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FT. WORTH-Crescent Real Estate Equities Co. is jumping aboard the new REIT Modernization Act and structuring a $78.4-million buyout of a three-year-old spin-off company’s resort, hotel and residential lease holdings. The deal severs an intercompany pact between the REIT and its operating company.

The Ft. Worth-based REIT has inked a definitive agreement with Crescent Operating Co. “It’s a win-win for both companies,” Keira B. Moody, Crescent’s vice president of investor relations, tells GlobeSt.com. She says Crescent has “taken all the steps from an accounting perspective and tax perspective so that we’re sound” with regard to IRS approval. Several subsidiaries will be set up with the structuring so that in the end the REIT’s books will be simplified.

The initiative will be presented to stockholders in the third quarter. A meeting date has not been set for the required shareholder vote. The REIT is paying $37.8 million for the resort and hotel lease interests and $40.6 million for the residential development corporations and related assets.

“We saw the REIT Modernization Act as a means to simplify the businesses of Crescent Real Estate and Crescent Operating, so the challenge was to develop a solution that works for both,” John C. Goff, CEO for both entities, says in a prepared statement.

There are no management changes afoot, but the REIT is now assuming control of resort and hotel properties and residential developments in Arizona, California, Colorado and Texas. The resort-hotel properties are the 228-room Sonoma Mission Inn & Spa, including the Golf and Country Club in California; 62-room Ventana Inn & Spa in Big Sur, CA; 276-room Hyatt Regency Beaver Creek in Avon, CO; 250-room Canyon Ranch-Tucson; 212-room Canyon Ranch-Lenox in Massachusetts; 613-room Denver Marriott City Center; 395-room Hyatt Regency Albuquerque; and 389-room Renaissance Houston. The residential properties are the 2,665-lot Desert Mountain in Scottsdale, AZ; 36,385-lot The Woodlands, north of Houston; and 12 active projects in Colorado, totaling 2,732 lots and units, some with condos fetching as much as $2 million apiece.

Crescent Operating Co. retains Crescent Machinery Co. as its primary business and its 40% interest in AmeriCold Logistics LLC, a recognized under-performer for the company. New York City-based Vornado Realty Trust controls 60% of the 88-warehouse portfolio. The Crescent pact does not satisfy a $16.8 million note that the operating company owes to Crescent REIT for the AmeriCold interests.

In the new Crescent deal, Crescent Machinery, a nationwide heavy equipment rental operation, is getting $10 million from the REIT to advance its new business model. SunTX Fulcrum Fund LP, a Dallas-based private equity fund, also has kicked in $19 million toward the machinery business’ recapitalization. Another $15 million in shares will become available to stockholders. The bottom line is the machinery business is able to cut debt from nearly $470 million to $139.1 million with the Crescent changes, says Moody. According to operating company statements, the debt will be further reduced through a future equity offering after the $78.4-million deal closes with Crescent REIT.

Crescent Machinery, in line with its new strategy, has a new CEO, Eric Anderson. He had been president and CEO of Aviall Inc. of Dallas.

The Crescent initiative also consolidates the residential properties, save for The Woodlands. The REIT is acquiring 100% of the voting stock whereas before it had non-voting standing with regard to the residential portfolio. The consolidation, says Moody, brings an extra $300 million of additional asset value to the REIT’s books.

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