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CPT > SEC Filings for CPT > Form 10-Q on 2-Nov-2012All Recent SEC Filings

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Form 10-Q for CAMDEN PROPERTY TRUST


2-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes appearing elsewhere in this report, as well as Part I, Item 1A, "Risk Factors" within our Annual Report on Form 10-K for the year ended December 31, 2011. Historical results and trends which might appear in the condensed 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 which 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:

volatility in capital and credit markets, or other unfavorable changes in economic conditions could adversely impact us;

short-term leases expose us to the effects of declining market rents;

we face risks associated with land holdings and related activities;

difficulties of selling real estate could limit our flexibility;

we could be negatively impacted by the condition of Fannie Mae or Freddie Mac;

compliance or failure to comply with laws, including those requiring access to our properties by disabled persons, could result in substantial cost;

competition could limit our ability to lease apartments or increase or maintain rental income;

development and construction risks could impact our profitability;

our acquisition strategy may not produce the cash flows expected;

competition could adversely affect our ability to acquire properties;

losses from catastrophes may exceed our insurance coverage;

investments through joint ventures involve risks not present in investments in which we are the sole investor;

we face risks associated with investments in and management of discretionary funds;

tax matters, including failure to qualify as a REIT, could have adverse consequences;

we depend on our key personnel;

changes in litigation risks could affect our business;

insufficient cash flows could limit our ability to make required payments for debt obligations or pay distributions to shareholders;

we have significant debt, which could have important adverse consequences;

we may be unable to renew, repay, or refinance our outstanding debt;

variable rate debt is subject to interest rate risk;

we may incur losses on interest rate hedging arrangements;

issuances of additional debt may adversely impact our financial condition;

failure to maintain our current credit ratings could adversely affect our cost of funds, related margins, liquidity, and access to capital markets;

share ownership limits and our ability to issue additional equity securities may prevent takeovers beneficial to shareholders;

our share price will fluctuate; and

the form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic or other considerations.

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 September 30, 2012, we owned interests in, operated, or were developing 209 multifamily properties comprising 70,871 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. Property Operations
Our results for the nine months ended September 30, 2012 reflect an increase in rental revenue as compared to the same period in 2011, which we believe was primarily due to a gradually improving economy, favorable demographics, a modest supply of new multifamily housing, and a decrease in home ownership rates, which have resulted in increases in realized rental rates and average occupancy levels. Same store revenues increased 6.5% for the first nine months of 2012, as compared to the same period in 2011. We believe U.S. economic and employment growth will continue during 2012 and the supply of new multifamily homes will continue to be below historical levels. However, we believe significant risks to the economy remain prevalent, and while there have been increases in employment levels in the majority of our markets, the unemployment rate remains at higher than historical levels. If economic conditions in the United States were to worsen, our operating results could be adversely affected. Development Activity
During the nine months ended September 30, 2012, we completed construction of six development projects containing 1,495 units, including one community containing 244 units in one of our discretionary funds in which we have a 20% ownership interest. As of September 30, 2012, three of these projects had achieved stabilization. At September 30, 2012, we had a total of six development projects under construction containing 2,040 units, including one development project containing 276 units in one of our discretionary funds, with initial occupancy occurring between 2012 and 2014. Excluding the development project in one of our discretionary funds, we have remaining expected costs to complete of approximately $178.0 million on the five consolidated projects as of September 30, 2012.
Acquisitions
During the nine months ended September 30, 2012, we acquired sixteen operating properties in five transactions totaling approximately $583.1 million, including assumed debt of approximately $272.6 million. Twelve of these operating properties were former unconsolidated joint ventures in which we acquired the remaining 80% ownership interests. On September 30, 2012, we also acquired the remaining 75% noncontrolling ownership interest in a fully-consolidated joint venture for approximately $10.2 million. During the nine months ended September 30, 2012, we acquired approximately 16.7 acres of land in two transactions for approximately $16.7 million. We intend to utilize these land holdings for development of multifamily apartment communities. We funded these acquisitions through cash generated from operations, proceeds from our at-the-market share offering programs ("ATM programs"), proceeds from an equity offering completed in January 2012, and proceeds from property dispositions.
During the nine months ended September 30, 2012, one of our funds acquired one operating property and two land holdings totaling 18.7 acres which it intends to utilize for development of multifamily apartment communities. In November 2012, we acquired approximately 2.4 acres of land located in Plantation, Florida for approximately $9.0 million. Dispositions
During the first quarter of 2012, we sold three operating properties consisting of 1,033 units for approximately $55.6 million and recognized a gain of approximately $32.5 million on these sales. In August 2012, one of our funds sold one operating property consisting of 253 units located in Austin, Texas for approximately $54.4 million. Our proportionate share of the gain was approximately $2.9 million.
During October 2012, we sold two operating properties consisting of 473 units for approximately $26.6 million. In October 2012, one of our unconsolidated joint ventures also sold an operating property consisting of 596 units located in Kansas City, Missouri for approximately $40.7 million. Future Outlook
Subject to market conditions, we intend to continue to look for opportunities to expand our development pipeline, and acquire existing communities. We continually evaluate our operating property and land development portfolio and plan to continue our practice of selective dispositions as market conditions warrant and opportunities develop. We also intend to continue to strengthen our capital and liquidity positions by continuing to focus on our core fundamentals which we believe are generating positive cash


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flows from operations, maintaining appropriate debt levels and leverage ratios, and controlling overhead costs. We intend to meet our liquidity requirements through cash flows generated from operations, draws on our unsecured credit facility, proceeds from property dispositions and secured mortgages, equity issued from our ATM programs, and the use of debt and equity offerings under our automatic shelf registration statement.
As of September 30, 2012, we had approximately $5.6 million in cash and cash equivalents and approximately $455.1 million available under our $500 million unsecured line of credit. As of the date of this filing, we had common shares having an aggregate offering price of up to $123.6 million remaining available for sale under the 2012 ATM program. We believe our remaining payments on debt maturing in 2012 are manageable at approximately $190.3 million, which represents approximately 8% of our total outstanding debt and includes scheduled principal amortizations of approximately $0.6 million. On October 1, 2012, we repaid a $31.5 million secured third-party note payable which was scheduled to mature in August 2013. This secured debt related to a fully-consolidated joint venture in which we acquired the remaining noncontrolling ownership interest in September 2012. 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 we believe are prudent to meet our objectives and capital requirements.


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Property Portfolio
Our multifamily property portfolio is summarized as follows:
                                              September 30, 2012               December 31, 2011
                                          Apartment                        Apartment
                                           Homes         Properties         Homes         Properties
Operating Properties
Houston, Texas (1)                            9,002               26           9,354               26
Las Vegas, Nevada                             8,016               29           8,016               29
Dallas, Texas                                 6,562               17           5,979               15
Tampa, Florida                                6,493               15           5,953               13
Washington, D.C. Metro                        5,791               17           5,604               16
Atlanta, Georgia                              3,769               13           3,546               12
Orlando, Florida                              3,764                9           3,564                9
Charlotte, North Carolina                     3,574               15           3,574               15
Austin, Texas (2)                             3,213               10           3,222               10
Raleigh, North Carolina                       3,054                8           2,704                7
Southeast Florida                             2,520                7           2,520                7
Los Angeles/Orange County, California         2,481                6           2,481                6
Denver, Colorado                              2,171                7           2,171                7
Phoenix, Arizona                              2,076                7           2,433                8
San Diego/Inland Empire, California           1,665                5           1,196                4
Other                                         4,680               12           4,680               12
Total Operating Properties                   68,831              203          66,997              196
Properties Under Development
Washington, D.C. Metro                          596                2             783                3
Orlando, Florida                                438                1             858                2
Denver, Colorado                                424                1               -                -
Austin, Texas                                   314                1             244                1
Houston, Texas                                  268                1             372                2
Tampa, Florida                                    -                -             540                2
Total Properties Under Development            2,040                6           2,797               10
Total Properties                             70,871              209          69,794              206
Less: Unconsolidated Joint Venture
Properties (3)
Houston, Texas                                3,152               10           4,368               13
Las Vegas, Nevada                             3,098               14           4,047               17
Austin, Texas                                 1,360                4           1,613                5
Dallas, Texas                                 1,250                3           1,706                4
Tampa, Florida                                  450                1             450                1
Raleigh, North Carolina                         350                1               -                -
Atlanta, Georgia                                344                2             344                2
Denver, Colorado                                320                1             320                1
Washington, D.C. Metro                          276                1             276                1
Phoenix, Arizona                                  -                -             992                4
Los Angeles/Orange County, California             -                -             421                1
Other                                         2,841                8           2,841                8
Total Unconsolidated Joint Venture
Properties                                   13,441               45          17,378               57
Total Properties Fully Consolidated          57,430              164          52,416              149

(1) Includes one property consisting of 290 apartment homes located in Houston which was included in properties held for sale at September 30, 2012. This property was sold in October 2012.

(2) Includes one property consisting of 183 apartment homes located in Austin which was included in properties held for sale at September 30, 2012. This property was sold in October 2012.


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(3) Refer to Note 7, "Investments in Joint Ventures" in the notes to condensed consolidated financial statements for further discussion of our joint venture investments.

Acquisitions

During the nine months ended September 30, 2012, we completed acquisitions of
seventeen operating properties and one of our unconsolidated joint ventures
completed an acquisition of one operating property as follows:
                                                         Number of        Date of
                                                         Apartment      Acquisition
Acquisitions of Operating Properties     Location          Homes            (1)
Consolidated acquisitions:
Camden Addison                            Dallas, TX              456      1/25/2012
Camden Holly Springs                     Houston, TX              548      1/25/2012
Camden Park                              Houston, TX              288      1/25/2012
Camden Sugar Grove                       Houston, TX              380      1/25/2012
Camden Parkside                        Fullerton, CA              421      1/25/2012
Camden Fountain Palms                    Phoenix, AZ              192      1/25/2012
Camden Pecos Ranch                       Phoenix, AZ              272      1/25/2012
Camden Sierra                            Phoenix, AZ              288      1/25/2012
Camden Towne Center                      Phoenix, AZ              240      1/25/2012
Camden Pines                           Las Vegas, NV              315      1/25/2012
Camden Summit                          Las Vegas, NV              234      1/25/2012
Camden Tiara                           Las Vegas, NV              400      1/25/2012
Camden Belmont                            Dallas, TX              477      6/28/2012
Camden Creekstone                        Atlanta, GA              223      7/12/2012
Camden Landmark                          Ontario, CA              469      9/27/2012
Camden Henderson                          Dallas, TX              106      9/28/2012
Camden Travis Street (2)                 Houston, TX              253      9/30/2012
Consolidated total                                              5,562

Camden Asbury Village (3)                Raleigh, NC              350      1/27/2012

(1) The properties acquired on January 25, 2012 were former unconsolidated joint ventures in which we acquired the remaining 80% ownership interests. The 4,034 apartment homes were previously included in our unconsolidated joint venture property count.
(2) Acquired the remaining 75% noncontrolling ownership interest in a fully consolidated joint venture. The 253 apartment homes were previously included in our consolidated property count.
(3) Property owned through an unconsolidated joint venture in which we own a 20% interest. During the nine months ended September 30, 2012, we acquired two land tracts and one of our unconsolidated joint ventures also acquired two land tracts as follows:

Location of Land Tract Acquisitions   Acreage    Date of Acquisition
Dallas, TX                                 4.7              5/8/2012
Austin, TX                                12.0             8/23/2012
Consolidated total                        16.7

Orlando, FL (1)                          15.0              3/22/2012
Charlotte, NC (1)                         3.7              9/28/2012
Unconsolidated total                     18.7

(1) Land tract owned through an unconsolidated joint venture in which we own a 20% interest. In November 2012, we acquired approximately 2.4 acres of land located in Plantation, Florida for approximately $9.0 million.


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Dispositions
During the nine months ended September 30, 2012, we sold three operating
properties and one of our unconsolidated joint ventures sold one operating
property as follows:
                                                         Number of
Dispositions of Operating Properties     Location     Apartment Homes    Date of Disposition
Camden Vista Valley                     Phoenix, AZ              357               1/12/2012
Camden Landings                         Orlando, FL              220                3/7/2012
Camden Creek                            Houston, TX              456               3/16/2012
Consolidated total                                             1,033

Camden South Congress (1)                Austin, TX              253               8/30/2012

(1) Property formerly owned through an unconsolidated joint venture in which we own a 20% interest. During October 2012, we sold Camden Laurel Ridge comprised of 183 apartment homes located in Austin, Texas and Camden Steeplechase comprised of 290 apartment homes located in Houston, Texas. During October 2012, one of our unconsolidated joint ventures also sold an operating property, Camden Passage, comprised of 596 units located in Kansas City, Missouri. Stabilized Communities
We generally consider a property stabilized once it reaches 90% occupancy at the beginning of a period. During the three months ended September 30, 2012, stabilization was achieved at three recently completed development properties as follows:

                                      Number of                                          Date of
                                      Apartment      Total Cost      % Occupied at     Construction      Date of
Stabilized Property and Location        Homes         Incurred          10/28/12        Completion    Stabilization
Camden LaVina
Orlando, FL                                420     $       55.5          96 %                  1Q12            3Q12
Camden Summerfield II
Landover, MD                               187             25.0          95 %                  1Q12            3Q12
Camden Montague
Tampa, FL                                  192             20.0          96 %                  2Q12            3Q12
Total                                      799     $      100.5

Development and Lease-Up Properties
At September 30, 2012, we had two consolidated completed properties and one
completed property owned by one of our unconsolidated joint ventures in lease-up
as follows:
                                 Number of                                        Date of        Estimated
($ in millions)                  Apartment        Cost          % Leased at     Construction      Date of
Property and Location              Homes        Incurred         10/28/12        Completion    Stabilization
Camden Royal Oaks II
Houston, TX                           104     $      13.2          61 %                 1Q12            3Q13
Camden Westchase Park (1)
Tampa, FL                             348            48.0          95 %                 3Q12            4Q12
   Consolidated total                 452     $      61.2

Camden Amber Oaks II (2)
Austin, TX                            244     $      21.9          86 %                 3Q12            1Q13

(1) Property reached stabilization subsequent to September 30, 2012.
(2) Property owned through an unconsolidated joint venture in which we own a 20% interest.

Our condensed consolidated balance sheet at September 30, 2012 included approximately $280.9 million related to properties under development and land. Of this amount, approximately $108.5 million related to our projects currently under construction. In addition, we had approximately $172.4 million primarily invested in land held for future development, which included


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approximately $131.2 million related to projects we expect to begin constructing during the next two years, and approximately $41.2 million related to land tracts which we may develop in the future.
Communities Under Construction. At September 30, 2012, we had five consolidated properties and one of our unconsolidated joint ventures had one property in various stages of construction as follows:

                                                                   Included in      Estimated
($ in millions)     Number of                                      Properties        Date of        Estimated
Property and        Apartment      Estimated         Cost             Under        Construction      Date of
Location              Homes          Cost          Incurred        Development      Completion    Stabilization
Camden Town Square
(1)
Orlando, FL              438     $      66.0     $      58.4     $         7.9             4Q12            3Q13
Camden City Centre
II
Houston, TX              268            36.0            22.3              22.3             2Q13            3Q14
Camden NOMA
Washington, DC           320           110.0            60.7              60.7             2Q14            2Q15
Camden Lamar
Heights
Austin, TX                 314          47.0             7.8               7.8             2Q14            3Q15
Camden Flatirons
Denver, CO               424            78.0             9.8               9.8             4Q14            4Q16
Consolidated total     1,764     $     337.0     $     159.0     $       108.5

Camden South
Capitol (2)
Washington, DC           276     $      88.0     $      58.3     $        58.3             4Q13            3Q14

(1) Property in lease-up as of September 30, 2012.

(2) Property owned through an unconsolidated joint venture in which we own a 20% interest.

Development Pipeline Communities. At September 30, 2012, we had the following communities undergoing development activities:

($ in millions)                                             Total Estimated
Property and Location                  Projected Homes          Cost (1)          Cost to Date
Camden Glendale Triangle
Glendale, CA                                        303     $        115.0       $        28.2
Camden Boca Raton
Boca Raton, FL                                      261               54.0                 7.2
Camden Paces (Phase 1)
Atlanta, GA                                         379 (2)          110.0   (2)          48.0   (3)
Camden La Frontera
Austin, TX                                        300                 32.0                 3.6
Camden Victory Park
Dallas, TX                                        425                 70.0                14.2
Camden Hollywood
Los Angeles, CA                                   299                125.0                18.0
Camden Lincoln Station
Denver, CO                                          275               48.0                 5.1
Camden McGowen Station
Houston, TX                                       251                 40.0                 6.9
Total                                           2,493       $        594.0       $       131.2

(1) Represents our best estimate of the total costs we expect to incur on these projects. However, forward-looking statements are not guarantees of future performances, results, or events. Although we believe these expectations are based upon reasonable assumptions, future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment.
(2) This development will be developed in two phases. The estimated cost and projected homes are for phase one only.
(3) Represents cost to date for both phases.


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Land Holdings. At September 30, 2012, we had the following land tracts:
($ in millions)

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