SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-12110
CAMDEN PROPERTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-6088377
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3200 Southwest Freeway, Suite 1500, Houston, Texas 77027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(713) 964-3555
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of August 5, 1996, there were 14,783,592 shares of Common Shares of
Beneficial Interest, $0.01 par value outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAMDEN PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
Real estate assets, at cost:
Land $ 85,913 $ 81,544
Buildings and improvements 501,844 471,584
Projects under development,
including land 38,673 54,470
-------- --------
626,430 607,598
Less: accumulated depreciation (45,872) (36,800)
-------- --------
580,558 570,798
Accounts receivable - affiliates 734 369
Notes receivable - affiliates 3,569 3,477
Deferred financing and other
assets, net 4,935 4,839
Cash and cash equivalents 570 236
Restricted cash - escrow deposits 1,806 2,633
-------- --------
Total assets $592,172 $582,352
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable:
Unsecured $141,590 $122,783
Secured 119,415 112,676
Accounts payable 7,038 8,300
Accrued real estate taxes 7,337 11,865
Accrued expenses and other
liabilities 7,638 6,276
Distributions payable 6,951 6,623
-------- --------
Total liabilities 289,969 268,523
7.33% Convertible Subordinated
Debentures 41,263 44,050
Preferred Shares of Beneficial
Interest 1,950
Shareholders' Equity:
Common shares of beneficial interest 148 145
Additional paid-in capital 305,885 299,808
Distributions in excess of net
income (41,725) (29,625)
Unearned restricted share awards (3,368) (2,499)
-------- --------
Total shareholders' equity 260,940 267,829
-------- --------
Total liabilities and
shareholders' equity $592,172 $582,352
======== ========
See Notes to Consolidated Financial Statements.
-2-
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
Revenues
Rental income $25,956 $22,202 $51,101 $43,712
Other income 1,275 1,296 2,720 2,334
------- ------- ------- -------
Total revenues 27,231 23,498 53,821 46,046
Expenses
Property operating and
maintenance 9,448 8,343 18,711 16,196
Real estate taxes 3,323 2,961 6,548 5,842
General and administrative 1,140 954 2,249 1,952
Interest 4,177 3,232 8,237 6,213
Depreciation and
amortization 5,645 4,899 11,168 9,619
------- ------- ------- -------
Total expenses 23,733 20,389 46,913 39,822
------- ------- ------- -------
Income before gain on sales
of properties and
extinguishment of hedges
upon debt refinancing 3,498 3,109 6,908 6,224
Gain on sales of properties 195
Extinguishment of hedges
upon debt refinancing (5,351)
------- ------- ------- -------
Net income 3,498 3,109 1,752 6,224
Preferred share dividends (10) (4) (20)
------- ------- ------- -------
Net income to common
shareholders $3,498 $3,099 $1,748 $6,204
======= ======= ======= =======
Net income per common and
common equivalent share $ 0.24 $ 0.22 $ 0.12 $ 0.43
Distributions declared per
common share $0.475 $ 0.46 $ 0.95 $ 0.92
Weighted average number
of common and common
equivalent shares
outstanding 14,511 14,438 14,512 14,375
See Notes to Consolidated Financial Statements.
-3-
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Six Months
Ended June 30,
---------------------
1996 1995
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 1,752 $ 6,224
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 11,168 9,619
Gains on sales of properties (195)
Extinguishment of hedges upon debt
refinancing 5,351
Accretion of discount on unsecured
notes payable 27
Net change in operating accounts (3,196) (3,081)
-------- --------
Net cash provided by operating
activities 14,907 12,762
CASH FLOW FROM INVESTING ACTIVITIES
Investment in real estate assets (39,393) (44,454)
Net proceeds from sales of properties 19,436
Increase in notes receivable for net
advances to affiliates (92) (685)
Other 7 45
-------- --------
Net cash used in investing
activities (20,042) (45,094)
CASH FLOW FROM FINANCING ACTIVITIES
Net (decrease) increase in lines
of credit (80,783) 30,559
Proceeds from notes payable 106,883 18,738
Extinguishment of hedges upon debt
refinancing (5,351)
Principal reduction on notes payable (581) (4,281)
Distributions to common shareholders (13,520) (12,828)
Payment of loan costs (1,349) (112)
Other 170 25
-------- --------
Net cash provided by financing
activities 5,469 32,101
-------- --------
Net increase (decrease) in cash and
cash equivalents 334 (231)
Cash and cash equivalents, beginning of
period 236 241
-------- --------
Cash and cash equivalents, end of period $ 570 $ 10
======== ========
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of interest
capitalized $ 6,831 $ 6,091
Interest capitalized $ 2,533 $ 2,387
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Conversion of 7.33% subordinated
debentures to common shares, net $ 2,690 $ 3,588
Shares issued under benefit plans $ 1,678 $ 1,984
Conversion of preferred shares and
dividends $ 1,954
See Notes to Consolidated Financial Statements.
-4-
CAMDEN PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
THE ACCOMPANYING INTERIM UNAUDITED FINANCIAL INFORMATION HAS BEEN PREPARED
PURSUANT TO THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION.
CERTAIN INFORMATION AND FOOTNOTE DISCLOSURES NORMALLY INCLUDED IN FINANCIAL
STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
HAVE BEEN CONDENSED OR OMITTED PURSUANT TO SUCH RULES AND REGULATIONS, ALTHOUGH
MANAGEMENT BELIEVES THAT THE DISCLOSURES ARE ADEQUATE TO MAKE THE INFORMATION
PRESENTED NOT MISLEADING. IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS AND
ELIMINATIONS, CONSISTING ONLY OF NORMAL RECURRING ADJUSTMENTS, NECESSARY TO
PRESENT FAIRLY THE FINANCIAL POSITION OF CAMDEN PROPERTY TRUST AS OF JUNE 30,
1996 AND THE RESULTS OF OPERATIONS AND CASH FLOWS FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1996 AND 1995 HAVE BEEN INCLUDED. THE RESULTS OF OPERATIONS FOR
SUCH INTERIM PERIODS ARE NOT NECESSARILY INDICATIVE OF THE RESULTS FOR THE FULL
YEAR.
SUMMARY
Camden Property Trust and its subsidiaries ("Camden" or the "Company") are
engaged in the ownership, development, acquisition, management, marketing and
disposition of multifamily apartment communities in the Southwest and Mountain
regions of the United States. As of June 30, 1996, the Company owned and
operated 50 multifamily properties located in Houston, Dallas/Fort Worth,
Austin, Corpus Christi, El Paso and Tucson. These 50 properties contained 17,593
apartment units and had a weighted average occupancy rate of 94.2% for the
quarter ended June 30, 1996. The Company is developing three multifamily
properties in Houston and Phoenix which will, when completed, add 1,096 units to
its portfolio, and has three properties on which it intends to develop an
estimated 1,010 units.
PROPERTY UPDATE
During the first six months of 1996, the Company completed construction of
the 456-unit The Park at Addison apartments in Dallas, the 516-unit Vanderbilt
Square apartments in Houston and the 288-unit Breakers apartments in Corpus
Christi. As of June 30, 1996, Vanderbilt Square and The Breakers had stabilized
as occupancies reached 98% and 95%, respectively and leasing reached 100% and
99%, respectively. The Park at Addison was 68% leased and 55% occupied as of
June 30, 1996.
During the first quarter, construction began on The Park at Sugar Grove
apartments, a 380-unit property in the Houston area, and Arrowhead Springs
apartments, a 288-unit property in the Phoenix area. These properties are
expected to be ready for first occupancy during the second half of 1996 with
stabilization to occur during 1997.
On May 1, 1996, the Company purchased a 400-unit multifamily property in
Houston adjacent to an existing property, Sierra Pines. The two properties will
be operated as one property utilizing the existing property management and staff
at Sierra Pines.
The Company seeks to selectively dispose of assets that are either not in
core markets or that have a lower projected net operating income growth rate
than the overall portfolio. The proceeds from these
- 5 -
sales may be reinvested in acquisitions or developments or used to retire debt.
During the first quarter of 1996, the Company disposed of three properties for
slightly in excess of their net book value of $19.2 million. These properties
contained 117 units in Houston, 476 units in Dallas and 216 units in San
Antonio. See note 8, "Subsequent Events", regarding a property disposition on
July 1, 1996.
OTHER
In June 1996, the Company announced that its Board of Trust Managers
declared a dividend in the amount of $0.475 per common share for the second
quarter of 1996. This quarterly dividend represents an annualized dividend rate
of $1.90 per share, and a 3.3% increase over the $1.84 annualized rate for 1995.
2. PROPERTY OPERATING AND MAINTENANCE EXPENSES
Property operating and maintenance expenses included normal repairs and
maintenance totaling $4.0 million for the first six months of 1996 and $3.4
million for the same period in 1995. In addition, amounts incurred subsequent to
the initial renovation and rehabilitation periods for recurring expenditures
such as carpets, appliances and other furnishings and equipment, which might
otherwise be capitalized, totaled $1.8 million for the first six months of 1996
and $1.0 million for the same period in 1995 and were included in expense.
3. NOTES PAYABLE
A summary of the Company's notes payable follows:
(In thousands)
June 30, December 31,
1996 1995
-------- --------
Unsecured notes:
Senior unsecured notes .......................... $ 99.6 $ --
Unsecured credit facility ....................... 42.0 122.8
-------- --------
141.6 122.8
Secured notes:
Construction loans .............................. 60.6 53.5
Conventional mortgage loans ..................... 58.8 59.2
-------- --------
119.4 112.7
-------- --------
Total notes payable .......................... $ 261.0 $ 235.5
======== ========
Floating rate debt included in notes payable ......... $ 77.6 $ 26.3
During the first quarter of 1996, the Company issued from its previously
filed shelf registration statement an aggregate principal amount of $100 million
of five-year senior unsecured notes ("Notes"). Interest on the Notes accrues at
a rate of 6 5/8% per annum and is payable semi-annually on February 15 and
August 15, commencing on August 15, 1996. The Notes are direct, senior unsecured
obligations of the Company and rank equally with all other unsecured and
unsubordinated indebtedness of the
- 6 -
Company from time to time outstanding. The Notes may be redeemed at any time at
the option of the Company subject to a make-whole provision. The proceeds to the
Company from the sale of the Notes were $98.4 million, net of issuance costs.
The Company used the net proceeds to reduce $93.4 million of indebtedness under
the unsecured credit facility, to pay $4.9 million arising from the early
settlement of hedging agreements related to the indebtedness repaid and to pay
$0.5 million to extinguish a bank's option related to a settled hedging
agreement. At June 30, 1996, a $25 million interest rate hedging agreement
remained in effect and is scheduled to mature in July 2000 with a bank's option
to extend to July 2002. The actual rate on such $25 million of indebtedness is a
6.14% fixed rate plus a 150 basis point spread over LIBOR. This swap continues
to operate as a hedge to manage the risk of interest rate fluctuations.
During the first six months of 1996, the Company reduced its interest rate
on its $150 million unsecured credit facility and on $21.6 million of its
construction loans to LIBOR plus 150 basis points or Prime.
4. RESTRICTED SHARE AWARDS
During the first quarter of 1996, restricted shares, aggregating 75,841
shares, were granted in lieu of cash compensation to certain key employees and
non-employee trust managers. At the end of the second quarter, 227,847 of such
shares had been granted since the inception of the 1993 Share Incentive Plan of
which 17,665 awards were canceled and 56,152 have vested. The value of the
restricted share awards at the date of grant are amortized over vesting periods
ranging from three to five years from the date of grant.
5. CHANGES IN OPERATING ACCOUNTS
The effect of changes in the operating accounts on cash flows from operating
activities is as follows (in thousands):
Six Months Ended
June 30,
---------------------
1996 1995
------- -------
Decrease (increase) in assets:
Escrow deposits ................................. $ 827 $ 837
Accounts receivable - affiliates ................ (365) (292)
Other assets .................................... 770 (325)
Increase (decrease) in liabilities:
Accounts payable ................................ (1,262) 1,160
Accrued real estate taxes ....................... (4,528) (4,016)
Accrued expenses and other liabilities .......... 1,362 (445)
------- -------
Net change in operating accounts ............. $(3,196) $(3,081)
======= =======
6. CONVERTIBLE PREFERRED SHARES
During the first quarter, all preferred shareholders elected to convert all
of their preferred shares into 85,369 common shares. In 1993, the Company issued
84,783 shares of Series A cumulative convertible preferred shares of beneficial
interests in exchange for the remaining multifamily operations of the
- 7 -
Company's predecessor entities. These operations consisted primarily of asset
management and construction activities.
7. CONVERTIBLE SUBORDINATED DEBENTURES
In June 1996, debentures in the principal amount of $2.8 million converted
into 116,125 common shares on or before the record date for the quarterly
dividend. The related debenture interest was forfeited by the debenture holders
in accordance with the indenture. In addition, $97,000 of unamortized debenture
issue costs were reclassified to equity. Had all converted debentures converted
as of the beginning of the periods, net income per common and common equivalent
share would have remained at $0.24 and $0.12 per share for the three months and
six months ended June 30, 1996, respectively.
8. SUBSEQUENT EVENTS
On July 1, 1996, the Company sold a 166-unit multifamily property in
Houston. The property, which was purchased in the Company's initial public
offering, was sold for $3.6 million resulting in a net loss on sale of $260,000.
On August 1, 1996, the Company acquired an 11.5-acre site located in Fort
Worth, Texas where it plans to develop a garden-style apartment community
containing 268 units. The project cost is estimated to be $14 million. A
definitive construction start date has not been announced.
In the ordinary course of its business, the Company issues letters of intent
indicating a willingness to negotiate for the purchase or sale of multifamily
properties or development land. In accordance with the local real estate market
practice, such letters of intent are non-binding, and neither party to the
letter of intent is obligated to pursue negotiations unless and until a
definitive contract is entered into by the parties. Even if definitive contracts
are entered into, the letters of intent and resulting contracts contemplate that
such contract will provide the purchaser with periods varying from 25 to 90 days
during which it will evaluate the properties and conduct its due diligence and
during which periods the purchaser will have the ability to terminate the
contracts without penalty or forfeiture of any deposit or earnest money. There
can be no assurance that definitive contracts will be entered into with respect
to any properties covered by letters of intent or that the Company will acquire
or sell any property as to which the Company may have entered into a definitive
contract. Further, due diligence periods are frequently extended as needed. An
acquisition or sale becomes probable at the time that the due diligence period
expires and the definitive contract has not been terminated. The Company is then
at risk under an acquisition contract, but only to the extent of any earnest
money deposits associated with the contract, and is obligated to sell under a
sales contract.
The Company is currently in the due diligence period on contracts for the
purchase of land for development or acquisition of properties. No assurance can
be made that the Company will be able to complete the negotiations or become
satisfied with the outcome of the due diligence.
The Company seeks to selectively dispose of assets that are either not in
core markets or that have a lower projected net operating income growth rate
than the overall portfolio. The proceeds from these sales may be reinvested in
acquisitions or developments or used to retire debt. The Company currently has
letters of intent or contracts for the sale of certain properties from potential
unaffiliated buyers. No assurances can be made that these transactions will be
consummated.
- 8 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH ALL OF THE
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS REPORT AS
WELL AS THE AUDITED FINANCIAL STATEMENTS APPEARING IN THE COMPANY'S 1995 ANNUAL
REPORT TO SHAREHOLDERS. WHERE APPROPRIATE, COMPARISONS ARE MADE ON A
DOLLARS-PER-WEIGHTED-AVERAGE-UNIT BASIS IN ORDER TO ADJUST FOR CHANGES IN THE
NUMBER OF UNITS OWNED DURING EACH PERIOD. THE STATEMENTS CONTAINED IN THIS
REPORT THAT ARE NOT HISTORICAL FACTS ARE FORWARD- LOOKING STATEMENTS WITHIN THE
MEANING OF THE SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
INCLUDED IN THE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING:
CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS THAT COULD IMPACT DEMAND
FOR THE COMPANY'S PRODUCT AND CHANGES IN FINANCIAL MARKETS AND INTEREST RATES
IMPACTING THE COMPANY'S ABILITY TO MEET ITS FINANCING NEEDS AND OBLIGATIONS.
Camden Property Trust and its subsidiaries ("Camden" or the "Company") are
engaged in the ownership, development, acquisition, management, marketing and
disposition of multifamily apartment communities in the Southwest and Mountain
regions of the United States. As of June 30, 1996, the Company owned and
operated 50 multifamily properties located in Houston, Dallas/Fort Worth,
Austin, Corpus Christi, El Paso and Tucson. These 50 properties contained 17,593
apartment units and had a weighted average occupancy rate of 94.2% for the
quarter ended June 30, 1996. The Company had three multifamily properties in
Houston and Phoenix which will, when completed, add 1,096 units to its
portfolio, and had three properties on which it intends to develop an estimated
1,010 units.
Camden's real estate portfolio at December 31, 1995 and June 30, 1996 is
summarized as follows:
December 31, 1995 June 30, 1996
-------------------- --------------------
Units Projects %* Units Projects %*
------ ----- --- ------ ----- ---
OPERATING PROPERTIES
Texas
Houston ..................... 6,598 20 33% 7,397 20 37%
Dallas ...................... 6,065 17 30 6,045 17 31
Austin ...................... 1,745 6 9 1,745 6 9
Other ....................... 1,513 5 8 1,585 5 8
------ ----- --- ------ ----- ---
Total Texas Properties ...... 15,921 48 79 16,772 48 85
Arizona ........................ 821 2 4 821 2 4
------ ----- --- ------ ----- ---
Total Operating Properties .. 16,742 50 83 17,593 50 89
------ ----- --- ------ ----- ---
PROJECTS UNDER DEVELOPMENT**
Texas
Houston ..................... 1,226 3 6 710 2 4
Dallas ...................... 920 2 5 464 1 2
Other ....................... 288 1 1 -- -- --
------ ----- --- ------ ----- ---
Total Texas Properties ...... 2,434 6 12 1,174 3 6
Arizona ........................ 716 2 4 716 2 4
Colorado ....................... 216 1 1 216 1 1
------ ----- --- ------ ----- ---
Total Projects Under
Development ............... 3,366 9 17 2,106 6 11
------ ----- --- ------ ----- ---
Total Projects ......... 20,108 59 100% 19,699 56 100%
------ ----- --- ------ ----- ---
- -----------
* Based on units
** The totals for projects under development include three projects
comprising 1,010 units on which construction has not commenced.
- 9 -
At June 30, 1996, the Company had three development properties in various stages
of construction and three properties which it intends to develop as follows:
CONSTRUCTION PROPERTIES
NUMBER BUDGETED ESTIMATED ESTIMATED ESTIMATED
OF COST PERCENT COMPLETION STABILIZATION
PROPERTY AND LOCATION UNITS ($ MILLIONS) COMPLETE DATE DATE
- ------------------------------------------------------------------------------------------
Arrowhead Springs
Phoenix, AZ ....... 288 $ 15.3 25% 1st Qtr., 1997 4th Qtr., 1997
The Park at Sugar Grove
Houston, TX ........ 380 19.1 45% 1st Qtr., 1997 3rd Qtr., 1997
Scottsdale Legacy
Phoenix, AZ ........ 428 29.0 97% 3rd Qtr., 1996 1st Qtr., 1997
----- --------
1,096 $ 63.4
===== ========
Historically, the Company has staged its construction to allow leasing and
occupancy during the construction period thereby minimizing vacancies during
construction and at full completion of the project. The Company's accounting
policy related to properties in the development and leasing phase is that all
operating expenses, excluding depreciation, associated with occupied units are
expensed against revenues generated by those units as they become occupied. All
construction and carrying costs are capitalized and reported on the balance
sheet in "Projects under development, including land" until such units are
completed. Upon completion of each building of the project, the total cost of
that building and the associated land is transferred to "Land" and "Buildings
and improvements" and the assets are depreciated over their estimated useful
lives using the straight-line method of depreciation. Upon achieving 90%
occupancy, or one year from opening the leasing office, whichever occurs first,
all units are considered operating and the Company begins expensing all items
that were previously considered as carrying costs.
FUTURE DEVELOPMENT PROPERTIES*
ESTIMATED ESTIMATED
NUMBER TOTAL PROJECT COST CONSTRUCTION
PROPERTY AND LOCATION OF UNITS ($ MILLIONS) START DATE
- --------------------------------------------------------------------------------
Buckingham
Dallas, TX 464 $24.2 To be determined
Remington
Denver, CO 216 12.6 To be determined
Vanderbilt Square II
Houston, TX 330 22.6 To be determined
----- ------
1,010 $59.4
===== ======
- ------------
* Does not include the proposed 268 units planned for the land acquired
August 1, 1996 located in Fort Worth, Texas.
- 10 -
COMPARISON OF THE QUARTER ENDED JUNE 30, 1996 AND JUNE 30, 1995
The changes in operating results from period to period are primarily due to
the development of four properties and an expansion of an existing property all
aggregating 1,644 units, the acquisition of an adjoining property containing 400
units and the disposition of three properties containing 809 units since June
30, 1995. During the second quarter of 1996, the completion of The Park at
Addison apartments in Dallas added 456 units to the portfolio. The weighted
average number of units for the second quarter of 1996 increased by 1,057 units,
or 6.6%, from 16,117 to 17,174. Total units owned were 17,593 and 16,358 at June
30, 1996 and 1995, respectively. The portfolio had an average occupancy of 94.2%
and 92.8% for the quarter ended June 30, 1996 and 1995, respectively.
The average rental income per unit per month increased $45 or 9.8%, from $459
to $504 for the second quarter of 1995 to 1996, respectively. The increase is
primarily due to 5.6% higher average rental rates from the stabilized real
estate portfolio that existed throughout both periods and higher than average
rental rates achieved on properties added to the portfolio.
Other income remained constant at $1.3 million for the quarters ended June
30, 1995, and 1996. An increase in other income due to a larger number of units
owned and in operation was offset by a decrease in third party construction and
management fee income of $277,000. Construction and management fee income
totaled $48,000 and $325,000 for the quarter ended June 30, 1996 and 1995,
respectively.
Property operating and maintenance expenses and real estate taxes increased
$1.5 million, from $11.3 million to $12.8 million, which represents an annual
increase of $169 per unit. The Company's operating expense ratios decreased
slightly over the prior year primarily as a result of the change in the property
mix due to development. Real estate taxes increased as a result of increases in
valuations of renovated and developed properties and increases in property tax
rates. Operating expenses from the stabilized real estate portfolio in operation
throughout both periods increased 2.5% resulting in an 8.3% increase in net
operating income from these properties.
General and administrative expense increased $186,000 from $1.0 million to
$1.1 million, a rate consistent with the overall increase in revenues.
Interest expense increased 31.3%, from $3.2 million to $4.2 million due to
increased indebtedness related to completed development and renovation costs,
partially offset by reductions in interest rates. Interest capitalized was $1.1
million and $1.3 million for the quarter ended June 30, 1996 and 1995,
respectively.
Depreciation and amortization increased 14.3% to $5.6 million versus $4.9
million in the prior year. This increase was due primarily to developments and
renovations.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
The changes in operating results from period to period are primarily due to
the development of four properties and an expansion of an existing property
containing 1,644 units, the acquisition of an adjoining property containing 400
units and the disposition of three properties containing 809 units since June
30, 1995. During the first six months of 1996, the completion of The Park at
Addison apartments in Dallas, the Vanderbilt apartments in Houston and The
Breakers apartments in Corpus Christi added 1,260 units to the portfolio. During
this same period, the Company disposed of The Madison apartments in Houston (117
units), the Wolfe Run apartments in San Antonio (216 units), and the Collins
Pointe apartments in Dallas (476 units). The weighted average number of units
increased by 1,036 units, or 6.4%, from 16,032 to 17,068 as a result of
acquisitions and development.
- 11 -
The average rental income per unit per month increased $45 or 9.9%, from $454
to $499 for the six months ended June 30, 1995 to 1996, respectively. The
increase is primarily due to 5.6% higher average rental rates from the
stabilized real estate portfolio that existed throughout both periods and higher
than average rental rates achieved on properties added to the portfolio.
Other income increased by 16.8% or $386,000, from $2.3 million to $2.7
million for the six months ended June 30, 1995, and 1996, respectively. The
increase is due to a larger number of units owned and in operation and increased
interest income partially offset by a decrease in third party construction and
management fee income of $145,000. Construction and management fee income
totaled $327,000 and $472,000 for the six months ended June 30, 1996 and 1995,
respectively.
Property operating and maintenance expenses and real estate taxes increased
$3.3 million, from $22.0 million to $25.3 million, which represents an annual
increase of $211 per unit. The Company's operating expense ratios decreased over
the prior year primarily as a result of the change in the property mix due to
development. Real estate taxes increased as a result of increases in valuations
of renovated and developed properties and increases in property tax rates.
Operating expenses from the stabilized real estate portfolio in operation
throughout both periods increased 2.0% resulting in an 8.7% increase in net
operating income from these properties.
General and administrative expense increased $297,000 from $2.0 million to
$2.2 million, a rate consistent with the overall increase in revenues.
Interest expense increased 32.3%, from $6.2 million to $8.2 million due to
increased indebtedness related to completed development and renovation costs,
partially offset by reductions in interest rates. Interest capitalized was $2.5
million and $2.4 million for the six months ended June 30, 1996 and 1995,
respectively.
Depreciation and amortization increased 16.7% to $11.2 million versus $9.6
million in the prior year. This increase was due primarily to developments and
renovations.
LIQUIDITY AND CAPITAL RESOURCES
The Company concentrates its growth efforts toward selective development and
acquisition opportunities in its core markets. During the six months ended June
30, 1996, the Company incurred $28.9 million in development costs and $6.7
million in acquisition costs for new properties. The Company also seeks to
selectively dispose of assets that are either not in core markets or that have a
lower projected net operating income growth rate than the overall portfolio. The
$19.4 million in net proceeds from these sales during the first quarter were
reinvested in acquisitions or developments or used to retire debt.
The Company funds its development and acquisitions through a combination of
equity capital, conventional mortgage loans, construction loans and an unsecured
revolving credit facility of $150 million with six banks (the "Unsecured Credit
Facility"). During the first quarter of 1996, the Company issued from its
previously filed shelf registration statement an aggregate principal amount of
$100 million of five-year senior unsecured notes (the "Notes"). Interest on the
Notes accrues at a rate of 6 5/8% per annum and is payable semi-annually on
February 15 and August 15, commencing on August 15, 1996. The Notes are direct,
senior unsecured obligations of the Company and rank equally with all other
unsecured and unsubordinated indebtedness of the Company from time to time
outstanding. The Notes may be redeemed at any time at the option of the Company
subject to a make whole provision. The net proceeds to the Company from the sale
of the Notes were $98.4 million, net of issuance costs. The Company used the net
proceeds to reduce $93.4 million of indebtedness under the unsecured credit
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facility, to pay $4.9 million arising from the early settlement of hedging
agreements related to the indebtedness repaid and to pay $0.5 million to
extinguish a bank's option related to a settled hedging agreement. At June 30,
1996, a $25 million interest rate hedging agreement remained in effect and is
scheduled to mature in July 2000 with a bank's option to extend to July 2002.
The actual rate on such $25 million of indebtedness is a 6.14% average fixed
rate plus a 150 basis point spread over LIBOR. This swap continues to operate as
a hedge to manage the risk of interest rate fluctuations.
During the first six months of 1996, the Company reduced its interest rate on
its $150 million Unsecured Credit Facility and on $21.6 million of its
construction loans to LIBOR plus 150 basis points or Prime.
On June 12, 1996, the Company declared a second quarter dividend in the
amount of $0.475 per common share. The distributions were payable on July 17,
1996 to shareholders of record as of June 28, 1996. The Company intends to
continue shareholder distributions in accordance with REIT requirements while
maintaining a conservative payout ratio, and expects to continue reducing the
payout ratio by raising the dividends at a rate which is less than the funds
from operations ("FFO") growth rate.
The Company intends to meet its short-term liquidity requirements through
cash flow provided by operations, the Unsecured Credit Facility and construction
loans. The Company intends to use senior unsecured debt (such as the Notes) to
refinance the construction loans and other secured debt and borrowings under the
Unsecured Credit Facility. The Company considers its ability to generate cash to
be sufficient, and expects it to continue to be sufficient to meet future
operating requirements and shareholder distributions.
FUNDS FROM OPERATIONS
Funds from operations for the three months and the six months ended June 30,
1996 increased $0.9 million and $1.9 million, respectively, over the same
periods of 1995, primarily due to properties added to the portfolio and rental
growth in the Company's Dallas and Houston markets. Industry analysts generally
consider FFO an appropriate measure of performance of an equity REIT. FFO is
defined as net income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate depreciation and other non-cash items. The Company
believes that in order to facilitate a clear understanding of the consolidated
historical operating results of the Company, FFO should be examined in
conjunction with net income as presented in the consolidated financial
statements and data included elsewhere in this report. FFO should not be
considered as an alternative to net income as an indication of the Company's
operating performance or to net cash provided by operating activities as a
measure of the Company's liquidity. A calculation of FFO follows (in thousands):
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Quarter Ended Six Months Ended
June 30, June 30,
--------------- -------------------
1996 1995 1996 1995
------ ------ -------- -------
Net income to common shareholders ................. $3,498 $3,099 $ 1,748 $ 6,204
Real estate asset depreciation .................... 5,451 4,667 10,787 9,145
Gain on sales of properties ....................... -- -- (195) --
Extinguishment of hedges upon debt refinancing .... -- -- 5,351 --
------ ------ -------- -------
Funds from operations available to common
shareholders ................................ 8,949 7,766 17,691 15,349
Preferred share dividends ......................... -- 10 4 20
------ ------ -------- -------
Total funds from operations .................... 8,949 7,776 17,695 15,369
Interest on convertible subordinated debentures 756 807 1,563 1,683
Amortization of deferred costs on convertible
debentures ..................................... 80 80 159 166
------ ------ -------- -------
Funds from operations - fully diluted .......... $9,785 $8,663 $ 19,417 $17,218
====== ====== ======== =======
The Company expenses recurring capital expenditures for items such as
carpets, appliances and HVAC units as these items are replaced in their normal
course. During a renovation, many of these items may be capitalized,
particularly to the extent that an inordinate number of such items are replaced.
Non-recurring capital expenditures for such items as roof replacements are
capitalized. During the six months ended June 30, 1996, the Company capitalized
$3.8 million of non-recurring renovations and improvements to extend the
economic lives and enhance its multifamily properties.
The Company seeks to continue to maintain a conservative capital structure
by: (i) targeting a ratio of total debt to total market capitalization of less
than 50%; (ii) extending and sequencing the maturity dates of its debt where
possible; (iii) borrowing at fixed rates; (iv) borrowing on an unsecured basis;
(v) maintaining a substantial number of unencumbered assets; and (vi)
maintaining a conservative debt service coverage ratio. At June 30, 1996, the
Company's ratio of total debt to total market capitalization was approximately
40% (based on the closing price of $23.75 per common share of beneficial
interest, $0.01 par value, of the Company on the New York Stock Exchange
composite tape on June 28, 1996). This ratio represents total consolidated debt
of the Company (excluding the Company's Convertible Debentures due 2001) as a
percentage of the market value of the Company's common shares (including common
shares issuable upon conversion of the Convertible Debentures, but excluding
common shares issuable upon exercise of outstanding options) plus total
consolidated debt (excluding the Convertible Debentures). The interest coverage
ratio was 3.2 times for the second quarter of 1996. At June 30, 1996, 71.6% of
the Company's portfolio (based on the number of units) were unencumbered.
INFLATION
The Company leases apartments under lease terms generally ranging from six to
thirteen months. Management believes that such short-term lease contracts lessen
the impact of inflation due to the ability to adjust rental rates to market
levels as leases expire.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held May 2, 1996.
(c) (1) The Shareholders elected the five Trust Managers nominated by
the Board of Trust Managers:
Broker
AFFIRMATIVE NEGATIVE ABSTENTIONS NON-VOTES
Richard J. Campo 11,065,396 18,750 0 0
D. Keith Oden 11,065,396 18,750 0 0
George A. Hrdlicka 11,065,396 18,750 0 0
F. Gardner Parker 11,065,196 18,950 0 0
Steven A. Webster 11,065,396 18,750 0 0
(2) The Shareholders ratified the appointment of Deloitte & Touche
LLP as independent auditors of the Company for the year ending
December 31, 1996.
Broker
AFFIRMATIVE NEGATIVE ABSTENTIONS NON-VOTES
11,053,100 15,087 15,957 3
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement re Computation of Per Share Earnings
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(b) Reports of Form 8-K
No reports on Form 8-K have been filed by the registrant during
the quarter for which this report is filed.
- 16 -
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.
CAMDEN PROPERTY TRUST
/s/ G. STEVEN DAWSON August 13, 1996
G. Steven Dawson Date
Sr. Vice President of Finance,
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
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