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, 2003 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 area 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 $1,341,852,441 based on a June 30, 2003 share price of $34.95.
The number of common shares of beneficial interest outstanding at March 10, 2004 was 39,775,100.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Annual Report to Shareholders for the year ended December 31, 2003 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 5, 2004 are incorporated by reference in Part III.
TABLE OF CONTENTS
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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 ten states. As of December 31, 2003, we owned interests in, operated or were developing 146 properties containing 52,346 apartment homes geographically dispersed in the Sunbelt and Midwestern markets, from Florida to California. Two of our newly developed multifamily properties containing 786 apartment homes were in lease-up at year end. Two of our multifamily properties containing 1,002 apartment homes were under development at December 31, 2003, including 464 apartment homes owned through a joint venture. We also have several sites that we intend to develop into multifamily apartment communities.
Our 2003 results reflect the difficult operating fundamentals in our industry, including an oversupply of multifamily housing; low interest rates on mortgage debt, which continue to make home purchases attractive; and a slow economic recovery. During 2003, apartment turnover due to home purchases was at the highest level in our history. Despite these challenges, overall occupancy in our portfolio increased during 2003. The increase in occupancy was achieved in part by offering higher concessions in many of our markets. As a result, we experienced a 1.3% decline in revenues from our same-store communities during the year. Total revenues for 2003 increased slightly as income from newly developed communities offset the decline in revenues from our same-store communities and 2002 dispositions.
We continued to focus on expense control in 2003. Expenses at our same-store communities increased 4.7% during 2003, after increasing only 1.1% in 2002. The increase in 2003 expenses was driven by increases in property insurance expense, real estate taxes, repair and maintenance costs and normal increases in employee related expenses. We were able to take advantage of the lower interest rate environment in 2003, and these savings should continue, as we replace maturing debt with new lower cost debt.
Although we expect 2004 to remain a challenging economic environment, we believe we are well positioned for growth. Our average borrowing costs should continue to decline as a result of the replacement of higher priced maturing debt. Additionally, our operating results should be positively impacted by the increase in the occupancy levels of our portfolio, and increases in contributions from our California and Houston development properties.
At December 31, 2003, we had 1,714 employees. Our headquarters are located at 3 Greenway Plaza, Suite 1300, Houston, Texas 77046 and our telephone number is (713) 354-2500.
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.
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 in certain markets that 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 our strategy of having 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, branding and marketing, have 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
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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 we understand and effectively manage the risks associated with development, and the risks of new development are justified by higher potential yields.
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, 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.
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 10% of total net operating income. Our strategy regarding 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.
As of December 31, 2003, we had operating properties in 16 markets. No single market contributed more than 15% of our net operating income for the year then ended. For the year ended December 31, 2003, Houston, Dallas and Las Vegas contributed 14.4%, 13.9% and 13.8%, respectively, of our net operating income.
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. We exercise our
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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.
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 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.
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 factors that may cause our actual results or performance to differ materially from those included in 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 statement.
To view our current and periodic reports free of charge, please go to our website atwww.camdenliving.com. We make these postings as soon as reasonably practicable after our filings with the SEC. Our website contains copies of our Guidelines on Governance, Code of Business Conduct and Ethics, Code of Ethical Conduct for Senior Financial Officers and the charters of each of our Audit, Compensation, Nominating and Corporate Governance Committees. This information is also available in print to any shareholder who requests it by contacting us at Camden Property Trust, 3 Greenway Plaza, Suite 1300, Houston, Texas 77046, attention: Investor Relations.
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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 144 properties, which we owned interests in and operated at December 31, 2003, averaged 850 square feet of living area.
For the year ended December 31, 2003, no single operating property accounted for greater than 2.6% of our total revenues. The operating properties had a weighted average occupancy rate of 93% and 92% for 2003 and 2002, respectively. Resident lease terms generally range from six to thirteen months and usually require security deposits. One hundred and twenty five 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, 2003.
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The completed properties in lease-up table is incorporated herein by reference from page 5 of our Annual Report to Shareholders for the year ended December 31, 2003, which page is filed as Exhibit 13.1.
The total budgeted cost of the wholly owned development property is approximately $144.5 million, with a remaining cost to complete, as of December 31, 2003, of approximately $6.0 million. There can be no assurance that our budget, leasing or occupancy estimates will be attained for the development property or its performance will be comparable to that of our existing portfolio.
Development Property Table
The development property table is incorporated herein by reference from page 5 of our Annual Report to Shareholders for the year ended December 31, 2003, 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 7% 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.
Prior to our merger with Oasis Residential, Inc. in 1998, Oasis had been contacted by certain regulatory agencies with regard to alleged failures to comply with the Fair Housing Amendments Act (the “Fair Housing Act”) as it pertained to nine properties (seven of which we currently own) constructed for first occupancy after 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 multifamily 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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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.
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, 2003, which is filed as Exhibit 13.1. The number of holders of record of our common shares, $0.01 par value, as of March 10, 2004, was 1,166.
Information with respect to this Item 6 is incorporated herein by reference from pages 43 and 44 of our Annual Report to Shareholders for the year ended December 31, 2003, which is filed as Exhibit 13.1.
Information with respect to this Item 7 is incorporated herein by reference from pages 2 through 18 of our Annual Report to Shareholders for the year ended December 31, 2003, which is filed as Exhibit 13.1.
Information with respect to this Item 7A is incorporated herein by reference from page 11 of our Annual Report to Shareholders for the year ended December 31, 2003, which is filed as Exhibit 13.1.
Our financial statements and supplementary financial information for the years ended December 31, 2003, 2002 and 2001 are listed in the accompanying Index to Consolidated Financial Statements and Supplementary Data at F-1 and are incorporated herein by reference from pages 19 through 42 of our Annual Report to Shareholders for the year ended December 31, 2003, which is filed as Exhibit 13.1.
Not applicable.
Under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2003. Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2003.
There has been no change to our internal control over financial reporting during the quarter ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Information with respect to this Item 10 is incorporated by reference from our Proxy Statement, which we intend to file on or before March 30, 2004 in connection with the Annual Meeting of Shareholders to be held May 5, 2004.
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Information with respect to this Item 11 is incorporated by reference from our Proxy Statement, which we intend to file on or before March 30, 2004 in connection with the Annual Meeting of Shareholders to be held May 5, 2004.
Information with respect to this Item 12 is incorporated by reference from our Proxy Statement, which we intend to file on or before March 30, 2004 in connection with the Annual Meeting of Shareholders to be held May 5, 2004.
Information with respect to this Item 13 is incorporated by reference from our Proxy Statement, which we intend to file on or before March 30, 2004 in connection with the Annual Meeting of Shareholders to be held May 5, 2004.
Information with respect to this Item 14 is incorporated by reference from our Proxy Statement, which we intend to file on or before March 30, 2004 in connection with the Annual Meeting of Shareholders to be held May 5, 2004.
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*Filed herewith.
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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.
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.
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
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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, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, and have issued our report thereon dated March 9, 2004; such consolidated financial statements and report are included in your 2003 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, Texas March 9, 2004
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Schedule III
CAMDEN PROPERTY TRUSTREAL ESTATE AND ACCUMULATED DEPRECIATIONDecember 31, 2003
(In thousands)
(a) The aggregate cost for federal income tax purposes at December 31, 2003 was $3.0 billion.
The changes in total real estate assets, excluding investments in joint ventures and third party development properties, for the years ended December 31, 2003, 2002 and 2001 are as follows:
The changes in accumulated depreciation for the years ended December 31, 2003, 2002 and 2001 are as follows:
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