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 June 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)
3200 Southwest Freeway, Suite 1500, Houston, Texas 77027
(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 August 10, 1998, there were 44,566,253 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
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(Unaudited)
Real estate assets, at cost:
Land $ 298,132 $ 182,909
Buildings and improvements 1,764,195 1,155,335
------------ ------------
2,062,327 1,338,244
Less: accumulated depreciation (127,198) (94,665)
------------ ------------
Net operating real estate assets 1,935,129 1,243,579
Projects under development, including land 163,445 43,805
Investment in joint ventures 36,779 15,089
------------ ------------
2,135,353 1,302,473
Accounts receivable - affiliates 1,513 950
Notes receivable - affiliates 3,278 1,796
Other assets, net 16,015 7,885
Cash and cash equivalents 124,060 6,468
Restricted cash - escrow deposits 3,833 4,048
------------ ------------
Total assets $ 2,284,052 $ 1,323,620
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable:
Unsecured $ 546,834 $ 316,941
Secured 379,284 163,813
Accounts payable 9,634 12,163
Accrued real estate taxes 14,169 16,568
Accrued expenses and other liabilities 25,439 17,416
Distributions payable 26,082 16,805
------------ ------------
Total liabilities 1,001,442 543,706
Minority Interests 74,546 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 1,298,568 780,738
Distributions in excess of net income (83,648) (63,526)
Unearned restricted share awards (11,088) (6,965)
------------ ------------
Total shareholders' equity 1,204,320 710,564
------------ ------------
Total liabilities and shareholders' equity $ 2,284,052 $ 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
REVENUES
Rental income $ 84,964 $ 51,084 $ 139,799 $ 79,038
Other property income 5,350 2,304 8,566 3,598
--------- --------- --------- ---------
Total property income 90,314 53,388 148,365 82,636
Equity in income of joint ventures 430 436 722 436
Fee and asset management 237 119 349 263
Other income 606 129 743 209
--------- --------- --------- ---------
Total revenues 91,587 54,072 150,179 83,544
--------- --------- --------- ---------
EXPENSES
Property operating and maintenance 27,749 18,663 46,878 28,655
Real estate taxes 8,680 5,975 14,969 9,667
General and administrative 2,250 1,216 3,890 2,040
Interest 15,512 9,090 23,266 13,276
Depreciation and amortization 22,489 12,102 36,977 18,530
--------- --------- --------- ---------
Total expenses 76,680 47,046 125,980 72,168
--------- --------- --------- ---------
INCOME BEFORE LOSSES RELATED TO EARLY RETIREMENT OF DEBT
AND MINORITY INTERESTS 14,907 7,026 24,199 11,376
LOSSES RELATED TO EARLY RETIREMENT OF DEBT (286)
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS 14,907 7,026 24,199 11,090
MINORITY INTERESTS (653) (597) (984) (597)
--------- --------- --------- ---------
NET INCOME 14,254 6,429 23,215 10,493
PREFERRED SHARE DIVIDENDS (4,686) (4,686)
--------- --------- --------- ---------
NET INCOME TO COMMON SHAREHOLDERS $ 9,568 $ 6,429 $ 18,529 $ 10,493
========= ========= ========= =========
BASIC EARNINGS PER SHARE $ 0.22 $ 0.24 $ 0.49 $ 0.49
DILUTED EARNINGS PER SHARE $ 0.21 $ 0.24 $ 0.47 $ 0.48
DISTRIBUTIONS DECLARED PER COMMON SHARE $ 0.505 $ 0.490 $ 1.010 $ 0.980
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 44,262 26,432 37,952 21,476
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
DILUTIVE EQUIVALENT SHARES OUTSTANDING 46,826 26,729 40,581 21,746
See Notes to Consolidated Financial Statements.
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CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
SIX MONTHS
ENDED JUNE 30,
----------------------------
1998 1997
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 23,215 $ 10,493
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 36,977 18,530
Equity in income of joint ventures, net of cash received 380 (161)
Minority interests 984 597
Accretion of discount on unsecured notes payable 80 69
Losses related to early retirement of debt 286
Net change in operating accounts (14,913) (11,420)
----------- -----------
Net cash provided by operating activities 46,723 18,394
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 (135,454) (41,384)
Net proceeds from sales of properties 42,513
Decrease in affiliate notes receivable 3,911 6,139
Decrease in investment in joint ventures 4,624
Other (428) (308)
----------- -----------
Net cash provided by (used in) investing activities 143,923 (18,529)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in credit facility and short-term notes 87,792 59,000
Debt repayments from Third Party Transaction (114,248)
Proceeds from notes payable 100,000
Repayment of notes payable (10,742) (131,031)
Distributions to shareholders and minority interests (36,780) (24,391)
Payment of loan costs (168) (798)
Losses related to early retirement of debt (286)
Other 1,092 379
----------- -----------
Net cash (used in) provided by financing activities (73,054) 2,873
----------- -----------
Net increase in cash and cash equivalents 117,592 2,738
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,468 2,366
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 124,060 $ 5,104
=========== ===========
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of interest capitalized $ 20,941 $ 13,179
Interest capitalized $ 3,461 $ 1,714
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 $ 781,515 $ 647,795
Liabilities assumed $ 493,461 $ 332,553
Common shares issued $ 395,528 $ 262,370
Preferred shares issued $ 104,125
Fair value of minority interest $ 21,782 $ 65,272
Conversion of 7.33% subordinated debentures to common shares, net $ 2,242 $ 19,839
Value of shares issued under benefit plans, net $ 5,767 $ 3,335
Note payable assumed upon purchase of a property $ 8,199
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 June 30, 1998 and the results of operations for the three and six months
ended June 30, 1998 and 1997 and cash flows for the six months ended June 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 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 June 30,
1998, the Company owned interests in, operated or was developing 162 multifamily
properties containing 55,069 apartment homes located in nine states. Fourteen of
the Company's multifamily properties containing 5,680 apartment homes were under
development at June 30, 1998. The Company has several additional sites which it
intends to develop into multifamily apartment communities. Additionally, the
Company managed 2,985 apartment homes in eight properties for third-parties and
non-consolidated affiliates at June 30, 1998 and owned a 30,000 square foot
commercial center in Nevada in which the Company's Western regional office
occupies approximately 30% of the center.
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 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 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
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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
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
has utilized $97 million of the escrow funds to purchase acquisitions which have
closed subsequent to June 30, 1998 (see Note 8). 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 six months ended June 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):
SIX MONTHS
ENDED JUNE 30,
----------------------------
1998 1997
----------- -----------
Total revenues $ 164,208 $ 122,159
Net income to common shareholders $ 21,879 $ 16,151
Basic earnings per share $ 0.50 $ 0.48
Diluted earnings per share $ 0.48 $ 0.47
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
Non-recurring capital expenditures for such items as roof replacements
are capitalized. The Company capitalized $10.7 million and $4.4 million in the
six months ended June 30, 1998 and 1997, respectively, of non-recurring
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renovations and improvements to extend the economic lives and enhance its
multifamily properties. If the accounting policy described below would have been
adopted as of January 1, 1997, the $10.7 million and the $4.4 million
capitalized for the six months ended June 30, 1998 and 1997 would have increased
to $11.8 million and $5.8 million, respectively.
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 Pronouncement below for the effect of
this change and the Company's adoption of a new accounting pronouncement on
Camden's second quarter 1998 financial results.
Property Operating and Maintenance Expenses
Property operating and maintenance expenses included normal repairs and
maintenance totaling $6.2 million and $9.8 million for the three and six months
ended June 30, 1998, respectively, and $3.8 million and $5.5 million for the
three and six months ended June 30, 1997, respectively.
Common Share Distribution Declaration
In June 1998, the Company announced that its Board of Trust Managers had
declared a distribution in the amount of $0.505 per share for the second quarter
of 1998 to be paid on July 17, 1998 to all holders of record of Camden's common
shares as of June 30, 1998. The Company paid an equivalent amount per unit to
holders of the 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
In June 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 August 17, 1998 to all
preferred shareholders of record as of June 30, 1998.
New Accounting Pronouncement
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 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
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).
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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 six months ended June 30, 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE:
Weighted Average Common Shares Outstanding 44,262 26,432 37,952 21,476
=========== =========== =========== ===========
Basic Earnings Per Share $ 0.22 $ 0.24 $ 0.49 $ 0.49
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE:
Weighted Average Common Shares Outstanding 44,262 26,432 37,952 21,476
Shares Issuable from Assumed Conversion of:
Common Share Options and Awards Granted 459 297 428 270
Operating Partnership Units 2,105 2,201
----------- ----------- ----------- -----------
Weighted Average Common Shares Outstanding, as Adjusted 46,826 26,729 40,581 21,746
=========== =========== =========== ===========
Diluted Earnings Per Share $ 0.21 $ 0.24 $ 0.47 $ 0.48
=========== =========== =========== ===========
EARNINGS FOR BASIC AND DILUTED COMPUTATION:
Net Income $ 14,254 $ 6,429 $ 23,215 $ 10,493
Less: Dividends on Preferred Shares 4,686 4,686
----------- ----------- ----------- -----------
Net Income to Common Shareholders
(Basic Earnings Per Share Computation) 9,568 6,429 18,529 10,493
Minority Interest 238 569
----------- ----------- ----------- -----------
Net Income to Common Shareholders, as Adjusted
(Diluted Earnings Per Share Computation) $ 9,806 $ 6,429 $ 19,098 $ 10,493
=========== =========== =========== ===========
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)
JUNE 30, DECEMBER 31,
1998 1997
---------- ----------
Senior Unsecured Notes:
6 5/8% - 7 1/4% Notes, due 2001-2006 $ 323.8 $ 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 123.0 43.0
---------- ----------
546.8 317.0
Secured Notes - Mortgage Loans (5 1/10% - 9 1/2%) 379.3 163.8
---------- ----------
Total notes payable $ 926.1 $ 480.8
========== ==========
Floating rate debt included in unsecured notes payable, net of
$25 million hedging agreement (6 1/10% - 7 3/4%) $ 173.0 $ 93.0
Floating rate tax-exempt debt included in mortgage loans $ 50.6
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 June 30, 1998, $217.5 million of the conventional mortgage loans remained
outstanding. An $8.9 million conventional mortgage loan assumed matures in
October 1998.
In conjunction with the Oasis Merger, Camden assumed $150 million in
senior unsecured notes payable issued by Oasis in November 1996 (the "Notes
Payable"). 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.
Additionally, as a result of the Oasis Merger, Camden acquired the use
of Oasis' $125 million unsecured line of credit (the "Oasis Credit Facility"),
which matures in September 1998. The scheduled interest rate on the Oasis Credit
Facility is currently based on LIBOR plus 115 basis points. Advances under the
Oasis Credit Facility may be priced at the scheduled rate, or the Company may
enter into bid rate loans with terms similar to those available under the
Unsecured Credit Facility. The Oasis Credit Facility is subject to customary
financial covenants and limitations. Management expects to replace this facility
when it matures in September 1998.
On June 30, 1998, using proceeds from the Third Party Transaction,
Camden paid down approximately $114 million on the Unsecured Credit Facilities
and short-term borrowings and $9.9 million of existing indebtedness, 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 has utilized $97 million of the escrow funds to
purchase acquisitions which have closed subsequent to June 30, 1998 (see Note
8).
At June 30, 1998, the weighted average interest rate on total notes
payable was 7.0%.
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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)
SIX MONTHS
ENDED JUNE 30,
--------------------------
1998 1997
---------- ----------
Decrease (increase) in assets:
Accounts receivable - affiliates $ 679 $ 986
Other assets, net 15 (255)
Restricted cash - escrow deposits 1,498 1,543
Increase (decrease) in liabilities:
Accounts payable (3,362) 2,646
Accrued real estate taxes (3,229) (2,938)
Accrued expenses and other liabilities (10,514) (13,402)
---------- ----------
Net change in operating accounts $ (14,913) $ (11,420)
========== ==========
4. RESTRICTED SHARE AND OPTION AWARDS
During the first six months of 1998, the Company granted 201,906
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 six month period ended June 30,
1998, previously granted options for 103,334 shares became exercisable and
74,089 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.
5. CONVERTIBLE SUBORDINATED DEBENTURES
During the first six 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 six
months ended June 30, 1998.
6. 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" (the "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. It is the Company's intention to make any and all
changes and modifications necessary in order to meet its understanding of the
compliance standards of the Act. 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.
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7. 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.
8. 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.
Subsequent to June 30, 1998, the Company purchased three properties for
a total of $97 million by utilizing funds maintained in the escrow account
described in Note 1. Cedar Ridge, purchased on July 16, 1998, contains 420
apartment homes and is located in St. Louis, Missouri. On July 21, 1998, the
Company purchased Live Oaks Plantation, which contains 770 apartment homes
located in Tampa, Florida and Sabal Club, which contains 436 apartment homes
located in Orlando, Florida.
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 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 June 30,
1998, the Company owned interests in, operated or was developing 162 multifamily
properties containing 55,069 apartment homes located in nine states. Fourteen of
the Company's multifamily properties containing 5,680 apartment homes were under
development at June 30, 1998 (the "Development Properties"). The Company has
several additional sites which it intends to develop into multifamily apartment
communities. Additionally, the Company managed 2,985 apartment homes in eight
properties for third-parties and non-consolidated affiliates at June 30, 1998
and owned a 30,000 square foot commercial center in Nevada in which the
Company's Western regional office occupies approximately 30% of the center.
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 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 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
- 12 -
13
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 has utilized
$97 million of the escrow funds to purchase acquisitions which have closed
subsequent to June 30, 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, excluding land held for
development, at June 30, 1998 and December 31, 1997 is summarized as follows:
JUNE 30, 1998 DECEMBER 31, 1997
---------------------------------------- --------------------------------------
Number Number of Number Number of
of Units Properties %(a) of Units Properties %(a)
--------------- ------------ ------ -------------- ------------ ------
Texas
Houston 8,558 21 18% 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 1,585 5 3 1,585 5 4
-------- ------ ---- -------- ------ ----
Total Texas Properties 21,869 59 44 20,421 56 55
-------- ------ ---- -------- ------ ----
Arizona 2,651 8 5 2,134 6 6
California 1,653 4 3
Colorado (b) 2,312 7 4
Florida 7,205 19 15 6,661 18 19
Kentucky 1,574 6 3 1,574 6 4
Missouri 2,907 7 6 3,487 10 10
Nevada (b) 12,163 42 15
North Carolina (b) (c) 2,735 10 5 2,735 10 6
-------- ------ ---- -------- ------ ----
Total Properties 55,069 162 100% 37,012 106 100%
====== ==== ====== ====
Less: Joint Venture Units (b) (c) 6,704 1,264
-------- --------
Total Consolidated Units 48,365 35,748
======== ========
(a) Based on number of units on a total consolidated basis.
(b) Includes one property with 708 units in Dallas, one property with 321 units
in Colorado, 19 properties with 5,119 units in Nevada, and two properties
with 556 units in North Carolina owned through joint venture investments at
June 30, 1998.
(c) Includes one property with 708 units in Dallas and two properties with 556
units 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.
The following table sets forth information regarding the Development Properties
at June 30, 1998:
Estimated
Project Number Cost Estimated Date Estimated Date
Property and Location Type of Units ($ millions)* of Completion of Stabilization
- -------------------------------------- ----------- ------------ -------------- ------------------ ------------------
The Park at Towne Center
Glendale, AZ Garden 240 $ 13.4 4Q98 2Q99
Renaissance Pointe II
Orlando, FL Garden 306 17.3 1Q99 3Q99
The Park at Interlocken
Denver, CO Garden 340 34.9 2Q99 3Q99
The Park at Goose Creek
Baytown, TX Affordable 272 11.8 2Q99 4Q99
The Park at Midtown
Houston, TX Urban 337 21.5 2Q99 4Q99
The Park at Oxmoor
Louisville, KY Garden 432 22.1 3Q99 2Q00
The Park at Holly Springs
Houston, TX Garden 548 37.1 3Q99 3Q00
The Park at Steeplechase
Houston, TX Affordable 300 13.5 3Q99 4Q99
The Park at Arizona Center
Phoenix, AZ Urban 325 22.0 4Q99 2Q00
The Park at Lee Vista
Orlando, FL Garden 492 32.8 4Q99 3Q00
The Park at Mission Viejo
Mission Viejo, CA Garden 380 42.0 1Q00 3Q00
The Park at Greenway
Houston, TX Urban 756 55.7 1Q00 4Q00
Marina Pointe II
Tampa, FL Garden 352 25.2 2Q00 3Q00
The Park at Farmers Market, Phase I
Dallas, TX Urban 600 45.9 3Q00 2Q01
------- -------
Total for 14 Development Properties 5,680 $ 395.2
======= =======
* At June 30, 1998, the Company had incurred $111.3 million of the
estimated $395.2 million.
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.
- 14 -
15
Comparison of the Quarter Ended June 30, 1998 and June 30, 1997
The changes in operating results from period to period are primarily
due to the Oasis Merger, development of three properties aggregating 1,110
apartment homes, the acquisition of four properties containing 1,497 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 second quarter of 1998
increased by 15,727, or 48.6%, from 32,392 to 48,119. Total operating properties
were 125 and 97 at June 30, 1998 and 1997, respectively, and exclude those owned
through joint venture investments. The weighted average number of apartment
homes of 32,392 and 48,119 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 $63 or
12.0%, from $526 to $589 for the second 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 four acquired properties and completion
of new development properties. Overall average occupancy changed slightly from
93.8% for the quarter ended June 30, 1997 to 93.0% for the quarter ended June
30, 1998.
Other property income increased $3.0 million from $2.3 million to $5.4
million for the quarters ended June 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 $904,000 increase from new revenue sources such as
telephone, cable and water.
Property operating and maintenance expenses increased $9.1 million,
from $18.7 million to $27.7 million, and decreased as a percent of total
property income from 35% to 30.7% for the quarter ended June 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 apartment home 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 second quarter 1998 operating expense ratio would have been
32.6%.
Real estate taxes increased $2.7 million from $6 million to $8.7
million for the quarters ended June 30, 1997 and 1998, respectively, which
represents an annual decrease of $16 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 partially
offset by increases in the valuations of renovated, acquired and developed
properties, and increases in property tax rates.
General and administrative expenses increased $1 million from $1.2
million to $2.3 million, and increased slightly as a percent of revenues from
2.3% 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, which is partially offset by efficiencies
resulting from operating a larger portfolio.
Interest expense increased from $9.1 million to $15.5 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
$2.4 million and $1.1 million for the quarters ended June 30, 1998 and 1997,
respectively.
Depreciation and amortization increased from $12.1 million to $22.5
million. This increase was due primarily to the Oasis Merger, developments,
renovations and property acquisitions.
- 15 -
16
Comparison of the Six Months Ended June 30, 1998 and June 30, 1997
The changes in operations results from period to period are primarily
due to the Oasis Merger, development of five properties aggregating 1,778
apartment homes, the acquisition of four properties containing 1,497 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 six months of 1998
increased by 15,456 apartment homes, or 61.6%, from 25,108 to 40,564. Total
operating properties were 125 and 97 at June 30, 1998 and 1997, respectively,
and exclude those owned through joint venture investments. The weighted average
number of apartment homes of 25,108 and 40,564 exclude the impact of the
Company's ownership interest in apartment homes owned in joint ventures
throughout the six month periods.
The average rental income per apartment home per month increased $49 or
9.3%, from $525 to $574 for the six months ended June 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 and the Paragon Acquisition, the
four acquired properties and completion of new development properties.
Other property income increased $5.0 million from $3.6 million to $8.6
million for the six months ended June 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 million increase from new revenue sources such
as telephone, cable and water.
Property operating and maintenance expenses increased $18.2 million,
from $28.7 million to $46.9 million, and decreased as a percent of total
property income from 34.7% to 31.6% for the six months ended June 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 apartment home 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 six months ended June 30, 1998 operating expense ratio would
have been 32.7%.
Real estate taxes increased $5.3 million from $9.7 million to $15
million for the six months ended June 30, 1997 and 1998, respectively, which
represents and annual decrease of $32 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 partially
offset by increases in the valuations of renovated, acquired and developed
properties and increases in property tax rates.
General and administrative expenses increased $1.9 million from $2.0
million to $3.9 million, and increased slightly as a percent of revenues from
2.4% 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 $13.3 million to $23.3 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 $3.5 million and $1.7 million for the six months ended
June 30, 1998 and 1997, respectively.
Depreciation and amortization increased from $18.5 million to $37.0
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 3.4 and 3.1 times earnings before interest, depreciation, and amortization
for the three months ended June 30, 1998 and 1997, respectively, and 3.6 and 3.3
times earnings before interest, depreciation, and amortization for the six
months ended June 30, 1998 and 1997, respectively.
Liquidity
As a result of the Oasis Merger, Camden acquired the use of Oasis' $125
million unsecured line of credit (the "Oasis Credit Facility") which matures in
September 1998 and is included in the Unsecured Credit Facilities disclosure
below. The scheduled interest rate on the Oasis Credit Facility is currently
based on LIBOR plus 115 basis points. Advances under the Oasis Credit Facility
may be priced at the scheduled rate, or the Company may enter into bid rate
loans with terms similar to those available under the Company's $150 million
Unsecured Credit Facility. The Oasis Credit Facility is subject to customary
financial covenants and limitations. Management expects to replace this facility
when it matures in September 1998.
The Company intends to meet its short-term liquidity requirements
through cash flows provided by operations, the Unsecured Credit Facilities 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 June 30,
1998, the Company had $164 million available under the Unsecured Credit
Facilities. 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 units.
On June 12, 1998, the Company announced that its Board of Trust
Managers had declared its second quarter distribution in the amount of $0.505
per share. On July 17, 1998, the distributions were paid to all holders of
record of Camden's common shares as of June 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 June 12, 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 August 17, 1998 to all
preferred shareholders of record as of June 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 six months ended June 30, 1998, the Company
incurred $78.1 million in development costs and $41.9 million in acquisition
costs. 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
- 17 -
18
equity capital, ownership units, 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 six months ended June 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.
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 June 30, 1998, $217.5 million of the conventional mortgage loans remained
outstanding. An $8.9 million conventional mortgage loan assumed matures in
October 1998.
In conjunction with the Oasis Merger, Camden assumed $150 million in
senior unsecured notes payable issued by Oasis in November 1996 (the "Notes
Payable"). 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.
At June 30, 1998, the weighted average interest rate on total notes
payable was 7.0%.
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 six months ended June 30, 1998, increased $18.2 million and $31.3 million,
respectively, over the three and six months ended June 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 six months ended June 30, 1998 and 1997
follows:
(In thousands)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
Net income to common shareholders $ 9,568 $ 6,429 $18,529 $10,493
Real estate depreciation 22,094 11,807 36,294 17,996
Minority interests 653 597 984 597
Real estate depreciation from unconsolidated ventures 408 283 744 283
Interest on convertible subordinated debentures 71 133 180 429
Amortization of deferred costs on convertible debentures 7 22 18 64
Preferred share dividends 4,686 4,686
Losses related to early retirement of debt 286
------- ------- ------- -------
Funds from operations $37,487 $19,271 $61,435 $30,148
======= ======= ======= =======
Weighted average number of common and common
equivalent shares outstanding 50,867 29,633 42,736 23,689
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" (the "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. It is the Company's intention to make any and all
changes and modifications necessary in order to meet its understanding of the
compliance standards of the Act. 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 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
be year 2000 compliant 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 could have a material impact on Camden's operations. The
Company expects to have its internal systems, equipment and operations year 2000
compliant by December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
- 19 -
20
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
The Company held a Special Meeting in lieu of the Annual Meeting of
Shareholders on April 8, 1998.
(1) The Shareholders voted to approve the Agreement and Plan of
Merger, dated December 16, 1997, as amended by Amendment No. 1,
dated as of February 4, 1998, among Camden Property Trust,
Camden Subsidiary II, and Oasis Residential, Inc.
Broker
Affirmative Negative Abstentions Non-Voters
----------- -------- ----------- ----------
18,450,468 4,702,366 118,204 5,846,367
(2) The Shareholders elected seven of the seven Trust Managers
nominated by the Board of Trust Managers.
Broker
Affirmative Negative Abstentions Non-Votes
----------- -------- ----------- ---------
Richard J. Campo 28,862,864 254,541 0 0
William R. Cooper 28,865,741 251,664 0 0
George A. Hrdlicka 28,865,769 251,636 0 0
Lewis A. Levey 28,865,741 251,664 0 0
D. Keith Oden 28,865,869 251,536 0 0
F. Gardner Parker 28,865,769 251,636 0 0
Steven A. Webster 28,865,769 251,636 0 0
(3) The Shareholders ratified the appointment of Deloitte and
Touche LLP as independent auditors of the Company for the year
ending December 31, 1998.
Broker
Affirmative Negative Abstentions Non-Votes
----------- -------- ----------- ---------
29,009,510 40,096 67,799 0
Item 5. Other Information
None
- 20 -
21
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement regarding Computation of Earnings Per Common
Share
18.1 Letter regarding Change in Accounting Principle
27.1 Financial Data Schedule (filed only electronically with
the Commission)
(b) Reports on Form 8-K
Current Report on Form 8-K dated April 8, 1998 was filed with
the Commission on April 22, 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 August 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)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
11.1 Statement regarding Computation of Earnings Per Common
Share
18.1 Letter regarding Change in Accounting Principle
27.1 Financial Data Schedule (filed only electronically with
the Commission)