<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-K/A
                                (AMENDMENT NO. 3)
     (Mark One)

      [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001.
                                       OR
     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                 FOR THE TRANSITION PERIOD FROM ___________ TO

                         COMMISSION FILE NUMBER 1-13038
                                                -------

                      CRESCENT REAL ESTATE EQUITIES COMPANY
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

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

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

        Registrant's telephone number, including area code (817) 321-2100
                                                           --------------

Securities registered pursuant to Section 12(b) of the Act:

<Table>
<Caption>

                                                                       Name of Each Exchange
Title of each class:                                                   on Which Registered:
--------------------                                                   ---------------------
<S>                                                                    <C>
Common Shares of Beneficial Interest par value $.01 per share          New York Stock Exchange

6 3/4% Series A Convertible Cumulative Preferred Shares of
  Beneficial Interest par value $.01 per share                         New York Stock Exchange
</Table>

--------------------------------------------------------------------------------
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 reports) and (2) has been subject to such filing
requirements for the past ninety (90) days.

                                YES   X     NO
                                    -----       -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]


As of April 24, 2002, the aggregate market value of the 95,437,284 common shares
and 8,000,000 preferred shares held by non-affiliates of the registrant was
approximately $1.8 billion and $165.2 million, respectively, based upon the
closing price of $19.20 for common shares and $20.65 for preferred shares on the
New York Stock Exchange.

<Table>
<S>                                                                 <C>
Number of Common Shares outstanding as of April 24, 2002:           119,688,618
Number of Preferred Shares outstanding as of April 24, 2002:          8,000,000
</Table>

<PAGE>



           The Form 10-K of Crescent Real Estate Equities Company (the
"Company") for the year ended December 31, 2001 is being amended to (i) amend
Item 1. Business in response to a comment letter received from the Securities
and Exchange Commission ("SEC"), (ii) amend Item 5. Market for Registrant's
Common Equity and Related Shareholder Matters in response to a comment letter
received from the SEC, (iii) amend Item 6. Selected Financial Data to conform to
financial statement reclassifications in Item 8. Financial Statements and
Supplementary Data, (iv) amend Item 7. Management's Discussion and Analysis of
Financial Condition and Historical Results of Operations in response to a
comment letter received from the SEC and as a result of financial statement
reclassifications in Item 8. Financial Statements and Supplementary Data, (v)
amend Item 8. Financial Statements and Supplementary Data in order to make
certain revisions to the Notes to Consolidated Financial Statements in response
to a comment letter received from the SEC, reclassify certain amounts in the
financial statements as a result of the adoption by the Company of SFAS No. 144
on January 1, 2002 and as a result of the completion by Ernst & Young LLP of the
reaudit of the Company's consolidated financial statements as of December 31,
2001 and 2000 and for each of the three years in the period ended December 31,
2001 and replace the Report of Independent Public Accountants of the Company's
former certifying accountant, Arthur Andersen LLP, with the report of the
Company's new certifying accountant, Ernst & Young LLP and (vi) amend Item 14.
Exhibits, Financial Statement Schedules and Reports on Form 8-K to include, as
an exhibit, the consent of the Company's new certifying accountant to the
incorporation by reference of their report included in Item 8 of this Form
10-K/A into the Company's previously filed registration statements under the
Securities Act of 1933, as amended. All amended Items are presented in their
entirety.



<PAGE>


                                TABLE OF CONTENTS

<Table>
<Caption>

                                                                                                        PAGE
<S>                                                                                                     <C>

                                                   PART I.

Item 1.    Business................................................................................       1

                                                   PART II.

Item 5.    Market for Registrant's Common Equity and Related Shareholder Matters...................      13
Item 6.    Selected Financial Data.................................................................      15
Item 7.    Management's Discussion and Analysis of Financial Condition and Results
           of Operations...........................................................................      16
Item 8.    Financial Statements and Supplementary Data.............................................      51

                                                  PART IV.

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................     102
</Table>

<PAGE>


                                     PART I

ITEM 1. BUSINESS

                                   THE COMPANY

         Crescent Real Estate Equities Company ("Crescent Equities") operates as
a real estate investment trust for federal income tax purposes, (a "REIT"), and,
together with its subsidiaries, provides management, leasing and development
services for some of its properties.

         The term "Company" includes, unless the context otherwise indicates,
Crescent Equities, a Texas REIT, and all of its direct and indirect
subsidiaries.

         The direct and indirect subsidiaries of Crescent Equities at December
31, 2001 included:

                  o        CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP

                           The "Operating Partnership."

                  o        CRESCENT REAL ESTATE EQUITIES, LTD.

                           The "General Partner" of the Operating Partnership.

                  o        SUBSIDIARIES OF THE OPERATING PARTNERSHIP AND THE
                           GENERAL PARTNER

         Crescent Equities conducts all of its business through the Operating
Partnership and its other subsidiaries. The Company is structured to facilitate
and maintain the qualification of Crescent Equities as a REIT.

         As of December 31, 2001, the Company's assets and operations were
composed of four investment segments:

         o        Office Segment;

         o        Resort/Hotel Segment;

         o        Residential Development Segment; and

         o        Temperature-Controlled Logistics Segment.

                  Within these segments, the Company owned or had an interest in
the following real estate assets (the "Properties") as of December 31, 2001:

         o        OFFICE SEGMENT consisted of 74 office properties (collectively
                  referred to as the "Office Properties"), located in 26
                  metropolitan submarkets in six states, with an aggregate of
                  approximately 28.0 million net rentable square feet.

         o        RESORT/HOTEL SEGMENT consisted of five luxury and destination
                  fitness resorts and spas with a total of 1,028 rooms/guest
                  nights and four upscale business-class hotel properties with a
                  total of 1,769 rooms (collectively referred to as the
                  "Resort/Hotel Properties").

         o        RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Company's
                  ownership of real estate mortgages and non-voting common stock
                  representing interests ranging from 90% to 95% in five
                  unconsolidated residential development corporations
                  (collectively referred to as the "Residential Development
                  Corporations"), which in turn, through joint venture or
                  partnership arrangements, owned 21 upscale residential
                  development properties (collectively referred to as the
                  "Residential Development Properties").

         o        TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the
                  Company's 40% interest in a general partnership (the
                  "Temperature-Controlled Logistics Partnership"), which owns
                  all of the common stock,




                                       1
<PAGE>

                  representing substantially all of the economic interest, of
                  AmeriCold Corporation (the "Temperature-Controlled Logistics
                  Corporation"), a REIT, which, as of December 31, 2001,
                  directly or indirectly owned 89 temperature-controlled
                  logistics properties (collectively referred to as the
                  "Temperature-Controlled Logistics Properties") with an
                  aggregate of approximately 445.2 million cubic feet (17.7
                  million square feet) of warehouse space.

         See "Note 1. Organization and Basis of Presentation" included in "Item
8. Financial Statements and Supplementary Data" for a table that lists the
principal subsidiaries of Crescent Equities and the Properties owned by such
subsidiaries.

         See "Note 4. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies" included in "Item 8. Financial Statements and
Supplementary Data" for a table that lists the Company's ownership in
significant unconsolidated companies and equity investments as of December 31,
2001, including the three Office Properties in which the Company owned an
interest through unconsolidated companies and equity investments and the
Company's ownership interests in the Residential Development Segment and the
Temperature-Controlled Logistics Segment.

         On February 14, 2002, the Company executed an agreement with Crescent
Operating, Inc. ("COPI"), pursuant to which COPI transferred to the Company, in
lieu of foreclosure, the lessee interests in the eight Resort/Hotel Properties
leased to subsidiaries of COPI and, pursuant to a strict foreclosure, the voting
common stock in three of the Company's Residential Development Corporations. The
Company will fully consolidate the operations of the eight Resort/Hotel
Properties and the three Residential Development Corporations, beginning on the
date of the transfers of these assets. See "Note 22. Subsequent Events" included
in "Item 8. Financial Statements and Supplementary Data" for additional
information regarding the Company's agreement with COPI.

         For purposes of investor communications, the Company classifies its
luxury and destination fitness resorts and spas and upscale Residential
Development Properties as a single group referred to as the "Resort and
Residential Development Sector" due to their similar targeted customer
characteristics. This group does not contain the four upscale business-class
hotel properties. Additionally, for investor communications, the Company
classifies its Temperature-Controlled Logistics Properties and its upscale
business-class hotel properties as the "Investment Sector." However, for
purposes of segment reporting as defined in Statement of Financial Accounting
Standard ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and
Related Information" and this Annual Report on Form 10-K, the Resort/Hotel
Properties, including the upscale business-class hotel properties, the
Residential Development Properties and the Temperature-Controlled Logistics
Properties are considered three separate reportable segments.

         See "Note 3. Segment Reporting" included in "Item 8. Financial
Statements and Supplementary Data" for a table showing total revenues, funds
from operations, and equity in net income of unconsolidated companies for each
of these investment segments for the years ended December 31, 2001, 2000 and
1999 and identifiable assets for each of these investment segments at December
31, 2001 and 2000.

                       BUSINESS OBJECTIVES AND STRATEGIES

BUSINESS OBJECTIVES

         The Company's primary business objective is to provide its shareholders
with an attractive yet predictable growth in cash flow and underlying asset
value. Additionally, the Company is focused on increasing funds from operations
and cash available for distribution, while optimizing the corresponding growth
rates. The Company also strives to attract and retain the best talent available
and to empower management through the development and implementation of a
cohesive set of operating, investing and financing strategies that will align
their interests with the interests of the Company's shareholders.


                                       2
<PAGE>
OPERATING STRATEGIES

         The Company seeks to enhance its operating performance by
distinguishing itself as the leader in its core investment segments through
customer service and asset quality.

         The Company's operating strategies include:

         o        operating the Office Properties as long-term investments;

         o        providing exceptional customer service;

         o        increasing occupancies, rental rates and same-store net
                  operating income; and

         o        emphasizing brand recognition of the Company's premier Class A
                  Office Properties and luxury and destination fitness resorts
                  and spas.

INVESTING STRATEGIES

         The Company focuses on assessing investment opportunities and markets
considered "demand-driven," or to have high levels of in-migration by
corporations, affordable housing costs, moderate costs of living, and the
presence of centrally located travel hubs, primarily within the Office Segment.
These investment opportunities are evaluated in light of the Company's long-term
investment strategy of acquiring properties at a significant discount to
replacement cost in an environment in which the Company believes values will
appreciate and equal or exceed replacement costs. Investment opportunities are
expected to provide growth in cash flow after applying management skills,
renovation and expansion capital and strategic vision.

         The Company's investment strategies include:

         o        capitalizing on strategic acquisition opportunities, primarily
                  within the Company's Office Segment;

         o        evaluating the expected returns on acquisition opportunities
                  in relation to the Company's cost of capital;

         o        selectively developing the Company's commercial land
                  inventory, primarily in its Office and Resort/Hotel Segments
                  in order to meet the needs of customers;

         o        selectively developing luxury and destination fitness resorts
                  and spas;

         o        monetizing the current investments of the Company in the five
                  Residential Development Corporations and reinvesting returned
                  capital from the Residential Development Segment primarily
                  into the Office Segment where the Company expects to achieve
                  favorable rates of return; and

         o        evaluating future repurchases of the Company's common shares,
                  considering stock price, cost of capital, alternative
                  investment options and growth implications.

FINANCING STRATEGIES

         The Company implements a disciplined set of financing strategies in
order to fund its operating and investing activities.

         The Company's financing strategies include:

         o        funding operating expenses, debt service payments and
                  distributions to shareholders and unitholders primarily
                  through cash flow from operations;



                                       3
<PAGE>

         o        taking advantage of market opportunities to refinance existing
                  debt and reduce interest cost, replace secured debt with
                  unsecured debt, manage the Company's debt maturity schedule
                  and expand the Company's lending group;

         o        actively managing the Company's exposure to variable-rate
                  debt;

         o        utilizing a combination of the debt, equity, joint venture
                  capital and selected asset disposition alternatives available
                  to the Company to finance acquisition and development
                  opportunities; and

         o        recycling capital within the Company through strategic sales
                  of non-core assets and through joint ventures of selected
                  Office Properties within the Company's portfolio while
                  maintaining a minority interest and continuing to lease and
                  manage the Properties.

                                    EMPLOYEES

         As of February 25, 2002, the Company had 794 employees. None of these
employees are covered by collective bargaining agreements. The Company considers
its employee relations to be good.

                                   TAX STATUS

         The Company elected under Section 856(c) of the Internal Revenue Code
of 1986, as amended (the "Code"), to be taxed as a REIT under the Code beginning
with its taxable year ended December 31, 1994. As a REIT for federal income tax
purposes, the Company generally is not subject to federal income tax on REIT
taxable income that it distributes to its shareholders. Under the Code, REITs
are subject to numerous organizational and operational requirements, including
the requirement to distribute at least 90% of REIT taxable income each year. The
Company will be subject to federal income tax on its REIT taxable income
(including any applicable alternative minimum tax) at regular corporate rates if
it fails to qualify as a REIT for tax purposes in any taxable year. The Company
will also not be permitted to qualify for treatment as a REIT for federal income
tax purposes for four years following the year during which qualification is
lost. Even if the Company qualifies as a REIT for federal income tax purposes,
it may be subject to certain state and local income and franchise taxes and to
federal income and excise taxes on its undistributed REIT taxable income. In
addition, certain of its subsidiaries are subject to federal, state and local
income taxes.



                                       4
<PAGE>

                              ENVIRONMENTAL MATTERS

         The Company and its Properties are subject to a variety of federal,
state and local environmental, health and safety laws, including:

         o        Comprehensive Environmental Response, Compensation, and
                  Liability Act of 1980, as amended ("CERCLA");

         o        Resource Conservation & Recovery Act;

         o        Federal Clean Water Act;

         o        Federal Clean Air Act;

         o        Toxic Substances Control Act; and

         o        Occupational Safety & Health Act.

         The application of these laws to a specific property that the Company
owns will be dependent on a variety of property-specific circumstances,
including the former uses of the property and the building materials used at
each property. Under certain environmental laws, principally CERCLA, a current
or previous owner or operator of real estate may be required to investigate and
clean up certain hazardous or toxic substances, asbestos-containing materials,
or petroleum product releases at the property. They may also be held liable to a
governmental entity or third parties for property damage and for investigation
and clean up costs such parties incur in connection with the contamination,
whether or not the owner or operator knew of, or was responsible for, the
contamination. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. The owner or operator of a site also may be
liable under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site. Such costs or liabilities
could exceed the value of the affected real estate. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral.

         Compliance by the Company with existing environmental, health and
safety laws has not had a material adverse effect on the Company's financial
condition and results of operations, and management does not believe it will
have such an impact in the future. In addition, the Company has not incurred,
and does not expect to incur any material costs or liabilities due to
environmental contamination at Properties it currently owns or has owned in the
past. However, the Company cannot predict the impact of new or changed laws or
regulations on its current Properties or on properties that it may acquire in
the future. The Company has no current plans for substantial capital
expenditures with respect to compliance with environmental, health and safety
laws.

                                INDUSTRY SEGMENTS

                                 OFFICE SEGMENT

OWNERSHIP STRUCTURE

         As of December 31, 2001, the Company owned or had an interest in 74
Office Properties located in 26 metropolitan submarkets in six states, with an
aggregate of approximately 28.0 million net rentable square feet. The Company,
as lessor, has retained substantially all of the risks and benefits of ownership
of the Office Properties and accounts for its leases as operating leases.
Additionally, the Company provides management and leasing services for some of
its Office Properties.

         See "Item 2. Properties" for more information about the Company's
Office Properties. In addition, see "Note 1. Organization and Basis of
Presentation" included in "Item 8. Financial Statements and Supplementary Data"
for a table that lists the principal subsidiaries of the Company and the
Properties owned by such subsidiaries and "Note 4. Investments in Real Estate
Mortgages and Equity of Unconsolidated Companies" included in "Item 8. Financial
Statements and Supplementary Data" for a table that lists the Company's
ownership in significant unconsolidated companies or equity



                                       5
<PAGE>

investments and the four Office Properties in which the Company owned an
interest through these unconsolidated companies or equity investments.

JOINT VENTURE ARRANGEMENTS

5 Houston Center

         On June 4, 2001, the Company entered into a joint venture arrangement
with a pension fund advised by JP Morgan Investment Management, Inc. ("JPM") to
construct the 5 Houston Center Office Property within the Company's Houston
Center mixed-use Office Property complex in Houston, Texas. The Class A Office
Property will consist of 577,000 net rentable square feet. The joint venture is
structured such that the fund holds a 75% equity interest, and the Company holds
a 25% equity interest. In addition, the Company is developing, and will manage
and lease, the Property on a fee basis.

Four Westlake Park and Bank One Tower

         On July 30, 2001, the Company entered into joint venture arrangements
with an affiliate of General Electric Pension Fund ("GE") for two Office
Properties, Four Westlake Park in Houston, Texas, and Bank One Tower in Austin,
Texas. The joint ventures are structured such that GE holds an 80% equity
interest in each of the Office Properties, Four Westlake Park, a 560,000 square
foot Class A Office Property located in the Katy Freeway submarket of Houston,
and Bank One Tower, a 390,000 square foot Class A Office Property located in
downtown Austin. The Company continues to hold the remaining 20% equity
interests in each Office Property. In addition, the Company manages and leases
the Office Properties on a fee basis.

MARKET INFORMATION

         The Office Properties reflect the Company's strategy of investing in
premier assets within markets that have significant potential for rental growth.
Within its selected submarkets, the Company has focused on premier locations
that management believes are able to attract and retain the highest quality
tenants and command premium rents. Consistent with its long-term investment
strategies, the Company has sought transactions where it was able to acquire
properties that have strong economic returns based on in-place tenancy and also
have a dominant position within the submarket due to quality and/or location.
Accordingly, management's long-term investment strategy not only demands
acceptable current cash flow return on invested capital, but also considers
long-term cash flow growth prospects. In selecting the Office Properties, the
Company analyzed demographic and economic data to focus on markets expected to
benefit from significant long-term employment growth as well as corporate
relocations.

         The Company's Office Properties are located primarily in the
Dallas/Fort Worth and Houston, Texas, metropolitan areas, both of which are
projected to benefit from strong population and employment growth over the next
10 years. As indicated in the table below entitled "Projected Population Growth
and Employment Growth for all Company Markets," these core Company markets are
projected to outperform the 10-year averages for the United States. In addition,
the Company considers these markets "demand-driven" markets due to high levels
of in-migration by corporations, affordable housing costs, moderate cost of
living, and the presence of centrally located travel hubs, making all areas of
the country easily accessible.

Texas

         As of December 2001, the Texas unemployment rate was 5.7%, slightly
better than the national unemployment rate of 5.8%. According to the Texas
Economic Update, Texas weathered the 2001 economic slowdown better than the
nation as a whole.

Dallas/Fort Worth ("DFW")

         According to the Bureau of Labor Statistics, 2001 job growth slowed
considerably in the DFW area. As of December 2001, the DFW unemployment rate was
5.6%, compared with the Texas unemployment rate of 5.7% and the national
unemployment rate of 5.8%. As for DFW's 2001 commercial office market, according
to CoStar data, citywide net



                                       6
<PAGE>

economic absorption, excluding space available for sublease, was approximately
1.0 million square feet, primarily represented by a positive 1.0 million square
feet of absorption in Class A space. The city's total net absorption, including
space available for sublease, was approximately (3.0) million square feet for
2001; however, Class A space represented only approximately (700,000) square
feet of the (3.0) million total square feet.

Houston

         Houston's employment data held steady through much of 2001, despite the
slowdown in the economy. Approximately 23,000 jobs were created in 2001, an
increase of approximately 1.1% over 2000. As of December 2001, the Houston
unemployment rate was 4.4%, compared with the Texas unemployment rate of 5.7%
and the national unemployment rate of 5.8%. As for Houston's 2001 commercial
office market, according to CoStar data, citywide net economic absorption,
excluding space available for sublease, was 2.0 million square feet, with 2.75
million square feet in Class A space. The city's total net absorption, including
space available for sublease, was a (200,000) square feet for 2001; however,
Class A space had a positive total net absorption of 1.4 million square feet.

         The demographic conditions, economic conditions and trends (population
growth and employment growth) favoring the markets in which the Company has
invested are projected to continue to exceed the national averages, as
illustrated in the following table.

    PROJECTED POPULATION GROWTH AND EMPLOYMENT GROWTH FOR ALL COMPANY MARKETS

<Table>
<Caption>

                                                      Population                         Employment
                                                       Growth                              Growth
     Metropolitan Statistical Area                    2002-2011                           2002-2011
     -------------------------------                  ---------                          ----------
<S>                                                   <C>                                <C>
     Albuquerque, NM                                     22.05%                             14.15%
     Austin, TX                                          26.02                              36.61
     Colorado Springs, CO                                27.48                              15.83
     Dallas, TX                                          15.89                              20.92
     Denver, CO                                          11.34                              19.76
     Fort Worth, TX                                      19.03                              22.31
     Houston, TX                                         15.61                              22.43
     Miami, FL                                            9.03                              15.90
     Phoenix, AZ                                         27.24                              33.41
     San Diego, CA                                       17.35                              17.29
     UNITED STATES                                        8.49                              12.01
</Table>

----------

Source: Compiled from information published by Economy.com, Inc.

         The Company does not depend on a single customer or a few major
customers within the Office Segment, the loss of which would have a material
adverse effect on the Company's financial condition or results of operations.
Based on rental revenues from office leases in effect as of December 31, 2001,
no single tenant accounted for more than 5% of the Company's total Office
Segment rental revenues for 2001.

         The Company applies a well-defined leasing strategy in order to capture
the potential rental growth in the Company's portfolio of Office Properties as
occupancy and rental rates increase within the markets and the submarkets in
which the Company has invested. The Company's strategy is based, in part, on
identifying and focusing on investments in submarkets in which weighted average
full-service rental rates (representing base rent after giving effect to free
rent and scheduled rent increases that would be taken into account under
generally accepted accounting principles ("GAAP") and including adjustments for
expenses payable by or reimbursed from tenants) are significantly less than
weighted average full-service replacement cost rental rates (the rate management
estimates to be necessary to provide a return to a developer of a comparable,
multi-tenant building sufficient to justify construction of new buildings) in
that submarket. In calculating replacement cost rental rates, management relies
on available third-party data and its own estimates of construction costs
(including materials and labor in a particular market) and assumes replacement
cost rental rates are achieved at a 95% occupancy level. The Company believes
that the difference between the two rates is a useful measure of the additional


                                       7
<PAGE>

revenue that the Company may be able to obtain from a property, because the
difference should represent the amount by which rental rates would be required
to increase in order to justify construction of new properties. For the
Company's Office Properties, the weighted average full-service rental rate as of
December 31, 2001 was $22.42 per square foot, compared to an estimated weighted
average full-service replacement cost rental rate of $30.23 per square foot.

COMPETITION

         The Company's Office Properties, primarily Class A properties located
within the southwest, individually compete against a wide range of property
owners and developers, including property management companies and other REITs,
that offer space in similar classes of office properties (for example, Class A
and Class B properties.) A number of these owners and developers may own more
than one property. The number and type of competing properties in a particular
market or submarket could have a material effect on the Company's ability to
lease space and maintain or increase occupancy or rents in its existing Office
Properties. Management believes, however, that the quality services and
individualized attention that the Company offers its customers, together with
its active preventive maintenance program and superior building locations within
markets, enhance the Company's ability to attract and retain customers for its
Office Properties. In addition, as of December 31, 2001, on a weighted average
basis, the Company owned 16% of the Class A office space in the 26 submarkets in
which the Company owned Class A office properties, and 24% of the Class B office
space in the two submarkets in which the Company owned Class B office
properties. Management believes that ownership of a significant percentage of
office space in a particular market reduces property operating expenses,
enhances the Company's ability to attract and retain customers and potentially
results in increases in Company net operating income.

DISPOSITIONS

         During the year ended December 31, 2001, five of the Company's fully
consolidated Office Properties were disposed of. On September 18, 2001, the
Company completed the sale of the two Washington Harbour Office Properties. The
Washington Harbour Office Properties were the Company's only Office Properties
in Washington, D.C. On September 28, 2001, the Woodlands Office Equities - '95
Limited ("WOE"), owned by the Company and the Woodlands Commercial Properties
Company, L.P., sold two Office Properties located within The Woodlands, Texas.
On December 20, 2001, WOE sold another Office Property located within The
Woodlands, Texas.

         During the year ended December 31, 2001, two of the unconsolidated
companies in which the Company has an equity interest, sold three office
properties and one retail property. On September 27, 2001, the Woodlands
Commercial Properties Company, L.P. ("Woodlands CPC"), owned by the Company and
an affiliate of Morgan Stanley, sold one office/venture tech property located
within The Woodlands, Texas. On November 9, 2001, The Woodlands Land Development
Company, L.P., owned by the Company and an affiliate of Morgan Stanley, sold two
office properties and one retail property located within The Woodlands, Texas.

DEVELOPMENT

Avallon IV Office Property

         In May 2001, the Company completed the construction of the Avallon IV
Office Property in Austin, Texas. The property is a Class A Office Property with
86,315 net rentable square feet. Construction of this property commenced in
September 2000.

5 Houston Center Office Property

         The Company is currently developing the 5 Houston Center Office
Property in Houston, Texas. Construction of the planned 27-story, Class A Office
Property consisting of 577,000 net rentable square feet commenced in November
2000, and is expected to be completed in the fourth quarter of 2002. In June
2001, the Company entered into a joint venture arrangement with a pension fund
advised by JPM to construct this Office Property. The joint venture is
structured such that the fund holds a 75% equity interest, and the Company holds
a 25% equity interest.



                                       8
<PAGE>




                              RESORT/HOTEL SEGMENT

OWNERSHIP STRUCTURE

         Prior to enactment of the REIT Modernization Act, the Company's status
as a REIT for federal income tax purposes prohibited it from operating the
Resort/Hotel Properties. As of December 31, 2001, the Company owned nine
Resort/Hotel Properties, all of which, other than the Omni Austin Hotel, were
leased to subsidiaries of COPI pursuant to eight separate leases. The Omni
Austin Hotel was leased, under a separate lease, to HCD Austin Corporation.

         Under the leases, each having a term of 10 years, the Resort/Hotel
Property lessees assumed the rights and obligations of the property owner under
the respective management agreements with the hotel operators, as well as the
obligation to pay all property taxes and other costs related to the Properties.

         The leases provided for the payment by the Resort/Hotel Property
lessees of all or a combination of the following:

         o        base rent, with periodic rent increases if applicable;

         o        percentage rent based on a percentage of gross hotel receipts
                  or gross room revenues, as applicable, above a specified
                  amount; and

         o        a percentage of gross food and beverage revenues above a
                  specified amount.

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, in lieu of
foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties leased
to subsidiaries of COPI. As a result, these subsidiaries of the Company became
the lessees of the eight Resort/Hotel Properties.

         See "Note 22. Subsequent Events" included in "Item 8. Financial
Statements and Supplemental Data" for additional information regarding the
Company's agreement with COPI.

CR LICENSE, LLC AND CRL INVESTMENTS, INC.

         As of December 31, 2001, the Company had a 28.5% interest in CR
License, LLC, the entity which owns the right to the future use of the "Canyon
Ranch" name. The Company also had a 95% economic interest, representing all of
the non-voting common stock, in CRL Investments, Inc., which has an
approximately 65% economic interest in the Canyon Ranch Spa Club in the Venetian
Hotel in Las Vegas, Nevada.

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which the Company acquired, in lieu of foreclosure, COPI's 1.5%
interest in CR License, LLC and 5.0% interest, representing all of the voting
stock, in CRL Investments, Inc.

MARKET INFORMATION

         Lodging demand is highly dependent upon the global economy and volume
of business travel. Prior to 2001, the hospitality industry enjoyed record
profits. However, the uncertainty surrounding the weak global economy and the
costs and fear resulting from the events of September 11, 2001 are expected to
result in weak performance for much of 2002. This is evidenced by declines in
both business and leisure travel in the United States. Although the hospitality
industry will be negatively impacted to the extent demand is less than expected
for much of 2002, management expects a recovery in 2003.

COMPETITION

         Most of the Company's upscale business class Resort/Hotel Properties in
Denver, Albuquerque, Austin and Houston are business and convention center
hotels that compete against other business and convention center hotels. The


                                       9
<PAGE>

Company believes, however, that its luxury and destination fitness resorts and
spas are unique properties that have no significant direct competitors due
either to their high replacement cost or unique concept and location. However,
the luxury and destination fitness resorts and spas do compete against
business-class hotels or middle-market resorts in their geographic areas, as
well as against luxury resorts nationwide and around the world.

                         RESIDENTIAL DEVELOPMENT SEGMENT

OWNERSHIP STRUCTURE

         As of December 31, 2001, the Company owned economic interests in five
Residential Development Corporations through the Residential Development
Property mortgages and the non-voting common stock of these Residential
Development Corporations. The Residential Development Corporations in turn,
through joint ventures or partnership arrangements, own interests in 21
Residential Development Properties. The Residential Development Corporations are
responsible for the continued development and the day-to-day operations of the
Residential Development Properties.

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, pursuant to a
strict foreclosure, COPI's voting interests in three of the Residential
Development Corporations. These three Residential Development Corporations,
Desert Mountain Development Corporation ("Desert Mountain"), The Woodlands Land
Company, Inc. ("The Woodlands") and Crescent Resort Development, Inc. ("CRD")
own interests in 16 Residential Development Properties.

         See "Note 22. Subsequent Events" included in "Item 8. Financial
Statements and Supplemental Data" for additional information regarding the
Company's agreement with COPI.

MARKET INFORMATION

         A slowing economy, combined with the events of September 11, 2001
contributed to the reduction in lot absorption, primarily at Desert Mountain.
CRD (formerly "Crescent Development Management Corp.") was not significantly
impacted because most of its products were pre-sold. However, CRD did change its
strategy by delaying the commencement of certain projects, which will impact its
performance in 2002. In addition, The Woodlands experienced a reduction in lot
absorption of its higher priced lots, including Carlton Woods, The Woodlands'
new upscale gated residential development. However, The Woodlands was not
significantly impacted due to the higher prices of the lots sold offsetting
lower lot sales.

COMPETITION

         The Company's Residential Development Properties compete against a
variety of other housing alternatives in each of their respective areas. These
alternatives include other planned developments, pre-existing single-family
homes, condominiums, townhouses and non-owner occupied housing, such as luxury
apartments. Management believes that the Properties owned by The Woodlands, CRD
and Desert Mountain, representing the Company's most significant investments in
Residential Development Properties, contain certain features that provide
competitive advantages to these developments.

         The Woodlands, which is an approximately 27,000-acre, master-planned
residential and commercial community north of Houston, Texas, is unique among
developments in the Houston area, because it functions as a self-contained
community. Amenities contained in the development, which are not contained
within most other local developments, include a shopping mall, retail centers,
office buildings, a hospital, a community college, places of worship, a
conference center, 85 parks, 117 holes of golf, including a Tournament Players
Course and signature courses by Jack Nicklaus, Arnold Palmer, and Gary Player,
two man-made lakes and a performing arts pavilion. The Woodlands competes with
other master planned communities in the surrounding Houston market.

         Desert Mountain, a luxury residential and recreational community in
Scottsdale, Arizona, which also offers five 18-hole Jack Nicklaus signature golf
courses and tennis courts, has few direct competitors due in part to the
superior environmental attributes and the types of amenities that it offers.



                                       10
<PAGE>

         CRD invests primarily in mountain resort residential real estate in
Colorado and California, and residential real estate in downtown Denver,
Colorado. Management believes CRD does not have any direct competitors because
the projects and project locations are unique and the land is limited in most of
these locations.

                    TEMPERATURE-CONTROLLED LOGISTICS SEGMENT

OWNERSHIP STRUCTURE

         Effective March 12, 1999, the Company, Vornado Realty Trust, COPI, the
Temperature-Controlled Logistics Partnership and the Temperature-Controlled
Logistics Corporation (including all affiliated entities that owned any portion
of the business operations of the Temperature-Controlled Logistics Properties at
that time) sold all of the non-real estate assets, encompassing the business
operations, for approximately $48.7 million to a subsidiary of a newly formed
partnership ("AmeriCold Logistics"), owned 60% by Vornado Operating L.P. and 40%
by a subsidiary of COPI. The Company has no interest in AmeriCold Logistics.

         As of December 31, 2001, the Company held a 40% interest in the
Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly owns
the 89 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 445.2 million cubic feet (17.7 million square feet) of warehouse
space.

         AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, leases the Temperature-Controlled Logistics Properties
from the Temperature-Controlled Logistics Corporation under three triple-net
master leases, as amended on January 23, 2002. On February 22, 2001, the
Temperature-Controlled Logistics Corporation and AmeriCold Logistics agreed to
restructure certain financial terms of the leases, including the adjustment of
the rental obligation for 2001 to $146.0 million, the adjustment of the rental
obligation for 2002 to $150.0 million (plus contingent rent in certain
circumstances), the increase of the Temperature-Controlled Logistics
Corporation's share of capital expenditures for the maintenance of the
properties from $5.0 million to $9.5 million (effective January 1, 2000) and the
extension of the date on which deferred rent was required to be paid to December
31, 2003.

         AmeriCold Logistics deferred $25.5 million of rent for the year ended
December 31, 2001, of which the Company's share was $10.2 million. AmeriCold
Logistics also deferred $19.0 million and $5.4 million of rent for the years
ended December 31, 2000 and 1999, respectively, of which the Company's share was
$7.5 million and $2.1 million, respectively. In December 2001, the
Temperature-Controlled Logistics Corporation waived its rights to collect $39.8
million of the total $49.9 million of deferred rent, of which the Company's
share was $15.9 million. The Temperature-Controlled Logistics Corporation and
the Company had recorded adequate valuation allowances related to their portions
of the waived deferred rental revenue during the years ended December 31, 2000,
and 2001; therefore, there was no financial statement impact to the
Temperature-Controlled Logistics Corporation or to the Company related to the
Temperature-Controlled Logistics Corporation's decision to waive collection of
the deferred rent.



                                       11
<PAGE>
BUSINESS AND INDUSTRY INFORMATION

         AmeriCold Logistics provides frozen food manufacturers with
refrigerated warehousing and transportation management services. The
Temperature-Controlled Logistics Properties consist of production and
distribution facilities. Production facilities differ from distribution
facilities in that they typically serve one or a small number of customers
located nearby. These customers store large quantities of processed or partially
processed products in the facility until they are further processed or shipped
to the next stage of production or distribution. Distribution facilities
primarily serve customers who store a wide variety of finished products to
support shipment to end-users, such as food retailers and food service
companies, in a specific geographic market.

         AmeriCold Logistics' transportation management services include freight
routing, dispatching, freight rate negotiation, backhaul coordination, freight
bill auditing, network flow management, order consolidation and distribution
channel assessment. AmeriCold Logistics' temperature-controlled logistics
expertise and access to both the frozen food warehouses and distribution
channels enable the customers of AmeriCold Logistics to respond quickly and
efficiently to time-sensitive orders from distributors and retailers.

         AmeriCold Logistics' customers consist primarily of national, regional
and local frozen food manufacturers, distributors, retailers and food service
organizations. A breakdown of AmeriCold Logistics' largest customers include:

<Table>
<Caption>

                                                 PERCENTAGE OF
                                                 2001 REVENUE
                                                 -------------
<S>                                              <C>
H.J. Heinz & Co                                        16%
Con-Agra, Inc                                           8
Sara Lee Corp                                           5
McCain Foods, Inc                                       5
Tyson Foods, Inc                                        4
General Mills                                           4
J.R. Simplot                                            3
Flowers Food, Inc                                       3
Pro-Fac Cooperative, Inc                                2
Farmland Industries, Inc                                2
Other                                                  48
                                                    -----
TOTAL                                                 100%
                                                    =====
</Table>

         Consolidation among retail and food service channels has limited the
ability of manufacturers to pass along cost increases by raising prices. Because
of this, manufacturers have been forced in the recent past to focus more
intensely on supply chain cost (such as inventory management, transporataion and
distribution) reduction initiatives in an effort to improve operating
performance.

COMPETITION

         AmeriCold Logistics is the largest operator of public refrigerated
warehouse space in North America and has more than twice the cubic feet of the
second largest operator. AmeriCold Logistics operated an aggregate of
approximately 18% of total cubic feet of public refrigerated warehouse space as
of December 31, 2001. No other person or entity operated more than 8% of total
public refrigerated warehouse space as of December 31, 2001. As a result,
AmeriCold Logistics does not have any competitors of comparable size. AmeriCold
Logistics operates in an environment in which competition is national, regional
and local in nature and in which the range of service, temperature-controlled
logistics facilities, customer mix, service performance and price are the
principal competitive factors.

DEVELOPMENT

         The Temperature-Controlled Logistics Corporation completed the
acquisition of one facility in the first quarter of 2001 for $10.0 million and
completed the construction of one facility in the third quarter of 2001 for
$15.8 million, representing in aggregate approximately 8.5 million cubic feet
(0.2 million square feet) of additional warehouse space.



                                       12
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         The Company's common shares have been traded on the New York Stock
Exchange under the symbol "CEI" since the completion of its initial public
offering in May 1994. For each calendar quarter indicated, the following table
reflects the high and low sales prices during the quarter for the common shares
and the distributions declared by the Company with respect to each quarter.

<Table>
<Caption>

                                  PRICE
                       ---------------------------
                           HIGH            LOW        DISTRIBUTIONS
                       -----------     -----------    -------------
<S>                    <C>             <C>             <C>
2000
First Quarter          $     19.75     $     15.75     $     0.550
Second Quarter               22.19           16.94           0.550
Third Quarter                23.19           20.69           0.550
Fourth Quarter               23.44           19.50           0.550

2001
First Quarter          $     23.56     $     20.90     $     0.550
Second Quarter               25.24           22.26           0.550
Third Quarter                25.09           18.75           0.375(1)
Fourth Quarter               21.58           16.30           0.375(1)
</Table>


----------

(1)  On October 17, 2001, the Company announced that the quarterly distribution
     was being reduced from $0.55 per common share, or an annualized
     distribution of $2.20 per common share, to $0.375 per common share, or an
     annualized distribution of $1.50 per common share.

         As of March 11, 2002, there were approximately 1,040 holders of record
of the Company's common shares.

                               DISTRIBUTION POLICY

         The actual results of operations of the Company and the amounts
actually available for distribution will be affected by a number of factors,
including:


         o     the general condition of the United States economy;

         o     the operating and interest expenses of the Company;

         o     the ability of tenants to meet their rent obligations;

         o     general leasing activity in the markets in which the Office
               Properties are located;

         o     consumer preferences relating to the Resort/Hotel Properties;

         o     cash flows from unconsolidated entities;

         o     federal, state and local taxes payable by the Company;

         o     capital expenditure requirements; and

         o     the adequacy of cash reserves.

         On October 17, 2001, the Company announced that due to its revised cash
flow expectations in the uncertain economic environment and measuring its payout
ratios to those of the Company's peer group, the Company was reducing its
quarterly distribution from $0.55 per common share, or an annualized
distribution of $2.20 per common share, to $0.375 per common share, or an
annualized distribution of $1.50 per common share.

         Future distributions by the Company will be at the discretion of the
Board of Trust Managers. The Board of Trust Managers has indicated that it will
review the adequacy of the Company's distribution rate on a quarterly basis.

         Under the Code, REITs are subject to numerous organizational and
operational requirements, including the requirement to distribute at least 90%
of REIT taxable income each year. Pursuant to this requirement, the Company was
required to distribute $111.7 million and $166.1 million for 2001 and 2000,
respectively. Actual distributions by the Company were $245.1 million and $281.2
million for 2001 and 2000, respectively.



                                       13
<PAGE>

         Distributions by the Company to the extent of its current and
accumulated earnings and profits for federal income tax purposes generally will
be taxable to a shareholder as ordinary dividend income. Distributions in excess
of current and accumulated earnings and profits will be treated as a nontaxable
reduction of the shareholder's basis in such shareholder's shares, to the extent
thereof, and thereafter as taxable gain. Distributions that are treated as a
reduction of the shareholder's basis in its shares will have the effect of
deferring taxation until the sale of the shareholder's shares. No assurances can
be given regarding what portion, if any, of distributions in 2002 or subsequent
years will constitute a return of capital for federal income tax purposes.

         Distributions on the Company's common shares are payable at the rate of
$1.50 per annum per common share.

         Following is the income tax status of distributions paid during the
years ended December 31, 2001 and 2000 to common shareholders:



<Table>
<Caption>

                                         2001             2000
                                       --------         --------
<S>                                    <C>              <C>
Ordinary dividend                          50.3%            51.5%
Capital gain                                 --              6.4
Return of capital                          49.7             35.9
Unrecaptured Section 1250 Gain               --              6.2
</Table>


         Distributions on the 8,000,000 6 3/4% Series A Convertible Cumulative
Preferred Shares issued by the Company in February 1998 are payable at the rate
of $1.6875 per annum per Series A Convertible Cumulative Preferred Share, prior
to distributions on the common shares.

         Following is the income tax status of distributions paid during the
years ended December 31, 2001 and 2000 to preferred shareholders:



<Table>
<Caption>

                                         2001             2000
                                       --------         --------
<S>                                    <C>              <C>
Ordinary dividend                         100.0%            83.7%
Capital gain                                 --              8.2
Unrecaptured Section 1250 Gain               --              8.1
</Table>

                      ISSUANCES OF UNREGISTERED SECURITIES

         During the quarter ended December 31, 2001, Crescent Equities issued an
aggregate of 15,556 common shares to holders of Operating Partnership units in
exchange for 7,778 units. The issuances of the common shares were exempt from
registration as private placements under Section 4(2) of the Securities Act.
Crescent Equities has registered the resale of such common shares under the
Securities Act.






                                       14

<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

         The following table includes certain financial information for the
Company on a consolidated historical basis. All information relating to common
shares has been adjusted to reflect the two-for-one stock split effected in the
form of a 100% share dividend paid on March 26, 1997 to shareholders of record
on March 20, 1997. You should read this section in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8. Financial Statements and Supplementary Data."

                      CRESCENT REAL ESTATE EQUITIES COMPANY
                     CONSOLIDATED HISTORICAL FINANCIAL DATA
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


<Table>
<Caption>
                                                                              YEAR ENDED DECEMBER 31,
                                                  ---------------------------------------------------------------------------------
                                                      2001             2000             1999             1998             1997
                                                  -------------    -------------    -------------    -------------    -------------
<S>                                               <C>              <C>              <C>              <C>              <C>
OPERATING DATA:
   Total revenue                                  $     691,991    $     713,857    $     741,629    $     698,343    $     447,373
   Operating (loss) income                              (28,112)          88,900          (55,955)         143,893          111,281
   Income before minority
        interests, extraordinary item, and
        discontinued operations                          27,544          302,068           12,342          183,210          135,024
   Basic earnings per common share:
        (Loss) income before extraordinary item
        and discontinued operations               $       (0.07)   $        2.07    $       (0.07)   $        1.26    $        1.25
        Net (loss) income                                 (0.17)            2.05            (0.06)            1.26             1.25
   Diluted earnings per common share:
        (Loss) income before extraordinary item
        and discontinued operations               $       (0.07)   $        2.04    $       (0.07)   $        1.21    $        1.20
        Net (loss) income                                 (0.17)            2.02            (0.06)            1.21             1.20
BALANCE SHEET DATA (AT PERIOD END):
   Total assets                                   $   4,142,149    $   4,543,318    $   4,950,561    $   5,043,447    $   4,179,980
   Total debt                                         2,214,094        2,271,895        2,598,929        2,318,156        1,710,125
   Total shareholders' equity                         1,405,940        1,731,327        2,056,774        2,422,545        2,197,317
OTHER DATA:
   Funds from Operations(1)                       $     177,117    $     326,897    $     340,777    $     341,713    $     214,396
   Cash distribution declared per
        common share                              $        1.85    $        2.20    $        2.20    $        1.86    $        1.37
   Weighted average
        common shares and units
        outstanding - basic                         121,017,605      127,535,069      135,954,043      132,429,405      106,835,579
   Weighted average
        common shares and units
        outstanding - diluted                       122,544,421      128,731,883      137,891,561      140,388,063      110,973,459
   Cash flow provided by
        (used in):
        Operating activities                      $     212,813    $     275,715    $     336,060    $     299,497    $     211,714
        Investing activities                            209,994          428,306         (205,811)        (820,507)      (2,294,428)
        Financing activities                           (425,488)        (737,981)        (167,615)         564,680        2,123,744
</Table>

(1)  Funds from Operations ("FFO"), based on the revised definition adopted by
     the Board of Governors of the National Association of Real Estate
     Investment Trusts ("NAREIT"), effective January 1, 2000, and as used
     herein, means net income (loss) (determined in accordance with GAAP),
     excluding gains (or losses) from sales of depreciable operating property,
     excluding extraordinary items (as defined by GAAP), plus depreciation and
     amortization of real estate assets, and after adjustments for
     unconsolidated partnerships and joint ventures. For a more detailed
     definition and description of FFO, see "Item 7. Management's Discussion and
     Analysis of Financial Condition and Results of Operations."



                                       15
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         You should read this section in conjunction with the selected financial
data and the consolidated financial statements and the accompanying notes in
"Item 6. Selected Financial Data" and "Item 8. Financial Statements and
Supplementary Data," respectively, of this report. Historical results and
percentage relationships set forth in these Items and this section should not be
taken as indicative of future operations of the Company. Capitalized terms used
but not otherwise defined in this section have the meanings given to them in
Items 1 - 6 of this Form 10-K.

         This Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are generally
characterized by terms such as "believe," "expect" and "may."

         Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those described in the
forward-looking statements.

         The following factors might cause such a difference:

     o   The Company's inability to obtain the confirmation of a prepackaged
         bankruptcy plan of COPI binding all creditors and COPI stockholders;

     o   The inability of the Company to successfully integrate the lessee
         interests in the Resort/Hotel Properties and the voting interests in
         the Residential Development Corporations and related entities into its
         current business and operations;

     o   The inability of the Company to complete the distribution to its
         shareholders of the shares of a new entity to purchase COPI's interest
         in AmeriCold Logistics;

     o   Further deterioration in the resort/business-class hotel markets or in
         the market for residential land or luxury residences, including
         single-family homes, townhomes and condominiums, or in the economy
         generally;

     o   The Company's ability, at its Office Properties, to timely lease
         unoccupied square footage and timely re-lease occupied square footage
         upon expiration on favorable terms, which may be adversely affected by
         changes in real estate conditions (including rental rates and
         competition from other properties and new development of competing
         properties or a general downturn in the economy);

     o   Financing risks, such as the ability to generate revenue sufficient to
         service and repay existing or additional debt, the ability to meet
         applicable debt covenants, the Company's ability to fund the share
         repurchase program, increases in debt service associated with increased
         debt and with variable-rate debt, and the ability to consummate
         financings and refinancings on favorable terms and within any
         applicable time frames;

     o   Further adverse conditions in the temperature-controlled logistics
         business (including both industry-specific conditions and a general
         downturn in the economy) which may further jeopardize the ability of
         AmeriCold Logistics to pay rent;

     o   Adverse changes in the financial condition of existing tenants;

     o   The concentration of a significant percentage of the Company's assets
         in Texas;

     o   The Company's ability to find acquisition and development opportunities
         which meet the Company's investment strategy;



                                       16
<PAGE>

     o   The existence of complex regulations relating to the Company's status
         as a REIT, the effect of future changes in REIT requirements as a
         result of new legislation and the adverse consequences of the failure
         to qualify as a REIT; and

     o   Other risks detailed from time to time in the Company's filings with
         the SEC.

         Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Company is not obligated to update these
forward-looking statements to reflect any future events or circumstances.

         The following sections include information for each of the Company's
investment segments for the year ended December 31, 2001.

         The economic slowdown in the third quarter of 2001, combined with the
events of the September 11, 2001 have had an adverse impact on Resort/Hotel
operations and lot sales primarily at the Desert Mountain Residential
Development Property. However, the Office Property portfolio, which represents
approximately 66% of total assets, continues to be stable with same-store
weighted average occupancy in excess of 92% and average remaining lease term of
approximately five years at December 31, 2001. Although management does not
expect full recovery of these investment segments in the near-term, the Company
remains committed to its fundamental investment segments.

OFFICE SEGMENT

         As of December 31, 2001, the Company owned or had an interest in 74
Office Properties.

         The following table shows the same-store net operating income growth
for the approximately 25.4 million square feet of Office Property space owned as
of December 31, 2001, which excludes approximately 1.5 million square feet of
Office Property space at Bank One Center, in which the Company owns a 50% equity
interest, approximately 1.0 million square feet of Office Property space at Four
Westlake Park and Bank One Tower, in each of which the Company has a 20% equity
interest, 0.1 million square feet of Office Property space at Avallon IV, which
was completed during the year ended December 31, 2001.

<Table>
<Caption>
                                 FOR THE YEAR ENDED DECEMBER 31,
                             ----------------------------------------
                                                         PERCENTAGE/
                               2001         2000       POINT INCREASE
                             --------     --------     --------------
<S>                          <C>          <C>          <C>
(IN MILLIONS)
Same-store Revenues          $  552.5     $  519.9                6.3%
Same-store Expenses            (250.1)      (229.3)               9.1%
                             --------     --------
Net Operating Income         $  302.4     $  290.6                4.1%
                             ========     ========

Weighted Average Occupancy       92.3%        91.8%               0.5 pt
</Table>

         The following table shows renewed or re-leased leasing activity and the
percentage increase of leasing rates for signed leases compared to expiring
leases at the Company's Office Properties owned as of December 31, 2001.

<Table>
<Caption>
                                                          FOR THE YEAR ENDED DECEMBER 31, 2001
                                                  ---------------------------------------------------
                                                        SIGNED              EXPIRING       PERCENTAGE
                                                        LEASES               LEASES         INCREASE
                                                  ------------------   ------------------  ----------
<S>                                               <C>                  <C>                  <C>
Renewed or re-leased(1)                            1,890,000 sq. ft.                  N/A        N/A
Weighted average full-
     service rental rate(2)                       $23.67 per sq. ft.   $20.21 per sq. ft.         17%
FFO annual net effective
     rental rate(3)(4)                            $14.70 per sq. ft.   $11.21 per sq. ft.         31%
</Table>


----------

(1)  All of which have commenced or will commence during the next 12 months.

(2)  Including free rent, scheduled rent increases taken into account under GAAP
     and expense recoveries.

(3)  Calculated as weighted average full-service rental rate minus operating
     expenses.

(4)  Funds from operations, or FFO, based on the revised definition adopted by
     the Board of Governors of the National Association of Real Estate
     Investment Trusts, or NAREIT, effective January 1, 2000, and as used
     herein, means net income (loss), determined in accordance with GAAP,
     excluding gains (losses)



                                       17
<PAGE>

     from sales of depreciable operating property, excluding extraordinary
     items, as defined by GAAP, plus depreciation and amortization of real
     estate assets, and after adjustments for unconsolidated partnerships and
     joint ventures. FFO is a non-GAAP measure and should not be considered an
     alternative to GAAP measures, including net income and cash generated from
     operating activities. For a more detailed definition and description of
     FFO and comparisons to GAAP measures, see " - Liquidity and Capital
     Resources - Funds from Operations" below.

o    For 2002, the Company projects same-store net operating income for its
     Office Properties to increase between 0% and 4% over 2001, based on an
     average occupancy range of 90% to 93%.

RESORT/HOTEL SEGMENT

         As of December 31, 2001, the Company owned nine Resort/Hotel
Properties.

         The following table shows weighted average occupancy, average daily
rate and revenue per available room/guest for the Resort/Hotel Properties for
the years ended December 31, 2001 and 2000.


<Table>
<Caption>
                                         FOR THE YEAR ENDED DECEMBER 31,
                                      --------------------------------------
                                                                PERCENTAGE/
                                                              POINT INCREASE
                                        2001        2000        (DECREASE)
                                      --------    --------    --------------
<S>                                   <C>         <C>         <C>
Weighted average occupancy(1)               70%         76%           (6)pts
Average daily rate(1)                 $    245    $    238             3%
Revenue per available room/guest(1)   $    170    $    180            (6)%
</Table>

----------

(1)  Excludes the Four Seasons Hotel - Houston, which was sold on November 3,
     2000.

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, in lieu of
foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties leased
to subsidiaries of COPI. As a result, the subsidiaries of the Company became the
lessees of these Resort/Hotel Properties. The Company will fully consolidate the
operations of the eight Resort/Hotel Properties beginning on the date of the
asset transfers. See "Note 22. Subsequent Events" included in "Item 8. Financial
Statements and Supplemental Data" for additional information regarding the
Company's agreement with COPI.

         The following table shows the Resort/Hotel Property same-store net
operating income for the years ended December 31, 2001 and 2000, for the nine
Resort/Hotel Properties owned during both of these periods.

<Table>
<Caption>
                                                            FOR THE YEAR
                                                         ENDED DECEMBER 31,
                                                  --------------------------------
                                                                        PERCENTAGE
                                                    2001       2000      DECREASE
                                                  --------   --------   ----------
<S>                                               <C>        <C>        <C>
(IN THOUSANDS)
Upscale Business-Class Hotels(1)                  $ 20,165   $ 22,157           (9)%
Luxury and Destination Fitness Resorts and Spas     29,451     36,837          (20)
                                                  --------   --------   ----------
All Resort/Hotel Properties(1)                    $ 49,616   $ 58,994          (16)%
                                                  ========   ========   ==========
</Table>

----------

(1)  Excludes the Four Seasons Hotel - Houston, which was sold on November 3,
     2000.

         For 2002, the Company projects same-store net operating income will
increase between 0% and 3% over 2001. Also, the average daily rate is expected
to increase between 0% and 2% over 2001, and revenue per available room is
expected to increase between 0% and 3% over 2001.



                                       18
<PAGE>

CR License, LLC and CRL Investments, Inc.

         As of December 31, 2001, the Company had a 28.5% interest in CR
License, LLC, the entity which owns the right to the future use of the "Canyon
Ranch" name. The Company also had a 95% economic interest, representing all of
the non-voting common stock, in CRL Investments, Inc., which has an
approximately 65% economic interest in the Canyon Ranch Spa Club in the Venetian
Hotel in Las Vegas, Nevada.

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, in lieu of
foreclosure, COPI's 1.5% interest in CR License, LLC and 5.0% interest,
representing all of the voting stock, in CRL Investments, Inc.

RESIDENTIAL DEVELOPMENT SEGMENT

         As of December 31, 2001, the Company owned economic interests in five
Residential Development Corporations through the Residential Development
Property mortgages and the non-voting common stock of these Residential
Development Corporations. The Residential Development Corporations in turn,
through joint ventures or partnership arrangements, currently own interests in
21 Residential Development Properties. The Residential Development Corporations
are responsible for the continued development and the day-to-day operations of
the Residential Development Properties.

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, pursuant to a
strict foreclosure, COPI's voting interests in three of the Residential
Development Corporations (The Woodlands Land Company, Inc., Desert Mountain
Development Corporation and Crescent Resort Development, Inc.). The Company will
fully consolidate the operations of the three Residential Development
Corporations beginning on the dates of the asset transfers. Management plans to
monetize the Company's current investments in the five Residential Development
Corporations and reinvest returned capital from the Residential Development
Segment primarily into the Office Segment where the Company expects to achieve
favorable rates of return.

The Woodlands Land Development Company, L.P. and The Woodlands Commercial
Properties Company, L.P. (collectively "The Woodlands"), The Woodlands, Texas:

         The following table shows residential lot sales at an average price per
lot and commercial land sales at an average price per acre.

<Table>
<Caption>
                                           FOR THE YEAR
                                        ENDED DECEMBER 31,
                                   -----------------------------
                                     2001                 2000
                                   --------             --------
<S>                                <C>                  <C>
Residential lot sales                 1,718                2,033
Average sales price per lot        $ 72,000             $ 62,000
Commercial land sales                    94 acres            124 acres
Average sales price per acre       $337,000             $308,000
</Table>

o    Average sales price per lot increased by $10,000, or 16%, due to a product
     mix of higher priced lots from the Carlton Woods development in the year
     ended December 31, 2001, compared to the same period in 2000.

o    Carlton Woods is The Woodlands' new upscale residential development. It is
     a gated community consisting of 491 lots located around a Jack Nicklaus
     signature golf course. As of December 31, 2001, 213 lots have been sold at
     prices ranging from $0.1 million to $1.0 million per lot, or an average
     price of $343,000 per lot. Additional phases within Carlton Woods are
     expected to be marketed to the public over the next two years.

o    Future buildout of The Woodlands is estimated at approximately 13,100
     residential lots and approximately 1,700 acres of commercial land, of which
     approximately 1,555 residential lots and 1,075 acres are currently in
     inventory.



                                       19
<PAGE>

o    The Company projects residential lot sales at The Woodlands to range
     between 1,550 lots and 1,800 lots at an average sales price per lot ranging
     between $70,000 and $80,000 for 2002.

Desert Mountain Properties Limited Partnership ("Desert Mountain"), Scottsdale,
Arizona:

         The following table shows residential lot sales at an average price per
lot.

<Table>
<Caption>
                                    FOR THE YEAR
                                 ENDED DECEMBER 31,
                                 -------------------
                                   2001       2000
                                 --------   --------
<S>                              <C>        <C>
Residential lot sales                  86        178
Average sales price per lot(1)   $688,000   $619,000
</Table>

----------

(1)  Including equity golf memberships.

o    With the higher priced residential lots being completed during the latter
     phases of development at Desert Mountain, the average sales price per lot
     increased by $69,000, or 11%, for the year ended December 31, 2001, as
     compared to the same period in 2000. As a result of product mix and a
     decline in the economy combined with the events of September 11, 2001, the
     number of lot sales decreased to 86 lots for the year ended December 31,
     2001, as compared to 178 lots for the same period in 2000.

o    Approved future buildout is estimated to be approximately 300 residential
     lots, of which approximately 140 are currently in inventory.

o    As a result of product mix and a decline in the economy, the Company
     projects residential lot sales in 2002 to range between 50 lots and 75 lots
     at an average sales price per lot ranging between $700,000 and $800,000.

Crescent Resort Development, Inc. ("CRD"), (formerly Crescent Development
Management Corp.), Beaver Creek, Colorado:

         The following table shows total active projects, residential lot and
residential unit sales, commercial land sales and average sales price per lot
and unit.

<Table>
<Caption>
                                                            FOR THE YEAR
                                                          ENDED DECEMBER 31,
                                                   --------------------------------
                                                      2001                  2000
                                                   ----------            ----------
<S>                                                <C>                   <C>
Active projects                                            14                    12
Residential lot sales                                     181                   343
Residential unit sales:
   Townhome sales                                          11                    19
   Single-family home sales                                --                     5
   Equivalent timeshare unit sales                         11                    --
   Condominium sales                                      109                    26
Commercial land sales                                      -- acres               9 acres
Average sale price per residential lot             $   73,000            $  136,000
Average sale price per residential unit            $      1.0 million    $      1.6 million
</Table>

o    Average sales price per lot decreased by $63,000, or 46%, and average sales
     price per unit decreased $0.6 million, or 38%, due to lower priced product
     mix sold in the year ended December 31, 2001, as compared to the same
     period in 2000.

o    For 2002, the Company projects that residential lot sales will range
     between 325 lots and 375 lots at an average sales price per lot ranging
     between $110,000 and $130,000. In addition, the Company expects between 280
     and 310 residential unit sales, including single family homes, townhomes
     and condominiums to be sold at an average sales price per residential unit
     ranging between $750,000 and $850,000.



                                       20
<PAGE>

TEMPERATURE-CONTROLLED LOGISTICS SEGMENT

         As of December 31, 2001, the Company held a 40% interest in the
Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly owns
the 89 Temperature-Controlled Logistics Properties. The business operations
associated with the Temperature-Controlled Logistics Properties are owned by
AmeriCold Logistics, which is owned 60% by Vornado Operating, L.P. and 40% by a
subsidiary of COPI. The Company has no interest in AmeriCold Logistics.

         AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, leases the Temperature-Controlled Logistics Properties
from the Temperature-Controlled Logistics Corporation under three triple-net
master leases, as amended on January 23, 2002. On February 22, 2001, the
Temperature-Controlled Logistics Corporation and AmeriCold Logistics agreed to
restructure certain financial terms of the leases, including the adjustment of
the rental obligation for 2001 to $146.0 million, the adjustment of the rental
obligation for 2002 to $150.0 million (plus contingent rent in certain
circumstances), the increase of the Temperature-Controlled Logistics
Corporation's share of capital expenditures for the maintenance of the
properties from $5.0 million to $9.5 million (effective January 1, 2000) and the
extension of the date on which deferred rent was required to be paid to December
31, 2003.

         In the first quarter of 2000, AmeriCold Logistics started to experience
a slowing in revenue growth from the previous year. This was primarily due to
customers focusing more interest on inventory management in an effort to improve
operating performance. Starting in 2000 and continuing into 2001, AmeriCold
Logistics has seen consolidation among retail and food service channels begin to
significantly limit the ability of manufacturers to pass along cost increases by
raising prices. Because of this, manufacturers are focused on supply chain cost
(such as inventory management, transportation and distribution) reduction
initiatives in an effort to improve operating performance. In the second and
third quarters of 2000, AmeriCold Logistics deferred a portion of its rent
payments in accordance with the terms of the leases of the
Temperature-Controlled Logistics Properties. For the three months ended June 30,
2000, the Temperature-Controlled Logistics Corporation recorded a valuation
allowance for a portion of the rent that had been deferred during that period,
and for the three months ended September 30, 2000 recorded a valuation allowance
for 100% of the rent that had been deferred during the three months ended
September 30, 2000 and has continued to record a valuation allowance for 100% of
the deferred rent prospectively. These valuation allowances resulted in a
decrease in the equity in net income of the Company in the
Temperature-Controlled Logistics Corporation. The Temperature-Controlled
Logistics Corporation had not recorded a valuation allowance with respect to
rent deferred by AmeriCold Logistics prior to the quarter ended June 30, 2000,
because the financial condition of AmeriCold Logistics prior to that time did
not indicate the inability of AmeriCold Logistics ultimately to make the full
rental payments. As a result of continuing net losses and the increased amount
of deferred rent, the Temperature-Controlled Logistics Corporation determined
that the collection of additional deferred rent was doubtful.

         AmeriCold Logistics deferred $25.5 million of rent for the year ended
December 31, 2001, of which the Company's share was $10.2 million. AmeriCold
Logistics also deferred $19.0 million and $5.4 million of rent for the years
ended December 31, 2000 and 1999, respectively, of which the Company's share was
$7.5 million and $2.1 million, respectively. In December 2001, the
Temperature-Controlled Logistics Corporation waived its rights to collect $39.8
million of the total $49.9 million of deferred rent, of which the Company's
share was $15.9 million. The Temperature-Controlled Logistics Corporation and
the Company began to recognize rental income when earned and collected during
the year ended December 31, 2000 and continued this accounting treatment for the
year ended December 31, 2001; therefore, there was no financial statement impact
to the Temperature-Controlled Logistics Corporation or to the Company related to
the Temperature-Controlled Logistics Corporation's decision in December 2001 to
waive collection of deferred rent.

         The following table shows the total, and the Company's portion of the
total, deferred rent and valuation allowance at December 31, 2001.



                                       21
<PAGE>

<Table>
<Caption>
                                    DEFERRED RENT     VALUATION ALLOWANCE      WAIVED RENT
                                  -----------------   -------------------   -----------------
(IN MILLIONS)                             COMPANY'S             COMPANY'S           COMPANY'S
                                  TOTAL    PORTION    TOTAL      PORTION    TOTAL    PORTION
                                  -----   ---------   -----     ---------   -----   ---------
<S>                               <C>     <C>         <C>       <C>         <C>     <C>
For the year ended December 31,
1999                              $ 5.4   $     2.1   $  --     $      --   $  --   $      --
2000                               19.0         7.5    16.3           6.5      --          --
2001                               25.5        10.2    25.5          10.2    39.8        15.9
                                  -----   ---------   -----     ---------   -----   ---------

Balance at December 31, 2001      $49.9   $    19.8   $41.8     $    16.7   $39.8   $    15.9
                                  =====   =========   =====     =========   =====   =========
</Table>

         The Temperature-Controlled Logistics Corporation completed the
acquisition of one facility in the first quarter of 2001 for $10.0 million and
completed the construction of one facility in the third quarter of 2001 for
$15.8 million, representing a total of approximately 8.5 million cubic feet (0.2
million square feet.)

CHARTER BEHAVIORAL HEALTH SYSTEMS ("CBHS")

         As of December 31, 1999, the behavioral healthcare segment consisted of
88 behavioral healthcare properties in 24 states, all of which were leased to
CBHS and its subsidiaries under a triple-net master lease. During the year ended
December 31, 1999, the Company received cash rental payments of approximately
$35.3 million from CBHS. However, during 1999, CBHS's business was negatively
affected by many factors, including adverse industry conditions, and CBHS failed
to perform in accordance with its operating budget. In the third quarter of 1999
CBHS was unable to meet its rental obligation to the Company. In the third
quarter of 1999, the Company, COPI, Magellan Health Services, Inc. ("Magellan")
and CBHS commenced a recapitalization of CBHS. As part of this recapitalization,
the Company commissioned an independent public accounting firm to assist in the
evaluation of alternatives related to CBHS, which included an appraisal of the
behavioral healthcare properties.

         The following financial statement charges were made with respect to the
Company's investment in the behavioral healthcare properties in the third
quarter of 1999:

o    CBHS rent was reflected on a cash basis beginning in the third quarter of
     1999 due to the uncertainty that CBHS would be able to fulfill its rental
     obligations under the lease;

o    The Company wrote-off the rent that was deferred according to the CBHS
     lease agreement from the commencement of the lease in June of 1997 through
     June 30, 1999. The balance written-off totaled $25.6 million;

o    The Company wrote-down its behavioral healthcare real estate assets by
     approximately $103.8 million to a book value of $245.0 million;

o    The Company wrote-off the book value of warrants to purchase common shares
     of Magellan of $12.5 million:

o    The Company recorded approximately $15.0 million of additional expense to
     be used by CBHS as working capital; and

o    The Company ceased recording depreciation expense beginning in November of
     1999 on the behavioral healthcare properties that were classified as held
     for disposition.

         On February 16, 2000, CBHS and all of its subsidiaries that were
subject to the master lease with the Company filed voluntary Chapter 11
bankruptcy petitions in the United States Bankruptcy Court for the District of
Delaware.

         During the year ended December 31, 2000, payment and treatment of rent
for the behavioral healthcare properties was subject to a rent stipulation
agreed to by certain of the parties involved in the CBHS bankruptcy proceeding.
The Company received approximately $15.4 million in rent and interest from CBHS
during the year ended December 31, 2000. The Company also completed the sale of
60 behavioral healthcare properties previously classified as held for
disposition, which were included in Net Investment in Real Estate, during the
year ended December 31, 2000. The sales generated approximately $233.7 million
in net proceeds and a net gain of approximately $58.6 million for the year ended
December 31, 2000. During the year ended December 31, 2000, the Company
recognized an impairment loss of approximately $9.3 million on the behavioral
healthcare properties held for disposition. This amount represents the
difference between the carrying values and the estimated sales prices less the
costs of the sales. At December 31, 2000, the carrying value of the 28



                                       22
<PAGE>
behavioral healthcare properties classified as held for disposition was
approximately $68.5 million (contained in Net Investment In Real Estate).
Depreciation expense has not been recognized since the dates the behavioral
healthcare properties were classified as held for sale.

         The Company received approximately $6.0 million in repayment of a
working capital loan from CBHS during the year ended December 31, 2001. The
Company also completed the sale of 18 behavioral healthcare properties
previously classified as held for disposition during the year ended December 31,
2001. The sales generated approximately $34.7 million in net proceeds and a net
gain of approximately $1.6 million for the year ended December 31, 2001.

         During the year ended December 31, 2001, the Company recognized an
impairment loss of approximately $8.5 million on the behavioral healthcare
properties held for disposition. This amount represents the difference between
the carrying values and the estimated sales prices less the costs of the sales.
At December 31, 2001, the carrying value of the 10 behavioral healthcare
properties classified as held for disposition was approximately $27.9 million
(contained in Net Investment in Real Estate). Depreciation expense has not been
recognized since the dates the behavioral healthcare properties were classified
as held for sale.



                                       23
<PAGE>

                              RESULTS OF OPERATIONS

         The following table shows the Company's financial data as a percentage
of total revenues for the three years ended December 31, 2001, 2000 and 1999 and
the variance in dollars between the years ended December 31, 2001 and 2000 and
the years ended December 31, 2000 and 1999. See "Note 3. Segment Reporting"
included in "Item 8. Financial Statements and Supplementary Data" for financial
information about investment segments.


<Table>
<Caption>
                                                         FINANCIAL DATA AS A PERCENTAGE         TOTAL VARIANCE IN DOLLARS
                                                         OF TOTAL REVENUES FOR THE YEAR             BETWEEN THE YEARS
                                                               ENDED DECEMBER 31,                   ENDED DECEMBER 31,
                                                       ----------------------------------     ------------------------------
                                                                                                       (IN MILLIONS)
                                                         2001         2000         1999       2001 AND 2000    2000 AND 1999
                                                       --------     --------     --------     -------------    -------------
<S>                                                    <C>          <C>          <C>          <C>              <C>
REVENUES
   Office properties                                       87.6%        84.3%        82.2%    $         4.6    $        (8.4)
   Resort/Hotel properties                                  6.6         10.1          8.8             (26.4)             6.9
   Interest and other income                                5.8          5.6          9.0              (0.1)           (26.3)
                                                       --------     --------     --------     -------------    -------------
     TOTAL REVENUES                                       100.0%       100.0%       100.0%    $       (21.9)   $       (27.8)
                                                       --------     --------     --------     -------------    -------------

EXPENSES
   Operating expenses                                      37.7%        34.7%        34.3%    $        13.3    $        (7.0)
   Corporate general and administrative                     3.5          3.4          2.2               0.2              7.8
   Interest expense                                        26.4         28.5         25.9             (20.8)            11.2
   Amortization of deferred financing costs                 1.3          1.3          1.4              (0.2)            (0.8)
   Depreciation and amortization                           18.0         17.2         17.6               2.4             (7.8)
   Settlement of merger dispute                              --           --          2.0                --            (15.0)
   Impairment and other charges related
     to real estate assets                                  3.6          2.5         24.1               7.4           (161.0)
   Impairment and other charges related
     to COPI                                               13.5           --           --              92.8               --
                                                       --------     --------     --------     -------------    -------------
     TOTAL EXPENSES                                       104.0%        87.6%       107.5%             95.1           (172.6)
                                                       --------     --------     --------     -------------    -------------
OPERATING (LOSS) INCOME                                    (4.0)%       12.4%        (7.5)%   $      (117.0)   $       144.8

OTHER INCOME
   Equity in net income of unconsolidated companies:
     Office properties                                      0.9          0.4          0.7               2.9             (2.1)
     Residential development properties                     5.9          7.5          5.8             (12.5)            10.6
     Temperature-controlled logistics properties            0.2          1.1          2.0              (6.3)            (7.6)
     Other                                                  0.4          1.6          0.7              (8.6)             6.5
                                                       --------     --------     --------     -------------    -------------
     TOTAL EQUITY IN NET INCOME FROM
     UNCONSOLIDATED COMPANIES                               7.4%        10.6%         9.2%    $       (24.5)   $         7.4

   Gain on property sales, net                              0.6         19.3           --            (133.0)           137.5

                                                       --------     --------     --------     -------------    -------------
     TOTAL OTHER INCOME AND EXPENSE                         8.0%        29.9%         9.2%    $      (157.5)   $       144.9
                                                       --------     --------     --------     -------------    -------------

(LOSS) INCOME BEFORE MINORITY INTERESTS,
     EXTRAORDINARY ITEM AND DISCONTINUED
     OPERATIONS                                             4.0%        42.3%         1.7%    $      (274.5)   $       289.7

   Minority interests                                      (3.1)        (7.1)        (0.3)             29.5            (48.6)
                                                       --------     --------     --------     -------------    -------------

NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEM
     AND DISCONTINUED OPERATIONS                            0.9%        35.2%         1.4%    $      (245.0)   $       241.1

     Extraordinary item - extinguishment of debt           (1.6)        (0.5)          --              (6.9)            (3.9)
     Discontinued Operations                                 --          0.1          0.1              (0.9)              --
                                                       --------     --------     --------     -------------    -------------
NET (LOSS) INCOME                                          (0.7)%       34.8%         1.5%    $      (252.8)   $       237.2

   6 3/4% Series A Preferred Share distributions           (1.9)        (1.9)        (1.8)               --               --
   Share repurchase agreement return                         --         (0.4)        (0.1)              2.9             (2.3)
   Forward share purchase
        agreement return                                     --           --         (0.6)               --              4.3
                                                       --------     --------     --------     -------------    -------------

NET (LOSS) INCOME AVAILABLE TO
   COMMON SHAREHOLDERS                                     (2.6)%       32.5%        (1.0)%   $      (249.9)   $       239.2
                                                       ========     ========     ========     =============    =============
</Table>



                                       24
<PAGE>

         COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED
DECEMBER 31, 2000

REVENUES

         Total revenues decreased $21.9 million, or 3.1%, to $692.0 million for
the year ended December 31, 2001, as compared to $713.9 million for the year
ended December 31, 2000. The primary components of the decrease in total
revenues are discussed below.

         The increase in Office Property revenues of $4.6 million, or 0.8%, for
the year ended December 31, 2001, as compared to the year ended December 31,
2000, is attributable to:

              o   increased revenues of $31.5 million from the 70 consolidated
                  Office Properties that the Company owned or had an interest in
                  as of December 31, 2001, excluding the four Office Properties
                  held for sale at December 31, 2001, primarily as a result of
                  increased full-service weighted average rental rates
                  (reflecting increases in both rental revenue and operating
                  expense recoveries), and increased occupancy; and

              o   increased other income of $4.2 million, primarily due to
                  parking revenue; partially offset by

              o   decreased revenues of $27.2 million due to the disposition of
                  11 Office Properties and four retail properties during 2000,
                  compared to the disposition of five Office Properties and the
                  joint ventures of two Office Properties during 2001; and

              o   decreased lease termination fees (net of the write-off of
                  deferred rent receivables) of $3.9 million, from $12.0 million
                  for the year ended December 31, 2000, to $8.0 million for the
                  year ended December 31, 2001.

         The decrease in Resort/Hotel Property revenues of $26.4 million, or
36.6%, for the year ended December 31, 2001, as compared to the year ended
December 31, 2000, is attributable to:

              o   decreased revenues from the upscale business-class hotels of
                  $8.1 million, due to the disposition of the Four Seasons Hotel
                  - Houston in November 2000;

              o   decreased revenues of $6.3 million due to a decrease in rental
                  income attributed to the softening of the economy and the
                  events of September 11, 2001; and

              o   decreased revenues of $12.0 million due to not recognizing
                  revenue during the fourth quarter of 2001 under the leases
                  with COPI.

EXPENSES

         Total expenses increased $95.1 million, or 15.2%, to $720.1 million for
the year ended December 31, 2001, as compared to $625.0 million for the year
ended December 31, 2000. The primary components of the increase in total
expenses are discussed below.

         The increase in Office Property operating expenses of $13.3 million, or
5.4%, for the year ended December 31, 2001, as compared to the year ended
December 31, 2000, is attributable to:

              o   increased expenses of $24.4 million from the 70 consolidated
                  Office Properties that the Company owned or had an interest in
                  as of December 31, 2001, excluding the four Office Properties
                  held for sale at December 31, 2001, primarily as a result of
                  increased operating expenses for utilities of $7.8 million,
                  taxes of $3.6 million and other increased operating expenses
                  such as insurance, security, and technology initiatives of
                  $13.3 million during the year ended December 31, 2001, as
                  compared to the same period in 2000; partially offset by

              o   decreased expenses of $11.1 million due to the disposition of
                  11 Office Properties and four retail properties during 2000,
                  compared to the disposition of five Office Properties and the
                  joint ventures of two Office Properties during 2001.



                                       25
<PAGE>

         The decrease in interest expense of $20.8 million, or 10.2%, for the
year ended December 31, 2001, as compared to the same period in 2000, is
primarily attributable to a decrease in the weighted average interest rate of
0.61%, or $14.0 million of interest expense, combined with a decrease in the
average debt balance of $104.0 million, or $8.0 million of interest expense.

         The increase in impairment and other charges related to real estate
assets of $7.4 million is due to:

                  o    the conversion of the Company's preferred member interest
                       in Metropolitan Partners, LLC ("Metropolitan") into
                       common stock of Reckson Associates Realty Corp.
                       ("Reckson"), which resulted in an impairment charge of
                       $11.8 million; partially offset by

                  o    a decrease in the impairment loss of $3.5 million, from
                       $8.5 million in 2000 to $5.0 million in 2001, recognized
                       on a fund which primarily holds real estate investments
                       and marketable securities, in which the Company has an
                       interest; and

                  o    a decrease in the impairment of the behavioral healthcare
                       properties of $0.9 million.

         The increase in impairment and other charges related to COPI of $92.8
million is due to the reduction in net assets of $74.8 million, primarily
attributable to the write-down of debt and rental obligations of COPI to the
estimated underlying collateral value of assets to be received from COPI, and
estimated COPI bankruptcy costs to be funded by the Company of $18.0 million.

OTHER INCOME

         Other income decreased $157.5 million, or 73.9%, to $55.7 million for
the year ended December 31, 2001, as compared to $213.2 million for the year
ended December 31, 2000. This decrease is due to:

         The decrease in equity in net income of unconsolidated companies of
$24.5 million, or 32.4%, for the year ended December 31, 2001, as compared to
the same period in 2000, is primarily attributable to:

              o   a decrease in equity in net income of unconsolidated
                  Residential Development Properties of $12.5 million, or 24%,
                  primarily attributable to lower lot sales at Desert Mountain
                  during the year ended December 31, 2001, resulting in a
                  decrease of $16.3 million; partially offset by higher unit
                  sales at CRD, resulting in an increase of $4.5 million;

              o   a decrease in equity in net income of the
                  Temperature-Controlled Logistics Properties of $6.3 million,
                  or 85%, due to the lease restructuring in 2001 and an increase
                  in deferred rent of $9.2 million; and

              o   a decrease in equity in net income of other unconsolidated
                  Properties of $8.6 million, or 75.0%, primarily attributable
                  to lower earnings of $3.8 million from Metropolitan due to the
                  conversion of the Company's preferred member interest into
                  common stock of Reckson in May 2001, the $1.0 million
                  write-off of the Company's investment in a retail distribution
                  company and lower earnings from DBL Holdings, Inc. ("DBL") of
                  $1.7 million, due to an approximate $12.2 million return of
                  investment received in March 2001; partially offset by

              o   an increase in equity in net income of the unconsolidated
                  Office Properties of $2.9 million, or 94.0%, primarily
                  attributable to lower interest expense at one unconsolidated
                  office property.

         The net decrease in gain on property sales of $133.0 million for the
year ended December 31, 2001, as compared to the same period in 2000, is
attributable to a decrease in net gains recognized primarily on Office,
Resort/Hotel and behavioral healthcare property sales for the year ended
December 31, 2001, as compared with the same period in 2000.

DISCONTINUED OPERATIONS

         The income from discontinued operations from assets sold and held for
sale decreased $0.9 million, or 100.0%, for the year ended December 31, 2001,
compared to $0.9 million for the year ended December 31, 2000. This decrease is
primarily due to a decrease in net operating income of one Office Property held
for sale of approximately $1.3 million, partially offset by the increase in net
operating income of three of the Office Properties held for sale of
approximately $0.4 million.



                                       26
<PAGE>

EXTRAORDINARY ITEMS

         The increase in extraordinary items of $6.9 million, or 176.9%, is
attributable to the write-off of deferred financing costs related to the early
extinguishment of the UBS Facility in May 2001 of $10.8 million, compared with
the write-off of deferred financing costs related to the early extinguishment of
the BankBoston Facility in February 2000 of $3.9 million.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31,
1999

REVENUES

         Total revenues decreased $27.8 million, or 3.7%, to $713.8 million for
the year ended December 31, 2000, as compared to $741.6 million for the year
ended December 31, 1999.

         The decrease in Office Property revenues of $8.4 million, or 1.4%, for
the year ended December 31, 2000, as compared to the same period in 1999, is
attributable to:

              o   decreased revenues of $38.0 million due to the disposition of
                  11 Office Properties and four retail properties during 2000,
                  which contributed revenues during the full year of 1999, as
                  compared to a partial year in 2000; partially offset by

              o   increased revenues of $24.4 million from the 74 Office
                  Properties owned as of December 31, 2000, excluding the four
                  Office Properties held for sale at December 31, 2000,
                  primarily as a result of increased weighted average
                  full-service rental rates at these Properties; and

              o   increased revenues of $5.2 million from lease termination
                  fees.

         The increase in Resort/Hotel Property revenues of $6.9 million, or
10.6%, for the year ended December 31, 2000, as compared to the same period in
1999, is attributable to:

              o   increased revenues of $3.1 million at the luxury resorts and
                  spas primarily due to an increase in percentage rents
                  resulting from increased room revenue due to the 30-room
                  expansion at the Sonoma Mission Inn & Spa that opened in April
                  2000;

              o   increased revenues of $2.6 million at the business class
                  hotels primarily due to (i) the reclassification of the
                  Renaissance Houston Hotel from the Office segment to the
                  Resort/Hotel segment as a result of the restructuring of its
                  lease on July 1, 1999, which resulted in $2.4 million of
                  incremental revenues under the new lease and (ii) increased
                  percentage rents due to higher room and occupancy rates at the
                  Omni Austin Hotel, partially offset by (iii) decreased
                  revenues of $1.2 million due to the disposition of one
                  Resort/Hotel Property during the fourth quarter of 2000, which
                  contributed revenues during the full year of 1999, as compared
                  to a partial year in 2000; and

              o   increased revenues of $1.2 million at the destination fitness
                  resorts and spas primarily due to an increase in percentage
                  rents at the Canyon Ranch Properties as a result of higher
                  room rates.

         The decrease in interest and other income of $26.4 million, or 39.7%,
for the year ended December 31, 2000, as compared to the same period in 1999, is
primarily attributable to the recognition of rent from Charter Behavioral Health
Systems, LLC ("CBHS") on a cash basis beginning in the third quarter of 1999,
the filing of voluntary bankruptcy petitions by CBHS and its subsidiaries on
February 16, 2000, and a rent stipulation agreed to by certain parties to the
bankruptcy proceedings, which resulted in a reduction in behavioral healthcare
property revenues, which are included in interest and other income, to $15.4
million for the year ended December 31, 2000 as compared to $41.1 million for
the same period in 1999.

EXPENSES



                                       27
<PAGE>

         Total expenses decreased $172.6 million, or 21.6%, to $625.0 million
for the year ended December 31, 2000, as compared to $797.6 million for the year
ended December 31, 1999.

         The decrease in Office Property operating expenses of $7.0 million, or
2.7%, for the year ended December 31, 2000, as compared to the same period in
1999, is attributable to:

              o   decreased expenses of $17.1 million due to the disposition of
                  11 Office Properties and four retail properties during 2000,
                  which incurred expenses during the full year of 1999, as
                  compared to a partial year in 2000; partially offset by

              o   increased expenses of $10.1 million from the 74 Office
                  Properties owned as of December 31, 2000, excluding the four
                  Office Properties held for sale at December 31, 2000, as a
                  result of (i) increased general repair and maintenance
                  expenses at these Properties of $5.6 million and (ii) an
                  increase in real estate taxes of $4.5 million.

         The increase in corporate general and administrative expense of $7.8
million, or 47.9%, for the year ended December 31, 2000, as compared to the same
period in 1999, is primarily attributable to technology initiatives, employee
retention programs, incentive compensation, and additional personnel.

         The increase in interest expense of $11.2 million, or 5.8%, for the
year ended December 31, 2000, as compared to the same period in 1999, is
primarily attributable to an increase in the weighted-average interest rate from
7.4% in 1999 to 8.4% in 2000, partially offset by a decrease in average debt
balance outstanding from $2.6 billion in 1999 to $2.4 billion in 2000.

         The decrease in depreciation and amortization expense of $7.8 million,
or 6.0%, for the year ended December 31, 2000, as compared to the same period in
1999, is primarily attributable to the cessation of the recognition of
depreciation expense on Office Properties and behavioral healthcare properties
from the dates they were classified as held for disposition.

         An additional decrease in expenses of $176.8 million is primarily
attributable to:

              o   non-recurring costs of $15.0 million in connection with the
                  settlement of litigation relating to the merger agreement
                  entered into in January 1998 between the Company and Station
                  Casinos, Inc. in the first quarter of 1999; and

              o   a decrease of $169.5 million due to the $162.0 million
                  impairment and other charges related to the behavioral
                  healthcare properties in the third quarter of 1999 and the
                  $16.8 million impairment charge in the fourth quarter of 1999
                  on one of the Office Properties held for disposition as
                  compared to the $9.3 million impairment related to the
                  behavioral healthcare properties in the year ended December
                  31, 2000; partially offset by

              o   an impairment loss of $8.5 million recognized in 2000 on a
                  fund which primarily holds real estate investments and
                  marketable securities, in which the Company has an interest.

OTHER INCOME

         Other income increased $144.9 million, or 212.2%, to $213.2 million for
the year ended December 31, 2000, as compared to $68.3 million for the year
ended December 31, 1999. The components of the increase in other income are
discussed below.

         The increase in equity in unconsolidated companies of $7.4 million, or
10.8%, for the year ended December 31, 2000, as compared to the same period in
1999 is attributable to:

              o   an increase in equity in net income of the Residential
                  Development Corporations of $10.6 million, or 24.7%,
                  attributable to (i) an increase in average sales price per lot
                  and an increase in membership conversion revenue at Desert
                  Mountain, partially offset by a decrease in lot absorption,
                  which resulted in an increase of $6.0 million in equity in net
                  income to the Company; (ii) an increase in residential lot and



                                       28
<PAGE>

                  commercial land sales and an increase in average sales price
                  per lot at The Woodlands Land Development Company, L.P.,
                  partially offset by a decrease in average sales price per acre
                  from commercial land sales, which resulted in an increase of
                  $5.9 million in equity in net income to the Company; and (iii)
                  an increase in commercial acreage sales at CRD, partially
                  offset by a decrease in single-family home sales, which
                  resulted in an increase of $0.8 million in equity in net
                  income to the Company; partially offset by (iv) a decrease in
                  commercial land sales at Houston Area Development Corp., which
                  resulted in a decrease of $2.1 million in equity in net income
                  to the Company; and

              o   an increase in equity in net income of the other
                  unconsolidated companies of $6.5 million, or 127.5%, primarily
                  as a result of (i) the dividend income attributable to the
                  7.5% per annum cash flow preference of the Company's $85.0
                  million preferred member interest in Metropolitan, which the
                  Company purchased in May 1999; and (ii) an increase in the
                  equity in earnings from DBL as a result of its investment in
                  G2 Opportunity Fund, L.P. ("G2"), which was made in the third
                  quarter of 1999; partially offset by

              o   a decrease in equity in net income of the
                  Temperature-Controlled Logistics Partnership of $7.6 million,
                  or 50.7%, resulting primarily from the recognition of a rent
                  receivable valuation allowance for the year ended December 31,
                  2000 of $6.5 million; and

              o   a decrease in equity in net income of the unconsolidated
                  office properties of $2.1 million, or 39.6%, primarily
                  attributable to an increase in interest expense as a result of
                  additional financing obtained in July 2000 and an increase in
                  the average rate of debt at The Woodlands Commercial
                  Properties Company, L.P.

         The increase in net gain on property sales of $137.5 million for the
year ended December 31, 2000, as compared to the same period in 1999, is
attributable to net gains primarily recognized on Office, Resort/Hotel and
behavioral healthcare property sales.



                                       29
<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash equivalents were $36.3 million and $39.0 million at
December 31, 2001, and December 31, 2000, respectively. This 6.9% decrease is
attributable to $425.5 million used in financing activities, partially offset by
$210.0 million and $212.8 million provided by investing and operating
activities, respectively.

<Table>
<Caption>
                                                           DECEMBER 31,
                                                               2001
                                                           ------------
                                                           (in millions)
<S>                                                        <C>
Cash Provided by Operating Activities                        $ 212.8
Cash Provided by Investing Activities                          210.0
Cash Used in Financing Activities                             (425.5)
                                                             -------
Decrease in Cash and Cash Equivalents                        $  (2.7)
Cash and Cash Equivalents, Beginning of Period                  39.0
                                                             -------
Cash and Cash Equivalents, End of Period                     $  36.3
                                                             =======
</Table>

OPERATING ACTIVITIES

         The Company's cash provided by operating activities of $212.8 million
is attributable to:

                  o        $199.4 million from Property operations; and

                  o        $13.4 million representing distributions received in
                           excess of equity in earnings from unconsolidated
                           companies.

INVESTING ACTIVITIES

         The Company's cash provided by investing activities of $210.0 million
is primarily attributable to:

                  o        $200.4 million of net sales proceeds primarily
                           attributable to the disposition of the two Washington
                           Harbour Office Properties, three Woodlands Office
                           Properties and 18 behavioral healthcare properties;

                  o        $129.7 million of proceeds from joint venture
                           partners, primarily as a result of the proceeds of
                           $116.7 million from the joint ventures of two
                           existing Office Properties, Bank One Tower in Austin,
                           Texas and Four Westlake Park in Houston, Texas and
                           $12.9 million from the joint venture of 5 Houston
                           Center Office Property, which is currently being
                           developed;

                  o        $107.9 million of proceeds from the sale of
                           marketable securities; and

                  o        $32.0 million from return of investment in
                           unconsolidated office properties, Residential
                           Development Properties and other unconsolidated
                           companies.

         The Company's cash provided by investing activities is partially offset
by:

                  o        $124.6 million of additional investment in
                           unconsolidated companies, consisting of investments
                           in (i) the upscale Residential Development Properties
                           of $89.0 million, primarily as a result of CRD's
                           investment in Tahoe Mountain Resorts, (ii)
                           Temperature-Controlled Logistics Properties of $10.8
                           million, (iii) Office Properties of $16.4 million and
                           (iv) other unconsolidated companies of $8.4 million;

                  o        $51.8 million for recurring and non-recurring tenant
                           improvement and leasing costs for the Office
                           Properties;

                  o        $46.4 million for capital expenditures for rental
                           properties, primarily attributable to non-recoverable
                           building improvements for the Office Properties and
                           replacement of furniture, fixtures and equipment for
                           the Resort/Hotel Properties;

                  o        $23.7 million for the development of investment
                           properties, including $12.3 million for development
                           of the 5 Houston Center Office Property and
                           expansions and renovations at the Resort/Hotel
                           Properties;


                                       30
<PAGE>

                  o        a $11.2 million increase in notes receivable,
                           primarily as a result of approximately $10.0 million
                           related to secured loans to AmeriCold Logistics; and

                  o        a $2.2 million increase in restricted cash and cash
                           equivalents, primarily related to the escrow of funds
                           to purchase a parking garage in Denver, Colorado,
                           which was purchased during the first quarter of 2002,
                           partially offset by escrow reimbursements for capital
                           expenditures at the Resort/Hotel Properties and the
                           Office Properties.

FINANCING ACTIVITIES

         The Company's use of cash for financing activities of $425.5 million is
primarily attributable to:

                  o        net repayment of the UBS Facility of $553.5 million;

                  o        distributions to common shareholders and unitholders
                           of $245.1 million;

                  o        repayment and retirement of the iStar Financial Note
                           of $97.1 million;

                  o        repurchase of the Company's common shares for $77.4
                           million;

                  o        repayment and retirement of the Deutsche Bank
                           Short-term Loan of $75.0 million;

                  o        net capital distributions to joint venture partners
                           of $25.4 million, primarily due to distributions to
                           joint venture preferred equity partners;

                  o        debt financing costs of $16.0 million; and

                  o        distributions to preferred shareholders of $13.5
                           million.

         The use of cash for financing activities is partially offset by:

                  o        net borrowings under the Fleet Facility of $283.0
                           million;

                  o        proceeds from notes payable of $393.3 million,
                           primarily attributable to the debt refinancing; and

                  o        proceeds from the exercise of common share options of
                           $9.8 million.

COPI

         In April 1997, the Company established a new Delaware corporation,
Crescent Operating, Inc., ("COPI"). All of the outstanding common stock of COPI,
valued at $0.99 per share, 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.

         COPI was formed to become a lessee and operator of various assets to be
acquired by the Company and to perform the intercompany agreement between COPI
and the Company, pursuant to which each agreed to provide the other with rights
to participate in certain transactions. The Company was not permitted to operate
or lease these assets under the tax laws in effect at that time, applicable to
REITs. In connection with the formation and capitalization of COPI, and the
subsequent operations and investments of COPI since 1997, the Company made loans
to COPI under a line of credit and various term loans.

         On January 1, 2001, The REIT Modernization Act became effective. This
legislation allows the Company, through its subsidiaries, to operate or lease
certain of its investments that had been previously operated or leased by COPI.

         COPI and the Company entered into an asset and stock purchase agreement
on June 28, 2001, in which the Company agreed to acquire the lessee interests in
the eight Resort/Hotel Properties leased to subsidiaries of COPI, the voting
interests held by subsidiaries of COPI in three of the Company's Residential
Development Corporations and other assets in exchange for $78.4 million. In
connection with that agreement, the Company agreed that it would not charge
interest on its loans to COPI from May 1, 2001 and that it would allow COPI to
defer all principal and interest payments due under the loans until December 31,
2001.

         Also on June 28, 2001, the Company entered into an agreement to make a
$10.0 million investment in Crescent Machinery Company ("Crescent Machinery"), a
wholly owned subsidiary of COPI. This investment, together with capital from a
third-party investment firm, was expected to put Crescent Machinery on solid
financial footing.


                                       31
<PAGE>

         Following the date of the agreements relating to the acquisition of
COPI assets and stock and the investment in Crescent Machinery, the results of
operations for the COPI hotel operations and the COPI land development interests
declined, due in part to the slowdown in the economy after September 11. In
addition, Crescent Machinery's results of operations suffered because of the
economic environment and the overall reduction in national construction levels
that has affected the equipment rental and sale business, particularly post
September 11. As a result, the Company believes that a significant additional
investment would have been necessary to adequately capitalize Crescent Machinery
and satisfy concerns of Crescent Machinery's lenders.

         The Company stopped recording rent from the leases of the eight
Resort/Hotel Properties leased to subsidiaries of COPI on October 1, 2001, and
recorded impairment and other adjustments related to COPI in the fourth quarter
of 2001, based on the estimated fair value of the underlying assets. See "Note
16. COPI" included in "Item 8. Financial Statements and Supplementary Data" for
a description of these charges.

         On January 22, 2002, the Company terminated the purchase agreement
pursuant to which the Company would have acquired the lessee interests in the
eight Resort/Hotel Properties leased to subsidiaries of COPI, the voting
interests held by subsidiaries of COPI in three of the Residential Development
Corporations and other assets. On February 4, 2002, the Company terminated the
agreement relating to its planned investment in Crescent Machinery.

         On February 6, 2002, Crescent Machinery filed for protection under the
federal bankruptcy laws.

         On February 12, 2002, the Company delivered default notices to COPI
relating to approximately $49.0 million of unpaid rent and approximately $76.2
million of principal and accrued interest due to the Company under certain
secured loans.

         On February 14, 2002, the Company executed an agreement (the
"Agreement") with COPI, pursuant to which COPI transferred to subsidiaries of
the Company, in lieu of foreclosure, COPI's lessee interests in the eight
Resort/Hotel Properties leased to subsidiaries of COPI and, pursuant to a strict
foreclosure, COPI's voting interests in three of the Company's Residential
Development Corporations and other assets and the Company agreed to assist and
provide funding to COPI for the implementation of a prepackaged bankruptcy of
COPI. In connection with the transfer, COPI's rent obligations to the Company
were reduced by $23.6 million, and its debt obligations were reduced by $40.1
million. These amounts include $18.3 million of value attributed to the lessee
interests transferred by COPI to the Company, however, in accordance with GAAP,
the Company assigned no value to these interests for financial reporting
purposes.

         The Company holds the lessee interests in the eight Resort/Hotel
Properties and the voting interests in the three Residential Development
Corporations through three newly organized limited liability companies that are
wholly owned taxable REIT subsidiaries of the Company. The Company will include
these assets in its Resort/Hotel Segment and its Residential Development
Segment, and will fully consolidate the operations of the eight Resort/Hotel
Properties and the three Residential Development Corporations, beginning on the
date of the transfers of these assets.


         The Agreement provides that the Company and COPI will jointly seek to
have a pre-packaged bankruptcy plan for COPI, reflecting the terms of the
Agreement, approved by the bankruptcy court. Under the Agreement, the Company
agreed to provide approximately $14.0 million to COPI in the form of cash and
common shares of the Company to fund costs, claims and expenses relating to the
bankruptcy and related transactions, and to provide for the distribution of the
Company's common shares to the COPI stockholders. The Company has also agreed,
however, that it will issue common shares with a minimum dollar value of
approximately $2.2 million to the COPI stockholders, even if it would cause the
total costs, claims and expenses that it pays to exceed $14.0 million.
Currently, the Company estimates that the value of the common shares that will
be issued to the COPI stockholders will be approximately $2.2 million to $5.4
million. The actual value of the common shares issued to the COPI stockholders
will not be determined until the confirmation of COPI's bankruptcy plan and
could vary from the estimated amounts, but will have a value of at least $2.2
million.

         In addition, the Company has agreed to use commercially reasonable
efforts to assist COPI in arranging COPI's repayment of its $15.0 million
obligation to Bank of America, together with any accrued interest. COPI obtained
the loan primarily to participate in investments with the Company. At the time
COPI obtained the loan, Bank of America required, as a condition to making the
loan, that Richard E. Rainwater, the Chairman of the Board, and John C. Goff,
the Chief Executive Officer of the Company, enter into a support agreement with
COPI and Bank of America, pursuant to which they agreed to


                                       32
<PAGE>

make additional equity investments in COPI if COPI defaulted on payment
obligations under its line of credit with Bank of America and the net proceeds
of an offering of COPI securities were insufficient to allow COPI to pay Bank of
America in full. Effective December 31, 2001, the parties executed an amendment
to the line of credit providing that any defaults existing under the line of
credit on or before March 8, 2002 are temporarily cured unless and until a new
default shall occur.

         Previously, the Company held a first lien security interest in COPI's
entire membership interest in AmeriCold Logistics. REIT rules prohibit the
Company from acquiring or owning the membership interest that COPI owns in
AmeriCold Logistics. Under the Agreement, the Company agreed to allow COPI to
grant Bank of America a first priority security interest in the membership
interest and to subordinate its own security interest to Bank of America. In
addition, the Company expects to form and capitalize a separate entity to be
owned by the Company's shareholders and unitholders, and to cause the new entity
to commit to acquire COPI's entire membership interest in the tenant, for
between $15.0 and $15.5 million. Under the Agreement, COPI has agreed that it
will use the proceeds of the sale of the membership interest to repay Bank of
America in full.

         If the COPI bankruptcy plan is approved by the required vote of the
shares of COPI common stock, the stockholders of COPI will receive the Company's
common shares. As stockholders of COPI, Mr. Rainwater and Mr. Goff will also
receive the Company's common shares.

         Pursuant to the COPI bankruptcy plan, the current and former directors
and officers of COPI and the current and former trust managers and officers of
the Company also have received a release from COPI of liability for any actions
taken prior to February 14, 2002, and, depending on various factors, will
receive certain liability releases from COPI and its stockholders.

         Completion and effectiveness of the plan of reorganization for COPI is
contingent upon a number of conditions, including the vote of COPI's
stockholders, the approval of the plan by certain of COPI's creditors and the
approval of the bankruptcy court.

INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES

         Investments in which the Company does not have a controlling interest
are accounted for under the equity method. The following is a summary of the
Company's ownership in significant joint ventures or equity investments:

<Table>
<Caption>
                                                                                                    COMPANY'S OWNERSHIP
                     ENTITY                                     CLASSIFICATION                    AS OF DECEMBER 31, 2001
--------------------------------------------------    ------------------------------------        -----------------------
<S>                                                   <C>                                         <C>
Desert Mountain Development Corporation (1)            Residential Development Corporation               95.0%(2)(3)
The Woodlands Land Company, Inc.(1)                   Residential Development Corporation                95.0%(2)(4)
Crescent Resort Development, Inc. (1)                 Residential Development Corporation                90.0%(2)(5)
Mira Vista Development Corp.                          Residential Development Corporation                94.0%(2)(6)
Houston Area Development Corp.                        Residential Development Corporation                94.0%(2)(7)
Temperature-Controlled Logistics Partnership           Temperature-Controlled Logistics                  40.0%(8)
The Woodlands Commercial
    Properties Company, L.P.                                        Office                               42.5%(9)(10)
Main Street Partners, L.P.                                 Office (Bank One Center)                      50.0%(11)
Crescent 5 Houston Center, L.P.                            Office (5 Houston Center)                     25.0%(12)
Austin PT BK One Tower Office Limited Partnership           Office (Bank One Tower)                      20.0%(13)
Houston PT Four Westlake Office Limited Partnership       Office (Four Westlake Park)                    20.0%(13)
DBL Holdings, Inc.                                                   Other                               97.4%(14)
CRL Investments, Inc.(1)                                             Other                               95.0%(15)
CR License, LLC (1)                                                  Other                               28.5%(16)
</Table>

----------

(1)      On February 14, 2002, the Company executed an agreement with COPI,
         pursuant to which COPI transferred to subsidiaries of the Company,
         pursuant to a strict foreclosure, COPI's interest in these entities.
         The Company will fully consolidate the operations of these entities,
         other than CR License, LLC, beginning on the date of the asset
         transfers.

(2)      See the Residential Development Properties Table included in "Item 2.
         Properties" for the Residential Development Corporation's ownership
         interest in the Residential Development Properties.

(3)      The remaining 5.0% interest in Desert Mountain Development Corporation,
         representing 100% of the voting stock, was owned by COPI as of December
         31, 2001.


                                       33
<PAGE>

(4)      The remaining 5.0% interest in The Woodlands Land Company, Inc.,
         representing 100% of the voting stock, was owned by COPI as of December
         31, 2001.

(5)      The remaining 10.0% interest in Crescent Resort Development, Inc.,
         representing 100% of the voting stock, is owned by COPI Colorado, L.
         P., of which 60.0% was owned by COPI as of December 31, 2001, with 20%
         owned by John Goff, Vice-Chairman of the Board of Trust Managers and
         Chief Executive Officer of the Company, and 20% owned by a third party.

(6)      The remaining 6.0% interest in Mira Vista Development Corp. ("MVDC"),
         representing 100% of the voting stock, is owned 4.0% by DBL Holdings,
         Inc. ("DBL") and 2.0% by third parties.

(7)      The remaining 6.0% interest in Houston Area Development Corp. ("HADC"),
         representing 100% of the voting stock, is owned 4.0% by DBL and 2.0% by
         a third party.

(8)      The remaining 60.0% interest in the Temperature-Controlled Logistics
         Partnership is owned by Vornado Realty Trust, L.P.

(9)      The remaining 57.5% interest in The Woodlands Commercial Properties
         Company, L. P. is owned by Morgan Stanley Real Estate Fund II, L. P.
         ("Morgan Stanley").

(10)     Distributions are made to partners based on specified payout
         percentages. During the year ended December 31, 2001, the payout
         percentage to the Company was 49.5%.

(11)     The remaining 50.0% interest in Main Street Partners, L.P. is owned by
         TrizecHahn Corporation.

(12)     See "5 Houston Center" below.

(13)     See "Four Westlake Park and Bank One Tower" below.

(14)     John Goff, Vice-Chairman of the Board of Trust Managers and Chief
         Executive Officer of the Company, obtained the remaining 2.6% economic
         interest in DBL (including 100% of the voting interest in DBL) in
         exchange for his voting interests in MVDC and HADC, originally valued
         at approximately $0.4 million, and approximately $0.06 million in cash,
         or total consideration valued at $0.4 million. At December 31, 2001,
         Mr. Goff's interest in DBL was approximately $0.6 million.

(15)     The remaining 5.0% interest in CRL Investments, Inc. was owned by COPI
         as of December 31, 2001.

(16)     Of the remaining 71.5% interest in CR License, LLC, 70.0% is owned by a
         group of individuals unrelated to the Company, and 1.5% was owned by
         COPI, as of December 31, 2001.

JOINT VENTURE ARRANGEMENTS

5 Houston Center

         On June 4, 2001, the Company entered into a joint venture arrangement
with a pension fund advised by JP Morgan Investment Management, Inc. ("JPM") to
construct the 5 Houston Center Office Property within the Company's Houston
Center mixed-use Office Property complex in Houston, Texas. The Class A Office
Property will consist of 577,000 net rentable square feet. The joint venture is
structured such that the fund holds a 75% equity interest, and the Company holds
a 25% equity interest in the Property, which is accounted for under the equity
method. The Company contributed approximately $8.5 million of land and $12.3
million of development costs to the joint venture entity and received $14.8
million in net proceeds. No gain or loss was recognized by the Company on this
transaction. In addition, the Company is developing, and will manage and lease
the Property on a fee basis. During the year ended December 31, 2001, the
Company recognized $2.3 million for these services.

         During the second quarter of 2001, the joint venture entity obtained an
$82.5 million construction loan guaranteed by the Company, due May 2004, that
bears interest at Prime (as defined in the loan agreement) plus 100 basis points
or LIBOR plus 225 basis points, at the discretion of the borrower. The interest
rate on the loan at December 31, 2001, was 4.12%. The balance outstanding on
this construction loan at December 31, 2001, was $10.4 million.

Four Westlake Park and Bank One Tower

         On July 30, 2001, the Company entered into joint venture arrangements
with an affiliate of General Electric Pension Fund ("GE") in which the Company
contributed two Office Properties, Four Westlake Park in Houston, Texas, and
Bank One Tower in Austin, Texas into the joint ventures and GE made a cash
contribution. The joint ventures are structured such that GE holds an 80% equity
interest in each of Four Westlake Park, a 560,000 square foot Class A Office
Property located in the Katy Freeway submarket of Houston, and Bank One Tower, a
390,000 square foot Class A Office Property located in downtown Austin. The
Company continues to hold the remaining 20% equity interests in each Property,
which are accounted for under the equity method. The joint ventures generated
approximately $120.0 million in net cash proceeds to the Company, including
distributions to the Company resulting from the sale of its 80% equity interest
and from mortgage financing at the joint venture level. None of the mortgage
financing at the joint venture level is guaranteed by the Company. The Company
has no commitment to reinvest the cash proceeds back into the joint ventures.
The joint ventures were accounted for as partial sales of these Office
Properties, resulting in a gain of approximately $7.6 million, net of a deferred
gain of approximately $1.9 million. In addition, the Company manages and leases
the Office Properties on a fee basis. During the year ended December 31, 2001,
the Company recognized $0.2 million for these services.


                                       34
<PAGE>
UNCONSOLIDATED PROPERTY DISPOSITIONS

         On September 27, 2001, the Woodlands Commercial Properties Company,
L.P., owned by the Company and an affiliate of Morgan Stanley, sold one
office/venture tech property located within The Woodlands, Texas. The sale
generated net proceeds, after the repayment of debt, of approximately $2.7
million, of which the Company's portion was approximately $1.3 million. The sale
generated a net gain of approximately $3.5 million, of which the Company's
portion was approximately $1.7 million. The net proceeds received by the Company
were used primarily to pay down variable-rate debt.

         On November 9, 2001, The Woodlands Land Development Company, L.P. owned
by the Woodlands Land Company, Inc. and an affiliate of Morgan Stanley, sold two
office properties and one retail property located within The Woodlands, Texas.
The sales generated net proceeds, after the repayment of debt, of approximately
$41.8 million, of which the Company's portion was approximately $19.7 million.
The sales generated a net gain of approximately $13.3 million, of which the
Company's portion was approximately $3.8 million. The net proceeds received by
the Company were used primarily to pay down variable-rate debt.

METROPOLITAN

         On May 24, 2001, the Company converted its $85.0 million preferred
member interest in Metropolitan and $1.9 million of deferred acquisition costs,
into approximately $75.0 million of common stock of Reckson, resulting in an
impairment charge of approximately $11.9 million. The Company subsequently sold
the Reckson common stock on August 17, 2001, for approximately $78.6 million,
resulting in a gain of approximately $3.6 million. The proceeds were used to pay
down the Fleet Facility.

CONSOLIDATED PROPERTY DISPOSITIONS

         During the year ended December 31, 2001, the Company sold five Office
Properties, 18 behavioral healthcare properties and other assets. The sales
generated net proceeds of approximately $200.4 million and a net gain of
approximately $4.4 million.

Office Segment

         On July 30, 2001, the GE joint ventures were accounted for as partial
sales of two Office Properties, Four Westlake Park in Houston, Texas, and Bank
One Tower in Austin, Texas, resulting in a net gain of approximately $7.6
million, net of a deferred gain of $1.9 million.

         On September 18, 2001, the Company completed the sale of the two
Washington Harbour Office Properties. The sale generated net proceeds of
approximately $153.0 million and a net loss of approximately $9.8 million. The
proceeds from the sale of the Washington Harbour Office Properties were used
primarily to pay down variable-rate debt and repurchase approximately 4.3
million of the Company's common shares. The Washington Harbour Office Properties
were the Company's only Office Properties in Washington, D.C.

         On September 28, 2001, The Woodlands Office Equities - '95 Limited
("WOE"), owned by the Company and the Woodlands Commercial Properties Company,
L. P., sold two Office Properties located within The Woodlands, Texas. The sale
generated net proceeds of approximately $11.3 million, of which the Company's
portion was approximately $9.9 million. The sale generated a net gain of
approximately $3.4 million, of which the Company's portion was approximately
$3.0 million. The proceeds received by the Company were used primarily to pay
down variable-rate debt.

         On December 20, 2001, WOE sold one Office Property located within The
Woodlands, Texas. The sale generated net proceeds of approximately $2.0 million,
of which the Company's portion was approximately $1.8 million. The sale
generated a net gain of approximately $1.7 million, of which the Company's
portion was approximately $1.5 million. The proceeds received by the Company
were used primarily to pay down variable-rate debt.

Behavioral Healthcare Properties

         During the year ended December 31, 2001, the Company completed the sale
of 18 behavioral healthcare properties. The sales generated approximately $34.7
million in net proceeds and a net gain of approximately $1.6 million for the
year ended December 31, 2001. The net proceeds from the sale of the 18
behavioral healthcare properties sold during the year


                                       35
<PAGE>

ended December 31, 2001 were used primarily to pay down variable-rate debt. As
of December 31, 2001, the Company owned 10 behavioral healthcare properties. The
Company is actively marketing these 10 behavioral healthcare properties for
sale.

         During the year ended December 31, 2001, the Company recognized an
impairment loss of $8.5 million on seven of the behavioral healthcare properties
held for disposition. This amount represents the difference between the carrying
values and the estimated sales prices less costs of the sales for these seven
properties.


                                       36
<PAGE>

RELATED PARTY DISCLOSURES

DBL

         As of December 31, 2001, the Company owned 97.44% of DBL with the
remaining 2.56% economic interest in DBL (including 100% of the voting interest
in DBL) held by John Goff, Vice-Chairman of the Board of Trust Managers and
Chief Executive Officer of the Company. Originally, Mr. Goff contributed his
voting interests in MVDC and HADC originally valued at approximately $0.4
million, and approximately $0.06 million in cash, or total consideration valued
at approximately $0.4 million for his interest in DBL.

         DBL has two wholly owned subsidiaries, DBL-ABC, Inc., and DBL-CBO,
Inc., the assets of which are described in the following paragraphs, and DBL
directly holds 66% of the voting stock in MVDC and HADC. At December 31, 2001,
Mr. Goff's interest in DBL was approximately $0.6 million.

         Since June 1999, the Company has contributed approximately $23.8
million to DBL. The contribution was used by DBL to make an equity contribution
to DBL-ABC, Inc., which committed to purchase a limited partnership interest
representing a 12.5% interest in G2. G2 was formed for the purpose of investing
in commercial mortgage backed securities and other commercial real estate
investments and is managed and controlled by an entity that is owned equally by
Goff-Moore Strategic Partners, LP ("GMSP") and GMAC Commercial Mortgage
Corporation ("GMACCM"). The ownership structure of GMSP consists of 50%
ownership by Darla Moore, who is married to Richard Rainwater, Chairman of the
Board of Trust Managers of the Company, and 50% by John Goff. Mr. Rainwater is
also a limited partner of GMSP. At December 31, 2001, DBL has an approximately
$14.1 million investment in G2.

         In March 1999, DBL-CBO, Inc. acquired $6.0 million aggregate principal
amount of Class C-1 Notes issued by Juniper CBO 1999-1 Ltd., a Cayman Island
limited liability company. At December 31, 2001 this investment was valued at
approximately $5.4 million.

COPI Colorado, L. P.

         As of December 31, 2001, CRD was owned 90% by the Company and the
remaining 10%, representing 100% of the voting stock, was owned by COPI
Colorado, L. P., of which 60% was owned by COPI, with 20% owned by John Goff,
Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the
Company and 20% owned by a third party.

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to the Company, in lieu of foreclosure,
COPI's 60% general partner interest in COPI Colorado. As a result, the Company
owns a 96% interest in CRD, John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company owns a 2.0% interest in CRD
and the remaining 2.0% interest is owned by a third party. The Company will
fully consolidate the operations of CRD beginning on the date of the asset
transfers.

Loans to Employees and Trust Managers of the Company for Exercise of Stock
Options and Unit Options

         As of December 31, 2001, the Company had approximately $32.9 million of
loans outstanding (including approximately $4.4 million loaned during the year
ended December 31, 2001) to certain employees and trust managers of the Company
on a full recourse basis pursuant to the Company's stock incentive plans and
unit incentive plans pursuant to an agreement approved by the Board of Directors
and the Executive Compensation Committee of the Company. The proceeds of these
loans were used by the employees and the trust managers to acquire common shares
of the Company pursuant to the exercise of vested stock and unit options.
Pursuant to the loan agreements, these loans may be repaid in full or in part at
any time without premium or penalty. John Goff, Vice-Chairman of the Board of
Trust Managers and Chief Executive Officer of the Company, had a loan comprising
$26.3 million of the $32.9 million total outstanding loans at December 31, 2001.

         Every month, federal short-term, mid-term and long-term rates
(Applicable Federal Rates) are determined and published by the IRS based upon
average market yields of specified maturities. Effective November 1, 2001, these
loans were amended to reduce the interest rates for their remaining terms to the
Applicable Federal Rates as of November. As a result, the interest rates on
loans with remaining terms of three years or less at November 1, 2001 were
reduced to approximately 2.7% per year and the interest rates on loans with
remaining terms greater than three years as of November 1, 2001 were reduced to
approximately 4.07% per year. These amended interest rates reflect below
prevailing market interest


                                       37
<PAGE>

rates; therefore, the Company recorded $0.8 million of compensation expense for
the year ended December 31, 2001. Approximately $0.5 million of interest was
outstanding related to these loans as of December 31, 2001.

SHELF REGISTRATION STATEMENT

         On October 29, 1997, the Company filed a shelf registration statement
(the "Shelf Registration Statement") with the SEC relating to the future
offering of up to an aggregate of $1.5 billion of common shares, preferred
shares and warrants exercisable for common shares. Management believes the Shelf
Registration Statement will provide the Company with more efficient and
immediate access to capital markets when considered appropriate. As of December
31, 2001, approximately $782.7 million was available under the Shelf
Registration Statement for the issuance of securities.

SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY

         During the year ended December 31, 2000, the Company formed Crescent
Real Estate Funding IX, L.P. ("Funding IX") and contributed seven Office
Properties and two Resort/Hotel Properties to Funding IX. As of December 31
2001, Funding IX held seven Office Properties and one Resort/Hotel Property. The
Company owns 100% of the common voting interests in Funding IX, 0.1% in the form
of a general partner interest and 99.9% in the form of a limited partner
interest.

         Also during the year ended December 31, 2000, GMAC Commercial Mortgage
Corporation ("GMACCM") purchased $275.0 million of non-voting, redeemable
preferred Class A Units in Funding IX (the "Class A Units"). The Class A Units
were redeemable at the Company's option at the original purchase price. As of
December 31, 2000, the Company had redeemed approximately $56.6 million of the
Class A units from GMACCM. No redemptions occurred during the year ended
December 31, 2001.

         The Class A Units received a preferred variable-rate dividend
calculated at LIBOR plus 450 basis points, or approximately 6.6% per annum, as
of December 31, 2001, and increasing to LIBOR plus 550 basis points beginning
March 16, 2002.

         Funding IX loaned the net proceeds of the sale of Class A Units in
Funding IX and a portion of the net proceeds from the sale of one of the
Resort/Hotel Properties held by Funding IX, through an intracompany loan to
Crescent SH IX, Inc. ("SH IX"), for the purchase of common shares of the
Company. See "Share Repurchase Program" below. This intracompany loan is
eliminated in consolidation.

EMPLOYEE STOCK PURCHASE PLAN

         On June 25, 2001, the shareholders of the Company approved a new
Employee Stock Purchase Plan (the "ESPP"), that is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code
("IRC") of 1986, as amended. The ESPP is regarded as a noncompensatory plan
under APB No. 25, because it meets the qualifications under IRC 423. Under the
terms of the ESPP, eligible employees may purchase common shares of the Company
at a price that is equal to 90% of the lower of the common shares' fair market
value at the beginning or the end of a quarterly period. The fair market value
of a common share is equal to the last sale price of the common shares on the
New York Stock Exchange. Eligible employees may purchase the common shares
through payroll deductions of up to 10% of eligible compensation. The ESPP is
not subject to the provisions of ERISA. The ESPP was effective October 1, 2001,
and will terminate on May 14, 2011.

         The 1,000,000 common shares that may be issued pursuant to the purchase
of common shares under the ESPP represent less than 0.96% of the Company's
outstanding common shares at December 31, 2001.

SHARE REPURCHASE PROGRAM

         On October 15, 2001, the Company's Board of Trust Managers authorized
an increase in the amount of outstanding common shares that can be repurchased
from time to time in the open market or through privately negotiated
transactions (the "Share Repurchase Program") from $500.0 million to $800.0
million.

         The Company commenced its Share Repurchase Program in March 2000. As of
December 31, 2001, the Company had repurchased 18,756,423 common shares, 20,286
of which have been retired, at an average price of $19.09 per common


                                       38
<PAGE>

share for an aggregate of approximately $358.1 million. As of December 31, 2001,
the Company held 14,468,623 of the repurchased common shares in SH IX. See "Sale
of Preferred Equity Interests in Subsidiary" above. These common shares are
consolidated as treasury shares in accordance with GAAP.

         The Company expects the Share Repurchase Program to continue to be
funded through a combination of debt, equity, joint venture capital and selected
asset disposition alternatives available to the Company. The amount of common
shares that the Company will actually purchase will be determined from time to
time, in its reasonable judgment, based on market conditions and the
availability of funds, among other factors. There can be no assurance that any
number of common shares will actually be purchased within any particular time
period.

SHARE REPURCHASE AGREEMENT

         On November 19, 1999, the Company entered into an agreement (the "Share
Repurchase Agreement") with UBS to purchase a portion of its common shares from
UBS. The Company had the option to settle the Share Repurchase Agreement in cash
or common shares. During the year ended December 31, 2000, the Company purchased
the 5,809,180 common shares from UBS at an average cost of $17.62 per common
share for an aggregate of approximately $102.3 million under the Share
Repurchase Agreement with UBS.

         The Share Repurchase Agreement was accounted for under EITF 96-13 and
was considered an equity instrument similar to a preferred stock instrument with
a cumulative fixed dividend, the forward accretion component or guaranteed
return to UBS was accounted for like a preferred dividend. Additionally, the
common shares actually issued and outstanding were considered in both the basic
and diluted weighted-average shares calculations. The diluted earnings per share
calculation also included any contingently issuable common shares.

         The Company has no further obligation under the Share Repurchase
Agreement. The purchases were funded primarily through the sale of Class A Units
in Funding IX. See "Sale of Preferred Equity Interests in Subsidiary" above.

BROADBAND

         In 2000, the Company made an equity investment in Broadband Office,
Inc. ("Broadband"), (a facilities-based provider of broadband data, video and
voice communication services delivered over fiber optic networks), and related
entities. In May 2001, Broadband filed for Chapter 11 bankruptcy protection, and
the Company's investment in Broadband was approximately $7.2 million. Yipes
Communications Group, Inc. ("Yipes"), another telecom provider, has received
approval from the federal bankruptcy court to acquire certain rights formerly
owned by Broadband. In addition, Yipes has executed agreements with nine major
real estate entities, including the Company, to assume telecom licensing
agreements, in modified formats. As part of this transaction, the Company
acquired ownership of certain telecom assets previously owned by Broadband and
located within office properties in consideration for conveyance of its equity
interest in Broadband to Yipes. These telecom assets were independently
appraised and valued in excess of the Company' equity interest in Broadband. As
a result, the Company reclassified its investment in Broadband of approximately
$7.2 million from Other Assets to Building Improvements during the year ended
December 31, 2001. Therefore, Broadband's bankruptcy did not have a material
effect on the Company's results of operations for the year ended December 31,
2001 or its financial position as of December 31, 2001.

STATION CASINOS, INC. ("STATION")

         As of April 14, 1999, the Company and Station entered into a settlement
agreement for the mutual settlement and release of all claims between the
Company and Station arising out of the agreement and plan of merger between the
Company and Station, which the Company terminated in August 1998. As part of the
settlement agreement, the Company paid $15.0 million to Station on April 22,
1999.

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," which provides that all business
combinations in the scope of the statement are to be accounted for under the
purchase method. This statement is effective for all business combinations
initiated after June 30, 2001, as well as all business combinations accounted
for using the purchase method for which the date of acquisition is July 1, 2001,
or later.


                                       39
<PAGE>

Since the Company currently accounts for its acquisitions under the purchase
method, management does not believe that the adoption of this statement will
have a material effect on its interim or annual financial statements.

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets" (effective January 1,
2002). SFAS No. 142 specifies that goodwill and certain other types of
intangible assets may no longer be amortized, but instead are subject to
periodic impairment testing. If an impairment charge is required, the charge is
reported as a change in accounting principle and is included in operating
results as a Cumulative Effect of a Change in Accounting Principle. SFAS No. 142
provides for a transitional period of up to 12 months. In prior periods, the
Company tested goodwill for impairment under the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets," under which an impairment
loss is recognized when expected undiscounted future cash flows are less than
the carrying value of the asset. For the year ended December 31, 2001, the
expected future operating cash flows of the Temperature-Controlled Logistics
Corporation on an undiscounted basis exceeded the carrying amounts of the
properties and other long-lived assets, including goodwill. Accordingly, no
impairment was recognized. Upon the adoption of SFAS 142, the
Temperature-Controlled Logistics Corporation compared the fair value of the
Temperature-Controlled Logistics Properties based on discounted cash flows to
the carrying value of the Temperature-Controlled Logistics Properties and the
related goodwill. Based on this test, the fair value did not exceed the carrying
value of the assets and, accordingly, the goodwill was impaired. Any need for
impairment must be assessed within the first six months and the amount of
impairment must be determined within the next six months. Any additional
impairment taken in subsequent interim periods during 2002 related to the
initial adoption of this statement will require the first quarter financial
statements to be restated. During the three months ended March 31, 2002, the
Company recognized a goodwill impairment charge of approximately $10.5 million
due to the initial application of this statement. This charge was due to
impairments (net of minority interests and taxes) of the goodwill at the
Temperature-Controlled Logistics Corporation of $9.2 million and one of the
Residential Development Corporations of $1.3 million. This charge was reported
as a change in accounting principle and was included in the Company's
consolidated statements of operations as a "Cumulative Effect of a Change in
Accounting Principle" for the three months ended March 31, 2002. (See Item 8.
Financial Statements and Supplementary Data within this filing.)

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement is effective for fiscal years
beginning after June 15, 2002. The Company has determined that SFAS No. 143 will
have no material effect on its interim and annual financial statements.

         In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144") which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 requires that the results of operations, including any
gains or losses recognized, be disclosed separately on the consolidated
statements of operations. The Company adopted SFAS No. 144 on January 1, 2002.
From January 1, 2002 through June 30, 2002, the Company sold three Office
Properties and classified two other office assets as held for sale. The Company
also owns nine behavioral healthcare properties which are held for sale. In
accordance with SFAS No. 144, the results of operations of these assets have
been presented as "Discontinued Operations - Income on Assets Sold and Held for
Sale" in the accompanying consolidated statements of operations. The carrying
values of the assets held for sale have been reflected as "Properties Held for
Disposition, Net" in the accompanying consolidated balance sheet as of December
31, 2001 (See Item 8. Financial Statements and Supplementary Data within this
filing.) As a result of the adoption, the Company has reclassified certain
amounts in prior period financial statements to conform with the new
presentation requirements.

LIQUIDITY REQUIREMENTS

         As of December 31, 2001, the Company had unfunded capital requirements
of approximately $55.9 million relating to capital investments. The table below
specifies the Company's total capital requirements relating to these projects,
amounts funded as of December 31, 2001, amounts remaining to be funded, and
short-term and long-term capital requirements.

<Table>
<Caption>
                                                                              CAPITAL REQUIREMENTS
                                                 AMOUNT                      ------------------------
(IN MILLIONS)                                 FUNDED AS OF       AMOUNT      SHORT-TERM    LONG-TERM
                                     TOTAL    DECEMBER 31,     REMAINING      (NEXT 12       (12+
             PROJECT                COST(1)      2001           TO FUND      MONTHS)(2)    MONTHS)(2)
-------------------------------     -------   ------------     ---------     ----------    ----------
<S>                                 <C>       <C>              <C>           <C>           <C>
RESIDENTIAL DEVELOPMENT SEGMENT
      Tahoe Mountain Resorts        $100.0      $(71.2)         $ 28.8        $ 28.8        $   --
                                    ------      ------          ------        ------        ------


OTHER
      SunTx (3)                     $ 19.0      $ (7.4)         $ 11.6        $  4.0        $  7.6
      Spinco(4)                       15.5          --            15.5          15.5            --
                                    ------      ------          ------        ------        ------
                                    $ 34.5      $ (7.4)         $ 27.1        $ 19.5        $  7.6

TOTAL                               $134.5      $(78.6)         $ 55.9        $ 48.3        $  7.6
                                    ======      ======          ======        ======        ======
</Table>


                                       40
<PAGE>

----------

(1)      All amounts are approximate.

(2)      Reflects the Company's estimate of the breakdown between short-term and
         long-term capital expenditures.

(3)      This commitment is related to the Company's investment in a private
         equity fund.

(4)      The Company has agreed to form and capitalize a separate entity to be
         owned by the Company's shareholders, and to cause the new entity to
         commit to acquire COPI's entire membership interest in AmeriCold
         Logistics.

         The Company expects to fund its short-term capital requirements of
approximately $48.3 million through a combination of cash, net cash flow from
operations, return of capital (investment) from the Residential Development
Corporations and borrowings under the Fleet Facility. The Company plans to meet
its maturing debt obligations during 2002 of approximately $245.2 million,
primarily through additional or replacement debt financing or equity
transactions.

         The Company expects to meet its other short-term capital requirements,
consisting of normal recurring operating expenses, regular debt service
requirements (including debt service relating to additional and replacement
debt), additional interest expense related to the cash flow hedge agreements,
recurring capital expenditures, non-recurring capital expenditures, such as
tenant improvement and leasing costs, distributions to shareholders and
unitholders, and expenses related to the COPI bankruptcy of approximately $14.0
million, primarily through cash flow provided by operating activities. To the
extent that the Company's cash flow from operating activities is not sufficient
to finance such short-term liquidity requirements, the Company expects to
finance such requirements with available cash proceeds received from joint
ventures and select property sales, and borrowings under the Fleet Facility or
additional debt financing.

         The Company expects to fund its long-term capital requirements of
approximately $7.6 million with available cash proceeds received from joint
ventures and select property sales, borrowings under the Fleet Facility or
additional debt financing and return of capital (investment) from the
Residential Development Corporations. The Company's other long-term liquidity
requirements as of December 31, 2001, consist primarily of maturities after
December 31, 2002, under the Company's fixed and variable-rate debt, which
totaled approximately $2.0 billion as of December 31, 2001. The Company expects
to meet these long-term liquidity requirements primarily through long-term
secured and unsecured borrowings and other debt and equity financing
alternatives as well as cash proceeds received from joint ventures and select
property sales.

         Debt and equity financing alternatives currently available to the
Company to satisfy its liquidity requirements and commitments for material
capital expenditures include:

     o   Additional proceeds from the refinancing of existing secured and
         unsecured debt;

     o   Additional debt secured by existing underleveraged properties,
         investment properties, or by investment property acquisitions or
         developments;

     o   Issuance of additional unsecured debt;

     o   Equity offerings including preferred and/or convertible securities; and

     o   Proceeds from joint ventures and property sales.

         The following factors could limit the Company's ability to utilize
these financing alternatives:

     o   The Company may be unable to obtain debt or equity financing on
         favorable terms, or at all, as a result of the financial condition of
         the Company or market conditions at the time the Company seeks
         additional financing;

     o   Restrictions on the Company's debt instruments or outstanding equity
         may prohibit it from incurring debt or issuing equity at all, or on
         terms available under then-prevailing market conditions; and

     o   The Company may be unable to service additional or replacement debt due
         to increases in interest rates or a decline in the Company's operating
         performance.

         In addition to the Company's liquidity requirements stated above, as of
December 31, 2001, the Company also has guarantees or letters of credit related
to approximately $92.2 million, or 17% of the maximum borrowings available under
its unconsolidated debt. At December 31, 2001, the Company had guarantees or
letters of credit related to approximately $17.0 million, or 4%, of its total
outstanding unconsolidated debt. See "Note 4. Investments in Real Estate
Mortgages and Equity of Unconsolidated Companies" included "Item 8. Financial
Statements and Supplementary Data" and for more information about the Company's
unconsolidated investments and the underlying debt related to these investments.


                                       41
<PAGE>

REIT QUALIFICATION

         The Company intends to maintain its qualification as a REIT under
Section 856 of the Code. As a REIT, the Company generally will not be subject to
corporate federal income taxes as long as it satisfies certain technical
requirements of the Code, including the requirement to distribute 90% of its
REIT taxable income to its shareholders.


                                       42
<PAGE>

DEBT FINANCING ARRANGEMENTS

         The significant terms of the Company's primary debt financing
arrangements existing as of December 31, 2001, are shown below (dollars in
thousands):

<Table>
<Caption>
                                                         INTEREST                                                     BALANCE
                                                          RATE AT                               EXPECTED           OUTSTANDING AT
                                          MAXIMUM       DECEMBER 31,      MATURITY               PAYOFF              DECEMBER 31,
             DESCRIPTION                 BORROWINGS        2001             DATE                  DATE                  2001
------------------------------------    -----------     ------------   --------------        --------------        --------------
<S>                                     <C>             <C>            <C>                   <C>                   <C>
SECURED FIXED RATE DEBT:
   JP Morgan Mortgage Note(1)           $   199,386         8.31%       October 2016          October 2006           $   199,386
   AEGON Partnership Note(2)                269,930         7.53          July 2009             July 2009                269,930
   LaSalle Note I(3)                        239,000         7.83         August 2027           August 2007               239,000
   LaSalle Note II(4)                       161,000         7.79         March 2028            March 2006                161,000
   CIGNA Note (5)                            63,500         7.47        December 2002         December 2002               63,500
   Metropolitan Life Note V(6)               38,696         8.49        December 2005         December 2005               38,696
   Northwestern Life Note (7)                26,000         7.66        January 2004          January 2004                26,000
   Mitchell Mortgage Note(8)                  6,244         7.00         August 2002           August 2002                 6,244
   Nomura Funding VI Note (9)                 8,187        10.07          July 2020             July 2010                  8,187
   Woodmen of the World Note(10)              8,500         8.20         April 2009            April 2009                  8,500
   Rigney Promissory Note (11)                  651         8.50        November 2012           June 2012                    651
                                        -----------        -----                                                     -----------
    Subtotal/Weighted Average           $ 1,021,094         7.85%                                                    $ 1,021,094
                                        -----------        -----                                                     -----------

UNSECURED FIXED RATE DEBT:
   Notes due 2007(12)                   $   250,000         7.50%      September 2007        September 2007          $   250,000
   Notes due 2002(12)                       150,000         7.00       September 2002        September 2002              150,000
                                        -----------        -----                                                     -----------
    Subtotal/Weighted Average           $   400,000         7.31%                                                    $   400,000
                                        -----------        -----                                                     -----------

SECURED VARIABLE RATE DEBT(13):
   Fleet Fund I and II Term Loan(14)      $ 275,000         5.39%         May 2005              May 2005             $   275,000
   Deutsche Bank - CMBS Loan(15)            220,000         5.84          May 2004              May 2006                 220,000
                                        -----------        -----                                                     -----------
    Subtotal/Weighted Average           $   495,000         5.59%                                                    $   495,000
                                        -----------        -----                                                     -----------


UNSECURED VARIABLE RATE DEBT:
   JPMorgan Loan Sales Facility(16)     $    50,000         3.25%                             January 2002           $    10,000
   Fleet Bridge Loan(17)                     50,000         5.71         August 2002           August 2002                 5,000
   Fleet Facility(14)                       400,000         3.92          May 2004              May 2005                 283,000
                                        -----------        -----                                                     -----------
                                        $   500,000         3.93%                                                    $   298,000
                                        -----------        -----                                                     -----------

    TOTAL/WEIGHTED AVERAGE              $ 2,416,094         6.72%(18)                                                $ 2,214,094
                                        ===========        =====                                                     ===========

    AVERAGE REMAINING TERM                                                8.4 years             4.3 years
</Table>

----------

(1)      At the end of seven years (October 2006), the interest rate will adjust
         based on current interest rates at that time. It is the Company's
         intention to repay the note in full at such time (October 2006) by
         making a final payment of approximately $177.8 million.

(2)      The outstanding principal balance of this note at maturity will be
         approximately $224.1 million. This note is secured by the Greenway
         Plaza Office Properties. The note agreement requires the Company to
         maintain compliance with a number of customary covenants, including
         maintaining the Properties that secure the note and not creating any
         lien with respect to or otherwise encumbering such Properties.

(3)      The note has a seven-year period during which only interest is payable
         (through August 2002), followed by principal amortization based on a
         25-year amortization schedule through maturity. In August 2007, the
         interest rate will increase, 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
         $220.5 million. LaSalle Note I is secured by Properties owned by
         Crescent Real Estate Funding I, L.P. ("Funding I") (See "Note 1.
         Organization and Basis of Presentation" included in "Item 8. Financial
         Statements and Supplementary Data"). The note agreement restricts
         Funding I from engaging in certain activities, including incurring
         liens on the Properties securing the note, pledging the Properties
         securing the note, incurring certain other indebtedness, canceling a
         material claim or debt owed to it, entering into certain transactions,
         distributing funds derived from operation of the Properties securing
         the note (except as specifically permitted in the note agreement), or
         creating easements with respect to the Properties securing the note.

(4)      The note has a seven-year period during which only interest is payable
         (through March 2003), followed by principal amortization based on a
         25-year amortization schedule through maturity. In March 2006, the
         interest rate will increase, 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
         $154.1 million. LaSalle Note II is secured by Properties owned by
         Crescent Real Estate Funding II, L.P. ("Funding II") (See "Note 1.
         Organization and Basis of Presentation" included in "Item 8. Financial
         Statements and Supplementary Data"). The note agreement restricts
         Funding II from engaging in certain activities, including incurring
         liens on the Properties securing the note, pledging the Properties
         securing the note, incurring certain other indebtedness, canceling a
         material claim or debt owed to it, entering into certain affiliate
         transactions, distributing funds derived


                                       43
<PAGE>

         from operation of the Properties securing the note (except as
         specifically permitted in the note agreement), or creating easements
         with respect to the Properties securing the note.

(5)      The note requires payments of interest only during its term. The CIGNA
         Note is secured by the MCI Tower and Denver Marriott City Center
         Resort/Hotel Property. The note agreement has no negative covenants.
         The deed of trust requires the Company to maintain the Properties that
         secure the note, and requires approval to grant liens, transfer the
         Properties, or issue new leases.

(6)      The Metropolitan Life Note V requires monthly principal and interest
         payments based on a 25-year amortization schedule through maturity, at
         which time the outstanding principal balance is due and payable. The
         note is secured by the Datran Center Office Property. The note
         agreement requires the Company to maintain compliance with a number of
         customary covenants, including maintaining the Property that secures
         the note and not creating any lien with respect to or otherwise
         encumbering such Property.

(7)      The note requires payments of interest only during its term. The
         Northwestern Life Note is secured by the 301 Congress Avenue Office
         Property. The note agreement requires the Company to maintain
         compliance with a number of customary covenants, including maintaining
         the Property that secures the note and not creating any lien with
         respect to or otherwise encumbering such Property.

(8)      The note requires payments of interest only during its term. The
         Mitchell Mortgage Note is secured by three of The Woodlands Office
         Properties. The note agreement has no negative covenants.

(9)      The note was assumed in connection with an acquisition and was not
         subsequently retired by the Company because of prepayment penalties.
         Under the terms of the note, principal and interest are payable based
         on a 25-year amortization schedule. The Company has the option to
         defease the note by purchasing Treasury obligations in an amount
         sufficient to pay the note without penalty. The Nomura Funding VI Note
         is secured by Canyon Ranch-Lenox, the Property owned by Crescent Real
         Estate Funding VI, L.P. ("Funding VI") (see "Note 1. Organization and
         Basis of Presentation" included in "Item 8. Financial Statements and
         Supplementary Data"). 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 at that
         date. The note agreement requires Funding VI to maintain compliance
         with a number of customary covenants, including a debt service coverage
         ratio for the Property that secures the note, a restriction on the
         ability to transfer or encumber the Property that secures the note, and
         covenants related to maintaining its single purpose nature, including
         restrictions on ownership by Funding VI of assets other than the
         Property that secures the note, restrictions on the ability to incur
         indebtedness and make loans, and restrictions on operations.

(10)     The outstanding principal balance on this note at maturity will be
         approximately $8.5 million. This note is secured by the Avallon IV
         Office Property. The note agreement requires that the Company maintains
         compliance with a number of customary covenants, including, maintaining
         the Property that secures the note and not creating any lien with
         respect to or otherwise encumbering such Property.

(11)     The note requires quarterly payments of principal and interest based on
         a 15-year amortization schedule through maturity, at which time the
         outstanding principal balance is due and payable. The Rigney Promissory
         Note is secured by a parcel of land owned by the Company and located
         across from an Office Property. The note agreement has no negative
         covenants.

(12)     The notes are unsecured and require payments of interest only during
         their terms. The indenture requires the Company to maintain compliance
         with a number of customary financial and other covenants on an ongoing
         basis, including leverage ratios and debt service coverage ratios,
         limitations on the incurrence of additional indebtedness and
         maintaining the Company's Properties. The notes were issued in an
         offering registered with the SEC.

(13)     For the method of calculation of the interest rate for the Company's
         variable-rate debt, see "Note 6. Notes Payable and Borrowings under the
         Fleet Facility" included in "Item 8. Financial Statements and
         Supplementary Data."

(14)     For a description of the Fleet Fund I and II Term Loan and the Fleet
         Facility, see "Note 6. Notes Payable and Borrowings under the Fleet
         Facility" included in "Item 8. Financial Statements and Supplementary
         Data." The note requires payments of interest only during the first
         four years with a one-year extension option. The note, due May 2004,
         bears interest at LIBOR plus 325 basis points (at December 31, 2001,
         the interest rate was 5.39%). The Fleet Term Loan note is secured by
         eight Office Properties in Funding I, and 12 Office Properties in
         Funding II. The Term Loan requires the Company 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, limitations on distributions, and a minimum net worth
         requirement, and with respect solely to Funding I and Funding II
         adjusted net operating income to actual debt service and adjusted net
         operating income to pro forma debt service.

(15)     This note requires payment of interest only during its term. The notes,
         due May 2004, bear interest at the 30-day LIBOR rate plus a spread of
         164.7 basis points (at December 31, 2001, the interest rate was 5.15%)
         for the Deutsche Bank-CMBS and a spread of 600 basis points (at
         December 31, 2001, the interest rate was 9.50%) for the Mezzanine note.
         The blended rate at December 31, 2001, was 5.84%. The notes have
         three-year interest only terms and two one-year extension options, and
         are secured by the Crescent Real Estate Funding X, L.P. ("Funding X")
         Office Properties and Spectrum Center, L. P. (See "Note 1. Organization
         and Basis of Presentation" included in "Item 8. Financial Statements
         and Supplementary Data"). The notes require the Company to maintain
         compliance with a minimum debt service coverage ratio.

(16)     The JP Morgan Loan Sales Facility is a $50.0 million unsecured credit
         facility. The lender is not obligated to fund draws under this loan
         unless certain conditions not within the control of the Company are
         satisfied at the time of the draw request. As a result, the Company
         maintains sufficient availability under the Fleet Facility to repay
         this loan at any time.

(17)     The Fleet Bridge Loan is a $50.0 million unsecured credit facility.

(18)     The overall weighted average interest rate does not include the effect
         of the Company's cash flow hedge agreements. Including the effect of
         these agreements, the overall weighted average interest rate would have
         been 7.58%.


                                       44
<PAGE>

         Below are the aggregate principal payments required as of December 31,
2001 under indebtedness of the Company by year. Scheduled principal installments
and amounts due at maturity are included.

<Table>
<Caption>
                       SECURED           UNSECURED          TOTAL
                      ----------        ----------        ----------
<S>                   <C>               <C>               <C>
(in thousands)
2002                  $   80,157        $  165,000        $  245,157
2003                      15,060                --            15,060
2004                     262,857(1)        283,000(1)        545,857
2005                     329,339                --           329,339
2006                     347,207                --           347,207
Thereafter               481,474           250,000           731,474
                      ----------        ----------        ----------
                      $1,516,094        $  698,000        $2,214,094
                      ==========        ==========        ==========
</Table>

----------

(1)   These amounts do not represent the effect of a one-year extension option
      of the Fleet Facility and two one-year extension options on the Deutsche
      Bank - CMBS Loan.

         The Company has approximately $245.2 million of secured and unsecured
debt due during 2002, consisting primarily of the Cigna Note, the Mitchell
Mortgage Note and the 2002 Notes which are expected to be funded through
replacement debt financing.

         The Company's policy with regard to the incurrence and maintenance of
debt is based on a review and analysis of:

         o        investment opportunities for which capital is required and the
                  cost of debt in relation to such investment opportunities;

         o        the type of debt available (secured or unsecured);

         o        the effect of additional debt on existing coverage ratios;

         o        the maturity of the proposed debt in relation to maturities of
                  existing debt; and

         o        exposure to variable-rate debt and alternatives such as
                  interest-rate swaps and cash flow hedges to reduce this
                  exposure.

         Debt service coverage ratios for a particular period are generally
calculated as net income plus depreciation and amortization, plus interest
expense, plus extraordinary or non-recurring losses, minus extraordinary or
non-recurring gains, divided by debt service (including principal and interest
payable during the period of calculation). The calculation of the debt service
coverage ratio for the Fleet Facility is calculated using the method described
above, including certain pro forma adjustments.

         Any uncured or unwaived events of default on the Company's loans can
trigger an acceleration of payment on the loan in default. In addition, a
default by the Company or any of its subsidiaries with respect to any
indebtedness in excess of $5.0 million generally will result in a default under
the Fleet Facility and the Fleet I and II Term Loan after the notice and cure
periods for the other indebtedness have passed. As of December 31, 2001, the
Company was in compliance with all of its debt service coverage ratios and other
covenants related to its outstanding debt. The Company's debt facilities
generally prohibit loan pre-payment for an initial period, allow pre-payment
with a penalty during a following specified period and allow pre-payment without
penalty after the expiration of that period. During the year ended December 31,
2001, there were no circumstances that would require pre-payment penalties or
increased collateral related to the Company's existing debt.

DEBT REFINANCING AND FLEET FACILITY

         In May 2001, the Company (i) repaid and retired the UBS Facility which
consisted of the UBS Line of Credit, the UBS Term Loan I and the UBS Term Loan
II; (ii) repaid and retired the iStar Financial Note; and (iii) modified and
replaced the Fleet Term Note II with proceeds from a $970.0 million debt
refinancing. In May 2001, the Company wrote off $10.8 million of deferred
financing costs related to the early extinguishment of the UBS Facility which is
included in Extraordinary Item - Extinguishment of Debt.


                                       45
<PAGE>

New Debt Resulting from Refinancing

<Table>
<Caption>
                                   MAXIMUM                INTEREST            MATURITY
          DESCRIPTION             BORROWING                 RATE                DATE
------------------------------    ---------     --------------------------    --------
     (dollars in millions)
<S>                               <C>           <C>                           <C>
Fleet Facility                    $400.0(1)     LIBOR + 187.5 basis points     2004(2)
Fleet Fund I and II Term Loan     $275.0        LIBOR + 325 basis points       2005
Deutsche Bank - CMBS Loan         $220.0        LIBOR + 234 basis points       2004(3)
Deutsche Bank Short-Term Loan     $ 75.0        LIBOR + 300 basis points       2001(4)
</Table>

----------

(1)      The $400.0 million Fleet Facility is an unsecured revolving line of
         credit. The weighted average interest rate from the origination of the
         loan in May 2001 through December 31, 2001 is 5.38%.

(2)      One-year extension option.

(3)      Two one-year extension options.

(4)      Repaid September 19, 2001.

Debt Repaid or Modified by Refinancing

<Table>
<Caption>
                                MAXIMUM            INTEREST              MATURITY         BALANCE
      DESCRIPTION              BORROWING             RATE                  DATE      REPAID/MODIFIED(1)
---------------------          ---------   -------------------------     --------    ------------------
(dollars in millions)
<S>                            <C>         <C>                           <C>         <C>
UBS Line of Credit              $300.0     LIBOR + 250 basis points        2003            $ 165.0
UBS Term Loan I                 $146.8     LIBOR + 250 basis points        2003            $ 146.8
UBS Term Loan II                $326.7     LIBOR + 275 basis points        2004            $ 326.7
Fleet Term Note II              $200.0     LIBOR + 400 basis points        2003            $ 200.0
iStar Financial Note            $ 97.1     LIBOR + 175 basis points        2001            $  97.1
</Table>

----------

(1)      All the amounts listed, other than the Fleet Term Note II, were repaid.
         In May 2001, the Fleet Term Note II was modified and replaced by the
         Fleet Fund I and II Term Loan.

CASH FLOW HEDGES

         The Company uses derivative financial instruments to convert a portion
of its variable-rate debt to fixed-rate debt and to manage its fixed to
variable-rate debt ratio. As of December 31, 2001, the Company had entered into
three cash flow hedge agreements which are accounted for under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB Statement No. 133".

         The following table shows information regarding the Company's cash flow
hedge agreements as of December 31, 2001 and interest expense for the year ended
December 31, 2001 (dollars in millions):

<Table>
<Caption>
                                                                                      ADDITIONAL
                                                                                   INTEREST EXPENSE
        ISSUE          NOTIONAL       MATURITY    REFERENCE        FAIR              FOR THE YEAR
        DATE            AMOUNT          DATE        RATE        MARKET VALUE     ENDED DECEMBER 31, 2001
      ----------       --------       ---------   ---------     ------------     -----------------------
<S>                    <C>            <C>         <C>           <C>              <C>
       9/1/1999        $ 200.0         9/2/2003    6.183%         $ (10.8)               $ 3.5
       2/4/2000        $ 200.0         2/3/2003     7.11%         $ (10.8)               $ 6.0
      4/18/2000        $ 100.0        4/18/2004     6.76%         $  (7.2)               $ 2.7
</Table>

         The Company has designated its three cash flow hedge agreements as cash
flow hedges of LIBOR-based monthly interest payments on a designated pool of
variable-rate LIBOR indexed debt that reprices closest to the reset dates of
each cash flow hedge agreement. For retrospective effectiveness testing, the
Company uses the cumulative dollar offset approach as described in Derivatives
Implementation Group ("DIG") Issue E8. The DIG is a task force designed to
assist the FASB in answering questions that companies have resulting from
implementation of SFAS No. 133 and 138. The Company uses the change in variable
cash flows method as described in DIG Issue G7 for prospective testing as well
as for the actual recording


                                       46
<PAGE>

of ineffectiveness, if any. Under this method, the Company will compare the
changes in the floating rate portion of each cash flow hedge to the floating
rate of the hedged items. The cash flow hedges have been and are expected to
remain highly effective. Changes in the fair value of these highly effective
hedging instruments are recorded in accumulated other comprehensive income. The
effective portion that has been deferred in accumulated other comprehensive
income will be reclassified to earnings as interest expense when the hedged
items impact earnings. If a cash flow hedge falls outside 80%-125% effectiveness
for a quarter, all changes in the fair value of the cash flow hedge for the
quarter will be recognized in earnings during the current period. If it is
determined based on prospective testing that it is no longer likely a hedge will
be highly effective on a prospective basis, the hedge will no longer be
designated as a cash flow hedge and no longer qualify for accounting in
accordance with SFAS Nos. 133 and 138.

         Over the next twelve months, an estimated $16.4 million to $18.4
million will be reclassified from accumulated other comprehensive income to
interest expense and charged against earnings related to the effective portions
of the cash flow hedge agreements.

INTEREST RATE CAPS

         In connection with the closing of the Deutsche Bank-CMBS Loan in May
2001, the Company entered into a LIBOR interest rate cap struck at 7.16% for a
notional amount of $220.0 million, and simultaneously sold a LIBOR interest rate
cap with the same terms. Since these instruments do not reduce the Company's net
interest rate risk exposure, they do not qualify as hedges and changes to their
respective fair values are charged to earnings. As the significant terms of
these arrangements are substantially the same, the effects of a revaluation of
these instruments are expected to substantially offset each other.

FUNDS FROM OPERATIONS

         FFO, based on the revised definition adopted by the Board of Governors
of the NAREIT, effective January 1, 2000, and as used in this document, means:

o   Net Income (Loss) - determined in conformity with GAAP;

         o        excluding gains (or losses) from sales of depreciable
                  operating property;

         o        excluding extraordinary items (as defined by GAAP);

         o        plus depreciation and amortization of real estate assets; and

         o        after adjustments for unconsolidated partnerships and joint
                  ventures.

         NAREIT developed FFO as a relative measure of performance and liquidity
of an equity REIT to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. The Company considers
FFO an appropriate measure of performance for an equity REIT, and for its
investment segments. However, FFO:

         o        does not represent cash generated from operating activities
                  determined in accordance with GAAP (which, unlike FFO,
                  generally reflects all cash effects of transactions and other
                  events that enter into the determination of net income);

         o        is not necessarily indicative of cash flow available to fund
                  cash needs; and

         o        should not be considered as an alternative to net income
                  determined in accordance with GAAP as an indication of the
                  Company's operating performance, or to cash flow from
                  operating activities determined in accordance with GAAP as a
                  measure of either liquidity or the Company's ability to make
                  distributions.

         The Company has historically distributed an amount less than FFO,
primarily due to reserves required for capital expenditures, including leasing
costs. The aggregate cash distributions paid to shareholders and unitholders for
the year ended December 31, 2001, and 2000, were $245.1 and $281.2 million,
respectively. The Company reported FFO of $177.1 million and $326.9 million for
the years ended December 31, 2001 and 2000, respectively. Excluding the
impairment and other charges related to COPI of $92.8 million, the Company would
have reported FFO of $269.9 million for the year ended December 31, 2001.

         An increase or decrease in FFO does not necessarily result in an
increase or decrease in aggregate distributions because the Company's Board of
Trust Managers is not required to increase distributions on a quarterly basis
unless necessary for the Company to maintain REIT status. However, the Company
must distribute 90% of its REIT taxable income


                                       47
<PAGE>

(as defined in the Code). Therefore, a significant increase in FFO will
generally require an increase in distributions to shareholders and unitholders
although not necessarily on a proportionate basis.

         Accordingly, the Company believes that to facilitate a clear
understanding of the consolidated historical operating results of the Company,
FFO should be considered in conjunction with the Company's net income (loss) and
cash flows reported in the consolidated financial statements and notes to the
financial statements. However, the Company's measure of FFO may not be
comparable to similarly titled measures of other REITs because these REITs may
apply the definition of FFO in a different manner than the Company.

STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND SHARES/UNITS IN THOUSANDS)

<Table>
<Caption>
                                                                  FOR THE YEAR
                                                               ENDED DECEMBER 31,
                                                            ------------------------
                                                               2001           2000
                                                            ---------      ---------
<S>                                                         <C>            <C>
Net (loss) income                                           $  (4,659)     $ 248,122
Adjustments to reconcile net (loss) income to
  funds from operations:
    Depreciation and amortization of real estate assets       122,033        119,999
    Gain on rental property sales, net                         (2,835)      (136,880)
    Impairment and other charges related to
      real estate assets                                       21,705         17,874
    Extraordinary item - extinguishment of debt                10,802          3,928
    Adjustment for investments in real estate mortgages
      and equity of unconsolidated companies:
       Office Properties                                        6,955          4,973
       Residential Development Properties                      13,037         25,130
       Temperature-Controlled Logistics Properties             22,671         26,131
       Other                                                      144             --
    Unitholder minority interest                                  765         31,120
    6 3/4% Series A Preferred Share distributions             (13,501)       (13,500)
                                                            ---------      ---------
Funds from operations(1)                                    $ 177,117      $ 326,897

Investment Segments:
    Office Segment                                          $ 358,349      $ 361,574
    Resort/Hotel Segment                                       45,282         71,446
    Residential Development Segment                            54,051         78,600
    Temperature-Controlled Logistics Segment                   23,806         33,563
    Corporate and other adjustments:
       Interest expense                                      (182,410)      (203,197)
       6 3/4% Series A Preferred Share distributions          (13,501)       (13,500)
       Other(2)(3)                                              8,571         22,484
       Corporate general & administrative                     (24,249)       (24,073)
       Impairment and other charges related to COPI           (92,782)            --
                                                            ---------      ---------
Funds from operations(1)                                    $ 177,117      $ 326,897
                                                            =========      =========

Basic weighted average shares                                 107,613        113,524
                                                            =========      =========
Diluted weighted average shares/units(4)                      122,544        128,732
                                                            =========      =========
</Table>

----------

(1)      To calculate basic funds from operations, deduct Unitholder minority
         interest.

(2)      Includes interest and other income, preferred return paid to GMACCM,
         other unconsolidated companies, less depreciation and amortization of
         non-real estate assets and amortization of deferred financing costs.

(3)      For purposes of this schedule, the behavioral healthcare properties'
         financial information has been included in this line item.

(4)      See calculations for the amounts presented in the reconciliation at the
         end of this section.


                                       48
<PAGE>

         The following schedule reconciles the Company's basic weighted average
shares to the diluted weighted average shares/units presented above:

<Table>
<Caption>
                                             FOR THE YEAR
                                           ENDED DECEMBER 31,
                                          -------------------
(SHARES/UNITS IN THOUSANDS)                 2001        2000
                                          -------     -------
<S>                                       <C>         <C>
Basic weighted average shares:            107,613     113,524
Add: Weighted average units                13,404      14,011
     Share and unit options                 1,527       1,197
                                          -------     -------
Diluted weighted average shares/units     122,544     128,732
                                          =======     =======
</Table>

RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                        FOR THE YEAR ENDED DECEMBER 31
                                                                        ------------------------------
                                                                           2001                2000
                                                                        ---------           ----------
<S>                                                                     <C>                 <C>
Funds from operations                                                   $ 177,117           $ 326,897
Adjustments:
   Depreciation and amortization of non-real estate assets                  2,934               2,646
   Impairment and other charges related to real estate assets              96,412                  --
   Amortization of deferred financing costs                                 9,327               9,497
   Gain on undeveloped land                                                (1,590)               (577)
   Increase in receivables from COPI                                      (20,458)                 --
   Minority interest in joint ventures profit and depreciation
    and amortization                                                       21,854              21,076
   Adjustment for investments in real estate mortgages
    and equity of unconsolidated companies                                (42,807)            (56,234)
   Change in deferred rent receivable                                       3,744              (8,504)
   Change in current assets and liabilities                               (60,768)            (25,956)
   Distributions received in excess of earnings from
    unconsolidated companies                                               13,874               3,897
   Equity in earnings in excess of distributions received from
    unconsolidated companies                                                 (476)            (10,641)
   6 3/4% Series A Preferred Share distributions                           13,501              13,500
   Non cash compensation                                                      149                 114
                                                                        ---------           ---------
Net cash provided by operating activities                               $ 212,813           $ 275,715
                                                                        =========           =========
</Table>


HISTORICAL RECURRING OFFICE PROPERTY CAPITAL EXPENDITURES,
TENANT IMPROVEMENT AND LEASING COSTS

         The following table sets forth annual and per square foot recurring
capital expenditures (excluding those expenditures which are recoverable from
tenants) and tenant improvement and leasing costs for the years ended December
31, 2001, 2000 and 1999, attributable to signed leases, all of which have
commenced or will commence during the next 12 months (i.e., the renewal or
replacement tenant began or will begin to pay rent) for the Office Properties
consolidated in the Company's financial statements during each of the periods
presented. Tenant improvement and leasing costs for signed leases during a
particular period do not necessarily equal the cash paid for tenant improvement
and leasing costs during such period due to timing of payments.


                                       49
<PAGE>

<Table>
<Caption>
                                                   2001           2000           1999
                                                ----------     ----------     ----------
<S>                                             <C>            <C>            <C>
CAPITAL EXPENDITURES:
    Capital Expenditures (in thousands)         $   15,672     $    9,199     $    6,048
    Per square foot                             $     0.58     $     0.33     $     0.19
TENANT IMPROVEMENT AND LEASING COSTS:(1)
    Replacement Tenant Square Feet               1,099,868      1,126,394      1,259,660
    Renewal Tenant Square Feet                     790,203      1,490,930      1,385,911
    Tenant Improvement Costs (in thousands)     $   12,154     $   16,541     $   14,339
    Per square foot leased                      $     6.43     $     6.32     $     5.42
    Tenant Leasing Costs (in thousands)         $    7,238     $   11,621     $    7,804
    Per square foot leased                      $     3.83     $     4.44     $     2.95
    Total (in thousands)                        $   19,392     $   28,162     $   22,143
       Total per square foot                    $    10.26     $    10.76     $     8.37
       Average lease term                        5.2 years      5.1 years      4.5 years
       Total per square foot per year           $     1.97     $     2.10     $     1.87
</Table>

----------

(1)      Excludes leasing activity for leases that have less than a one-year
         term (i.e., storage and temporary space).

         Capital expenditures may fluctuate in any given period subject to the
nature, extent and timing of improvements required to be made in the Company's
Office Property portfolio. The Company maintains an active preventive
maintenance program in order to minimize required capital improvements. In
addition, certain capital improvement costs are recoverable from customers.

         Tenant improvement and leasing costs also may fluctuate in any given
year depending upon factors such as the property, the term of the lease, the
type of lease (renewal or replacement tenant), the involvement of external
leasing agents and overall competitive market conditions. Management believes
that future recurring tenant improvements and leasing costs for the Company's
existing Office Properties will approximate on average for "renewal tenants",
$6.00 to $10.00 per square foot, or $1.20 to $2.00 per square foot per year
based on an average five-year lease term, and, on average for "replacement
tenants," $12.00 to $16.00 per square foot, or $2.40 to $3.20 per square foot
per year based on an average five-year lease term.


                                       50
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS


<Table>
<Caption>
                                                                                                   PAGE
                                                                                                   ----
<S>                                                                                               <C>

Reports of Independent Auditors..................................................................   52

Consolidated Balance Sheets at December 31, 2001 and 2000........................................   54

Consolidated Statements of Operations for the years ended December 31, 2001,
2000 and 1999....................................................................................   55

Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001,
2000 and 1999....................................................................................   56

Consolidated Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999....................................................................................   57

Notes to Consolidated Financial Statements.......................................................   58

Schedule III Consolidated Real Estate Investments and Accumulated Depreciation ..................   99
</Table>



                                       51
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS



Board of Trust Managers and Shareholders
Crescent Real Estate Equities Company and subsidiaries

We have audited the accompanying consolidated balance sheets of Crescent Real
Estate Equities Company and subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2001.
Our audits also included the financial statement schedule listed in the index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the
financial statements of AmeriCold Corporation, which statements reflect total
assets constituting 7.44% and 6.78%, respectively, of consolidated assets as of
December 31, 2001 and 2000. Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to data included for AmeriCold Corporation, is based solely on the reports of
the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Crescent Real Estate Equities Company and
subsidiaries at December 31, 2001 and 2000, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.


                                         /s/ ERNST & YOUNG LLP

Dallas, Texas,
September 1, 2002



                                       52
<PAGE>
INDEPENDENT AUDITORS' REPORT


To AmeriCold Corporation:

We have audited the accompanying consolidated balance sheets of AmeriCold
Corporation (the "Company") as of December 31, 2001 and 2000 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of the Company at December 31,
2001 and 2000, and the consolidated results of its operations and its
consolidated cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States of America.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia
February 19, 2002



                                       53
<PAGE>

                      CRESCENT REAL ESTATE EQUITIES COMPANY
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)


<Table>
<Caption>
                                                                                         DECEMBER 31,
                                                                                ------------------------------
                                                                                    2001              2000
                                                                                ------------      ------------
<S>                                                                             <C>               <C>

ASSETS:
 Investments in real estate:
   Land                                                                         $    249,266      $    278,975
   Land held for investment or development                                            92,951           116,480
   Building and improvements                                                       2,938,669         3,163,129
   Furniture, fixtures and equipment                                                  72,247            60,420
   Properties held for disposition, net                                               64,694            62,597
   Less -  accumulated depreciation                                                 (637,904)         (555,491)
                                                                                ------------      ------------
             Net investment in real estate                                      $  2,779,923      $  3,126,110

   Cash and cash equivalents                                                    $     36,285      $     38,966
   Restricted cash and cash equivalents                                              115,531            94,568
   Accounts receivable, net                                                           28,654            42,200
   Deferred rent receivable                                                           66,362            82,775
   Investments in real estate mortgages and equity
       of unconsolidated companies                                                   838,317           845,317
   Notes receivable, net                                                             132,065           141,407
   Other assets, net                                                                 145,012           171,975
                                                                                ------------      ------------
               Total assets                                                     $  4,142,149      $  4,543,318
                                                                                ============      ============


LIABILITIES:
   Borrowings under credit facility                                             $    283,000      $    553,452
   Notes payable                                                                   1,931,094         1,718,443
   Accounts payable, accrued expenses and other liabilities                          220,068           202,591
                                                                                ------------      ------------
              Total liabilities                                                 $  2,434,162      $  2,474,486
                                                                                ------------      ------------

COMMITMENTS AND CONTINGENCIES:

MINORITY INTERESTS:
  Operating partnership, 6,594,521 and 6,995,823 units,
       respectively                                                             $     69,910      $    100,586
  Investment in joint ventures                                                       232,137           236,919
                                                                                ------------      ------------
              Total minority interests                                          $    302,047      $    337,505
                                                                                ------------      ------------

SHAREHOLDERS' EQUITY:
  Preferred shares, $.01 par value, authorized 100,000,000 shares:
   6 3/4% Series A Convertible Cumulative Preferred Shares,
      liquidation preference $25.00 per share, 8,000,000 shares
      issued and outstanding at December 31, 2001 and 2000                      $    200,000      $    200,000
  Common shares, $.01 par value, authorized 250,000,000 shares,
      123,396,017, and 121,818,653 shares issued and outstanding
      at December 31, 2001 and 2000, respectively                                      1,227             1,211
   Additional paid-in capital                                                      2,234,360         2,221,531
   Retained deficit                                                                 (638,435)         (402,337)
   Accumulated other comprehensive income                                            (31,484)           (6,734)
                                                                                ------------      ------------
                                                                                $  1,765,668      $  2,013,671
   Less - shares held in treasury, at cost, 18,770,418 and 14,468,623
      common shares at December 31, 2001 and 2000, respectively                     (359,728)         (282,344)
                                                                                ------------      ------------
              Total shareholders' equity                                        $  1,405,940      $  1,731,327
                                                                                ------------      ------------

              Total liabilities and shareholders' equity                        $  4,142,149      $  4,543,318
                                                                                ============      ============
</Table>

   The accompanying notes are an integral part of these financial statements.


                                       54
<PAGE>

                      CRESCENT REAL ESTATE EQUITIES COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


<Table>
<Caption>
                                                                                          FOR THE YEAR ENDED DECEMBER 31,
                                                                                 ------------------------------------------------
                                                                                     2001              2000              1999
                                                                                 ------------      ------------      ------------
<S>                                                                              <C>               <C>               <C>

REVENUES:
   Office properties                                                             $    606,053      $    601,492      $    609,843
   Resort/Hotel properties                                                             45,748            72,114            65,237
   Interest and other income                                                           40,190            40,251            66,549
                                                                                 ------------      ------------      ------------
          Total revenues                                                         $    691,991      $    713,857      $    741,629
                                                                                 ------------      ------------      ------------

EXPENSES:
   Real estate taxes                                                             $     83,756      $     83,138      $     83,683
   Repairs and maintenance                                                             39,247            39,024            44,024
   Other rental property operating                                                    138,130           125,637           127,126
   Corporate general and administrative                                                24,249            24,073            16,274
   Interest expense                                                                   182,410           203,197           192,033
   Amortization of deferred financing costs                                             9,327             9,497            10,283
   Depreciation and amortization                                                      124,870           122,517           130,323
   Settlement of merger dispute                                                            --                --            15,000
   Impairment and other charges related to the
      real estate assets                                                               25,332            17,874           178,838
   Impairment and other charges related
      to COPI                                                                          92,782                --                --
                                                                                 ------------      ------------      ------------
          Total expenses                                                         $    720,103      $    624,957      $    797,584
                                                                                 ------------      ------------      ------------
         Operating (loss) income                                                 $    (28,112)     $     88,900      $    (55,955)

OTHER INCOME AND EXPENSE:
   Equity in net income of unconsolidated
    companies:
         Office properties                                                              6,124             3,164             5,265
         Residential development properties                                            41,014            53,470            42,871
         Temperature-controlled logistics properties                                    1,136             7,432            15,039
         Other                                                                          2,957            11,645             5,122
                                                                                 ------------      ------------      ------------
  Total equity in net income of unconsolidated companies                         $     51,231      $     75,711      $     68,297

  Gain on property sales, net                                                           4,425           137,457                --
                                                                                 ------------      ------------      ------------
         Total other income and expense                                          $     55,656      $    213,168      $     68,297
                                                                                 ------------      ------------      ------------

INCOME BEFORE MINORITY INTERESTS,
 EXTRAORDINARY ITEM AND DISCONTINUED OPERATIONS                                  $     27,544      $    302,068      $     12,342
   Minority interests                                                                 (21,429)          (50,890)           (2,236)
                                                                                 ------------      ------------      ------------

INCOME BEFORE EXTRAORDINARY ITEM AND DISCONTINUED
 OPERATIONS                                                                      $      6,115      $    251,178      $     10,106
   Extraordinary item - extinguishment of debt                                        (10,802)           (3,928)               --
   Discontinued operations- income on assets sold and held for sale                        28               872               853
                                                                                 ------------      ------------      ------------

NET (LOSS) INCOME                                                                $     (4,659)     $    248,122      $     10,959

  6 3/4% Series A Preferred Share distributions                                       (13,501)          (13,500)          (13,500)
  Share repurchase agreement return                                                        --            (2,906)             (583)
  Forward share purchase agreement return                                                  --                --            (4,317)
                                                                                 ------------      ------------      ------------

NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS                               $    (18,160)     $    231,716      $     (7,441)
                                                                                 ============      ============      ============

BASIC EARNINGS PER SHARE DATA:
   Net (loss) income before extraordinary item and discontinued operations       $      (0.07)     $       2.07      $      (0.07)
   Extraordinary item - extinguishment of debt                                          (0.10)            (0.03)               --
   Discontinued operations - income on assets sold and held for sale                       --              0.01              0.01
                                                                                 ------------      ------------      ------------

   Net (loss) income - basic                                                     $      (0.17)     $       2.05      $      (0.06)
                                                                                 ============      ============      ============

DILUTED EARNINGS PER SHARE DATA:
   Net (loss) income before extraordinary item and discontinued operations       $      (0.07)     $       2.04      $      (0.07)
   Extraordinary item - extinguishment of debt                                          (0.10)            (0.03)               --
   Discontinued operations - income on assets sold and held for sale                       --              0.01              0.01
                                                                                 ------------      ------------      ------------

   Net (loss) income - diluted                                                   $      (0.17)     $       2.02      $      (0.06)
                                                                                 ============      ============      ============
</Table>


   The accompanying notes are an integral part of these financial statements.


                                       55
<PAGE>

                      CRESCENT REAL ESTATE EQUITIES COMPANY
                             CONSOLIDATED STATEMENTS
                             OF SHAREHOLDERS' EQUITY
                             (dollars in thousands)


<Table>
<Caption>

                                                                  Preferred Shares                Treasury Shares
                                                           ----------------------------    -----------------------------
                                                              Shares        Net Value         Shares         Par Value
                                                           ------------    ------------    ------------     ------------
<S>                                                        <C>             <C>             <C>              <C>
SHAREHOLDERS' EQUITY, December 31,1998                        8,000,000    $    200,000              --     $         --

Issuance of Common Shares                                            --              --              --               --

Exercise of Common Share Options                                     --              --              --               --

Cancellation of Restricted Shares                                    --              --              --               --

Amortization of Deferred Compensation                                --              --              --               --

Issuance of Common Shares in Exchange for Operating
   Partnership Units                                                 --              --              --               --

Preferred Share Conversion Adjustment                                --              --              --               --

Forward Share Purchase Agreement                                     --              --              --               --

Settlement of Forward Share Purchase Agreement                       --              --              --               --

Dividends Paid                                                       --              --              --               --

Net Loss                                                             --              --              --               --

Unrealized Net Gain on Available-For-Sale Securities                 --              --              --               --

Unrealized Net Gain on Cash Flow Hedges                              --              --              --               --
                                                           ------------    ------------    ------------     ------------

SHAREHOLDERS' EQUITY, December 31, 1999                       8,000,000    $    200,000              --     $         --

Issuance of Common Shares                                            --              --              --               --

Exercise of Common Share Options                                     --              --              --               --

Preferred Equity Issuance Cost                                       --              --              --               --

Issuance of Shares in Exchange for Operating
   Partnership Units                                                 --              --              --               --

Share Repurchases                                                    --              --       8,700,030         (180,723)

Share Repurchase Agreement                                           --              --       5,788,879         (101,976)

Retirement of Treasury Shares                                        --              --         (20,286)             355

Retirement of Restricted Shares                                      --              --              --               --

Dividends Paid                                                       --              --              --               --

Net Income                                                           --              --              --               --

Unrealized Net Loss on
   Available-for-Sale Securities                                     --              --              --               --

Unrealized Net Loss on Cash Flow Hedges                              --              --              --               --
                                                           ------------    ------------    ------------     ------------

SHAREHOLDERS' EQUITY, December 31, 2000                       8,000,000    $    200,000      14,468,623     $   (282,344)

Issuance of Common Shares                                            --              --              --               --

Exercise of Common Share Options                                     --              --              --               --

Issuance of Shares in Exchange for Operating
   Partnership Units                                                 --              --              --               --

Share Repurchases                                                    --              --       4,301,795          (77,384)

Dividends Paid                                                       --              --              --               --

Net Loss                                                             --              --              --               --

Sale of/Unrealized Gain on Marketable Securities                     --              --              --               --

Unrealized Net Loss on Cash Flow Hedges                              --              --              --               --
                                                           ------------    ------------    ------------     ------------

SHAREHOLDERS' EQUITY, December 31, 2001                       8,000,000    $    200,000      18,770,418     $   (359,728)
                                                           ============    ============    ============     ============

<Caption>
                                                                                                               Deferred
                                                                  Common Shares               Additional     Compensation
                                                           -----------------------------       Paid-in       on Restricted
                                                              Shares         Par Value         Capital           Shares
                                                           ------------     ------------     ------------    -------------
<S>                                                        <C>             <C>             <C>              <C>
SHAREHOLDERS' EQUITY, December 31,1998                      124,555,447     $      1,245     $  2,336,621     $        (88)

Issuance of Common Shares                                       168,140                1            3,850               --

Exercise of Common Share Options                              2,899,960               24           32,610               --

Cancellation of Restricted Shares                                  (216)              --               (6)               6

Amortization of Deferred Compensation                                --               --               --               41

Issuance of Common Shares in Exchange for Operating
   Partnership Units                                            453,828                4            1,935               --

Preferred Share Conversion Adjustment                            12,356               --               --               --

Forward Share Purchase Agreement                                747,598                7               --               --

Settlement of Forward Share Purchase Agreement               (7,299,760)             (73)        (145,330)              --

Dividends Paid                                                       --               --               --               --

Net Loss                                                             --               --               --               --

Unrealized Net Gain on Available-For-Sale Securities                 --               --               --               --

Unrealized Net Gain on Cash Flow Hedges                              --               --               --               --
                                                           ------------     ------------     ------------     ------------

SHAREHOLDERS' EQUITY, December 31, 1999                     121,537,353     $      1,208     $  2,229,680     $        (41)

Issuance of Common Shares                                         5,762               --              114               --

Exercise of Common Share Options                                208,700                2            1,490               --

Preferred Equity Issuance Cost                                       --               --          (10,006)              --

Issuance of Shares in Exchange for Operating
   Partnership Units                                             87,124                1              608               --

Share Repurchases                                                    --               --               --               --

Share Repurchase Agreement                                           --               --               --               --

Retirement of Treasury Shares                                   (20,286)              --             (355)              --

Retirement of Restricted Shares                                      --               --               --               41

Dividends Paid                                                       --               --               --               --

Net Income                                                           --               --               --               --

Unrealized Net Loss on
   Available-for-Sale Securities                                     --               --               --               --

Unrealized Net Loss on Cash Flow Hedges                              --               --               --               --
                                                           ------------     ------------     ------------     ------------

SHAREHOLDERS' EQUITY, December 31, 2000                     121,818,653     $      1,211     $  2,221,531     $         --

Issuance of Common Shares                                         6,610                1              148               --

Exercise of Common Share Options                                768,150                7            9,832               --

Issuance of Shares in Exchange for Operating
   Partnership Units                                            802,604                8            2,849               --

Share Repurchases                                                    --               --               --               --

Dividends Paid                                                       --               --               --               --

Net Loss                                                             --               --               --               --

Sale of/Unrealized Gain on Marketable Securities                     --               --               --               --

Unrealized Net Loss on Cash Flow Hedges                              --               --               --               --
                                                           ------------     ------------     ------------     ------------

SHAREHOLDERS' EQUITY, December 31, 2001                     123,396,017     $      1,227     $  2,234,360     $         --
                                                           ============     ============     ============     ============

<Caption>
                                                                             Accumulated
                                                            Retained           Other
                                                            Earnings        Comprehensive
                                                            (Deficit)          Income           Total
                                                           ------------     -------------    ------------
<S>                                                        <C>             <C>             <C>
SHAREHOLDERS' EQUITY, December 31,1998                     $   (110,196)    $     (5,037)    $  2,422,545

Issuance of Common Shares                                            --               --            3,851

Exercise of Common Share Options                                     --               --           32,634

Cancellation of Restricted Shares                                    --               --               --

Amortization of Deferred Compensation                                --               --               41

Issuance of Common Shares in Exchange for Operating
   Partnership Units                                                 --               --            1,939

Preferred Share Conversion Adjustment                                --               --               --

Forward Share Purchase Agreement                                     --               --                7

Settlement of Forward Share Purchase Agreement                   (3,981)              --         (149,384)

Dividends Paid                                                 (269,814)              --         (269,814)

Net Loss                                                         (2,541)              --           (2,541)

Unrealized Net Gain on Available-For-Sale Securities                 --           17,216           17,216

Unrealized Net Gain on Cash Flow Hedges                              --              280              280
                                                           ------------     ------------     ------------

SHAREHOLDERS' EQUITY, December 31, 1999                    $   (386,532)    $     12,459     $  2,056,774

Issuance of Common Shares                                            --               --              114

Exercise of Common Share Options                                     --               --            1,492

Preferred Equity Issuance Cost                                       --               --          (10,006)

Issuance of Shares in Exchange for Operating
   Partnership Units                                                 --               --              609

Share Repurchases                                                    --               --         (180,723)

Share Repurchase Agreement                                           --               --         (101,976)

Retirement of Treasury Shares                                        --               --               --

Retirement of Restricted Shares                                      --               --               41

Dividends Paid                                                 (250,427)              --         (250,427)

Net Income                                                      234,622               --          234,622

Unrealized Net Loss on
   Available-for-Sale Securities                                     --           (7,584)          (7,584)

Unrealized Net Loss on Cash Flow Hedges                              --          (11,609)         (11,609)
                                                           ------------     ------------     ------------

SHAREHOLDERS' EQUITY, December 31, 2000                    $   (402,337)    $     (6,734)    $  1,731,327

Issuance of Common Shares                                            --               --              149

Exercise of Common Share Options                                     --               --            9,839

Issuance of Shares in Exchange for Operating
   Partnership Units                                                 --               --            2,857

Share Repurchases                                                    --               --          (77,384)

Dividends Paid                                                 (217,938)              --         (217,938)

Net Loss                                                        (18,160)              --          (18,160)

Sale of/Unrealized Gain on Marketable Securities                     --           (7,522)          (7,522)

Unrealized Net Loss on Cash Flow Hedges                              --          (17,228)         (17,228)
                                                           ------------     ------------     ------------

SHAREHOLDERS' EQUITY, December 31, 2001                    $   (638,435)    $    (31,484)    $  1,405,940
                                                           ============     ============     ============
</Table>


   The accompanying notes are an integral part of these financial statements.


                                       56
<PAGE>

                      CRESCENT REAL ESTATE EQUITIES COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)


<Table>
<Caption>
                                                                                FOR THE YEAR ENDED DECEMBER 31,
                                                                       ------------------------------------------------
                                                                           2001              2000              1999
                                                                       ------------      ------------      ------------
<S>                                                                    <C>               <C>               <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                                                      $     (4,659)     $    248,122      $     10,959
Adjustments to reconcile net (loss) income to
  net cash provided by operating activities:
      Depreciation and amortization                                         134,197           132,014           140,606
      Extraordinary item - extinguishment of debt                            10,802             3,928                --
      Impairment and other charges related to real estate assets             25,332            17,874           120,573
      Impairment and other charges related to COPI                           92,782                --                --
      Increase in COPI hotel accounts receivable                            (20,458)               --                --
      Gain on property sales, net                                            (4,425)         (137,457)               --
      Minority interests                                                     21,429            50,890             2,236
      Discontinued operations                                                 1,287             1,434             1,482
      Non cash compensation                                                     149               114               118
      Distributions received in excess of earnings from
        unconsolidated companies:
         Office properties                                                       --             1,589             3,757
         Residential development properties                                   3,392                --                --
         Temperature-controlled logistics                                    10,392             2,308            25,404
         Other                                                                   90                --             1,128
      Equity in earnings in excess of distributions received from
        unconsolidated companies:
         Office properties                                                     (476)               --                --
         Residential development properties                                      --            (6,878)           (7,808)
         Other                                                                   --            (3,763)               --
      Decrease (increase) in accounts receivable                                845            (4,996)           (4,474)
      Decrease (increase) in deferred rent receivable                         3,744            (8,504)             (636)
      (Increase) decrease in other assets                                   (22,301)          (19,672)           30,857
      Increase in restricted cash and cash equivalents                      (18,759)          (12,570)           (9,682)
      (Increase) decrease in accounts payable, accrued
        expenses and other liabilities                                      (20,550)           11,282            21,540
                                                                       ------------      ------------      ------------
         Net cash provided by operating activities                     $    212,813      $    275,715      $    336,060
                                                                       ------------      ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Acquisition of land held for investment or development                     --           (22,021)             (500)
      Proceeds from property sales                                          200,389           627,775                --
      Proceeds from joint venture transactions                              129,651                --                --
      Proceeds from sale of marketable securities                           107,940                --                --
      Development of investment properties                                  (23,723)          (41,938)          (27,781)
      Capital expenditures - rental properties                              (46,427)          (26,559)          (20,254)
      Tenant improvement and leasing costs - rental properties              (51,810)          (68,461)          (58,462)
      (Increase) decrease in restricted cash and cash equivalents            (2,204)            5,941           (31,416)
      Return of investment in unconsolidated companies:
         Office properties                                                      349            12,359                --
         Residential development properties                                  19,251            61,641            78,542
         Other                                                               12,359             1,858                --
      Investment in unconsolidated companies:
         Office properties                                                  (16,360)               --              (262)
         Residential development properties                                 (89,000)          (91,377)          (52,514)
         Temperature-controlled logistics                                   (10,784)          (17,100)          (40,791)
         Other                                                               (8,418)           (3,947)         (104,805)
      (Increase) decrease in notes receivable                               (11,219)           (9,865)           52,432

                                                                       ------------      ------------      ------------
         Net cash provided by (used in) investing activities           $    209,994      $    428,306      $   (205,811)
                                                                       ------------      ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Debt financing costs                                                  (16,061)          (18,628)          (16,665)
      Settlement of Forward Share Purchase Agreement                             --                --          (149,384)
      Borrowings under Fleet Boston Credit Facility                              --                --            51,920
      Payments under Fleet Boston Credit Facility                                --          (510,000)         (201,920)
      Borrowings under UBS Facility                                         105,000         1,017,819                --
      Payments under UBS Facility                                          (658,452)         (464,367)               --
      Borrowings under Fleet Facility                                       618,000                --                --
      Payments under Fleet Facility                                        (335,000)               --                --
      Notes payable proceeds                                                393,336                --           929,700
      Notes payable payments                                               (180,685)         (370,486)         (498,927)
      Capital proceeds - joint venture preferred equity partner                  --           275,000                --
      Preferred equity issuance costs                                            --           (10,006)               --
      Capital distributions - joint venture preferred equity
         partner                                                            (19,897)          (72,297)               --
      Capital distributions - joint venture partner                          (5,557)          (10,312)           (3,190)
      Proceeds from exercise of share options                                 9,839             1,492            32,634
      Treasury share repurchases                                            (77,384)         (281,462)               --
      6 3/4% Series A Preferred Share distributions                         (13,501)          (13,500)          (13,500)
      Dividends and unitholder distributions                               (245,126)         (281,234)         (298,283)
                                                                       ------------      ------------      ------------
         Net cash used in financing activities                         $   (425,488)     $   (737,981)     $   (167,615)
                                                                       ------------      ------------      ------------

DECREASE IN CASH AND CASH EQUIVALENTS                                  $     (2,681)     $    (33,960)     $    (37,366)
CASH AND CASH EQUIVALENTS,
      Beginning of period                                                    38,966            72,926           110,292
                                                                       ------------      ------------      ------------

      End of period                                                    $     36,285      $     38,966      $     72,926
                                                                       ============      ============      ============
</Table>


   The accompanying notes are an integral part of these financial statements.


                                       57
<PAGE>

                      CRESCENT REAL ESTATE EQUITIES COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. ORGANIZATION AND BASIS OF PRESENTATION:

ORGANIZATION

         Crescent Real Estate Equities Company ("Crescent Equities") operates as
a real estate investment trust for federal income tax purposes (a "REIT"), and,
together with its subsidiaries, provides management, leasing and development
services for some of its properties.

         The term "Company" includes, unless the context otherwise indicates,
Crescent Equities, a Texas REIT, and all of its direct and indirect
subsidiaries.

         The direct and indirect subsidiaries of Crescent Equities at December
31, 2001, included:

                  o        CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
                           The "Operating Partnership."

                  o        CRESCENT REAL ESTATE EQUITIES, LTD.
                           The "General Partner" of the Operating Partnership.

                  o        SUBSIDIARIES OF THE OPERATING PARTNERSHIP AND THE
                           GENERAL PARTNER

         Crescent Equities conducts all of its business through the Operating
Partnership and its other subsidiaries. The Company is structured to facilitate
and maintain the qualification of Crescent Equities as a REIT.

         The following table shows the subsidiaries of the Company that owned or
had an interest in Properties (as defined below) as of December 31, 2001:

Operating Partnership:(1)  The Avallon IV, Bank One Center, Bank One Tower,
                           Datran Center (two Office Properties), Four Westlake
                           Park, Houston Center (three Office Properties), The
                           Park Shops at Houston Center, The Woodlands Office
                           Properties (eight Office Properties) and 301 Congress
                           Avenue

Crescent Real Estate       The Aberdeen, The Avallon I, II & III, Carter Burgess
Funding I, L.P.:           Plaza, The Citadel, The Crescent Atrium, The Crescent
("Funding I")              Office Towers, Regency Plaza One, Waterside Commons
                           and 125 E. John Carpenter Freeway

Crescent Real Estate       Albuquerque Plaza, Barton Oaks Plaza One, Briargate
Funding II, L.P.:          Office and Research Center, Hyatt Regency
("Funding II")             Albuquerque, Park Hyatt Beaver Creek Resort and Spa,
                           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 Office Properties (ten Office
Funding III, IV and V,     Properties) and Renaissance Houston Hotel
L.P.: ("Funding III,
IV and V")(2)

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

Crescent Real Estate       10 behavioral healthcare properties
Funding VII, L.P.:
("Funding VII")

Crescent Real Estate       The Addison, Addison Tower, Austin Centre, The
Funding VIII, L.P.:        Avallon V, Canyon Ranch - Tucson, Cedar Springs
("Funding VIII")           Plaza, Frost Bank Plaza, Greenway I & IA (two Office
                           Properties), Greenway II, Omni Austin Hotel,
                           Palisades Central I, Palisades Central II, Sonoma
                           Mission Inn & Spa, Stemmons Place, Three Westlake
                           Park, Trammell Crow Center, 3333 Lee Parkway, Ventana
                           Inn & Spa, 1800 West Loop South and 5050 Quorum



                                       58
<PAGE>

Crescent Real Estate       Chancellor Park, Denver Marriott City Center, MCI
Funding IX, L.P.:          Tower, Miami Center, Reverchon Plaza, 44 Cook Street,
("Funding IX") (3)         55 Madison and 6225 N. 24th Street

Crescent Real Estate       Fountain Place and Post Oak Central (three Office
Funding X, L.P.            Properties)
("Funding X")

Crescent Spectrum          Spectrum Center
Center, L.P. (4):

----------

(1)      The Operating Partnership has a 50% interest in Bank One Center, a 20%
         interest in Bank One Tower and a 20% interest in Four Westlake Park.
         See "Note 4. Investments in Real Estate Mortgages and Equity of
         Unconsolidated Companies" for a description of the ownership structure
         of these Properties.

(2)      Funding III owns nine of the 10 Office Properties in the Greenway Plaza
         Office portfolio and the Renaissance Houston Hotel; Funding IV owns the
         central heated and chilled water plant building located at Greenway
         Plaza; and Funding V owns Coastal Tower, the remaining Office Property
         in the Greenway Plaza Office portfolio.

(3)      Funding IX holds its interests in Chancellor Park and Miami Center
         through its 100% membership interests in the owners of the Properties,
         Crescent Chancellor Park, LLC and Crescent Miami Center, LLC.

(4)      Crescent Spectrum Center, L.P. holds its interest in Spectrum Center
         through its ownership of the underlying land and notes and a mortgage
         on the Property.

         As of December 31, 2001, Crescent SH IX, Inc. ("SH IX"), a subsidiary
of the Company, owned 14,468,603 common shares of beneficial interest in
Crescent Equities.

         See "Note 6. Notes Payable and Borrowings under Fleet Facility" for a
list of certain other subsidiaries of the Company, all of which are consolidated
in the Company's financial statements and were formed primarily for the purpose
of obtaining secured debt or joint venture financing.

         See "Note 4. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies" for a table that lists the Company's ownership in
significant unconsolidated subsidiaries and equity investments as of December
31, 2001, including the four Office Properties in which the Company owned an
interest through these unconsolidated subsidiaries and equity investments and
the Company's ownership interests in the Residential Development Segment and the
Temperature-Controlled Logistics Segment.

SEGMENTS

         As of December 31, 2001, the Company's assets and operations were
composed of four major investment segments:

         o        Office Segment;

         o        Resort/Hotel Segment;

         o        Residential Development Segment; and

         o        Temperature-Controlled Logistics Segment.

         Within these segments, the Company owned or had an interest in the
following real estate assets (the "Properties") as of December 31, 2001:

         o        OFFICE SEGMENT consisted of 74 office properties (collectively
                  referred to as the "Office Properties") located in 26
                  metropolitan submarkets in six states, with an aggregate of
                  approximately 28.0 million net rentable square feet.

         o        RESORT/HOTEL SEGMENT consisted of five luxury and destination
                  fitness resorts and spas with a total of 1,028 rooms/guest
                  nights and four upscale business-class hotel properties with a
                  total of 1,769 rooms (collectively referred to as the
                  "Resort/Hotel Properties").



                                       59
<PAGE>

         o        RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Company's
                  ownership of real estate mortgages and non-voting common stock
                  representing interests ranging from 90% to 95% in five
                  unconsolidated residential development corporations
                  (collectively referred to as the "Residential Development
                  Corporations"), which in turn, through joint venture or
                  partnership arrangements, owned 21 upscale residential
                  development properties (collectively referred to as the
                  "Residential Development Properties").

         o        TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the
                  Company's 40% interest in a general partnership (the
                  "Temperature-Controlled Logistics Partnership"), which owns
                  all of the common stock, representing substantially all of the
                  economic interest, of AmeriCold Corporation (the
                  "Temperature-Controlled Logistics Corporation"), a REIT,
                  which, as of December 31, 2001, directly or indirectly owned
                  89 temperature-controlled logistics properties (collectively
                  referred to as the "Temperature-Controlled Logistics
                  Properties") with an aggregate of approximately 445.2 million
                  cubic feet (17.7 million square feet) of warehouse space.

         On February 14, 2002, the Company executed an agreement with Crescent
Operating, Inc. ("COPI"), pursuant to which COPI transferred to subsidiaries of
the Company, in lieu of foreclosure, COPI's lessee interests in the eight
Resort/Hotel Properties leased to subsidiaries of COPI and, pursuant to a strict
foreclosure, COPI's voting common stock in three of the Company's Residential
Development Corporations. See "Note 22. Subsequent Events" for additional
information regarding the Company's agreement with COPI.

         For purposes of investor communications, the Company classifies its
luxury and destination fitness resorts and spas and upscale Residential
Development Properties as a single group referred to as the "Resort and
Residential Development Sector" due to their similar targeted customer
characteristics. This group does not contain the four upscale business-class
hotel properties. Additionally, for investor communications, the Company
classifies its Temperature-Controlled Logistics Properties and its upscale
business-class hotel properties as the "Investment Sector." However, for
purposes of segment reporting as defined in Statement of Financial Accounting
Standard ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and
Related Information" and this Annual Report on Form 10-K, the Resort/Hotel
Properties, including the upscale business-class hotel properties, the
Residential Development Properties and the Temperature-Controlled Logistics
Properties are considered three separate reportable segments.

         See "Note 3. Segment Reporting" for a table showing total revenues,
funds from operations, and equity in net income of unconsolidated companies for
each of these investment segments for the years ended December 31, 2001, 2000
and 1999 and identifiable assets for each of these investment segments at
December 31, 2001 and 2000.

BASIS OF PRESENTATION

         The accompanying consolidated financial statements of the Company
include all direct and indirect subsidiary entities. The equity interests in
those direct and indirect subsidiaries the Company does not own are reflected as
minority interests. All significant intercompany balances and transactions have
been eliminated.

         Certain amounts in prior year financial statements have been
reclassified and restated to conform with current year presentation. See "Note
2. Summary of Significant Accounting Policies - New Accounting Pronouncements"
for a description of the reclassified items.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NET INVESTMENTS IN REAL ESTATE

         Real estate is carried at cost, net of accumulated depreciation.
Betterments, major renovations, and certain costs directly related to the
acquisition, improvements and leasing of real estate are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, as follows:

     Buildings and Improvements                    5 to 40 years



                                       60
<PAGE>

     Tenant Improvements                           Terms of leases
     Furniture, Fixtures and Equipment             3 to 5 years

         An impairment loss is recognized on a property by property basis on
Properties classified as held for use, when expected undiscounted cash flows are
less than the carrying value of the Property. In cases where the Company does
not expect to recover its carrying costs on a Property, the Company reduces its
carrying costs to fair value, and for Properties held for disposition, the
Company reduces its carrying costs to the fair value less costs to sell. See
"Note 17. Dispositions" for a description of impairment losses recognized during
2001, 2000 and 1999.

         Depreciation expense is not recognized on Properties classified as held
for disposition.

CONCENTRATION OF REAL ESTATE INVESTMENTS

         The Company's Office Properties are located primarily in the
Dallas/Fort Worth and Houston, Texas metropolitan areas. As of December 31,
2001, the Company's Office Properties in Dallas/Fort Worth and Houston
represented an aggregate of approximately 77% of its office portfolio based on
total net rentable square feet. The Dallas/Fort Worth Office Properties
accounted for approximately 41% of that amount and the Houston Office Properties
accounted for the remaining 36%. As a result of the geographic concentration,
the operations of the Company could be adversely affected by a recession or
general economic downturn in the areas where these Properties are located.

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments purchased with an
original maturity of 90 days or less to be cash and cash equivalents.

RESTRICTED CASH AND CASH EQUIVALENTS

         Restricted cash includes escrows established pursuant to certain
mortgage financing arrangements for real estate taxes, insurance, security
deposits, ground lease expenditures, capital expenditures and monthly interest
carrying costs paid in arrears and capital requirements related to cash flow
hedges.

OTHER ASSETS

         Other assets consist principally of leasing costs, deferred financing
costs and marketable securities. Leasing costs are amortized on a straight-line
basis during the terms of the respective leases, and unamortized leasing costs
are written off upon early termination of lease agreements. Deferred financing
costs are amortized on a straight-line basis (when it approximates the effective
interest method) over the terms of the respective loans. The effective interest
method is used to amortize deferred financing costs on loans where the
straight-line basis does not approximate the effective interest method, over the
terms of the respective loans. Marketable securities are considered
available-for-sale and are marked to market value on a monthly basis. The
corresponding unrealized gains and losses are included in accumulated other
comprehensive income. When a decline in the fair value of marketable securities
is determined to be other than temporary, the cost basis is written down to fair
value and the amount of the write-down is included in earnings for the
applicable period. A decline in the fair value of a marketable security is
deemed nontemporary if its cost basis has exceeded its fair value for a period
of six to nine months.

DERIVATIVE FINANCIAL INSTRUMENTS

         The Company uses derivative financial instruments to convert a portion
of its variable-rate debt to fixed-rate debt and to manage its fixed to
variable-rate debt ratio. As of December 31, 2001, the Company has entered into
three cash flow hedge agreements which are accounted for under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."



                                       61
<PAGE>

         Under SFAS No. 133, the Company's cash flow hedges are used to mitigate
the variability of cash flows. On a monthly basis, the cash flow hedge is marked
to fair value through comprehensive income and the cash flow hedge's gain or
loss is reported in earnings when the interest on the underlying debt affects
earnings. Any ineffective portion of the hedges is reported in earnings
immediately.

         In connection with the debt refinancing in May 2001, the Company
entered into a LIBOR interest rate cap, and simultaneously sold a LIBOR interest
rate cap with the same terms. These instruments do not qualify as hedges and
changes to their respective fair values are charged to earnings monthly.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying values of cash and cash equivalents and short-term
investments are reasonable estimates of their fair values because of the short
maturities of these instruments. The fair value of notes receivable, which
approximates carrying value, is estimated based on year-end interest rates for
receivables of comparable maturity. Notes payable and borrowings under the
Company's prior line of credit with UBS (the "UBS Facility") and the Company's
line of credit (the "Fleet Facility") have aggregate carrying values which
approximate their estimated fair values based upon the current interest rates
for debt with similar terms and remaining maturities, without considering the
adequacy of the underlying collateral. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 2001 and 2000.

REVENUE RECOGNITION

         OFFICE PROPERTIES The Company, as a lessor, has retained substantially
all of the risks and benefits of ownership of the Office Properties and accounts
for its leases as operating leases. Income on leases, which includes scheduled
increases in rental rates during the lease term and/or abated rent payments for
various periods following the tenant's lease commencement date, is recognized on
a straight-line basis. Deferred rent receivable represents the excess of rental
revenue recognized on a straight-line basis over cash received pursuant to the
applicable lease provisions.

         RESORT/HOTEL PROPERTIES Prior to the enactment of the REIT
Modernization Act, the Company's status as a REIT for federal income tax
purposes prohibited it from operating the Resort/Hotel Properties. As of
December 31, 2001, the Company had leased all of the Resort/Hotel Properties,
except the Omni Austin Hotel, to subsidiaries of Crescent Operating, Inc.
("COPI") pursuant to eight separate leases. The Omni Austin Hotel had been
leased under a separate lease to HCD Austin Corporation. During 2001 and 2000,
the leases provided for the payment by the lessee of the Resort/Hotel Property
of (i) base rent, with periodic rent increases if applicable, (ii) percentage
rent based on a percentage of gross receipts or gross room revenues, as
applicable, above a specified amount, and (iii) a percentage of gross food and
beverage revenues above a specified amount for certain Resort/Hotel Properties.
Base rental income under these leases was recognized on a straight-line basis
over the terms of the respective leases. Contingent revenue was recognized when
the thresholds upon which it is based had been met. On February 14, 2002, the
Company executed an agreement with COPI, pursuant to which COPI transferred to
subsidiaries of the Company, in lieu of foreclosure, COPI's lessee interests in
the eight Resort/Hotel Properties previously leased to COPI.

         INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED
COMPANIES Investments in which the Company does not have a controlling interest
are accounted for under the equity method. See "Note 4. Investments in Real
Estate Mortgages and Equity in Unconsolidated Companies" for a list of the
unconsolidated entities and the Company's ownership of each.

         BEHAVIORAL HEALTHCARE PROPERTIES During 1999, Charter Behavioral Health
Systems' ("CBHS") business was negatively affected by many factors, including
adverse industry conditions, and CBHS failed to perform in accordance with its
operating budget. As a result, in the third quarter of 1999, the Company began
to recognize rent from CBHS on a cash basis, due to the uncertainty that CBHS
would be able to fulfill its rental obligations under the lease.


                                       62
<PAGE>
INCOME TAXES

         A REIT will generally not be subject to federal income taxation on that
portion of its income that qualifies as REIT taxable income to the extent that
it distributes such taxable income to its shareholders and complies with certain
requirements (including distribution of at least 90% of its REIT taxable
income). As a REIT, the Company is allowed to reduce REIT taxable income by all
or a portion of its distributions to shareholders. Because distributions have
exceeded REIT taxable income, no federal income tax provision (benefit) has been
reflected in the accompanying consolidated financial statements. State income
taxes are not significant.

USE OF ESTIMATES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

EARNINGS PER SHARE

         SFAS No.128 "Earnings Per Share" ("EPS") specifies the computation,
presentation and disclosure requirements for earnings per share. Basic EPS
excludes all dilution while 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.

<Table>
<Caption>
                                                                    FOR THE YEAR ENDED DECEMBER 31,
                                          ------------------------------------------------------------------------------------
                                                            2001                                       2000
                                          ----------------------------------------    ----------------------------------------
                                            Income        Wtd. Avg.     Per Share                     Wtd. Avg.     Per Share
                                            (Loss)         Shares        Amount         Income         Shares        Amount
                                          -----------    -----------   -----------    -----------    -----------   -----------
<S>                                       <C>            <C>           <C>            <C>            <C>           <C>

BASIC EPS -
Net income
   before extraordinary item
   and discontinued operations            $     6,115        107,613                  $   251,178        113,524
6 3/4% Series A Preferred
   Share distributions                        (13,501)                                    (13,500)
Share repurchase agreement return                  --                                      (2,906)
Forward share purchase
   agreement return                                --                                          --
                                          -----------    -----------   -----------    -----------    -----------   -----------
Net (loss) income available to common
   shareholders before extraordinary
   item and discontinued operations       $    (7,386)       107,613   $     (0.07)   $   234,772        113,524   $      2.07
Extraordinary item -
   extinguishment of debt                     (10,802)                       (0.10)        (3,928)                       (0.03)
Discontinued operations                            28                           --            872                         0.01
                                          -----------    -----------   -----------    -----------    -----------   -----------
Net (loss) income available to
   common shareholders                    $   (18,160)       107,613   $     (0.17)   $   231,716        113,524   $      2.05
                                          ===========    ===========   ===========    ===========    ===========   ===========

DILUTED EPS -
Net (loss) income
   before extraordinary item
   and discontinued operations            $    (7,386)       107,613                  $   234,772        113,524
Effect of dilutive securities:
   Additional common shares
     obligation relating to:
     Share and unit options                        --          1,527                           --          1,197
     Forward share purchase
       agreement                                   --             --                           --             --
                                          -----------    -----------   -----------    -----------    -----------   -----------
Net (loss) income available to common
   shareholders before extraordinary
   item and discontinued operations       $    (7,386)       109,140   $     (0.07)   $   234,772        114,721   $      2.04
Extraordinary item -
   extinguishment of debt                     (10,802)                       (0.10)        (3,928)                       (0.03)
Discontinued operations                            28                           --            872                         0.01
                                          -----------    -----------   -----------    -----------    -----------   -----------
Net (loss) income available to
   common shareholders                    $   (18,160)       109,140   $     (0.17)   $   231,716        114,721   $      2.02
                                          ===========    ===========   ===========    ===========    ===========   ===========

<Caption>
                                               FOR THE YEAR ENDED DECEMBER 31,
                                          ----------------------------------------
                                                            1999
                                          ----------------------------------------
                                            Income        Wtd. Avg.     Per Share
                                            (Loss)         Shares        Amount
                                          -----------    -----------   -----------
<S>                                       <C>            <C>           <C>

BASIC EPS -
Net income
   before extraordinary item
   and discontinued operations            $    10,106        122,876
6 3/4% Series A Preferred
   Share distributions                        (13,500)
Share repurchase agreement return                (583)
Forward share purchase
   agreement return                            (4,317)
                                          -----------    -----------   -----------
Net (loss) income available to common
   shareholders before extraordinary
   item and discontinued operations       $    (8,294)       122,876   $     (0.07)
Extraordinary item -
   extinguishment of debt                          --                           --
Discontinued operations                           853                         0.01
                                          -----------    -----------   -----------
Net (loss) income available to
   common shareholders                    $    (7,441)       122,876   $     (0.06)
                                          ===========    ===========   ===========

DILUTED EPS -
Net (loss) income
   before extraordinary item
   and discontinued operations            $    (8,294)       122,876
Effect of dilutive securities:
   Additional common shares
     obligation relating to:
     Share and unit options                        --          1,674
     Forward share purchase
       agreement                                   --            263
                                          -----------    -----------   -----------
Net (loss) income available to common
   shareholders before extraordinary
   item and discontinued operations       $    (8,294)       124,813   $     (0.07)
Extraordinary item -
   extinguishment of debt                          --                           --
Discontinued operations                           853                         0.01
                                          -----------    -----------   -----------
Net (loss) income available to
   common shareholders                    $    (7,441)       124,813   $     (0.06)
                                          ===========    ===========   ===========
</Table>




                                       63
<PAGE>

         The effect of the conversion of the Series A Convertible Cumulative
Preferred Shares is not included in the computation of Diluted EPS for the years
ended December 31, 2001, 2000 and 1999, since the effect of their conversion is
antidilutive.




                                       64
<PAGE>

SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                                         FOR THE YEAR ENDED DECEMBER 31,
                                                                                    ----------------------------------------
                                                                                       2001           2000           1999
                                                                                    ----------     ----------     ----------
<S>                                                                                 <C>            <C>            <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid on debt                                                               $  174,584     $  202,478     $  188,475
Additional interest paid in conjunction with cash flow
   hedges                                                                               11,036          1,042            344
                                                                                    ----------     ----------     ----------
Total Interest Paid                                                                 $  185,620     $  203,520     $  188,819
                                                                                    ==========     ==========     ==========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
   FINANCING ACTIVITIES:
Conversion of Operating Partnership units to common shares with resulting
   reduction in minority interest and increases in common shares and additional
   paid-in capital                                                                  $    2,857     $      609     $    1,939
Issuance of Operating Partnership units in conjunction
    with settlement of an obligation                                                        --          2,125          1,786
Acquisition of partnership interests                                                        --             --          3,774
Sale of marketable securities                                                           (8,118)            --             --
Unrealized gain (loss) on available-for-sale securities                                    596         (7,584)        17,216
Forward Share Purchase Agreement Return                                                     --             --          4,317
Share Repurchase Agreement Return                                                           --          2,906            583
Impairment and other charges related to real estate
 assets                                                                                 25,332         17,874        178,838
Adjustment of cash flow hedge to fair value                                            (17,228)       (11,609)           280
Equity investment in a tenant in exchange
      for office space/other investment ventures                                            --          4,485             --
Acquisition of ownership of certain assets previously owned by
     Broadband Office, Inc.                                                              7,200             --             --
Impairment and other charges related to COPI                                            92,782             --             --
Additional compensation expense related to employee notes
     receivable                                                                            750             --             --
</Table>

NEW ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," which provides that all business
combinations in the scope of the statement are to be accounted for under the
purchase method. This statement is effective for all business combinations
initiated after June 30, 2001, as well as all business combinations accounted
for using the purchase method for which the date of acquisition is July 1, 2001,
or later. Since the Company currently accounts for its acquisitions under the
purchase method, management does not believe that the adoption of this statement
will have a material effect on its interim or annual financial statements.

          In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets" (effective January 1,
2002). SFAS No. 142 specifies that goodwill and certain other types of
intangible assets may no longer be amortized, but instead are subject to
periodic impairment testing. If an impairment charge is required, the charge is
reported as a change in accounting principle and is included in operating
results as a Cumulative Effect of a Change in Accounting Principle. SFAS No. 142
provides for a transitional period of up to 12 months. In prior periods,
Crescent tested goodwill for impairment under the provisions SFAS No. 121,
"Accounting for the Impairment of



                                       65
<PAGE>

Long-Lived Assets," under which an impairment loss is recognized when expected
undiscounted future cash flows are less than the carrying value of the asset.
For the year ended December 31, 2001, the expected future operating cash flows
of the Temperature-Controlled Logistics Corporation on an undiscounted basis
exceeded the carrying amounts of the properties and other long-lived assets,
including goodwill. Accordingly, no impairment was recognized. Upon the adoption
of SFAS 142, the Temperature-Controlled Logistics Corporation compared the fair
value of the Temperature-Controlled Logistics Properties based on discounted
cash flows to the carrying value of the Temperature-Controlled Logistics
Properties and the related goodwill. Based on this test, the fair value did not
exceed the carrying value of the assets and, accordingly, the goodwill was
impaired. Any need for impairment must be assessed within the first six months
and the amount of impairment must be determined within the next six months. Any
additional impairment taken in subsequent interim periods during 2002 related to
the initial adoption of this statement will require the first quarter financial
statements to be restated. During the three months ended March 31, 2002, the
Company recognized a goodwill impairment charge of approximately $10,500 due to
the initial application of this statement. This charge was due to impairments
(net of minority interests and taxes) of the goodwill at the
Temperature-Controlled Logistics Corporation of $9,200 and one of the
Residential Development Corporations of $1,300. This charge was reported as a
change in accounting principle and was included in the Company's consolidated
statements of operations as a "Cumulative Effect of a Change in Accounting
Principle" for the three months ended March 31, 2002.

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement is effective for fiscal years
beginning after June 15, 2002. The Company has determined that SFAS No. 143 will
have no material effect on its interim and annual financial statements.

          In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144") which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 requires that the results of operations, including any
gains or losses recognized, be disclosed separately on the Company's
consolidated statements of operations. The Company adopted SFAS No. 144 on
January 1, 2002. From January 1, 2002 through June 30, 2002, the Company sold
three Office Properties and classified two other office assets as held for sale.
The Company also owns nine behavioral healthcare properties which are held for
sale. In accordance with SFAS No. 144, the results of operations of these assets
have been presented as "Discontinued Operations - Income on Assets Sold and Held
for Sale" in the accompanying consolidated statements of operations. The
carrying value of the assets held for sale have been reflected as "Properties
Held for Disposition, Net" in the accompanying consolidated balance sheet as of
December 31, 2001. As a result of the adoption, the Company has reclassified
certain amounts in prior period financial statements to conform with the new
presentation requirements.

3. SEGMENT REPORTING:

         The Company currently has four major investment segments: the Office
Segment; the Resort/Hotel Segment; the Residential Development Segment; and the
Temperature-Controlled Logistics Segment. Management organizes the segments
within the Company based on property type for making operating decisions and
assessing performance. Investment segments for SFAS No. 131 are determined on
the same basis.

         The Company uses funds from operations ("FFO") as the measure of
segment profit or loss. FFO, based on the revised definition adopted by the
Board of Governors of the National Association of Real Estate Investment Trusts
("NAREIT"), effective January 1, 2000, and as used in this document, means:

         o        Net Income (Loss) - determined in accordance with generally
                  accepted accounting principles ("GAAP");

                  o        excluding gains (or losses) from sales of depreciable
                           operating property;

                  o        excluding extraordinary items (as defined by GAAP);

                  o        plus depreciation and amortization of real estate
                           assets; and

                  o        after adjustments for unconsolidated partnerships and
                           joint ventures.

         NAREIT developed FFO as a relative measure of performance and liquidity
of an equity REIT to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. The Company considers
FFO an appropriate measure of performance for an equity REIT, and for its
investment segments. However FFO:



                                       66
<PAGE>

                  o        does not represent cash generated from operating
                           activities determined in accordance with GAAP (which,
                           unlike FFO, generally reflects all cash effects of
                           transactions and other events that enter into the
                           determination of net income);

                  o        is not necessarily indicative of cash flow available
                           to fund cash needs;

                  o        should not be considered as an alternative to net
                           income determined in accordance with GAAP as an
                           indication of the Company's operating performance, or
                           to cash flow from operating activities determined in
                           accordance with GAAP as a measure of either liquidity
                           or the Company's ability to make distributions; and

                  o        the Company's measure of FFO may not be comparable to
                           similarly titled measures of other REITs because
                           these REITs may apply the definition of FFO in a
                           different manner than the Company.



                                       67
<PAGE>

         Selected financial information related to each segment for the years
ended December 31, 2001, 2000 and 1999 is presented below.

<Table>
<Caption>
                                                                       FOR THE YEAR ENDED DECEMBER 31,
                                                                 ------------------------------------------
                                                                    2001            2000            1999
                                                                 ----------      ----------      ----------
<S>                                                             <C>             <C>             <C>
REVENUES:
    Office Segment(1)                                            $  606,053      $  601,492      $  609,843
    Resort/Hotel Segment                                             45,748          72,114          65,237
    Residential Development Segment                                      --              --              --
    Temperature-Controlled Logistics Segment                             --              --              --
    Corporate and Other(2)                                           40,190          40,251          66,549
                                                                 ----------      ----------      ----------
TOTAL REVENUE                                                    $  691,991      $  713,857      $  741,629
                                                                 ==========      ==========      ==========

FUNDS FROM OPERATIONS:
    Office Segment                                               $  358,349      $  361,574      $  367,830
    Resort/Hotel Segment                                             45,282          71,446          64,079
    Residential Development Segment                                  54,051          78,600          74,597
    Temperature-Controlled Logistics Segment                         23,806          33,563          37,439
    Corporate and other adjustments:
      Interest expense                                             (182,410)       (203,197)       (192,033)
      6 3/4% Series A Preferred Share distributions                 (13,501)        (13,500)        (13,500)
      Other(3)                                                        8,571          22,484          33,639
      Corporate general & administrative                            (24,249)        (24,073)        (16,274)
      Impairment and other charges related to COPI                  (92,782)             --              --
      Settlement of merger dispute                                       --              --         (15,000)
                                                                 ----------      ----------      ----------
    TOTAL FUNDS FROM OPERATIONS                                  $  177,117      $  326,897      $  340,777

ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS
    TO NET INCOME:
    Depreciation and amortization of real estate assets            (122,033)       (119,999)       (128,403)
    Gain on rental property sales, net                                2,835         136,880         (16,361)
    Impairment and other charges related to
      real estate assets                                            (21,705)        (17,874)       (136,435)
    Extraordinary item - extinguishment of debt                     (10,802)         (3,928)             --
    Adjustment for investments in real estate mortgages
      and equity of unconsolidated companies:
        Office Properties                                            (6,955)         (4,973)         (6,110)
        Residential Development Properties                          (13,037)        (25,130)        (31,725)
        Temperature-Controlled Logistics Properties                 (22,671)        (26,131)        (22,400)
        Other                                                          (144)             --            (611)
    Unitholder minority interests                                      (765)        (31,120)         (1,273)
    6 3/4% Series A Preferred Share distributions                    13,501          13,500          13,500
                                                                 ----------      ----------      ----------
NET (LOSS) INCOME                                                $   (4,659)     $  248,122      $   10,959
                                                                 ==========      ==========      ==========

EQUITY IN NET INCOME OF UNCONSOLIDATED
    COMPANIES:
      Office Properties                                          $    6,124      $    3,164      $    5,265
      Resort/Hotel Properties                                            --              --              --
      Residential Development Properties                             41,014          53,470          42,871
      Temperature-Controlled Logistics Properties                     1,136           7,432          15,039
      Other(3)                                                        2,957          11,645           5,122
                                                                 ----------      ----------      ----------
TOTAL EQUITY IN NET INCOME OF
    UNCONSOLIDATED COMPANIES                                     $   51,231      $   75,711      $   68,297
                                                                 ==========      ==========      ==========
</Table>

<Table>
<Caption>
                                                                  BALANCE AT DECEMBER 31,
                                                                 -------------------------
                                                                    2001           2000
                                                                 ----------     ----------
<S>                                                              <C>            <C>
IDENTIFIABLE ASSETS:
    Office Segment                                               $2,727,939     $3,088,653
    Resort/Hotel Segment                                            442,724        468,286
    Residential Development Segment                                 371,535        305,187
    Temperature-Controlled Logistics Segment                        308,427        308,035
    Other(3)                                                        291,524        373,157
                                                                 ----------     ----------
TOTAL IDENTIFIABLE ASSETS                                        $4,142,149     $4,543,318
                                                                 ==========     ==========
</Table>

----------

(1)      Excludes financial information for the four Office Properties included
         in "Equity of Net Income of Unconsolidated Companies."

(2)      For purposes of this Note, the behavioral healthcare properties'
         financial information has been included in this line item.

(3)      Includes interest and other income, behavioral healthcare property
         income, preferred return paid to GMAC Commercial Mortgage Corporation
         ("GMACCM"), other unconsolidated companies, less depreciation and
         amortization of non-real estate assets and amortization of deferred
         financing costs.

         At December 31, 2001, COPI was the Company's largest lessee in terms of
total revenues. COPI was the lessee of eight of the Resort/Hotel Properties for
the year ended December 31, 2001. Total revenues recognized from COPI for the
year ended December 31, 2001 were approximately 6% of the Company's total
revenues. On February 14, 2002, the



                                       68
<PAGE>

Company executed an agreement with COPI, pursuant to which COPI transferred to
subsidiaries of the Company, in lieu of foreclosure, COPI's lessee interests in
the eight Resort/Hotel Properties previously leased to COPI.

         See "Note 4. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies - Temperature-Controlled Logistics Properties" for a
description of the sole lessee of the Temperature-Controlled Logistics
Properties.

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

         Investments in which the Company does not have a controlling interest
are accounted for under the equity method. The following is a summary of the
Company's ownership in significant joint ventures or equity investments:

<Table>
<Caption>
                                                                                                 COMPANY'S OWNERSHIP
                     ENTITY                                  CLASSIFICATION                    AS OF DECEMBER 31, 2001
                     ------                                  --------------                    -----------------------
<S>                                                <C>                                         <C>
Desert Mountain Development Corporation(1)         Residential Development Corporation               95.0%(2)(3)
The Woodlands Land Company, Inc.(1)                Residential Development Corporation               95.0%(2)(4)
Crescent Resort Development, Inc.(1)               Residential Development Corporation               90.0%(2)(5)
Mira Vista Development Corp.                       Residential Development Corporation               94.0%(2)(6)
Houston Area Development Corp.                     Residential Development Corporation               94.0%(2)(7)
Temperature-Controlled Logistics Partnership        Temperature-Controlled Logistics                 40.0%(8)
The Woodlands Commercial
    Properties Company, L.P.                                     Office                              42.5%(9)(10)
Main Street Partners, L.P.                              Office (Bank One Center)                     50.0%(11)
Crescent 5 Houston Center, L.P.                         Office (5 Houston Center)                    25.0%(12)
Austin PT BK One Tower Office Limited Partnership        Office (Bank One Tower)                     20.0%(13)
Houston PT Four Westlake Office Limited Partnership    Office (Four Westlake Park)                   20.0%(13)
DBL Holdings, Inc.                                                Other                              97.4%(14)
CRL Investments, Inc.(1)                                          Other                              95.0%(15)
CR License, LLC(1)                                                Other                              28.5%(16)
</Table>

----------

(1)      On February 14, 2002, the Company executed an agreement with COPI,
         pursuant to which COPI transferred to subsidiaries of the Company,
         pursuant to a strict foreclosure, COPI's interest in these entities.
         The Company will fully consolidate the operations of these entities,
         other than CR License, LLC, beginning on the dates of the asset
         transfers.

(2)      See the Residential Development Properties Table included in "Item 2.
         Properties" for the Residential Development Corporation's ownership
         interest in the Residential Development Properties.

(3)      The remaining 5.0% interest in Desert Mountain Development Corporation,
         which represents 100% of the voting stock, was owned by COPI as of
         December 31, 2001.

(4)      The remaining 5.0% interest in The Woodlands Land Company, Inc., which
         represents 100% of the voting stock, was owned by COPI as of December
         31, 2001.

(5)      The remaining 10.0% interest in Crescent Resort Development, Inc.,
         which represents 100% of the voting stock, was owned by COPI Colorado,
         L. P., of which 60.0% was owned by COPI as of December 31, 2001, with
         20% owned by John Goff, Vice-Chairman of the Board of Trust Managers
         and Chief Executive Officer of the Company, and 20% owned by a third
         party.

(6)      The remaining 6.0% interest in Mira Vista Development, Corp. ("MVDC"),
         which represents 100% of the voting stock, is owned 4.0% by DBL
         Holdings, Inc. ("DBL") and 2.0% by third parties.

(7)      The remaining 6.0% interest in Houston Area Development Corp. ("HADC"),
         which represents 100% of the voting stock, is owned 4.0% by DBL
         Holdings, Inc. ("DBL") and 2.0% by a third party.

(8)      The remaining 60.0% interest in the Temperature-Controlled Logistics
         Partnership is owned by Vornado Realty Trust, L.P.

(9)      The remaining 57.5% interest in The Woodlands Commercial Properties
         Company, L. P. is owned by Morgan Stanley Real Estate Fund II, L. P.
         ("Morgan Stanley").

(10)     Distributions are made to partners based on specified payout
         percentages. During the year ended December 31, 2001, the payout
         percentage to the Company was 49.5%.

(11)     The remaining 50.0% interest in Main Street Partners, L.P. is owned by
         TrizecHahn Corporation.

(12)     See "5 Houston Center" below.

(13)     See "Four Westlake Park and Bank One Tower" below.

(14)     John Goff, Vice-Chairman of the Board of Trust Managers and Chief
         Executive Officer of the Company, obtained the remaining 2.6% economic
         interest in DBL (including 100% of the voting interest in DBL) in
         exchange for his voting interests in MVDC and HADC, originally valued
         at approximately $380, and approximately $63 in cash, or total
         consideration valued at approximately $443. At December 31, 2001, Mr.
         Goff's interest in DBL was approximately $554.

(15)     The remaining 5.0% interest in CRL Investments, Inc., which represents
         100% of the voting stock, was owned by COPI as of December 31, 2001.

(16)     Of the remaining 71.5% interest in CR License, LLC, 70.0% is owned by a
         group of individuals unrelated to the Company, and 1.5% was owned by
         COPI, as of December 31, 2001.


                                       69
<PAGE>
JOINT VENTURE ARRANGEMENTS

5 Houston Center

         On June 4, 2001, the Company entered into a joint venture arrangement
with a pension fund advised by JP Morgan Investment Management, Inc. ("JPM") to
construct the 5 Houston Center Office Property within the Company's Houston
Center mixed-use Office Property complex in Houston, Texas. The Class A Office
Property will consist of 577,000 net rentable square feet. The joint venture is
structured such that the fund holds a 75% equity interest, and the Company holds
a 25% equity interest in the Property, which is accounted for under the equity
method. The Company contributed approximately $8,500 of land and $12,300 of
development costs to the joint venture entity and received a distribution of
$14,800 of net proceeds. No gain or loss was recognized by the Company on this
transaction. In addition, the Company is developing, and will manage and lease
the Property on a fee basis. During the year ended December 31, 2001, the
Company recognized $2,300 for these services.

         During the second quarter of 2001, the joint venture entity obtained an
$82,500 construction loan guaranteed by the Company, due May 2004, that bears
interest at Prime (as defined in the loan agreement) plus 100 basis points or
LIBOR plus 225 basis points, at the discretion of the borrower. The interest
rate on the loan at December 31, 2001 was 4.12%. The balance outstanding on this
construction loan at December 31, 2001, was $10,429.

Four Westlake Park and Bank One Tower

         On July 30, 2001, the Company entered into joint venture arrangements
with an affiliate of General Electric Pension Fund ("GE") in which the Company
contributed two Office Properties, Four Westlake Park in Houston, Texas, and
Bank One Tower in Austin, Texas into the joint ventures and GE made a cash
contribution. The joint ventures are structured such that GE holds an 80% equity
interest in each of Four Westlake Park, a 560,000 square foot Class A Office
Property located in the Katy Freeway submarket of Houston, and Bank One Tower, a
390,000 square foot Class A Office Property located in downtown Austin. The
Company continues to hold the remaining 20% equity interests in each Property,
which are accounted for under the equity method. The joint ventures generated
approximately $120,000 in net cash proceeds to the Company, including
distributions to the Company resulting from the sale of its 80% equity interest
and from mortgage financing at the joint venture level. None of the mortgage
financing at the joint venture level is guaranteed by the Company. The Company
has no commitment to reinvest the cash proceeds back into the joint ventures.
The joint ventures were accounted for as partial sales of these Office
Properties, resulting in a gain of approximately $7,577, net of a deferred gain
of approximately $1,894. In addition, the Company manages and leases the Office
Properties on a fee basis. During the year ended December 31, 2001, the Company
recognized $227 for these services.

METROPOLITAN

         On May 24, 2001, the Company converted its $85,000 preferred member
interest in Metropolitan Partners, LLC ("Metropolitan") and $1,900 of deferred
acquisition costs, into approximately $75,000 of common stock of Reckson
Associates Realty Corp. ("Reckson"), resulting in an impairment charge of
approximately $11,900. The Company subsequently sold the Reckson common stock on
August 17, 2001 for approximately $78,600, resulting in a gain of approximately
$3,600. The proceeds were used to pay down the Fleet Facility.

DISPOSITIONS

         On September 27, 2001, the Woodlands Commercial Properties Company,
L.P., ("Woodlands CPC"), owned by the Company and an affiliate of Morgan
Stanley, sold one office/venture tech property located within The Woodlands,
Texas. The sale generated net proceeds, after the repayment of debt, of
approximately $2,700, of which the Company's portion was approximately $1,300.
The sale generated a net gain of approximately $3,500, of which the Company's
portion was approximately $1,700. The net proceeds received by the Company were
used primarily to pay down variable-rate debt.

         On November 9, 2001, The Woodlands Land Development Company, L.P.,
owned by the The Woodlands Land Company, Inc. and an affiliate of Morgan
Stanley, sold two office properties and one retail property located within The
Woodlands, Texas. The sales generated net proceeds, after the repayment of debt,
of approximately $41,800, of which the Company's portion was approximately
$19,700. The sale generated a net gain of approximately $13,300, of which the



                                       70
<PAGE>

Company's portion was approximately $3,800. The net proceeds received by the
Company were used primarily to pay down variable-rate debt.

         During the year ended December 31, 2000, the Woodlands CPC also sold
four office/venture tech properties located within The Woodlands, Texas. The
sale generated net proceeds of approximately $51,800, of which the Company's
portion was approximately $22,000. The sale generated a net gain of
approximately $11,800, of which the Company's portion was approximately $5,000.
The proceeds received by the Company were used primarily for working capital
purposes.

TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES

         Effective March 12, 1999, the Company, Vornado Realty Trust, COPI, the
Temperature-Controlled Logistics Partnership and the Temperature-Controlled
Logistics Corporation (including all affiliated entities that owned any portion
of the business operations of the Temperature-Controlled Logistics Properties at
that time) sold all of the non-real estate assets, encompassing the business
operations, for approximately $48.7 million to a newly formed partnership
("AmeriCold Logistics") owned 60% by Vornado Operating L.P. and 40% by a newly
formed subsidiary of COPI. The Company has no interest in AmeriCold Logistics.

         As of December 31, 2001, the Company held a 40% interest in the
Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly owns
the 89 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 445.2 million cubic feet (17.7 million square feet) of warehouse
space.

         AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, leases the Temperature-Controlled Logistics Properties
from the Temperature-Controlled Logistics Corporation under three triple-net
master leases, as amended on January 23, 2002. On February 22, 2001, the
Temperature-Controlled Logistics Corporation and AmeriCold Logistics agreed to
restructure certain financial terms of the leases, including the adjustment of
the rental obligation for 2001 to $146,000, the adjustment of the rental
obligation for 2002 to $150,000 (plus contingent rent in certain circumstances),
the increase of the Temperature-Controlled Logistics Corporation's share of
capital expenditures for the maintenance of the properties from $5,000 to $9,500
(effective January 1, 2000) and the extension of the date on which deferred rent
was required to be paid to December 31, 2003.

         In the first quarter of 2000, AmeriCold Logistics started to experience
a slowing in revenue growth from the previous year. This was primarily due to
customers focusing more interest on inventory management in an effort to improve
operating performance. Starting in 2000 and continuing into 2001, AmeriCold
Logistics has seen consolidation among retail and food service channels begin to
significantly limit the ability of manufacturers to pass along cost increases by
raising prices. Because of this, manufacturers are focused on supply chain cost
(such as inventory management, transportation and distribution) reduction
initiatives in an effort to improve operating performance. In the second and
third quarters of 2000, AmeriCold Logistics deferred a portion of its rent
payments in accordance with the terms of the leases of the
Temperature-Controlled Logistics Properties. For the three months ended June 30,
2000, the Temperature-Controlled Logistics Corporation recorded a valuation
allowance for a portion of the rent that had been deferred during that period,
and for the three months ended September 30, 2000 recorded a valuation allowance
for 100% of the rent that had been deferred during the three months ended
September 30, 2000 and has continued to record a valuation allowance for 100% of
the deferred rent prospectively. These valuation allowances resulted in a
decrease in the equity in net income of the Company in the
Temperature-Controlled Logistics Corporation. The Temperature-Controlled
Logistics Corporation had not recorded a valuation allowance with respect to
rent deferred by Americold Logistics prior to the quarter ended June 30, 2000,
because the financial condition of Americold Logistics prior to that time did
not indicate the inability of Americold Logistics ultimately to make the full
rental payments. As a result of continuing net losses and the increased amount
of deferred rent, the Temperature-Controlled Logistics Corporation determined
that the collection of additional deferred rent was doubtful.

         AmeriCold Logistics deferred $25,500 of rent for the year ended
December 31, 2001, of which the Company's share was $10,200. AmeriCold
Logistics also deferred $19,000 and $5,400 of rent for the years ended December
31, 2000 and 1999, respectively, of which the Company's share was $7,500 and
$2,100, respectively. In December 2001, the Temperature Controlled Logistics
Corporation waived its right to collect $39,800 of the total $49,900 of deferred
rent, of which the



                                       71
<PAGE>

Company's share was $15,900. The Temperature-Controlled Logistics Corporation
and the Company began to recognize rental income when earned and collected
during the year ended December 31, 2000 and continued this accounting treatment
for the year ended December 31, 2001; therefore, there was no financial
statement impact to the Temperature-Controlled Logistics Corporation or to the
Company related to the Temperature-Controlled Logistics Corporation's decision
to waive collection of deferred rent.

         The following table shows the total, and the Company's portion of the
total, deferred rent, valuation allowance and waived rent at December 31, 2001.

<Table>
<Caption>
                                           DEFERRED RENT            VALUATION ALLOWANCE             WAIVED RENT
                                      -----------------------     -----------------------     -----------------------
                                                    COMPANY'S                   COMPANY'S                   COMPANY'S
                                        TOTAL        PORTION        TOTAL        PORTION        TOTAL        PORTION
                                      ---------     ---------     ---------     ---------     ---------     ---------
<S>                                   <C>           <C>           <C>           <C>           <C>           <C>
For the year ended December 31,
1999                                  $   5,400     $   2,100     $      --     $      --     $      --     $      --
2000                                     19,000         7,500        16,300         6,500            --            --
2001                                     25,500        10,200        25,500        10,200        39,800        15,900
                                      ---------     ---------     ---------     ---------     ---------     ---------

Balance at December 31, 2001          $  49,900     $  19,800     $  41,800     $  16,700     $  39,800     $  15,900
                                      =========     =========     =========     =========     =========     =========
</Table>

OTHER

         During the year ended December 31, 2001, the Company recognized an
impairment loss of $5,000, which is included in Impairment and Other Charges
Related to Real Estate Assets, on a fund which primarily holds real estate
investments and marketable securities, in which the Company has an interest.

         During the year ended December 31, 2000, the Company recognized an
impairment loss of $8,525, which is included in Impairment and Other Charges
Related to Real Estate Assets, on a fund which primarily holds real estate
investments and marketable securities, in which the Company has an interest.



                                       72
<PAGE>

         The Company reports its share of income and losses based on its
ownership interest in its respective equity investments, adjusted for any
preference payments. The following summarized information for all unconsolidated
companies is presented below with significant subsidiaries identified under the
captions "Desert Mountain Development Corporation," "Crescent Resort
Development, Inc." and "The Woodlands Land Company, Inc.," and all other
unconsolidated Companies presented on an aggregate basis classified under the
captions "Other Residential Development Corporations," "Temperature-Controlled
Logistics," "Office" and "Other," as applicable, as of December 31, 2001, 2000
and 1999.

BALANCE SHEETS:

<Table>
<Caption>
                                                                     BALANCE AT DECEMBER 31, 2001
                                        -------------------------------------------------------------------------------------
                                         CRESCENT          THE         OTHER
                                          RESORT        WOODLANDS     RESIDENTIAL  TEMPERATURE-
                                        DEVELOPMENT,      LAND       DEVELOPMENT    CONTROLLED
                                            INC.      COMPANY, INC.  CORPORATIONS   LOGISTICS          OFFICE        OTHER
                                        ------------  -------------  ------------  ------------      ----------    ----------
<S>                                     <C>           <C>            <C>           <C>              <C>            <C>

Real estate, net                         $  393,784    $  365,636    $  173,991     $1,271,809       $  553,147
Cash                                         17,570         2,688         7,973         23,979           28,224
Other assets                                 31,749        32,244        94,392         83,424           31,654
                                         ----------    ----------    ----------     ----------       ----------
     Total assets                        $  443,103    $  400,568    $  276,356     $1,379,212       $  613,025
                                         ==========    ==========    ==========     ==========       ==========

Notes payable                            $       --    $  225,263    $       --     $  558,951       $  324,718
Notes payable to the Company                180,827            --        60,000          4,831               --
Other liabilities                           232,767        74,271       168,671         46,945           29,394
Equity                                       29,509       101,034        47,685        768,485          258,913
                                         ----------    ----------    ----------     ----------       ----------
      Total liabilities and equity       $  443,103    $  400,568    $  276,356     $1,379,212       $  613,025
                                         ==========    ==========    ==========     ==========       ==========

Company's share of unconsolidated
  debt(1)                                $       --    $   90,949    $       --     $  223,580       $  126,580
                                         ==========    ==========    ==========     ==========       ==========

Company's investments in real estate
  mortgages and equity of uncon-
  solidated companies                    $  222,082    $   29,046    $  120,407     $  308,427       $  121,423    $   36,932
                                         ==========    ==========    ==========     ==========       ==========    ==========
</Table>

SUMMARY STATEMENTS OF OPERATIONS:

<Table>
<Caption>
                                                                 FOR THE YEAR ENDED DECEMBER 31, 2001
                                        -------------------------------------------------------------------------------------
                                         CRESCENT          THE         OTHER
                                          RESORT        WOODLANDS     RESIDENTIAL  TEMPERATURE-
                                        DEVELOPMENT,      LAND       DEVELOPMENT    CONTROLLED
                                            INC.      COMPANY, INC.  CORPORATIONS   LOGISTICS         OFFICE(2)      OTHER
                                        ------------  -------------  ------------  ------------      ----------    ----------
<S>                                     <C>           <C>            <C>           <C>              <C>            <C>

Total revenues                           $  195,163    $  188,178    $   93,462     $  127,033       $   88,835
Expenses:
   Operating expense                        175,424       104,486        83,074         20,350(3)        37,128
   Interest expense                           1,373         4,967         1,641         44,988           19,184
   Depreciation and amortization              2,726         5,599         6,185         58,855           19,387
   Taxes                                        641        14,676        (4,222)            --               --
                                         ----------    ----------    ----------     ----------       ----------
Total expenses                              180,164       129,728        86,678        124,193           75,699
                                         ----------    ----------    ----------     ----------       ----------

Net income                               $   14,999    $   58,450    $    6,784     $    2,840(3)    $   13,136
                                         ==========    ==========    ==========     ==========       ==========

Company's equity in net income
  of unconsolidated companies            $   14,944    $   20,943    $    5,127     $    1,136       $    6,124    $    2,957
                                         ==========    ==========    ==========     ==========       ==========    ==========
</Table>

----------

(1)      The Company has guarantees or letters of credit related to
         approximately $89,300, or 17% of its maximum borrowings available under
         its unconsolidated debt. At December 31, 2001, the Company had
         guarantees or letters of credit related to approximately $17,000, or 4%
         of its total outstanding unconsolidated debt.

(2)      This column includes information for Four Westlake Park and Bank One
         Tower. These Office Properties were contributed by the Company to joint
         ventures on July 30, 2001. Therefore, net income for 2001 includes only
         the months of August through December for these Properties.

(3)      Inclusive of the preferred return paid to Vornado Realty Trust (1% per
         annum of the Total Combined Assets).



                                       73
<PAGE>

BALANCE SHEETS:

<Table>
<Caption>
                                                         BALANCE AT DECEMBER 31, 2000
                                          -----------------------------------------------------------
                                            DESERT         CRESCENT          THE           OTHER
                                           MOUNTAIN         RESORT        WOODLANDS      RESIDENTIAL
                                          DEVELOPMENT     DEVELOPMENT,       LAND        DEVELOPMENT
                                          CORPORATION         INC.       COMPANY, INC.   CORPORATIONS
                                          -----------     ------------   -------------   ------------
<S>                                       <C>             <C>            <C>             <C>

Real estate, net                          $   147,484     $   232,920     $   406,660    $    16,739
Cash                                            5,733          37,148          10,739          6,450
Other assets                                   70,503          81,679          37,930          4,662
                                          -----------     -----------     -----------    -----------
     Total assets                             223,720     $   351,747     $   455,329    $    27,851
                                          ===========     ===========     ===========    ===========

Notes payable                             $        --     $        --     $   255,356    $        --
Notes payable to the Company                   59,000         130,727              --             --
Other liabilities                             130,834         183,013          96,533          2,774
Equity                                         33,886          38,007         103,440         25,077
                                          -----------     -----------     -----------    -----------
      Total liabilities and equity        $   223,720     $   351,747     $   455,329    $    27,851
                                          ===========     ===========     ===========    ===========

Company's share of unconsolidated
  debt                                    $        --     $        --     $   103,100    $        --
                                          ===========     ===========     ===========    ===========

Company's investments in real estate
  mortgages and equity of uncon-
  solidated companies                     $   109,092     $   150,118     $    24,525    $    21,452
                                          ===========     ===========     ===========    ===========

<Caption>
                                                  BALANCE AT DECEMBER 31, 2000
                                          ----------------------------------------------

                                          TEMPERATURE-
                                          CONTROLLED
                                           LOGISTICS           OFFICE          OTHER
                                          ------------       -----------     -----------
<S>                                       <C>                <C>             <C>

Real estate, net                          $ 1,303,810        $   394,724
Cash                                           19,606             34,599
Other assets                                   82,883             34,897
                                          -----------        -----------
     Total assets                         $ 1,406,299        $   464,220
                                          ===========        ===========

Notes payable                             $   581,807        $   251,785
Notes payable to the Company                   11,333                 --
Other liabilities                              57,556             46,054
Equity                                        755,603            166,381
                                          -----------        -----------
      Total liabilities and equity        $ 1,406,299        $   464,220
                                          ===========        ===========

Company's share of unconsolidated
  debt                                    $   232,723        $   118,485
                                          ===========        ===========

Company's investments in real estate
  mortgages and equity of uncon-
  solidated companies                     $   308,035        $    98,308     $   133,787
                                          ===========        ===========     ===========
</Table>

SUMMARY STATEMENTS OF OPERATIONS:

<Table>
<Caption>
                                                      FOR THE YEAR ENDED DECEMBER 31, 2000
                                          -----------------------------------------------------------
                                            DESERT         CRESCENT          THE           OTHER
                                           MOUNTAIN         RESORT        WOODLANDS      RESIDENTIAL
                                          DEVELOPMENT     DEVELOPMENT,       LAND        DEVELOPMENT
                                          CORPORATION         INC.       COMPANY, INC.   CORPORATIONS
                                          -----------     ------------   -------------   ------------
<S>                                       <C>             <C>            <C>             <C>

Total revenues                            $   153,680     $   180,038     $   180,670    $    30,404
Expenses:
   Operating expense                          127,589         158,860         105,231         10,897
   Interest expense                               916           3,157           2,986            164
   Depreciation and amortization                4,966           6,430           4,479            436
   Taxes                                        3,812             979          27,188          1,235
   Other (income) expense                          --              --              --             --
                                          -----------     -----------     -----------    -----------
Total expenses                            $   137,283     $   169,426     $   139,884    $    12,732
                                          -----------     -----------     -----------    -----------

Net income                                $    16,397     $    10,612     $    40,786    $    17,672
                                          ===========     ===========     ===========    ===========

Company's equity in net income
  of unconsolidated companies             $    16,109     $    10,407     $    16,466    $    10,488
                                          ===========     ===========     ===========    ===========

<Caption>
                                               FOR THE YEAR ENDED DECEMBER 31, 2000
                                          ----------------------------------------------

                                          TEMPERATURE-
                                          CONTROLLED
                                           LOGISTICS           OFFICE          OTHER
                                          ------------       -----------     -----------
<S>                                       <C>                <C>             <C>

Total revenues                            $   154,341        $    89,841
Expenses:
   Operating expense                           21,982(1)          34,261
   Interest expense                            46,637             25,359
   Depreciation and amortization               57,848             20,673
   Taxes                                        7,311                 --
   Other (income) expense                      (2,886)                --
                                          -----------        -----------
Total expenses                            $   130,892        $    80,293
                                          -----------        -----------

Net income                                $    23,449(1)     $     9,548
                                          ===========        ===========

Company's equity in net income
  of unconsolidated companies             $     7,432        $     3,164     $    11,645
                                          ===========        ===========     ===========
</Table>

----------

(1)      Inclusive of the preferred return paid to Vornado Realty Trust (1% per
         annum of the Total Combined Assets).



                                       74
<PAGE>

SUMMARY STATEMENTS OF OPERATIONS:

<Table>
<Caption>
                                                                   FOR THE YEAR ENDED DECEMBER 31, 1999
                                   -------------------------------------------------------------------------------------------------
                                     DESERT         CRESCENT       THE            OTHER
                                    MOUNTAIN         RESORT      WOODLANDS     RESIDENTIAL   TEMPERATURE-
                                   DEVELOPMENT    DEVELOPMENT,     LAND        DEVELOPMENT   CONTROLLED
                                   CORPORATION        INC.      COMPANY, INC.  CORPORATIONS    LOGISTICS        OFFICE       OTHER
                                   -----------    ------------  ------------   ------------  ------------     ----------   ---------
<S>                                <C>            <C>           <C>            <C>           <C>              <C>          <C>

Total revenues                      $  192,094     $  134,411    $  134,781    $   41,297     $  264,266      $   78,534
Expenses:
   Operating expense                   167,848        116,717        80,357        22,022        127,516(1)       27,008
   Interest expense                     10,582          2,709         2,174            37         47,273          19,321
   Depreciation and amortization         6,435          3,131         4,386           343         54,574          19,273
   Taxes                                (2,668)         1,963        19,146         1,440         (6,084)             --
                                    ----------     ----------    ----------    ----------     ----------      ----------
Total expenses                      $  182,197     $  124,520    $  106,063    $   23,842     $  223,279      $   65,602
                                    ----------     ----------    ----------    ----------     ----------      ----------

Net income                          $    9,897     $    9,891    $   28,718    $   17,455     $   40,987(1)   $   12,932
                                    ==========     ==========    ==========    ==========     ==========      ==========

Company's equity in net income
  of unconsolidated companies       $   10,097     $    9,561    $   15,548    $    7,665     $   15,039      $    5,265   $   5,122
                                    ==========     ==========    ==========    ==========     ==========      ==========   =========
</Table>

----------

(1)      Inclusive of the preferred return paid to Vornado Realty Trust (1% per
         annum of the Total Combined Assets).

5. OTHER ASSETS, NET:

<Table>
<Caption>
                                                     BALANCE AT DECEMBER 31,
                                                 ------------------------------
                                                     2001              2000
                                                 ------------      ------------
<S>                                              <C>               <C>

         Leasing costs                           $    142,440      $    123,036
         Deferred financing costs                      46,305            48,645
         Prepaid expenses                               9,444             3,690
         Marketable securities                         10,832            50,321
         Other                                         33,272            23,927
                                                 ------------      ------------
                                                 $    242,293      $    249,619
         Less - Accumulated amortization              (97,281)          (77,644)
                                                 ------------      ------------
                                                 $    145,012      $    171,975
                                                 ============      ============
</Table>



                                       75

<PAGE>
6.    NOTES PAYABLE AND BORROWINGS UNDER FLEET FACILITY:

         The following is a summary of the Company's debt financing at December
31, 2001 and 2000:

<Table>
<Caption>
                                                                                     BALANCE AT DECEMBER 31,
                                                                                     -----------------------
                                                                                        2001         2000
                                                                                     ---------     ---------
<S>                                                                                  <C>           <C>
SECURED DEBT

UBS Term Loan II,(1) secured by the Funding VIII Properties and the Washington
Harbour Office Properties .......................................................     $     --     $326,677

Fleet Fund I and II Term Loan(2)(5) due May 2005, bears interest at LIBOR plus
325 basis points (at December 31, 2001, the interest rate was 5.39%), with a
four-year interest-only term, secured by equity interests in Funding I and II
with a combined book value of $275,000 at December 31, 2001 .....................      275,000      200,000

AEGON Note(3) due July 2009, bears interest at 7.53% with monthly principal
and interest payments based on a 25-year amortization schedule, secured by the
Funding III, IV and V Properties with a combined book value of $263,456 at
December 31, 2001 ...............................................................      269,930      274,320

LaSalle Note I(4) 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,
secured by the Funding I Properties with a combined book value of $262,672 at
December 31, 2001 ...............................................................      239,000      239,000

Deutsche Bank-CMBS Loan due May 2004, bears interest at the 30-day LIBOR rate
plus 234 basis points (at December 31, 2001, the interest rate was 5.84%),
with a three-year interest-only term and two one-year extension options,
secured by the Funding X Properties and Spectrum Center with a combined book
value of $304,699 ...............................................................      220,000           --

JP Morgan Mortgage Note(6) due October 2016, bears interest at a fixed rate of
8.31% with a two-year interest-only term (through October 2001), followed by
principal amortization based on a 15-year amortization schedule through
maturity in October 2016, secured by the Houston Center mixed-use Office
Property complex with a combined book value of $268,978 at December 31, 2001 ....      199,386      200,000

LaSalle Note II(7) 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,
secured by the Funding II Properties with a combined book value of $308,145
at December 31, 2001 ............................................................      161,000      161,000

UBS Term Loan I,(1) secured by the Funding VIII Properties and the Washington
Harbour Office Properties .......................................................           --      146,775

iStar Financial Note due September 2001, bears interest at 30-day LIBOR plus
1.75% (at December 31, 2000, the rate was 8.57%) with an interest-only term,
secured by the Fountain Place Office Property with a book value of $112,332 at
December 31, 2000 ...............................................................           --       97,123

UBS Line of Credit,(1) secured by the Funding VIII Properties and the
Washington Harbour Properties ...................................................           --       80,000

CIGNA Note due December 2002, bears interest at 7.47% with an interest-only
term, secured by the MCI Tower Office Property and Denver Marriott City Center
Resort/Hotel Property with a combined book value of $103,773 at December 31,
2001 ............................................................................       63,500       63,500
</Table>


                                       76
<PAGE>

<Table>
<Caption>
                                                                                      BALANCE AT DECEMBER 31,
                                                                                     -------------------------
                                                                                        2001          2000
                                                                                     ----------     ----------
<S>                                                                                  <C>            <C>
SECURED DEBT - CONTINUED

Metropolitan Life Note V due December 2005, bears interest at 8.49% with
monthly principal and interest payments based on a 25-year amortization
schedule, secured by the Datran Center Office Properties with a combined
book value of $68,653 at December 31, 2001 .....................................     $   38,696     $   39,219

Northwestern Life Note due January 2004, bears interest at 7.66% with an
interest-only term, secured by the 301 Congress Avenue Office Property with
a book value of $36,234 at December 31, 2001 ...................................         26,000         26,000

Metropolitan Life Note I due September 2001, bears interest at 8.88% with
monthly principal and interest payments based on a 20-year amortization
schedule, secured by five of The Woodlands Office Properties with a combined
book value of $12,464 at December 31, 2000 .....................................             --          9,263

Nomura Funding VI Note(8) bears interest at 10.07% with monthly principal
and interest payments based on a 25-year amortization schedule through
maturity in July 2020, secured by the Funding VI Property with a book value
of $35,043 at December 31, 2001 ................................................          8,187          8,330

Woodmen of the World Note (9) due April 2009, bears interest at 8.20% with
an initial five-year interest-only term (through April 2006), followed by
principal amortization based on a 25-year amortization schedule, secured by
the Avallon IV Office Property with a book value of $12,858 ....................          8,500             --

Mitchell Mortgage Note(10) due August 2002, bears interest at 7.00% with an
interest-only term, secured by three of The Woodlands Office Properties with
a combined book value of $9,167 ................................................          6,244             --

Rigney Promissory Note due November 2012, bears interest at 8.50% with
quarterly principal and interest payments based on a 15-year amortization
schedule, secured by a parcel of land with a book value of $17,123 at
December 31, 2001 ..............................................................            651            688

UNSECURED DEBT
Fleet Facility(2) due May 2004, bears interest at LIBOR plus 187.5 basis
points (at December 31, 2001, the interest rate was 3.92%), with a
three-year interest-only term and a one year extension option ..................        283,000             --

2007 Notes(11) bear interest at a fixed rate of 7.50% with a ten-year
interest-only term, due September 2007 .........................................        250,000        250,000

2002 Notes(11) bear interest at a fixed rate of 7.00% with a five-year
interest-only term, due September 2002 .........................................        150,000        150,000

SHORT-TERM BORROWINGS
Short-term borrowings (12); variable interest rates ranging from the Fed
Funds rate plus 150 basis points to LIBOR plus 375 basis points, with
maturities up to August 2002 ...................................................         15,000             --
                                                                                     ----------     ----------

     Total Notes Payable .......................................................     $2,214,094     $2,271,895
                                                                                     ==========     ==========
</Table>

----------

(1)      The UBS Facility was entered into effective January 31, 2000 and
         amended on May 10, 2000 and May 18, 2000. As amended, the UBS Facility
         consisted of three tranches: the UBS Line of Credit, the UBS Term Loan
         I and the UBS Term Loan II. In May 2001, the Company repaid and retired
         the UBS Facility with proceeds from a $970,000 debt refinancing. The
         interest rate on the UBS Line of Credit and the UBS Term Loan I was
         equal to LIBOR plus 250 basis points. The interest rate on the UBS Term
         Loan II was equal to LIBOR plus 275 basis points. As of December 31,
         2000, the interest rate on the UBS Line of Credit and UBS Term Loan I
         was 9.20%, and the interest rate on the UBS Term Loan II was 9.46%. The
         weighted average interest rate on the UBS Line of Credit for the year
         ended December 31, 2000 was 8.91%. As of December 31, 2000, the UBS
         Facility was secured by 25 Office Properties and four Resort/Hotel
         Properties with a combined book value of $1,042,207.

(2)      For a description of the Fleet Fund I and II Term Loan and the Fleet
         Facility, see "Debt Refinancing and Fleet Facility" section below.

(3)      The outstanding principal balance of this note at maturity will be
         approximately $224,100.

(4)      In August 2007, the interest rate will increase, 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 $220,500.

(5)      The Fleet Fund I and II Term Loan, entered into in May 2001, modified
         and replaced the previously outstanding Fleet Term Note II. Prior to
         the modification and replacement, the Fleet Term Note II was due August
         31, 2003, bore interest at the 30-Day LIBOR rate plus 234 basis points
         (at December 31, 2000, the interest rate was 10.63%) with a four-year
         interest-only term, secured by equity interests in Funding I and II
         with a combined value of $200,000 at December 31, 2000.

(6)      At the end of seven years (October 2006), the interest rate will adjust
         based on current interest rates at that time. It is the Company's
         intention to repay the note in full at such time (October 2006) by
         making a final payment of approximately $177,800.

(7)      In March 2006, the interest rate will increase, 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 $154,100.


                                       77
<PAGE>


(8)      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 at that date.

(9)      The outstanding principal balance of this loan at maturity will be
         approximately $8,200.

(10)     In August 2002, the Mitchell Mortgage Note was extended through
         September 2003.

(11)     The notes were issued in an offering registered with the SEC.

(12)     Short-term borrowings include the unsecured JP Morgan Loan Sales
         Facility, a $50,000 credit facility, and the $50,000 unsecured Fleet
         Bridge Loan. The lender under the JP Morgan Loan is not required to
         fund draws under the loan unless certain conditions not within the
         control of the Company are met. As a result, the Company maintains
         sufficient availability under the Fleet Facility to repay the JP Morgan
         Loan Sales Facility at any time. At December 31, 2001, $10,000 was
         outstanding on the JP Morgan Loan Sales Facility and $5,000 was
         outstanding on the Fleet Bridge Loan.

         Below are the aggregate principal payments required as of December 31,
2001 under indebtedness of the Company by year. Scheduled principal installments
and amounts due at maturity are included.

<Table>
<Caption>
                              SECURED          UNSECURED            TOTAL
                            -----------        ---------         -----------
<S>                         <C>                <C>               <C>
2002                           $ 80,157        $ 165,000         $   245,157
2003                             15,060               --              15,060
2004                            262,857(1)       283,000(1)          545,857
2005                            329,339               --             329,339
2006                            347,207               --             347,207
Thereafter                      481,474          250,000             731,474
                            -----------        ---------         -----------
                            $ 1,516,094        $ 698,000         $ 2,214,094
                            ===========        =========         ===========
</Table>

----------

(1)      These amounts do not represent the effect of a one-year extension
         option on the Fleet Facility and two one-year extension options on the
         Deutsche Bank - CMBS Loan.

         The Company has approximately $245,157 of secured and unsecured debt
payments due during 2002, consisting primarily of the Cigna Note, the Mitchell
Mortgage Note and the 2002 Notes which are expected to be funded through
replacement debt financing.

         Any uncured or unwaived events of default on the Company's loans can
trigger an acceleration of payment on the loan in default. In addition, a
default by the Company or any of its subsidiaries with respect to any
indebtedness in excess of $5,000 generally will result in a default under the
Fleet Facility and the Fleet I and II Term Loan after the notice and cure
periods for the other indebtedness have passed. As of December 31, 2001, the
Company was in compliance with all of its debt service coverage ratios and other
covenants related to its outstanding debt. The Company's debt facilities
generally prohibit loan pre-payment for an initial period, allow pre-payment
with a penalty during a following specified period and allow pre-payment without
penalty after the expiration of that period. During the year ended December 31,
2001, there were no circumstances that would require pre-payment penalties or
increased collateral related to the Company's existing debt.

         In addition to the subsidiaries listed in "Note 1. Organization and
Basis of Presentation," certain other subsidiaries of the Company were formed
primarily for the purpose of obtaining secured and unsecured debt or joint
venture financings. The following lists these entities, all of which are
consolidated and are grouped based on the Properties to which they relate:
Funding I and Funding II Properties (CREM Holdings, LLC, Crescent Capital
Funding, LLC, Crescent Funding Interest, LLC, CRE Management I Corp., CRE
Management II Corp.); Funding III Properties (CRE Management III Corp.); Funding
IV Properties (CRE Management IV Corp.); Funding V Properties (CRE Management V
Corp.); Funding VI Properties (CRE Management VI Corp.); Funding VIII Properties
(CRE Management VIII, LLC); Funding IX Properties (CRE Management IX, LLC);
Funding X Properties (CREF X Holdings Management, LLC, CREF X Holdings, L. P.,
CRE Management X, LLC); Spectrum Center Partners, L.P., Spectrum Mortgage
Associates, L. P., CSC Holdings Management, LLC, Crescent SC Holdings, L. P.,
CSC Management, LLC); and 5 Houston Center (Development Property) (C5HC
Management, LLC, Crescent 5 Houston Center, L. P.).


                                       78
<PAGE>

DEBT REFINANCING AND FLEET FACILITY

         In May 2001, the Company (i) repaid and retired the UBS Facility which
consisted of the UBS Line of Credit, the UBS Term Loan I and the UBS Term Loan
II; (ii) repaid and retired the iStar Financial Note; and (iii) modified and
replaced the Fleet Term Note II with proceeds from a $970,000 debt refinancing.
In May 2001, the Company wrote off $10,800 of deferred financing costs related
to the early extinguishment of the UBS Facility which is included in
Extraordinary Item - Extinguishment of Debt.

New Debt Resulting from Refinancing

<Table>
<Caption>
                                          MAXIMUM              INTEREST                    MATURITY
         DESCRIPTION                     BORROWING               RATE                        DATE
-----------------------------            ---------     --------------------------          --------
<S>                                      <C>           <C>                                 <C>
Fleet Facility                            $400,000(1)  LIBOR + 187.5 basis points           2004(2)
Fleet Fund I and II Term Loan             $275,000     LIBOR + 325 basis points             2005
Deutsche Bank - CMBS Loan                 $220,000     LIBOR + 234 basis points             2004(3)
Deutsche Bank Short-Term Loan             $ 75,000     LIBOR + 300 basis points             2001(4)
</Table>

----------

(1)      The $400,000 Fleet Facility is an unsecured revolving line of credit.
         The weighted average interest rate from the origination of the note in
         May 2001 through December 31, 2001 is 5.38%.

(2)      One-year extension option.

(3)      Two one-year extension options.

(4)      Repaid September 19, 2001.

Debt Repaid or Modified and Replaced by Refinancing

<Table>
<Caption>
                                           MAXIMUM               INTEREST             MATURITY          BALANCE
     DESCRIPTION                          BORROWING                RATE                 DATE        REPAID/MODIFIED(1)
---------------------                     ---------      ------------------------     --------      ------------------
<S>                                       <C>            <C>                          <C>           <C>
UBS Line of Credit                        $ 300,000      LIBOR + 250 basis points        2003           $ 165,000
UBS Term Loan I                           $ 146,775      LIBOR + 250 basis points        2003           $ 146,775
UBS Term Loan II                          $ 326,677      LIBOR + 275 basis points        2004           $ 326,677
Fleet Term Note II                        $ 200,000      LIBOR + 400 basis points        2003           $ 200,000
iStar Financial Note                      $  97,123      LIBOR + 175 basis points        2001           $  97,123
</Table>

----------

(1)      All the amounts listed, other than the Fleet Term Note II, were repaid.
         In May 2001, the Fleet Term Note II was modified and replaced by the
         Fleet Fund I and II Term Loan.

7.       INTEREST RATE CAPS:

         In connection with the closing of the Deutsche Bank - CMBS Loan in May
2001, the Company entered into a LIBOR interest rate cap struck at 7.16% for a
notional amount of $220,000, and simultaneously sold a LIBOR interest rate cap
with the same terms. Since these instruments do not reduce the Company's net
interest rate risk exposure, they do not qualify as hedges and changes to their
respective fair values are charged to earnings. As the significant terms of
these arrangements are substantially the same, the effects of a revaluation of
these instruments are expected to substantially offset each other.


                                       79
<PAGE>

8.    CASH FLOW HEDGES:

         The Company uses derivative financial instruments to convert a portion
of its variable-rate debt to fixed-rate debt and to manage its fixed to
variable-rate debt ratio. As of December 31, 2001, the Company had entered into
three cash flow hedge agreements which are accounted for under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB Statement No. 133."

         The following table shows information regarding the Company's cash flow
hedge agreements as of December 31, 2001, and interest expense for the year
ended December 31, 2001:

<Table>
<Caption>
                                                                                       ADDITIONAL
                                                                                    INTEREST EXPENSE
  ISSUE            NOTIONAL       MATURITY   REFERENCE              FAIR              FOR THE YEAR
  DATE              AMOUNT          DATE       RATE            MARKET VALUE      ENDED DECEMBER 31, 2001
---------         ---------      ---------   ---------         ------------      -----------------------
<S>               <C>            <C>         <C>               <C>               <C>
 9/1/1999         $ 200,000       9/2/2003     6.183%           $ (10,800)               $ 3,500
 2/4/2000         $ 200,000       2/3/2003      7.11%           $ (10,800)               $ 6,000
4/18/2000         $ 100,000      4/18/2004      6.76%           $  (7,200)               $ 2,700
</Table>

         The Company has designated its three cash flow hedge agreements as cash
flow hedges of LIBOR-based monthly interest payments on a designated pool of
variable-rate LIBOR indexed debt that reprices closest to the reset dates of
each cash flow hedge agreement. For retrospective effectiveness testing, the
Company uses the cumulative dollar offset approach as described in Derivatives
Implementation Group ("DIG") Issue E8. The DIG is a task force designed to
assist the FASB in answering questions that companies have resulting from
implementation of SFAS No. 133 and 138. The Company uses the change in variable
cash flows method as described in DIG Issue G7 for prospective testing as well
as for the actual recording of ineffectiveness, if any. Under this method, the
Company will compare the changes in the floating rate portion of each cash flow
hedge to the floating rate of the hedged items. The cash flow hedges have been
and are expected to remain highly effective. Changes in the fair value of these
highly effective hedging instruments are recorded in accumulated other
comprehensive income. The effective portion that has been deferred in
accumulated other comprehensive income will be reclassified to earnings as
interest expense when the hedged items impact earnings. If a cash flow hedge
falls outside 80%-125% effectiveness for a quarter, all changes in the fair
value of the cash flow hedge for the quarter will be recognized in earnings
during the current period. If it is determined based on prospective testing that
it is no longer likely a hedge will be highly effective on a prospective basis,
the hedge will no longer be designated as a cash flow hedge and no longer
qualify for accounting in accordance with SFAS Nos. 133 and 138.

         Over the next twelve months, an estimated $16,400 to $18,400 will be
reclassified from accumulated other comprehensive income to interest expense and
charged against earnings related to the effective portions of the cash flow
hedge agreements.

9.    RENTALS UNDER OPERATING LEASES:

         During 2001, the Company received rental income from the lessees of
Office Property and Resort/Hotel Property space under operating leases. On
February 14, 2002, the Company executed an agreement with COPI, pursuant to
which the Company acquired, in lieu of foreclosure, COPI's lessee interests in
the eight Resort/Hotel Properties previously leased to COPI. Therefore, no
future rental income from the operating lessee will be recognized for these
Resort/Hotel Properties. The Company recognized percentage rental income from
the Resort/Hotel Properties of approximately $14,665, $24,622 and $19,648 for
the years ended December 31, 2001, 2000 and 1999, respectively.


                                       80
<PAGE>

         For noncancelable operating leases for consolidated Office Properties
owned as of December 31, 2001, future minimum rentals (base rents) during the
next five years and thereafter (excluding tenant reimbursements of operating
expenses for Office Properties) are as follows:

<Table>
<Caption>
                        OFFICE
                      PROPERTIES
                     -----------
<S>                  <C>
2002                 $   410,459
2003                     350,022
2004                     268,891
2005                     213,334
2006                     165,175
Thereafter               482,383
                     -----------
                     $ 1,890,264
                     ===========
</Table>

         Generally, the Office Property leases also require that each customer
reimburse the Company for increases in operating expenses above operating
expenses during the base year of the customer's lease. These amounts totaled
$98,816, $91,735 and $92,865, for the years ended December 31, 2001, 2000 and
1999, respectively. These increases are generally payable in equal installments
throughout the year, based on estimated increases, with any differences adjusted
at year end based upon actual expenses.

         See "Note 2. Summary of Significant Accounting Policies," for further
discussion of revenue recognition, and "Note 3. Segment Reporting," for further
discussion of significant tenants.

10.  COMMITMENTS AND CONTINGENCIES:

LEASE COMMITMENTS

         The Company has 12 Properties located on land that is subject to
long-term ground leases, which expire between 2015 and 2080. The Company also
leases parking spaces in a parking garage adjacent to one of its Properties
pursuant to a lease expiring in 2021. Lease expense associated with these leases
during each of the three years ended December 31, 2001, 2000, and 1999 was
$2,766, $2,869 and $2,642, respectively. Future minimum lease payments due under
such leases as of December 31, 2001, are as follows:

<Table>
<Caption>
                             LEASES
                          COMMITMENTS
                          -----------
<S>                       <C>
2002                       $   2,121
2003                           2,129
2004                           2,136
2005                           2,143
2006                           2,155
Thereafter                   107,219
                           ---------
                           $ 117,903
                           =========
</Table>

COPI COMMITMENTS

         See "Note 22. Subsequent Events," for a description of the Company's
commitments related to the agreement with COPI, executed on February 14, 2002.

CONTINGENCIES

Environmental Matters

         All of the Properties have been subjected to Phase I environmental
assessments, and some Properties have been subjected to Phase II soil and ground
water sampling as part of the Phase I assessments. Such assessments have not
revealed, nor is management aware of, any environmental liabilities that
management believes would have a material adverse effect on the financial
position or results of operations of the Company.


                                       81
<PAGE>

11.   STOCK AND UNIT BASED COMPENSATION:

STOCK OPTION PLANS

         Crescent Equities has two stock incentive plans, the 1995 Stock
Incentive Plan (the "1995 Plan") and the 1994 Stock Incentive Plan (the "1994
Plan"). Due to the approval of the 1995 Plan, additional options and restricted
shares will no longer be granted under the 1994 Plan. Under the 1994 Plan,
Crescent Equities had granted, net of forfeitures, 2,509,800 options and no
restricted shares. The maximum number of options and/or restricted shares that
Crescent Equities was able to initially grant at inception under the 1995 Plan
was 2,850,000 shares. The maximum aggregate number of shares available for grant
under the 1995 Plan increases automatically on January 1 of each year by an
amount equal to 8.5% of the increase in the number of common shares and units
outstanding since January 1 of the preceding year, subject to certain adjustment
provisions. As of January 1, 2001, the number of shares Crescent Equities may
grant under the 1995 Plan is 9,677,794. Under the 1995 Plan, Crescent Equities
had granted, net of forfeitures, options and restricted shares of 8,546,700 and
23,715 respectively, through December 31, 2001. Under both Plans, options are
granted at a price not less than the market value of the shares on the date of
grant and expire ten years from the date of grant. The options that have been
granted under the 1995 Plan vest over five years, with the exception of 500,000
options that vest over two years, 250,000 options that vest over three and a
half years and 60,000 options that vest six months from the initial date of
grant. The options that have been granted under the 1994 Plan vest over periods
ranging from one to five years.

                               STOCK OPTIONS PLANS

         A summary of the status of Crescent Equities' 1994 and 1995 Plans as of
December 31, 2001, 2000 and 1999 and changes during the years then ended is
presented in the table below:

<Table>
<Caption>
                                                       2001                      2000                       1999
                                            -------------------------  -------------------------   -----------------------
                                            OPTIONS TO      WTD. AVG.  OPTIONS TO      WTD. AVG.   OPTIONS TO    WTD. AVG.
                                             ACQUIRE        EXERCISE     ACQUIRE       EXERCISE     ACQUIRE       EXERCISE
                                              SHARES          PRICE      SHARES          PRICE       SHARES        PRICE
                                            ----------      ---------  ----------      ---------   ----------    ---------
<S>                                         <C>             <C>        <C>             <C>         <C>           <C>
Outstanding as of January 1,                    7,966        $   21        6,661        $   21        6,967        $   21
Granted                                           559            22        1,665            20        3,489            16
Exercised                                        (747)           17         (209)           15       (2,900)           13
Forfeited                                        (803)           20         (151)           20         (895)           30
Expired                                            --            --           --            --           --            --
                                               ------        ------       ------        ------       ------        ------
Outstanding/Wtd. Avg. as of December 31,        6,975        $   21        7,966        $   21        6,661        $   21
                                               ------        ------       ------        ------       ------        ------
Exercisable/Wtd. Avg. as of December 31,        3,127        $   24        2,630        $   23        1,721        $   24
</Table>

         The following table summarizes information about the options
outstanding and exercisable at December 31, 2001:

<Table>
<Caption>
                                        OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                          -----------------------------------------------    ----------------------------
                                          WTD. AVG. YEARS
                            NUMBER           REMAINING                         NUMBER
   RANGE OF               OUTSTANDING          BEFORE         WTD. AVG.      EXERCISABLE      WTD. AVG.
EXERCISE PRICES           AT 12/31/01        EXPIRATION    EXERCISE PRICE     AT 12/31/01  EXERCISE PRICE
---------------           -------------   ---------------  --------------    ------------  --------------
<S>                       <C>             <C>              <C>               <C>           <C>
$11 to 19                    3,258          7.4 years          $ 16            1,252          $ 16
$19 to 27                    2,221          8.3                  22              599            22
$27 to 39                    1,496          6.1                  32            1,276            32
                             -----          ---------          ----            -----          ----
$11 to 39                    6,975          7.4 years          $ 21            3,127          $ 24
                             =====          =========          ====            =====          ====
</Table>


                                       82
<PAGE>

UNIT PLANS

         The Operating Partnership has two unit incentive plans, the 1995 Unit
Incentive Plan (the "1995 Unit Plan") and the 1996 Unit Incentive Plan (the
"1996 Unit Plan"). The 1995 Unit Plan is designed to reward persons who are not
trust managers, officers or 10% shareholders of the Company. An aggregate of
100,000 common shares are reserved for issuance upon the exchange of 50,000
units available for issuance to employees and advisors under the 1995 Unit Plan.
As of December 31, 2001, an aggregate of 7,012 units had been distributed under
the 1995 Unit Plan. The 1995 Unit Plan does not provide for the grant of
options. There was no activity in the 1995 Unit Plan in 2001, 2000 or 1999. The
1996 Unit Plan provides for the grant of options to acquire up to 2,000,000
units. Through December 31, 2001, the Operating Partnership had granted, net of
forfeitures, options to acquire 1,778,571 units. Forfeited options are available
for grant. The unit options granted under the 1996 Unit Plan were priced at fair
market value on the date of grant, generally vest over seven years, and expire
ten years from the date of grant. Pursuant to the terms of the unit options
granted under the 1996 Unit Plan, because the fair market value of the Company's
common shares equaled or exceeded $25 for each of ten consecutive trading days,
the vesting of an aggregate of 500,000 units was accelerated and such units
became immediately exercisable in 1996. In addition, 100,000 unit options vest
50% after three years and 50% after five years. Under the 1996 Unit Plan, each
unit that may be purchased is exchangeable, as a result of shareholder approval
in June 1997, for two common shares or, at the option of the Company, an
equivalent amount of cash.

         A summary of the status of the Company's 1996 Unit Plan as of December
31, 2001, 2000 and 1999, and changes during the years then ended is presented in
the table below (assumes each unit is exchanged for two common shares):

                         1996 UNIT INCENTIVE OPTION PLAN

<Table>
<Caption>
                                                     2001                          2000                           1999
                                          ----------------------------  ---------------------------   ----------------------------
                                             SHARES       WTD. AVG.        SHARES       WTD. AVG.        SHARES       WTD. AVG.
                                           UNDERLYING   EXERCISE PRICE   UNDERLYING  EXERCISE PRICE    UNDERLYING   EXERCISE PRICE
                                          UNIT OPTIONS    PER SHARE     UNIT OPTIONS    PER SHARE     UNIT OPTIONS    PER SHARE
                                          ------------  --------------  ------------ --------------   ------------  --------------
<S>                                       <C>           <C>             <C>          <C>              <C>           <C>
Outstanding as of January 1,                   2,414        $   17          2,414         $   17          4,000         $   18
Granted                                           --            --             --             --            200             16
Exercised                                        (20)           18             --             --         (1,143)            18
Forfeited                                         --            --             --             --           (643)            18
Expired                                           --            --             --             --             --             --
                                              ------        ------         ------         ------         ------         ------
Outstanding/Wtd. Avg. as of December 31,       2,394        $   17          2,414         $   17          2,414         $   17
                                              ------        ------         ------         ------         ------         ------
Exercisable/Wtd. Avg. as of December 31,       1,766        $   18          1,571         $   18          1,143         $   18
</Table>

       Effective March 5, 2001, the Operating Partnership granted options to
acquire 150,000 Units to Dennis H. Alberts, in connection with his employment as
the Chief Operating Officer of the General Partner and the Company. The 300,000
common share equivalents were priced at $21.84 per share, which equals the fair
market value of the Company's common shares at the date of grant.

STOCK OPTION AND UNIT PLANS

       The Company applies APB No. 25 in accounting for options granted pursuant
to the 1995 Plan, the 1994 Plan and the 1996 Unit Plan (collectively, the
"Plans"). Accordingly, no compensation cost has been recognized for the Plans.
Had compensation cost for the Plans been determined based on the fair value at
the grant dates for awards under the Plans, consistent with SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:


                                       83
<PAGE>

<Table>
<Caption>
                                                                 FOR THE YEAR ENDED DECEMBER 31,
                                     -----------------------------------------------------------------------------------------
                                                 2001                           2000                          1999
                                     ---------------------------     --------------------------    ---------------------------
                                     AS REPORTED      PRO FORMA      AS REPORTED     PRO FORMA     AS REPORTED      PRO FORMA
                                     -----------     -----------     -----------    -----------    -----------     -----------
<S>                                  <C>             <C>             <C>            <C>            <C>             <C>
Basic EPS:
  Net (Loss) Income available to
    common shareholders              $   (18,160)    $   (23,301)    $   231,716    $   226,112    $    (7,441)    $   (12,998)
Diluted EPS:
  Net (Loss) Income available to
    common shareholders                  (18,160)        (23,301)        231,716        226,112         (7,441)        (12,998)
Basic (Loss) Earnings  per Share           (0.17)          (0.22)           2.05           1.99          (0.06)          (0.11)
Diluted (Loss) Earnings per Share          (0.17)          (0.22)           2.02           1.97          (0.06)          (0.11)
</Table>

       At December 31, 2001, 2000 and 1999, the weighted average fair value of
options granted was $2.73, $2.46 and $2.80, respectively. The fair value of each
option is estimated at the date of grant using the Black-Scholes option-pricing
model using the following expected weighted average assumptions in the
calculation.

<Table>
<Caption>
                                                FOR THE YEAR ENDED DECEMBER 31,
                                            ----------------------------------------
                                              2001            2000            1999
                                            --------        --------        --------
<S>                                         <C>             <C>             <C>
Life of options                             10 years        10 years        10 years
Risk-free interest rates                         4.4%            8.0%            8.0%
Dividend yields                                  8.3%           10.0%           12.0%
Stock price volatility                          25.7%           26.0%           27.0%
</Table>

12.  SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY:

         During the year ended December 31, 2000, the Company formed Funding IX
and contributed seven Office Properties and two Resort/Hotel Properties to
Funding IX. As of December 31, 2001, Funding IX held seven Office Properties and
one Resort/Hotel Property. The Company owns 100% of the common voting interests
in Funding IX, 0.1% in the form of a general partner interest and 99.9% in the
form of a limited partner interest.

         Also, during the year ended December 31, 2000, GMAC Commercial Mortgage
Corporation ("GMACCM") purchased $275,000 of non-voting, redeemable preferred
Class A Units in Funding IX (the "Class A Units"). The Class A Units in Funding
IX were redeemable at the Company's option at the original purchase price. As of
December 31, 2000, the Company had redeemed approximately $56,600 million of the
Class A Units in Funding IX from GMACCM and GMACCM held $218,400 of Class A
Units. No redemption occurred during the year ended December 31, 2001.

         The Class A Units received a preferred variable-rate dividend
calculated at LIBOR plus 450 basis points, or approximately 6.6% per annum, as
of December 31, 2001, and increasing to LIBOR plus 550 basis points beginning
March 15, 2002.

         Funding IX loaned the net proceeds of the sale of Class A Units in
Funding IX through an intracompany loan to Crescent SH IX, Inc. ("SH IX"), for
the purchase of common shares of the Company. See "Share Repurchase Program"
below. This intracompany loan is eliminated in consolidation.

13.  SHAREHOLDERS' EQUITY:

EMPLOYEE STOCK PURCHASE PLAN

         On June 25, 2001, the shareholders of the Company approved a new
Employee Stock Purchase Plan (the "ESPP") that is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code
("IRC") of 1986, as amended. The ESPP is regarded as a noncompensatory plan
under APB No. 25, because it meets the qualifications under IRC 423. Under the
terms of the ESPP, eligible employees may purchase common shares of the Company
at a price that is equal to 90% of the lower of the common shares' fair market
value at the beginning or the end of a quarterly period. The fair market value
of a common share is equal to the last sale price of the common shares on the
New York Stock Exchange. Eligible employees may purchase the common shares
through payroll deductions of up to 10% of eligible


                                       84
<PAGE>

compensation. The ESPP is not subject to the provisions of ERISA. The ESPP was
effective October 1, 2001, and will terminate on May 14, 2011.

         The 1,000,000 common shares that may be issued pursuant to the purchase
of common shares under the ESPP represent less than 0.96% of the Company's
outstanding common shares at December 31, 2001.

FORWARD SHARE PURCHASE AGREEMENT

         On August 12, 1997, the Company entered into two transactions with
affiliates of the predecessor of UBS AG ("UBS"). In one transaction, the Company
sold 4,700,000 common shares to UBS for approximately $148,000 and received
approximately $145,000 in net proceeds. In the other transaction, the Company
entered into a forward share purchase agreement (the "Forward Share Purchase
Agreement") with UBS. The Company had the right to settle the Forward Share
Purchase Agreement in cash or common shares. On August 11, 1998, the Company
paid a fee of approximately $3,000 to UBS in connection with the exercise by the
Company and UBS of the right to extend the term of the Forward Share Purchase
Agreement until August 12, 1999.

         The Forward Share Purchase Agreement was accounted for under the
Emerging Issues Task Force (the "EITF") Issue No. 96-13. The Forward Share
Purchase Agreement and the related common stock was accounted for together as an
equity instrument, similar to a preferred stock instrument with a cumulative
fixed dividend, the forward accretion component or the guaranteed return to UBS
was accounted for like a preferred dividend. Additionally, the common shares
actually issued and outstanding were considered in both the basic and diluted
weighted-average shares calculations. The diluted EPS calculation also included
any contingently issuable common shares.

         On June 30, 1999, the Company settled the Forward Share Purchase
Agreement with affiliates of the predecessor of UBS. At settlement of the
Forward Share Purchase Agreement, the Company made a cash payment of
approximately $149,000 (the "Settlement Price") to UBS in exchange for the
return by UBS to the Company of 7,299,760 common shares.

         The number of common shares returned to the Company is equal to the
4,700,000 common shares originally issued to UBS plus 2,599,760 common shares
subsequently issued by the Company, because of a decline in its stock price. The
additional shares were issued as collateral for the Company's obligation to
purchase 4,700,000 common shares from UBS by August 12, 1999. The Settlement
Price was calculated based on the gross proceeds the Company received from the
original issuance of 4,700,000 common shares to UBS, plus a forward accretion
component equal to 90-day LIBOR plus 75 basis points, minus an adjustment for
the Company's distributions paid to UBS. The forward accretion component
represented a guaranteed rate of return to UBS.

SHARE REPURCHASE PROGRAM

         On October 15, 2001, the Company's Board of Trust Managers authorized
an increase in the amount of outstanding common shares that can be repurchased
from time to time in the open market or through privately negotiated
transactions (the "Share Repurchase Program") from $500,000 to $800,000.

         The Company commenced its Share Repurchase Program in March 2000. As of
December 31, 2001, the Company had repurchased 18,756,423 common shares, 20,286
of which have been retired, at an average price of $19.09 per common share for
an aggregate of approximately $358,115. As of December 31, 2001, the Company
held 14,468,623 of the repurchased common shares in SH IX, a wholly-owned
subsidiary. The 14,468,623 common shares were repurchased with the net proceeds
of the sale of Class A Units in Funding IX and with a portion of the net
proceeds from the sale of one of the Properties held by Funding IX. See "Note
12. Sale of Preferred Equity Interests in Subsidiary." These common shares are
consolidated as treasury shares in accordance with GAAP.

         The Company expects the Share Repurchase Program to continue to be
funded through a combination of debt, equity, joint venture capital and selected
asset disposition alternatives available to the Company. The amount of common
shares that the Company will actually purchase will be determined from time to
time, in its reasonable judgment, based on market conditions and the
availability of funds, among other factors. There can be no assurance that any
number of common shares will actually be purchased within any particular time
period.


                                       85
<PAGE>

SHARE REPURCHASE AGREEMENT

         On November 19, 1999, the Company entered into an agreement (the "Share
Repurchase Agreement") with UBS to purchase a portion of its common shares from
UBS. The Company had the option to settle the Share Repurchase Agreement in cash
or common shares. During the year ended December 31, 2000, the Company purchased
the 5,809,180 common shares from UBS at an average cost of $17.62 per common
share for an aggregate of approximately $102,333 under the Share Repurchase
Agreement with UBS.

         The Share Repurchase Agreement was accounted for under EITF 96-13 and
was considered an equity instrument similar to a preferred stock instrument with
a cumulative fixed dividend, the forward accretion component or guaranteed
return to UBS was accounted for like a preferred dividend. Additionally, the
common shares actually issued and outstanding were considered in both the basic
and diluted weighted-average shares calculations. The diluted EPS calculation
also included any contingently issuable common shares.

         The Company has no further obligation under the Share Repurchase
Agreement. The purchases were funded primarily through the sale of Class A Units
in Funding IX. See "Note 12. Sale of Preferred Equity Interests in Subsidiary."

DISTRIBUTIONS

         On October 17, 2001, the Company announced that due to its revised cash
flow expectations in the uncertain economic environment and measuring its payout
ratios to those of the Company's peer group, the Company was reducing its
quarterly distribution from $0.55 per common share, or an annualized
distribution of $2.20 per common share, to $0.375 per common share, or an
annualized distribution of $1.50 per common share.

         The following table summarizes the distributions paid or declared to
common shareholders, unitholders and preferred shareholders during the year
ended December 31, 2001.

<Table>
<Caption>
                                                                                                    ANNUAL
                                DIVIDEND/           TOTAL           RECORD         PAYMENT         DIVIDEND/
         SECURITY             DISTRIBUTION          AMOUNT           DATE           DATE         DISTRIBUTION
-------------------------     ------------       -----------       ---------      ---------      ------------
<S>                           <C>                <C>               <C>            <C>            <C>
Common Shares/Units(1)         $   0.550         $  74,697(2)        1/31/01        2/15/01      $    2.20
Common Shares/Units(1)         $   0.550         $  74,789(2)        4/30/01        5/15/01      $    2.20
Common Shares/Units(1)         $   0.550         $  74,986(2)        7/31/01        8/15/01      $    2.20
Common Shares/Units(1)         $   0.375(3)      $  49,937(2)       10/31/01       11/15/01      $    1.50(3)
Common Shares/Units(1)         $   0.375(3)      $  49,706(2)        1/31/02        2/15/02      $    1.50(3)
6 3/4% Series A Preferred
   Shares                      $   0.422         $   3,375           1/31/01        2/15/01      $    1.69
6 3/4% Series A Preferred
   Shares                      $   0.422         $   3,375           4/30/01        5/15/01      $    1.69
6 3/4% Series A Preferred
   Shares                      $   0.422         $   3,375           7/31/01        8/15/01      $    1.69
6 3/4% Series A Preferred
   Shares                      $   0.422         $   3,375          10/31/01       11/15/01      $    1.69
6 3/4% Series A Preferred
   Shares                      $   0.422         $   3,375           1/31/02        2/15/02      $    1.69
</Table>

----------

(1)      Represents one-half the amount of the distribution per unit because
         each unit is exchangeable for two common shares.

(2)      These distribution amounts include $7,958 for each of the distributions
         paid on February 15, 2001, May 15, 2001, August 15, 2001, and $5,426
         for each of the distributions paid on November 15, 2001 and February
         15, 2002, which were paid on common shares held by the Company in
         Crescent SH IX, and which are eliminated in consolidation.

(3)      On October 17, 2001, the Company announced a reduction in its quarterly
         distribution from $0.55 per common share, or an annualized distribution
         of $2.20 per common share, to $0.375 per common share, or an annualized
         distribution of $1.50 per common share.

       The distributions to common shareholders and unitholders paid during the
year ended December 31, 2000, were $298,547, or $2.20 per common share and
equivalent unit. As of December 31, 2000, the Company was holding 14,468,623 of
its common shares in Crescent SH IX. The distribution amounts above include
$17,313 of distributions for the year ended


                                       86
<PAGE>
December 31, 2000, which were paid for common shares held by the Company, and
which are eliminated in consolidation. The distributions to common shareholders
and unitholders paid during the year ended December 31, 1999, were $298,125, or
$2.20 per common share and equivalent unit.

         The distributions to preferred shareholders during the year ended
December 31, 2000, were $13,500, or $1.6875 per preferred share.

Common Shares

         Following is the income tax status of distributions paid on common
shares and equivalent units during the years ended December 31, 2001, and 2000
to common shareholders:

<Table>
<Caption>
                                            2001         2000
                                            ----         ----
<S>                                         <C>          <C>
Ordinary dividend                           50.3%        51.5%
Capital gain                                  --          6.4%
Return of capital                           49.7%        35.9%
Unrecaptured Section 1250 gain                --          6.2%
</Table>

Preferred Shares

         Following is the income tax status of distributions paid during the
years ended December 31, 2001 and 2000 to preferred shareholders:

<Table>
<Caption>
                                            2001       2000
                                            ----       ----
<S>                                          <C>       <C>
Ordinary dividend                            100%      83.7%
Capital gain                                  --        8.2%
Unrecaptured Section 1250 gain                --        8.1%
</Table>

14.       MINORITY INTEREST:

         Minority interest represents (i) the limited partner interests owned by
limited partners in the Operating Partnership ("units"), and (ii) joint venture
and preferred equity interests held by third parties in other consolidated
subsidiaries. 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, Crescent
Equities' percentage interest in the Operating Partnership increases. During the
year ended December 31, 2001, there were 401,302 units exchanged for 802,604
common shares of Crescent Equities.

15.      RELATED PARTY DISCLOSURES:

DBL HOLDINGS, INC. ("DBL")

         As of December 31, 2001, the Company owned 97.44% of DBL with the
remaining 2.56% economic interest in DBL (including 100% of the voting interest
in DBL) held by John Goff, Vice-Chairman of the Board of Trust Managers and
Chief Executive Officer of the Company. Originally, Mr. Goff contributed his
voting interests in MVDC and HADC, originally valued at approximately $380, and
approximately $63 in cash, or total consideration valued at approximately $443
for his interest in DBL.

         DBL has two wholly owned subsidiaries, DBL-ABC, Inc. and DBL-CBO, Inc.,
the assets of which are described in the following paragraphs, and DBL directly
holds 66% of the voting stock in Mira Vista and HADC. At December 31, 2001, Mr.
Goff's interest in DBL was approximately $554.

         Since June 1999, the Company contributed approximately $23,800 to DBL.
The contribution was used by DBL to make an equity contribution to DBL-ABC,
Inc., which committed to purchase a limited partnership interest representing a
12.5% interest in G2 Opportunity Fund, LP ("G2"). G2 was formed for the purpose
of investing in commercial mortgage backed securities and other commercial real
estate investments and is managed and controlled by an entity that is owned
equally by Goff-Moore Strategic Partners, LP ("GMSP") and GMACCM. The ownership
structure of GMSP consists of 50% ownership by Darla Moore, who is married to
Richard Rainwater, Chairman of the Board of Trust Managers of the


                                       87
<PAGE>

Company and 50% by John Goff. Mr. Rainwater is also a limited partner of GMSP.
At December 31, 2001, DBL had an approximately $14,100 investment in G2.

         In March 1999, DBL-CBO, Inc. acquired $6,000 aggregate principal amount
of Class C-1 Notes issued by Juniper CBO 1999-1 Ltd., a Cayman Island limited
liability company. At December 31, 2001 this investment was valued at
approximately $5,400.

COPI COLORADO, L. P.

         As of December 31, 2001, Crescent Resort Development, Inc. ("CRD") was
owned 90% by the Company and the remaining 10%, representing 100% of the voting
stock, was owned by COPI Colorado, L. P., of which 60% was owned by COPI, with
20% owned by John Goff, Vice-Chairman of the Board of Trust Managers and Chief
Executive Officer of the Company and 20% owned by a third party.

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to the Company, in lieu of foreclosure,
COPI's 60% general partner interest in COPI Colorado. As a result, the Company
indirectly owns a 96% interest in CRD, John Goff, Vice-Chairman of the Board of
Trust Managers and Chief Executive Officer of the Company, owns a 2.0% interest
and the remaining 2.0% interest is owned by a third party. The Company will
fully consolidate the operations of CRD beginning on the date of the asset
transfer.

LOANS TO EMPLOYEES AND TRUST MANAGERS OF THE COMPANY FOR EXERCISE OF STOCK
OPTIONS AND UNIT OPTIONS

         As of December 31, 2001, the Company had approximately $32,900 of loans
outstanding (including approximately $4,378 loaned during the year ended
December 31, 2001) to certain employees and trust managers of the Company on a
full recourse basis pursuant to the Company's stock incentive plans and unit
incentive plans pursuant to an agreement approved by the Board of Directors and
the Executive Compensation Committee of the Company. The proceeds of these loans
were used by the employees and the trust managers to acquire common shares of
the Company pursuant to the exercise of vested stock and unit options. Pursuant
to the loan agreements, these loans may be repaid in full or in part at any time
without premium or penalty. John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company, had a loan representing
$26,300 of the $32,900 total outstanding loans at December 31, 2001.

         Every month, federal short-term, mid-term and long-term rates
(Applicable Federal Rates) are determined and published by the IRS based upon
average market yields of specified maturities. Effective November 1, 2001, these
loans were amended to reduce the interest rates for their remaining terms to the
Applicable Federal Rates. As a result, the interest rates on loans with
remaining terms of three years or less at November 1, 2001 were reduced to
approximately 2.7% per year and the interest rates on loans with remaining terms
greater than three years as of November 1, 2001 were reduced to approximately
4.07% per year. These amended interest rates reflect below prevailing market
interest rates; therefore, the Company recorded $750 of compensation expense for
the year ended December 31, 2001. Approximately $466 of interest was outstanding
related to these loans as of December 31, 2001.

16.      COPI:

         In April 1997, the Company established a new Delaware corporation,
Crescent Operating, Inc. or COPI. All of the outstanding common stock of COPI,
valued at $0.99 per share, 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.

         COPI was formed to become a lessee and operator of various assets to be
acquired by the Company and to perform the intercompany agreement between COPI
and the Company, pursuant to which each agreed to provide the other with rights
to participate in certain transactions. The Company was not permitted to operate
or lease these assets under the tax laws, in effect at that time, applicable to
REITs. In connection with the formation and capitalization of COPI, and the
subsequent operations and investments of COPI since 1997, the Company made loans
to COPI under a line of credit and various term loans.

         On January 1, 2001, The REIT Modernization Act became effective. This
legislation allows the Company, through its subsidiaries, to operate or lease
certain of its investments that had been previously operated or leased by COPI.


                                       88
<PAGE>

         COPI and the Company entered into an asset and stock purchase agreement
on June 28, 2001, in which the Company agreed to acquire the lessee interests in
the eight Resort/Hotel Properties leased to subsidiaries of COPI, the voting
interests held by subsidiaries of COPI in three of the Company's Residential
Development Corporations and other assets in exchange for $78,400. In connection
with that agreement, the Company agreed that it would not charge interest on its
loans to COPI from May 1, 2001 and that it would allow COPI to defer all
principal and interest payments due under the loans until December 31, 2001.

         Also on June 28, 2001, the Company entered into an agreement to make a
$10,000 investment in Crescent Machinery Company ("Crescent Machinery"), a
wholly owned subsidiary of COPI. This investment, together with capital from a
third-party investment firm, was expected to put Crescent Machinery on solid
financial footing.

         Following the date of the agreements relating to the acquisition of
COPI assets and stock and the investment in Crescent Machinery, the results of
operations for the COPI hotel operations and the COPI land development interests
declined, due in part to the slowdown in the economy after September 11. In
addition, Crescent Machinery's results of operations suffered because of the
economic environment and the overall reduction in national construction levels
that has affected the equipment rental and sale business, particularly post
September 11. As a result, the Company believes that a significant additional
investment would have been necessary to adequately capitalize Crescent Machinery
and satisfy concerns of Crescent Machinery's lenders.

         The Company stopped recording rent from the leases of the eight
Resort/Hotel Properties leased to subsidiaries of COPI on October 1, 2001, and
recorded the following impairment and other adjustments related to COPI in the
fourth quarter of 2001, based on the estimated fair value of the underlying
collateral.

IMPAIRMENT AND OTHER ADJUSTMENTS RELATED TO COPI

<Table>
<S>                                                            <C>
Resort/Hotel Accounts Receivable, net of allowance             $ 33,200
Resort/Hotel Straight-Line Rent                                  12,700
Notes Receivable and Accrued Interest                            71,500
Asset transaction costs                                           2,800
                                                               --------
                                                               $120,200
Less estimated collateral value to be received from COPI:
Estimated Fair Value of Resort/Hotel FF&E                      $  6,900
Estimated Fair Value of Voting Stock of
  Residential Development Corporations                         $ 38,500
                                                               --------
                                                               $ 45,400
                                                               --------
Impairment of assets                                           $ 74,800

Plus Estimated Costs Related to  COPI Bankruptcy                 18,000
                                                               --------
Impairment and other charges related to COPI                   $ 92,800
                                                               ========
</Table>

         For a description of the COPI assets transferred to subsidiaries of the
Company subsequent to December 31, 2001, see "Note 22. Subsequent Events."

17.      DISPOSITIONS:

OFFICE SEGMENT

         On September 18, 2001, the Company completed the sale of the two
Washington Harbour Office Properties. The sale generated net proceeds of
approximately $153,000 and a net loss of approximately $9,800. The proceeds from
the sale of the Washington Harbour Office Properties were used primarily to pay
down variable-rate debt and repurchase approximately 4.3 million of the
Company's common shares. The Washington Harbour Office Properties were the
Company's only Office Properties in Washington, D.C.

         On September 28, 2001, the Woodlands Office Equities - '95 Limited
("WOE"), owned by the Company and the Woodlands CPC, sold two Office Properties
located within The Woodlands, Texas. The sale generated net proceeds of


                                       89
<PAGE>

approximately $11,281, of which the Company's portion was approximately $9,857.
The sale generated a net gain of approximately $3,418, of which the Company's
portion was approximately $2,987. The proceeds received by the Company were used
primarily to pay down variable-rate debt.

         On December 20, 2001, WOE sold one Office Property located within The
Woodlands, Texas. The sale generated net proceeds of approximately $2,016, of
which the Company's portion was approximately $1,761. The sale generated a net
gain of approximately $1,688, of which the Company's portion was approximately
$1,475. The proceeds received by the Company were used primarily to pay down
variable-rate debt.

         The following table summarizes the condensed results of operations for
the years ended December 31, 2001, 2000 and 1999 for the five Office Properties
sold during 2001.

<Table>
<Caption>
                                     FOR THE YEAR
                                   ENDED DECEMBER 31,
                          ------------------------------------
                           2001            2000         1999
                          -------         -------      -------
<S>                       <C>             <C>          <C>
Revenue                   $16,673         $22,751      $20,683
Operating Expenses          5,998           7,460        6,588
                          -------         -------      -------
Net Operating Income      $10,675(1)      $15,291      $14,095
                          =======         =======      =======
</Table>

----------

(1)      Net operating income for 2001 only includes the period for which the
         disposition Properties were held during the year.

         During the year ended December 31, 2000, the Company completed the sale
of 11 wholly-owned Office Properties. The sale of the 11 Office Properties
generated approximately $268,233 of net proceeds. The proceeds were used
primarily to pay down variable-rate debt. The Company recognized a net gain,
which is included in Gain on Property Sales, net, of approximately $35,841
related to the sale of the 11 Office Properties during the year ended December
31, 2000. During the year ended December 31, 1999, the Company recognized an
impairment loss of approximately $16,800 on one of the 11 Office Properties sold
during the year ended December 31, 2000. The Company also recognized a loss of
approximately $5,000, which is included in Gain on Property Sales, net, during
the year ended December 31, 2000 on one of the 11 Office Properties sold. The
losses represented the differences between the carrying values of the Office
Properties and the sales prices less costs of the sales.

         During the year ended December 31, 2000, the Woodlands Retail Equities
- '96 Limited, owned by the Company and The Woodlands CPC, completed the sale of
its retail portfolio, consisting of the Company's four retail properties located
in The Woodlands, Texas. The sale generated approximately $42,700 of net
proceeds, of which the Company's portion was approximately $32,000. The sale
generated a net gain of approximately $6,500, of which the Company's portion was
approximately $4,900. The proceeds received by the Company were used primarily
to pay down variable-rate debt. The net operating income for the years ended
December 31, 2000 and 1999 for the four retail properties was $15 and $3,792,
respectively. Net operating income for the year ended 2000 only includes the
periods for which these properties were held during the year.

RESORT/HOTEL SEGMENT

         On November 3, 2000, the Company completed the sale of the Four Seasons
Hotel - Houston for a sales price of approximately $105,000. The Company used
approximately $19,700 of the proceeds to buy out the Property lease with COPI
and the asset management contract, and for other transaction costs. The sale
generated net proceeds of approximately $85,300. The Company also used
approximately $56,600 of the net proceeds to redeem Class A Units in Funding IX,
through which the Company owned the Property, from GMACCM. See "Note 12. Sale of
Preferred Equity Interests in Subsidiary" for a description of the ownership
structure of Funding IX. The sale generated a net gain, which is included in
Gain on Property Sales, net, of approximately $28,715. The Company's net
operating income for the years ended December 31, 2000 and 1999 for the Four
Seasons Hotel - Houston was $8,048 and $9,237, respectively. The operating
results of this property are included in operating income for 2000 only for the
periods for which this Property was held during the year.


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<PAGE>

18.      QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

<Table>
<Caption>
                                                                                                    2001
                                                                        -----------------------------------------------------------
                                                                        MARCH 31,       JUNE 30,      SEPTEMBER 30,    DECEMBER 31,
                                                                        ---------       ---------     -------------    ------------
<S>                                                                     <C>             <C>             <C>             <C>
Revenues                                                                $ 177,700       $ 189,185       $ 174,928       $ 150,178
Income before minority interests, extraordinary item and
    discontinued operations                                                40,896          34,041          30,350         (77,743)
Minority interests                                                         (9,752)         (8,337)         (8,049)          4,709
Extraordinary item                                                             --         (10,802)             --              --
Discontinued operations                                                       104              60             158            (294)
Net income available to common shareholders
   - basic                                                                 27,873          11,587          19,084         (76,704)
   - diluted                                                               27,873          11,587          19,084         (76,704)

Per share data:
   Basic Earnings Per Common Share
    - Income before extraordinary item and discontinued operations           0.26            0.21            0.18           (0.72)
    - Extraordinary item                                                       --           (0.10)             --              --
    - Discontinued operations                                                  --              --              --              --
    - Net income                                                             0.26            0.11            0.18           (0.72)
   Diluted Earnings Per Common Share
    - Income before extraordinary item and discontinued operations            0.26            0.20            0.17           (0.72)
    - Extraordinary item                                                       --           (0.10)             --              --
    - Discontinued operations                                                  --              --              --              --
    - Net income                                                             0.26            0.10            0.17           (0.72)
</Table>

<Table>
<Caption>
                                                                                                    2000
                                                                        -----------------------------------------------------------
                                                                        MARCH 31,       JUNE 30,      SEPTEMBER 30,    DECEMBER 31,
                                                                        ---------       ---------     -------------    ------------
<S>                                                                     <C>             <C>             <C>             <C>
Revenues                                                                $ 174,514       $ 173,910       $ 176,187       $ 189,246
Income before minority interests, extraordinary item, and
    discontinued operations                                                61,865          44,409         100,643          95,151
Minority interests                                                         (7,017)         (8,628)        (17,675)        (17,570)
Extraordinary Item                                                         (3,928)             --              --              --
Discontinued operations                                                       202             281             208             181
Net income available to common shareholders
   - basic                                                                 45,671          31,969          83,175          70,901
   - diluted                                                               45,671          31,969          83,175          70,901

Per share data:
   Basic Earnings Per Common Share
    - Income before extraordinary item and discontinued operations           0.42            0.28            0.71            0.66
    - Extraordinary item                                                    (0.03)             --              --              --
    - Discontinued operations                                                  --              --              --            0.01
    - Net income                                                             0.39            0.28            0.71            0.67
   Diluted Earnings Per Common Share
    - Income before extraordinary item and discontinued operations           0.42            0.27            0.70            0.65
    - Extraordinary item                                                    (0.03)             --              --              --
    - Discontinued operations                                                  --              --              --            0.01
    - Net income                                                             0.39            0.27            0.70            0.66
</Table>

19.       BEHAVIORAL HEALTHCARE PROPERTIES:

         As of December 31, 1999, the behavioral healthcare segment consisted of
88 behavioral healthcare properties in 24 states, all of which were leased to
CBHS and its subsidiaries under a triple-net master lease. During the year ended
December 31, 1999, the Company received cash rental payments of approximately
$35,300 from CBHS, which is included in Interest and Other Income. However,
during 1999, CBHS's business was negatively affected by many factors, including
adverse industry conditions, and CBHS failed to perform in accordance with its
operating budget. In the third quarter of 1999 CBHS was unable to meet its
rental obligation to the Company. In the third quarter of 1999, the Company,
COPI, Magellan Health Services, Inc. ("Magellan") and CBHS commenced a
recapitalization of CBHS. As part of this


                                       91
<PAGE>

recapitalization, the Company commissioned an independent public accounting firm
to assist in the evaluation of alternatives related to CBHS, which included an
appraisal of the behavioral healthcare properties.

         The following financial statement charges were made with respect to the
Company's investment in the behavioral healthcare properties in the third
quarter of 1999:

o    CBHS rent was reflected on a cash basis beginning in the third quarter of
     1999 due to the uncertainty that CBHS would be able to fulfill its rental
     obligations under the lease;

o    The Company wrote-off the rent that was deferred according to the CBHS
     lease agreement from the commencement of the lease in June of 1997 through
     June 30, 1999. The balance written-off totaled $25,600;

o    The Company wrote-down its behavioral healthcare real estate assets by
     approximately $103,800 to a book value of $245,000;

o    The Company wrote-off Magellan warrants of $12,500;

o    The Company recorded approximately $15,000 of additional expense to be used
     by CBHS as working capital; and

o    The Company ceased recording depreciation expense beginning in November of
     1999 on the behavioral healthcare properties that were classified as held
     for disposition.

         On February 16, 2000, CBHS and all of its subsidiaries that are subject
to the master lease with the Company filed voluntary Chapter 11 bankruptcy
petitions in the United States Bankruptcy Court for the District of Delaware.

         During the year ended December 31, 2000, payment and treatment of rent
for the behavioral healthcare properties was subject to a rent stipulation
agreed to by certain of the parties involved in the CBHS bankruptcy proceeding.
The Company received approximately $15,400 in rent and interest from CBHS during
the year ended December 31, 2000, which is included in Interest and Other
Income. The Company also completed the sale of 60 behavioral healthcare
properties previously classified as held for disposition during the year ended
December 31, 2000 (contained in Net Investment in Real Estate). The sales
generated approximately $233,700 in net proceeds and a net gain of approximately
$58,600 for the year ended December 31, 2000. The net proceeds from the sale of
the 60 behavioral healthcare properties sold during the year ended December 31,
2000 were used primarily to pay down variable-rate debt. During the year ended
December 31, 2000, the Company recognized an impairment loss of approximately
$9,300 on the behavioral healthcare properties held for disposition, which is
included in Impairment and Other Charges Related to Real Estate Assets. This
amount represents the difference between the carrying values and the estimated
sales prices less the costs of the sales. At December 31, 2000, the carrying
value of the 28 behavioral healthcare properties classified as held for
disposition was approximately $68,500 (contained in Net Investment in Real
Estate). Depreciation has not been recognized since the dates the behavioral
healthcare properties were classified as held for sale.

         The Company received approximately $6,000 in repayments of a working
capital loan from CBHS during the year ended December 31, 2001, which is
included in Interest and Other Income. The Company also completed the sale of 18
behavioral healthcare properties previously classified as held for disposition
during the year ended December 31, 2001 (contained in Net Investment in Real
Estate). The sales generated approximately $34,700 in net proceeds and a net
gain of approximately $1,600 for the year ended December 31, 2001. The net
proceeds from the sale of the 18 behavioral healthcare properties sold during
the year ended December 31, 2001 were used primarily to pay down variable-rate
debt.

         During the year ended December 31, 2001, the Company recognized an
impairment loss of approximately $8,500 on the behavioral healthcare properties
held for disposition, which is included in Impairment and Other Charges Related
to Real Estate Assets. This amount represents the difference between the
carrying values and the estimated sales prices less the costs of the sales. At
December 31, 2001, the carrying value of the 10 behavioral healthcare properties
classified as held for disposition was approximately $27,900 (contained in Net
Investment in Real Estate). Depreciation has not been recognized since the dates
the behavioral healthcare properties were classified as held for sale.

20.      BROADBAND:

         In 2000, the Company made an equity investment in Broadband Office,
Inc. ("Broadband"), (a facilities-based provider of broadband data, video and
voice communication services delivered over fiber optic networks), and related
entities. In May 2001, Broadband filed for Chapter 11 bankruptcy protection, and
the Company's investment in Broadband was approximately $7,200. Yipes
Communications Group, Inc. ("Yipes"), another telecom provider, has received
approval


                                       92
<PAGE>

from the federal bankruptcy court to acquire certain rights formerly owned by
Broadband. In addition, Yipes has executed agreements with nine major real
estate entities, including the Company, to assume telecom licensing agreements,
in modified formats. As part of this transaction, the Company acquired ownership
of certain telecom assets previously owned by Broadband and located within
office properties in consideration for conveyance of its equity interest in
Broadband to Yipes. These telecom assets were independently appraised and valued
in excess of the Company's equity interest in Broadband. As a result, the
Company reclassified its investment in Broadband of approximately $7,200 from
Other Assets to Building Improvements during the year ended December 31, 2001.
Therefore, Broadband's bankruptcy did not have a material effect on the
Company's results of operations for the year ended December 31, 2001 or its
financial position as of December 31, 2001.

21.      SETTLEMENT OF MERGER DISPUTE:

STATION CASINOS, INC. ("STATION")

         As of April 14, 1999, the Company and Station entered into a settlement
agreement for the mutual settlement and release of all claims between the
Company and Station arising out of the agreement and plan of merger between the
Company and Station, which the Company terminated in August 1998. As part of the
settlement agreement, the Company paid $15,000 to Station on April 22, 1999.

22.      SUBSEQUENT EVENTS:

     OFFICE PROPERTY DISPOSITIONS

         On January 18, 2002, the Company completed the sale of the Cedar
Springs Office Property located in Dallas, Texas. The sale generated net
proceeds of approximately $12,000 and a net gain of approximately $4,500. The
proceeds from the sale of Cedar Springs were used primarily to pay down
variable-rate debt.

         On August 1, 2002, the Company completed the sale of 6225 North 24th
Street Office Property in Phoenix, Arizona. The sale generated net proceeds of
approximately $9,000 and a net gain of approximately $1,300. The proceeds from
the sale of the 6225 North 24th Street Office Property were used to redeem Class
A Units from GMACCM. This Office Property was wholly-owned by the Company and
was included in the Company's Office Segment.

     COPI

         On January 22, 2002, the Company terminated the purchase agreement
pursuant to which the Company would have acquired the lessee interests in the
eight Resort/Hotel Properties leased to subsidiaries of COPI, the voting
interests held by subsidiaries of COPI in three of the Residential Development
Corporations and other assets. On February 4, 2002, the Company terminated the
agreement relating to its planned investment in Crescent Machinery.

         On February 6, 2002, Crescent Machinery filed for protection under the
federal bankruptcy laws.

         On February 12, 2002, the Company delivered default notices to COPI
relating to approximately $49,000 of unpaid rent and approximately $76,200 of
principal and accrued interest due to the Company under certain secured loans.

         On February 14, 2002, the Company executed an agreement (the
"Agreement") with COPI, pursuant to which COPI transferred to subsidiaries of
the Company, in lieu of foreclosure, COPI's lessee interests in the eight
Resort/Hotel Properties leased to subsidiaries of COPI and, pursuant to a strict
foreclosure, COPI's voting interests in three of the Company's Residential
Development Corporations and other assets and the Company agreed to assist and
provide funding to COPI for the implementation of a prepackaged bankruptcy of
COPI. In connection with the transfer, COPI's rent obligations to the Company
were reduced by $23,600, and its debt obligations were reduced by $40,100. These
amounts include $18,300 of value attributed to the lessee interests transferred
by COPI to the Company; however, in accordance with GAAP, the Company assigned
no value to these interests for financial reporting purposes.

         The Company holds the lessee interests in the eight Resort/Hotel
Properties and the voting interests in the three Residential Development
Corporations through three newly organized limited liability companies that are
wholly owned taxable REIT subsidiaries of the Company. The Company will include
these assets in its Resort/Hotel Segment and its


                                       93
<PAGE>

Residential Development Segment, and will fully consolidate the operations of
the eight Resort/Hotel Properties and the three Residential Development
Corporations, beginning on the date of the transfers of these assets.

          The Agreement provides that the Company and COPI will jointly seek to
have a pre-packaged bankruptcy plan for COPI, reflecting the terms of the
Agreement, approved by the bankruptcy court. Under the Agreement, the Company
agreed to provide approximately $14,000 to COPI in the form of cash and common
shares of the Company to fund costs, claims and expenses relating to the
bankruptcy and related transactions, and to provide for the distribution of the
Company's common shares to the COPI stockholders. The Company has also agreed,
however, that it will issue common shares with a minimum dollar value of
approximately $2,200 to the COPI stockholders, even if it would cause the total
costs, claims and expenses that it pays to exceed $14,000. Currently, the
Company estimates that the value of the common shares that will be issued to the
COPI stockholders will be approximately $2,200 to $5,400. The actual value of
the common shares issued to the COPI stockholders will not be determined until
the confirmation of COPI's bankruptcy plan and could vary from the estimated
amounts, but will have a value of at least $2,200.

         In addition, the Company has agreed to use commercially reasonable
efforts to assist COPI in arranging COPI's repayment of its $15,000 obligation
to Bank of America, together with any accrued interest. COPI obtained the loan
primarily to participate in investments with the Company. At the time COPI
obtained the loan, Bank of America required, as a condition to making the loan,
that Richard E. Rainwater, the Chairman of the Board of Trust Managers of the
Company, and John C. Goff, Vice-Chairman of the Board of Trust Managers and
Chief Executive Officer of the Company, enter into a support agreement with COPI
and Bank of America, pursuant to which they agreed to make additional equity
investments in COPI if COPI defaulted on payment obligations under its line of
credit with Bank of America and the net proceeds of an offering of COPI
securities were insufficient to allow COPI to pay Bank of America in full.
Effective December 31, 2001, the parties executed an amendment to the line of
credit providing that any defaults existing under the line of credit on or
before March 8, 2002 are temporarily cured unless and until a new default shall
occur.

         Previously, the Company held a first lien security interest in COPI's
entire membership interest in Americold Logistics. REIT rules prohibit the
Company from acquiring or owning the membership interest that COPI owns in
Americold Logistics. Under the Agreement, the Company agreed to allow COPI to
grant Bank of America a first priority security interest in the membership
interest and to subordinate its own security interest to Bank of America. In
addition, the Company expects to form and capitalize a separate entity to be
owned by the Company's shareholders and unitholders, and to cause the new entity
to commit to acquire COPI's entire membership interest in the tenant for between
$15,000 and $15,500. Under the Agreement, COPI has agreed that it will use the
proceeds of the sale of the membership interest to repay Bank of America in
full.

         If the COPI bankruptcy plan is approved by the required vote of the
shares of COPI common stock, the stockholders of COPI will receive the Company's
common shares. As stockholders of COPI, Mr. Rainwater and Mr. Goff will also
receive the Company's common shares.

         Pursuant to the COPI bankruptcy plan, the current and former directors
and officers of COPI and the current and former trust managers and officers of
the Company also have received a release from COPI of liability for any actions
taken prior to February 14, 2002, and, depending on various factors, will
receive certain liability releases from COPI and its stockholders.

         Completion and effectiveness of the plan of reorganization for COPI is
contingent upon a number of conditions, including the vote of COPI's
stockholders, the approval of the plan by certain of COPI's creditors and the
approval of the bankruptcy court.

         The following Unaudited Condensed Consolidated Pro Forma Financial
Statements are based upon the historical financial statements of the Company and
of the assets being transferred to the Company from COPI under the Agreement.
The Unaudited Condensed Consolidated Pro Forma Balance Sheet as of December 31,
2001 is presented as if principal transactions contemplated by the Agreement had
been completed as of December 31, 2001. The Unaudited Condensed Consolidated Pro
Forma Statements of Operations for the years ended December 31, 2001 and 2000
are presented as if these transactions had occurred on January 1, 2001 and
January 1, 2000, respectively.

         The Unaudited Condensed Consolidated Pro Forma Financial Statements
have been prepared based on a number of assumptions, estimates and uncertainties
including, but not limited to, estimates of the fair values of assets received
and


                                       94
<PAGE>
liabilities assumed and estimated transaction costs. As a result of these
assumptions, estimates and uncertainties, the accompanying Unaudited Condensed
Consolidated Pro Forma Financial Statements do not purport to predict the actual
financial condition had the principal transactions contemplated by the Agreement
been completed as of December 31, 2001 or results of operations that would have
been achieved had the principal transactions contemplated by the Agreement been
completed on January 1, 2001 or January 1, 2000.

UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET

<Table>
<Caption>
                                                             AS OF DECEMBER 31,
                                                                   2001
                                                             ------------------
<S>                                                          <C>
Real estate, net                                               $ 3,362,342
Cash                                                               191,128
Other assets                                                     1,011,741
                                                               -----------
     Total assets                                              $ 4,565,211
                                                               ===========

Notes payable                                                  $ 2,396,290
Other liabilities                                                  442,467
Minority interests                                                 353,012
Total shareholders' equity                                       1,373,442
                                                               -----------
      Total liabilities and shareholders' equity               $ 4,565,211
                                                               ===========
</Table>

UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                     FOR THE YEAR ENDED
                                                                         DECEMBER 31,
                                                                  2001                 2000
                                                              -----------          -----------
<S>                                                           <C>                  <C>
Total revenues                                                $ 1,148,828          $ 1,209,881
Total expenses                                                  1,162,390            1,092,726
                                                              -----------          -----------

Operating Income                                                  (13,562)             117,155
Total other income and expense                                     53,161              203,874
                                                              -----------          -----------
Income before minority interests, income taxes
  and extraordinary item                                      $    39,599          $   321,029
                                                              ===========          ===========
Income before extraordinary item and
  cumulative effect of change in accounting principle         $     2,147          $   249,871
                                                              ===========          ===========

Basic Earnings per share(1)                                   $      0.02          $      2.20
Diluted Earnings per share(1)                                 $      0.02          $      2.18
</Table>

----------

(1)      Represents earnings per share for income before extraordinary item and
         cumulative effect of change in accounting principle.

         The Unaudited Condensed Consolidated Pro Forma Balance Sheet combines
the Company's consolidated historical balance sheet for the year ended December
31, 2001 with the following adjustments:

         o        Reflects the inclusion of the assets and liabilities of the
                  eight Hotel/Resort Properties as of December 31, 2001;

         o        Eliminates the eight Hotel/Resort Properties' initial working
                  capital receivable on the Company's balance sheet with the
                  offsetting net working capital payable;

         o        Adjusts the historical balance sheet to consolidate the
                  balance sheets of Desert Mountain Development Corporation
                  ("DMDC"), The Woodlands Land Company ("TWLC"), other entities
                  and COPI Colorado (which,


                                       95
<PAGE>

                  as the owner of 100% of the voting stock of CRD, consolidates
                  the balance of CRD), as a result of the Company's retention of
                  voting stock of DMDC, TWLC and other entities, and the
                  Company's retention of the 60% general partnership interest in
                  COPI Colorado;

         o        Eliminates the Company's equity investment in the historical
                  December 31, 2001 balance sheet for DMDC, TWLC, CRD and other
                  entities;

         o        Eliminates the intercompany loans and associated accrued
                  interest and capitalized interest between the Company and
                  DMDC, CRD and other entities;

         o        Reflects the Company's capitalization of a new entity to be
                  owned by shareholders that will be committed to acquire COPI's
                  membership interest in AmeriCold Logistics; and

         o        Reflects the issuance of $5,000 of the Company's shares to
                  COPI stockholders.

         The Unaudited Condensed Consolidated Pro Forma Statements of Operations
combine the Company's consolidated historical statements of operations for the
years ended December 31, 2001 and 2000 with the following adjustments:

         o        Includes the operating results for the eight Hotel/Resort
                  Properties after deducting the amount of the lessee rent
                  payments due under the respective leases;

         o        Eliminates hotel lessees' rent expense to the Company and the
                  Company's rental revenue from the hotel lessees;

         o        Reflects the consolidation of the operations of DMDC, TWLC,
                  other entities and COPI Colorado with the Company's historical
                  Statements of Operations, as a result of the Company's
                  retention of voting stock for DMDC, TWLC and other entities,
                  and the Company's retention of the 60% general partnership
                  interest in COPI Colorado;

         o        Eliminates the Company's historical equity in net income for
                  DMDC, TWLC, CRD and other entities;

         o        Eliminates intercompany interest expense on the loans from the
                  Company to DMDC and CRD;

         o        Reflects income tax benefit for the hotel business, calculated
                  as 40% of the net loss for the hotel lessees;

         o        Reflects the additional shares issued to COPI shareholders,
                  valued at $5,000, using the Company's current share price of
                  $17.91; and

         o        The December 31, 2001, Unaudited Condensed Consolidated Pro
                  Forma Statement of Operations includes impairment and other
                  charges related to COPI assets of $92,782 contained in the
                  Company's 2001 Consolidated Statement of Operations.

DEBT OFFERING

         On April 15, 2002, the Company completed a private offering of $375,000
in senior, unsecured notes due 2009. The notes bear interest at an annual rate
of 9.25% and were issued 100% of issue price. The notes are callable after April
15, 2006. Interest will be payable in cash on April 15, and October 15 of each
year, beginning October 15, 2002. In connection with the offering, on September
13, 2002, the Company commenced an exchange offer of $325,000 of its registered
9.25% senior notes due 2009 for outstanding senior notes due 2009. The offer
expires October 11, 2002. In the event that the exchange offer or resale
registration is not completed on or before October 15, 2002, the interest rate
on the notes will increase to 9.75% and increase to 10.25% after another 90
days, in each case until the exchange offer or resale registration is completed.

         The net proceeds from the offering of notes were approximately
$366,500. Approximately $309,500 of the proceeds were used to pay down amounts
outstanding under the Fleet Facility, and the remaining proceeds were used to
pay down $5,000 of short-term indebtedness and redeem approximately $52,000 of
Class A Units in Funding IX from GMACCM. See "Note 12. Sale of Preferred Equity
Interests in Subsidiary" for a description of the Class A Units in Funding IX
held by GMACCM. In that offering the Company also issued, in addition to the
2009 private notes and on the same terms and conditions, an additional $50,000
of the Company's 9.25% senior unsecured notes due 2009 to Richard E. Rainwater,
the Chairman of the Board of Trust Managers of the Company, and certain of his
affiliates and family members. The exchange offer is not being made with respect
to the affiliate notes. The Company has agreed to register the resale of the
affiliate notes.

SERIES A PREFERRED OFFERING

         On April 26, 2002, the Company completed an institutional placement
(the "April 2002 Series A Preferred Offering") of an additional 2,800,000 shares
of Series A Convertible Cumulative Preferred Shares (the "Series A Preferred
Shares") at an $18.00 per share price and with a liquidation preference of
$25.00 per share for aggregate total


                                       96
<PAGE>
offering proceeds of approximately $50,400. The Series A Preferred Shares are
convertible at any time, in whole or in part, at the option of the holders
thereof into common shares of the Company at a conversion price of $40.86 per
common share (equivalent to a conversion rate of .6119 common shares per Series
A Preferred Share), subject to adjustment in certain circumstances. The Series A
Preferred Shares have no stated maturity, are not subject to sinking fund or
mandatory redemption and may not be redeemed before February 18, 2003, except in
order to preserve the Company's status as a REIT. On or after February 13, 2003,
the Series A Preferred shares may be redeemed, at the Company's option, by
paying $25.00 per share plus any accumulated accrued and unpaid distribution.
Dividends on the Series A Preferred shares are cumulative from the date of
original issuance and are payable quarterly in arrears on the fifteenth of
February, May, August and November, commencing May 15, 2002. The annual fixed
dividend is $1.6875 per share.

         Net proceeds to the Company from the April 2002 Series A Preferred
Offering after underwriting discounts and other offering costs of approximately
$2,240 were approximately $48,160. The Company used the net proceeds to redeem
Class A Units issued by its subsidiary, Funding IX, to GMACCM.

SERIES B PREFERRED OFFERING

         On May 17, 2002, the Company completed an offering (the "May 2002
Series B Preferred Offering") of 3,000,000 shares of 9.50% Series B Cumulative
Redeemable Preferred Shares (the "Series B Preferred Shares") with a liquidation
preference of $25.00 per share for aggregate total offering proceeds of
approximately $75,000. The Series B Preferred Shares have no stated maturity,
are not subject to sinking fund or mandatory redemption, are not convertible
into any other securities of the Company and may not be redeemed before May 17,
2007, except in order to preserve the Company's status as a REIT. On or after
May 17, 2007, the Series B Preferred Shares may be redeemed, at the Company's
option, by paying $25.00 per share plus any accumulated, accrued and unpaid
distribution. Dividends on the Series B Preferred Shares are cumulative from the
date of original issuance and are payable quarterly in arrears on the fifteenth
of February, May, August and November, commencing August 15, 2002. The annual
fixed dividend is $2.375 per share.

         Net proceeds to the Company from the May 2002 Series B Preferred
Offering after underwriting discounts and other offering costs of approximately
$2,713 were approximately $72,287. The Company used the net proceeds to redeem
Class A Units issued by its subsidiary, Funding IX, to GMACCM.

         On June 6, 2002, the Company completed the June 2002 Series B Preferred
Offering of an additional 400,000 Series B Preferred Shares (the "June 2002
Series B Preferred Offering") resulting in gross proceeds to the Company of
approximately $10,000. Net proceeds to the Company after underwriting discounts
and other offering costs of approximately $365 were approximately $9,635. As
with the May 2002 Series B Preferred Offering, the Company used the net proceeds
to redeem Class A Units issued by its subsidiary, Funding IX, to GMACCM.

RELATED PARTY DISCLOSURES

         On June 28, 2002, the Company purchased and is holding for sale, the
home of an executive officer of the Company for approximately $2,650 which
approximates fair market value of the home. This purchase was part of the
officer's relocation agreement with the Company.

LOANS TO EMPLOYEES AND TRUST MANAGERS OF THE COMPANY FOR EXERCISE OF STOCK
OPTIONS AND UNIT OPTIONS

         On July 29, 2002, the loans made pursuant to the Company's stock
incentive plans and unit incentive plans were amended to extend the remaining
terms of the loans until July 2012 and to stipulate that every three years the
interest rate on the loans will be adjusted to the AFR applicable at that time
for a three-year loan. Additionally, the employees and trust managers have been
given the option, at any time, to fix the interest rate for each of the loans to
the AFR applicable at that time for a loan with a term equal to the remaining
term of the loan. The Company estimates that the one-time compensation expense
related to these amendments to the loans is approximately $1,800. Effective July
29, 2002, the Company will no longer make available to its employees and trust
managers loans pursuant to the Company's stock and unit incentive plans.

THREE WESTLAKE PARK

         On August 21, 2002, the Company entered into a joint venture
arrangement with an affiliate of GE. In connection with the formation of the
venture, the Company contributed an Office Property, Three Westlake Park in
Houston, Texas, and


                                       97
<PAGE>
GE made a cash contribution. GE holds an 80% equity interest in Three Westlake
Park, a 415,000 square foot Class A Office Property located in the Katy Freeway
submarket of Houston, and the Company continues to hold the remaining 20% equity
interest in the Office Property, with the Company's interest accounted for under
the equity method. The joint venture generated approximately $47,100 in net cash
proceeds to the Company, including distributions resulting from the sale of the
Company's 80% equity interest and from $33,000 of third party mortgage financing
at the joint venture level. None of the mortgage financing at the joint venture
level is guaranteed by either the Company or GE. The Company has no commitment
to reinvest the cash proceeds back into the joint venture. The joint venture
formation transactions were accounted for as a partial sale of this Office
Property, resulting in an approximate $17,100 gain, on interest sold. The
Company will continue to manage and lease Three Westlake Park on a fee basis.

REDEMPTION OF PREFERRED UNITS FROM GMACCM

         On August 29, 2002, Funding IX used approximately $22,700 to redeem
from GMACCM all the Class A Units in Funding IX that remained outstanding on
that date. As a result of the redemption, GMACCM ceased to be a partner of
Funding IX or to have any rights or obligations as a partner and the Company
became the sole partner of Funding IX. In connection with the transaction, SH IX
transferred the 14,468,623 common shares of the Company held by SH IX to the
Company, which holds these common shares as treasury shares and the intracompany
loan between Funding IX and SH IX was repaid.

         Following the redemption of all of the outstanding Class A Units,
Funding IX distributed two of its Office Properties, 44 Cook Street, and 55
Madison, and all the equity interests in the limited liability companies that
own two other Office Properties, Miami Center and Chancellor Park, to the
Operating Partnership. The Operating Partnership then contributed 44 Cook Street
and 55 Madison to another of the Operating Partnership's subsidiaries, Crescent
Real Estate Funding VIII, L.P.

PROPERTY ACQUISITION

         On August 29, 2002, the Company acquired John Manville Plaza, a
29-story, 675,000 square foot Class A office building located in Denver,
Colorado. The Company acquired the property for approximately $91,200. The
property is wholly-owned by the Company and included in the office segment.

SONOMA MISSION INN & SPA

         On September 1, 2002, the Company entered into a joint venture
arrangement with a subsidiary of Fairmont Hotels & Resorts Inc., or ("FHR"),
pursuant to which the Company contributed a Resort/Hotel property and FHR
purchased a 19.9% equity interest in the limited liability company that owns the
Company's Sonoma Mission Inn & Spa Resort/Hotel Property in Sonoma County,
California. The Company continues to own the remaining 80.1% interest. The joint
venture generated approximately $8,000 in net cash proceeds to the Company. The
Company has loaned $45,120 to the joint venture at an interest rate of LIBOR
plus 300 basis points. The maturity date of the loan is the earlier of the date
on which the joint venture obtains third-party financing or one year. The joint
venture has the option to extend the loan for two successive 6-month periods by
paying a fee. Under the Company's agreement with FHR, the Company will manage
the limited liability company that owns the Sonoma Mission Inn & Spa, and FHR
will operate and manage the property under the Fairmont brand. The joint venture
transaction was accounted for as a partial sale of this Resort/Hotel Property,
resulting in an approximate $4,000 loss, on interest sold.


                                       98
<PAGE>
                                                                    SCHEDULE III

                      CRESCENT REAL ESTATE EQUITIES COMPANY
        CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                                DECEMBER 31, 2001
                             (dollars in thousands)


<Table>
<Caption>
                                                                              Costs
                                                                            Capitalized      Impairment
                                                                           Subsequent to     to Carrying
                                                       Initial Costs        Acquisitions       Value
                                                 -----------------------  ----------------  -------------
                                                                          Land, Buildings,    Buildings,               Buildings,
                                                                           Improvements,    Improvements,             Improvements
                                                                             Furniture,      Furniture,                Furniture,
                                                           Buildings and   Fixtures and     Fixtures and              Fixtures and
              Description                         Land     Improvements      Equipment        Equipment       Land     Equipment
----------------------------------------------   --------  -------------  ----------------  --------------  --------  ------------
<S>                                              <C>       <C>            <C>               <C>             <C>       <C>
The Citadel, Denver, CO                          $  1,803  $      17,259  $          4,782  $           --  $  1,803  $     22,041
Las Colinas Plaza, Irving, TX                       2,576          7,125             1,965              --     2,581         9,085
Carter Burgess Plaza, Fort Worth, TX                1,375         66,649            39,131              --     1,375       105,780
The Crescent Office Towers, Dallas, TX              6,723        153,383            83,870              --     6,723       237,253
MacArthur Center I & II, Irving, TX                   704         17,247             5,007              --       880        22,078
125. E. John Carpenter Freeway, Irving, TX          2,200         48,744             2,903              --     2,200        51,647
Regency Plaza One, Denver, CO                         950         31,797             2,664              --       950        34,461
The Avallon, Austin, TX                               475         11,207               723              --       475        11,930
Waterside Commons, Irving, TX                       3,650         20,135             7,445              --     3,650        27,580
Two Renaissance Square, Phoenix, AZ                    --         54,412            10,290              --        --        64,702
Liberty Plaza I & II, Dallas, TX                    1,650         15,956               538              --     1,650        16,494
6225 North 24th Street, Phoenix, AZ(2)                719          6,566             3,433              --       719         9,999
Denver Marriott City Center, Denver, CO                --         50,364             6,981              --        --        57,345
MCI Tower, Denver, CO                                  --         56,593             3,267              --        --        59,860
Spectrum Center, Dallas, TX                         2,000         41,096             8,009              --     2,000        49,105
Ptarmigan Place, Denver, CO                         3,145         28,815             5,437              --     3,145        34,252
Stanford Corporate Centre, Dallas, TX                  --         16,493             6,507              --        --        23,000
Barton Oaks Plaza One, Austin, TX                     900          8,207             2,032              --       900        10,239
The Aberdeen, Dallas, TX                              850         25,895               409              --       850        26,304
12404 Park Central, Dallas, TX                      1,604         14,504             4,933              --     1,604        19,437
Briargate Office and                                                                     0                        --
   Research Center, Colorado Springs, CO            2,000         18,044             1,603              --     2,000        19,647
Hyatt Regency Beaver Creek, Avon, CO               10,882         40,789            19,698              --    10,882        60,487
Albuquerque Plaza, Albuquerque, NM                     --         36,667             2,689              --       101        39,255
Hyatt Regency Albuquerque, Albuquerque, NM             --         32,241             4,840              --        --        37,081
The Woodlands Office Properties, Houston, TX(2)(3) 12,007         35,856           (12,417)             --     8,735        26,720
Sonoma Mission Inn & Spa, Sonoma, CA               10,000         44,922            36,444              --    10,000        81,366
Bank One Tower, Austin, TX(4)                       3,879         35,431           (39,310)             --        --            --


<Caption>
                                                                                                             Life on Which
                                                                                                            Depreciation in
                                                                                                              Latest come
                                                                  Accumulated     Date of     Acquisition     Statement Is
              Description                               Total    Depreciation   Construction      Date         Computed
-------------------------------------------------      --------  ------------   ------------  ------------  --------------
<S>                                                    <C>       <C>            <C>           <C>           <C>
The Citadel, Denver, CO                                $ 23,844  $    (15,092)      1987          1987            (1)
Las Colinas Plaza, Irving, TX                            11,666        (4,739)      1989          1989            (1)
Carter Burgess Plaza, Fort Worth, TX                    107,155       (47,594)      1982          1990            (1)
The Crescent Office Towers, Dallas, TX                  243,976      (159,434)      1985          1993            (1)
MacArthur Center I & II, Irving, TX                      22,958        (8,354)    1982/1986       1993            (1)
125. E. John Carpenter Freeway, Irving, TX               53,847       (10,614)      1982          1994            (1)
Regency Plaza One, Denver, CO                            35,411        (7,139)      1985          1994            (1)
The Avallon, Austin, TX                                  12,405        (2,125)      1986          1994            (1)
Waterside Commons, Irving, TX                            31,230        (5,193)      1986          1994            (1)
Two Renaissance Square, Phoenix, AZ                      64,702       (14,627)      1990          1994            (1)
Liberty Plaza I & II, Dallas, TX                         18,144        (3,173)    1981/1986       1994            (1)
6225 North 24th Street, Phoenix, AZ(2)                   10,718        (2,891)      1981          1995            (1)
Denver Marriott City Center, Denver, CO                  57,345       (13,117)      1982          1995            (1)
MCI Tower, Denver, CO                                    59,860        (9,457)      1982          1995            (1)
Spectrum Center, Dallas, TX                              51,105       (11,103)      1983          1995            (1)
Ptarmigan Place, Denver, CO                              37,397        (8,294)      1984          1995            (1)
Stanford Corporate Centre, Dallas, TX                    23,000        (4,807)      1985          1995            (1)
Barton Oaks Plaza One, Austin, TX                        11,139        (2,343)      1986          1995            (1)
The Aberdeen, Dallas, TX                                 27,154        (6,357)      1986          1995            (1)
12404 Park Central, Dallas, TX                           21,041        (4,043)      1987          1995            (1)
Briargate Office and                                         --            --
   Research Center, Colorado Springs, CO                 21,647        (3,655)      1988          1995            (1)
Hyatt Regency Beaver Creek, Avon, CO                     71,369       (10,104)      1989          1995            (1)
Albuquerque Plaza, Albuquerque, NM                       39,356        (6,271)      1990          1995            (1)
Hyatt Regency Albuquerque, Albuquerque, NM               37,081        (8,041)      1990          1995            (1)
The Woodlands Office Properties, Houston, TX(2)(3)       35,455        (8,813)    1980-1993       1995            (1)
Sonoma Mission Inn & Spa, Sonoma, CA                     91,366       (10,734)      1927          1996            (1)
Bank One Tower, Austin, TX(4)                                --            --       1974          1996            (1)
</Table>


                                       99
<PAGE>

                                                                    SCHEDULE III

<Table>
<Caption>
                                                                              Costs
                                                                            Capitalized      Impairment
                                                                           Subsequent to     to Carrying
                                                       Initial Costs        Acquisitions       Value
                                                 -----------------------  ----------------  -------------
                                                                          Land, Buildings,    Buildings,               Buildings,
                                                                           Improvements,    Improvements,             Improvements
                                                                             Furniture,      Furniture,                Furniture,
                                                           Buildings and   Fixtures and     Fixtures and              Fixtures and
              Description                         Land     Improvements      Equipment        Equipment       Land     Equipment
----------------------------------------------   --------  -------------  ----------------  --------------  --------  ------------
<S>                                              <C>       <C>            <C>               <C>             <C>       <C>
Canyon Ranch, Tucson, AZ                         $ 14,500  $      43,038  $          5,842  $           --  $ 17,846  $     45,534
3333 Lee Parkway, Dallas, TX                        1,450         13,177             3,881              --     1,468        17,040
Greenway I & IA, Richardson, TX                     1,701         15,312               523              --     1,701        15,835
Three Westlake Park, Houston, TX                    2,920         26,512             3,114              --     2,920        29,626
Frost Bank Plaza, Austin, TX                           --         36,019             5,427              --        --        41,446
301 Congress Avenue, Austin, TX                     2,000         41,735             7,716              --     2,000        49,451
Chancellor Park, San Diego, CA                      8,028         23,430            (5,202)             --     2,328        23,928
Canyon Ranch, Lenox, MA                             4,200         25,218            12,941              --     4,200        38,159
Greenway Plaza Office Portfolio, Houston, TX       27,204        184,765           105,498              --    27,204       290,263
The Woodlands Office Properties, Houston, TX        2,393          8,523                --              --     2,393         8,523
1800 West Loop South, Houston, TX                   4,165         40,857             2,945              --     4,165        43,802
55 Madison, Denver, CO                              1,451         13,253             1,325              --     1,451        14,578
Miami Center, Miami, FL                            13,145        118,763             7,726              --    13,145       126,489
44 Cook, Denver, CO                                 1,451         13,253             2,516              --     1,451        15,769
Trammell Crow Center, Dallas, TX                   25,029        137,320            13,596              --    25,029       150,916
Greenway II, Richardson, TX                         1,823         16,421             1,105              --     1,823        17,526
Fountain Place, Dallas, TX                         10,364        103,212             8,825              --    10,364       112,037
Behavioral Healthcare Facilities(2)(5)             89,000        301,269          (235,137)       (122,202)   12,785        20,145
Houston Center, Houston, TX                        52,504        224,041            15,366              --    47,406       244,505
Ventana Country Inn, Big Sur, CA                    2,782         26,744             3,941              --     2,782        30,685
5050 Quorum, Dallas, TX                               898          8,243               846              --       898         9,089
Addison Tower, Dallas, TX                             830          7,701               663              --       830         8,364
Cedar Springs Plaza, Dallas, TX(2)                    700          6,549             1,281              --       700         7,830
Palisades Central I, Dallas, TX                     1,300         11,797             1,513              --     1,300        13,310
Palisades Central II, Dallas, TX                    2,100         19,176             5,803              --     2,100        24,979
Reverchon Plaza, Dallas, TX                         2,850         26,302             2,198              --     2,850        28,500
Stemmons Place, Dallas, TX                             --         37,537             3,686              --        --        41,223
The Addison, Dallas, TX                             1,990         17,998               790              --     1,990        18,788
Sonoma Golf Course, Sonoma, CA                     14,956             --             2,139              --    11,795         5,300
Austin Centre,  Austin, TX                          1,494         36,475             2,675              --     1,494        39,150
Omni Austin Hotel,  Austin, TX                      2,409         56,670             3,280              --     2,409        59,950
Washington Harbour, Washington, D.C.(6)            16,100        146,438          (162,538)             --        --            --
Four Westlake Park,  Houston, TX(4)                 3,910         79,190           (79,190)             --     3,910            --
Post Oak Central, Houston, TX                      15,525        139,777             8,492              --    15,525       148,269
Datran Center, Miami, FL                               --         71,091             3,528              --        --        74,619

<Caption>
                                                                                                             Life on Which
                                                                                                            Depreciation in
                                                                                                              Latest come
                                                                  Accumulated     Date of     Acquisition     Statement Is
              Description                               Total    Depreciation   Construction      Date         Computed
-------------------------------------------------      --------  ------------   ------------  ------------  --------------
<S>                                                    <C>       <C>            <C>           <C>           <C>
Canyon Ranch, Tucson, AZ                               $ 63,380  $     (6,626)      1980          1996            (1)
3333 Lee Parkway, Dallas, TX                             18,508        (3,330)      1983          1996            (1)
Greenway I & IA, Richardson, TX                          17,536        (2,045)      1983          1996            (1)
Three Westlake Park, Houston, TX                         32,546        (3,765)      1983          1996            (1)
Frost Bank Plaza, Austin, TX                             41,446        (6,590)      1984          1996            (1)
301 Congress Avenue, Austin, TX                          51,451        (8,701)      1986          1996            (1)
Chancellor Park, San Diego, CA                           26,256        (3,542)      1988          1996            (1)
Canyon Ranch, Lenox, MA                                  42,359        (7,317)      1989          1996            (1)
Greenway Plaza Office Portfolio, Houston, TX            317,467       (52,175)    1969-1982       1996            (1)
The Woodlands Office Properties, Houston, TX             10,916        (1,805)    1995-1996       1996            (1)
1800 West Loop South, Houston, TX                        47,967        (4,966)      1982          1997            (1)
55 Madison, Denver, CO                                   16,029        (2,229)      1982          1997            (1)
Miami Center, Miami, FL                                 139,634       (13,615)      1983          1997            (1)
44 Cook, Denver, CO                                      17,220        (2,723)      1984          1997            (1)
Trammell Crow Center, Dallas, TX                        175,945       (20,323)      1984          1997            (1)
Greenway II, Richardson, TX                              19,349        (2,074)      1985          1997            (1)
Fountain Place, Dallas, TX                              122,401       (12,580)      1986          1997            (1)
Behavioral Healthcare Facilities(2)(5)                   32,930        (4,995)    1850-1992       1997            (1)
Houston Center, Houston, TX                             291,911       (28,034)    1974-1983       1997            (1)
Ventana Country Inn, Big Sur, CA                         33,467        (4,270)    1975-1988       1997            (1)
5050 Quorum, Dallas, TX                                   9,987        (1,202)    1980/1986       1997            (1)
Addison Tower, Dallas, TX                                 9,194        (1,184)    1980/1986       1997            (1)
Cedar Springs Plaza, Dallas, TX(2)                        8,530        (1,309)    1980/1986       1997            (1)
Palisades Central I, Dallas, TX                          14,610        (1,916)    1980/1986       1997            (1)
Palisades Central II, Dallas, TX                         27,079        (3,532)    1980/1986       1997            (1)
Reverchon Plaza, Dallas, TX                              31,350        (3,760)    1980/1986       1997            (1)
Stemmons Place, Dallas, TX                               41,223        (5,486)    1980/1986       1997            (1)
The Addison, Dallas, TX                                  20,778        (2,215)    1980/1986       1997            (1)
Sonoma Golf Course, Sonoma, CA                           17,095        (1,063)      1929          1998            (1)
Austin Centre,  Austin, TX                               40,644        (4,195)      1986          1998            (1)
Omni Austin Hotel,  Austin, TX                           62,359        (8,618)      1986          1998            (1)
Washington Harbour, Washington, D.C.(6)                      --            --       1986          1998            (1)
Four Westlake Park,  Houston, TX(4)                       3,910            --       1992          1998            (1)
Post Oak Central, Houston, TX                           163,794       (14,478)    1974-1981       1998            (1)
Datran Center, Miami, FL                                 74,619        (6,940)    1986-1992       1998            (1)
</Table>


                                      100
<PAGE>
                                                                    SCHEDULE III

<Table>
<Caption>
                                                                               Costs
                                                                             Capitalized      Impairment
                                                                            Subsequent to     to Carrying
                                                        Initial Costs        Acquisitions       Value
                                                  -----------------------  ----------------  -------------
                                                                           Land, Buildings,    Buildings,               Buildings,
                                                                            Improvements,    Improvements,             Improvements
                                                                              Furniture,      Furniture,                Furniture,
                                                            Buildings and   Fixtures and     Fixtures and              Fixtures and
              Description                          Land     Improvements      Equipment        Equipment       Land     Equipment
------------------------------------------------  --------  -------------  ----------------  --------------  --------  ------------
<S>                                               <C>       <C>            <C>               <C>             <C>       <C>
Avallon Phase II,  Austin, TX                     $  1,102  $          --  $         23,365  $           --  $  1,236  $     23,231
Plaza Park Garage                                    2,032         14,125               570              --     2,032        14,695
Washington Harbour Phase II, Washington, D.C.(2)    15,279            411               283              --    15,322           651
5 Houston Center, Houston, TX                        7,598             --            (7,598)             --        --            --
Houston Center Land, Houston, TX                    14,642             --                22              --    14,515           149
Crescent Real Estate Equities L.P.                      --             --            29,648              --        --        29,648
Other                                               23,270          2,874            17,059              --    29,602        13,594
Land held for development or sale, Dallas, TX       27,288             --            (7,474)             --    19,670           144
                                                  --------  -------------  ----------------  --------------  --------  ------------
Subtotal                                          $492,475  $   3,031,622  $         26,862  $     (122,202) $373,868  $  3,054,889
Properties held for disposition, net(7)           (107,822)      (320,142)          230,140         122,202   (31,651)      (43,973)
                                                  --------  -------------  ----------------  --------------  --------  ------------
                                                  $384,653  $   2,711,480  $        257,002  $           --  $342,217  $  3,010,916
                                                  ========  =============  ================  ==============  ========  ============
<Caption>
                                                                                                             Life on Which
                                                                                                            Depreciation in
                                                                                                              Latest come
                                                                  Accumulated     Date of     Acquisition     Statement Is
              Description                               Total    Depreciation   Construction      Date         Computed
-------------------------------------------------    ----------  ------------   ------------  ------------  --------------
<S>                                                  <C>         <C>            <C>           <C>           <C>
Avallon Phase II,  Austin, TX                        $   24,467  $     (2,055)      1997           --             (1)
Plaza Park Garage                                        16,727        (1,020)      1998           --             (1)
Washington Harbour Phase II, Washington, D.C.(2)         15,973            --       1998           --             (1)
5 Houston Center, Houston, TX                                --            --        --            --             (1)
Houston Center Land, Houston, TX                         14,664           (18)       --            --             (1)
Crescent Real Estate Equities L.P.                       29,648        (9,202)       --            --             (1)
Other                                                    43,201          (822)       --            --             (1)
Land held for development or sale, Dallas, TX            19,814            --        --            --             --
                                                     ----------  ------------
Subtotal                                             $3,428,757  $   (648,834)
Properties held for disposition, net(7)                 (75,624)       10,930
                                                     ----------  ------------
                                                     $3,417,827  $   (637,904)
                                                     ==========  ============
</Table>


(1) Depreciation of the real estate assets is calculated over the following
    estimated useful lives using the straight-line method:

    Building and improvements            5 to 40 years
    Tenant improvements                  Terms of leases
    Furniture, fixtures, and equipment   3 to 5 years

(2) The carrying values of the assets held for disposition at December 31, 2001,
    have been reflected as "Properties held for Disposition, Net."

(3) During the year ended December 31, 2001, The Woodlands Office Equities - '95
    Limited, owned by the Company and the Woodlands Commercial Properties
    Company, L.P., sold three of The Woodlands Office Properties.

(4) On July 30, 2001, the Company entered into joint venture arrangements with
    GE for these Office Properties. The gross amount at which land is carried
    for Four Westlake Park includes $3,910 of land, which was not joint
    ventured.

(5) Depreciation on behavioral healthcare properties held for sale ceased from
    11/11/99 through 12/31/01 (the period over which these properties were held
    for sale).

(6) These Office Properties were sold on September 18, 2001.

(7) See Note 2 of Item 8. Financial Statements and Supplementary Data.

                                      101
<PAGE>
         A summary of combined real estate investments and accumulated
depreciation is as follows:

<Table>
<Caption>
                                                          2001            2000            1999
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Real estate investments:
    Balance, beginning of year                        $  3,681,601    $  4,087,347    $  4,122,069
      Acquisitions                                              --          22,170              --
      Improvements                                          98,946         108,950          95,210
      Dispositions                                        (352,646)       (526,430)         (8,435)
      Reclassification for properties held for
       desposition(1)                                       (1,616)         (1,087)           (924)
      Impairments                                           (8,458)         (9,349)       (120,573)
                                                      ------------    ------------    ------------
    Balance, end of year                              $  3,417,827    $  3,681,601    $  4,087,347
                                                      ============    ============    ============

Accumulated Depreciation:
    Balance, beginning of year                        $    555,491    $    499,293    $    380,154
      Depreciation                                         111,086         123,839         120,745
      Reclassification for properties held for
       desposition(1)                                       (1,616)         (1,087)           (924)
      Dispositions                                         (27,057)        (66,554)           (682)
                                                      ------------    ------------    ------------
    Balance, end of year                              $    637,904    $    555,491    $    499,293
                                                      ============    ============    ============
</Table>


(1)      See Note 2 of Item 8. Financial Statements and Supplementary Data.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

         Reports of Independent Auditors

         Crescent Real Estate Equities Company Consolidated Balance Sheets at
         December 31, 2001 and 2000.

         Crescent Real Estate Equities Company Consolidated Statements of
         Operations for the years ended December 31, 2001, 2000 and 1999.

         Crescent Real Estate Equities Company Consolidated Statements of
         Shareholders' Equity for the years ended December 31, 2001, 2000 and
         1999.

         Crescent Real Estate Equities Company Consolidated Statements of Cash
         Flows for the years ended December 31, 2001, 2000 and 1999.

         Crescent Real Estate Equities Company Notes to Financial Statements.

(a)(2) Financial Statement Schedules

         Schedule III - Crescent Real Estate Equities Company Consolidated Real
         Estate Investments and Accumulated Depreciation at December 31, 2001.

         All other schedules have been omitted either because they are not
         applicable or because the required information has been disclosed in
         the Financial Statements and related notes included in the consolidated
         statements.

(a)(3) Exhibits



                                      102
<PAGE>

   EXHIBIT
   NUMBER                            DESCRIPTION OF EXHIBIT

    3.01                   Restated Declaration of Trust of Crescent Real Estate
                           Equities Company, as amended (filed as Exhibit No.
                           3.01 to the Registrant's Quarterly Report on Form
                           10-Q for the quarter ended September 30, 2001 and
                           incorporated herein by reference)

    3.02                   Amended and Restated Bylaws of Crescent Real Estate
                           Equities Company, as amended (filed as Exhibit No.
                           3.02 to the Registrant's Quarterly Report on Form
                           10-Q for the quarter ended September 30, 1998 and
                           incorporated herein by reference)

    4.01                   Form of Common Share Certificate (filed as Exhibit
                           No. 4.03 to the Registrant's Registration Statement
                           on Form S-3 (File No. 333-21905) and incorporated
                           herein by reference)

    4.02                   Statement of Designation of 6-3/4% Series A
                           Convertible Cumulative Preferred Shares of Crescent
                           Real Estate Equities Company (filed as Exhibit No.
                           4.07 to the Registrant's Annual Report on Form 10-K
                           for the fiscal year ended December 31, 1997 (the
                           "1997 10-K") and incorporated herein by reference)

    4.03                   Form of Certificate of 6-3/4% Series A Convertible
                           Cumulative Preferred Shares of Crescent Real Estate
                           Equities Company (filed as Exhibit No. 4 to the
                           Registrant's Registration Statement on Form 8-A/A
                           filed on February 18, 1998 and incorporated herein by
                           reference)

    4.04                   Indenture, dated as of September 22, 1997, between
                           Crescent Real Estate Equities Limited Partnership and
                           State Street Bank and Trust Company of Missouri, N.A.
                           (filed as Exhibit No. 4.01 to the Registration
                           Statement on Form S-4 (File No. 333-42293) of
                           Crescent Real Estate Equities Limited Partnership
                           (the "Form S-4") and incorporated herein by
                           reference)

    4.05                   6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to
                           the Registrant's Quarterly Report on Form 10-Q for
                           the quarter ended June 30, 1998 (the "1998 2Q 10-Q")
                           and incorporated herein by reference)

    4.06                   7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to
                           the 1998 2Q 10-Q and incorporated herein by
                           reference)

    4                      Pursuant to Regulation S-K Item 601 (b) (4) (iii),
                           the Registrant by this filing agrees, upon request,
                           to furnish to the Securities and Exchange Commission
                           a copy of other instruments defining the rights of
                           holders of long-term debt of the Registrant

    10.01                  Second Amended and Restated Agreement of Limited
                           Partnership of Crescent Real Estate Equities Limited
                           Partnership, dated as of November 1, 1997, as amended
                           (filed as Exhibit No. 10.01 to the Registrant's
                           Annual Report on Form 10-K for the fiscal year ended
                           December 31, 2001 (the "2001 10-K") and incorporated
                           herein by reference)



                                      103
<PAGE>

   EXHIBIT
   NUMBER                            DESCRIPTION OF EXHIBIT

    10.02                  Noncompetition Agreement of Richard E. Rainwater, as
                           assigned to Crescent Real Estate Equities Limited
                           Partnership on May 5, 1994 (filed as Exhibit No.
                           10.02 to the 1997 10-K and incorporated herein by
                           reference)

    10.03                  Noncompetition Agreement of John C. Goff, as assigned
                           to Crescent Real Estate Equities Limited Partnership
                           on May 5, 1994 (filed as Exhibit No. 10.03 to the
                           1997 10-K and incorporated herein by reference)

    10.04                  Employment Agreement with John C. Goff, as assigned
                           to Crescent Real Estate Equities Limited Partnership
                           on May 5, 1994, and as further amended (filed as
                           Exhibit No. 10.04 to the 1999 10-K and incorporated
                           herein by reference)

    10.05                  Eighth Amendment to the Employment Agreement of John
                           C. Goff, dated as of April 10, 2001, effective as of
                           January 1, 2001 (filed as Exhibit No. 10.03 to the
                           Registrant's Quarterly Report on Form 10-Q for the
                           quarter ended June 30, 2001 (the "2001 2Q 10-Q") and
                           incorporated herein by reference)

    10.06                  Employment Agreement of Jerry R. Crenshaw, Jr., dated
                           as of December 14, 1998 (filed as Exhibit No. 10.08
                           to the 1999 10-K and incorporated herein by
                           reference)

    10.07                  Form of Officers' and Trust Managers' Indemnification
                           Agreement as entered into between the Registrant and
                           each of its executive officers and trust managers
                           (filed as Exhibit No. 10.07 to the Form S-4 and
                           incorporated herein by reference)

    10.08                  Crescent Real Estate Equities Company 1994 Stock
                           Incentive Plan (filed as Exhibit No. 10.07 to the
                           Registrant's Registration Statement on Form S-11
                           (File No. 33-75188) (the "Form S-11") and
                           incorporated herein by reference)

    10.09                  Third Amended and Restated 1995 Crescent Real Estate
                           Equities Company Stock Incentive Plan (filed as
                           Exhibit No. 10.01 to the 2001 2Q 10-Q and
                           incorporated herein by reference)

    10.10                  Amendment dated as of November 4, 1999 to the
                           Crescent Real Estate Equities Company 1994 Stock
                           Incentive Plan and the Second Amended and Restated
                           1995 Crescent Real Estate Equities Company Stock
                           Incentive Plan (filed as Exhibit No. 10.10 to the
                           Registrant's Annual Report on Form 10-K for the
                           fiscal year ended December 31, 2000 (the "2000 10-K")
                           and incorporated herein by reference)

    10.11                  Amendment dated as of November 1, 2001 to the
                           Crescent Real Estate Equities Company 1994 Stock
                           Incentive Plan and the Third Amended and Restated
                           1995 Crescent Real Estate Equities Company Stock
                           Incentive Plan (filed as Exhibit No. 10.11 to the
                           2001 10-K and incorporated herein by reference)

    10.12                  Amended and Restated 1995 Crescent Real Estate
                           Equities Limited Partnership Unit Incentive Plan
                           (filed as Exhibit No. 99.01 to the Registrant's
                           Registration Statement on Form S-8 (File No.
                           333-3452) and incorporated herein by reference)

    10.13                  1996 Crescent Real Estate Equities Limited
                           Partnership Unit Incentive Plan, as amended (filed as
                           Exhibit No. 10.14 to the 1999 10-K and incorporated
                           herein by reference)



                                      104
<PAGE>

   EXHIBIT
   NUMBER                            DESCRIPTION OF EXHIBIT

    10.14                  Amendment dated as of November 5, 1999 to the 1996
                           Crescent Real Estate Equities Limited Partnership
                           Unit Incentive Plan (filed as Exhibit No. 10.13 to
                           the Registrant's 2000 10-K and incorporated herein by
                           reference)

    10.15                  Crescent Real Estate Equities, Ltd. Dividend
                           Incentive Unit Plan (filed as Exhibit No. 10.14 to
                           the Registrant's 2000 10-K and incorporated herein by
                           reference)

    10.16                  Annual Incentive Compensation Plan for select
                           Employees of Crescent Real Estate Equities, Ltd.
                           (filed as Exhibit No. 10.15 to the 2000 10-K and
                           incorporated herein by reference)

    10.17                  Crescent Real Estate Equities, Ltd. First Amended and
                           Restated 401(k) Plan, as amended (filed as Exhibit
                           No. 10.12 to the Registrant's Annual Report on Form
                           10-K for the fiscal year ended December 31, 1998 and
                           incorporated herein by reference)

    10.18                  Form of Registration Rights, Lock-Up and Pledge
                           Agreement (filed as Exhibit No. 10.05 to the Form
                           S-11 and incorporated herein by reference)

    21.01                  List of Subsidiaries (filed as Exhibit No. 21.01 to
                           the 2001 10-K and incorporated herein by reference)

    23.01                  Consent of Ernst & Young LLP (filed herewith)

    23.02                  Consent of Deloitte & Touche LLP (filed herewith)


(b)      Reports on Form 8-K

         None

(c)      Exhibits

         See Item 14(a)(3) above.



                                      105
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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, on the 22nd day of
October, 2002.

                                       CRESCENT REAL ESTATE EQUITIES COMPANY
                                                    (Registrant)

                                       By   /s/ John C. Goff
                                            ------------------------------------
                                            John C. Goff
                                            Chief Executive Officer


                                       By   /s/ Jerry R. Crenshaw Jr.
                                            ------------------------------------
                                            Jerry R. Crenshaw Jr.
                                            Senior Vice President and Chief
                                            Financial Officer (Principal
                                            Accounting and Financial Officer)



                                      106
<PAGE>

                                 CERTIFICATIONS

         I, John C. Goff, the Chief Executive Officer of Crescent Real Estate
Equities Company, hereby certify that:

         1.   I have reviewed this annual report on Form 10-K/A;

         2.   Based on my knowledge, this annual report does not contain any
              untrue statement of a material fact or omit to state a material
              fact necessary to make the statements made, in light of the
              circumstances under which such statements were made, not
              misleading with respect to the period covered by this annual
              report; and

         3.   Based on my knowledge, the financial statements, and other
              financial information included in this annual report, fairly
              present in all material respects the financial condition, results
              of operations and cash flows of the registrant as of, and for, the
              periods presented in this annual report.(1)


Date: October 22, 2002
      ------------------

                                       /s/ John C. Goff
                                       ------------------------------
                                       Name: John C. Goff
                                       Title: Chief Executive Officer


----------

(1) The certifications required by Form 10-K have been modified as set forth
above in accordance with the Securities and Exchange Commission's ("SEC's")
transition provisions governing certifications of amended periodic reports for
periods ending prior to the effective date of the SEC's certification rules. See
SEC Final Rule, Certification of Disclosure in Companies' Quarterly and Annual
Reports, Section V, Transition Provisions, 67 Fed. Reg. 57276, 57283 (Sept. 9,
2002).



                                      107
<PAGE>

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

            PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         The undersigned, John C. Goff, the Chief Executive Officer of Crescent
Real Estate Equities Company (the "Company"), has executed this certification in
connection with the filing with the Securities and Exchange Commission of the
Company's Annual Report on Form 10-K/A for the period ended December 31, 2001
(the "Report"). The undersigned hereby certifies that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

Date: October 22, 2002                 /s/ John C. Goff
      ------------------               ------------------------------
                                       Name: John C. Goff
                                       Title: Chief Executive Officer



                                      108
<PAGE>

                                 CERTIFICATIONS

         I, Jerry R. Crenshaw, Jr., the Senior Vice President and Chief
Financial and Accounting Officer of Crescent Real Estate Equities Company,
hereby certify that:

         1.   I have reviewed this annual report on Form 10-K/A;

         2.   Based on my knowledge, this annual report does not contain any
              untrue statement of a material fact or omit to state a material
              fact necessary to make the statements made, in light of the
              circumstances under which such statements were made, not
              misleading with respect to the period covered by this annual
              report; and

         3.   Based on my knowledge, the financial statements, and other
              financial information included in this annual report, fairly
              present in all material respects the financial condition, results
              of operations and cash flows of the registrant as of, and for, the
              periods presented in this annual report.(1)


Date: October 22, 2002
      ------------------

                                       /s/ Jerry R. Crenshaw, Jr.
                                       -----------------------------------------
                                       Name: Jerry R. Crenshaw, Jr.
                                       Title: Senior Vice President and Chief
                                              Financial and Accounting Officer



----------

(1) The certifications required by Form 10-K have been modified as set forth
above in accordance with the Securities and Exchange Commission's ("SEC's")
transition provisions governing certifications of amended periodic reports for
periods ending prior to the effective date of the SEC's certification rules. See
SEC Final Rule, Certification of Disclosure in Companies' Quarterly and Annual
Reports, Section V, Transition Provisions, 67 Fed. Reg. 57276, 57283 (Sept. 9,
2002).



                                      109
<PAGE>

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

            PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         The undersigned, Jerry R. Crenshaw, Jr., the Senior Vice President and
Chief Financial and Accounting Officer of Crescent Real Estate Equities Company
(the "Company"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Company's Annual Report on
Form 10-K/A for the period ended December 31, 2001 (the "Report"). The
undersigned hereby certifies that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

Date: October 22, 2002                 /s/ Jerry R. Crenshaw, Jr.
      ------------------               -----------------------------------------
                                       Name: Jerry R. Crenshaw, Jr.
                                       Title: Senior Vice President and Chief
                                              Financial and Accounting Officer



                                      110
<PAGE>

                                  EXHIBIT INDEX


<Table>
<Caption>
   EXHIBIT
   NUMBER                            DESCRIPTION OF EXHIBIT
   ------                            ----------------------
<S>                        <C>
    3.01                   Restated Declaration of Trust of Crescent Real Estate
                           Equities Company, as amended (filed as Exhibit No.
                           3.01 to the Registrant's Quarterly Report on Form
                           10-Q for the quarter ended September 30, 2001 and
                           incorporated herein by reference)

    3.02                   Amended and Restated Bylaws of Crescent Real Estate
                           Equities Company, as amended (filed as Exhibit No.
                           3.02 to the Registrant's Quarterly Report on Form
                           10-Q for the quarter ended September 30, 1998 and
                           incorporated herein by reference)

    4.01                   Form of Common Share Certificate (filed as Exhibit
                           No. 4.03 to the Registrant's Registration Statement
                           on Form S-3 (File No. 333-21905) and incorporated
                           herein by reference)

    4.02                   Statement of Designation of 6-3/4% Series A
                           Convertible Cumulative Preferred Shares of Crescent
                           Real Estate Equities Company (filed as Exhibit No.
                           4.07 to the Registrant's Annual Report on Form 10-K
                           for the fiscal year ended December 31, 1997 (the
                           "1997 10-K") and incorporated herein by reference)

    4.03                   Form of Certificate of 6-3/4% Series A Convertible
                           Cumulative Preferred Shares of Crescent Real Estate
                           Equities Company (filed as Exhibit No. 4 to the
                           Registrant's Registration Statement on Form 8-A/A
                           filed on February 18, 1998 and incorporated herein by
                           reference)

    4.04                   Indenture, dated as of September 22, 1997, between
                           Crescent Real Estate Equities Limited Partnership and
                           State Street Bank and Trust Company of Missouri, N.A.
                           (filed as Exhibit No. 4.01 to the Registration
                           Statement on Form S-4 (File No. 333-42293) of
                           Crescent Real Estate Equities Limited Partnership
                           (the "Form S-4") and incorporated herein by
                           reference)

    4.05                   6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to
                           the Registrant's Quarterly Report on Form 10-Q for
                           the quarter ended June 30, 1998 (the "1998 2Q 10-Q")
                           and incorporated herein by reference)

    4.06                   7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to
                           the 1998 2Q 10-Q and incorporated herein by
                           reference)

    4                      Pursuant to Regulation S-K Item 601 (b) (4) (iii),
                           the Registrant by this filing agrees, upon request,
                           to furnish to the Securities and Exchange Commission
                           a copy of other instruments defining the rights of
                           holders of long-term debt of the Registrant

    10.01                  Second Amended and Restated Agreement of Limited
                           Partnership of Crescent Real Estate Equities Limited
                           Partnership, dated as of November 1, 1997, as amended
                           (filed as Exhibit No. 10.01 to the Registrant's
                           Annual Report on Form 10-K for the fiscal year ended
                           December 31, 2001 (the "2001 10-K") and incorporated
                           herein by reference)

    10.02                  Noncompetition Agreement of Richard E. Rainwater, as
                           assigned to Crescent Real Estate Equities Limited
                           Partnership on May 5, 1994 (filed as Exhibit No.
                           10.02 to the 1997 10-K and incorporated herein by
                           reference)
</Table>



                                      111
<PAGE>

<Table>
<Caption>
   EXHIBIT
   NUMBER                            DESCRIPTION OF EXHIBIT
   ------                            ----------------------
<S>                        <C>
    10.03                  Noncompetition Agreement of John C. Goff, as assigned
                           to Crescent Real Estate Equities Limited Partnership
                           on May 5, 1994 (filed as Exhibit No. 10.03 to the
                           1997 10-K and incorporated herein by reference)

    10.04                  Employment Agreement with John C. Goff, as assigned
                           to Crescent Real Estate Equities Limited Partnership
                           on May 5, 1994, and as further amended (filed as
                           Exhibit No. 10.04 to the 1999 10-K and incorporated
                           herein by reference)

    10.05                  Eighth Amendment to the Employment Agreement of John
                           C. Goff, dated as of April 10, 2001, effective as of
                           January 1, 2001 (filed as Exhibit No. 10.03 to the
                           Registrant's Quarterly Report on Form 10-Q for the
                           quarter ended June 30, 2001 (the "2001 2Q 10-Q") and
                           incorporated herein by reference)

    10.06                  Employment Agreement of Jerry R. Crenshaw, Jr., dated
                           as of December 14, 1998 (filed as Exhibit No. 10.08
                           to the 1999 10-K and incorporated herein by
                           reference)

    10.07                  Form of Officers' and Trust Managers' Indemnification
                           Agreement as entered into between the Registrant and
                           each of its executive officers and trust managers
                           (filed as Exhibit No. 10.07 to the Form S-4 and
                           incorporated herein by reference)

    10.08                  Crescent Real Estate Equities Company 1994 Stock
                           Incentive Plan (filed as Exhibit No. 10.07 to the
                           Registrant's Registration Statement on Form S-11
                           (File No. 33-75188) (the "Form S-11") and
                           incorporated herein by reference)

    10.09                  Third Amended and Restated 1995 Crescent Real Estate
                           Equities Company Stock Incentive Plan (filed as
                           Exhibit No. 10.01 to the 2001 2Q 10-Q and
                           incorporated herein by reference)

    10.10                  Amendment dated as of November 4, 1999 to the
                           Crescent Real Estate Equities Company 1994 Stock
                           Incentive Plan and the Second Amended and Restated
                           1995 Crescent Real Estate Equities Company Stock
                           Incentive Plan (filed as Exhibit No. 10.10 to the
                           Registrant's Annual Report on Form 10-K for the
                           fiscal year ended December 31, 2000 (the "2000 10-K")
                           and incorporated herein by reference)

    10.11                  Amendment dated as of November 1, 2001 to the
                           Crescent Real Estate Equities Company 1994 Stock
                           Incentive Plan and the Third Amended and Restated
                           1995 Crescent Real Estate Equities Company Stock
                           Incentive Plan (filed herewith)

    10.12                  Amended and Restated 1995 Crescent Real Estate
                           Equities Limited Partnership Unit Incentive Plan
                           (filed as Exhibit No. 99.01 to the Registrant's
                           Registration Statement on Form S-8 (File No.
                           333-3452) and incorporated herein by reference)

    10.13                  1996 Crescent Real Estate Equities Limited
                           Partnership Unit Incentive Plan, as amended (filed as
                           Exhibit No. 10.14 to the 1999 10-K and incorporated
                           herein by reference)

    10.14                  Amendment dated as of November 5, 1999 to the 1996
                           Crescent Real Estate Equities Limited Partnership
                           Unit Incentive Plan (filed as Exhibit No. 10.13 to
                           the Registrant's 2000 10-K and incorporated herein by
                           reference)
</Table>



                                      112
<PAGE>

<Table>
<Caption>
   EXHIBIT
   NUMBER                            DESCRIPTION OF EXHIBIT
   ------                            ----------------------
<S>                        <C>
    10.15                  Crescent Real Estate Equities, Ltd. Dividend
                           Incentive Unit Plan (filed as Exhibit No. 10.14 to
                           the Registrant's 2000 10-K and incorporated herein by
                           reference)

    10.16                  Annual Incentive Compensation Plan for select
                           Employees of Crescent Real Estate Equities, Ltd.
                           (filed as Exhibit No. 10.15 to the 2000 10-K and
                           incorporated herein by reference)

    10.17                  Crescent Real Estate Equities, Ltd. First Amended and
                           Restated 401(k) Plan, as amended (filed as Exhibit
                           No. 10.12 to the Registrant's Annual Report on Form
                           10-K for the fiscal year ended December 31, 1998 and
                           incorporated herein by reference)

    10.18                  Form of Registration Rights, Lock-Up and Pledge
                           Agreement (filed as Exhibit No. 10.05 to the Form
                           S-11 and incorporated herein by reference)

    21.01                  List of Subsidiaries (filed as Exhibit No. 21.01 to
                           the 2001 10-K and incorporated herein by reference)

    23.01                  Consent of Ernst & Young LLP (filed herewith)

    23.02                  Consent of Deloitte & Touche LLP (filed herewith)
</Table>



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