-----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, FFPipQ5FKZz5TyNweogCLoctYqkFGG5uct+D0NtvWKedxpr3bUTuNI+QQ9wJzIDV vEHCIDd+KpGc1OSWinhCcw== /in/edgar/work/0000906345-00-000010/0000906345-00-000010.txt : 20001114 0000906345-00-000010.hdr.sgml : 20001114 ACCESSION NUMBER: 0000906345-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMDEN PROPERTY TRUST CENTRAL INDEX KEY: 0000906345 STANDARD INDUSTRIAL CLASSIFICATION: [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: 761821 BUSINESS ADDRESS: STREET 1: THREE GREENWAY PLAZA STREET 2: SUITE 1300 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7139643555 MAIL ADDRESS: STREET 1: THREE GREENWAY PLZ STREET 2: SUITE 1300 CITY: HOUSTON STATE: TX ZIP: 77046 10-Q 1 0001.txt CAMDEN PROPERTY TRUST - 09/30/00 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, 2000 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 October 31, 2000, there were 38,254,937 shares of Common Shares of Beneficial Interest, $0.01 par value outstanding. 1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CAMDEN PROPERTY TRUST CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS
September 30, December 31, 2000 1999 --------------- -------------- (Unaudited) Real estate assets, at cost: Land $ 348,143 $ 354,833 Buildings and improvements 2,109,015 2,122,793 --------------- -------------- 2,457,158 2,477,626 Less: accumulated depreciation (303,904) (253,545) --------------- -------------- Net operating real estate assets 2,153,254 2,224,081 Properties under development, including land 147,076 178,539 Investment in joint ventures 22,119 21,869 --------------- -------------- Total real estate assets 2,322,449 2,424,489 Accounts receivable - affiliates 2,579 2,228 Notes receivable: Affiliates 1,800 1,800 Other 63,126 34,442 Other assets, net 25,720 14,744 Cash and cash equivalents 13,396 5,517 Restricted cash 5,347 4,712 --------------- -------------- Total assets $ 2,434,417 $ 2,487,932 =============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable: Unsecured $ 789,923 $ 820,623 Secured 340,677 344,467 Accounts payable 14,089 20,323 Accrued real estate taxes 28,898 24,485 Accrued expenses and other liabilities 36,252 33,987 Distributions payable 28,984 27,114 --------------- -------------- Total liabilities 1,238,823 1,270,999 Minority Interests: Units convertible into perpetual preferred shares 149,815 132,679 Units convertible into common shares 61,806 64,173 --------------- ------------- Total minority interests 211,621 196,852 7.33% Convertible Subordinated Debentures 2,246 3,406 Shareholders' Equity: Convertible preferred shares of beneficial interest 42 42 Common shares of beneficial interest 450 448 Additional paid-in capital 1,311,448 1,303,645 Distributions in excess of net income (145,958) (132,198) Unearned restricted share awards (11,172) (8,485) Less: treasury shares, at cost (173,083) (146,777) --------------- -------------- Total shareholders' equity 981,727 1,016,675 --------------- -------------- Total liabilities and shareholders' equity $ 2,434,417 $ 2,487,932 =============== ==============
See Notes to Consolidated Financial Statements. 2 CAMDEN PROPERTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Three Months Nine Months Ended September 30, Ended September 30, -------------------------- ------------------------- 2000 1999 2000 1999 ------------ ---------- ----------- ----------- Revenues Rental income $ 92,251 $ 86,753 $ 273,429 $ 252,582 Other property income 7,250 6,006 20,226 16,585 ------------ ---------- ----------- ----------- Total property income 99,501 92,759 293,655 269,167 Equity in income of joint venture 190 (472) 670 472 Fee and asset management 1,545 1,404 4,471 3,627 Other income 1,159 486 3,640 1,158 ------------ ---------- ----------- ----------- Total revenues 102,395 94,177 302,436 274,424 ------------ ---------- ----------- ----------- Expenses Property operating and maintenance 29,312 28,205 85,292 80,344 Real estate taxes 10,057 9,165 30,091 27,669 General and administrative 2,926 2,473 9,691 7,272 Interest 17,640 14,709 51,829 42,227 Depreciation and amortization 23,700 22,703 73,543 65,541 ------------ ---------- ----------- ----------- Total expenses 83,635 77,255 250,446 223,053 ------------ ---------- ----------- ----------- Income before gain on sales of properties and joint venture interests and minority interests 18,760 16,922 51,990 51,371 Gain on sales of properties and joint venture interests 16,440 2,259 18,373 2,979 ------------ ---------- ----------- ----------- Income before minority interests 35,200 19,181 70,363 54,350 Minority interests Distributions on units convertible into perpetual preferred shares (3,219) (2,411) (9,627) (5,392) Income allocated to units convertible into common shares (1,435) (892) (2,234) (1,850) ------------ ---------- ----------- ----------- Total minority interests (4,654) (3,303) (11,861) (7,242) ------------ ---------- ----------- ----------- Net income 30,546 15,878 58,502 47,108 Preferred share dividends (2,343) (2,343) (7,029) (7,029) ------------ ---------- ----------- ----------- Net income to common shareholders $ 28,203 $ 13,535 $ 51,473 $ 40,079 ============ ========== =========== =========== Basic earnings per share $ 0.74 $ 0.33 $ 1.35 $ 0.96 Diluted earnings per share $ 0.72 $ 0.32 $ 1.30 $ 0.94 Distributions declared per common share $ 0.5625 $ 0.520 $ 1.6875 $ 1.560 Weighted average number of common shares outstanding 38,050 40,939 38,156 41,668 Weighted average number of common and common dilutive equivalent shares outstanding 44,746 42,025 41,388 44,728
See Notes to Consolidated Financial Statements. 3 CAMDEN PROPERTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Ended September 30, ---------------------------- 2000 1999 ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES Net income $ 58,502 $ 47,108 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 73,543 65,541 Equity in income of joint ventures, net of cash received 1,247 1,963 Gain on sale of properties and joint venture interests (18,373) (2,979) Income allocated to units convertible into common shares 2,234 1,850 Accretion of discount on unsecured notes payable 300 223 Net change in operating accounts 2,647 7,464 ------------ ------------ Net cash provided by operating activities 120,100 121,170 CASH FLOW FROM INVESTING ACTIVITIES Increase in real estate assets (103,487) (166,990) Net proceeds from sale of properties 150,141 13,226 Net proceeds from sale of joint venture interests 5,465 Increase in investment in joint ventures (1,497) (2,012) Decrease in investment in joint ventures 6,400 Increase in notes receivable (28,684) (27,331) Other (1,110) (1,488) ------------ ------------ Net cash provided by (used in) investing activities 15,363 (172,730) CASH FLOW FROM FINANCING ACTIVITIES Net decrease in unsecured lines of credit and short-term borrowings (31,000) (147,000) Proceeds from notes payable 253,380 Proceeds from issuance of preferred units, net 17,136 132,712 Repayment of notes payable (3,790) (23,685) Distributions to shareholders and minority interests (84,219) (79,722) Repurchase of common shares and units convertible into common shares (26,306) (79,247) Other 595 3,265 ------------ ------------ Net cash (used in) provided by financing activities (127,584) 59,703 ------------ ------------ Net increase in cash and cash equivalents 7,879 8,143 Cash and cash equivalents, beginning of period 5,517 5,647 ------------ ------------ Cash and cash equivalents, end of period $ 13,396 $ 13,790 ============ ============ SUPPLEMENTAL INFORMATION Cash paid for interest, net of interest capitalized $ 50,514 $ 35,526 Interest capitalized 11,871 12,306 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Fair value adjustment from the acquisition of Oasis: Fair value of assets acquired $ 835 Liabilities assumed 835 Conversion of 7.33% subordinated debentures to common shares, net $ 1,160 125 Value of shares issued under benefit plans, net 6,099 2,004 Conversion of operating partnership units to common shares 136 387
See Notes to Consolidated Financial Statements. 4 CAMDEN PROPERTY TRUST Notes to Consolidated Financial Statements (Unaudited) 1. Interim Unaudited Financial Information The accompanying interim unaudited financial information has been prepared according 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 according 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, 2000, the results of operations for the three and nine months ended September 30, 2000 and 1999 and cash flows for the nine months ended September 30, 2000 and 1999 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 is a real estate investment trust which reports as a single business segment with activities related to the ownership, development, construction and management of multifamily apartment communities in the Southwest, Southeast, Midwest and Western regions of the United States. At September 30, 2000, we owned interests in, operated or were developing 147 multifamily properties containing 52,336 apartment homes located in nine states. Two of our multifamily properties containing 1,000 apartment homes were under development at September 30, 2000. Three of our newly developed multifamily properties containing 1,256 apartment homes were in lease-up at September 30, 2000. Additionally, we have several sites which we intend to develop into multifamily apartment communities. Property Update During the first nine months of 2000, we completed construction on four development properties totaling 1,474 apartment homes: The Park at Caley in Denver, The Park at Lee Vista in Orlando, The Park at Oxmoor in Louisville, and The Park at Arizona Center in Phoenix. We also completed the construction of an additional 151 apartment homes at Miramar, an existing operating property located in Corpus Christi. Stabilization occured during the second quarter of 2000 at The Park at Caley, and in the third quarter at The Park at Holly Springs and The Park at Greenway, both located in Houston and for the new units at Miramar. Stabilization is expected to occur at the remaining properties during the next year. Additionally, construction continued at two properties totaling 1,000 apartment homes: The Park at Farmers Market in Dallas and The Park at Crown Valley in Mission Viejo, California, both of which have begun leasing. During the first quarter of 2000 we sold a mini-storage facility located in Las Vegas and several parcels of undeveloped land. The land sales consisted of 2.9 acres located in downtown Dallas and 38.5 acres located in Houston which were sold for commercial and retail development. These parcels of land are adjacent to our land development projects located in those cities. Additionally, we sold a 19.5 acre tract of land located in Las Vegas which we acquired in our merger with Oasis Residential, Inc. Net proceeds from these sales were approximately $20.1 million. We used the proceeds to reduce indebtedness outstanding under our unsecured line of credit. During the third quarter of 2000, we sold eleven properties containing 3,599 apartment homes. Three properties were located in each of Houston, Dallas and Las Vegas, and one property was located in each of St. Louis and El Paso. As 5 a result of these sales, we have exited the El Paso market, reduced the number of assets in our three largest markets and believe that we have improved the overall quality and geographic mix of our portfolio. Net proceeds from these sales totaled $130.1 million and were used to reduce indebtedness outstanding under our unsecured line of credit. Real Estate Assets at Cost We capitalized $22.0 million and $19.2 million in the nine months ended September 30, 2000 and 1999, respectively, of renovation and improvement costs which we believe should extend the economic lives and enhance the earnings of our multifamily properties. Property Operating and Maintenance Expenses Property operating and maintenance expenses included normal repairs and maintenance totaling $7.2 million and $21.4 million for the three and nine months ended September 30, 2000, respectively, compared to $7.3 million and $20.7 million for the three and nine months ended September 30, 1999, respectively. On an annualized basis, repair and maintenance expenses were $612 and $636 per unit for the quarters ended September 30, 2000 and 1999, respectively, and $607 and $609 per unit for the nine months ended September 30, 2000 and 1999, respectively. Common Share Dividend Declaration In September 2000, we announced that our Board of Trust Managers had declared a dividend on our common shares of $0.5625 per share for the third quarter of 2000 which was paid on October 17, 2000 to all common shareholders of record as of September 29, 2000. We paid an equivalent amount per unit to holders of common operating partnership units. This distribution to common shareholders and holders of common operating partnership units equates to an annualized dividend rate of $2.25 per share or unit. Preferred Share Dividend Declaration In September 2000, we announced that our Board of Trust Managers had declared a quarterly dividend on our preferred shares of $0.5625 per share payable November 15, 2000 to all preferred shareholders of record as of September 29, 2000. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, which requires recognition of all derivatives as either assets or liabilities in the financial statements and measurement of those instruments at fair value. The initial effective date of SFAS No. 133 was delayed, and is now effective for all quarters of all fiscal years beginning after June 15, 2000. Management believes that the adoption of SFAS No. 133 will not have a material impact on our consolidated financial statements. In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on revenue recognition as well as the presentation and disclosure of revenue in financial statements for all public companies. Our rental and other property income is recorded when due from residents and is recognized monthly as it is earned. Our apartment homes are rented to residents on lease terms ranging from six to thirteen months, with monthly payments due in advance. We are currently following the criteria set forth in SAB No. 101 to determine when revenue can be recognized, and therefore believe that SAB No. 101 does not have a material impact on our financial statements. 6 Earnings Per Share Basic earnings per share is computed based on net income to common shareholders and the weighted average number of common shares outstanding. Diluted earnings per share reflects common shares issuable from the assumed conversion of common share options and awards granted, preferred shares, minority interest units and convertible subordinated debentures. Only those items that have a dilutive impact on our basic earnings per share are included in diluted 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, 2000 and 1999:
Three Months Nine Months Ended September 30, Ended September 30, ------------------------ ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Basic earnings per share: Weighted average common shares outstanding 38,050 40,939 38,156 41,668 =========== =========== =========== =========== Basic earnings per share $ 0.74 $ 0.33 $ 1.35 $ 0.96 =========== =========== =========== =========== Diluted earnings per share: Weighted average common shares outstanding 38,050 40,939 38,156 41,668 Shares issuable from assumed conversion of: Common share options and awards granted 847 452 684 414 Preferred shares 3,207 Common minority interest units 2,545 634 2,548 2,646 Convertible subordinated debentures 97 ----------- ----------- ----------- ----------- Weighted average common shares outstanding, as adjusted 44,746 42,025 41,388 44,728 =========== =========== =========== =========== Diluted earnings per share $ 0.72 $ 0.32 $ 1.30 $ 0.94 =========== =========== =========== =========== Earnings for basic and diluted computation: Net income $ 30,546 $ 15,878 $ 58,502 $ 47,108 Less: Preferred share dividends (2,343) (2,343) (7,029) (7,029) ----------- ---------- ---------- ----------- Net income to common shareholders 28,203 13,535 51,473 40,079 (Basic earnings per share computation) Preferred share dividends 2,343 Income allocated to units convertible into common shares 1,435 2,234 1,850 Interest on convertible subordinated debentures 5 Amortization of deferred costs on convertible debentures 42 ----------- ----------- ----------- ----------- Net income to common shareholders, as adjusted (Diluted earnings per share computation) $ 32,028 $ 13,535 $ 53,707 $ 41,929 =========== =========== =========== ===========
Reclassifications Certain reclassifications have been made to amounts in prior period financial statements to conform with current year presentations. 2. Notes Receivable We have entered into agreements with unaffiliated third parties to develop, construct, and manage seven multifamily projects containing a total of 2,203 apartment homes. We are providing financing for a portion of each project in the form of notes receivable which mature through 2005. These notes earn interest at 10% annually and are secured by second liens on the assets and partial guarantees by the third party owners. We expect these notes to be repaid from operating cash flow or proceeds from the sale of the individual properties. At September 30, 2000, these notes had principal balances totaling $59.9 million and we anticipate funding up to an aggregate of $84 million in connection with these projects. We earn fees for managing the development, construction and 7 eventual operations of these properties. We have begun construction on four of these projects, and initial occupancy has begun on two of the projects. We have the option to purchase these properties in the future at a price to be determined based upon the property's performance and an agreed valuation model. The following is a detail of our third party construction subject to notes receivable.
Number of Estimated Estimated Estimated Apartment Cost Date of Date of Property and Location Homes ($ millions) Completion Stabilization - ------------------------------------- ------------- ------------- ------------- -------------- In lease-up Pecos Ranch Phoenix, AZ 272 $ 21 4Q00 1Q01 Marina Pointe II Tampa, FL 352 30 1Q01 3Q01 Under Construction Creekside Denver, CO 279 32 1Q01 4Q01 Ybor City Tampa, FL 454 40 4Q01 3Q02 Pre-Development Little Italy San Diego, CA 160 32 TBD TBD Otay Ranch San Diego, CA 422 57 TBD TBD California Oaks Murietta, CA 264 35 TBD TBD ------------- ------------- Total Third Party Development 2,203 $ 247 ============= =============
Additionally, we have a $3.2 million note receivable which bears interest at 15% and matures in June 2001. 3. Notes Payable The following is a summary of our indebtedness: (In millions)
September 30, December 31, 2000 1999 ---------------- ---------------- Senior Unsecured Notes: 6.73% - 7.28% Notes, due 2001-2006 $ 523.4 $ 523.1 6.68% - 7.70% Medium Term Notes, due 2000 - 2009 181.5 181.5 Unsecured Lines of Credit and Short-Term Borrowings 85.0 116.0 --------------- ---------------- 789.9 820.6 Secured Notes - Mortgage loans (5.75% - 8.63%), due 2001 - 2028 340.7 344.5 --------------- ---------------- Total notes payable $ 1,130.6 $ 1,165.1 =============== ================
During the third quarter of 2000, our line of credit, which was entered into in August 1999 with 14 banks for a total commitment of $375 million, was increased to $400 million and the maturity was extended to August 2003. The scheduled interest rate on the line of credit is based on a spread over LIBOR or Prime. The scheduled interest rates are subject to change as our credit ratings change. Advances under the line of credit may be priced at the scheduled rates, or we may enter into bid rate loans with participating banks at rates below the 8 scheduled rates. These bid rate loans have terms of six months or less and may not exceed the lesser of $200 million or the remaining amount available under the line of credit. The line of credit is subject to customary financial covenants and limitations. During September 1999, we executed three interest rate swap agreements totaling $70 million which matured in October 2000. These swaps were being used as a hedge of interest rate exposure on our $90 million medium term notes issued in October 1998 which matured in October 2000. The interest rate on the medium term notes was fixed at 7.23%. The interest rates on the swaps were reset monthly based on the one-month LIBOR rate plus a spread which resulted in a weighted average effective interest rate on the swaps of 7.67% at September 30, 2000. At September 30, 2000, the weighted average interest rate on floating rate debt was 7.27%. 4. 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, -------------------------- 2000 1999 ----------- ----------- Decrease (increase) in assets: Accounts receivable - affiliates $ 218 $ (175) Other assets, net (9,081) (1,787) Restricted cash (635) (883) Increase (decrease) in liabilities: Accounts payable (3,862) (6,551) Accrued real estate taxes 4,413 5,257 Accrued expenses and other liabilities 11,594 11,603 ----------- ----------- Net change in operating accounts $ 2,647 $ 7,464 =========== =========== 5. Preferred Units In January 2000, our operating partnership issued $17.5 million of 8.25% Series C Cumulative Redeemable Perpetual Preferred Units. Distributions on the preferred units are payable quarterly in arrears. The preferred units are redeemable for cash by the operating partnership on or after the fifth anniversary of issuance at par plus the amount of any accumulated and unpaid distributions. The preferred units are convertible after 10 years by the holder into our 8.25% Series C Cumulative Redeemable Perpetual Preferred Shares. The preferred units are subordinate to present and future debt. 6. Restricted Share and Option Awards During the first nine months of 2000, we granted 257,764 restricted shares in lieu of cash compensation to certain key employees and non-employee trust managers. The restricted shares were issued based on the market value of our common shares at the date of grant and have vesting periods of up to five years. We also granted 14,000 options with an exercise price equal to the market value of our common shares on the date of grant. The options become exercisable in equal increments over three years, beginning on the first anniversary of the grant. During the nine month period ended September 30, 2000, previously granted options to purchase 706,661 shares became exercisable and 118,174 restricted shares vested. 7. Common Share Repurchase Program In 1998 and 1999, the Board of Trust Managers authorized us to repurchase or redeem up to $200 million of our common equity securities through open market purchases and private transactions. As of September 30, 2000, we had repurchased 6,687,626 common shares and redeemed 105,814 units that were convertible into common shares for a total cost of $173.1 million and $2.9 million, respectively. 9 8. Convertible Preferred Shares The 4,165,000 preferred shares 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 rate of 0.7701 of a common share for each preferred share, subject to adjustment in certain circumstances. The preferred shares are not redeemable prior to April 30, 2001. 9. Executive Loan Guaranty Agreements In 1999 and 2000, our Board of Trust Managers approved a plan which permitted six of our senior executive officers to complete the purchase of $23.0 million of our common shares in open market transactions. The purchases were funded with unsecured full recourse personal loans made to each of the executives by a third party lender. The loans mature in five years, bear interest at market rates and require interest to be paid quarterly. In order to facilitate the employee share purchase transactions, we entered into a guaranty agreement with the lender for payment of all indebtedness, fees and liabilities of the officers to the lender. Simultaneously, we entered into a reimbursement agreement with each of the executive officers whereby each executive officer has indemnified us and absolutely and unconditionally agreed to reimburse us should any amounts ever be paid by us pursuant to the terms of the guaranty agreement. The reimbursement agreements require the executives to pay interest from the date any amounts are paid by us until repayment by the officer. We have not had to perform under the guaranty agreement. 10. E-commerce initiatives Our Board of Trust Managers has authorized us to invest in non-real estate initiatives, including investments in e-commerce initiatives with other multi-family real estate owners. These investments may be made in companies that will provide our residents with a broad range of real estate technology services including high-speed data, video and entertainment services, as well as resident portals. These portals will provide our residents with a variety of online services, including online rental payments and maintenance requests, which we believe will improve their overall living experience. As of September 30, 2000, we had invested approximately $750,000 into BroadBand Residential Inc., a multi-unit owner-sponsored broadband company providing high-speed data services to multi-family residents, and have signed a commitment with another entity to invest $3.5 million. Subsequent to September 30, 2000 we invested approximately $2 million into Viva.com, an internet based company that provides online owner-renter matching service for the multi-family housing industry. One of our trust managers is a director, executive officer and significant shareholder of Viva.com. 11. Contingencies In April 1998, we acquired Oasis Residential, Inc. Prior to this time, Oasis had been contacted by certain regulatory agencies with regards to alleged failures to comply with the Fair Housing Amendments Act (the "Fair Housing Act") as it pertained to nine properties (seven of which we currently own) constructed for first occupancy after June 30, 1991. On February 1, 1999, the Justice Department filed a lawsuit against us and several other defendants in the United States District Court for the District of Nevada alleging (1) that the design and construction of these properties violates the Fair Housing Act and (2) that we, through the merger with Oasis, had discriminated in the rental of dwellings to persons because of handicap. The complaint requests an order that (i) declares that the defendants' policies and practices violate the Fair Housing Act; (ii) enjoins us from (a) failing or refusing, to the extent possible, to bring the dwelling units and public use and common use areas at these properties and other covered units that Oasis had designed and/or constructed into compliance with the Fair Housing Act, (b) failing or refusing to take such affirmative steps as may be necessary to restore, as nearly as possible, the alleged victims of the defendants' alleged unlawful practices to positions they would have been in but for the discriminatory conduct and (c) designing or constructing any covered multi-family dwellings in the future that do not contain the accessibility and adaptability features set forth in the Fair Housing Act; and requires us to pay damages, including punitive damages, and a civil penalty. 10 With any acquisition, we plan for and undertake renovations needed to correct deferred maintenance, life/safety and Fair Housing matters. We are currently engaged in settlement negotiations with the Justice Department to resolve this lawsuit. While the final estimate of costs and expenses associated with the resolution of this matter has not yet been determined, management does not expect the amount to be material. 12. Subsequent Events In the ordinary course of our business, we issue 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 the transaction unless and until a definitive contract is entered into by the parties. The letters of intent and any resulting definitive contracts provide the purchaser with time to evaluate the properties and conduct 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 we will acquire or sell any property as to which we 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. We are then at risk under an acquisition contract, but only to the extent of any earnest money deposits associated with the contract, and are obligated to sell under a sales contract. We are currently in the due diligence period on contracts for the purchase of land for development. No assurance can be made that we will complete the purchases or will be satisfied with the outcome of the due diligence. 11 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 appearing elsewhere in this report as well as the audited financial statements appearing in our 1999 Annual Report to Shareholders. Where appropriate, comparisons are made on a dollars per-weighted-average-unit basis in order to adjust for changes in the number of apartment homes owned during each period. The statements contained in this report that are not historical facts are forward-looking statements, and 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, changes in financial markets and interest rates, our failure to qualify as a real estate investment trust ("REIT") and environmental uncertainties and natural disasters. Business Camden Property Trust is a real estate investment trust which reports as a single business segment with activities related to the ownership, development, construction and management of multifamily apartment communities in the Southwest, Southeast, Midwest and Western regions of the United States. At September 30, 2000, we owned interests in, operated or were developing 147 multifamily properties containing 52,336 apartment homes located in nine states. Two of our multifamily properties containing 1,000 apartment homes were under development at September 30, 2000. Three of our newly developed multifamily properties containing 1,256 apartment homes were in lease-up at September 30, 2000. Additionally, we have several sites which we intend to develop into multifamily apartment communities. Property Portfolio Our multifamily property portfolio, excluding land held for future development is summarized as follows: 12
September 30, 2000 December 31, 1999 ----------------------------- ------------------------------ Apartment Apartment Homes Properties % (a) Homes Properties % (a) ---------- ---------- ------- ---------- ---------- -------- Operating Properties Texas Houston 7,190 16 16% 8,258 19 16% Dallas (b) 8,447 23 17 9,381 26 18 Austin 1,745 6 4 1,745 6 4 Other 1,663 4 3 1,641 5 3 ----------- ------- ------ ---------- ------- -------- Total Texas Operating Properties 19,045 49 40 21,025 56 41 Arizona 2,658 8 6 2,326 7 5 California 1,272 3 3 1,272 3 3 Colorado (b) 2,529 8 5 2,312 7 4 Florida (c) 7,827 17 17 7,335 17 15 Kentucky 1,448 5 3 1,016 4 2 Missouri 2,719 7 6 3,327 8 7 Nevada (b) 11,103 38 13 11,963 41 14 North Carolina (b) 2,735 10 5 2,735 10 4 ----------- ------- ------ ---------- ------- -------- Total Operating Properties 51,336 145 98 53,311 153 95 ----------- ------- ------ ---------- ------- -------- Properties Under Development Texas Dallas 620 1 1 620 1 1 Arizona 332 1 1 California 380 1 1 380 1 1 Colorado 218 1 Florida 492 1 1 Kentucky 432 1 1 ----------- ------- ------ ---------- ------- -------- Total Properties Under Development 1,000 2 2 2,474 6 5 ----------- ------- ------ ---------- ------- -------- Total Properties 52,336 147 100% 55,785 159 100% =========== ======= ====== ========== ======= ======== Less: Joint Venture Apartment Homes (b) 6,503 6,504 ----------- ----------- Total Apartment Homes - Owned 100% 45,833 49,281 =========== ===========
(a) Based on number of apartment homes owned 100% (b) The figures include properties held in joint ventures as follows: one property with 708 apartment homes in Dallas and two properties with 556 apartment homes in North Carolina in which we own a 44% interest, the remaining interest is owned by unaffiliated private investors; one property with 320 apartment homes (321 apartment homes at December 31, 1999) in Colorado in which we own a 50% interest, the remaining interest is owned by an unaffiliated private investor; and 19 properties with 4,919 apartment homes in Nevada owned through Sierra-Nevada Multifamily Investment, LLC which we own a 20% interest, the remaining interest is owned by an unaffiliated private pension fund. (c) Includes the combination of operations at January 1, 2000 of two adjacent properties. 13 At September 30, 2000, we had three completed properties under lease-up as follows:
Product Number of % Leased Estimated Type Apartment at Date of Date of Property and Location Homes 10/31/00 Completion Stabilization - ----------------------------------- ------------ -------------- ------------- -------------- ----------------- The Park at Oxmoor Garden 432 84% 1Q00 1Q01 Louisville, KY The Park at Lee Vista Garden 492 78% 1Q00 1Q01 Orlando, FL The Park at Arizona Center Urban 332 49% 1Q00 3Q01 Phoenix, AZ
At September 30, 2000, we had two development properties in various stages of construction as follows:
Product Number of Estimated Estimated Estimated Type Apartment Cost Date of Date of Property and Location Homes ($ millions) Completion Stabilization - ----------------------------------------- ------------------- ------------ -------------- -------------- --------------- The Park at Farmers Market, Phase I Urban 620 $ 53.0 1Q01 4Q01 Dallas, TX The Park at Crown Valley Garden 380 54.1 2Q01 4Q01 Mission Viejo, CA
We stage our construction to allow leasing and occupancy during the construction period which we believe minimizes the duration of the lease-up period following completion of construction. Our accounting policy related to properties in the development and leasing phase is that all operating expenses, excluding depreciation, associated with occupied apartment homes are expensed against revenues generated by those apartment homes as they become occupied. All construction and carrying costs are capitalized and reported on the balance sheet in "Properties under development, including land" until individual buildings are completed. Upon completion of each building, 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 generally one year from opening the leasing office (with some allowances for larger than average properties), whichever occurs first, all apartment homes are considered operating and we begin expensing all items that were previously considered as carrying costs. Properties under development in our consolidated financial statements includes additional land held for development totaling $95.6 million at September 30, 2000. Included in this amount is $68.9 million related to the development of three land projects located in Dallas, Houston and Long Beach, California. 14 Comparison of the Quarter Ended September 30, 2000 and September 30, 1999 Earnings before interest, depreciation and amortization increased $5.8 million, or 10.6%, from $54.3 million to $60.1 million for the three months ended September 30, 1999 and 2000, respectively. The weighted average number of apartment homes for the third quarter of 2000 increased by 948 apartment homes, or 2.1%, from 45,992 to 46,940. Total operating properties were 122 and 128 at September 30, 2000 and 1999, respectively. The 46,940 weighted average apartment homes and the 122 operating properties exclude the impact of our ownership interest in properties owned in joint ventures. Our apartment communities generate rental revenue and other income through the leasing of apartment homes. Revenues from our rental operations comprised 97% and 98% of our total revenues for the quarters ended September 30, 2000 and 1999, respectively. Our primary financial focus for our apartment communities is net operating income. Net operating income represents total property revenues less property operating and maintenance expenses, including real estate taxes. Net operating income increased $4.7 million, or 8.6%, from $55.4 million to $60.1 million for the quarters ended September 30, 1999 and 2000, respectively. Rental income for the quarter ended September 30, 2000 increased $5.5 million, or 6.3%, over the quarter ended September 30, 1999. Rental income per apartment home per month increased $26 or 4.1%, from $629 to $655 for the third quarters of 1999 and 2000, respectively. The increase was primarily due to increased revenue growth from the stabilized real estate portfolio and higher average rental rates on the completed development properties. Overall average occupancy increased from 94.0% for the quarter ended September 30, 1999 to 94.6% for the quarter ended September 30, 2000. Other property income increased $1.2 million from $6.0 million to $7.3 million for the three months ended September 30, 1999 and 2000, respectively, which represents a monthly increase of $8 per apartment home. The increase in other property income was due primarily to increases from revenue sources such as telephone, cable and water. Other income increased $673,000 for the quarter ended September 30, 2000 compared to the same period in 1999. This increase was due to interest earned on our notes receivable. Property operating and maintenance expenses increased $1.1 million or 3.9%, from $28.2 million to $29.3 million, but decreased as a percent of total property income from 30.4% to 29.5% for the quarters ended September 30, 1999 and 2000, respectively. The increase in operating expense was due to a larger number of apartment homes in operation and an increase in salary and benefit expenses. Our operating expense ratios decreased primarily as a result of operating efficiencies generated by our newly developed properties and a reduction on a per unit basis in repairs and maintenance expenses. Real estate taxes increased $892,000 from $9.2 million to $10.1 million for the third quarters of 1999 and 2000, respectively, which represents an annual increase of $60 per apartment home. The increase was primarily due to increases in the valuations of renovated and developed properties and increases in property tax rates. General and administrative expenses increased $453,000 from $2.5 million to $2.9 million, and increased as a percent of revenues from 2.6% to 2.9% for the quarters ended September 30, 1999 and 2000 respectively. The increase was primarily due to increases in incentive-based compensation expense, and expenses related to our information technology function. 15 Interest expense increased from $14.7 million to $17.6 million primarily due to interest on new development and debt incurred to repurchase our shares under the common share repurchase program. Interest capitalized was $3.8 million and $4.1 million for the quarters ended September 30, 2000 and 1999, respectively. Depreciation and amortization increased from $22.7 million to $23.7 million. This increase was due primarily to developments and renovations activity. Gains on sales of properties for the quarter ended September 30, 2000 totaled $16.4 million due to the sale of eleven properties containing a total of 3,599 apartment homes. Gains on sales of properties for the quarter ended September 30, 1999 totaled $2.3 million due to gains from the disposition of one multifamily property containing 232 units and our investment in two commercial office buildings. The gains recorded on these 1999 dispositions were partially offset by a loss on the sale of a retail/commercial center. The gains in 1999 do not include a loss on the sale of a 408 unit property held in a joint venture of $738,000 which is included in "Equity in Income of Joint Ventures." Distributions on units convertible into perpetual preferred shares increased $808,000, from $2.4 million for the quarter ended September 30, 1999 to $3.2 million for the quarter ended September 30, 2000. This increase is attributable to the issuance of additional perpetual preferred units which totaled $35.5 million in August and September of 1999 and $17.5 million in January 2000. Comparison of the Nine Months Ended September 30, 2000 and September 30, 1999 Earnings before interest, depreciation and amortization increased $18.2 million, or 11.5%, from $159.1 million to $177.4 million for the nine months ended September 30, 1999 and 2000, respectively. The weighted average number of apartment homes for the first nine months of 2000 increased by 1,772 apartment homes, or 3.9%, from 45,304 to 47,076. Total operating properties were 122 and 128 at September 30, 2000 and 1999, respectively. The weighted average apartment homes and the number of operating properties exclude the impact of our ownership interest in properties owned in joint ventures. Revenues from our rental operations comprised 97% and 98% of our total revenues for the nine months ended September 30, 2000 and 1999, respectively. Net operating income increased $17.1 million, or 10.6%, from $161.2 million to $178.3 million for the nine months ended September 30, 1999 and 2000, respectively. Rental income for the nine months ended September 30, 2000 increased $20.8 million, or 8.3%, over the nine months ended September 30, 1999. Rental income per apartment home per month increased $26 or 4.2%, from $619 to $645 for the first nine months of 1999 and 2000, respectively. The increase was primarily due to increased revenue growth from the stabilized real estate portfolio and higher average rental rates on the completed development properties. Other property income increased $3.6 million from $16.6 million to $20.2 million for the nine months ended September 30, 1999 and 2000, respectively, which represents a monthly increase of $7 per apartment home. The increase in other property income was due primarily to increases from revenue sources such as telephone, cable and water. Other Income for the nine months ended September 30, 2000 increased $2.5 million over the same period in 1999. This increase was due to interest earned on our notes receivable. Property operating and maintenance expenses increased $4.9 million or 6.2%, from $80.3 million to $85.3 million, but decreased as a percent of total property income from 29.8% to 29.0% for the nine months ended September 30, 1999 and 2000, respectively. The increase in operating expense was due to a larger 16 number of apartment homes in operation and an increase in salary and benefit expenses. Our operating expense ratios decreased primarily as a result of operating efficiencies generated by our newly developed properties. Real estate taxes increased $2.4 million from $27.7 million to $30.1 million for the first nine months of 1999 and 2000, respectively, which represents an annual increase of $38 per apartment home. The increase was primarily due to increases in the valuations of renovated and developed properties and increases in property tax rates. General and administrative expenses increased $2.4 million from $7.3 million to $9.7 million, and increased as a percent of revenues from 2.6% to 3.2% for the nine months ended September 30, 1999 and 2000, respectively. The increase was primarily due to increases in incentive-based compensation expense, including the vesting of outstanding performance-based compensation related to the gain on land development sales, and expenses related to our information technology function. Interest expense increased from $42.2 million to $51.8 million primarily due to interest on new development and debt incurred to repurchase our shares under the common share repurchase program. Interest capitalized was $11.9 million and $12.3 million for the nine months ended September 30, 2000 and 1999, respectively. Depreciation and amortization increased from $65.5 million to $73.5 million. This increase was due primarily to increased development and renovation activity. Gains on sale of properties for the nine months ended September 30, 2000 totaled $18.4 million due primarily to the sale of eleven properties containing a total of 3,599 apartment homes. Also included is the sale of a mini-storage facility in Las Vegas and the sale of approximately 61 acres of undeveloped land located in Las Vegas, Dallas and Houston. Gains on sales of properties for the nine months ended September 30, 1999 totaled $3.0 million due to the sale of two multifamily properties containing 358 units and our investment in two commercial office buildings. The gains recorded on these 1999 dispositions were partially offset by a loss on the sale of a retail/commercial center. The gains in 1999 do not include a loss on the sale of a 408 unit property held in a joint venture of $738,000 which is included in "Equity in Income of Joint Ventures." Distributions on units convertible into perpetual preferred shares increased $4.2 million, from $5.4 million for the nine months ended September 30, 1999 to $9.6 million for the nine months ended September 30, 2000. This increase is attributable to our issuances of perpetual preferred units, which totaled $100 million in February 1999, $35.5 million in August and September of 1999 and $17.5 million in January 2000. Liquidity and Capital Resources Financial Structure We intend to continue maintaining what management believes to be a conservative capital structure by: (i) using what management believes is a prudent combination of debt and common and preferred equity; (ii) extending and sequencing the maturity dates of our debt where possible; (iii) managing interest rate exposure using fixed rate debt and hedging where management believes it is appropriate; 17 (iv) borrowing on an unsecured basis in order to maintain a substantial number of unencumbered assets; and (v) maintaining conservative coverage ratios. The interest expense coverage ratio, net of capitalized interest, was 3.4 times and 3.8 times for the nine months ended September 30, 2000 and 1999, respectively, and 3.4 times and 3.7 times for the quarters ended September 30, 2000 and 1999, respectively. At September 30, 2000 and 1999, 75.5% and 75.7%, respectively, of our properties (based on invested capital) were unencumbered. Liquidity We intend to meet our short-term liquidity requirements through cash flows provided by operations, our unsecured line of credit discussed in the financial flexibility section and other short-term borrowings. We expect that our ability to generate cash will be sufficient to meet our short-term liquidity needs, which include: (i) normal operating expenses; (ii) current debt service requirements; (iii) recurring capital expenditures; (iv) property developments; (v) common share repurchases; and (vi) distributions on our common and preferred equity. We consider our long-term liquidity requirements to be the repayment of maturing secured debt and borrowings under our unsecured line of credit and funding of acquisitions. We intend to meet our long-term liquidity requirements through the use of common and preferred equity capital, senior unsecured debt and property dispositions. We intend to concentrate our growth efforts toward selective development and acquisition opportunities in our current markets, and through the acquisition of existing operating portfolios and the development of properties in selected new markets. We are developing two properties at an aggregate expected cost of approximately $107.1 million, $91.5 million of which was incurred at September 30, 2000. We fund our developments and acquisitions through a combination of equity capital, partnership units, medium-term notes, construction loans, other debt securities and the unsecured line of credit. We also seek to selectively dispose of assets that management believes have a lower projected net operating income growth rate than the overall portfolio, or no longer conform to our operating and investment strategies. We expect that any such sales should generate capital for acquisitions and new developments or for debt reduction. Net cash provided by operating activities totaled $120.1 million for the nine months ended September 30, 2000, a decrease of $1.1 million, or 0.9%, over the same period in 1999. This decrease was attributable to a $17.1 million increase in net operating income from the real estate portfolio for the nine months ended September 30, 2000 as compared to the same period in 1999, offset by a $9.6 million increase in interest expense and a $4.2 million increase in distributions on units convertible into perpetual preferred shares. Also, other assets increased $11.0 million, primarily from receivables due on third party construction projects. Net cash provided by investing activities totaled $15.4 million for the nine months ended September 30, 2000 compared to net cash used by investing activities of $172.7 million for the same period in 1999. Total real estate assets, before accumulated depreciation, decreased $51.7 million for the nine months ended September 30, 2000, and increased $145.4 million for the nine months ended September 30, 1999. For the nine months ended September 30, 2000, net cash flows provided by investing activities related to $150.1 million in net proceeds received from property dispositions during 2000. This increase in cash was offset by expenditures for property development and capital improvements totaling $80.9 million and $22.0 million, respectively for the nine months ended September 30, 2000. For the nine months ended September 30, 1999, net cash spent on property development and capital improvements were $155.3 million and $19.2 million, respectively. Additionally, we received $13.2 million in net proceeds for property dispositions during the nine months ended September 30, 1999. 18 Net cash used in financing activities totaled $127.6 million for the nine months ended September 30, 2000 compared to net cash provided by financing activities of $59.7 million for the nine months ended September 30, 1999. During the nine months ended September 30, 2000, we paid distributions totaling $84.2 million and we repurchased $26.3 million common shares and units convertible into common shares. These payments were funded by the issuance of $17.5 million of preferred units, which are discussed in the "Financial Flexibility" section, and a decrease in borrowings under our line of credit of $31.0 million. During the nine months ended September 30, 1999, we paid $79.7 million for distributions and repurchased $79.2 million common shares and units convertible into common shares. Additionally, during the nine months ended September 30, 1999, we issued $135.5 million of preferred units and $254.5 million in senior unsecured notes. The proceeds from these issuances were used to pay down borrowings under our line of credit, which decreased $147.0 million for the nine months ended September 30, 1999. In 1998 and 1999, the Board of Trust Managers authorized us to repurchase or redeem up to $200 million of our common equity securities through open market purchases and private transactions. As of September 30, 2000, we had repurchased 6,687,626 common shares and redeemed 105,814 units that were convertible into common shares for a total cost of $173.1 million and $2.9 million, respectively. During the first quarter of 2000 we sold a mini-storage facility located in Las Vegas and several parcels of undeveloped land. The land sales consisted of 2.9 acres located in downtown Dallas and 38.5 acres located in Houston which were sold for commercial and retail development. These parcels of land are adjacent to our urban land development projects located in those cities. Additionally, we sold a 19.5 acre tract of land located in Las Vegas which we acquired in our merger with Oasis Residential, Inc. Net proceeds from these sales were approximately $20.1 million. We used the proceeds to reduce indebtedness outstanding under our unsecured line of credit. During the third quarter of 2000, we sold eleven properties containing 3,599 apartment homes. Three properties were located in each of Houston, Dallas and Las Vegas, and one property was located in each of St. Louis and El Paso. As a result of these sales, we have exited the El Paso market, reduced the number of assets in our three largest markets and believe that we have improved the overall quality and geographic mix of our portfolio. Net proceeds from these sales totaled $130.1 million and were used to reduce indebtedness outstanding under our unsecured line of credit. In September 2000, we announced that our Board of Trust Managers had declared a dividend on our common shares of $0.5625 per share for the third quarter of 2000 which was paid on October 17, 2000 to all common shareholders of record as of September 29, 2000. We paid an equivalent amount per unit to holders of the common operating partnership units. This distribution to common shareholders and holders of common operating partnership units equates to an annualized dividend rate of $2.25 per share or unit. In September 2000, we declared a quarterly dividend on our preferred shares of $0.5625 per share payable November 15, 2000 to all preferred shareholders of record as of September 29, 2000. 19 As of September 30, 2000, we had senior unsecured debt totaling $789.9 million and secured mortgage loans totaling $340.7 million. Our indebtedness has a weighted average maturity of 5.3 years as of September 30, 2000. Scheduled principal repayments on all notes payable outstanding at September 30, 2000 is as follows: (In thousands) Year Amount --------- --------------- 2000 $ 103,479 2001 167,465 2002 40,435 2003 210,482 2004 235,297 2005 and thereafter 373,442 --------------- Total $ 1,130,600 =============== The scheduled principal repayments in 2000 include $102.0 million senior unsecured medium term notes, which were issued in October 1998 and which we expect to repay from the unsecured line of credit. Financial Flexibility During the third quarter of 2000, our line of credit, which was entered into in August 1999 with 14 banks for a total commitment of $375 million, was increased to $400 million and the maturity was extended to August 2003. The scheduled interest rate on the line of credit is currently based on a spread over LIBOR or Prime. The scheduled interest rates are subject to change as our credit ratings change. Advances under the line of credit may be priced at the scheduled rates, or we may enter into bid rate loans with participating banks at rates below the scheduled rates. These bid rate loans have terms of nine months or less and may not exceed the lesser of $200 million or the remaining amount available under the line of credit. The line of credit is subject to customary financial covenants and limitations. As an alternative to our unsecured line of credit, we from time to time borrow using competitively bid unsecured short-term notes with lenders who may or may not be a part of the unsecured line of credit bank group. Such borrowings vary in term and pricing and are typically priced at interest rates below those available under the unsecured line of credit. As of September 30, 2000, we had $315 million available under the unsecured line of credit and $750 million available under our universal shelf registration. We have significant unencumbered real estate assets which we believe could be sold or used as collateral for financing purposes should other sources of capital not be available. In January 2000, our operating partnership issued $17.5 million of 8.25% Series C Cumulative Redeemable Perpetual Preferred Units. Distributions on the preferred units are payable quarterly in arrears. The preferred units are redeemable for cash by the operating partnership on or after the fifth anniversary of issuance at par plus the amount of any accumulated and unpaid distributions. The preferred units are convertible after 10 years by the holder into our 8.25% Series C Cumulative Redeemable Perpetual Preferred Shares. The preferred units are subordinate to present and future debt. During September 1999, we executed three interest rate swap agreements totaling $70 million which matured in October 2000. These swaps were being used as a hedge of interest rate exposure on our $90 million medium term notes issued in October 1998 which matured in October 2000. The interest rate on the medium term notes was fixed at 7.23%. The interest rates on the swaps were reset 20 monthly based on the one-month LIBOR rate plus a spread which resulted in a weighted average effective interest rate on the swaps of 7.67% for the nine months ended September 30, 2000. At September 30, 2000, the weighted average interest rate on floating rate debt was 7.27%. Funds from Operations Management considers FFO to be 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. Our definition of diluted FFO assumes conversion at the beginning of the period of all dilutive convertible securities, including minority interests, which are convertible into common equity. We believe that in order to facilitate a clear understanding of our consolidated historical operating results, 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 our operating performance or to net cash provided by operating activities as a measure of our liquidity. Further, FFO as disclosed by other REITs may not be comparable to our calculation. Our diluted FFO for the three and nine months ended September 30, 2000 increased $1.1 million and $2.7 million over the three and nine months ended September 30, 1999, respectively. On a per share basis, diluted FFO for the three and nine months ended September 30, 2000 increased approximately 8.9% and 10.1%, respectively, over the same periods in 1999. The increase in diluted FFO was due to a $4.7 million and $17.1 million increase in net operating income from our real estate portfolio for the three and nine months ended September 30, 2000 compared to the same periods in 1999. These increases were offset by increases in interest on debt which was used to fund developments, repurchase shares under our common share repurchase program, and fund distributions on units convertible into perpetual preferred shares. The calculation of basic and diluted FFO for the three and nine months ended September 30, 2000 and 1999 follows: (In thousands)
Three Months Nine Months Ended September 30, Ended September 30, ----------------------- ------------------------ 2000 1999 2000 1999 ---------- --------- ---------- ----------- Funds from operations: Net income to common shareholders $ 28,203 $ 13,535 $ 51,473 $ 40,079 Real estate depreciation 23,141 22,315 71,443 64,388 Real estate depreciation from unconsolidated ventures 814 797 2,432 2,423 Loss on sale of property held in unconsolidated ventures 738 738 Gain on sales of properties and joint venture interests (16,440) (2,259) (18,373) (2,979) ---------- --------- ---------- ----------- Funds from operations - basic 35,718 35,126 106,975 104,649 Preferred share dividends 2,343 2,343 7,029 7,029 Income allocated to units convertible into common shares 1,435 892 2,234 1,850 Interest on convertible subordinated debentures 42 63 139 195 Amortization of deferred costs on convertible debentures 5 7 16 19 ---------- --------- ---------- ----------- Funds from operations - diluted $ 39,543 $ 38,431 $ 116,393 $ 113,742 ========== ========= ========== =========== Weighted average shares - basic 38,050 40,939 38,156 41,668 Common share options and awards granted 847 452 684 414 Preferred shares 3,207 3,207 3,207 3,207 Minority interest units 2,545 2,621 2,548 2,646 Convertible subordinated debentures 97 145 111 148 ---------- --------- ---------- ----------- Weighted average shares - diluted 44,746 47,364 44,706 48,083 ========== ========= ========== ===========
21 Inflation We lease 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 our ability to adjust rental rates to market levels as leases expire. Impact of New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, which requires recognition of all derivatives as either assets or liabilities in the financial statements and measurement of those instruments at fair value. The initial effective date of SFAS No. 133 was delayed, and is now effective for all quarters of all fiscal years beginning after June 15, 2000. Management believes that the adoption of SFAS No. 133 will not have a material impact on our consolidated financial statements. In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on revenue recognition as well as the presentation and disclosure of revenue in financial statements for all public companies. Our rental and other property income is recorded when due from residents and is recognized monthly as it is earned. Our apartment homes are rented to residents on lease terms ranging from six to thirteen months, with monthly payments due in advance. We are currently following the criteria set forth in SAB No. 101 to determine when revenue can be recognized, and therefore believe that SAB No. 101 does not have a material impact on our financial statements. 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred since our Annual Report on Form 10-K for the year ended December 31, 1999. 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. Other Information None Item 5. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (filed only electronically with the Commission) (b) Reports on Form 8-K No reports on Form 8-K have been filed by the registrant during the quarter for which this report is filed. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized. CAMDEN PROPERTY TRUST /s/ G. Steven Dawson November 13, 2000 - --------------------------------------------- ------------------------------- G. Steven Dawson Date Chief Financial Officer, Sr. Vice President of Finance and Secretary /s/ Dennis M. Steen November 13, 2000 - --------------------------------------------- ------------------------------- Dennis M. Steen Date Chief Accounting Officer, Vice President - Controller and Treasurer EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 SEP-30-2000 18,743 0 0 0 0 0 2,626,353 303,904 2,434,417 0 1,130,600 0 42 450 981,235 2,434,417 0 302,436 0 115,383 73,543 0 51,829 0 0 0 0 0 0 58,502 1.35 1.30
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