CRESCENT FINANCE CO - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR QUARTER ENDED MARCH 31, 2003
COMMISSION FILE NO. 333-42293
333-89194-01

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CRESCENT FINANCE COMPANY*
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 75-2531304
Delaware 42-1536518
- ------------------------------------ ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

777 Main Street, Suite 2100, Fort Worth, Texas 76102
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(Address of principal executive offices)(Zip code)

Registrant's telephone number, including area code (817) 321-2100

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.

YES X NO
------ ------

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).

YES X NO
----- -----

* Crescent Finance Company meets the conditions set forth in General
Instruction H (1) (a) and (b) of Form 10-Q and therefore is filing this
form with the reduced disclosure format.

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
FORM 10-Q
TABLE OF CONTENTS

PART I

ITEM 1. FINANCIAL STATEMENTS

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except per unit data)

The accompanying notes are an integral part of these consolidated
financial statements.

3

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)

The accompanying notes are an integral part of these consolidated
financial statements.

4

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(dollars in thousands)

The accompanying notes are an integral part of these consolidated
financial statements.

5

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)

The accompanying notes are an integral part of these consolidated
financial statements.

6

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership ("CREELP" and, together with its direct and indirect ownership
interests in limited partnerships, corporations and limited liability companies,
the "Operating Partnership"), was formed under the terms of a limited
partnership agreement dated February 9, 1994. The Operating Partnership is
controlled by Crescent Real Estate Equities Company, a Texas real estate
investment trust (the "Company"), through the Company's ownership of all of the
outstanding stock of Crescent Real Estate Equities, Ltd., a Delaware corporation
("the General Partner"), which owns an approximately 1% general partner interest
in the Operating Partnership. In addition, the Company owns an approximately 84%
limited partner interest in the Operating Partnership, with the remaining
approximately 15% limited partner interest held by other limited partners.

All of the limited partners of the Operating Partnership, other than
the Company, own, in addition to limited partner interests, units. Each unit
entitles the holder to exchange the unit (and the related limited partner
interest) for two common shares of the Company or, at the Company's option, an
equivalent amount of cash. For purposes of this report, the term "unit" or "unit
of partnership interest" refers to the limited partner interest and, if
applicable, related units held by a limited partner. Accordingly, as of March
31, 2003, the Company's approximately 84% limited partner interest has been
treated as equivalent, for purposes of this report, to 48,999,166 units and the
remaining approximately 15% limited partner interest has been treated as
equivalent, for purposes of this report, to 8,875,044 units. In addition, the
Company's 1% general partner interest has been treated as equivalent, for
purposes of this report, to 584,588 units.

The Company owns its assets and carries on its operations and other
activities through the Operating Partnership and its other subsidiaries. The
limited partnership agreement of the Operating Partnership acknowledges that all
of the Company's operating expenses are incurred for the benefit of the
Operating Partnership and provides that the Operating Partnership shall
reimburse the Company for all such expenses. Accordingly, expenses of the
Company are reimbursed by the Operating Partnership. The limited partnership
agreement also requires that the Operating Partnership operate in such a manner
that enables the Company to maintain real estate investment trust status
pursuant to Section 856 of the U.S. Internal Revenue Code of 1986, as amended.

Crescent Finance Company, a Delaware corporation wholly-owned by the
Operating Partnership, was organized in March 2002 for the sole purpose of
acting as co-issuer with the Operating Partnership of $375.0 million aggregate
principal amount of 9.25% senior notes due 2009. Crescent Finance Company does
not conduct operations of its own.

The following table shows, by consolidated entity, the real estate
assets that the Operating Partnership owned or had an interest in as of March
31, 2003.

Operating Partnership Wholly-owned assets - The Avallon IV, Chancellor
Park, Datran Center (two office properties),
Houston Center (three office properties) and The
Park Shops at Houston Center. These properties are
included in the Operating Partnership's Office
Segment.

Joint Venture assets, consolidated - 301 Congress
Avenue (50% interest) and The Woodlands Office
Properties (85.6% interest) (four office
properties). These five properties are included in
the Operating Partnership's Office Segment. Sonoma
Mission Inn & Spa (80.1% interest), included in
the Operating Partnership's Resort/Hotel Segment.

Equity Investments, unconsolidated - Bank One
Center (50% interest), Bank One Tower (20%
interest), Three Westlake Park (20% interest),
Four Westlake Park (20% interest), Miami Center
(40% interest), 5 Houston Center (25% interest)
and Five Post Oak Park (30% interest). These
properties are included in the Operating
Partnership's Office Segment. Ritz Carlton Palm
Beach (50% interest), included in the Operating
Partnership's Resort/Hotel Segment. The
temperature-controlled logistics properties (40%
interest in 88 properties). These properties are
included in the Operating Partnership's
Temperature-Controlled Logistics Segment.

Crescent Real Estate Wholly-owned assets - The Aberdeen, The Avallon I,
Funding I, L.P. II & III, Carter Burgess Plaza, The Citadel, The
("Funding I") Crescent Atrium, The Crescent Office Towers,
Regency Plaza One, Waterside Commons and 125 E.
John Carpenter Freeway. These properties are
included in the Operating Partnership's Office
Segment.

Crescent Real Estate Wholly-owned assets - Albuquerque Plaza, Barton
Funding II, L.P. Oaks Plaza One, Briargate Office and Research
("Funding II") Center, Las Colinas Plaza, Liberty Plaza I & II,
MacArthur Center I & II, Ptarmigan Place, Stanford
Corporate Centre, Two Renaissance Square and 12404
Park Central. These properties are included in the
Operating Partnership's Office Segment. The Hyatt
Regency Albuquerque and the Park Hyatt Beaver
Creek Resort & Spa. These properties are included
in the Operating Partnership's Resort/Hotel
Segment.

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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Crescent Real Estate Wholly-owned assets - Greenway Plaza Office
Funding III, IV and V, Properties (ten office properties). These
L.P. ("Funding III, IV properties are included in the Operating
and V")(1) Partnership's Office Segment, and Renaissance
Houston Hotel, included in the Operating
Partnership's Resort/Hotel Segment.

Crescent Real Estate Wholly-owned asset - Canyon Ranch - Lenox,
Funding VI, L.P. included in the Operating Partnership's
("Funding VI") Resort/Hotel Segment.

Crescent Real Estate Wholly-owned assets - Six behavioral healthcare
Funding VII, L.P. properties.
("Funding VII")

Crescent Real Estate Wholly-owned assets - The Addison, Addison Tower,
Funding VIII, L.P. Austin Centre, The Avallon V, Frost Bank Plaza,
("Funding VIII") Greenway I and IA (two office properties),
Greenway II, Johns Manville Plaza, Palisades
Central I, Palisades Central II, Stemmons Place,
Trammell Crow Center(2), 3333 Lee Parkway, 1800
West Loop South, 5050 Quorum, 44 Cook and 55
Madison. These Properties are included in the
Operating Partnership's Office Segment. The Canyon
Ranch - Tucson, Omni Austin Hotel, and Ventana Inn
& Spa, all of which are included in the Operating
Partnership's Resort/Hotel Segment.

Crescent Real Estate Wholly-owned asset - 707 17th Street, included in
Funding IX, L.P. the Operating Partnership's Office Segment. The
("Funding IX") Denver Marriott City Center, included in the
Operating Partnership's Resort/Hotel Segment.

Crescent Real Estate Wholly-owned assets - Fountain Place and Post Oak
Funding X, L.P. Central (three office properties), all of which
("Funding X") are included in the Operating Partnership's Office
Segment.

Crescent Spectrum Wholly-owned asset - Spectrum Center, included in
Center, L.P.(3) the Operating Partnership's Office Segment.

Mira Vista Development Equity Investments, consolidated - Mira Vista (98%
Corp. ("MVDC") interest), included in the Operating Partnership's
Residential Development Segment.

Houston Area Development Equity Investments, consolidated - Falcon Point
Corp. ("HADC") (98% interest), Falcon Landing (98% interest) and
Spring Lakes (98% interest). These properties are
included in the Operating Partnership's
Residential Development Segment.

Desert Mountain Equity Investments, consolidated - Desert Mountain
Development Corporation (93% interest), included in the Operating
("DMDC") Partnership's Residential Development Segment.

The Woodlands Land Equity Investments, unconsolidated - The Woodlands
Company ("TWLC") (42.5% interest),(4) included in the Operating
Partnership's Residential Development Segment.

Crescent Resort Equity Investments, consolidated - Eagle Ranch
Development Inc. ("CRDI") (60% interest), Main Street Junction (30%
interest), Main Street Station (30% interest),
Main Street Station Vacation Club (30% interest),
Riverbend (60% interest), Park Place at Riverfront
(64% interest), Park Tower at Riverfront (64%
interest), Promenade Lofts at Riverfront (64%
interest), Creekside at Riverfront (64% interest),
Cresta (60% interest), Snow Cloud (64% interest),
Horizon Pass Lodge (64% interest), One Vendue
Range (62% interest), Old Greenwood (71.2%
interest), Tahoe Mountain Resorts (57% - 71.2%
interest). These properties are included in the
Operating Partnership's Residential Development
Segment.

Equity Investment, unconsolidated - Three Peaks
(Eagle's Nest) (50% interest), included in the
Operating Partnership's Residential Development
Segment.

Crescent TRS Holdings Equity Investments, unconsolidated - two quarries
Corp. (56% interest), included in the Operating
Partnership's Temperature-Controlled Logistics
Segment.

- --------------------------

(1) Funding III owns nine of the ten office properties in the
Greenway Plaza office portfolio and the Renaissance Houston
Hotel; Funding IV owns the central heated and chilled water
plant building located at Greenway Plaza; and Funding V owns 9
Greenway, the remaining office property in the Greenway Plaza
office portfolio.

(2) The Operating Partnership owns the principal economic interest
in Trammell Crow Center through its ownership of fee simple
title to the Property (subject to a ground lease and a
leasehold estate regarding the building) and two mortgage
notes encumbering the leasehold interests in the land and the
building.

(3) Crescent Spectrum Center, L.P. holds its interest in Spectrum
Center through its ownership of the underlying land and notes
and a mortgage on the property.

(4) Distributions are made to Partners based on specified payout
percentages. During the three months ended March 31, 2003, the
Operating Partnership's payout percentage and economic
interest was 52.5%.

8

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

See Note 6, "Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies," for a table that lists the Operating Partnership's
ownership in significant unconsolidated joint ventures and equity investments as
of March 31, 2003.

See Note 7, "Notes Payable and Borrowings Under Credit Facility," for a
list of certain other subsidiaries of the Operating Partnership, all of which
are consolidated in the Operating Partnership's financial statements and were
formed primarily for the purpose of obtaining secured debt or joint venture
financing.

SEGMENTS

The assets and operations of the Operating Partnership were divided
into four investment segments at March 31, 2003, as follows:

o Office Segment;

o Resort/Hotel Segment;

o Residential Development Segment; and

o Temperature-Controlled Logistics Segment.

Within these segments, the Operating Partnership owned in whole or in
part the following real estate assets (the "Properties") as of March 31, 2003:

o OFFICE SEGMENT consisted of 73 office properties, including
three retail properties (collectively referred to as the
"Office Properties"), located in 25 metropolitan submarkets in
six states, with an aggregate of approximately 29.5 million
net rentable square feet. Sixty-one of the Office Properties
are wholly-owned and 12 are owned through joint ventures, five
of which are consolidated and seven of which are
unconsolidated.

o RESORT/HOTEL SEGMENT consisted of six luxury and destination
fitness resorts and spas with a total of 1,306 rooms/guest
nights and four upscale business-class hotel properties with a
total of 1,771 rooms (collectively referred to as the
"Resort/Hotel Properties"). Eight of the Resort/Hotel
Properties are wholly-owned, one is owned through a joint
venture that is consolidated, and one is owned through a joint
venture that is unconsolidated.

o RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Operating
Partnership's ownership of real estate mortgages and voting
and non-voting common stock representing interests of 98% to
100% in five residential development corporations
(collectively referred to as the "Residential Development
Corporations"), which in turn, through partnership
arrangements, owned in whole or in part 22 upscale residential
development properties (collectively referred to as the
"Residential Development Properties").

o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the
Operating Partnership's 40% interest in Vornado Crescent
Portland Partnership (the "Temperature-Controlled Logistics
Partnership") and a 56% interest in the Vornado Crescent
Carthage and KC Quarry L.L.C. The Temperature-Controlled
Logistics Partnership owns all of the common stock,
representing substantially all of the economic interest, of
AmeriCold Corporation (the "Temperature-Controlled Logistics
Corporation"), a REIT. As of March 31, 2003, the
Temperature-Controlled Logistics Corporation directly or
indirectly owned 88 temperature-controlled logistics
properties (collectively referred to as the
"Temperature-Controlled Logistics Properties") with an
aggregate of approximately 441.5 million cubic feet (17.5
million square feet) of warehouse space. As of March 31, 2003,
the Vornado Crescent Carthage and KC Quarry, L.L.C. owned two
quarries and the related land.

See Note 3, "Segment Reporting," for a table showing total revenues,
operating expenses, equity in net income (loss) of unconsolidated companies and
funds from operations for each of these investment segments for the three months
ended March 31, 2003 and 2002, and identifiable assets for each of these
investment segments at March 31, 2003 and December 31, 2002.

For purposes of segment reporting as defined in Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of an
Enterprise and Related Information," and this Quarterly Report on Form 10-Q, the
Resort/Hotel Properties, the Residential Development Properties and the
Temperature-Controlled Logistics Properties are considered three separate
reportable segments, as described above. However, for purposes of investor
communications, the

9

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Partnership classifies its luxury and destination fitness resorts and
spas and Residential Development Properties as a single group referred to as the
"Resort and Residential Development Sector" due to the similar characteristics
of targeted customers. This group does not contain the four business-class hotel
properties. Instead, for investor communications, the four business-class hotel
properties are classified with the Temperature-Controlled Logistics Properties
as the Operating Partnership's "Investment Sector."

BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles in the United States
("GAAP") for interim financial information, as well as in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the
information and footnotes required by GAAP for complete financial statements are
not included. In management's opinion, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
unaudited interim financial statements are included. Operating results for
interim periods reflected do not necessarily indicate the results that may be
expected for a full fiscal year. You should read these financial statements in
conjunction with the financial statements and the accompanying notes included in
the Operating Partnership's Form 10-K for the year ended December 31, 2002.

Certain amounts in prior period financial statements have been
reclassified to conform to current year presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This section should be read in conjunction with the more detailed
information regarding the Operating Partnership's significant accounting
policies contained in the Operating Partnership's Annual Report on Form 10-K for
the year ended December 31, 2002.

ADOPTION OF NEW ACCOUNTING STANDARDS

STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 145. In April
2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145,
"Rescission of FASB Statements 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections." SFAS No. 145 requires the reporting of gains and
losses from early extinguishment of debt be included in the determination of net
income unless criteria in Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations," which allows for extraordinary item classification,
are met. The provisions of this Statement related to the rescission of Statement
No. 4 are to be applied in fiscal years beginning after May 15, 2002. The
Operating Partnership adopted this Statement for fiscal 2003 and expects no
impact in 2003 beyond the classification of costs related to early
extinguishments of debt, which were shown in the Operating Partnership's 2001
Consolidated Statements of Operations as an extraordinary item.

SFAS NOS. 148 AND 123. In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation," effective for fiscal years ending
after December 15, 2002, to amend the transition and disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." In addition to the
prospective transition method of accounting for Stock-Based Employee
Compensation using the fair value method provided in SFAS No. 123, SFAS No. 148
permits two additional transition methods, both of which avoid the ramp-up
effect arising from prospective application of the fair value method. The
Retroactive Restatement Method requires companies to restate all periods
presented to reflect the Stock-Based Employee Compensation under the fair value
method for all employee awards granted, modified, or settled in fiscal years
beginning after December 15, 1994. The Modified Prospective Method requires
companies to recognize Stock-Based Employee Compensation from the beginning of
the fiscal year in which the recognition provisions are first applied as if the
fair value method in SFAS No. 123 had been used to account for employee awards
granted, modified, or settled in fiscal years beginning after December 15, 1994.
Also, in the absence of a single accounting method for Stock-Based Employee
Compensation, SFAS No. 148 expands disclosure requirements from those existing
in SFAS No. 123, and requires disclosure of whether, when, and how an entity
adopted the preferable, fair value method of accounting.

Effective January 1, 2003, the Operating Partnership adopted the fair
value expense recognition provisions of SFAS No. 123 on a prospective basis as
permitted, which requires that the value of stock options and unit options at
the date of grant be amortized ratably into expense over the appropriate vesting
period. As the Company and the Operating Partnership did not grant any stock
options or unit options in the three months ended March 31, 2003, there was no
impact of this adoption to the financial statements. With respect to the
Company's stock options and the Operating Partnership's unit options which were
granted prior to 2003, the Operating Partnership accounted for stock-based
compensation using the

10

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations ("APB
No. 25"). Under APB No. 25, compensation cost is measured as the excess, if any,
of the quoted market price of the Company's common shares (doubled for unit
options) at the date of grant over the exercise price of the option granted.
Compensation cost for stock options and unit options, if any, is recognized
ratably over the vesting period. During the three months ended March 31, 2003,
no compensation cost was recognized for grants of stock options or unit options
made prior to 2003 under the Company and the Operating Partnership stock option
and unit option plans because the Company's and the Operating Partnership's
policy is to grant stock options and unit options with an exercise price equal
to the quoted closing market price of the Company's common shares (doubled for
unit options) on the grant date. Had compensation cost for the Plans been
determined based on the fair value at the grant dates for awards under the Plans
consistent with SFAS No. 123, the Operating Partnership's net income and
earnings per unit would have been reduced to the following pro forma amounts:

FASB INTERPRETATION 45. In November 2002, the FASB issued
Interpretation 45, "Guarantors' Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"),
which elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that
it has issued and liability-recognition requirements for a guarantor of certain
types of debt. The new guidance requires a guarantor to recognize a liability at
the inception of a guarantee which is covered by the new requirements whether or
not payment is probable, creating the new concept of a "stand-ready" obligation.
Initial recognition and initial measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. See
Note 9, "Commitments and Contingencies," for disclosure of the Operating
Partnership's guarantees at March 31, 2003. The Operating Partnership adopted
FIN 45 effective January 1, 2003. The Operating Partnership has not entered into
additional debt guarantees during the three months ended March 31, 2003.

FASB INTERPRETATION 46. On January 15, 2003, the FASB approved the
issuance of Interpretation 46, "Consolidation of Variable Interest Entities"
("FIN 46"), an interpretation of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements." Under FIN 46, consolidation requirements
are effective immediately for new Variable Interest Entities ("VIEs") created
after January 31, 2003. The consolidation requirements apply to existing VIEs in
the first fiscal year or interim period beginning after June 15, 2003. VIEs are
generally a legal structure used for business enterprises that either do not
have equity investors with voting rights, or have equity investors that do not
provide sufficient financial resources for the entity to support its activities.
The objective of the new guidance is to improve reporting by addressing when a
company should include in its financial statements the assets, liabilities and
activities of another entity such as a VIE. FIN 46 requires a VIE to be
consolidated by a company if the company is subject to a majority of the risk of
loss from the VIEs activities or entitled to receive a majority of the entity's
residual returns or both. FIN 46 also requires disclosures about VIEs that the
company is not required to consolidate but in which it has a significant
variable interest. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the VIE was
established. These disclosure requirements are as follows: (a) the nature,
purpose, size, and activities of the variable interest entity; and, (b) the
enterprise's maximum exposure to loss as a result of its involvement with the
VIE. FIN 46 may be applied prospectively with a cumulative effect adjustment as
of the date on which it is first applied or by restating previously issued
financial statements for one or more years with a cumulative effect adjustment
as of the beginning of the first year restated. The Operating Partnership is
assessing the impact of this Interpretation, if any, on its existing entities
and does not believe the impact will be significant on its liquidity, financial
position, and results of operations. The Operating Partnership did not create
any VIEs subsequent to January 31, 2003.

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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES

EARNINGS PER SHARE. SFAS No. 128, "Earnings Per Share," ("EPS")
specifies the computation, presentation and disclosure requirements for earnings
per share.

Basic EPS is computed by dividing net income available to unitholders
by the weighted average number of units outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue units were exercised or converted into units, where such
exercise or conversion would result in a lower EPS amount. The Operating
Partnership presents both basic and diluted earnings per share.

The following table presents reconciliation for the three months ended
March 31, 2003 and 2002 of basic and diluted earnings per unit from "Net income
before discontinued operations and cumulative effect of a change in accounting
principle" to "Net (loss) income available to partners." The table also includes
weighted average units on a basic and diluted basis.

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CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

This table presents supplemental cash flows disclosures for the three
months ended March 31, 2003 and 2002.

SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS

3. SEGMENT REPORTING

For purposes of segment reporting as defined in SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," the
Operating Partnership currently has four major investment segments based on
property type: the Office Segment; the Resort/Hotel Segment; the Residential
Development Segment; and the Temperature-Controlled Logistics Segment.
Management utilizes this segment structure for making operating decisions and
assessing performance.

The Operating Partnership uses FFO as the measure of segment profit or
loss. FFO, as used in this document, is based on the definition adopted by the
Board of Governors of the National Association of Real Estate Investment Trusts
("NAREIT") and means:

o Net Income (Loss) - determined in conformity with GAAP;

o excluding gains (losses) from sales of depreciable operating
property;

o excluding extraordinary items (as defined by GAAP);

o including depreciation and amortization of real estate assets;
and

o after adjusting for unconsolidated partnerships and joint
ventures.

13

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NAREIT developed FFO as a relative measure of performance and liquidity
of an equity REIT to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. The Operating
Partnership considers FFO an appropriate measure of performance for an equity
REIT and for its investment segments. However, FFO should not be considered as
an alternative to net income determined in accordance with GAAP as an indication
of the Operating Partnership's operating performance.

The Operating Partnership's measure of FFO may not be comparable to
similarly titled measures of operating partnerships of REITs (other than the
Company) if those REITs apply the definition of FFO in a different manner than
the Operating Partnership.

Selected financial information related to each segment for the three
months ended March 31, 2003 and 2002, and identifiable assets for each of the
segments at March 31, 2003 and December 31, 2002, are presented below:

- --------------------

See footnotes to table on next page.

14

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- ----------------------------

(1) For purposes of this Note, Corporate and Other include corporate
interest and other income, general and administrative, interest
expense, depreciation and amortization, amortization of deferred
financing costs, preferred return paid to GMAC Commercial Mortgage
Corporation ("GMACCM") for 2002, preferred dividends, other
unconsolidated companies, impairment and other charges and other
expenses.

(2) Includes lease termination fees (net of the write-off of deferred rent
receivables) of approximately $2.0 million and $1.1 million for the
three months ended March 31, 2003 and 2002, respectively.

(3) The following table presents a reconciliation of Consolidated Funds
from Operations to Net (Loss) Income.

RECONCILIATION OF CONSOLIDATED FUNDS FROM OPERATIONS

4. DISCONTINUED OPERATIONS

In August 2001, the FASB issued SFAS No. 144, which requires that the
results of operations of assets sold or held for sale, and any gains or losses
recognized on assets sold and held for sale, be disclosed separately in the
Operating Partnership's Consolidated Statements of Operations. The Operating
Partnership adopted SFAS No. 144 on January 1, 2002. In accordance with SFAS No.
144, the results of operations of the assets sold or held for sale have been
presented as "Discontinued operations - income (loss) on assets sold and held
for sale," and gain or loss and impairments in the assets sold or held for sale
have been presented as "Discontinued operations - (loss) gain on assets sold and
held for sale" in the accompanying Consolidated Statements of Operations for the
three months ended March 31, 2003 and 2002. The carrying value of the assets
held for sale has been reflected as "Properties held for disposition, net" in
the accompanying Consolidated Balance Sheets as of March 31, 2003 and December
31, 2002.

ASSETS HELD FOR SALE

OFFICE SEGMENT

As of March 31, 2003, the 1800 West Loop South Office Property located
in the West Loop/Galleria submarket in Houston, Texas was held for sale and the
North Dallas Athletic Club, a building located adjacent to the Stanford
Corporate Centre Office Property in the Far North Dallas submarket in Dallas,
Texas, was held for sale.

15

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BEHAVIORAL HEALTHCARE PROPERTIES

On February 27, 2003, the Operating Partnership sold one behavioral
healthcare property for $2.0 million, consisting of $1.3 million in cash and a
$0.7 million note receivable. The Operating Partnership recognized a loss on the
sale of this property of approximately $0.3 million. A $2.6 million impairment
charge was recognized during 2002 related to this property. As of March 31,
2003, the Operating Partnership owned six behavioral healthcare properties.

SUMMARY OF ASSETS HELD FOR SALE

The following table indicates the major classes of assets of the
Properties held for sale.

- -----------------------------

(1) Includes the 1800 West Loop South Office Property, North Dallas
Athletic Club and six Behavioral Healthcare Properties.

The following table presents rental revenue, operating expenses,
depreciation and amortization, net income and impairments for three months ended
March 31, 2003 and 2002 for properties held for sale as of March 31, 2003.

- -----------------------------

(1) Includes the 1800 West Loop South Office Property and the North Dallas
Athletic Club located adjacent to the Stanford Corporate Centre
Property.

(2) Includes impairments on 1800 West Loop South, North Dallas Athletic
Club and one behavioral healthcare property.

IMPAIRMENTS

The Operating Partnership recognizes impairment charges representing
the difference between the carrying value of properties and the estimated sales
price, less costs of sale, and reflects such impairment charges in "Discontinued
operations - (loss) gain on assets sold and held for sale."

During the three months ended March 31, 2003, the Operating Partnership
also recognized a $15.0 million impairment on the 1800 West Loop South Office
Property in Houston, Texas and the Operating Partnership recognized a $1.2
million impairment on the North Dallas Athletic Club, located adjacent to the
Stanford Corporate Centre Office property in Dallas, Texas. The Operating
Partnership also recognized an impairment charge of approximately $0.8 million,
on one of the six behavioral healthcare properties held for sale. This property
is under contract for sale.

16

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. TEMPERATURE-CONTROLLED LOGISTICS SEGMENT

TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES

As of March 31, 2003, the Operating Partnership held a 40% interest in
the Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly owns
the 88 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 441.5 million cubic feet (17.5 million square feet) of warehouse
space.

The Temperature-Controlled Logistics Corporation leases the
Temperature-Controlled Logistics Properties to AmeriCold Logistics, a limited
liability company owned 60% by Vornado Operating L.P. and 40% by a subsidiary of
COPI. The Operating Partnership has no economic interest in AmeriCold Logistics.
See Note 14, "COPI," for information on the proposed acquisition of COPI's 40%
interest in AmeriCold Logistics by a new entity to be owned by the Operating
Partnership's unitholders and the Company's shareholders.

AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, leases the Temperature-Controlled Logistics Properties
from the Temperature-Controlled Logistics Corporation under three triple-net
master leases, as amended. On February 22, 2001, the Temperature-Controlled
Logistics Corporation and AmeriCold Logistics agreed to restructure certain
financial terms of the leases, including a reduction of the rental obligation
for 2001 and 2002, the increase of the Temperature-Controlled Logistics
Corporation's share of capital expenditures for the maintenance of the
properties (effective January 1, 2000) and the extension of the date on which
deferred rent is required to be paid to December 31, 2003. On March 7, 2003, the
Temperature-Controlled Logistics Corporation and AmeriCold Logistics amended the
leases to further extend the date on which deferred rent is required to be paid
to December 31, 2004.

AmeriCold Logistics deferred $5.6 million of the total $37.0 million of
rent payable for the three months ended March 31, 2003. The Operating
Partnership's share of the deferred rent was $2.2 million. The Operating
Partnership recognizes rental income from the Temperature-Controlled Logistics
Properties when earned and collected and has not recognized the $2.2 million of
deferred rent in equity in net income of the Temperature-Controlled Logistics
Properties for the three months ended March 31, 2003. As of March 31, 2003, the
Temperature-Controlled Logistics Corporation's deferred rent and valuation
allowance from AmeriCold Logistics were $47.9 million and $39.8 million,
respectively, of which the Operating Partnership's portions were $19.2 million
and $15.9 million, respectively.

VORNADO CRESCENT CARTHAGE AND KC QUARRY, L.L.C. ("VCQ")

As of March 31, 2003, the Operating Partnership held a 56% interest in
Vornado Crescent Carthage and KC Quarry, L.L.C. ("VCQ"). The assets of VCQ
include two quarries and the related land. The Operating Partnership accounts
for this investment as an unconsolidated equity investment because the Operating
Partnership does not control the joint venture.

On December 31, 2002, VCQ purchased $5.7 million of trade receivables
from AmeriCold Logistics at a 2% discount. The Operating Partnership contributed
approximately $3.1 million to VCQ for the purchase of the trade receivables. The
receivables were collected during the three months ended March 31, 2003.

On March 28, 2003, VCQ purchased $6.6 million of trade receivables from
AmeriCold Logistics at a 2% discount. VCQ used cash from collection of trade
receivables previously purchased from AmeriCold Logistics and a $2.0 million
contribution from its owners, of which approximately $0.8 million represented
the Operating Partnership's contribution, for the purchase of the trade
receivables. As of May 5, 2003, these receivables were collected.

6. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES

The Operating Partnership has investments of 20% to 50% in seven
unconsolidated joint ventures that own seven Office Properties. The Operating
Partnership does not have control of these joint ventures, and therefore, these
investments are accounted for using the equity method of accounting.

17

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Operating Partnership has other unconsolidated equity investments
with interests ranging from 12.5% to 65%. The Operating Partnership does not
have control of these investments due to ownership interests of 50% or less or
the ownership of non-voting interests only, and therefore, these investments
also are accounted for using the equity method of accounting.

The following is a summary of the Operating Partnership's ownership in
significant unconsolidated joint ventures and equity investments as of March 31,
2003.

- -------------------------------------------------------

(1) The remaining 50% interest in Main Street Partners, L.P. is owned by
Trizec Properties, Inc.

(2) The remaining 60% interest in Crescent Miami Center, L.L.C. is owned by
an affiliate of a fund managed by JP Morgan Fleming Asset Management,
Inc.

(3) The remaining 75% interest in Crescent 5 Houston Center, L.P. is owned
by a pension fund advised by JP Morgan Fleming Asset Management, Inc.

(4) The remaining 80% interest in each of Austin PT BK One Tower Office
Limited Partnership, Houston PT Three Westlake Park Office Limited
Partnership and Houston PT Four Westlake Park Office Limited
Partnership is owned by an affiliate of General Electric Pension Trust.

(5) The remaining 70% interest in Crescent Five Post Oak Park Limited
Partnership is owned by an affiliate of General Electric Pension Trust.

(6) The remaining 57.5% interest in each of the Woodlands Land Development
Company, L.P. ("WLDC"), The Woodlands Commercial Properties Company,
L.P. and The Woodlands Operating Company, L.P. is owned by an affiliate
of Morgan Stanley.

(7) Distributions are made to partners based on specified payout
percentages. During the three months ended March 31, 2003, the payout
percentage to the Operating Partnership was 52.5%.

(8) The remaining 50% interest in Blue River Land Company, L.L.C. is owned
by parties unrelated to the Operating Partnership.

(9) The remaining 50% interest in Manalapan Hotel Partners, L.L.C.
("Manalapan") is owned by WB Palm Beach Investors, L.L.C.

(10) The remaining 60% interest in Vornado Crescent Portland Partnership is
owned by Vornado Realty Trust, L.P.

(11) The remaining 44% in Vornado Crescent Carthage and KC Quarry, L.L.C. is
owned by Vornado Realty Trust, L.P.

(12) The remaining 70% interest in CR License, L.L.C. is owned by an
affiliate of the management company of two of the Operating
Partnership's Resort/Hotel Properties.

(13) The remaining 35% interest in Canyon Ranch Las Vegas, L.L.C. is owned
by an affiliate of the management company of two of the Operating
Partnership's Resort/Hotel Properties.

(14) The SunTx Fulcrum Fund, L.P.'s (the "Fund") objective is to invest in a
portfolio of acquisitions that offer the potential for substantial
capital appreciation. The remaining 72.2% of the Fund is owned by a
group of individuals unrelated to the Operating Partnership. The
Operating Partnership's ownership percentage will decline by the
closing date of the Fund as capital commitments from third parties are
secured. The Operating Partnership's projected ownership interest at
the closing of the Fund is approximately 7.5% based on the Fund
manager's expectations for the final Fund capitalization. The Operating
Partnership accounts for its investment in the Fund under the cost
method. The Operating Partnership's investment at March 31, 2003 was
$6.1 million.

(15) G2 Opportunity Fund, L.P. ("G2") was formed for the purpose of
investing in commercial mortgage backed securities and other commercial
real estate investments. Goff-Moore Strategic Partners, L.P. ("GMSP")
and GMAC Commercial Mortgage Corporation ("GMACCM") each own 21.875% of
G2, with the remaining 43.75% owned by parties unrelated to the
Operating Partnership. See Note 13, "Related Party Transactions," in
Item 1, "Financial Statements," for information regarding the ownership
interests of trust managers and officers of the Company and the
Operating Partnership in GMSP.

18

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY FINANCIAL INFORMATION

The Operating Partnership reports its share of income and losses based
on its ownership interest in its respective equity investments, adjusted for any
preference payments. As a result of the Operating Partnership's transaction with
COPI on February 14, 2002, certain entities that were reported as unconsolidated
entities in the first quarter of 2002 prior to February 14, 2002 are
consolidated in the March 31, 2003 financial statements. Additionally, certain
unconsolidated subsidiaries of the newly consolidated entities are now shown
separately as unconsolidated entities of the Operating Partnership. As a result
of the Operating Partnership's January 2, 2003 purchase of the remaining 2.56%
economic interest, representing 100% of the voting stock in DBL Holdings, Inc.
("DBL"), DBL is consolidated in the March 31, 2003 financial statements. Because
DBL owns a majority of the voting stock of MVDC and HADC, these two Residential
Development Corporations are consolidated in the March 31, 2003 financial
statements.

The unconsolidated entities that are included under the headings on the
following tables are summarized below.

Balance Sheets as of March 31, 2003:

o The Woodlands Land Development Company, L.P. - This
is an unconsolidated investment of TWLC;

o Other Residential Development Corporations - This
includes the Blue River Land Company, L.L.C, an
unconsolidated investment of CRDI;

o Resort/Hotel - This includes Manalapan;

o Temperature-Controlled Logistics - This includes the
Temperature-Controlled Logistics Partnership and VCQ;

o Office - This includes Main Street Partners, L.P.,
Houston PT Three Westlake Park Office Limited
Partnership, Houston PT Four Westlake Park Office
Limited Partnership, Austin PT BK One Tower Office
Limited Partnership, Crescent 5 Houston Center, L.P.,
Crescent Miami Center, L.L.C., Crescent Five Post Oak
Park Limited Partnership and The Woodlands Commercial
Properties Company, L.P. ("Woodlands CPC"); and

o Other - This includes CR License, L.L.C., Woodlands
Operating Company, L.P., Canyon Ranch Las Vegas,
L.L.C., SunTx Fulcrum Fund, L.P. and G2 Opportunity
Fund, L.P.

Balance Sheets as of December 31, 2002:

o The Woodlands Land Development Company, L.P. - This
is an unconsolidated investment of TWLC;

o Other Residential Development Corporations - This
includes the Blue River Land Company, L.L.C, an
unconsolidated investment of CRDI and includes MVDC
and HADC;

o Resort/Hotel - This includes Manalapan;

o Temperature-Controlled Logistics - This includes the
Temperature-Controlled Logistics Partnership and VCQ;

o Office - This includes Main Street Partners, L.P.,
Houston PT Three Westlake Park Office Limited
Partnership, Houston PT Four Westlake Park Office
Limited Partnership, Austin PT BK One Tower Office
Limited Partnership, Crescent 5 Houston Center, L.P.,
Crescent Miami Center, L.L.C., Crescent Five Post Oak
Park Limited Partnership and Woodlands CPC; and

o Other - This includes DBL Holdings, Inc., CR License,
L.L.C., Woodlands Operating Company, L.P., Canyon
Ranch Las Vegas, L.L.C. and SunTx Fulcrum Fund, L.P.

Summary Statements of Operations for the three months ended March 31,
2003:

o The Woodlands Land Development Company, L.P. - This
includes the operating results for WLDC, an
unconsolidated investment of TWLC;

o Other Residential Development Corporations - This
includes the operating results for Blue River Land
Company, L.L.C., an unconsolidated investment of
CRDI;

o Resort/Hotel - This includes the operating results
for Manalapan;

19

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

o Temperature-Controlled Logistics - This includes the
operating results for the Temperature-Controlled
Logistics Partnership and VCQ;

o Office - This includes the operating results for Main
Street Partners, L.P., Houston PT Three Westlake Park
Office Limited Partnership, Houston PT Four Westlake
Park Office Limited Partnership, Austin PT BK One
Tower Office Limited Partnership, Crescent 5 Houston
Center, L.P., Crescent Miami Center L.L.C., Crescent
Five Post Oak Park Limited Partnership and Woodlands
CPC; and

o Other - This includes CR License, L.L.C., Woodlands
Operating Company, L.P., Canyon Ranch Las Vegas,
L.L.C., SunTX Fulcrum Fund, L.P. and G2 Opportunity
Fund, L.P.

Summary Statements of Operations for the three months ended March 31,
2002:

o The Woodlands Land Development Company, L.P. - This
includes WLDC's operating results for the period
February 15 through March 31, 2002 and TWLC's
operating results for the period January 1 through
February 14, 2002. WLDC is an unconsolidated
subsidiary of TWLC;

o Other Residential Development Corporations - This
includes the operating results for DMDC and CRDI for
the period January 1 through February 14, 2002, the
operating results of Blue River Land Company, L.L.C.
and Manalapan for the period February 15 through
March 31, 2002, and the operating results of MVDC and
HADC;

o Temperature-Controlled Logistics - This includes the
operating results for the Temperature-Controlled
Logistics Partnership;

o Office - This includes the operating results for Main
Street Partners, L.P., Houston PT Four Westlake
Office Limited Partnership, Austin PT BK One Tower
Office Limited Partnership, Crescent 5 Houston
Center, L.P. and Woodlands CPC; and

o Other - This includes DBL Holdings, Inc., CR License,
L.L.C., Canyon Ranch Las Vegas, L.L.C. and SunTx
Fulcrum Fund, L.P.

20

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- ----------

(1) This column includes information for Three Westlake Park, which was
contributed by the Operating Partnership to a joint venture on August 21,
2002, Miami Center, which was contributed by the Operating Partnership to a
joint venture on September 25, 2002, and Five Post Oak Park, which was
acquired by the Operating Partnership in a joint venture transaction on
December 20, 2002.

(2) Inclusive of the preferred return paid to Vornado Realty Trust (1% per
annum of the total combined assets).

21

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNCONSOLIDATED DEBT ANALYSIS

The significant terms of the Operating Partnership's share of
unconsolidated debt financing arrangements existing as of March 31, 2003 are
shown below.

- ----------
(1) The Temperature-Controlled Logistics Corporation expects to repay this note
on the Optional Prepayment Date of April 11, 2008.

(2) Senior Note - Note A: $83.3 million at variable interest rate, LIBOR + 189
basis points, $4.9 million at variable interest rate, LIBOR + 250 basis
points with a LIBOR floor of 2.50%. Note B: $24.5 million at variable
interest rate, LIBOR + 650 basis points with a LIBOR floor of 2.50%.
Mezzanine Note - $19.6 million at variable interest rate, LIBOR + 890 basis
points with a LIBOR floor of 3.0%. Interest-rate cap agreement maximum
LIBOR of 4.52% on all notes. All notes amortized based on a 25-year
schedule.

(3) This Facility has two one-year extension options.

(4) The Operating Partnership and its joint venture partner each obtained a
Letter of Credit to guarantee the repayment of up to $4.3 million of
principal of the Main Street Partners, L.P. loan.

(5) The Operating Partnership provides a full and unconditional guarantee of
this loan for the construction of 5 Houston Center. The guarantee amount
reduces to $41.3 million upon achievement of specified conditions,
including specified customers occupying space and obtaining a certificate
of occupancy; further reduction to $20.6 million upon achievement of 90%
occupancy and a 1.3x debt service coverage.

(6) Woodlands CPC and WLDC entered into an Interest Rate Cap Agreement which
limits interest rate exposure on the notional amount of $33.8 million to a
maximum LIBOR rate of 9.0%.

(7) WLDC entered into an Interest Rate Cap Agreement which limits interest rate
exposure on the notional amount of $19.5 million to a maximum LIBOR rate of
8.5%.

(8) The variable rate loan has an interest rate of LIBOR + 3%. A fully
consolidated entity of CRDI, in which CRDI owns 88.3%, provides a guarantee
of up to 70% of the outstanding balance of the $9.0 million loan to Blue
River Land Company, L.L.C. There was approximately $7.7 million outstanding
at March 31, 2003 and the guarantee was $5.4 million.

(9) The Operating Partnership and its joint venture partner each obtained a
Letter of Credit to guarantee repayment of up to $3.0 million of this
facility.

(10) The overall weighted average maturity would be 4.3 years if all extensions
and prepayment options were exercised.

22

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows, as of March 31, 2003, information about the
Operating Partnership's share of unconsolidated fixed and variable rate debt and
does not take into account any extension options, hedge arrangements or the
entities' anticipated pay-off dates.

- -----------------------------

(1) Based on contractual maturities. The overall weighted average maturity
would be 4.3 years assuming the election of extension options on debt
instruments and expected repayment of a note on the optional prepayment
date.

Listed below is the Operating Partnership's share of aggregate principal
payments, by year, required as of March 31, 2003 related to the Operating
Partnership's unconsolidated debt. Scheduled principal installments and amounts
due at maturity are included.

- -----------------------

(1)These amounts do not reflect the effect of extension options.

23

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY

The following is a summary of the Operating Partnership's debt financing at
March 31, 2003:

24

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- ----------

(1) The outstanding balance of this note at maturity will be approximately
$224.1 million.

(2) In August 2007, the interest rate will increase, and the Operating
Partnership is required to remit, in addition to the monthly debt service
payment, excess property cash flow, as defined, to be applied first against
principal and thereafter against accrued excess interest, as defined. It is
the Operating Partnership's intention to repay the note in full at such
time (August 2007) by making a final payment of approximately $221.7
million.

(3) This includes both a Deutsche Bank-CMBS note and a Fleet-Mezzanine note.
The notes are due May 2004 and bear interest at the 30-day LIBOR rate plus
a spread of (i) 164.7 basis points for the CMBS note (at March 31, 2003,
the interest rate was 5.147%), and (ii) 600 basis points for the Mezzanine
note (at March 31, 2003, the interest rate was 9.5%). The blended rate
March 31, 2003 for the two notes was 5.84%. Both notes have a LIBOR floor
of 3.5%. The notes have three-year interest only terms and two one-year
extension options. The Fleet-Mezzanine note is secured by the Operating
Partnership's interests in Funding X and Crescent Spectrum Center, L.P. and
the Operating Partnership's interest in their general partner.

(4) At the end of seven years (October 2006), the interest rate will also
adjust based on current interest rates at that time. It is the Operating
Partnership's intention to repay the note in full at such time (October
2006) by making a final payment of approximately $177.8 million.

(5) In March 2006, the interest rate will increase, and the Operating
Partnership is required to remit, in addition to the monthly debt service
payment, excess property cash flow, as defined, to be applied first against
principal and thereafter, against accrued excess interest, as defined. It
is the Operating Partnership's intention to repay the note in full at such
time (March 2006) by making a final payment of approximately $154.5
million.

(6) The outstanding principal balance of this loan at maturity will be
approximately $36.1 million.

(7) This facility is a $50.0 million line of credit secured by certain DMDC
land and improvements ("vertical facility"), club facilities ("club loan"),
and notes receivable ("warehouse facility"). The line restricts the
vertical facility and club loan to a maximum outstanding amount of $40.0
million and is subject to certain borrowing base limitations and bears
interest at Prime (at March 31, 2003, the interest rate was 4.25%). The
warehouse facility bears interest at Prime plus 100 basis points (at March
31, 2003, the interest rate was 5.25%) and is limited to $10.0 million. The
blended rate at March 31, 2003 for the vertical facility and club loan and
the warehouse facility was 4.43%.

(8) The outstanding principal balance of this loan at maturity will be
approximately $8.2 million.

(9) In July 2010, the interest rate due under the note will change to a 10-year
Treasury yield plus 500 basis points or, if the Operating Partnership so
elects, it may repay the note without penalty at that date by making a
final payment of approximately $6.1 million.

(10) The Notes were issued in an offering registered with the Securities and
Exchange Commission.

(11) The $400.0 million credit facility with Fleet is an unsecured revolving
line of credit to Funding VIII and guaranteed by the Operating Partnership.
Availability under the line of credit is subject to certain covenants
including limitations on total leverage, fixed charge ratio, debt service
coverage, minimum tangible net worth, and specific mix of office and hotel
assets and average occupancy of Office Properties. At March 31, 2003, the
maximum borrowing capacity under the credit facility was $400.0 million.
The outstanding balance excludes letters of credit issued under the
Operating Partnership's credit facility of $15.2 million which reduce the
Operating Partnership's maximum borrowing capacity.

(12) The JP Morgan Loan Sales Facility is an uncommitted $50.0 million unsecured
credit facility. The Operating Partnership maintains sufficient
availability under the Fleet Facility to repay this loan at any time due to
lack of obligation by the lender to fund the loan.

The following table shows information about the Operating Partnership's
consolidated fixed and variable rate debt and does not take into account any
extension options, hedging arrangements or the Operating Partnership's
anticipated payoff dates.

- ----------

(1) Balance excludes hedges. The percentages for fixed rate debt and variable
rate debt, including the $508.4 million of hedged variable rate debt, are
86% and 14%, respectively.

(2) Including the effect of hedge arrangements, the overall weighted average
interest rate would have been 7.16%.

(3) Based on contractual maturities. The overall weighted average maturity is
3.7 years based on the Operating Partnership's expected payoff dates.

25

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Listed below are the aggregate principal payments by year required as of
March 31, 2003 under indebtedness of the Operating Partnership. Scheduled
principal installments and amounts due at maturity are included.

- ----------

(1) These amounts do not reflect the effect of a one-year extension option on
the credit facility and two one-year extension options on the Deutsche Bank
- CMBS Loan.

(2) On March 31, 2003, the Operating Partnership paid the $63.5 million Cigna
Note in full with funds from a draw under the Operating Partnership's
credit facility.

The Operating Partnership has $58.6 million of secured and unsecured debt
maturing through December 31, 2003, consisting primarily of debt related to the
Residential Development Segment. The Operating Partnership plans to meet its
maturing debt obligations through December 31, 2003 of approximately $58.6
million, primarily through cash from operations, return of capital investment
from the Residential Development Segment, construction loan refinancings,
borrowings under the JP Morgan loan sales facility and additional borrowings
under the Operating Partnership's credit facility.

Any uncured or unwaived events of default under the Operating Partnership's
loans can trigger an acceleration of payment on the loan in default. In
addition, an event of default by the Operating Partnership or any of its
subsidiaries with respect to any indebtedness in excess of $5.0 million
generally will result in an event of default under the credit facility and the
Fleet Fund I and II Term Loan after the notice and cure periods for the other
indebtedness have passed. As of March 31, 2003, no event of default had
occurred, and the Operating Partnership was in compliance with all of its debt
service coverage ratios and other covenants related to its outstanding debt. The
Operating Partnership's debt facilities generally prohibit loan pre-payment for
an initial period, allow pre-payment with a penalty during a following specified
period and allow pre-payment without penalty after the expiration of that
period. During the three months ended March 31, 2003, there were no
circumstances that required pre-payment penalties or increased collateral
related to the Operating Partnership's existing debt.

In addition to the subsidiaries listed in Note 1, "Organization and Basis
of Presentation," certain other subsidiaries of the Operating Partnership were
formed primarily for the purpose of obtaining secured and unsecured debt or
joint venture financings. These entities, all of which are consolidated and are
grouped based on the Properties to which they relate are: Funding I and Funding
II Properties (CREM Holdings, LLC, Crescent Capital Funding, LLC, Crescent
Funding Interest, LLC, CRE Management I Corp., CRE Management II Corp.); Funding
III Properties (CRE Management III Corp.); Funding IV Properties (CRE Management
IV Corp.); Funding V Properties (CRE Management V Corp.); Funding VI Properties
(CRE Management VI Corp.); Funding VIII Properties (CRE Management VIII, LLC);
Funding IX Properties (CRE Management IX, LLC); Funding X Properties (CREF X
Holdings Management, LLC, CREF X Holdings, L.P., CRE Management X, LLC);
Spectrum Center (Spectrum Center Partners, L.P., Spectrum Mortgage Associates,
L.P., CSC Holdings Management, LLC, Crescent SC Holdings, L.P., CSC Management,
LLC), and Crescent Finance Company.

8. CASH FLOW HEDGES

The Operating Partnership uses derivative financial instruments to convert
a portion of its variable rate debt to fixed rate debt and to manage its fixed
to variable rate debt ratio. As of March 31, 2003, the Operating Partnership had
entered into five cash flow hedge agreements which are accounted for in
conformity with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB Statement No.
133."

26

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows information regarding the Operating Partnership's
cash flow hedge agreements during the three months ended March 31, 2003, and
additional interest expense and unrealized gains (losses) recorded in
Accumulated Other Comprehensive Income ("OCI").

- ----------

(1) During 2002, the Operating Partnership entered into agreements for three
cash flow hedges, two of which were effective in the first quarter of 2003,
and one of which will be effective in the third quarter of 2003. These
three cash flow hedges replace two of the Operating Partnership's existing
cash flow hedges.

The Operating Partnership has designated its five cash flow hedge
agreements as cash flow hedges of LIBOR-based monthly interest payments on a
designated pool of variable rate LIBOR indexed debt that re-prices closest to
the reset dates of each cash flow hedge agreement. For retrospective
effectiveness testing, the Operating Partnership uses the cumulative dollar
offset approach as described in DIG Issue E8. The DIG is a task force designed
to assist the FASB in answering questions that companies have resulting from
implementation of SFAS No. 133 and SFAS No. 138. The Operating Partnership uses
the change in variable cash flows method as described in DIG Issue G7 for
prospective testing as well as for the actual recording of ineffectiveness, if
any. Under this method, the Operating Partnership will compare the changes in
the floating rate portion of each cash flow hedge to the floating rate of the
hedged items. The cash flow hedges have been and are expected to remain highly
effective. Changes in the fair value of these highly effective hedging
instruments are recorded in accumulated other comprehensive income. The
effective portion that has been deferred in OCI will be reclassified to earnings
as interest expense when the hedged items impact earnings. If a cash flow hedge
falls outside 80%-125% effectiveness for a quarter, all changes in the fair
value of the cash flow hedge for the quarter will be recognized in earnings
during the current period. If it is determined based on prospective testing that
it is no longer likely a hedge will be highly effective on a prospective basis,
the hedge will no longer be designated as a cash flow hedge and no longer
qualify for accounting in conformity with SFAS Nos. 133 and 138.

CRDI, a consolidated subsidiary of the Operating Partnership, also uses
derivative financial instruments to convert a portion of its variable rate debt
to fixed rate debt. As of March 31, 2003, CRDI had two cash flow hedge
agreements in place which are accounted for in conformity with SFAS Nos. 133 and
138.

The following table shows information regarding CRDI's cash flow hedge
agreements and additional capitalized interest thereon as of March 31, 2003.
Unlike the additional interest on the Operating Partnership's cash flow hedges,
which was expensed, the additional interest on CRDI's cash flow hedges was
capitalized, as it is related to debt incurred for projects that are currently
under development. Also presented are the unrealized gains in OCI for the three
months ended March 31, 2003.

CRDI uses the shortcut method described in SFAS No. 133, which eliminates
the need to consider ineffectiveness of the hedges, and instead assumes that the
hedges are highly effective.

27

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

GUARANTEE COMMITMENTS

The Financial Standards Accounting Board ("FASB") issued Interpretation
45 requiring a guarantor to disclose its guarantees. The Operating Partnership's
guarantees in place as of March 31, 2003 are listed in the table below. No
triggering events or conditions are anticipated to occur that would require
payment under the guarantees and the Operating Partnership's collateral
supporting the loans that are guaranteed is sufficient to cover the maximum
potential amount of future payments and therefore, would not require the
Operating Partnership to provide additional capital to support the guarantees.

- ----------

(1) See Note 6, "Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies - Unconsolidated Debt Analysis," in Item 1,
"Financial Statements," for a description of the terms of this debt.

(2) The Operating Partnership provides a full guarantee of principal up to
$82.5 million for the construction loan on 5 Houston Center, which was
completed in 2002. The guarantee amount reduces to $41.3 million upon
achievement of specified conditions, including specified tenants occupying
space and obtaining a certificate of occupancy; further reduction to $20.6
million upon achievement of 90% occupancy and 1.3x debt service coverage.

(3) The Operating Partnership provides a $15.2 million Letter of Credit to
support the payment of interest and principal of the Eagle Ranch
Metropolitan District Revenue Development Bonds and Limited Tax Bonds.

(4) A fully consolidated entity of CRDI in which CRDI owns 88.3%, provides a
guarantee of up to 70% of the outstanding balance of the $9.0 million loan
to Blue River Land Company, L.L.C.

(5) The Operating Partnership and its joint venture partner each provide a
Letter of Credit to guarantee $4.3 million of the principal repayment of
the loan to Main Street Partners, L.P.

(6) The Operating Partnership and its joint venture partner each provide a
$3.0 million Letter of Credit to guarantee repayment of up to $3.0 million
of principal of the Manalapan Hotel Partners, L.L.C. debt with Corus Bank.

COPI COMMITMENTS

See Note 14, "COPI," for a description of the Operating Partnership's
commitments related to the agreement with COPI, executed on February 14, 2002.

CONTINGENCIES

ENVIRONMENTAL MATTERS

All of the Properties have been subjected to Phase I environmental
assessments, and some Properties have been subjected to Phase II soil and ground
water sampling as part of the Phase I assessments. Such assessments have not
revealed, nor is management aware of, any environmental liabilities that
management believes would have a material adverse effect on the financial
position or results of operations of the Operating Partnership.

28

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LITIGATION

The Operating Partnership is involved from time to time in various
claims and legal actions in the ordinary course of business. Management does not
believe that the impact of such matters will have a material adverse effect on
the Operating Partnership's financial position or results of operations when
resolved.

10. MINORITY INTEREST

Minority interest in real estate partnerships represents joint venture
or preferred equity partners' proportionate share of the equity in certain real
estate partnerships. The Operating Partnership holds a controlling interest in
the real estate partnerships and consolidates the real estate partnerships into
the financial statements of the Operating Partnership. Income in the real estate
partnerships is allocated to minority interest based on weighted average
percentage ownership during the period.

The following table summarizes the minority interest liability as of
March 31, 2003 and December 31, 2002:

The following table summarizes the minority interests' share of net
(income) loss for the three months ended March 31, 2003 and 2002:

29

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. PARTNERS' CAPITAL

Each Operating Partnership unit may be exchanged for either two common
shares of the Company or, at the election of the Company, cash equal to the fair
market value of two common shares at the time of the exchange. When a unitholder
exchanges a unit, the Company's percentage interest in the Operating Partnership
increases. During the three months ended March 31, 2003, there were 3,298 units
exchanged for 6,596 common shares of the Company.

DISTRIBUTIONS

The following table summarizes the distributions paid or declared to
unitholders and preferred unitholders during the three months ended March 31,
2003 (dollars in thousands, except per unit amounts).

12. INCOME TAXES

TAXABLE CONSOLIDATED ENTITIES

Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities of taxable consolidated
entities for financial reporting purposes and the amounts used for income tax
purposes. For the three months ended March 31, 2003, the taxable consolidated
entities were comprised of the taxable REIT subsidiaries of the Company.

Income or losses of the Operating Partnership are allocated to the
partners of the Operating Partnership for inclusion in their respective income
tax calculations. Accordingly, no provision or benefit for income taxes has been
made other than for certain consolidated subsidiaries. The Operating Partnership
consolidates certain taxable REIT subsidiaries, which are subject to federal and
state income tax. For the three months ended March 31, 2003 and 2002, the
Operating Partnership's federal income tax benefit was $2.5 million and $5.4
million, respectively. The Operating Partnership's $2.5 million income tax
benefit at March 31, 2003 consists primarily of $1.9 million for the Residential
Development Segment and $0.4 million for the Resort/Hotel Segment.

The Operating Partnership's total net tax asset of approximately $42.3
million at March 31, 2003 includes $29.5 million of net deferred tax assets.
SFAS No. 109, "Accounting for Income Taxes," requires a valuation allowance to
reduce the deferred tax assets reported if, based on the weight of the evidence,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. There was no change in the valuation allowance during the
three months ended March 31, 2003.

30

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. RELATED PARTY TRANSACTIONS

DBL HOLDINGS, INC. ("DBL")

Since June 1999, the Operating Partnership contributed approximately
$23.8 million to DBL. The contribution was used by DBL to make an equity
contribution to DBL-ABC, Inc., which committed to purchase a limited partnership
interest representing a 12.5% interest in G2 Opportunity Fund, L.P. ("G2"). G2
was formed for the purpose of investing in commercial mortgage backed securities
and other commercial real estate investments and is managed and controlled by an
entity that is owned equally by Goff-Moore Strategic Partners, L.P. ("GMSP") and
GMACCM. The ownership structure of GMSP consists of an approximately 86% limited
partnership interest owned directly and indirectly by Richard Rainwater,
Chairman of the Board of Trust Managers of the Company, and an approximately 14%
general partnership interest, of which approximately 6% is owned by Darla Moore,
who is married to Mr. Rainwater, and approximately 6% is owned by John Goff,
Vice-Chairman of the Company's Board of Trust Managers and Chief Executive
Officer of the Company and sole director and Chief Executive Officer of the
General Partner. The remaining approximately 2% general partnership interest is
owned by parties unrelated to the Operating Partnership. At March 31, 2003, DBL
had an approximately $13.6 million investment in G2.

On January 2, 2003, the Operating Partnership purchased the remaining
2.56% economic interest, representing 100% of the voting stock, in DBL Holdings,
Inc. from Mr. Goff. Total consideration paid for Mr. Goff's interest was $0.4
million. The Board of Trust Managers of the Company, including all the
independent trust managers, approved the transaction based in part on an
appraisal of the assets of DBL by an independent appraisal firm. As a result of
this transaction, DBL is wholly-owned by the Operating Partnership and is
consolidated as of and for the three months ended March 31, 2003. Also, because
DBL owns a majority of the voting stock in MVDC and HADC, the Operating
Partnership has consolidated these two Residential Development Corporations as
of and for the three months ended March 31, 2003.

LOANS TO EMPLOYEES AND TRUST MANAGERS OF THE GENERAL PARTNER AND THE COMPANY FOR
EXERCISE OF STOCK OPTIONS AND UNIT OPTIONS

As of March 31, 2003, the Operating Partnership had approximately $37.8
million of loans outstanding to certain employees and trust managers of the
General Partner and the Company on a recourse basis pursuant to the Company's
and the Operating Partnership's stock incentive plans and unit incentive plans
pursuant to an agreement approved by the Board of Directors and the Executive
Compensation Committee of the Company. The proceeds of these loans were used by
the employees and the trust managers to acquire common shares of the Company
pursuant to the exercise of vested stock and unit options. Pursuant to the loan
agreements, these loans may be repaid in full or in part at any time without
premium or penalty. Mr. Goff had a loan representing $26.3 million of the $37.8
million total outstanding loans at March 31, 2003. Approximately $0.3 million of
interest was outstanding related to these loans as of March 31, 2003. No
conditions exist at March 31, 2003 which would cause any of the loans to be in
default. Effective July 29, 2002, the Operating Partnership ceased offering to
the employees and trust managers the option to obtain loans pursuant to the
Company's and the Operating Partnership's stock and unit incentive plans.

OTHER

On June 28, 2002, the Operating Partnership purchased, and is holding
for sale, the home of an executive officer of the General Partner and the
Company for approximately $2.7 million, which approximates fair market value of
the home. This purchase was part of the officer's relocation agreement with the
Operating Partnership.

14. COPI

In April 1997, the Operating Partnership established a new Delaware
corporation, COPI. All of the outstanding common stock of COPI, valued at $0.99
per share, was distributed in a spin-off, effective June 12, 1997, to those
persons who were limited partners of the Operating Partnership or shareholders
of the Company on May 30, 1997.

COPI was formed to become a lessee and operator of various assets to be
acquired by the Operating Partnership and to perform the intercompany agreement
between COPI and the Operating Partnership, pursuant to which each party agreed
to provide the other with rights to participate in certain transactions. The
Operating Partnership was not permitted to operate or lease these assets because
of the tax laws in effect and applicable to REITs at that time. In connection
with the formation and

31

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

capitalization of COPI, and the subsequent operations and investments of COPI
since 1997, the Operating Partnership made loans to COPI under a line of credit
and various term loans.

On January 1, 2001, The REIT Modernization Act became effective. This
legislation allows the Company, through its taxable REIT subsidiaries, to
operate or lease certain of its investments that had previously been operated or
leased by COPI.

On February 14, 2002, the Operating Partnership executed an agreement
(the "Agreement") with COPI, pursuant to which COPI transferred to subsidiaries
of the Operating Partnership, in lieu of foreclosure, COPI's lessee interests in
the eight Resort/Hotel Properties leased to subsidiaries of COPI and, pursuant
to a strict foreclosure, all of COPI's voting interests in three of the
Operating Partnership's Residential Development Corporations and other assets.
The Operating Partnership agreed to assist and provide funding to COPI for the
implementation of a pre-packaged bankruptcy of COPI. In connection with the
transfer, COPI's rent and debt obligations to the Operating Partnership were
reduced.

The Operating Partnership holds the lessee interests in the eight
Resort/Hotel Properties and the voting interests in the three Residential
Development Corporations through three newly organized entities that are
wholly-owned taxable REIT subsidiaries of the Operating Partnership. The
Operating Partnership has included these assets in its Resort/Hotel Segment and
its Residential Development Segment, and fully consolidated the operations of
the eight Resort/Hotel Properties and the three Residential Development
Corporations, beginning on the dates of the transfers of the assets.

The Agreement provides that COPI and the Operating Partnership will
jointly seek to have a pre-packaged bankruptcy plan for COPI, reflecting the
terms of the Agreement, approved by the bankruptcy court. Under the Agreement,
the Operating Partnership has agreed to provide approximately $14.0 million to
COPI in the form of cash and common shares of the Company to fund costs, claims
and expenses relating to the bankruptcy and related transactions, and to provide
for the distribution of the Company's common shares to the COPI stockholders.
The Operating Partnership also agreed, however, that the Company will issue
common shares with a minimum dollar value of approximately $2.2 million to the
COPI stockholders, even if it would cause the total costs, claims and expenses
that it pays to exceed $14.0 million. Currently, the Operating Partnership
estimates that the value of the common shares that will be issued to the COPI
stockholders will be between approximately $2.2 million and $4.0 million. The
actual value of the units issued to the COPI stockholders will not be determined
until the confirmation of COPI's bankruptcy plan and could vary from the
estimated amounts, but will have a value of at least $2.2 million.

In addition, the Operating Partnership has agreed to use commercially
reasonable efforts to assist COPI in arranging COPI's repayment of its $15.0
million obligation to Bank of America, together with any accrued interest. The
Operating Partnership expects to form and capitalize a new entity ("Crescent
Spinco"), to be owned by the unitholders of the Operating Partnership and the
shareholders of the Company. Crescent Spinco then would purchase COPI's interest
in AmeriCold Logistics for between $15.0 million and $15.5 million. COPI has
agreed that it will use the proceeds of the sale of the AmeriCold Logistics
interest to repay Bank of America in full.

COPI obtained the loan from Bank of America primarily to participate in
investments with the Operating Partnership. At the time COPI obtained the loan,
Bank of America required, as a condition to making the loan, that Richard E.
Rainwater, the Chairman of the Board of Trust Managers of the Company, and John
C. Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive
Officer of the Company and sole director and Chief Executive Officer of the
General Partner, enter into a support agreement with COPI and Bank of America.
Pursuant to the support agreement, Messrs. Rainwater and Goff agreed to make
additional equity investments in COPI if COPI defaulted on payment obligations
under its line of credit with Bank of America and if the net proceeds of an
offering of COPI securities were insufficient to allow COPI to repay Bank of
America in full. Effective December 31, 2001, the parties executed an amendment
to the line of credit providing that any defaults existing under the line of
credit on or before March 8, 2002 are temporarily cured unless and until a new
default occurs.

Previously, the Operating Partnership held a first lien security
interest in COPI's entire membership interest in AmeriCold Logistics. REIT rules
prohibit the Company from acquiring or owning the membership interest that COPI
owns in AmeriCold Logistics. Under the Agreement, the Operating Partnership
agreed to allow COPI to grant Bank of America a first priority security interest
in the membership interest and to subordinate its own security interest to that
of Bank of America.

On March 6, 2003, the stockholders of COPI approved the pre-packaged
bankruptcy plan for COPI. On March 10, 2003, COPI filed the plan under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the Northern District of Texas.

32

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

If the COPI bankruptcy plan is approved by the bankruptcy court, the
holders of COPI's common stock will receive the Company's common shares. As
stockholders of COPI, Mr. Rainwater and Mr. Goff will also receive the Company's
common shares.

Pursuant to the Agreement, the current and former directors and
officers of COPI and the current and former trust managers and officers of the
Company also have received a release from COPI of liability for any actions
taken prior to February 14, 2002, and, depending on various factors, will
receive certain liability releases from COPI and its stockholders under the COPI
bankruptcy plan.

Completion and effectiveness of the pre-packaged bankruptcy plan for
COPI is contingent upon a number of conditions, including the approval of the
plan by certain of COPI's creditors and the confirmation of the plan by the
bankruptcy court.

33

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Forward-Looking Statements............................................................ 35

Results of Operations
Three months ended March 31, 2003 and 2002....................................... 36

Liquidity and Capital Resources
Cash Flows for the three months ended March 31, 2003............................. 40

Debt Financing........................................................................ 44

Recent Developments................................................................... 46

Unconsolidated Investments............................................................ 47

Significant Accounting Policies....................................................... 51

Funds from Operations................................................................. 53

34

FORWARD-LOOKING STATEMENTS

You should read this section in conjunction with the consolidated
interim financial statements and the accompanying notes in Item 1,"Financial
Statements," of this document and the more detailed information contained in the
Operating Partnership's Form 10-K for the year ended December 31, 2002. In
management's opinion, all adjustments (consisting of normal and recurring
adjustments) considered necessary for a fair presentation of the unaudited
interim financial statements are included. Capitalized terms used but not
otherwise defined in this section have the meanings given to them in the notes
to the financial statements in Item 1,"Financial Statements."

This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which reflect the Operating
Partnership's results of operations and financial condition. The words
"anticipates," "believes," "expects," "intends," "future," "may," "will,"
"should," "plans," "estimates," "potential," or "continue," or the negative of
these terms, or other similar expressions, identify forward-looking statements.

Although the Operating Partnership believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Operating Partnership's actual results could differ materially
from those described in the forward-looking statements.

The following factors might cause such a difference:

o The Operating Partnership's ability, at its Office Properties, to
timely lease unoccupied square footage and timely re-lease occupied
square footage upon expiration on favorable terms, which may continue
to be adversely affected by existing real estate conditions (including
changes in vacancy rates in a particular market or markets, decreases
in rental rates, increased competition from other properties or by a
general downturn in the economy);

o Adverse changes in the financial condition of existing tenants;

o Further deterioration in the resort/business-class hotel markets or in
the market for residential land or luxury residences, including
single-family homes, townhomes and condominiums, or in the economy
generally;

o Financing risks, such as the ability to generate revenue sufficient to
service and repay existing or additional debt, increases in debt
service associated with increased debt and with variable rate debt, the
ability to meet financial covenants, the Operating Partnership's
ability to fund the Company's share repurchase program and the
Operating Partnership's ability to consummate financings and
refinancings on favorable terms and within any applicable time frames;

o Further or continued adverse conditions in the temperature-controlled
logistics business (including both industry-specific conditions and a
general downturn in the economy which may further jeopardize the
ability of the tenant to pay all current and deferred rent due);

o The inability of the Operating Partnership to complete the distribution
to its unitholders and the shareholders of the Company of the shares of
a new entity to purchase the AmeriCold Logistics tenant interest from
COPI;

o The concentration of a significant percentage of the Operating
Partnership's assets in Texas;

o The existence of complex regulations relating to the Company's status
as a REIT, the effect of future changes in REIT requirements as a
result of new legislation and the adverse consequences of the failure
to qualify as a REIT;

o The Operating Partnership's ability to find acquisition and development
opportunities which meet the Operating Partnership's investment
strategy; and,

o Other risks detailed from time to time in the Operating Partnership's
filings with the SEC.

Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Operating Partnership is not obligated to
update these forward-looking statements to reflect any future events or
circumstances.

35

CRESCENT REAL ESTATE EQUITIES COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS

The following table shows the Operating Partnership's financial data as
a percentage of total revenues for the three months ended March 31, 2003 and
2002, and the variance in dollars between the three months ended March 31, 2003
and 2002.

36

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 TO THE THREE MONTHS ENDED
MARCH 31, 2002

The following comparison of the results of operations for the three
months ended March 31, 2003 and the three months ended March 31, 2002 reflects
the consolidation of eight of the Resort/Hotel Properties and three of the
Residential Development Properties commencing on February 14, 2002, as a result
of the COPI transaction. Prior to February 14, 2002, the results of operations
of the Resort/Hotel Properties were reflected in the Operating Partnership's
consolidated financial statements as lease payments and as equity in net income
for the Residential Development Properties. Because the results of operations of
these Properties are consolidated for the full period in 2003, as compared to a
partial period in 2002, the Operating Partnership's financial statements do not
provide a direct comparison of the results of operations of the Resort/Hotel
Properties or the Residential Development Properties for the full periods in
2003 and 2002. Additional information on the results of operations of the
Resort/Hotel Properties or the Residential Development Properties for the full
periods in both 2003 and 2002 is provided below under the captions "Resort/Hotel
Properties" and "Residential Development Properties."

REVENUES

Total revenues increased $4.9 million, or 2.2%, to $229.4 million for
the three months ended March 31, 2003, as compared to $224.5 million for the
three months ended March 31, 2002. The components of the increase in total
revenues are discussed below.

Resort/Hotel Property revenues increased $25.2 million, or 65.4%, to
$63.7 million, primarily due to the consolidation of the operations of eight of
the Resort/Hotel Properties for the full period in 2003 as compared to a partial
period in 2002 as a result of the COPI transaction (prior to February 14, 2002
the Operating Partnership recognized lease payments related to these
properties).

o Office Property revenues decreased $10.9 million, or 7.7%, to $128.7
million, due to:

o a decrease of $9.6 million from the 64 consolidated Office
Properties (excluding 2002 acquisitions and properties held
for sale) that the Operating Partnership owned or had an
interest in, primarily due to a decline in the weighted
average full-service rental rates, reflecting decreases in
both rental revenue and operating expense recoveries, a
decrease in occupancy, and a decrease in net parking revenues;

o a decrease of $7.8 million resulting from the contribution of
two Office Properties to joint ventures in the third quarter
of 2002; and

o a decrease of $0.4 million in other revenues; partially offset
by

o an increase of $3.6 million from the Johns Manville Office
Property acquired in August 2002;

o an increase of $1.4 million attributable to third party
management services and related direct expense reimbursements;

o an increase of $1.0 million attributable to non-recurring
revenue received in 2003; and

o an increase of $0.9 million in net lease termination fees to
$2.0 million in 2003.

Residential Development revenues decreased $3.4 million, or 8.8%, to
$35.4 million, primarily due to a reduction in lot and unit sales at Desert
Mountain and CRDI.

o Interest and Other Income decreased $6.0 million, or 77.9%, to $1.7
million, primarily attributable to:

o a decrease in interest income of $5.4 million as a result of
the repayment in full in August 2002 of a loan that was
originated in March 2000 from the Operating Partnership to
Crescent SH IX, Inc. ("SH IX") in connection with the
repurchase of 14,468,623 common shares of the Company.

EXPENSES

Expenses increased $26.7 million, or 12.8%, to $234.7 million for the
three months ended March 31, 2003, as compared to $208.0 million for the three
months ended March 31, 2002. The components of the increase in expenses are
discussed below.

o Resort/Hotel Property expense increased $25.9 million, or 108.4%, to
$49.7 million, primarily due to the consolidation of the operations of
eight of the Resort/Hotel Properties for a full period in 2003 as
compared to a partial period in 2002 as a result of the COPI
transaction on February 14, 2002.

o Residential Development Property expenses decreased $3.9 million, or
10.6%, to $32.9 million, primarily due to a reduction in cost of sales
for lots and units at Desert Mountain and CRDI.

37

o Office Property expenses decreased $2.6 million, or 4.1%, to $61.0
million, primarily due to:
o a decrease of $3.0 million due to the contribution of two
Office Properties to joint ventures in 2002;

o a decrease of $3.5 million from the 64 consolidated Office
Properties (excluding 2002 acquisitions and properties held
for sale) that the Operating Partnership owned or had an
interest in, due to:

o $1.7 million decrease in property taxes;

o $0.9 million decrease in building repairs and
maintenance expense; and

o $0.9 million decrease in bad debt expense; partially
offset by

o an increase of $1.3 million due to the acquisition of the
Johns Manville Office Property in August 2002;

o an increase of $1.2 million in utilities expense, primarily
attributable to a new utility contract for the Texas Office
Properties; and

o an increase of $1.2 million attributable to the cost of
providing third party management services to joint venture
properties.

o Depreciation expense increased $6.2 million, or 18.8%, to $38.8
million, primarily due to;

o an increase of $2.5 million in Office Property depreciation
expense, primarily attributable to:

o an increase of $2.7 million due to the write off of
tenant improvements and lease commissions due to early
termination of leases; and

o an increase of $0.5 million from the Johns Manville
Office Property acquired in August 2002; partially
offset by

o a decrease of $0.9 million associated with the
contribution of two Office Properties to joint ventures
in 2002, and

o an increase of $3.2 million in Residential Development
Property and Resort/Hotel Property depreciation expense due
primarily to the consolidation of the operations of three
Residential Development Corporations and eight Resort/Hotel
Properties for the full period in 2003 as compared to a
partial period in 2002 as a result of the COPI transaction on
February 14, 2002.

OTHER INCOME

Other Income decreased $5.7 million, or 60.6%, to $3.7 million for the
three months ended March 31, 2003, as compared to $9.4 million for the three
months ended March 31, 2002. The primary components of the decrease in Other
Income are discussed below.

o Equity in net income of unconsolidated companies decreased $5.7
million, or 60.6%, to $3.7 million, primarily due to:

o a decrease of $11.5 million in Residential Development
Property equity in net income due to the consolidation of the
operations of three of the Residential Development
Corporations for the full period in 2003 as compared to a
partial period in 2002 as a result of the COPI transaction on
February 14, 2002; partially offset by

o an increase of $3.1 million in other unconsolidated companies
due primarily to losses recognized in the three months ended
March 31, 2002 of $2.6 million on the Operating Partnership's
investment in DBL Holdings, Inc.;

o an increase of $1.8 million in Temperature-Controlled
Logistics Property equity in net income, primarily due to $1.7
million of deferred partnership costs in 2002; and

o an increase of $0.7 million in Resort/Hotel Property equity in
net income, primarily due to a series of transactions in
October 2002 in which the Operating Partnership increased its
equity interest in the entity that owns the Ritz Carlton Palm
Beach Hotel from 25% to 50%.

DISCONTINUED OPERATIONS

Income and (loss) gain from discontinued operations on assets sold and
held for sale decreased $21.7 million, or 471.7%, to a loss of $17.1 million,
primarily due to:

o a decrease of approximately $15.0 million, due to the
impairment in 2003 on the 1800 West Loop South Office
Property;

o a decrease of $4.5 million, due to the gain on the sale of one
Office Property in the first quarter of 2002;

o a decrease of $2.2 million due to net operating income in 2002
from seven Office Properties and two transportation companies
sold during 2002;

o a decrease of $1.2 million, due to the impairment in 2003 on
the North Dallas Athletic Club, a building located adjacent to
the Stanford Corporate Centre Office Property; partially
offset by

o an increase of $1.4 million due to the write-off of goodwill
for two transportation companies sold in 2002.

38

RESIDENTIAL DEVELOPMENT PROPERTIES

The following provides a comparison of the results of operations of the
Residential Development Properties for the three months ended March 31, 2003 and
2002.

Net income for the Residential Development Properties decreased $9.1
million, or 72.7%, to $3.4 million, primarily due to:

o a decrease of approximately $6.0 million as a result of gains
recognized on the disposition of two properties at the Woodlands in
2002;

o a decrease of approximately $3.1 million due to lower lot, unit and
acreage sales at Desert Mountain, CRDI and the Woodlands in 2003;

o a decrease of $1.9 million due to the sale of two transportation
companies in December 2002 by CRDI; partially offset by

o $1.4 million goodwill impairment at CRDI in 2002 resulting from the
adoption of Statement of Financial Accounting Standards No. 142.

RESORT/HOTEL PROPERTIES

The following provides a comparison of the results of operations of the
Resort/Hotel Properties for the three months ended March 31, 2003 and 2002.

The net operating income for the Resort/Hotel Properties decreased $0.7
million, or 4.5%, to $14.0 million, primarily due to:

o a decrease of $1.5 million from the resort properties due to a 4 point
decline in occupancy (from 75% to 71%) and a 2.2% decline in revenue
per available room from $378 to $370; partially offset by

o an increase of $0.8 million from the business class hotel properties
due to a 10 point increase in occupancy (from 65% to 75%) and a 15.8%
increase in revenue per available room from $76 to $88.

39

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

OPERATING ACTIVITIES

The Operating Partnership's cash used in operating activities of $24.1
million is attributable to Property operations.

INVESTING ACTIVITIES

The Operating Partnership's cash provided by investing activities of
$11.4 million is primarily attributable to:

o $16.7 million resulting from a decrease in notes receivable,
primarily due to payment on a short-term seller financing note
attributable to the sale of two Office Properties in The
Woodlands;

o $11.4 million in cash resulting from the consolidation of
entities;

o $5.0 million from return of investments in SunTx, a private
equity fund, and Office Properties; and

o $1.1 million of proceeds from property sales.

The cash provided by investing activities is partially offset by:

o $12.5 million for revenue and non-revenue enhancing tenant
improvement and leasing costs for Office Properties;

o $4.6 million for property improvements for rental properties,
primarily attributable to non-recoverable building
improvements for the Office Properties and replacement of
furniture, fixtures and equipment for the Resort/Hotel
Properties;

o $2.0 million for the acquisition of rental properties;

o $1.9 million of additional investment in unconsolidated
companies, consisting primarily of investments in the
Residential Development Properties and in TCL;

o $1.3 million resulting from an increase in restricted cash,
due primarily to an increase in escrow deposits for capital
expenditures at the Operating Partnership's Office Properties;
and

o $0.5 million for development of investment properties.

FINANCING ACTIVITIES

The Operating Partnership's cash provided by financing activities of
$7.7 million is primarily attributable to:

o $136.0 million of borrowings under the Operating Partnership's
credit facility, which were used to pay off the Cigna Note and
for investment in Residential Development Properties and
tenant improvements, leasehold commissions and property
improvements for the Office Segment;

o $17.5 million of proceeds from borrowings for construction
costs for infrastructure development on Residential
Development Properties; and

o $10.0 million of proceeds from an increase in notes payable.

The cash provided by financing activities is partially offset by:

o $66.8 million decrease in notes payable, primarily resulting
from the payoff of the Cigna Note;

o $43.1 million for distributions to unitholders;

o $20.7 million of Residential Development Property note
payments;

40

o $15.0 million of payments under the Operating Partnership's
credit facility;

o $6.6 million of distributions to holders of preferred units;
and

o $3.5 million of net capital distributions to joint venture
partners.

LIQUIDITY REQUIREMENTS

As of March 31, 2003, the Operating Partnership had unfunded capital
expenditures of approximately $76.4 million relating to capital investments that
are not in the ordinary course of operations of the Operating Partnership's
business segments. The table below specifies the Operating Partnership's
requirements for capital expenditures and its amounts funded as of March 31,
2003, and amounts remaining to be funded (future fundings classified between
short-term and long-term capital requirements):

- ----------

(1) All amounts are approximate.

(2) Reflects the Operating Partnership's estimate of the breakdown between
short-term and long-term capital expenditures.

(3) The capital expenditures reflect the Operating Partnership's ownership
percentage in the Property, 25% for 5 Houston Center and 30% for Five Post
Oak Park Office Properties.

(4) Located within the Houston Center Office Property complex.

(5) Represents capital expenditures for infrastructure and amenities. The Tahoe
Mountain Properties and Club project costs exclude costs for projects in
which the Operating Partnership anticipates sales to occur over the next 18
months.

(6) The Operating Partnership committed to fund a construction loan to the
purchaser of the land which will be secured by 20 developed lots and a $0.6
million letter of credit.

(7) This commitment is related to the Operating Partnership's investment in a
private equity fund.

(8) The Operating Partnership expects to form and capitalize Spinco, which
will be a separate entity to be owned by the Operating Partnership's
unitholders and the Company's shareholders, and to cause the new entity to
commit to acquire COPI's entire membership interest in AmeriCold Logistics.

41

The Operating Partnership expects to fund its short-term capital
requirements of approximately $63.7 million through a combination of cash,
construction financing, net cash flow from operations, and borrowings under the
Operating Partnership's credit facility. The Operating Partnership plans to meet
its maturing debt obligations through December 31, 2003 of approximately $58.6
million, primarily through cash from operations, return of capital investment
from the Residential Development Segment, construction loan refinancings,
borrowings under the JP Morgan loan sales facility and additional borrowings
under the credit facility.

The Operating Partnership expects to meet its other short-term
liquidity requirements, consisting of normal recurring operating expenses, debt
service requirements, non-revenue enhancing capital expenditures and revenue
enhancing capital expenditures (such as property improvements, tenant
improvement and leasing costs), distributions to unitholders, and unfunded
expenses related to the COPI bankruptcy, primarily through cash flow provided by
operating activities. To the extent that the Operating Partnership's cash flow
from operating activities is not sufficient to finance such short-term liquidity
requirements, the Operating Partnership expects to finance such requirements
with borrowings under the Operating Partnership's credit facility.

The Operating Partnership's long-term liquidity requirements as of
March 31, 2003 consist primarily of debt maturities after December 31, 2003,
which totaled approximately $2.4 billion. The Operating Partnership also has
$12.7 million of long-term capital expenditure requirements. The Operating
Partnership expects to meet these long-term liquidity requirements primarily
through long-term secured and unsecured borrowings and other debt and equity
financing alternatives as well as cash proceeds received from the sale or joint
venture of Properties and return of capital investment from the Residential
Development Segment.

Debt and equity financing alternatives currently available to the
Operating Partnership to satisfy its liquidity requirements and commitments for
material capital expenditures include:

o Additional proceeds from the Operating Partnership's credit facility,
under which the Operating Partnership has up to $99.8 million of
borrowing capacity available as of March 31, 2003;

o Additional proceeds from the refinancing of existing secured and
unsecured debt;

o Additional debt secured by existing underleveraged properties;

o Issuance of additional unsecured debt;

o Equity offerings including preferred and/or convertible securities; and

o Proceeds from joint ventures and Property sales.

The following factors could limit the Operating Partnership's ability
to utilize these financing alternatives:

o The reduction in net operating income of the Properties supporting the
Operating Partnership's credit facility to a level that would reduce
the availability under the credit facility;

o The Operating Partnership may be unable to obtain debt or equity
financing on favorable terms, or at all, as a result of the financial
condition of the Operating Partnership or market conditions at the time
the Operating Partnership seeks additional financing;

o Restrictions on the Operating Partnership's debt instruments or
outstanding equity may prohibit it from incurring debt or issuing
equity on terms available under then-prevailing market conditions or at
all; and

o The Operating Partnership may be unable to service additional or
replacement debt due to increases in interest rates and a decline in
the Operating Partnership's operating performance.

42

GUARANTEE COMMITMENTS

The Operating Partnership's guarantees in place as of March 31, 2003
are listed in the table below.

- ----------

(1) For more information regarding the terms of the Operating Partnership's
debt financing arrangements, including the amounts payable at maturity for
non-amortizing loans, properties securing the Operating Partnership's
secured debt and the method of calculation of the interest rate for the
Operating Partnership's variable rate debt, see Note 7, "Notes Payable and
Borrowings under the Credit Facility," included in Item 1, "Financial
Statements."

(2) This loan has two one-year extension options.

(3) This facility has a one-year extension option.

(4) This is an uncommitted facility.

(5) The outstanding balance excludes Letters of Credit issued under the
facility of $15.2 million.

(6) The overall weighted average interest rate does not include the effect of
the Operating Partnership's cash flow hedge agreements. Including the
effect of these agreements, the overall weighted average interest rate
would have been 7.16%.

Any uncured or unwaived events of default under the Operating
Partnership's loans can trigger an acceleration of payment on the loan in
default. In addition, an event of default by the Operating Partnership or any of
its subsidiaries with respect to any indebtedness in excess of $5.0 million
generally will result in an event of default under the credit facility and the
Fleet Fund I and II Term Loan after the notice and cure periods for the other
indebtedness have passed. As of March 31, 2003, no event of default had
occurred, and the Operating Partnership was in compliance with all of its debt
service coverage ratios and other covenants related to its outstanding debt. The
Operating Partnership's debt facilities generally prohibit loan pre-payment for
an initial period, allow pre-payment with a penalty during a following specified
period and allow pre-payment without penalty after the expiration of that
period. During the three months ended March 31, 2003, there were no
circumstances that required pre-payment penalties or increased collateral
related to the Operating Partnership's existing debt.

44

The following table shows information about the Operating Partnership's
consolidated fixed and variable rate debt and does not take into account any
extension options, hedging arrangements or the Operating Partnership's
anticipated payoff dates.

- ----------

(1) Balance excludes hedges. The percentages for fixed rate debt and variable
rate debt, including the $508.4 million of hedged variable rate debt, are
86% and 14%, respectively.

(2) Including the effect of hedge arrangements, the overall weighted average
interest rate would have been 7.16%.

(3) Based on contractual maturities. The overall weighted average maturity is
3.7 years based on the Operating Partnership's expected payoff dates.

Listed below are the aggregate principal payments by year required as
of March 31, 2003 under indebtedness of the Operating Partnership. Scheduled
principal installments and amounts due at maturity are included.

RECENT DEVELOPMENTS

ASSETS HELD FOR SALE

OFFICE SEGMENT

As of March 31, 2003, the 1800 West Loop South Office Property located
in the West Loop/Galleria submarket in Houston, Texas was held for sale and the
North Dallas Athletic Club, a building located adjacent to the Stanford
Corporate Centre Office Property in the Far North Dallas submarket in Dallas,
Texas, was held for sale. The Operating Partnership recognized, as of March 31,
2003, an approximately $15.0 million impairment on the 1800 West Loop South
Office Property and an approximately $1.2 million impairment on the North Dallas
Athletic Club.

SALE OF PROPERTY

BEHAVIORAL HEALTHCARE PROPERTIES

On February 27, 2003, the Operating Partnership sold one behavioral
healthcare property for $2.0 million, consisting of $1.3 million in cash and a
$0.7 million note receivable. The Operating Partnership recognized a loss on the
sale of this property of approximately $0.3 million. A $2.6 million impairment
charge had been recognized during 2002 related to this property. As of March 31,
2003, the Operating Partnership owned six behavioral healthcare properties.

46

DBL HOLDINGS, INC. ("DBL")

Since June 1999, the Operating Partnership contributed approximately
$23.8 million to DBL. The contribution was used by DBL to make an equity
contribution to DBL-ABC, Inc., which committed to purchase a limited partnership
interest representing a 12.5% interest in G2 Opportunity Fund, L.P. ("G2"). G2
was formed for the purpose of investing in commercial mortgage backed securities
and other commercial real estate investments and is managed and controlled by an
entity that is owned equally by Goff-Moore Strategic Partners, L.P. ("GMSP") and
GMACCM. The ownership structure of GMSP consists of an approximately 86% limited
partnership interest owned directly and indirectly by Richard Rainwater,
Chairman of the Board of Trust Managers of the Company, and an approximately 14%
general partnership interest, of which approximately 6% is owned by Darla Moore,
who is married to Mr. Rainwater, and approximately 6% is owned by John Goff,
Vice-Chairman of the Company's Board of Trust Managers and Chief Executive
Officer of the Company and sole director and Chief Executive Officer of the
General Partner. The remaining approximately 2% general partnership interest is
owned by parties unrelated to the Operating Partnership. At March 31, 2003, DBL
had an approximately $13.6 million investment in G2.

On January 2, 2003, the Operating Partnership purchased the remaining
2.56% economic interest, representing 100% of the voting stock, in DBL Holdings,
Inc. from Mr. Goff. Total consideration paid for Mr. Goff's interest was $0.4
million. The Board of Trust Managers of the Company, including all the
independent trust managers, approved the transaction based in part on an
appraisal of the assets of DBL by an independent appraisal firm. As a result of
this transaction, DBL is wholly-owned by the Operating Partnership and is
consolidated for the three months ended March 31, 2003. Also, because DBL owns a
majority of the voting stock in MVDC and HADC, the Operating Partnership has
consolidated these two Residential Development Corporations as of and for the
three months ended March 31, 2003.

UNCONSOLIDATED INVESTMENTS

INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES

The Operating Partnership has investments of 20% to 50% in seven
unconsolidated joint ventures that own seven Office Properties. The Operating
Partnership does not have control of these joint ventures, and therefore, these
investments are accounted for using the equity method of accounting.

The Operating Partnership has other unconsolidated equity investments
with interests ranging from 12.5% to 65%. The Operating Partnership does not
have control of these investments due to ownership interests of 50% or less or
the ownership of non-voting interests only, and therefore, these investments
also are accounted for using the equity method of accounting.

47

The following is a summary of the Operating Partnership's ownership in
significant unconsolidated joint ventures and equity investments as of March 31,
2003.

- ----------

(1) The remaining 50% interest in Main Street Partners, L.P. is owned by Trizec
Properties, Inc.

(2) The remaining 60% interest in Crescent Miami Center, L.L.C. is owned by an
affiliate of a fund managed by JP Morgan Fleming Asset Management, Inc.

(3) The remaining 75% interest in Crescent 5 Houston Center, L.P. is owned by a
pension fund advised by JP Morgan Fleming Asset Management, Inc.

(4) The remaining 80% interest in each of Austin PT BK One Tower Office Limited
Partnership, Houston PT Three Westlake Park Office Limited Partnership and
Houston PT Four Westlake Park Office Limited Partnership is owned by an
affiliate of General Electric Pension Trust.

(5) The remaining 70% interest in Crescent Five Post Oak Park Limited
Partnership is owned by an affiliate of General Electric Pension Trust.

(6) The remaining 57.5% interest in each of the Woodlands Land Development
Company, L.P. ("WLDC"), The Woodlands Commercial Properties Company, L.P.
and The Woodlands Operating Company, L.P. is owned by an affiliate of
Morgan Stanley.

(7) Distributions are made to partners based on specified payout percentages.
During the three months ended March 31, 2003, the payout percentage to the
Company was 52.5%.

(8) The remaining 50% interest in Blue River Land Company, L.L.C. is owned by
parties unrelated to the Operating Partnership.

(9) The remaining 50% interest in Manalapan Hotel Partners, L.L.C.
("Manalapan") is owned by WB Palm Beach Investors, L.L.C.

(10) The remaining 60% interest in Vornado Crescent Portland Partnership is
owned by Vornado Realty Trust, L.P.

(11) The remaining 44% in Vornado Crescent Carthage and KC Quarry, L.L.C. is
owned by Vornado Realty Trust, L.P.

(12) The remaining 70% interest in CR License, L.L.C. is owned by an affiliate
of the management company of two of the Operating Partnership's
Resort/Hotel Properties.

(13) The remaining 35% interest in Canyon Ranch Las Vegas, L.L.C. is owned by an
affiliate of the management company of two of the Operating Partnership's
Resort/Hotel Properties.

(14) The SunTx Fulcrum Fund, L.P.'s (the "Fund") objective is to invest in a
portfolio of acquisitions that offer the potential for substantial capital
appreciation. The remaining 72.2% of the Fund is owned by a group of
individuals unrelated to the Operating Partnership. The Operating
Partnership's ownership percentage will decline by the closing date of the
Fund as capital commitments from third parties are secured. The Operating
Partnership's projected ownership interest at the closing of the Fund is
approximately 7.5% based on the Fund manager's expectations for the final
Fund capitalization. The Operating Partnership accounts for its investment
in the Fund under the cost method. The Operating Partnership's investment
at March 31, 2003 was $6.1 million.

(15) G2 Opportunity Fund, L.P. ("G2") was formed for the purpose of investing in
commercial mortgage backed securities and other commercial real estate
investments. Goff-Moore Strategic Partners, L.P. ("GMSP") and GMAC
Commercial Mortgage Corporation ("GMACCM") each own 21.875% of G2, with the
remaining 43.75% owned by parties unrelated to the Operating Partnership.
See Note 13, "Related Party Transactions," in Item 1, "Financial
Statements," for information regarding the ownership interests of trust
managers and officers of the Company and the Operating Partnership in GMSP.

48

UNCONSOLIDATED DEBT ANALYSIS

The significant terms of the Operating Partnership's share of
unconsolidated debt financing arrangements existing as of March 31, 2003 are
shown below.

- ----------

(1) The Temperature-Controlled Logistics Corporation expects to repay this
note on the Optional Prepayment Date of April 11, 2008.

(2) Senior Note - Note A: $83.3 million at variable interest rate, LIBOR + 189
basis points, $4.9 million at variable interest rate, LIBOR + 250 basis
points with a LIBOR floor of 2.50%. Note B: $24.5 million at variable
interest rate, LIBOR + 650 basis points with a LIBOR floor of 2.50%.
Mezzanine Note - $19.6 million at variable interest rate, LIBOR + 890
basis points with a LIBOR floor of 3.0%. Interest-rate cap agreement
maximum LIBOR of 4.52% on all notes. All notes amortized based on a
25-year schedule.

(3) This Facility has two one-year extension options.

(4) The Operating Partnership and its joint venture partner each obtained a
Letter of Credit to guarantee the repayment of up to $4.3 million of
principal of the Main Street Partners, L.P. loan.

(5) The Operating Partnership provides a full and unconditional guarantee of
this loan for the construction of 5 Houston Center. The guarantee amount
reduces to $41.3 million upon achievement of specified conditions,
including specified customers occupying space and obtaining a certificate
of occupancy; further reduction to $20.6 million upon achievement of 90%
occupancy and a 1.3x debt service coverage.

(6) Woodlands CPC and WLDC entered into an Interest Rate Cap Agreement which
limits interest rate exposure on the notional amount of $33.8 million to a
maximum LIBOR rate of 9.0%.

(7) WLDC entered into an Interest Rate Cap Agreement which limits interest
rate exposure on the notional amount of $19.5 million to a maximum LIBOR
rate of 8.5%.

(8) The variable rate loan has an interest rate of LIBOR + 3%. A fully
consolidated entity of CRDI, in which CRDI owns 88.3%, provides a
guarantee of up to 70% of the outstanding balance of the $9.0 million loan
to Blue River Land Company, L.L.C. There was approximately
$7.7 million outstanding at March 31, 2003 and the guarantee was $5.4
million.

(9) The Operating Partnership and its joint venture partner each obtained a
Letter of Credit to guarantee repayment of up to $3.0 million of this
facility.

(10) The overall weighted average maturity would be 4.3 years if all extensions
and prepayment options were exercised.

49

The following table shows, as of March 31, 2003, information about the
Operating Partnership's share of unconsolidated fixed and variable rate debt and
does not take into account any extension options, hedge arrangements or the
entities' anticipated pay-off dates.

- ----------

(1) Based on contractual maturities. The overall weighted average maturity
would be 4.3 years assuming the election of extension options on debt
instruments and expected repayment of a note on the optional prepayment
date.

Listed below is the Operating Partnership's share of aggregate
principal payments, by year, required as of March 31, 2003 related to the
Operating Partnership's unconsolidated debt. Scheduled principal installments
and amounts due at maturity are included.

- ----------

(1) These amounts do not reflect the effect of extension options.

TEMPERATURE-CONTROLLED LOGISTICS SEGMENT

As of March 31, 2003, the Operating Partnership held a 40% interest in
the Temperature-Controlled Logistics Partnership, which owns the
Temperature-Controlled Logistics Corporation, which directly or indirectly owns
the 88 Temperature-Controlled Logistics Properties, with an aggregate of
approximately 441.5 million cubic feet (17.5 million square feet) of warehouse
space.

The Temperature-Controlled Logistics Corporation leases the
Temperature-Controlled Logistics Properties to AmeriCold Logistics, a limited
liability company owned 60% by Vornado Operating L.P. and 40% by a subsidiary of
COPI. The Operating Partnership has no economic interest in AmeriCold Logistics.
See Note 14, "COPI," for information on the proposed acquisition of COPI's 40%
interest in AmeriCold Logistics by a new entity to be owned by the Operating
Partnership's unitholders and the Company's shareholders.

AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, leases the Temperature-Controlled Logistics Properties
from the Temperature-Controlled Logistics Corporation under three triple-net
master leases, as amended. On February 22, 2001, the Temperature-Controlled
Logistics Corporation and AmeriCold Logistics agreed to restructure certain
financial terms of the leases, including a reduction of the rental obligation
for 2001 and 2002, the increase of the Temperature-Controlled Logistics
Corporation's share of capital expenditures for the maintenance of the
properties (effective January 1, 2000) and the extension of the date on which
deferred rent is required to be paid to December 31, 2003. On March 7, 2003, the
Temperature-Controlled Logistics Corporation and AmeriCold Logistics amended the
leases to further extend the date on which deferred rent is required to be paid
to December 31, 2004.

AmeriCold Logistics deferred $5.6 million of the total $37.0 million of
rent payable for the three months ended March 31, 2003. The Operating
Partnership's share of the deferred rent was $2.2 million. The Operating
Partnership recognizes rental income from the Temperature-Controlled Logistics
Properties when earned and collected and has not recognized the $2.2 million of
deferred rent in equity in net income of the Temperature-Controlled Logistics
Properties for the three months ended March 31, 2003. As of March 31, 2003, the
Temperature-Controlled Logistics Corporation's deferred rent and valuation
allowance from AmeriCold Logistics were $47.9 million and $39.8 million,
respectively, of which the Operating Partnership's portions were $19.2 million
and $15.9 million, respectively.

50

VORNADO CRESCENT CARTHAGE AND KC QUARRY, L.L.C. ("VCQ")

As of March 31, 2003, the Operating Partnership held a 56% interest in
Vornado Crescent Carthage and KC Quarry, L.L.C. ("VCQ"). The assets of VCQ
include two quarries and the related land. The Operating Partnership accounts
for this investment as an unconsolidated equity investment because the Operating
Partnership does not control the joint venture.

On December 31, 2002, VCQ purchased $5.7 million of trade receivables
from AmeriCold Logistics at a 2% discount. The Operating Partnership contributed
approximately $3.1 million to VCQ for the purchase of the trade receivables. The
receivables were collected during the three months ended March 31, 2003.

On March 28, 2003, VCQ purchased $6.6 million of trade receivables from
AmeriCold Logistics at a 2% discount. VCQ used cash from collection of trade
receivables previously purchased from AmeriCold Logistics and a $2.0 million
contribution from its owners, of which approximately $0.8 million represented
the Operating Partnership's contribution, for the purchase of the trade
receivables. As of May 5, 2003, the receivables were collected.

SIGNIFICANT ACCOUNTING POLICIES

CRITICAL ACCOUNTING POLICIES

The Operating Partnership's discussion and analysis of financial
condition and results of operations is based on its consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Operating Partnership to make estimates and judgments
that affect the reported amounts of assets, liabilities, and contingencies as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. The Operating Partnership evaluates its
assumptions and estimates on an ongoing basis. The Operating Partnership bases
its estimates on historical experience and on various other assumptions that it
believes to be reasonable under the circumstances. These estimates form the
basis for making judgments about the carrying values of assets and liabilities
where that information is available from other sources. Certain estimates are
particularly sensitive due to their significance to the financial statements.
Actual results may differ significantly from management's estimates. The
Operating Partnership believes that the most significant accounting policies
that involve the use estimates and assumptions as to future uncertainties and,
therefore, may result in actual amounts that differ from estimates are the
following:

o Valuation for impairment of the Operating Partnership's assets and
investments,

o Relative Fair Value Method/Cost of Sales (Residential Development
entities),

o Capitalization of Interest (Residential Development entities), and

o Allowance for doubtful accounts.

IMPAIRMENTS. Real estate and leasehold improvements are classified as
long-lived assets held for sale or long-lived assets to be held and used. In
accordance with Statement No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the Operating Partnership records assets held for sale at
the lower of carrying value or sales price less costs to sell. For assets
classified as held and used, these assets are tested for recoverability when
events or changes in circumstances indicate that the estimated carrying amount
may not be recoverable. An impairment loss is recognized when expected
undiscounted future cash flows from a Property is less than the carrying value
of the Property. The Operating Partnership's estimates of cash flows of the
Properties requires the Operating Partnership to make assumptions related to
future rental rates, occupancies, operating expenses, the ability of the
Operating Partnership's tenants to perform pursuant to their lease obligations
and proceeds to be generated from the eventual sale of the Operating
Partnership's Properties. Any changes in estimated future cash flows due to
changes in the Operating Partnership's plans or views of market and economic
conditions could result in recognition of additional impairment losses.

If events or circumstances indicate that the fair value of an
investment accounted for using the equity or cost method has declined below its
carrying value and the Operating Partnership considers the decline to be "other
than temporary," the investment is written down to fair value and an impairment
loss is recognized. The evaluation of impairment for an investment would be
based on a number of factors, including financial condition and operating
results for the investment, inability to remain in compliance with provisions of
any related debt agreements, and recognition of impairments by other investors.
Impairment recognition would negatively impact the recorded value of our
investment and reduce net income.

RELATIVE SALES METHOD AND PERCENTAGE OF COMPLETION. The Operating
Partnership recognizes earnings from the sale of Residential Development
Properties when a third-party buyer has made an adequate cash down payment and
has attained the attributes of ownership. The cost of residential property sold
is defined based on the type of product being purchased. The cost of sales for
residential lots is generally determined as a specific percentage of the sales
revenues recognized for each Residential

51

Development project. The percentages are based on total estimated development
costs and sales revenue for each Residential Development project. These
estimates are revised annually and are based on the then-current development
strategy and operating assumptions utilizing internally developed projections
for product type, revenue and related development costs. The cost of sale for
residential units (such as townhomes and condominiums) is determined using the
relative sales value method. If the residential unit has been sold prior to the
completion of infrastructure cost, and those uncompleted costs are not
significant in relation to total costs; the full accrual method is utilized.
Under this method, 100% of the revenue is recognized and a commitment liability
is established to reflect the allocated estimated future costs to complete the
residential unit. If the Operating Partnership's estimates of costs or the
percentage of completion is incorrect; it could result in either an increase or
decrease in cost of sales expense or revenue recognized and therefore, an
increase or decrease in net income.

CAPITALIZATION OF INTEREST. The Operating Partnership commences
capitalization of interest when development activities and expenditures begin
and ceases to capitalize interest upon "completion," which is defined as the
time when the asset is ready for its intended use. The Operating Partnership
uses judgment in determining the time period over which to capitalize such
interest and these assumptions have a direct impact on net income because
capitalized costs are not subtracted in calculating net income. If the time
period is extended, more interest is capitalized, thereby increasing net income.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Operating Partnership's accounts
receivable balance is reduced by an allowance for amounts that may become
uncollectible in the future. The Operating Partnership's receivable balance is
composed primarily of rents and operating cost recoveries due from its tenants.
The Operating Partnership also maintains an allowance for deferred rent
receivables which arise from the straight-lining of rents. The allowance for
doubtful accounts is reviewed at least quarterly for adequacy by reviewing such
factors as the credit quality of the Operating Partnership's tenants, any
delinquency in payment, historical trends and current economic conditions. If
the assumptions regarding the collectibility of accounts receivable prove
incorrect, the Operating Partnership could experience write-offs in excess of
its allowance for doubtful accounts, which would result in a decrease in net
income.

ADOPTION OF NEW ACCOUNTING STANDARDS

STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 145. In April
2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145,
"Rescission of FASB Statements 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections." SFAS No. 145 requires the reporting of gains and
losses from early extinguishment of debt be included in the determination of net
income unless criteria in Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations," which allows for extraordinary item classification,
are met. The provisions of this Statement related to the rescission of Statement
No. 4 are to be applied in fiscal years beginning after May 15, 2002. The
Operating Partnership adopted this Statement for fiscal 2003 and expects no
impact in 2003 beyond the classification of costs related to early
extinguishments of debt, which were shown in the Operating Partnership's 2001
Consolidated Statements of Operations as an extraordinary item.

SFAS NOS. 148 AND 123. In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," effective
for fiscal years ending after December 15, 2002, to amend the transition and
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." In addition to the prospective transition method of accounting
for Stock-Based Employee Compensation using the fair value method provided in
SFAS No. 123, SFAS No. 148 permits two additional transition methods, both of
which avoid the ramp-up effect arising from prospective application of the fair
value method. The Retroactive Restatement Method requires companies to restate
all periods presented to reflect the Stock-Based Employee Compensation under the
fair value method for all employee awards granted, modified, or settled in
fiscal years beginning after December 15, 1994. The Modified Prospective Method
requires companies to recognize Stock-Based Employee Compensation from the
beginning of the fiscal year in which the recognition provisions are first
applied as if the fair value method in SFAS No. 123 had been used to account for
employee awards granted, modified, or settled in fiscal years beginning after
December 15, 1994. Also, in the absence of a single accounting method for
Stock-Based Employee Compensation, SFAS No. 148 expands disclosure requirements
from those existing in SFAS No. 123, and requires disclosure of whether, when,
and how an entity adopted the preferable, fair value method of accounting.

Effective January 1, 2003, the Operating Partnership adopted the fair
value expense recognition provisions of SFAS No. 123 on a prospective basis as
permitted, which requires that the value of stock options and unit options at
the date of grant be amortized ratably into expense over the appropriate vesting
period. As the Company and the Operating Partnership did not grant any stock
options or unit options in the three months ended March 31, 2003, there was no
impact of this adoption to the financial statements. With respect to the
Company's stock options and the Operating Partnership's unit options which were
granted prior to 2003, the Operating Partnership accounted for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations ("APB No. 25"). Under APB No. 25, compensation cost is
measured as the excess, if any, of the quoted market price of the Company's
common shares (doubled for unit options) at the date of grant over the exercise
price of the option granted. Compensation cost for stock options and unit
options, if any, is recognized ratably over the vesting period. During the three
months ended March 31, 2003, no compensation cost was recognized for grants of
stock options or unit options made prior to 2003 under the Company and the
Operating Partnership stock option and unit option plans because the Company's
and the Operating Partnership's policy is to grant stock options and unit
options with an exercise price equal to the quoted closing market price of the
Company's common shares (doubled for unit options) on the grant date. Had
compensation cost for the Plans been determined based on the fair value at the
grant dates

52

for awards under the Plans consistent with SFAS No. 123, the Operating
Partnership's net income and earnings per unit would have been reduced to the
following pro forma amounts:

FASB INTERPRETATION 45. In November 2002, the FASB issued
Interpretation 45, "Guarantors' Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"),
which elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that
it has issued and liability-recognition requirements for a guarantor of certain
types of debt. The new guidance requires a guarantor to recognize a liability at
the inception of a guarantee which is covered by the new requirements whether or
not payment is probable, creating the new concept of a "stand-ready" obligation.
Initial recognition and initial measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. See
Note 9, "Commitments and Contingencies" in Item 1, "Financial Information," for
disclosure of the Operating Partnership's guarantees at March 31, 2003. The
Operating Partnership adopted FIN 45 effective January 1, 2003. The Operating
Partnership has not entered into additional debt guarantees during the three
months ended March 31, 2003.

FASB INTERPRETATION 46. On January 15, 2003, the FASB approved the
issuance of Interpretation 46, "Consolidation of Variable Interest Entities"
("FIN 46"), an interpretation of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements." Under FIN 46, consolidation requirements
are effective immediately for new Variable Interest Entities ("VIEs") created
after January 31, 2003. The consolidation requirements apply to existing VIEs in
the first fiscal year or interim period beginning after June 15, 2003. VIEs are
generally a legal structure used for business enterprises that either do not
have equity investors with voting rights, or have equity investors that do not
provide sufficient financial resources for the entity to support its activities.
The objective of the new guidance is to improve reporting by addressing when a
company should include in its financial statements the assets, liabilities and
activities of another entity such as a VIE. FIN 46 requires a VIE to be
consolidated by a company if the company is subject to a majority of the risk of
loss from the VIEs activities or entitled to receive a majority of the entity's
residual returns or both. FIN 46 also requires disclosures about VIEs that the
company is not required to consolidate but in which it has a significant
variable interest. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the VIE was
established. These disclosure requirements are as follows: (a) the nature,
purpose, size, and activities of the variable interest entity; and, (b) the
enterprise's maximum exposure to loss as a result of its involvement with the
VIE. FIN 46 may be applied prospectively with a cumulative effect adjustment as
of the date on which it is first applied or by restating previously issued
financial statements for one or more years with a cumulative effect adjustment
as of the beginning of the first year restated. The Operating Partnership is
assessing the impact of this Interpretation, if any, on its existing entities
and does not believe the impact will be significant on its liquidity, financial
position, and results of operations. The Operating Partnership did not create
any VIEs subsequent to January 31, 2003.

FUNDS FROM OPERATIONS

FFO, as used in this document, means:

o Net Income (Loss) - determined in conformity with GAAP;

o excluding gains (losses) from sales of depreciable operating
property;

o excluding extraordinary items (as defined by GAAP);

o including depreciation and amortization of real estate assets;
and

o after adjusting for unconsolidated partnerships and joint
ventures.

The National Association of Real Estate Investment Trusts ("NAREIT")
developed FFO as a relative measure of performance and liquidity of an equity
REIT to recognize that income-producing real estate historically has not
depreciated on the

53

basis determined under GAAP. The Operating Partnership considers FFO an
appropriate measure of performance for an operating partnership of an equity
REIT, and for its investment segments. However, FFO should not be considered as
an alternative to net income determined in accordance with GAAP as an indication
of the Operating Partnership's operating performance.

The Operating Partnership has historically distributed an amount less
than FFO, primarily due to reserves required for capital expenditures, including
leasing costs. The aggregate cash distributions paid to unitholders for the
three months ended March 31, 2003 and 2002 were $43.8 million, and $49.7
million, respectively. The Operating Partnership reported FFO of $41.4 million
and $69.6 million for the three months ended March 31, 2003 and 2002,
respectively.

An increase or decrease in FFO does not necessarily result in an
increase or decrease in aggregate distributions because the Company's Board of
Trust Managers is not required to increase distributions on a quarterly basis
unless necessary for the Company to maintain REIT status. However, the Company
must distribute 90% of its REIT taxable income (as defined in the Code).
Therefore, a significant increase in FFO will generally require an increase in
distributions to unitholders although not necessarily on a proportionate basis.

Accordingly, the Operating Partnership believes that to facilitate a
clear understanding of the consolidated historical operating results of the
Operating Partnership, FFO should be considered in conjunction with the
Operating Partnership's net income and cash flows reported in the consolidated
financial statements and notes to the consolidated financial statements.
However, the Operating Partnership's measure of FFO may not be comparable to
similarly titled measures of operating partnerships of REITs (other than the
Company) because these REITs may apply the definition of FFO in a different
manner than the Operating Partnership.

54

CONSOLIDATED STATEMENTS OF FUNDS FROM OPERATIONS

- ----------

(1) Includes interest and other income, behavioral healthcare property income,
preferred return paid to GMACCM in 2002, other unconsolidated companies,
less depreciation and amortization of non-real estate assets and
amortization of deferred financing costs and other expenses.

(2) See calculations for the amounts presented in the reconciliation following
this table.

55

The following schedule reconciles the Operating Partnership's basic
weighted average units to the diluted weighted average units presented above:

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CASH FLOW HEDGES

No material changes in the Operating Partnership's market risk occurred
from December 31, 2002 through March 31, 2003. Information regarding the
Operating Partnership's market risk at December 31, 2002 is contained in Item
7A, "Quantitative and Qualitative Disclosures About Market Risk," in the
Operating Partnership's Annual Report on Form 10-K for the year ended December
31, 2002.

ITEM 4. CONTROLS AND PROCEDURES

The Operating Partnership maintains disclosure controls and procedures
that are designed to ensure that information required to be disclosed in the
Operating Partnership's reports under the Exchange Act of 1934, as amended (the
"Exchange Act") is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms,
and that such information is accumulated and communicated to the Operating
Partnership's management, including its Chief Executive Officer and its Chief
Financial and Accounting Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c) promulgated under the Exchange Act.
In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

Within 90 days prior to the date of this report, the Operating
Partnership carried out an evaluation, under the supervision and with the
participation of the Operating Partnership's management, including its Chief
Executive Officer and its Chief Financial and Accounting Officer, of the
effectiveness of the design and operation of the Operating Partnership's
disclosure controls and procedures. Based on the foregoing, the Operating
Partnership's Chief Executive Officer and its Chief Financial and Accounting
Officer concluded that the Operating Partnership's disclosure controls and
procedures were effective.

PART II

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

The exhibits required by this item are set forth on the Exhibit Index
attached hereto.

(b) Reports on Form 8-K

None

56

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
(Registrant)

By: Crescent Real Estate Equities, Ltd.
Its General Partner

By: /s/ John C. Goff
-----------------------------------
John C. Goff
Date: May 14, 2003 Sole Director and Chief Executive
Officer

By: /s/ Jerry R. Crenshaw, Jr
--------------------------------------------
Jerry R. Crenshaw, Jr.
Executive Vice President and Chief
Financial Officer (Principal Financial
Date: May 14, 2003 and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CRESCENT FINANCE COMPANY

(REGISTRANT)

By: /s/ John C. Goff
--------------------------------------------
John C. Goff
Date: May 14, 2003 Sole Director and Chief Executive
Officer

By: /s/ Jerry R. Crenshaw, Jr
--------------------------------------------
Jerry R. Crenshaw, Jr.
Executive Vice President and Chief
Financial Officer (Principal Financial
Date: May 14, 2003 and Accounting Officer)

57

CERTIFICATIONS

I, John C. Goff, the Chief Executive Officer of Crescent Real Estate
Equities Ltd., the general partner of Crescent Real Estate Equities Limited
Partnership, and the Chief Executive Officer of Crescent Finance Company hereby
certify that:

1. I have reviewed this quarterly report on Form 10-Q of Crescent
Real Estate Equities Limited Partnership and Crescent Finance
Company;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrants as of, and for,
the periods presented in this quarterly report;

4. The registrants' other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrants and have:

a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrants, including their consolidated
subsidiaries, is made known to us by others within
those entities, particularly during the period in
which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants'
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;

5. The registrants' other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants' auditors
and the audit committee of registrants' boards of directors (or
persons performing the equivalent functions):

a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrants' ability to record, process,
summarize and report financial data and have
identified for the registrants' auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrants' internal controls; and

6. The registrants' other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ John C. Goff
------------------------------------
Name: John C. Goff
Title: Chief Executive Officer

58

CERTIFICATIONS

I, Jerry R. Crenshaw, Jr., the Executive Vice President and Chief
Financial and Accounting Officer of Crescent Real Estate Equities Ltd., the
general partner of Crescent Real Estate Equities Limited Partnership, and the
Executive Vice President and Chief Financial and Accounting Office of Crescent
Finance Company hereby certify that:

1. I have reviewed this quarterly report on Form 10-Q of Crescent
Real Estate Equities Limited Partnership and Crescent Finance
Company;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrants as of, and for,
the periods presented in this quarterly report;

4. The registrants' other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrants and have:

a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrants, including their consolidated
subsidiaries, is made known to us by others within
those entities, particularly during the period in
which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants'
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;

5. The registrants' other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants' auditors
and the audit committee of registrants' boards of directors (or
persons performing the equivalent functions):

a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrants' ability to record, process,
summarize and report financial data and have
identified for the registrants' auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrants' internal controls; and

6. The registrants' other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Jerry R. Crenshaw, Jr.
-----------------------------------
Jerry R. Crenshaw, Jr.
Executive Vice President and Chief
Financial and Accounting Officer

59

INDEX TO EXHIBITS