Press Release: Crescent Real Estate Equities Company
May 10, 2002
FORT WORTH, TX -- Crescent Real Estate Equities Company (NYSE:CEI) yesterday announced results for the first quarter
2002. Funds from operations ("FFO") for the three months ended March 31, 2002 was $64.1 million, or $.54
per share and equivalent unit (diluted), compared to $72.3 million, or $.59 per share and equivalent unit (diluted),
for the same period in 2001.
According to John C. Goff, Chief Executive Officer, "We were pleased to have reported better than expected
financial results this quarter. We exceeded our original FFO guidance by $.09 per share based on the high end of
our range, and our net income was also affected, primarily as a result of three factors: accelerated timing of
residential development sales, higher than expected resort operating results and the recognition of a tax benefit
associated with obtaining resort/hotel lease interests in February. As such, we are reaffirming our 2002 FFO guidance
range of $2.00 to $2.30 per share."
Net income available to common shareholders for the three months ended March 31, 2002 was $11.9 million, or $.11
per share (diluted), compared to $27.9 million, or $.26 per share (diluted), for the same period in 2001. Net income
was reported after the application of two new SFAS rulings. A gain of $.03 per share related to an office property
sale was recorded as discontinued operations in accordance with SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", and a write-off of $.09 per share related to goodwill in the temperature-controlled
logistics investment was recorded in accordance with SFAS 142, "Goodwill and Other Intangible Assets".
BUSINESS SECTOR REVIEW
Office Sector (67% of Total Asset Value as of March 31, 2002)
Office property same-store net operating income ("NOI") declined 0.5% for the three months ended March
31, 2002 over the same period in 2001 for the 25.8 million square feet of office property space owned during both
periods. Average occupancy for these properties for the three months ended March 31, 2002 was 90.0% compared to
92.6% for the same period in 2001. As of March 31, 2002, the overall office portfolio was 90.5% leased based on
executed leases. During the three months ended March 31, 2002 and 2001, Crescent received $1.2 million and $1.7
million, respectively, of lease termination fees. Crescent's policy is to exclude lease termination fees from its
same-store NOI growth calculation.
The Company leased 1.0 million net rentable square feet during the three months ended March 31, 2002, of which
585,000 square feet was renewed or re-leased. The weighted average FFO net effective rental rate (rental rate less
operating expenses) increased 13% over the expiring rates for the renewed or re-leased leases, all of which have
commenced or will commence within the next twelve months. Tenant improvements related to these leases were $.79
per square foot per year and leasing costs were $.71 per square foot per year.
On January 18, 2002, Crescent closed on the sale of Cedar Springs, a 111,000 square foot Class A office property
located in the Uptown / Turtle Creek submarket in Dallas. The sale generated net proceeds to Crescent of approximately
$12 million.
Denny Alberts, President and Chief Operating Officer, commented, "We continue to be encouraged by our office
leasing activity given the economic uncertainty. Nearly 70% of our 3.9 million square feet of leases expiring in
2002 have been signed or are in active negotiations. And using first quarter renewal and re-leasing activity as
a measure, we are experiencing a healthy roll up in net effective rental rates."
"As expected, our average occupancy declined to 90% in the first quarter as a result of certain lease expirations
early in the year. This caused our same-store net operating income to slightly decline. However, we are pleased
with our progress in backfilling that space and anticipate occupancy levels rising over the year. Due to continued
economic uncertainty, we remain cautious in projecting 2002 growth for our office segment, and as such, we are
reaffirming our same-store growth range of 0% to 4% based on occupancy of 90% to 93%," Alberts added.
Resort and Residential Development Sector (22% of Total Asset Value as of March 31, 2002)
Destination Resort Properties
Based on actual performance of Crescent's five resort properties, same-store net operating income declined 10%
for the three months ended March 31, 2002 over the same period in 2001. The average daily rate increased 2% and
revenue per available room decreased 5% for the three months ended March 31, 2002 compared to the same period in
2001. Weighted average occupancy was 75% for the three months ended March 31, 2002 compared to 79% for the three
months ended March 31, 2001.
"Although first quarter results in 2002 were below 2001, resort performance exceeded our expectations and
showed a dramatic recovery from fourth quarter 2001 levels. We have seen strong operating results from our Canyon
Ranch and Park Hyatt Beaver Creek properties," commented Alberts.
Upscale Residential Development Properties
"While we continue to feel the effects of a soft economy in our residential development projects, we are clearly
seeing signs that velocity of sales activity is picking up. Based on overall residential performance in the first
quarter, we are cautiously optimistic that our consolidated residential results will meet our expectations for
the year," commented Alberts.
Investment Sector (11% of Total Asset Value as of March 31, 2002)
Upscale Business-Class Hotel Properties
Based on actual performance of Crescent's four hotel properties, same-store net operating income declined 17% for
the three months ended March 31, 2002 over the same period in 2001. The average daily rate decreased 4%, while
revenue per available room decreased 14% for the three months ended March 31, 2002 compared to the same period
in 2001. Weighted average occupancy was 65% for the three months ended March 31, 2002 compared to 73% for the three
months ended March 31, 2001.
Temperature-Controlled Logistics Investment
AmeriCold Logistics' same-store EBITDAR (earnings before interest, taxes, depreciation and amortization, and rent)
remained flat for the three months ended March 31, 2002, compared to the same period in 2001. AmeriCold Logistics
elected to defer $3.0 million (of the $35.0 million contracted rent) for the first quarter, of which Crescent's
share was $1.2 million.
Receipt of COPI Assets
As was announced on February 14, 2002, Crescent reached an agreement with Crescent Operating, Inc. ("COPI")
under which, during the first quarter, Crescent received COPI's lessee interests in eight of Crescent's resort/hotel
properties, the voting interests in three of Crescent's residential development corporations and related entities,
and other assets. As a result, the financial information of the resort/hotel and residential development properties
includes operations of these properties beginning on the date Crescent received the assets.
BALANCE SHEET REVIEW
On April 15, 2002, Crescent's operating partnership completed a private offering of $375 million in 9.25% senior,
unsecured notes due 2009. Proceeds were used to repay existing indebtedness and redeem preferred units of one of
its subsidiaries.
On April 26, 2002, Crescent also completed a preferred stock issuance of 2.8 million shares of its 6 3/4% Series
A convertible cumulative preferred stock to an institutional investor. Proceeds of $50 million were used to redeem
preferred units of one of its operating partnership subsidiaries.
"The successful placement of the senior unsecured notes with institutional investors and the issuance of the
preferred stock gives us substantial financial flexibility. By paying down our line of credit with proceeds from
the unsecured notes, we are in a position to repay the remaining $98 million of unsecured notes due in September
and a $63.5 million mortgage loan due in December. Effectively, we will have no significant debt maturities prior
to 2005," commented Goff.
2002 OUTLOOK
FFO Per Share
Crescent's management reaffirms its previously disclosed 2002 FFO guidance range of $2.00 to $2.30 per share, of
which $.43 to $.45 is expected for the second quarter.
SUPPLEMENTAL OPERATING AND FINANCIAL DATA
Crescent's supplemental and operating financial data report for the first quarter 2002 is available on the Company's
website (www.cei-crescent.com) in the investor relations section. To request a hard copy, please call the Company's
investor relations department at 817/321-2180.
CONFERENCE CALL, WEBCAST AND PRESENTATION
The Company also hosted a conference call and audio webcast, both open to the general public, at 10:00 A.M. Central
Time on Thursday, May 9, 2002, to discuss the first quarter results and provide a Company update. During the call,
reference was made to a presentation that was also posted on the Company's website. A replay of the conference
call will be available through May 16, 2002, by dialing 800/642-1687 domestically or 706/645-9291 internationally
with a passcode of 3622930. The webcast and presentation will be available on Crescent's website (www.cei-crescent.com)
for 30 days.
FORWARD-LOOKING STATEMENTS
This press release 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:
ABOUT THE COMPANY
Crescent Real Estate Equities Company, through its subsidiaries, owns and manages some of the highest quality properties
in the country. Its portfolio consists primarily of 76 office properties (which includes 3 retail properties) totaling
over 28 million square feet located in six states, as well as world-renowned luxury resorts and spas and upscale
residential developments.
March 31, December 31,
2002 2001
(unaudited) (audited)
ASSETS:
Investments in
real estate:
Land $ 314,577 $ 252,109
Land held
for investment
or development 521,199 108,274
Building and
improvements 3,049,553 2,954,666
Furniture,
fixtures and
equipment 104,600 72,247
Properties held
for disposition,
net 27,337 35,158
Less - accumulated
depreciation (694,622) (642,531)
---------------- ----------------
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 27,806 -
Other assets, net 202,062 145,012
---------------- ----------------
Total assets $ 4,450,874 $ 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
---------------- ----------------
MINORITY INTERESTS:
Operating partnership,
6,591,837 and 6,594,521
units, respectively $ 66,960 $ 69,910
Consolidated real
estate partnerships 284,825 232,137
---------------- ----------------
Total minority interests $ 351,785 $ 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
of $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 (665,892) (638,435)
Accumulated other
comprehensive income (24,922) (31,484)
---------------- ----------------
$ 1,745,273 $ 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 $ 1,385,533 $ 1,405,940
---------------- ----------------
Total liabilities
and shareholders'
equity $ 4,450,874 $ 4,142,149
================ ================
TOTAL COMMON SHARES
AND UNITS OUTSTANDING 118,372,683 117,814,641
COMMON SHARE PRICE $19.40 $18.11
MARKET VALUE OF EQUITY $2,496,430 $2,333,623
TOTAL MARKET
CAPITALIZATION
INCLUDING DEBT $4,876,813 $4,547,717
For the three months
ended March 31,
------------------------------------
2002 2001
REVENUE:
Office property $ 143,471 $ 153,384
Resort/Hotel
property 38,524 15,949
Residential Development
property 48,065 -
Interest and
other income 2,226 9,003
---------------- ----------------
Total revenue $ 232,286 $ 178,336
---------------- ----------------
EXPENSE:
Office property
real estate
taxes $ 21,272 $ 22,825
Office property
operating expenses 44,555 43,661
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 33,822 30,442
Impairment and
other charges
related
to real estate assets - 2,150
---------------- ----------------
Total expense $ 216,738 $ 154,215
---------------- ----------------
Operating income $ 15,548 $ 24,121
---------------- ----------------
OTHER INCOME AND EXPENSE:
Equity in net income
(loss) of unconsolidated
companies:
Office and retail
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 - 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 PRINCIP $ 24,970 $ 40,817
Minority interests (8,043) (9,752)
Income tax benefit 4,283 -
---------------- ----------------
INCOME BEFORE
DISCONTINUED
OPERATIONS AND
CUMULATIVE EFFECT
OF A CHANGE IN
ACCOUNTING PRINCIP $ 21,210 $ 31,065
Discontinued operations -
income and gain on
assets held for sale 3,216 183
Cumulative effect of
a change in accounting
principle (9,172) -
NET INCOME $ 15,254 $ 31,248
6 3/4% Series A
Preferred Share
distributions (3,375) (3,375)
---------------- ----------------
NET INCOME AVAILABLE
TO COMMON SHAREHOLDERS $ 11,879 $ 27,873
BASIC EARNINGS
(LOSS) PER SHARE DATA:
Income from continuing
operations $ 0.17 $ 0.26
Discontinued operations -
income and gain on
assets held for sale 0.03 -
Cumulative effect of
a change in accounting
principle (0.09) -
---------------- ----------------
Net income - basic $ 0.11 $ 0.26
================ ================
DILUTED EARNINGS
(LOSS) PER SHARE
DATA:
Income from
continuing
operations $ 0.17 $ 0.26
Discontinued operations -
income and gain on
assets held for sale 0.03 -
Cumulative effect of
a change in accounting
principle (0.09) -
---------------- ----------------
Net income - diluted $ 0.11 $ 0.26
================ ================
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 104,938,208 107,377,133
================ ================
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 105,447,648 108,992,880
================ ================
DEBT SERVICE COVERAGE RATIO 2.4 2.6
================ ================
For the three months
ended March 31,
2002 2001
(unaudited)
NET INCOME $ 15,254 $ 31,248
ADJUSTMENTS:
Depreciation
and amortization
of real
estate assets 32,139 29,495
Gain on property
sales, net (3,764) (330)
Cumulative effect
of change in
accounting
principle 9,172 -
Impairment and
other charges
related to
real estate assets 600 1,150
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 (a) $ 64,127 $ 72,261
================== ==================
INVESTMENT SEGMENTS:
Office properties $ 80,572 $ 90,153
Resort/hotel
properties 20,910 15,752
Residential
development
properties 15,561 13,066
Temperature-controlled
logistics properties 5,401 8,325
Corporate general &
administrative (6,392) (5,264)
Interest expense (42,272) (47,448)
6 3/4% Series A
Preferred Share
distributions (3,375) (3,375)
Other (b) (6,278) 1,052
------------------ -------------------
FUNDS FROM
OPERATIONS (a) $ 64,127 $ 72,261
================== ==================
WEIGHTED AVERAGE
SHARES
OUTSTANDING -
BASIC 104,938,208 107,377,133
WEIGHTED AVERAGE
SHARES/UNITS
OUTSTANDING -
DILUTED 118,632,753 122,973,205
DIVIDEND PAID
PER SHARE
DURING PERIOD $ 0.375 $ 0.550
SUPPLEMENTAL
INFORMATION:
Rental income from
straight-line rents $ (481) $ (925)
Residential development
capital expenditures (133) (132)
Temperature-controlled
capital expenditures (951) (950)
Non-incremental
revenue generating
exp.:
Resort/hotel
property capital
expenditures (3,887) (1,320)
Office property
capital
expenditures (1,910) (1,789)
Tenant improvement
and leasing costs (4,756) (6,458)
Depreciation and
amortization of
non-real
estate assets 1,449 755
Amortization of
deferred financing
costs 2,320 2,425
(a) To calculate Basic Fund from Operations ("FFO") per share,
deduct Unitholder minority interest from FFO and divide by basic
weighted average shares outstanding.
(b) Includes interest and other income, behavioral healthcare
income, preferred return paid to GMAC, other unconsolidated companies,
less depreciation and amortization of non-real estate assets and
amortization of deferred financing costs.
--------------------------------------------------------
Contact:
Crescent Real Estate Equities Company
Investors:
Jane E. Mody, 817/321-1086
or
Jerry R. Crenshaw, 817/321-1492
or
Keira B. Moody, 817/321-1412
Media:
Sandra Porter, 817/321-1460