-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CvK+AoE0VuMTyoUtcKpTTINufrvjHn+az2AnsddZPCm1/6IuXTXXn8Ncar3JobGO O5HAy6Ageixsw4dLKvbGzw== 0000906345-98-000013.txt : 19981116 0000906345-98-000013.hdr.sgml : 19981116 ACCESSION NUMBER: 0000906345-98-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMDEN PROPERTY TRUST CENTRAL INDEX KEY: 0000906345 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 766088377 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12110 FILM NUMBER: 98745812 BUSINESS ADDRESS: STREET 1: 3200 SOUTHWEST FRWY STREET 2: STE 1500 CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7139643555 MAIL ADDRESS: STREET 1: 3200 SOUTHWEST FREEWAY STREET 2: SUITE 1500 CITY: HOUSTON STATE: TX ZIP: 77027 10-Q 1 CAMDEN PROPERTY TRUST - DATED 9/30/98 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to _________ Commission file number: 1-12110 CAMDEN PROPERTY TRUST (Exact Name of Registrant as Specified in Its Charter) TEXAS 76-6088377 (State or Other Jurisdiction of (I.R.S. Employer Identification Incorporation or Organization) Number) 3 Greenway Plaza, Suite 1300, Houston, Texas 77046 (Address of Principal Executive Offices) (Zip Code) (713) 354-2500 (Registrant's Telephone Number, Including Area Code) N/A (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of November 9, 1998, there were 44,552,890 shares of Common Shares of Beneficial Interest, $0.01 par value outstanding. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAMDEN PROPERTY TRUST CONSOLIDATED BALANCE SHEETS (In thousands)
ASSETS SEPTEMBER 30, DECEMBER 31, 1998 1997 ----------------- ---------------- (Unaudited) Real estate assets, at cost: Land $ 313,399 $ 182,909 Buildings and improvements 1,872,834 1,155,335 ----------------- ------------- 2,186,233 1,338,244 Less: accumulated depreciation (147,285) (94,665) ----------------- ------------- Net operating real estate assets 2,038,948 1,243,579 Projects under development, including land 193,822 43,805 Investment in joint ventures 33,149 15,089 ----------------- ------------ 2,265,919 1,302,473 Accounts receivable - affiliates 961 950 Notes receivable - affiliates 1,800 1,796 Other assets, net 13,631 7,885 Cash and cash equivalents 35,949 6,468 Restricted cash - escrow deposits 4,010 4,048 ----------------- ------------- Total assets $ 2,322,270 $ 1,323,620 ================= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable: Unsecured $ 572,878 $ 316,941 Secured 389,850 163,813 Accounts payable 7,969 12,163 Accrued real estate taxes 22,435 16,568 Accrued expenses and other liabilities 31,080 17,416 Distributions payable 26,060 16,805 ----------------- ------------- Total liabilities 1,050,272 543,706 Minority Interests 72,787 63,325 7.33% Convertible Subordinated Debentures 3,744 6,025 Shareholders' Equity: Preferred shares of beneficial interest 42 Common shares of beneficial interest 446 317 Additional paid-in capital 1,298,452 780,738 Distributions in excess of net income (91,495) (63,526) Unearned restricted share awards (10,362) (6,965) Less: Treasury shares, at cost (1,616) ----------------- ------------- Total shareholders' equity 1,195,467 710,564 ----------------- ------------- Total liabilities and shareholders' equity $ 2,322,270 $ 1,323,620 ================= =============
See Notes to Consolidated Financial Statements. - 2 - 3 CAMDEN PROPERTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share amounts)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------- -------------------------- 1998 1997 1998 1997 ----------- ----------- ------------ ------------ REVENUES Rental income $ 79,802 $ 53,378 $ 219,601 $ 132,416 Other property income 5,052 2,893 13,618 6,491 ---------- ---------- ----------- ----------- Total property income 84,854 56,271 233,219 138,907 Equity in income of joint ventures 317 368 1,039 804 Fee and asset management 510 219 859 482 Other income 868 81 1,611 290 ---------- ---------- ----------- ----------- Total revenues 86,549 56,939 236,728 140,483 ---------- ---------- ----------- ----------- EXPENSES Property operating and maintenance 25,366 20,889 72,244 49,544 Real estate taxes 8,153 5,769 23,122 15,436 General and administrative 2,153 1,048 6,043 3,088 Interest 13,414 7,466 36,680 20,742 Depreciation and amortization 20,411 12,895 57,388 31,425 ---------- ---------- ----------- ----------- Total expenses 69,497 48,067 195,477 120,235 ---------- ---------- ----------- ----------- INCOME BEFORE LOSSES RELATED TO EARLY RETIREMENT OF DEBT AND MINORITY INTERESTS 17,052 8,872 41,251 20,248 LOSSES RELATED TO EARLY RETIREMENT OF DEBT (286) ---------- ---------- ----------- ----------- INCOME BEFORE MINORITY INTERESTS 17,052 8,872 41,251 19,962 MINORITY INTERESTS (59) (612) (1,043) (1,209) ---------- ---------- ----------- ----------- NET INCOME 16,993 8,260 40,208 18,753 PREFERRED SHARE DIVIDENDS (2,343) (7,029) ---------- ---------- ----------- ----------- NET INCOME TO COMMON SHAREHOLDERS $ 14,650 $ 8,260 $ 33,179 $ 18,753 ========== ========== =========== =========== BASIC EARNINGS PER SHARE $ 0.33 $ 0.27 $ 0.83 $ 0.77 DILUTED EARNINGS PER SHARE $ 0.31 $ 0.27 $ 0.79 $ 0.76 DISTRIBUTIONS DECLARED PER COMMON SHARE $ 0.505 $ 0.490 $ 1.515 $ 1.470 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 44,370 30,410 40,115 24,487 WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON DILUTIVE EQUIVALENT SHARES OUTSTANDING 47,437 33,128 43,116 24,791
See Notes to Consolidated Financial Statements. - 3 - 4 CAMDEN PROPERTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 ----------- ------------ CASH FLOW FROM OPERATING ACTIVITIES Net income $ 40,208 $ 18,753 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 57,388 31,425 Equity in income of joint ventures, net of cash received 486 (147) Minority interests 1,043 1,209 Accretion of discount on unsecured notes payable 124 105 Losses related to early retirement of debt 286 Net change in operating accounts (2,039) (14,051) ----------- ------------ Net cash provided by operating activities 97,210 37,580 CASH FLOW FROM INVESTING ACTIVITIES Cash of Oasis and Paragon at acquisition 7,253 12,400 Net proceeds from Third Party Transaction 226,128 Increase in real estate assets (271,742) (62,583) Net proceeds from sales of properties 42,513 Net proceeds from sale of joint venture 6,841 Increase in investment in joint ventures (4,795) Decrease in investment in joint ventures 1,478 4,624 Decrease in affiliate notes receivable 5,389 6,220 Other (1,146) (480) ----------- ------------ Net cash provided by (used in) investing activities 11,919 (39,819) CASH FLOW FROM FINANCING ACTIVITIES Net increase (decrease) in credit facility and short-term notes 113,792 (1,500) Debt repayments from Third Party Transaction (114,248) Proceeds from notes payable 50,600 100,000 Repayment of notes payable (65,001) (198,096) Proceeds from issuance of common shares 142,643 Distributions to shareholders and minority interests (63,055) (38,762) Repurchase of common shares (1,616) Payment of loan costs (1,663) (920) Losses related to early retirement of debt (286) Other 1,543 679 ----------- ------------ Net cash (used in) provided by financing activities (79,648) 3,758 ----------- ------------ Net increase in cash and cash equivalents 29,481 1,519 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,468 2,366 ----------- ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 35,949 $ 3,885 =========== ============ SUPPLEMENTAL INFORMATION Cash paid for interest, net of interest capitalized $ 31,767 $ 21,362 Interest capitalized $ 6,385 $ 2,605 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of Oasis (including the Third Party Transaction) and Paragon, net of cash acquired: Fair value of assets acquired $ 783,500 $ 648,203 Liabilities assumed 495,708 332,961 Common shares issued 395,528 262,370 Preferred shares issued 104,125 Fair value of minority interest 21,520 65,272 Notes payable assumed upon purchase of property $ 22,424 Conversion of 7.33% subordinated debentures to common shares, net $ 2,242 $ 20,385 Value of shares issued under benefit plans, net $ 6,180 $ 3,388
See Notes to Consolidated Financial Statements. - 4 - 5 CAMDEN PROPERTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. INTERIM UNAUDITED FINANCIAL INFORMATION The accompanying interim unaudited financial information has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position of Camden Property Trust as of September 30, 1998 and the results of operations for the three and nine months ended September 30, 1998 and 1997 and cash flows for the nine months ended September 30, 1998 and 1997 have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. BUSINESS Camden Property Trust, a Houston-based real estate investment trust ("REIT"), and its subsidiaries (collectively, "Camden" or the "Company") report as a single business segment with activities related to the ownership, development, acquisition, management, marketing and disposition of multifamily apartment communities in the Southwest, Southeast, Midwest and Western regions of the United States. At September 30, 1998, the Company owned interests in, operated or was developing 165 multifamily properties containing 56,750 apartment homes located in nine states. Fourteen of the Company's multifamily properties containing 5,680 apartment homes were under development at September 30, 1998. The Company has several additional sites which it intends to develop into multifamily apartment communities. Additionally, the Company managed 2,377 apartment homes in six properties for third-parties at September 30, 1998. ACQUISITION OF OASIS RESIDENTIAL, INC. On April 8, 1998, Oasis Residential Inc. ("Oasis") merged with and into a wholly-owned subsidiary of the Company (the "Oasis Merger"), pursuant to an Agreement and Plan of Merger dated as of December 16, 1997 (the "Merger Agreement"), as amended. As provided in the Merger Agreement, each of the shares of Oasis common stock outstanding on April 8, 1998 was exchanged for 0.759 shares of the Company's common shares. Each share of Oasis Series A cumulative convertible preferred stock (the "Oasis Preferred Stock") outstanding on April 8, 1998 was reissued as Camden Series A Cumulative Convertible Preferred Shares (the "Preferred Shares") with comparable terms and conditions as previously existed with respect to the Oasis Preferred Stock. The Company issued 12,392,893 common shares and 4,165,000 Preferred Shares in exchange for the outstanding common stock and outstanding Oasis Preferred Stock, respectively. Approximately $484 million of Oasis debt, at fair value, was assumed in the merger. In connection with the Oasis Merger, the Company obtained a managing member interest in Oasis Martinique, LLC. The remaining interest comprising 672,490 units (the "Martinique Units"), which are exchangeable on a one-for-one basis into the Company's common shares, is accounted for as a minority interest. Oasis, a Nevada corporation, was a fully integrated REIT headquartered in Las Vegas, Nevada whose business was the operation and development of multifamily residential communities in Las Vegas, Denver and Southern California. As of April 8, 1998, Oasis owned interests in 52 completed multifamily properties, with one additional multifamily property under construction. Upon completion of the merger, Camden owned interests in 54,314 apartment homes (including 4,131 apartment homes under development). In connection with the Oasis Merger, Camden disclosed its intentions of entering into a joint venture investment (the "Joint Venture") in order to transfer into the Joint Venture 19 apartment communities containing 5,119 apartment homes located in Las Vegas (the "Third Party Transaction"). - 5 - 6 On June 30, 1998, the Company completed the Third Party Transaction for an aggregate of $248 million with a private limited liability company (the "LLC"). The Company retained a 20% interest in the LLC, which is included in investment in joint ventures. The Third Party Transaction was funded with capital invested by the LLC members, the assumption of $9.9 million of existing nonrecourse indebtedness, the issuance of 17 nonrecourse cross collateralized and cross defaulted loans totaling $180 million and the issuance of two nonrecourse second lien mortgages totaling $7 million. The LLC assumed the $190 million of treasury locks which Camden had entered into during the first quarter of 1998 as a hedge against interest rate exposure for the LLC. The treasury locks were unwound by the LLC simultaneously with the completion of the funding for the Third Party Transaction. Camden used the net proceeds from the Third Party Transaction to reduce outstanding debt by $124 million, including the $9.9 million of existing indebtedness noted above, and set aside $112 million into an escrow account which may be used to make tax-free exchange acquisitions or to further reduce debt if the exchange acquisitions are not completed. The Company utilized $76.9 million of the escrow funds to purchase two properties which closed in July 1998. No book gain or loss was recorded by Camden as a result of the Third Party Transaction. Camden continues to provide property management services for these assets. The Oasis Merger has been recorded under the purchase method of accounting. In accordance with generally accepted accounting principles, the purchase price was preliminarily allocated to the net assets acquired based on their estimated fair values. Such estimates may be revised at a later date. No goodwill is expected to be recorded in this transaction. The accompanying consolidated statements of operations include the operating results of Oasis since April 1, 1998, the effective date of the Oasis Merger for accounting purposes. Pro forma unaudited consolidated operating results of the Company for the nine months ended September 30, 1998 and 1997, assuming that the Oasis Merger and the Third Party Transaction had been made as of January 1, 1997, are summarized below (in thousands, except per share amounts):
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 --------- --------- Total revenues $ 250,757 $ 200,190 Net income to common shareholders $ 36,753 $ 26,615 Basic earnings per share $ 0.83 $ 0.72 Diluted earnings per share $ 0.79 $ 0.72
These pro forma results have been prepared for informational purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the Oasis Merger and the Third Party Transaction been completed on the date indicated, nor are they necessarily indicative of future operations. ACQUISITION OF PARAGON GROUP, INC. On April 15, 1997, the Company acquired through a tax-free merger, Paragon Group, Inc. ("Paragon"), a Dallas-based multifamily REIT. The acquisition increased the size of the Company's portfolio from 53 to 103 multifamily properties, and from 19,389 to 35,364 apartment homes (the "Paragon Acquisition"). Each share of Paragon common stock outstanding on April 15,1997 was exchanged for 0.64 shares of the Company's common shares. The Company issued 9.5 million shares in exchange for all of the outstanding shares of Paragon common stock and 2.4 million limited partnership units ("OP Units") in Camden Operating, L.P. (the "Operating Partnership") and assumed approximately $296 million of Paragon debt in connection with the Paragon Acquisition. REAL ESTATE ASSETS AT COST The Company capitalized $18.7 million and $11.0 million in the nine months ended September 30, 1998 and 1997, respectively, of renovation and improvement costs which extended the economic lives and enhanced the earnings of its multifamily properties. If the accounting policy described below had been adopted as of January 1, 1997, the amounts capitalized for the nine months ended September 30, 1998 and 1997 would have increased to $19.8 million and $13.8 million, respectively. - 6 - 7 Effective April 1, 1998, the Company implemented prospectively a new accounting policy whereby expenditures for carpet, appliances and HVAC unit replacements are capitalized and depreciated over their estimated useful lives. Previously, all such replacements had been expensed. The Company believes that the newly adopted accounting policy is preferable as it is consistent with standards and practices utilized by the majority of the Company's peers and provides a better matching of expenses with the related benefit of the expenditure. The change in accounting principle is inseparable from the effect of the change in accounting estimate and is therefore treated as a change in accounting estimate. See New Accounting Pronouncements below for the effect of this change and the Company's adoption of a new accounting pronouncement on Camden's financial results for both of the quarters ended June 30, 1998 and September 30, 1998. PROPERTY OPERATING AND MAINTENANCE EXPENSES Property operating and maintenance expenses included normal repairs and maintenance totaling $6.0 million and $15.7 million for the three and nine months ended September 30, 1998, respectively, and $4.5 million and $10.0 million for the three and nine months ended September 30, 1997, respectively. COMMON SHARE DISTRIBUTION DECLARATION On September 15, 1998, the Company announced that its Board of Trust Managers had declared its third quarter distribution in the amount of $0.505 per share. On October 16, 1998, the distributions were paid to all holders of record of Camden's common shares as of September 30, 1998, and an equivalent amount per unit was paid to holders of OP and Martinique Units. This distribution to common shareholders and holders of OP and Martinique Units equates to an annualized dividend rate of $2.02 per share or unit. PREFERRED SHARE DIVIDEND DECLARATION On September 15, 1998, the Company also announced that its Board of Trust Managers had declared a quarterly dividend on its Preferred Shares, which were reissued for Oasis Preferred Stock in conjunction with the merger of Oasis. The dividend in the amount of $0.5625 per share, is payable November 16, 1998 to all preferred shareholders of record as of September 30, 1998. NEW ACCOUNTING PRONOUNCEMENTS On March 19, 1998, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board reached a consensus decision on Issue No. 97-11, Accounting for Internal Costs Relating to Real Estate Property Acquisitions, which requires that internal costs of identifying and acquiring operating properties be expensed as incurred for transactions entered into on or after March 20, 1998. Prior to Camden's adoption of this policy, the Company had been capitalizing such costs. The effect of the Company's adoption of Issue No. 97-11 and the new accounting policy for carpet, appliances and HVAC unit replacements on the three months ended June 30, 1998 and September 30, 1998 was to increase the net income to common shareholders by $1.1 million ($0.03 per basic earnings per share and $0.02 per diluted earnings per share), and $1.3 million ($0.03 per basic and diluted earnings per share), respectively. On July 23, 1998, the EITF reached a consensus decision on Issue No. 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested, which requires companies to consolidate certain Rabbi Trust plans into their financial statements. The adoption of this EITF did not impact the Company since Camden's Rabbi Trust plan does not meet the criteria for consolidation. - 7 - 8 EARNINGS PER SHARE The following table presents information necessary to calculate basic and diluted earnings per share for the three and nine months ended September 30, 1998 and 1997, with 1997 restated to conform with the requirements of SFAS No. 128, Earnings Per Share (in thousands, except per share amounts):
Three Months Nine Months Ended September 30, Ended September 30, ------------------------- -------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ----------- BASIC EARNINGS PER SHARE: Weighted Average Common Shares Outstanding 44,370 30,410 40,115 24,487 ========== ========== ========== =========== Basic Earnings Per Share $ 0.33 $ 0.27 $ 0.83 $ 0.77 ========== ========== ========== =========== DILUTED EARNINGS PER SHARE: Weighted Average Common Shares Outstanding 44,370 30,410 40,115 24,487 Shares Issuable from Assumed Conversion of: Common Share Options and Awards Granted 387 372 414 304 Minority Interest Units* 2,680 2,346 2,587 ---------- ---------- ---------- ----------- Weighted Average Common Shares Outstanding, as Adjusted 47,437 33,128 43,116 24,791 ========== ========== ========== =========== Diluted Earnings Per Share $ 0.31 $ 0.27 $ 0.79 $ 0.76 ========== ========== ========== =========== EARNINGS FOR BASIC AND DILUTED COMPUTATION: Net Income $ 16,993 $ 8,260 $ 40,208 $ 18,753 Less: Dividends on Preferred Shares 2,343 7,029 --------- --------- --------- --------- Net Income to Common Shareholders 14,650 8,260 33,179 18,753 (Basic Earnings Per Share Computation) Minority Interests* 59 612 1,043 ---------- ---------- ---------- ----------- Net Income to Common Shareholders, as Adjusted (Diluted Earnings Per Share Computation) $ 14,709 $ 8,872 $ 34,222 $ 18,753 ========== ========== ========== ===========
* Minority interest units were antidilutive for the nine months ended September 30, 1997. RECLASSIFICATIONS Certain reclassifications have been made to amounts in prior year financial statements to conform with current year presentations. - 8 - 9 2. NOTES PAYABLE The following is a summary of the Company's indebtedness: (In millions)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ---------------- --------------- Senior Unsecured Notes: 6 5/8% - 7 1/4% Notes, due 2001-2006 $ 323.9 $ 174.0 Reset Notes, due 2002 75.0 75.0 7.172% Medium-Term Notes, due 2004 25.0 25.0 Unsecured Credit Facilities and Short-Term Borrowings 149.0 43.0 --------- --------- 572.9 317.0 Secured Notes - Mortgage Loans (4 9/10% - 9 1/2%) 389.8 163.8 --------- --------- Total notes payable $ 962.7 $ 480.8 ========= ========= Floating rate debt included in unsecured notes payable, net of $25 million hedging agreement (6 1/10% - 7 3/4%) $ 199.0 $ 93.0 Floating rate tax-exempt debt included in mortgage loans (4 9/10% - 5 3/10%) $ 64.7
As a result of the Oasis Merger, the Company assumed $228 million in conventional mortgage loans with interest rates ranging from 5 1/10% to 9 1/2%. As of September 30, 1998, $217.0 million of conventional mortgage loans were outstanding. An $8.9 million conventional mortgage loan assumed matured in October 1998 and was paid off utilizing funds from the medium-term note issuances discussed below. In conjunction with the Oasis Merger, Camden assumed $150 million in senior unsecured notes payable issued by Oasis in November 1996 (the "Notes Payable"), as well as acquired the use of Oasis' unsecured line of credit (the "Oasis Credit Facility"). The Notes Payable, due in equal increments in November 2001, 2003 and 2006, bear interest at annual rates ranging from 6 3/4% to 7 1/4%, payable quarterly. The Oasis Credit Facility, which has a maximum borrowing capacity of $50 million, matures in December 1998, and bears interest at LIBOR plus 115 basis points. Proceeds from the Third Party Transaction were used to pay down approximately $114 million on the Unsecured Credit Facilities and short-term borrowings and $9.9 million of existing indebtedness, and $112 million was set aside into an escrow account which may be used to make tax-free exchange acquisitions or to further reduce debt if the exchange acquisitions are not completed. The Company utilized $76.9 million of the escrow funds to purchase two properties which closed in July 1998. At September 30, 1998, the weighted average interest rate on total notes payable was 6.9%. Subsequent to September 30, 1998, the Company issued $12 million and $90 million principal amounts of senior unsecured notes from its $196 million medium-term note shelf registration. These fixed rate notes, due in October 2000, bear interest at rates of 6.92% and 7.23%, respectively, payable semiannually on March 15 and September 15. The net proceeds were used to liquidate the $75 million Reset Notes, pay off certain mortgage notes payable, and reduce indebtedness incurred under the Unsecured Credit Facility. - 9 - 10 3. NET CHANGE IN OPERATING ACCOUNTS The effect of changes in the operating accounts on cash flows from operating activities is as follows: (In thousands)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1998 1997 ---------- ---------- Decrease (increase) in assets: Accounts receivable - affiliates $ 1,298 $ 2,148 Other assets, net 2,171 (1,105) Restricted cash - escrow deposits 1,337 1,189 Increase (decrease) in liabilities: Accounts payable (5,027) (5,057) Accrued real estate taxes 5,028 2,644 Accrued expenses and other liabilities (6,846) (13,870) ---------- ---------- Net change in operating accounts $ (2,039) $ (14,051) ========== ==========
4. CONVERTIBLE SUBORDINATED DEBENTURES During the first nine months of 1998, debentures in the principal amount of $2.3 million were converted into 95,038 common shares. These debentures were converted on or before the record date for the quarterly dividend and the related debenture interest was forfeited by the debenture holders in accordance with the indenture and the unpaid interest payable was credited to additional paid in-capital. In addition, $50,000 of unamortized debenture issue costs were reclassified to additional paid-in capital. Had all converted debentures converted as of the beginning of the period, basic earnings per share and diluted earnings per share would have remained the same for the three and nine months ended September 30, 1998. 5. RESTRICTED SHARE AND OPTION AWARDS During the first nine months of 1998, the Company granted 222,449 restricted shares in lieu of cash compensation to certain key employees and non-employee trust managers. The restricted shares have vesting periods of up to five years. Additionally, 1,421,510 options to purchase Camden common shares were granted at an exercise price equal to the market price on the date of grant and are exercisable in equal increments on or following each of the first three anniversaries of the date of grant. During the nine month period ended September 30, 1998, previously granted options for 103,334 shares became exercisable and 76,489 restricted shares vested. The Company also converted all unexercised Oasis stock options held by former employees of Oasis into 894,111 options to purchase Camden common shares based on the 0.759 exchange ratio described in Note 1. All of the Oasis options became fully vested upon conversion. 6. COMMON SHARE REPURCHASE PROGRAM In September 1998, the Board of Trust Managers authorized the Company to repurchase up to $50 million of Camden's common shares through open market purchases and private transactions. At September 30, 1998 the Company had repurchased 62,000 common shares for a total cash outlay of $1.6 million. 7. COMMITMENTS AND CONTINGENCIES Prior to the Oasis Merger, Oasis had been contacted by certain regulatory agencies with regards to alleged failures to comply with the "Fair Housing Act" as it pertained to properties constructed for first occupancy after March 31, 1991. The Company is currently inspecting these properties to determine the extent of the alleged noncompliance and the changes that may be necessitated. At this time, the Company is unable to provide an - 10 - 11 estimate of costs and expenses associated with this matter as the scope and extent of required work, if any, has yet to be determined. 8. CONVERTIBLE PREFERRED SHARES The 4,165,000 Preferred Shares reissued in conjunction with the Oasis Merger pay a cumulative dividend quarterly in arrears in an amount equal to $2.25 per share per annum. The Preferred Shares generally have no voting rights and have a liquidation preference of $25 per share plus accrued and unpaid distributions. The Preferred Shares are convertible at the option of the holder at any time into common shares at a conversion price of $32.4638 per common share (equivalent to a conversion rate of 0.7701 per common share for each Preferred Share), subject to adjustment in certain circumstances. The Preferred Shares are not redeemable by the Company prior to April 1, 2001. 9. SUBSEQUENT EVENTS In the ordinary course of its business, the Company issues letters of intent indicating a willingness to negotiate for the purchase or sale of multifamily properties or development land. In accordance with the local real estate market practice, such letters of intent are non-binding, and neither party to the letter of intent is obligated to pursue negotiations unless and until a definitive contract is entered into by the parties. Even if definitive contracts are entered into, the letters of intent and resulting contracts contemplate that such contracts will provide the purchaser with periods varying from 25 to 180 days during which it will evaluate the properties and conduct its due diligence and during which periods the purchaser will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money. There can be no assurance that definitive contracts will be entered into with respect to any properties covered by letters of intent or that the Company will acquire or sell any property as to which the Company may have entered into a definitive contract. Further, due diligence periods are frequently extended as needed. An acquisition or sale becomes probable at the time that the due diligence period expires and the definitive contract has not been terminated. The Company is then at risk under an acquisition contract, but only to the extent of any earnest money deposits associated with the contract, and is obligated to sell under a sales contract. The Company is currently in the due diligence period on contracts for the purchase of land for development. No assurance can be made that the Company will be able to complete the negotiations or become satisfied with the outcome of the due diligence. The Company seeks to selectively dispose of assets that are not in core markets, have a lower projected net operating income growth rate than the overall portfolio, or no longer conform to the Company's operating and investment strategies. The proceeds from these sales may be reinvested in acquisitions or developments or used to retire debt. - 11 - 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with all of the financial statements and notes thereto appearing elsewhere in this report as well as the audited financial statements appearing in the Company's 1997 Annual Report to Shareholders. Where appropriate, comparisons are made on a dollars per-weighted-average-apartment home basis in order to adjust for changes in the number of apartment homes owned during each period. The statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those included in the forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: changes in general economic conditions in the markets that could impact demand for the Company's product and changes in financial markets and interest rates impacting the Company's ability to meet its financing needs and obligations. Camden Property Trust, a Houston-based real estate investment trust ("REIT"), and its subsidiaries (collectively, "Camden" or the "Company")report as a single business segment with activities related to the ownership, development, acquisition, management, marketing and disposition of multifamily apartment communities in the Southwest, Southeast, Midwest and Western regions of the United States. At September 30, 1998, the Company owned interests in, operated or was developing 165 multifamily properties containing 56,750 apartment homes located in nine states. Fourteen of the Company's multifamily properties containing 5,680 apartment homes were under development at September 30, 1998 (the "Development Properties"). The Company has several additional sites which it intends to develop into multifamily apartment communities. Additionally, the Company managed 2,377 apartment homes in six properties for third-parties at September 30, 1998. ACQUISITION OF OASIS RESIDENTIAL, INC. On April 8, 1998, the Company acquired through a tax-free merger, Oasis Residential, Inc. ("Oasis"), a publicly traded Las Vegas-based multifamily REIT. The acquisition increased the size of the Company's portfolio from 100 to 152 completed multifamily properties, and from 38,460 to 50,183 apartment homes at the date of acquisition. Upon completion of ten properties under development, the Company's portfolio at the date of acquisition would have increased to 54,314 apartment homes in 162 properties. As provided in the Plan of Merger dated December 16, 1997, as amended, each of the shares of Oasis common stock outstanding on April 8, 1998 was exchanged for 0.759 share of the Company's common shares. Each share of Oasis Series A cumulative convertible preferred stock (the "Oasis Preferred Stock") outstanding on April 8, 1998 was reissued as Camden Series A Cumulative Convertible Preferred Shares (the "Preferred Shares") with comparable terms and conditions as previously existed with respect to the Oasis Preferred Stock. The Company issued 12,392,893 common shares and 4,165,000 Preferred Shares in exchange for the outstanding common stock and outstanding Oasis Preferred Stock, respectively. Approximately $484 million of Oasis debt, at fair value, was assumed in the merger. In connection with the Oasis Merger, the Company obtained a managing member interest in Oasis Martinique, LLC. The remaining interest comprising 672,490 units (the "Martinique Units"), which are exchangeable on a one-for-one basis into the Company's common shares, is accounted for as a minority interest. In connection with the Oasis Merger, Camden disclosed its intentions of entering into a joint venture investment (the "Joint Venture") in order to transfer into the Joint Venture 19 apartment communities containing 5,119 apartment homes located in Las Vegas (the "Third Party Transaction"). On June 30, 1998, the Company completed the Third Party Transaction for an aggregate of $248 million with a private limited liability company (the "LLC"). The Company retained a 20% interest in the LLC, which is included in investment in joint ventures. The Third Party Transaction was funded with capital invested by the LLC members, the assumption of $9.9 million of existing nonrecourse indebtedness, the issuance of 17 nonrecourse cross collateralized and cross defaulted loans totaling $180 million and the issuance of two - 12 - 13 nonrecourse second lien mortgages totaling $7 million. The LLC assumed the $190 million of treasury locks which Camden had entered into during the first quarter of 1998 as a hedge against interest rate exposure for the LLC. The treasury locks were unwound by the LLC simultaneously with the completion of the funding for the Third Party Transaction. Camden used the net proceeds from the Third Party Transaction to reduce outstanding debt by $124 million, including the $9.9 million of existing indebtedness noted above, and set aside $112 million into an escrow account which may be used to make tax-free exchange acquisitions or to further reduce debt if the exchange acquisitions are not completed. The Company utilized $76.9 million of the escrow funds to purchase two properties which closed in July 1998. No book gain or loss was recorded by Camden as a result of the Third Party Transaction. Camden continues to provide property management services for these assets. ACQUISITION OF PARAGON GROUP, INC. On April 15, 1997, the Company acquired through a tax-free merger, Paragon Group, Inc. ("Paragon"), a Dallas-based multifamily REIT. The acquisition increased the size of the Company's portfolio from 53 to 103 multifamily properties, and from 19,389 to 35,364 apartment homes (the "Paragon Acquisition"). Each share of Paragon common stock outstanding on April 15,1997 was exchanged for 0.64 shares of the Company's common shares. The Company issued 9.5 million shares in exchange for all of the outstanding shares of Paragon common stock and 2.4 million limited partnership units ("OP Units") in Camden Operating, L.P.(the "Operating Partnership") and assumed approximately $296 million of Paragon debt in connection with the Paragon Acquisition. PROPERTY PORTFOLIO The Company's multifamily property portfolio, including Development Properties but excluding land held for development, at September 30, 1998 and December 31, 1997 is summarized as follows:
SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------------------------------- ------------------------------------------- Number of Number of % (a) Number of Number of % (a) Apartment Homes Properties Apartment Homes Properties ------------------- ------------- ------- -------------------- ------------ ------- Texas Houston 8,558 21 17% 7,710 19 22% Dallas (b) (c) 9,981 27 19 9,381 26 24 Austin 1,745 6 4 1,745 6 5 Other 1,641 5 3 1,585 5 4 --------- ------- ------- --------- ------ ------- Total Texas 21,925 59 43 20,421 56 55 Properties --------- ------- ------- --------- ------ ------- Arizona 2,651 8 5 2,134 6 6 California 1,652 4 3 Colorado (b) 2,312 7 4 Florida 8,411 21 17 6,661 18 19 Kentucky 1,574 6 3 1,574 6 4 Missouri 3,327 8 7 3,487 10 10 Nevada (b) 12,163 42 14 North Carolina (b) (c) 2,735 10 4 2,735 10 6 --------- ------- ------- --------- ------ ------- Total Properties 56,750 165 100% 37,012 106 100% ======= ======= ====== ======= Less: Joint Venture Apartment Homes (b) (c) 6,704 1,264 --------- --------- Total Apartment Homes - Owned 100% 50,046 35,748 ========= =========
(a) Based on number of apartment homes owned 100%. (b) Includes one property with 708 apartment homes in Dallas, one property with 321 apartment homes in Colorado, 19 properties with 5,119 apartment homes in Nevada, and two properties with 556 apartment homes in North Carolina owned through joint venture investments at September 30, 1998. (c) Includes one property with 708 apartment homes in Dallas and two properties with 556 apartment homes in North Carolina owned through joint venture investments at December 31, 1997. - 13 - 14 PROPERTY UPDATE During the first quarter of 1998, The Park at Vanderbilt, Phase II, which was completed in the third quarter of 1997, stabilized. In the second quarter of 1998, The Park at Centreport and The Park at Buckingham, which were completed in the fourth quarter of 1997, stabilized. During the third quarter of 1998, lease-ups began at The Park at Towne Center and Renaissance Pointe II. The following table sets forth information regarding the Development Properties at September 30, 1998:
Number of Estimated Project Apartment Cost Estimated Date Estimated Date Property and Location Type Homes ($ millions)* of Completion of Stabilization - -------------------------------------- ------------- ------------ -------------- ------------------ ------------------- The Park at Towne Center Garden 240 $ 13.4 4Q98 2Q99 Glendale, AZ Renaissance Pointe II Garden 306 17.3 1Q99 3Q99 Orlando, FL The Park at Goose Creek Affordable 272 11.8 2Q99 4Q99 Baytown, TX The Park at Interlocken Garden 340 34.9 2Q99 4Q99 Denver, CO The Park at Midtown Urban 337 21.5 2Q99 4Q99 Houston, TX The Park at Oxmoor Garden 432 22.1 3Q99 2Q00 Louisville, KY The Park at Holly Springs Garden 548 37.1 3Q99 3Q00 Houston, TX The Park at Lee Vista Garden 492 32.8 4Q99 3Q00 Orlando, FL The Park at Greenway Urban 756 55.7 4Q99 4Q00 Houston, TX The Park at Arizona Center Urban 325 22.0 1Q00 3Q00 Phoenix, AZ The Park at Mission Viejo Garden 380 42.0 2Q00 4Q00 Mission Viejo, CA The Park at Farmers Market, Phase I Urban 600 45.9 3Q00 2Q01 Dallas, TX ------- -------- 5,028 356.5 Marina Pointe II Garden 352 25.2 To Be To Be Tampa, FL Determined Determined The Park at Steeplechase Affordable 300 13.5 To Be To Be Houston, TX Determined Determined ------- -------- Total for 14 Development Properties 5,680 $395.2 ======== ========
* At September 30, 1998, the Company had incurred $150.3 million of the estimated $395.2 million. The Company stages its construction to allow leasing and occupancy during the construction period thereby minimizing the lease-up period following completion of construction. The Company's accounting policy related to properties in the development and leasing phase is that all operating expenses, excluding depreciation, associated with occupied units are expensed against revenues generated by those units as they become occupied. All construction and carrying costs are capitalized and reported on the balance sheet in "Projects under development, including land" until such units are completed. Upon completion of each building of the project, the total cost of that building and the associated land is transferred to "Land" and "Buildings and improvements" and the assets are depreciated over their estimated useful lives using the straight-line method of depreciation. Upon achieving 90% occupancy, or one year from opening the leasing office, whichever occurs first, all units are considered operating and the Company begins expensing all items that were previously considered as carrying costs. - 14 - 15 COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 The changes in operating results from period to period are primarily due to the Oasis Merger, development of three properties aggregating 1,166 apartment homes, the acquisition of seven properties containing 3,027 apartment homes, the disposition of 11 properties containing 2,986 apartment homes and an increase in net operating income generated by the stabilized portfolio. The weighted average number of apartment homes for the third quarter of 1998 increased by 10,990, or 33.3%, from 33,016 to 44,006. Total operating properties were 128 and 98 at September 30, 1998 and 1997, respectively, and exclude those owned through joint venture investments. The weighted average number of apartment homes of 44,006 and 33,016 exclude the impact of the Company's ownership interest in apartment homes owned in joint ventures throughout the quarters. The average rental income per apartment home per month increased $65, or 12.1%, from $539 to $604 for the third quarter of 1997 and 1998, respectively. The increase was primarily due to increased revenue growth from the stabilized real estate portfolio, higher average rental rates on properties added to the portfolio through the Oasis Merger, the seven acquired properties and completion of new development properties. Overall average occupancy changed slightly from 94.5 % for the quarter ended September 30, 1997 to 93.8% for the quarter ended September 30, 1998. Other property income increased $2.2 million from $2.9 million to $5.1 million for the quarters ended September 30, 1997 and 1998, respectively. The increase in other property income was due to a larger number of apartment homes owned and in operation and an $824,000 increase from new revenue sources such as telephone, cable and water. Property operating and maintenance expenses increased $4.5 million, from $20.9 million to $25.4 million, and decreased as a percent of total property income from 37.1% to 29.9% for the quarters ended September 30, 1997 and 1998, respectively. The Company's operating expense ratio decreased over the prior year quarter primarily as a result of operating efficiencies resulting from operating a larger portfolio and the impact of the Company's April 1, 1998 adoption of a new accounting policy, whereby expenditures for carpet, appliances and HVAC unit replacements are expensed in the first five years of a property's life and capitalized thereafter. Prior to the adoption of this policy, the Company had been expensing these costs. Had this policy change not been adopted, the third quarter 1998 operating expense ratio would have been 32.0%. Real estate taxes increased $2.4 million from $5.8 million to $8.2 million for the quarters ended September 30, 1997 and 1998, respectively, which represents an annual increase of $42 per apartment home. Real estate taxes per apartment home have increased due to increases in the valuations of renovated, acquired and developed properties, and increases in property tax rates. This increase per apartment home was partially offset by lower property taxes in the portfolio added through the Oasis Merger. General and administrative expenses increased $1.1 million from $1.0 million to $2.2 million, and increased as a percent of revenues from 1.8 % to 2.5%. The general and administrative expense ratio increase is mainly attributable to the impact of the Company's March 20, 1998 adoption of Issue No. 97-11, Accounting for Internal Costs Relating to Real Estate Property Acquisitions, discussed in Note 1. Interest expense increased from $7.5 million to $13.4 million due to increased indebtedness related to the Oasis Merger, completed developments, renovations and property acquisitions. This increase was partially offset by reductions in average interest rates on the Company's debt, the equity offering that occurred in July 1997 and property dispositions. Interest capitalized was $2.9 million and $891,000 for the quarters ended September 30, 1998 and 1997, respectively. Depreciation and amortization increased from $12.9 million to $20.4 million. This increase was due primarily to the Oasis Merger, developments, renovations and property acquisitions. - 15 - 16 COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 The changes in operations results from period to period are primarily due to the Oasis Merger, the Paragon Acquisition, development of five properties aggregating 1,834 apartment homes, the acquisition of seven properties containing 3,027 apartment homes, the disposition of 11 properties containing 2,986 apartment homes and an increase in new operating income generated by the stabilized portfolio. The weighted average number of apartment homes for the first nine months of 1998 increased by 13,968 apartment homes, or 50.3%, from 27,744 to 41,712. Total operating properties were 128 and 98 at September 30, 1998 and 1997, respectively, and exclude those owned through joint venture investments. The weighted average number of apartment homes of 41,712 and 27,744 exclude the impact of the Company's ownership interest in apartment homes owned in joint ventures throughout the nine month periods. The average rental income per apartment home per month increased $55, or 10.4%, from $530 to $585 for the nine months ended September 30, 1997 and 1998, respectively. The increase was primarily due to increased revenue growth from the stabilized real estate portfolio, higher average rental rates on properties added to the portfolio through the Oasis Merger, the seven acquired properties and completion of new development properties. Other property income increased $7.1 million from $6.5 million to $13.6 million for the nine months ended September 30, 1997 and 1998, respectively. The increase in other property income was due to a larger number of apartment homes owned and in operation and a $2.7 million increase from new revenue sources such as telephone, cable and water. Property operating and maintenance expenses increased $22.7 million, from $49.5 million to $72.2 million, and decreased as a percent of total property income from 35.7% to 31.0% for the nine months ended September 30, 1997 and 1998, respectively. The Company's operating expense ratio decreased over the prior year primarily as a result of operating efficiencies resulting from operating a larger portfolio and the impact of the Company's April 1, 1998 adoption of a new accounting policy, whereby expenditures for carpet, appliances and HVAC unit replacements are expensed in the first five years of a property's life and capitalized thereafter. Prior to the adoption of this policy, the Company had been expensing these costs. Had this policy change not been adopted, the nine months ended September 30, 1998 operating expense ratio would have been 32.5%. Real estate taxes increased $7.7 million from $15.4 million to $23.1 million for the nine months ended September 30, 1997 and 1998, respectively, which represents an annual decrease of $2 per apartment home. Real estate taxes per apartment home have decreased due to lower property taxes in the Camden portfolio outside of Texas. This decrease per apartment home was offset by increases in the valuations of renovated, acquired and developed properties, and increases in property tax rates. General and administrative expenses increased $3.0 million from $3.1 million to $6.0 million, and increased slightly as a percent of revenues from 2.2% to 2.6%. The general and administrative expense ratio increase is mainly attributable to the impact of the Company's March 20, 1998 adoption of Issue No. 97-11, Accounting for Internal Costs Relating to Real Estate Property Acquisitions, discussed in Note 1, which is partially offset by efficiencies resulting from operating a larger portfolio. Interest expense increased from $20.7 million to $36.7 million due to increased indebtedness related to the Oasis Merger, Paragon Acquisition, completed developments, renovations and property acquisitions. This increase was partially offset by reductions in average interest rates on the Company's debt, the equity offering that occurred in July 1997 and property dispositions. Interest capitalized was $6.4 million and $2.6 million for the nine months ended September 30, 1998 and 1997, respectively. Depreciation and amortization increased from $31.4 million to $57.4 million. This increase was due primarily to the Oasis Merger, Paragon Acquisition, developments, renovations and property acquisitions. - 16 - 17 LIQUIDITY AND CAPITAL RESOURCES FINANCIAL STRUCTURE The Company intends to continue maintaining what management believes to be a conservative capital structure by: (i) targeting a ratio of total debt to total market capitalization of less than 50%; (ii) extending and sequencing the maturity dates of its debt where possible; (iii) managing interest rate exposure using fixed rate debt and hedging, where appropriate; (iv) borrowing on an unsecured basis; (v) maintaining a substantial number of unencumbered assets; and (vi) maintaining conservative coverage ratios. The interest coverage ratio was 3.8 and 3.9 times earnings before interest, depreciation, and amortization for the three months ended September 30, 1998 and 1997, respectively, and 3.7 and 3.5 times earnings before interest, depreciation, and amortization for the nine months ended September 30, 1998 and 1997, respectively. LIQUIDITY The Company intends to meet its short-term liquidity requirements through cash flows provided by operations, the $150 million unsecured line of credit (the "Unsecured Credit Facility"), the $50 million unsecured line of credit described in the Financial Flexibility section below, which was assumed as a result of the Oasis Merger (the "Oasis Credit Facility") and other short-term borrowings. The Company uses equity capital and senior unsecured debt to refinance maturing secured debt and borrowings under its Unsecured Credit Facilities and other short-term borrowings. As of September 30, 1998, the Company had $51 million available under the Unsecured Credit Facilities, $275 million available under its universal shelf registration, and $171 million available under its medium-term note program. Finally, the Company has significant unencumbered real estate assets which could be sold or used as collateral for financing purposes should other sources of capital not be available. The Company considers its ability to generate cash to be sufficient, and expects to be able to meet future operating cash requirements and to pay distributions to shareholders and holders of units. On September 15, 1998, the Company announced that its Board of Trust Managers had declared its third quarter distribution in the amount of $0.505 per share. On October 16, 1998, the distributions were paid to all holders of record of Camden's common shares as of September 30, 1998, and an equivalent amount per unit was paid to holders of OP and Martinique Units. This distribution to common shareholders and holders of OP and Martinique Units equates to an annualized dividend rate of $2.02 per share or unit. On September 15, 1998, the Company also announced that its Board of Trust Managers had declared a quarterly dividend on its Preferred Shares, which were reissued for Oasis Preferred Stock in conjunction with the merger of Oasis. The dividend in the amount of $0.5625 per share, is payable November 16, 1998 to all preferred shareholders of record as of September 30, 1998. FINANCIAL FLEXIBILITY The Company concentrates its growth efforts toward selective development and acquisition opportunities in its core markets, and through the acquisition of existing operating portfolios and development properties in selected new markets. During the nine months ended September 30, 1998, the Company had $136.1 million in developments and $141.3 million in acquisitions. In addition, Camden issued 12.4 million common shares, 4.2 million preferred shares and assumed $484 million of indebtedness at fair value to purchase Oasis. The Company has announced plans to develop 14 additional properties at an aggregate cost of approximately $395 million. The Company funds its developments and acquisitions through a combination of equity capital, ownership units, medium-term notes and other debt securities, the Unsecured Credit Facilities and other short-term borrowing arrangements. The Company also seeks to selectively dispose of assets that are not in core markets, have a lower projected net operating income growth rate than the overall portfolio, or no longer conform to the Company's operating and investment strategies. The $268.6 million in net proceeds received from these asset disposals, including the Third Party Transaction, during the nine months ended September 30, 1998 were reinvested in acquisitions or developments, used to retire debt or set aside into an escrow account which may be used to make tax-free exchange acquisitions or to further reduce debt if the exchange acquisitions are not completed. - 17 - 18 As a result of the Oasis Merger, the Company assumed $228 million in conventional mortgage loans with interest rates ranging from 5 1/10% to 9 1/2%. As of September 30, 1998, $217.0 million of conventional mortgage loans were outstanding. An $8.9 million conventional mortgage loan assumed matured in October 1998 and was paid off utilizing funds from the medium-term note issuances discussed below. In conjunction with the Oasis Merger, Camden assumed $150 million in senior unsecured notes payable issued by Oasis in November 1996 (the "Notes Payable"), as well as acquired the use of the Oasis Credit Facility. The Notes Payable, due in equal increments in November 2001, 2003 and 2006, bear interest at annual rates ranging from 6 3/4% to 7 1/4%, payable quarterly. The Oasis Credit Facility, which has a maximum borrowing capacity of $50 million, matures in December 1998, and bears interest at LIBOR plus 115 basis points. At September 30, 1998, the weighted average interest rate on total notes payable was 6.9%. Subsequent to September 30, 1998, the Company issued $12 million and $90 million principal amounts of senior unsecured notes from its $196 million medium-term note shelf registration. These fixed rate notes, due in October 2000, bear interest at rates of 6.92% and 7.23%, respectively, payable semiannually on March 15 and September 15. The net proceeds were used to liquidate the $75 million Reset Notes, pay off certain mortgage notes payable, and reduce indebtedness incurred under the Unsecured Credit Facility. FUNDS FROM OPERATIONS Management considers funds from operations ("FFO") an appropriate measure of performance of an equity REIT. The National Association of Real Estate Investment Trusts currently defines FFO as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In addition, extraordinary or unusual items, along with significant non-recurring events that materially distort the comparative measure of FFO are typically disregarded in its calculation. The Company's definition of FFO also assumes conversion at the beginning of the period of all convertible securities including minority interests which are convertible into common equity. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO should be examined in conjunction with net income as presented in the consolidated financial statements and data included elsewhere in this report. FFO is not defined by generally accepted accounting principles. FFO should not be considered as an alternative to net income as an indication of the Company's operating performance or to net cash provided by operating activities as a measure of the Company's liquidity. Further, FFO as disclosed by other REITs may not be comparable to the Company's calculation. The Company's FFO for the three and nine months ended September 30, 1998, increased $16.0 million and $47.3 million, respectively, over the three and nine months ended September 30, 1997, primarily due to the Oasis Merger, Paragon Acquisition, property acquisitions, developments and improvements in the performance of the stabilized properties in the portfolio. - 18 - 19 The calculation of FFO for the three and nine months ended September 30, 1998 and 1997 follows: (In thousands)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------ ------------------------ 1998 1997 1998 1997 ---------- ---------- ----------- --------- Net income to common shareholders $ 14,650 $ 8,260 $ 33,179 $ 18,753 Real estate depreciation 20,070 12,648 56,364 30,644 Minority interests 59 612 1,043 1,209 Real estate depreciation from unconsolidated ventures 754 313 1,498 596 Interest on convertible subordinated debentures 69 130 249 559 Amortization of deferred costs on convertible debentures 6 13 24 77 Preferred share dividends 2,343 7,029 Losses related to early retirement of debt 286 --------- ---------- ---------- --------- Funds from operations $ 37,951 $ 21,976 $ 99,386 $ 52,124 ========= ========== ========== ========= Weighted average number of common and common 50,800 33,428 45,454 26,978 dilutive and antidilutive equivalent shares outstanding
REGULATION Prior to the Oasis Merger, Oasis had been contacted by certain regulatory agencies with regards to alleged failure to comply with the "Fair Housing Act" as it pertained to properties constructed for first occupancy after March 31, 1991. The Company is currently inspecting these properties to determine the extent of the alleged noncompliance and the changes that may be necessitated. At this time, the Company is unable to provide an estimate of costs and expenses associated with this matter as the scope and extent of required work, if any, has yet to be determined. INFLATION The Company leases apartments under lease terms generally ranging from six to thirteen months. Management believes that such short-term lease contracts lessen the impact of inflation due to the ability to adjust rental rates to market levels as leases expire. YEAR 2000 CONVERSION Camden has recognized the need to ensure that its computer systems, equipment and operations will not be adversely impacted by the change to the calendar Year 2000. As such, the Company has taken steps to identify and resolve potential areas of risk by implementing a Year 2000 comprehensive plan of action. The plan is divided into four phases: identification, assessment, notification/certification, and testing/contingency plan development; and includes three major elements: computer systems, equipment and third parties. The Company is on the fourth phase for its computer systems, and the third phase for its equipment and third party services. The Company believes that the Year 2000 issue will not pose significant operating problems for the Company's computer systems, since the significant software products the Company utilizes are already compliant and are being converted or modified by March 31, 1999 as part of system upgrades unrelated to the Year 2000 issue. The Company will develop a contingency plan which will permit its primary operations to continue if the testing of such conversions and modifications are not completed by March 31, 1999. The Company is communicating with key third party service providers and vendors with whom it does business, including those who have previously sold equipment to the Company, to obtain information and compliance certificates regarding their state of readiness with respect to the Year 2000 issue. Failure of third parties to remediate Year 2000 issues affecting their respective businesses on a timely basis, or to implement contingency plans sufficient to permit uninterrupted continuation of their businesses in the event of a failure of their systems, could have a material adverse impact on the Company's business and results of operations. However, failure of third parties to - 19 - 20 remediate Year 2000 issues affecting the Company's previously purchased equipment is not expected to have a material adverse impact on the Company's business or results of operations. Final determination of third party Year 2000 readiness is expected to be substantially complete in early 1999. The Company will develop contingency plans based on the results of this assessment. Potential risks include the suspension or significant curtailment of services by banks, utilities, and others. The total cost to the Company of addressing the Year 2000 issues with respect to its own computer systems, equipment and operations is expected to be minimal. The Company's minimal cost estimate does not include time and costs that may be incurred by the Company as a result of the failure of any third parties to become Year 2000 ready or costs to implement any contingency plans. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable - 20 - 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11.1 Statement regarding Computation of Earnings Per Common Share 27.1 Financial Data Schedule (filed only electronically with the Commission) (b) Reports on Form 8-K Current Report on Form 8-K dated June 30,1998 and filed with the Commission on July 15, 1998, contained information under Item 2 (Acquisition or Disposition of Assets) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits). - 21 - 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMDEN PROPERTY TRUST /s/ G. Steven Dawson November 12, 1998 - ------------------------------------ ----------------------------------- G. Steven Dawson Date Sr. Vice President of Finance, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer) - 22 - 23 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 11.1 Statement regarding Computation of Earnings Per Common Share 27.1 Financial Data Schedule (filed only electronically with the Commission)
EX-11.1 2 STATEMENT REGARDING COMPUTATION OF EARNINGS 1 EXHIBIT 11.1 CAMDEN PROPERTY TRUST COMPUTATION OF EARNINGS PER COMMON SHARE (In thousands, except per share amounts)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------- ----------------------- 1998 1997 1998 1997 -------- -------- -------- -------- BASIC EARNINGS PER SHARE: Weighted Average Common Shares Outstanding 44,370 30,410 40,115 24,487 ======== ======== ======== ======== Basic Earnings Per Share $ 0.33 $ 0.27 $ 0.83 $ 0.77 ======== ======== ======== ======== DILUTED EARNINGS PER SHARE: Weighted Average Common Shares Outstanding 44,370 30,410 40,115 24,487 Shares Issuable from Assumed Conversion of: Common Share Options and Awards Granted 387 372 414 304 Minority Interest Units* 2,680 2,346 2,587 -------- -------- -------- -------- Weighted Average Common Shares Outstanding, as Adjusted 47,437 33,128 43,116 24,791 ======== ======== ======== ======== Diluted Earnings Per Share $ 0.31 $ 0.27 $ 0.79 $ 0.76 ======== ======== ======== ======== EARNINGS FOR BASIC AND DILUTED COMPUTATION: Net Income $ 16,993 $ 8,260 $ 40,208 $ 18,753 Less: Dividends on Preferred Shares 2,343 7,029 -------- -------- -------- -------- Net Income to Common Shareholders 14,650 8,260 33,179 18,753 (Basic Earnings Per Share Computation) Minority Interests* 59 612 1,043 -------- -------- -------- -------- Net Income to Common Shareholders, as Adjusted (Diluted Earnings Per Share Computation) $ 14,709 $ 8,872 $ 34,222 $ 18,753 ======== ======== ======== ========
* Minority interest units were antidilutive for the nine months ended September 30, 1997. EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 SEP-30-1998 39,959 0 0 0 0 0 2,413,204 147,285 2,322,270 0 962,728 0 42 446 1,194,979 2,322,270 0 236,728 0 95,366 57,388 0 36,680 0 0 0 0 0 0 40,208 0.83 0.79
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