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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 1, 2007
Crescent Real Estate Equities Company
(Exact name of registrant as specified in its charter)
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Texas
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1-13038
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52-1862813 |
(State or other jurisdiction
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(Commission
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(IRS Employer |
of organization)
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File Number)
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Identification No.) |
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(817) 321-2100
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 230.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 230.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Securities Act (17 CFR 230.13e-4(c))
TABLE OF CONTENTS
Item 2.02. Results of Operations and Financial Condition.
On March 1, 2007, we issued a press release to report certain financial results for the year
ended December 31, 2006. The press release is furnished as Exhibit 99.1 hereto. On that date, we
also posted to our Web site (www.crescent.com) our fourth quarter 2006 supplemental
operating data and an investor presentation containing information about the Strategic Plan, which
is described in detail below. The investor presentation and supplemental operating data are
furnished as Exhibits 99.2 and 99.3, respectively, to this Form 8-K.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers.
As part of our announcement on March 1, 2007 of the Strategic Plan, we described our plan to
reduce general and administrative expenses, all as described in detail below. As part of our
efforts to achieve this reduction, on March 1, 2007, we announced the following management changes,
which, unless otherwise described below, shall take effect on the date following the filing of the
last of the Companys or the Operating Partnerships Annual Reports on Form 10-K for the fiscal
year ended December 31, 2006.
Resignation of Jerry R. Crenshaw, Jr. as Managing Director and Chief Financial Officer
Jerry
R. Crenshaw, Jr., the Managing Director and Chief Financial Officer of the Company and the
General Partner, will resign from his positions with the Company and the General Partner.
Following his resignation, it is expected that Mr. Crenshaw will serve as an advisor to the Company
through December 31, 2008. The terms of this advisory arrangement as well as the terms of any
severance arrangement have yet to be determined. We will file an amendment to this Form 8-K to
describe the material terms of this arrangement when the terms are determinable.
Jane E. Mody to become Managing Director, Chief Financial Officer
Jane E. Mody will become the Chief Financial Officer for the Company and the General Partner,
succeeding Jerry R. Crenshaw, Jr. Ms. Mody will continue to perform the duties of her current
position as Managing Director, Capital Markets for the Company and the General Partner. Ms. Mody,
age 55, has served as Managing Director, Capital Markets of the Company and the General Partner
since March 2005, prior to which time Ms. Modys title was Executive Vice President, Capital
Markets of the Company and the General Partner. Prior to joining the Company in February 2001, Ms.
Mody served as Vice President of Goldman, Sachs & Co. from February 2000 to February 2001. While at
Goldman, Sachs & Co., Ms. Mody worked with the real estate merchant banking division and was
responsible for fund reporting for nine real estate opportunity funds. She served as Managing
Director and Chief Financial Officer of Pacific Retail Trust, a private REIT, which she co-founded,
from December 1993 until February 1999 when Pacific Retail Trust merged into Regency Realty
Corporation (currently Regency Centers Corporation), a publicly traded REIT. From February 1999 to
August 1999, Ms. Mody served as a consultant to Regency Realty Corporation. Prior to co-founding
Pacific Retail Trust, Ms. Mody served as Executive Vice President of Rosewood Property Company, a
real estate investment company, from April 1988 to December 1993. Ms. Mody serves on the board of
the Dallas Chapter of the American Red Cross. Ms. Mody graduated from Austin College with a
Bachelor of Arts degree and holds a Master of Business Administration degree in International
Business from the University of Dallas.
Suzanne M. Stevens to become Senior Vice President and Chief Accounting Officer
Suzanne M. Stevens will succeed Mr. Crenshaw as principal accounting officer and will become
the Senior Vice President and Chief Accounting Officer for the Company and the General Partner.
Ms. Stevens, age 37, joined the Company in 2004 and has served in various capacities, including
Financial Analyst, Financial Manager and Assistant Controller, Vice President, Controller and,
since March 2004, she has served as Senior Vice President, Controller of the Company and the
General Partner. Prior to joining the Company, Ms. Stevens served as senior auditor for Arthur
Anderson LLP from August 1992 until August 1994. Ms. Stevens holds a Bachelor of Business
Administration degree in accounting and finance from Texas Christian University and is a Certified
Public Accountant.
Resignation of Kenneth S. Moczulski as Managing Director, Investments
Kenneth S. Moczulski, the Managing Director, Investments of the Company and the General
Partner, will resign from his positions with the Company and the General Partner. The effective
date of Mr. Moczulskis resignation and the terms of any severance arrangement have yet to be
determined. The Company will file an amendment to this Form 8-K to describe the material terms of
any arrangement when the terms are determinable.
Item 7.01. Regulation FD Disclosure.
The information contained in this section is being furnished under Item 7.01 Regulation FD
Disclosure. This information, including exhibits referenced herein, shall not be deemed filed for
any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liabilities of that Section. The information in this Item 7.01
shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as
amended, or under the Exchange Act, regardless of any general incorporation language in such
filing.
On March 1, 2007, we announced the results of our review of strategic alternatives and a plan
for future operations (the Strategic Plan). Details of this plan are contained in a
letter to our shareholders, which is part of the press release furnished as Exhibit 99.1 to this
Current Report on Form 8-K and posted to our Web site (www.crescent.com). On that date, we also
posted to our Web site an investor presentation containing updated information about our strategy
and completed and planned transactions and our Fourth Quarter 2006 Supplemental Operating Data. The
investor presentation and the Supplemental Operating Data are furnished as Exhibits 99.2 and 99.3,
respectively, to this Current Report on Form 8-K.
Item 8.01. Other Events.
We have concluded a review of strategic alternatives first announced on November 1, 2006.
Based on that review, we today announced a plan designed to simplify our business model by
concentrating on our core office properties business.
Key elements of the Strategic Plan include:
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Sale of all resort and hotel assets. Properties to be sold include the Fairmont
Sonoma Mission Inn & Spa®, Ventana Inn & Spa in Big Sur, CA, the Park Hyatt Beaver
Creek Resort & Spa, and three business-class hotels. |
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Sale of resort residential developments. Properties and assets to be sold include
Crescent Resort Development and Desert Mountain Development Corporation. |
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Opportunistic sale of office properties. Properties to be sold include virtually
all suburban Dallas properties and all Austin properties, as well as our single assets
in Phoenix, AZ, and in Seattle, WA. |
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Reduction of general and administrative expenses by more than $17 million, or $0.14
per share. Implementation of savings will begin immediately and is expected to be
fully phased in by the end of 2007. We will take a charge of approximately $5 million
for severance costs. |
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Use of sales proceeds to retire debt. We plan to first use the proceeds from asset
sales to retire debt. We expect that our balance sheet will be significantly
strengthened and our cost of capital lowered, giving us capacity for growth. |
In addition to the above elements, we are considering alternatives for our interest in Canyon
Ranch® in conjunction with the founders of Canyon Ranch®. We intend to align our dividend with
industry-accepted pay-out ranges to allow for retention of additional capital for growth. We will
communicate our dividend plans as we execute asset sales. After completing these dispositions, our
remaining office portfolio is expected to consist of 22.6 million square feet, of which 11.7
million square feet, or 52%, will be owned in joint venture. Our effective ownership will be 14.0
million square feet.
Risk Factors
You should carefully consider the following risks associated with our Strategic Plan and all
of the other information set forth in this Current Report on Form 8-K, including the exhibits
hereto, as well as the risks set forth in our other filings with the Securities and Exchange
Commission. If any of the events or developments described below were actually to occur, our
business, financial condition or results of operations could be adversely affected.
If we are unable to effectively implement the Strategic Plan, our business, financial
condition, operating results and common share price could suffer.
The implementation of the Strategic Plan requires the Company to complete sales of numerous
properties and businesses, and effect a substantial reduction in our general and administrative
expenses, which will include a significant reduction in personnel. No assurance can be given that
we will be able to fully implement the Strategic Plan, or that the implementation will not have an
adverse effect on our operations or financial condition. If we fail to implement the Strategic
Plan, or if the implementation is longer, more costly or otherwise less successful than projected,
we could be subject to various adverse consequences, including, but not limited to, the following:
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we may face various disruptions to the operation of our business as a result of the
substantial time and effort invested by our management in connection with the Strategic
Plan, and may be unable to respond effectively to competitive pressures or take
advantage of new business opportunities; |
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our decision to implement the Strategic Plan may cause harm to relationships with
our employees and/or may divert employee attention away from day-to-day operations of
our business; |
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our decision to implement the Strategic Plan may cause harm to relationships with
our strategic business partners, including our relationships with the management of
Canyon Ranch and East-West Partners; |
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regardless of our ability to consummate the Strategic Plan, we would remain liable
for significant costs relating thereto, including, among others, severance and
retention payments, and accounting, legal and financial advisory expenses; and |
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an announcement that we have abandoned or cannot fully implement the Strategic Plan
could trigger a decline in our common share price to the extent that our share price
reflects a market assumption that we will complete the Strategic Plan. |
Our Strategic Plan calls for us to focus our operations through divestitures. We may be
unable to make these divestitures on terms that are acceptable, or at all.
We anticipate making a number of divestitures of our hotel and resort properties, our non-core
office properties and our resort and residential development business in accordance with our
Strategic Plan. Real estate investments generally cannot be sold quickly. Our ability to do so on
favorable terms may be limited by the availability of interested purchasers and internal demand on
our resources. We may not be able to identify purchasers and negotiate acceptable terms on a
timely basis or at all. We may not be able to sell these properties for a gain relative to current
net book value of such properties. To the extent we are unable to sell these properties for our
book value, we may be required to take a non-cash impairment charge or loss on the sale, either of
which would reduce our net income.
A loss of key personnel or highly skilled employees could disrupt our operations and
implementation of our Strategic Plan.
Our officers are critical to the management and direction of our business, and to our
implementation of our Strategic Plan. Our future success depends, in large part, on our ability to
retain these officers and other capable management personnel. We do not presently have employment
agreements with any of our executive officers. Although we believe that we will be able to attract
and retain talented personnel and replace key personnel should the need arise, including by making
retention payments in connection with the Strategic Plan, our inability to do so could disrupt our
operations, including implementation of our Strategic Plan.
We cannot assure you we will continue to make distributions at historical rates or provide
certainty as to what our future dividend rate or policy will be.
We anticipate that we will adjust our dividend rate to be consistent with industry-accepted
pay-out ranges and to allow for retention of additional capital for repayment of debt, redemption
of preferred equity or growth in conjunction with implementation of our Strategic Plan. There are
a number of factors that will affect our decision as to the amount and timeframe of adoption of any
new dividend rate, including the following:
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our financial condition and results of future operations; |
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our ability to sell certain properties and businesses at attractive rates or at all
in accordance with our Strategic Plan and the timing of such sales; |
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the terms of our debt covenants and our outstanding preferred shares; |
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dividend pay-out ranges in the REIT industry; and |
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our ability to make reductions in our general and administrative expenses in
accordance with our Strategic Plan, as well as the timing of such reductions. |
If we do not maintain the dividend rate on our common shares, it could have an adverse effect
on the market price of our common shares. Our outstanding preferred shares have a fixed dividend
rate and, with respect to the right of the payment of dividends, such shares rank senior to our
common shares. In addition to being subject to payment in full of the dividends on our outstanding
preferred shares, payment of dividends on our common shares also is subject to payment of interest
on our existing debt or any debt we may incur in the future, and may be subject to payment in full
of the dividends on any preferred shares we may offer in the future.
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act, and Section 21E of the Exchange Act. These statements are
generally characterized by terms such as believe, expect, anticipate and may. Although we
believe that the expectations reflected in such forward-looking statements are based upon
reasonable assumptions, our actual results could differ materially from those described in the
forward-looking statements.
Factors that might cause such a difference include the risk factors described above as well as
the following:
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Our ability, at our 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; |
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Adverse changes in the financial condition of existing office customers and the
ability of these office customers to pay rent; |
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Lack of control and limited flexibility in dealing with our jointly owned
investments; |
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Our ability to make the repayments of our indebtedness and redeem our preferred
equity contemplated by the Strategic Plan together with our ability to reinvest
available funds at anticipated returns and consummate anticipated office acquisitions
and dispositions on favorable terms and within anticipated time frames; |
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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 the Company; |
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The concentration of a significant percentage of our office assets in Texas; |
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Pending our sale of our resort and hotel assets and our resort residential
development business, risks associated with owning and operating those assets and
businesses, including: |
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The ability of our 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 |
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Deterioration in our resort/business-class hotel markets or in the economy
generally and increase in construction cost associated with the development of
resort/hotel properties; |
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Financing risks, such as the our 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, the our 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 our ability to
consummate financings and refinancings on favorable terms and within any applicable
time frames; |
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Reduced availability of insurance coverage on our owned properties for losses due to
catastrophic events, such as windstorms and floods; |
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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; |
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Our failure to have effective internal control over financial reporting as a result
of three incorrect accounting policies that constituted a material weakness, to be
described in more detail in our filings with the SEC; |
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The existence of complex regulations relating to our 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 |
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Other risks detailed from time to time in our filings with the SEC. |
Given these uncertainties, readers are cautioned not to place undue reliance on such
statements. We are not obligated to update these forward-looking statements to reflect any future
events or circumstances.
Item 9.01. Financial Statements and Exhibits.
The following exhibits are included in this Form 8-K.
(d) Exhibits
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99.1
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Press Release, dated March 1, 2007 of Crescent Real Estate Equities Company relating to
the Strategic Plan and certain financial results for the year ended December 31, 2006 |
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99.2
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Investor Presentation of Crescent Real Estate Equities Company on March 1, 2007 |
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99.3
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Fourth Quarter 2006 Supplemental Operating Data of Crescent Real Estate Equities Company |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
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CRESCENT REAL ESTATE EQUITIES COMPANY |
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Date: March 1, 2007
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By:
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/s/ David M. Dean |
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David M. Dean |
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Managing Director, Law and Secretary |