22
EXHIBIT 13.1
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with all of the
financial statements and notes appearing elsewhere in this report. Historical
results and trends which might appear should not be taken as indicative of
future operations.
We have made statements in this report that are "forward-looking" in that
they do not discuss historical fact, but instead note future expectations,
projections, intentions or other items relating to the future. You should not
rely on these forward-looking statements because they are subject to known and
unknown risks, uncertainties and other factors that may cause our actual results
or performance to differ materially from those contemplated by the
forward-looking statements. Many of those factors are noted in conjunction with
the forward-looking statements in the text. Other important factors that could
cause actual results to differ include:
the results of our efforts to implement our property development strategy;
the effect of economic and market conditions;
our failure to qualify as a real estate investment trust;
our cost of capital;
the actions of our competitors and our ability to respond to those actions;
changes in government regulations, tax rates and similar matters; and
environmental uncertainties and natural disasters.
Do not rely on these forward-looking statements, which only represent our
estimates and assumptions as of the date of this report. We assume no obligation
to update or revise any forward-looking statement.
Business
Camden Property Trust is a real estate investment trust and, with our
subsidiaries, reports as a single business segment. As of December 31, 2000, we
owned interests in, operated or were developing 148 multifamily properties
containing 52,874 apartment homes located in nine states. Our properties,
excluding properties in lease-up and under development, had a weighted average
occupancy rate of 94% for the year ended December 31, 2000. This represents the
average occupancy for all our properties in 2000 weighted by the number of
apartment homes in each property. Three of our multifamily properties containing
1,538 apartment homes were under development at December 31, 2000. Additionally,
we have several sites which we intend to develop into multifamily apartment
communities.
On April 8, 1998, we acquired, through a tax-free merger, Oasis
Residential, Inc., a publicly traded Las Vegas-based multifamily REIT. Through
this acquisition, we acquired 52 completed multifamily properties and 15,514
apartment homes. Each share of Oasis common stock outstanding on April 8, 1998
was exchanged for 0.759 of a Camden common share. Each share of Oasis Series A
cumulative convertible preferred stock outstanding on April 8, 1998 was
exchanged for one Camden Series A cumulative convertible preferred share with
terms and conditions comparable to the Oasis preferred stock. We issued 12.4
million common shares and 4.2 million preferred shares in exchange for the
outstanding Oasis common and preferred stock, respectively. We assumed
approximately $484 million of Oasis debt, at fair value in the merger. The
accompanying consolidated financial statements include the operations of Oasis
since April 1, 1998, the effective date of the Oasis merger for accounting
purposes.
23
In connection with the merger with Oasis, on June 30, 1998, we completed a
transaction in which Camden USA, Inc., one of our wholly owned subsidiaries, and
TMT-Nevada, L.L.C., a Delaware limited liability company, formed Sierra-Nevada
Multifamily Investments, LLC. We entered into this transaction to reduce our
market risk in the Las Vegas area. TMT-Nevada holds an 80% interest in
Sierra-Nevada and Camden USA holds the remaining 20% interest.
In the above transaction, we transferred to Sierra-Nevada 19 apartment
communities containing 5,119 apartment homes for an aggregate of $248 million.
Prior to the merger, Oasis owned 100% of each of these communities. In the
merger, Camden USA acquired these communities. As a result, after the merger and
prior to the Sierra-Nevada transaction, Camden USA owned 100% of each of these
19 properties which are located in Las Vegas, Nevada. This transaction was
funded with capital invested by the members of Sierra-Nevada, the assumption of
$9.9 million of existing nonrecourse indebtedness, the issuance of 17
nonrecourse cross collateralized and cross defaulted loans totaling $180 million
and the issuance of two nonrecourse second lien mortgages totaling $7 million.
Property Update
During 2000, we completed construction on the following four development
properties totaling 1,474 apartment homes: The Park at Caley in Denver, The Park
at Lee Vista in Orlando, The Park at Oxmoor in Louisville, and The Park at
Arizona Center in Phoenix. We also completed the construction of an additional
151 apartment homes at Miramar, an existing operating property located in Corpus
Christi, Texas. Stabilization occurred during 2000 at The Park at Caley, The
Park at Holly Springs and The Park at Greenway, both of which are located in
Houston, The Park at Goose Creek in Baytown, Texas and for the new units at
Miramar. We consider a property stabilized once it reaches 90% occupancy, or
generally one year from opening the leasing office, with some allowances for
larger than average properties. We expect stabilization to occur at the
remaining development properties during 2001. Additionally, construction
continued at two properties: The Park at Farmers Market in Dallas and The Park
at Crown Valley in Mission Viejo, California, both of which have begun leasing;
and we began construction on Camden Harbour View, a 538-unit property located in
Long Beach, California.
Dispositions during the year included eleven properties containing 3,599
apartment homes, a mini-storage facility located in Las Vegas and four parcels
of undeveloped land. Of the eleven properties sold, three were located in each
of Houston, Dallas and Las Vegas, and one was located in each of St. Louis and
El Paso. As a result of these sales, we have exited the El Paso market, reduced
the number of assets in our three largest markets and believe that we have
improved the overall quality and geographic mix of our portfolio. The land sales
consisted of two parcels totaling 2.9 acres located in downtown Dallas and one
parcel totaling 38.5 acres located in Houston. These parcels of land are
adjacent to our land development projects located in those cities, and were sold
for commercial and retail use. Additionally, we sold a 19.5 acre tract of land
located in Las Vegas which we acquired in our merger with Oasis. We used the net
proceeds from these dispositions, totaling $150.1 million, to reduce
indebtedness outstanding under our unsecured line of credit.
24
Our multifamily property portfolio, excluding land we hold for future
development and joint venture properties we do not manage, at December 31, 2000,
1999 and 1998 is summarized as follows:
2000 1999 1998
------------------------- ------------------------- --------------------------
Apartment Apartment Apartment
Homes Properties Homes Properties Homes Properties
----------- ------------- ------------ ------------ ------------- ------------
Operating Properties
Texas
Houston 7,190 16 8,258 19 6,345 15
Dallas (a) 8,447 23 9,381 26 9,381 26
Austin 1,745 6 1,745 6 1,745 6
Other 1,663 4 1,641 5 1,641 5
------------- --------- ------------- --------- ------------- ---------
Total Texas Operating Properties 19,045 49 21,025 56 19,112 52
Arizona 2,658 8 2,326 7 2,326 7
California 1,272 3 1,272 3 1,272 3
Colorado (a) 2,529 8 2,312 7 1,972 6
Florida (b) 7,827 17 7,335 17 7,261 17
Kentucky 1,448 5 1,016 4 1,142 5
Missouri 2,719 7 3,327 8 3,327 8
Nevada (a) 11,103 38 11,963 41 12,163 41
North Carolina (a) 2,735 10 2,735 10 2,735 10
------------- --------- ------------- --------- ------------- ---------
Total Operating Properties 51,336 145 53,311 153 51,310 149
------------- --------- ------------- --------- ------------- ---------
Properties Under Development
Texas
Houston (c) 2,213 5
Dallas 620 1 620 1 600 1
Arizona 332 1 325 1
California 918 2 380 1 380 1
Colorado 218 1 558 2
Florida (c) 492 1 1,150 3
Kentucky 432 1 432 1
------------- --------- ------------- --------- ------------- ---------
Total Properties Under Development 1,538 3 2,474 6 5,658 14
------------- --------- ------------- --------- ------------- ---------
Total Properties 52,874 148 55,785 159 56,968 163
========= ========= =========
Less: Joint Venture
Apartment Homes (a) 6,503 6,504 6,704
------------- ------------- -------------
Total Apartment Homes
- Owned 100% 46,371 49,281 50,264
============= ============= =============
(a) The figures include properties held in joint ventures as follows: one
property with 708 apartment homes in Dallas and two properties with 556
apartment homes in North Carolina in which we own a 44% interest, the
remaining interest is owned by unaffiliated private investors; one
property with 320 apartment homes (321 apartment homes at December 31,
1999 and 1998) in Colorado in which we own a 50% interest, the remaining
interest is owned by an unaffiliated private investor; and 19 properties
with 4,919 apartment homes (5,119 apartment homes at December 31, 1998) in
Nevada owned through Sierra-Nevada Multifamily Investments, LLC in which
we own a 20% interest.
(b) Includes the combination of operations at January 1, 2000 of two adjacent
properties.
(c) The 2000 and 1999 figures exclude two properties classified as Properties
Under Development at December 31, 1998 as follows: one property with 300
apartment homes in Houston which is now classified as land held for future
development, and one property with 352 apartment homes in Florida which
was sold during 1999.
25
At December 31, 2000, we had three completed properties in lease-up as
follows:
Product Number of % Leased Estimated
Type Apartment at 3/16/01 Date of Date of
Property and Location Homes Completion Stabilization
- -------------------------------------- ------------ --------------- ------------- -------------- -----------------
The Park at Oxmoor Garden 432 86% 1Q00 1Q01
Louisville, KY
The Park at Lee Vista Garden 492 92% 1Q00 1Q01
Orlando, FL
The Park at Arizona Center 70% 1Q00 3Q01
Phoenix, AZ Urban 332
At December 31, 2000, we had three development properties in various
stages of construction as follows:
Product Number of Estimated Estimated Estimated
Type Apartment Cost Date of Date of
Property and Location Homes ($ millions)* Completion Stabilization
- ------------------------------------------- ----------------- ----------- ---------------- ------------ -----------------
In Lease-Up
The Park at Farmers Market, Phase I Urban 620 $ 59.9 1Q01 4Q01
Dallas, TX
The Park at Crown Valley Garden 380 58.5 2Q01 4Q01
Mission Viejo, CA
Under Construction
Camden Harbour View Urban 538 120.0 2Q03 2Q04
Long Beach, CA
---------- -----------
Total development properties 1,538 $ 238.4
========== ===========
*As of December 31, 2000, we had incurred $123.5 million of the estimated
$238.4 million.
Properties under development in our consolidated financial statements
includes $101.9 million related to the development of three urban land projects
located in Dallas, Houston and Long Beach, California. Of this amount, $47.2
million relates to two of our current development projects - The Park at Farmers
Market in Dallas and Camden Harbour View in Long Beach. We have an additional
$22.3 million invested in Dallas, which we may use for the future development of
Farmers Market, Phase II, and we are also in the construction phase of for-sale
townhomes in this area. We have $32.4 million invested in additional land under
development in Houston and Long Beach. We are currently in the planning phase
with respect to these properties to determine whether to further develop
apartment homes in these areas. We may also sell certain parcels of all three
properties to third parties for commercial and retail development.
26
Our multifamily property portfolio is diversified throughout markets in the
Southwest, Southeast, Midwest and Western regions of the United States. At
December 31, 2000 and 1999, our investment in various geographic areas,
excluding investment in joint ventures, was as follows:
(Dollars in thousands)
2000 1999
------------------- --------------------
Texas
Houston $ 379,036 14% $ 402,997 15%
Dallas 388,212 15 393,223 15
Austin 70,244 3 69,162 3
Other 59,143 2 59,200 2
------------- ----- ------------ -------
Total Texas Properties 896,635 34 924,582 35
------------- ----- ------------ -------
Arizona 155,225 6 148,871 6
California 212,785 8 177,394 7
Colorado 188,507 7 184,798 7
Florida 401,748 15 393,569 15
Kentucky 74,595 3 69,322 3
Missouri 149,593 6 172,454 6
Nevada 448,670 17 491,226 18
North Carolina 95,971 4 93,949 3
------------- ----- ------------ -------
Total Properties $ 2,623,729 100% $ 2,656,165 100%
============= ===== ============ =======
Beginning in 1999, we entered into agreements with unaffiliated third
parties to develop, construct and manage nine multifamily projects in five
states containing a total of 3,112 apartment homes. We are providing financing
for a portion of each project in the form of notes receivable which mature
through 2005. These notes earn interest at 10% annually and are secured by
second liens on the assets and partial guarantees by the third party owners. At
December 31, 2000 and 1999, these notes had principal balances totaling $72.9
million and $28.1 million, respectively. We anticipate funding up to an
aggregate of $110 million in connection with these projects. We expect these
notes to be repaid from operating cash flow or proceeds from the sale of the
individual properties. We have begun construction on four of these projects, and
initial occupancy has begun on three of the projects. We have the option to
purchase these properties in the future at a price to be determined based upon
the property's performance and an agreed valuation model.
Liquidity and Capital Resources
Financial Structure
We intend to continue maintaining what management believes to be a
conservative capital structure by:
(i) using what management believes is a prudent combination of debt
and common and preferred equity;
(ii) extending and sequencing the maturity dates of our debt where
possible;
(iii) managing interest rate exposure using fixed rate debt and hedging
where management believes it is appropriate;
(iv) borrowing on an unsecured basis in order to maintain a
substantial number of unencumbered assets; and
(v) maintaining conservative coverage ratios.
The interest expense coverage ratio, net of capitalized interest, was 3.4
and 3.7 times for the years ended December 31, 2000 and 1999, respectively. At
December 31, 2000 and 1999, 75.6% and 76.0%, respectively, of our real estate
assets (based on invested capital) were unencumbered.
27
Liquidity
We intend to meet our short-term liquidity requirements through cash flows
provided by operations, our unsecured line of credit discussed in the "Financial
Flexibility" section and other short-term borrowings. We expect that our ability
to generate cash will be sufficient to meet our short-term liquidity needs,
which include:
(i) normal operating expenses;
(ii) current debt service requirements;
(iii) recurring capital expenditures;
(iv) property development; and
(v) distributions on our common and preferred equity.
We consider our long-term liquidity requirements to be the repayment of
maturing debt and borrowings under our unsecured line of credit and funding of
acquisitions. We intend to meet our long-term liquidity requirements through the
use of common and preferred equity capital, senior unsecured debt and property
dispositions.
We intend to concentrate our growth efforts toward selective development
and acquisition opportunities in our current markets, and through the
acquisition of existing operating and development properties in selected new
markets. During the year ended December 31, 2000, we incurred $94.4 million in
development costs and no acquisition costs. We are developing three additional
properties at an aggregate cost of approximately $238.4 million of which we
incurred $68.1 million during 2000. Remaining costs on these three properties,
at December 31, 2000, totaled approximately $ 114.9 million. At year end, we
were obligated for approximately $13 million under construction contracts (a
substantial amount of which we expect to fund by debt). We intend to fund our
developments and acquisitions through a combination of equity capital,
partnership units, medium-term notes, construction loans, other debt securities
and the unsecured line of credit. We also seek to selectively dispose of assets
that management believes have a lower projected net operating income growth rate
than the overall portfolio, or no longer conform to our operating and investment
strategies. Additionally, over the next three years, we will continue
rebalancing our portfolio with the goal of limiting any one market to no more
than 12% of total real estate assets. Such sales may generate capital for
acquisitions and new developments or for debt reduction.
Dispositions during the year included eleven properties containing 3,599
apartment homes, a mini-storage facility located in Las Vegas and four parcels
of undeveloped land. Of the eleven properties sold, three were located in each
of Houston, Dallas and Las Vegas, and one was located in each of St. Louis and
El Paso. The land sales consisted of two parcels totaling 2.9 acres located in
downtown Dallas and one parcel totaling 38.5 acres located in Houston.
Additionally, we sold a 19.5 acre tract of land located in Las Vegas which we
acquired in our merger with Oasis. We used the net proceeds from these
dispositions, totaling $150.1 million, to reduce indebtedness outstanding under
our unsecured line of credit.
During 2000, we invested approximately $750,000 into BroadBand Residential
Inc., a multi-unit owner-sponsored broadband company providing high-speed data
services to multi-family residents, and invested approximately $2.1 million in
Viva Group, Inc., an internet based company that provides online owner-renter
matching services for the multi-family housing industry. Our investment in
Broadband Residential is recorded using the equity method, and our investment in
Viva is recorded at cost. Both of these investments are recorded in other assets
in our consolidated financial statements. Additionally, we have signed a
commitment to invest up to $3.5 million with a consortium of real estate and
technology companies which intends to pursue a broad range of real estate
technology initiatives and opportunities. All of these investments were made
along with other multi-family real estate owners. Subsequent to yearend, we
28
committed an additional $1.8 million to BroadBand Residential which will be
funded through a note receivable, of which we have funded approximately
$600,000.
Net cash provided by operating activities totaled $163.8 million for 2000
compared to $164.0 million for 1999. This slight decrease was attributable to a
$20.4 million increase in net operating income from the real estate portfolio
for 2000 as compared to 1999, offset by a $11.1 million increase in interest
expense and a $4.6 million increase in distributions on units convertible into
perpetual preferred shares. Net operating income represents total property
revenues less property operating and maintenance expenses, including real estate
taxes. Also during the year, other assets increased $9.2 million.
Net cash used in investing activities totaled $13.1 million for the year
ended 2000 compared to $220.6 million in 1999. Total real estate assets, before
accumulated depreciation, decreased $31.7 million for 2000 as a result of
property sales in excess of property additions, compared to an increase of
$190.1 million during 1999. Net cash flows used in investing activities during
2000 included $150.1 million in net proceeds received from property
dispositions. This increase in cash was offset by expenditures for property
development and capital improvements totaling $94.4 million and $27.9 million,
respectively for the year. For the year ended 1999, expenditures for property
development and capital improvements were $188.5 million and $33.4 million,
respectively. Additionally, we received $13.2 million in net proceeds from
property dispositions during 1999.
Net cash used in financing activities totaled $151.3 million for the year
ended 2000 compared to net cash provided by financing activities of $56.4
million for 1999. During 2000, we paid distributions totaling $112.9 million,
repaid notes payable totaling $107.4 million and repurchased $31.2 million in
common shares and units convertible into common shares. These payments were
offset by the issuances of $17.5 million of preferred units, which are discussed
in the "Financial Flexibility" section, and an increase in borrowings under our
line of credit of $80.0 million. For the year ended 1999, we paid distributions
totaling $108.3 million and repurchased $128.9 million common shares and units
convertible into common shares. Additionally, during the year ended 1999, we
issued $135.5 million of preferred units and $254.5 million of senior unsecured
notes. The proceeds from these issuances were used to pay down borrowings under
our line of credit, which decreased $66.0 million during 1999.
In 1998, we began repurchasing our securities under a program approved by
our Board of Trust Managers. The plan allows us to repurchase or redeem up to
$200 million of our securities through open market purchases and private
transactions. Management consummates these repurchases and redemptions at the
time when they believe that we can reinvest available cash flow into our own
securities at yields which exceed those currently available on direct real
estate investments. These repurchases were made and we expect that future
repurchases, if any, will be made without incurring additional debt and, in
management's opinion, without reducing our financial flexibility. At December
31, 2000, we had repurchased approximately 6.9 million common shares and
redeemed approximately 106,000 units at a total cost of $180.9 million.
On January 17, 2001, we paid a distribution of $0.5625 per share for the
fourth quarter of 2000 to all holders of record of our common shares as of
December 18, 2000, and paid an equivalent amount per unit to holders of common
limited partnership units in Camden Operating, L.P. Total distributions to
common shareholders and holders of common operating partnership units for the
year ended December 31, 2000 were $2.25 per share or unit. We determine the
amount of cash available for distribution to unitholders in accordance with the
partnership agreements and have made and intend to continue to make
distributions to the holders of common operating partnership units in amounts
equivalent to the per share distributions paid to holders of common shares. We
intend to continue to make shareholder distributions in accordance with REIT
qualification requirements under the federal tax code while maintaining what
29
management believes to be a conservative payout ratio, and expect to continue
reducing the payout ratio. The dividend payout ratio was 64% and 65% for the
years ended December 31, 2000 and 1999, respectively.
On February 15, 2001, we paid a quarterly dividend on our preferred shares
of $0.5625 per share to all preferred shareholders of record as of December 18,
2000. Total dividends to holders of preferred shares for the year ended December
31, 2000 were $2.25 per share.
In 1999, our operating partnership issued $100 million of 8.5% Series B
Cumulative Redeemable Perpetual Preferred Units. Also during 1999 and 2000, our
operating partnership issued $53 million of 8.25% Series C Cumulative Redeemable
Perpetual Preferred Units. Distributions on the preferred units are payable
quarterly in arrears. The preferred units are redeemable for cash by the
operating partnership on or after the fifth anniversary of issuance at par plus
the amount of any accumulated and unpaid distributions. The preferred units are
convertible after 10 years by the holder into corresponding Cumulative
Redeemable Perpetual Preferred Shares. The preferred units are subordinate to
present and future debt. Distributions on the preferred units totaled $12.8
million for the year ended December 31, 2000.
Financial Flexibility
During the third quarter of 2000, our line of credit, which was entered
into in August 1999 with 14 banks for a total commitment of $375 million, was
increased to $400 million and the maturity was extended to August 2003. The
scheduled interest rate is currently based on a spread over LIBOR or Prime. The
scheduled interest rates are subject to change as our credit ratings change.
Advances under the line of credit may be priced at the scheduled rates, or we
may enter into bid rate loans with participating banks at rates below the
scheduled rates. These bid rate loans have terms of six months or less and may
not exceed the lesser of $200 million or the remaining amount available under
the line of credit. The line of credit is subject to customary financial
covenants and limitations. At year end, we were in compliance with all covenants
and limitations.
As an alternative to our unsecured line of credit, we from time to time
borrow using competitively bid unsecured short-term notes with lenders who may
or may not be a part of the unsecured line of credit bank group. Such borrowings
vary in term and pricing and are typically priced at interest rates below those
available under the unsecured line of credit.
As of December 31, 2000, we had $204 million available under the unsecured
line of credit. During January 2000, we combined our three outstanding shelf
registrations into a single $750 million universal shelf registration, all of
which was available at year end. The shelf registration allows us to issue up to
$750 million in debt securities and common and preferred equity securities. We
have significant unencumbered real estate assets which could be sold or used as
collateral for financing purposes should other sources of capital not be
available.
Subsequent to year end, we issued from our $750 million shelf registration
an aggregate principal amount of $50 million of 7% five-year senior unsecured
notes maturing on February 15, 2006 and $150 million of 7.625% ten-year senior
unsecured notes maturing on February 15, 2011. Interest on the notes is payable
semiannually on February 15 and August 15, commencing on August 15, 2001. We may
redeem the notes at any time at a redemption price equal to the principal amount
and accrued interest, plus a make-whole provision. The notes are direct, senior
unsecured obligations and rank equally with all other unsecured and
unsubordinated indebtedness. The proceeds from the sale of the notes were $197.8
million, net of issuance costs. We used the net proceeds to reduce indebtedness
outstanding under the unsecured line of credit.
30
Market Risk
We use fixed and floating rate debt to finance acquisitions, developments
and maturing debt. These transactions expose us to market risk related to
changes in interest rates. Management's policy is to review our borrowings and
attempt to mitigate interest rate exposure through the use of derivative
instruments. Our policy regarding the use of derivative financial instruments in
managing market risk exposures is consistent with the prior year and is not
expected to change in future years. We do not use derivative financial
instruments for trading or speculative purposes. As of December 31, 2000, we had
no derivative instruments outstanding.
For fixed rate debt, interest rate changes affect the fair market value but
do not impact net income to common shareholders or cash flows. Conversely, for
floating rate debt, interest rate changes generally do not affect the fair
market value but do impact net income to common shareholders and cash flows,
assuming other factors are held constant.
At December 31, 2000, we had fixed rate debt of $879.5 million and floating
rate debt of $258.6 million. Holding other variables constant (such as debt
levels), a one percentage point variance in interest rates would change the
unrealized fair market value of the fixed rate debt by approximately $27.6
million. The net income to common shareholders and cash flows impact on the next
year resulting from a one percentage point variance in interest rates on
floating rate debt would be approximately $2.6 million, holding all other
variables constant.
Funds from Operations
Management considers FFO to be an appropriate measure of performance of an
equity REIT. The National Association of Real Estate Investment Trusts currently
defines FFO 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 amortization, and after
adjustments for unconsolidated partnerships and joint ventures. Our definition
of diluted FFO also assumes conversion at the beginning of the period of all
dilutive convertible securities, including minority interest, which are
convertible into common equity.
We believe that in order to facilitate a clear understanding of our
consolidated historical operating results, FFO should be examined in conjunction
with net income as presented in the consolidated financial statements and data
included elsewhere in this report. FFO is not defined by generally accepted
accounting principles. FFO should not be considered as an alternative to net
income as an indication of our operating performance or to net cash provided by
operating activities as a measure of our liquidity. Further, FFO as disclosed by
other REIT's may not be comparable to our calculation. Our diluted FFO for the
year ended December 31, 2000 increased $3.9 million over 1999. On a per share
basis, diluted FFO for 2000 increased 9.4% over 1999. This increase in diluted
FFO was due to a $20.4 million increase in net operating income from our real
estate portfolio, offset by an increase in interest on debt which was used to
fund developments and repurchase shares under our securities repurchase program,
and an increase in distributions on units convertible into perpetual preferred
shares.
31
The calculation of basic and diluted FFO for the years ended December 31,
2000 and 1999 follows:
(In thousands)
2000 1999
---------- ----------
Funds from operations
Net income to common shareholders $ 65,053 $ 52,252
Real estate depreciation 94,277 87,491
Real estate depreciation from unconsolidated ventures 3,238 3,198
Loss on sale of property held in unconsolidated ventures 738
Gain on sales of properties and joint venture interests (18,323) (2,979)
---------- ----------
Funds from operations - basic 144,245 140,700
Preferred share dividends 9,371 9,371
Income allocated to units convertible into common shares 2,461 2,014
Interest on convertible subordinated debentures 177 258
Amortization of deferred costs on convertible debentures 20 26
---------- ----------
Funds from operations - diluted $ 156,274 $ 152,369
========== ==========
Weighted average shares - basic 38,112 41,236
Common share options and awards granted 729 431
Preferred shares 3,207 3,207
Minority interest units 2,547 2,624
Convertible subordinated debentures 105 146
---------- ----------
Weighted average shares - diluted 44,700 47,644
========== ==========
Results of Operations
Changes in revenues and expenses related to the operating properties from
period to period are primarily due to property acquisitions, including the Oasis
merger during 1998, developments, dispositions and improvements in the
performance of the stabilized properties in the portfolio. Where appropriate,
comparisons are made on a dollars-per-weighted-average-apartment homes basis in
order to adjust for such changes in the number of apartment homes owned during
each period. Selected weighted average revenues and expenses per operating
apartment home for the three years ended December 31, 2000 are as follows:
2000 1999 1998
------------ ----------- ------------
Rental income per apartment home per month $ 653 $ 623 $ 591
Property operating and maintenance per apartment home per year $ 2,424 $ 2,367 $ 2,290
Real estate taxes per apartment home per year $ 840 $ 798 $ 742
Weighted average number of operating apartment homes 46,501 45,606 42,411
2000 Compared to 1999
Earnings before interest, depreciation and amortization increased $21.1
million, or 9.8%, from $216.3 million to $237.4 million for the years ended
December 31, 1999 and 2000, respectively. The weighted average number of
apartment homes increased by 895 apartment homes, or 1.9%, from 45,606 to 46,501
for the years ended December 31, 1999 and 2000, respectively. Total operating
properties were 122 and 130 at December 31, 2000 and 1999, respectively. The
weighted average number of apartment homes and the operating properties exclude
the impact of our ownership interest in properties owned in joint ventures.
Our apartment communities generate rental revenue and other income through
the leasing of apartment homes. Revenues from our rental operations comprised
97%and 98% of our total revenues for the years ended December 31, 2000 and 1999,
32
respectively. Our primary financial focus for our apartment communities is net
operating income. Net operating income represents total property revenues less
property operating and maintenance expenses, including real estate taxes. Net
operating income increased $20.4 million, or 9.3%, from $218.9 million to $239.4
million for the years ended December 31, 1999 and 2000, respectively.
Rental income for the year ended December 31, 2000 increased $22.9 million,
or 6.7% over the year ended December 31, 1999. Rental income per apartment home
per month increased $30, or 4.8%, from $623 to $653 for the years ended December
31, 1999 and 2000, respectively. The increase was primarily due to increased
revenue growth from the stabilized real estate portfolio and higher average
rental rates on the completed development properties. Additionally, overall
average occupancy increased from 93.4% for the year ended December 31, 1999 to
94.0% for the year ended December 31, 2000.
Other property income increased $4.9 million from $22.1 million to $27.0
million for the years ended December 31, 1999 and 2000, respectively, which
represents a monthly increase of $8 per apartment home. This increase in other
property income was primarily due to increases from revenue sources such as
telephone, cable and water.
Other income increased $3.9 million from $1.9 million to $5.8 million for
the years ended December 31, 1999 and 2000, respectively. This increase was
primarily due to interest earned on our notes receivable which increased $38.5
million during the year.
Property operating and maintenance expenses increased $4.8 million or 4.4%,
from $108.0 million to $112.7 million, but decreased as a percent of total
property income from 29.7% to 28.8%, for the years ended December 31, 1999 and
2000, respectively. The increase in operating expense was due to a larger number
of apartment homes in operation and an increase in salary and benefit expenses
per unit. Our operating expense ratios decreased primarily as a result of
operating efficiencies generated by our newly developed properties.
Real estate taxes increased $2.6 million from $36.4 million to $39.1
million for the years ended December 31, 1999 and 2000, respectively, which
represents an annual increase of $42 per apartment home. The increase was
primarily due to increases in the valuations of renovated and developed
properties and increases in property tax rates.
General and administrative expenses increased $3.7 million, from $10.6
million in 1999 to $14.3 million in 2000, and increased as a percent of revenues
from 2.9% to 3.6%. The increase was primarily due to increases in
incentive-based compensation expense, including the vesting of previously issued
and outstanding restricted performance-based compensation awards related to
successful implementation of our land development strategy, and expenses related
to our information technology initiatives. Excluding the vesting of the
restricted awards associated with the land sales, the general and administrative
expense percentage would have been 3.0% of revenues for the year ended December
31, 2000.
Interest expense increased from $57.9 million in 1999 to $69.0 million in
2000 primarily due to interest on debt incurred to fund new development and
repurchase securities under our repurchase program. Interest capitalized was
$15.3 million and $16.4 million for the years ended December 31, 2000 and 1999,
respectively.
Depreciation and amortization increased from $89.5 million to $97.0
million. This increase was due primarily to the completion of new development
and capital expenditures over the past two years, partially offset by property
dispositions.
33
Gains on sales of properties for the year ended December 31, 2000 totaled
$18.3 million due to the sale of eleven properties containing a total of 3,599
apartment homes. Also included in the gain is the sale of a mini-storage
facility in Las Vegas and the sale of approximately 61 acres of undeveloped land
located in Las Vegas, Dallas and Houston. Gains on sales of properties for the
year ended December 31, 1999 totaled $3.0 million due to the sale of two
multifamily properties containing 358 units and the sale of our investment in
two commercial office buildings. The gains recorded on these 1999 dispositions
were partially offset by a loss on the sale of a retail/commercial center. The
gains in 1999 do not include a loss on the sale of a 408 unit property held in a
joint venture of $738,000 which is included in "Equity in income of joint
ventures."
Distributions on units convertible into perpetual preferred shares
increased $4.6 million, from $8.3 million for the year ended December 31, 1999
to $12.8 million for the year ended December 31, 2000. This increase is
attributable to our issuances of perpetual preferred units during 1999 and 2000
as follows: $100 million in February 1999; $35.5 million in August and September
of 1999; and $17.5 million in January 2000.
1999 Compared to 1998
Earnings before interest, depreciation and amortization increased $29.1
million, or 15.5%, from $187.2 million to $216.3 million for the years ended
December 31, 1998 and 1999, respectively. The weighted average number of
apartment homes increased by 3,195 apartment homes, or 7.5%, from 42,411 to
45,606 for the years ended December 31, 1998 and 1999, respectively. Total
operating properties were 126 and 130 at December 31, 1998 and 1999,
respectively. The weighted average number of apartment homes and the operating
properties exclude the impact of our ownership interest in operating properties
and apartment homes owned in joint ventures.
Our apartment communities generate rental revenue and other income through
the leasing of apartment homes. Revenues from our rental operations comprised
98% of our total revenues for the years ended December 31, 1999 and 1998. Our
primary financial focus for our apartment communities is net operating income.
Net operating income represents total property revenues less property operating
and maintenance expenses, including real estate taxes. Net operating income
increased $28.8 million, or 15.2%, from $190.1 million to $218.9 million for the
years ended December 31, 1998 and 1999, respectively.
Rental income per apartment home per month increased $32, or 5.4%, from
$591 to $623 for the years ended December 31, 1998 and 1999, respectively. The
increase was primarily due to a 3.0% increase in revenues from the stabilized
real estate portfolio, higher average rental rates on properties added to the
portfolio through the Oasis merger and on four of the five acquired properties,
and the completion of new development properties with higher average rental
rates. Additionally, seven of the eight disposed properties had average rental
rates significantly lower than the portfolio average.
Other property income increased $4.1 million from $18.1 million to $22.1
million for the years ended December 31, 1998 and 1999, respectively, which
represents a monthly increase of $4 per apartment home. This increase in other
property income was primarily due to a larger number of apartment homes owned
and in operation and a $2.7 million increase from revenue sources such as
telephone, cable and water.
Fee and asset management income increased $3.8 million from $1.6 million to
$5.4 million for the years ended December 31, 1998 and 1999, respectively. This
increase is primarily due to fees generated from the construction and renovation
of multifamily properties for third parties.
34
Property operating and maintenance expenses increased $10.8 million, from
$97.1 million to $108.0 million, but decreased as a percent of total property
income from 30.5% to 29.7% for the years ended December 31, 1998 and 1999,
respectively. Our operating expense ratio decreased from the prior year
primarily as a result of our continued focus on creating operating efficiencies
in the stabilized portfolio, and the impact of our April 1, 1998 adoption of a
new accounting policy, whereby expenditures for floor coverings, appliances and
HVAC unit replacements are expensed in the first five years of a property's life
and capitalized thereafter. Prior to the adoption of this policy, we had been
expensing these costs. Had this policy change been adopted as of January 1,
1998, the operating expense ratio would have been 30.1%.
Real estate taxes increased $4.9 million from $31.5 million to $36.4
million for the years ended December 31, 1998 and 1999, respectively, which
represents an annual increase of $56 per apartment home. Real estate taxes per
apartment home have increased due to increases in the valuations of renovated,
acquired and developed properties and increases in property tax rates. This
increase per apartment home was partially offset by lower property taxes in the
portfolio added through the Oasis merger.
General and administrative expenses increased from $8.0 million in 1998 to
$10.6 million in 1999, and increased as a percent of revenues from 2.5% to 2.9%.
The general and administrative expense ratio increase is primarily attributable
to the impact of our March 20, 1998 adoption of Issue No. 97-11, "Accounting for
Internal Costs Relating to Real Estate Property Acquisitions", which required
certain costs that were previously capitalized to be expensed, an increase in
compensation costs and additional expenses associated with training and
information systems functions.
Interest expense increased from $50.5 million in 1998 to $57.9 million in
1999 primarily due to increased indebtedness related to the Oasis merger,
completed developments, renovations and property acquisitions. Additionally, the
average interest rate on our debt increased slightly from 7.1% for 1998 to 7.2%
for the year ended 1999. Interest capitalized was $16.4 million and $9.9 million
for the years ended December 31, 1999 and 1998, respectively.
Depreciation and amortization increased from $78.1 million to $89.5
million. This increase was due primarily to the Oasis merger, developments,
renovations and property acquisitions.
Gains on sales of properties and joint venture interests increased $3.0
million due to gains from the disposition of two multifamily properties
containing 358 units and the sale of our joint venture investment in two
commercial office buildings. The gains recorded on these dispositions were
partially offset by a loss on the sale of a retail/commercial center. These
gains do not include a loss on the sale of a 408 unit property held in a joint
venture of $738,000 which is included in "Equity in income of joint ventures."
Inflation
We lease 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.
Impact of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which is effective for all
fiscal years beginning after June 15, 2000. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS No. 133, certain contracts that were not formerly
35
considered derivatives may now meet the definition of a derivative. We have
adopted SFAS No. 133 effective January 1, 2001. The adoption of SFAS No. 133 did
not have a material impact on our financial position, results of operations, or
cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on
revenue recognition as well as the presentation and disclosure of revenue in
financial statements for all public companies. Our rental and other property
income is recorded when due from residents and is recognized monthly as it is
earned. Our apartment homes are rented to residents on lease terms generally
ranging from six to thirteen months, with monthly payments due in advance. We
are currently following the criteria set forth in SAB No. 101 to determine when
revenue can be recognized, and therefore our adoption of SAB No. 101 during 2000
did not have a material impact on our financial statements.
36
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Camden Property Trust
We have audited the accompanying consolidated balance sheets of Camden Property
Trust as of December 31, 2000 and 1999, and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 2000. These financial statements are the
responsibility of the management of Camden Property Trust. Our responsibility is
to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Camden Property Trust at December
31, 2000 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
February 7, 2001
37
CAMDEN PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
December 31,
-----------------------------
2000 1999
-------------- --------------
Assets
Real estate assets, at cost
Land $ 350,248 $ 354,833
Buildings and improvements 2,124,740 2,122,793
-------------- --------------
2,474,988 2,477,626
Less: accumulated depreciation (326,723) (253,545)
-------------- --------------
Net operating real estate assets 2,148,265 2,224,081
Properties under development, including land 148,741 178,539
Investment in joint ventures 22,612 21,869
-------------- --------------
Total real estate assets 2,319,618 2,424,489
Accounts receivable-- affiliates 3,236 2,228
Notes receivable:
Affiliates 1,800 1,800
Other 72,893 34,442
Other assets, net 23,923 14,744
Cash and cash equivalents 4,936 5,517
Restricted cash 4,475 4,712
-------------- --------------
Total assets $ 2,430,881 $ 2,487,932
============== ==============
Liabilities and Shareholders' Equity
Liabilities
Notes payable:
Unsecured $ 799,026 $ 820,623
Secured 339,091 344,467
Accounts payable 13,592 20,323
Accrued real estate taxes 26,781 24,485
Accrued expenses and other liabilities 36,981 33,987
Distributions payable 28,900 27,114
-------------- --------------
Total liabilities 1,244,371 1,270,999
Minority interests:
Units convertible into perpetual preferred shares 149,815 132,679
Units convertible into common shares 60,562 64,173
-------------- --------------
Total minority interests 210,377 196,852
7.33% Convertible Subordinated Debentures 1,950 3,406
Shareholders' Equity
Convertible preferred shares of beneficial interest;
$2.25 Series A Cumulative Convertible, $0.01 par
value per share, liquidation preference of $25 per
share, 10,000 shares authorized, 4,165 issued and
outstanding at December 31, 2000 and 1999 42 42
Common shares of beneficial interest; $0.01 par value
per share; 100,000 shares authorized; 45,760 and
45,317 issued at December 31, 2000 and 1999,
respectively 450 448
Additional paid-in capital 1,312,323 1,303,645
Distributions in excess of net income (153,972) (132,198)
Unearned restricted share awards (6,680) (8,485)
Less: treasury shares, at cost (177,980) (146,777)
-------------- --------------
Total shareholders' equity 974,183 1,016,675
-------------- --------------
Total liabilities and shareholders' equity $ 2,430,881 $ 2,487,932
============== ==============
See Notes to Consolidated Financial Statements.
38
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Revenues
Rental income $ 364,111 $ 341,168 $ 300,632
Other property income 27,030 22,148 18,093
----------- ----------- -----------
Total property income 391,141 363,316 318,725
Equity in income of joint ventures 765 683 1,312
Fee and asset management 5,810 5,373 1,552
Other income 5,823 1,924 2,250
----------- ----------- -----------
Total revenues 403,539 371,296 323,839
----------- ----------- -----------
Expenses
Property operating and maintenance 112,727 107,972 97,137
Real estate taxes 39,054 36,410 31,469
General and administrative 14,349 10,606 7,998
Interest 69,036 57,856 50,467
Depreciation and amortization 96,966 89,516 78,113
----------- ----------- -----------
Total expenses 332,132 302,360 265,184
----------- ----------- -----------
Income before gain on sales of properties
and joint venture interests, and
minority interests 71,407 68,936 58,655
Gain on sales of properties and joint
venture interests 18,323 2,979
---------- ---------- ----------
Income before minority interests 89,730 71,915 58,655
Income allocated to minority interests
Distributions on units convertible into
perpetual preferred shares (12,845) (8,278)
Income allocated to units convertible
into common shares (2,461) (2,014) (1,322)
----------- ----------- -----------
Total income allocated to minority interests (15,306) (10,292) (1,322)
----------- ----------- -----------
Net income 74,424 61,623 57,333
Preferred share dividends (9,371) (9,371) (9,371)
----------- ----------- -----------
Net income to common shareholders $ 65,053 $ 52,252 $ 47,962
=========== =========== ===========
Basic earnings per share $ 1.71 $ 1.27 $ 1.16
Diluted earnings per share $ 1.63 $ 1.23 $ 1.12
Distributions declared per common share $ 2.25 $ 2.08 $ 2.02
Weighted average number of common shares outstanding 38,112 41,236 41,174
Weighted average number of common and common dilutive 41,388 44,291 44,183
equivalent shares outstanding
See Notes to Consolidated Financial Statements.
39
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
Preferred Common Additional Distributions Unearned Treasury
Shares of Shares of Paid-In in Excess of Restricted Shares
Beneficial Beneficial Capital Net Income Share
Interest Interest Awards
---------- ---------- ----------- ------------- ------------ ----------
Shareholders' Equity, January 1, 1998 $ $ 317 $ 780,738 $ (63,526) $ (6,965) $
Net income to common shareholders 47,962
Common shares issued in Oasis Merger (12,393 shares) 124 395,404
Preferred shares issued in Oasis Merger (4,165 shares) 42 104,083
Common shares issued under dividend reinvestment plan 35
Conversion of debentures (102 shares) 1 2,408
Restricted shares issued under benefit plan (232 shares) 2 6,675 (3,076)
Employee Stock Purchase Plan (136)
Restricted shares placed into Rabbi Trust (236 shares) (2) 2
Common share options exercised (82 shares) 1 428
Conversion of Operating Partnership units (346 shares) 4 9,904
Repurchase of common shares (801 shares) (20,704)
Cash distributions ($2.02 per share) (83,333)
---------- ---------- ----------- ------------- ------------ ----------
Shareholders' Equity, December 31, 1998 42 447 1,299,539 (98,897) (10,039) (20,704)
---------- ---------- ----------- ------------- ------------ ----------
Net income to common shareholders 52,252
Common shares issued under dividend reinvestment plan 28
Conversion of debentures (7 shares) 169
Restricted shares issued under benefit plan (90 shares) 1 2,041 1,559
Employee Stock Purchase Plan (522)
Restricted shares placed into Rabbi Trust (35 shares) 5 (5)
Common share options exercised (80 shares) 1,806
Conversion of Operating Partnership units (23 shares) 479
Repurchase of minority interest units 100
Repurchase of common shares (4,890 shares) (126,073)
Cash distributions ($2.08 per share) (85,553)
---------- ---------- ----------- ------------- ------------ ----------
Shareholders' Equity, December 31, 1999 42 448 1,303,645 (132,198) (8,485) (146,777)
---------- ---------- ----------- ------------- ------------ ----------
Net income to common shareholders 65,053
Common shares issued under dividend reinvestment plan 23
Conversion of debentures (61 shares) 1 1,462
Restricted shares issued under benefit plan (329 shares) 3 6,195 1,805
Employee Stock Purchase Plan (189)
Restricted shares placed into Rabbi Trust (241 shares) (2) 2
Common share options exercised (46 shares) 1,052
Conversion of Operating Partnership units (6 shares) 133
Repurchase of common shares (1,166 shares) (31,203)
Cash distributions ($2.25 per share) (86,827)
---------- ---------- ----------- ------------- ------------ ----------
Shareholders' Equity, December 31, 2000 $ 42 $ 450 $1,312,323 $ (153,972) $ (6,680) $(177,980)
========== ========== =========== ============= ============ ==========
See Notes to Consolidated Financial Statements.
40
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
------------------------------------
2000 1999 1998
----------- ----------- ------------
Cash Flow from Operating Activities
Net income $ 74,424 $ 61,623 $ 57,333
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 96,966 89,516 78,113
Equity in income of joint ventures, net of cash received 1,959 2,491 1,278
Gain on sales of properties and joint venture interests (18,323) (2,979)
Income allocated to units convertible into common shares 2,461 2,014 1,322
Accretion of discount on unsecured notes payable 403 320 169
Net change in operating accounts 5,931 11,036 204
----------- ----------- ------------
Net cash provided by operating activities 163,821 164,021 138,419
Cash Flow from Investing Activities
Cash of Oasis at acquisition 7,253
Net proceeds from Sierra-Nevada transaction 226,128
Increase in real estate assets (120,636) (213,352) (335,567)
Net proceeds from sales of properties 150,141 13,226 42,513
Net proceeds from sale of joint venture interests 5,465 6,841
Increase in investment in joint ventures (2,702) (2,012) (4,922)
Decrease in investment in joint ventures 1,505 1,478
Increase in notes receivable. (38,451) (23,530)
Net decrease in affiliate notes receivable 5,389
Other (1,488) (1,873) (4,126)
---------- ----------- ------------
Net cash used in investing activities (13,136) (220,571) (55,013)
Cash Flow from Financing Activities
Net increase (decrease) in unsecured lines of
credit and short-term borrowings 80,000 (66,000) 146,792
Proceeds from notes payable 253,380 152,600
Losses related to early retirement of debt
Repayment of notes payable (107,376) (25,178) (274,473)
Proceeds from issuance of preferred units, net 17,136 132,679
Distributions to shareholders and minority interests (112,850) (108,253) (89,115)
Repurchase of common shares and units (31,203) (128,929) (20,704)
Other 3,027 (1,279) 673
----------- ----------- ------------
Net cash (used in) provided by financing activities (151,266) 56,420 (84,227)
----------- ----------- ------------
Net decrease in cash and cash equivalents (581) (130) (821)
Cash and cash equivalents, beginning of period 5,517 5,647 6,468
----------- ----------- ------------
Cash and cash equivalents, end of period $ 4,936 $ 5,517 $ 5,647
=========== =========== ============
Supplemental Information
Cash paid for interest, net of interest capitalized $ 70,310 $ 54,226 $ 51,574
Interest capitalized....... 15,303 16,396 9,929
Supplemental Schedule of Noncash Investing and Financing Activities
Acquisition of Oasis (including the Sierra-Nevada transaction),
net of cash acquired:
Fair value of assets acquired $ $ 835 $ 793,513
Liabilities assumed 835 505,721
Common shares issued 395,528
Preferred shares issued 104,125
Fair value of minority interest 21,520
Notes payable assumed upon purchase of properties 22,424
Conversion of 7.33% subordinated debentures to common shares, net 1,456 169 2,409
Value of shares issued under benefit plans, net 5,873 2,047 6,821
Conversion of operating partnership units to common shares 144 479 9,881
Notes receivable issued upon sale of real estate assets 10,912
See Notes to Consolidated Financial Statements.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Camden Property Trust is a self-administered and self-managed real estate
investment trust organized on May 25, 1993. We, with our subsidiaries, report as
a single business segment, with activities related to the ownership,
development, construction and management of multifamily apartment communities in
the Southwest, Southeast, Midwest and Western regions of the United States. As
of December 31, 2000, we owned interests in, operated or were developing 148
multifamily properties containing 52,874 apartment homes located in nine states.
Three of our multifamily properties containing 1,538 apartment homes were under
development at December 31, 2000. Additionally, we have several sites which we
intend to develop into multifamily apartment communities.
Acquisition of Oasis Residential, Inc. On April 8, 1998, we acquired,
through a tax-free merger, Oasis Residential, Inc., a publicly traded Las
Vegas-based multifamily REIT. Through this acquisition, we acquired 52 completed
multifamily properties and 15,514 apartment homes at the date of acquisition.
Each share of Oasis common stock outstanding on April 8, 1998 was exchanged for
0.759 of a Camden common share. Each share of Oasis Series A cumulative
convertible preferred stock outstanding on April 8, 1998 was exchanged for one
Camden Series A cumulative convertible preferred share with terms and conditions
comparable to the Oasis preferred stock. We issued 12.4 million common shares
and 4.2 million preferred shares in exchange for the outstanding Oasis common
and preferred stock, respectively. We assumed approximately $484 million of
Oasis debt, at fair value, in the merger. The accompanying consolidated
financial statements include the operations of Oasis since April 1, 1998, the
effective date of the Oasis merger for accounting purposes.
In connection with the merger with Oasis, on June 30, 1998, we completed a
transaction in which Camden USA, Inc., one of our wholly owned subsidiaries, and
TMT-Nevada, L.L.C., a Delaware limited liability company, formed Sierra-Nevada
Multifamily Investments, LLC. We entered into this transaction to reduce our
market risk in the Las Vegas area. TMT-Nevada holds an 80% interest in
Sierra-Nevada and Camden USA holds the remaining 20% interest.
In the above transaction, we transferred to Sierra-Nevada 19 apartment
communities containing 5,119 apartment homes for an aggregate of $248 million.
Prior to the merger, Oasis owned 100% of each of these communities. In the
merger, Camden USA acquired these communities. As a result, after the merger and
prior to the Sierra-Nevada transaction, Camden USA owned 100% of each of these
19 properties which are located in Las Vegas, Nevada. This transaction was
funded with capital invested by the members of Sierra-Nevada, the assumption of
$9.9 million of existing nonrecourse indebtedness, the issuance of 17
nonrecourse cross collateralized and cross defaulted loans totaling $180 million
and the issuance of two nonrecourse second lien mortgages totaling $7 million.
2. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include
our assets, liabilities and operations and those of our wholly-owned
subsidiaries and partnerships in which our aggregate ownership is greater than
50%. Those entities owned less than 50% where significant influence is in effect
are accounted for using the equity method. Those entities owned less than 50%
where significant influence is not exercised are accounted for using the cost
method. All significant intercompany accounts and transactions have been
eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
42
liabilities at the date of the financial statements, results of operations
during the reporting periods and related disclosures. Actual results could
differ from those estimates.
Operating Partnership and Minority Interests. Approximately 27% of our
multifamily apartment units at December 31, 2000 were held in Camden Operating,
L.P. This operating partnership has issued both common and preferred limited
partnership units. As of December 31, 2000, we held 82.4% of the common limited
partnership units and the sole 1% general partnership interest of the operating
partnership. The remaining 16.6% of the common limited partnership units are
primarily held by former officers, directors and investors of Paragon Group,
Inc., which we acquired in 1997, who collectively owned 1,969,272 common limited
partnership units at December 31, 2000. Each common limited partnership unit is
redeemable for one common share of Camden or cash at our election. Holders of
common limited partnership units are not entitled to rights as shareholders
prior to redemption of their common limited partnership units. No member of our
management owns common limited partnership units and only two of our eight Trust
Managers own common limited partnership units.
In 1999, our operating partnership issued $100 million of 8.5% Series B
Cumulative Redeemable Perpetual Preferred Units. Also during 1999 and 2000, our
operating partnership issued $53 million of 8.25% Series C Cumulative Redeemable
Perpetual Preferred Units. Distributions on the preferred units are payable
quarterly in arrears. The preferred units are redeemable for cash by the
operating partnership on or after the fifth anniversary of issuance at par plus
the amount of any accumulated and unpaid distributions. The preferred units are
convertible after 10 years by the holder into corresponding Cumulative
Redeemable Perpetual Preferred Shares. The preferred units are subordinate to
present and future debt.
Additionally, in conjunction with the Oasis merger, we acquired the
controlling managing member interest in Oasis Martinique, LLC which owns one
property in Orange County, California and is included in our consolidated
financial statements. The remaining interests comprising 754,270 units are
exchangeable into 572,490 of our common shares.
Minority interests in the accompanying consolidated financial statements
relate to holders of common and preferred limited partnership units of Camden
Operating, L.P. and units in Oasis Martinique, LLC.
Cash and Cash Equivalents. All cash and investments in money market
accounts and other securities with a maturity of three months or less at the
date of purchase are considered to be cash and cash equivalents.
Restricted Cash. Restricted cash mainly consists of escrow deposits held by
lenders for property taxes, insurance and replacement reserves. Substantially
all restricted cash is invested in short-term securities.
Real Estate Assets, at Cost. Real estate assets are carried at cost plus
capitalized carrying charges. Expenditures directly related to the development,
acquisition and improvement of real estate assets, excluding internal costs
relating to acquisitions, are capitalized at cost as land, buildings and
improvements. All construction and carrying costs are capitalized and reported
on the balance sheet in "Properties under development, including land" until
individual buildings are completed. Upon completion of each building, 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. All operating
expenses, excluding depreciation, associated with occupied apartment homes for
properties in the development and leasing phase are expensed against revenues
generated by those apartment homes as they become occupied. Upon achieving 90%
occupancy, or generally one year from opening the leasing office (with some
43
allowances for larger than average properties), whichever occurs first, all
apartment homes are considered operating and we begin expensing all items that
were previously considered as carrying costs.
If an event or change in circumstance indicates a potential impairment in
the value of a property has occurred, our policy is to assess any potential
impairment by making a comparison of the current and projected operating cash
flows for such property over its remaining useful life, on an undiscounted
basis, to the carrying amount of the property. If such carrying amounts are in
excess of the estimated projected operating cash flows of the property, we would
recognize an impairment loss equivalent to an amount required to adjust the
carrying amount to its estimated fair market value.
Real estate to be disposed of is reported at the lower of its carrying
amount or its estimated fair value, less its cost to sell. Depreciation expense
is not recorded during the period in which such assets are held for sale.
Effective April 1, 1998, we implemented prospectively a new accounting
policy whereby expenditures for carpet, appliances and HVAC unit replacements
are capitalized and depreciated over their estimated useful lives. Previously,
all such replacements had been expensed. We believe that the newly adopted
accounting policy is preferable as it is consistent with standards and practices
utilized by the majority of our peers and provides a better matching of expenses
with the related benefit of the expenditure. The change in accounting principle
is inseparable from the effect of the change in accounting estimate and is
therefore treated as a change in accounting estimate. See New Accounting
Pronouncements section for the effect of this change and our adoption of a new
accounting pronouncement on our financial results for the nine months ended
December 31, 1998.
We capitalized $27.9 million and $33.4 million in 2000 and 1999,
respectively, of renovation and improvement costs which extended the economic
lives and enhanced the earnings of our multifamily properties.
Carrying charges, principally interest and real estate taxes, of land under
development and buildings under construction are capitalized as part of
properties under development and buildings and improvements to the extent that
such charges do not cause the carrying value of the asset to exceed its net
realizable value. Capitalized interest was $15.3 million in 2000, $16.4 million
in 1999 and $9.9 million in 1998. Capitalized real estate taxes were $2.9
million in 2000, $3.2 million in 1999 and $1.4 million in 1998.
All initial buildings and improvements costs are depreciated over their
remaining estimated useful lives of 5 to 35 years using the straight line
method. Capital improvements subsequent to the initial renovation period are
depreciated over their expected useful lives of 3 to 15 years using the straight
line method.
Other Assets, Net. Other assets in our consolidated financial statements
include deferred financing costs, non-real estate leasehold improvements and
equipment, investments in e-commerce initatives and other miscellaneous
receivables. Deferred financing costs are amortized over the terms of the
related debt on the straight line method. Leasehold improvements and equipment
are depreciated on the straight line method over the shorter of the expected
useful lives or the lease terms which range from 3 to 10 years. Accumulated
depreciation and amortization for such assets was $9.0 million in 2000 and $5.6
million in 1999.
Interest Rate Swap Agreements. The differential to be paid or received on
interest rate swap agreements is accrued as interest rates change and is
recognized over the life of the agreements as an increase or decrease in
interest expense. We do not use these instruments for trading or speculative
purposes.
44
Income Recognition. In December 1999, the SEC issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No.
101 provides guidance on revenue recognition as well as the presentation and
disclosure of revenue in financial statements for all public companies. Our
rental and other property income is recorded when due from residents and is
recognized monthly as it is earned. Our apartment homes are rented to residents
on lease terms generally ranging from six to thirteen months, with monthly
payments due in advance. Interest, fee and asset management and all other
sources of income are recognized as earned. We are currently following the
criteria set forth in SAB No. 101 to determine when revenue can be recognized,
and therefore our adoption of SAB No. 101 during 2000 did not have a material
impact on our financial statements.
Rental Operations. We own and operate multifamily apartment homes that are
rented to residents. None of the properties are subject to rent control or rent
stabilization. Operations of apartment properties acquired are recorded from the
date of acquisition in accordance with the purchase method of accounting. In
management's opinion, due to the number of residents, the type and diversity of
submarkets in which the properties operate, and the collection terms, there is
no concentration of credit risk.
Income Taxes and Distributions. We have maintained and intend to maintain
our election as a REIT under the Internal Revenue Code of 1986, as amended. As a
result, we generally will not be subject to federal taxation to the extent we
distribute 95% of our REIT taxable income to our shareholders and satisfy
certain other requirements. The distribution percentage decreases to 90%
beginning 2001. Accordingly, no provision for federal income taxes has been
included in the accompanying consolidated financial statements.
Taxable income differs from net income for financial reporting purposes due
principally to the timing of the recognition of depreciation expense. This
difference is primarily due to the difference in the book/tax basis of the real
estate assets and the differing methods of depreciation and useful lives of the
assets. During 2000, book depreciation expense exceeded the amount reported for
tax purposes by $19.1 million. The net book basis of our real estate assets
exceeds our net tax basis by $185.5 million at December 31, 2000.
A schedule of per share distributions we paid and reported to our
shareholders is set forth in the following tables:
Year Ended December 31,
-------------------------------------
Common Share Distributions 2000 1999 1998
- -------------------------- --------- ---------- ----------
Ordinary income $ 1.71 $ 2.08 $ 1.68
20% Long-term capital gain 0.11 0.10
25% Sec. 1250 capital gain 0.43 0.24
--------- ---------- ----------
Total $ 2.25 $ 2.08 $ 2.02
========= ========== ==========
Percentage of distributions
representing tax preference items. 12.090% 12.187% 9.052%
Year Ended December 31
-------------------------------------
Preferred Share Dividends 2000 1999 1998*
- ------------------------- ---------- --------- ----------
Ordinary income $ 1.71 $ 2.25 $ 1.40
20% Long-term capital gain 0.11 0.09
25% Sec. 1250 capital gain 0.43 0.20
---------- --------- ----------
Total $ 2.25 $ 2.25 $ 1.69
========== ========= ==========
* Preferred share dividends for 1998 only include dividends paid from date of
the Oasis merger through December 31, 1998.
45
Property Operating and Maintenance Expenses. Property operating and
maintenance expenses included normal repairs and maintenance totaling $27.6
million in 2000, $24.5 million in 1999 and $21.5 million in 1998.
Earnings Per Share. Basic earnings per share is computed based on net
income to common shareholders and the weighted average number of common shares
outstanding. Diluted earnings per share reflects common shares issuable from the
assumed conversion of common share options and awards granted, preferred shares,
units convertible into common shares and convertible subordinated debentures.
Only those items that have a dilutive impact on our basic earnings per share are
included in diluted earnings per share. The following table presents information
necessary to calculate basic and diluted earnings per share for the periods
indicated (in thousands, except per share amounts).
Year Ended December 31,
-----------------------------------------
2000 1999 1998
---------- ---------- ----------
BASIC EARNINGS PER SHARE
Weighted average common shares outstanding 38,112 41,236 41,174
========== ========== ==========
Basic earnings per share $ 1.71 $ 1.27 $ 1.16
========== ========== ==========
DILUTED EARNINGS PER SHARE
Weighted average common shares outstanding 38,112 41,236 41,174
Shares issuable from assumed conversion of:
Common share options and awards granted 729 431 399
Units convertible into common shares 2,547 2,624 2,610
---------- ---------- ----------
Weighted average common shares outstanding, as adjusted 41,388 44,291 44,183
========== ========== ==========
Diluted earnings per share $ 1.63 $ 1.23 $ 1.12
========== ========== ==========
EARNINGS FOR BASIC AND DILUTED COMPUTATION
Net income $ 74,424 $ 61,623 $ 57,333
Less: preferred share dividends 9,371 9,371 9,371
---------- ---------- ----------
Net income to common shareholders (basic earnings per share
computation) 65,053 52,252 47,962
Income allocated to units convertible into common shares 2,461 2,014 1,322
---------- ---------- ----------
Net income to common shareholders, as adjusted (diluted
earnings per share computation) $ 67,514 $ 54,266 $ 49,284
========== ========== ==========
Reclassifications. Certain reclassifications have been made to amounts in
prior year financial statements to conform with current year presentations.
New Accounting Pronouncements. In March 1998, the Emerging Issues Task
Force ("EITF") of the Financial Accounting Standards Board ("FASB") reached a
consensus decision on Issue No. 97-11, "Accounting for Internal Costs Relating
to Real Estate Property Acquisitions", which requires that internal costs of
identifying and acquiring operating properties be expensed as incurred for
transactions entered into on or after March 20, 1998. Prior to our adoption of
this policy, we had been capitalizing such costs. Had we adopted Issue No. 97-11
and the new accounting policy for floor coverings, appliances and HVAC unit
replacements as of January 1, 1998, net income to common shareholders would have
increased $650,000 or $0.02 per basic and diluted earnings per share for the
year ended December 31, 1998.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
46
Derivative Instruments and Hedging Activities", which is effective for all
fiscal years beginning after June 15, 2000. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. We have
adopted SFAS No. 133 effective January 1, 2001. The adoption of SFAS No. 133 did
not have a material impact on our financial position, results of operations, or
cash flows.
3. Notes Receivable
Beginning in 1999, we entered into agreements with unaffiliated third
parties to develop, construct and manage nine multifamily projects containing a
total of 3,112 apartment homes. We are providing financing for a portion of each
project in the form of notes receivable which mature through 2005. These notes
earn interest at 10% annually and are secured by second liens on the assets and
partial guarantees by the third party owners. We expect these notes to be repaid
from operating cash flow or proceeds from the sale of the individual properties.
At December 31, 2000 and 1999, these notes had principal balances totaling $72.9
million and $28.1 million, respectively, and we anticipate funding up to an
aggregate of $110 million in connection with these projects. We earn fees for
managing the development, construction and eventual operations of these
properties. The related fees we earned for these projects totaled $2.2 million
and $1.7 million for the years ended December 31, 2000 and 1999, respectively.
We have begun construction on four of these projects, and initial occupancy has
begun on three of the projects. We have the option to purchase these properties
in the future at a price to be determined based upon the property's performance
and an agreed valuation model. The following is a detail of our third party
construction subject to notes receivable:
Number of Estimated Estimated/ Estimated
Apartment Cost Actual Date Date of
Property and Location Homes ($ millions) of Completion Stabilization
- -------------------------------- ------------ ------------- ---------------- --------------
In lease-up
Pecos Ranch
Phoenix, AZ 272 $ 21 4Q00 1Q01
Marina Pointe II
Tampa, FL 352 30 1Q01 3Q01
Creekside
Denver, CO 279 32 1Q01 4Q01
Under Construction
Ybor City
Tampa, FL 454 40 4Q01 3Q02
Pre-Development
Little Italy
San Diego, CA 160 32
Otay Ranch
San Diego, CA 422 57
California Oaks
Murietta, CA 264 35
Lee Vista II
Orlando, FL 366 31
Midtown West
Houston, TX 543 54
------------ ------------
Total Third Party Development 3,112 $ 332
============ ============
47
4. Notes Payable
The following is a summary of our indebtedness:
(In millions)
December 31,
------------------------
2000 1999
--------- ----------
Senior Unsecured Notes:
6.73% - 7.28% Notes, due 2001 - 2006 $ 523.5 $ 523.1
6.68% - 7.63% Medium-Term Notes, due 2002 - 2009 79.5 181.5
Unsecured Line of Credit and Short-Term Borrowings 196.0 116.0
--------- ----------
799.0 820.6
Secured Notes - Mortgage Loans (5.75% - 8.63%),
due 2001-2028 339.1 344.5
--------- ----------
Total notes payable $ 1,138 $ 1,165.1
========= ==========
Floating rate debt included in unsecured notes
payable agreements (7.31% - 7.73%) $ 196.0 $ 161.0
Floating rate tax-exempt debt included in
mortgage loans (5.87% - 6.10%) $ 62.6 $ 63.5
Net book value of real estate assets subject
to mortgage notes $ 577.6 $ 605.5
During the third quarter of 2000, our line of credit, which was entered
into in August 1999 with 14 banks for a total commitment of $375 million, was
increased to $400 million and the maturity was extended to August 2003. The
scheduled interest rate is currently based on a spread over LIBOR or Prime. The
scheduled interest rates are subject to change as our credit ratings change.
Advances under the line of credit may be priced at the scheduled rates, or we
may enter into bid rate loans with participating banks at rates below the
scheduled rates. These bid rate loans have terms of six months or less and may
not exceed the lesser of $200 million or the remaining amount available under
the line of credit. The line of credit is subject to customary financial
covenants and limitations. At year end, we were in compliance with all covenants
and limitations.
As of December 31, 2000, we had $204 million available under our unsecured
line of credit. The weighted average balance outstanding on the unsecured lines
of credit during the year ended December 31, 2000 was $156.4 million, with a
maximum outstanding balance of $222 million.
During September 1999, we executed three interest rate swap agreements
totaling $70 million which matured in October 2000. These swaps were being used
as a hedge of interest rate exposure on our $90 million medium term notes issued
in October 1998 which matured in October 2000.
At December 31, 2000, the weighted average interest rate on floating rate
debt was 7.18%.
Scheduled principal repayments on all notes payable outstanding at December
31, 2000 over the next five years are $167.5 million in 2001, $40.4 million in
2002, $321.5 million in 2003, $235.3 million in 2004, $61.9 million in 2005 and
$311.5 million thereafter.
During January 2000, we combined our three outstanding shelf registrations
into a single $750 million universal shelf registration, all of which was
available at year end.
On February 7, 2001, we issued from our $750 million shelf registration an
aggregate principal amount of $50 million of 7% five-year senior unsecured notes
maturing on February 15, 2006 and $150 million of 7.625% ten-year senior
unsecured notes maturing on February 15, 2011. Interest on the notes is payable
semiannually on February 15 and August 15, commencing on August 15, 2001. We may
redeem the notes at any time at a redemption price equal to the principal amount
and accrued interest, plus a make-whole provision. The notes are direct, senior
48
unsecured obligations and rank equally with all other unsecured and
unsubordinated indebtedness. The proceeds from the sale of the notes were $197.8
million, net of issuance costs. We used the net proceeds to reduce indebtedness
outstanding under the unsecured line of credit.
5. Convertible Subordinated Debentures
In April 1994, we issued $86.3 million aggregate principal amount of 7.33%
Convertible Subordinated Debentures due April 2001. The debentures are
convertible at any time prior to maturity into our common shares of beneficial
interest at a conversion price of $24 per share, subject to adjustment under
certain circumstances. The debentures will not be redeemable prior to maturity,
except in certain circumstances intended to maintain our status as a REIT.
Interest on the debentures is payable on April and October 1 of each year. The
debentures are unsecured and subordinated to present and future senior debt and
will be effectively subordinated to all debt and other liabilities.
6. Incentive and Benefit Plans
We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB No. 25") and related
interpretations in accounting for our share-based compensation. Under APB No.
25, since the exercise price of share options equals the market price of our
shares at the date of grant, no compensation expense is recorded. Restricted
shares are recorded to compensation expense over the vesting periods based on
the market value on the date of grant, and no compensation expense is recorded
for our Employee Stock Purchase Plan ("ESPP"), since the ESPP is considered
non-compensatory. We have adopted the disclosure-only provisions of SFAS No.
123, Accounting for Stock-Based Compensation.
Incentive Plan. We have a non-compensatory option plan which was amended in
2000 by our shareholders and trust managers. This amendment resulted in an
increase in the maximum number of common shares available for issuance under the
plan to 10% of the common shares outstanding at any time plus the number of
common shares, if any, held as treasury shares, plus the number of common shares
reserved for issuance upon the conversion of securities convertible into or
exchangeable for common shares. Compensation awards that can be granted under
the plan include various forms of incentive awards including incentive share
options, non-qualified share options and restricted share awards. The class of
eligible persons that can receive grants of incentive awards under the plan
consists of non-employee trust managers, key employees, consultants, and
directors of subsidiaries as determined by a committee of our Board of Trust
Managers. No incentive awards may be granted under this plan after May 27, 2003.
49
Following is a summary of the activity of the plan for the three years
ended December 31, 2000:
Shares
Available
for
Issuance Options and Restricted Shares
------------ ----------- --------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
2000 2000 2000 Price 1999 1999 Price 1998 1998 Price
------------ ----------- ---------- ----------- ---------- ----------- ----------
Balance at January 1 196,273 3,311,705 $ 27.50 2,838,499 $ 28.03 1,303,849 $ 24.94
Current Year Share Adjustment (a) 1,507,731
Options
Granted (5,250) 5,250 25.88 603,072 24.88 1,657,008 29.32
Exercised (147,589) 29.22 (79,650) 22.67 (82,327) 22.96
Forfeited 36,083 (36,083) 27.09 (139,768) 27.38 (271,538) 23.57
------------ ----------- ---------- ----------- ---------- ----------- ----------
Net Options 30,833 (178,422) 28.91 383,654 27.71 1,303,143 30.92
------------ ----------- ---------- ----------- ---------- ----------- ----------
Restricted Shares
Granted (260,114) 260,114 26.91 142,826 25.31 248,769 29.06
Forfeited (41,693) 27.24 (53,274) 27.01 (17,262) 27.67
------------ ----------- ---------- ----------- ---------- ----------- ----------
Net Restricted Shares (260,114) 218,421 26.80 89,552 26.79 231,507 29.16
------------ ----------- ---------- ----------- ---------- ----------- ----------
Balance at December 31 1,474,723 3,351,704 $ 28.30 3,311,705 $ 27.50 2,838,499 $ 28.03
============ =========== ========== =========== ========== =========== ==========
Exercisable options at December 31 889,654 $ 28.78 1,056,076 $ 27.86 586,607 $ 26.26
Vested restricted shares at December 31 655,504 $ 25.56 343,702 $ 25.93 213,782 $ 25.20
(a) Current year share adjustment reflects the new method of accounting for
shares available for issuance, which now includes treasury shares
repurchased, and common shares underlying Camden Operating, L.P. units,
convertible preferred shares, convertible debentures, martinique LLC units,
and restricted shares outstandng in the total shares available pool.
Options are exercisable, subject to the terms and conditions of the plan,
in increments of 33.33% per year on each of the first three anniversaries of the
date of grant. The plan provides that the exercise price of an option will be
determined by the compensation committee of the Board on the day of grant and to
date all options have been granted at an exercise price which equals the fair
market value on the date of grant. Options exercised during 2000 were exercised
at prices ranging from $22 to $29.44 per share. At December 31, 2000, options
outstanding were at exercise prices ranging from $22 to $30.75 per share. Such
options have a weighted average remaining contractual life of eight years.
In 1998, in connection with the merger with Oasis, we assumed the Oasis
stock incentive plans. We converted all unexercised Oasis stock options issued
under the former Oasis stock incentive plans that are held by former employees
of Oasis into 894,111 options to purchase Camden common shares based on the
0.759 exchange ratio described in Note 1. The options are exercisable at prices
ranging from $28.66 to $33.76. All of the Oasis options became fully vested upon
conversion, and have a weighted average remaining contractual life of four
years. As of December 31, 2000, there were 599,618 Oasis options outstanding,
which are exercisable at prices ranging from $28.66 to $33.76 per share.
The fair value of each option grant, excluding the Oasis stock options, was
estimated on the date of grant utilizing the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 2000, 1999
and 1998, respectively: risk-free interest rates of 6.6%, 4.9% and 5.5% to 5.6%,
expected life of ten years, dividend yield of 6.7%, 7.6% and 7.8%, and expected
share volatility of 13.4% 13.7% and 13.9%. The weighted average fair value of
options granted in 2000, 1999 and 1998, respectively, was $2.54, $0.91 and $1.27
per share.
50
Restricted shares have vesting periods of up to five years. The
compensation cost for restricted shares has been recognized at the fair market
value of our shares. During 2000, we accelerated vesting of 180,634 restricted
shares, which had a weighted average price of $27.74, in connection with the
successful implementation of our land development and strategy.
Employee Stock Purchase Plan. In July 1997, we established and commenced an
ESPP for all active employees, officers, and trust managers who have completed
one year of continuous service. Participants may elect to purchase Camden common
shares through payroll or director fee deductions and/or through quarterly
contributions. At the end of each six-month offering period, each participant's
account balance is applied to acquire common shares on the open market at 85% of
the market value, as defined, on the first or last day of the offering period,
whichever price is lower. Effective for the 2000 plan year, each participant
must hold the shares purchased for nine months in order to receive the discount.
A participant may not purchase more than $25,000 in value of shares during any
plan year, as defined. No compensation expense was recognized for the difference
in price paid by employees and the fair market value of our shares at the date
of purchase. There were 35,900, 98,456 and 32,678 shares purchased under the
ESPP during 2000, 1999 and 1998, respectively. The weighted average fair value
of ESPP shares purchased in 2000, 1999, and 1998 was $28.67, $27.42 and $30.41
per share, respectively. On January 3, 2001, 6,020 shares were purchased under
the ESPP related to the 2000 plan year.
If we applied the recognition provisions of SFAS No. 123 to our option
grants and ESPP, our net income to common shareholders and related basic and
diluted earnings per share would be as follows (in thousands, except per share
amounts):
Year Ended December 31,
-----------------------------------
2000 1999 1998
----------- ----------- -----------
Net income to common shareholders $ 64,317 $ 51,076 $ 47,360
Basic earnings per share $ 1.69 $ 1.24 $ 1.15
Diluted earnings per share $ 1.62 $ 1.20 $ 1.10
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
Rabbi Trust. In February 1997, we established a rabbi trust in which salary
and bonus amounts awarded to certain officers under the key employee share
option plan and restricted shares awarded to certain officers and trust managers
may be deposited. We account for the rabbi trust similar to a compensatory stock
option plan. At December 31, 2000, approximately 773,000 restricted shares were
held in the rabbi trust.
401(k) Savings Plan. We have a 401(k) savings plan which is a voluntary
defined contribution plan. Under the savings plan, every employee is eligible to
participate beginning on the earlier of January 1 or July 1 following the date
the employee has completed six months of continuous service with us. Each
participant may make contributions to the savings plan by means of a pre-tax
salary deferral which may not be less than 1% nor more than 15% of the
participant's compensation. The federal tax code limits the annual amount of
salary deferrals that may be made by any participant. We may make matching
contributions on the participant's behalf. A participant's salary deferral
contribution will always be 100% vested and nonforfeitable. A participant will
become vested in our matching contributions 33.33% after one year of service,
66.67% after two years of service and 100% after three years of service.
Expenses under the savings plan were not material.
7. Securities Repurchase Program
In 1998 and 1999, the Board of Trust Managers authorized us to repurchase
or redeem up to $200 million of our common equity securities through open market
51
purchases and private transactions. As of December 31, 2000, we had repurchased
6,857,726 common shares and redeemed 105,814 units for a total cost of $178.0
million and $2.9 million, respectively.
8. Convertible Preferred Shares
The 4,165,000 preferred shares pay a cumulative dividend quarterly in
arrears in an amount equal to $2.25 per share per annum. The preferred shares
generally have no voting rights and have a liquidation preference of $25 per
share plus accrued and unpaid distributions. The preferred shares are
convertible at the option of the holder at any time into common shares at a
conversion price of $32.4638 per common share (equivalent to a conversion rate
of 0.7701 per common share for each preferred share), subject to adjustment in
certain circumstances. The preferred shares are not redeemable prior to April
30, 2001.
9. E-commerce Investments
During 2000, our Board of Trust Managers authorized us to invest in
non-real estate initiatives, including investments in e-commerce initiatives
with other multi-family real estate owners. These investments may be made in
companies that will provide our residents with a broad range of real estate
technology services including high-speed data, video and entertainment services,
as well as resident portals. These portals will provide our residents with a
variety of online services, including online rental payments and maintenance
requests, which we believe will improve their overall living experience.
During 2000, we invested approximately $750,000 into BroadBand Residential
Inc., a multi-unit owner-sponsored broadband company providing high-speed data
services to multi-family residents, and invested approximately $2.1 million in
Viva Group, Inc., an internet based company that provides online owner-renter
matching services for the multi-family housing industry. Our investment in
Broadband Residential is recorded using the equity method, and our investment in
Viva is recorded at cost. Both of these investments are recorded in other assets
in our consolidated financial statements. Additionally, we have signed a
commitment to invest up to $3.5 million with a consortium of real estate and
technology companies which intends to pursue a broad range of real estate
technology initiatives and opportunities. All of these investments were made
along with other multi-family real estate owners. In January 2001, we committed
an additional $1.8 million to BroadBand Residential which will be funded through
a note receivable, of which we have funded approximately $600,000.
10. Related Party Transactions
Two of our executive officers have loans totaling $1.8 million with one of
our nonqualified-REIT subsidiaries. The executives utilized amounts received
from these loans to purchase our common shares in 1994. The loans mature in
February 2004 and bear interest at the fixed rate of 5.23%. These loans are full
recourse obligations of the officers and do not require any prepayments of
principal until maturity.
In connection with the Paragon and Oasis mergers and the formation of
Sierra-Nevada, we began performing property management services for owners of
affiliated properties. Management fees earned on the properties amounted to
$944,000, $845,000, and $583,000 for the years ended December 31, 2000, 1999,
and 1998, respectively.
In connection with the Oasis merger, we entered into consulting agreements
with two former Oasis executives, one of whom currently serves as a trust
manager, to locate potential investment opportunities in California. We paid
consulting fees totaling $389,000 and $340,000 to these executives in 1999 and
1998, respectively. No fees were paid during 2000.
52
In 1999 and 2000, our Board of Trust Managers approved a plan which
permitted six of our senior executive officers to complete the purchase of $23.0
million of our common shares in open market transactions. The purchases were
funded with unsecured full recourse personal loans made to each of the
executives by a third party lender. The loans mature in five years, bear
interest at market rates and require interest to be paid quarterly. In order to
facilitate the employee share purchase transactions, we entered into a guaranty
agreement with the lender for payment of all indebtedness, fees and liabilities
of the officers to the lender. Simultaneously, we entered into a reimbursement
agreement with each of the executive officers whereby each executive officer has
indemnified us and absolutely and unconditionally agreed to reimburse us should
any amounts ever be paid by us pursuant to the terms of the guaranty agreement.
The reimbursement agreements require the executives to pay interest from the
date any amounts are paid by us until repayment by the officer. We have not had
to perform under the guaranty agreement.
As described in Note 9, we invested approximately $750,000 in BroadBand
Residential, Inc. and $2.1 million in Viva Group, Inc. One of our trust managers
is a director, executive officer and significant shareholder of Viva. In
connection with our investment in BroadBand Residential, one of our executive
officers was given a seat on its board of directors.
11. Fair Value of Financial Instruments
SFAS No. 107 requires disclosure about fair value for all financial
instruments, whether or not recognized, for financial statement purposes.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 2000 and 1999.
Considerable judgment is necessary to interpret market data and develop
estimated fair values. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts we could obtain on disposition of the
financial instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
As of December 31, 2000 and 1999, management estimates that the fair value
of cash and cash equivalents, accounts receivable, notes receivable, accounts
payable, accrued expenses and other liabilities and distributions payable are
carried at amounts which reasonably approximate their fair value.
As of December 31, 2000, the outstanding balance of fixed rate notes
payable approximates fair value. As of December 31, 1999, the outstanding
balance of fixed rate notes payable of $985.6 million (excluding $25 million of
variable rate debt fixed through an interest rate swap agreement) had a fair
value of $963.5 million. Both estimates were based upon interest rates available
for the issuances of debt with similar terms and remaining maturities. The
floating rate notes payable balance at December 31, 2000 and 1999 approximates
fair value.
The fair value of our interest rate swap agreements, which were used for
hedging purposes, were estimated by obtaining quotes from an investment broker.
At December 31, 1999, there were no carrying amounts related to these
arrangements in the consolidated balance sheet, and the fair value of these
agreements was approximately $90,000. At December 31, 2000, we were not party to
any interest rate swap agreements.
We were exposed to credit risk in the event of nonperformance by
counterparties to our interest rate swap agreements, but had no off-balance
sheet risk of loss. Our counter-parties fully performed their obligations under
the agreements.
53
12. Net Change in Operating Accounts
The effect of changes in the operating accounts on cash flows from
operating activities is as follows:
(In thousands) Year Ended December 31,
--------------------------------------
2000 1999 1998
------------ ----------- -----------
Decrease (increase) in assets:
Accounts receivable - affiliates $ (65) $ (1,085) $ 1,496
Other assets, net (3,565) 38 1,518
Restricted cash 237 (426) 1,272
Increase (decrease) in liabilities:
Accounts payable (6,999) (3,768) 11,570
Accrued real estate taxes 3,526 3,011 3,879
Accrued expenses and other liabilities 12,797 13,266 (19,531)
------------ ----------- -----------
Change in operating accounts $ 5,931 $ 11,036 $ 204
============ =========== ===========
13. Commitments and Contingencies
Construction Contracts. As of December 31, 2000, we were obligated for
approximately $13.0 million of additional expenditures (a substantial amount of
which we expect to be provided by debt).
Lease Commitments. At December 31, 2000, we had long-term leases covering
certain land, office facilities and equipment. Rental expense totaled $1.6
million in 2000, $1.7 million in 1999 and $1.0 million in 1998. Minimum annual
rental commitments for the years ending December 31, 2001 through 2005 are $1.7
million, $1.5 million, $1.3 million, $1.2 million and $1.2 million,
respectively, and $7.0 million in the aggregate thereafter.
Employment Agreements. We have employment agreements with six of our senior
officers, the terms of which expire at various times through August 20, 2001.
Such agreements provide for minimum salary levels as well as various incentive
compensation arrangements, which are payable based on the attainment of specific
goals. The agreements also provide for severance payments in the event certain
situations occur such as termination without cause or a change of control. The
severance payments vary based on the officer's position and amount to one times
the current salary base for four of the officers and 2.99 times the average
annual compensation over the previous three fiscal years for the two remaining
officers. Six months prior to expiration, unless notification of termination is
given by the senior officers, these agreements extend for one year from the date
of expiration.
Contingencies. Prior to our merger with Oasis, Oasis had been contacted by
certain regulatory agencies with regards to alleged failures to comply with the
Fair Housing Amendments Act (the "Fair Housing Act") as it pertained to nine
properties (seven of which we currently own) constructed for first occupancy
after March 31, 1991. On February 1, 1999, the Justice Department filed a
lawsuit against us and several other defendants in the United States District
Court for the District of Nevada alleging (1) that the design and construction
of these properties violates the Fair Housing Act and (2) that we, through the
merger with Oasis, had discriminated in the rental of dwellings to persons
because of handicap. The complaint requests an order that (i) declares that the
defendant's policies and practices violate the Fair Housing Act; (ii) enjoins us
from (a) failing or refusing, to the extent possible, to bring the dwelling
units and public use and common use areas at these properties and other covered
units that Oasis has designed and/or constructed into compliance with the Fair
Housing Act, (b) failing or refusing to take such affirmative steps as may be
necessary to restore, as nearly as possible, the alleged victims of the
54
defendants alleged unlawful practices to positions they would have been in but
for the discriminatory conduct and (c) designing or constructing any covered
multi-family dwellings in the future that do not contain the accessibility and
adaptability features set forth in the Fair Housing Act; and requires us to pay
damages, including punitive damages, and a civil penalty.
With any acquisition, we plan for and undertake renovations needed to
correct deferred maintenance, life/safety and Fair Housing matters. On January
30, 2001, a consent decree was ordered and executed in the above Justice
Department action. Under the terms of the decree, we were ordered to make
certain retrofits and implement certain educational programs and fair housing
advertising. These changes are to take place over the next five years. In
management's opinion, the costs associated with complying with the decree are
not expected to have a material impact on our financial statements.
We are subject to various legal proceedings and claims that arise in the
ordinary course of business. These matters are generally covered by insurance.
While the resolution of these matters cannot be predicted with certainty,
management believes that the final outcome of such matters will not have a
material adverse effect on our consolidated financial statements.
14. Subsequent Events
In the ordinary course of our business, we issue letters of intent
indicating a willingness to negotiate for the purchase or sale of multifamily
properties or development land. In accordance with 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 contracts will provide the purchaser with time to evaluate the properties
and conduct 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
we will acquire or sell any property as to which we 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. We
are 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.
We are currently in the due diligence period for the purchase of land for
development. No assurance can be made that we will be able to complete the
negotiations or become satisfied with the outcome of the due diligence.
55
15. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for the years ended December 31, 2000
and 1999 are as follows:
(In thousands, except per share amounts)
First Second Third Fourth Total
---------- ----------- ---------- ------------ -----------
2000:
Revenues $ 98,714 $ 101,327 $ 102,395 $ 101,103 $ 403,539
Net income to common shareholders 12,676* 10,594 28,203** 13,580 65,053
Basic earnings per share 0.33* 0.28 0.74** 0.36 1.71
Diluted earnings per share 0.31* 0.27 0.72** 0.33 1.63
1999:
Revenues $ 88,835 $ 91,412 $ 94,177 $ 96,872 $ 371,296
Net income to common shareholders 13,706*** 12,838 13,535**** 12,173 52,252
Basic earnings per share 0.32*** 0.31 0.33**** 0.30 1.27
Diluted earnings per share 0.31*** 0.30 0.32**** 0.29 1.23
* Includes a $1,933, or $0.05 basic and diluted earnings per share, impact
related to the gain on sale of land.
** Includes a $16,440, or $0.43 basic and $0.37 diluted earnings per share,
impact related to the gain on sale of properties.
*** Includes a $720, or $0.02 basic and diluted earnings per share, impact
related to gain on the sale of a property.
**** Includes a $2,259, or $0.06 basic and $0.05 diluted earnings per share,
impact related to gain on Sales of properties.
16. Price Range of Common Shares (unaudited)
The high and low sales prices per share of our common shares, as reported
on the New York Stock Exchange composite tape, and distributions per share
declared for the quarters indicated were as follows:
High Low Distributions
---------------- -------------- ---------------
2000:
First $ 27 3/8 $ 25 7/8 $ 0.5625
Second 30 3/4 27 1/16 0.5625
Third 32 29 7/16 0.5625
Fourth 33 13/16 28 1/2 0.5625
1999:
First $ 26 11/16 $ 24 3/16 $ 0.520
Second 28 3/16 24 1/8 0.520
Third 28 3/16 25 15/16 0.520
Fourth 27 3/4 25 9/16 0.520
56
CAMDEN PROPERTY TRUST
COMPARATIVE SUMMARY OF SELECTED FINANCIAL AND PROPERTY DATA
(In thousands, except per share amounts)
Year Ended December 31,
-----------------------------------------------------------------------
2000 1999 1998* 1997** 1996
------------- ------------- ------------- ------------ -----------
Operating Data
Revenues:
Rental income $ 364,111 $ 341,168 $ 300,632 $ 187,928 $ 105,785
Other property income 27,030 22,148 18,093 9,446 4,453
------------- ------------- ------------- ------------ -----------
Total property income 391,141 363,316 318,725 197,374 110,238
Equity in income of joint ventures 765 683 1,312 1,141
Fee and asset management 5,810 5,373 1,552 743 949
Other income 5,823 1,924 2,250 531 419
------------- ------------- ------------- ------------ -----------
Total revenues 403,539 371,296 323,839 199,789 111,606
------------- ------------- ------------- ------------ -----------
Expenses
Property operating and maintenance 112,727 107,972 97,137 70,679 40,604
Real estate taxes 39,054 36,410 31,469 21,028 13,192
General and administrative 14,349 10,606 7,998 4,389 2,631
Interest 69,036 57,856 50,467 28,537 17,336
Depreciation and amortization 96,966 89,516 78,113 44,836 23,894
------------- ------------- ------------- ------------ -----------
Total expenses 332,132 302,360 265,184 169,469 97,657
------------- ------------- ------------- ------------ -----------
Income before gain on sales of properties and
joint venture interests, losses related to
early retirement of debt and minority interests 71,407 68,936 58,655 30,320 13,949
Gain on sales of properties and joint venture interests 18,323 2,979 10,170 115
Losses related to early retirement of debt (397) (5,351)
------------- ------------- ------------- ------------ -----------
Income before minority interests 89,730 71,915 58,655 40,093 8,713
Income allocated to minority interests
Distributions on units convertible into perpetual
preferred shares (12,845) (8,278)
Income allocated to units convertible into
common shares (2,461) (2,014) (1,322) (1,655)
------------- ------------- ------------- ------------ -----------
Total income allocated to minority interests (15,306) (10,292) (1,322) (1,655)
------------- ------------- ------------- ------------ -----------
Net income 74,424 61,623 57,333 38,438 8,713
Preferred share dividends (9,371) (9,371) (9,371) (4)
------------- ------------- ------------- ----------- -----------
Net income to common shareholders $ 65,053 $ 52,252 $ 47,962 $ 38,438 $ 8,709
============= ============= ============= ============ ===========
Basic earnings per share $ 1.71 $ 1.27 $ 1.16 $ 1.46 $ 0.59
Diluted earnings per share $ 1.63 $ 1.23 $ 1.12 $ 1.41 $ 0.58
Distributions per common share $ 2.25 $ 2.08 $ 2.02 $ 1.96 $ 1.90
Weighted average number of common shares outstanding 38,112 41,236 41,174 26,257 14,849
Weighted average number of common and common
dilutive equivalent shares outstanding 41,388 44,291 44,183 28,356 14,979
Balance Sheet Data (at end of period)
Real estate assets $ 2,646,341 $ 2,678,034 $ 2,487,942 $ 1,397,138 $ 646,545
Accumulated depreciation (326,723) (253,545) (167,560) (94,665) (56,369)
Total assets 2,430,881 2,487,932 2,347,982 1,323,620 603,510
Notes payable 1,138,117 1,165,090 1,002,568 480,754 244,182
Minority interests 210,377 196,852 71,783 63,325
Convertible subordinated debentures 1,950 3,406 3,576 6,025 27,702
Shareholders' Equity 974,183 1,016,675 1,170,388 710,564 295,428
Common shares outstanding 38,129 39,093 43,825 31,694 16,521
57
CAMDEN PROPERTY TRUST
COMPARATIVE SUMMARY OF SELECTED FINANCIAL AND PROPERTY DATA (CONTINUED)
(In thousands, except property data amounts)
Year Ended December 31,
-------------------------------------------------------------------
2000 1999 1998* 1997** 1996
------------ ------------ ------------- ------------ -------------
Other Data
Cash flows provided by (used in):
Operating activities $ 163,821 $ 164,021 $ 138,419 $ 65,974 $ 41,267
Investing activities (13,136) (220,571) (55,013) (73,709) (41,697)
Financing activities (151,266) 56,420 (84,227) 11,837 2,560
Funds from operations*** 156,274 152,369 137,996 75,753 39,999
Property Data
Number of operating properties (at end of period) 145 153 149 100 48
Number of operating apartment homes (at end of period) 51,336 53,311 51,310 34,669 17,611
Number of operating apartment homes (weighted average) 46,501 45,606 42,411 29,280 17,362
Weighted average monthly total property
income per apartment home $ 701 $ 664 $ 626 $ 562 $ 529
Properties under development (at end of period) 3 6 14 6 5
* Effective April 1, 1998 we acquired Oasis.
** Effective April 1, 1997 we acquired Paragon.
*** Management considers FFO to be an appropriate measure of the performance
of an equity REIT. The National Association of Real Estate Investment
Trusts ("NAREIT") currently defines FFO 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 amortization, and after adjustments for
unconsolidated partnerships and joint ventures. In addition, extraordinary
or unusual items, along with significant non-recurring events that
materially distort the comparative measure of FFO are typically
disregarded in its calculation. Our definition of diluted FFO also assumes
conversion at the beginning of the period of all convertible securities,
including minority interests, which are convertible into common equity. We
believe that in order to facilitate a clear understanding of our
consolidated historical operating results, FFO should be examined in
conjunction with net income as presented in the consolidated financial
statements and data included elsewhere in this report. FFO is not defined
by generally accepted accounting principles. FFO should not be considered
as an alternative to net income as an indication of our operating
performance or to net cash provided by operating activities as a measure
of our liquidity. Further, FFO as disclosed by other REIT's may not be
comparable to our calculation.