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, 1998
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, 1998, there were 44,552,890 shares of Common Shares of
Beneficial Interest, $0.01 par value outstanding.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAMDEN PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------------- ----------------
(Unaudited)
Real estate assets, at cost:
Land $ 313,399 $ 182,909
Buildings and improvements 1,872,834 1,155,335
----------------- -------------
2,186,233 1,338,244
Less: accumulated depreciation (147,285) (94,665)
----------------- -------------
Net operating real estate assets 2,038,948 1,243,579
Projects under development, including land 193,822 43,805
Investment in joint ventures 33,149 15,089
----------------- ------------
2,265,919 1,302,473
Accounts receivable - affiliates 961 950
Notes receivable - affiliates 1,800 1,796
Other assets, net 13,631 7,885
Cash and cash equivalents 35,949 6,468
Restricted cash - escrow deposits 4,010 4,048
----------------- -------------
Total assets $ 2,322,270 $ 1,323,620
================= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable:
Unsecured $ 572,878 $ 316,941
Secured 389,850 163,813
Accounts payable 7,969 12,163
Accrued real estate taxes 22,435 16,568
Accrued expenses and other liabilities 31,080 17,416
Distributions payable 26,060 16,805
----------------- -------------
Total liabilities 1,050,272 543,706
Minority Interests 72,787 63,325
7.33% Convertible Subordinated Debentures 3,744 6,025
Shareholders' Equity:
Preferred shares of beneficial interest 42
Common shares of beneficial interest 446 317
Additional paid-in capital 1,298,452 780,738
Distributions in excess of net income (91,495) (63,526)
Unearned restricted share awards (10,362) (6,965)
Less: Treasury shares, at cost (1,616)
----------------- -------------
Total shareholders' equity 1,195,467 710,564
----------------- -------------
Total liabilities and shareholders' equity $ 2,322,270 $ 1,323,620
================= =============
See Notes to Consolidated Financial Statements.
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CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ------------ ------------
REVENUES
Rental income $ 79,802 $ 53,378 $ 219,601 $ 132,416
Other property income 5,052 2,893 13,618 6,491
---------- ---------- ----------- -----------
Total property income 84,854 56,271 233,219 138,907
Equity in income of joint ventures 317 368 1,039 804
Fee and asset management 510 219 859 482
Other income 868 81 1,611 290
---------- ---------- ----------- -----------
Total revenues 86,549 56,939 236,728 140,483
---------- ---------- ----------- -----------
EXPENSES
Property operating and maintenance 25,366 20,889 72,244 49,544
Real estate taxes 8,153 5,769 23,122 15,436
General and administrative 2,153 1,048 6,043 3,088
Interest 13,414 7,466 36,680 20,742
Depreciation and amortization 20,411 12,895 57,388 31,425
---------- ---------- ----------- -----------
Total expenses 69,497 48,067 195,477 120,235
---------- ---------- ----------- -----------
INCOME BEFORE LOSSES RELATED TO EARLY RETIREMENT OF DEBT
AND MINORITY INTERESTS 17,052 8,872 41,251 20,248
LOSSES RELATED TO EARLY RETIREMENT OF DEBT (286)
---------- ---------- ----------- -----------
INCOME BEFORE MINORITY INTERESTS 17,052 8,872 41,251 19,962
MINORITY INTERESTS (59) (612) (1,043) (1,209)
---------- ---------- ----------- -----------
NET INCOME 16,993 8,260 40,208 18,753
PREFERRED SHARE DIVIDENDS (2,343) (7,029)
---------- ---------- ----------- -----------
NET INCOME TO COMMON SHAREHOLDERS $ 14,650 $ 8,260 $ 33,179 $ 18,753
========== ========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.33 $ 0.27 $ 0.83 $ 0.77
DILUTED EARNINGS PER SHARE $ 0.31 $ 0.27 $ 0.79 $ 0.76
DISTRIBUTIONS DECLARED PER COMMON SHARE $ 0.505 $ 0.490 $ 1.515 $ 1.470
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 44,370 30,410 40,115 24,487
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
DILUTIVE EQUIVALENT SHARES OUTSTANDING 47,437 33,128 43,116 24,791
See Notes to Consolidated Financial Statements.
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4
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1998 1997
----------- ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 40,208 $ 18,753
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 57,388 31,425
Equity in income of joint ventures, net of cash received 486 (147)
Minority interests 1,043 1,209
Accretion of discount on unsecured notes payable 124 105
Losses related to early retirement of debt 286
Net change in operating accounts (2,039) (14,051)
----------- ------------
Net cash provided by operating activities 97,210 37,580
CASH FLOW FROM INVESTING ACTIVITIES
Cash of Oasis and Paragon at acquisition 7,253 12,400
Net proceeds from Third Party Transaction 226,128
Increase in real estate assets (271,742) (62,583)
Net proceeds from sales of properties 42,513
Net proceeds from sale of joint venture 6,841
Increase in investment in joint ventures (4,795)
Decrease in investment in joint ventures 1,478 4,624
Decrease in affiliate notes receivable 5,389 6,220
Other (1,146) (480)
----------- ------------
Net cash provided by (used in) investing activities 11,919 (39,819)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase (decrease) in credit facility and short-term notes 113,792 (1,500)
Debt repayments from Third Party Transaction (114,248)
Proceeds from notes payable 50,600 100,000
Repayment of notes payable (65,001) (198,096)
Proceeds from issuance of common shares 142,643
Distributions to shareholders and minority interests (63,055) (38,762)
Repurchase of common shares (1,616)
Payment of loan costs (1,663) (920)
Losses related to early retirement of debt (286)
Other 1,543 679
----------- ------------
Net cash (used in) provided by financing activities (79,648) 3,758
----------- ------------
Net increase in cash and cash equivalents 29,481 1,519
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,468 2,366
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 35,949 $ 3,885
=========== ============
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of interest capitalized $ 31,767 $ 21,362
Interest capitalized $ 6,385 $ 2,605
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of Oasis (including the Third Party Transaction) and Paragon,
net of cash acquired:
Fair value of assets acquired $ 783,500 $ 648,203
Liabilities assumed 495,708 332,961
Common shares issued 395,528 262,370
Preferred shares issued 104,125
Fair value of minority interest 21,520 65,272
Notes payable assumed upon purchase of property $ 22,424
Conversion of 7.33% subordinated debentures to common shares, net $ 2,242 $ 20,385
Value of shares issued under benefit plans, net $ 6,180 $ 3,388
See Notes to Consolidated Financial Statements.
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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, 1998 and the results of operations for the three and nine
months ended September 30, 1998 and 1997 and cash flows for the nine months
ended September 30, 1998 and 1997 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, a Houston-based real estate investment trust
("REIT"), and its subsidiaries (collectively, "Camden" or the "Company") report
as a single business segment with activities related to the ownership,
development, acquisition, management, marketing and disposition of multifamily
apartment communities in the Southwest, Southeast, Midwest and Western regions
of the United States. At September 30, 1998, the Company owned interests in,
operated or was developing 165 multifamily properties containing 56,750
apartment homes located in nine states. Fourteen of the Company's multifamily
properties containing 5,680 apartment homes were under development at September
30, 1998. The Company has several additional sites which it intends to develop
into multifamily apartment communities. Additionally, the Company managed 2,377
apartment homes in six properties for third-parties at September 30, 1998.
ACQUISITION OF OASIS RESIDENTIAL, INC.
On April 8, 1998, Oasis Residential Inc. ("Oasis") merged with and into
a wholly-owned subsidiary of the Company (the "Oasis Merger"), pursuant to an
Agreement and Plan of Merger dated as of December 16, 1997 (the "Merger
Agreement"), as amended. As provided in the Merger Agreement, each of the shares
of Oasis common stock outstanding on April 8, 1998 was exchanged for 0.759
shares of the Company's common shares. Each share of Oasis Series A cumulative
convertible preferred stock (the "Oasis Preferred Stock") outstanding on April
8, 1998 was reissued as Camden Series A Cumulative Convertible Preferred Shares
(the "Preferred Shares") with comparable terms and conditions as previously
existed with respect to the Oasis Preferred Stock. The Company issued 12,392,893
common shares and 4,165,000 Preferred Shares in exchange for the outstanding
common stock and outstanding Oasis Preferred Stock, respectively. Approximately
$484 million of Oasis debt, at fair value, was assumed in the merger. In
connection with the Oasis Merger, the Company obtained a managing member
interest in Oasis Martinique, LLC. The remaining interest comprising 672,490
units (the "Martinique Units"), which are exchangeable on a one-for-one basis
into the Company's common shares, is accounted for as a minority interest.
Oasis, a Nevada corporation, was a fully integrated REIT headquartered
in Las Vegas, Nevada whose business was the operation and development of
multifamily residential communities in Las Vegas, Denver and Southern
California. As of April 8, 1998, Oasis owned interests in 52 completed
multifamily properties, with one additional multifamily property under
construction. Upon completion of the merger, Camden owned interests in 54,314
apartment homes (including 4,131 apartment homes under development). In
connection with the Oasis Merger, Camden disclosed its intentions of entering
into a joint venture investment (the "Joint Venture") in order to transfer into
the Joint Venture 19 apartment communities containing 5,119 apartment homes
located in Las Vegas (the "Third Party Transaction").
- 5 -
6
On June 30, 1998, the Company completed the Third Party Transaction for
an aggregate of $248 million with a private limited liability company (the
"LLC"). The Company retained a 20% interest in the LLC, which is included in
investment in joint ventures. The Third Party Transaction was funded with
capital invested by the LLC members, the assumption of $9.9 million of existing
nonrecourse indebtedness, the issuance of 17 nonrecourse cross collateralized
and cross defaulted loans totaling $180 million and the issuance of two
nonrecourse second lien mortgages totaling $7 million. The LLC assumed the $190
million of treasury locks which Camden had entered into during the first quarter
of 1998 as a hedge against interest rate exposure for the LLC. The treasury
locks were unwound by the LLC simultaneously with the completion of the funding
for the Third Party Transaction. Camden used the net proceeds from the Third
Party Transaction to reduce outstanding debt by $124 million, including the $9.9
million of existing indebtedness noted above, and set aside $112 million into an
escrow account which may be used to make tax-free exchange acquisitions or to
further reduce debt if the exchange acquisitions are not completed. The Company
utilized $76.9 million of the escrow funds to purchase two properties which
closed in July 1998. No book gain or loss was recorded by Camden as a result of
the Third Party Transaction. Camden continues to provide property management
services for these assets.
The Oasis Merger has been recorded under the purchase method of
accounting. In accordance with generally accepted accounting principles, the
purchase price was preliminarily allocated to the net assets acquired based on
their estimated fair values. Such estimates may be revised at a later date. No
goodwill is expected to be recorded in this transaction. The accompanying
consolidated statements of operations include the operating results of Oasis
since April 1, 1998, the effective date of the Oasis Merger for accounting
purposes. Pro forma unaudited consolidated operating results of the Company for
the nine months ended September 30, 1998 and 1997, assuming that the Oasis
Merger and the Third Party Transaction had been made as of January 1, 1997, are
summarized below (in thousands, except per share amounts):
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1998 1997
--------- ---------
Total revenues $ 250,757 $ 200,190
Net income to common shareholders $ 36,753 $ 26,615
Basic earnings per share $ 0.83 $ 0.72
Diluted earnings per share $ 0.79 $ 0.72
These pro forma results have been prepared for informational purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the Oasis Merger and the Third Party
Transaction been completed on the date indicated, nor are they necessarily
indicative of future operations.
ACQUISITION OF PARAGON GROUP, INC.
On April 15, 1997, the Company acquired through a tax-free merger,
Paragon Group, Inc. ("Paragon"), a Dallas-based multifamily REIT. The
acquisition increased the size of the Company's portfolio from 53 to 103
multifamily properties, and from 19,389 to 35,364 apartment homes (the
"Paragon Acquisition"). Each share of Paragon common stock outstanding on
April 15,1997 was exchanged for 0.64 shares of the Company's common
shares. The Company issued 9.5 million shares in exchange for all of the
outstanding shares of Paragon common stock and 2.4 million limited
partnership units ("OP Units") in Camden Operating, L.P. (the "Operating
Partnership") and assumed approximately $296 million of Paragon debt in
connection with the Paragon Acquisition.
REAL ESTATE ASSETS AT COST
The Company capitalized $18.7 million and $11.0 million in the nine
months ended September 30, 1998 and 1997, respectively, of renovation and
improvement costs which extended the economic lives and enhanced the earnings of
its multifamily properties. If the accounting policy described below had been
adopted as of January 1, 1997, the amounts capitalized for the nine months
ended September 30, 1998 and 1997 would have increased to $19.8 million and
$13.8 million, respectively.
- 6 -
7
Effective April 1, 1998, the Company implemented prospectively a new
accounting policy whereby expenditures for carpet, appliances and HVAC unit
replacements are capitalized and depreciated over their estimated useful lives.
Previously, all such replacements had been expensed. The Company believes that
the newly adopted accounting policy is preferable as it is consistent with
standards and practices utilized by the majority of the Company's peers and
provides a better matching of expenses with the related benefit of the
expenditure. The change in accounting principle is inseparable from the effect
of the change in accounting estimate and is therefore treated as a change in
accounting estimate. See New Accounting Pronouncements below for the effect of
this change and the Company's adoption of a new accounting pronouncement on
Camden's financial results for both of the quarters ended June 30, 1998 and
September 30, 1998.
PROPERTY OPERATING AND MAINTENANCE EXPENSES
Property operating and maintenance expenses included normal repairs
and maintenance totaling $6.0 million and $15.7 million for the three and
nine months ended September 30, 1998, respectively, and $4.5 million and $10.0
million for the three and nine months ended September 30, 1997, respectively.
COMMON SHARE DISTRIBUTION DECLARATION
On September 15, 1998, the Company announced that its Board of
Trust Managers had declared its third quarter distribution in the amount of
$0.505 per share. On October 16, 1998, the distributions were paid to all
holders of record of Camden's common shares as of September 30, 1998, and an
equivalent amount per unit was paid to holders of OP and Martinique Units.
This distribution to common shareholders and holders of OP and Martinique Units
equates to an annualized dividend rate of $2.02 per share or unit.
PREFERRED SHARE DIVIDEND DECLARATION
On September 15, 1998, the Company also announced that its Board of
Trust Managers had declared a quarterly dividend on its Preferred Shares, which
were reissued for Oasis Preferred Stock in conjunction with the merger of
Oasis. The dividend in the amount of $0.5625 per share, is payable November 16,
1998 to all preferred shareholders of record as of September 30, 1998.
NEW ACCOUNTING PRONOUNCEMENTS
On March 19, 1998, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus decision on Issue No.
97-11, Accounting for Internal Costs Relating to Real Estate Property
Acquisitions, which requires that internal costs of identifying and acquiring
operating properties be expensed as incurred for transactions entered into on or
after March 20, 1998. Prior to Camden's adoption of this policy, the Company had
been capitalizing such costs. The effect of the Company's adoption of Issue No.
97-11 and the new accounting policy for carpet, appliances and HVAC unit
replacements on the three months ended June 30, 1998 and September 30, 1998 was
to increase the net income to common shareholders by $1.1 million ($0.03 per
basic earnings per share and $0.02 per diluted earnings per share), and $1.3
million ($0.03 per basic and diluted earnings per share), respectively.
On July 23, 1998, the EITF reached a consensus decision on Issue No.
97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned
Are Held in a Rabbi Trust and Invested, which requires companies to consolidate
certain Rabbi Trust plans into their financial statements. The adoption of this
EITF did not impact the Company since Camden's Rabbi Trust plan does not meet
the criteria for consolidation.
- 7 -
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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,
1998 and 1997, with 1997 restated to conform with the requirements of SFAS No.
128, Earnings Per Share (in thousands, except per share amounts):
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
BASIC EARNINGS PER SHARE:
Weighted Average Common Shares Outstanding 44,370 30,410 40,115 24,487
========== ========== ========== ===========
Basic Earnings Per Share $ 0.33 $ 0.27 $ 0.83 $ 0.77
========== ========== ========== ===========
DILUTED EARNINGS PER SHARE:
Weighted Average Common Shares Outstanding 44,370 30,410 40,115 24,487
Shares Issuable from Assumed Conversion of:
Common Share Options and Awards Granted 387 372 414 304
Minority Interest Units* 2,680 2,346 2,587
---------- ---------- ---------- -----------
Weighted Average Common Shares Outstanding,
as Adjusted 47,437 33,128 43,116 24,791
========== ========== ========== ===========
Diluted Earnings Per Share $ 0.31 $ 0.27 $ 0.79 $ 0.76
========== ========== ========== ===========
EARNINGS FOR BASIC AND DILUTED COMPUTATION:
Net Income $ 16,993 $ 8,260 $ 40,208 $ 18,753
Less: Dividends on Preferred Shares 2,343 7,029
--------- --------- --------- ---------
Net Income to Common Shareholders 14,650 8,260 33,179 18,753
(Basic Earnings Per Share Computation)
Minority Interests* 59 612 1,043
---------- ---------- ---------- -----------
Net Income to Common Shareholders, as Adjusted
(Diluted Earnings Per Share Computation) $ 14,709 $ 8,872 $ 34,222 $ 18,753
========== ========== ========== ===========
* Minority interest units were antidilutive for the nine months ended
September 30, 1997.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts in prior year
financial statements to conform with current year presentations.
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2. NOTES PAYABLE
The following is a summary of the Company's indebtedness:
(In millions)
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------- ---------------
Senior Unsecured Notes:
6 5/8% - 7 1/4% Notes, due 2001-2006 $ 323.9 $ 174.0
Reset Notes, due 2002 75.0 75.0
7.172% Medium-Term Notes, due 2004 25.0 25.0
Unsecured Credit Facilities and Short-Term Borrowings 149.0 43.0
--------- ---------
572.9 317.0
Secured Notes - Mortgage Loans (4 9/10% - 9 1/2%) 389.8 163.8
--------- ---------
Total notes payable $ 962.7 $ 480.8
========= =========
Floating rate debt included in unsecured notes payable, net of
$25 million hedging agreement (6 1/10% - 7 3/4%) $ 199.0 $ 93.0
Floating rate tax-exempt debt included in mortgage loans (4 9/10% - 5 3/10%) $ 64.7
As a result of the Oasis Merger, the Company assumed $228 million in
conventional mortgage loans with interest rates ranging from 5 1/10% to 9 1/2%.
As of September 30, 1998, $217.0 million of conventional mortgage loans were
outstanding. An $8.9 million conventional mortgage loan assumed matured in
October 1998 and was paid off utilizing funds from the medium-term note
issuances discussed below.
In conjunction with the Oasis Merger, Camden assumed $150 million in
senior unsecured notes payable issued by Oasis in November 1996 (the "Notes
Payable"), as well as acquired the use of Oasis' unsecured line of credit (the
"Oasis Credit Facility"). The Notes Payable, due in equal increments in November
2001, 2003 and 2006, bear interest at annual rates ranging from 6 3/4% to 7
1/4%, payable quarterly. The Oasis Credit Facility, which has a maximum
borrowing capacity of $50 million, matures in December 1998, and bears interest
at LIBOR plus 115 basis points.
Proceeds from the Third Party Transaction were used to pay down
approximately $114 million on the Unsecured Credit Facilities and short-term
borrowings and $9.9 million of existing indebtedness, and $112 million was set
aside into an escrow account which may be used to make tax-free exchange
acquisitions or to further reduce debt if the exchange acquisitions are not
completed. The Company utilized $76.9 million of the escrow funds to purchase
two properties which closed in July 1998.
At September 30, 1998, the weighted average interest rate on total notes
payable was 6.9%.
Subsequent to September 30, 1998, the Company issued $12 million and $90
million principal amounts of senior unsecured notes from its $196 million
medium-term note shelf registration. These fixed rate notes, due in October
2000, bear interest at rates of 6.92% and 7.23%, respectively, payable
semiannually on March 15 and September 15. The net proceeds were used to
liquidate the $75 million Reset Notes, pay off certain mortgage notes payable,
and reduce indebtedness incurred under the Unsecured Credit Facility.
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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)
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------
1998 1997
---------- ----------
Decrease (increase) in assets:
Accounts receivable - affiliates $ 1,298 $ 2,148
Other assets, net 2,171 (1,105)
Restricted cash - escrow deposits 1,337 1,189
Increase (decrease) in liabilities:
Accounts payable (5,027) (5,057)
Accrued real estate taxes 5,028 2,644
Accrued expenses and other liabilities (6,846) (13,870)
---------- ----------
Net change in operating accounts $ (2,039) $ (14,051)
========== ==========
4. CONVERTIBLE SUBORDINATED DEBENTURES
During the first nine months of 1998, debentures in the principal
amount of $2.3 million were converted into 95,038 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 and the unpaid interest payable was
credited to additional paid in-capital. In addition, $50,000 of unamortized
debenture issue costs were reclassified to additional paid-in capital. Had all
converted debentures converted as of the beginning of the period, basic earnings
per share and diluted earnings per share would have remained the same for the
three and nine months ended September 30, 1998.
5. RESTRICTED SHARE AND OPTION AWARDS
During the first nine months of 1998, the Company granted 222,449
restricted shares in lieu of cash compensation to certain key employees and
non-employee trust managers. The restricted shares have vesting periods of
up to five years. Additionally, 1,421,510 options to purchase Camden common
shares were granted at an exercise price equal to the market price on the date
of grant and are exercisable in equal increments on or following each of the
first three anniversaries of the date of grant. During the nine month period
ended September 30, 1998, previously granted options for 103,334 shares became
exercisable and 76,489 restricted shares vested. The Company also converted all
unexercised Oasis stock options held by former employees of Oasis into 894,111
options to purchase Camden common shares based on the 0.759 exchange ratio
described in Note 1. All of the Oasis options became fully vested upon
conversion.
6. COMMON SHARE REPURCHASE PROGRAM
In September 1998, the Board of Trust Managers authorized the Company
to repurchase up to $50 million of Camden's common shares through open
market purchases and private transactions. At September 30, 1998 the Company
had repurchased 62,000 common shares for a total cash outlay of $1.6 million.
7. COMMITMENTS AND CONTINGENCIES
Prior to the Oasis Merger, Oasis had been contacted by certain
regulatory agencies with regards to alleged failures to comply with the "Fair
Housing Act" as it pertained to properties constructed for first occupancy
after March 31, 1991. The Company is currently inspecting these properties to
determine the extent of the alleged noncompliance and the changes that may be
necessitated. At this time, the Company is unable to provide an
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11
estimate of costs and expenses associated with this matter as the scope and
extent of required work, if any, has yet to be determined.
8. CONVERTIBLE PREFERRED SHARES
The 4,165,000 Preferred Shares reissued in conjunction with the Oasis
Merger pay a cumulative dividend quarterly in arrears in an amount equal to
$2.25 per share per annum. The Preferred Shares generally have no voting
rights and have a liquidation preference of $25 per share plus accrued and
unpaid distributions. The Preferred Shares are convertible at the option of
the holder at any time into common shares at a conversion price of $32.4638 per
common share (equivalent to a conversion rate of 0.7701 per common share for
each Preferred Share), subject to adjustment in certain circumstances. The
Preferred Shares are not redeemable by the Company prior to April 1, 2001.
9. 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 contracts 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. 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 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 or developments or used to retire debt.
- 11 -
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 thereto appearing elsewhere in this report
as well as the audited financial statements appearing in the Company's 1997
Annual Report to Shareholders. Where appropriate, comparisons are made on a
dollars per-weighted-average-apartment home 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 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, a Houston-based real estate investment trust
("REIT"), and its subsidiaries (collectively, "Camden" or the "Company")report
as a single business segment with activities related to the ownership,
development, acquisition, management, marketing and disposition of multifamily
apartment communities in the Southwest, Southeast, Midwest and Western regions
of the United States. At September 30, 1998, the Company owned interests in,
operated or was developing 165 multifamily properties containing 56,750
apartment homes located in nine states. Fourteen of the Company's multifamily
properties containing 5,680 apartment homes were under development at September
30, 1998 (the "Development Properties"). The Company has several additional
sites which it intends to develop into multifamily apartment communities.
Additionally, the Company managed 2,377 apartment homes in six properties for
third-parties at September 30, 1998.
ACQUISITION OF OASIS RESIDENTIAL, INC.
On April 8, 1998, the Company acquired through a tax-free merger,
Oasis Residential, Inc. ("Oasis"), a publicly traded Las Vegas-based
multifamily REIT. The acquisition increased the size of the Company's
portfolio from 100 to 152 completed multifamily properties, and from 38,460 to
50,183 apartment homes at the date of acquisition. Upon completion of ten
properties under development, the Company's portfolio at the date of acquisition
would have increased to 54,314 apartment homes in 162 properties. As provided in
the Plan of Merger dated December 16, 1997, as amended, each of the shares of
Oasis common stock outstanding on April 8, 1998 was exchanged for 0.759 share of
the Company's common shares. Each share of Oasis Series A cumulative
convertible preferred stock (the "Oasis Preferred Stock") outstanding on
April 8, 1998 was reissued as Camden Series A Cumulative Convertible Preferred
Shares (the "Preferred Shares") with comparable terms and conditions as
previously existed with respect to the Oasis Preferred Stock. The Company issued
12,392,893 common shares and 4,165,000 Preferred Shares in exchange for the
outstanding common stock and outstanding Oasis Preferred Stock, respectively.
Approximately $484 million of Oasis debt, at fair value, was assumed in the
merger. In connection with the Oasis Merger, the Company obtained a managing
member interest in Oasis Martinique, LLC. The remaining interest comprising
672,490 units (the "Martinique Units"), which are exchangeable on a one-for-one
basis into the Company's common shares, is accounted for as a minority interest.
In connection with the Oasis Merger, Camden disclosed its intentions of entering
into a joint venture investment (the "Joint Venture") in order to transfer into
the Joint Venture 19 apartment communities containing 5,119 apartment homes
located in Las Vegas (the "Third Party Transaction").
On June 30, 1998, the Company completed the Third Party Transaction
for an aggregate of $248 million with a private limited liability company
(the "LLC"). The Company retained a 20% interest in the LLC, which is
included in investment in joint ventures. The Third Party Transaction was
funded with capital invested by the LLC members, the assumption of $9.9
million of existing nonrecourse indebtedness, the issuance of 17 nonrecourse
cross collateralized and cross defaulted loans totaling $180 million and
the issuance of two
- 12 -
13
nonrecourse second lien mortgages totaling $7 million. The LLC assumed the $190
million of treasury locks which Camden had entered into during the first quarter
of 1998 as a hedge against interest rate exposure for the LLC. The treasury
locks were unwound by the LLC simultaneously with the completion of the funding
for the Third Party Transaction. Camden used the net proceeds from the Third
Party Transaction to reduce outstanding debt by $124 million, including the
$9.9 million of existing indebtedness noted above, and set aside $112 million
into an escrow account which may be used to make tax-free exchange acquisitions
or to further reduce debt if the exchange acquisitions are not completed. The
Company utilized $76.9 million of the escrow funds to purchase two properties
which closed in July 1998. No book gain or loss was recorded by Camden as a
result of the Third Party Transaction. Camden continues to provide property
management services for these assets.
ACQUISITION OF PARAGON GROUP, INC.
On April 15, 1997, the Company acquired through a tax-free merger,
Paragon Group, Inc. ("Paragon"), a Dallas-based multifamily REIT. The
acquisition increased the size of the Company's portfolio from 53 to 103
multifamily properties, and from 19,389 to 35,364 apartment homes (the
"Paragon Acquisition"). Each share of Paragon common stock outstanding on April
15,1997 was exchanged for 0.64 shares of the Company's common shares. The
Company issued 9.5 million shares in exchange for all of the outstanding
shares of Paragon common stock and 2.4 million limited partnership units
("OP Units") in Camden Operating, L.P.(the "Operating Partnership") and assumed
approximately $296 million of Paragon debt in connection with the Paragon
Acquisition.
PROPERTY PORTFOLIO
The Company's multifamily property portfolio, including
Development Properties but excluding land held for development, at September 30,
1998 and December 31, 1997 is summarized as follows:
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------------------------------- -------------------------------------------
Number of Number of % (a) Number of Number of % (a)
Apartment Homes Properties Apartment Homes Properties
------------------- ------------- ------- -------------------- ------------ -------
Texas
Houston 8,558 21 17% 7,710 19 22%
Dallas (b) (c) 9,981 27 19 9,381 26 24
Austin 1,745 6 4 1,745 6 5
Other 1,641 5 3 1,585 5 4
--------- ------- ------- --------- ------ -------
Total Texas 21,925 59 43 20,421 56 55
Properties
--------- ------- ------- --------- ------ -------
Arizona 2,651 8 5 2,134 6 6
California 1,652 4 3
Colorado (b) 2,312 7 4
Florida 8,411 21 17 6,661 18 19
Kentucky 1,574 6 3 1,574 6 4
Missouri 3,327 8 7 3,487 10 10
Nevada (b) 12,163 42 14
North Carolina (b) (c) 2,735 10 4 2,735 10 6
--------- ------- ------- --------- ------ -------
Total Properties 56,750 165 100% 37,012 106 100%
======= ======= ====== =======
Less: Joint Venture Apartment
Homes (b) (c) 6,704 1,264
--------- ---------
Total Apartment Homes
- Owned 100% 50,046 35,748
========= =========
(a) Based on number of apartment homes owned 100%.
(b) Includes one property with 708 apartment homes in Dallas, one property
with 321 apartment homes in Colorado, 19 properties with 5,119 apartment
homes in Nevada, and two properties with 556 apartment homes in North
Carolina owned through joint venture investments at September 30, 1998.
(c) Includes one property with 708 apartment homes in Dallas and two
properties with 556 apartment homes in North Carolina owned through joint
venture investments at December 31, 1997.
- 13 -
14
PROPERTY UPDATE
During the first quarter of 1998, The Park at Vanderbilt, Phase II,
which was completed in the third quarter of 1997, stabilized. In the second
quarter of 1998, The Park at Centreport and The Park at Buckingham, which were
completed in the fourth quarter of 1997, stabilized. During the third quarter
of 1998, lease-ups began at The Park at Towne Center and Renaissance Pointe II.
The following table sets forth information regarding the Development Properties
at September 30, 1998:
Number of Estimated
Project Apartment Cost Estimated Date Estimated Date
Property and Location Type Homes ($ millions)* of Completion of Stabilization
- -------------------------------------- ------------- ------------ -------------- ------------------ -------------------
The Park at Towne Center Garden 240 $ 13.4 4Q98 2Q99
Glendale, AZ
Renaissance Pointe II Garden 306 17.3 1Q99 3Q99
Orlando, FL
The Park at Goose Creek Affordable 272 11.8 2Q99 4Q99
Baytown, TX
The Park at Interlocken Garden 340 34.9 2Q99 4Q99
Denver, CO
The Park at Midtown Urban 337 21.5 2Q99 4Q99
Houston, TX
The Park at Oxmoor Garden 432 22.1 3Q99 2Q00
Louisville, KY
The Park at Holly Springs Garden 548 37.1 3Q99 3Q00
Houston, TX
The Park at Lee Vista Garden 492 32.8 4Q99 3Q00
Orlando, FL
The Park at Greenway Urban 756 55.7 4Q99 4Q00
Houston, TX
The Park at Arizona Center Urban 325 22.0 1Q00 3Q00
Phoenix, AZ
The Park at Mission Viejo Garden 380 42.0 2Q00 4Q00
Mission Viejo, CA
The Park at Farmers Market, Phase I Urban 600 45.9 3Q00 2Q01
Dallas, TX
------- --------
5,028 356.5
Marina Pointe II Garden 352 25.2 To Be To Be
Tampa, FL Determined Determined
The Park at Steeplechase Affordable 300 13.5 To Be To Be
Houston, TX Determined Determined
------- --------
Total for 14 Development Properties 5,680 $395.2
======== ========
* At September 30, 1998, the Company had incurred $150.3 million of the
estimated $395.2 million.
The Company stages its construction to allow leasing and occupancy
during the construction period thereby minimizing the lease-up period following
completion of construction. 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.
- 14 -
15
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
The changes in operating results from period to period are
primarily due to the Oasis Merger, development of three properties aggregating
1,166 apartment homes, the acquisition of seven properties containing 3,027
apartment homes, the disposition of 11 properties containing 2,986 apartment
homes and an increase in net operating income generated by the stabilized
portfolio. The weighted average number of apartment homes for the third quarter
of 1998 increased by 10,990, or 33.3%, from 33,016 to 44,006. Total operating
properties were 128 and 98 at September 30, 1998 and 1997, respectively, and
exclude those owned through joint venture investments. The weighted average
number of apartment homes of 44,006 and 33,016 exclude the impact of the
Company's ownership interest in apartment homes owned in joint ventures
throughout the quarters.
The average rental income per apartment home per month increased
$65, or 12.1%, from $539 to $604 for the third quarter of 1997 and 1998,
respectively. The increase was primarily due to increased revenue growth from
the stabilized real estate portfolio, higher average rental rates on properties
added to the portfolio through the Oasis Merger, the seven acquired properties
and completion of new development properties. Overall average occupancy changed
slightly from 94.5 % for the quarter ended September 30, 1997 to 93.8% for the
quarter ended September 30, 1998.
Other property income increased $2.2 million from $2.9 million to
$5.1 million for the quarters ended September 30, 1997 and 1998, respectively.
The increase in other property income was due to a larger number of apartment
homes owned and in operation and an $824,000 increase from new revenue sources
such as telephone, cable and water.
Property operating and maintenance expenses increased $4.5 million,
from $20.9 million to $25.4 million, and decreased as a percent of total
property income from 37.1% to 29.9% for the quarters ended September 30, 1997
and 1998, respectively. The Company's operating expense ratio decreased over the
prior year quarter primarily as a result of operating efficiencies resulting
from operating a larger portfolio and the impact of the Company's April 1, 1998
adoption of a new accounting policy, whereby expenditures for carpet, appliances
and HVAC unit replacements are expensed in the first five years of a property's
life and capitalized thereafter. Prior to the adoption of this policy, the
Company had been expensing these costs. Had this policy change not been adopted,
the third quarter 1998 operating expense ratio would have been 32.0%.
Real estate taxes increased $2.4 million from $5.8 million to $8.2
million for the quarters ended September 30, 1997 and 1998, respectively,
which represents an annual increase of $42 per apartment home. Real estate
taxes per apartment home have increased due to increases in the valuations of
renovated, acquired and developed properties, and increases in property tax
rates. This increase per apartment home was partially offset by lower
property taxes in the portfolio added through the Oasis Merger.
General and administrative expenses increased $1.1 million from
$1.0 million to $2.2 million, and increased as a percent of revenues from 1.8
% to 2.5%. The general and administrative expense ratio increase is mainly
attributable to the impact of the Company's March 20, 1998 adoption of Issue
No. 97-11, Accounting for Internal Costs Relating to Real Estate Property
Acquisitions, discussed in Note 1.
Interest expense increased from $7.5 million to $13.4 million due
to increased indebtedness related to the Oasis Merger, completed developments,
renovations and property acquisitions. This increase was partially offset by
reductions in average interest rates on the Company's debt, the equity offering
that occurred in July 1997 and property dispositions. Interest capitalized was
$2.9 million and $891,000 for the quarters ended September 30, 1998 and 1997,
respectively.
Depreciation and amortization increased from $12.9 million to $20.4
million. This increase was due primarily to the Oasis Merger, developments,
renovations and property acquisitions.
- 15 -
16
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
The changes in operations results from period to period are primarily
due to the Oasis Merger, the Paragon Acquisition, development of
five properties aggregating 1,834 apartment homes, the acquisition of seven
properties containing 3,027 apartment homes, the disposition of 11 properties
containing 2,986 apartment homes and an increase in new operating income
generated by the stabilized portfolio. The weighted average number of apartment
homes for the first nine months of 1998 increased by 13,968 apartment homes, or
50.3%, from 27,744 to 41,712. Total operating properties were 128 and 98 at
September 30, 1998 and 1997, respectively, and exclude those owned through joint
venture investments. The weighted average number of apartment homes of 41,712
and 27,744 exclude the impact of the Company's ownership interest in apartment
homes owned in joint ventures throughout the nine month periods.
The average rental income per apartment home per month increased $55, or
10.4%, from $530 to $585 for the nine months ended September 30, 1997 and 1998,
respectively. The increase was primarily due to increased revenue growth from
the stabilized real estate portfolio, higher average rental rates on properties
added to the portfolio through the Oasis Merger, the seven acquired properties
and completion of new development properties.
Other property income increased $7.1 million from $6.5 million to
$13.6 million for the nine months ended September 30, 1997 and 1998,
respectively. The increase in other property income was due to a larger number
of apartment homes owned and in operation and a $2.7 million increase from new
revenue sources such as telephone, cable and water.
Property operating and maintenance expenses increased $22.7
million, from $49.5 million to $72.2 million, and decreased as a percent of
total property income from 35.7% to 31.0% for the nine months ended
September 30, 1997 and 1998, respectively. The Company's operating expense ratio
decreased over the prior year primarily as a result of operating efficiencies
resulting from operating a larger portfolio and the impact of the Company's
April 1, 1998 adoption of a new accounting policy, whereby expenditures for
carpet, appliances and HVAC unit replacements are expensed in the first five
years of a property's life and capitalized thereafter. Prior to the adoption
of this policy, the Company had been expensing these costs. Had this policy
change not been adopted, the nine months ended September 30, 1998 operating
expense ratio would have been 32.5%.
Real estate taxes increased $7.7 million from $15.4 million to $23.1
million for the nine months ended September 30, 1997 and 1998, respectively,
which represents an annual decrease of $2 per apartment home. Real estate
taxes per apartment home have decreased due to lower property taxes in the
Camden portfolio outside of Texas. This decrease per apartment home
was offset by increases in the valuations of renovated, acquired and developed
properties, and increases in property tax rates.
General and administrative expenses increased $3.0 million from $3.1
million to $6.0 million, and increased slightly as a percent of revenues from
2.2% to 2.6%. The general and administrative expense ratio increase is mainly
attributable to the impact of the Company's March 20, 1998 adoption of Issue
No. 97-11, Accounting for Internal Costs Relating to Real Estate Property
Acquisitions, discussed in Note 1, which is partially offset by efficiencies
resulting from operating a larger portfolio.
Interest expense increased from $20.7 million to $36.7 million due
to increased indebtedness related to the Oasis Merger, Paragon Acquisition,
completed developments, renovations and property acquisitions. This increase
was partially offset by reductions in average interest rates on the Company's
debt, the equity offering that occurred in July 1997 and property dispositions.
Interest capitalized was $6.4 million and $2.6 million for the nine months ended
September 30, 1998 and 1997, respectively.
Depreciation and amortization increased from $31.4 million to $57.4
million. This increase was due primarily to the Oasis Merger, Paragon
Acquisition, developments, renovations and property acquisitions.
- 16 -
17
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) managing interest rate exposure
using fixed rate debt and hedging, where appropriate; (iv) borrowing on an
unsecured basis; (v) maintaining a substantial number of unencumbered assets;
and (vi) maintaining conservative coverage ratios. The interest coverage ratio
was 3.8 and 3.9 times earnings before interest, depreciation, and amortization
for the three months ended September 30, 1998 and 1997, respectively, and 3.7
and 3.5 times earnings before interest, depreciation, and amortization for the
nine months ended September 30, 1998 and 1997, respectively.
LIQUIDITY
The Company intends to meet its short-term liquidity requirements
through cash flows provided by operations, the $150 million unsecured line
of credit (the "Unsecured Credit Facility"), the $50 million unsecured line
of credit described in the Financial Flexibility section below, which was
assumed as a result of the Oasis Merger (the "Oasis Credit Facility")
and other short-term borrowings. The Company uses equity capital and senior
unsecured debt to refinance maturing secured debt and borrowings under its
Unsecured Credit Facilities and other short-term borrowings. As of September
30, 1998, the Company had $51 million available under the Unsecured Credit
Facilities, $275 million available under its universal shelf registration, and
$171 million available under its medium-term note program. Finally,
the Company has significant unencumbered real estate assets which could be sold
or used as collateral for financing purposes should other sources of capital not
be available. The Company considers its ability to generate cash to be
sufficient, and expects to be able to meet future operating cash requirements
and to pay distributions to shareholders and holders of units.
On September 15, 1998, the Company announced that its Board of Trust
Managers had declared its third quarter distribution in the amount of
$0.505 per share. On October 16, 1998, the distributions were paid to all
holders of record of Camden's common shares as of September 30, 1998, and an
equivalent amount per unit was paid to holders of OP and Martinique Units. This
distribution to common shareholders and holders of OP and Martinique Units
equates to an annualized dividend rate of $2.02 per share or unit.
On September 15, 1998, the Company also announced that its Board of
Trust Managers had declared a quarterly dividend on its Preferred Shares,
which were reissued for Oasis Preferred Stock in conjunction with the merger
of Oasis. The dividend in the amount of $0.5625 per share, is payable November
16, 1998 to all preferred shareholders of record as of September 30, 1998.
FINANCIAL FLEXIBILITY
The Company concentrates its growth efforts toward selective
development and acquisition opportunities in its core markets, and through
the acquisition of existing operating portfolios and development
properties in selected new markets. During the nine months ended September 30,
1998, the Company had $136.1 million in developments and $141.3
million in acquisitions. In addition, Camden issued 12.4 million common
shares, 4.2 million preferred shares and assumed $484 million of indebtedness at
fair value to purchase Oasis. The Company has announced plans to develop 14
additional properties at an aggregate cost of approximately $395 million. The
Company funds its developments and acquisitions through a combination of equity
capital, ownership units, medium-term notes and other debt securities, the
Unsecured Credit Facilities and other short-term borrowing arrangements. The
Company also seeks to selectively dispose of assets that are 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 $268.6 million in net proceeds received from
these asset disposals, including the Third Party Transaction, during the nine
months ended September 30, 1998 were reinvested in acquisitions or developments,
used to retire debt or set aside into an escrow account which may be used to
make tax-free exchange acquisitions or to further reduce debt if the exchange
acquisitions are not completed.
- 17 -
18
As a result of the Oasis Merger, the Company assumed $228 million in
conventional mortgage loans with interest rates ranging from 5 1/10% to 9
1/2%. As of September 30, 1998, $217.0 million of conventional mortgage
loans were outstanding. An $8.9 million conventional mortgage loan assumed
matured in October 1998 and was paid off utilizing funds from the medium-term
note issuances discussed below.
In conjunction with the Oasis Merger, Camden assumed $150 million in
senior unsecured notes payable issued by Oasis in November 1996 (the "Notes
Payable"), as well as acquired the use of the Oasis Credit Facility. The
Notes Payable, due in equal increments in November 2001, 2003 and 2006, bear
interest at annual rates ranging from 6 3/4% to 7 1/4%, payable quarterly. The
Oasis Credit Facility, which has a maximum borrowing capacity of $50 million,
matures in December 1998, and bears interest at LIBOR plus 115 basis points.
At September 30, 1998, the weighted average interest rate on total notes
payable was 6.9%.
Subsequent to September 30, 1998, the Company issued $12 million
and $90 million principal amounts of senior unsecured notes from its
$196 million medium-term note shelf registration. These fixed rate notes, due
in October 2000, bear interest at rates of 6.92% and 7.23%, respectively,
payable semiannually on March 15 and September 15. The net proceeds were used
to liquidate the $75 million Reset Notes, pay off certain mortgage notes
payable, and reduce indebtedness incurred under the Unsecured Credit Facility.
FUNDS FROM OPERATIONS
Management considers funds from operations ("FFO") 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. In addition, extraordinary or unusual items, along with significant
non-recurring events that materially distort the comparative measure of FFO are
typically disregarded in its calculation. The Company's definition of FFO also
assumes conversion at the beginning of the period of all convertible securities
including minority interests which are convertible into common equity.
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 is not defined by generally accepted accounting principles. 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. Further, FFO as disclosed by other REITs may
not be comparable to the Company's calculation. The Company's FFO for the three
and nine months ended September 30, 1998, increased $16.0 million and $47.3
million, respectively, over the three and nine months ended September 30, 1997,
primarily due to the Oasis Merger, Paragon Acquisition, property acquisitions,
developments and improvements in the performance of the stabilized properties in
the portfolio.
- 18 -
19
The calculation of FFO for the three and nine months ended September 30, 1998
and 1997 follows:
(In thousands)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ----------- ---------
Net income to common shareholders $ 14,650 $ 8,260 $ 33,179 $ 18,753
Real estate depreciation 20,070 12,648 56,364 30,644
Minority interests 59 612 1,043 1,209
Real estate depreciation from unconsolidated ventures 754 313 1,498 596
Interest on convertible subordinated debentures 69 130 249 559
Amortization of deferred costs on convertible debentures 6 13 24 77
Preferred share dividends 2,343 7,029
Losses related to early retirement of debt 286
--------- ---------- ---------- ---------
Funds from operations $ 37,951 $ 21,976 $ 99,386 $ 52,124
========= ========== ========== =========
Weighted average number of common and common 50,800 33,428 45,454 26,978
dilutive and antidilutive equivalent shares outstanding
REGULATION
Prior to the Oasis Merger, Oasis had been contacted by certain
regulatory agencies with regards to alleged failure to comply with the "Fair
Housing Act" as it pertained to properties constructed for first occupancy after
March 31, 1991. The Company is currently inspecting these properties to
determine the extent of the alleged noncompliance and the changes that may be
necessitated. At this time, the Company is unable to provide an estimate of
costs and expenses associated with this matter as the scope and extent of
required work, if any, has yet to be determined.
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.
YEAR 2000 CONVERSION
Camden has recognized the need to ensure that its computer systems,
equipment and operations will not be adversely impacted by the change to the
calendar Year 2000. As such, the Company has taken steps to identify and
resolve potential areas of risk by implementing a Year 2000 comprehensive plan
of action. The plan is divided into four phases: identification, assessment,
notification/certification, and testing/contingency plan development; and
includes three major elements: computer systems, equipment and third parties.
The Company is on the fourth phase for its computer systems, and the third phase
for its equipment and third party services.
The Company believes that the Year 2000 issue will not pose
significant operating problems for the Company's computer systems, since the
significant software products the Company utilizes are already compliant and
are being converted or modified by March 31, 1999 as part of system upgrades
unrelated to the Year 2000 issue. The Company will develop a contingency plan
which will permit its primary operations to continue if the testing of such
conversions and modifications are not completed by March 31, 1999.
The Company is communicating with key third party service
providers and vendors with whom it does business, including those who
have previously sold equipment to the Company, to obtain information
and compliance certificates regarding their state of readiness with respect to
the Year 2000 issue. Failure of third parties to remediate Year 2000 issues
affecting their respective businesses on a timely basis, or to implement
contingency plans sufficient to permit uninterrupted continuation of their
businesses in the event of a failure of their systems, could have a material
adverse impact on the Company's business and results of operations. However,
failure of third parties to
- 19 -
20
remediate Year 2000 issues affecting the Company's previously purchased
equipment is not expected to have a material adverse impact on the Company's
business or results of operations. Final determination of third party Year 2000
readiness is expected to be substantially complete in early 1999. The Company
will develop contingency plans based on the results of this assessment.
Potential risks include the suspension or significant curtailment of services by
banks, utilities, and others.
The total cost to the Company of addressing the Year 2000 issues with
respect to its own computer systems, equipment and operations is expected
to be minimal. The Company's minimal cost estimate does not include time
and costs that may be incurred by the Company as a result of the failure of any
third parties to become Year 2000 ready or costs to implement any contingency
plans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
- 20 -
21
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
11.1 Statement regarding Computation of Earnings Per Common
Share
27.1 Financial Data Schedule (filed only electronically with the
Commission)
(b) Reports on Form 8-K
Current Report on Form 8-K dated June 30,1998 and filed
with the Commission on July 15, 1998, contained
information under Item 2 (Acquisition or Disposition
of Assets) and Item 7 (Financial Statements, Pro
Forma Financial Information and Exhibits).
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22
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 November 12, 1998
- ------------------------------------ -----------------------------------
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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23
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
11.1 Statement regarding Computation of Earnings Per Common
Share
27.1 Financial Data Schedule (filed only electronically with
the Commission)