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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
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(Exact name of registrant as specified in its charter)
TEXAS 52-1862813
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
777 Main Street, Suite 2100, Fort Worth, Texas 76102
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (817) 321-2100
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of each class: on Which Registered:
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Common Shares of Beneficial Interest par value $.01 per share New York Stock Exchange
6 3/4% Series A Convertible Cumulative Preferred Shares of
Beneficial Interest par value $.01 per share New York Stock Exchange
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 reports) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 24, 2000, the aggregate market value of the 113,005,779 common
shares and 8,000,000 preferred shares held by non-affiliates of the registrant
was approximately $2.1 billion, based upon the closing price of $17 15/16 for
common shares and $14 for preferred shares on the New York Stock Exchange.
Number of Common Shares outstanding as of March 24, 2000: 121,645,289
Number of Preferred Shares outstanding as of March 24, 2000: 8,000,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission for Registrant's 2000 Annual Meeting of Shareholders to be held in
June 2000 are incorporated by reference into Part III.
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TABLE OF CONTENTS
PAGE
PART I.
Item 1. Business.............................................................................. 2
Item 2. Properties............................................................................ 17
Item 3. Legal Proceedings..................................................................... 29
Item 4. Submission of Matters to a Vote of Security Holders................................... 29
PART II.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters................. 30
Item 6. Selected Financial Data............................................................... 32
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 33
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 60
Item 8. Financial Statements and Supplementary Data........................................... 62
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................. 101
PART III.
Item 10. Trust Managers and Executive Officers of the Registrant............................... 101
Item 11. Executive Compensation................................................................ 102
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 102
Item 13. Certain Relationships and Related Transactions........................................ 102
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 102
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PART I
ITEM 1. BUSINESS
THE COMPANY
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, is a fully integrated real estate company. The
Company, as defined below, provides management, leasing and development services
with respect to some of its properties.
The term "Company" includes, unless the context otherwise requires,
Crescent Equities, a Texas REIT, and all of its direct and indirect
subsidiaries.
The direct and indirect subsidiaries of Crescent Equities include:
o CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP;
The Operating Partnership
o CRESCENT REAL ESTATE EQUITIES, LTD.;
The General Partner of the Operating Partnership
o SEVEN SINGLE-PURPOSE LIMITED PARTNERSHIPS;
Formed for the purpose of obtaining securitized debt,
substantially all the economic interests owned
directly or indirectly by the Operating Partnership
and the remaining interests owned indirectly by
Crescent Equities through seven separate corporations
described below.
o SEVEN SEPARATE CORPORATIONS.
Wholly owned subsidiaries of the General Partner,
each of which is a general partner of one of the
seven limited partnerships described above.
Crescent Equities conducts all of its business directly through the
Operating Partnership and its other subsidiaries. The Company is structured to
facilitate and maintain its qualification as a REIT. This structure permits
persons contributing properties (or interests in properties) to the Company to
defer some or all of the tax liability that they otherwise might have incurred
in connection with the sale of assets to the Company.
See Note 1. Organization and Basis of Presentation of Item 8. Financial
Statements and Supplementary Data for a table that lists the principal
subsidiaries of Crescent Equities and the Properties owned by such subsidiaries.
As of December 31, 1999, the Company's assets and operations were
composed of five major investment segments:
o Office and Retail Segment;
o Hospitality Segment;
o Residential Development Segment;
o Temperature-Controlled Logistics Segment; and
o Behavioral Healthcare Segment.
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Within these segments, the Company owned directly or indirectly the
following real estate assets (the "Properties") as of December 31, 1999:
o OFFICE AND RETAIL SEGMENT consisted of 89 office properties
(collectively referred to as the "Office Properties") located
in 31 metropolitan submarkets in nine states, with an
aggregate of approximately 31.8 million net rentable square
feet, and seven retail properties (collectively referred to as
the "Retail Properties") with an aggregate of approximately
0.8 million net rentable square feet. See "Industry Segments -
Office and Retail Segment - Recent Developments - Property
Dispositions" for a description of the disposition of six of
the Office Properties and four of the Retail Properties
subsequent to December 31, 1999.
o HOSPITALITY SEGMENT consisted of five upscale business class
hotels with a total of 2,168 rooms, three luxury resorts and
spas with a total of 516 rooms and two Canyon Ranch
destination fitness resorts and spas that can accommodate up
to 462 guests daily (collectively referred to as the "Hotel
Properties"). All Hotel Properties, except the Omni Austin
Hotel, are leased to subsidiaries of Crescent Operating, Inc.
("COI"). The Omni Austin Hotel is leased to HCD Austin
Corporation.
o RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Company's
ownership of real estate mortgages and non-voting common stock
representing interests ranging from 40% to 95% in five
unconsolidated residential development corporations
(collectively referred to as the "Residential Development
Corporations"), which in turn, through joint venture or
partnership arrangements, currently own 14 residential
development properties (collectively referred to as the
"Residential Development Properties").
o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT (FORMERLY THE
REFRIGERATED STORAGE 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
December 31, 1999, directly or indirectly owned 89
temperature-controlled logistics properties (collectively
referred to as the "Temperature-Controlled Logistics
Properties") with an aggregate of approximately 428.3 million
cubic feet (17.0 million square feet). This segment was
restructured in 1999, and the new ownership structure was
effective as of March 12, 1999.
o BEHAVIORAL HEALTHCARE SEGMENT consisted of 88 properties in 24
states (collectively referred to as the "Behavioral Healthcare
Properties") that were leased to Charter Behavioral Health
Systems, LLC ("CBHS") and its subsidiaries. CBHS was formed to
operate the behavioral healthcare business located at the
Behavioral Healthcare Properties and is owned 10% by a
subsidiary of Magellan Health Services, Inc. ("Magellan") and
90% by COI and an affiliate of COI. On February 16, 2000, CBHS
and all of its subsidiaries that are subject to the master
lease with the Company filed voluntary Chapter 11 bankruptcy
petitions in the United States Bankruptcy Court for the
District of Delaware. Of the 88 Behavioral Healthcare
Properties, 37 are designated as the "Core Properties" for the
conduct of CBHS's business and remain subject to the master
lease. Since December 31, 1999, CBHS has ceased or is planning
to cease operations at the remaining 51 Behavioral Healthcare
Properties which are designated as the "Non-Core Properties"
and the Company is actively marketing these Properties for
sale. From January 1 through March 24, 2000, the Company sold
11 of these Behavioral Healthcare Properties and entered into
contracts or letters of intent to sell an additional six of
these Behavioral Healthcare Properties. The Company intends to
sell the remaining 37 Core Behavioral Healthcare Properties or
lease them to new tenants. See "Industry Segments - Behavioral
Healthcare Segment" for a description of the current status of
CBHS and the Company's investment in the Behavioral Healthcare
Properties.
See Note 4. Segment Reporting of Item 8. Financial Statements and
Supplementary Data for a table showing revenues and funds from operations for
the years ended December 31, 1999, 1998 and 1997 and identifiable assets for
each of these investment segments at December 31, 1999 and 1998.
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BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company's business objective is to provide its shareholders with
attractive but predictable growth in cash flow and underlying asset value. In
addition, the Company seeks to create value by distinguishing itself as the
leader in each of its investment segments through customer service and asset
quality.
STRATEGIC PLAN
In August 1999, the Company announced a strategic plan for the years
2000 - 2002. Under the plan, the Company is intently focused, during this
period, on increasing:
o net asset value per share;
o funds from operations and cash available for distribution per
share; and
o corresponding growth rates in net asset value per share, funds
from operations and cash available for distribution per share.
The strategic plan also includes short-term goals designed to meet
these objectives. These short-term goals are to:
o resolve the issues surrounding the Behavioral Healthcare
Segment;
o refinance 2000 and 2001 debt maturities and reduce exposure to
variable-rate debt;
o dispose of non-strategic or non-core assets within the
investment segments;
o market certain of the Office Properties for joint
ventures; and
o engage in a share repurchase program.
OPERATING AND FINANCING STRATEGIES
Based on management's assessment of current conditions in the real
estate and financial markets, the Company will focus in 2000 on growth in
revenues from its existing Property portfolio. The Company seeks to enhance its
operating performance and financial position by:
o continuing to operate the Office Properties as long-term
investments, providing exceptional tenant services,
improving occupancies, increasing in-place rents to market
rates and seeking to increase revenues by providing tenants
with a broad spectrum of additional services;
o achieving a high tenant retention rate at the Office
Properties through quality service, individualized attention
to its tenants and active preventive maintenance programs;
o seeking to sell the non-core, non-strategic Office
Properties;
o seeking to sell the Non-Core Behavioral Healthcare Properties
and, in cooperation with CBHS, sell or lease the Core
Behavioral Healthcare Properties;
o seeking, over the next two years, to reduce the Company's
investment in its upscale business class Hotel Properties;
o optimizing the use of various sources of capital, including
the refinancing of existing debt to extend debt maturities and
to reducing exposure to variable-rate debt;
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o entering into venture arrangements with private equity
partners under arrangements where the Company would
hold a minority interest in the Properties and would continue
to lease and manage the Properties;
o repurchasing and retiring up to $500 million of common shares
over the next two years;
o entering into arrangements with other businesses, such as
venture capital and technology firms, to exchange office
space, which is difficult to lease due to location, size, or
configuration, for an equity interest in those businesses, and
o empowering management and employing compensation plans which
are designed to continue to attract and retain the best talent
available and are aligned with the interests of the Company's
shareholders.
INVESTMENT STRATEGIES
In 2000, the Company intends to focus primarily on assessing investment
opportunities within each of its existing investment segments that are
consistent with its long-term investment strategy of acquiring value investments
at a significant discount to replacement cost in an environment where the
Company believes values will appreciate to or above replacement cost and
acquiring investments offering growth in cash flow after applying management
skills, renovation and expansion capital, and strategic vision.
The Company's investment strategies include:
o capitalizing on the luxury resorts and spas business through
(a) the formation of an investment partnership headed by one
of the Company's former executives, which will acquire new
resorts that can be converted into luxury spa destinations and
operated under the "Sonoma Spa Resorts" brand and (b)
investments in a management company which will operate and
manage the property or assets of some of the Company's Hotel
Properties as well as any new resort properties acquired by
the investment partnership;
o expansion of the Canyon Ranch franchise and capitalizing on
the "Canyon Ranch" brand through the Company's indirect
approximately 20% equity ownership (the Company has the
opportunity to acquire an additional indirect 10% equity
ownership through July 2000) in a management company that has
all rights to develop and manage any new Canyon Ranch resorts
or spa concepts, both in the United States and
internationally;
o seeking, within the Office Property segment, to provide
tenants a broad spectrum of services, such as
telecommunications services, by providing the vendors of those
services with access to the tenants of the Company's Office
Property portfolio in exchange for potential royalty income
and an equity investment;
o seeking private equity partners for joint ventures, in which
the Company would invest for selected office property
development; and
o continuing to monetize current development through the
Company's five Residential Development Corporations, and
reinvesting in other land developments as capital is returned.
EMPLOYEES
As of March 24, 2000, the Company had 634 employees. None of these
employees are covered by collective bargaining agreements. The Company considers
its employee relations to be good.
TAX STATUS
The Company elected under Section 856(c) of the Internal Revenue Code
of 1986, as amended (the "Code"), to be taxed as a REIT under the Code beginning
with its taxable year ended December 31, 1994. As a REIT for federal income tax
purposes, the Company generally is not subject to federal income tax on REIT
taxable
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income that it distributes to its shareholders. Under the Code, REITs are
subject to numerous organizational and operational requirements, including a
requirement that they distribute at least 95% of their REIT taxable income each
year. The Company will be subject to federal income tax on its REIT taxable
income (including any applicable alternative minimum tax) at regular corporate
rates if it fails to qualify as a REIT for tax purposes in any taxable year. The
Company will also not be permitted to qualify for treatment as a REIT for
federal income tax purposes for four years following the year during which
qualification is lost. Even if the Company qualifies as a REIT for federal
income tax purposes, it may be subject to certain federal, state and local taxes
on its REIT taxable income and property and to federal income and excise tax on
its undistributed REIT taxable income. In addition, certain of its subsidiaries
are subject to federal, state and local income taxes.
On December 17, 1999, President Clinton signed into law the REIT
Modernization Act which will become effective after December 31, 2000, and
contains a provision that would permit the Company to own and operate certain
types of investments that are currently owned by COI. The REIT Modernization Act
is expected to reduce the number of business opportunities that the Company
would otherwise offer to COI pursuant to the Intercompany Agreement between
the Company and COI, which provides each party with rights to participate in
certain transactions. The Company has expressed an interest to COI in certain of
the businesses currently owned or operated by COI that the REIT Modernization
Act would allow the Company to own or operate. The Company is exploring
alternatives with COI regarding a potential future transaction with respect to
certain of COI's assets.
ENVIRONMENTAL MATTERS
The Company and its Properties are subject to a variety of federal,
state and local environmental, health and safety laws, including:
o Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA");
o Resource Conservation & Recovery Act;
o Federal Clean Water Act;
o Federal Clean Air Act;
o Toxic Substances Control Act; and
o Occupational Safety & Health Act.
The application of these laws to a specific property that the Company
owns will be dependent on a variety of property-specific circumstances,
including the former uses of the property and the building materials used at
each property. Under certain environmental laws, principally CERCLA, a current
or previous owner or operator of real estate may be required to investigate and
clean up certain hazardous or toxic substances, asbestos-containing materials,
or petroleum product releases at the property. They may also be held liable to a
governmental entity or third parties for property damage and for investigation
and clean up costs such parties incur in connection with the contamination,
whether or not the owner or operator knew of, or was responsible for, the
contamination. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. The owner or operator of a site also may be
liable under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site. Such costs or liabilities
could exceed the value of the affected real estate. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral.
Compliance by the Company with existing environmental, health and
safety laws has not had a material adverse effect on the Company's financial
condition and results of operations, and management does not believe it will
have such an impact in the future. In addition, the Company has not incurred,
and does not expect to incur any material costs or liabilities due to
environmental contamination at Properties it currently owns or has owned in the
past. However, the Company cannot predict the impact of new or changed laws or
regulations on its current Properties or on properties that it may acquire in
the future. Except as set forth below, the Company has no current plans for
substantial capital expenditures with respect to compliance with environmental,
health and safety laws.
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INDUSTRY SEGMENTS
OFFICE AND RETAIL SEGMENT
OWNERSHIP STRUCTURE
As of December 31, 1999, the Company owned 89 Office Properties located
in 31 metropolitan submarkets in nine states, with an aggregate of approximately
31.8 million net rentable square feet and seven Retail Properties with an
aggregate of approximately 0.8 million net rentable square feet. The Company, as
lessor, has retained substantially all of the risks and benefits of ownership of
the Office and Retail Properties and accounts for its leases as operating
leases. Additionally, the Company provides management and leasing services for
substantially all of its Office and Retail Properties. From January 1 through
March 24, 2000, the Company sold six of the Office Properties and four of the
Retail Properties. See "Recent Developments - Property Dispositions" below.
See Item 2. Properties for more information about the Company's Office
and Retail Properties, and Note 1. Organization and Basis of Presentation of
Item 8. Financial Statements and Supplementary Data for a table that lists the
principal subsidiaries of the Company and the Properties owned by such
subsidiaries.
MARKET INFORMATION
The Office and Retail Properties reflect the Company's strategy of
investing in premier assets within markets that have significant potential for
rental growth. In selecting the Office and Retail Properties, the Company
analyzed demographic and economic data to focus on markets expected to benefit
from significant employment growth as well as corporate relocations. After
identifying and analyzing attractive regional markets, the Company selected
submarkets that it believed would be the major beneficiaries of this projected
growth and that would integrate a premier office environment with quality of
life features such as: affordable residential housing; an environment generally
well-protected from crime; effective transportation systems; a significant
concentration of retailing alternatives; and cultural centers, entertainment
attractions and recreational facilities. Other factors the Company considered in
selecting the submarkets in which its Office and Retail Properties are located
included proximity to major airports and the relative aggressiveness of local
governments in providing tax and other incentives designed to favor business.
Currently, the Company's Office and Retail Properties are located primarily in
the Dallas/Fort Worth and Houston, Texas metropolitan areas. The southwestern
markets are expected to continue experiencing some of the strongest growth in
the country being "demand-driven" markets because of high levels of in-migration
by corporations and labor. Companies continue to migrate to the southwest with
its friendly state and local governments, lower cost of living, outstanding
transportation systems, strong educational base, and central United States
location.
Within its selected submarkets, the Company has focused on premier
locations that management believes are able to attract and retain the highest
quality tenants and command premium rents. In addition, several of the Office
and Retail Properties benefit from improvements made by prior owners or
developers beyond what currently could be justified by expected economic
returns. Examples of these improvements, which should not materially increase
the future operating cost of the Properties, are the inclusion of various
amenities, the use of expensive materials and the addition of extensive
landscaping. Such premier locations also tend to be more stable in downward
property cycles. Consistent with its long-term investment strategies, the
Company has sought transactions where it was able to acquire properties that
have strong economic returns based on in-place tenancy and have a dominant
position within the submarket due to quality and/or location. Accordingly,
management's long-term investment strategy not only demands acceptable current
cash flow return on invested capital, but also considers long-term cash flow
growth prospects.
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The Company does not depend on a single or a few major customers within
the Office and Retail segment, the loss of which would have a material adverse
effect on the Company's financial condition or results of operations. Based on
rental revenues from office and retail leases in effect as of December 31, 1999,
no single tenant accounted for more than 4% of the Company's total Office and
Retail segment rental revenues for 1999.
The demographic conditions, economic conditions and trends (population
growth and employment growth) favoring the markets in which the Company has
invested are projected to continue to approximate or exceed the national
averages (with the exception of: New Orleans, Louisiana; Omaha, Nebraska; and
San Francisco, California), as illustrated in the following table. Subsequent to
December 31, 1999, the Company disposed of its Office Property located in Omaha,
Nebraska and one of its two Office Properties located in New Orleans, Louisiana
and is actively marketing the remaining property in New Orleans, Louisiana for
sale. See "Recent Developments - Property Dispositions" below.
PROJECTED POPULATION GROWTH AND EMPLOYMENT GROWTH FOR ALL COMPANY MARKETS
Population Employment
Growth Growth
Metropolitan Statistical Area (MSA) 1999-2009 1999-2009
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Albuquerque, NM 13.9% 24.4%
Austin, TX 22.7 26.3
Colorado Springs, CO 12.7 21.9
Dallas, TX 15.5 20.7
Denver, CO 12.7 26.0
Fort Worth, TX 19.2 22.8
Houston, TX 15.5 21.9
Miami, FL 9.3 16.8
New Orleans, LA 1.4 10.1
Omaha, NE 6.8 10.7
Phoenix, AZ 26.8 36.4
San Diego, CA 17.4 19.7
San Francisco, CA 6.4 12.9
Washington, D.C 10.1 21.5
UNITED STATES 8.4 13.6
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Source: Compiled from information published by RFA/Dismal Sciences, Inc.
The Company applies a well-defined leasing strategy in order to capture
the potential rental growth in the Company's portfolio of Office Properties as
occupancy and rental rates increase with the continued recovery of the markets
and the submarkets in which the Company has invested. The Company's strategy has
been and continues to be based in part on identifying and making its investments
in submarkets in which weighted average full-service rental rates (representing
base rent after giving effect to free rent and scheduled rent increases that
would be taken into account under generally accepted accounting principles
("GAAP") and including adjustments for expenses payable by or reimbursed from
tenants) are significantly less than weighted average full-service replacement
cost rental rates (the rate management estimates to be necessary to provide a
return to a developer of a comparable, multi-tenant building sufficient to
justify construction of new buildings) in that submarket. In calculating
replacement cost rental rates, management relies on available third-party data
and its own estimates of construction costs (including materials and labor in a
particular market) and assumes replacement cost rental rates are achieved at a
95% occupancy level. The Company believes that the difference between the two
rates is a useful measure of the additional revenue that the Company may be able
to obtain from a property, because the difference should represent the amount by
which rental rates would be required to increase in order to justify
construction of new properties. For the Company's Office Properties, the
weighted average full-service rental rate as of December 31, 1999 was $20.38 per
square foot, compared to an estimated weighted average full-service replacement
cost rental rate of $28.49 per square foot.
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COMPETITION
The Company's Office Properties, primarily Class A properties located
within the Southwest, individually compete against a wide range of property
owners and developers, including property management companies and other REITs,
that offer space in similar types of office properties (for example, Class A and
Class B properties). A number of these owners and developers may own more than
one property. The number and type of competing properties in a particular market
or submarket could have a material effect on the Company's ability to lease
space and maintain or increase occupancy or rents in its existing Office
Properties. Management believes, however, that the quality services and
individualized attention that the Company offers its tenants, together with its
active preventive maintenance program and superior building locations within
markets, enhance the Company's ability to attract and retain tenants for its
Office Properties. In addition, as of December 31, 1999, on a weighted average
basis, the Company owned 16% of the Class A office space in the 30 submarkets in
which the Company owned Class A office properties, and 9% of the Class B office
space in the five submarkets in which the Company owned Class B office
properties. Management believes that ownership of a significant percentage of
office space in a particular market offers the Company the opportunity to reduce
property operating expenses that the Company and its tenants pay, enhancing the
Company's ability to attract and retain tenants and potentially resulting in
increases in Company net revenues.
RECENT DEVELOPMENTS
Property Dispositions
For the year ended December 31, 1999, the Company recognized an
impairment loss of approximately $16.8 million on one Office Property held for
disposition, which was sold during the first quarter of 2000. The impairment
loss represented the difference between the carrying value of the Office
Property and the sales price less costs of the sale. As of March 24, 2000, the
Company completed the sale of six wholly-owned Office Properties, which were
included in a group of ten Office Properties held for disposition at December
31, 1999, and were actively being marketed for sale. The sales generated
approximately $146.6 million of net proceeds. Excluding the impairment loss on
one of the six Office Properties held for disposition at December 31, 1999, the
Company recognized a net gain of approximately $13.3 million in the first
quarter of 2000, related to the sales of the other five Office Properties that
were classified as held for disposition at December 31, 1999. In addition, the
Company entered into contracts relating to the sale of two additional Office
Properties. The sales of the additional Office Properties are expected to close
by the end of the second quarter of 2000. Management expects to complete any
economically justified sales of the remaining two Office Properties held for
disposition at December 31, 1999 by the end of the second quarter of 2000.
Management is currently in the process of evaluating the bids for the remaining
Office Properties to determine their economic viability as well as the
credit-worthiness of the potential purchasers and their ability to close the
transactions. The disposition of these Office Properties remains subject to the
negotiation of acceptable terms and other customary conditions.
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 (multi-family, retail and office/venture tech
portfolios), located in The Woodlands, which includes the Company's four Retail
Properties and 12 Office Properties located in The Woodlands. The sale of the
four Retail Properties located in The Woodlands, closed on January 5, 2000,
generating net proceeds of approximately $49.8 million, of which the Company's
portion was approximately $37.3 million and a net gain of approximately $9.0
million, of which the Company's portion was approximately $7.7 million. The sale
of The Woodlands Office Properties, is expected to close in the second quarter
of 2000.
Investment in Broadband Office, Inc.
In October 1999, the Company, along with seven other real estate
companies, joined with an unrelated third party venture capitalist as a founding
shareholder in Broadband Office, Inc. ("Broadband"), a national
telecommunications company. Broadband is dedicated to providing state of the art
broadband telecommunications services to commercial office properties across the
country. In addition to significantly improving the Company's office tenant
amenity package to take advantage of evolving technologies, the Company received
an equity interest
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and representation on the board of directors of Broadband in exchange for
granting Broadband marketing access to the tenants within the Company's Office
Property portfolio.
HOSPITALITY SEGMENT
OWNERSHIP STRUCTURE
Because of the Company's status as a REIT for federal income tax
purposes, it does not operate the Hotel Properties. The Company has leased all
of the Hotel Properties, except the Omni Austin Hotel, to subsidiaries of COI
pursuant to nine separate leases. The Omni Austin Hotel has been leased, under a
separate lease, to HCD Austin Corporation. Under the leases, each having a term
of 10 years, the Hotel Property lessees have assumed the rights and obligations
of the property owner under the respective management agreements with the hotel
operators, as well as the obligation to pay all property taxes and other costs
related to the Properties. The Company has agreed to fund all capital
expenditures relating to furniture, fixtures and equipment reserves required
under the applicable management agreements as part of each of the lease
agreements for nine of the Hotel Properties. The only exception is Canyon
Ranch-Tucson, in which the Hotel Property lessee owns all furniture, fixtures
and equipment associated with the property and will fund all related capital
expenditures.
The leases provide for the payment by the Hotel Property lessees of all
or a combination of the following:
o base rent, with periodic rent increases if applicable (for
1999, base rent represented approximately 70% of total hotel
rental revenues received from the hotel lessees);
o percentage rent based on a percentage of gross hotel receipts
or gross room revenues, as applicable, above a specified
amount; and
o a percentage of gross food and beverage revenues above a
specified amount.
CRL INVESTMENTS, INC.
The Company has a 95% economic interest, representing all of the
non-voting stock in CRL Investments, Inc. ("CRL"), which has a 20% economic
interest in CR License, LLC, the entity which owns the right to the future use
of the "Canyon Ranch" name. CRL has the opportunity through July 2000 to pay
$3.0 million to obtain an additional 10% interest in CR License, LLC. CRL also
has an effective 60% economic interest in the Canyon Ranch Spa Club in the
Venetian Hotel in Las Vegas, Nevada. The Canyon Ranch Spa Club opened in June
1999 and is the first project to expand the franchise value of the "Canyon
Ranch" name.
See Item 2. Properties for more information about the Company's Hotel
Properties.
MARKET INFORMATION
Average hotel room rental rates in the United States grew 4.0%, 4.4%,
6.2% and 6.3%, in 1999, 1998, 1997, and 1996, respectively. Within the luxury
and upscale segments of the industry, average room rental rates increased
approximately 3.3% from 1998 to 1999. Industry information was compiled from
information published by Smith Travel Research.
Business and convention travel accounts for approximately two-thirds of
room demand and has risen along with the improving economy and increased
corporate profits. Domestic leisure travel has also increased, especially among
the "baby boomers", who are not only at the prime age for leisure travel but
also have a greater tendency to travel than previous generations. A healthier,
more active senior population is also contributing to the increase in travel.
With the aging of the "baby boomer" generation and the growing interest in
quality of life activities, the resort/spa industry also is experiencing
significant growth in the United States.
COMPETITION
Most of the Company's upscale business class Hotel Properties in
Denver, Albuquerque, Austin and Houston are business and convention center
hotels that compete against other business and convention center hotels. The
Company believes, however, that its luxury resorts and spas and destination
fitness resorts and spas are unique properties that have insignificant direct
competitors due either to their high replacement cost or unique concept and
location. The Hotel Properties do compete, to a limited extent, against business
class hotels or middle-market resorts in their geographic areas, as well as
against luxury resorts nationwide and around the world.
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RECENT DEVELOPMENTS
In February 2000, the Company entered into an agreement with Sanjay
Varma, a former senior executive officer of the Company, to form an investment
partnership which will seek luxury spa resorts and hotels to acquire and manage
under the "Sonoma Spa Resorts" brand and concept. The Company and Mr. Varma
acquired a 93% and 7% interest, respectively, in this new partnership. Mr. Varma
has also established a new management company, which has contracted with COI to
manage either the property or assets of the Company's existing portfolio of
Hotel Properties (excluding the Canyon Ranch resorts and the Hyatt Regency
Beaver Creek), in addition to new properties the investment partnership
acquires. The Company currently holds a 30% non-voting interest in this
management company.
As part of its strategic plan, the Company will seek to reduce its
investment in the upscale business class Hotel Properties over the next two
years. However, these Hotel Properties are not currently being actively marketed
for sale.
RESIDENTIAL DEVELOPMENT SEGMENT
OWNERSHIP STRUCTURE
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, currently own interests in 14 Residential Development
Properties. The Residential Development Corporations are responsible for the
continued development and the day-to-day operations of the Residential
Development Properties.
See Item 2. Properties for more information about the Company's
Residential Development Properties.
COMPETITION
The Company's Residential Development Properties compete against a
variety of other housing alternatives in each of their respective areas. These
alternatives include other planned developments, single-family homes,
condominiums, townhouses and non-owner occupied housing, such as luxury
apartments. Management believes that The Woodlands Land Company, Inc., Crescent
Development Management Corp. ("CDMC") and Desert Mountain Development Corp.
("Desert Mountain"), representing the Company's most significant investments in
Residential Development Properties, contain certain features that provide
competitive advantages to these developments. The Woodlands, which is an
approximately 27,000-acre, master-planned residential and commercial community
north of Houston, Texas, is unique among developments in the Houston area,
because it functions as a self-contained community. Amenities contained in the
development, which are not contained within other local developments, include a
shopping mall, retail centers, office buildings, a hospital, a community
college, places of worship, a conference center, 60 parks, 81 holes of golf, two
man-made lakes and a performing arts pavilion. The Woodlands could be adversely
affected by downturns in the Houston economy. CDMC was formed for investing in
resort residential real estate and resort operating opportunities primarily in
Colorado. Management believes CDMC does not have any direct competitors because
the locations of the projects are unique, the land is limited and CDMC owns most
of the land in each location. Desert Mountain, a luxury residential and
recreational community in Scottsdale, Arizona, which also offers five 18-hole
golf courses and tennis courts, does not have any significant direct competitors
due in part to the types of amenities that it offers. Substantially all of the
remaining residential lots for the four developments that traditionally have
competed with Desert Mountain were sold during 1997. As a result, these
developments have become resale communities that no longer compete with Desert
Mountain in any significant respect.
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RECENT DEVELOPMENTS
On April 29, 1999, a partnership in which CDMC has a 64% economic
interest finalized 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 million. The
development of Riverfront Park is expected to begin in the spring of 2000. The
first phase will consist of one condominium project and two loft projects with
prices ranging from $0.2 million to $2.5 million. One of the first residential
projects, consisting of 71 lofts, commenced pre-selling in January 2000. As of
March 24, 2000, contracts had been signed on 83% of the 71 lofts. In the first
quarter of 2000, the partnership has entered into contracts relating to the sale
of 9.7 acres of Riverfront Park, which is expected to close in the second
quarter of 2000. The acreage is in close proximity to several major
entertainment and recreational facilities including Coors Field (home to the
Major League Baseball's Colorado Rockies), Elitch Gardens (an amusement park),
the new Pepsi Center (home to the National Hockey League's Colorado Avalanche
and the National Basketball Association's Denver Nuggets) and the new downtown
Commons Park. An adjacent 28 acres is expected to be commercially developed by
another company, thus providing a major mixed-use community adjacent to the
lower downtown area of Denver.
TEMPERATURE-CONTROLLED LOGISTICS SEGMENT
ORIGINAL OWNERSHIP STRUCTURE
Prior to the restructuring of its investment in the
Temperature-Controlled Logistics Properties in March 1999, the Company, through
two subsidiaries (the "Crescent Subsidiaries"), owned an indirect 38% interest
in each of the three Temperature-Controlled Logistics Partnerships. One of the
Temperature-Controlled Logistics Partnerships owned AmeriCold Corporation
("AmeriCold"), the second Temperature-Controlled Logistics Partnership owned URS
Logistics, Inc. ("URS") and the third Temperature-Controlled Logistics
Partnership owned the assets and business operations acquired from Freezer
Services, Inc. ("Freezer Services") and Carmar Group, Inc. ("Carmar Group").
Vornado Realty Trust ("Vornado") owned a 60% interest in the
Temperature-Controlled Logistics Partnerships and COI owned a 2% indirect
interest in the Temperature-Controlled Logistics Partnerships.
In order to permit the Company to satisfy certain REIT qualification
requirements, the Company owned its indirect 38% interest in the
Temperature-Controlled Logistics Partnerships through its ownership of all of
the nonvoting common stock, representing a 95% economic interest, in each of the
Crescent Subsidiaries, and COI owned its 2% indirect interest in the
Temperature-Controlled Logistics Partnerships through its ownership of all of
the voting common stock, representing a 5% economic interest, in each of the
Crescent Subsidiaries.
NEW OWNERSHIP STRUCTURE
Effective March 12, 1999, the Company, Vornado, the
Temperature-Controlled Logistics Partnerships, the Temperature-Controlled
Logistics Corporations (including all affiliated entities that owned any portion
of the business operations of the Temperature-Controlled Logistics Properties at
that time) and COI restructured their investment in the Temperature-Controlled
Logistics Properties (the "Restructuring"). In the Restructuring, the
Temperature-Controlled Logistics Corporations (including all affiliated entities
that owned any portion of the business operations of the Temperature-Controlled
Logistics Properties) sold their ownership of the business operations to a newly
formed partnership ("AmeriCold Logistics") owned 60% by Vornado Operating L.P.
and 40% by a newly formed subsidiary of COI, in consideration of the payment of
$48.7 million by AmeriCold Logistics. AmeriCold Logistics, as lessee, 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 properties as
well as property capital expenditures in excess of $5.0 million annually.
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For the period of March 12, 1999 to December 31, 1999, base rent and percentage
rent was approximately $135.8 million of which base rent represented
approximately 80%. AmeriCold Logistics has the right to defer a portion of the
rent for up to three years beginning on March 12, 1999 to the extent that
available cash, as defined in the leases, is insufficient to pay such rent, and
pursuant thereto, rent was deferred as of December 31, 1999, of which the
Company's share was approximately $2.1 million.
In addition, in connection with the Restructuring and also effective in
March 1999, the Company purchased from COI an additional 4% nonvoting economic
interest in each of the Crescent Subsidiaries for an aggregate purchase price of
$13.2 million. As a result, the Company holds an indirect 39.6% interest in the
Temperature-Controlled Logistics Partnerships and COI holds an indirect 0.4%
interest in the Temperature-Controlled Logistics Partnerships. The Company also
granted COI an option to require the Company to purchase COI's remaining 1%
economic interest, representing all of the voting stock, in each of the Crescent
Subsidiaries at any time within the next two years, provided that such purchase
would not, in the opinion of counsel to the Company, adversely affect the status
of Crescent Equities as a REIT for an aggregate price, payable by the Company,
of approximately $3.4 million.
The Temperature-Controlled Logistics Corporations, directly or
indirectly owned, as of December 31, 1999, approximately 89
Temperature-Controlled Logistics Properties, with an aggregate of approximately
428.3 million cubic feet (17.0 million square feet), with the operations
conducted pursuant to arrangements with national food suppliers.
See Item 2. Properties for more information about the Company's
Temperature-Controlled Logistics Properties.
INDUSTRY INFORMATION
AmeriCold Logistics provides frozen food manufacturers with
refrigerated warehousing and transportation management services. The
Temperature-Controlled Logistics Properties consist of production and
distribution facilities. Production facilities differ from distribution
facilities in that they typically serve one or a small number of customers
located nearby. These customers store large quantities of processed or partially
processed products in the facility until they are further processed or shipped
to the next stage of production or distribution. Distribution facilities
primarily serve customers who store a wide variety of finished products to
support shipment to end-users, such as food retailers and food service
companies, in a specific geographic market.
Transportation management services offered include freight routing,
dispatching, freight rate negotiation, backhaul coordination, freight bill
auditing, network flow management, order consolidation and distribution channel
assessment. AmeriCold Logistics' temperature-controlled logistics expertise and
access to both the frozen food warehouses and distribution channels enable the
customers of AmeriCold Logistics to respond quickly and efficiently to
time-sensitive orders from distributors and retailers.
Customers consist primarily of national, regional and local frozen food
manufacturers, distributors, retailers and food service organizations, including
ConAgra, Inc., H.J. Heinz Company, Kraft Foods, Inc., McCain Foods and Tyson
Foods, Inc.
COMPETITION
AmeriCold Logistics is the largest operator of public refrigerated
warehouse space in the country. AmeriCold Logistics operated an aggregate of
approximately 30% of total public refrigerated warehouse space as of December
31, 1999. No other person or entity operated more than 8% of total public
refrigerated warehouse space as of December 31, 1999. As a result, AmeriCold
Logistics does not have any competitors of comparable size. AmeriCold Logistics
operates in an environment in which competition is national, regional and local
in nature and in which the range of service, temperature-controlled logistics
facilities, customer mix, service performance and price are the principal
competitive factors.
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BEHAVIORAL HEALTHCARE SEGMENT
OWNERSHIP STRUCTURE AND RECAPITALIZATION
As of December 31, 1999, the Behavioral Healthcare Segment consisted
of 88 Behavioral Healthcare Properties, all of which were leased to CBHS and its
subsidiaries under a triple-net master lease. CBHS is a Delaware limited
liability company which was formed to operate the behavioral healthcare
businesses located at the Behavioral Healthcare Properties and is owned 10% by a
subsidiary of Magellan and 90% by COI and an affiliate of COI. CBHS operates the
Behavioral Healthcare Properties through wholly owned subsidiaries.
CBHS's business has been negatively affected by many factors, including
adverse industry conditions. During 1999, CBHS failed to perform in accordance
with its operating budget. In the fourth quarter of 1999, the Company, COI,
Magellan and CBHS completed a recapitalization of CBHS. Pursuant to the
recapitalization, Magellan transferred its remaining hospital-based assets to
CBHS, canceled its accrued franchise fees and terminated the franchise
agreements, pursuant to which Magellan had provided certain services to CBHS in
exchange for certain franchise fees. The Company also deferred the monthly
rental payments due from CBHS for November and December 1999 and amended its
master lease with CBHS to provide a mechanism to terminate the master lease as
to certain Non-Core Behavioral Healthcare Properties, and agreed that, upon each
sale by the Company of Non-Core Behavioral Healthcare Properties, the monthly
minimum rent due from CBHS under the master lease would be reduced by a
specified percentage of the net proceeds of such sale. The Non-Core Behavioral
Healthcare Properties consist of 51 Properties at which CBHS has ceased
operations or is planning to cease operations.
PROPERTY ACQUISITIONS AND DISPOSITIONS
During the fourth quarter of 1999, the Company purchased two
Behavioral Healthcare Properties from Magellan for an aggregate purchase price
of approximately $7.1 million in satisfaction of its obligations under an
agreement with Magellan entered into in November 1998. In addition, during the
fourth quarter of 1999, the Company disposed of one Behavioral Healthcare
Property for approximately $1.4 million in net proceeds.
BANKRUPTCY PROCEEDINGS
On February 16, 2000, CBHS and all of its subsidiaries that are subject
to the master lease with the Company filed voluntary Chapter 11 bankruptcy
petitions in the United States Bankruptcy Court for the District of Delaware.
CBHS has stated in its bankruptcy petitions that it intends to sell all of the
ongoing businesses of CBHS and its subsidiaries by mid-May of 2000 or develop an
appropriate liquidation procedure if the sales have not taken place by that
time.
Effective February 29, 2000, pursuant to the referenced amendments to
the master lease, the Non-Core Properties ceased to be subject to the master
lease, although the aggregate rent due under the master lease was not reduced as
a result, except as described above with respect to sales of Non-Core
Properties. The Company is actively marketing these Properties for sale. From
January 1 through March 24, 2000, the Company sold 11 Non-Core Properties for
approximately $34.9 million in net proceeds. As a result of these sales and the
sale of the one Behavioral Healthcare Property during the fourth quarter of
1999, the amount of rent due under the master lease was reduced in accordance
with the amendments to the master lease. The Company has also entered into
contracts or letters of intent to sell an additional six Non-Core Properties.
The Company continues to actively market the remaining 34 Non-Core Properties
for sale.
As of December 31, 1999, the 37 Behavioral Healthcare Properties that
were not designated as Non-Core Properties are designated as Core Properties.
The Core Properties remain subject to the master lease. 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.
In conjunction with the bankruptcy proceedings, a new subsidiary of
COI entered into an agreement for the purchase of CBHS's core operating assets,
subject to certain conditions, and the Company agreed to lease the Core
Properties to the new subsidiary if it is successful in acquiring the core
operating assets of CBHS, subject to agreement on various terms of the lease and
certain additional conditions. COI has since announced that it does not expect
that the conditions will be satisfied and, therefore, does not expect to
conclude the purchase. The agreements expire on April 16, 2000 if the conditions
are not satisfied.
On April 24, 2000, an auction will be held for the core operating
assets of CBHS as part of the bankruptcy proceedings. The Company has agreed to
provide an acceptable sales price for each of the remaining 37 Behavioral
Healthcare Properties and, to the extent possible, acceptable lease terms for
continued operation of the Behavioral Healthcare Properties. Bidders will have
the opportunity to bid for any or all of the core operating assets of CBHS and,
in connection with a bid, either to bid to purchase the related Behavioral
Healthcare Property or Properties or to seek approval from the Company to lease
the Property or Properties. Proceeds from the sale of core operating assets of
CBHS will be available to pay creditors of CBHS. Proceeds from any sales of the
Behavioral Healthcare Properties will belong to the Company.
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INDUSTRY INFORMATION
In an era of cost-containment and the reduction of dollars available
for care, behavioral healthcare providers such as CBHS have focused attention on
developing treatment approaches that respond to payors' increasing demands for
shorter stays, lower costs, and expanded access to care. Changes in the mix of
services, the prices of services, and the intensity of service are all part of
this response. These changes have also been bolstered by a rapidly expanding
science base, improved medications management, and the growing availability of
non-hospital treatment settings in more and more communities that help to make
it possible to manage complex and severe illnesses in less intensive treatment
settings. One of the effects that the behavioral healthcare industry is
experiencing is an increasing percentage of outpatient care. According to the
National Association of Psychiatric Health Systems 1998 Annual Survey Report,
the most recent available report, nearly one in four admissions in 1997 was to a
service other than inpatient hospitalization, compared to just one in ten
admissions in 1992. Although outpatient admissions are increasing and inpatient
admissions also are increasing, average length of stay is decreasing.
Due to these changes in the behavioral healthcare industry, the
position of a hospital or other behavioral care facility, such as the facilities
operated at the Behavioral Healthcare Properties, relative to its competitors
has been affected by its ability to obtain contracts with HMOs, PPOs and other
managed care plans for the provision of health care services. Although such
contracts generally provide for discounted services, pre-admission on
certification and concurrent length of stay reviews, they also provide a strong
patient referral base. The importance of entering into contracts with HMOs, PPOs
and other managed care companies varies from market to market and depends upon
the market strength of the particular managed care company.
The behavioral healthcare industry in general, and the facilities
operated at the Behavioral Healthcare Properties in particular, are influenced
by the cyclical nature of the business, with a reduced demand for services
during the summer months and around major holidays.
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COMPETITION
In general, the operation of behavioral healthcare programs is
characterized by intense competition. The Company anticipates that competition
will become more intense as pressure to contain the rising costs of health care
increases, particularly as programs such as those that are or may be operated at
the Behavioral Healthcare Properties are perceived to help contain mental health
care costs. Each of the facilities operated at the Behavioral Healthcare
Properties competes with other hospitals and behavioral healthcare facilities.
Some competing facilities are owned and operated by governmental agencies,
others by nonprofit organizations supported by endowments and charitable
contributions. The facilities operated at the Behavioral Healthcare Properties
frequently draw patients from areas outside their immediate locale and,
therefore, these facilities may, in certain markets, compete with both local and
distant hospitals and other facilities. In addition, the facilities operated at
the Behavioral Healthcare Properties compete not only with other psychiatric
hospitals, but also with psychiatric units in general hospitals. With respect to
outpatient services, the facilities operated at the Behavioral Healthcare
Properties compete with private practicing mental health professionals, publicly
funded mental health centers, and partial hospitalization and other intensive
outpatient services programs and facilities. The competitive position of a
particular facility is, to a significant degree, dependent upon the number and
quality of physicians who practice at the facility and who are members of its
medical staff. There can be no assurance that any operator of the behavioral
healthcare facilities will be able to compete effectively with its present or
future competitors, and any such inability could have a material adverse effect
on the operator's business, financial condition and results of operations and,
accordingly, on its ability to make rental payments to the Company.
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ITEM 2. PROPERTIES
The Company considers all of its Properties to be in good condition,
well-maintained and suitable and adequate to carry on the Company's business.
OFFICE PROPERTIES
As of December 31, 1999, the Company owned 89 Office Properties located
in 31 metropolitan submarkets in nine states with an aggregate of approximately
31.8 million net rentable square feet. The Company's Office Properties are
located primarily in the Dallas/Fort Worth and Houston, Texas metropolitan
areas. As of December 31, 1999, the Company's Office Properties in Dallas/Fort
Worth and Houston represented an aggregate of approximately 72% of its office
portfolio based on total net rentable square feet (39% for Dallas/Fort Worth and
33% for Houston).
In pursuit of management's objective to dispose of non-strategic and
non-core assets, the Company was actively marketing for sale its wholly owned
interests in 10 Office Properties at December 31, 1999. The Office Properties
targeted for disposition represented an aggregate of approximately 2.9 million
net rentable square feet in Dallas, Texas; Denver, Colorado; New Orleans,
Louisiana; and Omaha, Nebraska. As of March 24, 2000, the Company completed the
sale of six of the 10 Office Properties. The Office Properties sold were: The
Amberton, Concourse Office Park, The Meridian, and Walnut Green Office
Properties located in Dallas, Texas; the Energy Centre Office Property located
in New Orleans, Louisiana; and the Central Park Plaza Office Property located in
Omaha, Nebraska.
In addition, the Company has entered into contracts relating to the
sale of two additional Office Properties: the AT&T Building located in Denver,
Colorado; and One Preston Park located in Dallas, Texas. The sales of these
Properties are expected to close by the end of the second quarter of 2000.
Management expects to complete any economically justified sales of the remaining
two Office Properties (Valley Centre located in Dallas, Texas; and 1615 Poydras
located in New Orleans, Louisiana) by the end of the second quarter of 2000.
Management is currently in the process of evaluating the bids for the remaining
Properties to determine their economic viability as well as the
credit-worthiness of the potential purchasers and their ability to close the
transactions. The disposition of these Office Properties remains subject to the
negotiation of acceptable terms and other customary conditions.
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 office/venture tech properties located in The Woodlands, which
includes the Company's 12 Office Properties located in The Woodlands with an
aggregate of approximately 0.8 million net rentable square feet. The sale of The
Woodlands Office Properties is expected to close in the second quarter of 2000.
OFFICE PROPERTIES TABLES
The following table shows, as of December 31, 1999, certain information
about the Company's Office Properties. Based on rental revenues from office and
retail leases in effect as of December 31, 1999, no single tenant accounted for
more than 4% of the Company's total Office and Retail segment rental revenues
for 1999.
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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)
--------------------- ---------- --------- --------- ----------- ------- ------------
TEXAS
DALLAS
Bank One Center (2) 1 CBD 1987 1,530,957 76% $21.94
The Crescent Office Towers 1 Uptown/Turtle Creek 1985 1,204,670 98 30.67
Fountain Place 1 CBD 1986 1,200,266 94 19.42
Trammell Crow Center (3) 1 CBD 1984 1,128,331 78(5) 23.87
Stemmons Place 1 Stemmons Freeway 1983 634,381 86 15.48
Spectrum Center (4) 1 Far North Dallas 1983 598,250 91 22.99
Waterside Commons 1 Las Colinas 1986 458,739 100 19.79
Caltex House 1 Las Colinas 1982 445,993 95 28.78
Reverchon Plaza 1 Uptown/Turtle Creek 1985 374,165 96 19.77
The Aberdeen 1 Far North Dallas 1986 320,629 100 18.44
MacArthur Center I & II 1 Las Colinas 1982/1986 294,069 99 21.04
Stanford Corporate Centre 1 Far North Dallas 1985 265,507 86(5) 18.69
The Amberton 1 Central Expressway 1982 255,052 79 13.94
Concourse Office Park 1 LBJ Freeway 1972-1986 244,879 89 15.54
12404 Park Central 1 LBJ Freeway 1987 239,103 100 21.24
Palisades Central II 1 Richardson/Plano 1985 237,731 62(5) 17.52
3333 Lee Parkway 1 Uptown/Turtle Creek 1983 233,769 92 21.13
Liberty Plaza I & II 1 Far North Dallas 1981/1986 218,813 100 15.71
The Addison 1 Far North Dallas 1981 215,016 100 18.54
The Meridian 1 LBJ Freeway 1984 213,915 94 17.32
Palisades Central I 1 Richardson/Plano 1980 180,503 84(5) 17.63
Walnut Green 1 Central Expressway 1986 158,669 72 16.21
Greenway II 1 Richardson/Plano 1985 154,329 100 22.59
Addison Tower 1 Far North Dallas 1987 145,886 91 16.82
Greenway I & IA 2 Richardson/Plano 1983 146,704 100 23.00
5050 Quorum 1 Far North Dallas 1981 133,594 89 17.19
Cedar Springs Plaza 1 Uptown/Turtle Creek 1982 110,923 96 18.20
Valley Centre 1 Las Colinas 1985 74,861 87(5) 17.70
One Preston Park 1 Far North Dallas 1980 40,525 71 18.08
-- ---------- --- ------
Subtotal/Weighted Average 30 11,460,229 89% $21.47
-- ---------- --- ------
FORT WORTH
UPR Plaza 1 CBD 1982 954,895 95% $15.29
-- ---------- --- ------
HOUSTON
Greenway Plaza Office Portfolio 10 Richmond-Buffalo 1969-1982 4,286,277 91%(5) $17.34
Speedway
Houston Center 3 CBD 1974-1983 2,764,418 96 17.21
Post Oak Central 3 West Loop/Galleria 1974-1981 1,277,516 93 17.80
The Woodlands Office Properties (6) 12 The Woodlands 1980-1996 811,067 92 16.33
Four Westlake Park 1 Katy Freeway 1992 561,065 100 18.53
Three Westlake Park (7)(8) 1 Katy Freeway 1983 414,251 62 19.81
1800 West Loop South 1 West Loop/Galleria 1982 399,777 60(5) 17.31
-- ---------- --- ------
Subtotal/Weighted Average 31 10,514,371 91% $17.42
-- ---------- --- ------
AUSTIN
Frost Bank Plaza 1 CBD 1984 433,024 96% $22.54
301 Congress Avenue (9) 1 CBD 1986 418,338 97 23.84
Bank One Tower 1 CBD 1974 389,503 94 19.41
Austin Centre 1 CBD 1986 343,665 91 21.61
The Avallon 1 Northwest 1993/1997 232,301 100 22.40
Barton Oaks Plaza One 1 Southwest 1986 99,895 100 21.93
-- ---------- --- ------
Subtotal/Weighted Average 6 1,916,726 96% $22.00
-- ---------- --- ------
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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)
--------------------- ---------- --------- --------- ----------- ------- ------------
COLORADO
DENVER
MCI Tower 1 CBD 1982 550,807 99% $18.08
Ptarmigan Place 1 Cherry Creek 1984 418,630 97(5) 18.49
Regency Plaza One 1 DTC 1985 309,862 97 22.88
AT&T Building 1 CBD 1982 184,581 82(5) 15.33
The Citadel 1 Cherry Creek 1987 130,652 92 21.97
55 Madison 1 Cherry Creek 1982 137,176 86(5) 18.90
44 Cook 1 Cherry Creek 1984 124,174 99 19.27
-- ---------- --- ------
Subtotal/Weighted Average 7 1,855,882 95% $19.18
-- ---------- --- ------
COLORADO SPRINGS
Briargate Office and
and Research Center 1 Colorado Springs 1988 252,857 100% $18.98
-- ---------- --- ------
LOUISIANA
NEW ORLEANS
Energy Centre 1 CBD 1984 761,500 82%(5) $15.53
1615 Poydras 1 CBD 1984 508,741 83 16.33
-- ---------- --- ------
Subtotal/Weighted Average 2 1,270,241 83% $15.85
-- ---------- --- ------
FLORIDA
MIAMI
Miami Center 1 CBD 1983 782,686 79%(5) $23.46
Datran Center 2 South Dade/Kendall 1986/1988 472,236 91(5) 21.68
-- ---------- --- ------
Subtotal/Weighted Average 3 1,254,922 83% $22.72
-- ---------- --- ------
ARIZONA
PHOENIX
Two Renaissance Square 1 Downtown/CBD 1990 476,373 96% $23.90
6225 North 24th Street 1 Camelback Corridor 1981 86,451 100 21.86
-- ---------- --- ------
Subtotal/Weighted Average 2 562,824 97% $23.57
-- ---------- --- ------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour 2 Georgetown 1986 536,206 94%(5) $37.04
-- ---------- --- ------
NEBRASKA
OMAHA
Central Park Plaza 1 CBD 1982 409,850 94% $15.88
-- ---------- --- ------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza 1 CBD 1990 366,236 92% $18.97
-- ---------- --- ------
CALIFORNIA
SAN FRANCISCO
160 Spear Street 1 South of Market/CBD 1984 276,420 99% $25.82
-- ---------- --- ------
SAN DIEGO
Chancellor Park (10) 1 UTC 1988 195,733 91%(5) $22.40
-- ---------- --- ------
TOTAL/WEIGHTED AVERAGE 89 31,827,392 91%(5) $19.90(11)
== ========== === ======
19
21
- ----------------
(1) Calculated based on base rent payable as of December 31, 1999, without
giving effect to free rent or scheduled rent increases that would be
taken into account under GAAP and including adjustments for expenses
payable by or reimbursable from tenants.
(2) The Company has a 49.5% limited partner interest and a 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 December 31, 1999. If such leases had commenced as of
December 31, 1999, the percent leased for all Office Properties would
have been 93%. The total percent leased for these Properties would have
been as follows: Trammell Crow Center - 89%; Stanford Corporate Center
- 92%; Palisades Central II - 69%; Palisades Central I - 95%; Valley
Centre - 90%; Greenway Plaza Office Portfolio- 96%; 1800 West Loop
South - 65%; Ptarmigan Place - 100%; AT&T Building - 89%; 55 Madison -
93%; Energy Centre - 86%; Miami Center - 87%; Datran Center - 95%;
Washington Harbour - 100%; and Chancellor Park - 94%.
(6) The Company has a 75% limited partner interest and an approximate 10%
indirect general partner interest in the partnership that owns the 12
Office Properties that comprise The Woodlands Office Properties.
(7) The Property was primarily occupied by a major tenant until June 1999,
at which time the tenant made a payment of $4.7 million in connection
with its termination of the lease. Simultaneously with the lease
termination, the Company leased approximately 41% of the vacated space
to a new tenant pursuant to a lease which commenced September 1, 1999.
An additional 21% of the vacated space was leased and commenced prior
to December 31, 1999.
(8) As of December 31, 1999, the Company owned the principal economic
interest in Three Westlake Park through its ownership of a mortgage
note secured by Three Westlake Park. Effective January 7, 2000, the
Property was conveyed to the Company by a deed in lieu of foreclosure,
and as a result, the Company now owns Three Westlake Park in fee
simple.
(9) The Company has a 1% general partner interest and a 49% limited partner
interest in the partnership that owns 301 Congress Avenue.
(10) The Company owns Chancellor Park through its ownership of a mortgage
note secured by the building and through its direct and indirect
interests in the partnership which owns the building.
(11) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Company Office Properties as
of December 31, 1999, giving effect to free rent and scheduled rent
increases that would be taken into consideration under GAAP and
including adjustments for expenses payable by or reimbursed from
tenants is $20.38.
20
22
The following table provides information, as of December 31, 1999, for the
Company's Office Properties by state, city, and submarket.
PERCENT OFFICE COMPANY
PERCENT OF LEASED AT SUBMARKET SHARE OF
TOTAL TOTAL COMPANY PERCENT OFFICE
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2)
- -------------------------- ---------- ------- ---------- ---------- ----------- ---------
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD 3 3,859,554 12% 82%(6) 86% 21%
Uptown/Turtle Creek 4 1,923,527 6 97 90 32
Far North Dallas 7 1,897,695 6 94 76 18
Las Colinas 4 1,273,662 4 97 83 12
Richardson/Plano 5 719,267 2 84(6) 82 14
Stemmons Freeway 1 634,381 2 86 76 26
LBJ Freeway 2 453,018 1 97 84 5
-- ---------- --- --- -- ---
Subtotal/Weighted Average 26 10,761,104 33% 90% 83% 17%
-- ---------- --- --- -- ---
FORT WORTH
CBD 1 954,895 3% 95% 87% 24%
-- ---------- --- --- -- ---
HOUSTON
CBD 3 2,764,418 8% 96% 97% 11%
Richmond-Buffalo Speedway 6 2,735,030 8 91(6) 95 56
West Loop/Galleria 4 1,677,293 5 85 94 13
Katy Freeway 2 975,316 3 84 80 13
The Woodlands 7 487,320 2 90 88 100
-- ---------- --- --- -- ---
Subtotal/Weighted Average 22 8,639,377 26% 90% 93% 17%
-- ---------- --- --- -- ---
AUSTIN
CBD 4 1,584,530 5% 95% 98% 44%
Northwest 1 232,301 1 100 87 10
Southwest 1 99,895 0 100 99 4
-- ---------- --- --- -- ---
Subtotal/Weighted Average 6 1,916,726 6% 96% 95% 23%
-- ---------- --- --- -- ---
COLORADO
DENVER
Cherry Creek 4 810,632 3% 95% 87% 45%
CBD 2 735,388 2 95 97 7
DTC 1 309,862 1 97 89 6
-- ---------- --- --- -- ---
Subtotal/Weighted Average 7 1,855,882 6% 95% 93% 11%
-- ---------- --- --- -- ---
COLORADO SPRINGS
Colorado Springs 1 252,857 1% 100% 93% 6%
-- ---------- --- --- -- ---
LOUISIANA
NEW ORLEANS
CBD 2 1,270,241 4% 83% 87% 14%
-- ---------- --- --- -- ---
FLORIDA
MIAMI
CBD 1 782,686 3% 79%(6) 93% 23%
South Dade/Kendall 2 472,236 2 91(6) 93 100
-- ---------- --- --- -- ---
Subtotal/Weighted Average 3 1,254,922 5% 83% 93% 33%
-- ---------- --- --- -- ---
ARIZONA
PHOENIX
Downtown/CBD 1 476,373 2% 97% 97% 27%
Camelback Corridor 1 86,451 0 100 95 2
-- ---------- --- --- -- ---
Subtotal/Weighted Average 2 562,824 2% 97% 96% 10%
-- ---------- --- --- -- ---
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown 2 536,206 2% 94%(6) 98% 100%
-- ---------- --- --- -- ---
NEBRASKA
OMAHA
CBD 1 409,850 1% 94% 96% 32%
-- ---------- --- --- -- ---
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
QUOTED QUOTED SERVICE
MARKET RENTAL RENTAL
RENTAL RATE RATE PER RATE PER
PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(2)(3) FOOT(4) FOOT(5)
- -------------------------- ----------- -------- --------
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD $22.63 $25.99 $21.57
Uptown/Turtle Creek 26.55 30.06 26.79
Far North Dallas 24.53 24.26 19.33
Las Colinas 25.09 25.39 23.05
Richardson/Plano 23.47 23.25 20.17
Stemmons Freeway 23.10 19.75 15.48
LBJ Freeway 24.00 21.61 19.46
------ ------ ------
Subtotal/Weighted Average $24.10 $25.61 $21.83
------ ------ ------
FORT WORTH
CBD $19.38 $19.54 $15.29
------ ------ ------
HOUSTON
CBD $23.00 $23.82 $17.21
Richmond-Buffalo Speedway 20.60 21.38 18.43
West Loop/Galleria 22.07 23.04 17.71
Katy Freeway 22.26 24.44 18.94
The Woodlands 16.54 16.54 16.81
------ ------ ------
Subtotal/Weighted Average $21.61 $22.56 $17.85
------ ------ ------
AUSTIN
CBD $30.04 $31.08 $21.94
Northwest 27.81 27.00 22.40
Southwest 27.57 24.50 21.93
------ ------ ------
Subtotal/Weighted Average $29.64 $30.24 $22.00
------ ------ ------
COLORADO
DENVER
Cherry Creek $23.59 $22.30 $19.23
CBD 24.71 22.75 17.46
DTC 25.41 26.00 22.88
------ ------ ------
Subtotal/Weighted Average $24.34 $23.09 $19.18
------ ------ ------
COLORADO SPRINGS
Colorado Springs $19.99 $21.29 $18.98
------ ------ ------
LOUISIANA
NEW ORLEANS
CBD $16.43 $16.10 $15.85
------ ------ ------
FLORIDA
MIAMI
CBD $28.96 $30.50 $23.46
South Dade/Kendall 23.46 23.46 21.68
------ ------ ------
Subtotal/Weighted Average $26.89 $27.85 $22.72
------ ------ ------
ARIZONA
PHOENIX
Downtown/CBD $23.02 $22.00 $23.90
Camelback Corridor 27.36 21.00 21.86
------ ------ ------
Subtotal/Weighted Average $23.69 $21.85 $23.57
------ ------ ------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown $36.68 $36.68 $37.04
------ ------ ------
NEBRASKA
OMAHA
CBD $18.61 $18.50 $15.88
------ ------ ------
21
23
PERCENT OFFICE COMPANY
PERCENT OF LEASED AT SUBMARKET SHARE OF
TOTAL TOTAL COMPANY PERCENT OFFICE
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2)
- -------------------------- ---------- ------- ---------- ---------- ----------- ---------
NEW MEXICO
ALBUQUERQUE
CBD 1 366,236 1% 92% 95% 64%
-- ---------- --- --- -- ---
CALIFORNIA
SAN FRANCISCO
South of Market/CBD 1 276,420 1% 99% 98% 2%
-- ---------- --- --- -- ---
SAN DIEGO
UTC 1 195,733 1% 91%(6) 93% 7%
-- ---------- --- --- -- ---
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 76 29,253,273 92% 91% 90% 16%
== ========== === === == ===
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway 2 413,721 1% 76% 84% 11%
LBJ Freeway 1 244,879 1 89 81 2
Far North Dallas 1 40,525 0 71 83 0
-- ---------- --- --- -- ---
Subtotal/Weighted Average 4 699,125 2% 80% 82% 3%
-- ---------- --- --- -- ---
HOUSTON
Richmond-Buffalo Speedway 4 1,551,247 5% 90% 94% 47%
The Woodlands 5 323,747 1 96 96 100
-- ---------- --- --- -- ---
Subtotal/Weighted Average 9 1,874,994 6% 91% 94% 51%
-- ---------- --- --- -- ---
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 13 2,574,119 8% 88% 84% 9%
== ========== === === == ===
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED AVERAGE 89 31,827,392 100% 91%(6) 89% 15%
== ========== === === == ===
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
QUOTED QUOTED SERVICE
MARKET RENTAL RENTAL
RENTAL RATE RATE PER RATE PER
PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(2)(3) FOOT(4) FOOT(5)
- -------------------------- ----------- -------- --------
NEW MEXICO
ALBUQUERQUE
CBD $19.10 $19.50 $18.97
------ ------ ------
CALIFORNIA
SAN FRANCISCO
South of Market/CBD $49.30 $42.00 $25.82
------ ------ ------
SAN DIEGO
UTC $29.88 $30.30 $22.40
------ ------ ------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE $23.70 $24.44 $20.28
------ ------ ------
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway $18.44 $18.78 $14.78
LBJ Freeway 19.03 18.40 15.54
Far North Dallas 19.88 19.50 18.08
------ ------ ------
Subtotal/Weighted Average $18.73 $18.69 $15.25
------ ------ ------
HOUSTON
Richmond-Buffalo Speedway $18.85 $20.24 $15.37
The Woodlands 15.07 15.07 15.65
------ ------ ------
Subtotal/Weighted Average $18.20 $19.35 $15.42
------ ------ ------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE $18.34 $19.17 $15.38
====== ====== ======
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED AVERAGE $23.27 $24.01 $19.90(7)
====== ====== ======
- -----------------------
(1) NRA means net rentable area in square feet.
(2) Market information is for Class A office space under the caption "Class A
Office Properties" and market information is for Class B office space under
the caption "Class B Office Properties." Sources are CoStar/Jamison, (for
the Dallas CBD, Uptown/Turtle Creek, Far North Dallas, Las Colinas,
Richardson/Plano, Stemmons Freeway, LBJ Freeway and Central Expressway, Fort
Worth CBD and the New Orleans CBD submarkets), The Baca Group (for the
Houston Richmond-Buffalo Speedway, CBD and West Loop/Galleria and Katy
Freeway submarkets), The Woodlands Operating Company, L.P. (for The
Woodlands submarket), CB Richard Ellis (for the Austin CBD, Northwest and
Southwest submarkets), Cushman & Wakefield of Colorado, Inc. (for the Denver
Cherry Creek, CBD and DTC submarkets), Turner Commercial Research (for the
Colorado Springs market), Grubb and Ellis Company (for the Phoenix
Downtown/CBD, Camelback Corridor and San Francisco South of Market/CBD
submarkets), Grubb and Ellis Company and the Company (for the Washington
D.C. Georgetown submarket), Grubb and Ellis/Pacific Realty Group, Inc. (for
the Omaha CBD submarket), Building Interests, Inc. (for the Albuquerque CBD
submarket), RealData Information Systems, Inc. (for the Miami CBD and South
Dade/Kendall submarkets) and CoStar/John Burnham & Company (for the San
Diego UTC submarket).
(3)Represents full-service quoted market rental rates. These rates do not
necessarily represent the amounts at which available space at the Office
Properties will be leased. The weighted average subtotals and total are
based on total net rentable square feet of Company Office Properties in the
submarket.
(4)For Office Properties, represents weighted average rental rates per square
foot quoted by the Company as of December 31, 1999, based on total net
rentable square feet of Company Office Properties in the submarket,
adjusted, if necessary, based on management estimates, to equivalent
full-service quoted rental rates to facilitate comparison to weighted
average Class A or Class B, as the case may be, quoted submarket rental
rates per square foot. These rates do not necessarily represent the amounts
at which available space at the Company's Office Properties will be leased.
(5) Calculated based on base rent payable for Company Office Properties in the
submarket as of December 31, 1999, without giving effect to free rent or
scheduled rent increases that would be taken into account under GAAP and
including adjustments for expenses payable by or reimbursed from tenants,
divided by total net rentable square feet of Company Office Properties in
the submarket.
(6) Leases have been executed at certain Properties in these submarkets but had
not commenced as of December 31, 1999. If such leases had commenced as of
December 31, 1999, the percent leased for all Office Properties in the
Company's submarkets would have been 93%. The total percent leased for these
Class A Company submarkets would have been as follows: Dallas CBD - 86%;
Dallas Richardson/Plano - 88%; Houston Richmond - Buffalo Speedway - 96%;
Miami CBD - 87%; Miami South Dade/Kendall - 95%; Washington D.C. Georgetown
- 100%; and San Diego UTC - 94%.
(7) The weighted average full-service rental rate per square foot calculated
based on base rent payable for Company Office Properties as of December 31,
1999, giving effect to free rent and scheduled rent increases that would be
taken into consideration under GAAP and including adjustments for expenses
payable by or reimbursed from tenants is $20.38.
22
24
The following table shows, as of December 31, 1999, the principal
businesses conducted by the tenants at the Company's Office Properties, based on
information supplied to the Company from the tenants.
Percent of
Industry Sector Leased Sq. Ft.
- ------------------------------ -----------------
Professional Services (1) 27%
Financial Services (2) 20
Energy (3) 19
Telecommunications 7
Technology 6
Retail 4
Medical 3
Food Service 3
Manufacturing 3
Government 2
Other (4) 6
---
TOTAL LEASED 100%
===
- ----------
(1) Includes legal, accounting, engineering, architectural, and advertising
services.
(2) Includes banking, title and insurance, and investment services.
(3) Of the 19% of energy tenants at the Company's Office Properties, 63% are
located in Houston, 24% are located in Dallas, 7% are located in Denver and
6% are located in New Orleans. Of the 63% of energy tenants located in
Houston (approximately 3.7 million square feet), 66% (approximately 2.4
million square feet) are obligated under long-term leases (expiring in 2004
or later).
(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 December 31, 1999 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
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)
- -------------------- ------------ ------------------ --------------- ------------------ ------------- --------------
2000 588 3,733,754(2) 13.1% 72,033,578 11.9% $19.29
2001 413 3,757,711 13.2 72,588,010 12.0 19.32
2002 407 4,054,356 14.2 85,179,300 14.0 21.01
2003 294 2,892,182 10.1 56,714,636 9.3 19.61
2004 297 4,436,077 15.6 95,012,506 15.7 21.42
2005 91 2,475,989 8.7 55,123,113 9.0 22.26
2006 44 1,173,796 4.1 26,581,991 4.4 22.65
2007 40 1,406,752 4.9 32,078,424 5.3 22.80
2008 32 1,111,917 3.9 27,829,120 4.6 25.03
2009 19 624,431 2.2 16,345,094 2.7 26.18
2010 and thereafter 25 2,851,241 10.0 67,484,874 11.1 23.67
----- ---------- ----- ------------ ----- ------
2,250 28,518,206(3) 100.0% $606,970,646 100.0% $21.28
===== ========== ===== ============ ===== ======
- ----------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled
rent increases that would be taken into account under GAAP and
including adjustments for expenses payable by or reimbursable from
tenants based on current levels.
(2) As of December 31, 1999, leases have been signed for approximately
1,655,276 net rentable square feet (including renewed leases and leases
of previously unleased space) commencing in 2000.
(3) Reconciliation to the Company's total Office Property net rentable
area is as follows:
23
25
SQUARE PERCENTAGE
FEET OF TOTAL
------ ----------
Square footage leased to tenants 28,518,206 89.6 %
Square footage reflecting
management offices, building use,
and remeasurement adjustments 284,295 0.9
Square footage vacant 3,024,891 9.5
---------- -----
Total net rentable square footage 31,827,392 100.0%
========== =====
DALLAS OFFICE PROPERTIES
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)
- ---------