-----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, F70eWi7rn/XwIzucTT3lvsPW3OG1r3PU23OT6QpESIqNIxJZSMLhtkfLzOupak2t 1PXmqKgo0L9oMwidDa0hSA== 0000950129-98-003408.txt : 19980814 0000950129-98-003408.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950129-98-003408 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NYSE 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: 98685178 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 6/30/1998 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to _________ Commission file number: 1-12110 CAMDEN PROPERTY TRUST (Exact Name of Registrant as Specified in Its Charter) TEXAS 76-6088377 (State or Other Jurisdiction of (I.R.S. Employer Identification Incorporation or Organization) Number) 3 Greenway Plaza, Suite 1300, Houston, Texas 77046 (Address of Principal Executive Offices) (Zip Code) (713) 354-2500 (Registrant's Telephone Number, Including Area Code) 3200 Southwest Freeway, Suite 1500, Houston, Texas 77027 (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of August 10, 1998, there were 44,566,253 shares of Common Shares of Beneficial Interest, $0.01 par value outstanding. 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CAMDEN PROPERTY TRUST CONSOLIDATED BALANCE SHEETS (In thousands)
ASSETS JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (Unaudited) Real estate assets, at cost: Land $ 298,132 $ 182,909 Buildings and improvements 1,764,195 1,155,335 ------------ ------------ 2,062,327 1,338,244 Less: accumulated depreciation (127,198) (94,665) ------------ ------------ Net operating real estate assets 1,935,129 1,243,579 Projects under development, including land 163,445 43,805 Investment in joint ventures 36,779 15,089 ------------ ------------ 2,135,353 1,302,473 Accounts receivable - affiliates 1,513 950 Notes receivable - affiliates 3,278 1,796 Other assets, net 16,015 7,885 Cash and cash equivalents 124,060 6,468 Restricted cash - escrow deposits 3,833 4,048 ------------ ------------ Total assets $ 2,284,052 $ 1,323,620 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable: Unsecured $ 546,834 $ 316,941 Secured 379,284 163,813 Accounts payable 9,634 12,163 Accrued real estate taxes 14,169 16,568 Accrued expenses and other liabilities 25,439 17,416 Distributions payable 26,082 16,805 ------------ ------------ Total liabilities 1,001,442 543,706 Minority Interests 74,546 63,325 7.33% Convertible Subordinated Debentures 3,744 6,025 Shareholders' Equity: Preferred shares of beneficial interest 42 Common shares of beneficial interest 446 317 Additional paid-in capital 1,298,568 780,738 Distributions in excess of net income (83,648) (63,526) Unearned restricted share awards (11,088) (6,965) ------------ ------------ Total shareholders' equity 1,204,320 710,564 ------------ ------------ Total liabilities and shareholders' equity $ 2,284,052 $ 1,323,620 ============ ============
See Notes to Consolidated Financial Statements - 2 - 3 CAMDEN PROPERTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share amounts)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------ ------------------------ 1998 1997 1998 1997 --------- --------- --------- --------- REVENUES Rental income $ 84,964 $ 51,084 $ 139,799 $ 79,038 Other property income 5,350 2,304 8,566 3,598 --------- --------- --------- --------- Total property income 90,314 53,388 148,365 82,636 Equity in income of joint ventures 430 436 722 436 Fee and asset management 237 119 349 263 Other income 606 129 743 209 --------- --------- --------- --------- Total revenues 91,587 54,072 150,179 83,544 --------- --------- --------- --------- EXPENSES Property operating and maintenance 27,749 18,663 46,878 28,655 Real estate taxes 8,680 5,975 14,969 9,667 General and administrative 2,250 1,216 3,890 2,040 Interest 15,512 9,090 23,266 13,276 Depreciation and amortization 22,489 12,102 36,977 18,530 --------- --------- --------- --------- Total expenses 76,680 47,046 125,980 72,168 --------- --------- --------- --------- INCOME BEFORE LOSSES RELATED TO EARLY RETIREMENT OF DEBT AND MINORITY INTERESTS 14,907 7,026 24,199 11,376 LOSSES RELATED TO EARLY RETIREMENT OF DEBT (286) --------- --------- --------- --------- INCOME BEFORE MINORITY INTERESTS 14,907 7,026 24,199 11,090 MINORITY INTERESTS (653) (597) (984) (597) --------- --------- --------- --------- NET INCOME 14,254 6,429 23,215 10,493 PREFERRED SHARE DIVIDENDS (4,686) (4,686) --------- --------- --------- --------- NET INCOME TO COMMON SHAREHOLDERS $ 9,568 $ 6,429 $ 18,529 $ 10,493 ========= ========= ========= ========= BASIC EARNINGS PER SHARE $ 0.22 $ 0.24 $ 0.49 $ 0.49 DILUTED EARNINGS PER SHARE $ 0.21 $ 0.24 $ 0.47 $ 0.48 DISTRIBUTIONS DECLARED PER COMMON SHARE $ 0.505 $ 0.490 $ 1.010 $ 0.980 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 44,262 26,432 37,952 21,476 WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON DILUTIVE EQUIVALENT SHARES OUTSTANDING 46,826 26,729 40,581 21,746
See Notes to Consolidated Financial Statements. - 3 - 4 CAMDEN PROPERTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
SIX MONTHS ENDED JUNE 30, ---------------------------- 1998 1997 ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES Net income $ 23,215 $ 10,493 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 36,977 18,530 Equity in income of joint ventures, net of cash received 380 (161) Minority interests 984 597 Accretion of discount on unsecured notes payable 80 69 Losses related to early retirement of debt 286 Net change in operating accounts (14,913) (11,420) ----------- ----------- Net cash provided by operating activities 46,723 18,394 CASH FLOW FROM INVESTING ACTIVITIES Cash of Oasis and Paragon at acquisition 7,253 12,400 Net proceeds from Third Party Transaction 226,128 Increase in real estate assets (135,454) (41,384) Net proceeds from sales of properties 42,513 Decrease in affiliate notes receivable 3,911 6,139 Decrease in investment in joint ventures 4,624 Other (428) (308) ----------- ----------- Net cash provided by (used in) investing activities 143,923 (18,529) CASH FLOW FROM FINANCING ACTIVITIES Net increase in credit facility and short-term notes 87,792 59,000 Debt repayments from Third Party Transaction (114,248) Proceeds from notes payable 100,000 Repayment of notes payable (10,742) (131,031) Distributions to shareholders and minority interests (36,780) (24,391) Payment of loan costs (168) (798) Losses related to early retirement of debt (286) Other 1,092 379 ----------- ----------- Net cash (used in) provided by financing activities (73,054) 2,873 ----------- ----------- Net increase in cash and cash equivalents 117,592 2,738 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,468 2,366 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 124,060 $ 5,104 =========== =========== SUPPLEMENTAL INFORMATION Cash paid for interest, net of interest capitalized $ 20,941 $ 13,179 Interest capitalized $ 3,461 $ 1,714 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of Oasis (including the Third Party Transaction) and Paragon, net of cash acquired: Fair value of assets acquired $ 781,515 $ 647,795 Liabilities assumed $ 493,461 $ 332,553 Common shares issued $ 395,528 $ 262,370 Preferred shares issued $ 104,125 Fair value of minority interest $ 21,782 $ 65,272 Conversion of 7.33% subordinated debentures to common shares, net $ 2,242 $ 19,839 Value of shares issued under benefit plans, net $ 5,767 $ 3,335 Note payable assumed upon purchase of a property $ 8,199
See Notes to Consolidated Financial Statements. - 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 June 30, 1998 and the results of operations for the three and six months ended June 30, 1998 and 1997 and cash flows for the six months ended June 30, 1998 and 1997 have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. Business Camden Property Trust, a Houston-based real estate investment trust ("REIT"), and its subsidiaries (collectively, "Camden" or the "Company") report as a single business segment with activities related to the ownership, development, acquisition, management, marketing and disposition of multifamily apartment communities in the Southwest, Southeast and Midwest regions of the United States, and as a result of the merger with Oasis Residential, Inc. ("Oasis") described below, the Western region of the United States. At June 30, 1998, the Company owned interests in, operated or was developing 162 multifamily properties containing 55,069 apartment homes located in nine states. Fourteen of the Company's multifamily properties containing 5,680 apartment homes were under development at June 30, 1998. The Company has several additional sites which it intends to develop into multifamily apartment communities. Additionally, the Company managed 2,985 apartment homes in eight properties for third-parties and non-consolidated affiliates at June 30, 1998 and owned a 30,000 square foot commercial center in Nevada in which the Company's Western regional office occupies approximately 30% of the center. Acquisition of Oasis Residential, Inc. On April 8, 1998, Oasis merged with and into a wholly-owned subsidiary of the Company (the "Oasis Merger"), pursuant to an Agreement and Plan of Merger dated as of December 16, 1997 (the "Merger Agreement"), as amended. As provided in the Merger Agreement, each of the shares of Oasis common stock outstanding on April 8, 1998 was exchanged for 0.759 shares of the Company's common shares. Each share of Oasis Series A cumulative convertible preferred stock (the "Oasis Preferred Stock") outstanding on April 8, 1998 was reissued as Camden Series A Cumulative Convertible Preferred Shares (the "Preferred Shares") with comparable terms and conditions as previously existed with respect to the Oasis Preferred Stock. The Company issued 12,392,893 common shares and 4,165,000 Preferred Shares in exchange for the outstanding common stock and outstanding Oasis Preferred Stock, respectively. Approximately $484 million of Oasis debt, at fair value, was assumed in the merger. In connection with the Oasis Merger, the Company obtained a managing member interest in Oasis Martinique, LLC. The remaining interest comprising 672,490 units (the "Martinique Units"), which are exchangeable on a one-for-one basis into the Company's common shares, is accounted for as minority interest. Oasis, a Nevada corporation, was a fully integrated REIT headquartered in Las Vegas, Nevada whose business was the operation and development of multifamily residential communities in Las Vegas, Denver and Southern California. As of April 8, 1998, Oasis owned interests in 52 completed multifamily properties, with one additional multifamily property under construction. Upon completion of the merger, Camden owned interests in 54,314 apartment homes (including 4,131 apartment homes under development). In connection with the Oasis Merger, Camden disclosed its intentions of entering into a joint venture investment (the "Joint - 5 - 6 Venture") in order to transfer into the Joint Venture 19 apartment communities containing 5,119 apartment homes located in Las Vegas (the "Third Party Transaction"). On June 30, 1998, the Company completed the Third Party Transaction for an aggregate of $248 million with a private limited liability company (the "LLC"). The Company retained a 20% interest in the LLC, which is included in investment in joint ventures. The Third Party Transaction was funded with capital invested by the LLC members, the assumption of $9.9 million of existing nonrecourse indebtedness, the issuance of 17 nonrecourse cross collateralized and cross defaulted loans totaling $180 million and the issuance of two nonrecourse second lien mortgages totaling $7 million. The LLC assumed the $190 million of treasury locks which Camden had entered into during the first quarter of 1998 as a hedge against interest rate exposure for the LLC. The treasury locks were unwound by the LLC simultaneously with the completion of the funding for the Third Party Transaction. Camden used the net proceeds from the Third Party Transaction to reduce outstanding debt by $124 million, including the $9.9 million of existing indebtedness noted above, and set aside $112 million into an escrow account which may be used to make tax-free exchange acquisitions or to further reduce debt if the exchange acquisitions are not completed. The Company has utilized $97 million of the escrow funds to purchase acquisitions which have closed subsequent to June 30, 1998 (see Note 8). No book gain or loss was recorded by Camden as a result of the Third Party Transaction. Camden continues to provide property management services for these assets. The Oasis Merger has been recorded under the purchase method of accounting. In accordance with generally accepted accounting principles, the purchase price was preliminarily allocated to the net assets acquired based on their estimated fair values. Such estimates may be revised at a later date. No goodwill is expected to be recorded in this transaction. The accompanying consolidated statements of operations include the operating results of Oasis since April 1, 1998, the effective date of the Oasis Merger for accounting purposes. Pro forma unaudited consolidated operating results of the Company for the six months ended June 30, 1998 and 1997, assuming that the Oasis Merger and the Third Party Transaction had been made as of January 1, 1997, are summarized below (in thousands, except per share amounts):
SIX MONTHS ENDED JUNE 30, ---------------------------- 1998 1997 ----------- ----------- Total revenues $ 164,208 $ 122,159 Net income to common shareholders $ 21,879 $ 16,151 Basic earnings per share $ 0.50 $ 0.48 Diluted earnings per share $ 0.48 $ 0.47
These pro forma results have been prepared for informational purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the Oasis Merger and the Third Party Transaction been completed on the date indicated, nor are they necessarily indicative of future operations. Acquisition of Paragon Group, Inc. On April 15, 1997, the Company acquired through a tax-free merger, Paragon Group, Inc. ("Paragon"), a Dallas-based multifamily REIT. The acquisition increased the size of the Company's portfolio from 53 to 103 multifamily properties, and from 19,389 to 35,364 apartment homes (the "Paragon Acquisition"). Each share of Paragon common stock outstanding on April 15, 1997 was exchanged for 0.64 shares of the Company's common shares. The Company issued 9.5 million shares in exchange for all of the outstanding shares of Paragon common stock and 2.4 million limited partnership units ("OP Units") in Camden Operating, L.P. (the "Operating Partnership") and assumed approximately $296 million of Paragon debt in connection with the Paragon Acquisition. Real Estate Assets at Cost Non-recurring capital expenditures for such items as roof replacements are capitalized. The Company capitalized $10.7 million and $4.4 million in the six months ended June 30, 1998 and 1997, respectively, of non-recurring - 6 - 7 renovations and improvements to extend the economic lives and enhance its multifamily properties. If the accounting policy described below would have been adopted as of January 1, 1997, the $10.7 million and the $4.4 million capitalized for the six months ended June 30, 1998 and 1997 would have increased to $11.8 million and $5.8 million, respectively. Effective April 1, 1998, the Company implemented prospectively a new accounting policy whereby expenditures for carpet, appliances and HVAC unit replacements are capitalized and depreciated over their estimated useful lives. Previously, all such replacements had been expensed. The Company believes that the newly adopted accounting policy is preferable as it is consistent with standards and practices utilized by the majority of the Company's peers and provides a better matching of expenses with the related benefit of the expenditure. The change in accounting principle is inseparable from the effect of the change in accounting estimate and is therefore treated as a change in accounting estimate. See New Accounting Pronouncement below for the effect of this change and the Company's adoption of a new accounting pronouncement on Camden's second quarter 1998 financial results. Property Operating and Maintenance Expenses Property operating and maintenance expenses included normal repairs and maintenance totaling $6.2 million and $9.8 million for the three and six months ended June 30, 1998, respectively, and $3.8 million and $5.5 million for the three and six months ended June 30, 1997, respectively. Common Share Distribution Declaration In June 1998, the Company announced that its Board of Trust Managers had declared a distribution in the amount of $0.505 per share for the second quarter of 1998 to be paid on July 17, 1998 to all holders of record of Camden's common shares as of June 30, 1998. The Company paid an equivalent amount per unit to holders of the OP and Martinique Units. This distribution to common shareholders and holders of OP and Martinique Units equates to an annualized dividend rate of $2.02 per share or unit. Preferred Share Dividend Declaration In June 1998, the Company also announced that its Board of Trust Managers had declared a quarterly dividend on its Preferred Shares, which were reissued for Oasis Preferred Stock in conjunction with the merger of Oasis. The dividend in the amount of $0.5625 per share, is payable August 17, 1998 to all preferred shareholders of record as of June 30, 1998. New Accounting Pronouncement On March 19, 1998, the Emerging Issues Task Force of the FASB reached a consensus decision on Issue No. 97-11, Accounting for Internal Costs Relating to Real Estate Property Acquisitions, which requires that internal costs of identifying and acquiring operating properties be expensed as incurred for transactions entered into on or after March 20, 1998. Prior to Camden's adoption of this policy, the Company had been capitalizing such costs. The effect of the Company's adoption of Issue No. 97-11 and the new accounting policy for carpet, appliances and HVAC unit replacements on the three months ended June 30, 1998 was to increase the net income to common shareholders by $1.1 million ($0.03 per basic earnings per share and $0.02 per diluted earnings per share). - 7 - 8 Earnings Per Share The following table presents information necessary to calculate basic and diluted earnings per share for the three and six months ended June 30, 1998 and 1997, with 1997 being restated to conform with the requirements of SFAS No. 128, Earnings Per Share (in thousands, except per share amounts):
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------------------- --------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- BASIC EARNINGS PER SHARE: Weighted Average Common Shares Outstanding 44,262 26,432 37,952 21,476 =========== =========== =========== =========== Basic Earnings Per Share $ 0.22 $ 0.24 $ 0.49 $ 0.49 =========== =========== =========== =========== DILUTED EARNINGS PER SHARE: Weighted Average Common Shares Outstanding 44,262 26,432 37,952 21,476 Shares Issuable from Assumed Conversion of: Common Share Options and Awards Granted 459 297 428 270 Operating Partnership Units 2,105 2,201 ----------- ----------- ----------- ----------- Weighted Average Common Shares Outstanding, as Adjusted 46,826 26,729 40,581 21,746 =========== =========== =========== =========== Diluted Earnings Per Share $ 0.21 $ 0.24 $ 0.47 $ 0.48 =========== =========== =========== =========== EARNINGS FOR BASIC AND DILUTED COMPUTATION: Net Income $ 14,254 $ 6,429 $ 23,215 $ 10,493 Less: Dividends on Preferred Shares 4,686 4,686 ----------- ----------- ----------- ----------- Net Income to Common Shareholders (Basic Earnings Per Share Computation) 9,568 6,429 18,529 10,493 Minority Interest 238 569 ----------- ----------- ----------- ----------- Net Income to Common Shareholders, as Adjusted (Diluted Earnings Per Share Computation) $ 9,806 $ 6,429 $ 19,098 $ 10,493 =========== =========== =========== ===========
Reclassifications Certain reclassifications have been made to amounts in prior year financial statements to conform with current year presentations. - 8 - 9 2. NOTES PAYABLE The following is a summary of the Company's indebtedness: (In millions)
JUNE 30, DECEMBER 31, 1998 1997 ---------- ---------- Senior Unsecured Notes: 6 5/8% - 7 1/4% Notes, due 2001-2006 $ 323.8 $ 174.0 Reset Notes, due 2002 75.0 75.0 7.172% Medium-Term Notes, due 2004 25.0 25.0 Unsecured Credit Facilities and Short-Term Borrowings 123.0 43.0 ---------- ---------- 546.8 317.0 Secured Notes - Mortgage Loans (5 1/10% - 9 1/2%) 379.3 163.8 ---------- ---------- Total notes payable $ 926.1 $ 480.8 ========== ========== Floating rate debt included in unsecured notes payable, net of $25 million hedging agreement (6 1/10% - 7 3/4%) $ 173.0 $ 93.0 Floating rate tax-exempt debt included in mortgage loans $ 50.6
As a result of the Oasis Merger, the Company assumed $228 million in conventional mortgage loans with interest rates ranging from 5 1/10% to 9 1/2%. As of June 30, 1998, $217.5 million of the conventional mortgage loans remained outstanding. An $8.9 million conventional mortgage loan assumed matures in October 1998. In conjunction with the Oasis Merger, Camden assumed $150 million in senior unsecured notes payable issued by Oasis in November 1996 (the "Notes Payable"). The Notes Payable, due in equal increments in November 2001, 2003 and 2006, bear interest at annual rates ranging from 6 3/4% to 7 1/4%, payable quarterly. Additionally, as a result of the Oasis Merger, Camden acquired the use of Oasis' $125 million unsecured line of credit (the "Oasis Credit Facility"), which matures in September 1998. The scheduled interest rate on the Oasis Credit Facility is currently based on LIBOR plus 115 basis points. Advances under the Oasis Credit Facility may be priced at the scheduled rate, or the Company may enter into bid rate loans with terms similar to those available under the Unsecured Credit Facility. The Oasis Credit Facility is subject to customary financial covenants and limitations. Management expects to replace this facility when it matures in September 1998. On June 30, 1998, using proceeds from the Third Party Transaction, Camden paid down approximately $114 million on the Unsecured Credit Facilities and short-term borrowings and $9.9 million of existing indebtedness, and set aside $112 million into an escrow account which may be used to make tax-free exchange acquisitions or to further reduce debt if the exchange acquisitions are not completed. The Company has utilized $97 million of the escrow funds to purchase acquisitions which have closed subsequent to June 30, 1998 (see Note 8). At June 30, 1998, the weighted average interest rate on total notes payable was 7.0%. - 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)
SIX MONTHS ENDED JUNE 30, -------------------------- 1998 1997 ---------- ---------- Decrease (increase) in assets: Accounts receivable - affiliates $ 679 $ 986 Other assets, net 15 (255) Restricted cash - escrow deposits 1,498 1,543 Increase (decrease) in liabilities: Accounts payable (3,362) 2,646 Accrued real estate taxes (3,229) (2,938) Accrued expenses and other liabilities (10,514) (13,402) ---------- ---------- Net change in operating accounts $ (14,913) $ (11,420) ========== ==========
4. RESTRICTED SHARE AND OPTION AWARDS During the first six months of 1998, the Company granted 201,906 restricted shares in lieu of cash compensation to certain key employees and non-employee trust managers. The restricted shares have vesting periods of up to five years. Additionally, 1,421,510 options to purchase Camden common shares were granted at an exercise price equal to the market price on the date of grant and are exercisable in equal increments on or following each of the first three anniversaries of the date of grant. During the six month period ended June 30, 1998, previously granted options for 103,334 shares became exercisable and 74,089 restricted shares vested. The Company also converted all unexercised Oasis stock options held by former employees of Oasis into 894,111 options to purchase Camden common shares based on the 0.759 exchange ratio described in Note 1. All of the Oasis options became fully vested upon conversion. 5. CONVERTIBLE SUBORDINATED DEBENTURES During the first six months of 1998, debentures in the principal amount of $2.3 million were converted into 95,038 common shares. These debentures were converted on or before the record date for the quarterly dividend and the related debenture interest was forfeited by the debenture holders in accordance with the indenture and the unpaid interest payable was credited to additional paid in-capital. In addition, $50,000 of unamortized debenture issue costs were reclassified to additional paid-in capital. Had all converted debentures converted as of the beginning of the period, basic earnings per share and diluted earnings per share would have remained the same for the three and six months ended June 30, 1998. 6. COMMITMENTS AND CONTINGENCIES Prior to the Oasis Merger, Oasis had been contacted by certain regulatory agencies with regards to alleged failures to comply with the "Fair Housing Act" (the "Act") as it pertained to properties constructed for first occupancy after March 31, 1991. The Company is currently inspecting these properties to determine the extent of the alleged noncompliance and the changes that may be necessitated. It is the Company's intention to make any and all changes and modifications necessary in order to meet its understanding of the compliance standards of the Act. At this time, the Company is unable to provide an estimate of costs and expenses associated with this matter as the scope and extent of required work, if any, has yet to be determined. - 10 - 11 7. CONVERTIBLE PREFERRED SHARES The 4,165,000 Preferred Shares reissued in conjunction with the Oasis Merger pay a cumulative dividend quarterly in arrears in an amount equal to $2.25 per share per annum. The Preferred Shares generally have no voting rights and have a liquidation preference of $25 per share plus accrued and unpaid distributions. The Preferred Shares are convertible at the option of the holder at any time into common shares at a conversion price of $32.4638 per common share (equivalent to a conversion rate of 0.7701 per common share for each Preferred Share), subject to adjustment in certain circumstances. The Preferred Shares are not redeemable by the Company prior to April 1, 2001. 8. SUBSEQUENT EVENTS In the ordinary course of its business, the Company issues letters of intent indicating a willingness to negotiate for the purchase or sale of multifamily properties or development land. In accordance with the local real estate market practice, such letters of intent are non-binding, and neither party to the letter of intent is obligated to pursue negotiations unless and until a definitive contract is entered into by the parties. Even if definitive contracts are entered into, the letters of intent and resulting contracts contemplate that such contracts will provide the purchaser with periods varying from 25 to 180 days during which it will evaluate the properties and conduct its due diligence and during which periods the purchaser will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money. There can be no assurance that definitive contracts will be entered into with respect to any properties covered by letters of intent or that the Company will acquire or sell any property as to which the Company may have entered into a definitive contract. Further, due diligence periods are frequently extended as needed. An acquisition or sale becomes probable at the time that the due diligence period expires and the definitive contract has not been terminated. The Company is then at risk under an acquisition contract, but only to the extent of any earnest money deposits associated with the contract, and is obligated to sell under a sales contract. The Company is currently in the due diligence period on contracts for the purchase of land for development. No assurance can be made that the Company will be able to complete the negotiations or become satisfied with the outcome of the due diligence. Subsequent to June 30, 1998, the Company purchased three properties for a total of $97 million by utilizing funds maintained in the escrow account described in Note 1. Cedar Ridge, purchased on July 16, 1998, contains 420 apartment homes and is located in St. Louis, Missouri. On July 21, 1998, the Company purchased Live Oaks Plantation, which contains 770 apartment homes located in Tampa, Florida and Sabal Club, which contains 436 apartment homes located in Orlando, Florida. The Company seeks to selectively dispose of assets that are not in core markets, have a lower projected net operating income growth rate than the overall portfolio, or no longer conform to the Company's operating and investment strategies. The proceeds from these sales may be reinvested in acquisitions or developments or used to retire debt. - 11 - 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview The following discussion should be read in conjunction with all of the financial statements and notes thereto appearing elsewhere in this report as well as the audited financial statements appearing in the Company's 1997 Annual Report to Shareholders. Where appropriate, comparisons are made on a dollars per-weighted-average-apartment home basis in order to adjust for changes in the number of apartment homes owned during each period. The statements contained in this report that are not historical facts are forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those included in the forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: changes in general economic conditions in the markets that could impact demand for the Company's product and changes in financial markets and interest rates impacting the Company's ability to meet its financing needs and obligations. Camden Property Trust, a Houston-based real estate investment trust ("REIT"), and its subsidiaries (collectively, "Camden" or the "Company") report as a single business segment with activities related to the ownership, development, acquisition, management, marketing and disposition of multifamily apartment communities in the Southwest, Southeast and Midwest regions of the United States, and as a result of the merger with Oasis Residential, Inc. ("Oasis") described below, the Western region of the United States. At June 30, 1998, the Company owned interests in, operated or was developing 162 multifamily properties containing 55,069 apartment homes located in nine states. Fourteen of the Company's multifamily properties containing 5,680 apartment homes were under development at June 30, 1998 (the "Development Properties"). The Company has several additional sites which it intends to develop into multifamily apartment communities. Additionally, the Company managed 2,985 apartment homes in eight properties for third-parties and non-consolidated affiliates at June 30, 1998 and owned a 30,000 square foot commercial center in Nevada in which the Company's Western regional office occupies approximately 30% of the center. Acquisition of Oasis Residential, Inc. On April 8, 1998, the Company acquired through a tax-free merger, Oasis, a publicly traded Las Vegas- based multifamily REIT. The acquisition increased the size of the Company's portfolio from 100 to 152 completed multifamily properties, and from 38,460 to 50,183 apartment homes at the date of acquisition. Upon completion of ten properties under development, the Company's portfolio at the date of acquisition would have increased to 54,314 apartment homes in 162 properties. As provided in the Plan of Merger dated December 16, 1997, as amended, each of the shares of Oasis common stock outstanding on April 8, 1998 was exchanged for 0.759 share of the Company's common shares. Each share of Oasis Series A cumulative convertible preferred stock (the "Oasis Preferred Stock") outstanding on April 8, 1998 was reissued as Camden Series A Cumulative Convertible Preferred Shares (the "Preferred Shares") with comparable terms and conditions as previously existed with respect to the Oasis Preferred Stock. The Company issued 12,392,893 common shares and 4,165,000 Preferred Shares in exchange for the outstanding common stock and outstanding Oasis Preferred Stock, respectively. Approximately $484 million of Oasis debt, at fair value, was assumed in the merger. In connection with the Oasis Merger, the Company obtained a managing member interest in Oasis Martinique, LLC. The remaining interest comprising 672,490 units (the "Martinique Units"), which are exchangeable on a one-for-one basis into the Company's common shares, is accounted for as minority interest. In connection with the Oasis Merger, Camden disclosed its intentions of entering into a joint venture investment (the "Joint Venture") in order to transfer into the Joint Venture 19 apartment communities containing 5,119 apartment homes located in Las Vegas (the "Third Party Transaction"). On June 30, 1998, the Company completed the Third Party Transaction for an aggregate of $248 million with a private limited liability company (the "LLC"). The Company retained a 20% interest in the LLC, which is included in investment in joint ventures. The Third Party Transaction was funded with capital invested by - 12 - 13 the LLC members, the assumption of $9.9 million of existing nonrecourse indebtedness, the issuance of 17 nonrecourse cross collateralized and cross defaulted loans totaling $180 million and the issuance of two nonrecourse second lien mortgages totaling $7 million. The LLC assumed the $190 million of treasury locks which Camden had entered into during the first quarter of 1998 as a hedge against interest rate exposure for the LLC. The treasury locks were unwound by the LLC simultaneously with the completion of the funding for the Third Party Transaction. Camden used the net proceeds from the Third Party Transaction to reduce outstanding debt by $124 million, including the $9.9 million of existing indebtedness noted above, and set aside $112 million into an escrow account which may be used to make tax-free exchange acquisitions or to further reduce debt if the exchange acquisitions are not completed. The Company has utilized $97 million of the escrow funds to purchase acquisitions which have closed subsequent to June 30, 1998. No book gain or loss was recorded by Camden as a result of the Third Party Transaction. Camden continues to provide property management services for these assets. Acquisition of Paragon Group, Inc. On April 15, 1997, the Company acquired through a tax-free merger, Paragon Group, Inc. ("Paragon"), a Dallas-based multifamily REIT. The acquisition increased the size of the Company's portfolio from 53 to 103 multifamily properties, and from 19,389 to 35,364 apartment homes (the "Paragon Acquisition"). Each share of Paragon common stock outstanding on April 15, 1997 was exchanged for 0.64 shares of the Company's common shares. The Company issued 9.5 million shares in exchange for all of the outstanding shares of Paragon common stock and 2.4 million limited partnership units ("OP Units") in Camden Operating, L.P. (the "Operating Partnership") and assumed approximately $296 million of Paragon debt in connection with the Paragon Acquisition. Property Portfolio The Company's multifamily property portfolio, excluding land held for development, at June 30, 1998 and December 31, 1997 is summarized as follows:
JUNE 30, 1998 DECEMBER 31, 1997 ---------------------------------------- -------------------------------------- Number Number of Number Number of of Units Properties %(a) of Units Properties %(a) --------------- ------------ ------ -------------- ------------ ------ Texas Houston 8,558 21 18% 7,710 19 22% Dallas (b) (c) 9,981 27 19 9,381 26 24 Austin 1,745 6 4 1,745 6 5 Other 1,585 5 3 1,585 5 4 -------- ------ ---- -------- ------ ---- Total Texas Properties 21,869 59 44 20,421 56 55 -------- ------ ---- -------- ------ ---- Arizona 2,651 8 5 2,134 6 6 California 1,653 4 3 Colorado (b) 2,312 7 4 Florida 7,205 19 15 6,661 18 19 Kentucky 1,574 6 3 1,574 6 4 Missouri 2,907 7 6 3,487 10 10 Nevada (b) 12,163 42 15 North Carolina (b) (c) 2,735 10 5 2,735 10 6 -------- ------ ---- -------- ------ ---- Total Properties 55,069 162 100% 37,012 106 100% ====== ==== ====== ==== Less: Joint Venture Units (b) (c) 6,704 1,264 -------- -------- Total Consolidated Units 48,365 35,748 ======== ========
(a) Based on number of units on a total consolidated basis. (b) Includes one property with 708 units in Dallas, one property with 321 units in Colorado, 19 properties with 5,119 units in Nevada, and two properties with 556 units in North Carolina owned through joint venture investments at June 30, 1998. (c) Includes one property with 708 units in Dallas and two properties with 556 units in North Carolina owned through joint venture investments at December 31, 1997. - 13 - 14 Property Update During the first quarter of 1998, The Park at Vanderbilt, Phase II, which was completed in the third quarter of 1997, stabilized. In the second quarter of 1998, The Park at Centreport and The Park at Buckingham, which were completed in the fourth quarter of 1997, stabilized. The following table sets forth information regarding the Development Properties at June 30, 1998:
Estimated Project Number Cost Estimated Date Estimated Date Property and Location Type of Units ($ millions)* of Completion of Stabilization - -------------------------------------- ----------- ------------ -------------- ------------------ ------------------ The Park at Towne Center Glendale, AZ Garden 240 $ 13.4 4Q98 2Q99 Renaissance Pointe II Orlando, FL Garden 306 17.3 1Q99 3Q99 The Park at Interlocken Denver, CO Garden 340 34.9 2Q99 3Q99 The Park at Goose Creek Baytown, TX Affordable 272 11.8 2Q99 4Q99 The Park at Midtown Houston, TX Urban 337 21.5 2Q99 4Q99 The Park at Oxmoor Louisville, KY Garden 432 22.1 3Q99 2Q00 The Park at Holly Springs Houston, TX Garden 548 37.1 3Q99 3Q00 The Park at Steeplechase Houston, TX Affordable 300 13.5 3Q99 4Q99 The Park at Arizona Center Phoenix, AZ Urban 325 22.0 4Q99 2Q00 The Park at Lee Vista Orlando, FL Garden 492 32.8 4Q99 3Q00 The Park at Mission Viejo Mission Viejo, CA Garden 380 42.0 1Q00 3Q00 The Park at Greenway Houston, TX Urban 756 55.7 1Q00 4Q00 Marina Pointe II Tampa, FL Garden 352 25.2 2Q00 3Q00 The Park at Farmers Market, Phase I Dallas, TX Urban 600 45.9 3Q00 2Q01 ------- ------- Total for 14 Development Properties 5,680 $ 395.2 ======= =======
* At June 30, 1998, the Company had incurred $111.3 million of the estimated $395.2 million. Historically, the Company has staged its construction to allow leasing and occupancy during the construction period thereby minimizing the lease-up period following completion of construction. The Company's accounting policy related to properties in the development and leasing phase is that all operating expenses, excluding depreciation, associated with occupied units are expensed against revenues generated by those units as they become occupied. All construction and carrying costs are capitalized and reported on the balance sheet in "Projects under development, including land" until such units are completed. Upon completion of each building of the project, the total cost of that building and the associated land is transferred to "Land" and "Buildings and improvements" and the assets are depreciated over their estimated useful lives using the straight-line method of depreciation. Upon achieving 90% occupancy, or one year from opening the leasing office, whichever occurs first, all units are considered operating and the Company begins expensing all items that were previously considered as carrying costs. - 14 - 15 Comparison of the Quarter Ended June 30, 1998 and June 30, 1997 The changes in operating results from period to period are primarily due to the Oasis Merger, development of three properties aggregating 1,110 apartment homes, the acquisition of four properties containing 1,497 apartment homes, the disposition of 11 properties containing 2,986 apartment homes and an increase in net operating income generated by the stabilized portfolio. The weighted average number of apartment homes for the second quarter of 1998 increased by 15,727, or 48.6%, from 32,392 to 48,119. Total operating properties were 125 and 97 at June 30, 1998 and 1997, respectively, and exclude those owned through joint venture investments. The weighted average number of apartment homes of 32,392 and 48,119 exclude the impact of the Company's ownership interest in apartment homes owned in joint ventures throughout the quarters. The average rental income per apartment home per month increased $63 or 12.0%, from $526 to $589 for the second quarter of 1997 and 1998, respectively. The increase was primarily due to increased revenue growth from the stabilized real estate portfolio, higher average rental rates on properties added to the portfolio through the Oasis Merger, the four acquired properties and completion of new development properties. Overall average occupancy changed slightly from 93.8% for the quarter ended June 30, 1997 to 93.0% for the quarter ended June 30, 1998. Other property income increased $3.0 million from $2.3 million to $5.4 million for the quarters ended June 30, 1997 and 1998, respectively. The increase in other property income was due to a larger number of apartment homes owned and in operation and a $904,000 increase from new revenue sources such as telephone, cable and water. Property operating and maintenance expenses increased $9.1 million, from $18.7 million to $27.7 million, and decreased as a percent of total property income from 35% to 30.7% for the quarter ended June 30, 1997 and 1998, respectively. The Company's operating expense ratio decreased over the prior year quarter primarily as a result of operating efficiencies resulting from operating a larger portfolio and the impact of the Company's April 1, 1998 adoption of a new accounting policy, whereby expenditures for carpet, appliances and HVAC apartment home replacements are expensed in the first five years of a property's life and capitalized thereafter. Prior to the adoption of this policy, the Company had been expensing these costs. Had this policy change not been adopted, the second quarter 1998 operating expense ratio would have been 32.6%. Real estate taxes increased $2.7 million from $6 million to $8.7 million for the quarters ended June 30, 1997 and 1998, respectively, which represents an annual decrease of $16 per apartment home. Real estate taxes per apartment home have decreased due to lower property taxes in the Camden portfolio outside of Texas. This decrease per apartment home was partially offset by increases in the valuations of renovated, acquired and developed properties, and increases in property tax rates. General and administrative expenses increased $1 million from $1.2 million to $2.3 million, and increased slightly as a percent of revenues from 2.3% to 2.5%. The general and administrative expense ratio increase is mainly attributable to the impact of the Company's March 20, 1998 adoption of Issue No. 97-11, Accounting for Internal Costs Relating to Real Estate Property Acquisitions, discussed in Note 1, which is partially offset by efficiencies resulting from operating a larger portfolio. Interest expense increased from $9.1 million to $15.5 million due to increased indebtedness related to the Oasis Merger, completed developments, renovations and property acquisitions. This increase was partially offset by reductions in average interest rates on the Company's debt, the equity offering that occurred in July 1997 and property dispositions. Interest capitalized was $2.4 million and $1.1 million for the quarters ended June 30, 1998 and 1997, respectively. Depreciation and amortization increased from $12.1 million to $22.5 million. This increase was due primarily to the Oasis Merger, developments, renovations and property acquisitions. - 15 - 16 Comparison of the Six Months Ended June 30, 1998 and June 30, 1997 The changes in operations results from period to period are primarily due to the Oasis Merger, development of five properties aggregating 1,778 apartment homes, the acquisition of four properties containing 1,497 apartment homes, the disposition of 11 properties containing 2,986 apartment homes and an increase in new operating income generated by the stabilized portfolio. The weighted average number of apartment homes for the first six months of 1998 increased by 15,456 apartment homes, or 61.6%, from 25,108 to 40,564. Total operating properties were 125 and 97 at June 30, 1998 and 1997, respectively, and exclude those owned through joint venture investments. The weighted average number of apartment homes of 25,108 and 40,564 exclude the impact of the Company's ownership interest in apartment homes owned in joint ventures throughout the six month periods. The average rental income per apartment home per month increased $49 or 9.3%, from $525 to $574 for the six months ended June 30, 1997 and 1998, respectively. The increase was primarily due to increased revenue growth from the stabilized real estate portfolio, higher average rental rates on properties added to the portfolio through the Oasis Merger and the Paragon Acquisition, the four acquired properties and completion of new development properties. Other property income increased $5.0 million from $3.6 million to $8.6 million for the six months ended June 30, 1997 and 1998, respectively. The increase in other property income was due to a larger number of apartment homes owned and in operation and a $2 million increase from new revenue sources such as telephone, cable and water. Property operating and maintenance expenses increased $18.2 million, from $28.7 million to $46.9 million, and decreased as a percent of total property income from 34.7% to 31.6% for the six months ended June 30, 1997 and 1998, respectively. The Company's operating expense ratio decreased over the prior year primarily as a result of operating efficiencies resulting from operating a larger portfolio and the impact of the Company's April 1, 1998 adoption of a new accounting policy, whereby expenditures for carpet, appliances and HVAC apartment home replacements are expensed in the first five years of a property's life and capitalized thereafter. Prior to the adoption of this policy, the Company had been expensing these costs. Had this policy change not been adopted, the six months ended June 30, 1998 operating expense ratio would have been 32.7%. Real estate taxes increased $5.3 million from $9.7 million to $15 million for the six months ended June 30, 1997 and 1998, respectively, which represents and annual decrease of $32 per apartment home. Real estate taxes per apartment home have decreased due to lower property taxes in the Camden portfolio outside of Texas. This decrease per apartment home was partially offset by increases in the valuations of renovated, acquired and developed properties and increases in property tax rates. General and administrative expenses increased $1.9 million from $2.0 million to $3.9 million, and increased slightly as a percent of revenues from 2.4% to 2.6%. The general and administrative expense ratio increase is mainly attributable to the impact of the Company's March 20, 1998 adoption of Issue No. 97-11, Accounting for Internal Costs Relating to Real Estate Property Acquisitions, discussed in Note 1, which is partially offset by efficiencies resulting from operating a larger portfolio. Interest expense increased from $13.3 million to $23.3 million due to increased indebtedness related to the Oasis Merger, Paragon Acquisition, completed developments, renovations and property acquisitions. This increase was partially offset by reductions in average interest rates on the Company's debt, the equity offering that occurred in July 1997 and property dispositions. Interest capitalized was $3.5 million and $1.7 million for the six months ended June 30, 1998 and 1997, respectively. Depreciation and amortization increased from $18.5 million to $37.0 million. This increase was due primarily to the Oasis Merger, Paragon Acquisition, developments, renovations and property acquisitions. - 16 - 17 LIQUIDITY AND CAPITAL RESOURCES Financial Structure The Company intends to continue maintaining what management believes to be a conservative capital structure by: (i) targeting a ratio of total debt to total market capitalization of less than 50%; (ii) extending and sequencing the maturity dates of its debt where possible; (iii) managing interest rate exposure using fixed rate debt and hedging, where appropriate; (iv) borrowing on an unsecured basis; (v) maintaining a substantial number of unencumbered assets; and (vi) maintaining conservative coverage ratios. The interest coverage ratio was 3.4 and 3.1 times earnings before interest, depreciation, and amortization for the three months ended June 30, 1998 and 1997, respectively, and 3.6 and 3.3 times earnings before interest, depreciation, and amortization for the six months ended June 30, 1998 and 1997, respectively. Liquidity As a result of the Oasis Merger, Camden acquired the use of Oasis' $125 million unsecured line of credit (the "Oasis Credit Facility") which matures in September 1998 and is included in the Unsecured Credit Facilities disclosure below. The scheduled interest rate on the Oasis Credit Facility is currently based on LIBOR plus 115 basis points. Advances under the Oasis Credit Facility may be priced at the scheduled rate, or the Company may enter into bid rate loans with terms similar to those available under the Company's $150 million Unsecured Credit Facility. The Oasis Credit Facility is subject to customary financial covenants and limitations. Management expects to replace this facility when it matures in September 1998. The Company intends to meet its short-term liquidity requirements through cash flows provided by operations, the Unsecured Credit Facilities and other short-term borrowings. The Company uses equity capital and senior unsecured debt to refinance maturing secured debt and borrowings under its Unsecured Credit Facilities and other short-term borrowings. As of June 30, 1998, the Company had $164 million available under the Unsecured Credit Facilities. The Company filed a universal shelf registration statement in April 1997 providing for the issuance of up to $500 million in equity, debt, preferred or convertible securities, of which, over $275 million remains unused. Additionally, in March 1997 the Company implemented a $196 million medium-term note program used to provide intermediate and long-term, unsecured publicly-traded debt financing, of which $171 million remains unused. Finally, the Company has significant unencumbered real estate assets which could be sold or used as collateral for financing purposes should other sources of capital not be available. The Company considers its ability to generate cash to be sufficient, and expects to be able to meet future operating cash requirements and to pay distributions to shareholders and holders of units. On June 12, 1998, the Company announced that its Board of Trust Managers had declared its second quarter distribution in the amount of $0.505 per share. On July 17, 1998, the distributions were paid to all holders of record of Camden's common shares as of June 30, 1998, and an equivalent amount per unit was paid to holders of OP and Martinique Units. This distribution to common shareholders and holders of OP and Martinique Units equates to an annualized dividend rate of $2.02 per share or unit. On June 12, 1998, the Company also announced that its Board of Trust Managers had declared a quarterly dividend on its Preferred Shares, which were reissued for Oasis Preferred Stock in conjunction with the merger of Oasis. The dividend in the amount of $0.5625 per share, is payable August 17, 1998 to all preferred shareholders of record as of June 30, 1998. Financial Flexibility The Company concentrates its growth efforts toward selective development and acquisition opportunities in its core markets, and through the acquisition of existing operating portfolios and development properties in selected new markets. During the six months ended June 30, 1998, the Company incurred $78.1 million in development costs and $41.9 million in acquisition costs. In addition, Camden issued 12.4 million common shares, 4.2 million preferred shares and assumed $484 million of indebtedness at fair value to purchase Oasis. The Company has announced plans to develop 14 additional properties at an aggregate cost of approximately $395 million. The Company funds its developments and acquisitions through a combination of - 17 - 18 equity capital, ownership units, debt securities, the Unsecured Credit Facilities and other short-term borrowing arrangements. The Company also seeks to selectively dispose of assets that are not in core markets, have a lower projected net operating income growth rate than the overall portfolio, or no longer conform to the Company's operating and investment strategies. The $268.6 million in net proceeds received from these asset disposals, including the Third Party Transaction, during the six months ended June 30, 1998 were reinvested in acquisitions or developments, used to retire debt or set aside into an escrow account which may be used to make tax-free exchange acquisitions or to further reduce debt if the exchange acquisitions are not completed. As a result of the Oasis Merger, the Company assumed $228 million in conventional mortgage loans with interest rates ranging from 5 1/10% to 9 1/2%. As of June 30, 1998, $217.5 million of the conventional mortgage loans remained outstanding. An $8.9 million conventional mortgage loan assumed matures in October 1998. In conjunction with the Oasis Merger, Camden assumed $150 million in senior unsecured notes payable issued by Oasis in November 1996 (the "Notes Payable"). The Notes Payable, due in equal increments in November 2001, 2003 and 2006, bear interest at annual rates ranging from 6 3/4% to 7 1/4%, payable quarterly. At June 30, 1998, the weighted average interest rate on total notes payable was 7.0%. FUNDS FROM OPERATIONS Management considers funds from operations ("FFO") an appropriate measure of performance of an equity REIT. The National Association of Real Estate Investment Trusts currently defines FFO as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In addition, extraordinary or unusual items, along with significant non-recurring events that materially distort the comparative measure of FFO are typically disregarded in its calculation. The Company's definition of FFO also assumes conversion at the beginning of the period of all convertible securities including minority interests which are convertible into common equity. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO should be examined in conjunction with net income as presented in the consolidated financial statements and data included elsewhere in this report. FFO is not defined by generally accepted accounting principles. FFO should not be considered as an alternative to net income as an indication of the Company's operating performance or to net cash provided by operating activities as a measure of the Company's liquidity. Further, FFO as disclosed by other REITs may not be comparable to the Company's calculation. The Company's FFO for the three and six months ended June 30, 1998, increased $18.2 million and $31.3 million, respectively, over the three and six months ended June 30, 1997, primarily due to the Oasis Merger, Paragon Acquisition, property acquisitions, developments and improvements in the performance of the stabilized properties in the portfolio. - 18 - 19 The calculation of FFO for the three and six months ended June 30, 1998 and 1997 follows: (In thousands)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------- ------------------- 1998 1997 1998 1997 ------- ------- ------- ------- Net income to common shareholders $ 9,568 $ 6,429 $18,529 $10,493 Real estate depreciation 22,094 11,807 36,294 17,996 Minority interests 653 597 984 597 Real estate depreciation from unconsolidated ventures 408 283 744 283 Interest on convertible subordinated debentures 71 133 180 429 Amortization of deferred costs on convertible debentures 7 22 18 64 Preferred share dividends 4,686 4,686 Losses related to early retirement of debt 286 ------- ------- ------- ------- Funds from operations $37,487 $19,271 $61,435 $30,148 ======= ======= ======= ======= Weighted average number of common and common equivalent shares outstanding 50,867 29,633 42,736 23,689
REGULATION Prior to the Oasis Merger, Oasis had been contacted by certain regulatory agencies with regards to alleged failure to comply with the "Fair Housing Act" (the "Act") as it pertained to properties constructed for first occupancy after March 31, 1991. The Company is currently inspecting these properties to determine the extent of the alleged noncompliance and the changes that may be necessitated. It is the Company's intention to make any and all changes and modifications necessary in order to meet its understanding of the compliance standards of the Act. At this time, the Company is unable to provide an estimate of costs and expenses associated with this matter as the scope and extent of required work, if any, has yet to be determined. INFLATION The Company leases apartments under lease terms generally ranging from six to thirteen months. Management believes that such short-term lease contracts lessen the impact of inflation due to the ability to adjust rental rates to market levels as leases expire. YEAR 2000 CONVERSION Camden has recognized the need to ensure that its systems, equipment and operations will not be adversely impacted by the change to the calendar year 2000. As such, the Company has taken steps to identify potential areas of risk and has begun addressing these in its planning, purchasing and daily operations. The total cost of converting all internal systems, equipment and operations to be year 2000 compliant has not been fully quantified, but it is not expected to be a material cost to Camden. However, no estimates can be made as to the potential adverse impact resulting from the failure of third party service providers and vendors to prepare for the year 2000. Camden is attempting to identify those risks as well as to receive compliance certificates from all third parties that could have a material impact on Camden's operations. The Company expects to have its internal systems, equipment and operations year 2000 compliant by December 31, 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable - 19 - 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders The Company held a Special Meeting in lieu of the Annual Meeting of Shareholders on April 8, 1998. (1) The Shareholders voted to approve the Agreement and Plan of Merger, dated December 16, 1997, as amended by Amendment No. 1, dated as of February 4, 1998, among Camden Property Trust, Camden Subsidiary II, and Oasis Residential, Inc.
Broker Affirmative Negative Abstentions Non-Voters ----------- -------- ----------- ---------- 18,450,468 4,702,366 118,204 5,846,367
(2) The Shareholders elected seven of the seven Trust Managers nominated by the Board of Trust Managers.
Broker Affirmative Negative Abstentions Non-Votes ----------- -------- ----------- --------- Richard J. Campo 28,862,864 254,541 0 0 William R. Cooper 28,865,741 251,664 0 0 George A. Hrdlicka 28,865,769 251,636 0 0 Lewis A. Levey 28,865,741 251,664 0 0 D. Keith Oden 28,865,869 251,536 0 0 F. Gardner Parker 28,865,769 251,636 0 0 Steven A. Webster 28,865,769 251,636 0 0
(3) The Shareholders ratified the appointment of Deloitte and Touche LLP as independent auditors of the Company for the year ending December 31, 1998.
Broker Affirmative Negative Abstentions Non-Votes ----------- -------- ----------- --------- 29,009,510 40,096 67,799 0
Item 5. Other Information None - 20 - 21 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11.1 Statement regarding Computation of Earnings Per Common Share 18.1 Letter regarding Change in Accounting Principle 27.1 Financial Data Schedule (filed only electronically with the Commission) (b) Reports on Form 8-K Current Report on Form 8-K dated April 8, 1998 was filed with the Commission on April 22, 1998, contained information under Item 2 (Acquisition or Disposition of Assets) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits). - 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 August 13, 1998 - --------------------------------- --------------------------------- G. Steven Dawson Date Sr. Vice President of Finance, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer) 23 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 11.1 Statement regarding Computation of Earnings Per Common Share 18.1 Letter regarding Change in Accounting Principle 27.1 Financial Data Schedule (filed only electronically with the Commission)
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 SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ----------------------- ----------------------- 1998 1997 1998 1997 --------- --------- --------- --------- BASIC EARNINGS PER SHARE: Weighted Average Common Shares Outstanding 44,262 26,432 37,952 21,476 ========= ========= ========= ========= Basic Earnings Per Share $ 0.22 $ 0.24 $ 0.49 $ 0.49 ========= ========= ========= ========= DILUTED EARNINGS PER SHARE: Weighted Average Common Shares Outstanding 44,262 26,432 37,952 21,476 Shares Issuable from Assumed Conversion of: Common Share Options and Awards Granted 459 297 428 270 Operating Partnership Units 2,105 2,201 --------- --------- --------- --------- Weighted Average Common Shares Outstanding, as Adjusted 46,826 26,729 40,581 21,746 ========= ========= ========= ========= Diluted Earnings Per Share $ 0.21 $ 0.24 $ 0.47 $ 0.48 ========= ========= ========= ========= EARNINGS FOR BASIC AND DILUTED COMPUTATION: Net Income $ 14,254 $ 6,429 $ 23,215 $ 10,493 Less: Dividends on Preferred Shares 4,686 4,686 --------- --------- --------- --------- Net Income to Common Shareholders (Basic Earnings Per Share Computation) 9,568 6,429 18,529 10,493 Minority Interest 238 569 --------- --------- --------- --------- Net Income to Common Shareholders, as Adjusted (Diluted Earnings Per Share Computation) $ 9,806 $ 6,429 $ 19,098 $ 10,493 ========= ========= ========= =========
EX-18.1 3 LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLE 1 Exhibit 18.1 August 10, 1998 Camden Property Trust Three Greenway Plaza, Suite 1300 Houston, Texas 77046 Dear Sirs: At your request, we have read the description included in your Quarterly Report on Form 10-Q to the Securities and Exchange Commission for the quarter ended June 30, 1998, of the facts relating to the capitalization and depreciation of expenditures for carpet, appliances and HVAC unit replacements. We believe, on the basis of the facts so set forth and other information furnished to us by appropriate officials of Camden Property Trust (the "Company"), that the accounting change described in your Form 10-Q is to an alternative accounting principle that is preferable under the circumstances. We have not audited any consolidated financial statements of Camden Property Trust and its consolidated subsidiaries as of any date or for any period subsequent to December 31, 1997. Therefore, we are unable to express, and we do not express, an opinion on the facts set forth in the above-mentioned Form 10-Q, on the related information furnished to us by officials of the Company, or on the financial position, results of operations, or cash flows of Camden Property Trust and its consolidated subsidiaries as of any date or for any period subsequent to December 31, 1997. Yours truly, /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1998 JUN-30-1998 127,893 0 0 0 0 0 2,262,551 127,198 2,284,052 0 926,118 0 42 446 1,203,832 2,284,052 0 150,179 0 61,847 36,977 0 23,266 0 0 0 0 0 0 23,215 0.49 0.47
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