Crescent Real Estate Equities Company Announces Reduced Schedule of Short-term Capital Requirements.

FORT WORTH, Texas--(BUSINESS WIRE)--Dec. 16, 1998--Crescent Real Estate Equities Company (NYSE:CEI) today announced that recent events have eliminated or deferred certain short-term capital requirements that had totaled approximately $500 million, and that as a result, Crescent has re-evaluated its plan to sell equity shares through a rights offering.

The planned rights offering would have financed the repayment of a $208.3 million promissory note to Merrill Lynch that was originally scheduled to mature on December 14, 1998. The Company and Merrill Lynch have modified the terms of the note (i) to extend its maturity to September 14, 1999; (ii) to provide for a payment of $25 million of principal on December 14, 1998; and (iii) to adjust the interest rate to 200 basis points above 30-day LIBOR.

Crescent's planned uses of capital also had included consummation of the July 9, 1998, agreement and plan of merger under which the Company, together with Reckson Associates Realty Corporation ("Reckson") and Metropolitan Partners, LLC ("Metropolitan"), a newly formed limited liability company owned equally by the Company and Reckson, would acquire Tower Realty Trust ("Tower") for an aggregate purchase price of approximately $733 million. The original merger agreement provided for payment of the purchase price in a combination of cash, common shares of the Company and Reckson, and assumption of debt by Metropolitan.

On December 10, 1998, Tower and Metropolitan entered into a revised merger agreement under which Metropolitan has agreed to acquire Tower for a combination of cash and Reckson exchangeable Class B common shares. Crescent, Reckson and Metropolitan have agreed that Crescent's investment in Metropolitan will be an $85 million preferred member interest in Metropolitan. The investment will have a preference of 7.5% for a two year period and may be redeemed by Metropolitan within the two year period for $85 million, plus an amount sufficient to provide a 9.5% internal rate of return. If the issuer does not redeem the preferred interest upon expiration of the two year period, then Crescent may convert the interest either into (i) a common equity interest in Metropolitan, or (ii) shares of common stock of Reckson at a conversion price of $24.61. Tower, Reckson and Crescent have agreed to exchange mutual releases for any claims relating to the previous agreement.

Had the merger as originally contemplated been consummated and had Crescent exercised its favorably priced option to acquire Tower's Phoenix and Orlando assets, Crescent's estimated capital requirement would have been approximately $385 million. Taking into account its planned $85 million investment in Metropolitan, the amount of Crescent capital required for this transaction has been reduced by approximately $300 million.

On September 4, 1998, in anticipation of repaying the $208.3 million note to Merrill Lynch and consummating the merger with Tower, both originally scheduled for December 1998, the Company announced a planned rights offering that would grant the Company's shareholders rights to purchase common shares at an exercise price of $22 per share, in an aggregate amount of approximately $215 million. In view of Crescent's reduced need for capital in the near term, however, Crescent's Board of Trust Managers has elected to cancel at this time the previously announced rights offering. The Board has indicated, however, that it will continue to evaluate market conditions, including the available liquidity in private and public debt markets, and will retain the flexibility to increase Crescent's capital position through a rights offering or a privately negotiated transaction with one or more investors. The Board believes that this flexibility, coupled with Crescent's conservative debt leverage ratio, will allow Crescent to pay off Crescent's forward equity agreement of approximately $150 million with Union Bank, AG, prior to its maturity in August 1999, should it choose to do so, and will further position Crescent to take advantage of opportunities to expand its business plan during 1999.

Gerald W. Haddock, President and Chief Executive Officer, commented, "We will continue to evaluate the opportunities to invest capital to provide for total returns in excess of our long-term cost of capital. Our primary objective with the planned rights offering was to ensure that Crescent, at this stage of the capital market cycle, had maximum flexibility to execute its business plan. We now acknowledge that there were certain members of the investment community who had objections to this rights offering, claiming the offering was dilutive at the agreed upon price, even though it was offered equally to all shareholders. While a rights offering may not satisfy everyone, we believe it is a beneficial tool for a public company and its shareholders to use under certain conditions, and we will continue to look favorably upon using it at opportune times.

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. Although Crescent believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, Crescent's actual results could differ materially from those set forth in the forward-looking statements. 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 Crescent's principal tenants compete, failure to consummate anticipated transactions, timely leasing of unoccupied square footage, timely releasing of occupied square footage upon expiration, the ability to close pending transactions, finding acquisition opportunities which meet Crescent's investment strategy, the nature and structure of new investments, financing risks (such as the availability of equity and debt financing), Crescent's ability to service existing debt, the possibility that Crescent's outstanding debt (which requires so-called balloon payments of principal) may be refinanced at higher interest rates or otherwise on terms less favorable to Crescent and the fact that interest rates under the credit facility and certain other loans may increase, and other risks detailed from time to time in Crescent'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 fully integrated real estate company which owns through its subsidiaries a portfolio of real estate assets, consisting of 89 office properties and 7 retail properties totaling 32.6 million square feet, a 38% interest in 97 refrigerated warehouse facilities, 90 behavioral healthcare facilities, 7 full-service hotels totaling 2,257 rooms, 2 destination health and fitness resorts, and economic interests in 5 residential development corporations. The office and retail properties are located primarily in 17 metropolitan submarkets in Texas.