<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

(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)

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

              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               New York Stock Exchange
par value $.01 per share

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. [ ]

As of March 11, 2002, the aggregate market value of the 96,368,621 common
shares and 8,000,000 preferred shares held by non-affiliates of the registrant
was approximately $1.8 billion and $156.0 million, respectively, based upon the
closing price of $18.51 for common shares and $19.50 for preferred shares on the
New York Stock Exchange.

Number of Common Shares outstanding as of March 11, 2002:       119,365,362
Number of Preferred Shares outstanding as of March 11, 2002:      8,000,000

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission for Registrant's 2002 Annual Meeting of Shareholders to be held in
June 2002 are incorporated by reference into Part III.

<PAGE>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                           PAGE
<S>      <C>                                                               <C>
                                     PART I.

Item 1.  Business.....................................................        2
Item 2.  Properties...................................................       14
Item 3.  Legal Proceedings............................................       25
Item 4.  Submission of Matters to a Vote of Security Holders..........       25


                                  PART II.

Item 5.  Market for Registrant's Common Equity and Related
         Shareholder Matters..........................................       26
Item 6.  Selected Financial Data......................................       28
Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations....................................       29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...       59
Item 8.  Financial Statements and Supplementary Data..................       60
Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure.....................................      104


                                  PART III.

Item 10. Trust Managers and Executive Officers of the Registrant......      104
Item 11. Executive Compensation.......................................      105
Item 12. Security Ownership of Certain Beneficial Owners and
         Management...................................................      105
Item 13. Certain Relationships and Related Transactions...............      105


                                  PART IV.

Item 14. Exhibits, Financial Statement Schedules, and Reports on
         Form 8-K.....................................................      105
</Table>


                                       1
<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.


                                       2
<PAGE>

         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, 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 four 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 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 20. 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.


                                       3
<PAGE>

                       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.

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.


                                       4
<PAGE>


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;

         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.

                              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


                                       5
<PAGE>

         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 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.


                                       6
<PAGE>

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 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.


                                       7
<PAGE>

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
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.


                                       8
<PAGE>

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 and
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.

                              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:


                                       9
<PAGE>

         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 20. 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. 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
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.


                                       10
<PAGE>

                         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, in lieu of
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 20. 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.

         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.




                                       11
<PAGE>

                    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' same-store earnings before interest, taxes,
depreciation and amortization, and rent declined 11% for the year ended December
31, 2001, compared to the same period in 2000. These declines are attributable
to a reduction in total customer inventory stored at the warehouses and a
reduction in the frequency of customer inventory turnover. 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 deferred rent of $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.


                                       12
<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, transportation and
distribution) reduction initiatives in an effort to improve operating
performance. As the economy continues to recover from the current recession and
stabilize at a level significantly greater than the trailing six months'
performance, AmeriCold Logistics will continue to examine key areas of its
operations to maximize long-term growth potential. These initiatives include
customer profitability, reductions of energy and labor costs and providing
complete supply chain solutions complemented by information systems to its
customers. In addition, as socioeconomic events create spikes in demand and
upset the planning balance between manufacturers and retailers, AmeriCold will
experience variability in short term revenues. However, as Ameriold Logistics
focuses on its key initiatives, it will forge alliances with existing and new
customers that will encourage movement of product into its facilities and
strengthen long-term revenues.

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,


                                       13
<PAGE>

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.

ITEM 2. PROPERTIES

         The Company considers all of its Properties to be in good condition,
well-maintained and suitable and adequate to carry on the Company's business.

                                OFFICE PROPERTIES

         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'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 (41% for Dallas/Fort Worth and 36% for Houston).

         In pursuit of management's objective to dispose of non-strategic and
non-core assets, five of the Company's fully consolidated Office Properties were
disposed of during the year ended December 31, 2001. The Company completed the
sale of the two Washington Harbour Office Properties located in Washington,
D.C., and the Woodlands Office Equities - '95 Limited, owned by the Company and
the Woodlands Commercial Properties Company, L. P., sold three Office Properties
located within The Woodlands, Texas.


                                       14
<PAGE>

OFFICE PROPERTIES TABLES

         The following table shows, as of December 31, 2001, certain information
about the Company's Office Properties. In the table below "CBD" means central
business district. 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.

<Table>
<Caption>
                                                                                                                        WEIGHTED
                                                                                                                        AVERAGE
                                                                                                NET                  FULL-SERVICE
                                                                                             RENTABLE                 RENTAL RATE
                                            NO. OF                                 YEAR        AREA      PERCENT      PER LEASED
          STATE, CITY, PROPERTY           PROPERTIES          SUBMARKET         COMPLETED    (SQ. FT.)   LEASED       SQ. FT.(1)
---------------------------------------   ----------  ------------------------  ---------   ----------   -------     -------------
<S>                                       <C>         <C>                       <C>         <C>          <C>         <C>
TEXAS
   DALLAS
     Bank One Center(2)                          1    CBD                            1987    1,530,957      88%        $  23.11
     The Crescent Office Towers                  1    Uptown/Turtle Creek            1985    1,204,670     100            32.81
     Fountain Place                              1    CBD                            1986    1,200,266      97            20.28
     Trammell Crow Center(3)                     1    CBD                            1984    1,128,331      85            25.09
     Stemmons Place                              1    Stemmons Freeway               1983      634,381      87            17.67
     Spectrum Center(4)                          1    Far North Dallas               1983      598,250      88            24.05
     Waterside Commons                           1    Las Colinas                    1986      458,739     100            20.84
     125 E. John Carpenter Freeway               1    Las Colinas                    1982      445,993      80            28.92
     Reverchon Plaza                             1    Uptown/Turtle Creek            1985      374,165      52            21.62
     The Aberdeen                                1    Far North Dallas               1986      320,629     100            19.42
     MacArthur Center I & II                     1    Las Colinas               1982/1986      294,069      92            23.89
     Stanford Corporate Centre                   1    Far North Dallas               1985      265,507      72            23.85
     12404 Park Central                          1    LBJ Freeway                    1987      239,103     100            22.75
     Palisades Central II                        1    Richardson/Plano               1985      237,731      99(10)        22.50
     3333 Lee Parkway                            1    Uptown/Turtle Creek            1983      233,769      92            22.71
     Liberty Plaza I & II                        1    Far North Dallas          1981/1986      218,813     100            16.16
     The Addison                                 1    Far North Dallas               1981      215,016     100            19.85
     Palisades Central I                         1    Richardson/Plano               1980      180,503      95            21.39
     Greenway II                                 1    Richardson/Plano               1985      154,329     100            23.86
     Greenway I & IA                             2    Richardson/Plano               1983      146,704     100            24.22
     Addison Tower                               1    Far North Dallas               1987      145,886      95            20.61
     5050 Quorum                                 1    Far North Dallas               1981      133,594      87            20.63
     Cedar Springs Plaza(5)                      1    Uptown/Turtle Creek            1982      110,923      92            19.63
                                             -----                                          ----------    ----         --------
      Subtotal/Weighted Average                 24                                          10,472,328      91%        $  23.54
                                             -----                                          ----------    ----         --------

   FORT WORTH
     Carter Burgess Plaza                        1    CBD                            1982      954,895      90%(10)    $  17.16
                                             -----                                          ----------    ----         --------

   HOUSTON
     Greenway Plaza Office Portfolio            10    Richmond-Buffalo          1969-1982    4,285,906      93%        $  20.30
                                                      Speedway
     Houston Center                              3    CBD                       1974-1983    2,764,418      95            21.83
     Post Oak Central                            3    West Loop/Galleria        1974-1981    1,277,516      89            19.68
     The Woodlands Office Properties(6)          8    The Woodlands             1980-1996      561,989      89            17.62
     Four Westlake Park(7)                       1    Katy Freeway                   1992      561,065     100            21.06
     Three Westlake Park                         1    Katy Freeway                   1983      414,206      94            22.45
     1800 West Loop South                        1    West Loop/Galleria             1982      399,777      69            19.53
                                             -----                                          ----------    ----         --------
      Subtotal/Weighted Average                 27                                          10,264,877      92%        $  20.62
                                             -----                                          ----------    ----         --------
</Table>


                                       15
<PAGE>

<Table>
<Caption>
                                                                                                                         WEIGHTED
                                                                                                                         AVERAGE
                                                                                                  NET                 FULL-SERVICE
                                                                                               RENTABLE                RENTAL RATE
                                            NO. OF                                YEAR           AREA      PERCENT     PER LEASED
          STATE, CITY, PROPERTY           PROPERTIES          SUBMARKET        COMPLETED       (SQ. FT.)   LEASED      SQ. FT.(1)
---------------------------------------   ----------  ------------------------ ---------      ----------   -------    -------------
<S>                                       <C>         <C>                      <C>            <C>          <C>        <C>
   AUSTIN
     Frost Bank Plaza                            1    CBD                           1984         433,024      97%       $  25.12
     301 Congress Avenue(8)                      1    CBD                           1986         418,338      80           26.30
     Bank One Tower(7)                           1    CBD                           1974         389,503      96           24.67
     Austin Centre                               1    CBD                           1986         343,664      93           27.82
     The Avallon I, II, III; IV; V               3    Northwest                1993/1997/2001    318,217      87(10)       23.74
     Barton Oaks Plaza One                       1    Southwest                     1986          99,895     100           27.11
                                             -----                                            ----------    ----        --------
      Subtotal/Weighted Average                  8                                             2,002,641      91%       $  25.57
                                             -----                                            ----------    ----        --------

COLORADO
   DENVER
     MCI Tower                                   1    CBD                           1982         550,807      99%       $  19.47
     Ptarmigan Place                             1    Cherry Creek                  1984         418,630     100           19.36
     Regency Plaza One                           1    Denver Technology Center      1985         309,862      95           24.14
     55 Madison                                  1    Cherry Creek                  1982         137,176      97           20.79
     The Citadel                                 1    Cherry Creek                  1987         130,652      97           23.35
     44 Cook                                     1    Cherry Creek                  1984         124,174      91           20.71
                                             -----                                            ----------    ----        --------
      Subtotal/Weighted Average                  6                                             1,671,301      98%       $  20.80
                                             -----                                            ----------    ----        --------

   COLORADO SPRINGS
     Briargate Office
      and Research Center                        1    Colorado Springs              1988         252,857      64%(10)   $  19.72
                                             -----                                            ----------    ----        --------

FLORIDA
   MIAMI
     Miami Center                                1    CBD                           1983         782,686      95%       $  26.60
     Datran Center                               2    South Dade/Kendall       1986/1988         472,236      94           23.23
                                             -----                                            ----------    ----        --------
      Weighted Average                           3                                             1,254,922      95%       $  25.34
                                             -----                                            ----------    ----        --------

ARIZONA
   PHOENIX
     Two Renaissance Square                      1    Downtown/CBD                  1990         476,373      97%       $  25.43
     6225 North 24th Street                      1    Camelback Corridor            1981          86,451      34           21.98
                                             -----                                            ----------    ----        --------
      Subtotal/Weighted Average                  2                                               562,824      87%       $  25.23
                                             -----                                            ----------    ----        --------

NEW MEXICO
   ALBUQUERQUE
     Albuquerque Plaza                           1    CBD                           1990         366,236      87%       $  19.35
                                             -----                                            ----------    ----        --------

CALIFORNIA
   SAN DIEGO
     Chancellor Park(9)                          1    University Town Center        1988         195,733      84%       $  26.94
                                             -----                                            ----------    ----        --------


      TOTAL/WEIGHTED AVERAGE                    74                                            27,998,614       92%(10)  $  22.28(11)
                                             =====                                            ==========    =====       ========
</Table>

----------

(1)      Calculated based on base rent payable as of December 31, 2001, without
         giving effect to free rent or scheduled rent increases that would be
         taken into account under GAAP and including adjustments for expenses
         payable by or reimbursable from tenants.

(2)      The Company has a 49.5% limited partner interest and a 0.5% general
         partner interest in the partnership that owns Bank One Center.

(3)      The Company owns the principal economic interest in Trammell Crow
         Center through its ownership of fee simple title to the Property
         (subject to a ground lease and a leasehold estate regarding the
         building) and two mortgage notes encumbering the leasehold interests in
         the land and building.

(4)      The Company owns the principal economic interest in Spectrum Center
         through an interest in Crescent Spectrum Center, L.P. which owns both
         the mortgage notes secured by Spectrum Center and the ground lessor's
         interest in the land underlying the office building.

(5)      This Office Property was sold subsequent to December 31, 2001.

(6)      The Company has a 75% limited partner interest and an approximate 10%
         indirect general partner interest in the partnership that owns the
         eight Office Properties that comprise The Woodlands Office Properties.

(7)      The Company has a 0.1% general partner interest and a 19.9% limited
         partner interest in the partnerships that own Four Westlake Park and
         Bank One Tower.

(8)      The Company has a 1% general partner interest and a 49% limited partner
         interest in the partnership that owns 301 Congress Avenue.

(9)      The Company owns Chancellor Park through its ownership of a mortgage
         note secured by the building and through its direct and indirect
         interests in the partnership, which owns the building.

(10)     Leases have been executed at certain Office Properties but had not
         commenced as of December 31, 2001. If such leases had commenced as of
         December 31, 2001, the percent leased for all Office Properties would
         have been 93%. The total percent leased for these Properties would have
         been as follows: Palisades Central II - 100%; Carter Burgess Plaza -
         95%; The Avallon - 100%; and Briargate Office and Research Center -
         67%.

(11)     The weighted average full-service rental rate per square foot
         calculated based on base rent payable for Company Office Properties as
         of December 31, 2001, giving effect to free rent and scheduled rent
         increases that would be taken into consideration under GAAP and
         including adjustments for expenses payable by or reimbursed from
         tenants is $22.42.


                                       16
<PAGE>

         The following table provides information, as of December 31, 2001, for
the Company's Office Properties by state, city and submarket.

<Table>
<Caption>
                                                                                  PERCENT             OFFICE
                                                                 PERCENT OF      LEASED AT          SUBMARKET
                                                     TOTAL          TOTAL         COMPANY             PERCENT
                                     NUMBER OF      COMPANY        COMPANY        OFFICE              LEASED/
   STATE, CITY, SUBMARKET            PROPERTIES     NRA(1)          NRA(1)       PROPERTIES         OCCUPIED(2)
   ----------------------            ----------   ----------     ----------      ----------         -----------
<S>                                  <C>          <C>            <C>             <C>                <C>
CLASS A OFFICE PROPERTIES
TEXAS
 DALLAS
   CBD                                      3      3,859,554             13%             90%                86%
   Uptown/Turtle Creek(6)                   4      1,923,527              7              89                 87
   Far North Dallas                         7      1,897,695              7              91                 84
   Las Colinas                              3      1,198,801              4              91                 86
   Richardson/Plano                         5        719,267              3              99(7)              93
   Stemmons Freeway                         1        634,381              2              87                 90
   LBJ Freeway                              1        239,103              1             100                 75
                                          ---     ----------     ----------      ----------         ----------
     Subtotal/Weighted Average             24     10,472,328             37%             91%                85%
                                          ---     ----------     ----------      ----------         ----------

 FORT WORTH
   CBD                                      1        954,895              3%             90%(7)             96%
                                          ---     ----------     ----------      ----------         ----------

 HOUSTON
   CBD                                      3      2,764,418             10%             95%                95%
   Richmond-Buffalo Speedway                7      3,613,903             13              95                 94
   West Loop/Galleria                       4      1,677,293              6              85                 86
   Katy Freeway                             2        975,271              4              98                 92
   The Woodlands                            6        427,364              1              86                 87
                                          ---     ----------     ----------      ----------         ----------
     Subtotal/Weighted Average             22      9,458,249             34%             93%                92%
                                          ---     ----------     ----------      ----------         ----------

AUSTIN
   CBD                                      4      1,584,529              6%             91%                90%
   Northwest                                3        318,217              1              87(7)              83
   Southwest                                1         99,895              0             100                 90
                                          ---     ----------     ----------      ----------         ----------
     Subtotal/Weighted Average              8      2,002,641              7%             91%                87%
                                          ---     ----------     ----------      ----------         ----------

COLORADO
 DENVER
   Cherry Creek                             4        810,632              3%             98%                97%
   CBD                                      1        550,807              2              99                 94
   Denver Technology Center                 1        309,862              1              95                 81
                                          ---     ----------     ----------      ----------         ----------
     Subtotal/Weighted Average              6      1,671,301              6%             98%                90%
                                          ---     ----------     ----------      ----------         ----------

 COLORADO SPRINGS
   Colorado Springs                         1        252,857              1%             64%(7)             86%
                                          ---     ----------     ----------      ----------         ----------

FLORIDA
 MIAMI
   CBD                                      1        782,686              3%             95%                95%
   South Dade/Kendall                       2        472,236              2              94                 81
                                          ---     ----------     ----------      ----------         ----------
     Subtotal/Weighted Average              3      1,254,922              5%             95%                93%
                                          ---     ----------     ----------      ----------         ----------

ARIZONA
 PHOENIX
   Downtown/CBD                             1        476,373              2%             97%                87%
   Camelback Corridor                       1         86,451              0              34                 81
                                          ---     ----------     ----------      ----------         ----------
     Subtotal/Weighted Average              2        562,824              2%             87%                83%
                                          ---     ----------     ----------      ----------         ----------

NEW MEXICO
 ALBUQUERQUE
   CBD                                      1        366,236              1%             87%                89%
                                          ---     ----------     ----------      ----------         ----------

CALIFORNIA
 SAN DIEGO
   University Town Center                   1        195,733              1%             84%                83%
                                          ---     ----------     ----------      ----------         ----------

<Caption>

                                                                            WEIGHTED
                                                                            AVERAGE
                                                    WEIGHTED                COMPANY
                                                     AVERAGE      COMPANY    FULL-
                                         COMPANY     QUOTED       QUOTED    SERVICE
                                        SHARE OF     MARKET       RENTAL     RENTAL
                                         OFFICE    RENTAL RATE   RATE PER   RATE PER
                                        SUBMARKET   PER SQUARE    SQUARE    SQUARE
   STATE, CITY, SUBMARKET               NRA(1)(2)   FOOT(2)(3)    FOOT(4)    FOOT(5)
   ----------------------              ----------  -----------   --------   --------
<S>                                    <C>         <C>           <C>        <C>
CLASS A OFFICE PROPERTIES
TEXAS
 DALLAS
   CBD                                         21%     $20.66     $25.32     $22.70
   Uptown/Turtle Creek(6)                      33       24.28      31.85      29.51
   Far North Dallas                            15       24.48      24.26      21.12
   Las Colinas                                  9       22.85      23.90      24.25
   Richardson/Plano                            13       20.64      24.61      22.88
   Stemmons Freeway                            26       23.75      19.30      17.67
   LBJ Freeway                                  3       22.77      23.00      22.75
                                       ----------      ------     ------     ------
     Subtotal/Weighted Average                 16%     $22.50     $25.70     $23.54
                                       ----------      ------     ------     ------

 FORT WORTH
   CBD                                         26%     $22.59     $21.80     $17.16
                                       ----------      ------     ------     ------

 HOUSTON
   CBD                                         12%     $24.05     $27.01     $21.83
   Richmond-Buffalo Speedway                   71       20.83      21.64      20.94
   West Loop/Galleria                          11       21.75      21.28      19.65
   Katy Freeway                                15       20.00      24.86      21.63
   The Woodlands                               88       18.34      18.28      17.87
                                       ----------      ------     ------     ------
     Subtotal/Weighted Average                 19%     $21.74     $23.33     $20.95
                                       ----------      ------     ------     ------

AUSTIN
   CBD                                         33%     $28.34     $32.04     $25.83
   Northwest                                    5       24.86      30.12      23.74
   Southwest                                    3       24.93      29.59      27.11
                                       ----------      ------     ------     ------
     Subtotal/Weighted Average                 14%     $27.62     $31.61     $25.57
                                       ----------      ------     ------     ------

COLORADO
 DENVER
   Cherry Creek                                45%     $23.31     $23.48     $20.43
   CBD                                          5       24.25      25.00      19.47
   Denver Technology Center                     6       20.00      26.00      24.14
                                       ----------      ------     ------     ------
     Subtotal/Weighted Average                  9%     $23.01     $24.45     $20.80
                                       ----------      ------     ------     ------

 COLORADO SPRINGS
   Colorado Springs                             5%     $20.60     $20.85     $19.72
                                       ----------      ------     ------     ------

FLORIDA
 MIAMI
   CBD                                         25%     $31.46     $30.70     $26.60
   South Dade/Kendall                          78       24.97      23.96      23.23
                                       ----------      ------     ------     ------
     Subtotal/Weighted Average                 34%     $29.02     $28.16     $25.34
                                       ----------      ------     ------     ------

ARIZONA
 PHOENIX
   Downtown/CBD                                18%     $25.73     $24.50     $25.43
   Camelback Corridor                           2       25.88      21.50      21.98
                                       ----------      ------     ------     ------
     Subtotal/Weighted Average                  8%     $25.75     $24.04     $25.23
                                       ----------      ------     ------     ------

NEW MEXICO
 ALBUQUERQUE
   CBD                                         64%     $18.15     $18.00     $19.35
                                       ----------      ------     ------     ------

CALIFORNIA
 SAN DIEGO
   University Town Center                       6%     $37.80     $35.50     $26.94
                                       ----------      ------     ------     ------
</Table>


                                       17
<PAGE>


<Table>
<Caption>
                                                                                  PERCENT             OFFICE
                                                                 PERCENT OF      LEASED AT          SUBMARKET
                                                     TOTAL          TOTAL         COMPANY             PERCENT
                                     NUMBER OF      COMPANY        COMPANY        OFFICE              LEASED/
   STATE, CITY, SUBMARKET            PROPERTIES     NRA(1)          NRA(1)       PROPERTIES         OCCUPIED(2)
   ----------------------            ----------   ----------     ----------      ----------         -----------
<S>                                  <C>          <C>            <C>             <C>                <C>
     CLASS A OFFICE PROPERTIES
       SUBTOTAL/WEIGHTED
       AVERAGE                             69     27,191,986             97%             92%                88%
                                          ===     ==========     ==========      ==========         ==========
CLASS B OFFICE PROPERTIES
TEXAS
 HOUSTON
   Richmond-Buffalo Speedway                3        672,003              2%             81%                84%
   The Woodlands                            2        134,625              1              98                 47
                                          ---     ----------     ----------      ----------         ----------
     Subtotal/Weighted Average              5        806,628              3%             84%                81%
                                          ---     ----------     ----------      ----------         ----------

     CLASS B OFFICE PROPERTIES
       SUBTOTAL/WEIGHTED
       AVERAGE                              5        806,628              3%             84%                81%
                                          ===     ==========     ==========      ==========         ==========
     CLASS A AND CLASS B
       OFFICE PROPERTIES
       TOTAL/WEIGHTED AVERAGE              74     27,998,614            100%             92%(7)             88%
                                          ===     ==========     ==========      ==========         ==========

<Caption>

                                                                            WEIGHTED
                                                                            AVERAGE
                                                    WEIGHTED                COMPANY
                                                     AVERAGE      COMPANY    FULL-
                                         COMPANY     QUOTED       QUOTED    SERVICE
                                        SHARE OF     MARKET       RENTAL     RENTAL
                                         OFFICE    RENTAL RATE   RATE PER   RATE PER
                                        SUBMARKET   PER SQUARE    SQUARE    SQUARE
   STATE, CITY, SUBMARKET               NRA(1)(2)   FOOT(2)(3)    FOOT(4)    FOOT(5)
   ----------------------              ----------  -----------   --------   --------
<S>                                    <C>         <C>           <C>        <C>
     CLASS A OFFICE PROPERTIES
       SUBTOTAL/WEIGHTED
       AVERAGE                                 16%     $23.05     $25.10     $22.44
                                       ==========      ======     ======     ======
CLASS B OFFICE PROPERTIES
TEXAS
 HOUSTON
   Richmond-Buffalo Speedway                   22%     $17.69     $16.80     $16.15
   The Woodlands                               47       16.60      16.60      16.92
                                       ----------      ------     ------     ------
     Subtotal/Weighted Average                 24%     $17.51     $16.77     $16.30
                                       ----------      ------     ------     ------

     CLASS B OFFICE PROPERTIES
       SUBTOTAL/WEIGHTED
       AVERAGE                                 24%     $17.51     $16.77     $16.30
                                       ==========      ======     ======     ======
     CLASS A AND CLASS B
       OFFICE PROPERTIES
       TOTAL/WEIGHTED AVERAGE                  16%     $22.89     $24.86     $22.28(8)
                                       ==========      ======     ======     ======
</Table>

----------

(1)      NRA means net rentable area in square feet.

(2)      Market information is for Class A office space under the caption "Class
         A Office Properties" and for Class B office space under the caption
         "Class B Office Properties." Sources are CoStar Group (for the Dallas
         CBD, Uptown/Turtle Creek, Far North Dallas, Las Colinas,
         Richardson/Plano, Stemmons Freeway, LBJ Freeway, Fort Worth CBD,
         Houston Richmond-Buffalo Speedway, Houston CBD, West Loop/Galleria, and
         Katy Freeway submarkets), The Woodlands Operating Company, L.P. (for
         The Woodlands submarket), Costar (for the Austin CBD, Northwest and
         Southwest submarkets), Cushman & Wakefield of Colorado, Inc. (for the
         Denver Cherry Creek, CBD and Denver Technology Center submarkets),
         Turner Commercial Research (for the Colorado Springs market), Grubb and
         Ellis Company (for the Phoenix Downtown/CBD and Cammelback Corridor
         submarkets), Building Interests, Inc. (for the Albuquerque CBD
         submarket), RealData Information Systems, Inc. (for the Miami CBD and
         South Dade/Kendall submarkets) and Costar/John Burnham & Co. (for the
         San Diego University Town Center submarket).

(3)      Represents full-service quoted market rental rates. These rates do not
         necessarily represent the amounts at which available space at the
         Office Properties will be leased. The weighted average subtotals and
         total are based on total net rentable square feet of Company Office
         Properties in the submarket.

(4)      For Office Properties, represents weighted average rental rates per
         square foot quoted by the Company, based on total net rentable square
         feet of Company Office Properties in the submarket, adjusted, if
         necessary, based on management estimates, to equivalent full-service
         quoted rental rates to facilitate comparison to weighted average Class
         A or Class B, as the case may be, quoted submarket rental rates per
         square foot. These rates do not necessarily represent the amounts at
         which available space at the Company's Office Properties will be
         leased.

(5)      Calculated based on base rent payable for Company Office Properties in
         the submarket, without giving effect to free rent or scheduled rent
         increases that would be taken into account under GAAP and including
         adjustments for expenses payable by or reimbursed from tenants, divided
         by total net rentable square feet of Company Office Properties in the
         submarket.

(6)      One Office Property in this submarket was sold subsequent to December
         31, 2001.

(7)      Leases have been executed at certain Office Properties in these
         submarkets but had not commenced as of December 31, 2001. If such
         leases had commenced as of December 31, 2001, the percent leased for
         all Office Properties in the Company's submarkets would have been 93%.
         The total percent leased for these Class A Company submarkets would
         have been as follows: Richardson/Plano - 99%; Fort Worth CBD - 95%;
         Austin-Northwest - 100%; and Colorado Springs - 67%.

(8)      The weighted average full-service rental rate per square foot
         calculated based on base rent payable for Company Office Properties,
         giving effect to free rent and scheduled rent increases that would be
         taken into consideration under GAAP and including adjustments for
         expenses payable by or reimbursed from tenants is $22.42.


                                       18
<PAGE>

         The following table shows, as of December 31, 2001, the principal
business conducted by the tenants at the Company's Office Properties, based on
information supplied to the Company from the tenants.

<Table>
<Caption>
                                 Percent of
    Industry Sector            Leased Sq. Ft.
    ---------------            --------------
<S>                            <C>
Professional Services(1)           27%
Energy(2)                          21
Financial Services(3)              19
Telecommunications                  8
Technology                          7
Manufacturing                       3
Food Service                        3
Government                          3
Retail                              2
Medical                             2
Other(4)                            5
                                  ---
TOTAL LEASED                      100%
                                  ===
</Table>

----------

(1)      Includes legal, accounting, engineering, architectural and advertising
         services.

(2)      Includes oil and gas and utility companies.

(3)      Includes banking, title and insurance and investment services.

(4)      Includes construction, real estate, transportation and other
         industries.

AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES

         The following tables show schedules of lease expirations for leases in
place as of December 31, 2001, for the Company's total Office Properties and for
Dallas, Houston and Austin, Texas, and Denver, Colorado, individually, for each
of the 10 years beginning with 2002, assuming that none of the tenants exercises
or has exercised renewal options.

TOTAL OFFICE PROPERTIES

<Table>
<Caption>
                                                                                                    PERCENTAGE
                                             NET RENTABLE        PERCENTAGE OF                       TOTAL OF       ANNUAL FULL-
                                                 AREA              LEASED NET        ANNUAL        ANNUAL FULL-     SERVICE RENT
                          NUMBER OF          REPRESENTED        RENTABLE AREA     FULL-SERVICE     SERVICE RENT      PER SQUARE
                        TENANTS WITH         BY EXPIRING          REPRESENTED      RENT UNDER      REPRESENTED       FOOT OF NET
     YEAR OF LEASE        EXPIRING              LEASES            BY EXPIRING       EXPIRING       BY EXPIRING      RENTABLE AREA
      EXPIRATION           LEASES           (SQUARE FEET)            LEASES         LEASES(1)         LEASES         EXPIRING(1)
     -------------      ------------        -------------       --------------    ------------     ------------     -------------
<S>                     <C>                 <C>                 <C>               <C>              <C>              <C>
2002                             468           3,869,011(2)             15.3%     $ 85,393,837             14.4%    $      22.07
2003                             339           3,534,746(3)             14.0        76,445,243             12.9            21.63
2004                             276           4,327,226                17.1        99,509,168             16.8            23.00
2005                             237           3,385,760                13.4        79,321,957             13.4            23.43
2006                             177           2,574,065                10.2        62,564,254             10.6            24.31
2007                              71           2,066,023                 8.2        48,576,388              8.2            23.51
2008                              32             983,109                 3.9        24,066,598              4.1            24.48
2009                              19             676,981                 2.7        17,305,474              2.9            25.56
2010                              27           1,504,156                 6.0        40,528,244              6.8            26.94
2011                              26             723,362                 2.9        19,573,471              3.3            27.06
2012 and thereafter               19           1,587,599                 6.3        39,124,239              6.6            24.64
                        ------------        ------------        ------------      ------------     ------------     ------------
                               1,691          25,232,038(4)            100.0%     $592,408,873          100.0 %     $      23.48
                        ============        ============        ============      ============     ============     ============
</Table>

----------

(1)      Calculated based on base rent payable under the lease for net rentable
         square feet expiring, without giving effect to free rent or scheduled
         rent increases that would be taken into account under GAAP and
         including adjustments for expenses payable by or reimbursable from
         tenants based on current expense levels.

(2)      As of December 31, 2001, leases have been signed for approximately
         1,471,592 net rentable square feet (representing approximately 38% of
         expiring square footage and including renewed leases and leases of
         previously unleased space) commencing in 2002.

(3)      As of December 31, 2001, leases have been signed for approximately
         460,353 net rentable square feet (representing approximately 13% of
         expiring square footage and including renewed leases and leases of
         previously unleased space) commencing in 2003.


                                       19
<PAGE>

(4)      Reconciliation to the Company's total Office Property net rentable area
         is as follows:


<Table>
<Caption>
                                            SQUARE     PERCENTAGE
                                             FEET       OF TOTAL
                                          ----------   ----------
<S>                                       <C>          <C>
Square footage occupied by tenants        25,232,038      90.1%
Square footage reflecting
    management offices, building use,
    and remeasurement adjustments            387,158       1.4
Square footage vacant                      2,379,418       8.5
                                          ----------     -----
Total net rentable square footage         27,998,614     100.0%
                                          ==========     =====
</Table>

DALLAS OFFICE PROPERTIES

<Table>
<Caption>
                                                                                                   PERCENTAGE
                                        NET RENTABLE         PERCENTAGE OF                          TOTAL OF       ANNUAL FULL-
                                             AREA               LEASED NET         ANNUAL         ANNUAL FULL-     SERVICE RENT
                         NUMBER OF       REPRESENTED         RENTABLE AREA      FULL-SERVICE      SERVICE RENT      PER SQUARE
                       TENANTS WITH      BY EXPIRING           REPRESENTED       RENT UNDER       REPRESENTED       FOOT OF NET
    YEAR OF LEASE        EXPIRING           LEASES             BY EXPIRING        EXPIRING        BY EXPIRING      RENTABLE AREA
      EXPIRATION           LEASES       (SQUARE FEET)             LEASES          LEASES(1)          LEASES         EXPIRING(1)
    -------------      ------------     -------------        -------------      ------------      ------------     -------------
<S>                    <C>              <C>                  <C>                <C>               <C>              <C>
2002                            130         1,202,785(2)              12.8%     $ 30,170,470             13.1%     $       25.08
2003                             94         1,342,618(3)              14.3        29,997,695             13.0              22.34
2004                             84         1,150,737                 12.2        30,276,805             13.1              26.31
2005                             91         1,795,101                 19.1        41,139,066             17.8              22.92
2006                             43           702,018                  7.5        17,875,245              7.8              25.46
2007                             26         1,048,063                 11.2        25,470,093             11.1              24.30
2008                             11           590,319                  6.3        15,449,754              6.7              26.17
2009                              6           376,473                  4.0         9,744,552              4.2              25.88
2010                             13           733,171                  7.8        21,211,321              9.2              28.93
2011                              7           198,876                  2.1         5,684,743              2.5              28.58
2012 and thereafter               2           254,018                  2.7         3,455,038              1.5              13.60
                       ------------     -------------        -------------      ------------      -----------      -------------
                                507         9,394,179                100.0%     $230,474,782            100.0%     $       24.53
                       ============     =============        =============      ============      ===========      =============
</Table>

(1)      Calculated based on base rent payable under the lease for net rentable
         square feet expiring, without giving effect to free rent or scheduled
         rent increases that would be taken into account under GAAP and
         including adjustments for expenses payable by or reimbursable from
         tenants based on current expense levels.

(2)      As of December 31, 2001, leases have been signed for approximately
         277,925 net rentable square feet (representing approximately 23% of
         expiring square footage and including renewed leases and leases of
         previously unleased space) commencing in 2002.

(3)      As of December 31, 2001, leases have been signed for approximately
         84,062 net rentable square feet (representing approximately 6% of
         expiring square footage and including renewed leases and leases of
         previously unleased space) commencing in 2003.


                                       20
<PAGE>

HOUSTON OFFICE PROPERTIES

<Table>
<Caption>
                                                                                          PERCENTAGE
                                         NET RENTABLE     PERCENTAGE OF                     TOTAL OF        ANNUAL FULL-
                                            AREA           LEASED NET        ANNUAL       ANNUAL FULL-      SERVICE RENT
                          NUMBER OF      REPRESENTED      RENTABLE AREA   FULL-SERVICE    SERVICE RENT       PER SQUARE
                        TENANTS WITH     BY EXPIRING       REPRESENTED     RENT UNDER     REPRESENTED       FOOT OF NET
    YEAR OF LEASE         EXPIRING          LEASES         BY EXPIRING      EXPIRING      BY EXPIRING      RENTABLE AREA
      EXPIRATION           LEASES       (SQUARE FEET)        LEASES         LEASES(1)        LEASES         EXPIRING(1)
    -------------       ------------    -------------     -------------   ------------    ------------     -------------
<S>                     <C>             <C>               <C>             <C>             <C>              <C>
2002                             182        1,499,472(2)        15.9%     $ 30,138,158         14.5%         $ 20.10
2003                             128        1,243,846(3)        13.2        25,424,330         12.2            20.44
2004                             107        2,121,173           22.5        43,386,335         20.9            20.45
2005                              71          576,838            6.1        12,801,669          6.2            22.19
2006                              60        1,152,161           12.2        25,946,294         12.5            22.52
2007                              22          754,456            8.0        16,571,175          8.0            21.96
2008                              10          293,235            3.1         5,996,878          2.9            20.45
2009                               3           74,984            0.8         1,729,655          0.8            23.07
2010                               7          582,997            6.2        13,872,390          6.7            23.79
2011                              10          416,487            4.4        10,130,045          4.9            24.32
2012 and thereafter                4          693,726            7.6        21,924,512         10.4            31.60
                        ------------     ------------        -------      ------------      -------          -------
                                 604        9,409,375          100.0%     $207,921,441        100.0%         $ 22.10
                        ============     ============        =======      ============      =======          =======

</Table>

----------

(1)      Calculated based on base rent payable under the lease for net rentable
         square feet expiring, without giving effect to free rent or scheduled
         rent increases that would be taken into account under GAAP and
         including adjustments for expenses payable by or reimbursable from
         tenants based on current expense levels.

(2)      As of December 31, 2001, leases have been signed for approximately
         650,146 net rentable square feet (representing approximately 43% of
         expiring square footage and including renewed leases and leases of
         previously unleased space) commencing in 2002.

(3)      As of December 31, 2001, leases have been signed for approximately
         269,229 net rentable square feet (representing approximately 22% of
         expiring square footage and including renewed leases and leases of
         previously unleased space) commencing in 2003.

AUSTIN OFFICE PROPERTIES

<Table>
<Caption>
                                                                                     PERCENTAGE
                                       NET RENTABLE     PERCENTAGE OF                  TOTAL OF      ANNUAL FULL-
                                           AREA          LEASED NET       ANNUAL     ANNUAL FULL-    SERVICE RENT
                          NUMBER OF     REPRESENTED    RENTABLE AREA   FULL-SERVICE  SERVICE RENT     PER SQUARE
                        TENANTS WITH    BY EXPIRING      REPRESENTED    RENT UNDER   REPRESENTED     FOOT OF NET
    YEAR OF LEASE         EXPIRING         LEASES        BY EXPIRING     EXPIRING    BY EXPIRING    RENTABLE AREA
      EXPIRATION           LEASES      (SQUARE FEET)        LEASES      LEASES(1)       LEASES       EXPIRING(1)
    -------------       -----------    -------------   --------------  ------------  ------------   -------------
<S>                     <C>            <C>             <C>             <C>           <C>            <C>
2002                             35         197,617(2)       11.3%     $ 5,332,326       11.6%         $26.98
2003                             31         207,735(3)       11.9        5,223,132       11.4           25.14
2004                             17         347,369          19.8        8,460,804       18.5           24.36
2005                             25         531,494          30.3       13,832,510       30.2           26.03
2006                             16         318,543          18.2        9,102,744       19.8           28.58
2007                              5          42,266           2.4        1,142,580        2.5           27.03
2008                              3          49,094           2.8        1,253,991        2.7           25.54
2009                              1          21,447           1.2          541,751        1.2           25.26
2010                             --              --            --               --         --              --
2011                              2           3,773           0.2          145,987        0.3           38.69
2012 and thereafter               1          33,315           1.9          828,777        1.8           24.88
                        -----------     -----------        ------      -----------     ------          ------
                                136       1,752,653         100.0%     $45,864,602      100.0%         $26.17
                        ===========     ===========        ======      ===========     ======          ======
</Table>

----------

(1)      Calculated based on base rent payable under the lease for net rentable
         square feet expiring, without giving effect to free rent or scheduled
         rent increases that would be taken into account under GAAP and
         including adjustments for expenses payable by or reimbursable from
         tenants based on current expense levels.

(2)      As of December 31, 2001, leases have been signed for approximately
         103,637 net rentable square feet (representing approximately 52% of
         expiring square footage and including renewed leases and leases of
         previously unleased space) commencing in 2002.

(3)      As of December 31, 2001, leases have been signed for approximately
         31,762 net rentable square feet (representing approximately 15% of
         expiring square footage and including renewed leases and leases of
         previously unleased space) commencing in 2003.


                                       21
<PAGE>


DENVER OFFICE PROPERTIES

<Table>
<Caption>
                                                                                              PERCENTAGE
                                        NET RENTABLE     PERCENTAGE OF                         TOTAL OF       ANNUAL FULL-
                                            AREA           LEASED NET          ANNUAL        ANNUAL FULL-     SERVICE RENT
                          NUMBER OF      REPRESENTED     RENTABLE AREA      FULL-SERVICE     SERVICE RENT      PER SQUARE
                        TENANTS WITH     BY EXPIRING       REPRESENTED        RENT UNDER      REPRESENTED      FOOT OF NET
   YEAR OF LEASE          EXPIRING         LEASES         BY EXPIRING         EXPIRING       BY EXPIRING     RENTABLE AREA
     EXPIRATION            LEASES      (SQUARE FEET)         LEASES           LEASES(1)         LEASES        EXPIRING(1)
   -------------        ------------   -------------     -------------      ------------     ------------    -------------
<S>                     <C>            <C>               <C>                <C>              <C>             <C>
2002                             41         604,619(2)            38.2%     $12,076,836             35.9%     $     19.97
2003                             36         469,416(3)            29.7        9,788,225             29.1            20.85
2004                             17         198,332               12.5        4,308,220             12.8            21.72
2005                             15         171,349               10.8        4,002,821             11.9            23.36
2006                             10          71,586                4.5        1,781,483              5.3            24.89
2007                              2          15,988                1.0          378,437              1.1            23.67
2008                              1          21,351                1.4          603,806              1.8            28.28
2009                              4          19,602                1.2          445,447              1.3            22.72
2010                              2           7,611                0.5          183,357              0.6            24.09
2011                              1           2,478                0.2           52,038              0.2            21.00
2012 and thereafter              --              --                0.0               --              0.0               --
                        -----------     -----------        -----------      -----------      -----------      -----------
                                129       1,582,332              100.0%     $33,620,670            100.0%     $     21.25
                        ===========     ===========        ===========      ===========      ===========      ===========
</Table>

----------

(1)      Calculated based on base rent payable under the lease for net rentable
         square feet expiring, without giving effect to free rent or scheduled
         rent increases that would be taken into account under GAAP and
         including adjustments for expenses payable by or reimbursable from
         tenants based on current expense levels.

(2)      As of December 31, 2001, leases have been signed for approximately
         343,913 net rentable square feet (representing approximately 57% of
         expiring square footage and including renewed leases and leases of
         previously unleased space) commencing in 2002.

(3)      As of December 31, 2001, leases have been signed for approximately
         22,397 net rentable square feet (representing approximately 5% of
         expiring square footage and including renewed leases and leases of
         previously unleased space) commencing in 2003.


                                       22
<PAGE>

                             RESORT/HOTEL PROPERTIES


         The following table shows certain information for the years ended
December 31, 2001, and 2000, with respect to the Company's Resort/Hotel
Properties. The information for the Resort/Hotel Properties is based on
available rooms, except for Canyon Ranch-Tucson and Canyon Ranch-Lenox, which
measure their performance based on available guest nights.

<Table>
<Caption>
                                                                                             FOR THE YEAR ENDED DECEMBER 31,
                                                                                             -------------------------------
                                                                                                         AVERAGE
                                                                                                        OCCUPANCY
                                                                           YEAR                           RATE
                                                                        COMPLETED/                  ----------------
RESORT/HOTEL PROPERTY(1)                              LOCATION           RENOVATED       ROOMS       2001       2000
------------------------                              --------          ----------      --------    ------     -----
<S>                                                <C>                <C>               <C>         <C>        <C>
    UPSCALE BUSINESS CLASS HOTELS:
      Denver Marriott City Center                  Denver, CO            1982/1994           613        77%       84%
      Hyatt Regency Albuquerque                    Albuquerque, NM         1990              395        69        69
      Omni Austin Hotel                            Austin, TX              1986              372        68        81
      Renaissance Houston Hotel                    Houston, TX           1975/2000           389        64        59
                                                                                        --------    ------     -----
           TOTAL/WEIGHTED AVERAGE                                                          1,769        71%       75%
                                                                                        ========    ======     =====

    LUXURY RESORTS AND SPAS:
      Park Hyatt Beaver Creek Resort and Spa(2)    Avon, CO                1989              276        57%       69%
      Sonoma Mission Inn & Spa                     Sonoma, CA         1927/1987/1997         228        59        75
      Ventana Inn & Spa                            Big Sur, CA        1975/1982/1988          62        73        78
                                                                                        --------    ------     -----
           TOTAL/WEIGHTED AVERAGE                                                            566        60%       72%
                                                                                        ========    ======     =====

                                                                                         GUEST
    DESTINATION FITNESS RESORTS AND SPAS:                                                NIGHTS
                                                                                         ------
      Canyon Ranch-Tucson                          Tucson, AZ              1980              250(3)
      Canyon Ranch-Lenox                           Lenox, MA               1989              212(3)
                                                                                        --------    ------      -----
           TOTAL/WEIGHTED AVERAGE                                                            462        81%        86%
                                                                                        ========    ======      =====

           GRAND TOTAL/WEIGHTED AVERAGE FOR RESORT/HOTEL PROPERTIES                                     70%        76%
                                                                                                    ======      =====

<Caption>

                                                                               FOR THE YEAR ENDED DECEMBER 31,
                                                                          ---------------------------------------
                                                                                                    REVENUE
                                                                               AVERAGE                PER
                                                                                DAILY              AVAILABLE
                                                                                 RATE              ROOM/GUEST
RESORT/HOTEL PROPERTY(1)                                                  ------------------    -----------------
------------------------                                                   2001        2000      2001       2000
                                                                          ------      ------    ------     ------
<S>                                                                       <C>         <C>       <C>        <C>
    UPSCALE BUSINESS CLASS HOTELS:
      Denver Marriott City Center
      Hyatt Regency Albuquerque                                           $  123      $  120    $   95     $  101
      Omni Austin Hotel                                                      108         106        74         73
      Renaissance Houston Hotel                                              124         133        84        108
                                                                             113          95        73         56
           TOTAL/WEIGHTED AVERAGE                                         ------      ------    ------     ------
                                                                          $  118      $  116    $   83     $   86
                                                                          ======      ======    ======     ======
    LUXURY RESORTS AND SPAS:
      Park Hyatt Beaver Creek Resort and Spa(2)
      Sonoma Mission Inn & Spa                                            $  278      $  254    $  159     $  176
      Ventana Inn & Spa                                                      299         302       176        226
                                                                             420         458       304        358
           TOTAL/WEIGHTED AVERAGE                                         ------      ------    ------     ------
                                                                          $  305      $  298    $  182     $  216
                                                                          ======      ======    ======     ======

    DESTINATION FITNESS RESORTS AND SPAS:

      Canyon Ranch-Tucson
      Canyon Ranch-Lenox

           TOTAL/WEIGHTED AVERAGE                                         ------      ------    ------     ------
                                                                          $  622      $  593    $  482     $  487
                                                                          ======      ======    ======     ======
           GRAND TOTAL/WEIGHTED AVERAGE FOR RESORT/HOTEL PROPERTIES       $  245      $  238    $  170     $  180
                                                                          ======      ======    ======     ======
</Table>

----------

(1)      As of December 31, 2001, the Company had leased all of the Resort/Hotel
         Properties, except the Omni Austin Hotel, to subsidiaries of COPI. As
         of December 31, 2001, the Omni Austin Hotel was leased pursuant to a
         separate lease to HCD Austin Corporation. 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.

(2)      The hotel is undergoing a $6.9 million renovation of all guestrooms.
         The project is scheduled to be completed by the second quarter of 2002.

(3)      Represents available guest nights, which is the maximum number of
         guests that the resort can accommodate per night.


                                       23
<PAGE>

                       RESIDENTIAL DEVELOPMENT PROPERTIES

         The following table shows certain information as of December 31, 2001,
relating to the Residential Development Properties.

<Table>
<Caption>
                                                                                                                         TOTAL
                                 RESIDENTIAL                                                RESIDENTIAL     TOTAL      LOTS/UNITS
     RESIDENTIAL                 DEVELOPMENT                                                DEVELOPMENT     LOTS/       DEVELOPED
     DEVELOPMENT                 PROPERTIES               TYPE OF                           CORPORATION'S   UNITS         SINCE
   CORPORATION(1)                  (RDP)                   RDP(2)            LOCATION       OWNERSHIP %    PLANNED      INCEPTION
   ---------------               -----------              -------            --------       -------------  -------     ----------
<S>                          <C>                          <C>           <C>                 <C>            <C>         <C>
Desert Mountain              Desert Mountain               SF           Scottsdale,  AZ         93.0%        2,665         2,338
                                                                                                           -------      --------
    Development
    Corporation

The Woodlands                The Woodlands                 SF           The Woodlands,  TX      42.5%       37,554        26,027
                                                                                                           -------      --------
    Land Company,
    Inc.

Crescent                     Bear Paw Lodge                CO           Avon, CO                60.0%           53(6)         53
    Resort                   Eagle Ranch                   SF           Eagle, CO               60.0%        1,100(6)        405
    Development,             Main Street
    Inc.                       Junction                    CO           Breckenridge, CO        30.0%           36(6)         36
                             Main Street
                               Station                     CO           Breckenridge, CO        30.0%           82(6)         82
                             Main Street Station
                               Vacation Club               TS           Breckenridge, CO        30.0%           42            42
                             Riverbend                     SF           Charlotte, NC           60.0%          650           161
                             Three Peaks
                               (Eagle's Nest)              SF           Silverthorne, CO        30.0%          391(6)        253
                             Park Place at
                               Riverfront                  CO           Denver, CO              64.0%           70(6)         70
                             Park Tower at
                               Riverfront                  CO           Denver, CO              64.0%           61(6)         61
                             Promenade Lofts
                               at Riverfront               CO           Denver, CO              64.0%           66(6)         66
                             Cresta                      TH/SFH         Edwards, CO             60.0%           25            19
                             Snow Cloud                    CO           Avon, CO                64.0%           54(6)         26
                             One Vendue Range              CO           Charleston, SC          62.0%           49(6)         --
                             Tahoe Mountain Resorts   TH/SF/CO/TS       Tahoe, CA                               --(7)         --(7)
                                                                                                           -------      --------
          TOTAL CRESCENT RESORT DEVELOPMENT , INC.                                                           2,679         1,274
                                                                                                           -------      --------

Mira Vista                   Mira Vista                    SF           Fort Worth, TX         100.0%          740           740
    Development              The Highlands                 SF           Breckenridge, CO        12.3%          750           480
                                                                                                           -------      --------
    Corp.
          TOTAL MIRA VISTA DEVELOPMENT CORP.                                                                 1,490         1,220
                                                                                                           -------      --------

Houston Area                 Falcon Point                  SF           Houston, TX            100.0%          510           364
    Development              Falcon Landing                SF           Houston, TX            100.0%          623           566
    Corp.                    Spring Lakes                  SF           Houston, TX            100.0%          520           266
                                                                                                           -------      --------

          TOTAL HOUSTON AREA DEVELOPMENT CORP.                                                               1,653         1,196
                                                                                                           -------      --------

              TOTAL                                                                                         46,041        32,055
                                                                                                           =======      ========

<Caption>

                                                          TOTAL          AVERAGE
                               RESIDENTIAL             LOTS/UNITS        CLOSED                   RANGE OF
   RESIDENTIAL                 DEVELOPMENT                CLOSED        SALE PRICE                PROPOSED
   DEVELOPMENT                  PROPERTIES                SINCE          PER LOT/               SALE PRICES
  CORPORATION(1)                   (RDP)                INCEPTION       UNIT($)(3)           PER LOT/UNIT($)(4)
  --------------               -----------             ----------       ----------       ------------------------
<S>                          <C>                       <C>              <C>              <C>             <C>
Desert Mountain              Desert Mountain                2,195          515,000         400,000    -  3,050,000(5)
                                                         --------
    Development
    Corporation

The Woodlands                The Woodlands                 24,472           57,000          16,000    -  1,035,000
                                                         -------
    Land Company,
    Inc.

Crescent                     Bear Paw Lodge                    51        1,455,000         665,000    -  2,025,000
    Resort                   Eagle Ranch                      347          106,000          80,000    -    150,000
    Development,             Main Street
    Inc.                       Junction                        26          473,000         300,000    -    580,000
                             Main Street
                               Station                          8          801,000         215,000    -  1,065,000
                             Main Street Station
                               Vacation Club                   11        1,028,000         380,000    -  4,600,000
                             Riverbend                        161           30,000          25,000    -     38,000
                             Three Peaks
                               (Eagle's Nest)                 176          253,000         135,000    -    425,000
                             Park Place at
                               Riverfront                      53          372,000         195,000    -  1,445,000
                             Park Tower at
                               Riverfront                      --              N/A         180,000    -  2,100,000
                             Promenade Lofts
                               at Riverfront                   --              N/A         180,000    -  2,100,000
                             Cresta                            15        1,847,000       1,900,000    -  2,600,000
                             Snow Cloud                        21        1,760,000         840,000    -  4,545,000
                             One Vendue Range                  --              N/A         450,000    -  3,100,000
                             Tahoe Mountain Resorts            --(7)           N/A             N/A             N/A
                                                         --------
          TOTAL CRESCENT RESORT DEVELOPMENT , INC.            869
                                                         --------

Mira Vista                   Mira Vista                       693          100,000          50,000    -    265,000
    Development              The Highlands                    433          192,000          55,000    -    625,000
                                                         --------
    Corp.
          TOTAL MIRA VISTA DEVELOPMENT CORP.                1,126
                                                         --------

Houston Area                 Falcon Point                     304           42,000          28,000    -     56,000
    Development              Falcon Landing                   488           20,000          19,000    -     26,000
    Corp.                    Spring Lakes                     261           30,000          24,000    -     44,000
                                                         --------

          TOTAL HOUSTON AREA DEVELOPMENT CORP.              1,053
                                                         --------

              TOTAL                                        29,715
                                                         ========
</Table>

----------

(1)      As of December 31, 2001, the Company had an approximately 95%, 95%,
         90%, 94% and 94%, ownership interest in Desert Mountain Development
         Corporation, The Woodlands Land Company, Inc., Crescent Resort
         Development, Inc., Mira Vista Development Corp., and Houston Area
         Development Corp., respectively, through ownership of non-voting common
         stock in each of these Residential Development Corporations. 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 ownership interests, representing
         substantially all of the voting stock, in Desert Mountain Development
         Corporation, The Woodlands Land Company, Inc. and Crescent Resort
         Development, Inc.

(2)      SF (Single-Family Lots); CO (Condominium); TH (Townhome); SFH (Single
         Family Homes) and TS (Timeshare Equivalent Units).

(3)      Based on lots/units closed during the Company's ownership period.

(4)      Based on existing inventory of developed lots and lots to be developed.

(5)      Includes golf membership, which as of December 31, 2001, is $225,000.

(6)      As of December 31, 2001, one unit was under contract at Bear Paw Lodge
         representing $1.6 million in sales; two lots were under contract at
         Eagle Ranch representing $0.3 million in sales; one unit was under
         contract at Main Street Junction representing $0.4 million in sales; 73
         units were under contract at Main Street Station representing $34.2
         million in sales; two lots were under contract at Three Peaks
         representing $0.6 million in sales; 10 units were under contract at
         Park Place at Riverfront representing $6.8 million in sales; 43 units
         were under contract at Park Tower at Riverfront representing $27.6
         million in sales; 52 units were under contract at the Promenade Lofts
         at Riverfront representing $20.9 million in sales; 20 units were under
         contract at Snow Cloud representing $33.7 million in sales and 41 units
         were under contract at One Vendue Range representing $47.9 million in
         sales.

(7)      This project is in the early stages of development, and this
         information is not available as of December 31, 2001.


                                       24
<PAGE>

                   TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES

         The following table shows the number and aggregate size of
Temperature-Controlled Logistics Properties by state as of December 31, 2001:

<Table>
<Caption>
                                   TOTAL CUBIC        TOTAL                                          TOTAL CUBIC        TOTAL
                    NUMBER OF        FOOTAGE       SQUARE FEET                      NUMBER OF          FOOTAGE       SQUARE FEET
      STATE       PROPERTIES(1)   (IN MILLIONS)   (IN MILLIONS)         STATE     PROPERTIES(1)     (IN MILLIONS)   (IN MILLIONS)
      -----       -------------   -------------   -------------         -----     -------------     -------------   -------------
<S>               <C>             <C>             <C>             <C>             <C>               <C>             <C>
Alabama                  4             10.7             0.3       Missouri(2)               2             46.8             2.8
Arizona                  1              2.9             0.1       Nebraska                  2              4.4             0.2
Arkansas                 6             33.1             1.0       New York                  1             11.8             0.4
California               9             28.6             1.1       North Carolina            3             10.0             0.4
Colorado                 1              2.8             0.1       Ohio                      1              5.5             0.2
Florida                  5              7.5             0.3       Oklahoma                  2              2.1             0.1
Georgia                  8             49.5             1.7       Oregon                    6             40.4             1.7
Idaho                    2             18.7             0.8       Pennsylvania              2             27.4             0.9
Illinois                 2             11.6             0.4       South Carolina            1              1.6             0.1
Indiana                  1              9.1             0.3       South Dakota              1              2.9             0.1
Iowa                     2             12.5             0.5       Tennessee                 3             10.6             0.4
Kansas                   2              5.0             0.2       Texas                     2              6.6             0.2
Kentucky                 1              2.7             0.1       Utah                      1              8.6             0.4
Maine                    1              1.8             0.2       Virginia                  2              8.7             0.3
Massachusetts            5             10.5             0.5       Washington                6             28.7             1.1
Mississippi              1              4.7             0.2       Wisconsin                 3             17.4             0.6
                                                                                   -----------    ------------        --------

                                                                  TOTAL                    89(3)         445.2(3)         17.7(3)
                                                                                   ==========     ============        ========
</Table>

----------

(1)      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, in which the
         Company has no interest. The Temperature-Controlled Logistics
         Corporation is entitled to receive lease payments from AmeriCold
         Logistics.

(2)      Includes an underground storage facility, with approximately 33.1
         million cubic feet.

(3)      As of December 31, 2001, AmeriCold Logistics operated 100
         temperature-controlled logistics properties with an aggregate of
         approximately 524.6 million cubic feet (20.2 million square feet) of
         warehouse space.

ITEM 3. LEGAL PROCEEDINGS

         None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended December 31, 2001.


                                       25
<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. 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


                                       26
<PAGE>
related to COPI of $92.8 million, the Company would have reported FFO of $269.9
million for the year ended December 31, 2001.

         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.


                                       27
<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 ..........................   $     696,054    $     718,405    $     746,279    $     698,343    $     447,373
   Operating (loss) income ................         (28,084)          98,409          (54,954)         143,893          111,281
   Income before minority
      interests and extraordinary
      item ................................          27,572          303,052           13,343          183,210          135,024
   Basic earnings per common share:
    (Loss) income before extraordinary
      item ................................   $       (0.07)   $        2.08    $       (0.06)   $        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 ................................   $       (0.07)   $        2.05    $       (0.06)   $        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
   Earnings before interest, taxes,
      depreciation and amortization(2) ....   $     459,155    $     520,002    $     526,154    $     459,992    $     299,390
   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 ..................   $     320,753    $     275,715    $     336,060    $     299,497    $     211,714
    Investing activities ..................         102,054          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."

(2)  Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"),
     is computed as the sum of (i) net income before minority interests and
     extraordinary item, interest expense, depreciation and amortization,
     amortization of deferred financing costs, impairment and other charges
     related to COPI (ii) less gain on property sales, net. EBITDA is presented
     because it provides useful information regarding the Company's ability to
     service debt. EBITDA should not be considered as an alternative measure of
     operating results or cash flow from operations as determined in accordance
     with GAAP. EBITDA as presented may not be comparable to other similarly
     titled measures used by other companies.




                                       28
<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;


                                       29
<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, and 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
                               --------    --------     --------------
(IN MILLIONS)
<S>                            <C>         <C>          <C>
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)          $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.


                                       30
<PAGE>


    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 20. 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
                                                    -------     -------     ----------
(IN THOUSANDS)
<S>                                                 <C>         <C>          <C>
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.

    o    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.

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


                                       31
<PAGE>


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, in lieu of
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 date 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 comparable 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,
                                 ---------------------------------
(dollars in thousands)                 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.

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.


                                       32
<PAGE>


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,
                                   ---------------------
(dollars in thousands)               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.

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


                                       33
<PAGE>
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.

     AmeriCold Logistics' same-store earnings before interest, taxes,
depreciation and amortization, and rent ("EBITDAR") declined 11% for the year
ended December 31, 2001, compared to the same period in 2000. These declines are
attributable to a reduction in total customer inventory stored at the warehouses
and a reduction in the frequency of customer inventory turnover. 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 deferred rent of $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
deferred rent.

     Management believes that EBITDAR is a useful financial performance measure
for assessing the relative stability of the financial condition of AmeriCold
Logistics. The following table shows EBITDAR and lease payment for AmeriCold
Logistics for the year ended December 31, 2001 and 2000.


<Table>
<Caption>
                      FOR THE YEAR ENDED
                         DECEMBER 31,
                     -------------------
(in millions)         2001         2000
                     ------       ------
<S>                  <C>          <C>
EBITDAR(1)           $135.8       $162.1
Lease Payment(2)     $146.0       $160.5
</Table>


---------
(1)  EBITDAR does not represent net income or cash flows from operating,
     financing or investing activities as defined by GAAP.

(2)  Represents the rental obligation (excluding the effect of
     straight-lining rents and deferred rent) of AmeriCold Logistics.

o    During 2001, 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 approximately 8.5 million cubic feet (0.2
     million square feet.)


                                       34
<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 OF TOTAL    TOTAL VARIANCE IN DOLLARS BETWEEN
                                                     REVENUES FOR THE YEAR ENDED DECEMBER 31,      THE YEARS ENDED DECEMBER 31,
                                                     ----------------------------------------    ---------------------------------
                                                                                                            (IN MILLIONS)
                                                      2001             2000             1999     2001 AND 2000       2000 AND 1999
                                                     --------        --------        --------    -------------       -------------
<S>                                                  <C>              <C>              <C>       <C>                 <C>
REVENUES
   Office properties                                     87.7%           84.4%           82.3%      $    4.1            $   (8.5)
   Resort/Hotel properties                                6.6            10.0             8.8          (26.4)                6.9
   Interest and other income                              5.7             5.6             8.9           (0.1)              (26.3)
                                                     --------        --------        --------       --------            --------
     TOTAL REVENUES                                     100.0%          100.0%          100.0%      $  (22.4)           $  (27.9)
                                                     --------        --------        --------       --------            --------
EXPENSES
   Operating expenses                                    38.0%           34.8%           34.4%      $   13.9            $   (7.1)
   Corporate general and administrative                   3.5             3.4             2.2            0.1                 7.8
   Interest expense                                      26.2            28.3            25.7          (20.8)               11.2
   Amortization of deferred financing costs               1.3             1.1             1.4           (0.2)               (0.7)
   Depreciation and amortization                         18.1            17.2            17.6            2.4                (7.9)
   Settlement of merger dispute                            --              --             2.0             --               (15.0)
   Impairment and other charges related
     to real estate assets                                3.6             1.3            24.0           16.0              (169.5)
   Impairment and other charges related
     to COPI                                             13.3              --              --           92.8                  --
                                                     --------        --------        --------       --------            --------
     TOTAL EXPENSES                                     104.0%           86.1%          107.3%         104.2              (181.2)
                                                     --------        --------        --------       --------            --------
OPERATING (LOSS) INCOME                                  (4.0)%          13.9%           (7.3)%     $ (126.6)           $  153.3

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             7.4             5.7          (12.5)               10.6
     Temperature-controlled logistics properties          0.2             1.0             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%           10.4%            9.1%      $  (24.5)           $    7.4

   Gain on property sales, net                            0.6            17.9              --         (124.5)              128.9
                                                     --------        --------        --------       --------            --------
     TOTAL OTHER INCOME AND EXPENSE                       8.0%           28.3%            9.1%      $ (149.0)           $  136.3
                                                     --------        --------        --------       --------            --------

(LOSS) INCOME BEFORE MINORITY INTERESTS
     AND EXTRAORDINARY ITEM                               4.0%           42.2%            1.8%      $ (275.6)           $  289.6

   Minority interests                                    (3.1)           (7.1)           (0.3)          29.6               (48.6)
                                                     --------        --------        --------       --------            --------

NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEM               0.9%           35.1%            1.5%      $ (246.0)           $  241.0

     Extraordinary item - extinguishment of debt         (1.6)           (0.5)             --           (6.9)               (3.9)
                                                     --------        --------        --------       --------            --------

NET (LOSS) INCOME                                        (0.7)%          34.6%            1.5%      $ (252.9)           $  237.1

   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)%          32.3%           (1.0)%     $ (250.0)           $  239.1
                                                     ========        ========        ========       ========            ========
</Table>


                                       35
<PAGE>


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

REVENUES

         Total revenues decreased $22.4 million, or 3.1%, to $696.0 million for
the year ended December 31, 2001, as compared to $718.4 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 $4.1 million, or 0.7%, for
the year ended December 31, 2001, as compared to the year ended December 31,
2000, is attributable to:

             o    increased revenues of $31.3 million from the 74 consolidated
                  Office Properties that the Company owned or had an interest in
                  as of 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;

             o    increased other income of $4.1 million, primarily due to
                  parking revenue; partially offset by

             o    decreased revenues of $27.3 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 $4.0 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 $104.2 million, or 16.8%, to $724.2 million
for the year ended December 31, 2001, as compared to $620.0 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 $13.9 million, or
0.6%, for the year ended December 31, 2001, as compared to the year ended
December 31, 2000, is attributable to:

             o    increased expenses of $24.7 million from the 74 consolidated
                  Office Properties that the Company owned or had an interest in
                  as of 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 $10.8 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.


                                       36
<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 $16.0 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 $11.9 million; and

             o    an impairment loss of $5.0 million recognized on a real estate
                  investment fund, in which the Company has an interest;
                  partially offset by

             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 $149.0 million, or 72.8%, to $55.7 million for
the year ended December 31, 2001, as compared to $204.6 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; and

             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 $124.5 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.

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.


                                       37
<PAGE>


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

REVENUES

         Total revenues decreased $27.9 million, or 3.7%, to $718.4 million for
the year ended December 31, 2000, as compared to $746.3 million for the year
ended December 31, 1999.

         The decrease in Office Property revenues of $8.5 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 78 Office
                  Properties owned as of December 31, 2000, primarily as a
                  result of increased weighted average full-service rental rates
                  at these Properties; and

             o    increased revenues of $5.1 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; and

             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 $26.3 million, or 39.4%,
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

         Total expenses decreased $181.2 million, or 22.6%, to $620.0 million
for the year ended December 31, 2000, as compared to $801.2 million for the year
ended December 31, 1999.

         The decrease in Office Property operating expenses of $7.1 million, or
2.8%, for the year ended December 31, 2000, as compared to the same period in
1999, is attributable to:

             o    decreased expenses of $17.2 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 78 Office
                  Properties owned as of 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.


                                       38
<PAGE>


         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 $7.9 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 $184.5 million is 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 impairment and other
                  charges related to the behavioral healthcare properties in the
                  third quarter of 1999 and the impairment charge in the fourth
                  quarter of 1999 on one of the Office Properties held for
                  disposition as compared to the year ended December 31, 2000.

OTHER INCOME

         Other income increased $136.3 million, or 199.6%, to $204.6 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
                  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;

             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.

                                       39
<PAGE>

         The increase in net gain on property sales of $128.9 million for the
year ended December 31, 2000, as compared to the same period in 1999, is
attributable to:

             o    a net gain of $137.4 million primarily recognized on Office,
                  Resort/Hotel and behavioral healthcare property sales;
                  partially offset by

             o    an impairment loss of $8.5 million recognized on a real estate
                  investment fund, in which the Company has an interest.


                                       40
<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;

                                       41
<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,
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. 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.

         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


                                       42
<PAGE>


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 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 entities 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.

         Under the Agreement, the Company will 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 estimates that the value of the common shares that
will be issued to the COPI stockholders will be between approximately $5.0
million and $8.0 million. The Agreement provides that COPI and the Company will
seek to have a plan of reorganization for COPI, reflecting the terms of the
Agreement and a draft plan of reorganization, approved by the bankruptcy court.
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
substantially from the estimated amount.

         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 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. COPI
currently is in default under the line of credit. 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


                                       43
<PAGE>
cured unless and until a new default shall occur. The Company believes, based on
advice of counsel, that the support agreement should be unenforceable in a COPI
bankruptcy.

         The Company holds 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 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 the tenant, for approximately $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.

         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 unconsolidated companies 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, in lieu of
     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.

(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.

                                       44
<PAGE>


(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, 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") 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 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 proceeds to the Company, including
distributions to the Company resulting from mortgage financing at the joint
venture level. None of the mortgage financing at the joint venture level is
guaranteed by the Company. 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.

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 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 $8.0 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.


                                       45
<PAGE>


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.

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 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.


                                       46
<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, 2001, 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 $3.9 million loaned during the year
ended December 31, 2001) to certain employees and trust managers of the Company
on a 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 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.


                                       47
<PAGE>


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 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.

         As of December 31, 2001, GMACCM held $218.4 million of non-voting,
redeemable preferred Class A Units in Crescent Real Estate Funding IX (the
"Class A Units"). The Class A Units receive a preferred variable-rate dividend
currently 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. The Class A Units are redeemable at the option of the
Company at the original purchase price.

         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. However, the loan from Funding IX to SH IX matures
March 15, 2003 and will be repaid by SH IX to Funding IX at that time. The
proceeds received by Funding IX will be used to redeem Class A Units.

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 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. However, these shares
are held in SH IX until all of the Class A Units are redeemed. Distributions
will continue to be paid on these repurchased common shares and will be used to
pay dividends on the Class A Units.


                                       48
<PAGE>


         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 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.

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. 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 FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which addresses financial accounting and reporting for
acquired goodwill and other intangible assets. This statement requires that
goodwill and some other intangible assets will no longer be amortized, and
provides specific guidance for testing goodwill for impairment. This statement
is effective for fiscal years beginning after December 15, 2001. The Company
expects its impairment losses to range between $14.0 million and $18.3 million
due to the initial application of this statement. These charges relate to
unconsolidated companies in which the Company had an interest as of December 31,
2001. These charges will be reported as resulting from a change in accounting
principle.

         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," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. Management does not believe that adoption of this statement will have a
material effect on its interim or annual financial statements; however,
financial statement presentation will be modified to report the results of
operations and financial position of a component of an entity that either has
been disposed of or is classified as held for sale as discontinued operations.
As a result, the Company will reclassify 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 $40.4 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.


                                       49
<PAGE>

<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
                                    --------     --------      --------     --------     --------

TOTAL                               $  119.0     $  (78.6)     $   40.4     $   32.8     $    7.6
                                    ========     ========      ========     ========     ========
</Table>

----------

(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.

         The Company expects to fund its short-term capital requirements of
approximately $32.8 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, and distributions to shareholders and
unitholders, 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 also
intends to repay the intracompany loan of approximately $285.0 million from
Funding IX to Crescent SH IX at maturity on March 15, 2003, and to redeem the
approximately $218.4 million of Class A Units in Funding IX with the proceeds
received by Funding IX. 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:


                                       50
<PAGE>


    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 $89.3 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 $17.2 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.

REIT QUALIFICATION

         The Company intends to maintain its qualification as a REIT under
Section 856(c) 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.


                                       51
<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


                                       52
<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%.



                                       53
<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 pre-payment penalties. As of December 31, 2001, there were
no provisions related to the Company's existing debt that would require
increased collateral under any situation.

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.



                                       54
<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


                                       55
<PAGE>


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 $16.4 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 accordance 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


                                       56
<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)        (128,355)
    Impairment and other charges related to
          real estate assets                                     21,705            9,349
    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 following
     this table.



                                       57
<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.


                                       58
<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 tenants.

         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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company's use of financial instruments, such as debt instruments,
subject the Company to market risk which may affect the Company's future
earnings and cash flows as well as the fair value of its assets. Market risk
generally refers to the risk of loss from changes in interest rates and market
prices. The Company manages its market risk by attempting to match anticipated
inflow of cash from its operating, investment and financing activities with
anticipated outflow of cash to fund debt payments, distributions to
shareholders, investments, capital expenditures and other cash requirements. The
Company also enters into derivative financial instruments such as interest rate
swaps to mitigate its interest rate risk on a related financial instrument or to
effectively lock the interest rate on a portion of its variable-rate debt.

         The following discussion of market risk is based solely on hypothetical
changes in interest rates related to the Company's variable-rate debt. This
discussion does not purport to take into account all of the factors that may
affect the financial instruments discussed in this section.

INTEREST RATE RISK

         The Company's interest rate risk is most sensitive to fluctuations in
interest rates on its short-term variable-rate debt. The Company had total
outstanding debt of approximately $2.2 billion at December 31, 2001, of which
approximately $0.3 billion, or approximately 14%, was unhedged variable-rate
debt. The weighted average interest rate on such variable-rate debt was 3.9% as
of December 31, 2001. A 10% (39.0 basis point) increase in the weighted average
interest rate on such variable-rate debt would result in an annual decrease in
net income and cash flows of approximately $1.0 million based on the unhedged
variable-rate debt outstanding as of December 31, 2001, as a result of the
increased interest expense associated with the change in rate. Conversely, a 10%
(39.0 basis point) decrease in the weighted average interest rate on such
unhedged variable-rate debt would result in an annual increase in net income and
cash flows of approximately $1.0 million based on the unhedged variable rate
debt outstanding as of December 31, 2001, as a result of the decreased interest
expense associated with the change in rate.

                                       59



<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          INDEX TO FINANCIAL STATEMENTS


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

Report of Independent Public Accountants.........................................................  61

Consolidated Balance Sheets at December 31, 2001 and 2000........................................  62

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999.......  63

Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000
and 1999 ........................................................................................  64

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.......  65

Notes to Consolidated Financial Statements.......................................................  66

Schedule III Consolidated Real Estate Investments and Accumulated Depreciation .................. 103
</Table>








                                       60
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Trust Managers of Crescent Real Estate Equities Company:

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. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.

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 provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Crescent Real Estate Equities
Company and subsidiaries as of December 31, 2001 and 2000, and the 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.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.


                                               ARTHUR ANDERSEN LLP

Dallas, Texas,
February 21, 2002




                                       61
<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                                                                         $    265,594    $    310,301
   Land held for investment or development                                           108,274         116,480
   Building and improvements                                                       2,980,116       3,201,332
   Furniture, fixtures and equipment                                                  74,773          62,802
   Less - accumulated depreciation                                                  (648,834)       (564,805)
                                                                                ------------    ------------
             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.


                                       62

<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                                         $    610,116    $    606,040    $    614,493
   Resort/Hotel properties                                         45,748          72,114          65,237
   Interest and other income                                       40,190          40,251          66,549
                                                             ------------    ------------    ------------
          Total revenues                                     $    696,054    $    718,405    $    746,279
                                                             ------------    ------------    ------------

EXPENSES:
   Real estate taxes                                         $     84,488    $     83,939    $     84,401
   Repairs and maintenance                                         39,247          39,024          44,024
   Other rental property operating                                140,146         127,078         128,723
   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                                  126,157         123,839         131,657
   Settlement of merger dispute                                        --              --          15,000
   Impairment and other charges related to the
      real estate assets                                           25,332           9,349         178,838
   Impairment and other charges related
      to COPI                                                      92,782              --              --
                                                             ------------    ------------    ------------
          Total expenses                                     $    724,138    $    619,996    $    801,233
                                                             ------------    ------------    ------------

         Operating (loss) income                             $    (28,084)   $     98,409    $    (54,954)

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         128,932              --
                                                             ------------    ------------    ------------
         Total other income and expense                      $     55,656    $    204,643    $     68,297
                                                             ------------    ------------    ------------

INCOME BEFORE MINORITY INTERESTS                             $     27,572    $    303,052    $     13,343
  AND EXTRAORDINARY ITEM
   Minority interests                                             (21,429)        (51,002)         (2,384)
                                                             ------------    ------------    ------------

INCOME BEFORE EXTRAORDINARY ITEM                             $      6,143    $    252,050    $     10,959
   Extraordinary item - extinguishment of debt                    (10,802)         (3,928)             --
                                                             ------------    ------------    ------------

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               $      (0.07)   $       2.08    $      (0.06)
   Extraordinary item - extinguishment of debt                      (0.10)          (0.03)             --
                                                             ------------    ------------    ------------

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

DILUTED EARNINGS PER SHARE DATA:
   Net (loss) income before extraordinary item               $      (0.07)   $       2.05    $      (0.06)
   Extraordinary item - extinguishment of debt                      (0.10)          (0.03)             --
                                                             ------------    ------------    ------------

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


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



                                       63
<PAGE>
                     CRESCENT REAL ESTATE EQUITIES COMPANY
                            CONSOLIDATED STATEMENTS
                            OF SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)




<Table>
<Caption>

                                                        Preferred Shares         Treasury Shares                Common Shares
                                                     ---------------------   ------------------------    -------------------------
                                                       Shares     Net Value    Shares       Par Value       Shares       Par Value
                                                     ---------   ---------   ----------    ----------    ------------    ---------
<S>                                                  <C>         <C>         <C>           <C>           <C>             <C>

 SHAREHOLDERS' EQUITY, December 31,1998              8,000,000   $ 200,000           --    $       --     124,555,447    $   1,245

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

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

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

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

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

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

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

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

 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           --    $       --     121,537,353    $   1,208

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

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

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

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

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

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

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

 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)    121,818,653    $   1,211

 Issuance of Common Shares                                  --          --           --            --           6,610            1

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

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

 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)    123,396,017    $   1,227
                                                     =========   =========   ==========    ==========    ============    =========

</Table>

<Table>
<Caption>
                                                                      Deferred                     Accumulated
                                                     Additional     Compensation     Retained         Other
                                                       Paid-in     on Restricted     Earnings     Comprehensive
                                                       Capital         Shares       (Deficit)        Income         Total
                                                     ----------    -------------    ---------    -------------   ----------
<S>                                                  <C>           <C>              <C>          <C>             <C>

 SHAREHOLDERS' EQUITY, December 31,1998              $2,336,621    $         (88)   $(110,196)   $     (5,037)   $2,422,545

 Issuance of Common Shares                                3,850               --           --              --         3,851

 Exercise of Common Share Options                        32,610               --           --              --        32,634

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

 Amortization of Deferred Compensation                       --               41           --              --            41

 Issuance of Common Shares in Exchange for
    Operating Partnership Units                           1,935               --           --              --         1,939

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

 Forward Share Purchase Agreement                            --               --           --              --             7

 Settlement of Forward Share Purchase Agreement        (145,330)              --       (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             $2,229,680    $         (41)   $(386,532)   $     12,459    $2,056,774

 Issuance of Common Shares                                  114               --           --              --           114

 Exercise of Common Share Options                         1,490               --           --              --         1,492

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

 Issuance of Shares in Exchange for Operating
    Partnership Units                                       608               --           --              --           609

 Share Repurchases                                           --               --           --              --      (180,723)

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

 Retirement of Treasury Shares                             (355)              --           --              --            --

 Retirement of Restricted Shares                             --               41           --              --            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             $2,221,531    $          --    $(402,337)   $     (6,734)   $1,731,327

 Issuance of Common Shares                                  148               --           --              --           149

 Exercise of Common Share Options                         9,832               --           --              --         9,839

 Issuance of Shares in Exchange for Operating
    Partnership Units                                     2,849               --           --              --         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              $2,234,360    $          --    $(638,435)   $    (31,484)   $1,405,940
                                                     ==========    =============    =========    ============    ==========
</Table>



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




                                       64
<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                                          135,484         133,336         141,940
          Extraordinary item - extinguishment of debt                             10,802           3,928              --
          Impairment and other charges related to real estate assets              25,332           9,349         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)       (128,932)             --
          Minority interests                                                      21,429          51,002           2,384
          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.




                                       65
<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:

<Table>
<S>                           <C>
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
Funding I, L.P.:              Burgess Plaza, The Citadel, The Crescent Atrium,
("Funding I")                 The Crescent Office Towers, Regency Plaza One,
                              Waterside Commons and 125 E. John Carpenter
                              Freeway

Crescent Real Estate          Albuquerque Plaza, Barton Oaks Plaza One,
Funding II, L.P.:             Briargate Office and Research Center, Hyatt
("Funding II")                Regency 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
</Table>



                                       66
<PAGE>


<Table>
<S>                          <C>
Crescent Real Estate         Chancellor Park, Denver Marriott City Center, MCI
Funding IX, L.P.:            Tower, Miami Center, Reverchon Plaza, 44 Cook
("Funding IX") (3)           Street, 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):
</Table>

----------

(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 companies 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").

         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





                                       67
<PAGE>


                  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 the Company, in
lieu of foreclosure, the lessee interests in the eight Resort/Hotel Properties
leased to subsidiaries of COPI and COPI's voting common stock in three of the
Company's Residential Development Corporations. See "Note 20. 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 to conform with current year presentation.

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:

<Table>
<S>                                               <C>
     Buildings and Improvements                    5 to 40 years
     Tenant Improvements                           Terms of leases
     Furniture, Fixtures and Equipment             3 to 5 years
</Table>

         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




                                       68
<PAGE>



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."

         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.




                                       69
<PAGE>



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.

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.





                                       70
<PAGE>



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           $   6,143         107,613                    $    252,050         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                                $  (7,358)        107,613    $      (0.07)   $    235,644         113,524    $        2.08
Extraordinary item -
     extinguishment of debt                (10,802)                          (0.10)         (3,928)                           (0.03)
                                         ---------    ------------    ------------    ------------    ------------   --------------
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           $  (7,358)        107,613                    $    235,644         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   $  (7,358)        109,140    $      (0.07)   $    235,644         114,721   $         2.05
     item
Extraordinary item -
     extinguishment of debt                (10,802)                          (0.10)         (3,928)                           (0.03)
                                         ---------    ------------    ------------    ------------    ------------   --------------

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            $     10,959         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                                 $     (7,441)        122,876   $      (0.06)
Extraordinary item -
     extinguishment of debt                         --                             --
                                          ------------    ------------   ------------
Net (loss) income available to
     common shareholders                  $     (7,441)        122,876   $      (0.06)
                                          ============    ============   ============

DILUTED EPS -
Net (loss) income
     before extraordinary item            $     (7,441)        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    $     (7,441)        124,813   $      (0.06)
     item
Extraordinary item -
     extinguishment of debt                         --                            --
                                          ------------    ------------   ------------

Net (loss) income available to
     common shareholders                  $     (7,441)        124,813   $      (0.06)
                                          ============    ============   ============
</Table>


         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.





                                       71
<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           9,349         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              --
Impairment related to a real estate investment in which the
     Company has an interest ......................................             --           8,525              --
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 FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which addresses financial accounting and reporting for
acquired goodwill and other intangible assets. This statement requires that
goodwill and some other intangible assets will no longer be amortized, and
provides specific guidance for testing goodwill for impairment. This statement
is effective for fiscal years beginning after December 15, 2001. The Company
expects its impairment losses to range between $14,000 and $18,300 due to the
initial application of this statement. These charges relate to unconsolidated


                                       72
<PAGE>


companies in which the Company had an interest in as of December 31, 2001. These
charges will be reported as resulting from a change in accounting principle.

         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," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. Management does not believe that adoption of this statement will have a
material effect on its interim or annual financial statements; however,
financial statement presentation will be modified to report the results of
operations and financial position of a component of an entity that either has
been disposed of or is classified as held for sale as discontinued operations.
As a result, the Company will reclassify 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, 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.








                                       73
<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)                                       $    610,116    $    606,040    $    614,493
      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                                                 $    696,054    $    718,405    $    746,279
                                                              ============    ============    ============

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         128,355         (16,361)
      Impairment and other charges related to
        real estate assets                                         (21,705)         (9,349)       (136,435)
      Extraordinary item - extinquishment 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.




                                       74
<PAGE>



(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 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 unconsolidated companies 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, in lieu of
     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,
     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.




                                       75
<PAGE>




(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.

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") 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 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 proceeds to the Company, including distributions
to the Company resulting from mortgage financing at the joint venture level.
None of the mortgage financing at the joint venture level is guaranteed by the
Company. 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.




                                       76
<PAGE>


         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 $8,000, of which the
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.

         AmeriCold Logistics' same-store earnings before interest, taxes,
depreciation and amortization, and rent declined 11% for the year ended December
31, 2001, compared to 2000. These declines are attributable to a reduction in
total customer inventory stored at the warehouses and a reduction in the
frequency of customer inventory turnover. AmeriCold Logistics deferred $25,500
of rent for the year ended December 31, 2001, of which the Company's share was
$10,200. AmericCold 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 Company's share was $15,900. 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 deferred rent.




                                       77
<PAGE>



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 real estate investment fund that holds
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 Gain on Property Sales, Net, on
a real estate investment fund that holds marketable securities, in which the
Company has an interest.

         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 on an aggregate basis and classified under the captions
"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
                                              ---------------------------------------------------------
                                               RESIDENTIAL   TEMPERATURE-
                                               DEVELOPMENT    CONTROLLED
                                              CORPORATIONS    LOGISTICS        OFFICE         OTHER
                                              ------------   ------------   ------------   ------------
<S>                                           <C>            <C>            <C>

Real estate, net                              $    933,411   $  1,272,784   $    553,147
Cash                                                28,231         23,412         28,224
Other assets                                       158,385         82,967         31,654
                                              ------------   ------------   ------------
     Total assets                             $  1,120,027   $  1,379,163   $    613,025
                                              ============   ============   ============

Notes payable                                 $    225,263   $    558,949   $    324,718
Notes payable to the Company                       240,827          4,833             --
Other liabilities                                  475,709         46,395         29,394
Equity                                             178,228        768,986        258,913
                                              ------------   ------------   ------------
      Total liabilities and equity            $  1,120,027   $  1,379,163   $    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
  unconsolidated companies                    $    371,535   $    308,427   $    121,423   $     36,932
                                              ============   ============   ============   ============
</Table>


SUMMARY STATEMENTS OF OPERATIONS:

<Table>
<Caption>
                                                  FOR THE YEAR ENDED DECEMBER 31, 2001
                                      ------------------------------------------------------------
                                       RESIDENTIAL   TEMPERATURE-
                                       DEVELOPMENT    CONTROLLED
                                      CORPORATIONS    LOGISTICS          OFFICE(2)        OTHER
                                      ------------   ------------      ------------   ------------
<S>                                   <C>            <C>               <C>            <C>

Total revenues                        $    476,803   $    120,531      $     88,835
Expenses:
   Operating expense                       362,984         13,349(3)         37,128
   Interest expense                          7,981         44,988            19,184
   Depreciation and amortization            14,510         58,855            19,387
   Taxes                                    11,095             --                --
                                      ------------      ---------      ------------
Total expenses                             396,570        117,192            75,699
                                      ------------      ---------      ------------

Net income                            $     80,233   $      3,339(3)   $     13,136
                                      ============      =========      ============

Company's equity in net income
  of unconsolidated companies         $     41,014   $      1,136      $      6,124   $      2,957
                                      ============   ============      ============   ============
</Table>





                                       78
<PAGE>



----------
(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).

BALANCE SHEETS:

<Table>
<Caption>
                                                             BALANCE AT DECEMBER 31, 2000
                                             ---------------------------------------------------------
                                             RESIDENTIAL    TEMPERATURE-
                                             DEVELOPMENT     CONTROLLED
                                             CORPORATIONS     LOGISTICS       OFFICE          OTHER
                                             ------------   ------------   ------------   ------------
<S>                                          <C>            <C>            <C>            <C>

Real estate, net                             $    798,312   $  1,303,810   $    394,724
Cash                                               59,639         19,606         34,599
Other assets                                      196,547         82,883         34,897
                                             ------------   ------------   ------------
     Total assets                            $  1,054,498   $  1,406,299   $    464,220
                                             ============   ============   ============

Notes payable                                $    255,356   $    561,321   $    251,785
Notes payable to the Company                      189,932         11,333             --
Other liabilities                                 388,980         78,042         46,054
Equity                                            220,230        755,603        166,381
                                             ------------   ------------   ------------
      Total liabilities and equity           $  1,054,498   $  1,406,299   $    464,220
                                             ============   ============   ============

Company's share of unconsolidated debt       $    103,100   $    224,528   $    118,485
                                             ============   ============   ============

Company's investments in real estate
  mortgages and equity of
  unconsolidated companies                   $    305,187   $    308,035   $     98,308   $    133,787
                                             ============   ============   ============   ============
</Table>

SUMMARY STATEMENTS OF OPERATIONS:

<Table>
<Caption>
                                                    FOR THE YEAR ENDED DECEMBER 31, 2000
                                       -------------------------------------------------------------
                                        RESIDENTIAL   TEMPERATURE-
                                        DEVELOPMENT    CONTROLLED
                                       CORPORATIONS     LOGISTICS           OFFICE          OTHER
                                       ------------   ------------       ------------   ------------
<S>                                    <C>            <C>                <C>            <C>

Total revenues                         $    544,792   $    154,341       $     89,841
Expenses:
   Operating expense                        402,577         21,982(1)          34,261
   Interest expense                           7,223         46,637             25,359
   Depreciation and amortization             16,311         57,848             20,673
   Taxes                                     33,214          7,311                 --
   Other (income) expense                        --         (2,886)                --
                                       ------------   ------------       ------------
Total expenses                         $    459,325   $    130,892       $     80,293
                                       ------------   ------------       ------------

Net income                             $     85,467   $     23,449(1)    $      9,548
                                       ============   ============       ============


Company's equity in net income
  of unconsolidated companies          $     53,470   $      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).





                                       79
<PAGE>


SUMMARY STATEMENTS OF OPERATIONS:

<Table>
<Caption>
                                                   FOR THE YEAR ENDED DECEMBER 31, 1999
                                       -------------------------------------------------------------
                                        RESIDENTIAL    TEMPERATURE-
                                        DEVELOPMENT     CONTROLLED
                                       CORPORATIONS     LOGISTICS           OFFICE         OTHER
                                       ------------   ------------       ------------   ------------
<S>                                    <C>            <C>                <C>            <C>

Total revenues                         $    502,583   $    264,266       $     78,534
Expenses:
   Operating expense                        394,858        127,516(1)          27,008
   Interest expense                           4,920         47,273             19,321
   Depreciation and amortization             14,295         54,574             19,273
   Taxes                                     22,549         (6,084)                --
                                       ------------   ------------       ------------
Total expenses                         $    436,622   $    223,279       $     65,602
                                       ------------   ------------       ------------

Net income                             $     65,961   $     40,987(1)    $     12,932
                                       ============   ============       ============


Company's equity in net income
  of unconsolidated companies          $     42,871   $     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>





                                       80


<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,
                                                                                                           -----------------------
SECURED DEBT                                                                                                  2001        2000
                                                                                                           ----------   ----------
<S>                                                                                                        <C>           <C>
  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>


                                       81
<PAGE>


<Table>
<Caption>
                                                                                                           BALANCE AT DECEMBER 31,
                                                                                                           -----------------------
SECURED DEBT -- CONTINUED                                                                                     2001        2000
                                                                                                           ----------   ----------
<S>                                                                                                        <C>           <C>
  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 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(10) 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(10) 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 (11); 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%. The
     Fleet Fund I and II Term Loan is the result of the modification of the
     Fleet Term Note II. 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.


                                       82
<PAGE>



(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.

(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) The notes were issued in an offering registered with the SEC.

(11) 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 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 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 C 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.).

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.


                                       83
<PAGE>

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.

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>
                                                                      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>


                                       84
<PAGE>


         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, the 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.


                                       85
<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 tenant
reimburse the Company for increases in operating expenses above operating
expenses during the base year of the tenant'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 20. 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.


                                       86
<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>


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


                                       87
<PAGE>


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    UNDERLYING    EXERCISE     UNDERLYING     EXERCISE
                                             UNIT OPTIONS     PRICE     UNIT OPTIONS     PRICE     UNIT OPTIONS     PRICE
                                             ------------   ---------   ------------   ---------   ------------    ---------
<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 Units
were priced at $21.84, which was the fair market value 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:

<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>
                                 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>


                                       88
<PAGE>


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.

         As of December 31, 2001, GMAC Commercial Mortgage Corporation
("GMACCM") held $218,400 of non-voting, redeemable preferred Class A Units in
Funding IX (the "Class A Units"). The Class A Units receive a preferred
variable-rate dividend currently 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. The Class A Units are redeemable
at the option of the Company at the original purchase price.

         Funding IX contributed 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. However, the loan
between Funding IX and SH IX matures March 15, 2003. The Company intends to
repay the loan of approximately $285,000 at that time. The proceeds received by
Funding IX will be used to redeem Class A Units.


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 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 June 30, 1999, the Company settled the forward share purchase
agreement (the "Forward Share Purchase Agreement") with affiliates of the
predecessor of UBS. As settlement of the Forward Share Purchase Agreement, the
Company made a cash payment of approximately $149,000 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.


                                       89
<PAGE>


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. However, these shares
are held in SH IX until all of the Class A Units are redeemed. Distributions
will continue to be paid on these repurchased common shares and will be used to
pay dividends on the Class A Units.

         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, which, in some cases,
may be secured by the repurchased common shares, equity offerings including
preferred and/or convertible securities, and asset sales. 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 $102,333 under the Share Repurchase
Agreement with UBS. 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 distributions 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.


                                       90
<PAGE>


         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 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                  100.0%     83.7%
Capital gain                          --       8.2%
Unrecaptured Section 1250 gain        --       8.1%
</Table>


                                       91
<PAGE>


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 Company and
50% by John Goff. Mr. Rainwater is also a limited partner of GMSP. At December
31, 2001, DBL has 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 Mr. 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 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 $3,855 loaned during the year ended
December 31, 2001) to certain employees and trust managers of the Company on a
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


                                       92
<PAGE>


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. The November Applicable Federal
Rates are the new interest rates. 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,
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. 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 $78,400. 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.


                                       93
<PAGE>


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 a 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, in lieu of foreclosure, of certain COPI assets, see "Note 20.
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
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.


                                       94
<PAGE>

         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 $7,591 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.


                                       95
<PAGE>


18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

<Table>
<Caption>
                                                                                   2001
                                                           -----------------------------------------------------
                                                           MARCH 31,      JUNE 30,   SEPTEMBER 30,  DECEMBER 31,
                                                           ---------     ---------   -------------  ------------
<S>                                                        <C>           <C>         <C>            <C>
Revenues                                                   $ 178,846     $ 190,216     $ 175,982     $ 151,010
Income before minority interests and extraordinary item       41,000        34,101        30,508       (78,037)
Minority interests                                            (9,752)       (8,337)       (8,049)        4,709
Extraordinary Item                                                --       (10,802)           --            --
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                          0.26          0.21          0.18         (0.72)
   -- Net income                                                0.26          0.11          0.18         (0.72)
   Diluted Earnings Per Common Share
   -- Income before extraordinary item                          0.26          0.20          0.17         (0.72)
   -- 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                                                   $ 175,788     $ 175,229     $ 177,147     $ 190,241
Income before minority interests and extraordinary item       62,082        44,737       100,877        95,356
Minority interests                                            (7,032)       (8,675)      (17,702)      (17,593)
Extraordinary Item                                            (3,928)           --            --            --
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                          0.41          0.28          0.71          0.66
   -- Net income                                                0.38          0.28          0.71          0.66
   Diluted Earnings Per Common Share
   -- Income before extraordinary item                          0.41          0.27          0.70          0.65
   -- Net income                                                0.38          0.27          0.70          0.65
</Table>


19. BEHAVIORAL HEALTHCARE PROPERTIES:

         During the years ended December 31, 2001 and 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 Charter
Behavioral Health Systems, LLC ("CBHS") bankruptcy proceeding. The Company
received approximately $6,000 and $15,400, which is included in Interest and
Other Income, in repayments of a working capital loan, rent and interest from
CBHS during the years ended December 31, 2001 and 2000, respectively. The
Company did not incur any expense related to the behavioral healthcare
properties recognized for the years ended December 31, 2001, 2000 or 1999.

         During the year ended December 31, 2001, the Company completed the sale
of 18 behavioral healthcare properties. 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.

         As of December 31, 2001, the Company owned 10 behavioral healthcare
properties, all of which were classified as held for disposition. The carrying
value of the behavioral healthcare properties at December 31, 2001, was
approximately $27,937. Depreciation expense has not been recognized since the
dates the behavioral healthcare properties were classified as held for sale. The
Company is actively marketing for sale these behavioral healthcare properties.


                                       96
<PAGE>

         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 costs of the sales for seven
of the behavioral healthcare properties.

         During the year ended December 31, 2000, the Company completed the sale
of 60 behavioral healthcare properties previously classified as held for
disposition. The sales generated approximately $233,700 in net proceeds and a
net gain of approximately $58,600 for the year ended December 31, 2000. During
the year ended December 31, 2000, the Company recognized an impairment loss of
$9,300 on 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 13 of the 28 behavioral healthcare
properties. 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.

         As of December 31, 1999, the Company owned 88 behavioral healthcare
properties.

20. SUBSEQUENT EVENTS:

     OFFICE SEGMENT

         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.

     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, 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 entities 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.

         Under the Agreement, the Company has 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 estimates that the value of the common shares that
will be issued to the COPI stockholders will be approximately $5,000 to $8,000.
The Agreement provides that COPI and the Company will seek to have a plan of
reorganization for COPI, reflecting the terms of the Agreement and a draft plan
of reorganization, approved by the bankruptcy court. The actual value of the
common shares


                                       97
<PAGE>


issued to the COPI stockholders will not be determined until the confirmation of
COPI's bankruptcy plan and could vary substantially from the estimated amount.

         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, 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 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. The
Company believes, based on advice of counsel, that the support agreement should
be unenforceable in a COPI bankruptcy. 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.

         The Company holds 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 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 the tenant for approximately $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.

         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 on 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 as of the beginning of the
respective periods.

         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 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 as of December 31, 2001 or results of operations that would
have been achieved had the principal transactions contemplated by the Agreement
had been completed as of January 1, 2001 or 2000.


                                       98
<PAGE>


UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET

<Table>
<Caption>
                                                 AS OF DECEMBER 31,
                                                       2001
                                                 ------------------
<S>                                              <C>
Real estate, net                                    $3,361,929
Cash                                                   191,128
Other assets                                         1,011,741
                                                    ----------
     Total assets                                   $4,564,798
                                                    ==========

Notes payable                                       $2,396,290
Other liabilities                                      442,467
Minority interests                                     353,012
Total shareholders' equity                           1,373,029
                                                    ----------
      Total liabilities and shareholders' equity    $4,564,798
                                                    ==========
</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                                               1,069,608         1,084,201
                                                         -------------     -------------

Operating Income                                                79,220           125,680

Total other income and expense                                  53,161           195,349

Income before minority interests, income taxes
  and extraordinary item                                       132,381           321,029

Income before extraordinary item and
  cumulative effect of change in accounting principle           94,929           249,871
                                                         =============     =============

Basic Earnings per share(1)                              $        0.88     $        2.20
Diluted Earnings per share(1)                            $        0.87     $        2.18
</Table>

(1)      Represents earnings per share for income before extraordinary item and
         cumulative effect of change in accounting principle.


         The unaudited pro forma condensed consolidated 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, as the owner of 100% of the voting
                  stock of Crescent Resort Development, Inc. ("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;


                                       99
<PAGE>


         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 pro forma condensed consolidated operating results
combine the Company's consolidated historical statements of operations for the
years ended December 31, 2001 and 2000 with the following adjustments:

         o        Excludes the $92,782 impairment and other charges related to
                  COPI as contained in the Company's historical 2001
                  consolidated statement of operations, as it's deemed
                  non-recurring;

         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
                  Statement 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; and

         o        Reflects the additional shares issued to COPI shareholders,
                  valued at $5,000, using the Company's current share price of
                  $17.91.


                                      100
<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                   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)    12,007         35,865           (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 (3)                      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                      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)          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 (3)                               --            --       1974          1996            (1)
</Table>


                                      101
<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(4)                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                       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        39,750
Omni Austin Hotel,  Austin, TX                      2,409         56,670             3,280              --     2,409        59,950
Washington Harbour, Washington, D.C. (5)         $ 16,100  $     146,438  $       (162,538) $           --  $     --  $         --
Four Westlake Park,  Houston, TX (3)                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(4)                      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                           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. (5)               $     --  $         --       1986          1998            (1)
Four Westlake Park,  Houston, TX (3)                      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>


                                      102
<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       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              --    29,608        13,595
Land held for development or sale, Dallas, TX      27,288             --            (7,474)             --    19,670           144
                                                 --------  -------------  ----------------  --------------  --------  ------------
Total                                            $492,475  $   3,031,622  $         26,862  $     (122,202) $373,868  $  3,054,889
                                                 ========  =============  ================  ==============  ========  ============

<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.            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                                                    43,203         (822)        --            --             (1)
Land held for development or sale, Dallas, TX            19,814            --        --            --             --
                                                     ----------  ------------
Total                                                $3,428,757  $   (648,834)
                                                     ==========  ============
</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) 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.

(3) 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.

(4) 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).

(5) These Office Properties were sold on September 18, 2001.


                                      103
<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       $  3,690,915    $  4,095,574    $  4,129,372
          Acquisitions                           --          22,170              --
          Improvements                       98,946         108,950          95,210
          Dispositions                     (352,646)       (526,430)         (8,435)
          Impairments                        (8,458)         (9,349)       (120,573)
                                       ------------    ------------    ------------
      Balance, end of year             $  3,428,757    $  3,690,915    $  4,095,574
                                       ============    ============    ============

Accumulated Depreciation:
      Balance, beginning of year       $    564,805    $    507,520    $    387,457
          Depreciation                      111,086         123,839         120,745
          Dispositions                      (27,057)        (66,554)           (682)
                                       ------------    ------------    ------------
      Balance, end of year             $    648,834    $    564,805    $    507,520
                                       ============    ============    ============
</Table>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not Applicable.

                                    PART III

         Certain information Part III requires is omitted from the Report. The
Registrant will file a definitive proxy statement with the SEC pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information to be included
therein is incorporated herein by reference. Only those sections of the Proxy
Statement which specifically address the items set forth herein are incorporated
by reference. Such incorporation does not include the Compensation Committee
Report or the Performance Graph included in the Proxy Statement.

ITEM 10. TRUST MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information this Item requires is incorporated by reference to the
Company's Proxy Statement to be filed with the SEC for its annual shareholders'
meeting to be held in June 2002.


                                       104
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

         The information this Item requires is incorporated by reference to the
Company's Proxy Statement to be filed with the SEC for its annual shareholders'
meeting to be held in June 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information this Item requires is incorporated by reference to the
Company's Proxy Statement to be filed with the SEC for its annual shareholders'
meeting to be held in June 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information this Item requires is incorporated by reference to the
Company's Proxy Statement to be filed with the SEC for its annual shareholders'
meeting to be held in June 2002.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1)  Financial Statements

         Report of Independent Public Accountants

         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.



                                       105
<PAGE>



<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 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 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 herewith)
</Table>



                                       106
<PAGE>



<Table>
<Caption>
EXHIBIT
NUMBER            DESCRIPTION OF EXHIBIT
-------           ----------------------
<S>               <C>

 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 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>


                                      107
<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 herewith)

 23.01            Consent of Arthur Andersen LLP (filed herewith)
</Table>



(b)   Reports on Form 8-K

      None

(c)   Exhibits

      See Item 14(a)(3) above.



                                      108
<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 13th day of
March, 2002.

                                CRESCENT REAL ESTATE EQUITIES COMPANY
                                              (Registrant)

                                By /s/ John C. Goff
                                   ---------------------------------------------
                                       John C. Goff
                                       Trust Manager and Chief Executive Officer


                                   SIGNATURES

                  Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacity and on the dates indicated.

<Table>
<Caption>
            SIGNATURE                                    TITLE                                  DATE
            ---------                                    -----                                  ----
<S>                                   <C>                                                     <C>

/s/ Richard E. Rainwater               Trust Manager and Chairman of the Board                 3/13/02
--------------------------------
    Richard E. Rainwater

/s/ John C. Goff                       Trust Manager and Chief Executive                       3/13/02
--------------------------------       Officer (Principal Executive Officer)
    John C. Goff

/s/ Jerry R. Crenshaw Jr.              Senior Vice President and Chief Financial               3/13/02
--------------------------------       Officer (Principal Accounting and Financial Officer)
    Jerry R. Crenshaw Jr.

/s/ Anthony M. Frank                   Trust Manager                                           3/13/02
--------------------------------
    Anthony M. Frank

/s/ William F. Quinn                   Trust Manager                                           3/13/02
--------------------------------
    William F. Quinn

/s/ Paul E. Rowsey, III                Trust Manager                                           3/13/02
--------------------------------
    Paul E. Rowsey, III

/s/ David M. Sherman                   Trust Manager                                           3/13/02
--------------------------------
    David M. Sherman
</Table>


                                       109



<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 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 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 herewith)
</Table>


<PAGE>



<Table>
<Caption>
EXHIBIT
NUMBER            DESCRIPTION OF EXHIBIT
-------           ----------------------
<S>               <C>

 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 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>


<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 herewith)

 23.01            Consent of Arthur Andersen LLP (filed herewith)
</Table>