Buyer of LV apartments called a good operator

Thursday, Dec. 18, 1997 | 10:55 a.m.

The thousands of Las Vegas residents who rent apartments from Oasis Residential Inc. shouldn't have any immediate concern about rents going up in the wake of what is now being called a $972 million deal turning the company over to a Houston-based real estate investment trust.

Because lease agreements take precedence over sales contracts, the residents of the 15,116 units Oasis controls in the Southern Nevada market should be protected in the short term, a spokeswoman for the Nevada Apartment Association said.

"Even with the sale of a single-family house, the lease comes first," said Sherry Byrns, president of the Nevada Apartment Association.

Camden said the average rent rate for its Las Vegas properties is $700.

Byrns also predicted the new owner of the apartments -- Camden Property Trust -- would make an effort to keep its new tenants happy after the deal.

"Anytime there's a change, people get antsy, but I don't believe there would be any major changes in store for residents," said Byrns. "Especially since these (Camden) are established, experienced managers."

Camden indicated it would keep the Oasis brand name on its Las Vegas properties and may expand the name into Southern California.

Camden is an established operator. After merging with Oasis, it will have 51,337 units, most of them in Sunbelt communities. Camden's $2.6 billion market capitalization makes it the third-largest REIT in the nation.

Prior to the acquisition, Camden's portfolio included 105 properties in six states. The company is largest in the Dallas-Fort Worth area, where it has 26 complexes, and in Houston, where it operates 20.

The transaction initially was reported as an $834 million deal. Early reports did not account for the higher valued preferred stock involved in the deal.

Just before noon today on Wall Street, Oasis stock was at 22 1/2, down 3/16 on trading of 62,300 shares while Camden was at 30 15/16, down 3/16 on trading of 55,600.

The acquisition of Oasis instantly gives the company a leading market share of about 10 percent in Las Vegas with 11,000 of 110,000 total units. After the acquisition, the bulk of Camden's holdings -- 21.8 percent -- would be in Las Vegas, followed by 17.3 percent in Dallas and 16.7 percent in Houston.

That statistic troubled Camden enough to adopt a strategy that allows it to collect rents while buffering itself from the exposure of being invested heavily in one market. Camden announced it would spin off 4,800 Las Vegas units to an entity that has yet to be identified.

It's a strategy analyst Chris Marinac of Robinson-Humphrey Co. in Atlanta said would benefit shareholders.

"This makes a lot of sense for Camden because it allows them to enhance their investment return," said Marinac.

Marinac said the company's purchase of Oasis is similar to last year's December acquisition of the Paragon Group Inc. Camden absorbed Dallas-based Paragon in a deal that closed in April and doubled the size of the company. In Camden's fourth quarter, the company declared a dividend of 49 cents per common share. As part of their structure, REITs are required to return dividends to shareholders.

"These are not slash-and-burn folks, they're very good operators," said Marinac. "That's not to say Oasis did a bad job. I think it's a great fit for Oasis as well."

Marinac also believes that from an investment perspective, Camden is arriving at a good time in Las Vegas when the apartment market is soft. As the new front-runner in Las Vegas, Camden can be expected to be proactive and not ignore prospects of building new units as they're needed.

"You still have terrific job growth there," Marinac said. "Relatively speaking, you're still putting up good job figures and the real estate portfolio was purchased at a very reasonable price. At about $68 per square foot, that's still clearly below replacement cost and their capitalization rate is around 9 percent. They'll be very competitive in the upper-end multifamily market."

But not all of the analysts concur that a turnaround is ahead.

"I'm not sure a turnaround will materialize in '98, and I'm very concerned about '99 as well," said Craig Leupold, an analyst at independent real estate research firm Green Street Advisors, which rates the Camden stock a "hold."

Leupold said the "reasonable" price Camden is paying and its reputation as an efficient property manager may compensate for a soft market.

Shareholders for Oasis and Camden will receive proxy statements in March and vote on the deal in April. After the transaction closes that month, Camden intends to detail its joint-venture spin-off.

Camden enters the Las Vegas market at a time when apartment vacancy rates are increasing and rental rates are flat.

CB Commercial of Las Vegas forecasts the fourth-quarter vacancy rate to be at 5.5 percent, the highest it has been since 1993. CB officials also predicted banks would become less aggressive for apartment construction loans.

Oasis President and Chief Executive Scott Ingraham will join Camden's board or directors, increasing the number of directors to eight.

Robert Jones, Oasis' largest shareholder and the former chief executive of the company, was planning to step down at the end of the year and won't be involved with Camden.

Jones, a builder in Las Vegas since 1975, was criticized in Forbes magazine for a lack of commitment to Oasis when he entered the home-building industry six years ago with Robert Jones Co. Jones dismissed the criticism, saying it was a growth opportunity.

The transaction highlights the consolidation under way among apartment investors and developers who are teaming up to cut costs in a maturing market. Rising costs have held rents in check in many areas of the United States, namely the Southeast and Southwest.

Camden has been a leader in the consolidation trend.

Several apartment REITs have jumped in the merger market. Equity Residential Properties Trust has bought or agreed to buy $3.4 billion of assets, including two acquisitions of more than $1 billion. In October, Post Properties Inc. bought Columbus Realty Trust for about $600 million.

BLOOMBERG BUSINESS NEWS contributed to this report.