Crescent Real Estate Equities Company Holds Annual Shareholder Meeting; CEO John Goff Articulates the Company's Growth Strategy and Discusses the Roadmap to 2007 Earnings Target

Business Wire, June 15, 2005

FORT WORTH, Texas -- Crescent Real Estate Equities Company (NYSE:CEI) held its annual meeting of shareholders at the Hotel Crescent Court in Dallas yesterday. At the meeting, Vice Chairman and Chief Executive Officer, John C. Goff, said that the Company's strategy revolves around three strategic growth platforms - office, resort residential and its investment in Canyon Ranch(R). "Our strategy is much simplified," Goff commented. "We have modernized our office platform by partnering with institutional capital, and we are focused on maximizing value from what we call our "lifestyle investments," particularly our investments in resort residential and Canyon Ranch."

Growth Platform #1 - Office

Goff explained that Crescent's office business, which holds steady at about 60% of Crescent's gross real estate assets, delivers superior returns when properties are held in a joint venture structure. "By partnering with institutional capital, we increase our return on equity by 300 to 500 basis points," said Goff. The reason for the increase is the fee generation that Crescent earns by managing and leasing the office properties on behalf of institutional partners. Today, the Company holds 43% of its office portfolio in joint ventures, and it will continue to joint venture portions of the remaining 57%, with equity valued at $1.4 billion, over the next few years.

Two additional aspects of the Company's office strategy are selective developments and mezzanine investments. Crescent plans to break ground on July 28 on a new 255,000 office building as an addition to its Hughes Center complex in Las Vegas. With Hughes Center currently 99% leased, the new building is primarily designed to accommodate the expansion plans of existing customers. In addition, Crescent has announced nearly $75 million of mezzanine financing investments since the end of 2004. The two to three year investments are currently generating, on average, an approximate 12% unlevered return on equity. The Company is currently anticipating investing up to $200 million in mezzanine investments.

Growth Platform #2 - Resort Residential

Goff discussed the thesis behind the capital Crescent has allocated to "lifestyle investments." "The investments," he said, "target the most powerful economic segment of our population - the baby boomers." According to Goff, who referred to statistics from the U.S. Census Bureau and other studies, the retiring baby boomer generation is seeking a gathering spot for their families, often a second home, in a resort location. This segment of the U.S. population is at peak income years and is set to inherit in excess of $7 trillion. This wealth and desire for living in a resort setting is what fuels demand for both investments in resort residential and Canyon Ranch.

Since Crescent's initial public offering in 1994, the Company has been involved in more than 35 residential development projects. Every project has been profitable, generating internal rates of return, on average, of more than 20%. The majority of the projects have been developed in partnership with East West Partners, led by its President, Harry Frampton. The most significant project of Crescent and East West Partners is in and around the Northstar ski area near Lake Tahoe, California. This project encompasses more than 2,600 luxury condominiums, fractional cabins, and homesites either started or scheduled for development over the next 8 to 12 years and is expected to generate in excess of $3.5 billion in sales. Including other projects that are in process, Crescent targets this segment to deliver $82 million in funds from operations ("FFO") in 2007. Out of the total cash expected to be received by Crescent from the segment in 2005-2007 of $700 million, $300 million is committed to be reinvested back into the segment, leaving $400 million of cash available to Crescent for investment in other business segments, debt reduction, dividend support and working capital.

Growth Platform #3 - Canyon Ranch

Goff explained that Crescent originally invested in the world-renowned Canyon Ranch in 1996, and until recently, owned 100% of the two Canyon Ranch resorts in Tucson, Arizona, and Lenox, Massachusetts, and 30% of the Canyon Ranch brand. In January 2005, Crescent and the founders of Canyon Ranch completed a restructuring of their investments to allow for all assets, including the resorts, the management company and the brand, to be combined under common ownership. Today, Crescent owns 48% of this new company, while the remaining 52% is owned by the founders. As part of this transaction, the new Canyon Ranch company raised $110 million of convertible preferred equity and $95 million of non-recourse long-term debt. As a result, Crescent received approximately $92 million in cash, and $50 million remained in the new Canyon Ranch company for resort enhancements, new business opportunities and working capital.

With the tremendous success of the Canyon Ranch resorts over the years, along with the success of the brand expansions to the spa in the Venetian Hotel and the spa aboard the Queen Mary 2, it became evident that there was strong demand from customers to live the Canyon Ranch experience year-round. This idea launched the Canyon Ranch Living concept, and the first development is under construction in Miami's South Beach. Canyon Ranch Living - Miami Beach is comprised of 586 condominium units, 150 of which will be operated as a hotel, and a 70,000 square-foot spa and wellness center. The beachfront development will offer the residents and hotel guests much of the programming for which Canyon Ranch is famous. Canyon Ranch is expected to receive $30 to $35 million in license and technical service fees during the construction and sale of the condominium units, in addition to approximately $2.5 million per year for the ongoing management of the spa and hotel. "Canyon Ranch Living provides substantial growth opportunities for the brand in numerous high-end locations. In partnership with experienced developers, Canyon Ranch invests its unique expertise as opposed to capital," Goff said. Additional markets being targeted include Manhattan, Boston, Washington D.C, Chicago and Los Angeles. Canyon Ranch is also considering Canyon Ranch Living developments in Crescent markets such as Las Vegas, Lake Tahoe, Houston and Dallas. In these locations, Crescent would participate in both sides of the project - as the developer and as an owner of Canyon Ranch.