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Camden Property Trust 10-K 2011 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2010
OR
For the transition period from to
Commission file number: 1-12110
CAMDEN PROPERTY TRUST
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code: (713) 354-2500
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that 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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes þ
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
(check one):
Indicate by check mark whether the registrant is a shell company (as defined in the Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of voting and non-voting common equity held by non-affiliates of the
registrant was $2,690,865,073 based on a June 30, 2010 share price of $40.85.
On
February 17, 2011, 69,780,732 common shares of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement in connection with its Annual Meeting of
Shareholders to be held May 11, 2011 are incorporated by reference in Part III.
TABLE OF CONTENTS
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PART I
General Development of Business
Formed on May 25, 1993, Camden Property Trust, a Texas real estate investment trust (“REIT”),
is engaged in the ownership, management, development, acquisition, and construction of multifamily
apartment communities. Unless the context requires otherwise, “we,” “our,” “us,” and the “Company”
refer to Camden Property Trust and its consolidated subsidiaries. Our multifamily apartment
communities are referred to as “communities,” “multifamily communities,” “properties,” or
“multifamily properties” in the following discussion.
Our executive offices are located at 3 Greenway Plaza, Suite 1300, Houston, Texas 77046 and
our telephone number is (713) 354-2500. Our website is located at www.camdenliving.com. On our
website we make available free of charge our annual, quarterly, and current reports, and amendments
to such reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). We also make
available, free of charge on our website, our Guidelines on Governance, Code of Business Conduct
and Ethics, Code of Ethical Conduct for Senior Financial Officers, and the charters of each of our
Audit, Compensation, Nominating, and Corporate Governance Committees.
Our annual, quarterly, and current reports, proxy statements, and other information are
electronically filed with the SEC. You may read and copy any materials we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Please contact the SEC at
1-800-SEC-0330 for further information about the operation of the SEC’s Public Reference Room. The
SEC also maintains a website at www.sec.gov which contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC.
Financial Information about Segments
We are primarily engaged in the ownership, management, development, acquisition, and
construction of multifamily apartment communities. As each of our communities has similar economic
characteristics, residents, amenities, and services, our operations have been aggregated into one
reportable segment. See our consolidated financial statements and notes included thereto in Item
15 of this Annual Report on Form 10-K for certain information required by Item 1.
Narrative Description of Business
As of December 31, 2010, we owned interests in, operated, or were developing 188 multifamily
properties comprising 63,923 apartment homes across the United States. Of these 188 properties,
two properties were under development and when completed will consist of a total of 607 apartment
homes. In addition, we own land parcels we may develop into multifamily apartment communities.
Operating Strategy
We believe producing consistent earnings growth through property operations, development and
acquisitions, achieving market balance, and recycling capital are crucial factors to our success.
We rely heavily on our sophisticated property management capabilities and innovative operating
strategies to help us maximize the earnings potential of our communities.
Real Estate Investments and Market Balance. We believe we are well positioned in our current
markets and have the expertise to take advantage of new opportunities as they arise. These
capabilities, combined with what we believe is a conservative financial structure, should allow us
to concentrate our growth efforts toward selective opportunities to enhance our strategy of having
a geographically diverse portfolio of assets which meet the requirements of our residents.
We continue to operate in our core markets which we believe provides an advantage due to
economies of scale. We believe, where possible, it is best to operate with a strong base of
properties in order to benefit from the personnel allocation and the market strength associated
with managing several properties in the same market. However, consistent with our goal of
generating sustained earnings growth, we intend to selectively dispose of properties and redeploy capital for various strategic reasons, including if we determine a
property cannot meet long-term earnings growth expectations.
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Subject to market conditions, we intend to continue to look for opportunities to develop and
acquire existing communities through our discretionary investment funds (the “Funds”), expand our
development pipeline, and complete selective dispositions.
We intend to continue to focus on strengthening our capital and liquidity positions by
generating positive cash flows from operations, reducing outstanding debt and leverage ratios, and
controlling overhead costs. We intend to meet our liquidity requirements through available cash
balances, cash flows generated from operations, draws on our unsecured credit facility, proceeds
from property dispositions and secured mortgage notes, and the use of debt and equity offerings
under our automatic shelf registration statement.
Sophisticated Property Management. We believe the depth of our organization enables us to
deliver quality services, promote resident satisfaction, and retain residents, thereby reducing
operating expenses. We manage our properties utilizing a staff of professionals and support
personnel, including certified property managers, experienced apartment managers and leasing
agents, and trained apartment maintenance technicians. Our on-site personnel are trained to deliver
high quality services to our residents. We strive to motivate our on-site employees through
incentive compensation arrangements based upon property operational results, rental rate increases,
and level of lease renewals achieved.
Operations. We believe an intense focus on operations is necessary to realize consistent,
sustained earnings growth. Ensuring resident satisfaction, increasing rents as market conditions
allow, maximizing rent collections, maintaining property occupancy at optimal levels, and
controlling operating costs comprise our principal strategies to maximize property financial
results. We believe our web-based property management and revenue management systems strengthen
on-site operations and allow us to quickly adjust rental rates as local market conditions change.
Lease terms are generally staggered based on vacancy exposure by apartment type so lease
expirations are matched to each property’s seasonal rental patterns. We generally offer leases
ranging from six to fifteen months with individual property marketing plans structured to respond
to local market conditions. In addition, we conduct ongoing customer service surveys to ensure
timely response to residents’ changing needs and a high level of satisfaction.
Investments in Joint Ventures. We have entered into, and may continue in the future to enter
into, joint ventures through which we own an indirect economic interest of less than 100% of the
community or communities owned directly by the joint venture. See Note 8, “Investments in Joint
Ventures,” and Note 14, “Commitments and Contingencies,” of the Notes to Consolidated Financial
Statements for further discussion of our investments in joint ventures.
Competition
There are numerous housing alternatives which compete with our communities in attracting
residents. Our properties compete directly with other multifamily properties as well as with
condominiums and single-family homes which are available for rent or purchase in the markets in
which our communities are located. This competitive environment could have a material adverse
effect on our ability to lease apartment homes at our present communities or any newly developed or
acquired community, as well as on the rents charged.
Employees
At December 31, 2010, we had approximately 1,750 employees, including executive,
administrative, and community personnel.
Qualification as a Real Estate Investment Trust
As of December 31, 2010, we met the qualification of a REIT under Sections 856-860 of the
Internal Revenue Code of 1986, as amended (the “Code”). As a result, we, with the exception of our
taxable REIT subsidiaries, will not be subject to federal income tax to the extent we continue to
meet certain requirements of the Code.
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In addition to the other information contained in this Form 10-K, the following risk factors
should be considered carefully in evaluating our business. Our business, financial condition, or
results of operations could be materially adversely affected by any of these risks. Additional
risks not presently known to us, or which we currently consider immaterial, may also impair our
business and operations.
Risks Associated with Real Estate, Real Estate Capital, and Credit Markets
Volatility in capital and credit markets, or other unfavorable changes in economic conditions could
adversely impact us.
The capital and credit markets experienced volatility and disruption particularly in the
latter half of 2008 through the first quarter of 2010. This caused the spreads on prospective debt
financings to fluctuate and made it more difficult to borrow money. In the event of renewed market
disruption and volatility, we may not be able to obtain new debt financing or refinance our
existing debt on favorable terms or at all, which would adversely affect our liquidity, our ability
to make distributions to shareholders, acquire and dispose of assets and continue our development
pipeline. Other weakened economic conditions, including job losses and high unemployment rates
have adversely affected rental rates and occupancy levels. Unfavorable changes in economic
conditions may have a material adverse impact on our cash flows and operating results.
Additional key economic risks which may affect conditions in the markets in which we operate
include the following:
Short-term leases expose us to the effects of declining market rents.
Substantially all of our apartment leases are for a term of fifteen months or less. As these
leases generally permit the residents to leave at the end of the lease term without penalty, our
rental revenues are impacted by declines in market rents more quickly than if our leases were for
longer terms.
We face risks associated with land holdings and related activities.
We hold land for future development and may in the future acquire additional land holdings.
The risks inherent in purchasing, owning, and developing land increase as demand for apartments, or
rental rates, decrease. Real estate markets are highly uncertain and, as a result, the value of
undeveloped land has fluctuated significantly and may continue to fluctuate. In addition, carrying
costs can be significant and can result in losses or reduced profitability. As a result, we hold
certain land, and may in the future acquire additional land, in our development pipeline at a cost
we may not be able to fully recover or at a cost which precludes our developing a profitable
multifamily community. Given the uncertainty and volatility of the current economic environment,
there is less market information available to us to utilize in estimating the fair value of our
holdings; if additional market information becomes available in future periods which impacts our estimates of fair value, we
may be required to take future impairment charges.
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Difficulties of selling real estate could limit our flexibility.
We intend to continue to evaluate the potential disposition of assets which may no longer meet
our objectives. When we decide to sell an asset, we may encounter difficulty in finding buyers in
a timely manner as real estate investments generally cannot be disposed of quickly, especially when
market conditions are poor. These factors may limit our ability to vary our portfolio promptly in
response to changes in economic or other conditions and may also limit our ability to utilize sales
proceeds as a source of liquidity, which would adversely affect our ability to make distributions
to shareholders or repay debt. In addition, the provisions of the Code relating to REITs limit our
ability to earn a gain on the sale of property (unless we own the property through a subsidiary
which will incur a taxable gain upon sale) if we have held the property less than two years,
and this limitation may affect our ability to sell properties without adversely affecting returns
to shareholders.
We could be negatively impacted by the condition of Fannie Mae or Freddie Mac.
Fannie Mae and Freddie Mac are a major source of financing for secured multifamily real
estate. We and other multifamily companies depend heavily on Fannie Mae and Freddie Mac to finance
growth by purchasing or guaranteeing apartment loans. In February 2011, the Obama administration
released a report proposing Fannie Mae and Freddie Mac be gradually eliminated. The report
proposed three possible courses for long-term reform of housing finance. A final decision by the
government to eliminate Fannie Mae or Freddie Mac or reduce their acquisitions or guarantees of
apartment loans may adversely affect interest rates, capital availability, and the development of
multifamily communities.
Compliance or failure to comply with laws requiring access to our properties by disabled persons
could result in substantial cost.
The Americans with Disabilities Act (“ADA”), the Fair Housing Amendments Act of 1988 (“FHAA”),
and other federal, state, and local laws, rules, and regulations generally require public accommodations and apartment
homes be made accessible to disabled persons. Noncompliance could result in the imposition of
fines by the government or the award of damages to private litigants. These laws may require us to
modify our existing properties. These laws may also restrict renovations by requiring improved
access to such buildings by disabled persons or may require us to add other structural features
which increase our construction costs. Legislation or regulations adopted in the future may impose
further costs and obligations or restrictions on us with respect to improved access by disabled
persons. We may incur unanticipated expenses which may be material to our financial condition or
results of operations to comply with ADA, FHAA, and other federal, state, and local laws, or in
connection with lawsuits brought by the government or private litigants.
Competition could limit our ability to lease apartments or increase or maintain rental income.
There are numerous housing alternatives which compete with our properties in attracting
residents. Our properties compete directly with other multifamily properties as well as
condominiums and single family homes which are available for rent or purchase in the markets in
which our properties are located. This competitive environment could have a material adverse
effect on our ability to lease apartment homes at our present properties or any newly developed or
acquired property, as well as on the rents charged.
Risks Associated with Our Operations
Development and construction risks could impact our profitability.
We intend to continue to develop and construct multifamily apartment communities for our
portfolio, and expect higher levels of development activity in 2011 as compared to recent years.
Our development and construction activities may be exposed to a number of risks which may increase
our construction costs and decrease our profitability including the following:
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One of our wholly-owned subsidiaries is engaged in the business of providing general
contracting services under construction contracts entered into between it and third-parties
(including nonconsolidated subsidiaries). The terms of those construction contracts generally
require this subsidiary to estimate the time and costs to complete a project, and to assume the
risk the time and costs associated with its performance may be greater than anticipated. As a
result, profitability on those contracts is dependent on the ability to accurately predict such
factors. The time and costs necessary to complete a project may be affected by a variety of
factors, including those listed above, many of which are beyond this subsidiary’s control. In
addition, the terms of those contracts generally require this subsidiary to warrant its work for a
period of time during which it may be required to repair, replace, or rebuild defective work. Further,
additional trailing liabilities, based on various legal theories such as claims of negligent
construction, may result from such projects, and these trailing liabilities may go on for a number
of years depending on the length of the statutes of repose in various jurisdictions.
Our acquisition strategy may not produce the cash flows expected.
Subject to the requirements of the Funds, we may acquire additional operating properties on a
select basis. Our acquisition activities are subject to a number of risks, including the
following:
With respect to acquisitions of operating companies, we may not be able to identify suitable
candidates on terms acceptable to us or may not achieve expected returns and other benefits as a
result of integration challenges, such as personnel and technology.
Competition could adversely affect our ability to acquire properties.
We expect other real estate investors, including insurance companies, pension and investment
funds, private investors, and other apartment REITs, will compete with us to acquire additional
operating properties. This competition could increase prices for the type of properties we would
likely pursue and adversely affect our ability to acquire these properties or the profitability of
such properties upon acquisition.
Losses from catastrophes may exceed our insurance coverage.
We carry comprehensive property and liability insurance on our properties, which we believe is
of the type and amount customarily obtained on similar real property assets by similar types of
owners. We intend to obtain similar coverage for properties we acquire or develop in the future.
However, some losses, generally of a catastrophic nature such as losses from floods, hurricanes, or
earthquakes, may be subject to coverage limitations.
We exercise our discretion in determining amounts, coverage limits, and deductible provisions
of insurance to maintain appropriate insurance on our investments at a reasonable cost and on
suitable terms. If we suffer a substantial loss, our insurance coverage may not be sufficient to
pay the full current market value or current replacement value of our lost investment, as well as
the anticipated future revenues from the property. Inflation, changes in building codes and
ordinances, environmental considerations, and other factors also may reduce the feasibility of
using insurance proceeds to replace a property after it has been damaged or destroyed.
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Investments through joint ventures involve risks not present in investments in which we are the
sole investor.
We have invested and may continue to invest as a joint venture partner in joint ventures.
These investments involve risks, including the possibility the other joint venture partner may have
business goals which are inconsistent with ours, be in a position to take action or withhold
consent contrary to our requests, or become insolvent and require us to assume and fulfill the
joint venture’s financial obligations. We and our joint venture partner may each have the right to
initiate a buy-sell arrangement, which could cause us to sell our interest, or acquire our joint
venture partner’s interest, at a time when we otherwise would not have entered into such a
transaction. Each joint venture agreement is individually negotiated, and our ability to operate,
finance, and/or dispose of a community in our sole discretion may be limited to varying degrees
depending on the terms of the joint venture agreement.
We face risks associated with investments in and management of discretionary funds.
We have formed the Funds which, through wholly-owned subsidiaries, we manage as the general
partner and advisor. We have committed to invest 20% of the total equity interest in each of the
Funds, up to $75 million in the aggregate; each of the Funds has total capital commitments of
$187.5 million or $375 million in the aggregate. There are risks associated with the investment in
and management of the Funds, including the following:
We depend on our key personnel.
Our success depends in part on our ability to attract and retain the services of executive
officers and other personnel. There is substantial competition for qualified personnel in the real
estate industry, and the loss of several of our key personnel could have an adverse effect on us.
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Changes in litigation risks could affect our business.
As a large publicly-traded owner of multifamily properties, we may become involved in legal
proceedings, including consumer, employment, tort, or commercial litigation, which if decided
adversely to or settled by us, could result in liability which is material to our financial
condition or results of operations.
Tax matters, including failure to qualify as a REIT, could have adverse consequences.
We may not continue to qualify as a REIT in the future. The Internal Revenue Service may
challenge our qualification as a REIT for prior years and new legislation, regulations,
administrative interpretations, or court decisions may change the tax laws or the application of
the tax laws with respect to qualification as a REIT or the federal tax consequences of such
qualification.
For any taxable year we fail to qualify as a REIT and do not qualify under statutory relief
provisions:
We may face other tax liabilities in the future which may impact our cash flow. These
potential tax liabilities may be calculated on our income or property values at either the
corporate or individual property levels. Any additional tax expense incurred would decrease the
cash available for distribution to our shareholders.
Risks Associated with Our Indebtedness and Financing
Insufficient cash flows could limit our ability to make required payments for debt obligations or
pay distributions to shareholders.
Substantially all of our income is derived from rental and other income from our multifamily
communities. As a result, our performance depends in large part on our ability to collect rent
from residents, which could be negatively affected by a number of factors, including the following:
Cash flow could be insufficient to meet required payments of principal and interest with
respect to debt financing. In order for us to continue to qualify as a REIT we must meet a number
of organizational and operational requirements, including a requirement to distribute annual
dividends to our shareholders equal to a minimum of 90% of our REIT taxable income, computed
without regard to the dividends paid deduction and our net capital gains. This requirement limits
the cash flow available to meet required principal payments on our debt.
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We have significant debt, which could have important adverse consequences.
As of December 31, 2010, we had outstanding debt of approximately $2.6 billion. This
indebtedness could have important consequences, including:
The mortgages on our properties subject to secured debt, our unsecured credit facility, and
the indentures under which our unsecured debt was issued contain customary restrictions,
requirements, and other limitations, as well as certain financial and operating covenants including
maintenance of certain financial ratios. Maintaining compliance with these provisions could limit
our financial flexibility. A default in these provisions, if uncured, could require us to repay the
indebtedness before the scheduled maturity date, which could adversely affect our liquidity and
increase our financing costs.
We may be unable to renew, repay, or refinance our outstanding debt.
We are subject to the risk that indebtedness on our properties or our unsecured indebtedness
will not be renewed, repaid, or refinanced when due or the terms of any renewal or refinancing will
not be as favorable as the existing terms of such indebtedness. If we are unable to refinance our
indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of the
properties on disadvantageous terms, which might result in losses to us. Such losses could have a
material adverse effect on us and our ability to make distributions to our shareholders and pay
amounts due on our debt. Furthermore, if a property is mortgaged to secure payment of indebtedness
and we are unable to meet mortgage payments, the mortgagee could foreclose on the property, appoint
a receiver and exercise rights under an assignment of rents and leases, or pursue other remedies,
all with a consequent loss of our revenues and asset value. Foreclosures could also create taxable
income without accompanying cash proceeds, thereby hindering our ability to meet the REIT
distribution requirements of the Code.
Variable rate debt is subject to interest rate risk.
We have mortgage debt with varying interest rates dependent upon various market indexes. In
addition, we have a revolving credit facility bearing interest at a variable rate on all amounts
drawn on the facility. We may incur additional variable rate debt in the future. Increases in
interest rates on variable rate debt would increase our interest expense, unless we make
arrangements which hedge the risk of rising interest rates, which would adversely affect net income
and cash available for payment of our debt obligations and distributions to shareholders.
We may incur losses on interest rate hedging arrangements.
Historically, we have entered into agreements to reduce the risks associated with changes in
interest rates, and we may continue to do so in the future. Although these agreements may
partially protect against rising interest rates, they may also reduce the benefits to us if
interest rates decline. If a hedging arrangement is not indexed to the same rate as the
indebtedness which is hedged, we may be exposed to losses to the extent which the rate governing
the indebtedness and the rate governing the hedging arrangement change independently of each other.
Additionally, nonperformance by the other party to the hedging arrangement may subject us to
increased credit risks.
Issuances of additional debt may adversely impact our financial condition.
Our capital requirements depend on numerous factors, including the rental and occupancy rates
of our apartment properties, dividend payment rates to our shareholders, development and capital
expenditures, costs of operations, and potential acquisitions. If our capital requirements vary
materially from our plans, we may require additional financing earlier than anticipated. If we
issue more debt, we could become more leveraged, resulting in increased risk of default on our
obligations and an increase in our debt service requirements, both of which could adversely affect
our financial condition and ability to access debt and equity capital markets in the future.
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Failure to maintain our current credit ratings could adversely affect our cost of funds, related
margins, liquidity, and access to capital markets.
Moody’s and Standard & Poor’s, the major debt rating agencies, routinely evaluate our debt and
have given us ratings of Baa1 and BBB, respectively, with stable outlooks, on our senior unsecured
debt. These ratings are based on a number of factors, which include their assessment of our
financial strength, liquidity, capital structure, asset quality, and sustainability of cash flow
and earnings. Due to changes in market conditions, we may not be able to maintain our current
credit ratings, which could adversely affect our cost of funds and related margins, liquidity, and
access to capital markets.
Risks Associated with Our Shares
Share ownership limits and our ability to issue additional equity securities may prevent takeovers
beneficial to shareholders.
For us to maintain our qualification as a REIT, we must have 100 or more shareholders during
the year and not more than 50% in value of our outstanding shares may be owned, directly or
indirectly, by five or fewer individuals. As defined for federal income tax purposes, the term
“individuals” includes a number of specified entities. To minimize the possibility of us failing
to qualify as a REIT under this test, our declaration of trust includes restrictions on transfers
of our shares and ownership limits. The ownership limits, as well as our ability to issue other
classes of equity securities, may delay, defer, or prevent a change in control. These provisions
may also deter tender offers for our common shares which may be attractive to you or limit your
opportunity to receive a premium for your shares which might otherwise exist if a third party were
attempting to effect a change in control transaction.
Our share price will fluctuate.
The market price and trading volume of our common shares are subject to fluctuation due to
general market conditions, the risks discussed in this report and other matters, including the
following:
The form, timing and/or amount of dividend distributions in future periods may vary and be impacted
by economic and other considerations.
The form, timing and/or amount of dividend distributions will be declared at the discretion of
our Board of Trust Managers and will depend on actual cash from operations, our financial
condition, capital requirements, the annual distribution requirements under the REIT provisions of
the Code and other factors as the Board of Trust Managers may consider relevant. The Board of
Trust Managers may modify the form, timing and/or amount of dividends from time to time.
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None.
The Properties
Our properties typically consist of mid-rise buildings or two and three story buildings in a
landscaped setting and provide residents with a variety of amenities. Most of the properties have
one or more swimming pools and a clubhouse and many have whirlpool spas, weight room facilities,
and controlled-access gates. Many of the apartment homes offer additional features such as
fireplaces, vaulted ceilings, microwave ovens, covered parking, icemakers, washers and dryers, and
ceiling fans.
Operating Properties (including properties held through unconsolidated joint ventures)
The 186 operating properties in which we owned interests and operated at December 31, 2010
averaged 922 square feet of living area per apartment home. For the year ended December 31, 2010,
no single operating property accounted for greater than 1.6% of our total revenues. Our operating
properties had a weighted average occupancy rate of approximately 93.3% for each of the years ended
December 31, 2010 and 2009, and an average annual rental revenue per apartment home of $928 and
$946 for the years ended December 31, 2010 and 2009, respectively. Resident lease terms generally
range from six to fifteen months. One hundred and fifty-nine of our operating properties have over
200 apartment homes, with the largest having 904 apartment homes. Our operating properties have an
average age of 11 years (calculated on the basis of investment dollars). Our operating properties
were constructed and placed in service as follows:
Property Table
The following table sets forth information with respect to our 186 operating properties at December
31, 2010:
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For discussion regarding legal proceedings, see Note 14, “Commitments and Contingencies,” of
the Notes to Consolidated Financial Statements.
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PART II
The high and low closing prices per share of our common shares, as reported on the New York
Stock Exchange composite tape under the symbol “CPT,” and distributions per share declared for the
quarters indicated are as follows:
This graph assumes the investment of $100 on December 31, 2005 and quarterly reinvestment of
dividends. (Source: SNL Financial LC)
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As
of February 17, 2011, there were 585 shareholders of record and approximately 19,335 beneficial owners of our common shares.
In January 2008, our Board of Trust Managers approved an increase of the April 2007 repurchase
plan to allow for the repurchase of up to $500 million of our common equity securities through open
market purchases, block purchases, and privately negotiated transactions. Under this program, we
have repurchased 4.3 million shares for a total of approximately $230.2 million from April 2007
through December 31, 2010. The remaining dollar value of our common equity securities authorized
to be repurchased under the program was approximately $269.8 million as of December 31, 2010.
There were no repurchases of our equity securities during the year ended December 31, 2010.
In March 2010, we announced the creation of an at-the-market (“ATM”) share offering program
through which we may, but have no obligation to, sell common shares having an aggregate offering
price of up to $250 million, in amounts and at times as we determine, into the existing trading
market at current market prices as well as through negotiated transactions. Actual sales from time
to time may depend on a variety of factors including, among others, market conditions, the trading
price of our common shares, and determinations of the appropriate sources of funding for us.
During the year ended December 31, 2010, we issued approximately 4.9 million common shares at an
average price of $48.37 per share for total net consideration of approximately $231.7 million. In
January 2011, we issued 0.1 million common shares at an average price of $54.06 per share for total
net consideration of approximately $3.8 million. As of the date of this filing, we had common
shares having an aggregate offering price of up to $10.7 million remaining available for sale under
the ATM program.
See Part III, Item 12, for a description of securities authorized for issuance
under equity compensation plans.
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The following table provides selected financial data relating to our historical financial
condition and results of operations as of and for each of the years ended December 31, 2006 through
2010. This data should be read in conjunction with Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the consolidated financial statements and
related notes. Prior year amounts have been reclassified for discontinued operations.
COMPARATIVE SUMMARY OF SELECTED FINANCIAL AND PROPERTY DATA
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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 Act of 1933 and Section 21E of the Securities Exchange Act of 1934, 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; forward-looking statements are not guarantees of
future performances, results, or events. Although we believe the expectations reflected in our
forward-looking statements are based upon reasonable assumptions, we can give no assurance our
expectations will be achieved. Any statements contained herein which 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 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:
These forward-looking statements represent our estimates and assumptions as of the date of
this report, and we assume no obligation to update or supplement forward-looking statements because
of subsequent events.
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Executive Summary
We are primarily engaged in the ownership, management, development, acquisition and
construction of multifamily apartment communities. As of December 31, 2010, we owned interests in,
operated, or were developing 188 multifamily properties comprising 63,923 apartment homes across
the United States as detailed in the following Property Portfolio table. In addition, we own other
land parcels we may develop into multifamily apartment communities.
The U.S. economy has experienced a significant recession. Record levels of job losses and
higher unemployment rates negatively impacted our business, particularly in the latter half of 2008
through the first quarter of 2010, when we experienced declines in both rental rates and occupancy
levels. Despite unemployment rates remaining at high levels, our results for the most recent three
quarters reflect sequential rental revenue growth as well as an increase in rental revenue growth
for the three months ended December 31, 2010 as compared to the same period in 2009, primarily due
to improvements in rental rates and slight improvements in average occupancy levels. We believe
these improvements may be due in part to the continued decline in home ownership rates and the
limited supply of new rental housing. We expect improvements in rental rates and occupancy to
continue in 2011 and believe sustained revenue growth will depend on, among other things, the
timing and extent of employment growth, supply levels of new multifamily housing, and the
continuation of the decline in home ownership rates.
In 2010, we acquired three multifamily properties, totaling 686 units, for an aggregate of
approximately $63.0 million on behalf of one of our discretionary investment funds in which we have
a 20% ownership interest. Additionally, we restructured three of our joint ventures, which
collectively own an aggregate of 1,069 units, resulting in our acquiring a controlling ownership
interest in each joint venture.
During the second half of 2010, we began construction on two development projects, comprised
of approximately 607 units; initial occupancy is expected in the last half of 2011. As of December
31, 2010, we intend to incur approximately $57.2 million of additional costs on these projects. We
expect to fund these amounts through available cash balances and draws upon our unsecured line of
credit. We expect to start several additional development projects currently held in our
development pipeline in 2011 and are evaluating additional development projects to commence during
fiscal year 2011 and beyond.
During the fourth quarter of 2010, we received net proceeds of approximately $101.9 million
and recognized a gain of approximately $9.6 million from the sale of two operating properties,
containing 1,066 apartment homes to unaffiliated third parties.
Subject to market conditions, we intend to continue to look for opportunities to develop and
acquire existing communities through the Funds, expand our development pipeline, and complete
selective dispositions. We also intend to continue to focus on strengthening our capital and
liquidity positions by generating positive cash flows from operations, reducing outstanding debt
and leverage ratios, and controlling overhead costs. We intend to meet our liquidity requirements
through available cash balances, cash flows generated from operations, draws on our unsecured
credit facility, proceeds from property dispositions and secured mortgage notes, and the use of
debt and equity offerings under our automatic shelf registration statement.
As of December 31, 2010, we had approximately $170.6 million in cash and cash equivalents and
no balances outstanding on our $500 million unsecured line of credit. We have approximately $154.4
million of debt maturities in 2011, excluding scheduled principal amortizations. We believe we are
well-positioned with a strong balance sheet and sufficient liquidity to cover near-term debt
maturities and new development funding requirements. We will, however, continue to assess and take
further actions where prudent to meet our objectives and capital requirements.
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Property Portfolio
Our multifamily property portfolio, excluding land held for future development, is summarized
as follows:
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Stabilized Communities
We generally consider a property stabilized once it reaches 90% occupancy at the
beginning of a period. During the year ended December 31, 2010, stabilization was achieved at four
recently completed development properties as follows:
Partial Sales and Dispositions to Joint Ventures Included in Continuing Operations
There were no partial sales or dispositions to joint ventures for the years ended
December 31, 2010 or 2009.
In March 2008, we sold a development community in Austin, Texas, to one of the Funds for
approximately $8.9 million. No gain or loss was recognized on the sale. In August 2008, we sold a
stabilized community to the same Fund for approximately $44.2 million and recognized a gain of
approximately $1.8 million on the sale.
Discontinued Operations
We intend to maintain a long-term strategy of managing our invested capital through the
selective sale of properties and to utilize the proceeds to reduce our outstanding debt and
leverage ratios and fund investments with higher anticipated growth prospects in our markets.
Income from discontinued operations includes the operations of properties sold during the year
ended December 31, 2010. The components of earnings classified as discontinued operations include
separately identifiable property-specific revenues, expenses, depreciation, and interest expense,
if any. Any gain or loss on the disposal of the properties held for sale is also classified as
discontinued operations.
A summary of our 2010 dispositions is as follows:
During the fourth quarter of 2010, we received net proceeds of approximately $101.9 million
and recognized a gain of approximately $9.6 million from the sale of the two operating properties
above, containing 1,066 apartment homes, to unaffiliated third parties. During the year ended
December 31, 2009, we received net proceeds of approximately $28.0 million and recognized a gain of
approximately $16.9 million from the sale of one operating property containing 671 apartment homes to an unaffiliated third party. During the
year ended December 31, 2008, we received net proceeds of approximately $121.7 million and
recognized gains of approximately $80.2 million from the sales of eight operating properties,
containing 2,392 apartment homes, to unaffiliated third parties.
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During the year ended December 31, 2010, we recognized a gain of approximately $0.2 million
from the sale of land in Houston, Texas. During the year ended December 31, 2008, we recognized a
gain of approximately $1.1 million from the sale of land adjacent to our regional office in Las
Vegas, Nevada. The gains on these sales were not included in discontinued operations as the
operations and cash flows of these assets were not clearly distinguished, operationally or for
reporting purposes, from the adjacent assets.
Development and Lease-Up Properties
We did not have any consolidated properties in lease-up at December 31, 2010.
At December 31, 2010, we had two consolidated properties under construction as follows:
Our consolidated balance sheet at December 31, 2010 included approximately $206.9 million
related to properties under development and land. Of this amount, approximately $35.8 million
related to our projects currently under development. In addition, we had approximately $171.1
million primarily invested in land held for future development, which includes approximately $95.6
million related to projects we expect to begin constructing during the next two years, and
approximately $75.5 million invested in land tracts for which we may begin developing in the
future.
At December 31, 2010, we had investments in unconsolidated joint ventures which were
developing the following multifamily communities:
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Refer to Note 8, “Investments in Joint Ventures” of the Notes to Consolidated Financial
Statements for further discussion of our unconsolidated joint venture investments.
Geographic Diversification
At December 31, 2010 and 2009, our investments in various geographic areas, excluding both
depreciation and investments in joint ventures were as follows:
Results of Operations
Changes in revenues and expenses related to our operating properties from period to period are
due primarily to the performance of stabilized properties in the portfolio, the lease-up of newly
constructed properties, acquisitions, and dispositions. Where appropriate, comparisons of income
and expense on communities included in continuing operations 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 years ended December 31 are as
follows:
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Property-level operating results
The following tables present the property-level revenues and property-level expenses,
excluding discontinued operations, for the year ended December 31, 2010 as compared to 2009 and for
the year ended December 31, 2009 as compared to 2008:
Same store communities are communities we owned and which were stabilized as of January 1,
2009. Non-same store communities are stabilized communities we have acquired, developed, or
re-developed after January 1, 2009. Development and lease-up communities are non-stabilized
communities we have acquired or developed after January 1, 2009. Other includes results from
non-multifamily rental properties and expenses relating to land holdings no longer under active
development.
Same store communities are communities we owned and which were stabilized as of January 1,
2008. Non-same store communities are stabilized communities we have acquired, developed, or
re-developed after January 1, 2008. Development and lease-up communities are non-stabilized
communities we have developed or acquired after January 1, 2008. Other includes results from
non-multifamily rental properties and expenses relating to land holdings no longer under active
development.
Same store analysis:
Same store property revenues for the year ended December 31, 2010 decreased approximately
$11.4 million, or 2.0%, from 2009. Same store rental revenues decreased approximately $11.8
million for the year ended December 31, 2010 as compared to 2009, primarily due to a 2.3% decline
in average rental rates from 2009 for our same store portfolio during 2010, partially offset by a
slight increase in average occupancy. The decline in average rental rates was due to the
continuation of the recession through the first quarter of 2010, offset by improving rental rates
and slight improvements in average occupancy levels for the most recent three quarters which we
believe is due in part to the continued decline in home ownership rates and the limited supply of
new rental housing. The decrease was also partially offset by a $0.4 million increase in other
property revenue primarily due to increases from our utility rebilling programs.
Same store property revenues for the year ended December 31, 2009 decreased approximately
$16.8 million, or 3.2%, from 2008. Same store rental revenues decreased approximately $23.9
million, or 5.2%, from 2008 due to a slight decline in average occupancy and a 5.0% decline in
average rental rates for our same store portfolio due to, among other factors, the challenges within the multifamily industry
resulting from a significant recession experienced within the U.S. This decrease was partially
offset by an approximate $7.1 million increase in other property revenue primarily due to the
continued rollout of our utility rebilling programs.
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Property expenses from our same store communities increased approximately $0.8 million, or
0.4%, for the year ended December 31, 2010, as compared to 2009. The increase was primarily due to
expenses related to our utility rebilling programs discussed above, higher salaries, and increases
in property insurance and repair and maintenance costs. These increases were partially offset by
lower real estate taxes as a result of declining rates and valuations at a number our communities.
Excluding the expenses associated with our utility rebilling programs, same store property expenses
for 2010 decreased approximately $0.8 million, or 0.4%, from 2009.
Property expenses from our same store communities increased approximately $3.4 million, or
1.8%, for the year ended December 31, 2009, as compared to 2008. This increase was primarily due
to expenses related to our utility rebilling programs discussed above and increases in property
insurance costs. This increase was partially offset by lower property taxes resulting from
declining rates and valuations at a number of our communities, and lower repair and maintenance,
and marketing and leasing, expenses. Excluding the expenses associated with our utility rebilling
programs, same store property expenses for 2009 declined approximately $0.2 million, or 0.1% from
2008.
Non-same store and development and lease-up analysis:
Property revenues from non-same store and development and lease-up communities increased
approximately $10.3 million for the year ended December 31, 2010 as compared to 2009 and increased
approximately $19.1 million for the year ended December 31, 2009 as compared to 2008. The increase
in 2010 as compared to 2009 was primarily due to seven consolidated properties in our development
and re-development pipelines reaching stabilization during 2009 and 2010, in addition to
approximately $2.6 million of revenues recognized in the second half of 2010 related to three newly
consolidated joint ventures as more fully described in Note 7, “Property Acquisitions, Discontinued
Operations, and Impairments.” The increase in 2009 as compared to 2008 was primarily due to nine
consolidated properties in our development and re-development pipelines reaching stabilization
during 2008 and 2009.
Property expenses from non-same store and development and lease-up communities increased
approximately $3.0 million for the year ended December 31, 2010 as compared to 2009 and increased
approximately $5.3 million for 2009 as compared to 2008. The increases in both periods were due to
a number of consolidated properties in our development and re-development pipelines reaching
stabilization as discussed above. The increase in 2010 was also due to approximately $1.1 million
of expenses recognized in the second half of 2010 related to three newly consolidated joint
ventures as more fully described in Note 7, “Property Acquisitions, Discontinued Operations, and
Impairments.”
Other property analysis:
Other property revenues decreased approximately $0.6 million and $2.7 million for the
year ended December 31, 2010 as compared to 2009 and for the year ended December 31, 2009 as
compared to 2008, respectively. The decrease for 2009 as compared to 2008 was primarily due to the
sale of one of our communities to one of the Funds in 2008.
Other property expenses increased approximately $1.6 million for the year ended December 31,
2010 as compared to 2009 and decreased $1.3 million for the year ended December 31, 2009 as
compared to 2008, respectively. The increases in 2010 as compared to 2009 primarily related to
increases in property taxes expensed on land holdings for eight projects for which we decided in
2009 to postpone development. As a result, we ceased capitalization of expenses, including
property taxes. The decrease in 2009 as compared to 2008 was primarily due to costs we incurred
related to Hurricane Ike in September 2008.
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Non-property income
Fee and asset management income, which represents income related to asset management,
third-party construction and development projects and property management, increased approximately
$0.2 million for the year ended December 31, 2010 as compared to 2009 and decreased approximately
$1.2 million for the year ended December 31, 2009 as compared to 2008. The increase for 2010 was
primarily related to an increase in third-party construction activities, offset by decreases in
development and construction fees earned on our development joint ventures as compared to 2009 due
to the completion of construction activities during 2009 and 2010. The increase was further offset
by decreases in fees earned on our stabilized joint ventures due to declines in property revenues.
The decrease for 2009 was primarily related to overall declines in development and construction
fees earned on our development joint ventures in 2009 as compared to 2008 due to the completion of
the associated construction activities at several joint venture communities in 2008 and 2009. The
decrease in 2009 was partially offset by an increase in third-party construction activities in
2009.
Interest and other income increased approximately $5.8 million for 2010 as compared to 2009
and decreased approximately $1.9 million for 2009 as compared to 2008. The increase for 2010 was
primarily due to the recognition of approximately $2.7 million of other income resulting from
indemnification provisions in an operating joint venture agreement which expired in January 2010,
and recognition of approximately $4.2 million of other income as a result of the dissolution of a
joint venture and purchase by our joint venture partner of the third-party debt made by this joint
venture from the note holder, which relieved us from our guarantee of our proportionate interest of
this debt; we had previously recorded a charge for this indemnification. These increases were
partially offset by an approximate $0.9 million decrease in interest income due to declines in
interest income on our mezzanine loan portfolio related primarily to the lower balances of
outstanding mezzanine loans due in part to conversion of mezzanine loans into additional equity
interests in certain of our joint ventures in 2009 and 2010.
The $1.9 million decrease in 2009 as compared to 2008 was primarily due to declines in
interest income on our mezzanine loan portfolio related to contractual reductions in interest
rates, reductions in interest earned on certain variable rate mezzanine notes due to declines in
LIBOR, and lower balances of outstanding mezzanine loans due in part to the conversion of mezzanine
loans into additional equity interests in certain of our joint ventures in 2009.
Our deferred compensation plans earned income of approximately $11.6 million and $14.6 million
in 2010 and 2009, respectively, and incurred losses of $33.4 million in 2008. The changes were
related to the performance of the investments held in the deferred compensation plans for plan
participants and were directly offset by the expense (benefit) related to these plans, as set forth
in the table below.
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Other expenses
Property management expense, which represents regional supervision and accounting costs
related to property operations, increased approximately $1.1 million for the year ended December
31, 2010 as compared to 2009 and decreased approximately $1.0 million for 2009 as compared to 2008.
Property management expenses were 3.3%, 3.1%, and 3.3% of total property revenues for the years
ended December 31, 2010, 2009, and 2008, respectively. The $1.1 million increase in 2010 was
primarily due to increases in salary and benefits, rental, marketing, and travel expenses as
compared to 2009. The decrease in 2009 as compared to 2008 was due primarily to lower travel and
legal expenses.
Fee and asset management expense, which represents expenses related to asset management,
third-party construction and development projects and property management, was relatively flat in
2010 as compared to 2009 due in part to an increase in third-party construction activities, offset
by decreases in development and construction on our development joint ventures as compared to 2009
due to the completion of construction activities during 2009 and 2010. The $1.2 million decrease
for 2009 as compared to 2008 was primarily due to declines in development and construction
activities related to our development joint ventures in 2009 as compared to 2008 due to the
completion of the associated construction activities at several joint venture communities in 2008
and 2009.
General and administrative expenses decreased approximately $0.5 million during the year ended
December 31, 2010 as compared to 2009 and decreased approximately $0.3 million during the year
ended December 31, 2009 as compared to 2008. General and administrative expenses were 4.9% of
total revenues, excluding income or loss on deferred compensation plans, for the year ended
December 31, 2010, and 5.0% for each of the years ended December 31, 2009, and 2008. The decrease
in 2010 as compared to 2009 was primarily due to a decrease in legal costs and other discretionary
expenses, $1.6 million in severance payments made in connection with a reduction in force of
certain construction and development staff in January 2009, and separation costs relating to the
retirement of one executive officer during the fourth quarter of 2009. These decreases were
partially offset by an increase in long-term incentive compensation of approximately $1.6 million
during 2010 as compared to 2009. The decrease for 2009 as compared to 2008 was primarily due to
various cost-saving initiatives implemented in 2009, and increased expenses in 2008 which did not
recur in 2009 associated with the abandonment of potential acquisitions. The decrease was
partially offset by $1.6 million in severance payments made in connection with the reduction in
force of certain construction and development staff in 2009, and separation costs relating to the
retirement of one executive officer during the fourth quarter of 2009.
Interest expense decreased approximately $2.4 million during the year ended December 31, 2010
as compared to 2009 and decreased approximately $4.1 million during the year ended December 31,
2009 as compared to 2008. The decrease in 2010 was primarily due to using the net proceeds of
$272.1 million from the equity offering completed during the second quarter of 2009 and
approximately $231.7 million in net proceeds from our ATM program during 2010 to retire outstanding
debt, prior to its maturity, of approximately $325.0 million during the first six months of 2009
and repay maturing secured and unsecured notes during 2009 and 2010, as well as reduce the balances
outstanding on our unsecured line of credit. This decrease was partially offset by the increased
interest expense incurred on our $420 million credit facility entered into during the second
quarter of 2009 and lower capitalized interest of approximately $4.6 million in 2010 as compared to
2009 primarily due to the completion of communities in our development pipeline and our decision in
fiscal year 2009 to postpone the development of land holdings for eight future projects.
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The decrease for 2009 as compared to 2008 was primarily due to decreases in indebtedness as a
result of early retirement of outstanding debt of approximately $325.0 million during the first six
months of 2009. This decrease in interest expense was partially offset by a decrease in
capitalized interest of approximately $7.4 million during the year ended December 31, 2009 as
compared to 2008 as a result of the completion of units in our development pipeline and our
decision in fiscal year 2008 not to continue with five future development projects. The decrease
was further offset by higher interest rates on existing indebtedness resulting from paying down
amounts outstanding under our unsecured line of credit with proceeds from our $420 million credit
facility entered into in April 2009 and our $380 million credit facility entered into in September
2008.
Depreciation and amortization expense increased approximately $1.5 million during the year
ended December 31, 2010 as compared to 2009 and increased approximately $2.8 million during the
year ended December 31, 2009 as compared to 2008. The increase in 2010 as compared to 2009 was
primarily due to new development and capital improvements placed in service during 2009 and 2010
and the consolidation of three joint ventures during the second half of 2010, which were previously
accounted for under the equity method of accounting. These increases were partially offset by an
increase in the number of assets being fully depreciated in 2010 as compared to 2009. The increase
in 2009 as compared to 2008 was primarily due to completion of new development and capital
improvements placed in service in 2009 as compared to the previous year.
Amortization of deferred financing costs increased approximately $0.2 million during the year
ended December 31, 2010 as compared to 2009 and increased approximately $1.0 million during the
year ended December 31, 2009 as compared to 2008. The increase for 2010 as compared to 2009 was
primarily due to additional financing costs incurred on our $500 million unsecured credit facility,
entered into in August 2010, and on our $420 million credit facility, entered into the second
quarter of 2009. These increases were partially offset by lower amortization of deferred financing
costs related to the repurchase and retirement of certain series of notes during 2010 and 2009.
The increase for 2009 as compared to 2008 was primarily due to the amortization of our financing
costs incurred upon the extension of our unsecured credit facility in October 2009, and financing
costs related to our $380 million credit facility completed in September 2008 and our $420 million
credit facility completed in April 2009. This increase was partially offset by the repurchase and
retirement of certain series of notes during 2009.
Our deferred compensation plans incurred expenses of approximately $11.6 million and $14.6
million in 2010 and 2009, respectively, and earned a benefit of approximately $33.4 million in
2008. The changes were related to the performance of the investments held in the deferred
compensation plans for plan participants and were directly offset by the income (loss) related to
these plans, as discussed above.
Other
Gain on sale of properties, including land, totaled approximately $0.2 million and $2.9
million for the years ended December 31, 2010 and December 31, 2008, respectively. The gain in
2008 was due to the partial sale of properties to one of the Funds and a gain on the sale of a land
parcel in Las Vegas, Nevada to an unaffiliated third party. There was no gain on sale of
properties, including land, for the year ended December 31, 2009.
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Loss on early retirement of debt was approximately $2.6 million for the year ended December
31, 2009 due to the repurchase and retirement of approximately $325.0 million of various unsecured
and secured notes from unrelated third parties for approximately $327.5 million during the first
two quarters of 2009. Gain on early retirement of debt was approximately $13.6 million for the year ended December 31, 2008 due to
the repurchases and retirements of debt, including a tender offer for certain series of outstanding
debt which resulted in the repurchase and retirement of approximately $108.3 million of debt from
unrelated third parties for approximately $100.6 million, and the repurchases and retirements of
approximately $82.7 million of various series of other outstanding debt from unrelated third
parties for approximately $75.7 million. The gain (loss) on early retirement of debt for these
transactions also includes reductions for the write-off of applicable loan costs. There was no
gain (loss) on early retirement of debt for the year ended December 31, 2010.
The impairment associated with land development activities for the year ended December 31,
2009 of approximately $85.6 million includes approximately $72.2 million related to land holdings
for eight projects, and approximately $13.4 million related to a land development joint venture we
put on hold. The impairment associated with land development activities for the year ended
December 31, 2008 of approximately $51.3 million reflects impairments in the value of land holdings
for several potential development projects, including approximately $48.6 million related to land
holdings for five projects, approximately $1.6 million in the value of a land parcel held for
future development, and approximately $1.1 million for costs capitalized for a potential joint
venture development we did not develop. These impairment charges for land are the difference
between each parcel’s estimated fair value and the carrying value. There were no impairments
associated with land development activities for the year ended December 31, 2010.
During the fourth quarter of 2010, we wrote-off a $1.0 million investment associated with a
technology investment which we determined was no longer recoverable.
Equity in income (loss) of joint ventures decreased approximately $1.5 million for the year
ended December 31, 2010 as compared to 2009, and increased approximately $2.0 million for the year
ended December 31, 2009 as compared to 2008. The decrease for 2010 as compared to 2009 was
primarily the result of decreases in earnings by our stabilized operating joint ventures due to
declines in rental income, and the recognition of net operating losses by certain development joint
ventures during the lease-up phase of operations. The decreases were further impacted by the
consolidation of three operating joint ventures during the second half of 2010, which were
previously accounted for in accordance with the equity method of accounting. These decreases were
partially offset by increases in earnings in development joint ventures reaching or nearing
stabilization during 2009 and 2010. The increase for 2009 as compared to 2008 was primarily the
result of certain properties owned by development joint ventures reaching or nearing stabilization
in 2009 partially offset by declining earnings at our stabilized operating joint ventures due to
declines in rental income.
We had current income tax expense of approximately $1.6 million, $1.0 million, and $0.8
million for the tax years ended December 31, 2010, 2009, and 2008, respectively. The increase in
taxes in 2010 as compared to 2009 primarily related to an increase in federal income taxes
resulting from increased profitability in our construction activities conducted in a taxable REIT
subsidiary. The increase in taxes in 2009 as compared to 2008 primarily related to an increase in
state income taxes.
Noncontrolling interests
Income allocated to noncontrolling interests from continuing operations increased
approximately $1.3 million in 2010 as compared to 2009, and decreased $4.5 million in 2009 as
compared to 2008. During 2009, we recognized an approximately $72.2 million impairment associated
with land holdings for eight projects we had put on hold, of which $3.6 million represented certain
operating partnerships’ interests of the impairment. Excluding this impairment charge, income
allocated to noncontrolling interests from continuing operations decreased approximately $2.3
million and $0.8 million in 2010 as compared to 2009, and 2009 as compared to 2008, respectively.
The $2.3 million decrease in 2010 as compared to 2009 was primarily due to the completion during
the three months ended March 31, 2010 and subsequent lease-up of a property by a fully consolidated
joint venture of which we retain a 25% ownership, which resulted in our recording depreciation and
interest expense on the property, upon completion of construction, in excess of income recognized during the lease-up
period. The decrease was also due to lower earnings associated with properties held by operating
partnerships during 2010 as compared to 2009. The $0.8 million decrease in 2009 was primarily due
to lower earnings associated with properties held by operating partnerships during 2009 as compared
to 2008.
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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 accounting principles generally accepted in
the United States of America (“GAAP”)), excluding gains (or losses) associated with the sale of
previously depreciated operating properties, real estate depreciation and amortization, and
adjustments for unconsolidated joint ventures. Our calculation of diluted FFO also assumes
conversion of all potentially dilutive securities, including certain noncontrolling 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 depreciation, FFO can help one compare the operating performance of a company’s real
estate between periods or as compared to different companies.
To facilitate a clear understanding of our consolidated historical operating results, we
believe FFO should be examined in conjunction with net income attributable to common shareholders
as presented in the consolidated statements of income and comprehensive income and data included
elsewhere in this report. FFO is not defined by GAAP and should not be considered as an
alternative to net income attributable to common shareholders as an indication of our operating
performance. Additionally, FFO as disclosed by other REITs may not be comparable to our
calculation.
Reconciliations of net income attributable to common shareholders to diluted FFO for the years
ended December 31 are as follows:
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Liquidity and Capital Resources
Financial Condition and Sources of Liquidity
We intend to maintain a strong balance sheet and preserve our financial flexibility, which we
believe should enhance 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:
Our interest expense coverage ratio, net of capitalized interest, was approximately 2.6 times
for each of the years ended December 31, 2010, 2009, and 2008. Our interest expense coverage ratio
is calculated by dividing interest expense for the period into the sum of property revenues and
expenses, non-property income, other expenses, income from discontinued operations, after adding
back depreciation, amortization, and interest expense from both continuing and discontinued
operations. This ratio is a method for calculating the amount of operating cash flows available to
cover interest expense. At December 31, 2010, 2009, and 2008, approximately 71.1%, 72.8%, and
78.3%, respectively, of our properties (based on invested capital) were unencumbered. Our weighted
average maturity of debt, including our line of credit, was 5.5 years at December 31, 2010.
For the longer term, we intend to continue to focus on strengthening our capital and liquidity
position by generating positive cash flows from operations, reducing outstanding debt and leverage
ratios, and controlling overhead costs.
Our primary source of liquidity is cash flow generated from operations. Other sources include
available cash balances, the availability under our unsecured credit facility and other short-term
borrowings, proceeds from dispositions of properties and other investments, secured mortgage debt,
and the use of debt and equity offerings under our automatic shelf registration statement. We
believe our liquidity and financial condition are sufficient to meet all of our reasonably
anticipated cash needs during 2011 including:
Factors which could increase or decrease our future liquidity include but are not limited to
volatility in capital and credit markets, sources of financing, our ability to complete asset
sales, the effect our debt level and decreases in credit ratings could have on our costs of funds,
and our ability to access capital markets.
Cash Flows
Certain sources and uses of cash, such as the level of discretionary capital expenditures, and
repurchases of debt and common shares are within our control and are adjusted as necessary based
upon, among other factors, market conditions. The following is a discussion of our cash flows
for the years ended December 31, 2010 and 2009.
Net cash provided by operating activities was approximately $224.0 million during the year
ended December 31, 2010 as compared to approximately $217.7 million during the year ended December
31, 2009. The increase was primarily due to lower interest expense and changes in operating
accounts. The increase was partially offset by declines in property net operating income in 2010
as compared to 2009.
Net cash provided by investing activities during the year ended December 31, 2010 totaled
approximately $35.2 million as compared to net cash used by investing activities of approximately
$69.5 million during the year ended December 31, 2009. Cash outflows for property development,
acquisition, and capital improvements were approximately $63.7 million during 2010 as compared to
approximately $72.8 million during 2009. This decrease was due to the timing of completions of
communities in our development pipeline and a reduction in construction and development activity in
2010 as compared to 2009. Cash inflows from sales of properties including land and discontinued
operations were approximately $102.8 million for the year ended December 31, 2010 as compared to
approximately $28.1 million for the year ended December 31, 2009. Additionally, cash outflows for
investments in joint ventures were $6.5 million for the year ended December 31, 2010 as compared to
$23.2 million in 2009. The decrease in cash outflows for investments in joint ventures in 2010 as
compared to 2009 was primarily a result of our $22.2 million equity investment in one of our joint
ventures during the third quarter 2009.
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Net cash used in financing activities totaled approximately $152.8 million during the year
ended December 31, 2010 primarily as a result of the repayment of maturing outstanding unsecured
notes payable of approximately $137.6 million, repayment of approximately $165.6 million of secured
notes assumed in connection with obtaining controlling interests in three joint ventures and
distributions paid to common shareholders, perpetual preferred unit holders, and noncontrolling
interest holders of approximately $135.6 million. The cash outflows were partially offset by cash
receipts of approximately $231.7 million relating to proceeds received from the sale of
approximately 4.9 million common shares throughout fiscal year 2010 under our ATM share offering
program. Cash outflows were further offset by decreases in accounts receivable from affiliates of
approximately $4.2 million relating to proceeds received from participant withdrawals from our
deferred compensation plans and approximately $53.0 million for proceeds received from secured
notes payable relating to a secured credit agreement for a newly consolidated joint venture and
$4.7 million for advances under a construction loan for one of our communities completing
construction during 2010. Net cash provided by financing activities totaled approximately $91.4
million during the year ended December 31, 2009. During the year ended December 31, 2009, we used
a total of approximately $648.7 million of cash to repay outstanding notes payable consisting of
approximately $169.9 million of outstanding notes payable stemming from our April 2009 tender
offer, the early retirement of outstanding debt consisting of approximately $139.1 million of
secured notes, and approximately $18.2 million of senior unsecured notes. The remaining
outstanding notes payable payments were primarily for maturing secured and unsecured notes payable
of approximately $176.5 million, and payments of all remaining amounts outstanding on our unsecured
line of credit. Also in 2009, $152.7 million was used for distributions paid to common
shareholders, perpetual preferred unit holders, and noncontrolling interest holders. The cash
outflows were offset by cash receipts of $420 million from a secured credit facility entered into
during the second quarter, approximately $20.8 million of cash receipts from secured notes relating
to a construction loan for a consolidated joint venture and net proceeds of approximately $272.1
million from the completion of our equity offering in May 2009.
Financial Flexibility
In August 2010, we entered into a $500 million unsecured credit facility, with the option to
increase this credit facility to $600 million, which matures in August 2012 and may be extended at
our option to August 2013. This facility replaces our $600 million unsecured credit facility which
was scheduled to mature in January 2011. Interest rate spreads float on a margin based on LIBOR
and 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 180 days or less and may not
exceed the lesser of $250 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 are in
compliance.
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 of credit, it does reduce the amount available. At December 31, 2010, we had outstanding
letters of credit totaling approximately $10.2 million, leaving approximately $489.8 million
available under our unsecured line of credit.
We currently have an automatic shelf registration statement on file with the SEC which allows
us to offer, from time to time, an unlimited amount of common shares, preferred shares, debt
securities, or warrants. Our declaration of trust provides we may issue up to 110 million shares
of beneficial interest, consisting of 100 million common shares and 10 million preferred shares.
As of December 31, 2010, we had approximately 69.6 million common shares outstanding, net of
treasury shares and shares held in our deferred compensation arrangements, and no preferred shares
outstanding.
In March 2010, we announced the creation of our ATM share offering program through which we
may, but have no obligation to, sell common shares having an aggregate offering price of up to $250
million, in amounts and at times as we determine, into the existing trading market at current
market prices as well as through negotiated transactions. Actual sales from time to time may
depend on a variety of factors including, among others, market conditions, the trading price of our
common shares, and determinations of the appropriate sources of funding for us. As of the day of
this filing, we had common shares having an aggregate offering price of up to $10.7 million
remaining under the ATM program.
We believe our ability to access capital markets is enhanced by our senior unsecured debt
ratings by Moody’s and Standard and Poor’s, which are currently Baa1 and BBB, respectively, with
stable outlooks, as well as by our ability to borrow on a secured basis from various institutions
including banks, Fannie Mae, Freddie Mac, or life insurance companies. However, we may not be able
to maintain our current credit ratings and may not be able to borrow on a secured or unsecured
basis in the future.
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Future Cash Requirements and Contractual Obligations
One of our principal long-term liquidity requirements includes the repayment of maturing debt,
including any future borrowings under our unsecured line of credit. During 2011, approximately
$154.4 million of unsecured debt, excluding scheduled principal amortizations, are scheduled to
mature. See Note 9, “Notes Payable,” of the Notes to Consolidated Financial Statements for further
discussion of scheduled maturities. Additionally, we intend to incur approximately $57.2 million
of additional capital expenditures on our current development projects and we expect to fund these
amounts through available cash balances and draws on our unsecured line of credit. We intend to
meet our near-term liquidity requirements through available cash balances, cash flows generated
from operations, draws on our unsecured credit facility, proceeds from property dispositions and
secured mortgage notes, and the use of debt and equity offerings under our automatic shelf
registration statement.
In order for us to continue to qualify as a REIT, we are required to distribute annual
dividends to our shareholders equal to a minimum of 90% of our REIT taxable income, computed
without regard to the dividends paid deduction and our net capital gains. In December 2010, we
announced our Board of Trust Managers had declared a dividend distribution of $0.45 per share to
our common shareholders of record as of December 20, 2010. The dividend was subsequently paid on
January 18, 2011. We paid equivalent amounts per unit to holders of common operating partnership
units. When aggregated with previous 2010 dividends, this distribution to common shareholders and
holders of common operating partnership units equates to an annual dividend rate of $1.80 per share
or unit for the year ended December 31, 2010.
The following table summarizes our known contractual cash obligations as of December 31, 2010:
Off-Balance Sheet Arrangements
The joint ventures in which we have an interest have been funded in part with secured,
third-party debt. We have guaranteed no more than our proportionate interest, totaling
approximately $11.0 million, of two loans utilized for construction and development activities for
our joint ventures. We are also committed to additional funding under a mezzanine loan provided to
one joint venture and our commitment to fund additional amounts under this mezzanine loan was an
aggregate of approximately $6.0 million at December 31, 2010.
Inflation
Substantially all of our apartment leases are for a term generally ranging from six to fifteen
months. In an inflationary environment, we may realize increased rents at the commencement of new
leases or upon the renewal of existing leases. We believe the short-term nature of our leases
generally minimizes our risk from the adverse effects of inflation.
Critical Accounting Policies
The preparation of our financial statements in conformity with GAAP requires management to
make certain estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the
balance sheet date, and the amounts of revenues and expenses recognized during the reporting
period. These estimates are based on historical experience and other assumptions believed to be
reasonable under the circumstances. The following is a discussion of our critical accounting estimates. For a discussion of all of our significant accounting policies, see
Note 2 to the accompanying consolidated financial statements.
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Use of Estimates. In the application of GAAP, management is required to make estimates and
assumptions which 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 include estimates supporting our impairment analysis related to the
carrying values of our real estate assets, estimates related to the valuation of our investments in
joint ventures, and estimates and assumptions used to determine the entity with the power to direct
activities that most significantly impacts economic performance of variable interest entities.
These estimates are based on historical experience and other assumptions believed to be reasonable
under the circumstances. Future events rarely develop exactly as forecasted, and the best
estimates routinely require adjustment.
Principles of Consolidation. We may enter into various joint venture agreements with
unrelated third parties to hold or develop real estate assets. We must determine for each of these
joint ventures whether to consolidate the entity or account for our investment under the equity or
cost basis of accounting. Investments acquired or created are continuously evaluated based on the
accounting guidance relating to variable interest entities (“VIEs”), which requires the
consolidation of VIEs in which we are considered to be the primary beneficiary. If the investment
is determined not to be a VIE, then the investment is evaluated for consolidation (primarily using
a voting interest model) under the remaining consolidation guidance relating to real estate
entities. If we are the general partner in a limited partnership, or manager of a limited
liability company, we also consider the consolidation guidance relating to the rights of limited
partners (non-managing members) to assess whether any rights held by the limited partners overcome
the presumption of control by us. We evaluate our accounting for investments on a quarterly basis
or when a reconsideration event (as defined in GAAP) with respect to our investments occurs. The
analysis required to identify VIEs and primary beneficiaries is complex and requires substantial
management judgment. Accordingly, we believe the decisions made to choose an appropriate
accounting framework are critical.
Asset Impairment. Long-lived assets are reviewed for impairment annually or whenever events
or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Impairment exists if estimated future undiscounted cash flows associated with long-lived assets are
not sufficient to recover the carrying value of such assets. We consider projected future
discounted and undiscounted cash flows, trends, strategic decisions regarding future development
plans, and other factors in our assessment of whether impairment conditions exist. When impairment
exists, the long-lived asset is adjusted to its fair value. While we believe our estimates of
future cash flows are reasonable, different assumptions regarding a number of factors, including
market rents, economic conditions, and occupancies could significantly affect these estimates. In
estimating fair value, management uses appraisals, management estimates, and discounted cash flow
calculations that maximize inputs from a marketplace participant’s perspective.
In addition, we evaluate our investments in joint ventures and if we believe there is an other
than temporary decline in market value of our investment, we will record an impairment charge.
The value of our properties under development depends on market conditions, including
estimates of the project start date as well as estimates of demand for multifamily communities. We
have reviewed market trends and other marketplace information and have incorporated this
information as well as our current outlook into the assumptions we use in our impairment analyses.
Due to, among other factors, the judgment and assumptions applied in the impairment analyses and
the fact limited market information regarding the value of comparable land exists at this time, it
is possible actual results could differ substantially from those estimated.
We believe the carrying value of our operating real estate assets, properties under
development, and land is currently recoverable. However, if market conditions deteriorate or if
changes in our development strategy significantly affect any key assumptions used in our fair value
calculations, we may need to take material charges in future periods for impairments related to
existing assets. Any such material non-cash charges would have an adverse effect on our
consolidated financial position and results of operations.
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. Capitalized interest is generally based on our weighted
average interest rate of our unsecured debt. Transaction costs associated with the acquisition of
real estate assets are expensed. Expenditures directly related to the development and improvement
of real estate assets are capitalized at cost as land and buildings and improvements. Indirect
development costs, including salaries and benefits and other related costs directly attributable to
the development of properties are also capitalized. All construction and carrying costs are
capitalized and reported in the balance sheet as 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. Included in capitalized costs are management’s estimates of indirect costs
associated with our development and redevelopment activities. The estimates used by management
require judgment, and accordingly we believe cost capitalization to be a critical accounting
estimate.
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We are exposed to certain market risks inherent in our operations. These risks generally
arise from transactions entered into in the normal course of business. We believe our primary
market risk exposure relates to interest rate risk. We do not enter into derivatives or other
financial instruments for trading or speculative purposes.
The table below provides information about our assets and our liabilities sensitive to changes
in interest rates as of December 31, 2010 and 2009:
We have historically used variable rate indebtedness available under our revolving credit
facility to initially fund acquisitions and our development pipeline. To the extent we utilize our
revolving credit facility thereby increasing our variable rate indebtedness, our exposure to
increases in interest rates will also increase.
For fixed rate debt, interest rate changes affect the fair market value but do not impact net
income attributable to common shareholders or cash flows. Conversely, for floating rate debt,
interest rate changes generally do not affect the fair market value but do impact net income
attributable to common shareholders and cash flows, assuming other factors are held constant.
Holding other variables constant, a one percentage point variance in interest rates would change
the unrealized fair market value of the fixed rate debt by approximately $94.6 million. The net
income attributable to common shareholders and cash flows impact on the next year resulting from a
one percentage point variance in interest rates on floating rate debt, excluding debt effectively
fixed by interest rate swap agreements described below, would be approximately $2.3 million,
holding all other variables constant. We currently use interest rate hedges to reduce the impact
of interest rate fluctuations on certain variable indebtedness, not for trading or speculative
purposes. Under the hedge agreements:
As of December 31, 2010, the effect of our hedge agreements was to fix the interest rate on
approximately $516.6 million of our variable rate debt. Had the hedge agreements not been in place
during 2010, our annual interest costs would have been approximately $23.3 million lower, based on
balances and reported interest rates through the year as the variable interest rates were less than
the effective interest rates on the associated hedge agreements. Additionally, if the variable
interest rates on this debt had been 100 basis points higher through 2010 and the hedge agreements
not been in place, our annual interest cost would have been approximately $5.8 million higher.
Derivative financial instruments expose us to credit risk in the event of non-performance by the
counterparties under the terms of the interest rate hedge agreements. We believe we minimize our
credit risk on these transactions by dealing with major, creditworthy financial institutions. As
part of our on-going control procedures, we monitor the credit ratings of counterparties and our
exposure to any single entity, thus minimizing credit risk concentration. We believe the
likelihood of realized losses from counterparty non-performance is remote.
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Our response to this item is included in a separate section at the end of this report
beginning on page F-1.
None.
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 this report pursuant to Securities Exchange Act (“Exchange Act”) Rules
13a-15(e) and 15d-15(e). Based on the evaluation, the Chief Executive Officer and Chief Financial
Officer concluded the disclosure controls and procedures as of the end of the period covered by
this report are effective to ensure 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 Commission’s rules and forms.
Changes in internal controls. There were no changes in our internal control over financial
reporting (identified in connection with the evaluation required by paragraph (d) in Rules 13a-15
and 15d-15 under the Exchange Act) during our most recent fiscal quarter which have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
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Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f)
and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as follows:
A process designed by, or under the supervision of, the company’s principal executive and
principal financial officers, or persons performing similar functions, and effected by the
company’s board of trustees, management, and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles and includes those
policies and procedures that:
Management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2010. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.
Based on our assessment, management concluded our internal control over financial reporting is
effective as of December 31, 2010.
Deloitte & Touche LLP, an independent registered public accounting firm, has issued an
attestation report regarding the effectiveness of our internal controls over financial reporting,
which is included herein.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trust Managers and Shareholders of
Camden Property Trust Houston, Texas We have audited the internal control over financial reporting of Camden Property Trust and
subsidiaries (the “Company”) as of December 31, 2010, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the
supervision of, the company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the company’s board of trust managers, management,
and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and the board of trust managers of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2010, based on the criteria established in Internal Control
— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and
financial statement schedule of the Company as of
and for the year ended December 31, 2010 and our report dated February 24, 2011 expressed an
unqualified opinion on those financial statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 24, 2011
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None.
PART III
Information with respect to this Item 10 is incorporated by reference from our Proxy
Statement, which we expect to file on or about March 22, 2011 in connection with the Annual
Meeting of Shareholders to be held May 11, 2011.
Information with respect to this Item 11 is incorporated by reference from our Proxy
Statement, which we expect to file on or about March 22, 2011 in connection with the Annual
Meeting of Shareholders to be held May 11, 2011.
Information with respect to this Item 12 is incorporated by reference from our Proxy
Statement, which we expect to file on or about March 22, 2011 in connection with the Annual
Meeting of Shareholders to be held May 11, 2011.
Equity Compensation Plan Information
Information with respect to this Item 13 is incorporated herein by reference from our Proxy
Statement, which we expect to file on or about March 22, 2011 in connection with the Annual
Meeting of Shareholders to be held May 11, 2011.
Information with respect to this Item 14 is incorporated herein by reference from our Proxy
Statement, which we expect to file on or about March 22, 2011 in connection with the Annual
Meeting of Shareholders to be held May 11, 2011.
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PART IV
The following documents are filed as part of this report:
All other schedules have been omitted since the required information is presented in the
financial statements and the related notes or is not applicable.
(3) Index to Exhibits:
The following exhibits are filed as part of or incorporated by reference into this
report:
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Camden Property Trust has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of Camden Property Trust and in the capacities and
on the dates indicated.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trust Managers and Shareholders of
Camden Property Trust Houston, Texas We have audited the accompanying consolidated balance sheets of Camden Property Trust and
subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated
statements of income and comprehensive income, equity, and cash flows for each of the three years
in the period ended December 31, 2010. Our audits also included the financial statement schedule
listed in the Index at Item 15. These financial statements and financial statement schedule are
the responsibility of the Company’s management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Camden Property Trust and subsidiaries as of December 31, 2010 and 2009,
and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2010, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over financial reporting as of December 31,
2010, based on the criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24,
2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 24, 2011
F-1
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CAMDEN PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
See Notes to Consolidated Financial Statements.
F-2
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CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
See Notes to Consolidated Financial Statements.
F-3
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CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Continued)
See Notes to Consolidated Financial Statements.
F-4
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CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF EQUITY
See Notes to Consolidated Financial Statements.
F-5
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CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
See Notes to Consolidated Financial Statements.
F-6
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CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
See Notes to Consolidated Financial Statements.
F-7
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CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
See Notes to Consolidated Financial Statements.
F-8
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Formed on May 25, 1993, Camden Property Trust, a Texas real estate investment trust (“REIT”),
is engaged in the ownership, management, development, acquisition, and construction 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 December 31, 2010, we owned interests in, operated, or were developing 188 multifamily
properties comprising 63,923 apartment homes across the United States. Of these 188 properties,
two properties were under development and when completed will consist of a total of 607 apartment
homes. In addition, we own land parcels we may develop into multifamily apartment communities.
2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Principles of Consolidation. Our consolidated financial statements include our accounts and
the accounts of other subsidiaries and joint ventures (including partnerships and limited liability
companies) over which we have control. All intercompany transactions, balances, and profits have
been eliminated in consolidation. Investments acquired or created are continuously evaluated based
on the accounting guidance relating to variable interest entities (“VIEs”), which requires the
consolidation of VIEs in which we are considered to be the primary beneficiary. If the investment
is determined not to be a VIE, then the investment is evaluated for consolidation (primarily using
a voting interest model) under the remaining consolidation guidance relating to real estate
entities. If we are the general partner of a limited partnership, or manager of a limited
liability company, we also consider the consolidation guidance relating to the rights of limited
partners (non-managing members) to assess whether any rights held by the limited partners overcome
the presumption of control by us.
Allocations of Purchase Price. Upon the acquisition of real estate, we allocate the purchase
price between tangible and intangible assets, which includes land, buildings, furniture and
fixtures, the value of in-place leases, including above and below market leases, and acquired
liabilities. When allocating the purchase price to acquired properties, we allocate costs to the
estimated intangible value of in-place leases and above or below market leases and to the estimated
fair value of furniture and fixtures, land, and buildings on a value determined by assuming the
property was vacant by applying methods similar to those used by independent appraisers of
income-producing property. Depreciation is computed on a straight-line basis over the remaining
useful lives of the related tangible assets. The value of in-place leases and above or below
market leases is amortized over the estimated average remaining life of leases in place at the time
of acquisition. The unamortized value of in-place leases at December 31, 2010, was approximately
$3.9 million. Amortization expense will be recognized over the remaining life of these in-place
leases in 2011. Estimates of fair value of acquired debt are based upon interest rates available
for the issuance of debt with similar terms and remaining maturities.
Asset Impairment. Long-lived assets are reviewed for impairment annually or whenever events
or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Impairment exists if estimated future undiscounted cash flows associated with long-lived assets are
not sufficient to recover the carrying value of such assets. We consider projected future
discounted and undiscounted cash flows, trends, strategic decisions regarding future development
plans, and other factors in our assessment of whether impairment conditions exist. When impairment
exists, the long-lived asset is adjusted to its fair value. While we believe our estimates of
future cash flows are reasonable, different assumptions regarding a number of factors, including
market rents, economic conditions, and occupancies could significantly affect these estimates. In
estimating fair value, management uses appraisals, management estimates, and discounted cash flow
calculations which maximize inputs from a marketplace participant’s perspective.
In addition, we evaluate our investments in joint ventures and if we believe there is an other
than temporary decline in market value of our investment, we will record an impairment charge.
The value of our properties under development depends on market conditions, including
estimates of the project start date as well as estimates of demand for multifamily communities. We
have reviewed market trends and other marketplace information and have incorporated this
information as well as our current outlook into the assumptions we use in our impairment analyses.
Due to, among other factors, the judgment and assumptions applied in the impairment analyses and
the fact limited market information regarding the value of comparable land exists at this time, it
is possible actual results could differ substantially from those estimated.
F-9
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We believe the carrying value of our operating real estate assets, properties under
development, and land is currently recoverable. However, if market conditions deteriorate or if
changes in our development strategy significantly affect any key assumptions used in our fair value
calculations, we may need to take material charges in future periods for impairments related to
existing assets. Any such material non-cash charges would have an adverse effect on our
consolidated financial position and results of operations.
Cash and Cash Equivalents. All cash and investments in money market accounts and other highly
liquid securities with a maturity of three months or less at the date of purchase are considered to
be cash and cash equivalents. We maintain the majority of our cash and cash equivalents at major
financial institutions in the United States and deposits with these financial institutions may
exceed the amount of insurance provided on such deposits; however, we regularly monitor the
financial stability of these financial institutions and believe we are not currently exposed to any
significant default risk with respect to these deposits.
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. Capitalized interest is generally based on the weighted
average interest rate of our unsecured debt. Transaction costs associated with the acquisition of
real estate assets are expensed. Expenditures directly related to the development and improvement
of real estate assets are capitalized at cost as land and buildings and improvements. Indirect
development costs, including salaries and benefits and other related costs directly attributable to
the development of properties are also capitalized. All construction and carrying costs are
capitalized and reported in the balance sheet as 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.
As discussed above, carrying charges are principally interest and real estate taxes
capitalized as part of properties under development and buildings and improvements. Capitalized
interest was approximately $5.7 million, $10.3 million, and $17.7 million for the years ended
December 31, 2010, 2009, and 2008, respectively. Capitalized real estate taxes were approximately
$0.8 million, $1.9 million, and $3.4 million for the years ended December 31, 2010, 2009, and 2008,
respectively.
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 to expense all operating expenses associated with completed apartment homes. We
capitalize renovation and improvement costs we believe extend the economic lives of depreciable
property. Capital expenditures subsequent to initial construction are capitalized and depreciated
over their estimated useful lives.
Depreciation and amortization is computed over the expected useful lives of depreciable
property on a straight-line basis with lives generally as follows:
Derivative Financial Instruments. Derivative financial instruments are recorded in the
consolidated balance sheets at fair value and we do not apply master netting for financial
reporting purposes. Accounting for changes in the fair value of derivatives depends on the
intended use of the derivative, whether we have elected to designate a derivative in a hedging
relationship and apply hedge accounting, and whether the hedging relationship has satisfied the
criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of
the exposure to variability in expected future cash flows or other types of forecasted transactions
are cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or
loss recognition on the hedging instrument with the recognition of the changes attributable to the
earnings effect of the hedged transactions. We may enter into derivative contracts which are
intended to economically hedge certain of our risks, even though hedge accounting does not apply or
we elect not to apply hedge accounting.
F-10
Table of Contents
Discontinued Operations. A property is classified as a discontinued operation when (i) the
operations and cash flows of the property can be clearly distinguished and have been or will be
eliminated from our ongoing
operations; (ii) the property has either been disposed of or is classified as held for sale;
and (iii) we will not have any significant continuing involvement in the operations of the property
after the disposal transactions. Significant judgments are involved in determining whether a
property meets the criteria for discontinued operations reporting and the period in which these
criteria are met. A property is classified as held for sale when (i) management commits to a plan
to sell and it is actively marketed; (ii) it is available for immediate sale in its present
condition and the sale is expected to be completed within one year; and (iii) it is unlikely
significant changes to the plan will be made or the plan will be withdrawn. In isolated instances,
assets held for sale may exceed one year due to events or circumstances beyond our control.
The results of operations for properties sold during the period or classified as held for sale
at the end of the current period are classified as discontinued operations in the current and prior
periods. The property-specific components of earnings classified as discontinued operations
include separately identifiable property-specific revenues, expenses, depreciation, and interest
expense, if any. The gain or loss resulting from the eventual disposal of the held for sale
properties is also classified within discontinued operations. Real estate assets held for sale are
measured at the lower of carrying amount or fair value less costs to sell and are presented
separately in the accompanying consolidated balance sheets. Subsequent to classification of a
property as held for sale, no further depreciation is recorded. Properties sold by our
unconsolidated entities are not included in discontinued operations and related gains or losses are
reported as a component of equity in income (loss) of joint ventures.
Gains on sale of real estate are recognized using the full accrual or partial sale methods, as
applicable, in accordance with accounting principles generally accepted in the United States of
America (“GAAP”), provided various criteria relating to the terms of sale and any subsequent
involvement with the real estate sold are met.
Income Recognition. Our rental and other property revenue is recorded when due from residents
and is recognized monthly as it is earned. Other property revenue consists primarily of utility
rebillings and administrative, application, and other transactional fees charged to our residents.
Our apartment homes are rented to residents on lease terms generally ranging from six to fifteen
months, with monthly payments due in advance. All other sources of income, including from interest
and fee and asset management income, are recognized as earned. Eight of our properties are subject
to rent control. Operations of multifamily properties acquired are recorded from the date of
acquisition in accordance with the acquisition method of accounting. In management’s opinion, due
to the number of residents, the types and diversity of submarkets in which our properties operate,
and the collection terms, there is no significant concentration of credit risk.
Insurance. Our primary lines of insurance coverage are property, general liability, and
health and workers’ compensation. We believe our insurance coverage adequately insures our
properties against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood,
and other perils and adequately insures us against other risks. Losses are accrued based upon our
estimates of the aggregate liability for claims incurred using certain actuarial assumptions
followed in the insurance industry and based on our experience.
Other Assets, Net. Other assets in our consolidated financial statements include investments
under deferred compensation plans, deferred financing costs, non-real estate leasehold improvements
and equipment, prepaid expenses, the value of in-place leases net of related accumulated
amortization, available-for-sale investments, and other miscellaneous receivables. Investments
under deferred compensation plans are classified as trading securities and are adjusted to fair
market value at period end. See further discussion of our investments under deferred compensation
plans in Note 11, “Share-based Compensation and Benefit Plans.” Deferred financing costs are
amortized no longer than the terms of the related debt on the straight-line method, which
approximates the effective interest method. Corporate leasehold improvements and equipment are
depreciated using the straight-line method over the shorter of the expected useful lives or the
lease terms which range from three to ten years. Our available-for-sale investments are carried at
fair value with unrealized gains and losses included in accumulated other comprehensive income
(loss), a separate component of shareholders’ equity.
Reportable Segments. Our multifamily communities are geographically diversified throughout
the United States, and management evaluates operating performance on an individual property level.
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. Our
multifamily communities generate rental revenue and other income through the leasing of apartment
homes, which comprised approximately 97% of our total property revenues and total non-property
income, excluding income (loss) on deferred compensation plans for the year ended December 31,
2010, and approximately 98% for each of the years ended December 31, 2009, and 2008.
F-11
Table of Contents
Restricted Cash. Restricted cash consists of escrow deposits held by lenders for property
taxes, insurance and replacement reserves, cash required to be segregated for the repayment of
residents’ security deposits, and escrowed amounts related to our development and acquisition
activities. Substantially all restricted cash is invested in demand and short-term instruments.
Share-based Compensation. Compensation expense associated with share-based awards is
recognized in our consolidated statements of income and comprehensive income using the grant-date
fair values. Compensation cost for all share-based awards, including options, requires measurement
at estimated 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 is
estimated using the Black-Scholes valuation model. Valuation models require the input of
assumptions, including judgments to estimate the expected stock price volatility, expected life,
and forfeiture rate. The compensation cost for share-based awards is based on the market value of
the shares on the date of grant.
Use of Estimates. In the application of GAAP, management is required to make estimates and
assumptions which 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 include estimates supporting our impairment analysis related to the
carrying values of our real estate assets, estimates related to the valuation of our investments in
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