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 March 31, 2005
COMMISSION FILE NO. 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
| TEXAS | 52-1862813 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
777 Main Street, Suite 2100, Fort Worth, Texas 76102
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 reports) and (2) has been subject to such filing requirements for the past ninety (90) days.
YES þ NO o
Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act).
YES þ NO o
Number of shares outstanding of each of the registrant’s classes of preferred and common shares, as of May 2, 2005:
Series A Convertible Cumulative Preferred Shares, par value $0.01 per share:
|
14,200,000 | |||
Series B Cumulative Redeemable Preferred Shares, par value $0.01 per share:
|
3,400,000 | |||
Common Shares, par value $0.01 per share:
|
99,862,617 | |||
CRESCENT REAL ESTATE EQUITIES COMPANY
FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||||
PART I:FINANCIAL INFORMATION |
||||||||
Item 1. Financial Statements |
||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
| 7 | ||||||||
| 31 | ||||||||
| 52 | ||||||||
| 52 | ||||||||
| 54 | ||||||||
| 54 | ||||||||
| 54 | ||||||||
| Certification of CEO & CFO Pursuant to Section 302 | ||||||||
| Certification of CEO & CFO Pursuant to Section 302 | ||||||||
CRESCENT REAL ESTATE EQUITIES COMPANY
| March 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
ASSETS: |
||||||||
Investments in real estate: |
||||||||
Land |
$ | 187,881 | $ | 209,392 | ||||
Land improvements, net of accumulated depreciation of $25,124 and $23,592
at March 31, 2005 and December 31, 2004, respectively |
67,849 | 69,086 | ||||||
Building and improvements, net of accumulated depreciation of $414,984 and
$416,530 at March 31, 2005 and December 31, 2004, respectively |
1,747,974 | 1,835,662 | ||||||
Furniture, fixtures and equipment, net of accumulated depreciation of
$28,023 and $40,562 at March 31, 2005 and December 31, 2004, respectively |
25,616 | 43,465 | ||||||
Land held for investment or development |
533,991 | 501,379 | ||||||
Properties held for disposition, net |
49,108 | 81,741 | ||||||
Net investment in real estate |
$ | 2,612,419 | $ | 2,740,725 | ||||
Cash and cash equivalents |
$ | 69,191 | $ | 92,291 | ||||
Restricted cash and cash equivalents |
44,661 | 93,739 | ||||||
Defeasance investments |
289,305 | 175,853 | ||||||
Accounts receivable, net |
49,736 | 60,004 | ||||||
Deferred rent receivable |
62,613 | 58,271 | ||||||
Investments in unconsolidated companies |
366,652 | 362,643 | ||||||
Notes receivable, net |
132,373 | 102,173 | ||||||
Income tax asset-current and deferred, net |
15,062 | 13,839 | ||||||
Other assets, net |
319,953 | 338,226 | ||||||
Total assets |
$ | 3,961,965 | $ | 4,037,764 | ||||
LIABILITIES: |
||||||||
Borrowings under Credit Facility |
$ | 202,000 | $ | 142,500 | ||||
Notes payable |
1,990,475 | 2,009,755 | ||||||
Accounts payable, accrued expenses and other liabilities |
353,662 | 422,348 | ||||||
Total liabilities |
$ | 2,546,137 | $ | 2,574,603 | ||||
COMMITMENTS AND CONTINGENCIES: |
||||||||
MINORITY INTERESTS: |
||||||||
Operating partnership, 10,433,889 and 10,535,139 units, at March 31, 2005
and December 31, 2004, respectively |
$ | 107,808 | $ | 113,572 | ||||
Consolidated real estate partnerships |
47,906 | 49,339 | ||||||
Total minority interests |
$ | 155,714 | $ | 162,911 | ||||
SHAREHOLDERS’ EQUITY: |
||||||||
Preferred shares, $0.01 par value, authorized 100,000,000 shares: |
||||||||
Series A Convertible Cumulative Preferred Shares,
liquidation preference of $25.00 per share,
14,200,000 shares issued and outstanding
at March 31, 2005 and December 31, 2004 |
$ | 319,166 | $ | 319,166 | ||||
Series B Cumulative Preferred Shares,
liquidation preference of $25.00 per share,
3,400,000 shares issued and outstanding
at March 31, 2005 and December 31, 2004 |
81,923 | 81,923 | ||||||
Common shares, $0.01 par value, authorized 250,000,000 shares,
124,955,513 and 124,542,018 shares issued and outstanding
at March 31, 2005 and December 31, 2004, respectively |
1,249 | 1,245 | ||||||
Additional paid-in capital |
2,249,519 | 2,246,335 | ||||||
Deferred compensation on restricted shares |
(1,970 | ) | (2,233 | ) | ||||
Accumulated deficit |
(931,705 | ) | (885,016 | ) | ||||
Accumulated other comprehensive income (loss) |
2,080 | (1,022 | ) | |||||
| $ | 1,720,262 | $ | 1,760,398 | |||||
Less – shares held in treasury, at cost, 25,121,861
common shares at March 31, 2005 and December 31, 2004 |
(460,148 | ) | (460,148 | ) | ||||
Total shareholders’ equity |
$ | 1,260,114 | $ | 1,300,250 | ||||
Total liabilities and shareholders’ equity |
$ | 3,961,965 | $ | 4,037,764 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CRESCENT REAL ESTATE EQUITIES COMPANY
| For the three months | ||||||||
| ended March 31, | ||||||||
| 2005 | 2004 | |||||||
REVENUE: |
||||||||
Office Property |
$ | 91,941 | $ | 122,096 | ||||
Resort/Hotel Property |
33,188 | 50,003 | ||||||
Residential Development Property |
54,476 | 47,688 | ||||||
Total Property revenue |
$ | 179,605 | $ | 219,787 | ||||
EXPENSE: |
||||||||
Office Property real estate taxes |
$ | 10,797 | $ | 17,060 | ||||
Office Property operating expenses |
36,390 | 41,664 | ||||||
Resort/Hotel Property expense |
26,247 | 40,070 | ||||||
Residential Development Property expense |
48,837 | 40,562 | ||||||
Total Property expense |
$ | 122,271 | $ | 139,356 | ||||
Income from Property Operations |
$ | 57,334 | $ | 80,431 | ||||
OTHER INCOME (EXPENSE): |
||||||||
Income from investment land sales |
$ | 3,461 | $ | — | ||||
Gain on joint venture of properties, net |
532 | — | ||||||
Interest and other income |
5,304 | 2,743 | ||||||
Corporate general and administrative |
(10,328 | ) | (6,917 | ) | ||||
Interest expense |
(33,279 | ) | (45,008 | ) | ||||
Amortization of deferred financing costs |
(1,929 | ) | (3,714 | ) | ||||
Extinguishment of debt |
(1,427 | ) | (1,939 | ) | ||||
Depreciation and amortization |
(34,695 | ) | (39,253 | ) | ||||
Other expenses |
(668 | ) | (55 | ) | ||||
Equity in net income (loss) of unconsolidated companies: |
||||||||
Office Properties |
3,331 | 1,367 | ||||||
Resort/Hotel Properties |
1,406 | (231 | ) | |||||
Residential Development Properties |
121 | 87 | ||||||
Temperature-Controlled Logistics Properties |
(1,132 | ) | (901 | ) | ||||
Other |
6,190 | (67 | ) | |||||
Total Other Income (Expense) |
$ | (63,113 | ) | $ | (93,888 | ) | ||
LOSS FROM CONTINUING OPERATIONS BEFORE
MINORITY INTERESTS AND INCOME TAXES |
$ | (5,779 | ) | $ | (13,457 | ) | ||
Minority interests |
485 | 1,921 | ||||||
Income tax benefit |
1,008 | 1,277 | ||||||
LOSS BEFORE DISCONTINUED OPERATIONS AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE |
$ | (4,286 | ) | $ | (10,259 | ) | ||
Income from discontinued operations, net of minority interests |
1,496 | 1,836 | ||||||
Impairment charges related to real estate assets from discontinued operations, net of minority interests |
— | (1,994 | ) | |||||
Gain (loss) on real estate from discontinued operations, net of minority interests |
1,503 | (47 | ) | |||||
Cumulative effect of a change in accounting principle, net of minority interests |
— | (363 | ) | |||||
NET LOSS |
$ | (1,287 | ) | $ | (10,827 | ) | ||
Series A Preferred Share distributions |
(5,990 | ) | (5,751 | ) | ||||
Series B Preferred Share distributions |
(2,019 | ) | (2,019 | ) | ||||
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS |
$ | (9,296 | ) | $ | (18,597 | ) | ||
BASIC EARNINGS PER SHARE DATA: |
||||||||
Loss available to common shareholders before discontinued operations and
cumulative effect of a change in accounting principle |
$ | (0.12 | ) | $ | (0.19 | ) | ||
Income from discontinued operations, net of minority interests |
0.01 | 0.02 | ||||||
Impairment charges related to real estate assets from discontinued operations, net of minority interests |
— | (0.02 | ) | |||||
Gain (loss) on real estate from discontinued operations, net of minority interests |
0.02 | — | ||||||
Cumulative effect of a change in accounting principle, net of minority interests |
— | — | ||||||
Net loss available to common shareholders – basic |
$ | (0.09 | ) | $ | (0.19 | ) | ||
DILUTED EARNINGS PER SHARE DATA: |
||||||||
Loss available to common shareholders before discontinued operations and
cumulative effect of a change in accounting principle |
$ | (0.12 | ) | $ | (0.19 | ) | ||
Income from discontinued operations, net of minority interests |
0.01 | 0.02 | ||||||
Impairment charges related to real estate assets from discontinued operations, net of minority interests |
— | (0.02 | ) | |||||
Gain (loss) on real estate from discontinued operations, net of minority interests |
0.02 | — | ||||||
Cumulative effect of a change in accounting principle, net of minority interests |
— | — | ||||||
Net loss available to common shareholders – diluted |
$ | (0.09 | ) | $ | (0.19 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
4
CRESCENT REAL ESTATE EQUITIES COMPANY
| Deferred | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Additional | Compensation | Other | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Shares | Preferred Shares | Treasury Shares | Common Shares | Paid-in | on Restricted | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Net Value | Shares | Net Value | Shares | Net Value | Shares | Par Value | Capital | Shares | (Deficit) | Income | Total | ||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS’ EQUITY, December 31, 2004 |
14,200,000 | $ | 319,166 | 3,400,000 | $ | 81,923 | 25,121,861 | $ | (460,148 | ) | 124,542,018 | $ | 1,245 | $ | 2,246,335 | $ | (2,233 | ) | $ | (885,016 | ) | $ | (1,022 | ) | $ | 1,300,250 | ||||||||||||||||||||||||||
Issuance of Common Shares |
— | — | — | — | — | — | 186,095 | 2 | 3,038 | — | — | — | 3,040 | |||||||||||||||||||||||||||||||||||||||
Exercise of Common Share Options |
— | — | — | — | — | — | 12,400 | — | 158 | — | — | — | 158 | |||||||||||||||||||||||||||||||||||||||
Accretion of Discount on Employee
Stock Option Notes |
— | — | — | — | — | — | — | — | (63 | ) | — | — | — | (63 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of Shares in Exchange for Operating
Partnership Units |
— | — | — | — | — | — | 215,000 | 2 | 35 | — | — | — | 37 | |||||||||||||||||||||||||||||||||||||||
Stock Option Grants |
— | — | — | — | — | — | — | — | 16 | — | — | — | 16 | |||||||||||||||||||||||||||||||||||||||
Amortization of Deferred Compensation
on Restricted Shares |
— | — | — | — | — | — | — | — | — | 263 | — | — | 263 | |||||||||||||||||||||||||||||||||||||||
Dividends Paid |
— | — | — | — | — | — | — | — | — | — | (37,393 | ) | — | (37,393 | ) | |||||||||||||||||||||||||||||||||||||
Net Loss Available to Common Shareholders |
— | — | — | — | — | — | — | — | — | — | (9,296 | ) | — | (9,296 | ) | |||||||||||||||||||||||||||||||||||||
Change in Unrealized Net Gain on Marketable Securities |
— | — | — | — | — | — | — | — | — | — | — | (160 | ) | (160 | ) | |||||||||||||||||||||||||||||||||||||
Change in Unrealized Net Gain on Cash Flow Hedges |
— | — | — | — | — | — | — | — | — | — | — | 3,262 | 3,262 | |||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS’ EQUITY, March 31, 2005 |
14,200,000 | $ | 319,166 | 3,400,000 | $ | 81,923 | 25,121,861 | $ | (460,148 | ) | 124,955,513 | $ | 1,249 | $ | 2,249,519 | $ | (1,970 | ) | $ | (931,705 | ) | $ | 2,080 | $ | 1,260,114 | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CRESCENT REAL ESTATE EQUITIES COMPANY
| For the three months ended March 31, | ||||||||
| 2005 | 2004 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (1,287 | ) | $ | (10,827 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
36,624 | 42,967 | ||||||
Extinguishment of debt |
1,427 | 1,939 | ||||||
Residential Development cost of sales |
22,923 | 17,169 | ||||||
Residential Development capital expenditures |
(59,483 | ) | (24,319 | ) | ||||
Impairment
charges related to real estate assets from discontinued operations, net of minority interests |
— | 1,994 | ||||||
(Gain) loss on real estate from discontinued operations, net of minority interests |
(1,503 | ) | 47 | |||||
Discontinued operations – depreciation and minority interests |
264 | 2,568 | ||||||
Income from investment in land sales, net |
(3,461 | ) | — | |||||
Gain on joint venture of properties, net |
(532 | ) | — | |||||
Minority interests |
(485 | ) | (1,921 | ) | ||||
Cumulative effect of a change in accounting principle, net of minority interests |
— | 363 | ||||||
Non-cash compensation |
1,313 | 265 | ||||||
Equity in (earnings) loss from unconsolidated companies: |
||||||||
Office Properties |
(3,331 | ) | (1,367 | ) | ||||
Ownership portion of Office Properties Management Fee |
1,763 | 425 | ||||||
Resort/Hotel Properties |
(1,406 | ) | 231 | |||||
Residential Development Properties |
(121 | ) | (87 | ) | ||||
Temperature-Controlled Logistics Properties |
1,132 | 901 | ||||||
Other |
(6,190 | ) | 67 | |||||
Distributions received from unconsolidated companies: |
||||||||
Office Properties |
1,074 | 758 | ||||||
Residential Development Properties |
130 | — | ||||||
Other |
6,368 | 284 | ||||||
Change in assets and liabilities, net of consolidations, acquisitions and dispositions: |
||||||||
Restricted cash and cash equivalents |
32,927 | 47,977 | ||||||
Accounts receivable |
5,555 | (5,784 | ) | |||||
Deferred rent receivable |
(4,389 | ) | (3,897 | ) | ||||
Income tax
asset – current and deferred, net |
(1,223 | ) | (12,087 | ) | ||||
Other assets |
(1,722 | ) | (11,169 | ) | ||||
Accounts payable, accrued expenses and other liabilities |
(46,011 | ) | (46,802 | ) | ||||
Net cash used in operating activities |
$ | (19,644 | ) | $ | (305 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Proceeds from property sales |
$ | 40,429 | $ | 30,659 | ||||
Proceeds from joint venture partners |
119,563 | — | ||||||
Acquisition of investment properties |
(56,917 | ) | (146,100 | ) | ||||
Development of investment properties |
(438 | ) | (1,201 | ) | ||||
Property improvements – Office Properties |
(2,764 | ) | (1,852 | ) | ||||
Property improvements – Resort/Hotel Properties |
(2,514 | ) | (8,454 | ) | ||||
Tenant improvement and leasing costs – Office Properties |
(12,667 | ) | (24,192 | ) | ||||
Residential Development Properties Investments |
(3,996 | ) | (5,804 | ) | ||||