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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 OR
 o
    
    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
  TEXAS
    
    52-1862813(State or other jurisdiction of incorporation
    
    (I.R.S. Employer Identification Number)or organization)
 777 Main Street, Suite 2100, Fort Worth, Texas
    
    76102(Address of principal executive offices)
    
    (Zip code)
 (817) 321-2100
  Name of Each ExchangeTitle of each class:
    
    on Which Registered:Common Shares of Beneficial Interest par value $0.01 per share
    
    New York Stock ExchangeSeries A
Convertible Cumulative Preferred Shares of
Beneficial Interest par value $0.01 per share
    
    New York Stock ExchangeSeries B Cumulative Redeemable Preferred Shares of
Beneficial Interest par value $0.01 per share
    
    New York Stock Exchange
  þ o
  o þ
  þ o
 o
  þ o o
  o þ
  Number of
Common Shares outstanding as of March 5, 2007:
    
    
    102,807,311Number of
Series A Preferred Shares outstanding as of March 5, 2007:
    
    
    14,200,000Number of
Series B Preferred Shares outstanding as of March 5, 2007:
    
    
    3,400,000
 DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 PagePART I.Item 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    12Item 1B. Unresolved Staff Comments
    
    
    24Item 2. Properties
    
    
    24Item 3. Legal Proceedings
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34PART II.Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
    
    
    35Item 6. Selected Financial Data
    
    
    38Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    39Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    72Item 8. Financial Statements and Supplementary Data
    
    
    73Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    137Item 9A. Controls and Procedures
    
    
    137Item 9B. Other Information
    
    
    142PART III.Item 10. Trust Managers, Executive Officers and Corporate Governance
    
    
    142Item 11. Executive Compensation
    
    
    142Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
    
    
    142Item 13. Certain Relationships and Related Transactions, and Trust Manager Independence
    
    
    142Item 14. Principal Accountant Fees and Services
    
    
    142PART IV.Item 15. Exhibits and Financial Statement Schedules
    
    
    143List of SubsdiariesConsent of Ernst & Young LLPConsent of Deloitte & Touche LLPCertifications of CEO and CFO Pursuant to Section 302Certifications of CEO and CFO Pursuant to Section 906
  2




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PART I
 
 Item 1. Business
 References to we, us or our refer to Crescent Real Estate Equities Company and,
unless the context otherwise requires, Crescent Real Estate Equities Limited Partnership, which we
refer to as our Operating Partnership, and our other direct and indirect subsidiaries. We conduct
our business and operations through the Operating Partnership, our other subsidiaries and our joint
ventures. References to Crescent refer to Crescent Real Estate Equities Company. The sole
general partner of the Operating Partnership is Crescent Real Estate Equities, Ltd., a wholly-owned
subsidiary of Crescent Real Estate Equities Company, which we refer to as the General Partner.
 Certain statements contained herein constitute forward-looking statements as such term is
defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance.
Our future results, financial condition and business may differ materially from those expressed in
these forward-looking statements. You can find many of these statements by looking for words such
as plans, intends, estimates, anticipates, expects, believes or similar expressions in
this Form 10-K . These forward-looking statements are subject to numerous assumptions, risks and
uncertainties. Many of the factors that will determine these items are beyond our ability to
control or predict. For further discussion of these factors, see Item 1A. Risk Factors in this
Form 10-K.
 For these statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned
not to place undue reliance on our forward-looking statements, which speak only as of the date of
this Form 10-K or the date of any document incorporated by reference. All subsequent written and
oral forward-looking statements attributable to us or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained or referred to in this section.
We do not undertake any obligation to release publicly any revisions to our forward-looking
statements to reflect events or circumstances after the date of this Form 10-K .
 General
   
    
    Office Segment;
    
    Resort Residential Development Segment;
    
    Resort/Hotel Segment; and
    
    Temperature-Controlled Logistics Segment.
  
    
    Office Segmentconsisted of 71 office properties, which we refer to as the Office
Properties, located in 26 metropolitan submarkets in eight states, with an aggregate of
approximately 27.6 million net rentable square feet. Fifty-four of the Office
Properties are wholly-owned and 17 are owned through joint ventures, one of which is
consolidated in our financial statements contained in Item 8, Financial Statements and
Supplementary Data, and 16 of which are unconsolidated.
    
    Resort Residential Development Segmentconsisted of our ownership of common stock
representing interests of 98% to 100% in four Resort Residential Development
Corporations and two limited partnerships, which are consolidated. These Resort
Residential Development Corporations, through partnership arrangements, owned, in whole
or in part, 30 active and planned upscale resort residential development properties,
which we refer to as the Resort Residential Development Properties.
 3




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
    
    Resort/Hotel Segmentconsisted of five luxury and destination fitness resorts and spas
with a total of 949 rooms/guest nights and three upscale business-class hotel properties
with a total of 1,376 rooms, which we refer to as the Resort/Hotel Properties. Five of
the Resort/Hotel Properties are wholly-owned, one is owned through a joint venture that
is consolidated and two are owned through joint ventures that are unconsolidated.
    
    Temperature-Controlled Logistics Segmentconsisted of our 31.7% interest in
AmeriCold Realty Trust, or AmeriCold, a REIT. As of December 31, 2006, AmeriCold
operated 104 facilities, of which 91 were wholly-owned or leased, one was partially-owned and 12
were managed for outside owners. The 92 owned or leased and partially-owned facilities, which we
refer to as the Temperature-Controlled Logistics Properties, had an aggregate of
approximately 497.8 million cubic feet (19.0 million square feet) of warehouse space.
AmeriCold also owned one quarry and the related land.
    Business Objectives and Strategies Overview
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
    
    Sale of all resort and hotel assets.Properties to be sold include the Fairmont Sonoma
Mission Inn & Spa®, Ventana Inn & Spa in Big Sur, California, the Park Hyatt Beaver
Creek Resort & Spa, and three business-class hotels.
    
    Sale of resort residential developments.Properties and assets to be sold include
Crescent Resort Development and Desert Mountain Development Corporation.
    
    Opportunistic sale of office properties.Properties to be sold include virtually all
suburban Dallas properties and all Austin properties, as well as our single assets in
Phoenix, Arizona, and in Seattle, Washington.
    
    Reduction of general and administrative expenses by more
than $17.0 million, or $0.14 per
share.Implementation of savings began immediately on March 1, 2007 and is expected to be
fully phased in by the end of 2007. We expect to take a charge of
approximately $5.0 million for
severance costs.
    
    Use of sales proceeds to retire debt. We plan to first use the proceeds from asset sales
to retire debt. We expect that our balance sheet will be significantly strengthened and our
cost of capital lowered, giving us capacity for growth.
    
    Alignment of dividend. We intend to align our dividend
with industry-accepted pay-out ranges to allow for retention of
capital for growth.
 ® ®
 Available Information
  Employees
  Tax Status
   5




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Environmental
and Health and Safety Matters
  
    
    Comprehensive Environmental Response, Compensation, and Liability Act, as amended
(CERCLA);
    
    Resource Conservation & Recovery Act;
    
    Clean Water Act;
    
    Clean Air Act;
    
    Toxic Substances Control Act; and
    
    Occupational Safety & Health Act.
   6




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INDUSTRY SEGMENTS
 Office Segment
 Ownership Structure
  Market Information
    Projected Population Growth and Employment Growth for all Company Markets
 Population
    
    EmploymentGrowth
    
    GrowthMetropolitan Statistical Area
    
    2007-2009
    
    2007-2009United States
    
    
    2.7
    %
    
    
    3.4
    %Atlanta, GA
    
    
    6.2
    
    
    
    6.0Austin, TX
    
    
    8.6
    
    
    
    9.2Colorado Springs, CO
    
    
    4.2
    
    
    
    5.7Dallas, TX
    
    
    6.1
    
    
    
    6.1Denver, CO
    
    
    3.6
    
    
    
    4.3Fort Worth, TX
    
    
    6.1
    
    
    
    6.3Houston, TX
    
    
    6.0
    
    
    
    6.2Las Vegas, NV
    
    
    10.9
    
    
    
    10.1Miami, FL
    
    
    3.6
    
    
    
    3.9Orange County, CA
    
    
    3.1
    
    
    
    4.3Phoenix, AZ
    
    
    7.0
    
    
    
    9.0Seattle, WA
    
    
    4.9
    
    
    
    6.0
 
 Source:
    
    Moodys | Economy.com, data represents total percentage change for years 2007, 2008
and 2009. 7




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Unemployment Rates for Company Markets
 As of December 31,Market
    
    2006
    
    2005United States
    
    
    4.3
    %
    
    
    4.6
    %Texas
    
    
    4.1
    
    
    
    4.8Dallas
    
    
    4.0
    
    
    
    4.6Houston
    
    
    4.0
    
    
    
    5.1Austin
    
    
    3.2
    
    
    
    3.9Denver
    
    
    3.9
    
    
    
    4.5Miami
    
    
    3.5
    
    
    
    3.6Las Vegas
    
    
    4.2
    
    
    
    3.5
 
 Source:
    
    U.S. Bureau of Labor Statistics and Texas Workforce Commission.
Not seasonally adjusted.  Office Market Absorption and Occupancy for Major Company Markets
 Economic Net
    
    Economic NetAbsorption(1)
    
    Absorption(1)All Classes
    
    Class A
    
    Economic Occupancy(2)
    
    Economic Occupancy(2)(in square feet)
    
    (in square feet)
    
    All Classes
    
    Class AMarket
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Dallas
    
    
    3,514,000
    
    
    
    549,000
    
    
    
    2,707,000
    
    
    
    1,250,000
    
    
    
    78.3
    %
    
    
    77.5
    %
    
    
    82.6
    %
    
    
    80.9
    %Houston
    
    
    5,814,000
    
    
    
    1,007,000
    
    
    
    4,443,000
    
    
    
    (207,000
    )
    
    
    85.8
    
    
    
    83.1
    
    
    
    88.4
    
    
    
    83.7Austin
    
    
    1,966,000
    
    
    
    1,177,000
    
    
    
    1,300,000
    
    
    
    458,000
    
    
    
    88.3
    
    
    
    84.5
    
    
    
    89.7
    
    
    
    83.7Denver
    
    
    2,473,000
    
    
    
    2,761,000
    
    
    
    1,672,000
    
    
    
    887,000
    
    
    
    85.6
    
    
    
    84.5
    
    
    
    88.1
    
    
    
    85.5Miami
    
    
    778,000
    
    
    
    1,998,000
    
    
    
    692,000
    
    
    
    757,000
    
    
    
    92.7
    
    
    
    91.4
    
    
    
    92.0
    
    
    
    88.7Las Vegas
    
    
    900,000
    
    
    
    2,068,000
    
    
    
    241,000
    
    
    
    305,000
    
    
    
    89.8
    
    
    
    91.5
    
    
    
    92.6
    
    
    
    91.9
 
 Sources:
    
    CoStar Group for non-medical and non-owner-occupied buildings greater than 15,000 square
feet (Dallas, Houston, Austin, Denver and Miami); Grubb & Ellis Las Vegas (Las Vegas).(1)
    
    Economic net absorption is the change in leased space from one period to
another.(2)
    
    Economic occupancy reflects the occupancy of all tenants paying rent.  8




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Office Market Construction Activity for Major Company Markets
 Office Space
    
    Office Space
    
    Office Space UnderCompletions
    
    Completions
    
    Construction(in square feet)
    
    All Classes
    
    Class A
    
    2006Market
    
    2006
    
    2005
    
    2006
    
    2005
    
    All Classes
    
    Class ADallas
    
    
    2,759,000
    
    
    
    649,000
    
    
    
    1,699,000
    
    
    
    215,000
    
    
    
    3,087,000
    
    
    
    2,596,000Houston
    
    
    1,377,000
    
    
    
    970,000
    
    
    
    850,000
    
    
    
    192,000
    
    
    
    2,514,000
    
    
    
    889,000Austin
    
    
    378,000
    
    
    
    384,000
    
    
    
    148,000
    
    
    
    
    
    
    
    1,247,000
    
    
    
    807,000Denver
    
    
    1,677,000
    
    
    
    454,000
    
    
    
    596,000
    
    
    
    
    
    
    
    803,000
    
    
    
    292,000Miami
    
    
    369,000
    
    
    
    588,000
    
    
    
    255,000
    
    
    
    36,000
    
    
    
    3,077,000
    
    
    
    1,170,000Las Vegas
    
    
    2,956,000
    
    
    
    2,569,000
    
    
    
    
    
    
    
    365,000
    
    
    
    2,821,000
    
    
    
    1,187,000
 
 Sources:
    
    CoStar Group (Dallas, Houston, Austin, Denver and Miami); Restrepo Consulting Group, LLC
(Las Vegas). Competition
  Diversified Tenant Base
   9




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Resort Residential Development Segment
 Ownership Structure
  Competition and Market Information
     Resort/Hotel Segment
 Ownership Structure
   10




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Market Information
  Competition
  Temperature-Controlled Logistics Segment
 Ownership Structure
  Business and Industry Information
   11




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Percentage of2006 Segment RevenueH.J. Heinz Company
    
    
    17.9
    %ConAgra Foods, Inc.
    
    
    9.6Altria Group Inc. (Kraft Foods)
    
    
    5.7Schwan Corp.
    
    
    4.3Tyson Foods, Inc.
    
    
    4.1General Mills, Inc.
    
    
    3.5Sara Lee Corp.
    
    
    3.3McCain Foods Limited
    
    
    3.2U.S. Government
    
    
    3.1Smithfield Companies Inc.
    
    
    2.9Wayne Farms LLC
    
    
    2.6Rich Products Corp.
    
    
    2.4Jack in the Box Inc.
    
    
    2.3J. R. Simplot Company
    
    
    2.2Other
    
    
    32.9Total
    
    
    100.0
    %
 Competition
  
 Item 1A. Risk Factors
 If we are unable to effectively implement the Strategic Plan, our business, financial condition, operating results and common share price could suffer.
  
    
    we may face various disruptions to the operation of our business as a result of the
substantial time and effort invested by our management in connection with the Strategic
Plan, and may be unable to respond effectively to competitive pressures or take advantage
of new business opportunities;
    
    our decision to implement the Strategic Plan may cause harm
to relationships with our
employees and/or may divert employee attention away from day-to-day operations of our
business;
    
    our decision to implement the Strategic Plan requires
cooperation of our
strategic business partners, including our relationships with the management of Canyon
Ranch and East West Partners;
    
    regardless of our ability to consummate the Strategic Plan, we would remain liable for
significant costs relating thereto, including, among others, severance and retention
payments, and accounting, legal and financial advisory expenses; and
    
    an announcement that we have abandoned or cannot fully implement the Strategic Plan
could trigger a decline in our common share price to the extent that our share price
reflects a market assumption that we will complete the Strategic Plan.
 Our
Strategic Plan calls for us to make substantial divestitures. We may be unable to
make these divestitures on terms that are acceptable, or at all.
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Our failure to have an effective system of internal controls over financial reporting could hinder
our ability to accurately or timely report our financial results, which could have an adverse
effect on our business, results of operations or financial condition.
  We derive the substantial majority of our office rental revenues from geographically concentrated
markets.
  Our performance and value are subject to general risks associated with the real estate industry.
  
    
    downturns in the national, regional and local economic conditions where our properties
are located;
    
    competition from other Office, Resort Residential Development, Resort/Hotel and
Temperature-Controlled Logistics properties;
    
    adverse changes in local real estate market conditions, such as oversupply or reduction
in demand for office space, luxury residences, Resort/Hotel space or Temperature-Controlled
Logistics storage space;
    
    changes in tenant preferences that reduce the attractiveness of our properties to tenants;
    
    tenant defaults;
    
    zoning or other regulatory restrictions;
    
    decreases in market rental rates;
    
    costs associated with the need to periodically repair, renovate and re-lease space;
    
    increases in the cost of maintenance, insurance and other operating costs, including
real estate taxes, associated with one or more properties, which may occur even when
circumstances such as market factors and competition cause a reduction in revenues from one
or more properties; and
    
    illiquidity of real estate investments, which may limit our ability to vary our
portfolio promptly in response to changes in economic or other conditions.
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We depend on leasing office space to tenants on economically favorable terms and collecting rent
from our tenants, who may not be able to pay.
    We may experience difficulty or delay in renewing leases or re-leasing space.
  , , ,
 Our results of operations depends on the ability of El Paso Energy to meet its obligations pursuant
to its lease termination agreement with us.
  
    
    $65.0 million in termination fees in periodic installments through December 31, 2007 (of
which $35.0 million has been received as of December 31, 2006, and is included in
restricted cash in our Consolidated Balance Sheets as it is required to be escrowed with
the lender); and
    
    $62.0 million in rent according to original contractual lease terms from July 1, 2005,
through December 31, 2007 (of which $39.8 million has been received as of December 31,
2006).
  We may have limited flexibility in dealing with our jointly owned investments.
  14




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
    
    become bankrupt;
    
    have economic or other business interests or goals which are unlike or incompatible with
our business interests or goals;
    
    be in a position to take action contrary to our suggestions or instructions, or in
opposition to our policies or objectives (including actions that may be inconsistent with
our REIT status); and
    
    have different objectives from us regarding the appropriate timing and pricing of any
sale or refinancing of the properties.
   The management and leasing agreements under which we operate our Office Properties owned through
joint ventures may be terminated after an initial period.
  The performance of our Resort Residential Development Properties is affected by national, regional
and local economic conditions.
  In many cases, we do not develop our Resort Residential Development Properties and are dependent on
the developer of these properties.
  15




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The revenues from our eight Resort/Hotel Properties depend on third-party operators that we do not
control.
  The revenues from our eight Resort/Hotel Properties are subject to risks associated with the
hospitality industry.
  
    
    Based on features such as access, location, quality of accommodations, room-rate
structure and, to a lesser extent, the quality and scope of other amenities such as food
and beverage facilities, our Resort/Hotel properties compete for guests with other resorts
and hotels, a number of which have greater marketing and financial resources than our
lessees or the Resort/Hotel property managers;
    
    If there is an increase in operating costs resulting from inflation or other factors, we
or the property managers may not be able to offset the increase by increasing room rates;
    
    Our Resort/Hotel Properties are subject to fluctuating and seasonal demands for business
travel and tourism; and
    
    Our Resort/Hotel Properties are subject to general and local economic conditions that
may affect the demand for travel in general and other factors that are beyond our control,
such as acts of terrorism.
  Development and construction risks could adversely affect our profitability.
  
    
    We may be unable to obtain, or suffer delays in obtaining, necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations, which could
result in increased costs or our abandonment of these activities;
    
    We may incur costs for development, expansion or renovation of a property which exceed
our original estimates due to increased costs for materials or labor or other costs that
were unexpected;
    
    We may not be able to obtain financing with favorable terms, which may make us unable to
proceed with our development and other related activities on the schedule we originally
planned or at all;
    
    We may be unable to complete construction and sale or lease-up of a lot, office property
or resort residential development unit on schedule, which could result in increased debt
service expense or construction costs;
    
    We may lease, rent or sell developed properties at below expected rental rates, room
rates or unit prices; and
    
    Occupancy rates, rents or unit sales at newly completed properties may fluctuate
depending on a number of factors, including market and economic conditions, and may result
in our investment not being profitable.
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Many real estate costs are fixed, even if income from our properties decreases.
  Payment of distributions on any class of our shares may be adversely affected by the level of our
debt and the terms and number of our other shares that rank on an equal basis with or senior to
that class of shares.
  The amount of debt that we have and the restrictions imposed by that debt could adversely affect
our business and our financial condition.
   
    
    make it difficult to satisfy our debt service requirements;
    
    prevent us from making distributions on our outstanding common shares and preferred shares;
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, thereby reducing funds available for operations, property
acquisitions and other appropriate business opportunities that may arise in the future;
    
    require us to dedicate increased amounts of our cash flow from operations to payments on
our variable rate, unhedged debt if interest rates rise;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
factors that affect the profitability of our business;
    
    limit our ability to obtain additional financing, if we need it in the future for
working capital, debt refinancing, capital expenditures, acquisitions, development or other
general corporate purposes; and
    
    limit our flexibility in conducting our business, which may place us at a disadvantage
compared to competitors with less debt.
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We are obligated to comply with financial and other covenants in our debt that could restrict our
operating activities, and the failure to comply could result in defaults that accelerate the
payment under our debt.
  
    
    relating to the maintenance of the property securing the debt;
    
    relating to minimum acceptable insurance coverage on our properties;
    
    restricting our ability to pledge assets or create other liens;
    
    restricting our ability to incur additional debt;
    
    restricting our ability to amend or modify existing leases; and
    
    restricting our ability to enter into transactions with affiliates.
  
    
    incur additional debt;
    
    incur additional secured debt and subsidiary debt;
    
    make certain distributions, investments and other restricted payments, including
distribution payments on our or our subsidiaries outstanding common and preferred equity;
    
    limit the ability of restricted subsidiaries to make payments to us;
    
    enter into transactions with affiliates;
    
    create certain liens;
    
    enter into certain sale-leaseback transactions; and
    
    consolidate, merge or sell all or substantially all of our assets.
   Many factors affect the trading price of our shares.
  
    
    our financial condition, performance and prospects;
    
    the market for similar securities;
    
    additional issuance of other classes or series of our shares, particularly preferred
shares, or the issuance of debt securities;
    
    the amount of distributions paid on our common and preferred shares;
    
    an announcement regarding future dividend pay-out ranges on our common shares;
    
    general economic and financial market conditions; and
    
    prevailing interest rates, increases in which may have a negative effect on the trading
value of our preferred shares.
 Rising interest rates could adversely affect our cash flow and the market price of our outstanding
debt securities and preferred shares.
  18




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The
level of our distributions to our common shareholders is highly
dependent on the implementation of our Strategic Plan.
  The terms of some of our debt may prevent us from paying distributions on our shares.
  Mezzanine loans involve greater risks of loss than senior loans secured by income producing
properties.
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The use
of repurchase agreements to fund our mezzanine notes exposes us to risks.
  If we are unable to renew our borrowings at favorable rates, it may force us to sell assets or
find other financing and our profitability may be adversely affected
 A decline in the market value of the pool of assets in the warehouse facility may result in
margin calls that may force us to sell assets under adverse market conditions.
 If
a mezzanine loan defaults, we may not be able to fund the repurchase of the loan from our
warehouse facility or the stabilization of the property by drawings under our credit facility which
could cause liquidity concerns.
 Our use of repurchase agreements to borrow money may give our lenders greater rights in the
event of bankruptcy.
 Environmental problems are possible and may be costly.
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Compliance with the Americans with Disabilities Act could be costly.
  Our insurance coverage on our properties may be inadequate or unavailable, which may have a
material adverse effect on our business.
    Competition for acquisitions and dispositions could adversely affect us.
  
    
    reducing the number of suitable investment opportunities offered to us; and
 
    
    increasing the bargaining power of property owners.
 21




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
    
    interfering with our ability to attract and retain tenants, guests or purchasers; and
 
    
    adversely affecting our ability to minimize expenses of operation.
 Acquisitions may fail to perform as expected.
  
    
    We may not be able to identify suitable properties to acquire or may be unable to
complete the acquisition of the properties we select for acquisition;
    
    We may not be able to integrate new acquisitions into our existing operations
successfully;
    
    Our estimate of the costs of improving, repositioning or redeveloping an acquired
property may prove to be too low, and, as a result, the property may fail to meet our
estimates of the profitability of the property, either temporarily or for a longer time;
    
    Office properties, resorts or hotels we acquire may fail to achieve the occupancy and
rental or room rates we anticipate at the time we make the decision to invest in the
properties, resulting in lower profitability than we expected in analyzing the properties;
    
    Our pre-acquisition evaluation of the physical condition of each new investment may not
detect certain defects or necessary repairs until after the property is acquired, which
could significantly increase our total acquisition costs; and
    
    Our investigation of a property or building prior to its acquisition, and any
representations we may receive from the seller, may fail to reveal various liabilities,
which could effectively reduce the cash flow from the property or building, or increase our
acquisition cost.
 We are dependent on our key personnel whose continued service is not guaranteed.
  Provisions of our declaration of trust and bylaws could inhibit changes in control or discourage
takeover attempts beneficial to our shareholders.
  22




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##### Table of Contents



Your ownership of our shares is subject to limitation for REIT tax purposes.
  The number of shares available for future sale could adversely affect the market price of our
publicly traded securities.
  Failure to qualify as a REIT would cause us to be taxed as a corporation, which would substantially
reduce funds available for payment of distributions.
   23




---



##### Table of Contents



The lower tax rate on dividends from regular corporations may cause investors to prefer to hold
stock in regular corporations instead of REITs.
  Our results of operations and financial condition may be affected by a recently enacted law, which
subjects us to the revised Texas franchise tax
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties
  Office Properties
  24




---



##### Table of Contents



Office Property Table (1)
  WeightedAverage Full-ServiceRental RateEconomic
    
    
    Per
    
    
    OurNo. of
    
    
    
    
    
    
    Net Rentable
    
    
    Occupancy
    
    
    Occupied
    
    
    OwnershipState, City, Property
    
    Properties
    
    
    Submarket
    
    Year Completed
    
    Area (Sq. Ft.)
    
    
    Percentage
    
    
    Sq. Ft.(2)
    
    
    Percentage(1)TexasDallasThe Crescent
    
    
    2
    
    
    Uptown/Turtle Creek
    
    1985
    
    
    1,299,522
    
    
    
    98.5
    
    
    
    34.49
    
    
    
    24
    %Fountain Place
    
    
    1
    
    
    CBD
    
    1986
    
    
    1,200,266
    
    
    
    91.2
    
    
    
    21.38
    
    
    
    24
    %Trammell Crow Center
    
    
    1
    
    
    CBD
    
    1984
    
    
    1,128,331
    
    
    
    90.1
    
    
    
    24.20
    
    
    
    24
    %Stemmons Place
    
    
    1
    
    
    Stemmons Freeway
    
    1983
    
    
    634,381
    
    
    
    66.4
    
    
    
    16.82
    
    
    
    100
    %Spectrum Center
    
    
    1
    
    
    Quorum/Bent Tree
    
    1983
    
    
    598,250
    
    
    
    92.1
    
    
    
    20.60
    
    
    
    100
    %125 E. John Carpenter Freeway
    
    
    1
    
    
    Las Colinas
    
    1982
    
    
    446,031
    
    
    
    88.3
    
    
    
    20.78
    
    
    
    100
    %The Aberdeen
    
    
    1
    
    
    Quorum/Bent Tree
    
    1986
    
    
    319,758
    
    
    
    95.5
    
    
    
    16.80
    
    
    
    100
    %MacArthur Center I & II
    
    
    1
    
    
    Las Colinas
    
    1982/1986
    
    
    298,161
    
    
    
    81.0
    
    
    
    19.01
    
    
    
    100
    %Stanford Corporate Centre
    
    
    1
    
    
    Quorum/Bent Tree
    
    1985
    
    
    274,684
    
    
    
    88.5
    (3)
    
    
    21.29
    
    
    
    100
    %Palisades Central II
    
    
    1
    
    
    Richardson
    
    1985
    
    
    240,935
    
    
    
    95.3
    
    
    
    20.83
    
    
    
    100
    %3333 Lee Parkway
    
    
    1
    
    
    Uptown/Turtle Creek
    
    1983
    
    
    233,543
    
    
    
    98.3
    
    
    
    19.47
    
    
    
    100
    %The Addison
    
    
    1
    
    
    Quorum/Bent Tree
    
    1981
    
    
    215,016
    
    
    
    100.0
    
    
    
    23.09
    
    
    
    100
    %Palisades Central I
    
    
    1
    
    
    Richardson
    
    1980
    
    
    180,503
    
    
    
    76.3
    
    
    
    18.16
    
    
    
    100
    %Greenway II
    
    
    1
    
    
    Richardson
    
    1985
    
    
    154,329
    
    
    
    99.9
    
    
    
    18.03
    
    
    
    100
    %Greenway I & IA
    
    
    2
    
    
    Richardson
    
    1983
    
    
    146,704
    
    
    
    74.7
    
    
    
    16.64
    
    
    
    100
    %Subtotal/Weighted Average
    
    
    17
    
    
    
    
    
    
    
    7,370,414
    
    
    
    89.9
    %
    
    $
    23.38
    
    
    
    63
    %Fort WorthCarter Burgess Plaza
    
    
    1
    
    
    CBD
    
    1982
    
    
    954,895
    
    
    
    96.4
    %
    
    $
    19.88
    
    
    
    100
    %HoustonGreenway Plaza
    
    
    10
    
    
    Greenway Plaza
    
    1969-1982
    
    
    4,348,052
    
    
    
    86.5
    %
    
    $
    19.67
    
    
    
    100
    %Houston Center
    
    
    4
    
    
    CBD
    
    1974-1983
    
    
    2,960,544
    
    
    
    91.5
    
    
    
    19.96
    
    
    
    24
    %Post Oak Central
    
    
    3
    
    
    West Loop/Galleria
    
    1974-1981
    
    
    1,279,759
    
    
    
    96.7
    
    
    
    20.90
    
    
    
    24
    %Fulbright Tower
    
    
    1
    
    
    CBD
    
    1982
    
    
    1,247,061
    
    
    
    73.4
    (3)
    
    
    20.37
    
    
    
    24
    %Five Post Oak Park
    
    
    1
    
    
    West Loop/Galleria
    
    1986
    
    
    567,396
    
    
    
    88.9
    
    
    
    19.04
    
    
    
    30
    %BriarLake Plaza
    
    
    1
    
    
    Westchase
    
    2000
    
    
    502,410
    
    
    
    87.3
    (3)
    
    
    24.61
    
    
    
    30
    %Subtotal/Weighted Average
    
    
    20
    
    
    
    
    
    
    
    10,905,222
    
    
    
    87.7
    %
    
    $
    20.17
    
    
    
    55
    %Austin816 Congress
    
    
    1
    
    
    CBD
    
    1984
    
    
    433,024
    
    
    
    77.3
    %
    
    $
    20.81
    
    
    
    100
    %301 Congress Avenue
    
    
    1
    
    
    CBD
    
    1986
    
    
    418,338
    
    
    
    82.1
    
    
    
    23.03
    
    
    
    50
    %Austin Centre
    
    
    1
    
    
    CBD
    
    1986
    
    
    343,664
    
    
    
    97.2
    
    
    
    18.95
    
    
    
    100
    %The Avallon
    
    
    3
    
    
    Northwest
    
    1993/1997
    
    
    318,217
    
    
    
    93.1
    
    
    
    20.50
    
    
    
    100
    %Subtotal/Weighted Average
    
    
    6
    
    
    
    
    
    
    
    1,513,243
    
    
    
    86.5
    %
    
    $
    20.84
    
    
    
    86
    %ColoradoDenver
Johns Manville Plaza
    
    
    1
    
    
    CBD
    
    1978
    
    
    675,400
    
    
    
    91.5
    %
    
    $
    19.84
    
    
    
    100
    %707 17th Street
    
    
    1
    
    
    CBD
    
    1982
    
    
    550,805
    
    
    
    91.9
    
    
    
    20.42
    
    
    
    100
    %Regency Plaza
    
    
    1
    
    
    Denver Technology Center
    
    1985
    
    
    309,862
    
    
    
    86.5
    (3)
    
    
    18.76
    
    
    
    100
    %Peakview Tower
    
    
    1
    
    
    Greenwood Village
    
    2001
    
    
    264,149
    
    
    
    91.4
    
    
    
    24.05
    
    
    
    100
    %55 Madison
    
    
    1
    
    
    Cherry Creek
    
    1982
    
    
    137,176
    
    
    
    93.8
    
    
    
    19.03
    
    
    
    100
    %The Citadel
    
    
    1
    
    
    Cherry Creek
    
    1987
    
    
    130,652
    
    
    
    92.4
    
    
    
    24.94
    
    
    
    100
    %44 Cook
    
    
    1
    
    
    Cherry Creek
    
    1984
    
    
    124,174
    
    
    
    81.2
    
    
    
    18.87
    
    
    
    100
    %Subtotal/Weighted Average
    
    
    7
    
    
    
    
    
    
    
    2,192,218
    
    
    
    90.5
    %
    
    $
    20.56
    
    
    
    100
    %Colorado SpringsBriargate Office and
Research Center
    
    
    1
    
    
    Northeast
    
    1988
    
    
    260,046
    
    
    
    87.3
    %
    
    $
    18.16
    
    
    
    100
    %
 25




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##### Table of Contents



Office Property Table  Continued (1)
 WeightedAverage Full-ServiceRental RateEconomic
    
    
    Per
    
    
    OurNo. of
    
    
    
    
    
    
    Net Rentable
    
    
    Occupancy
    
    
    Occupied
    
    
    OwnershipState, City, Property
    
    Properties
    
    
    Submarket
    
    Year Completed
    
    Area (Sq. Ft.)
    
    
    Percentage
    
    
    Sq. Ft.(2)
    
    
    Percentage(1)FloridaMiamiMiami Center
    
    
    1
    
    
    CBD
    
    1983
    
    
    782,211
    
    
    
    93.2
    % (3)
    
    $
    32.44
    
    
    
    40
    %Datran Center
    
    
    2
    
    
    Kendall/Dadeland
    
    1986/1988
    
    
    476,412
    
    
    
    94.3
    
    
    
    29.01
    
    
    
    100
    %The Alhambra
    
    
    2
    
    
    Coral Gables
    
    1961/1987
    
    
    325,005
    
    
    
    92.0
    
    
    
    30.47
    
    
    
    100
    %The BAC  Colonnade Building
    
    
    1
    
    
    Coral Gables
    
    1989
    
    
    218,170
    
    
    
    89.6
    
    
    
    33.40
    
    
    
    100
    %Subtotal/Weighted Average
    
    
    6
    
    
    
    
    
    
    
    1,801,798
    
    
    
    92.8
    %
    
    $
    31.28
    
    
    
    74
    %CaliforniaOrange CountyDupont Centre
    
    
    1
    
    
    Airport Office Area
    
    1986
    
    
    250,782
    
    
    
    97.3
    %
    
    $
    27.41
    
    
    
    100
    %NevadaLas VegasHughes Center
    
    
    8
    
    
    Central East
    
    1986 - 1999
    
    
    1,111,388
    
    
    
    97.5
    %
    
    $
    33.60
    
    
    
    100
    %GeorgiaAtlantaOne Buckhead Plaza
    
    
    1
    
    
    Buckhead
    
    1987
    
    
    461,669
    
    
    
    91.3
    %
    
    $
    30.48
    
    
    
    35
    %One Live Oak
    
    
    1
    
    
    Buckhead
    
    1981
    
    
    201,488
    
    
    
    88.7
    
    
    
    24.24
    
    
    
    100
    %Subtotal/Weighted Average
    
    
    2
    
    
    
    
    
    
    
    663,157
    
    
    
    90.5
    %
    
    $
    28.62
    
    
    
    55
    %WashingtonSeattleExchange Building
    
    
    1
    
    
    CBD
    
    1930/2001
    
    
    295,515
    
    
    
    99.0
    %
    
    $
    24.57
    
    
    
    100
    %Total Office Portfolio
Excluding Properties Not
Stabilized
    
    
    70
    
    
    
    
    
    
    
    27,318,678
    
    
    
    89.8
    % (3)
    
    $
    22.78
    (4)
    
    
    68
    %PROPERTIES NOT STABILIZEDArizonaPhoenixFinancial Plaza (5)
    
    
    1
    
    
    Mesa
    
    1986
    
    
    309,983
    
    
    
    80.6
    %
    
    $
    25.06
    
    
    
    100
    %Total Office Portfolio
    
    
    71
    
    
    
    
    
    
    
    27,628,661
    
    
    
    
    
    
    
    
    
    
    
    69
    %
 
 (1)
    
    Office Property Table data is presented without adjustments
to reflect our actual ownership percentage in joint
ventured properties. Our actual ownership percentage in
each property has been included for informational purposes.(2)
    
    Calculated in accordance with GAAP based on base rent
payable as of December 31, 2006, giving effect to free rent
and scheduled rent increases and including adjustments for
expenses payable by or reimbursable from customers. The
weighted average full-service rental rate for the El Paso
lease (Greenway Plaza, Houston, Texas) reflects weighted
average full-service rental rate over the shortened term
(due to lease termination effective as of December 31,
2007) and excludes the impact of the net lease termination
fee being amortized into revenue through December 31, 2007.(3)
    
    Leases have been executed at certain Office Properties but
had not commenced as of December 31, 2006. If such leases
had commenced as of December 31, 2006, the percent leased
for Office Properties would have been 92.6%. Properties
whose percent leased exceeds economic occupancy by 5
percentage points or more are as follows: Stanford
Corporate Centre  94.1%, Fullbright Tower  91.7%,
BriarLake Plaza  97.3, Regency Plaza  93.8% and Miami
Center  98.8%.(4)
    
    The weighted average full-service cash rental rate per
square foot calculated based on base rent payable for
Office Properties as of December 31, 2006, without giving
effect to free rent and scheduled rent increases that are
taken into consideration under GAAP but including
adjustments for expenses paid by or reimbursed from
customers is $22.55.(5)
    
    Property statistics exclude Financial Plaza (acquired
January 2006). This office property will be included in
portfolio statistics once stabilized. Stabilization is
deemed to occur upon the earlier of (a) achieving 90%
occupancy, (b) one year following the acquisition date or
date placed in service (related to developments), or (c)
two years following the acquisition date for properties
which are being repositioned. 26




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##### Table of Contents



Percent ofIndustry Sector
    
    Leased Sq. Ft.Professional and Business Services
    
    
    32
    %Financial Activities
    
    
    27Natural Resources, Mining, Construction
    
    
    18Information
    
    
    5Trade, Transportation, Utilities
    
    
    4Public Administration
    
    
    4Manufacturing
    
    
    4Leisure and Hospitality
    
    
    4Education and Health Services
    
    
    1Other Services
    
    
    1Total Leased
    
    
    100
    %
 Aggregate Lease Expirations of Office Properties
  27




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##### Table of Contents



Total Office Portfolio
 Square
    
    
    
    
    
    
    
    Square
    
    
    
    
    
    
    
    Crescents
    
        
    
    
    
    
    % of
    
    
    AnnualFootage of
    
    
    Signed
    
    
    
    Footage of
    
    
    
    
    
    
    
    Share of
    
    
    Annual
    
    
    Annual
    
    
    Expiring
    
    
    Number ofExpiring
    
    
    Renewals
    
    
    
    Expiring
    
    
    % of
    
    
    
    Expiring
    
    
    Full-Service
    
    
    Full-
    
    
    PSF
    
    
    CustomersLeases
    
    
    and Relets
    
    
    
    Leases
    
    
    Square
    
    
    
    Square Footage
    
    
    Rent Under
    
    
    Service
    
    
    Full-
    
    
    WithYear of Lease
    
    (Before Renewals
    
    
    of Expiring
    


    
    (After Renewals
    
    
    Footage
    
    
    
    (After Renewals
    
    
    Expiring
    
    
    Rent
    
    
    Service
    
    
    ExpiringExpiration
    
    and Relets)(1)
    
    
    Leases(2)
    
    
    
    and Relets)(1)
    
    
    Expiring
    
    
    
    and Relets)

    
    Leases(3)
    
    
    Expiring
    
    
    Rent(3)
    
    
    LeasesQ1 2007
    
    
    1,529,501
    
    
    
    (1,008,685
    )
    
    
    
    520,816
    
    
    
    2.2
    
    
    
    
    356,887


    
    $
    9,271,512
    
    
    
    1.7
    
    
    $
    17.80
    
    
    
    192Q2 2007
    
    
    676,701
    
    
    
    (250,959
    )
    
    
    
    425,742
    
    
    
    1.8
    

    
    
    262,548
   
    
    
    9,644,046
    
    
    
    1.8
    
    
    
    22.65
    
    
    
    76Q3 2007
    
    
    401,377
    
    
    
    (109,255
    )
    
    
    
    292,122
    
    
    
    1.2
    
    
    
    
    238,632
   
    
    
    6,654,607
    
    
    
    1.2
    
    
    
    22.78
    
    
    
    65Q4 2007
    
    
    597,153
    
    
    
    173,046
    
    
    
    
    770,199
    
    
    
    3.2
    
    
    
    
    426,478
    
    
    
    18,354,467
    
    
    
    3.3
    
    
    
    23.83
    
    
    
    63Total 2007
    
    
    3,204,732
    (4)
    
    
    (1,195,853
    )
    
    
    
    2,008,879
    (4)
    
    
    8.4
    %
    
    
    
    1,284,545
    
    
    $
    43,924,632
    
    
    
    8.0
    %
    
    $
    21.87
    
    
    
    396Q1 2008
    
    
    1,123,514
    
    
    
    (43,782
    )
    
    
    
    1,079,732
    
    
    
    4.5
    
    
    
    
    927,689
    
    
    $
    24,763,642
    
    
    
    4.5
    
    
    $
    22.93
    
    
    
    64Q2 2008
    
    
    458,494
    
    
    
    (15,598
    )
    
    
    
    442,896
    
    
    
    1.8
    
    
    
    
    366,677
    
    
    
    10,610,394
    
    
    
    1.9
    
    
    
    23.96
    
    
    
    73Q3 2008
    
    
    422,896
    
    
    
    (48,346
    )
    
    
    
    374,550
    
    
    
    1.6
    
    
    
    
    234,722
   
    
    
    8,845,813
    
    
    
    1.6
    
    
    
    23.62
    
    
    
    73Q4 2008
    
    
    479,305
    
    
    
    (55,774
    )
    
    
    
    423,531
    
    
    
    1.8
    
    
    
    
    337,022
    
    
    
    10,120,853
    
    
    
    1.8
    
    
    
    23.90
    
    
    
    80Total 2008
    
    
    2,484,209
    
    
    
    (163,500
    )
    
    
    
    2,320,709
    
    
    
    9.7
    %
    
    
    
    1,866,110
    
    
    $
    54,340,702
    
    
    
    9.8
    %
    
    $
    23.42
    
    
    
    2902009
    
    
    2,581,216
    
    
    
    (73,993
    )
    
    
    
    2,507,223
    
    
    
    10.4
    
    
    
    
    1,714,536
   
    
    $
    58,488,832
    
    
    
    10.6
    
    
    $
    23.33
    
    
    
    3012010
    
    
    2,111,239
    
    
    
    169,775
    
    
    
    
    2,281,014
    
    
    
    9.5
    
    
    
    
    1,462,189
    
    
    
    55,193,305
    
    
    
    10.0
    
    
    
    24.20
    
    
    
    2502011
    
    
    2,232,042
    
    
    
    44,709
    
    
    
    
    2,276,751
    
    
    
    9.4
    
    
    
    
    1,633,071
   
    
    
    56,202,831
    
    
    
    10.2
    
    
    
    24.69
    
    
    
    2352012
    
    
    1,498,307
    
    
    
    317,784
    
    
    
    
    1,816,091
    
    
    
    7.5
    
    
    
    
    1,410,079
    
    
    
    41,972,305
    
    
    
    7.6
    
    
    
    23.11
    
    
    
    1112013
    
    
    1,942,939
    
    
    
    129,854
    
    
    
    
    2,072,793
    
    
    
    8.6
    
    
    
    
    1,563,202
    
    
    
    47,746,034
    
    
    
    8.7
    
    
    
    23.03
    
    
    
    932014
    
    
    3,273,247
    
    
    
    187,140
    
    
    
    
    3,460,387
    
    
    
    14.3
    
    
    
    
    2,172,475
   
    
    
    72,301,983
    
    
    
    13.1
    
    
    
    20.89
    
    
    
    482015
    
    
    1,720,570
    
    
    
    29,531
    
    
    
    
    1,750,101
    
    
    
    7.3
    
    
    
    
    1,281,374

    
    
    40,189,224
    
    
    
    7.3
    
    
    
    22.96
    
    
    
    602016
    
    
    1,213,952
    
    
    
    11,713
    
    
    
    
    1,225,665
    
    
    
    5.1
    
    
    
    
    539,239
    
    
    
    29,272,813
    
    
    
    5.3
    
    
    
    23.88
    
    
    
    592017 and thereafter
    
    
    1,853,425
    
    
    
    542,840
    
    
    
    
    2,396,265
    
    
    
    9.8
    
    
    
    
    1,450,899

    
    
    50,610,106
    
    
    
    9.4
    
    
    
    21.12
    
    
    
    36Total
    
    
    24,115,878
    
    
    
    
    
    
    
    
    24,115,878
    (5)
    
    
    100.0
    %
    
    
    
    16,377,719
    
    
    $
    550,242,767
    
    
    
    100.0
    %
    
    $
    22.82
    
    
    
    1,879
 
 (1)
    
    Square footage is presented without adjustment to reflect our actual ownership percentage in joint ventured properties.(2)
    
    Signed renewals and relets extend the expiration dates of in-place leases to the end of the renewed or relet term.(3)
    
    Calculated based on base rent payable under the lease for net rentable square feet expiring (after renewals and relets), giving effect to free rent and scheduled rent increases taken into account under GAAP
and including adjustments for expenses payable by or reimbursable from customers based on current expense levels.(4)
    
    As of December 31, 2006 leases totaling 1,825,691 square feet (including relets and renewals of 1,195,853 square feet and new leases of 629,838 square feet) have been signed and will commence during 2007.
These signed leases represent approximately 57% of gross square footage expiring during 2007. Expiring square footage includes 247,361 square feet of month-to-month leases.(5)
    
    Reconciliation of Occupied SF to Net Rentable Area: Occupied SF Per Above:
    
    
    24,115,878Non-revenue Generating Space:
    
    
    405,938Total Occupied Office SF:
    
    
    24,521,816Total Vacant SF:
    
    
    2,796,862Total Stabilized Office NRA:
    
    
    27,318,678
 Dallas Office Properties (1)
 Square
    
    
    
    
    
    
    
    Square
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    AnnualFootage of
    
    
    Signed
    
    
    
    Footage of
    
    
    
    
    
    
    
    Annual
    
    
    Annual
    
    
    Expiring
    
    
    Number ofExpiring
    
    
    Renewals
    
    
    
    Expiring
    
    
    % of
    
    
    
    Full-Service
    
    
    Full-
    
    
    PSF
    
    
    CustomersLeases
    
    
    and Relets
    
    
    
    Leases
    
    
    Square
    
    
    
    Rent Under
    
    
    Service
    
    
    Full-
    
    
    WithYear of Lease
    
    (Before Renewals
    
    
    of Expiring
    
    
    
    (After Renewals
    
    
    Footage
    
    
    
    Expiring
    
    
    Rent
    
    
    Service
    
    
    ExpiringExpiration
    
    and Relets)(1)
    
    
    Leases(2)
    
    
    
    and Relets)(1)
    
    
    Expiring
    
    
    
    Leases(3)
    
    
    Expiring
    
    
    Rent(3)
    
    
    LeasesQ1 2007
    
    
    458,157
    
    
    
    (403,976
    )
    
    
    
    54,181
    
    
    
    0.8
    
    
    
    $
    1,265,432
    
    
    
    0.8
    
    
    $
    23.36
    
    
    
    33Q2 2007
    
    
    106,697
    
    
    
    (15,259
    )
    
    
    
    91,438
    
    
    
    1.4
    
    
    
    
    1,743,619
    
    
    
    1.1
    
    
    
    19.07
    
    
    
    16Q3 2007
    
    
    87,395
    
    
    
    (39,350
    )
    
    
    
    48,045
    
    
    
    0.7
    
    
    
    
    844,161
    
    
    
    0.5
    
    
    
    17.57
    
    
    
    11Q4 2007
    
    
    76,704
    
    
    
    316,377
    
    
    
    
    393,081
    
    
    
    6.0
    
    
    
    
    9,398,804
    
    
    
    6.1
    
    
    
    23.91
    
    
    
    9Total 2007
    
    
    728,953
    (4)
    
    
    (142,208
    )
    
    
    
    586,745
    (4)
    
    
    8.9
    %
    
    
    $
    13,252,016
    
    
    
    8.5
    
    
    $
    22.59
    
    
    
    69Q1 2008
    
    
    144,242
    
    
    
    1,388
    
    
    
    
    145,630
    
    
    
    2.2
    
    
    
    $
    3,596,739
    
    
    
    2.3
    
    
    $
    24.70
    
    
    
    13Q2 2008
    
    
    90,001
    
    
    
    1,579
    
    
    
    
    91,580
    
    
    
    1.4
    
    
    
    
    2,158,883
    
    
    
    1.4
    
    
    
    23.57
    
    
    
    17Q3 2008
    
    
    79,743
    
    
    
    (9,650
    )
    
    
    
    70,093
    
    
    
    1.1
    
    
    
    
    1,493,525
    
    
    
    1.0
    
    
    
    21.31
    
    
    
    20Q4 2008
    
    
    110,721
    
    
    
    (17,109
    )
    
    
    
    93,612
    
    
    
    1.4
    
    
    
    
    1,967,611
    
    
    
    1.3
    
    
    
    21.02
    
    
    
    22Total 2008
    
    
    424,707
    
    
    
    (23,792
    )
    
    
    
    400,915
    
    
    
    6.1
    %
    
    
    $
    9,216,758
    
    
    
    6.0
    
    
    $
    22.99
    
    
    
    722009
    
    
    459,179
    
    
    
    (1,411
    )
    
    
    
    457,768
    
    
    
    7.0
    
    
    
    $
    11,745,207
    
    
    
    7.6
    
    
    $
    25.66
    
    
    
    542010
    
    
    640,621
    
    
    
    12,222
    
    
    
    
    652,843
    
    
    
    10.0
    
    
    
    
    16,302,254
    
    
    
    10.6
    
    
    
    24.97
    
    
    
    592011
    
    
    469,972
    
    
    
    (65,847
    )
    
    
    
    404,125
    
    
    
    6.2
    
    
    
    
    10,331,270
    
    
    
    6.7
    
    
    
    25.56
    
    
    
    382012
    
    
    340,047
    
    
    
    46,526
    
    
    
    
    386,573
    
    
    
    5.9
    
    
    
    
    8,461,619
    
    
    
    5.5
    
    
    
    21.89
    
    
    
    322013
    
    
    503,065
    
    
    
    80,544
    
    
    
    
    583,609
    
    
    
    8.9
    
    
    
    
    14,362,393
    
    
    
    9.3
    
    
    
    24.61
    
    
    
    262014
    
    
    630,572
    
    
    
    7,922
    
    
    
    
    638,494
    
    
    
    9.7
    
    
    
    
    14,440,942
    
    
    
    9.4
    
    
    
    22.62
    
    
    
    132015
    
    
    936,483
    
    
    
    17,599
    
    
    
    
    954,082
    
    
    
    14.6
    
    
    
    
    22,054,983
    
    
    
    14.3
    
    
    
    23.12
    
    
    
    222016
    
    
    204,867
    
    
    
    
    
    
    
    
    204,867
    
    
    
    3.1
    
    
    
    
    5,809,013
    
    
    
    3.8
    
    
    
    28.36
    
    
    
    142017 and
thereafter
    
    
    1,214,468
    
    
    
    68,445
    
    
    
    
    1,282,913
    
    
    
    19.6
    
    
    
    
    27,753,961
    
    
    
    18.3
    
    
    
    21.63
    
    
    
    13Total
    
    
    6,552,934
    
    
    
    
    
    
    
    
    6,552,934
    
    
    
    100.0
    %
    
    
    $
    153,730,416
    
    
    
    100.0
    
    
    $
    23.46
    
    
    
    412
 
 (1)
    
    Square footage is presented without adjustment to reflect our actual ownership percentage in joint ventured properties.(2)
    
    Signed renewals and relets extend the expiration dates of in-place leases to the end of the renewed or relet term.(3)
    
    Calculated based on base rent payable under the lease for net rentable square feet expiring (after renewals and relets), giving effect to free rent and scheduled rent increases taken
into account under GAAP and including adjustments for expenses payable by or reimbursable from customers based on current expense levels.(4)
    
    As of December 31, 2006 leases totaling 201,481 square feet (including relets and renewals of 142,208 square feet and new leases of 59,273 square feet) have been signed and will
commence during 2007. These signed leases represent approximately 28% of gross square footage expiring during 2007. Expiring square footage includes
14,018 square feet of month-to-month leases. 28




---



##### Table of Contents



Houston Office Properties
 Square
    
    
    
    
    
    
    
    Square
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    AnnualFootage of
    
    
    Signed
    
    
    
    Footage of
    
    
    
    
    
    
    
    Annual
    
    
    Annual
    
    
    Expiring
    
    
    Number ofExpiring
    
    
    Renewals
    
    
    
    Expiring
    
    
    % of
    
    
    
    Full-Service
    
    
    Full-
    
    
    PSF
    
    
    CustomersLeases
    
    
    and Relets
    
    
    
    Leases
    
    
    Square
    
    
    
    Rent Under
    
    
    Service
    
    
    Full-
    
    
    WithYear of Lease
    
    (Before Renwals
    
    
    of Expiring
    
    
    
    (After Renewals
    
    
    Footage
    
    
    
    Expiring
    
    
    Rent
    
    
    Service
    
    
    ExpiringExpiration
    
    and Relets)(1)
    
    
    Leases(2)
    
    
    
    and Relets)(1)
    
    
    Expiring
    
    
    
    Leases(3)
    
    
    Expiring
    
    
    Rent(3)
    
    
    LeasesQ1 2007
    
    
    789,946
    
    
    
    (502,076
    )
    
    
    
    287,870
    
    
    
    3.1
    
    
    
    $
    4,428,987
    
    
    
    2.4
    
    
    $
    15.39
    
    
    
    95Q2 2007
    
    
    343,944
    
    
    
    (163,389
    )
    
    
    
    180,555
    
    
    
    1.9
    
    
    
    
    3,577,680
    
    
    
    1.9
    
    
    
    19.81
    
    
    
    21Q3 2007
    
    
    176,376
    
    
    
    (65,187
    )
    
    
    
    111,189
    
    
    
    1.2
    
    
    
    
    2,197,816
    
    
    
    1.2
    
    
    
    19.77
    
    
    
    21Q4 2007
    
    
    173,733
    
    
    
    (27,070
    )
    
    
    
    146,663
    
    
    
    1.6
    
    
    
    
    2,969,467
    
    
    
    1.6
    
    
    
    20.25
    
    
    
    24Total 2007
    
    
    1,483,999
    (4)
    
    
    (757,722
    )
    
    
    
    726,277
    (4)
    
    
    7.8
    %
    
    
    $
    13,173,950
    
    
    
    7.1
    %
    
    $
    18.14
    
    
    
    161Q1 2008
    
    
    816,224
    
    
    
    (20,516
    )
    
    
    
    795,708
    
    
    
    8.4
    
    
    
    $
    17,387,899
    
    
    
    9.2
    
    
    $
    21.85
    
    
    
    24Q2 2008
    
    
    110,715
    
    
    
    4,779
    
    
    
    
    115,494
    
    
    
    1.2
    
    
    
    
    2,270,779
    
    
    
    1.2
    
    
    
    19.66
    
    
    
    20Q3 2008
    
    
    217,357
    
    
    
    (33,057
    )
    
    
    
    184,300
    
    
    
    2.0
    
    
    
    
    3,995,546
    
    
    
    2.1
    
    
    
    21.68
    
    
    
    25Q4 2008
    
    
    180,656
    
    
    
    (7,927
    )
    
    
    
    172,729
    
    
    
    1.8
    
    
    
    
    3,602,549
    
    
    
    1.9
    
    
    
    20.86
    
    
    
    26Total 2008
    
    
    1,324,952
    
    
    
    (56,721
    )
    
    
    
    1,268,231
    
    
    
    13.4
    %
    
    
    $
    27,256,773
    
    
    
    14.4
    %
    
    $
    21.49
    
    
    
    952009
    
    
    965,859
    
    
    
    103
    
    
    
    
    965,962
    
    
    
    10.3
    
    
    
    $
    18,567,268
    
    
    
    9.9
    
    
    $
    19.22
    
    
    
    1002010
    
    
    548,711
    
    
    
    107,150
    
    
    
    
    655,861
    
    
    
    7.0
    
    
    
    
    12,697,593
    
    
    
    6.7
    
    
    
    19.36
    
    
    
    802011
    
    
    750,787
    
    
    
    21,350
    
    
    
    
    772,137
    
    
    
    8.2
    
    
    
    
    15,434,732
    
    
    
    8.2
    
    
    
    19.99
    
    
    
    782012
    
    
    601,136
    
    
    
    138,685
    
    
    
    
    739,821
    
    
    
    7.9
    
    
    
    
    15,697,606
    
    
    
    8.3
    
    
    
    21.22
    
    
    
    362013
    
    
    449,801
    
    
    
    24,078
    
    
    
    
    473,879
    
    
    
    5.0
    
    
    
    
    9,845,448
    
    
    
    5.2
    
    
    
    20.78
    
    
    
    152014
    
    
    1,829,951
    
    
    
    102,963
    
    
    
    
    1,932,914
    
    
    
    20.5
    
    
    
    
    38,897,610
    
    
    
    20.6
    
    
    
    20.12
    
    
    
    162015
    
    
    372,354
    
    
    
    
    
    
    
    
    372,354
    
    
    
    4.0
    
    
    
    
    6,963,821
    
    
    
    3.7
    
    
    
    18.70
    
    
    
    142016
    
    
    723,018
    
    
    
    11,713
    
    
    
    
    734,731
    
    
    
    7.8
    
    
    
    
    15,736,199
    
    
    
    8.4
    
    
    
    21.42
    
    
    
    282017 and
thereafter
    
    
    372,754
    
    
    
    408,401
    
    
    
    
    781,155
    
    
    
    8.1
    
    
    
    
    14,175,940
    
    
    
    7.5
    
    
    
    18.15
    
    
    
    9Total
    
    
    9,423,322
    
    
    
    
    
    
    
    
    9,423,322
    
    
    
    100.0
    %
    
    
    $
    188,446,940
    
    
    
    100.0
    %
    
    $
    20.00
    
    
    
    632
 
 (1)
    
    Square footage is presented without adjustment to reflect our actual ownership percentage in joint ventured properties.(2)
    
    Signed renewals and relets extend the expiration dates of in-place leases to the end of the renewed or relet term.(3)
    
    Calculated based on base rent payable under the lease for net rentable square feet expiring (after renewals and
relets), giving effect to free rent and scheduled rent increases taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on current expense levels.(4)
    
    As of December 31, 2006 leases totaling 1,202,482 square feet (including relets and renewals of 757,722 square feet
and new leases of 444,760 square feet) have been signed and will commence during 2007. These signed leases represent
approximately 81% of gross square footage expiring during 2007. Expiring square footage includes 144,374 square feet
of month-to-month leases. Austin Office Properties
 Square
    
    
    
    
    
    
    
    Square
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    AnnualFootage of
    
    
    Signed
    
    
    
    Footage of
    
    
    
    
    
    
    
    Annual
    
    
    Annual
    
    
    Expiring
    
    
    Number ofExpiring
    
    
    Renewals
    
    
    
    Expiring
    
    
    % of
    
    
    
    Full-Service
    
    
    Full-
    
    
    PSF
    
    
    CustomersLeases
    
    
    and Relets
    
    
    
    Leases
    
    
    Square
    
    
    
    Rent Under
    
    
    Service
    
    
    Full-
    
    
    WithYear of Lease
    
    (Before Renewals
    
    
    of Expiring
    
    
    
    (After Renewals
    
    
    Footage
    
    
    
    Expiring
    
    
    Rent
    
    
    Service
    
    
    ExpiringExpiration
    
    and Relets)(1)
    
    
    Leases(2)
    
    
    
    and Relets)
(1)
    
    
    Expiring
    
    
    
    Leases(3)
    
    
    Expiring
    
    
    Rent(3)
    
    
    LeasesQ1 2007
    
    
    72,878
    
    
    
    (17,512
    )
    
    
    
    55,366
    
    
    
    4.3
    
    
    
    $
    706,809
    
    
    
    2.6
    
    
    $
    12.77
    
    
    
    13Q2 2007
    
    
    9,904
    
    
    
    1,484
    
    
    
    
    11,388
    
    
    
    0.9
    
    
    
    
    204,182
    
    
    
    0.8
    
    
    
    17.93
    
    
    
    3Q3 2007
    
    
    12,386
    
    
    
    (1,824
    )
    
    
    
    10,562
    
    
    
    0.8
    
    
    
    
    196,659
    
    
    
    0.7
    
    
    
    18.62
    
    
    
    5Q4 2007
    
    
    23,405
    
    
    
    
    
    
    
    
    23,405
    
    
    
    1.8
    
    
    
    
    494,407
    
    
    
    1.8
    
    
    
    21.12
    
    
    
    6Total 2007
    
    
    118,573
    (4)
    
    
    (17,852
    )
    
    
    
    100,721
    (4)
    
    
    7.8
    %
    
    
    $
    1,602,057
    
    
    
    5.9
    %
    
    $
    15.91
    
    
    
    27Q1 2008
    
    
    10,313
    
    
    
    
    
    
    
    
    10,313
    
    
    
    0.8
    
    
    
    $
    160,125
    
    
    
    0.6
    
    
    $
    15.53
    
    
    
    5Q2 2008
    
    
    4,788
    
    
    
    
    
    
    
    
    4,788
    
    
    
    0.4
    
    
    
    
    104,876
    
    
    
    0.4
    
    
    
    21.90
    
    
    
    3Q3 2008
    
    
    20,061
    
    
    
    
    
    
    
    
    20,061
    
    
    
    1.6
    
    
    
    
    491,386
    
    
    
    1.8
    
    
    
    24.49
    
    
    
    8Q4 2008
    
    
    32,708
    
    
    
    
    
    
    
    
    32,708
    
    
    
    2.5
    
    
    
    
    877,009
    
    
    
    3.2
    
    
    
    26.81
    
    
    
    4Total 2008
    
    
    67,870
    
    
    
    
    
    
    
    
    67,870
    
    
    
    5.3
    %
    
    
    $
    1,633,396
    
    
    
    6.0
    %
    
    $
    24.07
    
    
    
    202009
    
    
    199,764
    
    
    
    (48,767
    )
    
    
    
    150,997
    
    
    
    11.8
    
    
    
    $
    3,371,645
    
    
    
    12.5
    
    
    $
    22.33
    
    
    
    262010
    
    
    163,394
    
    
    
    16,028
    
    
    
    
    179,422
    
    
    
    14.0
    
    
    
    
    3,422,001
    
    
    
    12.7
    
    
    
    19.07
    
    
    
    262011
    
    
    102,375
    
    
    
    50,591
    
    
    
    
    152,966
    
    
    
    11.9
    
    
    
    
    3,589,116
    
    
    
    13.3
    
    
    
    23.46
    
    
    
    152012
    
    
    67,188
    
    
    
    
    
    
    
    
    67,188
    
    
    
    5.2
    
    
    
    
    1,501,417
    
    
    
    5.6
    
    
    
    22.35
    
    
    
    82013
    
    
    105,228
    
    
    
    
    
    
    
    
    105,228
    
    
    
    8.2
    
    
    
    
    2,220,392
    
    
    
    8.2
    
    
    
    21.10
    
    
    
    92014
    
    
    253,980
    
    
    
    
    
    
    
    
    253,980
    
    
    
    19.8
    
    
    
    
    5,517,181
    
    
    
    20.4
    
    
    
    21.72
    
    
    
    42015
    
    
    129,488
    
    
    
    
    
    
    
    
    129,488
    
    
    
    10.1
    
    
    
    
    2,610,609
    
    
    
    9.7
    
    
    
    20.16
    
    
    
    102016
    
    
    67,509
    
    
    
    
    
    
    
    
    67,509
    
    
    
    5.3
    
    
    
    
    1,288,715
    
    
    
    4.8
    
    
    
    19.09
    
    
    
    32017 and
thereafter
    
    
    9,434
    
    
    
    
    
    
    
    
    9,434
    
    
    
    0.6
    
    
    
    
    247,413
    
    
    
    0.9
    
    
    
    26.23
    
    
    
    1Total
    
    
    1,284,803
    
    
    
    
    
    
    
    
    1,284,803
    
    
    
    100.0
    %
    
    
    $
    27,003,942
    
    
    
    100.0
    %
    
    $
    21.02
    
    
    
    149
 
 (1)
    
    Square footage is presented without adjustment to reflect our actual ownership percentage in joint ventured properties.(2)
    
    Signed renewals and relets extend the expiration dates of in-place leases to the end of the renewed or relet term.(3)
    
    Calculated based on base rent payable under the lease for net rentable square feet expiring (after renewals and
relets), giving effect to free rent and scheduled rent increases taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from customers based on current expense levels.(4)
    
    As of December 31, 2006 leases totaling 38,127 square feet (including relets and renewals of 17,852 square feet and
new leases of 20,275 square feet) have been signed and will commence during 2007. These signed leases represent
approximately 32% of gross square footage expiring during 2007. Expiring square footage includes 35,417 square feet
of month-to-month leases. 29




---



##### Table of Contents



Denver Office Properties
 Square
    
    
    
    
    
    
    
    Square
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    AnnualFootage of
    
    
    Signed
    
    
    
    Footage of
    
    
    
    
    
    
    
    Annual
    
    
    Annual
    
    
    Expiring
    
    
    Number ofExpiring
    
    
    Renewals
    
    
    
    Expiring
    
    
    % of
    
    
    
    Full-Service
    
    
    Full-
    
    
    PSF
    
    
    CustomersLeases
    
    
    and Relets
    
    
    
    Leases
    
    
    Square
    
    
    
    Rent Under
    
    
    Service
    
    
    Full-
    
    
    WithYear of Lease
    
    (Before Renewals
    
    
    of Expiring
    
    
    
    (After Renewals
    
    
    Footage
    
    
    
    Expiring
    
    
    Rent
    
    
    Service
    
    
    ExpiringExpiration
    
    and Relets)(1)
    
    
    Leases(2)
    
    
    

and Relets)(1)
    
    
    Expiring
    
    
    
    Leases(3)
    
    
    Expiring
    
    
    Rent(3)
    
    
    LeasesQ1 2007
    
    
    64,250
    
    
    
    (34,159
    )
    
    
    
    30,091
    
    
    
    1.5
    
    
    
    $
    507,542
    
    
    
    1.2
    
    
    $
    16.87
    
    
    
    13Q2 2007
    
    
    18,646
    
    
    
    (5,993
    )
    
    
    
    12,653
    
    
    
    0.6
    
    
    
    
    300,929
    
    
    
    0.7
    
    
    
    23.78
    
    
    
    4Q3 2007
    
    
    16,298
    
    
    
    549
    
    
    
    
    16,847
    
    
    
    0.9
    
    
    
    
    328,868
    
    
    
    0.8
    
    
    
    19.52
    
    
    
    3Q4 2007
    
    
    14,214
    
    
    
    (7,955
    )
    
    
    
    6,259
    
    
    
    0.3
    
    
    
    
    134,015
    
    
    
    0.3
    
    
    
    21.41
    
    
    
    2Total 2007
    
    
    113,408
    (4)
    
    
    (47,558
    )
    
    
    
    65,850
    (4)
    
    
    3.3
    %
    
    
    $
    1,271,354
    
    
    
    3.0
    %
    
    $
    19.31
    
    
    
    22Q1 2008
    
    
    46,161
    
    
    
    (23,079
    )
    
    
    
    23,082
    
    
    
    1.2
    
    
    
    $
    528,713
    
    
    
    1.3
    
    
    $
    22.91
    
    
    
    6Q2 2008
    
    
    132,980
    
    
    
    (3,877
    )
    
    
    
    129,103
    
    
    
    6.6
    
    
    
    
    2,956,407
    
    
    
    7.2
    
    
    
    22.90
    
    
    
    6Q3 2008
    
    
    18,610
    
    
    
    
    
    
    
    
    18,610
    
    
    
    0.9
    
    
    
    
    396,545
    
    
    
    1.0
    
    
    
    21.31
    
    
    
    3Q4 2008
    
    
    12,700
    
    
    
    (2,978
    )
    
    
    
    9,722
    
    
    
    0.5
    
    
    
    
    220,596
    
    
    
    0.5
    
    
    
    22.69
    
    
    
    4Total 2008
    
    
    210,451
    
    
    
    (29,934
    )
    
    
    
    180,517
    
    
    
    9.2
    %
    
    
    $
    4,102,261
    
    
    
    10.0
    %
    
    $
    22.73
    
    
    
    192009
    
    
    234,658
    
    
    
    (52,720
    )
    
    
    
    181,938
    
    
    
    9.2
    
    
    
    $
    3,729,509
    
    
    
    9.1
    
    
    $
    20.50
    
    
    
    262010
    
    
    198,027
    
    
    
    20,537
    
    
    
    
    218,564
    
    
    
    11.1
    
    
    
    
    4,810,970
    
    
    
    11.8
    
    
    
    22.01
    
    
    
    182011
    
    
    200,877
    
    
    
    7,615
    
    
    
    
    208,492
    
    
    
    10.6
    
    
    
    
    4,562,349
    
    
    
    11.1
    
    
    
    21.88
    
    
    
    222012
    
    
    180,482
    
    
    
    83,980
    
    
    
    
    264,462
    
    
    
    13.4
    
    
    
    
    5,995,876
    
    
    
    14.7
    
    
    
    22.67
    
    
    
    122013
    
    
    160,969
    
    
    
    (57,190
    )
    
    
    
    103,779
    
    
    
    5.3
    
    
    
    
    2,138,630
    
    
    
    5.2
    
    
    
    20.61
    
    
    
    92014
    
    
    444,840
    
    
    
    73,210
    
    
    
    
    518,050
    
    
    
    26.3
    
    
    
    
    10,368,492
    
    
    
    25.3
    
    
    
    20.01
    
    
    
    52015
    
    
    18,637
    
    
    
    
    
    
    
    
    18,637
    
    
    
    0.9
    
    
    
    
    372,567
    
    
    
    0.9
    
    
    
    19.99
    
    
    
    32016
    
    
    64,075
    
    
    
    
    
    
    
    
    64,075
    
    
    
    3.3
    
    
    
    
    1,073,124
    
    
    
    2.6
    
    
    
    16.75
    
    
    
    32017 and thereafter
    
    
    144,050
    
    
    
    2,060
    
    
    
    
    146,110
    
    
    
    7.4
    
    
    
    
    2,498,672
    
    
    
    6.3
    
    
    
    17.10
    
    
    
    5Total
    
    
    1,970,474
    
    
    
    
    
    
    
    
    1,970,474
    
    
    
    100.0
    %
    
    
    $
    40,923,804
    
    
    
    100.0
    %
    
    $
    20.77
    
    
    
    144
 
 (1)
    
    Square footage is presented without adjustment to reflect our actual ownership percentage in joint ventured properties.(2)
    
    Signed renewals and relets extend the expiration dates of in-place leases to the end of the renewed or relet term.(3)
    
    Calculated based on base rent payable under the lease for net rentable square feet expiring (after renewals and relets), giving effect to free rent and scheduled rent increases taken
into account under GAAP and including adjustments for expenses payable by or reimbursable from customers based on current expense levels.(4)
    
    As of December 31, 2006 new leases totaling 88,007 square feet (including relets and renewals of 47,558 square feet and new leases of 40,449 square feet) have been signed and will
commence during 2007. These signed leases represent approximately 78% of gross square footage expiring during 2007. Expiring square footage includes 6,751 square feet of
month-to-month leases. Miami Office Properties
 Square
    
    
    
    
    
    
    
    Square
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    AnnualFootage of
    
    
    Signed
    
    
    
    Footage of
    
    
    
    
    
    
    
    Annual
    
    
    Annual
    
    
    Expiring
    
    
    Number ofExpiring
    
    
    Renewals
    
    
    
    Expiring
    
    
    % of
    
    
    
    Full-Service
    
    
    Full-
    
    
    PSF
    
    
    CustomersLeases
    
    
    and Relets
    
    
    
    Leases
    
    
    Square
    
    
    
    Rent Under
    
    
    Service
    
    
    Full-
    
    
    WithYear of Lease
    
    (Before Renewals
    
    
    of Expiring
    
    
    
    (After Renewals
    
    
    Footage
    
    
    
    Expiring
    
    
    Rent
    
    
    Service
    
    
    ExpiringExpiration
    

and Relets)(1)
    
    
    Leases(2)
    
    
    

and Relets)(1)
    
    
    Expiring
    
    
    
    Leases(3)
    
    
    Expiring
    
    
    Rent(3)
    
    
    LeasesQ1 2007
    
    
    71,586
    
    
    
    (18,295
    )
    
    
    
    53,291
    
    
    
    3.2
    
    
    
    $
    1,419,646
    
    
    
    2.7
    
    
    $
    26.64
    
    
    
    22Q2 2007
    
    
    86,478
    
    
    
    (9,610
    )
    
    
    
    76,868
    
    
    
    4.6
    
    
    
    
    2,415,668
    
    
    
    4.6
    
    
    
    31.43
    
    
    
    20Q3 2007
    
    
    23,791
    
    
    
    
    
    
    
    
    23,791
    
    
    
    1.4
    
    
    
    
    678,535
    
    
    
    1.3
    
    
    
    28.52
    
    
    
    8Q4 2007
    
    
    47,727
    
    
    
    (22,905
    )
    
    
    
    24,822
    
    
    
    1.5
    
    
    
    
    643,332
    
    
    
    1.2
    
    
    
    25.92
    
    
    
    3Total 2007
    
    
    229,582
    (4)
    
    
    (50,810
    )
    
    
    
    178,772
    (4)
    
    
    10.7
    %
    
    
    $
    5,157,181
    
    
    
    9.8
    %
    
    $
    28.85
    
    
    
    53Q1 2008
    
    
    18,764
    
    
    
    (1,249
    )
    
    
    
    17,515
    
    
    
    1.1
    
    
    
    $
    555,165
    
    
    
    1.1
    
    
    $
    31.70
    
    
    
    5Q2 2008
    
    
    29,853
    
    
    
    5,995
    
    
    
    
    35,848
    
    
    
    2.2
    
    
    
    
    1,120,978
    
    
    
    2.1
    
    
    
    31.27
    
    
    
    9Q3 2008
    
    
    21,544
    
    
    
    
    
    
    
    
    21,544
    
    
    
    1.3
    
    
    
    
    664,396
    
    
    
    1.3
    
    
    
    30.84
    
    
    
    6Q4 2008
    
    
    61,354
    
    
    
    (11,114
    )
    
    
    
    50,240
    
    
    
    3.0
    
    
    
    
    1,480,178
    
    
    
    2.8
    
    
    
    29.46
    
    
    
    13Total 2008
    
    
    131,515
    
    
    
    (6,368
    )
    
    
    
    125,147
    
    
    
    7.6
    %
    
    
    $
    3,820,717
    
    
    
    7.3
    %
    
    $
    30.53
    
    
    
    332009
    
    
    338,219
    
    
    
    (6,043
    )
    
    
    
    332,176
    
    
    
    20.0
    
    
    
    $
    9,882,868
    
    
    
    18.8
    
    
    $
    29.75
    
    
    
    402010
    
    
    279,776
    
    
    
    2,072
    
    
    
    
    281,848
    
    
    
    17.0
    
    
    
    
    9,137,800
    
    
    
    17.4
    
    
    
    32.42
    
    
    
    252011
    
    
    147,857
    
    
    
    16,049
    
    
    
    
    163,906
    
    
    
    9.9
    
    
    
    
    5,298,991
    
    
    
    10.1
    
    
    
    32.33
    
    
    
    232012
    
    
    98,434
    
    
    
    5,524
    
    
    
    
    103,958
    
    
    
    6.3
    
    
    
    
    3,629,533
    
    
    
    6.9
    
    
    
    34.91
    
    
    
    72013
    
    
    85,113
    
    
    
    2,000
    
    
    
    
    87,113
    
    
    
    5.3
    
    
    
    
    2,774,422
    
    
    
    5.3
    
    
    
    31.85
    
    
    
    112014
    
    
    36,952
    
    
    
    
    
    
    
    
    36,952
    
    
    
    2.2
    
    
    
    
    1,054,130
    
    
    
    2.0
    
    
    
    28.53
    
    
    
    22015
    
    
    110,242
    
    
    
    11,932
    
    
    
    
    122,174
    
    
    
    7.4
    
    
    
    
    3,995,035
    
    
    
    7.6
    
    
    
    32.70
    
    
    
    42016
    
    
    108,226
    
    
    
    
    
    
    
    
    108,226
    
    
    
    6.5
    
    
    
    
    3,805,138
    
    
    
    7.3
    
    
    
    35.16
    
    
    
    72017 and thereafter
    
    
    92,440
    
    
    
    25,644
    
    
    
    
    118,084
    
    
    
    7.1
    
    
    
    
    3,909,838
    
    
    
    7.5
    
    
    
    33.11
    
    
    
    6Total
    
    
    1,658,356
    
    
    
    
    
    
    
    
    1,658,356
    
    
    
    100.0
    %
    
    
    $
    52,465,653
    
    
    
    100.0
    %
    
    $
    31.64
    
    
    
    211
 
 (1)
    
    Square footage is presented without adjustment to reflect our actual ownership percentage in joint ventured properties.(2)
    
    Signed renewals and relets extend the expiration dates of in-place leases to the end of the renewed or relet term.(3)
    
    Calculated based on base rent payable under the lease for net rentable square feet expiring (after renewals and relets), giving effect to free rent and scheduled rent increases taken
into account under GAAP and including adjustments for expenses payable by or reimbursable from customers based on current expense levels.(4)
    
    As of December 31, 2006 leases totaling 99,189 square feet (including relets and renewals of 50,810 square feet and new leases of 48,379 square feet) have been signed and
will commence during 2007. These signed leases represent approximately 43% of gross square footage expiring during 2007. Expiring square footage includes
25,936 square feet of month-to-month leases. 30




---



##### Table of Contents



Las Vegas Office Properties
 Square
    
    
    
    
    
    
    
    Square
    
    
    
    
    
    
    
    
    
    
    
    %of
    
    
    AnnualFootage of
    
    
    Signed
    
    
    
    Footage of
    
    
    
    
    
    
    
    Annual
    
    
    Annual
    
    
    Expiring
    
    
    Number ofExpiring
    
    
    Renewals
    
    
    
    Expiring
    
    
    %of
    
    

    
    Full-Service
    
    

    Full-
    
    

    PSF
    
    
    CustomersLeases
    
    
    and Relets
    
    
    
    Leases
    
    
    Square
    
    
    
    Rent Under
    
    
    Service
    
    
    Full-
    
    
    WithYear of Lease
    
    (Before Renewals
    
    
    of Expiring
    
    
    
    (After Renewals
    
    
    Footage
    
    
    
    Expiring
    
    
    Rent
    
    
    Service
    
    
    ExpiringExpiration
    

and Relets)(1)
    
    
    Leases(2)
    
    
    

and Relets)(1)
    
    
    Expiring
    
    
    
    Leases(3)
    
    
    Expiring
    
    
    Rent(3)
    
    
    LeasesQ1 2007
    
    
    33,578
    
    
    
    (12,051
    )
    
    
    
    21,527
    
    
    
    2.0
    
    
    
    $
    608,101
    
    
    
    1.7
    
    
    $
    28.25
    
    
    
    4Q2 2007
    
    
    38,769
    
    
    
    (29,392
    )
    
    
    
    9,377
    
    
    
    0.9
    
    
    
    
    267,854
    
    
    
    0.7
    
    
    
    28.56
    
    
    
    2Q3 2007
    
    
    55,483
    
    
    
    
    
    
    
    
    55,483
    
    
    
    5.2
    
    
    
    
    1,695,604
    
    
    
    4.7
    
    
    
    30.56
    
    
    
    9Q4 2007
    
    
    58,908
    
    
    
    (10,426
    )
    
    
    
    48,482
    
    
    
    4.5
    
    
    
    
    1,580,136
    
    
    
    4.3
    
    
    
    32.59
    
    
    
    10Total 2007
    
    
    186,738
    (4)
    
    
    (51,869
    )
    
    
    
    134,869
    (4)
    
    
    12.6
    %
    
    
    $
    4,151,695
    
    
    
    11.4
    %
    
    $
    30.78
    
    
    
    25Q1 2008
    
    
    56,474
    
    
    
    1,659
    
    
    
    
    58,133
    
    
    
    5.4
    
    
    
    $
    1,821,333
    
    
    
    5.0
    
    
    $
    31.33
    
    
    
    3Q2 2008
    
    
    35,795
    
    
    
    
    
    
    
    
    35,795
    
    
    
    3.3
    
    
    
    
    1,203,659
    
    
    
    3.3
    
    
    
    33.63
    
    
    
    7Q3 2008
    
    
    15,505
    
    
    
    
    
    
    
    
    15,505
    
    
    
    1.4
    
    
    
    
    487,676
    
    
    
    1.3
    
    
    
    31.45
    
    
    
    4Q4 2008
    
    
    56,048
    
    
    
    
    
    
    
    
    56,048
    
    
    
    5.2
    
    
    
    
    1,756,564
    
    
    
    4.8
    
    
    
    31.34
    
    
    
    6Total 2008
    
    
    163,822
    
    
    
    1,659
    
    
    
    
    165,481
    
    
    
    15.3
    %
    
    
    $
    5,269,232
    
    
    
    14.4
    %
    
    $
    31.84
    
    
    
    202009
    
    
    165,447
    
    
    
    977
    
    
    
    
    166,424
    
    
    
    15.5
    
    
    
    $
    5,469,670
    
    
    
    15.0
    
    
    $
    32.87
    
    
    
    212010
    
    
    107,440
    
    
    
    2,757
    
    
    
    
    110,197
    
    
    
    10.2
    
    
    
    
    3,676,593
    
    
    
    10.1
    
    
    
    33.36
    
    
    
    152011
    
    
    259,486
    
    
    
    
    
    
    
    
    259,486
    
    
    
    24.1
    
    
    
    
    9,350,976
    
    
    
    25.7
    
    
    
    36.04
    
    
    
    272012
    
    
    35,380
    
    
    
    21,119
    
    
    
    
    56,499
    
    
    
    5.2
    
    
    
    
    2,018,546
    
    
    
    5.5
    
    
    
    35.73
    
    
    
    32013
    
    
    62,581
    
    
    
    
    
    
    
    
    62,581
    
    
    
    5.8
    
    
    
    
    2,207,007
    
    
    
    6.1
    
    
    
    35.27
    
    
    
    72014
    
    
    19,295
    
    
    
    
    
    
    
    
    19,295
    
    
    
    1.8
    
    
    
    
    605,642
    
    
    
    1.7
    
    
    
    31.39
    
    
    
    22015
    
    
    43,116
    
    
    
    
    
    
    
    
    43,116
    
    
    
    4.0
    
    
    
    
    1,373,599
    
    
    
    3.8
    
    
    
    31.86
    
    
    
    12016
    
    
    33,533
    
    
    
    
    
    
    
    
    33,533
    
    
    
    3.1
    
    
    
    
    1,268,591
    
    
    
    3.5
    
    
    
    37.83
    
    
    
    22017 and thereafter
    
    
    
    
    
    
    25,357
    
    
    
    
    25,357
    
    
    
    2.4
    
    
    
    
    1,029,356
    
    
    
    2.8
    
    
    
    40.59
    
    
    
    Total
    
    
    1,076,838
    
    
    
    
    
    
    
    
    1,076,838
    
    
    
    100.0
    %
    
    
    $
    36,420,907
    
    
    
    100.0
    %
    
    $
    33.82
    
    
    
    123
 
 (1)
    
    Square footage is presented without adjustment to reflect our actual ownership percentage in joint ventured properties.(2)
    
    Signed renewals and relets extend the expiration dates of in-place leases to the end of the renewed or relet term.(3)
    
    Calculated based on base rent payable under the lease for net rentable square feet expiring (after renewals and relets), giving effect to free rent and scheduled rent increases taken
into account under GAAP and including adjustments for expenses payable by or reimbursable from customers based on current expense levels.(4)
    
    As of December 31, 2006 leases totaling 58,652 square feet (including relets and renewals of 51,869 square feet and new leases of 6,783 square feet) have been signed and
will commence during 2007. These signed leases represent approximately 31% of gross square footage expiring during 2007. Expiring square footage includes
8,399 square feet of month-to-month leases. Other Office Properties
 Square
    
    
    
    
    
    
    
    Square
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    AnnualFootage of
    
    
    Signed
    
    
    
    Footage of
    
    
    
    
    
    
    
    Annual
    
    
    Annual
    
    
    Expiring
    
    
    Number ofExpiring
    
    
    Renewals
    
    
    
    Expiring
    
    
    % of
    
    
    
    Full-Service
    
    
    Full-
    
    
    PSF
    
    
    CustomersLeases
    
    
    and Relets
    
    
    
    Leases
    
    
    Square
    
    
    
    Rent Under
    
    
    Service
    
    
    Full-
    
    
    WithYear of Lease
    
    (Before Renewals
    
    
    of Expiring
    
    
    
    (After Renewals
    
    
    Footage
    
    
    
    Expiring
    
    
    Rent
    
    
    Service
    
    
    ExpiringExpiration
    
    and Relets)(1)
    
    
    Leases(2)
    
    
    
    and Relets)(1)
    
    
    Expiring
    
    
    
    Leases(3)
    
    
    Expiring
    
    
    Rent(3)
    
    
    LeasesQ1 2007
    
    
    39,106
    
    
    
    (20,616
    )
    
    
    
    18,490
    
    
    
    0.9
    
    
    
    $
    334,995
    
    
    
    0.7
    
    
    $
    18.12
    
    
    
    12Q2 2007
    
    
    72,263
    
    
    
    (28,800
    )
    
    
    
    43,463
    
    
    
    2.0
    
    
    
    
    1,134,114
    
    
    
    2.2
    
    
    
    26.09
    
    
    
    10Q3 2007
    
    
    29,648
    
    
    
    (3,443
    )
    
    
    
    26,205
    
    
    
    1.2
    
    
    
    
    712,964
    
    
    
    1.4
    
    
    
    27.21
    
    
    
    8Q4 2007
    
    
    202,462
    
    
    
    (74,975
    )
    
    
    
    127,487
    
    
    
    5.9
    
    
    
    
    3,134,306
    
    
    
    6.1
    
    
    
    24.59
    
    
    
    9Total 2007
    
    
    343,479
    (4)
    
    
    (127,834
    )
    
    
    
    215,645
    (4)
    
    
    10.0
    %
    
    
    $
    5,316,379
    
    
    
    10.4
    %
    
    $
    24.65
    
    
    
    39Q1 2008
    
    
    31,336
    
    
    
    (1,985
    )
    
    
    
    29,351
    
    
    
    1.4
    
    
    
    $
    713,668
    
    
    
    1.4
    
    
    $
    24.31
    
    
    
    8Q2 2008
    
    
    54,362
    
    
    
    (24,074
    )
    
    
    
    30,288
    
    
    
    1.4
    
    
    
    
    794,812
    
    
    
    1.6
    
    
    
    26.24
    
    
    
    11Q3 2008
    
    
    50,076
    
    
    
    (5,639
    )
    
    
    
    44,437
    
    
    
    2.1
    
    
    
    
    1,316,739
    
    
    
    2.6
    
    
    
    29.63
    
    
    
    7Q4 2008
    
    
    25,118
    
    
    
    (16,646
    )
    
    
    
    8,472
    
    
    
    0.4
    
    
    
    
    216,346
    
    
    
    0.4
    
    
    
    25.54
    
    
    
    5Total 2008
    
    
    160,892
    
    
    
    (48,344
    )
    
    
    
    112,548
    
    
    
    5.3
    %
    
    
    $
    3,041,565
    
    
    
    6.0
    %
    
    $
    27.02
    
    
    
    312009
    
    
    218,090
    
    
    
    33,868
    
    
    
    
    251,958
    
    
    
    11.7
    
    
    
    $
    5,722,665
    
    
    
    11.2
    
    
    $
    22.71
    
    
    
    342010
    
    
    173,270
    
    
    
    9,009
    
    
    
    
    182,279
    
    
    
    8.5
    
    
    
    
    5,146,094
    
    
    
    10.0
    
    
    
    28.23
    
    
    
    272011
    
    
    300,688
    
    
    
    14,951
    
    
    
    
    315,639
    
    
    
    14.7
    
    
    
    
    7,635,397
    
    
    
    14.9
    
    
    
    24.19
    
    
    
    322012
    
    
    175,640
    
    
    
    21,950
    
    
    
    
    197,590
    
    
    
    9.2
    
    
    
    
    4,667,708
    
    
    
    9.1
    
    
    
    23.62
    
    
    
    132013
    
    
    576,182
    
    
    
    80,422
    
    
    
    
    656,604
    
    
    
    30.6
    
    
    
    
    14,197,742
    
    
    
    27.7
    
    
    
    21.62
    
    
    
    162014
    
    
    57,657
    
    
    
    3,045
    
    
    
    
    60,702
    
    
    
    2.8
    
    
    
    
    1,417,986
    
    
    
    2.8
    
    
    
    23.36
    
    
    
    62015
    
    
    110,250
    
    
    
    
    
    
    
    
    110,250
    
    
    
    5.1
    
    
    
    
    2,818,610
    
    
    
    5.5
    
    
    
    25.57
    
    
    
    62016
    
    
    12,724
    
    
    
    
    
    
    
    
    12,724
    
    
    
    0.6
    
    
    
    
    292,033
    
    
    
    0.6
    
    
    
    22.95
    
    
    
    22017 and thereafter
    
    
    20,279
    
    
    
    12,933
    
    
    
    
    33,212
    
    
    
    1.5
    
    
    
    
    994,926
    
    
    
    1.8
    
    
    
    29.96
    
    
    
    2Total
    
    
    2,149,151
    
    
    
    
    
    
    
    
    2,149,151
    
    
    
    100.0
    %
    
    
    $
    51,251,105
    
    
    
    100.0
    %
    
    $
    23.85
    
    
    
    208
 
 (1)
    
    Square footage is presented without adjustment to reflect our actual ownership percentage in joint ventured properties.(2)
    
    Signed renewals and relets extend the expiration dates of in-place leases to the end of the renewed or relet term.(3)
    
    Calculated based on base rent payable under the lease for net rentable square feet expiring (after renewals and relets), giving effect to free rent and scheduled rent increases taken
into account under GAAP and including adjustments for expenses payable by or reimbursable from customers based on current expense levels.(4)
    
    As of December 31, 2006 leases totaling 137,753 square feet (including relets and renewals of 127,834 square feet and new leases of 9,919 square feet) have been signed and will
commence during 2007. These signed leases represent approximately 40% of gross square footage expiring during 2007. Expiring square feet includes
12,466 square feet of month-to-month leases. 31




---



##### Table of Contents



Resort Residential Development Properties
  ProposedAverage
    
    AverageOur
    
    
    
    
    
    Planned
    
    
    
    
    
    
    
    
    
    Under
    
    Physical
    
    Sales Price
    
    Sales PricePreferred
    
    
    
    
    
    Sales
    
    Closed
    
    Remaining
    
    Development
    
    Inventory
    
    on Closed
    
    on RemainingReturn/Economic
    
    Product
    
    Lots/Units/
    
    Lots/Units/
    
    Lots/Units/
    
    Lots/Units/
    
    Lots/Units/
    
    Lots/Units/
    
    Lots/Units/Corporation / Project
    
    Location
    
    Ownership(1)
    
    Type(2)
    
    Acres
    
    Acres
    
    Acres
    
    Acres
    
    Acres
    
    Acres(3)
    
    AcresDesert Mountain Development CorporationDesert Mountain(4)
    
    Scottsdale, AZ
    
    
    93
    %
    
    SF, SH, TH B
    
    
    2,489
    
    
    
    2,415
    
    
    
    74
    (5)
    
    
    
    
    
    
    42
    
    
    
    749
    
    
    
    2,781Custom LotsHomesCrescent Resort Development Inc.Tahoe Mountain ResortsNorthstar VillageBig Horn and Catamount
    
    Lake Tahoe, CA
    
    
    13%/57
    %
    
    CO S
    
    
    113
    
    
    
    21
    
    
    
    92
    
    
    
    92
    
    
    
    
    
    
    
    1,862
    
    
    
    1,331Identified Future Projects
    
    Lake Tahoe, CA
    
    
    13%/23%-57
    %
    
    TH S, TS S
    
    
    133
    
    
    
    
    
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,210Northstar HighlandsNorthstar
Trailside Townhomes
    
    Lake Tahoe, CA
    
    
    13%/57
    %
    
    TH S
    
    
    16
    
    
    
    
    
    
    
    16
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    3,718Northstar
Ritz Condos
    
    Lake Tahoe, CA
    
    
    13%/23
    %
    
    CO S
    
    
    84
    
    
    
    
    
    
    
    84
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    4,189Highlands Acreage
    
    Lake Tahoe, CA
    
    
    13%/23
    %
    
    ACR
    
    
    4.8
    
    
    
    
    
    
    
    4.8
    
    
    
    
    
    
    
    4.8
    
    
    
    
    
    
    
    4,688Identified Future Projects
    
    Lake Tahoe, CA
    
    
    13%/57
    %
    
    CO, TH, TS S
    
    
    1,272
    
    
    
    
    
    
    
    1,272
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,680Old GreenwoodUnits
    
    Lake Tahoe, CA
    
    
    13%/71
    %
    
    THB
    
    
    19
    
    
    
    15
    
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    1,428
    
    
    
    938Fractional
Units(6)
    
    Lake Tahoe, CA
    
    
    13%/71
    %
    
    TS S
    
    
    146.00
    
    
    
    42.12
    
    
    
    103.88
    
    
    
    11.00
    
    
    
    30.00
    
    
    
    1,922
    
    
    
    2,185Grays CrossingLots
    
    Lake Tahoe, CA
    
    
    13%/71
    %
    
    SFB
    
    
    377
    
    
    
    254
    
    
    
    123
    
    
    
    84
    
    
    
    39
    
    
    
    314
    
    
    
    421Units(8)
    
    Lake Tahoe, CA
    
    
    13%/71
    %
    
    COB
    
    
    170
    
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    412Denver DevelopmentCreekside Townhomes at Riverfront Park
    
    Denver, CO
    
    
    12%/64
    %
    
    THP
    
    
    23
    
    
    
    21
    
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    737
    
    
    
    1,107Brownstones (Phase I)
    
    Denver, CO
    
    
    12%/64
    %
    
    THP
    
    
    16
    
    
    
    14
    
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    1,634
    
    
    
    1,582Delgany
    
    Denver, CO
    
    
    12%/64
    %
    
    COP
    
    
    42
    
    
    
    38
    
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    673
    
    
    
    835One Riverfront
    
    Denver, CO
    
    
    12%/56
    %
    
    CO P
    
    
    50
    
    
    
    
    
    
    
    50
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    843Identified Future Projects
    
    Denver, CO
    
    
    12%/56%-64
    %
    
    TH, COB
    
    
    328
    
    
    
    
    
    
    
    328
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    754Downtown Acreage
    
    Denver, CO
    
    
    12%/64
    %
    
    ACR
    
    
    6.76
    
    
    
    
    
    
    
    6.76
    
    
    
    
    
    
    
    6.76
    
    
    
    
    
    
    
    4,350Mountain and Other DevelopmentEagle Ranch
    
    Eagle, CO
    
    
    12%/76
    %
    
    SFP
    
    
    1,398
    
    
    
    1,198
    
    
    
    200
    
    
    
    65
    
    
    
    135
    
    
    
    89
    
    
    
    168Main Street
Station Vacation Club (7)
    
    Breckenridge, CO
    
    
    12%/30
    %
    
    TS S
    
    
    42.00
    
    
    
    30.93
    
    
    
    11.07
    
    
    
    
    
    
    
    11.07
    
    
    
    1,221
    
    
    
    1,055Riverbend
    
    Charlotte, NC
    
    
    12%/68
    %
    
    SFP
    
    
    659
    
    
    
    491
    
    
    
    168
    
    
    
    144
    
    
    
    24
    
    
    
    31
    
    
    
    39Three Peaks
    
    Silverthorne, CO
    
    
    12%/49
    %
    
    SFS
    
    
    325
    
    
    
    312
    
    
    
    13
    
    
    
    
    
    
    
    13
    
    
    
    193
    
    
    
    281Village Walk
    
    Beaver Creek, CO
    
    
    12%/58
    %
    

THS
    
    
    26
    
    
    
    5
    
    
    
    21
    
    
    
    21
    
    
    
    
    
    
    
    5,907
    
    
    
    5,205The
Residences at Park Hyatt Beaver Creek (7)
    
    Beaver Creek, CO
    
    
    N/A/91
    %
    
    TS S
    
    
    15.00
    
    
    
    3.10
    
    
    
    11.90
    
    
    
    
    
    
    
    11.90
    
    
    
    4,554
    
    
    
    3,573Beaver Creek Landing
    
    Beaver Creek, CO
    
    
    12%/59
    %
    
    COB
    
    
    52
    
    
    
    
    
    
    
    52
    
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    1,250Riverfront Village
    
    Beaver Creek, CO
    
    
    12%/27
    %
    
    CO, TH B
    
    
    311
    
    
    
    
    
    
    
    311
    
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    1,112Identified Future Projects
    
    Colorado
    
    
    12%/30%-64
    %
    
    CO S
    
    
    81
    
    
    
    
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,096Houston Area Development Corp.Spring Lakes
    
    Houston, TX
    
    
    98
    %
    
    SF P
    
    
    497
    
    
    
    477
    
    
    
    20
    
    
    
    
    
    
    
    20
    
    
    $
    35
    
    
    $
    44Crescent Plaza ResidentialThe Residences at the Ritz-Carlton (Phase I)
    
    Dallas, TX
    
    
    100
    %
    
    CO
    
    
    70
    
    
    
    
    
    
    
    70
    
    
    
    70
    
    
    
    
    
    
    $
    
    
    
    $
    1,902The Tower Residences and Regency Row (Phase II)
    
    Dallas, TX
    
    
    100
    %
    
    CO, TH P
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,548
    (8)
 
 (1)
    
    We receive our invested capital plus a preferred return on our invested capital
before profits are allocated to the partners based on ownership
percentage. Some projects listed assume an equity partner will
participate.(2)
    
    SF (Single-Family Lot); CO (Condominium); TH (Townhome); TS (Timeshare Equivalent Unit);
ACR (Acreage); and SH (Single-Family Home). Superscript items represent P (Primary residence); S
(Secondary residence); and B (Both Primary and Secondary residence)(3)
    
    Based on lots, units, and acres closed during our ownership period.(4)
    
    Average Sales Price includes golf membership, which as of December 31, 2006 is $0.3 million.(5)
    
    As of December 31, 2006 there were 57 units and 17 lots in inventory or planned for development.(6)
    
    Selling 17 shares per unit.(7)
    
    Selling 20 shares per unit.(8)
    
    Proposed Average Sales Price for The Tower Residences and Regency Row excludes the four
Regency Row townhomes, which are expected to have a range in price of
$7.0 million to $8.0 million. 32




---



##### Table of Contents



Resort/Hotel Properties (1)
  For the year ended December 31,RevenueAverage
    
    
    Average
    
    
    PerYear
    
    
    
    
    
    
    Occupancy
    
    
    Daily
    
    
    AvailableCompleted/
    
    
    
    
    
    
    Rate
    
    
    Rate
    
    
    Room/Guest NightPROPERTY
    
    Location
    
    
    Renovated
    
    
    Rooms
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Canyon Ranch®
    
    Tuscon, AZ /Canyon Ranch  Tucson & Lenox(2)
    
    Lenox, MA
    
    
    1980/1989
    
    
    
    471
    (3)
    
    
    83
    %
    
    
    82
    %
    
    $
    769
    
    
    $
    739
    
    
    $
    598
    
    
    $
    567Luxury Resorts and Spas:Park Hyatt Beaver Creek Resort and Spa
    
    
    Avon, CO
    
    
    1989/2001/2006
    
    
    
    190
    (4)
    
    
    54
    %
    
    
    57
    %
    
    $
    365
    
    
    $
    303
    
    
    $
    197
    
    
    $
    172Fairmont Sonoma Mission Inn & Spa
    
    Sonoma, CA
    
    
    1927/1987/1997/2004
    
    
    
    228
    
    
    
    77
    
    
    
    71
    
    
    
    306
    
    
    
    292
    
    
    
    235
    
    
    
    207Ventana Inn & Spa
    
    Big Sur, CA
    
    
    1975/1982/1988
    
    
    
    60
    
    
    
    72
    
    
    
    73
    
    
    
    520
    
    
    
    480
    
    
    
    375
    
    
    
    349Total/Weighted Average
    
    
    
    
    
    
    
    
    
    
    478
    
    
    
    66
    %
    
    
    64
    %
    
    $
    354
    
    
    $
    319
    
    
    $
    235
    
    
    $
    206Upscale Business Class Hotels:Denver Marriott City Center
    
    Denver, CO
    
    
    1982/1994
    
    
    
    613
    
    
    
    72
    %
    
    
    73
    %
    
    $
    138
    
    
    $
    130
    
    
    $
    100
    
    
    $
    95Renaissance Houston Hotel
    
    Houston, TX
    
    
    1975/2000
    
    
    
    388
    
    
    
    68
    
    
    
    70
    
    
    
    128
    
    
    
    105
    
    
    
    87
    
    
    
    74Omni Austin Hotel (5)
    
    Austin, TX
    
    
    1986
    
    
    
    375
    
    
    
    79
    
    
    
    77
    
    
    
    150
    
    
    
    128
    
    
    
    119
    
    
    
    99Total/Weighted Average
    
    
    
    
    
    
    
    
    
    
    1,376
    
    
    
    73
    %
    
    
    73
    %
    
    $
    139
    
    
    $
    123
    
    
    $
    101
    
    
    $
    90Total/Weighted Average Luxury Resorts and Spas
and Upscale Business Class Hotels
    
    
    
    
    
    
    
    
    
    
    1,854
    
    
    
    71
    %
    
    
    71
    %
    
    $
    192
    
    
    $
    175
    
    
    $
    137
    
    
    $
    124
 
 (1)
    
    Property Table is presented at 100% without any adjustment to give effect to our actual ownership percentage in the properties.(2)
    
    We own 48% of the Canyon Ranch companies which own or manage: Canyon Ranch Tucson and Canyon Ranch Lenox Destination Resorts, Canyon Ranch SpaClub at the Venetian Resort in Las Vegas, the Canyon Ranch SpaClub on the Queen Mary 2
ocean liner, the Canyon Ranch Living Community in Miami, Fl., the Canyon Ranch SpaClub at The Gaylord Palms Resort in Kissimmee, Fl., Canyon Ranch Living Community in Chicago, IL., and all Canyon Ranch trade names and trademarks.(3)
    
    Represents available guest nights, which is the maximum number of guests the resort can accommodate per
night.(4)
    
    In April 2006, 85 rooms were taken out of service at the Park Hyatt Beaver Creek Resort and Spa. The floor space occupied by 55 of these rooms is to be converted into time-share units for sale by CRDI. The remaining space was
used to expand the Allegria Spa within the hotel.(5)
    
    The Omni Austin Hotel is leased pursuant to a lease to HCD Austin Corporation. 33




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##### Table of Contents



Temperature-Controlled Logistics Properties
  Total Cubic
    
    TotalNumber of
    
    Footage
    
    Square feetState
    
    Properties(1)
    
    (in millions)
    
    (in millions)Alabama
    
    
    5
    
    
    
    13.8
    
    
    
    0.5Arizona
    
    
    1
    
    
    
    2.9
    
    
    
    0.1Arkansas
    
    
    6
    
    
    
    33.1
    
    
    
    1.0California
    
    
    7
    
    
    
    29.5
    
    
    
    1.0Colorado
    
    
    1
    
    
    
    2.8
    
    
    
    0.1Florida
    
    
    5
    
    
    
    6.5
    
    
    
    0.3Georgia
    
    
    9
    
    
    
    61.8
    
    
    
    2.1Idaho
    
    
    2
    
    
    
    18.7
    
    
    
    0.8Illinois
    
    
    3
    
    
    
    21.7
    
    
    
    0.6Indiana
    
    
    1
    
    
    
    9.1
    
    
    
    0.3Iowa
    
    
    2
    
    
    
    12.5
    
    
    
    0.5Kansas
    
    
    2
    
    
    
    5.0
    
    
    
    0.2Kentucky
    
    
    1
    
    
    
    2.7
    
    
    
    0.1Maine
    
    
    1
    
    
    
    1.8
    
    
    
    0.2Massachusetts
    
    
    4
    
    
    
    10.2
    
    
    
    0.5Minnesota
    
    
    1
    
    
    
    3.0
    
    
    
    0.1Mississippi
    
    
    1
    
    
    
    4.7
    
    
    
    0.2Missouri
    
    
    2
    
    
    
    46.8
    
    
    
    2.7Nebraska
    
    
    2
    
    
    
    4.4
    
    
    
    0.2New York
    
    
    1
    
    
    
    11.8
    
    
    
    0.4North Carolina
    
    
    4
    
    
    
    15.1
    
    
    
    0.5Ohio
    
    
    2
    
    
    
    8.9
    
    
    
    0.4Oklahoma
    
    
    1
    
    
    
    1.4
    
    
    
    0.1Oregon
    
    
    5
    
    
    
    35.6
    
    
    
    1.5Pennsylvania
    
    
    3
    
    
    
    39.0
    
    
    
    1.1South Carolina
    
    
    1
    
    
    
    1.6
    
    
    
    0.1South Dakota
    
    
    1
    
    
    
    2.9
    
    
    
    0.1Tennessee
    
    
    3
    
    
    
    10.6
    
    
    
    0.4Texas
    
    
    3
    
    
    
    16.5
    
    
    
    0.5Utah
    
    
    1
    
    
    
    8.6
    
    
    
    0.4Virginia
    
    
    2
    
    
    
    8.7
    
    
    
    0.3Washington
    
    
    6
    
    
    
    28.7
    
    
    
    1.1Wisconsin
    
    
    3
    
    
    
    17.4
    
    
    
    0.6TOTAL
    
    
    92
    
    
    
    497.8
    
    
    
    19.0
 
 (1)
    
    As of December 31, 2006 we held a 31.72% interest in AmeriCold Realty Trust which operates
104 facilities, of which 91 are wholly-owned or leased, one is partially owned and 12 are
managed for outside owners. 
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  34




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##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
 Common Equity
  PriceHigh
    
    
    Low
    
    
    Distributions2005First Quarter
    
    $
    18.14
    
    
    $
    16.12
    
    
    $
    0.375Second Quarter
    
    
    18.99
    
    
    
    16.02
    
    
    
    0.375Third Quarter
    
    
    20.65
    
    
    
    17.95
    
    
    
    0.375Fourth Quarter
    
    
    21.06
    
    
    
    19.23
    
    
    
    0.3752006First Quarter
    
    $
    21.60
    
    
    $
    20.14
    
    
    $
    0.375Second Quarter
    
    
    20.64
    
    
    
    17.61
    
    
    
    0.375Third Quarter
    
    
    22.80
    
    
    
    18.72
    
    
    
    0.375Fourth Quarter
    
    
    22.42
    
    
    
    19.28
    
    
    
    0.375
   
    
    the general condition of the United States economy;
    
    general leasing activity and rental rates in the markets in which the Office Properties are located;
    
    the ability of tenants to meet their rent obligations;
    
    our operating and interest expenses;
    
    consumer preferences relating to the Resort/Hotel Properties and the Resort Residential Development Properties;
    
    cash flows from unconsolidated and consolidated entities;
    
    the level of our property acquisitions and dispositions;
    
    capital expenditure requirements;
    
    federal, state and local taxes payable by us; and
    
    the adequacy of cash reserves.
  35




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##### Table of Contents



Performance Graph
  Crescent Real Estate Equities Company
 
 Years EndingCompany / Index
    
    12/31/01
    
    12/31/02
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06Crescent Real Estate Equities Company
    
    
    100.00
    
    
    
    100.25
    
    
    
    113.72
    
    
    
    132.81
    
    
    
    156.49
    
    
    
    167.61S&P 500
    
    
    100.00
    
    
    
    77.90
    
    
    
    100.25
    
    
    
    111.15
    
    
    
    116.61
    
    
    
    135.03NAREIT All Equity REIT Index
    
    
    100.00
    
    
    
    103.82
    
    
    
    142.37
    
    
    
    187.33
    
    
    
    210.12
    
    
    
    283.78
  36




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##### Table of Contents



Distributions
    2006
    
    2005Ordinary dividend
    
    
    27.1
    %
    
    
    6.3
    %Qualified dividend eligible for 15% tax rate
    
    
    8.0
    
    
    
    2.7Capital gain
    
    
    15.5
    
    
    
    47.2Return of capital
    
    
    45.5
    
    
    
    29.5Unrecaptured Section 1250 gain
    
    
    3.9
    
    
    
    14.3100.0
    %
    
    
    100.0
    %
    Class A Preferred(1)
    
    Class B Preferred(2)2006
    
    2005
    
    2006
    
    2005Ordinary dividend
    
    
    49.8
    %
    
    
    8.9
    %
    
    
    49.8
    %
    
    
    8.9
    %Qualified dividend eligible
for 15% tax rate
    
    
    14.8
    
    
    
    3.8
    
    
    
    14.8
    
    
    
    3.8Capital gain
    
    
    28.3
    
    
    
    67.1
    
    
    
    28.3
    
    
    
    67.1Unrecaptured Section 1250 Gain
    
    
    7.1
    
    
    
    20.2
    
    
    
    7.1
    
    
    
    20.2100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    The Series A Preferred Shares are convertible at any time, in whole or in
part, at the option of the holders into common shares at a conversion price of $40.86 per
common share (equivalent to a conversion rate of 0.6119 common shares per Series A
Preferred Share). We pay distributions on the Series A Preferred
Shares in an amount totaling $1.6875 per share each year (equivalent to 6.75%
of the $25.00 liquidation preference per share), payable on a
quarterly basis. The Series A Preferred Shares are redeemable, on or
after February 28, 2003, in whole or in part, at our option.(2)
    
    The Series B Preferred Shares are redeemable on or after May 17, 2007, in whole
or in part, at our option. We pay distributions on the Series B Preferred Shares in an
amount totaling $2.375 per share each year (equivalent to 9.50% of the $25.00 liquidation
preference per share), payable on a quarterly basis. 37




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##### Table of Contents



Item 6. Selected Financial Data
  CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED HISTORICAL FINANCIAL DATA
(Dollars in thousands, except share data)
 For Years Ended December 31,2005
    
    2004
    
    2003
    
    20022006
    
    (Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Operating Data:Total Property revenue
    
    $
    928,696
    
    
    $
    1,018,100
    
    
    $
    1,000,273
    
    
    $
    892,005
    
    
    $
    946,311Income from Property Operations
    
    $
    270,672
    
    
    $
    278,839
    
    
    $
    314,977
    
    
    $
    304,333
    
    
    $
    339,319Income from continuing operations before minority interests
and income taxes
    
    $
    18,864
    
    
    $
    28,827
    
    
    $
    191,216
    
    
    $
    58,147
    
    
    $
    72,662Net income (loss) available to common shareholders
    
    $
    1,395
    
    
    $
    69,547
    
    
    $
    147,061
    
    
    $
    4,732
    
    
    $
    67,445Basic (loss) earnings per common share:(Loss) income available to common shareholders before
discontinued operations and cumulative effect of a change in
accounting principle
    
    $
    (0.12
    )
    
    $
    (0.23
    )
    
    $
    1.40
    
    
    $
    0.02
    
    
    $
    0.12Net income available to common shareholders-basic
    
    $
    0.01
    
    
    $
    0.69
    
    
    $
    1.49
    
    
    $
    0.05
    
    
    $
    0.65Diluted earnings (loss) per common share:(Loss) income available to common shareholders before
discontinued operations and cumulative effect of a change in
accounting principle
    
    $
    (0.12
    )
    
    $
    (0.23
    )
    
    $
    1.40
    
    
    $
    0.02
    
    
    $
    0.12Net income available to common shareholders  diluted
    
    $
    0.01
    
    
    $
    0.69
    
    
    $
    1.48
    
    
    $
    0.05
    
    
    $
    0.65Balance Sheet Data (at period end):Total assets
    
    $
    4,046,971
    
    
    $
    4,163,256
    
    
    $
    4,060,325
    
    
    $
    4,335,875
    
    
    $
    4,309,325Total debt
    
    $
    2,296,358
    
    
    $
    2,259,473
    
    
    $
    2,152,255
    
    
    $
    2,558,699
    
    
    $
    2,382,910Total shareholders equity
    
    $
    1,122,286
    
    
    $
    1,251,626
    
    
    $
    1,303,603
    
    
    $
    1,223,889
    
    
    $
    1,347,232Other Data:Cash distribution declared per common share
    
    $
    1.50
    
    
    $
    1.50
    
    
    $
    1.50
    
    
    $
    1.50
    
    
    $
    1.50Weighted averageCommon shares and units outstanding  basic
    
    
    121,515,791
    
    
    
    118,012,402
    
    
    
    116,747,408
    
    
    
    116,634,546
    
    
    
    117,523,248Weighted averageCommon shares and units outstanding  diluted
    
    
    122,979,783
    
    
    
    118,836,421
    
    
    
    116,965,897
    
    
    
    116,676,242
    
    
    
    117,725,984Funds from operations available to common shareholders 
diluted (1)
    
    $
    99,448
    
    
    $
    118,987
    
    
    $
    97,001
    
    
    $
    175,901
    
    
    $
    212,572
 
 (1)
    
    Funds from operations, or FFO, is a supplemental non-GAAP financial measurement
used in the real estate industry to measure and compare the operating performance of real
estate companies, although those companies may calculate funds from operations in different
ways. The National Association of Real Estate Investment Trusts (NAREIT) defines funds from
operations as Net Income (Loss) determined in accordance with generally accepted accounting
principles (GAAP), excluding gains (or losses) from sales of depreciable operating property,
excluding extraordinary items (determined by GAAP), plus depreciation and amortization of real
estate assets, and after adjustments for unconsolidated partnerships and joint ventures. We
calculate FFO available to common shareholders  diluted in the same manner, except that Net
Income (Loss) is replaced by Net Income (Loss) Available to Common Shareholders and we include
the effect of Operating Partnership unitholder minority interests. For a more detailed
definition and description of FFO and a reconciliation to net income determined in accordance
with GAAP, see Funds from Operations included in Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations. 38




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
 Index to Managements Discussion and Analysis of Financial Condition and Results of Operations
 PageOverview
    
    
    40Recent Developments
    
    
    41Results of OperationsYears ended December 31, 2006 and 2005
    
    
    47Years ended December 31, 2005 and 2004
    
    
    51Liquidity and Capital ResourcesOverview
    
    
    55Liquidity Requirements
    
    
    58Debt and Equity Financing
    
    
    61Unconsolidated Investments
    
    
    64Significant Accounting Policies
    
    
    65Funds from Operations
    
    
    69
 39




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##### Table of Contents



Overview
         
    
    Sale of all resort and hotel assets.Properties to be sold include the Fairmont Sonoma
Mission Inn & Spa®, Ventana Inn & Spa in Big Sur, California, the Park Hyatt Beaver
Creek Resort & Spa, and three business-class hotels.
    
    Sale of resort residential developments.Properties and assets to be sold include
Crescent Resort Development and Desert Mountain Development Corporation.
    
    Opportunistic sale of office properties.Properties to be sold include virtually all
suburban Dallas properties and all Austin properties, as well as our single assets in
Phoenix, Arizona, and in Seattle, Washington.
    
    Reduction of general and administrative expenses by more
than $17.0 million, or $0.14 per
share.Implementation of savings began immediately on March 1, 2007 and is expected to be
fully phased in by the end of 2007. We expect to take a charge of
approximately $5.0 million for
severance costs.
    
    Use of sales proceeds to retire debt. We plan to first use the proceeds from asset sales
to retire debt. We expect that our balance sheet will be significantly strengthened and our
cost of capital lowered, giving us capacity for growth.
    
    Alignment of dividend. We intend to align
our dividend with industry-accepted pay-out ranges to allow for retention of capital for
growth.
 ® ®
 40




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##### Table of Contents



Recent Developments
 Office Segment
 Joint Ventures
 Paseo Del Mar
  Bank One Center
  Three Westlake Park
  Four Westlake Park
  Chase Tower
  Parkway at Oakhill
  41




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##### Table of Contents



Asset Purchase
 (in millions)
    
    
    
    
    
    PurchaseDate
    
    Property
    
    Location
    
    PriceJanuary 23, 2006
    
    Financial Plaza  Class A Office Property
    
    Phoenix, Arizona
    
    $55.0(1)
 
 (1)
    
    The acquisition was funded by the assumption of a $23.6 million loan from
Allstate, a new $15.9 million loan from Allstate and a draw on our credit facility. This
property is wholly-owned. Asset Sale
 (in millions)Date
    
    Property
    
    Location
    
    ProceedsFebruary 17, 2006
    
    Waterside Commons  Class A Office Property
    
    Dallas, Texas
    

$24.8(2)
 
 (2)
    
    We previously recorded an impairment charge of approximately $1.0 million during
the year ended December 31, 2005. The proceeds from the sale were used primarily to pay down
the credit facility. Significant Tenant Lease Termination
  Resort Residential Development Segment
 Joint Venture
 Riverfront Village
  Asset Sale
 Jefferson Station Apartments
  42




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##### Table of Contents



Resort/Hotel Segment
 Park Hyatt Beaver Creek
  Temperature-Controlled Logistics Segment
   Other Segment
 Mezzanine
Notes
  43




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##### Table of Contents



InterestBalance at
    
    
    Rate at(in millions)
    
    
    
    
    
    Date of
    
    
    Maturity
    
    
    December
    
    
    DecemberNote
    
    
    
    
    
    Transaction
    
    
    Date
    
    
    31, 2006
    
    
    31, 2006Fixed Rate:Three Dallas Office Properties
    
    
    (1)
    
    
    
    8/31/05
    
    
    
    2010
    
    
    $
    7.6
    
    
    
    11.04
    %21 California Condominiums
    
    
    (2)
    
    
    
    12/28/06
    
    
    
    2008
    
    
    
    9.8
    (3)
    
    
    17.00
    %Variable Rate:Dallas Office Property
    
    
    (4)
    
    
    
    6/9/05
    
    
    
    2007
    
    
    
    12.0
    
    
    
    13.85
    %Two Luxury Hotel Properties in California
    
    
    (5)
    
    
    
    11/16/05
    
    
    
    2007
    
    
    
    15.0
    
    
    
    16.35
    %Office Portfolio in Southeastern U.S.
    
    
    (6)
    
    
    
    12/30/05
    
    
    
    2007
    
    
    
    20.7
    
    
    
    12.23
    %Florida Hotel Portfolio Investment
    
    
    (7)
    
    
    
    1/20/06
    
    
    
    2009
    
    
    
    15.0
    
    
    
    13.35
    %California Ski Resort
    
    
    (8)
    
    
    
    4/12/06
    
    
    
    2009
    
    
    
    20.0
    
    
    
    9.85
    %New York City Residential
    
    
    (9)
    
    
    
    5/8/06
    
    
    
    2007
    
    
    
    24.2
    
    
    
    18.18
    %Total Mezzanine Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    124.3Total Weighted Average Interest Rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.09
    %
 
 (1)
    
    The loan has an interest-only term through September 2007. Beginning
October 2007, the borrower must make principal payments based on a 30-year amortization
schedule until maturity. We determined that the entity to which the loan was funded is a
VIE under FIN 46R of which we are not the primary beneficiary; therefore, we do not
consolidate the entity. Our maximum exposure to loss is limited to the amount of the loan.(2)
    
    The loan has an interest-only term until maturity, subject to the right of
the borrower to extend the loan pursuant to one six-month extension.(3)
    
    The condominiums securing this note were sold by CRDI to a
third party. Due to restrictions under SFAS No. 66, Accounting for
Sales of Real Estate regarding seller financed transactions, the
profit from the sale of $4.7 million was deferred and recorded under the cost
recovery method and reflected as a reduction of the note such that the face value of the note is included in the table above.(4)
    
    The loan bears interest at LIBOR plus 850 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to three one-year extension options.(5)
    
    The loan bears interest at LIBOR plus 1,100 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to five one-year extension options.(6)
    
    The loan bears interest at LIBOR plus 685 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to three one-year extension options.(7)
    
    The loan bears interest at LIBOR plus 800 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to two one-year extension options.(8)
    
    The loan bears interest at LIBOR plus 450 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to two one-year extension options.(9)
    
    The loan bears interest at LIBOR plus 1,283 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to two one-year extension options. We determined that the entity to which the loan
was funded is a VIE under FIN 46R of which we are not the primary beneficiary; therefore, we
do not consolidate the entity. Our maximum exposure to loss is limited to the amount of the
loan.  44




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##### Table of Contents



2006 Operating Performance
 Office Segment
  2006
    
    2005Economic Occupancy (1)
    
    
    89.8
    %
    
    
    88.5
    %Leased Occupancy (2)
    
    
    92.6
    %
    
    
    90.8
    %In-Place Weighted Average Full-Service Rental Rate (3)
    
    $
    22.78
    
    
    $
    22.48Tenant Improvement and Leasing Costs per Sq. Ft. per year
    
    $
    3.56
    
    
    $
    3.55Average Lease Term (4)
    
    5.7
    yrs
    
    6.2
    yrsSame-Store NOI (5) Decline
    
    
    (1.0
    )%
    
    
    (1.5
    )%Same-Store Average Occupancy
    
    
    89.3
    %
    
    
    87.3
    %
 
 (1)
    
    Economic occupancy reflects the occupancy of all tenants paying rent.(2)
    
    Leased occupancy reflects the amount of contractually obligated space, whether
or not commencement has occurred.(3)
    
    Calculated based on base rent payable at December 31 giving effect to free
rent and scheduled rent increases and including adjustments for expenses payable by or
reimbursable from tenants. The weighted average full-service rental rate for the El
Paso lease reflects weighted average full-service rental rate over the shortened term
and excludes the impact of the net lease termination fee being recognized ratably to
income through December 31, 2007.(4)
    
    Reflects leases executed during the period.(5)
    
    Same-store NOI (net operating income) represents office property net income
excluding depreciation, amortization, interest expense and non-recurring items such as
lease termination fees for Office Properties owned for the entirety of the comparable
periods. Resort Residential Development Segment
  CRDI
 For the years ended December 31,(dollars in thousands)
    
    2006
    
    2005Resort Residential Lot Sales
    
    
    212
    
    
    
    545Resort Residential Unit Sales:Townhome Sales
    
    
    30
    
    
    
    25Condominium Sales
    
    
    59
    
    
    
    187Equivalent Timeshare Sales
    
    
    19.3
    
    
    
    15.7Average Sales Price per Resort Residential Lot
    
    $
    125
    
    
    $
    164Average Sales Price per Resort Residential Unit
    
    $
    2,003
    
    
    $
    1,265
  45




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##### Table of Contents



Desert Mountain
 For the years ended December 31,(dollars in thousands)
    
    2006
    
    2005Resort Residential Lot Sales
    
    
    5
    
    
    
    40Average Sales Price per Lot (1)
    
    $
    1,837
    
    
    $
    1,082Resort Residential Unit Sales
    
    
    12
    
    
    
    Average Sales Price per Unit (1)
    
    $
    1,485
    
    
    $
    
 
 (1)
    
    Includes equity golf membership  Resort/Hotel Segment
  For the years ended December 31,Average
    
    Average
    
    Revenue PerSame-Store NOI(1)
    
    Occupancy
    
    Daily
    
    Available% Change
    
    Rate
    
    Rate
    
    Room/Guest Night2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Luxury Resorts and Spas (2)
    
    
    15
    %
    
    
    127
    %(3)
    
    
    76
    %
    
    
    72
    %
    
    $
    349
    
    
    $
    332
    
    
    $
    264
    
    
    $
    237Upscale Business Class Hotels
    
    
    23
    %
    
    
    26
    %
    
    
    73
    %
    
    
    73
    %
    
    $
    139
    
    
    $
    123
    
    
    $
    101
    
    
    $
    90
 
 (1)
    
    Same-Store NOI (net operating income) represents net income excluding
depreciation and amortization, interest expense and rent expense for Resort/Hotel
Properties owned for the entirety of the comparable periods.(2)
    
    Excludes the Park Hyatt Beaver Creek Resort and Spa which had 85 rooms taken out
of service in April 2006. The onsite construction and closure of the spa has impacted
performance at the property. The floor space occupied by 55 of these rooms was converted
into 15 fractional units for sale in our Resort Residential Development Segment. The
remaining space was used to expand the Allegria Spa within the hotel.(3)
    
    In November 2003, the Fairmont Sonoma Mission Inn placed 97 historic inn rooms out of service
for renovation. The renovation was completed in July 2004, resulting in an increase
in 2005 Same-Store NOI as compared to 2004.  46




---



##### Table of Contents



Results of Operations
  Total variance in
    
    
    Total variance indollars between
    
    
    dollars betweenthe years ended
    
    
    the years endedDecember 31,
    
    
    December 31,2006 and 2005
    
    
    2005 and 2004(in millions)
    
    (Restated)
    
    
    (Restated)REVENUE:Office Property
    
    $
    41.5
    
    
    $
    (103.0
    )Resort Residential Development Property
    
    
    (130.6
    )
    
    
    192.8Resort/Hotel Property
    
    
    (0.4
    )
    
    
    (71.9
    )Total Property Revenue
    
    $
    (89.5
    )
    
    $
    17.9EXPENSE:Office Property real estate taxes
    
    $
    3.6
    
    
    $
    (19.3
    )Office Property operating expenses
    
    
    7.3
    
    
    
    (19.1
    )Resort Residential Development Property expense
    
    
    (89.2
    )
    
    
    160.9Resort/Hotel Property expense
    
    
    (2.9
    )
    
    
    (68.5
    )Total Property Expense
    
    $
    (81.2
    )
    
    $
    54.0Income from Property Operations
    
    $
    (8.3
    )
    
    $
    (36.1
    )OTHER INCOME (EXPENSE):Income from sale of investment unconsolidated company
    
    $
    17.8
    
    
    $
    29.9Income from investment land sales
    
    
    (8.6
    )
    
    
    (10.3
    )(Loss) gain on joint venture of properties
    
    
    2.7
    
    
    
    (268.5
    )Interest and other income
    
    
    18.2
    
    
    
    11.3Corporate general and administrative
    
    
    5.4
    
    
    
    (11.3
    )Interest expense
    
    
    2.4
    
    
    
    40.1Amortization of deferred financing costs
    
    
    0.5
    
    
    
    5.0Extinguishment of debt
    
    
    2.2
    
    
    
    40.4Depreciation and amortization
    
    
    (6.0
    )
    
    
    18.5Impairment charges related to real estate assets
    
    
    
    
    
    
    4.1Other expenses
    
    
    (9.0
    )
    
    
    (3.3
    )Equity in net income (loss) of unconsolidated companies:Office Properties
    
    
    (2.3
    )
    
    
    5.2Resort Residential Development Properties
    
    
    0.1
    
    
    
    1.8Resort/Hotel Properties
    
    
    (3.6
    )
    
    
    (1.3
    )Temperature-Controlled Logistics Properties
    
    
    (15.9
    )
    
    
    (6.0
    )Other
    
    
    (5.7
    )
    
    
    18.2Total other income (expense)
    
    $
    (1.8
    )
    
    $
    (126.2
    )INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY
INTERESTS AND INCOME TAXES
    
    $
    (10.1
    )
    
    $
    (162.3
    )Minority interests
    
    
    8.4
    
    
    
    21.6Income tax benefit (expense)
    
    
    12.0
    
    
    
    (20.7
    )INCOME BEFORE DISCONTINUED OPERATIONS AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
    
    $
    10.3
    
    
    $
    (161.4
    )(Loss) income from discontinued operations, net of
minority interests and taxes
    
    
    (4.5
    )
    
    
    (6.4
    )Impairment charges related to real estate assets from
discontinued operations, net of minority interests
    
    
    0.9
    
    
    
    2.0Gain on sale of real estate from discontinued
operations, net of minority interests and taxes
    
    
    (74.8
    )
    
    
    88.1Cumulative effect of a change in accounting principle,
net of minority interests
    
    
    
    
    
    
    0.4NET INCOME
    
    $
    (68.1
    )
    
    $
    (77.3
    )Series A Preferred Share distributions
    
    
    
    
    
    
    (0.3
    )Series B Preferred Share distributions
    
    
    
    
    
    
    NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS
    
    $
    (68.1
    )
    
    $
    (77.6
    )
 47




---



##### Table of Contents



Comparison of the year ended December 31, 2006, to the year ended December 31, 2005 (Restated)
 Property Revenues
  
    
    Office Property revenues increased $41.5 million, or 11.1%, to $414.3 million, primarily
due to:
 
    
    an increase of $28.1 million in net lease termination fees (from $11.2 million to
$39.3 million) primarily due to the El Paso lease termination and related
re-leasing;
    
    an increase of $9.4 million from the 51 consolidated Office Properties (excluding
properties acquired, disposed or stabilized during 2005 and 2006) that we owned or
had an interest in, primarily due to a 1.6 percentage point increase in average
occupancy (from 86.6% to 88.2%), increased expense recovery revenue related to the
increase in occupancy and increased recoverable expenses, and increased parking
revenue; partially offset by a decline in full service weighted average rental
rates;
    
    an increase of $8.8 million due to the acquisition of Financial Plaza in January
2006 and increased occupancy at One Live Oak, the Exchange Building and Peakview
Tower; and
    
    an increase of $1.0 million related to third party management and leasing
services primarily due to increased reimbursement revenue as a result of increased
reimbursable expenses; partially offset by
    
    a decrease of $5.8 million due to the joint ventures of Fulbright Tower in
February 2005 and One Buckhead Plaza in June 2005.
 
    
    Resort Residential Development Property revenues decreased
$130.6 million, or 26.0%, to
$372.1 million, primarily due to:
 
    
    a decrease of $121.6 million in CRDI revenues primarily related to:
 o
    
    a net decrease of $195.7 million primarily related to product mix in lots and
units available for sale in 2005 versus 2006 at Hummingbird Lodge in Bachelor Gulch,
Colorado, Northstar Ironhorse and Grays Crossing in Lake Tahoe, California, Creekside
Townhomes, Brownstones  Phase I, and Delgany, all in Denver, Colorado, and Eagle
Ranch in Eagle, Colorado, which had sales in the twelve months ended December 31,
2005, but reduced sales in the same period 2006, partially offset by Old Greenwood
Timeshares in Lake Tahoe, California, and Main Street Station in Breckenridge,
Colorado, which had sales in the twelve months ended December 31, 2005, but increased
sales in the same period 2006; ando
    
    a decrease of $38.5 million primarily related to product mix in lots and
units available for sale in 2005 versus 2006 at Horizon Pass Lodge in Bachelor Gulch,
Colorado, Creekside  Phase II in Denver, Colorado, and Old Greenwood Lots in Lake
Tahoe, California, which had sales in the twelve months ended December 31, 2005, but
no sales in the same period 2006; partially offset byo
    
    an increase of $112.0 million primarily related to product mix in lots and
units available for sale in 2006 versus 2005 at Village Walk and EW Hotel Residences
in Beaver Creek, Colorado, Northstar Big Horn, Northstar Village  Commercial and Old Greenwood Townhomes in Lake
Tahoe, California and Union Center land in Denver, Colorado, which had sales in the twelve months ended December 31, 2006, but
no sales in the same period 2005.
 
    
    a decrease of $10.5 million at Desert Mountain primarily related to reduced net
revenue from lot sales due to a decrease in the number of lots sold partially offset
by an increase in the average sales price per lot and lower membership transfer fee
income, partially offset by increased unit sales revenue due to an increase in the number of
units sold.
 
    
    Resort/Hotel Property revenues decreased $0.4 million, or 0.3%, to $142.2 million,
primarily due to:
 
    
    a decrease of $4.7 million in revenue at the Park Hyatt Beaver Creek related to a
decrease in occupancy due to construction activity on the property and the closure
of the Allegria Spa for expansion; and
    
    a decrease of $4.6 million due to the contribution in January 2005, of the Canyon
Ranch® Properties to a newly formed entity, CR Operating, LLC, in which we have a
48% member interest that is accounted for as an unconsolidated investment; partially
offset by
    
    an increase of $4.9 million in revenue at the remaining Luxury Resort and Spa
Properties primarily at the Fairmont Sonoma Mission Inn, which experienced an 14%
increase in revenue per available room (from $207 to $235) resulting from an
increase of 5% in average daily rate (from $292 to $306) and a six percentage point
increase in occupancy (from 71% to 77%); and
    
    an increase of $4.0 million in room revenue at the Upscale Business Class Hotel
Properties primarily related to a 12% increase in revenue per available room (from
$90 to $101) resulting from a 13% increase in average daily rate (from $123 to $139)
with occupancy remaining flat.
 48




---



##### Table of Contents



Property Expenses
  
    
    Office Property expenses increased $10.9 million, or 5.6%, to $206.6 million, primarily
due to:
 
    
    an increase of $9.4 million in operating expenses of the 51 consolidated Office
Properties (excluding properties acquired, disposed, or stabilized in 2005 and 2006)
that we owned or had an interest in primarily due to increased property taxes,
utilities, general building expenses, cleaning expenses, insurance expense and
non-recoverable administrative expenses (primarily bad debt);
    
    an increase of $3.4 million from the acquisition of Financial Plaza in January 2006;
    
    an increase of $1.4 million related to lease termination expenses; and
    
    an increase of $1.1 million related to the cost of providing third-party
management services primarily due to increased staffing and salary expenses and the
joint venture of One Buckhead Plaza in June 2005, which are recouped by increased
third party fee income and direct expense reimbursements; partially offset by
    
    a decrease of $3.1 million primarily due to the joint
venturing of Fulbright Tower
in February 2005 and One Buckhead Plaza in June 2005; and
    
    a decrease of $1.3 million related to decreased consulting and legal fees.
 
    
    Resort Residential Development Property expenses decreased
$89.2 million, or 20.6%, to
$343.0 million, primarily due to:
 
    
    a decrease of $86.2 million in CRDI expenses primarily related to:
 o
    
    a net decrease of $151.4 million primarily related to product mix in lots and
units available for sale in 2005 versus 2006 at Hummingbird Lodge in Bachelor Gulch,
Colorado, Northstar Ironhorse and Grays Crossing in Lake Tahoe, California, Creekside
Townhomes, Brownstones  Phase I, and Delgany, all in Denver, Colorado, and Eagle
Ranch in Eagle, Colorado, which had sales in the twelve months ended December 31,
2005, but reduced sales in the same period 2006, partially offset by Old Greenwood
Timeshares in Lake Tahoe, California, and Main Street Station in Breckenridge,
Colorado, which had sales in the twelve months ended December 31, 2005, but increased
sales in the same period 2006; ando
    
    a decrease of $30.4 million primarily related to product mix in lots and
units available for sale in 2005 versus 2006 at Horizon Pass Lodge in Bachelor Gulch,
Colorado, Creekside  Phase II in Denver, Colorado, and Old Greenwood Lots in Lake
Tahoe, California, which had sales in the twelve months ended December 31, 2005, but
no sales in the same period 2006; partially offset byo
    
    an increase of $93.2 million primarily related to product mix in lots and
units available for sale in 2006 versus 2005 at Village Walk and EW Hotel Residences
in Beaver Creek, Colorado, Northstar Big Horn, Northstar Village  Commercial and Old Greenwood Townhomes in Lake
Tahoe, California and Union Center land in Denver, Colorado, which had sales in the twelve months ended December 31, 2006, but
no sales in the same period 2005.
 
    
    an increase of $1.1 million in at CRDI marketing expense at CRDI; and
    
    a decrease of $7.1 million at Desert Mountain, primarily related to a decrease of
$9.8 million in cost of sales primarily due to decreased lot sales and product mix
and a decrease of $4.1 million in general and administrative expenses; partially
offset by an increase of $5.5 million in the development costs recognized using
the percentage complete method, and an increase of $1.4 million
in club operating
expense; partially offset by
    
    an increase of $2.4 million primarily due to marketing expenses related to the
Ritz-Carlton Tower Residences and Regency Row in Dallas, Texas.
 
    
    Resort/Hotel Property expenses decreased $2.9 million, or 2.6%, to $108.4 million,
primarily due to:
 
    
    a decrease of $4.1 million due to the contribution, in January 2005, of the
Canyon Ranch Properties to a newly formed entity, CR Operating, LLC, in which we
have a 48% member interest that is accounted for as an unconsolidated investment;
and
    
    a decrease of $2.3 million at the Park Hyatt Beaver Creek related to a decrease
in occupancy due to construction activity on the property and the closure of the
Allegria Spa for expansion; partially offset by
    
    an increase of $2.8 million at the remaining Luxury Resort and Spa Properties,
primarily at Sonoma Mission Inn, related to a 6 percentage point increase in
occupancy (from 71% to 77%); and
    
    an increase of $0.6 million primarily due to pre-opening expenses at The Ritz-Carlton Dallas.
 49




---



##### Table of Contents



Other Income/Expense
  Other Income
  
    
    Income from sale of investment in unconsolidated company increased $17.8 million due
primarily to the sale of the Four Westlake Park, Three Westlake Park and Chase Tower
Office Properties in 2006, partially offset by the sale of our interests in the entity that
owned the 5 Houston Center Office Property in 2005.
    
    Income from investment land sales decreased $8.6 million due primarily to the gain on
the sale of two parcels of undeveloped investment land in Houston, Texas in 2005.
    
    Loss on joint venture of properties decreased $2.7 million, primarily due to the 2005 write-off of capitalized internal leasing costs related to prior year
joint venture of properties.
    
    Interest and other income increased $18.2 million, or
62.1% to $47.4 million primarily
due to:
 §
    
    an increase of $13.0 million from mezzanine loans and other loans attributable to
an increase of $86.6 million in the weighted average mezzanine loan balance (from
$88.7 million to $175.3 million) and a 1.10 percentage point increase in the
weighted average interest rate (from 11.92% to 13.02%);§
    
    an increase of $6.2 million due to prepayment fees on two mezzanine loans that
were paid off in first quarter 2006; and§
    
    an increase of $2.6 million related to the amortization of imputed interest
related to the El Paso lease termination and contractual full service rents to
interest income; partially offset by§
    
    a decrease of $2.3 million interest earned on U.S. Treasury and government
sponsored agency securities purchased for debt defeasance in order to release the
lien on properties securing the LaSalle Note I and Note II and Nomura Funding VI
Note; and§
    
    a decrease of $1.7 million in other income from legal settlement proceeds
received in 2005 in connection with certain deed transfer taxes.
 
    
    Equity in net income of unconsolidated companies decreased $27.4 million to $0.3 million
primarily due to:
 §
    
    a decrease of $15.9 million in Temperature-Controlled Logistics equity in net
income primarily attributable to:
 °
    
    an increase of $6.8 million in debt related expense due to
 Ø
    
    a prepayment fee related to Goldman Sachs debt defeasance of $4.6 million;Ø
    
    a write-off of $2.2 million of unamortized deferred financing costs
associated with the Goldman Sachs and Morgan Stanley debt paid off in 2006;
and
 °
    
    an increase of $2.7 million related to adjustments for vacation
accrual, workers compensation and legal expenses; and°
    
    a decrease of $5.7 million in operating margins, primarily in the
transportation segment due to services with FEMA in 2005 in the wake of Hurricane
Katrina.
 §
    
    a decrease of $5.7 million in Other equity in net income primarily attributable
to a decrease of income from the G2 and SunTx investments;§
    
    a decrease of $3.6 million in Resort/Hotel equity in net income primarily
attributable to a $3.0 million license fee from Canyon Ranch Living in Miami,
Florida, of which our portion was $1.4 million, in the first quarter of 2005 and
$2.2 million due to increased expenses in 2006 compared to 2005 associated with
Canyon Ranch Operating, LLC; and§
    
    a decrease of $2.3 million in Office equity in net income primarily due to a $0.8
million decline in operations at Bank One Center, a $0.7 million decrease in
operations at Houston Center and a $0.5 million decrease related to the disposition
of 5 Houston Center in December 2005.
 50




---



##### Table of Contents



Other Expenses
  
    
    Corporate general and administrative costs decreased
$5.4 million, or 10.7%, to $44.9
million primarily due to changes in the short-term incentive compensation plans and lower
compensation expense associated with restricted units granted under our long-term incentive
compensation plans in December 2004 and May 2005.
    
    Interest expense decreased $2.4 million, or 1.8%, to $134.3 million due to an increase
of $11.8 million in capitalized interest (from $21.9 million to $33.7 million); partially
offset by an increase of $123.0 million in the weighted average debt balance (from $2.271
billion to $2.394 billion) and a 0.12 percentage point increase in the hedged weighted
average interest rate (from 6.98% to 7.10%).
    
    Extinguishment of debt expense decreased $2.2 million due to the write off of deferred
financing costs, of which $0.7 million related to the joint venture or sale of real estate
assets in 2005.
    
    Depreciation and amortization expense increased
$6.0 million, or 4.2%, primarily due to;
 §
    
    an increase of $5.3 million related to additions to
leasehold and building improvements and lease conversions; and§
    
    an increase of $5.1 million due to the acquisition of
Financial Plaza in January 2006; partially offset by§
    
    a decrease of $2.3 million related to lease terminations in 2005; and§
    
    a decrease of $2.0 million due to the joint venture of Fulbright Tower in
February 2005 and One Buckhead Plaza in June 2005.
 
    
    Other expense increased $9.0 million to $13.0 million due primarily to legal and
advisory fees for certain contemplated strategic alternatives.
 Income Tax Benefit/Expense
  Discontinued Operations
  
    
    a decrease of $74.8 million, net of minority interest and taxes due to an $89.2 million
aggregate gain on the sale of four properties in 2005 compared to $14.4 million aggregate
gain on sale of three properties in 2006; and
    
    a decrease of $4.5 million income, net of minority interest and taxes, due to the
reduction of net income associated with properties held for sale in 2006 compared to 2005.
 Comparison
of the year ended December 31, 2005 (Restated), to the year ended December 31, 2004 (Restated)
 Property Revenues
  
    
    Office Property revenues decreased $103.0 million, or 21.6%, to $372.8 million,
primarily due to:
 §
    
    a decrease of $154.9 million due to the joint ventures of The Crescent, Trammell
Crow Center, Fountain Place, Houston Center and Post Oak Central in November 2004;
partially offset by Fulbright Tower, which was acquired in December 2004 and joint
ventured in February 2005, and One Buckhead Plaza which was acquired in April 2005
and joint ventured in June 2005; partially offset by
 51




---



##### Table of Contents



§
    
    an increase of $26.9 million from the acquisition of Hughes Center in January
through May 2004, Dupont Centre in March 2004, The Alhambra in August 2004, One Live
Oak and Peakview Tower in December 2004 and the Exchange Building in February 2005;§
    
    an increase of $17.3 million resulting from third party management and leasing
services and related direct expense reimbursements due to the joint ventures of The
Crescent, Trammell Crow Center, Fountain Place, Houston Center and Post Oak Central
in November 2004, and Fulbright Tower in February 2005 and One Buckhead Plaza in
June 2005;§
    
    an increase of $6.2 million from the 42 consolidated Office Properties (excluding
2004 and 2005 acquisitions, dispositions and properties held for sale) that we owned
or had an interest in, primarily due to a 2.6 percentage point increase in average
occupancy (from 83.3% to 85.9%), increased expense recovery revenue related to the
increase in occupancy and increased recoverable expenses, and increased parking
revenue; partially offset by a decline in full service weighted average rental
rates; and§
    
    an increase of $2.2 million in net lease termination fees (from $9.0 million to
$11.2 million) primarily due to the El Paso lease termination.
 
    
    Resort Residential Development Property revenues increased
$192.8 million, or 62.2%, to
$502.7 million, primarily due to:
 §
    
    an increase of $189.7 million in CRDI revenues primarily related to:
 o
    
    an increase of $239.5 million primarily related to product mix in lots and
units available for sale in 2005 versus 2004 at Hummingbird Lodge in Bachelor Gulch,
Colorado, Northstar Village in Lake Tahoe, California, and Creekside  Phase II,
Creekside Townhomes, Brownstones  Phase I and Delgany, all in Denver, Colorado,
which had sales in the twelve months ended December 31, 2005, but no sales in the same
period 2004; partially offset byo
    
    a decrease of $47.3 million primarily related to product mix in lots and
units available for sale in 2004 versus 2005 at Horizon Pass Townhomes in Bachelor
Gulch, Colorado, Park Place, Park Tower and Central Platte Valley, all in Denver,
Colorado, and Cresta Run in Edwards, Colorado, which had sales in the twelve months
ended December 31, 2004, but no sales in the same period 2005; ando
    
    a net decrease of $4.0 million primarily related to product mix in lots and
units available for sale in 2004 versus 2005 at Horizon Pass Lodge in Bachelor Gulch,
Colorado, Old Greenwood Lots in Lake Tahoe, California, Creekside  Phase I in
Denver, Colorado, and Main Street Station in Breckenridge, Colorado, which had sales
in the twelve months ended December 31, 2004, but reduced sales in the same period
2005, partially offset by Grays Crossing and Old Greenwood Timeshares in Lake Tahoe,
California, and Eagle Ranch in Eagle, Colorado, which had sales in the twelve months
ended December 31, 2004, but increased sales in the same period
2005.
 
    
    Resort/Hotel Property revenues decreased $71.9 million, or 33.5%, to $142.6 million,
primarily due to:
 §
    
    a decrease of $88.8 million due to the contribution, in January 2005, of the
Canyon Ranch Properties to a newly formed entity, CR Operating, LLC, in which we
have a 48% member interest that is accounted for as an unconsolidated investment;
partially offset by§
    
    an increase of $6.9 million in room revenue at the Luxury Resort and Spa
Properties related to a 20% increase in revenue per available room (from $171 to
$206) resulting from a 12% increase in average daily rate (from $285 to $319) and a
4 percentage point increase in occupancy (from 60% to 64%);§
    
    an increase of $4.5 million in food and beverage, spa and other revenue at the
Luxury Resort and Spa Properties primarily due to a 12 percentage point increase in
occupancy (from 59% to 71%) at the Sonoma Mission Inn primarily related to the
renovation of the 97 historic inn rooms which were out of service during the first
two quarters of 2004;§
    
    an increase of $2.8 million in room revenue at the Upscale Business-Class Hotel
Properties primarily due to a 13% increase in revenue per available room (from $80
to $90) resulting from an increase of 6% in average daily rate (from $116 to $123)
and a 4 percentage point increase in occupancy (from 69% to 73%); and§
    
    an increase of $2.6 million in food and beverage and other revenue at the Upscale
Business-Class Hotel Properties primarily related to the 4 percentage point increase
in occupancy (from 69% to 73%) in conjunction with increased group volume.
 Property Expenses
  
    
    Office Property expenses decreased $38.4 million, or 16.4%, to $195.8 million, primarily
due to:
 §
    
    a decrease of $73.7 million due to the joint ventures of The Crescent, Trammell
Crow Center, Fountain Place, Houston Center and Post Oak Central in November 2004,
partially offset by Fulbright Tower, which was acquired in December 2004 and joint
ventured in February 2005 and One Buckhead Plaza, which was acquired in April 2005
and joint ventured in June 2005; partially offset by§
    
    an increase of $14.7 million related to the cost of providing third-party
management services due to the joint venture of The Crescent, Trammell Crow Center,
Fountain Place, Houston Center and Post Oak Central in November 2004, and Fulbright
Tower in February 2005 and One Buckhead Plaza in June 2005, which are recouped by
increased third party fee income and direct expense reimbursements;
 52




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##### Table of Contents



§
    
    an increase of $10.7 million from the acquisition of Hughes Center in January
through May 2004, Dupont Centre in March 2004, The Alhambra in August 2004, One Live
Oak and Peakview Tower in December 2004 and the Exchange Building in February 2005;§
    
    an increase of $4.8 million in operating expenses of the 42 consolidated Office
Properties (excluding 2004 and 2005 acquisitions, dispositions and properties held
for sale) that we owned or had an interest in primarily due to increased
administrative costs, utilities, general building and property taxes; and§
    
    an increase of $4.5 million due to increased payroll and benefit costs and
Sarbanes-Oxley compliance costs.
 
    
    Resort Residential Development Property expenses increased
$160.9 million, or 59.3%, to
$432.2 million, primarily due to:
 §
    
    an increase of $160.5 million in CRDI expenses primarily related to:
 o
    
    an increase of $207.3 million primarily related to product mix in lots and
units available for sale in 2005 versus 2004 at Hummingbird Lodge in Bachelor Gulch,
Colorado, Northstar Village in Lake Tahoe, California, and Creekside  Phase II,
Creekside Townhomes, Brownstones  Phase I, and Delgany, all in Denver, Colorado,
which had sales in the twelve months ended December 31, 2005, but no sales in the same
period 2004; partially offset byo
    
    a decrease of $41.8 million primarily related to product mix in lots and
units available for sale in 2004 versus 2005 at Horizon Pass Townhomes in Bachelor
Gulch, Colorado, Park Place, Park Tower, and Central Platte Valley, all in Denver,
Colorado, and Cresta Run in Edwards, Colorado, which had sales in the twelve months
ended December 31, 2004, but no sales in the same period 2005; ando
    
    a net decrease of $5.5 million primarily related to product mix in lots and
units available for sale in 2004 versus 2005 at Horizon Pass Lodge in Bachelor Gulch,
Colorado, Old Greenwood Lots in Lake Tahoe, California, Creekside  Phase I in
Denver, Colorado, and Main Street Station in Breckenridge, Colorado, which had sales
in the twelve months ended December 31, 2004, but reduced sales in the same period
2005, partially offset by Grays Crossing and Old Greenwood Timeshares in Lake Tahoe,
California, and Eagle Ranch in Eagle, Colorado, which had sales in the twelve months
ended December 31, 2004, but increased sales in the same period 2005.
 
    
    Resort/Hotel Property expenses decreased $68.5 million, or 38.1%, to $111.3 million,
primarily due to:
 §
    
    a decrease of $76.5 million due to the contribution, in January 2005, of the
Canyon Ranch Properties to a newly formed entity, CR Operating, LLC, in which we
have a 48% member interest that is accounted for as an unconsolidated investment;
partially offset by§
    
    an increase of $5.2 million in operating expenses at the Luxury Resort and Spa
Properties primarily due to a 12 percentage point increase in occupancy at Sonoma
Mission Inn (from 59% to 71%) primarily related to the renovation of the 97 historic
inn rooms which were out of service during the first two quarters of 2004; and§
    
    an increase of $2.7 million in operating expenses at the Upscale Business-Class
Hotel Properties primarily related to a 9 percentage point increase in occupancy at
Houston Renaissance (from 61% to 70%).
 Other Income/Expense
  Other Income
  
    
    Gain on joint venture of properties decreased $268.5 million, due primarily to:
 §
    
    $265.8 million decrease due to the gain on the joint venture of The Crescent,
Fountain Place, Trammell Crow Center, Houston Center and Post Oak Central Office
Properties in 2004; and§
    
    $4.9 million decrease due to the write-off of capitalized internal leasing costs
related to prior year joint venture of properties; partially offset by§
    
    $1.9 million increase due to the gain on the joint venture of Fullbright Tower
and One Buckhead in 2005.
 
    
    Income from investment land sales decreased $10.3 million due to the gain of $8.6
million on sales of two parcels of undeveloped investment land in 2005 compared to $18.8
million gain on sales of five parcels of undeveloped investment land in 2004.
    
    Income from sale of investment in unconsolidated company increased $29.9 million due to
the sale of our interests in the entity that owned the 5 Houston Center Office Property in
2005.
    
    Interest and other income increased $11.3 million to $29.3 million primarily due to:
 §
    
    $10.5 million interest from mezzanine loans;§
    
    $3.7 million interest from U.S. Treasury and government sponsored agency
securities purchased in December 2004 and January 2005 related to debt defeasance in
order to release the lien on properties securing the LaSalle Note I and Nomura
Funding VI Note; and§
    
    $1.7 million increase in other income from legal settlement proceeds received in
connection with certain deed transfer taxes; partially offset by
 53




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##### Table of Contents



§
    
    $3.7 million received in 2004 from COPI pursuant to the COPI bankruptcy plan for
notes receivable previously written off in 2001.
 
    
    Equity in net income of unconsolidated companies increased $17.9 million to $27.6
million primarily due to:
 §
    
    an increase of $18.2 million in Other equity in net income primarily attributable
to an increase of $6.1 million of income from the G2 investment and an increase of
$11.5 million of income from the SunTx investment; and§
    
    an increase of $5.2 million in Office equity in net income primarily attributable
to the joint ventures of The Crescent, Fountain Place, Trammell Crow Center, Houston
Center and Post Oak Central Office Properties; partially offset by§
    
    a decrease of $6.0 million in Temperature-Controlled Logistics equity in net
income primarily attributable to the gain on the sale of a portion of our interests
in AmeriCold to The Yucaipa Companies in 2004.
 Other Expenses
  
    
    Extinguishment of debt expense decreased $40.4 million, or 94.8%, to $2.2 million due
to:
 §
    
    $17.5 million related to the securities purchased in excess of the debt balance
to defease LaSalle Note I in connection with the joint venture of Office Properties
in 2004;§
    
    $17.5 million prepayment penalty associated with the payoff of the JP Morgan Chase
Mortgage Loan in connection with the joint venture of Office Properties in 2004;§
    
    $1.0 million mortgage prepayment fee associated with the payoff of the Lehman
Brothers Holdings, Inc. Loan in connection with the joint venture of Office
Properties in 2004; and§
    
    $6.6 million write-off of deferred financing costs, of which $3.1 million related
to the joint venture or sale of real estate assets in 2004; partially offset by§
    
    $2.1 million write-off of deferred financing costs, of which $0.7 million related
to the joint venture or sale of real estate assets in 2005.
 
    
    Interest expense decreased $40.1 million, or 22.7%, to $136.7 million due to a decrease
of $392.0 million in the weighted average debt balance (from $2,664 billion to $2,272
billion), partially offset by a .03 percentage point increase in the hedged weighted
average interest rate (from 6.95% to 6.98%) and $3.0 million cash flow payments recorded as
interest expense related to the Fountain Place transaction in June 2004.
    
    Depreciation and amortization costs decreased
$18.5 million, or 11.6%, to $141.4 million due to:
 §
    
    $19.0 million decrease in Office Property depreciation expense, primarily due to:
 °
    
    $36.7 million decrease attributable to the joint ventures of The
Crescent, Fountain Place, Trammell Crow Center, Houston Center and Post Oak
Central in November 2004, partially offset by Fulbright Tower which was acquired
in December 2004 and subsequently joint ventured in February 2005 and One
Buckhead Plaza which was acquired in April 2005 and subsequently joint ventured
in June 2005; partially offset by°
    
    $13.2 million increase from the acquisitions of Hughes Center in
January through May 2004, Dupont Centre in March 2004, The Alhambra in August
2004, One Live Oak, Fulbright Tower and Peakview Tower in December 2004 and the
Exchange Building in February 2005; and°
    
    $3.1 million increase primarily due to increased building and
leasehold improvements; and
 §
    
    $5.2 million decrease in Resort/Hotel Property depreciation expense primarily
related to the joint venture of the Canyon Ranch Properties, partially offset by the
reclassification of the Denver City Marriott Hotel Property from held for sale to
held and used; partially offset by§
    
    $6.6 million increase in Resort Residential Development Property depreciation
expense primarily related to club amenities and golf course improvements at CRDI and
Desert Mountain.
 
    
    Amortization of deferred financing costs decreased $5.0 million, or 38.2%, to $8.1
million primarily due to the refinancing and modification of the Credit Facility in
February 2005 and December 2005, partially offset by the reduction of the Fleet Fund I and
II Term Loan in January 2004 and the payoff of the Lehman Capital Note in November 2004.
    
    Impairment charges related to real estate assets decreased $4.1 million due to the
impairment of $4.1 million related to the demolition of the old clubhouse at the Sonoma
Club in the third quarter 2004 in order to construct a new clubhouse.
    
    Corporate general and administrative costs increased
$11.3 million, or 29.0%, to $50.4
million due primarily to an increase in compensation expense associated with restricted
units granted under our long-term incentive compensation plans in December 2004 and May
2005.
 54




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##### Table of Contents



Income Tax Expense/Benefit
  
    
    $8.5 million decreased tax benefit on the Resort Residential Development Properties
primarily attributable to the results of operations at CRDI;
    
    $5.8 million decreased tax benefit on the Resort/Hotel Properties due to the
contribution of the Canyon Ranch Properties to a newly formed entity, CR Operating, LLC, in
which we have a 48% member interest that is accounted for as an unconsolidated investment
and reduced taxable losses at the other properties;
    
    $4.0 million tax expense related to income from our investment in SunTx; and
    
    $2.8 million tax expense related to income from our investment in G2.
 Discontinued Operations
  
    
    an increase of $88.1 million, net of minority interest, primarily due to the $89.2
million gain on the sale of four properties in 2005; and
    
    an increase of $2.0 million, net of minority interest, due to an aggregate $3.0 million
impairment on three office properties in 2004 compared to $1.0 million impairment of
Waterside Commons office property in 2005; partially offset by
    
    a decrease of $6.4 million, net of minority interest, due to the reduction of net income
associated with properties held for sale in 2005 compared to 2004.
 
 Liquidity and Capital Resources
 
 Overview
   Short-Term Liquidity
   55




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##### Table of Contents



Long-Term Liquidity
   Cash Flows
   For the year ended(in millions)
    
    December 31, 2006Cash used in Operating Activities
    
    $
    (102.8
    )Cash provided by Investing Activities
    
    
    216.8Cash used in Financing Activities
    
    
    (122.7
    )Decrease in Cash and Cash Equivalents
    
    $
    (8.7
    )Cash and Cash Equivalents, Beginning of Period
    
    
    86.2Cash and Cash Equivalents, End of Period
    
    $
    77.5
 Operating Activities
  Investing Activities
  
    
    $186.4 million proceeds from defeasance investment maturities and other
securities, primarily due to the maturity of the securities securing the LaSalle
Note II which was repaid in March 2006 and the sale of our available for sale
marketable securities;
    
    $102.9 million proceeds from sale of investment in unconsolidated company due to
our sale of the Four Westlake Park, Three Westlake Park, Bank One Center and Chase
Tower Office Properties, on behalf of the joint ventures in which we had an
interest;
    
    $103.9 million proceeds from property sales due to the sale of our interest in
the Paseo Del Mar Office Property, the sale of the Waterside Commons Office
Property, and the sale of the JPI Multi-Family Investments luxury apartment project;
    
    $81.3 million return of investment in unconsolidated companies, primarily due to
the distributions received from AmeriCold Realty Trust, Main Street Partners, L.P.,
Blue River Land Company, LLC and Redtail Capital Partners, L.P.;
    
    $69.0 million decrease in notes receivable, primarily due to the repayment of
five of our mezzanine loans, offset by four new mezzanine loans; and
    
    $9.6 million decrease in restricted cash.
 56




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##### Table of Contents




    
    $138.2 million for the development of investment properties, due to the
development of the JPI Multi-Family Investments luxury apartment project, Paseo del
Mar and Parkway at Oakhill office developments, Ritz-Carlton Hotel development and
3883 Hughes Parkway office development;
    
    $68.7 million for non-revenue enhancing tenant improvement and leasing costs for Office Properties;
    
    $47.6 million of property improvements for Office and Resort/Hotel Properties;
    
    $30.7 million for the acquisition of investment properties, primarily due to the
acquisition of the Financial Plaza Office Property in January 2006;
    
    $27.6 million for development of amenities at the Resort Residential Development
Properties; and
    
    $23.5 million additional investment in unconsolidated companies, primarily
related to our investment in Riverfront Village and Redtail Capital Partners, L.P.
 Financing Activities
  
    
    $193.2 million payments under other borrowings, primarily due to the pay off of
the LaSalle Note II funded by proceeds from the maturity of defeasance investments,
the pay off of the FHI Finance loan, pay down of the Morgan Stanley note and
principal payments related to other debt agreements;
    
    $184.1 million distributions to common shareholders and unitholders;
    
    $116.0 million net paydowns under our credit facility;
    
    $32.0 million distributions to preferred shareholders;
    
    $18.6 million capital distributions to joint venture partners, primarily due to
distributions to JPI Multi-Family Investments, L.P., Desert Mountain and Fairmont
Sonoma Mission Inn; and
    
    $4.1 million debt financing costs, primarily due to the Bank of America loan
secured by the Fairmont Sonoma Mission Inn and the Goldman Sachs and Morgan Stanley
repurchase agreements secured by mezzanine loans.
  
    
    $282.4 million proceeds from other borrowings, primarily due to the Key Bank loan
secured by distributions from Funding III, IV & V, the Bank of America loan secured
by the Fairmont Sonoma Mission Inn, the Morgan Stanley and Goldman Sachs repurchase
agreements secured by mezzanine loans and construction draws on our Office
developments and The Ritz-Carlton hotel development;
    
    $111.2 million net proceeds from borrowings for construction costs at the Resort
Residential Development Properties;
    
    $23.1 million proceeds from the exercise of share and unit options; and
    
    $8.6 million proceeds from capital contributions from our joint venture partners.
 57




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##### Table of Contents



Liquidity Requirements
 Contractual Obligations
  Payments Due by Period(in millions)
    
    Total
    
    
    Less than 1 yr
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 yrsLong-term
debt(1)(4)Principal payments
    
    $
    2,296.4
    
    
    $
    750.0
    
    
    $
    1,008.4
    
    
    $
    321.5
    
    
    $
    216.5Interest payments
    
    
    511.3
    
    
    
    152.0
    
    
    
    155.9
    
    
    
    47.6
    
    
    
    155.8Share of unconsolidated debt
    
    
    705.6
    
    
    
    38.6
    
    
    
    61.8
    
    
    
    185.1
    
    
    
    420.1Ground lease obligations
    
    
    147.0
    
    
    
    1.9
    
    
    
    3.8
    
    
    
    4.0
    
    
    
    137.3Operating lease obligations (2)
    
    
    46.0
    
    
    
    39.1
    
    
    
    6.9
    
    
    
    
    
    
    
    Share of unconsolidated operating lease
obligations
    
    
    13.4
    
    
    
    11.4
    
    
    
    2.0
    
    
    
    
    
    
    
    Significant capital expenditure
obligations (3)
    
    
    145.3
    
    
    
    140.3
    
    
    
    5.0
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    3,865.0
    
    
    $
    1,133.3
    
    
    $
    1,243.8
    
    
    $
    558.2
    
    
    $
    929.7
 
 (1)
    
    Amounts include scheduled principal and interest payments for consolidated
debt. We estimate variable rate debt interest payments using the interest rate as of
December 31, 2006. Additionally, we have letters of credit issued under our credit facility of $9.5 million which
reduces our borrowing capacity. These letters of credit are excluded from the table above as
management believes that this obligation is not reasonably likely to occur.(2)
    
    As part of our ongoing operations, we execute operating lease agreements which
generally provide tenants with leasehold improvement allowances and other lease
concessions. In addition, we generally pay lease commissions to cooperating third-party
brokers. Total committed but unfunded operating lease obligations as of December 31, 2006
are reflected in the above table.(3)
    
    For further detail of significant capital expenditure obligations, see table
under Significant Capital Expenditures in this Item 7.(4)
    
    We intend on using the proceeds from the substantial asset
sales that we expect to make in accordance with our Strategic Plan
which is discussed in the Overview section to this Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations to address many of our
long-term liquidity requirements early, including: retiring our
9.25% senior notes due April 2009, the 2009 Notes,
selected mortgage debt, our Series B Preferred Shares and
outstanding borrowings under our revolving credit facility.
Additionally, if and when we sell our Resort Residential Development
Properties, we expect to eliminate all related construction debt as
well as future Resort Residential capital expenditures.  Debt Financing Summary
  Share ofSecured
    
    
    Defeased
    
    
    Unsecured
    
    
    Consolidated
    
    
    Unconsolidated(in thousands)
    
    Debt
    
    
    Debt
    
    
    Debt
    
    
    Debt
    
    
    Debt
    
    
    Total2007
    
    $
    399,719
    
    
    $
    100,279
    
    
    $
    250,000
    
    
    $
    749,998
    
    
    $
    38,613
    
    
    $
    788,6112008
    
    
    234,290
    
    
    
    289
    
    
    
    118,000
    (1)
    
    
    352,579
    
    
    
    43,465
    
    
    
    396,0442009
    
    
    280,489
    
    
    
    320
    
    
    
    375,000
    
    
    
    655,809
    
    
    
    18,279
    
    
    
    674,0882010
    
    
    134,043
    
    
    
    6,337
    
    
    
    
    
    
    
    140,380
    
    
    
    17,761
    
    
    
    158,1412011
    
    
    181,120
    
    
    
    
    
    
    
    
    
    
    
    181,120
    
    
    
    167,303
    
    
    
    348,423Thereafter
    
    
    139,151
    
    
    
    
    
    
    
    77,321
    
    
    
    216,472
    
    
    
    420,177
    
    
    
    636,649$
    1,368,812
    
    
    $
    107,225
    
    
    $
    820,321
    
    
    $
    2,296,358
    
    
    $
    705,598
    
    
    $
    3,001,956
 
 (1)
    
    Borrowings under the credit facility. 58




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##### Table of Contents



Significant Capital Expenditures
 
    
    our requirements for capital expenditures (not factoring in
project level financing);
    
    the amounts funded as of December 31, 2006, on a cash
basis; and
    
    amounts remaining to be funded (future funding classified between
short-term and long-term capital requirements).
 Amount Spent
    
    
    
    
    
    Capital ExpendituresTotal
    
    
    as of
    
    
    Amount
    
    
    Short-Term
    
    
    Long-TermProject
    
    
    December 31,
    
    
    Remaining To
    
    
    (Next 12
    
    
    (12+(in millions)    Project
    

Cost(1)
    
    
    2006
    
    

Spend
    
    
    Months)(2)
    
    
    Months)(2)Consolidated:Office Segment3883 Hughes Center (3)
    
    $
    73.0
    
    
    $
    56.6
    
    
    $
    16.4
    
    
    $
    16.4
    
    
    $
    Parkway at Oakhill(4)
    
    
    24.6
    
    
    
    13.1
    
    
    
    11.5
    
    
    
    6.5
    
    
    
    5.0Resort Residential Development SegmentRitz-Carlton Highlands (5)
    
    
    402.2
    
    
    
    22.3
    
    
    
    8.0
    (6)
    
    
    8.0
    
    
    
    Tahoe Mountain Club (7)
    
    
    107.2
    
    
    
    92.2
    
    
    
    15.0
    
    
    
    15.0
    
    
    
    The Ritz-Carlton  Phase I(8)
    
    
    211.6
    
    
    
    120.9
    
    
    
    90.7
    
    
    
    90.7
    
    
    
    The Ritz-Carlton  Phase II(9)
    
    
    136.8
    
    
    
    14.2
    
    
    
    
    (10)
    
    
    
    
    
    
    Resort/Hotel SegmentPark Hyatt Beaver Creek(11)
    
    
    26.6
    
    
    
    22.9
    
    
    
    3.7
    
    
    
    3.7
    
    
    
    Total
    
    $
    982.0
    
    
    $
    342.2
    
    
    $
    145.3
    
    
    $
    140.3
    
    
    $
    5.0
 
 (1)
    
    All amounts are approximate.(2)
    
    Reflects our estimate of the breakdown between short-term and long-term capital
expenditures.(3)
    
    We have committed to a first phase office development of 239,000 square feet on
land that we own within the Hughes Center complex. We expect to complete the building in the
first quarter of 2007. We closed a $52.3 million construction loan in the third quarter of
2005.(4)
    
    In March 2006, we entered into a joint venture agreement with Champion Partners.
The joint venture has committed to develop a 144,380 square-foot, two-building office complex
in Austin, Texas. The joint venture has a $18.3 million construction loan to fund
construction of this project. Amounts in the table represent our portion (90%) of total
project costs. The development is scheduled to be completed in first quarter 2007.(5)
    
    We entered into agreements with Ritz-Carlton Hotel Company, L.L.C. for us to
develop a 172 room luxury hotel in Lake Tahoe, California. The new luxury property will also
include the Ritz-Carlton Residences.(6)
    
    The funding of future potential capital expenditures is dependent upon obtaining a
certain level of unit pre-sales, construction financing and assumes
we will obtain a joint venture partner
for 60% of the equity. In the interim, we have committed up to an additional $8.0 million in development
costs on the project.(7)
    
    As of December 31, 2006, we had invested $92.2 million in Tahoe Mountain Club,
which includes the acquisition of land and development of golf courses and club amenities.
This table includes the development planned for 2007 only. We anticipate collecting
membership deposits which will be utilized to fund a portion of the development costs.(8)
    
    We entered into agreements with Ritz-Carlton Hotel Company, L.L.C. for us to
develop the first Ritz-Carlton hotel and condominium project in Dallas, Texas. The
development plans include a Ritz-Carlton with approximately 218 hotel rooms and 70
residences. Construction on the development is anticipated to be completed in the third
quarter of 2007. We have a $169.0 million construction line of credit from KeyBank for the
construction of this project.(9)
    
    We entered into agreements with Ritz-Carlton Hotel Company, L.L.C. for us to
develop an additional 96 Ritz-Carlton residences and 4 townhomes adjacent to the Phase I
development.(10)
    
    The funding of future potential capital expenditures is dependent upon obtaining a
certain level of unit pre-sales and construction financing.(11)
    
    In April 2006, we began renovations at the Park Hyatt Beaver Creek in Avon,
Colorado, which consist of the addition of air conditioning, upgrades to the common areas and
taking 30 rooms out of service to expand the Allegria Spa within the
hotel. The spa expansion and common area
upgrade were completed in December 2006. 59




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##### Table of Contents



Units Subject to Redemption
   Vested UnitRedemption Value
    
    
    Redeemable at(dollars in
    
    
    
    
    
    
    
    
    
    
    
    
    
    at December 31,
    
    
    December 31,
    
    
    Redeemable inthousands)
    
    Granted(1)
    
    
    Vested(1)
    
    
    Redeemed
    
    
    2006(2)
    
    
    2006
    
    
    2007
    
    
    20082004 Plan
    
    
    3,568,500
    
    
    
    2,147,500
    
    
    
    206,750
    
    
    $
    38,329
    
    
    $
    35,278
    
    
    $
    3,051
    
    
    $
    2005 Plan
    
    
    2,187,500
    
    
    
    437,500
    
    
    
    
    
    
    
    8,641
    (3)
    
    
    
    
    
    
    8,542
    
    
    
    995,756,000
    
    
    
    2,585,000
    
    
    
    206,750
    
    
    $
    46,970
    
    
    $
    35,278
    
    
    $
    11,593
    
    
    $
    99
 
 (1)
    
    Amounts listed in common share equivalents and are net of forfeitures.(2)
    
    Vested units may be exchanged for cash unless, prior to the date of exchange,
Crescent obtains shareholder approval authorizing it, at its discretion, to deliver instead
two common shares for each such restricted unit. Redemption value based on Crescents
closing stock price at December 31, 2006.(3)
    
    Amount is redeemable beginning May 16, 2007. Off-Balance Sheet Arrangements  Guarantee Commitments
  Guaranteed
    
    
    MaximumAmount
    
    
    Guaranteed(in thousands)
    
    Outstanding at
    
    
    Amount atDebtor
    
    December 31, 2006
    
    
    December 31, 2006CRDI  U.S. Bank National Association(1)
    
    $
    14,346
    
    
    $
    20,393CRDI  Eagle Ranch Metropolitan District  Letter of Credit (2)
    
    
    7,840
    
    
    
    7,840Fresh Choice, LLC(3)
    
    
    1,000
    
    
    
    1,000Total Guarantees
    
    $
    23,186
    
    
    $
    29,233
 
 (1)
    
    We entered into a Payment and Completion Guaranty with U.S. Bank National
Association for the repayment of bonds that were issued by the Northstar Community Housing
Corporation to fund construction of an employee housing project. The initial guaranty of
$20.4 million decreases to $5.1 million once construction is complete and certain
conditions are met and decreases further and is eventually released as certain debt service
coverage ratios are achieved.(2)
    
    We provide a $7.8 million letter of credit to support the payment of interest and
principal of the Eagle Ranch Metropolitan District Revenue Development Bonds.(3)
    
    We provide a guarantee of up to $1.0 million to GE Capital Franchise Financing
Corporation as part of Fresh Choices bankruptcy reorganization. Other Commitments
   60




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##### Table of Contents



Debt and Equity Financing
  BalanceOutstanding at
    
    
    Interest Rate atSecured
    
    Maximum
    
    
    December 31,
    
    
    December 31,Description(1)
    
    Asset
    
    Borrowings
    
    
    2006
    
    
    2006
    
    
    Maturity DateSecured Fixed Rate Debt:AEGON Partnership Note
    
    Greenway Plaza
    
    $
    242,290
    
    
    $
    242,290
    
    
    
    7.53
    %
    
    July 2009Prudential Note
    
    707 17th Street/Denver Marriott
    
    
    70,000
    
    
    
    70,000
    
    
    
    5.22
    
    
    June 2010JP Morgan Chase III
    
    Datran Center
    
    
    65,000
    
    
    
    65,000
    
    
    
    4.88
    
    
    October 2015Bank of America Note I
    
    Fairmont Sonoma Mission Inn
    
    
    55,000
    
    
    
    55,000
    
    
    
    5.40
    
    
    February 2011Morgan Stanley I
    
    The Alhambra
    
    
    50,000
    
    
    
    50,000
    
    
    
    5.06
    
    
    October 2011Allstate Life Note
    
    Financial Plaza
    
    
    38,949
    
    
    
    38,949
    
    
    
    5.47
    
    
    October 2010Bank of America Note II
    
    The BAC  Colonnade Building
    
    
    37,439
    
    
    
    37,439
    
    
    
    5.53
    
    
    May 2013Metropolitan Life Note VII
    
    Dupont Centre
    
    
    35,500
    
    
    
    35,500
    
    
    
    4.31
    
    
    May 2011Column Financial
    
    Peakview Tower
    
    
    33,000
    
    
    
    33,000
    
    
    
    5.59
    
    
    April 2015Mass Mutual Note
    
    3800 Hughes
    
    
    32,203
    
    
    
    32,203
    
    
    
    7.75
    
    
    July 2007Northwestern Life Note
    
    301 Congress
    
    
    26,000
    
    
    
    26,000
    
    
    
    4.94
    
    
    November 2008JP Morgan Chase II
    
    3773 Hughes
    
    
    24,755
    
    
    
    24,755
    
    
    
    4.98
    
    
    September 2011Allstate Note (2)
    
    3993 Hughes
    
    
    24,025
    
    
    
    24,025
    
    
    
    6.65
    
    
    September 2010Metropolitan Life Note VI (2)
    
    3960 Hughes
    
    
    22,074
    
    
    
    22,074
    
    
    
    7.71
    
    
    October 2009Construction, Acquisition and other obligations
    
    Various Office and Resort
Residential Assets
    
    
    40,690
    
    
    
    40,690
    
    
    
    2.90 to 13.75
    
    
    July 2007 to Dec. 2016Secured Fixed Rate Defeased Debt(3):LaSalle Note I
    
    Funding I Defeasance
    
    
    100,017
    
    
    
    100,017
    
    
    
    7.83
    
    
    August 2007Nomura Funding VI Note
    
    Funding VI Defeasance
    
    
    7,208
    
    
    
    7,208
    
    
    
    10.07
    
    
    July 2010Subtotal/Weighted Average
    
    
    
    $
    904,150
    
    
    $
    904,150
    
    
    
    6.38
    %Unsecured Fixed Rate Debt:The 2009 Notes
    
    
    
    $
    375,000
    
    
    $
    375,000
    
    
    
    9.25
    %
    
    April 2009The 2007 Notes
    
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    7.50
    
    
    September 2007Subtotal/Weighted Average
    
    
    
    $
    625,000
    
    
    $
    625,000
    
    
    
    8.55
    %Secured Variable Rate Debt:GACC Note (4)
    
    Funding One Assets
    
    $
    165,000
    
    
    $
    165,000
    
    
    
    6.82
    %
    
    June 2007Morgan Stanley II (5)(6)
    
    Mezzanine Investments
    
    
    100,000
    
    
    
    22,311
    
    
    
    7.37
    
    
    March 2009Goldman Sachs(6)(7)
    
    Mezzanine Investments
    
    
    100,000
    
    
    
    10,000
    
    
    
    6.72
    
    
    May 2009KeyBank II
    
    Distributions from Funding III, IV and V
    
    
    75,000
    
    
    
    75,000
    
    
    
    7.35
    
    
    June 2007National Bank of Arizona
    
    DMDC Assets
    
    
    30,000
    
    
    
    15,654
    
    
    
    8.75
    
    
    October 2007Acquisition
and other obligations
    
    Various Office and Other Assets
    
    
    13,416
    
    
    
    13,416
    
    
    
    6.60 to 6.63
    
    
    February 2008 to
 December 2012Secured Variable Rate Construction Debt:KeyBank I (4)
    
    Ritz-Carlton Dallas Construction
    
    
    169,000
    
    
    
    80,296
    
    
    
    7.60
    
    
    July 2008JP Morgan Chase
    
    Northstar Big Horn Construction
    
    
    84,918
    
    
    
    56,342
    
    
    
    7.75
    
    
    October 2007Societe Generale I (8)
    
    3883 Hughes Construction
    
    
    52,250
    
    
    
    30,587
    
    
    
    7.22
    
    
    September 2008FirstBank of Vail
    
    Village Walk Construction
    
    
    41,782
    
    
    
    14,041
    
    
    
    7.75
    
    
    February 2008US Bank II
    
    Northstar Trailside Construction
    
    
    36,000
    
    
    
    1,991
    
    
    
    8.10
    
    
    March 2009US Bank I (9)
    
    Beaver Creek Landing Construction
    
    
    33,400
    
    
    
    16,446
    
    
    
    7.10
    
    
    February 2008California Bank & Trust(10)
    
    One Riverfront Construction
    
    
    27,500
    
    
    
    13,861
    
    
    
    8.38
    
    
    March 2008JP Morgan Chase Bank
    
    Old Greenwood Construction
    
    
    20,999
    
    
    
    16,150
    
    
    
    8.25
    
    
    March 2007Construction, Acquisition and other obligations
    
    Various Office and Resort
Residential Assets
    
    
    73,077
    
    
    
    40,792
    
    
    
    7.45 to 9.25
    
    
    June 2007 to December 2010Subtotal/Weighted Average
    
    
    
    $
    1,022,342
    
    
    $
    571,887
    
    
    
    7.39
    %Unsecured Variable Rate Debt:Credit Facility (11)
    
    
    
    $
    366,759
    
    
    $
    118,000
    
    
    
    6.95
    %
    
    February 2008Junior Subordinated Notes
    
    
    
    
    51,547
    
    
    
    51,547
    
    
    
    7.38
    
    
    June 2035Junior Subordinated Notes
    
    
    
    
    25,774
    
    
    
    25,774
    
    
    
    7.38
    
    
    July 2035Subtotal/Weighted Average
    
    
    
    $
    444,080
    
    
    $
    195,321
    
    
    
    7.12
    %Total/Weighted Average
    
    
    
    $
    2,995,572
    
    
    $
    2,296,358
    
    
    
    7.29
    %(12)Average remaining term
    
    
    
    
    
    
    
    
    
    
    
    3.1 years
 
 (1)
    
    For more information regarding the terms of our debt financing arrangements and
the method of calculation of the interest rate for our variable rate debt, see Note 12, Notes
Payable and Borrowings under Credit Facility, included in Item 8, Financial Statements and
Supplementary Data.(2)
    
    Includes a portion of total premiums of $2.2 million reflecting market value of debt
acquired with the purchase of Hughes Center portfolio.(3)
    
    We purchased U.S. Treasuries and government sponsored agency securities, or
defeasance investments, to substitute as collateral for these loans. The cash flow from
defeasance investments (principal and interest) matches the total debt service payment of the
loans.(4)
    
    This loan has three one-year extension options.(5)
    
    The investments can be financed through March 2008, after which four equal payments
are due quarterly. The loan has a provision for a one-year extension which is subject to
Morgan Stanleys approval.(6)
    
    The loans supporting these facilities are subject to daily valuations by Morgan
Stanley and Goldman Sachs, respectively. We are subject to a margin call if the overall
leverage of the facility exceeds certain thresholds.(7)
    
    The investments can be financed through May 2009. The financing and maturity can be
extended one year subject to Goldman Sachs approval.(8)
    
    This loan has two one-year extension options.(9)
    
    This loan has one six-month extension option.(10)
    
    This loan has one one-year extension option.(11)
    
    The Credit Facility has a maximum borrowing capacity of $366.8 million. The $118.0
million outstanding at December 31, 2006, excludes letters of credit issued under the facility
of $9.5 million. We are also subject to financial covenants, which include minimum debt
service ratios, maximum leverage ratios and, in the case of the Operating Partnership, a
minimum tangible net worth limitation and a fixed charge coverage ratio.(12)
    
    The overall weighted average interest rate does not include the effect of our cash
flow hedge agreements. Including the effect of these agreements, the overall weighted average
interest rate would have been 7.27%. 
 61




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Warehouse Facilities
   62




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##### Table of Contents



Derivative Instruments and Hedging Activities
 Accounting for Derivative Instruments and Hedging Activities Accounting for Certain Derivative Instruments and Certain Hedging
Activities  an Amendment of FASB Statement No. 133 Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.
  Additional
    
    
    Change in(Reduction)
    
    
    Unrealized GainsEffective Date
    
    Notional Amount
    
    
    Maturity Date
    
    
    Reference Rate
    
    
    Fair Market Value
    
    
    Interest Expense
    
    
    (Losses) in OCI(in thousands)Interest rate swaps2/15/03
    
    $
    100,000
    
    
    
    2/15/06
    
    
    
    3.26
    %
    
    $
    
    
    
    $
    (147
    )
    
    $
    (138
    )2/15/03
    
    
    100,000
    
    
    
    2/15/06
    
    
    
    3.25
    %
    
    
    
    
    
    
    (148
    )
    
    
    (139
    )9/02/03
    
    
    200,000
    
    
    
    9/01/06
    
    
    
    3.72
    %
    
    
    
    
    
    
    (1,603
    )
    
    
    (1,264
    )1/17/05
    
    
    
    
    
    
    10/16/06
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    (1)
    
    
    (205
    )4/25/06
    
    
    79,761
    
    
    
    12/26/07
    
    
    
    5.20
    %
    
    
    3
    
    
    
    
    (1)
    
    
    39/29/06
    
    
    200,000
    
    
    
    9/4/07
    
    
    
    5.20
    %
    
    
    56
    
    
    
    (66
    )
    
    
    56$
    59
    
    
    $
    (1,964
    )
    
    $
    (1,687
    )Interest rate caps1/07/05
    
    $
    7,800
    
    
    
    2/01/08
    
    
    
    6.00
    %
    
    
    
    
    
    
    4
    
    
    
    (1
    )$
    59
    
    
    $
    (1,960
    )
    
    $
    (1,688
    )
 
 (1)
    
    A portion of the interest on the debt that this swap is hedging is capitalized.  Unconsolidated Debt Arrangements
  Share Repurchase Program
  Shelf Registration Statement
  63




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##### Table of Contents



Unconsolidated Investments
  Our Ownershipas ofEntity
    
    Classification
    
    December 31, 2006Crescent Irvine, LLC
    
    Office (2211 Michelson Office Development  Irvine)
    
    40.0% (1)Crescent Miami Center, LLC
    
    Office (Miami Center  Miami)
    

40.0%
(2) (3)Crescent One Buckhead Plaza, L.P.
    
    Office (One Buckhead Plaza  Atlanta)
    

35.0% (4) (3)Crescent POC Investors, L.P.
    
    Office (Post Oak Central  Houston)
    

23.9% (5) (3)Crescent HC Investors, L.P.
    
    Office (Houston Center  Houston)
    

23.9% (5) (3)Crescent TC Investors, L.P.
    
    Office (The Crescent  Dallas)
    

23.9% (5) (3)Crescent Ross Avenue Mortgage Investors, L.P.
    
    Office (Trammell Crow Center, Mortgage  Dallas)
    

23.9% (6) (3)Crescent Ross Avenue Realty Investors, L.P.
    
    Office (Trammell Crow Center, Ground Lessor  Dallas)
    

23.9% (6) (3)Crescent Fountain Place, L.P.
    
    Office (Fountain Place  Dallas)
    

23.9% (6) (3)Crescent Five Post Oak Park L.P.
    
    Office (Five Post Oak Park  Houston)
    

30.0% (7) (3)Crescent One BriarLake Plaza, L.P.
    
    Office (One BriarLake Plaza  Houston)
    

30.0% (8) (3)Crescent 1301 McKinney, L.P.
    
    Office (Fulbright Tower  Houston)
    

23.9% (9) (3)AmeriCold Realty Trust
    
    Temperature-Controlled Logistics
    
    31.7% (10)CR Operating, LLC
    
    Resort/Hotel
    
    48.0% (11)CR Spa, LLC
    
    Resort/Hotel
    
    48.0% (11)East West Resort Development XIV, L.P., L.L.L.P.
    
    Resort Residential Development
    
    26.8% (12)Blue River Land Company, LLC
    
    Resort Residential Development
    
    33.2% (13)EW Deer Valley, LLC
    
    Resort Residential Development
    
    35.7% (14)SunTx Fulcrum Fund, L.P. (SunTx)
    
    Other
    
    26.5% (15)Redtail Capital Partners, L.P. (Redtail)
    
    Other
    

25.0% (16) (3)Fresh Choice, LLC
    
    Other
    
    40.0% (17)G2 Opportunity Fund, L.P. (G2)
    
    Other
    
    12.5% (18)
 
 (1)
    
    The remaining 60% interest is owned by an affiliate of Hines.(2)
    
    The remaining 60% interest is owned by an affiliate of a fund managed by JP Morgan
Investment Management, Inc., or JPM.(3)
    
    We have negotiated performance based incentives, which we refer to as promoted
interest, which allow for additional equity to be earned if return targets are exceeded.(4)
    
    The remaining 65% interest is owned by Metzler US Real Estate Fund, L.P.(5)
    
    Each limited partnership is owned by Crescent Big Tex I, L.P., which is owned 60% by
a fund advised by JPM and 16.1% by affiliates of General Electric, or GE.(6)
    
    Each limited partnership is owned by Crescent Big Tex II, L.P., which is owned 76.1%
by a fund advised by JPM.(7)
    
    The remaining 70% interest is owned by an affiliate of GE.(8)
    
    The remaining 70% interest is owned by affiliates of JPM.(9)
    
    The partnership is owned by Crescent Big Tex III, L.P., which is owned 60% by a fund
advised by JPM and 16.1% by affiliates of GE.(10)
    
    Of the remaining 68.3% interest, 47.6% is owned by Vornado Realty, L.P. and 20.7%
is owned by The Yucaipa Companies.(11)
    
    The remaining 52% interest is owned by the founders of Canyon Ranch and their
affiliates. CR Spa, LLC operates three resort spas which offer guest programs and services
and sells Canyon Ranch branded skin care products exclusively at the destination health
resorts and the resort spas. CR Operating, LLC operates and manages the two Canyon Ranch
destination health resorts, Tucson and Lenox, and collaborates with select real estate
developers in developing residential lifestyle communities.(12)
    
    We provided 41.9% of the initial capitalization and the venture is structured such
that we own a 26.8% interest after we receive a preferred return on our invested capital and
return of our capital. The remaining 73.2% economic interest is owned by parties unrelated to
us. East West Resort Development XIV, L.P., L.L.L.P. was formed to co-develop a hotel and
condominiums in Avon, Colorado.(13)
    
    The remaining 66.8% interest is owned by parties unrelated to us. Blue River Land
Company, LLC was formed to acquire, develop and sell certain real estate property in Summit
County, Colorado.(14)
    
    The remaining 64.3% interest is owned by parties unrelated to us. EW Deer Valley,
LLC was formed to acquire, hold and dispose of its 3.3% ownership interest in Empire Mountain
Village, L.L.C. Empire Mountain Village, LLC was formed to acquire, develop and sell certain
real estate property at Deer Valley Ski Resort next to Park City, Utah.(15)
    
    Of the remaining 73.5%, approximately 42.5% is owned by SunTx Capital Partners,
L.P. and the remaining 31.0% is owned by a group of individuals unrelated to us. Of our
limited partnership interest in SunTx, 6.3% is through an unconsolidated investment in SunTx
Capital Partners, L.P., the general partner of SunTx. SunTx Fulcrum Fund, L.P.s objective is
to invest in a portfolio of entities that offer the potential for substantial capital
appreciation.(16)
    
    The remaining 75% interest is owned by Capstead Mortgage Corporation. Redtail was
formed to invest up to $100.0 million in equity in select mezzanine loans on commercial real
estate over a two-year period.(17)
    
    The remaining 60% interest is owned by Cedarlane Natural Foods, Inc. Fresh Choice
is a restaurant owner, operator and developer.(18)
    
    G2 was formed for the purpose of investing in commercial mortgage backed securities
and other commercial real estate investments. The remaining 87.5% interest is owned by
Goff-Moore Strategic Partners, L.P., or GMSPLP, and by parties unrelated to us. G2 is managed
and controlled by an entity that is owned equally by GMSPLP and GMAC Commercial Mortgage
Corporation, or GMACCM. The ownership structure of GMSPLP consists of an approximately 92%
limited partnership interest owned directly and indirectly by Richard E. Rainwater, Chairman
of our Board of Trust Managers, of which approximately 6% is owned by Darla Moore, who is
married to Mr. Rainwater. Approximately 6% general partner interest is owned by John C. Goff,
Vice-Chairman of our Board of Trust Managers and our Chief Executive Officer. The remaining
approximately 2% general partnership interest is owned by unrelated parties. 64




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##### Table of Contents



Significant Accounting Policies
 Critical Accounting Policies
   
    
    Impairments,
    
    Acquisition of operating properties,
    
    Relative sales method and percentage of completion (Resort Residential Development entities),
    
    Gain recognition on sale of real estate assets,
    
    Consolidation of variable interest entities, and
    
    Allowance for doubtful accounts.
 Impairments. Accounting for the Impairment or
Disposal of Long-Lived Assets
 Goodwill and Other Intangible Assets
  Acquisition of operating properties. Business Combinations
   65




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##### Table of Contents



Relative sales method and percentage of completion.
 Gain recognition on sale of real estate assets. Accounting for Sales of Real Estate,
 66




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##### Table of Contents



Consolidation of Variable Interest Entities.
  Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited
Partnership or Similar Entity When the Limited Partners Have Certain Rights,
 Allowance for doubtful accounts/credit losses.
  Impact of New Accounting Standards
 SFAS No. 123R. Share-Based Payment Accounting for Stock-Based
Compensation Accounting for
Stock Issued to Employees
 67




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##### Table of Contents



EITF 04-5. Determining
Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights
 EITF 06-3. How Taxes Collected from Customers and Remitted to Governmental Authorities Should be
Presented in the Income Statement (That Is, Gross versus Net Presentation)
 FASB Interpretation 48. Accounting for
Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109, Accounting for Income Taxes.
 SFAS No. 157. Fair Value Measurements
 SAB No. 108. Financial Statements  Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements
 EITF 06-8. Applicability of the Assessment of a Buyers Continuing Investment under FASB
Statement No. 66 for Sales Of Condominiums
 68




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##### Table of Contents



Funds from Operations
  
    
    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.
    69




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##### Table of Contents



Consolidated Statements of Funds from Operations
 For the years ended December 31,2006
    
    
    2005(dollars in thousands)
    
    
    
    
    (Restated)Net income
    
    $
    33,433
    
    
    $
    101,585Adjustments to reconcile net income to funds from operations
available to common shareholders  diluted:Depreciation and amortization of real estate assets
    
    
    132,139
    
    
    
    131,392Gain on property sales
    
    
    (28,847
    )
    
    
    (102,803
    )Gain from sale of development operating property
    
    
    (16,221
    )
    
    
    (13,369
    )Gain from promoted interest
    
    
    (22,575
    )
    
    
    (13,579
    )Adjustment for investments in unconsolidated companies:Office Properties
    
    
    21,217
    
    
    
    18,872Resort Residential Development Properties
    
    
    (10,616
    )
    
    
    (5,543
    )Resort/Hotel Properties
    
    
    4,773
    
    
    
    3,881Temperature-Controlled Logistics Properties
    
    
    17,917
    
    
    
    18,210Unitholder minority interest
    
    
    266
    
    
    
    12,379Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    (23,963
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    (8,075
    )Funds from operations available to common shareholders  diluted(1) (2)
    
    $
    99,448
    
    
    $
    118,987Investment Segments:Office Properties
    
    $
    231,248
    
    
    $
    209,715Resort Residential Development Properties
    
    
    12,422
    
    
    
    45,486Resort/Hotel Properties
    
    
    36,150
    
    
    
    34,440Temperature-Controlled Logistics Properties
    
    
    2,249
    
    
    
    18,444Other:Corporate general and administrative
    
    
    (44,918
    )
    
    
    (50,363
    )Interest expense
    
    
    (135,457
    )
    
    
    (136,664
    )Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    (23,963
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    (8,075
    )Income from mezzanine loans and other loans
    
    
    29,674
    
    
    
    10,618Other(3)
    
    
    118
    
    
    
    19,349Funds from operations available to common shareholders  diluted(1) (2)
    
    $
    99,448
    
    
    $
    118,987Basic weighted average shares outstanding
    
    
    102,055
    
    
    
    100,179Diluted weighted average shares and units outstanding(4)
    
    
    122,980
    
    
    
    118,836
 
 (1)
    
    To calculate basic funds from operations available to common shareholders,
deduct unitholder minority interest.(2)
    
    In addition to presenting FFO in accordance with the NAREIT definition, we also
disclose FFO available to common shareholders  as adjusted, which includes adjustments to
exclude extinguishment of debt and impairment charges related to real estate assets and
include the impact of gain on sale of developed properties and promoted interest. We
provide this additional information because management utilizes it, in addition to FFO
available to common shareholders  diluted, in making operating decisions and assessing
performance, and because we believe that it also is useful to investors in assessing our
operating performance. For the years ended December 31,(dollars in thousands)
    
    2006
    
    
    2005FFO available to common shareholders  diluted  NAREIT
    
    $
    99,448
    
    
    $
    118,987Debt extinguishment charges related to the sale of real
estate assets
    
    
    
    
    
    
    729Impairment charges related to real estate assets
    
    
    125
    
    
    
    1,047Promoted interests related to the sale of investment in
unconsolidated companies
    
    
    22,575
    
    
    
    13,579Gain from sale of development operating property
    
    
    16,221
    
    
    
    13,369FFO available to common shareholders  diluted  as adjusted
    
    $
    138,369
    
    
    $
    147,711
 
 (3)
    
    Includes income from investment land sales, interest and other income,
extinguishment of debt, income/loss from other unconsolidated companies, other expenses,
depreciation and amortization of non-real estate assets, and amortization of deferred
financing costs.(4)
    
    See calculations for the amounts presented in the reconciliation following this
table. 70




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##### Table of Contents



For the yearsended December 31,(shares/units in share equivalents in thousands)
    
    2006
    
    2005Basic weighted average shares:
    
    
    102,055
    
    
    
    100,179Add: Weighted average units in share equivalents
    
    
    19,461
    
    
    
    17,833Restricted shares and share and unit options
in share equivalents
    
    
    1,464
    
    
    
    824Diluted weighted average shares and units
    
    
    122,980
    
    
    
    118,836
  Consolidated Statement of Funds from Operations
 For the year ended December 31, 2005As Reported withAs Previously
    
    Discontinued
    
    Discontinued
    
    Restatement(in thousands)
    
    Reported
    
    Operations
    
    Operations
    
    Adjustments
    
    As RestatedNet income
    
    $
    95,307
    
    
    $
    
    
    
    $
    95,307
    
    
    $
    6,278
    
    
    $
    101,585Adjustments to reconcile net income to funds from operations
available to common shareholders  diluted:Depreciation and amortization of real estate assets
    
    
    131,392
    
    
    
    
    
    
    
    131,392
    
    
    
    
    
    
    
    131,392Gain on property sales
    
    
    (102,803
    )
    
    
    
    
    
    
    (102,803
    )
    
    
    
    
    
    
    (102,803
    )Gain from sale of development operating property
    
    
    (13,369
    )
    
    
    
    
    
    
    (13,369
    )
    
    
    
    
    
    
    (13,369
    )Gain from promoted interest
    
    
    (13,579
    )
    
    
    
    
    
    
    (13,579
    )
    
    
    
    
    
    
    (13,579
    )Office Properties
    
    
    18,872
    
    
    
    
    
    
    
    18,872
    
    
    
    
    
    
    
    18,872Resort Residential Development Properties
    
    
    (5,468
    )
    
    
    
    
    
    
    (5,468
    )
    
    
    (75
    )
    
    
    (5,543
    )Resort/Hotel Properties
    
    
    3,881
    
    
    
    
    
    
    
    3,881
    
    
    
    
    
    
    
    3,881Temperature-Controlled Logistics Properties
    
    
    18,210
    
    
    
    
    
    
    
    18,210
    
    
    
    
    
    
    
    18,210Unitholder minority interest
    
    
    16,964
    
    
    
    
    
    
    
    16,964
    
    
    
    (4,585
    )
    
    
    12,379Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    
    
    
    
    (23,963
    )
    
    
    
    
    
    
    (23,963
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )Funds from
operations available to common shareholders  diluted
    
    $
    117,369
    (1)
    
    $
    
    
    
    $
    117,369
    
    
    $
    1,618
    
    
    $
    118,987Investment Segments:Office Properties
    
    $
    209,715
    
    
    $
    
    
    
    $
    209,715
    
    
    $
    
    
    
    $
    209,715Resort Residential Development Properties
    
    
    43,868
    
    
    
    
    
    
    
    43,868
    
    
    
    1,618
    
    
    
    45,486Resort/Hotel Properties
    
    
    34,440
    
    
    
    
    
    
    
    34,440
    
    
    
    
    
    
    
    34,440Temperature-Controlled Logistics Properties
    
    
    18,444
    
    
    
    
    
    
    
    18,444
    
    
    
    
    
    
    
    18,444Other:Corporate general and administrative
    
    
    (50,363
    )
    
    
    
    
    
    
    (50,363
    )
    
    
    
    
    
    
    (50,363
    )Interest expense
    
    
    (136,664
    )
    
    
    
    
    
    
    (136,664
    )
    
    
    
    
    
    
    (136,664
    )Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    
    
    
    
    (23,963
    )
    
    
    
    
    
    
    (23,963
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )Income from mezzanine loans and other loans
    
    
    10,618
    
    
    
    
    
    
    
    10,618
    
    
    
    
    
    
    
    10,618Other(3)
    
    
    19,349
    
    
    
    
    
    
    
    19,349
    
    
    
    
    
    
    
    19,349Funds from operations available to common
shareholders  diluted
    
    $
    117,369
    (1)
    
    $
    
    
    
    $
    117,369
    
    
    $
    1,618
    
    
    $
    118,987Basic weighted average shares outstanding
    
    
    100,179
    
    
    
    
    
    
    
    100,179
    
    
    
    
    
    
    
    100,179Diluted weighted average shares and units outstanding
    
    
    118,836
    
    
    
    
    
    
    
    118,836
    
    
    
    
    
    
    
    118,836
 
 (1)
    
    Amount represents FFO available to common shareholders
presented in accordance with the NAREIT definition. The 2005 Form
10-K amount reported of $144,317 represented FFO, as adjusted, and
included $26,948 gain on sale of developed property (inclusive of
$13,579 promoted interest). 71




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
   Interest Rate Risk
 Debt
  Mezzanine Notes
  Cash Flow Hedges
  72




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    74Consolidated Balance Sheets at December 31, 2006 and 2005
    
    
    75Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004
    
    
    76Consolidated Statements of Shareholders Equity for the years ended December 31, 2006, 2005,
and 2004
    
    
    77Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
    
    
    78Notes to Consolidated Financial Statements
    
    
    79Schedule III Consolidated Real Estate Investments and Accumulated Depreciation
    
    
    144Schedule IV Mortgage Loans on Real Estate Investments
    
    
    146
 73




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 74




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
 
 CONSOLIDATED BALANCE SHEETS
 (dollars in thousands)
 December 31,2006
    
    
    2005(As Restated See Note 1)ASSETS:Investments in real estate:Land
    
    $
    186,779
    
    
    $
    183,228Land improvements, net of accumulated depreciation of $36,421 and $29,784
at December 31, 2006 and 2005, respectively
    
    
    70,630
    
    
    
    70,494Buildings
and improvements, net of accumulated depreciation of $533,311 and
$456,628 at December 31, 2006 and 2005, respectively
    
    
    1,851,770
    
    
    
    1,734,131Furniture, fixtures and equipment, net of accumulated depreciation of $39,118 and
$34,129 at December 31, 2006 and 2005, respectively
    
    
    43,270
    
    
    
    37,018Land held for investment or development
    
    
    750,970
    
    
    
    513,040Properties held for disposition, net
    
    
    2,400
    
    
    
    118,205Net investment in real estate
    
    $
    2,905,819
    
    
    $
    2,656,116Cash and cash equivalents
    
    
    77,550
    
    
    
    86,228Restricted cash and cash equivalents
    
    
    93,471
    
    
    
    84,699Defeasance investments
    
    
    111,014
    
    
    
    274,134Accounts receivable, net
    
    
    63,996
    
    
    
    56,356Deferred rent receivable
    
    
    61,096
    
    
    
    70,074Investments in unconsolidated companies
    
    
    280,870
    
    
    
    393,535Notes receivable, net
    
    
    174,867
    
    
    
    219,016Income tax asset  current and deferred, net
    
    
    3,274
    
    
    
    10,732Other assets, net
    
    
    275,014
    
    
    
    312,366Total assets
    
    $
    4,046,971
    
    
    $
    4,163,256LIABILITIES:Borrowings under Credit Facility
    
    $
    118,000
    
    
    $
    234,000Notes
payable
    
    
    2,101,037
    
    
    
    1,933,546Notes
payable, accounts payable, accrued expenses and other liabilities, properties held for disposition
    
    
    
    
    
    
    19,306Junior subordinated notes
    
    
    77,321
    
    
    
    77,321Accounts payable, accrued expenses and other liabilities
    
    
    502,014
    
    
    
    495,918Current tax liability
    
    
    610
    
    
    
    Total liabilities
    
    $
    2,798,982
    
    
    $
    2,760,091COMMITMENTS AND CONTINGENCIESMINORITY INTERESTS:Operating partnership, 11,320,798 and 11,416,173 units, at December 31, 2006
and 2005, respectively
    
    $
    75,865
    
    
    $
    98,659Consolidated real estate partnerships
    
    
    49,838
    
    
    
    52,880Total minority interests
    
    $
    125,703
    
    
    $
    151,539SHAREHOLDERS EQUITY:Preferred shares, $0.01 par value, authorized 100,000,000 shares:Series A
Convertible Redeemable Cumulative Preferred Shares,
liquidation preference of $25.00 per share, 14,200,000 shares issued and
outstanding at December 31, 2006 and 2005 respectively
    
    $
    319,166
    
    
    $
    319,166Series B Cumulative Redeemable Preferred Shares,
liquidation preference of $25.00 per share, 3,400,000 shares issued and
outstanding at December 31, 2006 and 2005
    
    
    81,923
    
    
    
    81,923Common shares, $0.01 par value, authorized 250,000,000 shares, 127,875,571 and
126,562,980 shares issued and 102,754,654 and 101,442,063 shares outstanding at
December 31, 2006 and 2005, respectively
    
    
    1,279
    
    
    
    1,266Additional paid-in capital
    
    
    2,294,827
    
    
    
    2,271,888Deferred compensation on restricted shares
    
    
    
    
    
    
    (1,182
    )Accumulated deficit
    
    
    (1,114,553
    )
    
    
    (962,688
    )Accumulated other comprehensive (loss) income
    
    
    (224
    )
    
    
    1,385$
    1,582,418
    
    
    $
    1,711,758Less  shares held in treasury, at cost, 25,120,917 common shares at December 31, 2006
and 2005
    
    
    (460,132
    )
    
    
    (460,132
    )Total shareholders equity
    
    $
    1,122,286
    
    
    $
    1,251,626Total liabilities and shareholders equity
    
    $
    4,046,971
    
    
    $
    4,163,256
  75




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (dollars in thousands, except per share data)
 For the Years Ended December 31,2006
    
    
    2005
    
    
    2004(As Restated see Note 1)REVENUE:Office Property
    
    $
    414,343
    
    
    $
    372,759
    
    
    $
    475,797Resort Residential Development Property
    
    
    372,148
    
    
    
    502,723
    
    
    
    309,945Resort/Hotel Property
    
    
    142,205
    
    
    
    142,618
    
    
    
    214,531Total Property Revenue
    
    $
    928,696
    
    
    $
    1,018,100
    
    
    $
    1,000,273EXPENSE:Office Property real estate taxes
    
    $
    41,674
    
    
    $
    38,062
    
    
    $
    57,393Office Property operating expenses
    
    
    164,965
    
    
    
    157,719
    
    
    
    176,768Resort Residential Development Property expense
    
    
    342,994
    
    
    
    432,203
    
    
    
    271,310Resort/Hotel Property expense
    
    
    108,391
    
    
    
    111,277
    
    
    
    179,825Total Property Expense
    
    $
    658,024
    
    
    $
    739,261
    
    
    $
    685,296Income from Property Operations
    
    $
    270,672
    
    
    $
    278,839
    
    
    $
    314,977OTHER INCOME (EXPENSE):Income from sale of investment in unconsolidated company
    
    $
    47,709
    
    
    $
    29,934
    
    
    $
    Income from investment land sales
    
    
    
    
    
    
    8,622
    
    
    
    18,879(Loss) gain on joint venture of properties
    
    
    
    
    
    
    (2,743
    )
    
    
    265,772Interest and other income
    
    
    47,428
    
    
    
    29,250
    
    
    
    18,005Corporate general and administrative
    
    
    (44,918
    )
    
    
    (50,363
    )
    
    
    (38,889
    )Interest expense
    
    
    (134,273
    )
    
    
    (136,664
    )
    
    
    (176,771
    )Amortization of deferred financing costs
    
    
    (7,605
    )
    
    
    (8,108
    )
    
    
    (13,056
    )Extinguishment of debt
    
    
    
    
    
    
    (2,161
    )
    
    
    (42,608
    )Depreciation and amortization
    
    
    (147,407
    )
    
    
    (141,366
    )
    
    
    (159,898
    )Impairment charges related to real estate assets
    
    
    
    
    
    
    
    
    
    
    (4,094
    )Other expenses
    
    
    (12,997
    )
    
    
    (3,964
    )
    
    
    (725
    )Equity in net income (loss) of unconsolidated companies:Office Properties
    
    
    9,231
    
    
    
    11,464
    
    
    
    6,262Resort Residential Development Properties
    
    
    (355
    )
    
    
    (491
    )
    
    
    (2,266
    )Resort/Hotel Properties
    
    
    (5,109
    )
    
    
    (1,541
    )
    
    
    (245
    )Temperature-Controlled Logistics Properties
    
    
    (15,669
    )
    
    
    234
    
    
    
    6,153Other
    
    
    12,157
    
    
    
    17,885
    
    
    
    (280
    )Total other income (expense)
    
    $
    (251,808
    )
    
    $
    (250,012
    )
    
    $
    (123,761
    )INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS AND INCOME TAXES
    
    $
    18,864
    
    
    $
    28,827
    
    
    $
    191,216Minority interests
    
    
    (2,661
    )
    
    
    (11,067
    )
    
    
    (32,706
    )Income tax benefit (expense)
    
    
    3,475
    
    
    
    (8,462
    )
    
    
    12,231INCOME BEFORE DISCONTINUED OPERATIONS AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
    
    $
    19,678
    
    
    $
    9,298
    
    
    $
    170,741(Loss) income from discontinued operations, net of minority interests and taxes
    
    
    (502
    )
    
    
    4,006
    
    
    
    10,407Impairment charges related to real estate assets from discontinued operations, net of
minority interests
    
    
    (105
    )
    
    
    (953
    )
    
    
    (2,978
    )Gain on sale of real estate from discontinued operations, net of minority interest and taxes
    
    
    14,362
    
    
    
    89,234
    
    
    
    1,052Cumulative effect of a change in accounting principle, net of minority interests
    
    
    
    
    
    
    
    
    
    
    (363
    )NET INCOME
    
    $
    33,433
    
    
    $
    101,585
    
    
    $
    178,859Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    (23,963
    )
    
    
    (23,723
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    (8,075
    )
    
    
    (8,075
    )NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
    
    $
    1,395
    
    
    $
    69,547
    
    
    $
    147,061BASIC EARNINGS PER SHARE DATA:(Loss) income available to common shareholders before discontinued operations and
cumulative effect of a change in accounting principle
    
    $
    (0.12
    )
    
    $
    (0.23
    )
    
    $
    1.40(Loss) Income from discontinued operations, net of minority interests and taxes
    
    
    (0.01
    )
    
    
    0.04
    
    
    
    0.11Impairment charges related to real estate assets from discontinued operations, net of
minority interests
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.03
    )Gain on sale of real estate from discontinued operations, net of minority interests and
taxes
    
    
    0.14
    
    
    
    0.89
    
    
    
    0.01Cumulative effect of a change in accounting principle, net of minority interests
    
    
    
    
    
    
    
    
    
    
    Net income available to common shareholders  basic
    
    $
    0.01
    
    
    $
    0.69
    
    
    $
    1.49DILUTED EARNINGS PER SHARE DATA:(Loss) income available to common shareholders before discontinued operations and
cumulative effect of a change in accounting principle
    
    $
    (0.12
    )
    
    $
    (0.23
    )
    
    $
    1.40(Loss) Income from discontinued operations, net of minority interests and taxes
    
    
    (0.01
    )
    
    
    0.04
    
    
    
    0.10Impairment charges related to real estate assets from discontinued operations, net of
minority interests
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.03
    )Gain on sale of real estate from discontinued operations, net of minority interests and
taxes
    
    
    0.14
    
    
    
    0.89
    
    
    
    0.01Cumulative effect of a change in accounting principle, net of minority interests
    
    
    
    
    
    
    
    
    
    
    Net income available to common shareholders  diluted
    
    $
    0.01
    
    
    $
    0.69
    
    
    $
    1.48
  76




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (dollars in thousands, except share data)
 Deferred
    
    
    
    
    
    
    AccumulatedSeries A
    
    
    Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Compensation
    
    
    
    
    
    
    OtherPreferred Shares
    
    
    Preferred Shares
    
    
    Treasury Shares
    
    
    Common Shares
    
    
    Paid-in
    
    
    on Restricted
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Net Value
    
    
    Shares
    
    
    Net Value
    
    
    Shares
    
    
    Net Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Shares
    
    
    (Deficit)
    
    
    (Loss) Income
    
    
    TotalSHAREHOLDERS EQUITY, December 31, 2003
    
    
    10,800,000
    
    
    $
    248,160
    
    
    
    3,400,000
    
    
    $
    81,923
    
    
    
    25,121,861
    
    
    $
    (460,148
    )
    
    
    124,396,168
    
    
    $
    1,237
    
    
    $
    2,245,683
    
    
    $
    (4,102
    )
    
    $
    (877,120
    )
    
    $
    (13,829
    )
    
    $
    1,221,804Cumulative effect of restatement on prior years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,570
    )
    
    
    
    
    
    
    (2,570
    )SHAREHOLDERS EQUITY, December 31, 2003 (As Restated see Note 1)
    
    
    10,800,000
    
    
    $
    248,160
    
    
    
    3,400,000
    
    
    $
    81,923
    
    
    
    25,121,861
    
    
    $
    (460,148
    )
    
    
    124,396,168
    
    
    $
    1,237
    
    
    $
    2,245,683
    
    
    $
    (4,102
    )
    
    $
    (879,690
    )
    
    $
    (13,829
    )
    
    $
    1,219,234Comprehensive IncomeNet Income (As Restated see Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178,859
    
    
    
    
    
    
    
    178,859Change in
Unrealized Net Gain on Marketable Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,036
    
    
    
    1,036Change in Unrealized Net Gain on Cash Flow Hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,771
    
    
    
    11,771Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191,666Issuance of Common Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,954
    
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130Exercise of Common Share Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,980
    
    
    
    1
    
    
    
    821
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    822Accretion of Discount on Employee Stock Option Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (252
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (252
    )Issuance of Shares in Exchange for Operating
Partnership Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,916
    
    
    
    7
    
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Preferred Equity Issuance
    
    
    3,400,000
    
    
    
    71,006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,006Stock Option Grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Amortization of Deferred Compensation on Restricted Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,869
    
    
    
    
    
    
    
    
    
    
    
    1,869Dividends on Common Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149,034
    )
    
    
    
    
    
    
    (149,034
    )Dividends on Preferred Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,798
    )
    
    
    
    
    
    
    (31,798
    )SHAREHOLDERS EQUITY, December 31, 2004 (As Restated see Note 1)
    
    
    14,200,000
    
    
    $
    319,166
    
    
    
    3,400,000
    
    
    $
    81,923
    
    
    
    25,121,861
    
    
    $
    (460,148
    )
    
    
    124,542,018
    
    
    $
    1,245
    
    
    $
    2,246,335
    
    
    $
    (2,233
    )
    
    $
    (881,663
    )
    
    $
    (1,022
    )
    
    $
    1,303,603Comprehensive IncomeNet Income (As Restated see Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,585
    
    
    
    
    
    
    
    101,585Change in Unrealized Net Gain on Marketable Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (468
    )
    
    
    (468
    )Change in Unrealized Net Gain on Cash Flow Hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,730
    
    
    
    3,730Change in Pension Liability at Unconsolidated Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (855
    )
    
    
    (855
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,992Issuance of Common Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188,358
    
    
    
    2
    
    
    
    3,075
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,077Exercise of Common Share Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    267,972
    
    
    
    3
    
    
    
    4,283
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,286Accretion of Discount on Employee Stock Option Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (253
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (253
    )Issuance of Shares in Exchange for Operating
Partnership Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,564,632
    
    
    
    16
    
    
    
    18,384
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,400Reissuance of Treasury Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (944
    )
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Stock Option Grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64Amortization of Deferred compensation on Restricted Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,051
    
    
    
    
    
    
    
    
    
    
    
    1,051Dividends on Common Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150,572
    )
    
    
    
    
    
    
    (150,572
    )Dividends on Preferred Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,038
    )
    
    
    
    
    
    
    (32,038
    )SHAREHOLDERS EQUITY, December 31, 2005 (As Restated see Note 1)
    
    
    14,200,000
    
    
    $
    319,166
    
    
    
    3,400,000
    
    
    $
    81,923
    
    
    
    25,120,917
    
    
    $
    (460,132
    )
    
    
    126,562,980
    
    
    $
    1,266
    
    
    $
    2,271,888
    
    
    $
    (1,182
    )
    
    $
    (962,688
    )
    
    $
    1,385
    
    
    $
    1,251,626Comprehensive IncomeNet Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,433
    
    
    
    
    
    
    
    33,433Change in Unrealized Net Gain on Marketable Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (568
    )
    
    
    (568
    )Change in Unrealized Net Gain on Cash Flow Hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,760
    )
    
    
    (1,760
    )Change in Pension Liability at Unconsolidated Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    719
    
    
    
    719Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,824Exercise of Common Share Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    393,005
    
    
    
    4
    
    
    
    6,931
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,935Accretion of Discount on Employee Stock Option Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (253
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (253
    )Issuance of Shares in Exchange for Operating
Partnership Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    919,586
    
    
    
    9
    
    
    
    16,132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,141Amortization of Stock Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260Reclassification of Deferred Compensation on Restricted Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,182
    )
    
    
    1,182
    
    
    
    
    
    
    
    
    
    
    
    Amortization of Restricted Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,051
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,051Dividends on Common Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153,260
    )
    
    
    
    
    
    
    (153,260
    )Dividends on Preferred Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,038
    )
    
    
    
    
    
    
    (32,038
    )SHAREHOLDERS EQUITY, December 31, 2006
    
    
    14,200,000
    
    
    $
    319,166
    
    
    
    3,400,000
    
    
    $
    81,923
    
    
    
    25,120,917
    
    
    $
    (460,132
    )
    
    
    127,875,571
    
    
    $
    1,279
    
    
    $
    2,294,827
    
    
    $
    
    
    
    $
    (1,114,553
    )
    
    $
    (224
    )
    
    $
    1,122,286
  77




---



##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (dollars in thousands)
 For the Years Ended December 31,2006
    
    
    2005
    
    
    2004(As Restated
    
    
    (As Restatedsee Note 1)
    
    
    see Note 1)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    33,433
    
    
    $
    101,585
    
    
    $
    178,859Adjustments to reconcile net income to net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    156,014
    
    
    
    153,452
    
    
    
    180,799Extinguishment of debt
    
    
    
    
    
    
    2,271
    
    
    
    6,459Resort Residential Development cost of sales
    
    
    220,910
    
    
    
    311,050
    
    
    
    161,853Resort Residential Development capital expenditures
    
    
    (425,860
    )
    
    
    (356,603
    )
    
    
    (202,767
    )Impairment charges related to real estate assets
    
    
    125
    
    
    
    1,122
    
    
    
    7,605Income from investment land sales
    
    
    
    
    
    
    (8,622
    )
    
    
    (18,879
    )Loss
(gain) on joint venture of properties, net
    
    
    
    
    
    
    2,743
    
    
    
    (265,772
    )Gain on property sales, net
    
    
    (36,256
    )
    
    
    (105,258
    )
    
    
    (1,241
    )Income from sale of investment in unconsolidated company
    
    
    (47,709
    )
    
    
    (29,934
    )
    
    
    Minority interests
    
    
    13,178
    
    
    
    27,494
    
    
    
    34,217Cumulative effect of a change in accounting principle, net of minority interests
    
    
    
    
    
    
    
    
    
    
    363Non-cash compensation
    
    
    13,059
    
    
    
    13,236
    
    
    
    1,737Amortization of debt premiums
    
    
    (1,792
    )
    
    
    (2,452
    )
    
    
    (2,386
    )Equity in earnings from unconsolidated companies
    
    
    (255
    )
    
    
    (27,551
    )
    
    
    (9,624
    )Ownership portion of management fees from unconsolidated companies
    
    
    7,462
    
    
    
    6,609
    
    
    
    1,833Distributions received from unconsolidated companies
    
    
    9,083
    
    
    
    30,992
    
    
    
    7,982Redemption of units under long-term incentive plans
    
    
    (4,349
    )
    
    
    
    
    
    
    Change in assets and liabilities, net of effect of consolidations, acquisitions and dispositions:Restricted cash and cash equivalents
    
    
    (15,354
    )
    
    
    (1,626
    )
    
    
    54,889Accounts receivable and notes receivable
    
    
    (32,282
    )
    
    
    886
    
    
    
    (17,924
    )Deferred rent receivable
    
    
    8,538
    
    
    
    (14,562
    )
    
    
    (16,246
    )Income tax
asset -current and deferred, net
    
    
    7,458
    
    
    
    7,723
    
    
    
    (20,830
    )Other assets
    
    
    (17,720
    )
    
    
    (23,169
    )
    
    
    (22,885
    )Accounts payable, accrued expenses and other liabilities
    
    
    9,534
    
    
    
    50,243
    
    
    
    34,525Net cash (used in) provided by operating activities
    
    $
    (102,783
    )
    
    $
    139,629
    
    
    $
    92,567CASH FLOWS FROM INVESTING ACTIVITIES:Net cash impact of consolidation of previously unconsolidated entities
    
    $
    
    
    
    $
    
    
    
    $
    334Proceeds from property sales
    
    
    103,911
    
    
    
    236,725
    
    
    
    174,881Proceeds from sale of investment in unconsolidated company and related property sales
    
    
    102,871
    
    
    
    32,237
    
    
    
    3,229Proceeds from joint venture partners
    
    
    
    
    
    
    144,193
    
    
    
    1,028,913Acquisition of investment properties
    
    
    (30,675
    )
    
    
    (192,154
    )
    
    
    (381,672
    )Development of investment properties
    
    
    (138,161
    )
    
    
    (83,961
    )
    
    
    (7,089
    )Property improvements  Office Properties
    
    
    (17,790
    )
    
    
    (20,131
    )
    
    
    (14,297
    )Property improvements  Resort/Hotel Properties
    
    
    (29,842
    )
    
    
    (4,707
    )
    
    
    (27,739
    )Tenant improvement and leasing costs  Office Properties
    
    
    (68,664
    )
    
    
    (65,540
    )
    
    
    (92,876
    )Resort Residential Development Properties investments
    
    
    (27,610
    )
    
    
    (32,876
    )
    
    
    (35,428
    )Decrease (increase) in restricted cash and cash equivalents
    
    
    9,584
    
    
    
    (4,531
    )
    
    
    75,395Purchases of defeasance investments and other securities
    
    
    
    
    
    
    (115,710
    )
    
    
    (203,643
    )Proceeds from defeasance investment maturities and other securities
    
    
    186,428
    
    
    
    23,273
    
    
    
    14,560Return of investment in unconsolidated companies
    
    
    81,288
    
    
    
    18,785
    
    
    
    129,693Investment in unconsolidated companies
    
    
    (23,506
    )
    
    
    (17,118
    )
    
    
    (19,047
    )Decrease (increase) in notes receivable
    
    
    69,018
    
    
    
    (116,843
    )
    
    
    (15,230
    )Net cash provided by (used in) investing activities
    
    $
    216,852
    
    
    $
    (198,358
    )
    
    $
    629,984CASH FLOWS FROM FINANCING ACTIVITIES:Debt financing costs
    
    $
    (4,060
    )
    
    $
    (15,659
    )
    
    $
    (12,918
    )Borrowings under Credit Facility
    
    
    390,000
    
    
    
    758,300
    
    
    
    530,000Payments under Credit Facility
    
    
    (506,000
    )
    
    
    (666,800
    )
    
    
    (626,500
    )Notes payable proceeds
    
    
    282,370
    
    
    
    387,200
    
    
    
    577,146Notes payable payments
    
    
    (193,178
    )
    
    
    (346,968
    )
    
    
    (1,027,661
    )Junior subordinated notes
    
    
    
    
    
    
    77,321
    
    
    
    Resort Residential Development Properties note payable borrowings
    
    
    276,064
    
    
    
    257,411
    
    
    
    111,672Resort Residential Development Properties note payable payments
    
    
    (164,863
    )
    
    
    (198,540
    )
    
    
    (118,495
    )Capital distributions to joint venture partner
    
    
    (18,555
    )
    
    
    (18,516
    )
    
    
    (8,565
    )Capital contributions from joint venture partner
    
    
    8,566
    
    
    
    7,834
    
    
    
    2,833Proceeds from exercise of share and unit options
    
    
    23,093
    
    
    
    21,995
    
    
    
    829Reissuance of Treasury Shares
    
    
    
    
    
    
    16
    
    
    
    Issuance of preferred shares-Series A
    
    
    
    
    
    
    
    
    
    
    71,006Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    (23,963
    )
    
    
    (23,963
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    (8,075
    )
    
    
    (8,075
    )Dividends and unitholder distributions
    
    
    (184,146
    )
    
    
    (178,890
    )
    
    
    (175,621
    )Net cash (used in) provided by financing activities
    
    $
    (122,747
    )
    
    $
    52,666
    
    
    $
    (708,312
    )(DECREASE ) INCREASE IN CASH AND CASH EQUIVALENTS
    
    $
    (8,678
    )
    
    $
    (6,063
    )
    
    $
    14,239CASH AND CASH EQUIVALENTS, Beginning of period
    
    
    86,228
    
    
    
    92,291
    
    
    
    78,052CASH AND CASH EQUIVALENTS, End of period
    
    $
    77,550
    
    
    $
    86,228
    
    
    $
    92,291
  78




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. ORGANIZATION AND BASIS OF PRESENTATION
 References to we, us or our refer to Crescent Real Estate Equities Company and,
unless the context otherwise requires, Crescent Real Estate Equities Limited Partnership, which we
refer to as our Operating Partnership, and our other direct and indirect subsidiaries. We conduct
our business and operations through the Operating Partnership, our other subsidiaries and our joint
ventures. References to Crescent refer to Crescent Real Estate Equities Company. The sole
general partner of the Operating Partnership is Crescent Real Estate Equities, Ltd., a wholly-owned
subsidiary of Crescent Real Estate Equities Company, which we refer to as the General Partner.
   Operating Partnership
    
    Wholly-owned assets  The Avallon IV, Dupont Centre and Financial Plaza, included in our Office Segment.Non wholly-owned assets, consolidated  301 Congress Avenue (50% interest), included in our
Office Segment. Fairmont Sonoma Mission Inn (80.1% interest), included in our Resort/Hotel
Segment.Non wholly-owned assets, unconsolidated  2211 Michelson Office Development  Irvine (40% interest),
Miami Center (40% interest), One BriarLake Plaza (30% interest), Five Post Oak Park (30% interest),
Houston Center (23.85% interest in three office properties and the Houston Center Shops), The Crescent
Atrium (23.85% interest), The Crescent Office Towers (23.85% interest), Trammell Crow Center(1)(23.85% interest), Post Oak Central (23.85% interest in three Office Properties), Fountain Place
(23.85% interest), Fulbright Tower (23.85% interest) and One Buckhead Plaza (35% interest), included in
our Office Segment. AmeriCold Realty Trust (31.7% interest in 92 properties), included in our
Temperature-Controlled Logistics Segment. Canyon Ranch Tucson and Canyon Ranch Lenox (48% interest),
included in our Resort/Hotel Segment.Crescent Real Estate Funding One,
L.P. (Funding One)
    
    Wholly-owned assets  Carter Burgess Plaza, 125 E. John Carpenter Freeway, The Aberdeen, Regency Plaza
One and The Citadel, included in our Office Segment.Hughes Center Entities(2)
    
    Wholly-owned assets  Hughes Center Properties (eight office properties each in a separate limited
liability company), 3883 Hughes Parkway (Office Development), included in our Office Segment.Crescent Real Estate Funding III,
IV and V, L.P. (Funding III, IV and
V)(3)
    
    Non wholly-owned assets, consolidated  Greenway Plaza Office Properties (ten Office Properties, 99.9%
interest), included in our Office Segment. Renaissance Houston Hotel (99.9% interest), included in our
Resort/Hotel Segment.Crescent Real Estate Funding VIII, L.P.
(Funding VIII)
    
    Wholly-owned assets  The Addison, Austin Centre, The Avallon I, II, III and V, Exchange Building, 816
Congress, Greenway I & IA (two office properties), Greenway II, Johns Manville Plaza, One Live Oak,
Palisades Central I, Palisades Central II, Stemmons Place, 3333 Lee Parkway, 44 Cook and 55 Madison,
included in our Office Segment. Omni Austin Hotel and Ventana Inn & Spa, included in our Resort/Hotel
Segment.Crescent Real Estate Funding XII, L.P.
(Funding XII)
    
    Wholly-owned assets  Briargate Office and Research Center, MacArthur Center I & II and Stanford
Corporate Center, included in our Office Segment. Park Hyatt Beaver Creek Resort & Spa, included in
our Resort/Hotel Segment.Crescent 707 17th Street, LLC
    
    Wholly-owned assets  707 17th Street, included in our Office Segment and the DenverMarriott City Center, included in our Resort/Hotel Segment.Crescent Peakview Tower, LLC
    
    Wholly-owned asset  Peakview Tower, included in our Office Segment.Crescent Alhambra, LLC
    
    Wholly-owned asset  The Alhambra (two Office Properties), included in our Office Segment.Crescent Datran Center, LLC
    
    Wholly-owned asset  Datran Center (two Office Properties), included in our Office Segment.Crescent Spectrum Center, L.P.
    
    Non wholly-owned asset, consolidated  Spectrum Center (99.9% interest), included in our Office Segment.C-C Parkway Austin, L.P.
    
    Non wholly-owned asset, consolidated  Parkway at Oakhill Office Development (90% interest), included
in our Office Segment.Crescent Colonnade, LLC
    
    Wholly-owned asset  The BAC-Colonnade Building, included in our Office Segment.
 79




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Mira Vista Development Corp. (MVDC)
    
    Non wholly-owned asset, consolidated
 Mira Vista (98% interest),
included in our Resort Residential
Development Segment.Crescent Plaza Residential, L.P.
    
    Wholly-owned asset  the Residences at the Ritz-Carlton Development, included in our Resort
Residential Development Segment.Crescent Tower Residential, L.P.
    
    Wholly-owned asset  the Tower Residences and Regency Row at the Ritz-Carlton Development,
included in our Resort Residential Development Segment.Crescent Plaza Hotel Owner, L.P.
    
    Wholly-owned asset  the Ritz-Carlton Hotel Development, included in our Resort/Hotel Segment.Houston Area Development Corp.
(HADC)
    
    Non wholly-owned assets, consolidated  Spring Lakes (98% interest), included in our Resort
Residential Development Segment.Desert Mountain Development 
Corporation (DMDC)
    
    Non wholly-owned asset, consolidated  Desert Mountain (93% interest), included in our Resort
Residential Development Segment.Crescent Resort Development
Inc. (CRDI)(4)
    
    Wholly-owned asset  The Residences at Park Hyatt Beaver Creek, included in our Resort
Residential Development Segment.Non wholly-owned assets, consolidated  Brownstones (64% interest), Creekside Townhomes at
Riverfront Park (64% interest), Delgany (64% interest), One Riverfront (64% interest), Beaver
Creek Landing (59% interest), Eagle Ranch (76% interest), Grays Crossing (71% interest),
Main Street Vacation Club (30% interest), Northstar Highlands (57% interest), Northstar
Village (57% interest), Old Greenwood (71% interest), Riverbend (68% interest), Village Walk
(58% interest), Tahoe Mountain Club (71% interest) and Ritz-Carlton Highlands (71% interest),
included in our Resort Residential Development Segment.Non wholly-owned assets, unconsolidated  Blue River Land Company, LLC  Three Peaks (33.2%
interest), EW Deer Valley, LLC (35.7% interest) and East West Resort Development XIV, L.P.,
L.L.L.P. (26.8% interest), included in our Resort Residential Development Segment.
 
 (1)
    
    We own 23.85% of the economic interest in Trammell Crow Center through our
ownership of a 23.85% interest in the joint venture that holds fee simple title to the
Office Property (subject to a ground lease and a leasehold estate regarding the building)
and two mortgage notes encumbering the leasehold interests in the land and the building.(2)
    
    In addition, we own nine retail parcels located in Hughes Center.(3)
    
    Funding III owns nine of the ten 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 9 Greenway, the
remaining office property in the Greenway Plaza office portfolio.(4)
    
    For non wholly-owned assets, we receive a preferred return on our invested
capital and return of our capital before cash flows are allocated to the partners.   Segments
  
    
    Office Segment;
    
    Resort Residential Development Segment;
    
    Resort/Hotel Segment; and
    
    Temperature-Controlled Logistics Segment.
 80




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##### Table of Contents




    
    Office Segmentconsisted of 71 office properties, which we refer to as the Office
Properties, located in 26 metropolitan submarkets in eight states, with an aggregate of
approximately 27.6 million net rentable square feet. Fifty-four of the Office
Properties are wholly-owned and 17 are owned through joint ventures, one of which is
consolidated and 16 of which are unconsolidated.
    
    Resort Residential Development Segmentconsisted of our ownership of common stock
representing interests of 98% to 100% in four Resort Residential Development
Corporations and two limited partnerships, which are consolidated. These Resort
Residential Development Corporations, through partnership arrangements, owned in whole
or in part, 30 active and planned upscale resort residential development properties,
which we refer to as the Resort Residential Development Properties.
    
    Resort/Hotel Segmentconsisted of five luxury and destination fitness resorts and
spas with a total of 949 rooms/guest nights and three upscale business-class hotel
properties with a total of 1,376 rooms, which we refer to as the Resort/Hotel
Properties. Five of the Resort/Hotel Properties are wholly-owned, one is owned through
a joint venture that is consolidated and two are owned through joint ventures that are
unconsolidated.
    
    Temperature-Controlled Logistics Segmentconsisted of our 31.7% interest in
AmeriCold Realty Trust, or AmeriCold, a REIT. As of December 31, 2006, AmeriCold
operated 104 facilities, of which 91 were wholly-owned or leased, one was partially-owned and 12
were managed for outside owners. The 92 owned or leased and partially-owned facilities, which we
refer to as the Temperature-Controlled Logistics Properties, had an aggregate of
approximately 497.8 million cubic feet (19.0 million square feet) of warehouse space.
AmeriCold also owned one quarry and the related land.
 Basis of Presentation
  Restatement of Financial Data
  Calculation of Minority Interest
   81




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##### Table of Contents



Refundable Fees for Club Member Services
  Revenue Recognition
 Classification of Club Membership Intangible Asset
 Goodwill and Other Intangible Assets,
  (dollars in thousands)
    
    Accumulated (Deficit)Balance at December 31, 2003 (as previously reported)
    
    $
    (877,120
    )Effect of Calculation of Minority Interest
    
    
    4,969Effect of Refundable fees for Club Member Services
    
    
    (4,063
    )Effect of Classification of Club Membership Intangible Asset
    
    
    (3,476
    )Balance at December 31, 2003 (Restated)
    
    $
    (879,690
    )
  82




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##### Table of Contents



Consolidated Balance Sheet
 For year ended December 31, 2005As ReportedAs
    
    
    
    
    
    
    withPreviously
    
    
    Discontinued
    
    
    Discontinued
    
    
    RestatementReported
    
    
    Operations
    
    
    Operations
    
    
    Adjustments
    
    
    As RestatedASSETS:Investments in real estate:Land
    
    $
    186,878
    
    
    $
    (3,650
    )
    
    $
    183,228
    
    
    $
    
    
    
    $
    183,228Land improvements
    
    
    100,278
    
    
    
    
    
    
    
    100,278
    
    
    
    
    
    
    
    100,278Accumulated Depreciation
    
    
    (29,784
    )
    
    
    
    
    
    
    (29,784
    )
    
    
    
    
    
    
    (29,784
    )Buildings and improvements
    
    
    2,245,064
    
    
    
    (54,305
    )
    
    
    2,190,759
    
    
    
    
    
    
    
    2,190,759Accumulated Depreciation
    
    
    (464,049
    )
    
    
    7,421
    
    
    
    (456,628
    )
    
    
    
    
    
    
    (456,628
    )Furniture, fixtures and equipment
    
    
    71,365
    
    
    
    (218
    )
    
    
    71,147
    
    
    
    
    
    
    
    71,147Accumulated Depreciation
    
    
    (34,129
    )
    
    
    
    
    
    
    (34,129
    )
    
    
    
    
    
    
    (34,129
    )Land held for investment or development
    
    
    574,527
    
    
    
    (61,487
    )
    
    
    513,040
    
    
    
    
    
    
    
    513,040Properties held for disposition, net
    
    
    4,137
    
    
    
    114,068
    
    
    
    118,205
    
    
    
    
    
    
    
    118,205Net investment in real estate
    
    $
    2,654,287
    
    
    $
    1,829
    
    
    $
    2,656,116
    
    
    $
    
    
    
    
    2,656,116Cash and cash equivalents
    
    
    86,228
    
    
    
    
    
    
    
    86,228
    
    
    
    
    
    
    
    86,228Restricted cash and cash equivalents
    
    
    84,699
    
    
    
    
    
    
    
    84,699
    
    
    
    
    
    
    
    84,699Defeasance investments
    
    
    274,134
    
    
    
    
    
    
    
    274,134
    
    
    
    
    
    
    
    274,134Accounts receivable, net
    
    
    56,356
    
    
    
    
    
    
    
    56,356
    
    
    
    
    
    
    
    56,356Deferred rent receivable
    
    
    70,201
    
    
    
    (127
    )
    
    
    70,074
    
    
    
    
    
    
    
    70,074Investments in unconsolidated companies
    
    
    393,535
    
    
    
    
    
    
    
    393,535
    
    
    
    
    
    
    
    393,535Notes receivable, net
    
    
    219,016
    
    
    
    
    
    
    
    219,016
    
    
    
    
    
    
    
    219,016Income tax asset  current and deferred
    
    
    8,291
    
    
    
    
    
    
    
    8,291
    
    
    
    2,441
    
    
    
    10,732Other assets, net
    
    
    295,115
    
    
    
    (1,702
    )
    
    
    293,413
    
    
    
    18,953
    
    
    
    312,366Total assets
    
    $
    4,141,862
    
    
    $
    
    
    
    $
    4,141,862
    
    
    $
    21,394
    
    
    
    4,163,256LIABILITIES:Borrowings under Credit Facility
    
    $
    234,000
    
    
    $
    
    
    
    $
    234,000
    
    
    $
    
    
    
    $
    234,000Notes
payable
    
    
    1,948,152
    
    
    
    (14,606
    )
    
    
    1,933,546
    
    
    
    
    
    
    
    1,933,546Notes
payable, accounts payable, accrued expenses and other liabilities, properties held for disposition
    
    
    
    
    
    
    19,306
    
    
    
    19,306
    
    
    
    
    
    
    
    19,306Junior subordinated notes
    
    
    77,321
    
    
    
    
    
    
    
    77,321
    
    
    
    
    
    
    
    77,321Accounts payable, accrued expenses and other
liabilities
    
    
    471,920
    
    
    
    (4,700
    )
    
    
    467,220
    
    
    
    28,698
    
    
    
    495,918Income tax liability  current and deferred
    
    
    1,093
    
    
    
    
    
    
    
    1,093
    
    
    
    (1,093
    )
    
    
    Total liabilities
    
    $
    2,732,486
    
    
    $
    
    
    
    $
    2,732,486
    
    
    $
    27,605
    
    
    
    2,760,091COMMITMENTS AND CONTINGENCIESMINORITY INTERESTS:Operating partnership units
    
    $
    113,819
    
    
    $
    
    
    
    $
    113,819
    
    
    $
    (15,160
    )
    
    $
    98,659Consolidated real estate partnerships
    
    
    53,562
    
    
    
    
    
    
    
    53,562
    
    
    
    (682
    )
    
    
    52,880Total minority interests
    
    $
    167,381
    
    
    $
    
    
    
    $
    167,381
    
    
    $
    (15,842
    )
    
    
    151,539SHAREHOLDERS EQUITY:Preferred shares:Series A Convertible Cumulative Preferred
Shares
    
    $
    319,166
    
    
    $
    
    
    
    $
    319,166
    
    
    $
    
    
    
    $
    319,166Series B Cumulative Redeemable Preferred
Shares
    
    
    81,923
    
    
    
    
    
    
    
    81,923
    
    
    
    
    
    
    
    81,923Common shares
    
    
    1,266
    
    
    
    
    
    
    
    1,266
    
    
    
    
    
    
    
    1,266Additional paid-in capital
    
    
    2,271,888
    
    
    
    
    
    
    
    2,271,888
    
    
    
    
    
    
    
    2,271,888Deferred compensation on restricted shares
    
    
    (1,182
    )
    
    
    
    
    
    
    (1,182
    )
    
    
    
    
    
    
    (1,182
    )Accumulated deficit
    
    
    (972,319
    )
    
    
    
    
    
    
    (972,319
    )
    
    
    9,631
    
    
    
    (962,688
    )Accumulated other comprehensive (loss) income
    
    
    1,385
    
    
    
    
    
    
    
    1,385
    
    
    
    
    
    
    
    1,385$
    1,702,127
    
    
    $
    
    
    
    $
    1,702,127
    
    
    $
    9,631
    
    
    
    1,711,758Less  shares held in treasury
    
    
    (460,132
    )
    
    
    
    
    
    
    (460,132
    )
    
    
    
    
    
    
    (460,132
    )Total shareholders equity
    
    $
    1,241,995
    
    
    $
    
    
    
    $
    1,241,995
    
    
    $
    9,631
    
    
    
    1,251,626Total liabilities and shareholders equity
    
    $
    4,141,862
    
    
    $
    
    
    
    $
    4,141,862
    
    
    $
    21,394
    
    
    
    4,163,256
 83




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##### Table of Contents



Consolidated Statement of Operations
 For the year ended December 31, 2005As ReportedAs
    
    
    
    
    
    
    withPreviously
    
    
    Discontinued
    
    
    Discontinued
    
    
    Restatement
    
    
    AsReported
    
    
    Operations
    
    
    Operations
    
    
    Adjustments
    
    
    RestatedREVENUE:Office Property
    
    $
    377,337
    
    
    $
    (4,578
    )
    
    $
    372,759
    
    
    $
    
    
    
    $
    372,759Resort Residential Development Property
    
    
    503,568
    
    
    
    
    
    
    
    503,568
    
    
    
    (845
    )
    
    
    502,723Resort/Hotel Property
    
    
    142,618
    
    
    
    
    
    
    
    142,618
    
    
    
    
    
    
    
    142,618Total Property Revenue
    
    $
    1,023,523
    
    
    $
    (4,578
    )
    
    $
    1,018,945
    
    
    $
    (845
    )
    
    $
    1,018,100EXPENSE:Office Property real estate taxes
    
    $
    39,195
    
    
    $
    (1,133
    )
    
    $
    38,062
    
    
    $
    
    
    
    $
    38,062Office Property operating expenses
    
    
    160,077
    
    
    
    (2,358
    )
    
    
    157,719
    
    
    
    
    
    
    
    157,719Resort Residential Development Property expense
    
    
    432,620
    
    
    
    (6
    )
    
    
    432,614
    
    
    
    (411
    )
    
    
    432,203Resort/Hotel Property expense
    
    
    111,277
    
    
    
    
    
    
    
    111,277
    
    
    
    
    
    
    
    111,277Total Property Expense
    
    $
    743,169
    
    
    $
    (3,497
    )
    
    $
    739,672
    
    
    $
    (411
    )
    
    $
    739,261Income from Property Operations
    
    $
    280,354
    
    
    $
    (1,081
    )
    
    $
    279,273
    
    
    $
    (434
    )
    
    $
    278,839OTHER INCOME (EXPENSE):Income from sale of investment in unconsolidated company
    
    $
    29,934
    
    
    $
    
    
    
    $
    29,934
    
    
    $
    
    
    
    $
    29,934Income from investment land sales
    
    
    8,622
    
    
    
    
    
    
    
    8,622
    
    
    
    
    
    
    
    8,622Loss on joint venture of properties
    
    
    (2,743
    )
    
    
    
    
    
    
    (2,743
    )
    
    
    
    
    
    
    (2,743
    )Interest and other income
    
    
    29,250
    
    
    
    
    
    
    
    29,250
    
    
    
    
    
    
    
    29,250Corporate general and administrative
    
    
    (50,363
    )
    
    
    
    
    
    
    (50,363
    )
    
    
    
    
    
    
    (50,363
    )Interest expense
    
    
    (136,664
    )
    
    
    
    
    
    
    (136,664
    )
    
    
    
    
    
    
    (136,664
    )Amortization of deferred financing costs
    
    
    (8,108
    )
    
    
    
    
    
    
    (8,108
    )
    
    
    
    
    
    
    (8,108
    )Extinguishment of debt
    
    
    (2,161
    )
    
    
    
    
    
    
    (2,161
    )
    
    
    
    
    
    
    (2,161
    )Depreciation and amortization
    
    
    (146,173
    )
    
    
    1,389
    
    
    
    (144,784
    )
    
    
    3,418
    
    
    
    (141,366
    )Impairment charges related to real estate assets
    
    
    (1,047
    )
    
    
    1,047
    
    
    
    
    
    
    
    
    
    
    
    Other expenses
    
    
    (3,964
    )
    
    
    
    
    
    
    (3,964
    )
    
    
    
    
    
    
    (3,964
    )Equity in net income (loss) of unconsolidated companies:Office Properties
    
    
    11,464
    
    
    
    
    
    
    
    11,464
    
    
    
    
    
    
    
    11,464Resort Residential Development Properties
    
    
    (491
    )
    
    
    
    
    
    
    (491
    )
    
    
    
    
    
    
    (491
    )Resort/Hotel Properties
    
    
    (1,541
    )
    
    
    
    
    
    
    (1,541
    )
    
    
    
    
    
    
    (1,541
    )Temperature-Controlled Logistics Properties
    
    
    234
    
    
    
    
    
    
    
    234
    
    
    
    
    
    
    
    234Other
    
    
    17,885
    
    
    
    
    
    
    
    17,885
    
    
    
    
    
    
    
    17,885Total other income (expense)
    
    $
    (255,866
    )
    
    $
    2,436
    
    
    $
    (253,430
    )
    
    $
    3,418
    
    
    $
    (250,012
    )INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS
 AND INCOME TAXES
    
    $
    24,488
    
    
    $
    1,355
    
    
    $
    25,843
    
    
    $
    2,984
    
    
    $
    28,827Minority interests
    
    
    (15,239
    )
    
    
    (204
    )
    
    
    (15,443
    )
    
    
    4,376
    
    
    
    (11,067
    )Income tax expense
    
    
    (7,378
    )
    
    
    (2
    )
    
    
    (7,380
    )
    
    
    (1,082
    )
    
    
    (8,462
    )INCOME BEFORE DISCONTINUED OPERATIONS AND CUMULATIVE EFFECT
 OF A CHANGE IN ACCOUNTING PRINCIPLE
    
    $
    1,871
    
    
    $
    1,149
    
    
    $
    3,020
    
    
    $
    6,278
    
    
    $
    9,298Income from discontinued operations, net of minority
interests and taxes
    
    
    4,266
    
    
    
    (260
    )
    
    
    4,006
    
    
    
    
    
    
    
    4,006Impairment charges related to real estate assets from
discontinued operations, net of minority interests
    
    
    (64
    )
    
    
    (889
    )
    
    
    (953
    )
    
    
    
    
    
    
    (953
    )Gain on sale of real estate from discontinued
operations, net of minority interest
    
    
    89,234
    
    
    
    
    
    
    
    89,234
    
    
    
    
    
    
    
    89,234NET INCOME
    
    $
    95,307
    
    
    $
    
    
    
    $
    95,307
    
    
    $
    6,278
    
    
    $
    101,585Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    
    
    
    
    (23,963
    )
    
    
    
    
    
    
    (23,963
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
    
    $
    63,269
    
    
    $
    
    
    
    $
    63,269
    
    
    $
    6,278
    
    
    $
    69,547
 84




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##### Table of Contents



For the year ended December 31, 2005As ReportedAs
    
    
    
    
    
    
    withPreviously
    
    
    Discontinued
    
    
    Discontinued
    
    
    Restatement
    
    
    AsReported
    
    
    Operations
    
    
    Operations
    
    
    Adjustments
    
    
    RestatedBASIC EARNINGS PER SHARE DATA:Loss available to
common shareholders before
discontinued operations and
cumulative effect of a change
in accounting principle
    
    $
    (0.30
    )
    
    $
    0.01
    
    
    $
    (0.29
    )
    
    $
    0.06
    
    
    $
    (0.23
    )Income from discontinued
operations, net of minority
interests
    
    
    0.04
    
    
    
    
    
    
    
    0.04
    
    
    
    
    
    
    
    0.04Impairment charges related to
real estate assets from
discontinued operations, net
of minority interests
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )Gain on sale of real estate
from discontinued operations,
net of minority interests
    
    
    0.89
    
    
    
    
    
    
    
    0.89
    
    
    
    
    
    
    
    0.89Net income available
to common shareholders 
basic
    
    $
    0.63
    
    
    $
    
    
    
    $
    0.63
    
    
    $
    0.06
    
    
    $
    0.69DILUTED EARNINGS PER SHARE DATA:Loss available to
common shareholders before
discontinued operations and
cumulative effect of a change
in accounting principle
    
    $
    (0.30
    )
    
    $
    0.01
    
    
    $
    (0.29
    )
    
    $
    0.06
    
    
    $
    (0.23
    )Income from discontinued
operations, net of minority
interests
    
    
    0.04
    
    
    
    
    
    
    
    0.04
    
    
    
    
    
    
    
    0.04Impairment charges related to
real estate assets from
discontinued operations, net
of minority interests
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )Gain on sale of real estate
from discontinued operations,
net of minority interests
    
    
    0.89
    
    
    
    
    
    
    
    0.89
    
    
    
    
    
    
    
    0.89Net income available
to common shareholders 
diluted
    
    $
    0.63
    
    
    $
    
    
    
    $
    0.63
    
    
    $
    0.06
    
    
    $
    0.69
 85




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##### Table of Contents



Consolidated Statements of Operations
 For year ended December 31, 2004As ReportedAs
    
    
    
    
    
    
    withPreviously
    
    
    Discontinued
    
    
    Discontinued
    
    
    Restatement
    
    
    AsReported
    
    
    Operations
    
    
    Operations
    
    
    Adjustments
    
    
    RestatedREVENUE:Office Property
    
    $
    481,710
    
    
    $
    (5,913
    )
    
    $
    475,797
    
    
    $
    
    
    
    $
    475,797Resort Residential Development Property
    
    
    311,197
    
    
    
    
    
    
    
    311,197
    
    
    
    (1,252
    )
    
    
    309,945Resort/Hotel Property
    
    
    214,531
    
    
    
    
    
    
    
    214,531
    
    
    
    
    
    
    
    214,531Total Property Revenue
    
    $
    1,007,438
    
    
    $
    (5,913
    )
    
    $
    1,001,525
    
    
    $
    (1,252
    )
    
    $
    1,000,273EXPENSE:Office Property real estate taxes
    
    $
    58,776
    
    
    $
    (1,383
    )
    
    $
    57,393
    
    
    $
    
    
    
    $
    57,393Office Property operating expenses
    
    
    179,413
    
    
    
    (2,645
    )
    
    
    176,768
    
    
    
    
    
    
    
    176,768Resort Residential Development Property expense
    
    
    271,819
    
    
    
    (52
    )
    
    
    271,767
    
    
    
    (457
    )
    
    
    271,310Resort/Hotel Property expense
    
    
    179,825
    
    
    
    
    
    
    
    179,825
    
    
    
    
    
    
    
    179,825Total Property Expense
    
    $
    689,833
    
    
    $
    (4,080
    )
    
    $
    685,753
    
    
    $
    (457)
    
    
    $
    685,296Income from Property Operations
    
    $
    317,605
    
    
    $
    (1,833
    )
    
    $
    315,772
    
    
    $
    (795)
    
    
    $
    314,977OTHER INCOME (EXPENSE):Income from investment land sales
    
    $
    18,879
    
    
    $
    
    
    
    $
    18,879
    
    
    $
    
    
    
    $
    18,879Gain on joint venture of properties
    
    
    265,772
    
    
    
    
    
    
    
    265,772
    
    
    
    
    
    
    
    265,772Interest and other income
    
    
    18,005
    
    
    
    
    
    
    
    18,005
    
    
    
    
    
    
    
    18,005Corporate general and administrative
    
    
    (38,889
    )
    
    
    
    
    
    
    (38,889
    )
    
    
    
    
    
    
    (38,889
    )Interest expense
    
    
    (176,771
    )
    
    
    
    
    
    
    (176,771
    )
    
    
    
    
    
    
    (176,771
    )Amortization of deferred financing costs
    
    
    (13,056
    )
    
    
    
    
    
    
    (13,056
    )
    
    
    
    
    
    
    (13,056
    )Extinguishment of debt
    
    
    (42,608
    )
    
    
    
    
    
    
    (42,608
    )
    
    
    
    
    
    
    (42,608
    )Depreciation and amortization
    
    
    (164,056
    )
    
    
    1,084
    
    
    
    (162,972
    )
    
    
    3,074
    
    
    
    (159,898
    )Impairment charges related to real estate assets
    
    
    (4,094
    )
    
    
    
    
    
    
    (4,094
    )
    
    
    
    
    
    
    (4,094
    )Other expenses
    
    
    (725
    )
    
    
    
    
    
    
    (725
    )
    
    
    
    
    
    
    (725
    )Equity in net income (loss) of unconsolidated
companies:Office Properties
    
    
    6,262
    
    
    
    
    
    
    
    6,262
    
    
    
    
    
    
    
    6,262Resort Residential Development Properties
    
    
    (2,266
    )
    
    
    
    
    
    
    (2,266
    )
    
    
    
    
    
    
    (2,266
    )Resort/Hotel Properties
    
    
    (245
    )
    
    
    
    
    
    
    (245
    )
    
    
    
    
    
    
    (245
    )Temperature-Controlled Logistics Properties
    
    
    6,153
    
    
    
    
    
    
    
    6,153
    
    
    
    
    
    
    
    6,153Other
    
    
    (280
    )
    
    
    
    
    
    
    (280
    )
    
    
    
    
    
    
    (280
    )Total other income (expense)
    
    $
    (127,919
    )
    
    $
    1,084
    
    
    $
    (126,835
    )
    
    $
    3,074
    
    
    $
    (123,761
    )INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY
INTERESTS AND INCOME TAXES
    
    $
    189,686
    
    
    $
    (749
    )
    
    $
    188,937
    
    
    $
    2,279
    
    
    $
    191,216Minority interests
    
    
    (37,294
    )
    
    
    117
    
    
    
    (37,177
    )
    
    
    4,471
    
    
    
    (32,706
    )Income tax benefit (expense)
    
    
    13,078
    
    
    
    (20
    )
    
    
    13,058
    
    
    
    (827
    )
    
    
    12,231INCOME BEFORE DISCONTINUED OPERATIONS AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
    
    $
    165,470
    
    
    $
    (652
    )
    
    $
    164,818
    
    
    $
    5,923
    
    
    $
    170,741Income from discontinued operations, net of
minority interests and taxes
    
    
    9,755
    
    
    
    652
    
    
    
    10,407
    
    
    
    
    
    
    
    10,407Impairment charges related to real estate assets
from discontinued operations, net of minority
interests
    
    
    (2,978
    )
    
    
    
    
    
    
    (2,978
    )
    
    
    
    
    
    
    (2,978
    )Gain on sale of real estate from discontinued
operations, net of minority interest and taxes
    
    
    1,052
    
    
    
    
    
    
    
    1,052
    
    
    
    
    
    
    
    1,052Cumulative effect of a change in accounting
principle, net of minority interests
    
    
    (363
    )
    
    
    
    
    
    
    (363
    )
    
    
    
    
    
    
    (363
    )NET INCOME
    
    $
    172,936
    
    
    $
    
    
    
    $
    172,936
    
    
    $
    5,923
    
    
    $
    178,859Series A Preferred Share distributions
    
    
    (23,723
    )
    
    
    
    
    
    
    (23,723
    )
    
    
    
    
    
    
    (23,723
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
    
    $
    141,138
    
    
    $
    
    
    
    $
    141,138
    
    
    $
    5,923
    
    
    $
    147,061
 86




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##### Table of Contents



For the year ended December 31, 2004As ReportedAs
    
    
    
    
    
    
    withPreviously
    
    
    Discontinued
    
    
    Discontinued
    
    
    Restatement
    
    
    AsReported
    
    
    Operations
    
    
    Operations
    
    
    Adjustments
    
    
    RestatedBASIC EARNINGS PER SHARE DATA:Income available to common
shareholders before
discontinued operations and
cumulative effect of a change
in accounting principle
    
    $
    1.35
    
    
    $
    (0.01
    )
    
    $
    1.34
    
    
    $
    0.06
    
    
    $
    1.40Income from discontinued
operations, net of minority
interests and taxes
    
    
    0.10
    
    
    
    0.01
    
    
    
    0.11
    
    
    
    
    
    
    
    0.11Impairment charges related to
real estate assets from
discontinued operations, net
of minority interests
    
    
    (0.03
    )
    
    
    
    
    
    
    (0.03
    )
    
    
    
    
    
    
    (0.03
    )Gain on sale of real estate
from discontinued operations,
net of minority interests and
taxes
    
    
    0.01
    
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    0.01Net income available
to common shareholders -
basic
    
    $
    1.43
    
    
    $
    
    
    
    $
    1.43
    
    
    $
    0.06
    
    
    $
    1.49DILUTED EARNINGS PER SHARE DATA:Income available to common
shareholders before
discontinued operations and
cumulative effect of a change
in accounting principle
    
    $
    1.34
    
    
    $
    
    
    
    $
    1.34
    
    
    $
    0.06
    
    
    $
    1.40Income from discontinued
operations, net of minority
interests and taxes
    
    
    0.10
    
    
    
    
    
    
    
    0.10
    
    
    
    
    
    
    
    0.10Impairment charges related to
real estate assets from
discontinued operations, net
of minority interests
    
    
    (0.03
    )
    
    
    
    
    
    
    (0.03
    )
    
    
    
    
    
    
    (0.03
    )Gain on sale of real estate
from discontinued operations,
net of minority interests and
taxes
    
    
    0.01
    
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    0.01Net income available
to common shareholders -
diluted
    
    $
    1.42
    
    
    $
    
    
    
    $
    1.42
    
    
    $
    0.06
    
    
    $
    1.48
 87




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##### Table of Contents



Consolidated Statement of Cash Flows
 For
year ended December 31, 2005As ReportedwithAs Previously
    
    
    Discontinued
    
    
    Discontinued
    
    
    Restatement
    
    
    AsReported
    
    
    Operations
    
    
    Operations
    
    
    Adjustments
    
    
    RestatedCASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    95,307
    
    
    $
    
    
    
    $
    95,307
    
    
    $
    6,278
    
    
    $
    101,585Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    156,870
    
    
    
    
    
    
    
    156,870
    
    
    
    (3,418
    )
    
    
    153,452Extinguishment of debt
    
    
    2,271
    
    
    
    
    
    
    
    2,271
    
    
    
    
    
    
    
    2,271Resort Residential Development cost of sales
    
    
    311,050
    
    
    
    
    
    
    
    311,050
    
    
    
    
    
    
    
    311,050Resort Residential Development capital expenditures
    
    
    (356,603
    )
    
    
    
    
    
    
    (356,603
    )
    
    
    
    
    
    
    (356,603
    )Impairment charges related to real estate assets
    
    
    1,122
    
    
    
    
    
    
    
    1,122
    
    
    
    
    
    
    
    1,122Income from investment land sales
    
    
    (8,622
    )
    
    
    
    
    
    
    (8,622
    )
    
    
    
    
    
    
    (8,622
    )Loss on joint venture of properties, net
    
    
    2,743
    
    
    
    
    
    
    
    2,743
    
    
    
    
    
    
    
    2,743Gain on property sales, net
    
    
    (105,258
    )
    
    
    
    
    
    
    (105,258
    )
    
    
    
    
    
    
    (105,258
    )Income from sale of investment in unconsolidated company
    
    
    (29,934
    )
    
    
    
    
    
    
    (29,934
    )
    
    
    
    
    
    
    (29,934
    )Minority interests
    
    
    31,870
    
    
    
    
    
    
    
    31,870
    
    
    
    (4,376
    )
    
    
    27,494Non-cash compensation
    
    
    13,236
    
    
    
    
    
    
    
    13,236
    
    
    
    
    
    
    
    13,236Amortization of debt premiums
    
    
    (2,452
    )
    
    
    
    
    
    
    (2,452
    )
    
    
    
    
    
    
    (2,452
    )Equity in earnings from unconsolidated companies
    
    
    (27,551
    )
    
    
    
    
    
    
    (27,551
    )
    
    
    
    
    
    
    (27,551
    )Ownership portion of management fees from unconsolidated companies
    
    
    6,609
    
    
    
    
    
    
    
    6,609
    
    
    
    
    
    
    
    6,609Distributions received from unconsolidated companies
    
    
    30,992
    
    
    
    
    
    
    
    30,992
    
    
    
    
    
    
    
    30,992Change in assets and liabilities, net of effect of consolidations, acquisitions and dispositions:Restricted cash and cash equivalents
    
    
    (1,626
    )
    
    
    
    
    
    
    (1,626
    )
    
    
    
    
    
    
    (1,626
    )Accounts receivable and notes receivable
    
    
    886
    
    
    
    
    
    
    
    886
    
    
    
    
    
    
    
    886Deferred rent receivable
    
    
    (14,562
    )
    
    
    
    
    
    
    (14,562
    )
    
    
    
    
    
    
    (14,562
    )Income tax
asset -current and deferred, net
    
    
    5,548
    
    
    
    
    
    
    
    5,548
    
    
    
    2,175
    
    
    
    7,723Other assets
    
    
    (25,580
    )
    
    
    
    
    
    
    (25,580
    )
    
    
    2,411
    
    
    
    (23,169
    )Accounts payable, accrued expenses and other liabilities
    
    
    53,313
    
    
    
    
    
    
    
    53,313
    
    
    
    (3,070
    )
    
    
    50,243Net cash provided by operating activities
    
    $
    139,629
    
    
    $
    
    
    
    $
    139,629
    
    
    $
    
    
    
    $
    139,629CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from property sales
    
    $
    236,725
    
    
    $
    
    
    
    $
    236,725
    
    
    $
    
    
    
    $
    236,725Proceeds from sale of investment in unconsolidated company and related property sales
    
    
    32,237
    
    
    
    
    
    
    
    32,237
    
    
    
    
    
    
    
    32,237Proceeds from joint venture partners
    
    
    144,193
    
    
    
    
    
    
    
    144,193
    
    
    
    
    
    
    
    144,193Acquisition of investment properties
    
    
    (192,154
    )
    
    
    
    
    
    
    (192,154
    )
    
    
    
    
    
    
    (192,154
    )Development of investment properties
    
    
    (83,961
    )
    
    
    
    
    
    
    (83,961
    )
    
    
    
    
    
    
    (83,961
    )Property improvements  Office Properties
    
    
    (20,131
    )
    
    
    
    
    
    
    (20,131
    )
    
    
    
    
    
    
    (20,131
    )Property improvements  Resort/Hotel Properties
    
    
    (4,707
    )
    
    
    
    
    
    
    (4,707
    )
    
    
    
    
    
    
    (4,707
    )Tenant improvement and leasing costs  Office Properties
    
    
    (65,540
    )
    
    
    
    
    
    
    (65,540
    )
    
    
    
    
    
    
    (65,540
    )Resort Residential Development Properties investments
    
    
    (32,876
    )
    
    
    
    
    
    
    (32,876
    )
    
    
    
    
    
    
    (32,876
    )Increase in restricted cash and cash equivalents
    
    
    (4,531
    )
    
    
    
    
    
    
    (4,531
    )
    
    
    
    
    
    
    (4,531
    )Purchases of defeasance investments and other securities
    
    
    (115,710
    )
    
    
    
    
    
    
    (115,710
    )
    
    
    
    
    
    
    (115,710
    )Proceeds from defeasance investment maturities and other securities
    
    
    23,273
    
    
    
    
    
    
    
    23,273
    
    
    
    
    
    
    
    23,273Return of investment in unconsolidated companies
    
    
    18,785
    
    
    
    
    
    
    
    18,785
    
    
    
    
    
    
    
    18,785Investment in unconsolidated companies
    
    
    (17,118
    )
    
    
    
    
    
    
    (17,118
    )
    
    
    
    
    
    
    (17,118
    )Increase in notes receivable
    
    
    (116,843
    )
    
    
    
    
    
    
    (116,843
    )
    
    
    
    
    
    
    (116,843
    )Net cash used in investing activities
    
    $
    (198,358
    )
    
    $
    
    
    
    $
    (198,358
    )
    
    $
    
    
    
    $
    (198,358
    )CASH FLOWS FROM FINANCING ACTIVITIES:Debt financing costs
    
    $
    (15,659
    )
    
    $
    
    
    
    $
    (15,659
    )
    
    $
    
    
    
    $
    (15,659
    )Borrowings under Credit Facility
    
    
    758,300
    
    
    
    
    
    
    
    758,300
    
    
    
    
    
    
    
    758,300Payments under Credit Facility
    
    
    (666,800
    )
    
    
    
    
    
    
    (666,800
    )
    
    
    
    
    
    
    (666,800
    )Notes payable proceeds
    
    
    387,200
    
    
    
    
    
    
    
    387,200
    
    
    
    
    
    
    
    387,200Notes payable payments
    
    
    (346,968
    )
    
    
    
    
    
    
    (346,968
    )
    
    
    
    
    
    
    (346,968
    )Junior subordinated notes
    
    
    77,321
    
    
    
    
    
    
    
    77,321
    
    
    
    
    
    
    
    77,321Resort Residential Development Properties note payable borrowings
    
    
    257,411
    
    
    
    
    
    
    
    257,411
    
    
    
    
    
    
    
    257,411Resort Residential Development Properties note payable payments
    
    
    (198,540
    )
    
    
    
    
    
    
    (198,540
    )
    
    
    
    
    
    
    (198,540
    )Capital distributions to joint venture partner
    
    
    (18,516
    )
    
    
    
    
    
    
    (18,516
    )
    
    
    
    
    
    
    (18,516
    )Capital contributions from joint venture partner
    
    
    7,834
    
    
    
    
    
    
    
    7,834
    
    
    
    
    
    
    
    7,834Proceeds from exercise of share and unit options
    
    
    21,995
    
    
    
    
    
    
    
    21,995
    
    
    
    
    
    
    
    21,995Reissuance of Treasury Shares
    
    
    16
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    16Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    
    
    
    
    (23,963
    )
    
    
    
    
    
    
    (23,963
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )Dividends and unitholder distributions
    
    
    (178,890
    )
    
    
    
    
    
    
    (178,890
    )
    
    
    
    
    
    
    (178,890
    )Net cash provided by financing activities
    
    $
    52,666
    
    
    $
    
    
    
    $
    52,666
    
    
    $
    
    
    
    $
    52,666DECREASE IN CASH AND CASH EQUIVALENTS
    
    $
    (6,063
    )
    
    $
    
    
    
    $
    (6,063
    )
    
    $
    
    
    
    $
    (6,063
    )CASH AND CASH EQUIVALENTS, Beginning of period
    
    
    92,291
    
    
    
    
    
    
    
    92,291
    
    
    
    
    
    
    
    92,291CASH AND CASH EQUIVALENTS, End of period
    
    $
    86,228
    
    
    $
    
    
    
    $
    86,228
    
    
    $
    
    
    
    $
    86,228
 88




---



##### Table of Contents



Consolidated Statements of Cash Flows
 For year ended December 31, 2004As ReportedAs
    
    
    
    
    
    
    withPreviously
    
    
    Discontinued
    
    
    Discontinued
    
    
    Restatement
    
    
    AsReported
    
    
    Operations
    
    
    Operations
    
    
    Adjustments
    
    
    RestatedCASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    172,936
    
    
    $
    
    
    
    $
    172,936
    
    
    $
    5,923
    
    
    $
    178,859Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    183,873
    
    
    
    
    
    
    
    183,873
    
    
    
    (3,074
    )
    
    
    180,799Extinguishment of debt
    
    
    6,459
    
    
    
    
    
    
    
    6,459
    
    
    
    
    
    
    
    6,459Resort Residential Development cost of sales
    
    
    161,853
    
    
    
    
    
    
    
    161,853
    
    
    
    
    
    
    
    161,853Resort Residential Development capital expenditures
    
    
    (202,767
    )
    
    
    
    
    
    
    (202,767
    )
    
    
    
    
    
    
    (202,767
    )Impairment charges related to real estate assets
    
    
    7,605
    
    
    
    
    
    
    
    7,605
    
    
    
    
    
    
    
    7,605Income from investment land sales
    
    
    (18,879
    )
    
    
    
    
    
    
    (18,879
    )
    
    
    
    
    
    
    (18,879
    )Gain on joint venture of properties
    
    
    (265,772
    )
    
    
    
    
    
    
    (265,772
    )
    
    
    
    
    
    
    (265,772
    )Gain on
property sales, net
    
    
    (1,241
    )
    
    
    
    
    
    
    (1,241
    )
    
    
    
    
    
    
    (1,241
    )Minority interests
    
    
    38,688
    
    
    
    
    
    
    
    38,688
    
    
    
    (4,471
    )
    
    
    34,217Cumulative effect of a change in accounting principle, net of minority interests
    
    
    363
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    363Non-cash compensation
    
    
    1,737
    
    
    
    
    
    
    
    1,737
    
    
    
    
    
    
    
    1,737Amortization of debt premiums
    
    
    (2,386
    )
    
    
    
    
    
    
    (2,386
    )
    
    
    
    
    
    
    (2,386
    )Equity in earnings from unconsolidated companies
    
    
    (9,624
    )
    
    
    
    
    
    
    (9,624
    )
    
    
    
    
    
    
    (9,624
    )Ownership portion of management fees from unconsolidated companies
    
    
    1,833
    
    
    
    
    
    
    
    1,833
    
    
    
    
    
    
    
    1,833Distributions received from unconsolidated companies
    
    
    7,982
    
    
    
    
    
    
    
    7,982
    
    
    
    
    
    
    
    7,982Change in assets and liabilities, net of effect of consolidations, acquisitions and dispositions:Restricted cash and cash equivalents
    
    
    54,889
    
    
    
    
    
    
    
    54,889
    
    
    
    
    
    
    
    54,889Accounts receivable and notes receivable
    
    
    (17,924
    )
    
    
    
    
    
    
    (17,924
    )
    
    
    
    
    
    
    (17,924
    )Deferred rent receivable
    
    
    (16,246
    )
    
    
    
    
    
    
    (16,246
    )
    
    
    
    
    
    
    (16,246
    )Income tax
asset -current and deferred, net
    
    
    (21,657
    )
    
    
    
    
    
    
    (21,657
    )
    
    
    827
    
    
    
    (20,830
    )Other assets
    
    
    (23,983
    )
    
    
    
    
    
    
    (23,983
    )
    
    
    1,098
    
    
    
    (22,885
    )Accounts payable, accrued expenses and other liabilities
    
    
    34,828
    
    
    
    
    
    
    
    34,828
    
    
    
    (303
    )
    
    
    34,525Net cash provided by operating activities
    
    $
    92,567
    
    
    $
    
    
    
    $
    92,567
    
    
    $
    
    
    
    $
    92,567CASH FLOWS FROM INVESTING ACTIVITIES:Net cash impact of consolidation of previously unconsolidated entities
    
    $
    334
    
    
    $
    
    
    
    $
    334
    
    
    $
    
    
    
    $
    334Proceeds from property sales
    
    
    174,881
    
    
    
    
    
    
    
    174,881
    
    
    
    
    
    
    
    174,881Proceeds from sale of investment in unconsolidated company and related property sales
    
    
    3,229
    
    
    
    
    
    
    
    3,229
    
    
    
    
    
    
    
    3,229Proceeds from joint venture partners
    
    
    1,028,913
    
    
    
    
    
    
    
    1,028,913
    
    
    
    
    
    
    
    1,028,913Acquisition of investment properties
    
    
    (381,672
    )
    
    
    
    
    
    
    (381,672
    )
    
    
    
    
    
    
    (381,672
    )Development of investment properties
    
    
    (7,089
    )
    
    
    
    
    
    
    (7,089
    )
    
    
    
    
    
    
    (7,089
    )Property improvements  Office Properties
    
    
    (14,297
    )
    
    
    
    
    
    
    (14,297
    )
    
    
    
    
    
    
    (14,297
    )Property improvements  Resort/Hotel Properties
    
    
    (27,739
    )
    
    
    
    
    
    
    (27,739
    )
    
    
    
    
    
    
    (27,739
    )Tenant improvement and leasing costs  Office Properties
    
    
    (92,876
    )
    
    
    
    
    
    
    (92,876
    )
    
    
    
    
    
    
    (92,876
    )Resort Residential Development Properties investments
    
    
    (35,428
    )
    
    
    
    
    
    
    (35,428
    )
    
    
    
    
    
    
    (35,428
    )Decrease in restricted cash and cash equivalents
    
    
    75,395
    
    
    
    
    
    
    
    75,395
    
    
    
    
    
    
    
    75,395Purchases of defeasance investments and other securities
    
    
    (203,643
    )
    
    
    
    
    
    
    (203,643
    )
    
    
    
    
    
    
    (203,643
    )Proceeds from defeasance investment maturities and other securities
    
    
    14,560
    
    
    
    
    
    
    
    14,560
    
    
    
    
    
    
    
    14,560Return of investment in unconsolidated companies
    
    
    129,693
    
    
    
    
    
    
    
    129,693
    
    
    
    
    
    
    
    129,693Investment in unconsolidated companies
    
    
    (19,047
    )
    
    
    
    
    
    
    (19,047
    )
    
    
    
    
    
    
    (19,047
    )Increase in notes receivable
    
    
    (15,230
    )
    
    
    
    
    
    
    (15,230
    )
    
    
    
    
    
    
    (15,230
    )Net cash provided by investing activities
    
    $
    629,984
    
    
    $
    
    
    
    $
    629,984
    
    
    $
    
    
    
    $
    629,984CASH FLOWS FROM FINANCING ACTIVITIES:Debt financing costs
    
    $
    (12,918
    )
    
    $
    
    
    
    $
    (12,918
    )
    
    $
    
    
    
    $
    (12,918
    )Borrowings under Credit Facility
    
    
    530,000
    
    
    
    
    
    
    
    530,000
    
    
    
    
    
    
    
    530,000Payments under Credit Facility
    
    
    (626,500
    )
    
    
    
    
    
    
    (626,500
    )
    
    
    
    
    
    
    (626,500
    )Notes payable proceeds
    
    
    577,146
    
    
    
    
    
    
    
    577,146
    
    
    
    
    
    
    
    577,146Notes payable payments
    
    
    (1,027,661
    )
    
    
    
    
    
    
    (1,027,661
    )
    
    
    
    
    
    
    (1,027,661
    )Resort Residential Development Properties note payable borrowings
    
    
    111,672
    
    
    
    
    
    
    
    111,672
    
    
    
    
    
    
    
    111,672Resort Residential Development Properties note payable payments
    
    
    (118,495
    )
    
    
    
    
    
    
    (118,495
    )
    
    
    
    
    
    
    (118,495
    )Capital distributions to joint venture partner
    
    
    (8,565
    )
    
    
    
    
    
    
    (8,565
    )
    
    
    
    
    
    
    (8,565
    )Capital contributions from joint venture partner
    
    
    2,833
    
    
    
    
    
    
    
    2,833
    
    
    
    
    
    
    
    2,833Proceeds from exercise of share and unit options
    
    
    829
    
    
    
    
    
    
    
    829
    
    
    
    
    
    
    
    829Issuance of preferred shares-Series A
    
    
    71,006
    
    
    
    
    
    
    
    71,006
    
    
    
    
    
    
    
    71,006Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    
    
    
    
    (23,963
    )
    
    
    
    
    
    
    (23,963
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )
    
    
    
    
    
    
    (8,075
    )Dividends and unitholder distributions
    
    
    (175,621
    )
    
    
    
    
    
    
    (175,621
    )
    
    
    
    
    
    
    (175,621
    )Net cash used in financing activities
    
    $
    (708,312
    )
    
    $
    
    
    
    $
    (708,312
    )
    
    $
    
    
    
    $
    (708,312
    )INCREASE IN CASH AND CASH EQUIVALENTS
    
    $
    14,239
    
    
    $
    
    
    
    $
    14,239
    
    
    $
    
    
    
    $
    14,239CASH AND CASH EQUIVALENTS, Beginning of period
    
    
    78,052
    
    
    
    
    
    
    
    78,052
    
    
    
    
    
    
    
    78,052CASH AND CASH EQUIVALENTS, End of period
    
    $
    92,291
    
    
    $
    
    
    
    $
    92,291
    
    
    $
    
    
    
    $
    92,291
 89




---



##### Table of Contents



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Impact of New Accounting Standards
 SFAS No. 123R. Share-Based Payment Accounting for
Stock-Based Compensation Accounting for Stock Issued to Employees
 EITF 04-5. Determining
Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights
 EITF 06-3. How Taxes Collected from Customers and Remitted to Governmental Authorities Should be
Presented in the Income Statement (That Is, Gross versus Net Presentation)
 FASB Interpretation 48. Accounting for
Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109, Accounting for Income Taxes.
 90




---



##### Table of Contents



SFAS No. 157. Fair Value Measurements
 SAB No. 108. Financial Statements  Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements
 EITF 06-8. Applicability of the Assessment of a Buyers Continuing Investment under FASB
Statement No. 66 for Sales of Condominiums
 Significant Accounting Policies
 Consolidation of Variable Interest Entities. Consolidation of Variable Interest Entities
  Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited
Partnership or Similar Entity When the Limited Partners Have Certain Rights,
 91




---



##### Table of Contents



Acquisition of operating properties. Business Combinations
        Net Investments in Real Estate.
 92




---



##### Table of Contents



Buildings and Improvements
    
    2 to 46 yearsTenant Improvements
    
    Terms of leases, which approximates the
useful life of the assetFurniture, Fixtures and Equipment
    
    2 to 5 years
 Accounting for Costs and Initial Rental
Operations of Real Estate Projects Capitalization of Interest Cost
 Accounting for the Impairment or Disposal of Long-Lived Assets
 Concentration of Real Estate Investments.
 Cash and Cash Equivalents.
 Restricted Cash and Cash Equivalents.
 Allowance
for Doubtful Accounts/Credit Losses.
  Investments in Unconsolidated Companies.
 93




---



##### Table of Contents



Other Assets.
  Accounting for Certain Investments in Debt and Equity Securities
 Fair Value of Financial Instruments.
 Derivative Financial Instruments. Accounting for Derivative Instruments and
Hedging Activities
 94




---



##### Table of Contents



Gain recognition on sale of real estate assets. Accounting
for Sales of Real Estate,
 Revenue Recognition  Office Properties.
 Revenue Recognition  Resort Residential Development Properties.
 95




---



##### Table of Contents



Revenue Recognition  Resort/Hotel Properties.
 Revenue Recognition  Mezzanine Notes.
 Income Taxes .
  Use of Estimates.
 Earnings Per Share. Earnings Per Share
  96




---



##### Table of Contents



For the years ended December 31,2006
    
    2005
    
    2004(Restated)
    
    (Restated)Wtd.
    
    Per
    
    
    
    
    
    Wtd.
    
    Per
    
    
    
    
    
    Wtd.
    
    PerIncome
    
    Avg.
    
    Share
    
    Income
    
    Avg.
    
    Share
    
    Income
    
    Avg.
    
    Share(in thousands, except per share amounts)
    
    (Loss)
    
    Shares
    
    Amount
    
    (Loss)
    
    Shares
    
    Amount
    
    (Loss)
    
    Shares
    
    AmountBasic EPS -Income before discontinued operations
and cumulative effect of a change in
accounting principle
    
    $
    19,678
    
    
    
    102,055
    
    
    
    
    
    
    $
    9,298
    
    
    
    100,179
    
    
    
    
    
    
    $
    170,741
    
    
    
    99,025Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    
    
    
    
    
    
    
    
    (23,963
    )
    
    
    
    
    
    
    
    
    
    
    (23,723
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    
    
    
    
    
    
    
    
    (8,075
    )
    
    
    
    
    
    
    
    
    
    
    (8,075
    )(Loss) income available to common shareholders
before discontinued operations and cumulative
effect of a change in accounting principle
    
    $
    (12,360
    )
    
    
    102,055
    
    
    $
    (0.12
    )
    
    $
    (22,740
    )
    
    
    100,179
    
    
    $
    (0.23
    )
    
    
    138,943
    
    
    
    99,025
    
    
    $
    1.40(Loss) income from discontinued operations, net
of minority interests and taxes
    
    
    (502
    )
    
    
    
    
    
    
    (0.01
    )
    
    
    4,006
    
    
    
    
    
    
    
    0.04
    
    
    
    10,407
    
    
    
    
    
    
    
    0.11Impairment charges related to real estate
assets from discontinued operations, net of
minority interests
    
    
    (105
    )
    
    
    
    
    
    
    
    
    
    
    (953
    )
    
    
    
    
    
    
    (0.01
    )
    
    
    (2,978
    )
    
    
    
    
    
    
    (0.03
    )Gain on sale of real estate from discontinued
operations, net of minority interests and
taxes
    
    
    14,362
    
    
    
    
    
    
    
    0.14
    
    
    
    89,234
    
    
    
    
    
    
    
    0.89
    
    
    
    1,052
    
    
    
    
    
    
    
    0.01Cumulative effect of a change in accounting
principle, net of minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (363
    )
    
    
    
    
    
    
    Net income available to common
shareholders
    
    $
    1,395
    
    
    
    102,055
    
    
    $
    0.01
    
    
    $
    69,547
    
    
    
    100,179
    
    
    $
    0.69
    
    
    $
    147,061
    
    
    
    99,025
    
    
    $
    1.49
 For the years ended December 31,2006
    
    2005
    
    2004(Restated)
    
    (Restated)Wtd.
    
    Per
    
    
    
    
    
    Wtd.
    
    Per
    
    
    
    
    
    
    
    
    
    PerIncome
    
    Avg.
    
    Share
    
    Income
    
    Avg.
    
    Share
    
    Income
    
    Wtd. Avg.
    
    Share(in thousands, except per share amounts)
    
    (Loss)
    
    Shares
    
    Amount
    
    (Loss)
    
    Shares
    
    Amount
    
    (Loss)
    
    Shares
    
    AmountDiluted EPS -Income before discontinued operations
and cumulative effect of a change in
accounting principle
    
    $
    19,678
    
    
    
    102,055
    
    
    
    
    
    
    $
    9,298
    
    
    
    100,179
    
    
    
    
    
    
    $
    170,741
    
    
    
    99,025Series A Preferred Share distributions
    
    
    (23,963
    )
    
    
    
    
    
    
    
    
    
    
    (23,963
    )
    
    
    
    
    
    
    
    
    
    
    (23,723
    )Series B Preferred Share distributions
    
    
    (8,075
    )
    
    
    
    
    
    
    
    
    
    
    (8,075
    )
    
    
    
    
    
    
    
    
    
    
    (8,075
    )Effect of dilutive securities:Share and unit options
    
    
    
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    219(Loss) income available to common shareholders
before discontinued operations and cumulative
effect of a change in accounting principle
    
    $
    (12,360
    )
    
    
    102,055
    
    
    $
    (0.12
    )
    
    $
    (22,740
    )
    
    
    100,179
    
    
    $
    (0.23
    )
    
    $
    138,943
    
    
    
    99,244
    
    
    $
    1.40(Loss) income from discontinued operations, net
of minority interests and taxes
    
    
    (502
    )
    
    
    
    
    
    
    (0.01
    )
    
    
    4,006
    
    
    
    
    
    
    
    0.04
    
    
    
    10,407
    
    
    
    
    
    
    
    0.10Impairment charges related to real estate
assets from discontinued operations, net of
minority interests
    
    
    (105
    )
    
    
    
    
    
    
    
    
    
    
    (953
    )
    
    
    
    
    
    
    (0.01
    )
    
    
    (2,978
    )
    
    
    
    
    
    
    (0.03
    )Gain on sale of real estate from discontinued
operations, net of minority interests and
taxes
    
    
    14,362
    
    
    
    
    
    
    
    0.14
    
    
    
    89,234
    
    
    
    
    
    
    
    0.89
    
    
    
    1,052
    
    
    
    
    
    
    
    0.01Cumulative effect of a change in accounting
principle, net of minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (363
    )
    
    
    
    
    
    
    Net income available to common
shareholders
    
    $
    1,395
    
    
    
    102,055
    
    
    $
    0.01
    
    
    $
    69,547
    
    
    
    100,179
    
    
    $
    0.69
    
    
    $
    147,061
    
    
    
    99,244
    
    
    $
    1.48
 
 (1)
    
    Share and unit options (in common share equivalents) of
1,463,992 and 824,019 for the years ended December 31, 2006 and
2005, respectively, are not included because the effect of their conversion
would be antidilutive to loss available to common shareholders before discontinued operations
and cumulative effect of a change in accounting principle.  97




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##### Table of Contents



Supplemental Disclosure to Statements of Cash Flows
 Supplemental disclosures of cash flow information:
    
    For the years ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Cash paid for interest
    
    $
    156,694
    
    
    $
    160,918
    
    
    $
    169,056Cash (received) paid for income taxes
    
    $
    (853
    )
    
    $
    738
    
    
    $
    8,364Interest capitalized  Resort Residential Development
    
    $
    25,068
    
    
    $
    20,017
    
    
    $
    15,556Interest capitalized  Resort/Hotel
    
    
    3,195
    
    
    
    898
    
    
    
    294Interest capitalized  Office
    
    
    5,418
    
    
    
    1,017
    
    
    
    Total interest capitalized
    
    $
    33,681
    
    
    $
    21,932
    
    
    $
    15,850Supplemental schedule of non cash activities:Joint venture of Office Properties debt
    
    $
    
    
    
    $
    158,350
    
    
    $
    Assumption of debt in conjunction with acquisitions of Office Properties
    
    
    23,605
    
    
    
    
    
    
    
    139,807Financed sale of land parcel
    
    
    
    
    
    
    
    
    
    
    4,878Financed purchase of land parcel
    
    
    
    
    
    
    
    
    
    
    7,500Satisfaction of debt in conjunction with disposition of properties
    
    
    81,792
    
    
    
    
    
    
    
    Interest
accrued into construction loans
    
    
    12,467
    
    
    
    
    
    
    
    Supplemental schedule of 2004 consolidation of Elijah:Accounts receivable, net
    
    
    
    
    
    
    
    
    
    $
    (848
    )Investments in unconsolidated companies
    
    
    
    
    
    
    
    
    
    
    (2,478
    )Notes receivable, net
    
    
    
    
    
    
    
    
    
    
    4,363Income tax asset  current and deferred, net
    
    
    
    
    
    
    
    
    
    
    (274
    )Minority interest  consolidated real estate partnerships
    
    
    
    
    
    
    
    
    
    
    (140
    )Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    139Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (428
    )Increase in cash
    
    
    
    
    
    
    
    
    
    $
    334
 3. SEGMENT REPORTING
 Disclosures about Segments
of an Enterprise and Related Information
  
    
    Net Income (Loss)  determined in accordance with GAAP;
    
    excluding gains (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.
  98




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##### Table of Contents



For the year ended December 31, 2006Resort
    
    
    
    
    
    
    Temperature-Residential
    
    
    
    
    
    
    ControlledOffice
    
    
    Development
    
    
    Resort/Hotel
    
    
    Logistics
    
    
    Corporate(in thousands)
    
    Segment(1)
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    and Other(2)
    
    
    TotalTotal Property revenue
    
    $
    414,343
    
    
    $
    372,148
    
    
    $
    142,205
    
    
    $
    
    
    
    $
    
    
    
    $
    928,696Total Property expense
    
    
    206,563
    
    
    
    342,994
    
    
    
    108,391
    
    
    
    
    
    
    
    76
    
    
    
    658,024Income from Property Operations
    
    $
    207,780
    
    
    $
    29,154
    
    
    $
    33,814
    
    
    $
    
    
    
    $
    (76
    )
    
    $
    270,672Total other income (expense)
    
    
    (53,585
    )
    
    
    (15,100
    )
    
    
    (22,797
    )
    
    
    (15,668
    )
    
    
    (144,658
    )
    
    
    (251,808
    )Minority interests and income taxes
    
    
    (3,072
    )
    
    
    1,967
    
    
    
    4,048
    
    
    
    
    
    
    
    (2,129
    )
    
    
    814Discontinued operations -income, gain on real estate and impairment
charges related to real estate assets, net of minority interests and
taxes
    
    
    10,830
    
    
    
    6,552
    
    
    
    
    
    
    
    
    
    
    
    (3,627
    )
    
    
    13,755Net income (loss)
    
    $
    161,953
    
    
    $
    22,573
    
    
    $
    15,065
    
    
    $
    (15,668
    )
    
    $
    (150,490
    )
    
    $
    33,433Depreciation and amortization of real estate assets
    
    $
    105,997
    
    
    $
    9,830
    
    
    $
    16,312
    
    
    $
    
    
    
    $
    
    
    
    $
    132,139Gain on property sales
    
    
    (25,206
    )
    
    
    (3,282
    )
    
    
    
    
    
    
    
    
    
    
    (359
    )
    
    
    (28,847
    )Gain from sale of development operating property
    
    
    (10,138
    )
    
    
    (6,083
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,221
    )Gain from promoted interest
    
    
    (22,575
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,575
    )Adjustments for investment in unconsolidated companies
    
    
    21,217
    
    
    
    (10,616
    )
    
    
    4,773
    
    
    
    17,917
    
    
    
    
    
    
    
    33,291Unitholder minority interest and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    266Series A Preferred share distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,963
    )
    
    
    (23,963
    )Series B Preferred share distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,075
    )
    
    
    (8,075
    )Adjustments to reconcile net income (loss) to funds from operations
available to common shareholders  diluted
    
    $
    69,295
    
    
    $
    (10,151
    )
    
    $
    21,085
    
    
    $
    17,917
    
    
    $
    (32,131
    )
    
    $
    66,015Funds from operations available to common shareholders-diluted
    
    $
    231,248
    
    
    $
    12,422
    
    
    $
    36,150
    
    
    $
    2,249
    
    
    $
    (182,621
    )
    
    $
    99,448
  For the year ended December 31, 2005 (Restated)Resort
    
    
    
    
    
    
    Temperature-Residential
    
    
    
    
    
    
    ControlledOffice
    
    
    Development
    
    
    Resort/Hotel
    
    
    Logistics
    
    
    Corporate(in thousands)
    
    Segment(1)
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    and Other
    
    
    TotalTotal Property revenue
    
    $
    372,759
    
    
    $
    502,723
    
    
    $
    142,618
    
    
    $
    
    
    
    $
    
    
    
    $
    1,018,100Total Property expense
    
    
    195,781
    
    
    
    432,203
    
    
    
    111,277
    
    
    
    
    
    
    
    
    
    
    
    739,261Income from Property Operations
    
    $
    176,978
    
    
    $
    70,520
    
    
    $
    31,341
    
    
    $
    
    
    
    $
    
    
    
    $
    278,839Total other income (expense)
    
    
    (65,271
    )
    
    
    (14,208
    )
    
    
    (20,603
    )
    
    
    234
    
    
    
    (150,164
    )
    
    
    (250,012
    )Minority interests and income taxes
    
    
    (4,058
    )
    
    
    (14,692
    )
    
    
    1,941
    
    
    
    
    
    
    
    (2,720
    )
    
    
    (19,529
    )Discontinued operations -income, gain on real estate and impairment
charges related to real estate assets, net of minority interests and
taxes
    
    
    108,557
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (16,266
    )
    
    
    92,287Net income (loss)
    
    $
    216,206
    
    
    $
    41,616
    
    
    $
    12,679
    
    
    $
    234
    
    
    $
    (169,150
    )
    
    $
    101,585Depreciation and amortization of real estate assets
    
    $
    103,958
    
    
    $
    9,413
    
    
    $
    18,021
    
    
    $
    
    
    
    $
    
    
    
    $
    131,392Gain on property sales
    
    
    (102,373
    )
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    (289
    )
    
    
    (102,803
    )Gain from sale of development operating property
    
    
    (13,369
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,369
    )Gain from promoted interest
    
    
    (13,579
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,579
    )Adjustments for investment in unconsolidated companies
    
    
    18,872
    
    
    
    (5,543
    )
    
    
    3,881
    
    
    
    18,210
    
    
    
    
    
    
    
    35,420Unitholder minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,379
    
    
    
    12,379Series A Preferred share distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,963
    )
    
    
    (23,963
    )Series B Preferred share distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,075
    )
    
    
    (8,075
    )Adjustments to reconcile net income (loss) to funds from operations
available to common shareholders  diluted
    
    $
    (6,491
    )
    
    $
    3,870
    
    
    $
    21,761
    
    
    $
    18,210
    
    
    $
    (19,948
    )
    
    $
    17,402Funds from operations available to common shareholders-diluted
    
    $
    209,715
    
    
    $
    45,486
    
    
    $
    34,440
    
    
    $
    18,444
    
    
    $
    (189,098
    )
    
    $
    118,987
  99




---



##### Table of Contents



For the year ended December 31, 2004 (Restated)Resort
    
    
    
    
    
    
    Temperature-Residential
    
    
    
    
    
    
    ControlledOffice
    
    
    Development
    
    
    Resort/Hotel
    
    
    Logistics
    
    
    Corporate(in thousands)
    
    Segment(1)
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    and Other(2)
    
    
    TotalTotal Property revenue
    
    $
    475,797
    
    
    $
    309,945
    
    
    $
    214,531
    
    
    $
    
    
    
    $
    
    
    
    $
    1,000,273Total Property expense
    
    
    234,161
    
    
    
    271,310
    
    
    
    179,825
    
    
    
    
    
    
    
    
    
    
    
    685,296Income from Property Operations
    
    $
    241,636
    
    
    $
    38,635
    
    
    $
    34,706
    
    
    $
    
    
    
    $
    
    
    
    $
    314,977Total other income (expense)
    
    
    149,072
    
    
    
    (14,753
    )
    
    
    (24,777
    )
    
    
    6,153
    
    
    
    (239,456
    )
    
    
    (123,761
    )Minority interests and income taxes
    
    
    (1,789
    )
    
    
    (1,710
    )
    
    
    8,306
    
    
    
    
    
    
    
    (25,282
    )
    
    
    (20,475
    )Discontinued operations income, gain on real
estate and impairment charges related to real
estate assets, net of minority interests
    
    
    3,908
    
    
    
    (126
    )
    
    
    7,177
    
    
    
    
    
    
    
    (2,478
    )
    
    
    8,481Cumulative effect of a change in accounting
principle, net of minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (363
    )
    
    
    (363
    )Net income (loss)
    
    $
    392,827
    
    
    $
    22,046
    
    
    $
    25,412
    
    
    $
    6,153
    
    
    $
    (267,579
    )
    
    $
    178,859Depreciation and amortization of real estate assets
    
    $
    124,857
    
    
    $
    8,078
    
    
    $
    23,775
    
    
    $
    
    
    
    $
    56
    
    
    $
    156,766(Gain) loss on property sales
    
    
    (263,308
    )
    
    
    115
    
    
    
    (4,209
    )
    
    
    
    
    
    
    349
    
    
    
    (267,053
    )Adjustments for investment in unconsolidated companies
    
    
    11,601
    
    
    
    (242
    )
    
    
    
    
    
    
    22,549
    
    
    
    
    
    
    
    33,908Unitholder minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,319
    
    
    
    26,319Series A Preferred share distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,723
    )
    
    
    (23,723
    )Series B Preferred share distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,075
    )
    
    
    (8,075
    )Adjustments to reconcile net (loss) income to funds from
operations available to common shareholders  diluted
    
    $
    (126,850
    )
    
    $
    7,951
    
    
    $
    19,566
    
    
    $
    22,549
    
    
    $
    (5,074
    )
    
    $
    (81,858
    )Funds from
operations available to common shareholdersdiluted
    
    $
    265,977
    
    
    $
    29,997
    
    
    $
    44,978
    
    
    $
    28,702
    
    
    $
    (272,653
    )
    
    $
    97,001
  Resort
    
    
    
    
    
    Temperature-Residential
    
    
    
    
    
    Controlled
    
    CorporateOffice
    
    Development
    
    Resort/Hotel
    
    Logistics
    
    and(in millions)
    
    Segment
    
    Segment
    
    Segment
    
    Segment
    
    Other
    
    TotalTotal Assets by Segment:(3)Balance at December 31, 2006(4)
    
    $
    2,019
    
    
    $
    1,146
    
    
    $
    380
    
    
    $
    87
    
    
    $
    415
    (5)
    
    $
    4,047Balance at December 31, 2005(4)(Restated)
    
    
    2,024
    
    
    
    985
    
    
    
    340
    
    
    
    162
    
    
    
    652
    (5)
    
    
    4,163Consolidated Property Level Financing:Balance at December 31, 2006
    
    
    (968
    )
    
    
    (220
    )
    
    
    (142
    )
    
    
    
    
    
    
    (966
    ) (6)
    
    
    (2,296
    )Balance at December 31, 2005
    
    
    (851
    )
    
    
    (143
    )
    
    
    (59
    )
    
    
    
    
    
    
    (1,206
    ) (6)
    
    
    (2,259
    )Consolidated Other Liabilities:Balance at December 31, 2006
    
    
    (134
    )
    
    
    (308
    )
    
    
    (32
    )
    
    
    
    
    
    
    (29
    )
    
    
    (503
    )Balance at December 31, 2005 (Restated)
    
    
    (116
    )
    
    
    (310
    )
    
    
    (30
    )
    
    
    
    
    
    
    (44
    )
    
    
    (500
    )Minority Interests:Balance at December 31, 2006
    
    
    (12
    )
    
    
    (32
    )
    
    
    (5
    )
    
    
    
    
    
    
    (77
    )
    
    
    (126
    )Balance at December 31, 2005 (Restated)
    
    
    (15
    )
    
    
    (32
    )
    
    
    (6
    )
    
    
    
    
    
    
    (99
    )
    
    
    (152
    )
 
 (1)
    
    The property revenue includes lease termination fees (net of the write-off of
deferred rent receivables) of approximately $39.3 million, $11.2 million and $9.0 million for
the years ended December 31, 2006, 2005 and 2004, respectively. The 2006 lease termination
fees are primarily due to the El Paso lease termination and related re-leasing.(2)
    
    For purposes of this Note, Corporate and Other includes the total of: income from
investment land sales, net, interest and other income, corporate general and administrative
expense, interest expense, extinguishment of debt, other expenses and equity in net income of
unconsolidated companies-other.(3)
    
    Total assets by segment are inclusive of investments in unconsolidated companies.(4)
    
    Non-income producing land held for investment or development of $75.6 million and
$84.4 million at December 31, 2006 and 2005, respectively, by segment is as follows: Office
$7.0 million and $24.3 million, Resort Residential Development $9.6 million and $9.6 million,
Resort/Hotel $7.3 million and $7.3 million and Corporate $51.7 million and $43.2 million,
respectively.(5)
    
    Includes mezzanine notes and defeasance investments.(6)
    
    Inclusive of Corporate bonds, Credit Facility, Junior Subordinated Notes, the Morgan
Stanley and Goldman Sachs repurchase facilities, the Funding I defeased debt and Nomura
Funding VI defeased debt. Balance at December 31, 2005 also includes Funding II defeased
debt. 100




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4. ACQUISITIONS
 Asset Acquisitions
  Date
    
    
    
    
    
    Purchase(in millions)
    
    Property
    
    Location
    
    Price2006January 23, 2006
    
    Financial Plaza  Class A Office Property
    
    Phoenix, Arizona
    
    $
    55.0
    (1)2005February 7, 2005
    
    Exchange Building  Class A Office Property
    
    Seattle, Washington
    
    $
    52.5
    (2)April 8, 2005
    
    One Buckhead Plaza  Class A Office Property
    
    Atlanta, Georgia
    
    
    130.5
    (3)
 
 (1)
    
    The acquisition was funded by the assumption of a $23.6 million loan from
Allstate, a new $15.9 million loan from Allstate and a draw on our credit facility. This
property is wholly-owned.(2)
    
    The acquisition was funded by a draw on our credit facility.(3)
    
    The acquisition was funded by an $85.0 million loan from Morgan Stanley and
a draw on our credit facility. In June 2005, we contributed One Buckhead Plaza to Crescent
One Buckhead Plaza, L.P., a limited partnership in which we have a 35% interest and Metzler US
Real Estate Fund L.P. has a 65% interest. 5. DISCONTINUED OPERATIONS
 Accounting for the Impairment or Disposal of Long-Lived
Assets,
 101




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Asset Dispositions
 Office Segment
  NetNet
    
    
    
    
    
    
    Gain(in millions) Date
    
    Property
    
    Location
    
    Proceeds
    
    
    Impairment
    
    
    (Loss) (1)2006February 17, 2006
    
    Waterside Commons
    
    Dallas, Texas
    
    $
    24.8
    (2)
    
    $
    1.0
    (3)
    
    $
    0.12005February 7, 2005
    
    Albuquerque Plaza
    
    Albuquerque, New Mexico
    
    $
    34.7
    (4)
    
    $
    
    
    
    $
    1.4August 16, 2005
    
    Barton Oaks Plaza One
    
    Austin, Texas
    
    
    14.4
    (4)
    
    
    
    
    
    
    4.5September 19, 2005
    
    Chancellor Park
    
    San Diego, California
    
    
    55.4
    (4)
    
    
    
    
    
    
    27.0September 28, 2005
    
    Two Renaissance Square
    
    Phoenix, Arizona
    
    
    116.8
    (4)
    
    
    
    
    
    
    57.22004March 23, 2004
    
    1800 West Loop South
    
    Houston, Texas
    
    
    28.2

(2)
    
    
    13.9
    (5)
    
    
    0.2April 13, 2004
    
    Liberty Plaza
    
    Dallas, Texas
    
    
    10.8
    (2)
    
    
    3.6
    (5)
    
    
    (0.2
    )June 17, 2004
    
    Ptarmigan Place
    
    Denver, Colorado
    
    
    25.3
    (4)
    
    
    0.5
    (6)
    
    
    (2.0
    )June 29, 2004
    
    Addison Tower
    
    Dallas, Texas
    
    
    8.8
    (2)
    
    
    
    
    
    
    0.2July 2, 2004
    
    5050 Quorum
    
    Dallas, Texas
    
    
    8.9
    (2)
    
    
    0.8
    (6)
    
    
    (0.1
    )July 29, 2004
    
    12404 Park Central
    
    Dallas, Texas
    
    
    9.3
    (4)
    
    
    4.0
    (7)
    
    
    
 
 (1)
    
    Amounts are net of Operating Partnership minority interests.(2)
    
    Proceeds were used primarily to pay down our credit facility.(3)
    
    Impairment was recognized during the year ended December 31, 2005.(4)
    
    Proceeds were used to pay down a portion of the Bank of America Fund XII Term Loan.(5)
    
    Impairment was recognized during the year ended December 31, 2003.(6)
    
    Impairment was recognized during the year ended December 31, 2004.(7)
    
    Of the $4.0 million in impairment recorded, $2.9 million was recorded during the
year ended December 31, 2003, and $1.1 million was recorded during the year ended December 31,
2004. Joint Venture  Paseo Del Mar
  Resort Residential Development Segment
  102




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Resort / Hotel Segment
  Properties Held for Disposition
 Summary of Assets Held for Sale
  Assets
 (in thousands)
    
    December 31, 2006
    
    
    December 31, 2005Land
    
    $
    
    
    
    $
    24,650Buildings and improvements
    
    
    2,425
    
    
    
    98,916Furniture, fixtures and equipment
    
    
    
    
    
    
    218Accumulated depreciation
    
    
    (25
    )
    
    
    (7,465
    )Other assets, net
    
    
    
    
    
    
    1,886Net investment in real estate
    
    $
    2,400
    
    
    $
    118,205
 Liabilities
 (in thousands)
    
    December 31, 2006
    
    
    December 31, 2005Notes payable
    
    $
    
    
    
    $
    14,606Accounts
payable, accrued expenses and other liabilities
    
    
    
    
    
    
    4,700Total liabilities
    
    
    
    
    
    
    19,306
 103




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(in thousands)
    
    2006
    
    
    2005
    
    
    2004Total revenues
    
    $
    2,445
    
    
    $
    17,897
    
    
    $
    50,515Operating
and other expenses, net of non-unitholder minority interests
    
    
    (2,683
    )
    
    
    (9,218
    )
    
    
    (30,678
    )Depreciation and amortization
    
    
    (1,002
    )
    
    
    (3,873
    )
    
    
    (7,846
    )Income tax benefit (expense)
    
    
    642
    
    
    
    (86
    )
    
    
    279Unitholder minority interests
    
    
    96
    
    
    
    (714
    )
    
    
    (1,863
    )(Loss) income from discontinued
operations, net of minority
interests and taxes
    
    $
    (502
    )
    
    $
    4,006
    
    
    $
    10,407
 (in thousands)
    
    2006
    
    
    2005
    
    
    2004Impairment charges related to real estate assets
    
    $
    (125
    )
    
    $
    (1,122
    )
    
    $
    (3,511
    )Unitholder minority interests
    
    
    20
    
    
    
    169
    
    
    
    533Impairment charges related to real estate
assets from discontinued operations, net of
minority interests
    
    $
    (105
    )
    
    $
    (953
    )
    
    $
    (2,978
    )
 (in thousands)
    
    2006
    
    
    2005
    
    
    2004Realized gain on sale of properties, net of non-unitholder minority interests
    
    $
    28,334
    
    
    $
    105,117
    
    
    $
    1,241Income tax expense
    
    
    (11,232
    )
    
    
    
    
    
    
    Unitholder minority interests
    
    
    (2,740
    )
    
    
    (15,883
    )
    
    
    (189
    )Gain on real estate from discontinued operations, net of minority
interests and taxes
    
    $
    14,362
    
    
    $
    89,234
    
    
    $
    1,052
 6. JOINT VENTURES
 2006 Transactions
 Office
 Parkway at Oakhill
  Chase Tower
  Four Westlake Park
  104




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Three Westlake Park
  Bank One Center
  Resort Residential Development
 Riverfront Village
  2005 Transactions
 Office
 Fulbright Tower
  2211 Michelson
  105




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One Buckhead Plaza
  106




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##### Table of Contents



5 Houston Center
  Resort/Hotel Segment
 Canyon Ranch
   Other Segment
 Redtail Capital Partners, L.P.
  107




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2004 Transactions
 Office
 The Crescent, Houston Center and Post Oak Central
  Fountain Place and Trammell Crow Center
   108




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7. OTHER TRANSACTIONS
 Office Segment
 Significant Tenant Lease Termination
  Resort Residential Development Segment
  Undeveloped Land Sales
  Net(dollars in millions) Date
    
    Location
    
    Proceeds
    
    Net Gain2005March 31, 2005
    
    Houston, Texas
    
    $
    5.8
    (1)
    
    $
    3.5June 30, 2005
    
    Houston, Texas
    
    
    6.1
    (1)
    
    
    4.12004June 17, 2004
    
    Denver, Colorado
    
    $
    2.9
    
    
    $
    0.9August 16, 2004
    
    Houston, Texas
    
    
    6.4
    (2)
    
    
    7.6November 12, 2004
    
    Monterey, California
    
    
    1.0
    
    
    
    0.7December 17, 2004
    
    Houston, Texas
    
    
    22.3
    
    
    
    8.3December 23, 2004
    
    Houston, Texas
    
    
    4.0
    
    
    
    1.4
 
 (1)
    
    The proceeds were used primarily to pay down our credit facility.(2)
    
    In addition to the $6.4 million net cash proceeds, we also received a note
receivable of $5.6 million. The note provides for payments of principal of $0.5 million
due in December 2004, annual installments of $1.0 million each due August 2005 through
August 2008 and $1.1 million due at maturity in August 2009 and does not bear interest. 
 109




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8. MEZZANINE NOTES
  (in millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December
    
    
    Interest Rate atNote
    
    
    
    
    
    Date of Transaction
    
    
    Maturity Date
    
    
    31, 2006
    
    
    December 31, 2006Fixed Rate:Three Dallas Office Properties
    
    
    (1)
    
    
    
    8/31/05
    
    
    
    2010
    
    
    $
    7.6
    
    
    
    11.04
    %21 California Condominiums
    
    
    (2)
    
    
    
    12/28/06
    
    
    
    2008
    
    
    
    9.8
    (3)
    
    
    17.00
    %Variable Rate:Dallas Office Property
    
    

(4)
    
    
    
    6/9/05
    
    
    
    2007
    
    
    
    12.0
    
    
    
    13.85
    %Two Luxury
Hotel Properties in California
    
    

(5)
    
    
    
    11/16/05
    
    
    
    2007
    
    
    
    15.0
    
    
    
    16.35
    %Office Portfolio in Southeastern U.S.
    
    

(6)
    
    
    
    12/30/05
    
    
    
    2007
    
    
    
    20.7
    
    
    
    12.23
    %Florida Hotel Portfolio Investment
    
    

(7)
    
    
    
    1/20/06
    
    
    
    2009
    
    
    
    15.0
    
    
    
    13.35
    %California Ski Resort
    
    

(8)
    
    
    
    4/12/06
    
    
    
    2009
    
    
    
    20.0
    
    
    
    9.85
    %New York City Residential
    
    

(9)
    
    
    
    5/8/06
    
    
    
    2007
    
    
    
    24.2
    
    
    
    18.18
    %Total
Mezzanine Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    124.3Total Weighted Average Interest Rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.09
    %
 
 (1)
    
    The loan has an interest-only term through September 2007. Beginning
October 2007, the borrower must make principal payments based on a 30-year amortization
schedule until maturity. We determined that the entity to which the loan was funded is a
VIE under FIN 46R of which we are not the primary beneficiary; therefore, we do not
consolidate the entity. Our maximum exposure to loss is limited to the amount of the loan.(2)
    
    The loan has an interest-only term until maturity, subject to the right of
the borrower to extend the loan pursuant to one six-month extension.(3)
    
    The condominiums securing this note were sold by CRDI to a
third party. Due to restrictions under SFAS No. 66 Accounting
for Sales of Real Estate regarding seller financed transactions,
the profit from the sale of $4.7 million was deferred and recorded under the cost
recovery method and reflected as a reduction of the note such that the face value of the
note is included in the table above.(4)
    
    The loan bears interest at LIBOR plus 850 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to three one-year extension options.(5)
    
    The loan bears interest at LIBOR plus 1,100 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to five one-year extension options.(6)
    
    The loan bears interest at LIBOR plus 685 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to three one-year extension options.(7)
    
    The loan bears interest at LIBOR plus 800 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to two one-year extension options.(8)
    
    The loan bears interest at LIBOR plus 450 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to two one-year extension options.(9)
    
    The loan bears interest at LIBOR plus 1,283 basis points with an
interest-only term until maturity, subject to the right of the borrower to extend the loan
pursuant to two one-year extension options. We determined that the entity to which the loan
was funded is a VIE under FIN 46R of which we are not the primary beneficiary; therefore, we
do not consolidate the entity. Our maximum exposure to loss is limited to the amount of the
loan.  
 110




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9. TEMPERATURE-CONTROLLED LOGISTICS
      111




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. INVESTMENTS IN UNCONSOLIDATED COMPANIES
  Our Ownershipas ofEntity
    
    Classification
    
    December 31, 2006Crescent Irvine, LLC
    
    Office (2211 Michelson Office Development  Irvine)
    
    
    40.0
    % (1)Crescent Miami Center, LLC
    
    Office (Miami Center  Miami)
    
    
    40.0
    % (2) (3)Crescent One Buckhead Plaza, L.P.
    
    Office (One Buckhead Plaza  Atlanta)
    
    
    35.0
    % (4) (3)Crescent POC Investors, L.P.
    
    Office (Post Oak Central  Houston)
    
    
    23.9
    % (5) (3)Crescent HC Investors, L.P.
    
    Office (Houston Center  Houston)
    
    
    23.9
    % (5) (3)Crescent TC Investors, L.P.
    
    Office (The Crescent  Dallas)
    
    
    23.9
    % (5) (3)Crescent Ross Avenue Mortgage Investors, L.P.
    
    Office (Trammell Crow Center, Mortgage  Dallas)
    
    
    23.9
    % (6) (3)Crescent Ross Avenue Realty Investors, L.P.
    
    Office (Trammell Crow Center, Ground Lessor  Dallas)
    
    
    23.9
    % (6) (3)Crescent Fountain Place, L.P.
    
    Office (Fountain Place  Dallas)
    
    
    23.9
    % (6) (3)Crescent Five Post Oak Park L.P.
    
    Office (Five Post Oak Park  Houston)
    
    
    30.0
    % (7) (3)Crescent One BriarLake Plaza, L.P.
    
    Office (One BriarLake Plaza  Houston)
    
    
    30.0
    % (8) (3)Crescent 1301 McKinney, L.P.
    
    Office (Fulbright Tower  Houston)
    
    
    23.9
    % (9) (3)AmeriCold Realty Trust
    
    Temperature-Controlled Logistics
    
    
    31.7
    % (10)CR Operating, LLC
    
    Resort/Hotel
    
    
    48.0
    % (11)CR Spa, LLC
    
    Resort/Hotel
    
    
    48.0
    % (11)East West Resort Development XIV, L.P., L.L.L.P.
    
    Resort Residential Development
    
    
    26.8
    % (12)Blue River Land Company, LLC
    
    Resort Residential Development
    
    
    33.2
    % (13)EW Deer Valley, LLC
    
    Resort Residential Development
    
    
    35.7
    % (14)SunTx Fulcrum Fund, L.P. (SunTx)
    
    Other
    
    
    26.5
    % (15)Redtail Capital Partners, L.P. (Redtail)
    
    Other
    
    
    25.0
    % (16) (3)Fresh Choice, LLC
    
    Other
    
    
    40.0
    % (17)G2 Opportunity Fund, L.P. (G2)
    
    Other
    
    
    12.5
    % (18)
 
 (1)
    
    The remaining 60% interest is owned by an affiliate of Hines.(2)
    
    The remaining 60% interest is owned by an affiliate of a fund managed by JP Morgan
Investment Management, Inc., or JPM.(3)
    
    We have negotiated performance based incentives, which we refer to as promoted
interest, which allow for additional equity to be earned if return targets are exceeded.(4)
    
    The remaining 65% interest is owned by Metzler US Real Estate Fund, L.P.(5)
    
    Each limited partnership is owned by Crescent Big Tex I, L.P., which is owned 60% by
a fund advised by JPM and 16.1% by affiliates of GE.(6)
    
    Each limited partnership is owned by Crescent Big Tex II, L.P., which is owned 76.1%
by a fund advised by JPM.(7)
    
    The remaining 70% interest is owned by an affiliate of GE.(8)
    
    The remaining 70% interest is owned by affiliates of JPM.(9)
    
    The partnership is owned by Crescent Big Tex III, L.P., which is owned 60% by a fund
advised by JPM and 16.1% by affiliates of GE.(10)
    
    Of the remaining 68.3% interest, 47.6% is owned by Vornado and 20.7% is owned by
The Yucaipa Companies.(11)
    
    The remaining 52% interest is owned by the founders of Canyon Ranch and their
affiliates. CR Spa, LLC operates three resort spas which offer guest programs and services
and sells Canyon Ranch branded skin care products exclusively at the destination health
resorts and the resort spas. CR Operating, LLC operates and manages the two Canyon Ranch
destination health resorts, Tucson and Lenox, and collaborates with select real estate
developers in developing residential lifestyle communities.(12)
    
    We provided 41.9% of the initial capitalization and the venture is structured such
that we own a 26.8% interest after we receive a preferred return on our invested capital and
return of our capital. The remaining 73.2% economic interest is owned by parties unrelated to
us. East West Resort Development XIV, L.P., L.L.L.P. was formed to co-develop a hotel and
condominiums in Avon, Colorado.(13)
    
    The remaining 66.8% interest is owned by parties unrelated to us. Blue River Land
Company, LLC was formed to acquire, develop and sell certain real estate property in Summit
County, Colorado.(14)
    
    The remaining 64.3% interest is owned by parties unrelated to us. EW Deer Valley,
LLC was formed to acquire, hold and dispose of its 3.3% ownership interest in Empire Mountain
Village, L.L.C. Empire Mountain Village, LLC was formed to acquire, develop and sell certain
real estate property at Deer Valley Ski Resort next to Park City, Utah.(15)
    
    Of the remaining 73.5%, approximately 42.5% is owned by SunTx Capital Partners,
L.P. and the remaining 31.0% is owned by a group of individuals unrelated to us. Of our
limited partnership interest in SunTx, 6.3% is through an unconsolidated investment in SunTx
Capital Partners, L.P., the general partner of SunTx. SunTx Fulcrum Fund, L.P.s objective is
to invest in a portfolio of entities that offer the potential for substantial capital
appreciation.(16)
    
    The remaining 75% interest is owned by Capstead Mortgage Corporation. Redtail was
formed to invest up to $100.0 million in equity in select mezzanine loans on commercial real
estate over a two-year period.(17)
    
    The remaining 60% interest is owned by Cedarlane Natural Foods, Inc. Fresh Choice
is a restaurant owner, operator and developer.(18)
    
    G2 was formed for the purpose of investing in commercial mortgage backed securities
and other commercial real estate investments. The remaining 87.5% interest is owned by
Goff-Moore Strategic Partners, L.P., or GMSPLP, and by parties unrelated to us. G2 is managed
and controlled by an entity that is owned equally by GMSPLP and GMAC Commercial Mortgage
Corporation, or GMACCM. The ownership structure of GMSPLP consists of an approximately 92%
limited partnership interest owned directly and indirectly by Richard E. Rainwater, Chairman
of our Board of Trust Managers, of which approximately 6% is owned by Darla Moore, who is
married to Mr. Rainwater. Approximately 6% general partner interest is owned by John C. Goff,
Vice-Chairman of our Board of Trust Managers and our Chief Executive Officer. The remaining
approximately 2% general partnership interest is owned by unrelated parties. 
 112




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Fresh Choice
   Summary Financial Information
   
    
    Office  This includes Crescent Big Tex I, L.P., Crescent Big Tex II, L.P.,
Crescent Irvine, LLC, Crescent Miami Center, LLC, Crescent Five Post Oak Park L.P.,
Crescent One BriarLake Plaza, L.P., Crescent Big Tex III, L.P. and Crescent One
Buckhead Plaza, L.P.;
    
    Temperature-Controlled Logistics  This includes AmeriCold Realty Trust;
    
    Resort/Hotel  This includes CR Operating, LLC and CR Spa, LLC;
    
    Resort Residential Development  This includes East West Resort Development
XIV, L.P., L.L.L.P., Blue River Land Company, LLC and EW Deer Valley, LLC; and
    
    Other  This includes SunTx, Redtail, Fresh Choice, LLC and G2.
  
    
    Office  This includes Crescent Big Tex I, L.P., Crescent Big Tex II, L.P.,
Main Street Partners, L.P., Crescent Irvine, LLC, Houston PT Three Westlake Office
Limited Partnership, Houston PT Four Westlake Office Limited Partnership, Austin PT
BK One Tower Office Limited Partnership, Crescent Miami Center, LLC, Crescent Five
Post Oak Park L.P., Crescent One BriarLake Plaza, L.P., Crescent Big Tex III, L.P.
and Crescent One Buckhead Plaza, L.P.;
    
    Temperature-Controlled Logistics  This includes AmeriCold Realty Trust;
    
    Resort/Hotel  This includes CR Operating, LLC and CR Spa, LLC ;
    
    Resort Residential Development  This includes Blue River Land Company, LLC and
EW Deer Valley, LLC; and
    
    Other  This includes SunTx, Redtail, Fresh Choice, LLC and G2.
 
 113




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
    
    Office  This includes Crescent Big Tex I, L.P., Crescent Big Tex II, L.P.,
Main Street Partners, L.P., Crescent Irvine, LLC, Houston PT Three Westlake Office
Limited Partnership, Houston PT Four Westlake Office Limited Partnership, Austin PT
BK One Tower Office Limited Partnership, Crescent Miami Center, LLC, Crescent Five
Post Oak Park L.P., Crescent One BriarLake Plaza, L.P., Crescent Big Tex III, L.P.
and Crescent One Buckhead Plaza, L.P.;
    
    Temperature-Controlled Logistics  This includes AmeriCold Realty Trust;
    
    Resort/Hotel  This includes CR Operating, LLC and CR Spa, LLC;
    
    Resort Residential Development  This includes East West Resort Development
XIV, L.P., L.L.L.P., Blue River Land Company, LLC, and EW Deer Valley, LLC; and
    
    Other  This includes SunTx, Redtail, Fresh Choice, LLC and G2.
  
    
    Office  This includes Crescent Big Tex I, L.P., Crescent Big Tex II, L.P.,
Main Street Partners, L.P., Crescent Irvine, LLC, Houston PT Three Westlake Office
Limited Partnership, Houston PT Four Westlake Office Limited Partnership, Austin PT
BK One Tower Office Limited Partnership, Crescent 5 Houston Center, L.P., Crescent
Miami Center, LLC, Crescent Five Post Oak Park L.P., Crescent One BriarLake Plaza,
L.P., Crescent Big Tex III, L.P. and Crescent One Buckhead Plaza, L.P.;
    
    Temperature-Controlled Logistics  This includes AmeriCold Realty Trust;
    
    Resort/Hotel  This includes CR Operating, LLC and CR Spa, LLC;
    
    Resort Residential Development  This includes Blue River Land Company, LLC and
EW Deer Valley, LLC; and
    
    Other  This includes SunTx, Redtail, Fresh Choice, LLC and G2.
  
    
    Office  This includes Crescent Big Tex I, L.P., Crescent Big Tex II, L.P.,
Main Street Partners, L.P., Houston PT Three Westlake Office Limited Partnership,
Houston PT Four Westlake Office Limited Partnership, Austin PT BK One Tower Office
Limited Partnership, Crescent 5 Houston Center, L.P., Crescent Miami Center, LLC,
Crescent Five Post Oak Park L.P. and Crescent One BriarLake Plaza, L.P.;
    
    Temperature-Controlled Logistics  This includes AmeriCold Reality Trust,
Vornado Crescent Portland Partnership and Vornado Crescent and KC Quarry, L.L.C.;
    
    Resort/Hotel  This includes CR License, L.L.C., CR License II, L.L.C. and
Canyon Ranch Las Vegas, L.L.C.;
    
    Resort Residential Development  This includes Blue River Land Company, LLC and
EW Deer Valley, LLC; and
    
    Other  This includes SunTx and G2.
 Balance Sheets:
 As of December 31, 2006Temperature-
    
    
    
    
    
    
    ResortControlled
    
    
    
    
    
    
    Residential(in thousands)
    
    Office
    
    
    Logistics
    
    
    Resort/Hotel
    
    
    Development
    
    
    Other
    
    
    TotalReal estate, net
    
    $
    1,628,384
    
    
    $
    1,211,120
    
    
    $
    113,367
    
    
    $
    39,349
    
    
    $
    12,238Cash
    
    
    71,167
    
    
    
    92,672
    
    
    
    32,986
    
    
    
    9,183
    
    
    
    2,649Restricted cash
    
    
    18,113
    
    
    
    8,984
    
    
    
    224
    
    
    
    
    
    
    
    17,162Other assets
    
    
    241,747
    
    
    
    166,589
    
    
    
    12,921
    
    
    
    21,948
    
    
    
    224,653Total assets
    
    $
    1,959,411
    
    
    $
    1,479,365
    
    
    $
    159,498
    
    
    $
    70,480
    
    
    $
    256,702Notes payable
    
    $
    1,061,171
    
    
    $
    1,125,078
    
    
    $
    95,000
    
    
    $
    3,500
    
    
    $
    49,862Notes
payable to the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,152Other liabilities
    
    
    182,960
    
    
    
    91,952
    
    
    
    29,036
    
    
    
    19,166
    
    
    
    6,027Preferred membership units
    
    
    
    
    
    
    
    
    
    
    109,006
    
    
    
    
    
    
    
    Equity
    
    
    715,280
    
    
    
    262,335
    
    
    
    (73,544
    )
    
    
    47,814
    
    
    
    199,661Total liabilities and equity
    
    $
    1,959,411
    
    
    $
    1,479,365
    
    
    $
    159,498
    
    
    $
    70,480
    
    
    $
    256,702Our share of unconsolidated debt
    
    $
    287,911
    
    
    $
    356,875
    
    
    $
    45,600
    
    
    $
    1,467
    
    
    $
    13,745
    
    
    $
    705,598Our investments in
unconsolidated companies
    
    $
    115,990
    
    
    $
    87,069
    
    
    $
    1,036
    
    
    $
    20,202
    
    
    $
    56,573
    
    
    $
    280,870
 114




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Balance Sheets:
 As of December 31, 2005Temperature-
    
    
    
    
    
    
    ResortControlled
    
    
    
    
    
    
    Residential(in thousands)
    
    Office
    
    
    Logistics
    
    
    Resort/Hotel
    
    
    Development
    
    
    Other
    
    
    TotalReal estate, net
    
    $
    1,944,942
    
    
    $
    1,122,155
    
    
    $
    108,943
    
    
    $
    11,789
    
    
    $
    13,077Cash
    
    
    71,361
    
    
    
    25,418
    
    
    
    52,100
    
    
    
    920
    
    
    
    5,875Restricted cash
    
    
    36,121
    
    
    
    61,367
    
    
    
    217
    
    
    
    
    
    
    
    388Other assets
    
    
    279,437
    
    
    
    163,925
    
    
    
    12,258
    
    
    
    4,787
    
    
    
    165,478Total assets
    
    $
    2,331,861
    
    
    $
    1,372,865
    
    
    $
    173,518
    
    
    $
    17,496
    
    
    $
    184,818Notes payable
    
    $
    1,244,499
    
    
    $
    765,640
    
    
    $
    95,000
    
    
    $
    
    
    
    $
    34,566Notes payable to the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800Other liabilities
    
    
    196,100
    
    
    
    109,161
    
    
    
    28,523
    
    
    
    101
    
    
    
    9,216Preferred membership units
    
    
    
    
    
    
    
    
    
    
    104,231
    
    
    
    
    
    
    
    Equity
    
    
    891,262
    
    
    
    498,064
    
    
    
    (54,236
    )
    
    
    17,395
    
    
    
    140,236Total liabilities and equity
    
    $
    2,331,861
    
    
    $
    1,372,865
    
    
    $
    173,518
    
    
    $
    17,496
    
    
    $
    184,818Our share of unconsolidated debt
    
    $
    348,663
    
    
    $
    242,708
    
    
    $
    45,600
    
    
    $
    
    
    
    $
    10,021
    
    
    $
    646,992Our investments in
unconsolidated companies
    
    $
    178,440
    
    
    $
    162,438
    
    
    $
    6,200
    
    
    $
    6,657
    
    
    $
    39,800
    
    
    $
    393,535
 Summary Statements of Operations:
 For the year ended December 31, 2006Temperature-
    
    
    
    
    
    
    ResortControlled
    
    
    
    
    
    
    Residential(in thousands)
    
    Office
    
    
    Logistics(1)
    
    
    Resort/Hotel
    
    
    Development
    
    
    Other
    
    
    TotalTotal revenues
    
    $
    337,476
    
    
    $
    780,761
    
    
    $
    145,166
    
    
    $
    12,637
    
    
    $
    58,358Operating expense
    
    
    168,122
    
    
    
    657,115
    
    
    
    130,584
    
    
    
    15,477
    
    
    
    50,486Net Operating Income
    
    $
    169,354
    
    
    $
    123,646
    
    
    $
    14,582
    
    
    $
    (2,840
    )
    
    $
    7,872Interest expense
    
    $
    68,005
    
    
    $
    81,890
    
    
    $
    5,981
    
    
    $
    
    
    
    $
    3,011Depreciation and amortization
    
    
    97,574
    
    
    
    73,254
    
    
    
    10,585
    
    
    
    
    
    
    
    2,102Taxes and other (income) expense
    
    
    (3,325
    )
    
    
    (4,588
    )
    
    
    2,139
    
    
    
    (440
    )
    
    
    (46,165
    )Total expenses (income)
    
    $
    162,254
    
    
    $
    150,556
    
    
    $
    18,705
    
    
    $
    (440
    )
    
    $
    (41,052
    )Gain on sale of assets
    
    
    102,727
    
    
    
    2,164
    
    
    
    
    
    
    
    
    
    
    
    Preferred dividends
    
    
    
    
    
    
    
    
    
    
    (12,503
    )
    
    
    
    
    
    
    Net income (loss) available to
common interests
    
    $
    109,827
    
    
    $
    (24,746
    )
    
    $
    (16,626
    )
    
    $
    (2,400
    )
    
    $
    48,924Our equity in net income (loss)
of unconsolidated companies
    
    $
    9,231
    
    
    $
    (15,669
    )
    
    $
    (5,109
    )
    
    $
    (355
    )
    
    $
    12,157
    
    
    $
    255
 
 (1)
    
    In connection with the dissolution of Vornado Crescent Portland Partnership, we
agreed to pay Vornado Realty, L.P. an annual management fee of $4.5 million, payable only out
of dividends or sale proceeds on the shares of AmeriCold that we own, which is included in our
share of equity in net income (loss) for Temperature-Controlled Logistics. 
 115




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Summary Statements of Operations:
 For the year ended December 31, 2005Temperature-
    
    
    
    
    
    
    ResortControlled
    
    
    
    
    
    
    Residential(in thousands)
    
    Office
    
    
    Logistics(1)
    
    
    Resort/Hotel
    
    
    Development
    
    
    Other
    
    
    TotalTotal revenues
    
    $
    344,268
    
    
    $
    846,881
    
    
    $
    136,537
    
    
    $
    8,553
    
    
    $
    551Operating expense
    
    
    160,187
    
    
    
    699,701
    
    
    
    115,002
    
    
    
    3,671
    
    
    
    Net Operating Income
    
    $
    184,081
    
    
    $
    147,180
    
    
    $
    21,535
    
    
    $
    4,882
    
    
    $
    551Interest expense
    
    $
    68,851
    
    
    $
    56,273
    
    
    $
    5,580
    
    
    $
    
    
    
    $
    255Depreciation and amortization
    
    
    100,880
    
    
    
    73,776
    
    
    
    10,396
    
    
    
    
    
    
    
    89Taxes and other (income) expense
    
    
    (899
    )
    
    
    243
    
    
    
    22
    
    
    
    (155
    )
    
    
    (99,089
    )Total
expenses (income)
    
    $
    168,832
    
    
    $
    130,292
    
    
    $
    15,998
    
    
    $
    (155
    )
    
    $
    (98,745
    )Preferred dividends
    
    $
    
    
    
    $
    
    
    
    $
    (12,043
    )
    
    $
    
    
    
    $
    Net income (loss) available to
common interests
    
    $
    15,249
    
    
    $
    16,888
    
    
    $
    (6,506
    )
    
    $
    5,037
    
    
    $
    99,296Our equity in net income (loss)
of unconsolidated companies
    
    $
    11,464
    
    
    $
    234
    
    
    $
    (1,541
    )
    
    $
    (491
    )
    
    $
    17,885
    (2)
    
    $
    27,551
 
 (1)
    
    In connection with the dissolution of Vornado Crescent Portland
Partnership, we agreed to pay Vornado Realty, L.P. an annual management fee of $4.5
million, payable only out of dividends or sale proceeds on the shares of AmeriCold that
we own, which is included in our share of equity in net income (loss) for
Temperature-Controlled Logistics.(2)
    
    Includes approximately $5.1 million of income recorded in the second quarter
of 2005 resulting from an increase in 2004 actual results from previously estimated
results related to SunTx. Summary Statements of Operations:
 For the year ended December 31, 2004Temperature-
    
    
    
    
    
    
    ResortControlled
    
    
    
    
    
    
    Residential(in thousands)
    
    Office
    
    
    Logistics
    
    
    Resort/Hotel
    
    
    Development
    
    
    Other
    
    
    TotalTotal revenues
    
    $
    156,670
    
    
    $
    223,990
    
    
    $
    34,249
    
    
    $
    3,981
    
    
    $
    Operating expense
    
    
    77,684
    
    
    
    121,935
    (1)
    
    
    29,748
    
    
    
    5,331
    
    
    
    Net Operating Income
    
    $
    78,986
    
    
    $
    102,055
    
    
    $
    4,501
    
    
    $
    (1,350
    )
    
    $
    Interest expense
    
    $
    34,368
    
    
    $
    52,069
    
    
    $
    12
    
    
    $
    
    
    
    $
    Depreciation and amortization
    
    
    35,916
    
    
    
    59,813
    
    
    
    750
    
    
    
    
    
    
    
    Taxes and other (income) expense
    
    
    113
    
    
    
    1,509
    
    
    
    
    
    
    
    94
    
    
    
    (23,904
    )Total
expenses (income)
    
    $
    70,397
    
    
    $
    113,391
    
    
    $
    762
    
    
    $
    94
    
    
    $
    (23,904
    )Gain (loss) on sale of assets
    
    $
    
    
    
    $
    32,975
    
    
    $
    
    
    
    
    
    
    
    
    Net income (loss) available to
common interests
    
    $
    8,589
    
    
    $
    21,639
    
    
    $
    3,739
    
    
    $
    (1,444
    )
    
    $
    23,904Our equity in net income (loss)
of unconsolidated companies
    
    $
    6,262
    
    
    $
    6,153
    
    
    $
    (245
    )
    
    $
    (2,266
    )
    
    $
    (280
    )(2)
    
    $
    9,624
 
 (1)
    
    Inclusive of the preferred return paid to Vornado (1% per annum of the
total combined assets through November 18, 2004).(2)
    
    Does not include approximately $5.1 million of income recorded in the second
quarter 2005 resulting from an increase in 2004 actual results from previously estimated
results related to SunTx. 116




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Unconsolidated Debt Analysis
  Balance
    
    
    Our Share ofOutstanding at
    
    
    Balance atOur
    
    December 31,
    
    
    December 31,
    
    
    Interest Rate atDescription
    
    Ownership
    
    2006
    
    
    2006
    
    
    December 31, 2006
    
    Maturity Date
    
    Fixed/Variable(1)(in thousands)
    
    
    (in thousands)Temperature-Controlled Logistics Segment:AmeriCold Realty Trust
    
    31.72%Deutsche Bank/JPMorgan Chase (2)
    
    
    
    $
    350,000
    
    
    $
    111,020
    
    
    5.40%
    
    12/10/2015
    
    FixedCitigroup (3)
    
    
    
    
    325,000
    
    
    
    103,090
    
    
    5.46%
    
    12/10/2013
    
    FixedUBS 1A (4)
    
    
    
    
    194,000
    
    
    
    61,537
    
    
    5.55%
    
    12/10/2016
    
    FixedUBS 1B, 1C (5)
    
    
    
    
    181,000
    
    
    
    57,413
    
    
    5.43%
    
    12/10/2016
    
    FixedOther
    
    
    
    
    75,078
    
    
    
    23,815
    
    
    3.48% to 22.53%
    
    6/15/2007 to 4/1/2017
    
    Fixed$
    1,125,078
    
    
    $
    356,875Office Segment:Crescent HC Investors, L.P.
    
    23.85%
    
    
    269,705
    
    
    
    64,325
    
    
    5.03%
    
    11/7/2011
    
    FixedCrescent TC Investors, L.P.
    
    23.85%
    
    
    214,770
    
    
    
    51,223
    
    
    5.00%
    
    11/1/2011
    
    FixedCrescent Fountain Place, L.P.
    
    23.85%
    
    
    105,932
    
    
    
    25,265
    
    
    4.95%
    
    12/1/2011
    
    FixedCrescent POC Investors, L.P.
    
    23.85%
    
    
    97,504
    
    
    
    23,255
    
    
    4.98%
    
    12/1/2011
    
    FixedCrescent One Buckhead Plaza, L.P.
    
    35.00%
    
    
    85,000
    
    
    
    29,750
    
    
    5.47%
    
    4/8/2015
    
    FixedCrescent Miami Center, LLC
    
    40.00%
    
    
    81,000
    
    
    
    32,400
    
    
    5.04%
    
    9/25/2007
    
    FixedCrescent 1301 McKinney, L.P. (6)
    
    23.85%
    
    
    73,350
    
    
    
    17,494
    
    
    6.58%
    
    1/9/2008
    
    VariableCrescent One BriarLake Plaza, L.P.
    
    30.00%
    
    
    50,000
    
    
    
    15,000
    
    
    5.40%
    
    11/1/2010
    
    FixedCrescent Five Post Oak Park, L.P.
    
    30.00%
    
    
    43,656
    
    
    
    13,097
    
    
    4.82%
    
    1/1/2008
    
    FixedCrescent Irvine, LLC (7)
    
    40.00%
    
    
    40,254
    
    
    
    16,102
    
    
    8.10%
    
    3/7/2009
    
    Variable$
    1,061,171
    
    
    $
    287,911Resort/Hotel Segment:CR Resort, LLC
    
    48.00%Bank of America
    
    
    
    $
    95,000
    
    
    $
    45,600
    
    
    5.94%
    
    2/1/2015
    
    FixedResort Residential Development Segment:East West Resort Development XIV, L.P., L.L.L.P.(8)
    
    41.90%The Vail Corporation
    
    
    
    $
    3,500
    
    
    $
    1,467
    
    
    5.00%
    
    4/28/2008
    
    FixedOther Segment:Redtail Capital Partners One, LLC
    
    25.00%Morgan Stanley Bank (9)
    
    
    
    $
    41,330
    
    
    $
    10,333
    
    
    7.14%
    
    8/9/2008
    
    VariableFresh Choice, LLC
    
    40.00%GE Capital Franchise Finance Corporation(10)
    
    
    
    
    4,276
    
    
    
    1,710
    
    
    10.07%
    
    1/1/2011
    
    VariableVarious Loans and Capital Leases
    
    
    
    
    4,256
    
    
    
    1,702
    
    
    0.00% to 9.53%
    
    3/1/2007 to 12/31/2029
    
    Fixed$
    49,862
    
    
    $
    13,745Total Unconsolidated Debt
    
    
    
    $
    2,334,611
    
    
    $
    705,598Fixed Rate/Weighted Average
    
    
    
    
    
    
    
    
    
    
    
    5.41%
    
    7.01 yearsVariable Rate/Weighted Average
    
    
    
    
    
    
    
    
    
    
    
    7.37%
    
    1.70 yearsTotal Weighted Average
    
    
    
    
    
    
    
    
    
    
    
    5.53%
    
    6.67 years
 
 (1)
    
    All unconsolidated debt is secured.(2)
    
    The loan is a nine-year, interest-only financing that is collateralized by 20 of its
Temperature-Controlled Logistics Properties.(3)
    
    The loan is a seven-year, interest-only financing that is collateralized by 15 of
its Temperature-Controlled Logistics Properties.(4)
    
    The loan is a ten-year, interest-only financing that is collateralized by 4 of its
Temperature-Controlled Logistics Properties.(5)
    
    The loan is a ten-year, interest-only financing that is collateralized by 11 of its
Temperature-Controlled Logistics Properties.(6)
    
    On January 10, 2007, this loan was paid off and replaced with a new $89.0 million,
five year, interest-only financing.(7)
    
    This loan has one two-year extension option. The loan bears interest at LIBOR plus
275 basis points. In May 2006, Crescent Irvine, LLC, entered into an interest rate swap
agreement struck at 5.34%.(8)
    
    We provided 41.9% of the initial capitalization and the venture is structured such
that we own a 26.8% interest after we receive a preferred return on our invested capital and
return of our capital.(9)
    
    This loan has one one-year extension option. Redtail Capital Partners One, LLC is
owned 100% by Redtail. The loans supporting this facility are subject to daily valuations by
Morgan Stanley and we are subject to a margin call if the overall leverage exceeds certain
thresholds. The loan bears interest as follows: $28.8 million at LIBOR plus 185 basis points
and $12.5 million at LIBOR plus 170 basis points.(10)
    
    We guarantee $1.0 million of this loan. The loan bears interest at LIBOR plus 470
basis points. 117




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11. OTHER ASSETS AND OTHER LIABILITIES
 Other Assets
 December 31,2005(in thousands)
    
    2006
    
    
    (Restated)Leasing costs
    
    $
    125,033
    
    
    $
    112,607Goodwill
    
    
    40,469
    
    
    
    40,469Other intangibles
    
    
    51,417
    
    
    
    50,147Intangible office leases
    
    
    80,317
    
    
    
    77,239Deferred financing costs
    
    
    44,929
    
    
    
    46,611Prepaid expenses
    
    
    20,669
    
    
    
    20,860Marketable securities
    
    
    5,094
    
    
    
    21,579Other
    
    
    9,377
    
    
    
    22,781$
    377,305
    
    
    $
    392,293Less  accumulated amortization
    
    
    (102,291
    )
    
    
    (79,927
    )$
    275,014
    
    
    $
    312,366
 Goodwill and Identified Intangible Assets
  December 31,2005(in thousands)
    
    2006
    
    
    (Restated)Goodwill (included in other assets):Resort Residential Development Segment:Goodwill
    
    $
    40,469
    
    
    $
    40,469Identified intangible assets (included in other assets):Resort Residential Development Segment:Intangibles(1)
    
    $
    51,417
    
    
    $
    50,147Accumulated amortization
    
    
    (3,767
    )
    
    
    (2,852
    )Net intangibles
    
    $
    47,650
    
    
    $
    47,295Office Segment:Intangibles(2)
    
    $
    80,317
    
    
    $
    77,239Accumulated amortization
    
    
    (22,973
    )
    
    
    (15,520
    )Net intangibles
    
    $
    57,344
    
    
    $
    61,719Identified intangible liabilities (included in accounts payable, accrued
expenses and other liabilities):Office Segment:Intangibles(3)
    
    $
    10,938
    
    
    $
    9,876Accumulated amortization
    
    
    (3,443
    )
    
    
    (2,026
    )Net intangibles
    
    $
    7,495
    
    
    $
    7,850
 
 (1)
    
    Consists primarily of water rights.(2)
    
    Consists of acquired in-place leases and above market leases. Of these amounts,
approximately $9.7 million and $8.5 million were acquired in the year ended December 31,
2006 and 2005, respectively.(3)
    
    Consists of acquired below market leases. Of these amounts, approximately $1.4
million and $4.5 million were acquired in the year ended December 31, 2006 and 2005,
respectively.  Estimated(in thousands)
    
    Annual Amortization2007
    
    $
    1,0282008
    
    
    1372009
    
    
    (118
    )2010
    
    
    (332
    )2011
    
    
    (299
    )
 118




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  ResortResidential(in thousands)
    
    Development
    
    Office
    
    Total2007
    
    $
    936
    
    
    $
    6,234
    
    
    $
    7,1702008
    
    
    936
    
    
    
    6,231
    
    
    
    7,1672009
    
    
    922
    
    
    
    6,230
    
    
    
    7,1522010
    
    
    898
    
    
    
    6,177
    
    
    
    7,0752011
    
    
    898
    
    
    
    5,690
    
    
    
    6,588
 Marketable Securities
  As of December 31, 2006
    
    
    As of December 31, 2005(in thousands)
    
    
    
    
    
    Fair
    
    
    Unrealized
    
    
    
    
    
    
    Fair
    
    
    UnrealizedType of Security
    
    Cost
    
    
    Value
    
    
    Gain/(Loss)
    
    
    Cost
    
    
    Value
    
    
    Gain/(Loss)Held to maturity(1)
    
    $
    115,371
    
    
    $
    114,657
    
    
    $
    (714
    )
    
    $
    274,134
    
    
    $
    271,659
    
    
    $
    (2,475
    )Trading(2)
    
    
    679
    
    
    
    737
    
    
    
    N/A
    
    
    
    690
    
    
    
    728
    
    
    
    N/AAvailable for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,284
    
    
    
    20,852
    
    
    
    568Total
    
    $
    116,050
    
    
    $
    115,394
    
    
    $
    (714
    )
    
    $
    295,108
    
    
    $
    293,239
    
    
    $
    (1,907
    )
 For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2006
    
    

December 31, 2005


    
    
    December 31, 2004(in thousands)
    
    Realized
    
    
    Change
    
    
    Realized
    
    
    Change
    
    
    Realized
    
    
    ChangeType of Security
    
    Gain/(Loss)
    
    
    In OCI
    
    
    Gain/(Loss)
    
    
    In OCI
    
    
    Gain/(Loss)
    
    
    In OCIHeld to maturity(1)
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    $
    N/ATrading(2)
    
    
    53
    
    
    
    N/A
    
    
    
    139
    
    
    
    N/A
    
    
    
    1,149
    
    
    
    N/AAvailable for sale
    
    
    65
    (3)
    
    
    (568
    )
    
    
    (19
    )
    
    
    (468
    )
    
    
    6
    
    
    
    1,036Total
    
    $
    118
    
    
    $
    (568
    )
    
    $
    120
    
    
    $
    (468
    )
    
    $
    1,155
    
    
    $
    1,036
 
 (1)
    
    Held to maturity securities are carried at amortized cost and consist of $111.0
million of defeasance investments, included in Defeasance investments in the accompanying
Consolidated Balance Sheets, which consist of U.S. Treasury and government sponsored agency
securities purchased for the sole purpose of funding debt service payments on LaSalle Note I
and the Nomura Funding VI Note and $4.4 million of bonds. In March 2006, the LaSalle Note II
was paid off with the proceeds from maturities of defeasance investment securities.(2)
    
    Trading securities primarily consist of marketable securities purchased in
connection with our dividend incentive unit program. These securities are included in Other
assets, net in the accompanying Consolidated Balance Sheets and are marked to market value on
a monthly basis with the change in fair value recognized in earnings.(3)
    
    We received approximately $20.5 million, inclusive of $0.4 million interest, during
the year ended December 31, 2006 from the sale of these marketable securities. Accounts Payable, Accrued Expenses and Other Liabilities
 December 31,2005(in thousands)
    
    2006
    
    
    (Restated)Accounts payable and accrued expenses
    
    $
    236,305
    
    
    $
    207,584Deferred revenue
    
    
    138,680
    
    
    
    147,988Resort Residential contract deposits
    
    
    53,189
    
    
    
    70,491Accrued property taxes
    
    
    36,434
    
    
    
    34,180Accrued interest
    
    
    21,862
    
    
    
    21,109Resort/Hotel deposits
    
    
    8,625
    
    
    
    8,621Office security deposits
    
    
    6,919
    
    
    
    5,945$
    502,014
    
    
    $
    495,918
 119




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY
  Interest Rate atDecember 31,Secured
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MaturityDescription
    
    Asset
    
    2006
    
    2005
    
    Interest Rate
    
    2006
    
    2005
    
    Date(dollars in thousands)Secured Fixed Rate Debt:AEGON Partnership Note (1)
    
    Greenway Plaza
    
    $
    242,290
    
    
    $
    248,678
    
    
    
    
    7.53%
    
    
    
    
    
    July 2009Prudential Note
    
    707 17th Street/Denver Marriott
    
    
    70,000
    
    
    
    70,000
    
    
    
    
    5.22
    
    
    
    
    
    June 2010JP Morgan Chase III
    
    Datran Center
    
    
    65,000
    
    
    
    65,000
    
    
    
    
    4.88
    
    
    
    
    
    October 2015Bank of America Note I (2)
    
    Fairmont Sonoma Mission Inn
    
    
    55,000
    
    
    
    
    
    
    
    
    5.40
    
    
    
    
    
    February 2011Morgan Stanley I
    
    The Alhambra
    
    
    50,000
    
    
    
    50,000
    
    
    
    
    5.06
    
    
    
    
    
    October 2011Allstate Life Note
    
    Financial Plaza
    
    
    38,949
    
    
    
    
    
    
    
    
    5.47
    
    
    
    
    
    October 2010Bank of America Note II (3)
    
    The BAC - Colonnade Building
    
    
    37,439
    
    
    
    37,922
    
    
    
    
    5.53
    
    
    
    
    
    May 2013Metropolitan Life Note VII
    
    Dupont Centre
    
    
    35,500
    
    
    
    35,500
    
    
    
    
    4.31
    
    
    
    
    
    May 2011Column Financial
    
    Peakview Tower
    
    
    33,000
    
    
    
    33,000
    
    
    
    
    5.59
    
    
    
    
    
    April 2015Mass Mutual Note
    
    3800 Hughes
    
    
    32,203
    
    
    
    34,177
    
    
    
    
    7.75
    
    
    
    
    
    July 2007Northwestern Life Note
    
    301 Congress
    
    
    26,000
    
    
    
    26,000
    
    
    
    
    4.94
    
    
    
    
    
    November 2008JP Morgan Chase II
    
    3773 Hughes
    
    
    24,755
    
    
    
    24,755
    
    
    
    
    4.98
    
    
    
    
    
    September 2011Allstate Note (4)
    
    3993 Hughes
    
    
    24,025
    
    
    
    24,781
    
    
    
    
    6.65
    
    
    
    
    
    September 2010Metropolitan Life Note VI (4)
    
    3960 Hughes
    
    
    22,074
    
    
    
    23,011
    
    
    
    
    7.71
    
    
    
    
    
    October 2009Construction, Acquisition and other obligations(4)
    
    Various Office and Resort Residential Assets
    
    
    40,690
    
    
    
    36,526
    
    
    
    
    2.90 to 13.75
    
    
    
    
    
    July 2007 to Dec. 2016Secured Fixed Rate Defeased Debt(5):LaSalle Note II
    
    Funding II Defeasance
    
    
    
    
    
    
    155,188LaSalle Note I
    
    Funding I Defeasance
    
    
    100,017
    
    
    
    101,723
    
    
    
    
    7.83
    
    
    
    
    
    August 2007Nomura Funding VI Note
    
    Funding VI Defeasance
    
    
    7,208
    
    
    
    7,445
    
    
    
    
    10.07
    
    
    
    
    
    July 2010Subtotal/Weighted Average
    
    
    
    $
    904,150
    
    
    $
    973,706
    
    
    
    
    6.38%
    
    
    6.71
    %Unsecured Fixed Rate Debt:The 2009 Notes (6) (7)
    
    
    
    $
    375,000
    
    
    $
    375,000
    
    
    
    
    9.25%
    
    
    
    
    
    April 2009The 2007 Notes (6)
    
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    
    7.50
    
    
    
    
    
    September 2007Subtotal/Weighted Average
    
    
    
    $
    625,000
    
    
    $
    625,000
    
    
    
    
    8.55%
    
    
    8.55
    %Secured Variable Rate Debt:GACC Note (8)
    
    Funding One Assets
    
    $
    165,000
    
    
    $
    165,000
    
    
    LIBOR + 147 bps
    
    6.82%
    
    
    
    
    
    June 2007Morgan Stanley II (9)
    
    Mezzanine Investments
    
    
    22,311
    
    
    
    
    
    
    LIBOR + 150 to 230 bps
    
    7.37
    
    
    
    
    
    March 2009Goldman Sachs (9)
    
    Mezzanine Investments
    
    
    10,000
    
    
    
    
    
    
    LIBOR + 140 bps
    
    6.72
    
    
    
    
    
    May 2009KeyBank II
    
    Distributions from Funding III, IV & V
    
    
    75,000
    
    
    
    
    
    
    LIBOR + 200 bps
    
    7.35
    
    
    
    
    
    June 2007National Bank of Arizona (10)
    
    DMDC Assets
    
    
    15,654
    
    
    
    6,157
    
    
    Prime + 50 bps
    
    8.75
    
    
    
    
    
    October 2007Acquisition and other obligations
    
    Various Office and Other Assets
    
    
    13,416
    
    
    
    23,650
    
    
    LIBOR + 128 to 131 bpsor Prime - 75 to 100 bps
    
    6.60 to 6.63
    
    
    
    
    
    Feb. 2008 to Dec. 2012Secured Variable Rate Construction Debt:KeyBank I (11)
    
    Ritz-Carlton Dallas Construction
    
    
    80,296
    
    
    
    15,162
    
    
    LIBOR + 225 bps
    
    7.60%
    
    
    
    
    
    July 2008JP Morgan Chase (12)
    
    Northstar Big Horn Construction
    
    
    56,342
    
    
    
    17,164
    
    
    Prime - 50 bps
    
    7.75
    
    
    
    
    
    October 2007Societe Generale I (13)
    
    3883 Hughes Construction
    
    
    30,587
    
    
    
    314
    
    
    LIBOR + 180 bps
    
    7.22
    
    
    
    
    
    September 2008First Bank of Vail (14)
    
    Village Walk Construction
    
    
    14,041
    
    
    
    
    
    
    Prime - 50 bps
    
    7.75
    
    
    
    
    
    February 2008US Bank II (15)
    
    Northstar Trailside Construction
    
    
    1,991
    
    
    
    
    
    
    LIBOR + 250 bps
    
    8.10
    
    
    
    
    
    March 2009US Bank I (16)
    
    Beaver Creek Landing Construction
    
    
    16,446
    
    
    
    
    
    
    Prime - 115 bps
    
    7.10
    
    
    
    
    
    February 2008California Bank & Trust (17)
    
    One Riverfront Construction
    
    
    13,861
    
    
    
    
    
    
    Prime + 12.5 bps
    
    8.38
    
    
    
    
    
    March 2008JP Morgan Chase Bank (18)
    
    Old Greenwood Construction
    
    
    16,150
    
    
    
    10,235
    
    
    Prime
    
    8.25
    
    
    
    
    
    March 2007Construction,
acquisition and other obligations
    
    Various Office and Resort
Residential Assets
    
    
    40,792
    
    
    
    29,961
    
    
    LIBOR + 213 to 393
    
    7.45 to 9.25
    
    
    
    
    
    June 2007 to Dec. 2010Bank One
    
    Northstar Ironhorse Construction
    
    
    
    
    
    
    42,671Bank One
    
    Jefferson Station Apts. Construction
    
    
    
    
    
    
    24,526Guaranty Bank
    
    Paseo Del Mar Construction
    
    
    
    
    
    
    14,606Subtotal/Weighted Average
    
    
    
    $
    571,887
    
    
    $
    349,446
    
    
    
    
    7.39%
    
    
    6.43
    %Unsecured Variable Rate Debt:Credit Facility (19)
    
    
    
    $
    118,000
    
    
    $
    234,000
    
    
    LIBOR + 160 bps
    
    6.95%
    
    
    
    
    
    February 2008Junior Subordinated Notes (20)
    
    
    
    
    51,547
    
    
    
    51,547
    
    
    LIBOR + 200 bps
    
    7.38
    
    
    
    
    
    June 2035Junior Subordinated Notes (20)
    
    
    
    
    25,774
    
    
    
    25,774
    
    
    LIBOR + 200 bps
    
    7.38
    
    
    
    
    
    July 2035Subtotal/Weighted Average
    
    
    
    $
    195,321
    
    
    $
    311,321
    
    
    
    
    7.12%
    
    
    6.00
    %Total/Weighted Average
    
    
    
    $
    2,296,358
    
    
    $
    2,259,473
    
    
    
    
    7.29%
    (21)
    
    7.08
    %Average remaining term
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.1 years
 
 120




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (1)
    
    The remaining outstanding balance of this note at maturity will be approximately
$223.4 million.(2)
    
    Obtaining this loan was a reconsideration event under FIN 46R. We determined that
the entity that operates Fairmont Sonoma Mission Inn is a VIE of which we are the primary
beneficiary. This entity was previously consolidated under other GAAP; therefore there is no
impact to our Consolidated Financial Statements.(3)
    
    The outstanding principal balance of this loan at maturity will be approximately
$33.7 million.(4)
    
    We assumed these loans in connection with the Hughes Center properties acquisitions.
The following table lists the unamortized premium associated with the assumption of above
market interest rate debt which is included in the balance outstanding at December 31, 2006,
the effective interest rate of the debt including the premium and the outstanding principal
balance at maturity: (dollars in thousands)
    
    Unamortized
    
    
    
    
    
    
    Balance atLoan
    
    Premium
    
    
    Effective Rate
    
    
    MaturityNorthwestern
    
    $
    173
    
    
    
    3.80
    %
    
    $
    8,663Allstate Note
    
    
    941
    
    
    
    5.19
    %
    
    
    20,771Metropolitan Life Note VI
    
    
    1,098
    
    
    
    5.68
    %
    
    
    19,239Total
    
    $
    2,212
    
    
    
    
    
    
    $
    48,673
 The premium was recorded as an increase in the carrying amount of the underlying debt and is
being amortized using the effective interest rate method as a reduction of interest expense
through maturity of the underlying debt.(5)
    
    We purchased U.S. Treasuries and government sponsored agency securities, or
defeasance investments, to substitute as collateral for these loans. The cash flow from
defeasance investments (principal and interest) matches the debt service payment of the loans.(6)
    
    To incur any additional debt, the indenture requires us to meet thresholds for a
number of customary financial and other covenants including maximum leverage ratios, minimum
debt service coverage ratios, maximum secured debt as a percentage of total undepreciated
assets, and ongoing maintenance of unencumbered assets. Additionally, as long as the 2009
Notes are not rated investment grade, there are restrictions on our ability to make certain
payments, including distributions to shareholders and investments.(7)
    
    At our option, these notes can be called beginning in April 2007 for 102.3% and in
April 2008 and thereafter for par.(8)
    
    This note consists of a $110.0 million senior loan at LIBOR plus 108 basis points, a
$40.0 million first mezzanine loan at LIBOR plus 225 basis points and a $15.0 million second
mezzanine loan at LIBOR plus 225 basis points. This note has three one-year extension
options.(9)
    
    This loan has one one-year extension option. The loans supporting this facility
are subject to daily valuations by Morgan Stanley and Goldman Sachs, respectively, and we are
subject to a margin call if the overall leverage of the facility exceeds certain thresholds.(10)
    
    The maximum facility amount is $30.0 million.(11)
    
    The maximum facility amount is $169.0 million. This loan has three one-year
extension options.(12)
    
    The maximum facility amount is $84.9 million.(13)
    
    The maximum facility amount is $52.3 million. This loan has two one-year extension
options. The rate on this loan decreases to LIBOR plus 170 basis points when the following
are met: 85% leased and 75% occupied.(14)
    
    The maximum facility amount is $41.8 million.(15)
    
    The maximum facility amount is $36.0 million.(16)
    
    The maximum facility amount is $33.4 million. This loan has one six-month
extension option.(17)
    
    The maximum facility amount is $27.5 million. This loan has one one-year extension
option. The partners have committed to contribute up to an additional $17.1 million in
capital should certain financial covenants not be maintained.(18)
    
    The maximum facility amount is $21.0 million.(19)
    
    Availability under the line of credit is subject to certain covenants including
limitations on total leverage, fixed charge ratio, debt service coverage ratio, minimum
tangible net worth, and a specific mix of office and hotel assets and average occupancy of
Office Properties. At December 31, 2006, the maximum borrowing capacity under the credit
facility was $366.8 million. The outstanding balance excludes letters of credit issued under
our credit facility of $9.5 million which reduces our maximum borrowing capacity. The spread
to LIBOR on this loan decreases to 150 basis points if we reduce leverage below 45% and it
increases to 175 basis points if we exceed 55% leverage.(20)
    
    In 2005, we completed private offerings of $75.0 million of trust preferred
securities through our trust subsidiaries. The securities are callable at no premium after
June and July 2010.(21)
    
    The overall weighted average interest rate does not include the effect of our cash
flow hedge agreements. Including the effect of these agreements, the overall weighted average
interest rate would have been 7.27%.  WeightedPercentage
    
    
    Average
    
    
    Weighted Average(in thousands)
    
    Balance
    
    
    of Debt(1)
    
    
    Rate
    
    
    MaturityFixed Rate Debt
    
    $
    1,529,150
    
    
    
    66.6
    %
    
    
    7.27
    %
    
    2.8 yearsVariable Rate Debt
    
    
    767,208
    
    
    
    33.4
    
    
    
    7.32
    
    
    3.7 yearsTotal Debt
    
    $
    2,296,358
    
    
    
    100.0
    %
    
    
    7.29
    % (2)
    
    3.1 years
 
 (1)
    
    Balance excludes hedges. The percentages for fixed rate debt and variable
rate debt, including the $287.6 million of hedged variable rate debt, are 79% and 21%,
respectively.(2)
    
    Including the effect of hedge arrangements, the overall weighted average interest
rate would have been 7.27%. 
 121




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Secured
    
    
    Defeased(in thousands)
    
    Debt
    
    
    Debt
    
    
    Unsecured Debt
    
    
    Total(1)2007
    
    $
    399,719
    
    
    $
    100,279
    
    
    $
    250,000
    
    
    $
    749,9982008
    
    
    234,290
    
    
    
    289
    
    
    
    118,000
    
    
    
    352,5792009
    
    
    280,489
    
    
    
    320
    
    
    
    375,000
    
    
    
    655,8092010
    
    
    134,043
    
    
    
    6,337
    
    
    
    
    
    
    
    140,3802011
    
    
    181,120
    
    
    
    
    
    
    
    
    
    
    
    181,120Thereafter
    
    
    139,151
    
    
    
    
    
    
    
    77,321
    
    
    
    216,472$
    1,368,812
    
    
    $
    107,225
    
    
    $
    820,321
    
    
    $
    2,296,358
 
 (1)
    
    Based on contractual maturity and does not include extension options on
Wells Fargo Bank Loan, Societe Generale Loan, KeyBank I Construction Loan, California Bank
& Trust Loan, US Bank I Loan, Morgan Stanley II Loan, GACC Note or Goldman Sachs Loan.   Warehouse Facilities
   122




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  13. INTEREST RATE SWAPS AND CAPS
 Accounting for Derivative Instruments and Hedging Activities Accounting for Certain Derivative Instruments and Certain Hedging
Activities  an Amendment of FASB Statement No. 133 Amendment of Statement 133
on Derivative Instruments and Hedging Activities.
  Additional
    
    
    Change inNotional
    
    
    Maturity
    
    
    Reference
    
    
    Fair Market
    
    
    (Reduction) Interest
    
    
    Unrealized GainsEffective Date
    
    Amount
    
    
    Date
    
    
    Rate
    
    
    Value
    
    
    Expense
    
    
    (Losses) in OCI(in thousands)Interest rate swaps2/15/03
    
    $
    100,000
    
    
    
    2/15/06
    
    
    
    3.26
    %
    
    $
    
    
    
    $
    (147
    )
    
    $
    (138
    )2/15/03
    
    
    100,000
    
    
    
    2/15/06
    
    
    
    3.25
    %
    
    
    
    
    
    
    (148
    )
    
    
    (139
    )9/02/03
    
    
    200,000
    
    
    
    9/01/06
    
    
    
    3.72
    %
    
    
    
    
    
    
    (1,603
    )
    
    
    (1,264
    )1/17/05
    
    
    
    
    
    
    10/16/06
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    (1)
    
    
    (205
    )4/25/06
    
    
    79,761
    
    
    
    12/26/07
    
    
    
    5.20
    %
    
    
    3
    
    
    
    
    (1)
    
    
    39/29/06
    
    
    200,000
    
    
    
    9/4/07
    
    
    
    5.20
    %
    
    
    56
    
    
    
    (66
    )
    
    
    56$
    59
    
    
    $
    (1,964
    )
    
    $
    (1,687
    )Interest rate caps1/07/05
    
    $
    7,800
    
    
    
    2/01/08
    
    
    
    6.00
    %
    
    
    
    
    
    
    4
    
    
    
    (1
    )$
    59
    
    
    $
    (1,960
    )
    
    $
    (1,688
    )
 
 (1)
    
    A portion of the interest on the debt that this swap is hedging is
capitalized.    123




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Undesignated Caps
  14. RENTALS UNDER OPERATING LEASES
     FutureMinimum(in millions)
    
    Rentals2007
    
    $
    304.52008
    
    
    242.42009
    
    
    218.02010
    
    
    193.62011
    
    
    166.3Thereafter
    
    
    432.3$
    1,557.1
  124




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15. COMMITMENTS, CONTINGENCIES AND LITIGATION
 Lease Commitments
  Future Minimum(in millions)
    
    Lease Payments2007
    
    $
    1.92008
    
    
    1.92009
    
    
    1.92010
    
    
    2.02011
    
    
    2.0Thereafter
    
    
    137.3$
    147.0
 Guarantee Commitments
 Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others
 Guaranteed
    
    
    MaximumAmount
    
    
    Guaranteed(in thousands)
    
    Outstanding at
    
    
    Amount atDebtor
    
    December 31, 2006
    
    
    December 31, 2006CRDI  U.S. Bank National Association(1)
    
    $
    14,346
    
    
    $
    20,393CRDI  Eagle Ranch Metropolitan District  Letter of Credit (2)
    
    
    7,840
    
    
    
    7,840Fresh Choice, LLC(3)
    
    
    1,000
    
    
    
    1,000Total Guarantees
    
    $
    23,186
    
    
    $
    29,233
 
 (1)
    
    We entered into a Payment and Completion Guaranty with U.S. Bank National
Association for the repayment of bonds that were issued by the Northstar Community Housing
Corporation to fund construction of an employee housing project. The initial guaranty of
$20.4 million decreases to $5.1 million once construction is complete and certain
conditions are met and decreases further and is eventually released as certain debt service
coverage ratios are achieved.(2)
    
    We provide a $7.8 million letter of credit to support the payment of interest and
principal of the Eagle Ranch Metropolitan District Revenue Development Bonds.(3)
    
    We provide a guarantee of up to $1.0 million to GE Capital Franchise Financing
Corporation as part of Fresh Choices bankruptcy reorganization. Other Commitments
  125




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Contingencies
 Environmental Matters
  Accounting for Conditional Asset Retirement
Obligations
 Litigation
  16. STOCK AND UNIT BASED COMPENSATION
 Stock and Unit Option Plans
 Accounting for Stock-Based Compensation 
Transition and Disclosure
  For the years endedDecember 31,2006
    
    2005
    
    2004Expected term
    
    6.5 years
    
    10 years
    
    10 yearsRisk-free rate
    
    
    4.6
    %
    
    
    4.2
    %
    
    
    4.3
    %Expected dividends
    
    
    7.4
    %
    
    
    8.8
    %
    
    
    8.8
    %Expected volatility
    
    
    22.2
    %
    
    
    25.0
    %
    
    
    24.9
    %
 126




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   For the years ended December 31,(in thousands, except per share amounts)
    
    2005
(Restated)
    
    
    2004
(Restated)Net income available to common
shareholders, as reported
    
    $
    69,547
    
    
    $
    147,061Add: stock-based employee compensation
expense included in reported net income
    
    
    13,548
    
    
    
    2,340Deduct: total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of minority interest
    
    
    (15,153
    )
    
    
    (4,270
    )Pro forma net income available
to common shareholders
    
    $
    67,942
    
    
    $
    145,131Earnings per share:Basic  as reported
    
    $
    0.69
    
    
    $
    1.49Basic  pro forma
    
    $
    0.68
    
    
    $
    1.47Diluted  as reported
    
    $
    0.69
    
    
    $
    1.48Diluted  pro forma
    
    $
    0.68
    
    
    $
    1.46
    Shares
    
    
    
    
    
    
    Wtd. Avg.Underlying
    
    
    Wtd. Avg.
    
    
    YearsStock and
    
    
    Exercise
    
    
    Remaining
    
    
    AggregateUnit
    
    
    Price Per
    
    
    Contractual
    
    
    Intrinsic(in thousands, except per share amounts)
    
    Options
    
    
    Share
    
    
    Term
    
    
    ValueOutstanding at January 1, 2006
    
    
    12,363
    
    
    $
    18Granted
    
    
    35
    
    
    
    20Exercised
    
    
    (1,314
    )
    
    
    18Forfeited
    
    
    (17
    )
    
    
    17Expired
    
    
    (185
    )
    
    
    22Outstanding at December 31, 2006
    
    
    10,882
    
    
    $
    19
    
    
    
    4.6
    
    
    $
    22,974Exercisable at December 31, 2006
    
    
    9,224
    
    
    $
    19
    
    
    
    4.3
    
    
    $
    19,275
   Shares Underlying
    
    
    WeightedStock and Unit
    
    
    Average Grant-(in
thousands, except per share amounts)
    
    Options
    
    
    Date Fair ValueNonvested at January 1, 2006
    
    
    3,092
    
    
    $
    1.20Granted
    
    
    35
    
    
    
    1.97Vested
    
    
    (1,452
    )
    
    
    1.27Forfeited
    
    
    (17
    )
    
    
    1.05Nonvested at December 31, 2006
    
    
    1,658
    
    
    $
    1.15
 127




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2004 and 2005 Unit Plans
   For the years endedDecember 31,2006
    
    2005
    
    2004Expected term
    
    
    1.5 to 5.2 years
    
    
    
    1.5 to 5.5 years
    
    
    
    1.5 to 5.5 yearsRisk-free rate
    
    
    3.8%
    
    
    
    3.8%
    
    
    
    3.4%Expected dividends
    
    
    9.0%
    
    
    
    9.0%
    
    
    
    9.1%Expected volatility
    
    
    23.0%
    
    
    
    23.1%
    
    
    
    25.0%
   Weighted-Shares
    
    Average(share amounts in thousands)
    
    Underlying
    
    Grant-DateNonvested Units
    
    Units
    
    Fair ValueNonvested at January 1, 2006
    
    
    4,294
    
    
    $
    6.54Granted
    
    
    25
    
    
    
    7.31Vested
    
    
    (1,148
    )
    
    
    6.66Forfeited
    
    
    (10
    )
    
    
    7.52Nonvested at December 31, 2006
    
    
    3,161
    
    
    $
    6.49
   128




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17. MINORITY INTERESTS
     2005(in thousands)
    
    2006
    
    
    (Restated)Limited partners in the Operating Partnership
    
    $
    23,461
    
    
    $
    70,178Limited partners in the Operating Partnership  Units subject to redemption at fair
market value
    
    
    46,970
    
    
    
    28,481Limited partners in the Operating Partnership  Unvested units subject to redemption
    
    
    5,434
    
    
    
    Development joint venture partners  Resort Residential Development Segment
    
    
    32,399
    
    
    
    31,546Joint venture partners  Office Segment
    
    
    11,543
    
    
    
    15,354Joint venture partners  Resort/Hotel Segment
    
    
    5,368
    
    
    
    5,853Other
    
    
    528
    
    
    
    127$
    125,703
    
    
    $
    151,539
  2005
    
    
    2004(in thousands)
    
    2006
    
    
    (Restated)
    
    
    (Restated)Limited partners in the Operating Partnership
    
    $
    (2,358
    )
    
    $
    (4,048
    )
    
    $
    24,866Development joint venture partners  Resort Residential Development Segment
    
    
    5,377
    
    
    
    15,545
    
    
    
    9,201Joint venture partners  Office Segment
    
    
    (632
    )
    
    
    (138
    )
    
    
    (163
    )Joint venture partners  Resort/Hotel Segment
    
    
    (126
    )
    
    
    (661
    )
    
    
    (1,131
    )Other
    
    
    400
    
    
    
    369
    
    
    
    (67
    )$
    2,661
    
    
    $
    11,067
    
    
    $
    32,706
 129




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 18. SHAREHOLDERS EQUITY
 Share Repurchase Program
  Distributions
    19. INCOME TAXES
 Taxable Consolidated Entities
   130




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31,December 31,
    
    
    2005(in thousands)
    
    2006
    
    
    (Restated)Deferred tax liabilities:Resort
Residential Development costs
    
    $
    (7,108
    )
    
    $
    (27,234
    )Minority interests
    
    
    (4,661
    )
    
    
    (4,834
    )Land value adjustments
    
    
    (10,604
    )
    
    
    (11,273
    )Depreciable and amortizable assets
    
    
    (722
    )
    
    
    Other
    
    
    (3,629
    )
    
    
    Total deferred tax liabilities:
    
    $
    (26,724
    )
    
    $
    (43,341
    )Deferred tax assets:Deferred revenue
    
    $
    23,754
    
    
    $
    29,871Hotel lease acquisition costs
    
    
    
    
    
    
    85Depreciable and amortizable assets
    
    
    
    
    
    
    1,650Net operating loss carryforwards
    
    
    7,515
    
    
    
    10,784Impairment of assets
    
    
    1,464
    
    
    
    1,464Related party interest expense not currently deductible
    
    
    6,107
    
    
    
    8,999Other
    
    
    
    
    
    
    2,617Total deferred tax assets
    
    $
    38,840
    
    
    $
    55,470Valuation allowance for deferred tax assets
    
    
    (8,842
    )
    
    
    (9,688
    )Deferred tax assets, net of valuation allowance
    
    $
    29,998
    
    
    $
    45,782Net deferred
tax assets
    
    $
    3,274
    
    
    $
    2,441
  Accounting for Income Taxes
 131




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year ended
    
    
    Year endedYear ended
    
    
    December 31, 2005
    
    
    December 31, 2004December 31, 2006
    
    

(Restated)
    
    

(Restated)(in thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentTax at U.S. statutory
rates on consolidated
income (loss) subject to tax
    
    $
    1,439
    
    
    
    35.0
    %
    
    $
    (7,954
    )
    
    
    (35.0
    )%
    
    $
    10,982
    
    
    
    35.0
    %State income tax, net of
federal income tax benefit
    
    
    106
    
    
    
    2.6
    
    
    
    (980
    )
    
    
    (4.3
    )
    
    
    1,254
    
    
    
    4.0Disallowed expenses
    
    
    (508
    )
    
    
    (12.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair market value charitable
contribution deduction
    
    
    1,732
    
    
    
    42.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    (139
    )
    
    
    (3.4
    )
    
    
    41
    
    
    
    0.2
    
    
    
    701
    
    
    
    2.2Change in valuation allowance
    
    
    845
    
    
    
    20.6
    
    
    
    431
    
    
    
    1.9
    
    
    
    (706
    )
    
    
    (2.2
    )$
    3,475
    
    
    
    84.5
    %
    
    $
    (8,462
    )
    
    
    (37.2
    )%
    
    $
    12,231
    
    
    
    39.0
    %
 2005
    
    
    2004(in thousands)
    
    2006
    
    

(Restated)
    
    

(Restated)Current tax benefit (expense)
    
    $
    2,642
    
    
    $
    7,104
    
    
    $
    381Deferred tax benefit (expense)
    
    
    833
    
    
    
    (15,566
    )
    
    
    11,850Federal income tax benefit (expense)
    
    $
    3,475
    
    
    $
    (8,462
    )
    
    $
    12,231
  20. RELATED PARTY TRANSACTIONS
 Loans to Employees and Trust Managers of the Company for Exercise of Stock Options and Unit
Options
  Other
  132




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  21. QUARTERLY FINANCIAL INFORMATION
 For the 2006 Quarter EndedMarch 31,
    
    June 30,
    
    September 30,(in thousands)
    
    (Restated)
    
    (Restated)
    
    (Restated)
    
    December 31,Total Property revenues
    
    $
    238,603
    
    
    $
    195,004
    
    
    $
    204,218
    
    
    $
    290,871Total Property expenses
    
    
    172,197
    
    
    
    123,687
    
    
    
    139,921
    
    
    
    222,219(Loss) income from continuing operations before minority interests and
income taxes
    
    
    (4,493
    )
    
    
    (832
    )
    
    
    9,554
    
    
    
    14,635Minority interests
    
    
    1,741
    (1)
    
    
    178
    (1)
    
    
    (1,823
    )(1)
    
    
    (2,757
    )(1)Income tax (expense) benefit
    
    
    (1,143
    )
    
    
    5,291
    
    
    
    3,124
    
    
    
    (3,797
    )(Loss) income from discontinued operations, net of minority interests and
taxes
    
    
    (30
    )
    
    
    (37
    )
    
    
    (185
    )
    
    
    (250
    )Impairment charges related to real estate assets from discontinued
operations, net of minority interests
    
    
    
    
    
    
    
    
    
    
    (105
    )
    
    
    Gain (loss) on sale of real estate from discontinued operations, net of
minority interests and taxes
    
    
    96
    
    
    
    (8
    )
    
    
    50
    
    
    
    14,224Net (loss) income
    
    $
    (3,829
    )
    
    $
    4,592
    
    
    $
    10,615
    
    
    $
    22,055
    (2)Per share data:Basic Earnings Per Common Share-(Loss) income available to common shareholders before discontinued
operations and cumulative effect of a change in accounting principle
    
    $
    (0.12
    )
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    - (Loss) income from discontinued operations, net of minority interests
and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    - Impairment charges related to real estate assets from discontinued
operations, net of minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    - Gain (loss) on sale of real estate from discontinued operations, net of
minority interests and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.14- Net (loss) income available to common shareholders  Basic
    
    $
    (0.12
    )
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    0.14Diluted Earnings Per Common Share-(Loss) income available to common shareholders before discontinued
operations and cumulative effect of a change in accounting principle
    
    $
    (0.12
    )
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    - (Loss) income from discontinued operations, net of minority interests
and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    - Impairment charges related to real estate assets from discontinued
operations, net of minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    - Gain (loss) on sale of real estate from discontinued operations, net
of minority interests and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.14- Net (loss) income available to common shareholders  Diluted
    
    $
    (0.12
    )
    
    $
    (0.03
    )
    
    $
    0.03
    
    
    $
    0.14
 
 (1)
    
    Includes adjustments associated with the Calculation of Minority Interest restatement
of $1.3 million for each of the first, second and third quarters of 2006, and $1.2 million
for the fourth quarter of 2006. See Note 1, Organization and Basis of Presentation, for
further description of this restatement.(2)
    
    Includes $2.7 million associated with prior year adjustments at AmeriCold, an equity
investee in which we hold a 31.7% interest. 133




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For the 2005 Quarter EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(in thousands)
    
    (Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Total Property revenues
    
    $
    183,224
    
    
    $
    208,414
    
    
    $
    210,471
    
    
    $
    415,991Total Property expenses
    
    
    126,986
    
    
    
    144,697
    
    
    
    145,323
    
    
    
    322,255(Loss)
income from continuing operations before minority interests and income taxes
    
    
    (6,210
    )
    
    
    (6,567
    )
    
    
    (12,236
    )
    
    
    53,840
    (1)Minority interests
    
    
    1,719
    (2)
    
    
    182
    (2)
    
    
    1,852
    (2)
    
    
    (14,820
    )(2)Income tax benefit (expense)
    
    
    1,216
    
    
    
    326
    
    
    
    755
    
    
    
    (10,759
    )Income (loss) from discontinued operations, net of minority interests
    
    
    1,683
    
    
    
    1,710
    
    
    
    813
    
    
    
    (200
    )Impairment
charges related to real estate assets from discontinued operations, net of minority interests
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    (889
    )Gain (loss) on real estate from discontinued operations, net of minority
interests
    
    
    1,504
    
    
    
    
    
    
    
    89,735
    
    
    
    (2,005
    )(1)Net (loss) income
    
    $
    (88
    )
    
    $
    (4,349
    )
    
    $
    80,855
    
    
    $
    25,167Per share data:Basic Earnings Per Common Share-(Loss) income available to common shareholders before discontinued
operations and cumulative effect of a change in accounting principle
    
    $
    (0.11
    )
    
    $
    (0.14
    )
    
    $
    (0.18
    )
    
    $
    0.20- Income (loss) from discontinued operations, net of minority interests
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.01
    
    
    
    - Impairment charges related to real estate assets from discontinued
operations, net of minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )- Gain (loss) on real estate from discontinued operations, net of
minority interests
    
    
    0.01
    
    
    
    
    
    
    
    0.89
    
    
    
    (0.02
    )- Net (loss) income available to common shareholders  Basic
    
    $
    (0.08
    )
    
    $
    (0.12
    )
    
    $
    0.72
    
    
    $
    0.17Diluted Earnings Per Common Share-(Loss) income available to common shareholders before discontinued
operations and cumulative effect of a change in accounting principle
    
    $
    (0.11
    )
    
    $
    (0.14
    )
    
    $
    (0.18
    )
    
    $
    0.20- Income (loss) from discontinued operations, net of minority interests
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.01
    
    
    
    - Impairment charges related to real estate assets from discontinued
operations, net of minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )- Gain (loss) on real estate from discontinued operations, net of
minority interests
    
    
    0.01
    
    
    
    
    
    
    
    0.89
    
    
    
    (0.02
    )- Net (loss) income available to common shareholders  Diluted
    
    $
    (0.08
    )
    
    $
    (0.12
    )
    
    $
    0.72
    
    
    $
    0.17
 
 (1)
    
    Includes $4.9 million of expense related to the write-off of capitalized internal
leasing costs related to prior year office dispositions and the joint venture of
properties.(2)
    
    Includes adjustments associated with the Calculation of
Minority Interest restatement of $1.2 million for each of the
first, second and third quarter of 2005, and $1.0 million for the
fourth quarter of 2005. See Note 1, Organization and Basis of
Presentation, for further description of this restatement. 134




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CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 22. COPI
   23. SUBSEQUENT EVENTS (UNAUDITED)
  Assets(in thousands)
    
    As of December 31, 2006
    
    
    As of December 31, 2005ResortResidential
    
    
    Resort/
    
    
    
    
    
    
    
    
    
    
    ResortResidential
    
    
    Resort/Office
    
    
    Development
    
    
    Hotel
    
    
    
    
    
    
    Office
    
    
    Development
    
    
    HotelSegment
    
    
    Segment
    
    
    Segment
    
    
    Total
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    TotalLand
    
    $
    30,469
    
    
    $
    22,312
    
    
    $
    25,567
    
    
    $
    78,348
    
    
    $
    26,952
    
    
    $
    22,312
    
    
    $
    25,567
    
    
    $
    74,831Land Improvements
    
    
    177
    
    
    
    106,874
    
    
    
    
    
    
    
    107,051
    
    
    
    195
    
    
    
    100,083
    
    
    
    
    
    
    
    100,278Buildings and
improvements
    
    
    560,496
    
    
    
    143,346
    
    
    
    307,492
    
    
    
    1,011,334
    
    
    
    508,164
    
    
    
    129,915
    
    
    
    297,180
    
    
    
    935,259Furniture, fixtures
and equipment
    
    
    317
    
    
    
    26,540
    
    
    
    33,558
    
    
    
    60,415
    
    
    
    317
    
    
    
    21,648
    
    
    
    29,710
    
    
    
    51,675Land held for
investment or
development
    
    
    
    
    
    
    619,746
    
    
    
    
    
    
    
    619,746
    
    
    
    
    
    
    
    448,173
    
    
    
    
    
    
    
    448,173Accumulated
Depreciation
    
    
    (137,327
    )
    
    
    (66,949
    )
    
    
    (89,498
    )
    
    
    (293,774
    )
    
    
    (117,324
    )
    
    
    (54,761
    )
    
    
    (81,490
    )
    
    
    (253,575
    )Net investment in
real estate
    
    
    454,132
    
    
    
    851,869
    
    
    
    277,119
    
    
    
    1,583,120
    
    
    
    418,304
    
    
    
    667,370
    
    
    
    270,967
    
    
    
    1,356,641Cash
    
    
    
    
    
    
    18,543
    
    
    
    7,735
    
    
    
    26,278
    
    
    
    
    
    
    
    43,920
    
    
    
    7,983
    
    
    
    51,903Restricted cash
    
    
    146
    
    
    
    3,660
    
    
    
    1,341
    
    
    
    5,147
    
    
    
    2,447
    
    
    
    23,726
    
    
    
    1,932
    
    
    
    28,105Accounts
receivable, net
    
    
    
    
    
    
    29,673
    
    
    
    8,655
    
    
    
    38,328
    
    
    
    
    
    
    
    21,889
    
    
    
    8,458
    
    
    
    30,347Deferred rent
receivable
    
    
    16,339
    
    
    
    
    
    
    
    
    
    
    
    16,339
    
    
    
    13,427
    
    
    
    
    
    
    
    
    
    
    
    13,427Investments in
unconsolidated
companies
    
    
    
    
    
    
    19,979
    
    
    
    
    
    
    
    19,979
    
    
    
    
    
    
    
    6,417
    
    
    
    
    
    
    
    6,417Notes receivable
    
    
    
    
    
    
    7,332
    
    
    
    
    
    
    
    7,332
    
    
    
    
    
    
    
    6,275
    
    
    
    
    
    
    
    6,275Income tax asset 
current and
deferred
    
    
    
    
    
    
    (4,122
    )
    
    
    
    
    
    
    (4,122
    )
    
    
    
    
    
    
    (5,192
    )
    
    
    
    
    
    
    (5,192
    )Other assets, net
    
    
    34,168
    
    
    
    103,965
    
    
    
    4,485
    
    
    
    142,618
    
    
    
    28,108
    
    
    
    111,408
    
    
    
    3,673
    
    
    
    143,189Total assets
    
    $
    504,785
    
    
    $
    1,030,899
    
    
    $
    299,335
    
    
    $
    1,835,019
    
    
    $
    462,286
    
    
    $
    875,813
    
    
    $
    293,013
    
    
    $
    1,631,112Liabilities(in thousands)
    
    As of December 31, 2006
    
    
    As of December 31, 2005ResortResidential
    
    
    Resort/
    
    
    
    
    
    
    
    
    
    
    ResortResidential
    
    
    Resort/Office
    
    
    Development
    
    
    Hotel
    
    
    
    
    
    
    Office
    
    
    Development
    
    
    HotelSegment
    
    
    Segment
    
    
    Segment
    
    
    Total
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    TotalNotes Payable
    
    $
    64,949
    
    
    $
    178,560
    
    
    $
    55,000
    
    
    $
    298,509
    
    
    $
    26,000
    
    
    $
    110,145
    
    
    $
    
    
    
    $
    136,145Accounts payable,
accrued expenses and
other liabilities
    
    
    8,932
    
    
    
    274,668
    
    
    
    21,787
    
    
    
    305,387
    
    
    
    7,566
    
    
    
    284,796
    
    
    
    19,812
    
    
    
    312,174Deferred tax liability
    
    
    
    
    
    
    (10,648
    )
    
    
    
    
    
    
    (10,648
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total liabilities
    
    $
    73,881
    
    
    $
    442,580
    
    
    $
    76,787
    
    
    $
    593,248
    
    
    $
    33,566
    
    
    $
    394,941
    
    
    $
    19,812
    
    
    $
    448,319Minority Interests(in thousands)
    
    As of December 31, 2006
    
    
    As of December 31, 2005ResortResidential
    
    
    Resort/
    
    
    
    
    
    
    
    
    
    
    ResortResidential
    
    
    Resort/Office
    
    
    Development
    
    
    Hotel
    
    
    
    
    
    
    Office
    
    
    Development
    
    
    HotelSegment
    
    
    Segment
    
    
    Segment
    
    
    Total
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    TotalMinority interests
    
    $
    
    
    
    $
    31,637
    
    
    $
    
    
    
    $
    31,637
    
    
    $
    
    
    
    $
    30,792
    
    
    $
    
    
    
    $
    30,792Total minority interests
    
    $
    
    
    
    $
    31,637
    
    
    $
    
    
    
    $
    31,637
    
    
    $
    
    
    
    $
    30,792
    
    
    $
    
    
    
    $
    30,792
  135




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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment to FASB Statements No. 87, 88, 106
and 132R.
 
 136




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure Controls and Procedures.
 Internal Control Over Financial Reporting.
 
    
    pertain to the maintenance of records that accurately and fairly
reflect the transactions and dispositions of our assets in
reasonable detail;
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
our receipts and expenditures are made only in accordance with the
authorization procedures we have established; and
    
    provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of any
of our assets in circumstances that could have a material adverse
effect on our financial statements.
 Limitations on the Effectiveness of Controls.
  137




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##### Table of Contents



Scope of the Evaluation . Internal Control  Integrated Framework.
  Periodic Evaluation and Conclusion of Disclosure Controls and Procedures
 Changes
in Internal Control Over Financial Reporting.
 138




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 Internal
Control- Integrated Framework
    DESCRIPTION AND REMEDIATION OF MATERIAL WEAKNESSES
 Calculation of Minority Interest.
 Remediation
Steps to Address Material Weakness.
 Refundable Fees for Club Member Services.
 Classification
of Club Membership Intangible Asset.
 Remediation
Steps to Address Material Weaknesses.
 139




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140




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
           
 141




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##### Table of Contents



Item 9B. Other Information
  
 PART III
  
 Item 10. Trust Managers, Executive Officers of the Registrant and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
  
 Item 13. Certain Relationships and Related Transactions, and Trust Manager Independence
  
 Item 14. Principal Accounting Fees and Services
  142




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)(1)
    
    Financial StatementsReport of Independent Registered Public Accounting FirmCrescent Real Estate Equities Company Consolidated Balance Sheets at December 31, 2006 and
2005.Crescent Real Estate Equities Company Consolidated Statements of Operations for the years
ended December 31, 2006, 2005 and 2004.Crescent Real Estate Equities Company Consolidated Statements of Shareholders Equity for
the years ended December 31, 2006, 2005 and 2004.Crescent Real Estate Equities Company Consolidated Statements of Cash Flows for the years
ended December 31, 2006, 2005 and 2004.Crescent Real Estate Equities Company Notes to Consolidated Financial Statements.(a)(2)
    
    Financial Statement Schedules and Financial Statements of Subsidiaries Not Consolidated
and Fifty-Percent-or-Less-Owned PersonsFinancial Statement SchedulesSchedule III  Crescent Real Estate Equities Company Consolidated Real Estate Investments and
Accumulated Depreciation at December 31, 2006.Schedule IV  Crescent Real Estate Equities Company Mortgage Loans on Real Estate
Investments at December 31, 2006.All other schedules have been omitted either because they are not applicable or because the
required information has been disclosed in the Financial Statements and related notes
included in the consolidated statements.The financial statement schedules and financial statements listed in this Item 15(a)(2) are
contained in Item 8. Financial Statements and Supplementary Data.(a)(3)
    
    ExhibitsThe exhibits required by this item are set forth on the Exhibit Index attached hereto.(b)
    
    ExhibitsSee Item 15(a)(3) above.(c)
    
    Financial Statement Schedules and Financial Statements of Subsidiaries Not Consolidated and
Fifty-Percent-or-Less-Owned PersonsSee Item 15(a)(2) above.
 143




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
 CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
 
 SCHEDULE III
 DECEMBER 31, 2006
  CostsCapitalized
    
    
    Impairment
    
    
    Gross Amount Carried atSubsequent to
    
    
    to Carrying
    
    
    Close of PeriodInitial Costs(1)
    
    
    Acquisition
    
    
    Value
    
    
    12/31/06Land, Buildings,
    
    
    Buildings,
    
    
    
    
    
    
    Buildings,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Life on WhichImprovements,
    
    
    Improvements,
    
    
    
    
    
    
    Improvements,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation inFurniture,
    
    
    Furniture,
    
    
    
    
    
    
    Furniture,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Latest IncomeBuildings and
    
    
    Fixtures and
    
    
    Fixtures and
    
    
    
    
    
    
    Fixtures and
    
    
    
    
    
    
    Accumulated
    
    
    Date of
    
    
    Acquisition
    
    
    Statement IsDescription
    
    Land
    
    
    Improvements
    
    
    Equipment
    
    
    Equipment
    
    
    Land
    
    
    Equipment
    
    
    Total (2)
    
    
    Depreciation
    
    
    Construction
    
    
    Date
    
    
    ComputedThe Citadel, Denver, CO
    
    $
    1,803
    
    
    $
    17,259
    
    
    $
    2,246
    
    
    $
    
    
    
    $
    1,803
    
    
    $
    19,505
    
    
    $
    21,308
    
    
    $
    (14,387
    )
    
    
    1987
    
    
    
    1987
    
    
    
    (3
    )Carter Burgess Plaza, Fort Worth, TX
    
    
    1,375
    
    
    
    66,649
    
    
    
    27,189
    
    
    
    
    
    
    
    1,375
    
    
    
    93,838
    
    
    
    95,213
    
    
    
    (47,255
    )
    
    
    1982
    
    
    
    1990
    
    
    
    (3
    )MacArthur Center I & II, Irving, TX
    
    
    704
    
    
    
    17,247
    
    
    
    2,828
    
    
    
    
    
    
    
    880
    
    
    
    19,899
    
    
    
    20,779
    
    
    
    (7,402
    )
    
    
    1982/1986
    
    
    
    1993
    
    
    
    (3
    )125. E. John Carpenter Freeway, Irving, TX
    
    
    2,200
    
    
    
    48,744
    
    
    
    9,876
    
    
    
    
    
    
    
    2,200
    
    
    
    58,620
    
    
    
    60,820
    
    
    
    (19,882
    )
    
    
    1982
    
    
    
    1994
    
    
    
    (3
    )Regency Plaza One, Denver, CO
    
    
    950
    
    
    
    31,797
    
    
    
    5,932
    
    
    
    
    
    
    
    950
    
    
    
    37,729
    
    
    
    38,679
    
    
    
    (11,570
    )
    
    
    1985
    
    
    
    1994
    
    
    
    (3
    )The Avallon, Austin, TX
    
    
    475
    
    
    
    11,207
    
    
    
    12,472
    
    
    
    
    
    
    
    1,069
    
    
    
    23,085
    
    
    
    24,154
    
    
    
    (6,254
    )
    
    
    1986
    
    
    
    1994
    
    
    
    (3
    )Waterside Commons, Irving, TX (4)
    
    
    3,650
    
    
    
    20,135
    
    
    
    (22,738
    )
    
    
    (1,047
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1986
    
    
    
    1994
    
    
    
    (3
    )Denver Marriott City Center, Denver, CO
    
    
    
    
    
    
    50,364
    
    
    
    8,376
    
    
    
    
    
    
    
    
    
    
    
    58,740
    
    
    
    58,740
    
    
    
    (20,018
    )
    
    
    1982
    
    
    
    1995
    
    
    
    (3
    )707 17th Street, Denver, CO
    
    
    
    
    
    
    56,593
    
    
    
    20,414
    
    
    
    
    
    
    
    
    
    
    
    77,007
    
    
    
    77,007
    
    
    
    (23,022
    )
    
    
    1982
    
    
    
    1995
    
    
    
    (3
    )Spectrum Center, Dallas, TX
    
    
    2,000
    
    
    
    41,096
    
    
    
    20,400
    
    
    
    
    
    
    
    2,000
    
    
    
    61,496
    
    
    
    63,496
    
    
    
    (18,137
    )
    
    
    1983
    
    
    
    1995
    
    
    
    (3
    )Stanford Corporate Centre, Dallas, TX
    
    
    
    
    
    
    16,493
    
    
    
    9,465
    
    
    
    (1,200
    )
    
    
    
    
    
    
    24,758
    
    
    
    24,758
    
    
    
    (9,132
    )
    
    
    1985
    
    
    
    1995
    
    
    
    (3
    )The Aberdeen, Dallas, TX
    
    
    850
    
    
    
    25,895
    
    
    
    3,004
    
    
    
    
    
    
    
    850
    
    
    
    28,899
    
    
    
    29,749
    
    
    
    (7,705
    )
    
    
    1986
    
    
    
    1995
    
    
    
    (3
    )Briargate
Office and Research Center, Colorado Springs, CO
    
    
    2,000
    
    
    
    18,044
    
    
    
    5,892
    
    
    
    
    
    
    
    2,000
    
    
    
    23,936
    
    
    
    25,936
    
    
    
    (6,523
    )
    
    
    1988
    
    
    
    1995
    
    
    
    (3
    )Park Hyatt Beaver Creek, Avon, CO
    
    
    10,882
    
    
    
    40,789
    
    
    
    31,415
    
    
    
    
    
    
    
    10,882
    
    
    
    72,204
    
    
    
    83,086
    
    
    
    (15,650
    )
    
    
    1989
    
    
    
    1995
    
    
    
    (3
    )Sonoma Mission Inn & Spa, Sonoma, CA
    
    
    10,000
    
    
    
    44,922
    
    
    
    44,278
    
    
    
    
    
    
    
    10,000
    
    
    
    89,200
    
    
    
    99,200
    
    
    
    (22,327
    )
    
    
    1927
    
    
    
    1996
    
    
    
    (3
    )3333 Lee Parkway, Dallas, TX
    
    
    1,450
    
    
    
    13,177
    
    
    
    6,853
    
    
    
    
    
    
    
    1,450
    
    
    
    20,030
    
    
    
    21,480
    
    
    
    (5,155
    )
    
    
    1983
    
    
    
    1996
    
    
    
    (3
    )Greenway I & IA, Richardson, TX
    
    
    1,701
    
    
    
    15,312
    
    
    
    3,146
    
    
    
    
    
    
    
    1,701
    
    
    
    18,458
    
    
    
    20,159
    
    
    
    (4,748
    )
    
    
    1983
    
    
    
    1996
    
    
    
    (3
    )Frost Bank Plaza, Austin, TX
    
    
    
    
    
    
    36,019
    
    
    
    6,147
    
    
    
    
    
    
    
    
    
    
    
    42,166
    
    
    
    42,166
    
    
    
    (10,842
    )
    
    
    1984
    
    
    
    1996
    
    
    
    (3
    )301 Congress Avenue, Austin, TX
    
    
    2,000
    
    
    
    41,735
    
    
    
    15,050
    
    
    
    
    
    
    
    2,000
    
    
    
    56,785
    
    
    
    58,785
    
    
    
    (15,435
    )
    
    
    1986
    
    
    
    1996
    
    
    
    (3
    )Greenway
Plaza Office Portfolio & Hotel, Houston, TX
    
    
    29,232
    
    
    
    184,765
    
    
    
    144,890
    
    
    
    
    
    
    
    27,228
    
    
    
    331,659
    
    
    
    358,887
    
    
    
    (109,476
    )
    
    
    1969-1982
    
    
    
    1996
    
    
    
    (3
    )55 Madison, Denver, CO
    
    
    1,451
    
    
    
    13,253
    
    
    
    2,636
    
    
    
    
    
    
    
    1,451
    
    
    
    15,889
    
    
    
    17,340
    
    
    
    (4,985
    )
    
    
    1982
    
    
    
    1997
    
    
    
    (3
    )44 Cook, Denver, CO
    
    
    1,451
    
    
    
    13,253
    
    
    
    3,388
    
    
    
    
    
    
    
    1,451
    
    
    
    16,641
    
    
    
    18,092
    
    
    
    (4,912
    )
    
    
    1984
    
    
    
    1997
    
    
    
    (3
    )Greenway II, Richardson, TX
    
    
    1,823
    
    
    
    16,421
    
    
    
    6,395
    
    
    
    
    
    
    
    1,823
    
    
    
    22,816
    
    
    
    24,639
    
    
    
    (5,742
    )
    
    
    1985
    
    
    
    1997
    
    
    
    (3
    )Ventana Country Inn, Big Sur, CA
    
    
    2,782
    
    
    
    26,744
    
    
    
    7,687
    
    
    
    
    
    
    
    2,064
    
    
    
    35,149
    
    
    
    37,213
    
    
    
    (9,902
    )
    
    
    1975-1988
    
    
    
    1997
    
    
    
    (3
    )Palisades Central I, Dallas, TX
    
    
    1,300
    
    
    
    11,797
    
    
    
    2,535
    
    
    
    
    
    
    
    1,300
    
    
    
    14,332
    
    
    
    15,632
    
    
    
    (3,812
    )
    
    
    1980/1986
    
    
    
    1997
    
    
    
    (3
    )Palisades Central II, Dallas, TX
    
    
    2,100
    
    
    
    19,176
    
    
    
    5,030
    
    
    
    
    
    
    
    2,100
    
    
    
    24,206
    
    
    
    26,306
    
    
    
    (6,804
    )
    
    
    1980/1986
    
    
    
    1997
    
    
    
    (3
    )Stemmons Place, Dallas, TX
    
    
    
    
    
    
    37,537
    
    
    
    5,935
    
    
    
    
    
    
    
    
    
    
    
    43,472
    
    
    
    43,472
    
    
    
    (11,434
    )
    
    
    1980/1986
    
    
    
    1997
    
    
    
    (3
    )The Addison, Dallas, TX
    
    
    1,990
    
    
    
    17,998
    
    
    
    2,690
    
    
    
    
    
    
    
    1,990
    
    
    
    20,688
    
    
    
    22,678
    
    
    
    (5,305
    )
    
    
    1980/1986
    
    
    
    1997
    
    
    
    (3
    )Sonoma Golf Course, Sonoma, CA
    
    
    14,956
    
    
    
    
    
    
    
    21,595
    
    
    
    (4,354
    )
    
    
    15,952
    
    
    
    16,245
    
    
    
    32,197
    
    
    
    (1,715
    )
    
    
    1929
    
    
    
    1998
    
    
    
    (3
    )Austin Centre, Austin, TX
    
    
    1,494
    
    
    
    36,475
    
    
    
    5,499
    
    
    
    
    
    
    
    1,494
    
    
    
    41,974
    
    
    
    43,468
    
    
    
    (10,241
    )
    
    
    1986
    
    
    
    1998
    
    
    
    (3
    )Omni Austin Hotel, Austin, TX
    
    
    2,409
    
    
    
    56,670
    
    
    
    3,924
    
    
    
    
    
    
    
    2,409
    
    
    
    60,594
    
    
    
    63,003
    
    
    
    (15,821
    )
    
    
    1986
    
    
    
    1998
    
    
    
    (3
    )Datran Center, Miami, FL
    
    
    
    
    
    
    71,091
    
    
    
    11,765
    
    
    
    
    
    
    
    
    
    
    
    82,856
    
    
    
    82,856
    
    
    
    (19,555
    )
    
    
    1986-1992
    
    
    
    1998
    
    
    
    (3
    )Avallon Phase II, Austin, TX
    
    
    1,102
    
    
    
    23,401
    
    
    
    (11,339
    )
    
    
    
    
    
    
    640
    
    
    
    12,524
    
    
    
    13,164
    
    
    
    (1,748
    )
    
    
    1997
    
    
    
    
    
    
    
    (3
    )Plaza Park Garage, Fort Worth, TX
    
    
    2,032
    
    
    
    14,125
    
    
    
    613
    
    
    
    
    
    
    
    2,032
    
    
    
    14,738
    
    
    
    16,770
    
    
    
    (3,482
    )
    
    
    1998
    
    
    
    
    
    
    
    (3
    )Johns Manville Plaza, Denver, CO
    
    
    9,128
    
    
    
    74,937
    
    
    
    4,957
    
    
    
    
    
    
    
    9,128
    
    
    
    79,894
    
    
    
    89,022
    
    
    
    (9,470
    )
    
    
    1978
    
    
    
    2002
    
    
    
    (3
    )The Colonnade, Coral Gables, FL
    
    
    2,600
    
    
    
    39,557
    
    
    
    1,162
    
    
    
    
    
    
    
    2,600
    
    
    
    40,719
    
    
    
    43,319
    
    
    
    (3,738
    )
    
    
    1989
    
    
    
    2003
    
    
    
    (3
    )Hughes Center, Las Vegas, NV
    
    
    29,802
    
    
    
    178,705
    
    
    
    11,009
    
    
    
    
    
    
    
    29,822
    
    
    
    189,694
    
    
    
    219,516
    
    
    
    (19,232
    )
    
    
    1986-1999
    
    
    
    2003-2004
    
    
    
    (3
    )Desert Mountain Development Corp.(7)
    
    
    120,907
    
    
    
    60,487
    
    
    
    25,487
    
    
    
    
    
    
    
    128,230
    
    
    
    78,651
    
    
    
    206,881
    
    
    
    (53,238
    )
    
    
    
    
    
    
    2002
    
    
    
    (3
    )Crescent Resort Development, Inc. (7)
    
    
    367,647
    
    
    
    23,357
    
    
    
    288,731
    
    
    
    
    
    
    
    604,747
    
    
    
    74,988
    
    
    
    679,735
    
    
    
    (11,996
    )
    
    
    
    
    
    
    2002
    
    
    
    (3
    )Mira Vista Development Company (7)
    
    
    3,059
    
    
    
    2,234
    
    
    
    2,090
    
    
    
    
    
    
    
    2,093
    
    
    
    5,290
    
    
    
    7,383
    
    
    
    (2,173
    )
    
    
    
    
    
    
    2003
    
    
    
    (3
    )Houston Area Development Corporation (7)
    
    
    2,740
    
    
    
    
    
    
    
    (1,977
    )
    
    
    
    
    
    
    763
    
    
    
    
    
    
    
    763
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    (3
    )Crescent Plaza Phase I & II, Dallas, TX (7)
    
    
    10,997
    
    
    
    
    
    
    
    114,848
    
    
    
    
    
    
    
    65,233
    
    
    
    60,612
    
    
    
    125,845
    
    
    
    
    
    
    
    
    
    
    
    2002
    
    
    
    (3
    )JPI
multi-family luxury apartment project  Deedham, MA(7)
    
    
    17,095
    
    
    
    
    
    
    
    (17,095
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    (3
    )Dupont Centre, Irvine, CA
    
    
    10,000
    
    
    
    34,668
    
    
    
    1,735
    
    
    
    
    
    
    
    10,000
    
    
    
    36,403
    
    
    
    46,403
    
    
    
    (2,879
    )
    
    
    1986
    
    
    
    2004
    
    
    
    (3
    )The Alhambra, Miami, FL
    
    
    5,500
    
    
    
    52,276
    
    
    
    4,649
    
    
    
    
    
    
    
    5,500
    
    
    
    56,925
    
    
    
    62,425
    
    
    
    (4,065
    )
    
    
    1961-1987
    
    
    
    2004
    
    
    
    (3
    )Paseo Del Mar, San Diego, CA (5)
    
    
    21,000
    
    
    
    
    
    
    
    (21,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    (3
    )3883 Hughes Center, Las Vegas, NV
    
    
    3,304
    
    
    
    
    
    
    
    53,338
    
    
    
    
    
    
    
    3,514
    
    
    
    53,128
    
    
    
    56,642
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    (3
    )The Exchange Building, Seattle, WA
    
    
    7,050
    
    
    
    40,442
    
    
    
    2,731
    
    
    
    
    
    
    
    7,050
    
    
    
    43,173
    
    
    
    50,223
    
    
    
    (3,523
    )
    
    
    1929
    
    
    
    2005
    
    
    
    (3
    )One Live Oak, Atlanta, GA
    
    
    3,380
    
    
    
    23,323
    
    
    
    2,976
    
    
    
    
    
    
    
    3,380
    
    
    
    26,299
    
    
    
    29,679
    
    
    
    (1,793
    )
    
    
    1981
    
    
    
    2004
    
    
    
    (3
    )Peakview Tower, Denver, CO
    
    
    2,724
    
    
    
    36,411
    
    
    
    1,513
    
    
    
    
    
    
    
    2,724
    
    
    
    37,924
    
    
    
    40,648
    
    
    
    (3,104
    )
    
    
    2001
    
    
    
    2004
    
    
    
    (3
    )Financial Plaza, Phoenix, AZ(6)
    
    
    3,517
    
    
    
    41,492
    
    
    
    562
    
    
    
    
    
    
    
    3,517
    
    
    
    42,054
    
    
    
    45,571
    
    
    
    (1,615
    )
    
    
    1986
    
    
    
    2006
    
    
    
    (3
    )Parkway at Oakhill, Austin, TX (6)
    
    
    3,500
    
    
    
    
    
    
    
    11,328
    
    
    
    
    
    
    
    3,500
    
    
    
    11,328
    
    
    
    14,828
    
    
    
    
    
    
    
    2006
    
    
    
    2006
    
    
    
    (3
    )Land held for development or sale, Houston, TX
    
    
    49,420
    
    
    
    
    
    
    
    (30,786
    )
    
    
    
    
    
    
    18,634
    
    
    
    
    
    
    
    18,634
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Land held for development or sale, Dallas, TX
    
    
    27,288
    
    
    
    
    
    
    
    (9,516
    )
    
    
    
    
    
    
    17,772
    
    
    
    
    
    
    
    17,772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Land held for development or sale, Las Vegas, NV
    
    
    10,000
    
    
    
    
    
    
    
    5,333
    
    
    
    
    
    
    
    15,333
    
    
    
    
    
    
    
    15,333
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    (3
    )Crescent Real Estate Equities L.P.
    
    
    
    
    
    
    
    
    
    
    23,913
    
    
    
    (352
    )
    
    
    
    
    
    
    23,561
    
    
    
    23,561
    
    
    
    (7,228
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )Other
    
    
    18,588
    
    
    
    11,351
    
    
    
    9,340
    
    
    
    
    
    
    
    10,166
    
    
    
    29,113
    
    
    
    39,279
    
    
    
    (4,443
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )Total
    
    $
    835,408
    
    
    $
    1,775,423
    
    
    $
    910,816
    
    
    $
    (6,953
    )
    
    $
    1,044,800
    
    
    $
    2,469,894
    
    
    $
    3,514,694
    
    
    $
    (608,875
    )
 
 (1)
    
    Initial costs include purchase price, excluding any purchase price adjustments related to SFAS 141 intangibles, and any costs associated with closing of the Property.(2)
    
    The aggregate cost for Federal income tax purposes as of December 31, 2005 was approximately $3.5 billion.(3)
    
    Depreciation of the real estate assets is calculated over the following estimated useful lives using the straight-line method: Building and improvements
    
    
    2 to 46 yearsTenant improvements
    
    
    Terms of leases, which approximates the useful life of the assetFurniture, fixtures, and equipment
    
    
    2 to 5 years
 
 (4)
    
    This Office Property was sold during the year ended December 31, 2006.(5)
    
    Our investment in this Office Property was sold during the year ended December 31, 2006.(6)
    
    This Office Property was acquired during the year ended December 31, 2006.(7)
    
    Land and cost capitalized subsequent to acquisition includes property under development and is net of residential development cost of sales. 144




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Real estate investments:Balance, beginning of year
    
    $
    3,182,235
    
    
    $
    3,262,894
    
    
    $
    3,862,286Acquisitions
    
    
    48,509
    
    
    
    192,024
    
    
    
    437,359Improvements
    
    
    471,730
    
    
    
    239,040
    
    
    
    154,300Dispositions
    
    
    (187,655
    )
    
    
    (510,601
    )
    
    
    (1,183,185
    )Impairments
    
    
    (125
    )
    
    
    (1,122
    )
    
    
    (7,866
    )Balance, end of year
    
    $
    3,514,694
    
    
    $
    3,182,235
    
    
    $
    3,262,894Accumulated Depreciation:Balance, beginning of year
    
    $
    528,006
    
    
    $
    516,205
    
    
    $
    697,813Depreciation
    
    
    117,419
    
    
    
    116,156
    
    
    
    145,210Dispositions
    
    
    (36,550
    )
    
    
    (104,355
    )
    
    
    (326,818
    )Balance, end of year
    
    $
    608,875
    
    
    $
    528,006
    
    
    $
    516,205
 145




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##### Table of Contents



CRESCENT REAL ESTATE EQUITIES COMPANY
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE INVESTMENTS
DECEMBER 31, 2006
(dollars in thousands)
 Principal Amountof Loans SubjectInterest Rate
    
    Original
    
    
    
    
    
    Periodic
    
    
    
    
    
    Face
    
    Carrying
    
    to Delinquentat December
    
    Maturity
    
    Loan
    
    Payment
    
    Prior
    
    Amount of
    
    Amount of
    
    Principal orType of Investment
    
    31, 2006
    
    Date
    
    Extensions
    

Term(1)(2)
    
    Liens
    
    Mortgages
    

Mortgages(3)
    

Interest(4)Mezzanine InvestmentsDallas Office Property
    
    
    13.85
    %
    
    
    2007
    
    
    Three 1-Year
    
    Interest Only
    
    $
    65,750
    
    
    $
    12,000
    
    
    $
    11,989
    
    
    $
    Three Dallas Office Properties
    
    
    11.04
    %
    
    
    2010
    
    
    N/A
    
    Principal and Interest(5)
    
    
    80,000
    
    
    
    7,660
    
    
    
    7,601
    
    
    
    Two California Luxury Hotel Properties
    
    
    16.35
    %
    
    
    2007
    
    
    Five 1-Year
    
    Interest Only
    
    
    250,000
    (6)
    
    
    15,000
    
    
    
    14,947
    
    
    
    Southeastern U.S. Office Portfolio
    
    
    12.23
    %
    
    
    2007
    
    
    Three 1-Year
    
    Interest Only
    
    
    290,000
    
    
    
    20,700
    
    
    
    20,630
    
    
    
    Six Florida Hotel Properties
    
    
    13.35
    %
    
    
    2009
    
    
    Two 1-Year
    
    Interest Only
    
    
    95,000
    
    
    
    15,000
    
    
    
    14,891
    
    
    
    California Ski Resort
    
    
    9.85
    %
    
    
    2009
    
    
    Two 1-Year
    
    Interest Only
    
    
    230,000
    
    
    
    20,000
    
    
    
    19,845
    
    
    
    New York City Residential Property
    
    
    18.18
    %
    
    
    2007
    
    
    Two 1-Year
    
    Interest Only
    
    
    342,615
    
    
    
    24,185
    
    
    
    24,013
    
    
    
    California Residential Property
    
    
    17.00
    %
    
    
    2008
    
    
    One 6-Month
    
    Interest Only
    
    
    34,000
    
    
    
    9,775
(7)
    
    
    9,581
    
    
    
    $
    1,387,365
    
    
    $
    124,320
    
    
    $
    123,497

(8)
    
    $
    
 
 (1)
    
    Interest only payments are due monthly, principal is due at
maturity except as otherwise noted in footnote (5).(2)
    
    Prepayment of certain loans will trigger additional fees,
such as prepayment fees, exit fees, spread maintenance premiums and
breakage costs, due from the borrower at the time of prepayment.(3)
    
    The carrying amounts approximate the Federal income tax basis.(4)
    
    No mortgage loans are delinquent with respect to principal or interest.(5)
    
    Interest only payments are due monthly through September 2007. Beginning October 2007, principal payments are due monthly until maturity.(6)
    
    We have a 25% interest in Redtail Capital Partners, L.P., that has a $25.0 million mortgage loan secured by these properties.(7)
    
    The condominiums securing this note were sold by CRDI to a
third party. Due to restrictions under SFAS No. 66,
Accounting for Sales of Real Estate regarding seller financed
transactions, the profit from the sale of $4.7 million was
deferred and recorded under the cost recovery method and reflected as
a reduction of the note such that the face value of the note is
included in the table above.(8)
    
    The following is a summary of changes in the carrying amount of investments for the years ended December 31, 2006 and December 31, 2005: 2006
    
    
    2005Balance at January 1, 2005
    
    $
    172,126
    
    
    $
    21,877Additions during period:Investments in mezzanine loans
    
    
    73,575
    
    
    
    150,582Cost of acquiring mezzanine investments
    
    
    
    
    
    
    402Accretion of unearned revenue
    
    
    778
    
    
    
    303Deductions during period:Collection of principal
    
    
    (121,837
    )
    
    
    Amortization of premium and cost to acquire
mezzanine investments
    
    
    (311
    )
    
    
    (152
    )Unearned revenue
    
    
    (834
    )
    
    
    (886
    )Balance at December 31, 2006
    
    $
    123,497
    
    
    $
    172,126




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##### Table of Contents



SIGNATURES
 th
 CRESCENT REAL ESTATE EQUITIES COMPANY(Registrant)By
    
    /s/John C. GoffJohn C. GoffTrust Manager and Chief Executive Officer




---



##### Table of Contents



SIGNATURES
  Signature
    
    Title
    
    Date/s/Richard E. Rainwater
    
    Trust Manager and Chairman of the Board
    
    March 14, 2007Richard E. Rainwater/s/John C. Goff
    
    Trust Manager and Chief Executive Officer
    
    March 14, 2007John C. Goff
    
    (Principal Executive Officer)/s/Jerry R. Crenshaw Jr.
    
    Managing Director and Chief Financial Officer
    
    March 14, 2007Jerry R. Crenshaw Jr.
    
    (Principal Financial and Accounting Officer)/s/Dennis H. Alberts
    
    Trust Manager, President and Chief Operating Officer
    
    March 14, 2007Dennis H. Alberts/s/Anthony M. Frank
    
    Trust Manager
    
    March 14, 2007Anthony M. Frank/s/William F. Quinn
    
    Trust Manager
    
    March 14, 2007William F. Quinn/s/Paul E. Rowsey, III
    
    Trust Manager
    
    March 14, 2007Paul E. Rowsey, III/s/Robert W. Stallings
    
    Trust Manager
    
    March 14, 2007Robert W. Stallings/s/Terry N. Worrell
    
    Trust Manager
    
    March 14, 2007Terry N. Worrell




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##### Table of Contents



INDEX TO EXHIBITS
 EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT3.01
    
    Restated Declaration of Trust of Crescent Real Estate Equities
Company, as amended (filed as Exhibit No. 3.1 to the Registrants
Current Report on Form
8-K filed April 25, 2002 (the April 2002 8-K) and incorporated
herein by reference)3.02
    
    Fourth Amended and Restated Bylaws of Crescent Real Estate
Equities Company (filed as Exhibit No. 3.02 to the Registrants
Annual Report of Form 10-K for the fiscal year ended December 31,
2005 (the 2005 10K) and incorporated herein by reference)4.01
    
    Form of Common Share Certificate (filed as Exhibit No. 4.03 to the
Registrants Registration Statement on Form S-3 (File No.
333-21905) and incorporated herein by reference)4.02
    
    Statement of Designation of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company dated
February 13, 1998 (filed as Exhibit No. 4.07 to the Registrants
Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the 1997 10-K) and incorporated herein by reference)4.03
    
    Form of Certificate of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company (filed
as Exhibit No. 4 to the Registrants Registration Statement on
Form 8-A/A filed on February 18, 1998 and incorporated by
reference)4.04
    
    Statement of Designation of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company dated
April 25, 2002 (filed as Exhibit No. 4.1 to the April 2002 8-K and
incorporated herein by reference)4.05
    
    Statement of Designation of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company dated
January 14, 2004 (filed as Exhibit No. 4.1 to the Registrants
Current Report on Form 8-K filed January 15, 2004 (the January
2004 8-K) and incorporated herein by reference)4.06
    
    Form of Global Certificate of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate Equities
Company (filed as Exhibit No. 4.2 to the January 2004 8-K and
incorporated herein by reference)4.07
    
    Statement of Designation of 9.50% Series B Cumulative Redeemable
Preferred Shares of Crescent Real Estate Equities Company dated
May 13, 2002 (filed as Exhibit No. 2 to the Registrants Form 8-A
dated May 14, 2002 (the Form 8-A) and incorporated herein by
reference)4.08
    
    Form of Certificate of 9.50% Series B Cumulative Redeemable
Preferred Shares of Crescent Real Estate Equities Company (filed
as Exhibit No. 4 to the Form 8-A and incorporated herein by
reference)4*
    
    Pursuant to Regulation S-K Item 601 (b) (4) (iii), the Registrant
by this filing agrees, upon request, to furnish to the Securities
and Exchange Commission a copy of instruments defining the rights
of holders of long-term debt of the Registrant




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT10.01
    
    Fourth Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of
April 30, 2006 (filed as Exhibit 10.1 to the Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006
(the 1Q 2006 10-Q) and incorporated herein by reference)10.02
    
    Noncompetition Agreement of Richard E. Rainwater, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed as Exhibit No. 10.02 to the 1997 10-K and incorporated
herein by reference)10.03
    
    Noncompetition Agreement of John C. Goff, as assigned to Crescent
Real Estate Equities Limited Partnership on May 5, 1994 (filed as
Exhibit No. 10.03 to the 1997 10-K and incorporated herein by
reference)10.04*
    
    Employment Agreement by and between Crescent Real Estate Equities
Limited Partnership, Crescent Real Estate Equities Company and John
C. Goff, dated as of February 19, 2002 (filed as Exhibit No. 10.01
to the Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002 (the 1Q 2002 10-Q) and incorporated herein by
reference)10.05
    
    Form of Officers and Trust Managers Indemnification Agreement as
entered into between the Registrant and each of its executive
officers and trust managers (filed as Exhibit No. 10.07 to the
Registration Statement on Form S-4 (File No. 333-42293) of Crescent
Real Estate Equities Limited Partnership and incorporated herein by
reference)10.06*
    
    Crescent Real Estate Equities Company 1994 Stock Incentive Plan
(filed as Exhibit No. 10.07 to the Registrants Registration
Statement on Form S-11 (File No. 33-75188) (the Form S-11) and
incorporated herein by reference)10.07*
    
    Third Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan (filed as Exhibit No. 10.01 to the
Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001 and incorporated herein by reference)10.08*
    
    Amendment dated as of November 4, 1999 to the Crescent Real Estate
Equities Company 1994 Stock Incentive Plan (filed as Exhibit No.
10.10 to the Registrants Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 (the 2000 10-K) and incorporated
herein by reference)10.09*
    
    Amendment dated as of November 1, 2001 to the Crescent Real Estate
Equities Company 1994 Stock Incentive Plan and the Third Amended
and Restated 1995 Crescent Real Estate Equities Company Stock
Incentive Plan (filed as Exhibit No. 10.11 to the Registrants
Annual Report on Form 10-K for the fiscal year ended December 31,
2001 and incorporated herein by reference)10.10*
    
    Second Amended and Restated 1995 Crescent Real Estate Equities
Limited Partnership Unit Incentive Plan (filed as Exhibit No. 10.10
to the Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2003 and incorporated herein by reference)10.11*
    
    1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan, as amended (filed as Exhibit No. 10.14 to the
Registrants Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and incorporated herein by reference)




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT10.12*
    
    Amendment dated as of November 5, 1999 to the 1996 Crescent Real
Estate Equities Limited Partnership Unit Incentive Plan (filed as
Exhibit No. 10.13 to the 2000 10-K and incorporated herein by
reference)10.13*
    
    Crescent Real Estate Equities, Ltd. Dividend Incentive Unit Plan
(filed as Exhibit No. 10.14 to the 2000 10-K and incorporated
herein by reference)10.14*
    
    Annual Incentive Compensation Plan for select Employees of
Crescent Real Estate Equities, Ltd. (filed as Exhibit No. 10.15 to
the 2000 10-K and incorporated herein by reference)10.15
    
    Form of Registration Rights, Look-Up and Pledge Agreement (filed
as Exhibit No. 10.05 to the Form S-11 and incorporated herein by
reference)10.16*
    
    Restricted Stock Agreement by and between Crescent Real Estate
Equities Company and John C. Goff, dated as of February 19, 2002
(filed as Exhibit No. 10.02 to the 1Q 2002 10-Q and incorporated
herein by reference)10.17*
    
    Unit Option Agreement Pursuant to the 1996 Plan by and between
Crescent Real Estate Equities Limited Partnership and John C.
Goff, dated as of February 19, 2002 (filed as Exhibit No. 10.01 to
the Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 and incorporated herein by reference)10.18*
    
    Unit Option Agreement by and between Crescent Real Estate Equities
Limited Partnership and John C. Goff, dated as of February 19,
2002 (filed as Exhibit No. 10.04 to the 1Q 2002 10-Q and
incorporated herein by reference)10.19*
    
    Unit Option Agreement by and between Crescent Real Estate Equities
Limited Partnership and Dennis H. Alberts, dated as of February
19, 2002 (filed as Exhibit No. 10.05 to the 1Q 2002 10-Q and
incorporated herein by reference)10.20*
    
    Unit Option Agreement by and between Crescent Real Estate Equities
Limited Partnership and Kenneth S. Moczulski, dated as of February
19, 2002 (filed as Exhibit No. 10.06 to the 1Q 2002 10-Q and
incorporated herein by reference)10.21*
    
    Unit Option Agreement by and between Crescent Real Estate Equities
Limited Partnership and David M. Dean, dated as of February 19,
2002 (filed as Exhibit No. 10.07 to the 1Q 2002 10-Q and
incorporated herein by reference)10.22*
    
    Unit Option Agreement by and between Crescent Real Estate Equities
Limited Partnership and Jane E. Mody, dated as of February 19,
2002 (filed as Exhibit No. 10.08 to the 1Q 2002 10-Q and
incorporated herein by reference)10.23*
    
    Unit Option Agreement by and between Crescent Real Estate Equities
Limited Partnership and Jerry R. Crenshaw, Jr., dated as of
February 19, 2002 (filed as Exhibit No. 10.09 to the 1Q 2002 10-Q
and incorporated herein by reference)10.24*
    
    Unit Option Agreement by and between Crescent Real Estate Equities
Limited Partnership and Jane B. Page, dated as of February 19,
2002 (filed as Exhibit No. 10.10 to the 1Q 2002 10-Q and
incorporated herein by reference)




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT10.25*
    
    Unit Option Agreement by and between Crescent Real Estate Equities
Limited Partnership and John L. Zogg, Jr., dated as of February
19, 2002 (filed as Exhibit No. 10.11 to the 1Q 2002 10-Q and
incorporated herein by reference)10.26*
    
    Unit Option Agreement by and between Crescent Real Estate Equities
Limited Partnership and Dennis H. Alberts, dated as of March 5,
2001 (filed as Exhibit No. 10.12 to the 1Q 2002 10-Q and
incorporated herein by reference)10.27*
    
    Unit Option Agreement by and between Crescent Real Estate Equities
Limited Partnerships and Paul R. Smith, dated as of May 16, 2005
(filed as Exhibit No. 10.03 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended June 30, 2005 (the 2Q 2005
10-Q) and incorporated herein by reference)10.28*
    
    2004 Crescent Real Estate Equities Limited Partnership Long-Term
Incentive Plan (filed as Exhibit 10.27 to the Registrants Annual
Report on Form 10-K for the fiscal year ended December 31, 2004
(the 2004 10-K) and incorporated herein by reference)10.29
    
    2005 Crescent Real Estate Equities Limited Partnership Long-Term
Incentive Plan (filed as Exhibit 10.02 to the 2Q 2005 10-Q and
incorporated herein by reference)10.30
    
    Revolving Credit Agreement of Crescent Real Estate Funding VIII,
L.P., dated February 8, 2005, and Unconditional Guaranty of
Payment and Performance of Crescent Real Estate Equities Limited
Partnership (filed as Exhibit 10.28 to the 2004 10-K and
incorporated herein by reference)10.31
    
    Contribution Agreement effective as of November 10, 2004, relating
to the contribution by Crescent Real Estate Funding I, L.P. of The
Crescent Office Property to Crescent Big Tex I, L.P. (filed as
Exhibit 10.29 to the 2004 10-K and incorporated herein by
reference)10.32
    
    Purchase and Sale Agreement effective as of November 10, 2004,
relating to the sale by Crescent Real Estate Equities Limited
Partnership of Houston Center Office Property to Crescent Big Tex
I, L.P. (filed as Exhibit 10.30 to the 2004 10-K and incorporated
herein by reference)10.33
    
    Purchase and Sale Agreement effective as of November 10, 2004,
relating to the sale by Crescent Real Estate Funding X, L.P. of
Post Oak Central Office Property to Crescent Big Tex I, L.P.
(filed as Exhibit 10.31 to the 2004 10-K and incorporated herein
by reference)21.01
    
    List of Subsidiaries (filed herewith) 23.01
    
    Consent of Ernst & Young LLP (filed herewith) 23.02
    
    Consent of Deloitte & Touche LLP (filed herewith) 31.01
    
    Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to Rule 13a  14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) 32.01
    
    Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) 
 
 
    
    This exhibit is attached to the copy of this report available through our website at
www.crescent.com and to the copy of this report available at
the SECs website at www.sec.gov.