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 March 31, 1997
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)
3200 Southwest Freeway, Suite 1500, Houston, Texas 77027
(Address of Principal Executive Offices)
(713) 964-3555
(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 May 12, 1997, there were 26,615,688 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
March 31, December 31,
1997 1996
-------- --------
(Unaudited)
Real estate assets, at cost:
Land $ 88,586 $ 86,673
Buildings and improvements 541,826 523,325
Projects under development, including land 30,383 36,547
-------- --------
660,795 646,545
Less: accumulated depreciation (62,558) (56,369)
-------- --------
598,237 590,176
Accounts receivable - affiliates 55 148
Notes receivable - affiliates 3,662 3,550
Deferred financing and other assets, net 5,293 4,847
Cash and cash equivalents 4,040 2,366
Restricted cash - escrow deposits 745 2,423
-------- --------
Total assets $612,032 $603,510
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable:
Unsecured $226,834 $185,800
Secured 37,946 58,382
Accounts payable 7,297 7,512
Accrued real estate taxes 4,328 13,246
Accrued expenses and other liabilities 7,944 7,675
Distributions payable 8,146 7,765
-------- --------
Total liabilities 292,495 280,380
7.33% Convertible Subordinated Debentures 21,922 27,702
Shareholders' Equity:
Preferred shares of beneficial interest
Common shares of beneficial interest 169 165
Additional paid-in capital 357,033 348,339
Distributions in excess of net income (53,597) (49,515)
Unearned restricted share awards (5,990) (3,561)
-------- --------
Total shareholders' equity 297,615 295,428
-------- --------
Total liabilities and shareholders'
equity $612,032 $603,510
======== ========
See Notes to Consolidated Financial Statements.
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PAGE
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended March 31,
----------------------------
1997 1996
------- -------
Revenues
Rental income $27,954 $25,145
Other income 1,518 1,445
------- -------
Total revenues 29,472 26,590
Expenses
Property operating and maintenance 9,992 9,748
Real estate taxes 3,692 3,225
General and administrative 824 624
Interest 4,186 4,060
Depreciation and amortization 6,428 5,523
------- -------
Total expenses 25,122 23,180
------- -------
Income before gain on sales of properties and
losses related to early retirement of debt 4,350 3,410
Gain on sales of properties 195
Losses related to early retirement of debt (286) (5,351)
------- -------
Net income(loss) 4,064 (1,746)
Preferred share dividends (4)
------- -------
Net income(loss) to common shareholders $ 4,064 $(1,750)
======= =======
Net income(loss) per common share and common
equivalent share $ 0.24 $ (0.12)
Distributions declared per common share $ 0.490 $ 0.475
Weighted average number of common and common
equivalent shares outstanding 16,655 14,512
See Notes to Consolidated Financial Statements.
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PAGE
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended March 31,
----------------------------
1997 1996
------- --------
CASH FLOW FROM OPERATING ACTIVITIES
Net income(loss) $ 4,064 $ (1,746)
Adjustments to reconcile net income(loss)
to net cash provided by operating activities:
Depreciation and amortization 6,428 5,523
Gain on sales of properties (195)
Losses related to early retirement of debt 286 5,351
Accretion of discount on unsecured notes
payable 34
Net change in operating accounts (7,249) (6,628)
------- --------
Net cash provided by operating activities 3,563 2,305
CASH FLOW FROM INVESTING ACTIVITIES
Increase in real estate assets (13,915) (15,301)
Net proceeds from sales of properties 19,436
Increase in notes receivable for
net advances to affiliates (112) (92)
Other (80) 61
------- --------
Net cash provided by (used in) investing
activities (14,107) 4,104
CASH FLOW FROM FINANCING ACTIVITIES
Net decrease in lines of credit (9,000) (97,283)
Increase in short-term notes 50,000
Proceeds from notes payable 104,359
Losses related to early retirement of debt (286) (5,351)
Principal reduction on notes payable (20,436) (223)
Distributions to common shareholders (7,765) (6,623)
Payment of loan costs (27) (1,184)
Other (268) 102
------- --------
Net cash provided by (used in) financing
activities 12,218 (6,203)
------- --------
Net increase in cash and cash equivalents 1,674 206
Cash and cash equivalents, beginning of period 2,366 236
------- --------
Cash and cash equivalents, end of period $ 4,040 $ 442
======= ========
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of interest
capitalized $ 4,234 $ 3,196
Interest capitalized $ 646 $ 1,424
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Conversion of 7.33% subordinated debentures to
common shares, net $ 5,604
Shares issued under benefit plans $ 2,967 $ 1,690
Conversion of preferred shares and dividends $ 1,950
See Notes to Consolidated Financial Statements.
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PAGE
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 March 31, 1997 and the
results of operations and cash flows for the three months ended March 31,
1997 and 1996 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 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 as a result of the merger with Paragon Group, Inc.
("Paragon") described below, Southeast and Midwest regions of the United
States. As of March 31, 1997, the Company owned and operated 50 multifamily
properties containing 18,279 units located in Houston, Dallas/Fort Worth,
Austin, Corpus Christi, El Paso, Phoenix and Tucson. The Company is
developing three multifamily properties in Houston and Dallas which will,
when completed, add 1,110 units to its portfolio, and has one site in
Denver which it intends to develop.
Merger with Paragon Group, Inc.
- -------------------------------
On April 15, 1997, Paragon merged with and into Camden Subsidiary,
Inc., a wholly-owned subsidiary of the Company, pursuant to an Agreement
and Plan of Merger dated as of December 16, 1996 (the "Merger Agreement").
As provided in the Merger Agreement, each of the shares of Paragon common
stock outstanding on April 15, 1997 was exchanged for 0.64 shares of the
Company's common shares. The Company issued 9,466,346 shares in exchange
for the outstanding shares of Paragon common stock.Approximately $288
million of Paragon debt was assumed in the merger, excluding debt assumed
with investments in joint ventures. The merger was structured as a tax-free
transaction and has been treated as a purchase for accounting purposes. The
allocation of the purchase price is not expected to result in the recording
of goodwill.
Paragon, a Maryland corporation, was a fully integrated real estate
investment trust headquartered in Dallas, Texas whose business was the
operation, development and acquisition of multifamily residential
communities in the Southwest, Midwest, North Carolina and Florida. As of
April 15, 1997, Paragon owned (either directly or through interests in
other entities) interests in 57 multifamily residential communities
totalling 15,975 apartment units (the "Paragon Residential Properties")
located in six states. Paragon also had indirect minority ownership
interests in three commercial properties, including a 20% interest in a
401,625 square foot office building. As of April 15, 1997, Paragon, through
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Paragon Residential Services, Inc., managed 72 multifamily residential
communities (including the Paragon Residential Properties) located across
the United States, containing approximately 20,474 apartment units. Upon
completion of the merger, Camden owned interests in 35,364 units in 110
properties and managed an additional 4,499 units in 15 properties for third
parties and Paragon affiliates.
Property Update
- ---------------
During the first quarter of 1997, the Company completed construction
of the 380-unit The Park at Sugar Grove apartments in Houston and the
288-unit The Park at Arrowhead Springs apartments in Phoenix. As of March
31, 1997, The Park at Sugar Grove and The Park at Arrowhead Springs were
62% and 43% leased and 57% and 38% occupied, respectively.
Construction continued on The Park at Centreport, a 268-unit property
in Dallas; The Park at Buckingham, a 464-unit property in Dallas and Phase
II of The Park at Vanderbilt, a 378-unit property in Houston. The Park at
Centreport is expected to be ready for first occupancy during the third
quarter of 1997 with stabilization to occur during the second quarter of
1998. The Park at Buckingham and Phase II of The Park at Vanderbilt are
expected to be ready for first occupancy during the second quarter of 1997
with stabilization to occur during the third quarter of 1998.
Dividend Declaration
- --------------------
In March 1997, the Company announced that its Board of Trust Managers
declared a dividend in the amount of $0.49 per common share for the first
quarter of 1997 to be paid on April 17, 1997 to shareholders of record on
March 31, 1997. This quarterly dividend represents an annualized dividend
rate of $1.96 per share.
New Accounting Pronouncement
- ----------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). SFAS No. 128, which is effective for periods ending after
December 15, 1997, specifies the computation, presentation and disclosure
requirements of earnings per share ("EPS") and supercedes Accounting
Principles Board Opinion No. 15 ("APB No. 15"). SFAS 128 requires a dual
presentation of basic and diluted EPS. Basic EPS, which excludes the impact
of common stock equivalents, replaces primary EPS. Diluted EPS, which
utilizes the average market price per share as opposed to the greater of
the average market price per share or ending market price per share when
applying the treasury stock method in determining common stock equivalents,
replaces fully diluted EPS. Pro forma basic and diluted EPS for all
historical periods presented, assuming SFAS No. 128 was effective at the
beginning of each such historical period, would not be materially different
than the presentations using APB No. 15.
Reclassifications
- -----------------
Certain reclassifications have been made to amounts in prior year
financial statements to conform with current year presentations.
Specifically, direct on-site general and administrative expenses previously
classified as general and administrative expenses are now reflected as a
part of property operating and maintenance expenses.
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2. NOTES PAYABLE
A summary of the Company's notes payable follows:
(In millions)
March 31, December 31,
1997 1996
--------- -----------
Unsecured notes:
6 5/8% Senior Notes, due 2001 $ 99.6 $ 99.6
7% Senior Notes, due 2006 74.2 74.2
Short-term Notes 50.0
Credit facility 3.0 12.0
------ ------
226.8 185.8
Secured notes:
Conventional mortgage loans 38.0 58.4
------ ------
Total notes payable $264.8 $244.2
====== ======
Floating rate debt included in notes payable $ 28.0 $ --
In January 1997, the Company began utilizing competitively bid
short-term borrowings as an alternative to borrowing under its $150 million
unsecured credit facility (the "Unsecured Credit Facility" or "Facility").
Such borrowings vary in term and pricing but have the same covenants as the
Facility and may be funded through lenders outside of the Facility bank
group at rates substantially below those of the Facility.
In April 1997, the Company amended and restated its Unsecured Credit
Facility to reflect an extended maturity date, a lower interest rate and a
competitive bid feature. The Facility is now structured as a revolving loan
until July 28, 1999 and, for an additional fee, becomes a term loan for one
year thereafter. The interest rate on the Facility, which is subject to
change with changes in the Company's credit ratings, has been reduced to
LIBOR plus 105 basis points or Prime plus 25 basis points. The competitive
bid feature enables the Company to enter into bid rate loans ("Bid Rate
Loans") with certain banks party to the Facility at rates below those noted
above. These Bid Rate Loans have terms of six months or less and may not
exceed the lesser of $75 million or the remaining amount available under
the Facility. Furthermore, amounts outstanding thereunder may reduce
amounts due for unused fees.
In January 1997, the Company prepaid two of its 8.8% conventional
mortgage loans with outstanding balances of $20.3 million and incurred
prepayment penalties of $286,000. Furthermore, in April 1997, the Company
retired two of its 7.9% conventional mortgage loans at their scheduled
maturity dates with outstanding balances at March 31, 1997 of $16.9
million. All four loans were retired by utilizing the Unsecured Credit
Facility.
On May 9, 1997, the Company issued from its recently filed shelf
registration statement an aggregate principal amount of $75 million of
five-year unsecured remarketed reset notes ("Notes"). During the one-year
period ending May 11, 1998, the interest rate on the Notes, which will be
reset quarterly, will equal 90-day LIBOR plus 32 basis points and interest
will be payable on a quarterly basis. After the one-year period, the mode
and duration of the interest rate on the Notes will be reset by the Company
and a remarketing underwriter as either fixed or floating and for durations
of from six months to four years. The Notes are direct, senior unsecured
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obligations of the Company and rank equally with all other unsecured and
unsubordinated indebtedness of the Company. The Notes are redeemable after
May 11, 1998 at the option of the Company at par value. The proceeds to the
Company from the sale of the Notes were $74.8 million, net of issuance
costs. The Company used the net proceeds to reduce indebtedness recently
incurred under the Facility as a result of liquidating certain of the debt
assumed in the merger with Paragon.
At March 31, 1997, 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 LIBOR rate on this $25 million hedging
agreement is fixed at 6.1%. The resulting fixed rate is equal to 6.1% plus
the actual LIBOR spread on the related indebtedness. This swap continues to
be used as a hedge to manage the risk of interest rate fluctuations.
At March 31, 1997, the weighted average interest rate on total notes
payable was 7.0%.
3. NET CHANGE IN OPERATING ACCOUNTS
The effect of changes in the operating accounts on cash flows from
operating activities is as follows:
(In thousands)
Three Months Ended
March 31,
------------------
1997 1996
------- -------
Decrease (increase) in assets:
Accounts receivable - affiliates $ 93 $ (99)
Deferred financing and other assets, net (156) 902
Restricted cash - escrow deposits 1,678 1,276
Increase (decrease) in liabilities:
Accounts payable (215) (1,728)
Accrued real estate taxes (8,918) (8,211)
Accrued expenses and other liabilities 269 1,232
------- -------
Net change in operating accounts $(7,249) $(6,628)
======= =======
4. PROPERTY OPERATING AND MAINTENANCE EXPENSES
Property operating and maintenance expenses included normal repairs
and maintenance totaling $1.7 million for the first three months of 1997
and $1.9 million for the same period in 1996. 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 $723,000 for
the first three months of 1997 and $870,000 for the same period in 1996 and
were included in property operating and maintenance expense.
-8-
5. RESTRICTED SHARE AND OPTION AWARDS
During the first quarter of 1997, 109,359 restricted shares and
300,000 options were granted in lieu of cash compensation to certain key
employees and non-employee trust managers. The restricted shares which have
a purchase price of $0.01 per share have vesting periods ranging from three
to five years. The options were granted at an exercise price of $27.00 per
share and are exercisable in increments of 33.33% per year for each of the
first three anniversaries of the date of grant. Out of the 1,450,000 common
shares currently authorized for issuance under the 1993 Share Incentive
Plan ("the Plan"), 1,355,748 of such shares had been granted (net of option
forfeitures), 765,375 had vested and 162,734 had been canceled as of March
31, 1997.
On April 21, 1997, the Board of Trust Managers unanimously voted to
amend the Plan, subject to the approval of the Company's shareholders, to
increase the maximum number of common shares available for issuance under
the Plan to 10% of the common shares outstanding at any time. The
shareholders' meeting to vote on this Plan amendment will be held on June
5, 1997.
In February 1997, the Company established a rabbi trust (the "Rabbi
Trust"), in which salary and bonus amounts awarded to certain officers
under the recently established Key Employee Share Option Plan and
restricted shares awarded to certain officers may be deposited. Salary and
bonus amounts held by the Rabbi Trust may be purchased by the officer at
any time within 20 years from the date the amounts were deposited for a
price equal to 25% of the amount to be withdrawn from the Rabbi Trust.
Vested restricted shares and the related accumulated dividends held by the
Rabbi Trust may be purchased by the officer at any time within 20 years
from the date of grant of such shares for a price equal to (1) 10% of the
fair value of the shares on the date the shares were awarded to the Rabbi
Trust; and (2) 5% of the amount of dividends declared and paid with respect
to such shares. The Company accounts for the Rabbi Trust similar to a
compensatory stock option plan.
6. CONVERTIBLE SUBORDINATED DEBENTURES
During the first three months of 1997, debentures in the principal
amount of $5.8 million were converted into approximately 241,000 common
shares. 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,
$175,000 of unamortized debenture issue costs were reclassified to
additional paid-in capital. Had all converted debentures converted as of
the beginning of the period, net income per common and common equivalent
share would have remained at $0.24 per share for the three months ended
March 31, 1997.
Subsequent to March 31, 1997, an additional $10.8 million in principal
amount of debentures were converted to approximately 451,000 common shares
and the related $310,000 of unamortized debenture costs were reclassified
to additional paid-in capital. Had all converted debentures converted as of
the beginning of the period, including these debentures converted
subsequent to March 31, 1997, net income per common and common equivalent
share would have been $0.26 per share for the quarter ended March 31, 1997.
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7. SUBSEQUENT EVENTS
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 180 days during which it will
evaluate the properties and conduct its due diligence and during which
periods the purchaser will have the ability to terminate the contracts
without penalty or forfeiture of any deposit or earnest money. There can be
no assurance that definitive contracts will be entered into with respect to
any properties covered by letters of intent or that the Company will
acquire or sell any property as to which the Company may have entered into
a definitive contract. Further, due diligence periods are frequently
extended as needed. An acquisition or sale becomes probable at the time
that the due diligence period expires and the definitive contract has not
been terminated. The Company is then at risk under an acquisition contract,
but only to the extent of any earnest money deposits associated with the
contract, and is obligated to sell under a sales contract.
The Company is currently in the due diligence period on contracts for
the purchase of land for development or acquisition of properties. No
assurance can be made that the Company will be able to complete the
negotiations or become satisfied with the outcome of the due diligence.
The Company seeks to selectively dispose of assets that are either not
in core markets, 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.
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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 1996
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 Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. 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 as a result of the merger with Paragon Group, Inc.
("Paragon") described below, Southeast and Midwest regions of the United
States. As of March 31, 1997, the Company owned and operated 50 multifamily
properties containing 18,279 units located in Houston, Dallas/Fort Worth,
Austin, Corpus Christi, El Paso, Phoenix and Tucson. The Company is
developing three multifamily properties in Houston and Dallas which will,
when completed, add 1,110 units to its portfolio, and has one site in
Denver which it intends to develop.
Camden's real estate portfolio at March 31, 1997 and December 31, 1996
is summarized as follows:
March 31, 1997 December 31, 1996
--------------------- --------------------
Units Projects %* Units Projects %*
----- -------- -- ----- -------- --
OPERATING PROPERTIES
Texas
Houston 7,367 19 38% 6,987 18 36%
Dallas 6,045 16 31 6,045 16 31
Austin 1,745 6 9 1,745 6 9
Other 1,585 5 8 1,585 5 8
------ -- --- ------ -- ---
Total Texas Operating
Properties 16,742 46 86 16,362 45 84
Arizona 1,537 4 8 1,249 3 7
------ -- --- ------ -- ---
Total Operating
Properties 18,279 50 94 17,611 48 91
PROJECTS UNDER DEVELOPMENT**
Texas
Houston 378 1 2 758 2 4
Dallas 732 2 4 732 2 4
------ -- --- ------ -- ---
Total Texas Development
Properties 1,110 3 6 1,490 4 8
Arizona 288 1 1
------ -- --- ------ -- ---
Total Projects Under
Development 1,110 3 6 1,778 5 9
------ -- --- ------ -- ---
Total Properties 19,389 53 100% 19,389 53 100%
====== == === ====== == ===
* Based on units.
** Excludes one project in Denver on which construction had not commenced.
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At March 31, 1997, the Company had three development properties in
various stages of construction as follows:
Estimated
Project
Number Total Estimated Estimated Estimated
of Cost* Percent Completion Stabilization
Property and Location Units($ millions) Complete* Date Date
- ---------------------------------------------------------------------------
The Park at Centreport 268 $14.0 19% 1st Qtr., 2nd Qtr.,
Dallas, Texas 1998 1998
The Park at Buckingham 464 25.5 34 1st Qtr., 3rd Qtr.,
Dallas, Texas 1998 1998
Phase II of The Park at
Vanderbilt 378 24.6 58 1st Qtr., 3rd Qtr.,
Houston, Texas 1998 1998
----- -----
1,110 $64.1
* Includes land and preconstruction costs.
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 March 31, 1997 and March 31, 1996
- -----------------------------------------------------------------
The changes in operating results from period to period are primarily
due to the development of four properties aggregating 1,552 units, the
acquisition of an adjoining property containing 400 units, the disposition
of two properties containing 410 units and an increase in net operating
income generated by the stabilized portfolio. The weighted average number
of units for the first quarter of 1997 increased by 864 units, or 5.1%,
from 16,961 to 17,825. Total operating properties were 50 and 49 at March
31, 1997 and 1996, respectively.
The average rental income per unit per month increased $29 or 5.9%,
from $494 to $523 for the first quarter of 1996 to 1997, respectively. The
increase was primarily due to a 2.9% 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, partially offset by overall decreases in average occupancy from
94.1% to 93.2% for the quarters ended March 31, 1996 and 1997,
respectively.
Other income increased $73,000 or 5.1% from $1.4 million to $1.5
million for the quarters ended March 31, 1996 and 1997, respectively. The
increase in other income was due to a larger number of units owned and in
operation. Third-party construction and management fee income totaled
$144,000 and $279,000 for the quarters ended March 31, 1997 and 1996,
respectively.
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Property operating and maintenance expenses and real estate taxes
increased $711,000, from $13.0 million to $13.7 million, which represents
an annual increase of $3 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 the 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 decreased 0.1% which, combined with the revenue increase,
resulted in a 5.4% increase in net operating income from these properties.
General and administrative expenses increased $200,000 from $624,000
to $824,000. This increase was primarily due to costs associated with the
Paragon merger and incentive-based executive compensation.
Interest expense increased 3.1%, from $4.1 million to $4.2 million due
to increased indebtedness related to the property acquisition and completed
developments and renovations that was partially offset by reductions in
interest rates and the conversion of convertible debentures. Interest
capitalized was $646,000 and $1.4 million for the quarters ended March 31,
1997 and 1996, respectively.
Depreciation and amortization increased 16.4% from $5.5 million to
$6.4 million. This increase was due primarily to developments, renovations
and an acquisition partially offset by property dispositions.
LIQUIDITY AND CAPITAL RESOURCES
Financial Structure
- -------------------
The Company intends to continue maintaining what management believes
to be 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.
Camden has maintained on a quarterly basis a financial structure with
no more than 40% total debt to total market capitalization since its
initial public offering in July 1993. At March 31, 1997, the Company's
ratio of total debt to total market capitalization was approximately 35.5%
(based on the closing price of $27.25 per common share of the Company on
the New York Stock Exchange composite tape on March 31, 1997). This ratio
represents total consolidated debt of the Company (excluding the Company's
7.33% Convertible Debentures due 2001 ["Convertible Debentures"]) 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 3.6 and 3.2 times for the first quarter of 1997
and 1996, respectively. At March 31, 1997 and December 31, 1996, 90.3% and
84.3%, respectively, of the Company's properties (based on invested
capital) were unencumbered.
Liquidity
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The Company intends to meet its short-term liquidity requirements
through cash flows provided by operations, the $150 million unsecured
credit facility (the "Unsecured Credit Facility" or "Facility"),
construction loans, and other short- term borrowing arrangements. The
Company intends to use equity capital or senior unsecured debt to refinance
maturing secured debt and borrowings under its Facility and other
short-term borrowing arrangements. The Company has commenced under its
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previously filed shelf registration statement a $196 million medium-term
note program to be used to provide intermediate or long-term, unsecured
publicly-traded debt, none of which has yet been issued. The Company
considers its ability to generate cash to be sufficient, and expects to be
able to meet future operating requirements and shareholder distributions.
On March 17, 1997, the Company declared its first quarter dividend in
the amount of $0.49 per common share. The distributions were paid on April
17, 1997 to shareholders of record as of March 31, 1997. The Company
intends to continue shareholder distributions in accordance with REIT
qualification requirements under the federal tax code while maintaining
what management believes to be 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 growth rate.
Financial Flexibility
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The Company concentrates its growth efforts toward selective
development and acquisition opportunities in its core markets. During the
three months ended March 31, 1997, the Company incurred $13.0 million in
development costs and did not incur any acquisition costs for new
properties. The Company funds its developments and acquisitions through a
combination of equity capital, debt securities, conventional mortgage
loans, the Unsecured Credit Facility and other short-term borrowing
arrangements. The Company also 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.
In January 1997, the Company began utilizing competitively bid
short-term borrowings as an alternative to borrowing under its Unsecured
Credit Facility. Such borrowings vary in term and pricing but have the same
covenants as the Facility and may be funded through lenders outside of the
Facility bank group at rates substantially below those of the Facility.
In April 1997, the Company amended and restated its Unsecured Credit
Facility to reflect an extended maturity date, a lower interest rate and a
competitive bid feature. The Facility is now structured as a revolving loan
until July 28, 1999 and, for an additional fee, becomes a term loan for one
year thereafter. The interest rate on the Facility, which is subject to
change with changes in the Company's credit ratings, has been reduced to
LIBOR plus 105 basis points or Prime plus 25 basis points. The competitive
bid feature enables the Company to enter into bid rate loans ("Bid Rate
Loans") with certain banks party to the Facility at rates below those noted
above. These Bid Rate Loans have terms of six months or less and may not
exceed the lesser of $75 million or the remaining amount available under
the Facility. Furthermore, amounts outstanding thereunder may reduce
amounts due for unused fees.
In January 1997, the Company prepaid two of its 8.8% conventional
mortgage loans with outstanding balances of $20.3 million and incurred
prepayment penalties of $286,000. Furthermore, in April 1997, the Company
retired two of its 7.9% conventional mortgage loans at their scheduled
maturity dates with outstanding balances at March 31, 1997 of $16.9
million. All four loans were retired by utilizing the Unsecured Credit
Facility.
On May 9, 1997, the Company issued from its recently filed shelf
registration statement an aggregate principal amount of $75 million of
five-year unsecured remarketed reset notes ("Notes"). During the one-year
period ending May 11, 1998, the interest rate on the Notes, which will be
reset quarterly, will equal 90-day LIBOR plus 32 basis points and interest
will be payable on a quarterly basis. After the one-year period, the mode
and duration of the interest rate on the Notes will be reset by the Company
and a remarketing underwriter as either fixed or floating and for durations
of from six months to four years. The Notes are direct, senior unsecured
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obligations of the Company and rank equally with all other unsecured and
unsubordinated indebtedness of the Company. The Notes are redeemable after
May 11, 1998 at the option of the Company at par value. The proceeds to the
Company from the sale of the Notes were $74.8 million, net of issuance
costs. The Company used the net proceeds to reduce indebtedness recently
incurred under the Facility as a result of liquidating certain of the debt
assumed in the merger with Paragon.
At March 31, 1997, 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 LIBOR rate on this $25 million hedging
agreement is fixed at 6.1%. The resulting fixed rate is equal to 6.1% plus
the actual LIBOR spread on the related indebtedness. This swap continues to
be used as a hedge to manage the risk of interest rate fluctuations.
At March 31, 1997, the weighted average interest rate on total notes
payable was 7.0%.
FUNDS FROM OPERATIONS
Funds from operations ("FFO") for the three months ended March 31,
1997 increased $1.2 million over the same period of 1996, primarily due to
properties added to the portfolio, rental growth in the Company's Houston
market and controlling operating expenses. Management considers FFO an
appropriate measure of performance of an equity REIT. The National
Association of Real Estate Investment Trusts ("NAREIT") currently defines
FFO as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring
and sales of property, plus real estate depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. 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
for the quarters ended March 31, 1997 and March 31, 1996 follows:
(In thousands)
Quarter Ended
March 31,
----------------
1997 1996
------- -------
Net income (loss) to common shareholders $ 4,064 $(1,750)
Real estate asset depreciation 6,189 5,336
Gain on sales of properties (195)
Losses related to early retirement of debt 286 5,351
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Funds from operations available to common shareholders 10,539 8,742
Preferred share dividends 4
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Funds from operations - primary 10,539 8,746
Interest on convertible subordinated debentures 296 807
Amortization of deferred costs on convertible debentures 42 79
------- -------
Funds from operations - fully diluted $10,877 $ 9,632
======= =======
Weighted average number of common and common
equivalent shares outstanding:
Primary 16,655 14,512
Fully diluted 17,678 16,375
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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. The Company capitalized $800,000 in the first
quarter of 1997 and $1.4 million in the first quarter of 1996 of
non-recurring renovations and improvements to extend the economic lives and
enhance its multifamily properties.
INFLATION
The Company leases apartments under lease terms generally ranging from
six to thirteen months. Management believes that such short-term lease
contracts lessen the impact of inflation due to the ability to adjust
rental rates to market levels as leases expire.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Distribution Agreement dated March 20, 1997 among the
Registrant and the Agents listed therein relating to the
issuance of Medium Term Notes. Incorporated by reference
from Exhibit 1.1 to the Registrant's Form 8- K dated
March 20, 1997 (File No. 1-12110).
10.2 Camden Property Trust Key Employee Share Option Plan.
Incorporated by reference from Exhibit 10.14 to the
Registrant's Form 10-K filed March 28, 1997 (File No.
1-12110).
10.3 Form of Master Exchange Agreement by and between the
Registrant and certain key employees. Incorporated by
reference from Exhibit 10.15 to the Registrant's Form
10-K filed March 28, 1997 (File No. 1-12110).
10.4 Restatement and Amendment of Loan Agreement dated April
14, 1997 between Registrant and NationsBank of Texas,
N.A.
11.1 Statement re Computation of Per Share Earnings.
27.1 Financial Data Schedule (filed only electronically with
the SEC).
(b) Reports of Form 8-K
Current Report on Form 8-K dated March 20, 1997 was filed which
contained information under Item 5 (Other Events) and Item 7
(Financial Statements, Pro Forma Financial Information and
Exhibits).
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PAGE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CAMDEN PROPERTY TRUST
/s/ G. Steven Dawson May 14, 1997
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G. Steven Dawson Date
Sr. Vice President of Finance,
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
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