SEC classification of Duke as an energy company threatened by growing real estate business.
April 6, 2007 – This is not new news, but the story had gone largely unreported locally. LandMar Group, one of Palm Coast and Flagler County’s largest developers is a subsidiary of Crescent Resources, which was founded as Duke’s real estate subsidiary. The growing portion of Duke’s revenue coming from Crescent’s success threatened the SEC classification of Duke as an energy company. To solve the situation, Duke spun off enough of Crescent to Morgan Stanley Real Estate Fund (MSREF) to leave it with a 49% stake. With less than controlling interest in Crescent, it’s earnings no longer have to appear on Duke’s income statement. Duke will still receive a profit distribution from Crescent.
LandMar projects in Palm Coast and Flagler County include Grand Haven, Grand Landings, and The Grand Club. In addition, they have other developments in various stages of planning and permitting on Roberts Road and north of the Matanzas golf course in a section of Palm Coast Park.
Here is the original announcement:
CHARLOTTE, N.C. September 8, 2006 – Duke Energy and Morgan Stanley Real Estate announced today the signing and closing of a transaction creating a joint venture between Duke Energy and Morgan Stanley Real Estate Fund (MSREF) V U.S. with respect to Crescent Resources, Duke Energy’s real estate subsidiary.
Ownership of the new joint venture will be 49 percent by Duke Energy, 49 percent by MSREF and 2 percent by Crescent’s chief executive officer. The joint venture will retain the name Crescent Resources and its headquarters will remain in Charlotte.
The transaction ascribes a total enterprise value of approximately $2.1 billion to Crescent. It provides Duke Energy with approximately $1.4 billion after-tax cash proceeds at closing, in addition to its 49 percent ownership of the venture. As part of the transaction, Crescent was recapitalized and borrowed approximately $1.2 billion of new debt at closing, which will be classified off Duke Energy’s balance sheet. Substantially all debt proceeds were distributed to Duke Energy.
“This joint venture will create opportunities for Crescent as it leverages Morgan Stanley Real Estate’s financial strength, access to capital markets, deal flow and expertise in land development,” said James E. Rogers, president and chief executive officer of Duke Energy. “While Duke Energy will retain a significant interest in the future success of the business, the new structure is consistent with our plan to focus primarily on the power business by reducing our investment and risk profile associated with non-core businesses.”
“The acquisition of an interest in Crescent represents a significant milestone for MSREF and provides access to a premier development company,” said Michael Franco, managing director and head of MSREF V U.S. “We look forward to working alongside Crescent’s best-in-class management team and Duke Energy to continue to grow the company in both the residential and commercial sectors in attractive and growing real estate markets.”
The current Crescent management team will operate the joint venture and Crescent will continue to participate in each of the sectors of real estate development in which it is currently involved.
Duke Energy was advised by Banc of America Securities LLC and MSREF was advised by Morgan Stanley Real Estate for the transaction.
Crescent Resources, LLC is a land management and real estate development company. Formed more than 40 years ago by Duke Energy,
the company has land interests in nine states in the Southeast and southwestern United States. Crescent creates award-winning country club communities, neighborhoods, apartment and condominium communities, Class A office space, business and industrial parks and shopping centers. More information about Crescent Resources is available on the Internet at www.crescent-resources.com.
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