-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GdpgRyXSxq+Q+b+XqpOsoNT6Dr03I1lDkogehYOPEWLuDQRKKgygfrl9S/VZVxRR KqpkpidvW2dq4O/ZUFbBHw== 0000950134-96-004793.txt : 19960912 0000950134-96-004793.hdr.sgml : 19960912 ACCESSION NUMBER: 0000950134-96-004793 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960815 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960911 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRESCENT REAL ESTATE EQUITIES INC CENTRAL INDEX KEY: 0000918958 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 521862813 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13038 FILM NUMBER: 96628836 BUSINESS ADDRESS: STREET 1: 900 THRID AVENUE STREET 2: SUITE 1800 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2128364216 MAIL ADDRESS: STREET 1: 777 MAIN STREET STREET 2: SUITE 2100 CITY: FT WORTH STATE: TX ZIP: 76102 8-K 1 FORM 8-K DATED AUGUST 15, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): August 15, 1996 CRESCENT REAL ESTATE EQUITIES, INC. ( Exact name of Registrant as specified in its Charter) Maryland 1-13038 52-1862813 (State of Incorporation) (Commission File Number) (IRS Employer Identification Number) 900 Third Avenue, Suite 1800 New York, New York 10022 (Address of Principal Executive Offices) (Zip Code) (212) 836-4216 (Registrant's telephone number, including area code) 2 ITEM 5. OTHER EVENTS GREENWAY PLAZA PORTFOLIO. On August 15, 1996, Crescent Real Estate Equities, Inc. (collectively with its subsidiaries, "the Company"), signed a contract to purchase from unaffiliated entities 10 suburban office properties totaling 4.3 million net rentable square feet ("Greenway Plaza Office Portfolio"), a 389-room full service hotel, a private health and dining club, a central plant which provides heated and chilled water to both the Greenway Plaza Office Portfolio and third parties, and six parking garages (collectively with the Greenway Plaza Office Portfolio, hereinafter referred to as the "Greenway Plaza Portfolio") located in Houston, Texas. Located on 50.3 acres, the Greenway Plaza Office Portfolio consists of 2.0 million net rentable square feet of Class A and 2.3 million net rentable square feet of Class B office space. The office buildings were constructed between 1969 and 1982 and range in size from 150,000 to 880,000 net rentable square feet. Structured parking accommodates approximately 11,500 cars. The Greenway Plaza Portfolio is situated between Houston's two major business centers, the Central Business District and the West Loop 610/Galleria areas, in the Richmond-Buffalo Speedway submarket. The Greenway Plaza Portfolio will be owned in fee simple along with the rights appurtenant and related to this portfolio. This acquisition is expected to close in October 1996, subject to completion of due diligence and to customary closing conditions. The aggregate cost of the acquisition of the Greenway Plaza Portfolio is approximately $206 million. The Company will assume $115 million of nonrecourse indebtedness and finance the balance through the issuance of approximately $25 million of shares of common stock in an amount based on the market price at the time of the closing (approximately 612,000 shares of common stock based on a $40.875 stock price as of September 5, 1996). The remaining $66 million will be financed through the Company's $175 million acquisition credit facility led by the First National Bank of Boston (the "Credit Facility"), other short-term borrowings or proceeds of an equity offering. The Company intends to file a prospectus supplement to its Registration Statement on Form S-3, effective June 18, 1996, relating to a proposed offering of up to 5.5 million shares of its Common Stock. It is anticipated that, if the offering is completed, the proceeds will be used to partially fund the cash portion of the Greenway Plaza Portfolio purchase price. The maturity date of the Credit Facility and short-term borrowings is March 1999 and October 1996, respectively, and both bear interest at Eurodollar rate plus 240 basis points. The $115 million nonrecourse loan with Asset Securitization Corporation ("Nomura Loan") is secured by the Greenway Plaza Portfolio. The loan bears interest at 30-day LIBOR rate plus an average rate of 2.135% per annum (7.60% at August 31, 1996) (pursuant to a rate cap agreement which caps the overall interest rate at 10% through the maturity date), and has a term during which only interest is payable, with a final payment of $115 million due at maturity in July 1999. The loan may be prepaid in whole or in part subject to certain prepayment conditions. Management believes that the Greenway Plaza Portfolio is suitable and adequate for continued use as Class A and B office properties, full service hotel, health and dining club, central plant and parking garages and is adequately covered by insurance. The Greenway Plaza Office Portfolio was 72% leased as of June 30, 1996, (94% of the Class A office space and 53% of the Class B office space) with a weighted average base rental rate per square foot of $12.65 ($13.36 for Class A office space and $11.52 for Class B office space). The hotel and club are under triple-net lease arrangements with unaffiliated third parties. The Greenway Plaza Office Portfolio is leased to more than 280 tenants, the major tenants having principal businesses in the industry sectors of energy service, investment management and natural gas. One tenant in the Greenway Plaza Office Portfolio, The Coastal Corporation ("Coastal"), an energy service company, leases over 10% of the net rentable square footage. As of June 30, 1996, Coastal leased approximately 641,000 net rentable square feet (approximately 15.1% of the net rentable square footage of the Greenway Plaza Office Portfolio) pursuant to leases that expire in June 2010 and December 2014. The current base rental rate per square foot for approximately 617,000 net rentable square feet is $13.50, and thereafter increases periodically during the lease term up to $28.00 in January 2006 where it remains in effect until December 2014. This lease provides for two 5 year renewal options at the then-prevailing market rental rates. The current base rental rate per square foot for approximately 24,000 net rentable square feet is $13.50, and thereafter increases periodically during the lease term up to $19.00 in July 2005 where it remains in effect until June 2010. This lease provides for one 4.5 year renewal, and two 5 year renewal options at the then-prevailing market rental rates. 2 3 The Richmond-Buffalo Speedway submarket consists of 10.4 million square feet of office space, of which 3.9 million square feet is Class A space and 3.7 million square feet is Class B space. As of June 30, 1996, Class A and Class B suburban office occupancies in the Richmond-Buffalo Speedway submarket were 95% and 68%, respectively, and average quoted market rental rates were $13.37 and $12.62 per square foot, respectively. Upon completion of this acquisition, the aggregate tax basis of depreciable real property and improvements and personal property of the Greenway Plaza Portfolio for federal income tax purposes will be approximately $206 million. Depreciation and amortization are computed for federal income tax purposes using straight line methods over lives which range from 15 to 39 years for the real property and improvements, and 5 to 7 years for the personal property. The 1995 realty tax rate for real property was $2.73 per $100 of the $214 million assessed value. The total amount of tax at this rate for 1995 was approximately $5.8 million of which $.3 million was attributable to the hotel and club pursuant to their triple-net lease arrangements. For the year ended December 31, 1995 and the five months ended May 31, 1996, utility expense was approximately $6.8 million and $2.9 million, respectively, and expenses for repairs, maintenance and contract services were approximately $5.2 million and $2.8 million, respectively. The Company is currently evaluating the nature, extent and timing of capital improvements that the Greenway Plaza Portfolio will require during the next 10 years. Major projects identified consist of renovation of the central plant and building and lobby renovations in two of the office buildings. Management believes a portion of these expenditures will be recovered from the tenants. In addition, certain of the office buildings, the garages and the hotel in the Greenway Plaza Portfolio contain asbestos. Based on third-party asbestos abatement reports, however, the Company does not believe that abatement costs or other costs associated with asbestos clean-up in these buildings will have a material adverse impact on the Company's business, financial condition or results of operations. Management anticipates that a significant portion of these expenditures will be incurred only upon leasing of currently vacant space or re-leasing or renovation of occupied space. The following chart sets forth the Greenway Plaza Office Portfolio year-end occupancy and average rent per leased square foot (excluding storage space) for the five years ended December 31, 1995, and for the six months ended June 30, 1996.
YEAR OCCUPANCY AVERAGE RENT(1) ---- --------- ------------ 1991 81.9% $11.62 1992 84.1 12.14 1993 83.9 12.39 1994 83.7 12.71 1995 77.7 13.10 6/30/96 71.5 13.24
(1) Represents annual base rental revenues (excluding scheduled rent increases and free rent that would be taken into account under generally accepted accounting principles) divided by average occupancy in square footage for the year. 3 4 The following table sets forth a schedule of the Greenway Plaza Office Portfolio lease expirations for leases in place as of June 30, 1996, for each of the 10 years beginning with the remainder of 1996 (July 1996 through December 1996), assuming that none of the tenants exercises renewal options.
PERCENTAGE PERCENTAGE OF NET RENTABLE OF LEASED TOTAL ANNUAL ANNUAL BASE NUMBER OF AREA SUBJECT TO NET RENTABLE ANNUAL BASE BASE RENT RENT PER SQ. TENANTS WITH EXPIRING LEASES AREA SUBJECT RENT UNDER REPRESENTED FT. FOR EXPIRING (SQUARE TO EXPIRING EXPIRING BY EXPIRING EXPIRING YEAR OF LEASE EXPIRATION LEASES FEET)(1) LEASES LEASES(2) LEASES LEASES - ------------------------------------------------------------------------------------------------------------------------ 1996 44 134,579 4.4% $1,348,455 2.5% $10.02 1997 61 268,373 8.8 3,566,713 6.7 13.29 1998 49 292,174 9.5 3,971,527 7.5 13.59 1999 42 378,976 12.4 5,008,380 9.4 13.22 2000 28 251,639 8.2 3,372,221 6.4 13.40 2001 19 147,501 4.8 2,120,725 4.0 14.38 2002 16 192,136 6.3 3,057,212 5.8 15.91 2003 15 438,696 14.3 7,032,904 13.3 16.03 2004 1 1,458 0.1 32,805 .1 22.50 2005 3 31,972 1.0 444,132 .8 13.89 2006 and thereafter 4 925,061 30.2 23,068,874 43.5 24.94
- -------------------- (1) Excludes an aggregate of 1,194,320 square feet of unleased space as of June 30, 1996. (2) Annual base rent (excluding increases in rent and free rent that would be taken into account under generally accepted accounting principles) for net rentable area expiring. The pro forma financial information reflects the pending acquisition of the Greenway Plaza Portfolio in addition to the Company's anticipated 5.5 million share common stock offering. 4 5 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (A) FINANCIAL STATEMENTS UNDER RULE 3-14 OF REGULATION S-X GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD. Report of Independent Certified Public Accountants. Combined Statement of Excess of Revenues Over Specific Operating Expenses for the Year Ended December 31, 1995. Notes to Statement. GREENWAY PLAZA Report of Independent Public Accountants. Combined Statement of Excess of Revenues Over Specific Operating Expenses for the Five Months Ended May 31, 1996. Notes to Statement. (B) PRO FORMA FINANCIAL INFORMATION Pro Forma Consolidated Balance Sheet as of June 30, 1996 (unaudited) and notes thereto. Pro Forma Consolidated Statements of Operations for the six months ended June 30, 1996 (unaudited) and the Year Ended December 31, 1995 (unaudited) and notes thereto. (C) EXHIBITS The following is a list of all exhibits filed as a part of this Form 8-K.
Exhibit No. Description of Exhibit - ----------- ---------------------- 23.01 Consent of Arthur Andersen, LLP, Independent Public Accountants, dated September 11, 1996 (filed herewith). 23.02 Consent of Grant Thornton LLP, Independent Certified Public Accountants, dated September 11, 1996 (filed herewith).
5 6 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: September 10, 1996 CRESCENT REAL ESTATE EQUITIES, INC. By: /s/ Dallas E. Lucas ----------------------------------- Dallas E. Lucas Senior Vice President and Chief Financial Officer 7 INDEX TO FINANCIAL STATEMENTS
PAGE ---- GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD. Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . F-2 Combined Statement of Excess of Revenues Over Specific Operating Expenses for the Year Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Notes to Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 GREENWAY PLAZA Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . F-10 Combined Statement of Excess of Revenues Over Specific Operating Expenses for the Five Months Ended May 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . F-11 Notes to Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12 PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) Pro Forma Consolidated Balance Sheet as of June 30, 1996 and notes thereto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16 Pro Forma Consolidated Statements of Operations for the six months ended June 30, 1996 and the Year Ended December 31, 1995 and notes thereto . . . . . . . . . . . . F-19
8 COMBINED STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD. FOR THE YEAR ENDED DECEMBER 31, 1995 F-1 9 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the members of the Partnerships Greenway Plaza, Ltd. and Nine Greenway, Ltd. We have audited the accompanying combined statement of excess of revenues over specific operating expenses (as defined in Note B) of Greenway Plaza, Ltd. and Nine Greenway, Ltd.(Texas limited partnerships) (the Property) for the year ended December 31, 1995. This statement is the responsibility of the Property's management. Our responsibility is to express an opinion on this statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion. F-2 10 In our opinion, the statement referred to above presents fairly, in all material respects, the combined excess of revenues over specific operating expenses (as defined in Note B) of Greenway Plaza, Ltd. and Nine Greenway, Ltd. for the year ended December 31, 1995, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Houston, Texas February 9, 1996 F-3 11 GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD. COMBINED STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES Year ended December 31, 1995 REVENUES Office $50,177,101 Parking 4,723,571 Utilities 1,813,970 Recoveries 1,693,202 Other 879,467 ----------- 59,287,311 SPECIFIC OPERATING EXPENSES Real estate taxes 5,538,010 Utilities 6,758,581 Repairs, maintenance, and contract services 5,198,670 Salaries 3,951,503 General and administrative 2,907,197 Management fees 1,426,846 Insurance 601,919 ----------- 26,382,726 ----------- EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES $32,904,585 ===========
The accompanying notes are an integral part of this statement. F-4 12 GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD. NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES Year ended December 31, 1995 NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES 1. DESCRIPTION OF PROPERTY Greenway Plaza (the "Property"), an office and retail project located in Houston, Texas, is owned by two separate partnerships, Greenway Plaza, Ltd. and Nine Greenway, Ltd. Greenway Plaza, Ltd. owns Phase I of Greenway Plaza (Phase I), which consists of six office towers containing approximately 2.2 million rentable square feet, four adjacent parking garages with approximately 6,500 parking spaces, a central plant facility, approximately 99,000 rentable square feet of retail space, and a 389 room hotel. Phase I, including the land on which the buildings, garages, central plant, hotel, and retail space are located, is owned fee simple. Nine Greenway, Ltd. owns Phase II of Greenway Plaza (Phase II) which is comprised of four office towers containing approximately 2.0 million rentable square feet and two adjacent parking garages with approximately 5,000 parking spaces. Phase II, including the land on which the buildings and garages are located, is owned fee simple. 2. PRINCIPLES OF COMBINATION The combined financial statements include the accounts of Greenway Plaza, Ltd. and Nine Greenway, Ltd. and have been presented on a combined basis because of the affiliated ownership and management, and because of the proposed sale of the Property to Crescent Real Estate Equities Limited Partnership. All significant intercompany transactions have been eliminated. 3. RENTAL INCOME In connection with obtaining certain tenants under long-term leases, the Partnership grants rent concessions. The aggregate rental payments due over the terms of the leases are recognized as rental income on a straight-line basis over the full term of the leases, including the periods of rent concessions. 4. RECOVERIES A portion of the operating expenses is charged back to tenants on a monthly basis based upon estimated expenses. These charges are adjusted at year-end, based upon actual expenses. F-5 13 GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD. NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES - CONTINUED Year ended December 31, 1995 NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 5. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE B - BASIS OF ACCOUNTING The accompanying combined statement of excess of revenues over specific operating expenses is presented on the accrual basis of accounting. This statement is not intended to be a complete presentation of revenues and operating expenses for the year ended December 31, 1995, as certain revenues and expenses such as interest, depreciation and amortization, and partnership administrative expenses have been excluded since they are not comparable to the proposed future operations of the Property. NOTE C - PROPERTY MANAGEMENT The Partnerships entered into management agreements with Senterra Development Corporation (the "Manager") in November 1989. The agreements with the Manager require a management fee of 3% of gross revenues collected, as defined, subject to certain maximums. Total management fees for the year ended December 31, 1995 were $1,426,846. The management agreement shall continue until it is terminated. The agreement can be terminated by the Partnerships on 30 days written notice and can be terminated by the Manager on 60 days written notice. If terminated, the management fees must be paid through the month in which the Manager's service will extend. NOTE D - SIGNIFICANT TENANTS The property has one tenant that occupies approximately 641,000 square feet or 15% of the total leasable square footage. This lease expires in December 2014. F-6 14 GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD. NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES - CONTINUED Year ended December 31, 1995 NOTE E - RELATED PARTY TRANSACTIONS Approximate revenue and expenses from related parties were as follows for the year ended December 31, 1995: Rental income $ 211,000 Legal fees $ 142,000 Management fees 1,426,000 Marketing fees 909,000 Tenant construction and other 373,000
NOTE F - FUTURE RENTALS The following is a schedule by years of minimum future rents receivable on noncancelable operating leases as of December 31, 1995.
Year ending December 31, Amount ------------ ------------ 1996 $ 40,063,000 1997 36,739,000 1998 34,082,000 1999 31,155,000 2000 29,259,000 Later years 262,193,000 ------------ $433,491,000 ============
NOTE G - SUBSEQUENT EVENT On April 19, 1996, the owners of Greenway Plaza, Ltd. and Nine Greenway, Ltd. approved a non-binding letter of intent to sell their interests (including equity, debt and accrued interest) in the Property to an unaffiliated third party. The expected sales price is approximately $206,000,000. F-7 15 GREENWAY PLAZA, LTD. AND NINE GREENWAY, LTD. NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES - CONTINUED Year ended December 31, 1995 NOTE H - EXCESS REVENUES OVER SPECIFIC OPERATING EXPENSES The combining statement of excess revenues over specific operating expenses for the year ended December 31, 1995 follows:
Nine Greenway Greenway, Ltd. Plaza, Ltd. Elimination Combined -------------- ----------- ----------- ----------- Revenues Office $29,673,077 $20,504,024 $ - $50,177,101 Parking 2,730,520 1,993,051 - 4,723,571 Utilities 43,985 4,969,878 (3,199,893) 1,813,970 Escalations 897,526 795,676 - 1,693,202 Other 763,406 116,061 - 879,467 ----------- ----------- ----------- ----------- Total revenues 34,108,514 28,378,690 (3,199,893) 59,287,311 Specific operating expenses Real estate and other taxes 3,445,852 2,092,158 - 5,538,010 Utilities 4,838,848 5,119,626 (3,199,893) 6,758,581 Repairs, maintenance and contract services 2,439,778 2,758,892 - 5,198,670 Salaries 1,537,965 2,413,538 - 3,951,503 General and administrative 1,332,354 1,574,843 - 2,907,197 Management fees 713,423 713,423 - 1,426,846 Insurance 256,087 345,832 - 601,919 ----------- ----------- ----------- ----------- Total specific operating expenses 14,564,307 15,018,312 (3,199,893) 26,382,726 ----------- ----------- ----------- ----------- EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES $19,544,207 $13,360,378 $ - $32,904,585 =========== =========== =========== ===========
F-8 16 GREENWAY PLAZA COMBINED STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES FOR THE FIVE MONTHS ENDED MAY 31, 1996 TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-9 17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Crescent Real Estate Equities Limited Partnership: We have audited the accompanying combined statement of excess of revenues over specific operating expenses (as defined in Note 2) of Greenway Plaza for the five months ended May 31, 1996. This statement and the schedule referred to below are the responsibility of the Property's management. Our responsibility is to express an opinion on this statement and schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the statement referred to above presents fairly, in all material respects, the combined excess of revenues over specific operating expenses of Greenway Plaza for the five months ended May 31, 1996, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the combined statement of excess of revenues over specific operating expenses taken as a whole. The combining information at Schedule I is presented for purposes of additional analysis. This information has been subjected to the auditing procedures applied in our audit of the combined statement and, in our opinion, is fairly stated in all material respects in relation to the combined statement taken as a whole. ARTHUR ANDERSEN, LLP Dallas, Texas, July 19, 1996 F-10 18 GREENWAY PLAZA COMBINED STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES FOR THE FIVE MONTHS ENDED MAY 31, 1996 REVENUES: Office rent $20,677,339 Parking 1,985,343 Recoveries 797,152 Utilities 633,546 Other 172,251 ----------- 24,265,631 ----------- SPECIFIC OPERATING EXPENSES: Utilities 2,925,702 Repairs, maintenance, and contract services 2,793,597 Real estate taxes 2,205,731 Salaries 1,632,696 General and administrative 570,463 Management fees 609,609 Insurance 259,536 ----------- 10,997,334 ----------- EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES $13,268,297 ===========
The accompanying notes are an integral part of this combined statement. F-11 19 GREENWAY PLAZA NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES MAY 31, 1996 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: Description of Properties Greenway Plaza (the "Property"), an office and retail project located in Houston, Texas, is owned by two separate partnerships, Greenway Plaza, Ltd. and Nine Greenway, Ltd. Greenway Plaza, Ltd. owns Phase I of Greenway Plaza (Phase I), which consists of six office towers containing approximately 2.2 million rentable square feet, four adjacent parking garages with approximately 6,500 parking spaces, a central plant facility, approximately 99,000 rentable square feet of retail space, and a 389-room hotel. Phase I, including the land on which the buildings, garages, central plant, hotel, and retail space are located, is owned fee simple. Nine Greenway, Ltd. owns Phase II of Greenway Plaza (Phase II) which is comprised of four office towers containing approximately 2.0 million rentable square feet and two adjacent parking garages with approximately 5,000 parking spaces. Phase II, including the land on which the buildings and garages are located, is owned fee simple. Principles of Combination The combined statement includes the accounts of Greenway Plaza, Ltd. and Nine Greenway, Ltd. The accompanying combined statement of the Property has been presented on a combined historical cost basis because of the affiliated ownership and management. All significant intercompany balances and transactions have been eliminated. Use of Estimates The preparation of statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Rental Income and Deferred Rent Concessions In connection with obtaining certain tenants under long-term leases, property management grants rent concessions. The aggregate rental payments due over the terms of the leases are recognized as rental income on a straight-line basis over the full term of the leases, including the periods of rent concessions. Recoveries A portion of the operating expenses is charged back to tenants on a monthly basis based upon estimated expenses. These charges are adjusted at period-end, based upon actual expenses. F-12 20 2. BASIS OF ACCOUNTING: The accompanying combined statement of excess of revenues over specific operating expenses is presented on the accrual basis of accounting. This statement is not intended to be a complete presentation of revenues and operating expenses for the five months ended May 31, 1996, as certain items such as depreciation, amortization, interest, and partnership administrative expenses ( i.e. audit fees and tax preparation fees) have been excluded since they are not comparable to the proposed future operations of the Property. 3. CENTRAL PLANT: Included within Phase I is a central plant facility which primarily provides services to chill water for the Property. All properties in Phase I are allocated costs for chilled water based on actual costs of the central plant facility. Properties within Phase II are allocated costs based upon contractually agreed upon terms. The costs to each building and the related income from each building recorded by the central plant facility are eliminated in combination. The remaining income represents billings to third parties for whom the central plant facility provides chilled water. 4. HOTEL LEASE ARRANGEMENT: Greenway Plaza, Ltd. has leased the hotel to CTF Hotel Holdings, Inc. (the "Hotel Lessee.") Under the provisions of the lease, which has a term of 25 years expiring on August 31, 2000, with two consecutive five year renewal options upon the satisfaction of certain conditions, the Hotel Lessee has assumed the rights and obligations of the owner as well as the obligation to pay all real estate taxes and any other charges or claims against the Hotel lease income. Hotel lease income of $488,333 for the five months ended May 31, 1996, is included in office rent in the accompanying statement of excess of revenues over specific operating expenses. 5. RELATED PARTY TRANSACTIONS AND PROPERTY MANAGEMENT: The Property entered into management agreements with Senterra Development (the "Manager") in November 1989. The agreements with the Manager require a management fee of 3% of gross monthly collections, as defined, subject to certain maximums. Total management fees for the five months ended May 31, 1996, were approximately $610,000. The agreement may be terminated at any time by either party in accordance with the management agreement. If terminated, the management fees must be paid through the month in which the Manager's service will extend. Additional fees are paid to the Manager for leasing commissions. These commissions are defined in a separate marketing agreement. 6. SIGNIFICANT TENANTS: The largest tenant of the Property occupies approximately 641,000 square feet, or 15%, of the total leasable square footage. This lease expires in December, 2014. 7. INTENT TO SELL: On April 19, 1996, the owners of Nine Greenway, Ltd., and Greenway Plaza, Ltd., approved a nonbinding letter of intent to sell their interest (including equity, debt, and accrued interest) in the Property to an unaffiliated third party. The expected sales price is approximately $206 million. F-13 21 SCHEDULE I GREENWAY PLAZA COMBINING STATEMENT OF EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES FOR THE FIVE MONTHS ENDED MAY 31, 1996
Combining Information ----------------------------------------------------------- Greenway Nine Plaza, Greenway, Ltd. Ltd. Eliminations Combined ------------ ----------- ------------ ----------- REVENUES: Office rent $ 8,191,147 $12,486,192 $ - $20,677,339 Parking 685,822 1,299,521 - 1,985,343 Recoveries 278,912 518,240 - 797,152 Utilities 1,996,934 15,436 (1,378,824) 633,546 Other 63,137 109,114 - 172,251 ------------ ----------- ----------- ----------- 11,215,952 14,428,503 (1,378,824) 24,265,631 ------------ ----------- ----------- ----------- SPECIFIC OPERATING EXPENSES: Utilities 2,181,683 2,122,843 (1,378,824) 2,925,702 Repairs, maintenance, and contract services 1,349,462 1,444,135 - 2,793,597 Real estate taxes 766,285 1,439,446 - 2,205,731 Salaries 982,933 649,763 - 1,632,696 General and administrative 338,862 231,601 - 570,463 Management fees 304,607 305,002 - 609,609 Insurance 142,797 116,739 - 259,536 ------------ ----------- ----------- ----------- 6,066,629 6,309,529 (1,378,824) 10,997,334 ------------ ----------- ----------- ----------- EXCESS OF REVENUES OVER SPECIFIC OPERATING EXPENSES $ 5,149,323 $ 8,118,974 $ - $13,268,297 ============ =========== =========== ===========
F-14 22 CRESCENT REAL ESTATE EQUITIES, INC. PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma Consolidated Balance Sheet of Crescent Real Estate Equities, Inc. (the "Company") as of June 30, 1996, assumes completion of (i) the expected Offering and the use of the net proceeds therefrom to repay approximately $160 million of indebtedness and to pay approximately $51 million of the acquisition price of the Greenway Plaza Portfolio and (ii) the acquisition of Properties acquired subsequent to June 30, 1996 and the completion of the acquisition of the Greenway Plaza Portfolio and Canyon Ranch-Lenox, a destination health and fitness resort (collectively, the "Pending Investments"), in each case as of June 30, 1996. The pro forma Consolidated Statement of Operations for the six months ended June 30, 1996 assumes completion of (i) the expected Offering and the use of the net proceeds therefrom to repay approximately $160 million of indebtedness and to pay approximately $51 million of the acquisition price of the Greenway Plaza Portfolio and (ii) the acquisition of the Properties acquired during 1996 and the completion of the Pending Investments, in each case as of January 1, 1996. The pro forma Consolidated Statement of Operations for the year ended December 31, 1995 assumes completion of (i) the April 1995 Offering and Mr. Rainwater's concurrent $31 million investment in the Operating Partnership and the use of the net proceeds therefrom to repay approximately $167 million of indebtedness secured by certain of the Properties, (ii) the expected Offering and the use of the net proceeds therefrom to repay approximately $160 million of indebtedness and to pay approximately $51 million of the acquisition price of the Greenway Plaza Portfolio and (iii) the acquisition of the Properties acquired during 1995 and 1996 and the completion of the Pending Investments, in each case as of January 1, 1995. The unaudited pro forma Consolidated Balance Sheet and Statement of Operations should be read in conjunction with the historical financial statements of the Company and the Company's Prospectus Supplement. In management's opinion, all adjustments necessary to reflect the above discussed transactions have been made. The unaudited pro forma Consolidated Balance Sheet and Statements of Operations are not necessarily indicative of what actual results of operations of the Company would have been for the period, nor does it purport to represent the Company's results of operations for future periods. F-15 23 CRESCENT REAL ESTATE EQUITIES, INC. PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 (dollars in thousands) (Unaudited)
Crescent Real Estate Greenway Equities, Inc. Plaza Pro Forma Pro Forma Historical (A) Portfolio (B) Adjustments Consolidated ---------------- --------------- --------------- ---------------- ASSETS: Investment properties, at cost $ 1,098,901 $ 206,000 $ 160,115 (C) $ 1,465,016 Less - Accumulated depreciation (188,812) - - (188,812) -------------- -------------- ----------- ------------- 910,089 206,000 160,115 1,276,204 Cash and cash equivalents 11,681 - 3,750 (D) 15,431 Restricted cash and cash equivalents 14,547 - - 14,547 Accounts receivable, net 9,602 - - 9,602 Deferred rent receivable 11,612 - - 11,612 Investments in real estate mortgages and common stock of residential development corporations 30,947 - 7,659 (E) 38,606 Notes receivable 20,465 - 3,000 (F) 23,465 Other assets, net 44,423 - - 44,423 -------------- -------------- ----------- -------------- Total assets $ 1,053,366 $ 206,000 $ 174,524 $ 1,433,890 ============== ============== =========== ============== LIABILITIES: Borrowings under Credit Facility $ 58,355 $ 66,000 $ (73,854)(G) $ 50,501 Notes payable 476,053 115,000 8,000 (H) 599,053 Accounts payable, accrued expenses and other liabilities 22,103 - - 22,103 -------------- -------------- ----------- ------------- Total liabilities 556,511 181,000 (65,854) 671,657 -------------- -------------- ----------- ------------- MINORITY INTEREST Operating Partnership 69,887 - 27,000 (I) 96,887 Investment Joint Ventures 31,820 - 2,729 (J) 34,549 -------------- -------------- ----------- ------------- Total minority interests 101,707 - 29,729 131,436 -------------- -------------- ----------- ------------- STOCKHOLDERS' EQUITY: Common stock 236 6 55 297 Additional paid-in capital 424,652 24,994 210,594 660,240 Deferred compensation on restricted shares (364) - - (364) Retained deficit (29,376) - - (29,376) -------------- -------------- ----------- ------------- Total stockholders' equity 395,148 25,000 210,649 (K) 630,797 -------------- -------------- ----------- ------------- Total liabilities and stockholders' equity $ 1,053,366 $ 206,000 $ 174,524 $ 1,433,890 ============== ============== =========== =============
See accompanying notes to Pro Forma Consolidated Balance Sheet. F-16 24 CRESCENT REAL ESTATE EQUITIES, INC. PRO FORMA CONSOLIDATED BALANCE SHEET Adjustments (Dollars in Thousands) (A) Reflects Crescent Real Estate Equities, Inc. unaudited consolidated historical balance sheet at June 30, 1996. --- (B) Reflects the acquisition of, and financing associated with, the Greenway Plaza Portfolio transaction. --- (C) Increase reflects the following: Acquisition of 1615 Poydras office property $ 36,450 Acquisition of Canyon Ranch - Tucson resort 56,750 Acquisition of Three Westlake Park office property 29,000 Acquisition of two office properties in The Woodlands 10,915 Pending acquisition of Canyon Ranch - Lenox resort 27,000 --------------- $ 160,115 =============== (D) Increase reflects the following: Excess proceeds from borrowings for Canyon Ranch - Tucson resort $ 750 Excess proceeds from working capital draw 3,000 --------------- $ 3,750 =============== (E) Increase reflects the following: Additional investment in residential development corporations $ 7,659 =============== (F) Increase reflects the following: Canyon Ranch - Tucson resort note receivable $ 3,000 =============== (G) Net decrease reflects the following: Increase in borrowings under the Credit Facility as a result of: Acquisition of 1615 Poydras office property $ 24,800 Acquisition of Canyon Ranch - Tucson resort 33,500 Acquisition of Three Westlake Park office property 29,000 Acquisition of two office properties in The Woodlands 8,186 Working capital draw 10,659 Pending acquisition of Canyon Ranch - Lenox resort 19,000 Repayment of Credit Facility using proceeds of the Offering (198,999) --------------- $ (73,854) ===============
F-17 25 (H) Net increase reflects the following: Short-term borrowings for the acquisition of 1615 Poydras office property $ 11,650 Assumption of debt for the pending acquisition of Canyon Ranch - Lenox resort 8,000 Repayment of short-term borrowings using proceeds of the Offering (11,650) --------------- $ 8,000 =============== (I) Increase reflects the following: Issuance of Operating Partnership units for Canyon Ranch - Tucson resort $ 27,000 =============== (J) Increase reflects the following: Minority interest for the two office properties in The Woodlands $ 2,729 =============== (K) Net increase reflects the following: Proceeds of the Offering (5.5 million shares of common stock at $40.875 (the "Offering")) $ 224,813 Estimated costs of the Offering (2,248) Underwriters' discount for the Offering (11,916) --------------- $ 210,649 ===============
F-18 26 CRESCENT REAL ESTATE EQUITIES, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (dollars in thousands, except per share data) (Unaudited)
Crescent Real Estate Greenway 1996 Acquired Equities, Inc. Plaza and Pending Other Pro Forma Historical (A) Portfolio (B) Properties (C) Adjustments Consolidated -------------- --------------- --------------- -------------- ----------------- REVENUES: Rental property $ 85,549 $ 29,119 $ 14,924 $ - $ 129,592 Interest and other income 2,510 - - - 2,510 ------------- -------------- --------------- -------------- ----------------- Total revenues 88,059 29,119 14,924 - 132,102 ------------- -------------- --------------- -------------- ----------------- EXPENSES: Real estate taxes 8,377 2,647 1,432 - 12,456 Repairs and maintenance 4,879 3,352 1,101 - 9,332 Other rental property operating 17,842 7,198 2,254 - 27,294 Corporate general and administrative 2,299 - - - 2,299 Interest expense 19,018 - - 5,464 (D) 24,482 Depreciation and amortization 18,281 2,575 2,646 - 23,502 Amortization of deferred financing costs 1,320 - - - 1,320 ------------- -------------- --------------- -------------- ----------------- Total expenses 72,016 15,772 7,433 5,464 100,685 ------------- -------------- --------------- -------------- ----------------- Operating income (loss) 16,043 13,347 7,491 (5,464) 31,417 OTHER INCOME: Equity in net income of residential development corporations 2,175 - - - 2,175 ------------- -------------- --------------- -------------- ----------------- INCOME (LOSS) BEFORE MINORITY INTERESTS AND EXTRAORDINARY ITEM 18,218 13,347 7,491 (5,464) 33,592 Minority interests (3,619) - (533) (2,261)(E) (6,413) ------------- -------------- --------------- -------------- ----------------- INCOME BEFORE EXTRAORDINARY ITEM 14,599 13,347 6,958 (7,725) 27,179 Extraordinary item (1,306) - - - (1,306) ------------- -------------- --------------- -------------- ----------------- NET INCOME (LOSS) $ 13,293 $ 13,347 $ 6,958 $ (7,725) $ 25,873 ============= ============== =============== ============== ================= PER SHARE DATA (F): Income before extraordinary item $ 0.92 Extraordinary item (0.04) ----------------- Net income $ 0.88 =================
See adjustments to Pro Forma Consolidated Statement of Operations on following page. F-19 27 CRESCENT REAL ESTATE EQUITIES, INC. NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS (Dollars in Thousands) (A) Reflects Crescent Real Estate Equities, Inc. unaudited consolidated historical statement of operations for the period from January 1, 1996 through June 30, 1996. --- (B) Reflects the historical incremental rental income and operating expenses including an adjustment for depreciation based on acquisition price associated with the Greenway Plaza Portfolio, proposed to be acquired in 1996, assuming the portfolio was acquired at the beginning of the period. --- (C) Reflects the historical incremental rental income and operating expenses including an adjustment for depreciation based on acquisition price associated with acquired and pending acquisition properties, all acquired or proposed to be acquired in 1996, assuming the assets were acquired at the beginning of the period.
PROPERTY ACQUISITION DATE -------- ---------------- 3333 Lee Parkway office property 1/05/96 301 Congress Avenue office property (i) 4/18/96 Central Park Plaza office property 6/13/96 Canyon Ranch - Tucson resort (ii) 7/26/96 The Woodlands office properties (iii) 7/31/96 Three Westlake Park office property 8/16/96 1615 Poydras office property 8/23/96 Canyon Ranch - Lenox resort (iv) pending
(i) The Company has a 1% general partner and a 49% limited partner interest in the partnership that owns 301 Congress Avenue. (ii) Historical operations of the hotel were adjusted to reflect the lease payments from the hotel lessee to the Company calculated on a pro forma basis by applying the rent provisions (as defined in the lease agreements). (iii) The Company has a 75% interest in the partnership that owns these two office properties. (iv) Historical operations of the resort were adjusted to estimate the lease payments from the hotel lessee to the Company. --- (D) Net increase as a result of interest costs for long and short-term financing, as follows, net of repayment with proceeds of the Offering, assuming the borrowings to finance property acquisitions and assumption of debt and repayment had all occurred at the beginning of the period.
F-20 28 Credit Facility $ 50,501 Interest rate 7.90% ------------ 3,990 Prorated for six months $ 1,995 Less: Historical Credit Facility Interest Expense (465) ------------ $ 1,530 ============ Greenway Nomura Loan $ 115,000 Interest rate 7.65% ------------ 8,798 Prorate for six months $ 4,399 ============ Canyon Ranch - Lenox loan $ 8,000 10.07% ------------ $ 806 Prorate for six months $ 403 ============ Less: Land development capitalized interest $ (868) ============ $ 5,464 ============ (E) Reflects adjustment needed to reflect minority partners' weighted average 16.99% interest in the net income of the Operating Partnership less joint venture minority interests assuming completion of the Offering at the beginning of the period. $ (2,261) ============ (F) Reflects net income per share based on 29,659,295 weighted average shares of Common Stock assumed to be outstanding during the six months ended June 30, 1996. ---
F-21 29 CRESCENT REAL ESTATE EQUITIES, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (dollars in thousands, except per share data) (Unaudited)
Crescent Real Estate Greenway 1996 Acquired Equities, Inc. 1995 Acquired Plaza and Pending Historical (A) Properties (B) Portfolio (C) Properties(D) --------------- -------------- ------------- -------------- (audited) REVENUES: Rental property $ 123,489 $ 38,283 $ 59,287 $ 34,867 Interest and other income 6,471 212 - - ---------- ----------- ----------- ----------- Total revenues 129,960 38,495 59,287 34,867 ---------- ----------- ----------- ----------- EXPENSES: Real estate taxes 12,494 2,912 5,538 3,360 Repairs and maintenance 7,787 2,964 5,199 3,653 Other rental property operating 25,668 7,257 15,647 5,794 Corporate general and administrative 3,812 - - - Interest expense 18,781 - - - Depreciation and amortization 28,060 5,571 5,150 5,957 Amortization of deferred financing costs 2,500 - - - ---------- ----------- ----------- ----------- Total expenses 99,102 18,704 31,534 18,764 ---------- ----------- ----------- ----------- Operating income (loss) 30,858 19,791 27,753 16,103 OTHER INCOME: Equity in net income of residential development corporations 5,500 - - - ---------- ----------- ----------- ----------- INCOME (LOSS) BEFORE MINORITY INTERESTS 36,358 19,791 27,753 16,103 Minority interests (8,963) (564) - (1,808) ---------- ----------- ----------- ----------- NET INCOME (LOSS) $ 27,395 $ 19,227 $ 27,753 $ 14,295 ========== =========== =========== =========== NET INCOME PER COMMON SHARE (K)
Other Pro Forma Adjustments Consolidated ------------- -------------- REVENUES: Rental property $ 674 (E) $ 256,600 Interest and other income (326)(E) 6,357 --------- -------------- Total revenues 348 262,957 --------- -------------- EXPENSES: Real estate taxes 85 (E) 24,389 Repairs and maintenance 99 (E) 19,702 Other rental property operating (305)(F) 54,212 151 (E) Corporate general and administrative 788 (G) 4,600 Interest expense 29,147 (H) 47,928 Depreciation and amortization 89 (E) 44,827 Amortization of deferred financing costs 563 (I) 3,063 --------- -------------- Total expenses 30,617 198,721 --------- -------------- Operating income (loss) (30,269) 64,236 OTHER INCOME: Equity in net income of residential development corporations - 5,500 --------- -------------- INCOME (LOSS) BEFORE MINORITY INTERESTS (30,269) 69,736 Minority interests (5,293)(J) (16,628) --------- -------------- NET INCOME (LOSS) $ (35,562) $ 53,108 ========= ============== NET INCOME PER COMMON SHARE (K) $ 1.87 ==============
See adjustments to Pro Forma Consolidated Statement of Operations on following page. F-22 30 CRESCENT REAL ESTATE EQUITIES, INC. NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS (Dollars in Thousands) (A) Reflects Crescent Real Estate Equities, Inc. audited consolidated historical statement of operations for the period from January 1, 1995 through December 31, 1995. --- (B) Reflects the historical incremental rental income and operating expenses including an adjustment for depreciation based on acquisition price associated with acquired properties and interest income associated with the mortgage note, all acquired in 1995, assuming the assets were acquired at the beginning of the period.
PROPERTY ACQUISITION DATE -------- ---------------- Hyatt Regency Beaver Creek hotel 1/03/95 Stanford Corporate Centre office property 1/04/95 Mortgage note secured by the Biltmore Commerce Center office property 2/28/95 The Aberdeen office property (i) 3/13/95 12404 Park Central office property 5/09/95 Barton Oaks Plaza One office property 6/05/95 MCI Tower office property 6/30/95 Denver Marriott City Center hotel (ii) 6/30/95 The Woodlands office properties (iii) 7/12/95 Spectrum Center office property 8/31/95 Ptarmigan Place office property 10/06/95 6225 N. 24th Street office property 11/07/95 Briargate office building and research center 11/21/95 Albuquerque Plaza office property 12/19/95 Hyatt Regency Albuquerque hotel (ii) 12/19/95 (i) The building was vacant from January 1995 through July 1995, therefore no historical information is presented prior to July. (ii) Historical operations of the hotel were adjusted to reflect the lease payments from the hotel lessee to the Company calculated on a pro forma basis by applying the rent provisions (as defined in the lease agreements). (iii) The Company has a 75% interest in the partnership that owns these 10 office properties. --- (C) Reflects the historical incremental rental income and operating expenses including an adjustment for depreciation based on acquisition price associated with the Greenway Plaza Portfolio, proposed to be acquired in 1996, assuming the portfolio was acquired at the beginning of the period. --- (D) Reflects the historical incremental rental income and operating expenses including an adjustment for depreciation based on acquisition price associated with acquired and pending acquisition properties, all acquired or proposed to be acquired in 1996, assuming the assets were acquired at the beginning of the period. ---
F-23 31
PROPERTY ACQUISITION DATE -------- ---------------- 3333 Lee Parkway office property 1/05/96 301 Congress Avenue office property (i) 4/18/96 Central Park Plaza office property 6/13/96 Canyon Ranch - Tucson resort (ii) 7/26/96 The Woodlands office properties (iii) 7/31/96 Three Westlake Park office property 8/16/96 1615 Poydras office property 8/23/96 Canyon Ranch - Lenox resort (iv) pending (i) The Company has a 1% general partnership and a 49% limited partnership interest in the partnership that owns 301 Congress Avenue. (ii) Historical operations of the resort were adjusted to reflect the lease payments from the hotel lessee to the Company calculated on a pro forma basis by applying the rent provisions (as defined in the lease agreements). (iii) The Company has a 75% interest in the partnership that owns these two office properties. (iv) Historical operations of the resort were adjusted to estimate the lease payments from the hotel lessee to the Company. (E) Decrease as a result of the elimination of interest income for the Spectrum Note in September 1995 and recording historical incremental rental income and operating expenses associated with the property. Based upon an agreement with the borrower and its partners, the Company transferred the ground lessor's interest in the land underlying the building and the Spectrum Note to a partnership in return for a general partner interest. As a result, the Company began consolidating the operations of the property due to its economic control of the property's cash flows. $ (76) ======== (F) Decrease as a result of the elimination of third party property management fees which terminated upon acquisition of certain of the properties. $ (305) ======== (G) Increase reflects the estimated incremental general and administrative costs associated with the increase in personnel due to numerous acquisitions in 1995 and 1996. $ 788 ======== (H) Net increase as a result of interest costs for long and short-term financing, as follows, net of repayment with proceeds of the April 1995 Offering and Mr. Rainwater's concurrent $31,000 investment, and this Offering, assuming the borrowings to finance property acquisitions and repayment, had all occurred at the beginning of the period. Credit Facility $ 50,501 Interest rate 7.90% --------- 3,990 Nomura Fund I $ 239,000 Interest rate 7.83% --------- 18,714 Nomura Fund II $ 161,000 Interest rate 7.79% --------- 12,542
F-24 32 Greenway Nomura Loan $ 115,000 Interest rate 8.00% --------- 9,200 Canyon Ranch - Lenox $ 8,000 Interest rate 10.07% --------- 806 Cigna Loan $ 63,500 Interest rate 7.47% --------- 4,743 Mortgage note assumed in the Woodlands acquisition $ 12,553 Interest rate 8.83% --------- 1,108 Total annual amount $ 51,103 Less: Historical interest expense (18,781) The Aberdeen capitalized interest (1,200) Land Development capitalized interest (1,363) Working capital interest (612) --------- $ 29,147 ========= (I) Increase reflects the incremental amortization expense from costs of obtaining the Nomura Loans and CIGNA Loan. Loan Closing Costs on Nomura Loans $ 6,000 Average term of Nomura Loans 11 years ---------- 545 Prorate for eight months $ 363 Loan Closing Costs on CIGNA Loan $ 1,400 Term of CIGNA Loan 7 years ---------- 200 Prorated for twelve months $ 200 ---------- $ 563 ========= (J) Reflects adjustment needed to reflect minority partners' weighted average 20.36% interest in the net income of the Operating Partnership less joint venture minority interest assuming completion of the 1995 April Offering and this Offering at the beginning of the period. $ (5,293) ========= (K) Reflects net income per share based on 28,411,680 weighted average shares of Common Stock assumed to be outstanding during the year ended December 31, 1995. ---
F-25 33 INDEX TO EXHIBITS
Exhibit No. Description of Exhibit - ----------- ---------------------- 23.01 Consent of Arthur Andersen, LLP, Independent Public Accountants, dated September 11, 1996 (filed herewith). 23.02 Consent of Grant Thornton LLP, Independent Certified Public Accountants, dated September 10, 1996 (filed herewith).
EX-23.01 2 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.01 CONSENT OF ARTHUR ANDERSEN, LLP, INDEPENDENT PUBLIC ACCOUNTANTS, DATED SEPTEMBER 11, 1996 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in the Registration Statement on Form S-3 of our report dated July 19, 1996 on Greenway Plaza included in Crescent Real Estate Equities, Inc.'s Form 8-K dated August 15, 1996, and to all references to our Firm included in the Registration Statement. ARTHUR ANDERSEN, LLP Dallas, Texas September 11, 1996 EX-23.02 3 CONSENT OF GRANT THORNTON LLP 1 EXHIBIT 23.02 CONSENT OF GRANT THORNTON LLP, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, DATED SEPTEMBER 11, 1996 2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated February 9, 1996 accompanying the Combined Statement of Excess of Revenues Over Specific Operating Expenses of Greenway Plaza, Ltd. and Nine Greenway, Ltd. appearing in the Crescent Real Estate Equities, Inc. Form 8-K dated August 15, 1996, which is incorporated by reference in the Registration Statement dated September 11, 1996 on Form S-3. We consent to the incorporation by reference in the Registration Statement of the aforementioned report and to the use of our name as it appears under the caption "Experts." GRANT THORNTON LLP Houston, Texas September 11, 1996 -----END PRIVACY-ENHANCED MESSAGE-----