UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 2002
COMMISSION FILE NO. 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
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(Exact name of registrant as specified in its charter)
TEXAS 52-1862813
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
777 Main Street, Suite 2100, Fort Worth, Texas 76102
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(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code (817) 321-2100
Number of shares outstanding of each of the registrant's classes of preferred
and common shares, as of May 7, 2002.
Preferred Shares, par value $.01 per share: 10,800,000
Common Shares, par value $.01 per share: 105,217,192
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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
-------------- ----------
The Form 10-Q of Crescent Real Estate Equities Company (the "Company")
for the quarter ended March 31, 2002 is being amended to (i) amend Item 1.
Financial Statements in order to (A) make certain revisions to the Notes to the
Financial Statements in response to a comment letter received from the
Securities and Exchange Commission ("SEC"), (B) include an additional impairment
charge related to the goodwill for one of the Company's Residential Development
Corporations in accordance with Financial Accounting Standards Board SFAS No.
142, "Goodwill and Other Intangible Assets" (effective January 1, 2002), and (C)
reclassify certain amounts in the financial statements as a result of the
adoption by the Company of SFAS No 144, "Accounting for Impairment or Disposal
of Long-Lived Assets" on January 1, 2002 and (ii) amend Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations in
order to (A) make certain revisions in response to a comment letter received
from the SEC, and (B) conform to financial statement changes in Item 1.
Financial Statements. All information is as of May 10, 2002, the original date
of filing of the Form 10-Q, unless otherwise indicated. All amended items are
presented in their entirety.
1
CRESCENT REAL ESTATE EQUITIES COMPANY
FORM 10-Q/A
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2002 (unaudited) and December 31, 2001
(audited)............................................................................. 3
Consolidated Statements of Operations for the three months ended March
31, 2002 and 2001 (unaudited)......................................................... 4
Consolidated Statement of Shareholders' Equity for the three months ended
March 31, 2002 (unaudited)............................................................ 5
Consolidated Statements of Cash Flows for the three months ended March 31, 2002
and 2001 (unaudited).................................................................. 6
Notes to Financial Statements......................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 32
2
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
(UNAUDITED) (AUDITED)
ASSETS:
Investments in real estate:
Land $ 311,734 $ 249,266
Land held for investment or development 505,876 92,951
Building and improvements 3,033,573 2,938,669
Furniture, fixtures and equipment 104,600 72,247
Properties held for disposition, net 56,623 64,694
Less - accumulated depreciation (689,762) (637,904)
------------ ------------
Net investment in real estate $ 3,322,644 $ 2,779,923
Cash and cash equivalents $ 66,890 $ 36,285
Restricted cash and cash equivalents 82,252 115,531
Accounts receivable, net 52,793 28,654
Deferred rent receivable 65,839 66,362
Investments in real estate mortgages and equity
of unconsolidated companies 526,918 838,317
Notes receivable, net 103,670 132,065
Income tax asset-current and deferred, net 28,657 --
Other assets, net 199,245 145,012
------------ ------------
Total assets $ 4,448,908 $ 4,142,149
============ ============
LIABILITIES:
Borrowings under Credit Facility $ 334,500 $ 283,000
Notes payable 2,045,883 1,931,094
Accounts payable, accrued expenses and other liabilities 333,173 220,068
------------ ------------
Total liabilities $ 2,713,556 $ 2,434,162
------------ ------------
COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS:
Operating partnership, 6,591,837 and 6,594,521 units,
respectively $ 66,960 $ 69,910
Consolidated real estate partnerships 284,152 232,137
------------ ------------
Total minority interests $ 351,112 $ 302,047
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value, authorized 100,000,000 shares:
6 3/4% Series A Convertible Cumulative Preferred Shares,
liquidation preference $25.00 per share,
8,000,000 shares issued and outstanding at March 31, 2002
and December 31, 2001 $ 200,000 $ 200,000
Common shares, $.01 par value, authorized 250,000,000 shares,
123,959,962, and 123,396,017 shares issued and outstanding
at March 31, 2002 and December 31, 2001, respectively 1,233 1,227
Additional paid-in capital 2,240,107 2,234,360
Deferred compensation on restricted shares (5,253) --
Accumulated deficit (667,185) (638,435)
Accumulated other comprehensive income (24,922) (31,484)
------------ ------------
$ 1,743,980 $ 1,765,668
Less - shares held in treasury, at cost, 18,770,953 and 18,770,418
common shares at March 31, 2002 and December 31, 2001, respectively (359,740) (359,728)
------------ ------------
Total shareholders' equity $ 1,384,240 $ 1,405,940
------------ ------------
Total liabilities and shareholders' equity $ 4,448,908 $ 4,142,149
============ ============
The accompanying notes are an integral part of these financial statements.
3
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
2002 2001
------------ ------------
(UNAUDITED)
REVENUE:
Office property $ 143,017 $ 152,748
Resort/Hotel property 38,524 15,949
Residential Development property 48,065 --
Interest and other income 2,226 9,003
------------ ------------
Total revenue $ 231,832 $ 177,700
------------ ------------
EXPENSE:
Office property real estate taxes $ 21,128 $ 22,681
Office property operating expenses 44,336 43,345
Resort/Hotel property expense 23,890 --
Residential Development property expense 42,215 --
Corporate general and administrative 6,392 5,264
Interest expense 42,272 47,448
Amortization of deferred financing costs 2,320 2,425
Depreciation and amortization 33,549 30,187
Impairment and other charges related
to real estate assets -- 2,150
------------ ------------
Total expense $ 216,102 $ 153,500
------------ ------------
Operating income $ 15,730 $ 24,200
------------ ------------
OTHER INCOME AND EXPENSE:
Equity in net income (loss) of unconsolidated companies:
Office properties $ 1,310 $ 1,093
Residential development properties 12,483 10,708
Temperature-controlled logistics properties (310) 2,719
Other (4,061) 1,846
------------ ------------
Total equity in net income of unconsolidated companies $ 9,422 $ 16,366
------------ ------------
Gain on property sales, net -- 330
------------ ------------
Total other income and expense $ 9,422 $ 16,696
------------ ------------
INCOME BEFORE INCOME TAXES, MINORITY INTERESTS,
DISCONTINUED OPERATIONS AND CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE $ 25,152 $ 40,896
Minority interests (8,043) (9,752)
Income tax benefit 4,283 --
------------ ------------
INCOME BEFORE DISCONTINUED OPERATIONS AND
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE $ 21,392 $ 31,144
Discontinued operations - income and gain on assets sold and held for sale 3,034 104
Cumulative effect of a change in accounting principle (10,465) --
------------ ------------
NET INCOME $ 13,961 $ 31,248
6 3/4% Series A Preferred Share distributions (3,375) (3,375)
------------ ------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 10,586 $ 27,873
============ ============
BASIC EARNINGS (LOSS) PER SHARE DATA:
Income from continuing operations $ 0.17 $ 0.26
Discontinued operations - income and gain on assets sold and held for sale 0.03 --
Cumulative effect of a change in accounting principle (0.10) --
------------ ------------
Net income - basic $ 0.10 $ 0.26
============ ============
DILUTED EARNINGS (LOSS) PER SHARE DATA:
Income from continuing operations $ 0.17 $ 0.26
Discontinued operations - income and gain on assets sold and held for sale 0.03 --
Cumulative effect of a change in accounting principle (0.10) --
------------ ------------
Net income - diluted $ 0.10 $ 0.26
============ ============
The accompanying notes are an integral part of these financial statements.
4
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENT
OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Preferred Shares Treasury Shares
--------------------------- ---------------------------
Shares Net Value Shares Net Value
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, December 31, 2001 8,000,000 $ 200,000 18,770,418 $ (359,728)
Issuance of Common Shares -- -- -- --
Exercise of Common Share Options -- -- -- --
Deferred compensation -- -- -- --
Issuance of Shares in Exchange for Operating
Partnership Units -- -- -- --
Share Repurchases -- -- 535 (12)
Dividends Paid -- -- -- --
Net Income -- -- -- --
Unrealized Loss on Marketable Securities -- -- -- --
Unrealized Net Gain on Cash Flow Hedges -- -- -- --
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, March 31, 2002 8,000,000 $ 200,000 18,770,953 $ (359,740)
============ ============ ============ ============
Deferred
Common Shares Additional Compensation
--------------------------- Paid-in on Restricted
Shares Par Value Capital Shares
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, December 31, 2001 123,396,017 $ 1,227 $ 2,234,360 $ --
Issuance of Common Shares 1,977 -- 37 --
Exercise of Common Share Options 256,600 3 452 --
Deferred compensation 300,000 3 5,250 (5,253)
Issuance of Shares in Exchange for Operating
Partnership Units 5,368 -- 8 --
Share Repurchases -- -- -- --
Dividends Paid -- -- -- --
Net Income -- -- -- --
Unrealized Loss on Marketable Securities -- -- -- --
Unrealized Net Gain on Cash Flow Hedges -- -- -- --
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, March 31, 2002 123,959,962 $ 1,233 $ 2,240,107 $ (5,253)
============ ============ ============ ============
Accumulated
Other
Accumulated Comprehensive
Deficit Income Total
------------ ------------ ------------
SHAREHOLDERS' EQUITY, December 31, 2001 $ (638,435) $ (31,484) $ 1,405,940
Issuance of Common Shares -- -- 37
Exercise of Common Share Options -- -- 455
Deferred compensation -- -- --
Issuance of Shares in Exchange for Operating
Partnership Units -- -- 8
Share Repurchases -- -- (12)
Dividends Paid (39,336) -- (39,336)
Net Income 10,586 -- 10,586
Unrealized Loss on Marketable Securities -- (631) (631)
Unrealized Net Gain on Cash Flow Hedges -- 7,193 7,193
------------ ------------ ------------
SHAREHOLDERS' EQUITY, March 31, 2002 $ (667,185) $ (24,922) $ 1,384,240
============ ============ ============
The accompanying notes are an integral part of these financial statements.
5
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,961 $ 31,248
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 35,869 32,612
Recognition of capitalized residential development costs 12,946 --
Impairment and other charges related to
real estate assets -- 2,150
Gain on property sales, net (3,644) (330)
Minority interests 8,043 9,752
Discontinued Operations 273 359
Cumulative effect of a change in accounting principle 10,465 --
Non-cash compensation 37 32
Distributions received in excess of earnings from
unconsolidated companies:
Office properties 894 --
Equity in (earnings) loss net of distributions received from
unconsolidated companies:
Office properties -- (115)
Residential development properties (5,315) (7,637)
Temperature-controlled logistics (385) (1,326)
Other 4,083 (249)
Change in assets and liabilities, net of effects of COPI agreement:
Restricted cash and cash equivalents 35,802 24,173
Accounts receivable (801) (8,360)
Deferred rent receivable 523 (780)
Income tax asset-current and deferred (6,022) --
Other assets 4,070 (535)
Accounts payable, accrued expenses and
other liabilities (82,185) (63,912)
------------ ------------
Net cash provided by operating activities 28,614 17,082
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in cash resulting from the COPI agreement 38,226 --
Acquisition of rental properties (8,410) --
Proceeds from property sales 11,878 9,400
Development of investment properties (637) (11,110)
Capital expenditures - rental properties (10,252) (5,040)
Tenant improvement and leasing costs - rental properties (8,347) (10,134)
Decrease in restricted cash and cash equivalents 1,445 3,869
Return of investment in unconsolidated companies:
Office properties 376 6,346
Residential development properties 7,173 5,360
Other -- 7,025
Investment in unconsolidated companies:
Residential development properties (14,203) (22,593)
Temperature-controlled logistics -- (1,400)
Other -- (2,409)
Increase in notes receivable (1,421) (2,530)
------------ ------------
Net cash provided by (used in) investing activities 15,828 (23,216)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (107) (275)
Borrowings under Credit Facility 51,500 90,000
Payments under Credit Facility -- (15,000)
Notes Payable proceeds -- 6,240
Notes Payable payments (14,368) (1,295)
Capital distribution - joint venture preferred equity (3,522) (5,917)
Capital distributions - joint venture partner (128) (986)
Proceeds from exercise of share options 455 418
Treasury share repurchases (12) --
Preferred dividends (3,375) (3,375)
Dividends and unitholder distributions (44,280) (66,739)
------------ ------------
Net cash (used in) provided by financing activities (13,837) 3,071
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,605 (3,063)
CASH AND CASH EQUIVALENTS,
Beginning of period 36,285 38,966
------------ ------------
CASH AND CASH EQUIVALENTS,
End of period $ 66,890 $ 35,903
============ ============
The accompanying notes are an integral part of these financial statements.
6
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
Crescent Real Estate Equities Company ("Crescent Equities") operates as
a real estate investment trust for federal income tax purposes (a "REIT"), and,
together with its subsidiaries, provides management, leasing and development
services for some of its properties.
The term "Company" includes, unless the context otherwise indicates,
Crescent Equities, a Texas REIT, and all of its direct and indirect
subsidiaries.
The direct and indirect subsidiaries of Crescent Equities at March 31,
2002 included:
o CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
The "Operating Partnership."
o CRESCENT REAL ESTATE EQUITIES, LTD.
The "General Partner" of the Operating Partnership.
o SUBSIDIARIES OF THE OPERATING PARTNERSHIP AND THE
GENERAL PARTNER
Crescent Equities conducts all of its business through the Operating
Partnership and its other subsidiaries. The Company is structured to facilitate
and maintain the qualification of Crescent Equities as a REIT.
The following table shows the subsidiaries of the Company that owned or
had an interest in the following real estate assets (the "Properties") as of
March 31, 2002:
Operating Partnership(1): The Avallon IV, Bank One Center, Bank One
Tower, Datran Center (two Office
Properties), Four Westlake Park, Houston
Center (three Office Properties), The Park
Shops at Houston Center, The Woodlands
Office Properties (eight Office Properties),
301 Congress Avenue, Mira Vista, The
Highlands, Falcon Point, Falcon Landing, and
Spring Lakes
Crescent TRS Desert Mountain and the Woodlands
Holding Corp.:
COPI Colorado, L.P. Bear Paw Lodge, Eagle Ranch, Main Street
Junction, Main Street Station, Main Street
Station Vacation Club, Riverbend, Three
Peaks (Eagle's Nest), Park Place at
Riverfront, Park Tower at Riverfront,
Promenade Lofts at Riverfront, Cresta, Snow
Cloud, One Vendue Range, Old Greenwood, and
Tahoe Mountain Resort
Crescent Real Estate The Aberdeen, The Avallon I, II & III,
Funding I, L.P.: 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
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One,
Funding II, L.P.: Briargate Office and Research Center, Hyatt
("Funding II") Regency Albuquerque, Park Hyatt Beaver Creek
Resort and Spa, Las Colinas Plaza, Liberty
Plaza I & II, MacArthur Center I & II,
Ptarmigan Place, Stanford Corporate Centre,
Two Renaissance Square and 12404 Park
Central
Crescent Real Estate Greenway Plaza Office Properties (ten Office
Funding III, IV and V, L.P.: Properties) and Renaissance Houston Hotel
("Funding III, IV and V")(2)
7
Crescent Real Estate Canyon Ranch - Lenox
Funding VI, L.P.:
("Funding VI")
Crescent Real Estate 10 Behavioral Healthcare Properties
Funding VII, L.P.:
("Funding VII")
Crescent Real Estate The Addison, Addison Tower, Austin Centre,
Funding VIII, L.P.: The Avallon V, Canyon Ranch - Tucson, Frost
("Funding VIII") Bank Plaza, Greenway I & IA (two Office
Properties), Greenway II, Omni Austin Hotel,
Palisades Central I, Palisades Central II,
Sonoma Mission Inn & Spa, Stemmons Place,
Three Westlake Park, Trammell Crow Center,
3333 Lee Parkway, Ventana Inn & Spa, 1800
West Loop South and 5050 Quorum
Crescent Real Estate Chancellor Park, Denver Marriott City
Funding IX, L.P.: Center, MCI Tower, Miami Center, Reverchon
("Funding IX")(3) Plaza, 44 Cook Street, 55 Madison and 6225
N. 24th Street
Crescent Real Estate Fountain Place and Post Oak Central (three
Funding X, L.P. Office Properties)
("Funding X")
Crescent Spectrum Spectrum Center
Center, L.P.(4):
----------
(1) The Operating Partnership has a 50% interest in Bank One Center, a 20%
interest in Bank One Tower and a 20% interest in Four Westlake Park.
See "Note 7. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies" for a description of the ownership structure
of these Office Properties.
(2) Funding III owns nine of the 10 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 Coastal Tower, the remaining Office Property
in the Greenway Plaza Office portfolio.
(3) Funding IX holds its interests in Chancellor Park and Miami Center
through its 100% membership interests in the owners of the Properties,
Crescent Chancellor Park, LLC and Crescent Miami Center, LLC.
(4) Crescent Spectrum Center, L.P. holds its interest in Spectrum Center
through its ownership of the underlying land and notes and a mortgage
on the Property.
As of March 31, 2002, Crescent SH IX, Inc. ("SH IX"), a subsidiary of
the General Partner, owned 14,468,623 common shares of beneficial interest in
Crescent Equities.
See "Note 7. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies" for a table that lists the Company's ownership in
significant unconsolidated subsidiaries and equity investments as of March 31,
2002, including the three Office Properties and one office property under
construction in which the Company owned an interest through these unconsolidated
subsidiaries and equity investments and the Company's ownership interests in
eight Residential Development entities, the Temperature-Controlled Logistics
Segment and other investments.
See "Note 8. Notes Payable and Borrowings under Fleet Facility" for a
list of certain other subsidiaries of the Company, all of which are consolidated
in the Company's financial statements and were formed primarily for the purpose
of obtaining secured debt or joint venture financing.
SEGMENTS
As of March 31, 2002, the Company's assets and operations were composed
of four investment segments:
o Office Segment;
o Resort/Hotel Segment;
o Residential Development Segment; and
o Temperature-Controlled Logistics Segment.
Within these segments, the Company owned or had an interest in the
following Properties as of March 31, 2002:
8
o OFFICE SEGMENT consisted of 76 office properties, which
includes three retail properties (collectively referred to as
the "Office Properties") located in 26 metropolitan submarkets
in six states, with an aggregate of approximately 28.4 million
net rentable square feet.
o RESORT/HOTEL SEGMENT consisted of five luxury and destination
fitness resorts and spas with a total of 1,036 rooms/guest
nights and four upscale business-class hotel properties with a
total of 1,771 rooms (collectively referred to as the
"Resort/Hotel Properties").
o RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Company's
ownership of real estate mortgages and voting and non-voting
common stock representing interests of 94% to 100% in five
residential development corporations (collectively referred to
as the "Residential Development Corporations"), which in turn,
through joint venture or partnership arrangements, owned 22
upscale residential development properties (collectively
referred to as the "Residential Development Properties").
o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the
Company's 40% interest in a general partnership (the
"Temperature-Controlled Logistics Partnership"), which owns
all of the common stock, representing substantially all of the
economic interest, of AmeriCold Corporation (the
"Temperature-Controlled Logistics Corporation"), a real estate
investment trust ("REIT"), which, as of March 31, 2002,
directly or indirectly owned 89 temperature-controlled
logistics properties (collectively referred to as the
"Temperature-Controlled Logistics Properties") with an
aggregate of approximately 445.2 million cubic feet (17.7
million square feet) of warehouse space.
On February 14, 2002, the Company executed an agreement with Crescent
Operating, Inc. ("COPI"), pursuant to which COPI transferred to the Company, in
lieu of foreclosure, COPI's lessee interests in the eight Resort/Hotel
Properties leased to subsidiaries of COPI and COPI's voting common stock in
three of the Company's Residential Development Corporations. See "Note 17. COPI"
for additional information related to the Company's agreement with COPI.
For purposes of investor communications, the Company classifies its
luxury and destination fitness resorts and spas and Residential Development
Properties as a single group referred to as the "Resort and Residential
Development Sector" due to their similar targeted customer characteristics. This
group does not contain the four business-class hotel properties. Additionally,
for investor communications, the Company classifies its Temperature-Controlled
Logistics Properties and its business-class hotel properties as the "Investment
Sector." However, for purposes of segment reporting as defined in Statement of
Financial Accounting Standard ("SFAS") No. 131, "Disclosures About Segments of
an Enterprise and Related Information" and this Quarterly Report on Form 10-Q,
the Resort/Hotel Properties, including the business-class hotel properties, the
Residential Development Properties and the Temperature-Controlled Logistics
Properties are considered three separate reportable segments.
See "Note 6. Segment Reporting" for a table showing total revenues,
equity in net income (loss) of unconsolidated companies and funds from
operations for each of these investment segments for the three months ended
March 31, 2002 and 2001 and identifiable assets for each of these investment
segments at March 31, 2002 and December 31, 2001.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") for interim
financial information, as well as in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, the information and
footnotes required by GAAP for complete financial statements are not included.
In management's opinion, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the unaudited
interim financial statements are included. Operating results for interim periods
reflected do not necessarily indicate the results that may be expected for a
full fiscal year. You should read these financial statements in conjunction with
the financial statements and the accompanying notes included in the Company's
Form 10-K, as amended, for the year ended December 31, 2001.
9
Certain amounts in prior period financial statements have been
reclassified and restated to conform with current period presentation. See "Note
2. Adoption of New Accounting Standards" for a description of the
reclassifications and restatements.
2. ADOPTION OF NEW ACCOUNTING STANDARDS:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") (effective
January 1, 2002). SFAS No. 142 specifies that goodwill and certain other types
of intangible assets may no longer be amortized, but instead are subject to
periodic impairment testing. If an impairment charge is required, the charge is
reported as a change in accounting principle and is included in operating
results as a Cumulative Effect of a Change in Accounting Principle. SFAS No. 142
provides for a transitional period of up to 12 months. Any need for impairment
must be assessed within the first six months and the amount of impairment must
be determined within the next six months. Any additional impairment taken in
subsequent interim periods during 2002 related to the initial adoption of this
statement will require the first quarter financial statements to be restated.
During the three months ended March 31, 2002, the Company recognized a goodwill
impairment charge of approximately $10,500 due to the initial application of
this statement. This charge was due to impairments (net of minority interests
and taxes) of the goodwill at the Temperature-Controlled Logistics Corporation
and one of the Residential Development Corporations. This charge is reported as
a change in accounting principle and is included in the Company's consolidated
statements of operations as a "Cumulative Effect of a Change in Accounting
Principle" for the three months ended March 31, 2002.
In prior periods, the Company tested goodwill for impairment under the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets," under which an impairment loss is recognized when expected undiscounted
future cash flows are less than the carrying value of the asset. For the year
ended December 31, 2001, the expected future operating cash flows of the
Temperature-Controlled Logistics Corporation on an undiscounted basis exceeded
the carrying amounts of the properties and other long-lived assets, including
goodwill. Accordingly, no impairment was recognized under SFAS No. 121. Upon the
adoption of SFAS No. 142, the Temperature-Controlled Logistics Corporation
compared the fair value of the Temperature-Controlled Logistics Properties based
on discounted cash flows to the carrying value of the Temperature-Controlled
Logistics Properties and the related goodwill. Based on this test, the fair
value did not exceed the carrying value of the Temperature-Controlled Logistics
assets and, accordingly, the goodwill was impaired.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144") which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 requires that the results of operations, including any
gains or losses recognized, be disclosed separately on the Company's
consolidated Statements of Operations. The Company adopted SFAS No. 144 on
January 1, 2002. Subsequent to January 1, 2002, the Company sold three Office
Properties and classified two other office assets as held for sale. See "Note 3.
Properties Held for Sale" for a description of the major classes of assets
related to these properties. The Company also owned 10 behavioral healthcare
properties as of March 31, 2002, which are held for sale. In accordance with
SFAS No. 144, the results of operation of these assets have been presented as
"Discontinued Operations - Income on Assets Sold and Held for Sale" in the
accompanying consolidated statements of operations. The carrying value of the
assets held for sale have been reflected as "Properties Held for Disposition,
Net" in the accompanying consolidated balance sheet as of December 31, 2001. The
adoption of this statement did not materially affect the Company's interim or
annual financial statements for the three months ended March 31, 2002. The
Company has reclassified certain amounts in prior period financial statements to
conform with the new presentation requirements.
3. PROPERTIES HELD FOR SALE:
BEHAVIORAL HEALTHCARE PROPERTIES
As of March 31, 2002, the Company owned 10 behavioral healthcare
properties, all of which were classified as held for sale. The carrying value of
the behavioral healthcare properties at March 31, 2002 was approximately
$27,337. During the three months ended March 31, 2002, the Company recognized an
impairment charge of approximately $600 on one of the behavioral healthcare
properties held for sale, which is included in
10
Discontinued Operations - Income and Gain on Assets Sold and Held for Sale. This
amount represents the difference between the carrying value and the estimated
sales price less costs of the sale for this property. Depreciation expense has
not been recognized since the dates the behavioral healthcare properties were
classified as held for sale. The Company has entered into contracts or letters
of intent to sell five behavioral healthcare properties and is actively
marketing for sale the remaining five behavioral healthcare properties. The
sales of these behavioral healthcare properties are expected to close within the
next year.
The major classes of assets associated with the properties held for
sale are as follows:
Behavioral Healthcare Properties
AS OF
------------------------------------
MARCH 31, 2002 DECEMBER 31, 2001
--------------- ---------------
Land $ 12,785 $ 12,785
Buildings and improvements 17,019 17,619
Furniture, Fixtures and Equipment 2,526 2,526
Accumulated Depreciation (4,993) (4,993)
--------------- ---------------
Net Investment in Real Estate $ 27,337 $ 27,937
=============== ===============
Office Properties
AS OF
--------------------------------------
MARCH 31, 2002 DECEMBER 31, 2001
---------------- ----------------
Land $ 18,166 $ 18,866
Buildings and improvements 15,980 23,828
Furniture, Fixtures and Equipment -- --
Accumulated Depreciation (4,860) (5,937)
---------------- ----------------
Net Investment in Real Estate $ 29,286 $ 36,757
================ ================
11
4. EARNINGS PER SHARE:
SFAS No. 128 "Earnings Per Share" ("EPS") specifies the computation,
presentation and disclosure requirements for earnings per share. Basic EPS
excludes all dilution while Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common shares were
exercised or converted into common shares.
FOR THE THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------
2002 2001
----------------------------------- -----------------------------------
Wtd. Avg. Per Share Wtd. Avg. Per Share
Income Shares Amount Income Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
BASIC EPS -
Income before discontinued operations and
cumulative effect of a change in accounting principle $ 21,392 104,938 $ 31,144 107,377
6 3/4% Series A Preferred Share distributions (3,375) -- (3,375) --
---------- ---------- ---------- ---------- ---------- ----------
Income available to common
shareholders before discontinued operations and
cumulative effect of a change in accounting principle $ 18,017 104,938 $ 0.17 $ 27,769 107,377 $ 0.26
Discontinued operations 3,034 -- 0.03 104 -- --
Cummulative effect of a change in
accounting principle (10,465) -- (0.10) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income available to common
shareholders $ 10,586 104,938 $ 0.10 $ 27,873 107,377 $ 0.26
========== ========== ========== ========== ========== ==========
DILUTED EPS -
Income available to common
shareholders before discontinued operations and
cumulative effect of a change in accounting principle $ 18,017 104,938 $ 27,769 107,377
Effect of dilutive securities:
Share and unit options -- 510 -- 1,616
---------- ---------- ---------- ---------- ---------- ----------
Income available to common
shareholders before discontinued operations and
cumulative effect of a change in accounting principle $ 18,017 105,448 $ 0.17 $ 27,769 108,993 $ 0.26
Discontinued operations 3,034 -- 0.03 104 -- --
Cummulative effect of a change in
accounting principle (10,465) -- (0.10) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income available to common
shareholders $ 10,586 105,448 $ 0.10 $ 27,873 108,993 $ 0.26
========== ========== ========== ========== ========== ==========
The effect of the conversion of the Series A Convertible Cumulative
Preferred Shares is not included in the computation of Diluted EPS for the three
months ended March 31, 2002 or 2001, since the effect of their conversion is
antidilutive.
12
5. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS:
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
2002 2001
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid on debt $ 44,674 $ 54,883
Additional interest paid resulting from cash flow hedge agreements 5,745 877
------------ ------------
Total interest paid $ 50,419 $ 55,760
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of Operating Partnership units to common shares with resulting
reduction in minority interest and increases in common shares and
additional paid-in capital $ 8 $ 46
Unrealized net (loss) gain on available-for-sale securities (631) 224
Adjustment of cash flow hedges to fair value 7,193 (9,532)
Impairment related to real estate assets -- 2,150
Impairment related to real estate assets held for sale 600 --
SUPPLEMENTAL SCHEDULE OF TRANSFER OF ASSETS AND ASSUMPTIONS OF LIABILITIES
PURSUANT TO THE FEBRUARY 14, 2002 AGREEMENT WITH COPI:
Net investment in real estate $ 570,175 $ --
Restricted cash and cash equivalents 3,968 --
Accounts receivable, net 23,338 --
Investments in real estate mortgages and equity of unconsolidated companies (309,103) --
Notes receivable - net (29,816) --
Income tax asset - current and deferred, net 21,784 --
Other assets, net 63,263 --
Notes payable (129,157) --
Accounts payable - accrued expenses and other liabilities (201,159) --
Minority Interest - Consolidated real estate partnerships (51,519) --
------------ ------------
Increase in cash resulting from the COPI agreement $ (38,226) $ --
============ ============
6. SEGMENT REPORTING:
The Company currently has four major investment segments: the Office
Segment; the Resort/Hotel Segment; the Residential Development Segment; and the
Temperature-Controlled Logistics Segment. Management organizes these segments
within the Company based on property type for making operating decisions and
assessing performance. Investment segments for SFAS No. 131 are determined on
the same basis.
The Company uses funds from operations ("FFO") as the measure of
segment profit or loss. FFO, as used in this document, means:
o Net Income (Loss) - determined in conformity with GAAP;
o excluding gains (or losses) from sales of depreciable
operating property;
o excluding extraordinary items (as defined by GAAP);
o plus depreciation and amortization of real estate
assets; and
o after adjustments for unconsolidated partnerships and
joint ventures.
13
The National Association of Real Estate Investment Trusts ("NAREIT")
developed FFO as a relative measure of performance and liquidity of an equity
REIT to recognize that income-producing real estate historically has not
depreciated on the basis determined under GAAP. The Company considers FFO an
appropriate measure of performance for an equity REIT and for its investment
segments. However, FFO:
o does not represent cash generated from operating activities
determined in accordance with GAAP (which, unlike FFO,
generally reflects all cash effects of transactions and other
events that enter into the determination of net income);
o is not necessarily indicative of cash flow available to fund
cash needs;
o should not be considered as an alternative to net income
determined in accordance with GAAP as an indication of the
Company's operating performance, or to cash flow from
operating activities determined in accordance with GAAP as a
measure of either liquidity or the Company's ability to make
distributions; and
o the Company's measure of FFO may not be comparable to
similarly titled measures of other REITs because these REITs
may apply the definition of FFO in a different manner than the
Company.
14
Selected financial information related to each segment for the three
months ended March 31, 2002 and 2001 and identifiable assets for each of the
segments at March 31, 2002 and December 31, 2001 are presented below.
SELECTED FINANCIAL INFORMATION: TEMPERATURE-
RESIDENTIAL CONTROLLED
OFFICE RESORT/HOTEL DEVELOPMENT LOGISTICS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 SEGMENT SEGMENT SEGMENT SEGMENT
-------------------------------------------------------- ------------ ------------ ------------ ------------
Revenue $ 143,017 $ 38,524 $ 48,065 $ --
Equity in net income (loss) of unconsolidated companies 1,310 -- 12,483 (310)
Segment funds from operations 80,572 20,910 15,561 5,401
Adjustments to reconcile Funds from Operations
to Net Income:
Depreciation and amortization of real estate assets
Gain on property sales, net
Cumulative effect of a change in accounting principle
Impairment related to real estate assets
and assets held for sale
Adjustment for investments in real estate
mortgages and equity of unconsolidated companies:
Office Properties
Residential Development Properties
Temperature-Controlled Logistics Properties
Other
Unitholder minority interest
Preferred Share distributions
Net Income
CORPORATE
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND OTHER(1) TOTAL
-------------------------------------------------------- ------------ ------------
Revenue $ 2,226 $ 231,832
Equity in net income (loss) of unconsolidated companies (4,061) 9,422
Segment funds from operations (58,317)(2) 64,127
Adjustments to reconcile Funds from Operations
to Net Income:
Depreciation and amortization of real estate assets (32,139)
Gain on property sales, net 3,764
Cumulative effect of a change in accounting principle (10,465)
Impairment related to real estate assets
and assets held for sale (600)
Adjustment for investments in real estate
mortgages and equity of unconsolidated companies:
Office Properties (2,162)
Residential Development Properties (903)
Temperature-Controlled Logistics Properties (5,711)
Other (2,646)
Unitholder minority interest (2,679)
Preferred Share distributions 3,375
------------
Net Income $ 13,961
============
TEMPERATURE-
RESIDENTIAL CONTROLLED
OFFICE RESORT/HOTEL DEVELOPMENT LOGISTICS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 SEGMENT SEGMENT SEGMENT SEGMENT
------------------------------------------------------ ------------ ------------ ------------ ------------
Revenue $ 152,748 $ 15,949 $ -- $ --
Equity in net income of unconsolidated companies 1,093 -- 10,708 2,719
Segment funds from operations 90,153 15,752 13,066 8,325
Adjustments to reconcile Funds from Operations
to Net Income:
Depreciation and amortization of real estate assets
Gain on property sales, net
Impairment and other adjustments related to the
behavioral healthcare assets
Adjustment for investments in real estate
mortgages and equity of unconsolidated companies:
Office Properties
Residential Development Properties
Temperature-Controlled Logistics Properties
Unitholder minority interest
Preferred Share distributions
Net Income
CORPORATE
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND OTHER(1) TOTAL
------------------------------------------------------ ------------ ------------
Revenue $ 9,003 $ 177,700
Equity in net income of unconsolidated companies 1,846 16,366
Segment funds from operations (55,035)(2) 72,261
Adjustments to reconcile Funds from Operations
to Net Income:
Depreciation and amortization of real estate assets (29,495)
Gain on property sales, net 1,330
Impairment and other adjustments related to the
behavioral healthcare assets (2,150)
Adjustment for investments in real estate
mortgages and equity of unconsolidated companies:
Office Properties (2,040)
Residential Development Properties (2,358)
Temperature-Controlled Logistics Properties (5,606)
Unitholder minority interest (4,069)
Preferred Share distributions 3,375
------------
Net Income $ 31,248
============
15
IDENTIFIABLE ASSETS: Temperature-
Residential Controlled
Office Resort/Hotel Development Logistics Corporate
Segment Segment Segment Segment and Other(1) Total
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 2002 $ 2,664,835 $ 506,655 $ 764,434 $ 297,910 $ 215,074 $ 4,448,908
============
BALANCE AT DECEMBER 31, 2001 $ 2,727,939 $ 442,724 $ 371,535 $ 308,427 $ 291,524 $ 4,142,149
============
----------
(1) For purposes of this Note, the behavioral healthcare properties'
financial information has been included in this column.
(2) Includes interest and other income, behavioral healthcare property
income, preferred return paid to GMAC Commercial Mortgage Corporation
("GMACCM"), other unconsolidated companies, less depreciation and
amortization of non-real estate assets and amortization of deferred
financing costs.
See "Note 7. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies - Temperature-Controlled Logistics Properties" for a
description of the sole lessee of the Temperature-Controlled Logistics
Properties.
7. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES
Investments in which the Company does not have a controlling interest
are accounted for under the equity method. The following is a summary of the
Company's ownership in significant joint ventures or equity investments:
COMPANY'S OWNERSHIP
Entity CLASSIFICATION AS OF MARCH 31, 2002
--------------------------------------------------- ------------------------------------- --------------------------
Mira Vista Development Corp. Residential Development 94.0%(2)(3)
Houston Area Development Corp. Residential Development 94.0%(2)(4)
The Woodlands Land Development
Company, L.P.(1) Residential Development 42.5%(2)(5)(6)
Desert Mountain Commercial, L.L.C.(1) Residential Development 46.5%(2)(7)
East West Resorts Development II, L.P., L.L.L.P.(1) Residential Development 38.5%(2)(8)
Blue River Land Company, L.L.C.(1) Residential Development 31.8%(2)(9)
Iron Horse Investments, L.L.C.(1) Residential Development 27.1%(2)(10)
Manalapan Hotel Partners(1) Residential Development 24.0%(2)(11)
Temperature-Controlled Logistics Partnership Temperature-Controlled Logistics 40.0%(12)
Main Street Partners, L.P. Office (Bank One Center) 50.0%(13)
The Woodlands Commercial Properties Company, L.P. Office 42.5%(6)(14)
Crescent 5 Houston Center, L.P. Office (5 Houston Center) 25.0%(15)
Austin PT BK One Tower Office Limited Partnership Office (Bank One Tower) 20.0%(16)
Houston PT Four Westlake Office Limited Partnership Office (Four Westlake Park) 20.0%(16)
DBL Holdings, Inc. Other 97.4%(17)
CR License, L.L.C. Other 30.0%(18)
Woodlands Operating Company, L.P. Other 42.5%(5)(6)
----------
(1) On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company,
pursuant to a strict foreclosure, COPI's interests in substantially all
of the voting stock in three of the Company's Residential Development
Corporations (Desert Mountain Development Corporation ("DMDC"), The
Woodlands Land Company, Inc. ("TWLC"), and Crescent Resort Development,
Inc. ("CRDI")) and in CRL Investments, Inc. ("CRLI"). As a result, the
Company fully consolidated the operations of these entities beginning
on the dates of the asset transfers. The Woodlands Land Development
Company, L.P. is an unconsolidated equity investment of TWLC. Desert
Mountain Commercial, L.L.C. is an unconsolidated equity investment of
DMDC. East West Resorts Development II, L.P., L.L.L.P., Blue River Land
Company, L.L.C., Iron Horse Investments, L.L.C., and Manalapan Hotel
Partners, (collectively, the "CRD Subsidiaries") are unconsolidated
equity investments of CRDI.
(2) See the Residential Development Properties Table included in "Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations" for the Residential Development Properties.
(3) The remaining 6.0% interest in Mira Vista Development, Corp. ("MVDC"),
which represents 100% of the voting stock, is owned 4.0% by DBL
Holdings, Inc. ("DBL") and 2.0% by third parties.
(4) The remaining 6.0% interest in Houston Area Development Corp. ("HADC"),
which represents 100% of the voting stock, is owned 4.0% by DBL and
2.0% by a third party.
16
(5) The remaining 57.5% interest in The Woodlands Land Development Company,
L.P. and The Woodlands Operating Company, L.P. is owned by an affiliate
of Morgan Stanley.
(6) Distributions are made to partners based on specified payout
percentages. During the three months ended March 31, 2002, the payout
percentage to the Company was 52.5%.
(7) The remaining 53.5% interest in Desert Mountain Commercial, L.L.C. is
owned by parties unrelated to the Company.
(8) Of the remaining 61.5% interest in East West Resorts Development II,
L.P., L.L.L.P., 0.8% is indirectly owned by John Goff, Vice-Chairman of
the Board of Trust Managers and Chief Executive Officer of the Company,
through his 20% ownership of COPI Colorado, L.P. and 60.7% is owned by
parties unrelated to the Company.
(9) Of the remaining 68.2% interest in Blue River Land Company, L.L.C.,
0.7% is indirectly owned by John Goff, Vice-Chairman of the Board of
Trust Managers and Chief Executive Officer of the Company, through his
20% ownership of COPI Colorado, L.P. and 67.5% is owned by parties
unrelated to the Company.
(10) Of the remaining 72.9% interest in Iron Horse Investments, L.L.C., 0.6%
is indirectly owned by John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company, through his 20%
ownership of COPI Colorado, L.P. and 72.3% is owned by parties
unrelated to the Company.
(11) Of the remaining 76.0% interest in Manalapan Hotel Partners, 0.5% is
indirectly owned by John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company, through his 20%
ownership of COPI Colorado, L.P. and 75.5% is owned by parties
unrelated to the Company.
(12) The remaining 60.0% interest in the Temperature-Controlled Logistics
Partnership is owned by Vornado Realty Trust, L.P.
(13) The remaining 50.0% interest in Main Street Partners, L.P. is owned by
TrizecHahn Corporation.
(14) The remaining 57.5% interest in The Woodlands Commercial Properties
Company, L.P. is owned by an affiliate of Morgan Stanley. Distributions
are made to partners based on specified payout percentages.
(15) The remaining 75.0% interest in Crescent 5 Houston Center, L.P. is
owned by a pension fund advised by JP Morgan Investment Management,
Inc. The Company recorded $279 in development, management and leasing
fees, related to this investment during the three months ended March
31, 2002. The 5 Houston Center Office Property is currently under
construction.
(16) The remaining 80.0% interest in Austin PT BK One Tower Office Limited
Partnership and Houston PT Four Westlake Office Limited Partnership is
owned by an affiliate of General Electric Pension Fund. The Company
recorded $122 in management and leasing fees for these Office
Properties during the three months ended March 31, 2002.
(17) John Goff, Vice-Chairman of the Board of Trust Managers and Chief
Executive Officer of the Company, obtained the remaining 2.6% economic
interest in DBL (including 100% of the voting interest in DBL) in
exchange for his voting interests in MVDC and HADC, originally valued
at approximately $380, and approximately $63 in cash, or total
consideration valued at approximately $443. At March 31, 2002, Mr.
Goff's interest in DBL was approximately $506.
(18) The remaining 70.0% interest in CR License, LLC is owned by a group of
individuals unrelated to the Company.
UNCONSOLIDATED PROPERTY DISPOSITIONS
During the three months ended March 31, 2002, the Woodlands Commercial
Properties Company, L.P., ("Woodlands CPC") sold two office properties located
within The Woodlands, Texas. The sales generated net proceeds, after the
repayment of debt, of approximately $8,900, of which the Company's portion was
approximately $4,700. The sale generated a net gain of approximately $11,500, of
which the Company's portion was approximately $6,000. The proceeds received by
the Company were used primarily for working capital purposes.
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES
As of March 31, 2002, the Company held a 40% interest in the
Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly owns
the 89 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 445.2 million cubic feet (17.7 million square feet) of warehouse
space.
The Temperature-Controlled Logistics Corporation leases the
Temperature-Controlled Logistics Properties to a partnership ("AmeriCold
Logistics") owned 60% by Vornado Operating L.P. and 40% by a subsidiary of COPI.
The Company has no interest in AmeriCold Logistics.
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 the adjustment of the rental obligation
for 2001 to $146,000, the adjustment of the rental obligation for 2002 to
$150,000 (plus contingent rent in certain circumstances), the increase of the
Temperature-Controlled Logistics Corporation's share of capital expenditures for
the maintenance of the properties from $5,000 to $9,500 (effective January 1,
2000) and the extension of the date on which deferred rent was required to be
paid to December 31, 2003.
17
AmeriCold Logistics deferred $3,000 of the total $35,000 of rent for
the three months ended March 31, 2002. The Company's share of the deferred rent
was $1,200 and the Company recorded a 100% valuation allowance for the deferred
rent. In December 2001, the Temperature Controlled Logistics Corporation waived
its right to collect $39,800 of the total $49,900 of deferred rent, of which the
Company's share was $15,900. The Temperature-Controlled Logistics Corporation
and the Company began to recognize rental income when earned and collected
during the year ended December 31, 2000 and continued this accounting treatment
for the year ended December 31, 2001 and the quarter ended March 31, 2002;
therefore, there was no financial statement impact to the Temperature-Controlled
Logistics Corporation or to the Company related to the Temperature-Controlled
Logistics Corporation's decision to waive collection of deferred rent.
The following table shows the total, and the Company's portion of,
deferred rent and valuation allowance at December 31, 2001 and for the three
months ended March 31, 2002.
DEFERRED RENT VALUATION ALLOWANCE
----------------------------------- -----------------------------------
COMPANY'S COMPANY'S
TOTAL PORTION TOTAL PORTION
--------------- --------------- --------------- ---------------
Balance at December 31, 2001 $ 10,100 $ 3,900 $ -- $ --
For the three months ended
March 31, 2002 3,000 1,200 3,000 1,200
--------------- --------------- --------------- ---------------
Total $ 13,100 $ 5,100 $ 3,000 $ 1,200
=============== =============== =============== ===============
SUMMARY FINANCIAL INFORMATION
The Company reports its share of income and losses based on its
ownership interest in its respective equity investments, adjusted for any
preference payments. As a result of the Company's transaction with COPI on
February 14, 2002, certain entities that were reported as unconsolidated
entities as of December 31, 2001 and for the three months ended March 31, 2001
are consolidated in the March 31, 2002 financial statements. Additionally,
certain unconsolidated subsidiaries of the newly consolidated entities are now
shown separately as unconsolidated entities of the Company. The unconsolidated
entities that are included under the headings on the following tables are
summarized below.
Balance Sheets as of March 31, 2002:
o Other Residential Development Corporations - This includes
Desert Mountain Commercial, L.L.C. ("DMC"), CRD Subsidiaries,
MVDC and HADC. DMC and CRD Subsidiaries are unconsolidated
investments of DMDC and CRDI, respectively;
o The Woodlands Land Development Company, L.P. ("TWLDC") - This
is an unconsolidated investment of TWLC;
o Temperature-Controlled Logistics ("TCL"); and
o Office - This includes Main Street Partners, L.P., Houston PT
Four Westlake Office Limited Partnership, Austin PT BK One
Tower Office Limited Partnership, Crescent 5 Houston Center,
L.P., and Woodlands CPC.
Balance Sheets as of December 31, 2001:
o Crescent Resort Development, Inc.- This entity was
consolidated beginning February 14, 2002 as a result of the
COPI transaction. Its unconsolidated investments, CRD
Subsidiaries, are included under "Other Residential
Development Corporations" in the following Balance Sheets as
of March 31, 2002;
o The Woodlands Land Company, Inc. - This entity was
consolidated beginning February 14, 2002 as a result of the
COPI transaction. Its unconsolidated subsidiary is included
under "The Woodlands Land Development Company, L.P." in the
following Balance Sheets as of March 31, 2002;
o Other Residential Development Corporations - This includes
DMDC, MVDC and HADC. DMDC was consolidated beginning February
14, 2002 as a result of the COPI transaction;
18
o Temperature-Controlled Logistics; and
o Office - This includes Main Street Partners, L.P., Houston PT
Four Westlake Office Limited Partnership, Austin PT BK One
Tower Office Limited Partnership, Crescent 5 Houston Center,
L.P. and Woodlands CPC.
Summary Statement of Operations for the three months ended March 31,
2002:
o Other Residential Development Corporations - This includes the
operating results of DMDC and CRDI for the period January 1
through February 14, 2002; the operating results of CRD
Subsidiaries and DMC for the period February 15 through March
31, 2002; and the operating results of MVDC, HADC for the
three months ended March 31, 2002. CRD Subsidiaries are
unconsolidated subsidiaries of CRDI;
o The Woodlands Land Development Company, L.P. - This includes
TWLDC's operating results for the period February 15 through
March 31, 2002 and TWLC for the period January 1 through
February 14, 2002. TWLDC is an unconsolidated subsidiary of
TWLC;
o Temperature-Controlled Logistics - This includes the operating
results for TCL for the three months ended March 31, 2002; and
o Office - This includes the operating results for Main Street
Partners, L.P., Houston PT Four Westlake Office Limited
Partnership, Austin PT BK One Tower Office Limited
Partnership, Crescent 5 Houston Center, L.P. and Woodlands CPC
for the three months ended March 31, 2002.
Summary Statement of Operations for the three months ended March 31,
2001:
o Crescent Resort Development, Inc.- This includes the operating
results of CRDI for the three months ended March 31, 2001;
o Other Residential Development Corporations - This includes the
operating results of DMDC, MVDC and HADC for the three months
ended March 31, 2001;
o The Woodlands Land Company, LP - This includes the operating
results of TWLC and TWLDC for the three months ended March 31,
2001;
o Temperature-Controlled Logistics - This includes the operating
results for TCL for the three months ended March 31, 2001; and
o Office - This includes the operating results for Main Street
Partners and Woodlands CPC, for the three months ended March
31, 2001.
19
BALANCE SHEETS:
AS OF MARCH 31, 2002
------------------------------------------------------------------------
THE
OTHER WOODLANDS
RESIDENTIAL LAND TEMPERATURE-
DEVELOPMENT DEVELOPMENT CONTROLLED
CORPORATIONS COMPANY, L.P. LOGISTICS OFFICE OTHER
------------ ------------ ------------ ------------ ------------
Real estate, net $ 111,976 $ 372,289 $ 1,255,764 $ 547,429
Cash 8,807 2,617 41,734 12,779
Other assets 9,500 36,482 59,217 32,635
------------ ------------ ------------ ------------
Total assets $ 130,283 $ 411,388 $ 1,356,715 $ 592,843
============ ============ ============ ============
Notes payable $ 70,264 $ 250,763 $ 555,617 $ 319,408
Notes payable to the Company 251 10,638 4,833 --
Other liabilities 41,701 53,309 52,361 18,532
Equity 18,067 96,678 743,904 254,903
------------ ------------ ------------ ------------
Total liabilities and equity $ 130,283 $ 411,388 $ 1,356,715 $ 592,843
============ ============ ============ ============
Company's share of unconsolidated debt(1) $ 17,204 $ 106,574 $ 222,247 $ 121,380
============ ============ ============ ============
Company's investments in real estate
mortgages and equity of uncon-
solidated companies $ 47,431 $ 41,469 $ 297,910 $ 100,395 $ 39,713
============ ============ ============ ============ ============
AS OF DECEMBER 31, 2001
----------------------------------------------------------------------------------------
CRESCENT OTHER THE
RESORT RESIDENTIAL WOODLANDS TEMPERATURE-
DEVELOPMENT, DEVELOPMENT LAND CONTROLLED
INC. CORPORATIONS COMPANY, INC. LOGISTICS OFFICE OTHER
------------ ------------ -------------- ------------ ---------- ---------
Real estate, net $ 393,784 $ 173,991 $ 365,636 $ 1,271,809 $ 553,147
Cash 17,570 7,973 2,688 23,979 28,224
Other assets 31,749 94,392 32,244 83,424 31,654
---------- ---------- ---------- ------------ ----------
Total assets $ 443,103 $ 276,356 $ 400,568 $ 1,379,212 $ 613,025
========== ========== ========== ============ ==========
Notes payable $ -- $ -- $ 225,263 $ 558,951 $ 324,718
Notes payable to the Company 180,827 60,000 -- 4,831 --
Other liabilities 232,767 168,671 74,271 46,945 29,394
Equity 29,509 47,685 101,034 768,485 258,913
---------- ---------- ---------- ------------ ----------
Total liabilities and equity $ 443,103 $ 276,356 $ 400,568 $ 1,379,212 $ 613,025
========== ========== ========== ============ ==========
Company's share of unconsolidated debt(1) $ -- $ -- $ 90,949 $ 223,580 $ 126,580
========== ========== ========== ============ ==========
Company's investments in real estate
mortgages and equity of uncon-
solidated companies $ 222,082 $ 120,407 $ 29,046 $ 308,427 $ 121,423 $ 36,932
========== ========== ========== ============ ========== =========
----------
(1) As of March 31, 2002, the Company guaranteed or provided letters of
credit related to approximately $30,010 of unconsolidated debt and had
obligations to potentially provide an additional $59,990 in guarantees,
primarily related to construction loans. At December 31, 2001, the
Company guaranteed or provided letters of credit related to
approximately $17,208 of unconsolidated debt.
20
SUMMARY STATEMENTS OF OPERATIONS:
FOR THE THREE MONTHS ENDED MARCH 31, 2002
----------------------------------------------------------------------
THE
OTHER WOODLANDS
RESIDENTIAL LAND TEMPERATURE-
DEVELOPMENT DEVELOPMENT CONTROLLED
CORPORATIONS COMPANY, LP. LOGISTICS(1) OFFICE OTHER
------------ ------------ -------------- ------------ ----------
Total revenue $ 88,014 $ 35,856 $ 31,959 $ 24,111
Expense:
Operating expense 79,498(2) 15,383 6,986(2) 10,638
Interest expense 1,619 929 10,932 4,420
Depreciation and amortization 1,830 871 14,816 5,493
Tax (benefit) expense (70) 406 -- --
----------- ----------- ------------- ----------
Total expense 82,877 17,589 32,734 20,551
----------- ----------- ------------- ----------
Net income $ 5,137 $ 18,267 $ (775)(2) $ 3,560
=========== =========== ============= ==========
Company's equity in net income
of unconsolidated companies $ 2,783 $ 9,700 $ (310) $ 1,310 $ (4,061)(3)
=========== =========== ============= ========== ==========
FOR THE THREE MONTHS ENDED MARCH 31, 2001
----------------------------------------------------------------------------------------------
CRESCENT OTHER THE
RESORT RESIDENTIAL WOODLANDS TEMPERATURE-
DEVELOPMENT, DEVELOPMENT LAND CONTROLLED
INC. CORPORATIONS COMPANY, INC. LOGISTICS OFFICE OTHER
------------ ------------ ------------- -------------- ---------- ----------
Total revenue $ 60,928 $ 19,364 $ 31,764 $ 38,106 $ 19,919
Expense:
Operating expense 49,798 16,867 19,984 4,998(1) 8,040
Interest expense 1,447 315 1,283 11,416 5,282
Depreciation and amortization 1,415 1,512 1,683 14,642 4,136
Tax (benefit) expense 791 (680) 3,526 -- --
------- ------- -------- -------- --------
Total expense 53,451 18,014 26,476 31,056 17,458
------- ------- -------- -------- --------
Net income $ 7,477 $ 1,350 $ 5,288 $ 7,050 $ 2,461
======= ======= ======== ======== ========
Company's equity in net income
of unconsolidated companies $ 6,730 $ 1,305 $ 2,673 $ 2,719 $ 1,093 $ 1,846
======= ======= ======== ======== ======== ========
----------
(1) Inclusive of the preferred return paid to Vornado Realty Trust (1% per
annum of the Total Combined Assets).
(2) Excludes the goodwill write-off for TCL and one of the Residential
Development Corporations, which is recorded on the accompanying
financial statements as a cumulative change in accounting principle.
(3) Includes impairment of an investment in real estate partnership of
$1,200 and impairment of DBL-CBO of $2,600.
21
8. NOTES PAYABLE AND BORROWINGS UNDER FLEET FACILITY:
The following is a summary of the Company's debt financing at March 31,
2002:
BALANCE
OUTSTANDING AT
MARCH 31, 2002
---------------
SECURED DEBT
Fleet Fund I and II Term Loan due May 2005, bears interest at LIBOR plus 325 basis
points (at March 31, 2002, the interest rate was 5.17%), with a four-year interest-only term,
secured by equity interests in Funding I and II $ 275,000
AEGON Partnership Note(1) due July 2009, bears interest at 7.53% with monthly principal and
interest payments based on a 25-year amortization schedule, secured by the Funding III, IV and V
Properties 268,781
LaSalle Note I(2) bears interest at 7.83% with an initial seven-year interest-only term (through
August 2002), followed by principal amortization based on a 25-year amortization schedule
through maturity in August 2027, secured by the Funding I Properties 239,000
Deutsche Bank-CMBS Loan(3) due May 2004, bears interest at the 30-day LIBOR rate plus 234
basis points (at March 31, 2002, the interest rate was 5.84%), with a three-year interest-only term
and two one-year extension options, secured by the Funding X Properties and Spectrum Center 220,000
JP Morgan Mortgage Note(4), bears interest at a fixed rate of 8.31% with principal amortization
based on a 15-year amortization schedule through maturity in October 2016,
secured by the Houston Center mixed-use Office Property complex 198,448
LaSalle Note II(5) bears interest at 7.79% with an initial seven-year interest-only term (through
March 2003), followed by principal amortization based on a 25-year amortization schedule
through maturity in March 2028, secured by the Funding II Properties 161,000
CIGNA Note due December 2002, bears interest at 7.47% with an interest-only term, secured
by the MCI Tower Office Property and Denver Marriott City Center Resort/Hotel Property 63,500
Metropolitan Life Note V(6) due December 2005, bears interest at 8.49% with monthly principal
and interest payments based on a 25-year amortization schedule, secured by the Datran
Center Office Property 38,558
Northwestern Life Note due January 2004, bears interest at 7.66% with an interest-only term,
secured by the 301 Congress Avenue Office Property 26,000
National Bank of Arizona Revolving Line of Credit(7) due November 2003, secured by certain
DMDC assets 21,110
Woodmen of the World Note(8) due April 2009, bears interest at 8.20% with an initial five-year
interest-only term (through April 2006), followed by principal amortization based on a 25-year
amortization schedule, secured by the Avallon IV Office Property 8,500
Nomura Funding VI Note(9) bears interest at 10.07% with monthly principal and
interest payments based on a 25-year amortization schedule through maturity in
July 2020, secured by the Funding VI Property 8,148
22
BALANCE
OUTSTANDING AT
MARCH 31, 2002
---------------
SECURED DEBT - CONTINUED
Mitchell Mortgage Note due August 2002, bears interest at 7.00% with an interest-only term,
secured by four of The Woodlands Office Properties 6,244
Rigney Promissory Note due November 2012, bears interest at 8.50% with quarterly principal and
interest payments based on a 15-year amortization schedule, secured by a parcel of land 641
Construction, acquisition and other obligations, bearing fixed and variable interest rates ranging
from 4.40% to 10.00% at March 31, 2002, with maturities ranging between June 2002 and
December 2004, secured by various CRDI projects 95,412
UNSECURED DEBT
Fleet Facility(10) due May 2004, bears interest at LIBOR plus 187.5 basis points (at March 31,
2002, the interest rate was 3.76%), with a three-year interest-only term and a
one-year extension option 334,500
2007 Notes(11) bear interest at a fixed rate of 7.50% with a ten-year interest-only term, due
September 2007 250,000
2002 Notes(11) bear interest at a fixed rate of 7.00% with a five-year interest-only term, due
September 2002 150,000
Other obligations, with fixed interest rates ranging from 8.00% to 12.00% and variable
interest rates ranging from the Fed Funds rate plus 150 basis points to LIBOR plus 375 basis
points and with maturities ranging between November 2002 and January 2004 15,541
---------------
Total Notes Payable $ 2,380,383
===============
----------
(1) The outstanding principal balance of this note at maturity will be
approximately $224,100.
(2) In August 2007, the interest rate will increase, and the Company is
required to remit, in addition to the monthly debt service payment,
excess property cash flow, as defined, to be applied first against
principal until the note is paid in full and thereafter, against
accrued excess interest, as defined. It is the Company's intention to
repay the note in full at such time (August 2007) by making a final
payment of approximately $220,500.
(3) This includes both a Deutsche Bank-CMBS note and a Fleet-Mezzanine
note. The notes are due May 2004 and bear interest at the 30-day LIBOR
rate plus a spread of (i) 164.7 basis points for the CMBS note, (at
March 31, 2002, the interest rate was 5.15%), and (ii) 600 basis points
for the Mezzanine note, (at March 31, 2002, the interest rate was
9.50%). The blended rate at March 31, 2002 for the two notes was 5.84%.
The notes have three-year interest only terms and two one-year
extension options, and are secured by the Office Properties owned by
Funding X and the interest in Spectrum Center. The Fleet-Mezzanine note
is secured by the interest in Funding X and Crescent Spectrum Center,
L.P. and the Company's interest in their general partner.
(4) At the end of seven years (October 2006), the interest rate will adjust
based on current interest rates at that time. It is the Company's
intention to repay the note in full at such time (October 2006) by
making a final payment of approximately $177,800.
(5) In March 2006, the interest rate will increase, and the Company is
required to remit, in addition to the monthly debt service payment,
excess property cash flow, as defined, to be applied first against
principal until the note is paid in full and thereafter, against
accrued excess interest, as defined. It is the Company's intention to
repay the note in full at such time (March 2006) by making a final
payment of approximately $154,100.
(6) The outstanding principal balance of this loan at maturity will be
approximately $29,100.
(7) This facility is a $50,000 line of credit secured by certain DMDC land
and improvements ("vertical facility"), club facilities ("club loan"),
and notes receivable ("warehouse facility"). The line restricts the
vertical facility and club loan to a maximum outstanding amount of
$40,000 and is subject to certain borrowing base limitations and bears
interest at Prime (at March 31, 2002, the interest rate was 4.75%). The
warehouse facility bears interest at Prime plus 100 basis points, (at
March 31, 2002, the interest rate was 5.75%) and is limited to $10,000.
(8) The outstanding principal balance of this loan at maturity will be
approximately $8,200.
(9) In July 2010, the interest rate due under the note will change to a
10-year Treasury yield plus 500 basis points or, if the Company so
elects, it may repay the note without penalty at that date by making a
final payment of $6,135.
(10) The $400,000 Fleet Facility is an unsecured revolving line of credit.
(11) The notes were issued in an offering registered with the SEC.
23
Below are the aggregate principal payments required as of March 31,
2002 under indebtedness of the Company by year. Scheduled principal installments
and amounts due at maturity are included.
SECURED UNSECURED TOTAL(1)
------------ ------------ ------------
2002 $ 106,573 $ 165,416 $ 271,989
2003 128,849 -- 128,849
2004 236,899 334,625 571,524
2005 329,339 -- 329,339
2006 347,207 -- 347,207
Thereafter 481,475 250,000 731,475
------------ ------------ ------------
$ 1,630,342 $ 750,041 $ 2,380,383
============ ============ ============
----------
(1) These amounts do not represent the effect of a one-year extension
option on the Fleet Facility and two one-year extension options on the
Deutsche Bank - CMBS Loan.
The Company has $271,989 of secured and unsecured debt payments due
during 2002, consisting primarily of the Cigna Note, the Mitchell Mortgage Note,
unsecured short-term borrowings and the 2002 Notes, which are expected to be
funded through replacement debt financing.
Any uncured or unwaived events of default on the Company's loans can
trigger an acceleration of payment on the loan in default. In addition, a
default by the Company or any of its subsidiaries with respect to any
indebtedness in excess of $5,000 generally will result in a default under the
Fleet Facility and the Fleet I and II Term Loan after the notice and cure
periods for the other indebtedness have passed. As of March 31, 2002, the
Company was in compliance with all of its debt service coverage ratios and other
covenants related to its outstanding debt. The Company's debt facilities
generally prohibit loan pre-payment for an initial period, allow pre-payment
with a penalty during a following specified period and allow pre-payment without
penalty after the expiration of that period. During the three months ended March
31, 2002, there were no circumstances that would require pre-payment penalties
or increased collateral related to the Company's existing debt.
In addition to the subsidiaries listed in "Note 1. Organization and
Basis of Presentation," certain other subsidiaries of the Company were formed
primarily for the purpose of obtaining secured and unsecured debt or joint
venture financings. The following lists these entities, all of which are
consolidated and are grouped based on the Properties to which they relate:
Funding I and Funding II Properties (CREM Holdings, LLC, Crescent Capital
Funding, LLC, Crescent Funding Interest, LLC, CRE Management I Corp., CRE
Management II Corp.); Funding III Properties (CRE Management III Corp.); Funding
IV Properties (CRE Management IV Corp.); Funding V Properties (CRE Management V
Corp.); Funding VI Properties (CRE Management VI Corp.); Funding VIII Properties
(CRE Management VIII, LLC); Funding IX Properties (CRE Management IX, LLC);
Funding X Properties (CREF X Holdings Management, LLC, CREF X Holdings, L. P.,
CRE Management X, LLC); Spectrum Center, (Spectrum Center Partners, L.P.,
Spectrum Mortgage Associates, L. P., CSC Holdings Management, LLC, Crescent SC
Holdings, L.P., CSC Management, LLC).
9. INTEREST RATE CAPS:
In connection with the closing of the Deutsche Bank - CMBS Loan in May
2001, the Company entered into a LIBOR interest rate cap struck at 7.16% for a
notional amount of $220,000, and simultaneously sold a LIBOR interest rate cap
with the same terms. Since these instruments do not reduce the Company's net
interest rate risk exposure, they do not qualify as hedges and changes to their
respective fair values are charged to earnings. As the significant terms of
these arrangements are substantially the same, the effects of a revaluation of
these instruments are expected to substantially offset each other.
24
10. CASH FLOW HEDGES:
The Company uses derivative financial instruments to convert a portion
of its variable-rate debt to fixed-rate debt and to manage its fixed to
variable-rate debt ratio. As of March 31, 2002, the Company had entered into
three cash flow hedge agreements, which are accounted for in conformity with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an Amendment of FASB Statement No. 133."
The following table shows information regarding the Company's cash flow
hedge agreements as of March 31, 2002 and interest expense for the three months
ended March 31, 2002:
ADDITIONAL
INTEREST EXPENSE
ISSUE NOTIONAL MATURITY REFERENCE FAIR FOR THE THREE MONTHS
DATE AMOUNT DATE RATE MARKET VALUE ENDED MARCH 31, 2002
--------------- ------------------ ------------------ ------------------ ------------------ --------------------
7/21/99 $ 200,000 9/2/03 6.183% $ (8,236) $ 2,051
5/15/01 200,000 2/3/03 7.11 (7,840) 2,627
4/14/00 100,000 4/18/04 6.76 (5,658) 1,199
The Company has designated its three cash flow hedge agreements as cash
flow hedges of LIBOR-based monthly interest payments on a designated pool of
variable-rate LIBOR indexed debt that reprices closest to the reset dates of
each cash flow hedge agreement. For retrospective effectiveness testing, the
Company uses the cumulative dollar offset approach as described in DIG Issue E8.
The DIG is a task force designed to assist the FASB in answering questions that
companies have resulting from implementation of SFAS No. 133. The Company uses
the change in variable cash flows method as described in DIG Issue G7 for
prospective testing as well as for the actual recording of ineffectiveness, if
any. Under this method, the Company will compare the changes in the floating
rate portion of each cash flow hedge to the floating rate of the hedged items.
The cash flow hedges have been and are expected to remain highly effective.
Changes in the fair value of these highly effective hedging instruments are
recorded in accumulated other comprehensive income. The effective portion that
has been deferred in accumulated other comprehensive income will be reclassified
to earnings as interest expense when the hedged items impact earnings. If a cash
flow hedge falls outside 80%-125% effectiveness for a quarter, all changes in
the fair value of the cash flow hedge for the quarter will be recognized in
earnings during the current period. If it is determined based on prospective
testing that it is no longer likely a hedge will be highly effective on a
prospective basis, the hedge will no longer be designated as a cash flow hedge
and no longer qualify for accounting in conformity with SFAS Nos. 133 and 138.
Over the next twelve months, an estimated $16,300 to $18,500 will be
reclassified from accumulated other comprehensive income to interest expense and
charged against earnings related to the effective portions of the cash flow
hedge agreements.
Additionally, CRDI, a consolidated subsidiary of the Company, also uses
derivative financial instruments to convert a portion of its variable-rate debt
to fixed-rate debt. As of March 31, 2002, CRDI had entered into three cash flow
hedge agreements, which are accounted for in conformity with SFAS Nos. 133 and
138.
25
The following table shows information regarding CRDI's cash flow hedge
agreements as of March 31, 2002 and capitalized interest for the three months
ended March 31, 2002. Capitalized interest is related to debt for projects that
are currently under development.
ADDITIONAL
CAPITALIZED INTEREST
ISSUE NOTIONAL MATURITY REFERENCE FAIR FOR THE THREE MONTHS
DATE AMOUNT DATE RATE MARKET VALUE ENDED MARCH 31, 2002
--------------- --------------- --------------- --------------- --------------- --------------------
1/2/2001 $ 10,818 11/16/2002 8.455% $ (388) $ 64
9/4/2001 6,650 9/4/2003 7.12 (72) 24
9/4/2001 4,800 9/4/2003 7.12 (52) 18
CRDI uses the shortcut method described in SFAS No. 133, which
eliminates the need to consider ineffectiveness of the hedges, and instead
assumes that the hedges are highly effective.
11. INCOME TAXES:
The Company intends to maintain its qualification as a REIT under
Section 856 of the U.S. Internal Revenue Code of 1986, as amended (the "Code").
As a REIT, the Company generally will not be subject to corporate federal income
taxes as long as it satisfies certain technical requirements of the Code,
including the requirement to distribute 90% of REIT taxable income to its
shareholders. Accordingly, the Company does not believe that it will be liable
for current income taxes on its REIT taxable income at the Federal level or in
most of the states in which it operates. Additionally, in conjunction with the
Company's agreement with COPI, the Company consolidated certain taxable REIT
subsidiaries (the "TRS"), which are subject to federal and state income tax. The
Company's $4,300 total consolidated income tax benefit at March 31, 2002
includes tax expense related to the operations of the TRS of $2,400, offset by a
tax benefit of $6,700. The $6,700 benefit results from the temporary difference
between the financial reporting basis and the respective tax basis of the hotel
leases acquired as part of the Company's agreement with COPI. This temporary
difference will be reversed over an estimated five-year period, which is the
remaining lease term of the hotel leases. The anticipated reversal of the tax
benefit for the full year 2002 will total approximately $1,500. Cash paid for
income taxes in the first quarter of 2002 totaled approximately $2,000.
The Company's total net tax asset of approximately $28,700 includes
$20,900 of net deferred tax assets and a $7,800 net current tax receivable at
March 31, 2002. The tax effects of each type of temporary difference that give
rise to a significant portion of the $20,900 deferred tax asset are as follows:
Deferred recognition of DMDC club membership revenue $ 26,800
Recognition of development land cost of sales at DMDC
and TWLC (10,500)
Recognition of hotel lease cost 6,700
Other (2,100)
------------
Total deferred tax asset $ 20,900
============
The Company recognizes deferred tax assets only to the extent that it
is more likely than not that they will be realized based on consideration of
available evidence, including tax planning strategies and other factors. As of
March 31, 2002, no valuation allowances have been recorded.
The $6,900 net current tax receivable results primarily from
anticipated tax refunds related to recognition of a net operating loss carryback
and 2001 overpayments of $11,700 for DMDC, offset by $4,800 current taxes
payable.
26
12. MINORITY INTEREST:
Minority interest represents (i) the limited partner interests owned by
limited partners in the Operating Partnership ("units"), and (ii) joint venture
and preferred equity interests held by third parties in other consolidated
subsidiaries. Each unit may be exchanged for either two common shares or, at the
election of the Company, cash equal to the fair market value of two common
shares at the time of the exchange. When a unitholder exchanges a unit, Crescent
Equities' percentage interest in the Operating Partnership increases. During the
three months ended March 31, 2002, there were 2,684 units exchanged for 5,368
common shares of Crescent Equities.
13. SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY:
During the year ended December 31, 2000, the Company formed Funding IX
and contributed seven Office Properties and two Resort/Hotel Properties to
Funding IX. As of March 31, 2002, Funding IX held seven Office Properties and
one Resort/Hotel Property. The Company owns 100% of the common voting interests
in Funding IX, 0.1% in the form of a general partner interest and 99.9% in the
form of a limited partner interest.
As of March 31, 2002, GMAC Commercial Mortgage Corporation ("GMACCM")
held $218,400 of non-voting, redeemable preferred Class A Units in Funding IX
(the "Class A Units"). The Class A Units initially received a preferred
variable-rate dividend previously calculated at LIBOR plus 450 basis points.
Beginning March 16, 2002, the preferred variable-rate dividend increased to
LIBOR plus 550 basis points, which resulted in a dividend rate of approximately
7.38% per annum as of March 31, 2002. The Class A Units are redeemable at the
option of the Company at the original purchase price. Subsequent to March 31,
2002, the Company redeemed approximately $101,100 of the Class A Units from
GMACCM.
Funding IX loaned the net proceeds of the sale of Class A Units in
Funding IX and a portion of the net proceeds from the sale of one of the
Resort/Hotel Properties held by Funding IX, through an intracompany loan to
Crescent SH IX, Inc. ("SH IX"), for the purchase of common shares of the
Company. See "Note 14. Shareholders' Equity - Share Repurchase Program". This
intracompany loan is eliminated in consolidation. The loan from Funding IX to SH
IX matures March 15, 2003 and the Company intends to repay the loan of
approximately $285,000 at or prior to that time. The proceeds received by
Funding IX will be used to redeem Class A Units.
14. SHAREHOLDERS' EQUITY:
SHARE REPURCHASE PROGRAM
On October 15, 2001, the Company's Board of Trust Managers authorized
an increase in the amount of outstanding common shares that can be repurchased
from time to time in the open market or through privately negotiated
transactions (the "Share Repurchase Program") from $500,000 to $800,000.
The Company commenced its Share Repurchase Program in March 2000. As of
March 31, 2002, the Company had repurchased 18,756,423 common shares, 20,286 of
which have been retired, at an average price of $19.09 per common share for an
aggregate of approximately $358,100. As of March 31, 2002, the Company held
14,468,623 of the repurchased common shares in SH IX, a wholly-owned subsidiary.
The 14,468,623 common shares were repurchased with the net proceeds of the sale
of Class A Units in Funding IX and with a portion of the net proceeds from the
sale of one of the Properties held by Funding IX. See "Note 13. Sale of
Preferred Equity Interests in Subsidiary." These common shares are consolidated
as treasury shares in conformity with GAAP. However, these shares are held in SH
IX until all of the Class A Units are redeemed. Distributions will continue to
be paid on these repurchased common shares and will be used to pay dividends on
the Class A Units.
The Company expects the Share Repurchase Program to continue to be
funded through a combination of debt, equity, joint venture capital and selected
asset disposition alternatives available to the Company. The amount of common
shares that the Company will actually purchase will be determined from time to
time, in its reasonable judgment, based on market conditions and the
availability of funds, among other factors. There can be no assurance that any
number of common shares will actually be purchased within any particular time
period.
27
DISTRIBUTIONS
The following table summarizes the distributions paid or declared to
common shareholders, unitholders and preferred shareholders during the three
months ended March 31, 2002.
ANNUAL
DIVIDEND/ TOTAL RECORD PAYMENT DIVIDEND/
SECURITY DISTRIBUTION AMOUNT DATE DATE DISTRIBUTION
-------------------------------- --------------- --------------- --------------- --------------- ---------------
Common Shares/Units(1) $ 0.375 $ 49,706(2) 1/31/02 2/15/02 $ 1.50
Common Shares/Units(1) 0.375 49,825(2) 4/30/02 5/15/02 1.50
6 3/4% Series A Preferred Shares 0.422 3,375 1/31/02 2/15/02 1.6875
6 3/4% Series A Preferred Shares 0.422 4,556 4/30/2002 5/15/02 1.6875
----------
(1) Represents one-half the amount of the distribution per unit because
each unit is exchangeable for two common shares.
(2) As of March 31, 2002, the Company was holding 14,468,623 of its common
shares in SH IX. These distribution amounts include $5,426 for the
distribution paid on February 15, 2002, and for the distribution to be
paid on May 15, 2002, related to these common shares. These
distributions are eliminated in consolidation.
15. RELATED PARTY TRANSACTIONS:
DBL HOLDINGS, INC.
As of March 31, 2002, the Company owned 97.44% of DBL with the
remaining 2.56% economic interest in DBL (including 100% of the voting interest
in DBL) held by John Goff, Vice-Chairman of the Board of Trust Managers and
Chief Executive Officer of the Company. Originally, Mr. Goff contributed his
voting interests in MVDC and HADC, originally valued at approximately $380, and
approximately $63 in cash, or total consideration valued at approximately $443
for his interest in DBL.
DBL has two wholly owned subsidiaries, DBL-ABC, Inc. and DBL-CBO, Inc.,
the assets of which are described in the following paragraphs, and DBL directly
holds 66% of the voting stock in MVDC and HADC. At March 31, 2002, Mr. Goff's
interest in DBL was approximately $506.
Since June 1999, the Company has contributed approximately $23,800 to
DBL, in the form of cash and loans. These funds were used by DBL to make an
equity contribution to DBL-ABC, Inc., which committed to purchase a limited
partnership interest representing a 12.5% interest in G2 Opportunity Fund, LP
("G2"). G2 was formed for the purpose of investing in commercial mortgage backed
securities and other commercial real estate investments and is managed and
controlled by an entity that is owned equally by Goff-Moore Strategic Partners,
LP ("GMSP") and GMACCM. The ownership structure of the entity that ultimately
controls GMSP consists of 50% ownership by Darla Moore, who is married to
Richard Rainwater, Chairman of the Board of Trust Managers of the Company and
50% by John Goff. Mr. Rainwater is also a limited partner of GMSP. At March 31,
2002, DBL had an approximately $14,100 investment in G2 and had repaid in full
the loans from the Company.
In March 1999, DBL-CBO, Inc. acquired $6,000 aggregate principal amount
of Class C-1 Notes issued by Juniper CBO 1999-1 Ltd., a Cayman Island limited
liability company. At March 31, 2002 this investment was valued at approximately
$2,700. During the three months ended March 31, 2002, the Company recognized an
impairment charge related to this investment of $2,600.
COPI COLORADO, L. P.
On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to the Company, in lieu of foreclosure,
COPI's 60% general partner interest in COPI Colorado which owns 10% of the
voting stock in CRDI. As a result, the Company increased its ownership interest
in CRDI from 90% to 96%, John Goff, Vice-Chairman of the Board of Trust Managers
and Chief Executive Officer of the Company, owns a 2.0% interest in CRDI and the
remaining 2.0% interest is owned by a third party.
28
LOANS TO EMPLOYEES AND TRUST MANAGERS OF THE COMPANY FOR EXERCISE OF STOCK
OPTIONS AND UNIT OPTIONS
As of March 31, 2002, the Company had approximately $36,492 of loans
outstanding (including approximately $4,022 loaned during the three months ended
March 31, 2002) to certain employees and trust managers of the Company on a
recourse basis pursuant to the Company's stock incentive plans and unit
incentive plans pursuant to agreements approved by the Board of Directors and
the Executive Compensation Committee of the Company. The proceeds of these loans
were used by the employees and the trust managers to acquire common shares of
the Company pursuant to the exercise of vested stock and unit options. According
to the loan agreements, these loans may be repaid in full or in part at any time
without premium or penalty. John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company, had a loan representing
$26,300 of the $36,492 total outstanding loans at March 31, 2002.
Every month, federal short-term, mid-term and long-term rates
(Applicable Federal Rates) are determined and published by the IRS based upon
average market yields of specified maturities. The loans granted during the
three months ended March 31, 2002 were granted at the Applicable Federal Rate of
2.7%, which reflects a below prevailing market interest rate; therefore, the
Company recorded $104 of compensation expense for the quarter ended March 31,
2002. Approximately $605 of interest was outstanding related to these loans as
of March 31, 2002.
16. DISPOSITIONS:
OFFICE SEGMENT
During the three months ended March 31, 2002, the Company completed the
sale of the Cedar Springs Plaza Office Property in Dallas, Texas. The sale
generated net proceeds of approximately $11,900 and a net gain of approximately
$4,500. The proceeds from the sale of Cedar Springs Plaza Office Property were
used primarily for working capital purposes. The operations for this Property,
as well as the gain recognized on the sale of this Property are included in
"Discontinued Operations - Income and Gain on Assets Sold or Held for Sale".
The major classes of assets and liabilities associated with the Cedar
Springs Plaza Office Property are as follows:
AS OF
DECEMBER 31, 2001
----------------
Land $ 700
Buildings and improvements 7,831
Accumulated depreciation (1,310)
---------------
Properties held for disposition, net 7,221
Other assets 263
17. COPI
In April 1997, the Company established a new Delaware corporation,
COPI. All of the outstanding common stock of COPI, valued at $0.99 per share,
was distributed, effective June 12, 1997, to those persons who were limited
partners of the Operating Partnership or shareholders of the Company on May 30,
1997, in a spin-off.
COPI was formed to become a lessee and operator of various assets to be
acquired by the Company and to perform the intercompany agreement between COPI
and the Company, pursuant to which each agreed to provide the other with rights
to participate in certain transactions. The Company was not permitted to operate
or lease these assets under the tax laws in effect at that time and applicable
to REITs. In connection with the formation and capitalization of COPI, and the
subsequent operations and investments of COPI since 1997, the Company made loans
to COPI under a line of credit and various term loans.
29
On January 1, 2001, The REIT Modernization Act became effective. This
legislation allows the Company, through its subsidiaries, to operate or lease
certain of its investments that had been previously operated or leased by COPI.
On February 14, 2002, the Company executed an agreement (the
"Agreement") with COPI, pursuant to which COPI transferred to subsidiaries of
the Company, in lieu of foreclosure, COPI's lessee interests in the eight
Resort/Hotel Properties leased to subsidiaries of COPI and, pursuant to a strict
foreclosure, COPI's voting interests in three of the Company's Residential
Development Corporations and other assets; and the Company agreed to assist and
provide funding to COPI for the implementation of a prepackaged bankruptcy of
COPI. In connection with the transfer, COPI's rent obligations to the Company
were reduced by $23,600, and its debt obligations were reduced by $40,100. These
amounts include $18,300 of value attributed to the lessee interests transferred
by COPI to the Company; however, in conformity with GAAP, the Company assigned
no value to these interests for financial reporting purposes.
The Company holds the lessee interests in the eight Resort/Hotel
Properties and the voting interests in the three Residential Development
Corporations through three newly organized entities that are wholly owned
taxable REIT subsidiaries of the Company. The Company has included these assets
in its Resort/Hotel Segment and its Residential Development Segment, and fully
consolidated the operations of the eight Resort/Hotel Properties and the three
Residential Development Corporations, beginning on the date of the transfers of
these assets.
Under the Agreement, the Company has agreed to provide approximately
$14,000 to COPI in the form of cash and common shares of the Company to fund
costs, claims and expenses relating to the bankruptcy and related transactions,
and to provide for the distribution of the Company's common shares to the COPI
stockholders. As of March 31, 2002, the Company estimated that the value of the
common shares that will be issued to the COPI stockholders will be approximately
$5,000 to $8,000. The Agreement provides that COPI and the Company will seek to
have a plan of reorganization for COPI, reflecting the terms of the Agreement
and a draft plan of reorganization, approved by the bankruptcy court. The actual
value of the common shares issued to the COPI stockholders will not be
determined until the confirmation of COPI's bankruptcy plan and could vary
substantially from the estimated amount.
In addition, the Company has agreed to use commercially reasonable
efforts to assist COPI in arranging COPI's repayment of its $15,000 obligation
to Bank of America, together with any accrued interest. COPI obtained the loan
primarily to participate in investments with the Company. At the time COPI
obtained the loan, Bank of America required, as a condition to making the loan,
that Richard E. Rainwater, the Chairman of the Board of Trust Managers of the
Company, and John C. Goff, Vice-Chairman of the Board of Trust Managers and
Chief Executive Officer of the Company, enter into a support agreement with COPI
and Bank of America, pursuant to which they agreed to make additional equity
investments in COPI if COPI defaulted on payment obligations under its line of
credit with Bank of America and the net proceeds of an offering of COPI
securities were insufficient to allow COPI to pay Bank of America in full. The
Company believes, based on advice of counsel, that the support agreement should
be unenforceable in a COPI bankruptcy. Effective December 31, 2001, the parties
executed an amendment to the line of credit providing that any defaults existing
under the line of credit on or before March 8, 2002 are temporarily cured unless
and until a new default shall occur.
Completion and effectiveness of the plan of reorganization for COPI is
contingent upon a number of conditions, including the vote of COPI's
stockholders, the approval of the plan by certain of COPI's creditors and the
approval of the bankruptcy court.
18. SUBSEQUENT EVENTS:
DEBT OFFERING
On April 15, 2002, the Company completed a private offering of
$375,000 in senior, unsecured notes due 2009. The notes bear interest at an
annual rate of 9.25% and were issued at 100% of issue price. The notes are
callable after April 15, 2006. Interest will be payable in cash on April 15 and
October 15 of each year, beginning October 15, 2002. The Company has agreed to
register a similar series of notes with the SEC and to effect an exchange offer
of the registered notes for the privately placed notes and, in certain cases, to
register the notes for
30
resale by their holders. In the event that the exchange offer or resale
registration is not completed on or before October 15, 2002, the interest rate
on the notes will increase to 9.75% and increase to 10.25% after 90 days until
the exchange offer or resale registration is completed.
The net proceeds from the offering of notes were approximately
$366,000. Approximately $309,500 of the proceeds were used to pay down amounts
outstanding under the Fleet Facility, and the remaining proceeds were used to
pay down $5,000 of short-term indebtedness and redeem approximately $52,000 of
Class A Units from GMACCM. Borrowings under the revolving line of credit are
expected to be used to repay or repurchase from time to time $150,000 of 7.0%
unsecured notes due in September 2002, approximately $52,400 of which have been
repurchased to date. In addition, borrowings under our line of credit are also
expected to be used to repay a $63,500, 7.47% mortgage loan due in December
2002.
SERIES A PREFERRED OFFERING
On April 26, 2002, the Company completed an institutional placement
(the "April 2002 Series A Preferred Offering") of 2,800,000 shares of 6 3/4%
Series A Convertible Cumulative Preferred Shares (the "Series A Preferred
Shares") with a liquidation preference of $25.00 per share. The Series A
Preferred Shares are convertible at any time, in whole or in part, at the option
of the holders thereof into common shares of the Company at a conversion price
of $40.86 per common share (equivalent to a conversion rate of .6119 common
shares per Series A Preferred Share), subject to adjustment in certain
circumstances. Net proceeds to the Company from the April 2002 Series A
Preferred Offering after underwriting discounts of approximately $1,000 and
other offering costs of approximately $300 were approximately $49,100. The net
proceeds from the April 2002 Series A Preferred Offering were used to redeem
Class A Units from GMACCM.
31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read this section in conjunction with the consolidated
interim financial statements and the accompanying notes in "Item 1. Financial
Statements" of this document and the more detailed information contained in the
Company's Form 10-K for the year ended December 31, 2001. In management's
opinion, all adjustments (consisting of normal and recurring adjustments)
considered necessary for a fair presentation of the unaudited interim financial
statements are included. Capitalized terms used but not otherwise defined in
this section, have the meanings given to them in the notes to the financial
statements in "Item 1. Financial Statements."
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
characterized by terms such as "believe," "expect" and "may"
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those described in the
forward-looking statements.
The following factors might cause such a difference:
o Crescent's inability to obtain the confirmation of a prepackaged bankruptcy
plan of COPI binding all creditors and stockholders;
o The inability of Crescent successfully to integrate the lessee interests in
the resort/hotel properties and the voting interests in its residential
development corporations and related entities with its current business and
operations;
o The inability of Crescent to complete the distribution to its shareholders
of the shares of a new entity to purchase the AmeriCold tenant interest from
COPI;
o Further deterioration in the resort/business-class hotel markets or in the
market for residential land or luxury residences, including single-family
homes, townhomes and condominiums, or in the economy generally;
o The Company's ability, at its office properties, to timely lease unoccupied
square footage and timely re-lease occupied square footage upon expiration
on favorable terms, which may be adversely affected by changes in real
estate conditions (including rental rates and competition from other
properties and new development of competing properties or a general downturn
in the economy);
o Financing risks, such as the ability to generate revenue sufficient to
service and repay existing or additional debt, the Company's ability to fund
the share repurchase program, increases in debt service associated with
increased debt and with variable-rate debt, the ability to meet financial
covenants and the Company's ability to consummate financings and
refinancings on favorable terms and within any applicable time frames;
o Further adverse conditions in the temperature-controlled logistics business
(including both industry-specific conditions and a general downturn in the
economy which may further jeopardize the ability of the Company's tenant to
pay all current rent due to the Company);
o Adverse changes in the financial condition of existing tenants;
o The concentration of a significant percentage of the Company's assets in
Texas;
o The Company's ability to find acquisition and development opportunities
which meet the Company's investment strategy;
o The existence of complex regulations relating to the Company's status as a
REIT, the effect of future changes in REIT requirements as a result of new
legislation and the adverse consequences of the failure to qualify as a
REIT; and
o Other risks detailed from time to time in the Company's filings with the
SEC.
Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Company is not obligated to update these
forward-looking statements to reflect any future events or circumstances.
32
The following sections include information for each of the Company's
investment segments for the three months ended March 31, 2002.
OFFICE SEGMENT
The following table shows the same-store net operating income growth
for the approximately 25.8 million square feet of Office Property space owned as
of March 31, 2002. This table excludes the following:
o Approximately 1.5 million square feet of space at Bank One
Center, in which the Company owns a 50% equity interest;
o Approximately 1.0 million square feet of space at Four Westlake
Park and Bank One Tower, in each of which the Company has a 20%
equity interest;
o Approximately 0.1 million square feet of space at Avallon IV,
which was completed during the year ended December 31, 2001; and
o Approximately 0.1 million square feet of space at Cedar Springs
Plaza, which was sold during the three months ended March 31,
2002.
FOR THE THREE MONTHS ENDED MARCH 31,
--------------------------------------------
PERCENTAGE/
POINT INCREASE
2002 2001 (DECREASE)
-------- -------- --------------
(IN MILLIONS)
Same-store Revenues $ 141.6 $ 138.7 2.1%
Same-store Expenses (67.0) (63.7) 5.2%
-------- --------
Net Operating Income $ 74.6 $ 75.0 (0.5)%
======== ========
Weighted Average Occupancy 90.0% 92.6% (2.6)pts
The following table shows renewed or re-leased leasing activity and the
percentage increase of leasing rates for signed leasing rates compared to
expiring leasing rates at the Company's Office Properties owned as of March 31,
2002.
FOR THE THREE MONTHS ENDED MARCH 31, 2002
--------------------------------------------------------
SIGNED EXPIRING PERCENTAGE
LEASES LEASES INCREASE
---------------------- ---------------- ----------
Renewed or Re-leased(1) 585,000 sq. ft. N/A N/A
Weighted average full-
service rental rate(2) $ 21.55 per sq. ft. $ 20.14 per sq. 7.0% ft.
FFO annual net effective
rental rate(3)(4) $ 11.91 per sq. ft. $ 10.53 per sq. 13.1% ft.
----------
(1) All of which have commenced or will commence during the next 12 months.
(2) Including free rent, scheduled rent increases taken into account under GAAP
and expense recoveries.
(3) Calculated as weighted average full-service rental rate minus operating
expenses.
(4) Funds from operations of FFO, based on the revised definition adopted by
the Board of Governors of the National Association of Real Estate
Investment Trusts, or NAREIT, effective January 1, 2000, and as used
herein, means net income (loss), determined in accordance with GAAP
excluding gains (losses) from sales of depreciable operating property,
excluding extraordinary items, as defined by GAAP, plus depreciation and
amortization of real estate assets, and after adjustments for
unconsolidated partnerships and joint ventures. FFD is a non-GAAP measure
and should not be considered an alternative to GAAP measures, including net
income and cash generated from operating activities. For a more detailed
definition and description of FFO and comparisons to GAAP measures, see
"Liquidity and Capital Resources - Funds from Operations," below.
33
RESORT/HOTEL SEGMENT
On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, in lieu of
foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties leased
to subsidiaries of COPI. As a result, the subsidiaries of the Company became the
lessees of these Resort/Hotel Properties. The Company fully consolidated the
operations of the eight Resort/Hotel Properties beginning on the date of the
asset transfers.
The following table shows weighted average occupancy, average daily
rate and revenue per available room/guest night for the nine Resort/Hotel
Properties for the three months ended March 31, 2002 and 2001.
FOR THE THREE MONTHS
UPSCALE BUSINESS-CLASS HOTELS ENDED MARCH 31,
--------------------------------------
PERCENTAGE/
POINT
2002 2001 DECREASE
-------- -------- -----------
Weighted average occupancy 65 % 73 % (8) pts
Average daily rate $ 116 $ 121 (4) %
Revenue per available room/guest night $ 76 $ 88 (14) %
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------------------
PERCENTAGE/
POINT
LUXURY AND DESTINATION FITNESS RESORTS INCREASE
AND SPAS 2002 2001 (DECREASE)
------ ------ -----------
Weighted average occupancy 75 % 79 % (4) pts
Average daily rate $ 515 $ 507 2 %
Revenue per available room/guest night $ 378 $ 396 (5) %
As of March 31, 2002, the Company owned nine Resort/Hotel Properties.
The following table shows Resort/Hotel Property same-store net operating income
for the three months ended March 31, 2002 and 2001, for the nine Resort/Hotel
Properties owned during both of these periods.
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
PERCENTAGE
2002 2001 DECREASE
--------- --------- ----------
(DOLLARS IN THOUSANDS)
Upscale Business-Class Hotels $ 4,353 $ 5,215 (17) %
Luxury and Destination Fitness Resorts and Spas 10,770 11,956 (10)
--------- ---------
All Resort/Hotel Properties $ 15,123 $ 17,171 (12) %
========= =========
RESIDENTIAL DEVELOPMENT SEGMENT
On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, pursuant to a
strict foreclosure, COPI's voting interests in three of the Residential
Development Corporations: The Woodlands Land Company, Inc. ("TWLC"), Desert
Mountain Development Corporation ("DMDC") and Crescent Resort Development, Inc.
("CRDI"). The Company fully consolidated the operations of the three Residential
Development Corporations beginning on the dates of the asset transfers.
Management plans to reinvest returned capital from the Residential Development
Segment primarily into the Office Segment where the Company expects to achieve
favorable rates of return.
34
As of March 31, 2002, the Company owned or had economic interests in
five Residential Development Corporations. The Residential Development
Corporations in turn, through joint ventures or partnership arrangements,
currently own interests in 22 Residential Development Properties. The
Residential Development Corporations are responsible for the continued
development and the day-to-day operations of the Residential Development
Properties.
The Woodlands Land Development Company, L.P. and The Woodlands Commercial
Properties Company, L.P. (collectively "The Woodlands"), The Woodlands, Texas:
The following table shows residential lot sales at an average price per
lot and commercial land sales at an average price per acre.
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------------------------
2002 2001
---------------- ----------------
Residential lot sales 227 381
Average sales price per lot $ 52,000 $ 69,000
Commercial land sales 34 acres 3 acres
Average sales price per acre $ 274,000 $ 470,000
o Average sales price per lot decreased by $17,000, or 24.6%, due to fewer
higher priced lots sold from the Carlton Woods development in the three
months ended March 31, 2002, compared to the same period in 2001.
o Carlton Woods is The Woodlands' new upscale residential development. It is a
gated community consisting of 491 lots located around a Jack Nicklaus
signature golf course. As of March 31, 2002, 215 lots had been sold at
prices ranging from $0.1 million to $1.0 million per lot, or an average
price of $342,000 per lot. Additional phases within Carlton Woods are
expected to be marketed to the public during the next two years.
o Future buildout of The Woodlands is estimated at approximately 12,850
residential lots and approximately 1,625 acres of commercial land, of which
approximately 1,447 residential lots and 1,000 acres are currently in
inventory.
Desert Mountain Properties Limited Partnership ("Desert Mountain"), Scottsdale,
Arizona:
The following table shows residential lot sales at an average price per
lot.
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2002 2001
-------- --------
Residential lot sales 23 19
Average sales price per lot(1) $671,000 $612,000
----------
(1) Including equity golf memberships.
o With the higher priced residential lots being completed during the latter
phases of development at Desert Mountain, the average sales price per lot
was $671,000 for the three months ended March 31, 2002, which is a $59,000,
or 9.6% increase over the same period in 2001.
o Approved future buildout of Desert Mountain is estimated to be approximately
250 residential lots, of which approximately 138 are currently in inventory.
35
Crescent Resort Development, Inc., Beaver Creek, Colorado:
The following table shows total active projects, residential lot and
residential unit sales and average sales price per lot and unit.
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------------
2002 2001
---------- -----------
Active projects 15 12
Residential lot sales 4 2
Residential unit sales:
Townhome sales 1 4
Condominium sales 158 9
Timeshare equivalent unit sales 5 --
Average sales price per residential lot $ 51,000 $ 240,000
Average sales price per residential unit $ 0.5 million $ 1.4 million
Average sale price per timeshare unit $ 1.2 million $ -- million
o Average sales price per lot decreased by $189,000 or 78.8%, and average
sales price per unit decreased $0.9 million, or 64.3%, due to lower priced
product mix sold in the three months ended March 31, 2002, as compared to
the same period in 2001.
o The increase in units sold is due to a lower priced product mix sold during
the three months ended March 31, 2002, compared to the same period in 2001.
TEMPERATURE-CONTROLLED LOGISTICS SEGMENT
As of March 31, 2002, the Company held a 40% interest in the
Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly owns
the 89 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 445.2 million cubic feet (17.7 million square feet) of warehouse
space.
The Temperature-Controlled Logistics Corporation leases the
Temperature-Controlled Logistics Properties to a partnership ("AmeriCold
Logistics") owned 60% by Vornado Operating L.P. and 40% by a subsidiary of COPI.
The Company has no interest in AmeriCold Logistics.
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 the adjustment of the rental obligation
for 2001 to $146.0 million, the adjustment of the rental obligation for 2002 to
$150.0 million (plus contingent rent in certain circumstances), the increase of
the Temperature-Controlled Logistics Corporation's share of capital expenditures
for the maintenance of the properties from $5.0 million to $9.5 million
(effective January 1, 2000) and the extension of the date on which deferred rent
was required to be paid to December 31, 2003.
AmeriCold Logistics deferred $3.0 million of the total $35.0 million of
rent for the three months ended March 31, 2002. The Company's share of the
deferred rent was $1.2 million and the Company recorded a 100% valuation
allowance for the deferred rent. In December 2001, the Temperature Controlled
Logistics Corporation waived its right to collect $39.8 million of the total
$49.9 million of deferred rent, of which the Company's share was $15.9 million.
The Temperature-Controlled Logistics Corporation and the Company began to
recognize rental income when earned and collected during the year ended December
31, 2000 and continued this accounting treatment for the year ended December 31,
2001 and the quarter ended March 31, 2002; therefore, there was no financial
statement impact to the Temperature-Controlled Logistics Corporation or to the
Company related to the Temperature-Controlled Logistics Corporation's decision
to waive collection of deferred rent.
36
The following table shows the total, and the Company's portion of,
deferred rent and valuation allowance at December 31, 2001 and for the three
months ended March 31, 2002.
DEFERRED RENT VALUATION ALLOWANCE
----------------------- ---------------------
(IN MILLIONS) COMPANY'S COMPANY'S
TOTAL PORTION TOTAL PORTION
--------- --------- --------- ---------
Balance at December 31, 2001 $ 10.1 $ 3.9 $ -- $ --
For the three months ended
March 31, 2002 3.0 1.2 3.0 1.2
--------- --------- --------- ---------
$ 13.1 $ 5.1 $ 3.0 $ 1.2
========= ========= ========= =========
37
RESULTS OF OPERATIONS
The following table shows the Company's financial data as a percentage
of total revenues for the three months ended March 31, 2002 and 2001 and the
variance in dollars between the three months ended March 31, 2002 and 2001. See
"Note 6. Segment Reporting" included in "Item 1. Financial Statements" for
financial information about investment segments.
TOTAL VARIANCE IN
FINANCIAL DATA AS A PERCENTAGE DOLLARS (IN MILLIONS)
OF TOTAL REVENUES FOR THE THREE BETWEEN THE THREE
ENDED MARCH 31, MONTHS ENDED
------------------------------- MARCH 31,
2002 2001 2002 AND 2001
----- ----- ---------------------
REVENUE:
Office Property 61.7 % 86.0 % $ (9.8)
Resort/Hotel Property 16.6 8.9 22.6
Residential Development Property 20.7 -- 48.1
Interest and other income 1.0 5.1 (6.8)
----- ----- ---------
TOTAL REVENUE 100.0 % 100.0 % $ 54.1
----- ----- ---------
EXPENSE:
Office Property operating expense 28.3 % 37.2 % $ (0.5)
Resort/Hotel Property expense 10.3 -- 24.0
Residential Development Property expense 18.2 -- 42.2
Corporate general and administrative 2.8 3.0 1.1
Interest expense 18.2 26.7 (5.2)
Amortization of deferred financing costs 1.0 1.3 (0.1)
Depreciation and amortization 14.5 17.0 3.4
Impairment and other charges related to real estate assets -- 1.2 (2.2)
----- ----- ---------
TOTAL EXPENSE 93.3 % 86.4 % $ 62.7
----- ----- ---------
OPERATING INCOME 6.7 % 13.6 % $ (8.6)
----- ----- ---------
OTHER INCOME AND EXPENSE:
Equity in net income (loss) of unconsolidated companies:
Office properties 0.6 % 0.6 % $ 0.2
Residential development properties 5.4 6.0 1.8
Temperature-controlled logistics properties (0.1) 1.5 (3.0)
Other (1.8) 1.1 (5.9)
----- ----- ---------
TOTAL EQUITY IN NET INCOME FROM
UNCONSOLIDATED COMPANIES 4.1 % 9.2 % $ (6.9)
Gain on property sales, net -- 0.2 (0.3)
----- ----- ---------
TOTAL OTHER INCOME AND EXPENSE 4.1 % 9.4 % $ (7.2)
----- ----- ---------
INCOME BEFORE MINORITY INTERESTS, INCOME TAXES,
DISCONTINUED OPERATIONS AND CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE 10.8 % 23.0 % $ (15.8)
Minority interests (3.4) (5.5) 1.7
Income tax benefit 1.8 -- 4.3
----- ----- ---------
INCOME BEFORE DISCONTINUED OPERATIONS AND
CUMULATIVE EFFECT OF A CHANGE IN AN
ACCOUNTING PRINCIPLE 9.2 % 17.5 % $ (9.8)
Discontinued operations - income and gain on assets
sold and held for sale 1.3 0.1 3.0
Cumulative effect of a change in accounting principle (4.5) -- (10.5)
----- ----- ---------
NET INCOME 6.0 % 17.6 % $ (17.3)
6 3/4% Series A Preferred Share distributions (1.4) (1.9) --
----- ----- ---------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS 4.6 % 15.7 % $ (17.3)
===== ===== =========
38
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 TO THE THREE MONTHS ENDED
MARCH 31, 2001
Total revenues increased $54.1 million, or 30.4%, to $231.8 million for
the quarter ended March 31, 2002, as compared to $177.7 million for the quarter
ended March 31, 2001. The primary components of the increase are:
o an increase in Resort/Hotel Property revenue of $22.6 million due
to the consolidation, beginning February 14, 2002, of the
operations of eight of the Resort/Hotel Properties, as a result
of the COPI transaction (previously the Company recognized a
lease payment);
o the inclusion of Residential Development Property Revenue of
$48.1 million due to the consolidation of three Residential
Development Corporations beginning February 14, 2002, as a result
of the COPI transaction,(previously the Company recorded its
share of earnings under the equity method); partially offset by
o a decrease in Office Property revenue of $9.8 million primarily
due to the disposition five Office Properties in 2001 and the
contribution of two Office Properties to joint venture in 2001;
and
o a decrease in interest and other income of $6.8 million.
Total expense increased $62.7 million, or 40.8%, to $216.2 million for
the three months ended March 31, 2002, as compared to $153.5 million for the
three months ended March 31, 2001. The primary components of this increase are:
o an increase in Resort/Hotel Property expense of $24.0 million due
to the consolidation of eight of the Resort/Hotel Properties,
beginning February 14, 2002, as a result of the COPI transaction;
and
o an increase in Residential Development Property expense of $42.2
million due to the consolidation of three Residential Development
Corporations beginning February 14, 2002, as a result of the COPI
transaction; partially offset by
o a decrease in interest expense of $5.2 million.
Other income and expense decreased $7.2 million, or 43.4%, to $9.4
million for the three months ended March 31, 2002, as compared to $16.6 million
for the three months ended March 31, 2001, primarily as a result of:
o a decrease in equity in net income of unconsolidated companies of
$6.9 million; and
o a decrease in gain on property sales of $0.3 million.
Net income decreased $17.3 million, or 55.3%, to $14.0 million for the
three months ended March 31, 2002, as compared to $31.3 million for the three
months ended March 31, 2001, primarily as a result of:
o the changes in total revenue, total expense and other income and
expense described above; and
o a loss of $10.5 million resulting from a cumulative effect of a
change in accounting principle for the three months ended March
31, 2002, resulting in a charge that is primarily attributable to
an impairment (net of minority interests and taxes) of the
goodwill of the Temperature-Controlled Logistics Corporation and
one of the Residential Development Corporations; partially offset
by
o an income tax benefit of $4.3 million of tax expense, which
includes a current tax expense of $2.4 million, offset by a tax
benefit of $6.7 million that resulted from the temporary
difference between the financial reporting basis and the
respective tax basis of the hotel leases acquired as part of the
COPI transaction; and
o an increase in income from discontinued operations from assets
held for sale of $3 million, primarily due to the gain on a sale
of one Office Property; partially offset by an impairment charge
of $0.6 million related to a behavioral healthcare property.
39
OFFICE SEGMENT
FOR THE THREE MONTHS
ENDED MARCH 31, VARIANCE
-------------------- -----------------
(in millions) 2002 2001 $ %
------------- ------ ------ ------ ----
Office Property Revenue $143.0 $152.8 $ (9.8) (6.4)%
Office Property Operating Expense 65.5 66.0 (0.5) (0.8)%
Equity in Earnings of Unconsolidated
office properties 1.3 1.1 0.2 18.2%
Office Property revenue decreased $9.8 million, or 6.4%, to $143.0
million for the three months ended March 31, 2002, as compared to $152.8 million
for the three months ended March 31, 2001. The components of the decrease are as
follows:
o decreased revenue of $12.0 million due to the disposition of five
Office Properties in 2001; and the contribution of two Office
Properties to joint ventures in 2001;
o decreased other revenue of $1.2 million; partially offset by
o increased revenue of $3.4 million primarily as a result of
increased full-service weighted average rental rates due to
renewals at the Greenway Plaza Office Property and the Houston
Center Office Property.
Office Property operating expense decreased $0.5 million, or 0.8%, to
$65.5 million for the three months ended March 31, 2002, as compared to $66.0
million for the three months ended March 31, 2001. The primary components of the
decrease are as follows:
o decreased expenses of $3.8 million due to the disposition of five
Office Properties in 2001; and the contribution of two Office
Properties to joint ventures in 2001;
o decreased office property utility expense of $2.9 million due to
an energy contract effective for certain Texas Properties during
the quarter ended March 31, 2002; partially offset by
o increased expenses of $6.0 million from the consolidated Office
Properties that the Company owned or had an interest in as of
March 31, 2002, primarily as a result of increased operating
expenses due to security, insurance and the timing of repairs and
maintenance.
RESORT/HOTEL SEGMENT
On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, in lieu of
foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties leased
to subsidiaries of COPI. The financial statements reflect the consolidation of
the operations for these eight Resort/Hotel Properties for the period February
14, 2002 through March 31, 2002. Revenues prior to February 14, 2002 represent
lease payments to the Company.
FOR THE THREE MONTHS
ENDED MARCH 31, VARIANCE
------------------------ ------------------------
(in millions) 2002 2001 $ %
------------ --------- --------- --------- ---------
Resort/Hotel Property Revenue $ 38.5 $ 15.9
Resort/Hotel Property Expense (23.9) --
--------- --------- --------- ---------
Net Operating Income $ 14.6 $ 15.9 $ (1.3) (8.2)%
========= ========= ========= =========
See "Resort/Hotel Segment" above for same-store net operating income variance.
40
Resort/Hotel Property net operating income decreased $1.3 million, or
8.2%, to $14.6 million for the three months ended March 31, 2002, as compared to
$15.9 million for the three months ended March 31, 2001. The primary components
of the decrease are as follows:
o decrease in occupancy from 79% to 75% at the luxury and
destination fitness resorts and spas; and
o decrease in occupancy from 73% to 65%, and average daily rates
from $121 to $116 at the business-class hotels.
RESIDENTIAL DEVELOPMENT SEGMENT
On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, in lieu of
foreclosure, COPI's voting interests in three of the Residential Development
Corporations: TWLC, DMDC and CRDI. The Company fully consolidated the operations
of the three Residential Development Corporations beginning on the date of the
asset transfers.
FOR THE THREE MONTHS
ENDED MARCH 31, VARIANCE
---------------------- -------------------
(in millions) 2002 2001 $ %
------------ -------- -------- --------- -----
Residential Development Property Revenue $ 48.1 $ --
Residential Development Property Expense (42.2) --
Depreciation/Amortization (0.9) --
Equity in net income of Unconsolidated
Residential Development Properties 12.5 10.7
Minority Interests (1.3) --
Income Tax Provision (2.2) --
-------- -------- --------- ----
Net Operating Income $ 14.0 $ 10.7 $ 3.3 30.8 %
======== ======== ========= ====
Residential Development Property net operating income increased $3.3
million, or 30.8%, to $14.0 million for the three months ended March 31, 2002,
as compared to $10.7 million for the three months ended March 31, 2001. The
primary components of the increase in net operating income are:
o $6.0 million gain due to the disposition of two properties at the
Woodlands and sales of commercial acreage at the Woodlands;
partially offset by
o lower lot sales of $0.9 million due to a lower number of lot
sales at the Woodlands Land Development Company and HADC; and
o $1.4 million reduced capitalized interest at CRDI.
TEMPERATURE-CONTROLLED LOGISTICS SEGMENT
FOR THE THREE MONTHS
ENDED MARCH 31, VARIANCE
-------------------- -------------------
(in millions) 2002 2001 $ %
------------ ------- ------- ------- ------
Equity in earnings (loss) of unconsolidated
Temperature-Controlled Logistics Properties $ (0.3) $ 2.7 $ (3.0) (111.1)%
Temperature-Controlled Logistics equity in earnings (loss) of
unconsolidated properties decreased $3.0 million, or 111.1%, to a $0.3 million
loss for the three months ended March 31, 2002, as compared to $2.7 million of
earnings for the three months ended March 31, 2001. This decrease is primarily
due to the Company's $1.2 million portion of the valuation allowance related to
the deferred rent recorded in 2002, and $1.7 million portion of the deferred
partnership costs recorded in 2002; no such deferred rent or deferred
partnership costs were recorded during the same period in 2001.
41
INTEREST AND OTHER INCOME
Interest and other income decreased $6.8 million, or 75.6%, to $2.2
million for the three months ended March 31, 2002, compared to $9.0 million for
the three months ended March 31, 2001. The primary components of the decrease
are as follows:
o decreased interest income from COPI of $2.1 million;
o decreased payments from Charter Behavioral Health Systems, LLC of
$1.5 million;
o decreased dividend income of $0.8 million due to the sale of
marketable securities in 2001; and
o decreased interest income of $1.3 million due to lower overnight
interest rates and lower restricted cash balances.
INTEREST EXPENSE
The decrease in interest expense of $5.2 million, or 10.9%, for the
three months ended March 31, 2002, as compared to the same period in 2001, is
primarily attributable to a decrease in the weighted average interest rate of
0.94% (from 8.39% to 7.45%), or $5.4 million of interest expense, due to the
debt refinancing in May of 2001 and lower LIBOR rates, partially offset by an
increase in the average debt balance.
INCOME TAX BENEFIT
The Company's $4.3 million total consolidated income tax benefit at
March 31, 2002 includes tax expense related to the operations of the TRS of $2.4
million, offset by a tax benefit of $6.7 million. The $6.7 million benefit
results from the temporary difference between the financial reporting basis and
the respective tax basis of the hotel leases acquired as part of the Company's
agreement with COPI. This temporary difference will be reversed over an
estimated five-year period, which is the remaining lease term of the hotel
leases. The anticipated reversal of the tax benefit for the full year 2002 will
total approximately $1.5 million. Cash paid for income taxes in the first
quarter of 2002 totaled approximately $2.0 million.
DISCONTINUED OPERATIONS
The income from discontinued operations from assets held for sale
increased $3.0 million, or 1500%, to $3.1 million for the three months ended
March 31, 2002, compared to $0.1 million for the three months ended March 31,
2001. This increase is primarily due to:
o gain on disposals of $3.7 million (net of minority interest)
primarily due to the sale of the Cedar Springs Plaza Office
Property; partially offset by
o impairment charge of $0.6 million related to a behavioral
healthcare property. This amount represents the difference
between the carrying value and the estimated sales price less
costs of the sale for this property.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
In conjunction with the implementation of SFAS No. 142, "Goodwill and
Other Intangible Assets," the Company reported a cumulative effect of a change
in accounting principle for the three months ended March 31, 2002, which
resulted in a charge of $10.5 million. This charge is due to an impairment (net
of minority interests and taxes) of the goodwill of the Temperature-Controlled
Logistics Corporation and one of the Residential Development Corporations.
42
LIQUIDITY AND CAPITAL RESOURCES
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2002 2001 $ CHANGE
-------- -------- --------
(in millions)
Cash Provided by Operating Activities $ 28.6 $ 17.1 $ 11.5
Cash Provided by (Used in) Investing Activities 15.8 (23.2) 39.0
Cash (Used in) Provided by Financing Activities (13.8) 3.0 (16.8)
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents $ 30.6 $ (3.1) $ 33.7
Cash and Cash Equivalents, Beginning of Period 36.3 39.0 (2.7)
-------- -------- --------
Cash and Cash Equivalents, End of Period $ 66.9 $ 35.9 $ 31.0
======== ======== ========
OPERATING ACTIVITIES
The Company's cash provided by operating activities of $28.6 million is
attributable to:
o $29.3 million from Property operations; and
o an $0.9 million increase representing distributions in excess of
equity in earnings from unconsolidated entities.
The Company's cash provided by operating activities is partially offset
by:
o a $1.6 million decrease representing equity in earnings in excess
of distributions from unconsolidated entities.
INVESTING ACTIVITIES
The Company's cash provided by investing activities of $15.8 million is
attributable to:
o $38.2 million in cash resulting from the Company's February 14,
2002 transaction with COPI;
o $11.9 million of net sales proceeds primarily attributable to the
disposition of the Cedar Springs Office Property; and
o $7.5 million from return of investment in unconsolidated
Residential Development Properties and Office Properties.
The Company's cash provided by investing activities is partially offset
by:
o $14.2 million of additional investment in unconsolidated
companies, consisting of investments in (i) the upscale
Residential Development Properties of $14.2 million, primarily as
a result of CRDI'sinvestment in the Tahoe Mountain Resorts;
o $10.3 million for capital expenditures for rental properties,
primarily attributable to nonrecoverable building improvements
for the Office Properties and replacement of furniture, fixtures
and equipment for the Resort/Hotel Properties;
o $8.4 million for acquisition of certain rental properties; and
o $8.3 million for recurring and non-recurring tenant improvement
and leasing costs for certain rental properties.
43
FINANCING ACTIVITIES
The Company's use of cash for financing activities of $13.8 million is
primarily attributable to:
o distributions to common shareholders and unitholders of $44.3
million;
o decrease in notes payable of $14.4 million;
o net capital distributions to joint venture partners of $3.6
million, primarily due to distributions to joint venture
preferred equity partners; and
o distributions to preferred shareholders of $3.4 million.
The use of cash for financing activities is partially offset by:
o net borrowings under the Fleet Facility of $51.5 million.
COPI
In April 1997, the Company established a new Delaware corporation,
COPI. All of the outstanding common stock of COPI, valued at $0.99 per share,
was distributed, effective June 12, 1997, to those persons who were limited
partners of the Operating Partnership or shareholders of the Company on May 30,
1997, in a spin-off.
COPI was formed to become a lessee and operator of various assets to be
acquired by the Company and to perform the intercompany agreement between COPI
and the Company, pursuant to which each agreed to provide the other with rights
to participate in certain transactions. The Company was not permitted to operate
or lease these assets under the tax laws in effect at that time and applicable
to REITs. In connection with the formation and capitalization of COPI, and the
subsequent operations and investments of COPI since 1997, the Company made loans
to COPI under a line of credit and various term loans.
On January 1, 2001, The REIT Modernization Act became effective. This
legislation allows the Company, through its subsidiaries, to operate or lease
certain of its investments that had been previously operated or leased by COPI.
On February 14, 2002, the Company executed an agreement (the
"Agreement") with COPI, pursuant to which COPI transferred to subsidiaries of
the Company, in lieu of foreclosure, COPI's lessee interests in the eight
Resort/Hotel Properties leased to subsidiaries of COPI, and, pursuant to a
strict foreclosure, COPI's voting interests in three of the Company's
Residential Development Corporations and other assets; and the Company agreed to
assist and provide funding to COPI for the implementation of a prepackaged
bankruptcy of COPI. In connection with the transfer, COPI's rent obligations to
the Company were reduced by $23.6 million, and its debt obligations were reduced
by $40.1 million. These amounts include $18.3 million of value attributed to the
lessee interests transferred by COPI to the Company, however, in accordance with
GAAP, the Company assigned no value to these interests for financial reporting
purposes.
The Company holds the lessee interests in the eight Resort/Hotel
Properties and the voting interests in the three Residential Development
Corporations through three newly organized entities that are wholly owned
taxable REIT subsidiaries of the Company. The Company has included these assets
in its Resort/Hotel Segment and its Residential Development Segment, and fully
consolidated the operations of the eight Resort/Hotel Properties and the three
Residential Development Corporations, beginning on the date of the transfers of
these assets.
Under the Agreement, the Company will provide approximately $14.0
million to COPI in the form of cash and common shares of the Company to fund
costs, claims and expenses relating to the bankruptcy and related transactions,
and to provide for the distribution of the Company's common shares to the COPI
stockholders. As of March 31, 2002, the Company estimated that the value of the
common shares that will be issued to the COPI stockholders will be between
approximately $5.0 million and $8.0 million. The Agreement provides that COPI
and the Company will seek to have a plan of reorganization for COPI, reflecting
the terms of the Agreement and a draft plan of reorganization, approved by the
bankruptcy court. The actual value of the common shares issued to the COPI
stockholders will not be determined until the confirmation of COPI's bankruptcy
plan and could vary substantially from the estimated amount.
44
In addition, the Company has agreed to use commercially reasonable
efforts to assist COPI in arranging COPI's repayment of its $15.0 million
obligation to Bank of America, together with any accrued interest. COPI obtained
the loan primarily to participate in investments with the Company. At the time
COPI obtained the loan, Bank of America required, as a condition to making the
loan, that Richard E. Rainwater, the Chairman of the Board of Trust Managers of
the Company, and John C. Goff, Vice-Chairman of the Board of Trust Managers and
Chief Executive Officer of the Company, enter into a support agreement with COPI
and Bank of America, pursuant to which they agreed to make additional equity
investments in COPI if COPI defaulted on payment obligations under its line of
credit with Bank of America and the net proceeds of an offering of COPI
securities were insufficient to allow COPI to pay Bank of America in full. The
Company believes, based on advice of counsel, that the support agreement should
be unenforceable in a COPI bankruptcy. Effective December 31, 2001, the parties
executed an amendment to the line of credit providing that any defaults existing
under the line of credit on or before March 8, 2002 are temporarily cured unless
and until a new default shall occur.
Completion and effectiveness of the plan of reorganization for COPI is
contingent upon a number of conditions, including the vote of COPI's
stockholders, the approval of the plan by certain of COPI's creditors and the
approval of the bankruptcy court.
INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES
Investments in which the Company does not have a controlling interest
are accounted for under the equity method. The following is a summary of the
Company's ownership in significant joint ventures or equity investments:
COMPANY'S OWNERSHIP
ENTITY CLASSIFICATION AS OF MARCH 31, 2002
-------------------------------------------------- ----------------------------------- ---------------------
Mira Vista Development Corp. Residential Development Corporation 94.0% (2)(3)
Houston Area Development Corp. Residential Development Corporation 94.0% (2)(4)
The Woodlands Land Development
Company, L.P.(1) Residential Development Corporation 42.5% (2)(5)(6)
Desert Mountain Commercial, L.L.C.(1) Residential Development Corporation 46.5% (2)(7)
East West Resorts Development II, L.P., L.L.L.P.(1) Residential Development Corporation 38.5% (2)(8)
Blue River Land Company, L.L.C.(1) Residential Development Corporation 31.8% (2)(9)
Iron Horse Investments, L.L.C.(1) Residential Development Corporation 27.1% (2)(10)
Manalapan Hotel Partners(1) Residential Development Corporation 24.0% (2)(11)
Temperature-Controlled Logistics Partnership Temperature-Controlled Logistics 40.0% (12)
Main Street Partners, L.P. Office (Bank One Center) 50.0% (13)
The Woodlands Commercial Properties Company, L.P. Office 42.5% (6)(14)
Crescent 5 Houston Center, L.P. Office (5 Houston Center) 25.0% (15)
Austin PT BK One Tower Office Limited Partnership Office (Bank One Tower) 20.0% (16)
Houston PT Four Westlake Office Limited Partnership Office (Four Westlake Park) 20.0% (16)
DBL Holdings, Inc. Other 97.4% (17)
CR License, L.L.C Other 30.0% (18)
Woodlands Operating Company, L.P. Other 42.5% (5)(6)
----------
(1) On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company,
pursuant to a strict foreclosure, COPI's interests in substantially all
of the voting stock in three of the Company's Residential Development
Corporations (Desert Mountain Development Corporation ("DMDC"), The
Woodlands Land Company, Inc. ("TWLC"), and Crescent Resort Development,
Inc. ("CRDI")), and in CRL Investments, Inc. ("CRLI"). As a result, the
Company fully consolidated the operations of these entities beginning on
the dates of the asset transfers. Desert Mountain Commercial, L.L.C. is
an unconsolidated equity investment of DMDC. The Woodlands Land
Development Company, L.P. is an unconsolidated equity investment of TWLC.
East West Resorts Development II, L.P., L.L.L.P., Blue River Land
Company, L.L.C., Iron Horse Investments, L.L.C., and Manalapan Hotel
Partners, (collectively, the "CRD Subsidiaries") are unconsolidated
equity investments of CRDI.
(2) See the Residential Development Properties Table for the Residential
Development Corporation's ownership interest in the Residential
Development Properties.
(3) The remaining 6.0% interest in Mira Vista Development, Corp. ("MVDC"),
which represents 100% of the voting stock, is owned 4.0% by DBL Holdings,
Inc. ("DBL") and 2.0% by third parties.
45
(4) The remaining 6.0% interest in Houston Area Development Corp. ("HADC"),
which represents 100% of the voting stock, is owned 4.0% by DBL and 2.0%
by a third party.
(5) The remaining 57.5% interest in The Woodlands Land Development Company,
L.P. and The Woodlands Operating Company, L.P. is owned by an affiliate
of Morgan Stanley.
(6) Distributions are made to partners based on specified payout percentages.
During the three months ended March 31, 2002, the payout percentage to
the Company was 52.5%.
(7) The remaining 53.5% interest in Desert Mountain Commercial, L.L.C. is
owned by parties unrelated to the Company.
(8) Of the remaining 61.5% interest in East West Resorts Development II,
L.P., L.L.L.P., 0.8% is indirectly owned by John Goff, Vice-Chairman of
the Board of Trust Managers and Chief Executive Officer of the Company,
through his 20% ownership of COPI Colorado, L.P. and 60.7% is owned by
parties unrelated to the Company.
(9) Of the remaining 68.2% interest in Blue River Land Company, L.L.C., 0.7%
is indirectly owned by John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company, through his 20%
ownership of COPI Colorado, L.P. and 67.5% is owned by parties unrelated
to the Company.
(10) Of the remaining 72.9% interest in Iron Horse Investments, L.L.C., 0.6%
is indirectly owned by John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company, through his 20%
ownership of COPI Colorado, L.P. and 72.3% is owned by parties unrelated
to the Company.
(11) Of the remaining 76.0% interest in Manalapan Hotel Partners, 0.5% is
indirectly owned by John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company, through his 20%
ownership of COPI Colorado, L.P. and 75.5% is owned by parties unrelated
to the Company.
(12) The remaining 60.0% interest in the Temperature-Controlled Logistics
Partnership is owned by Vornado Realty Trust, L.P.
(13) The remaining 50.0% interest in Main Street Partners, L.P. is owned by
TrizecHahn Corporation.
(14) The remaining 57.5% interest in The Woodlands Commercial Properties
Company, L.P. is owned by an affiliate of Morgan Stanley.
(15) The remaining 75% interest in Crescent 5 Houston Center, L.P. is owned by
a pension fund advised by JP Morgan Investment Management, Inc. The
Company recorded $279 in development, management and leasing fees,
related to this investment during the three months ended March 31, 2002.
The 5 Houston Center Office Property is currently under construction.
(16) The remaining 80% interest in Austin PT BK One Tower Office Limited
Partnership and Houston PT Four Westlake Office Limited Partnership is
owned by an affiliate of General Electric Pension Fund. The Company
recorded $0.1 million in management and leasing fees for these Office
Properties during the three months ended March 31, 2002.
(17) John Goff, Vice-Chairman of the Board of Trust Managers and Chief
Executive Officer of the Company, obtained the remaining 2.6% economic
interest in DBL (including 100% of the voting interest in DBL) in
exchange for his voting interests in MVDC and HADC, originally valued at
approximately $0.4 million, and approximately $0.1 million in cash, or
total consideration valued at approximately $0.4 million. At March 31,
2002, Mr. Goff's interest in DBL was approximately $0.4 million.
(18) The remaining 70% interest in CR License, LLC is owned by a group of
individuals unrelated to the Company.
UNCONSOLIDATED PROPERTY DISPOSITIONS
During the three months ended March 31, 2002, the Woodlands CPC sold
two office properties located within The Woodlands, Texas. The sales generated
net proceeds, after the repayment of debt, of approximately $8.9 million, of
which the Company's portion was approximately $4.7 million. The sales generated
a net gain of approximately $11.5 million, of which the Company's portion was
approximately $6.0 million. The proceeds received by the Company were used
primarily for working capital purposes.
CONSOLIDATED PROPERTY DISPOSITIONS
Office Segment
During the three months ended March 31, 2002, the Company completed the
sale of the Cedar Springs Plaza Office Property in Dallas, Texas. The sale
generated net proceeds of approximately $12.0 million and a net gain of
approximately $4.5 million. The proceeds from the sale of the Cedar Springs
Plaza Office Property were used primarily to pay down the existing line of
credit.
SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY
During the year ended December 31, 2000, the Company formed Funding IX
and contributed seven Office Properties and two Resort/Hotel Properties to
Funding IX. As of March 31 2002, Funding IX held seven Office Properties and one
Resort/Hotel Property. The Company owns 100% of the common voting interests in
Funding IX, 0.1% in the form of a general partner interest and 99.9% in the form
of a limited partner interest.
As of March 31, 2002, GMACCM held $218.4 million of non-voting,
redeemable preferred Class A Units in Funding IX (the "Class A Units"). The
Class A Units receive a preferred variable-rate dividend previously calculated
at LIBOR plus 450 basis points. Beginning March 16, 2002, the preferred
variable-rate dividend increased to LIBOR plus 550 basis points, which resulted
in a dividend rate of approximately 7.38% per annum as of March 31, 2002. The
Class A Units are redeemable at the option of the Company at the original
purchase price.
46
Subsequent to March 31, 2002, the Company redeemed approximately $101.1 million
of the Class A Units from GMACCM.
Funding IX loaned the net proceeds of the sale of Class A Units in
Funding IX and a portion of the net proceeds from the sale of one of the
Resort/Hotel Properties held by Funding IX, through an intracompany loan to SH
IX, for the purchase of common shares of the Company. See "Share Repurchase
Program" below. This intracompany loan is eliminated in consolidation. The loan
from Funding IX to SH IX matures March 15, 2003 and the Company intends to repay
the loan of approximately $285.0 million at or prior to that time. The proceeds
received by Funding IX will be used to redeem Class A Units.
SHARE REPURCHASE PROGRAM
On October 15, 2001, the Company's Board of Trust Managers authorized
an increase in the amount of outstanding common shares that can be repurchased
from time to time in the open market or through privately negotiated
transactions (the "Share Repurchase Program") from $500.0 million to $800.0
million.
The Company commenced its Share Repurchase Program in March 2000. As of
March 31, 2002, the Company had repurchased 18,756,423 common shares, 20,286 of
which have been retired, at an average price of $19.09 per common share for an
aggregate of approximately $358.1 million. As of March 31, 2002, the Company
held 14,468,623 of the repurchased common shares in SH IX, a wholly-owned
subsidiary. The 14,468,623 common shares were repurchased with the net proceeds
of the sale of Class A Units in Funding IX and with a portion of the net
proceeds from the sale of one of the Properties held by Funding IX. See "Sale of
Preferred Equity Interests in Subsidiary " above. These common shares are
consolidated as treasury shares in conformity with GAAP. However, these shares
are held in SH IX until all of the Class A Units are redeemed. Distributions
will continue to be paid on these repurchased common shares and will be used to
pay dividends on the Class A Units.
The Company expects the Share Repurchase Program to continue to be
funded through a combination of debt, equity, joint venture capital and selected
asset disposition alternatives available to the Company. The amount of common
shares that the Company will actually purchase will be determined from time to
time, in its reasonable judgment, based on market conditions and the
availability of funds, among other factors. There can be no assurance that any
number of common shares will actually be purchased within any particular time
period.
SERIES A PREFERRED OFFERING
On April 26, 2002, the Company completed an institutional placement
(the "April 2002 Series A Preferred Offering") of 2.8 million shares of 6 3/4%
Series A Convertible Cumulative Preferred Shares (the "Series A Preferred
Shares") with a liquidation preference of $25.00 per share. The Series A
Preferred Shares are convertible at any time, in whole or in part, at the option
of the holders thereof into common shares of the Company at a conversion price
of $40.86 per common share (equivalent to a conversion rate of .6119 common
shares per Series A Preferred Share), subject to adjustment in certain
circumstances. Net proceeds to the Company from the April 2002 Series A
Preferred Offering after underwriting discounts and other offering costs of
approximately $2.2 million were approximately $48.2 million. The net proceeds
from the April 2002 Series A Preferred Offering were used to redeem Class A
Units from GMACCM.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets" (effective January 1,
2002). SFAS No. 142 specifies that goodwill and certain other types of
intangible assets may no longer be amortized, but instead are subject to
periodic impairment testing. If an impairment charge is required, the charge is
reported as a change in accounting principle and is included in operating
results as a Cumulative Effect of a Change in Accounting Principle. SFAS No. 142
provides for a transitional period of up to 12 months. Any need for impairment
must be assessed within the first six months and the amount of impairment must
be determined within the next six months. Any additional impairment taken in
subsequent interim periods during 2002 related to the initial adoption of this
statement will require the first quarter financial statements to be restated.
During the three months ended March 31, 2002 the Company recognized a goodwill
impairment charge of approximately $10.5 million due to the initial application
of this statement. This charge was due to impairments (net of minority interests
and taxes) of the goodwill at the Temperature-Controlled
47
Logistics Corporation and one of the Residential Development Corporations. This
charge is reported as a change in accounting principle and is included in the
Company's consolidated statements of operations as a "Cumulative Effect of a
Change in Accounting Principle" for the three months ended March 31, 2002.
In prior periods, the Company tested goodwill for impairment under the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets," under which an impairment loss is recognized when expected undiscounted
future cash flows are less than the carrying value of the asset. For the year
ended December 31, 2001, the expected future operating cash flows of the
Temperature-Controlled Logistics Corporation on an undiscounted basis exceeded
the carrying amounts of the properties and other long-lived assets, including
goodwill. Accordingly, no impairment was recognized under SFAS No. 121. Upon the
adoption of SFAS No. 142, the Temperature-Controlled Logistics Corporation
compared the fair value of the Temperature-Controlled Logistics Properties based
on discounted cash flows to the carrying value of the Temperature-Controlled
Logistics Properties and the related goodwill. Based on this test, the fair
value did not exceed the carrying value of the Temperature-Controlled Logistics
assets and, accordingly, the goodwill was impaired.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," ("SFAS" No 144") which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 requires that the results of operations, including any
gains or losses recognized, be disclosed separately on the Company's
consolidated statements of operations. The Company adopted SFAS No. 144 on
January 1, 2002. Subsequent to January 1, 2002, the Company sold three Office
Properties and classified two other office assets as held for sale. The Company
also owned 10 behavioral healthcare properties as of March 31, 2002, which were
held for sale. In accordance with SFAS no. 144, the results of operations of
these assets have been presented as "Discontinued Operations - Income on Assets
Sold and Held for Sale" in the accompanying consolidated statements of
operations. The carrying value of the assets held for sale have been reflected
as "Properties Held for Disposition, Net" in the accompanying consolidated
balance sheet as of December 31, 2001. (See Note 2 to the Consolidated Financial
Statements). The adoption of this statement did not materially affect the
Company's interim or annual financial statements for the three months ended
March 31, 2002. The Company has reclassified certain amounts in prior period
financial statements to conform with the new presentation requirements.
LIQUIDITY REQUIREMENTS
As of March 31, 2002, the Company had unfunded capital expenditures of
approximately $46.3 million relating to capital investments. The table below
specifies the Company's total capital expenditures relating to these projects,
amounts funded as of March 31, 2002, amounts remaining to be funded, and
short-term and long-term capital requirements.
CAPITAL EXPENDITURES
AMOUNT -------------------------
(IN MILLIONS) TOTAL FUNDED AS OF AMOUNT SHORT-TERM LONG-TERM
PROJECT MARCH 31, REMAINING (NEXT 12 (12+
PROJECT COST(1) 2002 TO FUND MONTHS)(2) MONTHS)(2)
------- ---------- ------------ ---------- ---------- ----------
RESIDENTIAL DEVELOPMENT SEGMENT
Tahoe Mountain Resorts $ 100.0 $ (80.8) $ 19.2 $ 19.2 $ --
---------- ---------- ---------- ---------- ----------
OTHER
SunTx(3) $ 19.0 $ (7.4) $ 11.6 $ 4.0 $ 7.6
Spinco(4) 15.5 -- 15.5 15.5 --
---------- ---------- ---------- ---------- ----------
$ 34.5 $ (7.4) $ 27.1 $ 19.5 $ 7.6
---------- ---------- ---------- ---------- ----------
TOTAL $ 134.5 $ (88.2) $ 46.3 $ 38.7 $ 7.6
========== ========== ========== ========== ==========
----------
(1) All amounts are approximate.
(2) Reflects the Company's estimate of the breakdown between short-term and
long-term capital expenditures.
(3) This commitment is related to the Company's investment in a private
equity fund.
(4) The Company has agreed to form and capitalize a separate entity to be
owned by the Company's shareholders, and to cause the new entity to
commit to acquire COPI's entire membership interest in AmeriCold
Logistics.
48
The Company expects to fund its short-term capital requirements of
approximately $38.7 million through a combination of cash, net cash flow from
operations, return of capital (investment) from the Residential Development
Corporations and borrowings under the Fleet Facility. The Company plans to meet
its maturing debt obligations during 2002 of approximately $272.0 million,
primarily through replacement debt financing or equity transactions.
The Company expects to meet its other short-term liquidity
requirements, consisting of normal recurring operating expenses, regular debt
service requirements (including debt service relating to additional and
replacement debt), additional interest expense related to the cash flow hedge
agreements, recurring capital expenditures, nonrecurring capital expenditures,
such as tenant improvement and leasing costs, distributions to shareholders and
unitholders, and additional expenses related to the COPI bankruptcy of
approximately $9.7 million, primarily through cash flow provided by operating
activities. To the extent that the Company's cash flow from operating activities
is not sufficient to finance such short-term liquidity requirements, the Company
expects to finance such requirements with available cash proceeds received from
joint ventures and select property sales, and borrowings under the Fleet
Facility or additional debt financing.
The Company expects to fund its long-term capital requirements of
approximately $7.6 million with available cash proceeds received from joint
ventures and select property sales, borrowings under the Fleet Facility or
additional debt financing and return of capital (investment) from the
Residential Development Corporations. The Company expects to redeem the
approximately $117.3 million of Class A Units in Funding IX with the proceeds
from equity offerings, joint ventures and borrowings under the Fleet Facility.
The Company's other long-term liquidity requirements as of March 31, 2002
consist primarily of debt maturities after December 31, 2002, which totaled
approximately $2.1 billion as of March 31, 2002. The Company expects to meet
these long-term liquidity requirements primarily through long-term secured and
unsecured borrowings and other debt and equity financing alternatives as well as
cash proceeds received from joint ventures and select property sales. The
Company also intends to repay the intracompany loan of approximately $285.0
million from Funding IX to SH IX at or prior to maturity on March 15, 2003.
Debt and equity financing alternatives currently available to the
Company to satisfy its liquidity requirements and commitments for material
capital expenditures include:
o Additional proceeds from the refinancing of existing secured and
unsecured debt;
o Additional debt secured by existing underleveraged properties, investment
properties, or by investment property acquisitions or developments;
o Issuance of additional unsecured debt;
o Equity offerings including preferred and/or convertible securities; and
o Proceeds from joint ventures and property sales.
The following factors could limit the Company's ability to utilize
these financing alternatives:
o The Company may be unable to obtain debt or equity financing on favorable
terms, or at all, as a result of the financial condition of the Company
or market conditions at the time the Company seeks additional financing;
o Restrictions on the Company's debt instruments or outstanding equity may
prohibit it from incurring debt or issuing equity at all, or on terms
available under then-prevailing market conditions; and
o The Company may be unable to service additional or replacement debt due
to increases in interest rates or a decline in the Company's operating
performance.
In addition to the Company's liquidity requirements stated above, as of
March 31, 2002, the Company guaranteed or provided letters of credit related to
approximately $30.0 million of unconsolidated debt and had obligations to
potentially provide an additional $60.0 million in guarantees, primarily related
to construction loans. See "Note 7. Investments in Real Estate Mortgages and
Equity of Unconsolidated Companies" included "Item 1. Financial Statements" for
more information about the Company's unconsolidated investments and the
underlying debt related to these investments.
49
REIT QUALIFICATION
The Company intends to maintain its qualification as a REIT under
Section 856 of the Code. As a REIT, the Company generally will not be subject to
corporate federal income taxes as long as it satisfies certain technical
requirements of the Code, including the requirement to distribute 90% of its
REIT taxable income to its shareholders.
DEBT FINANCING ARRANGEMENTS
The significant terms of the Company's primary debt financing
arrangements existing as of March 31, 2002 are shown below (dollars in
thousands).
INTEREST BALANCE
RATE AT EXPECTED OUTSTANDING AT
MAXIMUM MARCH 31, MATURITY PAYOFF MARCH 31,
DESCRIPTION(1) BORROWINGS 2002 DATE DATE 2002
-------------- ---------- ------------ ----------------- ---------------- --------------
SECURED FIXED RATE DEBT:
AEGON Partnership Note $ 268,781 7.53% July 2009 July 2009 $ 268,781
LaSalle Note I 239,000 7.83 August 2027 August 2007 239,000
JP Morgan Mortgage Note 198,448 8.31 October 2016 September 2006 198,448
LaSalle Note II 161,000 7.79 March 2028 March 2006 161,000
CIGNA Note 63,500 7.47 December 2002 December 2002 63,500
Metropolitan Life Note V 38,558 8.49 December 2005 December 2005 38,558
Northwestern Life Note 26,000 7.66 January 2004 January 2004 26,000
Woodmen of the World Note 8,500 8.20 April 2009 April 2009 8,500
Nomura Funding VI Note 8,148 10.07 July 2020 July 2010 8,148
Mitchell Mortgage Note 6,244 7.00 August 2002 August 2002 6,244
Rigney Promissory Note 641 8.50 November 2012 November 2012 641
Construction, Acquisition and
other obligations for various
CRDI projects 25,871 6.5 to 10.0 Nov 02 to Dec 04 Apr 02 to Dec 04 20,618
---------- ------------ ----------
Subtotal/Weighted Average $1,044,691 7.84% $1,039,438
---------- ------------ ----------
UNSECURED FIXED RATE DEBT:
Notes due 2007 $ 250,000 7.50% September 2007 September 2007 $ 250,000
Notes due 2002 150,000 7.00 September 2002 September 2002 150,000
Other obligations 541 8.0 to 12.0 Nov 02 to Jan 04 Nov 02 to Jan 04 541
---------- ------------ ----------
Subtotal/Weighted Average $ 400,541 7.32% $ 400,541
---------- ------------ ----------
SECURED VARIABLE RATE DEBT:
Fleet Fund I and II Term Loan $ 275,000 5.17% May 2005 May 2005 $ 275,000
Deutsche Bank - CMBS Loan 220,000 5.84 May 2004 May 2004(2) 220,000
National Bank of Arizona 21,110 5.11 November 2003 November 2003 21,110
Construction, Acquisition and
other obligations for various
CRDI projects 126,265 4.40 to 5.75 June 02 to Sept 03 Jun 02 to Jan 08(4) 74,794
---------- ------------ ----------
Subtotal/Weighted Average $ 642,375 5.27% $ 590,904
---------- ------------ ----------
UNSECURED VARIABLE RATE DEBT:
Fleet Facility $ 400,000 3.76% May 2004 May 2005(3) $ 334,500
JP Morgan Loan Sales Facility 50,000 3.25 April 2002 April 2002 10,000
Fleet Bridge Loan 50,000 5.62 August 2002 August 2002 5,000
---------- ------------ ----------
Subtotal/Weighted Average $ 500,000 3.77% $ 349,500
---------- ------------ ----------
TOTAL/WEIGHTED AVERAGE $2,587,607 6.55%(5) $2,380,383
========== ============ ==========
----------
(1) For more information regarding the terms of the Company's debt financing
arrangements, including the amounts payable at maturity for
non-amortizing loans, properties securing the Company's secured debt and
the method of calculation of the interest rate for the Company's
variable-rate debt, see "Note 8. Notes Payable and Borrowings under Fleet
Facility" included in "Item 1. Financial Statements."
(2) This facility has two one-year extension options.
(3) This facility has a one-year extension option.
(4) This expected payoff date includes extension options.
(5) The overall weighted average interest rate does not include the effect of
the Company's cash flow hedge agreements. Including the effect of these
agreements, the overall weighted average interest rate would have been
7.39%.
50
Below are the aggregate principal payments required as of March 31,
2002 under indebtedness of the Company by year. Scheduled principal installments
and amounts due at maturity are included.
SECURED UNSECURED TOTAL(1)
---------- ---------- ------------
(in thousands)
2002 $ 106,573 $ 165,416 $ 271,989
2003 128,849 -- 128,849
2004 236,899 334,625 571,524
2005 329,339 -- 329,339
2006 347,207 -- 347,207
Thereafter 481,475 250,000 731,475
---------- ---------- ------------
$1,630,342 $ 750,041 $ 2,380,383
========== ========== ============
----------
(1) These amounts do not represent the effect of a one-year extension option
of the Fleet Facility and two one-year extension options on the Deutsche
Bank - CMBS Loan.
The Company has $272.0 million of secured and unsecured debt due during
2002, consisting primarily of the Cigna Note, the Mitchell Mortgage Note,
unsecured short-term borrowings and the 2002 Notes, which are expected to be
funded through replacement debt financing.
The Company's policy with regard to the incurrence and maintenance of
debt is based on a review and analysis of:
o investment opportunities for which capital is required and the
cost of debt in relation to such investment opportunities;
o the type of debt available (secured or unsecured);
o the effect of additional debt on existing coverage ratios;
o the maturity of the proposed debt in relation to maturities of
existing debt; and
o exposure to variable-rate debt and alternatives such as
interest-rate swaps and cash flow hedges to reduce this exposure.
Debt service coverage ratios for a particular period are generally
calculated as net income plus depreciation and amortization, plus interest
expense, plus extraordinary or non-recurring losses, minus extraordinary or
nonrecurring gains, divided by debt service (including principal and interest
payable during the period of calculation). The calculation of the debt service
coverage ratio for the Fleet Facility is calculated using the method described
above, including certain pro forma adjustments.
Some of the Company's debt restricts its activities, including its
ability to pledge assets, create liens, incur additional debt, enter into
transactions with affiliates and make some types of payments, issuances of
equity and distributions on equity.
Any uncured or unwaived events of default on the Company's loans can
trigger an acceleration of payment on the loan in default. In addition, a
default by the Company or any of its subsidiaries with respect to any
indebtedness in excess of $5.0 million generally will result in a default under
the Fleet Facility and the Fleet I and II Term Loan after the notice and cure
periods for the other indebtedness have passed. As of March 31, 2002, the
Company was in compliance with all of its debt service coverage ratios and other
covenants related to its outstanding debt. The Company's debt facilities
generally prohibit loan pre-payment for an initial period, allow prepayment with
a penalty during a following specified period and allow pre-payment without
penalty after the expiration of that period. During the three months ended March
31, 2002, there were no circumstances that would require pre-payment penalties
or increased collateral related to the Company's existing debt.
51
DEBT OFFERING
On April 15, 2002, the Company completed a private offering of $375.0
million in senior, unsecured notes due 2009. The notes bear interest at an
annual rate of 9.25% and were issued at 100% of issue price. The notes are
callable after April 15, 2006. Interest will be payable in cash on April 15 and
October 15 of each year, beginning October 15, 2002. The Company has agreed to
register a similar series of notes with the SEC and to effect an exchange offer
of the registered notes for the privately placed notes and, in certain cases, to
register the notes for resale by their holders. In the event that the exchange
offer or resale registration is not completed on or before October 15, 2002, the
interest rate on the notes will increase until the exchange offer or resale
registration is completed.
The net proceeds from the offering of notes were approximately $366.5
million. Approximately $309.5 million of the proceeds were used to pay down
amounts outstanding under the Fleet Facility, and the remaining proceeds were
used to pay down $5.0 million of short-term indebtedness and redeem
approximately $52.0 million of Class A Units from GMACCM. Borrowings under the
revolving line of credit are expected to be used to repay or repurchase from
time to time $150.0 million of 7.0% unsecured notes due in September 2002,
approximately $52.4 million of which have been repurchased to date. In addition,
borrowings under the line of credit are expected to be used to repay a $63.5
million, 7.47% mortgage loan due in December 2002.
INTEREST RATE CAPS
In connection with the closing of the Deutsche Bank-CMBS Loan in May
2001, the Company entered into a LIBOR interest rate cap struck at 7.16% for a
notional amount of $220.0 million, and simultaneously sold a LIBOR interest rate
cap with the same terms. Since these instruments do not reduce the Company's net
interest rate risk exposure, they do not qualify as hedges and changes to their
respective fair values are charged to earnings. As the significant terms of
these arrangements are substantially the same, the effects of a revaluation of
these instruments are expected to substantially offset each other.
CASH FLOW HEDGES
The Company uses derivative financial instruments to convert a portion
of its variable-rate debt to fixed-rate debt and to manage its fixed to
variable-rate debt ratio. As of March 31, 2002, the Company had entered into
three cash flow hedge agreements, which are accounted for in conformity with
SFAS No. 133, as amended by SFAS No. 138.
The following table shows information regarding the Company's cash flow
hedge agreements as of March 31, 2002 and interest expense for the three months
ended March 31, 2002:
(in millions) ADDITIONAL
INTEREST EXPENSE
ISSUE NOTIONAL MATURITY REFERENCE FAIR FOR THE THREE MONTHS
DATE AMOUNT DATE RATE MARKET VALUE ENDED MARCH 31, 2002
---- --------- -------- --------- ------------ --------------------
7/21/99 $ 200.0 9/2/03 6.183 % $ (8.2) $ 2.1
5/15/01 200.0 2/3/03 7.11 (7.8) 2.6
4/14/00 100.0 4/18/04 6.76 (5.7) 1.2
The Company has designated its three cash flow hedge agreements as cash
flow hedges of LIBOR-based monthly interest payments on a designated pool of
variable-rate LIBOR indexed debt that reprices closest to the reset dates of
each cash flow hedge agreement. For retrospective effectiveness testing, the
Company uses the cumulative dollar offset approach as described in DIG Issue E8.
The DIG is a task force designed to assist the FASB in answering questions that
companies have resulting from implementation of SFAS No. 133 and SFAS 138. The
Company uses the change in variable cash flows method as described in DIG Issue
G7 for prospective testing as well as for the actual recording of
ineffectiveness, if any. Under this method, the Company will compare the changes
in the floating rate portion of each cash flow hedge to the floating rate of the
hedged items. The cash flow hedges have been and are expected to remain highly
effective. Changes in the fair value of these highly effective hedging
instruments are recorded in accumulated other comprehensive income. The
effective portion that has been
52
deferred in accumulated other comprehensive income will be reclassified to
earnings as interest expense when the hedged items impact earnings. If a cash
flow hedge falls outside 80%-125% effectiveness for a quarter, all changes in
the fair value of the cash flow hedge for the quarter will be recognized in
earnings during the current period. If it is determined based on prospective
testing that it is no longer likely a hedge will be highly effective on a
prospective basis, the hedge will no longer be designated as a cash flow hedge
and no longer qualify for accounting in conformity with SFAS Nos. 133 and 138.
Over the next twelve months, an estimated $16.3 million to $18.5
million will be reclassified from accumulated other comprehensive income to
earnings as interest expense related to the effective portions of the cash flow
hedge agreements.
Additionally, CRDI, a consolidated subsidiary of the Company, also uses
derivative financial instruments to convert a portion of its variable-rate debt
to fixed-rate debt. As of March 31, 2002, CRDI had entered into three cash flow
hedge agreements, which are accounted for in conformity with SFAS Nos. 133 and
138.
The following table shows information regarding CRDI's cash flow hedge
agreements as of March 31, 2002 and additional capitalized interest for the
three months ended March 31, 2002. Capitalized interest is related to debt for
projects that are currently under development.
(in thousands) ADDITIONAL
CAPITALIZED INTEREST
ISSUE NOTIONAL MATURITY REFERENCE FAIR FOR THE THREE MONTHS
DATE AMOUNT DATE RATE MARKET VALUE ENDED MARCH 31, 2002
---- ---------- -------- --------- ------------ --------------------
1/2/01 $ 10,818 11/16/02 8.455 % $ (388) $ 64
9/4/01 6,650 9/4/03 7.12 (72) 24
9/4/01 4,800 9/4/03 7.12 (52) 18
CRDI uses the shortcut method described in SFAS No. 133, which
eliminates the need to consider ineffectiveness of the hedges, and instead
assumes that the hedges are highly effective.
FUNDS FROM OPERATIONS
FFO, as used in this document, means:
o Net Income (Loss) - determined in conformity with GAAP;
o excluding gains (or losses) from sales of depreciable operating
property;
o excluding extraordinary items (as defined by GAAP);
o plus depreciation and amortization of real estate assets; and
o after adjustments for unconsolidated partnerships and joint
ventures.
The National Association of Real Estate Investment Trusts ("NAREIT")
developed FFO as a relative measure of performance and liquidity of an equity
REIT to recognize that income-producing real estate historically has not
depreciated on the basis determined under GAAP. The Company considers FFO an
appropriate measure of performance for an equity REIT, and for its investment
segments. However, FFO:
o does not represent cash generated from operating activities
determined in accordance with GAAP (which, unlike FFO, generally
reflects all cash effects of transactions and other events that
enter into the determination of net income);
o is not necessarily indicative of cash flow available to fund cash
needs; and
o should not be considered as an alternative to net income
determined in accordance with GAAP as an indication of the
Company's operating performance, or to cash flow from operating
activities determined in accordance with GAAP as a measure of
either liquidity or the Company's ability to make distributions.
53
The Company has historically distributed an amount less than FFO,
primarily due to reserves required for capital expenditures, including leasing
costs. The aggregate cash distributions paid to shareholders and unitholders for
the three months ended March 31, 2002 and 2001 were $44.3 and $66.7 million,
respectively.
An increase or decrease in FFO does not necessarily result in an
increase or decrease in aggregate distributions because the Company's Board of
Trust Managers is not required to increase distributions on a quarterly basis
unless necessary for the Company to maintain REIT status. However, the Company
must distribute 90% of its REIT taxable income (as defined in the Code).
Therefore, a significant increase in FFO will generally require an increase in
distributions to shareholders and unitholders although not necessarily on a
proportionate basis.
Accordingly, the Company believes that to facilitate a clear
understanding of the consolidated historical operating results of the Company,
FFO should be considered in conjunction with the Company's net income and cash
flows reported in the consolidated financial statements and notes to the
financial statements. However, the Company's measure of FFO may not be
comparable to similarly titled measures of other REITs because these REITs may
apply the definition of FFO in a different manner than the Company.
54
STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND SHARES/UNITS IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------
2001 2000
----------- -----------
Net (loss) income $ 13,961 $ 31,248
Adjustments to reconcile net (loss) income to
funds from operations:
Depreciation and amortization of real estate assets 32,139 29,495
Gain on rental property sales, net (3,764) (1,330)
Cumulative effect of change in accounting principle 10,465 --
Impairment related to real estate assets and
assets held for sale 600 2,150
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office Properties 2,162 2,040
Residential Development Properties 903 2,358
Temperature-Controlled Logistics Properties 5,711 5,606
Other 2,646 --
Unitholder minority interest 2,679 4,069
6 3/4% Series A Preferred Share distributions (3,375) (3,375)
----------- -----------
Funds from operations(1) $ 64,127 $ 72,261
Investment Segments:
Office Segment $ 80,572 $ 90,153
Resort/Hotel Segment 20,910 15,752
Residential Development Segment 15,561 13,066
Temperature-Controlled Logistics Segment 5,401 8,325
Coporate and other adjustments:
Interest expense (42,272) (47,448)
6 3/4% Series A Preferred Share distributions (3,375) (3,375)
Other(2)(3) (6,278) 1,052
Corporate general & administrative (6,392) (5,264)
----------- -----------
Funds from operations(1) $ 64,127 $ 72,261
=========== ===========
Basic weighted average shares 104,938 107,377
=========== ===========
Diluted weighted average shares/units(4) 118,633 122,973
=========== ===========
----------
(1) To calculate basic funds from operations, deduct Unitholder minority
interest.
(2) Includes interest and other income, preferred return paid to GMACCM,
other unconsolidated companies, less depreciation and amortization of
non-real estate assets and amortization of deferred financing costs.
(3) For purposes of this schedule, the Behavioral Healthcare Properties'
financial information has been included in this line item.
(4) See calculations for the amounts presented in the reconciliation
following this table.
55
The following schedule reconciles the Company's basic weighted average
shares to the diluted weighted average shares/units presented above:
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
(SHARES/UNITS IN THOUSANDS) 2002 2001
------- -------
Basic weighted average shares: 104,938 107,377
Add: Weighted average units 13,185 13,980
Share and unit options 510 1,616
------- -------
Diluted weighted average shares/units 118,633 122,973
======= =======
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
2002 2001
---------- ----------
Funds from operations $ 64,127 $ 72,261
Adjustments:
Depreciation and amortization of non-real estate assets 1,449 755
Amortization of deferred financing costs 2,320 2,425
Other adjustments related to the behavioral healthcare assets (600) 1,000
Amortization of capitalized development costs 12,946 --
Minority interest in joint ventures profit and depreciation
and amortization 5,718 5,979
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies (11,422) (10,004)
Change in deferred rent receivable 523 (780)
Change in current assets and liabilities (43,114) (48,634)
Change in income taxes - current and deferred (6,022) --
Distributions received in excess of earnings from
unconsolidated companies 894 --
Equity in earnings in excess of distributions received from
unconsolidated companies (1,617) (9,327)
6 3/4% Series A Preferred Share distributions 3,375 3,375
Non cash compensation 37 32
---------- ----------
Net cash provided by operating activities $ 28,614 $ 17,082
========== ==========
56
OFFICE PROPERTIES
As of March 31, 2002, the Company owned or had an interest in 76 Office
Properties located in 26 metropolitan submarkets in six states with an aggregate
of approximately 28.4 million net rentable square feet. The Company's Office
Properties are located primarily in the Dallas/Fort Worth and Houston, Texas
metropolitan areas. As of March 31, 2002, the Company's Office Properties in
Dallas/Fort Worth and Houston represented an aggregate of approximately 78% of
its office portfolio based on total net rentable square feet (41% for
Dallas/Fort Worth and 37% for Houston).
In pursuit of management's objective to dispose of non-strategic and
non-core assets, one of the Company's fully consolidated Office Properties,
Cedar Springs Plaza in Dallas, Texas, was disposed of during the three months
ended March 31, 2002.
57
OFFICE PROPERTIES TABLES
The following table shows, as of March 31, 2002, certain information
about the Company's Office Properties. In the table below "CBD" means central
business district.
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ.FT.) LEASED SQ.FT.(1)
------------------------------- ------------- -------------------------- ---------- ------------- ------- --------------
TEXAS
DALLAS
Bank One Center(2) 1 CBD 1987 1,530,957 82% $ 23.58
The Crescent Office Towers 1 Uptown/Turtle Creek 1985 1,204,670 99 33.45
Fountain Place 1 CBD 1986 1,200,266 97 20.91
Trammell Crow Center(3) 1 CBD 1984 1,128,331 87 24.99
Stemmons Place 1 Stemmons Freeway 1983 634,381 88 17.57
Spectrum Center(4) 1 Far North Dallas 1983 598,250 85 24.31
Waterside Commons 1 Las Colinas 1986 458,906 100 20.61
125 E. John Carpenter Freeway 1 Las Colinas 1982 446,031 82 29.86
Reverchon Plaza 1 Uptown/Turtle Creek 1985 374,165 53 21.77
The Aberdeen 1 Far North Dallas 1986 320,629 100 19.14
MacArthur Center I & II 1 Las Colinas 1982/1986 298,161 92 24.35
Stanford Corporate Centre 1 Far North Dallas 1985 275,372 72 23.91
12404 Park Central 1 LBJ Freeway 1987 239,103 100 22.46
Palisades Central II 1 Richardson/Plano 1985 237,731 100 21.48
3333 Lee Parkway 1 Uptown/Turtle Creek 1983 233,543 49 23.09
Liberty Plaza I & II 1 Far North Dallas 1981/1986 218,813 99 16.72
The Addison 1 Far North Dallas 1981 215,016 99 20.30
Palisades Central I 1 Richardson/Plano 1980 180,503 97 21.58
Greenway II 1 Richardson/Plano 1985 154,329 100 22.60
Greenway I & IA 2 Richardson/Plano 1983 146,704 100 22.78
Addison Tower 1 Far North Dallas 1987 145,886 90 21.30
5050 Quorum 1 Far North Dallas 1981 133,799 87 20.57
Las Colinas Plaza 1 Las Colinas 1987 134,953 95 21.11
Crescent Atrium Retail 1 Uptown/Turtle Creek 1985 94,852 97 29.55
------------ ------------- ------- -------
Subtotal/Weighted Average 25 10,605,351 89% $ 23.83
------------ ------------- ------- -------
FORT WORTH
Carter Burgess Plaza 1 CBD 1982 954,895 88%(9) $ 17.08
------------ ------------ ------- -------
HOUSTON
Greenway Plaza Office Portfolio 10 Richmond-Buffalo 1969-1982 4,348,052 92% $ 20.84
Speedway
Houston Center 3 CBD 1974-1983 2,764,417 96 22.33
Post Oak Central 3 West Loop/Galleria 1974-1981 1,279,759 86 19.92
The Woodlands Office Properties(5) 8 The Woodlands 1980-1996 561,989 89(9) 18.27
Four Westlake Park(6) 1 Katy Freeway 1992 561,065 100 22.15
Three Westlake Park 1 Katy Freeway 1983 414,792 95 23.11
1800 West Loop South 1 West Loop/Galleria 1982 399,777 65 20.01
The Park Shops 1 CBD 1983 190,729 78 23.16
------------ ------------- ------- -------
Subtotal/Weighted Average 28 10,520,580 92% $ 21.20
------------ ------------- ------- -------
58
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR YEAR PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ.FT.) LEASED SQ.FT.(1)
------------------------- ----------- ------------------------- --------------- ----------- -------- ----------
AUSTIN
Frost Bank Plaza 1 CBD 1984 433,024 96% $ 25.77
301 Congress Avenue(7) 1 CBD 1986 418,338 82 27.44
Bank One Tower(6) 1 CBD 1974 389,503 95 25.31
Austin Centre 1 CBD 1986 343,664 86 28.00
The Avallon I; II; III; IV; V 3 Northwest 1993/1997/2001 318,217 87(9) 25.11
Barton Oaks Plaza One 1 Southwest 1986 98,955 100 27.50
---------- ----------- ------- -------
Subtotal/Weighted Average 8 2,001,701 90% $ 26.32
---------- ----------- ------- -------
COLORADO
DENVER
MCI Tower 1 CBD 1982 550,805 58% $ 21.72
Ptarmigan Place 1 Cherry Creek 1984 418,630 98 20.18
Regency Plaza One 1 Denver Technology Center 1985 309,862 91 25.12
55 Madison 1 Cherry Creek 1982 137,176 98 21.36
The Citadel 1 Cherry Creek 1987 130,652 96(9) 24.22
44 Cook 1 Cherry Creek 1984 124,174 90 20.99
---------- ----------- ------- -------
Subtotal/Weighted Average 6 1,671,299 83% $ 22.10
---------- ----------- ------- -------
COLORADO SPRINGS
Briargate Office and
and Research Center 1 Colorado Springs 1988 258,766 64%(9) $ 20.88
---------- ----------- ------- -------
FLORIDA
MIAMI
Miami Center 1 CBD 1983 782,211 95% $ 27.84
Datran Center 2 South Dade/Kendall 1986/1988 476,412 93 24.12
---------- ----------- ------- -------
Subtotal/Weighted Average 3 1,258,623 94% $ 26.46
---------- ----------- ------- -------
ARIZONA
PHOENIX
Two Renaissance Square 1 Downtown/CBD 1990 476,373 99% $ 25.96
6225 North 24th Street 1 Camelback Corridor 1981 86,451 34 24.16
---------- ----------- ------- -------
Subtotal/Weighted Average 2 562,824 89% $ 25.85
---------- ----------- ------- -------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza 1 CBD 1990 366,236 85% $ 18.91
---------- ----------- ------- -------
CALIFORNIA
SAN DIEGO
Chancellor Park(8) 1 University Town Center 1988 195,733 81% $ 28.57
---------- ----------- ------- -------
TOTAL/WEIGHTED AVERAGE 76 28,396,008 89%(9) $ 22.81(10)
========== =========== ======= =======
----------
(1) Calculated based on base rent payable as of March 31, 2002, without
giving effect to free rent or scheduled rent increases that would be
taken into account under GAAP and including adjustments for expenses
payable by or reimbursable from customers.
(2) The Company has a 49.5% limited partner interest and a 0.5% general
partner interest in the partnership that owns Bank One Center.
(3) The Company owns the principal economic interest in Trammell Crow
Center through its ownership of fee simple title to the Property
(subject to a ground lease and a leasehold estate regarding the
building) and two mortgage notes encumbering the leasehold interests in
the land and building.
(4) The Company owns the principal economic interest in Spectrum Center
through an interest in Crescent Spectrum Center, L.P. which owns both
the mortgage notes secured by Spectrum Center and the ground lessor's
interest in the land underlying the office building.
(5) The Company has a 75% limited partner interest and an approximate 10%
indirect general partner interest in the partnership that owns the
eight Office Properties that comprise The Woodlands Office Properties.
59
(6) The Company has a 0.1% general partner interest and a 19.9% limited
partner interest in the partnerships that own Four Westlake Park and
Bank One Tower.
(7) The Company has a 1% general partner interest and a 49% limited partner
interest in the partnership that owns 301 Congress Avenue.
(8) The Company owns Chancellor Park through its ownership of a mortgage
note secured by the building and through its direct and indirect
interests in the partnership, which owns the building.
(9) Leases have been executed at certain Office Properties but had not
commenced as of March 31, 2002. If such leases had commenced as of
March 31, 2002, the percent leased for all Office Properties would have
been 91%. The total percent leased for these Properties would have been
as follows: Carter Burgess Plaza - 96%; The Woodlands Office Properties
- 92%; The Citadel - 100%; Avallon - 100%; and Briargate Office and
Research Center - 73%.
(10) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Company Office Properties as
of March 31, 2002, giving effect to free rent and scheduled rent
increases that would be taken into consideration under GAAP and
including adjustments for expenses payable by or reimbursed from
customers is $22.94.
60
The following table provides information, as of March 31, 2002, for the
Company's Office Properties by state, city and submarket.
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
PERCENT OFFICE COMPANY QUOTED QUOTED SERVICE
PERCENT OF LEASED AT SUBMARKET SHARE OF MARKET RENTAL RENTAL
TOTAL TOTAL COMPANY PERCENT OFFICE RENTAL RATE RATE PER RATE PER
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5)
------------------------- ---------- ----------- -------- ---------- ---------- ----------- ----------- -------- ---------
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD 3 3,859,554 13% 88% 85% 21% 19.61 25.32 23.06
Uptown/Turtle Creek 4 1,907,230 7 84 86 32 23.43 32.58 31.08
Far North Dallas 7 1,907,765 7 89 79 14 23.99 23.67 21.31
Las Colinas 4 1,338,051 5 92 82 10 22.83 24.08 24.20
Richardson/Plano 5 719,267 2 99 90 13 21.33 22.60 22.02
Stemmons Freeway 1 634,381 2 88 88 26 25.36 18.80 17.57
LBJ Freeway 1 239,103 1 100 75 3 21.37 22.50 22.46
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
Subtotal/Weighted
Average 25 10,605,351 37% 89% 82% 15% 21.99 25.54 23.83
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
FORT WORTH
CBD 1 954,895 3% 88%(6) 96% 26% 22.59 21.80 17.08
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
HOUSTON
CBD 4 2,955,146 10% 95%(6) 93% 13% 23.11 27.01 22.37
Richmond-Buffalo Speedway 7 3,674,888 13 94 92 72 21.43 21.92 21.49
West Loop/Galleria 4 1,679,536 6 81 85 11 21.19 21.29 19.93
Katy Freeway 2 975,857 3 98 93 14 20.34 24.86 22.55
The Woodlands(6) 6 427,364 2 87 87 30 20.63 18.76 18.63
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
Subtotal/Weighted
Average 23 9,712,791 34% 92% 90% 19% 21.75 23.52 21.53
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
AUSTIN
CBD 4 1,584,529 6% 90% 85% 30% 28.21 30.51 26.47
Northwest 3 318,217 1 87(6) 81 5 23.08 28.13 25.11
Southwest 1 98,955 -- 100 97 3 22.17 26.59 27.50
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
Subtotal/Weighted
Average 8 2,001,701 7% 90% 86% 13% 27.10 29.94 26.32
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
COLORADO
DENVER
Cherry Creek 4 810,632 3% 96% N/A(8) N/A(8) N/A(8) 23.48 21.14
CBD 1 550,805 2 58 N/A(8) N/A(8) N/A(8) 25.00 21.72
Denver Technology Center 1 309,862 1 91 N/A(8) N/A(8) N/A(8) 26.00 25.12
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
Subtotal/Weighted
Average 6 1,671,299 6% 83% N/A(8) N/A(8) N/A(8) 24.45 22.10
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
COLORADO SPRINGS
Colorado Springs(6) 1 258,766 1% 64% 86% 5% 20.60 20.85 20.88
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
FLORIDA
MIAMI
CBD 1 782,211 3% 95% 95% 25% 31.46 30.70 27.84
South Dade/Kendall 2 476,412 2 93 81 79 24.97 23.96 24.12
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
Subtotal/Weighted
Average 3 1,258,623 5% 94% 93% 34% 29.00 28.15 26.46
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
ARIZONA
PHOENIX
Downtown/CBD 1 476,373 2% 99% 87% 18% 25.73 24.50 25.96
Camelback Corridor 1 86,451 -- 34 81 2 25.88 21.50 24.16
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
Subtotal/Weighted
Average 2 562,824 2% 89% 83% 8% 25.75 24.04 25.85
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
61
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
PERCENT OFFICE COMPANY QUOTED QUOTED SERVICE
PERCENT OF LEASED AT SUBMARKET SHARE OF MARKET RENTAL RENTAL
TOTAL TOTAL COMPANY PERCENT OFFICE RENTAL RATE RATE PER RATE PER
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5)
------------------------- ---------- ----------- -------- ---------- ---------- ----------- ----------- -------- ---------
NEW MEXICO
ALBUQUERQUE
CBD 1 366,236 1% 85% 89% 64% 18.15 18.00 18.91
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
CALIFORNIA
SAN DIEGO
University Town Center 1 195,733 1% 81% 83% 6% 37.80 35.50 28.57
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
CLASS A OFFICE
PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 71 27,588,219 97% 90% 86(9) 16(9) 22.81(9) 24.96 22.97
========== =========== ======== ========= ====== =========== ========== ======== ========
CLASS B OFFICE PROPERTIES
TEXAS
HOUSTON
Richmond-Buffalo Speedway 3 673,164 2% 81% 85% 24% 17.84 17.59 16.66
The Woodlands 2 134,625 1% 98% 67% 9% 17.23 16.43 17.25
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
Subtotal/Weighted
Average 5 807,789 3% 84% 79% 19% 17.74 17.40 16.78
---------- ----------- -------- --------- ------ ----------- ---------- -------- --------
CLASS B OFFICE
PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 5 807,789 3% 84% 79% 19% 17.74 17.40 16.78
========== =========== ======== ========= ====== =========== ========== ======== ========
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED
AVERAGE 76 28,396,008 100% 89% 86% 16% 22.66 24.75 22.81(7)
========== =========== ======== ========= ====== =========== ========== ======== ========
----------
(1) NRA means net rentable area in square feet.
(2) Market information is for Class A office space under the caption "Class A
Office Properties" and market information is for Class B office space under
the caption "Class B Office Properties." Sources are CoStar Group (for the
Dallas CBD, Uptown/Turtle Creek, Far North Dallas, Las Colinas,
Richardson/Plano, Stemmons Freeway, LBJ Freeway, Fort Worth CBD, Houston
Richmond-Buffalo Speedway, Houston CBD, West Loop/Galleria, and Katy
Freeway submarkets), The Woodlands Operating Company, L.P. (for The
Woodlands submarket), CoStar Group (for the Austin CBD, Northwest and
Southwest submarkets), Turner Commercial Research (for the Colorado Springs
market), Grubb and Ellis Company (for the Phoenix Downtown/CBD and
Camelback Corridor), Building Interests, Inc. (for the Albuquerque CBD
submarket), RealData Information Systems, Inc. (for the Miami CBD and South
Dade/Kendall submarkets) and John Burnham & Company (for the San Diego
University Town Centre submarket). This table includes market information
as of December 31, 2001, except for the Dallas, Houston, and Austin
markets, for which market information is as of March 31, 2002.
(3) Represents full-service quoted market rental rates. These rates do not
necessarily represent the amounts at which available space at the Office
Properties will be leased. The weighted average subtotals and total are
based on total net rentable square feet of Company Office Properties in the
submarket.
(4) Represents weighted average rental rates per square foot quoted by the
Company, based on total net rentable square feet of Company Office
Properties in the submarket, adjusted, if necessary, based on management
estimates, to equivalent full-service quoted rental rates to facilitate
comparison to weighted average Class A or Class B, as the case may be,
quoted submarket full-service rental rates per square foot. These rates do
not necessarily represent the amounts at which available space at the
Company's Office Properties will be leased.
(5) Calculated based on base rent payable for Company Office Properties in the
submarket, without giving effect to free rent or scheduled rent increases
that would be taken into account under GAAP and including adjustments for
expenses payable by or reimbursed from customers, divided by total net
rentable square feet of Company Office Properties in the submarket.
(6) Leases have been executed at certain Office Properties in these submarkets
but had not commenced as of March 31, 2002. If such leases had commenced as
of March 31, 2002, the percent leased for all Office Properties in the
Company's submarkets would have been 91%. The total percent leased for
these Class A Company submarkets would have been as follows: Fort Worth CBD
- 96%; The Woodlands CBD - 90%; Austin Northwest - 100%; and Colorado
Springs - 73%.
(8) This information is not publicly available for the Denver submarkets.
(9) Includes weighted average amounts for the Denver submarket. These amounts
were calculated by management based on information from third-party
sources.
(10) The weighted average full-service rental rate per square foot calculated
based on base rent payable for Company Office Properties, giving effect to
free rent and scheduled rent increases that would be taken into
consideration under GAAP and including adjustments for expenses payable by
or reimbursed from customers is $22.94.
62
The following table shows, as of March 31, 2002, the principal
businesses conducted by the customers at the Company's Office Properties, based
on information supplied to the Company from the customers.
Percent of
Industry Sector Leased Sq. Ft.
---------------------------- --------------
Professional Services(1) 28%
Energy(2) 20
Financial Services(3) 19
Telecommunications 8
Technology 7
Manufacturing 3
Food Service 3
Government 3
Retail 2
Medical 2
Other(4) 5
-------------
TOTAL LEASED 100%
=============
----------
(1) Includes legal, accounting, engineering, architectural and advertising
services.
(2) Includes oil and gas and utility companies.
(3) Includes banking, title and insurance and investment services.
(4) Includes construction, real estate, transportation and other industries.
AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following tables show schedules of lease expirations for leases in
place as of March 31, 2002, for the Company's total Office Properties and for
Dallas, Houston and Austin, Texas, and Denver, Colorado, individually, for each
of the 10 years beginning with 2002, assuming that none of the customers
exercises or has exercised renewal options.
TOTAL OFFICE PROPERTIES
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
------------------ ------------ --------------- --------------- ------------------ -------------- ---------------
2002 394 2,577,324 10.3% $ 59,410,853 9.9% $ 23.05
2003 348 3,615,775 14.5 79,964,983 13.3 22.12
2004 301 4,433,957 17.8 104,077,202 17.4 23.47
2005 254 3,459,198 13.9 81,906,370 13.7 23.68
2006 181 2,528,040 10.1 62,530,873 10.4 24.73
2007 107 2,449,426 9.8 58,150,704 9.7 23.74
2008 40 975,589 3.9 24,018,606 4.0 24.62
2009 29 837,061 3.4 21,896,250 3.7 26.16
2010 30 1,475,764 5.9 41,033,851 6.8 27.81
2011 29 893,423 3.6 23,612,424 3.9 26.43
2012 and thereafter 22 1,704,000 6.8 42,507,437 7.2 24.95
----------- -------------- ------------ ------------- -------- --------
1,735 24,949,557(2) 100.0% $ 599,109,553 100.0% $ 24.01
=========== ============== ============ ============= ======== ========
----------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled
rent increases that would be taken into account under GAAP and
including adjustments for expenses payable by or reimbursable from
customers based on current expense levels.
(2) Reconciliation to the Company's total Office Property net rentable area
is as follows:
63
SQUARE PERCENTAGE
FEET OF TOTAL
------------ -----------
Square footage leased to tenants 24,949,557 87.8%
Square footage reflecting
management offices, building use,
and remeasurement adjustments 443,407 1.6
Square footage vacant 3,003,044 10.6
------------ ----------
Total net rentable square footage 28,396,008 100.0%
============ ==========
DALLAS OFFICE PROPERTIES
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
------------------ ------------ --------------- --------------- -------------- -------------- ---------------
2002 112 963,551 10.3% $ 25,269,539 10.9% $ 26.23
2003 95 1,353,714 14.5 30,789,005 13.3 22.74
2004 93 1,235,417 13.2 32,644,202 14.1 26.42
2005 98 1,852,072 19.8 42,231,484 18.2 22.80
2006 44 698,120 7.5 18,018,493 7.8 25.81
2007 36 1,135,780 12.2 27,973,448 12.1 24.63
2008 13 502,886 5.3 13,193,519 5.7 26.24
2009 7 391,413 4.2 10,146,844 4.4 25.92
2010 13 702,805 7.5 20,913,764 9.0 29.76
2011 7 251,030 2.7 6,997,487 3.0 27.88
2012 and thereafter 3 259,950 2.8 3,705,025 1.5 14.25
----------- -------------- ------------ -------------- --------- --------
521 9,346,738 100.0% $ 231,882,810 100.0% $ 24.81
=========== ============== ============ ============== ========= ========
----------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on
current expense levels.
64
HOUSTON OFFICE PROPERTIES
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
------------------ ------------ --------------- ------------ ------------ -------------- --------------
2002 162 1,071,097 11.3% $ 21,828,513 10.2% $ 20.38
2003 133 1,237,976 13.1 25,966,481 12.1 20.97
2004 124 2,143,238 22.6 44,922,165 21.0 20.96
2005 80 615,161 6.5 13,996,565 6.5 22.75
2006 62 1,108,522 11.7 25,230,994 11.8 22.76
2007 39 967,783 10.2 21,373,600 10.0 22.09
2008 12 328,070 3.5 6,841,747 3.2 20.85
2009 8 87,434 0.9 2,166,798 1.0 24.78
2010 10 584,971 6.2 14,487,400 6.8 24.77
2011 13 534,394 5.6 12,690,338 5.9 23.75
2012 and thereafter 5 792,124 8.4 24,690,780 11.5 31.17
----------- -------------- ----------- ------------- --------- -------
648 9,470,770 100.0% $ 214,195,381 100.0% $ 22.62
=========== ============== =========== ============= ========= =======
----------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on
current expense levels.
AUSTIN OFFICE PROPERTIES
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
--------------- ------------ -------------- ------------ ------------ ------------ -------------
2002 27 106,664 6.2% $ 2,885,611 6.3% $ 27.05
2003 31 245,621 14.3 6,302,573 13.6 25.66
2004 16 346,464 20.1 8,601,907 18.6 24.83
2005 24 531,494 30.9 14,145,259 30.6 26.61
2006 16 318,543 18.5 9,316,294 20.2 29.25
2007 9 58,713 3.4 1,678,589 3.6 28.59
2008 3 49,094 2.9 1,527,704 3.3 31.12
2009 2 27,193 1.6 756,076 1.6 27.80
2010 -- -- -- -- -- --
2011 2 3,773 0.2 148,601 0.3 39.39
2012 and thereafter 1 33,315 1.9 828,777 1.9 24.88
----------- -------------- ----------- ------------ --------- -------
131 1,720,874 100.0% $ 46,191,391 100.0% $ 26.84
=========== ============== =========== ============ ========= =======
----------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on
current expense levels.
65
DENVER OFFICE PROPERTIES
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
--------------- ------------ -------------- ------------ ------------ ------------ -------------
2002 28 160,663 11.8% $ 3,368,323 10.7% $ 20.97
2003 37 478,282 35.2 10,307,777 32.9 21.55
2004 17 198,332 14.6 4,446,357 14.2 22.42
2005 16 186,737 13.8 4,561,515 14.5 24.43
2006 10 71,586 5.3 1,822,788 5.8 25.46
2007 6 69,123 5.1 1,730,063 5.5 25.03
2008 2 25,017 1.8 714,038 2.3 28.54
2009 6 145,971 10.7 3,882,300 12.4 26.60
2010 2 7,611 0.6 187,809 0.6 24.68
2011 1 2,478 0.2 52,038 0.2 21.00
2012 and thereafter 1 12,071 0.9 307,811 0.9 25.50
----------- -------------- ----------- ------------ --------- -------
126 1,357,871 100.0% $ 31,380,819 100.0% $ 23.11
=========== ============== =========== ============ ========= =======
----------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on
current expense levels.
66
RESORT/HOTEL PROPERTIES
The following table shows certain information for the three months
ended March 31, 2002, and 2001, with respect to the Company's Resort/Hotel
Properties. The information for the Resort/Hotel Properties is based on
available rooms, except for Canyon Ranch-Tucson and Canyon Ranch-Lenox, which
measure their performance based on available guest nights.
FOR THE QUARTER ENDED MARCH 31,
----------------------------------------------
REVENUE
AVERAGE AVERAGE PER
OCCUPANCY DAILY AVAILABLE
YEAR RATE RATE ROOM/GUEST
COMPLETED/ ------------- --------------- --------------
RESORT/HOTEL PROPERTY(1) LOCATION RENOVATED ROOMS 2002 2001 2002 2001 2002 2001
------------------------ -------- --------- ----- ----- ----- ------- ------ ------ ------
UPSCALE BUSINESS CLASS HOTELS:
Denver Marriott City Center Denver, CO 1982/1994 613 66% 76% $ 112 $ 126 $ 74 $ 96
Hyatt Regency Albuquerque Albuquerque, NM 1990 395 62 72 110 98 68 71
Omni Austin Hotel Austin, TX 1986 375 68 74 124 141 84 104
Renaissance Houston Hotel Houston, TX 1975/2000 388 66 66 118 117 78 78
------ ----- ----- ------- ------ ------ ------
TOTAL/WEIGHTED AVERAGE 1,771 65% 73% $ 116 $ 121 $ 76 $ 88
====== ===== ===== ======= ====== ====== ======
LUXURY RESORTS AND SPAS:
Park Hyatt Beaver Creek Resort and Spa Avon, CO 1989 275 81% 85% $ 445 $ 431 $ 359 $ 365
Sonoma Mission Inn & Spa Sonoma, CA 1927/1987/1997 228 46 57 233 240 108 138
Ventana Inn & Spa Big Sur, CA 1975/1982/1988 62 66 67 322 364 211 244
------ ----- ----- ------- ------ ------ ------
TOTAL/WEIGHTED AVERAGE 565 65% 72% $ 371 $ 363 $ 242 $ 260
====== ===== ===== ======= ====== ====== ======
GUEST
DESTINATION FITNESS RESORTS AND SPAS: NIGHTS
------------------------------------- ------
Canyon Ranch-Tucson Tucson, AZ 1980 259(2)
Canyon Ranch-Lenox Lenox, MA 1989 212(2)
------ ----- ----- ------- ------ ------ ------
TOTAL/WEIGHTED AVERAGE 471 86% 89% $ 649 $ 651 $ 542 $ 559
====== ===== ===== ======= ====== ====== ======
----- ----- ------- ------ ------ ------
LUXURY AND DESTINATION FITNESS RESORTS COMBINED 75% 79% $ 515 $ 507 $ 378 $ 396
===== ===== ======= ====== ====== ======
GRAND TOTAL/WEIGHTED AVERAGE FOR RESORT/HOTEL PROPERTIES 69% 75% $ 278 $ 274 $ 190 $ 205
===== ===== ======= ====== ====== ======
----------
(1) As of December 31, 2001, the Company had leased all of the Resort/Hotel
Properties, except the Omni Austin Hotel, to subsidiaries of COPI. As of
December 31, 2001, the Omni Austin Hotel was leased pursuant to a separate
lease to HCD Austin Corporation. On February 14, 2002, the Company executed
an agreement with COPI, pursuant to which COPI transferred to subsidiaries
of the Company, in lieu of foreclosure, COPI's lessee interests in the
eight Resort/Hotel Properties.
(2) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
67
RESIDENTIAL DEVELOPMENT PROPERTIES
The following table shows certain information as of March 31, 2002,
relating to the Residential Development Properties.
TOTAL
RESIDENTIAL TOTAL LOTS/UNITS
RESIDENTIAL DEVELOPMENT DEVELOPMENT LOTS/ DEVELOPED
DEVELOPMENT PROPERTIES TYPE OF CORPORATION'S UNITS SINCE
CORPORATION (RDP) RDP(3) LOCATION OWNERSHIP % PLANNED INCEPTION
----------- ------------- -------- ---------- --------------- -------- ----------
Desert Mountain Desert Mountain SF Scottsdale, AZ 93.0% 2,665 2,352
Development ------ -------
Corporation(1)
The Woodlands The Woodlands SF The Woodlands, TX 42.5%(9) 37,554 26,146
------ -------
Land Company,
Inc.(1)
Crescent Bear Paw Lodge CO Avon, CO 60.0% 53(7) 53
Resort Eagle Ranch SF Eagle, CO 60.0% 1,100(7) 405
Development, Main Street
Inc.(1) Junction CO Breckenridge, CO 30.0% 36(7) 36
Main Street
Station CO Breckenridge, CO 30.0% 82(7) 82
Main Street Station
Vacation Club TS Breckenridge, CO 30.0% 42 42
Riverbend SF Charlotte, NC 60.0% 650 161
Three Peaks
(Eagle's Nest) SF Silverthorne, CO 30.0% 391 253
Park Place at
Riverfront CO Denver, CO 64.0% 70(7) 70
Park Tower at
Riverfront CO Denver, CO 64.0% 61(7) 61
Promenade Lofts
at Riverfront CO Denver, CO 64.0% 66 66
Cresta TH/SFH Edwards, CO 60.0% 25(7) 19
Snow Cloud CO Avon, CO 64.0% 54(7) 26
One Vendue Range CO Charleston, SC 62.0% 49(7) --
Old Greenwood SF/TS Truckee, CA 86.5% 249 --
Tahoe Mountain
Resorts (7) Tahoe, CA --(8) --(8)
------ -------
TOTAL CRESCENT RESORT DEVELOPMENT, INC. 2,928 1,274
------ -------
Mira Vista Mira Vista SF Fort Worth, TX 100.0% 740 740
Development The Highlands SF Breckenridge, CO 12.3% 750 480
Corp.(2) ------ -------
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,490 1,220
------ -------
Houston Area Falcon Point SF Houston, TX 100.0% 510 364
Development Falcon Landing SF Houston, TX 100.0% 623 566
Corp.(2) Spring Lakes SF Houston, TX 100.0% 520 338
------ -------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,653 1,268
------ -------
TOTAL 46,290 32,260
====== =======
RANGE OF
TOTAL AVERAGE PROPOSED
LOTS/UNITS CLOSED SALE
RESIDENTIAL DEVELOPMENT CLOSED SALE PRICE PRICES
DEVELOPMENT PROPERTIES TYPE OF SINCE PER LOT/ PER LOT
CORPORATION (RDP) RDP(3) LOCATION INCEPTION UNIT($)(4) /UNIT($)(5)
----------- ------------- -------- ---------- ----------- ---------- ----------------
Desert Mountain Desert Mountain SF Scottsdale, AZ 2,214 518,000 400,000 - 3,250,000(6)
Development -------
Corporation(1)
The Woodlands The Woodlands SF The Woodlands, TX 24,699 57,000 16,000 - 1,035,000
-------
Land Company,
Inc.(1)
Crescent Bear Paw Lodge CO Avon, CO 52 1,450,000 665,000 - 2,025,000
Resort Eagle Ranch SF Eagle, CO 351 105,000 80,000 - 150,000
Development, Main Street
Inc.(1) Junction CO Breckenridge, CO 28 467,000 300,000 - 580,000
Main Street
Station CO Breckenridge, CO 68 498,000 215,000 - 1,065,000
Main Street Station
Vacation Club TS Breckenridge, CO 16 1,099,000 380,000 - 4,600,000
Riverbend SF Charlotte, NC 161 30,000 25,000 - 38,000
Three Peaks
(Eagle's Nest) SF Silverthorne, CO 176 253,000 135,000 - 425,000
Park Place at
Riverfront CO Denver, CO 60 417,000 195,000 - 1,445,000
Park Tower at
Riverfront CO Denver, CO 35 561,000 180,000 - 2,100,000
Promenade Lofts
at Riverfront CO Denver, CO 51 410,000 180,000 - 2,100,000
Cresta TH/SFH Edwards, CO 16 1,885,000 1,900,000 - 2,600,000
Snow Cloud CO Avon, CO 23 1,721,000 840,000 - 4,545,000
One Vendue Range CO Charleston, SC -- N/A 450,000 - 3,100,000
Old Greenwood SF/TS Truckee, CA -- N/A N/A N/A
Tahoe Mountain
Resorts (7) Tahoe, CA --(8) N/A N/A N/A
-------
TOTAL CRESCENT RESORT DEVELOPMENT, INC. 1,037
-------
Mira Vista Mira Vista SF Fort Worth, TX 697 99,000 50,000 - 265,000
Development The Highlands SF Breckenridge, CO 442 193,000 55,000 - 625,000
Corp.(2) -------
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,139
-------
Houston Area Falcon Point SF Houston, TX 312 42,000 28,000 - 52,000
Development Falcon Landing SF Houston, TX 509 21,000 22,000 - 26,000
Corp.(2) Spring Lakes SF Houston, TX 283 31,000 35,000 - 50,000
-------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,104
-------
TOTAL 30,193
=======
----------
(1) On February 14, 2002, the Company executed an agreement with COPI, pursuant
to which COPI transferred to subsidiaries of the Company, in lieu of
foreclosure, COPI's interest in DMDC, TWLC and CRDI resulting in ownership
interests of 100%, 100% and approximately 96%, respectively.
(2) The Company has an approximately 94% ownership interest in each of MVDC and
HADC through ownership of non-voting common stock.
(3) SF (Single-Family Lots); CO (Condominium:; TH (Townhome); SFH (Single
Family Homes) and TS (Timeshare Equivalent Units).
(4) Based on lots/units closed during the Company's ownership period.
(5) Based on existing inventory of developed lots and lots to be developed.
(6) Includes golf membership, which as of March 31, 2002, is $225,000.
(7) As of March 31, 2002, one unit was under contract at Bear Paw Lodge
representing $1.6 million in sales; 11 lots were under contract at Eagle
Ranch representing $1.6 million in sales; one unit was under contract at
Main Street Junction representing $0.4 million in sales; seven units were
under contract at Main Street Station representing $3.0 million in sales;
one unit was under contract at Park Place at Riverfront representing $.7
million in sales; six units were under contract at Park Tower at Riverfront
representing $7.2 million in sales; one unit was under contract at Cresta
representing $1.8 million in sales; 22 units were under contract at Snow
Cloud representing $39.0 million in sales and 41 units were under contract
at One Vendue Range representing $47.9 million in sales.
(8) This project is in the early stages of development, and this information is
not available as of March 31, 2002.
(9) Distributions are made to partners based on specified payout percentages.
During the three months ended March 31, 2002, the payout percentage to the
Company was 52.5%.
68
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES
The following table shows the number and aggregate size of
Temperature-Controlled Logistics Properties by state as of March 31, 2002:
TOTAL CUBIC TOTAL TOTAL CUBIC TOTAL
NUMBER OF FOOTAGE SQUARE FEET NUMBER OF FOOTAGE SQUARE FEET
STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS) STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS)
----- ------------- ------------- ------------- ----- ------------- ------------- -------------
Alabama 4 10.7 0.3 Missouri(2) 2 46.8 2.8
Arizona 1 2.9 0.1 Nebraska 2 4.4 0.2
Arkansas 6 33.1 1.0 New York 1 11.8 0.4
California 9 28.6 1.1 North Carolina 3 10.0 0.4
Colorado 1 2.8 0.1 Ohio 1 5.5 0.2
Florida 5 7.5 0.3 Oklahoma 2 2.1 0.1
Georgia 8 49.5 1.7 Oregon 6 40.4 1.7
Idaho 2 18.7 0.8 Pennsylvania 2 27.4 0.9
Illinois 2 11.6 0.4 South Carolina 1 1.6 0.1
Indiana 1 9.1 0.3 South Dakota 1 2.9 0.1
Iowa 2 12.5 0.5 Tennessee 3 10.6 0.4
Kansas 2 5.0 0.2 Texas 2 6.6 0.2
Kentucky 1 2.7 0.1 Utah 1 8.6 0.4
Maine 1 1.8 0.2 Virginia 2 8.7 0.3
Massachusetts 5 10.5 0.5 Washington 6 28.7 1.1
Mississippi 1 4.7 0.2 Wisconsin 3 17.4 0.6
------------ ---------- ---------
TOTAL 89(3) 445.2(3) 17.7(3)
============ ========== =========
----------
(1) As of March 31, 2002, the Company held a 40% interest in the
Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly
owns the 89 Temperature-Controlled Logistics Properties. The business
operations associated with the Temperature-Controlled Logistics Properties
are owned by AmeriCold Logistics, in which the Company has no interest. The
Temperature-Controlled Logistics Corporation is entitled to receive lease
payments from AmeriCold Logistics.
(2) Includes an underground storage facility, with approximately 33.1 million
cubic feet.
(3) As of March 31, 2002, AmeriCold Logistics operated 100
temperature-controlled logistics properties with an aggregate of
approximately 524.6 million cubic feet (20.2 million square feet).
69
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRESCENT REAL ESTATE EQUITIES COMPANY
(Registrant)
By /s/ John C. Goff
-------------------------------
John C. Goff
Date: October 22, 2002 Vice Chairman of the Board and
Chief Executive Officer
By /s/ Jerry R. Crenshaw, Jr
-------------------------------
Jerry R. Crenshaw, Jr.
Senior Vice President and Chief
Financial Officer
Date: October 22, 2002 (Principal Financial and
Accounting Officer)
70
CERTIFICATIONS
I, John C. Goff, the Chief Executive Officer of Crescent Real Estate
Equities Company, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q/A;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.(1)
Date: October 22, 2002
----------------
/s/ John C. Goff
-------------------------------
Name: John C. Goff
Title: Chief Executive Officer
----------
(1) The certifications required by Form 10-Q have been modified as set forth
above in accordance with the Securities and Exchange Commission's ("SEC's")
transition provisions governing certifications of amended periodic reports for
periods ending prior to the effective date of the SEC's certification rules. See
SEC Final Rule, Certification of Disclosure in Companies' Quarterly and Annual
Reports, Section V, Transition Provisions, 67 Fed. Reg. 57276, 57283 (Sept. 9,
2002).
71
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, John C. Goff, the Chief Executive Officer of Crescent
Real Estate Equities Company (the "Company"), has executed this certification in
connection with the filing with the Securities and Exchange Commission of the
Company's Quarterly Report on Form 10-Q/A for the period ending March 31, 2002
(the "Report"). The undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: October 22, 2002
-----------------
/s/ John C. Goff
-------------------------------
Name: John C. Goff
Title: Chief Executive Officer
72
CERTIFICATIONS
I, Jerry R. Crenshaw, Jr., the Senior Vice President and Chief
Financial and Accounting Officer of Crescent Real Estate Equities Company,
hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q/A;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.(1)
Date: October 22, 2002
-----------------
/s/ Jerry R. Crenshaw, Jr.
-----------------------------------------
Name: Jerry R. Crenshaw, Jr.
Title: Senior Vice President and Chief
Financial and Accounting Officer
------------
(1) The certifications required by Form 10-Q have been modified as set forth
above in accordance with the Securities and Exchange Commission's ("SEC's")
transition provisions governing certifications of amended periodic reports for
periods ending prior to the effective date of the SEC's certification rules. See
SEC Final Rule, Certification of Disclosure in Companies' Quarterly and Annual
Reports, Section V, Transition Provisions, 67 Fed. Reg. 57276, 57283 (Sept. 9,
2002).
73
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Jerry R. Crenshaw, Jr., the Senior Vice President and
Chief Financial and Accounting Officer of Crescent Real Estate Equities Company
(the "Company"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Company's Quarterly Report on
Form 10-Q/A for the period ending March 31, 2002 (the "Report"). The undersigned
hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: October 22, 2002
-----------------
/s/ Jerry R. Crenshaw, Jr.
-----------------------------------------
Name: Jerry R. Crenshaw, Jr.
Title: Senior Vice President and Chief
Financial and Accounting Officer
74