Crescent Real Estate Equities Announces Investment Agreement with Magellan Health Services.

FORT WORTH, Texas--(BUSINESS WIRE)--Jan. 30, 1997--Crescent Real Estate Equities Company (CEI: NYSE), one of the country's largest real estate investment trusts with a total market capitalization exceeding $2.9 billion, has reached definitive agreement for a strategic investment with Magellan Health Services Inc. (MGL:NYSE).

Crescent announced today that it will acquire substantially all of the real estate assets of Magellan's domestic provider business, Charter Behavioral Health Systems (CBHS) for $400 million. Magellan is the nation's largest integrated behavioral healthcare company and CBHS is the largest behavioral healthcare provider in the nation with 92 hospitals and revenues exceeding $1 billion. Magellan will be able to realign its operating business as a result of this strategic transaction with Crescent. As a part of this structural realignment, CBHS will be operated as a joint venture equally owned by Magellan and an affiliate of Crescent.

The joint venture will operate the facilities under a franchise arrangement with Magellan and a lease agreement with Crescent. Crescent will receive $40 million in rents the first year with subsequent years increasing at a 5 percent compounded annual rate over an initial twelve- year term. All maintenance and capital improvement costs will be CBHS's responsibility during the duration of the lease. Franchise payments to Magellan by CBHS will be subordinated to Crescent's lease payments.

In addition, Crescent will receive warrants for Magellan's common stock exercisable at $30 per share. These warrants will allow Crescent to participate in the benefits provided by Magellan from this business realignment as well as the continued rapid growth of its managed care business and public sector business that focuses on the continued privatization of behavioral healthcare.

In addition to his responsibilities at Crescent, John Goff, Crescent's Vice Chairman, will be Executive Chairman of CBHS. In this role he will not only oversee its finances, but spearhead its acquisition program to further consolidate the fragmented behavioral healthcare industry. Richard Rainwater, Crescent's chairman, commented, "The strength of John's financial skills and his abilities to infuse superior acquisition discipline into CBHS will be a key to its success within the $200 billion behavioral healthcare industry." The Magellan transaction is expected to close in the second quarter of 1997.

Mr. Goff commented, "This is a unique transaction for Crescent and our industry as a whole. Crescent shareholders will not only benefit from the exceptional and secure returns provided by the lease structure, but from appreciation in Magellan's stock and ownership in Charter Behavioral Healthcare Systems, the dominant operating company in the behavioral healthcare industry."

Due to limitations on REIT ownership of an affiliated operating company, Crescent will transfer its 50 percent interest in the operating company to another newly formed corporation that will be spun off to Crescent's stockholders, with the corporation's stock being listed separately on a national exchange. The spin-off corporation will also acquire the lessees' interest in Crescent's six hotel and resort properties.

Gerald Haddock, Crescent's Chief Executive Officer and President stated, "In essence, this structure will provide our existing shareholders substantially the same benefits of a 'paired share' REIT structure by allowing them to participate in future profits of our hotel leases and the profits of the hospital operating company through a corporation whose interests are clearly aligned with Crescent's by virtue of common directors and investment objectives. Furthermore, this structure will be created at a very minimal cost to our shareholders compared to the substantial premium that would have been required to purchase one of the few existing 'paired share' REITS."

Mr. Haddock further added, "This transaction represents a major step in the evolution of Crescent as a bona fide 'growth' company. Furthermore, it opens the playing field to additional possibilities for future real estate investments in the REIT industry. Crescent will continue to be a leader in setting the stage for new areas of growth for the REIT industry.

"We also forsee significant investment opportunities remaining in the office sector. In fact, we have entered into letters of intent and are negotiating definitive agreements covering over $400 million in investments in office assets in our existing markets which we anticipate will be finalized in the near term," commented Mr. Haddock.

Upon completion of the Magellan transaction, Crescent's portfolio composition in terms of contribution to funds from operations will be 64 percent from office properties, 16 percent from behavioral healthcare facilities, 14 percent from hotel properties, and 6 percent from retail properties and investments in residential development corporations.

Crescent will be conducting a conference call today at 3:30 p.m. EST to discuss the matters announced in this press release. To access the conference, call 1-800/857-5018 (code: 0444).

Certain matters discussed within this press release are forward-looking statements within the meaning of the federal securities laws and the transactions contemplated herein are subject to certain closing conditions, including approval of Magellan stockholders and federal antitrust authorities. Although Crescent believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved.

Factors that could cause actual results to differ materially from Crescent's expectations include changes in real estate conditions (including rental rates and competing properties), or in industries in which our principal tenants compete, failure to consummate anticipated transactions, timely leasing of unoccupied square footage, timely releasing of occupied square footage upon expiration, finding acquisition opportunities which meet our investment strategy and other risks detailed from time to time in the Company's SEC reports, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K.

Crescent is a real estate investment trust which, upon completion of certain pending transactions, will own through its subsidiaries a portfolio of real estate assets, consisting of 56 office properties and 6 retail properties totaling 17.4 million square feet, 92 behavioral healthcare facilities with an aggregate capacity of 8,666 licensed beds, 4 full-service hotels totaling 1,471 rooms, 2 destination health and fitness resorts, and economic interests in 6 single-family residential land developments. The office and retail properties are located primarily in 19 metropolitan submarkets in Texas, Colorado and Arizona. Crescent is a fully integrated real estate company that provides management and leasing services with respect to its rental properties.

CONTACT: Crescent Real Estate Equities

Dallas E. Lucas, 817/877-0477