CAMDEN PROPERTY TRUST
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2006
OR
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o |
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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)
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TEXAS
(State or Other Jurisdiction of
Incorporation or Organization)
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76-6088377
(I.R.S. Employer Identification
Number) |
3 Greenway Plaza, Suite 1300, Houston, Texas 77046
(Address of Principal Executive Offices) (Zip Code)
(713) 354-2500
(Registrants 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
As of October 31, 2006, there were 56,425,854 shares of Common Shares of Beneficial Interest, $0.01
par value, outstanding.
CAMDEN PROPERTY TRUST
Table of Contents
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAMDEN PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
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September 30, |
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December 31, |
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2006 |
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2005 |
|
ASSETS
|
Real estate assets, at cost |
|
|
|
|
|
|
|
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Land |
|
$ |
683,645 |
|
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$ |
646,854 |
|
Buildings and improvements |
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|
3,988,031 |
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|
3,840,969 |
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|
|
|
|
|
|
|
|
|
|
4,671,676 |
|
|
|
4,487,823 |
|
Accumulated depreciation |
|
|
(725,790 |
) |
|
|
(716,650 |
) |
|
|
|
|
|
|
|
Net operating real estate assets |
|
|
3,945,886 |
|
|
|
3,771,173 |
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Properties under development, including land |
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|
351,246 |
|
|
|
372,976 |
|
Investments in joint ventures |
|
|
8,266 |
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|
|
6,096 |
|
Properties held for sale, including land |
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|
45,074 |
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|
|
172,112 |
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|
|
|
|
|
|
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Total real estate assets |
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|
4,350,472 |
|
|
|
4,322,357 |
|
Accounts receivable affiliates |
|
|
33,624 |
|
|
|
34,084 |
|
Notes receivable |
|
|
|
|
|
|
|
|
Affiliates |
|
|
31,037 |
|
|
|
11,916 |
|
Other |
|
|
3,855 |
|
|
|
13,261 |
|
Other assets, net |
|
|
112,801 |
|
|
|
99,516 |
|
Cash and cash equivalents |
|
|
8,061 |
|
|
|
1,576 |
|
Restricted cash |
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|
5,541 |
|
|
|
5,089 |
|
|
|
|
|
|
|
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Total assets |
|
$ |
4,545,391 |
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|
$ |
4,487,799 |
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|
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LIABILITIES AND SHAREHOLDERS EQUITY
|
Liabilities |
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Notes payable |
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Unsecured |
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$ |
1,693,106 |
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$ |
2,007,164 |
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Secured |
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|
587,347 |
|
|
|
625,927 |
|
Accounts payable and accrued expenses |
|
|
120,566 |
|
|
|
108,979 |
|
Accrued real estate taxes |
|
|
41,165 |
|
|
|
26,070 |
|
Other liabilities |
|
|
101,332 |
|
|
|
88,811 |
|
Distributions payable |
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|
43,056 |
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|
|
38,922 |
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|
|
|
|
|
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Total liabilities |
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|
2,586,572 |
|
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|
2,895,873 |
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Commitments and contingencies |
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Minority interests |
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Perpetual preferred units |
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|
97,925 |
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|
|
97,925 |
|
Common units |
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|
116,776 |
|
|
|
112,637 |
|
Other minority interests |
|
|
10,002 |
|
|
|
10,461 |
|
|
|
|
|
|
|
|
Total minority interests |
|
|
224,703 |
|
|
|
221,023 |
|
Shareholders equity |
|
|
|
|
|
|
|
|
Common shares of beneficial interest |
|
|
650 |
|
|
|
608 |
|
Additional paid-in capital |
|
|
2,176,170 |
|
|
|
1,902,595 |
|
Distributions in excess of net income |
|
|
(206,442 |
) |
|
|
(295,074 |
) |
Employee notes receivable |
|
|
(2,047 |
) |
|
|
(2,078 |
) |
Treasury shares, at cost |
|
|
(234,215 |
) |
|
|
(235,148 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
1,734,116 |
|
|
|
1,370,903 |
|
|
|
|
|
|
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Total liabilities and shareholders equity |
|
$ |
4,545,391 |
|
|
$ |
4,487,799 |
|
|
|
|
|
|
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|
See Notes to Consolidated Financial Statements.
3
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
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Three Months |
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|
Nine Months |
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Ended September 30, |
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|
Ended September 30, |
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2006 |
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|
2005 |
|
|
2006 |
|
|
2005 |
|
Property revenues |
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|
|
|
|
|
|
|
|
|
|
|
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Rental revenues |
|
$ |
139,354 |
|
|
$ |
125,125 |
|
|
$ |
408,581 |
|
|
$ |
348,250 |
|
Other property revenues |
|
|
15,202 |
|
|
|
11,507 |
|
|
|
41,172 |
|
|
|
31,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
154,556 |
|
|
|
136,632 |
|
|
|
449,753 |
|
|
|
379,862 |
|
Property expenses |
|
|
|
|
|
|
|
|
|
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|
|
|
|
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Property operating and maintenance |
|
|
45,806 |
|
|
|
38,697 |
|
|
|
124,089 |
|
|
|
105,960 |
|
Real estate taxes |
|
|
16,345 |
|
|
|
14,870 |
|
|
|
48,845 |
|
|
|
42,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property expenses |
|
|
62,151 |
|
|
|
53,567 |
|
|
|
172,934 |
|
|
|
148,472 |
|
Non-property income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee and asset management |
|
|
5,433 |
|
|
|
1,789 |
|
|
|
11,030 |
|
|
|
10,929 |
|
Sale of technology investments |
|
|
1,602 |
|
|
|
|
|
|
|
1,602 |
|
|
|
24,199 |
|
Interest and other income |
|
|
1,733 |
|
|
|
1,913 |
|
|
|
6,097 |
|
|
|
6,401 |
|
Income on deferred compensation plans |
|
|
1,927 |
|
|
|
3,209 |
|
|
|
4,308 |
|
|
|
5,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-property income |
|
|
10,695 |
|
|
|
6,911 |
|
|
|
23,037 |
|
|
|
46,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property management |
|
|
4,629 |
|
|
|
4,208 |
|
|
|
13,821 |
|
|
|
11,350 |
|
Fee and asset management |
|
|
3,689 |
|
|
|
2,008 |
|
|
|
8,293 |
|
|
|
4,999 |
|
General and administrative |
|
|
9,849 |
|
|
|
6,183 |
|
|
|
25,299 |
|
|
|
18,017 |
|
Transaction compensation and merger expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,085 |
|
Interest |
|
|
29,176 |
|
|
|
29,331 |
|
|
|
91,592 |
|
|
|
81,416 |
|
Depreciation and amortization |
|
|
40,399 |
|
|
|
44,030 |
|
|
|
117,945 |
|
|
|
119,117 |
|
Amortization of deferred financing costs |
|
|
941 |
|
|
|
855 |
|
|
|
2,897 |
|
|
|
2,872 |
|
Expense on deferred compensation plans |
|
|
1,927 |
|
|
|
3,209 |
|
|
|
4,308 |
|
|
|
5,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
|
90,610 |
|
|
|
89,824 |
|
|
|
264,155 |
|
|
|
257,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before gain on sale of
properties, equity in income (loss) of joint ventures and
minority interests |
|
|
12,490 |
|
|
|
152 |
|
|
|
35,701 |
|
|
|
21,063 |
|
Gain on sale of properties, including land |
|
|
96,247 |
|
|
|
|
|
|
|
97,556 |
|
|
|
132,117 |
|
Equity in income (loss) of joint ventures |
|
|
1,628 |
|
|
|
(1,827 |
) |
|
|
4,514 |
|
|
|
(1,472 |
) |
Minority interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions on perpetual preferred units |
|
|
(1,750 |
) |
|
|
(1,750 |
) |
|
|
(5,250 |
) |
|
|
(5,278 |
) |
Original issuance costs on redeemed perpetual preferred units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(365 |
) |
Income allocated to common units and other minority interests |
|
|
(12,413 |
) |
|
|
(261 |
) |
|
|
(14,750 |
) |
|
|
(1,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
96,202 |
|
|
|
(3,686 |
) |
|
|
117,771 |
|
|
|
144,309 |
|
Income from discontinued operations |
|
|
665 |
|
|
|
1,481 |
|
|
|
4,998 |
|
|
|
6,118 |
|
Gain on sale of discontinued operations |
|
|
29,350 |
|
|
|
|
|
|
|
80,394 |
|
|
|
36,115 |
|
Income from discontinued operations allocated to common units |
|
|
(760 |
) |
|
|
(112 |
) |
|
|
(1,681 |
) |
|
|
(343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
125,457 |
|
|
$ |
(2,317 |
) |
|
$ |
201,482 |
|
|
$ |
186,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
1.65 |
|
|
$ |
(0.07 |
) |
|
$ |
2.10 |
|
|
$ |
2.81 |
|
Income from discontinued operations, including gain on sale |
|
|
0.50 |
|
|
|
0.03 |
|
|
|
1.49 |
|
|
|
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2.15 |
|
|
$ |
(0.04 |
) |
|
$ |
3.59 |
|
|
$ |
3.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
1.58 |
|
|
$ |
(0.07 |
) |
|
$ |
2.03 |
|
|
$ |
2.63 |
|
Income from discontinued operations, including gain on sale |
|
|
0.49 |
|
|
|
0.02 |
|
|
|
1.43 |
|
|
|
0.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2.07 |
|
|
$ |
(0.05 |
) |
|
$ |
3.46 |
|
|
$ |
3.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared per common share |
|
$ |
0.66 |
|
|
$ |
0.635 |
|
|
$ |
1.98 |
|
|
$ |
1.905 |
|
Weighted average number of common shares outstanding |
|
|
58,348 |
|
|
|
54,018 |
|
|
|
56,063 |
|
|
|
51,294 |
|
Weighted average number of common and common dilutive
equivalent shares outstanding |
|
|
61,250 |
|
|
|
55,671 |
|
|
|
58,904 |
|
|
|
55,494 |
|
See Notes to Consolidated Financial Statements.
4
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
201,482 |
|
|
$ |
186,199 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization, including discontinued operations |
|
|
119,295 |
|
|
|
124,504 |
|
Amortization of deferred financing costs |
|
|
2,897 |
|
|
|
2,872 |
|
Equity in (income) loss of joint ventures |
|
|
(4,514 |
) |
|
|
1,472 |
|
Gain on sale of properties, including land |
|
|
(97,556 |
) |
|
|
(132,117 |
) |
Gain on sale of discontinued operations |
|
|
(80,394 |
) |
|
|
(36,115 |
) |
Gain on sale of technology investments |
|
|
(1,602 |
) |
|
|
(24,199 |
) |
Original issuance costs on redeemed perpetual preferred units |
|
|
|
|
|
|
365 |
|
Income allocated to common units and other minority interests, including
discontinued operations |
|
|
16,431 |
|
|
|
2,099 |
|
Accretion of discount on unsecured notes payable |
|
|
541 |
|
|
|
498 |
|
Amortization of share-based compensation |
|
|
5,966 |
|
|
|
8,518 |
|
Interest on employee notes receivable |
|
|
(81 |
) |
|
|
(70 |
) |
Net change in operating accounts |
|
|
21,489 |
|
|
|
29,496 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
183,954 |
|
|
|
163,522 |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Increase in real estate assets |
|
|
(365,222 |
) |
|
|
(201,518 |
) |
Net proceeds from sales of properties, including land and discontinued operations |
|
|
150,958 |
|
|
|
127,027 |
|
Proceeds from the sale of technology investments |
|
|
1,602 |
|
|
|
24,606 |
|
Net proceeds from partial sales of assets to joint ventures |
|
|
222,791 |
|
|
|
316,796 |
|
Distributions from joint ventures |
|
|
36,545 |
|
|
|
68,975 |
|
Investments in joint ventures |
|
|
(5,490 |
) |
|
|
(1,110 |
) |
Payments received on notes receivable other |
|
|
9,406 |
|
|
|
19,694 |
|
Summit cash at merger date |
|
|
|
|
|
|
16,696 |
|
Cash consideration paid for Summit |
|
|
|
|
|
|
(458,050 |
) |
Payment of merger related liabilities |
|
|
(5,724 |
) |
|
|
(50,765 |
) |
Change in restricted cash |
|
|
(452 |
) |
|
|
(378 |
) |
Increase in non-real estate assets and other |
|
|
(3,199 |
) |
|
|
(1,928 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
41,215 |
|
|
|
(139,955 |
) |
|
|
|
|
|
|
|
5
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net (decrease) increase in unsecured line of credit and short-term borrowings |
|
$ |
(237,000 |
) |
|
$ |
65,000 |
|
Proceeds from notes payable |
|
|
|
|
|
|
248,423 |
|
Repayment of Summit secured credit facility |
|
|
|
|
|
|
(188,500 |
) |
Repayment of notes payable |
|
|
(85,654 |
) |
|
|
(17,838 |
) |
Proceeds from issuance of common shares |
|
|
254,932 |
|
|
|
|
|
Distributions to shareholders and minority interests |
|
|
(123,177 |
) |
|
|
(109,385 |
) |
Redemption of perpetual preferred units |
|
|
|
|
|
|
(17,500 |
) |
Repayment of employee notes receivable |
|
|
112 |
|
|
|
1,865 |
|
Repurchase of common units |
|
|
(169 |
) |
|
|
(5,580 |
) |
Net decrease (increase) in accounts receivable affiliates |
|
|
841 |
|
|
|
(2,780 |
) |
Increase in notes receivable affiliates |
|
|
(31,173 |
) |
|
|
(1,138 |
) |
Common share options exercised |
|
|
3,220 |
|
|
|
8,253 |
|
Payment of deferred financing costs |
|
|
(2,684 |
) |
|
|
(6,968 |
) |
Other |
|
|
2,068 |
|
|
|
1,404 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(218,684 |
) |
|
|
(24,744 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
6,485 |
|
|
|
(1,177 |
) |
Cash and cash equivalents, beginning of period |
|
|
1,576 |
|
|
|
2,253 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
8,061 |
|
|
$ |
1,076 |
|
|
|
|
|
|
|
|
Supplemental information |
|
|
|
|
|
|
|
|
Cash paid for interest, net of interest capitalized |
|
$ |
90,343 |
|
|
$ |
72,107 |
|
Interest capitalized |
|
|
15,982 |
|
|
|
12,657 |
|
Supplemental schedule of noncash investing and financing activities |
|
|
|
|
|
|
|
|
Acquisition of Summit, net of cash acquired, at fair value: |
|
|
|
|
|
|
|
|
Assets acquired |
|
$ |
1,881 |
|
|
$ |
1,589,680 |
|
Liabilities assumed |
|
|
1,881 |
|
|
|
980,747 |
|
Common shares issued |
|
|
|
|
|
|
544,065 |
|
Common units issued |
|
|
|
|
|
|
81,564 |
|
Value of shares issued under benefit plans, net |
|
|
16,274 |
|
|
|
11,271 |
|
Cancellation of notes receivable affiliate in connection with property acquisition |
|
|
12,053 |
|
|
|
|
|
Distributions declared but not paid |
|
|
43,056 |
|
|
|
38,933 |
|
Conversion of operating partnership units to common shares |
|
|
5,652 |
|
|
|
|
|
Contribution of real estate assets to joint ventures |
|
|
33,493 |
|
|
|
45,297 |
|
Decrease in liabilities in connection with property transactions, net |
|
|
2,581 |
|
|
|
2,501 |
|
Assumption of debt by joint venture |
|
|
30,525 |
|
|
|
|
|
See Notes to Consolidated Financial Statements.
6
CAMDEN PROPERTY TRUST
Notes to Consolidated Financial Statements
(Unaudited)
1. Description of the Business
Business. Formed on May 25, 1993, Camden Property Trust, a Texas real estate investment trust
(REIT), is engaged in the ownership, development, construction and management of multifamily
apartment communities. Our multifamily apartment communities are referred to as communities,
multifamily communities, properties, or multifamily properties in the following discussion.
As of September 30, 2006, we owned interests in, operated, or were developing 199 multifamily
properties comprised of 68,419 apartment homes located in 13 states. We had 5,434 apartment homes
under development at 15 of our multifamily properties, including 1,069 apartment homes at three
multifamily properties owned through joint ventures, and several sites we intend to develop into
multifamily apartment communities. Additionally, five properties comprised of 1,744 apartment
homes were designated as held for sale.
2. Summary of Significant Accounting Policies
Operating Partnerships and Minority Interests. At September 30, 2006, approximately 14% of
our multifamily apartment homes were held in Camden Operating, L.P (Camden Operating). Camden
Operating has issued both common and preferred limited partnership units. In connection with our
joint venture in Camden Main & Jamboree, LP, as discussed in Note 6, Investments in Joint
Ventures, we issued 28,999 Series B common units during the nine months ended September 30, 2006.
As of September 30, 2006, we held 85.2% of the common limited partnership units and the sole 1.0%
general partnership interest of the operating partnership. The remaining common limited
partnership units, comprising 1.6 million units, are primarily held by former officers, directors
and investors of Paragon Group, Inc., which we acquired in 1997.
Camden Operating had $100 million of 7.0% Series B Cumulative Redeemable Perpetual Preferred
Units outstanding as of September 30, 2006. Distributions on the Series B Preferred Units totaled
$1.8 million for the three months and $5.3 million for the nine months ended September 30, 2006 and
2005, respectively.
At September 30, 2006, approximately 22% of our multifamily apartment units were held in the
Camden Summit Partnership, as discussed in Note 3, Merger with Summit Properties Inc. This
operating partnership has issued common limited partnership units. As of September 30, 2006, we
held 91.9% of the common limited partnership units and the sole 1.0% general partnership interest
of the Camden Summit Partnership. The remaining common limited partnership units, comprising 1.6
million units, are primarily held by former officers, directors and investors of Summit.
Interim Financial Reporting. We have prepared these financial statements in accordance with
Generally Accepted Accounting Principles (GAAP) for interim financial statements and the
applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do
not include all information and footnote disclosures normally included for complete financial
statements. While we believe the disclosures presented are adequate for interim reporting, these
interim financial statements should be read in conjunction with the financial statements and notes
included in our 2005 Form 10-K.
In the opinion of management, the accompanying unaudited financial statements contain all
adjustments necessary for a fair presentation of our financial statements for the interim periods
presented. The results of operations for the three and nine months ended September 30, 2006 are
not necessarily indicative of the results to be expected for the entire year.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions which affect amounts reported in the financial
statements and related notes. Actual results could differ from managements estimates. Estimates
and assumptions are reviewed periodically and the effects of revisions are reflected in the period
they are determined to be necessary.
7
Segment Reporting. The Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related
Information, establishes standards for reporting financial and descriptive information about an
enterprises reportable segments. Although our multifamily communities are geographically
diversified throughout the United States, management evaluates operating performance on an
individual property level. However, as each of our apartment communities has similar economic
characteristics, residents, and products and services, our apartment communities have been
aggregated into one reportable segment with activities related to the ownership, development,
construction and management of multifamily communities. Our multifamily communities generate
rental revenue and other income through the leasing of apartment homes, which comprised 95.5% and
94.4% of our total consolidated revenues, excluding non-recurring gains on technology investments,
for the nine months ended September 30, 2006 and 2005, respectively.
Real Estate Assets, at Cost. Real estate assets are carried at cost plus
capitalized carrying charges. Carrying charges are primarily interest and real estate taxes which
are capitalized as part of properties under development. Expenditures directly related to the
development, acquisition and improvement of real estate assets, excluding internal costs relating
to acquisitions of operating properties, are capitalized at cost as land, buildings and
improvements. Indirect development costs, including salaries and benefits and other related costs
attributable to the development of properties, are also capitalized. All construction and carrying
costs are capitalized and reported on the balance sheet in properties under development until the
apartment homes are substantially completed. Upon substantial completion of the apartment homes,
the total cost for the apartment homes and the associated land is transferred to buildings and
improvements and land, respectively, and the assets are depreciated over their estimated useful
lives using the straight-line method of depreciation.
Upon the acquisition of real estate, we assess the fair value of acquired assets, including
land, buildings, the value of in-place leases, including above and below market leases, and
acquired liabilities. We then allocate the purchase price of the acquired property based on
relative fair value. We assess fair value based on estimated cash flow projections and available
market information.
Carrying charges, principally interest and real estate taxes, of land under development and
buildings under construction are capitalized as part of properties under development and buildings
and improvements to the extent such charges do not cause the carrying value of the asset to exceed
its net realizable value. Capitalized interest was $5.3 million and $16.0 million for the three
and nine months ended September 30, 2006, respectively, and $5.0 million and $12.7 million for the
three and nine months ended September 30, 2005, respectively. Capitalized real estate taxes were
$0.7 million and $2.3 million for the three and nine months ended September 30, 2006, respectively,
and $0.6 million and $2.4 million for the three and nine months ended September 30, 2005,
respectively. All operating expenses associated with completed apartment homes for properties in
the development and leasing phase are expensed. Upon substantial completion of the project, all
apartment homes are considered operating and we begin expensing all items which were previously
considered carrying costs.
We capitalized $39.4 million and $28.7 million during the nine months ended September 30, 2006
and 2005, respectively, of renovation and improvement costs which we believe extended the economic
lives and enhanced the earnings of our multifamily properties. Our estimate of depreciation and
amortization incorporates assumptions regarding the useful economic lives and residual values of
our assets. At the time we place our assets in service, we believe such assumptions are
reasonable; however, circumstances may develop causing us to change these assumptions, which would
change our depreciation amounts on a prospective basis. Depreciation and amortization is computed
over the expected useful lives of depreciable property on a straight-line basis as follows:
|
|
|
|
|
|
|
Estimated |
|
|
|
Useful Life |
|
Buildings and improvements |
|
5-35 years |
Furniture, fixtures, equipment and other |
|
3-20 years |
Intangible assets (in-place leases and
above and below market leases) |
|
6-13 months |
8
Property operating and maintenance expense and income from discontinued operations
included repair and maintenance expenses totaling $11.6 million and $31.2 million for the three and
nine months ended September 30, 2006, respectively, and $10.0 million and $26.7 million for the
three and nine months ended September 30, 2005, respectively. Costs recorded as repair and
maintenance include all costs which do not alter the primary use, extend the expected useful life
or improve the safety or efficiency of the related asset. Our largest repair and maintenance
expenditures related to landscaping, interior painting and floor coverings.
Recent Accounting Pronouncements. In December 2004, the FASB issued SFAS No. 123 (revised
2004), Share-Based Payment (SFAS No. 123(R)) requiring the compensation cost relating to
share-based payments be recognized over their vesting periods in the income statement based on
their estimated fair values. In April 2005, the SEC issued Staff Accounting Bulletin No. 107,
"Shared-Based Payment providing for a phased-in implementation process for SFAS No. 123(R). SFAS
No. 123(R) is effective for all public entities in the first annual reporting period beginning
after June 15, 2005. We adopted SFAS No. 123(R) on January 1, 2006 using the modified prospective
method. The impact of adopting this pronouncement is discussed in Note 11 Share-based
Compensation.
In May 2005, the FASB issued SFAS No. 154 Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS No. 154). This pronouncement
applies to all voluntary changes in accounting principle and revises the requirements for
accounting for and reporting a change in accounting principle. SFAS No. 154 requires retrospective
application to prior periods financial statements of a voluntary change in accounting principle,
unless it is impracticable to do so. This pronouncement also requires changes to the method of
depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a
change in accounting estimate that is effected by a change in accounting principle. SFAS No. 154
is effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. SFAS No. 154 does not change the transition provisions of any existing
accounting pronouncements, including those which are in a transition phase (such as SFAS No.
123(R)) as of the effective date of SFAS No. 154. The adoption of SFAS No. 154 did not have a
material impact on our financial position, results of operations or cash flows.
In June 2005, the FASB issued Emerging Issues Task Force (EITF) Issue No. 04-05,
"Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited
Partnership or Similar Entity When the Limited Partners Have Certain Rights. EITF Issue No. 04-05
provides a framework for determining whether a general partner controls, and should consolidate, a
limited partnership or a similar entity. EITF Issue No. 04-05 was effective after June 29, 2005,
for all newly formed limited partnerships and for any pre-existing limited partnerships that modify
their partnership agreements after that date. General partners of all other limited partnerships
are required to apply the consensus no later than the beginning of the first reporting period in
fiscal years beginning after December 15, 2005. The adoption of EITF Issue No. 04-05 did not have
a material impact on our financial position, results of operations or cash flows.
In June 2005, the FASB issued FASB Staff Position (FSP) 78-9-1, Interaction of AICPA
Statement of Position 78-9 and EITF Issue No. 04-05. The EITF acknowledged the consensus in EITF
Issue No. 04-05 conflicted with certain aspects of Statement of Position (SOP) 78-9, Accounting
for Investments in Real Estate Ventures. The EITF agreed with the assessment of whether a general
partner, or the general partners as a group, controls a limited partnership should be consistent
for all limited partnerships, irrespective of the industry within which the limited partnership
operates. Accordingly, the guidance in SOP 78-9 was amended in FSP 78-9-1 to be consistent with
the guidance in EITF Issue No. 04-05. The effective dates for this FSP are the same as those
mentioned above in EITF Issue No. 04-05. The adoption of FSP 78-9-1 did not have a material impact
on our financial position, results of operations or cash flows.
In April 2006, the FASB issued FSP FASB Interpretation (FIN) 46(R)-6, Determining the
Variability to Be Considered in Applying FASB Interpretation No. 46(R). FIN 46(R)-6 addresses how
a reporting enterprise should determine variability associated with a variable interest entity or
variable interests in an entity when applying the provisions of FIN 46(R) and is effective for
reporting periods beginning after June 15, 2006. We will evaluate the impact of FIN 46(R)-6 at the
time any reconsideration event occurs, as defined by the provisions of FIN 46(R), and for any new
entities with which we become involved in future periods.
9
In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax
positions. FIN 48 requires we recognize in our financial statements the impact of a tax position,
if the position is more likely than not of being sustained on audit, based on the technical merits
of the position. FIN 48 is effective for fiscal years beginning after December 15, 2006.
We are in the process of assessing the impact of FIN 48 and have not determined what impact, if
any, our adoption will have on our financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value in GAAP and expands
disclosures about fair value measurements. The statement does not require new fair value
measurements, but is applied to the extent other accounting pronouncements require or permit fair
value measurements. The statement emphasizes fair value as a market-based measurement which should
be determined based on assumptions market participants would use in pricing an asset or liability.
We will be required to disclose the extent to which fair value is used to measure assets and
liabilities, the inputs used to develop the measurements, and the effect of certain of the
measurements on earnings (or changes in net assets) for the period. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. We do not anticipate the adoption of this
statement will have a material impact on our financial position, results of operations or cash
flows.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and
132(R), which requires an employer to recognize the over-funded or under-funded status of a
defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in
its statement of financial position and to recognize changes in funded status in the year in which
the changes occur through comprehensive income of a business entity. SFAS No. 158 also requires an
employer to measure the funded status of a plan as of the date of its year-end statement of
financial position, with limited exceptions. This statement is effective for fiscal years ending
after December 15, 2006. We do not anticipate the adoption of this statement will have a material
impact on our financial position, results of operations or cash flows.
Reclassifications. Certain reclassifications have been made to amounts in prior period
financial statements to conform with current period presentations. In our Consolidated Statements
of Operations for the three and nine months ended September 30, 2006, we present separately income
and expense on deferred compensation plans. In the accompanying Consolidated Statements of
Operations, we reclassified the income and expense on deferred compensation plans to be consistent
with our 2006 presentation which resulted in a $3.2 million and $5.3 million increase to
non-property income and to other expenses for the three and nine months ended September 30, 2005,
respectively.
We reclassified two properties previously included in discontinued operations to continuing
operations during the nine months ended September 30, 2006 as management made the decision not to
sell these assets. As a result, we adjusted the current and prior period consolidated financial
statements to reflect the necessary reclassifications. Additionally, we recorded a depreciation
charge of $2.6 million during the nine months ended September 30, 2006 on these assets in
accordance with the provisions of SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.
3. Merger with Summit Properties Inc.
On February 28, 2005, Summit Properties Inc. (Summit) was merged with and into Camden Summit
Inc., one of our wholly-owned subsidiaries (Camden Summit), pursuant to an Agreement and Plan of
Merger dated as of October 4, 2004 (the Merger Agreement), as amended. Prior to the effective
time of the merger, Summit was the sole general partner of Summit Properties Partnership, L.P. (the
Camden Summit Partnership). At the effective time of the merger, Camden Summit became the sole
general partner of the Camden Summit Partnership and the name of the partnership was changed to
Camden Summit Partnership, L.P. As of February 28, 2005, Summit owned or held an ownership
interest in 48 operating communities comprised of 15,002 apartment homes with an additional 1,834
apartment homes under construction in five new communities.
10
The aggregate consideration paid for the merger was as follows:
(in thousands)
|
|
|
|
|
Fair value of Camden common shares issued |
|
$ |
544,065 |
|
Fair value of Camden Summit Partnership units issued |
|
|
81,564 |
|
Cash consideration paid for Summit common shares and partnership units
exchanged |
|
|
458,050 |
|
|
|
|
|
Total consideration |
|
|
1,083,679 |
|
Fair value of liabilities assumed, including debt |
|
|
984,847 |
|
|
|
|
|
Total purchase price |
|
$ |
2,068,526 |
|
|
|
|
|
Revisions to the purchase price during the nine months ended September 30, 2006 included
increases of $1.3 million to land and $0.7 million to properties under development, including land,
as a result of purchase price adjustments primarily related to increases of $1.9 million in
accounts payable, accrued expenses and other liabilities for litigation.
The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the time of merger, net of cash acquired:
(in thousands)
|
|
|
|
|
Land |
|
$ |
299,321 |
|
Buildings and improvements |
|
|
1,528,124 |
|
Properties under development, including land |
|
|
153,142 |
|
Investments in joint ventures |
|
|
2,652 |
|
Properties held for sale |
|
|
29,741 |
|
Other assets, including the value of in-place leases of $32.7 million |
|
|
37,308 |
|
Cash and cash equivalents |
|
|
16,696 |
|
Restricted cash |
|
|
1,542 |
|
|
|
|
|
Total assets acquired |
|
|
2,068,526 |
|
|
|
|
|
Notes payable |
|
|
880,829 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
97,612 |
|
Employee notes receivable |
|
|
(3,882 |
) |
Other minority interests |
|
|
10,288 |
|
|
|
|
|
Fair value of liabilities assumed, including debt |
|
|
984,847 |
|
|
|
|
|
Total consideration |
|
$ |
1,083,679 |
|
|
|
|
|
In connection with the merger, we incurred $69.8 million of termination, severance and
settlement of share-based compensation costs. Of this amount, Summit had paid $26.3 million prior
to the effective time of the merger. As of September 30, 2006, substantially all costs were paid.
11
The following financial information for the three and nine months ended September 30, 2005
gives effect to the merger as if it had occurred at the beginning of the periods presented. The
financial information for the three months ended September 30, 2005 represents actual results. The
financial information for the nine months ended September 30, 2005 includes pro forma results for
the first two months of 2005 and actual results for the remaining seven months. The pro forma
results are based on historical data and are not intended to be indicative of the results of future
operations.
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2005 |
|
Total property revenues |
|
$ |
136,632 |
|
|
$ |
407,466 |
|
Net income (loss) to common shareholders |
|
|
(2,317 |
) |
|
|
171,431 |
|
Net income (loss) per common and common equivalent share |
|
$ |
(0.05 |
) |
|
$ |
2.71 |
|
4. Per Share Data
Basic earnings per share is computed using income from continuing operations and the weighted
average number of common shares outstanding. Diluted earnings per share reflects common shares
issuable from the assumed conversion of common share options and awards granted and units
convertible into common shares. Only those items with a dilutive impact on our basic earnings per
share are included in diluted earnings per share. For the three and nine months ended September
30, 2006, 1.6 million and 1.8 million operating units convertible into common shares, respectively,
were excluded from the diluted earnings per share calculation as they were not dilutive. For the
three months ended September 30, 2005, 0.5 million common shares issuable from the assumed
conversion of common share options and awards granted and 2.4 million units convertible into common
shares were excluded from the diluted earnings per share calculation as they were not dilutive.
12
The following table presents information necessary to calculate basic and diluted earnings per
share for the three and nine months ended September 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Basic earnings per share calculation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
96,202 |
|
|
$ |
(3,686 |
) |
|
$ |
117,771 |
|
|
$ |
144,309 |
|
Income from discontinued operations, including gain on
sale |
|
|
29,255 |
|
|
|
1,369 |
|
|
|
83,711 |
|
|
|
41,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
125,457 |
|
|
$ |
(2,317 |
) |
|
$ |
201,482 |
|
|
$ |
186,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per share |
|
$ |
1.65 |
|
|
$ |
(0.07 |
) |
|
$ |
2.10 |
|
|
$ |
2.81 |
|
Income from discontinued operations, including gain on sale
per share |
|
|
0.50 |
|
|
|
0.03 |
|
|
|
1.49 |
|
|
|
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
2.15 |
|
|
$ |
(0.04 |
) |
|
$ |
3.59 |
|
|
$ |
3.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
58,348 |
|
|
|
54,018 |
|
|
|
56,063 |
|
|
|
51,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share calculation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
96,202 |
|
|
$ |
(3,686 |
) |
|
$ |
117,771 |
|
|
$ |
144,309 |
|
Income (loss) allocated to common units |
|
|
869 |
|
|
|
(359 |
) |
|
|
1,950 |
|
|
|
1,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, as adjusted |
|
|
97,071 |
|
|
|
(4,045 |
) |
|
|
119,721 |
|
|
|
145,935 |
|
Income from discontinued operations, including gain on
sale |
|
|
29,255 |
|
|
|
1,369 |
|
|
|
83,711 |
|
|
|
41,890 |
|
Income from discontinued operations, allocated to common
units |
|
|
652 |
|
|
|
|
|
|
|
652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), as adjusted |
|
$ |
126,978 |
|
|
$ |
(2,676 |
) |
|
$ |
204,084 |
|
|
$ |
187,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, as adjusted per
share |
|
$ |
1.58 |
|
|
$ |
(0.07 |
) |
|
$ |
2.03 |
|
|
$ |
2.63 |
|
Income from discontinued operations, including gain on sale
per share |
|
|
0.49 |
|
|
|
0.02 |
|
|
|
1.43 |
|
|
|
0.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), as adjusted per share |
|
$ |
2.07 |
|
|
$ |
(0.05 |
) |
|
$ |
3.46 |
|
|
$ |
3.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
58,348 |
|
|
|
54,018 |
|
|
|
56,063 |
|
|
|
51,294 |
|
Incremental shares issuable from assumed conversion of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common share options and awards granted |
|
|
768 |
|
|
|
|
|
|
|
700 |
|
|
|
455 |
|
Common units |
|
|
2,134 |
|
|
|
1,653 |
|
|
|
2,141 |
|
|
|
3,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, as adjusted
outstanding |
|
|
61,250 |
|
|
|
55,671 |
|
|
|
58,904 |
|
|
|
55,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Property Acquisitions and Dispositions
Acquisitions. On January 31, 2006, we acquired the remaining 80% interest in Camden-Delta
Westwind, LLC, a joint venture in which we had a 20% interest, in accordance with the Agreement and
Assignment of Limited Liability Company Interest. The 80% interest was previously owned by
Westwind Equity, LLC (Westwind), an unrelated third-party. As a result of the acquisition, we
paid Westwind $31.0 million, which includes a $2.0 million non-refundable earnest money deposit
paid in October 2005. Concurrent with this transaction, the mezzanine loan we had provided to the
joint venture, which totaled $12.1 million, was canceled. Additionally, we repaid the outstanding
balance of a third-party construction loan, totaling $46.8 million. We used proceeds from our
unsecured line of credit facility to fund this purchase. The purchase price was allocated to the
tangible and intangible assets acquired based on their estimated fair value at the date of
acquisition. The intangible assets acquired at acquisition include in-place leases of $0.5
million.
In July 2006, we acquired Camden Stoneleigh, a 390 apartment home community located in Austin,
Texas, for $35.3 million using proceeds from our unsecured line of credit. The purchase price of
this property was allocated to the tangible and intangible assets acquired based on their estimated
fair values at the date of acquisition. Tangible assets, which include land, buildings and
improvements are being depreciated over their estimated useful lives, which range from 5 to 35
years. The intangible assets acquired at acquisition include in-place leases of $0.4 million and
above or below market leases of $0.1 million. Intangible assets are being amortized over 10
months, which is the estimated average remaining life of in-place leases at time of acquisition.
13
Discontinued Operations and Assets Held for Sale. Operating results of assets designated as
held for sale are included in discontinued operations for all periods presented. Additionally, all
gains and losses on the sale of these assets are included in discontinued operations. For the three
and nine months ended September 30, 2006 and 2005, income from discontinued operations included the
results of operations of five operating properties, containing 1,744 apartment homes, classified as
held for sale at September 30, 2006 and the results of operations of six operating properties,
containing 2,227 apartment homes, and four parcels of undeveloped land sold in 2006 through their
sale dates. For the three and nine months ended September 30, 2005, income from discontinued
operations also included the results of three operating properties sold during the nine months
ended September 30, 2005. As of September 30, 2006, the five operating properties classified as
held for sale had a net book value of $30.6 million.
The following is a summary of income from discontinued operations for the periods presented
below:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Property revenues |
|
$ |
3,339 |
|
|
$ |
6,985 |
|
|
$ |
14,831 |
|
|
$ |
23,540 |
|
Property expenses |
|
|
2,419 |
|
|
|
3,728 |
|
|
|
8,483 |
|
|
|
12,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property revenues |
|
|
920 |
|
|
|
3,257 |
|
|
|
6,348 |
|
|
|
11,504 |
|
Depreciation and amortization |
|
|
255 |
|
|
|
1,776 |
|
|
|
1,350 |
|
|
|
5,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
665 |
|
|
$ |
1,481 |
|
|
$ |
4,998 |
|
|
$ |
6,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2006, we recognized gains on sale of
discontinued operations of $59.9 million from the sale of six operating properties. These sales
generated net proceeds of approximately $106.3 million. Proceeds from the sale of one operating
property sold in July 2006 were deposited with a qualified intermediary for use in a deferred
like-kind exchange. Subsequent to this transaction, the exchange account was liquidated as the
deferred like-kind exchange was completed. For the nine months ended September 30, 2005, we
recognized gains on sale of discontinued operations of $36.1 million on the sale of three operating
properties, containing 1,317 apartment homes. These sales generated net proceeds of approximately
$127.0 million.
Upon our decision to abandon efforts to develop certain land parcels and to market these
parcels as held for sale, we classify the operating expenses associated with these assets as
discontinued operations. At September 30, 2006, we had several undeveloped land parcels classified
as held for sale as follows:
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
Net Book |
|
Location |
|
Acres |
|
Value |
|
Southeast Florida |
|
3.1 |
|
$ |
12.0 |
|
Dallas |
|
2.6 |
|
|
2.5 |
|
|
|
|
|
|
|
Total land held for sale |
|
|
|
$ |
14.5 |
|
|
|
|
|
|
|
During the nine months ended September 30, 2006, we sold four parcels of undeveloped land
totaling an aggregate of 8.7 acres to unrelated third parties. In connection with these sales, we
received net proceeds of $41.0 million and recognized gains on sale of discontinued operations
totaling $20.5 million.
Asset Dispositions and Partial Sales to Joint Ventures. As discussed in Note 6, during the
nine months ended September 30, 2006, we recognized gains, included in continuing operations, of
$91.6 million from the partial sale of nine properties to an unconsolidated affiliated joint
venture. These partial sales generated net proceeds of approximately $170.9 million. During the
nine months ended September 30, 2005, we recognized gains, included in continuing operations, of
$132.1 million from the partial sales of twelve properties to twelve affiliated unconsolidated
joint ventures. These partial sales generated net proceeds of approximately $316.8
14
million. The gains recognized on the partial sales of these assets were included in
continuing operations due to our continuing involvement with these assets.
During the nine months ended September 30, 2006, we recognized a gain on the sale of land
located adjacent to one of our pre-development assets in College Park, Maryland of $0.8 million.
As discussed in Note 6, we also recognized gains of $0.5 million and $4.7 million on the partial
sales of land to two joint ventures located in Houston, Texas and College Park, Maryland,
respectively. The gains recognized on the sales of these assets were not included in discontinued
operations due to our continuing involvement with these assets. These sales generated net proceeds
of approximately $55.5 million.
6. Equity Investments in Joint Ventures
The joint ventures described below do not qualify as variable interest entities under the
provisions of FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51, Consolidated Financial Statements (FIN 46(R)) or the consolidation
requirements of the EITF Issue No. 04-05. Accordingly, we utilize the guidance provided by SOP
78-9 and Accounting Principles Board Opinion 18, when determining the basis of accounting for these
ventures. Because we exercise significant influence, but we do not control the voting interest of
these joint ventures, we account for these entities using the equity method. The joint ventures in
which we have an interest have been funded with secured, third-party debt. We are not committed to
any additional funding on third-party debt in relation to our joint
ventures. We have guaranteed our proportionate interest on
construction loans in three of our development joint ventures. Additionally, we
eliminate fee income from property management services to the extent of our ownership
Our contribution of real estate assets to joint ventures at formation are treated as partial
sales under SFAS No. 66. As a result, the amounts recorded as gain on sale of assets to joint
ventures represents the change in ownership of the underlying assets. Our initial investment is
determined based on our continuing ownership percentage in the net book value of the underlying
assets on the date of the transaction.
As of September 30, 2006, our equity investments in unconsolidated joint ventures accounted
for under the equity method of accounting consisted of:
|
|
|
A 20% interest in Sierra-Nevada Multifamily Investments, LLC (Sierra-Nevada),
which owns 14 apartment communities with 3,098 apartment homes located in Las Vegas.
We are providing property management services to Sierra-Nevada and fees earned for
these services totaled $0.2 million and $0.7 million for the three and nine months
ended September 30, 2006, respectively, and $0.3 million and $0.9 million for the
three and nine months ended September 30, 2005, respectively. At September 30,
2006, Sierra-Nevada had total assets of $136.0 million and third-party secured debt
totaling $179.9 million. |
|
|
|
|
A 50% interest in Denver West Apartments, LLC (Denver West), which owns Camden
Denver West, a 320 apartment home community located in Denver, Colorado. We are
providing property management services to Denver West and fees earned for these
services totaled $19,000 and $58,000 for the three and nine months ended September
30, 2006, respectively, and $19,000 and $56,000 million for the three and nine
months ended September 30, 2005, respectively. At September 30, 2006, Denver West
had total assets of $22.0 million and third-party secured debt totaling $17.1
million. |
|
|
|
|
A 20% interest in 12 apartment communities containing 4,034 apartment homes
(located in the Las Vegas, Phoenix, Houston, Dallas and Orange County, California
markets), which we partially sold to 12 individual affiliated joint ventures in
March 2005. We are providing property management services to the joint ventures and
fees earned for these services totaled $0.3 million and $0.8 million for the three
and nine months ended September 30, 2006, respectively, and $0.3 million and $0.5
million for the three and nine months ended September 30, 2005, respectively. At
September 30, 2006, the joint ventures had total assets of $389.8 million and had
third-party secured debt totaling $272.6 million. |
15
|
|
|
A 30% interest in Camden Plaza, LP to which we partially sold undeveloped land
located in Houston, Texas in January 2006. In connection with this partial sale, we
received cash proceeds of $10.3 million. Of the total proceeds received,
approximately $2.0 million was recognized as an immediate distribution and was
applied against our initial investment balance. The remaining 70% interest is owned
by Onex Real Estate Partners (Onex), an unaffiliated third-party, which
contributed cash of $3.2 million to the joint venture. The joint venture is
developing a 271 apartment home community at a total estimated cost to complete of
$42.9 million. Concurrent with this transaction, we provided a $6.4 million
mezzanine loan to the joint venture which had a balance of $7.1 million at September
30, 2006, and is reported as Notes receivable affiliates as discussed in Note
8. At September 30, 2006, the joint venture had total assets of $23.3 million and
had third-party secured debt totaling $11.6 million. |
|
|
|
|
A 30% interest in Camden Main & Jamboree, LP to which we contributed $1.4 million
in cash and $1.9 million in Camden Operating Series B common units in March 2006.
The remaining 70% interest is owned by Onex which contributed $7.7 million to the
joint venture. The joint venture purchased Camden Main & Jamboree, a 290 apartment
home community located in Irvine, California, which is currently under development
and has a total estimated cost to complete of $107.1 million as of September 30,
2006. Concurrent with this transaction, we provided a mezzanine loan totaling $15.8
million to the joint venture, which had a balance of $17.1 million at September 30,
2006, and is reported as Notes receivable affiliates as discussed in Note 8.
At September 30, 2006, the joint venture had total assets of $88.1 million and had
third-party secured debt totaling $60.0 million. |
|
|
|
|
A 30% interest in Camden College Park, LP to which we partially sold undeveloped
land located in College Park, Maryland in August 2006. In connection with this
partial sale, we received cash proceeds of $45.0 million. Of the total proceeds
received, approximately $9.1 million was recognized as an immediate distribution and
was applied against our initial investment balance. The remaining 70% interest is
owned by affiliates of Onex which contributed cash of $10.1 million to the joint
venture. The joint venture is developing a 508 apartment home community and has a
total estimated cost to complete of $139.9 million as of September 30, 2006.
Concurrent with this transaction, we provided a mezzanine loan totaling $6.7 million
to the joint venture, which had a balance of $6.9 million at September 30, 2006, and
is reported as Notes receivable affiliates as discussed in Note 8. At September
30, 2006, the joint venture had total assets of $59.2 million and had third-party
secured debt totaling $38.3 million. |
|
|
|
|
A 15% interest in nine apartment communities containing 3,237 apartment homes
located in Kentucky and Missouri which we partially sold to the joint venture in
September 2006. In connection with this partial sale, we received cash proceeds of
approximately $194.9 million. Of the proceeds received, approximately $23.9 million
was recognized as an immediate distribution and was applied against our initial
investment balance. The remaining 85% of the joint venture is owned by a fund
managed by DRA Advisors LLC who contributed cash of $64.0 million to the joint
venture. We are providing property management services to the joint venture, and
fees earned for these services totaled $20,000 for the three and nine months ended
September 30, 2006. At September 30, 2006, the joint venture had total assets of
$246.9 million and had third-party secured debt totaling $169.0 million. |
|
|
|
|
A 25% interest in the Station Hill, LLC (Station Hill) joint venture, which we
acquired in connection with the Summit merger. Hollow Creek, LLC, a subsidiary of a
major financial services company and our partner in Station Hill, has commenced
termination of the joint ventures operations as all properties in the joint venture
were sold as of September 30, 2006. In January 2006, Station Hill sold two
properties, Summit Creek, a 260 apartment home community located in Charlotte, North
Carolina, and Summit Hill, a 411 apartment home community located in Raleigh, North
Carolina, for an aggregate of $47.5 million. During July 2006, the joint venture
sold the remaining property, Summit Hollow, a 232 apartment home community located
in |
16
|
|
|
Charlotte, North Carolina for $15.5 million. Our share of these dispositions totaled
$15.8 million and we recognized net gains on sale totaling $1.1 million and $2.8
million during the three and nine months ended September 30, 2006, respectively. We
provided property management services to the joint venture, and fees earned for these
services totaled $4,000 and $33,000 for the three and nine months ended September 30,
2006, respectively, and $55,000 and $0.1 million for the three and nine months ended
September 30, 2005, respectively. |
7. Third-party Construction Services
At September 30, 2006, we were under contract on third-party construction projects ranging
from $2.4 million to $35.0 million per contract. We earn fees on these projects ranging from 2.8%
to 7.8% of the total contracted construction costs, which we recognize as earned. Fees earned from
third-party construction projects totaled $0.8 million and $2.7 million for the three and nine
months ended September 30, 2006, respectively, and $0.8 million and $1.9 million for the three and
nine months ended September 30, 2005, respectively, and are included in Fee and asset management
income in our consolidated statements of operations. We recorded costs and cost over-runs on
third-party construction projects of $2.8 million and $5.3 million during the three and nine months
ended September 30, 2006, respectively, and $0.9 million and $2.4 million during the three and nine
months ended September 30, 2005, respectively. These costs are first applied against revenues
earned on each project and any excess is included in Fee and asset management expenses in our
consolidated statements of operations.
8. Notes Receivable
We have a mezzanine financing program under which we provide secured financing to owners of
real estate properties. As of September 30, 2006, we had a $3.9 million secured note receivable to
an unrelated third party. This note, which matures in 2009, accrues interest a rate of 9% per
annum, which is recognized as earned. We have reviewed the terms and conditions underlying the
outstanding note receivable and believe this note is collectable, and no impairment existed at
September 30, 2006.
The following is a summary of our notes receivable outstanding under the mezzanine financing
program during the periods presented, excluding notes receivable from affiliates:
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
Location |
|
Current Property Type |
|
Current Status |
|
2006 |
|
|
2005 |
|
Dallas/Fort Worth, Texas |
|
Multifamily |
|
Stabilized |
|
$ |
|
|
|
$ |
6.9 |
|
Houston, Texas |
|
Multifamily |
|
Predevelopment |
|
|
3.9 |
|
|
|
3.9 |
|
Austin, Texas |
|
Multifamily |
|
Stabilized |
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
3.9 |
|
|
$ |
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2006, three loans totaling $9.4 million each
with an effective interest rate of 11% were repaid. Included in these repayments were
approximately $0.1 million of prepayment penalties, which are included in Fee and asset management
income in our consolidated statements of operations.
We provided mezzanine construction financing in connection with one joint venture transaction
discussed in Note 5 and three joint venture transactions discussed in Note 6. As of September 30,
2006 and December 31, 2005, the balance of Notes receivable affiliates totaled $31.0 million
and $11.9 million, respectively. The note outstanding at December 31, 2005 was cancelled on
January 31, 2006 in connection with our acquisition of the remaining 80% interest in the joint
venture. At the time the mezzanine loan was cancelled, the balance of the note was $12.1 million.
The notes outstanding as of September 30, 2006 each accrue interest at 14% per year and mature
through 2010.
17
9. Notes Payable
The following is a summary of our indebtedness:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Unsecured line of credit and short-term borrowings |
|
$ |
14.0 |
|
|
$ |
251.0 |
|
Senior unsecured notes |
|
|
|
|
|
|
|
|
$50.0 million 7.11% Notes, due 2006 |
|
|
|
|
|
|
50.0 |
|
$75.0 million 7.16% Notes, due 2006 |
|
|
75.0 |
|
|
|
74.9 |
|
$50.0 million 7.28% Notes, due 2006 |
|
|
50.0 |
|
|
|
50.0 |
|
$50.0 million 4.30% Notes, due 2007 |
|
|
51.3 |
|
|
|
52.3 |
|
$150.0 million 5.98% Notes, due 2007 |
|
|
149.9 |
|
|
|
149.8 |
|
$100.0 million 4.74% Notes, due 2009 |
|
|
99.9 |
|
|
|
99.9 |
|
$250.0 million 4.39% Notes, due 2010 |
|
|
249.9 |
|
|
|
249.9 |
|
$100.0 million 6.77% Notes, due 2010 |
|
|
99.9 |
|
|
|
99.9 |
|
$150.0 million 7.69% Notes, due 2011 |
|
|
149.6 |
|
|
|
149.6 |
|
$200.0 million 5.93% Notes, due 2012 |
|
|
199.4 |
|
|
|
199.4 |
|
$200.0 million 5.45% Notes, due 2013 |
|
|
199.1 |
|
|
|
199.0 |
|
$250.0 million 5.08% Notes, due 2015 |
|
|
248.6 |
|
|
|
248.5 |
|
|
|
|
|
|
|
|
|
|
|
1,572.6 |
|
|
|
1,623.2 |
|
Medium-term unsecured notes |
|
|
|
|
|
|
|
|
$25.0 million 3.91% Notes, due 2006 |
|
|
|
|
|
|
25.3 |
|
$15.0 million 7.63% Notes, due 2009 |
|
|
15.0 |
|
|
|
15.0 |
|
$25.0 million 4.64% Notes, due 2009 |
|
|
26.7 |
|
|
|
27.2 |
|
$10.0 million 4.90% Notes, due 2010 |
|
|
11.3 |
|
|
|
11.5 |
|
$14.5 million 6.79% Notes, due 2010 |
|
|
14.5 |
|
|
|
14.5 |
|
$35.0 million 4.99% Notes, due 2011 |
|
|
39.0 |
|
|
|
39.5 |
|
|
|
|
|
|
|
|
|
|
|
106.5 |
|
|
|
133.0 |
|
|
|
|
|
|
|
|
Total unsecured notes |
|
|
1,693.1 |
|
|
|
2,007.2 |
|
Secured notes |
|
|
|
|
|
|
|
|
4.55% - 8.50% Conventional Mortgage Notes, due 2007 - 2013 |
|
|
522.0 |
|
|
|
529.2 |
|
3.95% - 7.29% Tax-exempt Mortgage Notes, due 2025 - 2028 |
|
|
65.4 |
|
|
|
96.7 |
|
|
|
|
|
|
|
|
|
|
|
587.4 |
|
|
|
625.9 |
|
|
|
|
|
|
|
|
Total notes payable |
|
$ |
2,280.5 |
|
|
$ |
2,633.1 |
|
|
|
|
|
|
|
|
In January 2005, we entered into a credit agreement which increased our unsecured credit
facility to $600 million, with the ability to further increase it up to $750 million. This $600
million unsecured line of credit originally matured in January 2008. In January 2006, we entered
into an amendment to our credit agreement to extend the maturity by two years to January 2010 and
to amend certain covenants. The scheduled interest rate is based on spreads over the London
Interbank Offered Rate (LIBOR) or the Prime Rate. The scheduled interest rate spreads are
subject to change as our credit ratings change. Advances under the line of credit may be priced at
the scheduled rates, or we may enter into bid rate loans with participating banks at rates below
the scheduled rates. These bid rate loans have terms of six months or less and may not exceed the
lesser of $300 million or the remaining amount available under the line of credit. The line of
credit is subject to customary financial covenants and limitations, all of which we were in
compliance with at September 30, 2006.
Our line of credit provides us with the ability to issue up to $100 million in letters of
credit. While our issuance of letters of credit does not increase our borrowings outstanding under
our line, it does reduce the amount available. At September 30, 2006, we had outstanding letters
of credit totaling $35.5 million, and had $550.5 million available, under our unsecured line of
credit.
As part of the Summit merger, we assumed Summits unsecured letter of credit facility, which
matures in July 2008 and has a total commitment of $20.0 million. The letters of credit issued
under this facility serve as collateral for performance on contracts and as credit guarantees to
banks and insurers. As of September 30, 2006, there were $3.5 million of letters of credit
commitments outstanding under this facility.
18
During 2006, we repaid $75.0 million of maturing unsecured notes with an effective interest
rate of 6.04%. We repaid these notes payable using proceeds available under our unsecured line of
credit.
In connection with our partial sale of nine apartment communities to a joint venture during
the three months ended September 30, 2006, as discussed in Note 6, three tax-exempt mortgage notes
totaling $30.5 million were assumed by the joint venture.
At September 30, 2006 and 2005, the weighted average interest rate on our floating rate debt,
which includes our unsecured line of credit, was 4.9% and 4.0%, respectively.
Our indebtedness, excluding our unsecured line of credit, had a weighted average maturity of
5.2 years. Scheduled repayments on outstanding debt, including our line of credit, and the
weighted average interest rate on maturing debt at September 30, 2006 are as follows:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
Year |
|
Amount |
|
|
Interest Rate |
|
2006 |
|
$ |
128.4 |
|
|
|
7.2 |
% |
2007 |
|
|
233.0 |
|
|
|
5.7 |
|
2008 |
|
|
200.7 |
|
|
|
4.8 |
|
2009 |
|
|
198.2 |
|
|
|
5.0 |
|
2010 |
|
|
466.8 |
|
|
|
5.1 |
|
2011 and thereafter |
|
|
1,053.4 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,280.5 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
10. Related Party Transactions
We perform property management services for properties owned by joint ventures in which we own
an interest. Management fees earned on these properties totaled $0.6 million and $1.7 million for
the three and nine months ended September 30, 2006, respectively, as compared to $0.7 million and
$1.9 million for the three and nine months ended September 30, 2005, respectively. See further
discussion of our investments in joint ventures in Note 6.
In conjunction with our merger with Summit, we acquired employee notes receivable from nine
former employees of Summit totaling $3.9 million. Subsequent to the merger, five employees repaid
their loans totaling $1.8 million. At September 30, 2006, the notes receivable had an outstanding
balance of $2.0 million. As of September 30, 2006, the employee notes receivable were 100% secured
by Camden common shares.
11. Share-based Compensation
Adoption of SFAS 123(R). Under SFAS No. 123(R), we account for share-based awards on a
prospective basis, with compensation expense, net of estimated forfeitures, being recognized in our
statement of operations beginning in the first quarter of 2006 using the grant-date fair values.
SFAS 123(R) requires measurement of compensation cost for all share-based awards at fair value
on the grant date and recognition of compensation expense over the requisite service period for
awards expected to vest. The fair value of stock option grants was determined using the
Black-Scholes valuation model, which is consistent with our prior valuation techniques utilized for
options granted after January 1, 2003, as previously reported in disclosures required under SFAS
No. 123, Accounting for Stock Based Compensation, (SFAS No. 123) as amended by SFAS No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure (SFAS No. 148). Employee
awards granted prior to January 1, 2003 were accounted for under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, (APB 25) and related interpretations.
19
The adoption of SFAS No. 123(R) changes the accounting for our stock options and share awards
(SAs) under our 2002 Share Incentive Plan and our 1993 Share Incentive Plan as discussed below.
Share Awards. SAs have a vesting period of five years. The compensation cost for SAs is
based on the market value of the shares on the date of grant. The fair value method under SFAS
No. 123(R) is similar to the fair value method under SFAS No. 123, as amended by SFAS No. 148, with
respect to measurement and recognition of share-based compensation. However, SFAS No. 123
permitted us to recognize forfeitures as they occurred, while SFAS No. 123(R) requires us to
estimate future forfeitures. To determine our estimated future forfeitures, we used actual
forfeiture history.
Employee Share Purchase Plan. We have established an Employee Share Purchase Plan (ESPP)
for all active employees, officers, and trust managers who have completed one year of continuous
service. The adoption of SFAS No. 123(R) had no effect on the accounting surrounding our ESPP as
the plan was previously deemed compensatory under the provisions of SFAS No. 123.
Valuation Assumptions. The weighted average fair value of options granted was $7.88 and $4.47
in 2006 and 2005, respectively. We calculated the fair value of each option award on the date of
grant using the Black-Scholes option pricing model. The following assumptions were used for each
respective period:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Expected volatility |
|
|
16.6 |
% |
|
|
18.0 |
% |
Risk-free interest rate |
|
|
4.4 |
% |
|
|
4.2 |
% |
Expected dividend yield |
|
|
4.1 |
% |
|
|
5.6 |
% |
Expected life (in years) |
|
|
5 |
|
|
|
10 |
|
Our computation of expected volatility for 2006 is based on the historical volatility of our
common shares over a time period equal to the expected term of the option and ending on the grant
date. Prior to 2006, our computation of expected volatility was based on historical volatility of
our common shares over a time period from the inception of the 1993 Share Incentive Plan and ending
on the grant date. The interest rate for periods within the contractual life of the award is based
on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield on
our common shares is calculated using the annual dividends paid in prior year. Our computation of
expected life for 2006 was determined based on historical experience of similar awards, giving
consideration to the contractual terms of the share-based awards.
Share-based Compensation Award Activity. The total intrinsic value of options exercised
during the nine months ended September 30, 2006 and 2005 was $3.1 million and $4.3 million,
respectively. As of September 30, 2006, there was approximately $0.6 million of total unrecognized
compensation cost related to unvested options, which is expected to be amortized over a weighted
average of 0.8 years.
The following table summarizes share options outstanding and exercisable at September 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options |
|
|
Exercisable Options |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
Range of |
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Contractual |
|
Exercise Prices |
|
Number |
|
|
Price |
|
|
Number |
|
|
Price |
|
|
Life |
|
$24.88-$40.40 |
|
|
412,229 |
|
|
$ |
34.26 |
|
|
|
412,229 |
|
|
$ |
34.26 |
|
|
5.2 years |
$41.90-$43.90 |
|
|
454,538 |
|
|
|
42.91 |
|
|
|
320,538 |
|
|
|
42.91 |
|
|
6.9 years |
$44.00-$62.32 |
|
|
445,838 |
|
|
|
48.39 |
|
|
|
312,506 |
|
|
|
49.62 |
|
|
7.1 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total options |
|
|
1,312,605 |
|
|
$ |
42.06 |
|
|
|
1,045,273 |
|
|
$ |
41.51 |
|
|
6.5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
The following table summarizes activity under our 1993 and 2002 Share Incentive Plans for
the nine months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
Options / |
|
|
Average |
|
|
Average Remaining |
|
Aggregate |
|
|
|
Share Awards |
|
|
Exercise / Grant |
|
|
Contractual Term |
|
Intrinsic |
|
|
|
Outstanding |
|
|
Price |
|
|
(in years) |
|
Value(2) |
|
Outstanding at January 1, 2006 |
|
|
3,380,062 |
|
|
$ |
36.30 |
|
|
|
|
|
|
|
Granted |
|
|
265,483 |
|
|
|
65.24 |
|
|
|
|
|
|
|
Exercised |
|
|
(137,337 |
) |
|
|
33.93 |
|
|
|
|
|
|
|
Forfeited (1) |
|
|
(21,610 |
) |
|
|
50.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006 |
|
|
3,486,598 |
|
|
$ |
38.23 |
|
|
6.5 |
|
$ |
131,723,672 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options |
|
|
1,312,605 |
|
|
$ |
42.06 |
|
|
|
|
$ |
44,562,940 |
|
Exercisable options |
|
|
1,045,273 |
|
|
|
41.51 |
|
|
|
|
|
36,072,371 |
|
Vested share awards |
|
|
1,593,180 |
|
|
|
31.10 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Forfeited amounts include estimated forfeitures on share awards granted to employees
through September 30, 2006. |
|
(2) |
|
Intrinsic value is calculated using the closing price on September 29, 2006 of
$76.01 per share. |
Pro Forma Information for Periods Prior to the Adoption of SFAS 123(R). The following
table illustrates the effect on net income and net income per share had we applied the fair value
recognition provisions of SFAS No. 123 to all outstanding and unvested option grants and Employee
Share Purchase Plan (ESPP) awards for the three and nine months ended September 30, 2005, prior
to the adoption of SFAS No. 123(R):
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2005 |
|
Net income (loss), as reported |
|
$ |
(2,317 |
) |
|
$ |
186,199 |
|
Add: share-based employee compensation expense included
in reported net income |
|
|
1,034 |
|
|
|
8,530 |
|
Deduct: total share-based employee compensation expense
determined under fair value method for all awards |
|
|
(1,132 |
) |
|
|
(8,736 |
) |
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
(2,415 |
) |
|
$ |
185,993 |
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
(0.04 |
) |
|
$ |
3.63 |
|
Basic pro forma |
|
|
(0.04 |
) |
|
|
3.63 |
|
Diluted as reported |
|
|
(0.05 |
) |
|
|
3.38 |
|
Diluted pro forma |
|
|
(0.05 |
) |
|
|
3.38 |
|
Impact of SFAS No. 123(R). Share-based compensation expense recognized under SFAS No.
123(R) during the three and nine months ended September 30, 2006 decreased income from continuing
operations and net income by $0.1 million and $0.5 million, respectively, and decreased capitalized
compensation cost by $0.1 million and $0.2 million, respectively. The $0.5 million decrease to
income from continuing operations and net income for the nine months ended September 30, 2006 was
primarily related to expense associated with the accelerated vesting of certain share awards
granted to individuals who met retirement conditions as defined in the 2002 Share Incentive Plan.
As a result of SFAS 123(R), there was no impact to basic and diluted earnings per share for the three months
ended September 30, 2006, and there was a $0.01 impact to basic
and diluted earnings per share for the nine months ended September
30, 2006.
21
In our Consolidated Balance Sheets as of September 30, 2006, we presented unvested share
awards as a component of Additional paid-in capital. We previously presented unvested share
awards as a separate component of shareholders equity. In the accompanying Consolidated Balance
Sheets, we reclassified the unvested share awards outstanding as of December 31, 2005 totaling
$13.0 million to additional paid-in capital. These amounts represent the unvested portions of the
estimated fair value of obligations under our share awards. There was no impact to the
Consolidated Statements of Cash Flows as a result of our adoption of SFAS 123(R).
12. Common Shares
In June 2006, we issued 3.6 million common shares at $71.25 per share in a public equity
offering. We used the net proceeds of $254.9 million to reduce indebtedness on our unsecured line
of credit allowing additional capacity to fund our current and future development activities and
for general corporate purposes.
We filed an automatic shelf registration statement with the Securities and Exchange Commission
in June 2006 which became effective upon filing. We may use the shelf registration statement to
offer, from time to time, common shares, preferred shares, debt securities or warrants. Our
declaration of trust provides that we may issue up to 110,000,000 shares of beneficial interest,
consisting of 100,000,000 common shares and 10,000,000 preferred shares. As of September 30, 2006,
we had 56,409,128 common shares outstanding under our declaration of trust.
13. Net Change in Operating Accounts
The effect of changes in the operating accounts on cash flows from operating activities is as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Nine Months |
|
|
|
Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
Increase in assets: |
|
|
|
|
|
|
|
|
Other assets, net |
|
$ |
(7,773 |
) |
|
$ |
(4,517 |
) |
Increase in liabilities: |
|
|
|
|
|
|
|
|
Accrued real estate taxes |
|
|
17,089 |
|
|
|
8,280 |
|
Accounts payable and accrued expenses |
|
|
10,948 |
|
|
|
10,095 |
|
Other liabilities |
|
|
1,225 |
|
|
|
15,638 |
|
|
|
|
|
|
|
|
Change in operating accounts |
|
$ |
21,489 |
|
|
$ |
29,496 |
|
|
|
|
|
|
|
|
14. Commitments and Contingencies
Construction Contracts. As of September 30, 2006, we were obligated for approximately $200.7
million of additional expenditures on our recently completed projects and those currently under
development (a substantial amount of which we expect to be funded with our unsecured line of
credit).
Fair Housing Amendments Act Contingency. Prior to our merger with Oasis Residential, Inc.
(Oasis) in April 1998, Oasis had been contacted by certain regulatory agencies with regard to
alleged failures to comply with the Fair Housing Amendments Act (the Fair Housing Act) as it
pertained to nine properties (seven of which we currently own) constructed for first occupancy
after March 31, 1991. On February 1, 1999, the Justice Department filed a lawsuit against us and
several other defendants in the United States District Court for the District of Nevada alleging
(1) the design and construction of these properties violates the Fair Housing Act and (2) we,
through the merger with Oasis, had discriminated in the rental of dwellings to persons because of
handicap. The complaint requests an order that (i) declares the defendants policies and practices
violate the Fair Housing Act; (ii) enjoins us from (a) failing or refusing, to the extent possible,
to bring the dwelling units and public use and common use areas at these properties and other
covered units Oasis has designed and/or constructed into compliance with the Fair Housing Act, (b)
failing or refusing to take such affirmative steps as
22
may be necessary to restore, as nearly as possible, the alleged victims of the defendants
alleged unlawful practices to positions they would have been in but for the discriminatory conduct,
and (c) designing or constructing any covered multifamily dwellings in the future that do not
contain the accessibility and adaptability features set forth in the Fair Housing Act; and requires
us to pay damages, including punitive damages, and a civil penalty.
With any acquisition, we plan for and undertake renovations needed to correct deferred
maintenance, life/safety and Fair Housing matters. On January 30, 2001, a consent decree was
ordered and executed in the above Justice Department action. Under the terms of the decree, we
were ordered to make certain retrofits and implement certain educational programs and Fair Housing
advertising. These changes took place by July 31, 2006, consistent with the terms of the Consent
Order. The costs associated with complying with the decree have been accrued for and are not
material to our consolidated financial statements. As of this date, the Courts jurisdiction over
this matter has expired, and no further action is required for continued compliance.
Summit Merger Contingencies. On May 25, 2001, through a joint venture of the Camden Summit
Partnership and SZF, LLC, a Delaware limited liability company in which the Camden Summit
Partnership owned 29.78% until July 3, 2003, on which date the Camden Summit Partnership purchased
its joint venture partners 70.22% interest, the Camden Summit Partnership entered into an
agreement with Brickell View, L.C. (Brickell View), a Florida limited liability company, and
certain of its affiliates relating to the formation of Coral Way, LLC, a Delaware limited liability
company, to develop a new community in Miami, Florida. Brickell View agreed to be the developer of
that community and certain of its affiliates signed guarantees obligating them to pay certain costs
relating to the development. On August 12, 2003, the Camden Summit Partnership received notice of
two suits filed by Brickell View and certain of its affiliates against SZF, LLC and certain
entities affiliated with the Camden Summit Partnership. The suits were originally filed in the
Miami-Dade Circuit Court and were subsequently removed to the U.S. District Court for the Southern
District of Florida. One of the suits was remanded to the Miami-Dade Circuit Court, while the
other was dismissed on October 12, 2005, after the execution of a tolling agreement to allow the
pending Miami-Dade Circuit Court matter to proceed. Both suits related to the business agreement
among the parties in connection with the development and construction of the community by Coral
Way. Brickell View and its affiliates alleged, among other things, breach of an oral joint venture
agreement, breach of contract, breach of implied covenant of good faith and fair dealing, breach of
fiduciary duties and constructive fraud on the part of SZF, LLC and Camden Summit Partnership and
its affiliates, and sought both a declaratory judgment that the guarantee agreements have been
constructively terminated and unspecified monetary damages. On October 31, 2006, both matters were
resolved by the parties entering into a settlement and the claims of Brickell View and its
affiliates will be dismissed.
On December 19, 2003, the Camden Summit Partnership received notice of a demand for
arbitration asserted by Bermello, Ajamil & Partners, Inc. against Coral Way, LLC for unpaid
architectural fees. In this demand, Bermello, Ajamil & Partners, Inc. allege they are entitled to
an increased architectural fee as a result of an increase in the cost of the project. Camden
Summit Partnership asserted a counter-claim against Bermello, Ajamil & Partners, Inc. for damages
related to the cost to correct certain structural and other design defects, and delay damages. On
October 31, 2006, the parties entered into a settlement of the claims of Bermello Ajamil &
Partners, Inc.s claims for unpaid architectural fees and its claims will be dismissed. Camden
Summit Partnerships claims remain pending.
On May 6, 2003, the Camden Summit Partnership purchased certain assets of Brickell Grand, Inc.
(Brickell Grand), including the community known as Summit Brickell. At the time of purchase,
Summit Brickell was subject to a $4.1 million claim of construction lien filed by the general
contractor, Bovis Lend Lease, Inc. (Bovis), due to Brickell Grands alleged failure to pay the
full amount of the construction costs. Bovis sought to enforce this claim of lien against Brickell
Grand in a suit filed on October 18, 2002 in Miami-Dade Circuit Court, Florida. In September 2003,
Bovis filed an amended complaint seeking to enforce an increased claim of lien of $4.6 million. On
May 31, 2005, we paid Bovis $1.3 million, which was credited against amounts
23
owed by the Camden Summit Partnership to Bovis. Settlement documents in this matter were executed
and on December 22, 2005, we paid Bovis an additional $2.7 million to resolve this matter. There
are executory terms of the settlement to be fulfilled on the part of Bovis and Camden Summit
Partnership (Camden will pay an additional $0.3 million upon the completion of certain matters by
Bovis); however, it is anticipated that those matters will be completed in the fourth quarter of
2006. This case was dismissed on February 22, 2006, although the Court retains jurisdiction to
enforce the Settlement Agreement.
In January 2005, Brickell Grand, Inc. filed suit in Miami-Dade Circuit Court, Florida,
asserting claims for breach of contract, fraud in the inducement, and rescission alleging Summit
has an obligation to indemnify Brickell Grand, Inc. in the Bovis lawsuit and that Summit had failed
to properly market the Summit Brickell apartments, increasing Brickell Grand Inc.s cost overrun
obligations. Brickell Grand, Inc. claimed Summit misappropriated its identity by filing eviction
actions in its name. Brickell Grand, Inc. sought rescission of the sale of Summit Brickell or,
alternatively, unspecified damages. On October 31, 2006, the matter was resolved by the parties
entering into a settlement and Brickell Grand, Incs claims will be dismissed.
On December 30, 2005, the Camden Summit Partnership, L.P. filed suit against Willy A.
Bermello, Luis Ajamil, and Henry Pino to enforce the terms of a promissory note executed by them in
conjunction with the Camden Summit Partnerships purchase of Summit Brickell Grand Apartments.
Bermello, Ajamil, and Pino were entitled to certain credits against the promissory note based on a
formula agreed upon between the parties. Bermello, Ajamil, and Pino filed a Second Amended
Counter-Claim on July 10, 2006, alleging the Camden Summit Partnership fraudulently induced them to
execute the promissory note and seek to void the promissory note. On October 31, 2006, the matter
was resolved by the parties entering into a settlement and Bermello, Ajamil, and Pinos claims will
be dismissed.
All costs and expenses expected to be incurred associated with the defense and settlement of
the above matters were accrued for at the time of merger.
Other Contingencies. In the ordinary course of our business, we issue letters of intent
indicating a willingness to negotiate for acquisitions, dispositions or joint ventures. 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 relating to the purchase and sale of
real property and resulting contracts generally contemplate such contracts will provide the
purchaser with time to evaluate the property and conduct due diligence, 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 definitive contracts will be entered into with
respect to any matter covered by letters of intent or we will consummate any transaction
contemplated by any definitive contract. Furthermore, due diligence periods for real property are
frequently extended as needed. An acquisition or sale of real property becomes probable at the
time the due diligence period expires and the definitive contract has not been terminated. We are
then at risk under a real property acquisition contract, but only to the extent of any earnest
money deposits associated with the contract, and are obligated to sell under a real property sales
contract.
We are currently in the due diligence period for certain acquisitions and dispositions. No
assurance can be made we will be able to complete the negotiations or become satisfied with the
outcome of the due diligence.
We are subject to various legal proceedings and claims that arise in the ordinary course of
business. These matters are generally covered by insurance. While the resolution of these matters
cannot be predicted with certainty, management believes the final outcome of such matters will not
have a material adverse effect on our consolidated financial statements.
Lease Commitments. At September 30, 2006, we had long-term operating leases covering certain
land, office facilities and equipment. Rental expense totaled $0.7 million for the three months
ended September 30, 2006 and 2005, and totaled $2.1 million and $2.0 million for the nine months
ended September 30, 2006 and
24
2005, respectively. Minimum annual rental commitments for the remainder of 2006 are $0.7 million
and for the years ending December 31, 2007 through 2010 are $2.6 million, $2.4 million, $2.2
million and $2.0 million, respectively, and $9.8 million in the aggregate thereafter.
Employment Agreements. At September 30, 2006, we had employment agreements with six of our
senior officers, the terms of which expire at various times through August 20, 2007. Such
agreements provide for minimum salary levels, as well as various incentive compensation
arrangements, which are payable based on the attainment of specific goals. The agreements also
provide for severance payments plus a gross-up payment if certain situations occur, such as
termination without cause or a change of control. In the case of four of the agreements, the
severance payment equals one times the respective current salary base in the case of termination
without cause and 2.99 times the respective average annual compensation over the previous three
fiscal years in the case of change of control. In the case of the other two agreements, the
severance payment generally equals 2.99 times the respective average annual compensation over the
previous three fiscal years in connection with, among other things, a termination without cause or
a change of control, and the officer would be entitled to receive continuation and vesting of
certain benefits in the case of such termination.
15. Post Retirement Benefits
At the effective date of the Summit merger, we entered into a separation agreement with two
former Summit employees. Pursuant to the respective separation agreement, each of these
individuals resigned as an officer and director of Summit and all entities related to Summit, and
the respective employment agreement between Summit and each such executive was terminated.
Additionally, under the separation agreement, each of the executives to receive payments totaling
$1.0 million and other benefits approximately equivalent to those he was entitled to receive upon
termination of employment pursuant to his employment agreement with Summit. Other benefits
received by these former employees included postretirement benefits including office space and
medical benefits. As of September 30, 2006, we had accrued $3.2 million associated with these post
retirement liabilities. Net periodic benefit cost, relating entirely to interest cost, was $44,000
and $0.1 million for the three and nine months ended September 30, 2006 and 2005, respectively.
During the remainder of 2006, we expect to contribute approximately $50,000 to the plan.
16. Texas Margin Tax
On May 18, 2006, the Texas Governor signed into law a Texas margin tax (H.B. No. 3) which
restructures the state business tax by replacing the taxable capital components of the current
franchise tax with a new taxable margin component. Since the tax base on the Texas margin tax is
derived from an income based measure, we believe the margin tax is an income tax and, therefore,
the provisions of SFAS 109 regarding the recognition of deferred taxes apply to the new margin tax.
In accordance with SFAS 109, the effect on deferred tax liabilities of a change in tax law should
be included in tax expense attributable to continuing operations in the period including the
enactment date. As a result, we calculated our deferred tax assets and liabilities for Texas based
on the new margin tax. The cumulative effect of the change was immaterial and the impact of the
change in deferred tax liabilities did not have a material impact on tax expense. There was no
income tax expense recorded for the three or nine months ended September 30, 2006. Beginning in
2007, we anticipate we will incur tax expense related to this new Texas margin tax.
25
On October 30, 2006, the Compensation Committee of the Board of Trust Managers of Camden
Property Trust authorized the acceleration of vesting of all unvested share awards held by two
members of senior management, issued under the 2002 share incentive plan. As a result of vesting
acceleration, an aggregate of 76,542 share awards that otherwise would have vested from time to
time over the next five years became immediately exercisable. All other terms and conditions
applicable to such share awards remain in effect.
By accelerating the vesting of these share awards, we will recognize a one-time compensation
expense in October 2006 of approximately $4.2 million. Such action will reduce compensation
expense by an equivalent amount over the five-year period that such share awards would have
originally vested.
26
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial
statements and notes appearing elsewhere in this report. Historical results and trends which might
appear in the consolidated financial statements should not be interpreted as being indicative of
future operations.
We consider portions of this report to be forward-looking within the meaning of Section 27A
of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1924, both
as amended, with respect to our expectations for future periods. Forward-looking statements do not
discuss historical fact, but instead include statements related to expectations, projections,
intentions or other items relating to the future. Although we believe the expectations reflected
in our forward-looking statements are based upon reasonable assumptions, we can give no assurance
that our expectations will be achieved. Any statements contained herein that are not statements of
historical fact should be deemed forward-looking statements. Reliance should not be placed on
these forward-looking statements as they are subject to known and unknown risks, uncertainties and
other factors that are beyond our control and could differ materially from our actual results and
performance.
Factors that may cause our actual results or performance to differ materially from those
contemplated by forward-looking statements include, but are not limited to, the following:
|
|
|
We may fail to identify, acquire, construct or develop properties in accordance
with managements strategies, including obtaining a desired yield on an investment
or effectively integrating acquired properties; |
|
|
|
|
The effects of economic conditions, including rising interest rates, could impact
occupancy or rental rates; |
|
|
|
|
Insufficient cash flows could affect our ability to make required payments of
debt or related interest; |
|
|
|
|
We are subject to regulations surrounding our status as a real estate investment
trust (REIT) and would be adversely affected if we failed to qualify as a REIT; |
|
|
|
|
Debt and/or equity necessary for us to operate our business may not be available
or may not be available on favorable terms; |
|
|
|
|
Changes in our capital requirements may result in the need for additional
financing sooner than anticipated; |
|
|
|
|
We are subject to competition for residents which could limit our ability to
lease apartments or increase or maintain rental income; |
|
|
|
|
We are subject to risks associated with our notes receivable including borrower
defaults, bankruptcies, fraud and other losses; |
|
|
|
|
Changes in laws and litigation risks could affect our business; |
|
|
|
|
Environmental uncertainties and catastrophes may exceed our insurance coverage; and |
|
|
|
|
Additional factors as discussed in Part I of our Annual Report on Form 10-K,
particularly those under Risk Factors. |
These forward-looking statements represent our estimates and assumptions as of the date of this
report.
Executive Summary
Based on our results for the nine months ended September 30, 2006 and the current economic
conditions, we expect moderate growth during the remainder of 2006 from the revenue generated by
our stabilized communities. The economic conditions include meaningful job growth and population
growth in the high growth markets in which we operate, which should positively affect apartment
housing demand. Combined with expected decreased housing demand ensuing from rising interest
rates, we believe these economic conditions result in multifamily apartment communities being
economically attractive alternatives to purchasing a single-family home. Additionally, condominium
conversion activity should continue to reduce the availability of rental multifamily communities.
27
We are focused on our investment strategy through market balance. We intend to continue to
improve our portfolio mix through the acquisition and disposition of real estate assets. Market
balance risk is expected to be mitigated as our property operations are not overly concentrated in
any one market.
In positioning for future growth, we intend to continue focusing on our development pipeline
and plan to maintain approximately $1.0 billion to $1.5 billion in our current and future
development pipelines. However, total projected capital costs and the commencement of future
developments may be impacted by increasing construction costs and other factors. Additionally, we
intend to continue acquiring land for future development which will positively impact our future
development pipeline.
Property Portfolio
Our multifamily property portfolio, excluding land held for future development and joint
venture properties which we do not manage, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006 |
|
December 31, 2005 |
|
|
Apartment |
|
|
|
|
Apartment |
|
|
|
|
|
Homes |
|
|
Properties |
|
Homes |
|
|
Properties |
Operating Properties |
|
|
|
|
|
|
|
|
|
|
|
|
Las Vegas, Nevada (a) (b) |
|
|
8,064 |
|
|
30 |
|
|
8,064 |
|
|
30 |
Dallas, Texas (a) |
|
|
7,773 |
|
|
21 |
|
|
8,643 |
|
|
24 |
Houston, Texas (a) |
|
|
6,510 |
|
|
15 |
|
|
6,810 |
|
|
15 |
Tampa, Florida |
|
|
5,635 |
|
|
12 |
|
|
5,635 |
|
|
12 |
Charlotte, North Carolina (c) |
|
|
4,146 |
|
|
17 |
|
|
4,493 |
|
|
18 |
Washington, D.C. Metro (b) |
|
|
3,834 |
|
|
11 |
|
|
2,882 |
|
|
9 |
Orlando, Florida |
|
|
3,296 |
|
|
8 |
|
|
3,296 |
|
|
8 |
Atlanta, Georgia |
|
|
3,202 |
|
|
10 |
|
|
3,202 |
|
|
10 |
Raleigh, North Carolina (c) |
|
|
2,704 |
|
|
7 |
|
|
2,631 |
|
|
7 |
Denver, Colorado (b) |
|
|
2,529 |
|
|
8 |
|
|
2,529 |
|
|
8 |
Austin, Texas |
|
|
2,525 |
|
|
8 |
|
|
2,135 |
|
|
7 |
Southeast Florida |
|
|
2,520 |
|
|
7 |
|
|
2,520 |
|
|
7 |
Phoenix, Arizona (a) |
|
|
2,433 |
|
|
8 |
|
|
2,433 |
|
|
8 |
Los Angeles/Orange County, California (a) |
|
|
2,191 |
|
|
5 |
|
|
2,191 |
|
|
5 |
St. Louis, Missouri (d) |
|
|
2,123 |
|
|
6 |
|
|
2,123 |
|
|
6 |
Louisville, Kentucky (d) |
|
|
1,448 |
|
|
5 |
|
|
1,448 |
|
|
5 |
Corpus Christi, Texas |
|
|
1,410 |
|
|
3 |
|
|
1,410 |
|
|
3 |
San Diego/Inland Empire, California |
|
|
846 |
|
|
3 |
|
|
846 |
|
|
3 |
Other (d) |
|
|
1,468 |
|
|
4 |
|
|
2,289 |
|
|
6 |
|
|
|
|
|
|
|
|
|
Total Operating Properties |
|
|
64,657 |
|
|
188 |
|
|
65,580 |
|
|
191 |
|
|
|
|
|
|
|
|
|
Properties Under Development |
|
|
|
|
|
|
|
|
|
|
|
|
Washington, D.C. Metro (e) |
|
|
2,211 |
|
|
6 |
|
|
1,996 |
|
|
5 |
Houston, Texas (e) |
|
|
650 |
|
|
2 |
|
|
236 |
|
|
1 |
San Diego/Inland Empire, California |
|
|
350 |
|
|
1 |
|
|
350 |
|
|
1 |
Los Angeles/Orange County, California (e) |
|
|
290 |
|
|
1 |
|
|
|
|
|
|
Orlando, Florida |
|
|
261 |
|
|
1 |
|
|
|
|
|
|
Raleigh, North Carolina |
|
|
|
|
|
|
|
|
484 |
|
|
1 |
Charlotte, North Carolina |
|
|
|
|
|
|
|
|
145 |
|
|
1 |
|
|
|
|
|
|
|
|
|
Total Properties Under Development |
|
|
3,762 |
|
|
11 |
|
|
3,211 |
|
|
9 |
|
|
|
|
|
|
|
|
|
Total Properties |
|
|
68,419 |
|
|
199 |
|
|
68,791 |
|
|
200 |
|
|
|
|
|
|
|
|
|
Less: Joint Venture Properties (a) (b) (c) (d) (e) |
|
|
11,758 |
|
|
39 |
|
|
8,355 |
|
|
31 |
|
|
|
|
|
|
|
|
|
Total Properties Owned 100% |
|
|
56,661 |
|
|
160 |
|
|
60,436 |
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes properties held in unconsolidated joint ventures as follows: one property with 456 apartment homes
in Dallas, Texas; three properties with 1,216 apartment homes in Houston, Texas; four properties with 992
apartment homes in Phoenix, Arizona; one property with 421 apartment homes in Orange County, California;
and three properties with 949 apartment homes in Las Vegas, Nevada. Each property is held individually in
a joint venture in which we hold a 20% interest. The remaining interest is owned by an unaffiliated
investor. |
28
(b) |
|
Includes properties held in unconsolidated joint ventures as follows: one property with 320 apartment homes
in Denver, Colorado in which we own a 50% interest, the remaining interest is owned by an unaffiliated
investor; and 14 properties with 3,098 apartment homes in Las Vegas, Nevada in which we own a 20% interest,
the remaining interest is owned by an unaffiliated investor. Additional property held at December 31, 2005
included one property with 464 apartment homes currently in lease-up in Ashburn, Virginia in which we owned
a 20% interest, the remaining interest was owned by an unaffiliated investor. |
|
(c) |
|
Includes properties held in an unconsolidated joint venture acquired through the merger with Summit at
December 31, 2005 as follows: two properties with 492 apartment homes in Charlotte, North Carolina; and one
property with 411 apartment homes in Raleigh, North Carolina. We owned a 25% interest in this joint
venture. An unaffiliated investor owns the remaining interest in the joint venture. |
|
(d) |
|
Includes properties held in an unconsolidated joint venture entered into in 2006 as follows: four
properties with 1,447 apartment homes in St. Louis, Missouri; four properties with 1,194 apartment homes
in Louisville, Kentucky; and one property with 596 apartment homes in Kansas City, Missouri. The
properties are held in a joint venture in which we hold a 15% interest. The remaining interest is owned by
an unaffiliated investor. |
|
(e) |
|
Includes properties held in unconsolidated joint ventures entered into in 2006 as follows: one property
with 271 apartment homes in Houston Texas; one property with 290 apartment homes in Orange County,
California; and one property with 508 apartment homes in College Park, Maryland. Each property is held in
separate joint ventures in which we hold a 30% interest in each. The remaining interest in each joint
venture is owned by an unaffiliated investor. |
Stabilized Communities
We consider a property stabilized once it reaches 90% occupancy, or generally one year from
opening the leasing office, with some allowances for larger than average properties. During the
nine months ended September 30, 2006, stabilization was achieved at two recently completed
properties as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
Apartment |
|
Date of |
|
Date of |
|
Property and Location |
|
Homes |
|
Completion |
|
Stabilization |
|
Camden Farmers Market II
Dallas, TX |
|
284 |
|
3Q05 |
|
|
2Q06 |
|
Camden Dilworth
Charlotte, NC |
|
145 |
|
2Q06 |
|
|
3Q06 |
|
Acquisition Communities
On January 31, 2006, we acquired the remaining 80% interest in Camden-Delta Westwind, LLC, a
joint venture in which we had a 20% interest, in accordance with the Agreement and Assignment of
Limited Liability Company Interest. The 80% interest was previously owned by Westwind Equity, LLC
(Westwind), an unrelated third-party. As a result of the acquisition, we paid Westwind $31.0
million, which includes a $2.0 million non-refundable earnest money deposit paid in October 2005.
Concurrent with this transaction, the mezzanine loan we had provided to the joint venture, which
totaled $12.1 million, was canceled. Additionally, we repaid the outstanding balance of a
third-party construction loan, totaling $46.8 million. We used proceeds from our unsecured line of
credit facility to fund this purchase. The purchase price was allocated to the tangible and
intangible assets acquired based on their estimated fair value at the date of acquisition. The
intangible assets acquired at acquisition include in-place leases of $0.5 million.
In July 2006, we acquired Camden Stoneleigh, a 390 apartment home community located in Austin,
Texas for $35.3 million using proceeds from our unsecured line of credit. The purchase price of
this property was allocated to the tangible and intangible assets acquired based on their estimated
fair values at the date of acquisition. Tangible assets, which include land, buildings and
improvements are being depreciated over their estimated useful lives, which range from 5 to 35
years. The intangible assets acquired at acquisition include in-place leases of $0.4 million and
above or below market leases of $0.1 million. Intangible assets are being amortized over 10
months, which is the estimated average remaining life of in-place leases at time of acquisition.
Discontinued Operations
The results of operations for properties sold during the period or classified as held for sale
as of September 30, 2006 are classified as discontinued operations. The property-specific
components of earnings classified as discontinued operations include property revenues, property
expenses and depreciation expense. The gain or loss on the eventual disposal of the held for sale
properties is also classified as discontinued operations.
29
We intend to maintain a strategy to manage our invested capital through the selective sale of
properties and to utilize the proceeds to fund investments with higher anticipated growth prospects
in our markets.
A summary of our 2006 dispositions and properties held for sale as of September 30, 2006 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
($ in millions) |
|
Apartment |
|
|
Date of |
|
|
|
Net Book |
|
Property and Location |
|
Homes |
|
|
Disposition |
|
Year Built |
|
Value (1) |
|
Dispositions |
|
|
|
|
|
|
|
|
|
|
|
|
Camden Highlands
Plano, TX |
|
|
160 |
|
|
1Q06 |
|
1985 |
|
$ |
|
|
Camden View
Tucson, AZ |
|
|
365 |
|
|
1Q06 |
|
1974 |
|
|
|
|
Camden Trails
Dallas, TX |
|
|
264 |
|
|
2Q06 |
|
1984 |
|
|
|
|
Camden Wilshire
Houston, TX |
|
|
536 |
|
|
2Q06 |
|
1982 |
|
|
|
|
Camden Pass
Tucson, AZ |
|
|
456 |
|
|
2Q06 |
|
1984 |
|
|
|
|
Camden Oaks
Dallas, TX |
|
|
446 |
|
|
3Q06 |
|
1985 |
|
|
|
|
Held for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
Camden Wyndham
Houston, TX |
|
|
448 |
|
|
n/a |
|
1978/1981 |
|
|
6.2 |
|
Camden Trace
Maryland Heights, MO |
|
|
372 |
|
|
n/a |
|
1972 |
|
|
6.9 |
|
Camden Taravue
St. Louis, MO |
|
|
304 |
|
|
n/a |
|
1975 |
|
|
5.8 |
|
Camden Downs
Louisville, KY |
|
|
254 |
|
|
n/a |
|
1975 |
|
|
5.2 |
|
Camden Crossing
Houston, TX |
|
|
366 |
|
|
n/a |
|
1982 |
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total apartment homes sold and held for sale |
|
|
3,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net Book Value is land and buildings and improvements less the related accumulated
depreciation as of September 30, 2006. |
During the nine months ended September 30, 2006, we recognized gains on sale of
discontinued operations of $59.9 million from the sale of six operating properties. These sales
generated net proceeds of approximately $106.3 million. Proceeds from the sale of one operating
property sold in July 2006 were deposited with a qualified intermediary for use in a deferred
like-kind exchange. Subsequent to this transaction, the exchange account was liquidated as the
deferred like-kind exchange was completed. For the nine months ended September 30, 2005, we
recognized gains on sale of discontinued operations of $36.1 million on the sale of three operating
properties, containing 1,317 apartment homes. These sales generated net proceeds of approximately
$127.0 million.
We reclassified two properties previously included in discontinued operations to continuing
operations during the nine months ended September 30, 2006 as management made the decision not to
sell these assets. As a result, we adjusted the current and prior period consolidated financial
statements to reflect the necessary reclassifications. Additionally, we recorded a depreciation
charge of $2.6 million during the nine months ended September 30, 2006 on these assets in
accordance with the provisions of SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.
30
Upon our decision to abandon efforts to develop certain land parcels and to market these
parcels as held for sale, we reclassify the operating expenses associated with these assets to
discontinued operations. At September 30, 2006, we had several undeveloped land parcels classified
as held for sale as follows:
|
|
|
|
|
|
|
($ in millions) |
|
|
|
Net Book |
|
Location |
|
Acres |
|
Value |
|
Southeast Florida |
|
3.1 |
|
$ |
12.0 |
|
Dallas |
|
2.6 |
|
|
2.5 |
|
|
|
|
|
|
|
Total land held for sale |
|
|
|
$ |
14.5 |
|
|
|
|
|
|
|
During the nine months ended September 30, 2006, we sold four parcels of undeveloped land
totaling an aggregate of 8.7 acres to unrelated third parties. In connection with these sales, we
received net proceeds of $41.0 million and recognized gains on sale of discontinued operations
totaling $20.5 million.
Asset Dispositions and Partial Sales to Joint Ventures
During the nine months ended September 30, 2006, we recognized gains, included in continuing
operations, of $91.6 million from the partial sale of nine properties to an unconsolidated
affiliated joint venture. These partial sales generated net proceeds of approximately $170.9
million. During the nine months ended September 30, 2005, we recognized gains, included in
continuing operations, of $132.1 million from the partial sales of twelve properties to twelve
affiliated unconsolidated joint ventures. These partial sales generated net proceeds of
approximately $316.8 million. The gains recognized on the partial sales of these assets were
included in continuing operations due to our continuing involvement with these assets.
During the nine months ended September 30, 2006, we recognized a gain on the sale of land
located adjacent to one of our pre-development assets in College Park, Maryland of $0.8 million.
We also recognized gains of $0.5 million and $4.7 million on the partial sales of land to two joint
ventures located in Houston, Texas and College Park, Maryland, respectively. The gains recognized
on the sales of these assets were not included in discontinued operations due to our continuing
involvement with these assets. These sales generated net proceeds of approximately $55.5 million.
Development and Lease-Up Properties
At September 30, 2006, we had four completed properties in lease-up as follows:
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
Apartment |
|
|
Cost to |
|
|
% Leased at |
|
|
Date of |
|
Date of |
Property and Location |
|
Homes |
|
|
Date |
|
|
10/29/06 |
|
|
Completion |
|
Stabilization |
In Lease-Up |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camden Westwind
Ashburn, VA |
|
|
464 |
|
|
$ |
94.8 |
|
|
|
64 |
% |
|
2Q06 |
|
2Q07 |
Camden Fairfax Corner
Fairfax, VA |
|
|
488 |
|
|
|
80.2 |
|
|
|
86 |
% |
|
3Q06 |
|
1Q07 |
Camden Manor Park
Raleigh, NC |
|
|
484 |
|
|
|
49.1 |
|
|
|
69 |
% |
|
3Q06 |
|
3Q07 |
Camden Royal Oaks
Houston, TX |
|
|
236 |
|
|
|
21.4 |
|
|
|
31 |
% |
|
3Q06 |
|
3Q07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholly-owned |
|
|
1,672 |
|
|
$ |
245.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
At September 30, 2006, we had eleven properties in various stages of construction as
follows:
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in |
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Properties |
|
|
Estimated |
|
Estimated |
|
|
Apartment |
|
|
Estimated |
|
|
Cost |
|
|
Under |
|
|
Date of |
|
Date of |
Property and Location |
|
Homes |
|
|
Cost |
|
|
Incurred |
|
|
Development |
|
|
Completion |
|
Stabilization |
In
Lease-Up |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camden Clearbrook
Frederick, MD |
|
|
297 |
|
|
$ |
45.0 |
|
|
|
42.4 |
|
|
$ |
20.9 |
|
|
4Q06 |
|
3Q07 |
Camden Old Creek
San Marcos, CA |
|
|
350 |
|
|
|
98.0 |
|
|
|
85.3 |
|
|
|
69.2 |
|
|
2Q07 |
|
4Q07 |
Under Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camden Monument Place
Fairfax, VA |
|
|
368 |
|
|
|
64.0 |
|
|
|
40.5 |
|
|
|
40.5 |
|
|
3Q07 |
|
1Q08 |
Camden Potomac Yards
Arlington County, VA |
|
|
379 |
|
|
|
110.0 |
|
|
|
61.9 |
|
|
|
61.9 |
|
|
3Q07 |
|
3Q08 |
Camden City Centre
Houston, TX |
|
|
379 |
|
|
|
54.0 |
|
|
|
22.3 |
|
|
|
22.3 |
|
|
3Q07 |
|
3Q08 |
Camden Summerfield
Largo, MD |
|
|
291 |
|
|
|
68.0 |
|
|
|
23.4 |
|
|
|
23.4 |
|
|
3Q08 |
|
1Q09 |
Camden Orange Court
Orlando, FL |
|
|
261 |
|
|
|
49.0 |
|
|
|
11.8 |
|
|
|
11.8 |
|
|
3Q08 |
|
1Q09 |
Camden Dulles Station
Herndon, VA |
|
|
368 |
|
|
|
77.0 |
|
|
|
23.7 |
|
|
|
23.7 |
|
|
4Q08 |
|
2Q09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholly-owned |
|
|
2,693 |
|
|
$ |
565.0 |
|
|
|
311.3 |
|
|
$ |
273.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Construction Joint Ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camden Main & Jamboree
Irvine, CA |
|
|
290 |
|
|
$ |
107.1 |
|
|
|
86.8 |
|
|
$ |
86.8 |
|
|
1Q07 |
|
3Q07 |
Camden Plaza
Houston, TX |
|
|
271 |
|
|
|
42.9 |
|
|
|
22.8 |
|
|
|
22.8 |
|
|
3Q07 |
|
2Q08 |
Camden College Park
College Park, MD |
|
|
508 |
|
|
|
139.9 |
|
|
|
56.8 |
|
|
|
56.8 |
|
|
1Q09 |
|
4Q09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total joint ventures |
|
|
1,069 |
|
|
$ |
289.9 |
|
|
$ |
166.4 |
|
|
$ |
166.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our consolidated balance sheet at September 30, 2006 included $351.2 million related to
wholly-owned properties under development. Of this amount, $273.7 million related to our eight
wholly-owned projects currently under development. Additionally, at September 30, 2006, we had
$39.7 million invested in land held for future development. We also had $37.8 million invested in
land tracts adjacent to development projects, which are being utilized in conjunction with those
projects. Upon completion of these development projects, we may utilize this land to further
develop apartment homes in these areas. We may also sell certain parcels of these undeveloped land
tracts to third parties for commercial and retail development.
32
Results of Operations
Changes in revenues and expenses related to our operating properties from period to period are
due primarily to acquisitions, dispositions, the performance of stabilized properties in the
portfolio, and the lease-up of newly constructed properties. Where appropriate, comparisons are
made on a dollars-per-weighted average apartment home basis in order to adjust for such changes in
the number of apartment homes owned during each period. Selected weighted averages for the three
and nine months ended September 30, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Average monthly property revenue per apartment home |
|
$ |
948 |
|
|
$ |
874 |
|
|
$ |
927 |
|
|
$ |
845 |
|
Annualized total property expenses per apartment home |
|
$ |
4,574 |
|
|
$ |
4,111 |
|
|
$ |
4,279 |
|
|
$ |
3,962 |
|
Weighted average number of operating apartment homes owned 100% |
|
|
54,350 |
|
|
|
52,119 |
|
|
|
53,880 |
|
|
|
49,970 |
|
Weighted average occupancy, total operating properties owned 100% |
|
|
95.3 |
% |
|
|
95.6 |
% |
|
|
97.5 |
% |
|
|
94.6 |
% |
Property-level operating results
The following table presents the property-level revenues and property-level expenses,
excluding discontinued operations, for the three and nine months ended September 30, 2006 and 2005:
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apartment |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
Homes |
|
|
Ended September 30, |
|
|
Change |
|
|
Ended September 30, |
|
|
Change |
|
|
|
at 9/30/06 |
|
|
2006 |
|
|
2005 |
|
|
$ |
|
|
% |
|
|
2006 |
|
|
2005 |
|
|
$ |
|
|
% |
|
Property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store communities |
|
|
46,565 |
|
|
$ |
129,028 |
|
|
$ |
119,891 |
|
|
$ |
9,137 |
|
|
|
7.6 |
% |
|
$ |
379,640 |
|
|
$ |
326,354 |
|
|
$ |
53,286 |
|
|
|
16.3 |
% |
Non-same store communities |
|
|
3,987 |
|
|
|
13,766 |
|
|
|
8,228 |
|
|
|
5,538 |
|
|
|
67.3 |
|
|
|
38,858 |
|
|
|
20,800 |
|
|
|
18,058 |
|
|
|
86.8 |
|
Development and lease-up communities |
|
|
4,365 |
|
|
|
4,243 |
|
|
|
37 |
|
|
|
4,206 |
|
|
|
* |
|
|
|
8,118 |
|
|
|
37 |
|
|
|
8,081 |
|
|
|
* |
|
Dispositions/other |
|
|
|
|
|
|
7,519 |
|
|
|
8,476 |
|
|
|
(957 |
) |
|
|
(11.3 |
) |
|
|
23,137 |
|
|
|
32,671 |
|
|
|
(9,534 |
) |
|
|
(29.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
54,917 |
|
|
$ |
154,556 |
|
|
$ |
136,632 |
|
|
$ |
17,924 |
|
|
|
13.1 |
% |
|
$ |
449,753 |
|
|
$ |
379,862 |
|
|
$ |
69,891 |
|
|
|
18.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store communities |
|
|
46,565 |
|
|
$ |
50,996 |
|
|
$ |
47,676 |
|
|
$ |
3,320 |
|
|
|
7.0 |
% |
|
$ |
145,704 |
|
|
$ |
129,167 |
|
|
$ |
16,537 |
|
|
|
12.8 |
% |
Non-same store communities |
|
|
3,987 |
|
|
|
5,350 |
|
|
|
3,289 |
|
|
|
2,061 |
|
|
|
62.7 |
|
|
|
14,225 |
|
|
|
7,923 |
|
|
|
6,302 |
|
|
|
79.5 |
|
Development and lease-up communities |
|
|
4,365 |
|
|
|
1,405 |
|
|
|
8 |
|
|
|
1,397 |
|
|
|
* |
|
|
|
2,578 |
|
|
|
8 |
|
|
|
2,570 |
|
|
|
* |
|
Dispositions/other |
|
|
|
|
|
|
4,400 |
|
|
|
2,594 |
|
|
|
1,806 |
|
|
|
69.6 |
|
|
|
10,427 |
|
|
|
11,374 |
|
|
|
(947 |
) |
|
|
(8.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property expenses |
|
|
54,917 |
|
|
$ |
62,151 |
|
|
$ |
53,567 |
|
|
$ |
8,584 |
|
|
|
16.0 |
% |
|
$ |
172,934 |
|
|
$ |
148,472 |
|
|
$ |
24,462 |
|
|
|
16.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store communities are communities we owned and were stabilized as of January 1, 2005. Non-same store communities are stabilized communities we have acquired or developed after January 1, 2005.
Development and lease-up communities are non-stabilized communities we have acquired or developed after January 1, 2005. Dispositions primarily represent revenues from communities we have partially
sold to joint ventures in which we retain an ownership interest and have not included in discontinued operations for the periods prior to sale.
|
|
|
* |
|
Not a meaningful percentage |
33
Same store analysis
Same store property revenues for the three and nine months ended September 30, 2006 increased
7.6% and 16.3%, respectively, from the same periods in the prior year resulting primarily from
higher rental income per apartment home. Our revenue growth is the result of improving market
fundamentals resulting from growth in employment and population in the majority of our markets, the
increasing cost of ownership versus rental, and rising interest rates and construction costs
limiting new supply. In addition, we continue to believe that our strong operating performance is
not only the result of improving operating fundamentals, but also the continued enhancements we are
making to many of our operational components, such as our online leasing tool and revenue
management system. We believe these enhancements have created efficiencies within our business and
have allowed us to take advantage of improvements in the rental market.
Total property expenses from our same store communities increased 7.0% and 12.8% for the three
and nine months ended September 30, 2006, respectively. The increases in same store property
expenses per apartment home for the three months ended September 30, 2006 as compared to the same
period in prior year were primarily due to increases in repairs and maintenance expenses, salaries
expense and utilities expenses of $86, $79, and $77 on an annualized per apartment home basis,
respectively. These three expense categories represent approximately 60% of total operating costs
for the period, and increased 10.1% as compared to the three months ended September 30, 2005. The
increases for the nine months ended September 30, 2006 as compared to the nine months ended
September 30, 2005 were primarily due to increases in real estate taxes, repair and maintenance
expenses and salaries expenses of $115, $111, and $110 on an annualized per apartment home basis,
respectively. These three expense categories represent approximately 73% of total operating costs
for the period, and increased 12.4% as compared to the nine months ended September 30, 2005.
Non-same store analysis and other analysis
Property revenues from non-same store, development and lease-up communities increased from
$8.3 million and $20.8 million for the three and nine months ended September 30, 2005,
respectively, to $18.0 million and $47.0 million for the three and nine months ended September 30,
2006 due to the completion and lease-up of properties in our development pipeline. Property
revenues from dispositions/other during the three and nine months ended September 30, 2006
decreased $1.0 million and $9.5 million as compared to the three and nine months ended September
30, 2005, respectively. Disposition/other property revenue earned during the three and nine months
ended September 30, 2006 primarily relates to retail lease income of $0.8 million and $2.3 million,
respectively, and revenues from properties partially sold into joint ventures in which we retain an
ownership interest for the period in which the properties were wholly owned of $6.4 million and
$20.0 million, respectively. For the three and nine months ended September 30, 2005,
disposition/other property revenue earned primarily relates to retail lease income of $0.7 million
and $1.5 million, respectively, income associated with the amortization of above and below market
leases acquired in the Summit merger of $0.8 million and $1.9 million, respectively, and revenues
from properties partially sold into joint ventures in which we retain an ownership interest for the
period in which the properties were wholly owned of $6.7 million and $28.5 million, respectively.
Property expenses from non-same store, development and lease-up communities increased from
$3.3 million and $7.9 million for the three and nine months ended September 30, 2005, respectively,
to $6.8 million and $16.8 million for the three and nine months ended September 30, 2006,
respectively, primarily due to the completion and lease-up of properties in our development
pipeline. Property expenses from dispositions/other increased $1.8 million and decreased $0.9
million as compared to the three and nine months ended September 30, 2005, respectively. The
increase for the three months ended September 30, 2006 as compared to the three months ended
September 30, 2005 is due to the partial sale of nine properties to a joint venture. The decrease
for the nine months ended September 30, 2006 as compared to the nine months ended September 30,
2005 is due to the twelve communities partially sold to twelve individual affiliated joint ventures
during 2005 offset by the partial sale of nine properties to a joint venture during the three
months ended September 30, 2006.
34
Non-property income
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
Ended September 30, |
|
|
Change |
|
|
Ended September 30, |
|
|
Change |
|
|
|
2006 |
|
|
2005 |
|
|
$ |
|
|
% |
|
|
2006 |
|
|
2005 |
|
|
$ |
|
|
% |
|
Fee and asset management |
|
$ |
5,433 |
|
|
$ |
1,789 |
|
|
$ |
3,644 |
|
|
|
203.7 |
% |
|
$ |
11,030 |
|
|
$ |
10,929 |
|
|
$ |
101 |
|
|
|
0.9 |
% |
Sale of technology investments |
|
|
1,602 |
|
|
|
|
|
|
|
1,602 |
|
|
|
100.0 |
|
|
|
1,602 |
|
|
|
24,199 |
|
|
|
(22,597 |
) |
|
|
(93.4 |
) |
Interest and other income |
|
|
1,733 |
|
|
|
1,913 |
|
|
|
(180 |
) |
|
|
(9.4 |
) |
|
|
6,097 |
|
|
|
6,401 |
|
|
|
(304 |
) |
|
|
(4.7 |
) |
Income of deferred compensation plans |
|
|
1,927 |
|
|
|
3,209 |
|
|
|
(1,282 |
) |
|
|
(40.0 |
) |
|
|
4,308 |
|
|
|
5,327 |
|
|
|
(1,019 |
) |
|
|
(19.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-property income |
|
$ |
10,695 |
|
|
$ |
6,911 |
|
|
$ |
3,784 |
|
|
|
54.8 |
% |
|
$ |
23,037 |
|
|
$ |
46,856 |
|
|
$ |
(23,819 |
) |
|
|
(50.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee and asset management income for the three months ended September 30, 2006 increased
$3.6 million from the three months ended September 30, 2005 and remained consistent for the nine
months ended September 30, 2006 as compared to the same period in prior year. The increase in
income from the three months ended September 30, 2006 as compared to the same period in 2005 was
primarily due to $3.1 million of development fees and structuring fees earned from the formation of
three joint ventures in 2006. The fees earned from the three joint ventures formed during the nine
months ended September 30, 2006 were consistent with the structuring fees we earned from the
partial sale of 12 properties to 12 individual joint ventures in 2005.
Income from the sale of technology investments totaled $24.2 million for the nine months ended
September 30, 2005 as compared to $1.6 million for the three and nine months ended September 30,
2006. We recognized a $24.2 million gain on the sale of our investment in Rent.com, which was
acquired by eBay Inc. during the first quarter of 2005. During the three months ended September
30, 2006, we received holdback distributions totaling $1.6 million from the sale of our investment
in Rent.com.
Income of deferred compensation plans decreased $1.3 million and $1.0 million during the three
and nine months ended September 30, 2006 as compared to the same period in prior year. The
decreases in income primarily relate to the performance of the assets held in the deferred
compensation plan for plan participants.
Other expenses
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
Ended September 30, |
|
|
Change |
|
|
Ended September 30, |
|
|
Change |
|
|
|
2006 |
|
|
2005 |
|
|
$ |
|
|
% |
|
|
2006 |
|
|
2005 |
|
|
$ |
|
|
% |
|
Property management |
|
$ |
4,629 |
|
|
$ |
4,208 |
|
|
$ |
421 |
|
|
|
10.0 |
% |
|
$ |
13,821 |
|
|
$ |
11,350 |
|
|
$ |
2,471 |
|
|
|
21.8 |
% |
Fee and asset management |
|
|
3,689 |
|
|
|
2,008 |
|
|
|
1,681 |
|
|
|
83.7 |
|
|
|
8,293 |
|
|
|
4,999 |
|
|
|
3,294 |
|
|
|
65.9 |
|
General and administrative |
|
|
9,849 |
|
|
|
6,183 |
|
|
|
3,666 |
|
|
|
59.3 |
|
|
|
25,299 |
|
|
|
18,017 |
|
|
|
7,282 |
|
|
|
40.4 |
|
Transaction compensation and
merger expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
|
|
|
|
|
|
|
14,085 |
|
|
|
(14,085 |
) |
|
|
(100.0 |
) |
Interest |
|
|
29,176 |
|
|
|
29,331 |
|
|
|
(155 |
) |
|
|
(0.5 |
) |
|
|
91,592 |
|
|
|
81,416 |
|
|
|
10,176 |
|
|
|
12.5 |
|
Depreciation and amortization |
|
|
40,399 |
|
|
|
44,030 |
|
|
|
(3,631 |
) |
|
|
(8.2 |
) |
|
|
117,945 |
|
|
|
119,117 |
|
|
|
(1,172 |
) |
|
|
(1.0 |
) |
Amortization of deferred financing costs |
|
|
941 |
|
|
|
855 |
|
|
|
86 |
|
|
|
10.0 |
|
|
|
2,897 |
|
|
|
2,872 |
|
|
|
25 |
|
|
|
0.9 |
|
Expense on deferred compensation plans |
|
|
1,927 |
|
|
|
3,209 |
|
|
|
(1,282 |
) |
|
|
(40.0 |
) |
|
|
4,308 |
|
|
|
5,327 |
|
|
|
(1,019 |
) |
|
|
(19.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-property income |
|
$ |
90,610 |
|
|
$ |
89,824 |
|
|
$ |
786 |
|
|
|
0.9 |
% |
|
$ |
264,155 |
|
|
$ |
257,183 |
|
|
$ |
6,972 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property management expense, which represents regional supervision and accounting costs
related to property operations, increased from $4.2 million for the three months ended September
30, 2005 to $4.6 million for the three months ended September 30, 2006 and increased from $11.4
million for the nine months ended September 30, 2005 to $13.8 million for the nine months ended
September 30, 2006. These increases were primarily due to salary and benefit expenses, including
long-term incentive compensation and amortization expenses recorded for share awards in accordance
with SFAS 123(R). Property management expenses were 3.0% and 3.1% of total property revenues for
the three months ended September 30, 2006 and 2005, respectively, and were 3.1% and 3.0% of total
property revenues for the nine months ended September 30, 2006 and 2005, respectively.
35
Fee and asset management expense, which represents expenses related to third-party
construction projects and property management for third parties, increased 83.7% from $2.0 million
for the three months ended September 30, 2005 to $3.7 million for the three months ended September
30, 2006 and increased 65.9% from $5.0 million for the nine months ended September 30, 2005 to $8.3
million for the nine months ended September 30, 2006. This increase was primarily due to increases
in costs and cost over-runs on third-party projects which totaled $2.8 million and $5.3 million for
the three and nine months ended September 30, 2006, respectively, and $0.9 million and $2.4 million
for the three and nine months ended September 30, 2005, respectively.
General and administrative expenses increased $3.7 million during the three months ended
September 30, 2006 as compared to the same period in 2005, and were 6.4% and 4.5% of total property
revenues for the three months ended September 30, 2006 and 2005, respectively. These expenses
increased $7.3 million during the nine months ended September 30, 2006 as compared to the same
period in prior year, and were 5.6% and 4.7% of total property revenues for the nine months ended
September 30, 2006 and 2005, respectively. The increase in general and administrative expenses for
the three and nine months ended September 30, 2006 as compared to the same periods in prior year
was primarily due to increases in salary and benefit expenses, including long-term incentive
compensation expense and amortization expense recorded for share awards in accordance with SFAS
123(R), and legal costs.
During the nine months ended September 30, 2005, we incurred transaction compensation and
merger expenses totaling $14.1 million. Merger expenses primarily related to training and
transitional employee costs.
Gross interest cost before interest capitalized to development properties increased $13.5
million, from $94.1 million for the nine months ended September 30, 2005 to $107.6 million for the
nine months ended September 30, 2006. The overall increase in interest expense was due primarily
to a higher line of credit balance during the nine months ended September 30, 2006 as a result of
continued funding of the development pipeline, increases in the effective interest rate associated
with variable rate debt and interest expense on the $250 million notes issued in June 2005.
Interest capitalized increased to $16.0 million from $12.7 million for the nine months ended
September 30, 2006 and 2005, respectively, due to higher average balances in our development
pipeline resulting from the fifteen wholly-owned communities recently completed or currently under
construction.
Depreciation and amortization decreased 8.2% and 1.0% during the three and nine months ended
September 30, 2006 as compared to the same periods in 2005. These decreases were due primarily to
amortization of the value of in-place leases acquired in connection with the merger with Summit of
$9.5 million and $22.2 million during the three and nine months ended September 30, 2005,
respectively, offset by additional depreciation on assets acquired, depreciation charges on assets
reclassified from discontinued operations to continuing operations, and new development and capital
improvements placed in service during the past year.
Expense of deferred compensation plans decreased $1.3 million and $1.0 million during the
three and nine months ended September 30, 2006 as compared to the same period in prior year. The
decreases in expense primarily relate to the performance of the assets held in the deferred
compensation plan for plan participants.
Other
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
Ended September 30, |
|
|
Change |
|
|
Ended September 30, |
|
|
Change |
|
|
|
2006 |
|
|
2005 |
|
|
$ |
|
|
% |
|
|
2006 |
|
|
2005 |
|
|
$ |
|
|
% |
|
Gain on sale of properties, including
land |
|
$ |
96,247 |
|
|
$ |
|
|
|
$ |
96,247 |
|
|
|
100.0 |
% |
|
$ |
97,556 |
|
|
$ |
132,117 |
|
|
$ |
(34,561 |
) |
|
|
(26.2 |
)% |
Equity in income (loss) of joint ventures |
|
|
1,628 |
|
|
|
(1,827 |
) |
|
|
3,455 |
|
|
|
189.1 |
|
|
|
4,514 |
|
|
|
(1,472 |
) |
|
|
5,986 |
|
|
|
406.7 |
|
Income allocated to common units and
other minority interests |
|
|
(12,413 |
) |
|
|
(261 |
) |
|
|
(12,152 |
) |
|
|
4655.9 |
|
|
|
(14,750 |
) |
|
|
(1,756 |
) |
|
|
(12,993 |
) |
|
|
739.5 |
|
Gain on sale of properties for the three and nine months ended September 30, 2006
included gains to the extent of the change in ownership of $91.6 million from the partial sale of
nine properties to an affiliated joint venture and $4.7 million from the partial sale of land to an
affiliated joint venture. Also included in gain on sale
36
of properties for the nine months ended September 30, 2006 were gains of $0.5 million from the
partial sale of land to an affiliated joint venture and $0.8 million from the sale of undeveloped
land to an unaffiliated third party. Gain on sale of properties for the nine months ended
September 30, 2005 included a gain of $132.1 million from the partial sale of 12 operating
communities to affiliated joint ventures.
Equity in income (loss) of joint ventures increased $3.5 million and $6.0 million from the
three and nine months ended September 30, 2005, respectively. We recognized $2.8 million of gains
on sale of three properties held through a joint venture during the nine months ended September 30,
2006. Of the gains recognized during the nine months ended September 30, 2006, a gain of $1.1
million was recognized during the three months ended September 30, 2006 from the sale of one
property held through a joint venture. During the three and nine months ended September 30, 2005,
we recognized losses in one joint venture due to debt retirement costs associated with the
refinancing of debt. Our portion of the debt retirement costs was approximately $2.0 million.
Income allocated to common units and other minority interests increased $12.2 million and
$13.0 million for the three and nine months ended September 30, 2006, respectively, as compared to
the same periods in 2005. These increases were due to gains recognized on the partial sale of
eight properties held in Camden Operating, L.P. to a joint venture during the three months ended
September 30, 2006. A portion of the gains recognized were allocated to minority interest holders
in Camden Operating, L.P.
Discontinued operations
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
Ended September 30, |
|
|
Change |
|
|
Ended September 30, |
|
|
Change |
|
|
|
2006 |
|
|
2005 |
|
|
$ |
|
|
% |
|
|
2006 |
|
|
2005 |
|
|
$ |
|
|
% |
|
Income from discontinued operations |
|
$ |
665 |
|
|
$ |
1,481 |
|
|
$ |
(816 |
) |
|
|
(55.1 |
)% |
|
$ |
4,998 |
|
|
$ |
6,118 |
|
|
$ |
(1,120 |
) |
|
|
(18.3 |
)% |
For the three and nine months ended September 30, 2006 and 2005, income from discontinued
operations included the results of operations of five operating properties, containing 1,744
apartment homes, classified as held for sale at September 30, 2006 and the results of operations of
six operating properties and four parcels of undeveloped land sold in 2006 through their sale
dates. For the three and nine months ended September 30, 2005, income from discontinued operations
also included three operating properties sold during the nine months ended September 30, 2005.
Funds from Operations (FFO)
Management considers FFO to be an appropriate measure of the financial 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 depreciable operating property sales, plus real estate
depreciation and amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Diluted FFO also assumes conversion of all dilutive convertible securities, including
convertible minority interests, which are convertible into common shares. We consider FFO to be an
appropriate supplemental measure of operating performance because, by excluding gains or losses on
dispositions of operating properties and excluding depreciation, FFO can help one compare the
operating performance of a companys real estate between periods or as compared to different
companies.
We believe that in order to facilitate a clear understanding of our consolidated historical
operating results, FFO should be examined in conjunction with net income as presented in the
consolidated statements of operations and data included elsewhere in this report. FFO is not
defined by generally accepted accounting principles. FFO should not be considered as an
alternative to net income as an indication of our operating performance. Furthermore, FFO as
disclosed by other REITs may not be comparable to our calculation.
37
A reconciliation of net income to diluted FFO for the three and nine months ended September
30, 2006 and 2005 is as follows:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Funds from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
125,457 |
|
|
$ |
(2,317 |
) |
|
$ |
201,482 |
|
|
$ |
186,199 |
|
Real estate depreciation, including discontinued operations |
|
|
39,990 |
|
|
|
45,163 |
|
|
|
117,314 |
|
|
|
122,626 |
|
Adjustments for unconsolidated joint ventures |
|
|
(325 |
) |
|
|
1,284 |
|
|
|
(543 |
) |
|
|
3,249 |
|
Gain on sale of operating properties, including discontinued
operations |
|
|
(100,423 |
) |
|
|
|
|
|
|
(151,467 |
) |
|
|
(168,221 |
) |
Income allocated to common units, including discontinued
operations |
|
|
13,125 |
|
|
|
241 |
|
|
|
16,280 |
|
|
|
1,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations diluted |
|
$ |
77,824 |
|
|
$ |
44,371 |
|
|
$ |
183,066 |
|
|
$ |
145,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
58,348 |
|
|
|
54,018 |
|
|
|
56,063 |
|
|
|
51,294 |
|
Incremental shares issuable from assumed conversion of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common share options and awards granted |
|
|
768 |
|
|
|
496 |
|
|
|
700 |
|
|
|
456 |
|
Common units |
|
|
3,769 |
|
|
|
4,086 |
|
|
|
3,903 |
|
|
|
3,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted |
|
|
62,885 |
|
|
|
58,600 |
|
|
|
60,666 |
|
|
|
55,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for unconsolidated joint ventures included in FFO for the three and nine
months ended September 30, 2006 includes net gains totaling $1.1 million and $2.8 million,
respectively, from the sale of properties held in joint ventures. Included in the net gains
recognized during the three and nine months ended September 30, 2006 are $0.1 million and $0.5
million, respectively, in prepayment penalties associated with the repayment of mortgages
associated with the sold properties.
Liquidity and Capital Resources
We are committed to maintaining a strong balance sheet and preserving our financial
flexibility, which we believe enhances our ability to identify and capitalize on investment
opportunities as they become available. We intend to maintain what management believes is a
conservative capital structure by:
|
|
|
using what management believes is a prudent combination of debt and common and
preferred equity; |
|
|
|
|
extending and sequencing the maturity dates of our debt where possible; |
|
|
|
|
managing interest rate exposure using what management believes are prudent levels of
fixed and floating rate debt; |
|
|
|
|
borrowing on an unsecured basis in order to maintain a substantial number of
unencumbered assets; and |
|
|
|
|
maintaining conservative coverage ratios. |
Our interest expense coverage ratio, net of capitalized interest, was 2.9 and 2.6 times for
the three months ended September 30, 2006 and 2005, respectively, and 2.8 and 2.9 times for the
nine months ended September 30, 2006 and 2005, respectively. Interest expense coverage ratio is
derived by dividing interest expense for the period into the sum of income from continuing
operations before gain on sale of properties, equity in income (loss) of joint ventures and
minority interests, depreciation, amortization, interest expense and income from discontinued
operations. At September 30, 2006 and 2005, 79.8% and 77.0%, respectively, of our properties
(based on invested capital) were unencumbered. Our weighted average maturity of debt, excluding
our line of credit, was 5.2 years at September 30, 2006.
38
As a result of the significant cash flow generated by our operations, the availability under
our unsecured credit facility and other short-term borrowings, proceeds from dispositions of
properties and other investments and access to the capital markets by issuing securities under our
automatic shelf registration statement, we believe our liquidity and financial condition are
sufficient to meet all of our reasonably anticipated cash flow needs during 2006 including:
|
|
|
normal recurring operating expenses; |
|
|
|
|
current debt service requirements; |
|
|
|
|
recurring capital expenditures; |
|
|
|
|
initial funding of property developments, acquisitions and notes receivable; and |
|
|
|
|
the minimum dividend payments required to maintain our REIT qualification under the
Internal Revenue Code of 1986. |
One of our principal long-term liquidity requirements includes the repayment of maturing debt,
including borrowings under our unsecured line of credit used to fund development and acquisition
activities. For unsecured notes, we anticipate that no significant portion of the principal of
those notes will be repaid prior to maturity. Additionally, as of September 30, 2006, we had
several development projects in various stages of construction, for which a total estimated cost of
$200.7 million remained to be funded. We intend to meet our long-term liquidity requirements
through the use of security offerings under our automatic shelf registration statement, draws on
our unsecured credit facility and property dispositions.
In September 2006, we announced our Board of Trust Managers had declared a dividend
distribution of $0.66 per share to holders of record as of September 29, 2006 of our common shares.
The dividend was subsequently paid on October 17, 2006. We paid equivalent amounts per unit to
holders of the common operating partnership units. This distribution to common shareholders and
holders of common operating partnership units equates to an annualized dividend rate of $2.64 per
share or unit.
Net
cash provided by operating activities increased to $184.0 million during the nine months
ended September 30, 2006 from $163.5 million for the same period in 2005. The increases were
primarily due to additional property revenues from recently acquired properties and growth in
property revenues from our stabilized communities. This increase was partially offset by the loss
of property revenues due to sales of properties and other transactional expenses.
Cash flows provided by investing activities during the nine months ended September 30, 2006
totaled $41.2 million, as compared to net cash used in investing activities during the nine months
ended September 30, 2005 of $140.0 million. We incurred $365.2 million in property development,
acquisition and capital improvement costs during the first nine months of 2006 as compared to
$201.5 million during the same period in 2005. During the nine months ended September 30, 2006, we
paid $5.7 million of severance benefits associated with the Summit merger. Proceeds received from
sales of properties and technology investments, sales of assets to joint ventures and joint venture
distributions representing returns of investments totaled $411.9 million for the nine months ended
September 30, 2006. Investing activities for the nine months ended September 30, 2005 primarily
consisted of transactions associated with the Summit merger and expenditures related to real estate
assets as we paid $508.8 million in connection with the Summit merger, either as consideration paid
at acquisition or for merger liabilities assumed. These payments were ultimately funded using a
portion of the proceeds received from the sales of properties and technology investments and
distributions from joint ventures representing returns of investments, which totaled an aggregate
of $537.4 million.
Net
cash used in financing activities totaled $218.7 million for the nine months ended
September 30, 2006, primarily as a result of the repayment of our line of credit of $237.0 million,
payments of $85.7 million for senior unsecured notes, distributions to shareholders and minority
interest holders of $123.2 million, and an increase in notes receivable affiliates of $31.2
million as three mezzanine loans were provided to joint ventures formed during the nine months
ended September 30, 2006. The cash used in financing activities was partially offset by $254.9
million of proceeds from the issuance of 3.6 million common shares. Net cash used in financing
activities for the nine months ended September 30, 2005 was $24.7 million, primarily due to the
repayment of a
39
secured credit facility assumed in our merger with Summit of $188.5 million, distributions to
shareholders and minority interest holders and redemption of preferred units of $126.9 million,
partially offset by a net increase in our unsecured line of credit of $65.0 million and proceeds
from notes payable of $248.4 million.
Financial Flexibility
In January 2005, we entered into a credit agreement which increased our unsecured credit
facility to $600 million, with the ability to further increase it up to $750 million. This $600
million unsecured line of credit originally matured in January 2008. In January 2006, we entered
into an amendment to our credit agreement to extend the maturity by two years to January 2010 and
to amend certain covenants. The scheduled interest rate is based on spreads over the London
Interbank Offered Rate (LIBOR) or the Prime Rate. The scheduled interest rate spreads are
subject to change as our credit ratings change. Advances under the line of credit may be priced at
the scheduled rates, or we may enter into bid rate loans with participating banks at rates below
the scheduled rates. These bid rate loans have terms of six months or less and may not exceed the
lesser of $300 million or the remaining amount available under the line of credit. The line of
credit is subject to customary financial covenants and limitations, all of which we were in
compliance with at September 30, 2006.
Our line of credit provides us with the ability to issue up to $100 million in letters of
credit. While our issuance of letters of credit does not increase our borrowings outstanding under
our line, it does reduce the amount available. At September 30, 2006, we had outstanding letters
of credit totaling $35.5 million, and had $550.5 million available, under our unsecured line of
credit.
As part of the Summit merger, we assumed Summits unsecured letter of credit facility, which
matures in July 2008 and has a total commitment of $20.0 million. The letters of credit issued
under this facility serve as collateral for performance on contracts and as credit guarantees to
banks and insurers. As of September 30, 2006, there were $3.5 million of letters of credit
commitments outstanding under this facility.
As an alternative to our unsecured line of credit, we from time to time borrow using
competitively bid unsecured short-term notes with lenders who may or may not be a part of the
unsecured line of credit bank group. Such borrowings vary in term and pricing and are typically
priced at interest rates below those available under the unsecured line of credit.
During 2006, we repaid $75.0 million of maturing unsecured notes with an effective interest
rate of 6.04%. We repaid these notes payable using proceeds available under our unsecured line of
credit.
In connection with our sale of nine apartment communities to a joint venture during the three
months ended September 30, 2006, as discussed in Note 6 to the consolidated financial statements,
three tax-exempt mortgage notes totaling $30.5 million were assumed by the joint venture.
At September 30, 2006 and 2005, the weighted average interest rate on our floating rate debt,
which includes our unsecured line of credit, was 4.9% and 4.0%, respectively.
In June 2006, we issued 3.6 million common shares at $71.25 per share in a public equity
offering. We used the net proceeds of $254.9 million to reduce indebtedness on our unsecured line
of credit allowing additional capacity to fund our current and future development activities and
for general corporate purposes.
We filed an automatic shelf registration statement with the Securities and Exchange Commission
during the three months ended September 30, 2006 that became effective upon filing. We may use the
shelf registration statement to offer, from time to time, common shares, preferred shares, debt
securities or warrants. Our declaration of trust provides that we may issue up to 110,000,000
shares of beneficial interest, consisting of 100,000,000 common shares and 10,000,000 preferred
shares. As of September 30, 2006, we had 56,409,128 common shares outstanding under our
declaration of trust.
40
Contractual Obligations
The following table summarizes our known contractual obligations as of September 30, 2006:
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Thereafter |
|
Debt maturities |
|
$ |
2,280.5 |
|
|
$ |
128.4 |
|
|
$ |
233.0 |
|
|
$ |
200.7 |
|
|
$ |
198.2 |
|
|
$ |
466.8 |
|
|
$ |
1,053.4 |
|
Interest payments (1) |
|
|
566.8 |
|
|
|
30.6 |
|
|
|
108.2 |
|
|
|
99.5 |
|
|
|
86.2 |
|
|
|
68.4 |
|
|
|
173.9 |
|
Non-cancelable operating
lease payments |
|
|
19.7 |
|
|
|
0.7 |
|
|
|
2.6 |
|
|
|
2.4 |
|
|
|
2.2 |
|
|
|
2.0 |
|
|
|
9.8 |
|
Construction contracts |
|
|
200.7 |
|
|
|
51.5 |
|
|
|
123.4 |
|
|
|
25.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,067.7 |
|
|
$ |
211.2 |
|
|
$ |
467.2 |
|
|
$ |
328.4 |
|
|
$ |
286.6 |
|
|
$ |
537.2 |
|
|
$ |
1,237.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes contractual interest payments for our line of credit, senior
unsecured notes, medium-term notes and secured notes. The interest payments on certain
secured notes with floating interest rates and our line of credit were calculated based on
the interest rates in effect as of September 29, 2006. |
The joint ventures in which we have an interest have been funded with secured,
third-party debt. We are not committed to any additional funding on third-party debt in relation
to our joint ventures.
Inflation
Substantially all of our apartment leases are for a term generally ranging from 6 to 13
months. In an inflationary environment, we may realize increased rents at the commencement of new
leases or upon the renewal of existing leases. The short-term nature of our leases generally
minimizes our risk from the adverse affects of inflation.
Critical Accounting Policies
Critical accounting policies are those that are most important to the presentation of a
companys financial condition and results, and require managements most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that
are inherently uncertain. We follow financial accounting and reporting policies that are in
accordance with generally accepted accounting principles.
Income recognition. Our rental and other property income is recorded when due from residents
and is recognized monthly as it is earned. Other property income consists primarily of utility
rebillings, and administrative, application and other transactional fees charged to our residents.
Retail lease income is recorded on a straight-line basis over the lease term, including any
construction period if we are determined not to be the owner of the tenant improvements. Interest,
fee and asset management and all other sources of income are recognized as earned.
Capital expenditures. We capitalize renovation and improvement costs that we believe extend
the economic lives and enhance the earnings of the related assets. Capital expenditures, including
carpet, appliances and HVAC unit replacements, subsequent to initial construction are capitalized
and depreciated over their estimated useful lives, which range from 3 to 20 years.
Notes receivable. We evaluate the collectibility of both interest and principal of each of
our notes receivable. If we identify that the borrower is unable to perform its duties under the
notes receivable or that the operations of the property do not support the continued recognition of
interest income or the carrying value of the loan, we then cease income recognition and record an
impairment charge against the loan.
Asset impairment. Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows and costs to sell, an impairment charge
equal to the excess is recognized.
41
Cost capitalization. Real estate assets are carried at cost plus capitalized carrying
charges. Carrying charges are primarily interest and real estate taxes which are capitalized as
part of properties under development. Expenditures directly related to the development,
acquisition and improvement of real estate assets, excluding internal costs relating to
acquisitions of operating properties, are capitalized at cost as land, buildings and improvements.
Indirect development costs, including salaries and benefits and other related costs attributable to
the development of properties, are also capitalized. All construction and carrying costs are
capitalized and reported on the balance sheet in properties under development until the apartment
homes are substantially completed. Upon substantial completion of the apartment homes, the total
cost for the apartment homes and the associated land is transferred to buildings and improvements
and land, respectively, and the assets are depreciated over their estimated useful lives using the
straight-line method of depreciation.
Where possible, we stage our construction to allow leasing and occupancy during the
construction period, which we believe minimizes the duration of the lease-up period following
completion of construction. Our accounting policy related to properties in the development and
leasing phase is that all operating expenses associated with completed apartment homes are
expensed.
Use of Estimates. The preparation of our financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements, results of
operations during the reporting periods and related disclosures. Our more significant estimates
relate to determining the allocation of the purchase price of our acquisitions, estimates
supporting our impairment analysis related to the carrying value of our real estate assets,
estimates of the useful lives of our assets, reserves related to co-insurance requirements under
our property, general liability and employee benefit insurance programs and estimates of expected
losses of variable interest entities. Actual results could differ from those estimates.
New Accounting Standards
In December 2004, the FASB issued SFAS No. 123(R) requiring the compensation cost relating to
share-based payments be recognized over their vesting periods in the income statement based on
their estimated fair values. In April 2005, the SEC issued Staff Accounting Bulletin No. 107,
"Shared-Based Payment providing for a phased-in implementation process for SFAS No. 123(R). SFAS
No. 123(R) is effective for all public entities in the first annual reporting period beginning
after June 15, 2005. We adopted SFAS No. 123(R)
on January 1, 2006 using the modified prospective
method. The impact of adopting this pronouncement is discussed in Note 11 Share-based
Compensation.
In May 2005, the FASB issued SFAS No. 154 Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS No. 154). This pronouncement
applies to all voluntary changes in accounting principle and revises the requirements for
accounting for and reporting a change in accounting principle. SFAS No. 154 requires retrospective
application to prior periods financial statements of a voluntary change in accounting principle,
unless it is impracticable to do so. This pronouncement also requires changes to the method of
depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a
change in accounting estimate that is effected by a change in accounting principle. SFAS No. 154
is effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. SFAS No. 154 does not change the transition provisions of any existing
accounting pronouncements, including those which are in a transition phase (such as SFAS No.
123(R)) as of the effective date of SFAS No. 154. The adoption of SFAS No. 154 did not have a
material impact on our financial position, results of operations or cash flows.
In June 2005, the FASB issued Emerging Issues Task Force (EITF) Issue No. 04-05,
"Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited
Partnership or Similar Entity When the Limited Partners Have Certain Rights. EITF Issue No. 04-05
provides a framework for determining whether a general partner controls, and should consolidate, a
limited partnership or a similar entity. EITF Issue No. 04-05 was effective after June 29, 2005,
for all newly formed limited partnerships and for any pre-existing limited partnerships that modify
their partnership agreements after that date. General partners of all other limited partnerships
are required to apply the consensus no later than the beginning of the first reporting
42
period in fiscal years beginning after December 15, 2005. The adoption of EITF Issue No.
04-05 did not have a material impact on our financial position, results of operations or cash
flows.
In June 2005, the FASB issued FASB Staff Position (FSP) 78-9-1, Interaction of AICPA
Statement of Position 78-9 and EITF Issue No. 04-05. The EITF acknowledged the consensus in EITF
Issue No. 04-05 conflicted with certain aspects of Statement of Position (SOP) 78-9, Accounting
for Investments in Real Estate Ventures. The EITF agreed with the assessment of whether a general
partner, or the general partners as a group, controls a limited partnership should be consistent
for all limited partnerships, irrespective of the industry within which the limited partnership
operates. Accordingly, the guidance in SOP 78-9 was amended in FSP 78-9-1 to be consistent with
the guidance in EITF Issue No. 04-05. The effective dates for this FSP are the same as those
mentioned above in EITF Issue No. 04-05. The adoption of FSP 78-9-1 did not have a material impact
on our financial position, results of operations or cash flows.
In April 2006, the FASB issued FSP FASB Interpretation (FIN) 46(R)-6, Determining the
Variability to Be Considered in Applying FASB Interpretation No. 46(R). FIN 46(R)-6 addresses how
a reporting enterprise should determine variability associated with a variable interest entity or
variable interests in an entity when applying the provisions of FIN 46(R) and is effective for
reporting periods beginning after June 15, 2006. We will evaluate the impact of FIN 46(R)-6 at the
time any reconsideration event occurs, as defined by the provisions of FIN 46(R), and for any new
entities with which we become involved in future periods.
In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax
positions. FIN 48 requires we recognize in our financial statements the impact of a tax position,
if the position is more likely than not of being sustained on audit, based on the technical merits
of the position. FIN 48 is effective for fiscal years beginning after December 15, 2006.
We are in the process of assessing the impact of FIN 48 and have not determined what impact, if
any, our adoption will have on our financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value in GAAP and expands
disclosures about fair value measurements. The statement does not require new fair value
measurements, but is applied to the extent other accounting pronouncements require or permit fair
value measurements. The statement emphasizes fair value as a market-based measurement which should
be determined based on assumptions market participants would use in pricing an asset or liability.
We will be required to disclose the extent to which fair value is used to measure assets and
liabilities, the inputs used to develop the measurements, and the effect of certain of the
measurements on earnings (or changes in net assets) for the period. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. We do not anticipate the adoption of this
statement will have a material impact on our financial position, results of operations or cash
flows.
In September 2006, the FASB issued SFAS No. 158, "Employers Accounting for Defined Benefit
Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and
132(R), which requires an employer to recognize the over-funded or under-funded status of a
defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in
its statement of financial position and to recognize changes in funded status in the year in which
the changes occur through comprehensive income of a business entity. SFAS No. 158 also requires an
employer to measure the funded status of a plan as of the date of its year-end statement of
financial position, with limited exceptions. This statement is effective for fiscal years ending
after December 15, 2006. We do not anticipate the adoption of this statement will have a material
impact on our financial position, results of operations or cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
No material changes to our exposures to market risk have occurred since our Annual Report on
Form 10-K for the year ended December 31, 2005.
43
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures. We carried out an evaluation, under the
supervision and with the participation of our management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the
end of the period covered by the report pursuant to Securities Exchange Act (Exchange Act) Rules
13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in our Exchange Act filings is recorded, processed,
summarized and reported within the periods specified in the Securities and Exchange Commissions
rules and forms.
Changes in internal controls. There were no changes in our internal control over financial
reporting occurring during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For further discussion regarding legal proceedings, see Note 14 to the Consolidated
Financial Statements.
Item 1A. Risk Factors
There have been no material changes to the Risk Factors previously disclosed in Item 1A in
our Annual Report on Form 10-K for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
44
Item 6. Exhibits
(a) Exhibits
|
31.1 |
|
Certification pursuant to Rule 13a-14(a) of Chief Executive Officer
dated November 3, 2006. |
|
|
31.2 |
|
Certification pursuant to Rule 13a-14(a) of Chief Financial Officer
dated November 3, 2006. |
|
|
32.1 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on our behalf by the undersigned thereunto duly authorized.
CAMDEN PROPERTY TRUST
|
|
|
/s/ Michael P. Gallagher
|
|
November 3, 2006 |
|
|
|
Michael P. Gallagher
|
|
Date |
Vice President and Chief Accounting Officer |
|
|
46
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
No. |
|
Description |
31.1
|
|
Certification pursuant to Rule 13a-14(a) of Chief Executive Officer
dated November 3, 2006. |
31.2
|
|
Certification pursuant to Rule 13a-14(a) of Chief Financial Officer
dated November 3, 2006. |
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
47