UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-K
(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, 2002 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)
Registrant’s telephone number, including are code: (713) 354-2500 Securities registered pursuant to Section 12(b) of the Act:
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 ___
Indicated 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. ______
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No ___
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $1,394,340,062 based on a June 28, 2002 share price of $37.03.
The number of common shares of beneficial interest outstanding at March 14, 2003 was 39,259,503.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Annual Report to Shareholders for the year ended December 31, 2002 are incorporated by reference in Parts I, II and IV.
Portions of the registrant’s Proxy Statement in connection with its Annual Meeting of Shareholders to be held May 8, 2003 are incorporated by reference in Part III.
TABLE OF CONTENTS
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PART I
Item 1. Business
Introduction
Camden Property Trust is a real estate investment trust organized on May 25, 1993 and, with our subsidiaries, reports as a single business segment. We are one of the largest real estate investment trusts in the nation with operations related to the ownership, development, construction and management of multifamily apartment communities in nine states. As of December 31, 2002, we owned interests in, operated or were developing 147 properties containing 52,274 apartment homes geographically dispersed in the Sunbelt and Midwestern markets, from Florida to California. Our properties, excluding properties in lease-up and under development, had a weighted average occupancy rate of 92% for the year ended December 31, 2002. This rate represents the average occupancy for all of our properties in 2002 weighted by the number of apartment homes in each property. Two of our newly developed multifamily properties containing 718 apartment homes were in lease-up at year end. Four of our multifamily properties containing 1,484 apartment homes were under development at December 31, 2002. We also have several sites which we intend to develop into multifamily apartment communities.
At December 31, 2002, we had 1,723 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 selectively investing 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 should reduce 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. Property net operating income represents total property revenues less total property expenses.
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 generally 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.
Branding. We have implemented our strategic brand initiative, and each of our communities now carries the Camden flagship name. Our brand promise of “Living Excellence” reinforces our reputation as an organization that promises excellence everywhere our customers look. This initiative was undertaken with the goal of reinforcing our reputation as a provider of high quality apartment home living. These actions were designed to leverage our brand to increase market awareness and define who and what we are to our current and prospective residents. We believe the successful implementation of our brand initiative will continue to generate long-term value for us and our shareholders.
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New Development and Acquisitions. 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 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. These abilities are key to forwarding our strategy to have a geographically and physically diverse pool of assets, which will meet the needs of our residents. 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.
We expect that 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.
Our consolidated financial statements include $285.6 million related to properties under development, including land. Of this amount, $156.8 million relates to our four development projects currently under construction. Additionally, we have $128.8 million invested in land held for future development. Included in this amount is $72.7 million relating to projects we expect to begin constructing throughout 2003. We also have $35.9 million invested in land tracts adjacent to current development projects which are being utilized in conjunction with those projects. Upon completion of these current development projects we expect to utilize this land to further develop apartment homes in these areas. We may also sell certain parcels of these undeveloped land tracts to third parties for commercial and retail development.
Dispositions. 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. However, in order to generate consistent earnings growth, we intend to selectively dispose of properties and redeploy capital if we determine a property cannot meet long-term earnings growth expectations. We also intend to continue rebalancing our portfolio with the goal of limiting any one market to providing no more than 12% of total net operating income. Our strategy regarding the undeveloped land sales has been to integrate the residential and retail components in such a way that enhances the quality of life for our residents.
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 the 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 known 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 and property 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.
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Markets and Competition
Our portfolio consists of middle to upper market apartment properties. We target acquisitions and developments in selected markets. Since our initial public offering in 1993, we have diversified into other markets in the Southwest, Southeast, Midwest and Western regions of the United States. By combining acquisition, renovation and development capabilities, we believe we can better respond to changing conditions in each market, reduce market risk and 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 owned housing in certain markets due to a number of factors, including the decrease in mortgage interest rates.
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:
Do not rely on these forward-looking statements, which only represent our estimates and assumptions as of the date of this report. We assume no obligation to update or revise any forward-looking statements.
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Item 2. Properties
The Properties
Our 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 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 143 properties, which we owned interests in and operated at December 31, 2002, averaged 850 square feet of living area.
Operating Properties
For the year ended December 31, 2002, no single operating property accounted for greater than 2.7% of our total revenues. The operating properties had a weighted average occupancy rate of 92% and 94% for 2002 and 2001, respectively. Resident lease terms generally range from six to thirteen months and usually require security deposits. One hundred and twenty four of our operating properties have over 200 apartment homes, with the largest having 894 apartment homes. Our operating properties have an average age of 11 years (calculated on the basis of investment dollars). Our operating properties were constructed and placed in service as follows:
Property Table
The following table sets forth information with respect to our operating properties at December 31, 2002.
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Operating Properties In Lease-Up
The operating properties under lease-up table is incorporated herein by reference from page 6 of the Company's Annual Report to Shareholders for the year ended December 31, 2002, which page is filed as Exhibit 13.1 hereto.
Development Properties
The total budgeted cost of the development properties is approximately $250.4 million, with a remaining cost to complete, as of December 31, 2002, of approximately $39.5 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 Properties Table
The development properties table is incorporated herein by reference from page 6 of our Annual Report to Shareholders for the year ended December 31, 2002, which is filed as Exhibit 13.1.
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, projected market rents and expenses, projected local area job growth, cost of single family housing in the area and availability of land for competing development properties. In order to pursue a development opportunity, we currently require a minimum initial stabilized target return of 8% to 10%. 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 Residential, Inc. in 1998, Oasis had been contacted by certain regulatory agencies with regards 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 and several other defendants in the United States District Court for the District of Nevada alleging (1) that the design and construction of these properties violates the Fair Housing Act and (2) that we, through the merger with Oasis, had discriminated in the rental of dwellings to persons because of handicap. The complaint requests an order that (i) declares that the defendants' policies and practices violate the Fair Housing Act; (ii) enjoins us from (a) failing or refusing, to the extent possible, to bring the dwelling units and public use and common use areas at these properties and other covered units that Oasis had designed and/or constructed into compliance with the Fair Housing Act, (b) failing or refusing to take such affirmative steps as may be necessary to restore, as nearly as possible, the alleged victims of the defendants alleged unlawful practices to positions they would have been in but for the discriminatory conduct and (c) designing or constructing any covered multi-family dwellings in the future that do not contain the accessibility and adaptability features set forth in the Fair Housing Act; and requires us to pay damages, including punitive damages, and a civil penalty.
With any acquisition, we plan for and undertake renovations needed to correct deferred maintenance, life/safety and Fair Housing matters. On January 30, 2001, a consent decree was ordered and executed in the above Justice Department action. Under the terms of the decree, we were ordered to make certain retrofits and implement certain educational programs and fair housing advertising. These changes are to take place over five years. The costs associated with complying with the decree have been accrued for, and are not material to our consolidated financial statements.
We are 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 our consolidated financial statements.
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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. Market for Registrant's Common Equity and Related Stockholder Matters
Information with respect to this Item 5 is incorporated herein by reference from page 48 of our Annual Report to Shareholders for the year ended December 31, 2002, which is filed as Exhibit 13.1. The number of holders of record of our common shares, $0.01 par value, as of March 14, 2003, was 1,262.
Item 6. Selected Financial Data
Information with respect to this Item 6 is incorporated herein by reference from pages 49 and 50 of our Annual Report to Shareholders for the year ended December 31, 2002, which is filed as Exhibit 13.1.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Information with respect to this Item 7 is incorporated herein by reference from pages 2 through 19 of our Annual Report to Shareholders for the year ended December 31, 2002, which is filed as Exhibit 13.1.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to this Item 7A is incorporated herein by reference from page 13 of our Annual Report to Shareholders for the year ended December 31, 2002, which is filed as Exhibit 13.1.
Item 8. Financial Statements and Supplementary Data
Our financial statements and supplementary financial information for the years ended December 31, 2002, 2001 and 2000 are listed in the accompanying Index to Consolidated Financial Statements and Supplementary Data at F-1 and are incorporated herein by reference from pages 20 through 48 of our Annual Report to Shareholders for the year ended December 31, 2002, which is filed as Exhibit 13.1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to this Item 10 is incorporated by reference from our Proxy Statement, which we intend to file on or before March 27, 2003 in connection with the Annual Meeting of Shareholders to be held May 8, 2003.
Item 11. Executive Compensation
Information with respect to this Item 11 is incorporated by reference from our Proxy Statement, which we intend to file on or before March 27, 2003 in connection with the Annual Meeting of Shareholders to be held May 8, 2003.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to this Item 12 is incorporated by reference from our Proxy Statement, which we intend to file on or before March 27, 2003 in connection with the Annual Meeting of Shareholders to be held May 8, 2003.
Equity Compensation Plan Information
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Item 13. Certain Relationships and Related Transactions
Information with respect to this Item 13 is incorporated by reference from our Proxy Statement, which we intend to file on or before March 27, 2003 in connection with the Annual Meeting of Shareholders to be held May 8, 2003.
Item 14. Controls and Procedures
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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*Filed herewith.
14(b) Reports on Form 8-K
Current Report on Form 8-K dated November 22, 2002 was filed with the Commission on November 25, 2002 contained information under Item 5 (Other Events) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Camden Property Trust has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
March 27, 2003 CAMDEN PROPERTY TRUST
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Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Camden Property Trust and in the capacities and on the dates indicated.
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CERTIFICATIONS
CERTIFICATION PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Richard J. Campo, certify that:
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I, G. Steven Dawson, certify that:
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of Camden Property Trust and its subsidiaries required to be included in Item 15(a)(1) are listed below:
CAMDEN PROPERTY TRUST
The following financial statement supplementary data of Camden Property Trust and its subsidiaries required to be included in Item 15(a)(2) is listed below:
F-1
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Camden Property Trust
We have audited the consolidated financial statements of Camden Property Trust and subsidiaries (“Camden”) as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, and have issued our report thereon dated February 3, 2003; such consolidated financial statements and report are included in your 2002 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Camden Property Trust, listed in Item 15. This financial statement schedule is the responsibility of Camden’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, TexasFebruary 3, 2003
F-2
CAMDEN PROPERTY TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2002
(In thousands)
(a) The aggregate cost for federal income tax purposes at December 31, 2002 was $2.9 billion.
The changes in total real estate assets, excluding investments in joint ventures and third party development properties, for the years ended December 31, 2002, 2001 and 2000 are as follows:
The changes in accumulated depreciation for the years ended December 31, 2002, 2001 and 2000 are as follows:
S-1