CRESCENT ANNOUNCES FIRST QUARTER 2007 RESULTS
Company Executing on Strategic Plan
FORT WORTH, TEXAS, May 8, 2007—Crescent Real Estate Equities Company (NYSE:CEI) today announced
results for the first quarter of 2007. Net loss available to common shareholders for the three
months ended
March 31, 2007, was ($15.0) million, or ($0.15) per share (diluted). These compare to
net loss available to common shareholders of ($11.8) million, or ($0.12) per share (diluted), for
the three months ended
March 31, 2006.
Funds from
operations available to common shareholders – diluted, calculated in accordance with the NAREIT definition (
“FFO”),
and funds from operations available to common shareholders –
diluted, calculated in accordance with the NAREIT definition,
as adjusted to exclude impairment charges and debt extinguishment charges related to the sale of real estate assets and to
include gains on sale of developed operating properties and promoted interests (
“FFO, as
adjusted”), were $14.9 million, or $0.12 per share and equivalent unit, for the three months ended
March 31, 2007, compared to $24.8 million, or $0.20 per share and equivalent unit, for the three
months ended
March 31, 2006. Crescent provides the calculation of FFO, as adjusted, because
management utilizes it in making operating decisions and assessing performance, and to assist
investors in assessing Crescent’s operating performance. Both
uses of FFO are non-GAAP financial measures, and as such, are reconciled to net
income in the documents accompanying this
press release. The definition of FFO is set forth in this
press release in the section labeled
“Funds From Operations.”
PROGRESS ON RECENTLY ANNOUNCED STRATEGIC PLAN
“We are encouraged by the progress to date on our strategic
plan announced March 1”, commented John C. Goff,
vice chairman and chief executive officer.
“The demand for the
held-for-sale assets and resulting pricing is
very strong as already evidenced by the contract for the sale of our Resort Hotel portfolio and Austin Centre and the sale of the Exchange
Building. Additionally, we are in the final stages of negotiations for the remaining held-for-sale
office assets with pricing above our expectations. The sales effort for the Resort
Residential Development business is underway and we are pleased by
the quality and number of interested parties
thus far. With this early success in executing our strategic plan sales, we are on track to
unlock shareholder value and become a pure play office REIT.”
Hotel portfolio disposition
The Resort Hotel portfolio and the Austin Centre office building are currently under
contract
for a gross purchase price of $620 million to Walton TCC Hotel Investors V, L.L.C. Crescent’s share of the gross purchase price,
determined after taking into account the interests of its partners in the sales and incentive
payments due as a result of the sales, is approximately $580 million. Walton has paid a
nonrefundable earnest money deposit of $11 million and the transaction is scheduled
to close in the 2
nd quarter.
Exchange Building disposition
On
April 17, 2007, Crescent sold the Exchange Building, a 295,515 square-foot office property in
Seattle, WA. The office property was sold for $80.6 million, or $273 per square foot. Crescent’s
2
nd quarter net income is expected to include a gain on this sale of $28 million.
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BUSINESS SECTOR REVIEW
Office Segment (54% of Gross Book Value of Real Estate Assets as of March 31, 2007)
Operating Results — Continuing Operations
Crescent reports operating statistics in this
press release assuming 100% ownership without
adjusting for joint-venture interests and excluding properties
held-for-sale. Excluding the 20 held for sale
properties representing 5.3 million square feet. Crescent owned and managed, through its
subsidiaries and
joint ventures, 22.4 million square feet at
March 31, 2007, including 11.4 million square feet of
office properties in joint ventures. Please refer to the First Quarter 2007 Supplemental Operating and Financial
Data report for additional information regarding properties held for sale.
Denny Alberts, president and chief operating officer commented, “Our office business is off to a
good start in 2007 as we continue to see increasing demand in our
markets. Our
1st
quarter same-store net operating income and
same-store occupancy levels were up and our leased occupancy reached 93.4% which has allowed us
to push rents.”
- Same-store NOI -
Office property same-store net operating income (
“NOI”) increased 4.4% for the three months ended
March 31, 2007, from the same period in 2006, for the 21.1 million square feet of office property
space owned during both periods. Average economic occupancy for these same-store properties for
the three months ended
March 31, 2007, was 91.4% compared to 90.3% for the same period in 2006.
-Total
Portfolio Occupancy -
As of
March 31, 2007, leased occupancy was 93.4%, and economic occupancy was 90.6%.
- Leasing Activity -
Crescent leased 0.5 million net rentable square feet during the three months ended
March 31, 2007,
of which 0.2 million square feet were renewed or re-leased. The weighted average full service
rental rate (which includes expense reimbursements) increased 11% from the expiring rates for the
leases of the renewed or re-leased space. All of these leases have commenced or will commence
within the next twelve months. Tenant improvements related to these leases were $2.71 per square
foot per year, and leasing costs were $1.52 per square foot per year.
- Lease Termination Fees -
Crescent earned $4.0 million of lease termination fees during the three months ended
March 31,
2007. This compares to $7.8 million of lease termination fees earned during the
three months ended
March 31, 2006. The decrease in lease termination fees is primarily the result
of accelerated termination fees due to releasing of space previously occupied by El Paso
Corporation in Greenway Plaza in Houston, TX in 2006. Crescent’s policy is to exclude lease
termination fees from its same-store NOI calculation.
Development
The Parkway at Oak Hill development, a 145,475 square-foot Class A office complex located in
southwest Austin, TX was completed in the 1
st quarter. Crescent sold its joint venture
interest in Parkway on April 23
rd. The office complex was valued in the transaction at
$211 per square foot. Crescent received approximately $12.7 million as a result of the
transaction. Crescent expects to recognize in net income a gain on the sale of its interests of
approximately $3.5 million, net of promoted interests and taxes.
The gain also will be included in FFO, as adjusted for the quarter ended
June 30, 2007.
Resort Residential Development Segment (23% of Gross Book Value of Real Estate Assets as of
March 31, 2007)
Operating Results
As part of its strategic plan, Crescent announced its intent to sell the Resort Residential
Development business. Crescent’s overall resort residential investments generated $7.5 million in
FFO for the three months ended
March 31, 2007. This compares to $1.0 million in FFO for the three
months ended
March 31, 2006. The increase in FFO is primarily attributable to Crescent Resort
Development sales at The Residences at Park Hyatt Beaver Creek and Village Walk projects.
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Luxury Resorts and Upscale Business-Class Hotels (11% of Gross Book Value of Real
Estate Assets as of March 31, 2007)
As part of its strategic plan, Crescent announced its intent to sell the Luxury Resort
and Upscale Business-Class Hotel portfolio. These assets are currently under
contract to be sold
during the 2
nd quarter as discussed earlier. Crescent reports operating results in this
press release for its three fully operational luxury resorts and its three upscale business-class
hotels and assuming 100% ownership without adjusting for joint-venture interests.
- Same-store NOI -
For the three months ended
March 31, 2007, Crescent generated same-store NOI of $10.7 million,
which is a 3% decrease from $11.0 million generated for the same
period in 2006. The decrease in same-store NOI is due to the Park Hyatt Beaver Creek Resort
and Spa where 85 rooms were taken out of service as of April 2006. 55 of these rooms were converted into timeshare units for sale by Crescent Resort
Development, Inc. while the remaining space was used to expand the Allegria Spa.
- Operating Statistics -
The average daily rate increased 9%, and revenue per available room increased 4% for the three
months ended
March 31, 2007, compared to the same period in 2006. Weighted average occupancy was
71% for the three months ended
March 31, 2007, compared to 74% for the three months ended
March 31,
2006.
Temperature-Controlled Logistics Segment (12% of Gross Book Value of Real Estate Assets as of
March 31, 2007)
Crescent’s investment in temperature-controlled logistics properties generated $1.9 million in FFO
for the three months ended
March 31, 2007. This compares to $3.2 million of FFO generated for the
three months ended
March 31, 2006. The decrease in FFO is due to increased interest expense from the refinancing in December 2006 as well as an increase in corporate
overhead costs.
OTHER
Included in the 1st quarter 2007 results is $4.3 million of severance and other related
costs. These costs are attributable to a planned reduction in general and administrative expenses
as part of our strategic plan.
On
April 16, 2007, Crescent announced that its Board of Trust Managers had declared cash dividends
of $0.375 per share for its Common Shares, $0.421875 per share for its Series A Convertible
Preferred Shares, and $0.593750 per share for its Series B Redeemable Preferred Shares. The
dividends are payable
May 15, 2007, to shareholders of record on
April 30, 2007.
FUNDS FROM OPERATIONS
Funds from operations is a supplemental non-GAAP financial measurement used in the real estate
industry to measure and compare the operating performance of real estate companies, although those
companies may calculate funds from operations in different ways. The National Association of Real
Estate Investment Trusts (“NAREIT”) defines funds from operations as Net Income (Loss) determined
in accordance with generally accepted accounting principles (“GAAP”), excluding gains (or losses)
from sales of depreciable operating property, excluding extraordinary items (determined by GAAP),
excluding depreciation and amortization of real estate assets, and including the impact of
adjustments for unconsolidated partnerships and joint ventures.
Crescent’s FFO, as adjusted, follows the NAREIT definition, but is adjusted to (i) exclude the
impact of the impairment charges and debt extinguishment charges related to the sale of real estate
assets and (ii) include the impact of gains on sale of developed operating properties and promoted
interests. Crescent provides this additional calculation of FFO, as adjusted, because management
utilizes it in making operating decisions and assessing performance, and to assist investors in
assessing the operating performance of Crescent. A reconciliation of Crescent’s FFO before and
after such adjustments to GAAP net income is included in the financial statements accompanying this
press release and in the
“First Quarter 2007 Supplemental Operating and Financial Data” located on
Crescent’s
website. FFO should not be considered an alternative to net income.
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SUPPLEMENTAL OPERATING AND FINANCIAL DATA
Crescent’s First Quarter 2007 Supplemental Operating and Financial Data report is available on
Crescent’s
website (
www.crescent.com) in the investor relations section. To request a hard copy,
please call Crescent at (
817) 321-1446.
CONFERENCE CALL, WEBCAST AND PRESENTATION
Crescent will also host a conference call and audio webcast, both open to the general public, at
10:00 A.M. Central Time on Tuesday,
May 8, 2007, to discuss the first quarter results and provide a
company update. To participate in the conference call, please dial (
877) 392-0083 domestically or
(
706) 679-3110 internationally, or you may access the audio webcast on Crescent’s
website
(
www.crescent.com) in the investor relations section. A replay of the conference call will be
available through
May 22, 2007, by dialing (
800) 642-1687 domestically or (
706) 645-9291
internationally with a passcode of 7075434.
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”,
“anticipate” and
“may”.
Although Crescent believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, Crescent’s actual results could differ materially from those
described in the forward-looking statements.
The following factors might cause such a difference:
| • |
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Risks associated with Crescent’s strategic plan, including: |
| |
• |
|
Crescent’s ability to effectively implement the plan, including its ability to
achieve targeted reductions in general and administrative expenses; |
| |
| |
• |
|
Crescent’s ability to make divestitures called for by the plan on terms that are
acceptable, or at all; |
| |
| |
• |
|
A loss of key personnel or highly skilled employees as a result of implementation
of the plan or the uncertainty surrounding it; |
| |
| |
• |
|
The rate at which Crescent will determine to make distributions to its
shareholders; and |
| |
| |
• |
|
Crescent’s ability to effectively implement its ultimate strategy respecting its
investment in the Canyon Ranch business; |
| |
| |
• |
|
The ability of Crescent to make the repayments and redemptions of its indebtedness
and preferred equity contemplated by the plan together with its ability to reinvest
available funds at anticipated returns and consummate anticipated office acquisitions
and dispositions on favorable terms and within anticipated time frames; |
| • |
|
Crescent’s ability, at its office properties, to timely lease unoccupied square footage and timely re-lease occupied
square footage upon expiration or termination on favorable terms, which properties continue to be adversely affected by
existing real estate conditions (including the vacancy levels in particular markets, decreased rental rates and
competition from other properties) and which may also be adversely affected by general economic downturns; |
| |
| • |
|
Adverse changes in the financial condition of existing office customers and the ability of these office customers to
pay rent; |
| |
| • |
|
Lack of control and limited flexibility in dealing with Crescent’s jointly owned investments; |
| |
| • |
|
The ability of El Paso Energy to satisfy its obligations to pay rent and termination fees in accordance with the terms
of its agreement with Crescent; |
| |
| • |
|
The concentration of a significant percentage of Crescent’s office assets in Texas; |
| |
| • |
|
Pending Crescent’s sale of its resort and hotel assets and its resort residential development business, risks
associated with owning and operating those assets and businesses, including: |
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| |
• |
|
The ability of Crescent’s resort residential segment to develop, sell and deliver
units and lots within anticipated time frames and within anticipated profit margins; |
| |
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• |
|
Deterioration in the market or in the economy generally and increases in construction
cost associated with development of residential land or luxury residences, including
single-family homes, town homes and condominiums; and |
| |
| |
• |
|
Deterioration in Crescent’s luxury resort and business-class hotel markets or in the
economy generally and increase in construction cost associated with the development of
resort/hotel properties; |
| • |
|
Financing risks, such as Crescent’s ability to generate revenue sufficient to service and repay existing or additional
debt, increases in debt service associated with increased debt and with variable-rate debt, Crescent’s ability to meet
financial and other covenants, liquidity risks related to the use of warehouse facilities governed by repurchase
agreements to fund certain of our mezzanine investments, and Crescent’s ability to consummate financings and
refinancings on favorable terms and within any applicable time frames; |
| |
| • |
|
Reduced availability of insurance coverage on Crescent’s owned properties for losses due to catastrophic events, such
as windstorms and floods; |
| |
| • |
|
The inherent risk of our mezzanine investments, which are structurally or contractually subordinated to senior debt,
may become unsecured as a result of foreclosure by a senior lender on its collateral and are riskier than conventional
mortgage loans; |
| |
| • |
|
Crescent’s failure to have effective internal control over financial reporting as a result of three incorrect
accounting policies that constituted a material weakness, which have been described in more detail in its filings with
the SEC; |
| |
| • |
|
The existence of complex regulations relating to Crescent’s status as a REIT, the effect of future changes in REIT
requirements as a result of new legislation, the effect of the new Texas franchise tax legislation on Texas real estate
investment trusts and the adverse consequences of the failure to qualify as a REIT; 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.
Crescent is not obligated to update these forward-looking statements to reflect any future events
or circumstances.
ABOUT CRESCENT
Crescent Real Estate Equities Company (NYSE: CEI) is
a real estate investment trust headquartered
in Fort Worth, Texas. On
March 1, 2007, Crescent announced a strategic plan to simplify
its business model and focus on its successful office platform as an owner, manager, and developer of class A
properties. Key elements of the plan include the sale of resort and hotel assets, resort
residential developments, and the sale of non-core office properties. Upon
completion of these strategic initiatives, Crescent will own and/or manage approximately 22 million
square feet of premier office buildings in key markets including Dallas, Houston, Denver, Miami,
and Las Vegas. For more information, visit Crescent’s
Web site
at
www.crescent.com.
FOR MORE INFORMATION
Jane E. Mody, Managing Director and Chief Financial Officer, (
817) 321-1086
Jeremy C. Sweek, Investor & Media Relations Senior Manager, (
817) 321-1464
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