UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number: 1-12110
CAMDEN PROPERTY TRUST
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 76-6088377
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
3 Greenway Plaza, Suite 1300, Houston, Texas 77046
(Address of Principal Executive Offices) (Zip Code)
(713) 354-2500
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of November 9, 2001, there were 40,773,622 shares of Common Shares of
Beneficial Interest, $0.01 par value outstanding.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAMDEN PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30, December 31,
2001 2000
--------------- --------------
(Unaudited)
Real Estate Assets, at cost:
Land $ 362,413 $ 350,248
Buildings and improvements 2,223,661 2,124,740
--------------- --------------
2,586,074 2,474,988
Less: accumulated depreciation (400,278) (326,723)
--------------- --------------
Net operating real estate assets 2,185,796 2,148,265
Properties under development, including land 108,395 148,741
Investment in joint ventures 17,374 22,612
Advances to third party development properties 87,885 72,893
--------------- --------------
Total real estate assets 2,399,450 2,392,511
Accounts receivable - affiliates 4,360 3,236
Notes receivable:
Affiliates 1,800 1,800
Other 3,704
Other assets, net 34,798 23,923
Cash and cash equivalents 3,213 4,936
Restricted cash 3,644 4,475
--------------- --------------
Total assets $ 2,450,969 $ 2,430,881
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable:
Unsecured $ 907,781 $ 799,026
Secured 284,407 339,091
Accounts payable 13,396 13,592
Accrued real estate taxes 30,367 26,781
Accrued expenses and other liabilities 42,617 36,981
Distributions payable 30,284 28,900
--------------- --------------
Total liabilities 1,308,852 1,244,371
Minority Interests:
Units convertible into perpetual preferred shares 149,815 149,815
Units convertible into common shares 57,473 60,562
--------------- --------------
Total minority interests 207,288 210,377
7.33% Convertible Subordinated Debentures 1,950
Shareholders' Equity:
Convertible preferred shares of beneficial interest 42
Common shares of beneficial interest 476 450
Additional paid-in capital 1,297,265 1,312,323
Distributions in excess of net income (176,939) (153,972)
Unearned restricted share awards (9,626) (6,680)
Less: treasury shares, at cost (176,347) (177,980)
--------------- --------------
Total shareholders' equity 934,829 974,183
--------------- --------------
Total liabilities and shareholders' equity $ 2,450,969 $ 2,430,881
=============== ==============
See Notes to Consolidated Financial Statements.
2
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenues
Rental income $ 94,746 $ 92,251 $ 280,072 $ 273,429
Other property income 7,777 7,250 22,100 20,226
---------- ---------- ---------- ----------
Total property income 102,523 99,501 302,172 293,655
Equity in income of joint ventures 5,437 190 8,361 670
Fee and asset management 2,225 1,545 5,488 4,471
Other income 2,033 1,159 6,111 3,640
---------- ---------- ---------- ----------
Total revenues 112,218 102,395 322,132 302,436
========== ========== ========== ==========
Expenses
Property operating and maintenance 30,471 29,312 86,835 85,292
Real estate taxes 10,292 10,057 30,806 30,091
General and administrative 3,426 2,926 9,818 9,691
Impairment provision for technology investments 1,090
Other expenses 905 905
Interest 17,755 17,640 52,672 51,829
Depreciation and amortization 26,574 23,700 75,918 73,543
---------- ---------- ---------- ----------
Total expenses 89,423 83,635 258,044 250,446
---------- ---------- ---------- ----------
Income before gain on sales of properties, minority
interests and extraordinary charge 22,795 18,760 64,088 51,990
Gain of sales of properties 123 16,440 2,495 18,373
Income allocated to minority interest
Distributions on units convertible into perpetual preferred shares (3,218) (3,219) (9,654) (9,627)
Income allocated to units convertible into common shares (1,216) (1,435) (2,765) (2,234)
---------- ---------- ---------- ----------
Income before extraordinary charge 18,484 30,546 54,164 58,502
Extraordinary charge (early retirement of debt) (388) (388)
---------- ---------- ---------- ----------
Net income 18,096 30,546 53,776 58,502
Preferred share dividends (2,343) (2,545) (7,029)
---------- ---------- ---------- ----------
Net income to common shareholders $ 18,096 $ 28,203 $ 51,231 $ 51,473
========== ========== ========== ==========
Basic earnings per share before extraordinary charge $ 0.45 $ 0.74 $ 1.31 $ 1.35
Basic earnings per share $ 0.44 $ 0.74 $ 1.30 $ 1.35
Diluted earnings per share before extraordinary charge $ 0.43 $ 0.72 $ 1.25 $ 1.30
Diluted earnings per share $ 0.42 $ 0.72 $ 1.24 $ 1.30
Distributions declared per common share $ 0.61 $ 0.5625 $ 1.83 $ 1.6875
Weighted average number of common shares outstanding 40,669 38,050 39,490 38,156
Weighted average number of common and
common dilutive equivalent shares outstanding 42,649 44,746 41,264 41,388
See Notes to Consolidated Financial Statements.
3
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months
Ended September 30,
----------------------
2001 2001
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 53,776 $ 58,502
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 75,918 73,543
Equity in income of joint ventures, net of cash received 7,110 1,247
Gain on sale of properties (2,495) (18,373)
Extraordinary charge (early retirement of debt) 338
Income allocated to units convertible into common shares 2,765 2,234
Accretion of discount on unsecured notes payable 312 300
Net change in operating accounts 14,288 2,647
---------- ----------
Net cash provided by operating activities 152,012 120,100
CASH FLOW FROM INVESTING ACTIVITIES
Increase in real estate assets (76,713) (103,487)
Net proceeds from sale of properties and townhomes 9,780 150,141
Increase in investment in joint ventures (1,881) (1,497)
Increase in notes receivable (3,704)
Increase in advances to third party development properties (22,227) (28,684)
Decrease in advances to third party development properties 7,235
Other (3,829) (1,110)
---------- ----------
Net cash (used in)/provided by investing activities (91,339) 15,363
CASH FLOW FROM FINANCING ACTIVITIES
Net decrease in unsecured lines of credit and short-term borrowings (105,000) (31,000)
Proceeds from notes payable 313,443
Proceeds from issuance of preferred units, net 17,136
Repayment of notes payable (154,684) (3,790)
Distributions to shareholders and minority interests (89,322) (84,219)
Repurchase of preferred shares (26,922)
Repurchase of common shares and units convertible into common shares (26,306)
Extraordinary charge (early retirement of debt) (338)
Other 427 595
---------- ----------
Net cash used in financing activities (62,396) (127,584)
---------- ----------
Net (decrease)/increase in cash and cash equivalents (1,723) 7,879
Cash and cash equivalents, beginning of period 4,936 5,517
---------- ----------
Cash and cash equivalents, end of period $ 3,213 $ 13,396
========== ==========
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of interest capitalized $ 47,364 $ 50,514
Interest capitalized 8,273 11,871
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Conversion of 7.33% subordinated debentures to common shares, net $ 1,950 $ 1,160
Value of shares issued under benefit plans, net 5,468 6,099
Conversion of operating partnership units to common shares 1,166 136
See Notes to Consolidated Financial Statements.
4
CAMDEN PROPERTY TRUST
Notes to Consolidated Financial Statements
(Unaudited)
1. Interim Unaudited Financial Information
The accompanying interim unaudited financial information has been prepared
according to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted according to such rules and
regulations. Management believes that the disclosures included are adequate to
make the information presented not misleading. In the opinion of management, all
adjustments and eliminations, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of Camden Property Trust as
of September 30, 2001 and the results of operations and cash flows for the three
and nine months ended September 30, 2001 and 2000 have been included. The
results of operations for such interim periods are not necessarily indicative of
the results for the full year.
Business
Camden Property Trust is a real estate company engaged in the ownership,
development, construction and management of multifamily apartment communities.
At September 30, 2001, we owned interests in, operated or were developing 146
multifamily properties containing 51,883 apartment homes located in nine states
from Florida to California. One of our multifamily properties containing 538
apartment homes was under development at September 30, 2001. Two of our newly
developed multifamily properties containing 1,000 apartment homes were in
lease-up at September 30, 2001. Additionally, we have several sites which we
intend to develop into multifamily apartment communities.
Property Update
During the first nine months of 2001, stabilization occurred at three
properties totaling 1,256 apartment homes: The Park at Oxmoor in Louisville, The
Park at Lee Vista in Orlando, and The Park at Arizona Center in Phoenix. 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 completed construction of 1,000 apartment homes at The
Park at Farmers Market, Phase I in Dallas and The Park at Crown Valley in
Mission Viejo. Construction continued at one property totaling 538 apartment
homes: Camden Harbour View in Long Beach, which will begin leasing during the
third quarter of 2002.
During the second quarter of 2001, we acquired Camden Pecos Ranch, a 272
apartment home property located in Phoenix, Arizona for $20.6 million. Camden
Pecos Ranch was developed under our third party development pipeline and was
completed during the fourth quarter 2000. It stabilized during the first quarter
2001.
Dispositions during the first nine months of 2001 included two parcels of
land totaling 22.7 acres located in Houston and three operating properties with
a total of 1,264 apartment homes located in North Carolina and Dallas. The
proceeds from the land sales totaled $8.6 million and were used to reduce
indebtedness outstanding under our unsecured line of credit. The operating
properties were held through a joint venture and the gains from these
dispositions, totaling $6.6 million, are included in "Equity in income of joint
ventures".
5
Real Estate Assets at Cost
We capitalized $19.4 million and $22.0 million in the nine months ended
September 30, 2001 and 2000, respectively, of renovation and improvement costs
which we believe extended the economic lives and enhanced the earnings of our
multifamily properties.
Property Operating and Maintenance Expenses
Property operating and maintenance expenses included normal repairs and
maintenance totaling $7.1 million and $20.7 million for the three and nine
months ended September 30, 2001, compared to $7.2 million and $21.4 million for
the three and nine months ended September 30, 2000.
Common Share Dividend Declaration
In September 2001, we announced that our Board of Trust Managers had
declared a dividend of $0.61 per share for the third quarter of 2001 which was
paid on October 17, 2001 to all common shareholders of record as of September
28, 2001. We paid an equivalent amount per unit to holders of common operating
partnership units. This distribution to common shareholders and holders of
common operating partnership units equates to an annualized dividend rate of
$2.44 per share or unit.
Recent 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
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 June 2001, FASB issued SFAS No. 141, "Business Combinations", which is
effective for business combinations initiated after June 30, 2001. SFAS No. 141
requires all business combinations to be accounted for under the purchase method
and that the pooling-of-interest method is no longer allowed. The adoption of
SFAS No. 141 will not have a material impact on our financial position, results
of operations, or cash flows.
In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which is effective for fiscal years beginning after December 15, 2001.
SFAS No. 142 requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. The adoption of SFAS No. 142 will not have a
material impact on our financial position, results of operations, or cash flows.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for fiscal years beginning after June 15, 2002.
SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The adoption of SFAS No. 143 will not have a material
impact on our financial position, results of operations, or cash flows.
In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long- Lived Assets", which is effective for fiscal years beginning
after December 15, 2001. SFAS No. 144 addresses accounting and reporting for the
6
impairment or disposal of a segment of a business. The adoption of SFAS No. 144
will not have a material impact on our financial position, results of operations
or cash flows.
Earnings Per Share
The following table presents information necessary to calculate basic and
diluted earnings per share for the three and nine months ended September 30,
2001 and 2000:
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Basic earnings per share:
Weighted average common shares outstanding 40,669 38,050 39,490 38,156
========== ========== ========== ==========
Basic earnings per share $ 0.44 $ 0.74 $ 1.30 $ 1.35
========== ========== ========== ==========
Diluted earnings per share:
Weighted average common shares outstanding 40,669 38,050 39,490 38,156
Shares issuable from assumed conversion of:
Common share options and awards granted 1,407 847 1,201 684
Convertible preferred shares (a) 3,207
Units convertible into common shares 573 2,545 573 2,548
Convertible subordinated debentures (a) 97
---------- ---------- ---------- ----------
Weighted average common shares outstanding, as adjusted 42,649 44,746 41,264 41,388
========== ========== ========== ==========
Diluted earnings per share $ 0.42 $ 0.72 $ 1.24 $ 1.30
========== ========== ========== ==========
Earnings for basic and diluted computation:
Net income $ 18,096 $ 30,546 $ 53,776 $ 58,502
Less: Preferred share dividends (2,343) (2,545) (7,029)
---------- ---------- ---------- ----------
Net income to common shareholders 18,096 28,203 51,231 51,473
(Basic diluted earnings per share computation)
Preferred share dividends (a) 2,343
Income allocated to operating partnership units 1,435 2,234
Interest on convertible subordinated debentures (a) 5
Amortization of deferred costs on convertible debentures (a) 42
---------- ---------- ---------- ----------
Net income to common shareholders, as adjusted
(Diluted earnings per share computation) $ 18,096 $ 32,028 $ 51,231 $ 53,707
========== ========== ========== ==========
(a) The convertible preferred shares and subordinated debentures were
anti-dilutive for the three and nine months ended September 30, 2001 and
for the nine months ended September 30, 2000.
2. Advances to Third Party Development Properties
We have entered into agreements with unaffiliated third parties to develop,
construct, and manage eight multifamily projects containing a total of 2,840
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
September 30, 2001 and 2000, these notes had principal balances totaling $87.9
million and $59.9 million, respectively.
Subsequent to quarter end, we purchased the three third party construction
projects which were in pre- development at September 30, 2001. Advances to these
7
projects totaled approximately $23 million as of September 30, 2001. During the
third quarter, all net fees and interest earned from these projects have been
reversed since we now own these properties. We anticipate funding an additional
$10 million on the remaining five third party development properties.
We earn fees for managing the development, construction and eventual
operations of these properties. The related fees we earned for these projects
totaled $1.4 million and $1.9 million for the nine months ended September 30,
2001 and 2000, respectively. Construction has commenced on five of these
projects, and initial occupancy has begun on three of the projects.
During the second quarter of 2001, we acquired Camden Pecos Ranch which was
developed under our third party development pipeline for $20.6 million. Camden
Pecos Ranch contains 272 apartment homes and is located in Phoenix, Arizona. The
note receivable relating to Camden Pecos Ranch at time of acquisition was $7.2
million.
The following is a detail of our third party construction subject to notes
receivable.
Number of Estimated Estimated/ Estimated/
Apartment Cost Actual Date Actual Date of
Property and Location Homes ($ millions) of Completion Stabilization
- ---------------------------------- --------- ------------ ------------- ----------------
Stabilized
Marina Pointe II
Tampa, FL 352 $ 30 1Q01 3Q01
Creekside
Denver, CO 279 32 3Q01 3Q01
In lease-up
Ybor City
Tampa, FL 454 40 4Q01 3Q02
Under Construction
Little Italy
San Diego, CA 160 36 4Q02 3Q03
Otay Ranch
San Diego, CA 422 57 4Q02 4Q03
Pre-Development
California Oaks
Murietta, CA 264 35
Lee Vista II
Orlando, FL 366 31
Midtown West
Houston, TX 543 54
--------- ------------
Total Third Party Development 2,840 $ 315
========= ============
3. Technology 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 we believe 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 should 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. Additionally, we have invested in companies that we believe will
improve the efficiency of our internal operations through revenue management,
credit scoring and purchasing.
As of September 30, 2001, we had $5.0 million invested into various
e-commerce companies. These investments are being accounted for under the cost
8
method and are included in other assets in our consolidated financial
statements. In addition to our investments, we have $3.7 million in notes
receivable relating to our e-commerce investments. We have commitments
outstanding to fund an additional $2.6 million on current e-commerce
investments.
During the first nine months of 2001, we wrote-off $1.1 million of
e-commerce investments relating to BroadBand Residential Inc. The $1.1 million
included a note receivable of approximately $600,000, and represented our total
investment, including notes receivable, in BroadBand Residential at the time of
the write-off.
4. Notes Payable
The following is a summary of our indebtedness:
(In millions)
September 30, December 31,
2001 2000
------------- -----------
Unsecured Line of Credit and Short Term Borrowings $ 91.0 $ 196.0
Senior Unsecured Notes
6.73% - 6.76% Notes, due 2001 50.0 150.0
7.03% Notes, due 2003 50.0 50.0
7.14% Notes, due 2004 199.4 199.2
7.11% - 7.28% Notes, due 2006 174.2 124.3
7.69% Notes, due 2011 149.3
6.77% Notes, due 2010 99.9
------------- -----------
722.8 523.5
Medium Term Notes
6.68% - 6.74% Notes, due 2002 34.5 34.5
6.88% - 7.17% Notes, due 2004 30.0 30.0
7.63% Notes, due 2009 15.0 15.0
6.79% Notes, due 2010 14.5
------------- -----------
94.0 79.5
------------- -----------
Total Unsecured Notes 907.8 799.0
Secured Notes
7.00% - 8.50% Conventional Mortgage Notes, due 2003 - 2009 183.5 237.6
3.99% - 7.29% Tax-exempt Mortgage Notes, due 2023 - 2031 100.9 101.5
------------- -----------
284.4 339.1
------------- -----------
Total Notes Payable $ 1,192.2 $ 1,138.1
============= ===========
In August 2001, we amended our line of credit to increase total capacity by
$20 million to $420 million and extended the maturity to August 2004. 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 quarter end, we were in compliance with all
covenants and limitations.
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
9
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.
In August 2001, we issued $14.5 million aggregate principal amounts of
senior unsecured medium- term notes. These fixed rate notes, due in August 2010,
bear interest at a rate of 6.79% payable semiannually on March 15 and September
15. The net proceeds were used to reduce indebtedness outstanding under the
unsecured lines of credit.
In September 2001, we issued an aggregate principal amount of $100 million
of 6.75% nine-year senior unsecured notes maturing on September 15, 2010.
Interest on the notes is payable semiannually on March and September 15,
commencing on March 15, 2002. 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 $99.2 million, net of issuance costs.
We used the net proceeds to reduce indebtedness outstanding under the unsecured
line of credit.
During the third quarter of 2001, we paid off four mortgage notes totaling
$38.7 million. The interest rates on the notes ranged from 7.50% to 7.89%. We
incurred prepayment penalties totaling $388,000 in connection with the mortgage
payoffs. We repaid these mortgages using proceeds available under our unsecured
line of credit. The interest rate on the line of credit is significantly lower
than the rate on the repaid mortgages.
At September 30, 2001, the weighted average interest rate on floating rate
debt was 4.09%.
5. Net Change in Operating Accounts
The effect of changes in the operating accounts on cash flows from
operating activities is as follows:
(In thousands)
Nine Months Ended
September 30,
----------------------
2001 2000
---------- ----------
Decrease (increase) in assets:
Accounts receivable - affiliates $ (670) $ 218
Other assets, net (4,149) (9,081)
Restricted cash 831 (635)
Increase (decrease) in liabilities:
Accounts payable (80) (3,862)
Accrued real estate taxes 3,792 4,413
Accrued expenses and other liabilities 14,564 11,594
---------- ----------
Net change in operating accounts $ 14,288 $ 2,647
========== ==========
6. Convertible Subordinated Debentures
In April 1994, we issued $86.3 million aggregate principal amount of 7.33%
Convertible Subordinated Debentures which matured on April 1, 2001. The
debentures were convertible at any time prior to maturity into our common
10
shares. Prior to maturity, $86.2 million in principal amount of the debentures
were converted into 3.6 million common shares. In addition, $3.2 million of
unamortized debenture issue costs were reclassified to additional
paid-in-capital.
7. Preferred 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.
8. Restricted Share and Option Awards
During the first nine months of 2001, we granted 264,343 restricted shares
in lieu of cash compensation to certain key employees and non-employee trust
managers. The restricted shares were issued based on the market value of our
common shares at the date of grant and have vesting periods of up to five years.
We granted no options during the nine months ended September 30, 2001. During
the nine month period ended September 30, 2001, previously granted options to
purchase 582,131 shares became exercisable and 89,478 restricted shares vested.
9. Securities Repurchase Program
Beginning in 1998, the Board of Trust Managers authorized us to repurchase
or redeem up to $200 million of our securities through open market purchases and
private transactions. As of September 30, 2001, we had repurchased 6,857,726
common shares and redeemed 105,814 units convertible in to common shares for a
total cost of $178.0 million and $2.9 million, respectively.
10. Convertible Preferred Shares
The 4,165,000 preferred shares paid a cumulative dividend quarterly in
arrears in an amount equal to $2.25 per share per annum. The preferred shares
generally had no voting rights and had a liquidation preference of $25 per share
plus accrued and unpaid distributions. The preferred shares were 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 were not redeemable prior to April 30, 2001.
In April 2001, we announced that our issued and outstanding preferred
shares would be redeemed effective April 30, 2001 at a redemption price of
$25.00 per share plus an amount equal to all accumulated, accrued and unpaid
dividends as of April 30, 2001. Prior to redemption, 3.1 million preferred
shares were converted into 2.4 million common shares. The remaining preferred
shares were redeemed for an aggregate of $27.1 million, including unpaid
dividends, using funds available under our unsecured line of credit.
11. Townhome Sales
We are currently constructing 17 for-sale townhomes in the downtown Dallas
area at a total cost of approximately $5.4 million. During the nine months ended
September 30, 2001, we sold three units at a total sales price of approximately
$1 million. The proceeds received from these townhome sales are included in
other income in our consolidated financial statements. Other expenses in our
consolidated financial statements represents the construction costs associated
with the townhomes sold during the quarter.
11
12. Contingencies
Prior to our merger with Oasis Residential, Inc. in April 1998, 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 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.
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 the local real estate market
practice, such letters of intent are non-binding, and neither party to the
letter of intent is obligated to pursue the transaction unless and until a
definitive contract is entered into by the parties. The letters of intent and
any resulting definitive contracts 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 are
obligated to sell under a sales contract.
We are currently in the due diligence period on contracts for the purchase
of land for development. No assurance can be made that we will complete the
purchases or will be satisfied with the outcome of the due diligence.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Overview
The following discussion should be read in conjunction with all of the
financial statements and notes appearing elsewhere in this report as well as the
audited financial statements appearing in our 2000 Annual Report to
Shareholders. Where appropriate, comparisons are made on a dollars
per-weighted-average-unit basis in order to adjust for changes in the number of
apartment homes owned during each period. The statements contained in this
report that are not historical facts are forward-looking statements, and actual
results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the following: changes in general economic
conditions, changes in financial markets and interest rates, our failure to
qualify as a real estate investment trust ("REIT") and environmental
uncertainties and natural disasters.
Business
Camden Property Trust is a real estate investment trust which reports as a
single business segment. At September 30, 2001, we owned interests in, operated
or were developing 146 multifamily properties containing 51,883 apartment homes
located in nine states from Florida to California. One of our multifamily
properties containing 538 apartment homes was under development at September 30,
2001. Two of our newly developed multifamily properties containing 1,000
apartment homes were in lease-up at September 30, 2001. Additionally, we have
several sites which we intend to develop into multifamily apartment communities.
Property Update
During the first nine months of 2001, stabilization occurred at three
properties totaling 1,256 apartment homes: The Park at Oxmoor in Louisville, The
Park at Lee Vista in Orlando, and The park at Arizona Center in Phoenix. 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 completed construction of 1,000 apartment homes at The
Park at Farmers Market, Phase I in Dallas and The Park at Crown Valley in
Mission Viejo. Construction continued at one property totaling 538 apartment
homes: Camden Harbour View in Long Beach, which will begin leasing during the
third quarter of 2002.
During the second quarter of 2001, we acquired Camden Pecos Ranch, a 272
apartment home property located in Phoenix, Arizona for $20.6 million. Camden
Pecos Ranch was developed under our third party development pipeline and was
completed during the fourth quarter 2000. It stabilized during the first quarter
2001.
Dispositions during the first nine months of 2001 included two parcels of
land totaling 22.7 acres located in Houston and three operating properties with
a total of 1,264 apartment homes located in North Carolina and Dallas. The
proceeds from the land sale totaled $8.6 million and were used to reduce
indebtedness outstanding under our unsecured line of credit. The operating
properties were held through a joint venture and the gains from these
dispositions, totaling $6.6 million, are included in "Equity in income of joint
ventures".
13
Property Portfolio
Our multifamily property portfolio, excluding land held for future
development is summarized as follows:
September 30, 2001 December 31, 2000
--------------------- ---------------------
Apartment Apartment
Homes Properties Homes Properties
--------- ---------- --------- ----------
Operating Properties
West
Las Vegas, Nevada (a) 10,653 37 10,653 37
Denver, Colorado (a) 2,529 8 2,529 8
Phoenix, Arizona 2,109 7 1,837 6
Southern California 1,653 4 1,272 3
Tucson, Arizona 821 2 821 2
Reno, Nevada 450 1 450 1
Central
Dallas, Texas (b) 8,359 23 8,447 23
Houston, Texas 7,190 16 7,190 16
St. Louis, Missouri 2,123 6 2,123 6
Austin, Texas 1,745 6 1,745 6
Corpus Christi, Texas 1,663 4 1,663 4
Kansas City, Missouri 596 1 596 1
East
Tampa, Florida 5,023 11 5,023 11
Orlando, Florida 2,804 6 2,804 6
Charlotte, North Carolina (b) 1,659 6 1,879 7
Louisville, Kentucky 1,448 5 1,448 5
Greensboro, North Carolina (b) 520 2 856 3
--------- ---------- --------- ----------
Total Operating Properties 51,345 145 51,336 145
--------- ---------- --------- ----------
Properties Under Development
West
Southern California 538 1 918 2
Central
Dallas, Texas 620 1
--------- ---------- --------- ----------
Total Properties Under Development 538 1 1,538 3
--------- ---------- --------- ----------
Total Properties 51,883 146 52,874 148
--------- ---------- --------- ----------
Less: Joint Venture Properties (a) (b) 5,239 20 6,503 23
--------- ---------- --------- ----------
Total Properties Owned 100% 46,644 126 46,371 125
========= ========== ========= ==========
(a) Include properties held in joint ventures as follows: one property with 320
apartment homes 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 in Nevada in which we own a 20% interest, the
remaining interest is owned by an unaffiliated private investor.
(b) In addition to the properties listed in footnote (a), the December 31, 2000
balances 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.
14
At September 30, 2001, we had two completed properties under lease-up as
follows:
Number of Estimated
Product Apartment % Leased Date of Date of
Property and Location Type Homes at 11/09/01 Completion Stabilization
- ------------------------------------ ------- --------- ----------- ---------- -------------
The Park at Farmers Market, Phase I
Dallas, TX Urban 620 80% 2Q01 1Q02
The Park at Crown Valley
Mission Viejo, CA Garden 380 61% 3Q01 1Q02
At September 30, 2001, we had one development property under construction
as follows:
Number of Estimated Estimated Estimated
Product Apartment Cost Date of Date of
Property and Location Type Homes ($ millions) Completion Stabilization
- ------------------------------------ ------- --------- ------------ ---------- -------------
Under Construction
Camden Harbour View
Long Beach, CA Urban 538 $ 120.0 2Q03 2Q04
We stage our construction to allow leasing and occupancy during the
construction period which we believe minimizes the duration of the lease-up
period following completion of construction. Our accounting policy related to
properties in the development and leasing phase is that all operating expenses,
excluding depreciation, associated with occupied apartment homes are expensed
against revenues generated by those apartment homes as they become occupied. 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. Upon achieving 90%
occupancy, or generally one year from opening the leasing office (with some
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.
Our consolidated financial statements includes $136.9 million related to
the development of three urban land projects located in Dallas, Houston and Long
Beach, California. Of this amount, $88.5 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 $19.3 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
$29.1 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.
We are currently constructing 17 for-sale townhomes in the downtown Dallas
area at a total cost of approximately $5.4 million. During the nine months ended
September 30, 2001, we sold three of the units at a total sales price of
approximately $1.0 million. The proceeds received from the townhome sales are
included in other income in our consolidated financial statements. Other
expenses in our consolidated financial statements represents the construction
costs associated with the townhomes sold during the quarter.
Subsequent to quarter end, we purchased the three third party construction
projects which were in pre-development at September 30, 2001.
15
Comparison of the Quarter Ended September 30, 2001 and September 30, 2000
Earnings before interest, depreciation and amortization increased $7.0
million, or 11.7%, from $60.1 million to $67.1 million for the three months
ended September 30, 2000 and 2001, respectively. The weighted average number of
apartment homes for the third quarter of 2001 decreased by 1,205 apartment
homes, or 2.6%, from 46,940 to 45,735. The decrease in the weighted average
number of apartment homes is due to the disposition of 3,599 apartment homes in
the third quarter of 2000, offset by property development and acquisition. Total
operating properties were 125 and 122 at September 30, 2001 and 2000,
respectively. The 45,735 weighted average apartment homes and the 125 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
91% and 97% of our total revenues for the quarters ended September 30, 2001 and
2000, respectively. The decrease in rental revenue as a percent of total revenue
is due to the increase in the equity in income from our joint ventures due to
gains recognized in those joint ventures and an increase in fees and asset
management income. 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 $1.6 million, or 2.7%, from $60.1 million to
$61.8 million for the quarters ended September 30, 2000 and 2001, respectively.
Rental income for the quarter ended September 30, 2001 increased $2.5
million, or 2.7%, over the quarter ended September 30, 2000. Rental income per
apartment home per month increased $35 or 5.4%, from $655 to $691 for the third
quarters of 2000 and 2001, 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,
properties sold in 2000 had average rental rates which were significantly lower
than the portfolio average. Overall average occupancy was 94.6% for the quarters
ended September 30, 2000 and 2001.
Other property income increased $527,000 from $7.3 million to $7.8 million
for the three months ended September 30, 2000 and 2001, respectively, which
represents a monthly increase of $5 per apartment home. The increase in other
property income was due primarily to increases from revenue sources such as
telephone, cable, water and other miscellaneous property fees.
Equity in income of joint ventures increased $5.2 million over the third
quarter of 2000, primarily from gains recognized in one of our joint ventures
from the sale of one property totaling 708 apartment homes. Other income for the
nine months ended September 30, 2001 increased $900,000 over the same period in
2000. This increase was primarily due to the sale of townhomes during the
period.
Property operating and maintenance expenses increased $1.2 million, from
$29.3 million for the quarter ended September 30, 2000 to $30.5 million for the
quarter ended September 30, 2001. On an annualized basis, property operating and
maintenance expenses increased $167 per unit, or 6.7%. This increase is
primarily due to significant increases in property insurance costs, as well as
increases in salary and benefit expenses per unit. Property operating and
maintenance expenses as a percent of total property income increased from 29.5%
to 29.7% for the quarters ended September 30, 2000 and 2001, respectively. Our
operating expense ratios increased primarily as a result of increases in
property insurance costs and salary and benefit costs, offset by operating
efficiencies generated by our newly developed properties. Additionally, the
operating expense ratios for the properties sold in 2000 were higher than the
portfolio average.
Real estate taxes increased $235,000 from $10.1 million to $10.3 million
for the third quarters of 2000 and 2001, respectively, which represents an
16
annual increase of $43 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 $500,000 from $2.9 million to
$3.4 million, and increased as a percent of revenues from 2.9% to 3.1% for the
quarters ended September 30, 2000 and 2001 respectively. The increase was
primarily due to increases in costs associated with our third party construction
and an increase in salary and benefit expenses.
Gross interest cost before interest capitalized to development properties
decreased from $21.4 million for the quarter ended September 30, 2000 to $20.2
million for the quarter ended September 30, 2001. This decrease is primarily due
to lower debt balances in 2001 arising from proceeds received from the
dispositions in the third quarter of 2000 and lower interest rates on variable
debt. The overall decrease in interest expense was offset by increases in the
debt used to fund new development, acquisitions, advances to third party
development properties and the repurchase of our preferred shares. Interest
capitalized was $2.5 million and $3.8 million for the quarters ended September
30, 2001 and 2000, respectively.
Depreciation and amortization increased from $23.7 million to $26.6
million. This increase was due primarily to new development, property
acquisition and capital improvements partially offset by dispositions in the
third quarter of 2000.
Gains on sales of properties for the quarter ended September 30, 2001
decreased $16.3 million from the same period in 2000 due to the sale of eleven
properties containing a total of 3,599 apartment homes during the third quarter
of 2000.
Comparison of the Nine Months Ended September 30, 2001 and September 30, 2000
Earnings before interest, depreciation and amortization increased $15.3
million, or 8.6%, from $177.4 million to $192.7 million for the nine months
ended September 30, 2000 and 2001, respectively. The weighted average number of
apartment homes for the first nine months of 2001 decreased by 1,696 apartment
homes, or 3.6%, from 47,076 to 45,380. The decrease in the weighted average
number of apartment homes is due to the disposition of 3,599 apartment homes in
the third quarter of 2000, offset by property development and acquisition. Total
operating properties were 125 and 122 at September 30, 2001 and 2000,
respectively. The weighted average apartment homes and the number of operating
properties exclude the impact of our ownership interest in properties owned in
joint ventures.
Revenues from our rental operations comprised 94% and 97% of our total
revenues for the nine months ended September 30, 2001 and 2000, respectively.
The decrease in rental revenue as a percent of total revenue is due to the
increase in the equity in income from our joint ventures due to gains recognized
in those joint ventures and an increase in fees and asset management income. Net
operating income increased $6.3 million, or 3.5%, from $178.3 million to $184.5
million for the nine months ended September 30, 2000 and 2001, respectively.
Rental income for the nine months ended September 30, 2001 increased $6.6
million, or 2.4%, over the nine months ended September 30, 2000. Rental income
per apartment home per month increased $40 or 6.3%, from $645 to $686 for the
first nine months of 2000 and 2001, 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,
properties sold in 2000 had average rental rates which were significantly lower
than the portfolio average.
Other property income increased $1.9 million from $20.2 million to $22.1
million for the nine months ended September 30, 2000 and 2001, respectively,
17
which represents a monthly increase of $6 per apartment home. The increase in
other property income was due primarily to increases from revenue sources such
as telephone, cable, water and other miscellaneous property fees.
Equity in income of joint ventures increased $7.7 million over the first
nine months of 2000, primarily from gains recognized in one of our joint
ventures from the sale of three properties totaling 1,264 apartment homes. Other
income for the nine months ended September 30, 2001 increased $2.5 million over
the same period in 2000. This increase was due to interest earned on our
advances to third party development properties and from sales of townhomes.
Property operating and maintenance expenses increased $1.5 million, from
$85.3 million to $86.8 million, but decreased as a percent of total property
income from 29.0% to 28.7% for the nine months ended September 30, 2000 and
2001, respectively. On an annualized basis, property operating and maintenance
expenses increased $136 per unit, or 5.6%. This increase is primarily due to
significant increases in property insurance costs as well as increases 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. Additionally, the operating expense ratios for the properties sold
in 2000 were higher than the portfolio average.
Real estate taxes increased $715,000 from $30.1 million to $30.8 million
for the first nine months of 2000 and 2001, respectively, which represents an
annual increase of $53 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 $127,000 from $9.7 million to
$9.8 million, but decreased as a percent of revenues from 3.2% to 3.0% for the
nine months ended September 30, 2000 and 2001, respectively.
Gross interest cost before interest capitalized to development properties
decreased from $63.7 million for the quarter ended September 30, 2000 to $60.9
million for the quarter ended September 30, 2001. This decrease is primarily due
to lower debt balances in 2001 arising from proceeds received from the
dispositions in the third quarter of 2000 and lower interest rates on variable
debt. The overall decrease in interest expense was offset by increases in the
debt used to fund new development, acquisitions, advances to third party
development properties and the repurchase of our preferred shares. Interest
capitalized was $2.5 million and $3.8 million for the quarters ended September
30, 2001 and 2000, respectively.
Depreciation and amortization increased from $73.5 million to $75.9
million. This increase was due primarily to new development, property
acquisition and capital improvements, partially offset by dispositions during
the third quarter of 2000.
Gains on sale of properties for the nine months ended September 30, 2001
totaled $2.5 million due primarily to the sale of 22.7 acres of undeveloped land
located in Houston. Gains on sales of properties for the nine months ended
September 30, 2000 totaled $18.4 million due primarily to the sale of eleven
properties containing a total of 3,599 apartment homes. Also included in the
2000 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.
Liquidity and Capital Resources
Financial Structure
We intend to continue maintaining what management believes to be a
conservative capital structure by:
18
(i) using 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 3.7
and 3.4 times for the nine months ended September 30, 2001 and 2000,
respectively. At September 30, 2001 and 2000, 80.2% and 75.5%, respectively, of
our properties (based on invested capital) were unencumbered.
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 developments;
(v) common share repurchases; and
(vi) distributions on our common and preferred equity.
We consider our long-term liquidity requirements to be the repayment of
maturing secured 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, if the dispositions fit our strategy of portfolio
balancing discussed below.
We intend to concentrate our growth efforts toward selective development
and acquisition opportunities in our current markets, and through the
acquisition of existing operating portfolios and the development of properties
in selected new markets. During the nine months ended September 30, 2001, we
incurred $38.2 million in development costs and $20.6 million in acquisition
costs. We are developing one property at an aggregate cost of approximately
$120.0 million, $27.9 million of which was incurred through September 30, 2001.
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. We expect that any such sales
should generate capital for acquisitions and new developments or for debt
reduction.
During the first nine months of 2001 we sold 22.7 acres of undeveloped land
located in Houston. Net proceeds from these sales were approximately $8.6
million. We used the proceeds to reduce indebtedness outstanding under our
unsecured line of credit.
Net cash provided by operating activities totaled $152.0 million for the
nine months ended September 30, 2001, an increase of $31.9 million, or 26.6%,
19
over the same period in 2000. This increase was attributable to a $6.3 million
increase in net operating income from the real estate portfolio for the nine
months ended September 30, 2001 as compared to the same period in 2000. Equity
in income of joint ventures increased $7.7 million due to the sales of three
joint venture properties. Fee and asset management and other income increased a
total of $3.5 million from third party construction fees and interest on notes
receivable. Also, other assets increased $10.9 million during 2001, primarily
from increases in third party construction receivables and technology
investments.
Net cash used in investing activities totaled $91.3 million for the nine
months ended September 30, 2001 compared to $15.4 million provided by investing
activities for the same period in 2000. Total real estate assets, before joint
ventures and accumulated depreciation, increased $70.7 million during the nine
months ended September 30, 2001, compared to a decrease $51.7 million during the
nine months ended September 30, 2000. For the nine months ended September 30,
2001, net cash flows provided by investing activities included $9.8 million in
net proceeds received from property dispositions. This increase in cash was
offset by expenditures for acquisitions, property development and capital
improvements totaling $20.6 million, $38.2 million and $19.4 million,
respectively for the nine months ended September 30, 2001. Additionally, net
advances to third party development properties totaled $15.0 million during the
period. For the nine months ended September 30, 2000, net cash flows provided by
investing activities included $150.1 million in net proceeds received from
property dispositions during 2000. This increase in cash was offset by
expenditures for property development and capital improvements totaling $80.9
million and $22.0 million, respectively. Advances to third party development
properties totaled $28.7 million during the nine months ended September 30,
2000.
Net cash used in financing activities totaled $62.4 million for the nine
months ended September 30, 2001 compared to $127.6 million for the nine months
ended September 30, 2000. During the nine months ended September 30, 2001, we
paid distributions totaling $89.3 million. We also paid $26.9 million during the
first nine months of 2001 to repurchase our unconverted preferred shares. We
received proceeds totaling $313.4 million from the issuance of senior unsecured
notes and mortgage notes. The proceeds from these issuances were used to pay
down borrowings under our line of credit and repay notes payable, which
decreased $105.0 million and $154.7 million, respectively, for the nine months
ended September 30, 2001. During the nine months ended September 30, 2000, we
paid $84.2 million for distributions and repurchased $26.3 million common shares
and units convertible into common shares. These payments were funded by the
issuance of $17.5 million in preferred units and the proceeds received from the
property dispositions, which were also used to reduce borrowings under our line
of credit which decreased $31.0 million.
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 September
30, 2001, we had repurchased approximately 6.9 million common shares and
redeemed approximately 106,000 units at a total cost of $180.9 million.
In September 2001, we announced that our Board of Trust Managers had
declared a dividend in the amount of $0.61 per share for the third quarter of
2001 which was paid on October 17, 2001 to all common shareholders of record as
of September 28, 2001. We paid an equivalent amount per unit to holders of the
common operating partnership units. This distribution to common shareholders and
holders of common operating partnership units equates to an annualized dividend
rate of $2.44 per share or unit.
In April 2001, we announced that our issued and outstanding preferred
shares would be redeemed effective April 30, 2001 at a redemption price of
20
$25.00 per share plus an amount equal to all accumulated, accrued and unpaid
dividends as of April 30, 2001. Prior to redemption, 3.1 million preferred
shares were converted into 2.4 million common shares. The remaining preferred
shares were redeemed for an aggregate of $27.1 million, including unpaid
dividends, using funds available under our unsecured line of credit.
As of September 30, 2001, we had senior unsecured debt totaling $907.8
million and secured mortgage loans totaling $284.4 million. Our indebtedness,
excluding our unsecured line of credit, has a weighted average maturity of 6.8
years as of September 30, 2001. Scheduled principal repayments on all notes
payable outstanding at September 30, 2001 is as follows:
(In thousands)
Year Amount
---------- ------------
2001 $ 51,134
2002 39,284
2003 87,268
2004 325,753
2005 61,372
2006 and thereafter 627,377
------------
Total $ 1,192,188
============
The scheduled principal repayments in 2001 include $50.0 million senior
unsecured notes due November 2001, which were issued in November 1996 and which
we expect to repay from the unsecured line of credit.
Financial Flexibility
We have a $420 million line of credit with a group of 14 banks which
matures August 2004. The scheduled interest rate on the line of credit 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.
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 comparable
to or below those available under the unsecured line of credit.
As of September 30, 2001, we had $329 million available under the unsecured
line of credit and $435.5 million available under our universal shelf
registration. 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.
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
unsecured obligations and rank equally with all other unsecured and
unsubordinated indebtedness. The proceeds from the sale of the notes were $197.8
21
million, net of issuance costs. We used the net proceeds to reduce indebtedness
outstanding under the unsecured line of credit.
In August 2001, we issued $14.5 million aggregate principal amounts of
senior unsecured medium- term notes. These fixed rate notes, due in August 2010,
bear interest at a rate of 6.79% payable semiannually on March 15 and September
15. The net proceeds were used to reduce indebtedness outstanding under the
unsecured lines of credit.
In September 2001, we issued an aggregate principal amount of $100 million
of 6.75% nine-year senior unsecured notes maturing on September 15, 2010.
Interest on the notes is payable semiannually on March and September 15,
commencing on March 15, 2002. 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 $99.2 million, net of issuance costs.
We used the net proceeds to reduce indebtedness outstanding under the unsecured
line of credit.
During the third quarter of 2001, we paid off four mortgage notes totaling
$38.7 million. The interest rates on the notes ranged from 7.50% to 7.89%. We
incurred prepayment penalties totaling $388,000 in connection with the mortgage
payoffs. We repaid these mortgages using proceeds available under our unsecured
line of credit. The interest rate on the line of credit is significantly lower
than the rate on the repaid mortgages.
At September 30, 2001, the weighted average interest rate on floating rate
debt was 4.09%.
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 assumes conversion at the beginning of the period of all dilutive
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 REITs may not be comparable to our calculation. Our diluted FFO for the
three and nine months ended September 30, 2001 increased $2.8 million and $8.0
million over the three and nine months ended September 30, 2000, respectively.
On a per share basis, diluted FFO for the three and nine months ended September
30, 2001 increased approximately 8.0% and 7.3%, respectively over the same
periods in 2000. The increase in diluted FFO was primarily due to a $1.6 million
and $6.3 million increase in net operating income from our real estate portfolio
for the three and nine months ended September 30, 2001 compared to the same
period in 2000.
22
The calculation of basic and diluted FFO for the three and nine months ended
September 30, 2001 and 2000 follows:
(In thousands)
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Funds from operations:
Net income to common shareholders $ 18,096 $ 28,203 $ 51,231 $ 51,473
Real estate depreciation 25,586 23,141 73,591 71,443
Adjustments for unconsolidated joint ventures (2,838) 814 (3,632) 2,432
Gain on sales of properties (123) (16,440) (2,495) (18,373)
Extraordinary charge (early retirement of debt) 388 388
--------- --------- --------- ---------
Funds from operations - basic 41,109 35,718 119,083 106,975
Preferred share dividends 2,343 2,545 7,029
Income allocated to operating partnership units 1,216 1,435 2,765 2,234
Adjustments for convertible subordinated debentures 47 37 155
--------- --------- --------- ---------
Funds from operations - diluted $ 42,325 $ 39,543 $124,430 $116,393
========= ========= ========= =========
Weighted average shares - basic 40,669 38,050 39,490 38,156
Common share options and awards granted 1,407 847 1,201 684
Preferred shares 3,207 1,406 3,207
Minority interest units 2,493 2,545 2,515 2,548
Convertible subordinated debentures 97 25 111
--------- --------- --------- ---------
Weighted average shares - diluted 44,569 44,746 44,637 44,706
========= ========= ========= =========
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 our 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
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 June 2001, FASB issued SFAS No. 141, "Business Combinations", which is
effective for business combinations initiated after June 30, 2001. SFAS No. 141
requires all business combinations to be accounted for under the purchase method
and that the pooling-of-interest method is no longer allowed. The adoption of
SFAS No. 141 will not have a material impact on our financial position, results
of operations, or cash flows.
In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which is effective for fiscal years beginning after December 15, 2001.
23
SFAS No. 142 requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. The adoption of SFAS No. 142 will not have a
material impact on our financial position, results of operations, or cash flows.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for fiscal years beginning after June 15, 2002.
SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The adoption of SFAS No. 143 will not have a material
impact on our financial position, results of operations or cash flows.
In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long- Lived Assets", which is effective for fiscal years beginning
after December 15, 2001. SFAS No. 144 addresses accounting and reporting for the
impairment or disposal of a segment of a business. The adoption of SFAS No. 144
will not have a material impact on our financial position, results of operations
or cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
No material changes have occurred since our Annual Report on Form 10-K for
the year ended December 31, 2000.
24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Current report on Form 8-K dated September 12, 2001 and filed with the
Commission on September 17, 2001, contained information under Item 5
(Other Events) and Item 7 (Financial Statements, Pro Forma Financial
Information and Exhibits).
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on our behalf by the
undersigned thereunto duly authorized.
CAMDEN PROPERTY TRUST
/s/ G. Steven Dawson November 14, 2001
- ------------------------------------------ --------------------------------
G. Steven Dawson Date
Sr. Vice President of Finance,
Chief Financial Officer and Treasurer
/s/ Dennis M. Steen November 14, 2001
- ------------------------------------------ --------------------------------
Dennis M. Steen Date
Vice President - Controller and Chief
Accounting Officer