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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 JUNE 30, 2003
COMMISSION FILE NO. 333-42293
333-89194-01
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CRESCENT FINANCE COMPANY *
-------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2531304
DELAWARE 42-1536518
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
* Crescent Finance Company meets the conditions set forth in General Instruction
H (1) (a) and (b) of Form 10-Q and therefore is filing this form with the
reduced disclosure format.
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2003 (unaudited) and December 31, 2002
(audited).................................................................................................... 3
Consolidated Statements of Operations for the three and six months ended June
30, 2003 and 2002 (unaudited)................................................................................ 4
Consolidated Statement of Partners' Capital for the six months ended
June 30, 2003 (unaudited).................................................................................... 5
Consolidated Statements of Cash Flows for the six months ended June 30, 2003
and 2002 (unaudited)......................................................................................... 6
Notes to Consolidated Financial Statements................................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................................ 37
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................... 61
Item 4. Controls and Procedures...................................................................................... 61
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................................. 61
PART I
ITEM 1. FINANCIAL STATEMENTS
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
JUNE 30, DECEMBER 31,
2003 2002
---------------- --------------
(UNAUDITED) (AUDITED)
ASSETS:
Investments in real estate:
Land $ 318,404 $ 304,319
Land held for investment or development 441,941 447,778
Building and improvements 2,933,203 2,903,244
Furniture, fixtures and equipment 120,693 115,198
Properties held for disposition, net 40,902 61,469
Less - accumulated depreciation (794,568) (733,172)
---------------- --------------
Net investment in real estate $ 3,060,575 $ 3,098,836
Cash and cash equivalents $ 66,208 $ 75,418
Restricted cash and cash equivalents 91,028 105,786
Accounts receivable, net 40,163 41,999
Deferred rent receivable 61,283 60,973
Investments in real estate mortgages and equity of
unconsolidated companies 542,956 562,643
Notes receivable, net 107,556 115,494
Income tax asset-current and deferred, net 50,322 39,709
Other assets, net 182,196 184,251
---------------- --------------
Total assets $ 4,202,287 $ 4,285,109
================ ==============
LIABILITIES:
Borrowings under Credit Facility $ 252,000 $ 164,000
Notes payable 2,212,751 2,218,910
Accounts payable, accrued expenses and other liabilities 328,171 373,020
---------------- --------------
Total liabilities $ 2,792,922 $ 2,755,930
---------------- --------------
COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS: $ 38,822 $ 43,972
---------------- --------------
PARTNERS' CAPITAL:
Series A Convertible Cumulative Preferred Units,
liquidation preference of $25.00 per unit,
10,800,000 units issued and outstanding
at June 30, 2003 and December 31, 2002 $ 248,160 $ 248,160
Series B Cumulative Preferred Units
liquidation preference of $25.00 per unit,
3,400,000 units issued and outstanding
at June 30, 2003 and December 31, 2002 81,923 81,923
Units of Partnership Interest, 58,459,048 and 58,484,396 issued
and outstanding at June 30, 2003 and December 31, 2002,
respectively:
General Partner - outstanding 584,590 and 584,844 10,950 12,097
Limited Partners - outstanding 57,874,458 and 57,899,552 1,056,751 1,170,279
Accumulated other comprehensive income (27,241) (27,252)
---------------- --------------
Total partners' capital $ 1,370,543 $ 1,485,207
---------------- --------------
Total liabilities and partners' capital $ 4,202,287 $ 4,285,109
================ ==============
The accompanying notes are an integral part of these consolidated financial
statements.
3
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(unaudited)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ -----------------------
2003 2002 2003 2002
---- ---- ---- ----
REVENUE:
Office Property $ 127,334 $ 138,378 $ 256,068 $ 277,967
Resort/Hotel Property 51,632 53,523 115,353 92,047
Residential Development Property 54,207 83,480 89,572 126,541
----------- ----------- ---------- -----------
Total Property revenue 233,173 275,381 460,993 496,555
----------- ----------- ---------- -----------
EXPENSE:
Office Property real estate taxes 18,475 19,973 36,606 40,461
Office Property operating expenses 43,977 40,978 86,798 84,138
Resort/Hotel Property expense 42,658 42,212 92,399 66,102
Residential Development Property expense 47,831 74,327 80,760 113,678
----------- ----------- ---------- -----------
Total Property expense 152,941 177,490 296,563 304,379
----------- ----------- ---------- -----------
Income from Property Operations 80,232 97,891 164,430 192,176
----------- ----------- ---------- -----------
OTHER INCOME (EXPENSE):
Income from investment land sales, net 1,627 - 1,728 -
Interest and other income 1,185 7,268 2,853 14,918
Corporate general and administrative (6,185) (5,333) (12,600) (11,725)
Interest expense (43,073) (46,450) (86,306) (88,722)
Amortization of deferred financing costs (2,544) (2,701) (4,968) (5,021)
Depreciation and amortization (35,958) (34,444) (74,653) (67,084)
Impairment and other charges related
to real estate assets - (1,000) (1,200) (1,000)
Other expenses (368) - (495) -
Equity in net income (loss) of unconsolidated companies:
Office Properties 1,864 1,471 3,322 2,781
Resort/Hotel Properties 1,382 - 2,125 -
Residential Development Properties 1,540 6,179 2,510 18,662
Temperature-Controlled Logistics Properties (406) (417) 1,101 (727)
Other 214 (465) (815) (4,526)
----------- ----------- ---------- -----------
Total Other Income (Expense) (80,722) (75,892) (167,398) (142,444)
----------- ----------- ---------- -----------
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY
INTERESTS AND INCOME TAXES (490) 21,999 (2,968) 49,732
Minority interests (1,699) (3,433) (589) (8,229)
Income tax benefit (provision) 3,090 (874) 5,605 4,008
----------- ----------- ---------- -----------
INCOME BEFORE DISCONTINUED OPERATIONS AND
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 901 17,692 2,048 45,511
Discontinued operations - income (loss) on assets sold and held for sale 765 (662) 736 883
Discontinued operations - (loss) gain on assets sold and held for sale (1,038) 1,855 (17,206) 4,052
Cumulative effect of a change in accounting principle - - - (10,327)
----------- ----------- ---------- -----------
NET INCOME (LOSS) 628 18,885 (14,422) 40,119
Series A Preferred Unit distributions (4,556) (4,215) (9,112) (7,590)
Series B Preferred Unit distributions (2,019) (1,009) (4,038) (1,009)
----------- ----------- ---------- -----------
NET (LOSS) INCOME AVAILABLE TO PARTNERS $ (5,947) $ 13,661 $ (27,572) $ 31,520
=========== =========== ========== ===========
BASIC EARNINGS PER UNIT DATA:
Net (loss) income before discontinued operations and
cumulative effect of a change in accounting principle $ (0.09) $ 0.19 $ (0.19) $ 0.56
Discontinued operations - income (loss) on assets sold and held for sale 0.01 (0.01) 0.01 0.01
Discontinued operations - (loss) gain on assets sold and held for sale (0.02) 0.03 (0.29) 0.06
Cumulative effect of a change in accounting principle - - - (0.16)
----------- ----------- ---------- -----------
Net (loss) income available to partners - basic $ (0.10) $ 0.21 $ (0.47) $ 0.47
=========== =========== ========== ===========
DILUTED EARNINGS PER UNIT DATA:
Net (loss) income before discontinued operations and
cumulative effect of a change in accounting principle $ (0.09) $ 0.19 $ (0.19) $ 0.55
Discontinued operations - income (loss) on assets sold and held for sale 0.01 (0.01) 0.01 0.01
Discontinued operations - (loss) gain on assets sold and held for sale (0.02) 0.03 (0.29) 0.06
Cumulative effect of a change in accounting principle - - - (0.15)
----------- ----------- ---------- -----------
Net (loss) income available to partners - diluted $ (0.10) $ 0.21 $ (0.47) $ 0.47
=========== =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(dollars in thousands)
(unaudited)
Accumulated
Preferred General Limited Other Total
Partners' Partners' Partners' Comprehensive Partners'
Capital Capital Capital Income Capital
--------- --------- ----------- ------------- -----------
PARTNERS' CAPITAL, December 31, 2002 $ 330,083 $ 12,097 $ 1,170,279 $ (27,252) $ 1,485,207
Contributions, Net - - (30) - (30)
Distributions - (871) (86,202) - (87,073)
Net (Loss) Income - (276) (27,296) - (27,572)
Unrealized and Realized Gain (Loss) on
Marketable Securities - - - 383 383
Unrealized Net Loss on Cash Flow Hedges - - - (372) (372)
--------- --------- ----------- ------------- -----------
PARTNERS' CAPITAL, June 30, 2003 $ 330,083 $ 10,950 $ 1,056,751 $ (27,241) $ 1,370,543
========= ========= =========== ============= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (14,422) $ 40,119
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 79,621 72,105
Residential Development cost of sales 50,158 94,088
Residential Development capital expenditures (50,196) (49,981)
Discontinued operations 17,589 (813)
Impairment and other charges related to real estate assets 1,200 1,000
Income from investment land sales, net (1,728) -
Minority interests 589 8,228
Cumulative effect of change in accounting principle - 10,327
Non-cash compensation (30) 84
Distributions received in excess of earnings
from unconsolidated companies:
Office Properties 3,012 -
Other 1,217 -
Equity in (earnings) loss net of distributions received from
unconsolidated companies:
Office Properties - (373)
Resort/Hotel Properties (2,125) -
Residential Development Properties (2,463) (5,866)
Temperature-Controlled Logistics Properties (1,101) 727
Other - 5,522
Change in assets and liabilities, net of effects of DBL consolidation/COPI transaction:
Restricted cash and cash equivalents 17,487 13,992
Accounts receivable 4,510 11,347
Deferred rent receivable (310) (1,124)
Income tax asset-current and deferred (7,049) (15,887)
Other assets 4,073 10,644
Accounts payable, accrued expenses and
other liabilities (65,766) (69,840)
--------- ---------
Net cash provided by operating activities $ 34,266 $ 124,299
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash impact of DBL consolidation/COPI transaction 11,374 38,226
Proceeds from property sales 6,428 20,381
Acquisition of rental properties (2,000) (8,410)
Development of investment properties (1,158) (1,178)
Property improvements - Office Properties (7,908) (7,757)
Property improvements - Resort/Hotel Properties (3,360) (10,230)
Tenant improvement and leasing costs - Office Properties (28,555) (18,028)
Residential Development Properties Investments (15,218) (7,269)
(Increase) Decrease in restricted cash and cash equivalents (2,729) 8,931
Return of investment in unconsolidated companies:
Office Properties 2,344 256
Residential Development Properties - 8,082
Temperature-Controlled Logistics Properties 3,201 -
Other 5,409 -
Investment in unconsolidated companies:
Office Properties (83) -
Residential Development Properties (1,691) (24,478)
Temperature-controlled logistics Properties (834) (128)
Other (750) (446)
Decrease (increase) in notes receivable 20,513 (5,906)
--------- ---------
Net cash (used in) investing activities $ (15,017) $ (7,954)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (1,932) (10,057)
Borrowings under Credit Facility 187,000 110,000
Payments under Credit Facility (99,000) (256,500)
Notes Payable proceeds 92,435 375,000
Notes Payable payments (92,416) (66,186)
Residential Development Properties note payable borrowings 41,316 32,087
Residential Development Properties note payable payments (47,808) (65,221)
Purchase of GMAC preferred interest - (187,000)
Capital distributions - joint venture partner (7,831) (3,805)
Capital distributions - joint venture preferred equity - (6,437)
Capital contributions to the Operating Partnership - 496
Issuance of preferred units-Series A - 48,160
Issuance of preferred units-Series B - 81,923
6 3/4% Series A Preferred Unit distributions (9,112) (7,590)
9 1/2% Series B Preferred Unit distributions (4,038) (1,009)
Dividends and unitholder distributions (87,073) (128,140)
--------- ---------
Net cash (used in) financing activities $ (28,459) $ (84,279)
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,210) 32,066
CASH AND CASH EQUIVALENTS,
Beginning of period 75,418 31,644
--------- ---------
CASH AND CASH EQUIVALENTS,
End of period $ 66,208 $ 63,710
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
6
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership ("CREELP" and, together with its direct and indirect ownership
interests in limited partnerships, corporations and limited liability companies,
the "Operating Partnership"), was formed under the terms of a limited
partnership agreement dated February 9, 1994. The Operating Partnership is
controlled by Crescent Real Estate Equities Company, a Texas real estate
investment trust (the "Company"), through the Company's ownership of all of the
outstanding stock of Crescent Real Estate Equities, Ltd., a Delaware corporation
("the General Partner"), which owns a 1% general partner interest in the
Operating Partnership. In addition, the Company owns an approximately 84%
limited partner interest in the Operating Partnership, with the remaining
approximately 15% limited partner interest held by other limited partners.
All of the limited partners of the Operating Partnership, other than
the Company, own, in addition to limited partner interests, units. Each unit
entitles the holder to exchange the unit (and the related limited partner
interest) for two common shares of the Company or, at the Company's option, an
equivalent amount of cash. For purposes of this report, the term "unit" or "unit
of partnership interest" refers to the limited partner interest and, if
applicable, related units held by a limited partner. Accordingly, as of June 30,
2003, the Company's approximately 84% limited partner interest has been treated
as equivalent, for purposes of this report, to 49,000,056 units and the
remaining approximately 15% limited partner interest has been treated as
equivalent, for purposes of this report, to 8,874,402 units. In addition, the
Company's 1% general partner interest has been treated as equivalent, for
purposes of this report, to 584,590 units.
The Company owns its assets and carries on its operations and other
activities through the Operating Partnership and its other subsidiaries. The
limited partnership agreement of the Operating Partnership acknowledges that all
of the Company's operating expenses are incurred for the benefit of the
Operating Partnership and provides that the Operating Partnership shall
reimburse the Company for all such expenses. Accordingly, expenses of the
Company are reimbursed by the Operating Partnership.
Crescent Finance Company, a Delaware corporation wholly-owned by the
Operating Partnership, was organized in March 2002 for the sole purpose of
acting as co-issuer with the Operating Partnership of $375.0 million aggregate
principal amount of 9.25% senior notes due 2009. Crescent Finance Company does
not conduct operations of its own.
The following table shows, by consolidated entity, the real estate
assets that the Operating Partnership owned or had an interest in as of June 30,
2003.
Operating Partnership Wholly-owned assets - The Avallon IV, Chancellor
Park, Datran Center (two office properties),
Houston Center (three office properties and the
Houston Center Shops)(1). These properties are
included in the Operating Partnership's Office
Segment.
Joint Venture assets, consolidated - 301 Congress
Avenue (50% interest) and The Woodlands Office
Properties (85.6% interest) (four office
properties). These five properties are included in
the Operating Partnership's Office Segment. Sonoma
Mission Inn & Spa (80.1% interest), included in
the Operating Partnership's Resort/Hotel 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), 5 Houston Center (25% interest)
and Five Post Oak Park (30% interest). These
properties are included in the Operating
Partnership's Office Segment. Ritz Carlton Palm
Beach (50% interest), included in the Operating
Partnership's Resort/Hotel Segment. The
temperature-controlled logistics properties (40%
interest in 88 properties). These properties are
included in the Operating Partnership's
Temperature-Controlled Logistics Segment.
Crescent Real Estate Wholly-owned assets - The Aberdeen, The Avallon I,
Funding I, L.P. II & III, Carter Burgess Plaza, The Citadel, The
("Funding I") Crescent Atrium, The Crescent Office Towers,
Regency Plaza One, Waterside Commons and 125 E.
John Carpenter Freeway. These properties are
included in the Operating Partnership's Office
Segment.
Crescent Real Estate Wholly-owned assets - Albuquerque Plaza, Barton
Funding II, L.P. Oaks Plaza One, Briargate Office and Research
("Funding II") Center, Las Colinas Plaza, Liberty Plaza I & II,
MacArthur Center I & II, Ptarmigan Place, Stanford
Corporate Centre, Two Renaissance Square and 12404
Park Central. These properties are included in the
Operating Partnership's Office Segment. The Hyatt
Regency Albuquerque and the Park Hyatt Beaver
Creek Resort & Spa. These properties are included
in the Operating Partnership's Resort/Hotel
Segment.
Crescent Real Estate Wholly-owned assets - Greenway Plaza Office
Funding III, IV and V, Properties (ten office properties). These
L.P. ("Funding III, IV properties are included in the Operating
and V")(2) Partnership's Office Segment. Renaissance Houston
Hotel is included in the Operating Partnership's
Resort/Hotel Segment.
7
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crescent Real Estate Wholly-owned asset - Canyon Ranch - Lenox,
Funding VI, L.P. included in the Operating Partnership's
("Funding VI") Resort/Hotel Segment.
Crescent Real Estate Wholly-owned assets - Five behavioral healthcare
Funding VII, L.P. properties.
("Funding VII")
Crescent Real Estate Wholly-owned assets - The Addison, Addison Tower,
Funding VIII, L.P. Austin Centre, The Avallon V, Frost Bank Plaza,
("Funding VIII") Greenway I and 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 and 55
Madison. These properties are included in the
Operating Partnership's Office Segment. The Canyon
Ranch - Tucson, Omni Austin Hotel, and Ventana Inn
& Spa, all of which are included in the Operating
Partnership's Resort/Hotel Segment.
Crescent 707 17th Wholly-owned assets - 707 17th Street, included in
Street, L.L.C. the Operating Partnership's Office Segment, and
The Denver Marriott City Center, included in the
Operating Partnership's Resort/Hotel Segment.
Crescent Real Estate Wholly-owned assets - Fountain Place and Post Oak
Funding X, L.P. Central (three office properties), all of which
("Funding X") are included in the Operating Partnership's Office
Segment.
Crescent Spectrum Wholly-owned asset - Spectrum Center, included in
Center, L.P.(4) the Operating Partnership's Office Segment.
Mira Vista Development Equity Investments, consolidated - Mira Vista (98%
Corp. ("MVDC") interest), included in the Operating Partnership's
Residential Development Segment.
Houston Area Development Equity Investments, consolidated - Falcon Point
Corp. ("HADC") (98% interest), Falcon Landing (98% interest) and
Spring Lakes (98% interest). These properties are
included in the Operating Partnership's
Residential Development Segment.
Desert Mountain Equity Investments, consolidated - Desert Mountain
Development Corporation (93% interest), included in the Operating
("DMDC") Partnership's Residential Development Segment.
The Woodlands Land Equity Investments, unconsolidated - The Woodlands
Company ("TWLC") (42.5% interest)(5), included in the Operating
Partnership's Residential Development Segment.
Crescent Resort Equity Investments, consolidated - Eagle Ranch
Development Inc. ("CRDI") (60% interest), Main Street Junction (30%
interest), Main Street Station (30% interest),
Main Street Station Vacation Club (30% interest),
Riverbend (60% interest), Park Place at Riverfront
(64% interest), Park Tower at Riverfront (64%
interest), Promenade Lofts at Riverfront (64%
interest), Creekside at Riverfront (64% interest),
Cresta (60% interest), Snow Cloud (64% interest),
Horizon Pass Lodge (64% interest), One Vendue
Range (62% interest), Old Greenwood (71.2%
interest), Tahoe Mountain Resorts (57% - 71.2%
interest). These properties are included in the
Operating Partnership's Residential Development
Segment.
Equity Investment, unconsolidated - Blue River
Land Company, L.L.C. - Three Peaks (30% interest),
included in the Operating Partnership's
Residential Development Segment.
Crescent TRS Holdings Equity Investments, unconsolidated - two quarries
Corp. (56% interest). These properties are included in
the Operating Partnership's Temperature-Controlled
Logistics Segment.
- --------------------------
(1) During the second quarter of 2003, The Park Shops was renamed the
Houston Center Shops.
(2) 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.
(3) The Operating Partnership 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 the building.
(4) In May 2003, Crescent Spectrum Center, L.P. exercised its option to
acquire the Spectrum Center property in exchange for the mortgage on
the property.
(5) Distributions are made to partners based on specified payout
percentages. During the six months ended June 30, 2003, the Operating
Partnership's payout percentage and economic interest were 52.5%.
8
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
See Note 7, "Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies," for a table that lists the Operating Partnership's
ownership in significant unconsolidated joint ventures and equity investments as
of June 30, 2003.
See Note 8, "Notes Payable and Borrowings Under Credit Facility," for a
list of certain other subsidiaries of the Operating Partnership and the Company,
all of which are consolidated by the Operating Partnership or the Company, in
the Operating Partnership's or the Company's financial statements and were
formed primarily for the purpose of obtaining secured debt or joint venture
financing.
SEGMENTS
The assets and operations of the Operating Partnership were divided
into four investment segments at June 30, 2003, as follows:
- Office Segment;
- Resort/Hotel Segment;
- Residential Development Segment; and
- Temperature-Controlled Logistics Segment.
Within these segments, the Operating Partnership owned in whole or in
part the following real estate assets (the "Properties") as of June 30, 2003:
- 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 29.5 million net rentable square
feet. 61 of the Office Properties are wholly-owned and 12 are owned
through joint ventures, five of which are consolidated and seven of
which are unconsolidated.
- RESORT/HOTEL SEGMENT consisted of six luxury and destination
fitness resorts and spas with a total of 1,306 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, one is owned through a joint venture that is
consolidated, and one is owned through a joint venture that is
unconsolidated.
- RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Operating
Partnership's ownership of real estate mortgages and voting and
non-voting common stock representing interests of 98% to 100% in
five residential development corporations (collectively referred to
as the "Residential Development Corporations"), which in turn,
through partnership arrangements, owned in whole or in part 23
upscale residential development properties, 21 of which are
consolidated and two of which are unconsolidated (collectively
referred to as the "Residential Development Properties").
- TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the Operating
Partnership's 40% interest in Vornado Crescent Portland Partnership
(the "Temperature-Controlled Logistics Partnership") and a 56%
interest in the Vornado Crescent Carthage and KC Quarry L.L.C. The
Temperature-Controlled Logistics Partnership owns all of the common
stock, representing substantially all of the economic interest, of
AmeriCold Corporation (the "Temperature-Controlled Logistics
Corporation"), a REIT. As of June 30, 2003, the
Temperature-Controlled Logistics Corporation 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. As of June 30, 2003, the
Vornado Crescent Carthage and KC Quarry, L.L.C. owned two quarries
and the related land. The Operating Partnership accounts for its
interests in the Temperature-Controlled Logistics Partnership and
in the Vornado Crescent Carthage and KC Quarry L.L.C. as
unconsolidated equity investments.
See Note 3, "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
six months ended June 30, 2003 and 2002, and total assets, consolidated property
level financing, consolidated other liabilities, and minority interests for each
of these investment segments at June 30, 2003 and December 31, 2002.
9
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For purposes of segment reporting as defined in Statement of Financial
Accounting Standards ("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 Operating Partnership 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-class hotel properties. Instead, for investor communications, the
four business-class hotel properties are classified with the
Temperature-Controlled Logistics Properties as the Operating Partnership'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 Operating Partnership's Form 10-K for the year ended December 31, 2002.
Certain amounts in prior period financial statements have been
reclassified to conform to current period presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This section should be read in conjunction with the more detailed
information regarding the Operating Partnership's significant accounting
policies contained in the Operating Partnership's Annual Report on Form 10-K for
the year ended December 31, 2002.
ADOPTION OF NEW ACCOUNTING STANDARDS
SFAS NO. 145. In April 2002, the Financial Accounting Standards Board
("FASB") issued SFAS No. 145, "Rescission of FASB Statements 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145
requires the reporting of gains and losses from early extinguishment of debt be
included in the determination of net income unless criteria in Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations," which
allows for extraordinary item classification, are met. The provisions of this
Statement related to the rescission of Statement No. 4 are to be applied in
fiscal years beginning after May 15, 2002. The Operating Partnership adopted
this Statement for fiscal 2003 and expects no impact in 2003 beyond the
classification of costs related to early extinguishments of debt, which were
shown in the Operating Partnership's 2001 Consolidated Statements of Operations
as an extraordinary item.
SFAS NOS. 148 AND 123. In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," effective
for fiscal years ending after December 15, 2002, to amend the transition and
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." In addition to the prospective transition method of accounting
for Stock-Based Employee Compensation using the fair value method provided in
SFAS No. 123, SFAS No. 148 permits two additional transition methods, both of
which avoid the ramp-up effect arising from prospective application of the fair
value method. The Retroactive Restatement Method requires companies to restate
all periods presented to reflect the Stock-Based Employee Compensation under the
fair value method for all employee awards granted, modified, or settled in
fiscal years beginning after December 15, 1994. The Modified Prospective Method
requires companies to recognize Stock-Based Employee Compensation from the
beginning of the fiscal year in which the recognition provisions are first
applied as if the fair value method in SFAS No. 123 had been used to account for
employee awards granted, modified, or settled in fiscal years beginning after
December 15, 1994. Also, in the absence of a single accounting method for
Stock-Based Employee Compensation, SFAS No. 148 expands disclosure requirements
from those existing in SFAS No. 123, and requires disclosure of whether, when,
and how an entity adopted the preferable, fair value method of accounting.
10
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective January 1, 2003, the Operating Partnership adopted the fair
value expense recognition provisions of SFAS No. 123 on a prospective basis as
permitted, which requires that the value of stock options and unit options at
the date of grant be amortized ratably into expense over the appropriate vesting
period. During the six months ended June 30, 2003, the Company and the Operating
Partnership granted stock options and unit options and recognized compensation
expense that was not significant to results of operations. With respect to the
Company's stock options and the Operating Partnership's unit options which were
granted prior to 2003, the Operating Partnership accounted for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations ("APB No. 25"). Under APB No. 25, compensation cost is
measured as the excess, if any, of the quoted market price of the Company's
common shares (doubled for unit options) at the date of grant over the exercise
price of the option granted. Compensation cost for stock options, if any, is
recognized ratably over the vesting period. During the six months ended June 30,
2003, no compensation cost was recognized for grants of stock options or unit
options made prior to 2003 under the Company and Operating Partnership stock and
unit option plans because the Company's and the Operating Partnership's policy
is to grant stock options and unit options with an exercise price equal to the
quoted closing market price of the Company's common shares (doubled for unit
options) on the grant date. Had compensation cost for the Plans been determined
based on the fair value at the grant dates for awards under the Plans consistent
with SFAS No. 123, the Operating Partnership's net (loss) income and (loss)
earnings per unit would have been reduced to the following pro forma amounts:
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- ---------------------------------
(in thousands, except per unit amounts) 2003 2002 2003 2002
- ------------------------------------------- ---------- --------- ----------- ----------
Net (loss) income available to partners, as
reported $ (5,947) $ 13,661 $ (27,572) $ 31,520
Deduct: total stock-based employee
compensation expense determined under
fair value based method for all awards (765) (1,093) (1,602) (2,073)
---------- --------- ----------- ----------
Pro forma net (loss) income $ (6,712) $ 12,568 $ (29,174) $ 29,447
(Loss) earnings per unit:
Basic - as reported $ (0.10) $ 0.21 $ (0.47) $ 0.47
Basic - pro forma $ (0.11) $ 0.19 $ (0.50) $ 0.44
Diluted - as reported $ (0.10) $ 0.21 $ (0.47) $ 0.47
Diluted - pro forma $ (0.11) $ 0.19 $ (0.50) $ 0.44
SFAS NO. 149. In April 2003, the FASB issued SFAS No. 149, "Amendment
of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends and clarifies the financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In general, SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of this
statement is not expected to have a material impact, if any, on the Operating
Partnership's financial condition or its results of operations.
SFAS NO. 150. In May 2003, the FASB issued SFAS No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards for how an issuer should classify
and measure certain financial instruments that have both liability and equity
characteristics. The provisions of this Statement are to be applied to financial
instruments entered into or modified after May 31, 2003 and to existing
instruments as of the beginning of the first interim financial reporting period
after June 15, 2003. The adoption of this statement is not expected to have a
material impact, if any, on the Operating Partnership's financial condition or
its results of operations.
FASB INTERPRETATION 45. In November 2002, the FASB issued
Interpretation 45, "Guarantors' Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"),
which elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that
it has issued, and liability-recognition requirements for a guarantor of certain
types of debt. The new guidance requires a guarantor to recognize a liability at
the inception of a guarantee which is covered by the new requirements whether or
not payment is probable, creating the new concept of a "stand-ready" obligation.
Initial recognition
11
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and initial measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. See Note 10, "Commitments
and Contingencies," for disclosure of the Operating Partnership's guarantees at
June 30, 2003. The Operating Partnership adopted FIN 45 effective January 1,
2003.
FASB INTERPRETATION 46. On January 15, 2003, the FASB approved the
issuance of Interpretation 46, "Consolidation of Variable Interest Entities"
("FIN 46"), an interpretation of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements." Under FIN 46, consolidation requirements
are effective immediately for new Variable Interest Entities ("VIEs") created
after January 31, 2003. The consolidation requirements apply to existing VIEs in
the first fiscal year or interim period beginning after June 15, 2003. VIEs are
generally a legal structure used for business enterprises that either do not
have equity investors with voting rights, or have equity investors that do not
provide sufficient financial resources for the entity to support its activities.
The objective of the new guidance is to improve reporting by addressing when a
company should include in its financial statements the assets, liabilities and
activities of another entity such as a VIE. FIN 46 requires a VIE to be
consolidated by a company if the company is subject to a majority of the risk of
loss from the VIE's activities or entitled to receive a majority of the entity's
residual returns or both. FIN 46 also requires disclosures about VIEs that the
company is not required to consolidate but in which it has a significant
variable interest. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the VIE was
established. These disclosure requirements are as follows: (a) the nature,
purpose, size, and activities of the variable interest entity; and, (b) the
enterprise's maximum exposure to loss as a result of its involvement with the
VIE. FIN 46 may be applied prospectively with a cumulative effect adjustment as
of the date on which it is first applied or by restating previously issued
financial statements for one or more years with a cumulative effect adjustment
as of the beginning of the first year restated. The Operating Partnership is
assessing the impact of this Interpretation, if any, on its existing entities
and does not believe the impact will be significant on its liquidity, financial
position, and results of operations. The Operating Partnership did not create
any VIEs subsequent to January 31, 2003.
SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER SHARE. SFAS No. 128, "Earnings Per Share," ("EPS")
specifies the computation, presentation and disclosure requirements for earnings
per share.
Basic EPS is computed by dividing net income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock, where such exercise or conversion would result in a lower EPS
amount. The Operating Partnership presents both basic and diluted earnings per
unit.
The following tables present reconciliations for the three and six
months ended June 30, 2003 and 2002 of basic and diluted earnings per unit from
"Income before discontinued operations and cumulative effect of a change in
accounting principle" to "Net (loss) income available to partners." The table
also includes weighted average units on a basic and diluted basis.
FOR THE THREE MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------
2003 2002
--------------------------------- --------------------------------
Income Wtd. Avg. Per Unit Income Wtd. Avg. Per Unit
(in thousands, except per unit amounts) (Loss) Units Amount (Loss) Units Amount
- --------------------------------------------------- --------------------------------- --------------------------------
BASIC EPS -
Income before discontinued operations $ 901 58,460 $ 17,692 66,277
Series A Preferred Unit distributions (4,556) (4,215)
Series B Preferred Unit distributions (2,019) (1,009)
------------ -------- -------- -------- --------- --------
Net (loss) income available to partners
before discontinued operations $ (5,674) 58,460 (0.09) $ 12,468 66,277 $ 0.19
Discontinued operations - income (loss) on assets
sold and held for sale 765 0.01 (662) (0.01)
Discontinued operations- (loss) gain on assets sold
and held for sale (1,038) (0.02) 1,855 0.03
------------ -------- -------- -------- -------- ------
Net (loss) income available to partners $ (5,947) 58,460 (0.10) $ 13,661 66,277 $ 0.21
============ ======== ======== ======== ======== ======
12
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------
2003 2002
----------------------------- -----------------------------
Income Wtd. Avg. Per Unit Income Wtd. Avg. Per Unit
(in thousands, except per unit amounts) (Loss) Units Amount (Loss) Units Amount
- --------------------------------------- ----------------------------- -----------------------------
DILUTED EPS -
Income before discontinued operations $ 901 58,460 $17,692 66,277
Series A Preferred Unit distributions (4,556) (4,215)
Series B Preferred Unit distributions (2,019) (1,009)
Effect of dilutive securities
Additional common units relating to
unit options 6 612
-------- -------- -------- ------- ------- --------
Net (loss) income available to
partners before discontinued operations $ (5,674) 58,466 (0.09) $12,468 66,889 $ 0.19
Discontinued operations - income
(loss) on assets sold and held for
sale 765 0.01 (662) (0.01)
Discontinued operations - (loss) gain
on assets sold and held for sale (1,038) (0.02) 1,855 0.03
-------- -------- -------- ------- ------- --------
Net (loss) income available to partners $ (5,947) 58,466 (0.10) $13,661 66,889 $ 0.21
======== ======== ======== ======= ======= ========
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------
2003 2002
----------------------------- -----------------------------
Income Wtd. Avg. Per Unit Income Wtd. Avg. Per Unit
(in thousands, except per unit amounts) (Loss) Units Amount (Loss) Units Amount
- --------------------------------------- ----------------------------- -----------------------------
BASIC EPS -
Income before discontinued operations
and cumulative effect of a change in
accounting principle $ 2,048 58,472 $ 45,512 66,290
Series A Preferred Unit distributions (9,112) (7,590)
Series B Preferred Unit distributions (4,038) (1,009)
-------- -------- -------- ------- ------ --------
Net (loss) income available to
partners before discontinued operations
and cumulative effect of a change in
accounting principle $(11,102) 58,472 (0.19) $ 36,913 66,290 $ 0.56
Discontinued operations - income on
assets sold and held for sale 736 0.01 883 0.01
Discontinued operations- (loss) gain
on assets sold and held for sale (17,206) (0.29) 4,051 0.06
Cumulative effect of a change in
accounting principle - - (10,327) (0.16)
-------- -------- -------- -------- ------ --------
Net (loss) income available to partners $(27,572) 58,472 (0.47) $ 31,520 66,290 $ 0.47
======== ======== ======== ======== ====== ========
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------
2003 2002
----------------------------- ------------------------------
Income Wtd. Avg. Per Unit Income Wtd. Avg. Per Unit
(in thousands, except per unit amounts) (Loss) Units Amount (Loss) Units Amount
- --------------------------------------- ----------------------------- ------------------------------
DILUTED EPS -
Income before discontinued operations
and cumulative effect of a change in
accounting principle $ 2,048 58,472 $ 45,512 66,290
Series A Preferred Unit distributions (9,112) (7,590)
Series B Preferred Unit distributions (4,038) (1,009)
Effect of dilutive securities
Additional common units relating to
unit options 4 419
-------- -------- -------- -------- ------- --------
Net (loss) income available to
partners before discontinued operations
and cumulative effect of a change in
accounting principle $(11,102) 58,476 (0.19) $ 36,913 66,709 $ 0.55
Discontinued operations - income on
assets sold and held for sale 736 0.01 883 0.01
Discontinued operations - (loss) gain
on assets sold and held for sale (17,206) (0.29) 4,051 0.06
Cumulative effect of a change in
accounting principle - - (10,327) (0.15)
-------- -------- -------- -------- ------- --------
Net (loss) income available to partners $(27,572) 58,476 (0.47) $ 31,520 66,709 $ 0.47
======== ======== ======== ======== ======= ========
13
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This table presents supplemental cash flows disclosures for the six
months ended June 30, 2003 and 2002.
SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
(in thousands) 2003 2002
- ----------------------------------------------------------------- --------- ---------
Interest paid on debt $ 76,240 $ 71,064
Interest capitalized - Office Properties -- 248
Interest capitalized - Residential Development Properties 8,297 5,558
Additional interest paid in conjunction with cash flow hedges 10,114 12,012
--------- ---------
Total interest paid $ 94,651 $ 88,882
========= =========
Cash paid for income taxes $ 1,640 $ 11,000
========= =========
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING
ACTIVITIES:
Unrealized and realized gain (loss) on marketable securities $ 383 $ (1,149)
Impairment and other charges related to real estate assets 18,018 3,048
Adjustment of cash flow hedge to fair value (487) 6,046
SUPPLEMENTAL SCHEDULE OF 2003 CONSOLIDATION OF DBL, MVDC AND HADC
AND THE 2002 TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
PURSUANT TO THE FEBRUARY 14, 2002 AGREEMENT WITH COPI:
Net investment in real estate $ (9,692) $(570,175)
Restricted cash and cash equivalents - (3,968)
Accounts receivable, net (3,057) (23,338)
Investments in real estate mortgages and equity of
unconsolidated companies 13,552 309,103
Notes receivable, net (25) 29,816
Income tax asset - current and deferred, net (3,564) (21,784)
Other assets, net (820) (63,263)
Notes payable 312 129,157
Accounts payable, accrued expenses and other liabilities 12,696 201,159
Minority interest - consolidated real estate partnerships 1,972 51,519
--------- ---------
Increase in cash $ 11,374 $ 38,226
========= =========
3. SEGMENT REPORTING
For purposes of segment reporting as defined in SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," the
Operating Partnership 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 Operating Partnership uses funds from operations ("FFO") as the
measure of segment profit or loss. FFO, as used in this document, is based on
the definition adopted by the Board of Governors of the National Association of
Real Estate Investment Trusts ("NAREIT") and means:
- Net Income (Loss) - determined in conformity with GAAP;
- excluding gains (losses) from sales of depreciable operating
property;
- excluding extraordinary items (as defined by GAAP);
- including depreciation and amortization of real estate assets; and
- after adjusting for unconsolidated partnerships and joint
ventures.
NAREIT developed FFO as a relative measure of performance of an equity
REIT to recognize that income-producing real estate historically has not
depreciated on the basis determined under GAAP. The Operating Partnership
considers FFO an appropriate measure of performance for an operating partnership
of an equity REIT and for its investment segments. However, FFO should not be
considered as an alternative to net income determined in accordance with GAAP as
an indication of the Operating Partnership's operating performance.
14
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Operating Partnership's measure of FFO may not be comparable to
similarly titled measures of operating partnerships of REITs (other than the
Company) if those REITs apply the definition of FFO in a different manner than
the Operating Partnership.
Selected financial information related to each segment for the three
and six months ended June 30, 2003 and 2002, and total assets, consolidated
property level financing, consolidated other liabilities, and minority interests
for each of the segments at June 30, 2003 and December 31, 2002, are presented
below:
SELECTED FINANCIAL INFORMATION: FOR THE THREE MONTHS ENDED JUNE 30, 2003
-------------------------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
OFFICE RESORT/HOTEL DEVELOPMENT LOGISTICS CORPORATE
(in thousands) SEGMENT SEGMENT SEGMENT SEGMENT AND OTHER TOTAL
- --------------------------- -------- ------------ ----------- ------------ ----------- --------
Property revenues $ 127,334(1) $ 51,632 $ 54,207 $ - $ - $233,173
Other income - - - - 2,812 2,812
-------- -------- -------- -------- -------- --------
Total revenue $127,334 $ 51,632 $ 54,207 $ - $ 2,812(2) $235,985
======== ======== ======== ======== ======== ========
Property operating expenses $ 62,452 $ 42,658 $ 47,831 - $ -- $152,941
Other operating expenses - - - $ - 88,128 88,128
-------- -------- -------- -------- -------- --------
Total expenses $ 62,452 $ 42,658 $ 47,831 $ - $ 88,128(2) $241,069
======== ======== ======== ======== ======== ========
Equity in net income
(loss) of unconsolidated companies $ 1,864 $ 1,382 $ 1,540 $ (406) $ 214 $ 4,594
======== ======== ======== ======== ======== ========
Funds from operations $ 70,011 $ 12,356 $ 5,705 $ 5,079 $(56,710) $ 36,441(5)
======== ======== ======== ======== ======== ========
SELECTED FINANCIAL INFORMATION: FOR THE THREE MONTHS ENDED JUNE 30, 2002
---------------------------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
OFFICE RESORT/HOTEL DEVELOPMENT LOGISTICS CORPORATE
(in thousands) SEGMENT SEGMENT SEGMENT SEGMENT AND OTHER TOTAL
- --------------------------- -------- -------- -------- -------- -------- --------
Property revenues $138,378(1) $ 53,523 $ 83,480 $ - $ - $275,381
Other income - - - - 7,268 7,268
-------- -------- -------- -------- -------- --------
Total revenue $138,378 $ 53,523 $ 83,480 $ - $ 7,268(2) $282,649
======== ======== ======== ======== ======== ========
Property operating expenses $ 60,951 $ 42,212 $ 74,327 $ - $ - $177,490
Other operating expenses - - - - 89,928 89,928
-------- -------- -------- -------- -------- --------
Total expenses $ 60,951 $ 42,212 $ 74,327 $ - $ 89,928(2) $267,418
======== ======== ======== ======== ======== ========
Equity in net income
(loss) of unconsolidated companies $ 1,471 $ - $ 6,179 $ (417) $ (465) $ 6,768
======== ======== ======== ======== ======== ========
Funds from operations $ 80,502 $ 12,637 $ 12,474 $ 5,374 $(52,357) $ 58,630(5)
======== ======== ======== ======== ======== ========
SELECTED FINANCIAL INFORMATION: FOR THE SIX MONTHS ENDED JUNE 30, 2003
---------------------------------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
OFFICE RESORT/HOTEL DEVELOPMENT LOGISTICS CORPORATE
(in thousands) SEGMENT SEGMENT SEGMENT SEGMENT AND OTHER TOTAL
- --------------------------- --------- --------- --------- --------- --------- --------
Property revenues $ 256,068(1) $ 115,353 $ 89,572 $ -- $ -- $ 460,993
Other income -- -- -- -- 4,581 4,581
--------- --------- --------- --------- --------- ---------
Total revenue $ 256,068 $ 115,353 $ 89,572 $ -- $ 4,581(2) $ 465,574
========= ========= ========= ========= ========= =========
Property operating expenses $ 123,404 $ 92,399 $ 80,760 $ -- $ -- $ 296,563
Other operating expenses -- -- -- -- 180,222 180,222
--------- --------- --------- --------- --------- ---------
Total expenses $ 123,404 $ 92,399 $ 80,760 $ -- $ 180,222(2) $ 476,785
========= ========= ========= ========= ========= =========
Equity in net income
(loss) of unconsolidated companies $ 3,322 $ 2,125 $ 2,510 $ 1,101 $ (815) $ 8,243
========= ========= ========= ========= ========= =========
Funds from operations $ 142,271 $ 27,987 $ 10,993 $ 12,096 $(115,489) $ 77,858(5)
========= ========= ========= ========= ========= =========
15
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SELECTED FINANCIAL INFORMATION:
FOR THE SIX MONTHS ENDED JUNE 30, 2002
------------------------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
OFFICE RESORT/HOTEL DEVELOPMENT LOGISTICS CORPORATE
(in thousands) SEGMENT SEGMENT SEGMENT SEGMENT AND OTHER TOTAL
- --------------------------- --------------- ------------ ------------ ------------ --------- ---------
Property revenues $ 277,967 (1) $ 92,047 $ 126,541 $ - $ - $ 496,555
Other income - - - - $ 14,918 14,918
----------- ---------- ------------ ---------- --------- ---------
Total revenue $ 277,967 $ 92,047 $ 126,541 $ - $ 14,918 (2) $ 511,473
=========== ========== ============ ========== ========= =========
Property operating expenses $ 124,599 $ 66,102 $ 113,678 $ - - $ 304,379
Other operating expenses - - - - $ 173,552 173,552
----------- ---------- ------------ ---------- --------- ---------
Total expenses $ 124,599 $ 66,102 $ 113,678 $ - $ 173,552 (2) $ 477,931
=========== ========== ============ ========== ========= =========
Equity in net income (loss) of
unconsolidated companies $ 2,781 $ - $ 18,662 $ (727) $ (4,526) $ 16,190
=========== ========== ============ ========== ========= =========
Funds from operations $ 161,074 $ 33,547 $ 28,035 $ 10,775 $(105,250) $ 128,181(5)
=========== ========== ============ ========== ========= =========
- -----------------------------------
See footnotes to the following table.
TERMPERATURE-
RESIDENTIAL CONTROLLED CORPORATE
OFFICE RESORT/HOTEL DEVELOPMENT LOGISTICS AND
(in millions) SEGMENT SEGMENT SEGMENT SEGMENT OTHER TOTAL
- -------------------------------------- -------- ------------ ----------- ------------- --------- -----
TOTAL ASSETS BY SEGMENT:(3)
Balance at June 30, 2003 $ 2,529 $ 499 $ 748 $ 303 $ 123 $ 4,202
Balance at December 31, 2002 2,626 502 723 304 130 4,285
CONSOLIDATED PROPERTY LEVEL FINANCING:
Balance at June 30, 2003 $ (1,368) $ (133) $ (87) $ - $(877)(4) $(2,465)
Balance at December 31, 2002 (1,371) (130) (93) - (789)(4) (2,383)
CONSOLIDATED OTHER LIABILITIES:
Balance at June 30, 2003 $ (92) $ (40) $ (136) $ - $ (60) $ (328)
Balance at December 31, 2002 (135) (44) (125) - (69) (373)
MINORITY INTERESTS:
Balance at June 30, 2003 $ (8) $ (7) $ (24) $ - $ - $ (39)
Balance at December 31, 2002 (11) (8) (25) - - (44)
- ------------------------------------
(1) Includes lease termination fees (net of the write-off of deferred rent
receivables) of approximately $0.9 million and $0.6 million for the
three months ended June 30, 2003 and 2002, respectively and $2.9
million and $1.7 million for the six months ended June 30, 2003 and
2002, respectively.
(2) For purposes of this Note, Corporate and Other include income from
investment land sales, net, corporate interest and other income,
general and administrative, interest expense, depreciation and
amortization, amortization of deferred financing costs, preferred
return paid to GMAC Commercial Mortgage Corporation ("GMACCM") for
2002, preferred dividends, other unconsolidated companies, impairment
and other charges and other expenses.
(3) Total assets by segment is inclusive of investments in real estate
mortgages and equity of unconsolidated companies, net of unconsolidated
debt.
(4) Inclusive of Corporate bonds and credit facility.
(5) The following table presents a reconciliation of Consolidated Funds
from Operations to Net Income (Loss).
16
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECONCILIATION OF CONSOLIDATED FUNDS FROM OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- ---------------------------------
(In thousands) 2003 2002 2003 2002
- ----------------------------------------- -------- -------- --------- ---------
Consolidated Funds from Operations $ 36,441 $ 58,630 $ 77,858 $ 128,181
Adjustments to reconcile Consolidated
Funds from
Operations to Net Income (Loss):
Depreciation and amortization of
real estate assets (33,099) (33,529) (69,400) (65,669)
(Loss) gain on property sales, net (61) 1,420 (287) 5,665
Impairment and other adjustments
related to real estate assets and
assets held for sale (990) - (18,018) (2,048)
Cumulative effect of a change in
accounting principle - - - (10,327)
Adjustment for investments in real
estate mortgages and equity of
unconsolidated companies:
Office Properties (3,013) (1,889) (5,835) (4,051)
Resort/Hotel Properties (355) - (749) -
Residential Development
Properties 512 (2,051) (227) (2,954)
Temperature-Controlled Logistics
Properties (5,486) (5,790) (10,996) (11,501)
Other 104 (3,130) 82 (5,776)
Series A Preferred unit distributions 4,556 4,215 9,112 7,590
Series B Preferred unit distributions 2,019 1,009 4,038 1,009
-------- -------- --------- ---------
Net Income (Loss) $ 628 $ 18,885 $ (14,422) $ 40,119
======== ======== ========= =========
4. DISCONTINUED OPERATIONS
In August 2001, the FASB issued SFAS No. 144, which requires that the
results of operations of assets sold or held for sale, and any gains or losses
recognized on assets sold and held for sale, be disclosed separately in the
Operating Partnership's Consolidated Statements of Operations. The Operating
Partnership adopted SFAS No. 144 on January 1, 2002. In accordance with SFAS No.
144, the results of operations of the assets sold or held for sale have been
presented as "Discontinued operations - income (loss) on assets sold and held
for sale," and gain or loss and impairments in the assets sold or held for sale
have been presented as "Discontinued operations - (loss) gain on assets sold and
held for sale" in the accompanying Consolidated Statements of Operations for the
three and six months ended June 30, 2003 and 2002. The impairment charges
represent the difference between the carrying value of assets sold or held for
sale and the actual or estimated sales price, less costs of sale. The carrying
value of the assets held for sale has been reflected as "Properties held for
disposition, net" in the accompanying Consolidated Balance Sheets as of June 30,
2003 and December 31, 2002.
ASSETS HELD FOR SALE
OFFICE SEGMENT
As of June 30, 2003, the 1800 West Loop South Office Property located
in the West Loop/Galleria submarket in Houston, Texas was held for sale. During
the six months ended June 30, 2003, the Operating Partnership recognized an
approximately $15.0 million impairment charge on the 1800 West Loop South Office
Property.
As of June 30, 2003, the Operating Partnership determined that the
North Dallas Athletic Club, a building adjacent to the Stanford Corporate Centre
Office Property in the Far North Dallas submarket in Dallas, Texas was no longer
held for sale due to the Operating Partnership's negotiations to contract a new
operator. The Property has been reclassified from "Properties held for
disposition, net" to "Building and improvements," "Furniture, fixtures and
equipment" and "Accumulated depreciation" in the accompanying Consolidated
Balance Sheets with a book value of $0.6 million, net of accumulated
depreciation of $0.8 million. The impairment charge of $1.2 million, recorded
during the first quarter of 2003, has been reclassified from "Discontinued
operations - (loss) gain on assets sold and held for sale" to "Impairment and
other charges related to real estate assets" in the accompanying Consolidated
Statement of Operations.
17
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BEHAVIORAL HEALTHCARE PROPERTIES
On February 27, 2003, the Operating Partnership sold a behavioral
healthcare property for $2.0 million, consisting of $1.3 million in cash and a
$0.7 million note receivable. The Operating Partnership recognized a loss on the
sale of this property of approximately $0.3 million. A $2.6 million impairment
charge had been recognized during 2002 related to this property.
On May 2, 2003, the Operating Partnership sold one additional
behavioral healthcare property for $2.1 million. The Operating Partnership
recognized a loss on the sale of this property of approximately $0.1 million. A
$0.8 million impairment charge was recognized during the first quarter of 2003
related to this property.
The Operating Partnership also recognized a $1.0 million impairment
charge during the second quarter of 2003 on a behavioral healthcare property
held for sale and under contract for sale at June 30, 2003. This property was
sold on July 10, 2003.
As of June 30, 2003, the Operating Partnership owned five behavioral
healthcare properties.
SUMMARY OF ASSETS HELD FOR SALE
The following table indicates the major classes of assets of the
Properties held for sale.
(in thousands) JUNE 30, 2003(1) DECEMBER 31, 2002
- -------------------------------- ---------------- -----------------
Land $ 9,523 $ 12,802
Buildings and improvements 39,291 56,875
Furniture, fixture and equipment 935 1,665
Accumulated depreciation (8,847) (9,873)
-------- --------
Net investment in real estate $ 40,902 $ 61,469
======== ========
- ---------------------------
(1) Includes the 1800 West Loop South Office Property and five behavioral
healthcare properties.
The following table presents rental revenue, operating expenses,
depreciation and amortization, net income and impairments for the six months
ended June 30, 2003 and 2002 for Properties held for sale as of June 30, 2003.
FOR THE SIX MONTHS ENDED JUNE 30,
DEPRECIATION
OPERATING AND NET
(in thousands) REVENUE(1) EXPENSES(1) AMORTIZATION(1) INCOME (1) IMPAIRMENTS (2)
- -------------- ---------- ----------- --------------- ---------- ---------------
2003 $ 2,889 $ 1,548 $ 303 $1,038 $ 16,818
2002 2,802 1,623 819 360 -
- ------------------------
(1) Includes the 1800 West Loop South Office Property.
(2) Includes impairments of 1800 West Loop South and two behavioral healthcare
properties.
5. OTHER ASSET DISPOSITIONS
INVESTMENT LAND DISPOSITIONS
On April 24, 2003, the Operating Partnership completed the sale of
approximately one-half acre of undeveloped land located in Dallas, Texas. The
sale generated net proceeds and a net gain of approximately $0.3 million. This
land was wholly-owned by the Operating Partnership.
On May 15, 2003, the Operating Partnership completed the sale of
approximately 24.8 acres of undeveloped land located in Coppell, Texas. The sale
generated net proceeds of $3.0 million and a net gain of approximately $1.1
million. This land was wholly-owned by the Operating Partnership.
18
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2003, the Operating Partnership sold approximately 3.5
acres of undeveloped land located in Houston, Texas. Subsequent to the end of
the second quarter, the sale agreement was modified. Under the terms of the
modified sale agreement, the Operating Partnership generated proceeds of $2.1
million, net of closing costs, and a note receivable in the amount of $11.8
million, with annual installments of principal and interest payments beginning
June 27, 2004 through maturity on June 27, 2010. The principal payment amounts
are calculated based upon a 20-year amortization and the interest rate is 4% for
the first two years and thereafter the prime rate, as defined in the note,
through maturity. Based on the terms of the modified sale agreement, the
Operating Partnership will fully recognize a net gain of approximately $8.9
million in the third quarter of 2003. This land was wholly-owned by the
Operating Partnership.
6. TEMPERATURE-CONTROLLED LOGISTICS SEGMENT
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES
As of June 30, 2003, the Operating Partnership held a 40% interest in
the Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly owns
the 88 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 441.5 million cubic feet (17.5 million square feet) of warehouse
space.
The Temperature-Controlled Logistics Corporation leases the
Temperature-Controlled Logistics Properties to AmeriCold Logistics, a limited
liability company owned 60% by Vornado Operating L.P. and 40% by a subsidiary of
Crescent Operating, Inc. ("COPI"). The Operating Partnership has no economic
interest in AmeriCold Logistics. See Note 15, "COPI," for information on the
proposed acquisition of COPI's 40% interest in AmeriCold Logistics by a new
entity to be owned by the Company's shareholders and the Operating Partnership's
unitholders.
AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, leases the Temperature-Controlled Logistics Properties
from the Temperature-Controlled Logistics Corporation under three triple-net
master leases, as amended. On February 22, 2001, the Temperature-Controlled
Logistics Corporation and AmeriCold Logistics agreed to restructure certain
financial terms of the leases, including a reduction of the rental obligation
for 2001 and 2002, the increase of the Temperature-Controlled Logistics
Corporation's share of capital expenditures for the maintenance of the
properties (effective January 1, 2000) and the extension of the date on which
deferred rent is required to be paid to December 31, 2003. On March 7, 2003, the
Temperature-Controlled Logistics Corporation and AmeriCold Logistics amended the
leases to further extend the date on which deferred rent is required to be paid
to December 31, 2004.
AmeriCold Logistics deferred $18.5 million of the total $76.4 million
of rent payable for the six months ended June 30, 2003. The Operating
Partnership's share of the deferred rent was $7.4 million. The Operating
Partnership recognizes rental income from the Temperature-Controlled Logistics
Properties when earned and collected and has not recognized the $7.4 million of
deferred rent in equity in net income of the Temperature-Controlled Logistics
Properties for the six months ended June 30, 2003. As of June 30, 2003, the
Temperature-Controlled Logistics Corporation's deferred rent and valuation
allowance from AmeriCold Logistics were $59.1 million and $52.8 million,
respectively, of which the Operating Partnership's portions were $23.6 million
and $21.1 million, respectively.
VORNADO CRESCENT CARTHAGE AND KC QUARRY, L.L.C.
As of June 30, 2003, the Operating Partnership held a 56% interest in
Vornado Crescent Carthage and KC Quarry, L.L.C. ("VCQ"). The assets of VCQ
include two quarries and the related land. The Operating Partnership accounts
for this investment as an unconsolidated equity investment because the Operating
Partnership does not control the joint venture.
On December 31, 2002, VCQ purchased $5.7 million of trade receivables
from AmeriCold Logistics at a 2% discount. The Operating Partnership contributed
approximately $3.1 million to VCQ for the purchase of the trade receivables. The
receivables were collected during the three months ended March 31, 2003.
On March 28, 2003, VCQ purchased $6.6 million of trade receivables from
AmeriCold Logistics at a 2% discount. VCQ used cash from collection of trade
receivables previously purchased from AmeriCold Logistics and a $2.0 million
contribution from its owners, of which approximately $0.8 million represented
the Operating Partnership's contribution, for the purchase of the trade
receivables. The receivables were collected during the three months ended June
30, 2003.
On May 22, 2003, VCQ distributed cash of $3.2 million to the Operating
Partnership.
19
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED
COMPANIES
The Operating Partnership has investments of 20% to 50% in seven
unconsolidated joint ventures that own seven Office Properties. The Operating
Partnership does not have control of these joint ventures, and therefore, these
investments are accounted for using the equity method of accounting.
The Operating Partnership, through ownership interests of 50% or less,
or ownership of non-voting interests only, has other unconsolidated investments
which it does not control; these investments are accounted for using the equity
method of accounting.
The following is a summary of the Operating Partnership's ownership in
significant unconsolidated joint ventures and equity investments as of June 30,
2003.
OPERATING PARTNERSHIP'S
OWNERSHIP
ENTITY CLASSIFICATION AS OF JUNE 30, 2003
- ------------------------------------------------- ---------------------------------- -----------------------
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 Park Office Limited
Partnership Office (Four Westlake Park-Houston) 20.0% (4)
Houston PT Three Westlake Park Office Limited Office (Three Westlake Park -
Partnership Houston) 20.0% (4)
Crescent Five Post Oak Park L.P. Office (Five Post Oak - Houston) 30.0% (5)
Equity Investments
- ------------------
The Woodlands Land Development Company, L.P. Residential Development 42.5% (6)(7)
Blue River Land Company, L.L.C. Residential Development 50.0% (8)
Resort/Hotel (Ritz Carlton Palm
Manalapan Hotel Partners, L.L.C. Beach) 50.0% (9)
Vornado Crescent Portland Partnership Temperature-Controlled Logistics 40.0% (10)
Vornado Crescent Carthage and KC Quarry, L.L.C. Temperature-Controlled Logistics 56.0% (11)
The Woodlands Commercial Properties Company, L.P. Office 42.5% (6)(7)
CR License, L.L.C. Other 30.0% (12)
The Woodlands Operating Company, L.P. Other 42.5% (6) (7)
Canyon Ranch Las Vegas, L.L.C. Other 65.0% (13)
SunTx Fulcrum Fund, L.P. Other 28.1% (14)
G2 Opportunity Fund, L.P. Other 12.5% (15)
- ------------------------------------------------------------
(1) The remaining 50% 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
an affiliate of a fund managed by JP Morgan Fleming Asset Management,
Inc.
(3) The remaining 75% interest in Crescent 5 Houston Center, L.P. is owned
by a pension fund advised by JP Morgan Fleming Asset Management, Inc.
(4) The remaining 80% interest in each of Austin PT BK One Tower Office
Limited Partnership, Houston PT Three Westlake Park Office Limited
Partnership and Houston PT Four Westlake Park Office Limited
Partnership is owned by an affiliate of General Electric Pension Trust.
(5) The remaining 70% interest in Crescent Five Post Oak Park L.P. is owned
by an affiliate of General Electric Pension Trust.
(6) The remaining 57.5% interest in each of the Woodlands Land Development
Company, L.P. ("WLDC"), The Woodlands Commercial Properties Company,
L.P. ("Woodlands CPC") and The Woodlands Operating Company, L.P. is
owned by an affiliate of Morgan Stanley.
(7) Distributions are made to partners based on specified payout
percentages. During the six months ended June 30, 2003, the payout
percentage to the Operating Partnership was 52.5%.
(8) The remaining 50% interest in Blue River Land Company, L.L.C. is owned
by parties unrelated to the Operating Partnership.
(9) The remaining 50% interest in Manalapan Hotel Partners, L.L.C.
("Manalapan") is owned by WB Palm Beach Investors, L.L.C.
(10) The remaining 60% interest in Vornado Crescent Portland Partnership is
owned by Vornado Realty Trust, L.P.
(11) The remaining 44% in Vornado Crescent Carthage and KC Quarry, L.L.C. is
owned by Vornado Realty Trust, L.P.
(12) The remaining 70% interest in CR License, L.L.C. is owned by an
affiliate of the management company of two of the Operating
Partnership's Resort/Hotel Properties.
(13) The remaining 35% interest in Canyon Ranch Las Vegas, L.L.C. is owned
by an affiliate of the management company of two of the Operating
Partnership's Resort/Hotel Properties.
20
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) The SunTx Fulcrum Fund, L.P.'s ("SunTx") objective is to invest in a
portfolio of acquisitions that offer the potential for substantial
capital appreciation. The remaining 71.9% of SunTx is owned by a group
of individuals unrelated to the Operating Partnership. The Operating
Partnership's ownership percentage will decline by the closing date of
SunTx as capital commitments from third parties are secured. The
Operating Partnership's projected ownership interest at the closing of
SunTx is approximately 7.5% based on SunTx manager's expectations for
the final SunTx capitalization. The Operating Partnership accounts for
its investment in SunTx under the cost method. The Operating
Partnership's investment at June 30, 2003 was $6.3 million.
(15) G2 Opportunity Fund, L.P. ("G2") was formed for the purpose of
investing in commercial mortgage backed securities and other commercial
real estate investments. Goff-Moore Strategic Partners, L.P. ("GMSP")
and GMACCM each own 21.875% of G2, with the remaining 43.75% owned by
parties unrelated to the Operating Partnership. See Note 14, "Related
Party Transactions," for information regarding the ownership interests
of trust managers and officers of the Company and the General Partner
in GMSP.
SUMMARY FINANCIAL INFORMATION
The Operating Partnership 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 Operating Partnership's transaction with
COPI on February 14, 2002, certain entities that were reported as unconsolidated
entities in 2002 prior to February 14, 2002 are consolidated in the June 30,
2003 financial statements. Additionally, certain unconsolidated subsidiaries of
the newly consolidated entities are now shown separately as unconsolidated
entities of the Operating Partnership. As a result of the Operating
Partnership's January 2, 2003 purchase of the remaining 2.56% economic interest,
representing 100% of the voting stock, in DBL Holdings, Inc. ("DBL"), DBL is
consolidated in the June 30, 2003 financial statements. Because DBL owns a
majority of the voting stock of MVDC and HADC, these two Residential Development
Corporations are consolidated in the June 30, 2003 financial statements.
The unconsolidated entities that are included under the headings on the
following tables are summarized below.
Balance Sheets as of June 30, 2003:
- WLDC;
- Other Residential Development - This includes the
Blue River Land Company, L.L.C.;
- Resort/Hotel - This includes Manalapan;
- Temperature-Controlled Logistics - This includes the
Temperature-Controlled Logistics Partnership and VCQ;
- Office - This includes Main Street Partners, L.P.,
Houston PT Three Westlake Park Office Limited
Partnership, Houston PT Four Westlake Park Office
Limited Partnership, Austin PT BK One Tower Office
Limited Partnership, Crescent 5 Houston Center, L.P.,
Crescent Miami Center, L.L.C., Crescent Five Post Oak
Park L.P. and Woodlands CPC; and
- Other - This includes CR License, L.L.C., The
Woodlands Operating Company, L.P., Canyon Ranch Las
Vegas, L.L.C., SunTx and G2.
Balance Sheets as of December 31, 2002:
- WLDC;
- Other Residential Development - This includes the
Blue River Land Company, L.L.C., MVDC and HADC;
- Resort/Hotel - This includes Manalapan;
- Temperature-Controlled Logistics - This includes the
Temperature-Controlled Logistics Partnership and VCQ;
- Office - This includes Main Street Partners, L.P.,
Houston PT Three Westlake Park Office Limited
Partnership, Houston PT Four Westlake Park Office
Limited Partnership, Austin PT BK One Tower Office
Limited Partnership, Crescent 5 Houston Center, L.P.,
Crescent Miami Center, L.L.C., Crescent Five Post Oak
Park L.P. and Woodlands CPC; and
- Other - This includes DBL, CR License, L.L.C., The
Woodlands Operating Company, L.P., Canyon Ranch Las
Vegas, L.L.C. and SunTx.
Summary Statements of Operations for the six months ended June 30,
2003:
- WLDC;
- Other Residential Development - This includes the
operating results for Blue River Land Company,
L.L.C.;
- Resort/Hotel - This includes the operating results
for Manalapan;
21
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTE