Company Press Release: Crescent Real Estate Equities Company
February 17, 2000
FT. WORTH, TX -- Crescent Real Estate Equities Company (NYSE: CEI) announced today that it has entered into certain
arrangements with its tenant, Charter Behavioral Healthcare Systems, LLC (``Charter''), to facilitate an orderly
restructuring of Charter's business in Charter's voluntary Chapter 11 bankruptcy proceeding, which was initiated
today. Charter, the largest private provider of behavioral care services nationwide, has advised Crescent that
the initiation of bankruptcy proceedings will permit Charter to convey its core operating assets to a purchaser
free and clear of all prior liabilities. Charter's core business consists of 37 facilities, which represents over
90% of Charter's present earnings from operations before rent. Crescent is Charter's landlord in 30 of the 37 facilities.
In conjunction with the filing of its Chapter 11 petition, Charter entered into an agreement for the sale of the
operating assets of its core facilities to a new subsidiary of Crescent Operating, Inc. (Nasdaq: COPI - news).
Following discussions with Crescent Operating and Charter, Crescent entered into an agreement to lease the core
facilities to the new subsidiary of Crescent Operating if the subsidiary is successful in acquiring the operating
assets related to those facilities, and if agreement is reached on various terms of the lease. The proposed lease
requires an annual rental payment to Crescent of approximately $20.3 million in the first year, which represents
an approximate 13.3% return on gross appraised value to Crescent. The proposed lease additionally requires a 5%
annual increase in rent over the 10-year lease term, which represents an approximate 16.7% return on gross appraised
value to Crescent on a straight-line basis over the life of the lease. There are a number of conditions to closing
of the asset purchase agreement, including approval by the bankruptcy court, and there can be no assurance that
the planned sale will occur.
John C. Goff, President and Chief Executive Officer stated, ``As landlord to Charter and owner of substantially
all of its facilities, we support Charter's decision to seek a comprehensive restructuring plan as a prudent and
efficient way to restore Charter's core business to operational and financial health, so that they are able to
maintain an acceptable level of rent coverage. Mike French, Charter's President and Chief Executive Officer, and
his management team have developed a business plan that we believe is the right one to return the operation of
Charter's core facilities to a position of financial strength. Their plan recognizes that behavioral healthcare
services must expand into a broader continuum of care to meet the needs of a changing society.''
Charter initiated its restructuring in September 1999 and closed 18 under-performing facilities, 15 of which Crescent
owns. In January 2000, Charter announced the closings of another 33 facilities, 31 of which Crescent owns. By the
end of February 2000, Crescent will have received a total of 48 facilities back from Charter, which Crescent has
been or will be actively marketing for sale. To date, four facilities have been sold at or above appraised value.
The sales generated approximately $10 million in net proceeds. Eleven additional facilities are currently under
contract or letter of intent.
``We continue to execute Crescent's strategic plan,'' said Goff. ``Part of the plan, which was presented in the
fourth quarter of 1999, stated that we would seek to recover and sell the under-performing Charter facilities.
In only a few months, we've received interest from a variety of potential purchasers regarding these assets held
for sale. Potential purchasers include providers of behavioral healthcare, assisted living, rehabilitation, and
other specialized care. In addition, our analysis of Charter's business plan for the core hospitals confirms our
belief that behavioral healthcare, restructured in the way proposed by Mike and his team, will be a viable industry
for the future. By supporting Charter during its restructuring, we are protecting our investment.''
IMPACT TO YEAR 2000 EARNINGS ESTIMATES
As stated in our recent press release, base-case year 2000 Funds From Operations earnings estimates do not include
the receipt of any rent from Charter. However, Charter's present restructuring plan provides for post-petition
rent to be paid to Crescent for the 30 core facilities.
ABOUT THE COMPANY
Crescent, one of the country's largest real estate investment trusts, owns a diversified portfolio consisting of
Class A office and retail properties, hotels and destination resorts, residential land developments, temperature-controlled
logistics facilities, and behavioral healthcare facilities. Our mission is to maximize value to our shareholders
by: i) distinguishing ourselves as the undisputed leader in each of our businesses through customer service and
asset quality; and ii) executing a disciplined real estate investment and operating strategy that focuses on market
leadership, innovative growth opportunities, and outstanding employee and partner alliances.
FORWARD-LOOKING STATEMENTS
Certain matters discussed within this press release are forward-looking statements within the meaning of the federal
securities laws. Although Crescent believes that the expectations reflected in these forward-looking statements
are based upon reasonable assumptions, events could differ materially from those set forth in the forward-looking
statements. Matters that relate to the bankruptcy proceeding of Charter, including the possible sale of Charter's
operating assets to a subsidiary of Crescent Operating, and the ability of any purchaser of Charter's operating
assets to reach agreement with Crescent on lease terms and to operate in such a manner as to be able to satisfy
its lease obligations, are inherently unpredictable as to both outcome and timing, and events could differ materially
from Crescent's expectations. Crescent's ability to close anticipated sales of assets, including sales of non-core
behavioral healthcare facilities, also is subject to a wide range of risks and contingencies, including changes
in real estate conditions and other risks detailed from time to time in Crescent's filings with the SEC. Given
these uncertainties, readers are cautioned not to place undue reliance on such statements.
FOR MORE INFORMATION
For further information, please contact Jerry R. Crenshaw, Senior Vice- President and Chief Financial Officer,
at 817-321-1492 or refer to Crescent's web site at www.cei-crescent.com
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SOURCE: Crescent Real Estate Equities Company