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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-12110
CAMDEN PROPERTY TRUST
(Exact name of Registrant as specified in its Charter)
TEXAS 76-6088377
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3200 Southwest Freeway, Suite 1500, Houston, Texas 77027
(Address of principal executive offices)
(713) 964-3555
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
As of November 4, 1996, there were 16,308,185 shares of Common
Shares of Beneficial Interest, $0.01 par value outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
CAMDEN PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
Real estate assets, at cost:
Land $ 86,769 $ 81,544
Buildings and improvements 512,519 471,584
Projects under development,
including land 40,238 54,470
-------- --------
639,526 607,598
Less: accumulated depreciation (51,321) (36,800)
-------- --------
588,205 570,798
Accounts receivable - affiliates 353 369
Notes receivable - affiliates 3,686 3,477
Deferred financing and other
assets, net 5,341 4,839
Cash and cash equivalents 1,930 236
Restricted cash - escrow deposits 1,873 2,633
-------- --------
Total assets $601,388 $582,352
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable:
Unsecured $180,609 $122,783
Secured 93,050 112,676
Accounts payable 5,225 8,300
Accrued real estate taxes 10,480 11,865
Accrued expenses and other
liabilities 5,678 6,276
Distributions payable 6,987 6,623
-------- --------
Total liabilities 302,029 268,523
7.33% Convertible Subordinated
Debentures 40,763 44,050
Preferred Shares of Beneficial Interest - 1,950
Shareholders' Equity:
Common shares of beneficial interest 149 145
Additional paid-in capital 307,779 299,808
Distributions in excess of net income (45,911) (29,625)
Unearned restricted share awards (3,421) (2,499)
-------- --------
Total shareholders' equity 258,596 267,829
-------- --------
Total liabilities and
shareholders' equity $601,388 $582,352
======== ========
See Notes to Consolidated Financial Statements.
-2-
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
Revenues
Rental income $27,066 $23,697 $78,167 $67,409
Other income 1,702 1,388 4,422 3,722
------- ------- ------- -------
Total revenues 28,768 25,085 82,589 71,131
Expenses
Property operating and
maintenance 10,181 9,280 28,892 25,476
Real estate taxes 3,357 2,994 9,905 8,836
General and administrative 1,153 1,047 3,402 2,999
Interest 4,747 3,581 12,984 9,794
Depreciation and
amortization 6,279 5,266 17,447 14,885
------- ------- ------- -------
Total expenses 25,717 22,168 72,630 61,990
------- ------- ------- -------
Income before loss on
sales of properties and
extinguishment of hedges
upon debt refinancing 3,051 2,917 9,959 9,141
Loss on sales of properties (250) - (55) -
Extinguishment of hedges
upon debt refinancing - - (5,351) -
------- ------- ------- -------
Net income 2,801 2,917 4,553 9,141
Preferred share dividends - (9) (4) (29)
------- ------- ------- -------
Net income to common
shareholders $ 2,801 $ 2,908 $ 4,549 $ 9,112
======= ======= ======= =======
Net income per common
and common equivalent
share $ 0.19 $ 0.20 $ 0.31 $ 0.63
Distributions declared
per common share $ 0.475 $ 0.46 $ 1.425 $ 1.38
Weighted average number
of common and common
equivalent shares
outstanding 14,695 14,471 14,573 14,408
See Notes to Consolidated Financial Statements.
-3-
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Nine Months Ended
September 30,
-------------------------
1996 1995
-------- -------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 4,553 $ 9,141
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 17,447 14,885
Loss on sales of properties 55 -
Extinguishment of hedges upon debt
refinancing 5,351 -
Accretion of discount on unsecured
notes payable 46 -
Net change in operating accounts (3,872) 3,748
-------- -------
Net cash provided by operating
activities 23,580 27,774
CASH FLOW FROM INVESTING ACTIVITIES
Investment in real estate assets (56,738) (73,580)
Net proceeds from sales of properties 23,013 -
Increase in notes receivable for net
advances to affiliates (209) (783)
Other 4 (7)
-------- -------
Net cash used in investing
activities (33,930) (74,370)
CASH FLOW FROM FINANCING ACTIVITIES
Net (decrease) increase in lines
of credit (41,783) 41,759
Proceeds from notes payable 106,883 30,650
Extinguishment of hedges upon
debt refinancing (5,351)
Principal reduction on notes payable (26,947) (4,466)
Distributions to common shareholders (20,471) (19,448)
Payment of loan costs (1,549) (559)
Other 1,262 141
-------- -------
Net cash provided by financing
activities 12,044 48,077
-------- -------
Net increase in cash and cash
equivalents 1,694 1,481
Cash and cash equivalents,
beginning of period 236 241
-------- -------
Cash and cash equivalents,
end of period $ 1,930 $ 1,722
======== =======
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of
interest capitalized $ 13,558 $ 8,437
Interest capitalized $ 3,389 $ 3,892
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Conversion of 7.33% subordinated
debentures to common shares, net $ 3,173 $ 3,588
Shares issued under benefit plans $ 1,960 $ 1,916
Conversion of preferred shares and
dividends $ 1,954 -
See Notes to Consolidated Financial Statements.
-4-
CAMDEN PROPERTY TRUST
Notes to Consolidated Financial Statements
(Unaudited)
1. Interim Unaudited Financial Information
The accompanying interim unaudited financial information has
been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations, although management believes that the
disclosures are adequate to make the information presented not
misleading. In the opinion of management, all adjustments and
eliminations, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of Camden
Property Trust as of September 30, 1996 and the results of
operations and cash flows for the three and nine months ended
September 30, 1996 and 1995 have been included. The results of
operations for such interim periods are not necessarily
indicative of the results for the full year.
Summary
Camden Property Trust and its subsidiaries ("Camden" or the
"Company") are engaged in the ownership, development,
acquisition, management, marketing and disposition of multifamily
apartment communities in the Southwest and Mountain regions of
the United States. As of September 30, 1996, the Company owned
and operated 49 multifamily properties containing 17,855 units
located in Houston, Dallas/Fort Worth, Austin, Corpus Christi, El
Paso, Phoenix and Tucson. These 49 properties had a weighted
average occupancy rate of 94.5% for the quarter ended September
30, 1996. The Company is developing four multifamily properties
in Houston, Dallas, and Phoenix which will, when completed, add
1,510 units to its portfolio and has two properties on which it
intends to develop an estimated 448 units.
Property Update
During the first nine months of 1996, the Company completed
construction of the 428-unit Scottsdale Legacy apartments in
Phoenix, the 456-unit Park at Addison apartments in Dallas, the
516-unit Vanderbilt Square apartments in Houston and the 288-unit
Breakers apartments in Corpus Christi. During the second quarter,
Vanderbilt Square and the Breakers had stabilized. As of
September 30, 1996, the Park at Addison and Scottsdale Legacy
were 87% and 91% leased and 82% and 81% occupied, respectively.
At the end of the third quarter of 1996, construction began
on the Village at Buckingham apartments, a 464-unit property in
Dallas, and on the second phase of the 378-unit Vanderbilt Square
apartments in Houston. These properties are expected to be ready
for first occupancy during the first half of 1997 with
stabilization expected to occur during 1998.
Construction continued on the Park at Sugar Grove apartments,
a 380-unit property in Houston. The property was 22% leased and
17% occupied as of September 30, 1996. Construction began on this
property and Arrowhead Springs apartments, a 288-unit property in
Phoenix, during the first quarter of 1996. Arrowhead Springs
should be ready for first occupancy during the fourth quarter of
1996 and stabilization of both of these properties is expected to
occur during 1997.
On May 1, 1996, the Company purchased a 400-unit multifamily
property in Houston adjacent to an existing property, Sierra
Pines. The two properties are operated as one, utilizing the
existing property management and staff at Sierra Pines.
On August 1, 1996, the Company acquired an 11.5-acre site
located in the Dallas area where it plans to develop the Park at
CentrePort, a garden-style apartment community containing
268 units. Construction is scheduled to begin early in 1997 and
the project cost is estimated to be approximately $14 million.
The Company seeks to selectively dispose of assets that are
either not in core markets or that have a lower projected net
operating income growth rate than the overall portfolio. The
proceeds from these sales may be reinvested in acquisitions or
developments or used to retire debt. On July 1, 1996, the
Company sold a 166-unit property in Houston. The property, which
was purchased in the Company's initial public offering, was sold
for $3.6 million resulting in a net loss on sale of $250,000.
During the first quarter of 1996, the Company disposed of three
properties for slightly in excess of their net book value of
$19.2 million. These properties contained 117 units in Houston,
476 units in Dallas and 216 units in San Antonio. The Company
expects to close on the sale of the 244-unit Armand Place
apartments in Houston during the fourth quarter of 1996 at a
price which exceeds the net book value.
Other
In September 1996, the Company announced that its Board of
Trust Managers declared a dividend in the amount of $0.475 per
common share for the third quarter of 1996. This quarterly
dividend represents an annualized dividend rate of $1.90 per
share.
2. Notes Payable
A summary of the Company's notes payable follows:
(In thousands)
September 30, December 31,
1996 1995
------------- ------------
Unsecured notes:
6 5/8% Senior Notes, due 2001 $ 99.6 $ -
Credit facility 81.0 122.8
------ ------
180.6 122.8
Secured notes:
Construction loans 34.5 53.5
Conventional mortgage loans 58.6 59.2
------ ------
93.1 112.7
------ ------
Total notes payable $273.7 $235.5
====== ======
Floating rate debt included in
notes payable $ 90.5 $ 26.3
The Company funds its development and acquisitions through a
combination of equity capital, conventional mortgage loans,
construction loans and an unsecured revolving credit facility of
$150 million with five banks (the "Unsecured Credit Facility").
During the third quarter of 1996, the Company retired three
construction loans aggregating $26.0 million utilizing the
Unsecured Credit Facility. On October 16, 1996, the Company
completed a common equity offering from its previously filed
shelf registration statement (the "Offering") selling 1,090,000
shares at a gross price of $25.875 per share. The net proceeds
of $27.6 million were used to retire an additional construction
loan which had an outstanding balance at September 30, 1996 of
$25.1 million (see Note 8, "Subsequent Events" for further
discussion of the Offering). After the retirement of these
construction loans, including the $25.1 million repayment on
October 16, 1996, the Company has one $9.4 million construction
loan outstanding. The interest rates on the remaining
construction loan and the Unsecured Credit Facility were reduced
to LIBOR plus 150 basis points or Prime during 1996.
During the first quarter of 1996, the Company issued from its
previously filed shelf registration statement an aggregate
principal amount of $100 million of five-year senior unsecured
notes ("Notes"). Interest on the Notes accrues at a rate of
6 5/8% per annum and is payable semi-annually on February 15 and
August 15, commencing on August 15, 1996. The Notes are direct,
senior unsecured obligations of the Company and rank equally with
all other unsecured and unsubordinated indebtedness of the
Company from time to time outstanding. The Notes may be redeemed
at any time at the option of the Company subject to a make-whole
provision. The proceeds to the Company from the sale of the
Notes were $98.4 million, net of issuance costs. The Company
used the net proceeds to reduce $93.4 million of indebtedness
under the Unsecured Credit Facility, to pay $4.9 million arising
from the early settlement of hedging agreements related to the
indebtedness repaid and to pay $0.5 million to extinguish a
bank's option related to a settled hedging agreement. At
September 30, 1996, a $25 million interest rate hedging agreement
remained in effect and is scheduled to mature in July 2000 with a
bank's option to extend to July 2002. The actual rate on such
$25 million of indebtedness is 6.14% fixed, plus a 150 basis
point spread, or 7.64%. This swap continues to operate as a
hedge to manage the risk of interest rate fluctuations.
3. Changes 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,
-----------------
1996 1995
------- -------
Decrease (increase) in assets:
Escrow deposits $ 760 $ 338
Accounts receivable - affiliates 16 (42)
Other assets 410 (539)
Increase (decrease) in liabilities:
Accounts payable (3,075) 3,606
Accrued real estate taxes (1,385) (876)
Accrued expenses and other liabilities (598) 1,261
------- ------
Net change in operating accounts $(3,872) $3,748
======= ======
4. Property Operating and Maintenance Expenses
Property operating and maintenance expenses included normal
repairs and maintenance totaling $6.2 million for the first nine
months of 1996 and $5.3 million for the same period in 1995. In
addition, amounts incurred subsequent to the initial renovation
and rehabilitation periods for recurring expenditures such as
carpets, appliances and other furnishings and equipment, which
might otherwise be capitalized, totaled $2.7 million for the
first nine months of 1996 and $1.6 million for the same period in
1995 and were included in property operating expense.
5. Restricted Share Awards
During 1996, restricted shares, aggregating 104,841 shares,
were granted in lieu of cash compensation to certain key
employees and non-employee trust managers. At the end of the
third quarter, 256,847 of such shares had been granted since the
inception of the 1993 Share Incentive Plan of which 35,912 awards
were canceled and 56,381 have vested. The value of the restricted
share awards at the date of grant are amortized over vesting
periods ranging from three to five years from the date of grant.
6. Convertible Preferred Shares
During the first quarter, all preferred shareholders elected
to convert all of their preferred shares into 85,369 common
shares. In 1993, the Company issued 84,783 shares of Series A
cumulative convertible preferred shares of beneficial interests
in exchange for the remaining multifamily operations of the
Company's predecessor entities. These operations consisted
primarily of asset management and construction activities.
7. Convertible Subordinated Debentures
During the first nine months of 1996, debentures in the
principal amount of $3.3 million converted into 136,958 common
shares, which included $500,000 that were converted into 20,833
shares during the third quarter of 1996. These debentures were
converted on or before the record date for the quarterly dividend
and the related debenture interest was forfeited by the debenture
holders in accordance with the indenture. In addition, $113,000
of unamortized debenture issue costs were reclassified to equity.
Had all converted debentures converted as of the beginning of the
periods, net income per common and common equivalent share would
have remained at $0.19 and $0.31 per share for the three months
and nine months ended September 30, 1996, respectively.
Subsequent to September 30, 1996, an additional $8.0 million
in principal amount of debentures were converted into 333,370
common shares and the related $259,000 of unamortized debenture
issue costs were reclassified to equity. Had all converted
debentures converted as of the beginning of the periods,
including these debentures converted subsequent to quarter end,
net income per common and common equivalent share would have
increased to $0.20 and $0.34 per share for the three months and
nine months ended September 30, 1996, respectively.
8. Subsequent Events
On October 16, 1996, the Company completed a common equity
offering selling 1,090,000 shares at a gross price of $25.875 per
share. The net proceeds of $27.6 million were used to retire a
construction loan. If the Offering had occurred at the beginning
of 1996, earnings per common and common equivalent share for the
nine months ended September 30, 1996 would have increased to
$0.39. The pro forma information is intended for informational
purposes only and not necessarily indicative of future results.
In the ordinary course of its business, the Company issues
letters of intent indicating a willingness to negotiate for the
purchase or sale of multifamily properties or development land.
In accordance with the local real estate market practice, such
letters of intent are non-binding, and neither party to the
letter of intent is obligated to pursue negotiations unless and
until a definitive contract is entered into by the parties. Even
if definitive contracts are entered into, the letters of intent
and resulting contracts contemplate that such contract will
provide the purchaser with periods varying from 25 to 90 days
during which it will evaluate the properties and conduct its due
diligence and during which periods the purchaser will have the
ability to terminate the contracts without penalty or forfeiture
of any deposit or earnest money. There can be no assurance that
definitive contracts will be entered into with respect to any
properties covered by letters of intent or that the Company will
acquire or sell any property as to which the Company may have
entered into a definitive contract. Further, due diligence
periods are frequently extended as needed. An acquisition or
sale becomes probable at the time that the due diligence period
expires and the definitive contract has not been terminated. The
Company is then at risk under an acquisition contract, but only
to the extent of any earnest money deposits associated with the
contract, and is obligated to sell under a sales contract.
The Company is currently negotiating contracts for the
purchase of land for development or acquisition of properties.
No assurance can be made that the Company will be able to
complete the negotiations or become satisfied with the outcome of
the due diligence.
The Company seeks to selectively dispose of assets that are
either not in core markets, have a lower projected net operating
income growth rate than the overall portfolio, or no longer
conform to the Company's operating and investment strategies.
The proceeds from these sales may be reinvested in acquisitions,
developments or used to retire debt. The Company is currently
negotiating the sale of certain properties to potential
unaffiliated buyers. No assurances can be made that these
transactions will be consummated.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Overview
The following discussion should be read in conjunction with
all of the financial statements and notes thereto appearing
elsewhere in this report as well as the audited financial
statements appearing in the Company's 1995 Annual Report to
Shareholders. Where appropriate, comparisons are made on a
dollars-per-weighted-average-unit basis in order to adjust for
changes in the number of units owned during each period. The
statements contained in this report that are not historical facts
are forward-looking statements within the meaning of the Section
27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results may differ
materially from those included in the forward-looking statements.
These forward-looking statements involve risks and uncertainties
including, but not limited to, the following: changes in general
economic conditions in the markets that could impact demand for
the Company's product and changes in financial markets and
interest rates impacting the Company's ability to meet its
financing needs and obligations.
Camden Property Trust and its subsidiaries ("Camden" or the
"Company") are engaged in the ownership, development,
acquisition, management, marketing and disposition of multifamily
apartment communities in the Southwest and Mountain regions of
the United States. As of September 30, 1996, the Company owned
and operated 49 multifamily properties containing 17,855 units
located in Houston, Dallas/Fort Worth, Austin, Corpus Christi, El
Paso, Phoenix and Tucson. These 49 properties had a weighted
average occupancy rate of 94.5% for the quarter ended September
30, 1996. The Company is developing four multifamily properties
in Houston, Dallas, and Phoenix which will, when completed, add
1,510 units to its portfolio, and has two properties on which it
intends to develop an estimated 448 units.
Camden's real estate portfolio at December 31, 1995 and
September 30, 1996 is summarized as follows:
December 31, 1995 September 30, 1996
------------------ ------------------
Units Projects %* Units Projects %*
----- -------- -- ----- -------- --
Operating Properties
Texas
Houston 6,598 20 33% 7,231 19 36%
Dallas 6,065 17 30 6,045 16 31
Austin 1,745 6 9 1,745 6 9
Other 1,513 5 8 1,585 5 8
------ -- ---- ------ -- ----
Total Texas
Properties 15,921 48 79 16,606 46 84
Arizona 821 2 4 1,249 3 6
------ -- ---- ------ -- ----
Total Operating
Properties 16,742 50 83 17,855 49 90
------ -- ---- ------ -- ----
Projects Under Development**
Texas
Houston 1,226 3 6 758 2 4
Dallas 920 2 5 732 2 4
Other 288 1 1 - - -
------ -- ---- ------ -- ----
Total Texas
Properties 2,434 6 12 1,490 4 8
Arizona 716 2 4 288 1 1
Colorado 216 1 1 180 1 1
------ -- ---- ------ -- ----
Total Projects
Under Development 3,366 9 17 1,958 6 10
------ -- ---- ------ -- ----
Total Projects 20,108 59 100% 19,813 55 100%
====== == ==== ====== == ====
* Based on units.
** The totals for projects under development include two
projects comprising 448 units on which construction has not
commenced.
At September 30, 1996, the Company had four development
properties in various stages of construction and two properties
which it intends to develop as follows:
Construction Properties
($ in millions)
Property Number Estimated Estimated Estimated
and of Budgeted Percent Completion Stabiliza-
Location Units Cost Complete* Date tion Date
- ----------------------------------------------------------------
Arrowhead
Springs, 1st Qtr., 4th Qtr.,
Phoenix, AZ 288 $16.0 45% 1997 1997
The Park at
Sugar Grove, 1st Qtr., 3rd Qtr.,
Houston, TX 380 19.3 75% 1997 1997
Vanderbilt
Square II, 1st Qtr., 3rd Qtr.,
Houston, TX 378 24.6 35% 1998 1998
The Village at
Buckingham, 1st Qtr., 3rd Qtr.,
Dallas, TX 464 25.5 15% 1998 1998
----- -----
1,510 $85.4
===== =====
* Includes land and preconstruction costs.
Future Development Properties
($ in millions)
Estimated Estimated
Number Total Project Construction
Property and Location of Units Cost Start Date
- ----------------------------------------------------------------
Remington
Denver, CO 180 $12.6 To be determined
The Park at CentrePort
Dallas, TX 268 14.0 1st Qtr., 1997
--- -----
448 $26.6
=== =====
Historically, the Company has staged its construction to
allow leasing and occupancy during the construction period
thereby minimizing vacancies during construction and at full
completion of the project. The Company's accounting policy
related to properties in the development and leasing phase is
that all operating expenses, excluding depreciation, associated
with occupied units are expensed against revenues generated by
those units as they become occupied. All construction and
carrying costs are capitalized and reported on the balance sheet
in "Projects under development, including land" until such units
are completed. Upon completion of each building of the project,
the total cost of that building and the associated land is
transferred to "Land" and "Buildings and improvements" and the
assets are depreciated over their estimated useful lives using
the straight-line method of depreciation. Upon achieving 90%
occupancy, or one year from opening the leasing office, whichever
occurs first, all units are considered operating and the Company
begins expensing all items that were previously considered as
carrying costs.
Comparison of the Quarter Ended September 30, 1996 and September
30, 1995
The changes in operating results from period to period are
primarily due to the development of four properties aggregating
1,688 units, the acquisition of an adjoining property containing
400 units and the disposition of four properties containing 975
units since September 30, 1995. The weighted average number of
units for the third quarter of 1996 increased by 962 units, or
5.8%, from 16,556 to 17,518. Total units in operating properties
were 17,855 and 16,742 at September 30, 1996 and 1995,
respectively. The portfolio had an average occupancy of 94.5%
and 93.8% for the quarter ended September 30, 1996 and 1995,
respectively.
The average rental income per unit per month increased $38 or
8.0%, from $477 to $515 for the third quarter of 1995 to 1996,
respectively. The increase was primarily due to a 4.5% increase
in revenue growth from the stabilized real estate portfolio that
existed throughout both periods and higher than average rental
rates achieved on properties added to the portfolio.
Other income increased $314,000 or 22.4% from $1.4 million to
$1.7 million for the quarters ended September 30, 1995, and 1996,
respectively. The increase in other income was due to a larger
number of units owned and in operation. Construction and
management fee income totaled $313,000 and $352,000 for the
quarter ended September 30, 1996 and 1995, respectively.
Property operating and maintenance expenses and real estate
taxes increased $1.2 million, from $12.3 million to $13.5
million, which represents an annual increase of $127 per unit.
The Company's operating expense ratios decreased slightly over
the prior year primarily as a result of the change in the
property mix due to development and property dispositions. Real
estate taxes increased as a result of increases in valuations of
renovated and developed properties and increases in property tax
rates. Operating expenses from the stabilized real estate
portfolio in operation throughout both periods increased 1.0%
resulting in an 7.5% increase in net operating income from these
properties.
General and administrative expense increased $106,000 from
$1.0 million to $1.1 million, a rate consistent with the overall
increase in revenues.
Interest expense increased 30.6%, from $3.6 million to $4.7
million due to increased indebtedness related to completed
development and renovation costs, partially offset by reductions
in interest rates. Interest capitalized was $856,000 and $1.5
million for the quarters ended September 30, 1996 and 1995,
respectively.
Depreciation and amortization increased 18.9% to $6.3 million
versus $5.3 million in the prior year. This increase was due
primarily to developments and renovations partially offset by
property dispositions.
Comparison of the Nine Months Ended September 30, 1996 and
September 30, 1995
The changes in operating results from period to period are
primarily due to the development of four properties, the
acquisition of an adjoining property containing 400 units and the
disposition of four properties containing 975 units since
September 30, 1995. During the first nine months of 1996, the
completion of Scottsdale Legacy apartments in Phoenix, the Park
at Addison apartments in Dallas, the Vanderbilt apartments in
Houston and The Breakers apartments in Corpus Christi added 1,688
units to the portfolio. During this same period, the Company
disposed of The Madison apartments in Houston (117 units), the
Wolfe Run apartments in San Antonio (216 units), the Collins
Pointe apartments in Dallas (476 units), and the Pagewood
apartments in Houston (166 units). The weighted average number
of units increased by 1,011 units, or 6.2%, from 16,208 to 17,219
primarily as a result of acquisitions and development.
The average rental income per unit per month increased $42 or
9.1%, from $462 to $504 for the nine months ended September 30,
1995 to 1996, respectively. The increase was primarily due to a
5.2% increase in revenue growth from the stabilized real estate
portfolio that existed throughout both periods and higher than
average rental rates achieved on properties added to the
portfolio.
Other income increased by 16.8% or $700,000, from $3.7
million to $4.4 million for the nine months ended September 30,
1995, and 1996, respectively. The increase was primarily due to
a larger number of units owned and in operation, partially offset
by a decrease in third party construction and management fee
income of $184,000. Construction and management fee income
totaled $640,000 and $824,000 for the nine months ended September
30, 1996 and 1995, respectively.
Property operating and maintenance expenses and real estate
taxes increased $4.5 million, from $34.3 million to $38.8
million, which represents an annual increase of $181 per unit.
The Company's operating expense ratios decreased over the prior
year primarily as a result of the change in the property mix due
to development and property dispositions. Real estate taxes
increased as a result of increases in valuations of renovated and
developed properties and increases in property tax rates.
Operating expenses from the stabilized real estate portfolio in
operation throughout both periods increased 1.6% resulting in an
8.4% increase in net operating income from these properties.
General and administrative expense increased $403,000 from
$3.0 million to $3.4 million, a rate consistent with the overall
increase in revenues.
Interest expense increased 32.7%, from $9.8 million to $13.0
million due to increased indebtedness related to completed
development and renovation costs, partially offset by reductions
in interest rates. Interest capitalized was $3.4 million and
$3.9 million for the nine months ended September 30, 1996 and
1995, respectively.
Depreciation and amortization increased 16.8% to $17.4
million versus $14.9 million in the prior year. This increase was
due primarily to developments and renovations partially offset by
property dispositions.
Liquidity and Capital Resources
The Company concentrates its growth efforts toward selective
development and acquisition opportunities in its core markets.
During the nine months ended September 30, 1996, the Company
incurred $43.2 million in development costs and $6.7 million in
acquisition costs for new properties. The Company also seeks to
selectively dispose of assets that are either not in core markets
or that have a lower projected net operating income growth rate
than the overall portfolio. The $23.0 million in net proceeds
from these sales during the first and third quarters were
reinvested in an acquisition, developments or used to retire
debt.
The Company funds its development and acquisitions through a
combination of equity capital, conventional mortgage loans,
construction loans and an unsecured revolving credit facility of
$150 million with five banks (the "Unsecured Credit Facility").
During the third quarter, the Company retired three construction
loans aggregating $26.0 million utilizing the Unsecured Credit
Facility. On October 16, 1996, the Company completed a common
equity offering from its previously filed shelf registration
statement (the "Offering") selling 1,090,000 shares at a gross
price of $25.875 per share. The net proceeds of $27.6 million
were used to retire an additional construction loan which had an
outstanding balance at September 30, 1996 of $25.1 million.
After the retirement of these construction loans, including the
$25.1 million repayment on October 16, 1996, the Company has one
$9.4 million construction loan outstanding. The interest rates
on the remaining construction loan and the Unsecured Credit
Facility were reduced to LIBOR plus 150 basis points or Prime
during 1996.
During the first quarter of 1996, the Company issued from its
previously filed shelf registration statement an aggregate
principal amount of $100 million of five-year senior unsecured
notes (the "Notes"). Interest on the Notes accrues at a rate of
6 5/8% per annum and is payable semi-annually on February 15 and
August 15, commencing on August 15, 1996. The Notes are direct,
senior unsecured obligations of the Company and rank equally with
all other unsecured and unsubordinated indebtedness of the
Company from time to time outstanding. The Notes may be redeemed
at any time at the option of the Company subject to a make whole
provision. The net proceeds to the Company from the sale of the
Notes were $98.4 million, net of issuance costs. The Company
used the net proceeds to reduce $93.4 million of indebtedness
under the Unsecured Credit Facility, to pay $4.9 million arising
from the early settlement of hedging agreements related to the
indebtedness repaid and to pay $0.5 million to extinguish a
bank's option related to a settled hedging agreement. At
September 30, 1996, a $25 million interest rate hedging agreement
remained in effect and is scheduled to mature in July 2000 with a
bank's option to extend to July 2002. The actual rate on such
$25 million of indebtedness is 6.14% fixed, plus a 150 basis
point spread, or 7.64%. This swap continues to operate as a
hedge to manage the risk of interest rate fluctuations.
On September 13, 1996, the Company declared a third quarter
dividend in the amount of $0.475 per common share. The
distributions were payable on October 17, 1996 to shareholders of
record as of September 30, 1996. The Company intends to continue
shareholder distributions in accordance with REIT requirements
while maintaining a conservative payout ratio, and expects to
continue reducing the payout ratio by raising the dividends at a
rate which is less than the funds from operations ("FFO") growth
rate.
The Company intends to meet its short-term liquidity
requirements through cash flow provided by operations, the
Unsecured Credit Facility and construction loans. The Company
intends to use senior unsecured debt (such as the Notes) to
refinance the construction loans and other secured debt and
borrowings under the Unsecured Credit Facility. The Company
considers its ability to generate cash to be sufficient, and
expects it to continue to be sufficient to meet future operating
requirements and shareholder distributions.
Funds from Operations
Funds from operations for the three months and the nine
months ended September 30, 1996 increased $1.1 million and $3.3
million, respectively, over the same periods of 1995, primarily
due to properties added to the portfolio and rental growth in the
Company's Dallas and Houston markets. Industry analysts generally
consider FFO an appropriate measure of performance of an equity
REIT. FFO is defined as net income (computed in accordance with
generally accepted accounting principles), excluding gains (or
losses) from debt restructuring and sales of property, plus real
estate depreciation and other non-cash items. The Company
believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, FFO
should be examined in conjunction with net income as presented in
the consolidated financial statements and data included elsewhere
in this report. FFO should not be considered as an alternative
to net income as an indication of the Company's operating
performance or to net cash provided by operating activities as a
measure of the Company's liquidity. A calculation of FFO follows
(in thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
Net income to common
shareholders $2,801 $2,908 $4,549 $9,112
Real estate asset
depreciation 5,978 4,972 16,765 14,117
Loss on sales of properties 250 - 55 -
Extinguishment of hedges
upon debt refinancing - - 5,351 -
------ ------ ------- -------
Funds from operations
available to common
shareholders 9,029 7,880 26,720 23,229
Preferred share dividends - 9 4 29
------ ------ ------- -------
Total funds from
operations 9,029 7,889 26,724 23,258
Interest on convertible
subordinated debentures 738 807 2,301 2,490
Amortization of deferred
costs on convertible
debentures 77 81 236 247
------ ------ ------- -------
Funds from operations -
fully diluted $9,844 $8,777 $29,261 $25,995
====== ====== ======= =======
Weighted average number of
common and common
equivalent shares
outstanding:
Primary 14,695 14,471 14,573 14,408
Fully diluted 16,471 16,323 16,409 16,313
The Company expenses recurring capital expenditures for items
such as carpets, appliances and HVAC units as these items are
replaced in their normal course. During a renovation, many of
these items may be capitalized, particularly to the extent that
an inordinate number of such items are replaced. Non-recurring
capital expenditures for such items as roof replacements are
capitalized. During the nine months ended September 30, 1996, the
Company capitalized $6.9 million of non-recurring renovations and
improvements to extend the economic lives and enhance its
multifamily properties.
The Company seeks to continue to maintain a conservative
capital structure by: (i) targeting a ratio of total debt to
total market capitalization of less than 50%; (ii) extending and
sequencing the maturity dates of its debt where possible; (iii)
borrowing at fixed rates; (iv) borrowing on an unsecured basis;
(v) maintaining a substantial number of unencumbered assets; and
(vi) maintaining a conservative debt service coverage ratio. At
September 30, 1996, the Company's ratio of total debt to total
market capitalization was approximately 39.2% (based on the
closing price of $25.625 per common share of beneficial interest,
$0.01 par value, of the Company on the New York Stock Exchange
composite tape on September 30, 1996). This ratio represents
total consolidated debt of the Company (excluding the Company's
Convertible Debentures due 2001) as a percentage of the market
value of the Company's common shares (including common shares
issuable upon conversion of the Convertible Debentures, but
excluding common shares issuable upon exercise of outstanding
options) plus total consolidated debt (excluding the Convertible
Debentures). The interest coverage ratio was 3.0 times for the
third quarter of 1996. At September 30, 1996, 82.0% of the
Company's portfolio (based on invested capital) were unencumbered
after consideration of the repayment of the construction loan
with the proceeds from the Offering.
Inflation
The Company leases apartments under lease terms generally
ranging from six to thirteen months. Management believes that
such short-term lease contracts lessen the impact of inflation
due to the ability to adjust rental rates to market levels as
leases expire.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement re Computation of Per Share Earnings
(b) Reports of Form 8-K
Current Report on Form 8-K dated August 2, 1996 was
filed which contained information under Item 5
(Other Events).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CAMDEN PROPERTY TRUST
/s/ November 13, 1996
- ------------------------------- -------------------
G. Steven Dawson Date
Sr. Vice President of Finance,
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)