UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-K

 

(Mark One)
ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
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)

 

 

Registrant’s telephone number, including area code:  (713) 354-2500

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ý    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  ý 

 

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  ý    No  o

 

Indicated 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o

 

Indicate by check mark whether the registrant is a shell company (as defined in the Rule 12b-2 of the Act).    Yes  o    No  ý

 

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $2,759,338,756 based on a June 30, 2005 share price of $53.75.

 

At March 6, 2006, the number of shares outstanding of registrant’s Common Stock was 52,330,707 (net of 8,584,218 treasury shares).

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Annual Report to Shareholders for the year ended December 31, 2005 are incorporated by reference in Parts I, II and IV.

 

Portions of the registrant’s Proxy Statement in connection with its Annual Meeting of Shareholders to be held May 2, 2006 are incorporated by reference in Part III.

 

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TABLE OF CONTENTS

 

PART I
Item 1.	Business
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information
PART III
Item 10.	Directors and Executive Officers of the Registrant
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.	Certain Relationships and Related Transactions
Item 14.	Principal Accounting Fees and Services
PART IV
Item 15.	Exhibits and Financial Statement Schedules
SIGNATURES

 

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PART I

 

Item 1.           Business

 

Introduction

 

Camden Property Trust is a real estate investment trust organized on May 25, 1993 and, with our subsidiaries, reports as a single business segment. We are one of the largest real estate investment trusts in the nation with operations related to the ownership, development, construction and management of multifamily apartment communities in thirteen states. Our use of the term “communities”, “multifamily communities”, “properties”, or “multifamily properties” in the following discussion refers to our multifamily apartment communities. As of December 31, 2005, we owned interests in, operated or were developing 200 multifamily properties containing 68,791 apartment homes located in thirteen states. We had 3,211 apartment homes under development at nine of our multifamily properties, including 464 apartment homes at one multifamily property owned through a joint venture. We had seven properties containing 2,956 apartment homes which were designated as held for sale. Additionally, we had several sites that we intend to develop into multifamily apartment communities.

 

At December 31, 2005, we had approximately 2,042 employees. Our headquarters are located at 3 Greenway Plaza, Suite 1300, Houston, Texas 77046 and our telephone number is (713) 354-2500.

 

Merger with Summit Properties Inc.

 

On February 28, 2005, Summit Properties Inc. (“Summit”) was merged with and into Camden Summit Inc., one of our wholly-owned subsidiaries (“Camden Summit”), pursuant to an Agreement and Plan of Merger dated as of October 4, 2004 (the “Merger Agreement”), as amended. Prior to the effective time of the merger, Summit was the sole general partner of Summit Properties Partnership, L.P. (the “Camden Summit Partnership”), and at the effective time, Camden Summit became the sole general partner of the Camden Summit Partnership and the name of such partnership was changed to Camden Summit Partnership, L.P. As of February 28, 2005, Summit owned or held an ownership interest in 48 operating communities comprised of 15,002 apartment homes with an additional 1,834 apartment homes under construction in five new communities.

 

Under the terms of the Merger Agreement, Summit stockholders had the opportunity to elect to receive cash or Camden shares for their Summit stock. Each stockholder’s election was subject to proration, depending on the elections of all Summit stockholders, so that the aggregate amount of cash issued in the merger to Summit’s stockholders equaled approximately $436.3 million. As a result of this proration, Summit stockholders electing Camden shares received approximately .6383 of a Camden share and $1.4177 in cash for each of their shares of Summit common stock. The final conversion ratio of the common shares was determined based on the average market price of our common shares over a five day trading period preceding the effective time of the merger. Fractional shares were paid in cash. Summit stockholders electing cash or who made no effective election, received $31.20 in cash for each of their Summit shares. In the merger, we issued approximately 11.8 million common shares to Summit stockholders.

 

In conjunction with the merger, the limited partners in the Camden Summit Partnership were offered, on a unit-by-unit basis, the opportunity to redeem their partnership units for $31.20 in cash, without interest, or to remain in the Camden Summit Partnership following the merger at a unit valuation equal to .6687 of a Camden common share. The limited partner elections resulted in the redemption of 0.7 million partnership units for cash, for an aggregate of $21.7 million, and the issuance of 1.8 million partnership units. The value of the common shares and partnership units issued was determined based on the average market price of our common shares for the five day period commencing two days prior to the announcement of the merger on October 4, 2005. Subsequent to the merger, 0.1 million partnership units have been redeemed for $5.7 million.

 

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Operating Strategy

 

We believe producing consistent earnings growth through our property development and acquisition strategies in favorable markets, 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 in our efforts to produce consistent 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 both development and acquisition opportunities in new markets that have healthy long-term fundamentals and strong growth projections. This capability, combined with what we believe is a conservative financial structure, allows us to concentrate our growth efforts towards selective development alternatives and acquisition opportunities. These abilities are integral to our strategy of having a geographically and physically diverse portfolio of assets, which will meet the needs of our residents. Through our merger with Summit, and development and disposition activities that occurred in 2005, we have increased our market presence in key markets, such as Southern California, Washington D.C. Metro, Atlanta and Southeast Florida, decreased our relative concentration in Houston, Dallas and Las Vegas, and expanded our development pipeline. We believe that the physical improvements we have made at our acquired properties, such as new or enhanced landscaping design, new or upgraded amenities and redesigned building structures, coupled with a strong focus on property management, branding and marketing, have resulted in attractive yields on acquired properties.

 

In connection with our merger with Summit, we significantly expanded our development pipeline, and we expect that selective development of new apartment properties will continue to be important to the growth of our portfolio for the next several years. We use experienced on site construction superintendents, operating under the supervision of project managers and senior management, to control the construction process. All development decisions are made from our corporate office. Risks inherent to developing real estate include zoning changes and environmental matters. There is also the risk that certain assumptions concerning economic conditions may change during the development process. See the further discussion of risks associated with development and construction in our “Risk Factors” section. We believe we understand and effectively manage the risks associated with development and construction, and these risks are justified by higher potential yields.

 

We continue to operate in markets where we have a concentration advantage due to economies of scale. We feel that 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, in order to generate consistent earnings growth, we intend to selectively dispose of properties and redeploy capital if we determine a property cannot meet long term earnings growth expectations. We believe that recycling capital is an important aspect of maintaining the overall quality of our portfolio. As a result of the transactions completed in 2005, we have a portfolio of newer, higher-quality communities in 22 markets, with no single market contributing more than 10% of our net operating income. For the year ended December 31, 2005, Washington, D.C. Metro, Dallas and Tampa contributed 9.9%, 8.2% and 8.2%, respectively, to our net operating income.

 

Sophisticated Property Management. We believe the depth of our organization enables us to deliver quality services, thereby promoting resident satisfaction and improving resident retention, which should reduce 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 their residents. We attempt to motivate our on site employees through incentive compensation arrangements based upon the net operating income produced at their property, rental rate increases and the level of lease renewals achieved. Property net operating income represents total property revenues less total property expenses.

 

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. During 2005, we completed the roll out of our web based property management and revenue management systems. These two systems should improve onsite efficiency and allow us to take full advantage of the economic recovery that appears to be underway by achieving market driven rental rates. Lease terms are generally staggered based on vacancy exposure by apartment type so that lease expirations are better

 

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matched to each property’s seasonal rental patterns. We generally offer leases ranging from six to thirteen months, with individual property marketing plans structured to respond to local market conditions. In addition, we conduct ongoing customer service surveys to ensure we respond timely to residents’ changing needs and residents retain a high level of satisfaction.

 

Branding. We have implemented our strategic brand initiative, and each of our communities carries the Camden flagship name. Our brand promise of “Living Excellence” reinforces our reputation as an organization which promises excellence everywhere our customers look. This initiative was undertaken with the goal of reinforcing our reputation as a provider of high quality apartment home living. We continue to leverage our brand to increase market awareness and define who and what we are to our current and prospective residents.

 

Environmental Matters. Under various federal, state and local laws, ordinances and regulations, we are liable for the costs of removal or remediation of certain hazardous or toxic substances on or in our properties. These laws often impose liability without regard to whether we knew of, or were responsible for, the presence of the hazardous or toxic substances. All of our properties have been subjected to Phase I site assessments or similar environmental audits to determine the likelihood of contamination from either on- or off-site sources. These audits have been carried out in accordance with accepted industry practices. We have also conducted limited subsurface investigations and tested for radon and lead-based paint where such procedures have been recommended by our consultants. We cannot assure you that existing environmental studies reveal all environmental liabilities or that any prior owner did not create any material environmental condition not known to us. The costs of investigation, remediation or removal of hazardous substances may be substantial. If hazardous or toxic substances are present on a property, or if we fail to properly remediate such substances, our ability to sell or rent such property or to borrow funds using such property as collateral may be adversely affected.

 

Insurance. We maintain comprehensive liability and property insurance on our properties, which we believe is of the type and amount customarily obtained on real property assets. We intend to obtain similar coverage for properties we acquire in the future. However, there are certain types of losses, generally of a catastrophic nature, such as losses from floods, hurricanes or earthquakes that may be subject to limitations in certain areas. We exercise our discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining 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 cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it infeasible to use insurance proceeds to fully replace or restore a property after it has been damaged or destroyed.

 

Markets and Competition

 

Our portfolio consists of middle- to upper-market apartment properties. We target acquisitions and developments in selected markets. Since our initial public offering in 1993, we have diversified into markets in the Southwest, Southeast, Midwest, Mid-Atlantic and Western regions of the United States. By combining acquisition, renovation and development capabilities, we believe we can better respond to changing conditions in each market, reduce market risk and take advantage of opportunities as they arise.

 

There are numerous housing alternatives that compete with our properties in attracting residents. Our properties compete directly with other multifamily properties as well as condominiums and single family homes that are available for rent or purchase in the markets in which our properties are located. This competitive environment could have a material 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. Resident leases at our properties are priced competitively based on market conditions, supply and demand characteristics, and amenities provided to our residents.

 

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Disclosure Regarding Forward-Looking Statements

 

We have made statements in this report which are “forward-looking” in that they do not discuss historical fact, but instead note expectations, projections, intentions or other items relating to the future. These forward-looking statements include those made in the documents incorporated by reference in this report.

 

Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results or performance to differ materially from those included in the forward-looking statements. Many of those factors are noted in conjunction with the forward-looking statements in the text. Other important factors that could cause actual results to differ include:

 

•                  the results of our efforts to implement our property development and acquisition strategies;

 

•                  the effects of economic conditions, including rising interest rates;

 

•                  our ability to generate sufficient cash flows;

 

•                  the failure to qualify as a real estate investment trust;

 

•                  the costs of our capital and debt;

 

•                  changes in our capital requirements;

 

•                  the actions of our competitors and our ability to respond to those actions;

 

•                  the actions of borrowers under our mezzanine loans;

 

•                  changes in governmental regulations, tax rates and similar matters; and

 

•                  environmental uncertainties and disasters.

 

These forward-looking statements represent our estimates and assumptions as of the date of this report. We assume no obligation to update or revise any forward-looking statement.

 

Available Information

 

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other reports required by Sections 13(a) and (15d) of the Securities Exchange Act of 1934, as amended, are electronically filed with the SEC. You may read and copy any materials we file with the United States Securities and Exchange Commission (“SEC”) at the SEC’s Public Reference Room at MS0102, 100 F Street NE, Washington, DC 20549-2521. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

Company Website

 

To view our current and periodic reports free of charge, please go to our website at www.camdenliving.com. We make these postings as soon as reasonably practicable after our filings with the SEC. Our website contains copies of 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 shareholder who requests it by contacting us at Camden Property Trust, 3 Greenway Plaza, Suite 1300, Houston, Texas 77046, attention: Investor Relations.

 

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 that additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations.

 

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Rising interest rates would increase our costs and could affect the market price of our common shares.

 

We have incurred and expect to continue to incur debt in the future. Some of this debt has variable or floating interest rates. Accordingly, if interest rates increase, our interest costs will also increase. In addition, an increase in market interest rates may lead purchasers of our common shares to demand a higher annual yield, which could adversely affect the market price of our outstanding common shares.

 

Failure to generate sufficient cash flows could limit our ability to make required payments for debt service and pay distributions to shareholders and could adversely affect our ability to maintain our status as a REIT.

 

The following factors, among others, may adversely affect the cash flows generated by our properties:

 

•             the national and local economic climates;

 

•             local real estate market conditions, such as an oversupply of apartment homes;

 

•             the perceptions by prospective residents of the safety, convenience and attractiveness of our properties and the neighborhoods in which they are located;

 

•             the need to periodically repair, renovate and relet space; and

 

•             our ability to pay for adequate maintenance and insurance and increased operating costs, including real estate taxes.

 

Some significant expenditures associated with each property, such as mortgage payments, if any, real estate taxes and maintenance costs, are generally not reduced when cash flows from operations from the property decrease.

 

Unfavorable changes in market and economic conditions could hurt occupancy or rental rates.

 

The market and economic conditions may significantly affect apartment home occupancy or rental rates. Occupancy and rental rates in the markets in which we operate, in turn, may significantly affect our profitability and our ability to satisfy our financial obligations and make distributions to security holders. The risks that may affect conditions in these markets include the following:

 

•             the economic climate, which may be adversely impacted by plant closings, industry slowdowns and other factors;

 

•             local conditions, such as oversupply of apartments or a reduction in demand for apartments in an area;

 

•             a future economic downturn that simultaneously affects more than one of our geographical markets;

 

•             the inability or unwillingness of residents to pay their current rent or rent increases;

 

•             the potential effect of rent control or rent stabilization laws, or other laws regulating housing, which could prevent us from raising rents; and

 

•             competition from other available apartments and changes in market rental rates.

 

Difficulties of selling real estate could limit our flexibility.

 

Real estate investments can be hard to sell, especially if market conditions are poor. This may limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. In addition, the Internal

 

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Revenue Code limits our ability to sell properties that we have held for fewer than four years, which may affect our ability to sell properties without adversely affecting our return.

 

Development and construction risks could impact our profitability.

 

We intend to continue to develop and construct multifamily apartment communities for our own account. Our development and construction activities may be exposed to a number of risks that may increase our construction costs. This factor could adversely impact our profitability and our ability to satisfy our financial obligations and make distributions to security holders. These risks include the following:

 

•             we may be unable to obtain, or may face delays in obtaining, necessary zoning, land-use, building, occupancy and other required permits and authorizations, which could result in increased costs;

 

•             we may incur construction costs for a property that exceed our original estimates due to increased materials, labor or other costs, or due to errors and omissions that occur in the design or construction process, and we may not be able to increase rents to compensate for the increases in these costs;

 

•             occupancy rates and rents at a newly completed community may fluctuate depending on a number of factors, including market and economic conditions, and may result in the community not being profitable;

 

•             we may not be able to obtain financing with favorable terms for the development of a community, which may make us unable to proceed with its development;

 

•             we may not be able to complete construction and lease-up of a community on schedule, which could result in increased costs;

 

•             we may abandon development opportunities that we have already begun to explore and, as a result, may fail to recover expenses already incurred in exploring these development opportunities; and

 

•             we rely on subcontractors to perform most of our construction activities and poor performance or defaults by a major subcontractor, or our inability to obtain adequate performance bonds for a major subcontractor, may lead to project delays and unanticipated additional costs.

 

We also develop and construct properties for 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 that the time and costs associated with our performance may be greater than is anticipated. As a result, our profitability on guaranteed maximum price contracts is dependent on our ability to predict these factors accurately. 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 be up to ten years long, during which we may be required to repair, replace or rebuild a project in the event of a material defect in the structure of the project. If we do not accurately predict the time and costs of guaranteed maximum price contracts for particular projects, or if the costs of the warranty work exceed the amounts reserved for these matters, we could suffer losses on those projects and our profitability could be less than anticipated.

 

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Failure to implement our property acquisition strategy could impact our profitability.

 

In the normal course of our business, we continually evaluate a number of potential acquisitions and may acquire additional operating properties. Our inability to successfully implement our acquisition strategy could result in our market penetration decreasing, which could adversely affect our profitability and our ability to satisfy our financial obligations and make distributions to shareholders. Our acquisition activities and their success may be exposed to a number of risks, including the following:

 

•             we may not be able to identify properties to acquire or effect the acquisition;

 

•             we may not be able to successfully integrate acquired properties and operations;

 

•             our estimate of the costs of repositioning or redeveloping the acquired property may prove inaccurate; and

 

•             the acquired property may fail to perform as we expected in analyzing our investment.

 

Insufficient cash flow could affect our debt financing and create refinancing risk.

 

As of December 31, 2005, we had outstanding debt of approximately $2.6 billion. This indebtedness could have important consequences. For example:

 

•               if a property is mortgaged to secure payment of indebtedness, and if we are unable to meet our mortgage payments, we could sustain a loss as a result of foreclosure on the mortgage;

 

•               if cash flow from operations is less than the required principal and interest payments on our existing indebtedness, which in all cases will not have been fully amortized at maturity, we might not be able to refinance the debt or the terms of such refinancing might not be as favorable as the terms of our existing indebtedness;

 

•             our vulnerability to general adverse economic and industry conditions could be increased; and

 

•             our flexibility in planning for, or reacting to, changes in our business and industry could be limited.

 

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. We cannot accurately predict the timing and amount of our capital requirements. If our capital requirements vary materially from our plans, we may require additional financing sooner 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.

 

Losses from catastrophes may exceed our insurance coverage.

 

We carry comprehensive liability and property insurance on our properties, which we believe is of the type and amount customarily obtained on real property assets. We intend to obtain similar coverage for properties we acquire in the future. However, some losses, generally of a catastrophic nature, such as losses from floods, hurricanes or earthquakes, may be subject to limitations. We exercise our discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining 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. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed.

 

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Potential liability for environmental contamination could result in substantial costs.

 

Under various federal, state and local laws, ordinances and regulations, we are liable for the costs to investigate and remove or remediate hazardous or toxic substances on or in our properties, often regardless of whether we knew of or were responsible for the presence of these substances. These costs may be substantial. Also, if hazardous or toxic substances are present on a property, or if we fail to properly remediate such substances, our ability to sell or rent the property or to borrow using that property as collateral may be adversely affected.

 

Additionally, we occasionally develop, manage, lease and/or operate various properties for third parties. Consequently, we may be considered to have been or to be an operator of these properties and, therefore, potentially liable for removal or remediation costs or other potential costs that could relate to hazardous or toxic substances.

 

Over the past several years, there have been an increasing number of lawsuits against owners and managers of multifamily properties alleging personal injury and property damage caused by the presence of mold in residential real estate. Some of these lawsuits have resulted in substantial monetary judgments or settlements. Insurance carriers have reacted to these liability awards by excluding mold related claims from standard policies and pricing mold endorsements at prohibitively high rates.

 

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, or ADA, the Fair Housing Amendments Act of 1988, or FHAA, and other federal, state and local laws generally require that 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 that 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. Although we believe our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with the ADA, FHAA and other federal, state and local laws.

 

Failure to qualify as a REIT would cause us to be taxed as a corporation, which would significantly lower funds available for distribution to shareholders.

 

If we fail to qualify as a REIT for federal income tax purposes, we will be taxed as a corporation. 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 with respect to qualification as a REIT or the federal tax consequences of such qualification.

 

For any taxable year that we fail to qualify as a REIT, we would be subject to federal income tax on our taxable income at corporate rates, plus any applicable alternative minimum tax. In addition, unless entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would reduce our net earnings available for investment or distribution to shareholders because of the additional tax liability for the year or years involved. In addition, distributions would no longer qualify for the dividends paid deduction nor be required to be made in order to preserve REIT status. We might be required to borrow funds or to liquidate some of our investments to pay any applicable tax resulting from our failure to qualify as a REIT.

 

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, 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 that we will fail to qualify as a

 

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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 that may be attractive to you, or limit your opportunity to receive a premium for your shares that might otherwise exist if a third party were attempting to effect a change in control transaction.

 

We make mezzanine loans that involve risk of loss.

 

We have made and may continue to make mezzanine loans to various third parties, which are typically secured by multifamily residential real estate and are subordinate to senior mortgages. While these loans are outstanding, we are subject to risks of borrower defaults, bankruptcies, fraud and other losses. In the event of any default under mezzanine loans held by us, we will bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the loan collateral and the principal amount of the loan. In addition, mezzanine loans involve a higher degree of risk that we may not recover some or all of our investment than senior mortgages due to a variety of factors, including the loan becoming unsecured as a result of foreclosure by the senior lender.

 

Increased competition could limit our ability to lease apartments or increase or maintain rents.

 

Our apartment communities compete with numerous housing alternatives in attracting residents, including other rental apartments, condominiums and single-family homes that are available for rent or sale. Competitive residential housing in a particular area could adversely affect our ability to lease apartments and increase or maintain rents.

 

Attractive investment opportunities may not be available, which could adversely affect our profitability.

 

We expect that other real estate investors will compete with us to acquire existing properties and to develop new properties. These competitors, including insurance companies, pension and investment funds, partnerships, investment companies and other apartment REITs, may have greater resources than we do. This competition could increase prices for properties of the type we would likely pursue. As a result, we may not be able, or have the opportunity, to make suitable investments on favorable terms in the future. This could adversely affect our profitability.

 

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.

 

We are generally not able to pass through to our residents under existing leases real estate taxes, income taxes or other taxes. Consequently, any such tax increases may adversely affect our financial condition and limit our ability to satisfy our financial obligations and make distributions to security holders. Changes that increase our potential liability under environmental laws or our expenditures on environmental compliance could have the same impact.

 

As a large publicly traded owner of multifamily properties, we may become involved in legal proceedings, including consumer, employment, tort or commercial litigation, that if decided adversely to or settled by us could result in liability that is material to our financial condition or results of operations.

 

Item 1B.  Unresolved Staff Comments

 

Not applicable.

 

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Item 2.           Properties

 

The Properties

 

Our properties typically consist of mid-rise buildings and 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.

 

Operating Properties

 

The 191 operating properties, which we owned interests in and operated at December 31, 2005, averaged 899 square feet of living area per apartment home. For the year ended December 31, 2005, no single operating property accounted for greater than 2.0% of our total revenues. The operating properties had a weighted average occupancy rate of 95.0% and 94.0% for 2005 and 2004, respectively. Resident lease terms generally range from six to thirteen months and usually require security deposits. One hundred and sixty-four of our operating properties have over 200 apartment homes, with the largest having 894 apartment homes. Our operating properties have an average age of 10 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
2000-2005		41
1995-1999		52
1990-1994		21
1985-1989		41
1980-1984		25
Prior to 1980		11

 

Property Table

 

The following table sets forth information with respect to our operating properties at December 31, 2005.

 

10

 

OPERATING PROPERTIES

 

										December 2005 Average Monthly Rental Rates
Property and Location		Number of Apartments		Year Placed In Service		Average Apartment Size (Sq. Ft.)		2005 Average Occupancy (1)		Per Apartment			Per Sq. Ft.
ARIZONA
Phoenix
Camden Copper Square		332		2000		786		96.7	%	$	737		$	0.94
Camden Fountain Palms (7)		192		1986/1996		1,050		96.1		739			0.70
Camden Legacy		428		1996		1,067		96.3		899			0.84
Camden Pecos Ranch (7)		272		2001		924		95.9		768			0.83
Camden San Paloma		324		1993/1994		1,042		98.3		951			0.91
Camden Sierra (7)		288		1997		925		96.0		723			0.78
Camden Towne Center (7)		240		1998		871		95.3		746			0.86
Camden Vista Valley		357		1986		923		95.0		658			0.71
Tucson
Camden Pass		456		1984		559		94.1		461			0.83
Camden View		365		1974		1,026		95.9		694			0.68
CALIFORNIA
Los Angeles/Orange County
Camden Crown Valley		380		2001		1,009		95.3		1,535			1.52
Camden Harbor View		538		2004		976		91.4		2,108			2.16
Camden Martinique		714		1986		795		95.4		1,256			1.58
Camden Parkside (7)		421		1972		835		95.5		1,236			1.48
Camden Sea Palms		138		1990		891		96.1		1,392			1.56
San Diego/Inland Empire
Camden Sierra at Otay Ranch		422		2003		962		91.5		1,353			1.41
Camden Tuscany		160		2003		891		96.9		1,897			2.13
Camden Vineyards		264		2002		1,053		93.5		1,291			1.23
COLORADO
Denver
Camden Arbors		358		1986		810		92.4		695			0.86
Camden Caley		218		2000		925		96.9		784			0.85
Camden Centennial		276		1985		744		95.2		667			0.90
Camden Denver West (4)		320		1997		1,015		92.9		974			0.96
Camden Highlands Ridge		342		1996		1,141		93.0		1,015			0.89
Camden Interlocken		340		1999		1,022		93.5		1,035			1.01
Camden Lakeway		451		1997		919		92.0		891			0.97
Camden Pinnacle		224		1985		748		90.4		683			0.91
DC METRO
Summit Ashburn Farm		162		2000		1,061		95.4		1,257			1.19
Summit Fair Lakes		530		1999		996		96.1		1,408			1.41
Summit Fallsgrove (3)		268		2004		996		97.3		1,446			1.45
Summit Grand Parc		105		2002		904		95.9		1,953			2.16
Summit Lansdowne		690		2002		1,006		95.1		1,254			1.25
Summit Largo		219		2000		1,042		97.4		1,484			1.42
Summit Roosevelt		198		2003		856		98.2		1,941			2.27
Summit Russett		426		2000		1,025		93.2		1,266			1.23
Summit Silo Creek		284		2004		971		95.1		1,212			1.25
FLORIDA
Southeast Florida
Summit Aventura		379		1995		1,106		96.4		1,343			1.21
Summit Brickell		405		2003		937		96.0		1,339			1.43
Summit Doral		260		1999		1,172		97.8		1,336			1.14
Summit Doral Villas		232		2000		1,253		97.6		1,407			1.12
Summit Las Olas (3)		420		2004		1,043		97.6		1,557			1.49
Summit Plantation		502		1997		1,152		97.8		1,221			1.06
Summit Portofino Place		322		1995		1,307		96.7		1,208			0.92
Orlando
Camden Club		436		1986		1,077		97.6		874			0.81
Camden Lago Vista (3)		366		2005		954		96.8		957			1.00
Camden Landings		220		1983		748		98.5		687			0.92

 

11

 

OPERATING PROPERTIES (CONTINUED)

 

										December 2005 Average Monthly Rental Rates
Property and Location		Number of Apartments		Year Placed In Service		Average Apartment Size (Sq. Ft.)		2005 Average Occupancy (1)		Per Apartment			Per Sq. Ft.
Camden Lee Vista		492		2000		937		97.7	%	$	847		$	0.90
Camden Renaissance		578		1996/1998		899		97.6		860			0.96
Camden Reserve		526		1990/1991		824		97.7		760			0.92
Camden World Gateway (9)		408		2000		979		94.8		972			0.99
Summit Hunter’s Creek		270		2000		1,082		98.7		918			0.85
Tampa/St. Petersburg
Camden Bay		760		1997/2001		943		94.4		858			0.91
Camden Bay Pointe		368		1984		771		96.9		703			0.91
Camden Bayside		832		1987/1989		748		98.3		729			0.98
Camden Citrus Park		247		1985		704		96.7		664			0.94
Camden Isles		484		1983/1985		722		96.9		662			0.92
Camden Lakes		688		1982/1983		728		96.0		683			0.94
Camden Lakeside		228		1986		728		97.8		706			0.97
Camden Live Oaks		770		1990		1,093		95.5		751			0.69
Camden Preserve		276		1996		942		98.2		967			1.03
Camden Providence Lakes		260		1996		1,024		97.1		851			0.83
Camden Westshore		278		1986		728		97.1		749			1.03
Camden Woods		444		1986		1,223		95.6		840			0.69
GEORGIA
Atlanta
Summit Brookwood		359		2002		906		93.6		969			1.07
Summit Club at Dunwoody		324		1997		1,007		94.9		881			0.88
Summit Deer Creek		292		2000		1,187		93.8		891			0.75
Summit Midtown		296		2001		953		92.2		1,015			1.07
Summit on the River		352		1997		1,103		94.1		818			0.74
Summit Peachtree City		399		2001		1,026		93.7		789			0.77
Summit Shiloh		232		1999/2002		1,151		93.9		805			0.70
Summit St. Clair		336		1997		969		92.9		899			0.93
Summit Stockbridge		304		2003		1,009		94.4		733			0.73
Summit Sweetwater		308		2000		1,151		93.8		774			0.67
KENTUCKY
Louisville
Camden Brookside		224		1987		732		92.9		603			0.82
Camden Downs		254		1975		682		94.5		529			0.78
Camden Meadows		400		1987/1990		746		93.1		604			0.81
Camden Oxmoor		432		2000		903		95.4		731			0.81
Camden Prospect Park		138		1990		916		95.6		697			0.76
MISSOURI
Kansas City
Camden Passage		596		1989/1997		832		94.9		662			0.80
St. Louis
Camden Cedar Lakes		420		1986		852		95.6		623			0.73
Camden Cove West		276		1990		828		92.5		849			1.03
Camden Cross Creek		591		1973/1980		947		94.0		715			0.76
Camden Taravue		304		1975		676		92.8		549			0.81
Camden Trace		372		1972		1,158		95.9		761			0.66
Camden Westchase		160		1986