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CAMDEN PROPERTY TRUST
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CORPORATE PROFILE
Camden Property Trust is a fully integrated real estate operating company
organized as a real estate investment trust (REIT) engaged in the ownership,
development, acquisition, management, marketing, and disposition of multifamily
apartment communities in the Sunbelt and Midwestern regions of the United
States.
As the fifth largest multifamily REIT in the nation, Camden owned interests in
and operated 34,669 apartment homes in 12 core markets at year end. In December
of 1997, the Company announced plans to acquire Oasis Residential, Inc., another
fully integrated, multifamily housing company which owns interests in an
additional 15,117 apartment homes. Upon shareholder approval, this transaction
will make Camden the third largest multifamily REIT in the United States.
Camden is headquartered in Houston, Texas and the Company's common shares are
traded on the New York Stock Exchange under the symbol CPT.
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LETTER TO OUR SHAREHOLDERS
We are pleased to report that, for the fifth consecutive year, Camden Property
Trust (CPT) has met or exceeded all of its financial and operational goals.
Remarkable growth, increased productivity and profitability once again marked
our performance in 1997.
Camden built both financial strength and business momentum throughout the year,
further bolstering its position as a leader in the multifamily housing
marketplace. Once again, we increased the Company's market share and passed
several milestones, while taking advantage of new opportunities for
acquisition, development and innovation throughout 1997.
We remained diligent in our goal to capitalize on the continued growth and
consolidation opportunities emerging throughout our industry, while maintaining
the agility necessary to anticipate industry trends and adjust our strategy
accordingly to best serve the evolving needs of our residents and our
shareholders. These efforts had a clear and direct impact on our financial
results.
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Camden Has Enjoyed Record Growth By Every Measure This Year
Camden completed new development activity in 4 of its 12 core markets,
continuing Camden's successful portfolio strategies. The Company offers
residents both new development properties and middle market properties. The
portfolio includes 34 percent new development and 66 percent middle market
properties.
Revenues for the year ended December 31, 1997 increased 79.0 percent over 1996,
rising from $111.6 million to $199.8 million. Same property net operating
income for the year increased by 6.2 percent compared to 1996 with revenues
increasing 4.3 percent and operating expenses increasing 1.7 percent.
Funds from operations (FFO) rose to $75.8 million, an increase of 89.4 percent
over $40.0 million in 1996. Dividends increased 3.2 percent from $1.90 per
common share in 1996 to $1.96 per common share in 1997. This represents a
payout ratio of 73.2 percent.
Camden ended the year with an ownership interest in 34,669 operating apartment
homes after the successful merger of Paragon Group, Inc. The strength of the
combined portfolio was reflected in an increase in average monthly rental rates
of 5.3 percent, rising from $508 in 1996 to $535 in 1997.
The Company's total debt at year end, excluding debentures, was $480.8 million
or 31.0 percent of total market capitalization, a decrease of 1.6 percent from
1996.
Capitalizing On Continued Consolidation And Growth Opportunities
Over the course of the year, the market created numerous opportunities, and
Camden took fair advantage. We believe our performance provides many reasons
for satisfaction, as well as a promise of potential for the future.
Perhaps most significant was Camden's successful merger with Paragon, which was
announced in December 1996 and completed in mid-April of 1997. This transaction
raised the Company's assets to $1.3 billion.
In addition, the merger provided the Company entry into six new core markets.
Camden's active participation in any market cycle, whether through
acquisitions, development or dispositions, also significantly enhanced Camden's
ability to accelerate the Company's growth rate. Integration of the Paragon
properties was completed, and the Company continued to benefit throughout the
year from the economies of scale and the cost savings created by the merger.
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The Company's third quarter began with the issuance of 4.8 million common
shares at a gross price of $31 per share. The net proceeds of $142.6 million
from this equity offering enabled Camden to reduce the secured debt that was
assumed as part of the merger and to reduce its overall debt level to
pre-merger levels.
Three strategic acquisitions totaling $46 million, together with $192 million
in new development, were initiated during the year. Eight separate properties
in four core markets account for Camden's new development slated for 1998.
From expansion of Renaissance Pointe in Orlando to new development on premier
sites in Louisville and Houston, these properties represent both the geographic
and product diversity that characterize Camden's portfolio.
Oasis Merger Provides Strategic Growth Opportunity
As the year drew to a close, we reached an agreement to merge Oasis
Residential, Inc., a fully integrated, multifamily housing REIT, into the
Camden organization. Upon approval of the shareholders of both companies,
completion of this proposed transaction, which is expected to close during the
second quarter of 1998, will produce the third largest multifamily REIT in the
nation with interests in a total of 52,469 apartment homes. The merger should
be accretive to Camden's FFO per share in 1998.
Much like this past year's merger with Paragon, we believe that the combination
of Camden and Oasis is particularly attractive and timely. It will create a
$2.3 billion multifamily REIT with an even larger and more stable platform for
growth than that which Camden currently enjoys.
In addition to nearly doubling the Company's total market capitalization, the
merger will provide Camden with a quality portfolio of apartment homes in
Nevada, Colorado, and California, three important states that fit neatly into
the Company's super-regional expansion plan. It will also provide Camden with a
significant presence from which to successfully pursue emerging growth
opportunities in the Western and Mountain regions.
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Building On Today's Accomplishments For An Even Better Tomorrow
Our 1997 performance represents the hard work of our 1,200 employees. As we
look ahead with great encouragement, the men and women of Camden Property Trust
remain committed to providing outstanding service to our residents and our
shareholders in a manner distinguished by the increasing value we provide and
the integrity we demonstrate.
On their behalf, we thank you for your continued confidence and support, and we
invite you to read further to gain additional insights into how Camden will
continue growing and adapting to meet the new markets we are entering and those
markets we have served since the Company's inception. We will work hard to
maintain this momentum and to take full advantage of new opportunities in the
marketplace. We look forward to realizing our full potential and sharing its
benefits with you in 1998 and beyond.
Respectfully,
Richard J. Campo
Chairman and Chief Executive Officer
D. Keith Oden
President and Chief Operating Officer
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Industry in America, and indeed around the world, has undergone dramatic change
during the past decade. Nowhere has this been more apparent than in the U.S.
multifamily housing market of the 1990's. Paradigms have become paradox as the
drive for increased performance at decreased costs has forced every process to
be re-examined and every principle to be questioned, leaving most companies
with a single choice - grow through innovation or be left behind.
From locating and securing acquisition, development and merger opportunities to
timing the disposition of underperforming assets, Camden continues to prove
itself adept at developing and embracing innovative market driven solutions.
Many benefits of this ability to anticipate industry trends and to adjust our
operations through innovation are evident. Others, however, require more study,
but play no less of a role in increasing resident satisfaction and shareholder
value.
Three specific projects instituted by Camden during 1997 epitomize the value
and importance of innovation.
Camden initiated a system-wide, in-house security program in all of our Houston
properties in response to our residents' most prevalent concern - safety. As a
result, we have been able to better control both the quality of service and its
cost. The benefits of this increased level of service are also being reflected
in a reduction in incidents and an increase in resident satisfaction which
helped produce strong same property revenue growth in Houston.
The Company also instituted a unique utility cost rebilling program during the
year in which Camden billed residents directly for their water costs, which in
turn lowered operating costs while increasing conservation awareness. Improved
cable television and telecommunications initiatives taken during the year also
enabled Camden to provide residents with additional services and convenience at
a lower cost while increasing the Company's ancillary service income.
Finally, the Company began work on the 1990's version of an affordable new
development property in Baytown, Texas. By value engineering the interior
amenities, we are still providing a quality nine-foot ceiling product at a
greatly reduced average cost of $43,000 per unit. Once completed, we expect
this asset to achieve better than a 10 percent yield while providing a more
affordable monthly rental structure of $0.79 per square foot or $659 per month.
If each of these innovations proves as successful as we anticipate, we believe
that they can all be easily duplicated in additional Camden markets, providing
increased earnings power.
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Energetic markets and volatility can lure even the best of organizations to
quickly set aside long-term goals for short-term results. While straying from
stated objectives may seem tempting to some, at Camden, we remain committed to
intensely managing our day-to-day activities to maximize same store property
net operating income (NOI) growth.
Discipline is the cornerstone that has enabled Camden to deliver consistently
superior financial results for the last five years. Camden's relentless pursuit
of five percent same property NOI growth coupled with our ability to
successfully buy, build and manage assets on a super-regional basis have
produced superior financial results which speak for themselves.
Camden's investment-grade rating has permitted the Company access to lower cost
segments of the capital markets throughout 1997. As a result, Camden continues
to benefit from a significantly lower cost of bringing products to market which
leads to improved financial results.
Discipline also lies at the very heart of our acquisition and development
programs. Camden works diligently to uncover opportunities that remain hidden
from the less discerning eye. This strategic approach often enables the Company
to secure assets on terms more favorable than our competition. In locating such
potential opportunities, however, Camden endeavors to never open the Company to
unmitigated risk.
Prior to assuming responsibility for any property, a data profile of the
sub-market in which it is located is developed to ensure that the proposed
property can perform within the Company's stringent criteria. Numerous
variables are carefully examined for their immediate influences, as well as
their long-term impact on leasing, pricing and the overall return on potential
investment.
This same commitment is also echoed in our on-going disposition program. By
selectively selling assets which we believe are growing at a slower rate than
the overall portfolio or that will require additional capital expenditures
which may be difficult to recover, we are continually working to improve the
overall characteristics of our portfolio.
Pruning these slower growing assets with regularity and reinvesting those funds
in higher growth assets is just one more way we help ensure that Camden is able
to achieve our target growth rates on same store NOI year after year.
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More and more, the true measure of a company is its ability to respond to
changes within the markets it serves. Size, speed and finesse all play key
roles in any company's ability to adapt to change without compromising the
organization's current progress or plans for the future. At Camden, we believe
one additional attribute is crucial to an organization's success in a rapidly
evolving marketplace, and that attribute is focus.
Today, more than ever before, Camden has the size, the entrepreneurial spirit
and the focus to successfully navigate the ever-changing demands within our
industry for the benefit of our residents, our employees and our shareholders.
Our financial strength provides us the ability to react immediately and
decisively to fluctuations in the marketplace and the opportunities they
create. It also provides added support to our development and property
management efforts.
Because Camden is able to function as its own general contractor, we also
profit from complete control of construction quality, costs, scheduling and
coordination. As a result, new construction and renovations are planned,
scheduled and completed in the manner that is most beneficial to both our
acquisition and development group and to our leasing and management staff.
In addition, our continuous pipeline of well-run construction jobs often
enables Camden's construction unit to benefit from preferential consideration
from the Company's sub-contractors.
This combined strength is tempered by the finesse of Camden's ongoing management
strategy and a decision-making process that facilitates full representation from
every aspect of the business at every level of the Company.
When Camden's growing financial stature, unsurpassed skills and experience are
coupled with our common commitment to continue providing innovative, market
driven solutions, they enable Camden to move beyond reacting to change. This
combination of skills enables Camden to anticipate change and to adjust
accordingly while remaining focused on the future.
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With the drive for increased performance at decreased costs accelerating at an
unprecedented rate, a single factor is becoming the determining factor within
every industry between the companies that merely survive and those that
thrive - diversity.
From the Company's inception, Camden has adhered to a strategy of increased
stability through diversification. Camden's merger with Paragon in early 1997
was merely another step, albeit a large one, in our strategy to position the
Company to continue participating in and shaping the opportunities, growth and
consolidation within our industry.
The transaction provided Camden solid entry into six new, healthy Sunbelt and
Midwestern core markets which offer significant acquisition and development
opportunities. In addition to broadening our geographic reach, the merger also
brought intellectual diversity to our organization, and it demonstrated
Camden's ability to effectively handle rapid growth while nurturing our
existing assets.
Camden is currently preparing for another watershed event with our proposed
merger of Oasis Residential, Inc. Upon shareholder approval of the proposed
transaction, Camden will be the third largest multifamily REIT in the nation.
Equally important, the merger will secure Camden's objective of creating a
fully integrated super-regional company by adding assets in Colorado, Nevada
and California. In doing so, it will provide Camden with a larger, more stable
platform for growth and expansion into the Western and Mountain regions.
In our view, this transaction will also enable Camden to take advantage of even
larger economies of scale and skill within our organization while providing the
necessary balance to counter cyclical fluctuations within any of the markets we
serve. We expect that the merger will also deliver approximately $2.5 million
in administrative and operating cost savings in the first full year.
Looking forward, the Company will continue to expand into growth markets in the
Sunbelt states to further diversify our portfolio when we find opportunities
that provide enough concentration for Camden to actively participate in the
market cycles.
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As we move forward into 1998, Camden enjoys a new perspective on and enthusiasm
for the future. We have reached many milestones and established a number of
important benchmarks.
Having dramatically increased our property base this past year, we remain
focused on successfully merging additional corporate cultures and personnel
into a single distinctive entity. We will continue pursuing and establishing
innovative industry practices and procedures to help ensure that our increasing
productivity, profitability and growth are sustained.
Camden now has a greater capacity for service than it has ever had before,
along with increased financial strength and stability. We will continue
aggressively seeking out and taking full advantage of acquisition, development
and disposition opportunities to further enhance our Company.
Additional capabilities will also be developed and added, when they can be
combined attractively with our existing programs and services to provide single
source solutions that benefit our residents and our shareholders.
Today, we stand on the cusp of a future filled with uncommon promise and
potential - with a well-defined vision, a proven history of performance and an
unparalleled capacity to serve. We remain confident that the Company is
strategically aligned to continue delivering increased benefits to our
residents, our employees and our shareholders.
We believe Camden enters tomorrow with the right people, the right operation
and the right strategy to make the most of the opportunities that lie ahead.