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Letter To Our Shareholders
In 1996, Camden Property Trust again met or exceeded all of its financial
and operational goals.
We strengthened our balance sheet, developed greater financial flexibility
and continued to diversify our holdings. We also improved our marketing
position in each of the metropolitan areas in which we have properties.
Gross revenues for 1996 were $111.6 million compared to $97.3 million for
the previous year. Same property net operating income for the year
increased by 6.8% over 1995 with revenues increasing 4.7% and operating
expenses increasing 2.3%.
Funds from operations increased 13.3% this year to $40.0 million, from
$35.3 million a year earlier. Distributions in 1996 totaled $l.90 per
common share, representing a payout ratio of 76.9% of funds from operations
(FFO) per share. In the preceding year, the comparable numbers were $1.84
and 84.0%.
Increasing Financial Strength Earns Camden Investment-Grade Rating
In the first quarter of 1996, Camden successfully completed the sale of
$100 million of five-year, 6.6% senior unsecured notes at an effective
interest rate of 6.7%. Later in the year, we marketed $75 million of
ten-year, 7% senior unsecured notes at an effective interest rate of 7.2%.
In the fourth quarter, we completed the issuance of 1,090,000 common shares
at a gross price of $25.875 per share. The net proceeds of this offering
were used primarily to retire a secured construction loan. This equity
offering was the first since April of 1994. Our financial flexibility
allowed us to continue to pursue our growth strategy without offering
equity at a price we did not believe reflected the underlying value of our
shares.
At year end the Company's total debt, excluding debentures, was $244.2
million or 32.6% of total market capitalization. Of this outstanding debt,
76.1% was unsecured.
The Company's solid, underlying financial fundamentals prompted Moody's
Investors Service, Standard & Poor's, and Duff & Phelps to assign
investment-grade ratings to Camden's senior unsecured debt. We believe this
investment-grade rating makes it possible for us to access the deeper and
more cost-effective debt markets now and in the future.
We closed the year with 17,611 operating apartment units. Weighted average
occupancy was 94.0%, up from 93.3% in the previous year. Average monthly
rental rates per square foot increased from $0.71 to $0.75 from December
1995 to December 1996. The percentage of our operating portfolio in newly
developed properties, based on investment dollars, increased from 12.7% in
1995 to 34.2% in 1996.
Reputation and Resources Position Us for an Active Role in Industry
Consolidation
More important than our strong financial results in 1996 is the success we
achieved in positioning the Company to participate in the opportunities
that continue to develop as a result of the growth and consolidation
underway in our industry.
We believe diversifying our holdings, lowering our cost of capital,
reducing our secured debt, and increasing the value of our shares will
permit Camden to continue to expand our opportunities during the
challenging and exciting years that lie ahead.
In addition, the Company's solid reputation as a fully-integrated,
growth-oriented real estate company continues to create an expanding array
of quality acquisition and development opportunities to be submitted for
our consideration.
The Multifamily Market Offers Increasingly Sound, Attractive and Varied
Investment Options
The marketplace continued to grow and mature in 1996, and revealed more
prudence and balance than many had thought was possible. The level of
building permit activity, that was a concern to some, has declined in
Dallas, Houston and Austin and continued at a moderate pace in our other
markets. We believe that the overall market is proving our contention that
today's real estate industry offers significant growth opportunities.
While doubling the Company's asset value in the past three years, we have
validated our belief that an aggressive, prudent REIT is an attractive
investment, simultaneously offering exceptional income and capital
appreciation. And, because dividends constitute a significant portion of
the total return on the investment, marketplace volatility is much less of
a concern.
It was that same philosophy that encouraged us to start acquiring
properties in 1988, when others avoided real estate in general and
multifamily housing in particular. Even with renovation costs fully
considered, the prices paid for those properties were considerably less
than replacement costs.
We remain convinced that the elimination of tax shelter advantages and
excessive leveraging, and the exercise of greater diligence on the part of
the financial community has made the real estate industry more stable and
predictable. And, with the addition of competent REIT management with
interests centered on shareholder value, a long-term vision, and a
commitment to financial fundamentals, real estate has become an attractive
investment for institutions and individuals. Our judgement has been
confirmed by the positive response of investors to Camden's 1996 public
offering.
And, we believe that as more and more properties come under the ownership
and management of REITs, which are held accountable by informed investors,
the industry will continue to mature and produce increasingly attractive
investment opportunities.
Paragon Merger Will Make Camden the Fourth Largest Multifamily REIT With
35,364 Units
In December we announced plans to merge Paragon Group, Inc., a fully
integrated, multifamily housing REIT based in Dallas, into the Camden
organization. The successful conclusion of this proposed transaction,
expected in April 1997, will make Camden the fourth-largest multifamily
REIT in the nation with 35,364 units. The merger should be accretive to
Camden's FFO per share in 1997.
We believe the combination of Camden and Paragon is particularly attractive
and timely. With combined total assets of $1.25 billion, it will fulfill a
securities market preference for larger, better-capitalized and more
diversified companies. Its appeal is further strengthened because Paragon's
business and portfolio development strategy is similar to Camden's.
The completion of the merger will give Camden 12 core markets which offer
significant acquisition and development opportunities to fuel our future
growth. Paragon's 15,975 apartment units are located primarily in Florida,
Missouri, Kentucky, North Carolina and Texas.
The Paragon merger will result in doubling the size of the Company again,
just as we have done over the past three years, and it further enhances our
future growth prospects. Camden's senior management team has demonstrated
its ability to effectively handle rapid growth while taking proper care of
existing holdings. The merger with Paragon will allow us to further build
upon these skills and still have room to grow.
We View the Future With Optimism and Enthusiasm
We entered 1997 more confident than ever of Camden's ability to capitalize
on the opportunities that lie ahead. We have demonstrated the ability to
anticipate trends in our industry and to profit from those trends by
adjusting our strategy. We expect to again be among the first to benefit
from the growth and consolidation opportunities that exist in our industry.
The investment-grade rating that we achieved in 1996 permits Camden to
access the lowest-cost segments of the capital markets. Our lower cost of
capital will have a positive impact on our cost of bringing products to
market and, subsequently, on our financial results.
The men and women of Camden Property Trust have moved into 1997 with
optimism and enthusiasm. On behalf of all of them, we express our
appreciation for the confidence you place in us. We look forward to another
rewarding year, and we invite you to read further in our report to gain new
insights into what makes ours a distinctive company.
Richard J. Campo
Chairman and Chief Executive Officer
D. Keith Oden
President and Chief Operating Officer
