true
and complete, of the Sales Contracts;
(31) Disposition Property Conveyance Documents. The duly
executed Disposition Property Conveyance Documents;
(32) Covenant Compliance. A covenant compliance certificate of
the sort required by paragraph (3) of Section 6.09;
(33) Contribution Agreement. A Contribution Agreement among
Borrower and the Other Mortgagors; and
(34) Additional Materials. Such other approvals, documents,
instruments or opinions as Administrative Agent may reasonably request.
Section 4.02 Conditions Precedent to Advances After the
Initial Advance. The obligation of each Lender to make advances of the Loans
subsequent to the Initial Advance shall be subject to satisfaction of the
following conditions precedent:
(1) All conditions of Section 4.01 shall have been and remain
satisfied as of the date of the advance;
(2) No Default or Event of Default shall have occurred and be
continuing as of the date of the advance;
(3) Each of the representations and warranties contained in
this Agreement and in each of the other Loan Documents shall be true
and correct as of the date of the advance;
(4) No Material Adverse Change shall have occurred and be
continuing as of the date of the advance;
(5) Administrative Agent shall have received a request for an
advance in accordance with Section 2.04 and the other provisions
hereof, together with such supporting documentation as Administrative
Agent may reasonably request; and
(6) The conditions set forth in Section 2.17 shall have been
satisfied.
From time to time, Administrative Agent may cause the Title
Insurer to provide, at Borrower's expense, an informational continuation report
(and, if available at reasonable cost, a date down endorsement) with respect to
any or all of the Properties.
Section 4.03 Deemed Representations. Each request by Borrower
for, and acceptance by Borrower of, an advance of proceeds of the Loans shall
constitute
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a representation and warranty by Borrower, Guarantor and the Other Mortgagor
that, as of both the date of such request and the date of the advance, (i) no
Default or Event of Default has occurred and is continuing and (ii) each
representation or warranty contained in this Agreement or the other Loan
Documents is true and correct in all material respects.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Administrative Agent and
each Lender as follows:
Section 5.01 Due Organization and General Power and Authority.
Each of Borrower, CEI LP, SMA and CCRH is a limited partnership duly organized,
validly existing and in good standing under the Laws of the State of Delaware,
with its principal office in the State of Texas, has the power and authority to
own its assets and to transact the business in which it is now engaged, and, if
applicable, is duly qualified for the conduct of business and in good standing
under the Laws of each jurisdiction where a Property is located and each other
jurisdiction in which such qualification is required. CEI is a real estate
investment trust duly organized, validly existing and in good standing under the
Laws of the State of Texas, with its principal place of business in the State of
Texas, has the power and authority to own its assets and to transact the
business which it is now engaged and, if applicable, is duly qualified for the
conduct of business and in good standing under the Laws of each other
jurisdiction in which such qualification is necessary. Each of CEI, Ltd. and
Crescent Commercial Realty Corp. (CCRH's general partner) is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, with its principal place of business in the State of Texas, has the
power and authority to own its assets and to transact the business which it is
now engaged and, if applicable, is duly qualified for the conduct of business
and in good standing under the Laws of each other jurisdiction in which such
qualification is necessary. Each of CWH and CRE Management VIII, LLC (Borrower's
sole general partner) is a limited liability company duly organized, validly
existing and in good standing under the Laws of the State of Delaware, has the
power and authority to own its assets and to transact the business in which it
is now engaged, and, if applicable, is duly qualified for the conduct of
business and in good standing under the Laws of each jurisdiction where a
Property is located and each other jurisdiction in which such qualification is
required.
Section 5.02 Power and Authority Regarding Loans; No
Conflicts; Compliance With Laws. Each of Borrower, Guarantor and the Other
Mortgagor has full power and authority to consummate the transactions
contemplated hereby and to execute, deliver and perform this Agreement and any
Loan Document to which it is a party. The execution, delivery and performance of
the Obligations required to be performed by Borrower, Guarantor and/or the Other
Mortgagor does not and will not (i) require the consent or approval of its
shareholders, partners or members, as the case may be, or such consent or
approval has been obtained, (ii) contravene its certificate of incorporation,
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by-laws, partnership agreement or other organizational documents, (iii) violate
in any material way any provision of, or require any filing, registration,
consent or approval under, any Law (including, without limitation, Regulation
U), order, writ, judgment, injunction, decree, determination or award presently
in effect having applicability to it, (iv) require any consent under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which it may be a party or by which it or its properties may be
bound or affected except for consents which have been obtained, (v) result in,
or require, the creation or imposition of any Lien, upon or with respect to any
of its properties now owned or hereafter acquired or (vi) cause it to be in
default under any such indenture, agreement, lease or instrument, which default
is likely to result in a Material Adverse Change; each of Borrower, Guarantor
and the Other Mortgagor is in material compliance with all Laws applicable to it
and its properties.
Section 5.03 Legally Enforceable Agreements. Each Loan
Document is a legal, valid and binding obligation of Borrower, Guarantor and/or
the Other Mortgagor enforceable against said parties in accordance with its
terms, except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency and other similar Laws affecting creditors' rights
generally.
Section 5.04 Litigation. Except as set forth on SCHEDULE 5.04,
there are no actions, suits or proceedings pending or, to its knowledge,
threatened against Borrower, Guarantor, CWH, any Material Affiliate, any
Property or the Improvements thereon, the validity or enforceability of any
Mortgage or the priority of the Lien thereof, at law or in equity, before any
court or arbitrator or any Governmental Authority (and, to the knowledge of
Borrower, there are no such actions, suits or proceedings pending or threatened
against Woodlands, Woodlands Office Equities, Trammell Crow Center, CCRH,
Spectrum Centre or SMA), except actions, suits or proceedings which have been
disclosed to Administrative Agent in writing and which are fully covered by
insurance or would, if adversely determined, not substantially impair the
ability of Borrower, Guarantor, or the Other Mortgagor to pay when due any
amounts which may become payable under the Notes or other Loan Documents or to
otherwise pay and perform their respective Obligations.
Section 5.05 Good Title to Properties. Borrower, Guarantor,
the Other Mortgagor and each Material Affiliate have good, marketable and legal
title to all of the properties and assets each of them purports to own
(including, without limitation, those reflected in the financial statements
referred to in Section 5.13), only with exceptions which do not materially
detract from the value of such property or assets or the use thereof in
Borrower's, Guarantor's, the Other Mortgagor's or such Material Affiliate's
business. Borrower, Guarantor, the Other Mortgagor and each Material Affiliate
enjoy peaceful and undisturbed possession of all leased property necessary in
any material respect in the conduct of their respective businesses. All such
leases are valid and subsisting and are in full force and effect.
Section 5.06 Taxes. Each of Borrower, Guarantor and the Other
Mortgagor has filed all tax returns (federal, state and local) required to be
filed and has paid all taxes, assessments and governmental charges and levies
due and payable without
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the imposition of a penalty, including interest and penalties, except to the
extent they are the subject of a Good Faith Contest.
Section 5.07 ERISA. Each of Borrower, Guarantor and the Other
Mortgagor is in compliance in all material respects with all applicable
provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has
occurred with respect to any Plan which could result in liability of any of said
parties; no notice of intent to terminate a Plan has been filed nor has any Plan
been terminated within the past five (5) years; no circumstance exists which
constitutes grounds under Section 4042 of ERISA entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; Borrower, Guarantor, the Other
Mortgagor and the ERISA Affiliates have not completely or partially withdrawn
under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; Borrower,
Guarantor, the Other Mortgagor and the ERISA Affiliates have met the minimum
funding requirements of Section 412 of the Code and Section 302 of ERISA of each
with respect to the Plans of each and there is no material "Unfunded Current
Liability" (as such quoted term is defined in ERISA) with respect to any Plan
established or maintained by each; and Borrower, Guarantor, the Other Mortgagor
and the ERISA Affiliates have not incurred any liability to the PBGC under ERISA
(other than for the payment of premiums under Section 4007 of ERISA). No part of
the funds to be used by Borrower or Guarantor in satisfaction of their
respective Obligations constitute "plan assets" of any "employee benefit plan"
within the meaning of ERISA or of any "plan" within the meaning of Section
4975(e)(1) of the Code, as interpreted by the Internal Revenue Service and the
U.S. Department of Labor in rules, regulations, releases, bulletins or as
interpreted under applicable case law. Neither the extension of credit evidenced
by the Notes nor any other transaction contemplated under the Loan Documents
constitutes a Prohibited Transaction.
Section 5.08 No Default on Outstanding Judgments or Orders.
Borrower, Guarantor, the Other Mortgagor and each Material Affiliate have
satisfied all judgments which are not being appealed, and are not in default
with respect to any judgment, order, writ, injunction, decree, rule or
regulation of any court, arbitrator or federal, state, municipal or other
Governmental Authority, commission, board, bureau, agency or instrumentality,
domestic or foreign, where such default is likely to result in a Material
Adverse Change.
Section 5.09 No Defaults on Other Agreements. Except as
disclosed to Administrative Agent in writing, neither Borrower, Guarantor, the
Other Mortgagor nor any Affiliate of any of them is a party to any indenture,
loan or credit agreement or any lease or other agreement or instrument or
subject to any partnership, trust or other restriction which is likely to result
in a Material Adverse Change. Neither Borrower, Guarantor, the Other Mortgagor
nor any Affiliate of any of them is in default in any respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument which is likely to result in
a Material Adverse Change.
Section 5.10 Government Regulation. Neither Borrower,
Guarantor nor the Other Mortgagor is subject to regulation under the Investment
Company Act of
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1940 or any statute or regulation limiting its ability to incur indebtedness for
money borrowed as contemplated hereby.
Section 5.11 Environmental Protection. To the best of
Borrower's knowledge, except as disclosed in the Phase I environmental reports
delivered pursuant to paragraph (10) of Section 4.01 (the "Environmental
Reports"), (a) none of Borrower's, Guarantor's or the Other Mortgagor's or any
of their respective Affiliates' properties contains any Hazardous Materials
that, under any Environmental Law currently in effect, (i) would impose
liability on Borrower, Guarantor or the Other Mortgagor that is likely to result
in a Material Adverse Change or (ii) is likely to result in the imposition of a
Lien on any assets of Borrower, Guarantor or the Other Mortgagor, in each case
if not properly handled in accordance with applicable Law; and (b) neither it,
Guarantor, the Other Mortgagor nor any portion of any Property or the
Improvements thereon is in violation of, or subject to any existing, pending or,
to the best of Borrower's knowledge, threatened investigation or proceeding by
any Governmental Authority under, any Environmental Law. Except as described in
the Environmental Reports, (c) neither Borrower, Guarantor nor the Other
Mortgagor is aware of any matter, claim, condition or circumstance which would
reasonably cause a Person to make further inquiry with respect to such matters
in order to ascertain whether any Environmental Discharge has occurred on or to
any portion of any Property, the Improvements thereon or any surrounding areas;
(d) neither Borrower, Guarantor nor the Other Mortgagor is required by any
Environmental Law to obtain any material permits or license to construct or use
any improvements, fixtures, or equipment with respect to any Property, or if
such permit or license is required it has been obtained; and (e) to the best of
Borrower's knowledge, the prior use of each Property has not resulted in any
Environmental Discharge on or to any portion of the Property or any surrounding
areas in violation of applicable Law.
Section 5.12 Solvency. Each of Borrower, Guarantor and the
Other Mortgagor is, and upon consummation of the transactions contemplated by
this Agreement, the other Loan Documents and any other documents, instruments or
agreements relating thereto, will be, Solvent.
Section 5.13 Financial Statements. Borrower's Consolidating
Financial Statements, Guarantor's Consolidated Financial Statements and the
Other Mortgagor's financial statements most recently delivered to Administrative
Agent pursuant to the terms of this Agreement are in all material respects
complete and correct and fairly present the financial condition of the subjects
thereof as of the dates of and for the periods covered by such statements, all
in accordance with GAAP. There has been no Material Adverse Change since the
date of such most recently delivered Borrower's Consolidating Financial
Statements, Guarantor's Consolidated Financial Statements and the Other
Mortgagor's financial statements, and no borrowings which might give rise to a
Lien or claim against all or any portion of the Collateral or against the
proceeds of the Loans have been made by Borrower or others since the dates of
such most recently delivered Borrower's Consolidating Financial Statements,
Guarantor's Consolidated Financial Statements and the Other Mortgagor's
financial statements.
Section 5.14 Valid Existence of Affiliates. At the Closing
Date, the only material Affiliates of Borrower and/or Guarantor are the Material
Affiliates listed on
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EXHIBIT C. Each Material Affiliate is a corporation, partnership or limited
liability company duly organized and existing in good standing under the Laws of
the jurisdiction of its formation. As to each Material Affiliate, its correct
name, the jurisdiction of its formation, Borrower's and/or Guarantor's
percentage of beneficial interest therein, and the type of business in which it
is primarily engaged, are set forth on said EXHIBIT C. Borrower, Guarantor and
each of their respective Material Affiliates have the power to own their
respective properties and to carry on their respective businesses now being
conducted. Each Material Affiliate is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which the nature of
the respective businesses conducted by it or its respective properties, owned or
held under lease, make such qualification necessary.
Section 5.15 Insurance. Borrower and the Other Mortgagor have
in force paid insurance as required by the Mortgages and, generally, Borrower,
Guarantor and the Other Mortgagor have in force paid insurance with financially
sound and reputable insurance companies or associations in such amounts and
covering such risks as are usually carried by companies engaged in the same type
of business and similarly situated.
Section 5.16 Accuracy of Information; Full Disclosure. Neither
this Agreement nor any documents, financial statements, reports, notices,
schedules, certificates, statements or other writings furnished by or on behalf
of Borrower or Guarantor to Administrative Agent or any Lender in connection
with the negotiation of this Agreement or the other Loan Documents or the
consummation of the transactions contemplated hereby, or required herein or by
the other Loan Documents to be furnished by or on behalf of Borrower or
Guarantor (other than projections which are made by Borrower or Guarantor in
good faith), contains any untrue or misleading statement of a material fact or
omits a material fact necessary to make the statements herein or therein not
misleading. There is no fact which Borrower has not disclosed to Administrative
Agent and Lenders in writing which materially affects adversely or, so far as
Borrower can now foresee, will materially affect adversely any of the Collateral
or the business, prospects, profits or financial condition of Borrower or
Guarantor or the ability of Borrower or Guarantor to perform this Agreement and
the other Loan Documents.
Section 5.17 Separate Tax and Zoning Lot. Except for the
Property identified on SCHEDULE A as Avallon Phase II (with respect to taxes
only), each Property constitutes a distinct parcel for purposes of zoning and of
taxes, assessments and impositions (public or private) and is not otherwise
considered as part of a larger single lot for purposes of zoning or of taxes,
assessments or impositions (public or private). For purposes of the foregoing
representation, Omni Hotel and Austin Center constitute one (1) Property.
Section 5.18 Zoning and Other Laws; Covenants and
Restrictions. As to each Property, (i) the Improvements and the uses thereof
comply in all material respects with applicable zoning, ecological, landmark and
other applicable Laws (including any requirements with respect to parking
spaces) and all requirements for such uses have been satisfied and (ii)
Borrower, the Other Mortgagors and each of their
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respective Properties are in compliance in all material respects with all
applicable restrictions and covenants.
Section 5.19 Utilities Available. As to each Property, all
utility services necessary for the operation of the Improvements for their
intended purposes are available and servicing the Property, including water
supply, storm and sanitary sewer, gas, electric power and telephone facilities.
Section 5.20 Creation of Liens. Neither Borrower, Guarantor
nor the Other Mortgagor has entered into any contract or arrangement of any kind
the performance of which by the other party thereto would give rise to a Lien on
all or part of the Mortgaged Property prior to any Mortgage.
Section 5.21 Roads. As to each Property, all roads necessary
for the full utilization of the Improvements for their intended purposes have
been completed and dedicated to public use and accepted by all appropriate
Governmental Authorities.
Section 5.22 Premises Documents and Leases. As to each
Property, (i) the Premises Documents are unmodified and in full force and
effect, there are no defaults under any thereof, and all conditions to the
effectiveness and continuing effectiveness thereof required to be satisfied as
of the date hereof have been satisfied and (ii) (A) all leases are unmodified
(except for such modifications as have been delivered to Administrative Agent
pursuant to the terms of this Agreement) and in full force and effect, there are
no defaults under any thereof except as disclosed to Administrative Agent in
writing, and all conditions to the effectiveness and continuing effectiveness
thereof required to be satisfied as of the date hereof have been satisfied; (B)
the tenant has accepted and now occupies its entire demised premises, all work
required by the lease to be performed by the landlord thereunder has been or
will be completed in accordance with the lease; and the landlord has no current
obligation to reimburse the tenant for any tenant improvement work, money
allowance or similar amount under the lease; (C) no advance rental or other
payment has been made in connection with the lease except rental for the current
month and all base rent, additional rent and other sums owning by the tenant
have been paid in full to and including December 31, 1999; (D) the tenant has no
offsets, set-offs, rebates, concessions, abatements or defenses against or with
respect to rent, additional rent, escalation rent or other sums payable under
the terms of the lease; (E) the amount of the security deposit, if any,
presently held by the landlord under the lease is set forth on the security
deposit reports required to be delivered by Borrower pursuant to the terms of
this Agreement, the landlord holds no other funds of the tenant, and interest is
not payable to the tenant on such security deposit except as may be specifically
set forth on said rent rolls; (F) there are no options to purchase all or part
of the demised premises contained in the lease, other than as set forth on
SCHEDULE 5.22; and (G) no tenant has delivered a notice of termination or
cancellation under its lease.
Section 5.23 Applicability of Representations and Warranties
to Residential Corporations and Investment Partnerships. Lenders agree that the
representations and warranties made by Borrower in this Agreement with respect
to any Affiliate (whether or not a Material Affiliate) in which Guarantor does
not own a
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controlling interest or otherwise control the day to day business operations
shall be limited to the best of Borrower's knowledge and belief.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any of the Notes shall remain unpaid, or the Loan
Commitments remain in effect, or any other amount is owing to Administrative
Agent or any Lender under any Loan Document or otherwise in respect of the
Loans, Borrower shall, and, in the case of Sections 6.01 through 6.07,
inclusive, shall (except as otherwise expressly provided) cause Guarantor, and,
in the case of Section 6.01 through 6.07, inclusive, 6.10, 6.11 and 6.12, shall
(except as otherwise expressly provided) cause the Other Mortgagor to:
Section 6.01 Maintenance of Existence. Preserve and maintain
its legal existence and good standing in the jurisdictions of its organization
and, if required by applicable Law, where each Property is located, and qualify
and remain qualified as a foreign entity in each other jurisdiction in which
such qualification is required.
Section 6.02 Maintenance of Records. Keep adequate records and
books of account, in which complete entries will be made reflecting all of its
financial transactions, in accordance with GAAP.
Section 6.03 Maintenance of Insurance. At all times, maintain
and keep in force (i) (in the case of Borrower only) the insurance required by
each of the Mortgages and (ii) insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by companies engaged in the same type of business and
similarly situated, which insurance shall be reasonably acceptable to
Administrative Agent and may provide for reasonable deductibility from coverage
thereof.
Section 6.04 Compliance with Laws; Payment of Taxes. Comply in
all material respects with all Laws applicable to it or to any of its properties
or any part thereof, such compliance to include, without limitation, paying
before the same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its property, except to the extent they are the
subject of a Good Faith Contest.
Section 6.05 Right of Inspection. At any reasonable time and
from time to time upon reasonable notice, permit Administrative Agent or any
agent or representative thereof to examine and make copies and abstracts from
its records and books of account and to discuss its affairs, finances and
accounts with the independent accountants of Borrower; as to each Property,
cooperate with the Engineering Consultant to enable it to perform its functions
hereunder, as to each Property, keep on site (other than the insurance policies
referred to below which may be kept at Borrower's principal office if part of a
master or blanket policy) and available for inspection by Administrative Agent,
(i) a complete set of the plans and specifications for the Improvements, a site
plan
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(showing all necessary approvals, utility connections and site improvements) and
all inspection and test records and reports made for the Property, (ii) copies
of any and all authorizations, including plot plan and subdivision approvals,
zoning variances, sewer, building and other permits, required by all
Governmental Authorities for the use, occupancy and operation of the Property
and/or Improvements in accordance with all applicable building, environmental,
ecological, landmark, subdivision and zoning Laws and (iii) copies of all
insurance policies required by the Loan Documents with respect to such Property;
and permit Administrative Agent or any Lender or any agent or representative
thereof, at reasonable times, on reasonable advance notice and at reasonable
frequencies, to visit and inspect any of its properties (including the
Properties), provided that no such visit or inspection shall unduly interfere
with the conduct of Borrower's, Guarantor's, or the Other Mortgagor's or their
respective tenants' business.
Section 6.06 Compliance With Environmental Laws. Comply in all
material respects with all applicable Environmental Laws and timely pay or cause
to be paid all costs and expenses incurred in connection with such compliance,
except to the extent the same are the subject of a Good Faith Contest; and at
its sole cost and expense, promptly remove or otherwise remediate in accordance
with Environmental Laws, or cause the removal or remediation of, any and all
Hazardous Materials at any time identified as being on, in, under or affecting
any Property or the Improvements thereon in violation of applicable
Environmental Law.
Section 6.07 Maintenance of Properties. Do all things
reasonably necessary to maintain, preserve, protect and keep its properties in
good repair, working order and condition.
Section 6.08 Payment of Costs. Pay all costs and expenses
required for the satisfaction of the conditions of this Agreement, including,
without limitation, (i) all document and stamp taxes, recording and filing
expenses and fees and commissions lawfully due to brokers in connection with the
transactions contemplated hereby and (ii) any taxes, assessments, impositions
(public or private), insurance premiums, Liens, security interests or other
claims or charges against any Property.
Section 6.09 Reporting and Miscellaneous Document
Requirements. Furnish directly to Administrative Agent (who will promptly
furnish to each Lender):
(1) Annual Financial Statements. As soon as available and in
any event within ninety five (95) days after the end of each Fiscal
Year, Borrower's Consolidating Financial Statements, Guarantor's
Consolidated Financial Statements and the Other Mortgagor's financial
statements, as of the end of and for such Fiscal Year, each in
reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the prior Fiscal Year,
certified by the entity's chief financial officer or, in the case of
the Other Mortgagor, by another appropriate officer and audited by
Guarantor's Accountants;
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(2) Quarterly Financial Statements. As soon as available and
in any event within forty-five (45) days after the end of each calendar
quarter, unaudited Borrower's Consolidating Financial Statements,
Guarantor's Consolidated Financial Statements and the Other Mortgagor's
financial statements, as of the end of and for such calendar quarter,
each in reasonable detail and stating in comparative form the
respective figures for the corresponding date and period in the prior
Fiscal Year and certified by Guarantor's chief financial officer or, in
the case of the Other Mortgagor, by another appropriate officer;
(3) Certificate of No Default and Financial Compliance. Within
forty-five (45) days after the end of each calendar quarter, a
certificate of Guarantor's chief financial officer (i) stating that, to
the best of his or her knowledge, no Default or Event of Default has
occurred and is continuing, or if a Default or Event of Default has
occurred and is continuing, specifying the nature thereof and the
action which is proposed to be taken with respect thereto and (ii)
stating that the covenants contained in Article VIII and in paragraphs
9 and 10 of the Guaranty have been complied with (or specifying those
that have not been complied with) and including computations, in
reasonable detail, demonstrating such compliance (or non-compliance);
(4) Certificate of Borrower's Accountants. Simultaneously with
the delivery of the annual financial statements required by paragraph
(1) of this Section, (i) a statement of Guarantor's Accountants who
audited such financial statements comparing the computations set forth
in the financial compliance certificate required by paragraph (3) of
this Section to the audited financial statements required by paragraph
(1) of this Section and (ii) when the audited financial statements
required by paragraph (1) of this Section have a qualified auditor's
opinion, a statement of Guarantor's Accountants who audited such
financial statements of whether, to their knowledge, any Default or
Event of Default has occurred and is continuing;
(5) Notice of Litigation. Promptly after the commencement and
knowledge thereof, notice of all actions, suits, and proceedings before
any court or arbitrator or any Governmental Authority, affecting (i)
Borrower, Guarantor or the Other Mortgagor which, if determined
adversely to Borrower, Guarantor or the Other Mortgagor, are likely to
result in a Material Adverse Change or (ii) all or any portion of the
Collateral;
(6) Notices of Defaults and Events of Default. As soon as
possible and in any event within ten (10) days after Borrower becomes
aware of the occurrence of a material Default or any Event of Default,
a written notice setting forth the details of such Default or Event of
Default and the action which is proposed to be taken with respect
thereto;
(7) Dispositions or Acquisitions of Assets. Within thirty (30)
days after the occurrence thereof, written notice of any Disposition or
acquisition of assets (other than acquisitions or Dispositions of
investments such as certificates of deposit, Treasury securities and
money market deposits in the ordinary course
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of Guarantor's cash management) by Guarantor in excess of $25,000,000,
together with, in the case of any acquisition of such an asset, (i) a
certificate, of the sort required by clause (ii) of paragraph (3) of
this Section, containing covenant compliance calculations that include
the pro-forma adjustments set forth in paragraph 11 of the Guaranty,
which calculations shall demonstrate Guarantor's compliance, on a
pro-forma basis, as of the end of the most recently ended calendar
quarter for which financial results are required hereunder to have been
reported, with all covenants of Guarantor enumerated in said clause
(ii) of paragraph (3) and (ii) such other information relating to the
acquisition as Administrative Agent may reasonably request;
(8) Material Adverse Change. As soon as is practicable and in
any event within five (5) days after knowledge of the occurrence of any
event or circumstance which is likely to result in or has resulted in a
Material Adverse Change, written notice thereof;
(9) Offices. Thirty (30) days' prior written notice of any
change in the chief executive office or principal place of business of
Borrower or Guarantor;
(10) Environmental and Other Notices. As soon as possible and
in any event within thirty (30) days after receipt, copies of (i) all
Environmental Notices received by Borrower, Guarantor or the Other
Mortgagor which are not received in the ordinary course of business and
which relate to any Property or a situation which is likely to result
in a Material Adverse Change and (ii) all reports of any official
searches made by any Governmental Authority having jurisdiction over
any Property or the Improvements thereon, and of any claims of material
violations thereof;
(11) Insurance Coverage. Promptly, such information concerning
Borrower's or Guarantor's insurance coverage as Administrative Agent
may reasonably request;
(12) Proxy Statements, Etc. Promptly after the sending or
filing thereof, copies of all proxy statements, financial statements
and reports which Borrower, Guarantor or any Material Affiliate sends
to its shareholders, and copies of all regular, periodic and special
reports, and all registration statements which Borrower, Guarantor or
any Material Affiliate files with the Securities and Exchange
Commission or any Governmental Authority which may be substituted
therefor, or with any national securities exchange;
(13) Bankruptcy of Tenants. Promptly after becoming aware of
the same, written notice of the bankruptcy, insolvency or cessation of
operations of (i) any tenant in any property of Guarantor or in which
Guarantor has an interest to which 5% or more of aggregate minimum rent
payable to Guarantor directly or through its "Consolidated Businesses"
or "UJV's" (as such quoted terms are defined in the Guaranty) is
attributable or (ii) the tenant under any Major Lease;
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(14) Rent Rolls, Leasing Reports and Other Property
Information. As soon as available and in any event within forty-five
(45) days after the end of each calendar quarter, a rent roll, security
deposit report, leasing report (including lease expirations) and
operating and cash statements, all for each Property;
(15) Capital Expenditures and Budgets. As soon as available
and in any event within ninety (90) days after the end of each Fiscal
Year, a schedule of such Fiscal Year's capital expenditures, a budget
for the next Fiscal Year's planned capital expenditures and a detailed
operating budget for such next Fiscal Year, including supporting
schedules, all for each Property;
(16) Receipts for Impositions. Promptly following the payment
of any taxes, assessments, levies, charges or other impositions imposed
on or assessed against any Property, or any part thereof, copies of the
receipted bills therefor or other reasonably acceptable evidence of
payment; and
(17) General Information. Promptly, such other information
respecting the condition or operations, financial or otherwise, of
Borrower, Guarantor, the Other Mortgagors, any Property or any other
properties of Borrower or Guarantor as Administrative Agent may from
time to time reasonably request.
Section 6.10 Premises Documents; Leases. As to each Property,
(i) deliver to Administrative Agent, promptly following the execution thereof,
copies of (x) all amendments or supplements to any Premises Documents or any
lease and (y) all leases, together with (A) to the extent available, current
financial statements of the tenants thereunder (and of any guarantors of such
tenants' obligations) and (B) notices of assignment in the form of EXHIBIT F;
(ii) keep all Premises Documents and leases in full force and effect, faithfully
comply with and perform all of its obligations thereunder and at all times do
all things reasonably necessary to compel performance by the parties to the
Premises Documents or the tenants under such leases, as the case may be, of all
material obligations, covenants and agreements by such parties or tenants, as
the case may be, to be kept and performed thereunder; (iii) without
Administrative Agent's prior written consent, which consent will not be
unreasonably withheld or delayed, not (x) enter into or modify (other than
immaterial modifications) any Premises Document or Major Lease where such action
involves (A) a net space contraction or space contraction payment, (B) a net
reduction in rent, (C) the shortening of any lease term or (D) a material
increase in the landlord's potential liability or financial obligation, (y)
modify (other than immaterial modification), release or terminate any guaranty
of any Major Lease or (z) enter into any lease (other than a Major Lease) of any
portion of the Improvements unless such lease is (A) substantially on a standard
form approved by Administrative Agent, (B) at commercially reasonable market
rent and (C) otherwise on commercially reasonable terms; (iv) without
Administrative Agent's prior written consent (which will not be unreasonably
withheld or delayed), except where the tenant is in default thereunder, not
terminate or consent to the termination or surrender of any lease of any portion
of the Improvements having an unexpired term of one (1) year or more except (x)
in the case of a Major Lease, where a substitute lease, approved by
Administrative Agent in accordance with this Section, is entered into or (y) in
the case of any other lease, in the normal course of business consistent with
sound and customary
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leasing and management practices for similar properties; (v) deliver promptly to
Administrative Agent copies of any material notices which it gives or receives
under any Premises Document or Major Lease; (vi) deliver to Administrative
Agent, within thirty (30) days following Administrative Agent's request
therefor, subordination, non-disturbance and attornment agreements (on
Administrative Agent's then standard form) from the tenants under such Major
Leases as Administrative Agent may from time to time specify; and (vii) deliver
to Administrative Agent, within thirty (30) days following any request by
Administrative Agent made within sixty (60) days of the Closing Date, estoppel
certificates from any tenants who have more than one lease of space in the
Improvements on such Property, which leases demise, in the aggregate, 10,000
square feet or more. Notwithstanding the foregoing, Borrower shall be required
to comply with requirements of clauses (i) through (vii) above with respect to
Woodlands, Spectrum Centre and Trammel Crow only to the extent it is able to do
so with reasonable effort. As to the Office Properties, not enter into any
Equity Share Leases covering more than 7% of the leasable area of the
Improvements on any single Office Property (other than the lease to be entered
into with Infospinner, Inc., a Delaware corporation, covering approximately
60,000 square feet in the Improvements on the Property identified on SCHEDULE A
as Palisades Central I) or more than 3% of the leasable area of the Improvements
on all Office Properties as a whole.
Provided there exists no Event of Default, except as expressly
provided in this Section 6.10 and in Section 1.14 of each of the Mortgages,
Borrower and the Other Mortgagor shall have the authority to enter into such
executions, modifications, terminations or extensions of leases with respect to
each Property and to undertake all other commercially reasonable actions in
exercising its legal remedies as landlord under the leases. With respect to any
action that requires Administrative Agent's prior written consent pursuant to
this Section, Administrative Agent shall be deemed to have approved Borrower's
written request for approval if Administrative Agent fails to respond, either by
reasonably requesting additional information or by disapproving the request,
within five (5) Business Days after Administrative Agent's receipt of such
request from Borrower, provided such request shall make specific reference to
the provisions of this of this Section and shall expressly state, in solid
capital letters on the first page thereof: "YOU ARE HEREBY REMINDED THAT YOUR
FAILURE TO PROVIDE NOTIFICATION OF APPROVAL OR DISAPPROVAL NOT LATER THAN FIVE
(5) BUSINESS DAYS AFTER YOUR RECEIPT OF THIS REQUEST SHALL BE DEEMED, PURSUANT
TO SECTION 6.10 OF THE LOAN AGREEMENT, TO CONSTITUTE YOUR APPROVAL THEREOF."
In the case of each Equity Share Lease, Borrower shall (or
cause the Other Mortgagor to), simultaneously with its entering into such Equity
Share Lease, (i) execute and deliver to Administrative Agent a pledge agreement,
in form reasonably satisfactory to Administrative Agent, as security for the
Loans, with respect to any Permitted Stock received by the landlord in
connection with such Equity Share Lease and (ii) deliver to Administrative Agent
possession of the original stock certificates evidencing such Permitted Stock,
to be held by Administrative Agent to perfect its security interest in such
Permitted Stock.
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Section 6.11 Compliance with Covenants, Restrictions and
Easements. Comply with all restrictions, covenants and easements affecting each
Property or the Improvements thereon and cause the satisfaction of all
conditions of this Agreement.
Section 6.12 Management and Leasing Contracts. Deliver to
Administrative Agent, as and when executed, certified copies of all management
and leasing contracts entered into with respect to any Property, each of which
shall be entered into with a party, and on terms and conditions, reasonably
acceptable to Administrative Agent; and contemporaneously with entering into
each such contract, at Administrative Agent's option, cause each of the
foregoing to be subordinated and collaterally assigned to Administrative Agent
for the benefit of Lenders as additional security for the Loans and/or cause the
service provider under each such contract to undertake, inter alia, to continue
performance on Lenders' behalf without additional cost in the event of a
Default; and keep in full force and effect and not materially modify the
management and leasing agreement(s) approved pursuant to paragraph (16) of
Section 4.01 without Administrative Agent's prior written consent.
Section 6.13 Interest Rate Protection. Promptly following
Administrative Agent's request, enter into an interest rate hedging agreement(s)
with UBS (or one or more other financial institutions satisfactory to
Administrative Agent) covering $300,000,000, for the remaining term of the Loan
or longer, at a maximum all-in-rate of 10.5%, and Borrower shall collaterally
assign to Administrative Agent, for the benefit of Lenders, all of Borrower's
rights in and to such interest rate hedging agreement.
ARTICLE VII
SINGLE PURPOSE ENTITY AND CONTROL
So long as any of the Notes shall remain unpaid, or the Loan
Commitments remain in effect, or any other amount is owing to Administrative
Agent or any Lender under any Loan Document or otherwise in respect of the
Loans:
Section 7.01 Single Purpose Entity.
(a) Borrower represents and warrants that it and its sole
general partner, CRE Management VIII, LLC (such sole general partner,
"Principal"), and, by its execution of this Agreement Principal represents and
warrants that Principal, shall be a specifically-formed single-purpose entity
and that neither Borrower nor Principal has, and covenants and agrees that
neither Borrower nor Principal shall:
(i) with respect to Borrower, engage in any business or
activity other than the ownership, operation and maintenance of the
Properties and activities incidental thereto; and with respect to
Principal, engage in any business or activity other than the ownership
of its interest in Borrower and such activities as are directly related
to its acting as general partner of Borrower;
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(ii) with respect to Borrower, acquire or own any material
assets other than (A) the Properties, (B) such incidental personal
property as may be necessary for the operation of the Properties and
(C) Permitted Stock acquired under Equity Share Leases; and with
respect to Principal, acquire or own any material assets other than its
ownership interest in Borrower and such incidental personal property as
may be necessary in connection therewith;
(iii) merge into or consolidate with any Person or dissolve,
terminate or liquidate in whole or in part, transfer or otherwise
dispose of all or substantially all of its assets or change its legal
structure;
(iv) fail to preserve its existence as an entity duly
organized, validly existing and in good standing (if applicable) under
the laws of the jurisdiction of its organization or formation, or,
without the prior consent of the Required Lenders, amend, modify or
terminate any provisions of its organizational documents which relate
to separateness or the role of the Independent Manager or which may
hereafter be required by this Agreement;
(v) own any subsidiary or make any investment in any Person
other than, with respect to Borrower, Permitted Stock acquired under
any Equity Share Lease and, with respect to Principal, its interest in
Borrower;
(vi) commingle its assets with the assets of any of its
general partners, managing members, Affiliates or Principals, or of any
other Person;
(vii) with respect to Borrower, incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any
obligation), other than (A) the Loans, (B) indebtedness in the ordinary
course of its business of owning and operating the Properties, provided
that such indebtedness is not evidenced by a note and is paid when due
(but in any event, within sixty (60) days of the date incurred); and
with respect to Principal, incur any debt, secured or unsecured, direct
or contingent (including guaranteeing any obligation);
(viii) become insolvent or fail to pay its debts and
liabilities from its assets as the same shall become due;
(ix) fail to maintain its records, books of account and bank
accounts (if any) separate and apart from those of any other Person;
(x) enter into any contract or agreement with any Affiliate of
Borrower or of Principal, except upon terms and conditions that are
substantially similar to those that would be available on an
arm's-length basis with third parties other than such Affiliate;
(xi) partition, or seek to partition, any of the Properties,
or seek the dissolution or winding up, in whole or in part, of Borrower
or of Principal, as the case may be;
(xii) fail to correct any known misunderstandings regarding
the separate identity of Borrower or Principal, as the case may be;
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(xiii) hold itself out to be responsible for the debts of
another Person;
(xiv) make any loans or advances to any third party, including
any Affiliate of Borrower or of Principal;
(xv) fail to file its own tax returns, if required, unless
part of the consolidated returns of another Person;
(xvi) agree to, enter into or consummate any transaction which
would render Borrower unable to make the representation contained in
Section 5.12;
(xvii) fail either to hold itself out to the public as a legal
entity separate and distinct from any other Person or to conduct its
business solely in its own name in order not (A) to mislead others as
to the identity with which such other party is transacting business or
(B) to suggest that Borrower or Principal, as the case may be, is
responsible for the debts of any third party (including any Affiliate
of Borrower or of Principal);
(xviii) hold itself out as or be designated as a department or
division of (A) any Affiliate of Borrower or of Principal or (B) any
other Person; or
(xix) file or consent to the filing of any bankruptcy or
insolvency petition or otherwise institute insolvency proceedings with
respect to itself or any entity in which it has a direct or indirect
ownership interest without, in the case of Borrower, the unanimous
consent of all partners and the consent of the Independent Manager and,
in the case of Principal, the unanimous consent of all members, the
consent of its Manager and the consent of the Independent Manager.
(b) Borrower and Principal covenant and agree that (i) the
limited partnership agreement of Borrower shall provide that (A) Borrower shall
dissolve only with the unanimous consent of all partners and the consent of the
Independent Manager and (B) any provision of such partnership agreement that
requires the consent of the Independent Manager for a particular action may not
be amended without the consent of the Independent Manager; (ii) the limited
liability company agreement of Principal shall provide that (A) Principal shall
be (x) governed by a Manager and (y) at all times have an Independent Manager
who will have the right to consent to certain actions by Principal, (B)
Principal shall dissolve only with the unanimous consent of all members, the
consent of its Manager and the consent of the Independent Manager and (C) any
provision of such limited liability company agreement that requires the consent
of the Independent Manager for a particular action may not be amended without
the consent of the Independent Manager; (iii) at all times, Principal shall have
an Independent Manager; and (iv) the partnership agreement and limited liability
company agreement of Borrower and Principal, respectively, shall include
provisions substantially similar to those contained in paragraph (a) of this
Section.
(c) As used in this Agreement, the term "Independent Manager"
means an individual, acting in the capacity described in clause (ii) (A) (y) of
paragraph (b) above, who is not at the time of initial appointment, or at any
time while serving as
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Independent Manager, and has not been at any time during the preceding five (5)
years, (i) a stockholder, director, officer, employee, partner, attorney or
counsel of Principal, Borrower, Guarantor or any Affiliate thereof, (ii) a
customer, supplier or other Person who derives any of its purchases or revenues
from its activities with Principal, Borrower, Guarantor or any Affiliate
thereof, (iii) an Affiliate of any such stockholder, partner, customer, supplier
or other Person or (iv) a member of the immediate family of any such
stockholder, director, officer, employee, partner, customer, supplier or other
Person. An individual that otherwise satisfies the foregoing shall not be
disqualified from serving as an Independent Manager if such individual is at the
time of initial appointment, or at any time while serving as an Independent
Manager, an independent manager of an Affiliate of Principal, Borrower,
Guarantor or independent manager or director of a "special purpose entity"
affiliated with Principal, Borrower or Guarantor.
Section 7.02 Ownership and Control. Borrower shall not at any
time permit or suffer (i) without the approval of Administrative Agent, the
failure of CEI LP to be the sole member of the sole general partner of Borrower
or the failure of Borrower or CWH to be wholly-owned and controlled subsidiaries
of CEI LP or the failure of SMA to be a majority owned and controlled subsidiary
of Borrower or the failure of CCRH to be a 99.9% owned and controlled subsidiary
of CEI LP; or (ii) the failure of CEI LP to be controlled by, and at least 75%
beneficially owned by (in either case, directly or indirectly) CEI; or (iii) the
failure of CEI Ltd. to be a wholly-owned and controlled subsidiary of CEI.
ARTICLE VIII
FINANCIAL COVENANTS
Section 8.01 Financial Covenants. So long as any of the Notes
shall remain unpaid, or the Loan Commitments remain in effect, or any other
amount is owing to Administrative Agent or any Lender under any Loan Document or
otherwise in respect of the Loans, Borrower shall not permit or suffer any or
all of the following:
(1) Leverage. As of the end of any calendar quarter, the
outstanding principal amount under the Notes plus the total amount of
outstanding Letters of Credit to exceed the sum of (i) 65% of Office
Value plus (ii) 55% of Hotel Value.
(2) Debt Yield. For any calendar quarter, the ratio of (i) the
aggregate of Property Net Operating Income for all Properties for such
quarter and the three (3) immediately preceding calendar quarters to
(ii) the outstanding principal amount of the Notes plus the total
amount of outstanding Letters of Credit as of the end of such quarter,
to be less than 13.5%.
(3) Hotel Debt Yield. For any calendar quarter, the ratio of
(i) the aggregate of Property Net Operating Income for all Hotel
Properties for such quarter and the three (3) immediately preceding
calendar quarters to (ii) the product of (x) the ratio of Hotel Value
to Total Value, each as of the end of such quarter, multiplied by (y)
the outstanding principal amount of the Notes plus the
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total amount of outstanding Letters of Credit as of the end of such
quarter, to be less than 15%.
(4) Interest Coverage. For any calendar quarter, the ratio of
(i) the aggregate of Property Net Operating Income for all Properties
for such quarter and the three (3) immediately preceding calendar
quarters to (ii) interest on the Notes for such quarter and the three
(3) immediately preceding calendar quarters, to be less than 1.5 to
1.0.
ARTICLE IX
EVENTS OF DEFAULT
Section 9.01 Events of Default. Any of the following events
shall be an "Event of Default":
(1) If Borrower shall: fail to pay the principal of any Notes
as and when due; or fail to pay interest accruing on any Notes as and
when due, and such failure to pay shall continue unremedied for two (2)
Business Days after the due date of such interest; or fail to pay any
fee or any other amount due under this Agreement or any other Loan
Document as and when due and such failure to pay shall continue
unremedied for two (2) Business Days after notice by Administrative
Agent of such failure to pay; or
(2) If any representation or warranty made by Borrower,
Guarantor or the Other Mortgagor in this Agreement or in any other Loan
Document or which is contained in any certificate, document, opinion,
financial or other statement furnished at any time under or in
connection with a Loan Document shall prove to have been incorrect in
any material respect on or as of the date made; or
(3) If Borrower (i) shall fail to perform or observe any term,
covenant or agreement contained in Article VII or Article VIII; or (ii)
if Guarantor shall fail to perform or observe any term, covenant or
agreement contained in paragraphs 9 or 10 of the Guaranty; or (iii) if
any of Borrower, Guarantor or the Other Mortgagor shall fail to perform
or observe any term, covenant or agreement contained in this Agreement
(other than obligations specifically referred to elsewhere in this
Section 9.01) or any other Loan Document, or any other document
executed by Borrower, Guarantor or the Other Mortgagor and delivered to
Administrative Agent or Lenders in connection with the transactions
contemplated hereby and such failure under this clause (iii) shall
remain unremedied for thirty (30) consecutive days after notice thereof
to Borrower (or such shorter cure period as may be expressly prescribed
in the applicable document); provided, however, that if any such
default under clause (iii) above cannot by its nature be cured within
such thirty (30) day, or shorter, as the case may be, grace period and
so long as Borrower, Guarantor or the Other Mortgagor, as the case may
be, shall have commenced cure within such thirty (30) day, or shorter,
as the case may be, grace period and shall, at all times thereafter,
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diligently prosecute the same to completion, Borrower, Guarantor or the
Other Mortgagor, as the case may be, shall have an additional period,
not to exceed sixty (60) days, to cure such default; in no event,
however, is the foregoing intended to effect an extension of the
Maturity Date; or
(4) If any of Borrower, Guarantor or the Other Mortgagor shall
fail (i) to pay any Debt (other than the payment obligations described
in paragraph (1) of this Section) in an amount equal to or greater
than, in the case of Borrower and the Other Mortgagor, $1,000,000, or,
in the case of Guarantor, $25,000,000, in any such case when due
(whether by scheduled maturity, required prepayment, acceleration,
demand, or otherwise) after the expiration of any applicable grace
period; or (ii) to perform or observe any material term, covenant, or
condition under any agreement or instrument relating to any such Debt,
when required to be performed or observed, if the effect of such
failure to perform or observe is to accelerate, or to permit the
acceleration of, after the giving of notice or the lapse of time, or
both, the maturity of such Debt, or any such Debt shall be declared to
be due and payable, or required to be prepaid (other than by a
regularly scheduled or otherwise required prepayment), prior to the
stated maturity thereof; or
(5) If Borrower, Guarantor, the Other Mortgagor, or any
Material Affiliate to which $50,000,000 or more of "Capitalization
Value" (as such quoted term is defined in the Guaranty) is
attributable, shall (i) generally not, or be unable to, or shall admit
in writing its inability to, pay its debts as such debts become due; or
(ii) make an assignment for the benefit of creditors, petition or apply
to any tribunal for the appointment of a custodian, receiver or trustee
for it, all or any portion of any Property or a substantial part of its
other assets; or (iii) commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation Law of any jurisdiction, whether now or hereafter in
effect; or (iv) have had any such petition or application filed or any
such proceeding shall have been commenced, against it or all or any
portion of any Property, in which an adjudication or appointment is
made or order for relief is entered, or which petition, application or
proceeding remains undismissed or unstayed for a period of sixty (60)
days or more; or (v) be the subject of any proceeding under which all
or any portion of any Property or all or a substantial part of its
other assets may be subject to seizure, forfeiture or divestiture; or
(vi) by any act or omission indicate its consent to, approval of or
acquiescence in any such petition, application or proceeding or order
for relief or the appointment of a custodian, receiver or trustee for
all or any portion of any Property or all or any substantial part of
its other property; or (vii) suffer any such custodianship,
receivership or trusteeship for any or any portion of any Property or
all or any substantial part of its other property, to continue
undischarged for a period of sixty (60) days or more; or
(6) If one or more judgments, decrees or orders for the
payment of money aggregating in excess of $1,000,000 shall be rendered
against Borrower or the Other Mortgagor, or in excess of $25,000,000
shall be rendered against Guarantor, or in excess of $5,000,000 shall
be rendered against any Material
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Affiliate, and any such judgments, decrees or orders shall continue
unsatisfied and in effect for a period of thirty (30) consecutive days
without being vacated, discharged, satisfied or stayed or bonded
pending appeal; or
(7) If any of the following events shall occur or exist with
respect to Borrower, Guarantor, the Other Mortgagor or any ERISA
Affiliate: (i) any Prohibited Transaction involving any Plan; (ii) any
Reportable Event with respect to any Plan; (iii) the filing under
Section 4041 of ERISA of a notice of intent to terminate any Plan or
the termination of any Plan; (iv) any event or circumstance which would
constitute grounds for the termination of, or for the appointment of a
trustee to administer, any Plan under Section 4042 of ERISA, or the
institution by the PBGC of proceedings for any such termination or
appointment under Section 4042 of ERISA; or (v) complete or partial
withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer
Plan or the reorganization, insolvency, or termination of any
Multiemployer Plan; and in each case above, if such event or
conditions, if any, could in the reasonable opinion of any Lender
subject Borrower, Guarantor, the Other Mortgagor or any ERISA Affiliate
to any tax, penalty, or other liability to a Plan, Multiemployer Plan,
the PBGC or otherwise (or any combination thereof) which in the
aggregate exceeds or is likely to exceed $50,000; or
(8) If an "Event of Default" shall occur under any Mortgage
(as such quoted term is defined therein); or
(9) If, at any time, (i) CEI LP (or in the case of Spectrum,
Woodlands, Trammell Crow Center and those Office Properties identified
on SCHEDULE A as Three Westlake and Four Westlake, the Person currently
serving as property manager/leasing agent therefor), or a replacement
manager/leasing agent acceptable in all respects to Administrative
Agent (other than CEI LP which shall be deemed to be acceptable to
Administrative Agent), shall cease to provide the management and
leasing services for any Office Property or (ii) any of the Hotel
Properties are managed by a Person which has not been approved by
Administrative Agent; or
(10) If, at any time, CEI is not a qualified real estate
investment trust under Sections 856 through 860 of the Code or is not a
publicly traded company listed on a recognized U.S. national stock
exchange; or
(11) If, at any time, a Material Adverse Change shall occur;
or
(12) If, at any time, any portion of Borrower's, Guarantor's
or the Other Mortgagor's assets constitute plan assets for ERISA
purposes (within the meaning of C.F.R. Section 2510.3-101).
Section 9.02 Remedies. If any Event of Default shall occur and
be continuing, Administrative Agent shall, upon request of the Required Lenders,
(i) declare the outstanding balance of the Notes, all interest thereon, and all
other amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable,
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whereupon such balance, all such interest, and all such amounts due under this
Agreement and under the other Loan Documents shall become and be forthwith due
and payable, without presentment, demand, protest, or further notice of any
kind, all of which are hereby expressly waived by Borrower and/or (ii) exercise
any remedies provided in any of the Loan Documents or by Law.
ARTICLE X
ADMINISTRATIVE AGENT; RELATIONS AMONG LENDERS
Section 10.01 Appointment, Powers and Immunities of
Administrative Agent. Each Lender hereby irrevocably appoints and authorizes
Administrative Agent to act as its agent hereunder and under any other Loan
Document with such powers as are specifically delegated to Administrative Agent
by the terms of this Agreement and any other Loan Document, together with such
other powers as are reasonably incidental thereto. Administrative Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement and any other Loan Document or required by Law, and shall not by
reason of this Agreement be a fiduciary or trustee for any Lender except to the
extent that Administrative Agent acts as an agent with respect to the receipt or
payment of funds (nor shall Administrative Agent have any fiduciary duty to
Borrower nor shall any Lender have any fiduciary duty to Borrower or to any
other Lender). No implied covenants, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against
Administrative Agent. Neither Administrative Agent nor any of its directors,
officers, employees, agents, attorneys-in-fact or Affiliates shall be
responsible to any Lender for any recitals, statements, representations or
warranties made by Borrower or any officer, partner or official of Borrower or
any other Person contained in this Agreement or any other Loan Document, or in
any certificate or other document or instrument referred to or provided for in,
or received by any of them under, this Agreement or any other Loan Document, or
for the value, legality, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document or any other document
or instrument referred to or provided for herein or therein, for the perfection
or priority of any Lien securing the Obligations or for any failure by Borrower
to perform any of its Obligations. Administrative Agent may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or securities
received by it or its authorized agents, for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care. Neither
Administrative Agent nor any of its directors, officers, employees, agents,
attorneys-in-fact or Affiliates shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder or under any other Loan
Document or in connection herewith or therewith, except for its or their own
gross negligence or willful misconduct.
Section 10.02 Reliance by Administrative Agent. Administrative
Agent shall be entitled to rely upon any certification, notice or other
communication (including any thereof by telephone, telex, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and
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other experts selected by Administrative Agent. Administrative Agent may deem
and treat each Lender as the holder of the Loan made by it for all purposes
hereof and shall not be required to deal with any Person who has acquired a
Participation in any Loan or Participation from a Lender. As to any matters not
expressly provided for by this Agreement or any other Loan Document,
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by the
Required Lenders, and such instructions of the Required Lenders and any action
taken or failure to act pursuant thereto shall be binding on all Lenders and any
other holder of all or any portion of any Loan or Participation.
Section 10.03 Defaults. Administrative Agent shall not be
deemed to have knowledge of the occurrence of a Default or Event of Default
unless Administrative Agent has actual knowledge thereof or has received notice
from a Lender or Borrower specifying such Default or Event of Default and
stating that such notice is a "Notice of Default." In the event that
Administrative Agent has such actual knowledge or receives such a notice of the
occurrence of a Default or Event of Default, Administrative Agent shall give
prompt notice thereof to Lenders. Administrative Agent shall promptly send to
each Lender a copy of any notice of Default or Event of Default that
Administrative Agent sends to Borrower. Administrative Agent, following
consultation with Lenders, shall (subject to Section 10.07) take such action
with respect to such Default or Event of Default which is continuing as shall be
directed by the Required Lenders; provided, however, that, unless and until
Administrative Agent shall have received such directions, Administrative Agent
may take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interest of
Lenders. In no event shall Administrative Agent be required to take any such
action which it determines to be contrary to the Loan Documents or to Law. Each
Lender acknowledges and agrees that no individual Lender may separately enforce
or exercise any of the provisions of any of the Loan Documents (including,
without limitation, the Notes) other than through Administrative Agent.
Section 10.04 Rights of Administrative Agent as a Lender. With
respect to its Loan Commitment and the Loan provided by it, Administrative Agent
in its capacity as a Lender hereunder shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as Administrative Agent, and the term "Lender" or "Lenders" shall include
Administrative Agent in its capacity as a Lender. Administrative Agent and its
Affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to (on a secured or unsecured basis), and generally
engage in any kind of banking, trust or other business with Borrower (and any
Affiliates of Borrower) as if it were not acting as Administrative Agent.
Section 10.05 Sharing of Costs by Lenders; Indemnification of
Administrative Agent. Each Lender agrees to pay its ratable share, based on the
respective outstanding principal balances under its Notes and the other Notes,
of any expenses incurred (and not paid or reimbursed by Borrower after demand
for payment is made by Administrative Agent) by or on behalf of Lenders in
connection with any Default or Event of Default, including, without limitation,
costs of enforcement of the
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Loan Documents and any advances to pay taxes or insurance premiums or otherwise
to preserve the Lien of any of the Mortgages or the Collateral Assignments or to
preserve or protect any of the Collateral. In the event a Lender fails to pay
its share of expenses as aforesaid, and all or a portion of such unpaid amount
is paid by Administrative Agent and/or one or more of the other Lenders, then
the defaulting Lender shall reimburse Administrative Agent and/or the other
Lender(s) for the portion of such unpaid amount paid by it or them, as the case
may be, together with interest thereon at the Base Rate from the date of payment
by Administrative Agent and/or the other Lender(s). In addition, each Lender
agrees to indemnify Administrative Agent (to the extent not reimbursed under
Section 12.04 or under other applicable provisions of any Loan Document, but
without limiting the obligations of Borrower under Section 12.04 or such other
provisions), for its ratable share, based upon the outstanding principal
balances under its Notes and the other Notes, of any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against Administrative Agent in any way relating to
or arising out of this Agreement, any other Loan Document or any other documents
contemplated by or referred to herein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and expenses which Borrower is
obligated to pay under Section 12.04 or under any other applicable provisions of
any other Loan Document) or the enforcement of any of the terms hereof or
thereof or of any such other documents or instruments; provided, however, that
no Lender shall be liable for (i) any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified
or (ii) any loss of principal or interest with respect to Administrative Agent's
Loan.
Section 10.06 Non-Reliance on Administrative Agent and Other
Lenders. Each Lender agrees that it has, independently and without reliance on
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own analysis of the
Collateral and of the credit of Borrower and Guarantor, and its own decision to
enter into this Agreement and that it will, independently and without reliance
upon Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any other Loan Document. Administrative Agent shall not be required to keep
itself informed as to the performance or observance by Borrower or Guarantor, as
the case may be, of this Agreement or any other Loan Document or any other
document referred to or provided for herein or therein or to inspect the
properties (including, without limitation, any Property) or books of Borrower,
Guarantor or the Other Mortgagor. Except for notices, reports and other
documents and information expressly required to be furnished to Lenders by
Administrative Agent hereunder, Administrative Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of Borrower or Guarantor
(or any Affiliate of Borrower or Guarantor) which may come into the possession
of Administrative Agent or any of its Affiliates. Administrative Agent shall not
be required to file this Agreement, any
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other Loan Document or any document or instrument referred to herein or therein,
for record or give notice of this Agreement, any other Loan Document or any
document or instrument referred to herein or therein, to anyone.
Section 10.07 Failure of Administrative Agent to Act. Except
for action expressly required of Administrative Agent hereunder, Administrative
Agent shall in all cases be fully justified in failing or refusing to act
hereunder unless it shall have received further assurances (which may include
cash collateral) of the indemnification obligations of Lenders under Section
10.05 in respect of any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. If any indemnity
furnished to Administrative Agent for any purpose shall, in the opinion of
Administrative Agent, be insufficient or become impaired, Administrative Agent
may call for an additional indemnity and cease, or not commence, the action
indemnified against until such additional indemnity is furnished.
Section 10.08 Resignation or Removal of Administrative Agent.
Administrative Agent may resign on at least thirty (30) days' written notice to
Lenders and Borrower or upon the occurrence of an Event of Default.
Administrative Agent may be removed at any time with cause by the Required
Lenders, provided that Borrower and the other Lenders shall be promptly notified
thereof. Upon any such resignation or removal of Administrative Agent, the
Required Lenders shall have the right to appoint a successor Administrative
Agent which successor Administrative Agent, so long as it is reasonably
acceptable to the Required Lenders, shall be that Lender then having the
greatest Loan Commitment. If no successor Administrative Agent shall have been
so appointed by the Required Lenders and shall have accepted such appointment
within twenty (20) days after the Required Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
Lenders, appoint a successor Administrative Agent, which shall be one of
Lenders. The Required Lenders or the retiring Administrative Agent, as the case
may be, shall upon the appointment of a successor Administrative Agent promptly
so notify Borrower and the other Lenders. Upon the acceptance of any appointment
as Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. After any retiring Administrative Agent's removal
hereunder as Administrative Agent, the provisions of this Article X shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Administrative Agent.
Section 10.09 Amendments Concerning Agency Function.
Notwithstanding anything to the contrary contained herein, Administrative Agent
shall not be bound by any waiver, amendment, supplement or modification hereof
or of any other Loan Document which affects its duties, rights, and/or functions
hereunder or thereunder unless it shall have given its prior written consent
thereto.
Section 10.10 Liability of Administrative Agent.
Administrative Agent shall not have any liabilities or responsibilities to
Borrower on account of the failure of any Lender to perform its obligations
hereunder or to any Lender on account of the failure of Borrower and/or
Guarantor to perform any of their respective Obligations.
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Section 10.11 Transfer of Agency Function. Without the consent
of Borrower or any Lender, Administrative Agent may at any time or from time to
time transfer its functions as Administrative Agent hereunder to any of its
offices wherever located in the United States, provided that Administrative
Agent shall promptly notify Borrower and Lenders thereof.
Section 10.12 Non-Receipt of Funds by Administrative Agent;
Adjustments.
(a) Unless Administrative Agent shall have received notice
from a Lender or Borrower (either one as appropriate being the "Payor")
prior to the date on which such Lender is to make payment hereunder to
Administrative Agent of the proceeds of a Loan or Borrower is to make
payment to Administrative Agent, as the case may be (either such
payment being a "Required Payment"), which notice shall be effective
upon receipt, that the Payor will not make the Required Payment in full
to Administrative Agent, Administrative Agent may assume that the
Required Payment has been made in full to Administrative Agent on such
date, and Administrative Agent in its sole discretion may, but shall
not be obligated to, in reliance upon such assumption, make the amount
thereof available to the intended recipient on such date. If and to the
extent the Payor shall not have in fact so made the Required Payment in
full to Administrative Agent, the recipient of such payment shall repay
to Administrative Agent forthwith on demand such amount made available
to it together with interest thereon, for each day from the date such
amount was so made available by Administrative Agent until the date
Administrative Agent recovers such amount, at the Federal Funds Rate
for three (3) Business Days and thereafter at the Base Rate.
(b) If, after Administrative Agent has paid each Lender's
share of any payment received or applied by Administrative Agent in
respect of the Loan, that payment is rescinded or must otherwise be
returned or paid over by Administrative Agent, whether pursuant to any
bankruptcy or insolvency Law, sharing of payments clause of any loan
agreement or otherwise, such Lender shall, at Administrative Agent's
request, promptly return its share of such payment or application to
Administrative Agent, together with such Lender's proportionate share
of any interest or other amount required to be paid by Administrative
Agent with respect to such payment or application. In addition, if a
court of competent jurisdiction shall adjudge that any amount received
and distributed by Administrative Agent is to be repaid, each Person to
whom any such distribution shall have been made shall either repay to
Administrative Agent its share of the amount so adjudged to be repaid
or shall pay over the same in such manner and to such Persons as shall
be determined by such court.
Section 10.13 Withholding Taxes. Each Lender represents that
it is entitled to receive any payments to be made to it hereunder without the
withholding of any tax and will furnish to Administrative Agent such forms,
certifications, statements and other documents as Administrative Agent may
request from time to time to evidence such Lender's exemption from the
withholding of any tax imposed by any jurisdiction or to enable Administrative
Agent or Borrower to comply with any applicable Laws relating thereto. Without
limiting the effect of the foregoing, if any Lender is not created or
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organized under the Laws of the United States or any state thereof, such Lender
will furnish to Administrative Agent a U.S. Internal Revenue Service Form W-8ECI
in respect of all payments to be made to such Lender by Borrower or
Administrative Agent under this Agreement or any other Loan Document or a U.S.
Internal Revenue Service Form W-8BEN establishing such Lender's complete
exemption from United States withholding tax in respect of payments to be made
to such Lender by Borrower or Administrative Agent under this Agreement or any
other Loan Document, or such other forms, certifications, statements or
documents, duly executed and completed by such Lender as evidence of such
Lender's exemption from the withholding of U.S. tax with respect thereto.
Administrative Agent shall not be obligated to make any payments hereunder to
such Lender in respect of any Loan or Participation or such Lender's Loan
Commitment or obligation to purchase Participations until such Lender shall have
furnished to Administrative Agent the requested form, certification, statement
or document.
Section 10.14 Pro Rata Treatment. Except to the extent
otherwise provided, (i) each advance of proceeds of the Loans shall be made by
Lenders, (ii) each reduction of the amount of the Total Loan Commitment under
Section 2.10 shall be applied to the Loan Commitments of Lenders, and (iii) each
payment of the commitment fee accruing under Section 2.07(a) shall be made for
the account of Lenders, ratably according to the amounts of their respective
Loan Commitments.
Section 10.15 Sharing of Payments Among Lenders. If a Lender
shall obtain payment of any principal of or interest on any Loan made by it
through the exercise of any right of setoff, banker's lien, counterclaim, or by
any other means (including direct payment), and such payment results in such
Lender receiving a greater payment than it would have been entitled to had such
payment been paid directly to Administrative Agent for disbursement to Lenders,
then such Lender shall promptly purchase for cash from the other Lenders
Participations in the Loans made by the other Lenders in such amounts, and make
such other adjustments from time to time as shall be equitable to the end that
all Lenders shall share ratably the benefit of such payment. To such end,
Lenders shall make appropriate adjustments among themselves (by the resale of
Participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.
Section 10.16 Possession of Documents. Each Lender shall keep
possession of its own Notes. Administrative Agent shall hold all the other Loan
Documents and related documents in its possession and maintain separate records
and accounts with respect thereto, and shall permit Lenders and their
representatives access at all reasonable times to inspect such Loan Documents,
related documents, records and accounts.
Section 10.17 Intentionally Omitted.
Section 10.18 Effect of a Lender's Failure to Make an Advance.
In the event any Lender fails for any reason to fund the portion it is required
to fund of any advance of Loan proceeds by 3:00 p.m. (New York time) on the
second Business Day after the date established by Administrative Agent as the
date such advance is to be made,
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such Lender shall be a "Delinquent Lender" for all purposes hereunder until and
unless such delinquency is cured in accordance with the terms of and by the time
permitted under Section 10.19, and the following provisions shall apply:
(1) Administrative Agent shall notify (such notice being
referred to as the "Delinquency Notice") each Lender and Borrower of
any Lender's failure to fund. Each Non-Delinquent Lender shall have the
right, but in no event or under any circumstance the obligation, to
fund such Delinquent Lender's portion of such advance, provided that,
within ten (10) days of the date of the Delinquency Notice (the
"Election Period"), such Non-Delinquent Lender or Lenders (each such
Lender, an "Electing Lender") irrevocably commit(s) by notice in
writing (an "Election Notice") to Administrative Agent, the other
Lenders and Borrower to fund the Delinquent Lender's portion of the
advance that is the subject of the delinquency (the "Delinquency
Amount"). If Administrative Agent receives more than one Election
Notice within the Election Period, then the Electing Lenders sending
such notices shall be deemed to have committed to fund ratable shares
of the Delinquency Amount based upon the amounts of their respective
Loan Commitments. If there are one or more Electing Lenders and the
Delinquent Lender fails to cure during the Election Period as provided
in Section 10.19, then upon the expiration of the Election Period, each
Electing Lender's Loan Commitment shall be automatically increased by
the Delinquency Amount (if there is only one Electing Lender) or such
Electing Lender's ratable share, determined as aforesaid, of the
Delinquency Amount (if there are two (2) or more Electing Lenders), and
the Delinquent Lender's Loan Commitment shall automatically be reduced
by the Delinquency Amount. Administrative Agent shall thereupon notify
Borrower and each Lender of (i) the adjusted amounts of the Loan
Commitments and (ii) the date the Delinquency Amount is to be remitted
by the Electing Lenders to Administrative Agent (which date shall be no
sooner than three (3) Business Days after such notice). In the event
Administrative Agent shall not have advanced the Delinquency Amount
pursuant to Section 10.12 or Borrower shall have refunded such advance
pursuant to paragraph (5) of this Section, Administrative Agent shall
advance to Borrower the Delinquency Amount no later than one (1)
Business Day after Administrative Agent receives the same from the
Electing Lender(s). In the event Administrative Agent shall have
previously advanced the Delinquency Amount pursuant to Section 10.12
and Borrower shall not have refunded such advance pursuant to paragraph
(5) of this Section, Administrative Agent shall reimburse itself for
such advance from the funds received from the Electing Lender(s).
Notwithstanding anything to the contrary contained herein, if
Administrative Agent advances its own funds in respect of a Delinquent
Lender's portion of an advance, Administrative Agent shall be entitled
to the interest on the portion of the outstanding principal amount of
the Loans represented thereby, from the date Administrative Agent makes
such advance until the date it is reimbursed therefor.
(2) In connection with the adjustment of the amounts of the
Loan Commitments of the Delinquent Lender and Electing Lender (s) upon
the expiration of the Election Period as aforesaid, Borrower covenants
that it shall,
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promptly following the request of the Electing Lender(s), execute and
deliver to each Electing Lender and the Delinquent Lender substitute
Tranche A Notes substantially in the form of EXHIBIT B-1 and stating:
"This Tranche A Note is a substitute Tranche A Note as contemplated by
Section 10.18 of the Loan Agreement; it replaces and is in lieu of that
certain Tranche A Note made by [Maker] dated [date of Note] to the
order of [Lender] in the principal sum of [Lender's original Tranche A
Loan Commitment]." Such substitute notes shall be in amounts equal to
such Lenders' respective Loan Tranche A Commitments, as adjusted. All
such substitute notes shall constitute Notes and the obligations
evidenced by such substitute notes shall constitute "Obligations" for
all purposes of this Agreement and the other Loan Documents and shall
be secured by the Mortgages. In connection with Borrower's execution of
substitute notes as aforesaid, Borrower shall deliver to Administrative
Agent such evidence of the due authorization, execution and delivery of
the substitute notes and any related documents as Administrative Agent
may reasonably request. The execution and delivery of substitute notes
as required above shall be a condition precedent to any further
advances of proceeds of the Loans. Upon receipt of its substitute note,
the Electing Lender and the Delinquent Lender will return to Borrower
their notes that were replaced; provided that the delivery of a
substitute note to the Delinquent Lender pursuant to this Section 10.18
shall operate to void and replace the note(s) previously held by the
Delinquent Lender regardless of whether or not the Delinquent Lender
returns same as required hereby. Borrower, Administrative Agent and
Lenders shall execute such modifications to the Loan Documents as
shall, in the reasonable judgment of Administrative Agent, be necessary
or desirable in connection with the adjustment of the amounts of Loan
Commitments in accordance with the foregoing provisions of this
Section.
(3) In the event that no Lender elects to commit to fund the
Delinquency Amount within the Election Period as provided in paragraph
(1) of this Section, Administrative Agent shall, upon the expiration of
the Election Period, so notify Borrower and each Lender.
(4) Subject to a Delinquent Lender's right to cure as provided
in Section 10.19, but notwithstanding anything else to the contrary
contained in this Agreement, the Delinquent Lender's interest in, and
any and all amounts due to a Delinquent Lender under, the Loan
Documents (including, without limitation, all principal, interest, fees
and expenses) shall be subordinate in lien priority and to the
repayment of all amounts (including, without limitation, interest) then
or thereafter due or to become due to the Non-Delinquent Lenders under
the Loan Documents (including future advances), and the Delinquent
Lender thereafter shall have no right to participate in any discussions
among and/or decisions by Lenders hereunder and/or under the other Loan
Documents. Further, subject to Section 10.19, any Delinquent Lender
shall be bound by any amendment to, or waiver of, any provision of, or
any action taken or omitted to be taken by Administrative Agent and/or
the Non-Delinquent Lenders under, any Loan Document which is made
subsequent to the Delinquent Lender's becoming a Delinquent Lender.
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(5) If, pursuant to the operation of Section 10.12, an advance
of Loan proceeds is made without Administrative Agent's receipt of a
Delinquent Lender's portion thereof, in addition to Borrower's
obligations under Section 10.12, Borrower shall, upon demand of
Administrative Agent, refund the Delinquency Amount to Administrative
Agent. Borrower's failure to do so within ten (10) days of such demand
shall, notwithstanding anything to the contrary contained herein or in
any Mortgage, constitute an Event of Default.
If a Delinquent Lender's obligations with respect to the
Delinquency Amount are assumed by one or more Electing Lenders, then,
notwithstanding anything to the contrary contained in this Agreement
(including Section 10.14), subsequent advances of the Loans shall be
made by Lenders in proportion to the remaining available amounts of
their respective Loan Commitments.
Section 10.19 Cure by Delinquent Lender. A Delinquent Lender
may cure a delinquency arising out of its failure to fund its required portion
of any advance if, within the Election Period, it remits to Administrative Agent
its required portion of such advance (together with interest thereon at the
Default Rate from the date such advance was to have been made if such advance
was made by Administrative Agent and not refunded by Borrower pursuant to either
Section 10.12 or paragraph (5) of Section 10.18), in which event Administrative
Agent shall so notify Borrower and the Non-Delinquent Lenders of its receipt of
such funds. If Administrative Agent shall not have advanced the Delinquency
Amount from its own funds pursuant to Section 10.12 (or such advance shall have
been made but shall have been refunded by Borrower pursuant to paragraph (5) of
Section 10.18), Administrative Agent shall, within one (1) Business Day of its
receipt thereof from the Delinquent Lender, advance the Delinquency Amount to
Borrower. If Administrative Agent shall have advanced the Delinquency Amount
pursuant to Section 10.12 and Borrower shall not have refunded such advance
pursuant to paragraph (5) of Section 10.18, Administrative Agent shall notify
Borrower and each Lender of its intention to reimburse itself from funds
received from the Delinquent Lender (which reimbursement is hereby authorized)
for funding the Delinquency Amount. In the event any Delinquent Lender cures a
delinquency prior to the expiration of the Election Period (or thereafter with
the consent of all of the Non-Delinquent Lenders), such Delinquent Lender
nonetheless shall be bound by any amendment to or waiver of any provision of, or
any action taken or omitted to be taken by Administrative Agent and/or the
Non-Delinquent Lenders under, any Loan Document which is made subsequent to that
Lender's becoming a Delinquent Lender and prior to its curing the delinquency as
provided in this Section; provided that such amendment or waiver of action was
taken in accordance with the provisions of this Agreement. A Delinquent Lender
shall have absolutely no right to cure any delinquency after the expiration of
the Election Period unless all Non-Delinquent Lenders, in their sole discretion,
elect to permit such cure.
Section 10.20 Delinquent Lender Not Excused. Nothing contained
in Sections 10.18 or 10.19 shall release or in any way limit a Delinquent
Lender's obligations as a Lender hereunder and/or under any other of the Loan
Documents. Further, a Delinquent Lender shall indemnify and hold harmless
Administrative Agent
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and each of the Non-Delinquent Lenders from any claim, loss, or costs incurred
by Administrative Agent and/or the Non-Delinquent Lenders as a result of a
Delinquent Lender's failure to comply with the requirements of this Agreement,
including, without limitation, any and all additional losses, damages, costs and
expenses (including, without limitation, attorneys' fees) incurred by
Administrative Agent and any Lender as a result of and/or in connection with (i)
a Non-Delinquent Lender's acting as an Electing Lender, (ii) any enforcement
action brought by Administrative Agent against a Delinquent Lender and (iii) any
action brought against Administrative Agent and/or Lenders. The indemnification
provided above shall survive any termination of this Agreement.
Section 10.21 Notices Regarding Delinquent Lender. Notices by
Administrative Agent or Lenders pursuant to Sections 10.18 or 10.19 may be by
telephone or by facsimile.
Section 10.22 Replacement Lender. In the event any Lender
becomes a Delinquent Lender and none of the other Lenders elects to be an
Electing Lender pursuant to Section 10.18, Borrower shall have the right, at any
time, provided there exists no Default or Event of Default, to replace the
Delinquent Lender as a Lender with another financial institution reasonably
acceptable to the Required Lenders on the then-existing terms and conditions of
the Loan Documents (such replacement institution, a "Replacement Lender"). If
Borrower opts to exercise such right, it shall give notice thereof to
Administrative Agent, which notice shall specify the proposed Replacement
Lender. Administrative Agent shall promptly send a copy of such notice to each
Lender. If the Required Lenders do not reasonably disapprove the Replacement
Lender, Administrative Agent shall so notify Borrower and each Lender and the
Delinquent Lender shall assign all of the rights in respect of its Loan, and the
Replacement Lender shall assume all the Delinquent Lender's obligations in
respect of such Loan, pursuant to an agreement substantially in the form of an
Assignment and Assumption Agreement. In connection with such assignment and
assumption, the Replacement Lender shall pay the Delinquent Lender an amount
equal to the outstanding principal amount under the Delinquent Lender's Note
plus all interest accrued thereon plus all other amounts then due and payable to
the Delinquent Lender. Upon the effective date of such assignment and assumption
and the payment by the Replacement Lender to Administrative Agent of a fee, for
Administrative Agent's own account, in the amount of $2,500, the Replacement
Lender shall become a "Lender" for all purposes hereunder, with a Loan
Commitment in an amount equal to the former Loan Commitment of the Delinquent
Lender, and the Delinquent Lender's Loan Commitment shall automatically be
reduced to zero. In connection with the foregoing, Borrower shall execute and
deliver to the Replacement Lender substitute Notes substantially in the forms of
EXHIBIT B-1, B-2 and B-3, respectively, with each stating: "This Note is a
substitute [Tranche A, B or C, as applicable] Note as contemplated by Section
10.22 of the Loan Agreement; it replaces and is in lieu of that certain [Tranche
A, B or C, as applicable] Note made by [Maker] dated [date of Note] to the order
of [Delinquent Lender] in the principal sum of [Delinquent Lender's original
Tranche A, B or C Loan Commitment, as applicable]." Such substitute notes shall
constitute Notes and the obligations evidenced thereby shall constitute
"Obligations" for all purposes of this Agreement and the other Loan Documents
and shall be secured by the Mortgages. In connection with Borrower's
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execution and delivery of substitute notes as aforesaid, (i) Borrower shall
deliver to Administrative Agent such evidence of the due authorization,
execution and delivery of the substitute notes and any related documents as
Administrative Agent may reasonably request and (ii) the Delinquent Lender will
return to Borrower its notes that were replaced; provided that the delivery of
substitute notes to the Replacement Lender pursuant to this Section 10.22 shall
operate to void and replace the notes previously held by the Delinquent Lender
regardless of whether or not the Delinquent Lender returns the same as required
hereby. If the Replacement Lender is not incorporated under the Laws of the
United States or a state thereof, it shall, prior to the first date on which
interest or fees are payable hereunder for its account, deliver to Borrower and
Administrative Agent certification as to exemption from deduction or withholding
of any United States federal income taxes in accordance with Section 10.13.
Borrower, Administrative Agent and Lenders shall execute such
modifications to the Loan Documents as shall, in the reasonable judgment of
Administrative Agent, be necessary or desirable in connection with the
substitution of Lenders in accordance with the foregoing provisions of this
Section.
Lenders shall reasonably cooperate with Borrower's attempts to
obtain a Replacement Lender, but they shall not be obligated to modify the Loan
Documents in connection therewith, other than modifications pursuant to the
immediately preceding paragraph.
ARTICLE XI
NATURE OF OBLIGATIONS
Section 11.01 Absolute and Unconditional Obligations. Borrower
acknowledges and agrees that its obligations and liabilities under this
Agreement and under the other Loan Documents shall be absolute and unconditional
irrespective of (i) any lack of validity or enforceability of any of the
Obligations, any Loan Documents or any agreement or instrument relating thereto,
(ii) any change in the time, manner or place of payment of, or in any other term
in respect of, all or any of the Obligations, or any other amendment or waiver
of or consent to any departure from any Loan Documents or any other documents or
instruments executed in connection with or related to the Obligations, (iii) any
exchange or release of any Collateral, or of any other Person from all or any of
the Obligations or (iv) any other circumstances which might otherwise constitute
a defense available to, or a discharge of, Borrower or any other Person in
respect of the Obligations.
The Obligations shall not be conditioned or contingent upon
the pursuit by any Lender or any other Person at any time of any right or remedy
against Borrower or any other Person which may be or become liable in respect of
all or any part of the Obligations or against any Collateral or security or
guarantee therefor or right of setoff with respect thereto.
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Section 11.02 Non-Recourse to Borrower's Principals.
Notwithstanding anything to the contrary contained herein, in any of the other
Loan Documents, or in any other instruments, certificates, documents or
agreements executed in connection with the Loans (all of the foregoing, for
purposes of this Section, hereinafter referred to, individually and
collectively, as the "Relevant Documents"), no recourse under or upon any
Obligation, representation, warranty, promise or other matter whatsoever shall
be had against any of Borrower's Principals and each Lender expressly waives and
releases, on behalf of itself and its successors and assigns, all right to
assert any liability whatsoever under or with respect to the Relevant Documents
against, or to satisfy any claim or obligation arising thereunder against, any
of Borrower's Principals; provided, however, that nothing in this Section shall
be deemed to (i) release Borrower, Guarantor or the Other Mortgagor from any
personal liability pursuant to, or from any of its respective obligations under,
the Relevant Documents, or from personal liability for its fraudulent actions or
fraudulent omissions, (ii) release any of Borrower's Principals from personal
liability for her or his own fraudulent actions or fraudulent omissions, (iii)
constitute a waiver of any obligation evidenced or secured by, or contained in,
the Relevant Documents or affect in any way the validity or enforceability of
the Relevant Documents or (iv) limit the right of Administrative Agent and/or
Lenders to proceed against or realize upon all or part of the Mortgaged Property
under any Mortgage or any other Collateral or any and all of the assets of
Borrower and/or Guarantor (notwithstanding the fact that any or all of
Borrower's Principals may have an ownership interest in Borrower and/or
Guarantor and, thereby, an interest in the assets of Borrower and/or Guarantor)
or to name Borrower, Guarantor and/or the Other Mortgagor (or, to the extent
that the same are required by applicable Law or are determined by a court to be
necessary parties in connection with an action or suit against Borrower,
Guarantor and/or the Other Mortgagor, all or part of the Mortgaged Property
under any Mortgage or any other Collateral, any of Borrower's Principals) as a
party defendant in, and to enforce against all or part of the Mortgaged Property
under any Mortgage or any other Collateral and/or assets of Borrower and/or
Guarantor any judgment obtained by Administrative Agent and/or Lenders with
respect to, any action or suit under the Relevant Documents so long as no
judgment shall be taken (except to the extent taking a judgment is required by
applicable Law or determined by a court to be necessary to preserve
Administrative Agent's and/or Lenders' rights against all or part of the
Mortgaged Property under any Mortgage or any other Collateral or Borrower,
Guarantor or the Other Mortgagor, but not otherwise) or shall be enforced
against Borrower's Principals or their assets.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Binding Effect of Request for Advance. Borrower
agrees that, by its acceptance of any advance of proceeds of the Loans under
this Agreement, it shall be bound in all respects by the request for advance
submitted on its behalf in connection therewith with the same force and effect
as if Borrower had itself executed and submitted the request for advance and
whether or not the request for advance is executed and/or submitted by an
authorized person.
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Section 12.02 Amendments and Waivers. No amendment or material
waiver of any provision of this Agreement or any other Loan Document nor consent
to any material departure by Borrower, Guarantor or the Other Mortgagor
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders and, solely for purposes of its
acknowledgment thereof, Administrative Agent, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all Lenders do any of the following: (i) reduce
the principal of, or interest on, the Notes or any fees due hereunder or any
other amount due hereunder or under any other Loan Document; (ii) postpone any
date fixed for any payment of principal of, or interest on, the Notes or any
fees due hereunder or under any other Loan Document; (iii) change the definition
of Required Lenders; (iv) amend this Section or any other provision requiring
the consent of all Lenders; (v) waive any default under paragraph (5) of Section
9.01; (vi) release, in whole or in part, any Guarantor other than in accordance
with the Loan Documents; or (vii) release any material portion of the Mortgaged
Property under any Mortgage or of any other Collateral other than in accordance
with the Loan Documents. Any advance of proceeds of the Loans made prior to or
without the fulfillment by Borrower of all of the conditions precedent thereto,
whether or not known to Administrative Agent and Lenders, shall not constitute a
waiver of the requirement that all conditions, including the non-performed
conditions, shall be required with respect to all future advances. No failure on
the part of Administrative Agent or any Lender to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof or preclude
any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by Law.
All communications from Administrative Agent to Lenders
requesting Lenders' determination, consent, approval or disapproval (x) shall be
given in the form of a written notice to each Lender, (y) shall be accompanied
by or include a description or copy of the matter or thing as to which such
determination, approval, consent or disapproval is requested and (z) shall
include Administrative Agent's recommended course of action or determination in
respect thereof. Each Lender shall reply promptly, but in any event within ten
(10) Business Days (or five (5) Business Days with respect to any decision to
accelerate or stop acceleration of the Loans) after receipt of the request
therefor by Administrative Agent (the "Lender Reply Period"). Unless a Lender
shall give written notice to Administrative Agent that it objects to the
recommendation or determination of Administrative Agent (together with a written
explanation of the reasons behind such objection) within the Lender Reply
Period, such Lender shall be deemed to have approved or consented to such
recommendation or determination.
Section 12.03 Usury. Anything herein to the contrary
notwithstanding, the obligations of Borrower under this Agreement and the Notes
shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt thereof would be contrary to provisions of
Law applicable to a Lender limiting rates of interest which may be charged or
collected by such Lender.
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Section 12.04 Expenses; Indemnification. Borrower covenants
and agrees to pay all costs, expenses and charges (including, without
limitation, all reasonable fees and expenses of counsel, engineers, appraisers
and consultants) incurred by Administrative Agent or any Lender in connection
with (i) the preparation for and consummation of the transactions contemplated
hereby or for the performance hereof and of the other Loan Documents, and for
any services which may be required in addition to those normally and reasonably
contemplated hereby and (ii) the enforcement hereof or of any or all of the
other Loan Documents; provided, however, that Borrower shall not be responsible
for (x) the fees and expenses of legal counsel for any Lender other than UBS
incurred in connection with said counsel's review of this Agreement and the
other Loan Documents prior to execution, (y) costs, expenses and charges
incurred by Administrative Agent and Lenders in connection with the
administration of the Loan (other than the administration fee separately agreed
to by Borrower and Administrative Agent and the reasonable fees and expenses of
Administrative Agent's counsel) and (z) the fees and expenses of any Participant
or Assignee or their respective counsel. In connection with the foregoing,
Lenders agree, to the extent practicable, to appoint a single counsel and local
counsel, selected by Administrative Agent, to act on behalf of all Lenders in
connection with the enforcement of the Loan Documents. If Borrower fails to pay
promptly any costs, charges or expense required to be paid by it as aforesaid,
and Administrative Agent or any Lender pays such costs, charges or expenses,
Borrower shall reimburse Administrative Agent or such Lender, as appropriate, on
demand for the amounts so paid, together with interest thereon at the Default
Rate for Base Rate Loans from the date of demand. Borrower agrees to indemnify
Administrative Agent and each Lender and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them arising
out of or by reason of (A) any claims by brokers due to acts or omissions by
Borrower or (B) any investigation or litigation or other proceedings (including
any threatened investigation or litigation or other proceedings) relating to any
actual or proposed use by Borrower of the proceeds of the Loans, including,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
The obligations of Borrower under this Section and under
Article III shall survive the repayment of all amounts due under or in
connection with any of the Loan Documents and the termination of the Loans.
Section 12.05 Assignment; Participation. This Agreement shall
be binding upon, and shall inure to the benefit of, Borrower, Administrative
Agent, Lenders and their respective successors and permitted assigns. Borrower
may not assign or transfer its rights or obligations hereunder.
Any Lender may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Loan
("Participations"). In the event of any such grant by a Lender of a
Participation to a Participant, whether or not Borrower or Administrative Agent
was given notice, such Lender shall remain
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responsible for the performance of its obligations hereunder, and Borrower and
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations hereunder. Any agreement
pursuant to which any Lender may grant a Participation shall provide that such
Lender shall retain the sole right and responsibility to enforce the obligations
of Borrower hereunder and under any other Loan Document, including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement or any other Loan Document; provided, however, that
such participation agreement may provide that such Lender will not agree to any
modification, amendment or waiver of this Agreement described in clauses (i)
through (vii) of Section 12.02 without the consent of the Participant.
Any Lender may at any time assign to any bank or other
institution with the consent of Administrative Agent and, provided there exists
no Event of Default, of Borrower, which consents shall not be unreasonably
withheld or delayed, or to one or more banks or other institutions which are
majority owned subsidiaries of a Lender or of the Parent of a Lender (each such
consented to bank or other institution, or subsidiary bank or institution, an
"Assignee") all, or a proportionate part of all, of its rights and obligations
under this Agreement and its Notes, and such Assignee shall assume rights and
obligations, pursuant to an Assignment and Assumption Agreement executed by such
Assignee and the assigning Lender, provided that, in each case, after giving
effect to such assignment the Assignee's Loan Commitment, and, in the case of a
partial assignment, the assigning Lender's Loan Commitment, each will be equal
to or greater than $10,000,000; provided, further, however, that the assigning
Lender shall not be required to maintain a Loan Commitment in the minimum amount
aforesaid in the event it assigns all of its rights and obligations under this
Agreement and its Notes. Upon (i) execution and delivery of such instrument,
(ii) payment by such Assignee to the assigning Lender of an amount equal to the
purchase price agreed between such Lender and such Assignee and (iii) payment by
such Assignee to Administrative Agent of a fee, for Administrative Agent's own
account, in the amount of $3,500, such Assignee shall be a Lender under this
Agreement and shall have all the rights and obligations of a Lender as set forth
in such Assignment and Assumption Agreement, and the assigning Lender shall be
released from its obligations hereunder to a corresponding extent, and no
further consent or action by any party shall be required. Upon the consummation
of any assignment pursuant to this paragraph, substitute Notes shall be issued
to the assigning Lender (in the case of a partial assignment) and Assignee by
Borrower, in exchange for the return of the original Notes of the assigning
Lender. The obligations evidenced by such substitute notes shall constitute
"Obligations" for all purposes of this Agreement and the other Loan Documents
and shall be secured by the Mortgages. In connection with Borrower's execution
of substitute notes as aforesaid, Borrower shall deliver to Administrative Agent
such evidence of the due authorization, execution and delivery of the substitute
notes and any related documents as Administrative Agent may reasonably request.
If the Assignee is not incorporated under the Laws of the United States or a
state thereof, it shall, prior to the first date on which interest or fees are
payable hereunder for its account, deliver to Borrower and Administrative Agent
certification as to exemption from deduction or withholding of any United States
federal income taxes in accordance with Section 10.13.
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Each Assignee shall be deemed to have made the representations contained in, and
shall be bound by the provisions of, Section 10.13.
In the case of any assignment, all of (or a proportionate part
of all of) the assigning Lender's Notes (i. e., such Lender's Tranche A Note,
Tranche B Note and Tranche C Note) must be assigned jointly and such Notes may
not be assigned singly.
Any Lender may at any time freely assign all or any portion of
its rights under this Agreement and its Notes to a Federal Reserve Bank. No such
assignment shall release the transferor Lender from its obligations hereunder.
Borrower recognizes that in connection with a Lender's selling
of Participations or making of assignments, any or all documentation, financial
statements, appraisals and other data, or copies thereof, relevant to Borrower
or the Loans may be exhibited to and retained by any such Participant or
assignee or prospective Participant or assignee. In connection with a Lender's
delivery of any financial statements and appraisals to any such Participant or
assignee or prospective Participant or assignee, such Lender shall also indicate
that the same are delivered on a confidential basis. Each Lender agrees to
provide Administrative Agent and Borrower with notice of all Participations sold
by such Lender.
Section 12.06 Documentation Satisfactory. All documentation
required from or to be submitted on behalf of Borrower in connection with this
Agreement and the documents relating hereto shall be subject to the prior
approval of, and be satisfactory in form and substance to, Administrative Agent,
its counsel and, where specifically provided herein, Lenders. In addition, the
persons or parties responsible for the execution and delivery of, and
signatories to, all of such documentation, shall be acceptable to, and subject
to the approval of, Administrative Agent and its counsel.
Section 12.07 Notices. Except as expressly provided otherwise,
all notices, demands, consents, approvals and statements required or permitted
hereunder shall be in writing and shall be deemed to have been sufficiently
given or served for all purposes when presented personally, three (3) days after
mailing by registered or certified mail, postage prepaid, or one (1) day after
delivery to a nationally recognized overnight courier service providing evidence
of the date of delivery, addressed to a party at its address on the signature
page hereof or of the applicable Assignment and Assumption Agreement, or at such
other address of which a party shall have notified the party giving such notice
in writing in accordance with the foregoing requirements.
Section 12.08 Setoff. Borrower agrees that, in addition to
(and without limitation of) any right of setoff, bankers' lien or counterclaim a
Lender may otherwise have, Administrative Agent and each Lender shall be
entitled, but only with the prior consent of the Required Lenders, to offset
balances (general or special, time or demand, provisional or final) held by it
for the account of Borrower at any of Administrative Agent's or such Lender's
offices, in Dollars or in any other currency, against any amount payable by
Borrower to Administrative Agent or such Lender under this Agreement or such
Lender's Notes or any other Loan Document which is not paid
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when due (regardless of whether such balances are then due to Borrower), in
which case it shall promptly notify Borrower and (in the case of setoff by a
Lender) Administrative Agent thereof; provided, however, that failure to give
such notice shall not affect the validity thereof. Payments by Borrower
hereunder or under the other Loan Documents shall be made without setoff or
counterclaim.
Section 12.09 Severability. The provisions of this Agreement
are intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 12.10 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument, and any party hereto may execute this Agreement by signing
any such counterpart.
Section 12.11 Intentionally Omitted.
Section 12.12 Governing Law. This Agreement shall be governed
by, and construed and enforced in accordance with, the Laws of the State of New
York (without giving effect to New York's principles of conflicts of law).
Section 12.13 Waivers. In connection with the obligations and
liabilities as aforesaid, Borrower hereby waives (i) promptness and diligence,
(ii) notice of any actions taken by Administrative Agent or any Lender under
this Agreement, any other Loan Document or any other agreement or instrument
relating thereto except to the extent otherwise provided herein, (iii) all other
notices, demands and protests, and all other formalities of every kind in
connection with the enforcement of the Obligations, the omission of or delay in
which, but for the provisions of this Section, might constitute grounds for
relieving Borrower of its obligations hereunder, (iv) any requirement that
Administrative Agent or any Lender protect, secure, perfect or insure any Lien
on all or any portion of the Mortgaged Property under any Mortgage or on any
other Collateral or exhaust any right or take any action against Borrower,
Guarantor or any other Person or against all or any portion of the Mortgaged
Property under any Mortgage or any other Collateral, (v) any right or claim of
right to cause a marshalling of the assets of Borrower, Guarantor or any other
Person and (vi) all rights of subrogation or contribution, whether arising by
contract or operation of law (including, without limitation, any such right
arising under the Federal Bankruptcy Code) or otherwise by reason of payment by
Borrower, either jointly or severally, pursuant to this Agreement or other Loan
Documents.
Section 12.14 Year 2000. Borrower represents, warrants and
covenants that it and Guarantor have taken and shall take all action reasonably
necessary to assure that its data processing (including internal accounting and
bookkeeping) systems, information technology systems and building systems
(including microprocessors for building systems) are capable of effectively
processing data and
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information, including dates on and after January 1, 2000, and shall not cease
to perform, or provide, or cause any software and/or system which is material to
its operations or any interface therewith to provide, invalid or incorrect
results as a result of date functionality and/or data, or otherwise experience
any material degradation of performance or functionality arising from, relating
to or including date functionality and/or data which represents or references
different centuries or more than one century or leap years, and that all such
systems shall be reasonably effective and accurate in managing and manipulating
data derived from, involving or relating in any way to dates (including single
century formulas and multi-century or leap year formulas), and will not cause a
material abnormally ending scenario within such systems or in any software
and/or system with which such systems interface, or generate materially
incorrect values or invalid results involving such dates. At the request of
Administrative Agent, Borrower shall provide, and cause Guarantor to provide,
Administrative Agent with reasonably acceptable assurance of Borrower's and
Guarantor's year 2000 capability.
Section 12.15 Jurisdiction; Immunities. Borrower,
Administrative Agent and each Lender hereby irrevocably submit to the
jurisdiction of any New York State or U.S. federal court sitting in New York
City over any action or proceeding arising out of or relating to this Agreement,
the Notes or any other Loan Document. Borrower, Administrative Agent, and each
Lender irrevocably agree that all claims in respect of such action or proceeding
may be heard and determined in such New York State or U.S. federal court.
Borrower, Administrative Agent, and each Lender irrevocably consent to the
service of any and all process in any such action or proceeding by the mailing
of copies of such process to Borrower, Administrative Agent or each Lender, as
the case may be, at the addresses specified herein. Borrower, Administrative
Agent and each Lender agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by Law. Borrower,
Administrative Agent and each Lender further waive any objection to venue in the
State of New York and any objection to an action or proceeding in the State of
New York on the basis of forum non conveniens.
Nothing in this Section shall affect the right of Borrower,
Administrative Agent or any Lender to serve legal process in any other manner
permitted by Law.
To the extent that Borrower, Administrative Agent or any
Lender have or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether from service or notice, attachment prior to
judgment, attachment in aid of execution, execution or otherwise) with respect
to itself or its property, Borrower, Administrative Agent and each Lender hereby
irrevocably waive such immunity in respect of its obligations under this
Agreement, the Notes and any other Loan Document.
BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER WAIVE ANY RIGHT
EACH SUCH PARTY MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY SUIT, ACTION OR
PROCEEDING BROUGHT WITH RESPECT TO THIS AGREEMENT, THE NOTES OR THE LOANS. IN
ADDITION, BORROWER FURTHER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY OR ON BEHALF OF
ADMINISTRATIVE AGENT OR LENDERS
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WITH RESPECT TO THIS AGREEMENT, THE NOTES OR OTHERWISE IN RESPECT OF THE LOAN,
ANY AND EVERY RIGHT BORROWER MAY HAVE TO (X) INJUNCTIVE RELIEF, (Y) INTERPOSE
ANY COUNTERCLAIM THEREIN, OTHER THAN A COMPULSORY COUNTERCLAIM AND (Z) HAVE THE
SAME CONSOLIDATED WITH ANY OTHER OR SEPARATE SUIT, ACTION OR PROCEEDING. NOTHING
CONTAINED IN THE IMMEDIATELY PRECEDING SENTENCE SHALL PREVENT OR PROHIBIT
BORROWER FROM INSTITUTING OR MAINTAINING A SEPARATE ACTION AGAINST
ADMINISTRATIVE AGENT OR LENDERS WITH RESPECT TO ANY ASSERTED CLAIM.
Section 12.16 Gross-Up For Taxes. All payments made by
Borrower under this Agreement and the Notes shall be made free and clear of, and
without deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, excluding income taxes and franchise or
other taxes (imposed in lieu of income taxes) imposed on a Lender as a result of
a present or former connection between such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
such Lender's having executed, delivered or performed its obligations or
received a payment under, or enforced, this Agreement or its Notes). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to such Lender hereunder or under its Notes the amounts so payable to
such Lender shall be increased to the extent necessary to yield to such Lender
(after payment of all Non-Excluded Taxes) interest or any such other amounts
payable with respect to the its Loan at the rates or in the amounts specified in
this Agreement and its Notes; provided, however, that Borrower shall not be
required to increase any such amounts payable to such Lender if such Lender is
not organized under the Laws of the United States or a state thereof and such
Lender fails to comply with the requirements of Section 10.13. Whenever any
Non-Excluded Taxes are payable by Borrower, as promptly as possible thereafter
Borrower shall send to Administrative Agent for the account of such Lender a
certified copy of an original official receipt received by Borrower showing
payment thereof. If Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to Administrative Agent the
required receipts or other required documentary evidence, Borrower shall
indemnify such Lender for any incremental taxes, interest or penalties that may
become payable by such Lender as a result of any such failure. The agreements in
this Section shall survive the termination of this Agreement and the payment of
the Notes and all other amounts payable hereunder.
Section 12.17 Additions and Releases of Properties.
(a) Subject to the conditions set forth below in this Section,
Borrower shall have the right from time to time to (1) cause one or more office
properties owned by Borrower and approved by Administrative Agent in its sole
and absolute discretion, to be encumbered by a Mortgage and thereby become an
Office Property or (2) obtain the release of a Property from the Mortgage
encumbering such Property, each such addition
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or release of a Property to effect an immediate change in the computations of
compliance with the covenants set forth in Section 8.01.
(b) The addition of any new Property shall be subject to the
satisfaction of the following conditions:
(i) There shall exist no Default or Event of Default;
(ii) Administrative Agent shall have received (x) a Mortgage
of the Property, duly executed by Borrower and recorded (or delivered
for recording) in the appropriate land records, together with executed
financing statements filed (or delivered for filing) under the Uniform
Commercial Code of all jurisdictions necessary or, in the opinion of
Administrative Agent, desirable to perfect the lien created by said
Mortgage and (y) an Indemnity, duly executed by Borrower and Guarantor
(each such Mortgage and Indemnity to be substantially in the form of
the Mortgages and Indemnities with respect to the Properties initially
given as security for the Loans but with such changes as Administrative
Agent reasonably deems necessary or advantageous under local law or in
connection with the particular Property);
(iii) Each of the Property-specific representations and
warranties set forth in this Agreement shall be true and correct in all
material respects with respect to the Property;
(iv) The Property shall not have suffered any material
casualty and no eminent domain proceedings material to the Property
shall have been commenced (or threatened) with respect to all or any
part thereof;
(v) Administrative Agent shall have received and approved an
operating statement with respect to the Property for the most recent
Fiscal Year and for the stub period ending with the most recent
calendar quarter;
(vi) Administrative Agent shall have received and approved (x)
each of the items listed in paragraphs (6) through (17) of Section 4.01
with respect to the Property; and (y) such endorsements to the title
insurance policies insuring the Mortgages as Administrative Agent shall
reasonably require;
(vii) Administrative Agent shall have received from Borrower,
and approved, a certificate of the sort required by clause (ii) of
paragraph (3) of Section 6.09, which shall demonstrate Borrower's
compliance, as of the date of the addition of the Property to be added,
taking into account the addition of the Property, with the covenants of
Borrower enumerated in said clause (ii);
(viii) Administrative Agent shall have received such other
documents, opinions and assurances as it may reasonably request, all in
form and substance reasonably satisfactory to Administrative Agent; and
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(ix) Administrative Agent shall have received payment of all
its reasonable out-of-pocket expenses in connection with the addition
of the Property, including reasonable fees and expenses of counsel.
(c) The release of any Property shall be subject to the
satisfaction of the following conditions:
(i) There shall exist no Default or Event of Default;
(ii) Administrative Agent shall have received from Borrower,
and approved, a certificate of the sort required by clause (ii) of
paragraph (3) of Section 6.09, which shall demonstrate Borrower's and
Guarantor's compliance, as of the date of the proposed release of the
Property, taking into account the release of the Property; if
necessary, Borrower shall make a payment in reduction of the
outstanding principal amount of the Notes in an amount such that said
covenants are complied with;
(iii) Concurrently with such release, the Property shall be
conveyed to a Person other than Borrower; and
(iv) Administrative Agent shall have received from Borrower
payment of Administrative Agent's reasonable out-of-pocket expenses in
connection with such release, including reasonable fees and expenses of
counsel.
Section 12.18 Reappraisals of Hotel Properties. At the request
of Administrative Agent, any Hotel Property shall be reappraised from time to
time for purposes of determining its Property Allocated Value; provided,
however, that no Hotel Property shall be reappraised more than once during any
twelve (12)-month period. Each such reappraisal shall (1) conform to the
requirements of Section 4.01(8) and (2) be reasonably acceptable in form and
substance (including methods, procedures and scope of services) to the
Administrative Agent. The cost of each such appraisal shall be paid by Borrower.
Section 12.19 Certain Provisions Regarding Disposition
Properties.
(a) Notwithstanding the provisions of Section 4.01, although a
Mortgage of each Disposition Property will be required to be executed and
delivered to Administrative Agent as a condition precedent to the making of the
Initial Advance, the recording of such Mortgages, as well as the delivery of
certain other items relating to the Disposition Properties, shall be deferred as
hereinafter provided (the parties hereto acknowledging that, as of the Closing
Date, the Disposition Properties are not owned by Borrower, but may, under
certain circumstances, be conveyed to Borrower as hereinafter provided).
(b) On or before the Closing Date:
(i) CEI LP shall deliver to Administrative Agent documents,
duly executed by CEI LP (and Borrower where applicable) and in proper
form for
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recording, where applicable, to effect the conveyance of fee title in
the Disposition Properties to Borrower, such documents to include: (A)
a Warranty Deed and Assignment, (B) a Blanket Conveyance, Bill of Sale
and General Assignment, (C) an Assignment and Assumption of Leases and
Rents and (D) a Bills Paid Affidavit (the foregoing documents,
collectively, the "Disposition Property Conveyance Documents"); and
(ii) Borrower shall deliver to Administrative Agent the
Mortgage and related UCC-1 financing statements for each Disposition
Property, each duly executed and in proper form for recording or filing
(the foregoing documents, collectively, the "Disposition Property
Mortgages").
The Disposition Property Conveyance Documents and the
Disposition Property Mortgages shall be held by Administrative Agent and not
recorded or filed or otherwise released from Administrative Agent's possession
except as set forth below in this Section. If (x) an Event of Default shall
occur, then, with respect to all Disposition Properties or (y) if a particular
Disposition Property shall not be conveyed by CEI LP as contemplated by the
Sales Contract therefor within sixty (60) days after the Closing Date (as such
period may be extended by Administrative Agent) or if the Sales Contract
therefor terminates or is cancelled, then, with respect to each such
non-conveyed Disposition Property: (A) Administrative Agent shall be irrevocably
and unconditionally authorized to immediately record/file the Disposition
Property Conveyance Documents and the Disposition Property Mortgages in the
appropriate offices and (B) Borrower shall, within thirty (30) days after the
occurrence of the condition set forth in clause (x) or (y) above, as applicable,
deliver to Administrative Agent, at Borrower's expense, the items required by
paragraphs (6), (8), (10) and (12) of Section 4.01.
Borrower agrees, within five (5) days after demand by
Administrative Agent, to execute or cause the execution of all additional
documents and instruments, and to pay all costs, necessary to carry out the
intention of this Section. If Borrower shall fail to perform any of the
covenants or satisfy any of the conditions contained in this Section,
Administrative Agent and/or Lenders may perform such covenants or satisfy such
conditions on Borrower's behalf, and Borrower hereby irrevocably and
unconditionally directs and authorizes Lenders and/or Administrative Agent to
make advances to pay the costs of performing such covenants or satisfying such
conditions on Borrower's behalf, including, without limitation, the payment of
recording and transfer taxes and fees and reasonable attorneys' fees. Any such
advances made by Administrative Agent or Lenders shall be repaid by Borrower at
the Default Rate for Base Rate Loans and shall be secured by the Mortgages and
the Collateral Assignments. Borrower hereby appoints Administrative Agent as its
attorney-in-fact (which appointment shall be coupled with an interest and
irrevocable) for the purpose of executing any documents or doing any acts
necessary to carry out the intention of this Section.
(c) Upon the conveyance of a Disposition Property as
contemplated by the Sales Contract therefor (which conveyance shall be subject
to the satisfaction of the conditions for release of a Property set forth in
Section 12.17). Administrative Agent shall return to Borrower the Disposition
Property Mortgage and Disposition Property Conveyance Documents for such
Disposition Property being so conveyed.
76
<PAGE> 82
Section 12.20 Partial Releases. Provided there exists no
Default, Administrative Agent shall release the liens of the Mortgages on the
Properties identified on SCHEDULE A as Four Westlake and Avallon Phase II (each,
a "Release Parcel"), in connection with the development by Borrower on each such
Release Parcel of office or other facilities, all reasonably approved by
Administrative Agent, that are compatible with the Improvements on the balance
of the applicable Property and of a first class quality and character consistent
with said Improvements. The Release Parcel, in the case of Four Westlake, shall
be an approximately 3.1759 acre parcel identified as the "Development Parcel" on
the survey by Dannenbaum Engineering Corporation, dated May 11, 1998, and, in
the case of Avallon Phase II, shall be of a size, and have a location and
configuration, reasonably acceptable to Administrative Agent. Such releases
shall be subject to Administrative Agent's receipt, in each case, of: (i)
evidence that the balance of the Property constitutes a separate tax lot and
endorsements to the title insurance policy for the Mortgage of the Property to
such effect and further insuring that the lien of such Mortgage will not be
impaired by virtue of the release of the Release Parcel, (ii) an opinion of
Borrower's counsel (or other evidence) that the portion of the Property
remaining subject to the Mortgage complies with all applicable requirements of
Governmental Authorities (including zoning), (iii) a current survey of the
Premises, specifically delineating the Release Parcel, certified to
Administrative Agent and the Title Insurer, (iv) evidence that the portion of
the Property remaining subject to the Mortgage has adequate pedestrian and
vehicular access for the contemplated uses thereof to publicly dedicated roads,
(v) such other documents, opinions and assurances as Administrative Agent may
reasonably request (all of the foregoing items (i) through (v) to be in form and
substance reasonably satisfactory to Administrative Agent), and (vi) payment of
Administrative Agent's reasonable out-of-pocket expenses, including the fees and
expenses of its counsel, in connection with the foregoing transactions.
77
<PAGE> 83
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
CRESCENT REAL ESTATE FUNDING VIII, L.P., a
Delaware limited partnership (as Borrower)
By: CRE Management VIII, LLC, a Delaware
limited liability company, its general partner
By: Crescent Real Estate Equities Limited
Partnership, a Delaware limited
partnership, its sole member
By: Crescent Real Estate Equities,
Ltd., a Delaware corporation, its
general partner
By: /s/ Christopher T. Porter
-------------------------------------
Name: Christopher T. Porter
Title: Vice President &
Treasurer
Address for notices:
c/o Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Forth Worth, TX 76102-5325
Attention: Chris Porter
Telephone: (817) 321-1455
Telecopy: (817) 321-2000
78
<PAGE> 84
For the purpose of signifying its agreement to the
provisions of Section 7.01:
CRE MANAGEMENT VIII, LLC,
a Delaware limited liability company
By: Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership, its
sole member
By: Crescent Real Estate Equities, Ltd., a
Delaware corporation, its general partner
By: /s/ Christopher T. Porter
------------------------------------------
Name: Christopher T. Porter
Title: Vice President & Treasurer
UBS AG, STAMFORD BRANCH
(as Lender and Administrative Agent)
By: /s/Jeffrey W. Wald
-------------------------------------------------
Name: Jeffrey W. Wald
Title: Executive Director
By: /s/ David Goldman
-------------------------------------------------
Name: David Goldman
Title: Director
Address for notices, Administrative Agent's Office
and Applicable Lending Office:
UBS AG, Stamford Branch
c/o Warburg Dillon Read LLC299 Park Avenue
New York, NY 10171
Attention: Xiomara Martez
Telephone: 212-821-3872
Telecopy: 212-821-4138
[EXHIBITS OMITTED]
79
<PAGE> 85
SCHEDULE A
PROPERTIES
<TABLE>
<CAPTION>
SQUARE
FOOTAGE/# OF PROPERTY
PROPERTY ROOMS LOCATION ALLOCATED VALUE
-------- ------------ -------- ---------------
<S> <C> <C> <C>
OFFICE - PART I:
3333 Lee Parkway 233,769 3333 Lee Parkway Dallas, TX $26,700,000
Four Westlake 561,065 200 Westlake Park Blvd. Houston, TX 73,800,000
Greenway I & IA 146,704 2150 Lakeside Blvd. Richardson TX 19,900,000
The Addison 215,016 16415 Addison Road Dallas, TX 23,500,000
Three Westlake 414,251 550 Westlake Park Blvd. Houston, TX 36,250,000
5050 Quorum 133,594 5050 Quorum Drive Dallas, TX 12,900,000
Addison Tower 145,886 14951 Dallas Parkway Dallas, TX 14,000,000
Austin Center 343,665 701 Brazos Street Austin, TX 42,000,000
Avallon Phase II 106,342 10415 Morado Circle Austin, TX 15,500,000
Cedar Springs Plaza 110,923 2501 Cedar Springs Dallas, TX 11,700,000
Greenway II 154,329 2400 Lakeside Blvd. Richardson, TX 18,300,000
Post Oak Central 1,277,516 2000 Post Oak Boulevard Houston, TX 170,000,000
Spectrum Centre 598,250 5080 Spectrum Drive Dallas, TX 71,300,000
Stemmons Place 634,381 2777 Stemmons Freeway Dallas, TX 50,000,000
Trammell Crow Center 1,128,331 2001 Ross Avenue Dallas, TX 164,300,000
1800 West Loop South 399,777 1800 West Loop South Houston, TX 40,000,000
Palisades Central I 180,503 2425 N. Central Expressway Richardson, TX 17,300,000
Palisades Central II 237,731 2435 N. Central Expressway Richardson, TX 24,900,000
Washington Harbour 536,206 3050 K. Street, N.W. Washington, D.C. 145,000,000
OFFICE - PART II:
Amberton Tower 255,052 4144 N. Central Expressway Dallas, TX 17,000,000
Concourse Office Park 244,897 6310-6390 LBJ Freeway Dallas, TX 15,900,000
One Preston Park 40,525 2301 Ohio Plano, TX 2,500,000
Valley Centre 74,861 9901 Valley Ranch Parkway Dallas, TX 7,100,000
Walnut Green* 158,669 7502 Greenville Avenue Dallas, TX *** 2,364,107
AT&T Building* 184,581 1875 Lawrence Street Denver, CO *** 11,376,644
Woodlands* 810,630 **The Woodlands, TX *** 74,647,857
Bank One - Austin 389,503 221 West 6th Street Austin, TX 61,000,000
Frost Bank Plaza 433,024 816 Congress Avenue Austin, TX 67,000,000
1615 Poydras* 508,741 1615 Poydras Street New Orleans, LA *** 44,532,389
(Freeport-McMoran)
Central Park Plaza* 409,850 222 South 15th Street Omaha, NE *** 31,009,283
HOTEL/RESORT:
Sonoma Mission Inn 198 18140 Sonoma Highway 12 Boyes Hot Springs, CA 85,000,000
Sonoma Golf Club ----- 17700 Arnold Drive Sonoma, CA 15,000,000
Canyon Ranch Tucson 250 8600 E. Rockcliff Road Tucson, AZ 70,200,000
Ventana Inn 62 Highway One Big Sur, CA 32,000,000
Omni Austin 315 700 San Jacinto at 8th Street Austin, TX 40,000,000
</TABLE>
- --------------------
<PAGE> 86
* Indicates Properties currently under contract
** 3606 Research Forest, 3200 Research Forest, 8701 New Trail Drive, 8665 New
Trails Ln., 4200 Research Forest Drive, 8301 New Trails Drive, 8401 New
Trails Drive, 10200 Grogan's Mill Road, 10077 Grogan's Mill Road, 10055
Grogan's Mill Road, 1400 Woodloch Forest and 1610 Woodstead Court, all in
The Woodlands, Texas
*** Initial Property Capitalization Value is used as initial Property Allocated
Value for these Properties
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 137,044
<SECURITIES> 0
<RECEIVABLES> 119,719
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,184,979
<PP&E> 3,931,229
<DEPRECIATION> (520,799)
<TOTAL-ASSETS> 4,852,172
<CURRENT-LIABILITIES> 120,872
<BONDS> 2,479,099
0
200,000
<COMMON> 1,209
<OTHER-SE> 2,050,992
<TOTAL-LIABILITY-AND-EQUITY> 4,852,172
<SALES> 0
<TOTAL-REVENUES> 175,788
<CGS> 0
<TOTAL-COSTS> 103,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,250
<INCOME-PRETAX> 49,599
<INCOME-TAX> 0
<INCOME-CONTINUING> 49,599
<DISCONTINUED> 0
<EXTRAORDINARY> (3,928)
<CHANGES> 0
<NET-INCOME> 45,671
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.38
</TABLE>
