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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 2002
COMMISSION FILE NO. 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 52-1862813
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
777 Main Street, Suite 2100, Fort Worth, Texas 76102
- --------------------------------------------------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code (817) 321-2100
Number of shares outstanding of each of the registrant's classes of preferred
and common shares, as of November 8, 2002.
Common Shares, par value $.01 per share: 100,970,702
Series A Preferred Shares, liquidation preference of $25 per share: 10,800,000
Series B Preferred Shares, liquidation preference of $25 per share: 3,400,000
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
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CRESCENT REAL ESTATE EQUITIES COMPANY
FORM 10-Q
TABLE OF CONTENTS
PAGE
----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2002 (unaudited) and December 31, 2001
(audited)............................................................................. 2
Consolidated Statements of Operations for the three and nine months ended September
30, 2002 and 2001 (unaudited)......................................................... 3
Consolidated Statement of Shareholders' Equity for the nine months ended
September 30, 2002 (unaudited)........................................................ 4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002
and 2001 (unaudited).................................................................. 5
Notes to Financial Statements......................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 43
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 100
Item 4. Controls and Procedures............................................................... 100
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 101
Item 2. Changes in Securities and Use of Proceeds............................................. 101
Item 3. Defaults Upon Senior Securities....................................................... 101
Item 4. Submission of Matters to a Vote of Security Holders................................... 101
Item 5. Other Information..................................................................... 101
Item 6. Exhibits and Reports on Form 8-K...................................................... 101
1
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
(UNAUDITED) (AUDITED)
ASSETS:
Investments in real estate:
Land $ 307,406 $ 246,416
Land held for investment or development 471,440 108,274
Building and improvements 2,955,237 2,910,822
Furniture, fixtures and equipment 110,475 72,246
Properties held for disposition, net 20,997 76,309
Less - accumulated depreciation (714,867) (634,144)
------------- -------------
Net investment in real estate 3,150,688 2,779,923
Cash and cash equivalents 82,642 36,285
Restricted cash and cash equivalents 104,060 115,531
Accounts receivable, net 42,605 28,654
Deferred rent receivable 60,850 66,362
Investments in real estate mortgages and equity
of unconsolidated companies 553,743 838,317
Notes receivable, net 117,590 132,065
Income tax asset-current and deferred, net 37,123 --
Other assets, net 191,810 145,012
------------- -------------
Total assets $ 4,341,111 $ 4,142,149
============= =============
LIABILITIES:
Borrowings under credit facility $ 179,000 $ 283,000
Notes payable 2,233,544 1,931,094
Accounts payable, accrued expenses and other liabilities 362,633 220,068
------------- -------------
Total liabilities 2,775,177 2,434,162
------------- -------------
COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS:
Operating partnership, 6,541,234 and 6,594,521 units,
respectively 61,792 69,910
Consolidated real estate partnerships 72,203 232,137
------------- -------------
Total minority interests 133,995 302,047
------------- -------------
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value, authorized 100,000,000 shares:
Series A Convertible Cumulative Preferred Shares,
liquidation preference $25.00 per share,
10,800,000 and 8,000,000 shares issued and outstanding
at September 30, 2002 and December 31, 2001, respectively 248,160 200,000
Series B Cumulative Preferred Shares,
liquidation preference of $25.00 per share,
3,400,000 shares issued and outstanding at September 30, 2002 81,923 --
Common shares, $.01 par value, authorized 250,000,000 shares,
124,147,297 and 123,396,017 shares issued and outstanding
at September 30, 2002 and December 31, 2001, respectively 1,235 1,227
Additional paid-in capital 2,241,831 2,234,360
Deferred compensation on restricted shares (5,253) --
Accumulated deficit (717,667) (638,435)
Accumulated other comprehensive income (30,215) (31,484)
------------- -------------
1,820,014 1,765,668
Less - shares held in treasury, at cost, 20,260,299 and 18,770,418
common shares at September 30, 2002 and December 31, 2001, respectively (388,075) (359,728)
------------- -------------
Total shareholders' equity 1,431,939 1,405,940
------------- -------------
Total liabilities and shareholders' equity $ 4,341,111 $ 4,142,149
============= =============
The accompanying notes are an integral part of these financial statements.
2
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
REVENUE:
Office property $ 146,773 $ 151,253 $ 429,297 $ 456,311
Resort/Hotel property 56,110 12,449 148,157 44,523
Residential Development property 43,837 -- 176,887 --
Interest and other income 1,781 9,710 5,850 36,347
--------- --------- --------- ---------
Total revenue 248,501 173,412 760,191 537,181
--------- --------- --------- ---------
EXPENSE:
Office property real estate taxes 17,897 20,720 59,215 64,916
Office property operating expenses 44,278 44,149 129,931 131,424
Resort/Hotel property expense 44,599 -- 110,701 --
Residential Development property expense 42,110 -- 161,319 --
Corporate general and administrative 8,121 6,221 19,846 18,374
Interest expense 47,149 44,908 135,871 139,189
Amortization of deferred financing costs 2,701 2,439 7,722 7,171
Depreciation and amortization 38,314 31,004 106,936 90,940
Impairment and other charges related
to real estate assets -- 3,608 -- 18,932
--------- --------- --------- ---------
Total expense 245,169 153,049 731,541 470,946
--------- --------- --------- ---------
Operating income 3,332 20,363 28,650 66,235
--------- --------- --------- ---------
OTHER INCOME AND EXPENSE:
Equity in net income (loss) of unconsolidated companies:
Office properties 874 1,520 3,655 3,841
Resort/Hotel Properties (91) -- (91) --
Residential development properties 4,272 7,263 22,934 27,703
Temperature-controlled logistics properties (3,101) (2,066) (3,828) 2,285
Other (755) 1,686 (5,281) 2,896
--------- --------- --------- ---------
Total equity in net income of unconsolidated companies 1,199 8,403 17,389 36,725
--------- --------- --------- ---------
Gain on property sales, net 23,162 1,099 22,238 727
--------- --------- --------- ---------
Total other income and expense 24,361 9,502 39,627 37,452
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS, INCOME TAXES,
DISCONTINUED OPERATIONS, EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 27,693 29,865 68,277 103,687
Minority interests (4,075) (7,955) (17,177) (25,909)
Income tax benefit 2,731 -- 6,596 --
--------- --------- --------- ---------
INCOME BEFORE DISCONTINUED OPERATIONS, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 26,349 21,910 57,696 77,778
Discontinued operations - income and gain on assets
sold and held for sale 1,400 549 6,430 1,693
Extraordinary item - extinguishment of debt -- -- -- (10,802)
Cumulative effect of a change in accounting principle -- -- (10,465) --
--------- --------- --------- ---------
NET INCOME 27,749 22,459 53,661 68,669
Series A Preferred Share distributions (4,556) (3,375) (12,146) (10,125)
Series B Preferred Share distributions (2,019) -- (3,028) --
--------- --------- --------- ---------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 21,174 $ 19,084 $ 38,487 $ 58,544
========= ========= ========= =========
BASIC EARNINGS PER SHARE DATA:
Net income before discontinued operations, extraordinary item and
cumulative effect of a change in accounting principle $ 0.19 $ 0.17 $ 0.41 $ 0.63
Discontinued operations - income and gain on assets
sold and held for sale 0.01 0.01 0.06 0.01
Extraordinary item - extinguishment of debt -- -- -- (0.10)
Cumulative effect of a change in accounting principle -- -- (0.10) --
--------- --------- --------- ---------
Net income - basic $ 0.20 $ 0.18 $ 0.37 $ 0.54
========= ========= ========= =========
DILUTED EARNINGS PER SHARE DATA:
Net income before discontinued operations, extraordinary item and
cumulative effect of a change in accounting principle $ 0.19 $ 0.17 $ 0.41 $ 0.62
Discontinued operations - income and gain on assets
sold and held for sale 0.01 -- 0.06 0.01
Extraordinary item - extinguishment of debt -- -- -- (0.10)
Cumulative effect of a change in accounting principle -- -- (0.10) --
--------- --------- --------- ---------
Net income - diluted $ 0.20 $ 0.17 $ 0.37 $ 0.53
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
3
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENT
OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Series A Series B
Preferred Shares Preferred Shares Treasury Shares
--------------------------- --------------------------- --------------------------
Shares Net Value Shares Net Value Shares Net Value
------------ ------------ ------------ ------------ ----------- ------------
SHAREHOLDERS' EQUITY, December 31, 2001 8,000,000 $ 200,000 -- $ -- 18,770,418 $ (359,728)
Issuance of Preferred Shares 2,800,000 48,160 3,400,000 81,923 -- --
Issuance of Common Shares -- -- -- -- -- --
Exercise of Common Share Options -- -- -- -- -- --
Extension on employee stock option notes -- -- -- -- --
Deferred Compensation -- -- -- -- -- --
Issuance of Shares in Exchange for Operating
Partnership Units -- -- -- -- -- --
Share Repurchases -- -- -- -- 1,489,881 (28,347)
Dividends Paid -- -- -- -- -- --
Net Income -- -- -- -- -- --
Unrealized Loss on Marketable Securities -- -- -- -- -- --
Unrealized Net Gain on Cash Flow Hedges -- -- -- -- -- --
------------ ------------ ------------ ------------ ----------- ------------
SHAREHOLDERS' EQUITY, September 30, 2002 10,800,000 $ 248,160 3,400,000 $ 81,923 20,260,299 $ (388,075)
============ ============ ============ ============ =========== ============
Deferred
Common Shares Additional Compensation
---------------------------- Paid-in on Restricted Accumulated
Shares Par Value Capital Shares (Deficit)
------------ ------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, December 31, 2001 123,396,017 $ 1,227 $ 2,234,360 $ -- $ (638,435)
Issuance of Preferred Shares -- -- -- -- --
Issuance of Common Shares 6,656 -- 124 -- --
Exercise of Common Share Options 338,050 4 287 -- --
Extension on employee stock option notes -- -- 1,691 -- --
Deferred Compensation 300,000 3 5,250 (5,253) --
Issuance of Shares in Exchange for Operating
Partnership Units 106,574 1 119 -- --
Share Repurchases -- -- -- -- --
Dividends Paid -- -- -- -- (117,719)
Net Income -- -- -- -- 38,487
Unrealized Loss on Marketable Securities -- -- -- -- --
Unrealized Net Gain on Cash Flow Hedges -- -- -- -- --
------------ ------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, September 30, 2002 124,147,297 $ 1,235 $ 2,241,831 $ (5,253) $ (717,667)
============ ============ ============ ============ ============
Accumulated
Other
Comprehensive
Income Total
------------- ------------
SHAREHOLDERS' EQUITY, December 31, 2001 $ (31,484) $ 1,405,940
Issuance of Preferred Shares -- 130,083
Issuance of Common Shares -- 124
Exercise of Common Share Options -- 291
Extension on employee stock option notes -- 1,691
Deferred Compensation -- --
Issuance of Shares in Exchange for Operating
Partnership Units -- 120
Share Repurchases -- (28,347)
Dividends Paid -- (117,719)
Net Income -- 38,487
Unrealized Loss on Marketable Securities (1,814) (1,814)
Unrealized Net Gain on Cash Flow Hedges 3,083 3,083
------------ ------------
SHAREHOLDERS' EQUITY, September 30, 2002 $ (30,215) $ 1,431,939
============ ============
The accompanying notes are an integral part of these financial statements.
4
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 53,661 $ 68,669
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 114,658 98,111
Amortization of capitalized residential development costs 114,039 --
Expenditures for capitalized residential development costs (87,868) --
Discontinued operations 2,180 2,107
Extraordinary item - extinguishment of debt -- 10,802
Impairment and other charges related to
real estate assets -- 18,932
Gain on property sales, net (29,366) (727)
Minority interests 17,177 25,909
Cumulative effect of a change in accounting principle 10,465 --
Non-cash compensation 1,990 119
Distributions received in excess of earnings from
unconsolidated companies:
Residential development properties -- 2,945
Temperature-controlled logistics -- 7,811
Other -- 152
Equity in (earnings) loss net of distributions received from
unconsolidated companies:
Office properties (990) (105)
Residential development properties (9,642) --
Temperature-controlled logistics 7,828 --
Resort/Hotel 416 --
Other 6,255 --
Change in assets and liabilities, net of effects of COPI transaction:
Restricted cash and cash equivalents 2,771 (3,158)
Accounts receivable 11,709 (25,557)
Deferred rent receivable 4,508 4,687
Income tax asset-current and deferred (15,339) --
Other assets 5,382 91,516
Accounts payable, accrued expenses and
other liabilities (57,128) (48,396)
--------- ---------
Net cash provided by operating activities 152,706 253,817
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash impact of COPI transaction 38,226 --
Proceeds from property sales 76,582 184,449
Proceeds from joint venture partner 164,067 129,651
Acquisition of rental properties (97,373) --
Development of investment properties (1,669) (14,088)
Property improvements - office properties (11,619) (17,178)
Property improvements - hotel properties (13,720) (15,835)
Tenant improvement and leasing costs - office properties (36,602) (34,514)
Decrease in restricted cash and cash equivalents 12,668 4,994
Return of investment in unconsolidated companies:
Office properties 1,660 2,008
Residential development properties 10,011 16,522
Other -- 11,975
Investment in unconsolidated companies:
Office -- (3,236)
Residential development properties (27,732) (72,380)
Temperature-controlled logistics (242) (9,405)
Other (425) (1,584)
Increase in notes receivable (7,820) (14,786)
--------- ---------
Net cash provided by investing activities 106,012 166,593
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (8,915) (15,964)
Borrowings under UBS Facility -- 105,000
Payments under UBS Facility -- (658,452)
Borrowings under Credit Facility 372,000 480,000
Payments under Credit Facility (476,000) (325,000)
Notes Payable proceeds 375,000 386,386
Notes Payable payments (171,549) (175,899)
Residential development properties note payable borrowings 54,698 --
Residential development properties note payable payments (84,856)
Redemption of GMAC preferred partner (218,423) --
Capital distributions - joint venture preferred equity (6,967) (15,849)
Capital distributions - joint venture partner (1,540) (4,526)
Proceeds from exercise of share options 353 9,212
Treasury share repurchases (28,522) (381)
Issuance of preferred shares-Series A 48,160 --
Issuance of preferred shares-Series B 81,923 --
Series A Preferred Share distributions (12,146) (10,125)
Series B Preferred Share Distributions (3,028) --
Dividends and unitholder distributions (132,549) (200,615)
--------- ---------
Net cash used in financing activities (212,361) (426,213)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 46,357 (5,803)
CASH AND CASH EQUIVALENTS,
Beginning of period 36,285 38,966
--------- ---------
CASH AND CASH EQUIVALENTS,
End of period $ 82,642 $ 33,163
========= =========
The accompanying notes are an integral part of these financial statements.
5
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
Crescent Real Estate Equities Company ("Crescent Equities") operates as
a real estate investment trust for federal income tax purposes (a "REIT") and,
together with its subsidiaries, provides management, leasing and development
services for some of its properties.
The term "Company" includes, unless the context otherwise indicates,
Crescent Equities, a Texas REIT, and all of its direct and indirect
subsidiaries.
The direct and indirect subsidiaries of Crescent Equities at September
30, 2002 included:
o CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
The "Operating Partnership."
o CRESCENT REAL ESTATE EQUITIES, LTD.
The "General Partner" of the Operating Partnership.
o SUBSIDIARIES OF THE OPERATING PARTNERSHIP AND THE GENERAL
PARTNER
Crescent Equities conducts all of its business through the Operating
Partnership and its other subsidiaries. The Company is structured to facilitate
and maintain the qualification of Crescent Equities as a REIT.
The following table shows the consolidated subsidiaries of the Company
that owned or had an interest in real estate assets (the "Properties") and the
Properties that each subsidiary owned or had an interest in as of September 30,
2002.
Operating Partnership Wholly-owned assets - The Avallon IV,
Chancellor Park, Datran Center (two office
properties), Houston Center (three office
properties) and The Park Shops at Houston
Center. These Properties are included in the
Company's Office Segment.
Joint Venture assets, consolidated - 301
Congress Avenue (50% interest) and The
Woodlands Office Properties (85.6% interest)
(six office properties). These Properties are
included in the Company's Office Segment.
Sonoma Mission Inn (80.1%). This Property is
included in the Company's Hotel/Resort
Segment.
Equity Investments, unconsolidated - Bank One
Center (50% interest), Bank One Tower (20%
interest), Three Westlake Park (20%
interest), Four Westlake Park (20% interest),
Miami Center (40% interest) and 5 Houston
Center (25%). These Properties are included
in the Company's Office Segment. Mira Vista
(94% interest), The Highlands (11.6%
interest), Falcon Point (94% interest),
Falcon Landing (94% interest) and Spring
Lakes (94% interest). These Properties are
included in the Company's Residential
Development Segment.
Crescent TRS Holding Equity Investments, consolidated - Desert
Corp. Mountain Development Corporation (93%
interest) and The Woodlands Land Company
(42.5% interest). These Properties are
included in the Company's Residential
Development Segment.
COPI Colorado, L.P. Equity Investments, consolidated - Bear Paw
Lodge (60% interest), Eagle Ranch (60%
interest), Main Street Junction (30%
interest), Main Street Station (30%
interest), Main Street Station Vacation Club
(30% interest), Riverbend (60% interest),
Three Peaks (Eagle's Nest) (30% interest),
Park Place at Riverfront (64% interest), Park
Tower at Riverfront (64% interest), Promenade
Lofts at Riverfront (64% interest), Cresta
(60% interest), Snow Cloud (64% interest),
One Vendue Range (62% interest), Tahoe
Mountain Resorts (57% - 71.2% interest).
These Properties are included in the
Company's Residential Development Segment.
6
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Crescent Real Estate Wholly-owned assets - The Aberdeen, The
Funding I, L.P. Avallon I, II & III, Carter Burgess Plaza,
("Funding I") The Citadel, The Crescent Atrium, The
Crescent Office Towers, Regency Plaza One,
Waterside Commons and 125 E. John Carpenter
Freeway. These Properties are included in
the Company's Office Segment.
Crescent Real Estate Wholly owned assets - Albuquerque Plaza,
Funding II, L.P. Barton Oaks Plaza, Briargate Office and
("Funding II") Research Center, Las Colinas Plaza, Liberty
Plaza I & II, MacArthur Center I & II,
Ptarmigan Place, Stanford Corporate Center,
Two Renaissance Square and 12404 Park Central.
These Properties are included in the Company's
Office Segment. Also, the Hyatt Regency
Albuquerque and the Park Hyatt Beaver Creek
Resort & Spa, both of which are included in
the Company's Resort/Hotel Segment.
Crescent Real Estate Wholly-owned assets - Greenway Plaza Office
Funding III, IV and V, Properties (ten office properties), included
L.P. ("Funding III, IV in the Company's Office Segment, and
and V")(1) Renaissance Houston Hotel, included in
the Company's Resort/Hotel Segment.
Crescent Real Estate Wholly-owned asset - Canyon Ranch - Lenox,
Funding VI, L.P. included in the Company's Resort/Hotel
("Funding VI") Segment.
Crescent Real Estate Wholly-owned assets - seven behavioral
Funding VII, L.P. healthcare properties, all of which are
("Funding VII") classified as Properties Held for
Disposition.
Crescent Real Estate Wholly-owned assets - The Addison, Addison
Funding VIII, L.P. Tower, Austin Centre, The Avallon V, Frost
("Funding VIII") Bank Plaza, Greenway I & IA (two office
properties), Greenway II, Johns Manville
Plaza, Palisades Central I, Palisades Central
II, Stemmons Place, Trammell Crow Center(3),
3333 Lee Parkway, 1800 West Loop South, 5050
Quorum, 44 Cook Street and 55 Madison. These
Properties are included in the Company's
Office Segment. Also, the Canyon Ranch -
Tucson, Omni Austin Hotel, and Ventana Inn &
Spa, which are included in the Company's
Resort/Hotel Segment.
Crescent Real Estate Wholly-owned assets - MCI Tower. This
Funding IX, L.P. Property is included in the Company's
("Funding IX") Office Segment. Also, the Denver Marriott
City Center, which is included in the
Company's Resort/Hotel Segment.
Crescent Real Estate Wholly-owned assets - Fountain Place and
Funding X, L.P. Post Oak Central (three Office Properties),
("Funding X") all of which are included in the Company's
Office Segment.
Crescent Spectrum Wholly-owned assets - Spectrum Center,
Center, L.P.(2) included in the Company's Office Segment.
- -----------------
(1) Funding III owns nine of the ten office properties in the Greenway
Plaza office portfolio and the Renaissance Houston Hotel; Funding IV
owns the central heated and chilled water plant building located at
Greenway Plaza; and Funding V owns 9 Greenway, the remaining office
property in the Greenway Plaza office portfolio.
(2) Crescent Spectrum Center, L.P. holds its interest in Spectrum Center
through its ownership of the underlying land and notes and a mortgage
on the Property.
(3) The Company owns the principal economic interest in Trammell Crow
Center through its ownership of a 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 the building.
See "Note 10. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies" for a table that lists the Company's ownership in
significant unconsolidated joint ventures and equity investments as of September
30, 2002.
See "Note 11. Notes Payable and Borrowings under Credit Facility" for a
list of certain other subsidiaries of the Company, all of which are consolidated
in the Company's financial statements and were formed primarily for the purpose
of obtaining secured debt or joint venture financing.
On February 14, 2002, the Company executed an agreement with Crescent
Operating, Inc. ("COPI"), pursuant to which COPI transferred to subsidiaries of
the Company, in lieu of foreclosure, COPI's lessee interests in the eight
Resort/Hotel Properties leased to subsidiaries of COPI and, pursuant to a strict
foreclosure, COPI's voting common stock in three of the Company's Residential
Development Corporations. See "Note 19. COPI" for additional information related
to the Company's agreement with COPI.
7
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEGMENTS
The assets and operations of the Company were divided into four
investment segments at September 30, 2002;
o the Office Segment;
o the Resort/Hotel Segment;
o the Residential Development Segment; and
o the Temperature-Controlled Logistics Segment.
The assets owned in whole or in part by the Company as of
September 30, 2002 are classified by investment segment as follows:
o OFFICE SEGMENT consisted of 73 office properties, including three
retail properties (collectively referred to as the "Office
Properties"), located in 25 metropolitan submarkets in six
states, with an aggregate of approximately 28.5 million net
rentable square feet. Sixty-one of the Office Properties,
including the three retail properties, are wholly owned and 12
are owned through joint ventures, seven of which are consolidated
and five of which are unconsolidated. In addition, the Company
owns a 25% interest in the 5 Houston Center Office Property which
was completed in September 2002.
o RESORT/HOTEL SEGMENT consisted of five luxury and destination
fitness resorts and spas with a total of 1,036 rooms/guest nights
and four upscale business-class hotel properties with a total of
1,771 rooms (collectively referred to as the "Resort/Hotel
Properties"). Eight of the Resort/Hotel Properties are wholly
owned and one of the luxury and destination fitness resorts and
spas is owned through a joint venture that is consolidated.
o RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Company's
ownership of real estate mortgages and voting and non-voting
common stock representing interests of 94% to 100% in five
residential development corporations (collectively referred to as
the "Residential Development Corporations"), which in turn,
through joint venture or partnership arrangements, owned in whole
or in part 21 upscale residential development properties
(collectively referred to as the "Residential Development
Properties").
o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the
Company's 40% interest in a general partnership (the
"Temperature-Controlled Logistics Partnership"), which owns all
of the common stock, representing substantially all of the
economic interest, of AmeriCold Corporation (the
"Temperature-Controlled Logistics Corporation"), a real estate
investment trust, which, as of September 30, 2002, directly or
indirectly owned 88 temperature-controlled logistics properties
(collectively referred to as the "Temperature-Controlled
Logistics Properties") with an aggregate of approximately 441.5
million cubic feet (17.5 million square feet) of warehouse space.
See "Note 9. Segment Reporting" for a table showing total revenues,
operating expenses, equity in net income (loss) of unconsolidated companies and
funds from operations for each of these investment segments for the three and
nine months ended September 30, 2002 and 2001, and identifiable assets for each
of these investment segments at September 30, 2002 and December 31, 2001.
For purposes of segment reporting as defined in Statement of Financial
Accounting Standard ("SFAS") No. 131, "Disclosures About Segments of an
Enterprise and Related Information" and this Quarterly Report on Form 10-Q, the
Resort/Hotel Properties, the Residential Development Properties and the
Temperature-Controlled Logistics Properties are considered three separate
reportable segments, as described above. However, for purposes of investor
communications, the Company classifies its luxury and destination fitness
resorts and spas and Residential Development Properties as a single group
referred to as the "Resort and Residential Development Sector" due to the
similar characteristics of targeted customers. This group does not contain the
four business-
8
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
class hotel properties. Instead, for investor communications, the four
business-class hotel properties are classified with the Temperature-Controlled
Logistics Properties as the Company's "Investment Sector."
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles in the United States
("GAAP") for interim financial information, as well as in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the
information and footnotes required by GAAP for complete financial statements are
not included. In management's opinion, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
unaudited interim financial statements are included. Operating results for
interim periods reflected do not necessarily indicate the results that may be
expected for a full fiscal year. You should read these financial statements in
conjunction with the financial statements and the accompanying notes included in
the Company's Form 10-K, as amended, for the year ended December 31, 2001.
Certain amounts in prior period financial statements have been
reclassified to conform with current period presentation.
2. ADOPTION OF NEW ACCOUNTING STANDARDS:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets" (effective January 1,
2002). SFAS No. 142 specifies that goodwill and certain other types of
intangible assets may no longer be amortized, but instead are subject to
periodic impairment testing. If an impairment charge is required, the charge is
reported as a change in accounting principle and is included in operating
results as a Cumulative Effect of a Change in Accounting Principle. SFAS No. 142
provides for a transitional period of up to 12 months. Any need for impairment
must be assessed within the first six months and the amount of impairment must
be determined within the next six months. Any additional impairment taken in
subsequent interim periods during 2002 related to the initial adoption of this
statement will require the first quarter financial statements to be restated.
During the three months ended March 31, 2002 the Company recognized a
goodwill impairment charge of approximately $9,200 due to the initial
application of this statement. This charge was due to an impairment (net of
minority interests) of the goodwill at the Temperature-Controlled Logistics
Corporation. This charge was reported as a change in accounting principle and
was included in the Company's consolidated statements of operations as a
"Cumulative Effect of a Change in Accounting Principle" for the three months
ended March 31, 2002.
Subsequent to March 31, 2002 the Company determined that an impairment
charge of $1,300, net of minority interest and taxes, was required for the
goodwill at one of the Residential Development Corporations, bringing the total
impairment charge to be recognized for the nine months ended September 30, 2002
to $10,500 related to initial application of SFAS No.142. In accordance with
SFAS No. 142, the financial statements for the quarter ended March 31, 2002 were
restated to include the additional impairment charge of $1,300. Accordingly, the
entire $10,500 impairment charge against the goodwill of the
Temperature-Controlled Logistics Corporation and one of the Residential
Development Corporations has been included in the Company's consolidated
statements of operations as a "Cumulative Effect of a Change in Accounting
Principle" for the nine months ended September 30, 2002.
In prior periods, the Company tested goodwill for impairment under the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets," under which an impairment loss is recognized when expected undiscounted
future cash flows are less than the carrying value of the assets. For the year
ended December 31, 2001, the expected future operating cash flows of the
Temperature-Controlled Logistics Corporation on an undiscounted basis exceeded
the carrying amounts of the properties and other long-lived assets, including
goodwill. Accordingly, no impairment was recognized under SFAS No. 121. However,
upon the adoption of SFAS No. 142 on January 1, 2002, the Temperature-Controlled
Logistics Corporation compared the fair value of the Temperature-Controlled
Logistics Properties based on discounted cash flows to the carrying value of the
Temperature-Controlled Logistics Properties and the related goodwill. Based on
this test, the fair value did not exceed the carrying value of the
Temperature-Controlled Logistics assets and, accordingly, the goodwill was
impaired.
9
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 requires that the results of operations, including any gains or
losses recognized, be disclosed separately on the Company's consolidated
statements of operations. The Company adopted SFAS No. 144 on January 1, 2002.
Subsequent to January 1, 2002, the Company sold five Office Properties. The
Company also sold three behavioral healthcare properties subsequent to January
1, 2002 and owned seven behavioral healthcare properties as of September 30,
2002, which were classified as held for sale. In accordance with SFAS No. 144,
the results of operations of these assets and any gain or loss on sale have been
presented as "Discontinued Operations - Income and Gain on Assets Sold and Held
for Sale" in the accompanying consolidated statements of operations. The
carrying value of the assets held for sale has been reflected as "Properties
Held for Disposition, net" in the accompanying consolidated balance sheet as of
September 30, 2002 and December 31, 2001. (See "Note 4. Discontinued
Operations"). The adoption of this statement did not materially affect the
Company's interim financial statements for the nine months ended September 30,
2002. The Company has reclassified certain amounts in prior period financial
statements to conform with the new presentation requirements.
3. ACQUISITION:
On August 29, 2002, the Company acquired Johns Manville Plaza, a
29-story, 675,000 square foot Class A office building located in Denver,
Colorado. The Company acquired the Office Property for approximately $91,200,
funded by a draw on the Company's credit facility. The Office Property is
wholly-owned by the Company and included in the Company's Office Segment.
4. DISCONTINUED OPERATIONS:
OFFICE SEGMENT
On January 18, 2002, the Company completed the sale of the Cedar
Springs Plaza Office Property in Dallas, Texas. The sale generated net proceeds
of approximately $12,000 and a net gain of approximately $4,500. The proceeds
from the sale of the Cedar Springs Plaza Office Property were used primarily to
pay down the Company's credit facility. This Property was wholly-owned by the
Company and was included in the Company's Office Segment.
On May 29, 2002, the Woodlands Office Equities - '95 Limited ("WOE"),
owned by the Company and the Woodlands Commercial Properties Company, L.P. (the
"Woodlands CPC"), sold two Office Properties located within The Woodlands,
Texas. The sale generated net proceeds of approximately $3,600, of which the
Company's portion was approximately $3,200, and generated a net gain of
approximately $2,100, of which the Company's portion was approximately $1,900.
The proceeds received by the Company were used primarily to pay down the
Company's credit facility. These two Properties were consolidated joint venture
properties and were included in the Company's Office Segment.
On August 1, 2002, the Company completed the sale of the 6225 North
24th Street Office Property in Phoenix, Arizona. The sale generated net proceeds
of approximately $8,800 and a net gain of approximately $1,300. The proceeds
from the sale of the 6225 North 24th Street Office Property were used to redeem
preferred Class A Units in Funding IX from GMAC Commercial Mortgage Corporation
("GMACCM"). This Office Property was wholly-owned by the Company and was
included in the Company's Office Segment.
On September 20, 2002, the Company completed the sale of the Reverchon
Plaza Office Property in Dallas, Texas. The sale generated net proceeds of
approximately $29,200 and a net gain of approximately $500. The proceeds from
the sale of the Reverchon Plaza Office Property were used to pay down the
Company's credit facility. This Office Property was wholly-owned by the Company
and was included in the Company's Office Segment.
The operations for these Office Properties, as well as the gains
recognized on the sales of these Office Properties, are included in
"Discontinued Operations - Income and Gain on Assets Sold and Held for Sale."
10
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OTHER
As of September 30, 2002, the Company owned seven behavioral healthcare
properties, all of which were classified in the Company's financial statements
as "Properties Held for Disposition, Net." During the nine months ended
September 30, 2002, the Company recognized an impairment charge of approximately
$600 on one of the behavioral healthcare properties held for sale. This charge
was recognized in the Company's consolidated statements of operations as
"Discontinued Operations - Income and Gain on Assets Sold and Held for Sale."
The charge represents the difference between the carrying value of the property
and the estimated sales price less costs of sale. After recognition of this
impairment, the carrying value of the behavioral healthcare properties at
September 30, 2002 was approximately $20,997. Depreciation expense has not been
recognized since the dates the behavioral healthcare properties were classified
as held for sale. The Company is actively marketing for sale the remaining seven
behavioral healthcare properties. The sales of these behavioral healthcare
properties are expected to close within the next year. No rental revenues,
operating expenses or depreciation and amortization were recognized during the
nine months ended September 30, 2002 for the seven behavioral healthcare
properties classified as held for sale at September 30, 2002.
OFFICE SEGMENT
The following table indicates the rental revenue, operating expenses,
depreciation and amortization and net income for the nine months ended September
30, 2002 and 2001 for the Office Properties sold during the nine months ended
September 30, 2002.
DEPRECIATION
RENTABLE RENTAL OPERATING AND
SQUARE FEET REVENUE EXPENSES AMORTIZATION NET INCOME
------------ ------------ ------------ ------------ ------------
September 30, 2002 670,753 $ 4,320 $ 2,841 $ 1,369 $ 110
============ ============ ============ ============ ============
September 30, 2001 670,753 $ 7,864 $ 4,064 $ 1,878 $ 1,922
============ ============ ============ ============ ============
OFFICE SEGMENT AND OTHER
The following table indicates the major classes of assets of the
Properties held for sale as of September 30, 2002 and December 31, 2001.
AS OF
----------------------------------------
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ ------------------
Land $ 8,697 $ 19,178
Buildings and improvements 14,039 69,294
Furniture, fixture and equipment 1,820 2,527
Accumulated depreciation (3,559) (14,690)
------------------ ------------------
Net investment in real estate $ 20,997 $ 76,309
================== ==================
5. OTHER ASSET DISPOSITIONS:
Office Segment
On September 30, 2002, the Company completed the sale of the Washington
Harbour Phase II Land located in the Georgetown submarket of Washington, D.C.
The sale generated net proceeds of approximately $15,100 and a net loss of
approximately $900. The proceeds from the sale of the Washington Harbour Phase
II Land were used to pay down the Company's credit facility. This land was
wholly-owned by the Company and was included in the Company's Office Segment.
11
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Resort/Hotel Segment
On September 30, 2002, the Company completed the sale of land adjacent
to the Company's Canyon Ranch - Tucson Resort/Hotel Property (the "Canyon-Ranch
- - Tucson Land") located in Tucson, Arizona to an affiliate of the management
company (unrelated to the Company) of the Company's Canyon Ranch Resort/Hotel
Properties. The sales price of the land was approximately $9,400, for which the
Company received $1,900 of net cash proceeds and a promissory note in the amount
of $7,520 with an interest rate of 6.50%, payable quarterly and maturing on
October 1, 2007, and a net gain of approximately $5,500 recorded in the "Gain on
Property Sales, net" caption of the Company's Consolidated Statements of
Operations for the three and nine months ended September 30, 2002. The net cash
proceeds from the sale of the Canyon-Ranch - Tucson Land were used to pay down
the Company's credit facility. This land was wholly-owned by the Company and was
included in the Company's Resort/Hotel Segment. The Company has committed to
fund a $3,200 construction loan to the purchaser which will be secured by 20
developed lots and a $640 letter of credit. The Company had not funded any of
the $3,200 commitment as of September 30, 2002.
6. JOINT VENTURES
Consolidated
Sonoma Mission Inn & Spa
On September 1, 2002, the Company entered into a joint venture
arrangement with a subsidiary of Fairmont Hotels & Resorts, Inc. ("FHR"),
pursuant to which the Company contributed a Resort/Hotel Property, the Sonoma
Mission Inn & Spa in Sonoma County, California and FHR purchased a 19.9% equity
interest in the limited liability company that owns the Resort/Hotel Property.
The Company continues to own the remaining 80.1% interest. The joint venture
generated approximately $8,000 in net cash proceeds to the Company that were
used to pay down the Company's credit facility. The Company has loaned $45,100
to the limited liability company that owns Sonoma Mission Inn & Spa at an
interest rate of LIBOR plus 300 basis points. The maturity date of the loan is
the earlier of the date on which the limited liability company obtains
third-party financing or one year. The limited liability company has the option
to extend the loan for two successive six-month periods by paying a fee. Under
the agreement with FHR, the Company will manage the limited liability company
that owns Sonoma Mission Inn & Spa and FHR will operate and manage the property
under the Fairmont brand. The joint venture transaction was accounted for as a
partial sale of this Resort/Hotel Property, resulting in an approximately $4,000
loss on the interest sold.
Unconsolidated
Three Westlake Park
On August 21, 2002, the Company entered into a joint venture
arrangement with an affiliate of General Electric Pension Fund ("GE") in
connection with which the Company contributed an Office Property, Three Westlake
Park in Houston, Texas and GE made a cash contribution. The joint venture is
structured such that GE holds an 80% equity interest in Three Westlake Park, a
415,000 square foot Office Property located in the Katy Freeway submarket of
Houston, and the Company continues to hold the remaining 20% equity interest in
the Office Property, which is accounted for under the equity method. The joint
venture generated approximately $47,100 in net cash proceeds to the Company,
including distributions to the Company resulting from the sale of its 80% equity
interest and $6,600 from the Company's portion of mortgage financing at the
joint venture level. None of the mortgage financing at the joint venture level
is guaranteed by the Company. The Company has no commitment to reinvest the cash
proceeds back into the joint venture. The joint venture was accounted for as a
partial sale of this Office Property, resulting in a gain of $17,000, net of
deferred gain of approximately $4,300. In addition, the Company manages and
leases the Office Property on a fee basis. During the nine months ended
September 30, 2002, the Company recognized $32 for these services.
12
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Miami Center
On September 25, 2002, the Company entered into a joint venture
arrangement with an affiliate of a fund managed by JP Morgan Investment
Management, Inc. ("JPM") in connection with which JPM purchased a 60% interest
in Crescent Miami Center, L.L.C. with a cash contribution. Crescent Miami
Center, L.L.C. owns an Office Property, Miami Center in Miami, Florida. The
joint venture is structured such that JPM holds a 60% equity interest in Miami
Center, and the Company holds the remaining 40% equity interest in the Office
Property, which is accounted for under the equity method. The joint venture
generated approximately $117,000 in net cash proceeds to the Company, including
distributions to the Company resulting from the sale of its 60% equity interest
and $32,400 from the Company's portion of mortgage financing at the joint
venture level. None of the mortgage financing at the joint venture level is
guaranteed by the Company. The Company has a remaining commitment for deferred
maintenance items of approximately $700. The Company otherwise has no commitment
to reinvest the cash proceeds back into the joint venture. The joint venture was
accounted for as a partial sale of this Office Property, resulting in a gain of
approximately $4,600, net of deferred gain of approximately $3,500. The Company
will continue to manage Miami Center on a fee basis.
7. EARNINGS PER SHARE:
SFAS No. 128 "Earnings Per Share" ("EPS") specifies the computation,
presentation and disclosure requirements for earnings per share. Basic EPS
excludes all dilution while Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common shares were
exercised or converted into common shares.
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
2002 2001
------------------------------------ ----------------------------------------
Wtd. Avg. Per Share Wtd. Avg. Per Share
Income Shares Amount Income Shares Amount
------------- --------- ----------- -------------- ---------- -----------
BASIC EPS -
Income before discontinued operations $ 26,349 103,766 $ 21,910 108,748
Series A Preferred Share distributions (4,556) - (3,375) --
Series B Preferred Share distributions (2,019) - -- --
------------- --------- ----------- -------------- ---------- -----------
Income available to common
shareholders before discontinued operations $ 19,774 103,766 $ 0.19 $ 18,535 108,748 $ 0.17
Discontinued operations 1,400 - 0.01 549 -- 0.01
------------- --------- ----------- -------------- ---------- -----------
Net income available to common shareholders $ 21,174 103,766 $ 0.20 $ 19,084 108,748 $ 0.18
============= ========= =========== ============== ========== ===========
DILUTED EPS -
Income available to common
shareholders before discontinued operations $ 19,774 103,766 $ 18,535 108,748
Effect of dilutive securities:
Share and unit options -- 121 -- 1,875
------------- --------- ----------- -------------- ---------- -----------
Income available to common
shareholders before discontinued operations $ 19,774 103,887 $ 0.19 $ 18,535 110,623 $ 0.17
Discontinued operations 1,400 0.01 549 -- --
------------- --------- ----------- -------------- ---------- -----------
Net income available to common shareholders $ 21,174 103,887 $ 0.20 $ 19,084 110,623 $ 0.17
============= ========= =========== ============== ========== ===========
13
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------------
2002
----------------------------------
Wtd. Avg. Per Share
Income Shares Amount
------------- -------- ----------
BASIC EPS -
Income before discontinued operations, extraordinary item
And cumulative effect of a change in accounting principle $ 57,696 104,527
Series A Preferred Share distributions (12,146) --
Series B Preferred Share distributions (3,028) --
------------- ------- ----------
Income available to common
shareholders before discontinued operations, extraordinary item
And cumulative effect of a change in accounting principle $ 42,522 104,527 $ 0.41
Discontinued operations 6,430 -- 0.06
Extraordinary item - extinguishment of debt -- -- --
Cumulative effect of a change in accounting principle (10,465) -- (0.10)
------------- ------- ----------
Net income available to common shareholders $ 38,487 104,527 $ 0.37
============= ======= ==========
DILUTED EPS -
Income available to common
shareholders before discontinued operations, extraordinary item
And cumulative effect of a change in accounting principle $ 42,522 104,527
Effect of dilutive securities:
Share and unit options -- 514
------------- ------- ----------
Income available to common
shareholders before discontinued operations, extraordinary item
And cumulative effect of a change in accounting principle $ 42,522 105,041 $ 0.41
Discontinued operations 6,430 -- 0.06
Extraordinary item - extinguishment of debt -- -- --
Cumulative effect of a change in accounting principle (10,465) -- (0.10)
------------- ------- ----------
Net income available to common shareholders $ 38,487 105,041 $ 0.37
============= ======= ==========
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------------
2001
-------------------------------------
Wtd. Avg. Per Share
Income Shares Amount
----------- ------- ---------
BASIC EPS -
Income before discontinued operations, extraordinary item
And cumulative effect of a change in accounting principle $ 77,778 108,170
Series A Preferred Share distributions (10,125) --
Series B Preferred Share distributions -- --
----------- ------- ---------
Income available to common
shareholders before discontinued operations, extraordinary item
And cumulative effect of a change in accounting principle $ 67,653 108,170 $ 0.63
Discontinued operations 1,693 -- 0.01
Extraordinary item - extinguishment of debt (10,802) -- (0.10)
Cumulative effect of a change in accounting principle -- -- --
----------- ------- ---------
Net income available to common shareholders $ 58,544 108,170 $ 0.54
=========== ======= =========
DILUTED EPS -
Income available to common
shareholders before discontinued operations, extraordinary item
And cumulative effect of a change in accounting principle $ 67,653 108,170
Effect of dilutive securities:
Share and unit options -- 1,841
----------- ------- ---------
Income available to common
shareholders before discontinued operations, extraordinary item
And cumulative effect of a change in accounting principle $ 67,653 110,011 $ 0.62
Discontinued operations 1,693 -- 0.01
Extraordinary item - extinguishment of debt (10,802) -- (0.10)
Cumulative effect of a change in accounting principle -- -- --
----------- ------- ---------
Net income available to common shareholders $ 58,544 110,011 $ 0.53
=========== ======= =========
14
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The effect of the conversion of the Series A Convertible Cumulative
Preferred Shares is not included in the computation of Diluted EPS for the three
and nine months ended September 30, 2002 or 2001, since the effect of their
conversion would be antidilutive.
8. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS:
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
2002 2001
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid on debt $ 106,969 $ 143,908
Interest capitalized - Office 118 --
Interest capitalized - Resort/Hotel -- 507
Interest capitalized - Residential Development 9,591 --
Additional interest paid resulting from cash flow hedge agreements 18,028 7,150
----------- -----------
Total interest paid $ 134,706 $ 151,565
=========== ===========
Interest expense $ 135,871 $ 139,189
=========== ===========
Cash paid for income taxes $ 10,200 $ --
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of Operating Partnership units to common shares with
resulting reduction in minority interest and increases in common
shares and additional paid-in capital $ 120 $ 2,759
Impairment related to an investment in an unconsolidated company (5,302) --
Sale of marketable securities -- (8,642)
Unrealized net loss on available-for-sale securities (1,814) --
Adjustment of cash flow hedges to fair value 3,083 (19,649)
Impairment related to real estate assets held for sale 600 --
Noncash compensation 1,900 --
Acquisition of ownership of certain assets previously owned by
Broadband in consideration for conveyance of the Company's equity
interest in Broadband -- 7,200
Financed sale of land parcel 7,520 --
----------- -----------
$ 6,107 $ (18,332)
=========== ===========
SUPPLEMENTAL SCHEDULE OF TRANSFER OF ASSETS AND ASSUMPTIONS OF
LIABILITIES PURSUANT TO THE FEBRUARY 14, 2002 AGREEMENT WITH COPI:
Net investment in real estate $ 570,175
Restricted cash and cash equivalents 3,968
Accounts receivable, net 23,338
Investments in real estate mortgages and equity of unconsolidated (309,103)
companies
Notes receivable - net (29,816)
Income tax asset - current and deferred, net 21,784
Other assets, net 63,263
Notes payable (129,157)
Accounts payable - accrued expenses and other liabilities (201,159)
Minority Interest - Consolidated real estate partnerships (51,519)
-----------
Increase in cash resulting from the COPI agreement $ (38,226) N/A
===========
15
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. SEGMENT REPORTING:
For purposes of segment reporting as defined in SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," the
Company currently has four major investment segments based on property type: the
Office Segment; the Resort/Hotel Segment; the Residential Development Segment;
and the Temperature-Controlled Logistics Segment. Management utilizes this
segment structure for making operating decisions and assessing performance.
The Company uses funds from operations ("FFO") as the measure of
segment profit or loss. FFO, as used in this document, means:
o Net Income (Loss) - determined in conformity with GAAP;
o excluding gains (or losses) from sales of depreciable
operating property;
o excluding extraordinary items (as defined by GAAP);
o plus depreciation and amortization of real estate
assets; and
o after adjustments for unconsolidated partnerships and
joint ventures.
The National Association of Real Estate Investment Trusts ("NAREIT")
developed FFO as a relative measure of performance and liquidity of an equity
REIT to recognize that income-producing real estate historically has not
depreciated on the basis determined under GAAP. The Company considers FFO an
appropriate measure of performance for an equity REIT and for its investment
segments. However, FFO:
o does not represent cash generated from operating
activities determined in accordance with GAAP (which,
unlike FFO, generally reflects all cash effects of
transactions and other events that enter into the
determination of net income);
o is not necessarily indicative of cash flow available
to fund cash needs;
o should not be considered as an alternative to net
income determined in accordance with GAAP as an
indication of the Company's operating performance, or
to cash flow from operating activities determined in
accordance with GAAP as a measure of either liquidity
or the Company's ability to make distributions; and
o the Company's measure of FFO may not be comparable to
similarly titled measures of other REITs because
these REITs may apply the definition of FFO in a
different manner than the Company.
16
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Selected financial information related to each segment for the three
and nine months ended September 30, 2002 and 2001, and identifiable assets for
each of the segments at September 30, 2002 and December 31, 2001, are presented
below.
SELECTED FINANCIAL INFORMATION:
TEMPERATURE-
RESIDENTIAL CONTROLLED
FOR THE THREE MONTHS ENDED OFFICE RESORT/HOTEL DEVELOPMENT LOGISTICS CORPORATE
SEPTEMBER 30, 2002 SEGMENT SEGMENT SEGMENT SEGMENT AND OTHER(1) TOTAL
- -------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Property revenues $ 146,773(2) $ 56,110 $ 43,837 $ -- $ -- $ 246,720
Other income -- -- -- -- 1,781 1,781
------------ ------------ ------------ ------------ ------------ ------------
Total revenue $ 146,773 $ 56,110 $ 43,837 $ -- $ 1,781 $ 248,501
============ ============ ============ ============ ============ ============
Property operating expenses $ 62,175 $ 44,599 $ 42,110 $ -- $ -- $ 148,884
Other operating expenses -- -- -- -- 96,285 96,285
------------ ------------ ------------ ------------ ------------ ------------
Total expenses $ 62,175 $ 44,599 $ 42,110 $ -- $ 96,285 $ 245,169
============ ============ ============ ============ ============ ============
Equity in net income (loss) of
unconsolidated companies $ 874 $ (91) $ 4,272 $ (3,101) $ (755) $ 1,199
============ ============ ============ ============ ============ ============
Funds from operations(3) $ 88,045 $ 13,593 $ 4,319 $ 3,675 $ (59,620) $ 50,012(4)
============ ============ ============ ============ ============ ============
TEMPERATURE-
RESIDENTIAL CONTROLLED
FOR THE THREE MONTHS ENDED OFFICE RESORT/HOTEL DEVELOPMENT LOGISTICS CORPORATE
SEPTEMBER 30, 2001 SEGMENT SEGMENT SEGMENT SEGMENT AND OTHER(1) TOTAL
- -------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Property revenues $ 151,253 $ 12,449 $ -- $ -- $ -- $ 163,702
Other income -- -- -- -- 9,710 9,710
------------ ------------ ------------ ------------ ------------ ------------
Total revenue $ 151,253 $ 12,449 $ -- $ -- $ 9,710 $ 173,412
============ ============ ============ ============ ============ ============
Property operating expenses $ 64,869 $ -- $ -- $ -- $ -- $ 64,869
Other operating expenses -- -- -- -- 88,180 88,180
------------ ------------ ------------ ------------ ------------ ------------
Total expenses $ 64,869 $ -- $ -- $ -- $ 88,180 $ 153,049
============ ============ ============ ============ ============ ============
Equity in net income (loss) of
unconsolidated companies $ 1,520 $ -- $ 7,263 $ (2,066) $ 1,686 $ 8,403
============ ============ ============ ============ ============ ============
Funds from operations(3) $ 91,237 $ 12,374 $ 10,278 $ 3,621 $ (54,560) $ 62,950(4)
============ ============ ============ ============ ============ ============
--------------------
Footnotes start on page 18.
17
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
TEMPERATURE-
RESIDENTIAL CONTROLLED
FOR THE NINE MONTHS ENDED OFFICE HOTEL/RESORT DEVELOPMENT LOGISTICS CORPORATE
SEPTEMBER 30, 2002 SEGMENT SEGMENT SEGMENT SEGMENT AND OTHER(1) TOTAL
- ------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Property revenues $ 429,297(2) $ 148,157 $ 176,887 $ -- $ -- $ 754,341
Other income -- -- -- -- 5,850 5,850
------------ ------------ ------------ ------------ ------------ ------------
Total revenues $ 429,297 $ 148,157 $ 176,887 $ -- $ 5,850 $ 760,191
============ ============ ============ ============ ============ ============
Property operating expenses $ 189,146 $ 110,701 $ 161,319 $ -- $ -- $ 461,166
Other operating expenses -- -- -- -- 270,375 270,375
------------ ------------ ------------ ------------ ------------ ------------
Total expenses $ 189,146 $ 110,701 $ 161,319 $ -- $ 270,375 $ 731,541
============ ============ ============ ============ ============ ============
Equity in net income (loss) of
unconsolidated companies $ 3,655 $ (91) $ 22,934 $ (3,828) $ (5,281) $ 17,389
============ ============ ============ ============ ============ ============
Funds from operations $ 249,119 $ 47,140 $ 32,354 $ 14,450 $ (175,719)(3) $ 167,344(4)
============ ============ ============ ============ ============ ============
TEMPERATURE-
RESIDENTIAL CONTROLLED
FOR THE NINE MONTHS ENDED OFFICE HOTEL/RESORT DEVELOPMENT LOGISTICS CORPORATE
SEPTEMBER 30, 2001 SEGMENT SEGMENT SEGMENT SEGMENT AND OTHER(1) TOTAL
- ------------------------- ----------- ------------ ------------ ------------ ------------ ------------
Property revenues $ 456,311 $ 44,523 $ -- $ -- $ -- $ 500,834
Other income -- -- -- -- 36,347 36,347
------------ ------------ ------------ ------------ ------------ ------------
Total revenues $ 456,311 $ 44,523 $ -- $ -- $ 36,347 $ 537,181
============ ============ ============ ============ ============ ============
Property operating expenses $ 196,340 $ -- $ -- $ -- $ -- $ 196,340
Other operating expenses -- -- -- -- 274,606 274,606
------------ ------------ ------------ ------------ ------------ ------------
Total expenses $ 196,340 $ -- $ -- $ -- $ 274,606 $ 470,946
============ ============ ============ ============ ============ ============
Equity in net income (loss) of
unconsolidated companies $ 3,841 $ -- $ 27,703 $ 2,285 $ 2,896 $ 36,725
============ ============ ============ ============ ============ ============
Funds from operations $ 273,134 $ 44,142 $ 36,927 $ 19,085 $ (156,703)(3) $ 216,585(4)
============ ============ ============ ============ ============ ============
IDENTIFIABLE ASSETS:
Balance at September 30, 2002 $ 2,543,589 $ 500,784 $ 762,018 $ 290,515 $ 244,205 $ 4,341,111
============ ============ ============ ============ ============ ============
Balance at December 31, 2001 $ 2,739,727 $ 444,887 $ 372,539 $ 308,427 $ 276,569 $ 4,142,149
============ ============ ============ ============ ============ ============
--------------------
(1) For purposes of this Note, the behavioral healthcare
properties' financial information has been included in this
column.
(2) Includes approximately $5,000 of net insurance proceeds
received in September 2002 as a result of an insurance claim
on one of the Company's Office Properties that had been
damaged as a result of a tornado.
(3) Includes interest and other income, behavioral healthcare
property income, preferred return paid to GMACCM, other
unconsolidated companies, less depreciation and amortization
of non-real estate assets and amortization of deferred
financing costs, corporate general and administrative expense,
interest expense and preferred dividends.
18
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) Reconciliation of Funds From Operations to Net Income
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Consolidated funds from operations $ 50,012 $ 62,950 $ 167,344 $ 216,585
Adjustments to reconcile Funds from Operations
to Net Income:
Depreciation and amortization of real estate assets (36,419) (30,840) (102,088) (89,859)
Gain (Loss) on property sales, net 19,311 1,032 24,500 570
Impairment and other adjustments related to real
estate assets -- 19 (600) (15,305)
Extraordinary Item - extinguishment of debt -- -- -- (10,802)
Cumulative effect of change in accounting principle -- -- (10,465) --
Adjustment for investments in real estate
mortgages and equity of unconsolidated companies:
Office Properties (1,946) (2,663) (5,997) (6,718)
Hotel/Resort Properties (370) -- (370) --
Residential Development Properties 615 (3,015) (2,339) (9,224)
Temperature-Controlled Logistics Properties (6,777) (5,687) (18,278) (16,800)
Other (96) -- (5,872)(a) --
Unitholder minority interest (3,156) (2,712) (7,348) (9,903)
Series A Preferred share distribution 4,556 3,375 12,146 10,125
Series B Preferred share distribution 2,019 -- 3,028 --
------------ ------------ ------------ ------------
Net Income $ 27,749 $ 22,459 $ 53,661 $ 68,669
============ ============ ============ ============
-----------------------------------
(a) These amounts primarily represent impairment of the Company's
investment in DBL Holdings, Inc., related to the Class C-1
Notes issued by Juniper CBO 1999-1 Ltd., a privately-placed
equity interest of a collaterized bond obligation. (See "Note
10. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies" for further discussion).
SIGNIFICANT LESSEES
See "Note 10. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies - Temperature-Controlled Logistics Properties" for a
description of the sole lessee of the Temperature-Controlled Logistics
Properties.
19
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED
COMPANIES:
The Company has investments of 20% to 50% in six unconsolidated joint
ventures that own six Office Properties. The Company does not have control of
these partnerships, and therefore, these investments are accounted for using the
equity method of accounting.
The Company has other unconsolidated equity investments with interests
ranging from 24% to 97.4%. The Company does not have control of these entities
due to ownership interests of 50% or less or the ownership of non-voting
interests only, and therefore, these investments are also accounted for using
the equity method of accounting.
The following is a summary of the Company's ownership in significant
unconsolidated joint ventures and equity investments.
COMPANY'S OWNERSHIP
ENTITY CLASSIFICATION AS OF SEPTEMBER 30, 2002
- ------------------------------------------------------- ------------------------------------ -------------------------
Joint Ventures
Main Street Partners, L.P. Office (Bank One Center-Dallas) 50.0% (1)
Crescent Miami Center, L.L.C. Office (Miami Center - Miami) 40.0% (2)
Crescent 5 Houston Center, L.P. Office (5 Houston Center-Houston) 25.0% (3)
Austin PT BK One Tower Office Limited Partnership Office (Bank One Tower-Austin) 20.0% (4)
Houston PT Four Westlake Office Limited Partnership Office (Four Westlake Park-Houston) 20.0% (4)
Houston PT Three Westlake Office Limited Partnership Office (Three Westlake Park - 20.0% (4)
Houston)
Equity Investments
Mira Vista Development Corp. Residential Development 94.0% (5)
Houston Area Development Corp. Residential Development 94.0% (6)
The Woodlands Land Development Company, L.P. (7) Residential Development 42.5% (8)(9)
Blue River Land Company, L.L.C. (7) Residential Development 31.8% (10)
Manalapan Hotel Partners, L.L.C. (7) Resort/Hotel (Ritz Carlton Palm 24.0% (11)
Beach)
Temperature-Controlled Logistics Partnership Temperature-Controlled Logistics 40.0% (12)
The Woodlands Commercial Properties Company, L.P. Office 42.5% (8)(9)
DBL Holdings, Inc. Other 97.4% (13)
CR License, L.L.C. Other 30.0% (14)
Woodlands Operating Company, L.P. Other 42.5% (8)(9)
Canyon Ranch Las Vegas Other 65.0% (15)
SunTX Fulcrum Fund, L.P. Other 33.3% (16)
- ----------
(1) The remaining 50.0% interest in Main Street Partners, L.P. is owned by
Trizec Properties, Inc.
(2) The remaining 60% interest in Crescent Miami Center, L.L.C. is owned by
a fund advised by JP Morgan Investment Management, Inc. The Company will
continue to manage Miami Center on a fee basis.
(3) The remaining 75% interest in Crescent 5 Houston Center, L.P. is owned by a
pension fund advised by JP Morgan Investment Management, Inc. The Company
recorded $1,142 in development, and leasing fees, related to this
investment during the nine months ended September 30, 2002. The 5 Houston
Center Office Property was completed on September 16, 2002.
(4) The remaining 80% interest in Austin PT BK One Tower Office Limited
Partnership, Houston PT Three Westlake Office Limited Partnership and
Houston PT Four Westlake Office Limited Partnership is owned by an
affiliate of General Electric Pension Fund. The Company recorded $473 in
management and leasing fees for these Office Properties during the nine
months ended September 30, 2002.
(5) The remaining 6.0% interest in Mira Vista Development, Corp. ("MVDC"),
which represents 100% of the voting stock, is owned 4.0% by DBL Holdings,
Inc. ("DBL") and 2.0% by third parties.
(6) The remaining 6.0% interest in Houston Area Development Corp. ("HADC"),
which represents 100% of the voting stock, is owned 4.0% by DBL and 2.0% by
a third party.
(7) On February 14, 2002, the Company executed an agreement with COPI, pursuant
to which COPI transferred to subsidiaries of the Company, pursuant to a
strict foreclosure, COPI's interests in the voting stock in three of the
Company's Residential Development Corporations (Desert Mountain Development
Corporation ("DMDC"), The Woodlands Land Company, Inc. ("TWLC") and
Crescent Resort Development, Inc. ("CRDI"), and in CRL Investments, Inc.
("CRLI"). COPI transferred its 60% general partner interest in COPI
Colorado, L.P. which owns 10% of the voting stock in CRDI, which increased
the Company's ownership interest in CRDI from 90% to 96%. As a result, the
Company fully
20
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
consolidated the operations of these entities beginning on the dates of the
asset transfers. The Woodlands Land Development Company, L.P. is an
unconsolidated equity investment of TWLC. Blue River Land Company, L.L.C.,
and Manalapan Hotel Partners, L.L.C., are unconsolidated equity investments
of CRDI. See "Note 20. Subsequent Event" for a description of the Company's
acquisition of the remaining 75% interest in the Manalapan Hotel Partners,
L.L.C.
(8) The remaining 57.5% interest in The Woodlands Land Development Company,
L.P., The Woodlands Commercial Properties Company, L.P. (the "Woodlands
CPC") and The Woodlands Operating Company, L.P. are owned by an affiliate
of Morgan Stanley.
(9) Distributions are made to partners based on specified payout percentages.
During the nine months ended September 30, 2002, the payout percentage to
the Company was 52.5%.
(10) Of the remaining 68.2% interest in Blue River Land Company, L.L.C., 0.7% is
indirectly owned by John Goff, Vice-Chairman of the Board of Trust Managers
and Chief Executive Officer of the Company, through his 20% ownership of
COPI Colorado, L.P. and 67.5% is owned by parties unrelated to the Company.
(11) Of the remaining 76.0% interest in Manalapan Hotel Partners, L.L.C., 0.5%
is indirectly owned by John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company, through his 20%
ownership of COPI Colorado, L.P. and 75.5% is owned by parties unrelated to
the Company. See "Note 20 Subsequent Event" for discussion of Manalapan
Hotel Partners, L.L.C.
(12) The remaining 60.0% interest in the Temperature-Controlled Logistics
Partnership is owned by Vornado Realty Trust, L.P.
(13) John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive
Officer of the Company, obtained the remaining 2.6% economic interest in
DBL (including 100% of the voting interest in DBL) in exchange for his
voting interests in MVDC and HADC, originally valued at approximately $381,
and approximately $63 in cash, or total consideration valued at
approximately $444. At September 30, 2002, Mr. Goff's book value in DBL was
approximately $401.
(14) The remaining 70% interest in CR License, L.L.C. is owned by an affiliate
of the management company of two of the Company's Resort/Hotel Properties.
(15) The remaining 35% interest in Canyon Ranch Las Vegas is owned by an
affiliate of the management company of two of the Company's Resort/Hotel
Properties.
(16) The SunTX Fulcrum Fund, L.P's (the "Fund") objective is to invest in a
portfolio of acquisitions that offer the potential for substantial capital
appreciation. The remaining 66.7% of the Fund is owned by a group of
individuals unrelated to the Company. The Company's ownership percentage
will decline by the closing date of the Fund as capital commitments from
third parties are secured. The Company's projected ownership interest at
the closing of the Fund is approximately 7.5% based on the Fund manager's
expectations for the final Fund capitalization. The Company accounts for
its investment in the Fund under the cost method. The Company's investment
at September 30, 2002 was $7,800.
21
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUMMARY FINANCIAL INFORMATION
The Company reports its share of income and losses based on its
ownership interest in its respective equity investments, adjusted for any
preference payments. As a result of the Company's transaction with COPI on
February 14, 2002, certain entities that were reported as unconsolidated
entities as of December 31, 2001 and for the nine months ended September 30,
2001 are consolidated in the September 30, 2002 financial statements.
Additionally, certain unconsolidated subsidiaries of the newly consolidated
entities are now shown separately as unconsolidated entities of the Company. The
unconsolidated entities that are included under the headings on the following
tables are summarized below.
Balance Sheets as of September 30, 2002:
o The Woodlands Land Development Company, L.P. ("TWLDC") - This is
an unconsolidated investment of TWLC;
o Other Residential Development Corporations - This includes the
Blue River Land Company, L.L.C, an unconsolidated investment of
CRDI, MVDC and HADC;
o Resort/Hotel - This includes Manalapan Hotel Partners, L.L.C., an
unconsolidated investment of CRDI;
o Temperature-Controlled Logistics ("TCL"); and
o Office - This includes Main Street Partners, L.P., Houston PT
Three Westlake Office Limited Partnership, Houston PT Four
Westlake Office Limited Partnership, Austin PT BK One Tower
Office Limited Partnership, Crescent 5 Houston Center, L.P.,
Crescent Miami Center, L.L.C., and Woodlands CPC.
Balance Sheets as of December 31, 2001:
o Crescent Resort Development, Inc.- This Residential Development
Corporation was consolidated beginning February 14, 2002 as a
result of the COPI transaction. Its unconsolidated investments,
the Blue River Land Company, L.L.C. and Manalapan Hotel Partners,
L.L.C., are included under "Other Residential Development
Corporations" in the following Balance Sheets as of September 30,
2002;
o The Woodlands Land Company, Inc. - This Residential Development
Corporation was consolidated beginning February 14, 2002 as a
result of the COPI transaction. Its unconsolidated subsidiary is
included under "The Woodlands Land Development Company, L.P." in
the following Balance Sheets as of September 30, 2002;
o Other Residential Development Corporations - This includes DMDC,
MVDC and HADC. DMDC was consolidated beginning February 14, 2002
as a result of the COPI transaction;
o TCL; and
o Office - This includes Main Street Partners, L.P., Houston PT
Four Westlake Office Limited Partnership, Austin PT BK One Towe