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Crescent Real Estate Equities Co · 10-Q/A · For 9/30/97

Filed On 12/5/97 · SEC File 1-13038 · Accession Number 950134-97-9166

  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

12/05/97  Crescent Real Estate Equities Co  10-Q/A      9/30/97    1:20                                     Bowne of Dallas I..01/FA

Amendment to Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q/A      Amendment No.1 to Form 10-Q                           20    122K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Carter-Crowley Portfolio Financial Statements (Unaudited) October 1997 Offering Operating Partnership
1	1st Page - Filing Submission
3	Item 1. Financial Statements (Unaudited)
7	Operating Partnership
14	Carter-Crowley Portfolio
17	October 1997 Offering

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

   FORM 10-Q/A

 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934

FOR QUARTER ENDED SEPTEMBER 30, 1997
COMMISSION FILE NO 1-13038

 CRESCENT REAL ESTATE EQUITIES COMPANY
(formerly known as Crescent Real Estate Equities, Inc.) 
------------------------------------------------------------------------------- 
(Exact name of registrant as specified in its charter)

TEXAS                                      52-1862813   
-------------------------------        ---------------------------------------  
(State or other jurisdiction of        (I.R.S. Employer Identification Number)  
incorporation or organization)                                                  

777 Main Street, Suite 2100, Fort Worth, Texas 76102
------------------------------------------------------------------------------- 
(Address of principal executive offices)(Zip code)

 Registrant's telephone number, including area code (817) 877-0477

Number of shares outstanding of each of the registrant's classes of common      
shares, as of December 3, 1997                                                  

Common Shares, par value $.01 per share: 112,556,374
------------------------------------------------------------------------------- 

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 [ ]

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The Form 10-Q of Crescent Real Estate Equities Company (the "Company") for the  
quarter ended September 30, 1997 is being amended to restate the disclosure     
contained in Part I, Item 1, Notes to the Financial Statements (Note 11)        
thereof, to reflect certain updated and corrected information relating to the   
refrigerated warehouse investment made by the Company.                          

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 CRESCENT REAL ESTATE EQUITIES COMPANY
 FORM 10-Q
 TABLE OF CONTENTS

                                                        [Enlarge/Download Table]

PART I:  FINANCIAL INFORMATION                                                     PAGE  
                                                                                   ----  
                                                                                         
Item 1.  Financial Statements (Unaudited)                                                

         Consolidated Balance Sheets as of September 30, 1997 and December 31,           
         1996 (Audited)............................................................  3   

         Consolidated Statements of Operations for the three and nine months             
         ended September 30, 1997 and 1996.........................................  4   

         Consolidated Statements of Cash Flows for the nine months ended                 
         September 30, 1997 and 1996...............................................  5   

         Notes to Financial Statements.............................................  6   

Item 2.  Management's Discussion and Analysis of Financial                               
         Condition and Historical Results of Operations............................ 18   

Item 3.   Quantitative and Qualitative Disclosures About Market Risk............... 31   

PART II:  OTHER INFORMATION                                                              

Item 1.  Legal Proceedings......................................................... 31   

Item 2.  Changes in Securities..................................................... 31   

Item 3.  Defaults Upon Senior Securities........................................... 31   

Item 4.  Submission of Matters to a Vote of Security Holders....................... 31   

Item 5.  Other Information......................................................... 31   

Item 6.  Exhibits and Reports on Form 8-K.......................................... 31   

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CRESCENT REAL ESTATE EQUITIES COMPANY 

CONSOLIDATED BALANCE SHEETS 
(DOLLARS IN THOUSANDS)
(NOTE 1)

                                                        [Enlarge/Download Table]

                                                                                SEPTEMBER 30,  DECEMBER 31, 
                                                                                    1997           1996     
                                                                                ------------   ------------ 
                                                                                 (UNAUDITED)     (AUDITED)  
                                                                                                            
ASSETS:                                                                                                     
 Investments in real estate:                                                                                
   Land                                                                         $    418,625   $    146,036 
   Building and improvements                                                       2,647,981      1,561,639 
   Furniture, fixtures and equipment                                                  47,137         24,951 
   Less -  accumulated depreciation                                                 (256,204)      (208,808)
                                                                                ------------   ------------ 
             Net investment in real estate                                         2,857,539      1,523,818 

   Cash and cash equivalents                                                          47,082         25,592 
   Restricted cash and cash equivalents                                               32,462         36,882 
   Accounts receivable, net                                                           24,010         15,329 
   Deferred rent receivable                                                           30,649         16,217 
   Investments in real estate mortgages and common                                                          
       stock of unconsolidated companies                                             369,779         41,059 
   Notes receivable, net                                                             163,219         28,890 
   Other assets, net                                                                  87,293         43,135 
                                                                                ------------   ------------ 
               Total assets                                                     $  3,612,033   $  1,730,922 
                                                                                ============   ============ 

LIABILITIES:                                                                                                
   Borrowings under Credit Facility                                             $    316,500   $     40,000 
   Notes payable                                                                   1,460,404        627,808 
   Accounts payable, accrued expenses and other liabilities                           88,230         48,462 
                                                                                ------------   ------------ 
              Total liabilities                                                    1,865,134        716,270 
                                                                                ------------   ------------ 

MINORITY INTERESTS:                                                                                         
  Operating partnership, 6,445,227 and 6,640,336 units,                                                     
       respectively                                                                  110,648        120,227 
  Investment joint ventures                                                           28,396         29,265 
                                                                                ------------   ------------ 
              Total minority interests                                               139,044        149,492 
                                                                                ------------   ------------ 

SHAREHOLDERS' EQUITY:                                                                                       
  Common stock, $.01 par value, authorized 250,000,000 shares, 102,442,050 and                              
      36,146,380 shares issued and outstanding                                                              
      at September 30, 1997 and December 31, 1996, respectively                        1,024            361 
   Additional paid-in capital                                                      1,666,978        905,724 
   Deferred compensation on restricted shares                                           (283)          (364)
   Retained deficit                                                                  (59,864)       (40,561)
                                                                                ------------   ------------ 
              Total shareholders' equity                                           1,607,855        865,160 
                                                                                ------------   ------------ 
              Total liabilities and shareholders' equity                        $  3,612,033   $  1,730,922 
                                                                                ============   ============ 

The accompanying notes are integral part of these financial statements. 

 3

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CRESCENT REAL ESTATE EQUITIES COMPANY 

CONSOLIDATED STATEMENTS OF OPERATIONS 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 
(NOTE 1)

                                                        [Enlarge/Download Table]

                                                 FOR THE THREE MONTHS           FOR THE NINE MONTHS      
                                                  ENDED SEPTEMBER 30,            ENDED SEPTEMBER 30,     
                                             ----------------------------   ---------------------------- 
                                                 1997            1996           1997            1996     
                                             ------------    ------------   ------------    ------------ 
                                                      (UNAUDITED)                    (UNAUDITED)         
                                                                                                         
REVENUES:                                                                                                
   Office and retail properties              $     92,014    $     43,255   $    247,333    $    120,080 
   Hotel properties                                 9,032           5,051         26,453          13,775 
   Behavioral healthcare properties                13,824              --         15,966              -- 
   Interest and other income                        5,187           1,062         13,508           3,572 
                                             ------------    ------------   ------------    ------------ 
          Total revenues                          120,057          49,368        303,260         137,427 
                                             ------------    ------------   ------------    ------------ 

EXPENSES:                                                                                                
   Real estate taxes                               10,607           5,077         28,229          13,454 
   Repairs and maintenance                          6,301           2,369         17,244           7,248 
   Other rental property operating                 22,500           9,452         59,100          27,294 
   Corporate general and administrative             2,372           1,199          9,855           3,498 
   Interest expense                                23,075          11,843         54,687          30,861 
   Amortization of deferred financing costs           937             745          2,157           2,065 
   Depreciation and amortization                   20,549          11,058         50,840          29,339 
                                             ------------    ------------   ------------    ------------ 
          Total expenses                           86,341          41,743        222,112         113,759 
                                             ------------    ------------   ------------    ------------ 

         Operating income                          33,716           7,625         81,148          23,668 

OTHER INCOME:                                                                                            
   Equity in net income of unconsolidated                                                                
     companies                                      1,119             892          3,118           3,067 
                                             ------------    ------------   ------------    ------------ 

INCOME BEFORE MINORITY INTERESTS AND                                                                     
  EXTRAORDINARY ITEM                               34,835           8,517         84,266          26,735 
   Minority interests                              (4,432)         (2,239)       (12,018)         (5,858)
                                             ------------    ------------   ------------    ------------ 

INCOME BEFORE EXTRAORDINARY ITEM                   30,403           6,278         72,248          20,877 
   Extraordinary item                                  --              --             --          (1,306)
                                             ------------    ------------   ------------    ------------ 

NET INCOME                                   $     30,403    $      6,278   $     72,248    $     19,571 
                                             ============    ============   ============    ============ 

PER SHARE DATA:                                                                                          
   Income before extraordinary item          $       0.30    $       0.13   $       0.83    $       0.44 
   Extraordinary item                                  --              --             --           (0.02)
                                             ------------    ------------   ------------    ------------ 
   Net income                                $       0.30    $       0.13   $       0.83    $       0.42 
                                             ============    ============   ============    ============ 

WEIGHTED AVERAGE                                                                                         
    SHARES OUTSTANDING                         99,894,600      47,190,564     87,364,374      47,127,264 
                                             ============    ============   ============    ============ 

The accompanying notes are integral part of these financial statements. 

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CRESCENT REAL ESTATE EQUITIES COMPANY 

CONSOLIDATED STATEMENTS OF CASHFLOWS  
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 3) 

                                                        [Enlarge/Download Table]

                                                                         FOR THE NINE MONTHS     
                                                                         ENDED SEPTEMBER 30,     
                                                                    ---------------------------- 
                                                                            (UNAUDITED)          
                                                                        1997            1996     
                                                                    ------------    ------------ 
                                                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:                                                            
Net income                                                          $     72,248    $     19,571 
Adjustments to reconcile net income to                                                           
  net cash provided by operating activities:                                                     
       Depreciation and amortization                                      52,997          31,404 
       Minority interest                                                  12,018           5,858 
       Extraordinary item                                                     --           1,306 
       Non-cash compensation                                                 157              91 
       Equity in earnings in excess of distributions                                             
         received from unconsolidated companies                             (252)           (363)
       Increase in accounts receivable                                    (8,681)         (3,997)
       Increase in deferred rent receivable                              (14,432)         (2,932)
       Increase in other assets                                          (23,879)         (1,445)
       Decrease in restricted cash and cash equivalents                    4,944           1,451 
       Increase (decrease) in accounts payable, accrued                                          
         expenses and other liabilities                                   39,768          (1,394)
                                                                    ------------    ------------ 
            Net cash provided by operating activities                    134,888          49,550 
                                                                    ------------    ------------ 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                            
       Acquisition of investment properties                           (1,356,266)       (173,091)
       Capital expenditures - rental properties                          (14,497)         (4,504)
       Tenant improvement and leasing costs - rental properties          (27,121)         (8,738)
       (Increase) decrease in restricted cash and cash equivalents          (524)          1,682 
       Investment in unconsolidated companies                           (328,468)        (18,924)
       Increase in escrow deposits - acquisition of investment                                   
          properties                                                      (4,190)         (6,350)
       Increase in notes receivable                                     (134,329)        (11,525)
                                                                    ------------    ------------ 
            Net cash used in investing activities                     (1,865,395)       (221,450)
                                                                    ------------    ------------ 

CASH FLOWS FROM FINANCING ACTIVITIES:                                                            
       Debt financing costs                                              (11,329)         (4,317)
       Borrowings under Credit Facility                                  612,500         172,500 
       Payments under Credit Facility                                   (336,000)        (20,000)
       Debt proceeds                                                     990,696         124,638 
       Debt payments                                                    (158,100)        (57,184)
       Capital contributions - joint venture                                  --             750 
       Capital distributions - joint venture                              (2,061)           (988)
       Proceeds from common shares offering                              760,460              -- 
       Proceeds from exercise of share options                               953              -- 
       Issuance of partnership units                                          --           1,574 
       Distribution of Crescent Operating, Inc. shares to                                        
            unitholders of Operating Partnership and                                             
            shareholders of Crescent Equities                            (11,907)             -- 
       Dividends and unitholder distributions                            (93,215)        (47,637)

                                                                    ------------    ------------ 
            Net cash provided by financing activities                  1,751,997         169,336 
                                                                    ------------    ------------ 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          21,490          (2,564)
CASH AND CASH EQUIVALENTS,                                                                       
       Beginning of period                                                25,592          16,931 
                                                                    ------------    ------------ 
CASH AND CASH EQUIVALENTS,                                                                       
       End of period                                                $     47,082    $     14,367 
                                                                    ============    ============ 

The accompanying notes are integral part of these financial statements. 

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 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" and,
together with its subsidiaries, the "Company") is a fully integrated real estate
company operating as a real estate investment trust for federal income tax      
purposes (a "REIT"). The Company provides management, leasing, and development  
services with respect to certain of its properties. Crescent Equities is a Texas
real estate investment trust which became the successor to Crescent Real Estate 
Equities, Inc., a Maryland corporation (the "Predecessor Corporation"), on      
December 31, 1996, through the merger (the "Merger") of the Predecessor         
Corporation and CRE Limited Partner, Inc., a Delaware corporation, into Crescent
Equities. The direct and indirect subsidiaries of Crescent Equities include     
Crescent Real Estate Equities Limited Partnership (the "Operating Partnership");
Crescent Real Estate Equities, Ltd. (the "General Partner"), which is the sole  
general partner of the Operating Partnership; seven single purpose limited      
partnerships (formed for the purpose of obtaining securitized debt) in which the
Operating Partnership owns substantially all of the economic interests directly 
or indirectly, with the remaining interests owned indirectly by the Company     
through seven separate corporations, each of which is a wholly owned subsidiary 
of the General Partner and a general partner of one of the seven limited        
partnerships. The term "Company" includes, unless the context otherwise         
requires, Crescent Equities, the Predecessor Corporation, the Operating         
Partnership, and the other subsidiaries of the Company.                         

      As of September 30, 1997, the Company directly or indirectly owned a
portfolio of real estate assets (the "Properties") located primarily in 20      
metropolitan submarkets in Texas and Colorado. The Properties include 76 office 
properties (the "Office Properties") with an aggregate of approximately 24.7    
million net rentable square feet, 91 behavioral healthcare facilities           
("Behavioral Healthcare Facilities"), five full-service hotels with a total of  
1,900 rooms and two destination health and fitness resorts (the "Hotel          
Properties"), seven retail properties (the "Retail Properties") with an         
aggregate of approximately .8 million net rentable square feet and real estate  
mortgages and non-voting common stock representing economic interest ranging    
from 42.5% to 98% in five unconsolidated residential development corporations   
(the "Residential Development Corporations"). The Company also, has a 42.5%     
partnership interest in an unconsolidated entity whose primary holdings consist 
of a 364-room executive conference center and general partner interests ranging 
from one to 50%, in additional office, retail, multi-family and industrial      
properties.                                                                     

     The Company owns its assets and carries on its operations and other
activities through the Operating Partnership and its other subsidiaries.        

        The following table sets forth, by subsidiary, the Properties owned by
such subsidiary as of September 30, 1997:                                       

Operating Partnership:  The Addison, Addison Tower, The Amberton, AT&T Building,
                  Bank One Tower, Canyon Ranch-Tucson, Cedar Springs
                        Plaza, Central Park Plaza, Chancellor Park(1), Concourse
                      Office Park, Denver Marriott City Center, Four Seasons
                   Hotel-Houston, Frost Bank Plaza, Greenway I and IA,
                  Greenway II, Houston Center Office Properties, MCI
                    Tower, The Meridian, Miami Center, One Preston Park,
                   Palisades Central I, Palisades Central II, The Park
                        Shops in Houston Center, Reverchon Plaza, Sonoma Mission
                    Inn & Spa, Spectrum Center(2), Stemmons Place, Three
                        Westlake Park(3), Trammell Crow Center(4), The Woodlands
          Office Properties(5), The Woodlands Retail
                       Properties(5), Valley Centre, Walnut Green, 44 Cook, 55
                       Madison, 160 Spear Street, 301 Congress Avenue(6), 1615
                      Poydras, 3333 Lee Parkway, 5050 Quorum, and 6225 North
24th Street                     

Crescent Real Estate    The Aberdeen, The Avallon, Caltex House, The Citadel,   
Funding I, L.P.:        Continental Plaza, The Crescent Atrium, The Crescent    
("Funding I")           Office Towers, Regency Plaza One, and Waterside Commons 

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Crescent Real Estate    Albuquerque Plaza, Barton Oaks Plaza One, Briargate     
Funding II, L.P.:       Office and Research Center, Hyatt Regency Albuquerque,  
("Funding II")          Hyatt Regency Beaver Creek, 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 Portfolio(7)                             
Funding III, IV, and                                                            
V, L.P.: ("Funding                                                              
III, IV and V")                                                                 

Crescent Real Estate    Canyon Ranch-Lenox                                      
Funding VI, L.P.:                                                               
("Funding VI")                                                                  

Crescent Real Estate    Behavioral Healthcare Facilities                        
Funding VII, L.P.:                                                              
("Funding VII")                                                                 

-------------                                                                   
(1) The Operating Partnership 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.                   
(2) The Operating Partnership owns the principal economic interest in Spectrum  
Center through an interest in the limited partnership which owns both a 
    mortgage note secured by Spectrum Center and the ground lessor's interest in
the land underlying the building.                                       
(3) The Operating Partnership owns the principal economic interest in Three     
Westlake Park through its ownership of a mortgage note secured by Three 
Westlake Park.                                                          
(4) The Operating Partnership 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.                                                               
(5) The Operating Partnership owns a 75% limited partner interest and an        
    indirect approximately 10% general partner interest in the partnerships that
own The Woodlands Office and Retail Properties.                         
(6) The Operating Partnership owns a 49% limited partner interest and           
  Crescent/301, L.L.C., a wholly owned subsidiary of the General Partner and
the Operating Partnership, owns a 1% general partner interest in 301    
Congress Avenue, L.P., the partnership that owns 301 Congress Avenue.   
(7) Funding III owns the Greenway Plaza Portfolio, except for the central heated
and chilled water plant building and Coastal Tower Office property, both
   located within Greenway Plaza, which are owned by Funding IV and Funding V,
respectively.                                                           

BASIS OF PRESENTATION                                                           

The accompanying unaudited financial statements have been prepared in 
accordance with generally accepted accounting principles for interim financial  
information and with the instructions to Form 10-Q and Article 10 of Regulation 
S-X. Accordingly, they do not include all of the information and footnotes      
required by generally accepted accounting principles for complete financial     
statements. In management's opinion, all adjustments (consisting of normal      
recurring adjustments) considered necessary for a fair presentation of the      
unaudited interim financial statements have been included. Operating results for
interim periods reflected are not necessarily indicative of the results that may
be expected for a full fiscal year. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the     
Company's Form 10-K.                                                            

    Certain reclassifications have been made to previously reported amounts to
conform with current presentation.                                              

2.    NEW ACCOUNTING PRONOUNCEMENT:                                             

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("EPS") ("SFAS  
128") which supersedes APB No. 15 for periods ending after December 15, 1997.   
SFAS 128 specifies the computation, presentation and disclosure requirements for
earnings per share. Primary EPS and Fully Diluted EPS are replaced by Basic EPS 
and Diluted EPS, respectively. Basic EPS, unlike Primary EPS, excludes all      
dilution while Diluted EPS, like Fully 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. The Company does not     
expect the effect of its adoption of SFAS 128 to be material.                   

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3. SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS:                        

                                                        [Enlarge/Download Table]

                                                                             Nine months ended
                                                                                September 30, 
                                                                             -----------------
                                                                               1997      1996 
                                                                             -------   -------
                                                                                              
SUPPLEMENTAL DISCLOSURES OF CASH FLOW                                                         
  INFORMATION:                                                                                

   Interest paid                                                             $52,594   $30,930

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING                                                    
 AND FINANCING ACTIVITIES:                                                                    

   Two-for-one stock split                                                   $   361   $    --

  Conversion of operating partnership units to common shares with resulting                   
    reduction in minority interest and increases in common share and                          
    additional paid-in capital                                               $   426   $   857

  Minority interest - joint venture capital                                  $    --   $21,635

  Issuance of operating partnership units in conjunction                                      
  with property acquisition                                                  $    --   $27,056

4. INVESTMENTS IN REAL ESTATE MORTGAGES AND COMMON STOCK OF UNCONSOLIDATED      
COMPANIES:                                                                

   The Company reports its share of income and losses based on its ownership
interest in the respective equity investments. The following summarized         
information for all unconsolidated companies (see Note 1) has been presented on 
an aggregated basis as of September 30, 1997.                                   

                                                                [Download Table]

                                  For the three       For the nine   
                                  months ended        months ended   
                               September 30, 1997  September 30, 1997
                               ------------------  ------------------
                                                                     
Total revenues                      $ 27,685         $ 34,105        

Total expenses                        26,247           30,853        
                                    --------         --------        
Net income                          $  1,438         $  3,252        
                                    ========         ========        
Company equity in net income                                         
  of unconsolidated companies       $  1,119         $  3,118        
                                    ========         ========        

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5. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:                          

Following is a summary of the Company's debt financing:                         

                                                        [Enlarge/Download Table]

                                                                                  September 30,  
                                                                                       1997      
                                                                                  -------------- 
                                                                                                 
Note payable to LaSalle National Bank, as Trustee for Commercial Mortgage                        
Pass-Through Certificates, Series 1995-MD IV ("LaSalle Note I") 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 (1), secured by the Funding I                                    
properties .....................................................................      $239,000   

Note payable to LaSalle National Bank, as Trustee for Commercial Mortgage                        
Pass-Through Certificates, Series 1996-MD V ("LaSalle Note II") 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(2), secured by the Funding II                                     
properties .....................................................................       161,000   

Note payable to LaSalle National Bank, as Trustee for Commercial Mortgage                        
Pass-Through Certificates, Series 1994-MD II ("LaSalle Note III") due July 1999,                 
bears interest at 30-day LIBOR plus a weighted average rate of 2.135% (at                        
September 30, 1997 the rate was 7.82% subject to a rate cap of 10%) with a                       
five-year interest-only term, secured by the Funding III, IV and V                               
properties .....................................................................       115,000   

Note payable to Connecticut General Life Insurance Company ("CIGNA") due                         
December 2002, bears interest at 7.47% with a seven-year interest-only term,                     
secured by the MCI Tower and Denver Marriott City Center properties ............        63,500   

Note payable to Northwestern Mutual Life Insurance Company due January 2004,                     
bears interest at 7.66% with a seven-year interest-only term, secured by the 301                 
Congress Avenue property .......................................................        26,000   

Note payable to Metropolitan Life Insurance Company due September 2001, bears                    
interest at 8.88% with monthly principal and interest payments, secured by five                  
of The Woodlands Office Properties .............................................        12,188   

Note payable to Nomura Asset Capital Corporation ("Nomura Funding VI Note")                      
bears interest at 10.07% with monthly principal and interest payments based on a                 
25-year amortization schedule through July 2020(3), secured by the Funding VI                    
property .......................................................................         8,716   

Short-term unsecured note payable to BankBoston, N.A. ("BankBoston") due                         
October 1997, bears interest at Eurodollar rate plus 137.5 basis points (at                      
September 30, 1997, the rate was 7.03%) ........................................       235,000(4)

Short-term unsecured note payable to BankBoston due August 1998, bears interest                  
at Eurodollar rate plus 120 basis points (at September 30, 1997, the rate was                    
6.86%) ........................................................................        200,000   


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                                                        [Enlarge/Download Table]

                                                                             September 30,   
                                                                                  1997       
                                                                            -----------------
                                                                                             
Senior unsecured notes to State Street Bank & Trust Company of Missouri,                     
N.A., as Trustee, bear interest at a fixed rate of 6.63% with a five-year                    
interest-only term, due September 2002 (see description of Notes offering                    
below) ....................................................................       150,000    

Senior unsecured notes to State Street Bank & Trust Company of Missouri,                     
N.A., as Trustee, bear interest at a fixed rate of 7.13% with a ten-year                     
interest-only term, due September 2007 (see description of Notes offering                    
below) ....................................................................       250,000    
                                                                               ----------    
Total Notes Payable .......................................................    $1,460,404    
                                                                               ==========    

(1)      In August 2007, the interest rate increases, 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 $220,000.                            
(2)      In March 2006, the interest rate increases, 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 $154,000.                                       
(3)      In July 1998, the Company may defease the note by purchasing Treasury  
         obligations to pay the note without penalty. 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.                                              
(4)      On October 15, 1997, the note was repaid in full through a draw under  
      the Company's Credit Facility (see Note 11 - October 1997 Offering).

       On September 22, 1997, the Company's line of credit from a consortium
of banks led by BankBoston (the "Credit Facility") was increased to $450,000 to 
enhance the Company's financial flexibility in making new real estate           
investments. Concurrently with such increase, the interest rate on advances     
under the Credit Facility was decreased from the Eurodollar rate plus 137.5     
basis points to the Eurodollar rate plus 120 basis points. The Credit Facility  
is unsecured and expires in June 2000. The Credit Facility requires the Company 
to maintain compliance with a number of customary financial and other covenants 
on an ongoing basis, including leverage ratios based on book value and debt     
service coverage ratios, limitations on additional secured and total            
indebtedness and distributions, and a minimum net worth requirement. As of      
September 30, 1997, the Company was in compliance with all covenants. As of     
September 30, 1997, the interest rate was 6.86% and the outstanding balance was 
$316,500, with availability of $133,500.                                        

      On September 22, 1997, the Operating Partnership completed a private
note offering of senior unsecured notes in an aggregate principal amount of     
$400,000 (the "Notes"). The Notes were issued in two series, the 6 5/8%,        
$150,000 notes with maturity on September 15, 2002, yielding a 6.73% effective  
rate (the "2002 Notes") and the 7 1/8%, $250,000 notes with maturity on         
September 15, 2007, yielding a 7.151% effective rate (the "2007 Notes"). The    
Notes pay interest semi-annually in arrears. The interest rate on the Notes is  
subject to temporary increase by 50 basis points in the event that a registered 
offer to exchange the Notes for notes of the Operating Partnership with terms   
identical in all material respects to the Notes is not consummated or a shelf   
registration statement with respect to the resale of the Notes is not declared  
effective by the Securities and Exchange Commission (the "SEC") on or before the
180th day following the date of original issuance of the Notes. The interest    
rate on the Notes also is subject to temporary or permanent increase by 37.5    
basis points in the event that, within the period from the date of original     
issuance of the Notes to the first anniversary of original issuance, the Notes  
are assigned a rating that is not an investment grade rating (as defined in the 
Notes) or are not assigned or do not retain, a rating by specified rating       
agencies. These adjustments may apply simultaneously.                           

     The Notes are redeemable, in whole or in part, at the option of the
Operating Partnership upon payment of principal, accrued and unpaid interest,   
and the premium specified in the Notes. The Notes also                          

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contain certain covenants, including limitations on the ability of the Operating
Partnership and its subsidiaries to incur additional debt, other than certain   
intercompany debt that is subordinate to payment of the Notes, unless certain   
asset and income tests are satisfied.                                           

The net proceeds of the Notes offering were used to fund the  
approximately $327,600 purchase price of Houston Center, to repay approximately 
$50,000 of borrowings under the Credit Facility, to fund                        
approximately $10,000 of the purchase price of Miami Center, and to repay       
approximately $7,200 of short term indebtedness.                                

6.   MINORITY INTERESTS:                                                        

     Minority interests represents (i) the limited partnership interests
owned by unitholders in the Operating Partnership ("units") and (ii) joint      
venture interests held by outside interests. Due to the March 26, 1997          
two-for-one stock split, the exchange factor has been adjusted in accordance    
with the Operating Partnership's limited partnership agreement and 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, the Company's investment in the   
Operating Partnership is increased. During the nine months ended September 30,  
1997, there were 18,551 units exchanged for 37,102 common shares.               

7. SHAREHOLDERS' EQUITY:                                                        

      On February 4, 1997, the Company paid a cash dividend and unitholder
distribution of $26,100 or $.61 per share and equivalent unit, to shareholders  
and unitholders of record on January 21, 1997. The dividend represented an      
annualized distribution of $2.44 per share and equivalent unit.                 

         On March 2, 1997, the Company declared a two-for-one stock split in the
form of a 100% share dividend. The share dividend was paid on March 26, 1997 to 
shareholders of record on March 20, 1997.                                       

       On April 28, 1997, the Company completed an offering (the "April 1997
Offering") of 24,150,000 common shares (including the underwriters'             
overallotment option) at $25.375 per share. Net proceeds from the April 1997    
Offering to the Company after underwriting discount of $29,222 and other        
offering costs of $3,000 were approximately $580,584. On May 14, 1997, the      
Company completed an additional offering of 500,000 common shares to several    
underwriters who participated in the April 1997 Offering. The common shares were
sold at $25.875 per share, totaling gross proceeds of approximately $12,938     
(collectively, the "Offerings").                                                

 In the second quarter of 1997, the Company used net proceeds of
$593,522 from the Offerings and approximately $314,700 from borrowings under the
Credit Facility and $160,000 of short-term borrowings from BankBoston (i) to    
fund approximately $30,000 in connection with the formation and capitalization  
of Crescent Operating, Inc. ("Crescent Operating"); (ii) to repay the $150,000  
BankBoston short-term note payable; (iii) to reduce by $131,000 borrowings under
the Credit Facility; (iv) to fund approximately $306,300 of the purchase price  
of the Carter-Crowley Portfolio (as defined in Note 9) acquired by the Company; 
and (v) to fund the commitments of the Company and Crescent Operating related to
the Magellan transaction totaling approximately $419,700. The remaining $31,222 
has been used for working capital purposes.                                     

  On May 14, 1997, the Company paid a cash dividend and unitholder
distribution of $33,476 or $.305 per share and equivalent unit, to shareholders 
and unitholders of record on April 30, 1997. The dividend represented an        
annualized distribution of $1.22 per share and equivalent unit.                 

   On July 23, 1997, the Company sold to Merrill Lynch & Co. 351,185
common shares at $28.475 per share (the "Merrill Offering"). The proceeds were  
used to repay approximately $10,000 of borrowings under the Credit Facility.    

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    On August 5, 1997, the Company paid a cash dividend and unitholder
distribution of $33,639 or $.305 per share and equivalent unit, to shareholders 
and unitholders of record on July 16, 1997. The dividend represented an         
annualized distribution of $1.22 per share and equivalent unit.                 

    On August 12, 1997, the Company entered into two transactions with
affiliates of Union Bank of Switzerland ("UBS"). In one transaction, the Company
sold 4,700,000 common shares at $31.5625 per share to UBS Securities, LLC for   
approximately $148 million (approximately $145 million of net proceeds) ("UBS   
Offering"). In the other transaction, the Company entered into a forward share  
purchase agreement with Union Bank of Switzerland, London Branch ("UBS-LB")     
which provides that the Company will purchase 4,700,000 common shares from      
UBS-LB within one year. The purchase price will be determined on the date the   
Company settles the agreement and will include a forward accretion component,   
minus an adjustment for the Company's distribution rate. The Company may        
complete the settlement for cash or common shares at its option. The net        
proceeds were used to repay borrowings under the Credit Facility.               

      On September 22, 1997, in connection with the acquisition of Houston
Center, the Company sold to the seller of Houston Center, 307,831 common shares 
at $32.485 per share (the "HC Offering"). The proceeds were used to repay       
approximately $10,000 of borrowings under the Credit Facility.                  

8. FORMATION AND CAPITALIZATION OF CRESCENT OPERATING, INC.                     

    In April 1997, the Company established a new Delaware Corporation,
Crescent Operating. All of the outstanding common stock of Crescent Operating   
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.                                                            

  Crescent Operating was formed to become a lessee and operator of
various assets and to perform the Intercompany Agreement between Crescent       
Operating and the Company, pursuant to which each has agreed to provide the     
other with rights to participate in certain transactions. As a result of the    
formation of Crescent Operating and the execution of the Intercompany Agreement,
persons who own equity interests in both Crescent Operating and the Company have
the opportunity to participate in the benefits of both the real estate          
investments of the Company (including ownership of real state assets) and the   
lease of certain of such assets and the ownership of other non-real estate      
assets by Crescent Operating. The certificate of incorporation, as amended and  
restated, of Crescent Operating generally prohibits Crescent Operating for so   
long as the Intercompany Agreement remains in effect, from engaging in          
activities or making investments that a REIT could make, unless the Company was 
first given the opportunity but elected not to pursue such activities or        
investments.                                                                    

 In connection with the formation and capitalization of Crescent
Operating, the Company provided to Crescent Operating approximately $50,000 in  
the form of cash contributions and loans to be used by Crescent Operating to    
acquire certain assets described in Note 9. The Company also made available to  
Crescent Operating a line of credit in the amount of $20,400 to be used by      
Crescent Operating to fulfill certain ongoing obligations associated with these 
assets.                                                                         

9.   ACQUISITIONS:                                                              

       Greenway II. On January 17, 1997, the Company acquired Greenway II, a
seven-story Class A office building containing approximately 154,000 net        
rentable square feet and located in the Richardson/Plano submarket of Dallas,   
Texas. The purchase price was approximately $18,200, which was funded through a 
draw under the Credit Facility.                                                 

  Trammell Crow Center. On February 28, 1997, the Company acquired
substantially all of the economic interest in Trammell Crow Center, a 50-story  
Class A office building, which contains approximately 1,128,000 net rentable    
square feet. The property is located in the cultural and financial district of  
the Central Business District ("CBD") submarket of Dallas, Texas. The Company   
acquired its interest in Trammell Crow Center through the purchase of fee simple
title to the property (subject to a                                             

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ground lease and a leasehold estate regarding the building) and two mortgage    
notes encumbering the leasehold interests in the land and building. The purchase
price was approximately $162,000, of which $150,000 was funded through proceeds 
from an unsecured, short-term loan with BankBoston and the remaining balance of 
$12,000 through a draw under the Credit Facility.                               

     Denver Properties. On February 28, 1997, the Company acquired three
office buildings in Denver, Colorado, in a single transaction: 44 Cook, 55      
Madison and the AT&T Building. 44 Cook, a 10-story Class A office building      
containing approximately 119,000 net rentable square feet, and 55 Madison, an   
eight-story Class A office building containing approximately 125,000 net        
rentable square feet, are both located in the Cherry Creek submarket of Denver, 
Colorado. The AT&T Building, a 15-story office building, contains approximately 
170,000 net rentable square feet and is located in the Denver CBD submarket. The
three office properties were acquired for an aggregate purchase price of        
approximately $42,675, which was funded through a draw under the Credit         
Facility.                                                                       

     Carter-Crowley Portfolio. On February 10, 1997, the Company entered
into a contract to acquire for approximately $383,300, substantially all of the 
assets (the "Carter-Crowley Portfolio") of Carter-Crowley Properties, Inc.      
("Carter-Crowley"), an unaffiliated company controlled by the family of Donald  
J. Carter. At the time the contract was executed, the Carter-Crowley Portfolio  
included 14 office properties (the "Carter-Crowley Office Portfolio"), with an  
aggregate of approximately 3.0 million net rentable square feet, approximately  
1,216 acres of commercially zoned, undeveloped land located in the Dallas/Fort  
Worth metropolitan area, two multifamily residential properties located in the  
Dallas/Fort Worth metropolitan area, marketable securities, an approximately 12%
limited partner interest in the limited partnership that owns the Dallas        
Mavericks NBA basketball franchise, secured and unsecured promissory notes,     
certain direct non-operating working interests in various oil and gas wells, an 
approximately 35% limited partner interest in two oil and gas limited           
partnerships, and certain other assets (including operating businesses).        
Pursuant to an agreement between Carter-Crowley and the Company, Carter-Crowley 
liquidated approximately $51,000 of such assets originally included in the      
Carter-Crowley Portfolio, consisting primarily of the marketable securities and 
the oil and gas investments, resulting in a reduction in the total purchase     
price by a corresponding amount to approximately $332,300. On May 9, 1997, the  
Company and Crescent Operating acquired the Carter-Crowley Portfolio.           

        The Company acquired certain assets from the Carter-Crowley Portfolio,
with an aggregate purchase price of approximately $306,300, consisting primarily
of the Carter-Crowley Office Portfolio, the two multifamily residential         
properties, the approximately 1,216 acres of undeveloped land and the secured   
and unsecured promissory notes relating primarily to the Dallas Mavericks. In   
addition to the promissory notes relating to the Dallas Mavericks, the Company  
obtained rights from the current holders of the majority interest in the Dallas 
Mavericks to a contingent $10,000 payment after a new arena is constructed      
within a 75-mile radius of Dallas.                                              

  Crescent Operating purchased the remainder of the Carter-Crowley
Portfolio utilizing cash contributions and loan proceeds provided to Crescent   
Operating by the Company. These assets, which have an allocated cost of         
approximately $26,000, consisted primarily of the approximately 12% limited     
partner interest in the limited partnership that owns the Dallas Mavericks, an  
approximately 1% interest in a private venture capital fund, and a 100% interest
in a construction equipment sale, leasing and services company.                 

 Dallas Mavericks Interest. On June 11, 1997, DBL Holdings, Inc.
("DBL"), a wholly owned subsidiary of the Operating Partnership was formed. In  
connection with the formation of DBL, the Operating Partnership acquired all the
voting and non-voting common stock of DBL, for an aggregate purchase price of   
approximately $2,500 and loaned to DBL approximately $10,100. The voting common 
stock, which represented a 5% effective interest in DBL, was subsequently sold  
to Gerald W. Haddock , the President and Chief Executive Officer of the Company 
and Crescent Operating, and John C. Goff, the Vice Chairman of the Company and  
Crescent Operating, for $126. On June 11, 1997, DBL acquired from Crescent      
Operating, for approximately $12,550, the limited partner interest in the       
partnership that owns the Dallas Mavericks.                                     

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Magellan Transaction. On June 17, 1997, the Company acquired  
substantially all of the real estate assets of the domestic hospital provider   
business of Magellan Health Services, Inc. ("Magellan"), as previously owned and
operated by a wholly owned subsidiary of Magellan. The Magellan transaction     
involved various components, certain of which related to the Company and certain
of which related to Crescent Operating.                                         

 The total purchase price of the assets acquired in the Magellan
transaction was approximately $419,700. Of this amount, the Company paid        
approximately $387,200 for the acquisition of the 91 Behavioral Healthcare      
Facilities (and one additional behavioral healthcare facility, which            
subsequently was sold) and $12,500 for the acquisition of warrants to purchase  
1,283,311 shares of common stock of Magellan. Crescent Operating paid $5,000 for
its interest in Charter Behavioral Health Systems, LLC, a limited liability     
company ("CBHS"), $12,500 for the acquisition of warrants to purchase 1,283,311 
shares of common stock of Magellan and $2,500 to CBHS after the closing. CBHS is
owned 50% by Crescent Operating and 50% by a wholly owned subsidiary of         
Magellan, subject to potential dilution of each by up to 5% in connection with  
future incentive compensation of management of CBHS.                            

The principal component of the transaction was the Company's  
acquisition of the Behavioral Healthcare Facilities, which are leased to CBHS,  
and the subsidiaries of CBHS, under a triple-net lease. The lease requires the  
payment of annual minimum rent in the amount of $41,700, increasing in each     
subsequent year during the 12-year term at a 5% compounded annual rate. The     
lease provides for four, five-year renewal options. All maintenance and capital 
improvement costs are the responsibility of CBHS during the term of the lease.  
In addition, CBHS is required to pay annually an additional $20,000 under the   
lease, at least $10,000 of which must be used, as directed by CBHS, for capital 
expenditures each year and up to $10,000 of which may be used, if requested by  
CBHS, to cover capital expenditures, property taxes, insurance premiums, and    
franchise fees.                                                                 

         Woodlands Transaction. On July 31, 1997, the Company and certain Morgan
Stanley funds (the "Morgan Stanley Group") acquired The Woodlands Corporation, a
subsidiary of Mitchell Energy Corporation, for approximately $543,000. In       
connection with the acquisition, the Company and the Morgan Stanley Group made  
equity investments of approximately $80,000 and $109,000, respectively. The     
Company's contribution was funded through the $235,000 BankBoston loan. The     
remaining approximately $354,000 and associated acquisition and financing costs 
of approximately $15,000 were financed by the two limited partnerships,         
described below, through which the investment was made. The Woodlands           
Corporation was the principal owner, developer and operator of The Woodlands, an
approximately 27,000-acre, master-planned residential and commercial community  
located 27 miles north of downtown Houston, Texas. The Woodlands which is       
approximately 50% developed, includes a shopping mall, retail centers, office   
buildings, a hospital, club facilities, a community college, a performance      
pavilion, and numerous other amenities.                                         

      The acquisition was made through The Woodlands Commercial Properties
Company, L.P. ("Woodlands-CPC"), a limited partnership in which the Morgan      
Stanley Group holds a 57.5% interest and the Company holds a 42.5% interest, and
the Woodlands Land Development Company, L.P. ("Woodlands-LDC"), a limited       
partnership in which the Morgan Stanley Group holds a 57.5% interest and a newly
formed Residential Development Corporation, The Woodlands Land Company, Inc.    
("WLC"), holds a 42.5% interest. The Company currently owns all of the          
non-voting common stock, representing a 95% economic interest in WLC and,       
effective September 29, 1997, Crescent Operating owns all of the voting common  
stock, representing a 5% economic interest, in WLC. The Company is the managing 
general partner of Woodlands-CPC and WLC is the managing general partner of     
Woodlands-LDC.                                                                  

In connection with the acquisition, Woodlands-CPC acquired The
Woodlands Corporation's 25% general partner interest in the partnerships that   
own approximately 1.2 million square feet of The Woodlands Office and Retail    
Properties. The Company previously held a 75% limited partner interest in each  
of these partnerships and, as a result of the acquisition, the Company's        
indirect economic ownership interest in these Properties increased to           
approximately 85%. The other assets acquired by Woodlands-CPC include a 364-room
executive conference center, a private golf and tennis club serving             
approximately 1,600 members and offering 81 holes of golf, and approximately 400
acres of land that will support commercial development of more than 3.5 million 
square feet of office, multi-family, industrial, retail and                     

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lodging properties. In addition, Woodlands-CPC acquired The Woodlands           
Corporation's general partner interests, ranging from one to 50%, in additional 
office and retail properties and in multi-family and light industrial           
properties. Woodlands-LDC acquired approximately 6,400 acres of land that will  
support development of more than 20,000 lots for single-family homes and        
approximately 2,500 acres of land that will support more than 21.5 million net  
rentable square feet of commercial development. The executive conference        
center, including the golf and tennis club and golf courses, is operated and    
leased by a wholly owned subsidiary of a partnership owned 42.5% by a           
subsidiary of Crescent Operating and 57.5% by the Morgan Stanley Group.         

      Desert Mountain. On August 29, 1997, the Company acquired, through a
newly formed Residential Development Corporation, Desert Mountain Development   
Corporation ("DMDC"), the majority economic interest in Desert Mountain         
Properties Limited Partnership ("DMPLP"), the partnership that owns Desert      
Mountain, a master-planned, luxury residential and recreational community in    
northern Scottsdale, Arizona. Desert Mountain is an 8,300-acre property that is 
zoned for the development of approximately 4,500 lots, approximately 1,500 of   
which have been sold. Desert Mountain also includes The Desert Mountain Club, a 
private golf, tennis and fitness club serving over 1,600 members. The           
partnership interest was acquired from a subsidiary of Mobil Land Development   
Corporation for approximately $214,000, which was funded through the $200,000   
BankBoston loan and a draw under the Credit Facility. The sole limited partner  
of DMPLP is Sonora Partners Limited Partnership ("Sonora") whose principal owner
is Lyle Anderson, the original developer of Desert Mountain. A portion of       
Sonora's interest in DMPLP is exchangeable for common shares of the Company.    
Sonora currently owns a 7% economic interest in DMPLP, and DMDC, which is the   
sole general partner of DMPLP, owns the remaining 93% economic interest. The    
Company owns all of the non-voting common stock, representing a 95% economic    
interest, and, effective September 29, 1997, Crescent Operating owns all of the 
voting common stock, representing a 5% economic interest, in DMDC. The Company  
also holds a residential development property mortgage on Desert Mountain.      

     Houston Center. On September 22, 1997, the Company acquired Houston
Center, an approximately 3.0 million square foot, mixed-use property located in 
the CBD submarket of Houston, Texas. Houston Center consists of three high-rise 
Class A office buildings aggregating approximately 2.8 million net rentable     
square feet ("Houston Center Office Properties"), a 399-room Four Seasons       
Hotel-Houston, 114 luxury apartments, The Park Shops in Houston Center (a retail
property containing approximately 191,000 net rentable square feet), and        
approximately 20 acres of contiguous undeveloped commercial land. The aggregate 
purchase price for Houston Center was approximately $327,600 which was funded   
from the proceeds of the Notes offering (described in Note 5).                  

       Miami Center. On September 30, 1997, the Company acquired Miami
Center, a 34-story Class A office building containing approximately 783,000 net 
rentable square feet located in the Downtown-CBD submarket of Miami, Florida.   
The Company acquired fee simple title, subject to a Condominium Declaration, to 
Miami Center for approximately $131,500. The purchase price was funded through  
an approximately $121,500 draw under the Credit Facility and $10,000 from       
proceeds of the Notes offering. The Company owns the single condominium unit    
that comprises the Miami Center office building and an unaffiliated party owns  
the hotel unit. The Condominium Declaration grants each unit a 50% interest in  
common areas, as well as in the common operating expenses of the condominium.   

10.   PRO FORMA FINANCIAL INFORMATION                                           

         The pro forma financial information for the nine months ended September
30, 1997 and 1996 assumes the completion, in each case as of January 1, 1996, of
(i) the 11,500,000 common share offering on October 2, 1996 and the additional  
450,000 common share offering on October 9, 1996; (ii) the Offerings; (iii) the 
Merrill Offering; (iv) the UBS Offering; (v) the Notes offering; (vi) the HC    
Offering; (vii) the 1996 and 1997 completed acquisitions inclusive of subsequent
events (see Note 11), except for the Refrigerated Warehouses transaction        
(collectively referred to as the, "Acquisitions"); and (viii) the October 1997  
Offering (as defined in Note 11). Proforma information assumes as of January 1, 
1996, all offering proceeds were used for repayment of indebtedness for         
Acquisitions.                                                                   

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                                                        [Enlarge/Download Table]

                                                               Nine Months Ended  Nine Months Ended
                                                               September 30,1997  September 30,1996
                                                               -----------------  -----------------
                                                                                                   
Total revenue ..............................................       $437,619           $408,865     
Operating income .............................................     $100,440           $ 79,165     
Income before minority interests                                                                   
     and extraordinary item ..................................     $120,339           $ 95,185     

Net income ...................................................     $107,694           $ 84,109     

  Per share:                                                                                       
     Income before extraordinary item ........................     $    .96           $    .76     

     Net income ..............................................     $    .96           $    .75     

The pro forma operating results combine the Company's historical                
operating results with the historical incremental rental income and operating   
expenses including an adjustment for depreciation based on the acquisition price
associated with the Office and Retail Property acquisitions. Pro forma          
adjustments primarily represent the following: (i) rental income to the Company 
from the hotels acquired during 1996 and 1997, based on the lease payments from 
the hotel lessees and calculated on a pro forma basis by applying the rent      
provisions (as set forth in the lease agreements); (ii) rental income based on  
the lease payment from CBHS to the Company by applying the rent provisions (as  
set forth in the lease agreement); (iii) adjustment for depreciation expense for
Hotel Properties and Magellan Facilities; (iv) adjustment for equity in net     
income for the Woodlands and Desert Mountain transactions; (v) interest income  
for the notes acquired in the Carter-Crowley transaction, the loans to Crescent 
Operating and the loans to DMPL; and (vi) interest costs assuming the borrowings
to finance acquisitions and assumption of debt for property acquisitions.       

    These pro forma amounts are not necessarily indicative of what the
actual financial position of the Company would have been assuming the above     
investments had been consummated as of the beginning of the period, nor do they 
purport to represent the future financial position of the Company.              

11.   SUBSEQUENT EVENTS                                                         

  Distribution. On September 10, 1997, the Company declared a cash
distribution of $.38 per share and equivalent unit, to shareholders and         
unitholders of record on October 16, 1997. The cash dividend and unitholder     
distribution were paid on November 4, 1997, and represented an annualized       
distribution of $1.52 per share and equivalent unit.                            

     October 1997 Offering. On October 8, 1997, the Company completed an
offering (the "October 1997 Offering") of 10,000,000 common shares at $39.00 per
share. Net proceeds from the October 1997 Offering to the Company after         
underwriting discount of $19,900 were approximately $370,100 (with other        
estimated offering costs of $1,500). The net proceeds of $370,100 were used to  
partially repay approximately $325,100 of borrowings under the Credit           
Facility and to fund approximately $45,000 of the purchase price of the U.S.    
Home Building.                                                                  

         U.S. Home Building. On October 15, 1997, the Company acquired U.S. Home
Building, a 21-story Class A office building located in the West Loop/Galleria  
submarket of Houston, Texas, containing approximately 400,000 net rentable      
square feet. The purchase price was approximately $45,000, which was funded from
proceeds of the October 1997 Offering.                                          

  Bank One Center. On October 22, 1997, the Company, together with
affiliates of TrizecHahn Corporation ("Trizec") acquired Bank One Center, a     
60-story Class A office building located in the CBD submarket of Dallas, Texas. 
Bank One Center contains approximately 1.5 million net rentable square feet. The
acquisition was made by Main Street Partners, L.P. (the "Partnership"), a Texas 
limited partnership in which the Company and Trizec each own a 50% interest.    
Crescent 1717 Main, L.L.C., a Texas limited liability company that is wholly    
owned by the Operating Partnership and TrizecHahn 1717 Main St., Inc., a        
Delaware corporation, serve as the general partners of the Partnership. The     
Partnership acquired Bank One Center for approximately $238,000 from two        
unaffiliated entities. The purchase price was funded through (i) proceeds from  
two secured loans aggregating $155,000 provided by The Travelers Insurance      
Company and (ii) capital contributions of $41,500 from each of the Company and  
Trizec partner groups. The Company's capital contribution of $41,500 was funded 
through a draw under the Credit Facility.                                       

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        Registration Statement. On October 29, 1997, the Company filed a shelf
registration with the SEC for an aggregate of $1.5 billion of common shares,    
preferred shares, and warrants exercisable for  common shares. Any securities   
issued under the registration statement may be offered from time to time in     
amounts, at prices, and on terms to be determined at the time of the offering.  
Management believes this shelf registration will provide the Company with more  
efficient and immediate access to the capital markets at such time as it is     
considered appropriate. Net proceeds from any offering of these securities are  
expected to be used for general business purposes, including the acquisition    
and development of additional properties and other acquisition transactions,    
the payment of certain outstanding debt, and improvements to certain properties 
in the Company's portfolio.                                                     

        Refrigerated Warehouses Transaction. Effective September 28, 1997, the
Company entered into a partnership with Vornado Realty Trust ("Vornado" and,    
collectively with its affiliates, "VNO") to participate in the acquisition of   
Americold Corporation ("Americold") and URS Logistics, Inc. ("URS"), two        
suppliers of refrigerated warehouse space in the United States. On October 30,  
1997, the Company and VNO agreed to the termination of that partnership and the 
formation of two new partnerships, one of which was formed to consummate the    
acquisition of Americold (the "Americold Partnership") and the other to         
consummate the acquisition of URS (the "URS Partnership"). The Company, through 
two newly formed subsidiaries ("Crescent Subsidiaries"), will own 40% of        
these partnerships, and Vornado, through two newly formed subsidiaries ("Vornado
Subsidiaries"), will own 60%.                                                   

    On October 31, 1997, the Americold Partnership acquired all of the
common stock of Americold through the merger of a subsidiary of Vornado into    
Americold, and the URS Partnership acquired all of the common stock of URS      
through the merger of a separate subsidiary of Vornado into URS. As a result,   
the Americold Partnership and the URS Partnership became the owners and         
operators of approximately 79 refrigerated warehouses with an aggregate of      
approximately 368 million cubic feet.                                           

         The aggregate purchase price for the acquisition of Americold and URS
was approximately $1.0 billion (including transaction costs associated with the 
acquisition).  Of this amount, the purchase price for the acquisition of        
Americold was approximately $632,000 (consisting of approximately $112,000 in   
cash for the purchase of the equity, approximately $151,000 in cash for the     
repayment of certain outstanding bonds issued by Americold, approximately       
$367,000 in retention of debt and approximately $2,000 in transaction costs),   
and the purchase price for the acquisition of URS was approximately $372,000    
(consisting of approximately $173,000 in cash for the purchase of equity,       
approximately $192,000 in retention of debt and approximately $7,000 in         
transaction costs).                                                             

The Company currently owns all of the voting common stock,    
representing an approximately 5% economic interest, and all of the nonvoting    
common stock, representing an approximately 95% economic interest, of the       
Crescent Subsidiaries. The Company expects to offer its interest in the voting  
common stock to Crescent Operating, but no offer had been made as of November   
14, 1997. It is intended that the transfer of the voting common stock to        
another entity  will take place in the near future and in no event later than   
December 31, 1997.                                                              

     The parties have not yet determined certain matters relating to the
future ownership and operations of Americold and URS, including the             
identification and division of the assets that will continue to be owned by     
one of the partnerships and those that will be owned by one or more other       
entities formed to conduct the business operations currently conducted by       
Americold and URS, and the nature and terms of any lease that may be entered    
into between the operating entity and the owner of the warehouses.              

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         Term Loan. On November 3, 1997, the Company negotiated a term loan with
BankBoston in the amount of $50,000 (the "BankBoston Term Loan"). The loan bears
interest at Eurodollar plus 120 basis points and matures on March 31, 1998. The 
BankBoston Term Loan can be increased to $150,000 subject to certain conditions.

    Fountain Place. On November 7, 1997, the Company acquired Fountain
Place, a 60-story Class A office building located in the CBD submarket of       
Dallas, Texas containing approximately 1.2 million net rentable square feet. The
purchase price was approximately $114,000 of which the Company funded $16,900   
through the BankBoston Term Loan and $97,100 through the assumption of          
nonrecourse indebtedness.                                                       

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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

                 /s/ Gerald W. Haddock
                                    ----------------------------------------
Date:    December 5, 1997             Gerald W. Haddock, President and Chief    
             Executive Officer

               /s/ Dallas E. Lucas
                                    ----------------------------------------
Date:    December 5, 1997             Dallas E. Lucas, Senior Vice President,   
                             Chief Financial Officer and Chief
              Accounting Officer

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Dates Referenced Herein and Documents Incorporated By Reference

		Referenced-On Page
This 10-Q/A Filing	Date	First	Last	Other Filings

	1/1/96	16
	9/30/96	3	16	424B5, 10-Q, 10-Q/A
	10/2/96	16
	10/9/96	16
	12/31/96	3	7	11-K, 10-K405/A, 10-K405
	1/17/97	13
	1/21/97	12
	2/4/97	12
	2/10/97	14		SC 13G/A
	2/28/97	13	14	8-K/A, 8-K
	3/2/97	12
	3/20/97	12
	3/26/97	12
	4/28/97	12
	4/30/97	12		10-K405/A
	5/9/97	14
	5/14/97	12
	5/30/97	13
	6/11/97	14
	6/12/97	13
	6/17/97	15
	7/16/97	13
	7/23/97	12		8-K, 424B5
	7/31/97	15
	8/5/97	13
	8/12/97	13
	8/29/97	16
	9/10/97	17
	9/22/97	11	16	8-K
	9/28/97	18		8-K/A
	9/29/97	15	16
For The Period Ended	9/30/97	1	16	8-K/A, 10-Q, 8-K
	10/8/97	17		8-K
	10/15/97	11	17	8-K
	10/16/97	17		S-3
	10/22/97	17		8-K
	10/29/97	18		S-3/A
	10/30/97	18
	10/31/97	18
	11/3/97	19
	11/4/97	17
	11/7/97	19
	11/14/97	18		10-Q
	12/3/97	1
Filed On / Filed As Of	12/5/97	20
	12/15/97	8
	12/31/97	18		10-K/A, 10-K, 11-K
	3/31/98	19		10-K, 10-Q
	9/15/02	11
	9/15/07	11

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Crescent Real Estate Equities Co · 10-Q/A · For 9/30/97

Filed On 12/5/97 · SEC File 1-13038 · Accession Number 950134-97-9166

﻿Amendment to Quarterly Report — Form 10-QFiling Table of Contents

﻿Document Table of Contents

Dates Referenced Herein and Documents Incorporated By Reference

Amendment to Quarterly Report — Form 10-Q
Filing Table of Contents

Document Table of Contents