Filed by Bowne Pure Compliance
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
(Mark One)
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 1-12110
CAMDEN PROPERTY TRUST
(Exact name of registrant as specified in its charter)
     
Texas
(State or other jurisdiction of
incorporation or organization)
  76-6088377
(I.R.S. Employer
Identification No.)
     
3 Greenway Plaza, Suite 1300
Houston, Texas

(Address of principle executive offices)
  77046
(Zip Code)
Registrant’s telephone number, including area code: (713) 354-2500
Securities registered pursuant to Section 12(b) of the Act:
     
Title of each class   Name of each exchange on which registered
Common Shares of Beneficial Interest, $.01 par value   New York Stock Exchange
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in the Rule 12b-2 of the Exchange Act). Yes o No þ
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $2,271,950,779 based on a June 30, 2008 share price of $44.26.
On February 17, 2009, the number of outstanding common shares of the registrant’s was 53,321,917.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement in connection with its Annual Meeting of Shareholders to be held May 6, 2009 are incorporated by reference in Part III.
 
 

 

 


 

TABLE OF CONTENTS
         
    Page  
 
       
       
 
       
    1  
 
       
    3  
 
       
    10  
 
       
    10  
 
       
    16  
 
       
    16  
 
       
       
 
       
    17  
 
       
    18  
 
       
    19  
 
       
    39  
 
       
    39  
 
       
    40  
 
       
    40  
 
       
    43  
 
       
       
 
       
    43  
 
       
    43  
 
       
    43  
 
       
    43  
 
       
    43  
 
       
       
 
       
    44  
 
       
    51  
 
       
 Exhibit 12.1
 Exhibit 21.1
 Exhibit 23.1
 Exhibit 24.1
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1

 

ii


Table of Contents

PART I
Item 1. Business
General Development of Business
Formed on May 25, 1993, Camden Property Trust, a Texas real estate investment trust (“REIT”), is engaged in the ownership, development, construction, and management of multifamily apartment communities. Unless the context requires otherwise, “we,” “our,” “us,” and the “Company” refer to Camden Property Trust and its consolidated subsidiaries and partnerships, collectively. 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. This information is also available in print, free of charge to any person who requests it, by contacting us at Camden Property Trust, 3 Greenway Plaza, Suite 1300, Houston, Texas 77046, attention: Investor Relations.
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, N.E., 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 engaged in the ownership, development, construction, and management of multifamily apartment communities. As each of our apartment communities has similar economic characteristics, residents, and products 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, 2008, we owned interests in, operated, or were developing 186 multifamily properties comprising 64,329 apartment homes across the United States. We had 1,426 apartment homes under development at five of our multifamily properties, including 1,060 apartment homes at four multifamily properties owned through joint ventures, in which we own an interest, in addition to other sites we may develop into multifamily apartment communities. Additionally, one property comprised of 671 apartment homes was designated as held for sale.
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 to produce earnings growth.
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.

 

1


Table of Contents

We have historically focused our operating strategy on capturing greater market share, selectively disposing of properties, and redeploying capital in new multifamily communities while also maintaining a strong balance sheet. We have also actively evaluated acquisition opportunities as they arose, some of which were consummated and contributed to our growth and profitability.
We continue to operate in our core markets in which we believe we have an advantage due to economies of scale. We feel, 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.
Due to weakness and unpredictability in the capital and credit markets and real estate fundamentals, we believe our revenues may decline in 2009 as compared to 2008. Although we believe our business and long-term fundamentals which support increased revenues, such as population growth, remain strong and the current difficult conditions will moderate over time, the timing of an economic recovery is unclear and these conditions may not improve quickly. Consequently, our near-term primary focus is to strengthen our capital and liquidity position by selectively disposing of properties, controlling and reducing construction and overhead costs, generating positive cash flows from operations, and reducing outstanding debt and leverage ratios. While we expect development to continue to be important to the growth of our portfolio in the long term, we expect decreasing levels of development activity in 2009 as compared to prior years. Please review the “Risk Factors” section for a further discussion of the potential impact on us of current economic conditions.
We believe the current economic downturn may provide us with opportunities to acquire selective multifamily assets at attractive valuations. In certain instances, such acquisitions may provide us with benefits we would not be able to achieve by developing our own multifamily communities, such as the avoidance of incurring development or construction expenses. We intend to seek to limit the risks associated with such acquisitions by targeting those opportunities we believe will have a positive impact on our earnings within an acceptable period of time.
In the fourth quarter of 2007, we had the final closing of our discretionary investment vehicle, Camden Multifamily Value Add Fund, L.P. (the “Fund”), followed by the final closing of a co-investment limited partnership (the “Co-Investment Vehicle” and, together with the Fund, the “Funds”) in the second quarter of 2008. During the investment period (ending no later than December 2011), the Funds will be our exclusive vehicles for acquiring apartment communities, subject to certain exceptions. Over the next several years, we expect to increase our acquisition activity through the Funds, focusing on communities that can benefit from redevelopment, repositioning, or market cycle opportunities. Please review the “Risk Factors” section for a discussion of risks associated with acquisitions and the Funds.
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 net operating income. 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.

 

2


Table of Contents

Investments in Joint Ventures. We have entered into, and may continue in the future to enter into, joint ventures or partnerships (including limited liability companies) through which we own an indirect economic interest of less than 100% of the community or communities owned directly by the joint venture or partnership. See Note 7, “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 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.
Employees
At December 31, 2008, we had approximately 1,800 employees, including executive, administrative, and community personnel.
Qualification as a Real Estate Investment Trust
As of December 31, 2008, 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 meet certain requirements of the Code.
Item 1A. Risk Factors
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. Please note 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 could adversely impact us.
The capital and credit markets have been experiencing extreme volatility and disruption, which has caused the spreads on prospective debt financings to widen considerably and made it more difficult to borrow money. If current levels of market disruption and volatility continue or worsen, 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 and our ability to make distributions to shareholders. This market turmoil and tightening of credit have led to an increased lack of consumer confidence and widespread reduction of business activity generally, which have adversely impacted and may continue to adversely impact us, including our ability to acquire and dispose of assets and continue our development pipeline.
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 rental real estate. We and other multifamily companies depend heavily on Fannie Mae and Freddie Mac to finance growth by purchasing apartment loans. In September 2008, the U.S. government assumed control of Fannie Mae and Freddie Mac and placed both companies into a government conservatorship under the recently created Federal Housing Finance Agency. The U.S. government has not determined which of Fannie Mae’s and Freddie Mac’s businesses to retain and which to dissolve. A decision by the government to reduce Fannie Mae’s or Freddie Mac’s acquisitions of apartment loans could adversely affect interest rates, capital availability, and the development of multifamily communities. Governmental actions could also make it easier for individuals to finance loans for single-family homes, which would make renting a less attractive option and adversely affect our occupancy or rental rates.

 

3


Table of Contents

Unfavorable changes in economic conditions could adversely impact occupancy or rental rates.
Weakened economic conditions, including decreased job growth and job losses, have affected and continue to significantly affect apartment home occupancy and rental rates. Significant decreases in occupancy or rental rates in the markets in which we operate, in turn, may have a material adverse impact on our cash flows and operating results. The risks which may affect conditions in these markets include the following:
   
changes in the national, regional, and local economic climates;
 
   
local conditions, such as an oversupply of apartments or other housing available for rent, or a reduction in demand for apartments in the area;
 
   
a continued economic downturn which simultaneously effects one or more of our geographical markets; and
 
   
increased operating costs, if these costs cannot be passed through to residents.
We may experience a decrease in rental revenues, an increase in operating expenses, or a combination of both, which may adversely affect our results of operations and our ability to satisfy our financial obligations and to pay distributions to shareholders.
We face risks associated with land holdings.
We hold land for future development and may in the future acquire additional land holdings. The risks inherent in owning or purchasing 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 as a result of changing market conditions. In addition, carrying costs can be significant and can result in losses or reduced margins in a poorly performing project. 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 recover fully or on which we cannot build and develop into a profitable multifamily community. Also, real estate markets are highly uncertain and, as a result, the value of undeveloped land has fluctuated significantly and may continue to fluctuate as a result of changing market conditions. Under current market conditions, we have recorded impairment charges on certain of our land held for development and may have future impairments of our land. These impairment charges are based on estimates of fair value. Given the current environment, the amount of market information available to estimate fair value is less than usual; if additional market information becomes available in future periods we may take additional impairment charges in the future.
Difficulties of selling real estate could limit our flexibility.
We intend to evaluate the potential disposition of assets that may no longer help us 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 difficulties have been exacerbated in the current credit environment because buyers have experienced difficulty in obtaining the necessary financing. 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, in order to maintain our status as a REIT, the Code imposes restrictions on our ability to sell properties held fewer than two years, which may cause us to incur losses thereby reducing our cash flows and adversely impacting our ability to make distributions to shareholders or repay debt.

 

4


Table of Contents

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 generally require public accommodations 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 burdens 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 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.
Although we expect decreasing levels of development activity in 2009, as compared to prior years, in the long term we intend to continue to develop and construct multifamily apartment communities for our property portfolio. Our development and construction activities may be exposed to a number of risks which may increase our construction costs including the following:
   
inability to obtain, or delays in obtaining, necessary zoning, land-use, building, occupancy, and other required permits and authorizations, or problems with subcontractors could result in increased costs;
 
   
incurring construction costs exceeding our original estimates due to increased materials, labor, or other costs, or due to errors and omissions which occur in the design or construction process;
 
   
experiencing fluctuations in occupancy rates and rents at a newly completed property which may not be adequate to make the property profitable;
 
   
inability to obtain financing with favorable terms for the development of a community;
 
   
inability to complete construction and lease-up of a community on schedule, resulting in increased costs;
 
   
incurring costs related to the abandonment of development opportunities which we have pursued and deemed unfeasible; and
 
   
inability to successfully implement our development and construction strategy could adversely affect our results of operations and our ability to satisfy our financial obligations and pay distributions to shareholders.
We also serve as the general contractor on a limited number of development and construction projects related to properties owned by unrelated third parties pursuant to guaranteed maximum price contracts. The terms of these contracts require us to estimate the time and costs to complete a project, and we assume the risk the time and costs associated with our performance may be greater than was anticipated. As a result, our profitability on guaranteed maximum price contracts is dependent on our ability to accurately predict these factors. The time and costs may be affected by a variety of factors, including those listed above, many of which are beyond our control. In addition, the terms of these contracts generally require a warranty period, which may have a duration of up to ten years, during which we may be required to repair, replace, or rebuild a project in the event of a material defect.

 

5


Table of Contents

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:
   
we may not be able to successfully integrate acquired properties into our existing operations;
 
   
our estimates of the costs of repositioning or redeveloping the acquired property may prove inaccurate;
 
   
the expected occupancy and rental rates may differ from the actual results; and
 
   
we may not be able to obtain adequate financing.
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 new 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. 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.
Investments through joint ventures and partnerships involve risks not present in investments in which we are the sole investor.
We have invested and may continue to invest as a partner in joint ventures or partnerships. These investments involve risks, including the possibility our 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 or partnership’s financial obligations. We and our partner may each have the right to initiate a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have entered into such a transaction. Each joint venture or partnership agreement is individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture or partnership 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 and to which we have committed 20% of the total equity interest, up to $75 million in the aggregate. As of December 31, 2008, the Funds had total capital commitments of $375 million. There are risks associated with the investment in and management of the Funds, including the following:
   
investors in the Funds may fail to make their capital contributions when due and, as a result, the Funds may be unable to execute their investment objectives;
 
   
the general partner of the Funds, our wholly-owned subsidiary, has unlimited liability for the third-party debts, obligations, and liabilities of the Funds pursuant to general partnership law;

 

6


Table of Contents

   
investors in the Funds (other than us), by majority vote, may remove our subsidiary as the general partner of the Funds with or without cause and the Funds’ advisory boards, by a majority vote of their members, may remove our subsidiary as the general partner of the Funds at any time for cause;
 
   
while we have broad discretion to manage the Funds and make investment decisions on behalf of the Funds, the investors or the advisory committees must approve certain matters, and as a result we may be unable to cause the Funds to make certain investments or implement certain decisions we consider beneficial;
 
   
we are permitted to acquire land and develop communities but are generally prohibited from acquiring fully developed multifamily properties outside of the Funds until the earlier of (i) December 31, 2011 or (ii) such time as 90% of the Funds’ committed capital is invested, subject to certain exceptions;
 
   
our ability to redeem all or a portion of our investments in the Funds is subject to significant restrictions; and
 
   
we may be liable if the Funds fail to comply with various tax or other regulatory matters.
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.
Changes in laws and 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 in the future as a REIT. 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 would be subject to federal income tax on our taxable income at regular corporate rates, including any applicable alternative minimum tax;
 
   
we would be disqualified from treatment as a REIT for the four taxable years following the year in which we failed to qualify, thereby reducing our net earnings available for operations, including any distributions to shareholders, as we would be required to pay significant income taxes for the year or years involved; and
 
   
our ability to expand our business and raise capital would be impaired, which may adversely affect the value of our common shares.
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 at either the corporate or individual property levels. Any additional tax expense incurred would decrease the cash available for distribution to our shareholders.

 

7


Table of Contents

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:
   
delay in resident lease commencements;
 
   
decline in occupancy;
 
   
failure of residents to make rental payments when due;
 
   
the attractiveness of our properties to residents and potential residents;
 
   
our ability to adequately manage and maintain our properties;
 
   
competition from other available apartments and housing alternatives; and
 
   
changes in market rents.
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 are required to distribute annual dividends equal to a minimum of 90% of our REIT taxable income, computed without regards 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.
We have significant debt, which could have important adverse consequences.
As of December 31, 2008, we had outstanding debt of approximately $2.8 billion. This indebtedness could have important consequences, including:
   
if a property is mortgaged to secure payment of indebtedness, and if we are unable to meet our mortgage obligations, we could sustain a loss as a result of foreclosure on the mortgage;
 
   
our vulnerability to general adverse economic and industry conditions is increased; and
 
   
our flexibility in planning for, or reacting to, changes in business and industry is limited.
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, which could severely 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 unsecured indebtedness, will not be able to 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 upon 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 Internal Revenue Code.

 

8


Table of Contents

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.
Periodically, 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 or equity may adversely impact our financial condition.
Our capital requirements depend on numerous factors, including the 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. Accordingly, 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.
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, 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. In light of the difficulties in the real estate industry and the volatile financial markets, 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.

 

9


Table of Contents

Our share price will fluctuate.
Stock markets in general and our common shares have experienced significant price volatility over the past year. The market price and volume of our common shares may continue to be subject to significant fluctuations due not only to general stock market conditions but also to the risk factors discussed in this report and the following:
   
operating results which vary from the expectations of securities analysts and investors;
 
   
investor interest in our property portfolio;
 
   
the reputation and performance of REITs;
 
   
the attractiveness of REITs as compared to other investment vehicles;
 
   
the results of our financial condition and operations;
 
   
the perception of our growth and earnings potential;
 
   
dividend payment rates;
 
   
increases in market rates, which may lead purchasers of our common shares to demand a higher yield; and
 
   
changes in financial markets and national economic and general market conditions.
We may reduce dividends on our equity securities or elect to pay a portion of the dividend in common shares.
On November 24, 2008, we announced our Board of Trust Managers had declared a fourth quarter dividend of $0.70 per common share, totaling $2.80 per share for the year ended December 31, 2008. In order for us to continue to qualify as a REIT we are required to distribute annual dividends equal to a minimum of 90% of our REIT taxable income, computed without regards to the dividends paid deduction and our net capital gains. However, in the event of, among other factors, continued material future deterioration in business conditions, or continuing tightening in the credit markets, our Board of Trust Managers may decide to reduce our dividend while ensuring compliance with the requirements of the Code related to REIT qualification. In December 2008, the Internal Revenue Service announced it would treat a cash option share dividend as satisfying a public REIT’s distribution requirements for 2008 and 2009 so long as certain requirements are met. We may elect to pay dividends during this period in part in our common shares which would cause dilution to our earnings per share given the additional shares outstanding.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
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, tennis courts, 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.

 

10


Table of Contents

Operating Properties
The 181 operating properties, including properties held through joint ventures, which we owned interests in and operated at December 31, 2008, averaged 915 square feet of living area per apartment home. For the year ended December 31, 2008, no single operating property accounted for greater than 2.2% of our total revenues. Our operating properties, including properties held through joint ventures, had a weighted average occupancy rate of 93.9% and 93.7% for 2008 and 2007, respectively. Resident lease terms generally range from six to fifteen months. One hundred and fifty-six of our operating properties have over 200 apartment homes, with the largest having 904 apartment homes. Our operating properties have an average age of 9.6 years (calculated on the basis of investment dollars). Our operating properties were constructed and placed in service as follows:
         
Year Placed in Service   Number of Operating Properties  
 
       
2001-2008
    46  
 
       
1996-2000
    57  
 
       
1991-1995
    19  
 
       
1986-1990
    39  
 
       
1980-1985
    15  
 
       
Prior to 1980
    5  

 

11


Table of Contents

Property Table
The following table sets forth information with respect to our operating properties at December 31, 2008.
OPERATING PROPERTIES
                             
    Number of     Year Placed     Average Apartment   2008 Average  
Property and Location   Apartments     In Service     Size (Sq. Ft.)   Occupancy (1)  
ARIZONA
                           
Phoenix
                           
Camden Copper Square
    332       2000     786     93.1 %
Camden Fountain Palms (8)
    192       1986/1996     1,050     91.5  
Camden Legacy
    428       1996     1,067     93.7  
Camden Pecos Ranch (8)
    272       2001     924     93.6  
Camden San Paloma
    324       1993/1994     1,042     94.0  
Camden Sierra (8)
    288       1997     925     91.4  
Camden Towne Center (8)
    240       1998     871     92.2  
Camden Vista Valley
    357       1986     923     91.1  
CALIFORNIA
                           
Los Angeles/Orange County
                           
Camden Crown Valley
    380       2001     1,009     95.1  
Camden Harbor View
    538       2004     975     94.8  
Camden Main & Jamboree (2) (12)
    290       2008     1,011   Lease-Up  
Camden Martinique
    714       1986     794     93.8  
Camden Parkside (8)
    421       1972     836     92.9  
Camden Sea Palms
    138       1990     891     95.4  
San Diego/Inland Empire
                           
Camden Old Creek (3)
    350       2007     1,037     92.8  
Camden Sierra at Otay Ranch
    422       2003     962     94.6  
Camden Tuscany
    160       2003     896     96.4  
Camden Vineyards
    264       2002     1,053     91.3  
COLORADO
                           
Denver
                           
Camden Caley
    218       2000     925     95.9  
Camden Centennial
    276       1985     744     94.2  
Camden Denver West (9)
    320       1997     1,015     95.4  
Camden Highlands Ridge
    342       1996     1,149     96.0  
Camden Interlocken
    340       1999     1,022     96.7  
Camden Lakeway
    451       1997     932     94.1  
Camden Pinnacle
    224       1985     748     92.7  
WASHINGTON DC METRO
                           
Camden Ashburn Farms
    162       2000     1,062     95.7  
Camden Clearbrook
    297       2007     1,048     94.9  
Camden College Park (2) (12)
    508       2008     942   Lease-Up  
Camden Fair Lakes
    530       1999     1,056     95.0  
Camden Fairfax Corner
    488       2006     934     96.5  
Camden Fallsgrove
    268       2004     996     97.8  
Camden Grand Parc
    105       2002     674     95.9  
Camden Lansdowne
    690       2002     1,006     96.0  
Camden Largo Town Center
    245       2000/2007     1,027     91.3  
Camden Monument Place (3)
    368       2007     856     93.2  
Camden Potomac Yard (2)
    378       2008     835   Lease-Up  
Camden Roosevelt
    198       2003     856     96.1  
Camden Russett
    426       2000     992     95.3  
Camden Silo Creek
    284       2004     975     95.2  
Camden Summerfield (2)
    291       2008     957   Lease-Up  
Camden Westwind
    464       2006     1,036     95.9  
FLORIDA
                           
Southeast Florida
                           
Camden Aventura
    379       1995     1,108     94.7  
Camden Brickell
    405       2003     937     96.4  
Camden Doral
    260       1999     1,120     97.3  
Camden Doral Villas
    232       2000     1,253     97.4  
Camden Las Olas
    420       2004     1,043     92.8  
Camden Plantation
    502       1997     1,201     93.7  
Camden Portofino
    322       1995     1,112     96.1  

 

12


Table of Contents

OPERATING PROPERTIES (CONTINUED)
                             
    Number of     Year Placed     Average Apartment   2008 Average  
Property and Location   Apartments     In Service     Size (Sq. Ft.)   Occupancy (1)  
Orlando
                           
Camden Club
    436       1986     1,077     94.1 %
Camden Hunter’s Creek
    270       2000     1,075     96.7  
Camden Lago Vista
    366       2005     955     93.8  
Camden Landings
    220       1983     748     93.6  
Camden Lee Vista
    492       2000     937     92.8  
Camden Orange Court (2)
    261       2008     812   Lease-Up  
Camden Renaissance
    578       1996/1998     899     93.3  
Camden Reserve
    526       1990/1991     824     93.6  
Camden World Gateway
    408       2000     979     95.4  
Tampa/St. Petersburg
                           
Camden Bay
    760       1997/2001     943     93.2  
Camden Bay Pointe
    368       1984     771     93.8  
Camden Bayside
    832       1987/1989     748     94.7  
Camden Citrus Park
    247       1985     704     93.3  
Camden Lakes
    688       1982/1983     732     93.4  
Camden Lakeside
    228       1986     729     93.8  
Camden Live Oaks
    770       1990     1,093     94.2  
Camden Preserve
    276       1996     942     94.2  
Camden Providence Lakes (4)
    260       1996     1,024     92.2  
Camden Royal Palms
    352       2006     1,017     88.5  
Camden Westshore (4)
    278       1986     728     92.4  
Camden Woods
    444       1986     1,223     93.8  
GEORGIA
                           
Atlanta
                           
Camden Brookwood
    359       2002     912     93.7  
Camden Deerfield
    292       2000     1,187     93.5  
Camden Dunwoody
    324       1997     1,007     95.1  
Camden Midtown Atlanta
    296       2001     935     94.1  
Camden Peachtree City
    399       2001     1,027     95.5  
Camden River
    352       1997     1,103     94.4  
Camden Shiloh
    232       1999/2002     1,143     95.3  
Camden St. Clair
    336       1997     999     94.1  
Camden Stockbridge
    304       2003     1,009     92.2  
Camden Sweetwater
    308       2000     1,151     92.4  
KENTUCKY
                           
Louisville
                           
Camden Brookside (10)
    224       1987     732     96.4  
Camden Meadows (10)
    400       1987/1990     746     95.7  
Camden Oxmoor (10)
    432       2000     903     95.6  
Camden Prospect Park (10)
    138       1990     916     95.9  
MISSOURI
                           
Kansas City
                           
Camden Passage (10)
    596       1989/1997     834     95.3  
St. Louis
                           
Camden Cedar Lakes (10)
    420       1986     852     92.6  
Camden Cove West (10)
    276       1990     828     95.6  
Camden Cross Creek (10)
    591       1973/1980     947     95.4  
Camden Westchase (10)
    160       1986     945     96.3  

 

13


Table of Contents

OPERATING PROPERTIES (CONTINUED)
                             
    Number of     Year Placed     Average Apartment   2008 Average  
Property and Location   Apartments     In Service     Size (Sq. Ft.)   Occupancy (1)  
NEVADA
                           
Las Vegas
                           
Camden Bel Air
    528       1988/1995     943     94.2 %
Camden Breeze
    320       1989     846     94.7  
Camden Canyon (4)
    200       1995     987     94.7  
Camden Commons
    376       1988     936     92.9  
Camden Cove
    124       1990     898     96.1  
Camden Del Mar (4)
    560       1995     986     91.2  
Camden Fairways (4)
    320       1989     896     92.8  
Camden Hills
    184       1991     439     96.3  
Camden Legends
    113       1994     792     92.9  
Camden Palisades
    624       1991     905     94.1  
Camden Pines (8)
    315       1997     982     96.8  
Camden Pointe
    252       1996     983     95.5  
Camden Summit (8)
    234       1995     1,187     96.6  
Camden Tiara (8)
    400       1996     1,043     95.2  
Camden Vintage
    368       1994     978     93.7  
Oasis Bay (11)
    128       1990     876     94.9  
Oasis Crossings (11)
    72       1996     983     95.9  
Oasis Emerald (11)
    132       1988     873     95.9  
Oasis Gateway (11)
    360       1997     1,146     94.3  
Oasis Island (11)
    118       1990     901     93.5  
Oasis Landing (11)
    144       1990     938     95.4  
Oasis Meadows (11)
    383       1996     1,031     94.3  
Oasis Palms (11)
    208       1989     880     92.9  
Oasis Pearl (11)
    90       1989     930     97.5  
Oasis Place (11)
    240       1992     440     95.5  
Oasis Ridge (11)
    477       1984     391     89.6  
Oasis Sierra (11)
    208       1998     923     94.9  
Oasis Springs (11)
    304       1988     838     93.0  
Oasis Vinings (11)
    234       1994     1,152     93.4  
NORTH CAROLINA
                           
Charlotte
                           
Camden Ballantyne
    400       1998     1,045     92.3  
Camden Cotton Mills
    180       2002     905     95.0  
Camden Dilworth
    145       2006     857     95.9  
Camden Fairview
    135       1983     1,036     95.5  
Camden Forest
    208       1989     703     92.7  
Camden Foxcroft (5)
    156       1979     940     Redevelopment  
Camden Grandview
    266       2000     1,057     93.7  
Camden Habersham
    240       1986     773     94.8  
Camden Park Commons
    232       1997     861     91.5  
Camden Pinehurst
    407       1967     1,147     93.2  
Camden Sedgebrook
    368       1999     972     94.3  
Camden Simsbury
    100       1985     874     95.7  
Camden South End Square
    299       2003     882     92.8  
Camden Stonecrest
    306       2001     1,098     93.7  
Camden Touchstone (4)
    132       1986     899     94.6  

 

14


Table of Contents

OPERATING PROPERTIES (CONTINUED)
                             
    Number of     Year Placed     Average Apartment   2008 Average  
Property and Location   Apartments     In Service     Size (Sq. Ft.)   Occupancy (1)  
Raleigh
                           
Camden Crest
    438       2001     1,013     94.1 %
Camden Governor’s Village
    242       1999     1,046     91.8  
Camden Lake Pine
    446       1999     1,066     94.4  
Camden Manor Park
    484       2006     966     94.6  
Camden Overlook
    320       2001     1,060     95.6  
Camden Reunion Park
    420       2000/2004     972     92.7  
Camden Westwood
    354       1999     1,027     94.3  
PENNSYLVANIA
                           
Camden Valleybrook
    352       2002     992     96.3  
TEXAS
                           
Austin
                           
Camden Cedar Hills (2)
    208       2008     911   Lease-Up  
Camden Gaines Ranch
    390       1997     955     93.8  
Camden Huntingdon
    398       1995     903     95.7  
Camden Laurel Ridge
    183       1986     702     92.9  
Camden Ridgecrest
    284       1995     855     95.1  
Camden South Congress (13)
    253       2001     975     92.4  
Camden Stoneleigh
    390       2001     908     95.1  
Corpus Christi
                           
Camden Breakers (4)
    288       1996     868     92.9  
Camden Copper Ridge
    344       1986     775     93.4  
Camden Miramar (7)
    778       1994-2004     482     80.8  
Dallas/Fort Worth
                           
Camden Addison (8)
    456       1996     942     94.8  
Camden Buckingham
    464       1997     919     95.3  
Camden Centreport
    268       1997     911     93.8  
Camden Cimarron
    286       1992     772     95.5  
Camden Farmers Market
    904       2001/2005     932     94.8  
Camden Gardens
    256       1983     652     94.5  
Camden Glen Lakes (4)
    424       1979     877     91.7  
Camden Legacy Creek
    240       1995     831     96.2  
Camden Legacy Park
    276       1996     871     95.7  
Camden Oasis
    602       1986     548     83.6  
Camden Springs
    304       1987     713     92.6  
Camden Valley Creek
    380       1984     855     93.9  
Camden Valley Park (5)
    516       1986     743     Redevelopment  
Camden Valley Ridge
    408       1987     773     93.6  
Camden Westview
    335       1983     697     94.4  

 

15


Table of Contents

OPERATING PROPERTIES (CONTINUED)
                             
    Number of     Year Placed     Average Apartment   2008 Average  
Property and Location   Apartments     In Service     Size (Sq. Ft.)   Occupancy (1)  
Houston
                           
Camden Baytown
    272       1999     844     95.8 %
Camden City Centre (3)
    379       2007     932     94.0  
Camden Creek
    456       1984     639     92.4  
Camden Greenway
    756       1999     861     96.3  
Camden Holly Springs (8)
    548       1999     934     95.1  
Camden Midtown
    337       1999     844     97.4  
Camden Oak Crest
    364       2003     870     95.9  
Camden Park (8)
    288       1995     866     96.4  
Camden Plaza (3) (12)
    271       2007     915     94.4  
Camden Royal Oaks (3)
    236       2006     923     90.0  
Camden Steeplechase
    290       1982     748     93.5  
Camden Stonebridge
    204       1993     845     97.2  
Camden Sugar Grove (8)
    380       1997     921     95.1  
Camden Vanderbilt (4)
    894       1996/1997     863     94.3  
Camden West Oaks (6)
    671       1982     726     94.7  
Camden Whispering Oaks (2)
    274       2008     934   Lease-Up  
     
(1)  
Represents average physical occupancy for the year except as noted below.
 
(2)  
Properties under lease-up at December 31, 2008.
 
(3)  
Development property completed during 2008 — average occupancy calculated from date at which occupancy exceeded 90% through year-end.
 
(4)  
Redevelopment completed during 2008 — average occupancy calculated from date at which occupancy exceeded 90% through year-end.
 
(5)  
Properties under redevelopment at December 31, 2008.
 
(6)  
Property held for sale at December 31, 2008.
 
(7)  
Miramar is a student housing project for Texas A&M at Corpus Christi. Average occupancy includes summer which is normally subject to high vacancies.
 
(8)  
Properties owned through a joint venture in which we own a 20% interest. The remaining interest is owned by an unaffiliated private investor.
 
(9)  
Property owned through a joint venture in which we own a 50% interest. The remaining interest is owned by an unaffiliated private investor.
 
(10)  
Properties owned through a joint venture in which we own a 15% interest. The remaining interest is owned by an unaffiliated private investor.
 
(11)  
Properties owned through a joint venture in which we own a 20% interest. The remaining interest is owned by an unaffiliated private pension fund.
 
(12)  
Properties owned through a joint venture in which we own a 30% interest. The remaining interest is owned by an unaffiliated private investor.
 
(13)  
Property owned through a joint venture in which we own a 20% interest. The remaining interest is owned by an unaffiliated private pension fund.
Item 3. Legal Proceedings
For discussion regarding legal proceedings, see Note 14, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.

 

16


Table of Contents

PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The high and low closing prices per share of our common shares, as reported on the New York Stock Exchange composite tape, and distributions per share declared for the quarters indicated are as follows:
                         
    High     Low     Distributions  
2008 Quarters:
                       
First
  $ 54.65     $ 42.18     $ 0.70  
Second
    55.35       44.08       0.70  
Third
    54.87       41.79       0.70  
Fourth
    44.95       18.96       0.70  
 
                       
2007 Quarters:
                       
First
  $ 79.26     $ 68.09     $ 0.69  
Second
    75.32       66.97       0.69  
Third
    68.74       54.96       0.69  
Fourth
    66.82       45.78       0.69  
5-Year Performance
Key Market Indices
(GRAPH)
This graph assumes the investment of $100 on December 31, 2003
and quarterly reinvestments of dividends. [Source: NAREIT]
As of February 17, 2009, there were 659 shareholders of record and approximately 22,500 beneficial owners of our common shares.
The following table summarizes repurchases of our equity securities during the quarter ended December 31, 2008:
                                 
                    Total Number of     Approximate  
                    Shares Purchased     Dollar Value of  
    Total Number of             as Part of Publicly     Shares That May Yet  
    Shares     Average Price     Announced     Be Purchased Under  
    Purchased     Paid per Share     Programs     the Program (1)  
 
Month ended October 31, 2008
        $           $ 269,869,000  
Month ended November 30, 2008
    4,400       22.97       4,400       269,768,097  
Month ended December 31, 2008
                      269,768,097  
 
                       
Total (2)
    4,400     $ 22.97       4,400          
 
                       
     
(1)  
In April 2007, our Board of Trust Managers approved a program to repurchase up to $250.0 million of our common equity securities through open market purchases and privately negotiated transactions. In January 2008, our Board of Trust Managers approved the repurchase of up to an additional $250.0 million of our common equity securities.
 
(2)  
From April 2007 through December 31, 2008, we repurchased approximately 4.3 million common shares for cash totaling approximately $230.2 million, or $53.56 average price per share.

 

17


Table of Contents

Item 6. Selected Financial Data
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 ending December 31, 2004 through 2008. 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
                                         
    Year Ended December 31,  
(in thousands, except per share amounts and property data)   2008     2007     2006     2005(e)     2004  
Operating Data (a)
                                       
Total property revenues
  $ 624,016     $ 588,319     $ 561,029     $ 485,696     $ 347,174  
Total property expenses
    238,915       217,350       210,621       184,566       138,700  
Total non-property income (loss)
    (19,540 )     25,002       35,530       50,912       27,884  
Total other expenses
    331,278       339,548       345,908       338,520       206,022  
Income (loss) from continuing operations
    (13,705 )     41,721       119,953       147,022       18,815  
Net income
    70,973       148,457       232,846       199,086       41,341  
 
                                       
Income (loss) from continuing operations per share
                                       
Basic
  $ (0.25 )   $ 0.72     $ 2.12     $ 2.83     $ 0.45  
Diluted
    (0.25 )     0.71       2.06       2.64       0.44  
Net income per share
                                       
Basic
  $ 1.28     $ 2.55     $ 4.11     $ 3.83     $ 1.00  
Diluted
    1.28       2.51       3.96       3.58       0.98  
 
Distributions declared per common share
  $ 2.80     $ 2.76     $ 2.64     $ 2.54     $ 2.54  
 
                                       
Balance Sheet Data (at end of year)
                                       
Total real estate assets, at cost
  $ 5,491,593     $ 5,527,403     $ 5,141,467     $ 5,039,007     $ 3,159,077  
Total assets
    4,730,342       4,890,760       4,586,050       4,487,799       2,629,364  
Notes payable
    2,832,396       2,828,095       2,330,976       2,633,091       1,576,405  
Minority interests
    187,787       219,952       223,511       221,023       159,567  
Shareholders’ equity
    1,411,494       1,531,313       1,734,356       1,370,903       738,515  
 
                                       
Other Data
                                       
Cash flows provided by (used in):
                                       
Operating activities
  $ 216,958     $ 223,106     $ 231,569     $ 200,845     $ 156,997  
Investing activities
    (37,374 )     (346,798 )     (52,067 )     (207,561 )     (65,321 )
Financing activities
    (173,074 )     123,555       (180,044 )     6,039       (92,780 )
Funds from operations — diluted (b)
    169,585       227,153       237,790       195,290       143,669  
 
                                       
Property Data
                                       
Number of operating properties (at the end of year) (c)
    181       182       186       191       144  
Number of operating apartment homes (at end of year) (c)
    62,903       63,085       63,843       65,580       51,456  
Number of operating apartment homes (weighted average) (c)(d)
    51,277       53,132       55,850       55,056       47,118  
Weighted average monthly total property revenue per apartment home
  $ 1,055     $ 1,025     $ 970     $ 888     $ 792  
Properties under development (at end of period)
    5       11       11       9       3  
     
(a)  
Excludes discontinued operations.
 
(b)  
Management considers Funds from Operations (“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 minority interests, which are convertible into common shares. We consider FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses on dispositions of operating properties and excluding depreciation, FFO can assist in the comparison of the operating performance of a company’s real estate between periods or as compared to different companies.
 
(c)  
Includes discontinued operations.
 
(d)  
Excludes apartment homes owned in joint ventures.
 
(e)  
The 2005 results include the operations of Summit Properties Inc. subsequent to February 28, 2005.

 

18


Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this report. Historical results and trends which might appear in the consolidated financial statements should not be interpreted as being indicative of future operations.
We consider portions of this report to be “forward-looking” within the meaning of Section 27A of the Securities 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:
   
Volatility in capital and credit markets could adversely impact us;
 
   
We could be negatively impacted by the condition of Fannie Mae or Freddie Mac;
 
   
Unfavorable changes in economic conditions could adversely impact occupancy or rental rates;
 
   
We face risks associated with land holdings;
 
   
Difficulties of selling real estate could limit our flexibility;
 
   
Compliance or failure to comply with laws 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 and partnerships 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;
 
   
We depend on our key personnel;
 
   
Changes in laws and litigation risks could affect our business;
 
   
Tax matters, including failure to qualify as a REIT, could have adverse consequences;
 
   
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 or equity may adversely impact our financial condition;
 
   
Failure to maintain 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
 
   
We may reduce dividends on our equity securities or elect to pay a portion of the dividend in common shares.
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.

 

19


Table of Contents

Unless the context requires otherwise, “we,” “our,” “us,” and the “Company,” refer to Camden Property Trust and Camden’s consolidated subsidiaries and partnerships, collectively.
Executive Summary
Our fiscal year 2008 results reflect the challenges the multifamily industry faced during the year. During fiscal year 2008, the factors adversely affecting demand for and rents received in our multifamily communities became more intense and pervasive across the United States. As a result, the already difficult conditions within the industry became progressively more challenging. High inventory levels of single-family homes and condominiums in the markets in which we operate, overall weak consumer confidence, and fears of a prolonged recession, among other factors, have persisted throughout fiscal year 2008. The effects of these factors have been further magnified by credit tightening in the financial markets, increasing home foreclosures, and severe shortages of liquidity in the financial markets.
Based on our results for fiscal year 2008, the deteriorating market conditions discussed above, and our belief these conditions may not improve quickly, we expect negative growth in property revenues during fiscal year 2009. Current factors which may negatively affect our future performance include recent and expected future job losses, liquidity disruptions in the capital markets, recessionary concerns, uncertainty in the financial markets, and a continued oversupply of single-family homes and condominiums in many of the markets in which we operate. However, positive impacts on our performance may result from reductions in the U.S. home ownership rate, more stringent lending criteria for prospective home-buyers, and long-term growth prospects for population, employment, and household formations in our markets, although there can be no assurance any of these factors will continue or will positively impact our operating results.
Due to the instability experienced during the current economic downturn, we believe the timing of an economic recovery is unclear and these conditions may not improve quickly. Our near term primary focus is to strengthen our capital and liquidity position by selectively disposing of properties, controlling and reducing construction and overhead costs, generating positive cash flows from operations, and reducing outstanding debt and leverage ratios.
We intend to continue to look for opportunities to acquire existing communities through our investment in and management of discretionary investment funds. Until the earlier of (i) December 31, 2011 or (ii) such time as 90% of its committed capital is invested, subject to two one-year extensions, the Fund and the Co-Investment Vehicle will be our exclusive investment vehicles for acquiring fully developed multifamily properties, subject to certain exceptions. Our portfolio of apartment communities is geographically diverse, which we believe mitigates risks such as changes in demographics or job growth which may occur within individual markets, although may not mitigate such risks with respect to more wide spread economic declines. In the long term, we also intend to continue focusing on our development pipeline which currently contains twelve properties in various stages of construction, lease-up, and pre-development. The commencement of future developments has and may continue to be impacted by macroeconomic issues, increasing construction costs, and other factors. We expect decreasing levels of development activity in 2009 as compared to prior years.
We review our assets for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Our impairment evaluations reflected our expectation of continued and increased challenges in the development of future multifamily communities, our belief these challenges will persist for some time, and our decision to not continue with five future development projects. Based on our evaluations, we recorded significant impairment charges in the fourth quarter to our land valuations, which materially affected our operating results during fiscal year 2008. Land valuations may continue to have significant fluctuations due to, among other things, the current economic environment and, as a result, there can be no assurance we will not have further impairments in the future.
The continuation of the current economic environment and capital market disruptions have and could continue to have a negative impact on us and adversely affect our future results of operations.

 

20


Table of Contents

Property Portfolio
Our multifamily property portfolio, excluding land and joint venture properties which we do not manage, is summarized as follows:
                                 
    December 31, 2008     December 31, 2007  
    Apartment             Apartment        
    Homes     Properties     Homes     Properties  
Operating Properties
                               
Las Vegas, Nevada
    8,016       29       8,064       30  
Houston, Texas
    6,620       16       6,346       15  
Dallas, Texas
    6,119       15       7,225       18  
Washington, D.C. Metro
    5,702       16       4,525       13  
Tampa, Florida
    5,503       12       5,503       12  
Charlotte, North Carolina
    3,574       15       3,574       15  
Orlando, Florida
    3,557       9       3,296       8  
Atlanta, Georgia
    3,202       10       3,202       10  
Raleigh, North Carolina
    2,704       7       2,704       7  
Southeast Florida
    2,520       7       2,520       7  
Los Angeles/Orange County, California
    2,481       6       2,191       5  
Phoenix, Arizona
    2,433       8       2,433       8  
Denver, Colorado
    2,171       7       2,529       8  
Austin, Texas
    2,106       7       2,778       9  
San Diego/Inland Empire, California
    1,196       4       1,196       4  
Other
    4,999       13       4,999       13  
 
                       
Total Operating Properties
    62,903       181       63,085       182  
 
                       
Properties Under Development
                               
Houston, Texas
    712       3       733       3  
Washington, D.C. Metro
    366       1       1,543       4  
Austin, Texas
    348       1       556       2  
Los Angeles/Orange County, California
                290       1  
Orlando, Florida
                261       1  
 
                       
Total Properties Under Development
    1,426       5       3,383       11  
 
                       
Total Properties
    64,329       186       66,468       193  
 
                       
Less: Joint Venture Properties (1)
                               
Las Vegas, Nevada
    4,047       17       4,047       17  
Houston, Texas (2)
    2,199       7       1,946       6  
Phoenix, Arizona
    992       4       992       4  
Los Angeles/Orange County, California
    711       2       711       2  
Austin, Texas
    601       2              
Washington, D.C. Metro
    508       1       508       1  
Dallas, Texas
    456       1       456       1  
Denver, Colorado
    320       1       320       1  
Other
    3,237       9       3,237       9  
 
                       
Total Joint Venture Properties
    13,071       44       12,217       41  
 
                       
Total Properties Owned 100%
    51,258       142       54,251       152  
 
                       
     
(1)  
Refer to Note 7, “Investments in Joint Ventures,” in the Notes to Consolidated Financial Statements for further discussion of our joint venture investments.
 
(2)  
Figures for 2008 include Camden Travis Street, a fully-consolidated joint venture, of which we retain a 25% ownership.

 

21


Table of Contents

Stabilized Communities
We generally consider a property stabilized once it reaches 90% occupancy. During the year ended December 31, 2008, stabilization was achieved at five recently completed properties as follows:
                         
    Number of              
    Apartment     Date of     Date of  
Property and Location   Homes     Completion     Stabilization  
 
                       
Camden Old Creek
San Marcos, CA
    350       1Q07       1Q08  
Camden Monument Place
Fairfax, VA
    368       4Q07       2Q08  
Camden Plaza — joint venture
Houston, TX
    271       3Q07       2Q08  
City Centre
Houston, TX
    379       4Q07       3Q08  
Camden Royal Oaks
Houston, TX
    236       3Q06       4Q08  
Partial Sales and Dispositions to Joint Ventures Included in Continuing Operations
In March 2008, we sold Camden Amber Oaks, a development community in Austin, Texas, to the Fund for approximately $8.9 million. No gain or loss was recognized on the sale. Concurrent with the transaction, we invested approximately $1.9 million in the Fund. In August 2008, we sold Camden South Congress to the Fund for approximately $44.2 million and recognized a gain of approximately $1.8 million on the sale. In conjunction with the transaction, we invested approximately $2.8 million in the Fund.
There were no partial sales or dispositions to joint ventures for the year ended December 31, 2007.
During the year ended December 31, 2006, we recognized gains of approximately $91.5 million from the partial sale of nine properties to an affiliated unconsolidated joint venture. This partial sale generated net proceeds of approximately $170.9 million. The gains recognized on the partial sales of these assets were included in continuing operations as we retained a partial interest in the ventures which own these assets. We also recognized gains of approximately $0.5 million and $4.7 million on the partial sales of land to two joint ventures located in Houston, Texas and College Park, Maryland, respectively. The gains recognized on the sales of these assets were included in continuing operations as we retained a partial interest in the ventures which own these assets. We recognized an additional gain of approximately $0.8 million on the sale of land located adjacent to one of our pre-development assets in College Park, Maryland. The gain on this sale was 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.
Discontinued Operations and Assets Held for Sale
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, including land, sold during the period or classified as held for sale as of December 31, 2008. The components of earnings classified as discontinued operations include separately identifiable property-specific revenues, expenses, depreciation, and interest expense, if any. The gain on the disposal of the held for sale properties is also classified as discontinued operations.

 

22


Table of Contents

A summary of our 2008 dispositions and properties held for sale as of December 31, 2008 is as follows:
                         
    Number of              
    Apartment     Date of        
Property and Location   Homes     Disposition     Year Built  
 
                       
Dispositions
                       
Camden Ridgeview
Austin, TX
    167       1Q08       1984  
Camden Towne Village
Mesquite, TX
    188       2Q08       1983  
Oasis Sands
Las Vegas, NV
    48       2Q08       1994  
Camden Lakeview
Irving, TX
    476       3Q08       1985  
Camden Arbors
Westminster, CO
    358       3Q08       1986  
Camden Woodview
Austin, TX
    283       3Q08       1984  
Camden Briar Oaks
Austin, TX
    430       3Q08       1980  
Camden Place
Mesquite, TX
    442       3Q08       1984  
Held for Sale
                       
Camden West Oaks
Houston, TX
    671       n/a       1982  
 
                     
 
                       
Total apartment homes sold and held for sale
    3,063                  
 
                     
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 sale of the eight operating properties listed above to unaffiliated third parties. During the year ended December 31, 2007, we received net proceeds of approximately $166.4 million and recognized gains of approximately $106.3 million from the sale of ten operating properties, containing 3,054 apartment homes, to unaffiliated third parties. During the year ended December 31, 2006, we received net proceeds of approximately $137.3 million and recognized a gain of approximately $78.8 million on the sale of eight operating properties, containing 3,041 apartment homes, to unaffiliated third parties.
During the year ended December 31, 2008, we recognized gains of approximately $1.1 million from the sale of land adjacent to our regional office in Las Vegas, Nevada. The gain on this sale was not included in discontinued operations as the operations and cash flows of this asset were not clearly distinguished, operationally or for reporting purposes, from the adjacent assets.
Upon our decision to abandon efforts to develop certain land parcels and to market these parcels for sale, we reclassify the operating expenses associated with these assets to discontinued operations. At December 31, 2008, we had undeveloped land parcels classified as held for sale as follows:
                 
($ in millions)         Net Book  
Location   Acres     Value  
 
               
Southeast Florida
    2.2     $ 7.4  
Dallas
    2.4       1.8  
 
             
Total land held for sale
          $ 9.2  
 
             
There were no sales of undeveloped land during the year ended December 31, 2008. During the year ended December 31, 2007, we sold undeveloped land totaling approximately 0.9 acres to unrelated third parties. In connection with these sales, we received net proceeds of approximately $6.0 million and recognized gains totaling approximately $0.7 million. During the year ended December 31, 2006, we sold undeveloped land totaling approximately 8.7 acres to unrelated third parties. In connection with these sales, we received net proceeds of approximately $41.0 million and recognized gains totaling approximately $20.5 million.

 

23


Table of Contents

Development and Lease-Up Properties
At December 31, 2008, we had five completed consolidated properties in lease-up as follows:
                                         
    Number of             % Leased             Estimated  
($ in millions)   Apartment     Cost     at     Date of     Date of  
Property and Location   Homes     Incurred     2/15/09     Completion     Stabilization  
 
                                       
Camden Potomac Yard
Arlington, VA
    378     $ 104.5       73 %     2Q08       4Q09  
Camden Orange Court
Orlando, FL
    261       45.5       65 %     2Q08       3Q09  
Camden Summerfield
Landover, MD
    291       62.6       78 %     2Q08       4Q09  
Camden Cedar Hills
Austin, TX
    208       23.6       88 %     4Q08       2Q09  
Camden Whispering Oaks
Houston, TX
    274       27.3       80 %     4Q08       3Q09  
 
                                 
 
                                       
Total
    1,412     $ 263.5       76 %                
 
                                 
At December 31, 2008, we had two consolidated properties under construction as follows:
                                                 
                            Included in              
    Number of                     Properties     Estimated     Estimated  
($ in millions)   Apartment     Estimated     Cost     Under     Date of     Date of  
Property and Location   Homes     Cost     Incurred     Development     Completion     Stabilization  
 
Camden Dulles Station
Oak Hill, VA
    366     $ 77.0     $ 71.4     $ 14.4       1Q09       3Q10  
Camden Travis Street (a)
Houston, TX
    253       39.0       9.3       9.3       1Q10       3Q10  
 
                                       
 
Total
    619     $ 116.0     $ 80.7     $ 23.7                  
 
                                       
     
(a)  
Camden Travis Street is owned in a fully-consolidated joint venture, of which we retain a 25% ownership.
Our consolidated balance sheet at December 31, 2008 included approximately $264.2 million related to properties under development and land. Of this amount, approximately $23.7 million related to projects currently under construction. Additionally, at December 31, 2008, we had approximately $184.3 million invested in land for projects we may begin constructing in the future and approximately $56.2 million invested primarily in land tracts in which future development activities have been put on hold.

 

24


Table of Contents

At December 31, 2008, we had investments in non-consolidated joint ventures which were developing the following multifamily communities:
                                 
            Number of             Total  
($ in millions)           Apartment     Estimated     Cost  
Property and Location   Ownership %     Homes     Cost     Incurred  
 
                               
Completed Communities (1)
                               
Camden Main & Jamboree
Irvine, CA
    30 %     290       N/A     $ 110.1  
Camden College Park
College Park, MD
    30 %     508       N/A       125.3  
 
                           
Completed Communities Total
            798             $ 235.4  
 
                           
 
                               
Under Construction
                               
Braeswood Place (1) (2)
Houston, TX
    30 %     340     $ 48.6     $ 41.1  
Belle Meade (2)
Houston, TX
    30 %     119       33.2       20.0  
Camden Amber Oaks (1)
Austin, TX
    20 %     348       40.0       32.6  
 
                         
Under Construction Total
            807     $ 121.8     $ 93.7  
 
                         
 
                               
Pre-Development (3)
          Total Acres                
 
                             
Lakes at 610
Houston, TX
    30 %     6.1       N/A     $ 6.4  
Town Lake
Austin, TX
    72 %     25.9       N/A       37.9  
 
                           
Pre-Development Total
            32.0             $ 44.3  
 
                           
     
(1)  
Properties in lease-up as of December 31, 2008.
 
(2)  
Properties being developed by joint venture partner.
 
(3)  
Properties in pre-development by joint venture partner.
Refer to Note 7, “Investments in Joint Ventures” in the Notes to Consolidated Financial Statements for further discussion of our joint venture investments.

 

25


Table of Contents

Geographic Diversification
At December 31, 2008 and 2007, our investments in various geographic areas, excluding depreciation, investments in joint ventures, and properties held for sale, were as follows:
                                 
(in thousands)   2008     2007  
 
                               
Washington, D.C. Metro
  $ 1,219,866       22.4 %   $ 1,196,451       21.8 %
Southeast Florida
    446,629       8.2       444,645       8.1  
Houston, Texas
    377,041       6.9       374,177       6.8  
Dallas, Texas
    337,890       6.2       372,075       6.8  
Tampa, Florida
    386,816       7.1       370,379       6.7  
Los Angeles/Orange County, California
    330,849       6.1       346,452       6.3  
Orlando, Florida
    364,379       6.7       336,768       6.1  
Atlanta, Georgia
    319,047       5.8       316,733       5.8  
Las Vegas, Nevada
    321,782       5.9       314,609       5.7  
Charlotte, North Carolina
    316,387       5.8       312,760       5.7  
Raleigh, North Carolina
    237,023       4.3       235,263       4.3  
San Diego/Inland Empire, California
    226,556       4.1       225,769       4.1  
Austin, Texas
    159,897       2.9       221,807       4.1  
Denver, Colorado
    186,292       3.4       202,962       3.7  
Phoenix, Arizona
    118,003       2.2       117,092       2.1  
Other
    107,377       2.0       105,742       1.9  
 
                       
Total
  $ 5,455,834       100.0 %   $ 5,493,684       100.0 %
 
                       
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:
                         
    2008     2007     2006  
Average monthly property revenue per apartment home
  $ 1,055     $ 1,025     $ 970  
Annualized total property expenses per apartment home
  $ 4,845     $ 4,544     $ 4,370  
Weighted average number of operating apartment homes owned 100%
    49,312       47,832       48,200  
Weighted average occupancy of operating apartment homes owned 100%
    93.8 %     93.7 %     95.1 %

 

26


Table of Contents

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, 2008 as compared to 2007 and for the year ended December 31, 2007 as compared to 2006:
                                         
    Apartment     Year Ended        
    Homes     December 31,     Change  
($ in thousands)   at 12/31/08     2008     2007     $     %  
 
                                       
Property revenues
                                       
Same store communities
    40,340     $ 498,875     $ 491,736     $ 7,139       1.5 %
Non-same store communities
    8,469       108,184       88,925       19,259       21.7  
Development and lease-up communities
    2,031       9,444       81       9,363       *  
Dispositions/other
          7,513       7,577       (64 )     (0.8 )
 
                             
Total property revenues
    50,840     $ 624,016     $ 588,319     $ 35,697       6.1 %
 
                             
 
                                       
Property expenses
                                       
Same store communities
    40,340     $ 188,644     $ 180,277     $ 8,367       4.6 %
Non-same store communities
    8,469       40,395       33,444       6,951       20.8  
Development and lease-up communities
    2,031       5,694       140       5,554       *  
Dispositions/other
          4,182       3,489       693       19.9  
 
                             
Total property expenses
    50,840     $ 238,915     $ 217,350     $ 21,565       9.9 %
 
                             
     
*  
Not a meaningful percentage
Same store communities are communities we owned and were stabilized as of January 1, 2007. Non-same store communities are stabilized communities we have acquired, developed, or re-developed after January 1, 2007. Development and lease-up communities are non-stabilized communities we have acquired or developed after January 1, 2007.
                                         
    Apartment     Year Ended        
    Homes     December 31,     Change  
    at 12/31/07     2007     2006     $     %  
 
                                       
Property revenues
                                       
Same store communities
    39,417     $ 479,015     $ 460,758     $ 18,257       4.0 %
Non-same store communities
    8,312       96,372       75,448       20,924       27.7  
Development and lease-up communities
    3,459       8,473       508       7,965       *  
Dispositions/other
          4,459       24,315       (19,856 )     (81.7 )
 
                             
Total property revenues
    51,188     $ 588,319     $ 561,029     $ 27,290       4.9 %
 
                             
 
                                       
Property expenses
                                       
Same store communities
    39,417     $ 175,189     $ 171,320     $ 3,869       2.3 %
Non-same store communities
    8,312       35,488       27,392       8,096       29.6  
Development and lease-up communities
    3,459       4,726       532       4,194       *  
Dispositions/other
          1,947       11,377       (9,430 )     (82.9 )
 
                             
Total property expenses
    51,188     $ 217,350     $ 210,621     $ 6,729       3.2 %
 
                             
     
*  
Not a meaningful percentage
Same store communities are communities we owned and were stabilized as of January 1, 2006. Non-same store communities are stabilized communities we have acquired, developed, or re-developed after January 1, 2006. Development and lease-up communities are non-stabilized communities we have developed or acquired after January 1, 2006.

 

27


Table of Contents

Same store analysis
Our same store property revenues for the year ended December 31, 2008 increased approximately $7.1 million, or 1.5%, from 2007 resulting primarily from increases in other property income, partially offset by a decline in rental revenues due to slight declines in average occupancy and average rental rates for our same store portfolio. Same store property revenues for the year ended December 31, 2007 increased approximately $18.3 million, or 4.0%, from 2006 primarily from increases in other property income and higher average rental income per apartment home, partially offset by declines in occupancy.
Same store property revenues for 2008 as compared to 2007 were positively impacted by increases in other property income due to the continued implementation of the Perfect Connection (also known as CamdenTV) in 2008, which provides cable services to our residents, and other utility rebilling programs. The increase in other property income was partially offset by a decrease in average rental rates, as we experienced rental rate decreases primarily as a result of the challenges we and the multifamily industry faced throughout the year, which are discussed in detail in the “Executive Summary.” Average total occupancy at our same store properties declined in 2008 as we experienced decreases in occupancy in a majority of our markets. We believe our operating performance during the current market environment benefited from the continued operational and technological enhancements we are making at many of our communities, which have created opportunities to take advantage of additional revenue sources.
Same store property revenues for 2007 as compared to 2006 were positively impacted by increases in revenues in substantially all markets. These revenue increases were driven by other property income which increased due to the implementation of Perfect Connection, and other utility rebilling programs. Our same store communities recognized an overall increase in average rental rates, and we experienced rental rate increases in all markets. The increase in average rental rates in 2007 was a result of moderate improvements in fundamentals such as job growth, population growth, and household formations. Average occupancy at our same store properties declined less than 1% in 2007, as we had slight decreases in occupancy in a majority of our markets.
Total property expenses from our same store communities increased approximately $8.4 million, or 4.6%, and approximately $3.9 million, or 2.3%, for the year ended December 31, 2008 as compared to 2007 and for the year ended December 31, 2007 as compared to 2006, respectively. The increases in same store property expenses per apartment home of $207 for the year ended December 31, 2008 as compared to 2007 were primarily due to increases in utility expenses in connection with our utility rebilling programs and real estate taxes. Real estate taxes increased primarily due to increases in appraisals and taxation rates. The increase for the year ended December 31, 2007 as compared to 2006 was primarily due to increases in repair and maintenance costs as well as utility expenses in connection with our utility rebilling programs.
Non-same store analysis and other analysis
Property revenues from non-same store and development and lease-up communities increased approximately $28.6 million for the year ended December 31, 2008 as compared to 2007 and increased approximately $28.9 million for the year ended December 31, 2007 as compared to 2006. The increases in both periods were primarily due to the completion and lease-up of certain properties in our development pipeline as well as property acquisitions in 2007 and 2006. See “Development and Lease-Up Properties” for additional detail of occupancy at properties in our development pipeline.
Property expenses from non-same store and development and lease-up communities increased approximately $12.5 million for the year ended December 31, 2008 as compared to 2007 and approximately $12.3 million for 2007 as compared to 2006. The increases in both periods were due to the completion and lease-up of properties in our development pipeline as well as acquisitions completed in 2007 and 2006.
Property revenues from dispositions/other decreased approximately $0.1 million and approximately $19.9 million for the year ended December 31, 2008 as compared to 2007 and for the year ended December 31, 2007 as compared to 2006, respectively. The decrease for the year ended December 31, 2007 primarily related to properties partially sold to joint ventures.
Property expenses from dispositions/other increased approximately $0.7 million and decreased approximately $9.4 million for the year ended December 31, 2008 as compared to 2007 and for the year ended December 31, 2007 as compared to 2006, respectively. The increase for the year ended December 31, 2008 as compared to December 31, 2007 primarily related to insurance costs related to Hurricane Ike. Refer to Note 14, “Commitments and Contingencies”, in the Notes to Consolidated Financial Statements for further discussion. The decrease for the year ended December 31, 2007 as compared to December 31, 2006 primarily related to properties partially sold to joint ventures.

 

28


Table of Contents

Non-property income
                                                                 
    Year Ended                     Year Ended        
    December 31,     Change     December 31,     Change  
($ in thousands)   2008     2007     $     %     2007     2006     $     %  
 
                                                               
Fee and asset management
  $ 9,167     $ 8,293     $ 874       10.5 %   $ 8,293     $ 14,041     $ (5,748 )     (40.9 )%
Sale of technology investments
          623       (623 )     (100.0 )     623       1,602       (979 )     (61.1 )
Interest and other income
    4,736       8,804       (4,068 )     (46.2 )     8,804       9,771       (967 )     (9.9 )
Income (loss) on deferred compensation plans
    (33,443 )     7,282       (40,725 )     *       7,282       10,116       (2,834 )     (28.0 )
 
                                               
Total non-property income (loss)
  $ (19,540 )   $ 25,002     $ (44,542 )     (178.2 )%   $ 25,002     $ 35,530     $ (10,528 )     (29.6 )%
 
                                               
     
*  
Not a meaningful percentage
Fee and asset management income, which represents income related to third-party construction and development projects and property management, for the year ended December 31, 2008 increased approximately $0.9 million as compared to 2007 and decreased approximately $5.7 million for the year ended December 31, 2007 as compared to 2006. Growth was relatively flat for 2008 as compared to 2007 due to decreased third-party construction activities in 2008, partially offset by increases in management fees earned from the Fund. The decrease in 2007 as compared to 2006 was primarily due to increased fees earned from joint ventures and third-party construction and development projects in 2006 as compared to 2007 as these 2006 projects were winding down in 2007 and were not replaced with additional projects.
Interest and other income decreased approximately $4.1 million for 2008 as compared to 2007 and decreased approximately $1.0 million for 2007 as compared to 2006. Interest income, which primarily relates to interest earned on notes receivable outstanding under our mezzanine financing program, decreased approximately $0.8 million for 2008 as compared to 2007 and increased approximately $0.6 million for 2007 as compared to 2006. The decrease for 2008 as compared to 2007 was primarily due to contractual reductions in interest rates related to mezzanine loans for development communities which have reached stabilization, reductions in interest earned on variable rate notes due to reductions in the London Interbank Offered Rate (“LIBOR”), and principal payments received in 2008. The increase for 2007 as compared to 2006 was primarily due to new notes issued during the latter part of 2006 of approximately $9.1 million. Other income decreased approximately $3.3 million for 2008 as compared to 2007 and decreased approximately $1.6 million for 2007 as compared to 2006. Other income primarily represents income recognized upon the settlement of legal, insurance and warranty claims, and contract disputes. In 2007, other income included approximately $3.3 million related to settlement of a contract dispute.
Income on deferred compensation plans decreased approximately $40.7 million during the year ended December 31, 2008 as compared to 2007 and decreased approximately $2.8 million during the year ended December 31, 2007 as compared to 2006. The changes in income primarily related to the performance of the assets held in the deferred compensation plans for plan participants, which is subject to fluctuations in the financial markets.
Other expenses
                                                                 
    Year Ended                     Year Ended        
    December 31,     Change     December 31,     Change  
($ in thousands)   2008     2007     $     %     2007     2006     $     %  
 
Property management
  $ 19,910     $ 18,413     $ 1,497       8.1 %   $ 18,413     $ 18,490     $ (77 )     (0.4 )%
Fee and asset management
    6,054       4,552       1,502       33.0       4,552       9,382       (4,830 )     (51.5 )
General and administrative
    31,586       32,590       (1,004 )     (3.1 )     32,590       37,584       (4,994 )     (13.3 )
Interest
    132,399       115,753       16,646       14.4       115,753       117,348       (1,595 )     (1.4 )
Depreciation and amortization
    171,814       157,297       14,517       9.2       157,297       149,206       8,091       5.4  
Amortization of deferred financing costs
    2,958       3,661       (703 )     (19.2 )     3,661       3,782       (121 )     (3.2 )
Expense (benefit) on deferred compensation plans
    (33,443 )     7,282       (40,725 )     *       7,282       10,116       (2,834 )     (28.0 )
 
                                               
Total non-property expenses
  $ 331,278     $ 339,548     $ (8,270 )     (2.4 )%   $ 339,548     $ 345,908     $ (6,360 )     (1.8 )%
 
                                               
     
*  
Not a meaningful percentage
Property management expense, which represents regional supervision and accounting costs related to property operations, increased approximately $1.5 million for the year ended December 31, 2008 as compared to 2007 and decreased approximately $0.1 million for 2007 as compared to 2006. Property management expenses were 3.2%, 3.1%, and 3.3% of total property revenues for the years ended December 31, 2008, 2007, and 2006, respectively.

 

29


Table of Contents

Fee and asset management expense, which represents expenses related to third-party construction and development projects and property management, increased approximately $1.5 million for 2008 as compared to 2007 and decreased approximately $4.8 million for 2007 as compared to 2006. The increase for 2008 as compared to 2007 was primarily attributable to increased costs associated with the Fund partially offset by decreases in our third-party construction activities. The decrease for 2007 as compared to 2006 is primarily attributable to decreased third-party activities, offset by costs associated with the Fund which was formed in the latter part of 2007.
General and administrative expenses decreased approximately $1.0 million during the year ended December 31, 2008 as compared to 2007 and decreased approximately $5.0 million during the year ended December 31, 2007 as compared to 2006, and were 5.0%, 5.4%, and 6.4% of total revenues, excluding income or loss on deferred compensation plans, for the years ended December 31, 2008, 2007, and 2006, respectively. The decreases in general and administrative expenses for the year ended December 31, 2008 as compared to 2007 and for December 31, 2007 as compared to 2006 were primarily due to decreases in salaries, incentive compensation, and legal expenses. Additionally, during 2006, an aggregate of 76,542 share awards that otherwise would have vested from time to time over the next five years became immediately exercisable. By accelerating the vesting of these share awards, we recognized a one-time expense of approximately $4.2 million for the year ended December 31, 2006.
Interest expense for the year ended 2008 increased approximately $16.6 million as compared to 2007 primarily due to the repurchase of common shares using debt proceeds, the timing of refinancing portions of our long-term indebtedness at higher rates, and decreased capitalized interest, partially offset by decreased amounts outstanding on our line of credit, our repurchases and early retirement of outstanding debt, and a decline in interest rates on our floating rate debt, Refer to Note 9, “Notes Payable,” in the Notes to Consolidated Financial Statements for further discussion of our debt repurchases and retirements. Interest expense for the year ended 2007 decreased approximately $1.6 million as compared to 2006. Factors contributing to the decrease in interest expense in 2007 as compared to 2006 include repayment of debt from proceeds received from our July 2006 equity offering, property dispositions during both periods, and interest adjustments related to tax liabilities. Partially offsetting this decrease was interest incurred on debt used to repurchase our common shares during 2007. While our average debt level outstanding during 2007 increased slightly as compared to 2006, we continued to fund construction costs associated with our development pipeline, increasing interest capitalized by approximately $2.0 million in 2007 as compared to 2006.
Depreciation and amortization expense increased approximately $14.5 million during the year ended December 31, 2008 as compared to 2007 and increased approximately $8.1 million during the year ended December 31, 2007 as compared to 2006. The increases were primarily due to an increased level of new development and capital improvements placed in service each year as compared to the previous year, partially offset by dispositions.
Amortization of deferred financing costs decreased $0.7 million and $0.1 million during the years ended December 31, 2008, and 2007, respectively. The decrease for fiscal year 2008 was due to certain deferred financing costs becoming fully amortized.
Expense on deferred compensation plans decreased approximately $40.7 million during the year ended December 31, 2008 as compared to 2007 and decreased approximately $2.8 million during the year ended December 31, 2007 as compared to 2006. The changes in expense primarily related to the performance of the assets held in the deferred compensation plans for plan participants, which is subject to fluctuations in the financial markets.
Other
                                                                 
    Year Ended                     Year Ended        
    December 31,     Change     December 31,     Change  
($ in thousands)   2008     2007     $     %     2007     2006     $     %  
 
Gain on sale of properties, including land
  $ 2,929     $     $ 2,929       100.0 %   $     $ 97,452     $ (97,452 )     (100.0 )%
Gain on early retirement of debt
    13,566             13,566       100.0                          
Impairment loss on land
    (51,323 )     (1,447 )     (49,876 )     *       (1,447 )           (1,447 )     (100.0 )
Equity in income (loss) of joint ventures
    (1,265 )     1,526       (2,791 )     (182.9 )     1,526       5,156       (3,630 )     (70.4 )
Distributions on perpetual preferred units
    (7,000 )     (7,000 )                 (7,000 )     (7,000 )            
Income allocated to common units and other minority interests
    (4,052 )     (4,729 )     677       14.3       (4,729 )     (15,685 )     10,956       69.9  
Income tax expense — current
    (843 )     (3,052 )     2,209       72.4       (3,052 )           (3,052 )     (100.0 )
     
*  
Not a meaningful percentage

 

30


Table of Contents

Gain on sale of properties, including land, totaled approximately $2.9 million for the year ended December 31, 2008 due to gains on the partial sale of properties to the Fund 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, 2007. Gain on sale of properties, including land, for the year ended December 31, 2006 included gains of approximately $91.5 million from the partial sale of nine operating properties to an affiliated joint venture and approximately $5.2 million from the partial sales of land to affiliated joint ventures; also included in gain on sale of properties for the year ended December 31, 2006 was approximately $0.8 million from the sale of undeveloped land to an unaffiliated third party. See further discussion of gains associated with property dispositions in “Property Portfolio.”
Gain on early retirement of debt was approximately $13.6 million for the year ended December 31, 2008. These gains were the result of various repurchases and retirements of debt, and included 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. In addition to the tender offer, we repurchased and retired approximately $82.7 million of various series of other outstanding debt from unrelated third parties for approximately $75.7 million during the year ended December 31, 2008. These gains were partially offset by the proportionate share of unamortized loan costs and other costs associated with the retirement of the debt.
The impairment loss on land 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 we no longer plan to pursue, including approximately $48.6 million related to land holdings for five projects we no longer plan to develop, 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 no longer plan to pursue. The impairment loss on land for the year ended December 31, 2007 of approximately $1.4 million reflects impairment in the value of one potential development project we no longer plan to pursue. These impairment charges are the difference between each parcel’s estimated fair value and the carrying value, which includes pursuit and other costs.
Equity in income (loss) of joint ventures decreased approximately $2.8 million for the year ended December 31, 2008 as compared to 2007, and decreased approximately $3.6 million for the year ended December 31, 2007 as compared to 2006. Changes from period to period were due to changes in the number of properties held through joint ventures, and the development dilution we are experiencing on the completion of units in our joint venture development pipeline, which resulted in depreciation and interest expense recorded exceeding income recognized as these properties have not reached stabilization. We recognized approximately $2.8 million of gains for our proportionate share of the sale of three properties held through a joint venture during the year ended December 31, 2006.
Income allocated to common units and other minority interests decreased approximately $0.7 million during the year ended December 31, 2008 as compared to 2007 and decreased approximately $11.0 million during the year ended December 31, 2007 as compared to 2006. Income allocated to common units in 2006 included the impact of gains recognized on the partial sale of eight properties to an affiliated joint venture during the year ended December 31, 2006. A portion of the gains recognized were allocated to minority interest holders in Camden Operating, L.P.
For the tax year ended December 31, 2008, we had current income tax expense of approximately $0.8 million. Income tax expense decreased $2.2 million for the year ended December 31, 2008 as compared to the same period in 2007, primarily attributable to less gains on property dispositions in states with high income tax rates and changes in state tax laws affecting one of our operating partnerships.
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 minority interests, which are convertible into common shares. We consider FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses on dispositions of operating properties and excluding depreciation, FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies.

 

31


Table of Contents

We believe in order to facilitate a clear understanding of our consolidated historical operating results, FFO should be examined in conjunction with net income as presented in the Consolidated Statements of 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 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 to diluted FFO for the years ended December 31, 2008, 2007, and 2006 are as follows:
                         
(in thousands)   2008     2007     2006  
Funds from operations
                       
Net income
  $ 70,973     $ 148,457     $ 232,846  
Real estate depreciation and amortization, including discontinued operations
    171,009       161,064       157,233  
Adjustments for unconsolidated joint ventures (1)
    7,103       4,934       478  
Gain on sale of properties, including land and discontinued operations, net of
    (83,117 )     (105,098 )     (170,304 )
Taxes
                       
Income allocated to common units, including discontinued operations
    3,617       17,796       17,537  
 
                 
Funds from operations — diluted
  $ 169,585     $ 227,153     $ 237,790  
 
                 
 
                       
Weighted average shares — basic
    55,272       58,135       56,660  
Incremental shares issuable from assumed conversion of:
                       
Common share options and awards granted
    114       482       725  
Common units
    3,142       3,503       3,868  
 
                 
Weighted average shares — diluted
    58,528       62,120       61,253  
 
                 
     
(1)  
Adjustment for 2006 includes approximately $2.8 million in gains recognized on sales of properties held in joint ventures. 2006 adjustment is net of approximately $0.5 million in prepayment penalties incurred with the repayment of mortgage notes directly associated with the sold properties.
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:
   
extending and sequencing the maturity dates of our debt where possible;
   
managing interest rate exposure using what management believes to be prudent levels of fixed and floating rate debt;
   
maintaining conservative coverage ratios; and
   
using what management believes to be a prudent combination of debt and common and preferred equity.
Our interest expense coverage ratio, net of capitalized interest, was 2.6, 3.0, and 2.9 times for the years ended December 31, 2008, 2007, and 2006, respectively. 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, depreciation, amortization, and interest expense. At December 31, 2008, 2007, and 2006, 78.3%, 81.6%, and 80.5%, respectively, of our properties (based on invested capital) were unencumbered. Our weighted average maturity of debt, excluding our line of credit, was 5.0 years at December 31, 2008.
Due to the instability experienced during the current economic downturn, we believe the timing of an economic recovery is unclear and these conditions may not improve quickly. Our near term primary focus is to strengthen our capital and liquidity position by selectively disposing of properties, controlling and reducing construction and overhead costs, generating positive cash flows from operations, and reducing outstanding debt and leverage ratios.

 

32


Table of Contents

Our primary source of liquidity is cash flow generated from operations. Other sources include the availability under our unsecured credit facility and other short-term borrowings, proceeds from dispositions of properties and other investments, and access to the capital markets. We believe our liquidity and financial condition are sufficient to meet all of our reasonably anticipated cash flow needs during 2009 including:
   
normal recurring operating expenses;
   
current debt service requirements;
   
recurring capital expenditures;
   
initial funding of property developments, acquisitions, and notes receivable; and
   
the minimum dividend payments required to maintain our REIT qualification under the Internal Revenue Code of 1986.
Factors which could increase or decrease our future liquidity include but are not limited to current volatility in capital and credit markets, sources of financing, completion of planned 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, and changes in operating costs resulting from a weakened economy, which could also impact occupancy and rental rates and ultimately impact our planned growth of capital.
Cash Flows
Certain sources and uses of cash, such as the level of discretionary capital expenditures, repurchases of debt and common shares, and distributions paid on our equity securities are within our control and are adjusted as necessary based upon market conditions. The following is a discussion of our cash flows for the years ended December 31, 2008 and 2007.
Net cash provided by operating activities was approximately $217.0 million during the year ended December 31, 2008 as compared to approximately $223.1 million for the same period in 2007. The decrease was primarily due to increased interest payments on our levels of outstanding debt, timing of payments of trade payables and receivables, offset by growth in revenues from our same store, non-same store, and development communities.
Cash flows used in investing activities during the year ended December 31, 2008 totaled approximately $37.4 million, as compared to approximately $346.8 million during the year ended December 31, 2007. Cash outflows for property development, acquisition, and capital improvements were approximately $199.3 million during 2008 as compared to approximately $500.8 million during 2007. Proceeds received from sales of properties, sales of assets to joint ventures, joint venture distributions representing returns of investments, and sale of technology investments totaled approximately $177.1 million for the year ended December 31, 2008 as compared to approximately $178.9 million for the year ended December 31, 2007.
Net cash used in financing activities totaled approximately $173.1 million for the year ended December 31, 2008, primarily as a result of approximately $379.2 million in repayment of outstanding notes payable. The repayment consisted of approximately $100.6 million of outstanding notes payable related to our December 2008 tender offer, repurchase and retirement of approximately $75.7 million of various series of other outstanding debt, and repayment of approximately $201.9 million of maturing secured notes payable. See Note 9 of the Notes to Consolidated Financial Statements, “Notes Payable,” for further discussion. Net cash used in financing activities was also attributable to distributions paid to shareholders and minority interest holders of approximately $172.3 million and approximately $33.1 million of common share repurchases, offset by proceeds from notes payable and increases in our unsecured line of credit of approximately $385.9 million and $30.0 million, respectively. Net cash provided by financing activities totaled approximately $123.6 million for the year ended December 31, 2007, primarily as a result of approximately $808.0 million in proceeds from notes payable, offset by repayment of balances outstanding on our line of credit of approximately $91.0 million, payments of approximately $213.4 million related to the payoff of two senior unsecured notes and one mortgage note, approximately $200.5 million of common share repurchases, and distributions paid to shareholders and minority interest holders of approximately $178.1 million.

 

33


Table of Contents

Financial Flexibility
We have a $600 million unsecured credit facility which matures in January 2010 and can be extended at our option through January 2011. The scheduled interest rate is based on spreads over the London Interbank Offered Rate (“LIBOR”) or the Prime Rate. The scheduled interest rate spreads are subject to change as our credit ratings change. Advances under the line of credit may be priced at the scheduled rates, or we may enter into bid rate loans with participating banks at rates below the scheduled rates. These bid rate loans have terms of six months or less and may not exceed the lesser of $300 million or the remaining amount available under the line of credit. The line of credit is subject to customary financial covenants and limitations, all of which we believe 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, it does reduce the amount available. At December 31, 2008, we had outstanding letters of credit totaling approximately $10.5 million, and had approximately $444.5 million available under our unsecured line of credit.
As an alternative to our unsecured line of credit, from time to time we borrow using competitively bid unsecured short-term notes with lenders who may or may not be a part of the unsecured line of credit bank group. Such borrowings vary in term and pricing and are typically priced at interest rates below those available under the unsecured line of credit.
We have an automatic shelf registration statement on file with the Securities and Exchange Commission which allows us to offer, from time to time, common shares, preferred shares, debt securities, or warrants. Our declaration of trust provides we may issue up to 110,000,000 shares of beneficial interest, consisting of 100,000,000 common shares and 10,000,000 preferred shares. As of December 31, 2008, we had 66,027,911 common shares and no preferred shares outstanding.
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, as well as the ability to borrow on a secured basis from Fannie Mae or Freddie Mac. 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. The capital and credit markets have been experiencing extreme volatility and disruption, which has caused the spreads on prospective debt financings to widen considerably and have made it more difficult to borrow money. If current levels of market disruption and volatility continue or worsen, we may not be able to obtain new debt financing or refinance our existing debt on favorable terms or at all.
Future Cash Requirements and Contractual Obligations
One of our principal long-term liquidity requirements includes the repayment of maturing debt, including borrowings under our unsecured line of credit used to fund development and acquisition activities. During 2009 approximately $3.9 million of secured mortgage notes and approximately $130.5 million of unsecured debt, including scheduled principal amortizations, are scheduled to mature. See Note 9 of the Notes to Consolidated Financial Statements, “Notes Payable,” for further discussion of scheduled maturities. Additionally, as of December 31, 2008, we had several current development projects in various stages of construction, for which a total estimated cost of approximately $63.4 million remained to be funded; we anticipate funding approximately $6 million of these costs through our unsecured line of credit and the remaining approximate $57 million from existing joint venture construction loans. We intend to meet our long-term liquidity requirements through the use of cash flows from operations, draws on our unsecured credit facility, property dispositions, secured mortgage notes, and 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 equal to a minimum of 90% of our REIT taxable income, computed without regards to the dividends paid deduction and our net capital gains. In November 2008, we announced our Board of Trust Managers had declared a dividend distribution of $0.70 per share to our common shareholders of record as of December 4, 2008. The dividend was subsequently paid on January 2, 2009. We paid equivalent amounts per unit to holders of the common operating partnership units. This distribution to common shareholders and holders of common operating partnership units equates to an annualized dividend rate of $2.80 per share or unit.

 

34


Table of Contents

The following table summarizes our known contractual cash obligations as of December 31, 2008:
                                                         
(in millions)   Total     2009     2010     2011     2012     2013     Thereafter  
Debt maturities (1)
  $ 2,832.4     $ 134.4     $ 355.5     $ 421.7     $ 772.2     $ 227.2     $ 921.4  
Interest payments (2)
    658.6       136.6       121.9       101.5       89.2       54.6       154.8  
Capital contributions to Fund (3)
    32.8       32.8                                
Non-cancelable lease payments
    14.9       2.5       2.5       2.4       2.0       1.9       3.6  
Postretirement benefit obligations
    3.0       0.2       0.2       0.2       0.2       0.2       2.0  
Construction contracts
    63.4       61.5       1.9                          
 
                                         
 
  $ 3,605.1     $ 368.0     $ 482.0     $ 525.8     $ 863.6     $ 283.9     $ 1,081.8  
 
                                         
     
(1)  
Includes our line of credit and scheduled principal amortizations.
 
(2)  
Includes contractual interest payments for our line of credit, senior unsecured notes, medium-term notes, and secured notes. Interest payments on hedged loans were calculated based on the interest rates effectively fixed by the interest rate swap agreements. The interest payments on certain secured notes with floating interest rates and our line of credit were calculated based on the interest rates in effect as of December 31, 2008 or the most recent practicable date.
 
(3)  
Contingent on timing of capital calls by the Fund; subject to change.
Off-Balance Sheet Arrangements
The joint ventures in which we have an interest have been funded in part with secured, third-party debt. We are committed to additional funding under mezzanine loans provided to joint ventures. See further discussion of our investments in various joint ventures in Note 7, “Investments in Joint Ventures” and a discussion of our mezzanine construction financing in Note 8, “Notes Receivable” in the Notes to Consolidated Financial Statements.
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. The short-term nature of our leases generally minimizes our risk from the adverse effects of inflation.
Critical Accounting Policies
Critical accounting policies are those most important to the presentation of a company’s financial condition and results, and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We follow financial accounting and reporting policies in accordance with generally accepted accounting principles in the United States of America.
General. A comprehensive enumeration of our significant accounting policies is presented in Note 2 to the accompanying consolidated financial statements as of December 31, 2008 and 2007, and for the years ended December 31, 2008, 2007, and 2006. Each of our policies has been chosen based upon current authoritative literature that collectively comprises accounting principles generally accepted in the United States of America.
Principles of Consolidation. Our consolidated financial statements include our accounts, the accounts of variable interest entities (“VIEs”) in which we are the primary beneficiary, and the accounts of other subsidiaries and joint ventures over which we have control. All intercompany transactions, balances, and profits have been eliminated in consolidation. Investments acquired or created are evaluated based on Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) 46R, “Consolidation of Variable Interest Entities” (as revised), which requires the consolidation of VIEs in which we are considered to be the primary beneficiary. If the investment is determined not to be within the scope of FIN 46R, then the investments are evaluated for consolidation using American Institute of Certified Public Accountants’ Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures,” and Accounting Research Bulletin 51, “Consolidated Financial Statements.” If we are the general partner in a limited partnership, we also consider the guidance of Emerging Issues Task Force Issue 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,” to assess whether any rights held by the limited partners overcome the presumption of control by us.

 

35


Table of Contents

Use of Estimates. In the application of GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, results of operations during the reporting periods, and related disclosures. Our more significant estimates relate to estimates supporting our impairment analysis related to the carrying values of our real estate assets, estimates of the useful lives of our assets, reserves related to our general liability and employee benefit programs, estimates related to our investments in joint ventures and mezzanine construction financing, and estimates of expected losses of variable interest entities. These estimates are based on historical experience and various other assumptions believed to be reasonable under the circumstances. Future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment.
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. Interest, fee and asset management, and all other sources of income are recognized as earned. Two of our properties are subject to rent control or rent stabilization. Operations of apartment properties acquired are recorded from the date of acquisition in accordance with the purchase method of accounting. In management’s opinion, due to the number of residents, the types and diversity of submarkets in which the properties operate, and the collection terms, there is no significant concentration of credit risk.
Cost Capitalization. Real estate assets are carried at cost plus capitalized carrying charges. Carrying charges are primarily interest and real estate taxes which are capitalized as part of properties under development. Expenditures directly related to the development, acquisition, and improvement of real estate assets, excluding internal costs relating to acquisitions of operating properties, are capitalized at cost as land 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.
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 all operating expenses associated with completed apartment homes are expensed. 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, which range from three to twenty years.
Depreciation and amortization is computed over the expected useful lives of depreciable property on a straight-line basis with lives generally as follows:
         
    Estimated  
    Useful Life  
Buildings and improvements
  5-35 years
Furniture, fixtures, equipment and other
  3-20 years
Intangible assets (in-place leases and above and below market leases)
  underlying lease term  
Derivative Instruments. We utilize derivative financial instruments to manage interest rate risk, and we designate the derivative instruments as cash flow hedges. Derivative instruments are recorded in the balance sheet as either an asset or a liability measured at fair value. For cash flow hedge relationships, changes in the fair value of the derivative instrument deemed effective at offsetting the risk being hedged are reported in other comprehensive income or loss and are reclassified into earnings when the hedged item affects earnings. The ineffective portion is recognized in current period earnings. Derivatives not designated or not qualifying for hedge treatment must be recorded at fair value with gains or losses recognized in earnings in the period of change. We do not use derivative instruments for trading or speculative purposes. We use derivative instruments to reduce the potential impact of changes in interest rates on variable-rate debt.
We formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged, and how the hedging instrument’s effectiveness in hedging the exposure to the hedged transaction’s variability in cash flows attributable to the hedged risk will be assessed and measured. Both at the inception of the hedge and on an ongoing basis, we assess whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows or fair values of hedged items. We discontinue hedge accounting if a derivative is not determined to be highly effective as a hedge or has ceased to be a highly effective hedge.

 

36


Table of Contents

Accumulated other comprehensive income or loss on the Consolidated Balance Sheets reflects the effective portions of cumulative changes in the fair value of derivatives in qualifying cash flow hedge relationships.
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. When impairment exists the long-lived asset is adjusted to its respective fair value. We consider projected future undiscounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist. While we believe our estimates of future cash flows are reasonable, different assumptions regarding such factors as market rents, economies, and occupancies could significantly affect these estimates. In estimating fair value, management uses appraisals, management estimates, or discounted cash flow calculations. In addition, we continually evaluate our investments in joint ventures and mezzanine construction financing and if we believe there is an other than temporary decline in market value, or if it is probable we will not collect all interest and principal in accordance with the terms of the mezzanine loan, we will record an impairment charge based on these evaluations. In general, we provide mezzanine loans to affiliated joint ventures constructing or operating multifamily assets. While we believe it is currently probable we will collect all scheduled principal and interest with respect to these development loans, current market conditions with respect to credit availability and with respect to real estate market fundamentals inject a significant amount of uncertainty into the environment. Given this, any future adverse development in market conditions would cause us to re-evaluate our conclusions, and could result in material impairment charges with respect to our mezzanine loans.
The value of our properties held for development depends on market conditions, including estimates of the project start date as well as estimates of future demand of multifamily communities. We have analyzed trends and other information related to each potential development and have incorporated this information as well as our current outlook into the assumptions we use in our impairment analyses. Due to the judgment and assumptions applied in the estimation process with respect to impairments, including the fact that 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 worsen beyond our current expectations, or if changes in our development strategy significantly affect any key assumptions used in our fair value calculations, we may need to take additional charges in future periods for impairments related to existing assets. Any such non-cash charges would have an adverse effect on our consolidated financial position and results of operations.
We do not purchase land for resale. However, when we own land or communities which no longer fit into our plans and we determine the best use of the asset is the sale of the asset, the asset is accounted for as properties held for sale, including land, assuming the held for sale criteria defined in Statement of Financial Accounting Standards (“SFAS”) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” are met. We record land held for sale at the lesser of its carrying value or fair value less estimated costs to sell.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The statement does not require new fair value measurements, but is applied to the extent other accounting pronouncements require or permit fair value measurements. The statement emphasizes fair value as a market-based measurement which should be determined based on assumptions market participants would use in pricing an asset or a liability. In February 2008, the FASB issued FSP 157-2, “Effective Date of FASB Statement 157,” which deferred the effective date of SFAS 157 for us to January 1, 2009 for all nonfinancial assets and nonfinancial liabilities, except for those which are recognized or disclosed at fair value in the financial statements on a recurring basis. We have adopted FAS 157 for nonfinancial assets and nonfinancial liabilities effective January 1, 2009, and this adoption has not and is not expected to materially affect how we determine fair value.

 

37


Table of Contents

In December 2007, the FASB issued SFAS 141R, “Business Combinations,” which replaced SFAS 141, “Business Combinations.” SFAS 141R applies to all transactions or events in which an entity obtains control of one or more businesses. SFAS 141R requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial impact of the business combination. SFAS 141R is effective for us for business combinations made on or after January 1, 2009. We expect the adoption of SFAS 141R to have a material effect on our accounting for future acquisitions of properties, which may fall under the definition of a business, as most transaction costs associated with such acquisitions will be expensed as opposed to the prior treatment of such charges as capitalized costs.
In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51.” SFAS 160 clarifies a noncontrolling interest in a subsidiary is an ownership interest in a consolidated entity which should be reported as equity in the parent’s consolidated financial statements. SFAS 160 requires a reconciliation of the beginning and ending balances of equity attributable to non-controlling interests and disclosure, on the face of the consolidated income statements, of those amounts of consolidated net income attributable to the non-controlling interests, eliminating the past practice of reporting these amounts as an adjustment in arriving at consolidated net income. SFAS 160 also requires a parent to recognize a gain or loss in net income when a subsidiary is deconsolidated and requires the parent to attribute to a noncontrolling interest its share of losses, even if such treatment results in a deficit non-controlling interests balance within the parent’s equity accounts. SFAS 160 is effective for us on January 1, 2009 and most provisions will be applied retrospectively. We are currently evaluating the effects, if any, the adoption of SFAS 160 may have on our financial statements.
In June 2008, the FASB issued FASB Staff Position (“FSP”) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” FSP 03-6-1 affects entities which accrue non-returnable cash dividends on share-based payment awards during the awards’ service period. The FASB concluded unvested share-based payment awards which are entitled to non-forfeitable cash dividends, whether paid or unpaid, are participating securities and are participants of undistributed earnings. Because the awards are considered participating securities, the issuer is required to apply the two-class method of computing basic and diluted earnings per share which involves separate computations for common shares and participating securities. As we do accrue and pay non-forfeitable cash dividends on unvested share-based payment awards, these types of awards are considered participating securities and will be included in our earnings per share calculation in future periods. FSP 03-6-1 is effective for us on January 1, 2009 and will require retrospective application. The retrospective application on our adoption of this FSP would not have had any impact on basic or diluted earnings per share for the year ended December 31, 2008. The impact of our adoption of this FSP on basic and diluted earnings per share for the year ended December 31, 2007 would result in a decrease of approximately $0.01 and $0.02, respectively.
In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active.” FSP 157-3 clarifies the application of SFAS 157, “Fair Value Measurements” in a non-active market. FSP 157-3 became effective upon issuance, including prior periods for which financial statements have not been issued. We adopted FSP 157-3 upon issuance, and it did not have a material impact on our consolidated financial position, results of operations, or cash flows.

 

38


Table of Contents

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The table below provides information about our assets and our liabilities sensitive to changes in interest rates as of December 31, 2008 and 2007.
                                                                 
    December 31, 2008     December 31, 2007  
            Weighted     Weighted                     Weighted     Weighted        
            Average     Average                     Average     Average        
    Amount     Maturity     Interest     % Of     Amount     Maturity     Interest     % Of  
    (in millions)     (in years) (1)     Rate     Total     (in millions)     (in years) (1)     Rate     Total  
 
                                                               
Fixed rate debt (2)
  $ 2,467.3       4.4       5.5 %     87.1 %   $ 2,655.5       4.6       5.4 %     93.9 %
Variable rate debt
    365.1       11.5       2.7       12.9       172.6       19.8       5.0       6.1  
(1)  
Excludes balances outstanding under our unsecured line of credit, which are included in variable rate debt.
 
(2)  
Includes a $500 million term loan entered into in 2007 and $3.4 million of a construction loan entered into in 2008 which has become effectively fixed by the use of an interest rate swap (see discussion below).
We use variable rate indebtedness available under our revolving credit facility to initially fund acquisitions and our development pipeline. To the extent we incur additional variable rate indebtedness, our exposure to increases in interest rates would increase.
For fixed rate debt, interest rate changes affect the fair market value but do not impact net income 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 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 $76.0 million. The net income available 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 $3.7 million, holding all other variables constant.
We currently use interest rate caps and swaps to reduce the impact of interest rate fluctuations on certain variable indebtedness, not for trading or speculative purposes. Under the cap and swap agreements:
   
we agree to pay a counterparty the interest that would have been incurred on a fixed principal amount at a fixed interest rate; and
   
the counterparty agrees to pay us the interest rate that would have been incurred on the same principal amount at an assumed floating interest rate tied to a particular market index.
As of December 31, 2008, the effect of our swap agreements was to fix the interest rate on approximately $503.4 million of our variable rate debt. Had the swap agreements not been in place during 2008, our annual interest costs would have been approximately $9.3 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 swap agreements. Additionally, if the variable interest rates on this debt had been 100 basis points higher through 2008 and the swap agreements not been in place, our annual interest cost would have been approximately $4.2 million lower.
Derivative financial investments 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.
Item 8. Financial Statements and Supplementary Data
Our response to this item is included in a separate section at the end of this report beginning on page F-1.

 

39


Table of Contents

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures.  We carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Securities Exchange Act (“Exchange Act”) Rules 13a-15(e) and 15d-15(e). Based on that 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 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

40


Table of Contents

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 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 and includes those policies and procedures that:
   
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
 
   
Provide reasonable assurance transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
 
   
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.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. 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, 2008.
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.

 

41


Table of Contents

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, 2008, 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, 2008, 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 schedules as of and for the year ended December 31, 2008 of the Company and our report dated February 18, 2009 expressed an unqualified opinion on those financial statements and financial statement schedules.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 18, 2009

 

42


Table of Contents

Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Information with respect to this Item 10 is incorporated by reference from our Proxy Statement, which we expect to file on or before March 23, 2009 in connection with the Annual Meeting of Shareholders to be held May 6, 2009.
Item 11. Executive Compensation
Information with respect to this Item 11 is incorporated by reference from our Proxy Statement, which we expect to file on or before March 23, 2009 in connection with the Annual Meeting of Shareholders to be held May 6, 2009.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to this Item 12 is incorporated by reference from our Proxy Statement, which we expect to file on or before March 23, 2009 in connection with the Annual Meeting of Shareholders to be held May 6, 2009.
Equity Compensation Plan Information
                         
                    Number of securities  
                    remaining available for  
    Number of securities to be     Weighted-average     future issuance under  
    issued upon exercise of     exercise price of     equity compensation plans  
    outstanding options,     outstanding options,     (excluding securities  
    warrants and rights     warrants and rights     reflected in column (a))  
Plan Category   (a)     (b)     (c)  
Equity compensation plans approved by security holders
    4,125,312     $ 41.37       2,370,310  
Equity compensation plans not approved by security holders
                 
 
                 
Total
    4,125,312     $ 41.37       2,370,310  
 
                 
Item 13. Certain Relationships and Related Transactions and Director Independence
Information with respect to this Item 13 is incorporated herein by reference from our Proxy Statement, which we expect to file on or before March 23, 2009 in connection with the Annual Meeting of Shareholders to be held May 6, 2009.
Item 14. Principal Accounting Fees and Services
Information with respect to this Item 14 is incorporated herein by reference from our Proxy Statement, which we expect to file on or before March 23, 2009 in connection with the Annual Meeting of Shareholders to be held May 6, 2009.

 

43


Table of Contents

PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
         
 
       
(1) Financial Statements:
       
 
       
    F-1  
 
       
    F-2  
 
       
    F-3  
 
       
    F-5  
 
       
    F-6  
 
       
    F-8  
 
       
(2) Financial Statement Schedules:
       
 
       
    S-1  
 
       
    S-7  
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:
             
Exhibit       Filed Herewith or Incorporated Herein
No.   Description   by Reference (1)
  2.1    
Agreement and Plan of Merger, dated October 4, 2004, among Camden Property Trust, Camden Summit, Inc. and Summit Properties Inc.
 
Current Report on Form 8-K filed on October 5, 2004
       
 
   
  2.2    
Amendment No. 1 to Agreement and Plan of Merger, dated October 6, 2004, among Camden Property Trust, Camden Summit, Inc. and Summit Properties Inc.
 
Exhibit 2.1 to Form 8-K filed on October 6, 2004
       
 
   
  2.3    
Amendment No. 2 to Agreement and Plan of Merger, dated January 24, 2005, among Camden Property Trust, Camden Summit, Inc. and Summit Properties Inc.
 
Exhibit 2.1 to Form 8-K filed on January 25, 2005
       
 
   
  3.1    
Amended and Restated Declaration of Trust of Camden Property Trust
 
Exhibit 3.1 to Form 10-K for the year ended December 31, 1993
       
 
   
  3.2    
Amendment to the Amended and Restated Declaration of Trust of Camden Property Trust
 
Exhibit 3.1 to Form 10-Q for the quarter ended June 30, 1997
       
 
   
  3.3    
Second Amended and Restated Bylaws of Camden Property Trust
 
Exhibit 3.3 to Form 10-K for the year ended December 31, 1997
       
 
   
  3.4    
Amendment to Second Amended and Restated Bylaws of Camden Property Trust
 
Exhibit 99.2 to Form 8-K filed on May 4, 2006

 

44


Table of Contents

             
Exhibit       Filed Herewith or Incorporated Herein
No.   Description   by Reference (1)
  4.1    
Specimen certificate for Common Shares of Beneficial Interest
 
Form S-11 filed on September 15, 1993 (Registration No. 33-68736)
       
 
   
  4.2    
Indenture dated as of February 15, 1996 between Camden Property Trust and the U.S. Trust Company of Texas, N.A., as Trustee
 
Exhibit 4.1 to Form 8-K filed on February 15, 1996
       
 
   
  4.3    
First Supplemental Indenture dated as of February 15, 1996 between Camden Property Trust and U.S. Trust Company of Texas, N.A., as Trustee
 
Exhibit 4.2 to Form 8-K filed on February 15, 1996
       
 
   
  4.4    
Form of Indenture for Senior Debt Securities dated as of February 11, 2003 between Camden Property Trust and SunTrust Bank, as Trustee
 
Exhibit 4.1 to Form S-3 filed on February 12, 2003 (Registration No. 333-103119)
       
 
   
  4.5    
First Supplemental Indenture dates as of May 4, 2007 between the Company and U.S. Bank National Association, as successor to SunTrust Bank, as trustee
 
Exhibit 4.2 to Form 8-K filed on May 7, 2007
       
 
   
  4.6    
Indenture dated as of February 11, 2003 between the Company and U.S. Bank National Association, as successor to SunTrust Bank, as trustee.
 
Exhibit 4.1 to Form 8-K filed on May 7, 2007
       
 
   
  4.7    
Registration Rights Agreement, dated as of February 23, 1999, between Camden Property Trust and the unitholders named therein
 
Exhibit 99.3 to Form 8-K filed on March 10, 1999
       
 
   
  4.8    
Form of Amendment to Registration Rights Agreement, dated as of December 1, 2003, between Camden Property Trust and the unitholders named therein
 
Exhibit 4.8 to Form 10-K for the year ended December 31, 2003
       
 
   
  4.9    
Form of Registration Rights Agreement between Camden Property Trust and the holders named therein
 
Form S-4 filed on November 24, 2004 (Registration No. 333-120733)
       
 
   
  4.10    
Form of Statement of Designation of Series B Cumulative Redeemable Preferred Shares of Beneficial Interest
 
Exhibit 4.1 to Form 8-K filed on March 10, 1999
       
 
   
  4.11    
Form of Amendment to Statement of Designation of Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, effective as of December 31, 2003
 
Exhibit 4.10 to Form 10-K for the year ended December 31, 2003
       
 
   
  4.12    
Form of Camden Property Trust 7.625% Note due 2011
 
Exhibit 4.4 to Form 8-K filed on February 20, 2001
       
 
   
  4.13    
Form of Camden Property Trust 6.75% Note due 2010
 
Exhibit 4.3 to Form 8-K filed on September 17, 2001
       
 
   
  4.14    
Form of Camden Property Trust 5.875% Note due 2012
 
Exhibit 4.3 to Form 8-K filed on November 25, 2002
       
 
   
  4.15    
Form of Camden Property Trust 5.375% Note due 2013
 
Exhibit 4.2 to Form 8-K filed on December 9, 2003

 

45


Table of Contents

             
Exhibit       Filed Herewith or Incorporated Herein
No.   Description   by Reference (1)
  4.16    
Form of Camden Property Trust 4.70% Note due 2009
 
Exhibit 4.2 to Form 8-K filed on July 12, 2004
       
 
   
  4.17    
Form of Camden Property Trust 4.375% Note due 2010
 
Exhibit 4.2 to Form 8-K filed on December 20, 2004
       
 
   
  4.18    
Form of Camden Property Trust 5.00% Note due 2015
 
Exhibit 4.2 to Form 8-K filed on June 7, 2005
       
 
   
  4.19    
Form of Camden Property Trust 5.700% Notes due 2017
 
Exhibit 4.3 to Form 8-K filed on May 7, 2007
       
 
   
  4.20    
Indenture dated as of August 7, 1997 between Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.) and First Union National Bank
 
Exhibit 4.1 to Camden Summit Partnership, L.P.’s Form 8-K filed on August 11, 1997 (File No. 000-22411)
       
 
   
  4.21    
Supplemental Indenture No. 1, dated as of August 12, 1997, between Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.) and First Union National Bank
 
Exhibit 4.1 to Camden Summit Partnership, L.P.’s Form 8-K/A-1 filed on August 18, 1997 (File No. 000-22411)
       
 
   
  4.22    
Supplemental Indenture No. 2, dated as of December 17, 1997, between Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.) and First Union National Bank
 
Exhibit 4.1 to Camden Summit Partnership, L.P.’s Form 8-K/A-1 filed on December 17, 1997 (File No. 000-22411)
       
 
   
  4.23    
Supplemental Indenture No. 3, dated as of May 29, 1998, between Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.) and First Union National Bank
 
Exhibit 4.2 to Camden Summit Partnership, L.P.’s Form 8-K filed on June 2, 1998 (File No. 000-22411)
       
 
   
  4.24    
Supplemental Indenture No. 4, dated as of April 20, 2000, between Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.) and First Union National Bank
 
Exhibit 4.2 to Camden Summit Partnership, L.P.’s Form 8-K filed on April 28, 2000 (File No. 000-22411)
       
 
   
  4.25    
Supplemental Indenture No. 5, dated as of June 21, 2005, among Camden Summit Partnership, L.P., Camden Property Trust and Wachovia Bank, N.A.
 
Exhibit 99.1 to Form 8-K filed on June 23, 2005
       
 
   
  4.26    
Form of Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.) 7.59% Medium-Term Note due 2009
 
Exhibit 4.1 to Camden Summit Partnership, L.P.’s Form 10-Q for the quarter ended March 31, 1999 (File No. 000-22411)
       
 
   
  4.27    
Form of Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.) 8.50% Medium-Term Note due 2010
 
Exhibit 10.2 to Summit Property Inc.’s Form 10-Q for the quarter ended September 30, 2000 (File No. 001-12792)
       
 
   
  4.28    
Form of Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.) 7.703% Medium-Term Note due 2011
 
Exhibit 10.3 to Summit Property Inc.’s Form 10-Q for the quarter ended June 30, 2001 (File No. 001-12792)
       
 
   
  10.1    
Form of Indemnification Agreement between Camden Property Trust and certain of its trust managers and executive officers
 
Form S-11 filed on July 9, 1993 (Registration No. 33-63588)
       
 
   
  10.2    
Second Amended and Restated Employment Agreement dated July 11, 2003 between Camden Property Trust and Richard J. Campo
 
Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2003
       
 
   
  10.3    
Second Amended and Restated Employment Agreement dated July 11, 2003 between Camden Property Trust and D. Keith Oden
 
Exhibit 10.2 to Form 10-Q for the quarter ended June 30, 2003

 

46


Table of Contents

             
Exhibit       Filed Herewith or Incorporated Herein
No.   Description   by Reference (1)
  10.4    
Form of First Amendment to Second Amended and Restated Employment Agreements, effective as of January 1, 2008, between Camden Property Trust and each of Richard J. Campo and D. Keith Oden.
 
Exhibit 99.1 to Form 8-K filed on November 30, 2007
       
 
   
  10.5    
Second Amendment to Second Amended and Restated Employment Agreement, dated as of March 14, 2008 between Camden Property Trust and D. Keith Oden.
 
Exhibit 99.1 to Form 8-K filed on March 18, 2008
       
 
   
  10.6    
Form of Employment Agreement by and between Camden Property Trust and certain senior executive officers
 
Exhibit 10.13 to Form 10-K for the year ended December 31, 1996
       
 
   
  10.7    
Form of First Amendment to Employment Agreement, effective as of January 1, 2008, between the Company and each of H. Malcolm Stewart, Dennis M. Steen, and Steven K. Eddington.
 
Exhibit 99.1 to Form 8-K filed on November 30, 2007
       
 
   
  10.8    
Second Amended and Restated Employment Agreement, dated November 3, 2008, between Camden Property Trust and H. Malcolm Stewart
 
Exhibit 99.1 to Form 8-K filed on November 4, 2008
       
 
   
  10.9    
Second Amended and Restated Camden Property Trust Key Employee Share Option Plan (KEYSOPTM), effective as of January 1, 2008
 
Exhibit 99.5 to Form 8-K filed on November 30, 2007
       
 
   
  10.10    
Amendment No. 1 to Second Amended and Restated Camden Property Trust Key Employee Share Option Plan, effective as of January 1, 2008
 
Exhibit 99.1 to Form 8-K filed on December 8, 2008
       
 
   
  10.11    
Distribution Agreement dated March 20, 1997 among Camden Property Trust and the Agents listed therein relating to the issuance of Medium Term Notes
 
Exhibit 1.1 to Form 8-K filed on March 21, 1997
       
 
   
  10.12    
Form of Amended and Restated Master Exchange Agreement between Camden Property Trust and certain key employees
 
Exhibit 10.7 to Form 10-K for the year ended December 31, 2003
       
 
   
  10.13    
Form of Amended and Restated Master Exchange Agreement between Camden Property Trust and certain trust managers
 
Exhibit 10.8 to Form 10-K for the year ended December 31, 2003
       
 
   
  10.14    
Form of Amended and Restated Master Exchange Agreement between Camden Property Trust and certain key employees
 
Exhibit 10.9 to Form 10-K for the year ended December 31, 2003
       
 
   
  10.15    
Form of Master Exchange Agreement between Camden Property Trust and certain trust managers
 
Exhibit 10.10 to Form 10-K for the year ended December 31, 2003
       
 
   
  10.16    
Form of Amendment No. 1 to Amended and Restated Master Exchange Agreement (Trust Managers) effective November 27, 2007
 
Exhibit 99.3 to Form 8-K filed on November 30, 2007
       
 
   
  10.17    
Form of Amendment No. 1 to Amended and Restated Master Exchange Agreement (Key Employees) effective November 27, 2007
 
Exhibit 99.4 to Form 8-K filed on November 30, 2007
       
 
   
  10.18    
Form of Third Amended and Restated Agreement of Limited Partnership of Camden Operating, L.P.
 
Exhibit 10.1 to Form S-4 filed on February 26, 1997 (Registration No. 333-22411)
       
 
   
  10.19    
First Amendment to Third Amended and Restated Agreement of Limited Partnership of Camden Operating, L.P., dated as of February 23, 1999
 
Exhibit 99.2 to Form 8-K filed on March 10, 1999

 

47


Table of Contents

             
Exhibit       Filed Herewith or Incorporated Herein
No.   Description   by Reference (1)
  10.20    
Form of Second Amendment to Third Amended and Restated Agreement of Limited Partnership of Camden Operating, L.P., dated as of August 13, 1999
 
Exhibit 10.15 to Form 10-K for the year ended December 31, 1999
       
 
   
  10.21    
Form of Third Amendment to Third Amended and Restated Agreement of Limited Partnership of Camden Operating, L.P., dated as of September 7, 1999
 
Exhibit 10.16 to Form 10-K for the year ended December 31, 1999
       
 
   
  10.22    
Form of Fourth Amendment to Third Amended and Restated Agreement of Limited Partnership of Camden Operating, L.P., dated as of January 7, 2000
 
Exhibit 10.17 to Form 10-K for the year ended December 31, 1999
       
 
   
  10.23    
Form of Amendment to Third Amended and Restated Agreement of Limited Partnership of Camden Operating, L.P., dated as of December 1, 2003
 
Exhibit 10.19 to Form 10-K for the year ended December 31, 2003
       
 
   
  10.24    
Amended and Restated Limited Liability Company Agreement of Sierra-Nevada Multifamily Investments, LLC, adopted as of June 29, 1998 by Camden Subsidiary, Inc. and TMT-Nevada, L.L.C.
 
Exhibit 99.1 to Form 8-K filed on July 15, 1998
       
 
   
  10.25    
Amended and Restated Limited Liability Company Agreement of Oasis Martinique, LLC, adopted as of October 23, 1998 among Oasis Residential, Inc. and the persons named therein
 
Exhibit 10.59 to Oasis Residential, Inc.’s Form 10-K for the year ended December 31, 1997 (File No. 001-12428)
       
 
   
  10.26    
Exchange Agreement, dated as of October 23, 1998, by and among Oasis Residential, Inc., Oasis Martinique, LLC and the holders listed therein
 
Exhibit 10.60 to Oasis Residential, Inc.’s Form 10-K for the year ended December 31, 1997 (File No. 001-12428)
       
 
   
  10.27    
Contribution Agreement, dated as of February 23, 1999, by and among Belcrest Realty Corporation, Belair Real Estate Corporation, Camden Operating, L.P. and Camden Property Trust
 
Exhibit 99.1 to Form 8-K filed on March 10, 1999
       
 
   
  10.28    
Amended and Restated 1993 Share Incentive Plan of Camden Property Trust
 
Exhibit 10.18 to Form 10-K for the year ended December 31, 1999
       
 
   
  10.29    
Camden Property Trust 1999 Employee Share Purchase Plan
 
Exhibit 10.19 to Form 10-K for the year ended December 31, 1999
       
 
   
  10.30    
Amended and Restated 2002 Share Incentive Plan of Camden Property Trust
 
Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2002
       
 
   
  10.31    
Amendment to Amended and Restated 2002 Share Incentive Plan of Camden Property Trust
 
Exhibit 99.1 to Form 8-K filed on May 4, 2006
       
 
   
  10.32    
Amendment to Amended and Restated 2002 Share Incentive Plan of Camden Property Trust, effective as of January 1, 2008
 
Exhibit 99.1 to Form 8-K filed on July 29, 2008
       
 
   
  10.33    
Camden Property Trust Short Term Incentive Plan
 
Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2002
       
 
   
  10.34    
Amended and Restated Camden Property Trust Non-Qualified Deferred Compensation Plan, effective as of January 1, 2008
 
Exhibit 99.6 to Form 8-K filed on November 30, 2007
       
 
   
  10.35    
Amendment No. 1 to Amended and Restated Camden Property Trust Non-Qualified Deferred Compensation Plan, effective as of January 1, 2008
 
Exhibit 99.2 to Form 8-K filed on July 29, 2008
       
 
   
  10.36    
Amendment No. 2 to Amended and Restated Camden Property Trust Non-Qualified Deferred Compensation Plan, effective as of January 1, 2008
 
Exhibit 99.2 to Form 8-K filed on December 8, 2008

 

48


Table of Contents

             
Exhibit       Filed Herewith or Incorporated Herein
No.   Description   by Reference (1)
  10.37    
Form of Second Amended and Restated Agreement of Limited Partnership of Camden Summit Partnership, L.P. among Camden Summit, Inc., as general partner, and the persons whose names are set forth on Exhibit A thereto
 
Exhibit 10.4 to Form S-4 filed on November 24, 2004 (Registration No. 333-120733)
       
 
   
  10.38    
Form of Tax, Asset and Income Support Agreement among Camden Property Trust, Camden Summit, Inc., Camden Summit Partnership, L.P. and each of the limited partners who has executed a signature page thereto
 
Exhibit 10.5 to Form S-4 filed on November 24, 2004 (Registration No. 333-120733)
       
 
   
  10.39    
Form of Amended and Restated Credit Agreement dated January 14, 2005 among Camden Property Trust, Bank of America, N.A., as administrative agent, J.P. Morgan Chase Bank, N.A., as syndication agent, Wachovia Bank, N.A. and Wells Fargo Bank, N.A., as the documentation agents, and the Lenders named therein
 
Exhibit 99.1 to Form 8-K filed on January 18, 2005
       
 
   
  10.40    
Form of First Amendment to Credit Agreement, dated as of January 18, 2006, among Camden Property Trust and Bank of America, N.A. on behalf of itself and the Lenders
 
Exhibit 99.1 to Form 8-K filed on January 20, 2006
       
 
   
  10.41    
Form of Credit Agreement dated as of August 17, 2007 among Camden Property Trust, Bank of America, N.A., as administrative agent and JPMorgan Chase Bank, N.A., as syndication agent.
 
Exhibit 99.1 to Form 8-K filed on August 21, 2007
       
 
   
  10.42    
Form of Credit Agreement dated as of October 4, 2007 among Camden Property Trust, Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, and the financial institutions and other entities designated as “Lenders” on Schedule I thereto.
 
Exhibit 99.1 to Form 8-K filed on October 10, 2007
       
 
   
  10.43    
Employment Agreement dated February 15, 1999, by and among William B. McGuire, Jr., Summit Properties Inc. and Summit Management Company, as restated on August 24, 2001
 
Exhibit 10.1 to Summit Properties Inc.’s Form 10-Q for the quarter ended September 30, 2001 (File No. 000-12792)
       
 
   
  10.44    
Noncompetition Agreement between Summit Properties Inc. and William F. Paulsen
 
Exhibit 10.5 to Summit Properties Inc.’s Form 10-Q for the quarter ended March 31, 2000 (File No. 001-12792)
       
 
   
  10.45    
Noncompetition Agreement between Summit Properties Inc. and William B. McGuire, Jr.
 
Exhibit 10.7 to Summit Properties Inc.’s Form 10-Q for the quarter ended March 31, 2000 (File No. 001-12792)
       
 
   
  10.46    
Amendment Agreement, dated as of June 19, 2004, among William B. McGuire, Jr., Summit Properties Inc. and Summit Management Company
 
Exhibit 10.8.2 to Summit Properties Inc.’s Form 10-Q for the quarter ended June 30, 2004 (File No. 001-12792)
       
 
   
  10.47    
Amendment Agreement, dated as of June 19, 2004, among William F. Paulsen, Summit Properties Inc. and Summit Management Company
 
Exhibit 10.8.2 to Summit Properties Inc.’s Form 10-Q for the quarter ended June 30, 2004 (File No. 001-12792)
       
 
   
  10.48    
Separation Agreement, dated as of February 28, 2005, between Camden Property Trust and William B. McGuire, Jr.
 
Exhibit 99.1 to Form 8-K filed on April 28, 2005
       
 
   
  10.49    
Separation Agreement, dated as of February 28, 2005, between Camden Property Trust and William F. Paulsen
 
Exhibit 99.2 to Form 8-K filed on April 28, 2005
       
 
   
  10.50    
Separation Agreements and General Release, dated as of March 16, 2007, between Camden Property Trust and James M. Hinton
 
Exhibit 99.1 to Form 8-K filed on March 22, 2007

 

49


Table of Contents

             
Exhibit       Filed Herewith or Incorporated Herein
No.   Description   by Reference (1)
  10.51    
Credit Agreement dated July 28, 2003 by and among Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.), Summit Sweetwater, LLC, Summit Shiloh, LLC, Summit Grandview, LLC, Summit Portofino Place, LTD., and L.J. Melody & Company
 
Exhibit 10.1 to Camden Summit Partnership, L.P.’s Form 10-Q for the quarter ended June 30, 2003
       
 
   
  10.52    
Distribution Agreement, dated as of April 20, 2000, by and among Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.), Summit Properties Inc. and the Agents listed therein
 
Camden Summit Partnership, L.P.’s Form 8-K filed on April 28, 2000
       
 
   
  10.53    
First Amendment to Distribution Agreement, dated as of May 8, 2001, among Camden Summit Partnership, L.P. (f/k/a Summit Properties Partnership, L.P.), Summit Properties Inc. and the Agents named therein
 
Exhibit 10.2 to Summit Properties Inc.’s Form 10-Q for the quarter ended March 31, 2001
       
 
   
  10.54    
Master Credit Agreement, dated as of September 24, 2008, among CSP Community Owner, LLC, CPT Community Owner, LLC, and Red Mortgage Capital, Inc. (2)
 
Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2008
       
 
   
  12.1    
Statement Re Computation of Ratios
 
Filed Herewith
       
 
   
  21.1    
List of Subsidiaries
 
Filed Herewith
       
 
   
  23.1    
Consent of Deloitte & Touche LLP
 
Filed Herewith
       
 
   
  24.1    
Powers of Attorney for Richard J. Campo, D. Keith Oden, William R. Cooper, Scott S. Ingraham, Lewis A. Levey, William B. McGuire, Jr., F. Gardner Parker, William F. Paulsen, Steven A. Webster, and Kelvin R. Westbrook
 
Filed Herewith
       
 
   
  31.1    
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act
 
Filed Herewith
       
 
   
  31.2    
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act
 
Filed Herewith
       
 
   
  32.1    
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Filed Herewith
     
(1)  
Unless otherwise indicated, all references to reports or registration statements are to reports or registration statements filed by Camden Property Trust (File No. 1-12110).
 
(2)  
Portions of the exhibit have been omitted pursuant to a request for confidential treatment.

 

50


Table of Contents

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.
         
February 19, 2009 CAMDEN PROPERTY TRUST
 
 
  By:   /s/ Michael P. Gallagher    
    Michael P. Gallagher   
    Vice President — Chief Accounting Officer   

 

51


Table of Contents

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.
         
Name   Title   Date
 
       
/s/ Richard J. Campo
 
Richard J. Campo
  Chairman of the Board of Trust Managers and Chief Executive Officer (Principal Executive Officer)   February 19, 2009
 
       
/s/ D. Keith Oden
 
D. Keith Oden
  President and Trust Manager    February 19, 2009
 
       
/s/ Dennis M. Steen
 
Dennis M. Steen
  Chief Financial Officer, Senior Vice President-Finance and Secretary (Principal Financial Officer)   February 19, 2009
 
       
/s/ Michael P. Gallagher
 
Michael P. Gallagher
  Vice President — Chief Accounting Officer (Principal Accounting Officer)   February 19, 2009
 
       
*
 
William R. Cooper
  Trust Manager    February 19, 2009
 
       
*
  Trust Manager   February 19, 2009
 
Scott S. Ingraham
       
 
       
*
 
Lewis A. Levey
  Trust Manager    February 19, 2009
 
       
*
 
William B. McGuire, Jr.
  Trust Manager    February 19, 2009
 
       
*
 
F. Gardner Parker
  Trust Manager    February 19, 2009
 
       
*
 
William F. Paulsen
  Trust Manager    February 19, 2009
 
       
*
 
Steven A. Webster
  Trust Manager    February 19, 2009
 
       
*
 
Kelvin R. Westbrook
  Trust Manager    February 19, 2009
         
*By:
  /s/ Dennis M. Steen    
 
 
 
Dennis M. Steen
   
 
  Attorney-in-fact    

 

52


Table of Contents

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, 2008 and 2007, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules 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, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present 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, 2008, 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 18, 2009 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 18, 2009

 

F-1


Table of Contents

CAMDEN PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
                 
    December 31,  
(in thousands, except per share amounts)   2008     2007  
Assets
               
Real estate assets, at cost
               
Land
  $ 744,059     $ 730,548  
Buildings and improvements
    4,447,587       4,316,472  
 
           
 
    5,191,646       5,047,020  
Accumulated depreciation
    (981,049 )     (868,074 )
 
           
Net operating real estate assets
    4,210,597       4,178,946  
Properties under development and land
    264,188       446,664  
Investments in joint ventures
    15,106       8,466  
Properties held for sale, including land
    20,653       25,253  
 
           
Total real estate assets
    4,510,544       4,659,329  
 
               
Accounts receivable — affiliates
    37,000       35,940  
Notes receivable
               
Affiliates
    58,109       50,358  
Other
    8,710       11,565  
Other assets, net
    103,013       126,996  
Cash and cash equivalents
    7,407       897  
Restricted cash
    5,559       5,675  
 
           
Total assets
  $ 4,730,342     $ 4,890,760  
 
           
 
               
Liabilities and shareholders’ equity
               
Liabilities
               
Notes payable
               
Unsecured
  $ 2,103,187     $ 2,265,319  
Secured
    729,209       562,776  
Accounts payable and accrued expenses
    82,575       107,403  
Accrued real estate taxes
    23,600       24,943  
Distributions payable
    42,936       42,689  
Other liabilities
    149,554       136,365  
 
           
Total liabilities
    3,131,061       3,139,495  
 
               
Commitments and contingencies
               
 
Minority interests
               
Perpetual preferred units
    97,925       97,925  
Common units
    88,075       111,624  
Other minority interests
    1,787       10,403  
 
           
Total minority interests
    187,787       219,952  
 
Shareholders’ equity
               
Common shares of beneficial interest; $0.01 par value per share; 100,000 shares authorized; 68,770 and 68,030 issued; 66,028 and 65,434 outstanding at December 31, 2008 and 2007, respectively
    660       654  
Additional paid-in capital
    2,237,703       2,209,631  
Distributions in excess of net income
    (312,309 )     (227,025 )
Employee notes receivable
    (295 )     (1,950 )
Treasury shares, at cost
    (463,209 )     (433,874 )
Accumulated other comprehensive loss
    (51,056 )     (16,123 )
 
           
Total shareholders’ equity
    1,411,494       1,531,313  
 
           
Total liabilities and shareholders’ equity
  $ 4,730,342     $ 4,890,760  
 
           
See Notes to Consolidated Financial Statements.

 

F-2


Table of Contents

CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                         
    Year Ended December 31,  
(in thousands, except per share amounts)   2008     2007     2006  
Property revenues
                       
Rental revenues
  $ 547,718     $ 525,497     $ 510,129  
Other property revenues
    76,298       62,822       50,900  
 
                 
Total property revenues
    624,016       588,319       561,029  
Property expenses
                       
Property operating and maintenance
    168,883       155,181       151,595  
Real estate taxes
    70,032       62,169       59,026  
 
                 
Total property expenses
    238,915       217,350       210,621  
Non-property income
                       
Fee and asset management
    9,167       8,293       14,041  
Sale of technology investments
          623       1,602  
Interest and other income
    4,736       8,804       9,771  
Income (loss) on deferred compensation plans
    (33,443 )     7,282       10,116  
 
                 
Total non-property income (loss)
    (19,540 )     25,002       35,530  
Other expenses
                       
Property management
    19,910       18,413       18,490  
Fee and asset management
    6,054       4,552       9,382  
General and administrative
    31,586       32,590       37,584  
Interest
    132,399       115,753       117,348  
Depreciation and amortization
    171,814       157,297       149,206  
Amortization of deferred financing costs
    2,958       3,661       3,782  
Expense (benefit) on deferred compensation plans
    (33,443 )     7,282       10,116  
 
                 
Total other expenses
    331,278       339,548       345,908  
Income from continuing operations before gain on sale of properties, gain on early retirement of debt, impairment loss on land, equity in income (loss) of joint ventures, minority interests, and income taxes
    34,283       56,423       40,030  
Gain on sale of properties, including land
    2,929             97,452  
Gain on early retirement of debt
    13,566              
Impairment loss on land
    (51,323 )     (1,447 )      
Equity in income (loss) of joint ventures
    (1,265 )     1,526       5,156  
Income allocated to minority interests
                       
Distributions on perpetual preferred units
    (7,000 )     (7,000 )     (7,000 )
Income allocated to common units and other minority interests
    (4,052 )     (4,729 )     (15,685 )
 
                 
Income (loss) from continuing operations before income taxes
    (12,862 )     44,773       119,953  
Income tax expense — current
    (843 )     (3,052 )      
 
                 
Income (loss) from continuing operations
    (13,705 )     41,721       119,953  
Income from discontinued operations
    4,480       13,214       15,927  
Gain on sale of discontinued operations, including land, net of tax
    80,198       107,039       99,273  
Income from discontinued operations allocated to common units
          (13,517 )     (2,307 )
 
                 
Net income
  $ 70,973     $ 148,457     $ 232,846  
 
                 
See Notes to Consolidated Financial Statements.

 

F-3


Table of Contents

CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                         
    Year Ended December 31,  
(In thousands, except per share amounts)   2008     2007     2006  
Earnings per share — basic
                       
Income (loss) from continuing operations
  $ (0.25 )   $ 0.72     $ 2.12  
Income from discontinued operations, including gain on sale and income allocated to common units
    1.53       1.83       1.99  
 
                 
 
Net income
  $ 1.28     $ 2.55     $ 4.11  
 
                 
 
                       
Earnings per share — diluted
                       
Income (loss) from continuing operations
  $ (0.25 )   $ 0.71     $ 2.06  
Income from discontinued operations, including gain on sale and income allocated to common units
    1.53       1.80       1.90  
 
                 
 
Net income
  $ 1.28     $ 2.51     $ 3.96  
 
                 
 
Distributions declared per common share
  $ 2.80     $ 2.76     $ 2.64  
Weighted average number of common shares outstanding
    55,272       58,135       56,660  
Weighted average number of common and common dilutive equivalent shares outstanding
    55,272       59,125       59,524  
 
                       
Consolidated Statements of Comprehensive Income
                       
Net income
  $ 70,973     $ 148,457     $ 232,846  
Other comprehensive income (loss)
                       
Unrealized loss on cash flow hedging activities
    (35,069 )     (16,123 )      
Gain on postretirement obligations
    136              
 
                 
Comprehensive income
  $ 36,040     $ 132,334     $ 232,846  
 
                 
See Notes to Consolidated Financial Statements.

 

F-4


Table of Contents

CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
                                                         
    Common                                     Accumulated        
    shares of     Additional     Distributions     Employee     Treasury     other     Total  
    beneficial     paid-in     in excess of     notes     shares, at     comprehensive     shareholders’  
(in thousands, except per share amounts)   interest     capital     net income     receivable     cost     loss     equity  
 
Shareholders’ Equity, January 1, 2006
    608       1,902,595       (295,074 )     (2,078 )     (235,148 )           1,370,903  
 
Net income
                    232,846                               232,846  
Other comprehensive income
                                                   
Common shares issued (3,600 shares)
    36       254,895                                       254,931  
Common shares issued under dividend reinvestment plan
            30                                       30  
Share awards issued under benefit plan (317 shares)
    3       (1 )                     (2 )              
Share awards canceled under benefit plan (31 shares)
                                                   
Amortization of previously granted share awards
            12,964                                       12,964  
Employee share purchase plan
            1,359                       935               2,294  
Repayment of employee notes receivable, net
                            42                       42  
Share awards placed into deferred plans (97 shares)
    (1 )     1                                        
Common share options exercised (119 shares)
    1       5,293                                       5,294  
Conversions and redemptions of operating partnership units (334 shares)
    3       6,486                                       6,489  
Cash distributions ($2.64 per share)
                    (151,437 )                             (151,437 )
 
                                         
Shareholders’ equity, December 31, 2006
  $ 650     $ 2,183,622     $ (213,665 )   $ (2,036 )   $ (234,215 )   $     $ 1,734,356  
 
                                         
 
                                                       
Net income
                    148,457                               148,457  
Other comprehensive income
                                            (16,123 )     (16,123 )
Common shares issued under dividend reinvestment plan
            38                                       38  
Share awards issued under benefit plan (282 shares)
    3       18                       (64 )             (43 )
Share awards canceled under benefit plan (65 shares)
    (1 )     1                                        
Amortization of previously granted share awards
            9,327                                       9,327  
Employee share purchase plan
            817                       562               1,379  
Repayment of employee notes receivable, net
                            86                       86  
Share awards placed into deferred plans (151 shares)
    (2 )     2                                        
Common share options exercised (96 shares)
    1       4,333                                       4,334  
Conversions and redemptions of operating partnership units (266 shares)
    3       11,473                                       11,476  
Common shares repurchased (3,604 shares)
                                    (200,157 )             (200,157 )
Cumulative effect of a change in accounting principle
                    (2,496 )                             (2,496 )
Cash distributions ($2.76 per share)
                    (159,321 )                             (159,321 )
 
                                         
Shareholders’ equity, December 31, 2007
  $ 654     $ 2,209,631     $ (227,025 )   $ (1,950 )   $ (433,874 )   $ (16,123 )   $ 1,531,313  
 
                                         
 
                                                       
Net income
                    70,973                               70,973  
Other comprehensive income (loss)
                                            (34,933 )     (34,933 )
Common shares issued under dividend reinvestment plan
            7                                       7  
Share awards issued under benefit plan (268 shares)
    3       (3 )                                      
Share awards canceled under benefit plan (36 shares)
                                                 
Amortization of previously granted share awards
            10,221                                       10,221  
Employee share purchase plan
            142                       740               882  
Repayment of employee notes receivable, net
                            1,655                       1,655  
Share awards placed into deferred plans (147 shares)
    (2 )     2                                        
Common share options exercised (45 shares)
          2,155                                       2,155  
Conversions and redemptions of operating partnership units (464 shares)
    5       15,548                                       15,553  
Common shares repurchased (695 shares)
                                    (30,075 )             (30,075 )
Cash distributions ($2.80 per share)
                    (156,257 )                             (156,257 )
 
                                         
Shareholders’ equity, December 31, 2008
  $ 660     $ 2,237,703     $ (312,309 )   $ (295 )   $ (463,209 )   $ (51,056 )   $ 1,411,494  
 
                                         
See Notes to Consolidated Financial Statements.

 

F-5


Table of Contents

CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
    Year Ended December 31,  
(in thousands)   2008     2007     2006  
Cash flows from operating activities
                       
Net income
  $ 70,973     $ 148,457     $ 232,846  
Adjustments to reconcile net income to net cash provided by operating activities
                       
Depreciation and amortization, including discontinued operations
    169,151       157,137       159,860  
Gain on sale of discontinued operations
    (80,198 )     (107,039 )     (99,273 )
Impairment loss on land
    51,323       1,447        
Gain on early retirement of debt
    (13,566 )            
Income allocated to minority interests
    11,052       25,246       24,992  
Share-based compensation
    7,663       7,547       11,619  
Distributions of income from joint ventures
    5,392       5,406        
Amortization of deferred financing costs
    2,975       3,689       3,813  
Equity in loss (income) of joint ventures
    1,265       (1,526 )     (5,156 )
Accretion of discount on unsecured notes payable
    571       590       694  
Gain on sale of technology investments
          (623 )     (1,602 )
Gain on sale of properties, including land
    (2,929 )           (97,452 )
Interest on notes receivable — affiliates
    (3,688 )     (4,112 )     (108 )
Net change in operating accounts
    (3,026 )     (13,113 )     1,336  
 
                 
Net cash from operating activities
  $ 216,958     $ 223,106     $ 231,569  
 
                 
 
                       
Cash flows from investing activities
                       
Development and capital improvements
    (199,269 )     (417,789 )     (334,339 )
Proceeds from sales of properties, including land and discontinued operations
    123,513       171,757       181,963  
Proceeds from partial sales of assets to joint ventures
    52,509             213,720  
Investments in joint ventures
    (10,444 )     (6,015 )     (3,147 )
Distributions of investments from joint ventures
    1,058       6,525       47,922  
Acquisition of operating properties
          (83,031 )     (109,961 )
Payment of merger related liabilities
                (8,233 )
Earnest money deposits on potential transactions
          (340 )     (4,803 )
Increase in notes receivable — affiliates
    (3,487 )     (3,154 )     (41,615 )
Payments received on notes receivable — other
    2,855       1,000       9,406  
Change in restricted cash
    116       (954 )     368  
Proceeds from the sale of technology investments
          623       1,602  
Issuance of notes receivable — other
          (8,710 )      
Other
    (4,225 )     (6,710 )     (4,950 )
 
                 
Net cash from investing activities
  $ (37,374 )   $ (346,798 )   $ (52,067 )
 
                 
See Notes to Consolidated Financial Statements.

 

F-6


Table of Contents

CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
    Year Ended December 31,  
(in thousands)   2008     2007     2006  
Cash flows from financing activities
                       
Proceeds from notes payable
  $ 385,927     $ 807,990     $  
Repayment of notes payable
    (379,213 )     (213,376 )     (227,284 )
Net increase (decrease) in unsecured line of credit and short-term borrowings
    30,000       (91,000 )     (45,000 )
Payment of deferred financing costs
    (4,321 )     (5,113 )     (2,945 )
Distributions to shareholders and minority interests
    (172,332 )     (178,142 )     (166,234 )
Repurchase of common shares and units
    (33,133 )     (200,467 )     (170 )
Common share options exercised
    1,729       3,795       4,155  
Repayment of employee notes receivable
    1,679       190       150  
Proceeds from issuance of common shares
                254,931  
Net increase (decrease) in accounts receivable — affiliates
    (929 )     (1,452 )     382  
Other
    (2,481 )     1,130       1,971  
 
                 
Net cash from financing activities
  $ (173,074 )   $ 123,555     $ (180,044 )
 
                 
Net increase (decrease) in cash and cash equivalents
    6,510       (137 )     (542 )
Cash and cash equivalents, beginning of year
    897       1,034       1,576  
 
                 
Cash and cash equivalents, end of year
  $ 7,407     $ 897     $ 1,034  
 
                 
 
Supplemental information
                       
Cash paid for interest, net of interest capitalized
  $ 136,172     $ 114,531     $ 121,396  
Cash paid for income taxes
    1,651       2,555        
 
Supplemental schedule of non-cash investing and financing activities
                       
Distributions declared but not paid
  $ 42,937     $ 42,693     $ 43,068  
Decrease (increase) in liabilities associated with construction and capital expenditures
    24,167       40       (5,261 )
Conversion of operating partnership units to common shares
    15,793       11,638       6,569  
Debt disposed of through dispositions
    14,010              
Value of shares issued under benefit plans, net of cancellations
    10,766       15,381       16,144  
Contribution of real estate assets to joint ventures
    10,523             33,493  
Assumption of debt by joint venture
                30,525  
Cancellation of notes receivable — affiliate in connection with property acquisition
                12,053  
Common units issued in connection with investment in joint venture
                1,900  
Acquisition of Summit, net of cash acquired, at fair value
                       
Assets acquired
                1,881  
Liabilities assumed
                1,881  
Minority interests issued in connection with real estate contribution
          532        
See Notes to Consolidated Financial Statements.

 

F-7


Table of Contents

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, development, construction, and management of multifamily apartment communities. Our multifamily apartment communities are referred to as “communities,” “multifamily communities,” “properties,” or “multifamily properties” in the following discussion. As of December 31, 2008, we owned interests in, operated, or were developing 186 multifamily properties comprising 64,329 apartment homes across the United States. We had 1,426 apartment homes under development at five of our multifamily properties, including 1,060 apartment homes at four multifamily properties owned through joint ventures, in which we own an interest, in addition to other sites we may develop into multifamily apartment communities. Additionally, one property comprised of 671 apartment homes was designated as held for sale.
2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Principles of Consolidation. Our consolidated financial statements include our accounts, the accounts of variable interest entities (“VIEs”) in which we are the primary beneficiary, and the accounts of other subsidiaries and joint ventures over which we have control. All intercompany transactions, balances, and profits have been eliminated in consolidation. Investments acquired or created are evaluated based on Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) 46R, “Consolidation of Variable Interest Entities” (as revised), which requires the consolidation of VIEs in which we are considered to be the primary beneficiary. If the investment is determined not to be within the scope of FIN 46R, then the investments are evaluated for consolidation using American Institute of Certified Public Accountants’ Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures,” and Accounting Research Bulletin 51, “Consolidated Financial Statements.” If we are the general partner in a limited partnership, we also consider the guidance of Emerging Issues Task Force Issue 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,” 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 and amortization is computed on a straight-line basis over the remaining useful lives of the related 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. 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. When impairment exists the long-lived asset is adjusted to its respective fair value. We consider projected future undiscounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist. While we believe our estimates of future cash flows are reasonable, different assumptions regarding such factors as market rents, economies, and occupancies could significantly affect these estimates. In estimating fair value, management uses appraisals, management estimates, or discounted cash flow calculations. In addition, we continually evaluate our investments in joint ventures and mezzanine construction financing and if we believe there is an other than temporary decline in market value, or if it is probable we will not collect all interest and principal in accordance with the terms of the mezzanine loan, we will record an impairment charge based on these evaluations. In general, we provide mezzanine loans to affiliated joint ventures constructing or operating multifamily assets. While we believe it is currently probable we will collect all scheduled principal and interest with respect to these development loans, current market conditions with respect to credit availability and with respect to real estate market fundamentals inject a significant amount of uncertainty into the environment. Given this, any future adverse development in market conditions would cause us to re-evaluate our conclusions, and could result in material impairment charges with respect to our mezzanine loans.

 

F-8


Table of Contents

The value of our properties held for development depends on market conditions, including estimates of the project start date as well as estimates of demand of multifamily communities. We have analyzed trends and other information related to each potential development and have incorporated this information as well as our current outlook into the assumptions we use in our impairment analyses. Due to the judgment and assumptions applied in the estimation process with respect to impairments, including the fact that 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 worsen beyond our current expectations, or if changes in our development strategy significantly affect any key assumptions used in our fair value calculations, we may need to take additional charges in future periods for impairments related to existing assets. Any such 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.
Cost Capitalization. Real estate assets are carried at cost plus capitalized carrying charges. Carrying charges are primarily interest and real estate taxes which are capitalized as part of properties under development. Expenditures directly related to the development, acquisition, and improvement of real estate assets, excluding internal costs relating to acquisitions of operating properties, are capitalized at cost as land 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 $17.7 million, $22.6 million, and $20.6 million in 2008, 2007, and 2006, respectively. Capitalized real estate taxes were approximately $3.4 million, $3.5 million, and $2.6 million in 2008, 2007, and 2006, 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 all operating expenses associated with completed apartment homes are expensed. 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, which range from three to twenty years.
Depreciation and amortization is computed over the expected useful lives of depreciable property on a straight-line basis with lives generally as follows:
         
    Estimated  
    Useful Life  
Buildings and improvements
  5-35 years
Furniture, fixtures, equipment and other
  3-20 years
Intangible assets (in-place leases and above and below market leases)
  underlying lease term  
Derivative Instruments. We utilize derivative financial instruments to manage interest rate risk, and we designate the derivative instruments as cash flow hedges. Derivative instruments are recorded in the balance sheet as either an asset or a liability measured at fair value. For cash flow hedge relationships, changes in the fair value of the derivative instrument deemed effective at offsetting the risk being hedged are reported in other comprehensive income or loss and are reclassified into earnings when the hedged item affects earnings. The ineffective portion is recognized in current period earnings. Derivatives not designated or not qualifying for hedge treatment must be recorded at fair value with gains or losses recognized in earnings in the period of change. We do not use derivative instruments for trading or speculative purposes. We use derivative instruments to reduce the potential impact of changes in interest rates on variable-rate debt.

 

F-9


Table of Contents

We formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged, and how the hedging instrument’s effectiveness in hedging the exposure to the hedged transaction’s variability in cash flows attributable to the hedged risk will be assessed and measured. Both at the inception of the hedge and on an ongoing basis, we assess whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows or fair values of hedged items. We discontinue hedge accounting if a derivative is not determined to be highly effective as a hedge or has ceased to be a highly effective hedge.
See Note 10, “Derivative Instruments and Hedging Activities,” for further discussion of derivative financial instruments.
Accumulated other comprehensive income or loss in the Consolidated Balance Sheets includes the effective portions of cumulative changes in the fair value of derivatives in qualifying cash flow hedge relationships.
Discontinued Operations. The results of operations for properties sold during the period or classified as held for sale at the end of the current period are required to be classified as discontinued operations in the current and prior periods. The property-specific components of earnings that are 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 as 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 of joint ventures.
Gains on sale of real estate are recognized using the full accrual or partial sale methods, as applicable, in accordance with SFAS No. 66 “Accounting for Real Estate Sales,” 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. Interest, fee and asset management, and all other sources of income are recognized as earned. Two of our properties are subject to rent control or rent stabilization. Operations of apartment properties acquired are recorded from the date of acquisition in accordance with the purchase method of accounting. In management’s opinion, due to the number of residents, the types and diversity of submarkets in which the 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, 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 over 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.

 

F-10


Table of Contents

Reclassifications. Certain reclassifications have been made to amounts in prior period financial statements to conform to the current period presentations. We reclassified one property previously included in discontinued operations to continuing operations during the three months ended June 30, 2008 as management made the decision not to sell this asset. As a result, we adjusted the current and prior period consolidated financial statements to reflect this reclassification. Additionally, we recorded a depreciation charge of approximately $0.6 million during the year ended December 31, 2008 on this asset in accordance with the provisions of SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
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 98%, 97%, and 96% of our total consolidated revenues, excluding income or loss on deferred compensation plans, for the years ended December 31, 2008, 2007, and 2006, respectively.
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 activities. Substantially all restricted cash is invested in demand and short-term instruments.
Share Based Compensation. Compensation expense associated with share-based awards under SFAS 123R 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. Share awards can have vesting periods of up to ten years. The fair value of stock option grants was estimated using the Black-Scholes valuation model. The compensation cost for share awards is based on the market value of the shares on the date of grant.
Use of Estimates. In the application of accounting principles generally accepted in the United States of America (“GAAP,”) management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, results of operations during the reporting periods, and related disclosures. Our more significant estimates relate to estimates supporting our impairment analysis related to the carrying values of our real estate assets, estimates of the useful lives of our assets, reserves related to our general liability and employee benefit programs, estimates related to our investments in joint ventures and mezzanine construction financing, and estimates of expected losses of variable interest entities. These estimates are based on historical experience and various other assumptions believed to be reasonable under the circumstances. Future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment.
Recent Accounting Pronouncements. In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The statement does not require new fair value measurements, but is applied to the extent other accounting pronouncements require or permit fair value measurements. The statement emphasizes fair value as a market-based measurement which should be determined based on assumptions market participants would use in pricing an asset or a liability. In February 2008, the FASB issued FSP 157-2, “Effective Date of FASB Statement 157,” which deferred the effective date of SFAS 157 for us to January 1, 2009 for all nonfinancial assets and nonfinancial liabilities, except for those which are recognized or disclosed at fair value in the financial statements on a recurring basis. We have adopted FAS 157 for nonfinancial assets and nonfinancial liabilities effective January 1, 2009, and this adoption has not and is not expected to materially affect how we estimate fair value, although future disclosures regarding how we develop fair value estimates for nonfinancial assets and liabilities is expected to be enhanced. In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active.” FSP 157-3 clarifies the application of SFAS 157 in a non-active market. FSP 157-3 became effective upon issuance, including prior periods for which financial statements have not been issued. We adopted FSP 157-3 upon issuance, and it did not have a material impact on our estimated fair value measurements.

 

F-11


Table of Contents

In December 2007, the FASB issued SFAS 141R, “Business Combinations,” which replaced SFAS 141, “Business Combinations.” SFAS 141R applies to all transactions or events in which an entity obtains control of one or more businesses. SFAS 141R requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial impact of the business combination. SFAS 141R is effective for us for business combinations made on or after January 1, 2009. We expect the adoption of SFAS 141R to have a material effect on our accounting for acquisitions of properties, which may fall under the definition of a business, as most transaction costs associated with such acquisitions will be expensed as opposed to the prior capitalization of such costs.
In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51.” SFAS 160 clarifies a non-controlling interest in a subsidiary is an ownership interest in a consolidated entity which should be reported as equity in the parent’s consolidated financial statements. SFAS 160 requires a reconciliation of the beginning and ending balances of equity attributable to non-controlling interests and disclosure, on the face of the consolidated income statements, of those amounts of consolidated net income attributable to the non-controlling interests, eliminating the past practice of reporting these amounts as an adjustment in arriving at consolidated net income. SFAS 160 also requires a parent to recognize a gain or loss in net income when a subsidiary is deconsolidated and requires the parent to attribute to a non-controlling interest its share of losses, even if such treatment results in a deficit non-controlling interests balance within the parent’s equity accounts. SFAS 160 is effective for us on January 1, 2009 and most provisions will be applied retrospectively. We are currently evaluating the effects, if any, the adoption of SFAS 160 may have on our financial statements.
In June 2008, the FASB issued FASB Staff Position (“FSP”) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” FSP 03-6-1 affects entities which accrue non-returnable cash dividends on share-based payment awards during the awards’ service period. The FASB concluded unvested share-based payment awards which are entitled to non-forfeitable cash dividends, whether paid or unpaid, are participating securities and are participants of undistributed earnings. Because the awards are considered participating securities, the issuer is required to apply the two-class method of computing basic and diluted earnings per share which involves separate computations for common shares and participating securities. As we do accrue and pay non-forfeitable cash dividends on unvested share-based payment awards, these types of awards are considered participating securities and will be included in our earnings per share calculation in future periods. FSP 03-6-1 is effective for us on January 1, 2009 and will require retrospective application. The retrospective application on our adoption of this FSP would not have had any impact on basic or diluted earnings per share for the year ended December 31, 2008. The impact of our adoption of this FSP on basic and diluted earnings per share for the year ended December 31, 2007 would result in a decrease of approximately $0.01 and $0.02, respectively.
3. Share Data
Basic earnings per share are computed using income (loss) from continuing operations and the weighted average number of common shares outstanding. Diluted earnings per share reflect common shares issuable from the assumed conversion of common share options and awards granted and units convertible into common shares. Only those items that have a dilutive impact on our basic earnings per share are included in diluted earnings per share. For the years ended December 31, 2008, 2007, and 2006, 5.2 million, 4.3 million, and 2.8 million common share options and awards granted and units convertible into common shares, respectively, were excluded from the diluted earnings per share calculation as they were not determined to be dilutive.

 

F-12


Table of Contents

The following table presents information necessary to calculate basic and diluted earnings per share for the periods indicated:
                         
    Year Ended December 31,  
(in thousands, except per share amounts)   2008     2007     2006  
Basic earnings per share calculation
                       
Income (loss) from continuing operations
  $ (13,705 )   $ 41,721     $ 119,953  
Income from discontinued operations, including gain on sale
    84,678       106,736       112,893  
 
                 
Net income
  $ 70,973     $ 148,457     $ 232,846  
 
                 
 
                       
Income (loss) from continuing operations — per share
  $ (0.25 )   $ 0.72     $ 2.12  
Income from discontinued operations — per share
    1.53       1.83       1.99  
 
                 
Net income — per share
  $ 1.28     $ 2.55     $ 4.11  
 
                 
 
Weighted average number of common shares outstanding
    55,272       58,135       56,660  
 
                 
 
                       
Diluted earnings per share calculation
                       
Income (loss) from continuing operations
  $ (13,705 )   $ 41,721     $ 119,953  
Income allocated to common units
          27       2,432  
 
                 
Income (loss)from continuing operations, as adjusted
    (13,705 )     41,748       122,385  
Income from discontinued operations, including gain on sale
    84,678       106,736       112,893  
Income from discontinued operations allocated to common units
                652  
 
                 
Net income, as adjusted
  $ 70,973     $ 148,484     $ 235,930  
 
                 
 
                       
Income (loss) from continuing operations, as adjusted — per share
  $ (0.25 )   $ 0.71     $ 2.06  
Income from discontinued operations — per share
    1.53       1.80       1.90  
 
                 
Net income, as adjusted — per share
  $ 1.28     $ 2.51     $ 3.96  
 
                 
 
                       
Weighted average common shares outstanding
    55,272       58,135       56,660  
Incremental shares issuable from assumed conversion of:
                       
Common share options and awards granted
          482       725  
Common units
          508       2,139  
 
                 
Weighted average common shares outstanding, as adjusted
    55,272       59,125       59,524  
 
                 
In April 2007, our Board of Directors approved a program to repurchase up to $250 million of our common equity securities through open market purchases, block purchases, and privately negotiated transactions. In January 2008, our Board of Trust Managers voted to increase 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. We intend to use proceeds from asset sales and borrowings under our line of credit to fund share repurchases. Under this program, we repurchased 4.3 million shares for a total of approximately $230.2 million from April 2007 through December 31, 2008. 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, 2008.
At December 31, 2008 and 2007, 12.9 million and 12.2 million shares, respectively, were held in treasury.
In June 2006, we issued 3.6 million common shares at $71.25 per share in a public equity offering. We used the net proceeds of approximately $254.9 million to reduce indebtedness on our unsecured line of credit and for general corporate purposes.
We filed an automatic shelf registration statement with the Securities and Exchange Commission during 2006 which became effective upon filing. We may use the shelf registration statement to offer, from time to time, common shares, preferred shares, debt securities, or warrants. Our declaration of trust provides that we may issue up to 110,000,000 shares of beneficial interest, consisting of 100,000,000 common shares and 10,000,000 preferred shares. As of December 31, 2008, we had 66,027,911 common shares and no preferred shares outstanding under our declaration of trust.

 

F-13


Table of Contents

4. Operating Partnerships
At December 31, 2008, approximately 11% of our multifamily apartment homes were held in Camden Operating, L.P (“Camden Operating” or the “operating partnership”). Camden Operating has issued both common and preferred limited partnership units. As of December 31, 2008, we held 89.1% of the common limited partnership units and the sole 1% general partnership interest of the operating partnership. The remaining common limited partnership units, comprising 1,177,115 units, are primarily held by former officers, directors, and investors of Paragon Group, Inc., which we acquired in 1997. Each common limited partnership unit is redeemable for one common share of Camden or cash at our election. Holders of common limited partnership units are not entitled to rights as shareholders prior to redemption of their common limited partnership units. No member of our management owns Camden Operating common limited partnership units, and two of our ten trust managers own Camden Operating common limited partnership units.
Camden Operating has $100 million of 7.0% Series B Cumulative Redeemable Perpetual Preferred Units outstanding. Distributions on the preferred units are payable quarterly in arrears. The Series B preferred units are redeemable beginning in December 2008 by the operating partnership for cash at par plus the amount of any accumulated and unpaid distributions. There were no redemptions as of December 31, 2008. The preferred units are convertible beginning in 2013 by the holder into a fixed number of corresponding Series B Cumulative Redeemable Perpetual Preferred Shares. The Series B preferred units are subordinate to present and future debt. Distributions on the Series B preferred units totaled approximately $7.0 million for each of the years ended December 31, 2008, 2007, and 2006.
We are the controlling managing member interest in Oasis Martinique, LLC, which owns one property in Orange County, California and is included in our consolidated financial statements. The remaining interests, comprising 669,348 units, are exchangeable into 508,035 common shares.
At December 31, 2008, approximately 24% of our multifamily apartment homes were held in Camden Summit Partnership, L.P. (“the Camden Summit Partnership”). This operating partnership has issued common limited partnership units. As of December 31, 2008, we held 93.5% of the common limited partnership units and the sole 1% general partnership interest of the Camden Summit Partnership. The remaining common limited partnership units, comprising 1,260,085 units, are primarily held by former officers, directors and investors of Summit Properties, Inc. (“Summit”), a company we acquired in 2005. Each common limited partnership unit is redeemable for one common share of Camden or cash at our election. Holders of common limited partnership units are not entitled to rights as shareholders prior to redemption of their common limited partnership units. No member of our management owns Camden Summit Partnership common limited partnership units, and two of our ten trust managers own Camden Summit Partnership common limited partnership units.
In conjunction with our merger with Summit, we acquired employee notes receivable from former employees of Summit. At December 31, 2008 and 2007, the notes receivable had an outstanding balance of approximately $0.3 million and $2.0 million, respectively. During 2008, one employee repaid all his notes outstanding totaling approximately $1.6 million. As of December 31, 2008, the one remaining employee note receivable was 100% secured by Camden common shares.
5. Income Taxes
We have maintained and intend to maintain our election as a REIT under the Internal Revenue Code of 1986, as amended. 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 regards to the dividends paid deduction and our net capital gains. As a REIT, we generally will not be subject to federal income tax on our taxable income at the corporate level to the extent such income is distributed to our shareholders annually. If our taxable income exceeds our dividends in a tax year, REIT tax rules allow us to designate dividends from the subsequent tax year in order to avoid current taxation on undistributed income. For the year ended December 31, 2006, we designated dividends from 2007 to meet our dividend distribution requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at regular corporate rates, including any applicable alternative minimum tax. In addition, we may not be able to requalify as a REIT for the four subsequent taxable years. Historically, we have incurred only state and local income, franchise, excise and margin taxes. Taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to applicable federal, state, and local income taxes.

 

F-14


Table of Contents

The following table reconciles net income to REIT taxable income for the years ended December 31, 2008, 2007, and 2006:
                         
    Year Ended December 31,  
(in thousands)   2008     2007     2006  
Net income
  $ 70,973     $ 148,457     $ 232,846  
Net (income) loss of taxable REIT subsidiaries included above
    9,239       (3,449 )     (6,540 )
 
                 
Net income from REIT operations
    80,212       145,008       226,306  
Book depreciation and amortization, including discontinued operations
    175,162       164,978       163,673  
Tax depreciation and amortization
    (164,327 )     (155,173 )     (177,153 )
Book/tax difference on gains/losses from capital transactions
    826       (25,985 )     (90,694 )
Book/tax difference on impairment of loss on land
    51,323       1,447        
Book/tax difference on merger costs
    (68 )     (234 )     (331 )
Other book/tax differences, net
    (15,342 )     7,843       (767 )
 
                 
REIT taxable income
    127,786       137,884       121,034  
Dividends paid deduction
    (151,346 )     (144,604 )     (121,034 )
 
                 
Dividends paid in excess of taxable income
  $ (23,560 )   $ (6,720 )   $  
 
                 
A schedule of per share distributions we paid and reported to our shareholders is set forth in the following table:
                         
    Year Ended December 31,  
Common Share Distributions   2008     2007     2006  
Ordinary income
  $ 1.34     $ 1.20     $ 0.26  
Long-term capital gain
    0.91       1.18       1.85  
Unrecaptured Sec. 1250 gain
    0.55       0.38       0.53  
 
                 
Total
  $ 2.80     $ 2.76     $ 2.64  
 
                 
 
Percentage of distributions representing tax preference items
    5.59 %     7.15 %     5.99 %
We have taxable REIT subsidiaries which are subject to federal and state income taxes. At December 31, 2008, our taxable REIT subsidiaries had net operating loss carryforwards (“NOL’s”) of approximately $15.8 million which expire in years 2020 to 2028. Because NOL’s are subject to certain change of ownership, continuity of business, and separate return year limitations, and because it is unlikely the available NOL’s will be utilized, no benefits of these NOL’s have been recognized in our consolidated financial statements.
SFAS No. 109, “Accounting for Income Taxes,” requires a public enterprise to disclose the aggregate difference in the basis of its net assets for financial and tax reporting purposes. The carrying value reported in our consolidated financial statements exceeded the tax basis by approximately $1,073.3 million.
Income Tax Expense — Current. For the tax year ended December 31, 2008, we had current income tax expense of approximately $0.8 million, comprised mainly of state income taxes. Income tax expense decreased $2.2 million for the year ended December 31, 2008 as compared to the same period in 2007, primarily attributable to a $1.6 million decrease in state taxes for our operating partnerships. This decrease was primarily attributable to less gains on property dispositions in states with high income tax rates and changes in state tax laws affecting one of our operating partnerships.
Income Tax Expense — Deferred. For the years ended December 31, 2008, 2007, and 2006, our deferred tax accounts were not material.

 

F-15


Table of Contents

6. Property Acquisitions, Dispositions, Assets Held for Sale, and Impairments
Acquisitions. In April 2007, we acquired Camden South Congress, a 253-apartment home community located in Austin, Texas for approximately $42.8 million and in June 2007, we acquired Camden Royal Palms, a 352-apartment home community located in Tampa, Florida for $41.1 million. Both properties were purchased using proceeds from our unsecured line of credit. The purchase prices of these properties were allocated to the tangible and intangible assets and liabilities acquired based on their estimated fair values at the date of acquisition. We did not acquire any operating properties in 2008.
Discontinued Operations and Assets Held for Sale. For the years ended December 31, 2008, 2007, and 2006, income from discontinued operations included the results of operations of one operating property, containing 671 apartment homes, classified as held for sale at December 31, 2008 and the results of operations of eight operating properties sold in 2008 through their sale dates. For the years ended December 31, 2007 and 2006, income from discontinued operations also included the results of operations of ten operating properties sold during 2007 and eight operating properties sold during 2006 through their sale dates. As of December 31, 2008, the one operating property held for sale had a net book value of approximately $11.1 million.
The following is a summary of income from discontinued operations for the years presented below:
                         
    Year Ended December 31,  
(in thousands)   2008     2007     2006  
Property revenues
  $ 15,857     $ 41,693     $ 56,233  
Property expenses
    8,149       20,526       28,625  
 
                 
 
    7,708       21,167       27,608  
Interest
    466       998       996  
Depreciation and amortization
    2,762       6,955       10,685  
 
                 
Income from discontinued operations
  $ 4,480     $ 13,214     $ 15,927  
 
                 
 
                       
Gain on sale of discontinued operations
  $ 80,198     $ 107,039     $ 99,273  
 
                 
Dispositions. 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 sale of eight operating properties, containing 2,392 apartment homes, to unaffiliated third parties. During the year ended December 31, 2007, we received net proceeds of approximately $166.4 million and recognized gains of approximately $106.3 million from the sale of ten operating properties, containing 3,054 apartment homes, to unaffiliated third parties. In addition, we sold 0.9 acres of undeveloped land to an unrelated third party, receiving net proceeds of approximately $6.0 million and recognizing gains totaling approximately $0.7 million. During the year ended December 31, 2006, we received net proceeds of approximately $137.3 million and recognized a gain of approximately $78.8 million on the sale of eight operating properties, containing 3,041 apartment homes, to unaffiliated third parties. In addition, we sold 8.7 acres of undeveloped land to an unrelated third party, receiving net proceeds of approximately $41.0 million and recognizing gains totaling approximately $20.5 million.
During the year ended December 31, 2008, we recognized gains of approximately $1.1 million from the sale of land adjacent to our regional office in Las Vegas, Nevada. The gain on this sale was not included in discontinued operations as the operations and cash flows of this asset were not clearly distinguished, operationally or for reporting purposes, from the adjacent assets.
Partial Sales and Dispositions to Joint Ventures included in Continuing Operations. In March 2008, we sold Camden Amber Oaks, a development community in Austin, Texas, to the Camden Multifamily Value Add Fund, L.P., (the “Fund”) for approximately $8.9 million. No gain or loss was recognized on the sale. Concurrent with the transaction, we invested approximately $1.9 million in the Fund. In August 2008, we sold Camden South Congress to the Fund for approximately $44.2 million and recognized a gain of approximately $1.8 million on the sale. In conjunction with the transaction, we invested approximately $2.8 million in the Fund.
There were no partial sales or dispositions to joint ventures for the year ended December 31, 2007.
During the year ended December 31, 2006, we recognized gains of approximately $91.5 million from the partial sale of nine properties to an affiliated unconsolidated joint venture. This partial sale generated net proceeds of approximately $170.9 million. We also recognized gains of approximately $0.5 million and $4.7 million on the partial sales of land to two joint ventures located in Houston, Texas and College Park, Maryland, respectively.

 

F-16


Table of Contents

The gains recognized from the partial sales of these assets are included in continuing operations as we retained a partial interest in the ventures which own these assets.
Upon our decision to abandon efforts to develop certain land parcels and to market these parcels for sale, we reclassify the operating expenses associated with these assets to discontinued operations. At December 31, 2008, we had 4.6 acres of undeveloped land parcels classified as held for sale with a net book value of approximately $9.2 million.
Impairment. The impairment loss on land 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 we no longer plan to pursue, including approximately $48.6 million related to land holdings for five projects we no longer plan to develop, 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 no longer plan to pursue. The impairment loss on land for the year ended December 31, 2007 of approximately $1.4 million reflects impairment in the value of one potential development project we no longer plan to pursue. These impairment charges are the difference between each parcel’s estimated fair value and the carrying value, which includes pursuit and other costs.
7. Investments in Joint Ventures
The joint ventures described below are accounted for using the equity method. 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 on six loans totaling approximately $75.3 million utilized for construction and development activities for our joint ventures. Additionally, we eliminate fee income from property management services provided to these joint ventures to the extent of our ownership.
Our contributions of real estate assets to joint ventures at formation in which we receive cash are treated as partial sales provided certain criteria are met. As a result, the amounts recorded as gain on sale of assets to joint ventures represent the change in ownership of the underlying assets. Our initial recorded investment is comprised of our historical carrying value of the assets on the date of the respective transaction multiplied by our ownership percentage in the joint venture. We have provided mezzanine loans to certain joint ventures, which are recorded as “Notes receivable — affiliates” as discussed in Note 8, “Notes Receivable.”
We earn fees for property management, construction, development, and other services related to joint ventures in which we own an interest. Fees earned for these services amounted to approximately $9.2 million, $8.3 million, and $14.0 million for the years ended December 31, 2008, 2007, and 2006, respectively.
As of December 31, 2008, our equity investments in unconsolidated joint ventures accounted for utilizing the equity method of accounting consisted of 24 joint ventures, with our ownership percentages ranging from 15% to 72%. As discussed above, we provide property management services to the operating joint ventures and may provide construction and development services to the joint ventures currently under development. The following table summarizes balance sheet and income statement data for the unconsolidated joint ventures as of December 31 (in millions):
                         
    2008     2007          
Total Assets
  $ 1,234.4     $ 1,099.2          
Total Third-Party Debt
    984.2       883.9          
Total Equity
    168.7       149.7          
                         
    2008     2007     2006  
Total Revenues
  $ 127.1     $ 113.7     $ 88.8  
Net Income (Loss)
    (18.7 )     (3.7 )     13.4  
Equity in Income (Loss) (1)
    (1.3 )     1.5       5.2  
     
(1)  
Equity in Income excludes our ownership interest in transactions with our joint ventures.

 

F-17


Table of Contents

Variable Interest Entities. As discussed in Note 2, “Summary of Significant Accounting Policies and Recent Accounting Pronouncements, Principles of Consolidation,” investments acquired or created are evaluated based on FIN 46R to determine whether or not the investment qualifies as a VIE. If the investment is determined to fall under the scope of FIN 46R, we then determine whether we are the primary beneficiary by performing a combination of qualitative and quantitative measures, including analyzing expected investment portfolios for the entities using various investment assumptions including product mix, return rates, and revenue and expense growth. The projected cash flow allocations are reviewed to determine whether or not we are in a primary beneficiary position based on expected returns or losses each variable interest holder would absorb. In addition, we consider factors such as voting rights and decision-making abilities of each variable interest holder.
The Fund is a VIE, but we do not consolidate the Fund as we are not considered to be the primary beneficiary. The Fund is in the form of a joint venture and was created to make investments in multifamily and mixed-use projects and own, develop, redevelop, manage, supervise, and dispose of such investments. The Fund currently contains one development project and one 253-unit operating property, and continues to evaluate potential acquisitions. The Fund is financed with third-party secured debt.
The following table compares the carrying amount of our investment in the Fund to the maximum loss exposure as of December 31, 2008 (in thousands):
                 
VIE   Investment (1)     Maximum Loss Exposure (2)  
Fund
  $ 3,504     $ 37,500  
     
(1)  
Included in investments in joint ventures in the consolidated balance sheets.
 
(2)  
Based on maximum capital commitment to the Fund; however, given we are the general partner, maximum loss exposure could be unlimited.
8. Notes Receivable
Affiliates. We provided mezzanine construction financing with rates ranging from LIBOR plus 3% to 14% per year, in connection with certain of our joint venture transactions. As of December 31, 2008 and 2007, the balance of “Notes receivable — affiliates” totaled $58.1 million and $50.4 million, respectively, on notes maturing through 2010. We eliminate the interest and other income to the extent of our percentage ownership in the joint ventures. We have reviewed the terms and conditions underlying these notes receivable and believe these notes are collectible, and no impairment existed at December 31, 2008.
At December 31, 2008, we were committed to funding additional amounts under the mezzanine loans in the amount of approximately $31.7 million.
Other. We have a mezzanine financing program under which we provide secured financing to owners of real estate properties. As of December 31, 2008 and 2007, the balance of secured note receivables due from unrelated third parties was approximately $8.7 million and $11.6 million, respectively. During the first quarter of 2008, one of our notes receivable, totaling approximately $2.9 million with an interest rate of Prime Rate plus 1%, was paid in full. The remaining note, which matures in January 2010, accrues interest at LIBOR plus 2%, which is recognized as earned. We have reviewed the terms and conditions underlying the outstanding notes receivable and believe this note is collectible, and no impairment existed at December 31, 2008.

 

F-18


Table of Contents

9. Notes Payable
The following is a summary of our indebtedness:
                 
    December 31,  
(in millions)   2008     2007  
Commercial Banks
               
Unsecured line of credit and short-term borrowings
  $ 145.0     $ 115.0  
$500 million term loan, due 2012
    500.0       500.0  
 
           
 
    645.0       615.0  
 
               
Senior unsecured notes
               
$100.0 million 4.74% Notes, due 2009
    81.9       99.9  
$250.0 million 4.39% Notes, due 2010
    150.4       249.9  
$100.0 million 6.77% Notes, due 2010
    79.9       100.0  
$150.0 million 7.69% Notes, due 2011
    149.8       149.7  
$200.0 million 5.93% Notes, due 2012
    199.6       199.5  
$200.0 million 5.45% Notes, due 2013
    199.3       199.2  
$250.0 million 5.08% Notes, due 2015
    248.9       248.8  
$300.0 million 5.75% Notes, due 2017
    246.0       299.0  
 
           
 
    1,355.8       1,546.0  
 
               
Medium-term notes
               
$15.0 million 7.63% Notes, due 2009
    15.0       15.0  
$25.0 million 4.64% Notes, due 2009
    25.2       25.9  
$10.0 million 4.90% Notes, due 2010
    10.5       10.9  
$14.5 million 6.79% Notes, due 2010
    14.5       14.5  
$35.0 million 4.99% Notes, due 2011
    37.2       38.0  
 
           
 
    102.4       104.3  
 
           
Total unsecured notes payable
    2,103.2       2,265.3  
 
Secured notes
               
3.18% – 8.50% Conventional Mortgage Notes, due 2009 – 2018
    686.6       498.8  
2.12% Tax-exempt Mortgage Note, due 2028 (1)
    42.6       57.6  
7.29% Tax-exempt Mortgage Note due 2025
          6.4  
 
           
 
    729.2       562.8  
 
           
Total notes payable
  $ 2,832.4     $ 2,828.1  
 
           
 
               
Floating rate debt included in commercial bank indebtedness (1.53%)
  $ 145.0     $ 115.0  
Floating rate tax-exempt debt included in secured notes (2.12%)
    42.6       57.6  
Floating rate debt included in secured notes (3.18% – 4.20%)
    180.9        
Value of real estate assets subject to secured notes
    1,193.5       1,018.1  
     
(1)  
Approximately $14.0 million of which was paid off in connection with the sale of the related property in the third quarter of 2008.
We have a $600 million unsecured credit facility which matures in January 2010 and can be extended at our option to January 2011. The scheduled interest rate is based on spreads over LIBOR or the Prime Rate. The scheduled interest rate spreads are subject to change as our credit ratings change. Advances under the line of credit may be priced at the scheduled rates, or we may enter into bid rate loans with participating banks at rates below the scheduled rates. These bid rate loans have terms of six months or less and may not exceed the lesser of $300 million or the remaining amount available under the line of credit. The line of credit is subject to customary financial covenants and limitations, all of which we believe 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, 2008, we had outstanding letters of credit totaling approximately $10.5 million, and had approximately $444.5 million available under our unsecured line of credit.

 

F-19


Table of Contents

As an alternative to our unsecured line of credit, from time to time we borrow using competitively bid unsecured short-term notes with lenders who may or may not be a part of the unsecured line of credit bank group. Such borrowings vary in term and pricing and are typically priced at interest rates below those available under the unsecured line of credit.
On August 18, 2008, we entered into a construction loan agreement for approximately $33.1 million to finance the development of a multifamily apartment community in Houston, Texas. The loan has an annual interest rate of LIBOR plus 1.45% and matures in August 2011. We entered into an interest rate swap, with a notional amount fluctuating up to a maximum of 50% of the projected outstanding balance on the construction loan. The swap will fix the interest rate at approximately 3.82% per annum for three years. The swap became effective November 2008. This swap has been formally designated as a hedge and is expected to be a highly effective cash flow hedge of the interest rate risk.
On September 24, 2008, we and one of our subsidiaries, the Camden Summit Partnership, as guarantors, and CPT Community Owner, LLC and CSP Community Owner, LLC, each a Delaware limited liability company and our subsidiary, as borrowers (collectively, the “Borrowers”), entered into a secured master credit facility agreement for a $380 million credit facility. The facility is comprised of a $175 million variable rate loan funded with a Fannie Mae Discount Mortgage Backed Security (“DMBS”) and a $205 million fixed rate loan. The variable rate loan is currently priced at approximately 4.2% per annum and is for a ten-year term. The DMBS rate has typically approximated three-month LIBOR. The fixed rate loan has a fixed annual interest rate of 5.625% for a ten-year term and provides for an additional one-year term with a variable rate. We have entered into standard nonrecourse carveout guarantees. The obligations of the Borrowers under the credit agreement are secured by cross-collateralized first priority mortgages on 17 of our multifamily properties. We used the proceeds from this credit facility for the repayment of maturing debt, including approximately $173 million of secured notes payable, as well as pay down of amounts outstanding under our revolving line of credit, with the remainder being used for general corporate purposes. Concurrent with this transaction, we entered into an interest rate cap, with a notional amount of $175 million, to cap the variable interest at approximately 7.17% for three-month LIBOR, before the applicable spread, per annum for three years. Although the hedge is expected to offset our exposure to interest rate movements it did not meet the strict hedge accounting requirements of SFAS 133 for cash flow hedges. As such, gains and losses will be recognized in earnings for the period of change.
On December 12, 2008, we commenced a cash tender offer for certain series of notes maturing in 2009 and 2010. We repurchased and retired approximately $108.3 million of our outstanding debt for approximately $100.6 million. We recorded a gain of approximately $7.2 million in relation to the tender offer, which is included in gain on early retirement of debt in our Consolidated Statements of Income and Comprehensive Income. These gains were partially offset by the proportionate share of unamortized loan costs and other costs associated with the retirement of the debt.
We also repurchased and retired approximately $82.7 million of various other outstanding debt from unrelated third parties for approximately $75.7 million during fiscal year 2008. We recorded a gain of approximately $6.4 million related to these transactions, which is included in gain on early retirement of debt in our Consolidated Statements of Income and Comprehensive Income. These gains were partially offset by the proportionate share of unamortized loan costs and other costs associated with the retirement of the debt.
As part of the 2005 Summit merger, we assumed certain debt and recorded approximately $33.9 million as a fair value adjustment which is being amortized over the respective debt terms. As of December 31, 2008, approximately $6.0 million of the fair value adjustment remained unamortized. We recorded amortization of the fair value adjustment, which resulted in a decrease of interest expense, of approximately $5.4 million, $7.1 million, and $7.6 million during the years ended December 31, 2008, 2007 and 2006, respectively.
During 2008 we repaid approximately $191 million of unsecured notes either as they matured or as an early repurchase and retirement, excluding repayments on our line of credit, with an effective interest rate of 5.1%.
At December 31, 2008 and 2007, the weighted average interest rate on our floating rate debt, which includes our unsecured line of credit, was 2.7% and 5.0%, respectively.

 

F-20


Table of Contents

Our indebtedness, excluding our unsecured line of credit, had a weighted average maturity of 5.0 years. Scheduled repayments on outstanding debt, including our line of credit and scheduled principal amortizations, and the weighted average interest rate on maturing debt at December 31, 2008 are as follows:
                 
(in millions)           Weighted Average  
Year   Amount     Interest Rate  
2009
  $ 134.4       5.2 %
2010
    355.5       5.1  
2011
    421.7       4.5  
2012
    772.2       5.4  
2013
    227.2       5.4  
2014 and thereafter
    921.4       5.1  
 
           
Total
  $ 2,832.4       5.1 %
 
           
10. Derivative Instruments & Hedging Activities
We have entered into interest rate hedge agreements to reduce the impact of interest rate fluctuations on our variable rate debt. We have not entered into any interest rate hedge agreements for our fixed-rate debt and do not enter into derivative transactions for trading or other speculative purposes. The following tables summarize our interest rate hedge agreements at December 31, 2008 (dollars in millions):
         
Notional balance
  $ 500  
Hedging instrument
    Interest rate swap  
Effective interest rate
    5.24 %(1)
Maturity date
    10/4/2012  
Estimated liability fair value
  $ 50.3  
     
(1)  
Includes our interest rate spread of 0.5%
         
Notional balance
  $ 175  
Hedging instrument
    Interest rate cap  
Interest rate cap LIBOR strike
    7.17 %
Maturity date
    10/1/2011  
Estimated asset fair value
  $ 0.1  
         
Notional balance
  $ 3.4  
Hedging instrument
    Interest rate swap  
Effective interest rate
    3.82 %
Maturity date
    8/18/2011  
Estimated liability fair value
  $ 0.8  
We have determined our interest rate hedge agreements qualify as effective cash flow hedges under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,resulting in our recording the effective portion of cumulative changes in the fair value of the interest rate hedge agreements in other comprehensive income (loss). Amounts recorded in other comprehensive income (loss) will be reclassified into earnings as adjustments to interest expense in the periods in which earnings are affected by the hedged cash flows. To adjust the interest rate hedge agreements to their fair value, we recorded unrealized losses in other comprehensive loss of approximately $35.1 million and $16.1 million during the years ended December 31, 2008 and 2007, respectively. These amounts will be reclassified into interest expense in conjunction with the periodic payment of the cash flows being hedged. The change in net unrealized losses for the years ended December 31, 2008 and 2007 reflect a reclassification of unrealized losses from accumulated other comprehensive loss to interest expense of approximately $9.3 million and $0.3 million, respectively. We anticipate approximately $18.4 million of accumulated other comprehensive loss at December 31, 2008 will be reclassified as a charge to interest expense over the next twelve months to offset the variability of cash flows of the hedge transaction during this period.
We assess, both at inception and on an on-going basis, the effectiveness of the cash flow hedging relationships and any hedge ineffectiveness is recognized directly in earnings. During the years ended December 31, 2008 and 2007, no hedge ineffectiveness was recognized in earnings and we expect the hedging relationships to continue to be highly effective. The fair value of the interest rate hedge agreements is included in other liabilities.

 

F-21


Table of Contents

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.
11. Share Based Compensation and Benefit Plans
Incentive Plan. During 2002, our Board of Trust Managers adopted, and our shareholders approved, the 2002 Share Incentive Plan of Camden Property Trust (the “2002 Share Plan”). Under the 2002 Share Plan, we may issue up to 10% of the total of (i) the number of our common shares outstanding as of the plan date, February 5, 2002, plus (ii) the number of our common shares reserved for issuance upon conversion of securities convertible into or exchangeable for our common shares, plus (iii) the number of our common shares held as treasury shares. Compensation awards that can be granted under the 2002 Share Plan include various forms of incentive awards, including incentive share options, non-qualified share options and share awards. The class of eligible persons that can receive grants of incentive awards under the 2002 Share Plan consists of key employees, consultants and non-employee trust managers as determined by the Compensation Committee of our Board of Trust Managers. The 2002 Share Plan does not have a termination date; however, no incentive share options will be granted under this plan after February 5, 2012.
Valuation Assumptions. The weighted average fair value of options granted was $5.06, $11.04, and $7.88 in 2008, 2007, and 2006, respectively. We estimated the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for options granted during each respective period:
                         
    Year Ended  
    December 31,  
    2008     2007     2006  
 
Expected volatility
    20.5 %     17.1 %     16.6 %
Risk-free interest rate
    3.6 %     4.6 %     4.4 %
Expected dividend yield
    5.8 %     3.7 %     4.1 %
Expected life (in years)
    7       6       5  
Our computation of expected volatility for 2008 was based on the historical volatility of our common shares over a time period equal to the expected term of the option and ending on the grant date. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield on our common shares is calculated using the annual dividends paid in the prior year. Our computation of expected life for 2008 was determined based on historical experience of similar awards, giving consideration to the contractual terms of the share-based awards.
Options. Options are exercisable, subject to the terms and conditions of the plan, in increments ranging from 20% to 33.33% per year on each of the anniversaries of the date of grant. The plan provides that the exercise price of an option will be determined by the Compensation Committee of the Board of Trust Managers on the day of grant, and to date all options have been granted at an exercise price that equals the fair market value on the date of grant. Options exercised during 2008 were exercised at prices ranging from $24.88 to $43.90 per share. At December 31, 2008, options outstanding were exercisable at prices ranging from $24.88 to $73.32 per share and had a weighted average remaining contractual life of 5.8 years.
The total intrinsic value of options exercised was approximately $0.5 million during the year ended December 31, 2008. As of December 31, 2008, there was approximately $1.8 million of total unrecognized compensation cost related to unvested options, which is expected to be amortized over the next five years.

 

F-22


Table of Contents

The following table summarizes share options outstanding and exercisable at December 31, 2008:
                                         
    Outstanding Options     Exercisable Options  
Range of           Weighted             Weighted     Remaining  
Exercise           Average             Average     Contractual  
Prices   Number     Price     Number     Price     Life  
$24.88-$41.91
    285,371     $ 35.37       285,371     $ 35.37       3.4  
$42.90-$43.90
    353,486       42.98       353,486       42.98       4.9  
$44.00-$73.32
    897,670       48.78       466,360       49.49       6.9  
 
                             
 
                                       
Total options
    1,536,527     $ 44.96       1,105,217     $ 43.76       5.8  
 
                             
The following table summarizes activity under our Share Incentive Plans for the three years ended December 31:
                                                 
    Options and Share awards  
            Weighted             Weighted             Weighted  
            Average             Average             Average  
1993 Share Plan   2008     2008 Price     2007     2007 Price     2006     2006 Price  
Balance at January 1
    1,885,989     $ 30.34       1,953,800     $ 31.99       2,045,730     $ 32.12  
 
                                               
Options
                                               
Exercised
    (39,013 )     38.26       (60,695 )     33.37       (89,879 )     32.24  
Forfeited
                (6,986 )     33.98       (1,086 )     29.44  
 
                                   
Net options
    (39,013 )             (67,681 )             (90,965 )        
 
                                   
 
                                               
Share awards
                                               
Forfeited
                  (130 )     34.72       (965 )     34.71  
 
                                   
Net share awards
                  (130 )             (965 )        
 
                                   
 
                                               
Balance at December 31
    1,846,976     $ 29.68       1,885,989     $ 30.34       1,953,800     $ 31.99  
 
                                   
 
                                               
Exercisable options at December 31
    165,811     $ 32.78       174,576     $ 32.68       262,779     $ 32.78  
Vested share awards at December 31
    1,337,273     $ 28.95       1,337,273     $ 28.95       1,317,733     $ 28.85  

 

F-23


Table of Contents

                                                         
    Shares        
    Available     Options and Share awards  
    for             Weighted             Weighted             Weighted  
    Issuance             Average             Average             Average  
2002 Share Plan   2008     2008     2008 Price     2007     2007 Price     2006     2006 Price  
Balance at January 1
    3,032,625       1,621,958     $ 51.21       1,498,911     $ 46.40       1,334,332     $ 42.72  
 
                                                       
Options
                                                       
Granted
    (444,264 )     444,264       48.02                          
Exercised
          (5,937 )     37.89       (63,013 )     41.71       (75,366 )     35.50  
Forfeited
    12,954       (12,954 )     48.02       (2,836 )     39.99       (1,534 )     36.87  
 
                                         
Net options
    (431,310 )     425,373               (65,849 )             (76,900 )