1
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, 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
Incorporation or Organization) Identification Number)
3200 Southwest Freeway, Suite 1500, Houston, Texas 77027
(Address of Principal Executive Offices) (Zip Code)
(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 11, 1998, there were 44,386,118 shares of Common Shares of Beneficial
Interest, $0.01 par value outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAMDEN PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
MARCH 31, DECEMBER 31,
1998 1997
------------ -----------
(Unaudited)
Real estate assets, at cost:
Land $ 182,868 $ 182,909
Buildings and improvements 1,161,323 1,155,335
----------- -----------
1,344,191 1,338,244
Less: accumulated depreciation (108,865) (94,665)
----------- -----------
Net operating real estate assets 1,235,326 1,243,579
Projects under development, including land 89,784 43,805
Investment in joint ventures 15,012 15,089
----------- -----------
1,340,122 1,302,473
Accounts receivable - affiliates 1,043 950
Notes receivable - affiliates 1,800 1,796
Deferred financing and other assets, net 6,952 7,885
Cash and cash equivalents 4,208 6,468
Restricted cash - escrow deposits 2,557 4,048
----------- -----------
Total assets $ 1,356,682 $ 1,323,620
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable:
Unsecured $ 381,978 $ 316,941
Secured 153,878 163,813
Accounts payable 5,463 12,163
Accrued real estate taxes 7,213 16,568
Accrued expenses and other liabilities 17,679 17,416
Distributions payable 17,409 16,805
----------- -----------
Total liabilities 583,620 543,706
Minority Interest in Operating Partnership 57,311 63,325
7.33% Convertible Subordinated Debentures 5,793 6,025
Shareholders' Equity:
Preferred shares of beneficial interest
Common shares of beneficial interest 319 317
Additional paid-in capital 791,412 780,738
Distributions in excess of net income (70,696) (63,526)
Unearned restricted share awards (11,077) (6,965)
----------- -----------
Total shareholders' equity 709,958 710,564
----------- -----------
Total liabilities and shareholders' equity $ 1,356,682 $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
ENDED MARCH 31,
---------------------
1998 1997
-------- --------
REVENUES
Rental income $ 54,835 $ 27,954
Other property income 3,216 1,294
-------- --------
Total property income 58,051 29,248
Equity in income of joint ventures 292
Fee and asset management 112 144
Other income 137 80
-------- --------
Total revenues 58,592 29,472
-------- --------
EXPENSES
Property operating and maintenance 19,129 9,992
Real estate taxes 6,289 3,692
General and administrative 1,640 824
Interest 7,754 4,186
Depreciation and amortization 14,488 6,428
-------- --------
Total expenses 49,300 25,122
-------- --------
INCOME BEFORE LOSSES RELATED TO EARLY RETIREMENT OF DEBT
AND MINORITY INTEREST 9,292 4,350
LOSSES RELATED TO EARLY RETIREMENT OF DEBT (286)
-------- --------
INCOME BEFORE MINORITY INTEREST 9,292 4,064
MINORITY INTEREST IN OPERATING PARTNERSHIP (331)
-------- --------
NET INCOME TO COMMON SHAREHOLDERS $ 8,961 $ 4,064
======== ========
BASIC EARNINGS PER SHARE $ 0.28 $ 0.25
DILUTED EARNINGS PER SHARE $ 0.27 $ 0.24
DISTRIBUTIONS DECLARED PER COMMON SHARE $ 0.505 $ 0.490
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 31,572 16,464
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
DILUTIVE EQUIVALENT SHARES OUTSTANDING 34,267 16,706
See Notes to Consolidated Financial Statements.
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CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
THREE MONTHS
ENDED MARCH 31,
----------------------
1998 1997
--------- --------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 8,961 $ 4,064
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 14,488 6,428
Equity in income of joint ventures, net of cash received 77
Losses related to early retirement of debt 286
Minority interest in Operating Partnership 331
Accretion of discount on unsecured notes payable 37 34
Net change in operating accounts (14,149) (7,249)
-------- --------
Net cash provided by operating activities 9,745 3,563
CASH FLOW FROM INVESTING ACTIVITIES
Increase in real estate assets (50,344) (13,915)
Increase in affiliate notes receivable (4) (112)
Other (200) (80)
-------- --------
Net cash used in investing activities (50,548) (14,107)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in credit facility and short-term notes 65,000 41,000
Losses related to early retirement of debt (286)
Repayment of notes payable (9,935) (20,436)
Distributions to common shareholders and minority interests (16,805) (7,765)
Payment of loan costs (36) (27)
Other 319 (268)
-------- --------
Net cash provided by financing activities 38,543 12,218
-------- --------
Net (decrease) increase in cash and cash equivalents (2,260) 1,674
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,468 2,366
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,208 $ 4,040
======== ========
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of interest capitalized $ 8,198 $ 4,234
Interest capitalized $ 1,041 $ 646
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Fair value adjustment from the acquisition of Paragon:
Fair value of assets acquired $ 1,003
Liabilities assumed $ 1,003
Conversion of 7.33% subordinated debentures to common shares, net $ 234 $ 5,604
Value of shares issued under benefit plans, net $ 4,917 $ 2,967
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 March 31, 1998 and the results of operations and cash flows for the three
months ended March 31, 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 and Midwest regions of the
United States, and as a result of the merger with Oasis Residential, Inc.
("Oasis") described below, the Western region of the United States. At March 31,
1998, the Company owned interests in, operated or was developing 109 multifamily
properties containing 38,460 apartment units located in Texas, Florida,
Missouri, North Carolina, Arizona and Kentucky. Nine of the Company's
multifamily properties containing 3,791 apartment units were under development
at March 31, 1998. Two of the Company's newly developed multifamily properties
containing 732 apartment units were in various stages of lease-up at March 31,
1998 in Dallas. The Company has several additional sites which it intends to
develop into multifamily apartment communities. Additionally, the Company
managed 3,385 apartment units in ten properties for third-parties and
non-consolidated affiliates at March 31, 1998.
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 units (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.
Acquisition of Oasis Residential, Inc.
On April 8, 1998, 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 shares with comparable terms and conditions as previously
existed with respect to the Oasis Preferred Stock. The Company issued 12,392,893
and 4,165,000 shares in exchange for the outstanding common stock and
outstanding Oasis Preferred Stock, respectively. Approximately $484 million of
Oasis debt was assumed in the merger. 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.
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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 units (including 4,131 units under development). During the second
quarter of 1998, the Company will transfer 5,119 of the Las Vegas apartment
units into a private limited liability corporation in which Camden will retain a
20% minority interest (the "Third Party Transaction"). Camden will continue to
provide property management services for these assets.
Additional Development Projects
Subsequent to the April 8, 1998 merger with Oasis, the Company announced
three additional future development projects, which will be located in Florida,
Arizona and California and will contain 1,197 units.
Common Share Dividend Declaration
In March 1998, the Company announced that its Board of Trust Managers
had declared a dividend in the amount of $0.505 per share for the first quarter
of 1998 to be paid on April 17, 1998 to all holders of record of Camden's common
shares as of March 31, 1998. The Company paid an equivalent amount per unit to
holders of the OP Units. This distribution to common shareholders and holders of
OP Units equates to an annualized dividend rate of $2.02 per share or unit.
Preferred Share Dividend Declaration
In April 1998, the Company announced that its Board of Trust Managers
had declared a quarterly dividend on its Series A Cumulative Preferred Shares,
which were recently issued in conjunction with the merger of Oasis. The dividend
in the amount of $0.5625 per share, is payable May 15, 1998 to all preferred
shareholders of record as of April 30, 1998.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, which established standards for reporting and displaying
comprehensive income and its components, and was effective for fiscal years
beginning after December 15, 1997. Although this SFAS was not applicable to the
Company during the first quarter of 1998, the Company will comply with the
reporting requirements if and when necessary.
In February 1998, the FASB issued SFAS No. 132, Employer's Disclosures
about Pensions and Other Postretirement Benefits - an amendment of SFAS No. 87,
88 and 106, which revises employers' disclosures about pension and other post
retirement benefit plans, and is effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 132 did not impact the Company since
the Company's 401(k) Savings Plan is not affected by this SFAS.
In March 1998, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants ("AICPA") reached a
consensus on Statement of Position ("SOP") No. 98-1, Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use, which provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP No. 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. The adoption of this SOP will not have
a material effect on the Company.
In April 1998, the AcSEC of the AICPA reached a consensus on SOP No.
98-5, Reporting on the Costs of Start-Up Activities, which provides that costs
of start-up activities and organization costs be expensed as incurred. SOP No.
98-5 is effective for financial statements for fiscal years beginning after
December 15, 1998. The adoption of this SOP will not have a material effect on
the Company.
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On March 19, 1998, the Emerging Issues Task Force of the FASB 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. The
Company has historically capitalized such costs and, accordingly, management is
currently evaluating the impact this decision, which was effective for
transactions on or after March 20, 1998, will have on the Company.
Earnings Per Share
The following table presents information necessary to calculate basic
and diluted earnings per share for the quarter ended March 31, 1998 and 1997,
with 1997 being restated to conform with the requirements of SFAS No. 128,
Earnings Per Share (in thousands, except per share amounts):
THREE MONTHS
ENDED MARCH 31,
-------------------
1998 1997
------- -------
BASIC EARNINGS PER SHARE:
Weighted Average Common Shares Outstanding 31,572 16,464
======= =======
Basic Earnings Per Share $ 0.28 $ 0.25
======= =======
DILUTED EARNINGS PER SHARE:
Weighted Average Common Shares Outstanding 31,572 16,464
Shares Issuable from Assumed Conversion of:
Common Share Options and Awards Granted 396 242
Operating Partnership Units 2,299
------- -------
Weighted Average Common Shares Outstanding, as Adjusted 34,267 16,706
======= =======
Diluted Earnings Per Share $ 0.27 $ 0.24
======= =======
EARNINGS FOR BASIC AND DILUTED COMPUTATION:
Net Income to Common Shareholders (Basic Earnings Per Share Computation) $ 8,961 $ 4,064
Minority Interest in Operating Partnership 331
------- -------
Net Income to Common Shareholders, as Adjusted
(Diluted Earnings Per Share Computation) $ 9,292 $ 4,064
======= =======
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)
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
Senior Unsecured Notes:
6 5/8% Notes, due 2001 $ 99.7 $ 99.7
Reset Notes, due 2002 75.0 75.0
7% Notes, due 2006 74.3 74.3
7.172% Medium Term Notes, due 2004 25.0 25.0
Credit facility 108.0 43.0
-------- --------
382.0 317.0
Secured Notes - Mortgage loans (5 3/4% - 8 1/2%) 153.9 163.8
-------- --------
Total notes payable $ 535.9 $ 480.8
======== ========
Floating rate debt included in notes payable, net of
hedging agreement $ 158.0 $ 93.0
In January 1998, the Company paid off a $9.7 million conventional
mortgage loan utilizing funds from the Unsecured Credit Facility.
At March 31, 1998, the Company maintained a $25 million interest rate
hedging agreement which is scheduled to mature in July 2000. The issuing bank
has an option to extend this agreement to July 2002. The LIBOR rate is fixed at
6.1%, resulting in a fixed rate 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 on the Unsecured Credit Facility and
other floating rate indebtedness.
At March 31, 1998, the weighted average interest rate on total notes
payable was 6.8%.
The Company has entered into ten-year treasury locks for $190 million of
notional principal. The treasury locks have an average rate of 5.57%, are
scheduled to settle in May and June of 1998, and provide a hedge against the
Company's interest rate exposure on debt that will be put in place in June 1998
related to the Third Party Transaction, which was defined in Note 1.
On May 1, 1998, the Company and a remarketing underwriter reset the
mode, spread and duration on the $75 million unsecured reset notes maturing May
2002 (the "Reset Notes"). During the six months beginning May 12, 1998, the
interest rate on the Reset Notes, which will be reset quarterly, will equal
90-day LIBOR plus 40 basis points. After the six-month period, the mode, spread
and duration of the interest rate on the Reset Notes will again be reset by the
Company and a remarketing underwriter as either fixed or floating and for a
duration of six months to three and a half years.
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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)
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
-------- --------
Decrease (increase) in assets:
Accounts receivable - affiliates $ 172 $ 93
Deferred financing and other assets, net 867 (156)
Restricted cash - escrow deposits 1,491 1,678
Increase (decrease) in liabilities:
Accounts payable (6,645) (215)
Accrued real estate taxes (9,355) (8,918)
Accrued expenses and other liabilities (679) 269
-------- --------
Net change in operating accounts $(14,149) $ (7,249)
======== ========
4. PROPERTY OPERATING AND MAINTENANCE EXPENSES
Property operating and maintenance expenses included normal repairs and
maintenance totaling $3.5 million for the first three months of 1998 and $1.7
million for the same period in 1997. In addition, property operating and
maintenance expenses included 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, totaling $1.7 million for the first three months of 1998 and
$723,000 for the same period in 1997.
5. RESTRICTED SHARE AND OPTION AWARDS
During the first three months of 1998, the Company granted 171,081
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, 473,500 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 three month period ended March
31, 1998, previously granted options for 100,000 shares became exercisable and
73,051 restricted shares vested. Subsequent to March 31, 1998 and in conjunction
with the Oasis Merger, the Company granted 950,040 options and 28,975 restricted
shares, with the same terms as those noted above, to Camden employees. 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. CONVERTIBLE SUBORDINATED DEBENTURES
During the first three months of 1998, debentures in the principal
amount of $232,000 were converted into 9,665 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, $5,000 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 at $0.28 and $0.27 per share,
respectively, for the three months ended March 31, 1998.
Subsequent to March 31, 1998, an additional $2 million in principal
amount of debentures was converted into approximately 85,000 common shares with
the related $42,000 of unamortized debenture costs being reclassified to
additional paid-in capital. The debenture interest earned from April 1, 1998
through the date the
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debentures converted was forfeited by the debenture holders in accordance with
the indenture and the unpaid interest payable was credited 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, 1998, basic
earnings per share and diluted earnings per share would have remained at $0.28
and $0.27 per share, respectively, for the three months ended March 31, 1998.
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 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 and the 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 or 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 1997 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, 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 and Midwest regions of the
United States, and as a result of the merger with Oasis Residential, Inc.
("Oasis") described below, the Western region of the United States. At March 31,
1998, the Company owned interests in, operated or was developing 109 multifamily
properties containing 38,460 apartment units located in Texas, Florida,
Missouri, North Carolina, Arizona and Kentucky. Nine of the Company's
multifamily properties containing 3,791 apartment units were under development
at March 31, 1998 (the "Development Properties"). Two of the Company's newly
developed multifamily properties containing 732 apartment units were in various
stages of lease-up at March 31, 1998 in Dallas (the "Lease-Up Properties"). The
Company has several additional sites which it intends to develop into
multifamily apartment communities. Additionally, the Company managed 3,385
apartment units in ten properties for third-parties and non-consolidated
affiliates at March 31, 1998.
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 units (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.
Acquisition of Oasis Residential, Inc.
On April 8, 1998, the Company acquired through a tax-free merger 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 units at the date of
acquisition. Upon completion of ten properties under development, the Company's
portfolio will increase to 54,314 apartment units 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 shares with comparable terms
and conditions as previously existed with respect to the Oasis Preferred Stock.
The Company issued 12,392,893 and 4,165,000 shares in exchange for the
outstanding common stock and outstanding Oasis
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Preferred Stock, respectively. Approximately $484 million of Oasis debt was
assumed in the merger. During the second quarter of 1998, the Company will
transfer 5,119 of the Las Vegas apartment units into a private limited liability
corporation in which Camden will retain a 20% minority interest (the "Third
Party Transaction"). Camden will continue to provide property management
services for these assets.
Property Portfolio
The Company's multifamily property portfolio, excluding land held for
development, at March 31, 1998 and December 31, 1997 is summarized as follows:
MARCH 31, 1998** DECEMBER 31, 1997**
------------------------------ ----------------------------
Number Number of Number Number of
of Units Properties %* of Units Properties %*
-------- ---------- ------ -------- ---------- -----
Texas
Houston 8,558 21 22% 7,710 19 21%
Dallas 9,981 27 26 9,381 26 25
Austin 1,745 6 5 1,745 6 5
Other 1,585 5 4 1,585 5 4
------ ------ ------ ------ ------ -----
Total Texas Properties 21,869 59 57 20,421 56 55
------ ------ ------ ------ ------ -----
Arizona 2,134 6 6 2,134 6 6
Florida 6,661 18 17 6,661 18 18
Kentucky 1,574 6 4 1,574 6 4
Missouri 3,487 10 9 3,487 10 10
North Carolina 2,735 10 7 2,735 10 7
------ ------ ------ ------ ------ -----
Total Properties 38,460 109 100% 37,012 106 100%
====== ====== ====== ====== ====== =====
* Based on number of units.
** Includes three operating properties containing 1,264 units owned in
joint ventures.
Property Update
During the first quarter of 1998, The Park at Vanderbilt, Phase II,
which was completed in the third quarter of 1997 reached stabilization. Leasing
continued during the first quarter on the following two properties.
The table sets forth information regarding these two Lease-Up
Properties:
Number % Leased Date of Estimated Date
Property and Location of Units at 5/6/98 Completion of Stabilization
- ---------------------------------------------- -------- --------- ---------- ----------------
The Park at Centreport
Dallas, TX 268 93% 4Q97 2Q98
The Park at Buckingham
Dallas, TX 464 85 4Q97 3Q98
------
Total 732
======
- 12 -
13
The following table sets forth information regarding the Development Properties
at March 31, 1998 and additional development projects announced subsequent to
the end of the quarter:
Estimated
Project Number Cost Estimated Date Estimated Date
Property and Location Type of Units ($ millions) of Completion of Stabilization
- ---------------------------------------------- -------- --------- ------------ -------------- -----------------
Development Properties at March 31, 1998:
- ----------------------------------------
The Park at Towne Center
Glendale, AZ Garden 240 $ 13.4 4Q98 2Q99
Renaissance Pointe II
Orlando, FL Garden 306 17.3 4Q98 3Q99
The Park at Goose Creek
Baytown, TX Affordable 272 11.8 1Q99 4Q99
The Park at Midtown
Houston, TX Urban 337 21.5 2Q99 4Q99
The Park at Oxmoor
Louisville, KY Garden 432 22.1 2Q99 4Q99
The Park at Steeplechase
Houston, TX Affordable 300 13.5 3Q99 4Q99
The Park at Holly Springs
Houston, TX Garden 548 37.1 3Q99 2Q00
The Park at Greenway
Houston, TX Urban 756 55.7 1Q00 4Q00
The Park at Farmers Market, Phase I
Dallas, TX Urban 600 45.9 2Q00 1Q01
----- ------
3,791 238.3
----- ------
Additional Development Projects
- -------------------------------
The Park at Interlocken
Denver, CO Garden 340 34.9 1Q99 3Q99
The Park at Lee Vista
Orlando, FL Garden 492 32.8 3Q99 1Q00
The Park at Arizona Center
Phoenix, AZ Urban 325 22.0 4Q99 2Q00
The Park at Mission Viejo
Mission Viejo, CA Garden 380 42.0 1Q00 3Q00
----- ------
Total Development Projects 5,328 $370.0
===== ======
Historically, the Company has staged 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.
Comparison of the Quarter Ended March 31, 1998 and March 31, 1997
The changes in operating results from period to period are primarily
due to the Paragon Acquisition, development of five properties aggregating 1,778
units, the acquisition of two properties containing 801 units,
- 13 -
14
the disposition of five properties containing 1,592 units and an increase in net
operating income generated by the stabilized portfolio. The weighted average
number of units for the first quarter of 1998 increased by 15,184 units, or
85.2%, from 17,825 to 33,009. Total operating properties were 97 and 50 at March
31, 1998 and 1997, respectively. The 33,009 weighted average units and the 97
operating properties exclude the impact of the Company's ownership interest in
1,264 units on three properties owned in joint ventures.
The average rental income per unit per month increased $31 or 5.9%,
from $523 to $554 for the first quarter of 1997 and 1998, respectively. The
increase was primarily due to increased revenue growth from the stabilized real
estate portfolio and higher average rental rates on the two acquired properties
and completion of new development properties partially offset by lower than
average rental rates on the Paragon Acquisition properties. Overall average
occupancy changed slightly from 93.2% for the quarter ended March 31, 1997 to
93.3% for the quarter ended March 31, 1998.
Other property income increased $1.9 million from $1.3 million to $3.2
million for the quarters ended March 31, 1997 and 1998, respectively. The
increase in other property income was due to a larger number of units owned and
in operation and a $862,000 increase from new revenue sources such as telephone,
cable and water.
Property operating and maintenance expenses and real estate taxes
increased $11.7 million from $13.7 million to $25.4 million, which represents an
annual increase of $9 per unit. The Company's operating expense ratios decreased
over the prior year quarter primarily as a result of operating efficiencies
resulting from a larger portfolio together with savings in utilities and other
costs. Real estate taxes increased as a result of the Paragon Acquisition,
increases in the valuations of renovated and developed properties and increases
in property tax rates. Real estate taxes per unit have decreased due to lower
property taxes in the Camden portfolio outside of Texas.
General and administrative expenses increased $816,000 from $824,000 to
$1.6 million, and remained constant as a percent of revenues at 2.8%.
Interest expense increased from $4.2 million to $7.8 million due to
increased indebtedness related to the Paragon Acquisition, completed
developments, renovations and property acquisitions. This increase was partially
offset by reductions in average interest rates on the Company's debt and the
equity offering that occurred in July 1997. Interest capitalized was $1 million
and $646,000 for the quarters ended March 31, 1998 and 1997, respectively.
Depreciation and amortization increased from $6.4 million to $14.5
million. This increase was due primarily to the Paragon Acquisition,
developments and renovations.
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 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, 1998, the Company's ratio of total
debt to total market capitalization was approximately 34.4% (based on the
closing price of $29.625 per common share of the Company on the New York Stock
Exchange composite tape on March 31, 1998). This ratio represents total
consolidated debt of the Company as a percentage of the market value of the
Company's common shares (including common shares issuable upon the conversion of
convertible securities and OP Units and common share equivalents based on the
treasury stock method) plus total consolidated debt (excluding convertible
securities). The interest coverage ratio was 4.1 and 3.6 times earnings before
interest, depreciation, and amortization for the three months ended March 31,
1998 and 1997, respectively.
- 14 -
15
Liquidity
The Company intends to meet its short-term liquidity requirements
through cash flows provided by operations, the Unsecured 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 Facility and other short-term borrowings. As of March 31, 1998,
the Company had $42 million available under the Unsecured Credit Facility. The
Company filed a universal shelf registration statement in April 1997 providing
for the issuance of up to $500 million in equity, debt, preferred or convertible
securities, of which, over $275 million remains unused. Additionally, in March
1997 the Company implemented a $196 million medium-term note program used to
provide intermediate and long-term, unsecured publicly-traded debt financing, of
which $171 million remains unused. 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 OP Units.
On March 13, 1998, the Company declared its first quarter dividend in
the amount of $0.505 per share. On April 17, 1998, the distributions were paid
to all holders of record of Camden's common shares as of March 31, 1998, and
paid an equivalent amount per unit to holders of OP Units. This distribution to
common shareholders and holders of OP Units equates to an annualized dividend
rate of $2.02 per share or unit.
On April 21, 1998, the Company declared a quarterly dividend on its
Series A Cumulative Preferred Shares, which were recently issued in conjunction
with the merger of Oasis. The dividend in the amount of $0.5625 per share, is
payable May 15, 1998 to all preferred shareholders of record as of April 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 three months ended March 31, 1998, the Company
incurred $47 million in development costs and $1.3 million in acquisition costs.
The Company has announced plans to develop 13 additional properties at an
aggregate cost of approximately $370 million. The Company funds its developments
and acquisitions through a combination of equity capital, OP Units, debt
securities, 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. Such sales also generate capital for reinvestment in
other acquisitions and new developments.
The Company's Unsecured Credit Facility matures July 28, 2000. One year
prior to maturity, this note becomes a term loan, unless it is extended,
renegotiated or repaid. The scheduled interest rate on the loan is currently
based on LIBOR plus 105 basis points or Prime plus 25 basis points. This
scheduled rate is subject to change as the Company's credit ratings change.
Advances under the Unsecured Credit Facility may be priced at the scheduled
rate, or the Company may enter into bid rate loans ("Bid Rate Loans") with
participating banks at rates below the scheduled rate. 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 Unsecured Credit Facility. The Unsecured
Credit Facility is subject to customary financial covenants and limitations.
As an alternative to its Unsecured Credit Facility, the Company from
time to time borrows using competitively bid unsecured short-term notes with
lenders who may or may not be a part of the Unsecured Credit Facility bank
group. Such borrowings vary in pricing and are typically priced at interest
rates below those available under the Unsecured Credit Facility.
- 15 -
16
In January 1998, the Company paid off a $9.7 million conventional
mortgage loan utilizing funds from the Unsecured Credit Facility.
At March 31, 1998, the Company maintained a $25 million interest rate
hedging agreement which is scheduled to mature in July 2000. The issuing bank
has an option to extend this agreement to July 2002. The LIBOR rate is fixed at
6.1%, resulting in a fixed rate 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 on the Unsecured Credit Facility and
other floating rate indebtedness.
At March 31, 1998, the weighted average interest rate on total notes
payable was 6.8%.
The Company has entered into ten-year treasury locks for $190 million
of notional principal. The treasury locks have an average rate of 5.57%, are
scheduled to settle in May and June of 1998, and provide a hedge against the
Company's interest rate exposure on debt that will be put in place in June 1998
related to the Third Party Transaction, which was defined in the Results of
Operations section.
On May 1, 1998, the Company and a remarketing underwriter reset the
mode, spread and duration on the $75 million unsecured reset notes maturing May
2002 (the "Reset Notes"). During the six months beginning May 12, 1998, the
interest rate on the Reset Notes, which will be reset quarterly, will equal
90-day LIBOR plus 40 basis points. After the six-month period, the mode, spread
and duration of the interest rate on the Reset Notes will again be reset by the
Company and a remarketing underwriter as either fixed or floating and for a
duration of six months to three and a half years.
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 interest 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
months ended March 31, 1998, increased $13.1 million over the three months ended
March 31, 1997, primarily due to the Paragon Acquisition, property acquisitions
and sales, developments and improvements in the performance of the stabilized
properties in the portfolio.
- 16 -
17
The calculation of FFO for the three months ended March 31, 1998 and 1997
follows:
(In thousands)
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
-------- -------
Net income to common shareholders $ 8,961 $ 4,064
Real estate depreciation 14,200 6,189
Minority interest in Operating Partnership 331
Real estate depreciation from unconsolidated ventures 336
Interest on convertible subordinated debentures 109 296
Amortization of deferred costs on convertible debentures 11 42
Losses related to early retirement of debt 286
------- -------
Funds from operations $23,948 $10,877
======= =======
Weighted average number of common and common
equivalent shares outstanding 34,515 17,678
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 $2.7 million and $800,000 in the three
months ended March 31, 1998 and 1997, respectively, 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.
YEAR 2000 CONVERSION
Camden has recognized the need to ensure that its 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 potential areas of risk
and has begun addressing these in its planning, purchasing and daily operations.
The total cost of converting all internal systems, equipment and operations to
the year 2000 has not been fully quantified, but it is not expected to be a
material cost to Camden. However, no estimates can be made as to the potential
adverse impact resulting from the failure of third party service providers and
vendors to prepare for the year 2000. Camden is attempting to identify those
risks as well as to receive compliance certificates from all third parties that
have a material impact on Camden's operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
- 17 -
18
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)
27.2 Restated Financial Data Schedule (filed only
electronically with the Commission)
27.3 Restated Financial Data Schedule (filed only
electronically with the Commission)
(b) Reports on Form 8-K
Current Report on Form 8-K dated and filed with the Commission
on February 5, 1998, contained information under Item 5 (Other
Events) and Item 7 (Financial Statements, Pro Forma Financial
Information and Exhibits).
- 18 -
19
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 13, 1998
- ----------------------------------------- ----------------------------
G. Steven Dawson Date
Sr. Vice President of Finance,
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
- 19 -
20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------
11.1 Statement regarding Computation of Earnings Per Common Share
27.1 Financial Data Schedule (filed only electronically with the Commission)
27.2 Restated Financial Data Schedule (filed only electronically with the
Commission)
27.3 Restated Financial Data Schedule (filed only electronically with the
Commission)