CPT

Business Context and Reporting Period

Company: Camden Property Trust (REIT)
Reporting Period: Quarter and nine months ended September 30, 2003
Business Overview: Camden owns, develops, and manages multifamily apartment communities. As of September 30, 2003, the portfolio included 145 properties with 51,882 apartment homes across nine states. The company operates in 16 markets, with Houston, Las Vegas, and Dallas contributing the highest net operating income. Approximately 24% of units are held in an operating partnership.

Key Financial Metrics

Debt Structure: Total indebtedness includes $1,248.9 million in unsecured notes and $233.0 million in secured mortgage notes. Floating rate debt totaled $244.8 million with a weighted average interest rate of 1.9%. The company maintains a $500 million unsecured line of credit with $321.6 million available.

Material Changes vs. Prior Period

• Net Income Decline: Net income for the nine months ended September 30, 2003, decreased 44.7% to $20.2 million from $36.3 million in the prior year period. Income from continuing operations dropped 40.8% to $20.2 million.
• Revenue Growth: Total revenues increased slightly by 0.3% to $308.5 million. Property revenues rose 0.9%, driven by new developments and acquisitions, though same-property revenues declined 2.0% due to increased leasing concessions.
• Expense Increases: Total property expenses increased 8.8% to $122.4 million. Same-property expenses rose 4.6%, attributed to higher real estate taxes, insurance premiums, and maintenance costs. Interest expense increased 11.9% due to higher average debt balances.
• Portfolio Changes: The weighted average number of operating apartment homes increased 2.2% to 46,237. The company acquired three properties (936 homes) and disposed of two properties (786 homes).
• Cash Flow: Net cash provided by operating activities decreased 20.7% to $106.0 million, primarily due to higher expenses and timing differences in accounts payable compared to 2002.

Outlook, Risks, and Management Commentary

Development Pipeline: The company has one property under development (Camden Harbor View, 538 homes) with an estimated cost of $137.5 million, of which $133.6 million was incurred by period end. Three recently completed properties (946 homes) are in lease-up, with stabilization expected between Q4 2003 and Q2 2004.

Liquidity Strategy: Management intends to maintain a conservative capital structure, utilizing a mix of debt and equity. Short-term liquidity needs are met through operating cash flows and the unsecured line of credit. Long-term needs will be addressed via equity capital, senior unsecured debt, and property dispositions.

Risks and Contingencies:

• Market Risks: Exposure to economic conditions, rising interest rates, and competitive actions.
• Construction Risks: Cost overruns on fixed-fee third-party construction projects totaled $1.9 million in the first nine months of 2003.
• Legal: No material legal proceedings reported; standard contingencies for ordinary business claims exist.

Dividends: A quarterly distribution of $0.635 per share was declared for Q3 2003, equating to an annualized rate of $2.54 per share.

Investor Verification Checklist

• Concession Impact: Verify the sustainability of rental rates given the $37 per unit/month increase in concessions for same-store properties in Q3 2003.
• Development Costs: Monitor the completion and stabilization of the $137.5 million Long Beach development project and the three lease-up properties.
• Debt Maturity: Review the debt maturity schedule, noting $234.3 million due in 2004 and $210.4 million due in 2006.
• FFO vs. Net Income: Analyze the divergence between Net Income ($20.2M) and Funds from Operations ($96.8M) to understand the impact of depreciation and non-cash items on reported earnings.
• Third-Party Construction: Assess the risk of further cost overruns in the third-party construction division, which incurred $1.9 million in losses YTD.