<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-K/A

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

                        FOR THE TRANSITION PERIOD FROM TO

                         COMMISSION FILE NUMBER 1-13038

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

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

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

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

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

<Table>
<Caption>
                                                          Name of Each Exchange
Title of each class:                                      on  Which  Registered:
--------------------                                      ----------------------
<S>                                                       <C>
</Table>

Common Shares of Beneficial Interest par value $.01 per share New York Stock
Exchange

<Table>
<S>                                                           <C>
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 25, 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 $157.6 million, respectively, based upon the
closing price of $18.99 for common shares and $19.70 for preferred shares on the
New York Stock Exchange.

Number of Common Shares outstanding as of March 25, 2002:            119,365,362
Number of Preferred Shares outstanding as of March 25, 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>

         The Form 10-K of Crescent Real Estate Equities Company (the "Company")
for the year ended December 31, 2001 is being amended to (i) amend the cover
page to reflect certain additional and updated information relating to the
Company's equity (ii) amend and restate in its entirety Item 1. Business to
update internal cross references to amended Items (iii) amend and restate in its
entirety Item 6. Selected Financial Data to conform to financial statement
changes in Item 8. Financial Statements and Supplementary Data (iv) amend and
restate in its entirety Item 7. Management's Discussion and Analysis of
Financial Condition and Historical Results of Operations to include certain
additional information in response to a comment letter received from the
Securities and Exchange Commission ("SEC") related to another filing, (v) amend
and restate in its entirety Item 7A. Quantitative and Qualitative Disclosures
about Market Risk to include certain additional information in response to a
comment letter received from the SEC related to another filing and (vi) to amend
and restate in its entirety Item 8. Financial Statements and Supplementary Data
to include certain additional information in response to a comment letter
received from the SEC related to another filing.





                                       1
<PAGE>
                                TABLE OF CONTENTS

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

Item 1.    Business.................................................................        3


                                    PART II.

Item 6.    Selected Financial Data..................................................       16
Item 7.    Management's Discussion and Analysis of Financial Condition and Results
           of Operations............................................................       17
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk...............       49
Item 8.    Financial Statements and Supplementary Data..............................       51
</Table>




                                       2
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

                                   THE COMPANY

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

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

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

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

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

                  o        SUBSIDIARIES OF THE OPERATING PARTNERSHIP AND THE
                           GENERAL PARTNER

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

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

         o        Office Segment;

         o        Resort/Hotel Segment;

         o        Residential Development Segment; and

         o        Temperature-Controlled Logistics Segment.

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

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

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

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

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



                                       3
<PAGE>

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

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

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

                       BUSINESS OBJECTIVES AND STRATEGIES

BUSINESS OBJECTIVES

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

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;



                                       4
<PAGE>
         o        increasing occupancies, rental rates and same-store net
                  operating income; and

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

INVESTING STRATEGIES

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

         The Company's investment strategies include:

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

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

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

         o        selectively developing luxury and destination fitness resorts
                  and spas;

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

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

FINANCING STRATEGIES

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

         The Company's financing strategies include:

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

         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



                                       5
<PAGE>
         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.



                                       6
<PAGE>
                              ENVIRONMENTAL MATTERS

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

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

         o        Resource Conservation & Recovery Act;

         o        Clean Water Act;

         o        Clean Air Act;

         o        Toxic Substances Control Act; and

         o        Occupational Safety & Health Act.

         The application of these laws to a specific property that the Company
owns will be dependent on a variety of property-specific circumstances,
including the former uses of the property and the building materials used at
each property. Under certain environmental laws, principally CERCLA and
comparable state laws, 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 certain environmental laws and
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.



                                       7
<PAGE>
JOINT VENTURE ARRANGEMENTS

5 Houston Center

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

Four Westlake Park and Bank One Tower

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

MARKET INFORMATION

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

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

Texas

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

Dallas/Fort Worth ("DFW")

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



                                       8
<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.



                                       9
<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 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 in the Property.



                                       10
<PAGE>
                              RESORT/HOTEL SEGMENT

OWNERSHIP STRUCTURE

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

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

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

         o        base rent, with periodic rent increases if applicable;

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

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

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

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

CR LICENSE, LLC AND CRL INVESTMENTS, INC.

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

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

MARKET INFORMATION

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

COMPETITION

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



                                       11
<PAGE>

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

                         RESIDENTIAL DEVELOPMENT SEGMENT

OWNERSHIP STRUCTURE

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

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, 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 22. Subsequent Events" included in "Item 8. Financial
Statements and Supplemental Data" for additional information regarding the
Company's agreement with COPI.

MARKET INFORMATION

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

COMPETITION

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

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

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

         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.



                                       12
<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 $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 recorded adequate valuation
allowances related to 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.



                                       13
<PAGE>
BUSINESS AND INDUSTRY INFORMATION

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

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

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

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

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




                                       14
<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.




                                       15
<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)          89,884          (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 calculated 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.




                                       16
<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;



                                       17
<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.



                                       18
<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 22. Subsequent Events" included in "Item 8. Financial
Statements and Supplemental Data" for additional information regarding the
Company's agreement with COPI.

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

<Table>
<Caption>
                                                                           FOR THE YEAR
                                                                         ENDED DECEMBER 31,
                                                         ----------------------------------------------
                                                                                          PERCENTAGE
                                                             2001           2000           DECREASE
                                                         -------------  --------------  ---------------
(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.



                                       19
<PAGE>
CR License, LLC and CRL Investments, Inc.

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

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

RESIDENTIAL DEVELOPMENT SEGMENT

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

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to subsidiaries of the Company, 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 favorable rates of
return.

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

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

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

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.



                                       20
<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,
                                   -------------------------------
                                       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.



                                       21
<PAGE>

TEMPERATURE-CONTROLLED LOGISTICS SEGMENT

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

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

         In the first quarter of 2000, AmeriCold Logistics started to experience
a slowing in revenue growth from the previous year, this was primarily due to
customers focusing more interest on inventory management in an effort to improve
operating performance. Starting in 2000 and continuing into 2001, AmeriCold
Logistics has seen consolidation among retail and food service channels begin to
significantly limit the ability of manufacturers to pass along cost increases by
raising prices. Because of this, manufacturers are focused on supply chain cost
(such as inventory management, transportation and distribution) reduction
initiatives in an effort to improve operating performance. In the third quarter
of 2000, AmeriCold Logistics' same-store earning before interest, taxes,
depreciation and amortization, and rent ("EBITDAR") declined 2% for the nine
months ended September 30, 2000 compared to the same period in 1999. As a result
of the reductions in revenues and the second consecutive quarter decline in
same-store EBITDAR, AmeriCold Logistics was unable to fulfill its rental
obligation under the leases which resulted in deferred rent. At that time, the
Temperature-Controlled Logistics Corporation recorded a valuation allowance for
100% of the rent that had been deferred during the three months ended September
30, 2000 and has continued to record a valuation allowance for 100% of the
deferred rent prospectively. AmeriCold Logistics experienced a 2% decline in
same-store EBITDAR during 2000 compared to 1999 and an 11% decline in same-store
EBITDAR during 2001 compared to 2000.

         AmeriCold Logistics deferred $25.5 million of rent for the year ended
December 31, 2001, of which the Company's share was $10.2 million. AmeriCold
Logistics also deferred $19.0 million and $5.4 million of rent for the years
ended December 31, 2000 and 1999, respectively, of which the Company's share was
$7.5 million and $2.1 million, respectively. In December 2001, the
Temperature-Controlled Logistics Corporation waived its rights to collect $39.8
million of the total $49.9 million of deferred rent, of which the Company's
share was $15.9 million. The Temperature-Controlled Logistics Corporation
recorded adequate valuation allowances related to 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.

<Table>
<Caption>
                                         Deferred Rent              Valuation Allowance                Waived Rent
                               -----------------------    -----------------------------------------------------------
(in millions)                                 Company's                  Company's                         Company's
                                 Total         Portion      Total          Portion           Total          Portion
                               ----------     --------    ---------     ------------     -------------   ------------
<S>                            <C>            <C>         <C>           <C>              <C>             <C>
For the year ended December 31,
1999                              $  5.4       $  2.1       $   --           $   --            $   --         $   --
2000                                19.0          7.5         16.3              6.5                --             --
2001                                25.5         10.2         25.5             10.2              39.8           15.9
                                  ------       ------       ------           ------            ------         ------

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

         Management believes that EBITDAR is a useful financial performance
measure for assessing the relative stability of the financial condition of
AmeriCold Logistics prior to the payment of rent to the Company. Therefore,
management believes EBITDAR is a reasonable indication of AmeriCold Logistics'
ability to make rent payments to the Company. The following table shows EBITDAR,
lease payment, cash flow from operations and net loss for AmeriCold Logistics
for the years ended December 31, 2001 and 2000.



                                       22
<PAGE>

<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
Cash Flow from Operations                   9.5                      3.0
Net Loss                                   (5.7)                   (18.4)
</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.

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

CHARTER BEHAVIORAL HEALTH SYSTEMS ("CBHS")

         During the year ended December 31, 1999, the Company received cash
rental payments of approximately $35.3 million from CBHS. As of December 31,
1999, the behavioral healthcare segment consisted of 88 behavioral healthcare
properties in 24 states, all of which were leased to CBHS and its subsidiaries
under a triple-net master lease. However, during 1999, CBHS's business was
negatively affected by many factors, including adverse industry conditions, and
CBHS failed to perform in accordance with its operating budget. In the third
quarter of 1999 CBHS was unable to meet its rental obligation to the Company and
the Company began to recognize rent from CBHS on a cash basis, due to the
uncertainty that CBHS would be able to fulfill its rental obligations under the
lease. In the fourth quarter of 1999, the Company, COPI, Magellan Health
Services, Inc. ("Magellan") and CBHS completed a recapitalization of CBHS.
Pursuant to the recapitalization, Magellan transferred its remaining
hospital-based assets to CBHS, canceled its accrued franchise fees and
terminated the franchise agreements, pursuant to which Magellan had provided
services to CBHS in exchange for franchise fees.

         The following financial statement charges were made with respect to the
Company's investment in the behavioral healthcare properties for the year ended
December 31, 1999:

o  CBHS rent was reflected on a cash basis beginning in the third quarter of
   1999;

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

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

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

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

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

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

         During the year ended December 31, 2000, payment and treatment of rent
for the behavioral healthcare properties was subject to a rent stipulation
agreed to by certain of the parties involved in the CBHS bankruptcy proceeding.
The Company received approximately $15.4 million in rent and interest from CBHS
during the year ended December 31,



                                       23
<PAGE>

2000. The Company also completed the sale of 60 behavioral healthcare
properties previously classified as held for disposition during the year ended
December 31, 2000 (contained in Net Investment in Real Estate). The sales
generated approximately $233.7 million in net proceeds and a net gain of
approximately $58.6 million for the year ended December 31, 2000. During the
year ended December 31, 2000, the Company recognized an impairment loss of
approximately $9.3 million on the behavioral healthcare properties held for
disposition. This amount represents the difference between the carrying values
and the estimated sales prices less the costs of the sales. At December 31,
2000, the carrying value of the 28 behavioral healthcare properties classified
as held for disposition was approximately $68.5 million (contained in Net
Investment in Real Estate). Depreciation has not been recognized since the dates
the behavioral healthcare properties were classified as held for sale.

         The Company received approximately $6.0 million in repayment of a
working capital loan from CBHS during the year ended December 31, 2001. The
Company also completed the sale of 18 behavioral healthcare properties
previously classified as held for disposition during the year ended December 31,
2001. The sales generated approximately $34.7 million in net proceeds and a net
gain of approximately $1.6 million for the year ended December 31, 2001. During
the year ended December 31, 2001, the Company recognized an impairment loss of
approximately $8.5 million on the behavioral healthcare properties held for
disposition. This amount represents the difference between the carrying values
and the estimated sales prices less the costs of the sales. At December 31,
2001, the carrying value of the 10 behavioral healthcare properties classified
as held for disposition was approximately $27.9 million (contained in Net
Investment in Real Estate). Depreciation expense has not been recognized since
the dates the behavioral healthcare properties were classified as held for sale.




                                       24
<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             (0.3)           (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             2.5            24.0              7.5          (160.9)
   Impairment and other charges related
     to COPI                                              13.3              --              --             92.8              --
                                                  ------------    ------------    ------------    -------------   -------------
     TOTAL EXPENSES                                      104.0%           87.3%          107.3%            95.6          (172.6)
                                                  ------------    ------------    ------------    -------------   -------------
OPERATING (LOSS) INCOME                                   (4.0)%          12.7%           (7.3)%  $      (118.0)  $       144.7

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            19.1              --           (133.1)          137.5

                                                  ------------    ------------    ------------    -------------   -------------
     TOTAL OTHER INCOME AND EXPENSE                        8.0%           29.5%            9.1%   $      (157.6)  $       144.9
                                                  ------------    ------------    ------------    -------------   -------------

(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>




                                       25
<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; and

            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 $95.6 million, or 15.2%, to $724.1 million for
the year ended December 31, 2001, as compared to $628.5 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.




                                       26
<PAGE>
         The decrease in interest expense of $20.8 million, or 10.2%, for the
year ended December 31, 2001, as compared to the same period in 2000, is
primarily attributable to a decrease in the weighted average interest rate of
0.61%, or $14.0 million of interest expense, combined with a decrease in the
average debt balance of $104.0 million, or $8.0 million of interest expense.

         The increase in impairment and other charges related to real estate
assets of $7.5 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; partially offset by

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

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

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

OTHER INCOME

         Other income decreased $157.6 million, or 73.9%, to $55.6 million for
the year ended December 31, 2001, as compared to $213.2 million for the year
ended December 31, 2000. This decrease is due to:

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

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

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

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

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

         The net decrease in gain on property sales of $133.1 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.



                                       27
<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;

            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 $172.6 million, or 21.6%, to $628.5 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.



                                       28
<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 $175.9 million is primarily
attributable to:

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

            o  a decrease of $169.5 million due to the 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;
               partially offset by

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

OTHER INCOME

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

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

            o  an increase in equity in net income of the Residential
               Development Corporations of $10.6 million, or 24.7%, attributable
               to (i) an increase in average sales price per lot and an increase
               in membership conversion revenue at Desert Mountain, partially
               offset by a decrease in lot absorption, which resulted in an
               increase of $6.0 million in equity in net income to the Company;
               (ii) an increase in residential lot and commercial land sales and
               an increase in average sales price per lot at The Woodlands Land
               Development Company, L.P., partially offset by a decrease in
               average sales price per acre from commercial land sales, which
               resulted in an increase of $5.9 million in equity in net income
               to the Company; and (iii) an increase in commercial acreage sales
               at CRD, partially offset by a decrease in single-family home
               sales, which resulted in an increase of $0.8 million in equity in
               net income to the Company; partially offset by (iv) a decrease in
               commercial land sales at Houston Area Development Corp., which
               resulted in a decrease of $2.1 million in equity in net income to
               the Company; and

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

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



                                       29
<PAGE>

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

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



                                       30
<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;



                                       31
<PAGE>
            o  a $11.2 million increase in notes receivable, primarily as a
               result of approximately $10.0 million related to secured loans to
               AmeriCold Logistics; and

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

FINANCING ACTIVITIES

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

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

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

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

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

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

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

            o  debt financing costs of $16.0 million; and

            o  distributions to preferred shareholders of $13.5 million.

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

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

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

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

COPI

         In April 1997, the Company established a new Delaware corporation,
Crescent Operating, Inc. or COPI. All of the outstanding common stock of COPI,
valued at $0.99 per share, was distributed, effective June 12, 1997, to those
persons who were limited partners of the Operating Partnership or shareholders
of the Company on May 30, 1997, in a spin-off.

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

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

         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




                                       32
<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 limited liability companies that are
wholly owned taxable REIT subsidiaries of the Company. The Company will include
these assets in its Resort/Hotel Segment and its Residential Development
Segment, and will fully consolidate the operations of the eight Resort/Hotel
Properties and the three Residential Development Corporations, beginning on the
date of the transfers of these assets.

         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. 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



                                       33
<PAGE>

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 $15.5 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.



                                       34
<PAGE>
(12)  See "5 Houston Center" below.

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

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

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

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

JOINT VENTURE ARRANGEMENTS

5 Houston Center

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

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

Four Westlake Park and Bank One Tower

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

UNCONSOLIDATED PROPERTY DISPOSITIONS

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

         On November 9, 2001, The Woodlands Land Development Company, L.P. owned
by the Woodlands Land Company, Inc. and an affiliate of Morgan Stanley, sold two
office properties and one retail property located within The Woodlands, Texas.
The sales generated net proceeds, after the repayment of debt, of approximately
$41.8 million, of which the Company's portion was approximately $19.7 million.
The sales generated a net gain of approximately $8.0 million, of



                                       35
<PAGE>

which the Company's portion was approximately $3.8 million. The net proceeds
received by the Company were used primarily to pay down variable-rate debt.

METROPOLITAN

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

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.



                                       36
<PAGE>
RELATED PARTY DISCLOSURES

DBL

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

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

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

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

COPI Colorado, L. P.

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

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

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

         As of December 31, 2001, the Company had approximately $32.9 million of
loans outstanding (including approximately $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



                                       37
<PAGE>

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

SHELF REGISTRATION STATEMENT

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

SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY

         During the year ended December 31, 2000, the Company formed 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



                                       38
<PAGE>
'
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. The amount of common
shares that the Company will actually purchase will be determined from time to
time, in its reasonable judgment, based on market conditions and the
availability of funds, among other factors. There can be no assurance that any
number of common shares will actually be purchased within any particular time
period.

SHARE REPURCHASE AGREEMENT

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

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

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

BROADBAND

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

STATION CASINOS, INC. ("STATION")

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

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

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



                                       39
<PAGE>
         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 $55.9 million relating to capital investments. The table below
specifies the Company's total capital requirements relating to these projects,
amounts funded as of December 31, 2001, amounts remaining to be funded, and
short-term and long-term capital requirements.

<Table>
<Caption>
                                                                                       CAPITAL REQUIREMENTS
                                                                                   ------------------------------
                                                      AMOUNT
(IN MILLIONS)                                      FUNDED AS OF        AMOUNT        SHORT-TERM      LONG-TERM
                                     TOTAL         DECEMBER 31,       REMAINING       (NEXT 12          (12+
          PROJECT                   COST(1)            2001            TO FUND       MONTHS)(2)      MONTHS)(2)
                                 --------------   --------------   --------------  --------------  --------------
<S>                              <C>              <C>              <C>             <C>             <C>
Residential Development Segment
      Tahoe Mountain Resorts     $        100.0   $        (71.2)  $         28.8  $         28.8  $           --
                                 --------------   --------------   --------------  --------------  --------------
Other
      SunTx(3)                   $         19.0   $         (7.4)  $         11.6  $          4.0  $          7.6
      Spinco(4)                            15.5               --             15.5            15.5              --
                                 --------------   --------------   --------------  --------------  --------------
                                 $         34.5   $         (7.4)  $         27.1  $         19.5  $          7.6

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

----------

(1)   All amounts are approximate.

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

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

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

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

         The Company expects to meet its other short-term capital requirements,
consisting of normal recurring operating expenses, regular debt service
requirements (including debt service relating to additional and replacement
debt), additional




                                       40
<PAGE>

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

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

     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 $17.0 million, or 4%, of its total
outstanding unconsolidated debt. See "Note 4. Investments in Real Estate
Mortgages and Equity of Unconsolidated Companies" included "Item 8. Financial
Statements and Supplementary Data" and for more information about the Company's
unconsolidated investments and the underlying debt related to these investments.

REIT QUALIFICATION

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



                                       41
<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




                                       42
<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%.


                                       43
<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
                    ---------------    ---------------   -----------------
 (IN THOUSANDS)
<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
      of the Fleet Facility and two one-year extension options on the Deutsche
      Bank - CMBS Loan.

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

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

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

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

         o  the effect of additional debt on existing coverage ratios;

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

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

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

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

DEBT REFINANCING AND FLEET FACILITY

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



                                       44
<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>
         9/1/99        $ 200.0        9/2/03    6.183%                $ (10.8)               $ 3.5
         2/4/00        $ 200.0        2/3/03     7.11%                $ (10.8)               $ 6.0
        4/18/00        $ 100.0       4/18/04     6.76%                $  (7.2)               $ 2.7
</Table>

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




                                       45
<PAGE>

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

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

INTEREST RATE CAPS

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

FUNDS FROM OPERATIONS

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

o  Net Income (Loss) - determined in 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



                                       46
<PAGE>

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

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

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

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

Investment Segments:
    Office Segment                                       $ 358,349   $ 361,574
    Resort/Hotel Segment                                    45,282      71,446
    Residential Development Segment                         54,051      78,600
    Temperature-Controlled Logistics Segment                23,806      33,563
    Coporate 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.



                                       47
<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.



                                       48
<PAGE>

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

----------

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

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

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

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.



                                       49
<PAGE>
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>
9/01/1999               $ 200.0    9/02/2003       6.183%                        $ (10.8)                           $ 3.5
2/04/2000               $ 200.0    2/03/2003        7.11%                        $ (10.8)                           $ 6.0
4/18/2000               $ 100.0    4/18/2004        6.76%                        $  (7.2)                           $ 2.7
</Table>

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




                                       50
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS


<Table>
<S>                                                                                                          <C>
Report of Independent Public Accountants....................................................................  52

Consolidated Balance Sheets at December 31, 2001 and 2000...................................................  53

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999..................  54

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

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999..................  56

Notes to Consolidated Financial Statements..................................................................  57

Schedule III Consolidated Real Estate Investments and Accumulated Depreciation .............................  94
</Table>



                                       51
<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




                                       52
<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.


                                       53
<PAGE>
                      CRESCENT REAL ESTATE EQUITIES COMPANY
                     CONSOLIDATED STATEMENT 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         17,874        178,838
   Impairment and other charges related
      to COPI                                                   92,782             --             --
                                                           -----------    -----------    -----------
          Total expenses                                   $   724,138    $   628,521    $   801,233
                                                           -----------    -----------    -----------

         Operating (loss) income                           $   (28,084)   $    89,884    $   (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        137,457             --
                                                           -----------    -----------    -----------
         Total other income and expense                    $    55,656    $   213,168    $    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.


                                       54

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

<Table>
<Caption>


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

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

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

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

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

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

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

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

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

   Dividends Paid                                                     --               --               --                --

   Net Loss                                                           --               --               --                --

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

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


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

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

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

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

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

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

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

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

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

   Dividends Paid                                                     --               --               --                --

   Net Income                                                         --               --               --                --

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

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


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


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

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

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

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

   Dividends Paid                                                     --               --               --                --

   Net Loss                                                           --               --               --                --

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

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


   SHAREHOLDERS' EQUITY, December 31, 2001                     8,000,000   $      200,000       18,770,418    $     (359,728)
                                                          ==============   ==============   ==============    ==============
<Caption>
                                                                                                               Deferred
                                                                 Common Shares               Additional       Compensation
                                                        -------------------------------        Paid-in       on Restricted
                                                            Shares          Par Value         Capital            Shares
                                                        -------------    --------------    --------------    --------------
<S>                                                       <C>            <C>               <C>               <C>
   SHAREHOLDERS' EQUITY, December 31, 1998                124,555,447    $        1,245    $    2,336,621    $          (88)

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

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

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

   Amortization of Deferred Compensation                           --                --                --                41

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

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

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

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

   Dividends Paid                                                  --                --                --                --

   Net Loss                                                        --                --                --                --

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

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


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

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

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

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

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

   Share Repurchases                                               --                --                --                --

   Share Repurchase Agreement                                      --                --                --                --

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

   Retirement of Restricted Shares                                 --                --                --                41

   Dividends Paid                                                  --                --                --                --

   Net Income                                                      --                --                --                --

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

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


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


   Issuance of Common Shares                                    6,610                 1               148                --

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

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

   Share Repurchases                                               --                --                --                --

   Dividends Paid                                                  --                --                --                --

   Net Loss                                                        --                --                --                --

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

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


   SHAREHOLDERS' EQUITY, December 31, 2001                123,396,017    $        1,227    $    2,234,360    $           --
                                                        =============    ==============    ==============    ==============
<Caption>
                                                                            Accumulated
                                                            Retained           Other
                                                            Earnings       Comprehensive
                                                            (Deficit)          Income             Total
                                                         --------------    --------------    --------------
<S>                                                      <C>               <C>               <C>
   SHAREHOLDERS' EQUITY, December 31, 1998                $     (110,196)   $       (5,037)   $    2,422,545

   Issuance of Common Shares                                         --                --             3,851

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

   Cancellation of Restricted Shares                                 --                --                --

   Amortization of Deferred Compensation                             --                --                41

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

   Preferred Share Conversion Adjustment                             --                --                --

   Forward Share Purchase Agreement                                  --                --                 7

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

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

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

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

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


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

   Issuance of Common Shares                                         --                --               114

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

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

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

   Share Repurchases                                                 --                --          (180,723)

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

   Retirement of Treasury Shares                                     --                --                --

   Retirement of Restricted Shares                                   --                --                41

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

   Net Income                                                   234,622                --           234,622

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

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


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


   Issuance of Common Shares                                         --                --               149

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

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

   Share Repurchases                                                 --                --           (77,384)

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

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

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

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


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



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


                                       55
<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         17,874        120,573
        Impairment and other charges related to COPI                          92,782             --             --
        Increase in COPI hotel accounts receivable                           (20,458)            --             --
        Gain on property sales, net                                           (4,425)      (137,457)            --
        Minority interests                                                    21,429         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.


                                       56
<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 Burgess Plaza, The Citadel, The Crescent
Funding I, L.P.:             Atrium, The Crescent Office Towers, Regency Plaza One, Waterside Commons and 125 E.
("Funding I")                John Carpenter Freeway

Crescent Real Estate         Albuquerque Plaza, Barton Oaks Plaza One, Briargate Office and Research Center, Hyatt
Funding II, L.P.:            Regency Albuquerque, Park Hyatt Beaver Creek Resort and Spa, Las Colinas Plaza, Liberty
("Funding II")               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 Properties) and Renaissance Houston Hotel
Funding III, IV and V, 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 Avallon V, Canyon Ranch - Tucson, Cedar
Funding VIII, L.P.:          Springs Plaza, Frost Bank Plaza, Greenway I & IA (two Office Properties), Greenway II,
("Funding VIII")             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>



                                       57
<PAGE>

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

Crescent Real Estate         Fountain Place  and Post Oak Central (three Office Properties)
Funding X, L.P.
("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 subsidiaries and equity investments and
the Company's ownership interests in the Residential Development Segment and the
Temperature-Controlled Logistics Segment.

SEGMENTS

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

         o  Office Segment;

         o  Resort/Hotel Segment;

         o  Residential Development Segment; and

         o  Temperature-Controlled Logistics Segment.

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

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

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



                                       58
<PAGE>
         o  RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Company's ownership
            of real estate mortgages and non-voting common stock representing
            interests ranging from 90% to 95% in five unconsolidated residential
            development corporations (collectively referred to as the
            "Residential Development Corporations"), which in turn, through
            joint venture or partnership arrangements, owned 21 upscale
            residential development properties (collectively referred to as the
            "Residential Development Properties").

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

         On February 14, 2002, the Company executed an agreement with Crescent
Operating, Inc. ("COPI"), pursuant to which COPI transferred to 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 common stock in
three of the Company's Residential Development Corporations. See "Note 22.
Subsequent Events" for additional information regarding the Company's agreement
with COPI.

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

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

BASIS OF PRESENTATION

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

         Certain amounts in prior year financial statements have been
reclassified 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>




                                       59
<PAGE>
         An impairment loss is recognized on a property by property basis on
Properties classified as held for use, when expected undiscounted cash flows are
less than the carrying value of the Property. In cases where the Company does
not expect to recover its carrying costs on a Property, the Company reduces its
carrying costs to fair value, and for Properties held for disposition, the
Company reduces its carrying costs to the fair value less costs to sell. See
"Note 17. Dispositions" for a description of impairment losses recognized during
2001, 2000 and 1999.

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

CONCENTRATION OF REAL ESTATE INVESTMENTS

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

CASH AND CASH EQUIVALENTS

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

RESTRICTED CASH AND CASH EQUIVALENTS

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

OTHER ASSETS

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

DERIVATIVE FINANCIAL INSTRUMENTS

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

         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.



                                       60
<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.

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

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.



                                       61
<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
   item                                     $   (7,358)       109,140    $    (0.07)    $  235,644        114,721    $      2.05
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
   item                                       $   (7,441)       124,813     $    (0.06)
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.


                                       62
<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 common
    shares and additional paid-in-capital                        $    2,857    $      609    $    1,939
Issuance of Operating Partnership units in conjunction
    with settlement of an obligation                                     --         2,125         1,786
Acquisition of partnership interests                                     --            --         3,774
Sale of marketable securities                                        (8,118)           --            --
Unrealized gain (loss) on available-for-sale securities                 596        (7,584)       17,216
Forward Share Purchase Agreement Return                                  --            --         4,317
Share Repurchase Agreement Return                                        --         2,906           583
Impairment and other charges related to real estate
 assets                                                              25,332        17,874       178,838
Adjustment of cash flow hedge to fair value                         (17,228)      (11,609)          280
Equity investment in a tenant in exchange
      for office space/other investment ventures                         --         4,485            --
Acquisition of ownership of certain assets previously owned by
     Broadband Office, Inc                                            7,200            --            --
Impairment and other charges related to COPI                         92,782            --            --
Additional compensation expense related to employee notes
     receivable                                                         750            --            --
</Table>

NEW ACCOUNTING PRONOUNCEMENTS

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

         In June 2001, the 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




                                       63
<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.



                                       64
<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 Unit distributions            (13,501)       (13,500)       (13,500)
      Other(3)                                                  8,571         22,484         33,639
      Corporate general & administrative                      (24,249)       (24,073)       (16,274)
      Impairment and other charges related to COPI            (92,782)            --             --
      Settlement of merger dispute                                 --             --        (15,000)
                                                          -----------    -----------    -----------
    TOTAL FUNDS FROM OPERATIONS                           $   177,117    $   326,897    $   340,777

ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS
    TO NET INCOME:
    Depreciation and amortization of real estate assets      (122,033)      (119,999)      (128,403)
    Gain on rental property sales, net                          2,835        136,880        (16,361)
    Impairment and other charges related to
      real estate assets                                      (21,705)       (17,874)      (136,435)
    Extraordinary item - 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)
        Unitholders minority interests                           (765)       (31,120)        (1,273)
    6 3/4% Series A Preferred Unit distributions               13,501         13,500         13,500
                                                          -----------    -----------    -----------
NET 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(2)                                                  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(2)                                                  291,524        373,157
                                                          -----------    -----------
TOTAL IDENTIFIABLE ASSETS                                 $ 4,142,149    $ 4,543,318
                                                          ===========    ===========
</Table>


---------

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

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

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



                                       65
<PAGE>
         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>
                                                                                          OPERATING PARTNERSHIP'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.

(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.



                                       66
<PAGE>
(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") in which the Company
contributed two Office Properties, Four Westlake Park in Houston, Texas, and
Bank One Tower in Austin, Texas into the joint ventures and GE made a cash
contribution. The joint ventures are structured such that GE holds an 80% equity
interest in each of Four Westlake Park, a 560,000 square foot Class A Office
Property located in the Katy Freeway submarket of Houston, and Bank One Tower, a
390,000 square foot Class A Office Property located in downtown Austin. The
Company continues to hold the remaining 20% equity interests in each Property,
which are accounted for under the equity method. The joint ventures generated
approximately $120,000 in net cash proceeds to the Company, including
distributions to the Company resulting from the sale of its 80% equity interest
and from mortgage financing at the joint venture level. None of the mortgage
financing at the joint venture level is guaranteed by the Company. The Company
has no commitment to reinvest the cash proceeds back into the joint ventures.
The joint ventures were accounted for as partial sales of these Office
Properties, resulting in a gain of approximately $7,577, net of a deferred gain
of approximately $1,894. In addition, the Company manages and leases the Office
Properties on a fee basis. During the year ended December 31, 2001, the Company
recognized $227 for these services.

METROPOLITAN

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

DISPOSITIONS

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



                                       67
<PAGE>

         On November 9, 2001, The Woodlands Land Development Company, L.P.,
owned by The Woodlands Land Company, Inc. and an affiliate of Morgan Stanley,
sold two office properties and one retail property located within The Woodlands,
Texas. The sales generated net proceeds, after the repayment of debt, of
approximately $41,800, 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.

         In the first quarter of 2000, AmeriCold Logistics started to experience
a slowing in revenue growth from the previous year, this was primarily due to
customers focusing more interest on inventory management in an effort to improve
operating performance. Starting in 2000 and continuing into 2001, AmeriCold
Logistics has seen consolidation among retail and food service channels begin to
significantly limit the ability of manufacturers to pass along cost increases by
raising prices. Because of this, manufacturers are focused on supply chain cost
(such as inventory management, transportation and distribution) reduction
initiatives in an effort to improve operating performance. In the third quarter
of 2000, AmeriCold Logistics' same-store earnings before interest, taxes,
depreciation and amortization, and rent ("EBITDAR") declined 2% for the nine
months ended September 30, 2000 compared to the same period in 1999. As a result
of the reductions in revenues and the second consecutive quarter decline in
same-store EBITDAR, AmeriCold Logistics was unable to fulfill its rental
obligation under the leases which resulted in deferred rent. At that time, the
Temperature-Controlled Logistics Corporation recorded a valuation allowance for
100% of the rent that had been deferred during the three months ended September
30, 2000 and has continued to record a valuation allowance for 100% of the
deferred rent prospectively. AmeriCold Logistics' experienced a 2% decline in
same-store EBITDAR during 2000 compared to 1999 and an 11% decline in same-store
EBITDAR during 2001 compared to 2000.

         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 recorded adequate valuation


                                       68

<PAGE>

allowances related to 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.

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

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

OTHER

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

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



                                       69
<PAGE>

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


BALANCE SHEETS:

<Table>
<Caption>
                                                                         BALANCE AT DECEMBER 31, 2001
                                            --------------------------------------------------------------------------------------
                                              CRESCENT          THE          OTHER
                                               RESORT        WOODLANDS    RESIDENTIAL   TEMPERATURE-
                                            DEVELOPMENT,        LAND      DEVELOPMENT    CONTROLLED
                                                INC.       COMPANY, INC.  CORPORATIONS   LOGISTICS         OFFICE         OTHER
                                            ------------   -------------  ------------  ------------     -----------   -----------
<S>                                         <C>            <C>            <C>           <C>              <C>           <C>
  Real estate, net                          $   393,784    $    365,636   $   173,991   $ 1,272,784      $   553,147
  Cash                                           17,570           2,688         7,973        23,412           28,224
  Other assets                                   31,749          32,244        94,392        82,967           31,654
                                            -----------    ------------   -----------   -----------      -----------
       Total assets                         $   443,103    $    400,568   $   276,356   $ 1,379,163      $   613,025
                                            ===========    ============   ===========   ===========      ===========

  Notes payable                             $        --    $    225,263   $        --   $   558,949      $   324,718
  Notes payable to the Company                  180,827              --        60,000         4,833               --
  Other liabilities                             232,767          74,271       168,671        46,395           29,394
  Equity                                         29,509         101,034        47,685       768,986          258,913
                                            -----------    ------------   -----------   -----------      -----------
        Total liabilities and equity        $   443,103    $    400,568   $   276,356   $ 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 uncon-
    solidated companies                     $   222,082    $     29,046   $   120,407   $   308,427      $   121,423   $    36,932
                                            ===========    ============   ===========   ===========      ===========   ===========
</Table>

SUMMARY STATEMENTS OF OPERATIONS:

<Table>
<Caption>

                                                                  FOR THE YEAR ENDED DECEMBER 31, 2001
                                          ------------------------------------------------------------------------------------
                                            CRESCENT         THE          OTHER
                                             RESORT       WOODLANDS    RESIDENTIAL   TEMPERATURE-
                                          DEVELOPMENT,       LAND       DEVELOPMENT   CONTROLLED
                                              INC.      COMPANY, INC.  CORPORATIONS  LOGISTICS        OFFICE(2)       OTHER
                                          ------------  -------------  ------------  ------------    -----------   -----------
<S>                                       <C>           <C>            <C>           <C>              <C>           <C>
  Total revenues                          $   195,163    $   188,178   $    93,462   $   120,531      $    88,835
  Expenses:
     Operating expense                        175,424        104,486        83,074        13,349(3)        37,128
     Interest expense                           1,373          4,967         1,641        44,988           19,184
     Depreciation and amortization              2,726          5,599         6,185            --               --
     Taxes                                        641         14,676        (4,222)       58,855           19,387
                                          -----------    -----------   -----------   -----------      -----------
  Total expenses                              180,164        129,728        86,678       117,192           75,699
                                          -----------    -----------   -----------   -----------      -----------

  Net income                              $    14,999    $    58,450   $     6,784   $     3,339(3)   $    13,136
                                          ===========    ===========   ===========   ===========      ===========


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

----------

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

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

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



                                       70
<PAGE>

BALANCE SHEETS:

<Table>
<Caption>
                                                                        BALANCE AT DECEMBER 31, 2000
                                         -----------------------------------------------------------------------------------------
                                            DESERT       CRESENT          THE          OTHER
                                           MOUNTAIN       RESORT       WOODLANDS    RESIDENTIAL  TEMPERATURE-
                                         DEVELOPMENT   DEVELOPMENT,      LAND       DEVELOPMENT   CONTROLLED
                                         CORPORATION       INC.      COMPANY, INC.  CORPORATIONS  LOGISTICS      OFFICE     OTHER
                                         ------------  ------------  -------------  ------------  -----------  ----------- --------
<S>                                      <C>           <C>           <C>           <C>           <C>          <C>          <C>
Real estate, net                         $   147,484   $   227,429   $   406,660   $    16,739   $ 1,303,810  $   394,724
Cash                                           5,733        36,717        10,739         6,450        19,606       34,599
Other assets                                  70,503        83,452        37,930         4,662        82,883       34,897
                                         -----------   -----------   -----------   -----------   -----------  -----------
     Total assets                        $   223,720   $   347,598   $   455,329   $    27,851   $ 1,406,299  $   464,220
                                         ===========   ===========   ===========   ===========   ===========  ===========

Notes payable                            $        --   $        --   $   255,356   $        --   $   561,321  $   251,785
Notes payable to the Company                  59,000       130,932            --            --        11,333           --
Other liabilities                            130,834       158,839        96,533         2,744        78,042       46,054
Equity                                        33,886        57,827       103,440        25,077       755,603      166,381
                                         -----------   -----------   -----------   -----------   -----------  -----------
      Total liabilities and equity       $   223,720   $   347,598   $   455,329   $    27,851   $ 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 uncon-
  solidated companies                    $   109,092   $   150,118   $    24,525   $    21,452   $   308,035  $    98,308  $ 133,787
                                         ===========   ===========   ===========   ===========   ===========  ===========  =========
</Table>

SUMMARY STATEMENTS OF OPERATIONS:

<Table>
<Caption>
                                                                          FOR THE YEAR ENDED DECEMBER 31, 2000
                                   -------------------------------------------------------------------------------------------------
                                      DESERT       CRESENT         THE          OTHER
                                     MOUNTAIN       RESORT      WOODLANDS     RESIDENTIAL   TEMPERATURE-
                                   DEVELOPMENT   DEVELOPMENT,     LAND        DEVELOPMENT    CONTROLLED
                                   CORPORATION       INC.     COMPANY, INC.   CORPORATIONS   LOGISTICS         OFFICE       OTHER
                                   ------------  -----------  -------------   ------------  -----------     -----------   ----------
<S>                                  <C>          <C>          <C>             <C>           <C>             <C>          <C>
Total revenues                     $   153,680  $   180,038   $   180,670    $    30,404   $   154,341     $    89,841
Expenses:
   Operating expense                   127,589      158,860       105,231         10,897        21,982(1)       34,261
   Interest expense                        916        3,157         2,986            164        46,637          25,359
   Depreciation and amortization         4,966        6,430         4,479            436        57,848          20,673
   Taxes                                 3,812          979        27,188          1,235         7,311              --
   Other (income) expense                   --           --            --             --        (2,886)             --
                                   -----------  -----------   -----------    -----------   -----------     -----------
Total expenses                     $   137,283  $   169,426   $   139,884    $    12,732   $   130,892     $    80,293
                                   -----------  -----------   -----------    -----------   -----------     -----------

Net income                         $    16,397  $    10,612   $    40,786    $    17,672   $    23,449(1)  $     9,548
                                   ===========  ===========   ===========    ===========   ===========     ===========


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




                                       71
<PAGE>

SUMMARY STATEMENTS OF OPERATIONS:

<Table>
<Caption>
                                                          FOR THE YEAR ENDED DECEMBER 31, 1999
                          ------------------------------------------------------------------------------------------------------
                             DESERT          CRESCENT         THE          OTHER
                            MOUNTAIN          RESORT       WOODLANDS    RESIDENTIAL    TEMPERATURE-
                           DEVELOPMENT     DEVELOPMENT       LAND      DEVELOPMENT    CONTROLLED
                           CORPORATION         INC.     COMPANY, INC.  CORPORATIONS   LOGISTICS           OFFICE        OTHER
                           -----------     -----------  -------------  ------------  -----------       -----------   -----------
<S>                        <C>             <C>           <C>           <C>           <C>               <C>           <C>
Total revenues             $   192,094     $   134,411   $   134,781   $    41,297   $   264,266       $    78,534
Expenses:
   Operating expense           175,762         116,717        80,357        22,022       127,516(1)         27,008
   Interest expense                 --           2,709         2,174            37        47,273            19,321
   Depreciation and
     amortization                6,435           3,131         4,386           343         54,574            19,273
   Taxes                            --           1,963        19,146         1,440         (6,084)               --
                           -----------     -----------   -----------   -----------   -----------       -----------
Total expenses             $   182,197     $   124,520   $   106,063   $    23,842   $   223,279       $    65,602
                           -----------     -----------   -----------   -----------   -----------       -----------

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


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

----------

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

5.       OTHER ASSETS, NET:

<Table>
<Caption>
                                                          BALANCE AT DECEMBER 31,
                                                       ----------------------------
                                                           2001            2000
                                                       ------------    ------------
<S>                                                    <C>             <C>
Leasing costs                                          $    142,440    $    123,036
Deferred financing costs                                     46,305          48,645
Prepaid expenses                                              9,444           3,690
Marketable securities                                        10,832          50,321
Other                                                        33,272          23,927
                                                       ------------    ------------
                                                       $    242,293    $    249,619
Less - Accumulated amortization                             (97,281)        (77,644)
                                                       ------------    ------------
                                                       $    145,012    $    171,975
                                                       ============    ============
</Table>




                                       72

<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>



                                       73
<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%. 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.



                                       74
<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's loans can
trigger an acceleration of payment on the loan in default. In addition, a
default by the Company or any of its subsidiaries with respect to any
indebtedness in excess of $5,000 generally will result in a default under the
Fleet Facility and the Fleet I and II Term Loan after the notice and cure
periods for the other indebtedness have passed. As of December 31, 2001, the
Company was in compliance with all of its debt service coverage ratios and other
covenants related to its outstanding debt. The Company's debt facilities
generally prohibit loan pre-payment for an initial period, allow pre-payment
with a penalty during a following specified period and allow pre-payment without
penalty after the expiration of that period. During the year ended December 31,
2001, there were no circumstances that would require pre-payment penalties or
increased collateral related to the Company's existing debt.

         In addition to the subsidiaries listed in "Note 1. Organization and
Basis of Presentation," certain other subsidiaries of the Company were formed
primarily for the purpose of obtaining secured and unsecured debt or joint
venture financings. The following lists these entities, all of which are
consolidated and are grouped based on the Properties to which they relate:
Funding I and Funding II Properties (CREM Holdings, LLC, Crescent Capital
Funding, LLC, Crescent Funding Interest, LLC, CRE Management I Corp., CRE
Management II Corp.); Funding III Properties (CRE Management III Corp.); Funding
IV Properties (CRE Management IV Corp.); Funding V Properties (CRE Management V
Corp.); Funding VI Properties (CRE Management VI Corp.); Funding VIII Properties
(CRE Management VIII, LLC); Funding IX Properties (CRE Management IX, LLC);
Funding X Properties (CREF X Holdings Management, LLC, CREF X Holdings, L. P.,
CRE Management X, LLC); Spectrum Center Partners, L.P., Spectrum Mortgage
Associates, L. P., CSC Holdings Management, LLC, Crescent SC Holdings, L. P.,
CSC Management, LLC); and 5 Houston Center (Development Property) (C5HC
Management, LLC, Crescent 5 Houston Center, L. P.).



                                       75
<PAGE>
DEBT REFINANCING AND FLEET FACILITY

         In May 2001, the Company (i) repaid and retired the UBS Facility which
consisted of the UBS Line of Credit, the UBS Term Loan I and the UBS Term Loan
II; (ii) repaid and retired the iStar Financial Note; and (iii) modified and
replaced the Fleet Term Note II with proceeds from a $970,000 debt refinancing.
In May 2001, the Company wrote off $10,800 of deferred financing costs related
to the early extinguishment of the UBS Facility which is included in
Extraordinary Item - Extinguishment of Debt.

New Debt Resulting from Refinancing

<Table>
<Caption>
                                        MAXIMUM              INTEREST                  MATURITY
           DESCRIPTION                 BORROWING               RATE                      DATE
-----------------------------------   -------------    ----------------------          ----------
<S>                                   <C>              <C>                             <C>
Fleet Facility                           $ 400,000(1)  LIBOR + 187.5 basis points           2004(2)
Fleet Fund I and II Term Loan            $ 275,000     LIBOR + 325 basis points             2005
Deutsche Bank - CMBS Loan                $ 220,000     LIBOR + 234 basis points             2004(3)
Deutsche Bank Short-Term Loan            $  75,000     LIBOR + 300 basis points             2001(4)
</Table>


----------

(1)   The $400,000 Fleet Facility is an unsecured revolving line of credit. The
      weighted average interest rate from the origination of the note in May
      2001 through December 31, 2001 is 5.38%.

(2)   One-year extension option.

(3)   Two one-year extension options.

(4)   Repaid September 19, 2001.

Debt Repaid or Modified and Replaced by Refinancing

<Table>
<Caption>
                                        MAXIMUM              INTEREST             MATURITY          BALANCE
           DESCRIPTION                 BORROWING               RATE                 DATE        REPAID/MODIFIED(1)
-----------------------------------   -------------    ----------------------     ----------   -------------------
<S>                                   <C>              <C>                        <C>            <C>
UBS Line of Credit                      $ 300,000     LIBOR + 250 basis points      2003           $ 165,000
UBS Term Loan I                         $ 146,775     LIBOR + 250 basis points      2003           $ 146,775
UBS Term Loan II                        $ 326,677     LIBOR + 275 basis points      2004           $ 326,677
Fleet Term Note II                      $ 200,000     LIBOR + 400 basis points      2003           $ 200,000
iStar Financial Note                    $  97,123     LIBOR + 175 basis points      2001           $  97,123
</Table>

----------

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

7.       INTEREST RATE CAPS:

         In connection with the closing of the Deutsche Bank - CMBS Loan in May
2001, the Company entered into a LIBOR interest rate cap struck at 7.16% for a
notional amount of $220,000, and simultaneously sold a LIBOR interest rate cap
with the same terms. Since these instruments do not reduce the Company's net
interest rate risk exposure, they do not qualify as hedges and changes to their
respective fair values are charged to earnings. As the significant terms of
these arrangements are substantially the same, the effects of a revaluation of
these instruments are expected to substantially offset each other.



                                       76
<PAGE>
8.    CASH FLOW HEDGES:

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

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

<Table>
<Caption>
                                                                                                      ADDITIONAL
                                                                                                   INTEREST EXPENSE
    ISSUE           NOTIONAL        MATURITY        REFERENCE              FAIR                      FOR THE YEAR
    DATE             AMOUNT           DATE             RATE            MARKET VALUE            ENDED DECEMBER 31, 2001
--------------   ---------------   ------------    -------------   ----------------------    -----------------------------
<S>              <C>               <C>             <C>             <C>                       <C>
       9/1/99         $ 200,000         9/2/03     6.183%                      $ (10,800)               $ 3,500
       2/4/00         $ 200,000         2/3/03     7.11%                       $ (10,800)               $ 6,000
      4/18/00         $ 100,000        4/18/04     6.76%                       $  (7,200)               $ 2,700
</Table>

         The Company has designated its three cash flow hedge agreements as cash
flow hedges of LIBOR-based monthly interest payments on a designated pool of
variable-rate LIBOR indexed debt that reprices closest to the reset dates of
each cash flow hedge agreement. For retrospective effectiveness testing, the
Company uses the cumulative dollar offset approach as described in Derivatives
Implementation Group ("DIG") Issue E8. The DIG is a task force designed to
assist the FASB in answering questions that companies have resulting from
implementation of SFAS No. 133 and 138. The Company uses the change in variable
cash flows method as described in DIG Issue G7 for prospective testing as well
as for the actual recording of ineffectiveness, if any. Under this method, the
Company will compare the changes in the floating rate portion of each cash flow
hedge to the floating rate of the hedged items. The cash flow hedges have been
and are expected to remain highly effective. Changes in the fair value of these
highly effective hedging instruments are recorded in accumulated other
comprehensive income. The effective portion that has been deferred in
accumulated other comprehensive income will be reclassified to earnings as
interest expense when the hedged items impact earnings. If a cash flow hedge
falls outside 80%-125% effectiveness for a quarter, all changes in the fair
value of the cash flow hedge for the quarter will be recognized in earnings
during the current period. If it is determined based on prospective testing that
it is no longer likely a hedge will be highly effective on a prospective basis,
the hedge will no longer be designated as a cash flow hedge and no longer
qualify for accounting in accordance with SFAS Nos. 133 and 138.

         Over the next twelve months, an estimated $16,400 to $18,400 will be
reclassified from accumulated other comprehensive income to interest expense and
charged against earnings related to the effective portions of the cash flow
hedge agreements.

9.       RENTALS UNDER OPERATING LEASES:

         During 2001, the Company received rental income from the lessees of
Office Property and Resort/Hotel Property space under operating leases. On
February 14, 2002, the Company executed an agreement with COPI, pursuant to
which the Company acquired, in lieu of foreclosure, COPI's lessee interests in
the eight Resort/Hotel Properties previously leased to COPI. Therefore, no
future rental income from the operating lessee will be recognized for these
Resort/Hotel Properties. The Company recognized percentage rental income from
the Resort/Hotel Properties of approximately $14,665, $24,622 and $19,648 for
the years ended December 31, 2001, 2000 and 1999, respectively.





                                       77
<PAGE>
         For noncancelable operating leases for consolidated Office Properties
owned as of December 31, 2001, future minimum rentals (base rents) during the
next five years and thereafter (excluding tenant reimbursements of operating
expenses for Office Properties) are as follows:

<Table>
<Caption>
                     OFFICE
                   PROPERTIES
                -----------------
<S>                    <C>
2002                   $ 410,459
2003                     350,022
2004                     268,891
2005                     213,334
2006                     165,175
Thereafter               482,383
                     -----------
                     $ 1,890,264
                     ===========
</Table>

         Generally, the Office Property leases also require that each customer
reimburse the Company for increases in operating expenses above operating
expenses during the base year of the customer's lease. These amounts totaled
$98,816, $91,735 and $92,865, for the years ended December 31, 2001, 2000 and
1999, respectively. These increases are generally payable in equal installments
throughout the year, based on estimated increases, with any differences adjusted
at year end based upon actual expenses.

         See "Note 2. Summary of Significant Accounting Policies," for further
discussion of revenue recognition, and "Note 3. Segment Reporting," for further
discussion of significant tenants.

10.  COMMITMENTS AND CONTINGENCIES:

LEASE COMMITMENTS

         The Company has 12 Properties located on land that is subject to
long-term ground leases, which expire between 2015 and 2080. The Company also
leases parking spaces in a parking garage adjacent to one of its Properties
pursuant to a lease expiring in 2021. Lease expense associated with these leases
during each of the three years ended December 31, 2001, 2000, and 1999 was
$2,766, $2,869 and $2,642, respectively. Future minimum lease payments due under
such leases as of December 31, 2001, are as follows:

<Table>
<Caption>
                       LEASES
                     COMMITMENTS
                 --------------------
<S>                        <C>
2002                       $   2,121
2003                           2,129
2004                           2,136
2005                           2,143
2006                           2,155
Thereafter                   107,219
                           ---------
                           $ 117,903
                           =========
</Table>

COPI COMMITMENTS

         See "Note 22. Subsequent Events," for a description of the Company's
commitments related to the agreement with COPI, executed on February 14, 2002.

CONTINGENCIES

Environmental Matters

         All of the Properties have been subjected to Phase I environmental
assessments, and some Properties have been subjected to Phase II soil and ground
water sampling as part of the Phase I assessments. Such assessments have not
revealed, nor is management aware of, any environmental liabilities that
management believes would have a material adverse effect on the financial
position or results of operations of the Company.



                                       78
<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>



                                       79
<PAGE>
UNIT PLANS

         The Operating Partnership has two unit incentive plans, the 1995 Unit
Incentive Plan (the "1995 Unit Plan") and the 1996 Unit Incentive Plan (the
"1996 Unit Plan"). The 1995 Unit Plan is designed to reward persons who are not
trust managers, officers or 10% shareholders of the Company. An aggregate of
100,000 common shares are reserved for issuance upon the exchange of 50,000
units available for issuance to employees and advisors under the 1995 Unit Plan.
As of December 31, 2001, an aggregate of 7,012 units had been distributed under
the 1995 Unit Plan. The 1995 Unit Plan does not provide for the grant of
options. There was no activity in the 1995 Unit Plan in 2001, 2000 or 1999. The
1996 Unit Plan provides for the grant of options to acquire up to 2,000,000
units. Through December 31, 2001, the Operating Partnership had granted, net of
forfeitures, options to acquire 1,778,571 units. Forfeited options are available
for grant. The unit options granted under the 1996 Unit Plan were priced at fair
market value on the date of grant, generally vest over seven years, and expire
ten years from the date of grant. Pursuant to the terms of the unit options
granted under the 1996 Unit Plan, because the fair market value of the Company's
common shares equaled or exceeded $25 for each of ten consecutive trading days,
the vesting of an aggregate of 500,000 units was accelerated and such units
became immediately exercisable in 1996. In addition, 100,000 unit options vest
50% after three years and 50% after five years. Under the 1996 Unit Plan, each
unit that may be purchased is exchangeable, as a result of shareholder approval
in June 1997, for two common shares or, at the option of the Company, an
equivalent amount of cash.

         A summary of the status of the Company's 1996 Unit Plan as of December
31, 2001, 2000 and 1999, and changes during the years then ended is presented in
the table below (assumes each unit is exchanged for two common shares):

                         1996 UNIT INCENTIVE OPTION PLAN

<Table>
<Caption>
                                                      2001                        2000                           1999
                                           --------------------------   -------------------------     --------------------------
                                            SHARES        WTD. AVG.       SHARES       WTD. AVG.       SHARES          WTD. AVG.
                                           UNDERLYING   EXERCISE PRICE   UNDERLYING  EXERCISE PRICE   UNDERLYING    EXERCISE PRICE
                                          UNIT OPTIONS    PER SHARE     UNIT OPTIONS   PER SHARE     UNIT OPTIONS     PER SHARE
                                          ------------  --------------  -----------  --------------  ------------    -----------
<S>                                       <C>           <C>             <C>          <C>                   <C>      <C>
Outstanding as of January 1,                     2,414    $        17         2,414   $        17           4,000    $        18
Granted                                             --             --            --            --             200             16
Exercised                                          (20)            18            --            --          (1,143)            18
Forfeited                                           --             --            --            --            (643)            18
Expired                                             --             --            --            --              --             --
                                           -----------    -----------   -----------   -----------     -----------    -----------
Outstanding/Wtd. Avg. as of December 31,         2,394    $        17         2,414   $        17           2,414    $        17
                                           -----------    -----------   -----------   -----------     -----------    -----------
Exercisable/Wtd. Avg. as of December 31,         1,766    $        18         1,571   $        18           1,143    $        18
</Table>

       Effective March 5, 2001, the Operating Partnership granted options to
acquire 150,000 Units to Dennis H. Alberts, in connection with his employment as
the Chief Operating Officer of the General Partner and the Company. The 300,000
common share equivalents were priced at $21.84 per share, which equals the fair
market value of the Company's common shares at the date of grant.

STOCK OPTION AND UNIT PLANS

       The Company applies APB No. 25 in accounting for options granted pursuant
to the 1995 Plan, the 1994 Plan and the 1996 Unit Plan (collectively, the
"Plans"). Accordingly, no compensation cost has been recognized for the Plans.
Had compensation cost for the Plans been determined based on the fair value at
the grant dates for awards under the Plans, consistent with SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:

<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>



                                       80
<PAGE>

         At December 31, 2001, 2000 and 1999, the weighted average fair value of
options granted was $2.73, $2.46 and $2.80, respectively. The fair value of each
option is estimated at the date of grant using the Black-Scholes option-pricing
model using the following expected weighted average assumptions in the
calculation.

<Table>
<Caption>
                                FOR THE YEAR ENDED DECEMBER 31,
                             -------------------------------------
                               2001          2000         1999
                             ----------   -----------   ----------
<S>                          <C>           <C>          <C>
Life of options              10 years      10 years     10 years
Risk-free interest rates          4.4%          8.0%         8.0%
Dividend yields                   8.3%         10.0%        12.0%
Stock price volatility           25.7%         26.0%        27.0%
</Table>

12.  SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY:

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

         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 loaned the net proceeds of the sale of Class A Units in
Funding IX through an intracompany loan to Crescent SH IX, Inc. ("SH IX"), for
the purchase of common shares of the Company. See "Share Repurchase Program"
below. This intracompany loan is eliminated in consolidation. However, the loan
from Funding IX to 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 August 12, 1997, the Company entered into two transactions with
affiliates of the predecessor of UBS AG ("UBS"). In one transaction, the Company
sold 4,700,000 common shares to UBS for approximately $148,000 and received
approximately $145,000 in net proceeds. In the other transaction, the Company
entered into a forward share purchase agreement (the "Forward Share Purchase
Agreement") with UBS. The Company had the right to settle the Forward Share
Purchase Agreement in cash or common shares. On August 11, 1998, the Company
paid a fee of approximately $3,000 to UBS in connection with the exercise by the
Company and UBS of the right to extend the term of the Forward Share Purchase
Agreement until August 12, 1999.



                                       81
<PAGE>
         The Forward Share Purchase Agreement was accounted for under the
Emerging Issues Task Force (the "EITF") Issue No. 96-13. The Forward Share
Purchase Agreement and the related common stock was accounted for together as an
equity instrument, similar to a preferred stock instrument with a cumulative
fixed dividend, the forward accretion component or the guaranteed return to UBS
was accounted for like a preferred dividend. Additionally, the common shares
actually issued and outstanding were considered in both the basic and diluted
weighted-average shares calculations. The diluted EPS calculation also included
any contingently issuable common shares.

         On June 30, 1999, the Company settled the Forward Share Purchase
Agreement with affiliates of the predecessor of UBS. At settlement of the
Forward Share Purchase Agreement, the Company made a cash payment of
approximately $149,000 (the "Settlement Price") to UBS in exchange for the
return by UBS to the Company of 7,299,760 common shares.

         The number of common shares returned to the Company is equal to the
4,700,000 common shares originally issued to UBS plus 2,599,760 common shares
subsequently issued by the Company, because of a decline in its stock price. The
additional shares were issued as collateral for the Company's obligation to
purchase 4,700,000 common shares from UBS by August 12, 1999. The Settlement
Price was calculated based on the gross proceeds the Company received from the
original issuance of 4,700,000 common shares to UBS, plus a forward accretion
component equal to 90-day LIBOR plus 75 basis points, minus an adjustment for
the Company's distributions paid to UBS. The forward accretion component
represented a guaranteed rate of return to UBS.

SHARE REPURCHASE PROGRAM

         On October 15, 2001, the Company's Board of Trust Managers authorized
an increase in the amount of outstanding common shares that can be repurchased
from time to time in the open market or through privately negotiated
transactions (the "Share Repurchase Program") from $500,000 to $800,000.

         The Company commenced its Share Repurchase Program in March 2000. As of
December 31, 2001, the Company had repurchased 18,756,423 common shares, 20,286
of which have been retired, at an average price of $19.09 per common share for
an aggregate of approximately $358,115. As of December 31, 2001, the Company
held 14,468,623 of the repurchased common shares in SH IX, a wholly-owned
subsidiary. The 14,468,623 common shares were repurchased with the net proceeds
of the sale of Class A Units in Funding IX and with a portion of the net
proceeds from the sale of one of the Properties held by Funding IX. See "Note
12. Sale of Preferred Equity Interests in Subsidiary." These common shares are
consolidated as treasury shares in accordance with GAAP. 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 Share Repurchase Agreement was accounted for under EITF 96-13 and
was considered an equity instrument similar to a preferred stock instrument with
a cumulative fixed dividend, the forward accretion component or guaranteed
return to UBS was accounted for like a preferred dividend. Additionally, the
common shares actually issued and outstanding were considered in both the basic
and diluted weighted-average shares calculations. The diluted EPS calculation
also included any contingently issuable common shares.



                                       82
<PAGE>

         The Company has no further obligation under the Share Repurchase
Agreement. The purchases were funded primarily through the sale of Class A Units
in Funding IX. See "Note 12. Sale of Preferred Equity Interests in Subsidiary."

DISTRIBUTIONS

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

         The following table summarizes the distributions paid or declared to
common shareholders, unitholders and preferred shareholders during the year
ended December 31, 2001.

<Table>
<Caption>
                                                                                                      ANNUAL
                                     DIVIDEND/         TOTAL            RECORD       PAYMENT        DIVIDEND/
           SECURITY                DISTRIBUTION        AMOUNT            DATE          DATE        DISTRIBUTION
-------------------------------   ----------------   -----------      ------------  -----------   ---------------
<S>                               <C>                <C>              <C>           <C>           <C>
 Common Shares/Units(1)                   $ 0.550      $ 74,697(2)      1/31/01      2/15/01              $ 2.20
 Common Shares/Units(1)                   $ 0.550      $ 74,789(2)      4/30/01      5/15/01              $ 2.20
 Common Shares/Units(1)                   $ 0.550      $ 74,986(2)      7/31/01      8/15/01              $ 2.20
 Common Shares/Units(1)                   $ 0.375(3)   $ 49,937(2)      10/31/01     11/15/01             $ 1.50(3)
 Common Shares/Units(1)                   $ 0.375(3)   $ 49,706(2)      1/31/02      2/15/02              $ 1.50(3)
 6 3/4% Series A Preferred
    Shares                                $ 0.422       $ 3,375         1/31/01      2/15/01              $ 1.69
 6 3/4% Series A Preferred
    Shares                                $ 0.422       $ 3,375         4/30/01      5/15/01              $ 1.69
 6 3/4% Series A Preferred
    Shares                                $ 0.422       $ 3,375         7/31/01      8/15/01              $ 1.69
 6 3/4% Series A Preferred
    Shares                                $ 0.422       $ 3,375        10/31/01      11/15/01             $ 1.69
 6 3/4% Series A Preferred
    Shares                                $ 0.422       $ 3,375         1/31/02      2/15/02              $ 1.69
</Table>

----------

(1)   Represents one-half the amount of the distribution per unit because each
      unit is exchangeable for two common shares.

(2)   These distribution amounts include $7,958 for each of the distributions
      paid on February 15, 2001, May 15, 2001, August 15, 2001, and $5,426 for
      each of the distributions paid on November 15, 2001 and February 15, 2002,
      which were paid on common shares held by the Company in Crescent SH IX,
      and which are eliminated in consolidation.

(3)   On October 17, 2001, the Company announced a reduction in its quarterly
      distribution from $0.55 per common share, or an annualized distribution of
      $2.20 per common share, to $0.375 per common share, or an annualized
      distribution of $1.50 per common share.

       The distributions to common shareholders and unitholders paid during the
year ended December 31, 2000, were $298,547, or $2.20 per common share and
equivalent unit. As of December 31, 2000, the Company was holding 14,468,623 of
its common shares in Crescent SH IX. The distribution amounts above include
$17,313 of distributions for the year ended 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>




                                       83
<PAGE>

Preferred Shares

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

<Table>
<Caption>
                                    2001      2000
                                   -------   -------
<S>                                <C>       <C>
Ordinary dividend                     100%     83.7%
Capital gain                           --       8.2%
Unrecaptured Section 1250 gain         --       8.1%
</Table>

14.       MINORITY INTEREST:

         Minority interest represents (i) the limited partner interests owned by
limited partners in the Operating Partnership ("units"), and (ii) joint venture
and preferred equity interests held by third parties in other consolidated
subsidiaries. Each unit may be exchanged for either two common shares or, at the
election of the Company, cash equal to the fair market value of two common
shares at the time of the exchange. When a unitholder exchanges a unit, Crescent
Equities' percentage interest in the Operating Partnership increases. During the
year ended December 31, 2001, there were 401,302 units exchanged for 802,604
common shares of Crescent Equities.

15.      RELATED PARTY DISCLOSURES:

DBL HOLDINGS, INC. ("DBL")

         As of December 31, 2001, the Company owned 97.44% of DBL with the
remaining 2.56% economic interest in DBL (including 100% of the voting interest
in DBL) held by John Goff, Vice-Chairman of the Board of Trust Managers and
Chief Executive Officer of the Company. Originally, Mr. Goff contributed his
voting interests in MVDC and HADC, originally valued at approximately $380, and
approximately $63 in cash, or total consideration valued at approximately $443
for his interest in DBL.

         DBL has two wholly owned subsidiaries, DBL-ABC, Inc. and DBL-CBO, Inc.,
the assets of which are described in the following paragraphs, and DBL directly
holds 66% of the voting stock in Mira Vista and HADC. At December 31, 2001, Mr.
Goff's interest in DBL was approximately $554.

         Since June 1999, the Company contributed approximately $23,800 to DBL.
The contribution was used by DBL to make an equity contribution to DBL-ABC,
Inc., which committed to purchase a limited partnership interest representing a
12.5% interest in G2 Opportunity Fund, LP ("G2"). G2 was formed for the purpose
of investing in commercial mortgage backed securities and other commercial real
estate investments and is managed and controlled by an entity that is owned
equally by Goff-Moore Strategic Partners, LP ("GMSP") and GMACCM. The ownership
structure of GMSP consists of 50% ownership by Darla Moore, who is married to
Richard Rainwater, Chairman of the Board of Trust Managers of the 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 John Goff, Vice-Chairman of the Board of Trust Managers and Chief
Executive Officer of the Company and 20% owned by a third party.

         On February 14, 2002, the Company executed an agreement with COPI,
pursuant to which COPI transferred to the Company, in lieu of foreclosure,
COPI's 60% general partner interest in COPI Colorado. As a result, the Company
indirectly



                                       84
<PAGE>

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 premium or penalty. John Goff, Vice-Chairman of the Board of Trust
Managers and Chief Executive Officer of the Company, had a loan representing
$26,300 of the $32,900 total outstanding loans at December 31, 2001.

         Every month, federal short-term, mid-term and long-term rates
(Applicable Federal Rates) are determined and published by the IRS based upon
average market yields of specified maturities. Effective November 1, 2001, these
loans were amended to reduce the interest rates for their remaining terms to the
Applicable Federal Rates. As a result, the interest rates on loans with
remaining terms of three years or less at November 1, 2001 were reduced to
approximately 2.7% per year and the interest rates on loans with remaining terms
greater than three years as of November 1, 2001 were reduced to approximately
4.07% per year. These amended interest rates reflect below prevailing market
interest rates; therefore, the Company recorded $750 of compensation expense for
the year ended December 31, 2001. Approximately $466 of interest was outstanding
related to these loans as of December 31, 2001.

16.      COPI:

         In April 1997, the Company established a new Delaware corporation,
Crescent Operating, Inc. or COPI. All of the outstanding common stock of COPI,
valued at $0.99 per share, was distributed, effective June 12, 1997, to those
persons who were limited partners of the Operating Partnership or shareholders
of the Company on May 30, 1997, in a spin-off.

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

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

         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



                                       85
<PAGE>

significant additional investment would have been necessary to adequately
capitalize Crescent Machinery and satisfy concerns of Crescent Machinery's
lenders.

         The Company stopped recording rent from the leases of the eight
Resort/Hotel Properties leased to subsidiaries of COPI on October 1, 2001, and
recorded the following impairment and other adjustments related to COPI in the
fourth quarter of 2001, based on the estimated fair value of the underlying
collateral.

IMPAIRMENT AND OTHER ADJUSTMENTS RELATED TO COPI

<Table>
<S>                                                                  <C>
Resort/Hotel Accounts Receivable, net of allowance                   $    33,200
Resort/Hotel Straight-Line Rent                                           12,700
Notes Receivable and Accrued Interest                                     71,500
Asset transaction costs                                                    2,800
                                                                     -----------
                                                                     $   120,200
Less estimated collateral value to be received from COPI:
Estimated Fair Value of Resort/Hotel FF&E                            $     6,900
Estimated Fair Value of Voting Stock of
  Residential Development Corporations                               $    38,500
                                                                     -----------
                                                                     $    45,400
                                                                     -----------
Impairment of assets                                                 $    74,800

Plus Estimated Costs Related to COPI Bankruptcy                           18,000
                                                                     -----------
Impairment and other charges related to COPI                         $    92,800
                                                                     ===========
</Table>

         For a description of the COPI assets transferred to subsidiaries of the
Company, in lieu of foreclosure, of certain COPI assets, see "Note 22.
Subsequent Events."

17.  DISPOSITIONS:

OFFICE SEGMENT

         On September 18, 2001, the Company completed the sale of the two
Washington Harbour Office Properties. The sale generated net proceeds of
approximately $153,000 and a net loss of approximately $9,800. The proceeds from
the sale of the Washington Harbour Office Properties were used primarily to pay
down variable-rate debt and repurchase approximately 4.3 million of the
Company's common shares. The Washington Harbour Office Properties were the
Company's only Office Properties in Washington, D.C.

         On September 28, 2001, the Woodlands Office Equities - '95 Limited
("WOE"), owned by the Company and the Woodlands CPC, sold two Office Properties
located within The Woodlands, Texas. The sale generated net proceeds of
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.



                                       86
<PAGE>

<Table>
<Caption>
                                                         For the year
                                                      ended December 31,
                                            ------------------------------------
                                              2001           2000        1999
                                            ---------      ---------   ---------
<S>                                         <C>            <C>         <C>
Revenue                                     $  16,673      $  22,751   $  20,683
Operating Expenses                              5,998          7,460       6,588
                                            ---------      ---------   ---------
Net Operating Income                        $  10,675(1)   $  15,291   $  14,095
                                            =========      =========   =========
</Table>

----------

(1)  Net operating income for 2001 only includes the period for which the
     disposition Properties were held during the year.

         During the year ended December 31, 2000, the Company completed the sale
of 11 wholly-owned Office Properties. The sale of the 11 Office Properties
generated approximately $268,233 of net proceeds. The proceeds were used
primarily to pay down variable-rate debt. The Company recognized a net gain,
which is included in Gain on Property Sales, net, of approximately $35,841
related to the sale of the 11 Office Properties during the year ended December
31, 2000. During the year ended December 31, 1999, the Company recognized an
impairment loss of approximately $16,800 on one of the 11 Office Properties sold
during the year ended December 31, 2000. The Company also recognized a loss of
approximately $5,000, which is included in Gain on Property Sales, net, during
the year ended December 31, 2000 on one of the 11 Office Properties sold. The
losses represented the differences between the carrying values of the Office
Properties and the sales prices less costs of the sales.

         During the year ended December 31, 2000, the Woodlands Retail Equities
- '96 Limited, owned by the Company and The Woodlands CPC, completed the sale of
its retail portfolio, consisting of the Company's four retail properties located
in The Woodlands, Texas. The sale generated approximately $42,700 of net
proceeds, of which the Company's portion was approximately $32,000. The sale
generated a net gain of approximately $6,500, of which the Company's portion was
approximately $4,900. The proceeds received by the Company were used primarily
to pay down variable-rate debt. The net operating income for the years ended
December 31, 2000 and 1999 for the four retail properties was $15 and $3,792,
respectively. Net operating income for the year ended 2000 only includes the
periods for which these properties were held during the year.

RESORT/HOTEL SEGMENT

         On November 3, 2000, the Company completed the sale of the Four Seasons
Hotel - Houston for a sales price of approximately $105,000. The Company used
approximately $19,700 of the proceeds to buy out the Property lease with COPI
and the asset management contract, and for other transaction costs. The sale
generated net proceeds of approximately $85,300. The Company also used
approximately $56,600 of the net proceeds to redeem Class A Units in Funding IX,
through which the Company owned the Property, from GMACCM. See "Note 12. Sale of
Preferred Equity Interests in Subsidiary" for a description of the ownership
structure of Funding IX. The sale generated a net gain, which is included in
Gain on Property Sales, net, of approximately $28,715. The Company's net
operating income for the years ended December 31, 2000 and 1999 for the Four
Seasons Hotel - Houston was $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.




                                       87
<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 year ended December 31, 1999, the Company received cash
rental payments of approximately $35,300 from CBHS, which is included in
Interest and Other Income. As of December 31, 1999, the behavioral healthcare
segment consisted of 88 behavioral healthcare properties in 24 states, all of
which were leased to CBHS and its subsidiaries under a triple-net master lease.
However, during 1999, CBHS's business was negatively affected by many factors,
including adverse industry conditions, and CBHS failed to perform in accordance
with its operating budget. In the third quarter of 1999 CBHS was unable to meet
its rental obligation to the Company and the Company began to recognize rent
from CBHS on a cash basis, due to the uncertainty that CBHS would be able to
fulfill its rental obligations under the lease. In the fourth quarter of 1999,
the Company, COPI, Magellan Health Services, Inc. ("Magellan") and CBHS
completed a recapitalization of CBHS. Pursuant to the recapitalization, Magellan
transferred its remaining hospital-based assets to CBHS, canceled its accrued
franchise fees and terminated the franchise agreements, pursuant to which
Magellan had provided certain services to CBHS in exchange for certain franchise
fees.

         The following financial statement charges were made with respect to the
Company's investment in the behavioral healthcare properties for the year ended
December 31, 1999:

o  CBHS rent was reflected on a cash basis beginning in the third quarter of
   1999;



                                       88
<PAGE>

o  The Company wrote-off the rent that was deferred according to the CBHS lease
   agreement from the commencement of the lease in June of 1997 through June 30,
   1999. The balance written-off totaled $25,600;

o  The Company wrote-down its behavioral healthcare real estate assets by
   approximately $103,800 to a book value of $245,000;

o  The Company wrote-off Magellan warrants of $12,500;

o  The Company recorded approximately $15,000 of additional expense to be used
   by CBHS as working capital; and

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

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

         During the year ended December 31, 2000, payment and treatment of rent
for the behavioral healthcare properties was subject to a rent stipulation
agreed to by certain of the parties involved in the CBHS bankruptcy proceeding.
The Company received approximately $15,400 in rent and interest from CBHS during
the year ended December 31, 2000, which is included in Interest and Other
Income. The Company also completed the sale of 60 behavioral healthcare
properties previously classified as held for disposition, during the year ended
December 31, 2000 (contained in Net Investment in Real Estate). The sales
generated approximately $233,700 in net proceeds and a net gain of approximately
$58,600 for the year ended December 31, 2000. The net proceeds from the sale of
the 60 behavioral healthcare properties sold during the year ended December 31,
2000 were used primarily to pay down variable-rate debt. During the year ended
December 31, 2000, the Company recognized an impairment loss of approximately
$9,300 on the behavioral healthcare properties held for disposition, which is
included in Impairment and Other Charges Related to Real Estate Assets. This
amount represents the difference between the carrying values and the estimated
sales prices less the costs of the sales. At December 31, 2000, the carrying
value of the 28 behavioral healthcare properties classified as held for
disposition was approximately $68,500 (contained in Net Investment in Real
Estate). Depreciation has not been recognized since the dates the behavioral
healthcare properties were classified as held for sale.

         The Company received approximately $6,000 in repayments of a working
capital loan from CBHS during the year ended December 31, 2001, which is
included in Interest and Other Income. The Company also completed the sale of 18
behavioral healthcare properties previously classified as held for disposition
during the year ended December 31, 2001 (contained in Net Investment in Real
Estate). The sales generated approximately $34,700 in net proceeds and a net
gain of approximately $1,600 for the year ended December 31, 2001. The net
proceeds from the sale of the 18 behavioral healthcare properties sold during
the year ended December 31, 2001 were used primarily to pay down variable-rate
debt.

         During the year ended December 31, 2001, the Company recognized an
impairment loss of approximately $8,500 on the behavioral healthcare properties
held for disposition, which is included in Impairment and Other Charges Related
to Real Estate Assets. This amount represents the difference between the
carrying values and the estimated sales prices less the costs of the sales. At
December 31, 2001, the carrying value of the 10 behavioral healthcare properties
classified as held for disposition was approximately $27,900 (contained in Net
Investment in Real Estate). Depreciation expense has not been recognized since
the dates the behavioral healthcare properties were classified as held for sale.


                                       89
<PAGE>

20.      BROADBAND:

         In 2000, the Company made an equity investment in Broadband Office,
Inc. ("Broadband"), (a facilities-based provider of broadband data, video and
voice communication services delivered over fiber optic networks), and related
entities. In May 2001, Broadband filed for Chapter 11 bankruptcy protection, and
the Company's investment in Broadband was approximately $7,200. Yipes
Communications Group, Inc. ("Yipes"), another telecom provider, has received
approval from the federal bankruptcy court to acquire certain rights formerly
owned by Broadband. In addition, Yipes has executed agreements with nine major
real estate entities, including the Company, to assume telecom licensing
agreements, in modified formats. As part of this transaction, the Company
acquired ownership of certain telecom assets previously owned by Broadband and
located within office properties in consideration for conveyance of its equity
interest in Broadband to Yipes. These telecom assets were independently
appraised and valued in excess of the Company's equity interest in Broadband. As
a result, the Company reclassified its investment in Broadband of approximately
$7,200 from Other Assets to Building Improvements during the year ended December
31, 2001. Therefore, Broadband's bankruptcy did not have a material effect on
the Company's results of operations for the year ended December 31, 2001 or its
financial position as of December 31, 2001.

21.   SETTLEMENT OF MERGER DISPUTE:

STATION CASINOS, INC. ("STATION")

         As of April 14, 1999, the Company and Station entered into a settlement
agreement for the mutual settlement and release of all claims between the
Company and Station arising out of the agreement and plan of merger between the
Company and Station, which the Company terminated in August 1998. As part of the
settlement agreement, the Company paid $15,000 to Station on April 22, 1999.

22.   SUBSEQUENT EVENTS:

     OFFICE 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.



                                       90
<PAGE>
         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 limited liability companies that are
wholly owned taxable REIT subsidiaries of the Company. The Company will include
these assets in its Resort/Hotel Segment and its Residential Development
Segment, and will fully consolidate the operations of the eight Resort/Hotel
Properties and the three Residential Development Corporations, beginning on the
date of the transfers of these assets.

         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 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 of Trust Managers, and John
C. Goff, the Vice-Chairman of the Board of Trust Managers, Chief Executive
Officer and President 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.




                                       91
<PAGE>

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.

UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET

<Table>
<Caption>
                                                                 AS OF DECEMBER 31,
                                                                       2001
                                                                  ---------------
<S>                                                               <C>
Real estate, net                                                  $     3,362,342
Cash                                                                      191,128
Other assets                                                            1,011,741
                                                                  ---------------
     Total assets                                                 $     4,565,211
                                                                  ===============
Notes payable                                                     $     2,396,290
Other liabilities                                                         442,467
Minority interests                                                        353,012
Total shareholders' equity                                              1,373,442
                                                                  ---------------
      Total liabilities and shareholders' equity                  $     4,565,211
                                                                  ===============
</Table>

UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                 FOR THE YEAR ENDED
                                                                    DECEMBER 31,
                                                        --------------------------------
                                                            2001              2000
                                                        --------------    --------------
<S>                                                     <C>               <C>
Total revenues                                          $    1,148,828    $    1,209,881
Total expenses                                               1,162,390         1,092,726
                                                        --------------    --------------

Operating Income                                               (13,562)          117,155
Total other income and expense                                  53,161           203,874

Income before minority interests, income taxes
  and extraordinary item                                        39,599           321,029

Income before extraordinary item and
  cumulative effect of change in accounting principle   $        2,147    $      249,871
                                                        ==============    ==============

Basic Earnings per share(1)                             $         0.02    $         2.20
Diluted Earnings per share(1)                           $         0.02    $         2.18
</Table>

----------

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



                                       92
<PAGE>
         The Unaudited Condensed Consolidated Pro Forma Balance Sheet combines
the Company's consolidated historical balance sheet for the year ended December
31, 2001 with the following adjustments:

         o  Reflects the inclusion of the assets and liabilities of the eight
            Hotel/Resort Properties as of December 31, 2001;

         o  Eliminates the eight Hotel/Resort Properties' initial working
            capital receivable on the Company's balance sheet with the
            offsetting net working capital payable;

         o  Adjusts the historical balance sheet to consolidate the balance
            sheets of Desert Mountain Development Corporation ("DMDC"), The
            Woodlands Land Company ("TWLC"), other entities and COPI Colorado
            (which, as the owner of 100% of the voting stock of CRD,
            consolidates the balance of CRD), as a result of the Company's
            retention of voting stock of DMDC, TWLC and other entities, and the
            Company's retention of the 60% general partnership interest in COPI
            Colorado;

         o  Eliminates the Company's equity investment in the historical
            December 31, 2001 balance sheet for DMDC, TWLC, CRD and other
            entities;

         o  Eliminates the intercompany loans and associated accrued interest
            and capitalized interest between the Company and DMDC, CRD and other
            entities;

         o  Reflects the Company's capitalization of a new entity to be owned by
            shareholders that will be committed to acquire COPI's membership
            interest in AmeriCold Logistics; and

         o  Reflects the issuance of $5,000 of the Company's shares to COPI
            stockholders.

         The Unaudited Condensed Consolidated Pro Forma Statements of Operations
combine the Company's consolidated historical statements of operations for the
years ended December 31, 2001 and 2000 with the following adjustments:

         o  Includes the operating results for the eight Hotel/Resort Properties
            after deducting the amount of the lessee rent payments due under the
            respective leases;

         o  Eliminates hotel lessees' rent expense to the Company and the
            Company's rental revenue from the hotel lessees;

         o  Reflects the consolidation of the operations of DMDC, TWLC, other
            entities and COPI Colorado with the Company's historical Statements
            of Operations, as a result of the Company's retention of voting
            stock for DMDC, TWLC and other entities, and the Company's retention
            of the 60% general partnership interest in COPI Colorado;

         o  Eliminates the Company's historical equity in net income for DMDC,
            TWLC, CRD and other entities;

         o  Eliminates intercompany interest expense on the loans from the
            Company to DMDC and CRD;

         o  Reflects income tax benefit for the hotel business, calculated as
            40% of the net loss for the hotel lessees;

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

         o  The December 31, 2001, Unaudited Condensed Consolidated Pro Forma
            Statement of Operations includes the impairment and other charges
            related to the COPI assets of $92,782 contained in the Company's
            2001 Consolidated Statement of Operations.


                                       93
<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>


                                      94
<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        39,150
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>


                                      95
<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.


                                      96
<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>




                                      97


<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 1st day of
April, 2002.

                                CRESCENT REAL ESTATE EQUITIES COMPANY
                                              (Registrant)

                                By /s/ John C. Goff
                                   ---------------------------------------------
                                       John C. Goff
                                       Chief Executive Officer



                                      98