CPT 6.30.2012 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| |
Q | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2012
OR
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| |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-12110
CAMDEN PROPERTY TRUST
(Exact Name of Registrant as Specified in Its Charter)
|
| | |
Texas | | 76-6088377 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| |
3 Greenway Plaza, Suite 1300 Houston, Texas | | 77046 |
(Address of principal executive offices) | | (Zip Code) |
(713) 354-2500
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Q No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes Q No ¨
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 definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
|
| | | | | |
Large accelerated filer | | Q | Accelerated filer | | ¨ |
| | | |
Non-accelerated filer | | ¨ | Smaller Reporting Company | | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No Q
On July 27, 2012, 83,585,617 common shares of the registrant were outstanding, net of treasury shares and shares held in our deferred compensation arrangements.
CAMDEN PROPERTY TRUST
Table of Contents
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PART I | | | |
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Item 1 | | | |
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Item 2 | | | |
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Item 3 | | | |
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Item 4 | | | |
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Part II | | | |
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Item 1 | | | |
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Item 1A | | | |
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Item 2 | | | |
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Item 3 | | | |
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Item 4 | | | |
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Item 5 | | | |
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Item 6 | | | |
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Exhibit 31.1 |
Exhibit 31.2 |
Exhibit 32.1 |
Exhibit 101.INS |
Exhibit 101.SCH |
Exhibit 101.CAL |
Exhibit 101.DEF |
Exhibit 101.LAB |
Exhibit 101.PRE |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAMDEN PROPERTY TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
| | | | | | | |
(in thousands, except per share amounts) | June 30, 2012 | | December 31, 2011 |
Assets | | | |
Real estate assets, at cost | | | |
Land | $ | 893,910 |
| | $ | 768,016 |
|
Buildings and improvements | 5,203,675 |
| | 4,751,654 |
|
| 6,097,585 |
| | 5,519,670 |
|
Accumulated depreciation | (1,505,862 | ) | | (1,432,799 | ) |
Net operating real estate assets | 4,591,723 |
| | 4,086,871 |
|
Properties under development, including land | 297,712 |
| | 299,870 |
|
Investments in joint ventures | 47,776 |
| | 44,844 |
|
Properties held for sale | — |
| | 11,131 |
|
Total real estate assets | 4,937,211 |
| | 4,442,716 |
|
Accounts receivable – affiliates | 29,940 |
| | 31,035 |
|
Other assets, net | 88,002 |
| | 88,089 |
|
Cash and cash equivalents | 52,126 |
| | 55,159 |
|
Restricted cash | 5,295 |
| | 5,076 |
|
Total assets | $ | 5,112,574 |
| | $ | 4,622,075 |
|
Liabilities and equity | | | |
Liabilities | | | |
Notes payable | | | |
Unsecured | $ | 1,381,152 |
| | $ | 1,380,755 |
|
Secured | 1,015,260 |
| | 1,051,357 |
|
Accounts payable and accrued expenses | 87,041 |
| | 93,747 |
|
Accrued real estate taxes | 31,607 |
| | 21,883 |
|
Distributions payable | 49,135 |
| | 39,364 |
|
Other liabilities | 83,471 |
| | 109,276 |
|
Total liabilities | 2,647,666 |
| | 2,696,382 |
|
Commitments and contingencies |
| |
|
Perpetual preferred units | — |
| | 97,925 |
|
Equity | | | |
Common shares of beneficial interest; $0.01 par value per share; 175,000 shares authorized; 97,497 and 87,377 issued; 94,534 and 84,517 outstanding at June 30, 2012 and December 31, 2011, respectively | 945 |
| | 845 |
|
Additional paid-in capital | 3,501,354 |
| | 2,901,024 |
|
Distributions in excess of net income attributable to common shareholders | (674,221 | ) | | (690,466 | ) |
Treasury shares, at cost (11,926 and 12,509 common shares at June 30, 2012 and December 31, 2011, respectively) | (430,958 | ) | | (452,003 | ) |
Accumulated other comprehensive loss | (667 | ) | | (683 | ) |
Total common equity | 2,396,453 |
| | 1,758,717 |
|
Noncontrolling interests | 68,455 |
| | 69,051 |
|
Total equity | 2,464,908 |
| | 1,827,768 |
|
Total liabilities and equity | $ | 5,112,574 |
| | $ | 4,622,075 |
|
See Notes to Condensed Consolidated Financial Statements.
CAMDEN PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(in thousands, except per share amounts) | 2012 | | 2011 | | 2012 | | 2011 |
Property revenues | | | | | | | |
Rental revenues | $ | 159,318 |
| | $ | 138,167 |
| | $ | 313,037 |
| | $ | 274,002 |
|
Other property revenues | 26,727 |
| | 23,235 |
| | 51,659 |
| | 45,002 |
|
Total property revenues | 186,045 |
| | 161,402 |
| | 364,696 |
| | 319,004 |
|
Property expenses | | | | | | | |
Property operating and maintenance | 51,119 |
| | 46,232 |
| | 100,338 |
| | 91,038 |
|
Real estate taxes | 19,338 |
| | 17,558 |
| | 37,709 |
| | 34,902 |
|
Total property expenses | 70,457 |
| | 63,790 |
| | 138,047 |
| | 125,940 |
|
Non-property income | | | | | | | |
Fee and asset management | 3,608 |
| | 2,471 |
| | 6,531 |
| | 4,309 |
|
Interest and other income (loss) | (65 | ) | | 86 |
| | (753 | ) | | 4,857 |
|
Income (loss) on deferred compensation plans | (2,185 | ) | | 1,375 |
| | 5,601 |
| | 7,329 |
|
Total non-property income | 1,358 |
| | 3,932 |
| | 11,379 |
| | 16,495 |
|
Other expenses | | | | | | | |
Property management | 4,851 |
| | 5,109 |
| | 10,135 |
| | 10,428 |
|
Fee and asset management | 1,444 |
| | 1,670 |
| | 3,187 |
| | 2,890 |
|
General and administrative | 9,730 |
| | 8,032 |
| | 18,409 |
| | 17,820 |
|
Interest | 26,247 |
| | 28,381 |
| | 52,930 |
| | 58,118 |
|
Depreciation and amortization | 53,310 |
| | 44,754 |
| | 103,428 |
| | 90,605 |
|
Amortization of deferred financing costs | 900 |
| | 1,890 |
| | 1,812 |
| | 3,417 |
|
Expense (benefit) on deferred compensation plans | (2,185 | ) | | 1,375 |
| | 5,601 |
| | 7,329 |
|
Total other expenses | 94,297 |
| | 91,211 |
| | 195,502 |
| | 190,607 |
|
Gain on acquisition of controlling interest in joint ventures | — |
| | — |
| | 40,191 |
| | — |
|
Gain on sale of properties, including land | — |
| | 4,748 |
| | — |
| | 4,748 |
|
Gain on sale of unconsolidated joint venture interests | — |
| | — |
| | — |
| | 1,136 |
|
Loss on discontinuation of hedging relationship | — |
| | (29,791 | ) | | — |
| | (29,791 | ) |
Equity in income of joint ventures | 632 |
| | 16 |
| | 998 |
| | 390 |
|
Income (loss) from continuing operations before income taxes | 23,281 |
| | (14,694 | ) | | 83,715 |
| | (4,565 | ) |
Income tax expense – current | (434 | ) | | (256 | ) | | (658 | ) | | (1,576 | ) |
Income (loss) from continuing operations | 22,847 |
| | (14,950 | ) | | 83,057 |
| | (6,141 | ) |
Income from discontinued operations | — |
| | 895 |
| | 353 |
| | 1,687 |
|
Gain on sale of discontinued operations, net of tax | — |
| | — |
| | 32,541 |
| | — |
|
Net income (loss) | 22,847 |
| | (14,055 | ) | | 115,951 |
| | (4,454 | ) |
Less income allocated to noncontrolling interests from continuing operations | (1,084 | ) | | (781 | ) | | (1,909 | ) | | (1,337 | ) |
Less income, including gain on sale, allocated to noncontrolling interests from discontinued operations | — |
| | (11 | ) | | (670 | ) | | (20 | ) |
Less income allocated to perpetual preferred units | — |
| | (1,750 | ) | | (776 | ) | | (3,500 | ) |
Less write off of original issuance costs of redeemed perpetual preferred units | — |
| | — |
| | (2,075 | ) | | — |
|
Net income (loss) attributable to common shareholders | $ | 21,763 |
| | $ | (16,597 | ) | | $ | 110,521 |
| | $ | (9,311 | ) |
See Notes to Condensed Consolidated Financial Statements.
CAMDEN PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(in thousands, except per share amounts) | 2012 | | 2011 | | 2012 | | 2011 |
Earnings per share – basic | | | | | | | |
Income (loss) from continuing operations attributable to common shareholders | $ | 0.26 |
| | $ | (0.24 | ) | | $ | 0.95 |
| | $ | (0.15 | ) |
Income from discontinued operations, including gain on sale, attributable to common shareholders | — |
| | 0.01 |
| | 0.39 |
| | 0.02 |
|
Net income (loss) attributable to common shareholders | $ | 0.26 |
| | $ | (0.23 | ) | | $ | 1.34 |
| | $ | (0.13 | ) |
Earnings per share – diluted | | | | | | | |
Income (loss) from continuing operations attributable to common shareholders | $ | 0.26 |
| | $ | (0.24 | ) | | $ | 0.94 |
| | $ | (0.15 | ) |
Income from discontinued operations, including gain on sale, attributable to common shareholders | — |
| | 0.01 |
| | 0.38 |
| | 0.02 |
|
Net income (loss) attributable to common shareholders | $ | 0.26 |
| | $ | (0.23 | ) | | $ | 1.32 |
| | $ | (0.13 | ) |
Distributions declared per common share | $ | 0.56 |
| | $ | 0.49 |
| | $ | 1.12 |
| | $ | 0.98 |
|
Weighted average number of common shares outstanding – basic | 83,223 |
| | 72,343 |
| | 81,554 |
| | 72,126 |
|
Weighted average number of common shares outstanding – diluted | 83,846 |
| | 72,343 |
| | 84,461 |
| | 72,126 |
|
Net income (loss) attributable to common shareholders | | | | | | | |
Income (loss) from continuing operations | $ | 22,847 |
| | $ | (14,950 | ) | | $ | 83,057 |
| | $ | (6,141 | ) |
Less income allocated to noncontrolling interests from continuing operations | (1,084 | ) | | (781 | ) | | (1,909 | ) | | (1,337 | ) |
Less income allocated to perpetual preferred units | — |
| | (1,750 | ) | | (776 | ) | | (3,500 | ) |
Less write off of original issuance costs of redeemed perpetual preferred units | — |
| | — |
| | (2,075 | ) | | — |
|
Income (loss) from continuing operations attributable to common shareholders | 21,763 |
| | (17,481 | ) | | 78,297 |
| | (10,978 | ) |
Income from discontinued operations, including gain on sale | — |
| | 895 |
| | 32,894 |
| | 1,687 |
|
Less income, including gain on sale, allocated to noncontrolling interests from discontinued operations | — |
| | (11 | ) | | (670 | ) | | (20 | ) |
Income from discontinued operations, including gain on sale, attributable to common shareholders | — |
| | 884 |
| | 32,224 |
| | 1,667 |
|
Net income (loss) attributable to common shareholders | $ | 21,763 |
| | $ | (16,597 | ) | | $ | 110,521 |
| | $ | (9,311 | ) |
Condensed Consolidated Statements of Comprehensive Income: | | | | | | | |
Net income (loss) | $ | 22,847 |
| | $ | (14,055 | ) | | $ | 115,951 |
| | $ | (4,454 | ) |
Other comprehensive income | | | | | | | |
Unrealized loss on cash flow hedging activities | — |
| | (2,189 | ) | | — |
| | (2,692 | ) |
Reclassification of net losses on cash flow hedging activities | — |
| | 33,786 |
| | — |
| | 39,552 |
|
Reclassification of gain on available-for-sale investment to earnings, net of tax | — |
| | — |
| | — |
| | (3,309 | ) |
Reclassification of prior service cost on post retirement obligations | 8 |
| | — |
| | 16 |
| | — |
|
Comprehensive income | 22,855 |
| | 17,542 |
| | 115,967 |
| | 29,097 |
|
Less income allocated to noncontrolling interests from continuing operations | (1,084 | ) | | (781 | ) | | (1,909 | ) | | (1,337 | ) |
Less income, including gain on sale, allocated to noncontrolling interests from discontinued operations | — |
| | (11 | ) | | (670 | ) | | (20 | ) |
Less income allocated to perpetual preferred units | — |
| | (1,750 | ) | | (776 | ) | | (3,500 | ) |
Less write off of original issuance costs of redeemed perpetual preferred units | — |
| | — |
| | (2,075 | ) | | — |
|
Comprehensive income attributable to common shareholders | $ | 21,771 |
| | $ | 15,000 |
| | $ | 110,537 |
| | $ | 24,240 |
|
See Notes to Condensed Consolidated Financial Statements.
CAMDEN PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND PERPETUAL PREFERRED UNITS
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shareholders | | | | | | |
(in thousands) | Common shares of beneficial interest | | Additional paid-in capital | | Distributions in excess of net income | | Treasury shares, at cost | | Accumulated other comprehensive loss | | Noncontrolling interests | | Total equity | | Perpetual preferred units |
December 31, 2011 | $ | 845 |
| | $ | 2,901,024 |
| | $ | (690,466 | ) | | $ | (452,003 | ) | | $ | (683 | ) | | $ | 69,051 |
|
| $ | 1,827,768 |
| | $ | 97,925 |
|
Net income | | | | | 110,521 |
| | | | | | 2,579 |
| | 113,100 |
| | 2,851 |
|
Other comprehensive income | | | | | | | | | 16 |
| | | | 16 |
| | |
Common shares issued | 99 |
| | 604,360 |
| | | | | | | | | | 604,459 |
| | |
Net share awards | | | (6,182 | ) | | | | 14,021 |
| | | | | | 7,839 |
| | |
Employee stock purchase plan | | | 294 |
| | | | 170 |
| | | | | | 464 |
| | |
Common share options exercised | | | 2,307 |
| | | | 6,854 |
| | | | | | 9,161 |
| | |
Conversions of operating partnership units | 2 |
| | (450 | ) | | | | | | | | 448 |
| | — |
| | |
Cash distributions declared to perpetual preferred units | | | | | | | | | | | | | | | (776 | ) |
Cash distributions declared to equity holders | | | | | (94,276 | ) | | | | | | (3,623 | ) | | (97,899 | ) | | |
Redemption of perpetual preferred units | | | | | | | | | | | | | | | (100,000 | ) |
Other | (1 | ) | | 1 |
| | | | | | | | | | — |
| | |
June 30, 2012 | $ | 945 |
| | $ | 3,501,354 |
| | $ | (674,221 | ) | | $ | (430,958 | ) | | $ | (667 | ) | | $ | 68,455 |
| | $ | 2,464,908 |
| | $ | — |
|
See Notes to Condensed Consolidated Financial Statements.
CAMDEN PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND PERPETUAL PREFERRED UNITS (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shareholders | | | | | | |
(in thousands) | Common shares of beneficial interest | | Additional paid-in capital | | Distributions in excess of net income | | Treasury shares, at cost | | Accumulated other comprehensive income (loss) | | Noncontrolling interests | | Total equity | | Perpetual preferred units |
December 31, 2010 | $ | 824 |
| | $ | 2,775,625 |
| | $ | (595,317 | ) | | $ | (461,255 | ) | | $ | (33,458 | ) | | $ | 70,954 |
| | $ | 1,757,373 |
| | $ | 97,925 |
|
Net income (loss) | | | | | (9,311 | ) | | | | | | 1,357 |
| | (7,954 | ) | | 3,500 |
|
Other comprehensive income | | | | | | | | | 33,551 |
| | | | 33,551 |
| | |
Common shares issued | 6 |
| | 37,120 |
| | | | | | | | | | 37,126 |
| | |
Net share awards | 4 |
| | 6,346 |
| | | | 525 |
| | | | | | 6,875 |
| | |
Employee stock purchase plan | | | 232 |
| | | | 788 |
| | | | | | 1,020 |
| | |
Common share options exercised | 1 |
| | 3,774 |
| | | | 808 |
| | | | | | 4,583 |
| | |
Conversions of operating partnership units | 1 |
| | 591 |
| | | | | | | | (592 | ) | | — |
| | |
Cash distributions declared to perpetual preferred units | | | | | | | | | | | | | | | (3,500 | ) |
Cash distributions declared to equity holders | | | | | (71,739 | ) | | | | | | (2,447 | ) | | (74,186 | ) | | |
Other | (2 | ) | | 2 |
| | | | | | | | | | — |
| | |
June 30, 2011 | $ | 834 |
| | $ | 2,823,690 |
| | $ | (676,367 | ) | | $ | (459,134 | ) | | $ | 93 |
| | $ | 69,272 |
| | $ | 1,758,388 |
| | $ | 97,925 |
|
See Notes to Condensed Consolidated Financial Statements.
CAMDEN PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| | | | | | | |
| Six Months Ended |
| June 30, |
(in thousands) | 2012 | | 2011 |
Cash flows from operating activities | | | |
Net income (loss) | $ | 115,951 |
| | $ | (4,454 | ) |
Adjustments to reconcile net income (loss) to net cash from operating activities: | | | |
Depreciation and amortization, including discontinued operations | 103,614 |
| | 92,170 |
|
Gain on acquisition of controlling interest in joint ventures | (40,191 | ) | | — |
|
Gain on sale of discontinued operations, net of tax | (32,541 | ) | | — |
|
Gain on sale of properties, including land | — |
| | (4,748 | ) |
Gain on sale of unconsolidated joint venture interests | — |
| | (1,136 | ) |
Gain on sale of available-for-sale investment | — |
| | (4,301 | ) |
Loss on discontinuation of hedging relationship | — |
| | 29,791 |
|
Distributions of income from joint ventures | 2,107 |
| | 2,181 |
|
Equity in income of joint ventures | (998 | ) | | (390 | ) |
Share-based compensation | 6,478 |
| | 6,003 |
|
Amortization of deferred financing costs | 1,812 |
| | 3,417 |
|
Net change in operating accounts and other | (15,366 | ) | | (3,779 | ) |
Net cash from operating activities | 140,866 |
| | 114,754 |
|
Cash flows from investing activities | | | |
Development and capital improvements | (140,963 | ) | | (67,586 | ) |
Acquisition of operating properties, including joint venture interests, net of cash acquired | (171,283 | ) | | — |
|
Proceeds from sale of properties, including land and discontinued operations | 54,125 |
| | 19,095 |
|
Proceeds from sale of joint venture interests | — |
| | 19,310 |
|
Proceeds from sale of available-for-sale investment | — |
| | 4,510 |
|
Decrease in notes receivable – affiliates | — |
| | 3,279 |
|
Investments in joint ventures | (5,656 | ) | | (35,111 | ) |
Distributions of investments from joint ventures | 4,030 |
| | 1,208 |
|
Other | (1,250 | ) | | (2,232 | ) |
Net cash from investing activities | (260,997 | ) | | (57,527 | ) |
Cash flows from financing activities | | | |
Borrowings on unsecured line of credit | 43,000 |
| | — |
|
Repayments on unsecured line of credit | (43,000 | ) | | — |
|
Repayment of notes payable | (308,703 | ) | | (625,272 | ) |
Proceeds from notes payable | — |
| | 495,705 |
|
Proceeds from issuance of common shares | 604,459 |
| | 37,126 |
|
Redemption of perpetual preferred units | (100,000 | ) | | — |
|
Distributions to common shareholders, perpetual preferred units and noncontrolling interests | (88,858 | ) | | (73,966 | ) |
Payment of deferred financing costs | (440 | ) | | (4,883 | ) |
Common share options exercised | 8,694 |
| | 4,121 |
|
Net decrease in accounts receivable – affiliates | 1,099 |
| | 1,494 |
|
Other | 847 |
| | 1,021 |
|
Net cash from financing activities | 117,098 |
| | (164,654 | ) |
Net decrease in cash and cash equivalents | (3,033 | ) | | (107,427 | ) |
Cash and cash equivalents, beginning of period | 55,159 |
| | 170,575 |
|
Cash and cash equivalents, end of period | $ | 52,126 |
| | $ | 63,148 |
|
Supplemental information | | | |
Cash paid for interest, net of interest capitalized | $ | 53,304 |
| | $ | 59,709 |
|
Cash paid for income taxes | 1,450 |
| | 1,879 |
|
See Notes to Condensed Consolidated Financial Statements.
CAMDEN PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
|
| | | | | | | |
| Six Months Ended |
| June 30, |
(in thousands) | 2012 | | 2011 |
Supplemental schedule of noncash investing and financing activities | | | |
Distributions declared but not paid | $ | 49,135 |
| | $ | 38,966 |
|
Value of shares issued under benefit plans, net of cancellations | 21,379 |
| | 18,805 |
|
Conversion of operating partnership units to common shares | 447 |
| | 592 |
|
Accrual associated with construction and capital expenditures | 14,030 |
| | 11,409 |
|
Acquisition of operating properties, including joint venture interests, net of cash acquired, at fair value: | | | |
Assets acquired | 399,306 |
| | — |
|
Mortgage debt assumed | 272,606 |
| | — |
|
Other liabilities assumed | 5,495 |
| | — |
|
See Notes to Condensed Consolidated Financial Statements.
CAMDEN PROPERTY TRUST
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business
Business. Formed on May 25, 1993, Camden Property Trust, a Texas real estate investment trust (“REIT”), is primarily engaged in the ownership, management, development, acquisition, and construction of multifamily apartment communities. Our multifamily apartment communities are referred to as “communities,” “multifamily communities,” “properties,” or “multifamily properties” in the following discussion. As of June 30, 2012, we owned interests in, operated, or were developing 206 multifamily properties comprising 69,902 apartment homes across the United States. Of the 206 properties, seven properties were under development, and when completed will consist of a total of 2,208 apartment homes. In addition, we own land parcels we may develop into multifamily apartment communities in the future.
2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Principles of Consolidation. Our condensed consolidated financial statements include our accounts and the accounts of other subsidiaries and joint ventures (including partnerships and limited liability companies) over which we have control. All intercompany transactions, balances, and profits have been eliminated in consolidation. Investments acquired or created are continuously evaluated based on the accounting guidance relating to variable interest entities (“VIEs”), which requires the consolidation of VIEs in which we are considered to be the primary beneficiary. If the investment is determined not to be a VIE, then the investment is evaluated for consolidation (primarily using a voting interest model) under the remaining consolidation guidance relating to real estate entities. If we are the general partner of a limited partnership, or manager of a limited liability company, we also consider the consolidation guidance relating to the rights of limited partners (non-managing members) to assess whether any rights held by the limited partners overcome the presumption of control by us.
Interim Financial Reporting. We have prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, these statements do not include all information and footnote disclosures required for annual statements. While we believe the disclosures presented are adequate for interim reporting, these interim financial statements should be read in conjunction with the audited financial statements and notes included in our 2011 Annual Report on Form 10-K. In the opinion of management, all adjustments and eliminations, consisting of normal recurring adjustments, necessary for a fair representation of our financial statements for the interim period reported have been included. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results which may be expected for the full year.
Allocations of Purchase Price. Upon acquisition of real estate, we allocate the purchase price between tangible and intangible assets, which includes land, buildings (as-if-vacant), furniture and fixtures, the value of in-place leases, including above and below market leases, and acquired liabilities. In allocating these values we apply methods similar to those used by independent appraisers of income-producing property. Upon the acquisition of a controlling interest of an investment in an unconsolidated joint venture, such joint venture is consolidated and our initial equity investment is remeasured to fair value at the date the controlling interest is acquired; any differences between the carrying value and the fair value of the previously held equity investment is recognized in earnings at the time of obtaining control. Transaction costs associated with the acquisition of operating real estate assets are expensed. Depreciation is computed on a straight-line basis over the remaining useful lives of the related tangible assets. The value of in-place leases and above or below market leases is amortized over the estimated average remaining life of leases in place at the time of acquisition. The unamortized value of in-place leases at June 30, 2012 was approximately $3.2 million and is included in other assets, net, in our condensed consolidated balance sheets. The unamortized value of above or below market leases at June 30, 2012 was $0.2 million and is included in other liabilities in our condensed consolidated balance sheets. Estimates of fair value of acquired debt are based upon interest rates available for the issuance of debt with similar terms and remaining maturities.
Asset Impairment. Long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists if estimated future undiscounted cash flows associated with long-lived assets are not sufficient to recover the carrying value of such assets. We consider projected future discounted and undiscounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist. When impairment exists, the long-lived asset is adjusted to its fair value. While we believe our estimates of future cash flows are reasonable, different assumptions regarding a number of factors, including market rents, economic conditions, and occupancies, could significantly affect these estimates. In estimating fair value, management uses appraisals, management estimates, and discounted cash flow calculations which maximize inputs from a marketplace participant’s perspective. In addition, we evaluate our equity investments in joint ventures and if we believe there is an other than
temporary decline in market value of our investment below our carrying value, we will record an impairment charge.
The value of our properties under development depends on market conditions, including estimates of the project start date as well as estimates of demand for multifamily communities. We have reviewed market trends and other marketplace information and have incorporated this information as well as our current outlook into the assumptions we use in our impairment analyses. Due to the judgment and assumptions applied in the impairment analyses, it is possible actual results could differ substantially from those estimated.
We believe the carrying value of our operating real estate assets, properties under development, and land is currently recoverable. However, if market conditions deteriorate or if changes in our development strategy significantly affect any key assumptions used in our fair value estimates, we may need to take material charges in future periods for impairments related to existing assets. Any such material non-cash charges could have an adverse effect on our consolidated financial position and results of operations.
Cost Capitalization. Real estate assets are carried at cost plus capitalized carrying charges. Carrying charges are primarily interest and real estate taxes which are capitalized as part of properties under development. Capitalized interest is generally based on the weighted average interest rate of our unsecured debt. Transaction costs associated with the acquisition of operating real estate assets are expensed. Expenditures directly related to the development and improvement of real estate assets are capitalized at cost as land and buildings and improvements. Indirect development costs, including salaries and benefits and other related costs directly attributable to the development of properties, are also capitalized. We start capitalizing development, construction, and carrying costs when the development of the future real estate asset is probable and activities necessary to get the underlying real estate asset ready for its intended use have been initiated. 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 capitalized development 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. Capitalized interest was approximately $3.2 million and $6.3 million for the three and six months ended June 30, 2012, respectively, and approximately $1.8 million and $3.6 million for the three and six months ended June 30, 2011, respectively. Capitalized real estate taxes were approximately $0.7 million and $1.4 million for the three and six months ended June 30, 2012, respectively, and approximately $0.3 million and $0.7 million for the three and six months ended June 30, 2011, respectively.
Where possible, we stage our construction to allow leasing and occupancy during the construction period, which we believe minimizes the duration of the lease-up period following completion of construction. Our accounting policy related to properties in the development and leasing phase is to expense all operating expenses associated with completed apartment homes. We capitalize renovation and improvement costs we believe extend the economic lives of depreciable property. Capital expenditures subsequent to initial construction are capitalized and depreciated over their estimated useful lives.
Depreciation and amortization is computed over the expected useful lives of depreciable property on a straight-line basis with lives generally as follows:
|
| |
| 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 |
Discontinued Operations. A property is classified as a discontinued operation when (i) the operations and cash flows of the property can be clearly distinguished and have been or will be eliminated from our ongoing operations; (ii) the property has either been disposed of or is classified as held for sale; and (iii) we will not have any significant continuing involvement in the operations of the property after the disposal transactions. Significant judgments are involved in determining whether a property meets the criteria for discontinued operations reporting and the period in which these criteria are met. A property is classified as held for sale when (i) management commits to a plan to sell and it is actively marketed; (ii) it is available for immediate sale in its present condition and the sale is expected to be completed within one year; and (iii) it is unlikely significant changes to the plan will be made or the plan will be withdrawn.
The results of operations for properties sold during the period or classified as held for sale at the end of the current period
are classified as discontinued operations in the current and prior periods. The property-specific components of earnings classified as discontinued operations include separately identifiable property-specific revenues, expenses, depreciation, and interest expense, if any. The gain or loss resulting from the eventual disposal of the held for sale properties is also classified within discontinued operations. Real estate assets held for sale are measured at the lower of carrying amount or fair value less costs to sell and are presented separately in the accompanying consolidated balance sheets. Subsequent to classification of a property as held for sale, no further depreciation is recorded. Properties sold by our unconsolidated entities are not included in discontinued operations and related gains or losses are reported as a component of equity in income of joint ventures.
Gains on sale of real estate are recognized using the full accrual or partial sale methods, as applicable, in accordance with GAAP, provided various criteria relating to the terms of sale and any subsequent involvement with the real estate sold are satisfied.
Fair Value. For financial assets and liabilities recorded at fair value on a recurring or nonrecurring basis, fair value is the price we would receive to sell an asset, or pay to transfer a liability, in an orderly transaction with a market participant at the measurement date. In the absence of such data, fair value is estimated using internal information consistent with what market participants would use in a hypothetical transaction.
In determining fair value, observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions; preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
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• | Level 1: Quoted prices for identical instruments in active markets. |
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• | Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
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• | Level 3: Significant inputs to the valuation model are unobservable. |
Recurring Fair Value Disclosures. The following describes the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis:
Deferred Compensation Plan Investments. The estimated fair values of investment securities classified as deferred compensation plan investments are based on quoted market prices utilizing public information for the same transactions. Our deferred compensation plan investments are recorded in other assets in our consolidated balance sheets.
Derivative Financial Instruments. The estimated fair values of derivative financial instruments are valued using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps and caps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk, including our own nonperformance risk and the respective counterparty's nonperformance risk. The fair value of interest rate caps is determined using the market standard methodology of discounting the future expected cash receipts which would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities.
Although we have determined the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default. However, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Financial Instrument Fair Value Disclosures. In calculating the fair value of our notes payable, interest rates and spreads reflect current creditworthiness and market conditions available for the issuance of notes payable with similar terms and remaining
maturities. These financial instruments utilize Level 2 inputs.
Non-recurring Fair Value Disclosures. Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances. These assets primarily include long-lived assets which are recorded at fair value when they are impaired. The fair value methodologies used to measure long-lived assets are described above at “Asset Impairment.” The inputs associated with the valuation of long-lived assets are generally included in Level 3 of the fair value hierarchy.
Recent Accounting Pronouncements. In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-04 (“ASU 2011-04”), “Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” ASU 2011-04 requires entities to separately disclose the amounts and reasons for any transfers of assets and liabilities into and out of Level 1 and Level 2 of the fair value hierarchy. For fair value measurements using significant unobservable inputs (Level 3), entities are required to disclose quantitative information about the significant unobservable inputs used for all Level 3 measurements and a description of the valuation processes in determining fair value. In addition, ASU 2011-04 requires entities to provide a qualitative discussion about the sensitivity of recurring Level 3 measurements to changes in the unobservable inputs disclosed, including the interrelationship between inputs. Entities are also required to disclose information about when the current use of a non-financial asset measured at fair value differs from its highest and best use and the hierarchy classification for items whose fair value is not recorded in the balance sheet but is disclosed in the notes. We did not have any changes to our existing classification and measurement of fair value upon adoption on January 1, 2012. Refer to Note 14, "Fair Value Disclosures" and the fair value discussion above for additional disclosures resulting from the adoption of this standard.
In June 2011, the FASB issued Accounting Standards Update 2011-05 (“ASU 2011-05”), “Presentation of Comprehensive Income.” ASU 2011-05 requires all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequent to the issuance of ASU 2011-05, the FASB issued Accounting Standards Update 2011-12 (“ASU 2011-12”), “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05” which indefinitely defers the ASU 2011-05 requirement for an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. We adopted ASU 2011-05 and ASU 2011-12 on January 1, 2012, and these adoptions did not have a material effect on our financial statements.
3. Per Share Data
Basic earnings per share are computed using net income (loss) attributable to common shareholders 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 share awards granted and units convertible into common shares. Only those items having a dilutive impact on our basic earnings per share are included in diluted earnings per share. Our unvested share-based awards are considered participating securities and are reflected in the calculation of basic and diluted earnings per share using the two-class method. The number of common share equivalent securities excluded from the diluted earnings per share calculation was approximately 3.5 million and 4.8 million for the three months ended June 30, 2012 and 2011, respectively, and was approximately 1.4 million and 4.9 million for the six months ended June 30, 2012 and 2011, respectively. These securities, which include common share options and share awards granted and units convertible into common shares, were excluded from the diluted earnings per share calculation as they are anti-dilutive.
The following table presents information necessary to calculate basic and diluted earnings per share for the periods indicated:
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(in thousands, except per share amounts) | 2012 | | 2011 | | 2012 | | 2011 |
Earnings per share calculation – basic | | | | | | | |
Income (loss) from continuing operations attributable to common shareholders | $ | 21,763 |
| | $ | (17,481 | ) | | $ | 78,297 |
| | $ | (10,978 | ) |
Amount allocated to participating securities | (210 | ) | | 139 |
| | (1,099 | ) | | 36 |
|
Income (loss) from continuing operations attributable to common shareholders, net of amount allocated to participating securities | 21,553 |
| | (17,342 | ) | | 77,198 |
| | (10,942 | ) |
Income from discontinued operations, including gain on sale, attributable to common shareholders | — |
| | 884 |
| | 32,224 |
| | 1,667 |
|
Net income (loss) attributable to common shareholders, as adjusted | $ | 21,553 |
| | $ | (16,458 | ) | | $ | 109,422 |
| | $ | (9,275 | ) |
| | | | | | | |
Income (loss) from continuing operations attributable to common shareholders, as adjusted – per share | $ | 0.26 |
| | $ | (0.24 | ) | | $ | 0.95 |
| | $ | (0.15 | ) |
Income from discontinued operations, including gain on sale, attributable to common shareholders – per share | — |
| | 0.01 |
| | 0.39 |
| | 0.02 |
|
Net income (loss) attributable to common shareholders, as adjusted – per share | $ | 0.26 |
| | $ | (0.23 | ) | | $ | 1.34 |
| | $ | (0.13 | ) |
| | | | | | | |
Weighted average number of common shares outstanding – basic | 83,223 |
| | 72,343 |
| | 81,554 |
| | 72,126 |
|
| | | | | | | |
Earnings per share calculation – diluted | | | | | | | |
Income (loss) from continuing operations attributable to common shareholders, net of amount allocated to participating securities | $ | 21,553 |
| | $ | (17,342 | ) | | $ | 77,198 |
| | $ | (10,942 | ) |
Income allocated to common units from continuing operations | — |
| | — |
| | 1,685 |
| | — |
|
Income (loss) from continuing operations attributable to common shareholders, as adjusted | 21,553 |
| | (17,342 | ) | | 78,883 |
| | (10,942 | ) |
Income from discontinued operations, including gain on sale, attributable to common shareholders | — |
| | 884 |
| | 32,224 |
| | 1,667 |
|
Net income (loss) attributable to common shareholders, as adjusted | $ | 21,553 |
| | $ | (16,458 | ) | | $ | 111,107 |
| | $ | (9,275 | ) |
| | | | | | |
|
|
Income (loss) from continuing operations attributable to common shareholders, as adjusted – per share | $ | 0.26 |
| | $ | (0.24 | ) | | $ | 0.94 |
| | $ | (0.15 | ) |
Income from discontinued operations, including gain on sale, attributable to common shareholders – per share | — |
| | 0.01 |
| | 0.38 |
| | 0.02 |
|
Net income (loss) attributable to common shareholders, as adjusted – per share | $ | 0.26 |
| | $ | (0.23 | ) | | $ | 1.32 |
| | $ | (0.13 | ) |
| | | | | | | |
Weighted average number of common shares outstanding – basic | 83,223 |
| | 72,343 |
| | 81,554 |
| | 72,126 |
|
Incremental shares issuable from assumed conversion of: | | | | | | | |
Common share options and share awards granted | 623 |
| | — |
| | 652 |
| | — |
|
Common units | — |
| | — |
| | 2,255 |
| | — |
|
Weighted average number of common shares outstanding – diluted | 83,846 |
| | 72,343 |
| | 84,461 |
| | 72,126 |
|
4. Common Shares
In March 2010, we announced the creation of an at-the-market (“ATM”) share offering program through which we could, but had no obligation to, sell common shares having an aggregate offering price of up to $250 million (the “2010 ATM program”), in amounts and at times as we determined, into the existing trading market at current market prices as well as through negotiated transactions. The 2010 ATM program terminated in the second quarter of 2011, and no further common shares are available for sale under the 2010 ATM program.
In May 2011, we created an ATM share offering program through which we could, but had no obligation to, sell common shares having an aggregate offering price of up to $300 million (the “2011 ATM program”), in amounts and at times as we determined, into the existing trading market at current market prices as well as through negotiated transactions. The net proceeds resulting from the 2011 ATM program were used to redeem all of our outstanding redeemable perpetual preferred units as further discussed in Note 5, "Operating Partnerships," and for other general corporate purposes, which included funding for development activities, financing of acquisitions, the redemption or other repurchase of outstanding debt or equity securities, reducing future borrowings under our $500 million unsecured line of credit, and the repayment of other indebtedness. The 2011 ATM program terminated in the second quarter of 2012, and no further common shares are available for sale under the 2011 ATM program.
The following table presents activity under our 2010 and 2011 ATM programs for the periods presented (in thousands, except per share amounts):
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2012 | | June 30, 2011 | | June 30, 2012 | | June 30, 2011 |
Total net consideration | $ | 83,836.3 |
| | $ | 33,331.6 |
| | $ | 128,128.0 |
| | $ | 37,126.1 |
|
Common shares sold | 1,267.1 |
| | 550.4 |
| | 1,971.4 |
| | 621.7 |
|
Average price per share | $ | 67.19 |
| | $ | 61.88 |
| | $ | 66.01 |
| | $ | 60.98 |
|
In May 2012, we created an ATM share offering program through which we can, but have no obligation to, sell common shares having an aggregate offering price of up to $300 million (the "2012 ATM program"), in amounts and at times we determine, into the existing trading market at current market prices as well as through negotiated transactions. Actual sales from time to time may depend on a variety of factors including, among others, market conditions, the trading price of our common shares, and determinations by management of the appropriate sources of funding for us. We intend to use the net proceeds from the 2012 ATM program for general corporate purposes, which may include funding for development activities, financing of acquisitions, the redemption or other repurchase of outstanding debt or equity securities, reducing future borrowings under our $500 million unsecured line of credit, and the repayment of other indebtedness.
The following table presents activity under our 2012 ATM program for the periods presented (in thousands, except per share amounts):
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| | | |
| Three and Six Months Ended |
| June 30, 2012 |
Total net consideration | $ | 84,711.8 |
|
Common shares sold | 1,305.5 |
|
Average price per share | $ | 65.93 |
|
As of June 30, 2012, we had common shares having an aggregate offering price of up to $213.9 million remaining available for sale under the 2012 ATM program. In July 2012, we issued approximately 0.9 million common shares at an average price of $69.34 per share for total net consideration of approximately $64.1 million. As of the date of this filing, we had common shares having an aggregate offering price of up to $148.9 million remaining available for sale under the 2012 ATM program.
We currently have an automatic shelf registration statement which allows us to offer, from time to time, an unlimited amount of common shares, preferred shares, debt securities, or warrants. In January 2012, we issued 6,612,500 common shares in a public equity offering and received approximately $391.6 million in net proceeds. We utilized these proceeds to fund the acquisition of the remaining 80% interest we did not own in twelve real estate joint ventures that owned twelve apartment communities, containing 4,034 apartment homes in Dallas, Houston, Las Vegas, Phoenix, and Southern California, becoming sole owner of that portfolio. See Note 6, “Property Acquisitions, Discontinued Operations, and Assets Held for Sale” for further discussion of this transaction.
On May 11, 2012, the shareholders of the Company approved an amendment to our Amended and Restated Declaration of Trust to increase our total number of authorized shares from 110.0 million to 185.0 million shares of beneficial interest, consisting of 175.0 million common shares and 10.0 million preferred shares.
5. Operating Partnerships
As of December 31, 2011, Camden Operating, L.P. (“Camden Operating” or the “operating partnership”) had 4.0 million 7.0% Series B Cumulative Redeemable Perpetual Preferred Units outstanding. Distributions on the preferred units were payable quarterly in arrears. In February 2012, we redeemed all of these outstanding units at their redemption price of $25.00 per unit, or an aggregate of $100.0 million, plus accrued and unpaid distributions. In connection with this redemption, the unamortized issuance costs relating to these units of approximately $2.1 million were expensed in the first quarter of 2012.
As of December 31, 2011, we held 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. During the first quarter of 2012, the remaining non-managing member interests, comprising approximately 0.3 million units, were converted to approximately 0.2 million of our common shares, resulting in this entity being wholly-owned by us.
6. Property Acquisitions, Discontinued Operations, and Assets Held for Sale
Acquisitions. In May 2012, we acquired approximately 4.7 acres of land located in Dallas, Texas for approximately $13.4 million. We intend to utilize this land holding for development of a multifamily apartment community. On June 28, 2012, we acquired one operating property comprised of 477 units located in Dallas, Texas for approximately $76.0 million.
As of December 31, 2011, we held a 20% ownership interest in twelve unconsolidated joint ventures that owned twelve apartment communities, containing 4,034 apartment homes located in Dallas, Houston, Las Vegas, Phoenix, and Southern California. In January 2012, we acquired the remaining 80% ownership interests in these joint ventures, resulting in these entities being wholly-owned by us. Selected data regarding this acquisition is presented below (in millions):
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| | | | |
Cash consideration | | $ | 99.5 |
|
Fair value of our 20% ownership interest held before the acquisition | | 24.9 |
|
Debt assumed | | 272.6 |
|
Net other assets/liabilities acquired | | 1.1 |
|
Acquisition date fair value | | $ | 398.1 |
|
The following table summarizes the fair values of the assets acquired and liabilities assumed for the acquisitions of the twelve joint ventures and one operating property described above as of the respective acquisition/consolidation dates (in millions):
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| | | | |
Assets acquired: | |
| Buildings and improvements | $ | 353.9 |
|
| Land | 108.7 |
|
| Cash | 3.4 |
|
| Restricted cash | 0.7 |
|
| Intangible and other assets | 12.1 |
|
Total assets acquired | $ | 478.8 |
|
| | |
Liabilities assumed: | |
| Mortgage debt (1) | $ | 272.6 |
|
| Other liabilities | 5.5 |
|
Total liabilities assumed | $ | 278.1 |
|
| Net assets acquired | $ | 200.7 |
|
(1) Mortgage debt assumed was subsequently repaid in January 2012 at face value.
The related assets, liabilities, and results of operations for these acquisitions are included in the consolidated financial statements from the respective dates of acquisition. There was no contingent consideration associated with these acquisitions. As a result of acquiring the remaining 80% interest in these twelve joint ventures, our previously held equity interest was remeasured at fair value, resulting in a gain of approximately $40.2 million. The fair value of the equity interest was determined utilizing the consideration paid for the acquired 80% ownership interest.
The twelve former joint ventures and the one operating property acquired as discussed above contributed revenues of approximately $20.5 million and property expenses of approximately $8.3 million, from their respective acquisition/consolidation dates through June 30, 2012.
The following unaudited pro forma summary presents consolidated information assuming the acquisitions/consolidation of the twelve former joint ventures and one operating property described above had occurred on January 1, 2011. The information for the three and six months ended June 30, 2012, includes pro forma results for the portion of the period prior to the respective acquisition/consolidation dates and actual results from the respective dates of acquisition/consolidation through the end of the period.
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| | | | | | | | | | | | | | | |
| Pro Forma Three Months Ended June 30, | | Pro Forma Six Months Ended June 30, |
(in thousands) | 2012 | | 2011 | | 2012 | | 2011 |
| (unaudited) |
Property revenues | $ | 187,884 |
| | $ | 174,260 |
| | $ | 371,315 |
| | $ | 344,464 |
|
Property expenses | 71,234 |
| | 69,623 |
| | 140,751 |
| | 137,521 |
|
| $ | 116,650 |
| | $ | 104,637 |
| | $ | 230,564 |
| | $ | 206,943 |
|
In July 2012, we acquired one operating property comprised of 223 units located in Atlanta, Georgia for approximately $25.3 million.
Discontinued Operations and Assets Held for Sale. For the three and six months ended June 30, 2012, income from discontinued operations included the results of operations of three operating properties, containing 1,033 apartment homes, sold in the first quarter of 2012. We had no assets classified as held for sale as of June 30, 2012.
For the three and six months ended June 30, 2011, income from discontinued operations also included the results of operations of two operating properties, containing 788 apartment homes, sold in December 2011.
The following is a summary of income from discontinued operations for the three and six months ended June 30, 2012 and 2011:
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| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2012 | | 2011 | | 2012 | | 2011 |
Property revenues | $ | — |
| | $ | 3,704 |
| | $ | 1,209 |
| | $ | 7,249 |
|
Property expenses | — |
| | 1,832 |
| | 670 |
| | 3,614 |
|
| — |
| | 1,872 |
| | 539 |
| | 3,635 |
|
Depreciation and amortization | — |
| | 977 |
| | 186 |
| | 1,948 |
|
Income from discontinued operations | $ | — |
| | $ | 895 |
| | $ | 353 |
| | $ | 1,687 |
|
7. Investments in Joint Ventures
As of June 30, 2012, our equity investments in unconsolidated joint ventures consisted of five joint ventures, with our ownership percentages ranging from 15% to 50%. We utilize the equity method of accounting to account for transactions related to these investments. We currently provide property management services to each of these joint ventures which own operating properties, and we may provide construction and development services to the joint ventures which own properties under development. The following table summarizes aggregate balance sheet and statement of income data for the unconsolidated joint ventures as of and for the periods presented:
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| | | | | | | | |
(in millions) | June 30, 2012 | (1) | | December 31, 2011 |
Total assets | $ | 1,096.1 |
| | | $ | 1,394.9 |
|
Total third-party debt | 864.9 |
| | | 1,093.9 |
|
Total equity | 196.0 |
| | | 261.6 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Total revenues (2) | $ | 38.9 |
| | $ | 36.4 |
| | $ | 79.4 |
| | $ | 69.4 |
|
Net loss | — |
| | (3.8 | ) | | (1.7 | ) | | (6.4 | ) |
Equity in income (3) | 0.6 |
| | — |
| | 1.0 |
| | 0.4 |
|
| |
(1) | In January 2012, as a result of our purchase of the remaining 80% ownership interest in previously unconsolidated joint ventures, we consolidated twelve joint ventures previously accounted for in accordance with the equity method. Refer to Note 6, "Property Acquisitions, Discontinued Operations, and Assets Held for Sale," for further discussion of the acquisition. |
| |
(2) | Approximately $3.0 million and $5.9 million of revenues for the three and six months ended June 30, 2011, respectively, relates to discontinued operations within one of our unconsolidated joint ventures resulting from the sale of four operating properties in the fourth quarter of 2011. |
| |
(3) | Equity in income excludes our ownership interest of fee income from various property management services provided by us to our joint ventures. |
The joint ventures in which we have a partial interest have been funded in part with secured third-party debt. As of June 30, 2012, we had no outstanding guarantees related to loans of our unconsolidated joint ventures.
We may 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 $3.3 million and $2.4 million for the three months ended June 30, 2012 and 2011, respectively, and approximately $6.1 million and $3.9 million for the six months ended June 30, 2012 and 2011, respectively. We eliminate fee income for services provided to these joint ventures to the extent of our ownership.
In January 2012, one of our discretionary investment funds acquired a multifamily property comprising of 350 units located in Raleigh, North Carolina. In March 2012, this fund acquired approximately 15.0 acres of land located in Orange County, Florida and intends to utilize this land for development of a multifamily apartment community.
8. Notes Payable
The following is a summary of our indebtedness:
|
| | | | | | | |
| Balance at |
(in millions) | June 30, 2012 | | December 31, 2011 |
Commercial Banks | | | |
Unsecured line of credit and short-term borrowings | $ | — |
| | $ | — |
|
|
|
| |
|
|
Senior unsecured notes | | | |
5.93% Notes, due 2012 | 189.6 |
| | 189.6 |
|
5.45% Notes, due 2013 | 199.8 |
| | 199.7 |
|
5.08% Notes, due 2015 | 249.4 |
| | 249.3 |
|
5.75% Notes, due 2017 | 246.3 |
| | 246.2 |
|
4.70% Notes, due 2021 | 248.6 |
| | 248.6 |
|
5.00% Notes, due 2023 | 247.4 |
| | 247.3 |
|
| 1,381.1 |
| | 1,380.7 |
|
| | | |
Secured notes | | | |
0.89% – 6.00% Conventional Mortgage Notes, due 2012 – 2045 | 976.9 |
| | 1,012.3 |
|
1.36% Tax-exempt Mortgage Note due 2028 | 38.4 |
| | 39.1 |
|
| 1,015.3 |
| | 1,051.4 |
|
Total notes payable | $ | 2,396.4 |
| | $ | 2,432.1 |
|
| | | |
Floating rate tax-exempt debt included in secured notes (1.36%) | $ | 38.4 |
| | $ | 39.1 |
|
Floating rate debt included in secured notes (0.89% – 1.69%) | 206.5 |
| | 206.4 |
|
We have a $500 million unsecured credit facility which matures in September 2015 with an option to extend at our election
to September 2016. Additionally, we have the option to increase this credit facility to $750 million by either adding additional banks to the credit facility or obtaining the agreement of the existing banks in the credit facility to increase their commitments. The interest rate is based upon LIBOR plus a margin which is subject to change as our credit ratings change. Advances under the line of credit may be priced at the scheduled rates, or we may enter into bid rate loans with participating banks at rates below the scheduled rates. These bid rate loans have terms of 180 days or less and may not exceed the lesser of $250 million or the remaining amount available under the line of credit. The line of credit is subject to customary financial covenants and limitations. We are in compliance with all such financial covenants and limitations.
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 June 30, 2012, we had outstanding letters of credit totaling approximately $10.5 million, leaving approximately $489.5 million available under our unsecured line of credit.
In June 2012, we repaid the remaining principal amount on a 4.92% secured third-party note payable which was due to mature on July 1, 2012 for approximately $33.7 million. In August 2012, we repaid the remaining principal amount on a 5.07% secured third-party note payable which matured on August 1, 2012 for approximately $19.3 million.
At June 30, 2012 and 2011, the weighted average interest rate on our floating rate debt, which include amounts outstanding on our unsecured line of credit, was approximately 1.1%.
Our indebtedness had a weighted average maturity of 6.4 years at June 30, 2012. Scheduled repayments on outstanding debt including all contractual extensions which have been exercised, including scheduled principal amortizations, and the weighted average interest rate on maturing debt at June 30, 2012 were as follows:
|
| | | | | | |
(in millions) | Amount | | Weighted Average Interest Rate |
2012 | $ | 258.5 |
| | 5.3 | % |
2013 | 228.0 |
| | 5.4 |
|
2014 | 11.0 |
| | 6.0 |
|
2015 | 252.4 |
| | 5.1 |
|
2016 (1) | 2.6 |
| | — |
|
2017 and thereafter | 1,643.9 |
| | 4.6 |
|
Total | $ | 2,396.4 |
| | 4.8 | % |
(1) Includes only scheduled principal amortizations.
Subsequent to quarter end, we exercised the automatic one year extension option to extend the maturity of a $31.5 million secured third-party note payable made by one of our fully-consolidated joint ventures, in which we hold a 25% ownership, from August 2012 to August 2013.
9. Derivative Financial Instruments and Hedging Activities
Risk Management Objective of Using Derivatives. We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we may enter into derivative financial instruments to manage exposures arising from business activities resulting in differences in the amount, timing, and duration of our known or expected cash payments principally related to our borrowings.
Cash Flow Hedges of Interest Rate Risk. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps involve the receipt of variable rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium.
Designated Hedges. The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive income or loss and is subsequently reclassified into earnings in the period
the hedged forecasted transaction affects earnings. During the six months ended June 30, 2011, such derivatives were used to hedge the variable cash flows associated with existing variable rate debt. The ineffective portion of the change in fair value of the derivatives, if any, is recognized directly in earnings. No portion of designated hedges was ineffective during the three and six months ended June 30, 2011. We did not have any designated hedges during the six months ended June 30, 2012.
Non-designated Hedges. Derivatives are not entered into for speculative purposes and are used to manage our exposure to interest rate movements and other identified risks. Our non-designated hedges are either specifically non-designated by management or do not meet strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings in interest and other income.
As of June 30, 2012, we had the following outstanding interest rate derivatives which were not designated as hedges of interest rate risk:
|
| | | | | | | |
Interest Rate Derivative | | Number of Instruments | | Notional Amount |
Interest Rate Cap | | 1 |
| | $ | 175.0 | million |
Interest Rate Swap | | 1 |
| | $ | 500.0 | million |
The table below presents the fair value of our derivative financial instruments as well as their classification in the condensed consolidated balance sheets at June 30, 2012 and December 31, 2011 (in millions):
Fair Values of Derivative Instruments
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives |
| June 30, 2012 | | December 31, 2011 | | June 30, 2012 | | December 31, 2011 |
| Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | |
Interest Rate Swap | | | | | | | | | Other Liabilities | | $ | 5.9 |
| | Other Liabilities | | $ | 16.6 |
|
Interest Rate Cap | Other Assets | | $ | — |
| | Other Assets | | $ | 0.1 |
| | | | | | | | |
The tables below present the effect of our derivative financial instruments in the condensed consolidated statements of income (loss) and comprehensive income for the three and six months ended June 30, 2012 and 2011 (in millions):
Effect of Derivative Instruments
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended |
June 30, |
|
| Unrealized (Loss) Recognized in Other Comprehensive Income (“OCI”) on Derivative (Effective Portion) |
| Location of Loss Reclassified from Accumulated OCI into Income(Effective Portion) |
| Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion) |
| Location of Loss Recognized in Statements of Income (Loss) (Discontinuation, Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| Amount of Loss Recognized in Statements of Income (Loss) (Discontinuation, Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Derivatives in Cash Flow Hedging Relationships |
| 2012 |
| 2011 |
|
|
| 2012 |
| 2011 |
| |
| 2012 |
| 2011 |
Interest Rate Swaps (1) |
| $ | — |
|
| $ | (2.2 | ) |
| Interest expense |
| $ | — |
|
| $ | 4.0 |
|
| Loss on discontinuation of hedging relationship |
| $ | — |
|
| $ | 29.8 |
|
|
| | | | | | | | | | |
Derivatives not designated as hedging instruments |
| Location of Gain/(Loss) Recognized in Statements of Income (Loss) |
| Amount of (Loss) Recognized in Statements of Income (Loss) |
|
| 2012 |
| 2011 |
Interest Rate Cap |
| Other income/(loss) |
| $ | — |
|
| $ | — |
|
Interest Rate Swap |
| Other income/(loss) |
| $ | (0.1 | ) |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended |
June 30, |
| | Unrealized (Loss) Recognized in Other Comprehensive Income (“OCI”) on Derivative (Effective Portion) | | Location of Loss Reclassified from Accumulated OCI into Income(Effective Portion) | | Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion) | | Location of Loss Recognized in Statements of Income (Loss) (Ineffective Portion and Amount Excluded from Effectiveness Testing) | | Amount of Loss Recognized in Statements of Income (Loss) (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Derivatives in Cash Flow Hedging Relationships | | 2012 | | 2011 | | | | 2012 | | 2011 | | | | 2012 | | 2011 |
Interest Rate Swaps (1) | | $ | — |
| | $ | (2.7 | ) | | Interest expense | | $ | — |
| | $ | 9.8 |
| | Loss on discontinuation of hedging relationship | | $ | — |
| | $ | 29.8 |
|
|
| | | | | | | | | | |
Derivatives not designated as hedging instruments | | Location of Gain/(Loss) Recognized in Statements of Income (Loss) | | Amount of (Loss) Recognized in Statements of Income (Loss) |
| | 2012 | | 2011 |
Interest Rate Cap | | Other income/(loss) | | $ | (0.1 | ) | | $ | — |
|
Interest Rate Swap | | Other income/(loss) | | $ | (0.7 | ) | | $ | — |
|
| |
(1) | The results include the interest rate swap gain (loss) prior to discontinuation in May 2011. |
Credit-risk-related Contingent Features. 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 transacting 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, which we believe minimizes credit risk concentration.
Our agreements with each of our derivative counterparties contain provisions which provide the counterparty the right to declare a default on our derivative obligations if we are in default on any of our indebtedness, subject to certain thresholds. For all instances, these provisions include a default even if there is no acceleration of the indebtedness. Our agreements with each of our derivative counterparties also provide if we consolidate with, merge with or into, or transfer all or substantially all our assets to another entity and the creditworthiness of the resulting, surviving, or transferee entity is materially weaker than ours, the counterparty has the right to terminate the derivative obligations.
At June 30, 2012, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk (the “termination value”), related to these agreements was approximately $7.5 million. As of June 30, 2012, we had not posted any collateral related to these agreements. If we were in breach of any of these provisions at June 30, 2012, or terminated these agreements, we would have been required to settle our obligations at their aggregate termination value of approximately $7.5 million.
10. Share-based Compensation
Incentive Compensation. During the second quarter of 2011, our Board of Trust Managers adopted, and on May 11, 2011 our shareholders approved, the 2011 Share Incentive Plan of Camden Property Trust (the “2011 Share Plan”). Under the 2011 Share Plan, we may issue up to a total of approximately 9.1 million fungible units (the “Fungible Pool Limit”), which is comprised of approximately 5.8 million new fungible units plus approximately 3.3 million fungible units previously available for issuance under our 2002 share incentive plan based on a 3.45 to 1.0 fungible unit-to full value award conversion ratio. Fungible units represent the baseline for the number of shares available for issuance under the 2011 Share Plan. Different types of awards are counted differently against the Fungible Pool Limit, as follows:
| |
• | Each share issued or to be issued in connection with an award, other than an option, right or other award which does not deliver the full value at grant of the underlying shares, will be counted against the Fungible Pool Limit as 3.45 fungible pool units; |
| |
• | Options and other awards which do not deliver the full value at grant of the underlying shares and which expire more than five years from date of grant will be counted against the Fungible Pool Limit as one fungible pool unit; and |
| |
• | Options, rights and other awards which do not deliver the full value at date of grant and expire five years or less from the date of grant will be counted against the Fungible Pool Limit as 0.83 of a fungible pool unit. |
At June 30, 2012 approximately 7.9 million fungible units were available under the 2011 Share Plan, which results in approximately 2.3 million common shares which could be granted pursuant to full value awards based on the 3.45 to 1.0 fungible unit-to-full value award conversion ratio.
Awards which may be granted under the 2011 Share Plan include incentive share options, non-qualified share options (which may be granted separately or in connection with an option), share awards, dividends and dividend equivalents and other equity based awards. Persons eligible to receive awards under the 2011 Share Plan are trust managers, directors of our affiliates, executive and other officers, key employees and consultants, as determined by the Compensation Committee of our Board of Trust Managers. The 2011 Share Plan will expire on May 11, 2021.
Options. Approximately 0.3 million options were exercised during each of the six months ended June 30, 2012 and 2011. The options were exercised at prices ranging from $30.06 to $51.37 per option during the six months ended June 30, 2012, and at prices ranging from $30.06 to $48.02 per option during the six months ended June 30, 2011. The total intrinsic value of options exercised was approximately $7.0 million and $5.0 million, during the six months ended June 30, 2012 and 2011, respectively. As of June 30, 2012, there was approximately $0.8 million of total unrecognized compensation cost related to unvested options, which is expected to be amortized over the next two years. At June 30, 2012, outstanding options and exercisable options had a weighted average remaining life of approximately 4.7 years and 3.9 years, respectively.
The following table summarizes outstanding share options and exercisable options at June 30, 2012:
|
| | | | | | | | | | | | | |
| Outstanding Options (1) | | Exercisable Options (1) |
Range of Exercise Prices | Number | | Weighted Average Price | | Number | | Weighted Average Price |
$30.06-$31.48 | 334,036 |
| | $ | 30.09 |
| | 138,229 |
| | $ | 30.13 |
|
$41.16-$43.94 | 259,632 |
| | 42.72 |
| | 241,000 |
| | 42.63 |
|
$45.53-$73.32 | 381,893 |
| | 49.05 |
| | 308,784 |
| | 49.29 |
|
Total options | 975,561 |
| | $ | 40.87 |
| | 688,013 |
| | $ | 43.11 |
|
| |
(1) | The aggregate intrinsic value of outstanding and exercisable options at June 30, 2012 were $26.3 million and $17.0 million, respectively. The aggregate intrinsic values were calculated as the excess, if any, between our closing share price of $67.67 per share on June 30, 2012 and the strike price of the underlying award. |
Valuation Assumptions. Options generally have a vesting period of three to five years. We estimate the fair values of each option award on the date of grant using the Black-Scholes option pricing model. No options have been granted in 2012.
Share Awards and Vesting. Share awards generally have a vesting period of five years. The compensation cost for share awards is based on the market value of the shares on the date of grant and is amortized over the vesting period. To estimate forfeitures, we use actual forfeiture history. At June 30, 2012, the unamortized value of previously issued unvested share awards was approximately $40.9 million which is expected to be amortized over the next five years. The total fair value of shares vested during the six months ended June 30, 2012 and 2011 was approximately $13.4 million and $11.0 million, respectively.
Total compensation cost for option and share awards charged against income was approximately $3.6 million and $3.2 million for the three months ended June 30, 2012 and 2011, respectively, and approximately $6.7 million and $6.2 million for the six months ended June 30, 2012 and 2011, respectively. Total capitalized compensation cost for option and share awards was approximately $0.4 million and $0.3 million for the three months ended June 30, 2012 and 2011, respectively, and approximately $0.7 million and $0.6 million for the six months ended June 30, 2012 and 2011, respectively.
The following table summarizes activity under our share incentive plans for the six months ended June 30, 2012:
|
| | | | | | | | | | | | | |
| Options Outstanding | | Weighted Average Exercise / Grant Price | | Nonvested Share Awards Outstanding | | Weighted Average Exercise / Grant Price |
Total options and nonvested share awards outstanding at December 31, 2011 | 1,339,536 |
| | $ | 42.27 |
| | 818,754 |
| | $ | 46.88 |
|
Granted | — |
| | — |
| | 343,080 |
| | 63.46 |
|
Exercised/vested | (332,032 | ) | | 44.61 |
| | (274,121 | ) | | 48.71 |
|
Forfeited | (31,943 | ) | | 60.56 |
| | (7,867 | ) | | 50.16 |
|
Net activity | (363,975 | ) | | | | 61,092 |
| | |
Total options and nonvested share awards outstanding at June 30, 2012 | 975,561 |
| | $ | 40.87 |
| | 879,846 |
| | $ | 52.75 |
|
11. Net Change in Operating Accounts
The effect of changes in the operating accounts and other on cash flows from operating activities is as follows: |
| | | | | | | |
| Six Months Ended |
| June 30, |
(in thousands) | 2012 | | 2011 |
Change in assets: | | | |
Other assets, net | $ | (4,884 | ) | | $ | 5,047 |
|
Change in liabilities: | | | |
Accounts payable and accrued expenses | (10,120 | ) | | (9,530 | ) |
Accrued real estate taxes | 8,718 |
| | 5,086 |
|
Other liabilities | (9,477 | ) | | (4,591 | ) |
Other | 397 |
| | 209 |
|
Change in operating accounts and other | $ | (15,366 | ) | | $ | (3,779 | ) |
12. Commitments and Contingencies
Construction Contracts. As of June 30, 2012, we had approximately $137.4 million of additional expected costs to complete our construction projects currently under development. We expect to fund these amounts through a combination of available cash balances, cash flows generated from operations, draws on our unsecured credit facility, proceeds from property dispositions, and the use of debt and equity offerings under our automatic shelf registration statement.
Litigation. One of our wholly-owned subsidiaries previously acted as a general contractor for the construction of two apartment projects in Florida which were subsequently sold and converted to condominium units by unrelated third-parties. One condominium association of a project has asserted claims against our subsidiary alleging, in general, defective construction as a result of alleged negligence and a failure to comply with building codes; the other condominium association has asserted claims against our subsidiary alleging a failure to comply with building codes.
The two associations have filed suit against our subsidiary and other unrelated third parties in Florida claiming damages, in unspecified amounts, for the costs of repair arising out of the alleged defective construction as well as the recovery of incidental and consequential damages resulting from such alleged negligence. These lawsuits are in an early stage of litigation and no significant discovery has been conducted. While we have denied liability to the associations, it is not possible to determine the potential outcome nor is it possible to estimate a range of the amount of loss, if any, that would be associated with any potential adverse decision as these matters are in an early stage of litigation.
We are also subject to various legal proceedings and claims which arise in the ordinary course of business. Matters which arise out of allegations of bodily injury, property damage, and employment practices are generally covered by insurance. While the resolution of these legal proceedings and claims cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on our condensed consolidated financial statements.
Other Contingencies. In the ordinary course of our business, we issue letters of intent indicating a willingness to negotiate
for acquisitions, dispositions, or joint ventures and also enter into arrangements contemplating various transactions. Such letters of intent and other arrangements are non-binding as to either party unless and until a definitive contract is entered into by the parties. Even if definitive contracts relating to the purchase or sale of real property are entered into, these contracts generally provide the purchaser with time to evaluate the property and conduct due diligence, during which periods the purchaser will have the ability to terminate the contracts without penalty or forfeiture of any deposit or earnest money. There can be no assurance definitive contracts will be entered into with respect to any matter covered by letters of intent or we will consummate any transaction contemplated by any definitive contract. Furthermore, due diligence periods for real property are frequently extended as needed. An acquisition or sale of real property becomes probable at the time the due diligence period expires and the definitive contract has not been terminated. We are then at risk under a real property acquisition contract, but generally only to the extent of any earnest money deposits associated with the contract, and are obligated to sell under a real property sales contract.
Lease Commitments. At June 30, 2012, we had long-term leases covering certain land, office facilities, and equipment. Rental expense totaled approximately $0.6 million and $0.7 million for the three months ended June 30, 2012 and 2011, respectively, and approximately $1.3 million and $1.4 million for the six months ended June 30, 2012 and 2011, respectively. Minimum annual rental commitments for the remainder of 2012 are $1.3 million, and for the years ending December 31, 2013 through 2016 are approximately $2.5 million, $2.4 million, $1.5 million, and $0.4 million, respectively, and approximately $0.9 million in the aggregate thereafter.
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 in less than 100% of the community or land owned directly by the joint venture or partnership. Our decision whether to hold the entire interest in an apartment community or land ourselves, or to have an indirect interest in the community or land through a joint venture or partnership, is based on a variety of factors and considerations, including: (i) our projection, in some circumstances, that we will achieve higher returns on our invested capital or reduce our risk if a joint venture or partnership vehicle is used; (ii) our desire to diversify our portfolio of communities by market; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv) the economic and tax terms required by a seller of land or of a community, who may prefer or who may require less payment if the land or community is contributed to a joint venture or