Crescent Taking $105-Mil, One-Time Hit for Take-Back Plan

COPI is facing a pre-packaged bankruptcy, foreclosure or even demise as a result of its prime lender's decision. In 30 days, COPI will be in a better position to know if it can stay afloat without Crescent's promised $10-million capital infusion into a fiscally strapped subsidiary, Jeffrey L. Stevens, COPI's COO tells GlobeSt.com. He says the REIT legislation that took effect Jan. 1 is partly to blame, as is its wholly owned subsidiary's hard times as a result of a construction downturn. The REIT legislation, says Stevens, "simply made it clear that future opportunities to Crescent Operating by Crescent Real Estate would not be coming."

Stevens says he is talking with the Crescent Machinery subsidiary lenders, led by Deutsche Bank, to see if it can be salvaged from the rubble of the Crescent pullout.

Stevens says it's just too early in the talks to know when a bankruptcy petition would be filed, if that's where talks take him. "When you just start negotiations, you don't know where they're going to come out," he says.

Crescent CEO John C. Goff, in a special conference call yesterday, said a pre-packaged bankruptcy is a more likely scenario than foreclosure. Crescent has set aside $18 million to bankroll expenses related to a COPI bankruptcy. "We're not pleased in taking a change like this," Goff said, "but we're confident in the plan and that it will get done quickly...There's a lot of efficiency to be gained by consolidating interests back under Crescent."

Goff said the decision is simply following through on a plan set in motion in 1999 to simplify Crescent's operations. It also meant eliminating non-core assets, the category assigned to Crescent Machinery. But Crescent does want the three business-class hotels, five luxury resorts and spas and the voting stock for three residential developments. By law, Crescent can't take over COPI's 40% share of a temperature-controlled logistics operating company, jointly held with Vornado Operating Co. Crescent and Vornado Realty Trust own the real estate assets of AmeriCold Logistics while their operating companies control the business.

In the conference call, Goff said COPI wanted more money and concessions from its lender group, which includes some third-party sources. The answer clearly was no. "The cleanup of this company is done," Goff said. "There are no additional write-offs. We're done...We're putting this behind us."

Goff and other Crescent officials claim there will be no disruption of income or cash flow for the REIT by virtue of its action against COPI. Crescent has downsized its 2002 projections, but that's just by a shade. Goff expressed confidence that FFO and NOI will still hit the targeted range, just on the low end of the calculations.

Despite Goff's assurance, Moody's replaced Crescent's stable rating with a negative watch. Keira B. Moody, Crescent's vice president of investor relations, tells GlobeSt.com that talks between the rating service and REIT have been ongoing since the decision was made to sever the COPI ties. She said Crescent didn't "know for sure" that Moody's would take action yesterday. But, she added, "we're not surprised.