-----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, GXcK/eux5pP/7PXg5VHtEBz17EMIv+e+xIvDWxuqoSHozoofOLcFEa6XCuCCZYfO pPYuXx57HHZch+ZVoc+XWA== 0000906345-99-000015.txt : 19991103 0000906345-99-000015.hdr.sgml : 19991103 ACCESSION NUMBER: 0000906345-99-000015 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19991102 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-K/A SEC ACT: SEC FILE NUMBER: 001-12110 FILM NUMBER: 99739221 BUSINESS ADDRESS: STREET 1: THREE GREENWAY PLAZA STREET 2: SUITE 1300 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7139643555 MAIL ADDRESS: STREET 1: 3200 SOUTHWEST FREEWAY STREET 2: SUITE 1500 CITY: HOUSTON STATE: TX ZIP: 77027 10-K/A 1 CAMDEN PROPERTY TRUST - DATED 12/31/98 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A Amendment No. 1 FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _________ Commission file number: 1-12110 CAMDEN PROPERTY TRUST (Exact Name of Registrant as Specified in Its Charter) TEXAS 76-6088377 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3 GREENWAY PLAZA, SUITE 1300 77046 HOUSTON, TEXAS (Zip Code) (Address of Principal Executive Offices) Registrant's telephone number, including area code: (713) 354-2500 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Shares of Beneficial Interest, $.01 par value New York Stock Exchange 7.33% Convertible Subordinated Debentures due 2001 New York Stock Exchange $2.25 Series A Cumulative Convertible Preferred Shares, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether 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 registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of voting shares of beneficial interest held by non-affiliates of the registrant was $1,029,157,584 at March 1, 1999. The number of common shares of beneficial interest outstanding at March 1, 1999 was 42,725,791. PART I ITEM 1. BUSINESS INTRODUCTION Camden Property Trust is a Houston-based real estate investment trust ("REIT") that owns, develops, acquires, manages and disposes of multifamily apartment communities in the Southwest, Southeast, Midwest and Western regions of the United States. As of December 31, 1998, we owned interests in and operated 149 multifamily properties containing 51,310 apartment homes located throughout 18 cities in nine states. These properties had a weighted average occupancy rate of 93% for the year ended December 31, 1998. This represents the average occupancy for all our properties in 1998 weighted by the number of apartment homes in each property. Fourteen of our multifamily properties containing 5,658 apartment homes were under development at December 31, 1998. We have several additional sites which we intend to develop into multifamily apartment communities. On April 8, 1998, Oasis Residential, Inc. ("Oasis") was merged with and into one of our wholly-owned subsidiaries. Oasis was a REIT headquartered in Las Vegas, Nevada whose business was the operation and development of multifamily residential communities in Las Vegas, Denver and Southern California. The merger increased the size of our portfolio from 100 to 152 completed multifamily properties, and from 34,669 to 50,183 apartment homes. In this merger, each then outstanding share of Oasis common stock was exchanged for 0.759 of a Camden common share. Each then outstanding share of Oasis Series A Cumulative Convertible Preferred Stock was reissued as a Camden Series A Cumulative Convertible Preferred Share. The Camden preferred shares have comparable terms and conditions as the Oasis preferred stock. We issued 12.4 million common shares and 4.2 million preferred shares in the merger. We assumed approximately $484 million of Oasis debt, at fair value, in the merger. In the merger, we obtained a managing member interest in Oasis Martinique. The remaining interests are exchangeable into 672,490 Camden common shares. In connection with the merger with Oasis, on June 30, 1998, we completed a transaction in which Camden USA, Inc., one of our wholly owned subsidiaries and TMT-Nevada, L.L.C., a Delaware limited liability company, formed Sierra-Nevada Multifamily Investments, LLC. We entered into this transaction to reduce our market risk in the Las Vegas area. TMT-Nevada has an 80% interest in Sierra-Nevada and Camden USA holds the remaining 20% interest. We transferred to Sierra-Nevada 19 apartment communities for an aggregate of $248 million. Prior to the merger, Oasis owned 100% of each of these communities. In the merger, Camden USA acquired these communities. As a result, after the merger and prior to the Sierra-Nevada transaction, Camden USA owned 100% of each of these 19 properties. These properties contain 5,119 apartment homes and are located in Las Vegas. This transaction was funded with capital invested by the members of Sierra-Nevada, the assumption of $9.9 million of existing nonrecourse indebtedness, the issuance of 17 nonrecourse cross collateralized and cross defaulted loans $180 million and the issuance of two nonrecourse second lien mortgages totaling $7 million. We used the net proceeds from this transaction to reduce our 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 was used to complete tax-free exchange property acquisitions, retire debt and repurchase common shares. We did not record a book gain or loss as a result of this transaction. We continue to provide property management services for these assets. On April 15, 1997, we acquired through a tax-free merger, Paragon Group, Inc. ("Paragon"), a Dallas-based multifamily REIT. The acquisition increased the size of our portfolio from 53 to 103 multifamily properties, and from 19,389 to 35,364 apartment homes. Each share of Paragon common stock outstanding on April 15, 1997 was exchanged for 0.64 of a Camden common share. In this transaction, we issued 9.5 million common shares, 2.4 million limited partnership units in Camden Operating, L.P. and assumed approximately $296 million of Paragon debt at fair value. At December 31, 1998, we had 1,773 employees. Our headquarters are located at 3 Greenway Plaza, Suite 1300, Houston, Texas 77046 and our telephone number is (713) 354-2500. OPERATING STRATEGY We believe that producing consistent earnings growth and developing a strategy for selective investment in favorable markets are crucial factors to our success. We rely heavily on our sophisticated property management capabilities and innovative operating strategies in our efforts to produce consistent earnings growth. Sophisticated Property Management. We believe the depth of our organization enables us to deliver quality services, thereby promoting resident satisfaction and improving resident retention, which reduces operating expenses. We manage our properties utilizing a staff of professionals and support personnel, including certified property managers, experienced apartment managers and leasing agents, and trained apartment maintenance technicians. Our on-site personnel are trained to deliver high quality services to their residents. We attempt to motivate our on-site employees through incentive compensation arrangements based upon the net operating income produced at their property, as well as rental rate increases and the level of lease renewals achieved. Innovative Operating Strategies. We believe an intense focus on operations is necessary to realize consistent, sustained earnings growth. Ensuring resident satisfaction, increasing rents as market conditions allow, maximizing rent collections, maintaining property occupancy at optimal levels and controlling operating costs comprise our principal strategies to maximize property net operating income. Lease terms are generally staggered based on vacancy exposure by apartment type so that lease expirations are better matched to each property's seasonal rental patterns. We offer leases ranging from six to thirteen months, with individual property marketing plans structured to respond to local market conditions. In addition, we conduct ongoing customer service surveys to ensure we respond timely to residents changing needs and to ensure that residents retain a high level of satisfaction. New Development and Acquisitions. We continue to operate in markets where we have a concentration advantage due to economies of scale. We feel that where possible, it is best to operate with a strong base of properties in order to benefit from the personnel allocation and the market strength associated with managing several properties in the same market. We believe we are well positioned in our current markets and have the expertise to take advantage of both development and acquisition opportunities which have healthy long-term fundamentals and strong growth projections. This dual capability, combined with what we believe is a conservative financial structure, allows us to concentrate our growth efforts towards selective development alternatives and acquisition opportunities. Selective development of new apartment properties will continue to be important to the growth of our portfolio for the next several years. We use experienced on-site construction superintendents, operating under the supervision of project managers and senior management, to control the construction process. All development decisions are made from our corporate office. Risks inherent to developing real estate include zoning changes and environmental matters. There is also the risk that certain assumptions concerning economic conditions may change during the development process. We believe that we understand and effectively manage the risks associated with development and that the risks of new development are justified by higher potential yields. We plan to continue diversification of our investments, both geographically and in the number of apartment homes and selection of amenities offered. Our operating properties have an average age of nine years (calculated on a basis of investment dollars). We believe that the physical improvements we have made at our acquired properties, such as new or enhanced landscaping design, new or upgraded amenities and redesigned building structures, coupled with a strong focus on property management and marketing, has resulted in attractive yields on acquired properties. Dispositions. To generate consistent earnings growth, we seek to selectively dispose of properties and redeploy capital if we determine a property cannot meet long-term earnings growth expectations. The $275.5 million in net proceeds received from asset disposals during 1998, including the joint venture investment in Sierra-Nevada, were reinvested in acquisitions and developments and used to retire debt and repurchase common shares. Environmental Matters. Under various federal, state and local laws, ordinances and regulations, we are liable for the costs of removal or remediation of certain hazardous or toxic substances on or in our properties. These laws often impose liability without regard to whether we knew of, or were responsible for, the presence of the hazardous or toxic substances. All of our properties have been subjected to Phase I site assessments or similar environmental audits to determine if there is a likelihood of contamination from either on- or off-site sources. These audits have been carried out in accordance with accepted industry practices. We have also conducted limited subsurface investigations and tested for radon and lead-based paint where such procedures have been recommended by our consultants. We cannot assure you that existing environmental studies reveal all environmental liabilities or that any prior owner did not create any material environmental condition not know to us. The costs of investigation, remediation or removal of hazardous substances may be substantial. If hazardous or toxic substances are present on a property, or if we fail to properly remediate such substances, our ability to sell or rent such property or to borrow using such property as collateral may be adversely affected. Insurance. We carry comprehensive liability, fire, flood, extended coverage and rental loss insurance on our properties, which we believe is of the type and amount customarily obtained on real property assets. We intend to obtain similar coverage for properties we acquire in the future. However, there are certain types of losses, generally of a catastrophic nature, such as losses from floods or earthquakes, that may be subject to limitations in certain areas. Our board exercises its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining appropriate insurance on our investments at a reasonable cost and on suitable terms. If we suffer a substantial loss, our insurance coverage may not be sufficient to pay the full current market value or current replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed. MARKETS AND COMPETITION Our portfolio consists of middle to upper market apartment properties. We target acquisitions and developments in selected high-growth markets. Since our initial public offering, we have diversified into other markets in the Southwest region and into the Southeast, Midwest and Western regions of the United States. By combining acquisition, renovation and development capabilities, we believe we are able to better respond to changing conditions in each market, thereby reducing market risk and allowing us to take advantage of opportunities as they arise. There are numerous housing alternatives that compete with our properties in attracting residents. Our properties compete directly with other multifamily properties and single family homes that are available for rent in the markets in which our properties are located. Our properties also compete for residents with the new and existing owned-home market. The demand for rental housing is driven by economic and demographic trends. Recent trends in the economics of renting versus home ownership indicate an increasing demand for rental housing in certain markets, despite relatively low residential mortgage interest rates. Rental demand should be strong in areas anticipated to experience in-migration, due to the younger ages that characterize movers as well as the relatively high cost of home ownership in higher growth areas. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS We have made statements in this report that are "forward-looking" in that they do not discuss historical fact, but instead note future expectations, projections, intentions or other items relating to the future. These forward-looking statements include those made in the documents incorporated by reference in this report. Forward-looking statements are subject to known and unknown risks, uncertainties and other facts that may cause our actual results or performance to differ materially from those contemplated by the forward-looking statements. Many of those factors are noted in conjunction with the forward-looking statements in the text. Other important factors that could cause actual results to differ include: 1. The results of our efforts to implement our property development strategy. 2. The effect of economic conditions. 3. Failure to qualify as a real estate investment trust. 4. The costs of our capital. 5. Actions of our competitors and our ability to respond to those actions. 6. Changes in government regulations, tax rates and similar matters. 7. Environmental uncertainties and natural disasters. 8. Unexpected Year 2000 problems. 9. Other risks detailed in our other SEC reports or filings. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this report. ITEM 2. PROPERTIES THE PROPERTIES The Company's properties typically consist of two- and three-story buildings in a landscaped setting and provide residents with a variety of amenities. Most of the properties have, or are expected to have, one or more swimming pools and a clubhouse and many have whirlpool spas, tennis courts and controlled-access gates. Many of the apartment homes offer additional features such as fireplaces, vaulted ceilings, microwave ovens, covered parking, icemakers, washers and dryers and ceiling fans. The 149 properties, which we owned interests in and operated at December 31, 1998, average 838 square feet of living area. OPERATING PROPERTIES For the year ended December 31, 1998, no single operating property accounted for greater than 3.2% of our total revenues. The operating properties had a weighted average occupancy rate of 93.0% and 94.0% in 1998 and 1997, respectively. Resident lease terms generally range from six to thirteen months and usually require security deposits. One hundred twenty-six of our operating properties have over 200 apartment homes, with the largest having 894 apartment homes. Our operating properties were constructed and placed in service as follows: Year Placed in Service Number of Properties ------------------------------ ------------------------------ 1993 - 1998 40 1988 - 1992 26 1983 - 1987 53 1978 - 1982 19 1973 - 1977 7 1967 - 1972 4 Property Table The following table sets forth information with respect to our operating properties at December 31, 1998. OPERATING PROPERTIES
- ----------------------------------------------------------------------------------------------------------------------------------- December 1998 Avg. Mo. Rental Rates ----------------------- Number of Year Placed Average Apartment 1998 Average Per PROPERTY AND LOCATION Apartments in Service Size (Sq. Ft.) Occupancy (1) Apartment Per Sq. Ft. - ---------------------------------------- -------------- --------------- -------------------- -------------- ----------- ----------- ARIZONA PHOENIX Arrowhead Springs, The Park at 288 1997 925 88 % $ 704 $ 0.76 Fountain Palms, The Park at (2) 192 1986/1996 1,050 87 703 0.67 Scottsdale Legacy 428 1996 1,067 90 893 0.84 Towne Center, The Park at (3) 240 1998 871 85 707 0.81 Vista Valley, The Park at 357 1986 923 90 703 0.76 TUCSON Eastridge 456 1984 559 91 446 0.80 Oracle Villa 365 1974 1,026 90 687 0.67 CALIFORNIA ORANGE COUNTY Martinique 713 1986 795 94 1,009 1.27 Parkside (4) 421 1972 835 61 924 1.11 Sea Palms 138 1990 891 97 1,115 1.25 COLORADO Denver Centennial, The Park at 276 1985 744 96 715 0.96 Deerwood, The Park at 342 1996 1,141 95 1,093 0.96 Denver West, The Park at (6) 321 1997 1,012 96 1,033 1.02 Lakeway, The Park at 451 1997 919 95 953 1.04 Park Place 224 1985 748 95 706 0.94 Wexford, The Park at 358 1986 810 95 750 0.93 FLORIDA ORLANDO Grove, The 232 1973 677 97 537 0.79 Landtree Crossing 220 1983 748 95 594 0.79 Renaissance Pointe 272 1996 940 95 793 0.84 Riverwalk I & II 552 1984/1986 747 92 552 0.74 Sabal Club (2) 436 1986 1,077 91 845 0.78 Vineyard, The (8) 526 1990/1991 824 97 669 0.81 TAMPA/ST. PETERSBURG Chase Crossing 444 1986 1,223 88 784 0.64 Chasewood 247 1985 704 95 548 0.78 Dolphin/Lookout Pointe 832 1987/1989 748 94 646 0.86 Heron Pointe 276 1996 942 95 824 0.88 Island Club I & II 484 1983/1985 722 95 533 0.74 Live Oaks (2) 770 1990 1,093 89 743 0.68 Mallard Pointe I & II 688 1982/1983 728 93 573 0.79 Marina Pointe Village (11) 408 1997 927 89 795 0.86 Parsons Run 228 1986 728 97 572 0.78 Schooner Bay 278 1986 728 95 636 0.87 Summerset Bend 368 1984 771 94 597 0.77 KENTUCKY LOUISVILLE Copper Creek 224 1987 732 92 623 0.85 Deerfield 400 1987/1990 746 89 625 0.84 Glenridge 138 1990 916 89 735 0.80 Post Oak 126 1981 847 92 586 0.69 Sundance 254 1975 682 92 533 0.78 MISSOURI KANSAS CITY Camden Passage I & II 596 1989/1997 832 95 695 0.83 ST. LOUIS 92 Cedar Ridge (2) 420 1986 852 96 550 0.65 Cove at Westgate, The 276 1990 828 93 846 1.02 Knollwood I & II 608 1981/1985 722 91 534 0.74 Spanish Trace 372 1972 1,158 88 714 0.62 Tempo 304 1975 676 94 502 0.74 Westchase 160 1986 945 89 849 0.90 Westgate I & II (4) 591 1973/1980 947 92 741 0.78 NEVADA LAS VEGAS Oasis Bay (5) 128 1990 862 96 717 0.82
OPERATING PROPERTIES (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------- December 1998 Avg. Mo. Rental Rates ----------------------- Number of Year Placed Average Apartment 1998 Average Per PROPERTY AND LOCATION Apartments in Service Size (Sq. Ft.) Occupancy (1) Apartment Per Sq. Ft. - ---------------------------------------- -------------- --------------- -------------------- -------------- ----------- ----------- Oasis Bel Air I & II 528 1988/1995 943 94 % $ 670 $ 0.71 Oasis Breeze 320 1989 846 95 673 0.80 Oasis Canyon 200 1995 987 92 776 0.79 Oasis Cliffs 376 1988 936 92 733 0.78 Oasis Club 320 1989 896 95 711 0.79 Oasis Cove 124 1990 898 97 680 0.76 Oasis Crossings (5) 72 1996 983 90 752 0.77 Oasis Del Mar 560 1995 986 94 801 0.81 Oasis Emerald (5) 132 1988 873 94 642 0.74 Oasis Gateway (5) 360 1997 1,146 92 850 0.74 Oasis Glen 113 1994 792 98 686 0.88 Oasis Greens 432 1990 892 93 702 0.79 Oasis Harbor 336 1996 1,008 94 785 0.78 Oasis Heights 240 1989 849 93 659 0.78 Oasis Heritage (5) 720 1986 950 88 604 0.64 Oasis Hills 184 1991 579 95 507 0.88 Oasis Island (5) 118 1990 901 93 651 0.72 Oasis Landing (5) 144 1990 938 94 694 0.74 Oasis Meadows (5) 383 1996 1,031 89 782 0.76 Oasis Palms (5) 208 1989 880 96 664 0.75 Oasis Paradise 624 1991 905 93 743 0.82 Oasis Pearl (5) 90 1989 930 95 671 0.72 Oasis Pines 315 1997 1,005 91 795 0.79 Oasis Place (5) 240 1992 440 94 440 1.00 Oasis Plaza (5) 300 1976 820 95 603 0.74 Oasis Pointe 252 1996 985 95 749 0.76 Oasis Ridge (5) 477 1984 391 91 432 1.10 Oasis Rose (5) 212 1994 1,025 92 719 0.70 Oasis Sands 48 1994 1,125 94 735 0.65 Oasis Springs (5) 304 1988 838 94 635 0.76 Oasis Suites (5) 409 1988 404 93 444 1.10 Oasis Summit 234 1995 1,187 94 1,063 0.90 Oasis Tiara 400 1996 1,043 95 829 0.79 Oasis Topaz 270 1978 827 90 603 0.73 Oasis View (5) 180 1983 940 93 665 0.71 Oasis Vinings (5) 234 1994 1,152 94 739 0.64 Oasis Vintage 368 1994 978 92 731 0.75 Oasis Vista (5) 408 1985 896 86 527 0.59 Oasis Winds 350 1978 807 89 598 0.74 RENO Oasis Bluffs 450 1997 1,111 93 991 0.89 NORTH CAROLINA CHARLOTTE Copper Creek 208 1989 703 92 610 0.87 Eastchase 220 1986 698 91 569 0.82 Habersham Pointe 240 1986 773 91 646 0.84 Overlook, The (7) 220 1985 754 93 665 0.88 Park Commons 232 1997 859 92 726 0.84 Pinehurst 407 1967 1,147 90 758 0.66 Timber Creek 352 1984 706 90 606 0.86 GREENSBORO Brassfield Park (7) 336 1997 889 94 713 0.80 Glen, The 304 1980 662 88 555 0.84 River Oaks 216 1985 795 90 626 0.79 TEXAS AUSTIN Autumn Woods 283 1984 644 94 566 0.88 Calibre Crossing 183 1986 705 98 607 0.86 Huntingdon, The 398 1995 903 96 785 0.87 Quail Ridge 167 1984 859 97 672 0.78 Ridgecrest 284 1995 851 95 753 0.88 South Oaks 430 1980 705 94 589 0.83
OPERATING PROPERTIES (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------- December 1998 Avg. Mo. Rental Rates ----------------------- Number of Year Placed Average Apartment 1998 Average Per PROPERTY AND LOCATION Apartments in Service Size (Sq. Ft.) Occupancy (1) Apartment Per Sq. Ft. - ---------------------------------------- -------------- --------------- -------------------- -------------- ----------- ----------- CORPUS CHRISTI Breakers, The 288 1996 861 92 757 0.88 Miramar I, II & III (9) 300 1994/1995/1998 708 89% $ 789 $ 1.11 Potters Mill 344 1986 775 91 597 0.77 Waterford, The 580 1976/1980 767 91 521 0.68 DALLAS/FORT WORTH Addison, The Park at 456 1996 942 92 873 0.93 Buckingham, The Park at (10) 464 1997 919 93 803 0.87 Centreport, The Park at (10) 268 1997 910 96 808 0.89 Chesapeake 128 1982 912 96 724 0.79 Cottonwood Ridge 208 1985 829 95 575 0.69 Emerald Valley 516 1986 743 95 657 0.88 Emerald Village 304 1987 713 94 616 0.86 Glen Arbor 320 1980 666 98 505 0.76 Glen Lakes 424 1979 877 95 746 0.85 Highland Trace 160 1985 816 94 657 0.80 Highpoint (7) 708 1985 835 95 640 0.77 Ivory Canyon 602 1986 548 96 538 0.98 Los Rios 286 1992 772 94 778 1.01 Nob Hill 486 1986 642 95 516 0.80 North Dallas Crossing I & II 446 1985 730 93 623 0.85 Oakland Hills 476 1985 853 97 601 0.70 Pineapple Place 256 1983 652 93 586 0.90 Randol Mill Terrace 340 1984 848 96 581 0.69 Shadow Lake 264 1984 733 92 573 0.78 Stone Creek 240 1995 831 92 787 0.95 Stone Gate 276 1996 871 93 814 0.94 Towne Centre Village 188 1983 735 97 565 0.77 Towne Crossing, The Place at 442 1984 772 97 570 0.74 Valley Creek Village 380 1984 855 97 639 0.75 Valley Ridge 408 1987 773 96 612 0.79 Westview 335 1983 697 95 593 0.85 EL PASO La Plaza 129 1969 997 95 582 0.58 HOUSTON Brighton Place 282 1978 749 97 558 0.74 Cambridge Place 336 1979 771 97 574 0.75 Crossing, The 366 1982 762 96 563 0.74 Driscoll Place 488 1983 708 95 467 0.66 Eagle Creek 456 1984 639 97 564 0.88 Jones Crossing 290 1982 748 97 563 0.75 Roseland 671 1982 726 96 554 0.75 Southpoint 244 1981 730 93 568 0.78 Stonebridge 204 1993 845 97 777 0.92 Sugar Grove, The Park at 380 1997 917 94 810 0.88 Vanderbilt I & II, The Park at 894 1996/1997 863 96 993 1.15 Wallingford 462 1980 787 95 589 0.75 Wilshire Place 536 1982 761 95 562 0.74 Woodland Park 288 1995 866 96 789 0.91 Wyndham Park 448 1978/1981 797 98 506 0.63 ========= =============== ============ ========= =========== Total 51,310 838 93% $ 681 $ 0.81 ========= =============== ============ ========= ===========
(1) Represents average physical occupancy for the year, except as noted below. (2) Acquisition property - average occupancy calculated from acquisition date through year-end. (3) Property under lease-up at December 31, 1998. Occupancy percentage listed is as of March 1, 1999, and is excluded from the December 31, 1998 average physical occupancy calculation. (4) Property under renovation during 1998, which affected occupancy levels during this period. Occupancy percentage listed is as of March 1, 1999, and is excluded from the December 31, 1998 average physical occupancy calculation. (5) Properties owned through Sierra-Nevada Multifamily Investments, LLC joint venture in which we own a 20% interest. (6) Property owned through a joint venture in which we own a 50% interest. The remaining interest is owned by an unaffiliated private investor. (7) Properties owned through a joint venture in which we own a 44% interest. The remaining interest is owned by unaffiliated private investors. (8) Property combined with an adjacent property, The Reserve, in 1998. (9) Miramar is a student housing project for Texas A&M at Corpus Christi. Average occupancy includes summer which is normally subject to high vacancies. (10) Development property - average occupancy calculated from date at which occupancy exceeded 90% through year-end. (11) Property acquired during 1998 while still under lease-up. Occupancy percentage listed is as of March 1, 1999, and is excluded from the December 31, 1998 average physical occupancy calculation. OPERATING PROPERTY UNDER LEASE-UP At December 31, 1998, the Company had one property under lease-up as follows:
Number of Estimated Product Apartment % Leased Date of Date of Property and Location Type Home at 1/27/99 Completion Stabilization - -------------------------------------- ---------------- ------------- -------------- -------------- --------------- The Park at Towne Center Glendale, AZ Garden 240 78% 4Q98 2Q99
DEVELOPMENT PROPERTIES The total budgeted cost of the development properties is approximately $400.1 million, with a remaining cost to complete, as of December 31, 1998, of approximately $217.8 million. There can be no assurance that our budget, leasing or occupancy estimates will be attained for the development properties or that their performance will be comparable to that of our existing portfolio. Development Property Table At December 31, 1998, the Company had 14 development properties in various stages of construction as follows:
Number of Estimated Estimated Estimated Product Apartment Cost Date of Date of Property and Location Type Homes ($millions)* Completion Stabilization - ---------------------------------------- ------------ ---------------- -------------- -------------- --------------- Renaissance Pointe II Orlando, FL Garden 306 $ 17.3 1Q99 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 Interlocken Denver, CO Garden 340 34.9 3Q99 1Q00 The Park at Holly Springs Houston, TX Garden 548 37.1 3Q99 3Q00 The Park at Caley Denver, CO Urban 218 18.3 4Q99 1Q00 The Park at Oxmoor Louisville, KY Garden 432 22.1 4Q99 3Q00 The Park at Greenway Houston, TX Urban 756 55.7 4Q99 4Q00 The Park at Arizona Center Phoenix, AZ Urban 325 22.0 1Q00 3Q00 The Park at Lee Vista Orlando, FL Garden 492 32.8 1Q00 4Q00 The Park at Mission Viejo Mission Viejo, CA Garden 380 42.0 2Q00 4Q00 The Park at Farmers Market, Phase I Dallas TX Urban 600 45.9 4Q00 3Q01 ----------- --------- 5,006 361.4 Marina Pointe II To Be To Be Tampa, FL Garden 352 25.2 Determined Determined The Park at Steeplechase To Be To Be Houston, TX Affordable 300 13.5 Determined Determined ----------- ----------- 5,658 $ 400.1 =========== ===========
Management believes that we possess the development capabilities and experience to provide a continuing source of portfolio growth. In making development decisions, management considers a number of factors, including the size of the property, the season in which leasing activity will occur and the extent to which delivery of the completed apartment homes will coincide with leasing and occupancy of such apartment homes (which is dependent upon local market conditions). In order to pursue a development opportunity, we currently require a minimum initial stabilized target return of 9.5%-10.5%. This minimum target return is based on projected market rents and projected stabilized expenses, considering the market and the nature of the prospective development. ITEM 3. LEGAL PROCEEDINGS Prior to our merger with Oasis, Oasis had been contacted by certain regulatory agencies with regard to alleged failures to comply with the Fair Housing Amendments Act as it pertained to nine properties (seven of which we currently own) constructed for first occupancy after March 31, 1991. On February 1, 1999, the Justice Department filed a lawsuit against us 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 the Company, through the merger with Oasis, has 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 the Company 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 it has 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. We are currently inspecting these properties to determine the extent of the alleged noncompliance and the changes that may be necessitated. At this time, we are not able to provide an estimate of costs and expenses associated with this matter. There can be no assurance that we will be successful in the defense of the Justice Department action. Camden is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes that the final outcome of such matters will not have a material adverse effect on the consolidated financial statements of Camden. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. PART II ITEM 5. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the "Comparative Summary of Selected Financial and Property Data" and the consolidated financial statements and notes thereto appearing elsewhere in this report. Historical results and trends which might appear should not be taken as indicative of future operations. 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 rental of the Company's properties, and changes in financial markets and interest rates impacting the Company's ability to meet its financing needs and obligations. 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 and disposition of multifamily apartment communities in the Southwest, Southeast, Midwest and Western regions of the United States. As of December 31, 1998, the Company owned interests in and operated or was developing 163 multifamily properties containing 56,968 apartment homes located in nine states. These properties had a weighted average occupancy rate of 93% for the year ended December 31, 1998. This represents the average occupancy for all our properties in 1998 weighted by the number of apartment homes in each property. Fourteen of the Company's multifamily properties containing 5,658 apartment homes were under development at December 31, 1998. The Company has several additional sites which it intends to develop into multifamily apartment communities. On April 8, 1998, the Company acquired through a tax-free merger (the "Oasis Merger"), Oasis Residential, Inc. ("Oasis"), a publicly traded Las Vegas-based multifamily REIT. The acquisition increased the size of the Company's portfolio from 100 to 152 completed multifamily properties and from 34,669 to 50,183 apartment homes at the date of acquisition. Upon completion of ten properties under development at the date of acquisition, the Company's portfolio 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 one Camden Series A Cumulative Convertible Preferred Share (the "Preferred Shares") with terms and conditions comparable to the Oasis Preferred Stock. The Company issued 12.4 million common shares and 4.2 million Preferred Shares in exchange for the outstanding Oasis 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 also acquired the managing member interest in Oasis Martinique, LLC. The remaining interests (the "Martinique Units") are exchangeable into 672,490 common shares and are accounted for as a minority interest. In connection with the Oasis Merger, Camden disclosed its intentions of entering into a joint venture investment (the "Joint Venture") in order to transfer into the Joint Venture 19 apartment communities containing 5,119 apartment homes located in Las Vegas (the "Third Party Transaction"). In connection with the merger with Oasis, on June 30, 1998, we completed a transaction in which Camden USA, Inc., one of our wholly owned subsidiaries and TMT-Nevada, L.L.C., a Delaware limited liability company, formed Sierra-Nevada Multifamily Investments, LLC. We entered into this transaction to reduce our market risk in the Las Vegas area. TMT-Nevada has an 80% interest in Sierra-Nevada and Camden USA holds the remaining 20% interest. We transferred to Sierra-Nevada 19 apartment communities for an aggregate of $248 million. Prior to the merger, Oasis owned 100% of each of these communities. In the merger, Camden USA acquired these communities. As a result, after the merger and prior to the Sierra-Nevada transaction, Camden USA owned 100% of each of these 19 properties. These properties contain 5,119 apartment homes and are located in Las Vegas. This transaction was funded with capital invested by the members of Sierra-Nevada, the assumption of $9.9 million of existing nonrecourse indebtedness, the issuance of 17 nonrecourse cross collateralized and cross defaulted loans $180 million and the issuance of two nonrecourse second lien mortgages totaling $7 million. We used the net proceeds from this transaction to reduce our 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 was used to complete tax-free exchange property acquisitions, retire debt and repurchase common shares. We did not record a book gain or loss as a result of this transaction. We continue to provide property management services for these assets. 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, at fair value, in connection with the Paragon Acquisition. The accompanying consolidated financial statements include the operations of Paragon since April 1, 1997, the effective date of the Paragon Acquisition for accounting purposes. The Company's multifamily property portfolio, excluding land held for future development and joint venture properties not managed by the Company, at December 31, 1998, 1997 and 1996 is summarized as follows:
1998 (a) 1997 1996 ---------------------------- ---------------------------- ---------------------------- Apartment Apartment Apartment Homes Properties % (b) Homes Properties % (b) Homes Properties % (b) --------- ------------ ----- ----------- ---------- ----- ----------- ---------- ----- Operating Properties Texas Houston 6,345 15 13% 6,345 16 18% 6,987 18 36% Dallas (c) (d) 9,381 26 17 9,381 26 24 6,045 16 31 Austin 1,745 6 4 1,745 6 5 1,745 6 9 Other 1,641 5 3 1,585 5 4 1,585 5 8 ----------- ------- ------ ----------- ------ ----- ----------- ------ ------ Total Texas Operating 19,112 52 37 19,056 53 51 16,362 45 84 Properties Arizona 2,326 7 5 1,894 5 5 1,249 3 7 California 1,272 3 3 Colorado (c) 1,972 6 3 Florida 7,261 17 14 6,355 17 18 Kentucky 1,142 5 2 1,142 5 3 Missouri 3,327 8 7 3,487 10 10 Nevada (c) 12,163 41 14 North Carolina (c) (d) 2,735 10 4 2,735 10 6 ----------- ------- ------ ----------- ------ ----- ----------- ------ ------ Total Operating Properties 51,310 149 89 34,669 100 93 17,611 48 91 ----------- ------- ------ ----------- ------ ----- ----------- ------ ------ PROPERTIES UNDER DEVELOPMENT Texas Houston 2,213 5 4 1,365 3 4 758 2 4 Dallas 600 1 1 732 2 4 ----------- ------- ------ ----------- ------ ----- ----------- ------ ------ Total Texas 2,813 6 5 1,365 3 4 1,490 4 8 Development Properties Arizona 325 1 1 240 1 1 288 1 1 California 380 1 1 Colorado 558 2 1 Florida 1,150 3 2 306 1 1 Kentucky 432 1 1 432 1 1 ----------- ------- ------ ----------- ------ ----- ----------- ------ ------ Total Properties Under Development 5,658 14 11 2,343 6 7 1,778 5 9 ----------- ------- ------ ----------- ------ ----- ----------- ------ ------ Total Properties 56,968 163 100% 37,012 106 100% 19,389 53 100% ======= ====== ====== ===== ====== ====== Less: Joint Venture Apartment Homes (c) (d) 6,704 1,264 ----------- ----------- Total Apartment Homes - Owned 100% 50,264 35,748 19,389 =========== =========== ===========
(a) Includes the combination of operations at December 31, 1998 of two adjacent properties in Nevada, which were acquired in the Oasis Merger, two adjacent properties in Houston and two adjacent properties in Florida. (b) Based on number of apartment homes owned 100%. (c) The 1998 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 the company owns a 44% interest, the remaining interest is owned by unaffiliated private investors; one property with 321 apartment homes in Colorado in which the company owns a 50% interest, the remaining interest is owned by an unaffiliated private investor; and 19 properties with 5,119 apartment homes in Nevada owned through Sierra-Nevada Multifamily Investment, LLC in which the company owns a 20% interest. (d) The 1997 figures include properties held in a joint venture as follows: one property with 708 apartment homes in Dallas and two properties with 556 apartment homes in North Carolina in which the company owns a 44% interest. At December 31, 1998, the Company had one property under lease-up as follows:
Number of Estimated Product Apartment % Leased Date of Date of Property and Location Type Homes at 1/27/99 Completion Stabilization - --------------------------------------- ------------- ---------------- ------------- -------------- --------------- The Park at Towne Center Glendale, AZ Garden 240 78% 4Q98 2Q99
At December 31, 1998, the Company had 14 development properties in various stages of construction as follows:
Number of Estimated Estimated Estimated Product Apartment Cost Date of Date of Property and Location Type Homes ($ millions) * Completion Stabilization - ----------------------------------------- ------------ -------------- -------------- ------------- -------------- Renaissance Pointe II Garden 306 $ 17.3 1Q99 3Q99 Orlando, FL The Park at Goose Creek Affordable 272 11.8 2Q99 4Q99 Baytown, TX The Park at Midtown Urban 337 21.5 2Q99 4Q99 Houston, TX The Park at Interlocken Garden 340 34.9 3Q99 1Q00 Denver, CO The Park at Holly Springs Garden 548 37.1 3Q99 3Q00 Houston, TX The Park at Caley Urban 218 18.3 4Q99 1Q00 Denver, CO The Park at Oxmoor Garden 432 22.1 4Q99 3Q00 Louisville, KY The Park at Greenway Urban 756 55.7 4Q99 4Q00 Houston, TX The Park at Arizona Center Urban 325 22.0 1Q00 3Q00 Phoenix, AZ The Park at Lee Vista Garden 492 32.8 1Q00 4Q00 Orlando, FL The Park at Mission Viejo Garden 380 42.0 2Q00 4Q00 Mission Viejo, CA The Park at Farmers Market, Phase I Urban 600 45.9 4Q00 3Q01 Dallas, TX ---------- --------- 5,006 361.4 Marina Pointe II Garden 352 25.2 To Be To Be Tampa, FL Determined Determined The Park at Steeplechase Affordable 300 13.5 To Be To Be Houston, TX Determined Determined ---------- ----------- Total for 14 development properties 5,658 $ 400.1 ========== ===========
* At December 31, 1998, the Company had incurred $182.3 million of the estimated $400.1 million. Camden has diversified into other markets in the Southwest region and into the Southeast, Midwest and Western regions of the United States. At December 31, 1998 and 1997, the Company's investment in the various geographic areas, excluding investment in joint ventures, was as follows:
(Dollars in thousands) 1998 1997 ----------------------- ----------------------- Texas Houston $ 347,069 14% $ 265,404 19% Dallas 370,538 15 321,101 23 Austin 67,832 3 66,365 5 Other 57,705 2 53,462 4 ------------- ------- ------------- ------- Total Texas Properties 843,144 34 706,332 51 ------------- ------- ------------- ------- Arizona 133,047 5 102,520 8 California 139,602 6 Colorado 158,837 7 3,083 Florida 376,235 15 240,008 17 Kentucky 56,954 2 55,210 4 Missouri 169,741 7 173,939 13 Nevada 487,679 20 North Carolina 90,219 4 100,957 7 ------------- ------- -------------- ------- Total Properties $ 2,455,458 100% $ 1,382,049 100% ============= ======= ============== =======
LIQUIDITY AND CAPITAL RESOURCES Financial Structure. The Company intends to continue maintaining what management believes to be a conservative capital structure by: (i) using a prudent combination of debt, common and preferred equity; (ii) extending and sequencing the maturity dates of its debt where possible; (iii) managing interest rate exposure using fixed rate debt and hedging, where appropriate; (iv) borrowing on an unsecured basis; (v) maintaining a substantial number of unencumbered assets; and (vi) maintaining conservative coverage ratios. The interest coverage ratio was 3.8 times and 3.6 times for the years ended December 31, 1998 and 1997, respectively. At December 31, 1998 and 1997, 73.2% and 78.9%, respectively, of the Company's properties (based on invested capital) were unencumbered. Liquidity. The Company intends to meet its short-term liquidity requirements through cash flows provided by operations, its unsecured lines of credit (the "Unsecured Lines of Credit") described in the Financial Flexibility section and other short-term borrowings. The Company expects that its ability to generate cash will be sufficient to meet its short-term liquidity needs, which include normal operating expenses, debt service requirements, capital expenditures, property developments and distributions. The Company considers its long-term liquidity needs to be the repayment of maturing secured debt and borrowings under its Unsecured Credit Facility. The Company uses common and preferred equity capital and senior unsecured debt to meet its long-term liquidity requirements. As of December 31, 1998, the Company had $18 million available under the Unsecured Lines of Credit. Subsequent to December 31, 1998, the Company added an additional $75 million in capacity to its Unsecured Lines of Credit, increasing its total capacity to $275 million, raised an additional $39.5 million from the sale of senior unsecured notes, and completed the private placement of $100 million of its pepetual preferred units. 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 $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. 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. On January 15, 1999, the Company paid a distribution of $0.505 per share for the fourth quarter of 1998 to all holders of record of Camden's common shares as of December 22, 1998, and paid an equivalent amount per unit to holders of OP Units. Total distributions to common shareholders and holders of OP Units for the year ended December 31, 1998 were $2.02 per share for holders who held common shares and OP Units for the full year. For the period from January 1, 1998 through the date of the Oasis Merger, Oasis paid distributions of $0.4525 per share to common shareholders. The Company determines the amount of cash available for distribution in accordance with the partnership agreements and has distributed and intends to continue to make distributions to the holders of OP Units in amounts equivalent to the per share distributions paid to holders of common shares. The Company intends to continue shareholders distributions in accordance with REIT qualification requirements under the federal tax code while maintaining what management believes to be a conservative payout ratio, and expects to continue reducing and payout ratio by raising the distributions at a rate which is less than the funds from operations ("FFO") growth rate. On February 15, 1999, the Company paid a quarterly dividends 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 was paid to all preferred shareholders of record as of December 22, 1998. Total dividends to holders of Preferred Shares from the date of the Oasis Merger through December 31, 1998 were $1.6875 per share. For the period from January 1, 1998 through the date of the Oasis Merger, Oasis paid dividends of $0.5625 per share to preferred shareholders. Financial Flexibility. The Company concentrates its growth efforts toward selective development and acquisition opportunities in its current markets, and through the acquisition of existing operating portfolios and development properties in selected new markets. During 1998, the Company incurred $193.2 million in development costs and $139.2 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 $400.1 million, of which $182.3 million had been incurred through December 31, 1998. The Company funds its developments and acquisitions through a combination of equity capital, partnership units, medium-term notes, construction loans, other debt securities and the Unsecured Lines of Credit. The Company also seeks to selectively dispose of assets that 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 $275.5 million in net proceeds received from these asset disposals, including the Third Party Transaction, during 1998 were reinvested in acquisitions and developments, used to retire debt and used to repurchase the Company's common shares. The Company's Unsecured Lines of Credit mature July 1999 through July 2000. Prior to maturity, the Company intends to have these notes extended, renegotiated or repaid. The scheduled interest rates on the loans currently range from LIBOR plus 95 basis points to prime. These scheduled rates are subject to change as the Company's credit ratings change. Advances under the Unsecured Lines of Credit may be priced at the scheduled rates, or the Company may enter into bid rate loans ("Bid Rate Loans") with participating banks at rates below the scheduled rates. These Bid Rate Loans have terms of six months or less and may not exceed the lesser of $75 million or the remaining amount available under the Unsecured Lines of Credit. The Unsecured Lines of Credit are subject to customary financial covenants and limitations. As an alternative to its Unsecured Lines of Credit, the Company from time to time borrows using competitively bid unsecured short-term notes with lenders who may or may not be a part of the Unsecured Lines of Credit bank groups. Such borrowings vary in term and pricing and are typically priced at interest rates below those available under the Unsecured Lines of Credit. As a result of the Oasis Merger, the Company assumed $228 million in conventional mortgage loans with interest rates currently ranging from 5 3/4% to 8 5/8%. As of December 31, 1998, $201 million of the conventional mortgage loans assumed remained outstanding. In conjunction with the Oasis Merger, Camden assumed $150 million in senior unsecured notes payable issued by Oasis in November 1996. These notes are due in equal increments in November 2001, 2003, 2006 and bear interest at annual rates ranging from 6 3/4% to 7 1/4%, payable quarterly. Proceeds from the Third Party Transaction were used to reduce outstanding debt by $124 million, including $9.9 million of existing indebtedness and approximately $114 million on the Unsecured Lines of Credit, and $112 million was set aside into an escrow account which was used to complete tax-free exchange property acquisitions, retire debt and repurchase the Company's common shares. In October 1998, the Company issued $102 million principal amounts of senior unsecured notes from its $196 million medium-term note shelf registration. These fixed rate notes, due in October 2000, bear interest at a weighted average rate of 7.19 %, payable semiannually on March 15 and September 15. The net proceeds were used to liquidate the $75 million Reset Notes, pay off certain mortgage notes payable, and reduce indebtedness incurred under the Unsecured Lines of Credit. At December 31, 1998, $69 million of the medium-term note program remained unused. Subsequent to December 31, 1998, the Company issued $39.5 million principal amounts of senior unsecured notes from its $196 million medium-term note shelf registration. These fixed rate notes, due in January 2002 through January 2009, respectively, bear interest at a weighted average rate of 7.07%, payable semiannually on January 15 and July 15. The net proceeds were used to reduce indebtedness outstanding under the Unsecured Lines of Credit. On February 23, 1999, the Operating Partnership issued $100 million of 8.5% Series B Cumulative Redeemable Perpetual Preferred Units ("Preferred Units"). 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 registered preferred shares of the Company. The Preferred Units are subordinate to present and future debt of the Operating Partnership and the Company. MARKET RISK The Company uses fixed and floating rate debt to finance acquisitions, developments and maturing debt. These transactions expose the Company to market risk related to changes in interest rates. Management's policy is to review the Company's borrowings and attempt to mitigate interest rate exposure through the use of derivative instruments. The Company currently has a $25 million interest rate swap agreement designated as a partial hedge of floating rate debt. The swap is scheduled to mature in July 2000, but the issuing bank has an option to extend this agreement to July 2002. The interest rate is fixed at 6.1%, resulting in an interest rate exposure equal to the difference between 6.1% and the actual base rate on the related indebtedness. The Company's policy regarding the use of derivative financial instruments in managing market risk exposures is consistent with the prior year and is not expected to change in future years. The Company does not use derivative financial instruments for trading purposes. For fixed rate debt, interest rate changes affect the fair market value but do not impact net income to common shareholders or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact net income to common shareholders and cash flows, assuming other factors are held constant. At December 31, 1998, after adjusting for the effect of the interest rate swap agreement, Camden had fixed rate debt of $781.3 million and floating rate debt of $221.3 million. Holding other variables constant (such as debt levels), a one percentage point variance in interest rates would change the unrealized fair market value of the fixed rate debt by approximately $30 million. The net income to common shareholders and cash flows impact on the next year resulting from a one percentage point variance in interest rates on floating rate debt would be approximately $2.2 million, holding all other variables constant. 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. 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. Camden's FFO for the year ended December 31, 1998 increased $62.2 million over 1997 primarily due to the Oasis Merger, the Paragon Acquisition, property acquisitions, developments and improvements in the performance of the stabilized properties in the portfolio. The calculation of FFO for the two years ended December 31, 1998 follows: (In thousands)
1998 1997 --------- ---------- Net income to common shareholders $ 47,962 $ 38,438 Real estate depreciation 76,740 43,769 Minority interests 1,322 1,655 Real estate depreciation from unconsolidated ventures 2,253 906 Interest on convertible subordinated debentures 317 670 Amortization of deferred costs on convertible debentures 31 88 Preferred share dividends 9,371 Gain on sales of properties (10,170) Losses related to early retirement of debt 397 --------- ---------- Funds from operations $137,996 $ 75,753 ========= ========== Weighted average number of common and common dilutive and antidilutive equivalent shares outstanding 46,779 28,882
RESULTS OF OPERATIONS Changes in revenues and expenses related to the operating properties from period to period are primarily due to the Oasis Merger, the Paragon Acquisition, property acquisitions, developments, dispositions and improvements in the performance of the stabilized properties in the portfolio. Where appropriate, comparisons are made on a dollars-per-weighted-average-apartment homes basis in order to adjust for such changes in the number of apartment homes owned during each period. Selected weighted average revenues and expenses per operating apartment home for the three years ended December 31, 1998 are as follows:
1998 1997 1996 ------------ ----------- ------------ Rental income per apartment home per month $ 591 $ 535 $ 508 Property operating and maintenance per apartment home per year $ 2,290 $ 2,414 $ 2,339 Real estate taxes per apartment home per year $ 742 $ 718 $ 760 Weighted average number of operating apartment homes 42,411 29,280 17,362
1998 COMPARED TO 1997 The changes in operating results from 1997 to 1998 are primarily due to the Oasis Merger, the Paragon Acquisition, development of five properties aggregating 2,074 apartment homes, the acquisition of seven properties containing 3,123 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 increased by 13,131 apartment homes, or 44.8%, from 29,280 to 42,411 for the years ended December 31, 1997 and 1998, respectively. Total operating properties were 97 and 126 at December 31, 1997 and 1998, respectively. The weighted average number of apartment homes and the operating properties exclude the impact of the Company's ownership interest in operating properties and apartment homes owned in joint ventures. Rental income per apartment home per month increased $56, or 10.5%, from $535 to $591 for the years ended December 31, 1997 and 1998, respectively. The increase was primarily due to increased revenue growth from the stabilized real estate portfolio, higher average rental rates on properties added to the portfolio through the Oasis Merger, the seven acquired properties and completion of new development properties. Other property income increased $8.6 million from $9.4 million to $18.1 million for the years ended December 31, 1997 and 1998, respectively. This increase in other property income was due to a larger number of apartment homes owned and in operation and a $2.9 million increase from new revenue sources such as telephone, cable and water. Property operating and maintenance expenses increased $26.5 million, from $70.7 million to $97.1 million, but decreased as a percent of total property income from 35.8% to 30.5% for the years ended December 31, 1997 and 1998, respectively. The Company's operating expense ratios decreased from the prior year primarily as a result of operating efficiencies resulting from operating a larger portfolio and the impact of the Company's April 1, 1998 adoption of a new accounting policy, whereby expenditures for carpet, appliances and HVAC unit replacements are expensed in the first five years of a property's life and capitalized thereafter. Prior to the adoption of this policy, the Company had been expensing these costs. Had this policy change not been adopted, the 1998 operating expense ratio would have been 32.0%. Real estate taxes increased $10.4 million from $21.0 million to $31.5 million for the years ended December 31, 1997 and 1998, respectively, which represents an annual increase of $24 per apartment home. Real estate taxes per apartment home have increased due to increases in the valuations of renovated, acquired and developed properties, and increases in property tax rates. This increase per apartment home was partially offset by lower property taxes in the portfolio added through the Oasis Merger. General and administrative expenses increased from $4.4 million in 1997 to $8.0 million in 1998, and increased as a percent of revenues from 2.2% 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 2 in the Company's consolidated financial statements, which was partially offset by efficiencies resulting from operating a larger portfolio. Interest expense increased from $28.5 million in 1997 to $50.5 million in 1998 due to increased indebtedness related to the Oasis Merger, the Paragon Acquisition, completed developments, renovations and property acquisitions. This increase was partially offset by reductions in average interest rates on the Company's debt, the equity offering that occurred in July 1997 and property dispositions. Interest capitalized was $9.9 million and $3.3 million for the years ended December 31, 1998 and 1997, respectively. Depreciation and amortization increased from $44.8 million to $78.1 million. This increase was due primarily to the Oasis Merger, the Paragon Acquisition, developments, renovations and property acquisitions. Gain on sales of properties decreased $10.2 million due to the December 1997 disposition of four properties containing 1,400 apartment homes. Dispositions in 1998 resulted in no book gain or loss. 1997 COMPARED TO 1996 The changes in operating results from 1996 to 1997 are primarily due to the Paragon Acquisition, development of ten properties aggregating 3,823 apartment homes, and an increase in net operating income generated by the stabilized portfolio. The weighted average number of apartment homes increased by 11,918 apartment homes, or 68.6%, from 17,362 to 29,280 for the years ended December 31, 1996 and 1997, respectively. Total operating properties were 48 and 97 at December 31, 1996 and 1997, respectively. The 29,280 weighted average apartment homes and the 97 operating properties exclude the impact of the Company's ownership interest in 1,264 apartment homes on three properties owned in joint ventures. Rental income per apartment home per month increased $27, or 5.3%, from $508 to $535 for the years ended December 31, 1996 and 1997, 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 Paragon Acquisition and completion of new development properties. Other property income increased $5.0 million from $4.5 million to $9.4 million for the years ended December 31, 1996 and 1997, respectively. This increase in other property income was due to a larger number of apartment homes owned and in operation and a $2.2 million increase from new revenue sources such as telephone, cable and water. Property operating and maintenance expenses increased $30.1 million, from $40.6 million to $70.7 million, but decreased as a percent of total property income from 36.8% to 35.8% for the years ended December 31, 1996 and 1997, respectively. The Company's operating expense ratios decreased from the prior year primarily as a result of operating efficiencies resulting from operating a larger portfolio together with savings in utilities and other costs. Real estate taxes increased $7.8 million from $13.2 million to $21.0 million for the years ended December 31, 1996 and 1997, respectively, which represents an annual decrease of $42 per apartment home. Real estate taxes per apartment home have decreased due to lower property taxes for the Company's properties outside of Texas. This decrease per apartment home was offset by increases in the valuations of renovated, acquired and developed properties, and increases in property tax rates. General and administrative expenses increased from $2.6 million in 1996 to $4.4 million in 1997, and decreased slightly as a percent of revenues from 2.4% to 2.2%. Interest expense increased from $17.3 million in 1996 to $28.5 million in 1997 due to increased indebtedness related to the Paragon Acquisition, completed developments and renovations. This increase was partially offset by reductions in average interest rates on the Company's debt and an equity offering that occurred in July 1997. Interest capitalized was $3.3 million and $4.1 million for the years ended December 31, 1997 and 1996, respectively. Depreciation and amortization increased from $23.9 million to $44.8 million primarily due to the Paragon Acquisition, developments and renovations. Gain on sales of properties increased $10.2 million due to the gain on disposition of four properties containing 1,400 apartment homes in December 1997. INFLATION The Company leases apartments under lease terms generally ranging from six to thirteen months. Management believes that such short-term lease contracts lessen the impact of inflation due to the ability to adjust rental rates to market levels as leases expire. YEAR 2000 CONVERSION Camden has recognized the need to ensure that its computer equipment and software ("computer systems"), other equipment and operations will not be adversely impacted by the change to the calendar Year 2000. As such, the Company has taken steps to identify and resolve potential areas of risk by implementing a comprehensive Year 2000 action plan. The plan is divided into four phases: identification, assessment, notification/certification, and testing/contingency plan development; and includes three major elements: computer systems, other equipment and third parties. The Company is on the fourth phase for its computer systems, and the third phase for its other equipment and third party services. The Company believes that the Year 2000 issue will not pose significant operating problems for the Company's computer systems, since the significant computer equipment and software products the Company utilizes are already compliant and are being converted or modified by March 31, 1999 as part of system upgrades unrelated to the Year 2000 issue. The Company is in the process of developing a contingency plan which will permit its primary computer systems operations to continue if the testing of such conversions and modifications are not completed by March 31, 1999. The total estimated cost to the Company of addressing the Year 2000 issues with respect to its own computer systems, other equipment and operations is expected to be minimal since any computer upgrades and conversions to specifically address the Year 2000 issues have been and are expected to be minimal. Additionally, the majority of Year 2000 issues are being addressed by use of internal resources and such internal costs are expected to be minimal as well. The Company does not separately track internal cost, which primarily consist of payroll and related costs, incurred on Year 2000 issues. The Company has not estimated any time or other internal costs that may be incurred by the Company as a result of the failure of any third parties to become Year 2000 ready or costs to implement any contingency plans. The Company is communicating with its key third party service providers and vendors, including those who have previously sold equipment to the Company, to obtain information and compliance certificates, if possible, regarding their state of readiness with respect to the Year 2000 issue. Failure of certain third parties to remediate Year 2000 issues affecting their respective businesses on a timely basis, or to implement contingency plans sufficient to permit uninterrupted continuation of their businesses in the event of a failure of their systems, could have a material adverse impact on the Company's business and results of operations. Final determination of third party Year 2000 readiness is expected to be substantially complete in early 1999, however, none of the responses received from third party service providers as of January 26, 1999 have indicated any problem with bringing their services into Year 2000 compliance. The Company intends to continue to monitor the progress made by third parties, test critical system interfaces and formulate appropriate contingency and business continuation plans to address third party issues identified through its evaluations and assessments. The Company presently believes that the worst case scenario with respect to the Year 2000 issues is the failure of third party service providers, including utility suppliers and banks, to become Year 2000 compliant. This could result in interruptions in services to the Company's apartment communities for a period of time and could adversely affect the Company's access to credit and money markets which, in turn, could result in loss of normal operating capacity by the Company. If the Company's computer systems completely fail, the Company would be able to continue affected functions either manually or through non-Year 2000 compliant systems. The Company does not believe that the increased costs associated with such interruptions could exceed $1 million. 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. SFAS No. 133 is effective for all periods beginning after June 15, 1999. Management is evaluating what, if any, effect on the Company's consolidated financial statements will occur upon the implementation of SFAS No. 133. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company uses fixed and floating rate debt to finance acquisitions, developments and maturing debt. These transactions expose the Company to market risk related to changes in interest rates. Management's policy is to review the Company's borrowings and attempt to mitigate interest rate exposure through the use of derivative instruments. The Company currently has a $25 million interest rate swap agreement designated as a partial hedge of floating rate debt. The swap is scheduled to mature in July 2000, but the issuing bank has an option to extend this agreement to July 2002. The interest rate is fixed at 6.1%, resulting in an interest rate exposure equal to the difference between 6.1% and the actual base rate on the related indebtedness. The Company's policy regarding the use of derivative financial instruments in managing market risk exposures is consistent with the prior year and is not expected to change in future years. The Company does not use derivative financial instruments for trading purposes. For fixed rate debt, interest rate changes affect the fair market value but do not impact net income to common shareholders or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact net income to common shareholders and cash flows, assuming other factors are held constant. At December 31, 1998, after adjusting for the effect of the interest rate swap agreement, Camden had fixed rate debt of $781.3 million and floating rate debt of $221.3 million. Holding other variables constant (such as debt levels), a one percentage point variance in interest rates would change the unrealized fair market value of the fixed rate debt by approximately $30 million. The net income to common shareholders and cash flows impact on the next year resulting from a one percentage point variance in interest rates on floating rate debt would be approximately $2.2 million, holding all other variables constant. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. September ______, 1999 CAMDEN PROPERTY TRUST By: /S/G. STEVEN DAWSON --------------------------------- G. Steven Dawson Senior Vice President - Finance, Chief Financial Officer, Treasurer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. NAME TITLE DATE * Chairman of the Board of Trust September ___, 1999 - ------------------- Managers and Chief Executive Richard J. Campo Officer (Principal Executive Officer) * President, Chief Operating Officer September ___, 1999 - ------------------- and Trust Manager D. Keith Oden /S/G. STEVEN DAWSON Senior Vice President-Finance, September ___, 1999 - ------------------- Chief Financial Officer, Treasurer G. Steven Dawson and Secretary (Principal Financial and Accounting Officer) * Trust Manager September ___, 1999 - ------------------- William R. Cooper * Trust Manager September ___, 1999 - ------------------- George A. Hrdlicka * Trust Manager September ___, 1999 - ------------------- Scott S. Ingraham * Trust Manager September ___, 1999 - ------------------- Lewis A. Levey * Trust Manager September ___, 1999 - ------------------- F. Gardner Parker * Trust Manager September ___, 1999 - ------------------- Steven A. Webster *By: /S/G. STEVEN DAWSON --------------------- G. Steven Dawson Attorney-in-Fact -----END PRIVACY-ENHANCED MESSAGE-----