-----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, FwfyGdtBGb2yZ18pgqbasW6hAeLd1aDoUyI/fGpr6Zlxr4o1u62QpCI8XQLix3Xq 1BoowBZP5I4xb/CheSbj7w== 0000950129-97-003350.txt : 19970815 0000950129-97-003350.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950129-97-003350 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMDEN PROPERTY TRUST CENTRAL INDEX KEY: 0000906345 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 766088377 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12110 FILM NUMBER: 97661840 BUSINESS ADDRESS: STREET 1: 3200 SOUTHWEST FRWY STREET 2: STE 1500 CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7139643555 MAIL ADDRESS: STREET 1: 3200 SOUTHWEST FREEWAY STREET 2: SUITE 1500 CITY: HOUSTON STATE: TX ZIP: 77027 10-Q 1 CAMDEN PROPERTY TRUST - 6/30/97 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 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 Number) 3200 Southwest Freeway, Suite 1500, Houston, Texas 77027 (Address of Principal Executive Offices) (713) 964-3555 (Registrant's Telephone Number, Including Area Code) N/A (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of August 11, 1997, there were 31,637,963 shares of Common Shares of Beneficial Interest, $0.01 par value outstanding. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAMDEN PROPERTY TRUST CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS
JUNE 30, DECEMBER 31, 1997 1996 ------------ ------------ (Unaudited) Real estate assets, at cost: Land $ 178,745 $ 86,673 Buildings and improvements 1,091,064 523,325 Projects under development, including land 34,187 36,547 Investment in joint ventures 16,179 ------------ ------------ 1,320,175 646,545 Less: accumulated depreciation (74,363) (56,369) ------------ ------------ 1,245,812 590,176 Accounts receivable - affiliates 2,010 148 Notes receivable - affiliates 3,406 3,550 Deferred financing and other assets, net 6,028 4,847 Cash and cash equivalents 5,104 2,366 Restricted cash - escrow deposits 3,358 2,423 ------------ ------------ Total assets $ 1,265,718 $ 603,510 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable: Unsecured $ 344,869 $ 185,800 Secured 222,857 58,382 Accounts payable 15,636 7,512 Accrued real estate taxes 12,465 13,246 Accrued expenses and other liabilities 15,153 7,675 Distributions payable 14,371 7,765 ------------ ------------ Total liabilities 625,351 280,380 Minority Interest in Operating Partnership 64,565 7.33% Convertible Subordinated Debentures 7,270 27,702 Shareholders' Equity: Preferred shares of beneficial interest Common shares of beneficial interest 270 165 Additional paid-in capital 634,388 348,339 Distributions in excess of net income (60,337) (49,515) Unearned restricted share awards (5,789) (3,561) ------------ ------------ Total shareholders' equity 568,532 295,428 ------------ ------------ Total liabilities and shareholders' equity $ 1,265,718 $ 603,510 ============ ============
See Notes to Consolidated Financial Statements. -2- 3 CAMDEN PROPERTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share amounts)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- REVENUES Rental income $ 51,084 $ 25,956 $ 79,038 $ 51,101 Other property income 2,304 1,134 3,598 2,162 -------- -------- -------- -------- Total property income 53,388 27,090 82,636 53,263 Equity in income of joint ventures 436 436 Fee and asset management 119 48 263 327 Other income 129 93 209 231 -------- -------- -------- -------- Total revenues 54,072 27,231 83,544 53,821 EXPENSES Property operating and maintenance 18,663 9,892 28,655 19,640 Real estate taxes 5,975 3,323 9,667 6,548 General and administrative 1,216 696 2,040 1,320 Interest 9,090 4,177 13,276 8,237 Depreciation and amortization 12,102 5,645 18,530 11,168 -------- -------- -------- -------- Total expenses 47,046 23,733 72,168 46,913 -------- -------- -------- -------- INCOME BEFORE GAIN ON SALES OF PROPERTIES, LOSSES RELATED TO EARLY RETIREMENT OF DEBT AND MINORITY INTEREST 7,026 3,498 11,376 6,908 GAIN ON SALES OF PROPERTIES 195 LOSSES RELATED TO EARLY RETIREMENT OF DEBT (286) (5,351) -------- -------- -------- -------- INCOME BEFORE MINORITY INTEREST 7,026 3,498 11,090 1,752 MINORITY INTEREST IN OPERATING PARTNERSHIP (597) (597) -------- -------- -------- -------- NET INCOME 6,429 3,498 10,493 1,752 PREFERRED SHARE DIVIDENDS (4) -------- -------- -------- -------- NET INCOME TO COMMON SHAREHOLDERS $ 6,429 $ 3,498 $ 10,493 $ 1,748 ======== ======== ======== ======== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.24 $ 0.24 $ 0.48 $ 0.12 DISTRIBUTIONS DECLARED PER COMMON SHARE $ 0.490 $ 0.475 $ 0.980 $ 0.950 WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 26,663 14,511 21,687 14,512
See Notes to Consolidated Financial Statements. - 3 - 4 CAMDEN PROPERTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 1997 1996 --------- --------- CASH FLOW FROM OPERATING ACTIVITIES Net income $ 10,493 $ 1,752 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,530 11,168 Equity in income of joint ventures, net of cash received (161) Gain on sales of properties (195) Losses related to early retirement of debt 286 5,351 Minority interest in Operating Partnership 597 Accretion of discount on unsecured notes payable 69 27 Net change in operating accounts (11,420) (3,196) --------- --------- Net cash provided by operating activities 18,394 14,907 CASH FLOW FROM INVESTING ACTIVITIES Cash of Paragon at acquisition 12,400 Increase in real estate assets (41,384) (39,393) Net proceeds from sales of properties 19,436 Decrease (increase) in notes receivable for net advances to affiliates 6,139 (92) Decrease in investment in joint ventures 4,624 Other (308) 7 --------- --------- Net cash used in investing activities (18,529) (20,042) CASH FLOW FROM FINANCING ACTIVITIES Net increase (decrease) in lines of credit and short-term notes 59,000 (80,783) Proceeds from notes payable 100,000 106,883 Losses related to early retirement of debt (286) (5,351) Repayment of notes payable (37,392) (581) Repayment of Paragon debt, including line of credit (93,639) Distributions to common shareholders and minority interests (24,391) (13,520) Payment of loan costs (798) (1,349) Other 379 170 --------- --------- Net cash provided by financing activities 2,873 5,469 --------- --------- Net increase in cash and cash equivalents 2,738 334 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,366 236 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,104 $ 570 ========= ========= SUPPLEMENTAL INFORMATION Cash paid for interest, net of interest capitalized $ 13,179 $ 6,831 Interest capitalized $ 1,714 $ 2,533 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of Paragon, net of cash acquired: Fair value of assets acquired $ 647,795 Liabilities assumed 332,553 Common shares issued 262,370 Fair value of minority interest 65,272 Conversion of 7.33% subordinated debentures to common shares, net $ 19,839 $ 2,690 Shares issued under benefit plans $ 3,335 $ 1,678 Conversion of preferred shares and dividends $ 1,954
See Notes to Consolidated Financial Statements. - 4 - 5 CAMDEN PROPERTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. INTERIM UNAUDITED FINANCIAL INFORMATION The accompanying interim unaudited financial information has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position of Camden Property Trust as of June 30, 1997 and the results of operations for the three and six months ended June 30, 1997 and 1996, and cash flows for the six months ended June 30, 1997 and 1996 have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. Business Camden Property Trust and its subsidiaries ("Camden" or the "Company") report as a single business segment related to the ownership, development, acquisition, management, marketing and disposition of multifamily apartment communities in the Southwest, Southeast and Midwest regions of the United States. At June 30, 1997, the Company owned interests in, operated or was developing 103 multifamily properties containing 35,460 apartment units located in Texas, Arizona, Florida, Kentucky, Missouri, and North Carolina. Three of the Company's multifamily properties were under development at June 30, 1997 in Houston and Dallas containing 1,110 apartment units. Five of the Company's newly developed multifamily properties containing 1,524 apartment units were in various stages of lease-up at June 30, 1997 in Houston, Phoenix, Charlotte, Greensboro and Kansas City. The Company has several additional sites including land in Denver which it intends to develop into multifamily apartment communities. Additionally, the Company manages 4,673 apartment units in 16 properties for third-parties and affiliates. Acquisition of Paragon Group, Inc. On April 15, 1997, the Company acquired through a tax-free merger Paragon Group, Inc. ("Paragon"), a publicly-traded Dallas-based multifamily real estate investment trust. The acquisition increased the size of the Company's portfolio from 53 to 103 multifamily properties (after combining the operations of seven of the acquired properties with adjacent properties), and from 19,389 to 35,364 apartment units at the date of acquisition, (the "Paragon Acquisition"). As provided in the Plan of Merger dated December 16, 1996 (the "Merger Agreement") each share of Paragon common stock outstanding on April 15, 1997 was exchanged for 0.64 shares of the Company's common shares (based on a share price of $17.75 per share of Paragon common stock and $27.75 per share of Camden common shares). The Company issued 9,466,346 shares in exchange for all of the outstanding shares of Paragon common stock. Subsequent to the acquisition, 2,352,161 Operating Partnership units were outstanding. Approximately $296 million of Paragon debt, at fair value, was assumed in the acquisition. - 5 - 6 The Paragon Acquisition has been recorded under the purchase method of accounting. In accordance with generally accepted accounting principles, the purchase price was preliminarily allocated to the net assets acquired based on their estimated fair values. Such estimates may be revised at a later date. No goodwill is expected to be recorded in this transaction. The accompanying consolidated statements of operations include the operating results of Paragon since April 1, 1997, the effective date of the Paragon Acquisition for accounting purposes. Pro forma unaudited consolidated operating results of the Company for the six months ended June 30, 1997 and 1996, assuming that the Paragon Acquisition had been made as of January 1, 1996, are summarized below (in thousands, except per share amounts):
SIX MONTHS ENDED JUNE 30 ----------------------- 1997 1996 ---------- ---------- Total revenues $ 105,764 $ 103,242 Net income to common shareholders $ 11,773 $ 1,331 Net income per common and common equivalent share $ 0.45 $ 0.06
The non-residential operations of Paragon Group Property Services, Inc., a Paragon affiliate which was sold on June 30, 1996, and the related gain from the sale have been adjusted out of the six months ended June 30, 1996 pro forma amounts. These pro forma results have been prepared for informational purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the Paragon Acquisition been completed on the date indicated, nor are they necessarily indicative of future operations. Operating Partnership Camden owns the assets acquired from Paragon, comprising approximately 45.2% of Camden's multifamily apartment units, in an operating partnership (the "Operating Partnership") in which Camden holds 79.1% of the Operating Partnership units (the "OP Units"), and the sole 1% general partner interest. The remaining 19.9% of the Operating Partnership interests are held by former officers, directors and investors in Paragon, who collectively owned 2,346,640 OP Units at June 30, 1997. Each OP Unit is convertible into one common share of Camden or cash at the election of the Company. Holders of OP Units are not entitled to rights as shareholders of the Company prior to redemption of their OP Units. No members of the Company's management team own OP Units and only two of the seven Trust Managers of the Company own OP Units. Camden, through its general partner interest in the Operating Partnership, holds exclusive power over the business and affairs of the Operating Partnership without the consent of the holders of OP Units, subject to certain limitations. As the general partner, subject to the limitations discussed below, Camden may engage in transactions (including transactions with affiliates of Camden) to purchase, sell, or finance the real estate assets of the Operating Partnership, and may borrow or lend funds, as long as such transactions are fair and reasonable to the Operating Partnership. As the holder of more than two-thirds of the OP Units, Camden has the power to dissolve at any time and liquidate the Operating Partnership, and in connection therewith sell or otherwise dispose of any part or all of the Operating Partnership's assets. Either the sale of all or substantially all of the assets of the Operating Partnership without liquidation of the partnership or, a merger in which the holders of OP Units do not receive the same consideration as Camden shareholders requires the majority consent of holders of OP Units, excluding OP Units held by the Company. Otherwise, Camden generally has - 6 - 7 complete discretion to manage the Operating Partnership and its assets without consent of the other OP Units holders. Accounting for Subsidiaries and Joint Ventures The Company consolidates the operations and accounts of all subsidiaries and partnerships in which its aggregate ownership is greater than 50%. Those owned less than 50%, are accounted for using the equity method. As a result of the Paragon Acquisition, the Company now owns a substantial number of its assets in an Operating Partnership. At June 30, 1997, the Company owns, through its wholly-owned subsidiaries, an 80.1% interest in the Operating Partnership. The remaining 19.9% interest, comprising 2,346,640 OP Units, is accounted for as minority interest. In connection with the Paragon Acquisition, the Company also obtained an ownership interest in three properties containing 1,264 apartment units controlled through a private real estate investment trust, and interests in three office building limited partnerships, all of which are included as investment in joint ventures. July 1997 Equity Offering In July 1997 the Company completed the public sale and issuance of 4,830,000 common shares (the "July 1997 Equity Offering") at a price of $31 per share. The net proceeds of $142.6 million were used to retire certain secured indebtedness assumed in the Paragon Acquisition and to reduce amounts outstanding under the Company's credit facility. See Note 8 for further discussion. Dividend Declaration On July 17, 1997, the Company paid a distribution of $0.49 per share for the second quarter of 1997 to all holders of record of Camden's common shares as of June 30, 1997, and paid an equivalent amount per unit to holders of OP Units. This distribution to common shareholders and holders of OP Units equates to an annualized dividend rate of $1.96 per share or unit. The Company determines the amount of cash distributable from the Operating Partnership in accordance with the partnership agreement and intends to make distributions to the holders of OP Units in amounts equivalent to the per share dividends paid to holders of common shares. New Accounting Pronouncements In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS No. 128, which is effective for periods ending after December 15, 1997, specifies the computation, presentation and disclosure requirements of earnings per share ("EPS") and supercedes Accounting Principles Board Opinion No. 15 ("APB No. 15"). SFAS 128 requires a dual presentation of basic and diluted EPS. Basic EPS, which excludes the impact of common share equivalents, replaces primary EPS. Diluted EPS, which utilizes the average market price per share as opposed to the greater of the average market price per share or ending market price per share when applying the treasury stock method in determining common share equivalents, replaces fully diluted EPS. Pro forma basic and diluted EPS for all historical periods presented, assuming SFAS No. 128 was effective at the beginning of each such historical period, would not be materially different than the presentations using APB No. 15. - 7 - 8 Also in February 1997, the FASB issued SFAS No. 129, Disclosure of Information about Capital Structure, which establishes standards for disclosing information about an entity's capital structure. Such SFAS is effective for periods ending after December 15, 1997. The Company believes that its disclosures already comply with the requirements of SFAS No. 129. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. SFAS No. 130 establishes standards for reporting and displaying of comprehensive income and its components. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments and related information in interim and annual financial statements. SFAS No. 131 will not impact the Company's financial statements as it reports as a single segment. SFAS Nos. 130 and 131 are effective for periods beginning after December 15, 1997. Management is evaluating what, if any, additional disclosures may be required upon the implementation of SFAS No. 130. Reclassifications Certain reclassifications have been made to amounts in prior year financial statements to conform with current year presentations. Specifically, direct on-site general and administrative expenses previously classified as general and administrative expenses are now reflected as a part of property operating and maintenance expenses, and certain components of revenues have been reported separately. 2. NOTES PAYABLE The following is a summary of the Company's indebtedness: (In millions)
PRO FORMA AFTER EQUITY OFFERING DECEMBER 31, (SEE NOTE 8) JUNE 30, 1997 1996 --------------- ------------- ------------ Senior Unsecured Notes: 6 5/8% Notes, due 2001 $ 99.7 $ 99.7 $ 99.6 7.172% Medium Term Notes, due 2004 25.0 25.0 7% Notes, due 2006 74.2 74.2 74.2 Reset Notes, due 2002 75.0 75.0 Credit facility and other short-term notes 71.0 12.0 ------ ------- -------- 273.9 344.9 185.8 Secured Notes: Mortgage loans 156.0 222.8 58.4 ------ ------- -------- Total notes payable $ 429.9 $ 567.7 $ 244.2 ======= ======= ======== Floating rate debt included in notes payable, net of hedging agreements $ 50.0 $ 121.0
The Company has a revolving $150 million unsecured line of credit (the "Unsecured Credit Facility") which matures July 28, 2000. One year prior to maturity, this debt becomes a term loan, unless it is extended, renegotiated or repaid. The scheduled interest rate on the loan is currently based on LIBOR plus 105 basis points or Prime plus 25 basis points. This scheduled rate is subject to change as the -8- 9 Company's credit ratings change. Advances under the Unsecured Credit Facility may be priced at the scheduled rate, or, the Company may enter into bid rate loans ("Bid Rate Loans") with participating banks at rates below the scheduled rate. 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 Credit Facility. The Unsecured Credit Facility is subject to customary financial covenants and limitations. As an alternative to its Unsecured Credit Facility, 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 Credit Facility bank group. Such borrowings vary in term and pricing but have the same covenants as the Unsecured Credit Facility and are typically priced at interest rates below those available under the Unsecured Credit Facility. Subsequent to June 30, 1997, Camden retired an additional $66.7 million mortgage loan using a portion of the proceeds of the July 1997 Equity Offering. Including the debt retirements made in conjunction with the July 1997 Equity Offering, the Company has retired $160.3 million of the $296 million of debt assumed in the Paragon Acquisition. On May 9, 1997, the Company issued from its recently filed shelf registration statement an aggregate principal amount of $75 million of its unsecured reset notes maturing May 2002 (the "Reset Notes"). During the one-year period ending May 11, 1998, the interest rate on the Reset Notes, which will be reset quarterly, will equal 90-day LIBOR plus 32 basis points and interest will be payable on a quarterly basis. After the one-year period, the mode and duration of the interest rate on the Reset Notes will be reset by the Company and a remarketing underwriter as either fixed or floating and for durations of from six months to four years. The Reset Notes are direct, senior unsecured obligations of the Company and rank equally with all other unsecured and unsubordinated indebtedness of the Company. The Reset Notes are redeemable after May 11, 1998 at the option of the Company at par value. The net proceeds to the Company from the sale of the Notes were $74.8 million. The Company used the net proceeds to reduce indebtedness incurred under the Unsecured Credit Facility which had been used to liquidate portions of the debt assumed in the Paragon Acquisition. On June 20, 1997, the Company issued $25 million aggregate principal amount of senior unsecured notes from its $196 million Medium Term Notes shelf registration. These fixed rate notes, due in June 2004, bear interest at the annual rate of 7.172% payable semiannually on March 15 and September 15. The net proceeds were used to reduce indebtedness outstanding under short-term unsecured notes. At June 30, 1997, the Company was party to a $25 million interest rate hedging agreement which is scheduled to mature in July 2000. The issuing bank has an option to extend this agreement to July 2002. The LIBOR rate is fixed at 6.1%, resulting in a fixed rate equal to 6.1% plus the actual LIBOR spread on the related indebtedness. This swap continues to be used as a hedge to manage the risk of interest rate fluctuations on the Unsecured Credit Facility and other floating rate indebtedness. At June 30, 1997, the weighted average interest rate on total notes payable was 7.1%. Following the retirement of debt using the proceeds of the July 1997 Equity Offering, the weighted average interest rate was reduced to 7.0%. -9- 10 3. NET CHANGE IN OPERATING ACCOUNTS The effect of changes in the operating accounts on cash flows from operating activities is as follows: (In thousands)
SIX MONTHS ENDED JUNE 30, ------------------------ 1997 1996 --------- --------- Decrease (increase) in assets: Accounts receivable - affiliates $ 986 $ (365) Deferred financing and other assets, net (255) 770 Restricted cash - escrow deposits 1,543 827 Increase (decrease) in liabilities: Accounts payable 2,646 (1,262) Accrued real estate taxes (2,938) (4,528) Accrued expenses and other liabilities (13,402) 1,362 --------- -------- Net change in operating accounts $ (11,420) $ (3,196) ========= ========
4. PROPERTY OPERATING AND MAINTENANCE EXPENSES Property operating and maintenance expenses included normal repairs and maintenance totaling $3.8 million and $5.5 million for the three and six months ended June 30, 1997, respectively and $2.1 million and $4.0 million for the three and six months ended June 30, 1996, respectively. In addition, property operating and maintenance expense included amounts incurred subsequent to the initial renovation and rehabilitation periods for recurring expenditures such as carpets, appliances and other furnishings and equipment, which might otherwise be capitalized, totaling $1.5 million and $2.2 million for the three and six months of 1997 and $0.9 million and $1.8 million for the same periods in 1996. 5. RESTRICTED SHARE AND OPTION AWARDS During the first six months of 1997, 124,159 restricted shares were granted in lieu of cash compensation to certain key employees and non-employee trust managers. The restricted shares were issued based on market value at the date of grant and have vesting periods of up to five years. An additional 310,000 options were granted at the market value exercise price and are exercisable in equal increments on or following each of the first three anniversaries of the date of grant. During the second quarter of 1997, the Company's shareholders and Trust Managers voted to amend the Plan, which resulted in an increase in the maximum number of common shares available for issuance under the Plan to 10% of the common shares outstanding at any time. During the six month period ended June 30, 1997, previously granted options for 65,064 shares became exercisable and 47,804 restricted shares became vested. -10- 11 6. EMPLOYEE STOCK PURCHASE PLAN In July 1997, the Company established and commenced an Employee Stock Purchase Plan ("ESPP") for all active employees, officers, and Trust Managers who have completed one month of continuous service. Participants may elect to purchase Camden common shares through payroll or director fee deductions and/or through quarterly contributions. At the end of each six-month offering period, each participant's account balance is applied to acquire common shares of the Company at 85% of the market value, as defined, on the first or last day of the offering period, whichever price is lower. A participant may not purchase more than $25,000 in value of shares during any Plan Year, as defined. 7. CONVERTIBLE SUBORDINATED DEBENTURES During the first six months of 1997, debentures in the principal amount of $20.4 million were converted into approximately 851,000 common shares. These debentures were converted on or before the record date for the quarterly dividend and the related debenture interest was forfeited by the debenture holders in accordance with the indenture. In addition, $593,000 of unamortized debenture issue costs were reclassified to additional paid-in capital. Had all converted debentures converted as of the beginning of the period, net income per common and common equivalent share would have remained at $0.24 for the three months ended June 30,1997, and would have been $0.50 per share for the six months ended June 30, 1997. 8. SUBSEQUENT EVENTS On July 21, 1997, the Company completed the public sale and issuance of 4,830,000 common shares, including 630,000 shares issued to the underwriters to satisfy over-allotments, at a price of $31 per share. The net proceeds of $142.6 million were used to retire certain secured indebtedness assumed in the Paragon Acquisition and to reduce amounts outstanding under the Unsecured Credit Facility which had been advanced to fund recent property developments, a 96-unit apartment acquisition and other working capital requirements. Had the July 1997 Equity Offering been completed on the effective date of the Paragon Acquisition, interest expense on a pro forma basis would have been $6.6 million for the three months ended June 30, 1997. Net income to common shareholders on a pro forma basis would have been $8.9 million or $0.28 per share for the three months ended June 30, 1997. In the ordinary course of its business, the Company issues letters of intent indicating a willingness to negotiate for the purchase or sale of multifamily properties or development land. In accordance with the local real estate market practice, such letters of intent are non-binding, and neither party to the letter of intent is obligated to pursue negotiations unless and until a definitive contract is entered into by the parties. Even if definitive contracts are entered into, the letters of intent and resulting contracts contemplate that such contract will provide the purchaser with periods varying from 25 to 180 days during which it will evaluate the properties and conduct its due diligence and during which periods the purchaser will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money. There can be no assurance that definitive contracts will be entered into with respect to any properties covered by letters of intent or that the Company will acquire or sell any property as to which the Company may have entered into a definitive contract. Further, due diligence periods are frequently extended as needed. An acquisition or sale becomes probable at the time that the due diligence period expires and the definitive contract has not been terminated. The Company is then at risk under an -11- 12 acquisition contract, but only to the extent of any earnest money deposits associated with the contract, and is obligated to sell under a sales contract. The Company is currently in the due diligence period on contracts for the purchase of land for development or acquisition of properties. No assurance can be made that the Company will be able to complete the negotiations or become satisfied with the outcome of the due diligence. The Company seeks to selectively dispose of assets that are either not in core markets, have a lower projected net operating income growth rate than the overall portfolio, or no longer conform to the Company's operating and investment strategies. The proceeds from these sales may be reinvested in acquisitions, developments or used to retire debt. -12- 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview The following discussion should be read in conjunction with all of the financial statements and notes thereto appearing elsewhere in this report as well as the audited financial statements appearing in the Company's 1996 Annual Report to Shareholders. Where appropriate, comparisons are made on a dollars-per-weighted-average-unit basis in order to adjust for changes in the number of units owned during each period. The statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those included in the forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: changes in general economic conditions in the markets that could impact demand for the Company's product and changes in financial markets and interest rates impacting the Company's ability to meet its financing needs and obligations. Camden Property Trust and its subsidiaries ("Camden" or the "Company") report as a single business segment related to the ownership, development, acquisition, management, marketing and disposition of multifamily apartment communities in the Southwest, Southeast and Midwest regions of the United States. At June 30, 1997, the Company owned interests in, operated or was developing 103 multifamily properties containing 35,460 apartment units located in Texas, Arizona, Florida, Kentucky, Missouri, and North Carolina. Three of the Company's multifamily properties were under development at June 30, 1997 in Houston and Dallas containing 1,110 apartment units ("Development Properties"). Five of the Company's newly developed multifamily properties containing 1,524 apartment units were in various stages of lease-up at June 30, 1997 in Houston, Phoenix, Charlotte, Greensboro and Kansas City ("Lease-up Properties"). The Company has several additional sites including land in Denver which it intends to develop into multifamily apartment communities. Additionally, the Company manages 4,673 apartment units in 16 properties for third-parties and affiliates. Acquisition of Paragon Group, Inc. On April 15, 1997, the Company acquired through a tax-free merger Paragon Group, Inc., ("Paragon"), a publicly-traded Dallas-based multifamily real estate investment trust. The acquisition increased the size of the Company's portfolio from 53 to 103 multifamily properties (after combining the operations of seven of the acquired properties with adjacent properties), and from 19,389 to 35,364 apartment units at the date of acquisition, (the "Paragon Acquisition"). As provided in the Plan of Merger dated December 16, 1996 (the "Merger Agreement") each share of Paragon common stock outstanding on April 15, 1997 was exchanged for 0.64 shares of the Company's common shares (based on a share price of $17.75 per share of Paragon common stock and $27.75 per share of Camden common shares). The Company issued 9,466,346 shares in exchange for all of the outstanding shares of Paragon common stock. Subsequent to the acquisition, 2,352,161 Operating Partnership units were outstanding. Approximately $296 million of Paragon debt, at fair value, was assumed in the acquisition. -13- 14 Property Portfolio The Company's multifamily property portfolio, excluding land held for development, at June 30, 1997 and December 31, 1996 is summarized as follows:
JUNE 30, 1997** DECEMBER 31, 1996 ----------------------------------- ----------------------------------- Number Number of Number of Number of of Units Properties %* Units Properties %* ----------- ------------ ------ ----------- ----------- ----- Texas Houston 7,745 20 22% 7,745 20 40% Dallas 9,381 26 27 6,777 18 35 Austin 1,745 6 5 1,745 6 9 Other 1,585 5 4 1,585 5 8 ------- ---- ---- ------ --- ---- Total Texas Properties 20,456 57 58 17,852 49 92 ------- ---- ---- ------ --- ---- Arizona 1,537 4 4 1,537 4 8 Florida 6,103 17 17 Kentucky 1,142 5 3 Missouri 3,487 10 10 North Carolina 2,735 10 8 ------- ---- ---- ------ --- ---- Total Properties 35,460 103 100% 19,389 53 100% ======= ==== ==== ====== === ====
* Based on number of units. ** Includes three properties containing 1,264 units owned in joint ventures. Property Update Leasing continued during the second quarter on the two development properties completed during the first quarter of 1997 and on the three development properties acquired in the Paragon Acquisition. The following table sets forth information regarding the Lease-Up Properties:
Estimated Number Cost % Leased Date of Estimated Property and Location of Units ($ millions) at 8/6/97 Completion Stabilization - ------------------------------------ ---------- ------------- ------------ ----------------- ----------------- The Park at Sugar Grove Houston, TX 380 $ 19.3 96% 1Q97 3Q97 The Park at Arrowhead Springs Phoenix, AZ 288 16.1 80 1Q97 3Q97 Park Commons* Charlotte, NC 232 11.5 83 2Q97 3Q97 Brassfield Park* Greensboro, NC 336 17.1 82 2Q97 3Q97 Camden Passage Phase II* Kansas City, MO 288 15.6 74 2Q97 3Q97 ----- ------ Total 1,524 $ 79.6 ===== ======
* Acquired in Paragon Acquisition. Brassfield is owned through a joint venture. -14- 15 Construction continued on The Park at Centreport, The Park at Buckingham, and Phase II of The Park at Vanderbilt. The Park at Centreport is expected to be ready for first occupancy during the third quarter of 1997 with stabilization to occur during the third quarter of 1998. The Park at Buckingham and Phase II of The Park at Vanderbilt began leasing during the second quarter of 1997. The following table sets forth information regarding the Development Properties:
Estimated Number Cost % Leased Estimated Date Estimated Property and Location of Units ($ millions) at 8/6/97 of Completion Stabilization - ------------------------------------ ---------- ------------- ------------ ----------------- ----------------- The Park at Buckingham Dallas, TX 464 $ 25.5 22% 1Q98 3Q98 The Park at Centreport Dallas, TX 268 14.0 0 1Q98 3Q98 The Park at Vanderbilt, Phase II Houston, TX 378 24.6 60 3Q97 4Q97 ----- ------ Total 1,110 $ 64.1 ===== ======
Historically, the Company has staged its construction to allow leasing and occupancy during the construction period thereby minimizing the lease-up period following completion of construction. The Company's accounting policy related to properties in the development and leasing phase is that all operating expenses, excluding depreciation, associated with occupied units are expensed against revenues generated by those units as they become occupied. All construction and carrying costs are capitalized and reported on the balance sheet in "Projects under development, including land" until such units are completed. Upon completion of each building of the project, the total cost of that building and the associated land is transferred to "Land" and "Buildings and improvements" and the assets are depreciated over their estimated useful lives using the straight-line method of depreciation. Upon achieving 90% occupancy, or one year from opening the leasing office, whichever occurs first, all units are considered operating and the Company begins expensing all items that were previously considered as carrying costs. Comparison of the Quarter Ended June 30, 1997 and June 30, 1996 The changes in operating results from period to period are primarily due to the Paragon Acquisition, development of four properties aggregating 1,552 units, and an increase in net operating income generated by the stabilized portfolio. The weighted average number of units for the second quarter of 1997 increased by 15,218 units, or 88.6%, from 17,174 to 32,392. Total operating properties were 97 and 50 at June 30, 1997 and 1996, respectively. The 32,392 weighted average units and the 97 operating properties exclude the impact of the Company's ownership interest in 1,264 units on three properties owned in joint ventures. The average rental income per unit per month increased $22 or 4.4%, from $504 to $526 for the second quarter of 1996 and 1997, respectively. The increase was primarily due to increased revenue growth from the stabilized real estate portfolio and higher average rental rates on properties added to the portfolio through the Paragon Acquisition and completion of new development properties. Overall average occupancy decreased slightly from 94.2% to 93.8% for the quarters ended June 30, 1996 and 1997, respectively. -15- 16 Other property income increased $1.2 million from $1.1 million to $2.3 million for the quarters ended June 30, 1996 and 1997, respectively. The increase in other property income was due to a larger number of units owned and in operation. Property operating and maintenance expenses and real estate taxes increased $11.4 million, from $13.2 million to $24.6 million, which represents an annual decrease of $36 per unit. The Company's operating expense ratios decreased over the prior year primarily as a result of operating efficiencies resulting from a larger portfolio together with savings in utilities and other costs. Real estate taxes increased as a result of the Paragon Acquisition, increases in the valuations of renovated and developed properties, and increases in property tax rates. However, on a per unit basis, annualized taxes declined from $774 to $738. General and administrative expenses increased $520,000 from $696,000 to $1.2 million, a rate consistent with the overall increase in revenues. Interest expense increased from $4.2 million to $9.1 million due to increased indebtedness related to the Paragon Acquisition, completed developments and renovations. The increase was partially offset by reductions in average interest rates on the Company's debt. Interest capitalized remained constant at $1.1 million for the quarters ended June 30, 1997 and 1996, respectively. Depreciation and amortization increased from $5.6 million to $12.1 million. This increase was due primarily to the Paragon Acquisition, developments, and renovations. Comparison of the Six Months Ended June 30, 1997 and June 30, 1996 The changes in operating results from period to period are primarily due to the Paragon Acquisition, development of six properties aggregating 2,356 units, and an increase in net operating income generated by the stabilized portfolio. The weighted average number of units for the first six months of 1997 increased by 8,040 units, or 47.1%, from 17,068 to 25,108. Total operating properties were 97 and 50 at June 30, 1997 and 1996, respectively. The 25,108 weighted average units and the 97 operating properties exclude the impact of the Company's ownership interest in 1,264 units on three properties owned in joint ventures. The average rental income per unit per month increased $26 or 5.2%, from $499 to $525 for the six months ended June 30, 1996 and 1997, respectively. The increase was primarily due to increased revenue growth from the stabilized real estate portfolio and higher average rental rates on properties added to the portfolio through the Paragon Acquisition and completion of new development properties. Other property income increased $1.4 million from $2.2 million to $3.6 million for the six months ended June 30, 1996 and 1997, respectively. The increase in other property income was due to a larger number of units owned and in operation. Property operating and maintenance expenses and real estate taxes increased $12.1 million, from $26.2 million to $38.3 million, which represents an annual decrease of $16 per unit. The Company's operating expense ratios decreased over the prior year primarily as a result of operating efficiencies resulting from a larger portfolio together with savings in utilities and other costs. Real estate taxes increased as a result of the Paragon Acquisition, increases in the valuations of renovated and developed properties, and increases in property tax rates. General and administrative expenses increased $720,000 from $1.3 million to $2.0 million, a rate consistent with the overall increase in revenues. -16- 17 Interest expense increased from $8.2 million to $13.3 million 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. Interest capitalized was $1.7 million and $2.5 million for the six months ended June 30, 1997 and 1996, respectively. Depreciation and amortization increased from $11.2 million to $18.5 million. This increase was due primarily to the Paragon Acquisition, developments, and renovations. LIQUIDITY AND CAPITAL RESOURCES Financial Structure The Company intends to continue maintaining what management believes to be a conservative capital structure by: (i) targeting a ratio of total debt to total market capitalization of less than 50%; (ii) extending and sequencing the maturity dates of its debt where possible; (iii) managing floating 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 a conservative debt service coverage ratio. On July 21, 1997, the Company completed the public sale and issuance of 4,830,000 common shares, including 630,000 shares issued to the underwriters to satisfy over-allotments, (the "July 1997 Equity Offering") at a price of $31 per share. Net proceeds from the July 1997 Equity Offering were used to retire certain secured indebtedness assumed in the Paragon Acquisition and to reduce amounts outstanding under the $150 million unsecured line of credit (the "Unsecured Credit Facility") which had been advanced to fund recent property developments, a 96-unit apartment acquisition and other working capital requirements. Following the July 1997 Equity Offering, the Company had outstanding 31,002,349 common shares, (excluding: 897,733 shares reserved for issuance upon the exercise of outstanding options granted pursuant to the Company's 1993 Share Incentive Plan (the "Plan"); (ii) 2,346,640 common shares issuable upon conversion of Operating Partnership Units; (iii) 299,583 common shares issuable upon conversion of the Company's outstanding convertible debentures; and, (iv) 183,434 common shares awarded under the Plan to certain executive officers of the Company and held in trust by the Company.) Camden has maintained on a quarterly basis a financial structure with no more than 40% total debt to total market capitalization since its initial public offering in July 1993. At June 30, 1997, the Company's ratio of total debt to total market capitalization was approximately 37.7% (based on the closing price of $31.63 per common share of the Company on the New York Stock Exchange composite tape on June 30, 1997). This ratio represents total consolidated debt of the Company as a percentage of the market value of the Company's common shares (including common shares issuable upon the conversion of convertible securities and operating partnership units, but excluding common shares issuable upon exercise of outstanding options) plus total consolidated debt. The interest coverage ratio was 3.1 and 3.2 times earnings before interest, taxes, depreciation, and amortization ("EBITDA") for the three months ended June 30, 1997 and 1996, respectively, and 3.3 and 3.2 times EBITBA, for the six months ended June 30, 1997 and 1996, respectively. Following the July 1997 Equity Offering and the application of proceeds to reduce outstanding secured and unsecured debt, the ratio of debt to total market capitalization was reduced to 28.3%. Had the offering and subsequent debt retirement been completed at the beginning of the quarter, the interest coverage ratio for the second quarter of 1997 would have been 4.3 times EBITDA. -17- 18 Liquidity The Company intends to meet its short-term liquidity requirements through cash flows provided by operations, the Unsecured Credit Facility, and other short-term borrowings. The Company uses equity capital and senior unsecured debt to refinance maturing secured debt and borrowings under its Unsecured Credit Facility and other short-term borrowings. Following the Offering in July 1997, the Company had availability of $142 million under the Unsecured Credit Facility. The Company has on file a universal shelf registration providing for the issuance of up to $500 million in equity, debt, preferred or convertible securities, of which, over $275 million remains unused. Additionally, the Company has a $196 million medium-term note program used to provide intermediate and long-term, unsecured publicly-traded debt financing, of which $171 million remains unused. Finally, the Company has significant unencumbered real estate assets which could be sold or used as collateral for financing purposes should other sources of capital not be available. The Company considers its ability to generate cash to be sufficient, and expects to be able to meet future operating cash requirements and to pay distributions to shareholders and holders of operating partnership units. On July 17, 1997, the Company paid a distribution of $0.49 per share for the second quarter of 1997 to all holders of record of Camden's common shares as of June 30, 1997, and paid an equivalent amount per unit to holders of Operating Partnership Units ("OP Units"). This distribution to common shareholders and holders of OP Units equates to an annualized dividend rate of $1.96 per share or unit. The Company determines the amount of cash distributable from the Operating Partnership in accordance with the partnership agreement and intends to make distributions to the holders of OP Units in amounts equivalent to the per share dividends paid to holders of common shares. Financial Flexibility The Company concentrates its growth efforts toward selective development and acquisition opportunities in its core markets, and through the acquisition of existing operating portfolios and development properties in selected new markets. During the six months ended June 30, 1997, the Company incurred $33.5 million in development costs and $3.9 million in acquisition costs for a property purchased for cash. In addition, Camden issued 9.5 million common shares and assumed $296 million of indebtedness, at fair value, to purchase Paragon. The Company funds its developments and acquisitions through a combination of equity capital, OP Units, debt securities, the Unsecured Credit Facility, other short-term borrowing arrangements, and previously has used construction and other mortgage loans. The Company also seeks to selectively dispose of assets that are either not in core markets, have a lower projected net operating income growth rate than the overall portfolio, or no longer conform to the Company's operating and investment strategies. Such sales also generate capital for reinvestment into other acquisitions and new developments. The Company's Unsecured Credit Facility matures July 28, 2000. One year prior to maturity, this note becomes a term loan, unless it is extended, renegotiated or repaid. The scheduled interest rate on the loan is currently based on LIBOR plus 105 basis points or Prime plus 25 basis points. This scheduled rate is subject to change as the Company's credit ratings change. Advances under the Unsecured Credit Facility may be priced at the scheduled rate, or, the Company may enter into bid rate loans ("Bid Rate Loans") with participating banks at rates below the scheduled rate. 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 Credit Facility. The Unsecured Credit Facility is subject to customary financial covenants and limitations. As an alternative to its Unsecured Credit Facility, 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 Credit Facility bank group. Such borrowings vary in term and pricing but have the same -18- 19 covenants as the Unsecured Credit Facility and are typically priced at interest rates below those available under the Unsecured Credit Facility. Subsequent to June 30, 1997, Camden retired an additional $66.7 million mortgage loan using a portion of the proceeds of the July 1997 Equity Offering. Including the debt retirements made in conjunction with the July 1997 Equity Offering, the Company has retired $160.3 million of the $296 million of debt assumed in the Paragon Acquisition. On May 9, 1997, the Company issued from its recently filed shelf registration statement an aggregate principal amount of $75 million of its unsecured reset notes maturing May 2002 (the "Reset Notes"). During the one-year period ending May 11, 1998, the interest rate on the Reset Notes, which will be reset quarterly, will equal 90-day LIBOR plus 32 basis points and interest will be payable on a quarterly basis. After the one-year period, the mode and duration of the interest rate on the Reset Notes will be reset by the Company and a remarketing underwriter as either fixed or floating and for durations of from six months to four years. The Reset Notes are direct, senior unsecured obligations of the Company and rank equally with all other unsecured and unsubordinated indebtedness of the Company. The Reset Notes are redeemable after May 11, 1998 at the option of the Company at par value. The net proceeds to the Company from the sale of the Notes were $74.8 million. The Company used the net proceeds to reduce indebtedness incurred under the Unsecured Credit Facility which had been used to liquidate portions of the debt assumed in the Paragon Acquisition. On June 20, 1997, the Company issued $25 million aggregate principal amount of senior unsecured notes from its $196 million Medium Term Notes shelf registration. These fixed rate notes, due in June 2004, bear interest at the annual rate of 7.172% payable semiannually on March 15 and September 15. The net proceeds were used to reduce indebtedness outstanding under short-term unsecured notes. At June 30, 1997, the Company was party to a $25 million interest rate hedging agreement which is scheduled to mature in July 2000. The issuing bank has an option to extend this agreement to July 2002. The LIBOR rate is fixed at 6.1%, resulting in a fixed rate equal to 6.1% plus the actual LIBOR spread on the related indebtedness. This swap continues to be used as a hedge to manage the risk of interest rate fluctuations on the Unsecured Credit Facility and other floating rate indebtedness. At June 30, 1997, the weighted average interest rate on total notes payable was 7.1%. Following the retirement of debt using the proceeds of the July 1997 Equity Offering, the weighted average interest rate was reduced to 7.0%. FUNDS FROM OPERATIONS Funds from operations ("FFO") for the three and six months ended June 30, 1997 increased $9.5 million and $10.7 million, respectively over the same periods of 1996. Management considers FFO an appropriate measure of performance of an equity REIT. The National Association of Real Estate Investment Trusts ("NAREIT") 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 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 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. -19- 20 Further, FFO as disclosed by other REITs may not be comparable to the Company's calculation of FFO. Camden's calculation of FFO for the three and six month periods ended June 30, 1997 and June 30, 1996 follows: (In thousands)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ----------------------- 1997 1996 1997 1996 --------- -------- --------- --------- Net income to common shareholders $ 6,429 $ 3,498 $ 10,493 $ 1,748 Real estate depreciation 11,807 5,451 17,996 10,787 Minority interest in Operating Partnership 597 597 Real estate depreciation from unconsolidated ventures 283 283 Interest on convertible subordinated debentures 133 756 429 1,563 Amortization of deferred costs on convertible debentures 22 80 64 159 Gain on sales of properties (195) Losses related to early retirement of debt 286 5,351 Preferred share dividends 4 -------- ------- -------- -------- Funds from operations - fully diluted $ 19,271 $ 9,785 $ 30,148 $ 19,417 ======== ======= ======== ======== Weighted average number of common and common equivalent shares outstanding - fully diluted 29,633 16,381 23,689 16,378
The Company expenses recurring capital expenditures for items such as carpets, appliances and HVAC units as these items are replaced in their normal course. During a renovation, many of these items may be capitalized, particularly to the extent that an inordinate number of such items are replaced. Nonrecurring capital expenditures for such items as roof replacements are capitalized. The Company capitalized $4.4 million and $3.8 million in the six months ended June 30, 1997 and 1996, respectively of non-recurring renovations and improvements to extend the economic lives and enhance its multifamily properties. 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. -20- 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders (a) The Company held a Special Shareholders Meeting April 15, 1997. The Shareholders voted to approve the Agreement and Plan of Merger by and among Camden Property Trust, Camden Subsidiary, Inc., and Paragon Group, Inc.
Affirmative Negative Abstentions ----------- -------- ----------- 11,105,390 57,678 88,955
(b) The Company's Annual Meeting of Shareholders was held June 5, 1997. (1) The Shareholders elected five of the seven Trust Managers nominated by the Board of Trust Managers. William R. Cooper and Lewis A. Levey, who were nominated by the Board of Trust Managers, did not receive the requisite two-thirds majority vote by the shareholders of all outstanding shares. The Board of Trust Managers re-appointed Messrs. Cooper and Levey, however, as Trust Managers.
Broker Affirmative Negative Abstentions Non-Votes ----------- -------- ----------- --------- Richard J. Campo 15,652,818 62,204 0 0 D. Keith Oden 15,658,430 56,593 0 0 George A. Hrdlicka 15,658,430 56,593 0 0 F. Gardner Parker 15,658,430 56,593 0 0 Steven A. Webster 15,658,430 56,593 0 0 William R. Cooper 15,658,430 56,593 0 0 Lewis A. Levey 15,658,430 56,593 0 0
(2) The Shareholders approved an amendment to the 1993 Share Incentive Plan to increase the number of shares authorized for issuance under the Plan.
Broker Affirmative Negative Abstentions Non-Votes ----------- -------- ----------- --------- 11,853,947 3,500,980 242,561 124,055
-21- 22 (3) The Shareholders ratified the appointment of Deloitte & Touche LLP as independent auditors of the Company for the year ending December 31, 1997.
Broker Affirmative Negative Abstentions Non-Votes ----------- -------- ----------- --------- 15,670,370 18,512 26,189 124,055
Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1 Amended and Restated Declaration of the Trust of the Company, as last amended on April 15, 1997 3.2 Amended and Restated Bylaws of the Trust (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K dated October 10, 1996, filed with the Commission on November 18, 1996 (File No. 1-12110), and incorporated by reference herein) 4.1 Indenture dated as of February 15, 1996 between the Company and U.S. Trust Company of Texas, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 15, 1996 (File No. 1-12110), and incorporated by reference herein) 4.2 First Supplemental Indenture dated as of February 15, 1996 between the Company and U.S. Trust Company of Texas N.A., as trustee (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated February 15, 1996 (File No. 1-12110), and incorporated by reference herein) 4.3 Form of Camden Property Trust Remarketed Reset Note due May 9, 2002 (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K dated May 9, 1997, filed with the Commission on May 21, 1997 (File No. 1-12110), and incorporated by reference by herein) 10.1 Underwriting Agreement dated May 6, 1997 between the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as Exhibit 1.1 to the Company's Current Report on Form 8-K dated May 9, 1997, filed with the Commission on May 21, 1997 (File No. 1-12110), and incorporated by reference herein) 10.2 Remarketing Agreement dated May 6, 1997 between the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as Exhibit 1.2 to the Company's Current Report on Form 8-K dated May 9, 1997, filed with the Commission on May 21, 1997 (File No. 1-12110), and incorporated by reference herein) 10.3 Camden Development, Inc. 1997 Non-Qualified Employee Stock Purchase Plan 11.1 Statement regarding Computation of Per Share Earnings
-22- 23 23.1 Consent of Ernst & Young LLP (filed as Exhibit 23.1 to the Company's Current Report on Form 8-K dated June 30, 1997, filed with the Commission on July 8, 1997, as amended by Form 8-K/A filed with the Commission on July 18, 1997 (Filed No. 1-12110), and incorporated by reference herein) 27.1 Financial Data Schedule (filed only electronically with the Commission) 99.1 Registration Rights Agreement dated April 15, 1997 among the Company, the Operating Partnership and certain investors set forth therein (filed as Exhibit 99.1 to the Company's Registration Statement on Form S-3 filed with the Commission on April 22, 1997 (File No. 333-25637) and incorporated by reference herein)
(b) Reports on Form 8-K Current Report on Form 8-K dated April 15, 1997 was filed with the Commission on April 30, 1997, contained information under Item 2 (Acquisition or Disposition of Assets) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits), and was amended by Form 8-K/A filed with the Commission on June 16, 1997, which contained information under Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits). Current Report on Form 8-K dated May 9, 1997 and filed with the Commission on May 21, 1997, contained information under Item 5 (Other Events) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits). Current Report on Form 8-K dated June 30, 1997 and filed with the Commission on July 8, 1997, contained information under Item 5 (Other Events) and Item 7 (Financial Statement, Pro Forma Financial Information and Exhibits), and was amended by Form 8-K/A filed with the Commission on July 18, 1997, which contained information under Item 5 (Other Events) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits). -23- 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMDEN PROPERTY TRUST /s/ G. STEVEN DAWSON August 13, 1997 - ------------------------------------------ ------------------- G. Steven Dawson Date Sr. Vice President of Finance, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer) -24- 25 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION -------- ----------- 3.1 Amended and Restated Declaration of the Trust of the Company, as last amended on April 15, 1997 3.2 Amended and Restated Bylaws of the Trust (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K dated October 10, 1996, filed with the Commission on November 18, 1996 (File No. 1-12110), and incorporated by reference herein) 4.1 Indenture dated as of February 15, 1996 between the Company and U.S. Trust Company of Texas, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 15, 1996 (File No. 1-12110), and incorporated by reference herein) 4.2 First Supplemental Indenture dated as of February 15, 1996 between the Company and U.S. Trust Company of Texas N.A., as trustee (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated February 15, 1996 (File No. 1-12110), and incorporated by reference herein) 4.3 Form of Camden Property Trust Remarketed Reset Note due May 9, 2002 (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K dated May 9, 1997, filed with the Commission on May 21, 1997 (File No. 1-12110), and incorporated by reference by herein) 10.1 Underwriting Agreement dated May 6, 1997 between the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as Exhibit 1.1 to the Company's Current Report on Form 8-K dated May 9, 1997, filed with the Commission on May 21, 1997 (File No. 1-12110), and incorporated by reference herein) 10.2 Remarketing Agreement dated May 6, 1997 between the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as Exhibit 1.2 to the Company's Current Report on Form 8-K dated May 9, 1997, filed with the Commission on May 21, 1997 (File No. 1-12110), and incorporated by reference herein) 10.3 Camden Development, Inc. 1997 Non-Qualified Employee Stock Purchase Plan 11.1 Statement regarding Computation of Per Share Earnings 23.1 Consent of Ernst & Young LLP (filed as Exhibit 23.1 to the Company's Current Report on Form 8-K dated June 30, 1997, filed with the Commission on July 8, 1997, as amended by Form 8-K/A filed with the Commission on July 18, 1997 (Filed No. 1-12110), and incorporated by reference herein) 27.1 Financial Data Schedule (filed only electronically with the Commission) 99.1 Registration Rights Agreement dated April 15, 1997 among the Company, the Operating Partnership and certain investors set forth therein (filed as Exhibit 99.1 to the Company's Registration Statement on Form S-3 filed with the Commission on April 22, 1997 (File No. 333-25637) and incorporated by reference herein)
EX-3.1 2 AMENDED & RESTATED DECLARATION OF THE TRUST 1 EXHIBIT 3.1 AMENDMENT TO THE AMENDED AND RESTATED DECLARATION OF TRUST OF CAMDEN PROPERTY TRUST The undersigned, acting as the Trust Managers of Camden Property Trust, a real estate investment trust under the Texas Real Estate Investment Trust Act (the "Texas REIT Act"), hereby adopt the following amendment to the Amended and Restated Declaration of Trust for such trust which amendment replaces in its entirety the following Article of the Amended and Restated Declaration of Trust for such trust. ARTICLE FIVE The names and mailing addresses of the Trust Managers are as follows: Name Mailing Address ---- --------------- Richard J. Campo 3200 Southwest Freeway, Suite 1500 Houston, Texas 77027 D. Keith Oden 3200 Southwest Freeway, Suite 1500 Houston, Texas 77027 F. Gardner Parker 6200 Savoy, Suite 1200 Houston, Texas 77036 George A. Hrdlicka 1200 Smith, Suite 1400 Houston, Texas 77002 Steven A. Webster 1900 W. Loop South, Suite 1800 Houston, Texas 77027 William R. Cooper 7557 Rambler Road, Suite 1200 Dallas, Texas 75231 Lewis A. Levey 12400 Olive Blvd., Suite 100 St. Louis, MO 63141 -1- 2 IN WITNESS WHEREOF, the undersigned Trust Managers do hereby execute this Amendment to the Amended and Restated Declaration of Trust as of the 15th day of April, 1997. /s/ RICHARD J. CAMPO ------------------------------------ RICHARD J. CAMPO /s/ D. KEITH ODEN ------------------------------------ D. KEITH ODEN /s/ F. GARDNER PARKER ------------------------------------ F. GARDNER PARKER /s/ GEORGE A. HRDLICKA ------------------------------------ GEORGE A. HRDLICKA /s/ STEVEN A. WEBSTER ------------------------------------ STEVEN A. WEBSTER /s/ WILLIAM R. COOPER ------------------------------------ WILLIAM R. COOPER /s/ LEWIS A. LEVEY ------------------------------------ LEWIS A. LEVEY -2- 3 AMENDED AND RESTATED DECLARATION OF TRUST OF CAMDEN PROPERTY TRUST The undersigned, acting as the Trust Managers of a real estate investment trust under the Texas Real Estate Investment Trust Act (the "Texas REIT Act"), hereby adopt the following Amended and Restated Declaration of Trust for such trust, which replaces in its entirety the previously enacted Declaration of Trust for such trust. ARTICLE ONE The name of the trust (the "Trust") is "Camden Property Trust." An assumed name certificate setting forth such name has been filed in the manner prescribed by law. ARTICLE TWO The Trust is formed pursuant to the Texas REIT Act and has the following as its purpose: To purchase, hold, lease, manage, sell, exchange, develop, subdivide and improve real property and interests in real property, and in general, to carry on any other business and do any other acts in connection with the foregoing and to have and exercise all powers conferred by the laws of the State of Texas upon real estate investment trusts formed under the Texas REIT Act, and to do any or all of the things hereinafter set forth to the same extent as natural persons might or could do. The term "real property" and the term "interests in real property" for the purposes stated herein shall not include severed mineral, oil or gas royalty interests. ARTICLE THREE As to any real property of any character, major capital improvements must be made within 15 years of purchase or the property must be sold. Such major capital improvements must equal or exceed the purchase price of such real property, if the same is unimproved property at the time of purchase or property outside the corporate limits of a city, town or village. Any citizen of the State of Texas may force compliance with this provision by filing suit in any district court of the State of Texas and shall receive from the Trust, if the Trust is forced to sell a real property interest under this provision, the sum of 5% of the sale price of such real property interest as compensation. -3- 4 ARTICLE FOUR The address of the Trust's initial principal office and place of business is 3200 Southwest Freeway, Suite 1500, Houston, Texas 77027. ARTICLE FIVE The names and mailing addresses of the Trust Managers are as follows: Name* Mailing Address ----- --------------- Richard J. Campo 3200 Southwest Freeway, Suite 1500 Houston, Texas 77027 D. Keith Oden 3200 Southwest Freeway, Suite 1500 Houston, Texas 77027 * All of the initial Trust Managers qualify as "Resident Trust Managers" as that term is defined in the Texas REIT Act. ARTICLE SIX The period of the Trust's duration is perpetual. The Trust may be sooner terminated by the vote of the holders of at least a two-thirds majority of the voting power of the outstanding Shares. ARTICLE SEVEN The aggregate number of shares of beneficial interest which the Trust shall have authority to issue is one hundred million common shares, par value $.01 per share ("Common Shares"), and ten million preferred shares, par value $.01 per share ("Preferred Shares"). All of the Common Shares shall be equal in all respects to every other such Common Share, and shall have no preference, conversion, exchange or preemptive rights. Unless otherwise specified, in this Declaration of Trust the term "Shares" shall be deemed to refer to the Common Shares and, solely to the extent specifically required by law or as specifically provided in any resolution or resolutions of the Trust Managers providing for the issue of any particular series of Preferred Shares, to the Preferred Shares. For purposes of Articles Ten and Nineteen (other than Article Nineteen (j)) of this Declaration of Trust, the term Shares shall be deemed to refer to both the Common Shares and the Preferred Shares and, for purposes of such Articles Ten and Nineteen (other than Article Nineteen (j)), the number of outstanding Shares shall be deemed to be equal to the value of the Trust's outstanding Shares as determined from time to time by resolution of the Trust Managers, such determination to include an allocation of relative value among the Common Shares and any outstanding series of Preferred Shares. The Trust may issue one or more series of Preferred Shares, each such series to consist of such number of shares as shall be determined by resolution of the Trust Managers creating such series. The Preferred Shares of each such series shall have such designations, preferences, conversion, exchange or other -4- 5 rights, participations, voting powers, options, restrictions, limitations, special rights or relations, limitations as to dividends, qualifications or terms, or conditions of redemption thereof, as shall be stated and expressed by the Trust Managers in the resolution or resolutions providing for the issuance of such series of Preferred Shares pursuant to the authority to do so which is hereby expressly vested in the Trust Managers. Except as otherwise specifically provided in any resolution or resolutions of the Trust Managers providing for the issue of any particular series of Preferred Shares, the number of shares of any such series so set forth in such resolution or resolutions may be increased or decreased (but not below the number of shares of such series then outstanding) by a resolution or resolutions likewise adopted by the Trust Managers. Except as otherwise specifically provided in any resolution or resolutions of the Trust Managers providing for the issue of any particular series of Preferred Shares, Preferred Shares redeemed or otherwise acquired by the Trust shall assume the status of authorized but unissued Preferred Shares and shall be unclassified as to series and may thereafter, subject to the provisions of this Article Seven and to any restrictions contained in any resolution or resolutions of the Trust Managers providing for the issuance of any such series of Preferred Shares, be reissued in the same manner as other authorized but unissued Preferred Shares. Except as otherwise specifically provided in any resolution or resolutions of the Trust Managers providing for the issue of any particular series of Preferred Shares, holders of Preferred Shares shall have no preemptive rights. Except as otherwise specifically required by law or this Declaration of Trust or as specifically provided in any resolution or resolutions of the Trust Managers providing for the issuance of any particular series of Preferred Shares, the exclusive voting power of the Trust shall be vested in the Common Shares of the Trust. Each Common Share entitles the holder thereof to one vote at all meetings of the shareholders of the Trust. ARTICLE EIGHT The Trust shall issue Shares only for money or property actually received. ARTICLE NINE The Trust Managers shall hold all money and property received for the issuance of Shares for the benefit of the owners of such Shares. ARTICLE TEN The Trust will not commence operations until the beneficial ownership of the Shares is held by 100 or more persons with no five persons owning more than 50% of the total number of outstanding Shares. The word "person," as used in the- second clause of the immediately preceding sentence, shall not include corporations. -5- 6 ARTICLE ELEVEN The Trust shall not engage in any activities beyond the scope of the purpose of a real estate investment trust formed pursuant to the Texas REIT Act, as such purpose is set forth in Article Two hereof. ARTICLE TWELVE Cumulative voting for the election of Trust Managers is prohibited. ARTICLE THIRTEEN (a) The affirmative vote of the holders of not less than 80% of the outstanding Shares of the Trust, including the affirmative vote of the holders of not less than 50% of the outstanding Shares not owned, directly or indirectly, by any "Related Person" (as hereinafter defined), shall be required for the approval or authorization of any "Business Combination" (as hereinafter defined); provided, however, that the 50% voting requirement referred to above shall not be applicable if the Business Combination is approved by the affirmative vote of the holders of not less than 90% of the outstanding Shares; provided further, that neither the 80% voting requirement nor the 50% voting requirement referred to above shall be applicable if: (i) The Trust Managers of the Trust by a vote of not less than 80% of the Trust Managers then holding office (A) have expressly approved in advance the acquisition of Shares of the Trust that caused the Related Person to become a Related Person or (B) have expressly approved the Business Combination prior to the date on which the Related Person involved in the Business Combination shall have become a Related Person; or (ii) The Business Combination is solely between the Trust and another corporation, 100% of the voting stock of which is owned directly or indirectly by the Trust; or (iii) The Business Combination is proposed to be consummated within one year of the consummation of a Fair Tender Offer (as hereinafter defined) by the Related Person in which Business Combination the cash or Fair Market Value (as hereinafter defined) of the property, securities or other consideration to be received per Share by all remaining holders of Shares of the Trust in the Business Combination is not less than the price offered in the Fair Tender Offer; or (iv) All of conditions (A) through (D) of this subparagraph (iv) shall have been met: (A) if and to the extent permitted by law, the Business Combination is a merger or consolidation, consummation of which is proposed to take place within one year of the date of the transaction pursuant to which such person became a Related Person and the cash or Fair Market Value of the property, securities or other consideration to be received per share by all remaining holders of Shares of the Trust in the Business Combination is not less than the Fair Price (as hereinafter defined); (B) the consideration to be received by such holders is either cash or, if the Related Person shall have acquired the majority of its holdings of the Trust's Shares for a form of consideration other than cash, in the same form of consideration with which the Related Person acquired such majority; (C) after such person has become a Related Person and prior to consummation of such Business Combination: (1) there shall have been no reduction in the annual rate of dividends, if any, paid per share on the Trust's Shares (adjusted as appropriate for recapitalizations and for Share splits, reverse Share splits and Share dividends) except any reduction in such rate that is made -6- 7 proportionately with any decline in the Trust's net income for the period for which such dividends are declared and except as approved by a majority of the Continuing Trust Managers (as hereinafter defined), and (2) such Related Person shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Trust prior to the consummation of such Business Combination (other than in connection with financing a Fair Tender Offer); and (D) a proxy statement that conforms in all respects with the provisions of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder (or any subsequent provisions replacing the Exchange Act or the rules or regulations thereunder) shall be mailed to holders of the Trust's Shares at least 30 days prior to the consummation of the Business Combination for the purpose of soliciting shareholder approval of the Business Combination; or (v) The "Rights" (as defined in paragraph (b) of this Article Thirteen) shall have become exercisable. (b) If a person has become a Related Person and within one year after the date (the "Acquisition Date") of the transaction pursuant to which the Related Person became a Related Person (x) a Business Combination meeting all of the requirements of subparagraph (iv) of the proviso to paragraph (a) of this Article Thirteen regarding the applicability of the 80% voting requirement shall not have been consummated and (y) a Fair Tender Offer shall not have been consummated and (z) the Trust shall not have been dissolved and liquidated, then, in such event the beneficial owner of each Share (not including Shares beneficially owned by the Related Person) (each such beneficial owner being hereinafter referred to as a "Holder") shall have the right (individually a "Right" and collectively the "Rights"), which may be exercised subject to the provisions of paragraph (d) of this Article Thirteen, commencing at the opening of business on the one-year anniversary date of the Acquisition Date and continuing for a period of 90 days thereafter, subject to extensions as provided in paragraph (d) of this Article Thirteen (the "Exercise Period"), to sell to the Trust on the terms set forth herein one Share upon exercise of such Right. Within five business days after the commencement of the Exercise Period the Trust shall notify the Holders of the commencement of the Exercise Period, specifying therein the terms and conditions for exercise of the Rights. During the Exercise Period, each certificate representing Shares beneficially owned by a Holder (a "Certificate") shall also represent the number of Rights equal to the number of Shares represented thereby and the surrender for transfer of any Certificate shall also constitute the transfer of the Rights represented by such Shares. At 5:00 P.M., Houston, Texas time, on the last day of the Exercise Period, each Right not exercised shall become void, all rights in respect thereof shall cease as of such time and the Certificates shall no longer represent Rights. (c) The purchase price for a Share upon exercise of an accompanying Right shall be equal to the then-applicable Fair Price paid by the Related Person (plus, as an allowance for interest, an amount equal to the prime rate of interest of NationsBank of Texas, N.A. as in effect from time to time from the Acquisition Date until the date of the payment for such Share but less the amount of any cash and the Fair Market Value of any property or securities distributed with respect to such Shares as dividends or otherwise during such time period), pursuant to the exercise of the Right relating thereto. In the event the 'Related Person shall have acquired any of its holdings of the Trust's Shares for a form of consideration other than cash, the value of such other consideration shall be the Fair Market Value thereof. (d) Notwithstanding the foregoing in paragraph (b) of this Article Thirteen, the Exercise Period will be deferred in the event (a "Deferral Event") that the Trust is otherwise prohibited under applicable law from repurchasing Shares pursuant to the Rights. In the event the Exercise Period is deferred, -7- 8 or if at any time the Trust reasonably anticipates that a Deferral Event will exist, the Trust will, as soon as practicable, notify the Holders. If at the end of any fiscal quarter the Deferral Event ceases to exist, notice shall be given to the Holders of the commencement of the deferred Exercise Period, which Exercise Period shall commence no sooner than 15 days nor more than 45 days from the date of such notice and which shall continue in effect for a period of time equal in duration to the previously unexpired portion of the Exercise Period. Notwithstanding any other provision of this Declaration of Trust to the contrary, during the Exercise Period (including during the existence of any Deferral Event), neither the Trust nor any subsidiary may declare or pay any dividend or make any distribution on its shares or to its shareholders (other than dividends or distributions payable in its shares or, in the case of any subsidiary, dividends payable to the Trust) or purchase, redeem or otherwise acquire or retire for value, or permit any subsidiary to purchase or otherwise acquire for value, any Shares of the Trust if, upon giving effect to such dividend, distribution, purchase, redemption, or other acquisition or retirement, the aggregate amount expended for all such purposes (the amount expended for such purposes, if other than in cash, to be determined by a majority of the Continuing Trust Managers, whose determination shall be conclusive) would prejudice the ability of the Trust to satisfy its maximum obligation to purchase Shares upon exercise of the Rights. (e) Rights may be exercised upon surrender to the Trust's principal transfer agent (the "Transfer Agent") at its office in Houston, Texas of the Certificate or Certificates evidencing the Shares to be tendered for purchase by the Trust, together with the form on the reverse thereof completed and duly signed in accordance with the instructions thereon. In the event that a Holder shall tender a Certificate which represents greater than the number of Shares which the Holder elects to require the Trust to purchase upon exercise of the Rights, the Holder shall designate on the reverse side of such Certificate the number of Shares to be sold from such Certificate. The Transfer Agent shall thereupon issue a new Certificate or Certificates for the balance of the number of Shares not sold to the Trust, which new Certificate or Certificates shall also represent Rights for an equivalent number of Shares. (f) For the purposes of this Article: (i) The term "Business Combination" shall mean (A) any merger or consolidation, if and to the extent permitted by law, of the Trust or a subsidiary, with or into a Related Person, (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition, of all or any Substantial Part (as hereinafter defined) of the assets of the Trust and its subsidiaries (taken as a whole) (including, without limitation, any voting securities of a subsidiary) to or with a Related Person, (C) the issuance or transfer by the Trust or a subsidiary (other than by way of a pro rata distribution to all shareholders) of any securities of the Trust or a subsidiary of the Trust to a Related Person, (D) any reclassification of securities (including any reverse Share split) or recapitalization by the Trust, the effect of which would be to increase the voting power (whether or not currently exercisable) of the Related Person, (E) the adoption of any plan or proposal for the liquidation or dissolution of the Trust proposed by or on behalf of a Related Person which involves any transfer of assets, or any other transaction, in which the Related Person has any direct or indirect interest (except proportionately as a shareholder), (F) any series or combination of transactions having, directly or indirectly, the same or substantially the same effect as any of the foregoing, and (G) any agreement, contract or other arrangement providing, directly or indirectly, for any of the foregoing. (ii) The term "Continuing Trust Manager" shall mean (x) any Trust Manager of the Trust who is not affiliated with a Related Person and who was a Trust Manager immediately prior to the time that the Related Person became a Related Person, and (y) any other Trust Manager who is not affiliated with the Related Person and is recommended either by a majority of the persons described in clause (x) of this subparagraph (ii) or by persons described in this clause (y) who are then Trust Managers of the Trust to succeed a person described in either the said clause (x) or clause (y) as a Trust Manager of the Trust. -8- 9 (iii) The term "Fair Market Value" shall mean: (A) in the case of securities, the highest closing sale price during the 30-day period immediately preceding the date in question of such security on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such security is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such security is not listed on such Exchange, on the principal United States securities exchange registered under the Exchange Act on which such security is listed, or, if such security is not listed on any such exchange, the highest closing bid quotation with respect to such security during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System or any system then in use, or if no such quotations are available, the fair market value on the date in question of such security as reasonably determined by an independent appraiser selected by a majority of the Continuing Trust Managers (or, if there are no Continuing Trust Managers, by Kidder, Peabody & Co. Incorporated) in good faith; and (B) in the case of property other than cash or stock, the fair market value of such property on the date in question as reasonably determined by an independent appraiser selected by a majority of the Continuing Trust Managers (or, if there are no Continuing Trust Managers, by Kidder, Peabody & Co. Incorporated) in good faith. In each case hereunder in which an independent appraiser is to be selected to determine Fair Market Value, (1) in the event (x) there are no Continuing Trust Managers, and (y) Kidder, Peabody & Co. Incorporated is unable or elects not to serve as such appraiser, or (2) in the event there are Continuing Trust Managers that do not select an independent appraiser within 10 days of a request for such appointment made by a Related Person, such independent appraiser may be selected by such Related Person. (iv) The term "Fair Price" shall mean the highest per-Share price (which, to the extent not paid in cash, shall equal the Fair Market Value of any other consideration paid), with appropriate adjustments for recapitalizations and for Share splits, reverse Share splits and Share dividends, paid by a person in acquiring any of its holdings of the Trust's Shares. (v) The term "Fair Tender Offer" shall mean a bona fide tender offer for all of the Trust's Shares outstanding (and owned by persons other than a Related Person if the tender offer is made by the Related Person), whether or not such offer is conditional upon any minimum number of Shares being tendered, in which the aggregate amount of cash or the Fair Market Value of any securities or other property to be received by all holders who tender their Shares for each Share so tendered shall be at least equal to the then applicable Fair Price paid by a Related Person or paid by the person making the tender offer if such person is not a Related Person. In the event that at the time such tender offer is commenced the terms and conduct thereof are not directly regulated by Section 14(d) or 13(e) of the Exchange Act and the general rules and regulations promulgated thereunder, then the terms of such tender offer regarding the time such offer is held open and regarding withdrawal rights shall conform in all respects with such terms applicable to tender offers regulated by either of such Sections of the Exchange Act. A Fair Tender Offer shall not be deemed to be "consummated" until Shares are purchased and payment in full has been made for all duly tendered Shares. (vi) The term "Related Person" shall mean and include any individual, corporation, partnership or other "person" (as defined in Section 13(d)(3) of the Exchange Act), and the "Affiliates" and "Associates" (as defined in Rule 12b-2 of the Exchange Act) of any such individual, corporation, partnership or other person which individually or together is the "Beneficial Owner" (as defined in Rule 13d-3 of the Exchange Act) in the aggregate of more than 50% of the Shares of the Trust, other than the Trust or any employee benefit plan(s) sponsored by the Trust. (vii) The term "Substantial Part" shall mean more than 35% of the book value of the total assets of the Trust and its subsidiaries (taken as a whole) as of the end of the fiscal year ending prior to the time the determination is being made. -9- 10 (viii) Any person (as such term is defined in subsection (vi) of this paragraph (f)) that has the right to acquire any Shares of the Trust pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise, shall be deemed a Beneficial Owner of such Shares for purposes of determining whether such person, individually or together with its Affiliates and Associates, is a Related Person. (ix) For purposes of subparagraph (iii) of paragraph (a) of this Article Thirteen, the term "other consideration to be received" shall include, without limitation, Shares of the Trust retained by its existing public shareholders in the event of a Business Combination in which the Trust is the surviving entity. (g) The affirmative vote of the holders of not less than 80% of the outstanding Shares of the Trust, including the affirmative vote of the holders of not less than 50% of the outstanding Shares not owned, directly or indirectly, by any Related Person (such 50% voting requirement shall not be applicable if such amendment, alteration, change, repeal or rescission is approved by the affirmative vote of not less than 90% of the outstanding Shares) shall be required to amend, alter, change, repeal or rescind, or adopt any provisions inconsistent with, this Article Thirteen. (h) The provisions of this Article Thirteen shall be subject to all valid and applicable laws, including, without limitation, the Texas REIT Act, and, in the event this Article Thirteen or any of the provisions hereof are found to be inconsistent with or contrary to any such valid laws, such laws shall be deemed to control and this Article Thirteen shall be regarded as modified accordingly, and, as so modified, to continue in full force and effect. ARTICLE FOURTEEN The Trust Managers may from time to time declare, and the Trust may pay, dividends on its outstanding Shares in cash, in property or in its Shares, except that no dividend shall be declared or paid when the Trust is unable to pay its debts as they become due in the usual course of its business, or when the payment of such dividend would result in the Trust being unable to pay its debts as they become due in the usual course of business. ARTICLE FIFTEEN A holder of Shares shall not be personally or individually liable in any manner whatsoever for any debt, act, omission or obligation incurred by the Trust or the Trust Managers. A holder of Shares shall be under no obligation to the Trust or to its creditors with respect to such Shares other than the obligation to pay to the Trust the full amount of the consideration for which such Shares were issued or to be issued. Upon the payment of such consideration, such Shares shall be fully paid and non-assessable by the Trust. -10- 11 ARTICLE SIXTEEN (a) In this Article: (i) "Indemnitee" means (A) any present or former Trust Manager or officer of the Trust, (B) any person who while serving in any of the capacities referred to in clause (A) hereof served at the Trust's request as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another real estate investment trust or foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise and (C) any person nominated or designated by (or pursuant to authority granted by) the Trust Managers or any committee thereof to serve in any of the capacities referred to in clauses (A) or (B) hereof. (ii) "Official Capacity" means (A) when used with respect to a Trust Manager, the office of Trust Manager of the Trust and (B) when used with respect to a person other than a Trust Manager, the elective or appointive office of the Trust held by such person or the employment or agency relationship undertaken by such person on behalf of the Trust, but in each case does not include service for any other real estate investment trust or foreign or domestic corporation or any partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise. (iii) "Proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding. (b) The Trust shall indemnify every Indemnitee against all judgments, penalties (including excise and similar taxes), fines, amounts paid in settlement and reasonable expenses actually incurred by the Indemnitee in connection with any Proceeding in which he was, is or is threatened to be named defendant or respondent, or in which he was or is a witness without being named a defendant or respondent, by reason, in whole or in part, of his serving or having served, or having been nominated or designated to serve, in any of the capacities referred to in paragraph (a)(i) of this Article Sixteen, to the fullest extent that indemnification is permitted by Texas law in accordance with the Bylaws of the Trust. An Indemnitee shall be deemed to have been found liable in respect of any claim, issue or matter only after the Indemnitee shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom. Reasonable expenses shall include, without limitation, all court costs and all fees and disbursements of attorneys for the Indemnitee. (c) Without limitation of paragraph (b) of this Article Sixteen and in addition to the indemnification provided for in paragraph (b) of this Article Sixteen, the Trust shall indemnify every Indemnitee against reasonable expenses incurred by such person in connection with any Proceeding in which he is a witness or a named defendant or respondent because he served in any of the capacities referred to in paragraph (a)(i) of this Article Sixteen, if such person has been wholly successful, on the merits or otherwise, in defense of the Proceeding. (d) Reasonable expenses (including court costs and attorneys' fees) incurred by an Indemnitee who was or is a witness or was, is or is threatened to be made a named defendant or respondent in a Proceeding shall be paid or reimbursed by the Trust at reasonable intervals in advance of the final disposition of such Proceeding after receipt by the Trust of a written undertaking by or on behalf of such Indemnitee to repay the amount paid or reimbursed by the Trust if it shall ultimately be determined that he is not entitled to be indemnified by the Trust as authorized in this Article Sixteen. Such written undertaking shall be an -11- 12 unlimited obligation of the Indemnitee but need not be secured and it may be accepted without reference to financial ability to make repayment. Notwithstanding any other provision of this Article Sixteen, the Trust may pay or reimburse expenses incurred by an Indemnitee in connection with his appearance as a witness or other participation in a Proceeding at a time when he is not named a defendant or respondent in the Proceeding. (e) The indemnification provided by this Article Sixteen shall (i) not be deemed exclusive of, or to preclude, any other rights to which those seeking indemnification may at any time be entitled under the Trust's Bylaws, any law, agreement or vote of shareholders or disinterested Trust Managers, or otherwise, or under any policy or policies of insurance purchased and maintained by the Trust on behalf of any Indemnitee, both as to action in his Official Capacity and as to action in any other Capacity, (ii) continue as to a person who has ceased to be in the Capacity by reason of which he was an Indemnitee with respect to matters arising during the period he was in such Capacity, and (iii) inure to the benefit of the heirs. executors and administrators of such a person. (f) The provisions of this Article Sixteen (i) are for the benefit of, and may be enforced by, each Indemnitee of the Trust, the same as if set forth in their entirety in a written instrument duly executed and delivered by the Trust and such Indemnitee and (ii) constitute a continuing offer to all present and future Indemnitees. The Trust, by its adoption of this Declaration of Trust, (x) acknowledges and agrees that each Indemnitee of the Trust has relied upon and will continue to rely upon the provisions of this Article Sixteen in becoming, and serving in any of the capacities referred to in paragraph (a)(i) of this Article Sixteen, (y) waives reliance upon, and all notices of acceptance of, such provisions by such Indemnitees and (z) acknowledges and agrees that no present or future Indemnitee shall be prejudiced in his right to enforce the provisions of this Article Sixteen in accordance with their terms by any act or failure to act on the part of the Trust. (g) No amendment, modification or repeal of this Article Sixteen or any provision of this Article Sixteen shall in any manner terminate, reduce or impair the right of any past, present or future Indemnitees to be indemnified by the Trust, nor the obligation of the Trust to indemnify any such Indemnitees, under and in accordance with the provisions of this Article Sixteen as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may be asserted. (h) If the indemnification provided in this Article Sixteen is either insufficient to cover all costs and expenses incurred by any Indemnitee as a result of such Indemnitee being made or threatened to be made a defendant or respondent in a Proceeding by reason of his holding or having held a position named in paragraph (a)(i) of this Article Sixteen or (ii) not permitted by Texas law, the Trust shall indemnify, to the fullest extent that indemnification is permitted by Texas law, every Indemnitee with respect to all costs and expenses incurred by such Indemnitee as a result of such Indemnitee being made or threatened to be made a defendant or respondent in a Proceeding by reason of his holding or having held a position named in paragraph (a)(i) of this Article Sixteen. (i) The indemnification provided by this Article Sixteen shall be subject to all valid and applicable laws, including, without limitation, the Texas REIT Act, and, in the event this Article Sixteen or any of the provisions hereof or the indemnification contemplated hereby are found to be inconsistent with or contrary to any such valid laws, such laws shall be deemed to control and this Article Sixteen shall be regarded as modified accordingly, and, as so modified, to continue in full force and effect. -12- 13 (j) The indemnification provisions contained in this Article Sixteen may be amended only by the affirmative vote of the holders of at least two-thirds of the outstanding Shares. (k) Pursuant to Section 24 of the Texas REIT Act, and pursuant to Section 111.003(3) of the Texas Property Code, the Trust is a business trust for purposes of the Texas Property Code, and accordingly the officers and the Trust Managers of the Trust shall not be held to the standards for trust management and investment set forth in the Texas Trust Code. ARTICLE SEVENTEEN No Trust Manager or officer of the Trust shall be liable to the Trust for any act, omission, loss, damage, or expense arising from the performance of his duty under the Trust save only for his own willful misfeasance or malfeasance or negligence. In discharging their duties to the Trust, Trust Managers and officers of the Trust shall be entitled to rely upon experts and other matters as provided in the Trust's Bylaws. ARTICLE EIGHTEEN The number of Trust Managers shall be fixed from time to time by the Trust Managers as provided in the Bylaws of the Trust. Each Trust Manager shall serve until his successor is elected and qualified or until his death, retirement, resignation or removal. In the event of any increase or decrease in the authorized number of Trust Managers, each Trust Manager then serving as such shall nevertheless continue as a Trust Manager until the expiration of his current term, or his prior death, retirement, resignation or removal. A Trust Manager may be removed by the vote of the holders of two-thirds of the outstanding Shares at a special meeting of the shareholders called for such purpose pursuant to the Trust's Bylaws. ARTICLE NINETEEN (a) From and after the Initial Public Offering (as hereinafter defined), no person may own more than 9.8% of the outstanding Shares (the limitation on the ownership of outstanding Shares is referred to in this Article Nineteen as the "Ownership Limit" and the 9.8% threshold is referred to in this Article Nineteen as the "Percentage Limit"), and no Securities (as hereinafter defined) shall be accepted, purchased, or in any manner acquired by any person if such issuance or transfer would result in that person's ownership of Shares exceeding the Percentage Limit. For purposes of determining if the Ownership Limit is exceeded by a person, Convertible Securities (as hereinafter defined) owned by such person shall be treated as if the Convertible Securities owned by such person had been converted into Shares if the effect of such treatment would be to increase the ownership percentage of such person in the Trust. The Ownership Limit shall not apply (i) to acquisitions of Securities by any person that has made a tender offer for all outstanding Shares of the Trust (including Convertible Securities) in conformity with applicable federal securities laws, (ii) to the acquisition of Securities of the Trust by an underwriter in a public offering of Securities of the Trust, or in any transaction involving the issuance of Securities by the Trust, in which a majority of the Trust Managers determines that the underwriter or other person or party initially acquiring such Securities will timely distribute such Securities to or among others so that, following such distribution, none of such -13- 14 Securities will be Excess Securities (as hereinafter defined), or (iii) to the acquisition of Securities pursuant to the exercise of employee share options. (b) Nothing in this Article Nineteen shall preclude the settlement of any transaction in Securities entered into through the facilities of the New York Stock Exchange. If any Securities are accepted, purchased, or in any manner acquired by any person resulting in a violation of paragraph (a) or (e) hereof, such issuance or transfer shall be valid only with respect to such amount of Securities issued or transferred as does not result in a violation of paragraph (a) or (e) hereof, and such acceptance, purchase or acquisition shall be void ab initio with respect to the amount of Securities that results in a violation of paragraph (a) or (e) hereof (the "Excess Securities"), and the intended transferee of such Excess Securities shall acquire no rights in such Excess Securities except as set forth in paragraph (d) below. (c) Ownership of Securities is conditional upon the owner or prospective owner having provided to the Trust definitive written information respecting his ownership of Securities. Failure to provide such information, upon reasonable request, shall result in the Securities so owned being treated as Excess Securities pursuant to paragraph (b) hereof for so long as such failure continues. (d) The Excess Securities, and the owners thereof, shall have the following characteristics, rights and powers: (i) Upon any purported transfer that results in Excess Securities pursuant to paragraphs (a) or (e) of this Article Nineteen, such Excess Securities shall be deemed to have been transferred to the Trust, as trustee of a trust for the exclusive benefit of such beneficiary or beneficiaries to whom an interest in such Excess Securities may later be transferred pursuant to subparagraph (v) of this paragraph (d). Any such Excess Securities so held in trust shall be issued and outstanding stock of the Trust. The purported transferee shall have no rights in such Excess Securities except as provided in subparagraph (v) of this paragraph (d). (ii) Excess Securities shall not be entitled to any dividends, interest payments or other distributions. Any dividend or distribution paid prior to the discovery by the Trust that the Securities have become Excess Securities shall be repaid to the Trust upon demand. (iii) In the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Trust, each holder of Excess Securities shall be entitled to receive, ratably with each other holder of Securities and Excess Securities, that portion of the assets of the Trust available for distribution to its shareholders as the number of shares of the Excess Securities held by such holder bears to the total number of shares of Securities and Excess Securities then outstanding. The Trust, as holder of the Excess Securities in trust, or if the Trust shall have been dissolved, any trustee of such trust appointed by the Trust prior to its dissolution, shall distribute ratably to the beneficiaries of such trust, when determined, any such assets received in respect of the Excess Securities in any liquidation, dissolution or winding up of, or any distribution of the assets of, the Trust. (iv) The holders of shares of Excess Securities shall not be entitled to vote on any matters (except as required by law). (v) Except as otherwise provided in this Article Nineteen, Excess Securities shall not be transferable. The purported transferee may freely designate a beneficiary of an interest in the trust (representing the number of shares of Excess Securities held by the trust attributable to a purported transfer that resulted in the Excess Securities), if (A) the shares of Excess Securities held in the trust would not be -14- 15 Excess Securities in the hands of such beneficiary and (B) the purported transferee does not receive a price from such beneficiary that reflects a price per share for such Excess Securities that exceeds (x) the price per share such purported transferee paid for the Securities in the purported transfer that resulted in the Excess Securities, or (y) if the purported transferee did not give value for such Excess Securities (through a gift, devise or other transaction), a price per share equal to the Market Price on the date of the purported transfer that resulted in the Excess Securities. Upon such transfer of an interest in the trust, the corresponding shares of Excess Securities in the trust shall be automatically exchanged for an equal number of shares of the applicable Securities and such Securities shall be transferred of record to the transferee of the interest in the trust if such Securities would not be Excess Securities in the hands of such transferee. Prior to any transfer of any interest in the trust, the purported transferee must give advance notice to the Trust of the intended transfer and the Trust must have waived in writing its purchase rights under subparagraph (vi) of this paragraph (d). Notwithstanding the foregoing, if a purported transferee receives a price for designating a beneficiary of an interest in the trust that exceeds the amounts allowable under the foregoing provisions of this subparagraph (v), such purported transferee shall pay, or cause such beneficiary to pay, such excess to the Trust. (vi) Excess Securities shall be deemed to have been offered for sale to the Trust, or its designee, at a price per share equal to the lesser of (A) the price per share in the transaction that created such Excess Securities (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) and (B) the Market Price on the date the Trust, or its designee, accepts such offer. The Trust shall have the right to accept such offer for a period of 90 days after the later of (x) the date of the transfer which resulted in such Excess Securities and (y) the date the Trust Managers determine in good faith that a transfer resulting in Excess Securities has occurred. (e) Any sale, transfer, gift, assignment, devise or other disposition of Shares (a "transfer") that, if effective, would result in (i) the Shares being owned by less than 100 persons (determined without reference to any rules of attribution) shall be void ab initio as to the Shares which would otherwise be beneficially owned by the transferee, (ii) the Trust being "closely held" within the meaning of Section 856(h) of the Internal Revenue Code of 1986, as amended (the "Code"), shall be void ab initio as to the transfer of the Shares that would cause the Trust to be "closely held" within the meaning of Section 856(h) of the Code, and (iii) the disqualification of the Trust as a REIT shall be void ab initio as to the transfer of the Shares that would cause the Trust to be disqualified as a REIT, and, in the case of each of clauses (i), (ii) and (iii) of this paragraph (e), the intended transferee shall acquire no rights in such- Shares except as set forth in paragraph (d) above. (f) For purposes of this Article Nineteen: (i) The term "Convertible Securities" means any securities of the Trust that are convertible into Shares. (ii) The term "individual" shall mean any natural person and those organizations treated as natural persons in Section 542(a) of the Code. (iii) The term "Initial Public Offering" means the initial sale of Common Shares to the public pursuant to the Trust's first effective registration statement for such Common Shares filed under the Securities Act of 1933, as amended. -15- 16 (iv) The term "Market Price" means the last reported sales price of Common Shares reported on the New York Stock Exchange on the trading day immediately preceding the relevant date, or if the Common Shares are not then traded on the New York Stock Exchange, the last reported sales price of the Common Shares on the trading day immediately preceding the relevant date as reported on any exchange or quotation system over which the Common Shares may be traded, or if the Common Shares are not then traded over any exchange or quotation system, then the market price of the Common Shares on the relevant date as determined in good faith by the Trust Managers. (v) The term "ownership" (including "own" or "owns") of Shares means beneficial ownership. Beneficial ownership, for this purpose shall be defined in accordance with or by reference to Sections 856, 542 and 544 of the Code Internal Revenue Code of 1986, as amended (the "Code"). (vi) The term "Person" includes an individual, corporation, partnership, association, joint stock company, trust, unincorporated association or other entity and also includes a "group" as that term is defined in Section 13(d)(3) of the Exchange Act. (vii) The term "REIT" means a "real estate investment trust" in accordance with the provisions of Sections 856 through 860 of the Code and applicable Treasury Regulations. (viii) The term "Securities" means Shares and Convertible Securities. (g) If any of the restrictions on transfer set forth in this Article Nineteen are determined to be void, invalid or unenforceable by virtue of any legal decision, statute, rule or regulation, then the intended transferee of any Excess Securities may be deemed, at the option of the Trust, to have acted as an agent on behalf of the Trust in acquiring the Excess Securities and to hold the Excess Securities on behalf of the Trust. (h) Subject to the provisions of the first sentence of paragraph (b) hereof, nothing herein contained shall limit the ability of the Trust to impose or to seek judicial or other imposition of additional restrictions if deemed necessary or advisable to protect the Trust and the interests of its security holders by preservation of the Trust's status as a qualified real estate investment trust under the Code. (i) All persons who own 5% or more of the Trust's outstanding Shares during any taxable year of the Trust shall file with the Trust an affidavit setting forth the number of Shares during such taxable year (i) owned directly (held of record by such person or by a nominee or nominees of such person) and (ii) owned indirectly (by reason of Sections 542, 544 and 856 of the Code or for purposes of Rule 13(d) of the Exchange Act) by the person filing the affidavit. The affidavit to be filed with the Trust shall set forth all the information required to be reported (i) in returns of shareholders under income tax regulation 1.857-9 or similar provisions of any successor regulation and (ii) in reports to be filed under Section 13(d) of the Exchange Act. The affidavit or an amendment to a previously filed affidavit shall be filed with the Trust annually within 60 days after the close of the Trust's taxable year. A person shall have satisfied the requirements of this paragraph (i) if the person furnishes to the Trust the information in such person's possession after such person has made a good faith effort to determine the Shares it indirectly owns and to acquire the information required by income tax regulation 1.857-9 or similar provisions of any successor regulation. -16- 17 (j) The affirmative vote of the holders of not less than 80% of all outstanding Shares of the Trust entitled to vote in the election of Trust Managers, considered for purposes of this Article Nineteen as one class, shall be required to amend, alter, change, repeal or rescind any provision of this Article Nineteen or to adopt any provisions inconsistent with this Article Nineteen. ARTICLE TWENTY Upon resolution adopted by the Trust Managers, the Trust shall be entitled to purchase, directly or indirectly, its own Shares, provided that following such repurchase the Trust would continue to be able to pay its debts as they become due in the ordinary course of its business. ARTICLE TWENTY-ONE The Trust Managers shall determine at least annually that the total fees and expenses of the Trust are reasonable and in accordance with the provisions of the Trust's Bylaws pertaining to such fees and expenses. ARTICLE TWENTY-TWO This Declaration of Trust may be amended from time to time by the affirmative vote of the holders of at least two-thirds of the outstanding Shares, except that (i) Article Eleven hereof (relating to the prohibition against engaging in non-real estate investment trust businesses); (ii) Article Thirteen hereof (relating to the approval of Business Combinations); (iii) Article Nineteen hereof (relating to Share ownership requirements) and (iv) this Article Twenty-Two may not be amended or repealed, and provisions inconsistent therewith and herewith may not be adopted, except by the affirmative vote of the holders of at least 80% of the outstanding Shares. ARTICLE TWENTY-THREE If any provision of this Declaration of Trust or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issue, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court. IN WITNESS WHEREOF, the undersigned Trust Managers do hereby execute this Restated and Amended Declaration of Trust as of the 19th day of July, 1993. /s/ RICHARD J. CAMPO ---------------------------------- Richard J. Campo /s/ D. KEITH ODEN ---------------------------------- D. Keith Oden -17- EX-10.3 3 UNDERWRITING AGREEMENT 1 EXHIBIT 10.3 CAMDEN DEVELOPMENT, INC. 1997 NON-QUALIFIED EMPLOYEE STOCK PURCHASE PLAN ARTICLE I PURPOSE 1.01. Purpose. The Camden Development, Inc. 1997 Employee Stock Purchase Plan (the "Plan") provides a method whereby employees, officers and directors of Camden Development, Inc., Camden Property Trust, a Texas real estate investment trust, and any Subsidiary Corporations (hereinafter referred to, unless the context otherwise requires, as the "Company") will have an opportunity to acquire a proprietary interest in Camden Property Trust through the purchase of common shares of beneficial interest, par value $0.01 per share ("Common Shares"), of Camden Property Trust. ARTICLE II DEFINITIONS 2.01. Participant. "Participant" means any person who is customarily employed on a regular, full-time basis by the Company and is regularly scheduled to work 30 or more hours per week and any officer or director. 2.02. Subsidiary Corporation. "Subsidiary Corporation" shall mean any present or future corporation which (i) would be a "subsidiary corporation" of Camden Property Trust as that term is defined in 424 of the Code and (ii) is designated as a participant in the Plan by the Committee. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.01. Initial eligibility. Any Participant who shall have completed one calendar months' employment and shall be employed by the Company on the date his/her participation in the Plan is to become effective shall be eligible to participate in offerings under the Plan which commence on or after such one month period has concluded. 3.02. Restrictions on Participation. Notwithstanding any provisions of the Plan to the contrary, no person shall be allowed to participate in the Plan: (a) if, immediately after such participation, Participant would own Common Shares, and/or hold outstanding options to purchase Common Shares, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company 2 (for purposes of this paragraph, the rules of Paragraph 424(d) of the Code shall apply in determining stock ownership of any employee); or (b) is such Participant's rights to purchase Common Shares under all employee stock purchase plans of the Company accrues at a rate which exceeds $25,000 in fair market value of the Common Shares (determined at the time of Plan enrollment) for each calendar year in which such purchase right is outstanding. 3.03. Commencement of Participation. An eligible employee, officer or director may become a Participant by completing an authorization for a payroll or director's fee deduction or quarterly contribution on the form provided by the Company and filing it with the Human Resources Department on or before the date set therefor, which date shall be prior to the Offering Commencement Date for the Offering (as such terms are defined below). Payroll or director's fee deductions for a Participant shall commence on the applicable Offering Commencement Date when Participant's authorization for a deduction becomes effective and shall end on the Offering Termination Date of the Offering to which such authorization is applicable unless sooner terminated by the participant as provided in Article VIII. ARTICLE IV OFFERINGS 4.01. The Plan will be implemented by offerings of the Camden Property Trust's Common Shares (the "Offerings") in six-month Offerings commencing, respectively, on January 1 and July 1 of such year and terminating on June 30 and December 31 of such year, respectively. As used in the Plan, "Offering Commencement Date" means the January 1 or July 1, as the case may be, on which the particular Offering begins and "Offering Termination Date" means the June 30 or December 31, as the case may be, an which the particular Offering terminates. ARTICLE V PAYROLL OR DIRECTOR'S FEE DEDUCTIONS OR QUARTERLY CONTRIBUTIONS 5.01. Amount of Deduction. At the time a Participant files an authorization for deduction or contribution, Participant shall elect to have deductions made from his/her pay on each pay day or periodic director's fees or make quarterly contributions, during the time he/she is a Participant in an Offering; provided, however, that in no event may such deductions or contributions total less than $10.00 per deduction or contribution. 5.02. Participant's Account. All payroll or director's fee deductions and quarterly contributions shall be credited to Participant's account under the Plan. A Participant may not make any other separate cash payment into such account except when on leave of absence and then only as provided in 5.04. 3 5.03. Changes in Payroll Deductions. A Participant may discontinue his/her participation in the Plan as provided in Article VIII, but no other change can be made during an Offering and, specifically, a Participant may not alter the amount of his/her payroll or director's fee deductions for that Offering. 5.04. Leave of Absence. If a Participant goes on a leave of absence, such Participant shall have the right to elect: (a) to withdraw the balance in his or her account pursuant to 7.02, (b) to discontinue contributions to the Plan but remain a Participant in the Plan, or (c) to remain a Participant in the Plan during such leave of absence, authorizing deductions to be made from payments by the Company to the Participant during such leave of absence and undertaking to make cash payments to the Plan at the end of each payroll period to the extent that amounts payable by the Company to such Participants are insufficient to meet such Participant's authorized Plan deductions. ARTICLE VI SHARE PRICE 6.01. Share Price. The price of Common Shares purchased with Participant contributions made during such Offering for a Participant therein shall be the lower of- (a) 85% of the closing price of the Common Shares on the Offering Commencement Date or the nearest prior business day on which trading of Common Shares occurred on the New York Stock Exchange; or (b) 85% of the closing price of the Common Shares on the Offering Termination Date or the nearest prior business day on which trading of Common Shares occurred on the New York Stock Exchange. ARTICLE VII PURCHASE OF SHARES 7.01. Automatic Exercise. Unless a Participant gives written notice to the Company as hereinafter provided, his/her purchase of Common Shares with payroll deductions made during any Offering will be deemed to have been exercised automatically on the Offering Termination Date applicable to such Offering, for the purchase of the number of full and/or fractional Common Shares which the accumulated payroll deductions in Participant's account at that time will purchase at the applicable price. 7.02. Withdrawal of Account. By written notice to the Human Resources Department, at any time prior to the Offering Termination Date applicable to any Offering, a 4 Participant may elect to withdraw all the accumulated contributions in his/her account at such time. 7.03. Delivery of Common Shares. Shares purchased under the Plan will be held in the custody of the Plan Administrator in book entry form. The Plan Administrator may hold the shares purchased under the Plan in stock certificates in nominee names and may commingle shares held in its custody in a single account or stock certificate, without identification as to individual employees. A Participant may by written notice instruct the Plan Administrator to have all or part of the whole shares in his/her account reissued in the Participant's own name and have the certificate delivered to the Participant. 7.04. Shareholder Rights. Any dividends paid on shares held by the Plan Administrator for a Participant automatically will be reinvested in additional Common Shares to the extent possible, unless the Participant directs otherwise, in which case all such dividends will be transmitted to the Participant. The Plan Administrator will deliver to each Participant who purchases shares under the Plan, as promptly as practicable by mail or otherwise, all notices of meetings, proxy statements, proxies and other materials distributed by the Company to its shareholders. ARTICLE VIII WITHDRAWAL 8.01. In General. As indicated in 7.02, a Participant may withdraw deductions or contributions credited to his/her account under the Plan at any time by giving written notice to the Human Resources Department. All of the Participant's quarterly contributions, payroll or director's fee deductions credited to his/her account will be paid to Participant promptly after receipt of his/her notice of withdrawal, and no further deductions will be made from his/her pay during such Offering. The Company may, at its option, treat any attempt to borrow by a Participant on the security of his/her accumulated contributions as an election, under 3.02, to withdraw such contributions. 8.02. Effect on Subsequent Participation. A Participant's withdrawal from any Offering will not have any effect upon his/her eligibility to participate in any succeeding Offering or in any similar plan which may hereafter be adopted by the Company. 8.03. Termination of Employment. Upon termination of the Participant's employment for any reason, including retirement (but excluding death while in the employ of the Company or continuation of a leave of absence for a period beyond 90 days), the contributions or deductions credited to his/her account will be returned to him/her, or, in the case of death subsequent to the termination of employment, to the person or persons entitled thereto under 11.01. 5 8.04. Termination of Employment Due to Death. Upon termination of the Participant's employment because of his/her death, Participant's beneficiary (as defined in 11.01) shall have the right to elect, by written notice given to the Human Resources Department prior to the earlier of the Offering Termination Date or the expiration of a period of sixty (60) days commencing with the date of the death of the Participant, either: (a) to withdraw all of the contributions or deductions credited to the Participant's account under the Plan, or (b) to exercise the Participant's right of purchase of Common Shares on the Offering Termination Date next following the date of the Participant's death for the purchase of the number of full Common Shares which the accumulated contributions in the Participant's account at the date of the Participant's death will purchase at the applicable option price, and any excess in such account will be returned to said beneficiary, without interest. In the event that no such written notice of election shall be duly received by the Human Resources Department, the beneficiary shall automatically be deemed to have elected, pursuant to paragraph (b), to exercise the Participant's right to purchase. 8.05 Leave of Absence. A Participant on leave of absence shall, subject to the election made by such Participant pursuant to 5.04, continue to be a Participant in the Plan so long as such Participant is on continuous leave of absence. A Participant who has been on leave of absence for more than 90 days shall not be entitled to participate in any offering commencing after the 90th day of such leave of absence. Notwithstanding any other provisions of the Plan, unless a Participant on leave of absence returns to regular full-time employment with the Company at the termination of such leave of absence, such Participant's participation in the Plan shall terminate. ARTICLE IX INTEREST 9.01. Payments of Interest. No interest will be paid or allowed on any money paid into the Plan or credited to the account of any Participant. ARTICLE X STOCK 10.01. Participant's Interest in Stock. The Participant will have no interest in Common Shares covered by his/her Plan participation until such shares have been purchased. 6 10.02. Registration of Common Shares. Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant, or, if the Participant so directs by written notice to the Human Resources Department prior to the Offering Termination Date applicable thereto, in the names of the Participant and one such other person as may be designate by the Participant, as joint tenants with rights of survivorship or as tenants by the entireties, to the extent permitted by applicable law. ARTICLE XI MISCELLANEOUS 11.01. Designation of Beneficiary. A Participant may file a written designation of a beneficiary who is to receive any shares and/or cash. Such designation of beneficiary may be changed by the participant at any time by written notice to the Human Resources Department. Upon the death of a Participant and upon receipt by the Company of proof of identify and existence of the Participant's death by a beneficiary validly designated by him under the Plan, the Company shall deliver such shares and/or cash to such beneficiary. In the event of the death of Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such shares and/or cash to the executor or administration of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents of the Participant as the Company may designate. No beneficiary shall, prior to the death of the Participant by whom he has been designated, acquire any interest in the stock or cash credited to the Participant under the Plan. 11.02. Transferability. Neither payroll deductions credited to a Participant's account nor any rights with regard to the right to purchase or to receive Common Shares under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by the participant other than by will or the laws of descent and distribution or pursuant to a Qualified Domestic Relations Order. Any such attempted assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with 7.02. 11.03. Use of Funds. All contributions or deductions received or held by the Company under this Plan may be used by the Company for any corporate purpose and the Company shall not be obligated to segregate such contributions or deductions. 11.04. Adjustment Upon Changes in Capitalization. (a) If, during any Plan period, the outstanding Common Shares of the Company have increased, decreased, changed into, or been exchanged for a different number of kind or shares of securities of the Company through reorganization, merger, recapitalization, reclassification, stock split, reverse stock split or similar transaction, appropriate and proportionate adjustments may be made by the Board of Trust Managers in the number and/or kind of shares which are subject to purchase and on the 7 price applicable to such outstanding options. No adjustments shall be made for stock dividends. For the purposes of this Paragraph, any distribution of shares to shareholders in an amount aggregating 20% or more of the outstanding shares shall be deemed a stock split and any distributions of shares aggregating less than 20% of the outstanding shares shall be deemed a stock dividend. (b) Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale of substantially all of the property or stock of the Company to another corporation, Plan participants will thereafter be entitled to receive at the next Offering Termination Date upon the exercise of such option for each share as to which such option shall be exercised, as nearly as reasonably may be determined, the cash, securities and/or property which a holder of one Common Share was entitled to receive upon and at the time of such transaction. The Board of Trust Managers shall take such steps in connection with such transactions as the Board shall deem necessary to assure that the provisions of this 11.04 shall thereafter be applicable, as nearly as reasonably may be determined, in relation to the said cash, securities and/or property as to which such holder of such option might thereafter be entitled to receive. 11.05. Amendment and Termination. The Board of Trust Managers shall have complete power and authority to terminate or amend the Plan at any time. 11.06 Effective Date. The Plan shall become effective as of July 1, 1997. 11.07 No Employment Rights. The Plan does not, directly or indirectly, create any right for the benefit of any employee or class of employees to purchase any Common Shares under the Plan, or create in any employee or class of employees any right with respect to continuation of employment by the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an employee's employment at any time. 11.08. Effect of Plan. The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Participant in the Plan, including, without limitation, such employee's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such employee. 11.09. Governing Law. The law of the State of Texas will govern all matters relating to this Plan except to the extent it is superseded by the laws of the United States. EX-11.1 4 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 CAMDEN PROPERTY TRUST COMPUTATION OF EARNINGS PER COMMON SHARE (In thousands, except per share amounts)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- SIMPLE EARNINGS PER SHARE Weighted Average Common Shares Outstanding 26,432 14,463 21,476 14,460 ======== ======== ======== ======== Simple Earnings Per Share $ 0.24 $ 0.24 $ 0.49 $ 0.12 ======== ======== ======== ======== PRIMARY EARNINGS PER SHARE Weighted Average Common Shares Outstanding 26,432 14,463 21,476 14,460 Shares Issuable from Assumed Conversion of: Common Share Options and Awards Granted and Outstanding 231 48 211 52 -------- -------- -------- -------- Weighted Average Common Shares Outstanding, as Adjusted 26,663 14,511 21,687 14,512 ======== ======== ======== ======== Primary Earnings Per Share $ 0.24 $ 0.24 $ 0.48 $ 0.12 ======== ======== ======== ======== FULLY DILUTED EARNINGS PER SHARE(*) Weighted Average Common Shares Outstanding 26,432 14,463 21,476 14,460 Shares Issuable from Assumed Conversion of: Common Share Options and Awards Granted and Outstanding 370 88 306 85 Operating Partnership Units 2,349 1,180 Convertible Subordinated Debentures 482 1,830 727 1,833 -------- -------- -------- -------- Weighted Average Common Shares Outstanding, as Adjusted 29,633 16,381 23,689 16,378 ======== ======== ======== ======== Fully Diluted Earnings Per Share $ 0.24 $ 0.26 $ 0.49 $ 0.21 ======== ======== ======== ======== EARNINGS FOR SIMPLE, PRIMARY AND FULLY DILUTED COMPUTATION: Earnings to Common Shareholders (Simple Earnings Per Share Computation) $ 6,429 $ 3,498 $ 10,493 $ 1,748 Dividends on Convertible Preferred Shares 4 -------- -------- -------- -------- Earnings (Primary Earnings Per Share Computation) 6,429 3,498 10,493 1,752 Minority Interest in Operating Partnership 597 597 Interest on Convertible Subordinated Debentures 133 756 429 1,563 Convertible Subordinated Debenture Cost Amortization 22 80 64 159 -------- -------- -------- -------- Earnings (Fully Diluted Earnings Per Share Computation) $ 7,181 $ 4,334 $ 11,583 $ 3,474 ======== ======== ======== ========
* Fully diluted earnings per share of beneficial interest is not dilutive and is not presented in the Consolidated Statement of Operations. EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1997 JUN-30-1997 8,462 0 0 0 0 0 1,303,996 74,363 1,265,718 0 567,726 0 0 270 568,262 1,265,718 0 83,544 0 38,322 18,530 0 13,276 0 0 0 0 0 0 10,493 .48 .00
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