<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 JUNE 30, 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 August 9, 2000.
Preferred Shares, par value $.01 per share: 8,000,000
Common Shares, par value $.01 per share: 109,603,066
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 June 30, 2000 (unaudited) and December 31, 1999
(audited)............................................................................. 2
Consolidated Statements of Operations for the three and six months ended June 30,
2000 and 1999 (unaudited)............................................................. 3
Consolidated Statements of Shareholders' Equity for the six months ended
June 30, 2000 and 1999 (unaudited).................................................... 4
Consolidated Statements of Cash Flows for the six months ended June 30,
2000 and 1999 (unaudited)............................................................. 5
Notes to Financial Statements......................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 61
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 62
Item 2. Changes in Securities................................................................. 62
Item 3. Defaults Upon Senior Securities....................................................... 62
Item 4. Submission of Matters to a Vote of Security Holders................................... 62
Item 5. Other Information..................................................................... 63
Item 6. Exhibits and Reports on Form 8-K...................................................... 63
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1
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CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Investments in real estate:
Land $ 356,488 $ 398,754
Land held for development or sale 110,811 95,760
Building and improvements 3,347,882 3,529,344
Furniture, fixtures and equipment 72,971 71,716
Less - accumulated depreciation (543,189) (507,520)
------------ ------------
Net investment in real estate 3,344,963 3,588,054
Cash and cash equivalents 40,235 72,926
Restricted cash and cash equivalents 66,678 87,939
Accounts receivable, net 45,798 37,204
Deferred rent receivable 80,117 74,271
Investments in real estate mortgages and equity
of unconsolidated companies 816,362 812,494
Notes receivable, net 135,883 131,542
Other assets 168,836 146,131
------------ ------------
Total assets $ 4,698,872 $ 4,950,561
============ ============
LIABILITIES:
Borrowings under BankBoston Credit Facility $ -- $ 510,000
Borrowings under UBS Facility 713,452 --
Notes payable 1,722,852 2,088,929
Accounts payable, accrued expenses and other liabilities 140,799 170,984
------------ ------------
Total liabilities 2,577,103 2,769,913
------------ ------------
COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS:
Operating partnership, 7,010,823 and 6,975,952 units,
respectively 96,151 99,226
Investment in joint ventures 178,551 24,648
------------ ------------
Total minority interests 274,702 123,874
------------ ------------
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 June 30, 2000
and December 31, 1999 200,000 200,000
Common shares, $.01 par value, authorized 250,000,000 shares,
121,756,960 and 121,537,353 shares issued at June 30, 2000
and December 31, 1999, respectively 1,211 1,208
Additional paid-in capital 2,224,270 2,229,680
Deferred compensation on restricted shares (41) (41)
Retained deficit (436,655) (386,532)
Accumulated other comprehensive income 13,101 12,459
------------ ------------
2,001,886 2,056,774
Less - shares held in treasury, at cost, 8,422,420 common
shares at June 30, 2000 (154,819) --
------------ ------------
Total shareholders' equity 1,847,067 2,056,774
------------ ------------
Total liabilities and shareholders' equity $ 4,698,872 $ 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 FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Office and retail properties $ 147,534 $ 155,713 $ 296,642 $ 305,735
Hotel properties 18,463 16,107 36,007 31,511
Behavioral healthcare properties 3,304 13,825 5,383 27,648
Interest and other income 5,928 6,752 12,985 13,250
--------- --------- --------- ---------
Total revenues 175,229 192,397 351,017 378,144
--------- --------- --------- ---------
EXPENSES:
Real estate taxes 21,579 22,454 44,250 43,200
Repairs and maintenance 10,569 10,668 22,766 21,692
Other rental property operating 29,776 32,498 60,042 65,110
Corporate general and administrative 4,082 3,816 9,327 7,930
Interest expense 51,836 44,917 104,086 87,398
Amortization of deferred financing costs 2,341 2,755 4,688 5,824
Depreciation and amortization 31,718 33,010 62,620 66,657
Settlement of merger dispute -- -- -- 15,000
--------- --------- --------- ---------
Total expenses 151,901 150,118 307,779 312,811
--------- --------- --------- ---------
Operating income 23,328 42,279 43,238 65,333
OTHER INCOME AND EXPENSE:
Equity in net income of unconsolidated
companies:
Office and retail properties 396 (5) 3,100 1,956
Temperature-controlled logistics properties 192 4,021 4,228 9,730
Residential development properties 11,717 14,415 22,181 23,044
Other 2,978 603 5,319 910
--------- --------- --------- ---------
Total equity in net income of unconsolidated companies 15,283 19,034 34,828 35,640
Gain on property sales, net 6,126 -- 28,753 --
--------- --------- --------- ---------
Total other income and expense 21,409 19,034 63,581 35,640
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS 44,737 61,313 106,819 100,973
AND EXTRAORDINARY ITEM
Minority interests (8,675) (6,149) (15,707) (9,798)
--------- --------- --------- ---------
NET INCOME BEFORE EXTRAORDINARY ITEM 36,062 55,164 91,112 91,175
Extraordinary item - extinguishment of debt -- -- (3,928) --
--------- --------- --------- ---------
NET INCOME 36,062 55,164 87,184 91,175
6 3/4% Series A Preferred Share dividends (3,375) (3,375) (6,750) (6,750)
Share repurchase agreement return (718) -- (2,794) --
Forward share purchase agreement return -- (2,165) -- (4,317)
--------- --------- --------- ---------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 31,969 $ 49,624 $ 77,640 $ 80,108
========= ========= ========= =========
BASIC EARNINGS PER SHARE DATA:
Net income available to common shareholders before extraordinary item $ 0.28 $ 0.39 $ 0.69 $ 0.64
Extraordinary item - extinguishment of debt -- -- (0.03) --
--------- --------- --------- ---------
Net income available to common shareholders $ 0.28 $ 0.39 $ 0.66 $ 0.64
========= ========= ========= =========
DILUTED EARNINGS PER SHARE DATA:
Net income available to common shareholders before extraordinary item $ 0.27 $ 0.39 $ 0.68 $ 0.63
Extraordinary item - extinguishment of debt -- -- (0.03) --
--------- --------- --------- ---------
Net income available to common shareholders $ 0.27 $ 0.39 $ 0.65 $ 0.63
========= ========= ========= =========
</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)
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<CAPTION>
Preferred Shares Treasury Shares
---------------------------- -----------------------------
Shares Net Value Shares Net Value
------------ ------------ ------------ ------------
<S> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1999 8,000,000 $ 200,000 -- $ --
Issuance of Common Shares -- -- -- --
Exercise of Common Share Options -- -- -- --
Preferred Equity Issuance Cost -- -- -- --
Issuance of Shares in Exchange for Operating
Partnership Units -- -- -- --
Share Repurchases -- -- 4,400,030 (84,418)
Share Repurchase Agreement -- -- 4,022,390 (70,401)
Dividends Paid -- -- -- --
Net Income -- -- -- --
Unrealized Net Loss on
Available-for-Sale Securities -- -- -- --
Other Comprehensive Income -- -- -- --
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, June 30, 2000 8,000,000 $ 200,000 8,422,420 $ (154,819)
============ ============ ============ ============
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<CAPTION>
Deferred
Common Shares Additional Compensation
---------------------------- Paid-in on Restricted
Shares Par Value Capital Shares
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1999 $121,537,353 $ 1,208 $ 2,229,680 $ (41)
Issuance of Common Shares 2,283 -- 39 --
Exercise of Common Share Options 160,200 2 971 --
Preferred Equity Issuance Cost -- -- (5,888) --
Issuance of Shares in Exchange for Operating
Partnership Units 57,124 1 502 --
Share Repurchases -- -- (34) --
Share Repurchase Agreement -- -- (1,000) --
Dividends Paid -- -- -- --
Net Income -- -- -- --
Unrealized Net Loss on
Available-for-Sale Securities -- -- -- --
Other Comprehensive Income -- -- -- --
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, June 30, 2000 121,756,960 $ 1,211 $ 2,224,270 $ (41)
============ ============ ============ ============
</TABLE>
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Accumulated
Retained Other
Earnings Comprehensive
(Deficit) Income Total
------------ ------------ ------------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1999 $ (386,532) $ 12,459 $ 2,056,774
Issuance of Common Shares -- -- 39
Exercise of Common Share Options -- -- 973
Preferred Equity Issuance Cost -- -- (5,888)
Issuance of Shares in Exchange for Operating
Partnership Units -- -- 503
Share Repurchases -- -- (84,452)
Share Repurchase Agreement -- -- (71,401)
Dividends Paid (130,557) -- (130,557)
Net Income 80,434 -- 80,434
Unrealized Net Loss on
Available-for-Sale Securities -- (3,562) (3,562)
Other Comprehensive Income -- 4,204 4,204
------------ ------------ -----------
SHAREHOLDERS' EQUITY, June 30, 2000 $ (436,655) $ 13,101 $ 1,847,067
============ ============ ===========
</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)
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<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 87,184 $ 91,175
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 67,308 72,481
Extraordinary item - extinguishment of debt 3,928 --
Gain on property sales, net (28,753) --
Minority interests 15,707 9,798
Non-cash compensation 39 81
Distributions received in excess of earnings
from unconsolidated companies 5,815 --
Equity in earnings net of distributions received
from unconsolidated companies -- (14,621)
Increase in accounts receivable (8,594) (867)
Increase in deferred rent receivable (5,846) (15,508)
(Increase) decrease in other assets (3,692) 20,894
Decrease in restricted cash and cash equivalents 21,524 3,766
Decrease in accounts payable, accrued
expenses and other liabilities (38,361) (14,047)
--------- ---------
Net cash provided by operating activities 116,259 153,152
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of land held for development or sale (15,051) --
Proceeds from property sales 282,040 --
Development of investment properties (14,951) (5,106)
Capital expenditures - rental properties (7,097) (14,723)
Tenant improvement and leasing costs - rental properties (35,391) (29,060)
Increase in restricted cash and cash equivalents (263) (19,544)
Return of investment in unconsolidated companies 1,589 --
Investment in unconsolidated companies -- (127,422)
Investment in residential development companies (11,272) (21,688)
Escrow deposits - acquisition of investment properties 500 --
Increase in notes receivable (4,341) (9,546)
--------- ---------
Net cash provided by (used in) investing activities 195,763 (227,089)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (19,008) (12,864)
Settlement of Forward Share Purchase Agreement -- (149,384)
Borrowings under BankBoston Credit Facility -- 51,920
Payments under BankBoston Credit Facility (510,000) (51,920)
Borrowings under UBS Facility 902,819 --
Payments under UBS Facility (189,367) --
Notes Payable proceeds -- 490,000
Notes Payable payments (366,077) (115,735)
Capital proceeds - joint venture partner 154,083 --
Capital distributions - joint venture partner (10,681) (1,753)
Proceeds from exercise of share options 973 17,922
Treasury share repurchases (154,819) --
6 3/4% Series A Preferred Share dividends (6,750) (6,750)
Dividends and unitholder distributions (145,886) (152,347)
--------- ---------
Net cash (used in) provided by financing activities (344,713) 69,089
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (32,691) (4,848)
CASH AND CASH EQUIVALENTS,
Beginning of period 72,926 110,292
--------- ---------
CASH AND CASH EQUIVALENTS,
End of period $ 40,235 $ 105,444
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
Crescent Real Estate Equities Company ("Crescent Equities") operates as
a real estate investment trust (a "REIT") for federal income tax purposes, and,
together with its subsidiaries, provides management, leasing and development
services to some of its properties.
The term "Company" includes, unless the context otherwise indicates,
Crescent Equities, a Texas real estate investment trust, and all of its direct
and indirect subsidiaries.
The direct and indirect subsidiaries of Crescent Equities at June 30,
2000 include:
o CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
The "Operating Partnership."
o CRESCENT REAL ESTATE EQUITIES, LTD.
The "General Partner" of the Operating Partnership.
o NINE SEPARATE LIMITED-PURPOSE LIMITED PARTNERSHIPS
Eight of these limited partnerships were formed for
the purpose of obtaining securitized debt and all or
substantially all the economic interests in these
partnerships are owned directly or indirectly by the
Operating Partnership, with the remaining interests,
if any, owned indirectly by Crescent Equities through
eight separate corporations or limited liability
companies described below. The ninth limited
partnership was formed for the purpose of obtaining
equity financing through the sale of preferred equity
interests, with substantially all of the common
equity interests owned directly by the Operating
Partnership, the remaining common equity interests
owned indirectly by Crescent Equities through a
separate limited liability company described below,
and all of the preferred equity interests owned by an
unrelated third party.
o TEN SEPARATE CORPORATIONS OR LIMITED LIABILITY
COMPANIES
Nine of these entities are wholly owned subsidiaries
of the General Partner or the Operating Partnership
and serve as the general partner of one of the nine
limited partnerships described above. The tenth
entity is a wholly owned subsidiary of Crescent
Equities formed for the purpose of repurchasing and
holding common shares of beneficial interest of
Crescent Equities.
Crescent Equities conducts all of its business directly through the
Operating Partnership and its other subsidiaries. The Company is structured to
facilitate and maintain the qualification of Crescent Equities as a REIT.
The following table shows, by subsidiary, the Properties such
subsidiaries, directly or indirectly, owned as of June 30, 2000(1):
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Operating Partnership: 25 Office Properties and The Park Shops at Houston Center
Crescent Real Estate The Aberdeen, The Avallon, Caltex House, The Citadel, The Crescent Atrium, The Crescent
Funding I, L.P.: Office Towers, Regency Plaza One, UPR Plaza and Waterside Commons
("Funding I")
</TABLE>
6
<PAGE> 8
<TABLE>
<S> <C>
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate Office and Research Center, Hyatt
Funding II, L.P.: Regency Albuquerque, Hyatt Regency Beaver Creek, Las Colinas Plaza, Liberty Plaza I &
("Funding II") II, MacArthur Center I & II, Ptarmigan Place, Stanford Corporate Centre, Two
Renaissance Square and 12404 Park Central
Crescent Real Estate Greenway Plaza Office Properties and Renaissance Houston Hotel(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 70 Behavioral Healthcare Properties
Funding VII, L.P.:
("Funding VII")
Crescent Real Estate 21 Office Properties and four Hotel Properties
Funding VIII, L.P.:
("Funding VIII")
Crescent Real Estate Chancellor Park, Denver Marriott City Center, Four Seasons - Houston, MCI Tower, Miami
Funding IX, L.P.: Center, Reverchon Plaza, 44 Cook Street, 55 Madison and 6225 N. 24th Street
("Funding IX")
</TABLE>
---------------------
(1) As of June 30, 2000, Crescent SH IX, Inc. owned 8,402,134 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 June 30, 2000, the Company's assets and operations were composed
of five major investment segments:
o Office and Retail Segment;
o Hotel/Resort Segment;
o Residential Development Segment;
o Temperature-Controlled Logistics Segment; and
o Behavioral Healthcare Segment.
Within these segments, the Company owned directly or indirectly the
following real estate assets (the "Properties") as of June 30, 2000:
o OFFICE AND RETAIL SEGMENT consisted of 80 office properties
(collectively referred to as the "Office Properties") located
in 28 metropolitan submarkets in seven states, with an
aggregate of approximately 29.0 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 566 rooms and two Canyon Ranch destination
fitness resorts and spas that can accommodate up to 462 guests
daily (collectively referred to as the "Hotel Properties").
All Hotel Properties, except the Omni Austin Hotel, are leased
to subsidiaries of Crescent Operating, Inc. ("COPI"). The Omni
Austin Hotel is leased to HCD Austin Corporation.
o RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Company's
ownership of real estate mortgages and non-voting common stock
representing interests ranging from 90% to 95% in five
unconsolidated residential development corporations
(collectively referred to as the "Residential Development
Corporations"), which in turn, through joint venture or
partnership arrangements, owned
7
<PAGE> 9
19 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 June 30, 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 70 properties in 22
states (collectively referred to as the "Behavioral Healthcare
Properties"). Charter Behavioral Health Systems, LLC. ("CBHS")
was formed to operate the behavioral healthcare business
located at the Behavioral Healthcare Properties and is owned
10% by a subsidiary of Magellan Health Services, Inc.
("Magellan") and 90% by COPI and an affiliate of COPI. On
February 16, 2000, CBHS and all of its subsidiaries that were
subject to the master lease with the Company filed voluntary
Chapter 11 bankruptcy petitions in the United States
Bankruptcy Court for the District of Delaware. As of June 30,
2000, CBHS was continuing to operate 37 of the Behavioral
Healthcare Properties, (the "Core Properties") and had ceased
operations at the other 33 Behavioral Healthcare Properties
(the "Non-Core Properties"). CBHS intends to cease operations
at all of the Core Properties, either in connection with a
sale of operating assets or by closing Core Properties. The
Company intends to sell all of the Behavioral Healthcare
Properties. Subsequent to June 30, 2000, the Company sold
three Core Properties and two Non-Core Properties. The Company
has entered into contracts or letters of intent to sell 26
additional Core Properties and nine additional Non-Core
Properties and is actively marketing for sale the remaining
eight Core Properties and 22 Non-Core Properties. 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 total revenues, funds
from operations and equity in net income of unconsolidated companies for each of
these investment segments for the three and six months ended June 30, 2000 and
1999 and identifiable assets for each of these investment segments at June 30,
2000 and 1999.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information, as well as in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, the information and
footnotes required by GAAP for complete financial statements are not included.
In management's opinion, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the unaudited
interim financial statements are included. Operating results for interim periods
reflected do not necessarily indicate the results that may be expected for a
full fiscal year. You should read these financial statements in conjunction with
the financial statements and the accompanying notes included in the Company's
Form 10-K for the year ended December 31, 1999.
8
<PAGE> 10
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, which provides that all derivative instruments should be
recognized as either assets or liabilities depending on the rights or
obligations under the contract and that all derivative instruments be measured
at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an Amendment of FASB Statement No. 133", which
deferred the effective date of SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company elected
to implement SFAS No. 133 in the third quarter of 1999. See Note 9. Cash Flow
Hedges for a description of the impact of the cash flow hedges on the Company's
financial statements for the six months ended June 30, 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 June 30, 2000, the Company was actively marketing for sale
its wholly owned interests in three Office Properties, which are included in the
Net Investment in Real Estate of $3,344,963. The Properties are: 160 Spear
located in San Francisco, California; Valley Centre located in Dallas, Texas;
and Washington Harbour located in Washington, D.C. The carrying value of these
Properties at June 30, 2000 was approximately $195,852. The Company has entered
into contracts or letters of intent to sell the three Office Properties held for
disposition at June 30, 2000. The Company anticipates completing the sales of
these Properties by the end of the fourth quarter of 2000.
The following table summarizes the condensed results of operations for
the six months ended June 30, 2000 and 1999 for the three Office Properties held
for disposition. Depreciation expense has not been recognized from the dates
these Properties were classified as held for sale.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenue $ 15,796 $ 14,325
Operating Expenses 4,963 4,250
---------- ----------
Net Operating Income $ 10,833 $ 10,075
========== ==========
</TABLE>
Behavioral Healthcare Segment
As of June 30, 2000, the Company owned 70 Behavioral Healthcare
Properties, including 37 Core Properties and 33 Non-Core Properties. The
carrying value for the 70 Behavioral Healthcare Properties at June 30, 2000 was
approximately $212,126. The 37 Core Properties were classified as held for
disposition at June 30, 2000, and no depreciation expense for these Properties
has been recognized since May 25, 2000. The 33 Non-Core Properties were also
classified as held for disposition at June 30, 2000, and no depreciation expense
for these Properties was recognized for the six months ended June 30, 2000.
Subsequent to June 30, 2000, the Company sold three Core Properties and
two Non-Core Properties. The Company also has entered into contracts or letters
of intent to sell 26 additional Core Properties and nine additional Non-Core
Properties and is actively marketing for sale the remaining eight Core
Properties and 22 Non-Core Properties.
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<PAGE> 11
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.
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 JUNE 30,
-------------------------------------------------------------------------
2000 1999
---------------------------------- ----------------------------------
Wtd. Avg. Per Share Wtd. Avg. Per Share
Income Shares Amount Income Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS -
Net Income $ 36,062 115,368 $ 55,164 126,367
6 3/4% Series A Preferred Share dividends (3,375)
Share repurchase agreement return (718) (3,375)
Forward share purchase
agreement return -- (2,165)
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders $ 31,969 115,368 $ 0.28 $ 49,624 126,367 $ 0.39
========= ========= ========= ========= ========= =========
DILUTED EPS -
Net income available to common
shareholders $ 31,969 115,368 $ 0.28 $ 49,624 126,367 $ 0.39
Effect of dilutive securities:
Share and unit options -- 973 -- 2,127
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders $ 31,969 116,341 $ 0.27 $ 49,624 128,494 $ 0.39
========= ========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
Wtd. Avg. Per Share Wtd. Avg. Per Share
Income Shares Amount Income Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS -
Net Income before extraordinary item $ 91,112 118,487 $ 91,175 125,533
6 3/4% Series A Preferred Share dividends (6,750) (6,750)
Share repurchase agreement return (2,794) --
Forward share purchase
agreement return -- (4,317)
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders before extraordinary
item $ 81,568 118,487 $ 0.69 $ 80,108 125,533 $ 0.64
Extraordinary item -
extinguishment of debt (3,928) (0.03) -- --
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders $ 77,640 118,487 $ 0.66 $ 80,108 125,533 $ 0.64
========= ========= ========= ========= ========= =========
DILUTED EPS -
Net income available to common
shareholders before extraordinary
item $ 81,568 118,487 $ 0.69 $ 80,108 125,533 $ 0.64
Effect of dilutive securities:
Share and unit options -- 669 -- 2,138
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders before extraordinary
item $ 81,568 119,156 $ 0.68 $ 80,108 127,671 $ 0.63
Extraordinary item -
extinguishment of debt (3,928) (0.03) -- --
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders $ 77,640 119,156 $ 0.65 $ 80,108 127,671 $ 0.63
========= ========= ========= ========= ========= =========
</TABLE>
The effect of the conversion of the 6 3/4% Series A Preferred Shares is
not included in the computation of Diluted EPS for the three or six months ended
June 30, 2000 or 1999, since the effect of their conversion is antidilutive.
11
<PAGE> 13
5. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid ................................................................. $ 102,996 $ 87,781
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of Operating Partnership units to common shares with resulting
reduction in minority interest and increases in common shares and additional
paid-in capital ............................................................ $ 503 $ 1,488
Issuance of Operating Partnership units in conjunction
with settlement of an obligation .......................................... 2,125 --
Acquisition of partnership interests .......................................... -- 3,775
Unrealized net gain/(loss) on available-for-sale securities ................... (3,562) 10,560
Forward Share Purchase Agreement Return ....................................... -- 4,317
Share Repurchase Agreement Return ............................................. 2,794 --
Increase of cash flow hedges to fair value .................................... 4,204 --
Equity investment in a tenant in exchange
for office space/other investment ventures ............................... 4,485 --
</TABLE>
6. SEGMENT REPORTING:
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" beginning with the year ended December 31,
1998. The Company currently has five major investment segments: the Office and
Retail Segment; the Hotel/Resort Segment; the Residential Development Segment;
the Temperature-Controlled Logistics Segment; and the Behavioral Healthcare
Segment. Management organizes the segments within the Company based on property
type for making operating decisions and assessing performance. Investment
segments for SFAS No. 131 are determined on the same basis.
The Company uses funds from operations ("FFO") as the measure of
segment profit or loss. FFO, based on the revised definition adopted by the
Board of Governors of the National Association of Real Estate Investment Trusts
("NAREIT"), effective January 1, 2000, and as used in this document, means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from sales of depreciable
operating property;
o excluding extraordinary items (as defined by GAAP);
o plus depreciation and amortization of real estate
assets; and
o after adjustments for unconsolidated partnerships and
joint ventures.
NAREIT developed FFO as a relative measure of performance and liquidity
of an equity REIT to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. Effective January 1,
2000, NAREIT clarified the definition of FFO to include non-recurring events,
except for those that are defined as "extraordinary items" under GAAP and gains
or losses from sales of depreciable operating property. The Company has adopted
the revised definition of FFO effective as of January 1, 2000. Under the prior
definition of FFO, for the six months ended June 30, 1999, FFO was approximately
$197,343, 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 six months ended June 30, 1999 would have been approximately
$182,343, which would have included the $15,000 settlement payment, if the
revised definition of FFO had been in effect. The Company considers FFO an
appropriate measure of performance for an equity REIT, and for its investment
segments. However, the Company's measure of FFO may not be comparable to
similarly titled measures of other REITs because these REITs may apply the
definition of FFO in a different manner than the Company.
12
<PAGE> 14
Selected financial information related to each segment at or for the
three and six months ended June 30, 2000 and 1999 is presented below.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Office and Retail Segment $ 147,534 $ 155,713 $ 296,642 $ 305,735
Hotel/Resort Segment 18,463 16,107 36,007 31,511
Behavioral Healthcare Segment 3,304 13,825 5,383 27,648
Temperature-Controlled Logistics Segment -- -- -- --
Residential Development Segment -- -- -- --
Corporate and other 5,928 6,752 12,985 13,250
--------- --------- --------- ---------
TOTAL REVENUE $ 175,229 $ 192,397 $ 351,017 $ 378,144
========= ========= ========= =========
FUNDS FROM OPERATIONS:
Office and Retail Segment $ 87,213 $ 92,373 $ 173,424 $ 181,479
Hotel/Resort Segment 18,346 15,896 35,637 31,094
Behavioral Healthcare Segment 3,304 13,825 5,383 27,648
Temperature-Controlled Logistics Segment 7,630 9,208 17,117 17,488
Residential Development Segment 22,861 21,037 37,904 34,338
Corporate and other adjustments:
Interest expense (51,836) (44,917) (104,086) (87,398)
6 3/4 Series A Preferred Share dividends (3,375) (3,375) (6,750) (6,750)
Other 1,936 4,195 7,875 7,374
Corporate general & administrative (4,082) (3,816) (9,327) (7,930)
Settlement of merger dispute -- -- -- (15,000)
--------- --------- --------- ---------
TOTAL FUNDS FROM OPERATIONS $ 81,997 $ 104,426 $ 157,177 $ 182,343
--------- --------- --------- ---------
ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS TO
CONSOLIDATED NET INCOME:
Depreciation and amortization of real estate assets $ (30,353) $ (32,149) $ (60,145) $ (65,026)
Gain on property sales, net 6,126 -- 28,753 --
Extraordinary item - extinguishment of debt -- -- (3,928) --
Unitholder minority interests (4,712) (5,910) (11,094) (9,314)
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office and Retail Properties (1,789) (2,597) (1,717) (4,354)
Temperature-Controlled Logistics Properties (7,438) (5,187) (12,889) (7,758)
Residential Development Properties (11,144) (6,622) (15,723) (11,294)
Corporate and other -- (172) -- (172)
6 3/4 Series A Preferred Share dividends 3,375 3,375 6,750 6,750
--------- --------- --------- ---------
NET INCOME $ 36,062 $ 55,164 $ 87,184 $ 91,175
========= ========= ========= =========
EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES:
Office and Retail Properties $ 396 $ (5) $ 3,100 $ 1,956
Hotel/Resort Properties -- -- -- --
Behavioral Healthcare Properties -- -- -- --
Temperature-Controlled Logistics Properties 192 4,021 4,228 9,730
Residential Development Properties 11,717 14,415 22,181 23,044
Other 2,978 603 5,319 910
--------- --------- --------- ---------
TOTAL EQUITY IN NET INCOME OF
UNCONSOLIDATED COMPANIES $ 15,283 $ 19,034 $ 34,828 $ 35,640
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT JUNE 30,
------------------------
IDENTIFIABLE ASSETS: 2000 1999
---------- ----------
<S> <C> <C>
Office and Retail Segment $3,035,973 $3,329,219
Hotel/Resort Segment 527,495 457,391
Behavioral Healthcare Segment 212,126 382,600
Temperature-Controlled Logistics Segment 298,522 285,791
Residential Development Segment 279,548 316,294
Other 345,208 455,455
---------- ----------
TOTAL IDENTIFIABLE ASSETS $4,698,872 $5,226,750
========== ==========
</TABLE>
13
<PAGE> 15
At June 30, 2000, COPI was the Company's largest lessee in terms of
total revenues. Total revenues received from COPI for the six months ended June
30, 2000 were approximately 9% of the Company's total revenues. COPI was the
lessee of nine of the Hotel Properties for the six months ended June 30, 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 CLASSIFICATION AS OF JUNE 30, 2000
-------------------------------------------- ------------------------------------- --------------------------------
<S> <C> <C>
Desert Mountain Development Corp. Residential Development Corporation 95%(1)
The Woodlands Land Company, Inc. Residential Development Corporation 95%(1)
Crescent Development Management Corp. Residential Development Corporation 90%(1)
Mira Vista Development Corp. Residential Development Corporation 94%(1)
Houston Area Development Corp. Residential Development Corporation 94%(1)
Crescent CS Holdings Corp. Crescent Subsidiary 99%(2)
Crescent CS Holdings II Corp. Crescent Subsidiary 99%(2)
The Woodlands Commercial Office and Retail (office/venture tech
Properties Company, L.P. portfolio)(3) 42.5%
Main Street Partners, L.P. Office and Retail (office property -
Bank One Center) 50%
DBL Holdings, Inc. Other 97.4%
Metropolitan Partners, LLC Other (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 three
Temperature-Controlled Logistics Partnerships, which own the
Temperature-Controlled Logistics Corporations, which directly or indirectly
own the Temperature-Controlled Logistics Properties. Accordingly, the
Company has an indirect 39.6% interest in the Temperature-Controlled
Logistics Properties. 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's $85,000 preferred member interest in Metropolitan Partners,
LLC ("Metropolitan") at June 30, 2000 would equate to an approximately 20%
equity interest. The investment has a cash flow preference of 7.5% until
May 19, 2001 and may be redeemed by Metropolitan on or before May 19, 2001
for $85,000, plus an amount sufficient to provide a 9.5% internal rate of
return to the Company. If Metropolitan does not redeem the preferred
interest by May 19, 2001, the Company may convert the interest either into
(i) a common equity interest in Metropolitan or (ii) shares of common stock
of Reckson Associates Realty Corporation ("Reckson") at a conversion price
of $24.61.
14
<PAGE> 16
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 June 30, 2000.
<TABLE>
<CAPTION>
BALANCE AT JUNE 30, 2000
------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
BALANCE SHEETS: CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Real estate, net $ 736,654 $1,329,227 $ 407,394
Cash 43,352 22,281 18,421
Other assets 200,225 92,675(2) 37,998
---------- ---------- ----------
Total assets $ 980,231 $1,444,183 $ 463,813
========== ========== ==========
Notes payable $ 250,601 $ 571,174 $ 282,364
Notes payable to the Company 152,708 11,333 --
Other liabilities 345,444 82,339 11,773
Equity 231,478 779,337 169,676
---------- ---------- ----------
Total liabilities and equity $ 980,231 $1,444,183 $ 463,813
========== ========== ==========
Company's share of unconsolidated debt $ 101,180 $ 226,185 $ 131,545
========== ========== ==========
Company's investments in real
estate mortgages and equity of
unconsolidated companies $ 279,548 $ 298,522 $ 95,220 $ 143,072
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
SUMMARY STATEMENTS OF OPERATIONS: CORPORATIONS CORPORATIONS RETAIL OTHER
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total revenues $ 227,577 $ 83,592 $ 38,954
Expenses:
Operating expense 183,398 11,125(1) 11,831
Interest expense 3,231 23,872 9,147
Depreciation and amortization 6,374 28,918 11,810
Taxes 2,678 1,476 --
Other expense -- 2,625(2) --
----------- ----------- -----------
Total expenses 195,681 68,016 32,788
----------- ----------- -----------
Net income $ 31,896 $ 15,576 $ 6,166
=========== =========== ===========
Company's equity in net income
of unconsolidated companies $ 22,181 $ 4,228 $ 3,100 $ 5,319
=========== =========== =========== ===========
</TABLE>
--------------
(1) Inclusive of the management fee paid to Vornado Realty Trust (1% per annum
of the acquisition price of assets plus cost of development properties.
(2) During the three months ended June 30, 2000, the tenant of the
Temperature-Controlled Logistics Properties elected to defer approximately
$6,700 of rent, of which the Company's share was approximately $2,700.
During the three months ended June 30, 2000, the Temperature-Controlled
Logistics Corporations recorded a rent receivable valuation allowance of
approximately $4,000, of which the Company's portion was approximately
$1,600. The reserve was recorded in connection with the probable
restructuring of the leases.
15
<PAGE> 17
8. NOTES PAYABLE AND BORROWINGS UNDER UBS FACILITY:
The following is a summary of the Company's debt financing at June 30, 2000:
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING AT
JUNE 30, 2000
--------------
<S> <C>
SECURED DEBT
UBS Term Loan II(1) (see description of UBS Facility below) ....................................................... $326,677
AEGON Note(2) due July 1, 2009, bears interest at 7.53% with monthly principal and interest
payments based on a 25-year amortization schedule, secured by the Funding III, IV and V
Properties ........................................................................................................ 276,394
UBS Line of Credit(1) (see description of UBS Facility below) ..................................................... 240,000
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 June 30, 2000, the interest rate was 10.69%) with a four-year interest
only term, secured by equity interests in Funding I and II ........................................................ 200,000
JP Morgan Mortgage Note(5) due October 1, 2016, bears interest at a fixed rate of 8.31% with a
two-year interest-only term (through October 2001), followed by principal amortization based on
a 15-year amortization schedule through maturity in October 2016, secured by the Houston
Center mixed-use Office Property complex .......................................................................... 200,000
LaSalle Note II(6) bears interest at 7.79% with an initial seven-year interest-only term (through
March 2003), followed by principal amortization based on a 25-year amortization schedule
through maturity in August 2028, secured by the Funding II Properties ............................................. 161,000
UBS Term Loan I(1) (see description of UBS Facility below) ........................................................ 146,775
SFT Whole Loans, Inc. ("SFT") Note due September 30, 2001, bears interest at
30-day LIBOR plus 1.75% (at June 30, 2000, the rate was 8.39%) 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 ............................................................................................ 39,464
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 ....................................................................................... 11,260
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING AT
JUNE 30, 2000
--------------
<S> <C>
SECURED DEBT
Nomura Funding VI Note(7) bears interest at 10.07% with monthly principal and
interest payments based on a 25-year amortization schedule through maturity in
July 2020, secured by the Funding VI Property ................................................ 8,397
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 ...... 714
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 ..................................................................... $2,436,304
==========
</TABLE>
-----------------
(1) Effective January 31, 2000, the Company entered into the UBS Facility,
which was amended on May 10, 2000 and May 18, 2000, and, as amended,
consists of three tranches: the UBS Line of Credit, the UBS Term Loan I and
the UBS Term Loan II. For a further description of the UBS Facility, see
"UBS Facility" below.
(2) The outstanding principal balance of this note at maturity will be
approximately $223,000.
(3) In August 2007, the interest rate increases, and the Company is required to
remit, in addition to the monthly debt service payment, excess property
cash flow, as defined, to be applied first against principal until the note
is paid in full and thereafter, against accrued excess interest, as
defined. It is the Company's intention to repay the note in full at such
time (August 2007) by making a final payment of approximately $220,000.
(4) This loan is secured by partnership interests in two pools of
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 into a four-year $200,000 cash flow hedge agreement
effective September 1, 1999 with Salomon Brothers Holding Company, Inc.
("Salomon") in a separate transaction related to the BankBoston Term Note
II. See Note 9. Cash Flow Hedges.
(5) At the end of seven years (October 2006), the interest rate will adjust
based on current interest rates at that time. It is the Company's intention
to repay the note in full at such time (October 2006) by making a final
payment of approximately $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.
17
<PAGE> 19
Below are the aggregate principal amounts due as of June 30, 2000 under
the UBS Facility and other indebtedness of the Company by year. Scheduled
principal installments and amounts due at maturity are included.
<TABLE>
<CAPTION>
SECURED UNSECURED TOTAL
---------- ---------- ----------
(in thousands)
<C> <C> <C> <C>
2000 $ 2,602 $ -- $ 2,602
2001 113,891 -- 113,891
2002 73,913 150,000 223,913
2003 627,835 -- 627,835
2004 343,533 -- 343,533
Thereafter 874,530 250,000 1,124,530
---------- ---------- ----------
$2,036,304 $ 400,000 $2,436,304
========== ========== ==========
</TABLE>
UBS FACILITY
On February 4, 2000, the Company repaid and retired the Company's prior
credit facility with BankBoston, N.A. (the "BankBoston Credit Facility") and the
BankBoston Term Note I primarily with the proceeds of the UBS Facility. The UBS
Facility is a secured, variable-rate facility that is currently funded by a
syndicate of 23 banks and institutions led by UBS AG ("UBS") and Fleet Boston
Financial ("Fleet"). The borrowing capacity under the UBS Facility is currently
limited to $760,245. The UBS Facility was entered into effective January 31,
2000 and amended on May 10, 2000 and May 18, 2000, and, as amended, consists of
three tranches: the UBS Line of Credit, a three-year $300,000 revolving line of
credit (currently limited to $286,793 of borrowing capacity); the UBS Term Loan
I, a $146,775 three-year term loan; and the UBS Term Loan II, a $326,677
four-year term loan. Borrowings under the UBS Line of Credit, the UBS Term Loan
I and the UBS Term Loan II at June 30, 2000, were approximately $240,000,
$146,775 and $326,677, respectively. The UBS Line of Credit and the UBS Term
Loan I bear interest at LIBOR plus 250 basis points. The UBS Term Loan II bears
interest at LIBOR plus 275 basis points. As of June 30, 2000, the interest rate
on the UBS Line of Credit and UBS Term Loan I was 9.18% and the interest rate on
the UBS Term Loan II was 9.43%. In order to mitigate its exposure to
variable-rate debt, the Company has entered into two cash flow hedge agreements
related to a portion of the UBS Facility. See Note 9. Cash Flow Hedges for a
description of these agreements. During the six months ended June 30, 2000, the
Company sold six Office Properties securing the UBS Facility. The net proceeds
of the sale of these Properties were used to repay amounts outstanding under the
UBS Facility. As of June 30, 2000, the UBS Facility was secured by 34 Office
Properties and four Hotel Properties. The UBS Facility requires the Company to
maintain compliance with a number of customary financial and other covenants on
an ongoing basis, including leverage ratios based on allocated property values
and debt service coverage ratios, and, with respect solely to Funding VIII,
limitations on additional secured and total indebtedness, distributions,
additional investments and the incurrence of additional liens. The Company was
in compliance with all covenants related to the UBS Facility for the June 30,
2000 reporting period.
9. CASH FLOW HEDGES:
The Company does not use derivative financial instruments for trading
purposes, but utilizes them to manage exposure to variable-rate debt. The
Company accounts for its derivative instruments under SFAS No. 133, which was
adopted in the third quarter of 1999.
On September 1, 1999, the Company entered into a four-year cash flow
hedge agreement with Salomon for a notional amount of $200,000 relating to the
BankBoston Term Note II. As a result of the cash flow hedge agreement, the
interest rate on the underlying note, which currently has a floating interest
rate of 30-day LIBOR plus 400 basis points, has been effectively converted to a
fixed interest rate of 10.18% through maturity. During the six months ended June
30, 2000, the cash flow hedge agreement with Salomon resulted in a reduction of
approximately $34 of interest expense.
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
18
<PAGE> 20
result, the interest rate on $200,000 of the amount due under the UBS Term Loan
I and the UBS Line of Credit, which were originally issued at a floating
interest rate of LIBOR plus 250 basis points, was effectively converted to a
fixed interest rate of 9.61% through maturity. During the six months ended June
30, 2000, the cash flow hedge agreement with Fleet resulted in approximately
$781 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 interest rate of 9.51%
through maturity. Fleet has an option to terminate the agreement at the end of
the third year of the agreement. During the six months ended June 30, 2000, the
cash flow hedge agreement with Fleet resulted in approximately $77 of additional
interest expense.
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
six months ended June 30, 2000, there were 28,562 units exchanged for 57,124
common shares of Crescent Equities.
12. SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY:
During the six months ended June 30, 2000, the Company formed Funding
IX and contributed seven Office Properties and two Hotel Properties to Funding
IX. The Company owns 100% of the voting interests in Funding IX, 0.1% in the
form of a general partner interest and 99.9% in the form of a limited partner
interest.
As of June 30, 2000, the Company had sold $160,000 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 currently calculated at 30-day LIBOR plus 450 basis points, or
approximately 11.2% per annum as of June 30, 2000, and are redeemable at the
option of the Company at the original purchase price. Subsequent to June 30,
2000, the Company sold an additional $90,000 of Class A Units in Funding IX to
GMACCM. The Company has the right to sell to GMACCM an additional $25,000 of
Class A Units, for an aggregate of $275,000, on or before August 11, 2000.
As of August 9, 2000, $233,740 of the net proceeds of $240,941 from the
sale of the Class A Units had been used to repurchase 12,388,823 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 is actively marketing the Office Properties held by Funding
IX for joint venture and will use the proceeds from any joint venture of a
Property held by Funding IX to redeem the Class A Units.
19
<PAGE> 21
13. SHAREHOLDERS' EQUITY:
SHARE REPURCHASE PROGRAM
On November 5, 1999, the Company's Board of Trust Managers authorized
the repurchase of a portion of its outstanding common shares from time to time
in the open market or through privately negotiated transactions (the "Share
Repurchase Program"), in an amount not to exceed $500,000.
The Company expects the Share Repurchase Program to be funded through a
combination of asset sales and financing arrangements, which, in some cases, may
be secured by the repurchased shares. The amount of shares that the Company
actually will purchase will be determined from time to time, in its reasonable
judgment, based on market conditions and the availability of funds, among other
factors. There can be no assurance that any number of shares actually will be
purchased within any particular time period.
The Company commenced its Share Repurchase Program in March 2000.
During the six months ended June 30, 2000, the Company repurchased 4,400,030
common shares in the open market at an average price of $19.19 per common share
for an aggregate of approximately $84,418. Subsequent to June 30, 2000, the
Company repurchased 2,220,200 common shares in the open market at an average
price of $21.94 per common share for an aggregate of $48,701.
In addition, during the six months ended June 30, 2000, the Company
repurchased 4,042,691 common shares at an average price of $17.49 per common
share for an aggregate of approximately $70,712, under the "Share Repurchase
Agreement" with UBS. This amount includes 20,301 common shares purchased outside
of the Share Repurchase Program in connection with a management incentive plan.
On July 5, 2000, the Company fulfilled its settlement obligations under the
Share Repurchase Agreement with UBS by repurchasing the remaining 1,766,489
common shares at an average cost of $17.33 per common share for an aggregate
cost of approximately $30,621. See "Share Repurchase Agreement" below for a
description of the agreement.
The purchase of 12,429,410 common shares was primarily 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
purchase a portion of its common shares from UBS. As of December 31, 1999, the
Company was obligated to purchase 4,789,580 common shares, or approximately
$84,100 of the Company's common shares. The agreement was amended on January 4,
2000, increasing the number of common shares the Company was obligated to
purchase from UBS by January 4, 2001 to 5,809,180 common shares, or
approximately $101,000 of the Company's common shares (as amended, the "Share
Repurchase Agreement"). The price the Company was obligated to pay for the
common shares was calculated based on the average cost of the common shares
purchased by UBS in connection with the Share Repurchase Agreement plus a return
to UBS of 30-day LIBOR plus 250 basis points, minus an adjustment for the
Company's distributions during the term of the Share Repurchase Agreement. The
guaranteed rate of return to UBS under the agreement is equal to 30-day LIBOR
plus 250 basis points.
The Company had the option to settle the Share Repurchase Agreement in
cash or common shares. During the six months ended June 30, 2000, the Company
purchased 4,042,691 common shares from UBS at an average cost of $17.49 per
common share. On July 5, 2000, the Company fulfilled its settlement obligations
under the Share Repurchase Agreement with UBS by purchasing the remaining
1,766,489 common shares from UBS at an average cost of $17.33 per common share.
The Company has no further obligation under the Share Repurchase Agreement. The
purchases were funded primarily through the sale of Class A Units in Funding IX.
See Note 12. Sale of Preferred Equity Interests in Subsidiary.
20
<PAGE> 22
DISTRIBUTIONS
Common Shares
On February 17, 2000, the Company paid a cash dividend on its common
shares and unitholder distribution of $74,542, or $0.55 per share and equivalent
unit to shareholders and equivalent unitholders of record on January 28, 2000.
The dividend represented an annualized dividend of $2.20 per share and
equivalent unit.
On May 15, 2000, the Company paid a cash dividend on its common shares
and unitholder distribution of $74,628, or $0.55 per share and equivalent unit,
to shareholders and equivalent unitholders of record on April 28, 2000. The
dividend represented an annualized dividend of $2.20 per share and equivalent
unit.
On July 14, 2000, the Company declared a cash dividend on its common
shares and unitholder distribution of $74,675, or $0.55 per share and equivalent
unit, to shareholders and equivalent unitholders of record on July 31, 2000. The
dividend represents an annualized dividend of $2.20 per share and equivalent
unit and is payable on August 15, 2000.
Preferred Shares
On February 17, 2000, the Company paid a cash dividend on its 6 3/4%
Series A Preferred Shares of $3,375, or $0.421875 per share, to shareholders of
record on January 28, 2000. The dividend represented an annualized dividend of
$1.6875 per preferred share.
On May 15, 2000, the Company paid a cash dividend on its 6 3/4% Series
A Preferred Shares of $3,375, or $0.421875 per share, to shareholders of record
on April 28, 2000. The dividend represented an annualized dividend of $1.6875
per preferred share.
On July 14, 2000, the Company declared a cash dividend on its 6 3/4%
Series A Preferred Shares of $3,375, or $0.421875 per share, to shareholders of
record on July 31, 2000. The dividend represents an annualized dividend of
$1.6875 per preferred share and is payable on August 15, 2000.
14. RELATED PARTY INVESTMENT:
As of June 30, 2000, the Company, upon the approval of the independent
members of its Board of Trust Managers, had contributed approximately $23,800 of
a $25,000 commitment to DBL Holdings, Inc. ("DBL"). The total contribution will
be made through a combination of loans and equity investments. The Operating
Partnership has a 97.4% non-voting interest in DBL.
The contribution was used by DBL to make an equity contribution to
DBL-ABC, Inc., a wholly-owned subsidiary, which committed to purchase $25,000 of
limited partnership interests in G2 Opportunity Fund, LP ("G2"), representing a
limited partnership interest of approximately 12.5%. DBL-ABC, Inc. is committed
to contribute the balance of $1,200 upon demand of the general partner of G2. G2
was formed for the purpose of investing in commercial mortgage backed securities
and is managed by an entity that is owned equally by Goff-Moore Strategic
Partners, LP ("GMSP") and GMACCM. John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company, and Darla Moore, who is
married to Richard Rainwater, Chairman of the Board of Trust Managers of the
Company, each own 50% of the entity that ultimately controls GMSP. Mr. Rainwater
is a limited partner of GMSP. At June 30, 2000, DBL's primary holdings consisted
of the 12.5% investment in G2.
21
<PAGE> 23
15. CBHS:
As of December 31, 1999, the Company owned 88 behavioral healthcare
properties, all of which were leased by the Company to CBHS under a master
lease. CBHS's business has been negatively affected by many factors, including
adverse industry conditions, and on February 16, 2000, CBHS and all of its
subsidiaries that were subject to the master lease with the Company filed
voluntary Chapter 11 bankruptcy petitions in the United States Bankruptcy Court
for the District of Delaware.
Payment and treatment of rent for the Behavioral Healthcare Properties
is subject to a rent stipulation agreed to by certain of the parties involved in
the CBHS bankruptcy proceeding. The Company received approximately $3,304 and
$5,383 in rent from CBHS during the three and six months ended June 30, 2000,
respectively.
The Company sold 18 behavioral healthcare properties during the six
months ended June 30, 2000, generating approximately $11,273 and $49,573 in net
proceeds, during the three and six months ended June 30, 2000, respectively.
As of June 30, 2000, the Behavioral Healthcare Segment consisted of 70
Behavioral Healthcare Properties in 22 states. CBHS was continuing to operate
the 37 Core Properties and had ceased operations at the 33 Non-Core Properties
as of June 30, 2000. CBHS intends to cease operations at all of the Core
Properties, either in connection with a sale of operating assets or by closing
Core Properties. The Company intends to sell all of the Behavioral Healthcare
Properties.
Subsequent to June 30, 2000, the Company sold three Core Properties and
two Non-Core Properties. The Company also has entered into contracts or letters
of intent to sell 26 additional Core Properties and nine additional Non-Core
Properties and is actively marketing for sale the remaining eight Core
Properties and 22 Non-Core Properties.
16. DISPOSITIONS:
Office & Retail Segment
During the six months ended June 30, 2000, the Company completed the
sale of nine wholly owned Office Properties. The sale of the nine Office
Properties generated approximately $198,478 of net proceeds. The proceeds were
used primarily to pay down debt. The Company recognized a net gain, which is
included in Gain on Property Sales, Net, of approximately $9,644 related to the
sale of eight of the nine Office Properties during the six months ended June 30,
2000. During the year ended December 31, 1999, the Company recognized an
impairment loss of approximately $16,800 on one Office Property which was sold
during the six months ended June 30, 2000. The Company also recognized an
impairment loss, which is included in Gain on Property Sales, Net, of
approximately $5,000 during the six months ended June 30, 2000 on one of the
nine Properties sold. The impairment losses represented the differences between
the carrying values of the Office Properties and the sales prices less costs of
the sales.
Behavioral Healthcare Segment
During the six months ended June 30, 2000, the Company completed the
sale of 18 behavioral healthcare properties previously classified as held for
disposition. The sales generated approximately $49,573 in net proceeds and a net
gain of approximately $14,717 for the six months ended June 30, 2000. Subsequent
to June 30, 2000, the Company sold three Core Properties and two Non-Core
Properties. The sales generated approximately $21,725 in net proceeds and a net
gain of approximately $3,917. The net proceeds from the sale of the 18
behavioral healthcare properties sold during the six months ended June 30, 2000
and the three Core Properties and two Non-Core Properties sold subsequent to
June 30, 2000 were used primarily to pay down variable-rate debt. The Company
has also entered into contracts or letters of intent to sell 26 additional Core
Properties and nine additional Non-Core Properties.
22
<PAGE> 24
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 debt.
23
<PAGE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read this section in conjunction with the consolidated
interim financial statements and the accompanying notes in Item 1. Financial
Statements of this document and the more detailed information contained in the
Company's Form 10-K for the year ended December 31, 1999. In management's
opinion, all adjustments (consisting of normal and recurring adjustments)
considered necessary for a fair presentation of the unaudited interim financial
statements are included. Capitalized terms used but not otherwise defined in
this section have the meanings given to them in the notes to the financial
statements in Item 1. Financial Statements.
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
characterized by terms such as "believe," "expect" and "may".
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those given in the forward-looking
statements.
The following factors might cause such a difference:
o Financing risks, such as the ability to generate revenue
sufficient to service existing debt, increases in debt
service associated with variable-rate debt, the ability to
meet existing financial covenants and the Company's ability
to consummate planned financings and refinancings on the
terms and within the time frames anticipated;
o The Company's ability to close anticipated sales of assets
or joint venture transactions or other pending transactions;
o The Company's ability to timely lease unoccupied square
footage and timely re-lease occupied square footage upon
expiration on favorable terms;
o The Company's ability to locate purchasers and close sales
of the Behavioral Healthcare Properties;
o The concentration of a significant percentage of the
Company's assets in Texas;
o Changes in real estate conditions (including rental rates
and competition from other properties and new development of
competing properties);
o Adverse changes in the financial condition of existing
tenants;
o The Company's ability to find acquisition and development
opportunities which meet the Company's investment strategy;
o The existence of complex regulations relating to the
Company's status as a REIT, the effect of future changes in
REIT requirements as a result of new legislation and the
adverse consequences of the failure to qualify as a REIT;
and
o Other risks detailed from time to time in the Company's
filings with the SEC.
Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Company is not obligated to update these
forward-looking statements to reflect any future events or circumstances.
24
<PAGE> 26
The following sections include information for each of the Company's
investment segments for the six months ended June 30, 2000.
OFFICE AND RETAIL SEGMENT
The following tables show the same-store net operating income growth
for the approximately 27.5 million square feet of Office Property space owned as
of June 30, 2000, which excludes approximately 1.5 million square feet of Office
Property space at Bank One Center, in which the Company owns a 50%
non-controlling interest.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------- --------------------------------------
PERCENTAGE/ PERCENTAGE/
POINT POINT
INCREASE INCREASE
2000 1999 (DECREASE) 2000 1999 (DECREASE)
---------- ---------- ---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Same-store Revenues $ 142.3 $ 137.0 3.9% $ 282.0 $ 272.9 3.3%
Same-store Expenses 60.0 58.8 2.0% 120.3 117.1 2.7%
---------- ---------- ---------- ----------
Net Operating Income $ 82.3 $ 78.2 5.2% $ 161.7 $ 155.8 3.8%
========== ========== ========== ==========
Weighted Average Occupancy 92.1% 92.1% -- pt 91.6% 92.7% (1.1)pt(1)
</TABLE>
----------
(1) This decline in weighted average occupancy is due to three significant
lease expirations totaling 524,000 square feet; two at year-end 1999 and
one in the first quarter of 2000. As of August 9, 2000, approximately 79%
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 June 30, 2000.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------
SIGNED EXPIRING PERCENTAGE
LEASES LEASES INCREASE
-------------------- -------------------- ----------
<S> <C> <C> <C>
Renewed or re-leased (1) 575,000 sq. ft. N/A N/A
Weighted average full-
service rental rate (2) $ 25.14 per sq. ft. $20.43 per sq. ft. 23.1%
FFO annual net effective
rental rate (3) $ 15.93 per sq. ft. $11.23 per sq. ft. 41.9%
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------
SIGNED EXPIRING PERCENTAGE
LEASES LEASES INCREASE
-------------------- -------------------- --------------
<S> <C> <C> <C>
Renewed or re-leased (1) 1,394,000 sq. ft. N/A N/A
Weighted average full-
service rental rate (2) $24.77 per sq. ft. $20.98 per sq. ft. 18.1%
FFO annual net effective
rental rate (3) $15.53 per sq. ft. $11.74 per sq. ft. 32.3%
</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.
25
<PAGE> 27
HOTEL/RESORT SEGMENT
The following table shows weighted average occupancy, average daily rate
and revenue per available room/guest for the Hotel Properties for the three and
six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------ ------------------------------------
PERCENTAGE/ PERCENTAGE/
POINT POINT
INCREASE INCREASE
2000 1999 (DECREASE) 2000 1999 (DECREASE)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Weighted average occupancy 78% 71% 7 pt 76% 72% 4 pt
Average daily rate $ 134 $ 130 3 % $ 132 $ 129 2 %
Revenue per available room $ 105 $ 92 14 % $ 101 $ 94 7 %
LUXURY SPA RESORTS:
Weighted average occupancy 66% 69% (3)pt 71% 74% (3)pt
Average daily rate $ 272 $ 205 33 % $ 319 $ 263 21 %
Revenue per available room $ 179 $ 141 27 % $ 226 $ 195 16 %
DESTINATION FITNESS RESORTS AND SPAS:
Weighted average occupancy (1) 85% 87% (2)pt 88% 89% (1)pt
Average daily rate (2) $ 583 $ 529 10 % $ 587 $ 537 9 %
Revenue per available guest (3) $ 482 $ 446 8 % $ 503 $ 464 8 %
-------- -------- -------- -------- -------- --------
TOTAL HOTEL PROPERTIES:
Weighted average occupancy 77% 73% 4 pt 77% 75% 2 pt
Average daily rate $ 228 $ 213 7 % $ 239 $ 224 7 %
Revenue per available room/guest $ 175 $ 155 13 % $ 183 $ 167 10 %
</TABLE>
---------------------
(1) 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.
(2) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the
period.
(3) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
26
<PAGE> 28
The following table shows pro-forma Hotel Property same-store rental
income for the three and six months ended June 30, 2000 and 1999, for the nine
Hotel Properties owned as of January 1, 1999. Pro-forma rental income includes
weighted average base rent with scheduled rent increases that would be taken
into account under GAAP, and percentage rent. Management believes that the
pro-forma rental income, which includes the effect of the change in accounting
for contingent rental revenues that was adopted January 1, 2000, is the best
measure of same-store rental income growth for both periods.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------- ---------------------------------
PERCENTAGE PERCENTAGE
2000 1999 INCREASE 2000 1999 INCREASE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Upscale Business Class Hotels $ 7,307 $ 6,455 13% $ 13,728 $ 12,885 7%
Luxury Spa Resorts 6,586 6,227 6 13,049 11,707 11 (1)
Destination Fitness Resorts and Spas 3,272 3,182 3 6,635 6,245 6
-------- -------- -------- -------- -------- --------
All Hotel Properties $ 17,165 $ 15,864 8% $ 33,412 $ 30,837 8%
======== ======== ======== ======== ======== ========
</TABLE>
----------
(1) Of the 11% same-store rental income growth, approximately 7 percentage
points are due to the $21.0 million expansion project and favorable
operations 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 19 Residential Development
Properties. The Residential Development Corporations are responsible for the
continued development and the day-to-day operations of the Residential
Development Properties. Management plans to maintain the Residential Development
segment at its current investment level and reinvest returned capital into
residential development projects that it expects to achieve comparable rates of
return.
The Woodlands Land Development Company, L.P. and The Woodlands Commercial
Properties Company, L.P. (collectively "The Woodlands"), The Woodlands, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Residential lot sales 449 407 1,012 918
Average sales price per lot $ 43,622 $ 48,031 $ 45,053 $ 48,789
Commercial land sales 6 acres 19 acres 27 acres 27 acres
Average sales price per acre $427,649 $289,375 $337,952 $316,019
</TABLE>
o Residential lot sales increased by 94 lots or 10%, for the six months
ended June 30, 2000 compared to the same period in 1999.
o The Woodlands estimates that additional sales of approximately 1,100
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 13,500
residential lots and approximately 1,900 acres of commercial land, of
which approximately 1,100 residential lots and 1,350 acres are
currently in inventory.
27
<PAGE> 29
Desert Mountain Properties Limited Partnership ("Desert Mountain"), Scottsdale,
Arizona:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Residential lot sales 73 88 117 124
Average sales price per lot(1) $635,000 $594,000 $597,000 $548,000
</TABLE>
----------
(1) Including equity golf memberships.
o The average sales price per lot increased by $49,000 or 9%, as a
reflection of a higher price product mix sold in the six months ended
June 30, 2000 compared to the same period in 1999.
o Future buildout of Desert Mountain is estimated to be in excess of 500
residential lots, of which approximately 180 are currently in
inventory.
Crescent Development Management Corporation ("CDMC"), Beaver Creek, Colorado:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Active projects 13 5 13 5
Residential lot sales 21 -- 26 6
Townhome sales -- 8 2 21
Single-family home sales 3 2 4 4
Equivalent timeshare unit sales -- 1 -- 5
Condominium sales 5 -- 6 --
Total Revenue (in millions) $ 22.0 $ 21.3 $ 52.1 $ 47.2
</TABLE>
o CDMC experienced 10% growth in total revenue for the six months ended June
30, 2000 compared to the same period in 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 began in May 2000. The
first phase consists of condominiums and lofts with prices ranging from
$0.2 million to $2.1 million. Park Place, the first residential project in
this first phase, consists of 71 lofts for which pre-selling commenced in
January 2000. As of June 30, 2000, contracts had been signed on 93% of the
lofts. Pre-selling had also commenced on the 58 Park Tower condominiums and
the 53 Promenade lofts, which are also first phase developments. As of June
30, 2000, contracts had been signed on 45% of the condominiums and 66% of
the lofts. As of June 30, 2000, the partnership had also 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.
o Development of Main Street Station, a premier slope-side residential
development in Breckenridge, Colorado, began in April 2000. All of the 82
condominiums are pre-sold with prices ranging from $0.2 million to $1.1
million per unit.
o CDMC estimates the following sales for the year 2000 from its 13 active
projects: 357 residential lots, 15 townhomes, 41 condominiums, and one
single-family home.
o As of June 30, 2000, contracts relating to 85% of the sales anticipated
during the full year 2000 had been executed.
28
<PAGE> 30
Mira Vista Development Corp. ("Mira Vista"), Fort Worth, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Residential lot sales 8 11 19 19
Average sales price per lot (1) $107,000 $118,000 $ 96,000 $124,000
</TABLE>
-----------------------
(1) Decrease in average sales price per lot between years is due to a change in
product mix.
Houston Area Development Corp. ("Houston Area Development"), Houston, Texas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Residential lot sales 56 67 111 113
Average sales price per lot $26,000 $30,000 $27,000 $29,000
</TABLE>
TEMPERATURE-CONTROLLED LOGISTICS SEGMENT
As of June 30, 2000, the Company held an indirect 39.6% interest in the
Temperature-Controlled Logistics Partnerships, which own the
Temperature-Controlled Logistics Corporations, which directly or indirectly own
the Temperature-Controlled Logistics Properties. The business operations
associated with the Temperature-Controlled Logistics Properties are owned by
AmeriCold Logistics, which is owned 60% by Vornado Operating L.P. and 40% by a
subsidiary of COPI, in which the Company has no interest. COPI holds an indirect
0.4% interest in the Temperature-Controlled Logistics Partnerships, through its
ownership of a 1% economic interest, representing all of the voting common
stock, in each of the Crescent Subsidiaries. COPI has an option to require the
Company to purchase COPI's interest in each of the Crescent Subsidiaries at such
time as the purchase would not, in the opinion of counsel to the Company,
adversely affect the status of Crescent Equities as a REIT, for an aggregate
price, payable by the Company, of approximately $3.8 million.
AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, entered into triple-net master leases of the
Temperature-Controlled Logistics Properties with certain of the
Temperature-Controlled Logistics Corporations. Each of the
Temperature-Controlled Logistics Properties is subject to one or more of the
leases, each of which has an initial term of 15 years, subject to two, five-year
renewal options. Under the leases, AmeriCold Logistics is required to pay for
all costs arising from the operation, maintenance, and repair of the properties
as well as capital expenditures for the properties in excess of $5.0 million
annually. For the six months ended June 30, 2000, rental revenues were
approximately $83.6 million (inclusive of deferred rent), of which base rent
represented approximately 80%. AmeriCold Logistics has the right to defer a
portion of the rent for the Properties for up to three years beginning on March
12, 1999, to the extent that available cash, as defined in the leases, is
insufficient to pay such rent. As of December 31, 1999, AmeriCold Logistics had
deferred approximately $5.4 million of rent, of which the Company's share was
approximately $2.1 million. During the three months ended June 30, 2000,
AmeriCold Logistics deferred approximately $6.7 million of rent, of which the
Company's share was approximately $2.7 million. During the three months ended
June 30, 2000, the Temperature-Controlled Logistics Corporations recorded a rent
receivable valuation allowance of approximately $4.0 million, of which the
Company's portion was approximately $1.6 million. The reserve was recorded in
connection with the probable restructuring of the leases.
29
<PAGE> 31
Management believes that earnings before interest, taxes, depreciation
and amortization and rent ("EBITDAR") is a useful financial performance measure
for assessing the relative stability of the financial condition of AmeriCold
Logistics. The following table shows EBITDAR and lease payments for AmeriCold
Logistics for the six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
------------
2000
----------
<S> <C>
EBITDAR(1) $ 78.0
Lease Payment $ 83.6 (2)
</TABLE>
----------
(1) EBITDAR does not represent net income or cash flows from operating,
financing or investing activities as defined by GAAP.
(2) Includes deferred rent of $6.7 million.
o During the first quarter of 2000, the Temperature-Controlled Logistics
Corporations completed and opened $30.6 million of expansion and new
product space, representing approximately 16.6 million cubic feet (0.8
million square feet).
o The Temperature-Controlled Logistics Corporations have approximately $25.0
to $50.0 million of expansion and new product temperature-controlled
logistics facilities under review for development or acquisition during
2000.
BEHAVIORAL HEALTHCARE SEGMENT
As of June 30, 2000, the Behavioral Healthcare Segment consisted of 70
Behavioral Healthcare Properties in 22 states. CBHS was formed to operate the
behavioral healthcare business located at the Behavioral Healthcare Properties
and is owned 10% by a subsidiary of Magellan and 90% by COPI and an affiliate of
COPI. On February 16, 2000, CBHS and all of its subsidiaries that were subject
to the master lease with the Company filed voluntary Chapter 11 bankruptcy
petitions in the United States Bankruptcy Court for the District of Delaware. As
of June 30, 2000, CBHS was continuing to operate the 37 Core Properties and had
ceased operations at the 33 Non-Core Properties. CBHS intends to cease
operations at all of the Core Properties, either in connection with a sale of
operating assets or by closing Core Properties. The Company intends to sell all
of the Behavioral Healthcare Properties.
Subsequent to June 30, 2000, the Company sold three Core Properties and
two Non-Core Properties. The Company has entered into contracts or letters of
intent to sell 26 additional Core Properties and nine additional Non-Core
Properties and is actively marketing for sale the remaining eight Core
Properties and 22 Non-Core Properties.
During the six months ended June 30, 2000, the Company received cash
rental payments of approximately $5.4 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 June 30, 2000, the Company's investment in the Behavioral Healthcare
Properties represented approximately 5% of its total assets and approximately 2%
of consolidated rental revenues for the six months ended June 30, 2000.
30
<PAGE> 32
RESULTS OF OPERATIONS
The following table shows the Company's financial data as a percentage
of total revenues for the three and six months ended June 30, 2000 and 1999 and
the variance in dollars between the three and six months ended June 30, 2000 and
1999. See Note 6. Segment Reporting included in Item 1. Financial Statements for
financial information about investment segments.
<TABLE>
<CAPTION>
TOTAL VARIANCE IN DOLLARS
FOR THE THREE MONTHS FOR THE SIX MONTHS BETWEEN THE
ENDED JUNE 30, ENDED JUNE 30, THREE MONTHS SIX MONTHS
--------------------- ---------------------- ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999 2000 AND 1999 2000 AND 1999
--------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Office and retail properties 84.2% 80.9% 84.5% 80.9% $ (8.2) $ (9.1)
Hotel properties 10.6 8.4 10.3 8.3 2.4 4.5
Behavioral healthcare properties 1.9 7.2 1.5 7.3 (10.5) (22.2)
Interest and other income 3.3 3.5 3.7 3.5 (0.9) (0.3)
--------- --------- --------- --------- --------- ---------
TOTAL REVENUES 100.0 100.0 100.0 100.0 (17.2) (27.1)
--------- --------- --------- --------- --------- ---------
EXPENSES
Operating expenses 35.4 34.0 36.3 34.4 (3.7) (2.9)
Corporate general and administrative 2.3 2.0 2.6 2.1 0.4 1.4
Interest expense 29.6 23.3 29.7 23.1 6.9 16.7
Amortization of deferred financing costs 1.3 1.5 1.3 1.5 (0.5) (1.1)
Depreciation and amortization 18.1 17.2 17.8 17.6 (1.3) (4.1)
Settlement of merger dispute -- -- -- 4.0 -- (15.0)
--------- --------- --------- --------- --------- ---------
TOTAL EXPENSES 86.7 78.0 87.7 82.7 1.8 (5.0)
--------- --------- --------- --------- --------- ---------
OPERATING INCOME 13.3 22.0 12.3 17.3 (19.0) (22.1)
OTHER INCOME AND EXPENSE
Equity in net income of unconsolidated companies:
Office and retail properties 0.2 -- 0.9 0.5 0.4 1.1
Temperature-controlled logistics properties 0.1 2.1 1.2 2.6 (3.8) (5.5)
Residential development properties 6.7 7.5 6.3 6.1 (2.7) (0.8)
Other 1.8 0.3 1.5 0.2 2.4 4.4
--------- --------- --------- --------- --------- ---------
TOTAL EQUITY IN NET INCOME FROM
UNCONSOLIDATED COMPANIES: 8.8 9.9 9.9 9.4 (3.7) (0.8)
Gain on property sales, net 3.4 -- 8.2 -- 6.1 28.8
--------- --------- --------- --------- --------- ---------
TOTAL OTHER INCOME AND EXPENSE 12.2 9.9 18.1 9.4 2.4 28.0
--------- --------- --------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 25.5 31.9 30.4 26.7 (16.6) 5.9
Minority interests (4.9) (3.2) (4.5) (2.6) (2.5) (5.9)
--------- --------- --------- --------- --------- ---------
NET INCOME BEFORE EXTRAORDINARY ITEM 20.6 28.7 25.9 24.1 (19.1) 0.0
Extraordinary item -- extinguishment of debt -- -- (1.1) -- -- (3.9)
--------- --------- --------- --------- --------- ---------
NET INCOME 20.6 28.7 24.8 24.1 (19.1) (3.9)
6 3/4% Series A Preferred Share dividends (1.9) (1.8) (1.9) (1.8) -- --
Share repurchase agreement return (0.4) -- (0.8) -- (0.7) (2.8)
Forward share purchase
agreement return -- (1.1) -- (1.1) 2.2 4.4
--------- --------- --------- --------- --------- ---------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS 18.3% 25.8% 22.1% 21.2% $ (17.6) $ (2.3)
========= ========= ========= ========= ========= =========
</TABLE>
31
<PAGE> 33
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 TO THE THREE MONTHS ENDED
JUNE 30, 1999
REVENUES
Total revenues decreased $17.2 million, or 8.9%, to $175.2 million for
the three months ended June 30, 2000, as compared to $192.4 million for the
three months ended June 30, 1999.
The decrease in Office and Retail Property revenues of $8.2 million, or
5.3%, for the three months ended June 30, 2000, as compared to the three months
ended June 30, 1999, is attributable to:
o decreased revenues of $8.0 million due to the disposition of
six Office Properties and four Retail Properties during the
first quarter of 2000;
o decreased revenues of $3.0 million as a result of a lease
termination fee of $4.6 million received in June 1999; and
o decreased revenues of $1.8 million due to the disposition of
three Office Properties during the second quarter of 2000,
which contributed revenues for a full quarter in 1999, as
compared to a partial quarter in 2000; partially offset by
o increased revenues of $4.6 million from the 80 Office and
three Retail Properties owned as of June 30, 2000, primarily
as a result of increased weighted average full-service
rental rates at these Properties.
The increase in Hotel Property revenues of $2.4 million, or 14.9%, for the
three months ended June 30, 2000, as compared to the three months ended June 30,
1999, is primarily attributable to:
o the reclassification of the Renaissance Houston Hotel from
the Office and Retail segment to the Hotel/Resort segment as
a result of the restructuring of its lease on July 1, 1999,
which resulted in $1.1 million of incremental revenues under
the new lease;
o increased revenues of $0.6 million primarily due to an
increase in percentage rents at Omni Austin Hotel as a
result of higher room rates and higher occupancy rates; and
o increased revenues of $0.4 million primarily due to an
increase in percentage rents resulting from higher room
rates and lease amendments entered into in connection with
amounts paid by the Company for capital improvements at
Sonoma Mission Inn & Spa.
The decrease in Behavioral Healthcare Property revenue of $10.5
million, or 76.1%, for the three months ended June 30, 2000, as compared to the
three months ended June 30, 1999, is attributable to the reflection of rent from
CBHS on a cash basis beginning in the third quarter of 1999, and the filing of
voluntary bankruptcy petitions by CBHS and its subsidiaries on February 16,
2000, which resulted in a reduction in Behavioral Healthcare Property revenues
to $3.3 million for the three months ended June 30, 2000.
EXPENSES
Total expenses increased $1.8 million, or 1.2%, to $151.9 million for
the three months ended June 30, 2000, as compared to $150.1 million for the
three months ended June 30, 1999.
The decrease in rental property operating expenses of $3.7 million, or
5.6%, for the three months ended June 30, 2000, as compared to the three months
ended June 30, 1999, is attributable to:
o decreased expenses of $4.0 million due to the disposition of
six Office Properties and four Retail Properties during the
first quarter of 2000; and
o decreased expenses of $0.6 million due to the disposition of
three Office Properties during the second quarter of 2000,
which incurred expenses for a full quarter in 1999, as
compared to a partial quarter in 2000; partially offset by
o increased expenses of $0.9 million from the 80 Office and
three Retail Properties owned as of June 30, 2000, as a
result of an increase in real estate taxes of $0.5 million
and other operating expenses of $0.4 million.
32
<PAGE> 34
The increase in interest expense of $6.9 million, or 15.4%, for the
three months ended June 30, 2000, as compared to the three months ended June 30,
1999, is primarily attributable to:
o $16.6 million of incremental interest payable due to draws
under the UBS Facility;
o $5.3 million of incremental interest payable under the
BankBoston Term Note II which was obtained on September 14,
1999;
o $3.0 million of incremental interest payable due to the
refinancing of the Greenway Plaza Office Property complex in
June 1999; and
o $0.7 million of incremental interest payable due to the
refinancing of the Houston Center Office Property complex in
September 1999.
The increase in interest expense is partially offset by:
o a decrease of $18.5 million in 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 depreciation and amortization expense of $1.3 million,
or 3.9%, as compared to the three months ended June 30, 1999, is primarily
attributable to the cessation of the recognition of depreciation expense on
Office Properties and Behavioral Healthcare Properties from the dates they were
classified as held for disposition.
OTHER INCOME
Other income increased $2.4 million, or 12.6%, to $21.4 million for the
three months ended June 30, 2000, as compared to $19.0 million for the three
months ended June 30, 1999. The components of the increase in other income are
discussed below.
The decrease in equity in net income of unconsolidated companies of
$3.7 million, or 19.5%, for the three months ended June 30, 2000, as compared to
the three months ended June 30, 1999, is attributable to:
o a decrease in equity in net income of the
Temperature-Controlled Logistics Partnerships of $3.8
million, or 95.0%, resulting primarily from (i) the
recognition of a rent receivable valuation allowance at June
30, 2000 of $1.6 million; (ii) an increase in tax expense of
$1.4 million in the three months ended June 30, 2000; and
o a decrease in equity in net income of the Residential
Development Corporations of $2.7 million, or 18.8%,
primarily due to a decrease in commercial acreage sales at
Houston Area Development Company and The Woodlands Land
Development Company, L.P.; partially offset by
o an increase in equity in net income of the other
unconsolidated companies of $2.4 million, or 400.0%,
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,
which the Company purchased in May 1999; and
o an increase in equity in net income of the unconsolidated
Office and Retail Properties of $0.4 million, or 100.0%,
attributable to a reduction in operating expenses at The
Woodlands Commercial Properties Company, L.P.
The increase in net gain on property sales of $6.1 million represents a
gain recognized on Office and Behavioral Healthcare Property sales during the
three months ended June 30, 2000.
33
<PAGE> 35
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS ENDED
JUNE 30, 1999
REVENUES
Total revenues decreased $27.1 million, or 7.2%, to $351.0 million for
the six months ended June 30, 2000, as compared to $378.1 million for the six
months ended June 30, 1999.
The decrease in Office and Retail Property revenues of $9.1 million, or
3.0%, for the six months ended June 30, 2000, as compared to the six months
ended June 30, 1999, is attributable to:
o decreased revenues of $12.5 million due to the disposition
of six Office Properties and four Retail Properties during
the first quarter of 2000, which contributed revenues during
the full six months of 1999, as compared to only a portion
of the period of 2000;
o decreased revenues of $3.0 million as a result of a lease
termination fee of $4.6 million received in June 1999;
o decreased revenues of $1.7 million due to the disposition of
three Office Properties during the second quarter of 2000,
which contributed revenues during the full six months of
1999, as compared to only a portion of the period of 2000;
partially offset by
o increased revenues of $8.1 million from the 80 Office and
three Retail Properties owned as of June 30, 2000, primarily
as a result of increased weighted average full-service
rental rates at these Properties.
The increase in Hotel Property revenues of $4.5 million, or 14.3%, for
the six months ended June 30, 2000, as compared to the six months ended June 30,
1999, is primarily attributable to:
o the reclassification of the Renaissance Houston Hotel from
the Office and Retail segment to the Hotel/Resort segment as
a result of the restructuring of its lease on July 1, 1999,
which resulted in $2.4 million of incremental revenues under
the new lease;
o increased revenues of $1.4 million primarily due to an
increase in percentage rents resulting from higher room
rates and lease amendments entered into in connection with
amounts paid by the Company for capital improvements at
Sonoma Mission Inn & Spa; and
o increased revenues of $0.5 million primarily due to an
increase in percentage rents at Omni Austin Hotel due to
higher room rates and higher occupancy rates.
The decrease in Behavioral Healthcare Property revenue of $22.2
million, or 80.4%, for the six months ended June 30, 2000, as compared to the
six months ended June 30, 1999, is attributable to the reflection of rent from
CBHS on a cash basis beginning in the third quarter of 1999, and the filing of
voluntary bankruptcy petitions by CBHS and its subsidiaries on February 16,
2000, which resulted in a reduction in Behavioral Healthcare Property revenues
to $5.4 million for the six months ended June 30, 2000.
EXPENSES
Total expenses decreased $5.0 million, or 1.6%, to $307.8 million for
the six months ended June 30, 2000, as compared to $312.8 million for the six
months ended June 30, 1999.
The decrease in rental property operating expenses of $2.9 million, or
2.2%, for the six months ended June 30, 2000, as compared to the six months
ended June 30, 1999, is attributable to:
o decreased expenses of $5.4 million due to the disposition of
six Office Properties and four Retail Properties during the
first quarter of 2000, which incurred expenses during the
full six months of 1999, as compared to only a portion of
the period of 2000; and
o decreased expenses of $0.6 million due to the disposition of
three Office Properties during the second quarter of 2000,
which incurred expenses during the full six months of 1999,
as compared to only a portion of the period of 2000;
partially offset by
o increased expenses of $3.1 million from the 80 Office and
three Retail Properties owned as of June 30, 2000, primarily
as a result of an increase in real estate taxes of $3.0
million.
34
<PAGE> 36
The increase in interest expense of $16.7 million, or 19.1%, for the
six months ended June 30, 2000, as compared to the six months ended June 30,
1999, is primarily attributable to:
o $27.4 million of incremental interest payable due to draws
under the UBS Facility;
o $10.3 million of incremental interest payable under the
BankBoston Term Note II which was obtained on September 14,
1999;
o $6.2 million of incremental interest payable due to the
refinancing of the Greenway Plaza Office Property complex in
June 1999; and
o $1.7 million of incremental interest payable due to the
refinancing of the Houston Center Office Property complex in
September 1999.
The increase in interest expense is partially offset by:
o a decrease of $28.4 million in 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 depreciation and amortization expense of $4.1 million,
or 6.1%, as compared to the six months ended June 30, 1999, is primarily
attributable to the cessation of the recognition of depreciation expense on
Office Properties and Behavioral Healthcare Properties from the dates they were
classified as held for disposition.
An additional decrease in expenses of $15.0 million is attributable to
a decrease in non-recurring costs incurred during the six months ended June 30,
1999 in connection with the settlement of litigation relating to the merger
agreement entered into January 1998 between the Company and Station.
OTHER INCOME
Other income increased $28.0 million, or 78.7%, to $63.6 million for
the six months ended June 30, 2000, as compared to $35.6 million for the six
months ended June 30, 1999. The components of the increase in other income are
discussed below.
The decrease in equity in net income of unconsolidated companies of
$0.8 million, or 2.2%, for the six months ended June 30, 2000, as compared to
the six months ended June 30, 1999, is attributable to:
o a decrease in equity in net income of the
Temperature-Controlled Logistics Partnerships of $5.5
million, or 56.7%, resulting primarily from (i) the
recognition of a rent receivable valuation allowance at June
30, 2000 of $1.6 million; (ii) the one-time tax benefit of
approximately $2.9 million in the six months ended June 30,
1999, which resulted from the election of REIT status by one
of the Temperature-Controlled Logistics Corporations in
1999; (iii) an increase in tax expense of 1.4 million in
the six months ended June 30, 2000; partially offset by
(iv) the change in ownership structure which created an
approximate $0.3 million increase in equity in net income
from the Temperature-Controlled Logistics Partnerships for
the six months ended June 30, 2000. Prior to March 12, 1999,
the Temperature-Controlled Logistics Corporations reflected
their 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 they receive from AmeriCold Logistics, the
lessee and owner of business operations; and
o a decrease in equity in net income of the Residential
Development Corporations of $0.8 million, or 3.5%, primarily
as a result of (i) the decrease in commercial acreage sales
at Houston Area Development, which resulted in a decrease of
$1.9 million in equity in net income to the Company;
partially offset by (ii) the increase in average sales price
per lot at Desert Mountain, due to constant lot absorption
between years, and an increase in membership conversion
revenue, which resulted in $1.3 million of incremental
equity in net income to the Company.
35
<PAGE> 37
The decrease in equity in net income of unconsolidated companies is
partially offset by;
o an increase in equity in net income of the other
unconsolidated companies of $4.4 million, or 488.9%,
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,
which the Company purchased in May 1999; and
o an increase in equity in net income of the unconsolidated
Office and Retail Properties of $1.1 million, or 55.0%, as
compared to the six months ended June 30, 1999, attributable
to the sale of the retail portfolio in the first quarter of
2000 at The Woodlands Commercial Properties Company, L.P.
The increase in net gain on property sales of $28.8 million represents
a gain recognized on Office, Retail and Behavioral Healthcare Property sales
during the six months ended June 30, 2000, reduced by an impairment loss of $5.0
million recognized during the six months ended June 30, 2000 on one Office
Property sold during the second quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $40.2 million and $72.9 million at June
30, 2000 and December 31, 1999, respectively. This 44.9% decrease is
attributable to $344.7 million used in financing activities, partially offset by
$116.3 million and $195.8 million provided by operating and investing
activities, respectively.
FINANCING ACTIVITIES
The Company's use of cash for financing activities of $344.7 million is
primarily attributable to:
o payments under the BankBoston Credit Facility of $510.0
million;
o payments of $366.0 million of long-term debt, primarily
attributable to payments of (i) $320.0 million on the
BankBoston Term Note II, and (ii) $43.6 million for the
retirement of the Metropolitan Life Note II;
o share repurchases of $154.8 million;
o distributions paid to common shareholders and unitholders of
$145.9 million;
o debt financing costs of $19.0 million primarily related to
capitalized financing costs in connection with the UBS
Facility; and
o distributions paid to preferred shareholders of $6.8
million.
The use of cash for financing activities is partially offset by:
o net proceeds under the UBS Facility of $713.5 million; and
o net capital proceeds from joint ventures of $143.4 million,
primarily due to net proceeds of $154.1 million from the
sale of Class A Units to GMACCM.
OPERATING ACTIVITIES
The Company's cash provided by operating activities of $116.3 million
is primarily attributable to:
o $140.3 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;
o $15.7 million from minority interests; and
o $5.8 million representing distributions received from
unconsolidated companies in excess of equity in earnings.
The cash provided by operating activities is partially offset by:
36
<PAGE> 38
o $38.4 million attributable to a decrease in accounts
payable, accrued liabilities and other liabilities primarily
due to the payment of property taxes during the six months
ended June 30, 2000; and
o $28.8 million primarily attributable to a net gain on the
sale of Office, Retail and Behavioral Healthcare Properties.
INVESTING ACTIVITIES
The Company's cash provided by investing activities of $195.8 million
is primarily attributable to:
o $282.0 million of net sales proceeds primarily attributable
to the disposition of Office, Retail and Behavioral
Healthcare Properties; and
o $1.6 million from return of investment in unconsolidated
companies.
The Company's cash provided by investing activities is partially offset
by:
o $35.4 million for recurring and non-recurring tenant
improvement and leasing costs for the Office and Retail
Properties;
o $15.1 million for the acquisition of land held for
development in Houston;
o $15.0 million for the development of investment properties,
including expansions and renovations at the Hotel
Properties;
o $11.3 million of additional investment in the Residential
Development Corporations;
o $7.1 million for capital expenditures on rental properties,
primarily attributable to non-recoverable building
improvements for the Office and Retail Properties and
replacement of furniture, fixtures and equipment for the
Hotel Properties; and
o $4.3 million increase in notes receivable.
PROPERTY DISPOSITIONS
Office & Retail Segment
During the six months ended June 30, 2000, the Company completed the
sale of nine wholly owned Office Properties. The sales of the nine Office
Properties generated approximately $198.5 million of net proceeds. The proceeds
were used primarily to pay down debt. The Company recognized a net gain of
approximately $9.6 million related to the sales of eight of the nine Office
Properties during the six months ended June 30, 2000. During the year ended
December 31, 1999, the Company recognized an impairment loss of approximately
$16.8 million on one Office Property which was sold during the six months ended
June 30, 2000. The Company also recognized an impairment loss of approximately
$5.0 million during the six months ended June 30, 2000 on one of the nine
Properties sold. The impairment losses represented the differences between the
carrying values of the Office Properties and the sales prices less costs of the
sales. The Company has entered into contracts or letters of intent relating to
the sale of the three additional Office Properties that were classified as held
for disposition as of June 30, 2000. The sales of these Properties are expected
to close by the end of the fourth quarter of 2000.
Behavioral Healthcare Segment
During the six months ended June 30, 2000, the Company completed the
sale of 18 behavioral healthcare properties previously classified as held for
disposition. The sales generated approximately $49.6 million in net proceeds and
a net gain of approximately $14.7 million for the six months ended June 30,
2000. As of June 30, 2000, all 70 of the Behavioral Healthcare Properties,
including 37 Core Properties and 33 Non-Core Properties, were classified as held
for disposition. Subsequent to June 30, 2000, the Company sold three Core
Properties and two Non-Core Properties. The sales generated approximately $21.7
million in net proceeds and a net gain of approximately $3.9 million. The net
proceeds from the sale of the 18 behavioral healthcare properties sold during
the six months ended June 30, 2000 and the three Core Properties and two
Non-Core Properties sold subsequent to June 30, 2000 were used primarily to pay
down variable-rate debt. The Company also has entered into contracts or letters
of intent to sell 26 additional Core Properties and nine
37
<PAGE> 39
additional Non-Core Properties. The sales of these Properties are expected to
close by the end of the fourth quarter of 2000.
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 debt.
CBHS
As of December 31, 1999, the Company owned 88 behavioral healthcare
properties, all of which were leased by the Company to CBHS under a master
lease. CBHS's business has been negatively affected by many factors, including
adverse industry conditions, and on February 16, 2000, CBHS and all of its
subsidiaries that were subject to the master lease with the Company filed
voluntary Chapter 11 bankruptcy petitions in the United States Bankruptcy Court
for the District of Delaware.
Payment and treatment of rent for the Behavioral Healthcare Properties
is subject to a rent stipulation agreed to by certain of the parties involved in
the CBHS bankruptcy proceeding. The Company received approximately $3.3 million
and $5.4 million in rent from CBHS during the three and six months ended June
30, 2000, respectively.
The Company sold 18 behavioral healthcare properties during the six
months ended June 30, 2000, generating approximately $11.3 million and $49.6
million in net proceeds, during the three and six months ended June 30, 2000,
respectively.
As of June 30, 2000, the Behavioral Healthcare Segment consisted of 70
Behavioral Healthcare Properties in 22 states. CBHS was continuing to operate
the 37 Core Properties and had ceased operations at the 33 Non-Core Properties
as of June 30, 2000. CBHS intends to cease operations at all of the Core
Properties, either in connection with a sale of operating assets or by closing
Core Properties. The Company intends to sell all of the Behavioral Healthcare
Properties.
Subsequent to June 30, 2000, the Company sold three Core Properties
and two Non-Core Properties. The Company also has entered into contracts or
letters of intent to sell 26 additional Core Properties and nine additional
Non-Core Properties and is actively marketing for sale the remaining eight Core
Properties and 22 Non-Core Properties.
TXU ENERGY SERVICE AGREEMENT
On June 5, 2000, the Company entered into a five-year energy services
agreement with TXU Energy Services ("TXU"), under which TXU will manage a full
range of energy services on behalf of the Company. The agreement provides that
TXU will consolidate, audit, and pay all utility bills, provide real-time
metering technology and offer on-line access to customized utility management
reports. In addition, TXU will manage supply-side services, including review of
existing rate structure and negotiation and procurement of energy supply in
competitive areas, and invest in energy efficiency and local management
technologies. Furthermore, TXU will design, finance, and build energy-related
projects on site-specific programs for the Company. The first phase of the
agreement focuses on the Company's Class A Office Properties with future plans
to incorporate the Company's Hotel Properties.
38
<PAGE> 40
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 June 30,
2000, approximately $782.7 million was available under the Shelf Registration
Statement for the issuance of securities.
SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY
During the six months ended June 30, 2000, the Company formed Funding
IX and contributed seven Office Properties and two Hotel Properties to Funding
IX. The Company owns 100% of the voting interests in Funding IX, 0.1% in the
form of a general partner interest and 99.9% in the form of a limited partner
interest.
As of June 30, 2000, the Company had sold $160.0 million 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 currently calculated at 30-day LIBOR plus 450 basis points, or
approximately 11.2% per annum as of June 30, 2000, and are redeemable at the
option of the Company at the original purchase price. Subsequent to June 30,
2000, the Company sold an additional $90.0 million of Class A Units in Funding
IX to GMACCM. The Company has the right to sell to GMACCM an additional $25.0
million of Class A Units, for an aggregate of $275.0 million, on or before
August 11, 2000.
As of August 9, 2000, $233.7 million of the net proceeds of $240.9
million from the sale of the Class A Units had been used to repurchase
12,388,823 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 is actively marketing the Office Properties held by Funding
IX for joint venture and will use the proceeds from any joint venture of a
Property held by Funding IX to redeem the Class A Units.
SHARE REPURCHASE PROGRAM
On November 5, 1999, the Company's Board of Trust Managers authorized
the repurchase of a portion of its outstanding common shares from time to time
in the open market or through privately negotiated transactions, in an amount
not to exceed $500.0 million.
The Company expects the Share Repurchase Program to be funded through a
combination of asset sales and financing arrangements, which, in some cases, may
be secured by the repurchased shares. The amount of shares that the Company
actually will purchase will be determined from time to time, in its reasonable
judgment, based on market conditions and the availability of funds, among other
factors. There can be no assurance that any number of shares actually will be
purchased within any particular time period.
The Company commenced its Share Repurchase Program in March 2000.
During the six months ended June 30, 2000, the Company repurchased 4,400,030
common shares in the open market at an average price of $19.19 per common share
for an aggregate of approximately $84.4 million. Subsequent to June 30, 2000,
the Company repurchased 2,220,200 common shares in the open market at an average
price of $21.94 per common share for an aggregate of $48.7 million.
In addition, during the six months ended June 30, 2000, the Company
repurchased 4,042,691 common shares at an average price of $17.49 per common
share for an aggregate of approximately $70.7 million, under the "Share
Repurchase Agreement" with UBS. This amount includes 20,301 common shares
purchased outside of the Share Repurchase Program in connection with a
management incentive plan. On July 5, 2000, the Company fulfilled its settlement
obligations under the Share Repurchase Agreement with UBS by repurchasing the
remaining 1,766,489
39
<PAGE> 41
common shares at an average cost of $17.33 per common share for an aggregate
cost of approximately $30.6 million. See "Share Repurchase Agreement" below for
a description of the agreement.
The purchase of 12,429,410 common shares was primarily 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
purchase a portion of its common shares from UBS. As of December 31, 1999, the
Company was obligated to purchase 4,789,580 common shares, or approximately
$84.1 million of the Company's common shares. The agreement was amended on
January 4, 2000, increasing the number of common shares the Company was
obligated to purchase from UBS by January 4, 2001 to 5,809,100 common shares, or
approximately $101.0 million of the Company's common shares. The price the
Company was obligated to pay for the common shares was calculated based on the
average cost of the common shares purchased by UBS in connection with the Share
Repurchase Agreement plus a return to UBS of 30-day LIBOR plus 250 basis points,
minus an adjustment for the Company's distributions during the term of the Share
Repurchase Agreement. The guaranteed rate of return to UBS under the agreement
is equal to 30-day LIBOR plus 250 basis points.
The Company had the option to settle the Share Repurchase Agreement in
cash or common shares. During the six months ended June 30, 2000, the Company
purchased 4,042,691 common shares from UBS, at an average cost of $17.49 per
common share. 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. On July 5, 2000, the Company fulfilled its settlement obligations under
the Share Repurchase Agreement with UBS by purchasing the remaining 1,766,489
common shares at an average cost of $17.33 per common share. This decreased the
Company's liquidity and will result in an increase in the Company's net income
per common share and net book value per common share for the third quarter of
2000. The Company has no further obligation under the Share Repurchase
Agreement. The purchases were funded primarily through the sale of Class A Units
in Funding IX. See "Sale of Preferred Equity Interests in Subsidiary" above.
METROPOLITAN
The Company's $85.0 million preferred member interest in Metropolitan
at June 30, 2000 would equate to an approximately 20% equity interest. The
investment has a cash flow preference of 7.5% until May 19, 2001 and may be
redeemed by Metropolitan on or before May 19, 2001 for $85.0 million, plus an
amount sufficient to provide a 9.5% internal rate of return to the Company. If
Metropolitan does not redeem the preferred interest by May 19, 2001, the Company
may convert the interest either into (i) a common equity interest in
Metropolitan or (ii) shares of common stock of Reckson at a conversion price of
$24.61.
UBS Facility
On February 4, 2000, the Company repaid and retired the BankBoston
Credit Facility and the BankBoston Term Note I primarily with the proceeds of
the UBS Facility. The UBS Facility is a secured, variable-rate facility that is
currently funded by a syndicate of 23 banks and institutions led by UBS and
Fleet. The borrowing capacity under the UBS facility is currently limited to
$760.3 million. The UBS Facility was entered into effective January 31, 2000 and
amended on May 10, 2000 and May 18, 2000, and, as amended, consists of three
tranches: the UBS Line of Credit, a three-year $300.0 million revolving line of
credit (currently limited to $286.8 million of borrowing capacity); the UBS Term
Loan I, a $146.8 million three-year term loan; and the UBS Term Loan II, a
$326.7 million four-year term loan. Borrowings under the UBS Line of Credit, the
UBS Term Loan I and the UBS Term Loan II at June 30, 2000, were approximately
$240.0 million, $146.8 million and $326.7 million, respectively. The UBS Line
of Credit and the UBS Term Loan I bear interest at LIBOR plus 250 basis points.
The UBS Term Loan II bears interest at LIBOR plus 275 basis points. As of June
30, 2000, the interest rate on the UBS Line of Credit and UBS Term Loan I was
9.18% and the interest rate on the UBS Term Loan II was 9.43%. In order to
mitigate its exposure to variable-rate debt, the Company has entered into two
cash flow hedge agreements related to a portion of the UBS Facility. See "Cash
Flow Hedging Transactions" below for a description of these agreements. During
the six months ended June 30, 2000, the Company sold six Office Properties
securing the UBS Facility. The net proceeds of the sale of these Properties were
used to repay amounts outstanding under the UBS Facility. As of June 30, 2000,
the UBS Facility was secured by 34 Office Properties and four Hotel Properties.
The UBS Facility requires the Company to maintain compliance with a number of
customary
40
<PAGE> 42
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 June 30, 2000 reporting period.
CASH FLOW HEDGING TRANSACTIONS
The Company does not use derivative financial instruments for trading
purposes, but utilizes them to manage exposure to variable rate debt. The
Company accounts for its derivative instruments under SFAS No. 133, which was
adopted in the third quarter of 1999.
On September 1, 1999, the Company entered into a four-year cash flow
hedge agreement with Salomon for a notional amount of $200.0 million, relating
to the BankBoston Term Note II. As a result of the cash flow hedge agreement,
the interest rate on the underlying note, which currently has a floating
interest rate of 30-day LIBOR plus 400 basis points, has been effectively
converted to a fixed interest rate of 10.18% through maturity. During the six
months ended June 30, 2000, the cash flow hedge agreement with Salomon resulted
in a reduction of approximately $0.03 million of interest expense.
Effective February 4, 2000, the Company entered into a three-year cash
flow hedge agreement with Fleet, for a notional amount of $200.0 million,
relating to a portion of the UBS Term Loan I and the UBS Line of Credit. As a
result, the interest rate on $200.0 million of the amount due under the UBS Term
Loan I and the UBS Line of Credit, which were originally issued at a floating
interest rate of LIBOR plus 250 basis points, was effectively converted to a
fixed interest rate of 9.61% through maturity. During the six months ended June
30, 2000, the cash flow hedge agreement with Fleet resulted in approximately
$0.78 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
interest rate of 9.51% through maturity. Fleet has an option to terminate the
agreement at the end of the third year of the agreement. During the six months
ended June 30, 2000, the cash flow hedge agreement with Fleet resulted in
approximately $0.08 million of additional interest expense.
ASSET JOINT VENTURES
The Company has agreements with Chadwick Saylor & Co., Inc. and Warburg
Dillon Read pursuant to which they are providing investment advisory services to
the Company regarding the Company's joint-venture strategy. The Company intends
to hold a minority equity interest in these joint-ventured assets and will
continue to lease and manage these Properties.
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<PAGE> 43
LIQUIDITY REQUIREMENTS
During the six months ended June 30, 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, was scheduled to expire on January 4, 2001,
at which time the Company would have been required to settle in cash or common
shares. During the six months ended June 30, 2000, the Company purchased
4,042,691 common shares from UBS at an average cost of $17.49 per common share.
In addition, on July 5, 2000, the Company fulfilled its settlement obligations
under the Share Repurchase Agreement with UBS by purchasing 1,766,489 common
shares from UBS at an average cost of $17.33 per common share. The purchases
were funded primarily through the sale of the Class A Units in Funding IX, as
described in "Sale of Preferred Equity Interests in Subsidiary" above.
The Sonoma Mission Inn & Spa, located north of San Francisco,
California, completed its estimated $21.0 million expansion, consisting of 30
additional guest rooms and a 30,000 square foot full-service spa during the
second quarter of 2000. The Company has incurred costs of $18.2 million related
to the expansion as of June 30, 2000. In the first quarter of 2000, the 389
guest room Renaissance Houston Hotel, located in the center of Greenway Plaza,
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 $3.3
million as of June 30, 2000, is scheduled to be completed in the fourth quarter
of 2000. Both of these projects will be funded from cash flow provided by
operating activities, additional debt financing or a combination of the two.
In July, 2000, the Company began the development of an office building
adjacent to The Avallon in Austin, Texas. The approximately 88,000 square foot
building has been 100% pre-leased. The $12.0 million project is scheduled to be
completed within the next 12 months, and will be funded through additional debt
financing.
The Company expects to meet its other short-term liquidity
requirements, consisting of normal recurring operating expenses, regular debt
service requirements (including debt service relating to additional and
replacement debt), recurring capital expenditures, non-recurring capital
expenditures, such as tenant improvement and leasing costs, and distributions to
shareholders and unitholders, primarily through cash flow provided by operating
activities. To the extent that the Company's cash flow from operating activities
is not sufficient to finance such short-term liquidity requirements, the Company
expects to finance such requirements with available cash, property sales,
proceeds received from joint venture arrangements 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 June 30, 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 Joint venture arrangements; and
o Issuances of Operating Partnership units.
REIT QUALIFICATION
The Company intends to maintain its qualification as a REIT under
Section 856(c) of the Internal Revenue Code of 1986, as amended (the "Code"). As
a REIT, the Company generally will not be subject to corporate federal income
taxes as long as it satisfies certain technical requirements of the Code,
including the requirement to distribute 95% of its REIT taxable income to its
shareholders.
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<PAGE> 44
On December 17, 1999, President Clinton signed into law the REIT
Modernization Act which will become effective after December 31, 2000, and
contains a provision that would permit the Company to own and operate certain
types of investments that are currently owned by COPI. The REIT Modernization
Act is expected to reduce the number of business opportunities that the Company
would otherwise offer to COPI pursuant to the Intercompany Agreement between the
Company and COPI, which provides each party with rights to participate in
certain transactions. The Company has expressed an interest to COPI in certain
of the businesses currently owned or operated by COPI that the REIT
Modernization Act would allow the Company to own or operate. The Company is
exploring alternatives with COPI regarding a potential future transaction with
respect to certain of COPI's assets.
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<PAGE> 45
DEBT FINANCING ARRANGEMENTS
The significant terms of the Company's primary debt financing
arrangements existing as of June 30, 2000 are shown below (dollars in
thousands):
<TABLE>
<CAPTION>
INTEREST BALANCE
RATE AT OUTSTANDING AT
MAXIMUM JUNE 30, EXPIRATION JUNE 30,
DESCRIPTION BORROWINGS 2000 DATE 2000
----------- ------------- ---------- ------------- ---------------
<S> <C> <C> <C> <C>
SECURED FIXED RATE DEBT:
AEGON Note (1) $ 276,394 7.53% July 2009 $ 276,394
LaSalle Note I (2) 239,000 7.83 August 2027 239,000
JP Morgan Mortgage Note (3) 200,000 8.31 October 2016 200,000
LaSalle Note II (4) 161,000 7.79 August 2028 161,000
CIGNA Note 63,500 7.47 December 2002 63,500
Metropolitan Life Note V 39,464 8.49 December 2005 39,464
Northwestern Life Note 26,000 7.66 January 2003 26,000
Metropolitan Life Note I 11,260 8.88 September 2001 11,260
Nomura Funding VI Note (5) 8,397 10.07 July 2020 8,397
Rigney Promissory Note 714 8.50 November 2012 714
------------- ---------- ------------
Subtotal/Weighted Average $ 1,025,729 7.87% $ 1,025,729
------------- ---------- ------------
SECURED VARIABLE RATE DEBT (6):
UBS Term Loan II (7) $ 326,677 9.43% February 2004 $ 326,677
UBS Line of Credit (7) (8) 286,793 9.18 February 2003 240,000
UBS Term Loan I (7) 146,775 9.18 February 2003 146,775
BankBoston Term Note II (9) 200,000 10.69 August 2003 200,000
SFT Whole Loans, Inc. Note 97,123 8.39 September 2001 97,123
------------- ---------- ------------
Subtotal/Weighted Average $ 1,057,368 9.48% $ 1,010,575
------------- ---------- ------------
UNSECURED FIXED RATE DEBT:
Notes due 2007 (10) $ 250,000 7.50% September 2007 $ 250,000
Notes due 2002 (10) 150,000 7.00 September 2002 150,000
------------- ---------- ------------
Subtotal/Weighted Average $ 400,000 7.31% $ 400,000
------------- ---------- ------------
TOTAL/WEIGHTED AVERAGE $ 2,483,097 8.45% (11) $ 2,436,304
============= ========== ============
</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 interest rate will adjust
based on current interest rates at that time. It is the Company's intention
to repay the note in full at such time (October 2006) by making a final
payment of approximately $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) Effective January 31, 2000, the Company entered into the UBS Facility,
which was amended on May 10, 2000 and May 18, 2000 and, as amended,
consists of three tranches, the UBS Line of Credit, the UBS Term Loan I and
the UBS Term Loan II. For a description of the UBS Facility, see "Liquidity
and Capital Resources - UBS Facility."
(8) Maximum borrowing is calculated based on borrowing capacity at June 30,
2000, and cannot exceed $300.0 million.
(9) This loan is secured by partnership interests in two pools of assets that
secure the LaSalle Note I and the LaSalle Note II. 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 into a four-year $200.0 million
cash flow hedge agreement effective September 1, 1999 with Salomon in a
separate transaction related to the BankBoston Term Note II. See "Liquidity
and Capital Resources - Cash Flow Hedging Transactions."
(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
8.44%.
Below are the aggregate principal amounts due as of June 30, 2000 under
the UBS Facility and other indebtedness of the Company by year. Scheduled
principal installments and amounts due at maturity are included.
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<PAGE> 46
DRAFT 4
<TABLE>
<CAPTION>
SECURED UNSECURED TOTAL
----------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
2000 $ 2,602 $ -- $ 2,602
2001 113,891 -- 113,891
2002 73,913 150,000 223,913
2003 627,835 -- 627,835
2004 343,533 -- 343,533
Thereafter 874,530 250,000 1,124,530
---------- ---------- ----------
$2,036,304 $ 400,000 $2,436,304
========== ========== ==========
</TABLE>
The Company has approximately $2.6 million of principal on secured debt
payable during 2000, consisting primarily of monthly principal payments due
under the AEGON Note during 2000, which are expected to be funded through cash
flows provided by operating activities.
The Company's policy with regard to the incurrence and maintenance of
debt is based on a review and analysis of:
o investment opportunities for which capital is required and the
cost of debt in relation to such investment opportunities;
o the type of debt available (secured or unsecured);
o the effect of additional debt on existing coverage ratios;
o the maturity of the proposed debt in relation to maturities of
existing debt; and
o exposure to variable-rate debt and alternatives such as
interest-rate swaps and cash flow hedges to reduce this
exposure.
The Company's debt service coverage ratio for the six months ended June
30, 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
minimum 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 2.2 at June 30, 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.
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 six months ended June 30, 1999, FFO was approximately
$197.3 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 six months ended June 30, 1999 would have been approximately $182.3 million,
which would have
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<PAGE> 47
included the $15.0 million settlement payment, if the revised definition of FFO
had been in effect. The Company considers FFO an appropriate measure of
performance for an equity REIT, and for its investment segments. However, FFO:
o does not represent cash generated from operating activities
determined in accordance with GAAP (which, unlike FFO,
generally reflects all cash effects of transactions and other
events that enter into the determination of net income);
o is not necessarily indicative of cash flow available to fund
cash needs; and
o should not be considered as an alternative to net income
determined in accordance with GAAP as an indication of the
Company's operating performance, or to cash flow from
operating activities determined in accordance with GAAP as a
measure of either liquidity or the Company's ability to make
distributions.
The Company has historically distributed an amount less than FFO,
primarily due to reserves required for capital expenditures, including leasing
costs. The aggregate cash distributions paid to shareholders and unitholders for
the six months ended June 30, 2000 and 1999 were $145.9 and $152.3 million,
respectively.
An increase or decrease in FFO does not necessarily result in an
increase or decrease in aggregate distributions because the Company's Board of
Trust Managers is not required to increase distributions on a quarterly basis
unless necessary for the Company to maintain REIT status. However, the Company
must distribute 95% of its REIT taxable income (as defined in the Code).
Therefore, a significant increase in FFO will generally require an increase in
distributions to shareholders and unitholders although not necessarily on a
proportionate basis.
Accordingly, the Company believes that to facilitate a clear
understanding of the consolidated historical operating results of the Company,
FFO should be considered in conjunction with the Company's net income (loss) and
cash flows reported in the consolidated financial statements and notes to the
financial statements. However, the Company's measure of FFO may not be
comparable to similarly titled measures of other REITs because these REITs may
apply the definition of FFO in a different manner than the Company.
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<PAGE> 48
STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND SHARES/UNITS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ------------------------
2000 1999 2000 1999
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 36,062 $ 55,164 $ 87,184 $ 91,175
Adjustments:
Depreciation and amortization of real estate assets 30,353 32,149 60,145 65,026
Gain on property sales, net (6,126) -- (28,753) --
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 1,789 2,597 1,717 4,354
Temperature-Controlled Logistics Properties 7,438 5,187 12,889 7,758
Residential Development Properties 11,144 6,622 15,723 11,294
Other -- 172 -- 172
Unitholder minority interest 4,712 5,910 11,094 9,314
6 3/4% Series A Preferred Share dividends (3,375) (3,375) (6,750) (6,750)
--------- --------- --------- ---------
Funds from operations - old definition (1)(2) $ 81,997 $ 104,426 $ 157,177 $ 197,343
--------- --------- --------- ---------
Adjustments:
Settlement of merger dispute -- -- -- (15,000)
--------- --------- --------- ---------
Funds from operations - new definition(1)(2) $ 81,997 $ 104,426 $ 157,177 $ 182,343
========= ========= ========= =========
Investment Segments:
Office and Retail Segment $ 87,213 $ 92,373 $ 173,424 $ 181,479
Hotel/Resort Segment 18,346 15,896 35,637 31,094
Behavioral Healthcare Segment 3,304 13,825 5,383 27,648
Temperature-Controlled Logistics Segment 7,630 9,208 17,117 17,488
Residential Development Segment 22,861 21,037 37,904 34,338
Corporate general & administrative (4,082) (3,816) (9,327) (7,930)
Interest expense (51,836) (44,917) (104,086) (87,398)
6 3/4% Series A Preferred Share dividend (3,375) (3,375) (6,750) (6,750)
Other(3) 1,936 4,195 7,875 7,374
Settlement of merger dispute -- -- -- (15,000)
--------- --------- --------- ---------
Funds from operations - new definition(1)(2) $ 81,997 $ 104,426 $ 157,177 $ 182,343
========= ========= ========= =========
Basic weighted average shares/units 129,418 139,310 132,499 138,509
========= ========= ========= =========
Diluted weighted average shares/units(4) 130,391 141,675 133,168 141,168
========= ========= ========= =========
</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 GMACCM less depreciation and amortization of non-real
estate assets and amortization of deferred financing costs.
(4) See calculations for the amounts presented in the reconciliation
following this table.
47
<PAGE> 49
The following schedule reconciles the Company's basic weighted average
shares/units to the diluted weighted average shares/units presented above:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
(shares/units in thousands) 2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic weighted average shares/units: 129,418 139,310 132,499 138,509
Add: Share and unit options 973 2,127 669 2,138
Forward Share Purchase Agreement -- 238 -- 521
------- ------- ------- -------
Diluted weighted average shares/units 130,391 141,675 133,168 141,168
======= ======= ======= =======
</TABLE>
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
2000 1999
--------- ---------
<S> <C> <C>
Funds from operations - new definition $ 157,177 $ 182,343
Adjustments:
Depreciation and amortization of non-real estate assets 1,102 1,134
Amortization of deferred financing costs 2,341 5,824
Minority interest in joint ventures profit and depreciation
and amortization 8,333 981
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies (30,329) (23,578)
Change in deferred rent receivable (5,846) (15,508)
Change in current assets and liabilities (29,123) 9,746
Equity in earnings in excess of distributions received from
unconsolidated companies 5,815 (14,621)
6 3/4% Series A Preferred Share dividends 6,750 6,750
Non-cash compensation 39 81
--------- ---------
Net cash provided by operating activities $ 116,259 $ 153,152
========= =========
</TABLE>
48
<PAGE> 50
OFFICE AND RETAIL PROPERTIES
As of June 30, 2000, the Company owned 80 Office Properties located in 28
metropolitan submarkets in seven states with an aggregate of approximately 29.0
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
June 30, 2000, the Company's Office Properties in Dallas/Fort Worth and Houston
represented an aggregate of approximately 76% of its office portfolio based on
total net rentable square feet (40% for Dallas/Fort Worth and 36% for Houston).
In pursuit of management's objective to dispose of non-strategic and
non-core assets, the Company sold nine Office Properties during the six months
ended June 30, 2000 and was actively marketing for sale its wholly owned
interests in three additional Office Properties at June 30, 2000. The office
properties sold were The Amberton, Concourse Office Park, The Meridian, One
Preston Park, and Walnut Green Office Properties located in Dallas, Texas; the
Energy Centre and 1615 Poydras Office Properties located in New Orleans,
Louisiana; the AT&T Building located in Denver, Colorado; and the Central Park
Plaza Office Property located in Omaha, Nebraska.
In addition, the Company has entered into contracts or letters of intent
to sell the three Properties held for disposition at June 30, 2000: 160 Spear
located in San Francisco, California; Valley Centre located in Dallas, Texas;
and Washington Harbour located in Washington, D.C. The Company anticipates
completing the sales of these Office Properties by the end of the fourth quarter
of 2000.
49
<PAGE> 51
OFFICE PROPERTIES TABLES
The following table shows, as of June 30, 2000, certain
information about the Company's Office Properties. In the table below "CBD,"
means central business district.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT. (1)
--------------------- ---------- --------- --------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
DALLAS
Bank One Center (2) 1 CBD 1987 1,530,957 74%(5) $ 23.08
The Crescent Office Towers 1 Uptown/Turtle Creek 1985 1,204,670 89(5) 30.77
Fountain Place 1 CBD 1986 1,200,266 96 19.32
Trammell Crow Center (3) 1 CBD 1984 1,128,331 80 23.95
Stemmons Place 1 Stemmons Freeway 1983 634,381 88 16.11
Spectrum Center (4) 1 Far North Dallas 1983 598,250 95 23.64
Waterside Commons 1 Las Colinas 1986 458,739 100 20.18
Caltex House 1 Las Colinas 1982 445,993 90 29.39
Reverchon Plaza 1 Uptown/Turtle Creek 1985 374,165 77(5) 20.47
The Aberdeen 1 Far North Dallas 1986 320,629 100 18.51
MacArthur Center I & II 1 Las Colinas 1982/1986 294,069 97 22.01
Stanford Corporate Centre 1 Far North Dallas 1985 265,507 37(5) 21.27
12404 Park Central 1 LBJ Freeway 1987 239,103 100 21.52
Palisades Central II 1 Richardson/Plano 1985 237,731 87(5) 18.80
3333 Lee Parkway 1 Uptown/Turtle Creek 1983 233,769 92 21.90
Liberty Plaza I & II 1 Far North Dallas 1981/1986 218,813 100 16.00
The Addison 1 Far North Dallas 1981 215,016 100 19.54
Palisades Central I 1 Richardson/Plano 1980 180,503 97 19.09
Greenway II 1 Richardson/Plano 1985 154,329 100 22.81
Greenway I & IA 2 Richardson/Plano 1983 146,704 100 23.50
Addison Tower 1 Far North Dallas 1987 145,886 92 17.56
5050 Quorum 1 Far North Dallas 1981 133,594 85 17.77
Cedar Springs Plaza 1 Uptown/Turtle Creek 1982 110,923 89 18.91
Valley Centre 1 Las Colinas 1985 74,861 87(5) 19.71
---- ---------- ---- -------
Subtotal/Weighted Average 25 10,547,189 87% $ 22.34
---- ---------- ---- -------
FORT WORTH
UPR Plaza 1 CBD 1982 954,895 98% $ 15.66
---- ---------- ---- -------
HOUSTON
Greenway Plaza Office Portfolio 10 Richmond-Buffalo 1969-1982 4,286,277 95% $ 18.20
Speedway
Houston Center 3 CBD 1974-1983 2,764,418 97 18.16
Post Oak Central 3 West Loop/Galleria 1974-1981 1,277,516 92 18.47
The Woodlands Office Properties(6) 12 The Woodlands 1980-1996 811,067 95 16.42
Four Westlake Park 1 Katy Freeway 1992 561,065 100 19.47
Three Westlake Park 1 Katy Freeway 1983 414,251 73 20.30
1800 West Loop South 1 West Loop/Galleria 1982 399,777 69(5) 17.96
---- ---------- ---- -------
Subtotal/Weighted Average 31 10,514,371 93% $ 18.21
---- ---------- ---- -------
AUSTIN
Frost Bank Plaza 1 CBD 1984 433,024 99% $ 23.87
301 Congress Avenue (7) 1 CBD 1986 418,338 98 25.21
Bank One Tower 1 CBD 1974 389,503 95 20.16
Austin Centre 1 CBD 1986 343,665 96 23.15
The Avallon 1 Northwest 1993/1997 232,301 100 22.98
Barton Oaks Plaza One 1 Southwest 1986 99,895 100 21.63
---- ---------- ---- -------
Subtotal/Weighted Average 6 1,916,726 98% $ 23.10
---- ---------- ---- -------
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT. (1)
--------------------- ---------- --------- --------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
COLORADO
DENVER
MCI Tower 1 CBD 1982 550,807 99% $ 18.12
Ptarmigan Place 1 Cherry Creek 1984 418,630 100 19.26
Regency Plaza One 1 Denver Technology
Center 1985 309,862 97(5) 23.16
The Citadel 1 Cherry Creek 1987 130,652 92(5) 22.68
55 Madison 1 Cherry Creek 1982 137,176 89(5) 19.43
44 Cook 1 Cherry Creek 1984 124,174 99 20.27
---- ---------- ---- -------
Subtotal/Weighted Average 6 1,671,301 97% $ 19.97
---- ---------- ---- -------
COLORADO SPRINGS
Briargate Office and
and Research Center 1 Colorado Springs 1988 252,857 100% $ 18.69
---- ---------- ---- -------
FLORIDA
MIAMI
Miami Center 1 CBD 1983 782,686 78%(5) $ 24.89
Datran Center 2 South Dade/Kendall 1986/1988 472,236 90(5) 22.55
---- ---------- ---- -------
Subtotal/Weighted Average 3 1,254,922 83% $ 23.93
---- ---------- ---- -------
ARIZONA
PHOENIX
Two Renaissance Square 1 Downtown/CBD 1990 476,373 96% $ 24.49
6225 North 24th Street 1 Camelback Corridor 1981 86,451 100 22.59
---- ---------- ---- -------
Subtotal/Weighted Average 2 562,824 97% $ 24.18
---- ---------- ---- -------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour 2 Georgetown 1986 536,206 99%(5) $ 38.54
---- ---------- ---- -------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza 1 CBD 1990 366,236 89% $ 19.22
---- ---------- ---- -------
CALIFORNIA
SAN FRANCISCO
160 Spear Street 1 South of Market/CBD 1984 276,420 100% $ 26.34
---- ---------- ---- -------
SAN DIEGO
Chancellor Park (9) 1 University Town
Center 1988 195,733 96% $ 22.90
---- ---------- ---- -------
TOTAL/WEIGHTED AVERAGE 80 29,049,680 92%(5) $ 20.88(9)
==== ========== ==== =======
</TABLE>
----------
(1) Calculated based on base rent payable as of June 30, 2000, without giving
effect to free rent or scheduled rent increases that would be taken into
account under GAAP and including adjustments for expenses payable by or
reimbursable from tenants.
(2) The Company has a 49.5% limited partner interest and a 0.5% general
partner interest in the partnership that owns Bank One Center.
(3) The Company owns the principal economic interest in Trammell Crow Center
through its ownership of fee simple title to the Property (subject to a
ground lease and a leasehold estate regarding the building) and two
mortgage notes encumbering the leasehold interests in the land and
building.
(4) The Company owns the principal economic interest in Spectrum Center
through an interest in Spectrum Mortgage Associates, L.P. which owns both
a mortgage note secured by Spectrum Center and the ground lessor's
interest in the land underlying the office building.
(5) Leases have been executed at certain Office Properties but had not
commenced as of June 30, 2000. If such leases had commenced as of June
30, 2000, the percent leased for all Office Properties would have been
94%. The total percent leased for these Properties would have been as
follows: Bank One Center - 82%; The Crescent Office Towers - 97%;
Reverchon Plaza - 83%; Stanford Corporate Centre - 71%; Palisades Central
II - 95%; Valley Centre - 92%; 1800 West Loop South - 75%; Regency Plaza
- 100%; 55 Madison - 96%; The Citadel - 96%; Miami Center - 84%; Datran
Center - 93% and Washington Harbour - 100%.
51
<PAGE> 53
(6) The Company has a 75% limited partner interest and an approximate 10%
indirect general partner interest in the partnership that owns the 12
Office Properties that comprise The Woodlands Office Properties.
(7) The Company has a 1% general partner interest and a 49% limited partner
interest in the partnership that owns 301 Congress Avenue.
(8) The Company owns Chancellor Park through its ownership of a mortgage note
secured by the building and through its direct and indirect interests in
the partnership which owns the building.
(9) The weighted average full-service rental rate per square foot calculated
based on base rent payable for Company Office Properties as of June 30,
2000, giving effect to free rent and scheduled rent increases that would
be taken into consideration under GAAP and including adjustments for
expenses payable by or reimbursed from tenants is $21.25.
52
<PAGE> 54
The following table provides information, as of June 30, 2000, for the
Company's Office Properties by state, city, and submarket.
<TABLE>
<CAPTION>
PERCENT OFFICE
PERCENT OF LEASED AT SUBMARKET
TOTAL TOTAL COMPANY PERCENT
NUMBER OF COMPANY COMPANY OFFICE LEASED/
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2)
------------------------------ ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD 3 3,859,554 13% 83%(6) 86%
Uptown/Turtle Creek 4 1,923,527 7 87(6) 90
Far North Dallas 7 1,897,695 7 88(6) 76
Las Colinas 4 1,273,662 4 95(6) 83
Richardson/Plano 5 719,267 3 95(6) 82
Stemmons Freeway 1 634,381 1 88 76
LBJ Freeway 1 239,103 1 100 84
---- ---------- ---- ---- ----
Subtotal/Weighted Average 25 10,547,189 36% 87% 83%
---- ---------- ---- ---- ----
FORT WORTH
CBD 1 954,895 3% 98% 91%
---- ---------- ---- ---- ----
HOUSTON
CBD 3 2,764,418 10% 97% 97%
Richmond-Buffalo Speedway 6 2,735,030 9 95 94
West Loop/Galleria 4 1,677,293 6 87(6) 93
Katy Freeway 2 975,316 3 88 81
The Woodlands 7 487,320 2 97 95
---- ---------- ---- ---- ----
Subtotal/Weighted Average 22 8,639,377 30% 93% 94%
---- ---------- ---- ---- ----
AUSTIN
CBD 4 1,584,530 6% 97% 100%
Northwest 1 232,301 1 100 100
Southwest 1 99,895 0 100 99
---- ---------- ---- ---- ----
Subtotal/Weighted Average 6 1,916,726 7% 98% 100%
---- ---------- ---- ---- ----
COLORADO
DENVER
Cherry Creek 4 810,632 3% 97%(6) 93%
CBD 1 550,807 2 99 99
Denver Technology Center 1 309,862 1 97(6) 88
---- ---------- ---- ---- ----
Subtotal/Weighted Average 6 1,671,301 6% 97% 95%
---- ---------- ---- ---- ----
COLORADO SPRINGS
Colorado Springs 1 252,857 1% 100% 93%
---- ---------- ---- ---- ----
FLORIDA
MIAMI
CBD 1 782,686 3% 78%(6) 93%
South Dade/Kendall 2 472,236 1 90(6) 93
---- ---------- ---- ---- ----
Subtotal/Weighted Average 3 1,254,922 4% 83% 93%
---- ---------- ---- ---- ----
ARIZONA
PHOENIX
Downtown/CBD 1 476,373 2% 96% 97%
Camelback Corridor 1 86,451 0 100 94
---- ---------- ---- ---- ----
Subtotal/Weighted Average 2 562,824 2% 97% 95%
---- ---------- ---- ---- ----
WASHINGTON D.C
WASHINGTON D.C
Georgetown 2 536,206 2% 99%(6) 100%
---- ---------- ---- ---- ----
NEW MEXICO
ALBUQUERQUE
CBD 1 366,236 1% 89% 92%
---- ---------- ---- ---- ----
CALIFORNIA
SAN FRANCISCO
South of Market/CBD 1 276,420 1% 100% 99%
---- ---------- ---- ---- ----
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
COMPANY QUOTED QUOTED SERVICE
SHARE OF MARKET RENTAL RENTAL
OFFICE RENTAL RATE RATE PER RATE PER
SUBMARKET PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5)
------------------------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD 21% $ 23.35 $ 26.22 $ 21.97
Uptown/Turtle Creek 31 $ 27.09 $ 29.94 $ 27.18
Far North Dallas 17 $ 24.37 $ 23.87 $ 20.10
Las Colinas 11 $ 25.26 $ 25.20 $ 23.64
Richardson/Plano 14 $ 23.35 $ 24.14 $ 20.79
Stemmons Freeway 26 $ 24.36 $ 19.50 $ 16.11
LBJ Freeway 3 $ 23.59 $ 24.60 $ 21.52
---- --------- --------- ---------
Subtotal/Weighted Average 17% $ 24.51 $ 25.77 $ 22.34
---- --------- --------- ---------
FORT WORTH
CBD 24% $ 19.86 $ 19.57 $ 15.66
---- --------- --------- ---------
HOUSTON
CBD 11% $ 23.58 $ 25.44 $ 18.16
Richmond-Buffalo Speedway 56 $ 20.62 $ 22.43 $ 19.52
West Loop/Galleria 13 $ 22.31 $ 22.27 $ 18.37
Katy Freeway 13 $ 22.25 $ 23.43 $ 19.76
The Woodlands 100 $ 16.80 $ 16.80 $ 16.86
---- --------- --------- ---------
Subtotal/Weighted Average 17% $ 21.86 $ 23.16 $ 18.73
---- --------- --------- ---------
AUSTIN
CBD 49% $ 33.26 $ 33.86 $ 23.20
Northwest 10 $ 29.56 $ 30.10 $ 22.98
Southwest 4 $ 28.00 $ 30.42 $ 21.63
---- --------- --------- ---------
Subtotal/Weighted Average 24% $ 32.54 $ 33.22 $ 23.09
---- --------- --------- ---------
COLORADO
DENVER
Cherry Creek 45% $ 22.89 $ 21.87 $ 19.97
CBD 5 $ 26.41 $ 25.00 $ 18.12
Denver Technology Center 6 $ 25.13 $ 26.00 $ 23.16
---- --------- --------- ---------
Subtotal/Weighted Average 9% $ 24.47 $ 23.67 $ 19.97
---- --------- --------- ---------
COLORADO SPRINGS
Colorado Springs 5% $ 19.91 $ 21.50 $ 18.69
---- --------- --------- ---------
FLORIDA
MIAMI
CBD 23% $ 29.75 $ 30.75 $ 24.89
South Dade/Kendall 100 $ 23.73 $ 23.73 $ 22.55
---- --------- --------- ---------
Subtotal/Weighted Average 33% $ 27.48 $ 28.11 $ 23.93
---- --------- --------- ---------
ARIZONA
PHOENIX
Downtown/CBD 27% $ 23.88 $ 23.00 $ 24.49
Camelback Corridor 3 $ 26.87 $ 24.00 $ 22.59
---- --------- --------- ---------
Subtotal/Weighted Average 11% $ 24.34 $ 23.15 $ 24.18
---- --------- --------- ---------
WASHINGTON D.C
WASHINGTON D.C
Georgetown 100% $ 43.00 $ 43.00 $ 38.54
---- --------- --------- ---------
NEW MEXICO
ALBUQUERQUE
CBD 64% $ 18.70 $ 19.50 $ 19.22
---- --------- --------- ---------
CALIFORNIA
SAN FRANCISCO
South of Market/CBD 2% $ 66.53 $ 65.00 $ 26.34
---- --------- --------- ---------
</TABLE>
53
<PAGE> 55
<TABLE>
<CAPTION>
PERCENT OFFICE
PERCENT OF LEASED AT SUBMARKET
TOTAL TOTAL COMPANY PERCENT
NUMBER OF COMPANY COMPANY OFFICE LEASED/
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2)
------------------------------ ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
SAN DIEGO
University Town Center 1 195,733 1% 96% 91%
---- ---------- ---- ---- ----
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 71 27,174,686 94% 92% 91%
==== ========== ==== ==== ====
CLASS B OFFICE PROPERTIES
TEXAS
HOUSTON
Richmond-Buffalo Speedway 4 1,551,247 5% 94% 93%
The Woodlands 5 323,747 1 93 90
---- ---------- ---- ---- ----
Subtotal/Weighted Average 9 1,874,994 6% 94% 93%
---- ---------- ---- ---- ----
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 9 1,874,994 6% 94% 93%
==== ========== ==== ==== ====
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED AVERAGE 80 29,049,680 100% 92%(6) 91%
==== ========== ==== ==== ====
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
COMPANY QUOTED QUOTED SERVICE
SHARE OF MARKET RENTAL RENTAL
OFFICE RENTAL RATE RATE PER RATE PER
SUBMARKET PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5)
------------------------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
SAN DIEGO
University Town Center 6% $ 30.60 $ 28.00 $ 22.90
---- --------- --------- ---------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 15% $ 24.92 $ 25.80 $ 21.24
==== ========= ========= =========
CLASS B OFFICE PROPERTIES
TEXAS
HOUSTON
Richmond-Buffalo Speedway 47% $ 18.95 $ 20.93 $ 15.82
The Woodlands 100 $ 15.40 $ 15.40 $ 15.73
---- --------- --------- ---------
Subtotal/Weighted Average 51% $ 18.34 $ 19.98 $ 15.81
---- --------- --------- ---------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 51% $ 18.34 $ 19.98 $ 15.81
==== ========= ========= =========
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED AVERAGE 16% $ 24.49 $ 25.43 $ 20.88(7)
==== ========= ========= =========
</TABLE>
----------
(1) NRA means net rentable area in square feet.
(2) Market information is for Class A office space under the caption "Class A
Office Properties" and market information is for Class B office space
under the caption "Class B Office Properties." Sources are CoStar Group
(for the Dallas CBD, Uptown/Turtle Creek, Far North Dallas, Las Colinas,
Richardson/Plano, Stemmons Freeway, LBJ Freeway, and Fort Worth CBD), The
Baca Group (for the Houston Richmond-Buffalo Speedway, Houston CBD, West
Loop/Galleria, and Katy Freeway submarkets), The Woodlands Operating
Company, L.P. (for The Woodlands submarket), CB Richard Ellis (for the
Austin CBD, Northwest and Southwest submarkets), Cushman & Wakefield of
Colorado, Inc. (for the Denver Cherry Creek, CBD and DTC submarkets),
Turner Commercial Research (for the Colorado Springs market), Grubb and
Ellis Company(for the Phoenix Downtown/CBD, Camelback Corridor and San
Francisco South of Market/CBD submarkets), Grubb and Ellis Company and
the Company (for the Washington D.C. Georgetown submarket), Building
Interests, Inc. (for the Albuquerque CBD submarket), RealData Information
Systems, Inc. (for the Miami CBD and South Dade/Kendall submarkets) and
John Burnham Real Estate Services (for the San Diego UTC submarket).
(3) Represents full-service quoted market rental rates. These rates do not
necessarily represent the amounts at which available space at the Office
Properties will be leased. The weighted average subtotals and total are
based on total net rentable square feet of Company Office Properties in
the submarket.
(4) For Office Properties, represents weighted average rental rates per
square foot quoted by the Company, based on total net rentable square
feet of Company Office Properties in the submarket, adjusted, if
necessary, based on management estimates, to equivalent full-service
quoted rental rates to facilitate comparison to weighted average Class A
or Class B, as the case may be, quoted submarket rental rates per square
foot. These rates do not necessarily represent the amounts at which
available space at the Company's Office Properties will be leased.
(5) Calculated based on base rent payable for Company Office Properties in
the submarket, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursed from tenants, divided
by total net rentable square feet of Company Office Properties in the
submarket.
(6) Leases have been executed at certain Office Properties in these
submarkets but had not commenced as of June 30, 2000. If such leases had
commenced as of June 30, 2000, the percent leased for all Office
Properties in the Company's submarkets would have been 94%. The total
percent leased for these Class A Company submarkets would have been as
follows: Dallas CBD - 86%; Dallas Uptown/Turtle Creek - 93%; Far North
Dallas - 93%; Dallas Las Colinas - 96%; Richardson/Plano - 97%; Houston
West Loop/Galleria - 88%; Denver Cherry Creek 99%; Denver Technology
Center - 100% ; Miami CBD - 84%; Miami South Dade/Kendall - 93%; and
Washington D.C. Georgetown - 100%.
(7) The weighted average full-service rental rate per square foot calculated
based on base rent payable for Company Office Properties, giving effect
to free rent and scheduled rent increases that would be taken into
consideration under GAAP and including adjustments for expenses payable
by or reimbursed from tenants is $21.25.
54
<PAGE> 56
The following table shows, as of June 30, 2000, the principal businesses
conducted by the tenants at the Company's Office Properties, based on
information supplied to the Company from the tenants.
<TABLE>
<CAPTION>
Percent of
Industry Sector Leased Sq. Ft.
------------------------ --------------
<S> <C>
Professional Services (1) 26%
Energy(2) 21
Financial Services (3) 21
Telecommunications 7
Technology 7
Manufacturing 3
Food Service 3
Retail 2
Medical 2
Government 2
Other (4) 6
---
TOTAL LEASED 100%
===
</TABLE>
----------
(1) Includes legal, accounting, engineering, architectural, and advertising
services.
(2) Includes oil and gas and utility companies.
(3) Includes banking, title and insurance, and investment services.
(4) Includes construction, real estate, transportation and other industries.
AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following tables show schedules of lease expirations for leases in
place as of June 30, 2000 for the Company's total Office Properties and for
Dallas and Houston, Texas, individually, for each of the 10 years beginning with
2000, assuming that none of the tenants exercises or has exercised renewal
options.
TOTAL OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES (1) LEASES EXPIRING (1)
------------------ ------------ --------------- -------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
2000 296 1,790,682(2) 6.8% $ 34,541,542 5.9% $ 19.29
2001 363 3,394,356 12.9 66,702,929 11.4 19.65
2002 345 3,453,146 13.1 76,280,407 13.0 22.09
2003 308 2,939,222 11.1 60,136,511 10.3 20.46
2004 258 4,019,636 15.2 89,512,185 15.3 22.27
2005 179 2,893,054 11.0 67,576,015 11.5 23.36
2006 46 1,310,155 5.0 30,850,409 5.3 23.55
2007 52 1,826,780 6.9 42,445,796 7.2 23.24
2008 25 955,942 3.6 25,079,472 4.3 26.24
2009 21 648,855 2.5 17,591,303 3.0 27.11
2010 and thereafter 38 3,134,640 11.9 75,652,878 12.8 24.13
------- ---------- -------- -------------- ------- --------
1,931 26,366,468(3) 100.0% $ 586,369,447 100.0% $ 22.24
======= ========== ======== ============== ======= ========
</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 June 30, 2000, leases have been signed for approximately 1,443,054
net rentable square feet (including renewed leases and leases of
previously unleased space) commencing after June 30, 2000 and on or
before December 31, 2000.
(3) Reconciliation to the Company's total Office Property net rentable area
is as follows:
55
<PAGE> 57
<TABLE>
<CAPTION>
SQUARE PERCENTAGE
FEET OF TOTAL
------------- -----------
<S> <C> <C>
Square footage leased to tenants 26,366,468 90.8%
Square footage reflecting
management offices, building use,
and remeasurement adjustments 253,065 0.9
Square footage vacant 2,430,147 8.3
---------- --------
Total net rentable square footage 29,049,680 100.0%
========== ========
</TABLE>
DALLAS OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES (1) LEASES EXPIRING (1)
------------------- ------------ ------------- ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
2000 85 595,422(2) 6.5% $ 11,587,327 5.4% $ 19.46
2001 95 934,605 10.2 20,111,366 9.4 21.52
2002 84 887,756 9.7 22,862,770 10.7 25.75
2003 86 1,140,420 12.4 24,051,186 11.2 21.09
2004 80 1,058,017 11.5 26,963,890 12.6 25.49
2005 59 1,526,240 16.6 33,753,183 15.8 22.12
2006 17 355,957 3.9 9,604,241 4.5 26.98
2007 16 908,041 9.9 21,580,955 10.1 23.77
2008 9 571,209 6.2 14,386,079 6.7 25.19
2009 8 380,641 4.1 9,542,218 4.5 25.07
2010 and thereafter 9 818,545 9.0 19,555,760 9.1 23.89
--------- --------- ------- ------------ ------- -------
548 9,176,853 100.0% $213,998,975 100.0% $ 23.32
========= ========= ======= ============ ======= =======
</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 June 30, 2000, leases have been signed for approximately 690,652
net rentable square feet (including renewed leases and leases of
previously unleased space) commencing after June 30, 2000 and on or
before December 31, 2000.
56
<PAGE> 58
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 118 583,729(2) 6.0% $ 9,746,904 5.0% $ 16.70
2001 141 1,647,891 16.9 28,682,603 14.7 17.41
2002 150 1,329,850 13.6 25,135,977 12.9 18.90
2003 114 958,406 9.8 17,562,982 9.0 18.33
2004 95 1,856,266 19.0 35,867,463 18.4 19.32
2005 51 425,171 4.4 8,897,309 4.6 20.93
2006 12 638,866 6.5 13,585,299 7.0 21.26
2007 11 593,415 6.1 12,441,240 6.4 20.97
2008 5 183,719 1.9 3,291,186 1.7 17.91
2009 2 48,538 0.5 1,173,280 0.6 24.17
2010 and thereafter 14 1,498,053 15.3 38,786,170 19.7 25.89
------ ---------- ------ ------------ ------ --------
713 9,763,904 100.0% $195,170,413 100.0% $ 19.99
====== ========== ====== ============ ====== ========
</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 June 30, 2000, leases have been signed for approximately 324,805
net rentable square feet (including renewed leases and leases of
previously unleased space) commencing after June 30, 2000 and on or
before December 31, 2000.
RETAIL PROPERTIES
As of June 30, 2000, the Company owned three Retail Properties, which in
the aggregate contain approximately 421,000 net rentable square feet. Two of the
Retail Properties, Las Colinas Plaza, with approximately 135,000 net rentable
square feet, and The Crescent Atrium with approximately 95,000 net rentable
square feet, are located in submarkets of Dallas, Texas. The remaining Retail
Property, The Park Shops at Houston Center, with an aggregate of approximately
191,000 net rentable square feet, is located in the CBD submarket of Houston,
Texas. As of June 30, 2000, the Retail Properties were 91% leased.
On January 5, 2000, the sale of the Company's four Retail Properties
located in The Woodlands, a master-planned development located 27 miles north of
downtown Houston, Texas, was completed.
57
<PAGE> 59
HOTEL PROPERTIES
HOTEL PROPERTIES TABLES
The following table shows certain information for the six months ended
June 30, 2000 and 1999, about the Company's Hotel Properties. The information
for the Hotel Properties is based on available rooms, except for Canyon
Ranch-Tucson and Canyon Ranch-Lenox, which are destination fitness resorts and
spas that measure their performance based on available guest nights.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------------------------
REVENUE
AVERAGE AVERAGE PER
OCCUPANCY DAILY AVAILABLE
YEAR RATE RATE ROOM/GUEST
COMPLETED/ ----------------- --------------- ---------------
HOTEL PROPERTY(1) LOCATION RENOVATED ROOMS 2000 1999 2000 1999 2000 1999
----------------- -------- --------- ----- ------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Denver Marriott City Center Denver, CO 1982/1994 613 84% 77% $ 119 $ 123 $ 100 $ 95
Four Seasons Hotel-Houston(2) Houston, TX 1982 399 72 66 207 196 149 128
Hyatt Regency Albuquerque Albuquerque, NM 1990 395 70 71 105 106 74 75
Omni Austin Hotel Austin, TX 1986 372 84 82 135 127 113 104
Renaissance Houston Hotel(3) Houston, TX 1975 389 68 65 98 97 67 63
-------- ------ ------- ------ ------ ------ ------
TOTAL/WEIGHTED AVERAGE 2,168 76% 72% $ 132 $ 129 $ 101 $ 94
======== ====== ======= ====== ====== ====== ======
LUXURY SPA RESORTS:
Hyatt Regency Beaver Creek Avon, CO 1989 276 68% 70% $ 318 $ 296 $ 217 $ 207
Sonoma Mission Inn & Spa(4) Sonoma, CA 1927/1987/1997 228 73 79 287 196(4) 211 155(4)
Ventana Inn & Spa Big Sur, CA 1975/1982/1988 62 74 77 428 329 314 254
-------- ------ ------- ------ ------ ------ ------
TOTAL/WEIGHTED AVERAGE 566 71% 74% $ 319 $ 263 $ 226 $ 195
======== ====== ======= ====== ====== ====== ======
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 88%(6) 89%(6)$ 587(7)$ 537(7)$ 503(8)$ 464(8)
======== ====== ======= ====== ====== ====== ======
GRAND TOTAL/WEIGHTED AVERAGE FOR HOTEL PROPERTIES 77% 75% $ 239 $ 224 $ 183 $ 167
====== ======= ====== ====== ====== ======
</TABLE>
----------
(1) Because of the Company's status as a REIT for federal income tax purposes,
it does not operate the Hotel Properties and has leased all of the Hotel
Properties, except the Omni Austin Hotel, to COPI pursuant to long term
leases. As of June 30, 2000, the Omni Austin Hotel is leased pursuant to a
separate long term lease, to HCD Austin Corporation.
(2) The hotel is undergoing a $5.0 million renovation of all guest rooms
scheduled to be completed by the end of the third quarter of 2000.
(3) The hotel is undergoing an estimated $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 was completed in the second quarter of 2000. The
expansion also included 30 additional guest rooms. Rates were discounted
during the construction period which resulted in a lower average daily rate
and revenue per available room for the six months ended June 30, 1999 as
compared to June 30, 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, which is the
maximum number of guests that the resort can accommodate per night, 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.
58
<PAGE> 60
RESIDENTIAL DEVELOPMENT PROPERTIES
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table shows certain information as of June 30, 2000, relating to
the Residential Development Properties.
<TABLE>
<CAPTION>
TOTAL
RESIDENTIAL RESIDENTIAL TOTAL LOTS/UNITS
RESIDENTIAL DEVELOPMENT DEVELOPMENT LOTS/ DEVELOPED
DEVELOPMENT PROPERTIES TYPE OF CORPORATION'S UNITS SINCE
CORPORATION(1) (RDP) RDP(2) LOCATION OWNERSHIP % PLANNED INCEPTION
--------------- --------- ------ -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ
Development 93.0% 2,665 2,256
Corp. -------- ---------
The Woodlands The Woodlands SF The Woodlands, TX
Land Company, 42.5% 36,385 22,856
Inc. -------- ---------
Crescent Deer Trail SFH Avon, CO 60.0% 16(6) 15
Development Bear Paw Lodge CO Avon, CO 60.0% 53(6) 11
Management QuarterMoon TH Avon, CO 64.0% 13(6) -
Corp. Eagle Ranch SF Eagle, CO 60.0% 1,260(6) 135
Main Street
Junction CO Breckenridge, CO 60.0% 36(6) 36
Main Street
Station CO Breckenridge, CO 60.0% 82(6) -
Riverbend SF Charlotte, NC 60.0% 650(6) -
Three Peaks
(Eagle's Nest) SF Silverthorne, CO 30.0% 391(6) 102
Park Place at
Riverfront CO Denver, CO 64.0% 71(6) -
Park Tower at
Riverfront CO Denver, CO 64.0% 58(6) -
Bridge Lofts
at Riverfront CO Denver, CO 64.0% 53(6) -
Cresta TH/SFH Edwards, CO 60.0% 25(6) -
Snow Cloud CO Avon, CO 60.0% 53(6) -
--------- ---------
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP. 2,761 299
--------- ---------
Mira Vista Mira Vista SF Fort Worth, TX 100.0% 740 740
Development The Highlands SF Breckenridge, CO 12.3% 750 340
Corp. --------- ---------
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,490 1,080
--------- ---------
Houston Area Falcon Point SF Houston, TX 100.0% 1,205 688
Development Spring Lakes SF Houston, TX 100.0% 536 161
Corp. --------- ---------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,741 849
--------- ---------
TOTAL 45,042 27,340
========= =========
</TABLE>
<TABLE>
<CAPTION>
TOTAL AVERAGE
RESIDENTIAL LOTS/UNITS CLOSED RANGE OF
RESIDENTIAL DEVELOPMENT CLOSED SALE PRICE PROPOSED
DEVELOPMENT PROPERTIES TYPE OF SINCE PER LOT/ SALE PRICES
CORPORATION(1) (RDP) RDP(2) LOCATION INCEPTION UNIT ($)(3) PER LOT/UNIT ($)(4)
--------------- ----------- ------ -------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ
Development 2,078 463,000 400,000 - 3,000,000(5)
Corp. ---------
The Woodlands The Woodlands SF The Woodlands, TX
Land Company, 21,733 48,000 13,600 - 500,000
Inc. ---------
Crescent Deer Trail SFH Avon, CO 15 2,930,000 2,695,000 - 4,075,000
Development Bear Paw Lodge CO Avon, CO 11 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 105 111,500 80,000 - 150,000
Main Street
Junction CO Breckenridge, CO 19 475,000 300,000 - 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 81 220,000 135,000 - 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
Snow Cloud CO Avon, CO - N/A 840,000 - 4,545,000
---------
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP. 231
---------
Mira Vista Mira Vista SF Fort Worth, TX 647 100,000 50,000 - 265,000
Development The Highlands SF Breckenridge, CO 336 156,000 55,000 - 450,000
Corp. ---------
TOTAL MIRA VISTA DEVELOPMENT CORP. 983
---------
Houston Area Falcon Point SF Houston, TX 588 39,000 22,000 - 60,000
Development Spring Lakes SF Houston, TX 164 28,000 22,000 - 33,000
Corp. ---------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 752
---------
TOTAL 25,777
=========
</TABLE>
----------
(1) The Company has an approximately 95%, 95%, 90%, 94% and 94%, ownership
interest in Desert Mountain Development Corp., The Woodlands Land Company,
Inc., Crescent Development Management Corp., Mira Vista Development Corp.,
and Houston Area Development Corp., respectively, through ownership of
non-voting common stock in each of these Residential Development
Corporations.
(2) SF (Single-Family Lots); CO (Condominium); TH (Townhome); and SFH (Single
Family Homes).
(3) Based on lots/units closed during the Company's ownership period.
(4) Based on existing inventory of developed lots and lots to be developed.
(5) Includes golf membership, which as of June 30, 2000 is $175,000. Effective
July 1, 2000 the golf membership was increased to $225,000.
(6) As of June 30, 2000, one units were under contract at Deer Trail
representing $4.0 million in sales; 34 units were under contract at Bear
Paw Lodge representing $47.1 million in sales; 13 units were under contract
at QuarterMoon representing $29.8 million in sales; 97 lots were under
contract at Eagle Ranch representing $13.9 million in sales; one unit was
under contract at Main Street Junction representing $0.4 million in sales;
82 units were under contract at Main Street Station representing $40.9
million in sales; 117 lots were under contract at Riverbend representing
$3.5 million in sales; 20 lots were under contract at Three Peaks
representing $4.9 million in sales; 66 units were under contract at Park
Place representing $26.5 million in sales; 26 units were under contract at
Park Tower representing $16.5 million in sales; 35 units were under
contract at the Bridge Lofts at Riverfront representing $13.0 million in
sales; nine units were under contract at Cresta representing $15.3 million
in sales and 20 units were under contract at Snow Cloud representing $35.0
million in sales.
59
<PAGE> 61
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 June 30, 2000:
<TABLE>
<CAPTION>
TOTAL CUBIC TOTAL
NUMBER OF FOOTAGE SQUARE FEET
STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS)
----- ------------- ------------- -------------
<S> <C> <C> <C>
Alabama 4 9.4 0.3
Arizona 1 2.9 0.1
Arkansas 6 33.1 1.0
California 9 28.6 1.1
Colorado 2 3.4 0.1
Florida 5 7.5 0.3
Georgia 7 44.5 1.6
Idaho 2 18.7 0.8
Illinois 2 11.6 0.4
Indiana 1 9.1 0.3
Iowa 2 12.5 0.5
Kansas 2 5.0 0.2
Kentucky 1 2.7 0.1
Maine 1 1.8 0.2
Massachusetts 6 15.2 0.7
Mississippi 1 4.7 0.2
Missouri(2) 2 48.8 2.8
Nebraska 2 4.4 0.2
New York 1 11.8 0.4
North Carolina 3 8.5 0.3
Ohio 1 5.7 0.2
Oklahoma 2 2.1 0.1
Oregon 6 40.4 1.7
Pennsylvania 2 27.4 0.9
South Carolina 1 1.6 0.1
South Dakota 1 2.9 0.1
Tennessee 3 10.6 0.4
Texas 2 6.6 0.2
Utah 1 8.6 0.4
Virginia 2 8.7 0.3
Washington 6 28.7 1.1
Wisconsin 3 17.4 0.7
------------- ------------- -------------
TOTAL 90(3) 444.9(3) 17.8(3)
============= ============= =============
</TABLE>
----------
(1) As of June 30, 2000, the Company held an indirect 39.6% interest in the
Temperature-Controlled Logistics Partnerships, which own the
Temperature-Controlled Logistics Corporations, which directly or indirectly
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 June 30, 2000, AmeriCold Logistics operated 104
temperature-controlled logistics properties with an aggregate of
approximately 533.0 million cubic feet (20.6 million square feet).
60
<PAGE> 62
BEHAVIORAL HEALTHCARE PROPERTIES
BEHAVIORAL HEALTHCARE PROPERTIES
As of December 31, 1999, the Company owned 88 behavioral healthcare
properties, all of which were leased by the Company to CBHS under a master
lease. CBHS's business has been negatively affected by many factors, including
adverse industry conditions, and on February 16, 2000, CBHS and all of its
subsidiaries that were subject to the master lease with the Company filed
voluntary Chapter 11 bankruptcy petitions in the United States Bankruptcy Court
for the District of Delaware.
The Company sold 18 behavioral healthcare properties during the six
months ended June 30, 2000, generating approximately $11.3 million and $49.6
million in net proceeds, during the three and six months ended June 30, 2000,
respectively.
As of June 30, 2000, the Behavioral Healthcare Segment consisted of 70
Behavioral Healthcare Properties in 22 states. CBHS was continuing to operate
the 37 Core Properties and had ceased operations at the 33 Non-Core Properties
as of June 30, 2000. CBHS intends to cease operations at all of the Core
Properties, either in connection with a sale of operating assets or by closing
Core Properties. The Company intends to sell all of the Behavioral Healthcare
Properties.
Subsequent to June 30, 2000, the Company sold three Core Properties and
two Non-Core Properties. The Company also has entered into contracts or letters
of intent to sell 26 additional Core Properties and nine additional Non-Core
Properties and is actively marketing for sale the remaining eight Core
Properties and 22 Non-Core Properties.
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, 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 $2.4 billion at June 30, 2000, of which
approximately $0.5 billion, or 21%, was unhedged variable-rate debt. The
weighted average interest rate on such variable-rate debt was 9.13% as of June
30, 2000. A 10% (91.3 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 $4.7 million based on the unhedged variable-rate
debt outstanding as of June 30, 2000, as a result of the increased interest
expense associated with the change in rate. Conversely, a 10% (91.3 basis point)
decrease in the weighted average interest rate on such unhedged variable-rate
debt would result in an annual increase in net income and cash flows of
approximately $4.7 million based on the variable rate debt outstanding as of
June 30, 2000, as a result of the decreased interest expense associated with the
change in rate.
61
<PAGE> 63
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 in the event that the Company elects to settle in cash. At June 30,
2000, approximately $31.9 million of the Company's $101.0 million obligation
under the Share Repurchase Agreement was outstanding. The Company fulfilled its
settlement obligation on July 5, 2000, and has no further obligation under the
Share Repurchase Agreement.
MARKET PRICE RISK
The Share Repurchase Agreement is subject to market price risk because
changes in the closing share price for the Company's common shares affect the
Company's settlement obligation, in the event the Company elects to settle in
common shares. At June 30, 2000, approximately $31.9 million of the Company's
$101.0 million obligation under the Share Repurchase Agreement was outstanding.
The Company fulfilled its settlement obligation on July 5, 2000, and has no
further obligation under the Share Repurchase Agreement.
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
(a) The annual meeting of shareholders of the Company was held on June
12, 2000.
(b) Proxies for the meeting were solicited pursuant to Section 14(a)
of the Securities and Exchange Act of 1934, as amended, and the
regulations promulgated thereunder. There was no solicitation in
opposition to management's solicitations. All of management's
nominees for Trust Manager were elected.
(c) Two proposals were submitted to a vote of shareholders as follows:
(1) The shareholders approved the election of the following
persons as Trust Managers of the Company:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Richard E. Rainwater 108,463,859 1,079,815
Anthony M. Frank 108,455,906 1,087,368
William F. Quinn 108,480,959 1,062,315
</TABLE>
(2) The shareholders approved, with 109,186,978 affirmative
votes, 229,526 negative votes, 126,869 abstentions, and no
broker non-votes, the proposal to approve the appointment
of Arthur Andersen LLP as the independent auditors of the
Company for the fiscal year ending December 31, 2000.
62
<PAGE> 64
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 and incorporated
herein by reference)
4.01 Form of Common Share Certificate (filed as Exhibit No. 4.03
to the 1997 S-3 and incorporated herein by reference)
4.02 Statement of Designation of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate
Equities Company (filed as Exhibit 4.07 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "1997 10-K") and incorporated herein
by reference)
4.03 Form of Certificate of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate
Equities Company (filed as Exhibit No. 4 to the
Registrant's Registration Statement on Form 8-A/A filed on
February 18, 1998 and incorporated by reference)
4.04 Indenture, dated as of September 22, 1997, between Crescent
Real Estate Equities Limited Partnership and State Street
Bank and Trust Company of Missouri, N.A. (filed as Exhibit
No. 4.01 to the Registration Statement on Form S-4 (File
No. 333-42293) of Crescent Real Estate Equities Limited
Partnership (the "Form S-4") and incorporated herein by
reference)
4.05 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 (the "1998 2Q 10-Q") and incorporated
herein by reference)
4.06 7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to the 1998
2Q 10-Q and incorporated herein by reference)
4.07 Amended and Restated Secured Loan Agreement, dated as of
May 10, 2000, among Crescent Real Estate Funding VIII, L.P.
and UBS AG, Stamford Branch, as amended (filed herewith as
Exhibit No. 10.12 and incorporated herein by reference)
4* Pursuant to Regulation S-K Item 601 (b) (4) (iii), the
Registrant by this filing agrees, upon request, to furnish
to the SEC a copy of other instruments defining the rights
of holders of long-term debt of the Registrant
63
<PAGE> 65
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
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, 1999
(the "1999 10-K") and incorporated herein by reference)
10.02 Noncompetition Agreement of Richard E. Rainwater, as
assigned to Crescent Real Estate Equities Limited
Partnership on May 5, 1994 (filed as Exhibit 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 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 Amended and Restated Secured Loan Agreement, dated as of
May 10, 2000, among Crescent Real Estate Funding VIII, L.P.
and UBS AG, Stamford Branch, as amended (filed herewith)
10.13 Intercompany Agreement, dated June 3, 1997, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc. (filed as Exhibit
64
<PAGE> 66
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.2 to the Registration Statement on Form S-1 (File No.
333-25223) of Crescent Operating, Inc. and incorporated
herein by reference)
10.14 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.
65
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRESCENT REAL ESTATE EQUITIES COMPANY
(Registrant)
By /s/ John C. Goff
-------------------------------------
John C. Goff
Vice Chairman of the Board and Chief
Executive Officer
Date: August 11, 2000
By /s/ Jerry R. Crenshaw
-------------------------------------
Jerry R. Crenshaw
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
Date: August 11, 2000
66
<PAGE> 68
INDEX TO EXHIBITS
<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 and incorporated
herein by reference)
4.01 Form of Common Share Certificate (filed as Exhibit No. 4.03
to the 1997 S-3 and incorporated herein by reference)
4.02 Statement of Designation of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate
Equities Company (filed as Exhibit 4.07 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "1997 10-K") and incorporated herein
by reference)
4.03 Form of Certificate of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate
Equities Company (filed as Exhibit No. 4 to the
Registrant's Registration Statement on Form 8-A/A filed on
February 18, 1998 and incorporated by reference)
4.04 Indenture, dated as of September 22, 1997, between Crescent
Real Estate Equities Limited Partnership and State Street
Bank and Trust Company of Missouri, N.A. (filed as Exhibit
No. 4.01 to the Registration Statement on Form S-4 (File
No. 333-42293) of Crescent Real Estate Equities Limited
Partnership (the "Form S-4") and incorporated herein by
reference)
4.05 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 (the "1998 2Q 10-Q") and incorporated
herein by reference)
4.06 7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to the 1998
2Q 10-Q and incorporated herein by reference)
4.07 Amended and Restated Secured Loan Agreement, dated as of
May 10, 2000, among Crescent Real Estate Funding VIII, L.P.
and UBS AG, Stamford Branch, as amended (filed herewith as
Exhibit No. 10.12 and incorporated herein by reference)
4* Pursuant to Regulation S-K Item 601 (b) (4) (iii), the
Registrant by this filing agrees, upon request, to furnish
to the SEC a copy of other instruments defining the rights
of holders of long-term debt of the Registrant
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
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, 1999
(the "1999 10-K") and incorporated herein by reference)
10.02 Noncompetition Agreement of Richard E. Rainwater, as
assigned to Crescent Real Estate Equities Limited
Partnership on May 5, 1994 (filed as Exhibit 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 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 Amended and Restated Secured Loan Agreement, dated as of
May 10, 2000, among Crescent Real Estate Funding VIII, L.P.
and UBS AG, Stamford Branch, as amended (filed herewith)
10.13 Intercompany Agreement, dated June 3, 1997, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc. (filed as Exhibit
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.2 to the Registration Statement on Form S-1 (File No.
333-25223) of Crescent Operating, Inc. and incorporated
herein by reference)
10.14 Form of Registration Rights, Lock-Up and Pledge Agreement
(filed as Exhibit No. 10.05 to the Form S-11 and
incorporated herein by reference)
27.01 Financial Data Schedule (filed herewith)
</TABLE>
